Elections and Referenda: Protection Against Corruption
Debate between Earl of Courtown and Baroness Hayter of Kentish Town
The Earl of Courtown
I thank the noble Lord for his question, and I will pass on his concerns to the relevant Minister whose responsibility this is. Some important work is being carried out. As the noble Lord mentioned, the Information Commissioner’s Office published its draft code of practice for the use of personal data in political campaigning for public consultation on 9 August. The consultation closed on 4 October and it is good to see that some of the social media platforms have their codes of practice already in place.
Baroness Hayter of Kentish Town (Lab)
Will the Minister assure the House that no government spending will be used to promote a partisan approach to Brexit, particularly as we are likely to have an election fairly soon? It appears to be the case now, because a whole lot of ads are being funded by taxpayers’ money saying that we will leave on 31 October, despite legislation passed, including by this House, which makes that unlawful unless certain conditions are met. Can the Government assure us that taxpayers’ money is not being used as part of the upcoming general election campaign?
The Earl of Courtown
My Lords, the important fact that the noble Baroness mentions is that the advertising campaign concerning leaving the EU on 31 October is to ensure that the country as a whole, and business in particular, is aware that this is our plan.
Competition and Markets Authority
Debate between Earl of Courtown and Baroness Hayter of Kentish Town(7 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text
The Earl of Courtown (Con)
My Lords, I thank the noble Baroness, Lady Hayter, for enabling me to respond to this interesting debate. Some important points were made both by the noble Baroness and by the noble Lord, Lord Stevenson.
I agree with the noble Baroness that it is important that markets work in the best interests of consumers. That issue is at the heart of what the Government believe. My right honourable friend the Prime Minister has said:
“Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right”.
The UK’s independent watchdog for competition, the Competition and Markets Authority, along with the economic regulators, is a key player in making sure that we achieve this goal.
My department is in the front line of making markets work for consumers. Empowering consumers is critical to delivering the department’s aims and objectives. The departmental vision includes a commitment to secure better outcomes for consumers by creating a more competitive business environment. I recognise that it is important that we live up to that vision. That is why, in the Autumn Statement, my right honourable friend the Chancellor announced that the Government will produce a Green Paper that will closely examine markets which are not working fairly for consumers.
The Government are working up proposals to step in to strengthen competition where markets fail and consumers may not be getting a good deal. This provides support to the CMA’s statutory objective to make markets work in the best interests of consumers. As Her Majesty’s Government we are keen to give the CMA the right resources and the right incentives to help it deliver on its statutory goal. This is why we have set the CMA the target of achieving £10 of consumer benefit for every £1 it spends.
The Government continue to challenge the CMA to deliver more for consumers. Through the Government’s strategic steer to the CMA we have made clear where we think it should focus its efforts to ensure that competition thrives for the benefit of consumers. It is important, though, that the CMA remains free to use its resources as it considers most appropriate, to get the best deal for consumers. To help achieve this goal, the CMA uses a set of prioritisation principles to decide which work it should undertake to have the biggest impact. The principles include impact and strategic significance.
Every year, the CMA consults on and publishes its annual plan, which sets out its strategic goals for the year. In the annual plan on which it has recently consulted, the CMA commits to,
“continue to prioritise work that has the greatest impact on ensuring a good deal for consumers—including the most vulnerable”.
This approach has led the CMA to tackle some key markets in recent years. It has recently concluded two of the largest and most complex market investigations that the United Kingdom has seen—into the energy and retail banking markets, as mentioned by the noble Baroness and the noble Lord. It has also undertaken important market studies into higher education and the provision of legal services, and it recently announced a new study looking at the operation of the care homes market. The CMA continues to assess mergers to make sure that they do not create market conditions which could lead to poor consumer outcomes or a lack of choice or competition. It has also upped its game on cartel and anti-trust enforcement, concluding high-profile cases—for example, in the pharmaceutical sector—and issuing substantial fines.
It is clear that this work is not a purely academic exercise and it is important that the CMA and the Government assess and measure the impact of the CMA’s work. To this end, the CMA assesses its total impact on consumers as part of its annual report. Between 2013 and 2016, the CMA demonstrated that it delivered on average £687 million-worth of benefit to consumers per year on an annual budget of £65 million, exceeding its 10:1 target. The NAO has also recently looked at the operation of the UK competition regime. It found that overall the regime is working well. However, it identified that the CMA could do more. The CMA is keen to build on its success and has committed to review the way that it conducts market investigations to ensure that they are as efficient and effective as they can be and improve the CMA’s brand. That review will conclude in the next financial year, and the CMA hopes to use it to develop this important tool to help make the greatest difference to the largest number of consumers and businesses.
The Government also take very seriously their obligation to review the operation of legislation to ensure that it is achieving its objectives in the best possible way. We consulted on a number of measures last year to improve the regime. A response will be issued in due course. That is why we are committed to review the operation of the parts of the Competition Act 1998, the Enterprise Act 2002 and the Enterprise and Regulatory Reform Act 2013 which give the CMA its powers. These reviews must be concluded by April 2019. Over this Parliament the Government will continue to keep under review whether the CMA has the right powers and whether it is using them to achieve its statutory goal.
The noble Baroness mentioned the connection between the CMA and Brexit. On 4 February the CMA’s chief executive outlined its role as the UK exits the European Union. This speech is published online and, if it would help, I can give information about where the noble Baroness can find it.
Baroness Hayter of Kentish Town
I referred to it; it was the one given in Miami, which I read with great care.
Statutory Auditors and Third Country Auditors Regulations 2016
Debate between Earl of Courtown and Baroness Hayter of Kentish Town
The Earl of Courtown
My Lords, I thank my noble friend and the noble Baroness for their contributions to this short debate. I know both of them feel that effective financial management underpins the success of every business, and the quality and reliability of financial reporting in the UK is well regarded. Consequently, it will also be a priority of this Government to maintain the rigour and integrity of the UK’s audit regime. Although the regulations are largely regulatory they should place very low additional costs on business. Furthermore, compulsory retendering of audits should increase competition—notwithstanding what my noble friend said—and choice in the marketplace.
Although the application of the requirements to auditors of LLPs goes beyond the minimum requirements of the audit directive and regulation, it will implement the recommendations of the Competition and Markets Authority and meet the understandable desire of users and preparers of accounts for consistency in financial frameworks.
My noble friend and the noble Baroness, Lady Hayter, asked a number of questions. I will deal first with the questions asked by the noble Baroness. In her first question she asked whether the regulated community was involved in planning but also representatives of the wider community—consumers, investors and employers. As I said in my earlier speech, the Government have conducted two full public—I emphasise “public”—consultations on implementation. Respondents included representatives of companies and investors who are also effectively the consumers of audit services in this context. I am not aware at this stage of interest from any employee representatives but the ability for representations to be made in both consultations was there at that point.
The noble Baroness also asked about the need to include wider interests such as consumer, investor and employer representatives in the governance structure of the FRC. As part of current discussions relating to the status of the FRC as a public body the Government and FRC are likely to review the current accountability framework and to consider whether changes are needed following the implementation of the directive and regulation. I am sure that interest from these groups will be considered where it is expressed. It is fair to say that the interests of investors in particular are of great concern to the FRC and all its work.
The noble Baroness also mentioned leaving the regulation of audit to the existing regulatory supervisory bodies. The experience and skills of the professional bodies are vital to the quality of audit and accounting in the United Kingdom, which is why the United Kingdom successfully made the case in Brussels for their continued involvement in audit regulation. However, we also support independent oversight of the profession as envisaged by the directive and regulation. The FRC therefore has had to have power and discretion to reclaim tasks from the RSBs where necessary.
The line in the EU reforms is between PIE audits, where inspections, most investigations and enforcements cannot be delegated, and other audits, where these tasks can be delegated. The regulations place the FRC as a competent authority in charge of delegation decisions. We do not want to tie its hands unduly. The FRC works closely with other regulatory authorities such as the Financial Conduct Authority and the Bank of England to identify areas of risk. We would expect any such areas of concern to be identified through consultation. This would all be subject to a direction from the Secretary of State which will oblige the FRC to work on the basis that it will delegate all tasks wherever possible.
The noble Baroness also asked whether I could outline the governance mechanism and criteria behind such a judgment and whether there would be any transparent criteria upon which any RSB competency would be judged. The FRC will delegate tasks on the basis that it can update from time to time the conditions which it will set when making the delegation. We will expect any conclusion that an RSB is unable to carry out tasks for a particular type of audit to be based on whether these conditions are met. The conditions will be set out in written delegation arrangements, which the FRC is currently discussing with the RSBs.
The noble Baroness also asked about an appeal mechanism for an RSB against such a judgment. There is no prescribed appeal system, but if the RSB considered that the FRC had acted unreasonably, it would have recourse to judicial review.
The noble Baroness also asked whether there would be some form of continual review of this matter. There will be continuing discussions on these regulations between the FRC and the Government.
My noble friend Lord Hodgson, with all his experience—
Baroness Hayter of Kentish Town
If the Minister is moving on from the points that I made, the one that he has not addressed is about the power which appears to be given to the FRC to expel a member from their professional body. If he does not have that information in front of him, maybe it will be possible to at least give an undertaking that discussions on that will take place, because clearly it is a key concern for the professional bodies.
The Earl of Courtown
My Lords, I thank the noble Baroness, but I thought that I had covered that issue. Rather than repeat what I said, I will write to her and put a copy of my response in the Library.
As I was saying, my noble friend, with all his experience in business, made some important points. Perhaps the most important question that he asked, right at the beginning, related to the Alternative Investment Market of the London Stock Exchange and public interest entities, and I hope that my answer will satisfy him. The definition of a public interest entity does not include companies unless they are banks or insurers that have securities listed only on the Alternative Investment Market of the London Stock Exchange. These companies will not be required to retender or rotate auditor appointments, or to be subject to any of the statutory provisions on audits of PIEs introduced by the regulations or to the provision of the EU regulation. Nor will they be subject to the FCA’s or PRA’s rules on audit committees.
My noble friend asked why these regulations do not apply to the small number of companies that pose a systemic risk. This was a source of concern in the negotiations in Brussels, where the list of criteria for a company to qualify as a PIE was reduced considerably. The definition of a PIE focuses on an EU-regulated market, not the AIM, and that may illustrate the concern in Brussels to apply some harmonisation across this area.
My noble friend also mentioned enabling more entry to the PIE audit market for mid-sized firms. The prohibition of restrictive clauses in, for example, loan agreements will help to achieve this, as it will not be possible for third parties to require other audit firms to be excluded from tenders.
I think my noble friend made a number of other points and if I have missed any, I will of course respond to them in writing, ensuring that the noble Baroness has a copy and that a copy is placed in the Library.
Finally, the Financial Conduct Authority has amended its rules to reflect changes to the framework in the directive on audit committees. The directive also requires rules on audit committees to be applied, for the first time, to unlisted banks, building societies and unlisted insurers—something the Prudential Regulation Authority has already done in respect of its rules. As noble Lords will note, overall this represents an extensive package of changes, of which these regulations are an important part. I commend them to the House.