Grand Committee
(7 months, 2 weeks ago)
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Data Protection and Digital Information Bill
Wednesday 27th March 2024
(7 months, 2 weeks ago)
Grand CommitteeRead Full debate Data Protection and Digital Information Bill 2022-23 View all Data Protection and Digital Information Bill 2022-23 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 30-III Third marshalled list for Grand Committee - (25 Mar 2024)
Lord Clement-Jones
Member’s explanatory statement
This amendment, along with others in the name of Lord Clement-Jones, would retain the ability of the Secretary of State to introduce new safeguards but would prevent the removal or variation of safeguards under the new UK GDPR Article 22D and the new section 50D of the 2018 Act.
Lord Clement-Jones (LD)
My Lords, once more into the trenches we go before Easter. In moving Amendment 53, I will also speak to Amendments 54, 55, 57, 69, 70, 71 and 72 and the Clause 14 stand part notice.
The Bill contains a number of wide delegated powers, giving the Secretary of State the power to amend the UK GDPR via statutory instrument. The Government have said that the UK GDPR’s key elements remain sound and that they want to continue to offer a high level of protection for the public’s data, but that is no guarantee against significant reforms being brought in through a process that eludes full parliamentary scrutiny through primary legislation. Proposed changes to the UK GDPR should be contained in the Bill, where they can be debated and scrutinised properly via the primary legislation process. As it stands, key provisions of the UK GDPR can subsequently be amended via statutory instrument, which, in this case, is an inappropriate legislative process that affords much less scrutiny and debate, if debates are held at all.
The UK GDPR treats a solely automated decision as one without “meaningful human involvement”. The public are protected from being subject to solely automated decision-making where the decision has a legal or “similarly significant effect”. Clause 14(1) inserts new Article 22D(1) into the UK GDPR, which allows the Secretary of State to make regulations that deem a decision to have involved “meaningful human involvement”, even if there was no active review by a human decision-maker. New Article 22D(2) similarly allows the Secretary of State to make regulations to determine whether a decision made had a “similarly significant effect” to a legal effect. For example, in summer 2021 there was the A-level algorithm grading scandal. If something like that were to reoccur, under this new power a Minister could lay regulations stating that the decision to use an algorithm in grading A-levels was not a decision with a “similarly significant effect”.
New Article 22D(4) also allows the Secretary of State to add or remove, via regulations, any of the listed safeguards for automated decision-making. If the Government wish to amend or remove safeguards on automated decision-making, that should also be specified in the Bill and not left to delegated legislation. Amendments 53 to 55 and 69 to 72 would limit the Secretary of State’s power, so that they may add safeguards but cannot vary or remove those in the new Article 22D, as they stand, when the legislation comes into force.
If the clause is to be retained, we support Amendment 59A in the name of the noble Lord, Lord Holmes, which requires the Information Commissioner’s Office to develop guidance on the interpretation of the safeguards in new Article 22C and on important terms such as “similarly significant effect” and “meaningful human involvement”. It is within the Information Commissioner’s Office’s duties to issue guidance and to harmonise the interpretation of the law. As the dedicated regulator, the ICO is best placed and equipped to publish guidance and ensure consistency of application.
As a way to increase protections and incorporate more participation from those affected, Amendment 59A would add a new paragraph (7) to new Article 22D, which specifies that the Secretary of State needs to consult with the Information Commissioner’s Office if developing regulations. It also includes an obligation for the Secretary of State to consult with data subjects or their representatives, such as trade union or civil society organisations, at least every two years from the commencement of the Bill.
Our preference is for Clause 14 not to stand part of the Bill. The deployment of automated decision-making under Clause 14 risks automating harm, including discrimination, without adequate safeguards. Clause 14 creates a new starting point for all ADM using personal, but not special category, data. It is allowed, including for profiling, provided that certain safeguards are in place. The Minister said those safeguards are “appropriate” and “robust” and provide “certainty”, but I preferred what the noble Lord, Lord Bassam, said about the clause:
“We need more safeguards. We have moved from one clear position to another, which can be described as watering down or shifting the goalposts”.—[Official Report, 25/3/24; col. GC 150.]
That is very much my feeling about the clause as well.
I refer back to the impact assessment, which we discussed at some point during our discussions about Clause 9. It is very interesting that, in table 15 of the impact assessment, the savings on compliance costs are something like £7.3 million as regards AI and machine learning, which does not seem a very big number compared with the total savings on compliance costs, which the Government have put rather optimistically at £295 million.
In passing, I should say that, when I look at the savings regarding subject access requests, I see that the figure is £153 million, which is half of those so-called savings on compliance costs. I do not square that at all with what the Minister says about the total savings on compliance costs for subject access requests being 1%. I do not know quite where those figures come from, but it is a far more significant percentage: it is 50% of what the Government believe that the savings on compliance costs will be. I know that it is not part of this group, but I would be very grateful if the Minister could write to clarify that issue in due course.
Although the Minister has called these adequate, we believe that they are inadequate for three reasons. First, they shift the burden to the individual. Secondly, there is no obligation to provide any safeguards before the decision is made. Neither the Bill nor any of the material associated with it indicates what the content of this information is expected to be, nor the timescales in which that information is to be given. There is nothing to say when representations or contest may be heard, when human intervention may be sought or the level of that intervention. Thirdly, the Secretary of State has delegated powers to vary the safeguards by regulations.
Article 22 is currently one of the strongest prohibitions in the GDPR. As we know, the current starting point is that using solely automated decision-making is prohibited unless certain exemptions apply. The exemptions are limited. Now, as a result of the Government’s changes, you can use solely automated decision-making in an employment context in the UK, which you cannot do in the EU. That is a clear watering down of the restriction. The Minister keeps returning to the safeguards, but I have referred to those. We know that they are not being applied in practice even now and that hiring and firing is taking place without any kind of human review.
There is therefore an entirely inadequate basis on which we can be satisfied that the Bill will safeguard individuals from harmful automated decision-making before it is too late. In fact, the effect of the Bill will be to do the opposite: to permit unfair and unsafe ADM to occur, including discriminatory profiling ADM, which causes harm to individuals. It then places the burden on the individual to complain, without providing for any adequate safeguards to guarantee their ability to do so before the harm is already incurred. While I beg to move Amendment 53, our preference would be that Clause 14 is deleted from the Bill entirely.
Baroness Kidron (CB)
My Lords, I will speak to Amendment 57 in my name, Amendment 59 in the name of the noble Baroness, Lady Jones, and the Clause 14 stand part notice from the noble Lord, Lord Clement-Jones. In doing so, I register my support for Amendment 59A in the name of the noble Lord, Lord Holmes.
The Government assert that there is no diminution of rights in the Bill, yet Clause 14 removes the right not to be subject to an automated decision and replaces that right with inadequate safeguards, as the noble Lord, Lord Clement-Jones, said. On the previous day in Committee, the Minister made the argument that:
“These reforms clarify and simplify the rules related to solely automated decision-making without watering down any of the protections for data subjects or the fundamental data protection principles”,—[Official Report, 25/3/24; col. GC 146.]
but I hope he will at least accept that safeguards do not constitute a right. The fact that the Secretary of State has delegated powers to change the safeguards at will undermines his argument that UK citizens have lost nothing at all; they have lost the right not to be subject to an automated decision.
The fact that the Government have left some guard-rails for special category data is in itself an indication that they know they are downgrading UK data rights, because the safeguards in place are not adequate. If they were adequate, it would be unnecessary to separate out SPC data in this way. I hammer the point home by asking the Minister to explain how the protections will work in practice in an era of AI when risks can come from inference and data analytics that do not use special category data but will still have a profound impact on the work lives, health, finances and opportunities of data subjects. If it is the case that data about your neighbourhood, shopping habits, search results, steps or entertainment choices is used to infer an important decision, how would a data subject activate their rights in that case?
As an illustration of this point, the daughter of a colleague of mine, who, as it happens, has a deep expertise in data law, this year undertook a video-based interview for a Russell group university with no human contact. It was not yet an ADM system, but we are inching ever closer to it. Removing the right, as the Government propose, would place the onus on students to complain or intervene—in a non-vexatious manner, of course. Will the Minister set out how UK citizens will be protected from life-changing decisions after government changes to Article 22, particularly as, in conjunction with other changes such as subject access requests and data impact assessments, UK citizens are about to have fewer routes to justice and less transparency of what is happening to their data?
I would also be grateful if the Minister could speak to whether he believes that the granularity and precision of current profiling deployed by AI and machine learning is sufficiently guaranteed to take this fundamental right away. Similarly, I hope that the known concerns about bias and fairness in ADM will be resolved over time, but we are not there yet, so why is it that the Government have a wait-and-see policy on regulation but are not offering the same “wait and see” in relation to data rights?
On Amendment 59 in the name of the noble Baroness, Lady Jones, the number of workers anticipated to be impacted by AI is simply eye-watering. In last Friday’s debate on AI, it was said to be 300 million worldwide, and one in four across Europe. But how workers work with AI is not simply a scary vision of the near future; it is here now.
I have a family member who last year left an otherwise well-paid and socially useful job when they introduced surveillance on to his computer during his working from home. At the time, he said that the way in which it impacted on both his self-esteem and autonomy was so devastating that he felt like
“a cog in a machine or an Amazon worker with no agency or creativity”.
He was an exemplary employee: top of the bonus list and in all measurable ways the right person in the right job. Efficiency in work has a vital role but it is not the whole picture. We know that, if able and skilled workers lose their will to work, it comes at a considerable cost to the well-being of the nation and the public purse. Most jobs in future will involve working with or even collaborating with technology; ensuring that work is dignified and fair to the human components of this arrangement is not a drag on productivity but a necessity if society is to benefit from changes to technology.
Baroness Harding of Winscombe (Con)
My Lords, as is so often the case on these issues, it is daunting to follow the noble Baroness as she has addressed the issues so comprehensively. I speak in support of Amendment 57, to which I have added my name, and register my support for my noble friend Lord Holmes’s Amendment 59A, but I will begin by talking about the Clause 14 stand part notice.
Unfortunately, I was not able to stay for the end of our previous Committee session so I missed the last group on automated decision-making; I apologise if I cover ground that the Committee has already covered. It is important to start by saying clearly that I am in favour of automated decision-making and the benefits that it will bring to society in the round. I see from all the nodding heads that we are all in the same place—interestingly, my Whip is shaking his head. We are trying to make sure that automated decision-making is a force for good and to recognise that anything involving human beings—even automated decision-making does, because human beings create it—has the potential for harm as well. Creating the right guard-rails is really important.
Like the noble Baroness, Lady Kidron, until I understood the Bill a bit better, I mistakenly thought that the Government’s position was not to regulate AI. But that is exactly what we are doing in the Bill, in the sense that we are loosening regulation and the ability to make use of automated decision-making. While that may be the right answer, I do not think we have thought about it in enough depth or scrutinised it in enough detail. There are so few of us here; I do not think we quite realise the scale of the impact of this Bill and this clause.
I too feel that the clause should be removed from the Bill—not because it might not ultimately be the right answer but because this is something that society needs to debate fully and comprehensively, rather than it sneaking into a Bill that not enough people, either in this House or the other place, have really scrutinised.
I assume I am going to lose that argument, so I will briefly talk about Amendment 57. Even if the Government remain firm that there is “nothing to see here” in Clause 14, we know that automated decision-making can do irreparable harm to children. Any of us who has worked on child internet safety—most of us have worked on it for at least a decade—regret that we failed to get in greater protections earlier. We know of the harm done to children because there have not been the right guard-rails in the digital world. We must have debated together for hours and hours why the harms in the algorithms of social media were not expressly set out in the Online Safety Act. This is the same debate.
It is really clear to me that it should not be possible to amend the use of automated decision-making to in any way reduce protections for children. Those protections have been hard fought and ensure a higher bar for children’s data. This is a classic example of where the Bill reduces that, unless we are absolutely explicit. If we are unable to persuade the Government to remove Clause 14, it is essential that the Bill is explicit that the Secretary of State does not have the power to reduce data protection for children.
Lord Kamall (Con)
My Lords, I speak in favour of the clause stand part notice in my name and that of the noble Lord, Lord Clement-Jones.
Lord Kamall (Con)
I apologise and thank the noble Lord for his collegiate approach.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank all noble Lords who have contributed to this debate. We have had a major common theme, which is that any powers exercised by the Secretary of State in Clause 14 should be to enhance, rather than diminish, the protections for a data subject affected by automated decision-making. We have heard some stark and painful examples of the way in which this can go wrong if it is not properly regulated. As noble Lords have said, this seems to be regulation on automated decision-making by the backdoor, but with none of the protections and promises that have been made on this subject.
Our Amendment 59 goes back to our earlier debate about rights at work when automated decision-making is solely or partly in operation. It provides an essential underpinning of the Secretary of State’s powers. The Minister has argued that ADM is a new development and that it would be wrong to be too explicit about the rules that should apply as it becomes more commonplace, but our amendment cuts through those concerns by putting key principles in the Bill. They are timeless principles that should apply regardless of advances in the adoption of these new technologies. They address the many concerns raised by workers and their representatives, about how they might be disfranchised or exploited by machines, and put human contact at the heart of any new processes being developed. I hope that the Minister sees the sense of this amendment, which will provide considerable reassurance for the many people who fear the impact of ADM in their working lives.
I draw attention to my Amendments 58 and 73, which implement the recommendations of the Delegated Powers and Regulatory Reform Committee. In the Bill, the new Articles 22A to 22D enable the Secretary of State to make further provisions about safeguards when automated decision-making is in place. The current wording of new Article 22D makes it clear that regulations can be amended
“by adding or varying safeguards”.
The Delegated Powers Committee quotes the department saying that
“it does not include a power to remove safeguards provided in new Article 22C and therefore cannot be exercised to weaken the protections”
afforded to data subjects. The committee is not convinced that the department is right about this, and we agree with its analysis. Surely “vary” means that the safeguards can move in either direction—to improve or reduce protection.
The committee also flags up concerns that the Bill’s amendments to Sections 49 and 50 of the Data Protection Act make specific provision about the use of automated decision-making in the context of law enforcement processing. In this new clause, there is an equivalent wording, which is that the regulations may add or vary safeguards. Again, we agree with its concerns about the application of these powers to the Secretary of State. It is not enough to say that these powers are subject to the affirmative procedure because, as we know and have discussed, the limits on effective scrutiny of secondary legislation are manifest.
We have therefore tabled Amendments 58 and 73, which make it much clearer that the safeguards cannot be reduced by the Secretary of State. The noble Lord, Lord Clement-Jones, has a number of amendments with a similar intent, which is to ensure that the Secretary of State can add new safeguards but not remove them. I hope the Minister is able to commit to taking on board the recommendations of the Delegated Powers Committee in this respect.
The noble Baroness, Lady Kidron, once again made the powerful point that the Secretary of State’s powers to amend the Data Protection Act should not be used to reduce the hard-won standards and protections for children’s data. As she says, safeguards do not constitute a right, and having regard to the issues is a poor substitute for putting those rights back into the Bill. So I hope the Minister is able to provide some reassurance that the Bill will be amended to put these hard-won rights back into the Bill, where they belong.
I am sorry that the noble Lord, Lord Holmes, is not here. His amendment raises an important point about the need to build in the views of the Information Commissioner, which is a running theme throughout the Bill. He makes the point that we need to ensure, in addition, that a proper consultation of a range of stakeholders goes into the Secretary of State’s deliberations on safeguards. We agree that full consultation should be the hallmark of the powers that the Secretary of State is seeking, and I hope the Minister can commit to taking those amendments on board.
I echo the specific concerns of the noble Lord, Lord Clement-Jones, about the impact assessment and the supposed savings from changing the rules on subject access requests. This is not specifically an issue for today’s debate but, since it has been raised, I would like to know whether he is right that the savings are estimated to be 50% and not 1%, which the Minister suggested when we last debated this. I hope the Minister can clarify this discrepancy on the record, and I look forward to his response.
The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Viscount Camrose) (Con)
I thank the noble Lords, Lord Clement-Jones and Lord Knight, my noble friend Lord Holmes and the noble Baronesses, Lady Jones, Lady Kidron and Lady Bennett—
Viscount Camrose (Con)
I apologise to my noble friend. I cannot be having a senior moment already—we have only just started. I look forward to reading that part in Hansard.
I can reassure noble Lords that data subjects still have the right to object to solely automated decision-making. It is not an absolute right in all circumstances, but I note that it never has been. The approach taken in the Bill complements the UK’s AI regulation framework, and the Government are committed to addressing the risks that AI poses to data protection and wider society. Following the publication of the AI regulation White Paper last year, the Government started taking steps to establish a central AI risk function that brings together policymakers and AI experts with the objective of identifying, assessing and preparing for AI risks. To track identified risks, we have established an initial AI risk register, which is owned by the central AI risk function. The AI risk register lists individual risks associated with AI that could impact the UK, spanning national security, defence, the economy and society, and outlines their likelihood and impact. We have also committed to engaging on and publishing the AI risk register in spring this year.
Lord Clement-Jones (LD)
I am processing what the Minister has just said. He said it complements the AI regulation framework, and then he went on to talk about the central risk function, the AI risk register and what the ICO is up to in terms of guidance, but I did not hear that the loosening of safeguards or rights under Clause 14 and Article 22 of the GDPR was heralded in the White Paper or the consultation. Where does that fit with the Government’s AI regulation strategy? There is a disjunct somewhere.
Viscount Camrose (Con)
I reject the characterisation of Clause 14 or any part of the Bill as loosening the safeguards. It focuses on the outcomes and by being less prescriptive and more adaptive, its goal is to heighten the levels of safety of AI, whether through privacy or anything else. That is the purpose.
On Secretary of State powers in relation to ADM, the reforms will enable the Government to further describe what is and is not to be taken as a significant effect on a data subject and what is and is not to be taken as meaningful human—
Baroness Harding of Winscombe (Con)
I may be tired or just not very smart, but I am not really sure that I understand how being less prescriptive and more adaptive can heighten safeguards. Can my noble friend the Minister elaborate a little more and perhaps give us an example of how that can be the case?
Viscount Camrose (Con)
Certainly. Being prescriptive and applying one-size-fits-all measures for all processes covered by the Bill encourages organisations to follow a process, but focusing on outcomes encourages organisations to take better ownership of the outcomes and pursue the optimal privacy and safety mechanisms for those organisations. That is guidance that came out very strongly in the Data: A New Direction consultation. Indeed, in the debate on a later group we will discuss the use of senior responsible individuals rather than data protection officers, which is a good example of removing prescriptiveness to enhance adherence to the overall framework and enhance safety.
Baroness Kidron (CB)
This seems like a very good moment to ask whether, if the variation is based on outcome and necessity, the Minister agrees that the higher bar of safety for children should be specifically required as an outcome.
Viscount Camrose (Con)
I absolutely agree about the outcome of higher safety for children. We will come to debate whether the mechanism for determining or specifying that outcome is writing that down specifically, as suggested.
Baroness Kidron (CB)
I am sure the Minister knew I was going to stand up to say that, if it is not part of the regulatory instruction, it will not be part of the outcome. The point of regulation is to determine a floor— never a ceiling—below which people cannot go. Therefore, if we wish to safeguard children, we must have that floor as part of the regulatory instruction.
Viscount Camrose (Con)
Indeed. That may well be the case, but how that regulatory instruction is expressed can be done in multiple ways. Let me continue; otherwise, I will run out of time.
Baroness Jones of Whitchurch (Lab)
I am having a senior moment as well. Where are the outcomes written? What are we measuring this against? I like the idea; it sounds great—management terminology—but I presume that it is written somewhere and that we could easily add children’s rights to the outcomes as the noble Baroness suggests. Where are they listed?
Lord Harlech (Con)
My Lords, I think we should try to let the Minister make a little progress and see whether some of these questions are answered.
Lord Clement-Jones (LD)
I am sorry, but I just do not accept that intervention. This is one of the most important clauses in the whole Bill and we have to spend quite a bit of time teasing it out. The Minister has just electrified us all in what he said about the nature of this clause, what the Government are trying to achieve and how it fits within their strategy, which is even more concerning than previously. I am very sorry, but I really do not believe that this is the right point for the Whip to intervene. I have been in this House for 25 years and have never seen an intervention of that kind.
Viscount Camrose (Con)
Let me make the broad point that there is no single list of outcomes for the whole Bill but, as we go through clause by clause, I hope the philosophy behind it, of being less prescriptive about process and more prescriptive about the results of the process that we desire, should emerge—not just on Clause 14 but as the overall philosophy underlying the Bill. Regulation-making powers can also be used to vary the existing safeguards, add additional safeguards and remove additional safeguards added at a later date.
On the point about having regard, it is important that the law is drafted in a way that allows it to adapt as technology advances. Including prescriptive requirements in the legislation reduces this flexibility and undermines the purpose of this clause and these powers to provide additional legal clarity when it is deemed necessary and appropriate in the light of the fast-moving advances in and adoption of technologies relevant to automated decision-making. I would like to reassure noble Lords that the powers can be used only to vary the existing safeguards, add additional ones and remove them. They cannot remove any of the safeguards written into the legislation.
Amendments 53 to 55 and 69 to 71 concern the Secretary of State powers relating to the terms “significant decisions” and “meaningful human involvement”. These powers enable the Secretary of State to provide a description of decisions that do or do not have a significant effect on data subjects, and describe cases that can be taken to have, or not to have, meaningful human involvement. As technology adoption grows and new technologies emerge, these powers will enable the Government to provide legal clarity, if and when deemed necessary, to ensure that people are protected and have access to safeguards when they matter most. In respect of Amendment 59A, Clause 50 already provides for an overarching requirement for the Secretary of State to consult the ICO and other persons the Secretary of State considers appropriate before making regulations under the UK GDPR, including for the measures within Article 22.
Also, as has been observed—I take the point about the limitations of this, but I would like to make the point anyway—any changes to the regulations are subject to the affirmative procedure and so must be approved by both Houses. As with other provisions of the Bill, the ICO will seek to provide organisations with timely guidance and support to assist them in interpreting and applying the legislation. As such, I would ask the noble Lord, Lord Clement Jones, and my noble friend Lord Holmes—were he here—not to press their amendments.
Amendment 57 in the name of the noble Baroness, Lady Kidron, seeks to ensure that, when exercising regulation-making powers in relation to the safeguards in Article 22 of the UK GDPR, the Secretary of State should uphold the level of protection that children are entitled to in the Data Protection Act 2018. As I have said before, Clause 50 requires the Secretary of State to consult the ICO and other persons he or she considers appropriate. The digital landscape and its technologies evolve rapidly, presenting new challenges in safeguarding children. Regular consultations with the ICO and stakeholders ensure that regulations remain relevant and responsive to emerging risks associated with solely automated decision-making. The ICO has a robust position on the protection of children, as evidenced through its guidance and, in particular, the age-appropriate design code. As such, I ask the noble Baroness not to press her amendment.
Amendments 58, 72 and 73 seek to prevent the Secretary of State varying any of the safeguards mentioned in the reformed clauses. As I assured noble Lords earlier, the powers in this provision can be used only to vary the existing safeguards, add additional safeguards and remove additional safeguards added by regulation in future; there is not a power to remove any of the safeguards.
Baroness Kidron (CB)
I apologise for breaking the Minister’s flow, especially as he had moved on a little, but I have a number of questions. Given the time, perhaps he can write to me to answer them specifically. They are all designed to show the difference between what children now have and what they will have under the Bill.
I have to put on the record that I do not accept what the Minister just said—that, without instruction, the ICO can use its old instruction to uphold the current safety for children—if the Government are taking the instruction out of the Bill and leaving it with the old regulator. I ask the Minister to tell the Committee whether it is envisaged that the ICO will have to rewrite the age-appropriate design code to marry it with the new Bill, rather than it being the reason why it is upheld. I do not think the Government can have it both ways where, on the one hand, the ICO is the keeper of the children, and, on the other, they take out things that allow the ICO to be the keeper of the children in this Bill.
Viscount Camrose (Con)
I absolutely recognise the seriousness and importance of the points made by the noble Baroness. Of course, I would be happy to write to her and meet her, as I would be for any Member in the Committee, to give—I hope—more satisfactory answers on these important points.
As an initial clarification before I write, it is perhaps worth me saying that the ICO has a responsibility to keep guidance up to date but, because it is an independent regulator, it is not for the Government to prescribe this, only to allow it to do so for flexibility. As I say, I will write and set out that important point in more detail.
Amendment 59 relates to workplace rights. I reiterate that the existing data protection legislation and our proposed reforms—
Baroness Jones of Whitchurch (Lab)
Has the Minister moved on from our Amendments 58 and 59? He was talking about varying safeguards. I am not quite sure where he is.
Viscount Camrose (Con)
It is entirely my fault; when I sit down and stand up again, I lose my place.
We would always take the views of the DPRRC very seriously on that. Clearly, the Bill is being designed without the idea in mind of losing or diminishing any of those safeguards; otherwise, it would have simply said in the Bill that we could do that. I understand the concern that, by varying them, there is a risk that they would be diminished. We will continue to find a way to take into account the concerns that the noble Baroness has set out, along with the DPRRC. In the interim, let me perhaps provide some reassurance that that is, of course, not the intention.
Lord Clement-Jones (LD)
My Lords, I feel less reassured after this debate than I did even at the end of our two groups on Monday. I thank all those who spoke in this debate. There is quite a large number of amendments in this group, but a lot of them go in the same direction. I was very taken by what the noble Baroness, Lady Kidron, said: if the Government are offering safeguards and not rights, that is really extremely worrying. I also very much take on board what the noble Baroness, Lady Harding, had to say. Yes, of course we are in favour of automated decision-making, as it will make a big difference to our public services and quite a lot of private businesses, but we have to create the right ground rules around it. That is what we are talking about. We all very much share the question of children having a higher bar. The noble Baroness, Lady Jones, outlined exactly why the Secretary of State’s powers either should not be there or should not be expressed in the way that they are. I very much hope that the Minister will write on that subject.
More broadly, there are huge issues here. I think that it was the noble Baroness, Lady Kidron, who first raised the fact that the Government seem to be regulating in a specific area relating to AI that is reducing rights. The Minister talks about now regulating outcomes, not process. As the noble Baroness, Lady Jones, said, we do not have any criteria—what KPIs are involved? The process is important—the ethics by which decisions are made and the transparency involved. I cannot see that it is simply about whether the outcome is such and such; it is about the way in which people make decisions. I know that people like talking about outcome-based regulation, but it is certainly not the only important aspect of regulation.
On the issue of removing prescriptiveness, I am in favour of ethical prescriptiveness, so I cannot see that the Minister has made a particularly good case for the changes made under Clause 14. He talked about having access to safeguards when they matter most. It would be far preferable to have rights that can be exercised in the face of automated decision-making, in particular workplace protection. At various points during the debates on the Bill we have touched on things such as algorithmic impact assessment in the workplace and no doubt we will touch on it further. That is of great and growing importance, but again there is no recognition of that.
I am afraid that the Minister has not made a fantastic case for keeping Clause 14 and I think that most of us will want to kick the tyres and carry on interrogating whether it should be part of the Bill. In the meantime, I beg leave to withdraw Amendment 53.
Viscount Camrose
Member’s explanatory statement
This amendment of a heading is consequential on the amendment in my name to clause 14, page 28, line 19.
Viscount Camrose
Member’s explanatory statement
This technical amendment adjusts the wording of new section 50B(1) of the Data Protection Act 2018 to refer to “sensitive processing”, rather than “sensitive personal data”, to reflect the terms of section 35(8) of that Act.
Lord Clement-Jones
“Use of the Algorithmic Transparency Recording Standard(1) The Secretary of State must by regulations make provision requiring Government departments, public authorities and all persons exercising a public function using algorithmic tools to process personal data to use the Algorithmic Transparency Recording Standard (“the Standard”).(2) The Standard is that published by the Central Digital and Data Office and Centre for Data Ethics and Innovation as part of the Government’s National Data Strategy.(3) Regulations under subsection (1) must require the submission and publication of algorithmic transparency reports as required by the Standard.(4) Regulations under subsection (1) may provide for exemptions to the requirement for publication where necessary—(a) to avoid obstructing an official or legal inquiry, investigation or procedure, (b) to avoid prejudicing the prevention, detection, investigation or prosecution of criminal offences or the execution of criminal penalties,(c) to protect public security, or(d) to safeguard national security.(5) Regulations under subsection (1) are subject to the affirmative resolution procedure.”Member’s explanatory statement
This new Clause puts a legislative obligation on public bodies using algorithmic tools that have a significant influence on a decision-making process with direct or indirect public effect, or directly interact with the general public, to publish reports under the Algorithmic Transparency Recording Standard.
Lord Clement-Jones (LD)
My Lords, the Central Digital and Data Office, or CDDO, and the Centre for Data Ethics and Innovation, as it was then called—it now has a new name as a unit of DSIT—launched the algorithmic transparency recording standard in November 2021. The idea for the ATRS arose from a recommendation by the CDEI that the UK Government should place a mandatory transparency obligation on public sector organisations using algorithms to support “significant decisions affecting individuals”. It is intended to help public sector organisations to provide clear information about the algorithmic tools that they use, how they operate and why they are using them.
The ATRS is a promising initiative that could go some way to addressing the current transparency deficit around the use of algorithmic and AI tools by public authorities. Organisations are encouraged to submit reports about each algorithmic tool that they are using that falls within the scope of the standard.
We welcome the recent commitments made in the Government’s response to the AI regulation White Paper consultation to make the ATRS a requirement for all government departments. However, we believe that this is an opportunity to deliver on this commitment through the DPDI Bill, by placing it on a statutory footing rather than it being limited to a requirement in guidance. That is what Amendment 74 is designed to do.
We also propose another new clause that should reflect the Government’s commitment to algorithmic transparency. It would require the Secretary of State to introduce a compulsory transparency reporting requirement, but only when she or he considers it appropriate to do so. It is a slight watering-down of Amendment 74, but it is designed to tempt the Minister into further indiscretions. In support of transparency, the new clause would, for as long as the Secretary of State considers making the ATRS compulsorily inappropriate, also require the Secretary of State to regularly explain why and keep her decision under continual review.
Amendment 76 on safe and responsible automated decision systems proposes a new clause that seeks to shift the burden back on public sector actors. It puts the onus on them to ensure safety and prevent harm, rather than waiting for harm to occur and putting the burden on individuals to challenge it. It imposes a proactive statutory duty, similar to the public sector equality duty under Section 149 of the Equality Act 2010, to have “due regard” to ensuring that
“automated decision systems … are responsible and minimise harm to individuals and society at large”.
The duty incorporates the key principles in the Government’s AI White Paper and therefore is consistent with its substantive approach. It also includes duties to be proportionate, to give effect to individuals’ human rights and freedoms and to safeguard democracy and the rule of law. It applies to all “automated decision systems”. These are
“any tool, model, software, system, process, function, program, method and/or formula designed with or using computation to automate, analyse, aid, augment, and/or replace human decisions that impact the welfare, rights and freedoms of individuals”.
This therefore applies to partly automated decisions, as well as those that are entirely automated, and systems in which multiple automated decision processes take place.
It applies to traditional public sector actors: public authorities, or those exercising public functions, including private actors outsourced by the Government to do so; those that may exercise control over automated decision systems, including regulators; as well as those using data collected or held by a public authority, which may be public or private actors. It then provides one mandatory mechanism through which compliance with the duty must be achieved—impact assessments. We had a small debate about the ATRS and whether a compliance system was in place. It would be useful to see whether the Minister has any further comment on that, but I think that he disagreed with my characterisation that there is no compliance system currently.
This provision proposes impact assessments. The term used, “algorithmic impact assessment”, is adopted from Canada’s analogous directive on automated decision-making, which mandates the use of AIAs for all public sector automated decision systems. The obligation is on the Secretary of State, via regulations, to set out a framework for AIAs, which would help actors to uphold their duty to ensure that automated decision systems are responsible and safe; to understand and to reduce the risks in a proactive and ongoing way; to introduce the appropriate governance, oversight, reporting and auditing requirements; and to communicate in a transparent and accessible way to affected individuals and the wider public.
Amendment 252 would require a list of UK addresses to be made freely available for reuse. Addresses have been identified as a fundamental geospatial dataset by the UN and a high-value dataset by the EU. Address data is used by tens of thousands of UK businesses, including for delivery services and navigation software. Crucially, address data can join together different property-related data, such as energy performance certificates or Land Registry records, without using personal information. This increases the value of other high-value public data.
Baroness Kidron (CB)
My Lords, I speak to Amendment 144 in my name, which is supported by the noble Baronesses, Lady Harding and Lady Jones, and the noble Lord, Lord Clement-Jones. The amendment would introduce a code of practice on children and AI. Before I speak to it, I declare an interest: I am working with academic NGO colleagues in the UK, EU and US on such a code, and I am part of the UN Secretary-General’s AI advisory body’s expert group, which is currently working on sections on both AI and children and AI and education.
AI drives the recommender systems that determine all aspects of a child’s digital experience, including the videos they watch, their learning opportunities, people they follow and products they buy. But it no longer concerns simply the elective parts of life where, arguably, a child—or a parent on their behalf—can choose to avoid certain products and services. AI is invisibly and ubiquitously present in all areas of their lives, and its advances and impact are particularly evident in the education and health sectors—the first of which is compulsory and the second of which is necessary.
The proposed code has three parts. The first requires the ICO to create the code and sets out expectations of its scope. The second considers who and what should be consulted and considered, including experts, children and the frameworks that codify children’s existing rights. The third defines elements of the process, including risk assessment, defines language and puts the principles to which the code must adhere in the Bill.
I am going to get my defence in early. I anticipate that the Minister will say that the ICO has published guidance, that we do not want to exclude children from the benefits of AI and that we are in a time of “wait and see”. He might even ask why children need something different or why the AADC, which I mention so frequently, is not sufficient. Let me take each of those in turn.
On the sufficiency of the current guidance, the ICO’s non-binding Guidance on AI and Data Protection, which was last updated on 15 March 2023, has a single mention of a child in its 140 pages, in a case study about child benefits. The accompanying AI and data protection toolkit makes no mention of children, nor does the ICO’s advice to developers on generative AI, issued on 3 April 2023. There are hundreds of pages of guidance but it fails entirely to consider the specific needs of children, their rights, their development vulnerabilities or that their lives will be entirely dominated by AI systems in a way that is still unimaginable to those in this Room. Similarly, there is little mention of children in the Government’s own White Paper on AI. The only such references are limited to AI-generated child sexual abuse material; we will come to that later when we discuss Amendment 291. Even the AI summit had no main-stage event relating to children.
Of course we do not want to exclude children from the benefits of AI. A code on the use of children’s data in the development and deployment of AI technology increases their prospects of enjoying the benefits of AI while ensuring that they are protected from the pitfalls. Last week’s debate in the name of the noble Lord, Lord Holmes, showed the broad welcome of the benefits while urgently speaking to the need for certain principles and fundamental protections to be mandatory.
As for saying, “We are in a time of ‘wait and see’”, that is not good enough. In the course of this Committee, we will explore edtech that has only advertising and no learning content, children being left out of classrooms because their parents will not accept the data leaks of Google Classroom, social media being scraped to create AI-generated CSAM and how rapid advances in generative AI capabilities mark a new stage in its evolution. Some of the consequences of that include ready access to models that create illegal and abusive material at scale and chatbots that offer illegal or dangerous advice. Long before we get on to the existential threat, we have “here and now” issues. Childhood is a very short period of life. The impacts of AI are here and now in our homes, our classrooms, our universities and our hospitals. We cannot afford to wait and see.
Children are different for three reasons. First, as has been established over decades, there are ages and stages at which children are developmentally able to do certain things, such as walk, talk, understand risk and irony, and learn different social skills. This means that, equally, there are ages and stages at which they cannot do that. The long-established consensus is that family, social groups and society more broadly—including government—step in to support that journey.
Secondly, children have less voice and less choice about how and where they spend their time, so the places and spaces that they inhabit have to be fit for childhood.
Thirdly, we have a responsibility towards children that extends even beyond our responsibilities to each other; this means that it is not okay for us to legitimise profit at their expense, whether it is allowing an unregulated edtech market that exploits their data and teaches them nothing or the untrammelled use of their pictures to create child sexual abuse material.
Finally, what about the AADC? I hope that, in the course of our deliberations, we will put that on a more secure footing. The AADC addresses recommender systems in standard 12. However, the code published in August 2020 does not address generative AI which, as we have repeatedly heard, is a game-changer. Moreover, the AADC is currently restricted to information society services, which leaves a gaping hole. This amendment would address this gap.
There is an argument that the proposed code could be combined with the AADC as an update to its provisions. However, unless and until we sort out the status of the AADC in relation to the Bill, an AI kids code would be better formed as a stand-alone code. A UK code of practice on children and AI would ensure that data processors consider the fundamental rights and freedoms of children, including their safety, as they develop their products and perhaps even give innovators the appetite to innovate with children in mind.
As I pointed out at the beginning, there are many people globally working on this agenda. I hope that as we are the birthplace of the AADC and the Online Safety Act, the Government will adopt this suggestion and again be a forerunner in child privacy and safety. If, however, the Minister once again says that protections for children are not necessary, let me assure him that they will be put in place by others, and we will be a rule taker not a rule maker.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise with the advantage over the noble Lord, Lord Clement-Jones, in that I will speak to only one amendment in this group; I therefore have the right page in front of me and can note that I will speak to Amendment 252, tabled by the noble Lord, Lord Clement-Jones, and signed by me and the noble Lords, Lord Watson of Wyre Forest and Lord Maude of Horsham.
I apologise that I was not with the Committee earlier today, but I was chairing a meeting about the microbiome, which was curiously related to this Committee. One issue that came up in that meeting was data and data management and the great uncertainties that remain. For example, if a part of your microbiome is sampled and the data is put into a database, who owns that data about your microbiome? In fact, there is no legal framework at the moment to cover this. There is a legal framework about your genome, but not your microbiome. That is a useful illustration of how fast this whole area is moving and how fast technology, science and society are changing. I will actually say that I do not blame the Government for the fact of this gaping hole as it is an international hole. It is a demonstration of how we need to race to catch up as legislators and regulators to deal with the problem.
This relates to Amendment 252 in the sense that perhaps this is an issue that has arisen over time, kind of accidentally. However, I want to credit a number of campaigners, among them James O’Malley, who was the man who draw my attention to this issue, as well as Peter Wells, Anna Powell-Smith and Hadley Beeman. They are people who have seen a really simple and basic problem in the way that regulation is working and are reaching out including, I am sure, to many noble Lords in this Committee. This is a great demonstration of how campaigning has at least gone part of the way to working. I very much hope that, if not today, then some time soon, we can see this working.
What we are talking about here, as the noble Lord, Lord Clement-Jones, said, is the postal address file. It is held as a piece of private property by Royal Mail. It is important to stress that this is not people’s private information or who lives at what address; it is about where the address is. As the noble Lord, Lord Clement-Jones, set out, all kinds of companies have to pay Royal Mail to have access to this basic information about society, basic information that is assembled by society, for society.
The noble Lord mentioned Amazon having to pay for the file. I must admit that I feel absolutely no sympathy there. I am no fan of the great parasite. It is an interesting contrast to think of Amazon paying, but also to think of an innovative new start-up company, which wants to be able to access and reach people to deliver things to their homes. For this company, the cost of acquiring this file could be prohibitive. It could stop it getting started and competing against Amazon.
Lord Kamall (Con)
My Lords, I apologise for not being here on Monday, when I wanted to speak about automated decision-making. I was not sure which group to speak on today; I am thankful that my noble friend Lord Harlech intervened to ensure that I spoke on this group and made my choice much easier.
I want to speak on Amendments 74 to 77 because transparency is essential. However, one of the challenges about transparency is to ensure you understand what you are reading. I will give noble Lords a quick example: when I was in the Department of Health and Social Care, we had a scheme called the voluntary pricing mechanism for medicines. Companies would ask whether that could be changed and there could be a different relationship because they felt that they were not getting enough value from it. I said to the responsible person in the department, “I did engineering and maths, so can you send me a copy of algorithm?” He sent it to me, and it was 100 pages long. I said, “Does anyone understand this algorithm?”, and he said, “Oh yes, the analysts do”. I was about to get a meeting, but then I was moved to another department. That shows that even if we ask for transparency, we have to make sure that we understand what we are being given. As the noble Lord, Lord Clement-Jones, has worded this, we have to make sure that we understand the functionality and what it does at a high enough level.
My noble friend Lady Harding often illustrates her points well with short stories. I am going to do that briefly with two very short stories. I promise to keep well within the time limit.
A few years ago, I was on my way to a fly to Strasbourg because I was a Member of the European Parliament. My train got stuck, and I missed my flight. My staff booked me a new ticket and sent me the boarding pass. I got to the airport, which was fantastic, and got through the gate and was waiting for my flight in a waiting area. They called to start boarding and, when I went to go on, they scanned my pass again and I was denied boarding. I asked why I was denied, having been let into the gate area in the first place, but no one could explain why. To cut a long story short, over two hours, four or five people from that company gaslighted me. Eventually, when I got back to the check-in desk, which the technology was supposed to avoid in the first place, it was explained that they had sent me an email the day before. In fact, they had not sent me an email the day before, which they admitted the day after, but no one ever explained why I was not allowed on that flight.
Imagine that in the public sector. I can accept it, although it was awful behaviour by that company, but imagine that happening for a critical operation that had been automated to cut down on paperwork. Imagine turning up for your operation when you are supposed to scan your barcode to be let into the operating theatre. What happens if there is no accountability or transparency in that case? This is why the amendments tabled by the noble Lord, Lord Clement-Jones, are essential.
Here is another quick story. A few years ago, someone asked me whether I was going to apply for one of these new fintech banks. I submitted the application and the bank said that it would get back to me within 48 hours. It did not. Two weeks later, I got a message on the app saying that I had been rejected, that I would not be given an account and that “by law, we do not have to explain why”.
Can you imagine that same technology being used in the public sector, with a WYSIWYG on the fantastic NHS app that we have now? Imagine booking an appointment then suddenly getting a message back saying, “Your appointment has been denied but we do not have to explain why”. These Amendments 74 to 78 must be given due consideration by the Government because it is absolutely essential that citizens have full transparency on decisions made through automated decision-making. We should not allow the sort of technology that was used by easyJet and Monzo in this case to permeate the public sector. We need more transparency—it is absolutely essential—which is why I support the amendments in the name of the noble Lord, Lord Clement-Jones.
Baroness Harding of Winscombe (Con)
My Lords, I associate myself with the comments that my noble friend Lord Kamall just made. I have nothing to add on those amendments, as he eloquently set out why they are so important.
In the spirit of transparency, my intervention enables me to point out, were there any doubt, who I am as opposed to the noble Baroness, Lady Bennett, who was not here earlier but who I was mistaken for. Obviously, we are not graced with the presence of my noble friend Lord Maude, but I am sure that we all know what he looks like as well.
I will speak to two amendments. The first is Amendment 144, to which I have added my name. As usual, the noble Baroness, Lady Kidron, has said almost everything that can be said on this but I want to amplify two things. I have yet to meet a politician who does not get excited about the two-letter acronym that is AI. The favoured statement is that it is as big a change in the world as the discovery of electricity or the invention of the wheel. If it is that big—pretty much everyone in the world who has looked at it probably thinks it is—we need properly to think about the pluses and the minuses of the applications of AI for children.
The noble Baroness, Lady Kidron, set out really clearly why children are different. I do not want to repeat that, but children are different and need different protections; this has been established in the physical world for a very long time. With this new technology that is so much bigger than the advent of electricity and the creation of the first automated factories, it is self-evident that we need to set out how to protect children in that world. The question then is: do we need a separate code of practice on children and AI? Or, as the noble Baroness set out, is this an opportunity for my noble friend the Minister to confirm that we should write into this Bill, with clarity, an updated age-appropriate design code that recognises the existence of AI and all that it could bring? I am indifferent on those two options but I feel strongly that, as we have now said on multiple groups, we cannot just rely on the wording in a previous Act, which this Bill aims to update, without recognising that, at the same time, we need to update what an age-appropriate design code looks like in the age of AI.
The second amendment that I speak to is Amendment 252, on the open address file. I will not bore noble Lords with my endless stories about the use of the address file during Covid, but I lived through and experienced the challenges of this. I highlight an important phrase in the amendment. Proposed new subsection (1) says:
“The Secretary of State must regularly publish a list of UK addresses as open data to an approved data standard”.
One reason why it is a problem for this address data to be held by an independent private company is that the quality of the data is not good enough. That is a real problem if you are trying to deliver a national service, whether in the public sector or the private sector. If the data quality is not good enough, it leaves us substantially poorer as a country. This is a fundamental asset for the country and a fundamental building block of our geolocation data, as the noble Lord, Lord Clement-Jones, set out. Anybody who has tried to build a service that delivers things to human beings in the physical world knows that errors in the database can cause huge problems. It might not feel like a huge problem if it concerns your latest Amazon delivery but, if it concerns the urgent dispatch of an ambulance, it is life and death. Maintaining the accuracy of the data and holding it close as a national asset is therefore hugely important, which is why I lend my support to this amendment.
Lord Bassam of Brighton (Lab)
My Lords, the noble Lord, Lord Clement-Jones, has, as ever, ably introduced his Amendments 74, 75, 76, 77 and 78, to the first of which the Labour Benches have added our name. We broadly support all the amendments, but in particular Amendment 74. We also support Amendment 144 which was tabled by the noble Baroness, Lady Kidron, and cosigned by the noble Baroness, Lady Harding, the noble Lord, Lord Clement-Jones and my noble friend Lady Jones.
Amendments 74 to 78 cover the use of the Government’s Algorithmic Transparency Recording Standard—ATRS. We heard a fair bit about this in Committee on Monday, when the Minister prayed it in aid during debates on Clause 14 and Article 22A. The noble Lord, Lord Clement-Jones, outlined its valuable work, which I think everyone in the Committee wants to encourage and see writ large. These amendments seek to aid the transparency that the Minister referred to by publishing reports by public bodies using algorithmic tools where they have a significant influence on the decision-making process. The amendments also seek to oblige the Secretary of State to ensure that public bodies, government departments and contractors using public data have a compulsory transparency reporting scheme in place. The amendments legislate to create impact assessments and root ADM processes in public service that minimise harm and are fair and non-discriminatory in their effect.
The noble Lord, Lord Kamall, made some valuable points about the importance of transparency. His two stories were very telling. It is only right that we have that transparency for the public service and in privately provided services. I think the Minister would be well advised to listen to him.
The noble Lord, Lord Clement-Jones, also alighted on the need for government departments to publish reports under the ATRS in line with their position as set out in the AI regulation White Paper consultation process and response. This would put it on a legislative basis, and I think that is fairly argued. The amendments would in effect create a statutory framework for transparency in the public service use of algorithmic tools.
We see these amendments as forming part of the architecture needed to begin building a place of trust around the increased use of ADM and the introduction of AI into public services. Like the Government and everyone in this Committee, we see all the advantages, but take the view that we need to take the public with us on this journey. If we do not do that, we act at our peril. Transparency, openness and accountability are key to securing trust in what will be something of a revolution in how public services are delivered and procured in the future.
We also support Amendment 144 in the name of the noble Baroness, Lady Kidron, for the very simple reason that in the development of AI technology we should hardwire into practice and procedure using the technology as it affects the interests of children to higher standards, and those higher standards should apply. This has been a constant theme in our Committee deliberations and our approach to child protection. In her earlier speech, the noble Baroness, Lady Harding, passionately argued for the need to get this right. We have been wanting over the past decade in that regard, and now is the moment to put that right and begin to move on this policy area.
The noble Baroness, Lady Kidron, has made the argument for higher standards of protection for children persuasively during all our deliberations, and a code of practice makes good sense. As the noble Baroness, Lady Harding, said, it can either be stand-alone or integrated. In the end, it matters little, but having it there setting the standard is critical to getting this policy area in the right place. The amendment sets out the detail that the commissioner must cover with admirable clarity so that data processors should always have prioritising children’s interests and fundamental rights in their thinking. I am sure that is something that is broadly supported by the whole Committee.
Viscount Camrose (Con)
I feel under amazing pressure to get the names right, especially given the number of hours we spend together.
I thank the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Kidron, for tabling Amendments 74 to 78, 144 and 252 in this group. I also extend my thanks to noble Lords who have signed the amendments and spoken so eloquently in this debate.
Amendments 74 to 78 would place a legislative obligation on public authorities and all persons in the exercise of a public function to publish reports under the Algorithmic Transparency Recording Standard—ATRS—or to publish algorithmic impact assessments. These would provide information on algorithmic tools and algorithm-assisted decisions that process personal data in the exercise of a public function or those that have a direct or indirect public effect or directly interact with the general public. I remind noble Lords that the UK’s data protection laws will continue to apply throughout the processing of personal data.
The Government are already taking action to establish the necessary guard-rails for AI, including to promote transparency. In the AI regulation White Paper response, we announced that the use of the ATRS will now become a requirement for all government departments and the broader public sector. The Government are phasing this in as we speak and will check compliance accordingly, as DSIT has been in contact with every department on this issue.
In making this policy, the Government are taking an approach that provides increasing degrees of mandation of the ATRS, with appropriate exemptions, allowing them to monitor compliance and effectiveness. The announcement in the White Paper response has already led to more engagement from across government, and more records are under way. The existing process focuses on the importance of continuous improvement and development. Enshrining the standard into law prematurely, amid exponential technological change, could hinder its adaptability.
More broadly, our AI White Paper outlined a proportionate and adaptable framework for regulating AI. As part of that, we expect AI development and use to be fair, transparent and secure. We set out five key principles for UK regulators to interpret and apply within their remits. This approach reflects the fact that AI systems are not unregulated and need to be compliant with existing regulatory frameworks, including employment, human rights, health and safety and data protection law.
For instance, the UK’s data protection legislation imposes obligations on data controllers, including providers and users of AI systems, to process personal data fairly, lawfully and transparently. Our reforms in this Bill will ensure that, where solely automated decision-making is undertaken—that is, ADM without any meaningful human involvement that has significant effects on data subjects—data subjects will have a right to the relevant safeguards. These safeguards include being provided with information on the ADM that has been carried out and the right to contest those decisions and seek human review, enabling controllers to take suitable measures to correct those that have produced wrongful outcomes.
Lord Clement-Jones (LD)
My Lords, I wonder whether the Minister can comment on this; he can write if he needs to. Is he saying that, in effect, the ATRS is giving the citizen greater rights than are ordinarily available under Article 22? Is that the actual outcome? If, for instance, every government department adopted ATRS, would that, in practice, give citizens a greater degree of what he might put as safeguards but, in this context, he is describing as rights?
Viscount Camrose (Con)
I am very happy to write to the noble Lord, but I do not believe that the existence of an ATRS-generated report in and of itself confers more rights on anybody. Rather, it makes it easier for citizens to understand how their rights are being used, what rights they have, or what data about them is being used by the department concerned. The existence of data does not in and of itself confer new rights on anybody.
Lord Clement-Jones (LD)
I understand that, but if he rewinds the reel he will find that he was talking about the citizen’s right of access, or something of that sort, at that point. Once you know what data is being used, the citizen has certain rights. I do not know whether that follows from the ATRS or he was just describing that at large.
Viscount Camrose (Con)
As I said, I will write. I do not believe that follows axiomatically from the ATRS’s existence.
On Amendment 144, the Government are sympathetic to the idea that the ICO should respond to new and emerging technologies, including the use of children’s data in the development of AI. I assure noble Lords that this area will continue to be a focus of the ICO’s work and that it already has extensive powers to provide additional guidance or make updates to the age-appropriate design code, to ensure that it reflects new developments, and a responsibility to keep it up to date. The ICO has a public task under Article 57(1)(b) of the UK GDPR to
“promote public awareness and understanding of the risks, rules, safeguards and rights in relation to processing”.
It is already explicit that:
“Activities addressed specifically to children shall receive specific attention”.
That code already includes a chapter on profiling and provides guidance on fairness and transparency requirements around automated decision-making.
Taking the specific point made by the noble Baroness, Lady Kidron, on the contents of the ICO’s guidance, while I cannot speak to the ICO’s decisions about the drafting of its guidance, I am content to undertake to speak to it about this issue. I note that it is important to be careful to avoid a requirement for the ICO to duplicate work. The creation of an additional children’s code focused on AI could risk fragmenting approaches to children’s protections in the existing AADC—a point made by the noble Baroness and by my noble friend Lady Harding.
Lord Bassam of Brighton (Lab)
I have a question on this. If the Minister is arguing that this should be by way of amendment of the age-related code, would there not be an argument for giving that code some statutory effect?
Viscount Camrose (Con)
I believe that the AADC already has statutory standing.
Baroness Kidron (CB)
On that point, I think that the Minister said—forgive me if I am misquoting him —risk, rules and rights, or some list to that effect. While the intention of what he said was that we have to be careful where children are using it, and the ICO has to make them aware of the risks, the purpose of a code—whether it is part of the AADC or stand-alone—is to put those responsibilities on the designers of service products and so on by default. It is upstream where we need the action, not downstream, where the children are.
Viscount Camrose (Con)
Yes, I entirely agree with that, but I add that we need it upstream and downstream.
For the reasons I have set out, the Government do not believe that it would be appropriate to add these provisions to the Bill at this time without further detailed consultation with the ICO and the other organisations involved in regulating AI in the United Kingdom. Clause 33—
Baroness Kidron (CB)
Can we agree that there will be some discussions with the ICO between now and Report? If those take place, I will not bring this point back on Report unnecessarily.
Viscount Camrose (Con)
Yes, I am happy to commit to that. As I said, we look forward to talking with the noble Baroness and others who take an interest in this important area.
Clause 33 already includes a measure that would allow the Secretary of State to request the ICO to publish a code on any matter that she sees fit, so this is an issue that we could return to in the future, if the evidence supports it, but, as I said, we consider the amendments unnecessary at this time.
Finally, Amendment 252 would place a legislative obligation on the Secretary of State regularly to publish address data maintained by local authorities under open terms—that is, accessible by anyone for any purpose and for free. High-quality, authoritative address data for the UK is currently used by more than 50,000 public and private sector organisations, which demonstrates that current licensing arrangements are not prohibitive. This data is already accessible for a reasonable fee from local authorities and Royal Mail, with prices starting at 1.68p per address or £95 for national coverage.
Baroness Bennett of Manor Castle (GP)
Some 50,000 organisations access that information, but does the Government have any data on it? I am not asking for it now, but maybe the Minister could go away and have a look at this. We have heard that other countries have opened up this data. Are they seeing an increase? That is just a number; it does not tell us how many people are denied access to the data.
Viscount Camrose (Con)
We have some numbers that I will come to, but I am very happy to share deeper analysis of that with all noble Lords.
There is also free access to this data for developers to innovate in the market. The Government also make this data available for free at the point of use to more than 6,000 public sector organisations, as well as postcode, unique identifier and location data available under open terms. The Government explored opening address data in 2016. At that time, it became clear that the Government would have to pay to make this data available openly or to recreate it. That was previously attempted, and the resulting dataset had, I am afraid, critical quality issues. As such, it was determined at that time that the changes would result in significant additional cost to taxpayers and represent low value for money, given the current widespread accessibility of the data. For the reasons I have set out, I hope that the noble Lords will withdraw their amendments.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for his response. There are a number of different elements to this group.
The one bright spot in the White Paper consultation is the ATRS. That was what the initial amendments in this group were designed to give a fair wind to. As the noble Lord, Lord Bassam, said, this is designed to assist in the adoption of the ATRS, and I am grateful for his support on that.
Baroness Kidron
“(ba) in paragraph 3(c) for “Article 32” substitute “Articles 25 and 32””Member’s explanatory statement
This amendment would add data protection by design as an additional measure for processors, to ensure that they are accountable for the design of their systems and services, noting the challenge that controllers often face when engaging processors for services such as AI and cloud computing and what influence they can have on the design.
Baroness Kidron (CB)
My Lords, I will speak to a number of amendments in this group—Amendments 79, 83, 85, 86, 96, 97, 105 and 107.
Amendment 79 proposes an addition to the amendments to Article 28 of the UK GDPR in Clause 15(4). Article 28 sets out the obligations on processors when processing personal data on behalf of controllers. Currently, paragraph 3(c) requires processors to comply with Article 32 of the UK GDPR, which relates to data security. Amendment 79 adds the requirement for processors also to comply with the privacy-by-design provision in Article 25. Article 25 requires controllers to
“at the time of the processing itself, implement appropriate technical and organisational measures, such as pseudonymisation, which are designed to implement data-protection principles, such as data minimisation, in an effective manner and to integrate the necessary safeguards into the processing in order to meet the requirements of this Regulation and protect the rights of data subjects”.
I am not proposing an abdication of responsibility by the controller when it instructs a processor to act on its behalf but, in practice, it is hard for a controller to meet this responsibility at the time of processing if it has delegated the processing to a third party that is not bound by the same requirement. I am not normally associated with the edtech sector, but the amendment is of particular importance to it as schools are controllers but the data of children is being processed.
The amendment ensures that processors would be contractually committed to complying with Article 25. It is particularly relevant to situations where controllers procure AI systems, including facial recognition technology and edtech products. It would be helpful in both the public and private sectors and would address the power asymmetry between controller and processor when the processor is a multinational and solutions are often presented on a take-it-or-leave-it basis.
I hope noble Lords will forgive me if I take Amendment 97 out of turn, as all the others in my name relate to children’s data, whereas Amendment 97, like Amendment 79, applies to all data subjects. Amendment 97 would require public bodies to publish risk assessments to create transparency and accountability. This would also place in statute a provision that is already contained in the ICO’s freedom of information publication scheme guidance. The amendment would also require the Cabinet Office to create and maintain an accessible register of public sector risk assessments to improve accountability.
In the last group, we heard that the way in which public bodies collect and process personal data has far-reaching consequences for all of us. I was moved to lay this amendment after witnessing some egregious examples from the education system. The public have a right to know how bodies such as health authorities, schools, universities, police forces, local authorities and government departments comply with their obligations under UK data law. This amendment is simply about creating trust.
The child-related amendments in this group are in my name and those of the noble Lord, Lord Clement-Jones, and the noble Baronesses, Lady Harding and Lady Jones. Clause 17 sets out the obligations for the newly created role of “senior responsible individual”, which replaces the GDPR requirement to appoint a data protection officer. The two roles are not equivalent: a DPO is an independent adviser to senior management, while a senior responsible individual would be a member of senior management. Amendment 83 would ensure that those appointed senior responsible individuals have an understanding of the heightened risks and the protections to which children are entitled.
Over the years, I have had many conversations with senior executives at major tech companies and, beyond the lines prepared by their public affairs teams, their understanding of children’s protection is often superficial and their grasp of key issues very limited. In fact, if I had a dollar for every time a tech leader, government affairs person or engineer has said, “I never thought of it that way before”, I would be sitting on quite a fortune.
Amendment 83 would simply ensure that a senior leader who is tasked with overseeing compliance with UK data law knows what he or she is talking about when it comes to children’s privacy, and that it informs the decisions they make. It is a modest proposal, and I hope the Minister will find a way to accept it.
Amendments 85 and 86 would require a controller to consider children’s right to higher standards of privacy than adults for their personal data when carrying out its record-keeping duties. Specifically, Amendment 85 sets out what is appropriate when maintaining records of high-risk processing and Amendment 87 relates to processing that is non-high risk. Creating an express requirement to include consideration of these rights in a data controller’s processing record-keeping obligation is a simple but effective way of ensuring that systems and processes are designed with the needs and rights of children front of mind.
Clause 20 is one of the many fault lines where the gap between the assurances given that children will be just as safe and the words on the page is clear. I make clear that the amendments to Clause 18 that I put forward are, as the noble Lord, Lord Clement-Jones, said on Monday, belt and braces. They do not reach the standard of protection that children currently enjoy under the risk-assessment provisions in Article 35 of the UK GDPR and the age-appropriate design code.
A comparison of what controllers must include in a data protection impact assessment under Article 35(7) and what they would need to cover in an assessment of high-risk processing under Clause 20(3)(d) shows the inadequacies of the latter. Instead of a controller having to include
“a systematic description of the envisaged processing operations and the purposes of the processing, including, where applicable, the legitimate interest pursued by the controller”,
under the Bill, the controller needs to include only
“a summary of the purposes of the processing”.
They need to include no systematic description—just a summary. There is no obligation to include information about the processing operations or to explain when and how the controller has determined they are entitled to rely on legitimate interest purpose. Instead of
“an assessment of the necessity and proportionality of the processing operations in relation to the purposes”,
under the Bill, a controller needs to assess only necessity, not proportionality. Instead of
“an assessment of the risks to the rights and freedoms of data subjects”,
under the Bill, a controller does not need to consider rights and freedoms.
As an aside, I note that this conflicts with the proposed amendments to Section 64 of the Data Protection Act 2018 in Clause 20(7)(d), which retains the “rights and freedoms” wording but otherwise mirrors the new downgraded requirements in Clause 20(3)(d). I would be grateful for clarification from the Minister on this point.
Instead of requiring the controller to include information about
“the measures envisaged to address the risks, including safeguards, security measures and mechanisms to ensure the protection of personal data and to demonstrate compliance with this Regulation taking into account the rights and legitimate interests of data subjects and other persons concerned”,
as currently prescribed in Article 35, under the Bill, the controller needs to provide only
“a description of how the controller proposes to mitigate those risks”.
The granularity of what is currently required is replaced by a generalised reference to “a description”. These are not the same bar. My argument throughout Committee is that we need to maintain the bar for processing children’s data.
Lord Clement-Jones (LD)
My Lords, I will speak to almost all the amendments in this group, other than those proposed by the noble Baroness, Lady Kidron. I am afraid that this is a huge group; we probably should have split it to have a better debate, but that is history.
I very much support what the noble Baroness said about her amendments, particularly Amendment 79. The mandation of ethics by design is absolutely crucial. There are standards from organisations such as the IEEE for that kind of ethics by design in AI systems. I believe that it is possible to do exactly what she suggested, and we should incorporate that into the Bill. It illustrates that process is as important as outcomes. We are getting to a kind of philosophical approach here, which illustrates the differences between how some of us and the Government are approaching these things. How you do something, the way you design it and the fact that it needs to be ethical is absolutely cardinal in any discussion—particularly about artificial intelligence. I do not think that it is good enough simply to talk about the results of what AI does without examining how it does it.
Having said that, I turn to Amendment 80 and the Clause 16 stand part notice. Under Clause 16, the Government are proposing to remove Article 27 of the UK GDPR without any replacement. By removing the legal requirement on non-UK companies to retain a UK representative, the Government would deprive individuals of a local, accessible point of contact through which people can make data protection rights requests. That decision threatens people’s capacity to exercise their rights, reducing their ability to remain in control of their personal information.
The Government say that removing Article 27 will boost trade with the UK by reducing the compliance burden on non-UK businesses. But they have produced little evidence to support the notion that this will be the case and have overlooked the benefits in operational efficiency and cost savings that the representative can bring to non-UK companies. Even more worryingly, the Government appear to have made no assessment of the impact of the change on UK individuals, in particular vulnerable groups such as children. It is an ill-considered policy decision that would see the UK take a backward step in regulation at a time when numerous other jurisdictions, such as Switzerland, Turkey, South Korea, China and Thailand, are choosing to safeguard the extraterritorial application of their data protection regimes through the implementation of the legal requirement to appoint a representative.
The UK representative ensures that anyone in the UK wishing to make a privacy-related request has a local, accessible point of contact through which to do so. The representative plays a critical role in helping people to access non-UK companies and hold them accountable for the processing of their data. The representative further provides a direct link between the ICO and non-UK companies to enable the ICO to enforce the UK data protection regime against organisations outside the UK.
On the trade issue, the Government argue that by eliminating the cost of retaining a UK representative, non-UK companies will be more inclined to offer goods and services to individuals in the UK. Although there is undeniably a cost to non-UK companies of retaining a representative, the costs are significantly lower than the rather disproportionately inflated figures that were cited in the original impact assessment, which in some cases were up to 10 times the average market rate for representative services. The Government have put forward very little evidence to support the notion that removing Article 27 will boost trade with the UK.
There is an alternative approach. Currently, the Article 27 requirement to appoint a UK representative applies to data controllers and processors. An alternative approach to the removal of Article 27 in its entirety would be to retain the requirement but limit its scope so that it applies only to controllers. Along with the existing exemption at Article 27(2), this would reduce the number of non-UK companies required to appoint a representative, while arguably still preserving a local point of contact through which individuals in the UK can exercise their rights, as it is data controllers that are obliged under Articles 15 to 22 of the UK GDPR to respond to data subject access requests. That is a middle way that the Government could adopt.
Moving to Amendment 82, at present, the roles of senior responsible individual in the Bill and data protection officer under the EU GDPR appear to be incompatible. That is because the SRI is part of the organisation’s senior management, whereas a DPO must be independent of an organisation’s senior management. This puts organisations caught by both the EU GDPR and the UK GDPR in an impossible situation. At the very least, the Government must explain how they consider that these organisations can comply with both regimes in respect of the SRI and DPO provisions.
The idea of getting rid of the DPO runs completely contrary to the way in which we need to think about accountability for AI systems. We need senior management who understand the corporate significance of the AI systems they are adopting within the business. The ideal way forward would be for the DPO to be responsible for that when AI regulation comes in, but the Government seem to be completely oblivious to that. Again, it is highly frustrating for those of us who thought we had a pretty decent data protection regime to find this kind of watering down taking place in the face of the risks from artificial intelligence that are becoming more and more apparent as the days go by. I firmly believe that it will inhibit the application and adoption of AI within businesses if we do not have public trust and business certainty.
I now come to oppose the question that Clause 18, on the duty to keep records, stand part of the Bill. This clause seems to masquerade as an attempt to get rid of red tape. In reality, it makes organisations less likely to be compliant with the main obligations in the UK GDPR, as it will be amended by the Bill, and therefore heightens the risk both to the data subjects whose data they hold and to the organisations in terms of non-compliance. This is, of course, the duty to keep records. It is particularly unfair on small businesses that do not have the resources to take advice on these matters. Records of processing activities are one of the main ways in which organisations can meet the requirements of Article 5(2) of the UK GDPR to demonstrate their compliance. The obligation to demonstrate compliance remains unaltered under the Bill. Therefore, dispensing with the main way of achieving compliance with Article 5(2) is impractical and unhelpful.
At this point, I should say that we support Amendment 81 in the name of the noble Baroness, Lady Jones, which concerns the assessment of high-risk processing.
Our amendments on data protection impact assessments are Amendments 87, 88 and 89. Such assessments are currently required under Article 35 of the UK GDPR and are essential to ensuring that organisations do not deploy, and individuals are not subjected to, systems that may lead to unlawful, rights-violating or discriminatory outcomes. The Government’s data consultation response noted:
“The majority of respondents agreed that data protection impact assessments requirements are helpful in identifying and mitigating risk, and disagreed with the proposal to remove the requirement to undertake data protection impact assessments”.
However, under Clause 20, the requirement to perform an impact assessment would be seriously diluted. That is all I need to say. The Government frequently pray in aid the consultation—they say, “Well, we did that because of the consultation”—so why are they flying in the face of it? That seems an extraordinary thing to do in circumstances where impact assessments are regarded as a useful tool and training by business has clearly adjusted to them over the years since the Data Protection Act 2018.
Baroness Harding of Winscombe (Con)
My Lords, I rise to speak in support Amendments 79, 83, 85, 86, 93, 96, 97, 105 and 107, to which I have added my name. An awful lot has already been said. Given the hour of the day, I will try to be brief, but I want to speak to the child amendments I have put my name to and to the non-child ones and to raise things up a level.
The noble Lord, Lord Clement-Jones, talked about trust. I have spent the best part of the past 15 years running consumer and citizen digitally enabled services. The benefit that technology brings to life is clear to me but—this is a really important “but”—our customers and citizens need to trust what we do with their data, so establishing trust is really important.
One the bedrock of that trust is forcing—as a non-technologist, I use that word advisedly—technologists to set out what they are trying to do, what the technology they propose to build will do and what the risks and opportunities of that technology are. My experience as a non-engineer is that when you put engineers under pressure, they can speak English, but it is not their preferred language. They do not find it easy to articulate the risks and opportunities of the technology they are building, which is why forcing businesses that build these services to set out in advance the data protection impacts of the services they are building is so important. It is also why you have to design with safety in mind upfront because technology is so hard to retrofit. If you do not design it up front with ethics and safety at its core, it is gone by the time you see the impact in the real world.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank all noble Lords who have contributed to this very wide-ranging debate. Our amendments cover a lot of common ground, and we are in broad agreement on most issues, so I hope noble Lords will bear with me if I primarily focus on the amendments that I have tabled, although I will come back to other points.
We have given notice of our intention to oppose Clause 16 standing part of the Bill which is similar to Amendment 80 tabled by the noble Lord, Lord Clement-Jones, which probes why the Government have found it necessary to remove the requirement that companies outside the UK should appoint a representative within the UK. The current GDPR rules apply to all those active in the UK market, regardless of whether their organisation is based or located in the UK. The intention is that the representative will ensure UK compliance and act as a primary source of contact for data subjects. Without this clause, data subjects will be forced to deal with overseas data handlers, with all the cultural and language barriers that might ensue. There is no doubt that this will limit their rights to apply UK data standards.
In addition, as my colleagues in the Commons identified, the removal of the provisions in Clause 16 was not included in the Government’s consultation, so stakeholders have not had the chance to register some of the many practical concerns that they feel will arise from this change. There is also little evidence that compliance with Article 27 is an unnecessary barrier to responsible data use by reputable overseas companies. Again, this was a point made by the noble Lord, Lord Clement-Jones. In fact, the international trend is for more countries to add a representative obligation to their data protection laws, so we are becoming outriders on the global stage.
Not only is this an unnecessary change but, compared to other countries, it will send a signal that our data protection rights are being eroded in the UK. Of course, this raises the spectre of the EU revisiting whether our UK adequacy status should be retained. It also has implications for the different rules that might apply north and south of the border in Ireland so, again, if we are moving away from the standard rules applied by other countries, this has wider implications that we need to consider.
For many reasons, I challenge the Government to explain why this change was felt to be necessary. The noble Lord, Lord Clement-Jones, talked about whether the cost was really a factor. It did not seem that there were huge costs, compared to the benefits of maintaining the current system, and I would like to know in more detail why the Government are doing this.
Our Amendments 81 and 90 seek to ensure that there is a definition of “high-risk processing” in the Bill. The current changes in Clauses 17 and 20 have the effect of watering down data controllers’ responsibilities, from carrying out data protection impact assessments to assessing high-risk processing on the basis of whether it was necessary and what risks are posed. But nowhere does it say what constitutes high-risk processing—it is left to individual organisations to make that judgment—and nowhere does it explain what “necessary” means in this context. Is it also expected to be proportionate, as in the existing standards? This lack of clarity has caused some consternation among stakeholders.
The Equality and Human Rights Commission argues that the proposed wording means that
“data controllers are unlikely to go beyond minimum requirements”,
so the wording needs to be more explicit. It also recommends that
“the ICO be required to provide detailed guidance on how ‘the rights and freedoms of individuals’ are to be considered in an Assessment of High Risk Processing”.
More crucially, the ICO has written to Peers, saying that the Bill should contain a list of
“activities that government and Parliament view as high-risk processing, similar to the current list set out at Article 35(3) of the UK GDPR”.
This is what our Amendments 81 and 90 aim to achieve. I hope the Minister can agree to take these points on board and come back with amendments to achieve this.
The ICO also makes the case for future-proofing the way in which high-risk processing is regulated by making a provision in the Bill for the ICO to further designate high-risk processing activities with parliamentary approval. This would go further than the current drafting of Clause 20, which contains powers for the ICO to give examples of high-risk profiling, but only for guidance. Again, I hope that the Minister can agree to take these points on board and come back with suitable amendments.
Our Amendments 99, 100 and 102 specify the need for wider factors in the proposed risk assessment list to ensure that it underpins our equality laws. Again, this was an issue about which stakeholders have raised concerns. The TUC and the Institute for the Future of Work make the point that data protection impact assessments are a crucial basis for consultation with workers and trade unions about the use of technology at work, and this is even more important as the complexities of AI come on stream. The Public Law Project argues that, without rigorous risk and impact analysis, disproportionate and discriminatory processes could be carried out before the harm comes to light.
The Equality and Human Rights Commission argues that data protection impact assessments
“provide a key mechanism for ensuring equality impacts are assessed when public and private sector organisations embed AI systems in their operations”.
It specifically recommends that express references in Article 35(7) of GDPR to “legitimate interests” and
“the rights and freedoms of data subjects”,
as well as the consultation obligations in Article 35(2), should be retained. I hope that the Minister can agree to take these recommendations on board and come back with suitable amendments to ensure that our equalities legislation is protected.
Our Amendments 106 and 108 focus on the particular responsibilities of data controllers to handle health data with specific obligations. This is an issue that we know, from previous debates, is a major cause for concern among the general public, who would be alarmed if they thought that the protections were being weakened.
The BMA has raised concerns that Clauses 20 and 21 will water down our high standards of data governance, which are necessary when organisations are handling health data. As it says,
“Removing the requirement to conduct a thorough assessment of risks posed to health data is likely to lead to a less diligent approach to data protection for individuals”.
It also argues that removing the requirement for organisations to consult the ICO on high-risk processing is,
“a backward step from good governance … when organisations are processing large quantities of sensitive health data.
Our amendments aim to address these concerns by specifying that, with regard to specific cases, such as the handling of health data, prior consultation with the ICO should remain mandatory. I hope that the Minister will see the sense in these amendments and recognise that further action is needed in this Bill to maintain public trust in how health data is managed for individual care and systemwide scientific development.
I realise that we have covered a vast range of issues, but I want to touch briefly on those raised by the noble Baroness, Lady Kidron. She is right that, in particular, applications of risk assessments by public bodies should be maintained, and we agree with her that Article 35’s privacy-by-design requirements should be retained. She once again highlighted the downgrading of children’s rights in this Bill, whether by accident or intent, and we look forward to seeing the exchange of letters with the Minister on this. I hope that we will all be copied in and that the Minister will take on board the widespread view that we should have more engagement on this before Report, because there are so many outstanding issues to be resolved. I look forward to the Minister’s response.
Viscount Camrose (Con)
I thank the noble Baronesses, Lady Kidron and Lady Jones, and the noble Lord, Lord Clement-Jones, for their amendments, and I look forward to receiving the letter from the noble Baroness, Lady Kidron, which I will respond to as quickly as I can. As everybody observed, this is a huge group, and it has been very difficult for everybody to do justice to all the points. I shall do my best, but these are points that go to the heart of the changes we are making. I am very happy to continue engaging on that basis, because we need plenty of time to review them—but, that said, off we go.
The changes the Government are making to the accountability obligations are intended to make the law clearer and less prescriptive. They will enable organisations to focus on areas that pose high risks to people resulting, the Government believe, in improved outcomes. The new provisions on assessments of high-risk processing are less prescriptive about the precise circumstances in which a risk assessment would be required, as we think organisations are best placed to judge whether a particular activity poses a high risk to individuals in the context of the situation.
However, the Government are still committed to high standards of data protection, and there are many similarities between our new risk assessment measures and the previous provisions. When an organisation is carrying out processing activities that are likely to pose a high risk to individuals, it will still be expected to document that processing, assess risks and identify mitigations. As before, no such document would be required where organisations are carrying out low-risk processing activities.
One of the main aims of the Bill is to remove some of the UK GDPR’s unnecessary compliance burdens. That is why organisations will be required to designate senior responsible individuals, keep records of processing and carry out the risk assessments above only when their activities pose high risks to individuals.
Lord Clement-Jones (LD)
The noble Viscount is very interestingly unpacking a risk-based approach to data protection under the Bill. Why are the Government not taking a risk-based approach to their AI regulation? After all, the AI Act approaches it in exactly that way.
Viscount Camrose (Con)
That is a very interesting question, but I am not sure that there is a read-across between the AI Act and our approach here. The fundamental starting point was that, although the provisions of the original GDPR are extremely important, the burdens of compliance were not proportionate to the results. The overall foundation of the DPDI is, while at least maintaining existing levels of protection, to reduce the burdens of demonstrating or complying with that regulation. That is the thrust of it—that is what we are trying to achieve—but noble Lords will have different views about how successful we are being at either of those. It is an attempt to make it easier to be safe and to comply with the regulations of the DPDI and the other Acts that govern data protection. That is where we are coming from and the thrust of what we are trying to achieve.
I note that, as we have previously discussed, children need particular protection when organisations are collecting and processing their personal data.
Baroness Jones of Whitchurch (Lab)
I did not interrupt before because I thought that the Minister would say more about the difference between high-risk and low-risk processing, but he is going on to talk about children. One of my points was about the request from the Information Commissioner—it is very unusual for him to intervene. He said that a list of high-risk processing activities should be set out in the Bill. I do not know whether the Minister was going to address that important point.
Viscount Camrose (Con)
I will briefly address it now. Based on that letter, the Government’s view is to avoid prescription and I believe that the ICO’s view— I cannot speak for it—is generally the same, except for a few examples where prescription needs to be specified in the Bill. I will continue to engage with the ICO on where exactly to draw that line.
Lord Clement-Jones (LD)
My Lords, I can see that there is a difference of opinion, but it is unusual for a regulator to go into print with it. Not only that, but he has set it all out in an annexe. What discussion is taking place directly between the Minister and his team and the ICO? There seems to be quite a gulf between them. This is number 1 among his “areas of ongoing concern”.
Viscount Camrose (Con)
I do not know whether it is usual or unusual for the regulator to engage in this way, but the Bill team engages with the Information Commissioner frequently and regularly, and, needless to say, it will continue to do so on this and other matters.
Children need particular protection when organisations are collecting and processing their personal data, because they may be less aware of the risks involved. If organisations process children’s personal data, they should think about the need to protect them from the outset and design their systems and processes with this in mind.
Before I turn to the substance of what the Bill does with the provisions on high-risk processing, I will deal with the first amendment in this group: Amendment 79. It would require data processors to consider data protection-by-design requirements in the same way that data controllers do, because there is a concern that controllers may not always be able to foresee what processors do with people’s data for services such as AI and cloud computing.
However, under the current legislation, it should not be for the processor to determine the nature or purposes of the processing activity, as it will enter a binding controller-processor agreement or contract to deliver a specific task. Processors also have specific duties under the UK GDPR to keep personal data safe and secure, which should mean that this amendment is not necessary.
I turn to the Clause 16 stand part notice, which seeks to remove Clause 16 from the Bill and reinstate Article 27, and Amendment 80, which seeks to do the same but just in respect of overseas data controllers, not processors. I assure the noble Lord, Lord Clement-Jones, that, even without the Article 27 representative requirement, controllers and processors will still have to maintain contact and co-operation with UK data subjects and the ICO to comply with the UK GDPR provisions. These include Articles 12 to 14, which, taken together, require controllers to provide their contact details in a concise, transparent, intelligible and easily accessible form, using clear and plain language, particularly for any information addressed specifically to a child.
By offering firms a choice on whether to appoint a representative in the UK to help them with UK GDPR compliance and no longer mandating organisations to appoint a representative, we are allowing organisations to decide for themselves the best way to comply with the existing requirements for effective communication and co-operation. Removing the representative requirement will also reduce unnecessary burdens on non-UK controllers and processors while maintaining data subjects’ safeguards and rights. Any costs associated with appointing a representative are a burden on and a barrier to trade. Although the variety of packages made available by representative provider organisations differ, our assessments show that the cost of appointing representatives increases with the size of a firm. Furthermore, there are several jurisdictions that do not have a mandatory or equivalent representative requirement in their data protection law, including other countries in receipt of EU data adequacy decisions.
Lord Clement-Jones (LD)
Nevertheless, does the Minister accept that quite a lot of countries have now begun the process of requiring representatives to be appointed? How does he account for that? Does he accept that what the Government are doing is placing the interests of business over those of data subjects in this context?
Viscount Camrose (Con)
No, I do not accept that at all. I would suggest that we are saying to businesses, “You must provide access to the ICO and data subjects in a way that is usable by all parties, but you must do so in the manner that makes the most sense to you”. That is a good example of going after outcomes but not insisting on any particular process or methodology in a one-size-fits-all way.
Baroness Jones of Whitchurch (Lab)
The Minister mentioned the freedom to choose the best solution. Would it be possible for someone to be told that their contact was someone who spoke a different language to them? Do they have to be able to communicate properly with the data subjects in this country?
Viscount Camrose (Con)
Yes—if the person they were supposed to communicate with did not speak English or was not available during reasonable hours, that would be in violation of the requirement.
I apologise if we briefly revisit some of our earlier discussion here, but Amendment 81 would reintroduce a list of high-risk processing activities drawn from Article 35 of the UK GDPR, with a view to helping data controllers comply with the new requirements around designating a senior responsible individual.
The Government have consulted closely with the ICO throughout the development of all the provisions in the Bill, and we welcome its feedback as it upholds data subjects’ rights. We recognise and respect that the ICO’s view on this issue is different to the Government’s, but the Government feel that adding a prescriptive list to the legislation would not be appropriate for the reasons we have discussed. However, as I say, we will continue to engage with it over the course of the passage of the Bill.
Some of the language in Article 35 of the UK GDPR is unclear and confusing, which is partly why we removed it in the first place. We believe organisations should have the ability to make a judgment of risk based on the specific nature, scale and context of their own processing activities. We do not need to provide prescriptive examples of high-risk processing on the face of legislation because any list could quickly become out of date. Instead, to help data controllers, Clause 20 requires the ICO to produce a document with examples of what the commissioner considers to be high-risk processing activities.
I turn to Clause 17 and Amendment 82. The changes we are making in the Bill will reduce prescription by removing the requirement to appoint a data protection officer in certain circumstances. Instead, public bodies and other organisations carrying out high-risk processing activities will have to designate a senior responsible individual to ensure that data protection risks are managed effectively within their organisations. That person will have flexibility about how they manage data protection risks. They might decide to delegate tasks to independent data protection experts or upskill existing staff members, but they will not be forced to appoint data protection officers if suitable alternatives are available.
The primary rationale for moving to a senior responsible individual model is to embed data protection at the heart of an organisation by ensuring that someone in senior management takes responsibility and accountability for it if the organisation is a public body or is carrying out high-risk processing. If organisations have already appointed data protection officers and want to keep an independent expert to advise them, they will be free to do so, providing that they also designate a senior manager to take overall accountability and provide sufficient support, including resources.
Amendment 83, tabled by the noble Baroness, Lady Kidron, would require the senior responsible individual to specifically consider the risks to children when advising the controller on its responsibilities. As drafted, Clause 17 of the Bill requires the senior responsible individual to perform a number of tasks or, if they cannot do so themselves, to make sure that they are performed by another person. They include monitoring the controller’s compliance with the legislation, advising the controller of its obligations and organising relevant training for employees who carry out the processing of personal data. Where the organisation is processing children’s data, all these requirements will be relevant. The senior responsible individual will need to make sure that any guidance and training reflects the type of data being processed and any specific obligations the controller has in respect of that data. I hope that this goes some way to convincing the noble Baroness not to press her amendment.
Lord Clement-Jones (LD)
The Minister has not really explained the reason for the switch from the DPO to the new system. Is it another one of his “We don’t want a one-size-fits-all approach” arguments? What is the underlying rationale for it? Looking at compliance costs, which the Government seem to be very keen on, we will potentially have a whole new cadre of people who will need to be trained in compliance requirements.
Viscount Camrose (Con)
The data protection officer—I speak as a recovering data protection officer—is tasked with certain specific outcomes but does not necessarily have to be a senior person within the organisation. Indeed, in many cases, they can be an external adviser to the organisation. On the other hand, the senior responsible individual is a senior or board-level representative within the organisation and can take overall accountability for data privacy and data protection for that organisation. Once that accountable person is appointed, he or she can of course appoint a DPO or equivalent role or separate the role among other people as they see fit. That gives everybody the flexibility to meet the needs of privacy as they see fit, but not necessarily in a one-size-fits-all way. That is the philosophical approach.
Lord Clement-Jones (LD)
Does the Minister accept that the SRI will have to cope with having at least a glimmering of an understanding of what will be a rather large Act?
Viscount Camrose (Con)
Yes, the SRI will absolutely have to understand all the organisation’s obligations under this Act and indeed other Acts. As with any senior person in any organisation responsible for compliance, they will need to understand the laws that they are complying with.
Amendment 84, tabled by the noble Lord, Lord Clement-Jones, is about the advice given to senior responsible individuals by the ICO. We believe that the commissioner should have full discretion to enforce data protection in an independent, flexible, risk-based and proportionate manner. The amendment would tie the hands of the regulator and force them to give binding advice and proactive assurance without full knowledge of the facts, undermining their regulatory enforcement role.
Baroness Jones of Whitchurch (Lab)
The Minister has reached his 20 minutes. We nudged him at 15 minutes.
Lord Harlech (Con)
My Lords, just for clarification, because a number of questions were raised, if the Committee feels that it would like to hear more from the Minister, it can. It is for the mood of the Committee to decide.
Baroness Jones of Whitchurch (Lab)
As long as that applies to us on occasion as well.
Viscount Camrose (Con)
I apologise for going over. I will try to be as quick as possible.
I turn now to the amendments on the new provisions on assessments of high-risk processing in Clause 20. Amendments 87, 88, 89, 91, 92, 93, 94, 95, 97, 98 and 101 seek to reinstate requirements in new Article 35 of the UK GDPR on data protection impact assessments, and, in some areas, make them even more onerous for public authorities. Amendment 90 seeks to reintroduce a list of high-risk processing activities drawn from new Article 35, with a view to help data controllers comply with the new requirements on carrying out assessments of high-risk processing.
Amendment 96, tabled by the noble Baroness, Lady Kidron, seeks to amend Clause 20, so that, where an internet service is likely to be accessed by children, the processing is automatically classed as high risk and the controller must do a children’s data protection impact assessment. Of course, I fully understand why the noble Baroness would like those measures to apply automatically to organisations processing children’s data, and particularly to internet services likely to be accessed by children. It is highly likely that many of the internet services that she is most concerned about will be undertaking high-risk activities, and they would therefore need to undertake a risk assessment.
Under the current provisions in Clause 20, organisations will still have to undertake risk assessments where their processing activities are likely to pose high risks to individuals, but they should have the ability to assess the level of risk based on the specific nature, scale and context of their own processing activities. Data controllers do not need to be directed by government or Parliament about every processing activity that will likely require a risk assessment, but the amendments would reintroduce a level of prescriptiveness that we were seeking to remove.
Clause 20 requires the ICO to publish a list of examples of the types of processing activities that it considers would pose high risks for the purposes of these provisions, which will help controllers to determine whether a risk assessment is needed. This will provide organisations with more contemporary and practical help than a fixed list of examples in primary legislation could. The ICO will be required to publish a document with a list of examples that it considers to be high-risk processing activities, and we fully expect the vulnerability age of data subjects to be a feature of that. The commissioner’s current guidance on data protection impact assessments already describes the use of the personal data of children or other vulnerable individuals for marketing purposes, profiling or offering internet services directly to children as examples of high-risk processing, although the Government cannot of course tell the ICO what to include in its new guidance.
Similarly, in relation to Amendments 99, 100 and 102 from the noble Baroness, Lady Jones, it should not be necessary for this clause to specifically require organisations to consider risks associated with automated decision-making or obligations under equalities legislation. That is because the existing clause already requires controllers to consider any risks to individuals and to describe
“how the controller proposes to mitigate those risks”.
I am being asked to wrap up and so, in the interests of time, I shall write with my remaining comments. I have no doubt that noble Lords are sick of the sound of my voice by now.
Baroness Kidron (CB)
My Lords, I hope that no noble Lord expects me to pull all that together. However, I will mention a couple of things.
With this group, the Minister finally has said all the reasons why everything will be different and less. Those responsible for writing the Minister’s speeches should be more transparent about the Government’s intention, because “organisations are best placed to determine what is high-risk”—not the ICO, not Parliament, not existing data law. Organisations are also for themselves. They are “best placed to decide on their representation”, whether it is here or there and whether it speaks English or not, and they “get to decide whether they have a DPO or a senior responsible individual”. Those are three quotes from the Minister’s speech. If organisations are in charge of the bar of data protection and the definition of data protection, I do believe that this is a weakening of the data protection regime. He also said that organisations are responsible for the quality of their risk assessment. Those are four places in this group alone.
At the beginning, the noble Baroness, Lady Harding, talked about the trust of consumers and citizens. I do not think that this engenders trust. The architecture is so keen to get rid of ways of accessing rights that some organisations may have to have a DPO and a DPIA—a doubling rather than a reducing of burden. Very early on—it feels a long time ago—a number of noble Lords talked about the granular detail. I tried in my own contribution to show how very different it is in detail. So I ask the Minister to reflect on the assertion that you can take out the detail and have the same outcome. All the burden being removed is on one side of the equation, just as we enter into a world in which AI, which is built on people’s data, is coming in the other direction.
I will of course withdraw my amendment, but I believe that Clauses 20, 18 and the other clauses we just discussed are deregulation measures. That should be made clear from the Dispatch Box, and that is a choice that the House will have to make.
Before I sit down, I do want to recognise one thing, which is that the Minister said that he would work alongside us between now and Report; I thank him for that, and I accept that. I also noted that he said that it was a responsibility to take care of children by default. I agree with him; I would like to see that in the Bill. I beg leave to withdraw my amendment.
Lord Clement-Jones (LD)
My Lords, just in passing, I will say that I am beginning to feel that the decision made by the Privileges Committee and now the House is beginning to creak in terms of the very first Grand Committee that it has encountered. So, in terms of time limits, I think flexibility on Grand Committee in particular is absolutely crucial. I am afraid that the current procedures will not necessarily stand the test of time—but we shall see.
This is a relatively short debate on whether Clause 19 should stand part, but it is a really significant clause, and it is another non-trust-engendering provision. This basically takes away the duty of the police to provide justification for why they are consulting or sharing personal data. Prompted by the National AIDS Trust, we believe that the Bill must retain the duty on police forces to justify why they have accessed an individual’s personal data.
This clause removes an important check on police processing of an individual’s personal data. The NAT has been involved in cases of people living with HIV whose HIV status was shared without their consent by police officers, both internally within their police station and within the wider communities that they serve. Therefore, ensuring that police officers justify why they have accessed an individual’s personal data is vital evidence in cases of police misconduct. Such cases include when a person’s HIV status is shared inappropriately by the police, or when it is not relevant to an investigation of criminal activity.
The noble Baroness, Lady Kidron, was extremely eloquent in her winding up of the last group. The Minister really needs to come back and tell us what on earth the motivation is behind this particular Clause 19. I beg to move that this clause should not stand part of the Bill.
Lord Bassam of Brighton (Lab)
As the noble Lord, Lord Clement-Jones, explained, his intention to oppose the question that Clause 19 stands part seeks to retain the status quo. As I read Section 62 of the Data Protection Act 2016, it obliges competent authorities to keep logs of their processing activities, whether they be for collection, alteration, consultation, disclosure, combination or the erasing of personal data. The primary purpose is for self-monitoring purposes, largely linked to disciplinary proceedings, as the noble Lord said, where an officer has become a suspect by virtue of inappropriately accessing PNC-held data.
Clause 19 removes the requirement for a competent authority to record a justification in the logs only when consulting or disclosing personal data. The Explanatory Note to the Bill explains this change as follows:
“It is … technologically challenging for systems to automatically record the justification without manual input”.
That is not a sufficiently strong reason for removing the requirement, not least because the remaining requirements of Section 62 of the Data Protection Act 2018 relating to the logs of consultation and disclosure activity will be retained and include the need to record the date and time and the identity of the person accessing the log. Presumably they will be able to be manually input, so why remove the one piece of data that might, in an investigation of abuse or misuse of the system, be useful in terms of evidence and self-incrimination? I do not understand the logic behind that at all.
I rather think the noble Lord, Lord Clement-Jones, has an important point. He has linked it to those who have been unfortunate enough to be AIDS sufferers, and I am sure that there are other people who have become victims where cases would be brought forward. I am not convinced that the clause should stand part, and we support the noble Lord in seeking its deletion.
Viscount Camrose (Con)
This is a mercifully short group on this occasion. I thank the noble Lord, Lord Clement-Jones, for the amendment, which seeks to remove Clause 19 from the Bill. Section 62 of the Data Protection Act requires law enforcement agencies to record when personal data has been accessed and why. Clause 19 does not remove the need for police to justify their processing; it simply removes the ineffective administrative requirement to record that justification in a log.
The justification entry was intended to help to monitor and detect unlawful access. However, the reality is that anyone accessing data unlawfully is very unlikely to record an honest justification, making this in practice an unreliable means of monitoring misconduct or unlawful processing. Records of when data was accessed and by whom can be automatically captured and will remain, thereby continuing to ensure accountability.
In addition, the National Police Chiefs’ Council’s view is that this change will not hamper any investigations to identify the unlawful processing of data. That is because it is unlikely that an individual accessing data unlawfully would enter an honest justification, so capturing this information is unlikely to be useful in any investigation into misconduct. The requirements to record the time, date and, as far as possible, the identity of the person accessing the data will remain, as will the obligation that there is lawful reason for the access, ensuring that accountability and protection for data subjects is maintained.
Police officers inform us that the current requirement places an unnecessary burden on them as they have to update the log manually. The Government estimate that the clause could save approximately 1.5 million policing hours, representing a saving in the region of £46.5 million per year.
I understand that the amendment relates to representations made by the National AIDS Trust concerning the level of protection for people’s HIV status. As I believe I said on Monday, the Government agree that the protection of people’s HIV status is vital. We have met the National AIDS Trust to discuss the best solutions to the problems it has raised. For these reasons, I hope the noble Lord will not oppose Clause 19 standing part.
Lord Clement-Jones (LD)
I thank the Minister for his response, but he has left us tantalised about the outcome of his meeting. What is the solution that he has suggested? We are none the wiser as a result of his response.
This pudding has been well over-egged by the National Police Chiefs’ Council. Already, only certain senior officers and the data protection leads in police forces have access to this functionality. There will continue to be a legal requirement to record the time and date of access. They are required to follow a College of Policing code of practice. Is the Minister really saying that recording a justification for accessing personal data is such an onerous requirement that £46.5 million in police time will be saved as a result of this? Over what period? That sounds completely disproportionate.
The fact is that the recording of the justification, whether or not it is false and cannot be relied upon as evidence, is rather useful because it is evidence of police misconduct in relation to inappropriately accessing personal data. They are actually saying: “We did it for this purpose”, when it clearly was not. I am not at all surprised that the National AIDS Trust is worried about this. The College of Policing code of practice does not mention logging requirements in detail. It references them just once in relation to automated systems that process data.
I am extremely grateful to the noble Lord, Lord Bassam, for what he had to say. It seems to me that we do not have any confidence on this side of the House that removing this requirement provides enough security that officers will be held to account if they share an individual’s special category data inappropriately. I do not think the Minister has really answered the concerns, but I beg leave to withdraw my objection to the clause standing part.
Baroness Kidron
“(e) a description of how the controller will enforce purpose limitation, and(f) evidence of how individual information rights are enabled at the point of collection and after processing (if subsection (3A) is not routinely applied)”Member's explanatory statement
Large language models are accessing data that includes personal data. There are existing web protocols that can prevent this, but they are little known, difficult to navigate and require an opt out. This amendment and another in my name to Clause 20 would require either proof of legitimate interest, or prior permission from data subjects unless the company routinely give an easily accessible machine readable opt in.
Baroness Kidron (CB)
My Lords, I am somewhat disappointed to be talking to these amendments in the dying hours of our Committee before we take a break because many noble Lords—indeed, many people outside the House—have contacted me about them. I particularly want to record the regret of the noble Lord, Lord Black, who is a signatory to these amendments, that he is unable to be with us today.
The battle between rights-holders and the tech sector is nothing new. Many noble Lords will remember the arrival and demise of file-sharing platform Napster and the subsequent settlement between the sector and the giant creative industries. Napster argued that it was merely providing a platform for users to share files and was not responsible for the actions of its users; the courts sided with the music industry, and Napster was ordered to shut down its operations in 2001. The “mere conduit” argument was debunked two decades ago. To the frustration of many of us, the lawsuits led to a perverse outcome that violent bullying or sexually explicit content would be left up for days, weeks or forever, while a birthday video with the temerity to have music in the background would be deleted almost immediately.
The emergence of the large language models—LLMs—and the desire on the part of LLM developers to scrape the open web to capture as much text, data and images as possible raise some of the same issues. The scale of scraping is, by their own admission, unprecedented, and their hunger for data at any cost in an arms race for AI dominance is publicly acknowledged, setting up a tension between the companies that want the data and data subjects and creative rights holders. A data controller who publishes personal data as part of a news story, for example, may do so on the basis of an exemption under data protection law for journalism, only for that data to be scraped and commingled with other data scraped from the open web to train an LLM.
This raises issues of copyright infringement and, more importantly—whether for individuals, creative communities or businesses that depend on the value of what they produce—these scraping activities happen invisibly. Anonymous bots acting on behalf of AI developers, or conducting a scrape as a potential supplier to AI developers, are scraping websites without notifying data controllers or data subjects. In doing so, they are also silent on whether processes are in place to minimise risks or balance competing interests, as required by current data law.
Amendment 103 would address those risks by requiring documentation and transparency. Proposed new paragraph (e) would require an AI developer to document how the data controller will enforce purpose limitation. This is essential, given that invisible data processing enabled through web scraping can pick up material that is published for a legitimate purpose, such as journalism, but the combination of such information with other data accessed through invisible data processing could change the purpose and application of that data in ways that the individual may wish to object to using their existing data rights. Proposed new paragraph (f) would require a data processor seeking to use legitimate interest as the basis for web scraping and invisible processing to build LLMs to document evidence of how they have ensured that individual information rights have been enabled at the point of collection and after processing.
Together, those proposed new paragraphs would mean that anyone who scrapes web data must be able to show that the data subjects have meaningful control and can access their information rights ahead of processing. These would be mandatory, unless they have incorporated an easily accessible machine-readable protocol on an opt-in basis, which is then the subject of Amendment 104.
Amendment 104 would require web scrapers to establish an easily accessible machine-readable protocol that works on an opt-in basis rather than the current opt-out. Undoubtedly, the words “easily”, “accessible”, “machine readable” and “web protocols” would all benefit from guidance from the ICO but, for the absence of doubt, the intention of the amendment is that a web scraper would proactively notify individuals and website owners that scraping of their data will take place, including stating the identity of the data processor and the purpose for which that data is to be scraped. In addition, the data processor will provide information on how data subjects and data controllers can exercise their information rights to opt out of their data being scraped before any such scraping takes place, with an option to object after the event if taken without permission.
We are in a situation in which not only is IP being taken at scale, potentially impoverishing our very valuable creative industries, journalism and academic work that is then regurgitated inaccurately, but which is making a mockery of individual data rights. In its recent consultation into the lawful basis for web scraping, the ICO determined that use of web-scraped data
“can be feasible if generative AI developers take their legal obligations seriously and can evidence and demonstrate this in practice”.
These amendments would operationalise that demonstration. As it stands, there is routine failure, particularly regarding new models. For example, the ICO’s preliminary enforcement notice against Snap is that its risk assessment for its AI tool was inadequate.
Noble Lords will appreciate the significance of the connection that the ICO draws between innovative technology and children’s personal data, given the heightened data rights and protections that children are afforded under the age-appropriate design code. While I welcome the ICO’s action, holders of intellectual copyright have been left to fend for themselves, since government talks have failed and individual data subjects are left exposed. Whether it is the scraping of social media or work and school websites, these will not be pursued by the ICO because regulating action in such small increments is disproportionate, yet this lack of compliance is happening at scale.
Lord Clement-Jones (LD)
My Lords, given the hour, I will be brief. That was an absolute tour de force by the noble Baroness. As with all the Minister’s speeches, I will read her speech over Easter.
I was very interested to be reminded of the history of Napster, because that was when many of us realised that we were, in many ways, entering the digital age in the creative industries and beyond. The amendments that the noble Baroness put forward are examples of where the Bill could make a positive impact, unlike the impact that so much of the rest of it is making in watering down rights. She described cogently how large language models are ingesting or scraping data from the internet, social media and journalism, how very close to the ingestion of copyright material this whole agenda is and how it is being done by anonymous bots in particular. It fits very well with the debate in which the Minister was involved last Friday on the Private Member’s Bill of the noble Lord, Lord Holmes, who inserted a clause requiring transparency on the ingestion or scraping of data and copyright material by large language models. It is very interesting.
The opportunity in the data area is currently much greater than it is in the intellectual property area. At least we have the ICO, which is a regulator, unlike the IPO, which is not really a regulator with teeth. I am very interested in the fact that the ICO is conducting a consultation on generative AI and data protection, which it launched in January. Conterminously with this Bill, perhaps the ICO might come to some conclusions that we can use. That would of course include the whole area of biometrics, which, in the light of things such as deepfakes and so on, is increasingly an issue of great concern. The watchword is “transparency”: we must impose a duty on the generative AI models about the use of the material that they use to train their models and then use in operation. I fully support Amendments 103 and 104 in the name of the noble Baroness, even though, as she describes them, they are a small step.
Baroness Jones of Whitchurch (Lab)
My Lords, I, too, will be relatively brief. I thank the noble Baroness, Lady Kidron, for her amendments, to which I was very pleased to add my name. She raised an important point about the practice of web scrapers, who take data from a variety of sources to construct large language models without the knowledge or permission of web owners and data subjects. This is a huge issue that should have been a much more central focus of the Bill. Like the noble Baroness, I am sorry that the Government did not see fit to use the Bill to bring in some controls on this increasingly prevalent practice, because that would have been a more constructive use of our time than debating the many unnecessary changes that we have been debating so far.
As the noble Baroness said, large language models are built on capturing text, data and images from infinite sources without the permission of the original creator of the material. As she also said, it is making a mockery of our existing data rights. It raises issues around copyright and intellectual property, and around personal information that is provided for one purpose and commandeered by web scrapers for another. That process often happens in the shadows, whereby the owner of the information finds out only much later that their content has been repurposed.
What is worse is that the application of AI means that material provided in good faith can be distorted or corrupted by the bots scraping the internet. The current generation of LLMs are notorious for hallucinations in which good quality research or journalistic copy is misrepresented or misquoted in its new incarnation. There are also numerous examples of bias creeping into the LLM output, which includes personal data. As the noble Baroness rightly said, the casual scraping of children’s images and data is undermining the very essence of our existing data protection legislation.
It is welcome that the Information Commissioner has intervened on this. He argued that LLMs should be compliant with the Data Protection Act and should evidence how they are complying with their legal obligations. This includes individuals being able to exercise their information rights. Currently, we are a long way from that being a reality and a practice. This is about enforcement as much as giving guidance.
I am pleased that the noble Baroness tabled these amendments. They raise important issues about individuals giving prior permission for their data to be used unless there is an easily accessible opt-out mechanism. I would like to know what the Minister thinks about all this. Does he think that the current legislation is sufficient to regulate the rise of LLMs? If it is not, what are the Government doing to address the increasingly widespread concerns about the legitimacy of web scraping? Have the Government considered using the Bill to introduce additional powers to protect against the misuse of personal and creative output?
In the meantime, does the Minister accept the amendments in the name of the noble Baroness, Lady Kidron? As we have said, they are only a small part of a much bigger problem, but they are a helpful initiative to build in some basic protections in the use of personal data. This is a real challenge to the Government to step up to the mark and be seen to address these important issues. I hope the Minister will say that he is happy to work with the noble Baroness and others to take these issues forward. We would be doing a good service to data citizens around the country if we did so.
Viscount Camrose (Con)
I thank the noble Baroness, Lady Kidron, for tabling these amendments. I absolutely recognise their intent. I understand that they are motivated by a concern about invisible types of processing or repurposing of data when it may not be clear to people how their data is being used or how they can exercise their rights in respect of the data.
On the specific points raised by noble Lords about intellectual property rather than personal data, I note that, in their response to the AI White Paper consultation, the Government committed soon to provide a public update on their approach to AI and intellectual property, noting the importance of greater transparency in the use of copyrighted material to train models, as well as labelling and attribution of outputs.
Amendment 103 would amend the risk-assessment provisions in Clause 20 so that any assessment of high-risk processing would always include an assessment of how the data controller would comply with the purpose limitation principle and how any new processing activity would be designed so that people could exercise their rights in respect of the data at the time it was collected and at any subsequent occasion.
I respectfully submit that this amendment is not necessary. The existing provisions in Clause 20, on risk assessments, already require controllers to assess the potential risks their processing activities pose to individuals and to describe how those risks would be mitigated. This would clearly include any risk that the proposed processing activities would not comply with the data protection principles—for example, because they lacked transparency—and would make it impossible for people to exercise their rights.
Similarly, any assessment of risk would need to take account of any risks related to difficulties in complying with the purpose limitation principle—for example, if the organisation had no way of limiting who the data would be shared with as a result of the proposed processing activity.
According to draft ICO guidance on generative AI, the legitimate interests lawful ground under Article 6(1)(f) of the UK GDPR can be a valid lawful ground for training generative AI models on web-scrape data, but only when the model’s developer can ensure that they pass the three-part test—that is, they identify a legitimate interest, demonstrate that the processing is necessary for that purpose and demonstrate that the individual’s interests do not override the interest being pursued by the controller.
Controllers must consider the balancing test particularly carefully when they do not or cannot exercise meaningful control over the use of the model. The draft guidance further notes that it would be very difficult for data controllers to carry out their processing activities in reliance on the legitimate interests lawful ground if those considerations were not taken into account.
Baroness Kidron (CB)
My Lords, I thank the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Jones, for their support. I will read the Minister’s speech, because this is a somewhat technical matter. I am not entirely sure that I agree with what he said, but I am also not sure that I could disagree with it adequately in the moment.
I will make two general points, however. First, I hear the Minister loud and clear on the question of the Government’s announcement on AI and IP but, at the beginning of my speech, I referenced Napster and how we ended up with personal data. The big guys won the battle for copyright, so we will see the likes of the New York Times, EMI and so on winning this battle, but small creatives and individuals will not be protected. I hope that, when that announcement comes, it includes the personal data issue as well.
Secondly, I say to the Minister that, if it is working now in the way he outlined from the ICO, then I do not think anybody thinks it is working very well. Either the ICO needs to do something, or we need to do something in this Bill. If not, we are letting all our data be taken for free to build the new world with no permission.
I know that the noble Viscount is interested in this area. It is one in which we could be creative. I suggest that we try to solve the conundrum about whether the ICO is not doing its work or we are not doing ours. I beg leave to withdraw my amendment.
Viscount Camrose
“(3) In Schedule 7—(a) Part 1 contains minor and consequential amendments, and(b) Part 2 contains transitional provision.”Member’s explanatory statement
This amendment is consequential on the amendment in my name inserting amendments of section 119A of the Data Protection Act 2018 into Schedule 7 to the Bill.
Viscount Camrose (Con)
My Lords, UK law enforcement authorities processing personal data for law enforcement purposes currently use internationally based companies for data processing services, including cloud storage. The use of international processors is critical for modern organisations and law enforcement is no exception. The use of these international processors enhances law enforcement capabilities and underpins day-to-day functions.
Transfers from a UK law enforcement authority to an international processor are currently permissible under the Data Protection Act 2018. However, there is currently no bespoke mechanism for these transfers in Part 3, which has led to confusion and ambiguity as to how law enforcement authorities should approach the use of such processors. The aim of this amendment is to provide legal certainty to law enforcement authorities in the UK, as well as transparency to the public, so that they can use internationally based processors with confidence.
I have therefore tabled Amendments 110, 117 to 120, 122 to 129 and 131 to provide a clear, bespoke mechanism in Part 3 of the Data Protection Act 2018 for UK law enforcement authorities to use when transferring data to their contracted processors based outside the UK. This will bring Part 3 into line with the UK GDPR while clarifying the current law, and give UK law enforcement authorities greater confidence when making such transfers to their contracted processors for law enforcement purposes.
We have amended Section 73—the general principles for transfer—to include a specific reference to processors, ensuring that international processors can be a recipient of data transfers. In doing so, we have ensured that the safeguards within Chapter 5 that UK law enforcement authorities routinely apply to transfers of data to their international operational equivalents are equally applicable to transfers to processors. We are keeping open all the transfer mechanisms so that data can be transferred on the basis of an applicable adequacy regulation, the appropriate safeguards or potentially the special circumstances.
We have further amended Section 75—the appropriate safeguards provision—to include a power for the ICO to create, specifically for Part 3, an international data transfer agreement, or IDTA, to complement the IDTA which it has already produced to facilitate transfers using Article 46(2)(d) of the UK GDPR.
In respect of transfers to processors, we have disapplied the duty to inform the Information Commissioner about international transfers made subject to appropriate safeguards. As such, a requirement would be out of line with equivalent provisions in the UK GDPR. There is no strong rationale for complying with the provision, given that processors are limited in what they can do with data because of the nature of their contracts and that it would be unlikely to contribute to the effective functioning of the ICO.
Likewise, we have also disapplied the duty to document such transfers and to provide the documentation to the commissioner on request. This is because extending these provisions would duplicate requirements that already exist elsewhere in legislation, including in Section 61, which has extensive recording requirements that enable full accountability to the ICO.
We have also disapplied the majority of Section 78. While it provides a useful function in the context of UK law enforcement authorities transferring to their international operational equivalents, in the law enforcement to international processor context it is not appropriate because processors cannot decide to transfer data onwards on their own volition. They can only do so under instruction from the UK law enforcement authority controller.
Instead, we have retained the general prohibition on any further transfers to processors based in a separate third country by requiring UK law enforcement authority controllers to make it a condition of a transfer to its processor that data is only to be further transferred in line with the terms of the contract with or authorisation given by the controller, and where the further transfer is permitted under Section 73. We have also taken the opportunity to tidy up Section 77 which governs transfers to non-relevant authorities, relevant international organisations or international processors.
In respect of Amendment 121, tabled by the noble Lord, Lord Clement-Jones, on consultation with the Information Commissioner, I reassure the noble Lord that there is a memorandum of understanding between the Home Office and the Information Commissioner regarding international transfers approved by regulations, which sets out the role and responsibilities of the ICO. As part of this, the Home Office consults the Information Commissioner at various stages in the process. The commissioner, in turn, provides independent assurance and advice on the process followed and on the factors taken into consideration.
I understand that this amendment also relates to representations made by the National AIDS Trust. Perhaps the simplest thing is merely to reference my earlier remarks and commitment to engage with the National AIDS Trust ongoing. I beg to move that the government amendments which lead this group stand part of the Bill.
Lord Clement-Jones (LD)
My Lords, very briefly, I thank the Minister for unpacking his amendments with some care, and for giving me the answer to my amendment before I spoke to it—that saves time.
Obviously, we all understand the importance of transfers of personal data between law enforcement authorities, but perhaps the crux of this, and the one question in our mind is, what is—perhaps the Minister could remind us—the process for making sure that the country that we are sending it to is data adequate? Amendment 121 was tabled as a way of probing that. It would be extremely useful if the Minister can answer that. This should apply to transfers between law enforcement authorities just as much as it does for other, more general transfers under Schedule 5. If the Minister can give me the answer, that would be useful, but if he does not have the answer to hand, I am very happy to suspend my curiosity until after Easter.
Lord Bassam of Brighton (Lab)
My Lords, I too can be brief, having heard the Minister’s response. I thought he half-shot the Clement-Jones fox, with very good aim on the Minister’s part.
I was simply going to say that it is one in a sea of amendments from the Government, but the noble Lord, Lord Clement-Jones, made an important point about making sure that the country organisations that the commissioner looks at should meet the test of data adequacy—I also had that in my speaking note. The noble Lord, Lord Clement-Jones, was making a good point in terms of ensuring that appropriate data protections are in place internationally for us to be able to work with.
The Minister explained the government amendments with some care, but I wonder if he could explain how data transfers are made to an overseas processor using the powers relied on by reference to new Section 73(4)(aa) of the 2018 Act. The power is used as a condition and justification for several of the noble Lord’s amendments, and I wonder whether he has had to table these amendments because of the original drafting. That would seem to be to be the most likely reason.
Viscount Camrose (Con)
I thank the noble Lord, Lord Clement-Jones, for his amendment and his response, and I thank the noble Lord, Lord Bassam. The mechanism for monitoring international transfers was intended to be the subject for the next group in any case, and I would have hoped to give a full answer. I know we are all deeply disappointed that it looks as if we may not get to that group but, if the noble Lord is not willing to wait until we have that debate, I am very happy to write.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, this may be a convenient moment for the Committee to adjourn. Happy Easter, everyone.
House of Lords
Stroke Treatment
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Wheeler
To ask His Majesty’s Government what steps they are taking to improve treatment and care for those of working age who are affected by stroke.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Lord Markham) (Con)
The Government are taking three major steps to improve treatment and care for strokes: first, a whole series of prevention measures to help avoid a person having a stroke in the first place; secondly, an updated and evidence-based stroke care pathway using AI, the latest technology in stroke rehabilitation, to maximise the chances of recovery; and, thirdly, post-stroke rehabilitation care and support to maximise the chances of recovery.
Baroness Wheeler (Lab)
I thank the Minister. We know that one in four strokes happen to working-age people, and that it is also a leading cause of disability. Speech and physiotherapy support after stroke is therefore vital, because it helps recover key skills such as motor functions and cognitive ability, and it can be the difference between returning to work and not returning, or giving up altogether. With serious delays across the country in getting people to hospital and scanned, and in providing the speech and physiotherapy that is needed, and with chronic staff shortages across the country in hospital and community settings, good care is just not the reality for thousands of stroke sufferers. Some 40,000 people missed out last year on essential six-month, post-stroke reviews. When will the up and coming major conditions strategy be published? How will it specifically support effective stroke rehabilitation and recovery, and what timescales will be set for that?
Lord Markham (Con)
I thank the noble Baroness for her tireless work in this area. As she quite rightly points out, aftercare and rehabilitation is the vital third leg of the three-step process I spoke about. In the major conditions strategy we talk about how we are basing it on a national model for an integrated stroke care service, based around personalised, wraparound care, for as long as is needed, with reviews every six months. I have seen some fantastic examples when I have been out and about, such as in Royal Berkshire and Leighton. The proof of the pudding is in the results; we have seen the number of people who are achieving a full recovery increase from 16% to 48%. That is the target we are going after.
Lord Kakkar (CB)
My Lords, I draw noble Lords’ attention to my registered interests. The Minister mentioned the importance of prevention, which of course is not only primary but secondary prevention. In that regard, for both patients with atrial fibrillation at risk of a stroke and those who have had a stroke, it is vitally important that appropriate therapies, innovations in therapeutic intervention, and broader cardiovascular risk management are provided. Is the Minister content that we have a strategy that provides those opportunities, both for primary and secondary prevention of stroke?
Lord Markham (Con)
The noble Lord is quite right. Many noble Lords will have heard me echo Sir Chris Whitty’s words that his major concern about the whole Covid period was that people missed out on blood pressure and cardiovascular checks, which can be early-warning indicators. That is why we see prevention as a major leg of what we are trying to do, through having blood pressure checks and inviting everyone to have their health check every five years. What we are working on, and will be bringing out shortly, is greater use of digital for health checks, to do precisely what the noble Lord says.
Baroness Browning (Con)
My noble friend wrote to me in response to an Oral Question on the subject of strokes to explain how AI is enabling many hospitals now to be able to diagnose within the three-hour timeframe and give appropriate treatment, thus enhancing the recovery of stroke patients. I mentioned it to my local general hospital, and I am sorry to tell him that it does not have this AI technology. When does he think it will be rolled out nationally?
Lord Markham (Con)
This AI service, Brainomix, is one of the ground-breaking services that are part of the future of the NHS. It is part of the whole service, which will include video triaging. It is currently in 65% of hospitals, and I am sorry that it is not in my noble friend’s hospital. We have a target to increase that quite rapidly to 75%. I will look into the particular hospital that she mentions. It really is ground-breaking; overall, where we have got everything in place, full recovery has gone from 16% to 48%.
Lord Allan of Hallam (LD)
My Lords, to follow up on the issue of screening, atrial fibrillation is a well-known risk factor for stroke, but fortunately can now be checked for with some very cheap devices that connect to smartphones. What progress is being made on AF checks as part of screening programmes and routinely when high blood pressure is checked for? Can the Minister look particularly at the invites for the screening programme? I received one saying that I should come in for an AF check, not a stroke risk check or a cardiac risk check; they could be made much more user-friendly.
Lord Markham (Con)
The noble Lord is right to point that out, and I hope we are correcting it. I have seen the mobile app and digital being used to do all these things—I have even seen applications which can measure your blood pressure and pulse as you look at it. We need to check some of the accuracy around that, but it is all part of the programme. However, we need to make sure that it is in everyday English.
Baroness Pitkeathley (Lab)
My Lords, many family carers who provide care for stroke patients are also of working age. If they have to give up paid employment, it results often in the kind of debt that is currently in the news as a result of having to pay for care. What help can be given to those carers? I acknowledge that the Carer’s Leave Act was a welcome step forward, but that is only unpaid leave. What else can the Government provide for carers in these circumstances?
Lord Markham (Con)
The noble Baroness is right: carers are the hidden army who give so much support, not just in the area of strokes but across the board. As the noble Baroness said, we have put in place some steps, such as enabling leave and enabling people to claim benefits. I accept that that is not the whole enchilada, so to speak, but it is a step along the way.
Baroness Meacher (CB)
My Lords, I had a major stroke a year ago, and I am actually fine. I want to applaud the NHS. It has been truly remarkable, providing a machine beside my bed to monitor my heart every night. I also have atrial fibrillation. The NHS has monitored me incredibly carefully, with endless contact and the monitoring of my medication to ensure that it is exactly right—the GP was on to me this morning. The NHS has been completely wonderful, and it is worth saying that, as a patient.
Lord Markham (Con)
I am delighted to hear those good examples. As I say, we have had some very good results. The challenge is to ensure that everyone can have the sort of experience that the noble Baroness has had, which we are keen to do.
Baroness Lawlor (Con)
My Lords, does my noble friend agree that it might be worth looking further into post-stroke care, following what the noble Lord on the Cross Benches said? I have visited hospitals in France, where post-stroke patients, be they of working age or non-working age, are encouraged to get back to work and be fit for work. Sadly, in my own local hospital I have seen academics of working age discharged without provision for the speech therapy or physiotherapy which would allow them to continue working. This is something that we could learn from our French friends.
Lord Markham (Con)
That is what these SQuIRe centres are about—trying to roll out best practice. As I mentioned, I have seen fantastic examples, including simple things such as at Leighton Hospital, which gets every patient, not just stroke patients, to exercise for a couple of hours each day. That makes a difference to their length of stay and their ability to go back into the community and into the workplace.
Lord Hunt of Kings Heath (Lab)
My Lords, to follow on from the encouraging intervention of the noble Baroness, Lady Meacher, the Minister will know that, in 2010, London centralised hyperacute services into a small number of expert units. What progress are we making throughout the rest of the country, because in some parts it has been disappointingly slow?
Lord Markham (Con)
The stroke quality improvement for rehabilitation—SQuIRe—services are where we are trying to take best practice from London, France and around the world and roll it out. The good news is that we have the model; it is based on a national model for an integrated community stroke service. We have got that in 65% of locations, with the goal of making it 75%.
Lord McColl of Dulwich (Con)
My Lords, as there are 40 million people at risk of stroke because they are obese or overweight, would it be a good idea for the Government to recommend, as I have done for some time, that people have one fewer meal a day? That would reduce their weight and their expenditure.
Lord Markham (Con)
My noble friend is correct that weight and obesity is a major factor in all sorts of conditions, including strokes. Encouraging people to eat correctly, in a healthy manner, is absolutely the right way to go.
As this is the last time that I will see your Lordships, I wish all noble Lords a happy Easter. I for one am looking forward to the break.
Surplus Carbon Emissions
(7 months, 2 weeks ago)
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Lord Krebs
To ask His Majesty’s Government whether they intend to carry forward surplus emissions from the Third Carbon Budget, in the light of the advice of the Committee on Climate Change published on 28 February.
Baroness Hayman (CB)
My Lords, with the leave of the House, I beg leave to ask the Question standing in the name of the noble Lord, Lord Krebs, on the Order Paper.
The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)
My Lords, the Government have overachieved on all their carbon budgets to date. As required under the Climate Change Act, the Government have consulted the Climate Change Committee and the devolved Administrations before taking any decision on carrying forward overperformance from carbon budget 3. The Government are considering the CCC’s and DAs’ responses and will make a decision, ahead of the statutory deadline, on 31 May.
Baroness Hayman (CB)
My Lords, I declare my interests as set out in the register and thank the Minister for that reply. The advice of the Climate Change Committee on carryover was unequivocal: that surplus emissions must not be carried forward to loosen later carbon budgets, since most of the surpluses in the third carbon budget period were due to external factors. I seek assurance from the Minister that the Government will consider that unequivocal advice very carefully and make a stringent assessment of the effect of carrying forward surplus emissions from the third carbon budget on their pledge to cut emissions by 68% by 2030.
Lord Callanan (Con)
I can say no more than I said in my initial Answer. Of course, we will take into account the advice from the Climate Change Committee and the devolved Administrations. But this is a problem of success; we have overachieved on all our carbon budgets so far, and we should celebrate that. As I said, in terms of carryover, we will take a decision before 31 May.
Baroness Northover (LD)
Does the Minister agree that the reductions are due largely to Covid and the slowdown of the economy during that period, as opposed to what the Government had put in place? On the basis of that, and the advice of the Climate Change Committee that carryover would put our position at “serious risk”, surely the Government will not again ignore its advice? Can the Minister go back and make sure that they do indeed act on that advice?
Lord Callanan (Con)
We always take that advice into consideration. Covid was obviously a factor in that budget, but we overperformed on all the previous budgets before that as well. It is one factor; we will take it into consideration.
Lord Foulkes of Cumnock (Lab Co-op)
What discussions does the Minister have with his counterparts in Scotland? When he or his colleagues meet them, could he try to convince them to change their view on nuclear power? Nuclear power is one way of achieving our aim.
Lord Callanan (Con)
I have regular meetings with the Scottish Government, including my counterpart, who is from the Green Party—which makes for interesting discussions, as the House can imagine. The noble Lord is, of course, absolutely right: nuclear power is an essential component of power, both in Scotland and across the rest of the United Kingdom. We will certainly advise the Scottish Government of that. However, if they are crazy enough to dispense of their nuclear power, then their friends in the rest of the UK will be very happy to help out the people of Scotland.
Lord Kirkhope of Harrogate (Con)
My Lords, the Government are to be congratulated on achieving these targets, but would my noble friend not agree that we need to do much more with our international relationships to make sure that we alone are not forging ahead when others are failing to do so?
Lord Callanan (Con)
My noble friend makes a good point. Of course, the international diplomacy element of this is important. The UK alone is responsible for about 1% of worldwide emissions, so clearly we will not make a difference on our own. But as a leading industrialised nation, it is important that we set an example. We liaise extensively with other Governments internationally.
Baroness Walmsley (LD)
My Lords, some, though not all, of our success has been to do with the fact that we have dealt with low-hanging fruit such as getting rid of coal—I hope that we have got rid of it completely. The Government now need to turn their attention to the more difficult aspects of reaching net zero. I cite as an example the steel industry, which is very important in Wales and other parts of the country. What are the Government doing to support the British steel industry to reach net zero?
Lord Callanan (Con)
I am not sure that I would share the noble Baroness’s characterisation of getting rid of coal as low-hanging fruit. We have been extremely successful and will get rid of coal completely from the UK’s power system this year. We can contrast that with Germany, which is generating 27% of its power from coal this year. It is a great success, and it was very hard won. Of course, there are difficult challenges to face, one of which is steel. There are many other industrial sectors that are also difficult to decarbonise. We are working with all those industries to find appropriate solutions.
Baroness Boycott (CB)
My Lords, future carbon budgets that the Government are proposing depend quite a lot on carbon capture and storage. At the moment, this is not a working technology; it is not actually running anywhere in the world, although many Governments are putting it in their future plans as something that will deliver. Can the Minister give the House an update on where the technology stands, and when he expects it to get off the ground and start reducing carbon emissions?
Lord Callanan (Con)
I am afraid that the noble Baroness is incorrect; she needs to check her facts. There are a number of examples of working CCUS plants around the world. There is one in Canada, for instance; there are others as well. She is right that we are rolling it out in this country; there are two clusters we have identified, in the north-west and north-east of England—HyNet and the East Coast Cluster. We are in extensive negotiations with those clusters and want to make final investment decisions by quarter 3 this year, which will put the UK at the forefront of carbon capture in Europe.
Lord Rooker (Lab)
Notwithstanding the success of the Government so far, how much of our being ahead of the curve is contributed by the fact that we have de-industrialised and de-manufactured over the last 40 years? We are now importing huge amounts of products but are not actually measuring their carbon content or taxing people bringing them in. It is not sustainable as we are going at the present time, is it?
Lord Callanan (Con)
There is a degree of truth to what the noble Lord says. I do not characterise it as our having de-industrialised; we have some very successful manufacturing industries in this country, many of them low-carbon industries. Of course, the issue of carbon leakage is important, and it is one reason why we have committed to introducing a carbon border adjustment mechanism; we are currently consulting on the precise make-up of that. However, the noble Lord is right that it is a factor.
Lord Lennie (Lab)
What impact will the Offshore Petroleum Licensing Bill have on our ability to meet future carbon budgets?
Lord Callanan (Con)
As we debated extensively last night, it will have a negligible impact.
Lord Geddes (Con)
My Lords, following up the supplementary question from the noble Lord, Lord Foulkes of Cumnock, does noble friend agree that the Scottish Government, and indeed the British Government, could well add tidal power to their list?
Lord Callanan (Con)
My noble friend is relentless in his pursuit of tidal. He is right; it is an important component. It is not yet at scale; it is at a relatively small scale of development, but we supported it under the previous CfD round, and I am sure that tidal has a bright future ahead of it as part of our wide energy mix.
Lord Watts (Lab)
My Lords, does the Minister agree that we are missing a trick with wind power on land? Does he think the Government should change their policy on that? If so, does he think they should change the planning process to make it quicker to get those schemes up and running?
Lord Callanan (Con)
The noble Lord makes a good point. We are considering that at the moment. It is important that if we roll out wind power on land, we do it with the consent of local communities. We want to make sure that we take people who live next to the turbines with us. We are consulting on an appropriate way of doing that.
Lord Wallace of Saltaire (LD)
My Lords, since we are talking about various forms of renewable power, have the Government paid enough attention to hydro power from rivers in England and Wales? In France, the national grid was adapted to take on where there had very often been water mills. As I walk past the overflowing Aire each weekend, I think of just how much power we could generate on the various weirs down that river and the many other rivers in the Yorkshire Dales, which are not used because the National Grid has not really made any effort to hook up to local power sources that provide small but useful contributions to our power supply.
Lord Callanan (Con)
The noble Lord makes a good point. A number of schemes around the country are taking advantage of that. Again, they are relatively small-scale; they will not provide the large amount of power that we need, but they are worth investigating. I think there are a number of noble Lords in this House who take advantage of tidal power in their own areas.
Lord Lilley (Con)
The advice from the CCC on this issue seems quite rational, but will my noble friend ask it to review the advice it has offered on the total cost of meeting net zero? It refused for over a year to produce its workings, and at great expense tried to resist freedom of information requirements. When it went to the tribunal and it was forced to reveal its workings, they were shown to be flawed in a number of ways and have now been condemned by the Royal Society as wrong. Will the Minister ask it to review them and produce some new estimates?
Lord Callanan (Con)
I was not aware of that case, and I thank my noble friend for drawing my attention to it. I will certainly raise it with the Climate Change Committee.
Regional Arts Facilities
(7 months, 2 weeks ago)
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The Earl of Clancarty
To ask His Majesty’s Government what steps they are taking to protect regional arts organisations and facilities funded by local authorities, particularly where those local authorities are facing financial difficulties.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord Parkinson of Whitley Bay) (Con)
My Lords, we recognise that local authorities face challenges. That is why we have announced an additional £600 million to bolster our existing support, alongside our £64 billion local government finance settlement. We have also made permanent the increases to cultural tax reliefs and provided support for energy bills over the past two years. DCMS continues to advocate for and help local decision-makers understand the full value of culture, including through our culture and heritage capital programme.
The Earl of Clancarty (CB)
My Lords, local government funding has been the foremost means of support for our arts and cultural services. How then will the Government address the significant underfunding which, over so many years, has deprived organisations across the country of the core investment essential to the day-to-day running of our museums, galleries, libraries, theatres and orchestras? Does the Minister accept that tax relief and the kind of capital investment the Arts Council announced this week, though welcome in themselves, are not the solution to a problem now driving our arts and cultural services to the point of collapse?
Lord Parkinson of Whitley Bay (Con)
The noble Earl is right to point to the importance of local government, which is a bigger funder of the arts than national government or the Arts Council. It is a really important partner. He points to the things that the Government have done through the cultural tax reliefs—making them permanent is an important part of the help, alongside the support we have given to organisations in the face of rising energy costs. But, as I said in my initial answer, my department advocates for the importance of cultural spending, not just because it is a good in itself but because it is a way for local authorities to deliver many of their other statutory obligations in education and in health and well-being. That is why we capture the data and measure it in a Green Book-compliant way, so that we can have the conversation with our colleagues at the Treasury and bring the successes that we saw in the Budget, but also so that we can make that case clearly to our colleagues in local government.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, one of the most important cultural institutions in Northern Ireland is the Linen Hall library in Belfast. As a member, I would be delighted to host the Minister in the Linen Hall the next time he is in Belfast, so he can experience it for himself. It has been there since 1788 and it holds collections of national and international significance—yet it is significantly underfunded. Will the Minister think about the possibility of looking at all the UK cultural institutions that are critical to cultural well-being across the UK? I think it would be very useful to find out where the critical institutions are.
Lord Parkinson of Whitley Bay (Con)
Many elements of culture are devolved, as the noble Baroness knows, but other elements, such as the benefits through the National Lottery, apply UK-wide. I would be delighted to make the case for those benefits of our United Kingdom for cultural organisations right across the UK.
Lord Addington (LD)
My Lords, the Minister mentioned the fact that there is a cost—to things such as education and other bits of government—if you do not have these functioning properly. Can the Government give us some indication of the input needed from, for example, the Department for Education, to deliver an acceptable level of operation properly to the nation, and also the on-costs for things such as the night-time economy?
Lord Parkinson of Whitley Bay (Con)
Many of these things are the responsibility of local authorities. That is right—they are accountable to local people for the way that they deliver them, but they have statutory obligations, including in children’s services and education. The Department for Education works closely with local authorities as they discharge that duty and the Government provide help—my department allocated £33 million only this week for library services and museums around the country, helping people with their education outside school settings.
Lord Wigley (PC)
My Lords, does the Minister accept that, when local authorities cut back and have an impact on the arts in their own area, it impacts not only on the audiences, performing companies and organisations there but also on the touring arts companies? I think particularly of the Welsh National Opera, which circulates considerably in England. In looking at this Question, will he take a strategic attitude and have regard to the knock-on effect that that can have?
Lord Parkinson of Whitley Bay (Con)
I talked with the Welsh National Opera only last week about the importance and benefits of touring, as it does, between England and Wales. I am sure the noble Lord would share my despair that the Labour Government in Wales are cutting arts funding by 10% and considering reintroducing fees for museums. I hope that he sees the positive contrast with the increased budget that the Government provided to Arts Council England at the last funding round.
Baroness Williams of Trafford (Con)
My Lords, we have a bit of an impasse. Could we hear from the Conservative Benches and then the Labour Benches?
Baroness Rawlings (Con)
Thank you. My Lords, despite financial difficulties, some national museums are prevented by law from deaccessioning. What is the Government’s policy towards regional museums?
Lord Parkinson of Whitley Bay (Con)
As my noble friend rightly points out, some of the national museums are prevented in statute from deaccessioning items in their collections. Other museums are under the direction of their trustees, and about 18 months ago the Government, working with Arts Council England and the sector, provided some guidance so that the trustees of those collections were able to reflect on the importance considerations as they made those decisions.
Baroness McIntosh of Hudnall (Lab)
My Lords, the Minister will know that, for the past 40 years—probably more—the arts sector in this country has been reliant principally on three sources of income: one is what it can earn for itself through trading, another is the public funding that comes from the Arts Council and local authorities, and the third is private giving. He will also know that all three of those funding streams are currently under enormous pressure. Therefore, while accepting and being grateful for the work that the Government have done recently, in view of the widespread challenges that all arts organisations are currently facing, does he think that it is enough?
Lord Parkinson of Whitley Bay (Con)
The noble Baroness is right. All three elements that she mentioned are important, and all three are facing challenges at the moment. That is why we were so pleased that the Chancellor agreed to make permanent the tax reliefs in the Budget, because that encourages the sort of risk-taking experiment, such as touring a new production, that can help be a part of the commercial income of our brilliant arts organisations. I am glad that the noble Baroness has agreed to join the advisory panel for Dame Mary Archer’s review of Arts Council England, which can look at this important landscape and, I hope, inform the review and the recommendations that it makes to government.
The Earl of Kinnoull (CB)
My Lords, I declare my interest as set out in the register. Tomorrow sees the opening of the new Perth Museum, which is the new home for the Stone of Scone, or the Stone of Destiny. This has been made possible by £10 million of funding from the UK Government, and also substantial funding from the local council. This has been a brilliant model and will be transformational for Perth. Can the Minister tell us a bit more about whether the Government will make more of these types of transformational investments—capital investments—to allow regions that are relatively deprived to have vibrant arts and cultural organisations?
Lord Parkinson of Whitley Bay (Con)
The noble Earl is right to point to the importance of partnership working. The Government are very proud to have contributed towards the museum in Perth and the new home for the Stone of Scone—I hope that the opening tomorrow goes well. In the Budget, we also joined the Welsh Government and Flintshire county council in supporting Theatr Clwyd, which does important work not just in north Wales but in the north-west of England. I had the pleasure of visiting the theatre and seeing the renovation that has been done there. Through both the levelling up fund and the UK shared prosperity fund, the UK Government are playing their part in helping arts and culture in every part of the United Kingdom.
Lord Bassam of Brighton (Lab)
My Lords, I know the Minister supports Labour’s view of a positive approach to the arts and to culture. The UK originates blockbuster films; it is one of only three net exporters of music; we are the second-largest advertising supporter and the largest book exporter; and the cultural sector, as the Minister well knows, supports 2.5 million jobs and is worth £125 billion. Yet, in 2021, the Government said that arts subjects were not a strategic priority. Given that culture is one of our most dynamic and growing sectors, is this still official Government policy? If it is, will the Minister commit to reviewing and reversing this damaging and neglectful approach to our arts and cultural industries?
Lord Parkinson of Whitley Bay (Con)
The noble Lord is absolutely right to point to the importance of arts and culture to our economy, as well as our society. It is one of the Chancellor’s five priority areas for the economy, and that was reflected in the Budget through the tax reliefs and through the direct investment that was made. He is also right to talk about the importance of cultural education, so that we can unleash the talents of everybody and make sure that future generations have the ability to join, enjoy and pursue a lifetime in arts and culture. That is why I am delighted that the noble Baroness, Lady Bull, is helping lead the advisory panel to inform our new cultural education plan, working jointly with DCMS and the Department for Education.
Student Loan Interest Rates
(7 months, 2 weeks ago)
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Lord Sikka
To ask His Majesty’s Government what assessment they have made of the level of interest being charged on student loans.
The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
My Lords, our recent reforms, implemented in August 2023, ensure that the student loan system is fairer for taxpayers and for students. New students on the new loan terms will benefit from a reduction in interest rates to the retail prices index only. This ensures that they will not repay, under those terms, more than they originally borrowed when adjusted for inflation.
Lord Sikka (Lab)
My Lords, unlike residents of Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Norway, Scotland and Spain, people living in England pay university tuition fees—a major cause of the student debt of more than £206 billion and rising. The average debt of £45,000 currently attracts a 7.7% compound interest rate and is rising. Can the Minister explain why the interest rate on student debt is higher in real terms than the equivalent interest charged on a mortgage?
Baroness Barran (Con)
I think the noble Lord knows the answer to his question: it is not appropriate to compare mortgages with student debt, which is unsecured and expires and does not have to be repaid in full. The noble Lord shakes his head, but he can do the maths: a mortgage is asset-backed, and one has to repay it; a student loan is not asset-backed and expires. As the noble Lord knows, under the current system, the vast majority of students do not repay it in full.
Lord Porter of Spalding (Con)
My Lords, I declare that I have a number of children and grandchildren who are suffering from the ridiculous regime of charging students interest at a stupid rate, when the Government could have controlled that debt book. Does my noble friend not agree that it would be far better for the youth of our country and the future of our own Government if we put that debt book back on to a public works loan board or something equivalent? The level of intergenerational unfairness in this country is outrageous, and we are fuelling it. It is ridiculous.
Baroness Barran (Con)
I am afraid I cannot agree with my noble friend. The debt repayment levels are dependent on income, and, as I said to the noble Lord, Lord Sikka, we expect that under the new plan 5 loans 61% of new full-time borrowers will repay their loans in full, with the balance being subsidised by the taxpayer. A recent graduate on a starting salary of £26,000 will repay £7 a month.
Lord Addington (LD)
My Lords, the student loan system is renowned for bad repayment rates and, as has just been mentioned, high interest rates. Would it not be the right time to get some system that the Government back and is on the government books? That is what needs to be done to get us away from the accounting procedure. It is ridiculous. I declare an interest as somebody who has a daughter who is coming up to her finals.
Baroness Barran (Con)
I think the noble Lord is aware that there is a cap on the interest rate, but I remind the House that interest rates do not impact on the income of borrowers. Repayments are a percentage of income above a repayment threshold, irrespective of interest rates.
Lord Alton of Liverpool (CB)
My Lords, on 18 March, on behalf of Hong Kong Watch, of which I am a patron, I chaired a meeting here in your Lordships’ House about the launch of a new report concerning the effect of international fees on the children of some of the 160,000 BNO passport holders who have arrived and been given such a welcome in the United Kingdom. Will the Minister undertake to speak to the right honourable Gillian Keegan, the Secretary of State, about the letter she has now received pointing out the lack of equity in charging BNO passport holders up to £50,000 each for five years if they study medicine, or £25,000 a year if they are at a Russell group university, and look instead at the Scottish model and also at the position of EU students on pre-settled and settled rates, who are able to qualify for home student fees after three years?
Baroness Barran (Con)
I would be delighted to talk to my right honourable friend the Secretary of State, but, as the noble Lord knows, this is a timing issue in terms of getting settled status. I appreciate that there is a lag in that happening.
Baroness Blower (Lab)
My Lords, what assessment have the Government made of the link between graduate debt, which inflates the debt-to-income ratio, and the inability of the younger generation to buy homes of their own?
Baroness Barran (Con)
I come back to my earlier answer: we have a system in which it is very clear that above a certain threshold, 9% of income goes to repaying part or all of a graduate’s debt. The overall package, obviously, in terms of affordability of mortgages and housing, is dependent on many issues, of which graduate debt is one.
Lord Johnson of Marylebone (Con)
My Lords, the Government’s excellent recent reforms to the student loan book have significantly improved its affordability to the taxpayer, with less than a third now expected to be written off. Given this, and given the funding crunch facing universities—which will be worsened if the Government take a hatchet to the graduate route, by the way—does my noble friend the Minister agree with me that it is time to allow universities to increase fees in line with inflation for those that can demonstrate they are delivering great outcomes for students, as assessed by the teaching excellence framework?
Baroness Barran (Con)
As my noble friend touched on, the Government are trying to balance, or triangulate, a number of things. One is affordability for students, hence the freeze we have had for seven years on fees. Another is addressing poor-quality provision—at the other end of the issue from the one my noble friend raises—through the new Office for Students regime. In relation to motivation, reward and recognition for the highest-performing institutions, a review of allowing indexation of fees based on the TEF is not under consideration currently, but I will say that having a high-quality teaching framework does allow for strong recruitment and research income.
Baroness Falkner of Margravine (CB)
My Lords, has the Minister considered the level of graduate earnings currently and the threshold she refers to? Leading on from the question from the noble Lord, Lord Johnson, in light of those two parameters, have the Government thought of increasing the level of fees so that those who go on to very high earnings can pay a proportionate amount, making it more progressive than the flat rate that now applies?
Baroness Barran (Con)
Of course, those who go on to much higher earnings end up repaying much more than those on lower earnings, but no additional consideration is currently being given to the suggestion from the noble Baroness.
Baroness Twycross (Lab)
My Lords, the Student Money Survey last September found that 18% of students had used a food bank in the 2022-23 academic year, up from 10% in 2021-22. The annual inflation rate peaked at 9.6% in the year to October 2022, yet for the 2022-23 academic year, the value of student maintenance loans for living costs rose by only 2.3%. What are the Government doing to ensure that students can focus on their studies and not worry about how they are going to feed themselves?
Baroness Barran (Con)
I understand why the noble Baroness raises this point, and I am aware of the concerns around affordability. We have continued to increase the maximum loans and grants for living costs each year, with the most support going to students from the lowest-income families, and benefits for lone parents and disabled students. We have made wider cost of living investments as a Government and, in addition, have made £260 million of student premium and mental health funding available for the 2023-24 academic year.
Lord Hampton (CB)
My Lords, as ever, I declare my interest as a teacher. Does the Minister agree with me that this is part of a wider conversation that too many students these days are being sold the dream of a degree, when they would be much better suited to the route of education within a workplace or an apprenticeship?
Baroness Barran (Con)
The noble Lord is right, and that is why we are focusing on improving both the quality and the quantity of careers advice to students at school. We are doing a lot of work through the Unit for Future Skills to predict the skills needs and gaps in the economy. At levels 4 and 5, as well as at level 6, being an undergraduate level, there are tremendous opportunities for our young people.
Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024
Lord Gascoigne
That the draft Regulations laid before the House on 26 February be approved.
Relevant document: 17th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 26 March.
Lord Gascoigne (Con)
My Lords, on behalf of my noble friend Lord Younger of Leckie, and with the leave of the House, I beg to move the Motion standing in his name on the Order Paper.
Renewable Transport Fuel Obligations (Amendment) Order 2024
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Davies of Gower
That the draft Order laid before the House on 21 February be approved.
Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 26 March.
Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024
Lord Evans of Rainow
That the draft Regulations laid before the House on 26 February be approved. Considered in Grand Committee on 26 March.
Lord Evans of Rainow (Con)
My Lords, on behalf of my noble friend Lady Vere of Norbiton, and with the leave of the House, I beg to move the Motion standing in her name on the Order Paper.
Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024
Lord Evans of Rainow
That the draft Regulations laid before the House on 21 February be approved. Considered in Grand Committee on 26 March.
Lord Evans of Rainow (Con)
My Lords, on behalf of my noble friend Lord Offord of Garvel, and with the leave of the House, I beg to move the Motion standing in his name on the Order Paper.
Allowances
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord True
That:
(1) Members of this House, except any Member who receives a salary under the Ministerial and other Salaries Act 1975 and the Chairman and Principal Deputy Chairman of Committees, should be entitled to an overnight allowance in respect of each day of attendance on or after 15 April 2024 as provided for below.
(2) Members are eligible to claim the overnight allowance—
(a) if the Member’s registered residential address is outside Greater London,
(b) the Member has a recorded attendance,
(c) for reimbursement towards the expense of hotel or similar accommodation costs in Greater London incurred in staying overnight away from their registered residential address where it is necessary to do so for the purpose of attendance.
(3) “Attendance” means attendance—
(a) at a sitting of this House,
(b) at a meeting of a Committee of this House, or
(c) on such other Parliamentary business as may be determined by the House of Lords Commission.
(4) The maximum daily amount payable to a Member should be £100.
(5) The maximum daily amount can be claimed for each day of recorded attendance or each night which falls immediately before a day of recorded attendance. Members cannot claim for more nights than days attended.
(6) The provisions of this Resolution apply in accordance with guidance issued under the authority of the House of Lords Commission.
(7) In relation to the year beginning with 1 April 2025, and each subsequent year beginning with 1 April—
(a) any formula or mechanism included in the IPSA determination for the year as a result of section 4A(4) of the Parliamentary Standards Act 2009 (adjustment of MPs’ salaries) should be treated as applying for the purposes of adjusting for that year the amount of the allowance payable to a Member of this House, and
(b) accordingly, the amount of the allowance payable to a Member in respect of a day of attendance in that year should be—
(i) the amount obtained by applying the formula or mechanism to the amount payable by way of allowance (under paragraph 4 or this paragraph) in the previous year, or
(ii) where no formula or mechanism is included in the determination, the same amount payable by way of allowance (under paragraph 4 or this paragraph) in the previous year.
(8) In paragraph 7(a) “IPSA determination” means a determination under section 4(4) of the Parliamentary Standards Act 2009.
(9) Any fraction of a pound in an amount obtained under paragraph 7(b)(i) should be rounded up to the nearest pound if the fraction is 50p or more, but otherwise should be disregarded.
The Lord Privy Seal (Lord True) (Con)
My Lords, on 13 March, the House of Lords Commission agreed to restore an overnight allowance scheme to provide specific accommodation support for Members who live outside Greater London. The resolution that I move as Leader today will put into effect the proposals agreed in the commission report published on 21 March.
The original impetus for this came from the chairs of the Back-Bench party groups in your Lordships’ House. Having reached a cross-party consensus as to the principle and extent of any additional financial support, as I suggested would be necessary, they approached me to present their case to the commission. I agreed to do so. The commission agreed the proposals and I am putting them to the House today. The resolution that noble Lords see before them reflects the recommended proposals of the party chairs and the usual channels. I know that they do not meet everyone’s aspirations, but I submit that they represent a compromise and a balance.
For the avoidance of doubt, as an officeholder and a resident of the Greater London area, I have no personal interest whatever in this change. Indeed, I supported my noble friend Lord Strathclyde in the design of the current approach to allowances. It was intended to be, in my noble friend’s words,
“direct, transparent and accountable, a scheme that is simple and not open to abuse”.—[Official Report, 20/7/10; col. 916.]
In the same way, I submit that the current measure before your Lordships passes those tests as simple, transparent and accountable, and is appropriate to meet the changing burdens currently faced by many Peers.
To summarise, if this Motion is agreed to, Members whose registered address is outside the Greater London area may claim towards the expense of overnight accommodation in Greater London in a hotel, club or similar accommodation while away from their registered residential address for the specific purpose of attending sittings of the House. The maximum that can be claimed for each eligible overnight stay is £100, and it will be reimbursed only on production of a receipt. If the room costs less than £100, only the receipted cost of the room will be paid. The number of overnight claims cannot exceed the number of recorded attendances a Member has in a given week. A review will take place of this new scheme after 12 months.
As many Peers travel daily from far beyond the M25, and Members who seek accommodation inside London pay an increasing price for undertaking their parliamentary duties, I pass over the fact that it is far more sustainable to have Peers staying over rather than commuting daily. But I submit that this House must be accessible to all, regardless of financial status and location. We have, and I mean no offence, become far too much a House of the south-east of England. It is not right that some noble Lords may be deterred from coming to this House because attendance would impose a significant financial burden on them. In responding to this, the commission seeks to ensure that geographic and economic disparities do not dictate the conduct of Parliament.
I believe that the proposal strikes a balance. We must all be mindful that money we spend in this place is not our own. Any scheme that seeks to support parliamentarians must be proportionate to both the purpose it seeks to address and the implications for the public purse. In this case, the commission considers that a flat rate that sits below the average cost of London hotel accommodation is a proportionate figure. This proposed ceiling is well below—indeed, less than half—that which is offered to our good colleagues in the other place.
I return to my first point: the scheme is simple, easy to check, and aimed to avoid abuse. This House will rightly come down hard—very hard—on any who may seek to abuse it. We have placed a review of the scheme after 12 months to ensure that the allowance is working as it should, and the House will expect that every Peer will stand on their honour in this regard.
If this resolution is passed, the scheme will come into effect after the Easter Recess. I will of course continue to welcome Members’ views on this matter, though I know that very many have fed into the cross-party consultations in the various groups, and I thank them for that. I hope that this scheme may support participation in this House, and I thank the noble Lords who worked on the proposals, the usual channels and the convenor for their support for this resolution. I commend it to the House and I beg to move.
Lord Balfe (Con)
I welcome this proposal, and the points I wish to make are made in a friendly manner, not a critical one. I am concerned about the interpretation of the words “similar accommodation”. I wonder whether the noble Lord the Leader of the House would consider whether a requirement that the accommodation is registered for VAT should be part of the scheme. I understand that this is fairly common within the Civil Service. I also wonder why we are reinventing a wheel and why we do not just adopt the same system as applies to Treasury officials who come to London for meetings and are part of the Home Civil Service. This seems a very easy thing to incorporate into our rules. I am concerned that the absence of any mention of VAT and the loose wording “similar accommodation” could lead to loopholes. As a person who was responsible for closing many loopholes in the European Parliament scheme, I am well aware of where loopholes can be found.
Lord McConnell of Glenscorrodale (Lab)
My Lords, it would be wrong of me not to comment on this, having been the Member who first raised this about a decade ago when we first raised the annual allowance. I welcome the report and the Motion in the name of the Leader of the House. I thank him personally. He may have been involved in the original scheme and the mistakes that were made then, but I welcome very much his efforts as Leader, with, I am sure, the support of the Lord Speaker and others, to make sure that this change came before the House today. It is long overdue and very welcome.
I also want to thank my noble friend Lord Foulkes. When I gave up the campaign on this issue through sheer exhaustion, he took up the cause. He deserves some credit on behalf of all of us who live outside London for making sure that this change comes forward.
The initial scheme, which was introduced in the month in which I came into this House, was wrong. In order to stop people who live in London abusing the old scheme, it has resulted in all of them receiving significant financial benefit during the last 14 years, while every Member who lives outside London and who uses overnight accommodation in London had their allowance cut in July 2010 and has suffered financially ever since.
Baroness Fraser of Craigmaddie (Con)
My Lords, I too declare an interest as I come to this House every week from Scotland. It astounded me from the moment I was introduced that there was no such scheme to compensate for overnight accommodation, so I too welcome the report.
I have one question. I do not understand why Members of this House who travel from the various parts of the UK should be subject to different rules from those for Members of the other place. The overnight rating, while welcome, is considerably less than Members of the other place receive. The kind of accommodation to which it applies is not as extensive as IPSA sets out for MPs. I do not really understand why those of us who come to this House from other areas should be treated differently from MPs.
I remind your Lordships that this is an allowance that can be claimed, and there are many colleagues who choose not to claim it. I would hope that it would be claimed only by those of us for whom it really makes a difference to our attendance here, rather than by those who seek to claim it just because they can. I thank my noble friend for the report, but I do not understand why we have not followed the IPSA guidance.
Lord Newby (LD)
My Lords, we on these Benches very much welcome this scheme. I would say to the noble Baroness, Lady Fraser, that we do not want to go down the IPSA route on anything. Everything is different, and once we start trying to draw comparisons, we get into real difficulty.
It is very important that this House is as diverse as possible. It is heavily skewed towards London and the south-east. Money is not the only reason, but we should be doing whatever we can to ensure that everybody, wherever they live and whatever their circumstances, can participate.
I fully accept that the scheme is not perfect, but it is better. Nobody I have spoken to has come up with a scheme that everybody would agree is perfect. This scheme will relieve real problems for a significant number of Members who, in some cases, have been out of pocket by coming to your Lordships’ House. This is clearly not acceptable, and the scheme goes a long way towards dealing with that. From these Benches we heartily welcome it.
Baroness Smith of Basildon (Lab)
My Lords, I thank the Leader of the House for bringing this forward today. He has heard the mood of the House, and it is warmly welcomed. I also put on record our thanks to the chairs of the groups and the convenor. They have consulted around the House about the difficulties caused for those who travel some distance to get here and stay overnight. I am grateful to them for their efforts in putting forward a scheme.
This scheme recognises three things. First, when the rules on the initial daily payment were changed, it was not kept in line with inflation for around 10 years, meaning that it fell behind what was reasonably expected when it was set up. At the same time, the cost of hotels and other accommodation increased significantly above inflation during that period, meaning that those paying for accommodation are paying a significantly greater proportion of the daily allowance than they were when the scheme was set up.
To answer the noble Baroness, Lady Fraser, the difference between us and the Members of the House of Commons is that they are salaried employees, and we are not. We receive a daily allowance for days on which we attend and are here working. So, there is a difference in the arrangements for the two Houses.
The scheme also recognises that this is a contribution towards the costs, which fluctuate enormously; in that sense, it is fair to all colleagues. It also recognises the work of your Lordships’ House. Too often we talk about allowances in the abstract, but allowances enable Members of this House to fulfil their responsibilities. Members who have to dash off early to catch the train home because they cannot find a hotel within their price range are disadvantaged and cannot play a proper role. The bottom line is that we need to ensure that the House can do its work properly. I am grateful to the Leader of the House and to the chairs of the groups, who, as I said, have done a lot of work in producing something which is fair and reasonable for all. It has the support of these Benches.
Lord True (Con)
My Lords, I am grateful to the noble Baroness. In my opening remarks, I expressed gratitude to the chairs of the various groups. I should have explicitly included the convenor, but I was including the Cross-Bench group as well. Mature, sensible discussions have contributed to this.
I thank the noble Lord, Lord McConnell, for what he said. I must not go back over old times, but the reality is that the current scheme came out of what was an emergency brake on a system that was being abused. We were trekking down a road which led the other place into considerable disrepute at that time, and there was widespread agreement in the House that we should move to a simple, transparent and accountable system. With the test of time and having spoken to the noble Lord and to others, I think it was right to undertake these conversations and this review. As the noble Baroness and the noble Lord, Lord Newby, said—I am grateful to them—we have arrived at a scheme which, although not perfect, is direct, transparent and clear.
My noble friend Lord Balfe spoke of loopholes. Being an expert, he will no doubt advise the finance department if he detects any. I have written to him privately about his VAT question but, since he raised it in the Chamber, I will give him the same reply. What he suggests would not necessarily achieve the desired result because there may be commercial premises that are below the VAT threshold and therefore not registered. There are far more likely to be Airbnb operations which cross the £85,000 threshold and charge VAT. This is a complexity that may not create a clear line between different types of property. There is broader guidance about this system; it is not too complex.
With respect, I do not fully agree with my noble friend that this is how Civil Service rules work. From an initial search, this does not appear to be the case in every department. In the Cabinet Office, for example, civil servants need to go through an approved agent to secure hotels.
I return to the fundamental point: this is proportionate and clear, and it is also testable. We will have a review and if it is misused, that will be seen and the House will wish to address it.
My noble friend Lady Fraser asked why we are treated differently from the House of Commons. The noble Lord, Lord Newby, gave the answer. Being a Member of your Lordships’ House is entirely different from being a Member of the other place; their range of duties, responsibilities and offices is completely different.
My feeling, the feeling of the commission and the feeling of the Back-Bench groups was that while this may not please everybody, as I said in my opening remarks, we need to reflect on the context that we are in. There is a point at which we need to enhance participation in the House, to get more Peers being better able to come from outside London to take part. I repeat that this is a proportionate, reasonable, clear and transparent system, which will be reviewed and tested.
Leasehold and Freehold Reform Bill
Wednesday 27th March 2024
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
Baroness Scott of Bybrook
That the Bill be now read a second time.
Relevant document: 16th Report from the Delegated Powers and Regulatory Reform Committee. Welsh legislative consent sought.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank those Peers who have already engaged with the Bill and, indeed, those who have championed reforming the leasehold market for many years. I also thank colleagues from the Law Commission, without whom much of this vital legislation may not have been possible.
The Bill delivers long-awaited reforms to improve home ownership for millions of leaseholders across England and Wales. Reforming the leasehold system is a long-standing ambition of this Government. The comprehensive package of reforms before us will bring greater fairness, security, transparency and competition to the leasehold housing market. At present, leasehold home owners are too often at the whim of their freeholder, disempowered by the fundamentally unfair system. The Bill will address this power imbalance and give people the security of home ownership for their future and their families’ futures.
I will now move to the specific content of the Bill and outline the ways in which, when taken together, this package of reforms will transform the leaseholder housing market and the lives of millions of leaseholders across England and Wales. The core enfranchisement reforms of the Bill will give both families and individuals the security of an automatic 990-year lease extension, with ground rent reduced to a peppercorn on payment of a premium. This ensures that leaseholders can enjoy secure ground rent-free ownership of their properties for years to come without the hassle, distress and expense of repeated lease extensions. Removing the requirement to pay marriage value, capping the treatment of ground rents at 0.1% of the freehold value in the calculation, and prescribing the rates for those calculations will bring significant tangible financial benefits to leaseholders if they choose to extend their lease.
The Bill will also give more leaseholders the right to manage their own building, enabling them to appoint a managing agent that delivers good-quality work at reasonable prices and replace one that does not. As well as empowering leaseholders to make these important decisions themselves, this Government believe that making managing agents more accountable to the leaseholders who pay for their services will encourage these companies to up their standards.
Allied to this, we have also focused measures on cracking down on the poor, unresponsive practices blighting the daily lives of leaseholders, whether a managing agent is involved or not. This will give them true transparency over service charges, so that they can better understand the costs they are being charged and are better equipped to challenge them if they are unreasonable. Following the excellent work of the FCA, we will end the practice of leaseholders being charged exorbitant, opaque commissions on top of their building insurance premiums. We will also extend access to redress schemes for leaseholders to challenge poor practice. The Bill makes it a requirement for freeholders who manage their property to belong to a redress scheme, so that leaseholders can challenge them if needed. This will again empower leaseholders to challenge bad practice and bad management. This Government do not believe it is right that somebody can mistreat a leaseholder and their private property, while said leaseholder has no means to seek redress or compensation for that mistreatment.
Through these reforms, we will also scrap the presumption that leaseholders must pay their freeholders’ legal costs even when they win tribunal cases, levelling the playing field and correcting an historic power imbalance. There must be equality before the law. This Government believe firmly that leaseholders should not pay for a freeholder’s legal costs when said freeholder is found guilty of mismanagement or abuse.
I know that many across the House will be pleased to note that we are also granting further rights to home owners on private and mixed-tenure estates, which many here today have campaigned for. The Bill will give home owners the power to apply to the appropriate tribunal to challenge the reasonableness of charges they face or to replace a failing manager, access to support via a redress scheme, and measures to make buying or selling a property on such estates quicker and easier by setting a maximum time and fee for the provision of information required to make a sale. This measure encapsulates what the Bill is trying to do, which is to bring fairness and equality to the housing market. It is not right to force someone who has bought a freehold property to deal with only one managing company, which is not required to give them any information or charge them reasonable fees. It is also not right that someone who has bought a property on these estates has no effective way to hold the management company to account for the services they provide. These reforms will address that.
The Bill also clarifies and extends the protection in some specific areas of the Building Safety Act 2022, building on the legislation previously brought forward. These specific changes will further prevent freeholders and developers from escaping their liabilities to fund building remediation work, ultimately protecting leaseholders.
The package of reforms in the Bill before us is substantial and far-reaching for existing leasehold properties, but the Government wish to reform the future leasehold housing market too. The Bill therefore now explicitly bans the creation of future leasehold houses, with all new houses needing to be sold on a freehold basis, other than in exceptional circumstances.
In addition to the measures I have outlined today, I want to assure your Lordships that I understand the strength of feeling in the House to make even more changes to the Bill, in particular on the issue of forfeiture. We recognise that this is a real and significant problem and that there is huge inequity at stake here. We are working through the detail of this and will report back to the House shortly with more details as we consider the matter further.
I reassure noble Lords that the Government remain committed to commonhold reform and see it as a long-term replacement for leasehold. The Law Commission did fantastic work to review the commonhold framework and set out 121 separate and detailed recommendations on how to modernise it. These are not trivial changes; implementing them requires detailed consideration to make sure that we get it right, so that commonhold works for everybody.
The Government are also committed to reviewing the leasehold market and considering ways to improve its fairness. As such, we have launched a consultation on the capping of existing ground rents, which we are still carefully considering. The results will be published in due course.
In conclusion, this Bill will give leaseholders and their families greater security of ownership over their own private property for generations to come, and improve the lives of millions of home owners who have been forced to enter into a system that is unfair and outdated. I know that many in this House have campaigned to see these reforms, and I look forward to hearing the contributions of noble Lords during the debate on this important Bill. I beg to move.
Baroness Taylor of Stevenage (Lab)
My Lords, I thank the Minister for her thorough introduction to the Bill and, as always, for the way she has worked with opposition parties and Cross-Benchers in the weeks prior to the Bill coming to us, so that she could understand our concerns and issues. I thank the many organisations that have sent us briefings, and particularly the Law Commission for all the work it has done. I thank the individuals who have sent us their personal accounts of the impact of leaseholds. I also thank all the individuals and organisations that have campaigned so effectively and for so long on leasehold, including, of course, my noble friend Lord Kennedy.
The Bill is certainly not the leasehold Bill that the Labour Party would have wanted. Most importantly, it is not the Bill that the beleaguered legions of leaseholders wanted. To be candid, I do not think it is even the Bill that the Secretary of State wanted. He set out the original vision last year, stating:
“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.
The Secretary of State also made his views on ground rent quite clear in his speech on the Second Reading of this Bill, when he said:
“I was asked by the Select Committee last week what my favoured approach would be, and I believe that it should be a peppercorn”.—[Official Report, Commons, 11/12/23; col. 659.]
The Secretary of State clearly wanted to see a scrapping of the feudal leasehold system and a capping of ground rent to peppercorn rents. From this original vision for the Bill, what we have before us today is a virtually eviscerated shell of a Bill, with little to give comfort to the people and families who had hoped to realise their dream of home ownership and have found instead that being a leaseholder simply does not offer the security and control of their lives that their dream promised.
I have been receiving many letters from leaseholders since the Bill was listed in your Lordships’ House. A particularly heartbreaking one yesterday was from an older couple, who said that they have been waiting patiently for this Bill for years to relieve the misery of their experience of leasehold, but feel now that it will not do what they wanted it to. They went on to say:
“We have an apartment where the freeholders changed last year and our service charges quickly increased and now amount to £8,602 per annum. But additional to this our already high Ground Rent charge of £4,000 per annum is currently being reviewed by our Freeholders who estimate this shall increase to £28,000 plus VAT per annum. If they win this review they shall then look to backdate this increase over 6 years”.
The impact of this type of sharp practice, whether on older people on fixed incomes or younger people who are juggling enough with the cost of living crisis, can be catastrophic. This couple face losing their home. It can taint the dream of home ownership, with a raft of excessive conditions, fees and charges. For many leaseholders these charges do not bring anything in return, and the charging regimes are complex and opaque.
I have received many representations from young people whose dreams of home ownership have been shattered, when they finally save their deposit and buy a home, only to find that the terms of their lease leave them, at best, shackled to a regime of unreasonable cost increases and, at worst, unable to sell their home because the lease conditions are too onerous. To quote again the Secretary of State,
“freeholds have become utterly torn away from the warp and weft of the capitalist system as we understand it in this country, and have become tradeable commodities that foreign entities are using to exploit our people who have worked hard and saved to get their own home”.—[Official Report, Commons, 11/12/23; col. 660.]
In addition, the Competition and Markets Authority has already stated that it continues to consider that statutory intervention may be necessary to protect consumers associated with excessive ground rents. The CMA concluded that ground rent is
“neither legally nor commercially necessary”,
stating that it saw
“no persuasive evidence that consumers receive anything in return”.
With all that in mind, you might expect a Bill that gets rid of leasehold once and for all. But this Bill, although dating back to the Conservative manifesto in 2017 and the subsequent White Paper, is a very long way from what leaseholders have been waiting and hoping for: an end to the injustice in the anachronistic leasehold system. It does not ban the sale of new leasehold flats. It does not even properly ban the sale of new leasehold houses. The Government know that the leasehold model and market is broken; they have known that at least since 2017. This Bill was the opportunity to address that, so why is that not being done more comprehensively?
We could have had a Bill that fundamentally reformed the leasehold system, making leasehold obsolete by making commonhold the default tenure for all new properties and enacting the Law Commission’s recommendations in full. There seems to be a determination on the Government’s part to miss the open goal they are presented with here—one that my team, Stevenage FC, would certainly never miss.
What we have in the Bill are baby steps toward leasehold reform. We could not oppose those, because they will at least ease a little of the pain currently experienced by leaseholders. We will therefore not oppose the Bill’s progress, even if we have to finish the job later on. Your Lordships’ House can rest assured that we will attempt to use this House’s stages of its passage to make some more of the improvements that leaseholders desperately need.
I turn to the detail of what is in the Bill, before I go into more detail about what is not. Extension to lease terms is welcome, although the devil will be in the detail of how this operates. We welcome the steps towards right to manage, although they do not go the whole way towards commonhold. We believe that the changes to the calculation of lease extension premiums and the collective buying of freeholds will make it easier and cheaper for leaseholders to buy their homes and maintain long-term housing security. These are welcome, as are the 990-year leaseholds, which will offer the same security, taking away the hassle and expense of future lease extensions.
The further provisions on building safety—for example, replacing the regime for dealing with insolvent developers and orphaned buildings—are welcome. However, it could have afforded a lot less heartache to affected leaseholders if these were included in the Building Safety Act in 2022—but better now than never.
The end of marriage value will right the injustice where leaseholders had to pay the freeholder when extending their lease or purchasing the freehold, so that is also welcome. Additional rights for freeholders on private and mixed-tenure estates will be beneficial. However, I think we still have some way to go to ease the misery for freeholders of what is known as fleecehold.
The provisions relating to ground rent, while welcome as far as they go, are still subject to the outcome of a consultation that we do not yet have. Will the Minister be offering government amendments in this respect later in the progress of the Bill? We will certainly be trying to clarify the situation on ground rent for all leaseholders, including those who currently have lower ground rents, as the Bill progresses.
We welcome the change to the inclusion of leaseholders in the management of their homes, but there remain concerns about this and how it will operate. I know my noble friend Lord Kennedy will want to question the complexity of enabling the participation and enfranchisement of leaseholders as we go through today’s debate.
We will be looking at more fundamental improvements to the Bill in Committee and on Report. I will start with the disproportionate and draconian legacy of Victorian property law that is forfeiture. This mechanism allows landlords to ensure compliance with a lease agreement by using forfeiture of the lease as a threat, even for minor breaches of leasehold or relatively small amounts of arrears. Its continued use, and the chilling effect that results from its mere existence, continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders. It is routinely used by landlords as a first resort when seeking to recover alleged arrears of payments from leaseholders. Worse still, the threat is often invoked to deter leaseholders from disputing any unreasonable costs and defending claims.
With the pledges to reform leasehold stretching back over so many years, the Government have had plenty of time to consider how they would deal with forfeiture in this Bill and yet in the other place Members were told as recently as February this year that the Government were:
“working through the detail of the issue”.—[Official Report, Commons, 27/2/24; col. 197.]
I ask the Minister to set out how long this is going to take and say whether we will have a solution before we reach Third Reading. Too many of the Bills that come before this House now are subject to further work as the Bill progresses.
We will be seeking to remove deferment rates from the discretion of the Secretary of State. We believe that without having something on the face of the Bill which will deal with this issue, in future vested interests may still be able to attempt to introduce rates which are punitive to leaseholders, and that is not acceptable.
Unless the Minister is able to introduce government amendments in relation to the outcome of the ground rent consultation that restore the balance more closely to the recommendations of the Law Commission and the Competition and Markets Authority, we will want to extend the right to peppercorn ground rent to the most common leases—those under 150 years.
I know that many noble Lords are disappointed that the Bill does not go further in relation to the regulation of property agents. While new statutory rights relating to estate management companies are welcome, it is—as my honourable friend in the other place, the shadow Housing Minister pointed out—incomprehensible that the Bill does not incorporate the proposals from the Regulation of Property Agents working group in July 2019. This group, chaired by the noble Lord, Lord Best, made recommendations that have widespread support in both Houses. I am sure he will want to say more about this himself, but it is hard to understand why the Government have not taken this opportunity to implement such a common-sense approach. It is a clear example of what I described earlier as missing an open goal.
Lastly, but probably most significantly, we hope to persuade the Government to rethink their decision not to extend the ban on leasehold to flats; 70% of leaseholders live in flats. To leave out new flats from the ban on leasehold justifies my description of an eviscerated Bill because it means that the Bill simply will not do what it set out to do. We will be proposing amendments to the exclusions the Government have included for the ban on new leasehold houses. We believe these are too wide and will almost certainly result in a way through for landlords who want to perpetuate the leasehold tenure for houses.
There is clearly a broad consensus in both Houses for a radical overhaul of leasehold, so the question is whether this Bill achieves that. Although it set out with worthy intentions and initiates some improvement, we do not believe it goes anything like as far as it should. With the parliamentary time left to us, and with the desperation of leaseholders to see at least some improvement in the catastrophic circumstances some of them face, it is not our intention to try to persuade Ministers to radically overhaul the Bill by means of the many hundreds of amendments that would be required to implement all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold. However, it remains our position that this will need to be done.
Whether this Bill receives Royal Assent or not before this Parliament is dissolved, a Labour Government will have to finish the job of finally bringing the leasehold system to an end by overhauling it, to the lasting benefit of leaseholders, and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. I reassure leaseholders across the country that we are absolutely determined to do so.
Baroness Thornhill (LD)
My Lords, it is an absolute pleasure to follow the noble Baroness, Lady Taylor of Stevenage, with her meticulous attention to detail. I too thank all those who have contributed to getting the Bill to where it is now. It is noticeable that MPs across all parties have worked tirelessly on this Bill— I will not name names because you always miss someone out—in the other place. That is a sure sign that there really is a consensus and a need to drive this forward.
To say that this Bill is needed and well overdue is an understatement. The Secretary of State himself said that the leasehold system was “outdated” and “feudal” and a lot more besides. Millions of property owners own their homes through leases in England and Wales, which along with Australia are the only places in the world where this system still exists. As there have been numerous parliamentary and independent reports from organisations ranging from the aforementioned Law Commission to the Competition and Markets Authority giving incredibly similar recommendations, you would think this Bill would be relatively straightforward—but not so. We are disappointed that there are no proposals to really reinvigorate, which is the word being used, commonhold nor a clear pathway to it becoming the main tenure.
Liberals have actually been campaigning against leasehold since—wait for it—Lloyd George’s People’s Budget—
Baroness Thornhill (LD)
Of 1909—I am glad that my noble friend Lady Pinnock knows that.
This system is so engrained in our history that there is inevitably going to be a chasm between the Secretary of State’s theatrical rhetoric and harsh reality. There are also going to be winners and losers. Indeed, the Secretary of State pledged to
“squeeze every possible income stream”.—[Official Report, Commons, 11/12/23; col. 659.]
that freeholders have under the unfair feudal leasehold system. But we do not feel that the Bill as it stands does this. As has already been said, the devil will be in the detail, and we will hope to work with some of that detail.
The Government are demonstrably vulnerable to extensive lobbying, and this has weakened both the Government and the Bill, most recently regarding ground rent, which we feel should eventually be abolished. There is no hiding our disappointment that promises to abolish leasehold have been watered down, particularly the fact that flats are exempt; we would seek to include them, the more so because they make up 70% of leasehold properties. Retirement homes are also exempt. Why developers of retirement properties get a special carve-out is beyond me—surely the Government should be on the side of the elderly and vulnerable, at that time in their lives, who have downsized, freeing up family homes. However, they are unwillingly extorted in their new home and when they or their relatives come to sell, there are further charges—the so-called event fees.
The exemptions will mean that significant numbers of leasehold homes will still be built. The rhetoric has turned to “reform” rather than “abolish”. It is a disappointment but perhaps understandable in a Government that are now too weak to deliver big changes such as this and perhaps have too many of those with vested interests in their ranks or on their donor lists. Add to this the quiet death of the Renters (Reform) Bill—I hope the Minister will have an update on that—and it certainly leaves much for the next Government to get their teeth into.
On these Benches, our biggest concerns are building safety and cladding, which my noble friend Lady Pinnock, of Cleckheaton, will continue to work on as she has done since the very early days of the Grenfell tragedy.
The other big one for us is the lack of real reform regarding regulation of property agents and their management fees. These are a right rip-off and a licence to print money for doing nothing or next to nothing. The report from the noble Lord, Lord Best, in 2019 made many sensible recommendations as did the Law Commission in the same year. These should be implemented in full.
My own recent casework reminded me sharply of how vulnerable elderly leaseholders are when demands are made for payment for repairs that they deemed were completely overpriced. To prove their point, they went to the trouble of getting three quotes from local builders for the same work. The range within the local builders’ quotes was very little, but the difference between the landlord’s quotation and the most expensive local builder was thousands of pounds—for fencing.
A closer inspection of the last years’ invoices revealed the kind of stories we are now all too familiar with: huge sinking funds; many contingency cushions; eye-watering rises, all with no reasonable—an interesting word that we will no doubt talk about during the passage of the Bill—explanation. The residents decided collectively not to pay their most recent management bill. The company responded with threatening letters, which of course were intended to intimidate them into paying. I will not name the company, as following my involvement things began to be sorted out—we do have our uses—and moneys were reimbursed to residents. But this Bill will offer them very little to ensure that they are not ripped off again, and in this situation the fact that the digging was done by two retired accountants, who have now left the scheme, made me realise that even with the right to manage some residents may not want to manage for themselves and will need to employ a property management company. These are currently unregulated and unscrupulous in far too many cases.
I will, however, praise the work of the Property Institute, which represents thousands of property managers and aims to raise standards and improve transparency for residents. We need to remember that there are always good guys—and gals—out there who also hate their reputation being trashed by those less scrupulous.
The Bill will ban the sale of leasehold houses, but not so-called fleecehold estates: the practice that has developed over the past 10 to 15 years of the public spaces that were once adopted and maintained by the local authority now being in private hands—a management company—with the residents footing all the bills for communal repair and maintenance. What a nasty surprise for them on moving into their new home. First, they may not have known that they were liable for such costs. Often, people are told, “Oh, you’ll just be paying for the grass to be cut a couple of times a year”, before they realise that it is also for the playgrounds, roads, fencing and everything else. There is evidence to show that there is mis-selling in this area. Secondly, those people may not have realised that they would be paying for services that have already been done by the council. In effect, they are paying twice for facilities that others can also use, as well as paying full council tax. Freeholders refusing to pay the so-called rent charge could find their freehold changed to leasehold.
To be fair, the Bill really is trying to put some of this right, but it is all a little bit uncertain—there are more consultations, and more this and more that—as to how things will work; for example, on the ability to appoint a substitute manager. I look forward to the details of how that will happen, along with the proposals that give leaseholders a new right to request information about service charges and the management of their building. That is good but it, too, will need fleshing out, as it feels like the power of what is released and how is still very much in the hands of the management company.
Likewise, the proposals for right to manage will come to naught if leaseholders are not supported to transition. Current charities, such as the Leasehold Advisory Service and others, will need more tools and resources to help this transition and make it work. It is disappointing that commonhold has not taken off in the way that we expected, so we clearly need to give more support to make these really positive changes work.
Key to all of this working at all is to regulate managing agents. Without that, many of the measures will not be successful, or not as successful as they could and should be. We must raise standards and increase competence across the sector and, ultimately, have a fair and transparent system that residents feel is fair—and, if not, that there is a simple and accessible form of redress, unlike the current recourse to the First-tier Tribunal, which, when I explored it for those elderly residents, was neither simple nor accessible. We feel that this fleecehold practice should be abolished altogether and revert to local authority control, with developers contributing to the council coffers towards the upkeep of the estate.
I make a final plea to the Minister that there are potentially thousands of leaseholders who are in a bit of a quandary at the moment about whether they should extend their lease or wait for the legislation—will they be be winners or losers?—depending on which way things go. If the Government could give clear guidelines and guidance as soon as possible to all those who are thinking of selling or remortgaging, I am sure that would be welcome.
Of course, it would be churlish not to say that there is much to welcome in the Bill. I am sure that, by the end of it, we will all be a lot wiser as to marriage value, the extension of leases, enfranchisement, forfeiture, and much more. We look forward to working across the House to table amendments to improve this well-intentioned but somewhat disappointing Bill. In particular, we would like to ensure that the rhetoric around the Bill is borne out in reality.
Lord Best (CB)
My Lords, the Bill before us contains some very welcome reforms but also some omissions. It is silent on one overarching issue: the need for a regulator of property agents.
Any reform of leasehold needs to consider the arrangements for the sale of leasehold property and for the ongoing management of leasehold flats. A good agent, providing an effective service at a fair price, can enhance the quality of life for the residents, and a bad agent, demonstrating poor service, incompetence or misconduct, can make life miserable for leaseholders. Sadly, there are all too many examples of mis-selling, exorbitant service charges, lack of transparency and accountability, and overpriced leasehold management. In a survey by the Property Institute, no less than 62% of those who have bought leasehold homes maintain that they were given misleading or insufficient information. I suspect that most of us speaking in this debate have been sent tales of abysmal management and excessive fees, as illustrated by the noble Baronesses, Lady Taylor and Lady Thornhill. Yet in most cases leaseholders cannot change their managing agent and escape this trap.
The role of a new regulator of property agents would be to encourage and support the good, raise standards, and drive out the bad. The regulator would require agents to be suitably qualified and to engage in continuous professional development. The regulator would require adherence to codes of practice, probably with one overarching code and then specific codes for each specialism within the sector. Only those individuals and firms meeting the regulator’s criteria would be given a licence to operate. The regulator would have powers to discipline those who breached the relevant code, including the power to withdraw their licence.
I declare my housing and property interests as on the register and would add that I chaired the Government’s Regulation of Property Agents Working Group, which presented its report to government back in July 2019. The working group comprised representatives of the sector and consumers, and it was unanimous in strongly recommending the establishment of a regulator of property agents—estate agents, lettings agents and managing agents, not least of retirement accommodation. Over recent weeks your Lordships’ Committee on Industry and Regulators, of which I am a member, has been revisiting the working group’s 2019 report. Its conclusions were put to Secretary of State Michael Gove last week, and received widespread publicity. The Select Committee endorsed in all respects the earlier report, adding some extra emphasis for engagement by a new regulator with the consumers—the tenants, buyers and leaseholders. The Lords committee noted the strongly held views of those representing the consumer, with powerful advocacy from Generation Rent and the Leasehold Knowledge Partnership, but there was also unanimity of view from the relevant professional bodies and industry stakeholders.
In the briefings for our debate today, regulation of the sector is the number one issue for both the Property Institute—previously the Association of Residential Managing Agents and the Institute of Residential Property Management—representing 6,000 property agents, and Propertymark, incorporating the National Association of Estate Agents and the Association of Residential Letting Agents, with some 18,000 member agents. That is the industry’s top ask, as we consider amendments to the Bill. Indeed, the urgency for regulatory reform has increased now that the Building Safety Act 2023 has meant managing agents handling huge sums of leaseholders’ and public money to ensure that remedial work is carried out. It is more important than ever that only reputable and qualified professional agents are in charge.
It seems curious that, with support from all sides, and the obvious popularity of raising standards and rooting out bad practice in this sector, the Government have failed to include the creation of a regulator of property agents among their reforms to the leasehold sector in the Bill. Is it not necessary? None of the Select Committee’s expert witnesses or the relevant consumer bodies has claimed that the industry does not need this change or that self-regulation is sufficient. The preparation of a voluntary code of practice by an industry group convened by the RICS and chaired by the noble Baroness, Lady Hayter of Kentish Town, has paved the way for a regulator to determine the content of a statutory code. But all parties are agreed that a regulator with independence from the sector and real teeth is essential.
Too late? No one can say that the proposals for a regulator have come too late to be included in the Bill: the Government have had the Regulation of Property Agents report, the RoPA report, for nearly five years.
Too costly? It cannot be argued that the cost would be unduly burdensome. For example, some £15 million a year could be raised by a levy of £3 per annum for every leasehold property under management, Clearly, this would not add significantly to overheads or deter new entrants to the sector.
An ombudsman instead? Could a more powerful ombudsman scheme achieve a similar outcome more simply than by creating a new regulator? A regulator and an ombudsman perform complementary but distinct roles, as demonstrated by the financial services sector and the social housing sector. The ombudsman—and a single ombudsman service is certainly to be preferred to the current situation with two competing redress schemes that can cause confusion—can respond only to complaints by individuals, and the ombudsman’s powers to insist on codes of practice and sanction offenders are necessarily limited. By contrast, a regulator has a wide brief; can specify required qualifications; can take account of information from many sources, for example, from neighbouring agents who notice abuses, from press reports, from whistleblowers within firms, et cetera; and can have the flexibility to act accordingly.
The property agency sector has a vital role to play in keeping people safe and well, providing a valued service for owners and landlords, as well as for leaseholders and tenants. Good agents ought to be held in high regard. Bringing the industry into a properly regulated framework would professionalise the whole sector and give it the status and prestige it deserves. I therefore say to the Minister that there is still time to introduce an enabling clause into the Bill to empower the Secretary of State to create a regulator of property agents. This would be greeted with acclaim by all parties involved, especially by the leaseholders suffering at the hands of badly performing agents. Let us put this key component into the Bill while we can: who knows when the opportunity will arise again?
Lord Young of Cookham (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Best. I agree with everything he said about the regulation of property agents and, were he minded to table an amendment to the Bill, I would like to add my name. I thank my noble friend for her readiness to consult colleagues throughout the passage of the Bill: I am sure this will facilitate its speedy work.
My speech is in two halves, the first focusing on the Bill and the second dealing with unfinished business with the Building Safety Act. The Government are well ahead in the first half but heading for a score draw by the end. I warmly welcome the Bill, building as it does on previous pieces of legislation, all progressively empowering leaseholders and moving away from a feudal system of tenure that exists nowhere else in the world. I will just touch on the more controversial measures on ground rents and marriage value. Having attended a meeting, with other noble Lords, with freeholders, it is absolutely certain that this is going to be challenged in the courts. I take comfort from what is on the face of the Bill, namely that my noble friend asserts that the Bill is compatible with the ECHR.
The consultation on ground rents closed on 17 January and the Cabinet Office guidance says Governments should
“publish responses within 12 weeks or provide an explanation as to why this is not possible”.
That runs out on 10 April, so will we have a response before Committee, hopefully rebutting rumours in last week’s Sunday Times? If the Bill becomes an Act, and a leaseholder declines to pay the historic rent demanded by a freeholder, citing this Bill, and is taken to court, as seems likely, will the Government stand behind that leaseholder and bear the costs?
On marriage value, many properties in London, from where most of the freehold objections have come, have been on 99-year leases for centuries. Each time the lease expired, the freeholder had all the marriage value—financial polygamy if ever I saw it.
There is one area where we are going make progress: I was relieved to hear what my noble friend said about forfeiture. A tenant can lose possession of a £500,000 flat for a debt of £351, with the landlord keeping the entire difference between the value of the property and the debt. Will my noble friend go a little further than she did in her opening speech and commit to a government amendment to abolish forfeiture and replace it with a more balanced response?
I share the disappointment of other noble Lords at the absence of progress on commonhold. In 2019, the House of Commons Select Committee, with a Conservative majority, urged the Government to ensure that
“commonhold becomes the primary model of ownership of flats in England and Wales”.
The noble Baroness, Lady Taylor, quoted Michael Gove’s statement, which is worth repeating:
“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.
But in the Bill, there is no progress whatever on these flats.
Turning to the Building Safety Act, I welcome the measures the Government have introduced to alleviate the problems of those living in flats requiring remediation following the tragedy of the Grenfell fire, but there is a significant gap, best illustrated by quoting the commitments the Government made at the outset. In his Statement in the other place on 10 January 2022, the Secretary of State said:
“We will take action to end the scandal and protect leaseholders”.
Later, he clarified what he meant:
“First, we will make sure that we provide leaseholders with statutory protection—that is what we aim to do and we will work with colleagues across the House to ensure that that statutory protection extends to all the work required to make buildings safe”.—[Official Report, Commons, 10/1/22; cols. 285-91.]
Note that that commitment extends to all building work, not just cladding, and there was no qualification of the word “leaseholders”.
This broad commitment was confirmed by a letter written to all noble Lords by my noble friend’s predecessor, my noble friend Lord Greenhalgh, on 20 January 2022. He wrote:
“The Secretary of State recently announced that leaseholders living in their homes should be protected from the costs of remediating historic building safety defects”—
not just cladding. However, the position now is that not all buildings are covered; not all building safety defects are covered; and, crucially, not all leaseholders are protected. In particular, it remains perverse that, while we debate a Bill to facilitate enfranchisement, the Government have deliberately chosen not to give protection to those that have enfranchised, while leaseholders who have not enfranchised continue to enjoy a better deal.
The two principal exclusions from the commitment given by the Secretary of State are leaseholders who live in buildings less than 11 metres tall; and other non-qualifying leaseholders, a category that does not exist in Wales, where remediation funding is available for all buildings and all leaseholders are protected. On buildings under 11 metres, the Government’s position seems to be that residents should be able to leave the building in the case of fire without expensive remediation. This position is at odds with that of the London Fire Brigade. This is its statement:
“With regards to the remediation of buildings, we strongly assert that all buildings with serious fire safety defects should be remediated regardless of height”.
Many of these flats are unsaleable and unmortgageable, the owners cannot afford to pay for remediation and, in the view of the fire brigade, they are unsafe. The department’s case-by-case approach is moving at a glacial pace, with no clear outcome even for cases that are audited by the department and deemed to require remediation.
Also excluded are leaseholders who own three or more residential properties. The perverse consequence of this is that you can own a manor in the Cotswolds, plus a villa in Italy on Lake Garda and a luxury penthouse in central London worth £1.5 million and qualify for protection. Yet if you and your partner own a small, terraced house and three small £100,000 buy-to-let apartments as part of your pension planning, only one of which has non-cladding fire safety defects, you will face bankruptcy. If we are to have exclusions, they should be value-based, not quantity-based.
Then there is the position of joint ownership. In many cases, landlords exceed the threshold of more than three UK properties only because they jointly own properties with their partner. I welcome the Government’s rather belated decision to consult on this. They issued a document last week, with consultation due to end next week. That is a very short time for consultation, but if it means that a fit-for-purpose amendment can be introduced in this Bill, then that could excuse it.
The LUHC Committee in the other place, with a government majority, rightly noted last year:
“Leaseholders are no more to blame for non-cladding defects than they are for faulty cladding on homes they bought in good faith. Buy-to-let landlords are no more to blame than other leaseholders for historic building safety defects, and landing them with potentially unaffordable bills will only slow down or prevent works to make buildings safe”.
That, of course, affects everybody in the block. At the moment, there are 4,092 buildings over 11 metres with unsafe cladding, but over half of those—2,077—have no remediation plans in place.
In short, the Building Safety Act created a two-tier system where leaseholders deemed qualifying will benefit from the protections, whereas those arbitrarily deemed non-qualifying have been left to fend for themselves, exposed to uncapped costs for non-cladding remediation. Those people took all available precautions when they bought and are in no way responsible for the defects that now need remediation. Without a truly comprehensive solution for all buildings of all heights and tenures, unfairness and uncertainty are set to perpetuate, not least because there is no deadline for remediation. My amendments to this Bill will seek to rectify those injustices and I hope the Government will listen.
Baroness Andrews (Lab)
My Lords, it is a great pleasure to follow the noble Lord, who has been indefatigable in his pursuit of justice and improvements to the leasehold system. The Minister is going to have a huge amount of help to improve the Bill; she has already heard from the noble Lord, Lord Best, about how to improve the regulatory system, and there will be lots of advice coming from around the House, as there has been from every part of the industry that knows about leasehold.
I welcome the Bill, but like many others in the House—as I am sure the Minister will hear in the rest of the debate—I think it is a disappointing Bill because it does not fulfil the full task that the Law Commission undertook. Mr Gove, who is ever cheerful, was hardly right when he said at Second Reading in the other place that the Bill would mean
“the effective destruction of the leasehold system”.—[Official Report, Commons, 11/12/23; col. 659.]
That is not so, sadly. It does serious damage, but the leasehold system survives and will go on inflicting and perpetuating real damage, as we have heard already from around the House. He also conceded that more improvements were necessary and I think we have heard several, very powerful reasons for that. Without delaying it, I am sure that this House can improve the Bill very seriously.
The failure to follow the full recommendations of the Law Commission is particularly frustrating because it is one area of the complex and disastrous housing landscape where a solution can be found through the law. The Government have said that there has not been enough legislative time; I say very gently to the Minister, because I know she is not responsible, that if the Government had not distracted both Houses with legislation such as the Rwanda Bill, then we might have had more legislative time. There certainly would have been more time to consider, for example, the proposition made by the noble Lord, Lord Best, about introducing a regulator, or addressing the impact on building safety.
The Government would also not have had to introduce 124 of their own amendments, 34 new clauses and a new schedule in Committee. We are making legislation on the hoof. Legislation like this, which is consensual, ought at least to have the benefit of proper and thorough scrutiny, and we will give it that in this place, not least to some of those 72 very constructive amendments which came forward from the Opposition in the other place—all of which were, of course, rejected.
Reference has been made to this bizarre medieval system of leasehold which we have inherited. Like the feudal laws it echoes, it places all the power in the hands of the freeholders, who are indeed free of all obligations to show responsibility, transparency or fair treatment to the leaseholders beholden to them. Leaseholders live with insecurity compounded by secrecy. They live with no control over what the freeholder is up to next—they never know, especially with offshore companies. They are subject to arbitrary cuts and things being loaded into maintenance, over which they have no control; the cases mentioned by my noble friend on the Front Bench were extraordinarily powerful. They are subject to bad or indifferent property management, as the noble Lord, Lord Best, has described. They worry constantly about whether they should or could afford to extend the length of lease, or pursue enfranchisement—what does it involve and what will it cost?—or what the implications are if they rent out, stay in or sell their homes? No other form of tenure faces such intractable problems.
We talk these days about the precariat; this is at the very edge of the precariat, and more so the 70% of leaseholders living in flats. Yet they have less protection in this Bill, which does not offer them what they need. I speak from experience: as a leaseholder in a block of flats in London, I am in that precariat. This is a speech of two halves, and the second half will be about a particular issue that comes on top of all the others.
If the Bill had been comprehensive, it would certainly have abolished leasehold for all properties. While I welcome the ban on new leasehold houses, I cannot understand the logic of not extending that to flats—not for political reasons alone. I welcome the changes which will make it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freeholds. It is long overdue to be able to extend a 90-year lease to 990 years. As has already been said, why could the Government not have followed the logic and given leaseholders greater protection against losing their homes if they are found to be in minor breaches of the lease? I take comfort from what the Minister has said, and I look forward to seeing what the Government will bring forward; I just hope it will deal with the problem. Also, why did they not follow the logic of placing in the Bill, the purpose of which is to reduce the cost of enfranchisement, a clear legal obligation to encourage leaseholders to acquire their freehold at the lowest possible cost when determining the applicable deferment?
Many of the amendments put forward in the other place will have served the purposes of this Bill very well. It would have been right and sensible to give leaseholders the right to buy up their ground rent, or to provide that all new flats should include a requirement to establish and operate a residents’ management company. Every day, we see the evidence for how effective resident management buyouts are, with lower costs, higher standards, and so on. As other Members have said, the Bill might have also included provision to give leaseholders the right to a share of the freehold, which is the first step towards the preferred option of commonhold. The extension of the protections around the Building Safety Act are very welcome.
We have heard already several times about the importance of the work done by the noble Lord, Lord Best, on the property agents working group. If the Government were worried about Henry VIII clauses, because that is what they said, it would be the first time I have ever heard, in this House, any Government be worried about Henry VIII clauses. I am not going to take that seriously and I do not think anyone else should either. All I hope, at this point, is that the Government find a better reason for supporting the case put forward by the noble Lord.
I am sure we will have a lot of further discussion in Committee, and I am grateful to the Minister for already having engaged with me on a particular issue that I will bring forward in Committee, unless the Government choose to do so. I ask the House to indulge me while I tell a particular tale which affects quite a lot of leaseholders in London, and it is a sort of extension of many of the issues.
Many leaseholders in blocks of flats around and beyond London have been threatened in recent years by upward extensions. Upward extension has been made possible by permitted development; there is no right to be consulted or requirement for a planning application, and there is no strength in objection. No affordable housing provisions are required nor is there provision for disability, and the proposed new homes are market-rent and do not help solve London’s housing crisis.
There is no provision for compensation caused by disruption or decanting of tenants. Imagine an 80 year-old who has been living in the top floor of a four-storey house who suddenly finds she is on a building site. She cannot afford to move, no one is going to help her, and she has to stay put. That is the situation facing the residents of my block of flats at the moment.
Extraordinarily, building control does not help. The way building control operates means that permission can be given without construction methods being tested in advance. There could be a builder who has never done this before, who suddenly decides to put a concrete structure on top of four storeys, and no one will actually know whether it is going to work. Building control will not take action until it has gone through the process. There is, in fact, potential damage or danger by construction methods and approach, recognised by departmental circular 3 of 2020, but it is given pretty short shrift. This is a really awful situation to be in when, as a resident, you have no power to challenge.
We were in that situation when we were threatened by two storeys. There was no consultation and minimal information. Permission was sought and granted, first for one storey under normal planning rules and then for two. We lost our judicial review on the one storey, and, extraordinarily enough, we won on appeal on the two storeys, because we were within the catchment area of a hospital heliport. It was nothing to do with planning or our rights; it was only by accident. We are still under threat of a one-storey extension.
In this Bill, I want the Government to honour their promise. The development ambitions of freeholders, all across London and beyond, are having a chilling effect on the ability of leaseholders to seek and afford enfranchisement. The new hazard is that the development value of the plans brought forward by our freeholder have doubled the collective enfranchisement cost from £0.75 million to £1.75 million. This puts it outside of the reach of most of the residents. The Law Commission proposed a remedy in its valuation report, and the Government—Mr Jenrick, no less—said in the House of Commons on 11 January 2021 that:
“Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’”.—[Official Report, Commons, 11/1/21; col. 10WS.]
The Bill has an impact assessment, thank goodness. Buried in it—you have to be forensic—in annex 2, paragraph 12, is the recognition that the prospect of paying development value can make enfranchisement prohibitively expensive, contemplating that there will be a new right for an option not to pay development value on condition that leaseholders guarantee not to develop themselves. I will draw my remarks to a close soon, but the assessment is detailed. It also contemplates that the freeholder would be due reasonable out-of-pocket expenses, if they have been genuinely incurred. The freeholder gets some profit, but the leaseholder gets absolutely nothing out of this. The Law Commission did not recommend it—this is an invention of the Government.
I have asked the Minister whether she thinks this is something that the Government can honour in the Bill, and she has said that it is a live issue. That is all I need for now, because I trust the Minister to take this issue seriously. It is quite a general issue. I will come back and discuss this with her, if the Government feel that they cannot. She has already told me that the permitted development review is under consultation and that there may be an implication there. Perhaps she could tell me more about that.
We will certainly engage over the course of Committee, and I will not make any further argument at this point, other than simply to say that I welcome the Bill. It is a huge opportunity; let it not be a missed opportunity. Let us use the resources and expertise in this House to make the Bill as robust and comprehensive as we can. I believe that there is quite a lot of good will on the part of the Government to do that.
Baroness Finn (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Andrews, and to listen to so many well-informed and eloquent contributions. I thank my noble friend the Minister for her engagement on the Bill thus far. I am delighted to speak in favour of this important Bill, and in so doing recognise the tireless advocacy of so many noble Lords, especially my noble friend Lord Young of Cookham, the noble Earl, Lord Lytton, and the noble Lords, Lord Kennedy and Lord Best.
Just over a 100 years ago, a little-known thinker called Noel Skelton coined the idea of a property-owning democracy. That belief is still a core tenet of conservatism. However, today, we are talking about tenants, not just tenets. For far too many in England, property ownership has a fatal flaw: for far too many their ownership is fundamentally limited, in that they do not truly own the properties that they have saved to buy. They are merely tenants, albeit often on longer leases. In some cases, they are trapped by extortionate ground rents; in others, they risk losing the roof over their heads if they fail to make such payments. Some face exorbitant management charges or have to seek permission and pay a charge simply to change a kitchen cabinet.
Our leasehold system has its origins in the feudal property laws. Feudalism was a core part of my history degree; it has no place in contemporary Britain. This is why I am so delighted to speak in this debate today. Successive Governments have promised reforms to the leasehold system and failed to deliver. As we heard in the other place, Tony Blair’s new Labour promised to sweep it all away—it even produced a pamphlet about all its plans. However, the Labour Government did no such thing during their years in power. They retreated in the face of vocal opposition, and the situation of leaseholders today is little changed from that of the 1970s. That is why this Bill is so profoundly important.
The reforms are deeply conservative, championed by none other than Margaret Thatcher during her opposition and her premiership. I am encouraged that His Majesty’s Opposition plan to engage seriously, as we all have a common interest to ensure the Bill’s success.
The Bill corrects many injustices. Let me list just a few. It will end permanently the sale of new freehold houses; it will give new rights to existing leaseholders, making it cheaper and easier for them to extend their leases, and making such extensions 990 years as a default; it will bring new transparency over service charges and make it easier for leaseholders to enfranchise; it will protect more leaseholders from unfair and unjustified service charges; and it will improve the management of many buildings. These are huge steps forward, and I pay tribute to the work of my right honourable friend the Secretary of State for Levelling Up. Housing and Communities, as well as to the Housing Minister, Lee Rowley, and before him, Rachel Maclean. The reforms also build on the work of Sajid Javid as Housing Secretary, and incorporate many recommendations of the Law Commission. I welcome all of these measures. Taken together, this package is by far the biggest and most serious change to the leasehold system in recent decades.
However, I hope my friends in the Government will not object to me pressing them to go further in a few key areas, while recognising all that they have already secured. The first area is enfranchisement—the process by which leaseholders can take over their freehold. This will be improved by the Bill, but I urge the Government to go further and abolish the residential freehold exemption and lower the threshold of consenting flats required. Certainly, it should not be possible for a freeholder who also owns leases in a particular block to cast deciding votes on enfranchisement, and nor should absentee overseas owners be able to block the process.
Secondly, successive Housing Ministers have championed commonhold as a viable alternative to leasehold. I am encouraged that the Government have included a swathe of the Law Commission’s reforms, yet the Bill does not yet include the measures that the Law Commission considers necessary to make that system of tenure the new default. We need to move towards a commonhold system, and I sincerely hope that the necessary further measures can be incorporated as the Bill goes through its further stages. I hope that my noble friend the Minister can confirm that they will be included, so that we can finally get rid of the leasehold system.
Thirdly, my right honourable friend Boris Johnson secured a substantial majority just five years ago on a manifesto which included the promise to implement a
“ban on the sale of new leasehold homes”.
The Government have sought to suggest that banning leasehold houses fulfils this promise. It does not, for the majority of leaseholders are in flats. I recognise that no Government would want to ban immediately the sale of new leasehold flats, and that the commonhold fixes I have referenced above would need to be shown to work. However, I suggest that the Government take a power to allow the Secretary of State to end all leasehold, while committing here that it would be commenced only once the market was ready.
Fourthly and fifthly, we have heard a great deal in the other place about the need to address both forfeiture and the fleecehold estates. My honourable friend Rachel Maclean said quite simply that forfeiture must go, and she is right. It is simply wrong that a freeholder can make a tenant forfeit their flat over a disputed service charge. Likewise, my honourable friend Neil O’Brien was one of many who argued strongly about the need to end the model of fleecehold estates and to help the 3 million or 4 million people who are stuck with them. I will not repeat all the points made, save to say that I completely endorse the thrust of their arguments and call on my noble friend the Minister to commit to act now.
I have outlined five areas where I believe the Government should move further. I hope they will do so, so that the Bill, which already achieves so much, can be one which truly delivers the reforms needed to end leasehold for good.
Lord Campbell-Savours (Lab) [V]
My Lords, I congratulate my noble friend on the Front Bench on her very comprehensive canter around the course of reform, and I look forward to meeting her during the proceedings on the Bill, if at all possible. I too give a cautious welcome to aspects of the Bill. I say “cautious” because I believe that a lack of political courage and clarity of purpose at this stage at least to commit to the issue of enfranchisement under a more acceptable form of tenure has created a lot of anxiety. I will return to this issue later in my brief contribution.
I should confess to some experience in some areas covered by the Bill. In the 1970s, I purchased the freehold on my London home, a seamless process which worked fairly well. Also in the 1970s, on acquiring offices in a Lancashire town, I found myself in a quagmire of lease complications over leased accommodation with both office and residential leases. It seems I had inadvertently acquired a series of subleases, which I managed to dispose of to a number of grateful lease-holders at no cost to them. I have never had any desire to be a landlord.
More recently, I, along with other flat owners, after protracted and expensive negotiations and days in a leasehold tribunal, acquired the freehold to our flats outside London. The experience of sitting through days of these hearings at great expense has given me front-line experience of the process of enfranchisement. However, a far greater interest in terms of this Bill is the experience and knowledge I gained while an MP over attempts to purchase the freehold of a London flat used for attending Parliament.
In that case, over half the block concerned was owned by persons overseas, and many of these owners held their London assets in the name of nominee companies, either in tax havens or in the Far East. At that stage, there was no way to crack that wall of secrecy. The managing agents pleaded client confidentiality. In effect, they could do what they wanted. So why did we want to buy? I saw the service charge rise in 17 years, from just over £2,000 a year to nearer £10,000 today, so I just sold up. The scandal of escalating service charges is not only hitting London, it is now hitting flat resale prices in many of our great northern cities. The evidence is to be found in property auction prices at Cluttons, Nationwide and Savills, to name but a few. Escalating service charges are at the heart of arguments over the Bill, and I greatly welcome those provisions in it that provide for greater transparency.
I have always believed that transparency influences conduct. It stands at the heart of my whole approach to political life. For example, just imagine what arguments are going to break out when leaseholders learn of the percentage uplifts being added to their bills for contractual services, maintenance costs, insurance premiums and variable admin charges. I have never seen a leasehold title service charge notification which reveals top-slicing percentages. The question is: how will service charge companies compensate for their lost revenues? Will it simply fall on increased account-handling charges?
I return to the issue of title. This appears to me to be the issue of most concern in the property market. I have had some very interesting conversations on this area of thinking, as set out by Michael Gove over recent days. The letter from the Residential Freehold Association is what alerted me. I quote:
“The proposed cap on ground rents would represent a retrospective interference in the value of legitimate investments made by institutional and private investors, and could wipe out almost the entire value of investments into ground rents. The Government cannot illegitimately reduce the value of these investments without compensating the investors, who will be entitled to, and will seek, compensation for the loss of value they will suffer. Interfering with investors’ existing contractual income streams will lead to a high rate of insolvency for landlords, leaving thousands of buildings in England and Wales without a functioning landlord”.
I do not think the association has really grasped the scale of public anxiety and abuse deployed in property portfolio administration by some of its members. There is a very controversial message there, and while it may be exaggerated, it does need a response from the Government. I think it needs to be corrected. We now hear reports of ground rent investments falling. They are increasingly being offered on property auction sites, and I worry that innocent buyers are picking them up in the expectation of long-term income returns, without realising the possible long-term negative effects on their investments.
The Government are not sending out a clear message. I have been able to talk to auctioneers marketing these products, who all report a nervousness in the market, with the only real interest, interestingly, coming from those investors who lack the savvy to do their homework —primarily investors from overseas. I have also had the opportunity to talk to one investor who commands a very substantial portfolio in the area that we are talking about. It was a difficult message for me, as he described in detail his concerns over what he regarded as expropriation. He foresees the collapse of his portfolio. The question is: what are we to do with this group of investors, some of whom are ethical in their dealings, and others whose approach has been thoroughly exploitative?
I want reform and an end to exploitative leasehold practices, but, equally, I want fairness. Confiscation cannot be on the agenda, but I want reform. This is obviously a very difficult issue for the Government. I suspect it will be all left to the incoming Labour Government to sort out. I suppose, in truth, that I want a review of all forms of title. The system removes the speculative [Inaudible]. That is a tall order.
I speak in the [Inaudible]. After about 4.30 pm each day, I start believing [Inaudible]. Reliability of transmission to the Chamber is impossible in terms of participation, especially in Committee, which invariably comes later in the day on all Bills going through Parliament. I will do my best to intervene when I can, although I shall be following the whole debate, which I find extremely interesting.
Lord Stunell (LD)
My Lords, it is a pleasure to follow the noble Lord, and I am sorry that his speech was somewhat interrupted by technological problems.
I declare an interest as a vice-president of the LGA simply because it is one of many organisations which have contributed evidence and views on the Bill. I also want to declare that I am the joint leaseholder of just one residential flat, which I occupy during my parliamentary work, and I am in the same block of construction that the noble Baroness, Lady Andrews, referred to, with exactly the same issues; I shall certainly work alongside her at later stages of the Bill. However, that will not be the central point of what I want to say. There have been some powerful contributions so far, and many of the things I want to highlight have already been properly drawn into the debate by people who have created the policies I want the Government to advocate, never mind persuading them to join with me.
Unfortunately, the Bill comes from the same stable as the levelling up Act. With that Act, all the promise was in the title; the delivery part was the problem. We have exactly the same tendency here. With the leasehold reform Bill, the promise is in the title but the delivery is not in the Bill. The Bills have other things in common. Both suffered—in this Bill’s case, it is still suffering—from a headlong rush by the Government to introduce new material into the Bill as it goes along. In many cases, as we see in the report from the Commons, it was not controversial enough for the Commons to think that it should be divided on. However, it came at such short notice that the Commons did not have the opportunity to examine whether the stuff brought in front of it was going to work. We have heard enough evidence so far today that the Government are spending an increasing amount of time chasing their tail, trying to make their legislation work. We saw that with the levelling up Act, and some of us think that, however hard they chased, they did not succeed in catching their tail on that one.
During the passage of the Building Safety Act, which I and other noble Lords spent a good deal of our time trying to steer through and improve, on all sides there was a broad level of consensus as to what should be in it. However, in many cases the Government were somewhat resistant to the sensible improvements suggested by Members on all sides of the House, including their own Back-Benchers. Some of those things have had to be put right through further amendments, both to the levelling up Bill and now to this Bill, where loopholes and omissions have come to light.
We had a hint in what the Minister said that we will have some more tail-chasing in subsequent stages of this Bill. Capping ground rents and forfeiture may be coming back to us—I hope they do. However, I hope also that they will come sufficiently soon for us to spend a reasonable amount of time examining the material the Government bring forward, so that we do not have to have follow-up Bills chasing the Government’s legislative tail.
Having said all that, I welcome the Bill before us, despite the fact that it suffers from some major flaws. They have already been spelled out by others, so I will not rehearse them. Some of the worst were set out by my noble friend Lady Thornhill earlier. Can the Minister give us some positive information about the Government’s consultation on capping ground rents and on service charges? The noble Lord, Lord Young of Cookham, rightly brought both matters into play earlier on.
There are also some missed opportunities for real reform. The regulation of property agencies is clearly right up there near the top, and the omission of flats from the creation of new leases is just absurd. Some 70% of leaseholds are flats. The biggest growing market is flat-building in inner urban areas, and all such flats are leaseholds. The problem is getting bigger; it is becoming a larger fraction of the housing market as we speak. The idea that it is not appropriate, timely or sensible to tackle that seems strange in the extreme and difficult to justify, and it certainly needs to be challenged.
I will not say that the failure to make more progress on commonhold is a mystery; the problem with commonhold is that it is broadly seen as a neat solution, but nobody has quite grappled with how you bring it into force. It is a pity that the Government are still struggling when there is so much good information available from the Law Commission and others about what needs to be done to make that happen.
The barriers to the right to manage are being tackled in the Bill. However, as the noble Baroness, Lady Andrews, pointed out, there are some serious tripwires for potential enfranchisers to get to grips with, and I am sure we will want to discuss that in more detail.
However, I want to pick up a point that my noble friend Lady Thornhill raised about the right to manage. The right to manage works well if you have managers who are tenants or leaseholders in those blocks. Therefore, if you like, it is an upper middle-class project enfranchisement. If your leaseholders are solicitors and accountants and so on, you are well made—you can do it, but surely the right to manage needs to go much further through the socioeconomic pyramid than that. This means that, to be workable, there will be not just right-to-manage projects but residential management agents who can do that work effectively on behalf of leaseholders. Surely they then have to be of good quality and integrity—in other words, regulated. I hope that the Government, in responding to the noble Lord, Lord Best, on his point about property agents, will also pick up the residential management agents question as well.
There is a deeper philosophical debate to be had about who in a mature democratic society should have the right to monopoly exploitation of the scarcity value of land. The balance of that debate has moved over the last 250 years substantially in the direction of providing better protection for the weak and minimising harm to the common good. Both are at the expense of the monopoly holders of the scarcity of land. The Government are fond of saying that Britain is world leading but in this area of policy we are world trailing. Only England and Wales, which this Parliament is responsible for, and Australia, have anything like our anachronistic leasehold system tainting the whole property market. It is time that we caught up with the rest of the pack, even if it is too much to hope that the Bill will get us somewhere near the front of it.
The Bill is just a skirmish in a much bigger battle for fair property rights and access to decent housing for all. I very much welcome that when introducing it today the Minister said that she will be ready and willing to engage with us on improving the Bill because, my goodness, it does need improving.
Lord Moylan (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Stunell, with whom I served on the Built Environment Select Committee. I declare as interests that until August 2023, I was a member of the board of the Ebbsfleet Development Corporation, and that I own and live in a leasehold flat in London and own nominally a further leasehold flat as a will trustee, though I have no financial interest in it.
Some time ago, the block of flats in which I live was the second block in the country to exercise the right to manage when that legislative provision was introduced. It has worked extremely well for us. It has persuaded me very strongly that the control of the management of the building in which you live is the solution to many of the problems that leaseholders have experienced with their freeholders and managing agents. I am slightly baffled as to why the noble Lord, Lord Stunell, suggests that this is something that only the middle classes can attain to. The residents in the block where I live probably fit the description that he set out, but I do not understand why he says that this can be done only by them. We do not manage the building ourselves. We interview, appoint and periodically change a professional managing agent—a property agent—but that agent reports to us and is accountable to us, financially and in the decisions made. The structure also allows us to put in place a long-term plan. The legislation requires us to have a 10-year plan, which has made the prediction of service charges very much easier.
I strongly support those parts of the Bill aimed at giving residents greater control of the management of the blocks in which they live. However, if, as is not the case where I live, there is profound disagreement between the residents of a shared property concerning heavy expenditure, no legal structure will resolve those issues satisfactorily. We need to bring about a change in human nature, which I am afraid is probably beyond the capacity of your Lordships’ House.
I am concerned that the right-to-manage provisions appear not to extend to local authorities, even where the property is held outside the housing revenue account. That is a point that I may wish to probe further in Committee. I am also concerned that landlords will not be able to recover their legal fees from tenants as a result of disputes and about how that impacts on right-to-manage companies and any other form of tenant control that might be adopted as a result of the Bill. It would in effect make it impossible for the right-to-manage company to take action against delinquent leaseholders, because they do not have the resources or the deep pockets of these freeholders to take legal action and risk being left with large legal bills. I would like to probe that further as well.
Where the right to manage is not exercised, leaseholders must face the prospect of service charges being administered by or on behalf of the freeholder. This is the nub of the matter. I will come to ground rents in a moment; this is a much more important issue. I certainly take the view that freeholders should not make a penny out of service charges. There is no justification for them to do that. I would be perfectly happy if the Bill contained a provision preventing that from happening. I would also be happy if the Bill contained a provision saying that the total revenue to a managing agent was capped at a certain percentage of expenditure. I do not think that it requires, at least in this respect, for a regulator to enforce that. One could simply make such Bills unenforceable in the courts, so that the demand could not be collected.
Where I depart from the Government—and, I think, from nearly all noble Lords who have spoken so far—is on the provisions relating to the retrospective cancellation of ground rents, and indeed of marriage value. I am afraid to say that this is an astonishing proposition from a Conservative Government. As lawyers have said, it clearly threatens to damage the reputation of English law in the eyes of both domestic and foreign investors. It makes a wholly unjustified transfer of wealth from one group of persons to another—an estimated £40 billion being transferred from one pocket to another, with almost no justification involved. It will cause very serious difficulties for pension funds and other good-faith investors. I worry that there will be a tendency in this House not to engage properly with this issue, but to say, “Leave it all to the European Court of Human Rights, because they’re going to sue anyway; let them sort it out”. I think we have to engage with the equity of this issue: with its fairness and justification. I have great difficulties with it.
I come to the question of estate charges. I have not heard until today the expression “fleeceholder charges”; I think we are talking about the same thing. These were brought up with great eloquence by the noble Baroness, Lady Thornhill, and I share her outrage. The reason I mentioned my former membership of the board of the Ebbsfleet Development Corporation is that Ebbsfleet is being developed on this basis. The residents of Ebbsfleet will be paying charges for the maintenance of common utilities—parks, roads, amenities and things like that—which would normally be borne by a council.
I think this is the next great scandal approaching the housing market; I have actually said this in the House before. But I do not think it is the case that one should present this, as the noble Baroness did, as a case of wicked mis-selling by developers, because it is in very large measure attributable to councils that are simply resiling from taking on their duties. They will accept the additional council tax generated by the new properties, but will not take on the responsibilities for maintaining those common amenities. So there are at least two parties involved whose attitude on this needs to be addressed if we are to correct it.
I come finally to two lighter points. First, could we all agree to drop this use of “feudal” as a term of abuse? First of all, not everything about feudalism was bad, despite what the noble Baroness, Lady Finn, may choose to correct me on. But, much more importantly, the law of property in this country was totally reorganised by the Law of Property Act 1925. That made provision for a form of tenure where property was shared and gave it the name “leasehold”. That might be an ancient name—they have got rid of “copyhold” and all the other stuff that existed—but the fact is that leasehold as we know it today is not even 100 years old, let alone medieval. It is the creation of 20th-century law. We should recognise that and stop trying to demonise it by making out that it comes from the Dark Ages.
Finally, and very briefly, although this last point may be thought to stretch the scope of the Bill a little, I shall be making a personal effort at some point to try to persuade the Secretary of State that it is time to amend the building regulations to make starling nest bricks compulsory in new developments.
Lord Adonis (Lab)
My Lords, I follow the noble Lords, Lord Moylan and Lord Young, in pressing the Minister further on this vexed issue of ground rents. The history of the proposals on ground rents is of a kind of mirage on the horizon, which the Government are constantly hoping to attain, and then it vanishes at the moment when action is expected to be taken. Perhaps I can just sum up the past, because it is important to understand quite how firm the commitments the Government have given are. They have not just raised this as an issue for consultation; they have given very firm commitments up to now. I will then press the Minister further, not just on when the Government intend to respond to the consultation which, as the noble Lord, Lord Young, said, is due, but also on some of the key issues of principle that underlie that consultation.
This process began on 9 November last year, when the Secretary of State issued a press notice from his department, headed “Ground rent reforms to save thousands for leaseholders”. It was a straightforward statement that said:
“Proposals to slash ground rents and save homeowners thousands have been unveiled by the government today”.
The 9 November statement said not that the Government were consulting on whether there should be reform of ground rents, but what the specific reform should be.
The press notice of 9 November set out, in respect of historic ground rents—not new peppercorn leases—the five options of
“setting ground rents at a peppercorn … putting in place a maximum financial value which ground rents could never exceed … capping ground rents at a percentage of the property value … limiting ground rent in existing leases to the original amount when the lease was granted … freezing ground rent at current levels”.
So, in November, the Government set out five options, and the consultation was to choose between those five. Each of the five, if I may comment on the point made by the noble Lord, Lord Moylan, has differing impacts on those who currently earn the ground rents, and some would appear to take more account of their rights than others. What the consultation does not have is an option of no reform of ground rents.
So my first question to the Minister is: is it still the Government’s position—this is a fundamental issue that either this Government will grapple with, or the next one will have to inherit—that there will be a capping of ground rents? Or is it their position that the status quo might be an option?
To muddy the water further, when the Secretary of State introduced the Bill on 11 December—repeating all kinds of points about feudalism which the noble Lord, Lord Moylan, does not like and which my noble friend Lady Taylor pointed out that he had expanded on in his previous speech—he came down very firmly in favour of restricting ground rents for historic leases at peppercorn value. What he said regarding the conclusion of the consultation on the five options that had just been announced will I think be of some importance to us at later stages of the Bill, or to a future Government. He said that,
“at its conclusion, we will legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way … my favoured approach would be, and I believe that it should be, a peppercorn. Of course, if compelling evidence is produced, as a Secretary of State with great civil servants, I will look at it, but my preference is clear, and I suspect that it is the preference of the House as well”.—[Official Report, Commons, 11/12/23; col. 659.]
I too suspect that it was; I think there would have been a cross-party majority in the House of Commons. Indeed, there would be a cross-party majority in this House for limiting ground rents.
That leads to the issue of the disappearing consultation, and why the Government have given no response to it. I suspect that the content of the briefing to the Sunday Times, which the noble Lord, Lord Young, referred to, is more significant than we might be giving credence to. I suspect that it goes to the heart of the issues that the noble Lord, Lord Moylan, raised, and a concern on the part of the Government that there will be protracted legal action, or that they might have to provide some form of compensation.
I do not support the status quo and I believe that, where profits are made by companies and private entities in a totally unjustifiable way, injurious to those on whom they impact, it is a proportionate use of Parliament’s power to intervene to stop it—particularly in cases where that harm is set to increase, which is the big problem at the heart of many of these ground rent complaints, where you have formulae for increasing ground rents that are completely beyond the power of existing tenants to influence. Though it is true that tenants might have the right not to buy, if this is a totally onerous and unjustifiable imposition in the first place, it is right that Parliament should intervene.
However, it is not my view that matters in respect of this; we need to know the Government’s view—not just when they will respond to the consultation and whether they still stand by the five options but, crucially, their view on the legal position with respect to the rights of ground landlords and whether they might have a legal case or be liable for compensation. It is extremely important that we know this, because we may have to legislate in a different way depending on their view.
As it happens, the Secretary of State did address that issue in his Second Reading speech. This is a very Michael Gove statement, because it is so robust and yet not followed up by any action, which is a characteristic of his:
“I know that some people will say, ‘What about A1P1 rights under the European convention on human rights? You are taking property away from people.’ I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation”.—[Official Report, Commons, 11/12/23; col. 659.]
My final question to the Minister is: is it still the Government’s position that if they are persuaded that the right option is to limit or, in effect, eliminate ground rents, they are justified in doing so despite the European Convention on Human Rights? I would be very grateful if she could give us specific answers to these specific questions when she replies.
Lord Truscott (Non-Afl)
My Lords, it is a pleasure to follow the noble Lord, Lord Adonis. I will come to ground rents shortly. I declare an interest as a long-standing leaseholder.
The Bill before your Lordships’ House today is, in my view, profoundly disappointing, as one or two noble Lords have said. As the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said in the other place, leasehold is a “fundamentally unfair system”, and his aim is the effective destruction of the leasehold system. Leasehold is, in his words, “outdated” and “feudal”, although I know that the noble Lord, Lord Moylan, does not like that word. I agree with the noble Baroness, Lady Finn, that leasehold has no place in the 21st century. The Bill falls a long way short of its objective of the destruction of leasehold, as the noble Baroness, Lady Andrews, also said.
As it stands, the leasehold system is virtually globally unique—in a bad way—to England and Wales. It perpetuates a property market where around 10 million leasehold dwellers are at the mercy of freeholders and associated freehold professionals who sponge off them. Leasehold codifies and preserves, in the modern age, the medieval relationship between the serf and the lord of the manor, because that is historically where leasehold comes from. I agree with the noble Baroness, Lady Finn, on this. As a historian with three degrees in history, I can assure noble Lords that it is quite the historic pedigree. There is a gap between those who own property outright and those who do not. This applies not just to the great estates that still own huge chunks of prime London and other areas but our country as a whole.
The Secretary of State, Mr Gove himself, said in the other place that the Government would destroy the feudal leasehold system:
“We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends”.—[Official Report, Commons, 11/12/23; col. 659.]
The noble Baroness, Lady Thornhill, repeated this. We hear that Mr Gove is having trouble fulfilling the Tories’ election manifesto pledge to reduce all ground rents to peppercorns. The noble Lord, Lord Adonis, referred to this. But Mr Gove is being opposed by the Treasury, Downing Street and freeholder interests. Meanwhile, as noted in the debate, the Competition and Markets Authority has ruled that there is no legal or commercial justification for ground rents. Ground rents provide no service and are purely rent-seeking.
I have very little sympathy for the self-serving arguments of vested interests that want not only to water down the Bill further but to emasculate it completely. The effect of reducing ground rents to peppercorns is exaggerated by the pension industry and freeholder lobby groups. I do not agree with the noble Lord, Lord Moylan, on this point. Some are hiding behind the European Convention on Human Rights and the right to property. The noble Lord, Lord Adonis, referenced this. Apart from this making an excellent case for an opt-out from the ECHR, which I would have thought the noble Lord, Lord Moylan, would welcome, I point out that the rights of leaseholders need protecting too.
We were told that marriage value was to be abolished under the Bill—
Lord Moylan (Con)
I have never actually argued that we should withdraw from the European Convention on Human Rights. I have an open mind.
Lord Truscott (Non-Afl)
I did not say that at all. I said that I would have thought that the noble Lord would welcome an opt-out from the ECHR on this. If that is not the case, I am happy to accept what he says.
Going back to marriage value, I do not think that marriage value should be replaced with a deferment rate that makes lease extensions even more expensive than they are now, because the deferment rate that the Government are talking about setting is merely marriage value by another name, and it can end up with leaseholders paying even more for lease extensions than they pay now, because it depends on the rate. In my view, His Majesty’s Government should completely abolish the outmoded concept of marriage value based not on what a property is currently valued at but on what a freeholder imagines it may be worth in the future. However, I welcome the Government’s commitment to an online calculator, so at least leaseholders know what the cost of extending their lease might be.
I listened carefully to the Minister’s opening speech, and I hope that she can assure the House that, when the Bill becomes law, it will indeed be cheaper and easier for existing leaseholders to extend their lease or buy their freehold. The greater transparency on charges, including insurance, and the end of the unfair presumption of leaseholders always paying all the landlord’s legal costs is a step forward. As it stands, the system is heavily weighted in favour of the landlord or freeholder. Any legal challenge is fraught with risk, uncertain and extremely costly. Very few leaseholders attempt it. As noble Lords have said, the stories of excessive and padded service charges and extortionate insurance premiums are legion and endemic. These abuses must be brought to an end as soon and as far as humanly possible.
The extension of right to manage in residential blocks is long overdue. I do not accept that mixed residential and commercial blocks cannot be managed by right-to-manage companies, or that investments will dry up as those who live or invest in such blocks are given more say over how they are run.
I regret the absence of the regulation of property management agents, as the noble Lord, Lord Best, has repeatedly raised, or even an insistence that they should be trained and qualified. Property agents can control millions of pounds, and the standards of some of them are unbelievably poor. I know of no other body that manages potentially such large sums of other people’s money that is wholly unregulated. Voluntary codes and redress schemes are not enough.
Commonhold is once again being insufficiently promoted by His Majesty’s Government, as mentioned by the noble Lord, Lord Young of Cookham, and others, including the noble Baroness, Lady Taylor of Stevenage. It may be unpopular with developers but I believe it offers a realistic alternative to the flawed leasehold system.
On forfeiture clauses in leasehold, which a number of noble Lords and the Minister mentioned, although I agree that no one should lose their home for service charge arrears of a few hundred pounds—these can be dealt with by the county court and bailiffs—forfeiture clauses can be a useful deterrent to other breaches of the lease that are otherwise difficult to enforce, such as persistent anti-social behaviour. I look forward to these and other issues being fully debated as the Bill progresses through your Lordships’ House.
The Earl of Lytton (CB)
My Lords, I remind your Lordships of my profession as a chartered surveyor and my lifelong involvement with building, survey valuation and property management, for my sins. I thank the Minister for organising a drop-in session last week, and for her suggestion of a further meeting. I thank her particularly for the answers to several questions I raised after that session, which I received this morning. I will look at those with great care. I also thank the many bodies and individuals who have communicated with me about the Bill.
On the face of it, the Bill contains some very welcome measures. For all the reasons the Minister has given, I support its aim of better consumer protection, but it lacks coherence in many areas, particularly its interface with building safety.
We know the problems, and other noble Lords have explained them: the escalating and opaque charges demanded of leaseholders, the building safety crisis that aggravates cost and risk, a mercenary culture among those who control and manage blocks in which anything not expressly forbidden is fair game, mortgage-lending practices which exacerbate the wasting asset problem, and an opaque leasehold system that, while arguably not itself the prime cause, certainly facilitates abusive behaviours.
There are laws and regulations on our statute book relating to misrepresentation, unfair terms, quality of goods, fitness for purpose, and implied warranties and misdescriptions, to name just a few. To my knowledge, few are enforced to the satisfactory protection of leaseholders. Of course, the regulation of property agents is completely absent.
Let me point to progress in the remediation of defects which are plaguing leaseholders. Of the firms which signed a non-binding pledge with the Secretary of State, the best performer is understood to have remediated some 35% of the affected stock for which it was responsible. The worst performer remediated perhaps 8%. This was rather conveniently set out in the Mail on Sunday of 17 March.
The Government’s January statistics on the developer remediation contract also make uncomfortable reading. Developers have accepted responsibility for 5% of some 90,000 residential buildings of 11 metres in height and above. Some 37% of those where a determination had been made—more than a third—needed remediation of some sort. There was not a squeak about the homes in the 11 metre and below category, where residents might arguably be safer from loss of life but just as vulnerable to the remediation and financial loss trap. Building safety continues to foul up other leasehold issues.
The noble Lord, Lord Young of Cookham, referred to a two-tier market; I would describe it as a three-tier market of qualified, partially qualified and non-qualified leaseholders. This overlies a labyrinth of tests and exclusions regarding such matters as freeholder assets, cladding or non-cladding defects, building height and building information, particularly where landlord certificates are required and the landlord is not the managing agent. Leaseholders unable to contract are further let down by a level of complexity with which even professionals are reluctant to engage. There is a particular problem with conveyancers. While this overshadows some 1.6 million unqualified leases, the construction sector appears to have escaped the bulk of its true responsibilities. This Bill does not address the fundamental issue that all innocent owners should be protected from poor construction and management practices as a consumer right.
In the grand political gesture of this Bill—and there is something of that—the Government appear unaware of how interconnected construction, property and financial markets are. The policy on ground rents appears to be unravelling. All parts of this model have to be addressed together if we are to stand any chance of fixing the problem. The Government wag their finger at freehold—fair enough—and seek to remedy some of the leasehold issues by adjusting the tenure balance. Unfortunately, exploitative practices and building remediation do not entirely go away under this model. The same innocent home owners remain imprisoned in their unmortgageable, unsaleable and potentially uninsurable homes—homes that should have been a safe haven and a secure investment, but are consuming lives and livelihoods, and damaging life chances, productivity and health.
These reforms do not seem to be driven by benefit to leaseholders as consumers who need protecting, so much as by political risk management. Otherwise, why does the Bill seek to turn leaseholders into freeholders, while denying freeholders the protection the Government promised to give to leaseholders? This is an example of incoherence in the Bill.
The Government’s policy is to make freeholders, who may be innocent of creating the construction defects themselves, uniquely responsible for ensuring remediation; doing so at their own cost and risk; taking a legal punt on cost recovery from a developer, if one exists; and doing so out of resources to be depleted by the effects of the Bill. Do the Government think that freeholders are willing and able to do this for the primary benefit of leaseholders, or indeed solvent enough to enable them to do so?
It seems to me that the default here simply puts the matter back into the hands of leaseholders and lawyers. As somebody who is interested in property markets, that is something I want to avoid. I have even heard it suggested that insolvent freeholders’ administrators will hand over the freehold to residents, with all the supposed benefits and none of the remediation and other burdens. I regard that as completely naive.
The claim of abolishing marriage value in fact disguises a transfer of an identifiable element of value long recognised in valuation practice and statute. I do not necessarily advocate for or object to that; I merely state it as a matter of fact, but in future this will solely benefit the leaseholder. This has wider consequences for the financial model. I cannot say which way that will pan out, but it has consequences. Furthermore, it is unclear from the Government’s impact assessment whether any real net benefits would fall to leaseholders. In London and the south-east, most benefiting leaseholds seem to be owned by investors, and a significant number of them are non-UK resident. I do not necessarily object to that at all, but is that the object of the policy in transferring the benefit of this gain? By contrast, investors owning three or more units are actually denied the protections of the Building Safety Act. How do the Government explain that dichotomy?
I also point to Schedule 4, where the market value of assets is defined not by a relevant reference to the accepted national and international standards relating to that term—market value—which assumes a willing buyer and a willing seller, but by reference to a willing seller alone. Presumably they are deemed to be willing at whatever low price the buyer suggests, for that is the inevitable consequence. Can the Minister explain that, and does she subscribe to a rules-based approach to property evaluation?
The market is on notice about the direction of travel here. Even without peppercorn rents, the Bill is definitely going to shift the dial. I simply ask the Minister: where is the evaluation of all these direct and indirect effects? We need to know.
The Secretary of State’s views on the problem are well known and have been repeated by noble Lords. I am not sure whether it is the leasehold system as such or the culture and policies which attend it that is most at fault; presumably, it is a combination of the two. I really support the consumer protection measures in the Bill, but I counsel against wanton destruction of value, undermining people’s investment in their homes and the risk of market disruption. Those have to be avoided. I regard the Government’s proposals as a bit piecemeal and lacking in strategic foresight on replacing leasehold, which people generally feel has to be replaced. But in the meantime, it is going to continue for some time for certain people.
This is not good enough. There are around 5 million leasehold homes in England, worth at least £1.25 trillion. Home owners and their lenders need to be assured that there are plans in place for a smooth transition from one system to the other, whatever the regime happens to be, and that they do not lose out in the meantime. Process and cost have to be transparent—and, please, less profiteering.
There are opportunities in this highly complex Bill to deliver better consumer protections and I look forward to working with other noble Lords to progress them. But parts of the Bill are very far from transparent themselves and this is regrettable. I promised the Minister suggestions on ways of further clamping down on exploitative behaviour that has blighted leasehold over the past 20 years. I regret to tell her that I have not yet finalised these. However, drawing on experience from the continent and elsewhere, I shall elaborate on them as the Bill proceeds. I will certainly return to building safety issues in Committee, because things simply cannot continue as they are. The policy needs to be much more joined up.
In conclusion, lest they become a protracted legal battleground with much collateral damage, all these things have to be dealt with together and not considered piecemeal. If they are, great dangers arise from getting it wrong.
Lord Howard of Rising (Con)
My Lords, I want to speak about the abolition of marriage value for leases under 80 years. This will create financial and legal problems, as my noble friend Lord Moylan has alluded to.
Apart from the shocking moral issues of arbitrarily transferring wealth from one holder to another, with no compensation—from a freeholder to a leaseholder in this case—there is a danger of tampering with property values, when so much of the nation’s economic activity is based on the security of property assets.
I find it difficult to believe that His Majesty’s Government have properly considered the implications of going down this path. If assets can, on the whim of a politician, have their value dramatically changed, we will ultimately end up with a breakdown of the financial system. Noble Lords might consider someone who has put some, or possibly all, of their life savings into an investment suddenly having nothing. There will certainly be examples of this if the proposed confiscation takes place, as well as a diminution of pension fund benefits from pension funds which have invested in freehold ground rents.
There is a strong risk of litigation under the Human Rights Act, as has been mentioned. This could lead to an ECHR challenge against the Government for the unjust removal of property rights, which could result in a significant bill for the taxpayer.
There are 5.2 million leasehold properties, but only 400,000 are under 80 years. Of those, almost two-fifths are owned by professional landlords and rented out. In these cases, the transfer will be from one investor to another. The remaining three-fifths of leases are owner-occupied properties. These transfers will mean a loss for His Majesty’s Treasury, because freeholders will suffer a tax-deductible loss, but the profit to resident leaseholders will be tax free as it is their principal private residence. This would amount to a loss in today’s value of at least £1 billion to the Exchequer.
Four-fifths of the total value of all transfers will be in London and the south-east, with a reputed 60% of higher-value properties held by foreign owners in central London. This means that the Bill will lead to a significant transfer of wealth out of the United Kingdom.
By grandfathering leases under 80 years, where marriage value is already imputed into their enfranchisement or lease extension value, freeholders would not suffer from an estimated loss of more than £7 billion. If the Government give up the idea of abolishing marriage value for leases under 80 years, a substantial legal threat will be removed and a loss of significant sums to His Majesty’s Treasury will be avoided. More importantly, the long-term threat of erosion of stability in the financial system will have also been avoided. I will put down an appropriate amendment in Committee.
The Lord Bishop of Manchester
My Lords, I begin by declaring my interests. I am no longer a church commissioner, as my time finished at the end of last year, but I am paid and—if the Lord spares me—will be pensioned by the Church Commissioners in due course. The commissioners are freeholders, not least of the Hyde Park Estate, which has been in continuous Church ownership and care since around the 11th century, when it belonged to the monks of Westminster Abbey. I guess, if I am going to echo a word that we have used several times today, that makes it genuinely feudal. I also own one leasehold flat in the West Midlands, as set out in the Members’ register.
I support this Bill. It addresses many deep injustices which other noble Lords have addressed and hence I do not wish to repeat. I am also grateful to the noble Baroness the Minister for meeting me and colleagues from the charity sector a few days ago. I am grateful for the comment from the noble Lord, Lord Best, about regulation and the comments from the noble Lord, Lord Young of Cookham, on forfeiture and buildings with fire, safety and other defects. I am also grateful to the noble Earl, Lord Lytton, who is such a doughty campaigner on these matters. It remains a huge scandal that so many people remain trapped owning apartments that are unsaleable.
However, there are three areas that I would like to see explored at later stages; I shall try to be brief for now. The first is about marriage value. Noble Lords might expect a Bishop to support marriage and I will not disappoint. I am grateful to the noble Lord, Lord Moylan, for raising this subject, not least in referring to pension funds, and again to the noble Earl, Lord Lytton, and, most recently, the noble Lord, Lord Howard of Rising. My concerns are with particular reference to charities which own freehold as part of their permanent endowment. We have already heard that some 80% of marriage value in UK relates to properties in and around central London. As several noble Lords, including the noble Earl, Lord Lytton, have stated, many leaseholders in such blocks are corporate and often overseas entities. They are not the people this Bill aims to protect or benefit, nor should it. The Church Commissioners’ Hyde Park properties have an average sale value of £1 million. Those who own them are not, by and large, London’s poor.
The Bill, as drafted, will take money presently used for charity purposes and give it to the wealthy—robbing the poor to pay the rich: a reverse Robin Hood. Lest I be seen as being parti pris, let me offer a non-Church example. John Lyon’s Charity exists to fund children and young people’s services, particularly in nine north and west London boroughs. It is the largest independent funder of children and young people’s services in Greater London and, in 2022-23, it reached the milestone of having awarded over £200 million in grants since 1991. That is over 4,500 grants to over 1,700 organisations. The loss of marriage value could cost it around £3 million per year, money which would go to owners of apartments valued in the millions. John Lyon’s is not the kind of rogue landlord that leaseholders need protecting from.
It is a widely accepted principle of charity law, accepted even when right-to-buy legislation was extended from council housing to many housing association tenants, that charity assets should not be transferred to individuals or bodies that would not qualify as their beneficiaries. This Bill seems to fly in the face of that principle. Is it possible to exempt charities? It appears that the National Trust already has such an exemption and one not restricted to those parts of its estate that are inalienable under Act of Parliament. The principle of exemption is not at stake; what we need to talk about is its extent. Will Ministers look at whether that exemption, or one similar to it, afforded to the National Trust could be extended to encompass other charities? Should that prove impossible, will they put forward a full compensation scheme for when a charity loses marriage value?
My remaining two points relate specifically to mixed blocks in town and city centres. Typically, you will get a ground floor of retail, then there will be some floors of offices and then the residential floors on top. These points might well have been addressed by us moving away from leasehold entirely but, while it remains, they need to be addressed if our town and city centres are to be the vibrant hubs that we need.
First, how are we to prevent groups of enfranchised leaseholders, particularly if many of them are overseas companies, from neglecting the community facilities—ground-floor shops, and sometimes even schools? I have heard it said by one of my colleagues that, on one estate, we could end up with a whole load of vaping or mobile phone shops. We would lose all the shops that really matter to those who live perhaps not in that block but locally. Can the Government offer amendments that will enshrine ways to protect the non-residential parts of blocks, particularly those areas devoted to community and retail uses, or can we limit those entitled to vote on decisions about their properties to actual individual residents in person, rather than remote and often disinterested corporate entities, which would see shops as a way in which to get a rental income, not a service to a community in which they play no part?
Finally, I am concerned that the reduction of threshold for enfranchisement could lead to less building of homes in town and city centres—or we could end up with too few homes and too much office space. I am aware that I am taking a different view from that of the noble Lord, Lord Truscott, a few minutes ago, so perhaps we need to establish the facts. Have His Majesty’s Government undertaken an impact assessment on future home building and, if not, will they do so, and report to your Lordships’ House during the passage of this Bill?
I believe that this is a good Bill, but one capable of improvement, and I look forward to continuing to engage with it through its later stages.
Baroness Twycross (Lab)
My Lords, I declare an interest as deputy mayor for fire and resilience in London, and I thank the noble Lord, Lord Young, for his kind words about the London Fire Brigade.
My deputy mayoral role does not cover residential housing directly, but I am acutely aware of the emotional and financial costs faced by leaseholders. In particular, the issues in relation to remediation following the tragic Grenfell Tower fire have opened my eyes about leasehold and about what a number of noble Lords have observed, and what I understand the Secretary of State himself has said, to be a feudal and outdated system. If it is not quite from the dark ages, as the noble Lord, Lord Moylan, argued, it definitely deserves to be consigned to history.
I shall speak later about some the issues faced by Londoners. First, however, I ask the Minister about the issue of forfeiture covered by my Private Member’s Bill, which would seek to amend the Housing Act 1988. I thank the Minister for her time discussing it, and for her assurances that the Renters (Reform) Bill would cover this. I know from her opening remarks that the Minister is aware of the issues around forfeiture.
As the Minister is aware, the main issue that my Bill would address is the current uncertainty as to whether residential leasehold properties with ground rents of more than £250 a year outside Greater London, or more than £1,000 inside Greater London, are to be deemed to be assured tenancies under the Housing Act 1988. Currently, if the leases are assured tenancies and the ground rents are not paid, the landlord is able to repossess the property. There is no jurisdiction under the Housing Act 1988 for a court to refuse to grant possession to the landlord under an assured tenancy. However, a court has the discretion to grant relief from forfeiture, provided that the leaseholder pays any outstanding amounts owed. This is an anachronism that should be addressed at the earliest stage. Would the Minister accept an amendment that would do this in this Bill, given that the renters Bill appears to be taking some time to progress? As the noble Baroness, Lady Thornhill, said, it appears to have had a quiet death.
In my view, it does not really matter that there are not numerous examples of such forfeiture happening; it is the principle, possibility and threat that matter. This is an opportunity to address this through legislation. Forfeiture of this nature could undoubtedly happen. We know this, because it already happens in relation to service charges. Recently, the Evening Standard raised the case of a Londoner who had not paid her service charge due to the fact she had lodged a tribunal case against the freeholders for bogus service charges. Because the woman concerned had refused to pay a £5,500 bill —a figure 10 times higher than the estimate provided when she bought the flat—she is in breach of the lease and could lose her home. The paper rightly pointed to forfeiture as being the most mafia-like element of leasehold law in what it described as a crowded field. The woman concerned was in fact owed money by the freeholder; she had been awarded money by a tribunal challenging bogus charges but was still liable to lose her home.
The tribunal system is slow and unfair. Many freeholders do not play ball. There are examples of unscrupulous freeholders and agents slowing down an already glacial process and often not paying what they owe. Will the Minister say how the Government feel this legislation will address issues in the tribunal system and why they have not included removing forfeiture at this point through the Bill?
The Bill is a missed opportunity to transform an outdated system which affects millions of people. In the case of this city, over one-quarter of London’s households live in leasehold properties. It is not good enough that more fundamental change, a move to commonhold, is being delayed. While the Government’s recent proposals for reform are welcome as far as they go, they are too little and far too late. England and Wales are, as far as I know, the only countries in the world still operating this feudal freeholder/leaseholder system. The Bill is a missed opportunity to provide the fundamental reform required.
The Mayor of London has championed London’s leaseholders and, like other Labour politicians, has called for wholesale reform of leasehold. London’s housing strategy calls on the Government to introduce alternative tenures, such as commonhold, which has already been introduced in Scotland, and increase the support and advice to existing leaseholders. Mayors have limited levers to improve the situation—this definitely needs government action—but in London, the mayor has developed a range of ways to support fairer outcomes for leaseholders. This includes a requirement for 990-year leases as standard for shared ownership homes funded by City Hall. The mayor has introduced a leasehold guide for Londoners, which provides guidance to help leaseholders make sense of the current unfair and complicated system.
London has also introduced a service charges charter. This ensures that City Hall’s investment partners consider affordability and transparency when providing information to leaseholders. But best-practice guidance is only ever picked up by responsible freeholders; what we really need is an end to leasehold once and for all. What more will the noble Baroness do to ensure that leaseholders get a fair deal? In the absence of government action, will the Government give further powers to regional mayors? Or will they commit to go further than the current Bill by including stronger measures in government amendments?
The Mayor of London is also campaigning for a cap on ground rents of existing leases at a peppercorn rate, which would bring the greatest benefit to leaseholders who are currently required to pay ground rent to their freeholder, often with no clear service in return. I was disappointed to read that the Secretary of State has apparently bowed to pressure from those purporting, without basis, I understand, to represent the interests of pension funds and may back away from measures introducing peppercorn ground rents. Can the Minister reassure us that the Government will reconsider this?
My final point is about the remediation of historic building safety failures. The Government have rightly acted, through legislation and through funding, to protect some leaseholders. But remediation has been far too slow and some people are left either unable to move or with unreasonable and rising insurance bills, even after remediation work has been completed. I know that the Minister is aware of the issue with timber-framed leasehold properties in Barnet, and the recent fire which has led to high remediation costs that are not obviously currently covered by building safety legislation and which will potentially, therefore, unfairly fall on the leaseholders. Will she meet with Barnet Council to discuss this issue? Will she commit to looking at the gap it represents in current building safety legislation? The issues in Barnet are by no means unique. The building safety issues are part of a shocking legacy of many years of poor practice in development. Almost seven years after the tragedy of the Grenfell Tower fire, we are still seeing issues in building safety for leaseholders revealed only when fires occur.
This Bill goes only part way to address the issues faced by leaseholders. Like other noble Lords, I ask the Government to strengthen the Bill further as it passes through this House to avoid continuing an outdated and unfair system.
Lord Bailey of Paddington (Con)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Twycross, with whom I have worked for many years in City Hall. This is my first time contributing to a debate, so if I get a few things wrong, please handle with care.
I have personal experience of being a leaseholder, and I know how the system can be abused to rob you of your dignity and deny you control of your own finances. Today I speak on behalf of millions of leaseholders who want to be released from this feudal system—I share enthusiasm for the term—that renders them “captive consumers”, according to the Competition and Markets Authority.
This is about whether or not we are a property-owning democracy. In 2019, some 13.9 million people voted for a Conservative manifesto that pledged leasehold reform. A further 10 million people voted for a Labour party that promised the same. Since 1966, all parties have promised leasehold and commonhold reform in election manifestos. Once we understand how important this has been to most people in this country, it is astonishing that we have not yet been able to deliver the changes that many, if not all, leaseholders want.
Freeholders have no incentive to get the best financial value for upkeep, insurance or repairs, because they are not picking up the tab. This arrangement is ripe for abuse. Some 95% of flats are leasehold; this legal structure is a forced condition of sale for an increasing number of first-time buyers and elderly downsizers.
Many people in the leasehold world propagate a number of myths to make sure that we continue to hold on to this old-fashioned and—I will say it again—feudal regime. They say that leasehold reform is an affront to property rights, but leaseholders have already paid a premium for their home. According to a leading freehold lobby group, the Residential Freehold Association, professional freeholders typically own only a very small economic interest, defined as just 2.5% of the capital involved in most cases. The association says freehold reform is unprecedented abuse of existing contracts. Freehold lobby groups are ignoring all the times in the past when Parliament has stepped in to rebalance rights and obligations on property for the greater good. This is not a recent leaseholder thing; there are laws dating back to the 19th century that have sought to bring greater equality to existing contracts. Indeed, in the 1980s and 1990s, Margaret Thatcher and John Major gave flat leaseholders the right to acquire their freehold.
Leasehold reform removes professional landlords and puts a burden of management on residents who do not have the time or skill to take care. This is simply a straw man to prevent bill-paying leaseholders taking rightful control of their home, their money and their lives. I am a Londoner and know the valuable role that the great estates play, not only serving leaseholders but the wider community, in placemaking.
However, let us not pretend that all freeholders are benevolent actors or high-performing service providers, such as Cadogan Estates, the de Walden Estate or even the Canary Wharf Group. Your average freeholder appoints a managing agent who does the day-to-day management. That agent could easily be appointed by leaseholders, as flat owners already do in many places across the world. It has already been said in this debate that a property is best managed by those who live there and know what is going on. We could concentrate on some of the bad behaviours by freeholders, such as artificially inflated and undocumented service charges, major works projects that are handed to a friendly contractor and then billed at double, sometimes triple, the going rate when you get a second opinion on what the cost should really be. We have some of the highest housing costs in the whole of Europe, and I submit that leasehold is part of the problem. Last year, Hamptons found that leaseholders in England’s flats were paying a punishing £7.6 billion in service charges, which had jumped 50% in five years.
There are many parts of the Bill that should be commended and that I wholeheartedly back, and I have heard many other noble Lords back the measures in it. However, there are some things on which we need to go further. I personally think the ultimate solution is commonhold, and it is a shame that it is not being proposed here.
Things like 990-year leases as an extension as a norm are of course a good measure. Stopping the punitive legal costs regime, which allows freeholders to dump all their legal and professional costs on to leaseholders whether they win or lose a case, feels like feudalism to me—so I will use that word again.
All of these points lead to the question: how do we beef up the Bill? The Bill, in my opinion, does not go far enough in liberating leaseholders. For those who think the provision of information will deal with the abusive practices, I say: think again. The Government are basically saying to leaseholders, “You must become serial litigators, you will have to take on the big guys” —in the same way that the sub-postmasters had to take on the Post Office. As Conservatives, we should be fighting any unchallenged power anywhere in our system. We must always support the little man. The best version of Conservatism is supporting the little man to take care of his own affairs, and that has to be done.
For me personally, the most egregious thing is forfeiture. This is a gangster-like power, routinely used to abuse and extort money from hapless leaseholders under the threat of losing their home and all of their equity. There is no doubt that, even though there are only a few cases of this every year, just the idea that it can be done is terror enough. I come from a group of people for whom buying your own home is freedom, and that freedom is curtailed by the mere existence of forfeiture.
I could go on at length about all of the things that should be added to the Bill, but I will say this: we must turbocharge the right to manage and enfranchisement. More needs to be said about that, and I personally will be tabling amendments to make sure that it is done.
To conclude, to accept these few amendments, and many of the amendments that have been talked about in the House today, will make the Bill what has been promised. The Tony Blair Government promised to do this and did not. This Government can do it and fulfil something that the people of this country deeply need to happen. I say again: are we a freedom-loving, property-owning democracy or not? The passage of the Bill and the provisions it actually brings into law will make the difference in that statement.
Lord Palmer of Childs Hill (LD)
My Lords, I first thank the noble Lord, Lord Bailey, for his contribution; may it be the first of many. I declare my interest in the register as the chairman of the advisory board of the Property Redress Scheme, but I do not intend to speak on redress here today.
No one will disagree that the leasehold system has been plagued by cowboys and those seeking to exploit a broken system. The Government have sought to address these issues in the Bill. I am concerned that it does not go nearly far enough. That said, where they are acting, there are huge flaws that will fundamentally undermine our property rights and, as such, put our pension funds and economic prosperity at risk.
I draw the attention of the House to an aspect of the Leasehold and Freehold Reform Bill which has not, until this debate, received the attention I believe it warrants and very much needs. It concerns marriage value, referred to by the noble Lord, Lord Truscott, the noble Earl, Lord Lytton, and in detail by the noble Lord, Lord Howard. For those who are unfamiliar with this term, marriage value is defined as the increase in a property’s value once a lease below 80 years is extended or enfranchised. Existing legislation requires the financial benefit—or additional value—created when extending or enfranchising a lease and merging the freeholder and leaseholder interests to be shared equally by both parties, so they benefit, more or less, on equal terms.
As this House is no doubt aware, the Bill proposes to abolish marriage value. It concerns me deeply that this proposed change has not featured in public debate around ground rents and leaseholds. The change only very briefly featured in discussions during the Public Bill Committee’s scrutiny in the other House, and indeed much of that discussion, I might say, was about whether marriage value is a hypothetical concept. I can assure noble Lords, as other noble Lords have, that marriage value is certainly not hypothetical.
Furthermore, its immediate abolishment will cause a number of underassessed problems for the country. As I will outline, this is a highly inequitable measure that will disrupt investment in our property market and wider economy. Let me outline my concerns about the inequitable nature of the proposed measure.
The Government have stated that the abolition of marriage value will transfer £7.1 billion of freehold investors’ equity to leaseholders. In the broken feudal system of leasehold, this could initially be a warmly welcomed measure. However, if you scratch the surface, the assumed benefits of the measure fall apart. Of the 5.2 million leasehold properties in England and Wales, only 400,000 have leases under 80 years, the point at which marriage value is applied. As such, £7.1 billion will be transferred to just 8% of all leaseholders.
That sounds good, perhaps, but of these 400,000 properties—or 8% of all leaseholders—two-fifths are owned by private landlords. Many of these landlords would have made the decision to buy these short, and therefore cheaper, leases with the explicit intention of renting them out at proportionately high market rent, and therefore maximising the return of their investment, because they are not looking to the long-term. Worse still, four-fifths of the total value of this equity transfer will occur in London or the south-east, negatively impacting efforts to rebalance regional wealth disparities. However, what has struck me most significantly is that, of these higher-value properties, 60% of the leaseholds—and I do mean leaseholds—are held by foreign owners in central London.
Let me summarise that. Through this measure, the Government are transferring £7.1 billion of freeholder wealth to just 8% of all leaseholders. Two-fifths of these leaseholders are private landlords, four-fifths of the wealth transfer will occur in the already prosperous London and the south-east, and a huge amount of this wealth will be transferred out of the country into foreign ownership for leaseholders.
This is not the end of the inequitable consequences of immediately abolishing marriage value. Let us imagine that there are two flats next to each other at the point at which the properties have only 80 years remaining on their leases, when marriage value begins to be applied. One leaseholder did the right thing, and took money from their savings or remortgaged to be able to extend their lease and protect the value of their asset. Under this measure, those who did the right thing and protected their asset will be worse off than those who did not, who will now receive this benefit for free.
Essentially, the Government are principally transferring wealth not to those who require more support but to relatively wealthy individuals in the main, many of whom deliberately buy or remain in short-lease properties. The Government are about to deliver foreign leaseholders an enormous birthday present, while undermining the property rights that are the bedrock of UK pension funds. This is surely an unintended consequence that requires further consideration by the Government.
I move on to the wider implications for the property industry and our economy. I am sure noble Lords would agree that the UK has a world-leading reputation as a nation that respects property rights. This reputation has allowed us to build a strong domestic and foreign direct investment environment. I am concerned that retrospectively—I emphasise the word “retrospectively” —expropriating assets from property investment sends all the wrong messages to both domestic and international investors that British property rights are no longer sacrosanct. This failure to protect property rights will undermine the UK as a place to invest. Money will divert to the UK’s international competitors because of the risk that the UK Government can move the goalposts and retrospectively—I emphasise the word again—apply changes to existing investment returns. This will lead to uncertainty and a loss of confidence in the UK economy. The result will be fewer British businesses getting the investment they need, less housing being built, lower economic growth, and lower tax revenues to fund things such as the NHS and other vital public services relied on by the people of this country.
Abolishing marriage value threatens to completely undermine investor confidence in our property market and damage the wider economy. As we have seen in the media this weekend, the Treasury has intervened in the ground rents element of the Bill due to concerns about the impact on pension funds. Marriage value, although overlooked—but not today in this Chamber—bears similar risks for the Government. Additionally, it will lead to a tax-free gain for the leaseholders who are owner-occupiers, but the freeholders’ loss will in effect not be taxable, further impacting on the Treasury’s coffers. This needs to be reassessed.
Additionally, as has been mentioned in passing, the UK Supreme Court has observed that, as a minority group, landlords, although often unpopular, are entitled to protection of their so-called human rights, and the abolition of marriage value can be argued to be an unfair expropriation as it falls short of the fair balance principle. Marriage value has, quite rightly, been enshrined in law since 1993 to ensure that freeholders are fairly compensated when the lease is enfranchised or extended. This expropriation of wealth takes away an entitlement without a fair balancing aspect, which will lead possibly to an ECHR challenge—mentioned by another noble Peer—that could further saddle the taxpayer with a substantial bill.
Fortunately, there is a compromise to be made. I propose that the Bill needs a straightforward amendment which tweaks the legislation by grandfathering the current situation for those leases which have fewer than 80 years to run to reversion. If the term grandfathering is unfamiliar to some, I am referring to the well-established practice of excluding leases with fewer than 80 years remaining on the date of Royal Assent from the changes to marriage value. By grandfathering those existing leases with fewer than 80 years, where marriage value is already imputed into their reversion value, freehold investors will not suffer from the destruction of £7.1 billion of financial value. Any lease with more than 80 years remaining at the time of the Bill passing will not have marriage value included within the calculation of the premium for a lease extension or enfranchisement, now or in the future. The Government will therefore still have achieved the objective of abolishing marriage value.
To abolish marriage value would be to abolish investment confidence in our property market through a deeply inequitable measure. A grandfather clause would protect investors, thereby maintaining investor confidence in our property market. In case people do not understand the principle of marriage value and the abolition of it, I stress that this does not stop extending or enfranchising but affects purely the overvaluation or undervaluation of the property. I therefore trust that, in the course of the debates on the Bill, we might consider a grandfathering clause relating to property.
Viscount Hanworth (Lab)
My Lords, rent is income derived from the ownership of land or other property. It is an income derived without effort on the part of the owner. The owner would have acquired a title to the property at some time in the past. This may have been achieved by means of their labours or by inheritance, or the title may have been acquired by nefarious means that are nominally legitimate. The British economy is in decline; it offers diminishing opportunities for gainful employment. Therefore, there is, nowadays, a heightened incentive to acquire an income through rent. However, since such acquisitions are often at the expense of another party, rent-seeking requires to be restrained if it is not to damage the social fabric.
In recent years, the market for residential property and accommodation in the UK has been severely affected by the activities of rent seekers. The Bill seeks to place some restraint on these activities. It is appropriate briefly to describe what has been happening in recent times. The problems arising have two aspects. They affect both newly built and pre-existing properties. Newly built properties have been sold to new occupiers under leasehold clauses that allow the housebuilder to retain the ultimate ownership. They are often built in estates and the housebuilders will propose that payments are due for the upkeep of the estate.
There has been nothing to prevent the housebuilders which retain the freehold increasing these so-called service charges to an exorbitant level that far exceeds the cost of maintaining the estate—an income derived without effort on the part of the recipient. It is remarkable that many housebuilders have managed to sell the properties under leasehold clauses without the new occupants realising that they are not the full owners of the houses. The Bill addresses this abuse by partially banning the sale of new houses under leasehold clauses. However, it also contains provisions for a category of permitted leases in respect of new houses.
It is notable that the provisions of the Bill that restrain the sale of new houses under leasehold relate only to future ownership. They do nothing to redress the abuses of the past. Admittedly, freeholders and their agents must now guard their behaviour for fear of a legal redress that the leaseholders will be empowered to seek, but this seems to alter the balance of power between the two parties in only a minor way. Hitherto, the powers of the freeholder have been exorbitant. They have been able to set the service charges and insurance fees at whatever levels they choose. They have also been able to impose upon the tenants any legal costs that might arise out of their defence of a case brought against them in a tribunal or a court, regardless of the outcome. They still have unlimited powers of repossession in cases where tenants have refused or have been unable to pay the service charges.
The second major concern is that leasehold arrangements are to the disadvantage of the inhabitants of flats. It should be recorded at the outset that of the dwellings in England, 70% are flats and 30% are houses. Flats may be located in tower blocks or in small terraced houses. Other speakers have described how tenants in tower blocks have been affected by shoddy workmanship and inflammable cladding. Many have had no legal redress and are facing financial ruin. I shall concentrate on flats in modest houses and, for an illustration, I shall consider a small estuarine town on the mouth of the River Thames at a commuting distance from London.
The attractive terraced houses are at increasing elevations as one moves away from the water’s edge towards the high street at the centre of the town. Most of the houses are divided into two or three flats, typically occupied by elderly people or impecunious families. Like many seaside towns, this one has not been prospering of late, but there are clear signs that this is changing through the influx of wealthier Londoners. A prescient property company has been buying up the freeholds of these properties, which have remained mainly in the hands of previous owners who have moved away. They may have sold the leaseholds in respect of two or three of the flats that the houses now comprise.
The property company is a conglomerate—or, at least, a federation of agencies. A search of the companies register reveals that the constituent parts have directors in common. They comprise a property company, a managing and letting agency, a firm of solicitors and an insurance broker. There is also a shadowy affiliated company, Capital Recoveries. The property company has purchased the freeholds at what might seem to their owners to be attractive prices, but they are unlikely to have recognised in full the prospective values of their properties.
Some of the existing freehold owners acquired their titles in an era of low interest rates that encouraged them to buy to let. The current high interest rates, and, in the case of leasehold purchasers, the additional burden of increasing service charges, are encouraging many of them to sell up. The remaining problem for the property company is how to expel the tenants from the properties that are now in their control. This is not difficult to do in an era of no-fault evictions. In the meantime, it might be prepared to bide its time by deriving rents from the tenants.
The only anxiety of the property companies is that they may have to face an incoming Government intent on providing greater protection to tenants. The present Bill will require the property companies to smarten up some of their practices. After the Covid pandemic, the lists of service charges both for small houses divided into flats and for blocks of many flats contained an item described as “charges for the deep cleaning of communal areas”. There were no such communal areas in the small houses, and the testimony of the tenants was that no one from the management and letting agencies had ever paid a visit. Such spurious charges may no longer be sustainable under the prospective legislation, but it will continue to permit many other abuses.
Lord Thurlow (CB)
My Lords, there is much to be applauded in the Bill before us today. However, I am concerned that in seeking their objectives the Government are using a sledgehammer to crack a nut. The law of unintended consequences shines brightly through these proposals, and I shall address some of these concerns. I declare my interests as a retired chartered surveyor, as well as other items on the register. I am also a leaseholder of a flat. I thank the Library for its excellent briefing, and others who have provided experience and expertise.
I said that there is much to be applauded in the Bill, and there is. We have heard a lot about squeezing out bad practice from managing agents—I think it misses the point. There is improving the rights of occupiers—sometimes. Reducing ground rents and their review patterns—agreed but flawed. Improving the lease extension process—agreed. That is not a good school report. There is a shortfall; there are omissions in the Bill, missed opportunities and uncomfortable Henry VIII clauses, which are highlighted in the Delegated Powers and Regulatory Reform Committee report.
First, I will look at the impact of the Bill on investors, who are the freeholders. Here I will build on the comments of the noble Lord, Lord Howard of Rising. There appears to be a misunderstanding within government that freeholders are frequently bad actors in freehold disguise. Of course, there are some of these and they need to be brought to heel, but the vast majority of freehold residential ground rents are now in the hands of institutions—life insurance companies, charities, endowments, pension funds and other legitimate investors.
We should consider for a moment why these institutions invest in freehold ground rents. They do this because they provide a certainty of income, which, crucially, matches their liabilities. Removal of this value may impact the capital adequacy of these legitimate organisations, itself attracting the interest of regulators—government through another door—and will almost certainly require significant government compensation for the loss of value these proposals will inflict. Some pensions will fall in value and some legitimate investment managers, who have been entrusted with the husbandry of those assets, risk administration.
I see nothing in the Bill offering compensation for those who will suffer this collapse in value. I look forward to the Minister’s proposals concerning compensation and find it curious that this has not been recognised and addressed. I hope it is not being left to Mugabe-style economics: simply stripping one group of property owners for the benefit of another.
I turn to the abolition of marriage value. The noble Lord, Lord Palmer, usefully defined the phrase. When valuing a property, be it residential or commercial, marriage value is calculated to apportion value-sharing between freeholder and leaseholder, which is then divided either according to formula or agreement. Abolition of marriage value does not just interfere with the division of proceeds for a lease extension, it gives the entire sum to the head leaseholder—much better for there to be a regulated sharing arrangement.
Do the Government recognise that many of those leaseholders are not the occupiers? Many investors have bought leasehold flats and houses as investments on long leases specifically to sublet them to third parties—they are very good investments. They are buy-to-let landlords—they are investors and not occupiers. As we have heard from the noble Lords, Lord Campbell-Savours and Lord Palmer, many of them are foreign nationals. Many of them buy through companies registered overseas that probably pay little or no tax. We heard some figures relating to the volumes of money that could be transferred in this direction.
For such foreign-based investors, the Bill is the Christmas present of all time. Make no mistake, smart investors, recognising this forthcoming windfall, are already buying residential short and medium-term leases precisely for this purpose. Having cheaply extended the lease, they will immediately reoffer the flat for sale with vacant possession and enjoy the big lottery win. These winners—I repeat, these winners—are not the occupiers the Bill is designed to protect; they are speculators.
The Bill provides a huge transfer of wealth at the stroke of a pen, and not enough thought has gone into how that wealth will be distributed. The assumption that it is always the occupiers who will be relieved of the pain of paying for a lease extension is simply not the case. We should be clear that the great transfer of wealth the Bill seeks to engineer is going largely to speculators and not to the occupiers. Occupiers are often sublessees, even on long leases. Does the Minister intend to introduce an amendment to ensure that it is the occupiers, and not the investors, who will benefit from this change in the law?
Regarding the right to manage, in principle giving the residents of blocks of flats the right to manage the building is fine, but in practical terms it would be much better to tighten up on the rules applying to bad managers than to make the right to manage by occupiers so straightforward. Bad property management is one of the drivers of the Bill and, without further thought, things may not improve. The process of enforcing service charges, calculating service charges, dealing with those who refuse to pay their share, dealing with building services, and more, is not easy—certainly not easy for residents unless they instruct agents.
I ask your Lordships to consider someone living on the upper floor of a multistorey block of flats with no lift, because the right to manage has been applied and the manager cannot collect the necessary dues—they are not organised in the process of doing so—to service the lift. It can get worse—think for a moment of the disabled, unable to use the stairs. I have a close friend who is wheelchair bound and currently stranded on the upper floor of a modern block of flats because the lift has been out of service for several months. That may become the norm—a clearly unintended consequence. The right to manage needs better construction.
We have heard from numerous speakers that it would be far more effective to better regulate expert property managers and require qualifications. I fear that there will be a difficult time ahead for residents of many blocks of flats who decide to manage themselves and become entangled in a complex business that they do not fully understand, with its legal obligations. Nor will they, with all the best will in the world, have the skills to deliver—the noble Lords, Lord Moylan and Lord Bailey, clearly illustrated this. Other than for very small buildings, the right to manage should be subcontracted. This brings us back to the need for regulation and qualifications for managing agents.
Touching on service charges, I applaud the changes proposed—transparency, response times, removal of unfair practices, open reporting and penalties for non-compliance. All these and more are good. However, I do not believe the £5,000 maximum penalty proposed for bad property management behaviour is nearly enough. While it may seem high in relation to the service charge for an individual flat, it could be a very small sum of money for the firm of property managing agents which is looking after hundreds, if not thousands, of flats. This figure needs increasing to the point that it hurts, thus positively encouraging a managing agent to exercise their functions well and with the occupier’s interests in mind.
The right to manage mixed buildings has been discussed extensively this afternoon. It is hugely complex. Non-residential elements in such buildings need expert attention to an even greater extent than in blocks of flats. It is not layman’s territory. To allow residential leaseholders to manage a mixed-use building with a significant percentage of non-residential floorspace is inviting trouble, particularly when development opportunities arise. These days, such developments frequently create large volumes of housing units, helpfully adding to the Government’s targets. This will almost certainly be lost as the ownership, control and management of those properties are transferred to the residential occupiers’ management company or, in many cases, the foreign nationals and companies registered overseas who are already rubbing their hands in anticipation. That is unless, of course, the residential management team brings in the skills, but that is not without cost and it is likely to be an expensive exercise. Notwithstanding best intentions to try to exercise these functions in practical terms, it will be almost impossible, as what might have been a significant development opportunity stagnates or becomes broken up, and the critical mass required for major redevelopment is lost.
As I said at the beginning, there is much in this Bill that I applaud, but I fear it has not been sufficiently carefully thought through.
Baroness Bray of Coln (Con)
My Lords, it is a pleasure and an honour to follow the noble Lord, Lord Thurlow. The Government’s Leasehold and Freehold Reform Bill is certainly attracting support and high expectations in some places, and not only from current and potential leaseholders, with lower charges, longer lease extensions and more rights regarding management of blocks of flats. Leasehold for newly built single houses is to be abolished, so it is leasehold flats—which make up the great majority of leasehold properties—that are really being discussed today.
What is not to like about the possibility of leasehold properties paying lower, possibly even peppercorn, ground rent—which really means zero rent? That already applies to leases taken on since 2022, but consideration is now being given to applying it to all leasehold properties. What is not to like about the possible abolition of marriage value, making a far more profitable outcome for leaseholders applying for an extension to their diminishing lease, or about all leases, new and renewed, running for 990 years?
However, I have real misgivings about the main thrust of this Bill. Essentially, I find it hard to support in principle government intervention in legally held property rights, especially those that have existed for many years in accepted legal property arrangements established between two consenting parties, the freeholder and the leaseholder—although I would advise that both parties get proper legal advice so that they understand what they are taking on. It is surely important to reflect that leasehold has been a property arrangement that has benefited millions of people over many years, certainly in London, where owning property is an expensive business. Leasehold has provided, probably, the only route for most people to owning at least a small home for a set period, usually extendable, that is remotely affordable.
I myself, after working for some years in London and sharing a flat with an endlessly changing group of friends, decided I that I had to have a place of my own, and leasehold provided the only affordable and dependable route. Yes, there are greedy freeholders and property investors whose demands need to be restrained, and I very much welcome the Bill’s proposals to help leaseholders to challenge more easily poor management and unreasonable charges in court, but overall this system has survived as long as it has because, in the main, it has worked. It has provided benefits for both sides.
My first problem with the Bill concerns the proposals to axe two key components affecting the financial benefits that accrue to the freeholder. Both have been discussed at some length already, so I will try to be brief.
The first is ground rents, which stem from the entirely legitimate principle that the land on which leasehold properties sit is not owned by their inhabitants and therefore requires rent to be paid. I believe that the Government are still considering the long-term future of ground rent. I totally agree that the level of ground rent must be kept reasonable, but it cannot simply become peppercorn, which would create a huge drop in income for freeholders and investors, such as pension funds. I suspect it could lead to a major legal challenge, as we have also heard. However, I would support a proposal that defends the principle of ground rent but limits the impact by settling on a permanent reasonable sum, to be agreed by both sides involved.
My second concern is marriage value, which we have also been hearing about. This arises when a leaseholder applies to the freeholder for a lease extension when the lease drops below 80 years. Marriage value represents the total value of the property—of both the freehold and the extended leasehold added together. The total is then divided between the two parties to reflect the benefit to both of them of marrying their interests.
The Bill proposes abolishing marriage value and, as the noble Lord, Lord Palmer, mentioned, allowing the leaseholder to extend their lease for far less, at the expense of the freeholder. As several noble Lords have said, this will massively advantage the many investors who own leaseholds as an investment rather than a home, especially in lucrative areas such as London and the south-east. According to figures produced by Quod and Cluttons, 80% of this transfer of marriage value would occur in London and the south-east, where approximately 60% of leasehold properties are held by investors, not home occupiers.
Alongside this, another proposed change would allow leaseholders to extend leases without having to have lived in the property for at least two years. I am told, and as we have also heard from the noble Lord, Lord Thurlow, that increasing numbers of investors are already circling round, given the prospect of more easily buying properties with leases that are running down, extending them to 990 years and selling them on for a huge profit. Property prices will certainly rise in those circumstances.
Mv final problem is with the proposed change in the rules for mixed-use buildings. A mixed-use building with more than 25% non-residential use cannot currently be managed by leasehold residents, but this limit is set to be raised to 50%, giving rise to concern about management of the buildings, as we have heard from the noble Lord, Lord Thurlow. Where leasehold residents successfully apply to manage buildings with a much larger—50%—business and retail presence, or to buy the freehold, as they can with a majority in favour, they will find the management a very much more complicated task. To meet the needs of retailers whose shops often open on to the streets, and business offices, and to keep residents happy, very hands-on management is needed, along with knowledge of business needs. There are suggestions that, in these cases, leaseholders who want to run these buildings should have lived there for at least two years so that they can begin to understand the needs and issues of these buildings, as well as having familiarity with where they are based.
One other problem is that, as I have been told, freeholders may start reducing the number of leasehold flats in mixed-use buildings precisely to avoid losing control. This includes local authorities, which have, over many years, housed leaseholders in mixed-use buildings but would be concerned about them taking control of the buildings and subsequent management failures, which could affect the overall quality and appearance of the streets where they are sited.
I have real concerns about some of the Bill’s proposals. I hope the Government will consider the issues raised here very carefully.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I have a number of interests to declare. I am a non-executive director of MHS Homes, chair of the Heart of Medway Housing Association, a vice-president of the Local Government Association and a leaseholder.
I welcome the Bill, but there is a big “but”. It represents limited progress. The next Parliament will have to return to the issue of leasehold reform to liberate leaseholders, deliver on commitments made and deliver justice for them.
I pay tribute to the campaigners outside Parliament, who have never given up. They include the National Leasehold Campaign, led by Councillor Katie Kendrick, Jo Darbyshire and Cath Williams; and the Leasehold Knowledge Partnership, led by Sebastian O’Kelly, Martin Boyd and my good friend, the campaigner Liam Spender. They will deliver justice for leaseholders.
The noble Baroness, Lady Thornhill, talked about the Lloyd George Budget of 1909. The noble Lord, Lord Bailey, talked about 1966. There is a fantastic play called “Fleecehold”, by Michele Sheldon. If it is on, I urge noble Lords to go and see it. In one scene, in 1884, Henry Broadhurst, a Liberal, and then Labour Member of Parliament for various Midlands constituencies, discusses leases on the Floor of the House of Commons. This has been a long-term problem, which we have still not sorted out. Many Members of Parliament have also stood up for leaseholders. I pay tribute to the noble Lords, Lord Young of Cookham and Lord Best, and many others who have raised these issues time and again.
It is most frustrating to look at the timeline of events and actions taken in more recent times. I have a few examples to share with the House. The fire at Grenfell Tower broke out on 14 June 2017—just short of seven years ago. We have still not resolved issues arising from that tragedy. It is not right that there are people living in blocks whose flats are unsaleable and unmortgageable. There is no excuse for it. It is a complete failure by the Government, on their watch. Does the Minister think this is acceptable? When will they finally do something about it?
There has been a complete lack of action following the report of the Regulation of Property Agents working group, chaired by the noble Lord, Lord Best. It was published in July 2019, towards the end of the last Parliament. We are now at the end of this Parliament, and nothing has happened. This Bill is the ideal place to deal with it, but there is nothing in it. This is just not good enough. Nothing has happened in five years. Can the Minister explain why this is acceptable?
Three Law Commission reports were published in July 2020 on leasehold enfranchisement, the right to manage and commonhold. It is good that this Bill largely addresses leasehold enfranchisement, but there is very little on the right to manage and nothing on commonhold. Again, can the Minister explain why this is acceptable? We have been waiting nearly seven years to complete the job on Grenfell and nearly five years without any action on regulating property agents; and it is nearly four years since the Law Commission report, in which nothing was done about commonhold. Telling this House that this is all extremely complicated and will take time is not acceptable. We have been waiting for action for years, without promises being delivered.
It has been frustrating to watch the right honourable Member for Surrey Heath tour the television studios and radio stations, speak to newspapers, give interviews about what he wants to do to end the feudal leasehold system, make promises, pledges and commitments, and give assurances and undertakings. The noble Lord, Lord Young of Cookham, referred to letters and to a Statement in the House of Commons. These have amounted to absolutely nothing.
When I spoke to a member of the Government privately, they said: “Well, Roy, you must understand that this is what Michael does.” Another member of the Government said: “Roy, everything you want to do, Michael wants to do, but you have to understand, he has been vetoed by No. 10. His plans are now shot to pieces. It is all over.” I do not know if this is true or not, but going around making promises and pledges with no agreement to deliver them is shoddy politics. There will be a heavy price to pay. Making promises and pledges without delivering is stringing people along. It is just not good enough.
I will look at a few of the issues that are missing from the Bill. There is no ban on creating leasehold flats. Why not? Seventy per cent of leaseholds are for flats, but there is nothing in the Bill at all. The answer, as the noble Lord, Lord Bailey of Paddington, said, is commonhold. Why it is not there? The Government have had the report from the Law Commission for four years. Why are they not dealing with it?
There are other issues that are just not happening. There is the stuff about the Building Safety Act; again, after Grenfell, why are they not doing that? I just do not understand why. There was also a Conservative Party manifesto commitment on forfeiture in 2017, but it is not in the Bill. Why not? It is ridiculous. We are going to be putting it in the Bill; we will certainly have amendments on that one. Forfeiture can happen for as little as £350 in unpaid rent or service charges. If pursued to its conclusion, the process allows the landlord to take the tenant’s entire flat and not account to the tenant for a penny. Any mortgage is not repaid and the lender can pursue the tenant for the full amount of the debt. I accept that very few flats or houses are lost to forfeiture, but the whole process is used to bully tenants—the people in the properties—and it is just not right. They made that commitment in 2017 and it is about time they delivered it.
I move on to a few other issues. My noble friend Lady Twycross mentioned the assured shorthold tenancy trap. She was up on the ballot for a Private Member’s Bill; she got it and was then approached by the Government, who assured her: “You don’t need to do this Private Member’s Bill because we’re going to do it in a renters reform Bill”. But the Renters (Reform) Bill has disappeared. It started in the House of Commons before this Bill did, but it is still not out of that House. At the moment, it has vanished without trace. My noble friend was told there was no need for her to do it, so I hope that the Government will deal with the issue in this Bill, because we cannot guarantee that the other Bill will ever appear in this House. We know there have been all sorts of problems with people upset about what is in that Bill, so we certainly need to ensure that it is addressed here.
What there is on leasehold houses is absolutely welcome, but there are still some issues about that. It was introduced in the House of Commons only on Report; remember, it was left out of the Bill when it was first published, so it came in then. There are one or two little problems. Clause 7 and part 1 of Schedule 1, paragraph 1, together allow new leasehold houses to be created as under leases or sub-leases. An example may be where a local authority granted a head lease to a developer before 22 December 2017; the developer could still create leasehold houses. In Clause 7 and part 1 of Schedule 1, paragraph 3 allows the creation of new retirement leasehold houses, regardless of whether they are built on freehold land. Again, that issue has been raised elsewhere, but why are some of the most vulnerable in our society not protected? That is another big issue we need to deal with.
Then there is the control of service charges. In many cases, with great property companies and good freeholders, it all works absolutely fine. Sadly, of course, that is not always the case and we need further reform. It was 50 years ago that there was talk in the other place about reform to service charges; we still do not have that matter sorted out, and much of the of the detail in Part 4, which deals with service charges, is left to statutory instruments—secondary legislation. There is very little detail in the Bill.
Clause 51 extends information rights to properties paying a fixed service charge. The clause does not allow for extending the right to challenge unreasonable service charges. I can assure your Lordships that leaseholders know when they are being ripped off. When things are bad, they know. So, while it is great to get some information, what they need are the tools to actually stop it. The Bill does not do that.
Clause 54 creates a new system of accounts and annual reports. Again, that is to be welcomed, but we need to go further. Clause 56 introduces a new right to claim damages of up to £5,000; again, we need clarity on what that actually means. There are two issues: we all know that “damages” has a specific legal meaning. The clause may not provide an effective remedy to claim money for delay where the leaseholder is unable to prove loss. That needs to be addressed in Committee. It is also unclear whether the clause allows each affected leaseholder to claim up to £5,000, or whether it is just £5,000 for the leaseholders as a collective body. There are many issues we need to explore in Committee.
Part 4 of the Bill requires landlords and estate managers to join an approved redress scheme, but much of the detail is missing and the Secretary of State will determine who is obliged to join by regulations, which we have not seen yet. This change is welcome, but there are still issues.
On the whole issue of commencement and interpretation, many provisions will be commenced by regulation at a later date. The Bill has 123 clauses and 12 schedules. Only four clauses will come into force two months after the Bill is passed. The rest of it will come into play when the Secretary of State determines. When will that be? We do not know. We have not got the regulations here; we do not have visibility on any dates. So, again, we need some more assurances. Even if the Bill passes, most of it will not come into force until you decide you are going to bring it in. We need to be careful about this. We need a clear timetable for when this stuff is going to come into force. I think it is really important. There are many cases, on the issue of marriage values, of leases that are approaching 80 years now. This needs to be resolved for them in particular.
So, as I said when I started, I welcome the Bill. It is progress, but it is very limited progress. We need much more progress here in Committee. I hope the Government will listen to what the House is saying and bring amendments forward. If not, certainly colleagues around the House will bring amendments forward and we will divide the House on those.
I will spend a bit of time working on what I call the “Gove amendments”—that is, all the pledges Michael Gove has made over the last few years. I will create amendments and divide the House for him, so he can actually deliver what he wants to do. It is really important that, if you make these promises and pledges, you actually want to do that. I am sure he does want to do it, so I am disappointed we have not got there. I am going to help the Secretary of State in that way and make sure that the House gets the chance to vote. Then he can have the chance to speak up for them when they get to the House of Commons. I will leave my remarks there and look forward to the noble Baroness’s response.
Lord Borwick (Con)
My Lords, I first declare my interest in my home, which is a long-leasehold property in London. It would not normally be declarable, but in the case of this Bill, this should be an exception. I also declare interests in the register in property companies, some of which are developing and have developed houses.
I have been puzzled by this Bill as it seems to be determined to solve a problem that I do not think generally exists. The problem is presented as a moral problem of the existence of leaseholds, using words such as “feudal”. I hesitate to challenge noble Lords to find bigger or more urgent moral problems to discuss on the last day before a recess. We could be here for weeks, and we would not agree with each other anyway. But I bet that few, even my noble friends on the Front Bench, would put leasehold tenure anywhere near the top of their list.
The freeholders have been upset that this Bill will force them to sell something that they do not want to sell, and I can see their point. Even though that horse bolted many years ago, I do not believe that anybody who has freely entered into a contract with another well-advised party should be forced to change its terms by the Government. This Bill makes that mandatory if the leaseholder alone wants it. This is the case now, so there is no change there except for the price.
The Bill is described as making it cheaper and easier for the leaseholder to buy. Why is it cheaper than before? It is partly because of the abolition of marriage value in the calculation of Schedule 4, but mainly because the price is likely to be lower. How much lower? The trouble is that we cannot tell, because the discount rates to be used in the calculation will be laid out in the statutory instrument when it is published in many months’ time. It is impossible for a tenant to know for certain that he is getting the purchase cheaper until that rate is announced. The Government have said that the rate will be a market rate, but a fixed rate, even though market rates constantly vary. How can there be a fixed rate that is also a market rate?
There is a trend in legislation for Bills to get longer and more complex. We have seen this in several recent Bills. This trend makes it more expensive for the citizen to obey and for us to legislate. This Bill, with 234 pages, is a distressing example. There is a separate trend that the consideration in another place has become more trivial than it was in prior years. I fear that our friends in another place may have passed this Bill with the cheerful feeling that we will study it. I am not sure that we can study it with the diligence that they expect when we cannot hope to find out what the most important rate in the calculation is until next year.
Baroness Pinnock (LD)
My Lords, I thank the Minister for being so generous with her time in discussing the content of this Bill and for being willing, on behalf of the Government, to front it. As we have heard, there is wide support for the Bill, but significant shortcomings have been noted from all quarters and all sides.
Reform of this archaic property ownership arrangement is long overdue. There has been a welcome focus on general consumer rights and protections over recent years. However, the leasehold/freehold arrangement has remained largely unchanged, to the considerable detriment of leaseholders. Liberal Democrats have long supported radical reform of the leasehold/freehold arrangement. As my noble friend Lady Thornhill reminded us, it was David Lloyd George in 1909, in the People’s Budget, who first laid down that reform was essential, not just to extend, as the Bill does, the rights of leaseholders but to deal with the concept of an outmoded system that harks back to times when everyone was beholden to the landowner.
As we have heard, this is a Bill of 123 clauses and 12 schedules—and that is just at the last count. Since the Bill’s introduction in the Commons, the Government have added 224 amendments, which illustrates its complexity and, as the noble Baroness, Lady Andrews, pointed out, developing legislation on the hoof—or as my noble friend Lord Stunell said, the Government chasing their tail.
The Bill seeks a number of key changes to the leasehold/freehold relationship which are positive. Unfortunately, the Government have failed to use this opportunity to really grasp the nettle and set down a complete reform of the system. The Government have long promised a fundamental reform to replace freehold with commonhold, which is more in line with property rights across western Europe. Despite the 2022 Act, commonhold remains a rarity. Why have the Government failed to use this opportunity to end freehold and introduce commonhold for all property, including flats?
It is extremely disappointing that, according to media reports, the Government are even backtracking on reform of ground rents. The Secretary of State announced only last November that the proposal will “save leaseholders thousands” by slashing ground rents and setting them at a peppercorn. That is another promise abandoned. Evidence shows that some freeholders increase ground rents substantially year on year, as we have heard this afternoon, and yet other ground rents remain so low that they are not worth collecting but remain as a charge on the property. Ground rent really is paying something for nothing and should be confined to history. However, I accept that there are financial interests, such as pension funds and charities, the concerns of which must be taken into account as reform proceeds. Nevertheless, a solution that achieves abolition can and must be found.
The other significant omission in the Bill is the abolition of draconian forfeiture, whereby the failure to keep up with ground rent payments can result in the forfeit of the property to the freeholder. There can be no justification in any circumstances for this to remain on the statute book. I hope that the Minister is able to respond to the numerous questions about the lack of action on forfeiture in the Bill.
This much-diluted reform Bill does, however, contain some positive changes, even if they are rather muted. Scrapping the presumption that leaseholders are required to pay landlords’ legal costs is putting right a plain wrong. Leaseholders’ service charges have been exploited by some freeholders and managing agents to such an extent that these have, on occasion, risen by up to 1,000%. The proposal in the Bill is to insist on transparency and reasonableness—but what is reasonable? How will it be defined? This leaves too many loopholes for the unscrupulous to continue to exploit. Can the Minister explain how exploitative behaviour by some freeholders, or their managing agents, will be prevented, given the wording of the clause?
That brings me to insurance charges. Since the terrible tragedy of Grenfell Tower, insurance costs for leaseholders in flats have escalated to the point at which some are paying more than £3,000 a year for buildings insurance—a travesty, considering that leaseholders do not own the bricks and mortar being insured. Of course, there must be some arrangement by which the building is insured, but to put the commissioning rights in the hands of the freeholder or agent is like putting the cat in charge of the cream. Clause 57 seeks to protect leaseholders from the worst excesses of insurance commissioning, but it is not at all clear that it will be effective. Perhaps the Minister will be able to demonstrate that the days of milking the buildings insurance to the benefit of those not paying the insurance will completely end.
So-called fleecehold is another money-making wheeze by developers and property agents. Developers, having realised that local authorities were not in a position to take on further liabilities, have devised a system whereby house owners on newly constructed estates pay a service charge for maintenance of green spaces, play areas and even roads, as my noble friend Lady Thornhill so eloquently exposed. The same householders will also be paying council tax to cover such maintenance in other estates in their district. Undoubtedly, what will happen is that, as an estate gets older, more maintenance will be required, especially if the estate road was not built to adoptable standards in the first place. The liability will fall on home owners, who may not be able to suddenly pay out for a new road. So it is good that the Bill proposes in Clause 98 to insist on a redress scheme, but how much better it would be if assets in new estates were forced to be adopted by the local authority in perpetuity.
Part 8 amends the Building Safety Act 2022 to ensure that the landlord will be responsible for remedying or mitigating relevant defects in a building. Some of us who have spoken today spent many happy hours debating the Building Safety Bill and drawing attention to its defects at the time, and it is a great pity that the Government have failed to grasp this new opportunity to redress the serious limitations of that Act and extend rights to leaseholders in buildings under 11 metres, and enfranchised leaseholders.
The Minister will not be surprised to hear that we on these Benches will seek to put right the wrongs that have still not been addressed by the Government in their legislation. As others have said, people are living in flats that are unsafe, unable to be sold and unmortgageable because this Government have failed to deal with wrongs that are not of the residents’ making but of the making of the developers and construction firms which built those flats in the first place. We will pursue amendments along those lines.
There are some real positives in the Bill, such as removing the duty on leaseholders to pay the freeholder’s legal costs in a dispute. The various redress proposals have considerable merit. Enabling existing leaseholders to extend the lease or purchase the freehold in a new way is another positive step, as are the measures in relation to some regulation of property agents, although this does not go far enough, as the noble Lord, Lord Best, and my noble friend Lady Thornhill pointed out. I recognise that, having said at the outset that the Bill is a step in the right direction of reform, I have then spelled out the many glaring omissions and the lack of bold endeavour which are a feature of the Bill as it stands.
The debate has exposed the controversy surrounding any reform, but we on these Benches will use the remaining stages of the Bill to probe the detail and propose amendments in areas where the Bill is deficient, which are various and numerous. I look forward to the Minister’s response.
Lord Khan of Burnley (Lab)
My Lords, it is a pleasure to close this Second Reading debate on behalf of the Opposition, and I thank all noble Lords who have participated in it. The expertise, skills and knowledge on this subject in your Lordships’ House have been demonstrated in such an eloquent manner. I am sure that the Secretary of State, Mr Gove, will be delighted with the scrutiny his Bill is getting in this place.
I echo what so many others have said and add my own tribute to all the individuals and organisations which have campaigned for so long for reform in this area. It was interesting to hear the noble Baroness, Lady Thornhill, talk about her ancestral colleagues raising this issue in 1909, and my noble friend talking about leasehold being raised in the 19th century in this building. Without being subtle at all, I pay tribute to my Chief Whip, my noble friend Lord Kennedy, for his relentless and consistent efforts over a long period of time to educate our Benches, with his experience and expertise in the area.
As a number of noble Lords have pointed out, we have waited a long time for this Bill. It beggars belief that we are on to our fourth Prime Minister and we have had 10 Housing Ministers since the Government first proposed legislation on leasehold reform in 2017. We are pleased that the Bill will progress today. It will provide some limited relief to leaseholders. We welcome and support most measures in the Bill, including changes to the calculation of premiums payable for lease extensions or collective buying of the freehold, and the end of marriage value, as well as the introduction of 990-year extensions, ground rent reforms and freehold estate regulation.
The problem is that the leaseholders across the country expected so much more from the Government. We are clear that, in due course, as my noble friend has mentioned, Labour will have to finish the job and enact in full all the Law Commission’s recommendations on enfranchisement, the right to manage and commonhold. We are determined to do so.
I know the Minister is looking forward to responding to the many issues raised by noble Lords. We had a number of powerful contributions across the House. It is always refreshing to hear from the noble Lord, Lord Best, and, in relation to his property agents working group, it is a shame that his 2019 report has been largely ignored. The noble Lord is calling for a regulator, and has consistently done so, and the point was made that the industry has come out with this as one of its top requests.
The noble Lord, Lord Young of Cookham, and my noble friend Lady Andrews talked about uncertainty and lack of clarity. In her eloquent speech, my noble friend spoke about how the Bill deals with the problem but, although making some progress, it is a game of two halves; there is some good progress in certain areas, yet so much is missing, and I agree with that. She also shared personal stories and spoke passionately about the letters she received from leaseholders. I agree with my noble friend Lady Taylor of Stevenage, who said that this is a long way from what leaseholders want and have waited for. The Bill needs so much more substance added to it.
One of our key areas of concern is that there is so much material arriving throughout the passage of the Bill. As the noble Lord, Lord Stunell, mentioned, this is now becoming the norm and not an exception. How can that be effective for scrutiny, for noble Lords and Members in the other House to properly advise or amend?
I want to probe the Minister on some areas of concern which, at this stage, the Bill fails to cover. First, in 2021 the Law Commission provided the Government with updated recommendations on the archaic law of forfeiture, and yet, as many noble Lords mentioned, there is nothing in the Bill to end the unjust windfall gains exploited by freeholders. My noble friend Lady Twycross described freeholders’ behaviour as “mafia-like”, and the noble Lord, Lord Bailey of Paddington, said the way they operate is “gangster-like”.
The Secretary of State claimed that he wanted to
“squeeze every possible income stream that freeholders currently use”,—[Official Report, Commons, 11/12/23; col. 659.]
so why has this income stream been untouched? The Minister mentioned that she would be bringing the issue of forfeiture back to your Lordships’ House. This has happened too many times and it is another example of not being able to look at something from the outset. As mentioned by my noble friend Lord Kennedy, we will work with all noble Lords across the House to decide whether we can support what the Government bring back to end the forfeiture rule.
As previously mentioned by many noble Lords, Labour has committed to implementing in full the recommendations in the Law Commission’s three reports on leasehold. Why is it so difficult for the Government to do the same?
In 2021, the Government established the Commonhold Council to
“advise the government on the implementation of a reformed commonhold regime and bring forward solutions to prepare homeowners and the market”.
I understand that the council has not met for two years and, as has been discussed, there is no sign of commonhold in the Bill. Have the Government completely given up on this?
I re-emphasise that deferment rates used for calculating lease extension and freehold purchase premiums are missing from the Bill. These are crucial for determining the prices paid by leaseholders who want to buy out or extend their lease. Will the Minister bring forward more detail at the next stage of the Bill to set out the methodology for their calculation?
Almost every country in the world, apart from Britain, has either reformed or abolished this archaic, feudal model. I know the noble Lord, Lord Moylan, objects to “feudal”, but we are quoting the word that Secretary of State Michael Gove has been using. If the noble Lord looks at Hansard, the speech of the noble Lord, Lord Bailey, mentioned “feudal” more times than anybody else here.
There has long been cross-party consensus on the need to do something about this horrific situation, so why have the Government watered down their commitments to leaseholders of flats? This is a point that the noble Lords, Lord Stunell and Lord Young of Cookham, made about being on our own in not being able to deal with the situation.
Just what do the Government stand for on the Bill? It is remarkable that, in a recent interview with the Sunday Times, the Secretary of State went so far as to declare, without qualification, that he intended to abolish the leasehold system in its entirety. There have been all these extravagant promises, yet we have a Bill before us which is missing in detail, and the Secretary of State’s ambition nowhere to be seen.
Leaseholders have been badly let down. Having waited so long, and had their expectations raised so high, they are understandably disappointed at the limited Bill that we are considering today. This unambitious piece of legislation makes it clear that proponents of caution and restraint have won out over those who want to lay claim to a legacy of bold reform in this area. The Government’s poverty of ambition has real implications for leaseholders being routinely gouged by freeholders under the present system.
The scaled-back leasehold reform Bill as the Government have introduced it is a far cry from what successive Ministers have led leaseholders across the country to believe would be enacted by this Government in this Parliament. Leaseholders deserve a clear answer about the real reason why they have got just a limited Bill. We on these Benches are determined to overhaul leasehold to their lasting benefit and reinvigorate commonhold to such an extent that it will become the default and render leasehold obsolete.
We look forward to working with noble Lords across the House, as well as the Minister opposite, to do whatever we can to strengthen the Bill throughout its passage in your Lordships’ House and on to the statute book. We on these Benches want to make the existing Bill the most robust piece of legislation that we can make it, by rectifying its remaining flaws. Like many noble Lords across the House, I look forward to the Minister’s response detailing how she will fill the gaps over the remaining stages of the Bill. However, I remind noble Lords that if they do a word index of what has been discussed today, some of the key phrases coming out of today’s debate are as follows: “missing detail”, “insufficient”, “limited”, “lacking ambition”, “significant shortcoming”, “not properly thought through”, and “glaring omission”. I look forward to hearing from the Minister.
Baroness Scott of Bybrook (Con)
My Lords, it is a pleasure to close this debate and to reflect on the many thoughtful contributions that we have heard. I thank all noble Lords for their engagement with the Bill thus far, and especially all noble Lords who met me before this debate to discuss their concerns. As the Bill progresses, I am keen to continue engaging. If any noble Lords would like a briefing, please get in touch. I will put further dates forward ahead of Committee, and of course noble Lords can ask for a meeting at any time, and I will try and accommodate them.
I have heard that some noble Lords would like to see what is in the Bill clarified and improved. Other noble Lords want to see it go further still, and I look forward to engaging with them on all those issues as the Bill comes to its Committee. That said, listening to this debate, I am also struck by the strength of consensus among noble Lords that the system of leasehold needs reform. I will now seek to address all noble Lords’ points in turn.
The noble Baroness, Lady Taylor of Stevenage, began the debate and set out her wide range of concerns, particularly those areas where she expects to bring forward amendments. I am grateful to her for her engagement and her work with the Bill so far; I look forward to continuing this as the Bill progresses. I will turn right away to the Government’s position on ground rents, on which she and noble Lords right across the House, including my noble friend Lord Moylan and the noble Lords, Lord Adonis and Lord Palmer, courteously asked for updates.
I understand the strength of feeling about this issue and the level of interest, given its size. We are aware that reforms to protect leaseholders will have a negative impact on those who benefit from ground-rent income, and are carefully considering this as we formulate our policy. That is why we are studying the recently closed consultation very carefully. Next steps will be set out in due course to this House as soon as I am able to do so.
I also want to address the specific point made by noble Lord, Lord Adonis, about the ECHR. The Government consider that all provisions in the Bill are compatible with the relevant convention rights; and that, in the case of provisions regarding Article 8 and A1P1, any interferences are justified and proportionate.
The noble Baroness, Lady Taylor, also had a specific question about marriage value, setting deferment rates in primary, rather than secondary, legislation. My noble friend Lord Borwick also raised this point. I understand their concerns, but we do not feel that setting rates on the face of the Bill would be appropriate. The Government absolutely recognise that careful consideration is needed on how to set rates, and that many different elements need to be considered when setting them. We have been clear that we will set the rates at market value to ensure that the amount landlords are compensated reflects their legitimate property interests, and we have had active conversations with relevant stakeholders. Ultimately, the Secretary of State’s flexibility to make these decisions is paramount, and we will continue these conversations. I welcome any further views that noble Lords might have on this matter.
I will come to the overall principle of marriage-value reform shortly, but with regard to the specific points made by the noble Baroness, Lady Thornhill, and the noble Lord, Lord Truscott, about the online calculator, it is an important issue, and I can confirm that the Government absolutely remain committed to launching this. This will help leaseholders understand how much it will cost to extend their lease or acquire their freehold up front. However, before we can launch such a vital tool and make a true success of it, we must first pass the Bill, so that the online calculator reflects the final provisions of the reforms in the Bill.
I turn now to the central issue that the noble Baroness, Lady Taylor, and many others raised: the future of the leasehold market. The Bill delivers our manifesto commitment to ban new leases of houses. Once commenced, other than in exceptional circumstances, new houses will have to be sold as freehold. I know that noble Lords across the Chamber, including the noble Viscount, Lord Hanworth, have expressed particular interest in the exceptions where a lease might still be justified, such as shared ownership, which helps consumers take their first step on the property ladder, or National Trust land where the freehold cannot be sold on. We expect a developer to prove it through the new steps included in the Bill. We believe that each can be justified, but we will keep a close eye on the market, and will not shy away from using the powers in the Bill to tighten or remove exceptions if required.
I turn now to the issue of banning leasehold flats, not just houses. The majority of houses have always been provided as freehold. There are few justifications for building new leasehold houses, so this Government will ban them. Flats, on the other hand, have shared fabric and infrastructure, and therefore require some form of arrangement to facilitate management. This has historically been facilitated by a lease.
None the less, the Government recognise the issues in the leasehold system, and I have heard the concerns from the noble Baronesses, Lady Taylor, Lady Thornhill and Lady Andrews, my noble friends Lady Finn and Lord Bailey and many other noble Lords regarding a lack of commonhold measures as a meaningful alternative to replacing leasehold for flats. I want to reassure your Lordships that the Government remain committed to commonhold reform and that we see it as a long-term replacement for leasehold.
Lord Kennedy of Southwark (Lab Co-op)
The Government have now had the report from the Law Commission for four years. I think the noble and learned Baroness, Lady Butler-Sloss, who is not in her place at the moment, raised the question: how much longer do they need?
Baroness Scott of Bybrook (Con)
As I think I have said to the noble Lord many times from this Dispatch Box, this is a complicated issue. I think there are about 121 recommendations in the Law Commission’s framework and we just have not had the time to go through them. However, this takes us a good way towards commonhold for the future.
The Law Commission did fantastic work to review the commonhold framework, and, as I said, it set out 121 separate detailed recommendations on how to modernise it. I appreciate the points from the noble Lord, Lord Kennedy, about commonhold and his frustration that these reforms have not come forward. However, these are not trivial changes. Implementing them requires detailed consideration. It is a complex policy, and to make sure we get it right and so that commonhold does not fail to take off for a second time, we will take the time required to make it work. We will therefore set out our response to the Law Commission’s report as soon as that work is concluded.
On the comments made by the noble Baroness, Lady Thornhill, the noble Lord, Lord Stunell, my noble friends Lady Finn and Lord Moylan and many others about leasehold rights to manage, managing a large or complex building is not an easy feat, especially meeting building safety requirements, and some leaseholders may simply not want this responsibility. That is why the Government believe that leaseholders should therefore have the choice to manage their buildings, which they now do. The Bill delivers the most impactful of the Law Commission’s recommendations on right to manage, including increasing the non-residential limit to 50% in mixed-use buildings to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs. These measures will help existing leaseholders now and save them many thousands of pounds into the future.
The Government recognise that the participation threshold of one-half can frustrate leaseholders if they cannot reach it. However, we agree with the Law Commission that the threshold is proportionate and ensures that a minority of leaseholders are prevented from acquiring the freehold against the wishes of the majority of leaseholders in the building. We are therefore very clear that we should hold the participation requirement at half of the total number of residential units in the premises.
The noble Baroness, Lady Thornhill, my noble friend Lord Moylan and many others have also made powerful arguments that the creation of new freehold estates must end, and that local authorities should be compelled to adopt all communal facilities on a new estate. It is up to the developers and the local planning authority to agree on specific issues relating to new development, including appropriate funding and maintenance arrangements. That said, we are carefully considering the findings and the recommendations of the Competition and Markets Authority report to address the issue that home owners on these estates face.
On the questions from the noble Baronesses, Lady Taylor and Lady Thornhill, about expanding the right to manage regime to cover the residents of freehold estates, the Government recognise the benefits that the right to manage regime on freehold estates would bring, empowering home owners to manage and take a greater control of the estate on which they live. However, there would be many detailed practical issues to work through to deliver this, which would all require careful handling since they affect property rights and existing contract law. Instead, we have introduced measures in this Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to appoint a substitute manager.
The noble Lord, Lord Best, spoke extensively and eloquently about the regulation of property agents, which my noble friend Lord Young, the noble Lord, Lord Truscott, and many others, supported. This Government remain committed to driving up professionalisation and standards among property agents. We welcome the ongoing work being undertaken by the industry and others to drive up standards across the sector, including on codes of practice for property agents. I put on record my sincere thanks to the noble Lord, Lord Best, and the noble Baroness, Lady Taylor, for their valuable work on this issue. However, as a Secretary of State made clear at Second Reading, legislating to set up a new regulator would require significant additional legislative time of a kind that we simply do not have in the lifetime of this Parliament.
On cost, the Government believe that any regulation can and should be done in an appropriate and proportionate way that controls the cost to business. Managing agents must already belong to a redress scheme and leaseholders may apply to the tribunal to appoint a manager to provide services in cases of serious management failure. The Leasehold and Freehold Reform Bill will make it easier for leaseholders to scrutinise costs and challenge services provided by landlords and property managing agents, and ultimately for them to take on management of the buildings themselves, where they can directly appoint or replace agents. These measures, alongside existing protections and work undertaken by the industry, will seek to make property managing agents more accountable to the leaseholders who pay for their services.
The valuable work on the regulation done by the noble Lord, Lord Best, remains on the table, but this Bill is tightly focused on the fundamental improvements for leaseholders. These, alongside our building safety reforms, already make this a time of great change for managing agents, necessitating higher standards across the sector. We continue to listen and look carefully at the issues that Members across the House are raising on this.
My noble friend Lord Young spoke specifically about forfeiture, as did the noble Baronesses, Lady Taylor and Lady Twycross, my noble friend Lord Bailey and many others. As I said in my opening remarks, the Government recognise that this is a real and significant problem. There is huge inequity at stake. We have heard from colleagues today about why we should act. We think it is the job of government to go away and work through the detail of this, which we are doing. We will report back to the House shortly with more details as we consider the matter further.
My noble friend Lord Young, the noble Lord, Lord Stunell, the noble Earl, Lord Lytton, the noble Baroness, Lady Pinnock, and many others, raised several concerns about building safety, which I will try to address in some detail. The Government understand that many individuals are frustrated with the distinction between qualifying and non-qualifying leaseholders. We have been clear that the primary responsibility for resolving issues in buildings requiring remediation is with those who caused them. In circumstances where it does not prove possible to recover the cost of remediation from the developer, we have established a threshold that strikes a balance between leaseholders and landlords as to who should be paying for the costs of remediation. No leaseholder, whether qualifying or non-qualifying, can be charged more than they otherwise would have been in the absence of the leaseholder protections for costs relating to historical building safety defects.
A range of support is in place for leaseholders whose lease does not qualify for protection. All residential buildings above 11 metres in England now have a pathway to fix unsafe cladding, through either a taxpayer-funded scheme or a developer-funded scheme. With regard to buildings under 11 metres, it is generally accepted that the risk to life from fire is proportionate to the height of the building. Therefore, the risk to life from historic fire safety defects in buildings under 11 metres will require remediation only in exceptional circumstances.
The Earl of Lytton (CB)
In relation to critical fire safety, the Minister referred to the risk to human life. I understand that that is what the independent expert statement was intended to cover; namely, critical life safety. What would she say about the other critical issues: finances and the cost of remediation, which none the less continue and are the matters that concern insurers and finance houses, which are by and large less concerned with questions of human life?
Baroness Scott of Bybrook (Con)
We have taken the issue of human life as the important one. I think we will have further debates on 11 metres as we go through the Bill. I am conscious of time; if the noble Earl does not mind, we will deal with those matters in Committee.
Given the number of small buildings under 11 metres that need remediation, our assessment remains that extending leaseholder protections to below 11 metres is neither necessary nor proportionate, as I think the noble Baroness has heard many times before.
Regarding my noble friend Lord Young’s issue about enfranchised leaseholders, the Government decided that the leaseholder protection provisions in Part 5 of the Building Safety Act would not apply to leaseholder-owned buildings. That was because the freehold to the building is de facto owned by all or some of the residents who, as leaseholders, have collectively enfranchised and would still have to pay to remedy the safety defects in their buildings. However, leaseholders in those buildings, either individually or collectively, can pursue developers and their associated companies via a remediation contribution order for funds that they have spent or will spend remediating their buildings for relevant defects.
I turn to joint ownership. This Government understand that individuals are frustrated with the distinction between leaseholders who own properties jointly and those who do so independently. We are listening carefully to feedback from stakeholders on this matter. We have also published a call for evidence on jointly owned leasehold properties, which was launched on 22 March; this will enable the Government to understand the scale of the issue and consider whether any further changes can be proposed.
The noble Baroness, Lady Andrews, asked about development value. I am very grateful to her for engaging with me beforehand about this issue. I can say to the noble Baroness, as she acknowledged, that we committed to enabling leaseholders voluntarily to agree to a restriction on future development of their property to avoid paying development value as part of the collective enfranchisement claim. We are consulting on making changes to the existing permitted development right and are seeking views on whether sufficient mitigation is in place to limit potential impacts on leaseholders. I urge the noble Baroness to contribute her views to that consultation before it closes on 9 April. When it closes, the Government will carefully consider and review all the responses and see how the regime can be improved.
I was very sorry to hear of the personal difficulties of the noble Lord, Lord Campbell-Savours, when purchasing his freehold, and I hope that the reforms in this Bill will address the issues he raised. With regard to the point that he and my noble friend Lord Bailey raised on service charges, the level of service charges that leaseholders pay will depend on many factors, such as the terms of the lease and the age and condition of the building. This means that the cost of things such as repairs, maintenance of common areas and management of the building will differ considerably. The transparency and redress reforms in this Bill will empower leaseholders to take action against any unreasonable costs.
As well as speaking extensively about building safety issues, the noble Earl, Lord Lytton, made a compelling case for thinking about leasehold from the perspective of consumer protections. The Government are committed to improving consumer protections against abuse and poor service from landlords, managing agents and freehold estate managers. That is why we will set a maximum time and fee for the provision of information as part of the sales process for leasehold homes and those homes encumbered by estate management charges, and introduce rights of transparency over service charges, extended access to redress schemes and reform of legal costs. We consider that it is a powerful package of consumer rights and reforms, and, following Royal Assent, we will make sure that appropriate guidance is available for consumers. None the less, I look forward to meeting the noble Earl after Easter to discuss how this package can be further improved and well implemented.
The noble Lord, Lord Palmer, the noble Baroness, Lady Bray, and my noble friend Lord Howard asked about the Government’s policy on marriage value. Any suggestion of retaining marriage value—wholesale or in limited circumstances—would be counter to our aim of making it cheaper and easier for leaseholders to extend their lease or acquire their freehold. Such proposals would risk both perpetuating and creating a two-tier system—eroding the benefits that the Government are delivering through the Bill. Removing marriage value and hope value will deliver a level playing field and wide access for leaseholders who may otherwise find it prohibitively expensive to extend their lease or purchase their freehold. Our wider reforms to enfranchisement value will ensure that sufficient compensation is paid to landlords to reflect their legitimate property interests.
The right reverend Prelate the Bishop of Manchester spoke about the positive contribution that charities make to our society, which this Government wholly recognise. He asked specifically about exemptions from our reforms for charity. Although well-meaning, attempting to created carve-outs for specific groups of landlords—for example, charities—would complicate the system that we aim to simplify and would risk both perpetuating and creating a two-tier system. We appreciate the engagement that the right reverend Prelate has conducted with us so far and hope that we can continue that engagement on issues that we know, and he knows, are significant.
The noble Baroness, Lady Twycross, and the noble Lord, Lord Kennedy, brought up the renters Bill and assured tenancies. We are aware that leaseholders with ground rents of more than £250 per year can be legally regarded as assured tenants. In the Renters (Reform) Bill, we are addressing this problem by removing all leaseholders with a lease longer than seven years from the assured tenancy system. That Bill is progressing through Parliament, and our priority is to pass this vital legislation before the end of this Parliament.
The noble Lord, Lord Khan, brought up the issue of the Commonhold Council. The council has met regularly since it was established in 2021 and last met in September. The Government are currently reviewing the Law Commission’s proposal to reform the legal framework for commonhold and plan to reconvene the group ahead of finalising their response to the Law Commission.
If I have missed any other specific issues raised, I can only apologise. A tremendous amount has been said in this session—all of great value—and I reiterate my commitment to meeting any Member of this House who wishes to discuss the Bill further after Easter. I hope that is acceptable to the House.
The Leasehold and Freehold Reform Bill will deliver on the Government’s 2019 manifesto commitments, promoting fairness and transparency in the residential leasehold sector. I look forward to working with noble Lords during the passage of this most important Bill.
I have noted forfeiture, commonhold, the regulation of property agents, marriage value, ground rent and service charges as areas of serious interest to noble Lords, although others of equal importance have been raised. I am sure noble Lords will recognise that this is a very long list and there is little time remaining in the parliamentary Session. However, we are listening and looking carefully at what can be done on all those things.
Lord Kennedy of Southwark (Lab Co-op)
Before the Minister sits down, although I am frustrated about the Bill, I have great respect for her and look forward to our debates in Committee. I particularly asked about commencement, because this is a Bill of 123 clauses and 15 schedules, and only the issues on rent charges and three parts of the Building Safety Act are going to be brought into force after two months. Nothing is being brought in on Part 1, on leasehold houses, Part 2, on leasehold enfranchisement and extension, Part 3, on the rights of long leaseholders, Part 4, on the regulation of leasehold, Part 5, on the regulation of estate management, or Part 6, on redress schemes. Basically, about 95% of the Bill is not going to come into force until a date that the Secretary of State determines. As in my earlier remarks, I am a bit frustrated sometimes that what we should get from the Secretary of State does not materialise. Will the Minister write to me and be clear about when these are going to come into force? We need to know what date they are coming into force, otherwise all the promises amount to nothing.
Baroness Scott of Bybrook (Con)
I am happy to write to the noble Lord on this issue, and I will put a copy of that letter in the Library.
Baroness Scott of Bybrook
That the Bill be committed to a Committee of the Whole House, and that it be an instruction to the Committee of the Whole House that they consider the Bill in the following order:
Clauses 1 to 7, Schedule 1, Clauses 8 to 18, Schedule 2, Clauses 19 to 29, Schedule 3, Clauses 30 to 36, Schedules 4 to 7, Clauses 37 to 44, Schedule 8, Clauses 45 and 46, Schedule 9, Clauses 47 to 68, Schedule 10, Clauses 69 to 103, Schedule 11, Clauses 104 to 108, Schedule 12, Clauses 109 to 123, Title.
Building Safety
(7 months, 2 weeks ago)
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Baroness Taylor of Stevenage (Lab)
My Lords, as this is the last business, I wish all noble Lords a restful and peaceful Easter.
I thank the Government for this update, given yesterday in the House of Commons. There are more than 4 million people in the UK living in buildings over 11 metres tall, including 1.3 million in buildings over 18 metres. That is why it is of the utmost importance that this building safety issue moves forward without any further delay.
As my noble friend Lord Kennedy and other noble Lords pointed out in the debate this afternoon, we are now more than seven years on from the tragedy of the fire at Grenfell Tower and the loss of 72 lives. It seems, at last, some progress is being made to address the multitude of issues that arose from that catastrophic fire and previous dreadful fires, such as that at Lakanal House in Camberwell—which I remind noble Lords was in 2009.
I pay tribute to the determination and commitment of the survivors of Grenfell and other campaigners, such as the Manchester Cladiators, the National Leasehold Campaign, End Our Cladding Scandal and the UK Cladding Action Group. Their powerful voices and front-line witness have kept the issue right at the top of the agenda and enabled the progress of which this Statement forms the latest step. However, it is just not good enough that they have had to wait so long. Will the Minister tell us whether the Government are now going to set a deadline by which remediation work must be completed?
It is important that both Houses are updated regularly on progress to tackle the scandalous building safety crisis, and this Statement indicates some progress. However, I hope there is no complacency in moving this forward at greater pace, because the figures produced by the Government last week showed that only 21% of high-rise blocks have been fully remediated and that hundreds of thousands of families are still stuck in flats with dangerous, flammable defects, whether that is cladding, missing fire breaks or wooden balconies. We cannot underestimate the seriousness of the impact on their lives. Dreams of home ownership are shattered as they battle with freeholders to get this remediation carried out, and family finances are broken by remediation costs, exorbitant insurance and the nightmare of being trapped in flats that people are too scared to live in but cannot sell.
What progress is being made in working with lenders to ensure that properties caught up in the cladding scandal can be sold or remortgaged? Even those that have had remediation done are suffering from problems with this. Progress remains slow. What progress has been made, for example, on the registration of building control inspectors? The deadline had to be extended by an additional 13 weeks from the original deadline of 6 April. What assurances can the Minister give that that extended deadline will be met?
This building safety Statement refers only to buildings over 11 metres. I know from the discussions on the Building Safety Act and subsequent statutory instruments that your Lordships’ House remains concerned about buildings up to 11 metres in height. Indeed, it was raised again today in the debate on leasehold. I would be grateful if the Minister could reiterate to the department that we still have outstanding concerns in this regard and would appreciate a full response in due course. Although in the leasehold debate the Minister said that the Government were taking the risk to life most seriously, lenders and mortgage providers are taking a much more risk-averse approach than the Government.
The Minister will know that I have mentioned before the dreadful situation that residents of Vista Tower in Stevenage face, so I was pleased to see the Minister in the other place specifically mention in this Statement that legal action against Grey GR in that respect is imminent. We note that other legal action is pending, but can the Minister please let us know how quickly leaseholders who have been forced to use their own money for remediation, and that spent by taxpayers, will be able to receive recompense following remediation contribution orders? Will there be any accountability for the manufacturers involved in building safety defects, so that all those responsible for the building safety crisis have to face the financial consequences of their actions?
Can the Minister update us any further on the long-awaited second staircase guidance? I note the Minister in the other place said it would appear this week, but as we are right on the last sitting day before recess I thought it worth flagging up again that it is still due. Absence of this guidance is holding up the construction of thousands of safe homes across the country.
At last, we are moving to a point where the respective responsibilities for resolving the crisis between the construction and development industry, freeholders, statutory agencies and the regulator are becoming clearer. Importantly, we are moving to a point where those responsible for failure can be held accountable for their actions, although we must keep our eye on enforcement processes, as it seems they are not the strongest part of the new regime. For example, although additional funding for councils to undertake enforcement is welcome, we must not forget the backdrop of the extreme funding pressures councils are under, which continues to make the increasing regulatory and enforcement burdens an added strain. I hope the whole burden of this will not be forced on councils and that the department will continue to play an active and robust role.
Lastly, I raise the issues relating to the extraordinary burden being placed on leaseholders because of shocking increases in insurance premiums—up to 1,000% increases in some cases—even after buildings have been remediated and made safe. Can the Minister update us on what discussions the department has held with the insurance industry to set out the Government’s expectations in this regard and how they plan to mitigate this awful further burden on leaseholders?
We are grateful to the Minister for her constructive approach to working with opposition parties on this issue. It is clear that the will across your Lordships’ House is to move this on at pace and to continue to press for full remediation for all building safety defects to be completed as quickly as possible. Everybody deserves to feel safe in their own home, and it is taking too long. Those who have profited from not paying enough attention to that safety need either to put matters right or to be brought to justice without any further delay.
Baroness Pinnock (LD)
My Lords, in reference to the Statement, I have to say how irritating it is that statistics are selected to project a positive picture of progress made on the remediation of building defects as a result of the Building Safety Act and how refreshing it would be if the Government were able to reflect on the poor rate of progress, instead of trying to spin a success story. Spinning the progress made is not doing anybody any favours. It is certainly not helping the thousands of leaseholders who are still stuck in limbo in flats where work has not been started and where even an assessment of whether work is needed has not been made. Perhaps an honest appraisal of the situation would put some government energy into trying to resolve this issue. As the noble Baroness, Lady Taylor of Stevenage, has just asked, what is the timetable? How long have leaseholders to wait while this scheme is making snail-like progress towards some remediation?
In Inside Housing last week, a piece by the investigative journalist, Peter Apps, provided some very different numbers from those given by the Government in the Statement. I am not accusing the Government of having inaccurate figures, but they were very selective. I have no reason to challenge the report in Inside Housing, which says:
“As it stands, of 3,839 buildings above 11 metres being monitored by the government due to the need for cladding remediation, 2,286 have not even started works yet”.
The terrible Grenfell Tower fire was nearly seven years ago, and 2,000-plus buildings have not even had work started yet. But the report in Inside Housing went on to say that
“the 3,839 figure could eventually rise by as much as 5,000”.
based on the Government’s own estimates. We really do not know how many are in desperate need of remediation.
So my question to the Government is: can we have a full and final estimate—which surely should be possible nearly seven years after Grenfell—of how many blocks of flats are in need of remediation? How many of them are over 18 metres and most at risk? How many are over 11 metres? What consideration is being given to those under 11 metres, given that many thousands of leaseholders and tenants live in such flats, which the Government regard as being relatively safe but which insurance companies and service charges and all the rest do not? They are in total limbo, waiting for some action to unlock the situation that they are in. That is my first question.
Secondly, in January, there was a fire in Petworth Court in Wembley, which is a social housing building. The social landlord knew that work needed to be done and the original builder accepted that work needed to be done, but they have been in dispute ever since about how much responsibility each should take for it. That is another issue which desperately needs to be addressed because, at the end of it, it is leaseholders who are stuck in this awful situation of going to bed every night knowing that their buildings are unsafe and vulnerable to very serious fires. So another question that I want answered, please, is about how the Government are going to resolve the disputes between what are sometimes leaseholders and sometimes social landlords and the developers and builders.
My third point is this. According to the Statement, the Government are going to drip another £6 million of public money into council enforcement action. Now, I am absolutely fed up with the answer to any problem being that the Government will spend another bit of money trying to do something about it, instead of accepting what the fundamental issue is here. If you do not fund the public services on which we all rely—such as building regulations and building enforcement—properly in the first place, when there is a problem we are forever going to have the answer, “We’re going to drip another £2 million or £3 million in to try to solve it”—and it will not. It will deal with a little bit this time, but nobody can plan with little bits of money being dripped into public services in this way. So, please, at least take this back to the Government: fund the thing properly rather than dripping in money.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Swinburne) (Con)
I agree with the noble Baronesses, Lady Taylor and Lady Pinnock, that too many residents in England continue to live in unsafe buildings, while irresponsible building owners fail to set things right. Last year saw a fundamental step change in our programme to fix unsafe buildings, with the launch of the cladding safety scheme last July. All private sector residential buildings above 11 metres in England now have a pathway to fix unsafe cladding. Following intensive talks with the homebuilding sector, we have also secured a solution that will see the original developers of defective buildings take responsibility to pay for and fix historical safety defects. Where developers are building owners and not currently funding cladding remediation, the Government have committed more than £5 billion to ensure that residents are safe—and feel safe—in their homes. However, there is still more that we can and will do.
Where building owners are failing to fix unsafe buildings quickly enough, enforcement action by our regulatory partners is critical. That is why we are announcing a new comprehensive package of support for regulators to boost enforcement. We continue to accelerate our remediation programmes. Over 4,000 buildings of over 11 metres are now in our remediation schemes; this is double the number of buildings in our schemes a year ago. The number of buildings reported to have started or completed remediation work has also more than doubled since February 2023.
From the start, we have prioritised the remediation of the highest-risk buildings. The ACM cladding remediation scheme, which funds the removal of the most dangerous Grenfell-style cladding, is nearing completion, with 98% of those buildings having started or completed works by the end of this month. This figure rises to 100% in the social sector. Over 50% of high-rise buildings in our building safety fund, which deals with buildings over 18 metres in height with non-ACM cladding, have also started or completed work. I apologise for the statistics, but these are real numbers, so I think the House deserves to know. For 346 buildings identified as requiring works under the developer remediation contract, remediation work is expected to start by January 2025.
Registered providers of housing also report that remediation work is complete or due to be completed for 87% of identified buildings with cladding related to defects by September 2028. The bulk of the outstanding buildings requiring remediation are between 11 metres and 18 metres in height. These medium-rise buildings now have a funded route to remediation, following the launch of the cladding safety scheme in July 2023. We expect the number of medium-rise buildings starting and completing remediation to increase as applicants enter and progress through the scheme.
Our focus is now on getting more buildings into our funds and accelerating their remediation process, including through robust enforcement action where needed. The data published this week in our new enforcement league table shows that levels of enforcement activity vary by regulator and region. Some regulators are doing a commendable job. For example, Newham Council recently won a landmark case and successfully prosecuted a building owner for delaying vital remediation work on unsafe cladding. However, as today’s data shows, some councils and fire and rescue authorities need to do more to ensure the safety of residents in their area.
Last year, the department published a joint statement with building safety bodies committing to see buildings made safer faster through a robust regime. The building safety regulator, the Local Government Association and the National Fire Chiefs Council all put their names to this statement. This week, we are delivering on this commitment by announcing our next package of support for our regulatory partners.
In response to the noble Baroness, Lady Pinnock, I support allocating the further £6 million for the next financial year in grant funding to councils, in addition to establishing a new grant funding scheme to support councils and fire and rescue services with complex enforcement. It is needed; the work is additional work, and therefore we are putting in the money to enable them to do it properly.
To ensure that regulators have the tools they need to harness this funding and drive remediation, we are publishing a new suite of guidance this spring. New enforcement data also increases transparency for the public and empowers communities to see how their authorities are using their funding and powers to keep them safe.
The noble Baroness, Lady Taylor of Stevenage, asked about a number of things, including progress made on registration of building control inspectors and other safety measures. Together with the noble Baroness, Lady Pinnock, she asked about buildings below 11 metres. I will seek to answer as many of those questions as possible. If I miss any, I apologise and will write to the noble Baronesses.
The noble Baroness, Lady Taylor, asked what progress has been made on the registration of building control inspectors. The deadline for registering with the building safety regulator is 6 April. All building inspectors must be registered at least class 1 by that point. However, the building safety regulator has taken the decision to extend the registration period for experienced building inspectors in England who have not yet completed their competency assessment. To benefit from the extension period, they must be registered as class 1 before 6 April and be enrolled on a validation scheme in order to have their competency assessed at the level at which they intend to practise. They will have until 6 July to complete the assessment process. It is crucial that the sector continue to undertake the validation and registration processes in order to meet the competence requirements set by the building safety regulator.
Regarding second staircases, following public consultation and liaison with expert bodies, there is a recommendation that all new tall residential buildings over 18 metres have a second staircase. This will provide an additional means of escape for residents, and I am sure it is supported across the House. We will publish the updated approved document and guidance. I am told, with some authority, by my department, that that will still be by the end of March. Therefore, I am assuming that it will be in the next day or two. I will report to the House if that does not happen—but I hope that it will.
With respect to buildings under 11 metres, it is generally accepted that the safety risk is proportional to the height of the buildings. The risk to life from historic fire safety defects in buildings lower than 11 metres is less. Therefore, building safety-related remediation works are required in a very small number of buildings under 11 metres. A fire risk assessment and accompanying fire risk appraisal of external walls, conducted in accordance with PAS 9980 principles, will often find that lower-cost mitigations are more appropriate in low-rise buildings.
To give some assurance, in rare cases where remediation work is required in buildings under 11 metres, the Government have retrospectively extended the limitation period under Section 1 of the Defective Premises Act 1972. This enables legal action to be taken against developers and contractors where works completed in the last 30 years make a dwelling not fit for habitation.
With regard to the accountability of manufacturers involved in building safety defects, the Defective Premises Act has been amended to cover refurbishment and refitting work for works completed after the Building Safety Act came into force on 28 June 2022. Civil claims can therefore be brought against manufacturers for defective or mis-sold construction products where these products contributed to the dwelling being unfit for habitation. This provision applies to all dwellings and has retrospective effect for cladding products within a 30-year period. The Building Safety Act also gives courts new powers to extend liability to the associated companies of developers.
With regard to the way in which leaseholders and taxpayers will retrieve money they have paid towards a remediation scheme, under the Building Safety Act 2022 we have granted leaseholders the power to apply to the First-tier Tribunal for remediation contribution orders. The First-tier Tribunal has the discretionary power to decide a timeframe in which the money must be paid to the specified person. In the first ever RCO issued, the respondent was required to pay the amount specified in the order within 14 days of the decision date. If the respondent does not pay the specified person within the deadline set by the tribunal, the order can be enforced through the county court system.
Discussions have been taking place with the insurance sector. A lot of discussions have happened and, indeed, where buildings comply with building regulations or align with the industry-accepted PAS 9980 standards, insurers should now offer affordable premiums and should not prescribe additional remedial works. The Association of British Insurers and its members have stated that premiums should reduce where buildings have completed remediation or have become PAS 9980 compliant in the external wall assessment and have therefore shown a marked risk reduction. We expect insurers to honour their commitments and ensure that premiums are priced fairly and appropriately, given the level of work that will have been done.
With regard to selective statistics, monthly data is now being released that can be seen by all, and the progress can be seen; therefore, rather than selective data, the whole dataset will be available for people to observe. Indeed, when taken together with the transparency and enforcement measures through the enforcement league table, I hope that will allow not just this House and its Members but the wider public to keep up the pressure on remediation, making sure that it all happens at pace.
With regard to additional estimates, the numbers have not changed since they were released as prevalence estimates. The publicly available data suggests that 4,092 residential buildings of 11 metres and over with unsafe cladding are being monitored by DLUHC. This comprises just over 2,500 18 metre-plus buildings and 1,500 buildings of 11 to 18 metres. We will continue to bring more buildings into the remediation scheme and provide monthly updates on that progress as and when we have it.
I thank the two noble Baronesses for their comments and look forward to working with noble Lords to try to make sure that we continue at pace to make sure that people live in safe homes.
Lord Young of Cookham (Con)
My Lords, I am grateful to my noble friend for the additional information, but can I press her a little further on the key issue raised by the two noble Baronesses: the pace of remediation? I welcome the action taken last year by the Government to compel 50 major developers to sign the developer remediation contract, but it does not have a timescale. One large London-centric developer, Galliard, says that its remediation plan could take another eight years. That will be 15 years after the Grenfell tragedy. Does my noble friend think that is acceptable? Related to that, under the contract, developers are obliged to report their target dates for each building to my noble friend’s department in their quarterly returns data. So far, the department has not published that data, meaning that leaseholders are unaware of what progress is being made. Can she consider publishing that data, which the department has, so that people know the pace agreed by the developer and her department?
Baroness Swinburne (Con)
I thank my noble friend for that question. To start with the second question first, yes, I shall take that back to the department. Given that transparency is a tool that we are using, it would make sense to make that communication transparent. I shall report back to my noble friend on progress on that.
On whether I personally think that developers taking eight years to fix this is acceptable, absolutely not. These are people’s homes; they need to feel safe. The reason why that new money has become available for regulators is to ensure that enforcement action can happen and to increase the pace of the change that is required, ensuring that remediation takes place as soon as possible. Therefore, I suggest that, if there are specific instances, noble Lords should speak to the department so that we can make sure that pressure is put on.
The Earl of Lytton (CB)
In connection with building remediation, has the department any estimate of instances of potential freeholder insolvency? If a freeholder charged with building safety remediation becomes insolvent, what provisions will the Government make to ensure that those costs do not fall on the leaseholders?
Baroness Swinburne (Con)
I thank the noble Earl, Lord Lytton, for that question. I shall have to write to him with the answer, on the basis that I do not have the data with me.
Lord Adonis (Lab)
My Lords, did I hear the Minister say that, in respect of buildings higher than 11 metres, 87% had a remediation plan that would be delivered by 2028? Could she clarify what she said?
Baroness Swinburne (Con)
The 87% refers to the registered providers of social housing, which report that remediation work is due to be completed in 87% of buildings with cladding-related defects by September 2028.
Lord Adonis (Lab)
So that is for buildings of 11 metres that are social housing. There are two questions that arise from that. First, if it is in respect of social housing alone, what about non-social housing blocks? What is the equivalent figure there? The second, stark issue raised, given that, as the noble Lord, Lord Young, said, it is already seven years after Grenfell—so in 2028, it will be 11 years after Grenfell before that 87% is dealt with—is the other 13%. It is a sizeable number, and that is in respect only of the most pressing cases, in social housing, which may have been less well maintained. What is the position for the other 13%? Are there schemes agreed that will take longer, or is there still a proportion for which there is no scheme? Either of those situations is, of course, completely unsatisfactory.
Baroness Swinburne (Con)
I have numerous statistics in terms of the number of buildings that are involved in this programme. Of course, what we know is how many of those buildings over 18 metres are left without a programme or have completed their programme. Some 10 are left, and they all have programmes in place, so they will be completed as soon as possible. The highest-risk ACM cladding buildings are being dealt with, so we will get very close, in that 98% of them have now started or completed their works.
On buildings of lesser height, of 11 to 18 metres, because the fund was established only last July some of those buildings will not be known to us. We are still working on an estimated number for those requiring remediation. In England, that number is somewhere between 6,220 and 8,890. That figure is based on an estimation and, therefore, a methodology behind it. We expect those numbers to come forward as that fund is called on; as people utilise it to put pressure on the owners of those buildings to deal with this, we expect that number to rise.
I shall come back to the House regularly to update it on progress. We believe that pressure is the right way here, and pressure across the House is definitely the right way to keep up the work and get this done at pace.
Baroness Bennett of Manor Castle (GP)
My Lords, the Minister has indicated a number of times that the Government are focused on buildings over 11 metres in height and suggested that other buildings are not really a priority. Is she aware of the Moss Hall Grove fire in Finchley, north London, a few weeks ago, where four terraced houses went up in flames astonishingly quickly? There were 70 firefighters there and a significant number of engines had to be called to this blaze. Luckily, it happened at 10.30 am, so eight people were able easily to flee the circumstances, but this has led Barnet Council to recognise that there are significant problems particularly with timber-framed homes with plastic cladding on the outside. This one council in north London has identified 580 low-rise homes in need of urgent remediation. These are mostly 1930s to 1960s-built timber-framed homes with uPVC panels fitted in the 1980s. Are the Government looking into this issue? The identification of 580 homes in one London borough suggests a very large problem across the country.
Baroness Swinburne (Con)
I thank the noble Baroness for her question; however, I do not have any data with me on that. I will make sure that the department looks into it and I will write to her with an answer.
Baroness Twycross (Lab)
My Lords, I declare an interest as deputy mayor for fire in London. With respect to the Minister, using such terms as “at pace” and “as soon as possible” when things are taking so long after the Grenfell Tower fire seems a little tardy to some of us in this House. Building safety in London and across the country is still a fundamental issue. There is still shoddy practice and that is not just historic. As the noble Baroness, Lady Bennett, pointed out, the time of day matters in this. I raised the fires in Barnet in the debate earlier today and previously with the noble Baroness, Lady Scott. I would be really grateful if the department could respond to Barnet Council on the issue of the properties referred to by the noble Baroness, Lady Bennett, but the time of day should not matter in terms of building safety or risk to life. Do the Government include the time of day that an issue might happen in their fundamental assessment of risk to life in relation to building safety? It really does matter in practice.
Baroness Swinburne (Con)
Again, I will ensure that the department briefs us and we will be able to come back in writing on the situation in Barnet. I will check what the independent individual has told us with regard to that risk to life and whether that involves an assessment of the time of day. I am afraid I do not have that information, but I am sure somebody in the department does.
Lord Watson of Wyre Forest (Lab)
My Lords, I seek a little more clarity on timelines. Do the Government have a deadline by which remediation must be complete? If they do, what is it? If they do not, does the Minister think it is sensible to set one?
Baroness Swinburne (Con)
At this point, “as soon as possible” is the deadline and therefore no excuse is a good enough excuse for this not to be happening in any identified building right now, in order to ensure that people are safe. As to whether it needs to happen as this progresses, we have doubled the number of buildings that have been made safe in the last year. If that does not continue to progress and, indeed, potentially quicken, then, on that basis, I imagine that the department will start to investigate whether other measures are needed.
Lord McDonald of Salford (CB)
As a department, DLUHC has many priorities and, necessarily, a limited budget. Can the Minister tell us where in the list of departmental priorities the cladding safety scheme features? Will all eligible buildings be covered?
Baroness Swinburne (Con)
Of the funds that have been made available, there are a number for different sizes of buildings; the fund for buildings between 11 and 18 metres was available from July last year. Therefore, from that perspective, everyone is open to being able to use them. Regarding how the issue sits as a priority, it certainly sits with me as a priority and, as a new Minister in the department, I will ensure that I do everything I can to monitor progress. The monthly data will be checked and we will put pressure not only on developers but on the enforcement side, with regards to the regulators and the local authorities working hand in hand.
Baroness Bennett of Manor Castle (GP)
My Lords, I raise an issue relating to what has happened with high-rise buildings since the Grenfell tragedy. This week, the Independent reported that, in high-rise buildings that have been declared safe, substantial numbers of leaseholders and residents are seeing massive increases of up 1,000% in insurance premiums. To give an example, there is a one-bedroom flat occupied by a single parent and a baby where the insurance has gone up over two years from £274 a year to more than £2,600, making it essentially unaffordable. Will the Government look into why, if buildings have been declared safe, the insurance premiums are going through the roof? Surely risk to life and risk to the fabric of the building, which the insurance primarily relates to, have to be interrelated?
Baroness Swinburne (Con)
If there are instances where that is the case, then you can either work with our department, or directly through the Association of British Insurers to alert them to the fact that it is happening. There is an agreement with insurance companies that, if remediation work has been done, the insurance premiums should not be excessive.
With regards to other parts of the insurance market and those buildings which have not yet had full remediation work done, they are also expected to be working with residents to ensure that insurance is affordable. There is a fire-safety reinsurance facility led by the Association of British Insurers, which reinsurance brokers can utilise. There are a number of insurance-led schemes which are supposed to be helping. If noble Lords know of any instances where they are not, please let us know.
Lord Watson of Wyre Forest (Lab)
Can the Minister say if there is an intention in government to seek recompense for the taxpayer from the people who are responsible for this crisis?
Baroness Swinburne (Con)
We believe that those responsible for these buildings need to be the ones who ultimately pay for this, so the answer is yes.
Lord Adonis (Lab)
I want to press further on the business of insurance premiums. Did the Minister say that there was an agreement with the Association of British Insurers that, once remediation work had been completed, there would not be any net increase in insurance premiums? That does not appear to be happening at the moment, so what enforcement action will the Government take, if that is the case?
Baroness Swinburne (Con)
Sorry, bear with me for a second. I need to go back to an earlier section—I have ripped all my papers out and therefore they are in the wrong place—to allow me to help the noble Lord.
The commitment made by the ABI and its members is that the premiums should reduce where buildings have completed remediation, or have achieved the PAS 9980-compliant external wall assessment, and have therefore shown a reduction in risk. We are working with the insurers to build a better understanding of these building standards, and we expect insurers to honour their commitments and ensure that premiums are fairly priced and appropriate to the level of risk after remediation.
Baroness Bennett of Manor Castle (GP)
Since there is time, I will follow through on that—for public information, really. If it is not happening, and if we have a case such as the one I cited, from £270 to £2,600, who does an individual or a campaigning organisation go to in the Government? What are the actual steps to say that this is not happening and the ABI is not delivering? What is the mechanism that can be implemented?
Baroness Swinburne (Con)
In the first instance, I suggest that they go to their insurance company directly and notify it of the requirement that this should be fair and assessed based upon the existing current risk rather than prior risk. If that does not yield results and the ABI is unable to help, I am more than happy, as the Minister here, to have those sent to me.
Lord Watson of Wyre Forest (Lab)
Since there is time, and on this very important point, is the department monitoring the rise in insurance premiums in these properties to allow Ministers to make appropriate policy decisions, and should the ABI not honour its commitments?
Baroness Swinburne (Con)
I do not know the explicit answer to that. I will check, and anything comes to light that suggests that we are not, I will come back to the House, but I imagine that we are, and if not, I will revert.
Arbitration Bill [HL]
Wednesday 27th March 2024
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Arbitration Bill [HL] 2023-24 View all Arbitration Bill [HL] 2023-24 Debates Read Hansard Text Amendment Paper: HL Bill 7-I Marshalled list for Special Public Bill Committee - (25 Mar 2024)
Special Public Bill Committee
Arrangement of Business
The Senior Deputy Speaker (Lord Gardiner of Kimble)
My Lords, before the start of today’s proceedings on the Arbitration Bill, it may be helpful if I say a word about the Special Public Bill Committee procedure that we will follow. In nearly all respects, our proceedings will be identical to those of a Grand Committee. Any Member of the House may attend and speak. Members should stand when speaking. Members may speak more than once to each clause.
The main difference from Grand Committee is that the Committee may vote. If, when I collect the voices, it is clear that there is no agreement, I will call a Division, which will take place straightaway. Only Members of the Committee may vote. The clerk will call out each name in alphabetical order and Members should reply “Content”, “Not content” or “Abstain”. I will then announce the result and call the next clause. It may be for the convenience of the Committee if certain sequential clauses are stood part en bloc. If any Member objects, they must be taken separately to the extent desired.
Do any Members of the Committee wish to declare any interests that have not already been declared? No.
Arbitration Bill [HL]
Wednesday 27th March 2024
(7 months, 2 weeks ago)
Other BusinessRead Full debate Arbitration Bill [HL] 2023-24 View all Arbitration Bill [HL] 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 7-I Marshalled list for Special Public Bill Committee - (25 Mar 2024)
Lord Bellamy
Member’s explanatory statement
This amendment does not change the effect of the provision, and follows comments from respondents to the Committee’s call for evidence that the omitted words are unnecessary and cause confusion.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, in moving Amendment 1 to Clause 1, I extend my thanks and appreciation first to the Law Commission for all the work that has gone into the preparation of this Bill and secondly to the many stakeholders who submitted evidence to the Special Public Bill Committee, as well as all those who have assisted us throughout this Committee process. Although the submissions have been most carefully considered, in the event the Bill is little changed from the version submitted and prepared by the Law Commission.
None the less, the process has been, in the Government’s view, most valuable. We have thoroughly reviewed the Arbitration Act 1996, which has provided our arbitral framework for some quarter of a century and has underpinned the foremost position that we enjoy as a destination for international arbitration. I hope that the Committee and all concerned will accept that we now have a thorough review of the 1996 Act, which is a most important advance in maintaining an up-to-date and effective procedure for arbitration, especially international arbitration, in this country.
Clause 1 provides certainty beyond doubt that the law governing the arbitration agreement will be the law of the seat, unless the parties expressly agree otherwise. By inserted Section 6A(2), any law chosen to govern the main contract does not count as an express choice of law to govern the arbitration agreement. In the Government’s view, that is a much clearer approach than that provided by the common law, notably through the Supreme Court’s decision in Enka v Chubb.
Members of the Committee will be aware that there has been thoughtful input from stakeholders to the Committee on whether the default rule in Clause 1 should be further improved on. Subject to one change, and having carefully considered those views, the Government’s position is that Clause 1 should not be further amended. The Law Commission’s policy was to reverse the decision in Enka v Chubb but not go further than that. The Law Commission’s draft, which was widely consulted on, seeks to balance the views of the sector while not being overly prescriptive.
The Government support preserving Clause 1 as it is, subject to one change, which is the subject of Amendment 1. Amendment 1 will remove the words “of itself” from new Section 6A(2), following observations that those words were likely to cause undue confusion, a point first raised at Second Reading by the noble and learned Lord, Lord Hope of Craighead, and other noble Lords and further supported by stakeholders’ evidence to the Committee. Amendment 1 deletes those words and, subject to that amendment, I hope noble Lords will agree that Clause 1, as amended, should stand part of the Bill. I beg to move.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will briefly make a few observations. First, I thank the clerk of the Committee, who has been invaluable to us all and extremely diligent in the work that he has done. One will have the opportunity no doubt to thank him again at a further stage of the Bill, but I wanted to put that on record. I thank the Committee Members, some of whom are absolutely expert in the law and some who found this an amusing and, I hope, interesting excursion into an important part of our law. I am also deeply grateful to the Minister and his private office for the assistance that they have given us.
The people who deserve the most thanks, however, are those—I prefer not to use the modern term “stakeholders”, because I do not think that it is an accurate description—who came to give evidence to us, who are expert in this highly technical area of the law. They gave us of their wisdom and their experience—not only practitioners, but those who ran the important institutions of arbitration and those who used it. We are immensely grateful for their diligence.
As the Minister said, this is an important Bill for arbitration. Having seen the achievement of the 1996 Act, particularly the work of Lord Mustill, Lord Steyn and Lord Saville in producing a readable document for those whose first language is not English, we have not been complacent. We have grasped the need for change and faced up to the increasingly severe competition for this desirable legal and dispute resolution business. It has been particularly helpful to have had the input of the judges on at least one of the clauses in ensuring that we keep up with the tradition of expert judicial input into this highly technical area of the law. I also thank Professor Sarah Green and her team for their work. Although, as will become apparent, we have concentrated on one or two points, the vast bulk did not need any review by us or the experts who assisted us.
The first of those issues that we have to consider today relates to this amendment. Although other forms of wording were suggested, there cannot be any doubt as to the intention of Parliament. I hope that, if this matter is ever litigated in the future—and I hope that that never arises—there will not be the kind of misunderstanding that occurred in the course of the judgments in Enka about Parliament’s intention.
I want to raise one point. The Law Commission was not adverted to the issue in respect of arbitrations under treaties. This was raised with us at a time, unfortunately, when we had completed the taking of evidence. I still think that there is a difficult issue that needs to be confronted and I hope that, between now and Report, it can be. I am not persuaded at present that this is not an issue that needs addressing. However, as it came up at a late stage, and as the Bill needs to be progressed as soon as possible, it is something to which we can return on Report after those concerned in government have had a chance to take advice from experts in this area—they are simply not “stakeholders”, which is a term that I find discourteous, although I am sure that the Minister intended no discourtesy to people who spend their lives in this kind of business and who in this area are far more expert than the Law Commission itself.
Lord Marks of Henley-on-Thames (LD)
My Lords, I want to add to what the noble and learned Lord, Lord Thomas, has just said, and I add my thanks to everyone that he thanked. I express the deep gratitude of the Members of the Committee that he so ably led for his chairmanship throughout, his inspired leadership, his understanding of difficult issues and, perhaps even more important, his ability to explain difficult issues that challenged the experts—that is, witnesses, those who were listening to the Committee and those Members of the Committee who are not lawyers. We are all grateful to the noble and learned Lord. We are also grateful to the clerk, who kept us well-informed throughout, to the Law Commission for its work and to Professor Green in particular.
I shall say a word or two about the witnesses. We heard from many witnesses and read the written evidence of many more. The degree to which, although there were disagreements, they were conducted and expressed carefully and with regard to the opinions of others was notable. In particular, I and others were grateful to the witnesses who gave evidence orally —I too prefer “witnesses” as a word to “stakeholders” in this context, and “experts” also—for their engagement with our questioning and, in the case of the amendments today, for effectively achieving unanimity on the need for the amendments that were discussed.
I shall say a word or two about Amendment 1. It was, and I think is, common ground that Enka and Chubb left the law on the choice of arbitration law in an unsatisfactory and unclear state. The Bill as originally proposed included the words “of itself”. To put this on the record, without the amendment new Section 6A(2) would have read: “For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement”. For the lawyers among us, that raised a red flag, or rather rang a bell signalling danger. The words “of itself” suggested that if there were more then there might be such an express agreement, because of the agreement between the parties that a particular law applied to the agreement. In our view, the deletion of the words “of itself” subtracts nothing and adds clarity. For that reason, we support that deletion and this amendment entirely.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I too thank the noble and learned Lord, Lord Thomas. I have indeed had an amusing and interesting excursion into the world of arbitration. I sit on this Committee as a layman and it has been interesting to hear through various submissions the expert views of so many of the witnesses. I thank Mr Topping for his support to me and other members of the Labour Party who have taken part in this short Bill.
To round up on the Bill, the single most important message that I got through the whole process was the need for the arbitration process to be up to date and effective and to maintain its competitive advantage in the international arena. I know from my previous business experience that it is a competitive world and that other jurisdictions are developing fast. I understand the necessity for this Bill and am glad that the House has dealt with it expeditiously. I hope and expect that this will be to the benefit of the arbitration process. Having said that, I thank our Chairman and the Minister for the way in which this Bill has been handled within the House.
Lord Bellamy (Con)
My Lords, I again associate myself and the Government with the thanks to everyone that have been enunciated this morning, particularly to the noble and learned Lord, Lord Thomas, for his chairmanship of the Committee. One point that arises from the remarks that have been made is the question that was raised by the noble and learned Lord, Lord Thomas, about the bilateral investment treaty. This was not raised during the Law Commission consultations, the written submissions that the Committee received or the oral evidence. It was raised after the 28-day period for taking evidence was completed. However, the Government are now seized of the point, are reflecting carefully on it and will provide an update as soon as they are in a position to take a view on what should happen next.
Lord Thomas of Cwmgiedd (CB)
My Lords, may I say how grateful I am to the Minister for his last remarks? It is a misfortune in the experience of those who are lawyers that sometimes someone only sees a point at the very last minute. It is not unusual and no one is to be criticised for it, but once a point is seen it must be put to rest. I look forward to what the Minister has to say, but I am deeply grateful for his further consideration of the matter.
Lord Mendelsohn
“Amendment to the Arbitration Act 1996 (General Principles)In Section 1 of the Arbitration Act 1996, after paragraph (c) insert—“(d) an arbitration tribunal must not purport to exceed its jurisdiction in accordance with the Act and, in particular, must not make decisions that impact, or purport to impact, on the legal rights or obligations of the parties, or of any persons connected to them.””Member’s explanatory statement
This amendment seeks to establish as an over-arching statutory principle that arbitral tribunals must confine themselves to resolving disputes that are proper subjects for arbitration and must not purport to make judgments or orders about other matters.
Lord Mendelsohn (Lab)
My Lords, I am grateful for the opportunity to place this amendment before this Special Public Bill Committee. I am not highly experienced with such hybrid procedures and so, while I hope that your Lordships will guide me, you will be pleased to hear that I will also use brevity. I record my thanks and gratitude to the clerk and the noble Lord, Lord Ponsonby, for their help and guidance on this amendment.
This review of the Arbitration Act 1996 builds on its success. The UK has become a global centre of excellence and the proposed amendments to the existing arrangements are sensible and will help to strengthen this position. This amendment seeks to establish as an overarching statutory principle that the arbitral tribunals must confine themselves to resolving disputes that are proper subjects for arbitration and must not purport to make judgments or orders about other matters. It is enormously important that people who take an issue to arbitration do not find their rights affected by the system purporting to go outside the specific dispute between the parties and to resolve other legal rights or to interfere with the operation of statutes.
Even more importantly, arbitral tribunals must not purport to make orders that affect the rights of persons other than the parties to the dispute, such as family members. I will illustrate this point by means of an example. In certain parts of the Orthodox Jewish community there has developed a practice of parties to a divorce being encouraged, or even pressurised, by the religious court—or, as it is known, the Beth Din —handling the ritual side of the divorce to submit to the jurisdiction of the Beth Din by way of arbitration in relation to their financial affairs, and usually to vary a family court-agreed settlement. That in itself is questionable, as the Beth Din is not best placed to adjudicate on these matters, particularly because it has regularly been used as a way of allowing the delivery of the Jewish divorce, or “get”, as it is known, by the man to become a bargaining chip in the wider financial issues between the parties, and there is no provision in religious law for involvement in such issues during the ritual of divorce.
The process becomes particularly objectionable when issues such as access to children, which are not within the range of matters that an arbitral tribunal should be looking at in any event, are brought into consideration, leading to the parties asking the courts to agree to a consent order that risks allowing the children’s welfare, which should be the paramount consideration, being subordinated to the demands of the husband in relation to delivery of the get—in effect, allowing a recalcitrant husband to blackmail children out of their statutory protections.
This is just one example of ways in which religious or other arbitral tribunals may purport to exceed their jurisdiction. I hope the Minister will be able to confirm from the Dispatch Box today that it is a fundamental principle of the law of arbitration that arbitral tribunals should confine themselves strictly to the financial dispute between the parties and not make orders about, or allow themselves to be influenced by, other matters.
Lord Bellamy (Con)
My Lords, I thank the noble Lord for his amendment and his remarks. The Government are entirely clear that arbitration tribunals should confine themselves to their jurisdiction and to matters properly subject to that arbitration. That is clear from the Arbitration Act 1996 itself, which provides a regime for the court to control the exercise by the arbitration tribunal of its jurisdiction. I do not think I need to run through the various sections of the Act, but it is perfectly plain that it is a fundamental principle of the Arbitration Act that arbitral tribunals should not exceed their jurisdiction. The Government take that obligation extremely seriously.
I confirm at the Dispatch Box, as the noble Lord requested, that the Government’s view is that arbitration tribunals should confine themselves strictly to the matters subject to the arbitration. That is a most important and serious obligation that must be strictly observed. If there is evidence that that principle is not being observed, any such information should be drawn to public attention. I hope that, with those assurances, the noble Lord will not feel it necessary to press his amendment.
Lord Mendelsohn (Lab)
I thank the Minister for that assurance and beg leave to withdraw the amendment.
Lord Bellamy
Member's explanatory statement
This amendment provides that court rules within subsection (3C) restricting the raising of new grounds for objection, the consideration of new evidence or the rehearing of evidence must provide that the restriction is subject to the court ruling otherwise in the interests of justice.
Lord Bellamy (Con)
My Lords, I shall also speak to Amendments 4 to 7 to Clause 11, which, effectively, enables certain procedural reforms to take place in procedures under Section 67 of the Arbitration Act 1996, where a party challenges an arbitral award before the court on the basis that the tribunal had no jurisdiction. The current approach to these challenges, following the Supreme Court’s decision in Dallah v Pakistan, is that these challenges are by way of a full rehearing.
Clause 11 now amends Section 67 to confer a power for rules of court to allow the court to function in what may be described in a more proportionate way when it comes to consider cases under Section 67. In particular, rules of court will be able to provide that there should be no new grounds of objection and no new evidence before the court unless it was not reasonably possible to put these before the tribunal, and evidence should not be reheard by the court.
Regarding the amendments to Clause 11, as originally drafted, new subsection (3C)(c) was subject to the overriding “interests of justice”. The purpose of the amendments is essentially to provide that the concept of everything being subject to the interests of justice should be an overriding provision for all the paragraphs in new subsection (3C), not just the last one. Amendment 3 applies the saving, subject to the court ruling otherwise in the interests of justice, to all the court rules under new subsection (3C) which previously applied only to new subsection (3C)(c). Amendment 6 is consequential on that amendment.
Amendment 4 deals with a slightly different and technical point. It clarifies that the evidence mentioned in new subsection (3B)(b), on consideration of evidence not put before the tribunal, includes written evidence as well as oral evidence. The current drafting is not as clear as it should be because it uses the word “heard”, and it is not always clear that written evidence is evidence that is heard. This is a technical amendment that simply provides that the relevant provision applies to both written and oral evidence.
Amendment 7 adds language, in new subsection (3D), which makes clear that Clause 11 is not intended to and does not limit the generality of the power to make rules of court.
I hope those are relatively straightforward amendments that meet various points raised during the processes of the committee. I beg to move.
Lord Thomas of Cwmgiedd (CB)
My Lords, I warmly support the amendments and I thank the Minister for bringing them forward. I commend parliamentary counsel on the elegance with which they have drafted the short amendments needed.
This is by far the most important matter before the Committee because it has been a fundamental principle of arbitration law in England, Wales, Northern Ireland —I leave out Scotland, which in this respect has gone its own way—and a large number of other jurisdictions for the court to determine whether an arbitration tribunal has jurisdiction. Although the arbitration tribunal may reach its own view on jurisdiction, only a court that is competent may decide whether the tribunal in fact had jurisdiction. It is sometimes said—a little brutally, perhaps, but with complete accuracy—that a tribunal cannot pull itself up by its own bootstraps. The clearest expression of that principle was set out by the noble and learned Lord, Lord Mance, in his judgment in Dallah.
It is important that we have made two things clear with this amendment. First, when the matter comes before the court, it is not an appeal but a completely de novo review of the position and a determination. In that connection, it is clear from what we heard from the experts who appeared before us that the commercial court has shown considerable skill in balancing the fundamental nature of the jurisdiction of the court with the fact that the parties may have spent a lot of time exploring this issue before the arbitrator. Therefore, what has come out in the amendments to this clause is a proper and true expression of the position. I am particularly grateful to Mr Justice Foxton and Mr Justice Henshaw for explaining that to us with the clarity necessary to put this clause into language that leaves the position beyond doubt.
I am also grateful for the elegant drafting suggestion to make it clear that, first, the interests of justice must always prevail and, secondly, the rules committee’s powers are not fettered. Experience has shown that it is much better to leave the rules committee with a balancing exercise and a degree of discretion, rather than trying to prescribe that in advance. It has always been the common law’s tradition to approach matters in this way and it was a mistake to try to circumscribe that, particularly given the success of the courts in this matter. I warmly support the amendments and am grateful for the elegance with which they have been produced.
Lord Marks of Henley-on-Thames (LD)
My Lords, I agree with everything that the noble and learned Lord, Lord Thomas, has said. I have one or two small points to add. The first concerns his allusion to the need to be clear. We heard earlier from him and the noble Lord, Lord Ponsonby, about how important the Bill is to maintaining our competitive position in international circles in the field of arbitration. It is in that context that clarity is crucial.
When potential parties to arbitration determine where they are going to have the arbitration, which law will apply and all those questions, clarity is to be highly valued. In that context, it seemed to me, to the committee and to all the experts who gave evidence to us that it should be clear that the court would remain the ultimate arbiter of the arbitral tribunal’s jurisdiction. That was part of the need for these amendments.
To deal with the point about rules of court first, and slightly out of order, the potential problem with the Bill as drawn was that new subsections (3B) and (3C) of the new Section 67, which provided for rules of court, could have appeared too prescriptive. They could have made it look as though that is what the rules of court will say, and that would have two damaging effects. First, it could have been seen to limit the power of the rules committee to set up fair rules in the first place.
Another point that certainly seems important to me is that the rules committee has always had the power to change and adapt rules in the light of experience. If the statute governing the powers of the rules committee looks too prescriptive, that power to change and adapt could be threatened. An amendment along the lines of Minister’s Amendment 7, making it clear that the power of the rules committee would not be limited, is therefore very desirable.
The other point that the noble and learned Lord has made is that there should always be the power for, and indeed an obligation on, the court to act in accordance with the interest of justice. The committee felt, and I feel, that where the interests of justice were mentioned only in new subsection (3C)(c), that suggested that it would not be applicable to new subsection (3C)(a) and (b). The overriding provision in Amendment 3 that
“subject to the court ruling otherwise in the interests of justice”
applies to all three paragraphs was extremely desirable. It also seems important that that renders the clause as a whole entirely consistent with the overriding objective to deal with cases justly by making it clear that that applies consistently with the subsection as drafted and adds to the clarity for those coming to this legislation afresh and determining whether English law will retain its pre-eminent position in the world of arbitration.
Lord Bellamy (Con)
My Lords, I thank noble Lords for their support for these amendments, which I commend to the Committee.
Lord Bellamy
Member's explanatory statement
This amendment makes clear that the evidence mentioned in subsection (3C)(b) includes written evidence as well as oral evidence.
Member's explanatory statement
This amendment is consequential on Lord Bellamy’s earlier amendment to Clause 11, page 6, line 35.
Member's explanatory statement
This amendment is consequential on Lord Bellamy’s amendment to Clause 11, page 6, line 29.
“(3D) Subsection (3B) does not limit the generality of the power to make rules of court.””Member's explanatory statement
This amendment makes clear that the general power to make rules of court is not limited as a result of the provision about court rules being inserted into section 67 of the Arbitration Act 1996 by Clause 11.
Lord Thomas of Cwmgiedd (CB)
This clause seeks to remove the special provisions in relation to domestic arbitration from the Act, and it is entirely right to do so. However, it gives rise to a question that needs to be addressed, particularly because the broad powers of the court are being removed in respect of domestic arbitration. It is therefore opportune to use this occasion to raise the issue that has come before us. It was raised at Second Reading in relation to the problems of fraud, corruption and other related issues in arbitration.
We were greatly assisted by the evidence that we received on this in the light of two recent decisions: that of Mr Justice Knowles in The Federal Republic of Nigeria v Process & Industrial Developments Ltd, which has won worldwide praise; and that of Mr Justice Butcher in Contax Partners Inc BVI v Kuwait Finance House, where he was asked to enforce an award that was completely fabricated.
My own experience means that I would be extremely surprised if this was an extensive problem, but there may be others who take the view that there is a little more to this. Whatever the view, this issue really has to be examined. We are particularly grateful to what Spotlight on Corruption told us in two submissions; they are valuable papers that deserve close scrutiny. The organisation highlighted the problems by reference to some other cases and put forward some solutions. What is important from the point of view of London, and indeed the rest of the UK, is that it drew attention to the position of other states, included information about important international arbitration centres such as Singapore and Sweden, and the work being done by the ICC task force.
We cannot afford to be complacent about this issue. Plainly, it was not examined by the Law Commission and cannot therefore be gone into in the Bill, but there are issues. How do we mitigate the risk that has been seen to arise? What, if any, duties ought to be imposed on arbitrators? These are extremely difficult questions and I hope this is a matter that His Majesty’s Government will consider.
My only suggestion is that this might be best done through the way in which arbitration law was originally brought up to date in this country: a departmental committee. That brings the practical expertise of people who really are involved in this, and the Government would have the benefit of it costing nothing because the private sector is always happy to help on such matters. I hope consideration will be given to this. That is merely a suggestion as to how it should be done, but it really is something that I believe should be.
The second issue that I want to raise is the way that the Special Public Bill Committee works. It has worked well in this Bill, and in another where I had the honour of chairing the committee, but there are three points that it would be useful to examine. The first is the period of time that the committee has to review the evidence. It is extremely discourteous when the Law Commission has taken, say, two years to review a subject if we tell all the people who want to say something that they have 14 days in which to do so. That does not seem an entirely fair balance. I am not saying we should veer away from 28 days, but we ought to be allowed to have a pause to give people time—not what the Government give people and are criticised for, which is six weeks, but, say, three weeks. We should be slightly more generous in our timetable. That would enable us to focus, see what people are concerned about and get witnesses to come without disrupting the lives of busy people.
Secondly, in these technical areas—some highly technical areas are coming along the road as we move to the greater use of digitalisation and artificial intelligence and the effect this has on legal matters—we have to get right the time at which detailed technical expertise is brought to bear. It is sometimes a mistake to see these areas of the law as being a bit like the rest of it. This Bill and the one relating to digital documentation are highly technical, and it is a question of getting expert help at the right stage before the Committee meets.
Thirdly, there ought to be greater clarity about what a Special Public Bill Committee can do by way of looking at the scope of a Bill, what is in it and what is and is not policy without in any way imperilling a procedure that enables us to get Bills on to the statute book quickly. We now have some experience of these Bills. Given the important question of getting our law right on adjustments that have to be made to face the age of digitalisation and artificial intelligence, it might be wise to have a rethink about the precise way in which this procedure works. It has not caused a problem due to the Minister’s helpful attitude towards this whole process, for which I am most grateful, but I foresee that there could be difficulties if we do not think of the problems that have arisen before more come down the line, which will be vital to the prosperity of the United Kingdom.
Having made those remarks, I do not wish to press my opposition to the incorporation of Clause 15 any further. In fact, I wholly welcome that clause as bringing about a much-needed improvement to the law.
Lord Bellamy (Con)
My Lords, in view of the noble and learned Lord’s indication that he is not pressing for the removal of these clauses—which, incidentally, have never been brought into effect—I will say a word or two about the important underlying issue that he raised about corruption. This was raised in the Nigeria and Kuwait cases that he referred to. Those cases revealed that there had been serious issues of corruption in the conduct of the arbitrations, and it is greatly to the credit of the Commercial Court of England and Wales that that was properly exposed and that, in the end, the system was seen to work well.
However, it is important that arbitrators navigating complex cross-border disputes are equipped and empowered to safeguard their process against any misuse or abuse and that everyone perceives our jurisdiction as one that facilitates clean and robust arbitration and is not tainted in any way by corruption. Certainly, it has been most important for the committee to have received evidence about that.
On that issue, I am aware that the ICC Commission on Arbitration and ADR has commissioned a task force
“to explore current approaches to allegations or signs of corruption in disputes and to articulate guidance for arbitral tribunals on how to deal with such occurrences”.
I have written to the principal arbitral institutions seeking their assistance in this matter: the Chartered Institute of Arbitrators, the International Chamber of Commerce, the London Court of International Arbitration, the London Maritime Arbitrators Association and the Grain and Feed Trade Association, as well as the Law Society and the Bar Council, many of whose members will be arbitrators or acting as counsel in arbitration. I have asked in particular what measures they have in place to mitigate the risk of corruption in arbitration, whether more should be done in the sector to mitigate corruption in arbitration, the best way to proceed and how the Ministry of Justice and the Government could support the sector’s efforts. Once we have received the responses, the Government will come to a view on what further action, if any, is needed.
Those matters are in train and this is an issue that the Government take seriously, because the reputation of London is crucial. I think that reputation is intact but we cannot be too careful in this important matter. I hope that that goes some way to reassure the noble and learned Lord that this matter has been properly raised, is on the radar and that action is being taken.
The noble and learned Lord also asked about the procedures of the Special Public Bill Committee, the timelines and the framework for dealing with that matter. Those points are well taken. I think it is a matter for the House authorities rather than the Government, so no doubt the House authorities will reflect on the points that have been made. The Government will support any sensible changes to the Special Public Bill Committee procedure in due course.