Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
My Lords, if there is a Division in the Chamber we will adjourn this Committee for 10 minutes. However, that is extremely unlikely.
Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024
(2 days, 10 hours ago)
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Lord Leong
That the Grand Committee do consider the Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, these regulations were laid before the House on 22 May 2024. I shall speak also to the Unique Identifiers (Application of Company Law) Regulations 2024, which were laid before the House on 31 October 2024. These regulations form part of a programme to implement the Economic Crime and Corporate Transparency Act 2023, which I will refer to as the 2023 Act. The 2023 Act is a landmark piece of legislation which delivers the most significant reforms to Companies House in more than 180 years to protect the public from fraud and deliver real benefits to the business community.
There has already been much progress since the 2023 Act was passed, including the introduction of stricter rules and checks to help Companies House cleanse the register. The two sets of regulations we are debating today will help to implement perhaps the most important change to the UK’s company registration framework in the 2023 Act: requiring identity verification for those setting up, running and controlling companies. Through amendments to the Companies Act 2006, the 2023 Act establishes two ways in which an individual can verify their identity, either directly with Companies House or via an authorised corporate service provider—ACSP. These providers must be supervised for anti-money laundering purposes and be registered with Companies House.
I will set out specifically what the two instruments will do. The Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024 set up the legal framework that underpins identity verification. The identity-verification procedure involves an individual delivering specific information to the registrar or to an ACSP. This must include their name and date of birth and any other further information specified in the registrar’s rules, which are a form of tertiary legislation. Given the technical and increasingly evolving mechanisms for identity verification, it would be inappropriate to list in these regulations every single identity document that must be provided to the registrar or ACSP or every single step an individual must take. Instead, the registrar is enabled to specify the requirements in a more suitable format and to adapt or tweak the detail quickly where necessary. Companies House has published a draft version of the registrar’s rules, which have been shared with Members today. I hope they provide a useful example of what evidence and steps might be required from applicants. When the registrar or ACSP receives all the correct information from an applicant, they will grant the identify verification application if they are satisfied that the information provided is true.
That is the broad legal process for identity verification. In practice, Companies House will use the GOV.UK One Login platform to deliver the identity-verification service. One Login is a cross-departmental verification platform, enabling users to have a single login and verified identity for multiple government services. An individual will create an account and can verify their identity using a range of evidence, such as a passport or driving licence, or through knowledge-based verification questions based on their credit record or banking information. The process also includes checks to make sure that the individual matches the picture on their photo ID. For most people completing the purely digital route, the process will take a matter of minutes. Individuals can also complete the process in person at a post office.
If an individual decides to verify via an ACSP, the ACSP must follow the legal procedure established in these regulations and in the registrar’s rules. Companies House will issue guidance to ACSPs to explain how the procedure should be applied in practice and what checks they must perform on the information received. This will ensure that both routes achieve the same level of assurance in identity verification. Once an ACSP verifies an applicant’s identity, they will deliver a verification statement to Companies House to confirm that they have followed the correct procedure. The verification statement will be published alongside the applicant’s appointments on the register to maximise transparency. Alongside the verification statement, ACSPs must give the registrar information about the evidence they relied on to verify an individual’s identity. This means that Companies House will not lose access to crucial identity data if someone uses an ACSP, and will provide them with assurance that identity checks have been completed correctly.
The regulations add other checks and balances to the ACSP regime. ACSPs will be required to maintain records relating to identity verification for seven years from the date when they determined the identity-verification request. The registrar can suspend and deauthorise an ACSP if they consider that they are not fit and proper to carry out the functions of an ACSP. The registrar can perform spot checks on ACSPs and ask them to provide information about their identity-verification obligations. All those provisions combined ensure that Companies House has the tools at its disposal to ensure that the ACSP regime is as effective and robust as possible.
The second set of regulations, the Unique Identifiers (Application of Company Law) Regulations 2024, are technical and apply provisions on unique identifiers contained in the Registrar (Identity Verification and Authorised Corporate Service Providers) Regulations 2024 to other entities. A key mechanism underpinning the operation of identity verification is the use of unique identifiers, or personal codes, that are used to identify individuals who have had their identity verified, as well as registered ACSPs. The first set of regulations will enable the allocation of unique identifiers to individuals associated with companies. These regulations give the registrar powers to allocate unique identifiers to ACSPs and individuals associated with other entities—namely, limited partnerships, limited liability partnerships, companies authorised to register, unregistered companies and Scottish qualifying partnerships. Identity-verification requirements will eventually apply to other entities registered at Companies House, so it is necessary that we make these regulations to ensure that the requirements can operate in practice.
I want to provide an update on the timings of identity verification. Companies House published its outline transition plan in October 2024, which confirmed that it aims to start requiring identity verification from autumn 2025. In a few weeks, ACSPs will be able to register, and individuals will be able to voluntarily verify their identity with Companies House, giving people lots of time to complete the process before legal requirements start. I beg to move.
Lord Jones (Lab)
My Lords, I rise on the principle that the Executive should be accountable. I shall be brief. I thank the Minister for shedding some light on these dense and complicated regulations. They are obviously of help to the department, to Ministers and to business, but I dare say the Chancellor of the Exchequer was not reading them on her recent outward journey to the People’s Republic of China.
I found the factsheet helpful, and I acknowledge the strong statements therein. It states that the requirements will
“make it challenging for individuals to create a fictitious identity, or fraudulently use another person’s identity, to set up or run a company”,
and talks about being
“registered with a UK supervisory body for anti-money-laundering purposes”.
As the Minister implied, economic crime is debilitating to the nation and, without a doubt, we have problems with it in Britain.
Who is the registrar and when was she or he appointed, for what term and at what salary? Is Companies House running smoothly, so as to cope with requests and approaches from directors and people with significant control? Are there bottlenecks or significant hold-ups, perhaps even labour disputes? Are there impediments to those who file? How many money laundering cases did the registrar take to court in 2023 and 2024? These questions are designed to be helpful. If they are not answered immediately, perhaps there might be a letter.
Lord Fox (LD)
My Lords, I thank the Minister for his explanation. For those of us who worked on the economic crime Bills, this is a welcome development. I am interested in the timeline, because it seems some time ago that we debated the Bill, which I believe has become an Act, and we find ourselves looking to the autumn of 2025 before some of these vital identity-verification processes will reach the statute book. I certainly do not blame the Minister, because he is new to this, but what is behind the delay and how many more statutory instruments are we due? I think there are still quite a few on the stocks. When can we expect them and what functions will they unlock? When we debated the original Bill, I think we all felt this to be a real and present issue that needed immediate, or near-immediate, attention. Clearly, things are dragging on and I wonder what is causing that.
Further to the noble Lord’s comments about the functioning of Companies House, we were absolutely clear that this would be a culture change for Companies House, which will cease to be a filing cabinet and start having to investigate and verify what is coming across its desk. The previous Minister was confident that funding was in place and that the process to create that new culture was under way. We would benefit from the new set of eyes from the Minister, if not now then perhaps in a separate meeting where we can review the functioning, including the future functioning, of Companies House—a follow-on from the meetings that were so helpful during the formulation of the Bill.
Lord Sharpe of Epsom (Con)
My Lords, I too thank the Minister for his explanation. These regulations are clearly a crucial step in modernising and strengthening the UK’s corporate governance. Building on the Companies Act 2006, they were laid before Parliament, as the noble Lord, Lord Leong, noted, by the previous Conservative Government in May 2024 to address the growing concerns about corporate fraud and business registration transparency.
The regulations introduce unique identity verification for individuals involved in setting up and controlling companies and will ensure that the integrity of the business registration process is robust. The initiative aims to combat the use of fraudulent or stolen identities in business dealings and will make it harder for individuals to engage in corporate fraud. The core aim of the regulations is to ensure that only properly verified individuals can establish and control companies. The registrar is granted the authority to impose further requirements on applicants, with the flexibility to adapt as identity-verification technologies evolve.
The regulations also introduce unique identifiers for verified individuals and authorised corporate service providers, streamlining the registration process and ensuring that the Companies House register remains accurate and reliable. I think I was the Minister whom the noble Lord, Lord Fox, referred to. I sincerely hope that the funding remains robust, as it was a few months ago. I look forward to hearing an answer to that question.
The ACSPs are now subject to stricter oversight, including anti-money laundering regulations, with provisions for suspension or deauthorisation if they fail to meet required standards. I will come back to that in a second. The noble Lord, Lord Fox, also asked why we need ACSPs. They, or their equivalents, are common in many jurisdictions and they provide an incredibly useful service to people who wish to set up a business but have neither the time nor the inclination to get into the weeds of doing so and prefer to subcontract it. I think it is perfectly reasonable that ACSPs exist and they just need to be properly verified.
While the intention behind the regulations is clear—they improve the integrity of company registration and prevent fraud—there are several areas where further clarification is required. Given that the regulations were last discussed under the previous Government, I would like to understand how the current Government intend to address the evolving nature of identity-verification technologies.
In addition, these regulations impose new obligations on ACSPs, particularly in terms of record-keeping and in providing additional information to the registrar. Although these measures are essential for transparency, I ask the Government, as the noble Lord, Lord Fox, also asked, to clarify how these new duties will be enforced. What penalties will be applied to ACSPs that are found to be non-compliant and what measures are in place to ensure that these rules are upheld consistently across all service providers?
I am also concerned about smaller businesses and individuals who may be impacted by these additional verification processes. Will the Government ensure that the new regulations do not create undue burdens on smaller enterprises, which may already be facing significant challenges in meeting regulatory and other requirements?
Finally, while the power to suspend or deauthorise an ACSP is necessary to combat fraud, I would like assurances that proper safeguards will be in place to protect service providers from unjust penalties or removal.
In conclusion, these regulations are important reforms to strengthen the UK’s business environment and combat fraud. As with any regulatory framework, careful consideration is needed on enforcement, monitoring and adaptation, so a review process will be essential to assess the regulations’ impact on businesses of all sizes to ensure that they deliver their intended benefits without imposing unnecessary burdens.
Lord Fox (LD)
With the Committee’s permission, I have just one question that I had meant to ask the Minister. It is around the obligation to retain identity information over seven years, which the noble Lord just mentioned. In the event of the ACSP going out of business, what is the expectation of how that information, which would not otherwise be retained, would be retained for the potential use of Companies House?
Lord Leong (Lab)
I thank all noble Lords who have spoken for their valuable contributions to the debate. I will respond to some of the points raised but, if I do not cover some, I will ensure that I write.
As to my noble friend Lord Jones’s question about the registrar, the current Registrar of Companies in England and Wales is Louise Smyth. I will write specifically on his other, quite technical questions.
The noble Lord, Lord Fox, raised a few questions, so I ask noble Lords to bear with me while I go through them. His first question was on the timeline. Identity verification will be required from approximately 7 million people in year 1. Since the Act received Royal Assent, Companies House has been busy cleaning the register. From March to November 2024, Companies House removed around 50,400 registered office addresses, 39,600 office addresses and 36,700 addresses of persons with significant control. It redacted around 37,100 incorporation documents to remove personal data used without consent and removed around 7,800 documents from the register, including 800 false mortgage satisfaction filings, which have previously required court orders.
Companies House has been really busy since the Act received Royal Assent, putting this in place. It has also employed more people to do this work, increasing its workforce from 1,400 to 1,700, with another 100 due to be in place before the end of the year. We need people to do this and Companies House is getting those people.
In answer to the question about funding from the noble Lord, Lord Sharpe, Companies House has been investing in new capabilities to prepare for the implementation of these reforms, as part of its wider transformation programme. This includes £108 million of funding for transformation across previous spending reviews and increased fees to fund a course of measures. As noble Lords know, incorporation fees have now gone up to £50 and any filing fees for confirmation statements have gone up from £15 to £34—so that is extra funding coming in.
In addition, funding of £20 million has been awarded via the economic crime levy for new intelligence cells in Companies House and the Insolvency Service, allowing both agencies to plan to step up their anti-money laundering work. A significant amount of preparation has been undertaken to reach this point, including system development, recruitment and training.
I shall move on to the couple of other questions that were asked. On the statistics, I mentioned earlier that something like 7 million unique officers or directors will need to be identified by spring 2025. The annual cost to a UK business of verifying this identity is estimated to be close to £19.50 in ongoing operational expenses.
Companies House is very experienced in dealing with a high volume of transactions. For example, in 2023-24, it processed something like 14.2 million filings. Companies House has been preparing customers, and there is a lot happening in the education and engagement process; in fact, the Companies House website shows a timeline when this is done, thus informing stakeholders about the introduction of these identity-verification requirements.
Various questions were asked about ACSPs. Let me go through them. A firm will not be able to register as an ACSP unless it is supervised under the UK’s anti-money laundering regulations, and the registrar will not accept applications if the applicant is not fit and proper. From then on, the ACSP must be supervised under the UK’s anti-money laundering regulations at all times. Companies House and the supervisors will regularly share intelligence and changes to an ACSP’s supervisory status; Companies House can suspend or deauthorise any ACSP if it thinks that it is no longer fit and proper to perform these functions.
In answer to the question from the noble Lord, Lord Fox, about what happens to an ACSP if it goes bust or closes, the ACSP must keep records of all of these IDVs for at least seven years. So records will be kept. I assume—I am looking at my officials now—that these records will eventually be passed over to the Registrar of Companies, but I will confirm that point in writing.
Lord Fox (LD)
On Companies House’s right to suspend an ACSP, what right of appeal does the ACSP have in those circumstances? Does it go to judicial review? What happens?
Lord Leong (Lab)
I do not want to go down that legal route. Based on normal administrative law, I assume that judicial review would apply, but I will come back with a more definitive answer in writing, if I may.
As I mentioned earlier, ACSPs will be required to keep records relating to the identity-verification checks they complete and to respond to Companies House’s spot checks. Failure to comply will be a criminal offence.
The noble Lord, Lord Fox, asked how many more SIs we will see. All I can say is that a mix of SIs will be laid in spring this year—before the summer, I assume—including ones applying reforms to limited liability partnerships. I hope that that satisfies the noble Lord.
In respect of the question from the noble Lord, Lord Sharpe, about enforcement, currently, if an individual officer does not comply to have their identity verified, sanctions are applied. It can be either a financial sanction or a criminal offence; that applies also to ACSPs.
I hope that I have answered all noble Lords’ questions. If not, I will definitely write to noble Lords.
Unique Identifiers (Application of Company Law) Regulations 2024
Lord Leong
That the Grand Committee do consider the Unique Identifiers (Application of Company Law) Regulations 2024.
Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024
(2 days, 10 hours ago)
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Baroness Gustafsson
That the Grand Committee do consider the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.
The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)
My Lords, these regulations amend the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 to introduce requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance where retention clauses are included in construction contracts.
Tackling late payments is critical for the UK economy’s growth and productivity. Fifty-six million hours are wasted each year by businesses chasing late payments, imposing a considerable and unfair burden on small businesses. Long payment terms and late payments are a causal factor in an estimated 50,000 UK business closures each year.
This Government are committed to addressing the issue of late payments. In September, we announced a package of measures to improve payment practices and help small firms. This included the launch of a new Fair Payment Code and announcing our intention to bring forward legislation to make it a requirement for large businesses to include payment reporting in their annual reports. We will also be launching a public consultation which will consider additional legislative measures to hold large businesses to account on their payment performance and to support small businesses and the self-employed. We have also prioritised this statutory instrument, originally proposed by the previous Government, which was withdrawn due to the general election and which we have now reintroduced.
Prompt and fair payment has long been an issue in the construction sector, and particularly affects small businesses in the supply chain. This includes the practice of cash retentions, or firms deducting a percentage of the value of a payment being made to a supplier. Holding retention money is a long-established practice in construction contracts. While originally introduced as a form of insurance against contractor insolvency and defective work, it is controversial and can often lead to smaller contractors losing money. Construction contracts do not offer any protection against the loss of retention if the employer becomes insolvent. Furthermore, sums, which are often deducted at each tier of the supply chain, may be subject to late or partial return or even non-payment.
These regulations seek to increase transparency in relation to retention practices, payment and performance under construction contracts, thereby incentivising larger businesses to improve retention payment practices. This will provide small business suppliers with better information so that they can make informed decisions about who to trade with, negotiate fairer terms and challenge late retention payments.
Before I outline key elements of the statutory instrument, it may be helpful to explain the legal context. The Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were introduced to bring transparency around the payment practices of large businesses. These regulations require businesses above certain size, turnover and balance sheet thresholds to publish information twice yearly on certain statistics, including their average payment times and the percentage of payments not made within the payment period, and information on their standard payment terms. The increased transparency has helped small businesses to make informed decisions before entering contracts with their large suppliers, while the extra scrutiny has helped to reduce payment times.
Build UK, a representative organisation for the construction industry, has benchmarked construction businesses on their payment performance since 2018. For its tier 1 contractors, improvements show the average time to pay an invoice has reduced from 45 days to 30 days; invoices paid within agreed terms have increased from 63% to 85%; and invoices paid within 60 days have increased from 82% to 96%.
Last April, the 2017 regulations were extended for a further seven years to 6 April 2031. Two new reporting metrics on the value of the invoices paid during the reporting period and the percentage of disputed invoices were also introduced to provide even more clarity regarding the payment performance of large businesses. Specific reporting on retentions held under construction contracts is not currently required. These regulations intend to rectify this omission.
This measure has been developed following extensive consultation with firms at all tiers of the supply chain, as well as with construction clients. A clear majority of the firms which responded to the public consultation in 2023—around three-quarters of the 120 respondents—favoured the introduction of a reporting requirement on retentions. Firms within the supply chain have told us they face challenges in understanding policies on the withholding of retentions and what the mechanisms are to secure their release. Many feel that they cannot ask for this information, in case it jeopardises their commercial relationships. This measure will bring greater transparency to the retention policies, practices and performance of larger businesses that are party to construction contracts.
I will now outline the key elements of this statutory instrument. It amends the 2017 regulations and introduces requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance, where retention clauses are included in construction contracts. The measure will apply only to large companies and limited liability partnerships which already have a duty to report on their payment practices and performance and which use construction contracts.
In the first instance, reporting will require a statement on whether the company’s payment practices and policies include or do not include retention clauses. Where a company makes a statement that retention clauses are included in its construction contracts, further information must be submitted. Details will be required on: whether retention clauses are included in all its construction contracts; whether its standard payment terms include retention clauses or whether they are used only in specific circumstances, which it would need to describe; whether there is a contract value under which no retention clause is included, and that value; whether a standard rate of retentions is applied, and that rate; whether there is a practice of using retention clauses no more onerous than those which it is subject to; and a description of the process for the release of retentions withheld.
Two metrics will also be required: the percentage ratio of the amount of retention withheld from the company by its clients as against which the company holds on its suppliers; and the percentage ratio of the amount of retention the company withheld from gross payments made to suppliers as against the gross amount paid to suppliers during the reporting period. These metrics will help provide smaller firms with better information about a large business’s retention payment practices. It will help illustrate the company’s approach to fair payment and a sustainable supply chain and incentivise larger businesses to improve retention payment practices.
In conclusion, this measure both addresses a clear request made by the industry and has been developed in conjunction with the industry. It is robust and proportionate and will provide small firms in the construction supply chain with useful information that will enable them to take decisions about entering into contracts and to understand how to ensure that retentions owed to them are paid. It will also create a clear incentive for firms to improve their payment performance in relation to retentions. I hope the Committee can see the benefits that these regulations provide and agrees with the introduction of this affirmative statutory instrument. I beg to move.
Lord Aberdare (CB)
My Lords, I am delighted that this second set of amendments to these important reporting requirements—I am trying to prevent my teeth from chattering in the cold—focuses on the damaging issue of cash retentions in the construction sector, which was not covered by the first set of amendments that we debated on 26 February last year. Could the Minister, whom I welcome to her post, confirm that that first set of amendments has now come into effect from 1 January this year? I am delighted that the new amendments will take effect from St David’s Day, 1 March. I also welcome the fact that the reporting will take place via an online service so that the information will be available to suppliers on the website as soon as business is publishing.
As we have heard from the Minister, resolving issues such as late payment and cash retentions is vital for smaller construction firms, particularly as the Government are seeking to build 150,000 homes a year while insolvencies among construction businesses continue to be higher than in most or all other sectors. The failure of major players such as ISG can have a devastating impact on small businesses in their supply chains.
The Government’s commitment to support SMEs, including through the reporting measures such as those that we are considering today, as well as the new Fair Payment Code and the promise of a small business strategy to be published this year, is much needed and very welcome. The regulations will provide transparent data about the practice of retentions and the level of late payment for this aspect of construction contracts. Having consistent comparative data concerning retentions will represent significant progress towards increasing the accountability of larger construction companies that subcontract work to smaller firms in the sector. Those subcontractors will be able to gain an understanding of the payment practices of larger companies to help them decide whether or not to do business with them.
I will not comment on the detail of the requirements which the Minister has outlined but I welcome the requirement for a named director to confirm approval of the figures reported, so that it is clear where the responsibility lies. However, that raises the question of the enforcement of these regulations. Will the Minister say something about how robust the data provided will be, given that the requirement is for self-reporting, and whether there will be any process for fact checking the data reported? What mechanisms might be put in place to ensure that the reporting requirements are met and what penalties might there be for not reporting as required or misreporting? Most importantly, can she say anything about what plans there may be in her department to end the damage caused by retentions altogether, either by banning them outright or by ensuring that funds withheld are ring-fenced in a way that protects small firms from never receiving the sums owed to them at all—or receiving a reduced amount or late amounts?
These regulations are a welcome step forward but I hope to hear more from the Minister about what further steps the Government will take to tackle the obstacles preventing small construction firms from contributing as fully as they could and should to the Government’s construction and house-building goals, and especially whether, how and when they might finally take action to bring to an end the pernicious practice of retentions.
Baroness Neville-Rolfe (Con)
My Lords, I rise to speak from the Back Benches and welcome the Minister to her seat. I was also once a Business Minister and, in my second coming, a Cabinet Office Minister, and I was very much involved in trying to get rid of the curse of late payment. That included the changes to the Procurement Act requiring public sector suppliers to pay their own suppliers on time. That was meant to complement the timely payment by government procurers, which was one of the few positive legacies of Covid. The Government are pretty good at paying on time, although you have to keep departments up to scratch. I am disappointed only that the Government chose to delay the implementation of the Procurement Act and to downplay in the draft guidance note the role of small business, which noble Lords will know that I championed from the Back Benches and later when, surprisingly, I returned to the Front Bench as a Minister.
I rise today to support the noble Lord, Lord Aberdare, on cash retentions—an issue that he has campaigned on for many years. I associate myself with his good questions on transparency, enforcement and, perhaps more importantly, the Government’s intentions on the broader issue of cash retentions. That has been an abiding problem in the sector for many years. I remember that I promised a review, but I left government too soon to be able to carry through the consequentials. I hope the Minister will take his comments seriously.
Lord Fox (LD)
My Lords, it is useful to have heard from the noble Lord, Lord Aberdare, and the noble Baroness, Lady Neville-Rolfe, as they have made it their business to address this issue over a number of years. I am pleased that they view this instrument with some positivity and I am happy to concur.
For too long, we have seen large companies use the cash flow of small companies to bolster their own cash flow. This happens not just in the construction sector, but it has been particularly apparent there. Of course, in some famous cases, such as Carillion and others, it became an industry unto itself and the core purpose of the organisations seemed to be to run cash flow on other people’s profit and loss accounts.
We have moved on some way, but I call into question the Minister’s comment—I also welcome her to her place—that it enables companies to make informed decisions about whom to trade with. In many cases, these companies already know what treatment they will get from those they trade with. They do not have a choice about with whom they trade, if they wish to continue in business. Sanctions and whistleblowing on those companies becomes an issue, as they dare not call foul because they will not get contracts in the future. That is the nature of the relationship: it is an abusive relationship, almost literally, between the contractor and the lead company. We need to understand the nature of that relationship to put into context some of the things we are talking about here.
Without wishing to sound nerdy, the average payment time can hide an awful lot of sins. Standard deviation could be more useful—as the noble Baroness will understand—because companies can be played against others.
I also wonder, rather suspiciously, whether retention becomes something else. It would be easy to look at this from the other end of the telescope, call it a completion bonus and retain that instead. We have to be a bit careful about naming things rather than describing them.
I was happy to be reminded of those halcyon days when we were working on the Procurement Act and of the mercurial rise of the noble Baroness from critical Back-Bencher to Front-Bench proponent. I ask a simple question: would it be legal, under current procurement regulations, for me as a local authority to refuse to take on a contractor which was in all other factors equal to a competitor bidder but had reported poor retention and payment numbers? Is it legal for me to turn it down on those terms?
Lord Sharpe of Epsom (Con)
My Lords, I join other noble Lords in welcoming the Minister to her place. The construction sector in the UK is not only one of the largest but one of the most vital industries underpinning our economy, as both noble Lords noted. In 2022, the sector achieved a turnover of £487 billion and employed over 3 million individuals, representing about 8% of the UK workforce. Its contributions are therefore fundamental in driving economic growth, fostering innovation and advancing development throughout the nation.
However, the sector is also characterised by considerable fragmentation. There are over 444,000 businesses engaged in a broad spectrum of work, ranging from contracting and product supply to associated professional services. The fragmentation is compounded by complex, multi-tiered supply chains, as major projects often involve 50 or more firms working collaboratively.
This brings us to the topic of retention sums, which are a long-standing practice in the construction sector. Retention—as it is still called for now—sums serve as a financial safeguard and ensure that work meets the required standards. Typically, half of the retention is released upon project completion while the remaining portion is withheld until the expiration of the defect’s liability period, proving additional assurance that all specifications are met. That, at least, is the dictionary definition of retention.
Given the current practices within the sector, we need to focus on the amendment introduced by these regulations. They all come into force on 1 March 2025 and apply to the financial year starting on or after 1 April 2025. The changes impose specific reporting requirements for qualifying companies and limited liability partnerships operating within the sector. The amendment extends existing reporting regulations and requires qualifying companies to disclose detailed information about their payment practices, policies and performance in relation to retention clauses in construction contracts.
Companies will be required to report on whether retention clauses are included in their contracts, the percentage of retention withheld and the procedures followed for releasing these sums. Additionally, businesses will be asked to disclose the contract value thresholds under which no retention clause applies and outline the standard rate of retention typically applied in their agreements. By 1 March 2025, qualifying businesses will be obliged to publicly report on their payment practices, specifically concerning retention clauses in construction contracts.
It is important that this amendment acknowledges the significant challenges caused by fragmentation within the construction sector, which of course affects businesses of all sizes. We understand that the aim of these regulations, as the Minister noted, is to enhance transparency by requiring businesses to report not only the inclusion of retention clauses but whether their retention practices align with industry standards or are more onerous than typical practices. Furthermore, companies will be required to provide clear descriptions of the processes that they follow to release retention sums, which is intended to ensure greater clarity and fairness for all parties involved. However, there are several important points on which further clarification is needed.
These amendments are said to provide increased transparency, fairness and clarity within the construction sector, but can the Government explain the mechanisms by which the regulations themselves will be enforced? How will compliance be monitored and what penalties will be applied to businesses found to be in breach of the new requirements? Additionally, while the new regulations seek to promote fairer payment practices, can the Government elaborate on how they plan to ensure that large companies are not able to exploit their market position, despite the new transparency measures? Will there be any safeguards in place to prevent larger firms imposing even more burdensome retention clauses on SMEs?
The regulations are presented as a solution to the ongoing issue of delayed payments, which have long caused a financial strain on SMEs, yet how will the Government measure the effectiveness of these changes? What evidence is there to suggest that requiring businesses to disclose their retention practices will have a significant impact on the cash-flow issues faced by smaller companies? As an aside, the noble Lord, Lord Fox, has raised an important point about how we will judge these companies in future, based on these particular metrics. These are not, of course, the only things by which one should judge a company or its potential to complete a project successfully and efficiently, so will there be some way of measuring that as well? If that has not been considered, it is something that should be.
While these measures are presented as steps towards promoting better cash-flow management and financial security for smaller businesses, we would urge the Government to further clarify how the regulations will be implemented and monitored to ensure that they achieve their intended outcomes. Will there be a review process to assess whether these regulations are having the desired effect on industry practices and the broader economy?
Baroness Gustafsson (Lab)
My Lords, I am grateful for the support for these regulations from across the Committee. I thank the noble Lords and noble Baronesses present for their constructive comments on this measure. Allow me to try to address each of the questions that they asked in order.
First, we heard from the noble Lord, Lord Aberdare. He asked a number of questions, the first of which was: have the previous regulations come into effect yet? The answer is yes; they came into effect and required a report as of 1 January 2025.
The noble Lord’s second question was about how the regulations will be enforced and how the accuracy of the data will be monitored. For that, the Department for Business and Trade will implement a more visible compliance and enforcement approach with non-compliant businesses going forward. Businesses that do not take action to meet their reporting obligations will be prosecuted.
We had a question, supported by the noble Baroness, Lady Neville-Rolfe, about why we would not just abolish retention payments altogether—that is, why are we taking this measure forward and not abolishing it in its entirety? The Government are aware of the impact that retentions have on the supply chain. We are very committed to going further to tackle poor payment practices: in September 2024, we announced our plans to consult on new legislative measures. Now, as part of that consultation, we intend to consult on measures that will address poor payment practices.
Moving on, I refer to the questions asked by the noble Lord, Lord Fox: does defining retention create a potential loophole for companies? Will they suddenly be redefined as completion bonuses? This is one of the arguments in favour of taking this sort of measured, proportionate approach, because we will be able to identify any unintended consequences of some of this legislation, but a key aspect of addressing the naming convention is that it is very clearly defined in a schedule not by what it is called but by the behaviours that it exhibits. Of course, we will monitor this and make sure that, if it requires an update, we will do so accordingly.
The noble Lord, Lord Sharpe, asked what the penalties are for failure to comply. The penalty for a breach of the 2017 regulations is an unlimited fine where a company fails to report or makes a false report.
Lastly, the noble Lord, Lord Fox, asked about sanctions, whistleblowing and the imbalance of power in the supply chain. I say in response that the imbalance of power in the construction supply chain is an ongoing challenge; that is widely understood and acknowledged. However, through the introduction of payment reporting measures for retentions and the enforcement of them, we will be able to create an incentive for firms to improve their payment practices in relation to retentions, as has happened following the introduction of the payment reporting regulations. As I talked about in my introduction to this instrument, we have seen the number of businesses paying within 60 days improve from 82% to 96%, so we should be encouraged that we are supporting correct behaviours with regard to policy.
This Government are committed to making sure that we tackle late and long payments. We want the UK to be the best place in the world for both large and small businesses to thrive. This work on retention payments aligns closely with the department’s wider policy on late payments and will strengthen the existing payment reporting regulations. It will provide for enhanced transparency in relation to the practice of withholding retentions—a practice that, as we have heard, is all too often unfair to small businesses and can, of course, be subject to abuse. It will also provide information to small firms and the construction supply chain about the policies and performance of firms that they are considering working for, enabling them to make better-informed decisions and to secure the payment of moneys due.
Lord Fox (LD)
Before the Minister sits down, I asked a very specific question around public procurement. I ask it again: if I am a public procurer and two bidders are more or less the same—or exactly the same—in their bid, but one of them has late payment, am I legally allowed to use late payment as the reason for not accepting that bid? Secondly, developing that question, if the late payer has the cheapest bid, can I also use late payment and retention payments as a reason for not awarding to that bid?
Baroness Gustafsson (Lab)
I apologise for not addressing that specifically. My understanding is that this information will help support a party in a commercial negotiation and will, ultimately, form part of its decision-making. As regards the technicality of whether one could legally use that as a way in or out of a contract, I will make sure that we write to the noble Lord on the specifics of that.
Lord Fox (LD)
It is really important because we are seeing, not necessarily under the Procurement Act but under the NHS, major legal tussles over the misapplication of the assumed rules of contract awards—not least in clinical waste disposal, where another six or seven health authorities are being taken to court. This is expensive; it will cost the public and the Exchequer. So it is important that we and public procurers understand from the outset whether this is window dressing or material to the procurement process.
Baroness Gustafsson (Lab)
I acknowledge that. I agree wholeheartedly with the noble Lord about the importance of getting that clarification; we will be sure to write to him in that regard.
Free-Range Egg Marketing Standards (Amendment) (England) Regulations 2024
(2 days, 10 hours ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Hayman of Ullock
That the Grand Committee do consider the Free-Range Egg Marketing Standards (Amendment) (England) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, these regulations were laid before the House on 21 November 2024. This instrument has been laid to amend existing legislation governing egg marketing standards to enable free-range eggs to be marketed as such for the duration of mandatory housing measures, which restrict the access of laying hens to open-air runs.
Currently, when free-range hens are placed under mandatory housing measures due to disease outbreaks such as avian influenza, the egg marketing regulations allow their eggs to continue to be labelled as free-range for 16 weeks only; this is known as the 16-week derogation period. If the mandatory housing measure lasts for longer than 16 weeks, eggs from those hens must be labelled and sold as barn eggs. The requirement for egg producers and packers to relabel free-range eggs as barn eggs once the 16-week derogation period is exceeded is difficult to implement in modern automated packhouses. This adds significant logistical and packing costs to the industry.
This SI aims to remove the 16-week derogation period so that free-range egg producers and packers can label and market eggs as free-range for the duration of a mandatory housing measure, however long that may last. During mandatory housing measures, egg producers still have the higher operating costs of maintaining their free-range egg system, with the additional cost of having to ensure that hens are also temporarily housed indoors. The normal laying period of a productive free-range laying hen in the UK is around 90 weeks. This SI will remove the derogation, which affects only a small part of a laying hen’s productive life, with all the other free-range criteria still needing to be met—except access to open-air runs.
In 2024, Defra held a joint consultation on these proposed changes with the Scottish Government. Some 70% of respondents supported the removal of the derogation. The removal of the 16-week derogation period has already come into force in Scotland. Following their own consultation exercise, the Welsh Government have also announced that they will introduce legislation to remove the derogation.
In 2023, the EU amended its egg marketing standards regulations to remove the 16-week derogation period, which, through the Windsor Framework, applies also to free-range eggs produced in Northern Ireland. Without this SI, the introduction of any mandatory housing measures that last longer than 16 weeks—during, for example, an avian influenza outbreak—could be detrimental for English free-range egg producers and result in an increase in free-range eggs being imported from the EU and Northern Ireland. This could have a significant negative long-term impact on the English free-range egg industry. This SI restores alignment with the EU and Northern Ireland.
It will also ensure that free-range egg producers and packers do not incur additional costs for adhering to government-imposed housing requirements. Outbreaks of avian influenza usually occur during the winter months—as was the case in 2021-22 and 2022-23, resulting in the introduction of housing measures for poultry that, in both cases, lasted longer than the 16-week labelling derogation period: for an additional six weeks in 2021-22, and for an additional seven weeks in 2022-23. So it is imperative that this SI is in place for the rest of the winter period and beyond.
We continue to uphold the high standards expected by UK consumers and businesses. The change contained in this statutory instrument will safeguard our Great British egg industry. I beg to move.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank the Minister for her introduction to this fairly straightforward SI, which allows, during an outbreak of avian flu, for poultry that are normally free-range with access to open-air runs to be kept in barns for an additional period of time. The current derogation’s continuous limit of time during which birds can be kept in barns and still be labelled as free-range is 16 weeks, as the Minister said. During the avian flu outbreak in 2021-22, the period was extended from 16 weeks to 22 weeks. During the 2022-23 outbreak, it was again extended—on this occasion, to 23 weeks.
The UK is 90% self-sufficient in egg production. As markets for eggs need to be strictly in alignment with the EU’s for the purposes of trade, it is important that UK regulations closely match those in operation in the EU. As 94% of UK egg exports go to the EU, it is important that our egg producers are not at a disadvantage during outbreaks of avian flu. Removing the 16-week derogation limit will ensure that UK producers have parity with the EU; I fully support this move.
However, as the UK seems to be affected by avian flu on a fairly regular basis during the winter months, I wonder whether there is likely to be a maximum number of weeks when birds need to be kept in barns and still be labelled as free-range. Six or seven weeks is a short period by which to extend the derogation but the effect of increasing the derogation, as happened in 2022 and 2023, meant that it was for nearly 50% of the year. Can the Minister give reassurance that this derogation will not be extended any further? I note that she said that the Government will extend it for “however long” is necessary. It is difficult to see how the consumer is likely to be persuaded that eggs that have been barn raised for30 weeks of the year, say, can still be labelled as free-range. As we all know, free-range eggs attract a premium on the price the consumer pays.
I turn briefly to the subject of the consultation that took place between 9 January and 5 March 2024. Eighty egg producers, 20 egg packers and 49 members of the public responded. The response from the public is amazingly small, which raises questions. How was the consultation conducted? Where was it advertised? Given that consumers are very exercised about the conditions in which poultry are kept, and that many choose free-range eggs over barn eggs because they believe the birds have a better quality of life in the open air, I am surprised that more did not respond to the consultation. Perhaps the Minister can give details of how engagement with the public on the consultation was conducted.
Despite that query and concern about the derogation limit being extended to beyond 50% of the year, I support the SI but feel that avian flu is not going away, and egg producers need a way of dealing with the effects that it has on their business, as well as consumers needing reassurance that they are getting what they pay for in buying free-range eggs.
Lord Blencathra (Con)
My Lords, on Thursday this week the Minister and I will be discussing how we save the planet, so this important subject is good practice for that mega-issue.
I am grateful to the Minister for setting out simply the unfortunate need for these amendment regulations. The Official Opposition support them. As she has pointed out, under the current regulations, eggs can be marketed as free range for a maximum of only 16 weeks if the hens are shut inside; after that, they are to be called barn eggs. However, as we have seen in recent years, housing restrictions for free-range hens due to Chinese avian influenza outbreaks have often exceeded the 16-week limit. Within 2021-22 and 2022-23 the outbreaks required measures for 22 and 23 weeks respectively. That has caused significant logistical and financial challenges for the egg industry, and the amendment rightly seeks to address those issues.
The amendment is essential, as the Minister has said, because the EU has removed its 16-week limit and, unless we do likewise, our producers will be at a huge disadvantage. We would be importing eggs from the EU labelled “free range” while ours had to be downgraded to barn eggs. As long as there is a trading market in eggs in Europe, we need to stay consistent.
On consistency, I was going to ask the Minister about Wales because, when I drafted my speech last week, I was under the impression that Wales was possibly going to stick with the 16-week rule, but I am delighted that it seems all four countries of the union will now be at the same level of derogation.
I want to ask about enforcement. Producers in areas where there is a danger of Chinese avian flu will benefit from this amendment, but can the Minister assure us that it will not be possible for these measures to be abused, so that free-range eggs will be permitted to be advertised as such only when hen housing has been mandatorily restricted, not for any other reason?
While this amendment is necessary at the moment, what if anything has the Chief Veterinary Officer said to Defra about how long these lockdowns may be necessary? I appreciate that that is a difficult question to answer and some of it is guesswork, but I hope that Dr Middlemiss will be able to remove the restrictions as soon as she thinks it is safe to do so. We, the Government and the industry must not get into the cosy rut of maintaining these lockdowns unnecessarily. We have already had a six-month one and if we have lockdowns that last a lot longer, as long as may be necessary, we will need to take a serious look at the definition of “free range”.
I understand that in the consultation 66% of respondents felt that the proposal would cause little or no confusion among consumers. Of course not, since how are consumers to know how long the hens have been shut inside in the first place while the eggs are still labelled free range? I am not worried about consumers being confused but I am worried about misrepresentation.
That brings me to my last point. As the Minister knows, the definition of “free range” is a bit farcical in any case—or perhaps it would be safer to say not what most people would think free range actually is. I recall in 1990, as a junior Minister in MAFF, three different supermarket directors marching into the ministry to demand that we adopt their own various definitions of free-range eggs, when we entered into negotiations in the EEC later that year. They varied from chickens getting a sniff of fresh air occasionally for a few minutes each day, to their being let out on a tiny patch of grass, to roughly the current definition that henhouses have little pop-out holes where the chickens could theoretically go out if they wanted to but, in many cases, the majority do not. No matter how unfree the range is, that is the current definition in Europe and we cannot get out of step with it. I suspect that there is no mood in Europe to change that definition and I hope that we in the UK will not take unilateral action to tighten it further, even if some animal welfare groups may demand it.
As the noble Baroness said—I believe this too—if hens are confined inside for six months, nine months or even more, consumers have a right to know that their eggs are not really free-range. On how we address that, I am glad that the Minister is in charge and that it is not me back in MAFF, as it was in the old days, having to tackle this problem. Nevertheless, we are where we are; I support the amendment and what the Government intend to do here.
Baroness Hayman of Ullock (Lab)
I thank noble Lords who took part in this short but important debate. As someone who keeps free-range hens—only a small number of them—I am very pleased that noble Lords have supported this SI because it is extremely important to have clarity for the industry on this matter. I thank noble Lords for their pertinent and helpful questions; I will do my best to respond to them all in turn.
On Wales, as the noble Lord, Lord Blencathra, said, the Welsh Government have now indicated that later this month they will lay an SI to remove the 16-week derogation period. Subject to the Senedd’s approval, we expect the regulations to come into force in February this year.
On enforcement, the Animal and Plant Health Agency’s egg marketing inspectors conduct risk-based and random checks on domestic and imported eggs at farms, wholesalers, distribution centres and packing centres. Local authorities also conduct checks at retailer level. The inspections ensure that only free-range eggs are labelled “free-range” during mandatory housing measures.
As to the necessity of mandatory housing measures, I receive regular updates and advice from the Chief Veterinary Officer about all decisions on when to introduce, amend or lift regional or national avian influenza prevention zones, which mandate enhanced biosecurity, and on when to extend them to include housing measures. In fact, I am meeting the Chief Veterinary Officer tomorrow to discuss a number of issues, including this one. Such decisions are always based on risk assessments containing the latest scientific and ornithological evidence and veterinary advice. Restrictions will therefore apply only while the risk remains.
In recent years, as I said earlier, the longest periods of mandatory housing measures being in place were in 2021-22, when it was for 22 weeks, and in 2022-23, when it was for 23 weeks. As I mentioned in my opening speech, the normal laying period of a productive free-range hen in the UK is around 90 weeks, so 23 weeks—the longest period— is actually a short period in that laying hen’s productive life.
Both noble Lords asked about the length of mandatory housing and its impact on the meaning of “free-range”. I fully understand why that question is being asked, but we do not have any intention of reviewing the definition of “free-range”. If we decide to do so, we will need to assess how amending our regulations would affect the UK internal market, our industry and our trade with the EU as our biggest export market.
The noble Baroness, Lady Bakewell, asked specifically about consultation. Defra ran a joint consultation with the Scottish Government. It was open between 9 January and 5 March 2024. This eight-week consultation was held to obtain a comprehensive understanding of the views of the industry and the general public on the intended purpose of the removal of the 16-week derogation period. It was an open consultation run on Citizen Space, and it was published and advertised through a press release and by contacting key stakeholders.
A question was also asked about reducing the risk of confusing or misleading consumers. We are encouraging retailers to place signage where eggs are displayed for sale that informs consumers of the imposition of mandatory housing measures, the impact that this will have on marketing free-range eggs and, notably, that the rest of the free-range criteria continue to be met, except for access to open-air runs. We believe that that kind of transparency will benefit consumers and is in the best interests of producers and retailers. The important thing is to have transparency, so that everybody understands the situation and can make purchasing decisions bearing it in mind.
In conclusion, I hope noble Lords fully understand the need for this instrument. Again, I thank them for their support. We need to enable free-range eggs to be marketed throughout the duration of any government-imposed mandatory housing measure to allow for trade to continue. The removal of this derogation will reduce additional logistical and financial pressure for egg producers, in the event of a mandatory housing measure.
Aligning with the devolved Governments and the EU also ensures that English producers are not put at a disadvantage if mandatory housing measures come into force. When they are put into place, we of course take the welfare of the hens into consideration. As I said before, it affects only a small part of laying hens’ productive life, so we are confident that animal welfare standards will be maintained and that consumers will be assured that the welfare of the laying hens is still a key priority during any mandatory housing measures.
We also must do our part to support our great British egg industry by ensuring that it has a level playing field with trading partners such as those in the EU, which have adopted similar provisions for their free-range egg producers. I hope that I have answered all the questions but will check Hansard to make sure. If I have missed anything, I will respond in writing.
Combined Authorities (Borrowing) and East Midlands Combined County Authority (Borrowing and Functions) (Amendment) Regulations 2025
(2 days, 10 hours ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Taylor of Stevenage
That the Grand Committee do consider the Combined Authorities (Borrowing) and East Midlands Combined County Authority (Borrowing and Functions) (Amendment) Regulations 2025.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, these regulations were laid before this House on 19 November 2024. The other place debated them on 8 January 2025. The regulations relate to the York and North Yorkshire Combined Authority, the East Midlands Combined County Authority and the North East Mayoral Combined Authority. Via Section 1 of the Local Government Act 2003, they will enable these authorities to borrow money for use against their relevant functions.
Presently, the York and North Yorkshire Combined Authority and the North East Mayoral Combined Authority are already able to borrow against their transport functions, and the York and North Yorkshire Combined Authority is able to borrow against its police and fire authority functions. The East Midlands, as a combined county authority, is unable to borrow against any of its functions.
The regulations before us will enable the York and North Yorkshire Combined Authority, the North East Mayoral Combined Authority and the East Midlands Combined County Authority to make use of borrowing powers for purposes relevant to their current and future functions. This will bring all three authorities in line with existing combined authorities and fulfil commitments made in their original devolution agreements.
On consent, I bring it to the Committee’s attention that all three authorities and their respective constituent councils have given consent to the conferral of borrowing powers. Similarly, the three authorities have agreed their respective debt caps with HM Treasury for 2024-25.
The regulations will also confer the East Midlands Combined County Authority’s constituent councils’ general power of competence for economic development and regeneration upon the combined county authority. The power will be held concurrently with the East Midlands constituent councils; the East Midlands Combined County Authority will be able to exercise the general power of competence only in relation to economic development and regeneration. The conferral of this power will fulfil the East Midlands’ original devolution agreement and enable the combined county authority to support local businesses and charities, as well as strengthening the area’s visitor economy.
As the conferral of the general power of competence for economic development and regeneration upon the East Midlands constitutes a new power, Section 48 of the Levelling-up and Regeneration Act 2023 applies. I can confirm that the requirements under Section 48 have been met, and that the East Midlands Combined County Authority and its constituent councils have consented to this conferral.
I come to the final part of these regulations, which will make amendments to the East Midlands Combined County Authority Regulations. Specifically, these are by: first, amending a typographical error so that the combined county authority is the local housing authority for housing needs, laundry facilities, shops, recreation grounds and housing purposes, and with respect to buildings acquired for housing purposes; secondly, enabling the mayor of the combined county authority to arrange for a committee of the combined county authority to exercise mayoral functions; thirdly, allowing non-constituent members of the combined county authority to have voting rights in an authority committee; and, finally, clarifying the voting arrangements for the combined county authority, including the requirement for a two-thirds majority to pass its mayoral budget. These amendments have been discussed with the East Midlands and its constituent members, with the councils and the combined county authority consenting to the amendments being made.
These regulations, which are supported by the authorities and their constituent councils, are a necessary step in fulfilling the original devolution agreements that had been reached. Devolution across England is fundamental to achieving the change that the public expect and deserve: growth; the more joined-up delivery of public services; and policies being done with communities, not to them. I commend the draft regulations to the Committee.
Baroness Pinnock (LD)
My Lords, these are important changes to the devolution in the three mayoral authorities referenced by the Minister. In general, I and my party support devolution, of course, but we remain concerned about the mayoral system being adopted across England because of the way in which it concentrates too much authority and decision-making in the hands of one person. So, it is a “yes” to devolution, but mayoral authority may need some adjustment to make it more democratic, particularly as it is happening in this statutory instrument, with more powers being extended to mayoral authorities—hence budgets becoming enlarged, sometimes substantially. It seems to me that, if there is more capital borrowing, there will be a requirement to fund that borrowing, and there will therefore be an increase in the mayoral precept. My first question for the Minister is this: will there be a cap on either capital borrowing or mayoral precepts so that we understand the extent of the borrowing and the cost to the taxpayer?
Baroness Scott of Bybrook (Con)
My Lords, this SI is a key step in advancing the devolution agenda, continuing the work set out in the Levelling-up and Regeneration Act 2023 under the previous Conservative Government. As we have heard, it extends the borrowing power to the York and North Yorkshire Combined Authority, the North East Mayoral Combined Authority and the East Midlands Combined County Authority, empowering them to invest in critical areas, such as housing, regeneration, transport, education and health. This is part of a broader effort to decentralise power from Westminster and empower local authorities to shape their own futures, which His Majesty’s Official Opposition support.
In terms of economic development and regeneration, the regulations grant the EMCCA the general power of competence to support local businesses, tourism and other sectors. This is a notable shift, allowing the EMCCA and its constituent councils to carry out more comprehensive projects, including potentially accessing grants from central government, but we must ensure that, while these powers enable growth and development, there is robust accountability in place to ensure that resources are used effectively and in the best interests of those local communities.
A public consultation was conducted regarding the proposed changes, particularly focusing on the economic development and regeneration powers of the EMCCA. While the feedback was largely positive, with no significant objections, it is important to note that support for these new powers was not overwhelming. The absence of major concerns from stakeholders, including the House of Lords Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments, suggests broad acceptance, although this should not be construed as unanimous approval.
I have a number of questions for the Minister. While the regulations aim to empower local authorities, several questions need to be answered to ensure these powers are used effectively and responsibly. On effective devolution, the work of the Levelling-up and Regeneration Act promoted decentralisation, but how much autonomy will local authorities truly have under these regulations and at what point will central government oversight become excessive? On oversight, without a statutory review clause noted, how will the Government ensure accountability for these new borrowing powers? Are there safeguards in place to ensure that borrowing is managed prudently? Finally, on regional equity, could the new powers create disparities in regional development, potentially leaving smaller regions behind? How will the Government ensure that these powers, to be granted to certain areas, do not exclude or disproportionately benefit specific regions at the expense of others?
Baroness Taylor of Stevenage (Lab)
My Lords, I thank both noble Baronesses for their participation and broad support for this SI. I will address some of the questions raised. The noble Baroness, Lady Pinnock, asked about the powers of mayors; I simply point to the success of existing mayoralties, delivering real things for their communities that have made a huge difference—in transport, skills and, in some places, health economies—in the areas where people live. Of course, you can only really do that if you are part of the community that you are representing, and the Government’s push for devolution is to help those local areas with skin in the game to have the powers and funding they need to drive their areas forward, particularly for growth but also for the conditions for the people in their areas.
We now have the Council of the Nations and Regions, which is a very important body for driving forward growth in our regions and nations. It is very important that every part of the UK has a seat around that table. That was the thinking behind the English devolution White Paper—it is still out for consultation, so we will see what comes back from that.
On capital borrowing, it will be the responsibility of mayors to drive growth in their areas, but I realise that borrowing will have to be paid back. Debt caps have been agreed with the Treasury. There has been an extensive process to agree them, and it has been done on the basis of what is affordable for those areas within their current envelopes.
The noble Baroness spoke about powers in relation to housing and planning. The English devolution White Paper set out strategic and investment powers, and possibly development corporations that mayors will have powers over. Planning powers on a day-to-day basis will stay with the constituent local authorities, which is right and proper because they are the people on the ground.
The noble Baroness also spoke about local government funding. The last person in the world who would underestimate issues in local government funding is me. I lived with them on a daily basis for many years. There have been substantial steps forward in funding for local government. In spite of a very difficult financial settlement this year, our Secretary of State has achieved significant additional funding for local government. Off the top of my head, I think the figure is £3.7 billion altogether for local government, and I am sure that officials will wave at me if I am wrong. We know that will not solve all the problems. We have to increase growth in the country to improve that situation more substantially. I have just been given a great big written note which I am supposed to read, while I talk at the same time, but that is not possible, so I will answer off the top of my head and, if I do not answer all noble Lords’ questions, I will respond later in writing.
On the Levelling-up and Regeneration Act and non-constituent members, the noble Baroness is quite right that we had substantial debates about them during the passage of the Bill. For one type of authority, there are not voting rights, but for the other type of authority, there are voting rights. As we move into the full picture of devolution, there will be further consideration of that. It is right that in mayoral combined authorities the upper tiers will take the decisions. How they decide to involve their constituent members will be broadly up to them. I have heard some really creative ideas, such as having key committees chaired by the constituent councils. As we move into a picture where we have all unitary authorities, I think we will continue to look at that and review it.
I thank the noble Baroness, Lady Scott. The three of us are part of the LURB club who sat through many hours debating the Bill. I agree with her about what a key step this is and that the East Midlands Combined County Authority will need to undertake the more comprehensive projects that were set out in its devolution agreement, and it needs these powers to do that. Of course we need robust accountability for all of them.
There was some consideration of consultation, but extensive consultation had already taken place on this so, having looked extensively at what had been done before, it was felt that there was no need for further consultation. I take the noble Baroness’s point that support was not overwhelming, but there was enough support for us to feel comfortable that we could go ahead.
The question about autonomy is important. The way that we have set out the picture in the English devolution White Paper is that, the more established an authority becomes, the more autonomy it will have. It is perhaps the opposite way from what the noble Baroness suggested. Central government oversight will not overwhelm those authorities once they are established. Look at some of our more established mayoral authorities: Greater Manchester is always the standard example and it has extensive powers and funding to lead the way for growth, transport, skills and so on. We want to see that with the more established authorities. The more established they are, the more they prove themselves in terms of accountability of all kinds, especially financial, and the more powers they will get.
On accountability and safeguards for borrowing, that is why debt caps have been set with the Treasury. They have been looked at very carefully. The White Paper also sets out a wider process of accountability which may, depending on what comes back from the consultation, include something like local public accounts committees to have oversight at local level of what is going on within mayoral combined authorities.
I hope that answers all the questions but, if not, I will go through Hansard and make sure that we respond.
Baroness Scott of Bybrook (Con)
I asked how we would ensure regional equity.
Baroness Taylor of Stevenage (Lab)
I thank the noble Baroness and apologise for missing that. She will have seen that one of the adjustments we have made to the local government finance settlement that came out just before Christmas was to slightly reshape the spending to meet need. There will be more news on that and more discussion about it as we go into the spending review in the spring.
That is an important point because having a champion for a local area on its own will not be enough. We need to make sure that we are addressing the key disparities, and there are some enormous disparities that we heard much about during the passage of the levelling up Bill in health, employment, standards of living, housing, and so on. The devolution aspect of this project means that local areas have far more autonomy to make the changes that will make a difference to them. The spending review will take all that into account and, I hope, reshape the way that the distribution of finance is done so that we make it more equitable generally. If there are further contributions to the spending review as we go through it, I will be pleased to hear them.
These regulations deliver on the commitment made in the devolution deals agreed with York and North Yorkshire Combined Authority, the East Midlands Combined County Authority and the North East Mayoral Combined Authority to provide them with borrowing powers against their functions. The conferral of borrowing powers will provide all three authorities with the opportunity to further invest in their services and functions to the benefit of those who live and work across their geographies. In short, I believe the regulations and the powers that it confers will make a significant contribution to the future economic development and regeneration of York and North Yorkshire, the east Midlands and the north-east by providing those three authorities and all the people who look after them with the tools to shape their futures, driving growth and higher living standards across their geographies. I commend the draft regulations to the Committee.