Elections Bill

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Report stage
Monday 25th April 2022 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I apologise to the noble Lord, Lord Stunell, and to the House, for having pushed him so rudely.

When one sees the way the tide of opinion is flowing strongly, it is very easy to think that it is best to keep one’s head down and not provide a cautionary word about being careful what we wish for in taking these amendments through—should the House so decide. I note and appreciate the concerns expressed in powerful speeches this afternoon. These are replicated in the briefing from the Electoral Commission referred to by the noble Lord, Lord Grocott. Several letters in the correspondence columns of the broadsheets have carried an equivalent message.

I also recognise that the drafting of parts of these clauses can best be described as uncompromising. The noble and learned Lord, Lord Judge, referred to this, though I think he was slightly dismissive about the consultation processes provided for in Clause 15, in new Sections 4C and 4D. He pointed out that the procedures for scrutinising secondary legislation are proving increasingly inadequate and ineffective for modern conditions. He knows that I agree with him. I am pleased to be able to tell him and the House that the Secondary Legislation Scrutiny Committee, which I chair, will publish a further end of term report at the end of this week. This will give grist to his mill—and indeed to mine.

Among the concerns raised is the use of what can be described as tertiary legislation. I spoke to the noble and learned Lord in advance of this debate, so he knows broadly what I shall say about creating bodies over which there is absolutely no parliamentary control but which, none the less, have powers that concern some of the most fundamental aspects of our society. One recent example is the College of Policing, an independent body able to introduce regulations and codes that affect every one of us.

The noble and learned Lord, Lord Judge, and my noble friend Lord Blencathra have made common cause in attacking this. I entirely support them. To come to the point, I am not yet convinced that, if these two amendments were agreed, we would not be creating another body equivalent to the College of Policing, but this time for electoral purposes—an equally important part of our national life.

Am I enthusiastic about Clauses 15 and 16? Not at all, but I recognise that there is some parliamentary involvement and approval in this process. If these amendments were accepted, the Electoral Commission—with all the criticisms that have been made of it, fairly or unfairly—would float free from any even minor scrutiny or accountability. In my view, this would be even less desirable.

[Baroness Noakes (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Hodgson. I wish him a very happy birthday.

Dormant Assets Bill [HL]

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Committee stage
Monday 21st June 2021 Grand Committee

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the noble Baroness, Lady Barker, made a very important point about impact. I will come back to it in a moment in my remarks.

In the first instance, we heard from the noble Lord, Lord Bassam of Brighton, and the noble and learned Lord, Lord Etherton, about the timing of reviews to look at whether the structure is working effectively now and will work effectively at some date in the future. I want to probe the Minister a little further about the situation now and the current operation of the system. Specifically, I want to ask her whether the Government think that the existing powers to investigate, measure and check are sufficient.

As I understand it—I stand to be corrected—under the present system, money from the fund is passed to recipient bodies or recipient groups by what are called distributors, which have clear responsibilities to decide which bodies are worthy of funding and should get the money, and, after the funds have been passed over, to ensure that the proceeds are spent properly, effectively and in accordance with the way envisaged at the time of the grant. Again, as I understand it, there are currently four distributors: Big Society Capital, Access, Fair4All Finance and the Youth Futures Foundation.

The work of these four distributors is overseen by the Oversight Trust, which has no power to determine where the money goes but is charged with ensuring that the distributors have effective procedures in place to ensure good governance and proper performance of their duties. Clearly, the Oversight Trust has a very important role to play in maintaining public trust and confidence in the dormant assets scheme.

Can my noble friend enlighten me on three points? First, can a new distributor be appointed or dis-appointed? Who decides that and initiates it? If a decision is made to go ahead, what powers, if any, does the Oversight Trust, which is responsible for monitoring that body, have in making that final decision? That is my first question: can we remove or add distributors? How do we do it? What role does the Oversight Trust have in that process?

Secondly, and more generally, are the Government satisfied that the Oversight Trust has the powers necessary to fulfil this important role? For example, are distributors required or obliged to collaborate and co-operate with the Oversight Trust to ensure that it performs its duties effectively?

Thirdly—this point was made by the noble Baroness, Lady Barker—what role, if any, does the Oversight Trust have in measuring the impact of what the distributors are doing? Do we look in any way at whether the distribution policy being followed by one of the four groups now in power to do this makes sense for our society, or are they free as a bird? It would be helpful if the Minister could say a little about that.

Finally, it must be of importance, as we begin to see the expansion of the whole scheme—I think every Member of your Lordships’ House thinks that it is a good idea in principle; I certainly do—to ensure that the governance structure is adequate for the increased responsibilities that will be placed on it. I hope that my noble friend the Minister will be able to reassure me on these points when she replies to the debate.

[Baroness Noakes (Con)]

My Lords, Amendment 45 in this group is in my name. As has already been pointed out, it differs from the other amendments in the group, which call for reports, as it is a targeted amendment focused on ensuring that the scope for new asset classes being added to the dormant assets arrangements under the Bill is kept under review. The other amendments are broader and seek reports on the impact and operation of the scheme. I do not support littering legislation with reports on the impact of Bills—that is what the post-legislative scrutiny process is for—so I do not support the other amendments in the group.

I was going to point out to the noble and learned Lord, Lord Etherton, that his amendment is ineffective because Clause 31 deletes Section 14 from the 2008 Act, but he got there first. I would just explain that Section 14 was put in in the very specific context of the first Bill, the then Dormant Bank and Building Society Accounts Bill. At the time, there was considerable controversy about whether a voluntary scheme would work. There was much scepticism about whether banks and building societies would yield their assets, which is why that specific reporting section was put into the 2008 Act. It reported within a few years. It has been some time since I looked at that report but, broadly, it concluded that it had been effective. Not absolutely every bank and building society is in the scheme but, in terms of value, substantially the whole amount are.

I focused my amendment on bringing in other asset classes because it took a long time for this Bill to come forward after the 2008 Act. It was 13 years before more asset classes appeared, which is just too long. Indeed, my noble friend the Minister admitted as such at Second Reading when she said that the industry had been “nudging”—a polite term—the Government to get on and get this Bill done. I do not think that we can necessarily rely on the Government to prioritise or be proactive about the source of new funds coming into dormant assets, which is why I suggested a periodic report specifically on asset classes to keep up that pressure.

When the Dormant Assets Commission, which was set up to be independent of government, reported about four years ago it identified a number of additional assets. It decided to concentrate on the financial services sector, but even within that it noted, as we discussed at Second Reading, that a number of sources of assets in the financial services sector have not yet been brought within the scheme’s scope. The report also outlined a long list of assets outside the financial services sector, ranging from Oyster cards—I was astonished to find that there are 42 million cards with a balance on that have not been used for more than a year—to a large amount of money in unclaimed gambling winnings, which I find surprising. There are also lots of balances on things such as telephone accounts and energy accounts. There are lots of forms of dormant assets hanging around; they ought not to be retained by the companies that hold them but ought to be released for the kind of good works that are fostered by this Bill and the 2008 Act.

I hope that one day the Treasury will be shamed into no longer being the only body keeping its dormant assets out of the scheme, in the form of National Savings & Investments accounts. I believe it amounts to something close to state larceny for the Treasury to insist that it can keep dormant National Savings & Investments money because it has been used to fund public expenditure. It is not the Treasury’s money to keep. However, I acknowledge that shame is not something generally found in the Treasury, so we may have to wait a very long time to see those assets come within the scheme.

National Security and Investment Bill

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Report stage
Thursday 15th April 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I shall move the amendment and speak to Amendments 16 and 17 in my name. I thank my noble friend Lord Hodgson of Astley Abbotts and the noble Lord, Lord Fox, for adding their names. I have also added my name to Amendment 18 in the group, in the name of my noble friend Lord Hodgson of Astley Abbots.

My amendments are probing amendments, following the interesting stand part debate that we held in Committee on Clause 30, which gives the Government extraordinarily wide powers to give financial assistance. The Minister’s response in Committee raised as many questions as he answered and we have therefore tabled amendments to gain further enlightenment.

There is no constraint on the ability to provide financial assistance in the Bill, other than that it can be only

“in consequence of the making of a final order”.

My noble friend the Minister sought to reassure us that this was

“not a general compensation scheme”

and would be used only in exceptional cases. The Minister said the power

“will only be used in instances where the public interest, particularly national security interests, require it”.

Later, he said that

“the nature of national security makes it very hard to predict where some of these issues might arise. However, where they do and where national security is an issue, it is important that the power is there”.—[Official Report, 16/3/21; cols. 223-26.]

I was puzzled by this. Is national security a necessary condition for the use of the power or not? Our horrible hybrid working practices mean it is not easy to pursue questions in Committee when the Minister gives answers, so I tabled Amendment 15 to explore this further.

Amendment 15 adds to Clause 30(1) the words “if he or she”—that is, the Secretary of State—

“considers that there is a risk to national security”,

so that the financial assistance power could be used only if it were necessary on national security grounds. There could easily be other grounds for giving financial assistance—for example, if we had an industrial strategy, which I am definitely not advocating. I do not believe it would be appropriate to allow considerations broader than national security to underpin financial assistance under this Bill. If my noble friend the Minister thinks anything beyond national security could be involved, I suggest he needs to explain to the House what those circumstances could possibly be.

Amendment 16 takes out some words from Clause 30(2) so that financial assistance can be provided only by way of loans, guarantees or indemnities. The current wording allows practically anything under the sun and certainly allows grants and soft money. My noble friend the Minister will know that I am deeply sceptical about giving a Government powers to throw taxpayers’ money around. Powers such as these, drafted with good intent, can end up being used as cover for politically expedient expenditure. The best way to stop that happening is not to have the power in statute, as it is too much of a temptation and, even if I trust the current Government to act responsibly, which of course I do, I would not trust Governments of a different party—if we were unlucky enough to experience that again.

Lastly, Amendment 17 says that financial assistance has to be provided on arm’s-length terms. I should probably have drafted this in terms only of loans, guarantees or indemnities, as I do not think that subsidies or grants—which I am sure my noble friend the Minister will tell me he needs the power to provide—can ever be on arm’s-length terms. I was prompted to table this by what my noble friend the Minister said in Committee:

“For example, if the Government provided a loan, it would normally have to be at market rates.”—[Official Report, 16/3/21; col. 224.]


I hate weasel words such as “normally” almost as much as I hate throwing taxpayers’ money around in non-commercial transactions. I therefore ask my noble friend the Minister to say a little more about the boundary between commercial and non-commercial terms for assistance given under Clause 30. What will drive the use of market rates and, I hope, market terms and conditions? What criteria would be used for abandoning arm’s-length terms?

I would have preferred not to have this broad and undefined power sitting on the statute book, because it implies an intent to provide financial assistance. The Government could have relied on the Appropriation Act for genuinely exceptional circumstances. However, if the Government are set upon having the power, Parliament is entitled to some better explanations than we got in Committee of its potential use. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, once again I have the pleasure of flying in the slipstream of my noble friend Lady Noakes. Before I turn to my own Amendment 18, I will say that I entirely support the remarks she made about Amendments 15, 16 and 17, to which I have added my name.

Amendment 18, like my noble friend’s, is a probing amendment and seeks to discern the possible financial impact of this Bill on the small battalions. I hope the House will forgive me if I become a little granular and practical about how this clause might work. It can far too easily be assumed that this Bill will impact only on big companies. That is not the case. It has not been the case in the past and certainly will not be the case in future, with the big increase in the number of sectors of the economy falling within the provisions of the statute.

I would like to take the House back to our first day in Committee, when I raised the case of Impcross Ltd. Impcross had been the subject of a reference under the old regime. It was statutory instrument 2019/1490. I am not—repeat, not—going to ask my noble friend to comment on the details of the Impcross case. It would be utterly improper for me to ask, and probably even more improper for him to answer. But I want to use the Impcross case as an example of how drastic an impact the provisions of this Bill could have on smaller companies and their owners.

Impcross is based in Stroud and machines parts for the aerospace industry. Its annual turnover is just shy of £12 million, so it is not a large company but a small one, and one that in the year to 30 June 2019—according to the records at Companies House—made a small operating loss. Significantly, it has a person with significant control. In this case, the accounts reveal that a particular individual owns between 50% and 75% of the company. If you look back through the records, you can see that the individual appears to have been at the company for many years, so it is not fanciful to believe that the company is the result of a lifetime’s work and effort and, further, that perhaps the particular individual is now considering his future options, which might involve selling up the company and enjoying the fruits of his labours.

One exceptionally important and helpful aspect of the Bill the Government have brought forward is the establishment of timeframes, which we have already talked about today. We are a bit nervous about how good the timeframes are—we think they may be a bit too flexible for our wishes—but nevertheless there are some there. The Impcross case was referred in early December 2019. It was not until 10 September 2020, nine months later, that Gardner Aerospace, the Chinese-owned potential buyer, withdrew. That cannot have been an easy nine months for all involved, but it serves to underline—if I may say so to my noble friend on the Front Bench—the real importance of sticking to the fixed timetables. Otherwise, the company in the gun sights has a very uncomfortable time indeed.

This does not deal with any potential economic consequences. Let us take the example a little further. If companies are in interesting sectors, they are often sold on a multiple of turnover. Let us say it is two and a half times turnover, which would mean Impcross was worth £30 million. Let us suppose that was the figure that Gardner Aerospace offered, but that when it was refused permission to complete the transaction the next best offer was £27 million, a reduction of 10%; it could well be more. My noble friend the Minister, who has enormous and extensive experience of the City, knows that once an offer has failed to complete, there is always a concern among other buyers that there is something they have not spotted and that there is something wrong that they will need to look at more carefully.

Financial Services Bill

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Baroness Noakes (Con)]

My Lords, this is a large group of amendments and I shall not comment on all of them. I had not intended to speak about Amendment 51A, to which the noble Lord, Lord Sikka, spoke a while ago, but the way in which he framed his comments has prompted me to do so. The noble Lord persistently used the term “trade associations” to describe the professional bodies that are involved in supervisory activities in relation to money laundering. I declare an interest as a member, and former president, of the largest of the professional bodies to which he referred, namely the Institute of Chartered Accountants in England and Wales.

The ICAEW does act as a regulatory body for its members in relation to money laundering, as it does in relation to other activities, but its members carry out as professionals. This activity is overseen by an independent regulatory board, which is chaired by a QC and has lay members on it. I fear that the noble Lord, Lord Sikka, has not presented the whole story on this—perhaps he did not know it; those who listened to his contribution ought to be aware that it is not the whole picture by any means.

My noble and learned friend Lord Garnier made a strong case for his new offence of failing to prevent an economic crime. He will know that there is considerable concern about the practical impacts of such an offence on the commercial world and that there was only a small majority in favour of a new offence when the Government consulted on it. I have no idea what is in the Economic Secretary’s letter, to which he referred, but I believe that the Government made a wise decision last year in referring the matter to the Law Commission for further study. We should await its findings. I understand that it is due to report by the end of this year; that is not a huge delay for something that could have significant consequences for a large part of the commercial world.

I support the idea behind Amendment 51 in the name of my noble friend Lord Holmes of Richmond, namely a review of the “know your customer” regulations. All noble Lords taking part in this Committee are PEPs—politically exposed persons—and I am sure that we have all bumped up against the ludicrous way in which some banks and other financial institutions act under the guise of their customer due diligence obligations. Looking again at this whole territory is definitely worth while.

Further, the UK’s money laundering rules were made in the EU. Now that we have left it, we have the opportunity to see whether the money laundering directives and regulations now embedded in our law are fit for purpose. The UK must remain committed to high standards in the fight against financial crime, but looking at the efficiency and effectiveness of the rules is entirely consistent with maintaining high standards.

The KYC rules are just one part of the money laundering rule set, and I would urge any review to go beyond KYC and look at the whole range of rules. For example, the SARs regime for suspicious activity reports is very burdensome for all involved, both the firms that make the reports and the regulators that receive them. In addition, there are restrictions on banks’ ability to communicate with each other about customers or potential customers, which increases costs and certainly reduces effectiveness. So, I urge my noble friend Lord Holmes to be even more ambitious in the review that he seeks.

Lastly, Amendment 96 in the name of the noble Baroness, Lady Kramer, seeks the establishment of a financial services whistleblower office. I wonder whether she has taken account of the changes made by the regulators to whistleblowing arrangements in regulated firms. Since early 2016, firms have had to have a nominated non-executive director as a whistleblowers champion—not responsible for whistleblowing but, effectively, for its oversight. Most firms align that specific required responsibility with the responsibilities of the audit committee chairman. In addition, the whistleblowing rules themselves were overhauled at the same time. I have not yet heard the noble Baroness speak to her amendment but I wonder whether the evidence base that she relied on as a background to her amendments pre-dates those new arrangements, and whether it would be wise to review how well the new arrangements are working in practice before creating yet another quango.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have put my name to Amendment 84, in the name of the noble Baroness, Lady Bowles, so I am afraid I am going to disappoint my noble friend Lady Noakes. We are normally on the same side but I am afraid that, on this issue, we are not. Perhaps I can turn away her wrath somewhat by saying that I much supported her views on Amendment 51A, which is a worthy amendment but does not go nearly far enough. We need to look at the whole regime; looking at one part of it is not sufficient, a point I was trying to make on an amendment we debated on the first day in Committee.

Like my noble and learned friend Lord Garnier, I am grateful to the noble Baroness, Lady Penn, and to the Economic Secretary to the Treasury for their briefing and correspondence. I apologise that the briefing was cut short for me because I had a power cut. My computer therefore went down, but I am grateful for the letter that was received earlier today.

The issue of failure to prevent has been pretty widely forked over in the speeches on this group, so I want to make two pretty quick points. The first flows from my membership of the Committee in your Lordships’ House which undertook the post-legislative scrutiny of the Bribery Act. We reported in March 2019 and our report found that the Act was:

“an excellent piece of legislation which creates offences which are clear and all-embracing.”

We went on to say that

“the new offence of corporate failure to prevent bribery is regarded as particularly effective, enabling those in a position to influence a company’s manner of conducting business to ensure that it is ethical, and to take steps to remedy matters where it is not.”

In our report, we noted, as did the noble Lord, Lord Rooker, that it was as long ago as May 2016 that the then Prime Minister, David Cameron, called for a consultation on a new offence of failure to prevent economic crime. We also noted that when Ministers gave evidence to the bribery committee on 4 December 2018, now over two years ago,

“Mr Argar said: ‘We intend to publish our response to it [the consultation] next year,’ and Ben Wallace MP added: ‘The Solicitor-General and I are pretty keen that we explore further the failure to prevent in broader economic crime … We raised it at the last inter-ministerial government meeting’”.

He added that John Penrose, the Government’s anticorruption champion,

“and I are keen to see this.”

The responses to the government consultation, although unpublished, and those suggested by Mr Glen to be inconclusive, are not as inconclusive as all that. The staff of our committee were able to find a lot of the submissions, which were available on the websites of the respondents, and none that we could find opposed the extension of the failure to prevent offence. Indeed, many supported it.

That takes me to my second point: the road to hell is paved with good intentions. The Government said in May 2019 that the call for evidence had closed in March 2017 and a response “will be issued shortly”. So, what are we waiting for? The Government have been standing on the edge of the pool for over two years. Each time they seem ready to jump in, inertia overcomes them and another round of consultation begins—now with the Law Commission, for which I have the highest regard. When my noble friend comes to reply, it would be helpful if she could let the Committee know what angles the Law Commission is supposed to focus on in this latest review and, in particular, what angles it will examine that have not been extensively looked over during the past four years.

Financial Services Bill

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Wednesday 25th July 2012 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, I have Amendments 131, 132, 133, 134 and 135 in this group. I certainly support Amendment 130B moved by my noble friend Lord Flight but my amendments go rather further and are rather more prescriptive in their approach. They relate to the attitude, approach and culture of the regulator, which we have been discussing. There has been a lot of hollow laughter about culture in the banking system, which I understand, but the financial services industry covers much more than the banks—it covers the IFA community, the insurance community and Lloyds. I think that in recent years the regulator has moved from a reasonably open, even-handed relationship with its regulated firms to one of much greater risk aversion. Of course, I understand that safeguarding client money and avoiding financial crime are very important indeed, but the regulator seems to have forgotten many chunks of the introduction to FiSMA, which sets out other objectives, requirements and issues that it has to consider in carrying out its regulation. Nowhere has this shift in culture been seen more than in the relationships with the smaller and medium-sized firms. Very often these are firms where innovation and some of the most exciting developments are taking place.

Specifically, I should like to draw to the Minister’s attention three or four things which I hope we can agree are being practised in an undesirable way at present and which are regulatory commercial approaches that henceforward we should try to avoid in the structure.

The first is Section 166 inquiries—the expert person investigations. These were designed to be used rarely but there are now 840 outstanding. A rough estimate of the cost of a Section 166 inquiry in professional fees for the regulated firm is £100,000, although it could be £200,000. Therefore, we are talking of between £84 million and £150 million of costs, and that is without the cost in terms of the management time spent providing the information needed for the professional firm carrying out the inquiry on behalf of the FSA.

This is sub-contracting regulation. There is really no restraint at all on the FSA in undertaking these inquiries. Such an investigation costs it nothing; it simply has to engage a professional firm to carry it out and away it goes. That is without the Section 404 thematic reviews, and without TC4, which are the run-off requirements when a firm is closing down. Of course, closing down a firm requires some very difficult judgments to be made about what you will be able to realise from the assets, the time over which you will be able to realise them and the consequent costs incurred during that period. If you make a series of extremely negative and conservative estimates, then of course you can put a firm in a very difficult position and make it almost impossible for it to carry on.

Last but not least is the position of the SIF—significant influence function—committee. I should like to give a real-life example of this, which I want to use to underpin the detail of my amendments. I have recently resigned as the chairman of a regulated firm. In April 2011 we took on from another regulated firm a new finance director, who came with good references. In July, he was told by the SIF committee that he was not able to take up the role of finance director. I went to the FSA and asked why. It said it could not tell me as there was an investigation and it was confidential. I asked the FSA if it could tell him what he had done. It said it could not do that either as it was confidential. That was June or July 2011. He is still waiting to hear the outcome a year later. He cannot find out what he has been accused of and is in a Kafkaesque situation. This is the sort of culture and risk-averse nature of the situation we now find ourselves in. My amendments are designed to prevent this being carried over into the new structure.

In the regulatory principles to be applied by both regulators in new Section 3B on page 28, I seek to add “operational rules” after “burden or restriction” because it is the unofficial stuff that can be made extremely expensive and difficult. It should cover firms as well as people. In particular, in Amendment 134, after “proportionate” I want to add “reasonable and fair”.

I have just given in some detail—and I apologise for going back to it—the example of the SIF committee. I can see how the regulator could argue that, if you have a person who has been involved in a firm which is under investigation, preventing him operating might be proportionate but to hold him in limbo for 13 months cannot be reasonable or fair. It offends the principles of natural justice.

I hope very much that my noble friend, when he comes to wind up and reply to this important set of amendments, can give me some assurance as to how we are going to make sure that the culture going forward is more even-handed and better than it has been over the past couple of years. It is absolutely vital that the future regulatory architecture enables financial services firms to play an effective role in the economy. To enable this role to be fulfilled, the regulatory regime needs to take an approach that considers whether interventions are proportionate, reasonable or fair.

My set of amendments would address a number of concerns. There would be assessment of business-specific risks—for example, the insurance sector presents very different risks from those of banks and has a very different business model. If the regulators are required to consider whether their approach is reasonable and fair, they should ensure that consideration is given to whether it is appropriate to apply regulations drafted with banks in mind to other industries in the financial services sector, including insurance. Then there is the question of the culture. My noble friend has said many times that the Government wish to avoid the stability of the grave. A requirement to have regard to what is reasonable and fair will help to ensure the regulators take a more measured approach. For example, the PRA has signalled a desire to make greater used of skilled persons and external auditors in its approach to supervision. While you have to recognise that these are important regulatory tools, it is imperative that they are used appropriately and in relation to those firms which represent a significant risk to the PRA’s objectives. This set of amendments is designed to help these considerations.

[Baroness Noakes]

My Lords, I have Amendments 144A and 147C in this group. They are in the name of the noble Lord, Lord McFall, and myself. I want to start by saying that I support what my noble friends Lord Flight and Lord Hodgson have said in respect of their amendments.

My amendments are much more modest. They just deal with Schedule 3, which sets up new Schedules 1ZA and 1ZB to FiSMA, which deal with the much more routine aspects of the FCA and the PRA. These little amendments simply add one requirement to the list of things that the FCA and the PRA have to include in their annual reports to the Treasury. That requirement is to include an analysis of the costs and benefits arising from regulation for which the bodies are responsible. It is important that this report is then laid before Parliament so the issue is kept visible.

These amendments come from the Treasury Select Committee’s first report of this Session, as do others in my name and that of the noble Lord, Lord McFall. The Treasury Select Committee has received a lot of evidence from the financial services sector about the rising cost of regulation—I have mentioned that once already this afternoon. I know that in particular the non-bank parts of the financial services sector feel that they are paying a price that cannot be justified by reference to the risks related to their own activities, which is why the issue of costs and benefits is particularly important.

Financial Services Bill

Debate between Baroness Noakes and Lord Hodgson of Astley Abbotts

Tuesday 3rd July 2012 Lords Chamber

[Baroness Noakes]

My Lords, in moving Amendment 42A, I shall also speak to Amendment 62A in this group. These are probing amendments. Amendment 42A deletes line 38, on page 5. New Section 9F of the Bank of England Act 1998 sets up the functions of the FPC, and subsection (1)(c) creates the function of making recommendations. Amendment 42A deletes this function.

Amendment 62A deletes a lot of lines, but in practice deletes the whole of new Sections 9N to 9Q, inclusive, which detail the functions created by new Section 9F. The purpose of tabling these amendments is to probe why the FPC needs the power to make recommendations, and what the legal significance of this function is in practice.

When I first saw the Bill, I was mystified by the need to create a statutory power to make recommendations. I was not familiar with that being a requirement, so I did a little research. I seemed to find that this statutory power of recommendation-making is a relatively new phenomenon in legislation, with similar provisions in a handful of laws, all of which have been created since the Government came to power in 2010. I am beginning to think that this might be one of those constitutional innovations for which we have to thank our colleagues on the Liberal Democrat Benches, although I may be wrong on that.

The Minister wrote to noble Lords with an interest in this Bill yesterday, following the first Committee day, which I was unable to attend. In the letter he said that the Treasury has a common law power of recommendation, but that bodies created by statute need a specific power. I find that pretty odd, given that bodies created before 2010 managed perfectly well without a statutory power of making recommendations. Indeed, the Bank of England has managed perfectly well for over 300 years without any kind of power to make recommendations.

It may be just a matter of legislative fashion. One has to go with the times. The main purpose of my amendment is to probe what is meant in practice by the ability to make recommendations.

New Section 9N allows the FPC to make recommendations within the Bank. I found it difficult to get my head around making recommendations within the Bank. The FPC is a committee of the Bank’s court, and that is under Section 9B. Under new Section 9N, this committee can tell the corporate body in which it is housed what it thinks that body should do. What is the purpose of that? More to the point, what is the effect? The Bank, which acts through its court, fulfils its own function, and as far as I can see, those functions do not include paying any particular attention to what one of its committees says. I do not believe that the functions of the Bank or its court are changed by the Bill in this respect. If I am wrong on this, I know that the Minister will correct me. However, I am completely mystified about what making recommendations within the Bank means in practice. The Committee discussed the circularity of this in the context of the financial stability strategy under proposed new Section 9A, which covers the FPC making recommendations to the court. I must say that I was no wiser after reading both Hansard and the Minister’s letter on this point.

Proposed new Section 9O—9 Oscar—would allow the FPC to issue recommendations to the Treasury. However, while the FPC has to take notice of any recommendations made to it by the Treasury and has to respond to them—that is set out in proposed new Section 9D—there does not appear to be any reciprocal provision requiring the Treasury to respond to the FPC’s recommendations. If that is the case, why on earth do we have to provide in legislation for the FPC to make recommendations to the Treasury?

Proposed new Section 9P covers the FPC making recommendations to the FCA and the PRA—and does contain requirements for the FCA or the PRA to comply or explain their non-compliance. This seems to be the only part of the Bill dealing with the FPC’s recommendations that makes sense and has any real-world impact.

Will the Minister explain why, in drawing up the functions of the FCA and the PRA, no reference is made to their duties in respect of the FPC recommendations? If it is necessary as a matter of law to set up a power to make recommendations, why is there no requirement to set up a reciprocal duty or requirement of compliance with the recommendations?

Finally, proposed new Section 9Q allows the FPC to make recommendations to the whole world. The justification for this is that it may make recommendations to bodies such as the Financial Reporting Council. However, since the recipients of these recommendations can—as far as I am aware—do what they like with them, I fail to see the point of the provision.

I looked at the June 2012 FSR, which has been referred to already this evening. The executive summary makes either six or seven recommendations, depending on how one interprets “recommendation”. In six instances it states that the committee “recommends” that other people should do things, but in one instance it states that banks “should” continue to do something. I have no idea whether that constitutes a recommendation. In any event, most of the recommendations were addressed to the FSA—which will be the PRA and the FCA in due course—and two or three, depending on one’s interpretation, were addressed to banks. That is interesting because making recommendations to banks was not mentioned at all in the extraordinary recommendation-making powers, although clearly this will be an important part of their activity.

Perhaps I ought to be less worried about the scope of the recommendation-making power that is not bounded by space or time, because it appears to be of little substance. If my noble friend tells me that it does have real substance, we would look to constrain it in some way so that it did not include the ability to tell the whole world how to act.

In summary, this is a set of largely one-sided recommendation-making powers that might amount to something of importance—or alternatively, not much more than window dressing. We should be told. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I have some sympathy with my noble friend’s amendment. When the Minister replies, perhaps he will focus some remarks on proposed new Section 9Q, which is the declaratory piece about the whole world. It seems that either the parliamentary draftsmen are saying, “Because you said certain people were included, you must include everybody else”, or it is otiose.

It would also be helpful to have some suggestions about the sort of events and recommendations that might fall under new Section 9Q, so that the Committee gets some understanding of the purpose behind this clause, if it is anything other than declaratory, to avoid, for parliamentary draftsmen’s reasons, the view that, because certain parties have been suggested, by definition they could make recommendations to nobody else.