Draft State Aid (EU Exit) Regulations 2019

Bill Esterson Excerpts
Wednesday 10th April 2019

(5 years, 1 month ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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On a point of order, Mr Hanson. We appear to be missing a crucial piece of information in the guise of this letter from the Secretary of State, which would resolve this discussion once and for all. Should we now adjourn while the Minister gets her hands on that letter, and ensure that all Committee members have a copy?

None Portrait The Chair
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I am grateful for your point of order, Mr Esterson. The documents before the Committee are the draft State Aid (EU Exit) Regulations 2019 and the accompanying explanatory memorandum. If there is Government correspondence relating to the content of those documents, that is a matter for the Minister to explain to the Committee, but it is not seminal to the draft regulations before us today.

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Bill Esterson Portrait Bill Esterson
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It is always a pleasure to serve under your chairmanship, Mr Hanson, given your formidable expertise and experience, which you demonstrated in response to the points of order.

The Minister rightly made clear the importance of the draft regulations. Given the number of these SIs that are being debated in the main Chamber, it is highly odd that something so important, detailed, extensive and far-reaching, with so much impact on all our constituencies up and down the country, is not. However, there is nothing I can do about that. All I can do is make my comments and present my analysis in this forum.

Andrew Griffiths Portrait Andrew Griffiths
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Given that we are just transposing the current EU regime into UK law and providing for the CMA to take over from the Commission, can the hon. Gentleman tell us what the Labour party would do differently?

Bill Esterson Portrait Bill Esterson
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The hon. Gentleman tempts me down various different routes. I shall come to how the Government have diverged from their normal practice of straight transposition with these regulations. That applies particularly to the debate we had about the devolved Administrations. These regulations do not follow the normal pattern, as will become clear as I set out my argument.

State aid plays a vital role in our economy. Ensuring that we have a functioning state aid regime means that putting in place regulations that deliver exactly what is needed is very important. It is therefore essential that we carry out the detailed scrutiny this afternoon in the same way that the Lords did on 14 March. Given the scale of the regulations and their far-reaching nature, I will put on the record our concern about whether we have been provided with sufficient evidence of whether they deliver the technical details required for a functioning state aid regime that supports our economy and communities up and down the country. We will, however, do what we can to tease out some of the concerns that we have been able to identify about the technical nature of what is being proposed.

This set of regulations comes to 80 pages. I, and other Members, have been on Public Bill Committees that have been allocated many days, if not weeks, to consider far shorter Bills with line-by-line scrutiny, quite often following pre-legislative evidence sessions from expert witnesses. Yet we are given 90 minutes, of which about 64 remain, and we will have to do our best to identify the key areas for such scrutiny. It is a most unsatisfactory situation, but we will do what we can.

Lord Mann Portrait John Mann (Bassetlaw) (Lab)
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I hear that we may be free next week. Will my hon. Friend propose that the Committee adjourn until then, so that we can sit throughout the week in order to do the necessary, detailed line-by-line scrutiny—a proposal that I would be totally in accord with?

None Portrait The Chair
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Order. Just for your information, Mr Mann, whether the Committee is adjourned or not, it can last only an hour and a half, come what may—and we have already had 27 minutes.

Bill Esterson Portrait Bill Esterson
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Fortunately, Mr Hanson, you have answered my hon. Friend’s question very well. I think his point was that we are really not doing this justice, and are not in a position to do so. However, we will do what we can.

Paragraph 2.1 of the explanatory memorandum describes what the regulations do. It says:

“The overall effect is to transpose the EU State aid regime as set out in Articles 107 and 108 of the Treaty on the Functioning of the European Union (TFEU) into domestic law and give the Competition and Markets Authority…the function of regulating the regime in place of the EU Commission”.

Paragraph 2.2 says:

“State aid is support in any form (financial or kind) from any level of government which gives a business or another entity an advantage that could not be obtained in the normal course of business. State aid is governed by Articles 107 to 109 of the TFEU—and a number of EU regulations made under those TFEU Articles. Article 107(1) defines State aid and sets out the general prohibition on giving aid. The prohibition operates by effectively providing that aid is incompatible with the internal market insofar as it affects trade between Member States unless the aid has been approved by the Commission.”

However, the proposed regulations apply only to aids that affect trade between the UK and the EU. That on its own is somewhat odd, as it applies in the event of a no-deal Brexit, when we would be a third country, with no agreement with the EU and no prospect of reciprocal arrangements. Certainly none would be in place. Under no deal, aids in the EU that affect trade between the EU and the UK will not be subject to article 107 and 108. On subsidies, EU rules are much more stringent than those of the WTO, so in the light of the Treasury’s own estimates of serious contraction of the economy, it is of real concern that the Government are limiting their ability to stimulate the economy through the use of state aid, by retaining EU restrictions on its application. [Interruption.] I am starting to answer the question from the hon. Member for Burton, and there is more to come that will address his points.

What will the state aid regime post Brexit mean in practice? Paragraph 2.8 of the explanatory memorandum refers to postal services and rural transport. Will we see additional support for our post offices? That is part of the Minister’s brief so she should be able to answer that. Sadly, post offices continue to close, despite her protestations that she has done a deal with WHSmith.

Our towns and villages, many of which do not have access to the internet, depend on post offices. Those who rely on cash, including many smaller businesses especially, need a full postal service system. Labour’s plans for a full postal bank network would be allowed under the draft regulations, so why not adopt it, to the benefit of residents and businesses? That is entirely what the exemptions covered by the regulations anticipate. I live in hope for the Minister’s answer. The draft regulations show that she could intervene far more extensively if she wished, and I hope that she will take the opportunity to do so.

Similarly, will we see better rural bus services? My constituents would certainly welcome such Government intervention, rather than allowing private bus companies to continue to cherry-pick routes and leave those in rural communities with inadequate or non-existent public transport.

None Portrait The Chair
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Order. It would really help the Committee if the hon. Gentleman at least said “The State Aid (EU Exit) Regulations 2019” when making his points. We can use examples but we have to keep the meat of the discussion on the document before the Committee.

Bill Esterson Portrait Bill Esterson
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Absolutely, Mr Hanson. I quoted paragraph 2.8 of the explanatory memorandum for the State Aid (EU Exit) Regulations 2019, which refers to support for postal services and rural transport as examples of services of a general economic interest that are covered by the regulations. I was using them as an example. I am glad that you asked me to clarify why I was doing so and are happy that I have done so.

Paragraph 2.13 of the explanatory memorandum refers to the operation of a functioning state aid regime. It says:

“This is important to give certainty and continuity for business, to prevent distortions of competition and to ensure that less prosperous regions of the UK are not disadvantaged by support provided in wealthier regions.”

That point was alluded to by my hon. Friends in their interventions. Does that commitment to provide support for our less prosperous regions mean that the Government will invest to replace the money that is currently delivered by the EU to areas such as the Liverpool city region? That area has historically benefited from European Union funding under the European regional development fund and similar programmes, which is the kind of investment in infrastructure and skills that my constituents have needed and will continue to need.

Such investment has delivered both success for businesses and high-skilled and well-paid jobs in the regions and nations of the UK. The explanatory memorandum’s reference to having a functioning state aid regime in place is a reminder that the Government need to continue such support once we have left the EU—from day one of the application of the regulations, without a gap in between. I would be interested to hear what the Department has in store to ensure that there is no gap between European funding and national funding.

Martin Whitfield Portrait Martin Whitfield
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Before my hon. Friend progresses through the explanatory memorandum, may I draw him back to the extent and territorial application of the statutory instrument? We talked earlier about the negotiations with the devolved Administrations, and the Minister said there was some concern—I apologise if I misquote her—about the quality of the discussion. Will my hon. Friend set out his understanding of how the devolved Administrations view the statutory instrument? Is he able to enlighten the Committee on that?

Bill Esterson Portrait Bill Esterson
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My hon. Friend is quite right to pursue that point further. I prepared a section of my speech on that, and I will pick up his point in detail when I reach it. I have identified some additional points from what he said earlier and the Minister’s reply.

Paragraph 6 of the explanatory memorandum covers the legislative context. It lists no fewer than 14 pieces of legislation affected by the regulations and underlines just how much of a challenge it is for the Committee to scrutinise these changes, which are vast in scale and have far-reaching consequences. The volume of legislation listed in paragraph 6.4 demonstrates why it simply is not possible for us to say whether the regulations deliver the technical changes the Minister claims are being made. It is not that she is wrong; it is that I have no way of telling whether she is right or wrong. That is an important distinction. [Interruption.] I am perfectly capable of reviewing the legislation, as the hon. Member for Burton points out. Unlike him, I do not have the legal background—

Andrew Griffiths Portrait Andrew Griffiths
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indicated dissent.

Bill Esterson Portrait Bill Esterson
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Oh, the hon. Gentleman does not have a legal background either—never mind. We are in danger of being diverted again.

In paragraph 6.10 of the explanatory memorandum, the Government say they will rely on EU case law in their application of state aid rules, but there is legal opinion that we may have to rely on case law from before we joined the EU—this point was picked up in the Lords—as we will no longer be bound by the treaties of the EU. That may be tested in the UK courts, and it may take years to resolve. That has been the case with other regulations passed in Committees like this, and Ministers have not been able to give a satisfactory answer—presumably because there are conflicting legal views about how it would be resolved. Before we joined the European Union, there was of course no comprehensive state aid regime to regulate what was and was not permitted, so the difference between the two options is very significant.

The information provided to us does not give us the evidence we need to make a reasonable judgment about the technical adequacy of the regulations. For a simple example of that, I refer Members to paragraph 6.14 of the explanatory memorandum. I have no doubt about the need to omit specific references to Germany in article 107(2)(c) of the EU regulation, but I also have no way of knowing whether such a technical change is appropriate. More to the point, we have no way of knowing whether all the necessary technical changes of a nature similar to those identified in paragraph 6.14 and a number of other paragraphs have been made.

A further example of our inability to form an opinion can be found in the wording of paragraph 6.28, which states that

“a large number of deficiency corrections were required to make the Procedural Regulation operable in a domestic setting.”

The explanatory memorandum does not describe in detail what that large number of deficiency corrections is, it does not say what the evidence base is for asserting the need for those corrections, and it does not give back-up expert witness evidence in support of that assertion. That sentence is a pretty fair indication that we have an impossible task and are being asked to approve something with a clear lack of evidence to support doing so.

The CMA is being asked to take on responsibility for oversight of the state aid regime from the European Commission. In paragraph 7.2 of the explanatory memorandum, the Government refer to

“the costs and benefits of setting up a completely new body or having an established regulator take this on”.

I note the information before us does not give the details of that cost-benefit analysis or why the decision was taken to choose the CMA rather than setting up a new body.

That takes me back to the points made in earlier interventions about the devolved Administrations. Paragraph 10.1 refers to the discussions with the devolved Administrations and the CMA. It sounded to me in those earlier exchanges as though the Minister was in danger of being right in the middle of a constitutional crisis. Without publication of the Secretary of State’s response to the letter from the Welsh Government, this dispute has not been resolved to anybody’s satisfaction. How can we judge what the outcome is or should be without sight of that response?

Kelly Tolhurst Portrait Kelly Tolhurst
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I would like to clarify what I said earlier on that particular point, where I alluded to the fact that the Secretary of State had responded. I understood it to mean a letter that had been sent to the Secretary of State earlier in the year, which is known and has been published. I had not appreciated that the letter that the hon. Gentleman referred to was the letter sent to the Lords Committee, which my hon. Friend Lord Henley of the other House will respond to. I hope to clarify that point, since the hon. Gentleman raised it.

Bill Esterson Portrait Bill Esterson
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I am grateful to the Minister for that intervention, which tells us that we have not had the response from the Secretary of State. I am pleased that we got that on the record.

The Secondary Legislation Scrutiny Committee (Sub-Committee B) report, published on 7 February, refers to this issue and asked

“whether the Devolved Administrations were content with the approach”.

It is pretty clear that there has not been an answer to that question, let alone the more detailed letter published as evidence given to that Committee, which my hon. Friend the Member for Blaenau Gwent quoted from earlier and which I will quote from in more detail now. Not only are those responses not recorded, but it does not appear they have been made.

Nick Smith Portrait Nick Smith
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I think what we heard from the Minister in her intervention on my hon. Friend was that the Government have still not published their legal position on this matter. We have all been effectively waiting for it for two months. Can he try to elicit from the Minister when we are likely to see that legal position made clear?

Bill Esterson Portrait Bill Esterson
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That is absolutely the right question to ask. I will just make clear exactly what questions we want answered by quoting from the letter published on the website as evidence to the Secondary Legislation Scrutiny Committee, which raised significant concerns:

“These Regulations transfer functions to non-devolved public authorities, namely the Competition and Markets Authority and the Secretary of State”—

we will come back to him later—

“and giving functions to non-devolved public authorities restricts the legislative competence of the National Assembly for Wales.”

It also said that

“there is the added problem that the Welsh Government and the UK Government disagree as to whether State Aid is devolved”,

and quoted the advice of the Welsh Government Counsel General, which said:

“‘The Welsh Government’s position is that State aid is a devolved matter and not a reserved matter under any heading of the Reserved Matters Schedule in the Government of Wales Act 2006. However, the UK Government do not consider it as such’”—

the Minister has made that point already—

“‘(as was noted in the Intergovernmental Agreement) and therefore they have not requested Welsh Ministerial consent. The Welsh Government has requested from the UK Government, an explanation of their legal position but there has been no response.’”

As we have just confirmed, that is still the case.

The Welsh Government go on to say:

“The approach being adopted by the UK Government therefore appears to be a breach of paragraph 8 of the Intergovernmental Agreement”

on the European Union (Withdrawal) Act 2018, which states:

“The UK Government will be able to use powers under clauses 7, 8 and 9 to amend domestic legislation in devolved areas but, as part of this agreement, reiterates the commitment it has previously given that it will not normally do so without the agreement of the devolved administrations. In any event, the powers will not be used to enact new policy in devolved areas; the primary purpose of using such powers will be administrative efficiency”.

It is pretty clear that the Welsh Government think this is a matter significantly beyond administrative efficiency. They say:

“In reaching this view we also note that the UK Government has not responded to the Welsh Government’s request for an explanation of their position that State Aid is a reserved matter.

In his letter to us”—

the Welsh Government—

“the Counsel General has confirmed that the Welsh Ministers do not intend on granting to the UK Government unilateral consent for these Regulations.

It is our understanding that discussions between the Welsh Government and the Secretary of State for Business, Energy and Industrial Strategy are ongoing.”

I understand that the Scottish Government have similar concerns, but I have been unable to find public confirmation in writing. Perhaps the Minister will be able to clarify one way or the other—I do not think we quite got that from her earlier.

I mentioned the phrase “constitutional crisis”. I do not know whether that is a fair representation or not, but it sounds pretty serious to have such substantial disagreement. Given the seriousness and the importance of these regulations, I suggest that it would have been extremely beneficial to have resolved this before it came to the Committee.

Paragraph 10.2 of the explanatory memorandum refers to the August 2018 technical notice and discussions with a variety of stakeholders, including the Confederation of British Industry and the Federation of Small Businesses. The responses to the technical notices have not been published with the explanatory memorandum. Paragraph 12.3 states that

“the instrument will not have a significant impact on business.”

From this discussion so far, it is pretty clear that how the CMA chooses to operate the state aid regime, and how funding to the regions and nations of the UK is operated—for example, to replace ERDF funding—will have an enormous impact on business and the economy, as well as on our constituents in the poorer parts of the country.

The Minister might wish to comment on what I have already said, and I also have a number of questions for her. She said earlier that the CMA has expertise, but these are entirely new responsibilities. Hence I referred to the cost-benefit analysis of whether a new body should be created or whether these powers should go to an existing organisation. The decision was taken to give them to the CMA, which is taking on the role of national regulator in addition to its significant current responsibilities.

How are the preparations going for the CMA to take on those new responsibilities? How many staff have been recruited? Has it even been possible to identify the necessary staff with the skills, experience and expertise needed to fulfil the functions required under those new responsibilities? Does the CMA have the capacity to discharge these new duties? Why have the Government chosen to significantly expand this agency in London, missing the opportunity to support the economy across the country? This is a form of state aid, is it not? We might think it ironic that we have regulations on state aid but the Government have chosen not to use such an opportunity to support the economy and jobs in other parts of the country.

Is there a plan to review how the existing state aid guidelines operate in a UK-only context once the new regime has been set up? What will be the engagement and involvement of the devolved Administrations according to the Government’s plan, notwithstanding the fact that the way this is addressed has yet to be resolved? What is their plan on the involvement of local and regional government, industry bodies, trade unions and civil society?

The Secondary Legislation Scrutiny Committee not unreasonably asked for clarity on whether primary legislation would be needed to introduce state aid, and under what circumstances that might apply. This is referred to in a number of places in the explanatory memorandum, including in paragraph 7.6. I should be grateful for clarification from the Minister on what certainty exists around the regime that is being created by these regulations and whether, given the complexities involved, these regulations are in fact inadequate. As the explanatory memorandum says, primary legislation is needed. When will that legislation be introduced? Perhaps she can tell us of any plans to do that.

Will the CMA retain the strict EU interpretation of state aid rules or allow a loosening of them to enable support for the economy, not least given the loss of EU funding and those Treasury forecasts of economic contraction after we leave the EU? If that is not to happen, why are the Government not moving straight to a less strict system, as covered by WTO rules, rather than via this halfway house given that we will no longer be governed by EU state aid rules once we leave? Usually the answer to such questions is that this is because under the withdrawal Act these regulations are deliberately limited in scope, but if that is true, why are the Government not complying with the withdrawal Act in respect of competences and the devolved Administrations, as I think we have demonstrated in some detail—it is certainly the opinion of the Welsh Government from the letter that I quoted earlier? It seems that the Government are content to follow the process of creating SIs when it suits, but not with any consistency. Again, the oversight appears to be of concern, as so often with this Government. The Secretary of State will have oversight day to day, but Parliament will have to wait to receive reports from the CMA. Perhaps the Minister can spell out the system of reporting to Parliament.

Then there is the consultation by the CMA itself, which ended on 18 March. Would it not have been a good idea if, along with the response to the Welsh Government, we had been shown the responses to that consultation before considering this instrument? We know the Government have been struggling with consultation and impact assessments, and ensuring that all regulations are in place on Brexit day, whenever that is, but for this SI there is the additional concern that there is a massive economic imperative, the need for state aid support across the country, and for the replacement of significant investment in communities such as the ones that my hon. Friends and I represent. The concerns about CMA capacity and expertise, and the uncertainty about whether primary legislation will be needed and about overreach into devolved national competences, are therefore all of real concern. The lack of expert evidence is especially important, on a subject that is so significant to our country, our economy, our constituents and our communities.

I am afraid that the way this matter has been addressed suggests a lack of understanding or interest from the Government on state aid. UK state aid is less than a third, proportionately, of the scheme in Germany, and slightly more than half that in France. The Government did not support Sheffield Forgemasters in 2010, and abandoned Labour’s plans to do so. They failed to ensure that contracting supported domestic train manufacturing at Bombardier and steel production at SSI, and stopped the EU using trade remedies to defend our steel industry in the 2015 steel crisis. We know the Government’s attitude to state aid. Sadly, their casual approach with the regulations shows that they are ill prepared for Brexit. Yet again they are failing to support industries, economies, jobs and communities across the country.

It is entirely understandable that our Labour colleagues in the House of Lords tabled a motion of regret that the draft regulations were not accompanied by a strategy for consultation on the use of state aid after the UK has left the EU. I entirely agree with their lordships. The entirely unsatisfactory approach to engagement with the Welsh and Scottish Governments further reinforces the perception that the Lords were absolutely right in their regret of the way that the regulations have been handled.

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Martin Whitfield Portrait Martin Whitfield
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It is a great pleasure to serve under your chairmanship, Mr Hanson, and to follow my hon. Friend the Member for Bassetlaw. I will take a couple of minutes to explore the situation around devolved authorities and this statutory instrument. I will focus on Scotland, from which, if I understand my hon. Friend the Member for Sefton Central correctly, there has been no formal response, but where there is great disquiet about the direction of the SI.

Bill Esterson Portrait Bill Esterson
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I have no way of knowing whether there has been a formal response, because the Government have not published anything.

Martin Whitfield Portrait Martin Whitfield
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I am grateful for that clarification. I understand the Government’s position: they say the matter is reserved, for which the authority is the “Frameworks Analysis: Breakdown of areas of EU Law that intersect with devolved competences in Scotland, Wales and Northern Ireland” from 9 March 2018; but under the devolved model in Scotland, everything not in the schedule to the devolution Act is devolved to the Scottish Parliament. Where in that schedule is the matter reserved to this place?

Kelly Tolhurst Portrait Kelly Tolhurst
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It is great to be able to answer a few of the questions put to me. I have faced the hon. Member for Sefton Central in Committee several times in recent weeks, but I hope that earlier he was not questioning my integrity by not understanding or believing what is in front of him. I hope he accepts that I always try to answer the questions as openly as they are put to me.

Bill Esterson Portrait Bill Esterson
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On a point of order, Mr Hanson. I am sure that had anything disorderly taken place or the suggestion the Minister just raised been made, you would have intervened and stopped it. May I have your confirmation that that is what would have happened, and that as it did not, nothing disorderly happened earlier?

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Kelly Tolhurst Portrait Kelly Tolhurst
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My hon. Friend makes a fair point.

In many of our debates on no-deal regulation, the fact that we are where we are regarding the powers in the withdrawal Act and bringing in retained European law through secondary legislation has been a bone of contention for the hon. Member for Sefton Central. I understand that he wants further scrutiny, but I assure him that the reason we are here today, dealing with a no-deal SI, is that we are retaining EU law and bringing it over so that in the event that there is no deal on exit day, we have a functioning domestic regime. The regulations have been laid and there have been opportunities to read and examine them. I do not believe that the Government in this case are shirking their responsibilities or not giving Parliament the opportunity to scrutinise. We have been debating for an hour in this Committee. The withdrawal Act does not allow us to make big policy changes; we can make the changes required. We are debating a no-deal SI, which will come into effect if we leave the European Union with no deal. If we can reach agreement on a deal, the regulations will not be relevant.

Bill Esterson Portrait Bill Esterson
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That is interesting. I read the regulations and the explanatory memorandum in some detail several times. Although the Minister is right that the regulations will apply in the event of no deal, it is pretty clear that they will also apply if there is a deal. Indeed, I checked this point with the Library, and the regulations will apply whatever the arrangements for our exiting the EU. Will she confirm that that is the case?

Kelly Tolhurst Portrait Kelly Tolhurst
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The hon. Gentleman makes a good point. If we entered into an agreement, we would go into an implementation period, and we would be bound by EU rules as they stand until the end of that implementation period. In any arrangement for our future relationship with the European Union, state aid would be subject to debate and to further negotiation and agreement. It would not be right for me to anticipate that. I am here to talk about a no-deal scenario and the legislation in front of us.

On the hon. Gentleman’s shopping list of state aid requirements—the things he would like to spend money on—I point out that the Post Office effectively does receive state aid. We subsidise the Post Office. We have maintained our network of 11,500 post offices, unlike previous Governments, who have undertaken programmes of closures. I am proud to stand here as the Minister responsible for post offices and say that the Post Office is in a much better place financially than it has been for many years. We are committed to delivering postal services in rural areas, and there are a number of funds to support that. I am determined that that will continue under these regulations.

It is a matter for debate whether, how, where and how much money will be granted to other worthy schemes. It is not for us to decide today which schemes and which parts of the country will receive additional funding. This debate is about the regulations—the rules—and how those decisions will be made. I understand the hon. Gentleman’s wants, but this debate is about the rules for agreeing or disagreeing.

The hon. Gentleman spoke about support for the regions. As he will know, the regional growth fund and most of the regional support funds granted through state aid are covered by the block exemption regulations, so these measures do not stop the Government supporting local communities and regions where required. This Government operate a successful industrial strategy and are determined to continue to invest in research and development, regional growth and opportunities, particularly for small and medium-sized enterprises. Let us not forget the funding available from the British Business Bank, which is an example of where those regulations have been used to benefit SMEs and provide access to finance.

On the devolved Administrations, I repeat that the Government consider the regulation of state aid to be reserved to the UK Government. However, individual choices about how and when to give aid within that framework are for public authorities, including devolved Administrations, to make. The devolved Administrations will have full autonomy in state aid case management and in dealing with the CMA. As I outlined, I recognise that there is a difference of view about whether the regulation of state aid is a reserved matter. However, given that the UK Government are closely aligned with the devolved Administrations on the substance of the policy, and given the limited scope to depart from mirroring the EU regime using powers in the regulations, it is not necessary to resolve that question now. The Government will continue to work closely with the devolved Administrations on the development of state aid policy.

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Kelly Tolhurst Portrait Kelly Tolhurst
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As I have outlined, we expressed our belief in the intergovernmental agreement on the withdrawal Act that state aid is a reserved matter. That is our opinion, as I have said a number of times. It is not for the Committee to debate whether we were in the right when we expressed that position. The SI in front of us concerns a UK-wide regime. It is a no-deal SI that transposes EU law into UK law and remedies the deficiencies within that law for the UK domestic system, so that if we leave the European Union with no deal we have a functioning state aid regime, which is extremely important for us to trade with the European Union without a deal. If we leave without a deal, businesses will still want clarity over trade opportunities with the European Union. Therefore, the regulations are an important part of ensuring consistency and continuity for the business community and aid givers.

Bill Esterson Portrait Bill Esterson
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I will repeat part of the quote that I read out from the Welsh Counsel General about clauses 7 to 9 of the withdrawal Act. It relates to the inter- governmental agreement that the Minister has just referred to, and states that

“the powers will not be used to enact new policy in devolved areas; the primary purpose of using such powers will be administrative efficiency”.

I put it to her that this is a million miles away from being just about administrative efficiency. By any definition, this is about new policy in devolved areas.

Kelly Tolhurst Portrait Kelly Tolhurst
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I thank the hon. Gentleman for that, but the SI does not create new policy; it relates to retained EU law. As I said, if there are any future changes on state aid—I cannot answer hypothetical questions about what might be coming in future—we will continue to consult and work with the devolved Administrations. If we reach an agreement to leave the European Union with a deal, the devolved Administrations will have a greater opportunity, as outlined by the Prime Minister, who has been very clear that she wants to work with them on formulating the future relationship.

I reiterate that this would be a UK regime. The devolved Administrations would still be able to act as aid givers and make those decisions on where they want to put that aid; they will just have to notify the CMA rather than the European Commission. I highlight the fact that a number of aid options are covered through the block exemption, which I have already outlined; as I said in my opening comments, that covered 97% of the state aid given in the UK in 2017. I therefore believe that the regulations we have before us are sensible, valid and definitely required if we leave the European Union with no deal.

The hon. Member for Sefton Central also asked whether the CMA is the correct authority to take on the state aid function, and why another regulator would not be set up. Let us be clear that the CMA has an international reputation and is extremely well respected for the work it does within competition and markets. It also has relationships throughout the international community. I am absolutely assured that it is the right organisation to take on this function, because of its expertise, the respect it commands and its understanding of competition, which will enable it to ensure fairness while being able to guarantee that state aid is administered without restricting competition or giving unfair advantage. That goes to the heart of what our state aid regime will be. In my view, the CMA is the right organisation to take that on and it has the necessary expertise, so there is no need to create a new regulator.

The hon. Gentleman also asked how the CMA’s preparations are going. I have outlined already the funding that has gone to the CMA to enable it to prepare. I reassure him that we are indeed looking at the devolved Administrations; that is why the CMA has been strengthening its Edinburgh branch—it is expected that some state aid work will be happening in Edinburgh. I assure hon. Members that the CMA has done a great job so far with its recruitment and getting the numbers of people that it will require in place before exit day to manage the new state aid regime. There are only 24 people left to recruit and the CMA has made great strides in that respect.

The hon. Gentleman also talked about the guidance that is being reissued. The guidance that will be provided by the CMA on approving state aid will be issued prior to exit day. He talked about primary legislation and where the Secretary of State will be able to—[Interruption.]

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Kelly Tolhurst Portrait Kelly Tolhurst
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The hon. Member for Sefton Central mentioned paragraph 7.6 of the explanatory memorandum. He read out the passage relating to how the Secretary of State would enact primary legislation. The Secretary of State would do so, in the event that the state aid rules were too restrictive, to provide any state aid that was required. That would rarely be used, but it is an option detailed in the explanatory memorandum.

The hon. Member for Bassetlaw mentioned the motion of regret that was moved in the other place, which focused on the provision of aid rather than the rules governing it. It is important to note that the motion was withdrawn and not divided on. I want to touch on his comments about state aid and the WTO. I understand that he is a great supporter of Brexit and that he might have concerns about this SI. I would like to explain that we have a set of rules here that relate to a no-deal situation. I want to reassure him that the state aid rules in front of us, and the European rules as they stand, have vast flexibility. Over the past 40 years, we have had only six negative judgments against the UK. The decision on whether to offer state aid is a matter for the Government of the day. The regulations before us have not been a barrier to the use of state aid, and they have not restricted our ability to fund the British Business Bank or other projects.

With regard to WTO rules, there are rules that would still need to be adhered to. These regulations would obviously help us establish a future trading relationship with the European Union, and it would be helpful to us to have a clear regime in place, so that the European Union could have confidence in our ability to offer that trade. Quite rightly, as we would be a third country, WTO rules would still be used. They do not necessarily offer us any better protections or give us more flexibility in the long run, but I understand the concerns of the hon. Member for Bassetlaw.

I think I mentioned earlier that WTO rules do not stop any Government nationalising a service; the rules stop them paying more than the market rate for a particular asset. By the Opposition’s admission, they would like us to have a deal with the European Union rather than to go into a no-deal situation, so I would have thought that the Opposition would welcome these regulations to give assurances. Indeed, were we to move to a customs union—the policy favoured by Opposition Front Benchers and their leader—there would need to be some kind of state aid regime.

I could keep rabbiting on forever about state aid. We need to provide continuity and certainty for public authorities that grant state aid and their beneficiaries. This approach will maintain business confidence, particularly in the event of the UK’s leaving without a deal. The regulations safeguard competitiveness, and I commend them to the Committee.

Bill Esterson Portrait Bill Esterson
- Hansard - -

On a point of order, Mr Hanson. In the light of the Minister’s inability to deal with the point about the response from the Welsh Government to the Secretary of State, is there a way for the regulations to be further debated on the Floor of the House as part of their passage? That would give the Minister time to get us the answers to that question and others, because this is very unsatisfactory.

None Portrait The Chair
- Hansard -

Order. This Committee is the opportunity to consider the regulations. The hon. Gentleman can vote for or against the motion, and they will be reported to the House for approval in due course.

Question put.

Exiting the European Union (Consumer Protection)

Bill Esterson Excerpts
Tuesday 2nd April 2019

(5 years, 1 month ago)

Commons Chamber
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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I thank the Minister for her opening remarks. She set out exactly what the existing regulations do and, to be entirely honest, what she is proposing in the case of no deal makes perfect sense. The regulations before us revoke the existing regulations that prevent undue discrimination across the European Union by the blocking of consumers in one country from accessing websites in another member state or by redirection to the member state of the consumer.

A number of questions arise from the Minister’s remarks and from at least one of the interventions she took. She spoke about the fact that these regulations are relevant only in the event of no deal. When she responds to the debate, will the Minister confirm that, if a deal is agreed, the Government have no intention of revoking these or similar regulations? She is engaged in a conversation at the moment, so I hope she heard that question.

My hon. Friend the Member for Coventry South (Mr Cunningham), who is no longer in his place, asked the Minister a very good question about how UK consumers will be protected in the event of no deal. His question highlighted just how important it is that we do everything in our power, particularly in these next 10 days, to avoid the disaster of crashing out with no deal. That is the best way in which to avoid having to revoke the regulation.

Kevin Foster Portrait Kevin Foster (Torbay) (Con)
- Hansard - - - Excerpts

The shadow Minister has said that we need to do everything in our power to avoid the UK crashing out. Does he agree that voting for the withdrawal agreement would be the best way of doing that?

Bill Esterson Portrait Bill Esterson
- Hansard - -

I think the hon. Gentleman is wandering a little from the issue under discussion.

Lindsay Hoyle Portrait Mr Deputy Speaker (Sir Lindsay Hoyle)
- Hansard - - - Excerpts

I think he is trying to tempt you.

Bill Esterson Portrait Bill Esterson
- Hansard - -

I think he might be. Suffice it to say that that deal has been rejected three times, on the first occasion by the largest margin by which a Government have ever been defeated in the known history of Parliament. Quite apart from the undesirability of what is in that deal, I think we should probably move on. I have a sixth sense that it will come back for fuller debate on another occasion.

The Minister made a very strong case for cross-border co-operation, for maintaining the regulation and for a mutual recognition agreement so that we can maintain protections for consumers and businesses. I hope she will confirm that when she responds to the debate.

I am not able to confirm with absolute certainty that the revocation will deliver what the Government intend it to do. We have to accept the Minister’s word that it will do so. I have no reason not to accept it, but I do not have the technical expertise. The papers in front of us do not allow me to say any more than that, so I have to put on the record my reservations and those of my party. As ever with the statutory instruments we are being asked to approve, there is no impact assessment. The lack of published consultation responses also makes it that much harder for us to analyse what we are being asked to approve.

Businesses and consumers need confidence and certainty. I note from the explanatory memorandum that a number of business organisations were consulted. Perhaps the Minister could provide more detail on what they said. She has done so on previous occasions, so I look forward to hearing what was said in those consultation discussions.

The regulations that we are being asked to revoke are designed to prevent discrimination based on location. They exist to stimulate the internal market of the European Union and to support the free movement of goods and of free trade through the digital sector. They address the possible restriction on competition between businesses across the European Union market and ensure that consumers have access to the best offers, prices and conditions of sale. They do not limit trade for consumers to goods and services in their own country—that is a very important distinction—and that is precisely what has happened since the regulations were introduced at the start of last year. They also prevent website redirection away from businesses that are not in the consumer’s member state.

If we leave with no deal, the draft regulations will revoke the geo-blocking regulation completely. No deal would end the protections for UK businesses and consumers, as they would not be protected in the European Union. The Minister set that point out very well in her opening remarks. As she said, retaining the regulation in the UK would mean that we could be blocked but would not be able to block against discriminatory practices from within the European Union. Those points are well made in paragraphs 2.4 and 2.5 of the explanatory memorandum. Paragraph 2.4 makes the point that

“if we did not revoke the Geo-Blocking Regulation, UK traders would continue to have obligations to EU customers under the Regulation while UK customers are unlikely to receive any of its benefits.”

Paragraph 2.5 states:

“To avoid this asymmetry of enforcement obligations in the EU’s favour, we are revoking the…Regulation in the UK.”

I accept those points, which is why we will not oppose the revocation.

The revocation of the regulations would at least minimise discrimination, but that is a bare minimum and a low base from which to operate. It would be far better not to have to do this and to have mutual recognition after we leave the European Union and continue with an arrangement that protects our businesses and consumers against discrimination as far as possible.

The draft regulations are an example of what no deal means. After yesterday’s latest failure by Members from across the House—but from some parties in particular—to be prepared to find a compromise to avoid no deal, we are one day closer to the dire prospect of that outcome. Of course, the Government should have taken no deal off the table, so that MPs did not have to do so, to avoid what in all honesty are desperate, last-minute no-deal preparations. That is the only way to describe what we are being asked to do today, 10 days before a likely no-deal departure.

The CBI was one of the business organisations referred to as having been consulted. Although I do not have its response to the consultation—I hope to hear it shortly from the Minister—I do have what it wrote to the Prime Minister, in a joint letter with the TUC, about the consequences of no deal. Is it not refreshing to see the leaders of the employers’ largest representative organisation and the leaders of the workers’ representative organisation working so closely together, signing a joint letter to the Prime Minister? That is what leadership in this country looks like and it is a great shame that we have not seen more of it from politicians.

The joint letter makes it clear that no deal would be disastrous for the country—for businesses and for workers—and that also applies to the draft regulations, should they ever be needed. On a no-deal outcome, the CBI-TUC letter states:

“Firms and communities across the UK are not ready for this outcome. The shock to our economy would be felt by generations to come…avoiding no deal is paramount.”

They describe no deal as causing “reckless damage”—[Interruption.] It is a shame that those Members commenting from sedentary positions on the Government Benches did not support some of the alternative options available to us yesterday. The TUC and CBI call for a plan B, which has been rejected by those Members who have been heckling me for the past few seconds.

Oliver Heald Portrait Sir Oliver Heald (North East Hertfordshire) (Con)
- Hansard - - - Excerpts

I do not know whether the hon. Gentleman would like to join me in welcoming the fact that the House of Lords has just passed the Animal Welfare (Services Animals) Bill, which will give protection to police dogs and police animals.

Bill Esterson Portrait Bill Esterson
- Hansard - -

I am delighted to welcome the passing of that Bill. I was not quite sure what that intervention was going to be about. I agree that it is an extremely welcome and important piece of legislation that has made progress in the other place.

The TUC and the CBI are calling for a plan B. I hope that, as we make further progress in finding alternatives tomorrow, we do that and avoid a no deal. If that is the case, the Minister will not have to invoke these regulations.

The revocation of the geo-blocking regulation is not the largest single impact of no deal; it is a small example of the consequences, and I hope it is not needed. I hope that the Minister and all hon. Members agree with that point.

I have a couple of questions for the Minister in addition to what I asked her earlier. I understand that there are businesses in the UK that currently use hosting services from EU providers. Can she reassure them about how that access will continue if the geo-blocking regulation is revoked in the event of no deal? The impact assessment takes a very narrow view and does not comment on the number of individuals using services from the EU in this way under the regulation. I hope that the Minister can give some sense of what the impact would be, what the likely outcome is, and how the Government propose to protect businesses in the event of no deal in this respect.

Consumers currently enjoy the ability to buy services and goods from across the EU. Will the Minister indicate whether the Government have assessed what the impact on them will be in relation to access to services and registration? Will businesses in this country be able to buy services from within the EU if the regulation is revoked?

I and other hon. Members have asked questions about the damage that no deal will do on a small scale through this one set of regulations. One way to express it is to say that these regulations show that the Government have failed to prepare; another is to say that they have not prepared because it simply is not possible to prepare for no deal. These regulations, like so much else that is going on at the moment, given the looming prospect of no deal, demonstrate that. We can overcome the danger of a disaster only by avoiding no deal. I hope that hon. Members from all parties will take note of that and will try to find alternatives. The Government’s deal will not go through, so an alternative needs to be found.

--- Later in debate ---
Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

Well, I hope that the hon. Gentleman is asking me that question because he wants to support me and my colleagues on the Government Benches. It is quite right that any responsible Government would prepare for a no deal, and that is exactly what we are doing. I must remind colleagues that this regulation came into force in December last year, and, where we have had to enforce it, there have not, as yet, been any complaints.

Bill Esterson Portrait Bill Esterson
- Hansard - -

The hon. Lady demonstrates that she and I are in agreement about the benefits of geo-blocking and the current arrangements that we have as members of the EU. This regulation is about no-deal preparation, and we will lose those benefits if we leave with no deal. Perhaps she can tell the House what preparations she and her Department have made to ensure that, if we do manage to avoid no deal, there is a mutual recognition agreement that keeps these provisions in place.

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

The hon. Gentleman’s question suggests that he is considering supporting the withdrawal agreement, because he is asking me about the preparations that we have made in the event of that happening. We have been quite clear that we have to agree the withdrawal agreement. As we have said in our technical notices, and as I have said in many SI Committees, we will be working with our neighbours to ensure that we are able to enter into mutual co-operation agreements if the withdrawal agreement is passed.

Draft International Accounting Standards and European Public Limited-Liability Company (amendment etc.) (EU Exit) Regulations 2019

Bill Esterson Excerpts
Wednesday 20th March 2019

(5 years, 1 month ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
- Hansard - -

It is a pleasure to serve under your chairmanship, Mr Pritchard.

The importance of accounting standards cannot be overstated. I am sure all members of the Committee understand that it is crucial that we get this right, and that the public, stakeholders, investors and the Government can rely on the accuracy of published accounts. Given the recent public concern over audit and the question of the independence or otherwise of the big four, this topic deserves thorough debate and scrutiny. It is essential that accounts give a true and fair view and, therefore, essential that, whether the standards are national or international, they are delivered in the appropriate way and with the right degree of support, scrutiny and accountability.

I believe I am right in saying that we are dealing here with the arrangements that would be in place in the event of no deal. As ever with the regulations brought before us in these Committees, there is the question of the adequacy of scrutiny and our ability scrutinise properly, given the time available to us, the complexity of what we are being asked to consider and, frankly, the inadequacy of the consultation—in this case, the fact that no public consultation has been carried out.

I will ask the Minister to respond in her reply on the nature of the informal consultation on these regulations, who was consulted and what they said in response. I was informed yesterday, by being copied into a letter to one of her ministerial colleagues, about the nature of a consultation on another set of regulations; I was copied in because I was the shadow Minister on that occasion as well. What concerned me about the letter sent to the Minister’s colleague was that the consultee had been instructed—not asked, instructed—by the Department to comment only on the technical content of the regulations and not to advise on whether the regulations would deliver what the Government needed to be delivered in the event of no deal. That is of great concern. Will the Minister confirm whether that is true here and whether the informal consultees, assuming there have been some, were asked to comment on a similar basis—only on the very narrow technical content of the regulations—or whether they were asked to comment on their adequacy and the wider issues involved.

In this case, I assume—perhaps the Minister can confirm this for the Committee’s benefit—that the big four were consultees. If not them, then who? Perhaps she can also confirm whether there was wider public consultation or consultation with organisations independent of the accountancy profession, which would have been necessary to ensure proper scrutiny of what we are considering—not that we have been given sight of their comments, which is why I have asked her to let us know what they said.

Yet again, we have no business impact assessment. Again, I put on record that it is impossible for members of this Committee to know whether that is an appropriate judgment by the Department, because we do not have enough information before us; we do not have the depth of knowledge, the detail of consultation or comment by expert witnesses to give us the evidence to judge whether there will be a significant impact.

The regulations mention the Financial Reporting Council’s involvement and the fact that it is being asked to set up and oversee an endorsement board to take on the responsibilities currently delivered by the European Commission. That is cause for great concern. The FRC is due to be reconstituted, involving primary legislation, as a result of the Kingman review, which was published in December. I do not know whether the Minister is able to say when that primary legislation will be considered and when that work will be undertaken, but it clearly will not happen in time for these regulations to be enacted and for the FRC to take on the responsibilities set out in these regulations. Perhaps she can tell us when time will be made available for the work that needs primary legislation. Given the volume of legislation—we hear talk of the Easter recess being cancelled so that we can consider further statutory instruments like this one—perhaps she can tell us when that primary legislation is due to be considered by Parliament so that the FRC can be reconstituted.

That is of concern that we are in a position where, as the front page of the Financial Times put it, the FRC is

“to make way for stronger accounts watchdog after a string of audit failures”.

Given that concern about the FRC, it seems quite odd to ask it to take on this additional responsibility. The FRC is subject to 83 recommendations for change, a third of which require primary legislation. Will the Minister say how the FRC will have the capacity, and how we can be sure it has the competence, to take on this added responsibility as a result of the regulations? It is incredibly important that we get our financial standards right, for the reasons I set out. The concern is that the FRC simply has enough on its plate already, as set out by the Secondary Legislation Scrutiny Committee when it recommended that the draft regulations be subject to the affirmative procedure.

I am also curious to hear the Minister’s view on the Association of British Insurers’ suggestion that the Secretary of State should have active political oversight of the endorsement board. It made that suggestion because of the upheaval at the FRC, and also because of longer-term implications; as the international financial reporting standards evolve, a significant amount of work by the board will be needed. The Minister mentioned the annual report by the Secretary of State to Parliament, but that is very different from active and regular political oversight of the endorsement board.

I believe that Australia has such a system; I notice that Australia was mentioned a few times in the draft explanatory memorandum. I wonder why the Government have not considered what seems to be an effective system of political oversight and why they have taken this light-touch approach to the day-to-day management of this incredibly important piece of work. I remind the Committee that the independent review of the FRC found that it is not fit for purpose and has serious problems in how it recruits top staff. Those reasons are enough now for having that active political oversight, and they will be cause for great concern until that primary legislation comes forward and a new body is set up.

The Minister’s Department told a House of Lords Committee that it was

“currently working with the FRC to build capacity to set up the new Endorsement Board…in time for EU Exit.”

The Department also told the Committee that

“stakeholder input helped us define the extent of the FRC’s role in relation to the new Endorsement Board”.

How is the setting up of the new endorsement board going, who are those stakeholders and what was their input into the creation of the board?

The European Commission currently oversees the application, and influences the development, of IFRS across the EU. What is proposed raises concerns about a lack of political oversight of the board. I will be grateful for the Minister’s comments on that point. The United States applies IFRS only piecemeal, which reduces the international effectiveness of IFRS itself. Have the Government lobbied the US to adopt IFRS? Will the Minister tell us about the impact on US-UK trade agreements of a lack of adoption of those standards and of having different regulatory environments? Are these matters being discussed by her colleagues in the Department for International Trade in their preliminary discussions about potential US-UK trade agreements?

On the setting up of the endorsement board, will the Minister tell us who will be represented on it? Will it reflect stakeholders, including those independent of the profession, as well as representatives of the nations of the United Kingdom? Accounting standards are of great importance, and making sure that regulations are in place in the event of no deal is essential.

There are real concerns about the regulations and the ability of the FRC to put in place a system that ensures their robust implementation. Given that this instrument has already been through the House of Lords, I hope the Minister is in a position to give detailed responses to the points I have raised. They were raised in the House of Lords equivalent of this debate and I would like to think that she has come prepared to answer them.

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I am grateful to the hon. Gentleman for his contribution. International financial reporting standards are a world-leading set of accounting standards, used by a large number of companies in the UK, the EU and other countries around the world. Their use helps inform decision making, improves transparency and promotes confidence in the business environment. As we leave the EU, it is vital we maintain the integrity of the UK system of accounting and reporting.

I remind the hon. Gentleman that we are talking about a statutory instrument that would transfer the current rules that we already work to within the European Union and how the EU applies those rules across member states. In the event of our exit from the EU, we are bringing together a UK framework. It is important to bear that in mind. This is about how we develop a successful framework that enables us to maintain our position as a great place to do business, and reassures investors and companies of that.

We are the biggest capital market outside the US and, therefore, it is right for us to have the regulations; I am sorry to hear that the hon. Gentleman has concerns about them. Having worked through them as a Minister, I think they are sensible and would enable the UK to carry on securely.

I will answer some of the points raised by the hon. Gentleman. The stakeholder group was established in April 2018 to look at the regulations, and it held six meetings. That group included investors, accountants, advisers and business representatives who took part in the meetings as independent individuals. They were asked to participate because of their knowledge, expertise and potential to help in this area, to work with us to look at the technical information and ensure that any regulations brought forward would be in good order.

As the hon. Gentleman mentioned, there was no public consultation on the regulations, but we held informal stakeholder meetings of those affected and interested parties over a long period, from 2018.

With regard to the hon. Gentleman’s comments on the FRC, we welcomed the review undertaken by Sir John Kingman and we will bring forward primary legislation on that point. I must point out that the endorsement board will be a subsidiary of the FRC. It is not currently constituted. The regulations will enable the Secretary of State to have those powers and he will be able to sub-delegate them to an endorsement board.

We are working with FRC officials, and the Secretary of State has full oversight of the development of the EB and its design. He will eventually appoint a chair, shape governance and have full political oversight. The EB will be run separately, as a subsidiary; it will have its own running costs and will be funded through a levy, which organisations that have to comply with FRC rules currently pay to the FRC.

One good thing about the endorsement board and its being structured within the FRC is the future thought leadership that the board will give. It will really be able to influence, on the international stage, any future developments in IFRS standards. That area will be key for the endorsement board going forward.

Bill Esterson Portrait Bill Esterson
- Hansard - -

Earlier, I put to the Minister her Department’s statement to the House of Lords Committee that it was working with the FRC to have the new endorsement board ready in time for EU exit. I take it, from what she just said, that that will not happen. Will she confirm that? Will she also confirm the arrangements for the work that the new endorsement board will undertake once it is set up?

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I am sorry; I thought I had already outlined that to the hon. Gentleman. The Secretary of State has those powers, which will he will sub-delegate to the endorsement board. We are working to develop that board, and our intention is that it will be in place by the end of 2019. I thought I had made that clear.

The Secretary of State will have the power to sub-delegate, but he will also have the power to revoke powers sub-delegated to the endorsement board in the future. To clarify, and to give Members comfort that political oversight will continue, the hon. Gentleman was quite right that the Secretary of State will have to report to Parliament annually, and the endorsement board that carries out these tasks in the future will also report annually to the Secretary of State. Those reports will be placed in the Commons Library. Even when there is an endorsement board, the Secretary of State will still lay an annual report in Parliament, which will give an opportunity for parliamentary scrutiny and for the Secretary of State to be scrutinised and held to account for particular activities of the endorsement board when that sub-delegation has occurred.

On the hon. Gentleman’s comments on whether we are lobbying the US to follow IFRS standards more closely, that is not something I am directly involved with. The draft regulations are very much about making sure that the UK is able to maintain its place in the global market. As an independent nation after EU exit, we will have the opportunity to make sure that we have a wider influence in the world on the adoption and formulation of standards.

As I have outlined, the draft regulations will provide continuity and clarity to business by ensuring that UK companies can continue to use IFRS, as adopted in the EU, when preparing their annual accounts. They also set out a future adoption framework for the UK that is robust and transparent, and that will act in the national interest. This framework has been developed in close consultation with stakeholders, as I have outlined, and represents the best way forward for the UK’s continued use of these international standards. I therefore commend the draft regulations to the Committee.

Question put and agreed to.

Oral Answers to Questions

Bill Esterson Excerpts
Tuesday 19th March 2019

(5 years, 1 month ago)

Commons Chamber
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Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

The hon. Gentleman raises an important point. Tax is a responsibility of the Treasury, but as he will know, including after our conversations yesterday—this was also alluded to earlier in questions—post offices are still an important part of our high streets, and the Post Office is currently negotiating a new banking framework. It is absolutely right that, when banks are pulling out of our high streets, the post offices that are delivering the services are remunerated correctly for that.

Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
- Hansard - -

The duty for large companies to report how quickly they pay their suppliers is of course welcome—80% of businesses that fail do so as a result of late payments—but to be effective, the new duty to report will need some teeth, such as binding arbitration and fines for persistent offenders. This Government’s use of sanctions against the poorest has been disgraceful, so how about using sanctions against some of the most powerful and making sure that large corporations treat their small business suppliers fairly?

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

Late payments and the way that some large businesses have behaved in the past have been an issue for decades, and it is this Government who are prepared to make changes and bring forward policies to reduce them. We know that late payments can be incredibly damaging for businesses. That is the reason for the Chancellor’s announcement last week about the responsibility of committees to look at payment practices, and I look forward to making further proposals.

Draft Designs and International Trade Marks (Amendment etc.) (EU Exit) Regulations 2019

Bill Esterson Excerpts
Tuesday 5th March 2019

(5 years, 2 months ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
- Hansard - -

It is a pleasure, as ever—but especially at this hour of the morning—to serve under your chairmanship, Mr Hanson.

I start by picking up one of the Minister’s comments. He said that this is business as usual—but if there is one thing that Brexit is not, it is that. We can probably all agree on that, whatever our stance on the subject.

Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

If you vote for the deal, it will be.

Bill Esterson Portrait Bill Esterson
- Hansard - -

I think, Mr Hanson, we are in danger of wandering into a slightly different part of the forest.

The Minister set out the arguments in favour of creating a system that addresses what will be needed in this country for both registered and unregistered designs to apply in the UK, and I have relatively few concerns about his remarks. However, as always with such regulations, there is the question of whether Opposition Members are in a position to give our full judgment on both the available information and the responses from the technical experts in the sector.

I put on the record, again, our concern about our ability to fully scrutinise what we are being asked to support. It is a common problem with regulations, often related to the speed with which they are being pushed through, their detail and technical content, and their importance. As ever, it is important to get that point across, as this is another example of costs—albeit the Minister is claiming that they are relatively small —for creating a functioning regime after we leave the European Union.

As the sifting Committee said in its report when it recommended that the draft regulations be considered in Committee,

“The work of conversion is clearly a major exercise.”

That work will involve 700,000 registered Community designs alone. The preliminary estimate is of £375,000, which may appear to be a relatively small amount of money, but that is clearly not without significant amounts of work. The Intellectual Property Office says that it is able to address that and that costs are recovered through fees. The Minister has pointed out that the fees have come down. I have no reason to doubt him on that, but it will take time, both for the authorities to process the change in arrangements and for businesses to make sure they are covered. I believe there is a nine-month window for businesses to adapt to the new regime—the Minister may wish to correct me on that. Perhaps he could also answer how the Government intend to make sure that everybody has the cover that they need and is aware of the changes that they need to make during that transition period.

I have one question for the Minister, the answer to which I did not catch in his opening remarks. Perhaps he can explain how the unregistered Community design system operates and how businesses obtain their protection without having to register for it. I note that there is a three-year period. Can he clarify how that system operates so that the protection is in place? From what he said, it is clearly an important part of intellectual property protection. Perhaps he could give us some clarity on how it operates.

As ever, there is the thorny issue of consultation or, to be strictly accurate, the lack of public consultation that we see with the regulations going through Committees every single week. I notice that no formal consultation was carried out, but that stakeholders were asked to give their opinions. Perhaps the Minister can tell us—I cannot find the information anywhere—who was consulted and what their responses were to those informal consultation discussions. It would have been very helpful to have that information in front of us; it would have helped to ensure that we were in the best possible position to judge whether we should or should not support the regulations. I hope that the Minister, if he does not already, will soon have a note on what the consultations were, who was consulted and what the responses were.

I want to tell the Committee of the key concern raised by the Alliance for Intellectual Property. It is not particularly concerned with the continuing regime in the UK; it is relatively confident that what the Minister has described meets its requirements. Its concern is the lack of reciprocity. If equivalent protection is achieved through the withdrawal Bill, it believes that the design sector will still be gravely at risk without reciprocal protection from the EU27. After we have left the European Union, designs that are first disclosed in the UK might well be sufficiently protected here, but will receive no unregistered Community design protection in the EU, because we will no longer be members. The AIP’s view is that this would have grave consequences for UK designers: according to a recent survey by Anti Copying In Design, almost 80% of them rely on the unregistered Community design right to protect their designs.

The EU is the largest export market for many UK design sectors, contributing over two-thirds of UK furniture manufacturers’ export revenue. Such a loss of reciprocity poses a serious threat to leading industry events such as 100% Design, London Fashion Week and Top Drawer, which creators from all over the world attend in order to reveal new and innovative designs. Without protection, designers will either have to run the risk of copying throughout the EU27 following disclosure, or simply avoid first disclosure in the UK altogether. Perhaps the Minister can advise on which route the Government think designers should take.

Matt Western Portrait Matt Western (Warwick and Leamington) (Lab)
- Hansard - - - Excerpts

On the point about designers and furniture manufacturers, there is a company in my constituency—a small business, which exports to 70 countries around the world—that faces significant costs in the enforcement of this design legislation and is up against a lot of copycat manufacturers, particularly in the far east. The company will be especially exposed, because Europe is such a big market for it.

Bill Esterson Portrait Bill Esterson
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Using the example of his constituents’ business, my hon. Friend has set out the sector’s exact concerns and the challenge for the Government to ensure protection of our innovative and creative exporters. Given the end of the parallel system to which the Minister referred in his opening remarks, perhaps the Minister can tell us how the Government will provide assurances.

What is the state of negotiations on achieving protection in this area in the European Union? We cannot overstate the importance of that protection for businesses such as that of my hon. Friend’s constituents. I hope that there is an answer to that, and that the Minister can give us some assurances. We know that all too often negotiations on the details of post-Brexit arrangements have not gone as well as they need to—I hope that this issue is not one of those.

I asked the Minister about consultation. As ever, the approach to impact assessment is limited. Paragraph 13 of the explanatory memorandum discusses regulating small businesses. How well prepared will they be? This picks up on my earlier point on ensuring that all businesses are aware of the changes that will happen and the actions they need to take. Again, the Government have chosen a very narrow interpretation of “impact” in their approach to impact assessment; they are not taking the wider impact on the economy as a whole. As I said on previous occasions, that is regrettable and does not set out the true impact of regulations such as these.

That brings me to a number of questions that arise from the commentary in the explanatory memorandum. Can the Minister explain how the system will work for existing rights that are granted by the European Union’s IPO? I am not entirely sure whether that question follows on from that asked by the right hon. Member for South Holland and The Deepings, but I think it is similar. If the Minister has not already answered it, perhaps he can pick up the point about ongoing validity for five years.

My next question is about paragraph 2.8 of the explanatory memorandum, which references action being taken by EU rights holders and their protections in the UK. My assumption is that those rights holders will be protected in the UK, and that the concern is about that lack of equivalence. Perhaps the Minister could clarify that point, along with the ones about protections of UK designers in the EU.

According to paragraphs 7.17 and 7.27 of the memorandum, 12,000 international trademark applications and 1,000 design applications are estimated to be pending on exit day. How are the Government making sure that all those applying know that they need to file a new application? That point is similar to the earlier questions about making sure that all businesses understand what they need to do.

Paragraph 13.3 of the memorandum states that

“there is sufficient time for all businesses to familiarise themselves with the changes”

before the regulations take effect, but there is a difference between there being time and businesses taking up the option. Certainly, many small businesses are not always equipped to address the regulations that come to them, so I really want to press the Minister on the impact on our small and medium-sized enterprise community.

In paragraph 7.33, there is a reference to

“the right to opt out”.

Again, what are the Government doing to make sure that businesses are fully aware of the options available to them, which are referred to in that paragraph?

I think this is my final question—[Laughter.] I am sure I can find some more if Members want me to, but on balance, I will stick to this one. The memorandum refers to fees of £63,000. Are those fees payable by businesses of all sizes, and is that going to continue to be the case? The Minister mentioned lower fees in his opening remarks, so perhaps he could link what he said then with the figure of £63,000 cited in the explanatory memorandum.

The example that my hon. Friend the Member for Warwick and Leamington gave about the furniture manufacturer in his constituency demonstrates how important it is that we get these regulations right and have arrangements in place. It is particularly important for designers for whom the EU is a major market; as we have heard, two thirds of designers export to the EU. I would particularly like to hear the Minister’s answer about reciprocal arrangements, and I hope he is also able to answer the other questions that I have asked.

Chris Skidmore Portrait Chris Skidmore
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I thank the hon. Member for Sefton Central for the contribution he has made to this debate, as well as the other right hon. and hon. Members who have contributed through interventions. I will endeavour to respond to the questions that have been raised.

I will first turn to the issue of public consultation, which has been familiar terrain in several of these no-deal statutory instrument Committees. The Intellectual Property Office has been engaging with businesses about the implications of exit since the referendum result, and I will turn to that engagement in a moment. The Department has used the existing Cabinet Office principles for consultation on all EU exit SIs and non-exit SIs, and details of any consultations undertaken are explained in all SIs’ accompanying explanatory memorandums. The Government have sought to maximise continuity in a no-deal scenario. At the early stages of the negotiations on the future partnership, as I have explained before in previous Committee debates, revealing the details of our continuity approach to public consultation would have risked our negotiating position.

Bill Esterson Portrait Bill Esterson
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I have heard the line about risking our negotiating position from Ministers before. Over the weekend we heard the US give exactly what its negotiating mandate would be in a trade deal. If the United States can do it, why can’t we?

Chris Skidmore Portrait Chris Skidmore
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It is important to reflect on the fact that the process of the negotiations is one that we do through Brussels and across 27 other member states. It is right that we take a nuanced position. I note, however, the hon. Gentleman’s support for President Trump in this debate.

Bill Esterson Portrait Bill Esterson
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That really is a stretch!

Chris Skidmore Portrait Chris Skidmore
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The individuals who took part in the technical review did so in a personal capacity. They were chosen because of their past experience as representatives of various stakeholder bodies, usually engaged in consultation with the IPO. The technical review required a fairly detailed knowledge of legislation—its practical implications as well as the context of the wider industry—and the framework of the EU international trademarks and designs legislation as a whole. We are confident that those individuals have the relevant knowledge and will be able not only to follow the approach being taken by the instrument in order to follow and identify any errors, but, importantly, any other issues that we might have missed. In no way was the IPO looking for people who would just agree with the approach or raise no issues. Although it is important for us, that would not have been for anyone’s benefit. Indeed, the discussions at meetings were robust and forthright, and attendees were keen to challenge the instrument and make sure it was the best possible going forward.

Bill Esterson Portrait Bill Esterson
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Other Ministers have told us who has been consulted when we have asked these questions. Is there any reason why he is not telling us who was consulted on this occasion? Perhaps he will write to me.

Chris Skidmore Portrait Chris Skidmore
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In terms of the consultation process and the individuals acting in a personal capacity, I am not sure whether I have the authority to divulge their names on the Floor of the Committee at this particular moment. Perhaps I can write to the hon. Gentleman if I can request their permission to be named. They acted in a personal and private capacity as part of the consultation following the Cabinet Office statutory instrument guidelines on consultations. The framework and process was a trusted one. I am sure that having an opportunity to give private views provided for a greater opportunity to scrutinise the legislation and to be more honest and robust as a result.

We assessed the impact of the SI using the better regulation framework in line with the Treasury’s Green Book guidance. It was obviously deemed to be less than £5 million, so a full impact assessment was not required. Analysis has been focused on the direct impact of the relevant SI compared with current legislation, and analysis of wider impacts on the UK’s exit from the EU has been previously published in the form of long-term economic analysis, which was published in November 2018.

On the impact on business and the conversion of existing rights to comparable UK rights, we have committed to ensuring that the administrative burden on business is minimal. The teams at the ICO are making good progress on numbering systems for the new comparable rights and will communicate the changes as soon as possible. The IPO will also publish guidance in every language of the EU on its website so that rights holders in every member state will be able to access all the necessary information on their UK rights.

When it comes to the process of notification both within the EU and the UK, the IPO will publish a standard website notice in all languages, as I have said, confirming that holders of re-registered UK designs and comparable UK trademarks have been granted equivalent UK rights. The notice will continue to remain on the website after exit, and individual notifications to holders of EU and international trademark designs will not be issued. We are confident that there has been significant interest that will be progressed towards the guidance being published.

If rights holders do not want to be given the new rights, the statutory instrument contains an opt-out provision that allows the holder of a comparable UK design or trademark to request that it be treated as if it was never registered in the UK. That process can be exercised via completion of a no-fee letter or email to the registrar, requesting an opt-out.

Several issues related to costs for businesses. This has been covered in interventions, but I state again that there will be no fee associated with the creation of the new UK rights. The comparable UK registered design or trademark rights will be independent from the corresponding EU rights. Obviously, there will continue to be charges for renewal. When the comparable UK right expires, the standard UK renewal fees will apply. In terms of comparable UK registered design, the renewal fee, which will be the same as it is at the moment, will increase for each successive five-year period of protection, from £70 for the first renewal up to £140 for the fourth and final renewal period. That is consistent with current practice. The holder of the comparable UK registered design will be required to pay these UK renewal fees in addition to those associated with the corresponding EU right in order to preserve protection in both the UK and the EU. For a comparable UK trademark, renewal fees will be charged according to the goods and services protected under the mark.

The hon. Member for Sefton Central raised the issue of the costs for Government—trading funds. The IPO receives no central Government funding, so costs are recovered through fees. In terms of the process for creating UK comparable rights, the actual process will be automated. Because these rights are currently valid and enforceable in the UK, the IPO already has access to related data—these are recorded in the IPO’s records system and published on web-based search platforms—and as a result we will be able to create the new comparable UK rights without a significant amount of additional work.

When it comes to the issues about preparation for EU exit by the IPO, resources have been managed as part of the preparations. That includes staff recruitment and training. The creation of new rights on exit day will not itself create a need for additional resources beyond those already being addressed as part of our business-as-usual operational management.

Chris Skidmore Portrait Chris Skidmore
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I thank the hon. Gentleman for his point. I would be happy to write to him with some of the details on the resource issues of staffing. I went to visit the IPO’s headquarters down in Newport and was deeply impressed by the organograms and the plans that it had put in place. Almost week by week and day by day, it has been planning for EU exit. Its staff morale is one of the highest for a Government organisation across the country, not just in Wales. I really got the sense that the IPO was content with the process, was managing the process and was a happy organisation in taking forward the process, but I will write to the hon. Gentleman on some of those details. I got no sense that there was undue pressure on the IPO as a result of the changes taking place.

Let me turn to the issues raised about designers and disclosure of unregistered designs. An unregistered design will need to be first disclosed in the EU to be protected in the EU should we leave without a deal. However, disclosure in the EU may have implications regarding any corresponding UK unregistered rights, such as the supplementary unregistered design and the existing UK unregistered design rights. This statutory instrument contains provisions to allow us to negotiate reciprocal arrangements on first disclosure with third countries, which may be the EU, individual countries within the EU, or more widely, but that will still be subject to future agreement.

If we retain first disclosure in the EU as a basis for establishing post-exit UK unregistered design, we will create an imbalance between the UK and EU systems, providing EU-based designers with an unfair advantage. Designs disclosed in the EU would count for establishing both UK and EU protection, whereas designs disclosed in the UK would count for establishing UK protection only.

The law in this area remains unclear, with prominent legal commentators disagreeing on the subject, but our approach reflects the published interpretation of the EU IPO. We think that that provides a more consistent approach for designers to understand and apply. The approach may be subject to future change if courts decide to take a different interpretation, but the SI does recognise disclosure in other qualifying territories, and although we will not have a reciprocal arrangement with the EU on exit day, we may have the opportunity to reach such an arrangement in the future.

Bill Esterson Portrait Bill Esterson
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The Minister’s answer on that point justifies the concerns raised by the Alliance for Intellectual Property, some of which I listed. He gave great cause for concern about the uncertainty and the differing legal opinions there. Can he give the Committee an indication about the discussions that have already taken place with our EU counterparts on how we achieve a reciprocal arrangement and what estimate the Government have at the moment of how long it will take to reach a system where we can avoid the problem he set out, which is of real concern, over damage being caused to a designer by registering in one jurisdiction and not in any other?

Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

The context of Government negotiations have been prioritised around that future relationship and finding a deal with the European Union. I am sure that, having raised these points of uncertainty, the hon. Gentleman will want to vote for this deal, to ensure that he can—there is no point in frowning at me. In every Committee meeting we come to, the hon. Gentleman raises points of concern and then goes into the House of Commons and votes the opposite way. Designers need to know that the hon. Gentleman is taking an approach that will provide maximum possible uncertainty to the sector. For him to raise these points here today is completely paradoxical to the approach that he takes in the Chamber.

We have agreed provisions on IP that will provide legal certainty and protect the interests of rights holders in the withdrawal agreement. It is important for the Committee that I place this on the record. It includes that registered Community designs should continue to be protected in the UK after the implementation period; that existing unregistered Community designs should continue to be protected in the UK after the implementation period; that the UK should take measures to ensure that international trademarks and designs designated in the EU, which are protected prior to the end of the implementation period, continue to enjoy protection in the UK; that IP rights exhausted in the UK and EU before the end of the implementation period shall remain exhausted in both areas; and that UK legal representatives will be allowed to continue to represent their clients before the EU IPO in cases that are ongoing at the end of the implementation period and in addition to the implementation period, which means that the current regime and arrangements for intellectual property will continue to operate as they do now until the end of that period. The provisions ensure that existing EU-level IP rights and the international rights designated in the EU will continue to be protected in the UK after the end of the implementation period.

I am sorry to sound so passionate about the deal, but I truly believe that, when it comes to IP, the deal is the best possible solution on the table to ensure that we can protect the interests of rights holders. I urge the hon. Gentleman to vote for it.

Bill Esterson Portrait Bill Esterson
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The problem is that, whatever deal goes through—and even if we leave without a deal—the same problem applies: that this issue of registering either in the EU and affecting UK rights, or registering in the UK and affecting EU rights, applies. That is the bit that has not been resolved. It is a complete red herring to say that which deal we vote for affects the outcome of these regulations.

Chris Skidmore Portrait Chris Skidmore
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As I said, we have got this as the withdrawal agreement going forward; however, we must also turn to the issue of the future partnership. Arrangements on future co-operation will be a key part of the future partnership. We will seek a comprehensive arrangement on trade that will cover a wide range of sectors, including IP. As part of going forward with that future relationship, the UK will continue to explore participation within the unitary patent system and the unified patent court. It is important that we reflect on that going forward.

In summary, I want to make sure that when we come to consistency, UK law says that anyone who lives in or carries on a business in a member state can claim UK unregistered design protection. That is because of section 217 of the Copyright, Designs and Patents Act 1988, which says any qualifying person—that is, any person who lives in and runs a business in a qualifying country, as defined to include member states—can claim the UK unregistered design right. We did not make any change to that. After exit day, people in businesses in the EU will continue to claim the UK unregistered design right while people and businesses in the UK would lose that equivalent right in the European Union. That creates an imbalance between UK rights holders and EU rights holders that we must change. UK law is therefore being amended to limit the geographical criteria for a qualifying person to claim the UK unregistered design protection. That is important for providing certainty, clarity and consistency, above all, as part of this SI.

I hope that my answers have been helpful. These regulations are an absolutely necessary part of making sure that the IP continues to function if no deal is agreed. Above all, I hope that Members will consider that a deal will be in the best interests of IP rights holders; but I also hope that the Committee will now support this statutory instrument today.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Designs and International Trade Marks (Amendment etc.) (EU Exit) Regulations 2019.

Oral Answers to Questions

Bill Esterson Excerpts
Tuesday 12th February 2019

(5 years, 3 months ago)

Commons Chamber
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Kelly Tolhurst Portrait Kelly Tolhurst
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The hon. Lady is quite right. In October last year, we announced that we will bring forward legislation regarding tipping in the next Session. We are committed to doing that. It is this Government who have brought it forward.

Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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The Secretary of State for International Trade seems to be hell-bent on destroying our businesses, judging by his support for zero import tariffs. Can the Business Minister confirm that she understands the damage that unilaterally imposing zero import tariffs would do to businesses and jobs in this country? Will she confirm whether she or the Business Secretary will remain as members of the Government if that policy is adopted?

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I am glad the hon. Gentleman has raised this issue. We engage with the small business community, the wider business community and all business representation organisations on a weekly basis. It is quite right that we consult a plethora of businesses throughout the UK on any decision that will be taken on customs and tariffs. We will take into consideration their views when we set our policy, which will be announced in the near future.

Draft Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2018

Bill Esterson Excerpts
Monday 11th February 2019

(5 years, 3 months ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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It is a pleasure to serve under your chairmanship, Sir Edward. This is already close to being the longest statutory instrument Committee that I have served on in my nine years in this place and I have only just stood up to respond as Opposition spokesman.

Barry Sheerman Portrait Mr Sheerman
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You haven’t had us behind you before.

Bill Esterson Portrait Bill Esterson
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I find the answers we have had to the numerous interventions absolutely remarkable—and not in a good way. The Minister’s inability to answer some pretty simple questions from my hon. Friends the Members for Huddersfield, for Chesterfield and for Newcastle upon Tyne North is staggering. I do not blame him in particular, because it is not his brief, but the fact that the answers are not available for him to give is baffling.

If the Minister cannot tell us what was said in the consultation, what was the point of it? What concerns were raised? He cannot tell us that either. How do we know whether the consultees at those roundtables truly reflected the breadth of views in the sector? If we cannot answer those questions, how on earth can the Committee judge the responses—he cannot tell us what they are anyway—and whether they justify us supporting the regulations? I am afraid that we are in a bit of a pickle.

The regulations are about whether holidaymakers can watch Netflix, Sky, Amazon Prime or any other content provider on the continent or in the Irish Republic; uncertainty about satellite TV broadcasts between countries staying in the EEA and our own; and businesses not knowing whether they can share databases. There is also an element in the regulations about the Marrakesh treaty and disabled people who copy material so they can use it in a different country from their country of origin, which I do not remember the Minister mentioning in his opening remarks.

We have yet another statutory instrument, which describes detailed changes to regulations relating to the UK’s exit from the EU, including in the event of, as the Minister puts it, crashing out—on the Opposition Benches we are happy with that term, but others might call it no deal. Yet again, the analysis leaves significant gaps in the ability of hon. Members to scrutinise and adequately decide whether the regulations do what they are supposed to, or whether what they propose addresses the objective of preparing for life after Brexit, including in the event of no deal.

On numerous previous occasions, my Labour Front- Bench colleagues and I have spelled out our objections to this Government’s approach to secondary legislation. The volume and flow of EU exit secondary legislation is deeply concerning for accountability and proper scrutiny, especially when the evidence does not back it up, because the evidence is not able to be provided to us, as we have just heard. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework, for example, inevitably involves matters of judgment and raises questions about resourcing and capacity. Secondary legislation ought to be used for technical, non-partisan, non-controversial changes, because of the limited accountability that it allows. Instead, this Government continue to push through contentious legislation with high policy content via this vehicle.

As legislators we have to get it right. These regulations could represent real and substantive changes to the statute book and, as such, they need proper and in-depth scrutiny. In this light, we in the Opposition would like to put on record our deepest concerns that the process regarding these regulations is not as accessible and transparent as it should be.

Let us look at the explanatory memorandum, to see in a bit more detail what is being addressed. Paragraph 7.2 refers to the EU satellite and cable directive, which allows broadcasters to gain copyright clearance for broadcasts across the EEA, while only having to obtain permission in the country of broadcast. The explanatory memorandum says that the regulation will apply only within the UK, with consequences unresolved as to the impact for broadcasting across the EEA. This appears to have significant consequences for broadcasters, the impact of which is not addressed by the impact assessment.

Speaking of the impact assessments, when I walked into the room, I did not see copies of the three impact assessments that the Minister referred to available for hon. Members to scrutinise. On previous occasions, when the Government have bothered to publish impact assessments, they have been available to members of Delegated Legislation Committees. I do not understand why that is not the case on this occasion. My hon. Friends, who have raised their concerns about their ability to do their job this afternoon, are absolutely right to make that point, because how can they possibly comment without that information, when they are not given such detail? I have a copy of it, because I got a copy before the meeting. However, unless those copies are available here, hon. Members will not be aware of everything that might be available to them.

--- Later in debate ---
Bill Esterson Portrait Bill Esterson
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rose

Catherine McKinnell Portrait Catherine McKinnell
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Will my hon. Friend give way?

Bill Esterson Portrait Bill Esterson
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I will.

Catherine McKinnell Portrait Catherine McKinnell
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I am grateful to the Chair for raising that point. Does my hon. Friend share my concern, and the concern of those businesses and consumers potentially affected by these changes, that in not providing the impact assessments for hon. Members to scrutinise as part of this process, the Government are giving the impression that they have something to hide, thereby increasing the level of anxiety about the potential impact of these changes?

Bill Esterson Portrait Bill Esterson
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I think my hon. Friend has made an extremely good point, and the Minister and his colleagues have heard what she has said. And I thank you, Sir Edward, for your intervention there as well.

This situation simply is not good enough. I came to this Committee today expecting that all Members would have the information that I have, or that it would be available to them in the room, but it is not here. Of the papers that are emailed around when the Committee of Selection selects the Members for a Committee, the impact assessment is not one of the documents that is usually sent; it is usually waiting here in the room for us. It would usually only be the Front-Bench spokespersons who would get a copy in advance.

Catherine McKinnell Portrait Catherine McKinnell
- Hansard - - - Excerpts

As I said directly to the Minister before, I noted the comments about the impact assessments and actually looked for the impact assessments that are relevant to this legislation, but I could not find sufficient impact assessments to clarify for me what the impact of the legislation would be. So it is not even a failure of the Government to make them available today; actually, this process is all very unclear, in terms of what the impact is and how it has been assessed. So, even if the information that is available was provided, I do not think that it would be clear enough.

Bill Esterson Portrait Bill Esterson
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I completely agree with that, and there are a number of points here. In previous Committees, we have had a discussion about the fact that impact assessments have not been produced at all on numerous occasions when significant changes have been made, and there has been an issue with the nature of the impact assessments that the Government have chosen to produce.

I will discuss a little later the content of the three impact assessments that have been produced. My hon. Friend the Member for Newcastle upon Tyne North is quite right that they do not actually give Members the ability to scrutinise thoroughly what we are being asked to scrutinise.

Barry Sheerman Portrait Mr Sheerman
- Hansard - - - Excerpts

My hon. Friend knows, as I do, that if someone had not asked an urgent question last Thursday on roaming charges after Britain comes out of the European Union, that very complex issue would have been dealt with in one of these Committees up here, with as little information as we have now. As it was, the Minister had to come to the Dispatch Box and there was a thorough airing of a very important piece of delegated legislation. Many of us, Sir Edward, will be coming up to Committees time and again—there are hundreds of these pieces of delegated legislation. So, early on—it is quite early on—we have to get this process right, so that we have the information that we need to do our job.

So I want the Minister to reflect on what happened last Thursday. The Opposition had to call for an urgent question to find out what was going on in an important area of policy regarding roaming charges after we leave the European Union, which is not dissimilar to the policy area that we are considering now.

Bill Esterson Portrait Bill Esterson
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My hon. Friend is absolutely right. There is a similarity with the portability of content and the ability for consumers to watch Netflix or Amazon Prime, on the one hand, or for satellite broadcasters to reach their customers in a country different from the one where their broadcast comes from. It is very similar to the point about mobile phone roaming charges. Who knows? Maybe somebody will table an urgent question on those points in the days ahead. So I completely agree with my hon. Friend’s point; it had occurred to me, as well.

I mentioned the apparently very significant consequences for broadcasters, which have not been addressed by the impact assessment. Just to emphasise the consequences of these regulations, a European Commission notice to stakeholders states that in the absence of an agreement between the UK and the EU, broadcasters in the UK will no longer benefit from this mechanism when providing cross-border broadcasting services to EU customers, and they will have to clear rights in all the member states that their signal reaches. I do not think we are talking about a situation where it is just one side of the Irish border or the other, although there are some interesting questions there about where someone lives and which signal they receive. I do not see how the regulations address the Commission’s point. That must be of major concern to UK broadcasters. I wonder whether that was one of the technical points raised in the roundtable to which the Minister referred—he was not able to tell us before, but perhaps he will be when he responds.

Paragraph 7.4 of the explanatory memorandum refers to the implementation of the EU term directive and to copyright duration for copyright works originating from EEA states. It also says that copyright works originating in the UK will be treated with consistency in the EEA. I can see how we could guarantee consistency of treatment of works originating in the EEA, but how can the regulations guarantee the same in return? Has a mutual recognition agreement been finalised in that respect?

In paragraphs 7.5, 7.8 and 7.15 of the explanatory memorandum, it is claimed that there will be consistency of treatment for EEA citizens in the UK and for UK citizens in the EEA. Again, when was a mutual recognition agreement signed? Or, in the event that it was not, why is that claim being made? As far as I can see from what has been published, we have no way of verifying whether the regulations will hold up in court. That lack of published consultation—or informal roundtable consultation, or however the Minister wishes to describe it—would suggest that I am right to have such concerns.

In contrast to the paragraphs that indicate a continuation of mutual recognition or an establishment of new agreements on mutual recognition in some areas, paragraph 7.10 of the explanatory memorandum refers to the ending of mutual recognition and to the end of information sharing with respect to UK cultural heritage institutions. It is impossible to predict the consequences of the end of those arrangements for the arts and for heritage objects.

Paragraphs 7.12 and 7.21 refer to the Marrakesh treaty and rights for disabled people to copy copyrighted materials and to exchange such copies. Paragraph 7.12 refers to the loss of rights for disabled people to have copies of copyrighted works without infringing copyright. I do not pretend to understand the consequences of the EU’s membership of the Marrakesh treaty—unlike some of the lawyers sat behind me, I do not have the training or qualification for that—but can the Minister tell us when we will ratify the Marrakesh treaty in our own right as the UK, as indicated in paragraph 7.21?

According to the Government’s September guidance on no-deal planning, the answer is “after we have left the EU.” Can the Minister confirm whether we will be able to do what is suggested in the explanatory memorandum between exit day and ratification of the treaty? Can he confirm when we will become signatories to the treaty in our own right, or whether something already happened in that respect that is not mentioned in this paperwork?

Paragraph 7.20 concerns the portability regulation—this affects Netflix and Amazon Prime—which allows us to watch content when we visit the EEA by moving rights and permissions with the consumer. The draft regulations appear to end that arrangement. That change will have a significant impact on consumers and on the providers of content. Who will pay for holidaymakers to watch Netflix or Amazon Prime when in the EU after 29 March? I wonder whether we will be able to watch the “House of Cards” series—it springs to mind in this place—using a UK subscription, or if we will need to buy a new EU subscription to do so. Can the Minister clarify that?

The sifting Committees of both Houses of Parliament recommended that the statutory instrument should be upgraded from the negative to the affirmative procedure. The House of Commons sifting Committee gave the following reasons:

“The amendments to primary legislation are considerable, and the combined number of changes to other legislation is significant, all relating to intellectual property, a cornerstone of the internal market in services.”

The Committee set out its concerns about the country of origin principle for satellite broadcasting and the portability or otherwise of online content. It stated its reservations about the inadequacy of the impact assessments, just as my hon. Friends have this afternoon:

“The Committee is concerned about the impact on business and the loss of consumer rights and is disappointed that the Government has chosen not to provide further information on these issues to assist the Committee in its decision making.”

That is sounding very familiar. The House of Lords reached a similar conclusion. The sifting Committee conclusion is confirmed in paragraph 3.2 of the explanatory memorandum to the regulations.

Without more detailed impact assessments, how is it possible for the Government to claim that the statutory instrument does what is needed to protect businesses, workers and consumers? The EU approach to impact assessments for regulatory changes is so much stronger than the narrow version chosen by the Government. It addresses the wider economic and societal impact. It is absurd that the Government refuse to use such an analysis for complex, far-reaching changes. The lack of full analysis and consultation leaves open the question of whether regulations such as these are fit for purpose and whether they might be open to challenge in the courts. This side of the House has made that point repeatedly in Delegated Legislation Committees that have considered multiple and complex regulations related to exit from the European Union.

The Government guidance published on 24 September 2018 sets out the consequences of a no-deal scenario in this area. It raises concerns about universal database rights, portability of online content services, country of origin for copyright clearance of satellite broadcasting, the potential for UK heritage institutions to infringe copyright, the non-ratification of the Marrakesh treaty before exit day, and the potential implications. All those concerns are apparent from a detailed analysis of the regulations and the explanatory memorandum, yet the information before us does not explain how or why they should be, and have been, addressed. It does not address the concerns raised by the Government’s own guidance.

According to the impact assessments—I return to the intervention by my hon. Friend the Member for Newcastle upon Tyne North—inadequate as they are, the Government’s aim is to maintain the status quo for UK database creators and to avoid any costs to rights holders. The logic of what is proposed is that there will be a cost to EEA creators of databases that will likely be passed on to UK consumers. It is hard to believe that consumers will not have significant concerns about the idea of having to pay more for their services. The consumer affairs experts we spoke to in preparing for this Committee had not been consulted about that. I wonder what was said at those roundtables by consumer representatives about those concerns. So much for the championing of the cause of the consumer, which we often hear from members of the Government, in particular the Secretary of State for International Trade.

Meanwhile, again in the impact assessments, we see that EEA broadcasters will not need separate rights clearance in the UK. But without a reciprocal agreement post Brexit, EEA nations could choose to suspend country of origin broadcast rules between member states. While the statutory instrument preserves the status quo, EEA broadcasters into the UK may be affected by familiarisation costs. Some 33,000 UK businesses would be affected—that is a Government estimate—as their work is broadcast by EEA rights holders into the UK. Again, there is potential for costs to be passed on to the consumers. Was that point raised in the roundtable, and what was said? We do not know.

UK online content services with EU equivalents will not be able to give customers access to their material when present in the UK unless access is reciprocated—that is in the impact assessment. That will not be in place from day one after Brexit, and there is no indication of how long such arrangements might take to put in place. What was the basis for the statement in the impact assessment that tourism in the UK would not be affected? Were broadcasters consulted? What was their view? What was the view of the UK hospitality industry of the impact on tourism in this country? Were they at those roundtables?

The explanatory memorandum states that the regulations achieve certain objectives. I wondered how it was possible for someone who is not an expert in the relevant law to confirm those claims, so I sought advice from a number of legal experts, since the Government did not publish any analysis from lawyers. One lawyer told me:

“I don’t have the bandwidth to think the implications through”.

That goes to the first intervention by my hon. Friend the Member for Huddersfield. Another lawyer told me:

“The draft regulations simply need as much Parliamentary scrutiny as time permits, and the goal is more technical than policy driven - to make the regulations as good as they can be under the circumstances, so that the courts don't have to spend the next decade unpicking them. It would be a very considerable undertaking to quality assure these very complex amendments to existing UK law.”

That came from a lawyer with 40 years’ experience of UK intellectual property law. The specialist IP lawyers who looked at this do not have the bandwidth to consider these matters. They tell us that making good regulations matters, so the courts do not have to spend the next decade unpicking them, but lawyers are unable to say whether the Government guidance on no-deal consequences have been addressed. If the lawyers cannot say whether the regulations can be relied on, what chance do we have, as Members of the House of Commons with limited access to information?

The Minister confirmed there was no formal consultation. Had there been, perhaps the lawyers could have advised the Government and avoided any potential that the regulations would be inadequate. Perhaps the lawyers would have had time to tell us whether the Government’s proposed regulations were fit for purpose. We have not even had that from the people at the roundtable.

I return to the expert advice. That lawyer with 40 years’ experience in IP told me,

“The one thing that can be said with certainty is that it is a shocking departure from minimum standards of Parliamentary scrutiny to allow such wholesale changes to our existing intellectual property laws to be made without proper stakeholder or expert scrutiny.”

That lawyer confirms what we have been saying about a number of the SIs we have been asked to consider. The Minister’s response will need to be remarkable to address the yawning gap in his analysis.

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Lord Harrington of Watford Portrait Richard Harrington
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I shall do my best to go through the many points that have been raised. I hope that I can persuade Opposition Members to rethink their objection to the statutory instrument—I very much doubt I can, Sir Edward, but if you will be patient with me, I will do my best. I nearly said “if the court will be patient”, because this is like a courtroom drama, but I know that you are a patient man, Sir Edward. If the Committee will bear with me, I shall do my best.

The shadow Minister raised many points. There was a general one about his concerns. [Interruption.] Perhaps he could listen to what I have to say.

Lord Harrington of Watford Portrait Richard Harrington
- Hansard - - - Excerpts

It is perfectly okay, but I would like the hon. Gentleman to concentrate on my points, as I did my best to concentrate on his. I hope he will feel that I have answered them properly.

To deal first with the hon. Gentleman’s fundamental concern about the process as a whole, I reiterate our view that the regulations are not intended to make significant changes to existing policy. In line with the powers of the European Union (Withdrawal) Act 2018, they aim for continuity as far as possible, and so provide the minimum necessary changes to ensure that our internationally renowned UK copyright legislation continues to function in a no-deal scenario. We have really tried to provide continuity and certainty.

Bill Esterson Portrait Bill Esterson
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Will the Minister give way on that point?

Lord Harrington of Watford Portrait Richard Harrington
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Would the hon. Gentleman wait? I listened to him.

Bill Esterson Portrait Bill Esterson
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I think I might be able to help the Minister.

Lord Harrington of Watford Portrait Richard Harrington
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This is a new policy. I shall sit down.

Bill Esterson Portrait Bill Esterson
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I am grateful to the Minister for giving way. I have a great deal of respect for him, and I do listen to him. The Opposition understand that this series of statutory instruments is about preparing for no deal and trying to avoid disruption. The problem is that the information available to us and the answers we have had from the Minister raise serious questions about whether that is exactly what is happening. That is the heart of the matter.

Lord Harrington of Watford Portrait Richard Harrington
- Hansard - - - Excerpts

I accept fully that that is the Opposition’s intention, but I felt that I should make it as clear as I can that the regulations are not intended to make any significant change to our existing policy.

The hon. Member for Sefton Central asked whether any rights will be lost in the event of no deal. I can categorically say that they will not. As I said previously, certain reciprocal arrangements that facilitate cross-border use of copyrighted material will end, but that is distinct from the underlying intellectual property rights. I hope that his lawyer of 40 years’ experience will confirm that. Our continued membership of the international treaties on copyright will ensure that UK works will continue to receive protection abroad, while foreign works will continue to be protected in the UK. These changes also ensure that copyright duration will not change for UK rights holders on exit.

The hon. Gentleman also asked what we are doing to support UK broadcasters who are facing the loss of the copyright country of origin principle. It is still our intention to secure an agreement with the EU on our future relationship—I think that is very well known—and as we set out in our White Paper last July, we want any deal to involve the best possible arrangements for the broadcasting sector. If we leave without a deal, broadcasters may face disruption due to the fact that the EU copyright country of origin principle would cease to apply to the UK. We have tried to give broadcasters and other businesses as much information as possible about the implications of no deal by putting this in the technical notices and detailed guidance about what it means for copyright. The UK cannot address that issue unilaterally in a no-deal scenario.

The shadow Minister mentioned the Marrakesh treaty. The UK has implemented the provisions of the treaty in UK law, and they will be retained after exit. Currently, the treaty has effect in the UK due to the EU’s ratification of it in October 2018, and we are on track to ratify it in our own right, but that cannot happen until we leave the EU, because it is an EU competence at the moment. Until we ratify the law, other treaty countries could prevent the cross-border exchange of copies of works in accessible formats in the UK. Our domestic copyright exceptions stemming from the treaty, which provide disabled persons with improved access to copyright-protected works, will not be affected by our departure from the EU.

The shadow Minister asked when we will ratify the Marrakesh treaty. We are on track to do that. It will be literally as soon as possible after exit. Our ratification must then be accepted by the World Intellectual Property Organisation, before we are once again individually treated as a member of the treaty. There will be a delay between exit and the acceptance of our ratification in a no-deal scenario. We are doing our absolute best to ensure that it will be as short as possible.

On the impact assessments, the hon. Member for Sefton Central asked why we did not consider wider impacts. The impact assessments that accompany the instrument describe in detail the effect of introducing the regulations relative to the pre-exit status quo. That is in line with the “Better regulation framework” and HM Treasury’s Green Book guidance. They are not intended to analyse the impact of no deal more broadly, such as the effect of the EU cross-border copyright mechanism ceasing to apply to the UK. Those impacts arise from the fact that the EU will treat the UK as a third country in a no-deal scenario and will happen regardless of whether this instrument is made. We considered the wider impacts of our exit from the EU in a long-term economic analysis published last November.

The shadow Minister asked why the Government are using secondary legislation for EU exit. This matter has been discussed widely in relation to many statutory instruments, but fundamentally, using primary legislation is inappropriate for the large number of mechanistic changes that are needed. It is normal to use secondary legislation in these circumstances. Furthermore, the changes are dependent on the outcome of the negotiations. This method was heavily debated and agreed to by both Houses during the passage of the European Union (Withdrawal) Act last year. It would not be practical to make all the required legislative changes through primary legislation. However, I reiterate that these changes do not include major policy changes or decisions on policy.

We are very pleased to have—and we do accept—recommendations from the sifting Committee, on which the hon. Member for Wrexham serves, to ensure that sufficient scrutiny is in place for the secondary legislation made under the principal powers in the Act. I accept what the shadow Minister said about not regarding this as enough scrutiny, but we did accept straightaway the recommendations of that Committee.

The shadow Minister asked what the effect will be on UK consumers. The EU portability regulation works by reciprocal application of cross-border rules. It will not cover UK-EU travel in the event of no deal, and we cannot replicate the effects of existing arrangements on a unilateral basis. It is true that UK consumers may see changes to their content services when they visit the EU, but the law will merely revert to its pre-April 2018 status quo.

The shadow Minister asked why the UK is unilaterally applying the country of origin principle for EU satellite broadcasters. The proposed plan is consistent with how UK legislation already treats satellite broadcasters from outside the EU. Continuing to apply the country of origin principle in this way will support UK consumers’ continued access to foreign television programming, because it is not introducing new and unnecessary burdens on broadcasts to the UK. I am sure that the businesses to which the shadow Minister refers will be very pleased about that.

The hon. Member for Wrexham continued that theme and asked why we give unilateral effect to certain mechanisms. It is unavoidable that some cross-border arrangements will apply. In some cases, we will apply these arrangements to the EU on a unilateral basis. That does not mean that we will unilaterally implement EU law; we will just provide continuity where we feel that it is appropriate.

I have done my absolute best to answer the questions raised. As I said in my opening speech, this statutory instrument is essential in preparing our copyright legislation for a no-deal scenario. I therefore commend the regulations to the Committee.

Question put.

Draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

Bill Esterson Excerpts
Monday 4th February 2019

(5 years, 3 months ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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It is a pleasure to serve under your chairmanship, Ms Buck. At the end of the Minister’s speech, I was taken by her remark about “certainty and clarity” when we leave the EU. Oh, my word—nothing could be further from the truth. I do not know whether she was trying to find out whether anybody was listening to her speech. Perhaps it was a test. I heard her, and I can only assume that that was said in a moment of great irony and humour, because it is the last thing that will happen if we leave without a deal, which is what a lot of the regulations are about.

Once again, the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each occasion, my Labour Front-Bench colleagues and I have spelled out our objections to the Government’s approach to secondary legislation. The volume and flow of such legislation is deeply concerning for accountability and proper scrutiny. In this case, it appears that dozens and dozens of regulations are being changed. They are set out in detail in paragraphs 6.1 to 6.6 of the explanatory memorandum. I shall not go through them all, but Members can count up for themselves to see whether my description is right.

The Government have assured the Opposition that no policy decisions are being taken. That is a very odd thing to claim, because establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity, which are surely policy matters. Secondary legislation ought to be used for technical, non-partisan and non-controversial changes because of the limited accountability it allows. Instead, the Government continue to use it as a vehicle for pushing through contentious legislation with high policy content.

As legislators, we have to get this right. The regulations represent real and substantive changes to the statute book and, as such, they need proper, in-depth scrutiny. As I said at the start of my response to the Minister, there is no certainty or clarity for business—or anybody else—if we leave without a deal, which is ultimately what the regulations are about. In the light of that, we put on record our deep concern that the process surrounding the regulations is not as accessible and transparent as it should be.

The Minister spoke about filing by businesses in the UK and in the EU, and she said that EEA businesses would have two additional filings as a result of the changes. She also said that if the regulations were implemented as a result of a no-deal Brexit, EEA and non-EEA companies would be treated the same.

Companies have three months to implement the changes that the regulations set out, and that does not sound like a long time to ensure that every affected company finds out. Can the Minister tell the Committee what plans the Government have to make sure that every single company affected by the regulations is aware of the changes that it needs to make to be compliant with UK law? If companies are not made aware of the changes, there will be significant consequences for them. I am interested to know what plans the Department has and what process will be followed.

The Minister mentioned the business registers inter- connection system, which is the EEA system that joins our Companies House system with similar systems across the rest of the EEA, if I understand correctly. We will no longer be involved in BRIS when we leave the EU, and that will have an impact on foreign branches of EEA-based businesses. Given her comment that internationally based companies will be treated the same, regardless of whether they are EEA or non-EEA, and that there will not be access to BRIS, what will be the impact for anybody who wants to use the EEA systems —the equivalents of Companies House—that are part of BRIS?

In my experience, we in this country use Companies House to check the legitimacy of a business, inspect accounts, find out who the shareholders are, find the registered office address and carry out checks before trading with another business. It is important for business-to-business activity and to enable consumers to understand whether they are buying from a reputable trader. That is a domestic matter, but at the moment, BRIS means that a straightforward and updated system can be used for such activity across the EEA. As BRIS is ending, what system will replace it?

My assumption—the Minister can confirm it or not—is that for all EEA companies, we will move to the system that we have for companies based in countries outside the EEA. For businesses that are based in the EEA and have branches in the UK, that could lead to a delay in updating the registers. If information is not up to date, the consequence for businesses buying or selling, or for consumers buying, could be that they do not get a true picture of the status of a company that they seek to trade with. Will she clarify whether that explanation is accurate? What plans are in place to deliver the best possible replacement arrangements for international cross-border trade, for businesses and consumers? The existing arrangements provide immediacy, certainty and confidence, which is why BRIS was set up in the first place.

Those are my key questions, but I have a small number of additional comments. In paragraph 7.8 of the explanatory memorandum, the Government refer to the measure applying to a “very few companies”. Will the Minister say how many companies are a “very few”? My other points are, as ever, about consultation and impact. We have this discussion every time we debate a statutory instrument of this sort, and I will not disappoint Members by omitting it today. Paragraph 10.1 indicates that the Government have not been able publicly to consult. That is cause for concern, and it is a reminder that the Minister’s statement about certainty and clarity is odd for yet another reason. Will she explain why the Government were unable to consult before laying these regulations before the House? I know that the Law Society helped to draft the regulations, but without wider input from those who will be affected by them, it is difficult to see how confident we can be that they are entirely satisfactory.

As ever, I remind the Committee that when other jurisdictions, such as the European Union, carry out an impact assessment, they consider the wider impact, and not just the very narrow direct impact of the regulations. It would be extremely advisable for the Government to change their policy and carry out a proper impact assessment. Perhaps the Minister will wish to reconsider her comment that these measures deliver certainty and clarity for when we leave the EU; they do not.

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Bill Esterson Portrait Bill Esterson
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I am happy to help. Paragraph 7.8 says:

“This measure applies to very few companies, but transitional provisions have nevertheless been provided that will allow sufficient time for impacted companies to consider the impact of the change on their operations and take appropriate action”.

My question was about how many companies she means by the phrase “very few companies”, which refers to:

“Investment companies that only have shares admitted to an EEA market”.

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I thank the hon. Gentleman for that clarification; that was the area I was thinking of. As far as intermediaries are concerned, five companies would be affected, but our records show that no investment companies have been identified as being affected.

On consultation, as I outlined, we have consulted, worked with and used the expertise of Companies House to ensure that we are making the best provisions to enable UK companies to implement the regulations that we require for them to be legal if we leave the European Union without a deal. By working with those experts, we believe that we have devised the simplest and best way forward.

As I set out, the changes in the regulations cover a variety of amendments to the UK company law framework, so that, on exit day, the UK statute book is workable and coherent. It should be emphasised that certainty is crucial for business confidence. In some cases, the changes are not material and will have no impact on business; they are simply provisions to tidy up the Companies Act 2006 and related secondary legislation. The communication of pre-emption offers to shareholders is one example. The changes are no less important for that reason, however, and they will mean that UK statute is on a stable footing on exit day.

As I have set out, other areas will have an impact. They include the level-down approach for EEA companies in relation to certain filing requirements for the register, as well as the changes for some entities in relation to benefits that are currently based on access to EEA-regulated markets. The removal of the cross-border mergers regime is another example of where businesses will notice a change to processes that existed as a result of our membership of the EU.

The regulations cover many different changes, but, taken individually, their impact on business will be small. My officials are working with Companies House and others to ensure that the register will be operational for exit day, and that will significantly reduce the impact felt by companies that are affected by the changes. Overall, the regulations will ensure that the UK’s company law framework remains coherent, operable and under- standable for business, and I commend them to the Committee.

Question put and agreed to.

Draft Insolvency (Amendment) (EU Exit) Regulations 2018

Bill Esterson Excerpts
Thursday 24th January 2019

(5 years, 3 months ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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I thank the Minister for her analysis of the regulations’ effects. She got quickly to the point that mutual recognition between the UK and the EU is not guaranteed if we leave with no deal. Under the terms of the withdrawal Act we would be giving one-way recognition of EU appointments and judgments. The statutory instrument would give our Government the opportunity, should they need it, to withdraw that recognition. I will tease out one or two points surrounding that intention.

People in the profession do not want the Government to have to use the power—I dare say that the Government do not want to use it either. They want the Government to secure a deal so that the existing system of mutual recognition continues, and they argue that no deal should be avoided. We often do the same in Committees such as this one, but we recognise what would happen in the event of no deal.

People in the profession have made the point to me that the Government have the power to create a level playing field for the UK profession if they are unable to obtain the deal that they are looking for. The SI is not a mechanism for maintaining the current system; it deals only with problems that could arise from not having a mutual recognition deal. I urge the Minister to take on board their point that in the event of no deal the Government should try to re-establish mutual recognition as quickly as possible so that the provisions in the SI will never be needed.

The Minister referred to the Joint Committee on Statutory Instruments’ concerns about the clarity of the regulations, potential defective drafting and the fact that they deliver broad powers rather than narrow ones. She gave various examples of what could happen without the kind of mutual agreement that I referred to. I think the Joint Committee, like the Opposition, would call for every effort to be made to achieve mutual recognition as soon as possible. Can the Minister say what work has been carried out to try to establish that mutual recognition in the event of no deal? Such work is effectively what the sector is calling for.

What indications has the Minister had from the EU about its intentions to maintain the status quo and to reciprocate what she proposes in the regulations, which is that we will continue to recognise the appointments and jurisdiction of EU courts in insolvency proceedings? Has she had an indication that that arrangement will be reciprocated in the event of no deal? What discussions have her officials had with EU Governments or the Commission?

As far as I understand it, the SI enables the Government to remove automatic recognition of foreign practitioners and recognition of court decisions. We have an extremely well regarded, strong and economically successful insolvency regime in the United Kingdom, and it is important that we continue to do so. Maintaining confidence in it is extremely important to our economy as a place for businesses to come to restructure, and for creditors in insolvency cases to recover what they are due effectively and successfully. It is important that we avoid a long-term shift away from a lot of that work being based in the United Kingdom, so those guarantees from the EU are extremely important.

A point made to me by people in the profession was that some people in the insolvency profession across the continent of Europe may see an opportunity to increase the amount of work that they can obtain at the expense of the UK profession. They may not be particularly concerned about reciprocity or about getting the EU to continue mutual recognition. I urge the Minister to address that point when she answers my question about the progress made towards achieving mutual recognition.

Further to paragraph 2.10 of the explanatory memorandum, will the Minister explain the implications of the draft regulations for the Pension Protection Fund? What is changing? I did not entirely get a sense from her speech of what assurances are in place to protect employees. Sadly, in recent years there have been some very high-profile cases that have made a significant call on the fund—the BHS insolvency springs readily to mind. Clearly we need to ensure that the fund is not undermined in any way, shape or form by what is happening, and that the draft regulations will protect workers in the event of a no-deal exit.

As paragraph 2.14 notes,

“the UK will no longer be an EU member State.”

What are the implications for employees of companies that operate in more than one jurisdiction, or where there is foreign ownership of a UK subsidiary? That may be a relatively easy question but, again, I did not quite get a sense of the answer from the Minister’s speech.

Paragraph 3.7 refers to the main thrust of the draft regulations:

“the lack of reciprocity after exit day.”

That is an argument for preventing no deal at all costs, but there is real concern about the fact that we can continue to offer recognition of EU operations in insolvency but we cannot require member states to recognise UK insolvency judgments. The explanatory memorandum sets out the challenge clearly. I would be grateful if the Minister addressed exactly what progress has been made towards overcoming the lack of mutual recognition.

As ever in Delegated Legislation Committees, there are matters of consultation and impact assessment to consider. I understand that there has been informal discussion, and having spoken to people in the sector, I think it is fair to say that they are as happy as it is possible to be—in this case, if not in all cases—with what is being proposed in the event of no deal. However, they stress that the draft regulations are only a stopgap. As the insolvency body R3 stated in its 2017 Brexit recommendations, it is extremely important that a mechanism be put in place as quickly as possible that provides the same benefits as the European insolvency regulation and the recast Brussels regulation.

R3 also noted how much money is recovered as a result of UK insolvency actions. One of its case studies was Nortel, which entered insolvency proceedings in 2009. A total of £1.5 billion was returned to creditors as a result of the work carried out by insolvency practitioners and their agents, where the insolvency was based in the UK. That compares with a total of £4 billion a year returned to creditors in the UK, including to the UK Government through HMRC. I therefore find it quite remarkable that the Government say there is no business impact worthy of an impact assessment—that they regard the impact as below the de minimis level. My calculation is that £4 billion is a little more than the £5 million de minimis level. Yet again, a regulation has a significant business impact but the Government do not carry out an impact assessment.

I will not go through the entire way in which the EU carries out its impact assessments; it does things rather differently. Those of the Committee who were here on Monday will have heard me read them out on that occasion. It is on the record and I do not need to do it again. The Minister may refer to it and I would have hoped she would have done so before today’s meeting.

Nick Smith Portrait Nick Smith (Blaenau Gwent) (Lab)
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Definitely don’t want to go through that again.

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Bill Esterson Portrait Bill Esterson
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My dear and hon. Friend the Whip is extremely grateful that I will not repeat myself in full. The point is that the EU looks at the wider impact on the economy of similar regulations when the EU implements them. The Government’s very narrow interpretation of an impact assessment is shown in all its inadequacy by the comparison of that £4 billion per year with the £5 million de minimis level.

We will not oppose the statutory instrument; the Minister has given satisfactory answers, including to the concerns raised by Joint Committee on Statutory Instruments. We must hope that we do not end up having to apply this instrument or numerous other regulations we have dealt with recently; I know the Minister shares that hope. I await with interest her response, in particular on the work that is going on to ensure that mutual recognition carries on as seamlessly as possible, to support the very important part of our economy that is our insolvency sector.

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I thank the hon. Member for Sefton Central for his comments and contribution to the debate. We remain optimistic about reaching a deal of mutual benefit to the UK and the EU, but it is important to maintain our regulatory and legislative framework for dealing with insolvency should we leave without a deal. That is why we introduced this instrument.

The Department has consulted with the profession and spoken to some of the groups to try to ensure that that the statutory instrument will work as well as possible. Obviously, we have consulted R3, which the hon. Gentleman mentioned. As I outlined, we are very much focused on delivering a deal.

The hon. Gentleman is quite right that the statutory instrument relates entirely to things happening in the UK, but does not enable us to have any influence on or dictate to EU member states how they treat UK orders in the event of no deal.

Bill Esterson Portrait Bill Esterson
- Hansard - -

indicated assent.

Kelly Tolhurst Portrait Kelly Tolhurst
- Hansard - - - Excerpts

I see the hon. Gentleman understands that point.

As the hon. Gentleman will know, in what we have laid out as our future economic relationship in a deal, our focus is on ensuring that we are able to deal with mutual recognition and reciprocal status going forward if a deal is to be had. We recognise, with the profession, that if we can come to an agreement in this area in a deal situation, that would be in everyone’s best interest. With a deal, we would continue our civil judicial co-operation, including on cross-border insolvency. That is in the best interests of both the UK and the EU, as he outlined. However, it is not possible for us to unilaterally continue with the co-operation on cross-border insolvencies; we can achieve the benefits that both sides currently enjoy only through a mutual recognition agreement with the EU. The declaration on the future relationship was clear that it would include wide-ranging agreements on trade, including trade in professional and business services and the framework necessary to support that.

We will continue in those endeavours, but this SI is intended to ensure that, in a no-deal situation, UK law provides clarity for the profession and that we are able to operate on day one. After that date, it would be down to us to bring any further changes to our insolvency regulations that are not in the scope of the draft regulation to the House, as we see fit. After leaving, there may be things that come up that we might need to change, but that would be done in the course of standard business.

Regarding the hon. Gentleman’s concerns about the Pension Protection Fund, I assure the Committee that the Prime Minister and the Government have been clear that we will not row back on workers’ rights through the withdrawal Act. Employees living and working in the UK for a company registered here or in the EU will continue to receive redundancy-related payments from the national insurance fund where their insolvent employer cannot make them, as they do now. The draft regulations ensure that the law in this area is clear and can operate correctly when we are no longer an EU member state. One of the limitations is that within this SI we cannot guarantee for workers in EU states, how EU member states will deal with the employees working in those states. What we can do, as laid out in this SI, is to ensure that people working in the UK, be it for EU companies operating in the UK or UK companies, will still have those protections as they are now for UK workers.

On the hon. Gentleman’s questions about the impact assessment, we have been in this situation many times over recent months and I know it is a particular concern for him. However, for this particular SI we have assessed the direct cost of to business in terms of the costs of insolvency and have estimated that the direct cost would be £2.7 million, due to the extra costs that may arise when practitioners need to open cases in EU member states, which they do not currently have to do under EU regulations.

Draft Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2018

Bill Esterson Excerpts
Monday 21st January 2019

(5 years, 3 months ago)

General Committees
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Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
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It is a pleasure to serve under your chairmanship, Mrs Moon. We now know what the £171,000 an hour is being spent on. I wonder how much the Committee will contribute towards that sum and whether we will get as far as an hour’s worth.

The draft regulations are yet another example of a no-deal preparation SI, which the Prime Minister could rule out at any time she wanted by announcing that she was taking no deal off the table. [Interruption.] I am being interrupted from a sedentary position, Mrs Moon. How strange.

The Prime Minister could have ruled out no deal in her statement earlier. I just checked what she said, and yet again she has chosen not to. It seems that the Chancellor and the Business Secretary are keen on doing so, and why on earth the Prime Minister cannot is beyond me. Frankly, if she wants to work across the parties, that is exactly what she will do, and she will find a majority in this Parliament for an alternative to no deal, if and when she eventually does that. [Interruption.] More muttering from a sedentary position. How strange, again.

The SI raises a number of issues and challenges. It raises the prospect of the import of cheap products that would undercut domestic producers and drive a coach and horses through our consumer arrangements in the event of no deal. Reasons abound for ruling out no deal, and that is one of them. I shall go through some of the points that were debated at great length in the House of Lords.

The draft regulations say that in the event of no deal, existing arrangements will continue. Those arrangements are at present in the area of EU trade where IP protection within the EU has ended or been exhausted. The Minister set that out fairly, I thought. Products from anywhere in the EU can be traded across the EU without restriction once IP protection has ended.

That so-called regional exhaustion applies within the EU but not to products from outside. EU case law largely uses an example from 1999 relating to an Austrian company called Silhouette, which produced sunglasses. Older designs from the company were sold to Bulgaria, which at the time was outside the EU. Another Austrian company chose to import those older models back into Austria and sell them at substantially lower prices than the current models were being sold for.

After lengthy legal consideration, the European Court decided that that contravened EU regulations. That is the case law currently relied on for this country’s arrangements, as it is in the other EU27 and EEA member countries across the continent of Europe. Significant concerns have been raised in the sector, and by the Alliance for Intellectual Property, about the potential for legal challenge under the draft regulations, and about whether EU case law will continue to be relied on once we have left the EU. Those concerns relate to leaving with or without a deal. However, the draft regulations are about leaving with no deal.

The potential for such legal challenges raises concerns about the continuation of arrangements. A competitor could try to import a product and say that EU case law no longer applies. I know that the Government’s intention is that the situation should not cause a problem. However, legal advice has been given to the sector that such legal action could last several years and hold up a final decision. There is nothing in the SI to state whether EU case law will continue to apply to maintain the arrangements that the Minister said he wants in the event of no deal.

The question is what would happen in the situation in question. The problem would be that competitors could challenge each other, imports could be held up, and all sorts of problems and delays could arise, leading to significant concern and difficulty for businesses and consumers in this country. In the House of Lords debate, Lord Stevenson described the draft regulations as creating a “dripping roast” for lawyers. Having looked at that debate and at the representations I have been given, I am afraid I have to agree. The draft regulations are very good news for lawyers, but not much use for businesses, consumers or workers.

Stephen Doughty Portrait Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
- Hansard - - - Excerpts

I debated some of these issues at length a number of years ago, when the Intellectual Property Act 2014 was going through the House and during debates on some of the subsequent secondary legislation. This is an interesting issue and my hon. Friend makes some important points. Does he agree that there is great concern out there, particularly among those in smaller creative sectors such as musicians, self-employed people and people in the video games industry, about the chaos that will be created by the kind of Brexit the Government are pursuing and the risk that poses to their businesses?

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Bill Esterson Portrait Bill Esterson
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That is exactly right. This is a challenge for all sectors, and it is a particularly big problem for smaller firms in the creative and digital sectors, for the reasons my hon. Friend gives. There is a real absence of guidance—the European Union (Withdrawal) Act 2018 is silent on the issue, and the withdrawal agreement is, too—and I am afraid the lack of clarity in the SI leaves open the real problem of whether EU case law will apply. As he said, that is a problem with regulations right across the economy and Departments. It affects many of the regulations we have considered in the past weeks and months, and those we still have ahead of us while no deal remains an option.

At present, brands have protection against cheaper imports from outside the EU. I had an example of that drawn to my attention, which Members may remember. About 15 years ago, Tesco chose to import cheap Levi’s jeans. It was challenged, and because those Levi’s were produced outside the EU, it was required to withdraw them from sale because they disrupted Levi’s arrangements in the EU. Under the draft regulations, in the absence of clarity about the applicability of EU case law, a case where someone wanted to import from outside the EU could take years to resolve. I do not know whether Tesco has plans to take a similar approach—I certainly do not make that accusation of it—but no doubt someone may want to try their luck in the absence of certainty in the draft regulations.

In paragraph 12.2 of the explanatory memorandum, the Government describe the prospect of “some costs” for exporters. The Minister’s colleague in the Lords was not able to say in great detail what it would mean for our exporters if the EU did not reciprocate the arrangements that the Government propose to put in place. Perhaps the Minister has had time following the Lords debate to come up with an answer. What will those costs be? What is their likely scale?

On trade outside the EU, it has been drawn to my attention that pharmaceutical companies in this country, for example, sell drugs to developing nations significantly below the price charged in the EU, so there is a problem with parallel trading. Without the certainty of EU case law as a protection, a parallel trader may buy up the stock of medicines and sell them back within the UK, thereby directly competing with the producer of those medicines. Again, that could take years to resolve, there is nothing in the draft regulations or the withdrawal Act, and there are serious implications for the withdrawal agreement. I come back to the comment my hon. Friend the Member for Cardiff South and Penarth made in his intervention: there is no protection there against that kind of activity.

The likely consequences are that a pharmaceuticals firm would then stop providing lower-cost medicines in a developing country, which would be a loss for people who need cheaper drugs and a loss for that company, with consequences for its production and workforce here. That could apply in a number of other sectors, too. There are serious implications for consumers of goods being sold cheaply here. It sounds very attractive—we all want cheap goods—but until that legal situation is resolved, there are real concerns about compliance with UK regulations.

I have been given information on this subject by the Alliance for Intellectual Property, which points out that cheaper prices for goods do not necessarily reach the consumer and are often

“swallowed up by traders, wholesalers and retailers.”

Even if there are cheaper prices, the cost is

“not borne by the importer”,

which leads to other consequences and lower regulatory enforcement. AIP notes:

“Products may not comply with UK regulation (eg languages on labels; sector regulations (eg cosmetics). This increases the costs of enforcement…by Trading Standards”.

Where products do not meet consumer expectations, which might be due to slight differences in the product, deterioration during transit or poor customer service support, it undermines trust in a brand. We have a very high level of regulations and highly regarded brands in this country. As AIP state, undermining that brand quality affects not only

“the competitiveness of the products in the UK market”,

but our ability to sell overseas, because if the UK brand is undermined, one of the reasons why people like to buy British is likely to be lost.

AIP continues:

“Where an imported product replaces the sale of a domestic product, the brand owner loses revenue and thereby the ability to invest in innovation, quality, choice, reputation, salaries, jobs, etc.”

Those are all real concerns, raised by businesses for which intellectual property protections and reliance on the existing system are of great importance.

I mentioned the Silhouette case, the key European Union case law on which we currently rely. The legal opinions that the Alliance for Intellectual Property relies on suggest that the Silhouette case will not

“necessarily become retained EU case-law under the EU Withdrawal Act 2018 (‘Withdrawal Act’) and therefore the UK Courts will not have to apply it when interpreting retained EU law on exhaustion of rights. Secondly, even if the case-law does fall within the definition of retained EU case-law under the Withdrawal Act, it is only relevant to retained EU law which is unmodified on or after exit day. Arguably, the retained EU law on exhaustion of rights will be materially modified on exit day, as a result of the amendments in the Exhaustion SI because the government is changing an EEA-wide exhaustion regime of which the UK is currently part, to a one-way exhaustion regime only.”

AIP’s concern is that the arguments would be tested at length and at great expense in the UK courts, should we leave with no deal, which would lead to huge uncertainty for anyone who relies on intellectual property protection for their business and products.

That point was covered at length in the Lords and I do not think a satisfactory answer was given to Lords from across the Chamber. I believe that the Minister in the Lords was going to write to Members there to answer some of their questions. Perhaps the Minister will tell the Committee whether that letter was written, and whether we might have a copy.

That brings me to a topic that we have discussed quite a lot in some SI Committees—impact assessments, or the lack of them. Incidentally, when I was discussing the matter this morning with a member of the Alliance for Intellectual Property, I asked what he thought the financial impact of the draft regulations would be, should they ever be needed. He answered that it would be in the hundreds of millions of pounds at least, because it is so important to so many businesses. Yet we are told yet again:

“A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.”

Such statements accompany every such set of regulations, although they all have significant impacts. The Government are reluctant to produce assessments of the impact on businesses, consumers and workers. They argue that it is only the narrow, direct and immediate effect of such regulations that is relevant. I am sure that the Minister will confirm that. It would not be the first time I had heard a Minister say it. In reality there will be a massive impact on businesses and the economy, because implementing the draft regulations will have wider consequences. The legal challenges will last for years.

I thought I would discuss how impact assessments might be carried out, and how such an assessment might have been done for the draft regulations we are considering. When regulations are introduced in the EU, an impact assessment is carried out, and the process is described in this way:

“IAs must set out the logical reasoning that links the problem (including subsidiarity issues), its underlying causes, the objectives and a range of policy options to tackle the problem. They must present the likely impacts of the options, who will be affected by them and how.

Stakeholders must be able to provide feedback on the basis of an inception impact assessment which describes the problem, subsidiarity related issues, objectives, policy options and an initial consideration of relevant impacts of these policy options.

IAs must compare the policy options on the basis of their economic, social and environmental impacts (quantified costs and benefits whenever possible) and present these in the IA report.

Certain elements must be included in the final IA report. These include…a description of the environmental, social and economic impacts and an explicit statement if any of these are not considered significant”—

There’s an idea. The report must also include

“a clear description of who will be affected by the initiative and how”,

as well as

“impacts on SMEs following the ‘SME test’”

in what the EU describes as its “toolbox”,

“impacts on competitiveness; and…a detailed description of the consultation strategy and the results obtained from it.”

Lack of consultation is another gap in the way in which the draft regulations have been brought before us, which we will return to.

The outline goes on:

“Initiatives supported by an impact assessment (IA) must have a validated entry in Decide, an inception impact assessment published for stakeholder feedback.”

I understand that Decide is the EU’s process for making decisions. The outline continues:

“An interservice group (ISG) must also be established to steer the preparation of the IA.

This ISG may be chaired by the lead DG or by the Secretariat-General for politically important files. A 12-week internet-based public consultation covering all of the main elements of the IA as part of a broader consultation strategy to target relevant stakeholders and evidence.

The draft IA report must be presented to the Regulatory Scrutiny Board for its scrutiny.

A positive opinion of the Board is necessary before formal interservice consultation can be launched. The RSB will generally only issue two opinions.

The IA report must be complemented by a 2 page executive summary sheet available in all languages.”

Presumably—three of my colleagues today are Welsh—that would include the Welsh language. What a good idea. What a comprehensive description of how an impact assessment could, should and might have been carried out by this Government on these draft regulations and on so many others. I remind the Minister again: those who know what they are talking about and who are experts in this field believe that there is a serious and very comprehensive impact to be experienced as a result of the draft regulations. I know that the Minister will not agree. Perhaps that is because so many on his side of the House do not like the fact that this is being done by the EU. Anyway, having looked at how the EU carries out its impact assessments, we can see that it is somewhat different. Perhaps we can look forward to an improvement in future.

I mentioned consultation. Again, we had only informal consultation on the creation of the draft regulations. It seems that that consultation came about only where the sector approached the Intellectual Property Office, which drew up the explanatory memorandum. There was no formal request for consultation before the draft regulations were drawn up. Had there been, the feedback about the need for a provision on the use of EU case law may well have come back from the sectors. What they are saying now is that a further SI may well be needed. This could have been avoided with proper consultation. I think that the Minister confirmed in his opening remarks that consultation will take place as a new exhaustion regime is developed in time, but we will see the problems I have outlined in the event of no deal and these draft regulations being necessary.

There are real problems with one-way agreements like this one. The lack of symmetry in the arrangements is bound to cause a big problem. There have been significant changes. There is a suggestion, by the way, that we go back to relying on case law from about 40 years ago, before we were in the Common Market. But times have moved on. It would take years to establish reliance on such case law, and business practices have changed. The overwhelming use of online sales in retail is a significant change in the nature of business, and it would be very difficult to compare two such different eras in relying on case law. Those are points that have been put to me about the difficulty in dealing with such a difference.

The pinning of all our hopes on a deal that may be negotiable in the future, which is what the Minister is proposing, is not a satisfactory business proposition. It will send shivers down the spine of the community we are talking about here. I know this because it has been telling me so. They need the full protection of the law in defending their intellectual property, and they are contributors to one of the most productive areas of our economy, on which Opposition Members certainly pin great hopes as part of an industrial strategy. The Government say they do, too, but without the certainty of the arrangements that should have been put in place, had proper consultation been carried out, and had those discussions taken place earlier, it is difficult to see how this will work in the event of no deal. We need certainty so that we can create a climate for those creative industry specialists working with intellectual property and seeking to export, but the prospects now seem extremely damaging.

I hope that the Minister will reflect on the challenges for importers and exporters, and on the undesirability of such uncertainty for the whole economy. I hope that he will take urgent steps to address the shortfall—an exhortation that is coming not just from my words, but from the sector, which I think is putting forward a very important case about the need for far greater certainty in these draft regulations.

Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

I thank the hon. Member for Sefton Central for the points that he has raised. I will endeavour to respond to some of the points that are specific to the statutory instrument.

The draft SI is clear that it will maintain the status quo. Regulation 2 ensures that the domestic exhaustion framework is the same after exit as it was before exit. The provision delivers, as far as possible, a continuation of the current regional exhaustion regime. This approach simply ensures that what happens currently will continue after exit day, and allows for IP-protected goods in the secondary markets to continue to be imported from the EU. We are not rushing to any alternative international exhaustion system; the draft regulations simply maintain the current regional exhaustion regime. This will ensure continued consumer choice and resilience in the supply of goods into the UK. As this will be a continuation of the current system, there is no reason to anticipate any increase in parallel-traded goods after exit. Indeed, this will ensure that the NHS continues to save £100 million a year as a result of being part of the regional exhaustion regime.

The hon. Gentleman asked about pharmaceutical innovation. The Government have done a lot of work to promote innovation in their creative industries, which represent the backbone of our business community. They give great emphasis to promoting businesses that create value. Our industrial strategy and sector deals are a great example of that, but of course the Government pursue a balanced economy that also promotes trade and the movement of goods. This plays an important part in developing a balanced economy for all types of business across the UK.

I want to turn to the Silhouette ruling from the Court of Justice of the European Union and the requirement to implement a regional exhaustion regime. It is clear that EU case law before exit will continue to apply in relation to the interpretation of EU-derived domestic law after exit under the withdrawal Act. EU case law before exit relating to the effects of this law will continue to apply under section 6(3) of the withdrawal Act, and this draft SI should provide legal clarity for businesses. For the purposes of the Committee, I note that an article was published on 14 January by the law firm Bird & Bird LLP on the Government’s draft SI stating that Silhouette

“will be ‘retained under EU case law” under section 6 of the European Union (Withdrawal) Act 2018. As a consequence, the principles laid down in these cases will continue to apply after exit day unless and until the Supreme Court or Parliament decides otherwise”.

It adds:

“The Government have done what can be done to preserve the status quo in the draft SI.”

Bill Esterson Portrait Bill Esterson
- Hansard - -

The legal opinion demonstrates exactly what the problem is. The Minister said, “until the Supreme Court or Parliament decides otherwise”. Perhaps he will acknowledge that he has confirmed that this can be challenged or changed, and that we cannot just rely on retained EU case law. Perhaps he could comment on the request by one of the Lords for a sunset clause to time-limit the period during which he and his colleagues develop alternatives.

Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

I will speak about alternatives later, but I have already made the point that there is no rush to develop alternatives. As Bird & Bird made clear, there will be no change to international exhaustion or aversion to a concept of implied licence, or some of the fears that the hon. Gentleman has raised—[Interruption.] No, because this Government will look at all alternatives—I will turn to those in a moment—but this SI is intended to preserve and protect the current regime, not to change it. He mentioned the impact on business, and that is what this SI is for: to protect and preserve the current business regime.

The hon. Gentleman made an extensive contribution on impact assessments in other countries. The impact assessments that we follow in this Parliament are intended to look only at the impact of the legal instruments to which they are attached. This SI maintains the status quo within the UK, and hence there is no anticipated impact on business. The impact assessment for this SI followed the better regulation framework and is in line with Her Majesty’s Treasury’s Green Book guidance. The impact was assessed and compared with the static acquis baseline—that is, by reference to existing EU regulations and directives. The SI simply fixes deficiencies in law that will be retained under the European Union (Withdrawal) Act 2018, allowing current systems or regulatory provisions to continue to operate in a no-deal scenario. The impact analysis therefore focuses on the direct impact of the relevant SI alone. Analysis of the wider impact of the UK’s exit from the EU has previously been published, in the form of the long-term economic analysis published in November 2018.

The hon. Gentleman also asked about the cost to export. Clearly, no data is available on the potential impact on parallel exports from the UK to EEA countries, and any loss to UK businesses is hypothetical. It will depend on how rights holders wish to assert their rights in relation to parallel goods crossing from the UK to the EEA. All I can say is that this SI obviously provides the maximum possible certainty in maintaining our relationship across exhaustion rights in a regional sphere. Failure to pass this SI would therefore create significant difficulties.

The hon. Member for Cardiff South and Penarth mentioned the technical notices and the impact on small businesses. The technical notices are part of the support that we are providing to businesses. Given that this is a complex area of law, we are also encouraging businesses that engage in parallel trade, especially those that export, to seek legal advice on the actions they should take following the UK’s exit from the EU.

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Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

Passing this SI today will provide the maximum possible certainty by creating the national exhaustion regime, allowing companies and creators to have that security by keeping the status quo. That is what this SI is about. We are not having a wider debate about Brexit today; this is about ensuring that, when it comes to changing this technical apparatus in law, the regime continues as it has done previously. The SI simply ensures that we can continue to tick on as we have done in the past. Its implementation is essential to ensuring that the current arrangements continue. Failing to pass this legislation before we exit would leave a period of legal uncertainty, during which businesses could incur significant litigation risks. The SI maintains arrangements that continue to support the movement of goods to the UK. For example, this could help with NHS resilience in the supply of medicines at a cheaper cost.

The hon. Member for Sefton Central also talked about the potential consequences of an international exhaustion regime. I have already stated that this is about extending the legal framework to ensure that we protect the current regional exhaustion regime. When it comes to any further alternatives, the legal and economic arguments for various options are complex, which is why the Government are conducting research on the best exhaustion regime for the UK. Were there to be a change, the Government would introduce it only following evidence gathering and analysis, alongside engagement with a wide cross-section of stakeholders. The Government are conducting a feasibility study that will look into the levels of parallel trade between the UK and the EU. That study is ongoing and the evidence from the report will form part of the next steps in the Government’s decision-making process. I believe it will be published by Ernst and Young in 2019. Obviously, the response to the report and any further policy measures will take time. There is no compelling reason to rush to an alternative system until we have seen the evidence and listened to businesses and consumers.

The hon. Gentleman mentioned public consultation. Since the referendum result, the Intellectual Property Office has engaged with businesses in several sectors about the implications of exit. I visited the IPO’s offices in Newport on Friday and found an excellent organisation whose workforce have high morale and are determined to deliver maximum possible certainty as we approach the EU withdrawal day of 29 March. I have seen the charts and I reassure the hon. Gentleman that the IPO is doing all it can to engage with stakeholders.

The usual wide engagement with businesses and individuals was not possible on a draft no-deal instrument when the Government were in the middle of sensitive negotiations on the withdrawal agreement. Public consultation on no deal would also have risked prejudicing the ongoing discussion with the EU about our future membership. However, as I said, the IPO engaged with stakeholders across a wide range of sectors, including rights holders. That was consistent with the approach to no-deal legislation across Government, as I mentioned last week in our previous discussion on statutory instruments.

Bill Esterson Portrait Bill Esterson
- Hansard - -

The Minister has read out a comprehensive note. From reading Lords Hansard, it appears to me that the only person who had spoken to the IPO was a member of the Grand Committee. The feedback I have had suggests that there has been engagement only when people have taken the initiative and called the IPO. The Minister made the extraordinary comment that there should not be public consultation on the SIs because of sensitivities—that is what I heard him say. However, without proper consultation, how can the SI be accurate? How could it have been drawn up in a way that ensures that the draft regulations do the job they need to do? Perhaps that explains why the problem of EU-retained case law is so prominent and has been criticised so much in the Lords and in the correspondence that I have received.

Chris Skidmore Portrait Chris Skidmore
- Hansard - - - Excerpts

The consultations that have taken place at IPO level are clear that the overwhelming number of stakeholders believe that the preservation of the status quo is in the best interests of all the sectors at the moment. If the hon. Gentleman decides to vote down the SI, he will send a clear message to those sectors that, with 60 or 70 days to go, he wants to ensure maximum possible instability. I ask him to think carefully as we go through these no-deal SIs. He has described the industries in the creative sector as vital to the UK economy and our global brand, and I entirely agree with him about that. I urge him not to vote down an SI that simply provides certainty, stability and the maximum possible opportunity for those businesses to carry on their day-to-day operations without any change.

The hon. Gentleman mentioned the Lords debate. The Government have written to Lords who participated in it and I am happy to provide him with a copy of the letter. It gives a clear response to their queries, which the hon. Gentleman mentioned. He can also see the evidence of the letter with regard to the points that he made about the sunset clause and the consultation.

I hope that I have satisfactorily addressed the points that have been made. To summarise, the Government are preparing for all scenarios and the SI is essential in preparing the UK for the possibility of leaving the EU without a deal. The draft regulations ensure a continuation of current systems as far as possible, delivering the status quo for imports into the UK. Many stakeholders have endorsed that approach.

The draft regulations aim to ensure as much continuity and certainty as possible in the immediate period after no deal. A long-term decision on the exhaustion regime will need to be informed by careful assessment of the balance of interests, and the Government will undertake a comprehensive programme of economic analysis and consultation to achieve that. For now, it is important that the draft regulations are in place to ensure that there is a clear, predictable and legally defined exhaustion regime in the UK in the event of no deal, and to maintain a regime that continues to protect IP holders’ rights while giving choice to consumers in the UK across a range of goods, including essential commodities such as food and medicines.

In addition, the draft regulations provide certainty in the immediate term for businesses and consumers, and limit friction in the trade of goods between the UK and the EEA. I hope that the Committee will support the draft regulations.

Question put.