Economic Activity of Public Bodies (Overseas Matters) Bill

Baroness Drake Excerpts

Committee stage
Tuesday 14th May 2024 Lords Chamber

Moved by

[Baroness Drake]

27: The Schedule, page 12, line 26, after “financial”, insert “risk, impact and”
Member’s explanatory statement
This amendment seeks to allow decision-makers in public bodies to consider the financial risk and impact associated with, for example, the delivery of contracted goods and services and the investments in the Local Government Pension Scheme, without falling foul of the prohibition.

[Baroness Drake (Lab)]

My Lords, in moving Amendment 27, I shall speak in support of Amendments 45 and 46A in this group.

Part 2 of the Schedule allows exceptions for certain types of consideration from the prohibition in Clause 1. Amendment 27 seeks to expand on those exceptions by adding financial risk and impact alongside financial value and practical utility as considerations that decision-makers can have regard to without violating the prohibition. This would allow considerations of material financial risk and impact when making investment decisions in the local government pension scheme and public procurement decisions without falling foul of the prohibition.

The current wording of the Bill, which explicitly accepts consideration of financial value but not consideration of financial risk and impact, leaves investment decisions informed by such considerations exposed to legal challenges, alleging that they are influenced by political or moral disapproval. The LGPS has no trustees, but it does have decision-makers who carry judiciary-like duties requiring consideration of financial risk and impact, as recognised by the Law Commission; government legislation; statutory guidance from the Secretary of State; the Financial Markets Law Committee; and the expectations of the Pensions Regulator. All investments and divestments have territorial considerations and country-specific factors.

The Minister advises that the Government intend the word “value” to cover financial risk and impact, but relying on the exception of consideration of financial value does not suffice to address the problem of the potential for legal challenge. Financial risk and impact encompass wider consideration for informed decision-making, particularly long-term investments held by pension schemes. Financial value, financial impact and financial risk are referenced by financial services and government legislation; they are related, but separate. Financial value is narrower, often linked to the price of an investment or asset reflecting market view at a point in time.

Considering material financial risk an impact inherent in any investment is fundamental to making informed decisions on the likelihood of achieving financial goals. The chilling effect of a widely drawn prohibition, the very narrow wording of the exceptions for certain considerations and the fear of legal uncertainty and litigation risk undermining the effective fulfilment of judiciary and public duties. Banning public bodies from imposing their own direct or indirect boycotts, disinvestment or sanctions campaigns may be a manifesto commitment, but the manner of its implementation should not give rise to legal uncertainty or perverse consequences when considered through the lens of the public good. Unfortunately, this Bill has those consequences.

Litigation risk will come not only from traditional domestic organisations that lobby for particular social or non-financial considerations to be embedded into LGPS decision-making. The real concern emerging is that the Bill opens up the potential for legal challenge from proxies for Governments abroad or bodies corporate with particular commercial interests in areas where no formal sanctions or other restrictions are in place. Such challenges may be made not in good faith but, rather, from the sectoral, commercial or national interest of those raising the challenge. Anyone under this Bill with sufficient interest could seek judicial review as to whether an investment decision, influenced by consideration of financial risk or impact, was influenced by political or moral disapproval. Similar reasoning applies to those who make procurement decisions in the interests of the taxpayer.

Explicitly accepting financial risk and impact considerations from the prohibition is necessary if decision-makers are to meet their current statutory obligations or duties to illustrate. The DWP’s recent Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 made it clear that decision-makers should cover the level of risk in relation to the intended investment of the assets. They are obliged to consider the risk in the investments in addition to their value.

The local government pensions scheme is a statutory occupational pension scheme, subject to Secretary of State oversight and statutory guidance. The Local Government Pension Scheme (Management and Investment of Funds) Regulations, which cover investment strategy statements, refer to and set requirement for both value and risk. Investment strategy must include how risks are assessed and managed. Following the Law Commission report, Fiduciary Duties of Investment Intermediaries, the Government introduced statutory guidance to require the LGPS to publish its policy on how social, environmental and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments and to consider any factors that are financially material to investment performance—considerations which Amendment 46A, in the name of my noble friend Lord Collins, rightly seeks to protect.

Indeed, recent guidance published by the DWP on its website advises decision-makers to

“integrate financially material ESG factors into their decisions”

on investment and stewardship

“and seek the best possible risk-adjusted returns for the duration of their investments”.

Regulation again requires the LGPS to have a policy on how it exercises stewardship. The Bill, by not excepting financial risk and impact considerations from the prohibition, exposes the scheme to litigation in exercising those stewardship duties, as a result of any statements, views, conversations, votes cast, et cetera, during the engagement with the companies that it invests in. That undermines effective stewardship activities.

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[Baroness Neville-Rolfe (Con)]

I can reassure the noble and learned Lord that lawyers have been involved in drafting the Bill, as he can probably imagine. I tried to set out quite clearly at the beginning why we felt that the wording we got was right; that included financial impact. I have subsequently clarified the point about motivation and financial risk.

In the excitement, I have lost my place. I was asked about the effect of removing Clause 12, and was hoping to be able to answer the noble Lord. Removing the clause would mean that the ban would not apply to the fund investment decisions of administering authorities of LGPS. The administering authorities are local authorities, which are clearly a core part of the state and are therefore public authorities for the purposes of Section 6 of the Human Rights Act. That is why they are the only pension funds captured by the Bill. We have seen clear examples of local authorities attempting to engage in BDS activity in the past. It would not be appropriate to apply the ban to funds administered by private entities, such as the Universities Superannuation Scheme.

As I have argued before, council tax payers should be able to expect their local councils to exert time and effort on solving local issues, rather than spending time thinking about boycotts of foreign states when, as the noble Lord has said, the beneficiaries expect the responsible authorities to concentrate on returns and the ongoing viability of their investments in the interests of the beneficiaries. If the Bill were to stand without Clause 12, councils coming under pressure to develop their own policies on divisive international issues would be pushed towards an LGPS loophole to implement BDS campaigns.

The priority for these funds should be to provide stability and good long-term returns for the hard-working local government officials who are their members. We now know that this includes the noble Lord, Lord Warner, the noble Baroness, Lady Janke, and others. The Bill helps the administering authorities not to be distracted from this important purpose, and to focus on returns in a responsible, long-term way. For these reasons, I ask noble Lords not to press their amendments and not to oppose the question that Clause 12 stand part of the Bill.

[Baroness Drake (Lab)]

My Lords, I thank everyone for participating in this debate, particularly those who supported my amendment.

I should make it clear that I have not actually challenged the manifesto commitment; lots of others do, but I have not. I have challenged that the manner of its implementation introduces legal uncertainty and perverse consequences: inviting a wider range of legal challenges and judicial review. It would seem good business to address that.

The Minister says that she hopes I am assured by the Government’s assurances, but it is not me who needs the Government’s assurances; I am not a decision-maker in the Local Government Pension Scheme or in public procurement. Most people know that I am a trustee, but I am not in a local government pension scheme. It is those with the concerns—I know they have them—and the decision-making responsibility who are not reassured by these statements, and were not reassured by the statement of the Secretary of State.

We can stand on these Benches and argue between ourselves as to what “financial” does or does not embrace —I can bore you with 30 years of experience and what legal guidance I have had as a trustee—but that does not matter. We have an uncertainty; we are resting on a government statement that it is not uncertain, but we are already uncertain as to whether it includes impact. We could simply address the issue and put “financial risk” as one of the explicit considerations that need not necessarily fall foul of the Bill. I have not heard a single good reason today why such a simple tweak could not address this issue. I have had wider discussions on a whole range of things. It is not only me but people I have spoken to—who will be engaged in decision-making—who believe it opens up the range for judicial review and legal challenge, and feel it has legal uncertainty. It seems to be good sense, when you are looking at a fund of £360 billion, that when those concerns are expressed, you address them.

The Bill creates a whole new machinery that allows the checking of the integrity of local government pension scheme investment decisions against a new set of criteria. That has opened up new grounds for judicial review and given opportunities or succour to possibly bad-faith actors. Legal proceedings could demand to know all the details of exchanges and engagement in discharging stewardship duties, to see whether an investment decision fell within an accepted category. In a £360 billion local government pension scheme, I would want to nail that. If I was a government department and was going to introduce that machinery—which suddenly introduces a whole new set of criteria for investment decisions—I would want to nail down the range of areas under which local government pension scheme decision-makers could be attacked.

There is uncertainty. I quote from the Financial Markets Law Committee report, which the Government have endorsed and think is a good idea. It says that

“investment decisions have all become more challenging in the context of sustainability and the subject of climate change … Today it is sometimes easier to state the duties than it is to apply them”.

Well, the Bill makes it even more difficult to apply them. It brings a whole new range of criteria and invites legal uncertainty at the same time, because we cannot agree on the definition of “financial value”, but if we added a tweak, such as risk and impact, we could nail some of this. As has been said, why can we not just lock it down and get rid of some of this uncertainty?

We have some guidance on impact. I cannot bring every reference document that I would bring to the table if I was sitting in a negotiating room, but we have very new guidance from the DWP, on its website, on social factors and the impact. These are not the only factors, but it gives a meaning to “impact”:

“the impact of social factors on an investment”

or the “impacts of an investment”. It is a pretty wide range. In fact, on ESG, the statutory guidance to local government says that it can consider any factor that is financially material to investment principles. So we can track from the Government’s own publication what impact means. The Minister referred to having government lawyers; they will have drafted some of those documents.

The explanatory statement to Amendment 46A says that its intention is for there to be the ability to carry on applying ESG factors in the way they have traditionally been applied. We know what that means in local government, because it is set out very clearly in statutory guidance.

On the issue of territorial matters, I tried to give an extreme example—passive funds. Anybody who is a trustee knows what passive funds are. On the logic of this, unless we put “risk” in very clearly, if you have a passive fund that does climate transaction benchmarks, you might be liable to someone saying, “Well, there was a company or a country in there that was screened out; did you individually interrogate the way in which that passive fund that you invested in was screened out?”. I know that is extreme, but this is the situation we get into unless issues such as impact and risk—clearly legitimate factors to take into account, as set out in statutory guidance from the relevant department to LGPS—can unequivocally be taken into account.

The noble Baroness, Lady Altmann, spent a lot of time referring to the Local Government Pension Scheme as a statutory pension scheme; it is not a trust-based scheme. Absolutely—I mentioned that because I wanted to set out that I understood that distinction because it is not relevant to the point I am making. It is not relevant to the point that it is ambiguous and uncertain under the terms of this legislation.

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[Lord Gascoigne (Con)]

I ask the noble Baroness to be brief.

[Baroness Drake (Lab)]

I will say my last sentence.

[Lord Collins of Highbury (Lab)]

The rules say “normally brief” but I think the Committee would like to hear from my noble friend on this important issue.

[Lord Gascoigne (Con)]

With respect, I am not stopping the noble Baroness; I am just asking her to be brief.

[Baroness Drake (Lab)]

I will accept the constraint.

Finally, I take the point about lawyers having been involved in drafting this. I do not mean to be rude but in the area of investment and pension decisions, the road is littered with government-cleared legislation and regulation that has ended up being problematic or challenged in the courts and having to be revisited. I do not think we can rely wholly on that argument.

I think my amendment is being overblown. It is very clear that there is a problem, and that those engaged in this decision-making feel that there is a problem. The Government are opening up areas of legal uncertainty. We can nail it with a couple of words. I beg leave to withdraw the amendment.

Amendment 27 withdrawn.

Economic Activity of Public Bodies (Overseas Matters) Bill

Baroness Drake Excerpts

Committee stage
Tuesday 14th May 2024 Lords Chamber

[Baroness Drake (Lab)]

As chair of the Constitution Committee, I should say that the answer from the Government went on to say that declarations could be as harmful as the boycotts themselves, and that was deployed in defence. It is quite right to clarify the point made by the noble Lord, Lord Beith, on what constitutes a declaration that does or does not fall under the qualification in paragraph 6 of the Minister’s reply to the Constitution Committee. I do not seek to express a view; I am just saying that there is that undefined element.

[Baroness Neville-Rolfe (Con)]

I note the point that the noble Baroness has made. We did reply to the Constitution Committee, but I will reflect further on this point.

My noble friend Lady Noakes said that there had been some confusion due to the use of the term “person”, which I have already referred to. To respond to the point raised by the noble Lord, Lord Hendy, in the context of this clause, the legal term “person” refers only to a person subject to this Bill’s ban. In other words, it refers only to a public authority as defined in Section 6 of the Human Rights Act 1998. The legal term “person” does not have the same meaning as in normal English. This is standard legal drafting.

Additionally, for the purposes of this Bill, decision-makers are public authorities—as explained by my noble friend Lady Noakes and confirmed in Clause 2(1) of the Bill, which I have just referred to. Public authorities will delegate decision-making to individuals, but individuals’ decisions or statements are captured only when they are made on behalf of the public authority. This issue was also discussed in Committee in the other place. It was because we listened to the concerns raised on this point that we revised paragraphs 32 and 33 of the Explanatory Notes. Paragraph 32 states:

“As only public authorities are subject to clause 1, this clause is strictly limited to the actions of public authorities”


and therefore not individuals associated with public authorities. I think that goes three-quarters of the way to answering the question asked by the noble Baroness, Lady Chapman, but I will follow up.

I hope that makes it clear that this Bill is not an assault or restriction on the principle of free speech. Rather, it aims to ensure that the UK speaks with one voice internationally. Public authorities should not be pursuing their own foreign policy agenda or publishing statements on foreign policy. It distracts from their core duties. Clause 4 will support those bodies to remain focused on that purpose. It is a core part of the Bill and meets the manifesto commitment to ban public bodies from imposing their own direct or indirect boycott, divestment or sanctions campaigns against countries and territories.

Briefly to address Amendment 33, and the point raised by the noble Baroness, Lady Chapman, I remind the Committee of just how divisive of community cohesion within the United Kingdom declarations of intent to boycott can be. That includes statements made by public authorities that indicate that they would intend to participate in boycotts and divestments if it were legal to do so. The right reverend Prelate the Bishop of Manchester, who I am very glad has joined our discussions, will have noted what I said about elected officials, including councillors, expressing a view which is not related to the narrow purpose of this Bill. He asked for an example of our concern. We saw a good example in Leicester, which my noble friend Lady Noakes referred to. In its resolution in 2014, Leicester City Council passed a motion targeting the activity of the Israeli state with a boycott

“insofar as legal considerations allow”.

The motion was widely condemned by Jewish groups and was extremely divisive. This demonstrates the need to ban statements of intent to boycott or divest which express—

Permanent Secretaries: Appointment and Removal (Constitution Committee Report)

Baroness Drake Excerpts

Thursday 9th May 2024 Grand Committee

Moved by

[Baroness Drake]

To move that this House takes note of the Report from the Constitution Committee Permanent Secretaries: their appointment and removal (17th Report, Session 2022-23, HL Paper 258).

[Baroness Drake (Lab)]

My Lords, between 2013 and 2020, the number of Permanent Secretaries leaving averaged 5.7 a year. In 2020, 12 Permanent Secretaries or equivalents left their posts, including the Cabinet Secretary. In September 2022, the Treasury Permanent Secretary, Sir Tom Scholar, left his post on the day the right honourable Elizabeth Truss MP became Prime Minister. This was widely reported as a sacking, in order to move economic policy away from “Treasury orthodoxy”. Simon Case confirmed that there was no question of underperformance by Sir Tom Scholar. On the same day, Sir Stephen Lovegrove was moved from the role of National Security Adviser, a move that the noble Lord, Lord Sedwill, described as being “without merit”.

Since the Constitution Committee’s 2012 report, The Accountability of Civil Servants, the relationship between Ministers and civil servants had become more exposed and controversial. Recent departures raised questions about the nature of ministerial involvement in appointments and departures, and the possible desire to appoint politically sympathetic candidates. The committee decided to inquire into safeguarding the constitutional balance required on the appointment and removal of Permanent Secretaries.

The Civil Service Code sets out the role of the Civil Service as

“an integral and key part of the government of the UK”

that

“supports the government of the day in developing and implementing its policies”,

carrying this out with dedication to the core values of integrity, honesty, objectivity and impartiality. The code was put on a statutory basis by the Constitutional Reform and Governance Act 2010—CRaG—and those values are reflected in the Act’s minimum requirements that civil servants

“carry out their duties for the assistance of the administration as it is duly constituted for the time being, whatever its political complexion”.

The committee concluded that the impartiality and perceived impartiality of the Civil Service is a central tenet of our constitution and not seriously challenged. It recommended that any fundamental challenges must be made consciously and openly, with careful scrutiny and cross-party agreement. Under no circumstances should significant changes to the constitutional balance of the appointment and departure process for senior civil servants take place through unscrutinised evolution of practice. Can the Minister unequivocally confirm that the Government agree with those conclusions?

The CRaG Act placed the Civil Service Commission and the principles of recruitment on a statutory basis, embedding appointment on merit and after fair and open competition, and granting the Prime Minister power to manage the Civil Service. A memorandum of understanding agreed in 2010 set out the respective responsibilities of the Government and the commission, which,

“in discharging its functions, is independent of the Government and the Civil Service”.

Simon Case, the Cabinet Secretary, told us that the memorandum “requires updating”, and that a new framework was expected to be finalised in the coming months. When can we expect the new framework agreement to be published? Will it make clear that the CRaG Act allows the commission to assert greater independence, should it wish to, as the committee was advised by the Cabinet Secretary?

The recruitment principles published by the commission provide for ministerial involvement. In summary, Ministers can input into the job description, the person specification and the composition of the panel, and they can meet candidates. That provision is to operate in a manner that preserves the principle of merit and prevents engineering in favour of a preferred candidate. The first commissioner said:

“We give permission to appoint. It is not a duty to appoint”.


The committee concluded that that provision strikes an appropriate balance.

It was apparent, however, that Ministers were not sufficiently aware of the extent of their influence over appointments, or the limits on it. As noble Lord, Lord Maude, observed, Ministers already had

“a high degree of involvement in the appointment of permanent secretaries and directors general”,

but there was a case for more transparency. This echoed the concerns of the First Civil Service Commissioner.

It is incumbent upon Permanent Secretaries to brief incoming Ministers on how they can be involved in the appointment of civil servants, which should help to avoid some tensions. For very senior appointments, the Civil Service Senior Appointments Protocol applies. It provides for the selection route—an external or internal competition or a managed move—to be decided by the Senior Leadership Committee. The First Civil Service Commissioner and the Cabinet Secretary appeared to have different nuances as to who decides on the selection route. The Cabinet Secretary agreed to revise the protocol to reflect current working practices—in which, in our understanding, the Cabinet Secretary and the Prime Minister decide.

We found the Senior Leadership Committee to be an opaque body; its role was described in apparently contradictory terms. We recommended that its considerations should be as transparent as possible, providing the commission with an annual account of its activities. We found the governance concerning selection routes for very senior appointments to be convoluted and unclear. The Civil Service Senior Appointments Protocol and the Recruitment Principles should both be updated to provide the necessary clarity. The Cabinet Secretary, consulting the First Civil Service Commissioner, committed to ensure that this will be done. Will the Minister update the Committee on when we can expect to see an updated protocol? What processes have been put in place to give greater transparency to the work of the Senior Leadership Committee?

Simon Case told us that discussions had taken place through the Senior Leadership Committee, the Civil Service Commission and ACOBA—the Advisory Committee on Business Appointments—on how to make external by default recruitment work, and that proposals were imminent. We look forward to seeing the forthcoming work on the rules concerning business appointments.

The noble Lord, Lord Pickles, chair of ACOBA, wrote to the committee, welcoming our work on safeguarding the constitutional balance and advising that,

“ACOBA has long argued that”

the business appointment rules

“are not fit for purpose”.

Will the Minister update the Committee on the Government’s implementation of their proposals on reforming the business appointment rules, changes to Civil Service contracts and a ministerial deed to make the business appointment rules more enforceable?

The Recruitment Principles do not apply to the Cabinet Secretary, who is appointed by the Prime Minister on the advice of the retiring Cabinet Secretary and the First Civil Service Commissioner. The committee recommended that, given the importance of that role, including as head of the Civil Service, the appointment process should be made more open and transparent while maintaining that the Prime Minister make the final choice. The current and previous first commissioners share that view. It would also have the merit of strengthening Permanent Secretaries’ confidence in the management of the Civil Service.

Speculation about the role of special advisers in the appointment of senior civil servants has also impacted confidence. Alex Thomas from the Institute for Government captured the problem in his expression of concern at the idea that a special adviser such as Mr Cummings might purport to have recruited or dismissed officials. He said:

“We only have his tweets and evidence to go on … but I think that Dominic Cummings’s sense of, ‘I appointed so-and-so’, or ‘I dismissed so-and-so’, is deeply unhealthy. It obviously formally comes back to the Prime Minister and is done in the name of the Prime Minister. A reinforcement and underpinning of that important principle would not go amiss”.


The noble Baroness, Lady Stuart, the First Civil Service Commissioner, expressed her view that:

“The two absolute red lines … are, first, that Ministers cannot see candidates without the presence of a commissioner or representative of the commission; and, secondly, that special advisers must play no role in the … process … They cannot be in the room”.


The committee concluded that, although discussions between Ministers and special advisers are impossible to regulate, the decision with respect to appointments must be that of the Minister. Special advisers must not be formally involved or make public statements. What further measures are being taken to ensure that Ministers and special advisers understand that?

In the rare circumstances a Permanent Secretary is dismissed on performance or misconduct grounds, this is a human resources matter, which should follow the process of performance and misconduct management outlined by the Cabinet Office. Problems arise if ministerial conduct appears to undermine that due process. Confidence in the departure process requires careful scrutiny. The committee recommended that the Civil Service Commission should play a role in the dismissal or departure of senior civil servants on performance or conduct grounds by ensuring that due process is followed.

Recent removals on what appear to be political or ideological grounds might indicate insufficient procedural safeguards around departures. We recognise that a Permanent Secretary has to foster a positive relationship with the Secretary of State. However, forming a positive relationship is a two-way process. Incoming Ministers should allow Permanent Secretaries time to establish a productive relationship before seeking their removal.

The committee concluded that there is a case for formalising the departure process in situations where there is no issue of performance or misconduct. It recommended that the process should be set out in writing, requiring Ministers and the Prime Minister to explain to the Civil Service Commission—in private if necessary—their decision to remove a senior civil servant. A written record of the decision and the reasons for it should be kept. These processes would need to be sufficiently flexible to allow a Minister to replace at short notice where a working relationship has broken down.

The critical point about the departures of Sir Tom Scholar and Sir Stephen Lovegrove was the extremely short timeframe in which the decisions were enacted. It conveys that no meaningful process could have possibly been followed. Some recent high-profile removals have been conducted in the public eye and might be seen to reflect a desire on the part of Ministers to personalise appointments and assert their authority.

Some witnesses were of the view that in recent years Ministers have been more willing to make a public statement by dispensing with the services of a civil servant. Such behaviour risks senior Civil Service turnover coinciding with ministerial churn, reinforcing the perception of politicisation, damaging institutional knowledge—we probably saw this acutely in the case of Sir Tom Scholar—and weakening the governance of the country. What steps are the Government taking to mitigate the potentially chilling effects on civil servants of the perception that recent high-profile removals of Permanent Secretaries lacked merit or due process, or were driven by personalisation or political grounds?

There was also concern that high-profile removals of senior civil servants could lead to officials hedging their advice. This is particularly pertinent to Permanent Secretaries’ role as accounting officers, with a duty to

“assure Parliament and the public of high standards of probity in the management of public funds”.

They routinely scrutinise proposed government policy against the criteria of probity, propriety, value for money and feasibility. The accounting officer function is a valuable aspect of the constitution, relying on speaking truth to power. A shift towards ministerial patronage risks a chilling effect, to the detriment of the public interest.

I turn to the issue of devolved Administrations. For Permanent Secretaries and their equivalents who are accountable to the Scottish or Welsh Government but who belong to the UK Civil Service organisation, there is potential for confusion about the boundary between devolved competence and reserved matters. The most pertinent recent example was the First Minister of Scotland’s decision in March 2023 to appoint a Minister for Independence. Simon Case agreed that

“it would be ‘unusual and a bit worrying’ if civil servants in Scotland were supporting an effort to ‘break up the United Kingdom’ and provided assurances that he was examining this issue to determine whether ‘further guidance and clarification’ should be issued to civil servants ‘about what is and is not appropriate spending’”.

The committee was concerned about this point—indeed, it still is. It concluded that

“it is important that the principle of a single civil service across England, Wales and Scotland is maintained”.

It said that the Cabinet Secretary must

“manage challenges as they arise”

and provide clarity that senior

“civil servants … should work and spend public funds exclusively on matters within devolved competence”.

When will further guidance and clarification be issued to senior civil servants in Scotland and Wales? What guidance is given to Permanent Secretaries in Scotland and Wales on seeking a written direction from the relevant devolved Minister?

I conclude where I opened, with the committee’s conclusion:

“Under no circumstances should significant changes to the constitutional balance of the appointment and departure processes for civil servants take place through unscrutinised evolution of practice”.


I beg to move.

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[Baroness Drake (Lab)]

My Lords, I thank the Minister and everyone who has participated in this debate. It has been hugely important for me because I am always reading and thinking about these issues, and I have learned a lot for when I go back to the committee. Even if I do not agree, it is important to understand what people think because you cannot solve a problem without understanding what all the parties to an issue feel.

I shall start with the Minister’s response and then pick up one or two points that came up in the debate. I thank the Minister for many of the positives in her response. I note that things are moving apace on the framework agreement, the protocols, the Senior Leadership Team, the business appointment rules and the guidance for civil servants in Scotland and Wales. One of the problems is that it is the consistent experience of the Constitution Committee that we get letters assuring us that work is moving at pace and is in progress and that we will get revised editions shortly, but they do not materialise. That is a pattern that is building up. I hope that it does not happen in this case and that we see the product and do not end up with another Constitution Committee report in three years’ time saying, “We put all this and there were all these promises, but they didn’t materialise”. I urge the Minister to stay on the case so that we see the revised documents.

Regarding the involvement of the Civil Service Commission in departures, we did not argue that it had anything at all to do with the merits of the case. That was not part of what we said. It was that due process was followed, which is about raising confidence in the integrity of the governance structure. Not much process is set down about departures that are not based on misconduct or performance, for which there is standard Cabinet Office guidance; it is about those other areas. There is no due process, and no one has oversight of that. It was not about the merits; the report did not say that the Civil Service Commission is put in a difficult position when appointing people but asked that some process be laid out and that the commission monitors that that process has been followed in those circumstances.

The noble Lord, Lord Maude, mentioned merit and said that there is no objective test. That is true; it is the rules not of science but of judgment that come into play here. In a sense, the operationalising of how you apply that judgment is set out in the Recruitment Principles, which says that merit means,

“the appointment of the best available person judged against the published criteria for the role”.

Ministers can get involved, as the First Civil Service Commissioner pointed out, by iteratively engaging with the Civil Service Commission on the features of the job description so that their priorities are reflected in it and pursued at interview. It is quite an iterative process for Ministers in that situation. You could also try to define it by negatives: it is not done by patronage or by allowing preferred candidates because the qualifications of a Minister’s preferred candidates are not necessarily those with merit, as defined in CRaG, for the qualities of a senior civil servant.

Our key point on special advisers was that Ministers must own this decision. Special advisers will be partial—that is not a bad thing; Ministers want them to be partial—but in the recruitment of civil servants their partiality may not align with the merit that we have just been through. That is the fundamental contradiction. The noble Lord, Lord Maude, complimented the noble Baroness, Lady Stuart, on having the experience of both sides having been in the Civil Service Commission and a Minister. That is true, and it means that her red lines, which included special advisers, warrant merit because she has seen it from both sides. Special advisers can influence in a partial way something that should be decided on a more dispassionate system of judgment.

As ever, the noble Lord, Lord Young, demonstrated that it is not necessary to be directly involved in appointments or departures to care about and want to pursue improving the quality of governance and government in our democracy. It should not be reserved for privileged participants because if you have a weakness in group thinking, you will never break out of it if a closed user group are the only people who express opinions.

I accept the point about trend. On the one hand, the Government welcome that we did not see a trend while, on the other, the noble Lord, Lord Young, said, “I hope you are right”. I think you have to see it in the context of our report. He makes a legitimate point that there is a case for a deeper dive over a longer timeline into how this has evolved. We did not do that in our terms of reference and neither, strictly speaking, did we have the capacity to do so. We saw a trigger to look at this again because of what has happened since 2020, in particular, but on the evidence we had over a much shorter time period, we did not have the evidential base to say that there was a trend. If someone wants to look at it over a 20-year timescale, that would be a different issue. So, I can neither agree nor disagree because we never went there; we went for a much narrower look at things.

On the point made by the noble Lord, Lord Butler, about departures and dismissals and who can or cannot dismiss, we seized that point quite early. This is why we used the word “departures” all the way through because we did not want to go into that territory, although we knew it was difficult, for exactly the reasons the noble Lord set out, and because we have a duty of care to the senior civil servants impacted and there is a confidentiality wrap around individual cases. We therefore talked about “departures” rather than pointing to specific individuals or categories. However, early on we interrogated the issue of exactly who has the right to dismiss and what is the status of senior civil servants. That is captured in the report.

Finally, on the point made by the noble Lord, Lord Wallace, we all want the best people to lead the Civil Service for the public good and wider strategic outcomes, not just for the efficiency of Ministers. He raised the capability of senior civil servants to support a Government of whatever political complexion. There will be details of policy about how you raise the standard and skill set, but we do not go into details of policy because we are trying to capture the essential constitutional implications.

I have really enjoyed this debate and learned a lot from it. We felt strongly about this, but our remit is always to keep an eye on the constitution. I have to keep saying to my committee: “It doesn’t matter how passionate or unpassionate you feel about a given government policy. Our job is to identify its constitutional implications and calmly lay them out. It’s then for the Government and the House to respond to what we say”.

Motion agreed.

Covid-19 and the Use and Scrutiny of Emergency Powers (Constitution Committee Report)

Baroness Drake Excerpts

Tuesday 21st June 2022 Grand Committee

Moved by

[Baroness Drake]

That the Grand Committee takes note of the Report from the Constitution Committee COVID-19 and the use and scrutiny of emergency powers (3rd Report, Session 2021-22, HL Paper 15).

[Baroness Drake (Lab)]

My Lords, in June 2021, the Constitution Committee published its report COVID-19 and the Use and Scrutiny of Emergency Powers, following a broader inquiry into the constitutional implications of Covid-19 chaired by my esteemed noble friend Lady Taylor of Bolton. The social, economic and health implications of the pandemic were profound, the constitutional impact significant. The committee examined the emergency powers sought by the Government, and the extent to which they were used and how. We wanted to determine if there were lessons to be learned for future uses of the emergency powers, their safeguards and the processes for scrutinising them. We addressed four main dimensions: the legislative approach taken and parliamentary scrutiny afforded; co-ordination between the UK Government and the devolved Administrations; the impact of rapid changes to the law on the public and public authorities; and lessons learned. Inevitably, for any Government, national responses to such a fast-moving crisis can sometimes be sub-optimal. However, any Government must be open to learning lessons to inform future contingency planning. Witnesses told us that much could be done differently the next time.

I turn to the legislative approach taken and parliamentary scrutiny. The pandemic unquestionably necessitated a swift response from the Government. Two Acts of Parliament were used by the Government to make regulations: the Public Health (Control of Disease) Act 1984, and the Coronavirus Act 2020. However, scrutiny by Parliament was significantly restricted due to the procedures in the 1984 and 2020 Acts and Covid-driven changes to parliamentary proceedings. A large volume of new legislation came into effect as secondary legislation, much through public health regulations placing unprecedented restrictions on ordinary activities and freedoms, often without parliamentary approval. Of the 425 Covid regulations by the end of the 2019-21 Session, 398 were subject to the “made negative” or “made affirmative” procedures, and 86 were made using the urgency procedures under the 1984 Act. Regulations under the 2020 Act were more targeted on matters such as business tenancy forfeiture and local government elections.

The Government relied on the powers in the 1984 Act, rather than the Civil Contingencies Act 2004, and rather than incorporating a Covid-specific lockdown power in the Coronavirus Act 2020. Either of these latter two options could have resulted in greater parliamentary scrutiny and legal clarity. As a committee, we took the view that, if the use of the Civil Contingencies Act was not considered practically desirable, the Government should have voluntarily subjected themselves to comparable parliamentary scrutiny safeguards in pandemic-related legislation. We recommended that Parliament be consulted on any future draft legislation prepared on a contingency basis to address a potential emergency, ensuring that it provides for sufficient parliamentary scrutiny.

I turn to co-ordination between the UK Government and the devolved Administrations. Joint action was necessary to respond to a UK-wide crisis. The Coronavirus Act 2020 was the product of collaboration, passed with the consent of all three devolved legislatures. In the early stages, the First Ministers of Scotland and Wales and the First Minister and Deputy First Minister of Northern Ireland were invited to attend COBRA meetings. Ministers from the devolved Administrations attended meetings of five new ministerial implementation groups—MIGs—that looked at aspects of the coronavirus response. The different Administrations’ Chief Medical Officers and Chief Scientific Advisers met regularly, sharing information. The chairs of the Scottish and Welsh advisory groups on SAGE outputs were also participants in SAGE.

As the UK moved out of the first lockdown, however, although co-ordination on some devolved areas continued, such as scientific advice, procuring equipment and virus testing, intergovernmental co-operation appeared to decrease significantly. Each Administration started to take independent decisions about lockdown restrictions. On 10 May 2020, the Prime Minister announced the change from “stay at home” to “stay alert” but did not make clear that it applied to England only. This change was apparently made without informing the devolved Administrations. The UK Government set out three phases for easing lockdown restrictions in England. The Northern Ireland Executive set five, the Scottish Government four, and the Welsh Government opted for a traffic light system.

By early June 2020, both COBRA and the MIGs ceased to meet, replaced by two new Cabinet committees. Neither included representatives from the devolved Administrations. Yet the Cabinet Manual makes it clear that this is permitted on an exceptional basis to deal with an emergency response. Differences arose between parts of the UK on the countries exempt from quarantine restrictions and the international travel restrictions. This strained intergovernmental co-operation contributed to a lack of clarity about what rules applied where, causing difficulties for enforcement and compliance.

There is much to learn from the pandemic period to inform improving intergovernmental working. The Secretary of State, Michael Gove, recognised this when he

“described the pandemic as ‘a learning process for everyone’, raising broader questions about ‘making sure the whole devolution settlement works’. He said the UK Government intended to address this through reforms to intergovernmental mechanisms”.

Can I ask the Minister what consideration has been given to how the new intergovernmental relations arrangements could be deployed in the event of another national emergency similar to that created by the pandemic?

Turning to the impact of rapid changes to the law, the Constitution Committee noted that legal changes introduced were often set in guidance, or announced during media conferences, before Parliament had an opportunity to scrutinise them. The law was sometimes misrepresented in these public-facing forums, leading to a lack of clarity about what was legally enforceable. This posed challenges for the police and local government, sometimes leading to wrongful criminal charges. Guidance and media statements, when used appropriately, can enhance access to the law by simplifying legal complexity in a format that is easy to digest, but the committee found that, throughout the pandemic, government guidance and ministerial statements failed to set out the law clearly, mis-stated the law, or laid claim to legal requirements that did not exist.

Sometimes, public health advice was incorrectly enforced by the police as though it were law, and public authorities incorrectly suggested that guidance had the force of law. The report contains the detail of our findings but, as an example, on 23 March 2020, the Prime Minister announced the first England-wide lockdown in a televised address. The following day, the then Secretary of State for Health stated:

“These measures are not advice; they are rules. They will be enforced, including by the police”.—[Official Report, Commons, 24/3/20; col. 241.]


The announcement caused confusion about their meaning, with one police force threatening to search individual shopping baskets in supermarkets to check for non-essential items.

The UK Government’s website included the headline rules:

“Stay at home. Only go outside for food, health reasons, or work (but only if you cannot work from home). If you go out, stay 2 metres … away from other people at all times. Wash your hands as soon as you get home.”


The first instruction was a simplified explanation of a legal obligation. The second and third instructions were public health advice. The chair of the National Police Chiefs’ Council later had to clarify that the two-metre rule was not a legal requirement enforceable by police. The Secondary Legislation Scrutiny Committee also expressed concern that the distinction between legislation and guidance had been unclear, citing further examples.

New strains of the virus and spikes in infections made urgent legislative changes necessary, but sometimes seemingly non-urgent measures were introduced at short notice. In other cases, the urgency appears to have resulted from a lack of preparedness. The repeated repeal and amendment of Covid regulations added to confusion as to what restrictions applied at any one time. For example, on 2 and 3 September 2020 the “protected area” covered by the Health Protection (Coronavirus, Restrictions) (Blackburn with Darwen and Bradford) Regulations were amended twice in 12 hours. The Health Protection (Coronavirus, Wearing of Face Coverings in a Relevant Place) (England) Regulations 2020 were amended by three different statutory instruments made on 22 and 23 September 2020. The “all tiers” regulations were amended by eight further statutory instruments between December 2020 and March 2021.

In summary, legal uncertainty, short notice of new measures, and repeated amendment and revocation of secondary legislation combined in certain instances to undermine parliamentary scrutiny and made it difficult for public authorities tasked with enforcement to understand the law. Her Majesty’s Inspectorate of Constabulary reported:

“At times, the introduction of, and variation to, new legislation and guidance affected the police service’s ability to produce guidance and to brief staff. This inevitably led to some errors or inconsistencies in approach.”


The Secondary Legislation Scrutiny Committee recommended that an evaluation of how information about which instruments were superseded or had lapsed could have been provided more effectively. In our report, we strongly recommended that government information

“during a public health emergency conform to”

certain

“essential conditions to enable people … to understand the law”,

one such being

“A consistent approach to use of the terms ‘advice’, ‘guidance’, ‘recommendation’, ‘rules’ and ‘restrictions’”,


because those descriptions clearly did not have the clarity that people needed, and that in enacting any further restrictions,

“the Government should be guided by the principles of certainty, clarity and transparency”.

Finally, as to lessons learned, the Government used a wide range of emergency measures to respond to the pandemic, many introducing significant curbs on civil liberties and businesses. Scrutiny of these regulations by Parliament was significantly restricted. The chair of the public inquiry into the handling of Covid says that public hearings are unlikely to begin before 2023. Can the Minister give an indication of how long the inquiry will take? We recommended a review of the use of emergency powers by the Government, and their scrutiny by Parliament. It should take place in advance of the public inquiry, not after, so that the review can inform both the public inquiry and the planning for future emergencies. Can the Minister tell us the Government’s position on this recommendation from the committee?

It is unquestionable that the Government faced an enormous challenge with Covid-19, and the first responsibility of any Government is to protect their citizens. However, I refer to a conclusion that we made:

“All governments should recognise that, however great or sudden an emergency … powers are lent, not granted, by the legislature to the executive, and such powers should be returned as swiftly and completely as possible, avoiding any spill over into permanence.”


That conclusion is probably still valid while we wait to see the outcome of the various reviews that the Government are engaged in. I look forward to the Minister’s response.

--- Later in debate ---

[Baroness Drake (Lab)]

My Lords, I thank everyone who has contributed to a really important debate, in terms not only of efficiently dealing with a national crisis of huge relevance to its citizens—I am sure this will not be the only one—but of integrity around a Government and a Parliament in how they go about protecting citizens in that emergency.

I am very grateful to the noble and learned Lord, Lord Hope, for his contribution, and particularly for stressing the importance of pre-legislative scrutiny in any amendment of the legislation. The Minister referred to any changes to legislation being subject to parliamentary scrutiny, but the Constitution Committee puts a powerful case as to why that should also include pre-legislative scrutiny. Again, I thank the noble and learned Lord for the importance he placed on the need to ensure that we work with the devolved Administrations across the UK so that we can deal with UK-wide emergencies as efficiently as possible. I thank everyone who contributed.

I will reflect on some of the points the Minister made. He took us in some detail through the 1984 public health Act and how it operated. Although I do not disagree with a lot of what the Minister said, there are two or three key messages from the Constitution Committee. The Act could have been added to by incorporating a lockdown power in the Coronavirus Act. It was not that the emergency procedures needed to be used—quite clearly there were several cases where they did need to be. The question was whether it was an emergency in every instance that they were used.

I absolutely acknowledge that a Government faced with the challenges that this Government were faced with need to move with speed on regulations, but that raises the bar for the expectations of the level of confidence that people need in the scrutiny of those actions taken by government.

On going forward with pan-UK working with the Administrations, I welcomed the Minister’s comments in respect of the initiatives being taken by the Secretary of State for Health. The Constitution Committee also produced quite a large report on the whole issue of governance within the UK, Respect and Co-operation. In a sense, the response in an emergency is part of a wider governance structure that applies, so I hope some of our recommendations in that report will also apply.

In conclusion, there is no question but that the Government faced an enormous challenge. They had to respond quickly and to protect their citizens. In an emergency, Parliament transfers to the Executive so that they can move at the speed necessary to do that, but the efficiency with which the Government deploy those powers is therefore so critical. The extent to which they are open to checks and scrutiny on the deployment of those powers becomes even more important, and that was the thrust of the Constitution Committee’s report. What are the lessons learned, and what is the experience that informed those lessons, so that the preparedness for the next emergency—I hope we never have one—and the confidence in the level of scrutiny and checks are there? However, I thank the Minister very much for his response.

Motion agreed.

Ministerial Code

Baroness Drake Excerpts

Monday 6th December 2021 Lords Chamber

[Lord True (Con)]

My Lords, I can only repeat what I have said: standards in public life are important. I believe that the Prime Minister respects those fully. As far as the alleged events the noble Lord refers to, I point him to the statement made by Downing Street: that No. 10 has always followed, and continues to follow, Covid regulations at all times.

[Baroness Drake (Lab)]

My Lords, the Prime Minister sets the Ministerial Code and is the ultimate judge of standards of behaviour, but now highly reputable bodies are increasingly calling for reforms. It is the age-old question: quis custodiet ipsos custodes? Does the Minister agree that, to restore public confidence, the code needs to set stronger standards on how Ministers should use social media and respond to lobbying?

[Lord True (Con)]

My Lords, obviously the use of social media and lobbying are important and relevant matters. As the noble Baroness will know, there are recommendations before the Government and the country on lobbying, for example. My right honourable friend recently wrote to the Speaker supporting action on lobbying in the other place.

Money Laundering

Baroness Drake Excerpts

Wednesday 24th November 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My noble friend is right to be concerned about the vigilance we need to deploy in this area, because it is a fast-moving target. We are always reviewing the situation. In July this year we published a call for evidence, which closed only a few weeks ago, in October. We will respond by June next year, looking at the issues my noble friend raised.

[Baroness Drake (Lab)]

In a recent speech on money laundering, the FCA’s executive director of enforcement highlighted the emerging risk to consumers of online offers from unauthorised companies, investment scams and other too-good-to-be-true propositions. The FCA warning list of such firms has doubled in just over a year. Can the Minister assure the House that there are no plans for regulatory easing of money laundering post Brexit? Will the Government increase the resources of the Serious Fraud Office and the National Crime Agency so that they can enforce legislation effectively and protect the high number of consumers now at risk?

[Lord Agnew of Oulton (Con)]

My Lords, as the noble Baroness will probably be aware, in 2018 we created a helpfully named quango oversight group called OPBAS, the professional body supervision group. It produces an annual report, which is always hard hitting on any failures—as indeed its most recent one was. This illustrates that we are entirely self-critical, to ensure that we are watching these developments carefully.

European Union (Withdrawal) Bill

Baroness Drake Excerpts

Tuesday 30th January 2018 Lords Chamber

[Baroness Drake (Lab)]

My Lords, this Bill preserves existing EU law as it applies in the UK, converting it into domestic law as retained EU law to provide legal continuity and certainty on exit day. It gives Ministers extraordinary correcting powers to amend such retained law where they consider there is a deficiency. We are therefore in, as the Constitution Committee observes, “uncharted territory”, so it is unsurprising that many organisations have expressed concerns that the Bill gives rise to ambiguity about the status of the different categories of retained EU law and that the Government are given abnormally wide powers to amend legislation.

In Committee, this House will examine whether those powers are greater than are needed for the task in hand, if and how they should be restricted, and the level of transparency and scrutiny that precedes the deployment of those powers. As my noble friend Lady Taylor of Bolton referenced, the Constitution Committee expresses the view that the overly broad powers that the Bill grants to Ministers to do whatever they think appropriate to correct deficiencies in retained EU law are “constitutionally unacceptable”. It goes on to suggest controls, such as “good reasons” statements, to be put in place on the proposed use of those powers.

Many important areas of law will be impacted by the Bill, and I want to reference workplace and equality rights—clearly a people’s issue. Clause 2 preserves EU-derived domestic legislation when the UK exits. That is important, as it addresses many EU-derived equality, employment and health and safety standards and rights, including where existing UK law has exceeded minimum EU standards—for example, on important maternity leave rights. Examples of other rights include the Working Time Regulations, the Transfer of Undertakings (Protection of Employment) Regulations, agency workers’ rights and equal treatment for part-time workers and fixed-term employees.

Clause 4, importantly, preserves the right to equal pay for equal-value work, which flows from Article 157 of the Treaty on the Functioning of the European Union. The impact that Article 157 and the accompanying EU Court of Justice case law have had on women’s pay and pension rights in the UK cannot be overstated. However, there are deep concerns that the “correcting powers” which the Bill affords to Ministers could be used to weaken such rights, including those contained in existing Acts of Parliament, such as the Equality Act. A range of workplace and equality rights in retained EU law could be vulnerable to change by subordinate legislation contained in other Acts of Parliament when that retained law does not have the enhanced protection that flows from EU membership.

Last December, the Prime Minister failed to rule out scrapping the working time directive, the agency workers directive and the pregnant workers directive. Maternity rights and part-time workers’ rights appear at risk. As the Fawcett Society powerfully observed, it would be regrettable if Brexit and this Bill resulted in the loss of the opportunity to be the best place in the world to be a woman.

There needs to be a robust process of scrutiny to ensure that executive powers in the Bill cannot be used to make changes in significant areas of policy and enhanced protections for key rights. There is also the question of Court of Justice of the European Union case law post exit, which the noble Lord, Lord Kakkar, spoke about at some length. Domestic courts will not be bound by such case law, but there are strong arguments to be put in Committee that courts should have regard to such judgments where they are relevant to the proper interpretation of law which originated from the EU. Without such regard, people in the UK may see their rights weakened.

It is also unclear how provisions in the Bill may be affected by future negotiations. During any transition period, the UK may not be able to weaken retained EU law. Future agreements on UK and EU relations may require the UK to comply with EU law, including on workplace rights. We need to understand those implications when we look at this Bill.

Finally, I return to a matter that I have raised previously. It may not seem significant to many in the great scheme of economic affairs, but it is hugely important to the people affected, and that is the need to replicate the protections from violence against women and girls post exit day. Women and girls at risk of violence may lose significant legal protections. European protection orders, which grant victims equivalent protection against perpetrators across the EU, will no longer be available to UK citizens. The ability to share data on perpetrators and a host of other measures aimed at tackling human trafficking, female genital mutilation and the sexual exploitation of women are also at risk. We need to understand how these rights and protections will be preserved post exit day.

Universal Credit

Baroness Drake Excerpts

Thursday 16th November 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, the rollout of universal credit must be rooted in the claimants’ real world of squeezed wages, job insecurity and household incomes under pressure. Evidence consistently identifies people’s low financial resilience and rising indebtedness: 17.3 million working-age adults do not have £100 saved; £200 billion is owed in consumer credit, excluding mortgages; and 4.1 million people have failed to pay domestic bills or meet credit commitments in three or more of the last six months.

The majority of universal credit claimants arrive with pre-existing debt and no financial resilience. As the Secretary of State said: “We are able to make an estimate” of a UC payment “particularly given that it is likely that a lot of those people seeking advances will not have any alternative income over that first assessment period”. Citizens Advice confirms that claimants risk serious debt from delayed payments, that 79% have priority debts such as rent or council tax and that two in five have no money to pay creditors. I say to the noble Lord, Lord Farmer, it is not the concept of universal credit but the compromise on the essential design feature that it will make work pay that is the fundamental concern here.

The accumulation of benefit cuts is a major drag on the living standards of families on low and middle incomes. The Rowntree Foundation predicts that the four-year benefit freeze will increase poverty more than any other policy.

Universal credit was designed to focus on reducing worklessness, which is now at an all-time low. In-work poverty is now the increasing challenge. The wait of six weeks or more from claim to payment is a design flaw baked into the system and can be punitive, however nice the jobcentre staff are. Over 50% of claimants claim an advance because they simply cannot cope with that delay. Its stated purpose—to reflect a world of work where wages are paid monthly in arrears—does not reflect the world of the claimants. As has been said, they are paid weekly or fortnightly. As rollout increases, identified problems just become more pervasive and extensive.

The Government look to mitigate by increasing take-up of advance payments, asserting that such a system is the best way of spreading out their income. In reality, it has limited efficiency. The six weeks is still unmanageable for the majority without incurring debt to the state or a private lender. An advance has to be paid back in six months when claimants also face deductions for debts from council tax, utility bills and rent arrears. For the Government to rely so heavily on advance payments defers the problem and embeds debt as the default for claimants as a matter of public policy. It would be far better if the six-week period were reduced and the benefit freeze reappraised. The Government need to pause the rollout and reassess.

Finally, the Government introduced the two-child limit on the payment of child tax credit and the child element of universal credit to deter people from having more children and to reflect carefully on their readiness to support an additional child. Noble Lords argued that this limit should not apply to kinship carers—who often have their own children—who take on the care of vulnerable children to whom they have not given birth. There are more than 200,000 such children, saving the taxpayer the £40,000 cost of placing each child in foster care. The two-child limit was a non sequitur for kinship carers. The need was not for them to reflect carefully on their readiness to support a vulnerable child; the need was to support their readiness to do so. The noble Lord, Lord Freud, reflected and accepted this, stating:

“I am pleased to announce … that in recognition of the important role which family and close friends can play in caring long term for children who are unable to live with their parents and could otherwise be at risk of entering the care system, we are in favour of an exemption for children in such circumstances”.—[Official Report, 27/1/16; col. 1295.]


That concession is, shamefully, not being honoured. It is applied only if kinship carers had their own birth children before taking on the kinship children. If they take on the care first, then have a birth child, the exemption does not apply. Alyssa Vessey, who was 18 when her mother died suddenly, went to social services and told them she would raise her three young siblings on her own, to protect them from going into care. Four years later she had a partner, and had her own birth child. Alyssa was refused tax credits and a Sure Start maternity grant because she had breached the two-child limit. The DWP is reported as saying that the decision ensured fairness between the claimants and taxpayers. I say that Alyssa saved the taxpayer around £40,000 for each child not going into the care system— £120,000 per annum—plus £25,000 of care proceedings costs, together with the miserable saving of not paying her a maternity grant. A similarly affected pregnant kinship carer was advised by her local office that if she gave up caring for the kinship children, had her baby, then took them back at a later date, she would be eligible for benefits for both her birth child and the cared-for children. On any analysis of public policy, that is not honourable.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

Of course, such a significant regulatory change needs due consideration—there is no doubt about it. However, experts from the Financial Services Consumer Panel and the Lords Select Committee on Financial Exclusion have already examined the issue and endorsed the call for a duty of care. Also, if the Government agree to an amendment to achieve a duty of care as set out, the FCA would, of course, consult on the detail of how such a duty would be translated into regulation, providing a full opportunity to ensure that the duty would work for consumers and the industry. I hope the Government will be sympathetic to this important amendment and to the points raised here.

[Baroness Drake (Lab)]

My Lords, I, too, rise to support the noble Lord, Lord Holmes of Richmond. I congratulate him on using the opportunity of the Bill as it opens up the issue of how the FCA regulates claims management companies to seek to introduce the regulatory principle that an authorised person should act more in the best interests of consumers, particularly vulnerable customers. Consistently, not just today but previously, the noble Lord has put a powerful and informed case, particularly with regard to people with serious health conditions, including cancer, who have to cope not only with their illness but the financial impact of their diagnosis. That impact is felt not only in loss of income but in loss of access to or poor treatment by financial services companies. This, in turn, compounds their financial difficulties. The evidence of that negative experience is increasingly documented but people just know it themselves, intuitively. As Macmillan confirmed, and as referred to by the noble Lord, 90% do not even tell the bank when they have a problem, because they know that either it will be held against them or that there is little or no prospect that the firm will assist or offer support to mitigate the problems that their ill-health diagnosis has triggered. Not only will they face prejudice but they will be competing with customers who present a more attractive commercial prospect.

This growing problem will not be addressed simply by exhorting firms to behave better; the Government need to take much more of a lead. The Government have also been urged to take such an initiative by the Lords Select Committee on Financial Exclusion and the Financial Services Consumer Panel itself. A regulatory principle, as proposed by the noble Lord, Lord Holmes, would place an expectation on firms to support customers at times of vulnerability, change corporate culture towards the vulnerable and enable vulnerable customers to have the confidence to ask—and to ask earlier—for support, thereby enhancing their ability to manage their financial affairs.

As other noble Lords have mentioned, the FCA has committed to publishing a paper on duty of care but, by resting on that, the Government are kicking this problem into the very long grass. As the noble Lord, Lord Holmes, commented, the FCA has stated that it will not prepare such a paper until after our withdrawal from the EU. The paper will, as has also been said, only just start a very long process of dialogue, consultation, response, drafting and so forth. There will be a lot of people diagnosed with serious ill health in that time whom the environment will not support. There really is an urgency for those 4 million or more people who are expected to be diagnosed with cancer within the next 15 years.

The Government should seize the moment by taking the opportunity of this Bill to embrace the intent of the amendment of the noble Lord, Lord Holmes. I am sure the Minister will say that the amendment is either too extensive in its expectation or creates regulatory uncertainty, but it allows for the detail of how the regulatory principle of duty of care can be translated into the financial conduct rules by the FCA. Through its supervision, the FCA can identity and assess firms’ conduct that may affect consumers’ access. It has the power to make firms change their behaviour, but only where this is within its remit. Unfortunately, the FCA has no specific duty relating to consumers’ access to financial services. The noble Lord’s amendment strengthens the FCA’s remit in respect of claims management companies by introducing that regulatory principle, which begins to define how and when those companies should act in the best interests of consumers.

[Baroness Altmann (Con)]

My Lords, I, too, rise briefly to support my noble friend’s amendment and congratulate him on laying it in the way he has. I certainly sympathise with him about wishing to put in measures which might originally seem out of scope and the need to be rather convoluted about it. I also echo the words of the noble Baroness, Lady Drake: these are issues that have been recommended by the Financial Services Consumer Panel, highlighted by the Lords Select Committee on Financial Exclusion and would go some way to help change corporate culture to support those who are going through serious, perhaps unexpected, illness and need time to adjust to their circumstances or to cope with their treatment.

The cancer charities are rightly raising this issue and it would be very helpful if the FCA were able to encourage firms to introduce some kind of special measures or special help in recognition of the circumstances that people will from time to time find themselves in—not only to help those people when they apply for that help but to encourage somebody who has had a cancer diagnosis, for example, to ask for help, which very often right now they do not even think of doing. Therefore, I hope my noble friend will take this matter to heart and take this opportunity to address an issue that could have serious and important social benefit.

--- Later in debate ---

[Lord Elystan-Morgan (CB)]

My Lords, these debates endorse the fact that we dealing with a social nuisance of massive proportions. There are, I suppose, situations where a few cold calls might possibly be justified on some grounds, for example where a person has rights but is not conscious of how those rights can be carried out and brought to fruition. Those instances are in a small minority. The vast majority of cold calls are fraudulent and disgraceful. If there is an agreement between the two parties, then that amounts to an agreement to pervert the course of justice. I think I am right, as a proposition of law, to say that every agreement to pervert the course of justice is of itself a perversion of the course of justice. It is as serious as that.

A blanket overall prohibition, as the noble Earl, Lord Lytton, reminded us, is probably not appropriate. On the other hand, some very strict and practical steps have to be taken swiftly.

[Baroness Drake]

My Lords, I too rise to express my sympathy with the views articulated by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann. I also empathise with the point made by the noble Earl, Lord Kinnoull. I listen to what he says because he often makes some very wise nuggets on a point that warrant reflection.

We do not want to regulate CMCs out of existence, because people need access to redress where they have been poorly treated or have experienced a serious problem. Public policy has been pushing assisting people with access to justice out to the private sector, so we have to come up with a toughened regulatory system that does not deny that. In a well-regulated, well-run system where public policy itself is making it more difficult for people to pay for access to justice, well-regulated claims management companies have a role to play.

However, the way the CMC industry currently operates is clearly totally dysfunctional. It gives rise to three key problems. One that the noble Lord, Lord Hunt of Wirral, articulated in the previous debate is that it stirs up such an artificial level of claims without merit that it risks undermining that very protection regime for the genuine claimant. It raises the costs and charges faced by other customers for what they have to pay for products and services, often hurting those on lower incomes.

We know that the ease of entrance to the market means that claims management companies often do not treat claimants well. They give poor value to the claimant on fees and service; there is little inhibiting them doing so. I see that, a couple of years ago, 22% of claims management companies in one year lost their accreditation or received a formal warning—basically one-quarter of the industry having its card marked or forced out.

Also, we have a situation where new technology allows claims management companies to operate on a huge scale. They are harassing the public with very aggressive techniques, using new technology that allows such mass approaches. People are being bombarded with calls and texts; if you answer them by mistake, God are you hooked in. That triggers another series of harassing texts and calls. Very often the person does not even have the product or has not had the experience the call management company is targeting. These call management activities are one huge fishing trip that new technology allows which has got completely out of control. That trawling simply has to stop. There needs to be some appropriate intervention.

In supporting that, I go back to the reflective point that the noble Earl made. In a situation where assisting people with access to justice is increasingly being put into the private sector, we want a well-regulated claims management company that will help the genuine claimant get access to justice.

[Baroness Kramer]

My Lords, I intervene because it is important to stress that it is essential to ban cold calling, not give it a space. For example, those who are concerned about PPI claims can see advertising on the television. That is not cold calling or a sort of personal assault on your letterbox or your phone, whether by call, messaging or email. It is the personalised cold call that arrives. Often it is content that is intimidating and unless every phone call is recorded and checked there is absolutely no way to make sure it is not intimidating. It is the number of these things. If, for example, you say, “You can send five texts to every individual”, you will simply have a much greater group of people all sending five texts. It becomes almost impossible to manage unless you go for the ban strategy.

There are many ways to communicate. For example, I look at the way the FCA is now communicating with the general public over PPI. It has some excellent ads on television making it clear that there is a free way to call. It provides a phone number and a website. The whole process is easy. We would all be offended if the FCA now started cold calling individuals across the country, even to provide a free service. It is an invasion of private space. We have to protect private space, and cold calling is a mechanism which violates it. I hope that, in the interests of making sure people remain informed about the options available to them, we do not require them to give up control of that private space.

Bank of England and Financial Services Bill [HL]

Baroness Drake Excerpts

Tuesday 3rd May 2016 Lords Chamber

[Lord Bridges of Headley]

My Lords, Commons Amendment 10 places a duty on the Financial Conduct Authority to cap early exit charges that act as a deterrent to people accessing their pensions early under the new pension freedoms. The Government took the step of introducing this amendment in Committee in the Commons following detailed evidence-gathering exercises that showed the extent of consumer detriment caused by early exit charges and the imperative to act quickly in order to limit this.

Evidence from the FCA found that there is a small but significant cohort of people in contract-based pension schemes for whom early exit charges were posing a real barrier to accessing the freedoms. The FCA found that some 670,000 people over 55 in such schemes face an early exit charge, and for 66,000—almost one in 10—this charge would exceed 10% of the value of their pension pot. In some cases these charges would be high enough to make it uneconomic for an individual to access their pension flexibly, while in others, the presence of an early exit charge may have acted to discourage individuals from accessing their pension when it could have been the best thing to do in their circumstances.

It is therefore clear that the Government’s objective of ensuring that everyone who is eligible can access their pension savings flexibly is not being met and that action is needed to ensure that all consumers are able to make use of the freedoms. In order to ensure that the cap benefits current consumers who are eligible to use the freedoms now, subsection (4) of this clause provides that any cap will apply equally in relation to existing arrangements, as well as those entered into in the future. The decision to introduce a measure which will have retrospective effect in this way is not one that the Government have taken lightly; we recognise industry concerns about the way this cap will affect existing contractual agreements.

However, the Government’s view is that this action is warranted to ensure that individuals are not deterred from accessing their pension flexibly because of contractual terms they entered into long before the freedoms were introduced. These people would not have been in a position to make an informed decision about potential early exit charges when they signed up. Even some pension providers have conceded that industry practices have moved on and that the introduction of the pension freedoms means that these charges pose a much more significant barrier now than when they were agreed.

To be clear, this measure is about ensuring that consumers are adequately protected against early exit charges being imposed at a level so high as to deter them from accessing their pension early under the pension freedoms. This clause is not about determining the fairness of these, or other existing contractual terms and conditions more generally. That is a separate, wider issue which this Government have recently addressed in the Consumer Rights Act 2015, legislation which the FCA has the power to enforce against the firms it regulates.

It is important to consider the nature of the contractual terms affected through this measure. The Economic Secretary made it clear when introducing this clause in the other place that terms providing for market value reductions should not be subject to the cap on early exit charges. Subsection (8) of this clause gives the Treasury a power to introduce secondary legislation to provide for this exclusion to the FCA’s duty. FCA rules already place rules on how firms may apply a market value reduction, and the cap on early exit charges will not add to or modify these rules. Furthermore, in order to ensure that the level of any cap is fairly set, the FCA will determine the precise level of the cap, following further public consultation and cost-benefit analysis. The FCA will be setting out its next steps in this process shortly, with a view to implementing this cap before the end of March 2017.

This clause gives the FCA the flexibility to apply different rules to different classes or descriptions of charges if it finds that the evidence demands this, but the Government’s expectation is that any FCA cap or prohibition will apply equally for all those consumers accessing their pension aged 55 and above, up to their expected retirement date, rather than being set at different levels for different age groups. Although data collected by the Pensions Regulator suggest that early exit charges are less prevalent in trust-based pension schemes, we will also act to ensure that all members, regardless of scheme, are protected from excessive early exit charges, and the DWP and the Pensions Regulator will work alongside the FCA as they develop the design and level of the cap for contract-based pension schemes to ensure that this is possible.

The pension freedoms have given consumers much greater freedom of choice in the financial decisions they make at retirement. Commons Amendment 10 will provide important protections to consumers in contract-based pension schemes, ensuring that they are not deterred from using the pensions freedoms by excessive early exit charges. I beg to move.

[Baroness Drake (Lab)]

My Lords, I take this opportunity to thank the Minister for meeting my noble friend Lord McKenzie and me to discuss this amendment in detail. I am most grateful for that. As has been said, the amendment places a new duty on the FCA to make rules to prohibit or cap early exit charges that act as a deterrent to people accessing their savings under the new freedoms. This amendment is particularly interesting for two reasons. Unusually, it introduces legislation with retrospective effect on existing contracts and a new deterrent regime in addition to the existing fairness regime in financial conduct regulation—in effect, charges must not be at a level that deters people from accessing their savings.

The Government believe the legislation needs retrospective effect because of the need to protect existing and future consumers, and—more interestingly, when one reads the detail of their proposals—that fairness should not be determined solely by reference to whether or not it was fair to include a term in a pension contract a decade or decades ago, but that it has to be looked at against how unfair contracts legislation has evolved since those contracts were entered into, and through the new lens of the recent pension freedom reforms, all of which arguments I agree with. But given that the Government have taken the decision through this amendment to enable retrospective changes to existing pension contracts and recovery of amounts paid or payment of compensation for charges made in contravention of the new FCA rules coming into force in March 2017, and that the pension freedoms, which provide the new lens for looking at fairness, were introduced in April 2015, I cannot understand why the consumer protection in the new FCA duty does not apply with effect from April 2015. Why is it necessary to wait until March 2017 when the FCA rules are implemented—a full two years after the pension freedoms were introduced—before consumers are protected by the provisions on fair access to savings?

The Minister advised in his letter of 16 March that the Government are introducing this amendment,

“in light of detailed evidence gathering, and an imperative to act quickly in order to limit the extent of consumer detriment caused by early exit charges”.

The Government’s main defence for this two-year gap from April 2015 to March 2017 in protecting consumers is that savers who access savings between these two dates from a scheme whose early exit charges are considered excessive under FCA rules to be implemented in March 2017 cannot have been deterred by those charges and presumably are therefore not in need of retrospective protection. That argument simply does not sit comfortably with the Government’s view that some people are being denied fair access to their savings. It suggests that the new deterrent regime trumps fairness—in effect, if a person accessed their savings they have not been deterred, ergo the early access terms are fair.

There are many reasons why people may access their pension savings during that two-year gap, even though the charges may be excessive. There may be ill health or other compelling personal circumstances that override the deterrent effect. People may not be aware of, or understand, the excessive early exit charges, so do not make their decision on an informed basis. The FCA data reveal that 78% of affected consumers rated their pension provider’s explanation of the exit charge and its level as poor.

In his letter of 16 March, the Minister comments:

“In order to ensure that the provision benefits current consumers who are eligible to use the pension freedoms now … this clause provides that any prohibition or cap imposed by FCA rules applies equally in relation to existing pension contracts, as well as those entered into in future”.

In the light of that statement, it is most unfortunate that the amendment excludes from the protection consumers accessing their savings between April 2015 and March 2017, even though in other circumstances it allows for a retrospective effect.

[Baroness Kramer]

My Lords, I echo the objections just raised by the noble Baroness, Lady Drake. It is quite inexplicable that “retrospective” does not mean that the new regime will be recalculated from the date that people were able to access their pension pots. It seems equally unfair for people to have paid an inappropriate exit fee a year ago as it is for them to pay an inappropriate exit fee a year from now. Has the Minister considered how this will tend to inhibit decision-making by families until the new regulations are revealed? Instead of making the best decision for the family, there will be great pressure to delay that decision until the rules are clearer and, presumably, the exit fees are removed.

The amount of money involved in this process cannot be substantial but to the individual family that has been impacted, it is certainly significant. I really do not understand the Government’s thinking on this issue.

--- Later in debate ---

[Lord Bridges of Headley]

My Lords, I thank noble Lords who have spoken in this debate. Let me pick up on the final point which was just made by the noble Lord, Lord McKenzie. I heed what he says about getting access to this amendment sooner but I would somewhat refute what he says about the rushed nature of the entire policy. When this problem was first identified the Government took immediate action to address it by embarking, as I have mentioned, on the FCA evidence-gathering exercise. However, I thank in particular the noble Lord and the noble Baroness, Lady Drake, for the time that they have spent discussing this clause and amendment with me. I have already committed to write to them shortly to address a number of the very forensic and detailed points that were made to me last week. I will do that as soon as I possibly can.

A number of your Lordships including the noble Baroness, Lady Kramer, raised a valid question about why we are not backdating this measure to 2015, when the pension freedoms came into effect, and not requiring providers to pay back the early exit charges which they received from customers in the period between April 2015 and when the cap comes into effect. I would make two points on this, as already outlined in my remarks. First, the purpose of this measure is not to require the FCA to assess the fairness of the contractual terms of historic pensions. The intent of the measure is to ensure that early exit charges are not imposed at an inappropriate level which deters consumers from accessing their pension early under the pension freedoms. Clearly, those who have decided, or will decide, to access their pension despite an early exit charge have not, or will not, have been deterred by the existence of such a charge.

Secondly, I accept the observation that, once in effect, this cap will obviously benefit some consumers who would not have been deterred by the early exit charge in their contract. However, the Government believe that it is an ordinary consequence of introducing a new measure of this sort that those—in this case, consumers—who take an action before the law comes into force do not benefit from the new law. Moreover, it is right that the Government do not rush to make legislation which has any sort of retrospective effect but that they do so only when there is clear and compelling evidence that it is in the public interest, and then make that retrospection as minimal as possible to ensure that the action is proportionate. That is what I and the Government believe that this clause achieves. It is proportionate and focused on those who greatly need it, and that is why I commend it to the House.

[Baroness Drake]

Before the Minister finishes, if I may, the defence is given that this is not a fairness regime but a deterrent regime and that there is therefore no evidence of deterrence and no need to make it retrospective. But on the FCA’s own evidence, the knowledge and understanding of these charges is quite poor. It is difficult to be deterred if you do not know that you are being exposed to excessive exit charges. People will not know that they are being exposed to them until the FCA has done its business, which will be by March 2017. It seems a little unfair. At the very least, perhaps the Government should be taking steps to ensure that companies and other agencies make consumers aware that if they wait until March next year, they may get a better deal.

[Lord Bridges of Headley]

The noble Baroness, as so often, makes a very valid point. This is precisely what the consultation sets out to address. It aims to ensure not just that consumers are properly protected but that they make informed and proper decisions. I will write to the noble Baroness to make these points in more detail.