Grand Committee

Wednesday 13th November 2024 Grand Committee

Wednesday 13 November 2024

Arrangement of Business

Wednesday 13th November 2024 Grand Committee

Announcement

16:15

[The Deputy Chairman of Committees (Lord Duncan of Springbank)]

My Lords, we seem to have the hard core gathered here this afternoon. The Committee knows the drill: we are not expecting any votes but, if there is one, we will suspend the sitting and dance off to the Chamber, so let us kick off.

European Forest Institute (Immunities and Privileges) Order 2024

Wednesday 13th November 2024 Grand Committee

Considered in Grand Committee

16:15

Moved by

[Baroness Chapman of Darlington]

That the Grand Committee do consider the European Forest Institute (Immunities and Privileges) Order 2024.

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)]

My Lords, copies of this order were laid before this House on 15 May 2024. The order was laid in draft before Parliament on 15 May, in accordance with the International Organisations Act 1968. It is subject to the affirmative procedure and will be made once it is approved by both Houses. The order was approved in the House of Commons on 23 October 2024.

The main legal recourse to grant privileges and immunities to international organisations with a presence in the United Kingdom is the International Organisations Act 1968, which specifies the maximum privileges and immunities that may be accorded in the UK to various categories of international organisations. The provisions of the Act are applied to different organisations by means of Orders in Council. This order will confer on the European Forest Institute, referred to as the EFI, a bespoke set of privileges and immunities to enable the organisation to function and operate effectively in the UK. It does not confer legal capacity, as this was conferred on the EFI in the European Forest Institute (Legal Capacities) Order 2005.

This order will contribute to the fostering of closer collaboration between the EFI, its members and the UK Government, and support the establishment of an EFI UK office. In addition, in granting these privileges and immunities, we will be able to host an expansion of the EFI’s international partnerships facility in the UK through the opening of a UK office. The international partnerships facility is a global centre of knowledge and expertise that supports policy and governance reforms to improve forest governance and safeguard the world’s forests.

The EFI would host a small, permanent UK-based team, as well as drawing internationally renowned expertise into the UK. With London a major hub for private sector climate finance, there are potential opportunities to bring international forest and finance experts together to foster new financial initiatives, aimed at protecting the world’s forests and tackling climate change and nature loss. The order affords the director, the head of office and EFI staff members a bespoke set of privileges and immunities which diplomatic agents of a diplomatic mission established in the UK are entitled to, including an exemption from the suit and legal process. However, no immunity is conferred in the case of a motor traffic offence or damage caused by a motor vehicle. This is now a standard clause included in statutory instruments and treaties providing for privileges and immunities.

The Government consider these privileges and immunities necessary and appropriate to deliver on the interests and commitments that the UK has towards the EFI. The privileges and immunities conferred will enable its staff to operate effectively in the UK. They are within the scope of the International Organisations Act and in line with UK precedents. The EFI’s board members, and representatives of members, are subject to “official act” immunities. These immunities cover the inviolability of official papers and documents, customs provisions and immunity from suit and legal process, within the scope of official activities. The order also covers the inviolability of the EFI premises and archives, taxes and customs rates, and an immunity waiver.

The support for the EFI’s establishment of an office in the UK is a unique opportunity to reinforce the UK’s leadership on international forests and climate policy. The UK has been involved with the EFI for over 10 years, including through the FCDO’s flagship forest governance, markets and climate programme. Together with the EFI, we have supported national processes on forest and land-use governance in 17 countries across the three tropical forest basins. The EFI is key to that work and the UK remains committed to the organisation. I beg to move.

[Lord Callanan (Con)]

My Lords, I thank the noble Baroness, Lady Chapman, for her comprehensive introduction to this subject. She will not be surprised to know that we are fully supportive of the European Forest Institute. It is a good idea for it to be based in the UK and we support the instrument that the Minister has brought before us today.

The EFI plays a pivotal role in advancing research, fostering innovation and developing evidence-based policy recommendations for the extremely important subject of sustainable forestry. As ecological degradation threatens forests worldwide, the institute has a key role to play and its work is becoming ever more vital. As the Minister said, this order seeks to grant immunities and privileges to the EFI, in line with a number of similar agreements that we have established with other international institutions—I took some of those orders through Grand Committee a matter of months ago. Immunities such as those outlined in the order are essential for allowing the EFI to operate independently, free from local administrative and judicial interference.

The UK has historically been a leader in international environmental co-operation. Supporting the EFI aligns with our commitment to combat climate change. It reflects our shared desire for forests that are productive, biodiverse and resilient against the stresses of modernity. The only question I have for the Minister is whether she has any more of these orders coming forward for other international organisations or whether this is the only one outstanding at the moment. We support this order.

[Baroness Chapman of Darlington (Lab)]

I am grateful to the noble Lord for his support. It is very good when we can agree on important issues such as this on a long-term, bipartisan basis. It is good to be able to work in this way on an issue such as forestry, especially in a week when the Prime Minister and the Foreign Secretary are at COP in Baku, where deforestation and the responsible management of forests will no doubt be discussed. I welcome the support from the Official Opposition.

Motion agreed.

Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024

Wednesday 13th November 2024 Grand Committee

Considered in Grand Committee

16:22

Moved by

[Baroness Blake of Leeds]

That the Grand Committee do consider the Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024.

[Baroness Blake of Leeds (Lab)]

My Lords, I start by thanking your Lordships for attending today’s debate on these four statutory instruments, two of which were raised as instruments of interest by the Secondary Legislation Scrutiny Committee. With the leave of the Committee, I shall, in moving this Motion, speak also to the Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024, the Securitisation (Amendment) (No. 2) Regulations 2024 and the Consumer Composite Investments (Designated Activities) Regulations 2024. The regulations that we are introducing today will ensure effective, proportionate regulation for the financial sector by laying the groundwork both for the reform of certain consumer disclosure for financial services and for effective prudential arrangements.

I turn to the consumer composite investments—CCI—instrument. The PRIIPs regulation was designed to standardise disclosure both across a wide range of more complicated financial investments and across the EU, in an attempt to improve transparency and enable comparison between products for retail investors. However, as noble Lords are aware, the regime was overly prescriptive and burdensome, with the one-size-fits-all template of the key information document—KID—resulting in the presentation of misleading information to consumers on potential risks and returns. The Government took urgent action to address the most pressing issues with the KID in the Financial Services Act 2021, and this SI delivers on the Government’s commitment to wholesale reform of these EU-inherited rules, with a new regime tailored to UK markets and firms.

This SI provides the Financial Conduct Authority with tailored rule-making and enforcement powers to deliver this long called-for reform and to ensure its effective implementation. The new regime for CCIs will have tailored and flexible rules that address the key issues with PRIIPs, and it will support investors to better understand what they are paying for. The FCA’s consultation later this year will provide an opportunity for a full range of stakeholders to provide feedback on the new regime to ensure that it works as intended.

I turn to the PRIIPs amendment SI. I have heard the concerns from industry about PRIIPs—in particular that current disclosure requirements have had unintended consequences for the investment trust sector specifically. The Government have greatly valued the contributions made by this House, particularly those of the noble Baronesses, Lady Bowles and Lady Altmann—I see that they are in their places—in bringing to our attention the impact of these rules on the sector.

Listed investment trusts are a British invention dating back 150 years, and they are unique to the United Kingdom. Representing over 30% of the FTSE 250 and predominantly investing in illiquid assets, including infrastructure projects and renewables, they play an active role in supporting the Government’s growth agenda. The Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these close-ended funds. Industry has told us that this is negatively impacting on its ability to fundraise, and its competitiveness. Therefore, this instrument will immediately exempt listed investment trusts from the current PRIIPs regulation and other relevant assimilated law, as we finalise the replacement CCI regime, delivering on a key industry ask.

Recognising that the pace of legislative reform can be slow, the FCA has already implemented regulatory forbearance so that firms are able to take advantage of this immediately, before this instrument takes effect. This approach is intended as an interim measure and, in the long term, investment trusts will be included in the scope of the CCI regime, following bespoke and tailored rules befitting the industry. I encourage all sides to come together to find a sensible solution under the future regime, once the FCA consults on new rules later this year.

The Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024 make two amendments. The first is a technical change, supporting the implementation of Basel 3.1—the final round of bank capital reforms following the global financial crisis. Bank capital rules are contained in the Capital Requirements Regulation—CRR—which is part of assimilated law on financial services. This SI will enable revocations of the CRR, allowing the Prudential Regulation Authority to replace those revoked parts in its rulebook, while ensuring that the PRA’s rule-making remains subject to appropriate accountability and scrutiny.

16:30

The second amendment will expand the definition of a recognised exchange, moving from referring only to domestic investment exchanges to include those from overseas. This will enable stocks and shares from qualifying overseas exchanges to benefit from lower capital and liquidity requirements when used as collateral to secure financial services. This will broaden our definition, making the UK comparable with international counterparts such as the EU and the US, supporting our competitiveness.

Finally, I turn to the Securitisation (Amendment) (No. 2) Regulations 2024. The SI extends a temporary arrangement allowing UK banks to treat EU securitisation products as though they originate from the UK, provided that they meet the standards of the simple, transparent and standardised framework. This means that banks and insurance firms holding such products may be able to benefit from lower capital and liquidity requirements. The current arrangement is due to expire at the end of December 2024, which would mean that no additional EU STS securitisations would be able to enter into the temporary arrangement after this date. This could impact on the range of investment options for UK market participants, so the Government are legislating to extend this arrangement to June 2026. This extension will allow UK authorities to make a more informed decision about the non-time-limited designation of EU STS securitisation products. This decision should take into consideration the recent EU securitisation regulation, adopted in June 2024. These regulations are expected to be implemented by the three EEA EFTA states over 2025. The extension granted by this instrument will ensure that a single decision can be taken with respect to the EU single market.

In closing, these SIs will empower regulators to ensure that our financial services industry is subject to a rulebook that is fit for purpose, more proportionate and tailored to UK markets. I hope that noble Lords will join me in supporting these regulations and their objectives. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I shall speak mainly to the instruments on listed investment companies. I first raised this issue in the House on 6 June last year, attempting to make an amendment during the passage of the Financial Services and Markets Bill. Perhaps history is now catching up with me. I thank the noble Lord, Lord Livermore, then on the Labour Front Bench, for grasping the economic importance of the matter, which he will appreciate even more as Financial Secretary, given the perhaps as much as £40 billion of lost investment in infrastructure, green energy and social buildings.

On one hand, I am pleased with the PRIIPs statutory instrument that was introduced in September, removing investment trusts from PRIIPs, and the cost disclosures part of the MiFID Org regulation and the accompanying FCA forbearance statements. Before I go further, I must flag that this was never about not reporting costs or not providing investors with a full suite of information on fees or all other corporate costs and charges. Investment trusts are listed companies and as such must provide all the transparency for investors that listing requires, including publishing full information in annual reports.

Unfortunately, after the September actions by the Government and FCA, the competitor industry to investment trusts, the open-ended funds and their organisation—the Investment Association—held a members’ meeting and agreed not to do what HMT expected, which has just been iterated by the Minister. They agreed that they would not accept that, at the share level—the investor-holding level—of investment trusts there are zero deductions from investment value.

Convening the meeting, and seeking member agreement, was confirmed by the CEO of the IA, Chris Cummings, at the Lords Financial Services Regulation Committee last Wednesday. Today, Ashley Alder, chair of the FCA, confirmed to the committee that there was no deduction to make from share value —I hope that everyone listened keenly. Chris Cummings further said last week that they did not want any changes to the current practice—the practice that has caused all the problems—until the FCA has completed its consultation and done all the new rules. They do not want any of the interim provisions. In another slide presented to the members’ meeting, it was shown that this could take until 2027. That is plenty of time for the misinformation to continue and to destroy the sector with which they compete.

There are other players assisting them in this anti-competitive effort, including the majority of large retail investment platforms, with the laudable exception of ii, although there may be others. Hargreaves Lansdown, which is the largest and also a member of the Investment Association as it is also a fund manager, spoke at the IA members’ meeting to explain how they—meaning itself and other platforms—would block retail investors from purchasing the shares of investment trusts that put “zero” in the costs to be deducted field of the European MiFID template, or EMT, which also generates the deduction from investment illustrations on platforms. After the meeting, Hargreaves Lansdown, Fidelity, and possibly others that I have not seen, sent out emails to fund managers and investment trust boards and commenced blocking operations for those investment trusts that dared to enter “zero”. Not surprisingly, many investment trust boards capitulated out of fear of being disconnected from the marketplace.

What happens as a result is a continuation of the bogus practice of telling investors they will lose large amounts off the share value of their investment—and guess what? They might buy an open-ended fund instead. For example, if, on the Hargreaves Lansdown site, you click on “How much will it cost?”, there are computations showing—wrongly—that on, say, a £5,000 investment over five years there will be management fee deductions, in some instances of well over £1,000, and even some causing losses. But that is not the case, because those costs are already reflected in the share price. It is very nice to force your competitors into a corner and keep them there until 2027 or longer, if you can continue to use your might, being 45 times larger than the competing sector you are colluding against.

That brings me on to the second pair of the SIs which, regrettably, have done nothing to address the shenanigans that have gone on for the last few years, or to prevent this vast open-ended fund sector using its size and might to continue to gaslight and bully investors—and even regulators—about the role that market share price plays in absorbing and reflecting the internal company costs, just as does the share price of any listed company. You buy the share; you sell the share—there are no deductions from your share price by the company. In fact, I would like to know what mechanism people think that could be done by.

The second SI continues to classify investment trusts as consumer collective investments, despite market-wide concerns expressed in consultation responses by some 340 respondents. The Treasury says that there will be special treatment, but it is not in the statutory instrument. All it has done is amend the old definition of a CCI in an admission that previously, investment trusts were not properly within the definition—all part of the old misinterpretation of “value”.

There has been no clarification of the circumstances in the market. It needs to be clear that investment trusts are financial instruments, like other shares. They should not be confused with savings products, and they are not covered by the Financial Services Compensation Scheme. They must be given all the recognition that derives from being a listed company, with market-set share price which is the value. Is that in the SI? No. Can you guarantee that the FCA will get it right? No. The CEO has made incorrect statements that investment trusts are savings products and muddled that costs are not zero, clearly referencing net asset value, which is not what you hold.

I am sorry to say that this SI is a poor example of what we expected when the future financial framework was proposed and consulted upon. We were promised policy guidance in the statutory instruments, and it is not here, even when there have been the direst circumstances that require it and a massive consultation response in favour of it. All that has been set aside, with nothing to show in the legislation. The only policy is saying they are still a CCI, which, after all that has gone before, is not adequate policy guidance. If you want to know what the right kind of guidance might look like, I suggest referring to my own Private Member’s Bill, which we will be discussing on Friday. I am afraid that the job is not yet done.

[Baroness Altmann (Non-Afl)]

My Lords, I too would like to address the statutory instruments relating to the PRIIPs and to the consumer composite investments. I am very grateful to the Government for laying these statutory instruments. I would also like to thank the Treasury and the Financial Conduct Authority for the statements they issued in September, and the FCA for its first set of forbearance and its subsequent additional emergency forbearance.

However, like the noble Baroness, Lady Bowles, it appears to me that, despite the clear intentions of the Government and the Financial Conduct Authority, as expressed particularly in the PRIIPs statutory instrument, some parts of the industry are not willing to accept what the Government believe and the FCA have clearly indicated is the right position. That is a particular concern to me.

The Minister rightly pointed out that the aim is to improve transparency and enable comparison between products for investors. The whole point of cost disclosures has always been to help consumers and investors—whether they are retailers, small institutions or others—understand what they are going to be paying for any investment product they buy. We know that, in the past, many of these costs were hidden. As the Minister said, investors need to better understand what they are paying for the product they buy. It needs to be accurately reflected to them, so they know the actual cost of the investments they are considering making or that they are holding.

16:45

More than 30% of the FTSE is at risk here, and there is potential detriment, which it is estimated has already materialised to the extent of many tens of billions of pounds, to the Government’s desire to support long-term growth and, particularly, sustainable growth. Anything undermining investment in this sector is of significant national consequence, and that is why the Government rightly issued their emergency forbearance. These statutory instruments contain elements of what we were trying to achieve with my Private Member’s Bill, which was supported from all sides of the House, including by the Minister’s Front Bench and fellow Ministers.

That is why we need to take the time and the opportunity, as these statutory instruments are coming before the Committee today, to register the deep concerns and to ask the Minister whether she will meet us and look carefully at what is going on in the marketplace, which looks very much like a collective effort to prevent the Government achieving the agenda they are aiming for and to maintain the position that the Government have already said is unacceptable for as long as possible.

The wording of the statutory instrument intends the UK listed, closed-ended investment company sector to,

“no longer be required to … report, the costs of manufacturing or managing shares”,

in these investment companies. Of course, they need to report them in their reports and accounts, and they do. They can also report them elsewhere, but they should not be reported as ongoing investor costs because they are not.

The instrument, according to the documents in front of us, therefore represents an immediate change in policy to address the concerns about the misleading cost disclosures that have resulted in massive selling and an inability to raise new capital. Sadly, what we have seen—notwithstanding the September report from the Capital Markets Industry Taskforce that specifically highlighted that the Government need to do what they have now done in terms of issuing urgent legislation, clarification and immediate transitional forbearance to stop the disclosure of costs that consumers do not bear as if they do bear them—is wording being used by retail investment platforms to justify banning some investment trusts from their platforms if those investment trusts wish to follow exactly what these instruments, particularly the PRIIPS one which is meant to be immediate, require and wish to see happening. It is quite interesting. It was said, for example,

“We want to ensure retail investors understand the cost of investing so that they can make an informed decision between two investment trusts, or indeed a fund and an investment trust.”

In an email, it was said:

“We expect the EMT”—

that is the industry cost disclosure template that is used to feed the retail platform’s information to its own clients—

“to still include a reasonable representation of the ongoing costs of managing the trust. We do not expect … ongoing cost figures to be zero … Where the charges are updated to zero, we would prevent clients placing further investments into the trust.”

In other words, if these trusts do not enter a figure that they know is not correct and that the FCA has already claimed is not correct, they will not get any investment from the retail platforms.

I believe that in this case the Government and, I hope, the regulator will urgently call in these retail platforms or meet representatives from this House and affected companies to work out how to overcome the intransigence and resistance that cannot be justified by consumer interest but only by some kind of self-interest on the part of those platforms to maintain a position that has become indefensible. However, as they are all doing it, they seem able to browbeat the investment trust sector into kowtowing to something that everybody other than those who do not wish to see it can see is not correct.

I hope that these statutory instruments will be the start. We do not want them not to go through, but it is clear that, given that the industry is seeking to undermine their intent, stronger wording and a more careful assessment of what is happening in the market might be required to achieve what the Government rightly want to achieve, which is more investment in the British success story, which is listed UK investment trusts. They are a much lower risk and diversified way for investors to invest in a portfolio of sustainable growth or other investments. That requires retail investor platforms not to tell investors that they pay costs that they do not pay but to inform them properly in line with the consumer duty that when they are looking to buy these companies, they need to look at much more important factors, such as whether they are at a discount or a premium and whether the type of investment they are investing in is what they wish.

I apologise for taking up the time of the Committee this afternoon, but this is so serious, and it is difficult to know how to get across to a Government and Ministers who have already done what should have been done that this is not working on the ground. There is an urgency to this, which the Government recognise but the industry is refusing to comply with.

[The Earl of Effingham (Con)]

My Lords, I thank the Minister for bringing these statutory instruments before the Committee. I refer noble Lords to my entry in the register of interests. Some of these instruments were developed by the previous Government and some by the current Government. We welcome these measures. Together, they form part of His Majesty’s Treasury’s programme to deliver a smarter regulatory framework for financial services.

The first set of regulations governs packaged retail and insurance-based investment products, known as PRIIPs. This legislation concerns the vital area of retail investment disclosure, which is of great importance to not only the financial sector but everyday British people seeking to secure their financial futures.

The second set of regulations clarifies the interpretation of capital requirements regulation rules and adjusts the criteria for recognised exchanges. This change is essential, as it seeks to ensure that our prudential regulation, particularly in the light of evolving international standards, remains finely tuned to support our unique market parameters.

The third set of regulations refines the transparency, risk retention and reporting requirements for securitisation issuers. It should help bolster investor confidence and market stability, which we all desire. Securitisation, which packages assets together for sale to investors, plays a key role in supporting credit availability and economic growth.

Finally, the fourth set of regulations introduces new standards for consumer composite investment products—those that pull together multiple asset types such as stocks, bonds and other investments. This measure is a prudent step towards fostering trust and accessibility in the UK’s retail investment market.

Although His Majesty’s Official Opposition welcome these changes, we are conscious that we must be careful to avoid overregulation, which could stifle market participation and limit access to credit. Which key stakeholders in the industries affected by these changes have been consulted? In particular, what feedback have banks and insurance companies provided?

We on these Benches really want to see a marketplace that is both free and fair. We believe that consumers deserve clear, accurate and accessible information that empowers them to make informed choices and educated decisions. It is with this principle in mind that we approach these regulations.

[Baroness Blake of Leeds (Lab)]

My Lords, I thank all noble Lords for their contributions on these important SIs. I again emphasise that they represent an important step in ensuring that our approach to regulation of financial services is effective, proportionate and tailored to the UK.

I will pick up on some of the specific points raised. The noble Baroness, Lady Bowles, expressed concern about the FCA consultation. The FCA will consult on its proposals for the new CCI regime by the end of this year, as we have said; we look forward to its final rules being published in the first half of 2025. This will provide an opportunity for stakeholders to provide the necessary feedback on the new regime to ensure that it works as intended. Firms will transition to providing disclosure under the new CCI regime following an appropriate transition period, which the FCA will set out in due course.

Following on from that, I turn to why we are talking about investment trusts and not just shares. As we know, like open-ended funds but unlike other shares, investment trusts have an active investment strategy and associated fees. It is right that these costs should be disclosed to retail investors through tailored disclosure. Nevertheless, the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these closed-end funds. The proposed new CCI regime will provide more useful and relevant disclosure to retail investors, as well as more flexibility to tailor disclosure to clients, and will be less burdensome for firms to produce.

In response to the noble Baroness, Lady Bowles, on why investment trusts do not have zero costs, the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these closed-end funds. Nevertheless, it is right that investment trusts, like other products that directly market to retail investors, must provide tailored disclosure on costs, risks and performance for retail investors. This SI gives the FCA the rule-making powers to design a new regime, in consultation with industry, that works for firms and investors.

On why firms are not implementing forbearance now, I say to the noble Baronesses, Lady Bowles and Lady Altmann, that this SI gives legislative certainty to firms ahead of the implementation of the new CCI regime. Although I recognise that there may be some frustrations in the sector, as expressed, the operationalisation of the FCA’s forbearance is a matter for industry and the regulator.

17:00

[Baroness Bowles of Berkhamsted (LD)]

I recognise that the Minister is saying that, ideally, the Government and the regulator have done what they could and industry should follow. Of the two, the Government have been clearer, but we now have a standoff where the regulator says that it is industry’s business and industry says that it is the regulator’s business. Therefore, the starvation of funds from worthy causes is set to continue for at least another year. These are tens of billions of pounds going into just the kinds of things that the Government want: green energy, social housing and infrastructure.

We are talking about tens of billions of pounds—potentially more than you get from an investment summit—so it is strange that the Government are not giving a little more oomph. I imagine the Minister cannot say this straight off, but can the Government strengthen their message and say that these things should be implemented now, or at least when the statutory instrument passes at the latest? There will be no certainty for the future of the investment trust sector if all this is delayed, not actively but passively, for another year.

[Baroness Blake of Leeds (Lab)]

I hear the passion in the noble Baroness’s voice—I think we all can—and I appreciate the frustrations expressed. But, as set out and agreed by this Parliament, it is for the regulator to set detailed rules in consultation with the industry. That is the position we are in.

[Baroness Altmann (Non-Afl)]

I am sorry—I know the Minister would like to make progress, but this is a relevant point. She talked about an appropriate transition period and tailored disclosures required to disclose the costs, because these funds are marketed directly to retail investors. It is not clear to me in what manner the direct marketing occurs, so I would be grateful if she could write to me on that.

Does the Minister believe that there are actual investor costs of holding the shares in a listed investment trust, any more than there are costs of holding the shares of another company that is listed on the UK market? That is the current industry practice—to tell investors that they are charged directly for holding these company shares, which is not true. The noble Baroness, Lady Bowles, and I are trying to understand whether the Government and the regulator recognise that consumers do not have such direct costs and, therefore, recognise the importance of not telling them that they do as quickly as possible—or whether they somehow feel that this is not like another company and, even though there are not direct investor costs, the investor needs to be told that there are in some way. I am a little confused.

[Baroness Blake of Leeds (Lab)]

I thank the noble Baroness. I will write to her to lay out the answers to the questions that she raises. I refer her back to the comments I made about costs earlier in answering.

To expand slightly on where we were before, this is an important moment for everyone. It is appropriate as we move away from EU language to reflect the significant reform of the new regime, which will be tailored to UK firms and markets. We should make sure that we recognise where we are in that process. In practice, the definition of consumer composite investments is closely aligned with the EU PRIIPs. The regime will continue to apply to products where the amount repayable to the investor is subject to fluctuations because of exposure to reference values or the performance of assets not directly purchased by the investor.

[Baroness Bowles of Berkhamsted (LD)]

That is the whole problem. If you purchase investment trust shares, the price is set by the market. Obviously, the underlying investments in some way reflect up into it, but the big difference is that the market decides the value all in, just as it does for any other company.

Let us take two examples. You could buy shares in Tritax Big Box, which is an investment trust that owns property of the sort that Amazon and data centres use. It manages those properties and that comes off what the company earns. It does not go knocking on the doors of investors saying, “We have just repainted—hand over some money”, but, effectively, that is what any investor in Tritax Big Box is being told: when you buy those shares, the management costs are going to be deducted from the value of what you own. That is shown in illustrations on platforms. It is completely misleading, so it frightens investors away and we have the scenario we have. It competes against SEGRO, which is listed as an ordinary company. It owns the same kind of buildings and does the same kind of maintenance. When you go to buy SEGRO shares nobody says, “By the way, you are going to have to have deductions”, but the structures are the same. They are both listed companies. The only difference is that one lists under a different part of the listing rules than the other, but the way the costs work and what is internal to the company is exactly the same.

The definition of CCI as the amount repayable cannot be on the basis of the underlying assets. You can sell your shares only on the market. The amendment has been slightly tailored to say “shares or” to cover the point. I know it is difficult when one first comes across these things, but small semantic things make a huge difference to whether something for good is invested in or is not.

[Baroness Blake of Leeds (Lab)]

I refer to the answer that I gave earlier about costs, but I recognise the detail within the noble Baroness’s question. I commit to write to her on the detail that she raises.

On confidence, in line with the FSMA model of regulation, it is for the expert regulators to set out firm-facing rules. I absolutely agree with that. The new CCI regime will be tailored to the UK, with rules that are more proportionate to ensure that consumers have sufficient information to make informed investment decisions. The regulators remain fully accountable to Parliament and the Government for their actions. In terms of the model of regulation, the House agreed this under FSMA 2023.

Moving on, the noble Baroness, Lady Altmann, spoke about the costs presented in the European MiFID Template. The EMT is an industry-led initiative to support the sharing of key disclosure metrics across the distribution chain. It is not required by legislation. Although I recognise that there may be some frustrations in the sector, the adaptation of the EMT feed to reflect changes to disclosure requirements is a matter for the industry.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry to interrupt again. I can accept that the EMT is an industry standard; strangely, the open-ended funds sector organisation designed it. However, if the result of something that the industry does is systematically misinforming the market, surely that is a matter for the regulator to act on, rather than just saying, “Oh, it’s the industry”. The Minister just said that the regulator is accountable to the Government. If the regulator allows such misinformation to continue despite its consumer duty, is that not the point at which the Government must intervene, if the regulator is accountable to them?

[Baroness Blake of Leeds (Lab)]

At this stage in this debate, let me say that I will write to the noble Baroness to lay out the detail on her points.

Looking forward, the important thing is that all Members with an interest engage actively with the upcoming consultation—I feel as though I do not need to say this. Of course, the detail around these rules will be absolutely critical. This goes across the retail disclosure on the FCA consultation. We look forward to the detailed rules that will be published later this year. I think we all know that, last year, the previous Government consulted on the approach, receiving widespread support as a result of that consultation.

That leaves me to thank noble Lords for this informative debate. I know that further discussions on this matter in the Chamber are coming up on Friday. I look forward to seeing the content of the debate as we move forward but I hope that, at this stage, noble Lords will join me in supporting these regulations.

Motion agreed.

Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024

Wednesday 13th November 2024 Grand Committee

Securitisation (Amendment) (No. 2) Regulations 2024

Consumer Composite Investments (Designated Activities) Regulations 2024

Considered in Grand Committee

17:13

Moved by

[Baroness Blake of Leeds]

That the Grand Committee do consider the Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024, the Securitisation (Amendment) (No. 2) Regulations 2024 and the Consumer Composite Investments (Designated Activities) Regulations 2024.

Relevant document: 4th Report from the Secondary Legislation Scrutiny Committee.

Motions agreed.

Persistent Organic Pollutants (Amendment) Regulations 2024

Wednesday 13th November 2024 Grand Committee

Considered in Grand Committee

17:14

Moved by

[Baroness Hayman of Ullock]

That the Grand Committee do consider the Persistent Organic Pollutants (Amendment) Regulations 2024.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, this instrument adds three substances, UV-328, dechlorane plus and methoxychlor, to the assimilated persistent organic pollutants—or POPs—regulation in response to the adoption of these three substances as POPs under the United Nations Stockholm convention. The UK is a party to the convention and is therefore obligated to reflect in UK law the listing of POPs under the convention.

In addition, this instrument makes a number of other technical changes to the annexes of the POPs regulation. These include changes to waste concentration limits, specific exemptions and unintentional trace contaminant levels—or UTCs—for some POPs. The amendments, in brief, update and clarify the way that some articles, substances or mixtures containing some POPs can be used, manufactured, placed on the market or disposed of.

This legislative change is permitted by use of the powers available within Articles 7, 15 and 18 of the assimilated EU regulation on POPs. We have worked with the devolved Administrations on this instrument.

POPs are substances recognised as being particularly dangerous to the health of humans, wildlife and the environment. This instrument preserves and adds to the current regime for managing, restricting or eliminating POPs in the UK. Some of the regulations in this amending instrument are needed to implement the UK’s commitments under the United Nations Stockholm convention on POPs. The majority of amendments are informed by updates to the Stockholm convention and, in some cases, following updates made to the Basel Convention guidance on the management of POPs waste, and following consultation.

Let me turn now to the detail of the instrument. At the 11th meeting of the conference of the parties held last year, a decision was adopted to add three new substances called UV-328, dechlorane plus and methoxychlor to the list of substances for global elimination under the convention. This decision was communicated to parties by the UN depository in February 2024. This instrument adds these new POPs to the list of substances that are prohibited by law from being manufactured, placed on the market and used in GB.

Secondly, the instrument provides some exemptions from the prohibitions by allowing the unintentional presence of these three substances at trace levels. These limits define the concentrations at which UV-328, dechlorane plus and methoxychlor can lawfully be found in a substance, article or mixture where they are unintentionally present and found in minimal amounts. Dechlorane plus and UV-328 will also be listed alongside time-limited exemptions for their continued use in specific circumstances. These exemptions are available following agreement by the conference of the parties to the Stockholm convention.

This instrument will make a number of further changes to Annexe 1 of the POPs regulation, including the addition of a UTC level for two POPs that are already prohibited in GB. It will also make amendments to the UTC limits and specific exemptions listed for the substance PFOA, including a provision to phase out or remove exemptions which are no longer required, and tighten the requirements regarding a specific exemption for use of PFOA in PTFE micropowders.

Annexes 4 and 5 of the POPs regulation relate to the treatment of waste containing POPs. This instrument will add or update waste concentration limits for several POPs. In practice, these limits specify the concentration at which waste containing POPs must be diverted from landfill to high-temperature incineration or other appropriate disposal to ensure that the POPs content is appropriately destroyed. Importantly, this includes the introduction of a limit specifically targeted at firefighting foam mixtures containing PFOA, a substance in the PFAS group of chemicals, to ensure environmentally sound disposal of any remaining stockpiles of these foams.

This instrument will update the maximum concentration limits for a number of POPs and add decaBDE, a brominated flame retardant, to the list of PPDEs in annexe 5 of the POPs regulation. Maximum concentration limits set the threshold at which waste handlers can apply to permanently store certain wastes in designated landfill for hazardous waste or salt mines, where it can be demonstrated that destruction is not the environmentally preferred option. The instrument will also add two new European Waste Catalogue codes to the provision: one for fly ash from peat and untreated wood, and one for soil and stones.

Policy development informing this instrument was subject to a public consultation in 2023. In the public consultation, we also stated our intention to prohibit the three new substances once they were adopted for listing under the convention, to implement our international obligations. There have been various opportunities at both domestic and convention level for UK stakeholders to submit information regarding the potential prohibition of UV-328, dechlorane plus and methoxychlor, and their potential adoption for global elimination under the Stockholm convention.

A de minimis impact assessment was carried out. This concluded that there is no indication that the amendments in the instrument are expected to have an impact on businesses, beyond one-off familiarisation costs, and that this instrument is not expected to disproportionately burden small businesses.

The Environment Agency is the delivery body for the POPs regulation for England, and Natural Resources Wales and the Scottish Environment Protection Agency are the delivery bodies for Wales and Scotland respectively. They have been involved in the development of this instrument and have no concerns in relation to implementation or resources.

The territorial extent and application of this instrument is Great Britain. Under the Windsor Framework, the EU POPs regulation applies in Northern Ireland. The devolved Administrations in Wales and Scotland were engaged in the development of the instrument and have consented to it being made on a GB-wide basis.

In conclusion, I emphasise that the measures in this instrument are needed, in part, to implement requirements of the Stockholm convention by adding new POPs UV-328, dechlorane plus and methoxychlor to the list of substances that are prohibited in GB by law. Other amendments included in this instrument ensure that the POPs regulation is adapted to scientific and technical progress in our understanding and treatment of POPs. The draft regulations will allow the UK to implement the Stockholm convention requirements to prohibit, eliminate or restrict the production and use of POPs.

I hope noble Lords will support these measures and their objectives, and I commend the draft regulations to the House.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I thank the Minister for her introduction. I understand why the changes to these regulations have been brought forward, in order to take account of changes to scientific and technical progress, and to stay in line with amendments to the Stockholm Convention on Persistent Organic Pollutants. The UK is a party to this critical convention, and it is important that we ensure that the country and the public as a whole are protected from toxic substances.

The four qualifications for substances being classed as a POP are that they are persistent, toxic, bioaccumulative and subject to long-range environmental transport. This SI makes amendments to the lists of substances in annexe A of the convention. The SI lists these substances as UV 328, dechlorane plus and methoxychlor. The instrument also lists unintentional trace contaminant UTC limits for those substances, and adds two new POPs to this category which are already prohibited under the ordinary POPs regulations: hexachlorobenzene and pentachlorophenol. There are other substances named which are covered by the SI, but I readily admit that, not being a chemist or a scientist, some of the detail is outside my experience.

Paragraph 5.8 of the Explanatory Memorandum refers to certain POP waste being permanently stored in designated hazardous waste landfill or salt mines when destruction is not the environmentally preferred option, as the Minister referred to. I assume that the salt mines referred to will be depleted and never brought back into use. Can she provide reassurance on this matter?

The SI also expands the scope for three offences under the POP regulations of 2007, but neither the Explanatory Memorandum nor the SI says what the penalties for the offences are. Can the Minister provide clarification on this?

An eight-week public consultation took place from 3 March to 23 April 2023. There were 58 responses. Of those, 14—24%—were from industry associations, 16% were from large businesses of 250 or more employees, 16% were from local authorities, 9% from charities, 5% from small and micro-businesses of less than 50 employees, 3% from medium businesses of 50 to 249 employees, 2% from NGOs, 2% from a government body and 2% from a consultancy. There was also 9% from “other”. I wonder who the “other” were, as the website did not say. This is a very wide range of responses on quite a specialist area. The consultation response and the Government’s responses are very detailed and are on the website. I am therefore satisfied that those who will have to implement these regulations know what is likely to happen.

The regulations come into force 21 days after the day on which they are made, which I imagine will be one day next week. Can the Minister confirm this? This is a very specialist subject, but it is important that toxic substances receive adequate regulation. I believe the SI does this and I am happy to support it.

[Lord Roborough (Con)]

My Lords, I also thank the Minister for bringing these regulations to the Committee and for opening this debate. We wholeheartedly support the Government in their work to build on our strong track record of tackling pollution and effectively managing substances that are persistent pollutants.

These regulations amend EU regulation 2019/1021 of the European Parliament and Council on persistent organic pollutants to alter the rules for the management of certain substances under the persistent pollutant regime. It is important that the Government have the right rules in place for the management of substances that can pollute our environment over many years because they break down slowly. We welcome these regulations.

What assessment have the Government made of our pollutant regulation regime since they took office? Can the Minister confirm whether they have identified any areas of pollution where Ministers intend to change our existing regime or whether they feel that it is currently satisfactory? Can she give some idea of current trace levels of these persistent pollutants and how they compare with the limits in this instrument? Further to that, can she reassure this Committee that these new limits will ensure that none of these pollutants can be intentionally introduced in manufacturing, except for the specified products?

The Minister set out exemptions for the use of these chemicals. Can she explain why these exemptions are necessary given the awful long-term consequences of allowing any production of these chemicals and compounds? Finally, what steps are the Government taking to monitor the levels of “forever chemicals” in our environment to ensure that these levels are within a safe range?

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Lord, Lord Roborough, and the noble Baroness, Lady Bakewell of Hardington Mandeville, for their support for this SI. It is very much appreciated. This was a small but perfectly formed debate on something complex but nevertheless important, because these draft regulations ensure that existing legal provisions for the prohibition and restriction of the manufacture, placing on the market and use of POPs will be extended to the new substances, and they also amend the annexes.

17:30

PFAS chemicals were recently raised as part of debates on the Water (Special Measures Bill)—the noble Lord, Lord Roborough, referred to this. I recognise the concerns, particularly about PFAS. I know that the Rivers Trust did a good but concerning report on this earlier in the year—that was launched here in the House of Lords, and I went to it. There is currently a lot of research on PFAS to improve our understanding. We are also looking at whether we should restrict PFAS in firefighting foams, as well as further restrictions for consumer and industrial uses. The instrument includes the introduction of a limit specifically targeted at PFOA, which is a type of PFAS in those foams. This will be designed to ensure environmentally sound disposal of any remaining stockpiles of these foams. Quite a lot of work is going on PFAS because we are very much aware of the problems in that area.

On chemicals included in the EIP, the Government have launched a rapid review to look at the legally binding targets within the environmental improvement plan, including how we accelerate progress to hit our international commitments of protecting 30% of the UK’s land and sea by 2030—the 30 by 30 target. So that is one thing that we are looking at, and we will use that as an opportunity to review some of the areas raised today.

The noble Baroness, Lady Bakewell, asked about waste. As I said, waste containing POPs above the specified waste concentration limits must be diverted from landfill or recycling because it is important that they are destroyed—for example, through high-temperature incineration. The noble Baroness asked about salt mines in particular. I probably need to get back to her on that and her question about penalties. I have not got the detail on salt mines in front of me, and there is a range of options for penalties, so it might be helpful to lay that out in a letter to the noble Baroness and share it with the noble Lord, Lord Roborough. Have I missed anything? It was such a short debate.

[Lord Roborough (Con)]

Has the Minister any more information on trace limits as a result of historic manufacturing of these persistent pollutants, compared to the limits in the instruments? That would be interesting and I completely understand if that might need a letter rather than an answer now.

[Baroness Hayman of Ullock (Lab)]

That is an extremely important point, and it is probably part of the research currently being carried out in this sphere. I will check and we will get back to anyone with any outstanding questions.

Motion agreed.

Environmental Protection (Single-use Vapes) (England) Regulations 2024

Wednesday 13th November 2024 Grand Committee

Considered in Grand Committee

17:33

Moved by

[Baroness Hayman of Ullock]

That the Grand Committee do consider the Environmental Protection (Single-use Vapes) (England) Regulations 2024.

Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee (Special attention drawn to the instrument).

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, it is estimated that more than 360 million single-use vapes were placed on the UK market in 2023. These devices are designed to be used a small number of times and are often referred to as disposable. Once used, which may be after a matter of hours, they are commonly thrown away. Research by Material Focus estimates that 5 million single-use vapes are thrown away every week. That is equivalent to eight per second.

They are often littered. They blight our parks, playgrounds and streets, and they introduce plastics, nicotine salts, heavy metals and lithium-ion batteries into the environment, harming biodiversity, soils, and our rivers and streams. Alternatively, they are thrown into black bins where, at best, they end up in landfill or are incinerated—at worst, they cause fires when they are crushed in bin lorries.

Last year, it was estimated that 700 waste fires were caused by batteries hidden in electricals such as vapes. This generates pollution, damages waste infrastructure and risks the safety of waste management workers, firefighters and the public. To give a personal example, a friend of ours has a medium-sized haulage business, and he lost virtually all his lorries last year through a fire caused by single-use vapes, which pretty much destroyed his business. So they can do enormous damage, and it is important that we tackle this problem.

Research by Action on Smoking and Health shows that the rise in single-use vapes has happened concurrently with an increase in young people vaping. Although vapes can play an important role in smoking cessation, adults who do not smoke and children should never vape. We must do what we can to prevent children from being targeted. Without action, it is estimated that, by 2030, the number of single-use vapes placed on the UK market could rise to over 1 billion per year. We must therefore take steps to stop the misuse of resources and protect our environment.

My department is leading a drive towards a circular economy to minimise waste, prioritise circular product design and retain the value of resources for as long as possible. It is estimated that, last year, 40 tonnes of lithium from single-use vapes were thrown away. This is enough lithium to power 5,000 electric vehicles. Single-use items such as these play no role in a circular economy, so we must act now to ban the supply of single-use vapes in England.

Before I turn to details of the legislation, I acknowledge the work of the Secondary Legislation Scrutiny Committee. Its report highlighted several points of interest, particularly the links to youth vaping, which I referred to earlier, and whether we will monitor market developments following the implementation of the ban. We work closely with the Medicines and Healthcare products Regulatory Agency to understand the types of products notified for use, and we will continue to look at this in future.

The committee highlighted correspondence received from Green Alliance, which strongly supports the ban but questioned the timeline for implementation and enforcement. We want to introduce the ban as soon as possible, but we must allow a minimal but reasonable transition to allow businesses time to run down stocks and adapt activities. That is why the ban will come into force on 1 June next year. Effective enforcement is critical, and we will work closely with enforcement agencies to understand how we can best support them.

I turn to the details of the legislation. This ban is introduced through powers in the Environmental Protection Act 1990. Part 1 of the legislation sets out the meaning of a “single-use vape”, which is

“a vape which is not designed or intended to be re-used”

and which includes any vape that is not rechargeable or refillable.

The ban applies to England only, but my officials have worked closely with the devolved Governments, who are bringing in equivalent legislation. We are grateful to our colleagues in the devolved Governments for their collaboration to ensure that, from 1 June next year, there will be a UK-wide ban.

Parts 2 and 3 of the legislation introduce offences and enforcement provisions. Enforcement of the ban in England will be carried out through local trading standards officers, and the powers in the legislation have been developed in partnership with them. The regulations provide new civil and criminal sanctions and provide powers to test or seize illicit products and issue fines as well as stop or compliance notices. Where a compliance or stop notice is not complied with, a further fine or jail sentence may follow.

Lastly, Part 4 of the legislation covers requirements for guidance, as well as setting out review clauses.

Vapes can play a role in helping adults to quit smoking, but there is no reason for these products to be single use. Given the harm caused, we must take this simple but important step to ban these products.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, the Minister has set out the rationale for the introduction of this SI very clearly.

Single-use vapes are extremely popular among young people. Encouraging young people not to start smoking has to be a key aim of any Government. It is something of a rite of passage to gather with your friends for a chat and a smoke or a vape. Preventing experimentation with cigarettes is the first priority. Then, it is about encouraging young people away from vapes—especially single-use ones—when they may have switched to vaping.

I am grateful to Green Alliance for the briefing that it provided on this subject, and to the Secondary Legislation Scrutiny Committee. Since 2023, 7.7 million single-use vapes have been bought every week—twice the number in 2022. Vapes are easily discarded, causing plastic-containing litter. They also contain other hazardous substances such as nicotine, which has previously been used as a pesticide. The batteries in vapes are a potential fire risk; the Minister gave a good example of that.

Although the lithium contained in the vapes discarded in 2023 would have made 5,000 electric vehicle batteries—the Minister referred to this—recycling them is problematic. Young people and others are not going to take their used vapes to a recycling point. The vapes are going to be discarded where they are, sometimes in a litter bin but often just thrown on the ground. A ban on single-use vapes will ensure that the lithium is put to a better use.

The Government’s recent Budget introduced a vaping products duty, which will be introduced in October 2026 —that is two years away—and is to be £2.20 per 10 millilitres of vaping liquid. This will increase the cost of vapes and will, I hope, discourage their use. Cheap, reusable vapes are as easily discarded as single-use ones, so increasing the cost of reusables must be part of the strategy in moving people away from vaping. The ban on single-use vapes will come into force in June 2025, as the Minister said, which gives enough time for retailers to reduce their stocks and for users to become accustomed to buying reusable vapes.

I fully support this SI but I have a couple of small queries. Paragraph 9.7 of the Explanatory Memorandum talks about the

“impact on the public sector as local authorities are regulators and therefore responsible for enforcement”.

The last sentence of the paragraph reads:

“Funding will be provided to support enforcement”.


That is an encouraging statement. Although it does not say what the funding will be, having a statement that it will be provided in the Explanatory Memorandum is to be welcomed.

I turn now to the SI itself. Regulation 14 states that, at the end of a three-year period, the Secretary of State must conduct a “review of the operation” of the Schedule. As with any change in legislation, a review of how the change has had an impact on those affected by the SI is key to ensuring that changes keep pace with public behaviour.

Paragraph 1(1)(a) in Part 1 of the Schedule indicates that a fixed monetary penalty of £200 will be paid to the regulator for a breach of the regulations. Later on, paragraph 16 in Part 2 of the Schedule, which is headed “Offence”, states:

“Where a person on whom a stop notice is served does not comply with it, the person is guilty of an offence and liable—


(a) on summary conviction, to a fine, or imprisonment for a term not exceeding the general limit in a magistrates’ court, or both; or

(b) on conviction on indictment, to imprisonment for a term not exceeding two years, or a fine, or both”.

Imprisonment for 12 months or two years is quite a jump from a £200 fine. It is likely that I have not understood how what seems like an on-the-spot fine of £200 can escalate to imprisonment; I would be grateful if the Minister could help me with this.

Green Alliance has asked three questions. First, given the exponential growth of single-use vapes, can the Government expedite the ban to before 25 June? Also, how do they plan to limit further growth in the use of vapes between now and then?

17:45

Secondly, have the Government considered establishing a hotline for traders to report transgressions to help boost compliance? Finally, how will the enforcement regime be funded and will it be at risk in financially strained local authorities? It could be that the £200 or more fines imposed are destined to go to local authorities as recompense for their work in this area. I congratulate the Minister on bringing forward this SI. It has a vital role to play not only in the health of our young people but in reducing unnecessary, unsightly and dangerous waste.

[Lord Roborough (Con)]

My Lords, I am grateful to the Minister for her introduction to this instrument. I declare my interest as a user of multiuse vapes for well over 10 years and that I have not smoked for well over 10 years. It is right that the Government are building on our work to deliver regulatory measures that not only restrict the sale of single-use vapes but put in place systems for proper disposal and recycling.

In government, we allocated £3 million of additional funding for trading standards to support the seizure of illegal vapes. This funding was aimed at tackling the importation and sale of non-compliant products. I urge the Government to honour this commitment and ensure that this funding is not only maintained but effectively used to support enforcement operations. Can the Minister give that undertaking today?

This April, my Government created a specialised illicit vaping enforcement team, Operation Joseph. Will the Minister update the Committee on the progress made by that team? I would hope that making the sale of all single-use vapes illegal will make these unregulated vapes easier to identify and control. However, there is a risk that it will drive previously legal users to supply channels that breach the law. What additional steps will the Government take to control this potential black market?

As we regulate single-use vapes, we must also address the growing issue of battery waste. The batteries in these devices, whether single-use or rechargeable, present an environmental hazard if not disposed of properly. Without proper recycling systems in place, these batteries can contaminate the environment with toxic chemicals as well as presenting the dangers the Minister highlighted with her friend’s haulage operation. Many consumers are unaware of the environmental dangers posed by batteries disposed of improperly. Public awareness campaigns are crucial to educate the public about how to dispose of batteries safely and where they can drop them off for recycling. What measures are the Government taking to improve the level of recycling of batteries, particularly those from electric vehicles, whether they be cycles, scooters or cars?

Finaly, I emphasise that our regulatory efforts must not undermine smoking cessation efforts. Vaping has been shown to be a crucial tool for helping people reduce or quit smoking. It is essential that any regulation focuses on eliminating the environmental harm caused by single-use vapes while ensuring that safer alternatives remain available to those who rely on them to quit smoking. I welcome the Minister’s acknowledgement of the relative merits of multiuse vapes as regards smoking in her introductory remarks.

[Baroness Hayman of Ullock (Lab)]

I thank noble Lords for their contributions to this debate. I shall go through some of the questions, and I thank noble Lords for their support for this ban.

The noble Baroness, Lady Bakewell, asked about the date of 1 June for implementation. We need to act swiftly but we have to be practical, as she said, about how we bring this in and allow businesses sufficient time to run down their stocks and adapt what they are doing. That is why we think that six months is a reasonable transition period. It is also a standard transition period in line with international obligations. But we are not just going to do this and leave it for six months. We will use the lead-in time to put in place guidance for businesses, to ensure that there is support for local authority trading standards officers and to communicate details of the ban among stakeholder networks and the public. The idea is to use that time effectively to ensure that, when the ban comes in, it is adhered to and is as effective as possible.

The noble Baroness also asked about funding for enforcement. While I cannot give a specific figure for funding, enforcement will clearly be critical. There is no point having legislation if you do not have anything to enforce it with. We need to consider enforcement for single-use vapes alongside other types of illicit vape, because there is a black market in other kinds of vape as well. We will look at how we can work closely with the Department of Health and Social Care and other relevant enforcement bodies to understand the best way to make sure that the ban is enforced. That is work we will be doing between now and 1 June.

On enforcement, the noble Lord and, in particular, the noble Baroness asked about the £200 fine up to a prison sentence. It is important to say that imprisonment would apply only in cases of persistent non-compliance. It would be the very top end, if someone is continually refusing to comply after they have broken the law on a number of occasions.

The noble Lord, Lord Roborough, asked about the black market. We are discussing with local authority trading standards how we can best support them on black market issues, particularly around underage and illicit tobacco and vapes. There will also be a focus on intelligence sharing between enforcement agencies such as Border Force, HMRC and trading standards to ensure that agencies understand what they need to do to stop this activity and that they work together and share information.

The noble Lord asked about improving the recycling of batteries. At the moment, we are considering proposals to reform batteries regulations. We want to set out some new steps on how we go forward with this, so we will keep noble Lords informed.

On success in tackling illicit vapes, which the noble Lord asked about, in April 2023 the previous Government announced £3 million of investment over two years to enhance work on illicit vapes enforcement, which was led by National Trading Standards. I am sure he is very aware of that. The current actions and activities include intelligence sharing on illegal products and sales, market surveillance and ports enforcement, because we need to be able to catch them when they come in. There is also Operation Joseph. When we know more detail, we will be happy to share that information with noble Lords.

I think I have probably covered everything. If I have missed anything out, I will get back to noble Lords. I beg to move.

Motion agreed.

Terrorism Act 2000 (Alterations to the Search Powers Code for Northern Ireland) Order 2024

Wednesday 13th November 2024 Grand Committee

Considered in Grand Committee

17:54

Moved by

[Baroness Anderson of Stoke-on-Trent]

That the Grand Committee do consider the Terrorism Act 2000 (Alterations to the Search Powers Code for Northern Ireland) Order 2024.

Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I would like to begin by taking a moment to pay tribute to all those who lost their lives or were injured as they worked to keep the people of Northern Ireland safe. The Secretary of State’s attendance at the service of remembrance in Enniskillen on Sunday offered the chance to reflect on the bravery and sacrifice of those men and women. I know that noble Lords will join me in these sentiments. While the vast majority of people in Northern Ireland want it to continue to be a safe and wonderful place in which to live and work, sadly, we know that there is a small minority who want to cause harm. It is important that the PSNI has the tools it needs to allow it to continue to keep people safe.

Following the terrorist attack at Fishmongers’ Hall in November 2019, the then Home Secretary commissioned the Independent Reviewer of Terrorism Legislation, Jonathan Hall KC, to review the Multi Agency Public Protection Arrangements, commonly referred to as MAPPA, used to supervise terrorist and terrorist-risk offenders on licence in the community. In response to recommendations made by Jonathan Hall KC following the review of MAPPA, the Police, Crime, Sentencing and Courts Act 2022 established three new powers for counter-terrorism policing: a personal search power, a premises search power and a power of urgent arrest. These powers were established in 2022.

This order relates to the new power of personal search, the creation of which was also recommended by the prevention of future deaths report that followed the Fishmongers’ Hall inquests. The personal search power has been inserted into the Terrorism Act 2000, in Section 43C, by the 2022 Act and applies UK-wide. The new search power came into force on 28 June 2022. The order puts into practice the revised Code of Practice (Northern Ireland) for the Authorisation and Exercise of Stop and Search Powers relating to Sections 43, 43A, 43C and 47A of, and Schedule 6B to, the Terrorism Act 2000. A copy of the draft revised code was laid before Parliament on 15 October 2024. The purpose of the code is to provide guidance to officers authorising and conducting stop and searches under Sections 43, 43A, 43C and 47A of and Schedule 6B to the Terrorism Act 2000 and protections to those persons searched.

I start by assuring the Committee that the revisions to the code will not change the manner in which searches are conducted in any way. The amendments should be non-contentious, I hope, and relate mainly to technical matters. They are intended to provide guidance to the PSNI regarding the search powers contained within the Terrorism Act 2000. The equivalent code of practice for police in England and Wales and Scotland was updated in 2022. The changes to this Northern Ireland code will align, but not mirror exactly, the codes of practice for England and Wales and Scotland due to jurisdictional differences.

The revised code, as considered today, builds upon work started by previous Ministers in the Northern Ireland Office, including the noble Lord, Lord Caine. I know how well versed he is on this issue and welcome his continuing interest in and support on these matters. I will outline the main revisions for the Committee now.

The primary update to the code is the incorporation of the new stop and search power provided for by Section 43C of the Terrorism Act 2000. The code as amended provides guidance to the Police Service of Northern Ireland, and officers from England, Wales and Scotland police services when operating in Northern Ireland, surrounding the use of not only Sections 43, 43A and 47A of and Schedule 6B to the Terrorism Act 2000, as outlined in the original code of practice, but Section 43C.

Section 43C provides a power for a constable to search a terrorist offender who has been released on licence, and not recalled, and whose licence includes a search condition. I reassure the Committee that this power applies only to those who have been convicted and where it has been deemed appropriate for an offender, when released, to have this licence condition included as part of the conditions of their release. Even where the power is included as a licence condition, for it to be used the constable must be satisfied that it is necessary to do so for purposes connected with protecting members of the public from a risk of terrorism. Furthermore, the constable may conduct the search in any place to which they legally have access, whether or not it is a place to which the public has access.

In revising the code to include the Section 43C power, we have set out for police officers the basic principles for its use and clarity on its scope. This includes providing guidance on when the power can be used and the powers of seizure associated with the search power. The revised code also clearly sets out the limitations on the clothing that a person can be required to remove when the Section 43C power is being exercised by officers. In keeping with the existing stop and search powers, police officers exercising the Section 43C power may not compel a person to remove any clothing in public except for an outer coat, a jacket or gloves, and an intimate search may not be authorised or carried out under the new power.

18:00

Also added to the NI code is an explanation of when the search condition can be added to a licence, specifically to help manage the risk posed by terrorist offenders on licence who are assessed to be a high or very high risk to the public. The code, as amended, contains some language and format differences to the code for Great Britain. However, the purpose and key content of the code remain the same. These differences reflect the devolution of policing and justice functions in Northern Ireland, as well as the consequent differences in approach adopted in different jurisdictions. For example, I draw noble Lords’ attention to the fact that the code for Great Britain contains an explanation of the basis on which an offender is to be released on licence, whereas the revised Northern Ireland code outlines the role of both the Parole Commissioners and the Department of Justice in this process.

I assure noble Lords that the Government ran a 12-week public consultation on the proposed amendments to the code of practice, which closed in January 2024. I highlight the fact that the DUP was the only political party to respond to the consultation and was supportive of it; I am grateful for its participation. Seven responses were received, six of which were in favour of the revisions, with one response commenting that, as a matter of policy, it would not be appropriate for them to comment. Of the six who responded in favour, five suggested other slight amendments to the code. These were duly considered, with a number being accepted. The full details of these suggestions were published in the consultation response document on the NIO web pages in March 2024.

I hope noble Lords will agree that, although these revisions are technical, they are important. They align the code of practice used in Northern Ireland with the code used in the rest of the UK, ensuring that this offender management tool is available across the UK. They give guidance to the PSNI in its use of the powers to stop and search contained within the Terrorism Act.

This Government, like the previous Government, are committed to keeping people safe. The fact that the threat level for Northern Ireland-related terrorism in Northern Ireland remains “substantial”, following its reduction in March 2024, is testament to the tremendous efforts of the PSNI and its security partners. We must ensure that they have the right and appropriate tools to continue at this level.

I know that noble Lords will join me in welcoming the increased additional security funding to be provided to the PSNI in the next financial year. This £37.8 million of funding, provided in recognition of the unique security situation in Northern Ireland, will ensure that the PSNI is equipped to tackle the threat posed by Northern Ireland-related terrorism in Northern Ireland. The revised code promotes the fundamental principles to be observed by the police and helps preserve the effectiveness of, and public confidence in, the use of police powers to stop and search under the Terrorism Act 2000. I very much hope that noble Lords will support these alterations to the code of practice. I beg to move.

[Lord Morrow (DUP)]

I welcome the fact that the Minister made clear her support for, and paid tribute to, the Police Service of Northern Ireland. As I am sure she is acutely aware, the RUCGC lost more than 300 of its officers during the Troubles in Northern Ireland. Many of the officers who were murdered were the salt of the earth. They were in their job not because it was a job but because they saw it as a vocation. To this day, for many of those who were murdered, nobody has been brought to court to give an account of their actions. I thank the Minister for her tribute to the people in the police service, who are often forgotten.

Over the weekend, many of us—if not all—attended various services in open spaces, in our churches, in our schools and elsewhere to pay tribute to those who died during the Troubles in Northern Ireland and those who served in both world wars. As members read out the roll of honour, they were very moved because stood shoulder to shoulder with those very police officers and UDR personnel with whom they served. One of them said, “I stand here today; my comrades do not”. That is the reality of the situation back in Northern Ireland.

We will be brief—we do not plan to have a tough debate on this legislation. We are not here to pull it apart or anything like that, but we have some queries and questions here and there. I am sure the Minister is acutely aware that policing is a very difficult job in Northern Ireland. From the inception of the Belfast agreement, its stipulations and outworkings have meant that hundreds and hundreds of dangerous and unrepentant terrorists have been returned back to our streets, and today they are at large.

It is stated that the purpose of the code is to provide clarity that the threshold for making an authorisation is higher under the new powers, and that the way in which the powers may be exercised is also different. I hope we have read that correctly and that the outworking will not curtail or restrict the police in Northern Ireland in carrying out their duties. No police force anywhere in Europe is scrutinised to the degree and extent that ours is. Now, that can be a good thing, but it can also have a detrimental impact on policing itself.

I and my colleagues speak for my party on this, and we agree that there has to be accountability and that the police must always act with great discretion and responsibility. I hope that this legislation will not in any way deter them. I do not think it will, but I hope it is that way. All of us have a moral and community responsibility to support and encourage the agencies of law and order. That includes, for instance, our Ministers in the Northern Ireland Executive attending graduation days, and our schools promoting the police service as a good career to follow and get involved in. That does not always happen. I sometimes think that the Government could do a bit more to encourage that line. That would go a long way to playing a good part in the full restoration of law and order.

Things are infinitely better than they were—we can all say that without fear of contradiction. However, the Minister rightly said that the threat level in Northern Ireland is still high. Other police services across the United Kingdom do not have to contend with that to the same extent as our police service in Northern Ireland. I hope that there is no discouragement in this document, which I have tried to read through, although I will not give the impression—I hope—that I understand every line of it. The Minister briefly quoted from the Terrorism Act 2000, the workings of which she is obviously well acquainted with.

Can the Minister assure us that this measure will be for the betterment and the more efficient delivery of a police service, and that those who try to thwart the police in their duties—the very people she has spoken about—and cause a great deal of concern will not benefit from this? I know that that is not the intention, and I am not in any way saying that it is. I just hope that the security forces, our police, will see that this is intended to help them deliver a duty and service that they can be proud of. I hope too that the law-abiding in Northern Ireland will be reassured that this legislation is good and for their betterment, and that we will see an efficient and effective outworking.

[Lord McCrea of Magherafelt and Cookstown (DUP)]

My Lords, I will follow on from the remarks of the noble Lord, Lord Morrow. I welcome the noble Baroness leading this short debate to her place. I pay tribute to the noble Lord, Lord Caine, for the manner in which he dealt with issues of security in Northern Ireland when he held the office. I believe that he did so with courage and determination—he carried a heavy responsibility when he was in the noble Baroness’s position.

I join the noble Baroness in commending the bravery of our police officers and all the other security personnel who not only defended freedom in Northern Ireland in the past but are still doing so. I totally reject the contention of some in society that there was no other way than terrorism. That is absolutely untrue. I note that the noble Baroness said that the terrorist threat remains “substantial”. That reminds us that there is a great need in Northern Ireland to keep vigilant. Securing the safety of our people will certainly demand vigilance.

The noble Baroness mentioned the additional finance that has been given. It is certainly correct that additional finance has been provided in the recent Budget, and it is deeply appreciated, but I draw to her attention the fact that the number of serving police officers in Northern Ireland is well below what was recommended. We therefore do not have the numbers of police officers on the ground to give that adequate and proper protection for the people of Northern Ireland.

I am sure that the noble Baroness was delighted to remind us that our political party welcomed this legislation. In fact, she said that we were the only party that responded, which is strange, bearing in mind that the security of our people ought to be one of the most important issues that we face. I join the noble Lord, Lord Morrow, in saying that the police service in Northern Ireland is practically the most scrutinised police service in the world. In fact, unbelievably, we have former terrorists sitting on the Policing Board, scrutinising persons they have terrorised in the past.

We want an efficient delivery of policing, and I will therefore ask the noble Baroness a few questions. I note that the purpose of this code is to

“reflect that changes to Terrorism Act 2000 powers entirely replace those previously found in sections 44-47 of Act and are not simply a modification of those provisions”.

But the code then says that the

“new provisions carry different criteria for both authorisation and use”—

in fact, it is stricter. Paragraph 3.3 of the code says:

“To provide clarity that the threshold for making an authorisation is higher under the new powers and the way in which the powers may be exercised is also different”.


If it is higher and we still have a substantial threat in Northern Ireland, surely that makes it more difficult, rather than allowing police officers to have the freedom they need when they are out on duty and dealing with possible terrorists.

Paragraph 4.3 says:

“This Code of practice must be readily available at all police stations for consultation by police officers, detained persons and members of the public”.


I am wondering what is meant by “available … for consultation” by police officers, detained persons and members of the public, because surely these are the guidelines that are already set down—the consultation part is over.

Then, paragraph 6.2 of this document states that, for the police officer dealing with this, having “reasonable grounds for suspicion” depends

“on the circumstances in each case”.

How should an officer faced with an immediate situation actually interpret “reasonable grounds for suspicion”? If they fall foul of what a court later says is not reasonable, are they penalised because of that?

18:15

Finally, paragraph 7.24 says:

“Information should be provided which demonstrates that all officers involved in exercising section 47A powers receive appropriate briefing on the use of the powers”.

What will be regarded as “appropriate briefing” and how far does that statement go?

Can the Minister say whether adequate finances have been provided so that those officers out on duty are provided with proper body cameras, which will be a protection against vexatious claims against them? Will all officers be provided with such cameras?

[Lord Caine (Con)]

My Lords, I welcome the noble Baroness to what I think is her first Northern Ireland-related Grand Committee. I thank her for her kind words and thank noble Lords from the DUP for their kind words too. I also associate myself very strongly with her comments about the PSNI and the Armed Forces, and the commemorations that took place over the weekend. As Minister, I had the great honour of laying a wreath of behalf of His Majesty’s Government at Belfast City Hall in 2012 and Messines in 2023, where the Ireland Peace Park is located—very moving and poignant events they were too.

If the noble Baroness were to look at my Twitter account—or X, as it is called these days—from Saturday, she would see that I was proudly sporting a poppy that contained the cap badge of the Royal Ulster Constabulary. I have long maintained that, without the service and sacrifice of the RUC, the PSNI and our Armed Forces, there would have been no peace process in Northern Ireland. They created the conditions in which politics could work, and we owe them all a huge, enormous debt of gratitude.

I am grateful to the noble Baroness for concisely setting out the terms of this statutory instrument. I will be very brief because, as the noble Baroness made clear, the SI has its origins in changes to the Terrorism Act that were contained in the Police, Crime, Sentencing and Courts Act 2022—a hugely long title for an Act of Parliament—which I well remember my colleagues debating at length when it was going through your Lordships’ House. The changes made to the Terrorism Act, as the noble Baroness set out, related to stop and search powers under Section 43C and required the publication of terms of reference under Section 47 for the exercise of those powers. The SI might, in some respects, be described almost as Conservative legacy legislation. The noble Baroness referred to the consultation that we conducted, which concluded earlier this year.

I can see nothing in the terms of reference that we would have done any differently, frankly, and they should therefore have our full support. Of course, as the noble Baroness made clear, they largely align Northern Ireland with the powers available to and codes of practice for police in other parts of the United Kingdom, to which no unionist could possibly take exception or object.

I have just one question for the Minister; I gave her prior notice of it yesterday. For the general benefit of the Committee, can she set out how the new powers sit alongside the powers that exist for the police, in the justice and security Act of 2007, relating to stop and search without reasonable suspicion? I signed a number of authorisations for the use of these powers, so I know how important they are for the police in the exercise of their functions. It would be helpful if the Minister could elucidate a little further how they sit alongside the powers contained in the Terrorism Act.

The fact that we are debating these matters today, with the contributions from the Minister and DUP Members, reminds us of the security backdrop in Northern Ireland. We have been reminded that the threat level is currently classed as “substantial”. It has been reduced from “severe”, to where it was raised after the murderous attack on DCI John Caldwell in February 2023, but it is worth reminding ourselves that the difference between “substantial” and “severe” is one word: “highly”. “Substantial” means that an attack is likely, while “severe” means that an attack is highly likely.

The ongoing threat from terrorism is real. As the Minister made clear at the beginning of her remarks, there remains in Northern Ireland a small group of people who have lethal intent and capability, and who wish to continue to pursue their political objectives by violence. It is essential, therefore, that the PSNI has all the necessary powers available to it in order to combat that ongoing terrorist threat.

I conclude by reiterating our heartfelt thanks for everything that the PSNI does in Northern Ireland and that the security services do. They do a superb job of keeping people safe and secure from terrorism in Northern Ireland and, in so doing, keeping us safe and secure throughout the whole of this United Kingdom. On which note, I strongly welcome the SI; it has our full support.

[Baroness Anderson of Stoke-on-Trent (Lab)]

I thank noble Lords for their contributions. As ever, they were thoughtful and considered and took us to the heart of the issue, especially in relation to our security and safety.

I wholeheartedly agree with noble Lords’ comments about the role of our security services in keeping us safe. These are people who run towards the fire in trying to protect others as they run away from it. We are always in their debt. This SI is one effort in ensuring that they have the right powers available to them, without us doing them a disservice and restricting their ability to operate. I assure noble Lords that that is where we are.

We talked about Remembrance Sunday. I reside in Staffordshire, where the National Memorial Arboretum is. One of the most beautiful parts of the arboretum is the area dedicated to those who served and fell during the Troubles, and those who continue to serve to keep us safe. I highly recommend a visit to noble Lords.

Let me respond specifically to the questions raised by noble Lords. I say in response to the noble Lord, Lord Morrow, that this instrument is not an effort to curtail policing in Northern Ireland. We are doing everything we can to ensure that everyone has the appropriate tools and resources available, which is why we increased the PSNI’s additional funding budget for security in last month’s Budget.

I have some specific responses so I ask noble Lords to bear with me. My civil servants have done what they are meant to do: make sure that I do not have to write.

The threshold for power and use has not changed or restricted the PSNI. This is a new power, brought in in 2022, to allow the search of an individual who is licensed—that is, someone who has already been arrested. They are included in a search condition so that they can continue to be monitored. As I will emphasise in response to the questions from the noble Lord, Lord Caine, this is a separate power. It is in addition to, not in replacement of, the existing powers under TACT and the justice and security Act, and it has been supported by the PSNI. We have not done this to the PSNI; we are doing it with the PSNI.

This new code of conduct will not change the way in which police searches are conducted. The code simply provides guidance to police officers in Northern Ireland on basic principles for the use and scope of the new Section 43C power.

With regard to the question from the noble Lord, Lord McCrea, on police numbers, decisions about the allocation of the Northern Ireland budget rest with the Northern Ireland Executive, as the noble Lord knows well. It is a matter for the PSNI and DoJ to consider and agree on officer numbers to fulfil the services, operational demands and its responsibility to keep Northern Ireland safe. I am reassured that while the PSNI, as of 1 October, has 6,303 full-time equivalent officers, the New Decade, New Approach draft programme for government aspires to 7,500, which is definitely a step in the right direction.

With regard to how police officers will make decisions in practice to be satisfied that a search is necessary, which was raised by the noble Lord, Lord McCrea, the PSNI has operational independence. It is for it to determine how it will apply this. This should do nothing to restrict its efforts. In terms of making the threshold higher, this is a new power. Codes of practice have always been available to be viewed. “Consulted” was probably the wrong term. It should have been in terms of viewing and being able to access, rather than consulting on, the document. It is not a living, breathing document in that way.

Section 6(2) circumstances for a search are an operational decision for the individual officer. How the PSNI wants to do briefings and training will remain an operational matter for it. That also relates to bodycams and their application. We have provided additional funding, and it is up to it how it uses it. I am sure that it will want to get additional bodycams, but that is a matter for it.

With regard to the question from the noble Lord, Lord Caine, about the Justice and Security (Northern Ireland) Act versus TACT powers, as requested I read into the record that JSA powers are specific to Northern Ireland, timebound and must be authorised by a Minister for a maximum 14 days for a designated geographical area in Northern Ireland. Under these powers, PSNI can stop and search a person without reasonable suspicion to ascertain whether they are in possession of wireless apparatus or are in unlawful possession of munitions. Each JSA authorisation is reviewed and considered by the Secretary of State or someone with their delegated authority if the authorisation is to last longer than 48 hours. The noble Lord, Lord Caine, did many of these in his time as a Minister.

Section 43C of TACT applies across the whole of the UK but can be used only where it is applied as a licence condition and where the police constable is satisfied that it is necessary to do so for purposes connected with protecting members of the public from a risk of terrorism. It has been in operation and, although the number of stop and searches is slightly down this year on last, it has not changed how the police are operating.

I hope that with those reassurances noble Lords will appreciate that this SI is largely technical but is important to policing in Northern Ireland. It will help the police continue to keep people safe. This Government are committed to ensuring that the people of Northern Ireland, as in the rest of the UK, are safe.

Motion agreed.

Committee adjourned at 6.29 pm.