(7 years, 5 months ago)
Grand CommitteeThat the Grand Committee do consider the Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017.
My Lords, the regulations we are looking at today help to ensure that we have an effective system in place to handle the failure of investment banks. Our approach simplifies and speeds up the special administration process and reduces the cost of the administration for clients and for creditors.
It is of course worth recalling that the collapse of Lehman Brothers taught us that our insolvency regime was not capable of dealing effectively with a failure of a large and complex investment bank. Against that background, we introduced the investment bank special administration regime in 2011 with the aim of changing the insolvency rules so that they more adequately protected the interests of clients. The legislation, rightly, includes a provision for review. I pay tribute to Mr Peter Bloxham, an insolvency lawyer who was appointed to lead this and whose final report was laid before Parliament in 2014. The purpose of the regulations is to improve the functioning of the regime by implementing the Bloxham review recommendations and learning from investment bank insolvencies in recent years.
The reforms we are making seek to strengthen the administration process in three ways. First, the regulations make it easier for an administrator to transfer client assets to an alternative firm. This will benefit clients in the event a firm fails by ensuring they have continued access to investment services. The regulations provide an administrator with the power to transfer the whole investment firm to another institution in spite of certain restrictions which can delay or disrupt this, such as the need to obtain client consent from all affected clients before the transfer can take place. Importantly, the regulations include key safeguards to protect clients and their interests. Clients will be able to request the return of their assets following the transfer, while client risk-management arrangements that the firm has in place will be protected.
Secondly, the regulations make the administration process simpler and quicker by strengthening and extending the bar date mechanism. This is a procedure that gives the administrator the power to set deadlines for clients to submit claims for the return of their assets. In the past, some administrators have been unable to close the client estate following the bar date procedure, allowing the administration process to drag on. These regulations therefore introduce a “hard” bar date, a power which enables the administrator to return assets more quickly to clients. I am very grateful to the chair of the House of Lords Secondary Legislation Scrutiny Committee, my noble friend Lord Trefgarne, for the time his committee has dedicated to reviewing the regulations. The committee paid special attention to the bar date mechanism and I always welcome its expertise and engagement on these sorts of provisions.
Thirdly, the regulations provide greater legal certainty for clients and creditors. This addresses a key weakness in the existing regime. One key change is clarification of a client’s right to receive interest on their claims during the administration process. We are taking away the perverse incentive to engage in arbitrage between client and creditor estates that occurred in previous administrations. In addition, the regulations clarify when an administrator needs to go to court to seek a direction on certain matters. Taken together, these reforms improve the speed at which assets can be returned to clients and enable the administration process to operate both more efficiently and effectively.
The changes we are making were broadly supported in consultation with the different parts of the market that would be affected by the failure of an investment bank. We also took advice from the Banking Liaison Panel on specific aspects of the regime, particularly the safeguards in place. I regret that we did not publish a consultation response document. However, in the Explanatory Memorandum and impact assessment accompanying the regulations, we presented a summary of the eight responses we received. I also note that we did not carry forward a duty on firms to co-operate with the administrator. Following discussions with the Joint Committee on Statutory Instruments we assessed that existing statutory duties that require firms to provide information and documents to the administrator would be effective. These existing duties will enable clients to access their assets quickly and efficiently without imposing an additional and overlapping duty on firms.
These regulations are an important step forward. They are a reflection of the lessons we have learned from the past failures of investment banks but they are also a reflection of the strong future of our banking and financial system. With the reforms we are proposing today, we will be better able to ensure the financial security of the UK and continue London’s role as a leading financial centre. I beg to move.
My Lords, I thank the Minister for introducing this order. As she has already outlined, the purpose of this instrument is two-fold: to correct the definition of “investment bank” and to extend elements of the special administration regime, the SAR, which is the administration procedure for insolvent investment banks. These measures are part of an effort to improve the regulations and processes that govern the financial services sector. We oppose none of the measures the Government are proposing to introduce, but I have a number of points that I hope the Minister can clarify.
Part 2 of the instrument alters the definition of “investment bank” to include alternative investment funds and undertakings for collective investments in transferable securities. It was the intention of the original legislation that such firms be included in the SAR. However, they have fallen out of scope as an unintended consequence of the introduction of other legislation. As has been said, this is merely a correction. In practical terms, it increases the number of banks covered by the legislation from 700 to 1,000. May I be assured that this rise has been taken into account when considering the resources needed to communicate changes to the SAR?
I will focus the bulk of my time on Part 3 of the regulations. After much discussion, the Banking Act 2009 did not include any specific reform of investment bank insolvency. However, it provided an enabling power to pass new regulations that had to be reviewed within two years. Accordingly, the special administration regime was introduced in the Investment Bank Special Administration Regulations 2011. Peter Bloxham carried out a review and published recommendations in January 2014. This instrument implements some of those recommendations.
The most substantive change the regulations will introduce is changing the “soft” bar date to a “hard” bar date. Under the current legislation, claimants who fail to claim before the bar date can still receive client assets. The introduction of a “hard” bar date would remove this right. This seem perfectly reasonable. The client asset can be closed more swiftly and at a lower cost. However, the key question I have about this switch is how much longer the process of insolvency will last as a result. If I am not mistaken, the “hard” bar date will not be automatic. The administrator will have to apply to the court. For the court to accept a “hard” bar date, it must be,
“satisfied that the administrator has taken all reasonable measures to identify and contact persons who may be entitled to the return of client assets”.
How long do the Government expect the administrator will need before it can collate all this information?
Furthermore, new Regulation 12D(2)(b) sets out the criteria for when the court can grant an application for a “hard” bar date. The first of these criteria is that there can be,
“no reasonable prospect … that the administrator will receive claims for the return of client assets after that date”.
How can the administrator be sure that there is “no reasonable prospect”? Surely this will require extensive research. Again, will this not result in delay before the administrator is confident it has a strong case for the court? The longer a case of insolvency drags on, the greater the uncertainty, and with uncertainty the prospect of market instability.
The next issue is one my honourable friend in the other place the Member for Stalybridge and Hyde raised, relating to the mechanisms in place before assets are pooled, which could assist in a more efficient and reliable return on client assets. The Economic Secretary to the Treasury in the other place stated in response to my honourable friend’s questions that,
“the FCA has taken a number of steps to improve firms’ record keeping. These reforms have been extensively consulted on with practitioners who have experience in dealing with pooled accounts”.—[Official Report, Commons, Second Delegated Legislation Committee, 7/2/17; col. 8.]
I ask the Minister: what specific steps have been taken by the FCA and has it seen a reduction in the rate of regulatory non-compliance cases it deals with as a result?
I turn to the issues raised by the Secondary Legislation Scrutiny Committee. Why have the Government not published the full consultation response to the Bloxham review? I note the Minister’s apology but I hope she can go into a little more detail. I have read the explanation, as has the committee, and I have to say that neither it nor I are convinced by the answers so far. The Government state that:
“The areas raised in the consultation were largely technical in nature”.
Surely this is exactly the place where such technicalities should be debated and scrutinised. I look forward to hearing a more detailed response from the Minister as to why the Government feel it is appropriate to flout their own consultation principles.
My final query for the Minister relates to the procedures used in the event that the administrator’s conduct is challenged. The new sub-paragraph (e) in paragraph 14 states that the FSCS, the financial services compensation scheme:
“may make an application … on the grounds that the administrator is not performing the duties … as quickly or as efficiently as is reasonably practicable”.
I note that the new Section 10A(b) inserted by the order says the administrator must “keep the FSCS informed”, but what does the Minister anticipate that will mean in practice? Surely in order for the FSCS to be confident that the administrator is not fulfilling his statutory duty, he must have detailed knowledge of the workings of the operation. What criteria will be used to judge whether an administrator has failed, and by whom? If the administrator is found to be inappropriate, whose responsibility is it to complete the insolvency? I look forward to the Minister’s response.
My Lords, may I intrude a word into this debate? There is an aspect of 2008 that has never been corrected, and which did a great deal to disguise the extent of the insolvencies existing at that time. It might now perhaps be possible to squeeze a solution into something like this.
There is a practice that was prevalent in cases such as Bradford & Bingley and Northern Rock: if a bank or building society had a house on which it had an outstanding loan of, say, £10,000, and the house was worth £1 million, it entered the whole £1 million as an asset on its balance sheet, although it had no legal access or right to that surplus value. Banks did that solely to emphasise the extent of the solvency that they could demonstrate for their loans, but it made a complete distortion of what the balance sheet really was and misled people into letting them trade on for too long. Nowhere have we ever corrected this in any of the accounting rules. This may be the last chance saloon.
My Lords, I thank the noble Lord, Lord Tunnicliffe, and I will try to address his various questions. I am very grateful to my noble friend Lord James for his comments, and I will see if I can answer his question. If I am not able to do so today, I will certainly write.
We all share an interest in ensuring that we handle the failure of an investment bank effectively. That is not only for the benefit of any clients or creditors who will be involved but to the benefit of our whole financial system. Since the investment bank special administration regime was introduced in 2011, firms operating under the procedure have given us valuable insights into how we can improve it, and in particular how we can improve the ability of clients to receive their assets as quickly as possible in the event of a bank failure. The return or transfer of client money could take as little as 30 days, but closing a whole estate can be very complex and is obviously very unlikely to occur in less than a few months.
The noble Lord, Lord Tunnicliffe, asked whether the Treasury had considered the number of banks in scope of this legislation. He referred to the number going up from 700 to 1,000, and he was concerned about the communication resource in relation to that. In fact administrators believe that the additional costs of familiarising themselves with the regime will be negligible; indeed, the impact assessment shows that there are thought to be savings from these changes. In the majority of cases, the amendments provide helpful legal certainty.
May I suggest that the matter could be taken up with the Accounting Standards Board?
I can certainly agree to talk further to my noble friend, and if talking to the Accounting Standards Board seems to be a good way forward, I would be happy to do that. I am grateful to him for raising the point.
I conclude by saying that these regulations make important reforms to strengthen the investment bank special administration regime. I hope the Committee will join me in supporting our efforts and this Motion.
(7 years, 6 months ago)
Lords ChamberMy Lords, the noble Baroness, Lady Falkner of Margravine, and her committee have produced an excellent, clear report. I thank her, and others, for the warm welcome they have given me in my challenging new role. I join others in thanking her and members of the committee—some of whom, along with others, have spoken with great clarity today—for their work. I especially thank the clerks, who have done a really good job at great speed.
It is obvious that financial services will be an important component of the EU exit discussions and it is helpful to have a comprehensive document covering all the issues at this exact stage—as well as to have this debate before we submit our government response to the committee. This debate is especially useful to me, as only last week I was given responsibility within the Treasury for EU exit on financial services. I can reassure noble Lords that I have a long history of working with, and operating in, the EU and I believe that we can build a strong new partnership on financial and economic matters.
The links between the UK and our nearest neighbours in Europe are numerous and long-standing, as the Prime Minister said when she highlighted financial services as a priority. Above all, it is in our interest for the EU to flourish and we will be aiming for the freest possible trade in financial services between the UK and the 27 member states.
I am especially grateful to my noble friend Lord Caithness, who gave us the benefit of his experience at the Treasury and an insight into the global future. This underlined to me the importance of maintaining the UK’s pre-eminence in financial services. Having, like him, operated for many years in the EU, working with EU partners, I very much agree about the importance of language. Notions such as seeking common ground are good concepts in negotiation.
The noble Earl asked about the risk of currency devaluations. He will remember that Treasury Ministers have to be very careful about what they say regarding currency. However, since the financial crisis, the Government have strengthened the domestic financial stability policy framework and, as the Governor of the Bank of England noted, the UK financial system has passed several tests over the past year. The Treasury, the Bank, the Prudential Regulation Authority and the Financial Conduct Authority will continue to monitor any risks closely. That is very important and reassuring.
As a glass-half-full person, I was glad to hear the noble Lord, Lord Butler of Brockwell, sound more optimistic than he did at the time the committee produced its report. My noble friend Lord Eccles and the noble Earl, Lord Kinnoull, felt the same. The noble Lord, Lord Butler, is right about the interest that the EU has in a sensible outcome. He may well know that four-fifths of EU 27 capital market business is conducted through the UK, and he is also right to say that we need to keep close to each other.
One key issue that the report discusses is that of access to EU markets. I listened with great interest to the noble Lord, Lord Dykes, who said how important it was to remain a confident country in this time of change. The Prime Minister helped us here with her speech at Lancaster House, in which she made it clear that we would not seek membership of the single market. Instead, we are seeking a new strategic partnership with the EU that complements the needs of our industries, including the needs of financial services companies and their customers.
That means that we are working closely with firms to understand what issues Brexit raises for them and what a good outcome might look like. Our work so far shows that the answer to that question varies enormously according to whom you ask. Many firms, for example, across banking, asset management, insurance and payment services, which currently trade across borders, benefit from passporting rights, but that is less true of firms that provide retail financial services chiefly within the UK, such as domestic insurance firms and high street retail banks.
We are working to understand the needs of the wide spectrum of financial services interests in the UK. That includes, for example, the car companies, which provide lease financing for most new cars bought in Britain today. It means understanding the interests of the wider financial and related professional ecosystem—a word that others have used—including accountants and lawyers, as well as thinking about the interests of consumers of financial services, including the less well-off or those who might be misled. I liked the example given by the noble Lord, Lord Butler, about car insurance for travellers in Europe.
As the report rightly notes, various elements of EU financial services legislation contain equivalence provisions, some of which can offer a basis for firms from third countries to provide services across the EU. We have heard calls from our stakeholders on this and studied the industry analysis proposing these equivalence regimes as the basis for future market access.
The noble Lord, Lord Tunnicliffe, asked about the depth of discussion on passporting rights. The simple answer is that at nearly every meeting on financial services interests there is a discussion of passporting rights—but, as with equivalence, different people are talking about different things. We need some flexibility in our negotiations, but I reassure this House that in our new strategic partnership we will seek the freest possible trade in financial services between the UK and the EU. In the Prime Minister’s words, it will be on the basis of a “bold and ambitious” free trade agreement.
As the committee’s report noted and our debate today has illustrated, this is an exceptionally complex set of issues. For this reason, I am determined that consultation with our industries and stakeholders should continue throughout the negotiating process, which will enable us to improve our evidence base and understand the impact of different scenarios. Those themes from the report were picked up by the noble Lord, Lord Tunnicliffe. The noble Lord also asked about Dodd-Frank. It is frankly early days on that. Our simple aim is to secure the future of a sector responsible for 7% of GDP and over 1 million jobs.
A second area of enormous significance to the sector is to avoid a so-called “cliff edge”. As the report highlights, this will be important to a large number of industries across the entire EU. For financial services firms, this is of particular importance because of the deeply integrated market for financial services and long-established regulatory coherence. To pick up on the points made by the noble Baroness, Lady Falkner, we want to give businesses enough time to plan and prepare for the new arrangements that will be in place. We want the change from where we are now as EU members to our new relationship with the rest of the EU to be as smooth and orderly as possible. It is in recognition of this that the Prime Minister has made it clear since the committee reported that a phased process of implementation will be sought.
I understand the noble Baroness’s point about the need for an early agreement on phasing to help allay the concerns of the financial services industries. We also believe that such a phased process of implementation can be in the mutual interest of the UK and the EU. Inevitably, the details of the timing of the implementation period will have to be discussed through the process of negotiation with our EU partners.
A third priority that many noble Lords touched on, including the noble Lord, Lord Desai, and the noble Earl, Lord Kinnoull, and which I think is extremely important, is access to talent. The noble Earl, Lord Kinnoull, warned that capital follows talent. I certainly remember that from my time in business. For some, it is the overriding issue. Fintech firms, for example, tell us they rely on drawing from an international talent pool. Europe leads on fintech, much of it here in London, and we are committed to staying at the cutting edge of financial innovation. Let me highlight the statistic from the report that is so telling on talent: of the 1 million or so people who work directly in our financial services, 60,000 are EU nationals and 100,000 are non-EU nationals. To respond to the noble Earl, we recognise that the ability to attract and look after highly qualified staff and transfer them easily between the UK and the EU is a key issue, including for insurance.
In future we must ensure that we can control the number of people coming to the UK from the EU. We are considering the options for our future immigration system very carefully. As part of that it is important that we understand the impacts of different options on different sectors of the economy and on the labour market. Companies are not only discussing with us how we keep attracting new talent; they want to know what it means for the international staff they already have and value. It is a priority for the UK to be able to guarantee the rights of EU citizens already living in Britain, and the rights of British nationals living in other member states, as soon as possible. That must be agreed on a reciprocal basis and we stand ready to sign up to this and to do so soon if it can be agreed with our EU partners.
I turn now to the international dimension. My noble friend Lord Caithness asked about the Prime Minister’s meeting with President Trump in the United States. The trip in January was very positive. I felt very proud of the Prime Minister. Obviously I cannot comment on the private detail of the conversation but the Prime Minister set out that there is a shared commitment to economic co-operation and trade between the United States and the UK. The UK has always been a leading voice for free trade in the EU and globally. That will continue. I always say that trade is in our DNA.
The Government agree with the committee’s assessment of the UK as a global financial services hub and the depth of capital market activity it fosters—to the benefit of Europe as a whole, its pensioners, its businesses and its public sector bodies and their customers. The UK and the EU have a mutual interest in ensuring that specialist activities, such as clearing do not end up in New York. The noble Lord, Lord Shutt, talked about possible job implications. I will say two things. First, I saw Mr Xavier Rolet today. He is one of the first experienced leaders in this industry that I have had the pleasure to consult. He gave me a copy of the EY report.
Secondly, as the committee’s report identifies, many firms in the UK, in the rest of Europe and internationally benefit from London’s multicurrency clearing structure. The Chancellor himself has pointed out that any changes to the structure could force up the cost of clearing, with a substantial cost to the European economy and to firms in the 27 member states—and cost is an important motivator. We will look at the committee’s recommendations on clearing very carefully in responding to the report.
My noble friend Lord Caithness asked about financial services regulatory co-operation in future trade deals, which was a very good question. The Prime Minister has said that the UK will be free to strike trade deals around the world after exit because of the approach that we have taken. That includes financial services. Trade deals involving non-tariff barriers, which have been mentioned, such as regulation, are also important and can be part of discussions on any new trade deal.
As the noble Lord, Lord Desai, said, we have played a major part in the architecture of the international financial system. We agree that we need to ensure that the UK, with its expertise, experience and eye for detail, continues to have influence over international standards with a voice on things such as the Basel Committee, the Financial Stability Board and other international fora such as the International Organization of Securities Commissions and the International Association of Insurance Supervisors. These international bodies could not be more important.
A priority of the Government is to consult external expertise extensively at this time and I am grateful for the vast amount of input that we have already had at every level in the Treasury and in DExEU. We are not talking just to those businesses with whole new Brexit strategy departments and consultants. We are also talking to those with none and to start-ups, supply chains and other stakeholders. We are also engaging outside London, where, as the noble Lord, Lord Shutt, said, we have large numbers of financial services jobs. There are, for example, around 140,000 people in this sector in Scotland, Northern Ireland and Wales—think of Standard Life or Virgin Money in Edinburgh, Legal & General in Cardiff, and Citi in Belfast. Indeed, next week I will visit Wales in my new role and hope to meet some financial services stakeholders.
We will keep up this process of listening to expert views from a range of standpoints as the negotiations kick off and progress. I hope not to be criticised by this House for lack of vigour. I know that many noble Lords have expertise in these areas. I therefore take this opportunity to invite them to contact me if they have advice to proffer.
I have focused my remarks largely today on two things: the needs of our varied financial services sector as we leave the EU, and how we are researching, understanding and analysing those needs. While some are more optimistic than others, there is a wide measure of agreement today that we need to secure the freest possible market access, the smoothest possible transition, and the ability to recruit and retain the best and the brightest. This matters to those people whose jobs depend on this industry—more than 1 million people in this country. It matters to the wider UK economy. Financial services contribute around £66 billion a year in tax and represent a growing percentage of our exports. It matters to our partners across Europe—and, of course, we are a gateway to the world of international finance.
It has been a pleasure to debate this perceptive and timely report. I again express my appreciation to the noble Baroness, Lady Falkner of Margravine, and the team that she chaired so expertly, for their conclusions.
(7 years, 7 months ago)
Lords ChamberThat the draft Regulations laid before the House on 2 December be approved.
The Bank of England and Financial Services Act 2016 provides for ending the Prudential Regulation Authority’s status as a subsidiary of the Bank of England. It transfers the functions of the PRA to the Bank, and provides that when the Bank is acting as the Prudential Regulation Authority its functions are to be exercised through a new Prudential Regulation Committee, which will have a majority of external appointees.
Making the Bank the Prudential Regulation Authority, and requiring it to exercise its functions as the PRA through the Prudential Regulation Committee, a statutory committee on the same footing as the MPC and FPC, means elevating the microprudential role to the same level as monetary policy and macroprudential policy. This is an upgrade. It reinforces—to Bank staff but also to the public, to whom the Bank must be transparent and accountable—that the Bank is not simply an organisation dedicated to setting interest rates, but one with equally important macro and microprudential responsibilities. The Bank has told us that closer integration has increased the feeling among PRA staff that they are integral to the Bank’s mission and have broader opportunities for progression across the whole Bank.
Where do these regulations fit in? Lots of existing legislation contains references to the Bank, the PRA or both. Before the provisions in the Act ending the PRA’s status as a subsidiary can come into force, we need to make consequential amendments to existing legislation so that references to the Bank and the PRA continue to make sense once the Bank and the PRA are the same.
In some cases existing legislation applies to the Bank and the PRA differently. Where this is the case, we have maintained the existing difference. For example, the Terrorism Act 2000 excludes from that Act’s definition of the “regulated sector” business conducted by the Bank. It does not exclude business conducted by the PRA. These regulations maintain this state of affairs by specifying that the reference to the Bank in Schedule 3A to the Terrorism Act 2000 does not include the Bank acting as the PRA.
In other cases, existing legislation applies to the Bank and the PRA equally. I shall not go through the detail, but in these cases the regulations simply remove references to the PRA and confirm that references to the Bank include the Bank when it is acting as the PRA.
The regulations represent the final legal tidying-up necessary to implement the provisions of the Bank of England and Financial Services Act 2016, which ended the subsidiary status of the PRA. I beg to move.
I thank the Minister for introducing these regulations—and my speaking notes go on to say, “and I thank those who have spoken in this short debate”, but it has been short indeed. As has been identified, this is an uncontroversial statutory instrument, which makes consequential amendments to legislation where references to the Prudential Regulation Authority are made. We understand that these are tidying-up changes and have no intention of opposing this instrument.
I do not wish to keep your Lordships unduly, but it is important to mention what we regard as the wider implications of the primary legislation. The PRA, established by the Financial Services Act 2012—an exercise in which I participated, as I have with every piece of legislation to do with it ever since; that is why I now look so old—will be de-subsidiarised, giving the Bank of England control over microprudential regulation. The board will be replaced by the Prudential Regulation Committee, which will sit on the same statutory footing as the Monetary Policy Committee and the Financial Policy Committee.
As your Lordships will recall, our main concern was to ensure that those in positions of power and authority within the banking sector were properly accountable. However, we also queried the Government's rationale for bringing the PRA within the scope of the Bank of England. I would like to make two points. First, I start from the same position as I did at the end of 2015, when what is now the Bank of England and Financial Services Act was going through your Lordships’ House. As I said on the second day of Committee on 11 November 2015:
“I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC”.
The nature of our economy is changing. The powers of the FPC, including controlling the creation of credit, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy. Under the system which the 2016 Act abolished there were at least checks and balances.
I went on to say that the PRA was,
“a subsidiary—an independent company … governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it”.—[Official Report, 11/11/15; col. 2005.]
Indeed, one of the benefits of subsidiary status—I should know, having headed a subsidiary company of a large organisation—is that one gets to focus on the business, so that there are clear lines of responsibility. As was brilliantly articulated by my noble friend Lord Eatwell, the 2016 Act muddies these lines of responsibility and, as he said,
“renders the governance structure of the Bank of England opaque”.—[Official Report, 9/11/15; col. 1851.]
The lines of demarcation set out in the Act relating to the PRC seem to add yet another layer of bureaucracy and complication to a new system which for all intents and purposes was functioning as it should. What specific work has been done since the Act came into force last year to ensure the same levels of accountability and transparency, and how will those qualities be visible to the general public?
Presuming that the Government do not take of heed of my advice, the PRA will be abolished and the PRC created. When will this transition take place? The Act states that an order will be introduced by the Treasury to give effect to the Act. Should we expect that order by the end of this Session? I thank the Minister in anticipation for her response. I am in no way saying that we are not impressed by the performance of the Bank of England. Nevertheless, the reasons she gave seemed rather fluffy to justify giving up the clarity that the present subsidiary status provides.
I am grateful to the noble Lord for his support for the regulations—and, indeed, for his dedication to the scrutiny of the 2016 Act and its subsequent children. He feels that the Act made the governance structure of the Bank of England opaque. I disagree: I welcome the changes, because I believe they make that governance better and clearer. Before the 2016 Act the MPC was a committee, the PRA was a subsidiary and the FPC was a sub-committee of the court, which is, of course, the Bank’s board.
With the changes in the Act, all three are now policy committees established on the same statutory basis, with clear statutory objectives and processes. The noble Lord asked what had happened since the Act came into force to improve accountability and transparency. Since it came into force last year, the National Audit Office has been able to conduct value-for-money reviews at the Bank for the first time, and the MPC’s new practice of publishing its minutes has swiftly become a legal requirement. Once the new PRC is created it will have to report every year on its resources and the independence of its operations, and produce a separate statement of accounts to ensure that the industry levy is limited to funding PRA functions.
My recollection is that the MPC has to report eight times a year, and the FPC, in practice, produces a report at least quarterly. Will the Prudential Regulation Committee produce regular reports of its activity—more regularly than annually?
The current plan is that it will report every year on its resources and the independence of its operations.
I will respond to the noble Lord’s question on timing. The provisions giving effect to the transfer will come into effect on 1 March this year—very soon—to ensure that the transition is aligned with the Bank’s financial reporting year.
The Bank of England has come a long way since it was established in 1694 to finance the war of the Grand Alliance against France. At that time, it only had 19 officials, including two doorkeepers. Now the Bank of England, including the PRA, has about 3,600 officials and has picked up a few additional responsibilities in the intervening 323 years. These regulations play their own small part in that process. I thank the House again for today’s exchange and commend the regulations to the House.
(7 years, 7 months ago)
Lords ChamberTo ask Her Majesty’s Government what further steps they intend to take to stop aggressive tax avoidance schemes by individuals and companies.
My Lords, during this Parliament we have announced that we will legislate for over 30 measures to tackle avoidance, evasion and aggressive tax planning. This includes a package of changes that close down avenues for tax avoidance by multinationals. We have also announced a new penalty for the enablers of tax avoidance that targets all those in the supply chain of tax avoidance arrangements.
I very much welcome the Government’s legislation to make international companies more transparent, and in particular to reveal the real centre of their economic activity and any possible misalignment between that and where they declare their profits for tax purposes. However, given that multilateral action is now less likely as a result of the decision to leave the European Union, will the Government take the lead on this legislation and ensure that companies have to reveal these data as part of their accounts, beginning with the next financial year?
The noble and right reverend Lord is right that we have very much been at the leading edge in this area. Our principle is that we should tax companies on where their activities take place. The OECD base erosion and profit-shifting projects, which we have been very much leading on, avoid strategies that artificially shift profits to low-tax or no-tax jurisdictions where there is little economic activity. That seems vital. Transparency is also important, as the noble and right reverend Lord says, but obviously that is something we have to tackle by acting together internationally. Our international work on tax avoidance and evasion continues, quite apart from anything that is going on at EU level.
My Lords, the Government are not at the leading edge of collecting taxes. They are in the process, over a five-year period, of implementing agreed EC tax avoidance measures. The Government expected that that would raise a certain amount of money but at present the total is £2.6 billion below what they had anticipated. Are the Government aware of how this looks in Europe? Do we not really need to reassure Europe on these matters? Otherwise, the sense Europe has that we might go for low taxation and look to be an offshore tax haven will strengthen their negotiating stance across all Treasury matters in the forthcoming negotiations.
I really do not see things that way at all. Actually, the UK tax gap is one of the lowest in the world. We are investing in work on avoidance and evasion, with an extra £800 million for HMRC, while the work we have done to bring in accelerated payments has yielded £3 billion in extra tax since 2014. The noble Lord talks about tax havens. I think the Prime Minister made it quite clear yesterday that Britain wants a new partnership with the EU and is hoping that we will get a good deal. The point about tax havens was the need to change the economic model if that was not possible. I am hopeful that, with that new agenda she set out, we will get a very positive agreement in this area.
My Lords, does my noble friend understand the concern of many of those who have to advise on statute law? Does she understand that it is undesirable to give to the courts a power to strike down an arrangement which complies with the letter of the law on the grounds that it does not comply with the spirit of it? The trouble with that is that it produces unpredictability and therefore injustice. Better by far, if Parliament is unhappy with the interpretation of law, to amend the primary legislation.
I am always very interested to hear from my noble friend on such issues. This is a complex point which, as a new Treasury Minister, I look forward to talking to him about to understand the implications in this important area of evasion and avoidance. Since the coalition, there has been a lot of agreement on the need to move forward sensibly, whether by statute or the intervention of the courts.
My Lords, many of us have been very confused as to why the Government put so little effort into persuading the UK’s overseas territories and Crown dependencies to lift the secrecy that covers tax avoidance. Are we now finding that the answer, as the Chancellor expressed to the German Government, is that he sees a tax haven as a potential economic model, even if by default, for the UK economy—in contravention, I suggest, with long-held British values and the basis of our economy?
I think I have already made clear the context of the Chancellor’s remarks. We are seeking to get a good agreed deal, but clearly, you cannot forecast that. The CDOTs have now all signed up to the common reporting standard and started exchange of information in September last year. This is a result of the sort of international discussion and agreement that we need on these abuse issues, where I believe this country has led the way and, if I might say so, the coalition did some ground-breaking work.
(7 years, 7 months ago)
Lords ChamberMy Lords, at his request and with the leave of the House, I beg leave to ask the Question standing in the name of my noble friend Lord Forsyth of Drumlean.
In quarter 3 of 2016, following the EU referendum, UK GDP growth was 0.6%, and the unemployment rate is now 4.8%. These figures show that not only was the economy stronger than we thought going into the referendum, it has been much more resilient than many people projected—“a brighter future”, in the Prime Minister’s words. The short-term pre-referendum analysis published by the Treasury was based on a specific set of assumptions, some of which have already proved invalid.
My Lords, what a joy it must be for us all to see business confidence rising and industry expanding; what excitement there is in seeing so many great, global countries recommitting themselves to Great Britain; and what a sadness for so many of us to see so many so-called experts having got it so wrong so frequently. Michael Fish got it wrong just once, not every night for six months. Does my noble friend agree that we have a clear objective, we have a clear agenda, and it is now time for all of us, no matter what side we took during the referendum campaign, to accept the very clear instructions of the British people and help to deliver the very best Brexit deal that common sense and common European interest can deliver?
I agree with my noble friend that we should try to deliver the best deal for this country that we can. Obviously, the analysis was based on a specific set of assumptions. They may have seemed sensible at the time but, with the benefit of hindsight, these things are always difficult. The Treasury also cited the uncertainty that a leave vote would cause, weighing on the economy, and it was therefore good to see certainty at the top of the Prime Minister’s list of objectives today.
My Lords, not all facts are as rosy as the noble Lord, Lord Dobbs, suggests. In hard facts, are we not dealing with a significant depreciation of the currency and a consequent rise in inflation which will cause difficulty for those of our fellow citizens who cannot readily raise their incomes? Is it not the case, whatever the rosy view on the other side of the House, that despite the drop in the value of the pound we have the highest levels of deficit on our current account ever recorded, so not much has yet fed through to our exporters?
As a new Treasury Minister, I am very aware that I should not comment on currency movements, but we are very lucky in this country to have the independent Bank of England. It has an inflation target; we do not target the exchange rate. The performance of the economy has been stronger since Brexit than any of us feared with, for example, good household consumption figures recently.
My Lords, does the noble Baroness agree with the Governor of the Bank of England, whom she has just praised, in his analysis but two days ago, when he said that the high levels of consumption in this country are kept up by unsustainable levels of household debt—that we are living now and will have to pay for it in the future?
I always listen with great care to what the governor says. Of course, unsecured debt as a share of household income is in fact lower than it was before the financial crisis. It is true that the savings ratio has come down more recently to 5.6%. That often happens in a recovery. I go back to the point that I made at the start: UK GDP growth has been strong relative to other leading OECD nations, and the unemployment rate is extremely low in this country, which is very good for working people across the UK.
Will my noble friend ignore the misery mongers on the Opposition Benches? Is she aware that some time back, long before the beneficent Brexit decision, the majority of economists, including the Bank of England, were saying that sterling was overvalued and needed to come down, and that inflation was too low—far below the 2% target—and needed to go up? When these things are gradually happening, they then say it is a disaster. Would she like to comment on that?
I very much agree with my noble friend that we always need to look at the opportunities. As I have often said, I am glass half full, not glass half empty. Like the Prime Minister, I am determined that we should pursue a good Brexit and a bold and ambitious free trade agreement with the European Union, if I may pick up the comments that were made in relation to Mr Ricardo.
My Lords, does the Minister understand some of the concerns at the kind of complacency that we have just heard expressed about a 20% devaluation of sterling, far higher than any recommended devaluation; soaring consumer debt, not quite yet at the crisis levels of 2008 but only a margin below; and inflation creeping into the system? I am sure that poor people will be glad to know that the noble Lord, Lord Lawson, celebrates the higher prices that they will be paying. Those have been recipes in the past for economic crisis. Should not the Government take more notice of what are not straws in the wind but major signals of problems ahead?
We have a system of carefully looking with the help of the independent OBR twice a year at where things are going and making the adjustments that we need. Indeed, I agree with the noble Baroness that there are long-term problems, and I am surprised that no one has mentioned the fiscal sustainability report that was published today—an independent and objective assessment, which looks ahead to the long term and will be an important catalyst for discussing some of the challenges we have in relation to the economy and how we fund the public services appropriately.
(7 years, 7 months ago)
Lords ChamberMy Lords, I am delighted that the first Bill I am taking as Commercial Secretary is about supporting people to save. As we know, saving is a hugely important topic and a very personal one for people up and down this country.
The reality is that families in the UK are not saving enough. The saving ratio is near a record low and it is estimated that 21 million people in the UK do not have £500 in savings to cover an unexpected bill. In the current economic climate it is important that households keep setting aside what they can afford to build their financial resilience and save for the future. Saving benefits the economy, helping to create stable, long-term economic growth, and it benefits individuals, helping them meet their aspirations and prepare sensibly for the future. So we want to make sure that all people in this country, no matter their circumstances, have the tools at their disposal to save money in a way that works for them.
There have been a number of initiatives in this area over recent years. The personal savings allowance put an end to 17 million people having to pay tax on the interest they received on their savings. There have been substantial increases to the ISA allowance: from April people can save up to £20,000 in this tax-advantaged wrapper. The Autumn Statement announced further support for savers with the introduction of a new market-leading three-year savings bond from NS&I in spring 2017.
To help even more people save for the future, this Bill brings in two new schemes: the lifetime ISA and Help to Save. I will introduce them in some more detail. First, the lifetime ISA provides a new option for younger people who are looking to save for the long term. Essentially, this is designed to offer people more flexibility in how they save. For some people, the existing support that is available will be sufficient. There is already, for example, a good level of support provided through the pensions system, particularly thanks to automatic enrolment, a policy that has attracted support, rightly, on all sides of this House. It makes it compulsory for employers to enrol people into a pension scheme and contribute towards it.
However, when we did a consultation on pensions tax relief back in 2015, we found that younger people in particular could find pensions inflexible. So we looked at what more we could do to provide more choice and flexibility for them. That is why we designed the lifetime ISA to offer that as a complement to the pensions system. Adults will be able to open an account from the age of 18 to the age of 40, and carry on saving up to the age of 50. They can save up to £4,000 a year. They will earn a 25% tax-free bonus on their contributions from the Government, paid straight into the account, which represents a clear and attractive incentive to save.
The flexibility comes in how the lifetime ISA can be used. Savings under this scheme can be used to supplement your income in later life because you can withdraw funds, including the bonus, any time from the age of 60. But you can also use your savings to get on to the property ladder for a first home costing no more than £450,000. We know how important that is for many young people today. We were clear in our manifesto that we believe the chance to own your own home should be more widely available. Through the Bill, from April next year, people will have a new and more flexible way to save, which may be more suitable for their individual needs.
The other policy introduced in the Bill is Help to Save. This is another way in which we are looking to help people build up their savings, and this is specifically targeted at people on low incomes, for whom it can be a particular struggle to do so. In fact, research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all. This is a serious statistic and one that we cannot ignore. Instead, we need to support and encourage more people to build up their resilience and become more financially secure. That is why it is the Government’s view that we should support those on low incomes who are trying to do just that by putting money aside on a regular basis. This Bill would therefore introduce a new Help to Save scheme no later than April 2018.
The scheme will be delivered by National Savings and Investments, building on its reputation as a trusted savings provider and ensuring that accounts are available nationwide. It would be open to any adult who is getting working tax credits, or who is getting universal credit and working enough to earn the equivalent of at least 16 hours pay at the national living wage. This means that there are around 3.5 million people who would be eligible for the scheme. Those eligible will be able to save up to £50 a month for two years—£1,200 in total—and then receive a 50% bonus on what they have saved. If, after those two years, they want to do that again for the next two years, they will be able to do so.
Help to Save offers a flexible way to save which we know that people value. First, there are no restrictions on what people are able to do with the bonus once they get it. Secondly, people will be able to take the money out at any time. There will not be any charge or penalty for doing so. That is why we see Help to Save as an attractive new scheme that would support and encourage people to save what they can. Having savings to fall back on can make all the difference to how well people can cope with unforeseen events that come their way.
Money Advice Service research in 2013 showed that 71% of UK adults faced an unexpected bill during the previous year. Research from the debt charity StepChange suggests that if a family has £1,000 in the bank, it is almost half as likely to fall into problem debt, by which is meant being in arrears with at least one bill or credit commitment. It is therefore really important that we take forward this scheme to help more people on low incomes build up a pot of money that can be spent however they want, but that might be particularly important in case of a rainy day.
The lifetime ISA and Help to Save are designed to do the same thing—namely, to reward those who are trying to save for the future and to encourage more people to follow their example. Whether it is young people saving flexibly for their futures or people on low incomes trying to set aside a bit of money each month, they deserve to have the tools to do that in a way that works for them. That is what these two new products offer. It therefore gives me pleasure to commend this Bill to the House.
My Lords, I thank all noble Lords who have contributed to the debate today, and I thank the noble Lord, Lord Tunnicliffe, for his very kind welcome. I certainly look forward to working with him and other noble Lords in this esoteric and interesting area and bringing light to the issues.
I think we all agree on the importance of people having effective tools to help them save money. As the noble Lord, Lord McKenzie of Luton, suggested, saving is important and we need the right quiver of incentives—and I welcome his support for Help to Save. I think there is an equal consensus around the need to encourage more people to save. I take the point that there may be more to do to publicise the progress that we have made on defined benefit pensions, described by my noble friend Lady Altmann—who is in a great position to encourage pensions saving and to explain how valuable it can be. However, I do not agree with her conclusion on the lifetime ISA: it has been supported by many, including the ABI, individual members and, indeed, Martin Lewis.
I turn to the link between the lifetime ISA and automatic enrolment, which was first raised by the noble Baroness, Lady Drake. I am well aware of her great expertise on pensions and, indeed, her role in the seminal Turner commission report—I remember well that huge report, which was very authoritative, arriving on my mat when I was responsible for pensions at Tesco, where we really cared a lot about helping people both to have a good pension and to save for their retirement. Those of us who care about pensions can be champions, as the noble Baroness, Lady Greengross, said. I share her respect for the work of Business in the Community, as she well knows.
I stress that we are fully committed to supporting people through the pensions system. Automatic enrolment will help 10 million people to be newly saving or saving more by 2018. The lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions. The Government’s policy towards employers reflects this. Employers have a statutory obligation to contribute towards pensions under automatic enrolment, as well as a direct incentive. Neither is the case with the lifetime ISA. Our impact assessment, based on an OBR-certified costing note, is clear that we do not assume that anybody will opt out of a workplace pension to save into a lifetime ISA—as the noble Baroness, Lady Drake, said.
The Help to Buy ISA is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home.
May I check the logic of that? Is the Minister saying that the OBR has certified that it is a reasonable assumption that nobody will opt out as a result of a lifetime ISA, or merely that it took that as an input assumption in doing its analysis?
As with all impact assessments, it is an estimate. We looked at the Help to Buy ISA, which is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home. That has not led to a surge in opt-outs. Instead, opt-out rates for automatic enrolment are still much lower than the Government expected, as several noble Lords said; they are currently 9%. The overall programme assumption was, I understand, 28%. We will of course regularly monitor the lifetime ISA going forward to make sure that it is achieving its aim—as the noble Baroness, Lady Greengross, suggested, and indeed as we do with all important policy areas. But I am not convinced, to respond to the point made by the noble Lord, Lord Tunnicliffe, that we need a formal annual review.
The noble Baroness, Lady Greengross, asked how many people using Help to Save were eligible for automatic enrolment. We set out our expectations of take-up of Help to Save. I am afraid that, as with all forecasts, there is uncertainty, so at this stage we are not able to say how many of these people will also be eligible for automatic enrolment.
Several noble Lords talked about guidance and communication. The Government announced in October 2016 that they plan to replace the three government-sponsored financial guidance providers—the Money Advice Service, the Pensions Advisory Service and Pension Wise—with a new, single financial guidance body, which I welcome. Through creating a single body we intend to make it as easy as possible for consumers to access the help they need to get all their financial questions answered. For example, this could be through helping families to balance their household budget or for individuals considering their options in retirement. Consultation on the precise design of the single guidance body is currently live and closes on 13 February. MAS, TPAS and Pension Wise will continue to provide guidance to consumers until the new body goes live.
The noble Baroness, Lady Drake, raised the issue of pensions tax relief, as did other noble Lords. Our responses to the Treasury’s pensions tax consultation indicated that there was no clear consensus for reform and, therefore, that it was not the right time to undertake fundamental reform to the pensions tax system. But obviously the Government have moved, with the Bill, to encourage younger people to save through the lifetime ISA—and that was a key theme that came out of the consultation.
The noble Baroness, Lady Drake, raised the question of mis-selling risk, which was also a concern of my noble friend Lady Altmann. I agree that it is very important for individuals to have clear information on their products. That is why we will publish factual information about the lifetime ISA on GOV.UK, as well as working with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. As was said, it is the independent Financial Conduct Authority’s role to regulate account providers, including how they sell a product to consumers. It is currently consulting on the approach and has set out its proposals.
Having said all of that, the communication issue has come up under several different headings. If noble Lords would find it helpful, I will undertake to look through Hansard at the various points that have been made on communication and set out in a letter to noble Lords who have taken part in this debate just what our plans are. That will enable me, for example, to check with the FCA about its current plans and take account of any consultation responses that may already be available. We need to make sure that at the point of sale providers are transparent about risks, including any potential early withdrawal charge and with information on automatic enrolment. That theme came through from almost all noble Lords who spoke. It is a very important area. As has been said, this is a Money Bill, but that does not mean that we cannot set out how we see these things being properly communicated.
The noble Lord, Lord Sharkey, questioned the impact assessment. I understand, from checking with the experts, that it is correct. I was glad that he raised housing because it is an important area. The OBR has noted that the effect of the lifetime ISA on house prices is highly uncertain and its predicted impact is significantly smaller than overall house price movements. As we know, a number of factors can affect house prices, which will be subject to change in future years. For example, we are taking steps to boost housing supply. Following the announcement of £5.3 billion additional investment in housing in the Autumn Statement, we expect to double our annual capital spending on housing during this Parliament. We will publish a housing White Paper shortly, which I hope will address some of the supply issues the noble Lord raised and allow this House to have further exchanges on this incredibly important issue for the future of our economy and our industrial strategy. I believe the lifetime ISA is one way to make sure that first-time buyers have the support they need to get on to the housing ladder.
I will address a number of technical points raised by the noble Baroness, Lady Drake. She asked whether the Government would commit to a 50% participation rate for Help to Save. The Government are not setting any specific target around take-up of Help to Save because we want opening an account to be an active decision by those who feel Help to Save is right for them. However, we will continue to work with the account provider and other interested parties to ensure that people are made aware of the scheme and receive the right support and guidance.
The noble Lord, Lord McKenzie, talked about eligibility for the under-25s. A person aged under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability—I am learning a lot from this debate. Our intention is to passport people into eligibility for Help to Save. This is a well-established way of targeting support at people on lower incomes. Importantly, it removes the need for people to complete a further means test to prove that they are eligible, which we know could deter people from opening accounts.
Perhaps the Minister will write in due course. There seems to be a disparity between the requirements for universal credit and for working tax credit. In universal credit you must have 16 hours at the national wage. For working tax credit, unless you fall within the disability or childcare categories, you need 30 hours of work. Why have the Government used those particular thresholds?
It is an important but esoteric point. If I may, I will write to the noble Lord. I am sure that in time I will understand these arrangements better. On his point about saving on behalf of others, individuals will pay into accounts and receive a government bonus. There will be no restrictions on what individuals do with the bonus or savings, or where the money has come from. However, HMRC will carry out additional checks on a number of accounts and will respond to any intelligence it receives from third parties where this gives rise to doubt about a person’s eligibility.
The noble Lord asked about the Government’s latest position on borrowing from lifetime ISAs. The Government continue to consider whether there should be flexibility to borrow funds from an individual’s lifetime ISA without incurring a charge if funds are fully repaid, but have decided that it will not be a feature when it becomes available in April 2017.
The noble Baroness, Lady Drake, said that the Help to Save scheme was not generous enough. On increasing the 50% bonus, our pilots for the saving gateway showed that a higher match rate of 100% made people only 5% more likely to open an account than a 50% match, and the amount of money saved into accounts was not significantly affected. On the two-year bonus period, I can make it clear that no one will be penalised for early withdrawals if they need to make any. The rationale of the scheme is to encourage people to develop a regular savings habit that will last beyond their participation in the scheme because it is valuable more generally.
I appreciate that this is a money Bill, but on the noble Baroness’s last point—I really do want the Help to Save scheme to work—the fact that the evidence shows that a matching contribution from the Government raises the participation rate by only 5% is not a reason not to match, because for those who are participating, their resilience is greater. A sort of apples-and-pears argument is being deployed here. A more generous match increases the resilience of those who do participate.
On the participation rate, all the behavioural evidence is that simply having good information does not necessarily deliver the level of behavioural response. More of a nudge, more of an active plan, may deliver more than a one-in-seven participation rate.
I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.
The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.
I am grateful to the noble Baroness for that answer and I understand the position the Government have taken. Are there ongoing conversations with credit unions and other commercial suppliers of both these schemes?
I believe that the Economic Secretary to the Treasury has had some discussions of which the noble Lord may be aware, but I should not want to suggest that we are about to change the situation. I have made it clear that the provision is written in an appropriately broad fashion. I can also confirm that the Government are not restricting the number of lifetime ISA providers. Provision will be open to any provider with the appropriate HMRC and FCA approvals.
When it comes down to it, this money Bill is all about supporting people who are trying to save, whether through increased support to those on low incomes through Help to Save or through the increased flexibility and choice for younger savers offered by the lifetime ISA. This is a Bill that supports people trying to do the right thing—those who want to save and to be financially prepared for the future. I am therefore pleased to commend this Bill and to ask the House to give it a Second Reading.
(7 years, 7 months ago)
Lords Chamber
To ask Her Majesty’s Government what assessment they have made of the potential impact on the economy of north-east England of the outcomes they are seeking from the negotiations on the United Kingdom’s exit from the European Union.
The Government are carrying out a range of analyses which will help to inform our negotiating strategy and have provided a guarantee for all European structural and investment fund projects signed before the Autumn Statement. We have also guaranteed all European structural projects signed after the Autumn Statement and before the UK’s departure from the European Union, provided that they pass the value for money test and are in line with domestic strategic priorities.
My Lords, I thank the Minister for the detailed information in her reply. The north-east of England has consistently had the most positive trade balance of any region of the United Kingdom, but 58% of its exports are to European Union countries. If the Prime Minister is no longer even trying to secure the fullest possible participation in the single market, what does the Minister think will be the effect of post-Brexit tariff and other barriers on exporting industries, which they will face long before any new deals with non-EU countries can be reached? Who is speaking up on our behalf in the Government?
My Lords, we want the deal we strike to give British companies the maximum freedom to trade, as the noble Lord has highlighted, and to operate across the single market. We are going to make the most of the opportunities that our departure presents, getting out into the world and doing business right across the globe, while at home, including in the north-east, building a Britain that works for everyone.
My Lords, I welcome the noble Baroness to her new responsibilities and I look forward to a number of engagements across the Dispatch Box. Let me begin with a straightforward question. Was the Government’s approach to Nissan and the assurances given to that company the only shaft of light for the north-east at present in terms of Government policy? Was it just a spasm on the Government’s part or do they have a policy for the car industry and manufacturing generally—in fact, for the economy of the north-east? The region has so much to lose because of its commitments to exports to Europe unless the Government get some of these issues right.
As noble Lords will know, I am a glass half full person and I think that the arrangements for Nissan and the automotive sector were a very good day for the north-east. The answer is that our door is always open to talk to the sector to give it the long-term assurances and strategy it wants, and that is what we have said.
Has my noble friend noted the courageous and insightful speech apparently given today by the current leader of the Labour Party in which he has said that Britain can be better off outside the EU? But we do not have to take his word for it because we can ask the heads of Nissan, Toyota, Honda and Ford, all of whom since the referendum have recommitted themselves to this country. Indeed, one can add Apple, Google and Facebook to that list. Were not the people of the north-east absolutely right and can they not be congratulated on voting to clear us out of the sadly failing internal market of the European Union?
I would add Snapchat to my noble friend’s list. The British people are clear that Brexit means Brexit and we on this side are determined to make a success of it. The list that my noble friend has shared with us shows the positive news that we have had since that surprising day, 24 June.
My Lords, does the Minister recognise that there are very different economies in the different regions of this country? The economy of the north-east is fundamentally different from that of the south-east and London. There are also social challenges that are not found elsewhere in the country. Does she recognise that many people in the north-east feel that the divisions in this country now are as bad as they were in the 1980s and the early 1990s when we lost our industrial base of shipbuilding, coal mining and steel making? What are the Government going to do to address properly the differences in our country, given that they have got rid of regional policy? They have to be addressed, otherwise the people that she has been lauding will feel very betrayed.
I recognise the special strengths and differences of the north-east, and I am glad we have this debate about them because I believe in the strengths of Newcastle, Teesside, Northumberland, and so on. The sort of investment we have made in the north-east recently shows how determined we are to try to help. The local growth fund awards have been significant. There is the further £556 million for northern local enterprise partnerships in the Autumn Statement, on top of the existing north-east funding. We are creating enterprise zones; I really welcome those in Teesside and in Newcastle. We are investing in transport, because you cannot improve an area of the country without improving that. Changes to the A1 and so on are absolutely crucial. We need to get on with those and to improve skills in the area. We are doing all that, and I am as determined as the noble Baroness.
My Lords, the Minister has referred to a number of organisations which are relocating to the United Kingdom. How many of those are relocating to London, and how many are relocating elsewhere in the United Kingdom? I draw her attention to the fact that figures produced by her department in the past year show that one-third of all new jobs created by foreign direct investment went to London.
The Minister said in her initial answer that her department is undertaking a range of analyses about the implications of Brexit. Will she consider creating Brexit resilience committees for each of the nations and regions of the UK, so we have real information rather than a London-based analysis?
I am surprised that the noble Lord talks about a London focus because I think this Government have actually changed. We have had the northern powerhouse document, which I hope he has read, which we published at the time of the Autumn Statement. We are undertaking an industrial strategy which I look forward to discussing in this House. The importance of place will come through strongly in that strategy. I note the other points that he has made.
My Lords, would my noble friend consider looking at a proposal from the North East Chamber of Commerce to create a free trade zone in the north-east to build on the continuing success of the north-east economy?
I am glad to hear from my noble friend, who introduced me to some of the joys of the industry of the north-east. I have indeed seen the North East Chamber of Commerce’s manifesto, which makes very interesting reading. In terms of the future on trade and on Brexit, we are carrying out a range of analysis to inform our negotiating strategy, and I shall certainly bear in mind the points that he made. But I think that you need to look at the United Kingdom as a whole.
(9 years, 2 months ago)
Lords ChamberI thank noble Lords for their interesting and informed contributions to our discussion today about the key areas of business, economic affairs and, of course, transport.
I was also glad to hear the contribution of the noble Lord, Lord King, in his excellent maiden speech. The noble Lord, Lord King, and I share a deep love of the game of cricket and, as the new man at the crease, I wish him a distinguished future to match his distinguished past.
This is an important day for the noble Lords, Lord King and Lord O’Neill. These contributions are the first, I hope, of many in this House but are preceded by the many and varied contributions they have made outside these four walls. My noble friend Lord O’Neill—the new Dr Johnson—is not only to be congratulated on his compelling speech but on his contribution of the terms BRIC and MINT to the world’s vocabulary and, as we will hear shortly, a new term, “PROD”. Like my noble friend Lord Caithness, I look forward to his continuing contributions because he knows about everything—from the secrets of emerging market success to antimicrobial resistance.
It has been an extraordinarily constructive and erudite debate on a rich and diverse range of issues, well beyond the essay question. In responding, if I fail to answer any noble Lords’ questions, I will write to them. I thank the noble Lord, Lord Davies of Oldham, for his provocative summing-up and I welcome the noble Lord, Lord Stoneham, to the Lib Dem Front Bench. I am very glad to see that he will be helping the House on these issues. I also thank the noble Lord, Lord Mendelsohn, for his kind words and I look forward to debating with him as the House scrutinises the legislation that we will be bringing forward.
Our long-term economic plan is turning around Britain’s economy, as my noble friend Lady Noakes was right to emphasise. In 2008, the UK was hit by the most damaging financial crisis in generations. In 2014, we were the fastest growing of all the major advanced economies. In May 2010, the coalition Government inherited a budget deficit that was more than 10% of GDP. Today, the deficit is half that level and debt as a share of national income is expected to start falling this financial year.
As the noble Lords, Lord Birt and Lord Turnbull, said, debt is too high and we need to reverse the rise as a share of GDP, lowering debt interest and building resilience to tackle future challenges effectively. We are not out of the woods yet, as the noble Lord, Lord Newby, said. There are still concerns on the international horizon, especially in the eurozone, and we have some huge challenges at home. Despite cutting the deficit over the past five years, it remains too high and productivity remains too low, whatever reservations we may have about how the figures are calculated. This Government are tackling this through our productivity plan, which will be published before the Budget, and our plans for a northern powerhouse. As the noble Lord, Lord Bilimoria, said, we are lucky to have my noble friend Lord O’Neill, who is our own northern powerhouse, here to tackle the issue.
Our trade with emerging markets has improved markedly but we are still too reliant on slow-growing markets in Europe. Business investment, which is so critical to improving productivity, has picked up but not by enough. While we have achieved remarkable success in creating jobs and growth, this is still uneven across the country and is reliant on too few sectors. I agree with the noble Lord, Lord Bilimoria, that enterprise, education, R&D and the engine of SMEs are critical to growth, although I do not agree with his view of the patent box, which I think has been a very important innovation.
The biggest theme of our debate has been the challenge and the opportunity of productivity. My noble friend Lady Wheatcroft talked about PIES but PROD is the abbreviation of productivity and should be the message to all parts of government and Whitehall: to be prodded to work with collective focus on productivity; for all parts of business to be more ambitious; and for our citizens and employees to prod themselves to achieve their potential. As my noble friend Lord O’Neill set out, our productivity is 17% below the G7 average. This Government will tackle this through our productivity plan, which will be published before the Budget.
To improve our productivity, we need to improve our infrastructure, as the noble Lord, Lord Teverson, said; we need to rebalance the economy and build the northern powerhouse, as the noble Lords, Lord Clement-Jones and Lord Shutt of Greetland, said; and we need to ensure better housing supply policy, as the noble Lord, Lord Newby, the noble Earl, Lord Arran, and my noble friend Lord Horam said, and good progress is being made, with starts at their highest level since 2007.
We need to expand apprenticeships, as the noble Lord, Lord Aberdare, said, and will be delivering 3 million more over the next five years. We need to reduce the burden of regulation on business, as my noble friend Lady Wheatcroft noted, and we have a new Business Secretary who is very well placed to do just that. We also need to get more women into the workforce, as the noble Baroness, Lady Wall, said, and provide better incentives for long-term investment. I listened to the noble Lords, Lord Reid, Lord Haskel and Lord Desai, on the measurement of productivity. As my noble friend Lord O’Neill said, there are measurement issues that need to be looked at.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Skidelsky, raised concerns about fairness. Inequality, as measured by the Gini coefficient, is lower than in 2010-11 and lower than the pre-recession level of 2007-08.
The noble Baroness, Lady Kramer, also asked about migration and full employment. The Government value the contribution of highly skilled migrants. However, we will also take action to cut down on migrants who undercut local workers, by denying them access to in-work benefits. We will also ensure that our strategy does not close off UK business to the skilled experts that it requires.
I thank the noble Baroness, Lady Liddell, for championing the tourism sector. I agree with her, and with the noble Lords, Lord German and Lord Clement-Jones, that this is a hugely important service industry which brings jobs to the whole of the UK. DCMS has done a good job of ensuring that this importance is recognised across government. We work closely with BIS to promote key sectors including tourism, the digital economy, the creative industries—another global success story, and now 5% of the UK economy—and, of course, sport. We now have joint Ministers across both departments, of which I am honoured to be one.
The Government are committed to seeing more women on the boards of top UK companies. We have made excellent progress but there is more to do. FTSE companies are on track to reach the 25% target set by the noble Lord, Lord Davies of Abersoch, by 2015—but, like the noble Baroness, Lady Wall, I believe passionately that a pipeline of talented women is crucial to success. As the new Minister in BIS for governance, and therefore for women on boards, I will have a chance to help to tackle this. We are also committed to ensuring that there are more women in STEM and I thank the noble Baroness for her contribution. BIS initiated a programme of work to understand these issues and take action. This is being jointly led by the Royal Society and the Royal Academy of Engineering.
I thank my noble friend Lord Leigh for raising points about “covenant-light”, entrepreneurs’ relief and debt subsidy. I have met him separately and will ensure that these points are closely considered within BIS and the Treasury.
Several noble Lords raised points relating to EU renegotiation. There will be a debate in the other place next Tuesday and I am sure that Members will raise similar issues. I will ensure that the points made today are brought to the attention of the Ministers concerned. Of course, the results of renegotiation will be in the public domain and will be discussed and debated very widely.
Turning to the trade union Bill, I fear that there are those here who believe that our desire for such a Bill is born out of some dark intent. The noble Lords, Lord Mendelsohn and Lord Monks, hinted at this. This is quite wrong. Rather, it is our ambition to become the most prosperous economy in the world. That means we must ensure that people are not adversely affected by little-supported strikes which disrupt important public services. I was glad to have my noble friend Lord Leigh’s support on this matter. We will require that in the key health, education, fire and transport sectors, 40% of those entitled to vote must support strike action for it to be legitimate. We will also tackle the intimidation of non-striking workers during a strike, introduce time limits on a mandate for a strike following a ballot, and make changes to the role of the certification officer. Strikes can put lives at risk, prevent people getting to work and earning a living and prevent businesses managing their workforces effectively. As noble Lords will know, I say that as someone who comes from a business which had excellent relations with the trade unions—USDAW in that particular case. I also pay tribute to the work of the noble Baroness, Lady Donaghy, with ACAS and reiterate the important role that ACAS plays.
Another theme has been the importance of skills, digital skills in particular, which was rightly emphasised by the noble Lord, Lord Davies of Oldham. Ensuring that business has access to a highly skilled workforce is also critical for generating growth and enhancing productivity. Over the next five years, we will deliver 3 million new apprenticeships and ensure that they deliver the skills that employers need for growth. We propose to introduce a new duty on government to report annually on progress against the 3 million commitment, which I believe the noble Lord, Lord Macdonald, will support from the Benches opposite. I assure him that the Government are working hard with large and small companies, through our reforms, to grow the all-age apprenticeship programmes.
Our apprenticeship reforms are focused on employer-designed standards and robust assessment processes, and will ensure that apprenticeships become increasingly attractive to all sizes of employer, which is vital. Apprenticeships are no longer confined to the manufacturing sector. You can now become qualified in the accountancy and legal professions through them, and we will promote the development of apprenticeships in all sectors and for all ages. We will also increase apprenticeships across Whitehall and its agencies so that the public sector is leading the way, and we will work with schools to ensure that apprenticeship options are more fully incorporated into careers advice.
Several noble Lords underlined the importance of the Select Committee report, Make or Break: The UK’s Digital Future. I very much look forward to debating that report and taking some of your Lordships’ ideas further, but I can say today that nine standards have been developed for digital since 2014 and that we have digital degree apprenticeships and, of course, the National College for Digital Skills, so progress is being made.
Latest figures for apprenticeships in the construction sector, which was a concern of the noble Lord, Lord Macdonald, have shown an increase of 16% from 2012-13 to 2013-14. There were more than 60,000 apprenticeship starts in engineering, which, again, is encouraging. He will be glad to know that, in 2013-14, 52% of total apprentices were women.
I turn now to enterprise and the enterprise Bill. This Government have an ambition for our small and medium-sized enterprises: to make Britain the best place in the world to start and grow a business. The enterprise Bill seeks to address the critical issues facing business growth. The first is late payment, an issue that affects small and medium-sized businesses in particular, which were owed £32.4 billion in January this year, compared to the £39 billion mentioned by the noble Lord, Lord Cotter—that perhaps reflects some response to the letters that we have sent, although I cannot be sure. On average, small businesses are still owed nearly £32,000.
We have already legislated through the Small Business, Enterprise and Employment Act 2015. Using those powers, we will now introduce a new requirement for the UK’s largest companies to report on their payment practices and policies. The enterprise Bill will establish new measures, including a new small business conciliation service to mediate in disputes between small and large businesses, especially over late payment, thereby avoiding the need for expensive litigation. I was glad to hear of the support that the noble Lord, Lord Mendelsohn, hopes to be able to give on this important matter.
My noble friend Lady Noakes asked why we needed legislation at all. Clearly, the Small Business, Enterprise and Employment Act was a landmark piece of legislation to help small business, but the measures in the new Bill will build on that by making sure that we remove another £10 billion of red tape. I hope that our work on enforcement will also be welcome to the noble Earl, Lord Kinnoull.
On the tax lock, which several noble Lords mentioned, these are important promises to working families, which we believe that it is right to put on the statute book. The noble Lord, Lord Northbrook, rightly highlighted the importance of lower, simpler taxes. To pick up the point made by the noble Lord, Lord Watson, we have a £5 billion target for reducing tax evasion in this Parliament, which I hope will be welcome.
Another area that can stifle small business growth is excessive regulation. We have an ambitious agenda, and the cost of regulation fell by £10 billion over the last Parliament. We intend to deliver a further £10 billion of savings over the coming five years. The job is not done; many businesses believe that how regulation is enforced and the paperwork that goes with it can cause more unnecessary difficulties than the law itself. The Government believe that we should now expand the framework set out in the small business Act to ensure that the actions of regulators are also covered.
With an unprecedented £70 billion of capital investment over the next five years, transport will account for nearly three-quarters of our infrastructure budget, and 22 out of the Government’s top projects. The Queen’s Speech reiterated the Government’s commitment to legislate for and start building high-speed rail links. My noble friend Lord O’Neill referred to our plans to deliver the full network of HS2 and how that will connect eight of Britain’s 10 largest cities. The Chancellor has already committed alongside this to ramp up investments in roads, give Britain the fastest broadband and the most competitive telecoms and take the decision on increasing airport capacity in the south-east once the Airports Commission’s final recommendations are published, which will be shortly. The noble Lord, Lord Harrison, will also be glad to know of the £1 billion airport redevelopment in Manchester.
The noble Lord, Lord Teverson, asked about the cycling and walking strategy. The Infrastructure Act contains a section giving the Secretary of State power to set such a strategy. Once it is commenced, the Secretary of State will be under a duty to set one up as soon as is reasonably practical. My noble friend Lord Attlee rightly raised concerns about cycle safety, and we are trying to address that.
I empathise with the noble Earl, Lord Arran, on the subject of the A303. I have been waiting for improvements to it all my life, and it is great to see them in the plan. We expect to start public consultation on the scheme in 2017.
The Government want to make Britain the technology centre of Europe, establishing more catapult centres, mentioned by several noble Lords. We are providing £800 million in 2015-16 for innovation activities through Innovate UK and other world-renowned institutions. They will keep a beady eye on how that is administered.
To make sure that the UK retains its position as the world’s best IP regime, we will also focus on a number of measures including: improving our rights-granting services; reforming the law to improve protection for businesses; striving to improve international patent systems; and educating businesses and consumers about IP. The consultation on Section 73 is continuing. The noble Lord, Lord Clement-Jones, is right to say that enforcement is incredibly important. It is great that we have managed to extend the life of PIPCU, and we are looking at future options for funding. He will also be very glad to know that we have used Section 97A to block access to websites alleged to host 10 million infringing e-books.
Building on the successes of the last Parliament, the Government have set out key measures, which will ensure that we continue to promote jobs and balanced growth in the UK. We have put the country back on a stronger financial foundation, although we have still more to do. We are putting the interests of business first and dismantling bureaucracy to make this the best place in the world to start up and run a business.
I end by thanking the House for a stimulating debate and for demonstrating economy and business nous by finishing business well ahead of schedule.
Motion agreed nemine dissentiente, and the Lord Chamberlain was ordered to present the Address to Her Majesty.
House adjourned at 6.10 pm.
(9 years, 5 months ago)
Lords ChamberMy Lords, I thank the noble Lord, Lord Mendelsohn, for his diligent scrutiny of the late payment provisions in the Bill. We covered a wide range of areas during the debates. I hope noble Lords are now certain of the Government’s unwavering commitment to tackle late payment and are satisfied with the way that I have tried to address the concerns raised. We are all united in the belief that suppliers should be fairly compensated when they suffer from late payment. I was persuaded by the noble Lord’s arguments and made a commitment to bring forward amendments to specify in the Bill how we intend to use the reporting power in relation to payment performance and interest owed and paid. These amendments deliver on that commitment.
Amendment 1 inserts a reference to “performance” in the Bill. This amendment makes clear that payment performance is a vital component of the new mandatory reporting requirement and that we are committed to include it in regulations. Greater transparency will bring to the fore poor payment performance. Amendments 2 and 3 make express reference to late payment interest as an example of the type of information that may be included in the new reporting requirement. We are committed to using this power in the Bill to require companies to report on the amount of interest owed or paid because of late payment. This new reporting requirement will bring increased transparency to payment performance.
Together with the wider package of measures we are driving forward—to improve public sector prompt payment and strengthen the Prompt Payment Code—this will encourage a change in corporate behaviour. For far too long, large companies in the UK have used their economic power to make gains at supplier expense. The commitment I have made today will help to ensure that suppliers are fairly compensated. I hope noble Lords will feel able to support these amendments. I beg to move.
My Lords, I thank the Minister for introducing these amendments and for her unfailing courtesy throughout the passage of the Bill. We share a deep concern that the scope of late payments and poor payment practices is not only unfair, unjust and damaging to small businesses but is a brake on the entire economic potential of our country. With the sum outstanding approaching £60 billion, the Bill is an important step in trying not just to stop it rising any further but to create the ability to reverse that number as strongly and rapidly as we can.
While we favour additional measures—some of which could be considered in secondary legislation—we are grateful to the Government for recognising the need to add strength to their approach by ensuring that the payment report goes beyond intentions and reports on actual performance. In addition, the interest figure in payments highlights existing late payment legislation. These measures have our strong support and we are grateful to the Minister and the Government for listening and for their positive response and detailed scrutiny of our suggestions.
It may be for the convenience of the House for me to thank the Minister for the letter she sent to my noble friend Lord Stevenson and myself helping to tidy up some of the points of contention raised on Report relating to the co-protections when a pub is sold, the role of the adjudicator in these matters, investment by pub companies and the market rent only option, and the consultation on the code itself and on secondary legislation. We are very grateful for what the Minister has written and believe that it resolves almost all of the outstanding issues at this stage. Again, we offer our strong support for that.
We have good reason to be very proud and supportive of small businesses. One has only to look at the annual reports on European SMEs, published by the European Commission, to know how strong we could be with more focused public policy support. Let us hope that this Bill is a strong step in the way forward in dealing with late payments and prompt payments and ensuring that our small businesses take full advantage of the position that they are in. They are, of course, the backbone of our economy.
My Lords, I am grateful to the noble Lord, Lord Mendelsohn, for his very kind remarks and for giving me the opportunity to return briefly to the matter of pubs. As he said, I sent a letter to the noble Lord, Lord Stevenson, yesterday and I have, for the convenience of the House, placed a copy in the Library.
Noble Lords expressed concern on Report about protections that would be available to a tied tenant whose pub is sold. Let me clarify the position: when a tied pub, owned by a company covered by the statutory code, is sold to another code company, the rights of the tenant under the code will be unaltered and will continue seamlessly. A tenant in this situation will retain the right to exercise the market rent only option after sale if any of the MRO triggers are activated. Where a tied pub is sold by a code company to a company outside the scope of the statutory code—for example, to a family brewer—the tenant will retain all the protections of the code except for MRO until the end of the lease or until completion of the next rent review, whichever comes first. In this scenario, if the purchasing company offers the tenant an agreement on different terms from their existing agreement, the tenant will have the right to a rent review.
If the tenant considers that the rent review breaches the code then he or she will be able to refer the matter to the adjudicator for arbitration. The adjudicator will not have powers to investigate non-code companies because the investigation powers are designed to address suspected systemic abuses of the code across many tenants. It would not be right to include in scope companies which are covered by the code only by virtue of the historic ownership of some of their pubs and in respect only of those particular pubs.
I turn briefly to the matter of investment. I have been clear that the Government want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. Pubs are at the heart of our communities and our heritage. They are important to the old and the young. We want pubs to thrive. I therefore announced on Report that the Government would set out in secondary legislation how tenants and pub companies can agree a waiver of two MRO triggers in exchange for significant future investment in a pub. I would like to make it clear that the waiver will apply only to the renewal and scheduled rent review triggers for MRO. All other code protections will remain in place during the waiver period. This means that the two exceptional triggers for MRO will remain; namely, a significant price increase and an economic event which impacts on the tenant’s ability to trade. The Government will set out safeguards in the code to ensure the tenant is protected from attempts to abuse a waiver. Any attempt to avoid these safeguards could be referred to the adjudicator for arbitration and redress.
I am grateful to my noble friend. I hoped to get through this afternoon without having to discuss pubs yet again. When a pub is sold by one of the companies covered by the code to a company that is not covered by it—a family brewer was the example she used—who enforces the rights of the tenant against the pub company that is outside the code? At that point, as my noble friend said, it is not part of the code so how does the adjudicator make that work?
I thank my noble friend for that question. The answer is that this is part of the role of the adjudicator. I am very happy to talk further on the detail of how that might work. Of course, that will be the subject of full consultation.
Finally, I reiterate that the Government are committed to that full consultation on the pubs code and the other secondary legislation that is required to deliver Part 4 of the Bill. We will be keen to continue engaging with stakeholders as the secondary legislation is developed. The regulations are of course subject to the affirmative procedure and we intend to ensure that there is a chance to scrutinise this secondary legislation because of the depth of interest in it and its importance. We send the Bill back to the other place confident that we have remained true to the spirit and intention of the measures introduced there, but having made improvements that will ensure that the measures are workable and minimise unintended consequences.
My Lords, the amendments in this group make a number of consequential and technical changes to the Bill. I turn first to Amendments 4, 6, 12 and 13. In Committee, the Government moved a number of technical amendments about the penalties in the Bill. The majority of those related to the penalties in Parts 7 and 8. At the time, it was unclear whether changes to the fines available to magistrates in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 would be implemented during this Parliament. This was because the regulations needed to accompany commencement were yet to be debated in both Houses of Parliament and a number of the amendments were designed to ensure that the penalties worked in either event. As noble Lords may be aware, Section 85 of LASPO came into force on 12 March. As a result, there is no longer an upper limit on fines in the magistrates’ courts. My amendments therefore remove the changes we made in relation to these fines, as they are no longer necessary.
I now turn to Amendments 14 to 16. Noble Lords will be aware that the Deregulation Bill has recently been read in this House for a third time, and yesterday this House considered and agreed amendments made to it in the other place. These technical amendments are therefore required so that the Schedule 9 amendments are based on the text of the Insolvency Act after amendment by the Deregulation Bill.
Finally, I turn to Amendments 7 to 9. Our penalty measure in Clause 150 provides for full and prompt payment of employment tribunal awards. This will reassure claimants that, should they be successful at a tribunal, they will receive the money that they are owed. Clause 150(5) already amends the Employment Tribunals Act 1996 to provide that the affirmative procedure applies to regulations made under the new provisions. However, it does not also remove them from the category of instruments that are subject to negative procedure. Amendments 7 to 9 correct this.
I hope noble Lords will welcome these various amendments and give them the House’s support.
My Lords, it says in the Companion very clearly that Third Readings are mainly used for tidying up complicated parts of Bills that perhaps have eluded the draftsman or indeed are subject to a change in other places. The descriptions as made by the Minister clearly fulfil all aspects of that and we have no wish to enter into them.
I must say that I was slightly confused by the insertion and then removal and then the reinsertion but in a different way of the Legal Aid, Sentencing and Punishment of Offenders Act provision. However, the Minister has explained the reason for that in a private meeting and we are very happy with the provisions now.
My Lords, we debated on Report whether the Equality and Human Rights Commission should be excluded from the small business appeals champion in the Bill. I committed to consider the question. Amendment 5 now delivers an exclusion. The Government have always maintained that the EHRC is a very special case and should not be subject to the duty to appoint a champion. We considered that an exemption in secondary legislation would be sufficient, but noble Lords were concerned about this and the potential implication for the EHRC’s “A” status as a national human rights institution. The Government believe that there is only a very small risk here, but we have listened to noble Lords and agreed to eliminate the risk altogether with this amendment, which I know from the debate will be welcomed across the House. I beg to move.
My Lords, I thank my noble friend very much for this concession. I entirely agree with her that nobody in this House thought that the Government were not going to do this. We understood that there was no malice aforethought in any sense at all, but it is surprising how people can make malice if they can find a way of doing it, and many people were suggesting that, in some way, the Government were taking control over this independent body, which would be unacceptable internationally. That is why we made the point, and I, for one, am very pleased that the Government have accepted it. I thank my noble friend for the courteous way in which she has dealt with this and, indeed, the detailed answer that she has given us.
My Lords, as a representative of the rebellious tendency on this Bill, I thank my noble friend for the considerable improvements to the Bill as a result. It has been an example of the House of Lords at its very best. We now have something that will make a difference in a lot of areas and which has removed some of the things that might have made a difference in the wrong way. We owe a great deal to the Minister responsible because, as the noble Lord, Lord Stevenson, said, she has achieved things that many others have not.
My Lords, I thank noble Lords for their warm and gracious words and put on record my thanks to everyone who has played a role in supporting the rapid passage of this sizeable Bill through our House. I start by thanking the Lord Speaker and all Deputy Speakers who have facilitated our proceedings, as well as the clerks, the doorkeepers and our skilful reporters in Hansard. As other noble Lords have done, I thank the excellent, hard-working, never-complaining members of the Bill team and officials from the 12 departments who have supported our debates.
This is a wide-ranging Bill. We have considered it from A to Z: right from access to finance through to zero-hours contracts and beyond. We even mentioned Gibraltar and fish and chip shops. I thank all noble Lords for their contributions to our debates and for the detailed scrutiny they have given the Bill. Having benefited from the expertise for which this House is renowned, the Bill now returns to the other place much improved.
We have heard a range of expert voices from the opposition Benches, helped by their excellent apprentice. I am grateful to noble Lords, particularly the noble Lords, Lord Stevenson and Lord Mendelsohn, and the noble Baroness, Lady Hayter, who are in their places, and the noble Lords, Lord Young of Norwood Green, Lord Mitchell, Lord Grantchester and Lord Watson, and the noble Baronesses, Lady Jones. I thank them for their constructive, but challenging, approach and for working with me and my officials outside the Chamber.
We have added new provisions on equal pay and on whistleblowing. I thank the noble Lord, Lord Wills, for mentioning that and for the stand he has taken in that area. We have reached agreement on the vital pubs measures in a form that is workable to deliver the protections that tied tenants need. I also thank my noble friend Lord Hodgson for providing the perspective of the pub investor so eloquently. Although there has been a lot of passion on either side of the debate, I am glad for the drinkers among us that it was mild-mannered and that nobody has been left feeling too bitter.
Finally, I thank my noble friends Lord Popat, Lord Newby, Lord Nash and Lady Verma, who have so expertly assisted me at the Dispatch Box, as well as my many noble friends who have supported the Bill from the government Benches, especially my noble friend Lord Stoneham, who has attended every day and made the most excellent contributions. I also thank my noble friends Lord Borwick, Lady Harding and Lady Mobarik, who gave us the strength of their business experience on this, their maiden Bill, and my noble friends Lord Lee, Lord Flight, Lord Ridley, Lord Phillips, Lord Freeman, Lord Deben—and his rebellious tendency—and Lord Young of Graffham, who was the inspiration for our public procurement measures.
It is now vital that this Bill proceeds to Royal Assent swiftly so that we can start to reap the benefits for small businesses. It will open up new opportunities for small businesses to innovate, compete and secure finance—to create jobs, to grow and to export. As we call last orders on the Bill, I am sure that is something all noble Lords will want to toast.
(9 years, 5 months ago)
Lords ChamberMy Lords, these amendments relate to Clauses 122 and 123 which remove the requirement for face-to-face meetings in insolvency proceedings.
I am grateful to the noble Lord, Lord Stevenson, and my noble friends Lord Flight and Lord Leigh for their questions about when face-to-face meetings should be held and the position of small creditors. I have also met R3, the trade body representing insolvency practitioners, as I promised to do in Committee, and am grateful to it for the valuable insight that it provided.
After further consideration, the Government intend to expand the thresholds so that a face-to-face meeting may be requested by 10% of the total number of creditors or contributories, as well as 10% by the value of their claims, which was, of course, the Government’s original proposal. This would mean that on average three or four creditors could trigger a meeting in a liquidation case. Moreover, to account for the larger insolvency cases with lots of small creditors, a further threshold of an absolute number of 10 or more creditors or contributories—a third 10—has also been introduced.
I thank the Delegated Powers and Regulatory Reform Committee for its recommendations on this part of the Bill. We have listened to its concerns and moved the various thresholds to the face of the Bill so that they will appear in the Insolvency Act as amended. Any changes to these thresholds will also now be subject to the affirmative resolution procedure.
Before I sit down, I should like to comment on another insolvency issue raised in Committee by my noble friend Lord Flight. This was the temporary exemption from the scope of the no-win no-fee reforms in Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 for insolvency officeholders to bring civil proceedings. The Government have listened to the concerns raised in this House and elsewhere. As a result, we announced on 26 February that we would defer commencing the no-win no-fee reforms for proceedings brought by insolvency officeholders beyond April 2015.
I am most grateful for the input of noble Lords on all sides of the House and I hope they will agree that we have found a sensible solution on all these issues. I beg to move.
My Lords, I thank the Minister for listening to the various concerns in this territory and for the government amendments. I am aware that the insolvency industry is comfortable with the legislation as it now stands. It understandably has the view that it hopes creditor meetings will not disappear as they can be extremely useful. However, a most satisfactory compromise has been achieved, for which I thank the Minister.
My Lords, I thank the noble Baroness, Lady Thornton, for her amendment and all her supporters, including Grazia magazine. I pay tribute to her tireless campaigning on gender equality. This is a very timely debate, following International Women’s Day on Sunday. I am pleased to confirm that it is the Government’s intention to accept the noble Baroness’s amendment, subject to changes that I am proposing by way of government Amendments 58ZZA and 58ZZB.
Before turning to the amendments, I remind the House of some key facts about the pay gap and the work that the Government have already been doing to close the gap and improve transparency. First, it is important not to lose sight of the fact that, according to ONS figures, the gender pay gap has fallen to its lowest level ever. It has been virtually eliminated among full-time workers under the age of 40, which is a more positive way of looking at the statistics. We are broadening the career aspirations of girls and young women by encouraging them to get into STEM-related careers through the Your Life campaign. Opening up these highly skilled areas ensures that women are less concentrated in sectors that offer narrower scope for reward and career progression.
We have also championed the voluntary, business-led drive by the noble Lord, Lord Davies, to get more women on boards. Women now account for around 23% of FTSE 100 directors, up from 12.5% in February 2011, and there are now no all-male boards in the FTSE 100. It is a huge step forward. Last night I attended the fantastic dinner for women on boards, hosted by the Secretary of State for Business, Innovation and Skills and sponsored by Lloyds Banking Group, encouraging this key group of women to drive forward further progress, which I believe is very important.
We are modernising the workplace to give women a fair chance to get to the top. Last June, the right to request flexible working was extended to all employees, and from April we will introduce a new system of shared parental leave. Further, almost 2 million families could benefit from our new tax childcare scheme from autumn 2015, which is worth up to £2,000 per child.
In January we published new guidance for employees on the gender pay gap. Research has shown that organisations perform better when they have a good balance of women across teams and in senior roles. Our guidance helps women to check if they are being paid fairly and encourages good practice of the kind the noble Baroness mentioned. Furthermore, new EU software to help UK employers analyse their pay data can now be downloaded for free. We are already encouraging greater transparency about pay. We have banned pay secrecy clauses, changed company reporting on boardroom diversity and introduced mandatory equal pay audits for companies that lose equal pay claims. We have also been working in partnership with business to tackle the root causes of the gender pay gap and promote culture change and greater transparency through the Think, Act, Report initiative, which the noble Baroness mentioned.
Because of Think, Act, Report we now we have a powerful business community of best practice with more than 275 leading companies—the figure is right—employing more than 2.5 million people, leading the way on gender equality. Of course, Think, Act, Report was never intended as a substitute for Section 78; it is so much broader and has achieved a lot. We said that we would keep Section 78 under review and that is exactly what we have done. We now want to build on the progress we have made. We need to take into account that one size will not fit all and that is why the Government feel strongly that we must consult on how Section 78 is taken forward. I welcome the amendment from the noble Baroness, Lady Thornton. I am proposing two amendments to it—Amendment 58ZZA to ensure it fits properly with the Equality Act provision, and Amendment 58ZZB to require consultation before implementation—which the noble Baroness has graciously indicated that she will accept.
We know that business is particularly concerned about being required to report more information, so we also want to ensure that the Government actively engage business during a proper consultation. This will ensure that we find the best way of implementing Section 78 in a business-friendly way, making use of information employers already have available and without being bureaucratic. In order to bring forward tailored, workable regulations, it will be essential for the Government to consult business properly, as well as others with interests and expertise in the area. We want to ensure that the requirements on business can be fulfilled and that the data published are of real use. I am therefore grateful to the noble Baroness for agreeing to these important adjustments to her amendment.
My Lords, I was glad to put my name to the amendment in the name of the noble Baroness, Lady Thornton, and I am equally delighted to support the government amendment that essentially accepts the noble Baroness’s amendment but makes some minor modifications to the text. In view of the welcome degree of consensus that is breaking out, I will endeavour to speak quite briefly.
The Equal Pay Act was passed in 1970—all those years ago—but 45 years on there is still a significant gender pay gap. In 2014, women in full-time employment earned 9.4% less than men in full-time employment. The gap was wider for part-time work. Female part-time employees earned 37.9% less than male full-time employees. For all employees, the gender pay gap was 19.1%.
I welcome the Government’s acceptance of the amendment in the name of my noble friend Lady Thornton and their decision to take it slightly further by changing “may” to “must”. That is an improvement and it is to be welcomed as well. I am not quite sure that I would go as far as my noble friend Lady King who was rather effusive—perhaps she was indulging in irony—in saying that the Conservatives and Liberal Democrats were now all over this like a rash. Having been involved with various aspects of this Bill through its passage, I suspect that the driving force in this is in fact the Minister herself and that some of her colleagues may not be entirely signed up to it. I suspect that the word “burdens”, which we have already heard today, will be one that will appear more than once this afternoon in terms of zero-hours contracts, fixed-term contracts, internships and so on—and yet the burdens will always be the burdens on industry and never the burdens on the individual workers who have to work those hours.
This particular amendment is about women. I hope that we can hear a bit more about the burdens that people have to suffer. Earning only 81p in the pound is a burden that no woman should have to suffer. If the amendment opens things up and exposes companies that for whatever reason are paying at different levels, that is a real step forward. I welcome the amendment—and the amendment to the amendment
My Lords, I thank the noble Baroness, the noble Lords, Lord Low and Lord Watson, and the noble Baroness, Lady King of Bow, for their contributions to the debate. I am pleased that there is widespread support for the approach. It builds on the Equality Act 2010 and the progress that I believe has been made since 2010. I also pay tribute to the noble Lord, Lord Stoneham, and thank him for what he said about culture, since culture and transparency are very important in promoting gender equality. I ask noble Lords to support these amendments.
My Lords, I intend to be brief. My noble friends Lady Hollis and Lady Drake have given a forensic examination, based on factual analysis, and I do not feel I need to go through it again. I want to address some of the comments made by the noble Lords, Lord Stoneham and Lord Deben, and the noble Baroness, Lady Harding.
On the UK labour market, the first thing we need to understand is that it is probably the most flexible labour market in Europe. Nobody could say that we are like France, Italy or Spain or that we have something that makes it almost impossible for employers to hire people flexibly. I will leave noble Lords with the following thought. On grounds of fairness, are we going to say that a zero-hours contract means zero rights? Just to remind us, under zero-hours contracts there is no sick pay, no holiday, no national insurance contributions and nothing towards a pension—that is a pretty demanding contract as it is, and it is hardly weighted against the employer.
Nobody on this side who has supported these amendments has suggested that we want to do away with zero-hours contracts in their entirety. We accept that, for some people, they are a valid and necessary means of employment, both for the employee and the employer. However, there ought to be some reasonable ground rules. If you are running a business, yes, there will be changes in circumstances; that is undoubtedly right. However, this amendment aims to lay down a principle which it says will be interpreted in regulation and which will not just be dealt with by the spectre of solitary civil servants, who apparently between them have never experienced an hour of work in industry at all. From my brief ministerial career, I know that that does not necessarily apply to all civil servants, so I do not accept the idea that they will work in a total vacuum—that is an unnecessary fear.
Are we really putting forward the basic argument that, if I am being contacted and told by the employer, “I want you to turn up for work”, and I turn up, honouring my side of it, the employer has no responsibility whatever? I listened carefully to the noble Baronesses, Lady Perry and Lady Harding, and there might be other circumstances, but that is a question of taking into account how we phrase the regulations, so we can take those into account. That is not an argument for saying that there should be no control over this situation at all.
The noble and learned Baroness, Lady Butler-Sloss, reinforced the point, which my noble friend Lady Hollis had made, that it is curious that the CBI supports this. That is hardly an organisation that would support something it thought totally inflexible. Surely this is about basic fairness, is it not? If we are enjoying the services of somebody who is working under those conditions, surely it is right that they should have some fairness applied in the way they are summoned to their employment.
Surely we are seeking to encourage reasonable standards of management. I will give another statistic from the Chartered Institute of Personnel and Development: only one in five British managers has any training at all. I point that out to the noble Baroness, Lady Harding, because it is as important as some of the other statistics she quoted. Of course, people will declare that they are satisfied—they need the money and are glad to get into work. However, when we are being served by those people, do we not feel that there should be certain basic rights? This is one of them.
We commend the Government for getting rid of the exclusivity provisions in such contracts, which was clearly unfair. However, because of the way this amendment has been made it ought to attract cross-party support. We are not taking a political stance here, but a stance on responsible and effective management—that is what it is all about—and on giving a reasonable right to the employee. It can be dealt with very effectively in regulations, and I hope that the House will overwhelmingly support it.
I thank the noble Lord, Lord Young, for his intervention. I am very grateful to the noble Baronesses, Lady Hollis and Lady Drake, for their amendment and for allowing us the opportunity to return to the important provisions on zero-hours contracts in the Bill, and specifically to the matter of compensation for late-notice shift cancellations.
We had a debate in Committee, but I see that the noble Baronesses’ amendment now seeks to apply their proposal much more widely across the workforce. I also listened to the noble and learned Baroness, Lady Butler-Sloss, and the noble Baroness, Lady Perry, both of whom brought the benefit of their own experience of this matter. I have some myself, as I have four children —although the noble Baronesses are right to say that that is not necessarily relevant to the debate. I thank the noble Lords, Lord Butler and Lord Cunningham, and the noble and learned Lord, Lord Lloyd. I was also pleased to hear my noble friend Lord Deben comment on the dilemma of replacing less good employment with no employment.
The noble Lord, Lord Stoneham, rightly reminded us of the need to be careful not to throw the baby out with the bathwater. We in this country have done a lot with our flexible labour market, which has helped us to create 2 million jobs in this Parliament. I was also glad to hear from my noble friend Lady Harding, who came at the matter as a practical business person and thought about customers and the detailed definitional issues that we always get into on these matters.
Perhaps I should remind those who were not in Committee of what we are already doing about zero-hours contracts. Our consultation identified exclusivity clauses as the biggest issue. We have acted, and as a result of Clause 151, no zero-hours worker will be forced to be exclusive to an employer that does not guarantee them any work. There is also new information. The Government have published today our response to the consultation on zero-hours contracts, Banning Exclusivity Clauses: Tackling Avoidance. We have also published draft regulations that illustrate how the Government intend to use this power in the Bill.
The draft regulations propose that those employed on a zero-hours contract will have protection against suffering detriment on the grounds of working for another employer, and will be able to make a complaint to an employment tribunal. If a complaint is upheld, they may receive compensation. I know from our Committee debates that this is something that noble Lords opposite were keen to see, and I hope it will be welcomed.
In addition, the draft regulations propose to widen the ban on exclusivity clauses to all contracts of employment or workers’ contracts where the individual is not guaranteed a certain level of income. I hope that this, too, will be welcomed by the noble Baronesses, and will improve the situation. The regulations will extend the protection and ban exclusivity terms for other vulnerable groups in the labour market, beyond zero-hours contracts alone. People will be able to work more hours and boost their income if they so wish. This is in line with the responses we received.
What is more, the Government are updating the guidance on zero-hours contracts, and we intend to publish this on GOV.UK before the end of the Parliament. This is in addition to any sectors producing their own codes of practice on the responsible use of these contracts, as some noble Lords suggested.
We consider that a business-led approach is the best way to ensure a lasting culture change in the treatment of zero-hours workers, which the whole House wants. I hope that that demonstrates that we are listening to the concerns raised in this House and are acting to protect vulnerable workers—because I take the point that it is the vulnerable workers whom we are concerned about.
Amendment 58ZZC seeks to provide compensation for short-notice shift cancellations—but it proposes that the rights should apply to all workers, not just zero-hours workers. So it is not, as the noble Baroness suggested, a modest amendment, and I am not sure that the CBI supports the proposal. In March 2014 it said that a simple system of compensation might work for some zero-hours contracts. That was before we introduced the changes in this Bill—and the CBI’s comment did not apply to all workers. More recently, it has, I think, come round to the idea of regulating zero-hours contracts, and has said that the Bill’s,
“ban on exclusivity clauses in zero hours contracts … is a proportionate response to tackling examples of poor practice, and strikes the right balance between flexibility for both employers and workers”.
All those in work in the UK will have an employment status, which determines the protections to which they are entitled. Most commonly, individuals are “employees”, “workers” or “self-employed”. As the “worker” category includes all “employees”, this means that this amendment would potentially extend to the vast majority of the labour market. It requires the Secretary of State to make regulations—the wording is “shall”—and requires employers to pay compensation to workers whose shifts are cancelled without notice.
My Lords, I am grateful to all my noble friends who took part in the debate—my noble friends Lady Drake, Lord Young and Lord Cunningham. Indeed, I am grateful for all the contributions from around the House. However, what has puzzled me a little about the contributions from around the House is the fact that most of the argument seems to have been about the need for, and virtues of, zero-hours contracts as such, and the need for a flexible labour market. I had hoped that we had been at pains to establish that of course customers, consumers, passengers and patients now live in a 24/7 economy. The issue is not about ZHCs; it is not even about codes of practice, because good employers such as Marks & Spencer do not abuse ZHCs, whereas Boots does. Pret a Manger does not abuse them, although McDonald’s does. Good employers can already decide how best to employ their staff. Whether a company does or does not have ZHCs is not the issue.
The issue is that there are some people with ZHCs, as the noble and learned Baroness, Lady Butler-Sloss, and the noble and learned Lord, Lord Lloyd of Berwick, rightly said, who are exploited and suffer because although they are summoned to work by text, often overnight, they turn up and are then sent home again without a penny. What is more, they may have spent £5 or £8 in travel costs to get there and back. They may have spent £15 or £20 in childcare to get there and back and they get not a penny of recompense for the expenditure they made to uphold their side of the ZHC contract.
All that I am asking for is fairness, as the noble and learned Lord, Lord Lloyd, said—fairness between the employer who can dispense with the services of somebody and the employee. He may need to do that—I can see the point—but it should not be the worker who exclusively and solely bears the cost of the cancellation. That is what is unfair; not ZHCs, not flexible labour contracts, but the fact that only one party, the most vulnerable, the poorest, the weakest, should bear the cost of a zero-hours contract when they turn up to work and the work is taken away from them, even though they are doing exactly what the employer requests.
The noble Lord, Lord Deben, was worried. I thought that the speech by the noble Lord, Lord Butler, was admirable in putting the simple point that the amendment would require the Secretary of State to make regulations, but keeps the content entirely open. However, we expect them to reflect the spirit of the discussion in this House tonight that zero-hours contract workers—the people we are concerned about—should be able to be protected in this way.
In Committee, the Minister said that the Secretary of State already had powers to do that. This was followed up by a letter saying that that was not the case. The order-making power does not extend to other issues around ZHCs such as compensation for late-notice cancellations. I repeat that the Secretary of State has no power presently to regulate this anomaly at best—this exploitation, bluntly, at worst—that we all agree is unfair. He has no such power. The amendment would give him that power. After consultation with the sector—it may take months, I fully accept that—he can then introduce appropriate requirements for codes of practice or whatever may be proper to defend the people of whom the noble and learned Baroness, Lady Butler-Sloss, so eloquently reminded us: the lone parent who may be £20 or £30 out of pocket because at five minutes’ notice her shift is cancelled. At the moment, the Secretary of State does not have the power to do that.
This is not about ZHCs or the flexible labour market, I am asking your Lordships to do what this House is always at its best in doing: say to the Secretary of State, “We are willing to give you the power, we expect you to handle it sensibly, in consultation with industry, but it is not fair, as the noble and learned Lord, Lord Lloyd, said, that the most vulnerable should pay the cost of the employer’s requirements”.
The noble Baroness’s amendment goes beyond zero-hours contracts. She is emphasising the zero-hours aspects, but this is compensation to all workers, as I sought to explain—and I sought to explain the perversities.
If the noble Baroness is worried that the technical quality of the amendment is insufficient, it can be overturned in the other place and replaced with an amendment that embodies what she and the Secretary of State would wish to see. There is no problem about that. When I was a Minister, I accepted amendments all the time that were technically defective but which reflected the spirit and will of this House, because it was the right thing to do. If they needed tidying up, that could be done perfectly easily in the other House. That is not a reason not to accept the amendment today.
We are talking about ZHCs; all of us have been talking about ZHCs. As the noble and learned Lord, Lord Lloyd, said, this is fair and the right thing to do. Workers who keep their side of the contract should not then find themselves out of pocket, because the employer does not. The CBI agrees. I hope that your Lordships will also agree tonight. I beg leave to test the opinion of the House.
My Lords, this is a very important group of amendments. The government amendment, which the Opposition are supporting, clearly comes on the back of the Francis report on Mid Staffordshire. I also point noble Lords to the very recent report by Dr Bill Kirkup and an expert panel of members, who looked into maternal care at the University Hospitals of Morecambe Bay NHS Foundation Trust.
That report, as the Statement which we had last week in this House said,
“found 20 instances of significant or major failings of care at Furness General Hospital, associated with three maternal deaths and the deaths of 16 babies at or shortly after birth. It concludes that different clinical care would have been expected to prevent the death of one mother and 11 babies”.
It described,
“major failures at almost every level … mistakes by midwives and doctors, a failure to investigate and learn from those mistakes, and repeated failures to be honest with patients and families, including the possible destruction of medical notes. The report says that the dysfunctional nature of the maternity unit should have become obvious in early 2009, but regulated bodies”,
including the north-west strategic health authority, primary care trusts, the CQC, Monitor and the PHSO—that is, the ombudsman,
“failed to work together and missed numerous opportunities to address the issue”.—[Official Report, 3/3/15; cols. 158-59.].
For the purpose of our debate, the report also showed that the drive for a transparent and open culture in the NHS has some way to go. Notes were destroyed and mistakes were covered up. Dr Kirkup’s assessment is that it was,
“possibly because of a defensive culture where the individuals involved thought they would lose their jobs if they were discovered to have been responsible for a death”.—[Official Report, 3/3/15; col. 160.].
It seems from Francis, the Morecambe Bay report and our general experience of the NHS that there is a pressing need for a transparent and open culture, in which the protection of whistleblowers is an important element.
Ministers in this Government and the previous Government have from time to time issued various edicts about the importance of the protection of whistleblowers. There has been guidance on this, but it is clear that a whole swathe of staff in the NHS still do not feel confident about raising concerns on patient care. That is why the Opposition very much support government Amendment 58A but I, like other noble Lords, do not think that we can stop at the NHS. That is why I also support the amendments tabled by my noble friend Lord Wills and the noble Lords, Lord Low and Lord Phillips.
As my noble friend Lord Wills said, there are “significant gaps” and loopholes,
“in the current protections for those making disclosures in the public interest”.—[Official Report, 26/1/15; col. GC1.]
While we have at least had a lot of debates about failures in the NHS, one has only to think of the issues following the Hillsborough football disaster, as my noble friend said in Committee, more recently in Rotherham with child abuse and then recently in Oxfordshire, again with child abuse. I am not sure whether this has been corroborated by an independent inquiry, but the point has certainly been put that a junior member of staff in Oxford City Council was subject to discouragement for raising concerns because of approaches made by Oxfordshire County Council, which was responsible for childcare, to senior officials in Oxford City Council to try to stop this person raising what seemed to be eminently sensible concerns about the way that these cases were being dealt with—or not being dealt with—in Oxfordshire.
The noble Lord, Lord Phillips, mentioned the banking world and my noble friend Lord Wills mentioned the construction industry, which is a great example. If a construction worker raises health and safety concerns, there are very good companies in the construction world where they are taken seriously. Overall, my noble friend knows that there has been considerable improvement but there are companies where, if employees raise those concerns, they are blacklisted and cannot get work in the industry. Again, where is the protection for those people?
What about education, a notorious sector where if teachers raise concerns they can look for very little protection? In education, the principal or head often has a dominant role in the governing body. In schools and colleges, there are often no procedures whatever for whistleblowing. At least in the health service there are procedures and very strong corporate governance, with a tradition of company secretaries who should be able to make sure that the procedures work. In the education sector, there are no such guarantees at all. It seems to me that my noble friend and his colleagues are absolutely persuasive. We need protections which go far beyond the National Health Service. I very much hope that the Minister will listen to these arguments and agree either to support these amendments or come back with amendments on Third Reading which would meet the point raised by my noble friend.
My Lords, I thank the noble Lords, Lord Wills and Lord Low, and my noble friend Lord Phillips for these amendments. I pay tribute to the tireless campaigning of the noble Lord, Lord Wills, on whistleblowing. I am not sure that we would be where we are, if not for him. I also thank others who have been involved. The noble Lords, Lord Young and Lord Stoneham, and the noble Baroness, Lady Mobarik, were involved in Committee. It is good and right to hear also from the noble Lord, Lord Hunt, given the health aspect of this problem.
I make it absolutely clear that the Government share the widespread support in this House for whistleblowers and will continue to make strides in strengthening the whistleblowing framework, obviously not least because of the scandals at Mid Staffordshire and Morecambe Bay, which have been so eloquently referred to. That is why we are taking action through this Bill and elsewhere. I was glad that my noble friend Lord Phillips and the noble Lord, Lord Hunt, acknowledged that. First, we are protecting whistleblowers from being discriminated against when applying to work in the NHS. The noble Lord described some graphic examples. Secondly, we are taking action to improve transparency in the way that regulators handle whistleblowing concerns.
On the first point, the Government have tabled an amendment in response to the recent Francis review. This recommended that the Government,
“review the protection afforded to those who make protected disclosures, with a view to including discrimination in recruitment by employers”.
Based on Sir Robert’s findings, we are convinced that blacklisting applicants for NHS jobs because they are whistleblowers causes a very serious injustice. They are effectively excluded from the ability to work again in their chosen field. When NHS staff raise concerns, they can save lives and prevent harm. That is why we are taking the opportunity, very much at the last stage of the Bill, to protect whistleblowers seeking employment in the NHS.
Amendment 58ZA, tabled by the noble Lord, Lord Wills, seeks to protect all job applicants who have blown the whistle. I have listened to his arguments around other sectors; I think that this evening people have mentioned policing, social care, construction, banking and education. I sympathise. No job applicant in whatever sector should be disadvantaged by being a whistleblower but—I have to use the word of the noble Lord, Lord Wills—when we debated this in Committee, I expressed my concern about the lack of evidence that there was a widespread problem right across the board. We do not have the level of evidence for other sectors on the nature of the gap or the scale of the problem.
Is the point not that for all the NHS’s failings, it probably has a more open culture than many other sectors? That is why we know more about the problems of whistleblowing there. In education, it is much more difficult to have central government intervention in cases where staff have clearly been intimidated. In a sense, some of these other sectors need much more attention. The noble Lord, Lord Phillips, talked about the banking industry. Does anyone have any confidence at all that if someone working in the City raised concerns, even after the failures, they would be taken seriously? I rather doubt it.
We have very good evidence from the Francis review. We do not have evidence for all other sectors and, of course, the amendment would apply to the private sector and the coverage would be very wide-ranging. Several noble Lords asked why it is a two-tier system and the noble Lord, Lord Hunt, asked why we are not doing it universally. Sir Robert’s findings were health-specific. He reported that he had seen evidence of individuals suffering serious detriment in seeking re-employment in the NHS after making a protected disclosure. That is what we are talking about. The health sector has one of the highest instances of whistleblowing reporting, perhaps for the reasons that the noble Lord, Lord Hunt, suggested, and, consequently, has the greatest potential for discrimination against whistleblowers, who therefore cannot get another job. The NHS is one of the largest employers in the world, I am glad to say, and should operate to the very highest standards of integrity in its recruitment practice.
I thank the Minister for giving way. She makes the case that we have particular evidence in relation to the health service and so she wants to act on the health service. With regard to all the other sectors that we have asked the Government to take into consideration as well, would it not be better to put a system in place to stop the scandal before it happens rather than wait and close the stable door after the horse has bolted?
I thank the noble Lord, Lord Low, for his intervention. We have to legislate in an informed and evidence-based way. We have brought forward the provisions on the NHS and it is very good that noble Lords opposite support that at this late stage. We are not in the same situation in relation to other sectors. There are various arrangements and we are making general improvements on whistleblowing.
I am sorry to interrupt. I just want the Minister to clarify something. She said that our support for her amendment was at a late stage. I point out that that is not the case. We saw the amendment at noon one day and I signed up to it as soon as it appeared. It was certainly not at a late stage. We are very supportive of what she is doing. Our problem is that she is not doing it in nearly enough other cases. Her case that more evidence is required really does not stack up.
I am sorry if I caused confusion. What I was saying is that this is a relatively late stage in this Bill and that what we have done is taken steps to bring forward some of the actions that follow from the Francis review. Noble Lords opposite have been extremely helpful about supporting that and supporting it instantly. I am very glad to have been able to end that confusion.
I am very sorry; the Minister is gracious in giving way yet again. Before she leaves this amendment, will she clarify the points that she is making about process? Just to be clear—she can indicate with a nod, if she wishes, rather than getting to her feet yet again—does she accept that whistleblowing can be essential in protecting the public interest and the public in other sectors apart from the NHS, such as the financial sector, the police, and adult and child social care? That is my first question to the Minister.
I thank the noble Lord, Lord Wills. Of course whistleblowing can play a vital part in all areas. I said that right at the beginning. As far as this Bill is concerned, we are taking specific steps in relation to the NHS. Perhaps if I could make a little bit more progress, I could explain some of the other things that we are also doing.
I wonder whether I could just push the Minister a little bit further on this process. She says that the Government do not have the evidence to take the measures for other sectors that they are currently taking in relation to the NHS. She said that the Francis report has produced the evidence that the Government feel they need to proceed. I accept that. It is a perfectly reasonable approach. However, if she accepts that whistleblowing is so important in all these other vital sectors and that there is a loophole in protections that the Government are seeking to plug—clearly they accept that there are loopholes because they are seeking to plug them in relation to the NHS—why will the Minister not commit now to launching an inquiry to see whether such evidence exists? The Government did it with Mid Staffs; they have done it with other scandals; they know that there is a problem here; they know that it is important to tackle this problem. Why do the Government not commit now to collecting the evidence to see how best they can move to plug these loopholes?
My Lords, I am not sure that we are going to agree this evening on extending to other areas the provisions that we are very happy to include for the NHS. I have made clear that we need an evidence base and that we are doing things in other areas. The things that we are doing in other areas, to which I hope to move on, will also help to show what is happening on the ground. The debates that we have had in the House, which the noble Lord, Lord Wills, has encouraged us to have, will also change the culture in relation to whistleblowers. The very fact of the disastrous circumstances in the NHS has shown how important whistleblowers are, which is why we are making the changes that we are in relation to recruitment in the NHS.
If I may make progress, I will turn to the noble Lord’s Amendment 59, which seeks to introduce a rolling statutory review of the whistleblowing legislation. I can reassure the noble Lord, Lord Wills, that it was only last June that the Government reported the findings from their call for evidence that reviewed that legislation. The Government have also carried out an extensive employment law review during this Parliament. Looking to future review processes, we see that post-legislative scrutiny is applied to all changes to legislation five years after the measures have come into force. We have an impressive rolling programme. The changes that we introduced to the whistleblowing framework in the Enterprise and Regulatory Reform Act 2013, and the changes in this Bill, will be included in the rolling process. Considering the steps that we have taken to review employment legislation, and specifically whistleblowing legislation, I do not believe that it is necessary to introduce another review next year.
I turn now to Amendments 59A to 59F, which seek to create a national whistleblowing review officer. The Government fully understand the intention behind the proposed new clauses, which is to ensure that concerns raised by whistleblowers are acted upon. We know from research carried out by the University of Greenwich and Public Concern at Work that 75% of whistleblowers believe not enough is done about the concerns that they report. We want employers or the relevant authority to take action. That is why we are introducing the important measures in this Bill to require prescribed persons to report on how they handle whistleblowing concerns. That will increase transparency and reveal any circumstances where whistleblowing concerns are not addressed. The Government will want to allow time for this measure to take effect before they consider yet further measures. Introducing a body that has oversight of all investigatory action in response to whistleblowing concerns would be one way of going further, depending on what the need for further action was. But of course there could be other options for the Government to consider, based, as I have said, on evidence. Before introducing legislation, the Government will want to carry out a proper assessment of all available options to ensure that they are not introducing a body that was duplicating the existing functions of the regulators. This is a complex area.
Evaluation work will begin by the Department of Health publishing a consultation, which will explore the case for creating an independent whistleblowing guardian for the NHS. The Government will be able to use the evidence gathered from that consultation to look at the situation in other sectors. I cannot emphasise enough the importance of having a proper evidence base and the fact that we have been able to fast-track the Francis recommendations because of the very powerful work that he has done.
The Government are committed to addressing the barriers that whistleblowers face. In addition to the measures in this Bill, we have made significant progress. Perhaps I could mention some other measures that we have taken forward. We are updating a set of comprehensive guidance for whistleblowers and employers as well as introducing a non-statutory code of practice for employers. The Government intend to publish this shortly. We have carried out work to update the list of prescribed persons. This is a list of more than 60 individuals and bodies, which includes all MPs, that a whistleblower can approach to raise their concerns. The Government have recently introduced separate legislation, which comes into force in April this year, to extend the scope of the whistleblowing framework to student nurses and student midwives.
The whistleblowing framework is improving and robust processes are in place for future work and the continuous review of the legislation that we have introduced. I hope that the noble Lord will agree that much further exploratory work would be required before proper consideration could be given to his proposal for a national whistleblowing review officer and for extending legislation to cover all job applicants, whether in the public or the private sector.
We have made a major change in relation to the NHS. Perhaps that has eclipsed the other important changes in this Bill and other progress that we have made on whistleblowing. I commend the Government’s amendment and invite the noble Lord to withdraw his amendment.
My noble friend the Minister said a number of times that there is insufficient evidence for extending what the Government are doing in this Bill vis-à-vis health to other sectors. Let us think again of the financial centre of this country. The collapse that we had in 2008 was perhaps the greatest financial collapse in our entire island history. It involved extensive and universally accepted huge breaches in the criminal law: the LIBOR fixing, the forex fixing, PFI—the list goes on and on. How can my noble friend say that there is insufficient evidence to warrant extending to this sector, if none other, some of the requirements that we are now extending to the health service?
My Lords, we are bringing in the new process provided for in the Bill which will allow greater review and engagement in those other sectors.
My Lords, this has been a short but worthwhile debate on some important issues about improving protections for the public through whistleblowing. I am grateful to all noble Lords who have taken part. I am particularly grateful to the noble Lords, Lord Low and Lord Phillips, for adding their names to the amendments and for their compelling arguments in support of them. I also thank my noble friend Lord Hunt for his powerful support. I am grateful also to the Minister, who throughout our discussions, both in Committee and again today, has engaged thoroughly and thoughtfully with all these complex issues and has been helpful and constructive.
In view of everything that the Minister has done so far, it is all the more disappointing that she has so summarily dismissed all the amendments. I accept the case that she made about review; I accept that there is a review process in place. Personally, I would like to see rather more frequent review, which may be a matter we can return to—although I reassure her that it will not be at Third Reading. I also accept the arguments that she made about the national review officer. This is a big and complex issue. There is a case to be made for seeing how the Francis recommendation beds down to learn the lessons from that, but I hope that it will remain on the Government’s agenda because it would be well worth pursuing.
However, I can see no good reason for the Government not to accept Amendment 58ZA. There is no good argument for confining protection for job applicants to those working in the NHS. The Minister made great play of the need to acquire more evidence. There are two problems with that approach. The first was identified by my noble friend Lord Hunt, which is that, by definition, it is extremely hard to find evidence of the harm that is done in advance of a scandal happening. When people working in professions such as the NHS, the financial sector and the police look at the examples, perhaps the rare examples, of their colleagues who have blown the whistle, they see the acute detriment that they have suffered as a result. Who is going to come forward and suffer in that way—which is actually the evidence that the Minister appears to be asking for? We know that there is a problem; we should be tackling it.
If we persist with the desire for more evidence and if that is what the Minister needs to make progress in tackling the loopholes that the Government have conceded exist, why has she just rejected my plea for her to commit to seeking out such evidence? The only reason that we are discussing the government amendment today is that a scandal happened with Mid Staffordshire, and Sir Robert Francis conducted his exhaustive and excellent inquiry and came up with the evidence. Do we have to wait for another such scandal in the financial sector finally to get to the bottom of all the skulduggery that lay behind the crash of 2008 and subsequently, or another scandal in the police such as Hillsborough, before the Minister acquires the evidence that we need to plug the loopholes?
I want to encourage the Government to think again. They have already shown themselves to be extremely flexible between Committee and Report. To encourage them to be similarly flexible between today and Third Reading, and in the hope that they will move forward in some of the ways that I have suggested today, I would like to test the opinion of the House on Amendment 58ZA. If I am successful, may I assume that the Government will accept my Amendment 59A as consequential, as it so closely mirrors the Government’s Amendment 58A on the creation of a national review officer?
My Lords, our penalty measure provides incentives for full and prompt payment of employment tribunal awards and creates sanctions for non-payment. This is supported by our non-legislative work to improve guidance to help individuals understand how to enforce their rights.
In Committee I agreed to consider an amendment to include costs in the relevant amount on which the financial penalty is to be calculated. We have been persuaded by the principle that the penalty should incentivise workers receiving all that they are owed by their employer, and that where a tribunal has decided that costs are to be paid, an employee is entitled to receive them. Our amendments do exactly that.
The amendments also allow the Government to make changes by regulation if, in practice, waiting for costs to be finalised before financial penalties can be issued causes too much delay. These amendments also deal with some other minor and technical issues. For example, they make it clear that penalties which are payable to the Secretary of State are not included, and clarify technical points such as when an award is considered paid in full.
I hope that noble Lords will be reassured that the Government have listened to the concerns raised in Committee and that we are creating the right environment for a worker to be able to receive their full employment tribunal award promptly. I thank noble Lords for the debates we have had on this subject, and I beg to move.
My Lords, I thank the Minister for her contribution. If I may paraphrase, “Never look a gift horse or a gift concession in the mouth”. However, in this case I will make a slight exception. We had a useful meeting with the noble Baroness—who has disappeared out of sight now, but not, I hope, out of hearing—and her civil servants. I was asked by the noble Lord, Lord Low, to make his apologies. As the noble Baroness knows, he has been a frequent participant in this debate, and he regrets that he cannot be here tonight, so I said that I would apologise on his behalf.
In the meeting that we had with the Minister I raised the disparity between two cases. If an award is made for a failure to pay the national minimum wage and the employer does not respond after having been contacted by HMRC, and does not pay the outstanding national minimum wage, an enforcement officer takes action against the employer. In the case of somebody who has struggled, probably for a significant period of time, gone through enforced mediation, and who has been successful at an employment tribunal, if the employer still fails to pay, it is true that they now incur penalties—and the Minister has told us about the improvements made in that area. However, we suggested that the successful claimant ought to have first recourse to those payments—but the Minister rejected that, saying that for a variety of reasons it could not be done.
I then suggested in the discussions we had that if that were the case, why at that point in time—which could be anything between a year and two years —should the cost of enforcement fall on the claimant, who will have been through mediation and an employment tribunal, been successful, and won an award? I suggested that the Government should examine the possibility of enforcement, as they are doing with the national minimum wage. That was what I hoped the Minister would take away.
That has not been the case. I am not expecting a detailed response this evening, but I make a plea that she might take that away, and between now and Third Reading perhaps we can meet to see whether any further progress can be made. However, with those few comments, we are happy to support the amendments.
My Lords, we have again had a long debate this afternoon about the flexibility of zero-hours contracts and what constitutes fairness in such contracts. The last Division was on an amendment which looked at the question of cancellation; unfortunately, we were not successful on that. Again, in this area there is an unfairness to zero-hours contracts. The House will note that we have not specified the period; we just wished to draw attention to a serious problem.
A number of contributions this evening talked about the need for flexibility in those contracts. As my noble friend Lady Hollis—who I see is in her seat—made clear, we are not opposing the principle of zero-hours contracts, but trying to lay the foundation for what we believe to be fairness in the arrangements. In a situation where regular hours are being worked for a continuous period or even a series of continuous periods of employment, surely that does not constitute the kind of flexible zero-hours contract that workers ought to expect. In those circumstances, we believe that the employer should be bound to offer the employee a fixed-hours contract.
If we look at the statistics behind the number of workers employed on contracts that last for a year or even two years, we find that they are not the kind of thing that we envisaged, or what was described today by noble Lords who talked of the need for a very flexible contract. That is, we believe, the justification for injecting fairness into a contract that in previous circumstances would probably have been a standard contract of employment. I look forward to the Minister’s contribution, and to hearing about the Government’s attitude to the amendment. I beg to move.
My Lords, I am grateful to the noble Lord, Lord Young, for tabling the amendment and giving us the opportunity to return to the matter of zero-hours contracts. I know that he genuinely wants the new regime to work, and I am grateful for that.
The amendment relates to a right to request fixed hours. However, it goes beyond zero-hours contracts and would introduce a right for all workers to demand a fixed-hours contract. This means that it would extend the right to the vast majority of the labour market. I have some sympathy with the noble Lord’s intention, but I am afraid there is a clear risk of negative consequences for the individuals affected, with some unscrupulous employers finding relatively simple ways to circumvent the legislation. For example, some employers could be incentivised simply to let people go before the qualifying period. That would impact negatively on the very people the amendment seeks to help.
None the less, I hope that I can reassure the noble Lord that the spirit of his amendment has already been addressed. The amended flexible working regulations, brought in on 30 June last year, give all “employees” the right to make a request to change their pattern of working after 26 weeks’ continuous service. The amendment would go further, by extending this right to all workers, but it is possible that individuals on zero-hours contracts who can prove a requisite qualifying period of 26 weeks may well be considered to be “employees”, and therefore be entitled to this right.
The Government’s approach has been proportionate in ensuring that employees have the right to request a change to their working pattern, while ensuring that businesses retain the flexibility they need to help drive economic growth. This flexibility will sometimes include a legitimate need to hire someone on a casual contract.
By extending the provision to all “workers”, the amendment could end up capturing many contractors and freelancers who may not want or need this right. What is more, many businesses rely on these individuals and other casual labour to provide specific tasks, and do not expect to hire them on a permanent contract at the end of their contract. A right to fixed hours after a certain period would obviously restrict this ability. I believe that the amendment could open a loophole, and might encourage employers simply to let individuals go before the end of the qualifying period. That is clearly not the outcome that any of us wants. I hope that on that basis, the noble Lord will feel able to withdraw his amendment.
My Lords, I listened carefully to the Minister. If the wording of the amendment is not perfect, that does not stop her accepting the principle contained therein: and proposed new subsection (4A) does end with the words,
“to be determined by the Secretary of State”.
Yes, there will be a need for regulations, and I accept the noble Baroness’s point about freelancers and so on; there will be some exclusions. However, I return to the basic principle of fairness. We are talking about people who are not necessarily in a traditional freelance role but who, in a significant number of cases, are employed on a zero-hours contract for a year or even two years. We therefore feel that this is an important enough issue to test the opinion of the House.
My Lords, that is the important issue. Let us be quite honest about this: a number of MPs, for example, have unpaid interns with parents who can afford to bankroll them. But if a young person is living on a council estate in Newcastle or Liverpool, how on earth would they be able to come to Westminster and have that experience? If we talk about social mobility, opportunities for all, the raison d’être of internships should be about providing those opportunities for every single person. It does not happen, which is very sad indeed.
I am pleased to say that some internships are paid and one applauds the businesses and individuals who pay interns at the minimum or living wage. Many internships are unpaid and there are businesses—advertising, for example—where the whole ethos is to take on unpaid interns who fight their way to the top. That is true of other businesses as well. It is interesting to look at America, where legal action is being taken against those companies that do not pay internships. In many cases, those businesses are putting their hands up and saying, “Right, we are going to pay our interns”. The same should happen in this country. We have work experience, which is about helping not the employer but the person gaining that short work experience. We have volunteering which, as the name says on the tin, is about volunteering because you want to do something good for a particular cause. Maybe for the first few weeks, an internship should be at your expense, but if it is any longer, you should be paid at a living wage.
I know the Government are sympathetic to this. I think right across this House we are sympathetic about it. There are issues to do with taxation and salaries that we need to understand. I realise it is very late in the day and the Minister cannot give any commitments. I guess nothing can change now, unless we push this to a vote, and I perhaps hope we do not. However, perhaps the Minister can meet us to go over in our own minds about how we might take this forward. I have talked to Ministers and I know that there is a degree of wanting to support this move.
My Lords, I am grateful to the noble Lord, Lord Mitchell, for giving us the opportunity to come back to the important subject of interns, to my noble friend Lady O’Cathain for her helpful and insightful comments, and to my noble friend Lord Storey for reminding us that this is a complex subject. I will begin by answering his first question. Obviously, I would be entirely happy to meet him to talk through this issue. I do not think it is possible—as I will come to explain—to do anything in this Bill, but that does not mean that we should not be exchanging comments, knowledge and evidence on this very important area, which I am also passionate about.
I think we all agreed in Committee that we wanted to encourage internships and that they should be fair, open and transparent in order to encourage candidates from a wide variety of backgrounds. The flexibility of our labour market is a great source of pride, as we discussed earlier. Of the growth of 2 million jobs in this Parliament, nine out of 10 were employees and nearly eight out of 10 were full-time jobs, so there are a lot of opportunities for young people, the unskilled and the long-term unemployed. Youth unemployment fell in the past year by 188,000, so that is good news.
Obviously in any part of the labour market, not just internships, we have to take action where there is any exploitation of individual workers. The use of internships is relatively new in the UK labour market. There is a lot more practice elsewhere, especially in the United States, and there is no definition of internship in our legislation. Individuals undertaking an internship will be workers, employees, or volunteers, depending on the reality of their employment relationship, and not their job title or what an employer decides should be set out in a contract.
Where the intern is an employee or a worker, they are entitled to at least the national minimum wage from day one and all other rights attached to their employment status. The Government are very clear that employing unpaid interns as workers to avoid paying the national minimum wage is illegal. Through tougher enforcement measures, such as increasing the maximum penalty fourfold, and naming and shaming employers, we have shown that we will crack down on employers who break that law. The Bill will also ensure that the maximum penalty is calculated on a per-worker, rather than per-notice, basis, as we discussed in Committee. We have also increased HMRC’s enforcement budget from £8 million to £9.2 million and we will increase the enforcement budget by a further £3 million in 2015-16.
While I recognise that it cannot be done now in the Bill, it would be helpful to investigate the difference between work experience and internships. All of us are absolutely committed to work experience; the noble Baroness, Lady O’Cathain, and I have discussed this on several committees recently. Work experience cannot go on for ever; it cannot go on for week after week or month after month. There is a real difference. We need to encourage work experience, but that is, in essence, very different from the sorts of internships one comes across. One talks to people who are on their third unpaid internship and are clearly working. They can reach the age of 25 or 26 before they get paid employment. That is in particular sectors of the economy. Collectively, around the House, I think we are anxious to make sure, in encouraging social mobility, that we differentiate properly between work experience and internships.
I thank the noble Baroness for her intervention. She is absolutely right: we need to think about work experience and internships. I will come on to mention the work we are doing. We should certainly look at both aspects.
Before I finish on enforcement—this is an important point and I was asked about it in Committee—in this financial year alone HMRC has identified more than £41,000-worth of arrears for 21 interns who were underpaid the national minimum wage, so enforcement is taking place in this area.
One of the issues that we believe may make some interns uncertain is determining their employment status, which is obviously an essential precursor to understanding what their rights are and whether they are entitled to the national minimum wage. Determining an individual’s employment status can be difficult, as the noble Baroness showed so clearly. There is no one single test to determine whether a contract of employment exists and therefore whether an individual is an employee. We understand that, at times, this is very confusing. It affects various employers, but it also affects interns. Therefore, my right honourable friend in the other place the Secretary of State announced a review in October of employment status to consider these issues. The review will conclude soon.
I understand the concerns raised about pay and social mobility. Some young people probably do not know about opportunities or have access to internships that already exist. That is why the Government fund the Graduate Talent Pool to ensure that all young people have access to internships. That service is on GOV.UK. It is free to employers and graduates, and provides information on all aspects of internships. I am sure that we can do more, but I think it is good that we have done that. We want to encourage social mobility in particular and the Government’s Social Mobility Business Compact, which was launched in 2011, gets employers to commit to fair and open work experience and paid internship opportunities. I know from personal experience that many employers provide such internships and not just for the privileged few. We need to encourage that and keep it going.
My noble friend Lady O’Cathain mentioned career advice. We have recently committed new resources to career advice. That is an interesting addition to the debate.
I turn to the amendment. Internships are not formally defined and therefore the Government do not collect reliable information on a consistent basis that would allow the robust provision of data sought in the amendment. The Government have undertaken research on wider issues that may relate to internships, such as social mobility. We need to be properly informed of the issues around internships to ensure that policy is set appropriately to maximise flexibility and prevent exploitation.
As part of our employment status review, the Government are gathering information through consultation with stakeholders to understand both the current position of groups in the labour market and whether future changes are appropriate. This includes internships and will no doubt provide useful information and data for future discussions.
In summary, I understand and share some of the concerns raised in this debate. We take exploitation of interns very seriously and we already try to act through national minimum wage enforcement to prevent exploitation. Other employment measures in the Bill, such as changing the penalty regime, will of course be helpful. There must be more that the Government can do—that is why we have undertaken a review of employment status—but I hope that the noble Lord will support what the Government are doing and will be content to withdraw his amendment.