(3 years, 5 months ago)
Grand CommitteeMy Lords, there are very wide-reaching powers in this Bill and, to start where I ended my Second Reading speech:
“I am not against the notion of interventions, but the Bill should be more than notion and compulsion, and I hope that it is possible to include more direction and balance.”—[Official Report, 4/2/21; col. 2364.]
That is exactly the aim of Amendment 1. It aims to be positive rather than negative, by defining an overarching objective. One might debate whether it could be slightly different, but the idea is to have an overarching objective to safeguard national security in respect of economic and social harm. “Social harm” is a very broad term. Recognising that broad scope, it specifically lists that the Secretary of State must
“have regard to the effect … on technology investment… the research and innovation environment … and business opportunities for small and medium-sized enterprises.”
I can almost hear the Minister assuring us that the Secretary of State will have regard to a lot of things, and that would be right, but it is also necessary to make sure that there are correct messages given by the Bill—messages that endure and give confidence to the business sectors most likely to suffer, perhaps entirely unnecessarily, from rumours, concern or finger-pointing from competing jurisdictions.
If we take the starting point that the Bill has good intentions, that there are similar moves internationally, that we have perhaps been too slack in the past, and that there are inevitably burdens arising from both notification requirements and notification concern, that will lead to unnecessary voluntary notification. One wonders if there are not more mechanisms that can give an all-clear signal.
Maybe some will become clearer or develop over time but, wherever that is possible, as we work through the Bill, I am mainly looking to see what incremental steps can be made towards certainty. That can be helped right at the start of the Bill by using the combination of broad objective plus a list of the most sensitive “have regard” matters. This appears in various other pieces of UK legislation, not least in the financial services legislation that is occupying both my time and that of the noble Baroness, Lady Noakes, on the days either side of this sitting. Therefore, I hope that the Minister sees the advantage of taking that approach here.
My Lords, I will disappoint my noble friend Lady Noakes by making a comment that is more a Second Reading comment than anything else. But it is important we see this Bill in context. The genesis of this Bill is, I assume, largely about Chinese influence and the debates we have had about Huawei and so on. I want to raise only one issue on the context; it is the way in which British commerce and the economy are so intricately and deeply linked with China. Is that globalisation? I am not sure.
We all know how much we buy now comes from China on the one belt, one road programme or elsewhere. The interdependence between western consumers and economies and the Chinese economy is extraordinarily deep-rooted. I am going to use a little example—a silly one, you may say. Old-fashioned fellow that I am, I try to buy British if I can. Looking for a butter dish online, I bought quite an attractive one from the English Tableware Company. I thought that was pretty safe, until the moment it arrived. I turned it over and found it was made in China, which seems quite strange to me. I took it up with the company, and it came back to me saying its products were all ethically sourced and it had checked the suppliers. Of course, we have no idea about the working conditions or possibility of slave labour in Chinese factories.
My Lords, we are grateful to my noble friend Lord Leigh of Hurley for his amendment, which is a helpful exploration of this issue. I rather enjoyed the way he introduced it as well, although I must say that the MP who was quoted by Isabel anonymously was clearly not in government in coalition.
I have an amendment of my own in this group; I am grateful to the noble Lord, Lord Bilimoria, for signing Amendment 8 in my name. I shall talk to that amendment and to Amendments 3 and 4, tabled by my noble friend, and leave Amendments 9 and 10 to others, although I think that both add a little to probe the way in which Ministers propose to structure their statement.
Amendment 8 is designed to clarify what constitutes the Secretary of State becoming aware of a trigger event. In the absence of a further definition, a Secretary of State might claim not to be aware in circumstances where any reasonable person would say, “You should have been”. It is a belt-and-braces operation.
What does it mean? I looked to the relevant comparator in the Enterprise Act. The equivalent, in Section 24 of that Act, is whether something has been made public, which is defined as:
“means so publicised as to be generally known or readily ascertainable”.
I simply borrowed that language. Amendment 8 would not say that those are the only circumstances in which the Secretary of State becomes aware, but the Secretary of State should not be able to claim that he was not aware in circumstances that have generally been made public. The purpose of this amendment is to explore what “becoming aware” really means.
Reverting back to Amendments 3 and 4 and the question of “or contemplation”, I think the drafting derives, if it derives from anywhere, from Section 33 of the Enterprise Act 2002 and the question of a merger reference. It is when the Competition and Markets Authority
“believes that it is or may be the case that … arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation”,
so contemplation exists in statute.
The guidance issued by the Competition and Markets Authority on this, published most recently in December 2020, said that “at phase 1”, which colleagues will recall is the earliest investigatory phase,
“the CMA will generally consider that ‘arrangements are in progress or in contemplation’ for the purposes of section 33 of the Act if a public announcement has been made by the merger parties concerned.”
When my noble friend defines “contemplation”, he does so accurately, but that is not how the Competition and Markets Authority has interpreted “contemplation”. It means somebody firmly considering such a thing, which Ministers may well be thinking of in this context, but it is important to make that clear in the guidance.
The Competition and Markets Authority and the Enterprise Act do this for mergers, which are defined acquisitions. Here, we are talking of a much wider scope of acquiring activity in relation to intellectual property, technology, assets, land and minority stakes. A merger control has bitten on 15% or thereabouts, in certain circumstances, but it is a much wider breadth of activity. If contemplation of such acquisitions is to be included, Ministers at the very least have to define it in the guidance in a way that corresponds to the way in which “contemplation” has been interpreted by the CMA for mergers.
My Lords, this group contains a range of amendments aimed at improving certainty which I broadly support. In particular I favour the removal of the expression “contemplation” because it is a broad expression that in my understanding, if it is not reinterpreted through guidelines, could range from not even a twinkle in the eye to serious preparations.
When I looked at this, it seemed that the first expression of “arrangements are in progress”, followed later on in the clause by
“which, if carried into effect”,
is already quite broad because it poses the notion that the “arrangements” do not have to be substantial enough to have an effect yet, only if carried through. That seems to cover quite a preliminary range of stages. Even if the Minister does not accept that proposition of deletion, is there case law that can point to what “contemplation” means? The noble Lord, Lord Lansley, has provided some useful indicators. I thought about “in contemplation of matrimony to a given individual”, which is accepted in wills as a means to overcome a negation of a will through marriage, but that will itself is a legal document defining intent. That would not necessarily be the case for just a random contemplation.
From my various adventures as a patent attorney I know better the interpretations of “serious preparations” or “effective and serious preparations”. They are used in patent and trademark law, which has received attention and clarification—or rather verification—in courts. If we have to use something, I prefer to use something akin to those terms, although this shows that it is quite difficult to define when a line is crossed.
As has already been raised, the intention of “contemplation” or anything else could be clarified by guidelines, but if that route is needed, is it not just simpler to delete “contemplation” and explain in guidelines what “arrangements are in progress” is intended to cover? To me, that sounded exactly like what the CMA had done: it had taken “arrangements are in progress” or “contemplation” as one and the same thing and then defined that, which implies something much further down the track than simple contemplation. I am therefore on the side of those who think that the wording just looks too vague, and if it has precedent elsewhere, it needs to be clarified that it does not mean anything more substantial. The CMA has pointed the way to showing that the word is not very much use.
I also support Amendment 8 relating to publication, which aims to give some certainty about when the Secretary of State can be regarded beyond doubt as having been aware of a trigger event. As the noble Lord, Lord Lansley, explained, that reflects the wording of the Enterprise Act and it would help to reduce unnecessary notifications.
Lord Vaizey of Didcot. No? We will come back to him. I call the noble Lord, Lord Clement-Jones.
My Lords, I am glad to follow the noble Lords, who presented a compelling case that mergers of companies should not be sought to be unwound after five years. However, that is not how I interpret the effect of the legislation.
For Amendment 7, we have to direct ourselves to Clause 2 and the structure of Clause 2(2). It requires that a call-in notice given by the Secretary of State cannot be
“given after the end of the period of 6 months beginning with the day on which the Secretary of State became aware of the trigger event”.
Noble Lords will recall that I was interested in the question of when the Secretary of State “becomes aware”. My noble friends have so far rebuffed the idea that we can define “becoming aware” rather better.
In the case of a merger, particularly between listed companies, but between companies of the kind so ably described by my noble friend, the Secretary of State should become aware of it, because it would appear to be publicly known. The Secretary of State could become aware because the parties to the transactions could themselves provide notification to the Secretary of State. Either way, the question of five years does not arise. That arises only in relation to circumstances where the Secretary of State does not become aware.
It is not a matter of people being exposed to an uncertainty; they can remedy the uncertainty by notifying the Secretary of State. That is why we are going to get a lot of notifications and, to some extent, Ministers accepted that when they revised the number of notifications they are anticipating from the original White Paper, which I think was a few hundred, to about 1,800. I think that is partly anticipating that there will be such notifications.
The circumstances we are talking about are probably not mergers but the trigger events relating to assets. As we previously discussed, this involves quite a wide range of acquisitions of assets including technology, transfers of technology, intellectual property or even potentially land that people did not necessarily understand was sensitive. The five years is not an irrelevance because, as Clause 2(2) says, there is a five-year period which would apply in circumstances where the Secretary of State had not become aware of the trigger event.
At this point, I want to ask my noble friend a question. In so far as the trigger event relates not only to the acquisition and the entity or asset but to the understanding of the nature of the acquirer—I keep coming back to this question of who the acquirer is; we talked about it in the second debate—can the Secretary of State apply the five years in relation to the nature of the acquirer being somebody other than the person whom the Secretary of State thought it was at the point at which the Secretary of State became aware of an acquisition? That is when the five years really begins to bite and the uncertainty begins to become more manifest.
That is true not only because the acquirer might be somebody who the Secretary of State did not understand to be hostile but who turned out to be, but because when we get to Clause 10 and we understand the implications of Schedule 1, which Clause 10 brings in, a person may be held to have acquired an interest or right in relation to an asset or entity by virtue of things such as the fact that they are connected persons, they are in a common purpose or they have an arrangement, all of which might not have been evident in public or to the Secretary of State when the Secretary of State saw the acquisition in public material. Indeed, maybe he did not see it at all but became aware of this interest only at a later stage.
There is a reason for the five years being there, because two years is not very long in relation to these kinds of acquisitions. The Minister might entirely reasonably say that five years is not without precedent: there is five years in the French, Italian and German regimes. With this Government, if it is good enough for the Europeans it is good enough for us, as we often say. However, leaving that to one side, we have to be aware that understanding who is in a common purpose, what is the nature of arrangements that might not have been disclosed and what is their nature in relation to assets, not just mergers, gives one a reason to think hard about the circumstances in which the Secretary of State might have to intervene, even though a significant period of time has elapsed. For those reasons I am inclined to live with five years, on the strict understanding that, to get rid of uncertainty, people make a voluntary notification and then six months is the limit.
My Lords, it is always very interesting to follow the noble Lord, Lord Lansley. He is approaching this partly in a similar way to me and partly in a different way. I was, and still am, attracted to the notion of trying to get this time of uncertainty down from five years to two. Part of what I would say to the noble Lord is that, if it is going to take five years to work out who might actually have bought something, that is something we should look at in its own right. If you cannot work out whether somebody is hostile and they have had it for five years, you have missed the boat if it is a question of whether they have learned the technology and found out things you do not want them to find out.
I would be interested to hear from the Minister the reasoning behind the length of the period. It could not really be due to a workload of investigating, because one must presume some sort of steady state pipeline with adequate staffing, but how much of it is fear that something new is not recognisable as having a security application until some time later. That thought was going through my mind: was there fear about missing things? This goes back to one of the issues I flagged at Second Reading about sifting being done by the right kind of skilled people—those who have the right kind of applied science or engineering knowledge, plus knowledge of potential usage in national security fields.
I have to say, these things are not necessarily all that obvious. I have experience of working as a patent attorney in the field of defence. I have worked with people whose job it was to invent—put two and two together and have something inventive at the end of it. If you work in a field where those kinds of things are deemed inventive, you will be very short of the people who have that kind of knowledge because, for the main part, they will probably want to be involved in more interesting and economically useful things than participating in what seems to be an overwide fish-sorting process, as it has been termed. I am turning this back to the Minister. On volume, if you cast the net wide, will you have sufficiently skilled people to be able to do the sorting, or will you find that important fish get missed? Will you then be trying to do things to backtrack on what has not been done or give yourself more time to do things?
That is a slightly different take. I know that there are some safeguards in there, but five years is quite a long time to live with uncertainty. If that uncertainty comes about because of ownership, one should sort the ownership or shareholding issues; I am actually among those people who think that we should have a lot more transparency on those kinds of things.
My Lords, in his excellent intervention, the noble Lord, Lord Hodgson, started out by calling for clarity. We need some clarity on the wording of this part of the Bill because a number of different interpretations have emerged. I must confess, my interpretation is similar to that of the noble Lord; by the way, we would seem to be backed up by the Law Society, which took the same view. If the Government’s intention is something different, some different words need to be used to put that forward.
Assuming that, to start with, the intention was as the noble Lord, Lord Hodgson, set out, his counter to that was very clear. I have been involved in lots of what is known as integration, which involves bringing two companies together when one has bought another. Five years is well past the point at which you would find it very difficult to unmake that company. Indeed, the entire product life cycle in the sort of industries we are talking about here is probably about two years, so they will have marched through two and a half product life cycles by the time the five-year period expires.
In a way, I hope that the Government’s intention is more closely aligned to that of the noble Lord, Lord Lansley. If that is the case, I have similar thoughts to the noble Baroness, Lady Bowles. How long do you need to leave the stable door open before the horse has definitely bolted? To me, five years seems much too long for that bolting to occur; two years is probably long enough in that respect. However, if, on the other hand, the Government’s intention is to offer an opportunity for 20:20 hindsight—in other words, the world changes and, looking back over our shoulder, that deal five years ago now does not look like such a clever deal for the nation and we want to unmake it—that is clearly unfair on investors and others but might perhaps be fair to the country.
We need a real understanding of what the Government’s intention was, and the Government need to understand that their intention needs to be articulated in a way that the outside world can understand.
My Lords, I broadly support this amendment, although I am also interested in what happens after a statement is declined by Parliament. Statements take effect immediately and things already done under them are not revoked, even if Parliament votes one down, and I did not think that it was entirely clear whether there was anything to stop a new statement being made immediately, because the Secretary of State is under an obligation only to conduct
“such consultation as the Secretary of State thinks appropriate”.
Could they consider that it is appropriate to do none if there has been something tantamount to an exactly equivalent previous consultation?
(3 years, 6 months ago)
Lords ChamberMy Lords, I thank the Minister for introducing this statutory instrument. I expect that, as the noble Lord looks at it, sensible as it is, he realises that the reasons for switching back to a one-year period are a lot more interesting than the actual return to an annual period. My main reason for putting my name down to speak was curiosity—to find out more about trends in the electricity market as a result of the pandemic.
I have no quarrel with this instrument. I accept that, as the contract for difference operational costs levy and settlement costs levy need to be fixed, and the amounts get spread over the estimated total demand, and with the pandemic having made that harder to predict, it is being done for only one year rather than three. I am sure that it would be quite difficult to work out the contingency over a three-year period.
That raises the question of whether there are short- falls from the current period of reduced demand and how they have been covered. Was there an adequate contingency, or is there any carryover? I seem to recall —I think it might have been back in the summer—that we examined the statutory instrument dealing with the government loan and delayed payback mechanism, which was adjusted to delay by four quarters instead of three due to reduced electricity demand during Covid. The reduction in consumption then was caused by industry shutdowns, although domestic energy consumption had gone up.
We have just had the heavy winter months; I suppose we are still in them. Are there now any more figures on how lockdown, children at home and working from home have influenced domestic consumption? What is the overall picture of business consumption, and is there any sectoral analysis? I appreciate the Minister may not have that to hand.
It is recognised that longer-term changes in working practices have accelerated due to lockdown, with more working from home likely to continue. Looking at what has happened in the various stages of the pandemic and lockdown, is this predicted to lead to more or less electricity consumption overall? For example, is the change from office consumption to home consumption broadly neutral, or is there an overall increase with both homes and offices in use? If there is a shift from commercial use to domestic use tariffs, how will that affect prices?
Paragraph 7.7 of the Explanatory Memorandum highlights, as the Minister has done, that among the reasons for a £3.251 million budget increase on costs is that the next CfD auction will support up to double the capacity of renewable energy. The more green energy the better, but consumers will want to know when electricity costs will come down in order to incentivise switching to electricity and away from domestic use of gas. It is somewhat ironic that there are currently incentives to replace old gas boilers with new gas boilers, when new homes will not be allowed to have gas boilers from 2025. However, right now, at least where I live, homes with electric heating tend to stick on the market because of the running costs. This is getting relatively urgent and has to be addressed because we do not just want new homes to switch. We surely want many more people to consider switching.
I have no objections to this SI and I realise that my questions are additional issues. If the Minister has to reply in writing, then that is acceptable.
(3 years, 6 months ago)
Lords ChamberMy Lords, this Bill is about intervention when there is a transfer of control that puts at risk our security, and possibly vital supplies and critical infrastructure. I recall concern about vulnerability in the Economic Affairs Committee’s 2017 inquiry and then report, The Price of Power, regarding electricity markets. Indeed, concerns do not have to relate to hostile foreign Governments, and that raises questions about how geographic lines will be drawn for the purposes of this Bill and what part trade agreements play. Will measures under the Bill constitute security measures that trump trade and investment agreements? How far is the Bill directed at not losing technology and R&D capacity more generally, given that undertakings during takeovers are often useless?
The Bill before us has one basic element, the notion of a trigger event relating to control, and then it is rather like a puzzle book. Has the Secretary of State got every possibility covered? Schedule 1 is particularly entertaining to try and design around, but what does it really mean in practice? One thing seemingly left out is an export-only manufacturer. I suppose that export licences would cover security issues, but could that not still be a loss of knowhow? While on that subject, why are licences or intellectual property rights not explicitly mentioned in Clause 7, and perhaps other choses in action—or are they “things in action” nowadays?
If one accepts the “trigger” notion, it becomes an exercise in how to make it work and where the burdens lie. For one thing, it will require people with a wide range of knowledge, including in cutting-edge science and engineering, to do the scrutiny. Notifications will hit at a rate of more than four a day under the Government’s estimate, and may be much higher if there are lots of precautionary submissions. How much time does the Minister consider it takes an individual to scrutinise technology and understand the ramifications? How much reliance depends on the notifier, and what level and volume of information and data will be needed in a notification? A real problem is not where it is already known that there are security implications, but where that is a theoretical potential.
I have experience of battling over secrecy restrictions on patent applications, when key words would trigger a secrecy order because that was all the designated official could understand. Words with dual use implications such as “radar”, “laser” or “spread spectrum” in their time almost always gave spurious, annoying triggers—spurious because when it was known that there were security implications, that was made clear in advance, and annoying because it would be several months before the “all clear” from the MoD review would come back. An insecticide that could be nerve gas famously slipped through. Can we be assured that arts graduates will not be in charge of analysing scientific information? Let us hope that that is a thing of the past, but the scope of this framework Bill has raised concern from universities faced with how to comply with yet unknown notification requirements and the implications of delays when there are short timescales for concluding competitive contracts with sponsors for research.
The unfiltered sectoral scope is presently staggering. Looking at the list of materials, which is of particular interest to me as a solid-state physicist, apart from it being huge, I wondered how on earth people would know at early-stage developments whether something was notifiable if there had not been a specific notifiable type of target use? When designing materials to provide protection in car crashes, would their use in armaments always spring to mind? How early does speculative usefulness count? “Speculative” is a difficult concept in an academic world that demands hard evidence to substantiate claims.
Call-ins do not commence until there is a statement about how powers will be exercised. It is expected that the statement will narrow things to a more manageable scope, but Clause 1(8) says that statements are not actually limiting. Will the Minister confirm that that is meant as an emergency power rather than a regular fallback?
Once the Bill passes, there is a Damocles’ sword over everything in the 17 sectors, which is a problem for businesses needing to plan ahead for investment sources. The statement is all important and I would like to know more about it. Is it to be one big statement covering everything or is it going to be staged in some way, and why does Parliament get a vote only at the end, with no advance consultation or ongoing oversight of any kind? This is an instance where information on the scope of the statement is vital before legislation is passed and before consultation on a draft statement. Can the Minister give an example of what is envisaged in any area to enable a feel for the type of narrowing or detail under consideration? I am not against the notion of interventions, but the Bill should be more than notion and compulsion, and I hope that it is possible to include more direction and balance.
(3 years, 7 months ago)
Lords ChamberMy Lords, there was some good debate on the TRA in Committee, and the amendments in this group largely follow up on those themes, about which there was quite a lot of agreement. The disagreement was about whether or not they should be included in the Bill. I will speak mainly in support of Amendment 27, which my noble friend Lady Kramer has already explained. I want to add more background to why it is proper to put a little more on the face of the Bill when a regulator is created.
We have a lot of independent regulatory bodies in the UK. We will have even more, such as the TRA, following Brexit. They become part of the system of unelected power. That system has its strengths and weaknesses. We seem to have been broadly free of corruption, but maybe we have had our fair share of ineptitude. Whatever the rights and wrongs of the system, there is really only one opportunity for Parliament to intervene in the objectives and formulation of the regulator in a way that is seen as benign and away from incidents, rather than threatening it or treading on its powers, as it may see it. That time is when it is being set up, as the TRA is now. If I recall correctly, the Minister, the noble Lord, Lord Grimstone, said that the TRA will have heard Parliament’s views and could take account of them. It is true that the TRA, once formed, may take note, especially if the Minister is supportive, despite wanting to keep amendments down.
However, in reality, reliance on kind words in debate is not enough, especially ones lost in the mists of time. The Government may get another go, whether through policy messages of a formal nature or otherwise, or through statutory instruments, which we all know that Parliament has no power to change. For Parliament, once the Bill is passed, it is down to how far Select Committees will manage to harangue a regulator when it goes wrong or to how many Members pose Parliamentary Questions and cause enough publicity and aggravation to force a review, usually after a dramatic failure. I have trodden that path, but how much better it would be to accept the benign influence of a few more words in legislation at the outset, so that slippages are prevented or can be reminded about and caught sooner. Maybe there will be some constructive sessions with Select Committees and regulators will say “I will take that idea back” but, in my experience with financial services regulators and the FRC, that rarely leads anywhere.
As has been pointed out, the TRA has some well-defined functions stemming from WTO rules already in legislation, but there is wriggle room left around the economic impact assessment and it is all happening at a time of great sensitivity. Although I acknowledge that the department is doing a good job in its current work and preparation for the TRA, there would be comfort for the future in having something in the Bill to remind it about engagement with stakeholders.
The other amendments in this group also have merit. Amendments from the noble Baroness, Lady McIntosh of Pickering, concerning the scope of advice, raise in my mind the question of whether the Government might at any stage wish to consult the TRA about state aid subsidies. What co-operation might there be between the CMA or other state aid control bodies given that the TRA has the other side of it? In a similar vein, I wonder whether the TRA will have the role of investigating infringement of state aid by the EU under the trade and co-operation agreement, as well as under WTO rules.
My plea to the Minister is that he put something on the face of the Bill so that there is at least something to point to concerning stakeholders.
My Lords, I shall speak only to Amendment 27 in this group. I do not support it, mainly because I believe it is not necessary to tell a public body how to do its job. The TRA will be set up with a chief executive, staff and a board which will have a majority of non-executive directors and a chairman. It is being set up in a perfectly conventional way, which should allow it to ensure that it operates effectively.
A public body—or indeed any kind of body—does not need to be told to draw up a stakeholder engagement strategy. I also find it slightly bizarre that the amendment focuses on an engagement strategy. There will be far more important aspects of the TRA’s work—for example, on the kinds of information it seeks and the kind of analysis it carries out—but no strategy seems to be required for those. I also find no merit in the requirement to publish a strategy; I fail to see how that would add to the effectiveness of the TRA in providing advice.
Even if we need to specify that there must be an engagement strategy, it is quite unnecessary to specify a list of stakeholders with whom engagement must take place. I must say that the relevance of some in the list in this amendment is not entirely obvious. It seems to me that those proposing this amendment have forgotten that the TRA will focus on the kinds of things set out in Clause 6(3). It is a body focused on trade and traders, not on solving the problems of the world which are of interest to lobby groups.
(3 years, 8 months ago)
Lords ChamberMy Lords, I declare my interests as in the register as a company director. This is a simple statutory instrument and, for once, I have not been made more confused by the Explanatory Memorandum than I was before reading it. I welcome, in particular, the extension of the flexibility around the conduct of AGMs.
Like others in this debate, I am a veteran of the Corporate Insolvency and Governance Act and I recall our discussion on its Section 12. I can summarise by saying that it was not an ideal solution, but there was not really any other readily available solution. It is the same again now.
There are only three points on which I would like to comment. The first was raised in the report from the Joint Committee on Statutory Instruments and concerns whether all causes of downturns are excluded or just those relating to Covid. I recollect the comment by the Minister, which was quoted by the noble Baroness, Lady Altmann, about the suspension not meaning that a struggling company could just carry on trading without any regard for the consequences. I remember thinking at the time that the provision was nevertheless a blanket one when it came to insolvency. I am sure that it is possible to write legislation that distinguishes one way or another. Unless I dreamt it, I seem to recall that the debate covered that such an approach might generate many problems of trying to analyse root causes, undermine the certainty intended and even risk overloading the courts. The conclusion was that it was a least-bad option and I have to accept that we are in that position again.
My second point is about the period between 30 September and 26 November, which appears to go under the normal rules. It might have been useful to have some comment about that in the Explanatory Memorandum. I made the presumption that the hope was that things were getting back to normal and that this was why the Government did not extend the provision before it expired. There is perhaps a question as to why it is not being retrospectively extended, given that there were surely still specific businesses under restrictions and some areas of the country that went into local lockdowns, if not straightaway then pretty soon within that period. Was any thought given to a retrospective extension to cover that period? What is the effect of those two months not being covered? Do the Government think that there is protection from the two periods on either side, because it would be hard to pin things down to those exact two months?
Thirdly, how long can this go on for? I recognise that, in allowing the measure to lapse, the Government showed some keenness for it not to hang around overly long. I was going to ask if this was likely to be the last time that the measure is considered, but the Minister has told us that the Government will hold it under review, which obviously implies that there may well need to be another extension. At some point, there must be a limit to how long it goes on for. While the balance may be in favour of giving certainty to the company directors for short periods of time, the longer it goes on, the longer the concerns already expressed by the noble Baroness, Lady Altmann, begin to come to the fore and dominate. It will be very difficult for companies to know who they can and cannot supply and, ultimately, that would cause everything to grind to a halt through other uncertainty.
As I have said, this is the least-worst option, and perhaps it shows again that director liability provisions in company law could do with a more general overhaul for catching bad and unconscionable behaviours. It can be rather difficult to enforce the other measures around directors’ duties and so on, but I accept that that is for another day. For now, I will not object to this statutory instrument, but I would like to have some updates as we go along on the question of how long this goes on for. I do not really want to be here in September discovering that we are in for the extension after next.
(3 years, 8 months ago)
Lords ChamberMy Lords, the following noble Lords have indicated that they wish to speak: the noble Baronesses, Lady Bowles of Berkhamsted and Lady Neville-Rolfe, and the noble Lord, Lord Liddle. I call the noble Baroness, Lady Bowles.
My Lords, I speak in favour of Motion L2 in the context of having been the mover of the original Amendment 50, which was rejected as involving a charge on public funds, despite my budget reference endeavours.
I broadly welcome the Government’s Amendment 50B in lieu. It picks up the final point of my Amendment 50 regarding a review. The review also specifically includes the concern underlying the first part of Amendment 50 around the location of the OIM by requiring an assessment of the advantages and disadvantages of continuing with the provision of Part 4 functions via the CMA, compared with alternatives, including possible arrangements not involving the CMA.
I also welcome the fact that the relevant national authorities are to be specified as consultees at the stage of both review and draft report, but I hope that it will also be fulsome at the finalising stage as well as the draft stage.
Both in Committee and on Report, concerns about the CMA culture and the enforcement provisions were brought forward by myself and other noble Lords. It would be good for the OIM and the CMA to know that they will be watched and that these issues will be among those which are checked when it comes to the review and the report. I thank the Minister for the various amendments and assurances about the OIM, and in particular I note and thank him for the reassurances made regarding the penalties relating to information gathering, including proportionality, consultation with the devolved Administrations, and that
“these penalty powers in Part 4 will not be commenced unless there is a clear and credible need for them”—[Official Report, 25/11/20; col. 259.]
or unless
“there is evidence that they are called for, and even then they will not be used except as a last resort,.”—[Official Report, 25/11/20; col. 270.]
There are further quotations like these.
A review clause is often seen as a weak compromise, but here it serves an important function in the context of new regulatory powers and as a vehicle for monitoring and checking the concerns raised in Parliament and the assurances given.
(3 years, 8 months ago)
Lords ChamberMy Lords, this has been an interesting short debate. If the Minister did not already know it from the UK internal market Bill, how state aid—if such a thing is to exist as a definition in future—is to work is a sensitive and significant matter of public policy that merits primary legislation. The changes go beyond what would be permitted under the withdrawal Act. I will concentrate on the mainstream state aid point, although I am sure that the Minister will appreciate that I have seen the amendments to recognise third-country state aid instruments as core tier 1 equity for bank capital. If only there had been such clarity all round.
The problem is that, given the double whammy of, “delete all and maybe start something else—or maybe not”, as we are told in connection with this statutory instrument, and the attempted power grab without consultation in the UK internal market Bill, it all looks like a high level of disregard for stakeholders and devolution, or a high level of disorganisation, or both. The truth of the matter seems to be that policy is at the mercy of trade agreements on the one hand and the avowed distancing from all things EU on the other. It is not even an attempt to cherry pick. There are some cherries to pick, not least the ones that we put into the legislation.
By now, one would have hoped for the emergence of some ideas on alternative shape; if this is how the negotiation is proceeding with the EU, I am not surprised that it got stuck. So instead of an independent policy we have a hole that might or might not get filled. That hole is carved out by secondary legislation, which is a major policy change. Does this mean that, from January, public authorities can start to make subsidies, secure in the knowledge that if they fit within the WTO rules—which means among other things a free-for-all on services—there will be no retrospective prohibition, interruption or comeback? How will that sit in making trade deals if it has already started?
Paragraph 10 of the Explanatory Memorandum says that there have been technical discussions with the devolved Administrations. I find that interesting, given the onslaught against the UKIM Bill. Can the Minister explain more about those technical discussions? Paragraph 11 says that there will be guidance given about the new subsidy control arrangements, but paragraph 12 indicates that, indeed, all that public authorities need to worry about are the WTO rules. Will that guidance include any forward-looking advice beyond compliance?
I do understand that contraction of geographical scope of the state aid rules is sensible, but maybe there could have been a general continuation of the principles until completion of the consultations or some other commitment to co-ordination, not least because of Northern Ireland. Now there will be notional freedoms but concern that it may be temporary or governed solely by Treasury stinginess. The Business Secretary has said—reported, for example, in the Financial Times on 9 September—that the,
“guiding philosophy remains that we do not want a return to the 1970s approach of picking winners and bailing out unsustainable companies”,
and some of that is indeed now in the Japan trade agreement. Is there an intention to enforce that on public authorities and devolved Administrations, or are they being given free rein to see how it works out?
The noble Lord, Lord Stevenson, has proposed in his amendment that the policy be delayed until after the consultation, when devolved Administrations are on board and the legislative context in which state aid rules sit is more certain. These Benches can broadly agree with those sentiments. We think that the Government’s approach to state aid policy, and the wider context of the UKIM Bill, has been deeply unsatisfactory, with important details left undetermined and the devolution settlements neglected. We will, therefore, be supporting the amendment.
(3 years, 9 months ago)
Lords ChamberMy Lords, it is not that long ago that, in the context of the internal market Bill, we discussed the unitary nature of patent protection in the United Kingdom. Now we find that it is not quite so for the time extensions gained through supplementary protection certificates that can be given to effectively extend patent terms when initial market approvals have eaten up the time available under the original patent term. I want to continue probing in the areas that have been opened up by the noble Lord, Lord Lansley, and the noble Baroness, Lady Wheatcroft.
For some time before us there may still be UK-wide authorisations, but as a kind of legacy, which will in future be split into Northern Ireland and Great Britain authorisations. If they started together and protection certificates exist, then they will continue. But at some point we will get to the position where authorisations come separately for Great Britain and Northern Ireland, depending on whether they are from the EU side or the Great Britain side. Applications for supplementary protection certificates will be made based on the first one that is achieved. If the other part of the jurisdiction also has a marketing authorisation before the end of the patent term, then that can be added in and it all proceeds.
In practical terms, I guess that pharmaceutical companies will try to ensure that they have both sets of marketing authorisations in place by the end of the patent term. However, it is possible that that will not happen. This can come about without the supplementary protection certificate if you have marketing authorisations in one part of the UK and not in the other. That raises the question of what happens to the goods: will they actually flow freely from one part of the United Kingdom to the other under the non-discrimination principle for goods in the internal market Bill, or will there be some kind of restriction? I understand fully that there are restrictions on what you can do between a place that is patented and a place that is not, but I am interested in how this interacts with the internal market Bill.
If we have that position, whether it comes about during the extended term or not, what happens to the licensing of drugs for use by the NHS under NICE? They will have different prices in different places, at least in theory. How will that operate, and how will it come about that you can get even treatment across the United Kingdom under the NHS?
This will not be the only instance when we will have such situations; they will happen in REACH. Can the Minister advise whether it is necessary, for example, always to have authorisations in both parts of the United Kingdom in this instance to enable marketing throughout the United Kingdom? I do not see how this is clear at all, unless you are going to say that there is no possibility of that trade between Northern Ireland and Great Britain.
I confess to also being confused about why the paediatric extension was not in the Northern Ireland protocol. As far as it appears from the explanations, that is at risk of being lost if the original market authorisation is not obtained in time to come under the supplementary protection certificate. That seems to potentially remove it. It is for only six months, but it has a valuable use.
That is all I need to say on the matter, as most of the other questions have been asked. I know that this debate is primarily about the supplementary protection certificates, which are probably the simple part of this—it is just a recording of where you got the authorisations and therefore where the extension can apply. The complexity comes with what is happening to the United Kingdom internal market. If the Minister does not feel he can give an answer to that right now, could he please write to lay out clearly the interaction between marketing authorisations, the internal market Bill and, taking into account costs, what may or may not be licensed by NICE?
(3 years, 9 months ago)
Grand CommitteeMy Lords, I, too, congratulate the noble Lord, Lord Darroch, on his maiden speech and look forward to future contributions. I was fortunate enough to be able to rely on his wisdom in his role as the UK’s ambassador in Brussels, which was especially helpful when I became the chair of the Economic and Monetary Affairs Committee and had a scrap or two while finding my feet.
I welcome the UK-Japan trade agreement. Trade agreements are not simple or speedy matters, and the corollary to that is recognition that this one is an achievement—although in my previous EU Parliament role I knew what was going on during trade negotiations and did not have to wait until the end. I have at times wondered what planet trade negotiators were on—and I say that in a friendly way, having once contemplated being one. But the fact is the negotiations are political, detailed, complex and slow. They remind me of the science fiction story “The Waitabits”, where the alien planet operated on such a slower timescale that it was described as “unconquerable”. Maybe that is the point of trade deals; there should be no great victory of one side over another and no conquering, nor any need for exaggerated boasting.
I did not expect massive changes on goods, but there are some interesting things in the detail, such as tariffs on UK products being applied upon arrival rather than applied for in advance, which looks happily streamlined, at least until the point when products arrive to find the low-tariff quota already filled. One hopes that will be worked through to something that really works in the end.
On services, there are changes in direction compared with the EU-Japan agreement, especially digital services, and that gives rise to questions about where they lead over time and what may have become a change in policy that might otherwise have been expected to be in primary legislation. Digital trade moves towards positions in the United States-Mexico-Canada Agreement and setting the UK up for accession to the CPTPP. I understand that positioning, but I am not certain of how much is now rendered a fait accompli and how much marks a potential path that will still have subsequent monitoring by Parliament. Perhaps the Minister could give more guidance on that.
There is no denying that data is important to the digital economy, and there are global differences of opinion on who owns it. Put crudely, the EU considers that it is owned by the individual, the US that it is owned by companies, and China that it is owned by the state. How far down the track from the EU to the US position has the UK gone, and how will Parliament be involved in the detail?
I broadly welcome the agreements around intellectual property but, again, the devil will be in the detail. Simplified trademark registration is welcome. Given the difficulty in protecting algorithms by formal mechanisms, I understand the reasons for agreeing that there should not be forced disclosure. However, can the Minister confirm that this will not result in lack of information concerning accountability and oversight over automated decision-making, especially vis-à-vis individuals’ rights to explanation and inferences? I think the A-level results fiasco taught us all a thing or two about surprising and wrong things that can be found in algorithms and consequential inferences affecting people. It is necessary to be able to have explanations and understanding of the parameters that are used even if algorithms are not disclosed. Can the Minister confirm that requirements for this type of information are not prevented by the agreement?
(3 years, 9 months ago)
Lords ChamberMy Lords, I thank the Minister for some of the considerations on which he elaborated around some of the penalties, but I find it hard to accept this in principle. The information-gathering procedures in the Bill seem without any limit on them in the Bill—an unreasonable measure. To try to find a way to tackle that, I tabled three amendments. I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Vaux, for signing Amendment 62A on the small business exemption. From among the amendments, we hoped the Minister might consider adopting that one or come forward with a version for Third Reading.
Understanding why the penalty provision is unreasonable requires analysis of the background. Section 5 of the Enterprise Act 2002 gives the CMA an information-gathering function for obtaining, compiling and keeping under review information about matters relating to the carrying out of its functions; it does not give a fining power in order to compel businesses to respond. Such compulsion can come later, at a stage when a market study is undertaken, but the circumstances then are that some suspicion exists that businesses themselves have contributed to failures in the market. In contrast, Clause 38 of this Bill gives the CMA, in connection with reports under Clauses 31 to 34, or under Section 5 of the Enterprise Act when it concerns those clauses, the power to collect information and impose penalties on individuals and businesses in order to make them respond.
This power exceeds what the CMA can do for ordinary information gathering, and the provisions are a copy and paste of the powers that accompany the stronger measure of a CMA market study. But there has not been any corresponding copying of the other conditions that surround a market study; nor is it a comparable situation to a market study, because there is no suggestion that the things being investigated might be happening because of what businesses themselves are doing.
The powers in this Bill are about investigating regulations, which is entirely beyond the control of business, and there is no wrongdoing by business. These investigations are about circumstances created by legislatures and which legislatures wish to investigate. It is more comparable to a departmental consultation than to a market study, so what is the justification for coercing and burdening businesses, even if the Minister says there will be rules making that perhaps a bit less onerous? In Committee, the noble Lord, Lord Tyrie, said of these powers:
“The argument that they were derived from legislation the purpose of which was very different is well taken and might point to further amendment.”—[Official Report, 4/11/20; col. 726.]
That is the view of the recent, former chair of the CMA.
One of my amendments would delete the penalties clause, which is really what I think should be done, although I see little hope of persuading the Minister. My second attempt, Amendment 63B, tried to recreate some of the circumstances of a market study, but as the Minister recently confirmed that only regulations can be investigated, not business cases, it does not fit and it does not work. So my third attempt—Amendment 62A—concentrating where it really matters, exempts small businesses from the penalties. It uses the small business definition from the Companies Act, expanded to cover non-company structures. The Companies Act recognises that small businesses should have a lesser public interest burden by exemption from some filings and it recognises that in primary legislation—it does not rely upon regulations or codes of conduct. Why not apply similar logic here?
Small businesses do not all have the wherewithal to respond to onerous consultations, although many will help when they can, but the information requirements in this Bill can require work to be done or attendance at a given place, both causing financial loss. There is no compensation save travel expenses. Yes, there is a “without good reason” defence, but the smallest businesses cannot afford a legal challenge even if they knew of the defence.
Perhaps the CMA will be reasonable itself in setting its code of practice. The Minister hopes so, but there is no certainty, and a notice detailing applicable penalties is a frightening thing. Of course, it belongs to another culture, in which the CMA’s core functions require confrontation with business and suspicion that businesses and companies are doing wrong.
In Committee I asked the Minister what would constitute a reasonable excuse, giving a wide range of examples relative to small businesses. I got no reply, nor have I had a written reply despite having asked for one—although I know the Minister is very busy, not least writing to colleagues.
This is a huge encroachment on civil liberties and the freedom to conduct business. I hope that, at this 11th hour, the Minister will listen and come back with something at Third Reading to put in the Bill that reinforces the statements he has made. But, if there is not that prospect, this is a matter of deep principle—and I speak as somebody who ran a small business for 30 years—and I must give notice of my intention to call a vote on Amendment 62A if negotiations cannot proceed at Third Reading.
My Lords, I am delighted that my noble friend has listened to many of the concerns raised in Committee. I also welcome his saying that the Government will consult carefully on penalties, and the penalties will be limited. I thank him for saying that the needs of small businesses will be taken into account as well.
However, I cannot help but continue to support the amendment in the name of the noble Baroness, Lady Bowles, which I have added my name to, alongside the noble Lord, Lord Vaux, because the points she made seem most persuasive. She has clearly explained that the proposed penalty regime is not comparable with that of the current CMA, despite my noble friend indicating that it is.
The penalties under the CMA would apply in cases where firms are suspected of wrongdoing or unfair competition or practices. But it has already been acknowledged by my noble friends Lord True and Lord Tyrie that the Bill is concerned here merely with data gathering itself, such as would occur in consultations or calls for evidence, rather than information requests that follow from suspected failures. Therefore, I urge my noble friend the Minister to reconsider the position that many small businesses could find themselves in if information is demanded of them under these powers. It would take scarce corporate resources away from operating the business and is likely to pose significant difficulties for firms that do not have lots of employees available to comply with such an information request.
I point out to my noble friend the Minister from these Benches—as a member of a party that has always been the friend of small business and has promoted the value and virtue of people starting up businesses and running small firms themselves—that there is a significant risk here of imposing unreasonable burdens. I echo the call from the noble Baroness, Lady Bowles, for a meeting with him before Third Reading to see if we can find a form of words that the Government could accept, to avoid the need for a vote on Report.
I hope my noble friend understands that this is about a fear that the Bill imposes unreasonable and abnormal demands. For example, on pensions, the Pensions Regulator has not previously had the power to demand information from schemes unless it suspected wrongdoing. I hope we can find a way in this Bill to exempt small businesses from this burden and the potential threat of penalties.
In moving this amendment, I am sorry that the Minister is not prepared to negotiate further about small businesses. I am also sorry that the noble Baroness, Lady Hayter, and Labour do not seem to think that small businesses—which are the backbone of jobs and the economy in this country—are a sufficiently serious matter. I consider that allowing businesses to have the freedom to conduct their business without obstruction when they have done no wrong is quite a serious constitutional matter. Therefore, I wish to test the opinion of the House and to record my vote and those of my colleagues.
My Lords, the amendment in my name and that of the noble Lord, Lord Stevenson, borrows much from other amendments tabled in Committee and on Report, and credit is due to the authors of those amendments.
This amendment has three purposes. The first is to take the OIM out of the CMA after six months and set it up independently, using the budget already allocated for that purpose. For appointments to the OIM the Secretary of State must consult and seek the consent of Scottish and Welsh Ministers and the Department for the Economy in Northern Ireland.
The second purpose is enabling, not compulsory. It is to allow the OIM to become the competent body to investigate harmful and distorted subsidies and subsidy races made by any Administration within the United Kingdom that relate to harm within the United Kingdom. This can happen only after public consultation about state aid provisions, which the Government have already said will take place, and requires the consent of the devolved Administrations. The OIM will also, subject to the devolved Administrations’ agreement, be empowered to make recommendations to the Secretary of State for changes to the tests for harmful subsidies, and to its powers and functions. Finally, there is to be a general review of the competence of the OIM between three and five years after Section 30 comes into force.
The changes, following the devolved Administrations’ agreement, can be brought about by affirmative regulation. Overall, the amendment solves the problem of the unsatisfactory location of the OIM in the CMA and gives a vision for the consensual evolution of the OIM in its investigations of subsidy effects.
We have already debated, in Committee and since, why the CMA is not the right body. The mismatch stems from three sources. First, the CMA is expert in matters that are reserved, not devolved. Secondly, the CMA deals largely with disturbances to the market caused by market participants, whether that be through anti-competitive activities such as cartels, or through market concentration—which is culturally very different from looking at the actions of Administrations as they affect markets in the context of devolution. Thirdly, the tie to BEIS does not make it neutrally positioned in how it is embedded, or perceived, no matter what its objectives may be.
To some extent this proposal follows the TRA precedent of setting up in one location and spinning off, utilising whatever preliminary work has been done. Furthermore, if there is to be a body to examine subsidies —and it is an ‘if’ that can develop in the light of experience—an independent OIM, specialising in the workings of devolution, would seem the right home. As required, I give notice that it is my intention to test the opinion of the House on this amendment. I beg to move.
I support this amendment, the remarks of the noble Baroness, Lady Bowles, on these matters, and the need to have the OIM and CMA working at arm’s length. I have spoken several times on the need to have an office of the internal market that is at arm’s length from all government and is responsive to the needs and reservations of every nation—Wales, Scotland, Northern Ireland, and, yes, England. I would prefer the OIM to be required to obtain the consent of all four nations, but I accept the wording in this amendment as a significant step in the right direction. I am very happy to support it and to vote for it if a vote is taken.
My Lords, I thank all those who have participated in this short debate. Some very telling points have been made, yet again, regarding separating the OIM from the CMA.
As noble Lords will know, this is not the first amendment to include proposed subsections (1), (2) and (5); indeed, we had hoped to be able to vote on that amendment, but the timing did not work. I will not conceal from your Lordships that this amendment was constructed so that we had something to vote on.
It is important. The parts that extract the OIM from the CMA are immediately functional. The rest is written so that it is fail-safe—and perhaps, as the noble Baroness, Lady Neville-Rolfe, astutely pointed out, it may never happen. It does not stop there being some further primary legislation to make it happen, but, of course, there are restrictions on what it is possible to put in when there are identical amendments already tabled. Therefore, this is not the end of the road on the wording of this amendment, but it does a lot more good than harm by inserting it into the Bill at this stage. I wish to test the opinion of the House.