Corporate Insolvency and Governance Bill

Lord Adonis Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 17th June 2020 Lords Chamber

[Baroness Altmann (Con) [V]]

My Lords, I echo the words of previous speakers. I have added my name to Amendment 61 in the name of the noble Lord, Lord Vaux, but I also support the amendment of my noble friend Lord Hodgson of Astley Abbotts. As the noble Lord, Lord Vaux, has said, either approach would at least give a fighting chance of avoiding the sort of gaming of creditors that we have seen so often in the past. Indeed, when I was first involved in the pensions system in the early 2000s, the insolvency restructuring that pre-packs have sometimes engaged in was widespread as a means of dumping the defined benefit pension liabilities.

I fear that this Bill will pave the way for the same type of activity, to the detriment of the Pension Protection Fund and all employers sponsoring defined benefit pension schemes. Therefore, I urge my noble friend to take these amendments seriously; I plead that he look at the activities of the Pre Pack Pool and move to a mandatory approach, which, as has been so well described, would clearly better protect against the sorts of corporate activity that have so often brought capitalism into disrepute.

[Lord Adonis (Lab) [V]]

My Lords, I have two specific questions for the Minister. Is it the case, as reported in the Times on 26 May, that the Pre Pack Pool’s oversight committee has written to the Minister specifically, notifying him that it will be “unsustainable” unless referrals of pre-pack sales are made mandatory? Secondly, could he confirm that Teresa Graham, the accountant who led the review referred to by the noble Lord, Lord Hodgson, is now in favour of mandatory referrals? She is quoted in the Times as saying:

“To see the demise of the Pre Pack Pool would be utter folly.”


If that is the case, I cannot see how the Government can resist the amendment in the name of the noble Lord, Lord Hodgson, unless they believe that the pool and its whole policy is wrong. If the Minister is not as forthcoming as he expects, I hope the noble Lord, Lord Hodgson, will have the courage of his convictions and bring this back to the House on Report, because this looks otherwise like a classic case of willing the means but not the ends.

[Lord Mendelsohn (Lab) [V]]

My Lords, I declare my interests as an investor in turnaround and distressed businesses and as a corporate finance professional working in a regulated business.

It is unfortunate to have to return to this issue. I recall that my first duty as a Front-Bencher was to deal with the then Small Business, Enterprise and Employment Bill, where these issues came up. I recall at Second Reading a very powerful consensus over the problems that needed to be addressed, the Graham report recommendations and the feeling that a reserved power was still insufficient to deal with it. It is rather terrifying that we are back in a position of trying to recover a power we never thought good enough in the first place, due to the Government not only never exercising the power to make it mandatory but not really reviewing its performance.

I pay tribute to the noble Lord, Lord Hodgson, who was a strong advocate then and has been a doughty campaigner since. I associate myself with his comments; he summarised the position extremely well. I support Amendment 57 completely. I do so in preference to Amendment 61, but I also praise the noble Lord, Lord Vaux of Harrowden, for his excellent speech and his intention.

There is such a weakness in the system. Pre-packs are everywhere at the moment, and I can see their footprint increasing at some pace. That is not to say that pre-packs are inherently a bad thing. They are a device to try to maintain businesses and jobs. Indeed, this week Oak Furnitureland and its team of administrators were able to use the mechanism in a way that saved the business and brought in an external investor. But far too often they punish staff and small suppliers for management mistakes, and allow poor and improper management conduct to be legalised at the expense of employees and powerless suppliers. There is no fairness or public interest in this.

Nothing better proves the shortcomings of the drafting of the legislation that we are debating, and the Government’s unwillingness to provide better assurances that would give some sense of how the new system would work, than the presence—or rather the absence—of anything about pre-packs in the current framing. As the noble Lord, Lord Hodgson, so correctly said, that is likely to undermine the capacity of monitors and other proposals in the Bill to work effectively.

In general, the pre-packs that involve current owners carrying on by being able to write off their debts, rather than a third-party buyer bringing in fresh thinking and funding, have never sat well with me. My experience is that they provide an unchecked process that allows people to make clean that which should never be considered to be so. Far too often, as the noble Lord, Lord Hodgson, said, people hide behind the claim that they are saving jobs. There is more than one way to do that, and very often there are better ways than by using the same people.

We should recognise that it is not always the wrong outcome for existing owners to keep businesses—an example is the recent pre-pack of Everest, which sold the business back to the owner and secured a good long-term future for it. In that case we should give credit to Jon Moulton’s Better Capital, which referred the matter to the Pre Pack Pool and undertook a proper process to find an alternative. That is the true value of the Pre Pack Pool.

However, there are ways to game the system that are so clearly unacceptable that we must deal with them. In recent weeks we have witnessed, with both Monsoon and Quiz, two uses of the pre-pack system permitting current owners to cherry-pick parts of their businesses to dispose of, allowing them to avoid their debts and responsibilities and to carry out real abuse of the rules. I directly ask the Minister to comment on the Quiz situation—not to justify that particular action, but to tell us how it is possible to allow the system to remain untouched in current circumstances.

May I remind the noble Lord of the facts, so that he can give a policy interpretation? Quiz raised £103 million when floating in July 2017, and the business was valued at £200 million: £93 million of the proceeds went to the owners and £10.6 million went to the business for its growth. Unsurprisingly, the group unravelled well before the pandemic, with frequent profits alerts, as it was a listed business, and at the start of the year the share price went down to less than 10% of the float. The family still control 49% of the company, and, essentially, all activities of the business.

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[Lord Callanan]

I do not want to go any further than what I said in my reply. I have been in correspondence with the Pre Pack Pool and we have arranged for officials from my department and from the Insolvency Service to meet with it further to discuss its concerns.

[Lord Adonis [V]]

Could Members of the Committee see before Report the letter of 29 May sent in reply to the pool, which the Minister mentioned?

[Lord Callanan]

In principle I have no objection to releasing that; obviously, I would need to speak to officials and to the recipients to check whether they are all happy with that. I do not know whether it was sent confidentially basis or whether it is available for publication, but I will certainly look at that.

Corporate Insolvency and Governance Bill

Lord Adonis Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020 Lords Chamber

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I declare my interest as a chartered accountant. I start by associating myself with the comments of the noble Lord, Lord Hodgson of Astley Abbotts, and other noble Lords about the rushed nature of this Bill. This would be appropriate if it contained only emergency measures, but the Bill introduces important and permanent changes, and the number of amendments we are discussing today rather demonstrates that concern. I thank the noble Baroness, Lady Meacher, for her support for my Amendment 51 to Clause 12. It is to be debated in a later group so I shall speak to it then, but I am grateful to her.

I want to add my support to a number of amendments in this group, and I apologise for having missed the deadline to add my name to them. It is a rather diverse group, so I shall try to sub-group my comments by subject area. I turn first to Amendment 2, in the name of the noble Lord, Lord Stevenson of Balmacara, and Amendment 42, in the name of the noble Lord, Lord Hodgson of Astley Abbotts. Amendment 2 simply makes independence a qualification of the monitor, while Amendment 42 says that the monitor “must satisfy himself” that he is

“free of conflicts of interest”.

These really should go without saying.

The Government seem to be arguing that because insolvency practitioners are professionals, they will do this anyway. I confess that I have a healthy scepticism about the insolvency industry, which has a substantial ambulance-chasing component to it. Conflicts are common- place, and we have been given some good examples by the noble Lord, Lord Hodgson, and the noble Lord, Lord Leigh of Hurley. Making independence a legal requirement in the Bill would seem to be an extremely good thing, and it is hard to see any downside to that.

Secondly, I add my support to Amendment 4, proposed by my noble and learned friend Lord Hope of Craighead. This would simply add a list of creditors to the list of relevant documents that must be provided to the court when applying for a moratorium. This would be a simple and practical way of assisting the monitor to do his job, and in particular, to notify the creditors without delay. It is hard to see any downside to this and really it should be accepted.

Finally, I support Amendment 21, in the name of the noble Lord, Lord Hodgson, and Amendments 25 and 40, in the name of the noble Baroness, Lady Bowles of Berkhamsted. The amendments seek to prevent banks gaming the process by changing the terms of payments and costs during the term of the moratorium. It must make sense to ensure that banks, which will have all the negotiating strength in these situations, are not able to give themselves preferential terms, and so I urge the Minister to consider this matter seriously.

[Lord Adonis (Lab) [V]]

My Lords, I thought that the noble Lord, Lord Hodgson, made two very powerful remarks earlier in the debate when he said that this Bill seeks to do two separate things. The first is to introduce the emergency provisions in respect of the crisis we are in, and the second is making permanent changes to insolvency law. He also drew attention to the absolutely devastating report on the Bill by the Delegated Powers and Regulatory Reform Committee, which highlights a wider set of Henry VIII clauses than I have ever seen in a Bill of this kind, including the whole definition of which companies are affected by it under new Schedule ZA1, which can be changed by the Government by order, without any primary legislation. I am sure that we will want to return to that.

Even more extraordinary is the Government’s justification for why they have included all these Henry VIII powers, which is

“the undesirability of taking up Parliament’s time unnecessarily.”

Surely it is the job of Parliament to decide whether its time is being taken up unnecessarily, not that of the Government. I draw the particular attention of the Committee to paragraph 8 of the Delegated Powers and Regulatory Reform Committee report, which states:

“In our view, the presumption should be that where something needs changing which Parliament has enacted, Parliament should enact the changes by primary legislation rather than ministers make the changes by secondary legislation.”


That points the way to a number of key amendments that need to be made on Report.

Turning to this group of amendments, it suffers from exactly the same problem that the noble Lord, Lord Hodgson, said the Bill suffers from, which is that it puts together a whole lot of separate things that do not actually go together. Over the past hour and a half, we have debated three completely separate matters: the issue of the independence of the monitor, which is hugely important—my noble friend Lord Stevenson’s amendments in that regard are utterly compelling—along with the issue of wider conflicts of interest in the whole handling of the moratorium arrangements and the people who play a part in them, which again is a wider and separate issue. The third issue, which has been covered comprehensively by my noble friends Lord Hendy and Lord Hain, is the hugely important matter of consultation with the workforce and the priority to be given to employees and workers in these moratorium arrangements and anything that might follow from them. I hope that in his reply, the Minister will be able to pay substantial attention to all three of these areas.

I do not want to go over ground that has already been covered by my noble friends, but I would like to ask the Minister one specific question. In the early stages of the coronavirus crisis, the Government made great virtue of the fact that they were consulting employee organisations, trade unions and the TUC in order to create a consensus on the kinds of measures which would be needed to deal with it. Indeed, in the construction of the furlough scheme, the Chancellor of the Exchequer made great play of the fact that he had been talking to the general secretary of the TUC, Frances O’Grady. It is quite clear that there are concerns among trade unions about the whole way that these provisions will cut across established insolvency provisions and redundancy provisions. Therefore, I want to ask the Minister a specific question—or rather, two related questions.

First, what representations have been made to the Government about the role of employees and their interests in this Bill? Secondly, can he tell us whether he personally or any of his ministerial colleagues have met the TUC general secretary or officials from the TUC to discuss these provisions? I ask that because if we are seeking to proceed by consensus, by the time we get to Report, we will want to know what actual discussions have taken place with representatives of employees and whether we can satisfy ourselves that there has been adequate consultation. If not, the arguments made by my noble friends Lord Hain and Lord Hendy are compelling when it comes to amendments that we will need to make on Report.

[Viscount Trenchard (Con)]

My Lords, as other noble Lords have mentioned, this Bill is an unusual combination of Covid-related measures that clearly need to be fast-tracked, along with measures to implement the long-held belief that we need an equivalent to the Chapter 11 procedures of the United States.

I do not think that a hybrid House is particularly well suited to scrutinising legislation, especially in Committee. I do not think we will be able to say that this is working well. We are making the best of a difficult situation but it only goes to show that in order to scrutinise the Government’s legislation properly, we need to get back to the proper House as soon as we can.

The only good point I might mention is that, for the first time since we went to Virtual Proceedings, in this Committee we have no time limits. It is so nice and such a relief that we do not have my noble friend the Minister turning round to scowl at us as soon as we have gone 10 seconds over the prescribed one minute or two minutes.

Amendment 1, in the name of the noble Lord, Lord Stevenson, seeks to narrow the definition of persons entitled to be appointed as monitors from “a qualified person” to qualified accountants. I would not support this narrow definition because it may be too restrictive, especially for small enterprises. A monitor should be someone with a professional qualification, issued by a body whose members are carrying on a relevant regulated activity.

I agree with Amendment 2, in the names of the noble Lord, Lord Stevenson, and my noble friend Lady Altmann. It is important that the monitor should be capable of independence and objectivity. The current IESBA—International Ethics Standards Board for Accountants—code of ethics definition of “independence” explains it as being made up of two elements: independence of mind and independence of appearance. The former is defined to include integrity, objectivity and scepticism. The latter is defined as being free from facts and circumstances that would lead

“a reasonable and informed third party”

to conclude that integrity, objectivity or scepticism was compromised.

I ask the noble Lord, or my noble friend, to confirm which definition of independence they would apply and whether it should be a strict, rules-based one, comprising a list of prohibitions of those related by blood, marriage, shareholding, et cetera, or a looser one, based on principles and objectivity. I hope that a sufficiently robust definition of independence could be included, so as to render unnecessary Amendment 42, in the names of my noble friends Lord Hodgson of Astley Abbotts and Lady Altmann, which seeks to ensure that a monitor should not be exposed to any possible conflicts of interest.

As precise amounts can be difficult to assess, I support Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, rather than Amendment 3, in the name of the noble Lord, Lord Mendelsohn. However, I agree that some kind of document showing the number of a company’s creditors would be useful to the court in making a decision on granting a moratorium. As explained by the noble and learned Lord, Lord Hope, that would assist the monitor in his or her duty to notify every creditor.

The noble Lord, Lord Stevenson, makes a case in Amendment 10 for the extension of the initial period in relation to a moratorium from 20 to 30 business days; this means six weeks, rather than four. I think that 20 days should be enough, even for small companies. Obviously, it will not be enough time for a complex restructuring, but that is not the purpose of a moratorium as introduced in this Bill.

I support Amendments 12, 13, 17, 18, 30 and 31, as proposed by my noble friend Lord Leigh of Hurley. Like my noble friend, I also have spent more than 30 years as an investment banker, much of it doing mergers and acquisition business. Like him, I know just a little bit about this. In the case of companies which have both viable businesses and non-viable businesses, it may be that to rescue one or more of a company’s businesses is sensible in cases where a rescue of a whole company may not be realistic. Does my noble friend not therefore agree that his amendments would be improved further if, after “company”, they sought to insert, “or the whole, or some part, of the company’s business”? I understand that this issue was much discussed at the time of the Enterprise Act 2002. There are of course very many companies which contain only one, or one substantive, business. But surely, in other cases, it is the rescue of a business, as opposed to the rescue of a company as a legal entity, that is important.

I also support Amendment 27 in the name of my noble friend Lady Altmann. Where an asset has been pledged to a company’s defined benefit pension scheme, it should not be within the powers of the court to release it for sale without the consent of the pension protection fund, as well as, surely, the trustees of the pension fund itself.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I am glad to follow my noble friend Lord Blencathra, chairman of the Delegated Powers Committee, and other experts on delegated powers. I am sure that we will get a helpful response from my noble friend the Minister on these wider powers. As has been said, I will speak on Clause 39 stand part and the Northern Ireland equivalent, Clause 40.

I tabled these amendments with the help of our excellent Bill clerks, alongside my Amendments 68 and 74, which I may not now need to move as my questions are exploratory in nature; that may help us to make progress. I want to open up a discussion on time limits, particularly of the emergency measures. As I said at Second Reading, I support all these measures, but they change the balance of corporate law and can make life more difficult for the lenders and investors that businesses need for success.

I am very concerned about the powers of extension, which I do not believe will be properly scrutinised if used. Some are more contentious than others; the noble and learned Lord, Lord Hope, raised a good point about wrongful trading, and, as I said, even delays in annual general meetings and corporate filings are unwelcome. These provide vital transparency and the opportunity for probing questions to be asked of companies. If the Opposition’s proposal to extend the emergency measures to the end of September is accepted, I see no need for an extension to the various emergency powers, and certainly not of the easy kind proposed. So that I can consider my position on Report on the various amendments that we are discussing, I would like more details from the Minister on the use of the powers of extension; more of an analysis of the downsides of the emergency measures, as well as their obvious advantages; and details of the criteria that will be applied if and when an extension of power is used, how any costs will be assessed and when the arrangements will sunset completely.

Clauses 21 and 22 seem very elastic—a pseudo-sunset clause, as my noble friend Lady Fookes said—which is not what we are looking for on these emergency measures.

[Lord Adonis [V]]

I have nothing to add.

[Baroness Anelay of St Johns (Con) [V]]

My Lords, I would like to speak to Amendments 87 and 88 in this group, which are in the name of the noble Lord, Lord Stevenson of Balmacara. I notice from the speakers’ list that he is due to speak just before the Minister responds to this debate.

I am very pleased to follow others who have talked at length about Henry VIII powers and their dangers and to hear from my noble friend Lord Blencathra, who chairs the Delegated Powers Select Committee. The noble Lord, Lord Stevenson, seeks to amend the Bill to reflect some of the criticisms in the delegated powers report, particularly regarding the Henry VIII powers, which would give the Secretary of State the power to change the circumstances in which a company can be eligible for a moratorium—by presenting an affirmative instrument to the House—and, in that way, avoid having to go back to primary legislation.

Amendment 87 removes the whole power; Amendment 88 circumscribes its use. I believe it is a very brave Government who ignore entirely the recommendations of this House’s Delegated Powers Committee. When the Minister responds, he may suggest one or two courses of action. Perhaps he will offer the House a more plausible justification for a definition of the need for speed that is mentioned—the need for speed for the wide powers that are currently drafted in paragraph 20 of new Schedule ZA1—and press ahead with the current drafting of the Bill. I believe that he may find that too difficult a mountain to climb.

On the other hand, he might say that, while the Government hold to their belief that it is in the interest of businesses that the Government should have the power to make swift changes to these provisions on the extendable 20-day moratorium, he and his department are considering how best to adopt Amendment 88, tabled by the noble Lord, Lord Stevenson of Balmacara, which follows a recommendation of the Delegated Powers Committee that, if the House were prepared to consider the “need for speed” a sufficient justification, the exercise of that power should be subject to a precondition under which the Secretary of State is required to be satisfied that significant damage would be caused to business were the power not exercised.

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[Baroness Neville-Rolfe [V]]

My Lords, I have not yet seen the email or of course the amendments, so I have nothing to add at this stage but look forward to studying them.

[Lord Adonis [V]]

I have nothing to add on this group.

[Lord Thomas of Cwmgiedd [V]]

I put my name down to speak on these amendments because of the very wide terms in which they were drafted. From the perspective of legal certainty and the importance of the London financial markets, it seemed that the Government’s overall policy of excluding financial service contracts was completely the right one, and the suggestion of these amendments was to remove part or all of that protection. However, from what has been said in this debate, it is clear—at least, I hope it is clear—that what gives rise to the concern really relates to the position of pension funds. It seems to me that this is a much narrower subject and it turns on the question of the priorities that will need to be clearly spelt out in the event of an insolvency.

Earlier, I raised the rather difficult issues that relate to priorities. This debate seems to underline the importance of that. I hope the Minister will have the opportunity to clarify precisely the way in which the priorities as between financial service contracts and a pension fund are to be resolved in the event of an insolvency.

Corporate Insolvency and Governance Bill

Lord Adonis Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Tuesday 9th June 2020 Lords Chamber

[Lord Adonis (Lab)]

My Lords, I follow the noble Lord, Lord Wei, in spirit as well as in order, because of his significant concluding remarks on political economy about supporting companies that do not need to be forced into insolvency because they have fundamentally sound business models. I have a question for the Minister, leading on to a wider point.

My question, which shows that I am not an expert in company law, but which will become increasingly significant. particularly if the emergency measures are extended, is: in what order do the Government come as a creditor? My understanding is that where the Government take the form of HMRC as the taxman they are a preferential creditor under the provisions of the Finance Act. However, a lot of the Government’s priority for being repaid will come through coronavirus business interruption loans and other forms of financial support, which could conceivably include furlough support if that is continued into the medium term. I would welcome the Minister’s explanation of this, but my understanding is that where the Government come in the queues depends on what category of government support it is. If it takes the form of a coronavirus business interruption loan paid through a bank, they simply come in the order of the bank. There is no provision for the Government to get any recognition of the fact that they have possibly pumped huge sums into companies through, for example, furlough provision. I would welcome the Minister’s confirmation of that at the end.

However, the wider political economy point behind this is stark staring obvious. It is important that we stand back from the minutiae of company law. The fact of the matter is that in a lot of these companies the organisation that has put most money into the company, particularly in the recent past, will be Her Majesty’s Government, through furlough support, business interruption loans or possibly, if the Government chose to exercise discretion in the matter, their ability to reschedule or suspend payments due to HMRC.

The question that surely arises is: are the Government taking a strategic approach to their own role as a creditor across the various different forms of credit that they are providing to maximise the health of the economy? My understanding of the Bill is that that is not taking place at the moment. Understandably, we have a lot of very techy changes to insolvency and company law, essential for dealing with the immediate crisis we face in the next few weeks, but the point I make to the Minister is: would it be sensible for us to stand back from this and look, in a political economy sense, at the role the Government could play in sustaining the strength of the economy by pooling all the support they are providing to companies—those covered by the Bill with the Government as a creditor for loans, those covered by other legislation, such as the priority given to HMRC under the Finance Act, and those that do not appear to be covered at all, but which are hugely important, such as the furlough support—and for the Government themselves to take a view? That might well, for example, involve the Government taking stakes in companies as a means of sustaining them over the medium term, rather than forcing them, even if it is in a somewhat elongated provision, into insolvency.

That leads to the comment I would like to make. We have, of course, been here before; we are not reinventing the wheel in terms of very serious economic shocks. During one of the greatest shocks of the last century, the financial crisis of 1929 to 1931, John Maynard Keynes—maybe the greatest gift of this country to economic science in history, apart from Adam Smith—argued that the solution to dealing with the crisis faced then, with mass company insolvency in the 1930s, was not wholly in the public or the private sectors, but rather that the Government should

“experiment with all kinds of new sorts of partnership between the state and private enterprise. The solution lies neither with nationalisation nor with unregulated private competition; it lies in a variety of experiments, of attempts to get the best of both worlds.”

That is the position we face now. I would very much welcome some reassurance from the Government that they are looking at these wider political economy considerations.

Covid-19: Financial Markets

Lord Adonis Excerpts

Wednesday 25th March 2020 Lords Chamber

[Lord Callanan]

A ban has already been imposed on the short selling of stocks because regulators in their own individual countries have imposed bans. A small number of European countries like the ones he mentioned have imposed bans on short selling, and of course the London authorities have then reflected that in our own regulation. Most of the major trading houses have not yet instituted bans, but this is something that we are looking at closely. The FCA has the powers to restrict and prohibit short selling if that is required. We are keeping this under constant review and there is no evidence that it has contributed to the fall in the market. Moreover, as I have said, the level of short selling over recent days has in fact been declining.

[Lord Adonis (Lab)]

My Lords, referring to the question put by my noble friend Lord Harris, do the Government still have the statutory power to regulate prices?

[Lord Callanan]

There are competition issues involved in doing that, as the noble Lord will be well aware of, given his experience. We have some powers in certain sectors and at the moment we are looking at this within the existing framework of legislation.

Trade Unions

Lord Adonis Excerpts

Thursday 18th July 2019 Lords Chamber

[Lord Adonis (Lab)]

My Lords, my father was a postman for 30 years and the two great heroes of his life were two leaders of what is now the Communication Workers Union, my good friend Alan Johnson and my noble friend Lord Clarke of Hampstead, whose memoirs have just been published. I recommend them to noble Lords; they are an excellent read.

I agree with every word said in this debate so far about how the crisis of social inequality and alienation gripping our societies at the moment is partly rooted in the weakness of trade unions and the growing weakness of unions in the workplace. The remarks of my noble friend Lord Monks, who was a very distinguished general secretary of the TUC, were absolutely apposite. A generation ago, nine out of 10 workers were covered by collective bargaining, largely organised through wages councils. Now, as my noble friend said, it is two and a half out of 10, and that change underpins what has been a dramatic increase in inequality. The work done in this area by Andy Haldane, deputy governor of the Bank of England, has been deeply illuminating. The labour share of national income, which was two-thirds a generation ago, is now barely more than half and workers have been seriously short-changed by many of the developments in the gig economy, as mentioned in a brilliant speech by the noble Baroness, Lady Lane-Fox.

The great question that ought always to face us as practical politicians is what we are going to do about it. The thing that comes through loud and clear is that obviously we need to strengthen the unions. If I may make a comment on the debate so far, the unions need to do more to help themselves. Unions are very poorly organised in the gig economy.

The establishment of the Independent Workers’ Union of Great Britain is one of the most positive developments of recent years. It seeks to organise in the gig economy but it needs a great deal more support from the TUC, if I may say so. Jason Moyer-Lee is doing a great job, but it is a tiny union in comparison with the established unions. We need a new unionism for the next generation, just as unionism has repeatedly renewed itself in the past 150 years when facing new challenges. Given the weakness of the union movement at the moment, but also irrespective of it, because it is a duty of the state, we face a massive problem of lack of enforcement of basic labour standards, which significantly exacerbates the problems caused by weak trade unions. I hope that the Minister will address himself to the biting criticisms made by Sir David Metcalf, the outgoing director of Labour Market Enforcement, on the Government’s poor enforcement record. I will say something about how poor it is and then the steps being taken, so that the Minister can comment on that.

The fundamental fact before the House is that the ILO benchmark for enforcement of labour market standards is that there should be one inspector per 10,000 workers. At the moment, in the United Kingdom there is one inspector per 20,000 workers, despite improvements in recent years, which I recognise. As a rule of thumb, we have roughly half the level of enforcement that we should have. That goes to the heart of our problem with lack of respect for the minimum wage and for basic workers’ rights.

The figures Sir David Metcalf highlights are shocking. Last year, there were 2,600 inspections for the minimum wage out of 1.3 million firms with employees. That means a typical company can expect a minimum wage inspection once every 500 years. This is simply unacceptable as a basis of the state regulating the labour market and enforcing basic standards, which is why minimum wage regulations are so widely ignored. At the moment, we have a complete patchwork quilt of regulators in this area. We have HMRC, employment agencies, the Gangmasters and Labour Abuse Authority and the HSE. There is no clear demarcation between them. In fundamental areas, no one is responsible for enforcing basic standards.

One of the biggest issues at the moment—a bigger problem than minimum wage regulation—is the non-payment of holiday pay. There is no one whose primary responsibility is to see that firms pay holiday pay. Penalties are hugely important in ensuring compliance, but whereas we have draconian fines for breaches of the Immigration Rules—rightly so—which act as a big deterrent on employers, penalties for minimum wage breaches, even when identified, are paltry. At the moment, the civil penalty for breaching minimum wage law is only twice the wage arrears in question. In the very few inspections carried out last year, the average minimum wage arrear identified was £76 per person. That means that the average fine has been only £150. There is practically no incentive, apart from being good corporate citizens, for companies to observe minimum wage law and regulations at the moment.

As the Minister will know, this is a long-running issue. Why are the fines not larger? Why are there not more inspectors? Why is breach of minimum wage regulations not a criminal penalty, just a civil one?

As in so many of these areas, the Government are moving, but at a snail’s pace. Yesterday, Greg Clark published a consultation paper, the Good Work Plan: Establishing a New Single Enforcement Body for Employment Rights, which is welcome and would bring a lot of the regulatory agencies together. It also highlights that part of the remit would be to enforce holiday pay. I hope the Minister will say more about this in his concluding remarks. The consultation document published yesterday makes no commitment at all to enhancing resources. On the contrary, it says that this new body,

“would not be an exercise to reduce costs”.

That is a great relief, because it is not talking about reducing enforcement. It goes on to say that,

“resource for enforcement would be maintained, but used more effectively”.

Many of us have heard those weasel words in government consultation documents in the past. It is not good enough simply to say that they will be maintained. If this new body is to be anything other than a deckchair moving operation, the resources need to be significantly enhanced. Does the Minister recognise that our enforcement regime at the moment is far too weak, and that this new body, if it is set up, will need significant additional resources and powers?

Finally, on the gig economy, I give some comparative figures to set the debate going. It is estimated that the gig economy, as the noble Baroness said, embraces about 4.5 million workers, which is a huge part of the workforce. To give some comparison, the transport industries, which I am very familiar with, are highly unionised and have 1.6 million workers, so it is three times the size—it is the new frontier of employment. However, the total number of members in the IWGB, the new union for this sector, is 2,500. For comparison, Unite has 1.27 million members and the National Union of Rail, Maritime and Transport Workers—the RMT—has 80,000.

To end on a challenging note for the union movement, I think that trade unionism in the next generation will stand or fall by its capacity to organise effectively in the gig economy. At the moment, it is only just starting.

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

Lord Adonis Excerpts

Monday 11th February 2019 Lords Chamber

[Lord Fox (LD)]

My Lords, I thank the Minister for bringing this SI to the House. It is another episode in the unravelling process. I have four comments, along with one pro forma comment on consultation.

The Minister mentioned the Business Registers Interconnection System. My understanding is that that is already part of Companies House. Can the Minister assure your Lordships’ House that there is no change in the information available—in other words that the information that was available on BRIS remains available on the new Companies House system?

That takes me to my second point. There are a number of mentions of a role for the company registrar in this instrument, and a lot of them are time-limited over the three months post exit day. What level of capacity will be needed to handle what will be a surge of registration, inquiry and people wanting to know what to do? What level of information will go out to inform companies that they are required to do these things? Who will hold the buck for putting that information out there? It is not clear how companies will find out about this or whether there will be the capacity within Companies House to handle the three-month surge. I would like to know what kind of risk analysis has been done by the Government and what level of communication they are planning.

Thirdly, as the Minister set out there are a number of technical changes around cross holdings of shares between EEA and UK companies. It is not clear to me how many companies this would affect. What intelligence do the Government have on how many companies will be affected in this shareholding? Obviously, there is time for these companies to change that. Does that significantly change the shareholder profile of many companies in this country? If so, how? Does it have any effect overall on market liquidity? What kind of analysis of what this means has gone on?

The final substantive point is on cross-border mergers. The Minister mentioned those in his introduction. He did not explain what the implications are if there are cross-border mergers already under way now or at the time of exit. What regime are these cross-border mergers governed by?

All of this is regrettable, because we have a functioning system that works very well. I am co-operating in so far as I think it is important that we have some sense of where this is going in the regrettable event of exit day. My final point is this: can the Minister outline what level of consultation has gone on? Again, it looks like none. What is the justification for no consultation?

[Lord Adonis (Lab)]

My Lords, I want to pick up on consultation, the final point of the noble Lord, Lord Fox. A theme running through our consideration of all these statutory instruments is either non-existent or totally inadequate consultation, which in any other context would not be regarded as acceptable. Since these are changes in the law that affect significant parts of our economy and significant organisations, it is totally unacceptable that there was no proper consultation.

The blather in the Explanatory Memoranda, which varies by statutory instrument, amounts to the same thing: all this planning was done in secret. It is only at the last minute that this cascade of orders has been presented to the House. Because, I presume, the Government did not want to indicate to the EU that we were engaged in such intensive no-deal planning, there is a straightforward admission that practically no consultation has taken place at all.

The noble Lord, Lord Fox, asked what the level of consultation was. We are told in paragraph 10.1 of the Explanatory Memorandum:

“We have not been able to publicly consult in order to minimise sensitivities in advance of negotiations with the EU”.


But these negotiations had been going on for two and a half years when this order was laid before Parliament. Can the Minister tell us what the sensitivities were in advance of negotiations with the EU, which meant us being told that an entirely technical set of changes concerning access to Companies House databases could not be consulted upon with the relevant business communities? It seems to me that the only thing that is sensitive is not the content of these regulations but the very fact that the Government were engaging in no-deal planning. But it was hardly a secret that the Government were engaging in no-deal planning—it was widely known. After all, the Prime Minister told us that no deal would be better than a bad deal. The arguments are entirely implausible and unacceptable.

What really happened, as we are seeing time and again in these orders, is that the Government had no idea of the scale of the changes that would be required. This was all done in a massive rush in the run-up to Christmas, when the no-deal planning was accelerated. It was not that there were sensitivities—there were no sensitivities at all in respect of these orders. Having read the debates on the orders in the other place, I cannot see a single sensitivity. Indeed, the Government’s own argument that these changes are technical answers the point about there being sensitivities.

The reason there was no consultation is that there was no time to consult. And the reason there was no time to consult is because this whole thing has been done in a massive rush. That is why—having had a quick glance at the Order Paper—we have this week some 30 statutory instruments being considered one after another and we are not being given a recess.

While these changes themselves appear entirely technical, the continuing declaration by the Government, order by order, that there has been no meaningful consultation whatever is unacceptable. It is only right that the House should put that on record. As we get to the end game of this terrible period, that will weigh on the House as we consider whether it is right to extend the Article 50 negotiating period so that we are not faced with what will otherwise happen—a massive rush of ill-considered orders with almost no time to consider them at the end.

I have one specific question for the Minister. Paragraph 10.1 states that informal consultation took place with the Law Society, but it does not mention any business-related organisations. It does not say whether the CBI or the Federation of Small Businesses were consulted, even informally. Those are the organisations that represent the business community, so will the Minister tell us why, in this informal consultation, only the Law Society was consulted? What is the special status of the Law Society in relation to this statutory instrument, which in fact affects companies and the operation of Companies House? Why were the CBI and the FSB not consulted?

Since this instrument has been published, of course, business organisations have had a chance to come forward. Will the Minister tell us whether the CBI, the Federation of Small Businesses or any other business-related organisation made any informal or formal responses to the Government, and what those responses were?

Recognition of Professional Qualifications (Amendment etc.) (EU Exit) Regulations 2018

Lord Adonis Excerpts

Monday 11th February 2019 Lords Chamber

[Lord Fox]

I thank the noble Baroness for her intervention, as that seemed to be the tone of the debate in the other place.

More importantly, at that time the Minister was asked how many British citizens are affected and what was being done to inform them. He then gave a series of off-the-cuff answers. There has been time now for the department to get to some substance, given that that debate occurred some time ago. Perhaps the Minister can tell us how many there are or how one can go about finding out how many are involved. What level of the information process is going on? As we know, the European Union has said that individuals currently practising abroad on this basis will have to register with the relevant bodies within the European Union. This is worrying, and worrying for British citizens. The Minister should take this seriously and explain what is going on.

The issue regarding the medical profession will be very important indeed. It is about making sure that we do not just continue to recognise the qualifications of current employees in the health service, but have a smooth and seamless way in which future employees can be qualified to operate in it.

On the subject of farriers, it is not clear to me why farriers are included, but in another off-the-cuff comment the Minister in the other place made a joke. He said that one Member of the other place who was a qualified accountant was lucky because he was not a farrier. That seemed to imply that farriers were providing a second-class service to that of chartered accountants. Perhaps the Minister can dispel that myth.

[Lord Adonis (Lab)]

My Lords, the noble Baroness and the noble Lord, Lord Fox, have raised a number of significant issues. The first point to make about the issues involved, which are to do with the recognition of professional qualifications or the potential non-recognition of them in what will be only six weeks’ time, is that it seems impossible to say that these issues are purely technical. There is nothing technical about whether people’s professional qualifications are or are not going to apply, and whether they will or will not be able to work in a matter of months. The noble Baroness said, rightly, that the response of the Government is that further negotiations should take place on this. We are six weeks away—six weeks—and I doubt that the Minister is going to pretend, since his honourable friend in another place did not, that these matters can be resolved in the next six weeks.

[Baroness McIntosh of Pickering]

The noble Lord follows these issues even more closely than I do. Does he share my anxiety that from what we learned this afternoon of what the regulations set out, there will have to be separate statutory instruments for all the professions that fall under different departments, such as doctors, vets, architects and so on?

[Lord Adonis]

That is a very good question. My understanding—but I am not the Minister and he will have to tell us, since it is hard enough for us to understand without my trying to answer for him—is that the provisions of this statutory instrument give all the relevant regulatory bodies dealing with professional qualifications the power to determine whether those bodies will admit EEA and EU nationals and their qualifications. If the noble Baroness is right, it is much more complicated than I thought. I had thought that this one statutory instrument simply conferred all those powers, in so far as they are granted by the state, but if in fact further statutory instruments will be required that will be of huge concern to many professionals.

We are told that all these statutory instruments are technical. I emphasise that there is nothing technical about these issues at all. Indeed, the scale of the issues became apparent to me only on reading the debate in another place, which was referred to by the noble Lord, Lord Fox. If I may, I will read quite a chilling exchange between my honourable friend Chi Onwurah and Richard Harrington, the Business Minister, on this very important question of what will happen to UK nationals who have jobs on the continent which, at the moment, depend upon the automatic and mutual recognition of qualifications. We are saying, quite properly, that we are going to immediately roll over the recognition of qualifications of EU nationals here and we have the power to do so—of course, we have no power to do so and enforce this in respect of UK nationals who practise on the continent. The House can imagine the concerns that they have.

I will read the exchanges from the other place. My honourable friend asks the Minister,

“given that British citizens living in the European Union will be required to regularise their professional qualifications, does the Minister envisage that there could be circumstances in which they would not be able to continue working without doing so?”,

to which the Minister replied:

“I envisage that there could be those circumstances … the only way that that could not happen is for there to be no crashing out … the hon. Lady has made valid point; I would not say it was a ridiculous point”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; col. 11.]


This is a matter of huge concern. This Parliament is not in a position to be able to guarantee that—we do not even know the number.

[Lord Fox]

The noble Lord is completely correct, but the Minister was incorrect in saying that by voting for the current deal this would not be an issue. The political declaration says that free movement of people will end. Therefore, this issue remains on the table whether or not there is a deal, whether we crash out or have a deal.

[Lord Adonis]

The noble Lord is absolutely right. What makes it even more extraordinary is that we are debating this as some kind of technical change, when in fact it is potentially fundamentally affecting the livelihoods of UK citizens abroad, which Her Majesty’s Government have a duty to protect. That is one of the fundamental duties of the state: to protect the interests of citizens going about their lawful business. The Government do not even know the numbers. The Minister for Business in another place said:

“I do not know how we would know which UK nationals were working abroad”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; cols. 11-12.]


If this was being properly prepared for, it is within the resources of Her Majesty’s Government to be able to make estimates to consult with the relevant professional bodies and invite those affected to make representations. However, all the preparation of these instruments has happened in secret, so there has been no opportunity to do so.

With the situation we are facing in respect of this instrument it is fundamentally irresponsible for us to be proceeding down this course. I doubt whether the Minister will be able to keep a straight face and say that this is purely technical—it clearly is not a technical matter that Her Majesty’s Government are not in a position to guarantee the right of UK citizens to continue in their employment on the continent after 29 March. I anticipate that he will say that he has no choice because if we crash out there is no alternative. But there is an alternative: for us not to crash out on 29 March. The Government should do what they have been resisting for months; in the event of us not having a deal by the end of March—and the Government are running down the clock now, deeply irresponsibly—they should, in good order, apply for an extension of Article 50 so that we do not crash out.

This statutory instrument brings into very sharp relief the reasons why it is so much the duty of the Government and the state to do so. We are not in a position otherwise to guarantee the fundamental and legitimate rights of UK citizens, unless we have a continuation of the current regime of European law. We have no basis to do so; Ministers have accepted that. Because we have good relations with our European neighbours, we are hoping that they will not start imposing new requirements or that their relevant professional bodies will not start nit-picking or introducing new requirements.

Not only do we not have a guarantee—the noble Lord, Lord Fox, used the word “guarantee”—we do not even have any assurance. I can understand that it might not be possible to guarantee it, but because there has been no time to have any of these discussions, we have no assurances whatever that the existing qualifications of UK citizens on the continent will be recognised. Nor do we have any assurance that there might not be sudden changes. Let us make some fair assessment of what will happen. I will be astonished if existing employers try to turf out UK citizens from their jobs on 29 March. However, it is perfectly possible.

Some of us are acquainted with professional bodies on the continent. They are sticklers for their processes. Sometimes they can be a tad nationalistic in their approach to these issues, which is part of the reason for our being in the EU. They can decide to start protecting their own, and they will have an absolute right to do so once we do not have these rules in place. Profession by profession, in all kinds of technical and perhaps even surreptitious ways, I can easily see them start changing the rules, which will quite rapidly close down options for UK citizens to be able to take jobs on the continent. These are not technical issues; these are fundamental issues.

[Lord Fox]

Does the noble Lord agree that if we allow our regulators sector by sector to supervise the application process and grant access or stop access on the basis of their rules, that is exactly what will happen in all the countries of the EU 27? The danger of restrictive practice such as he suggests is very real.

[Lord Adonis]

The noble Lord makes a very good point, because, yet again, there has been no proper process of consultation. I am becoming a bit of a connoisseur of how consultation has been conducted under these statutory instruments and I can tell your Lordships that this one is unique in that it does not even have a paragraph that says what the consultation was. Paragraph 10 of the Explanatory Memorandum is simply headed: “Consultation outcome”. It continues:

“Consultation between Devolved Administration officials and Government officials, supported by Government Legal Advisers, took the form of regular meetings and engagement specific to the amendments made by this instrument”.


It does not say what that consultation was, with whom it was conducted, what the results were, or anything. However, I note that quoted by my assiduous honourable friend Chi Onwurah in the debate in the other place was the briefing given to her by the Institute of Chartered Accountants in England and Wales, which said—I suspect there have been many such representations:

“’Elements of the SI are open to interpretation. A UK regulator could refuse an EEA applicant by saying the EEA qualification is not equivalent in some way. There is a chance that EU members states will notice this and potentially do the same in their provisions for considering UK nationals/UK qualification holders’”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; col. 7.]


That goes to the fundamental point made by the noble Lord, Lord Fox, which is that Her Majesty’s Government have no means of requiring our professional bodies to continue recognising the qualifications of EU nationals. Indeed, the Institute of Chartered Accountants, which represents one of the most numerous and significant professions in the country, says—it is not us scaremongering —that under these regulations regulators could choose to vary their requirements in respect of mutual recognition and that, if they do so, the legitimate expectation is that regulators on the continent do tit-for-tat responses in respect of their countries.

Let us be clear—we are debating this statutory instrument some six weeks before it comes into effect: we are talking about hundreds of professions, thousands of professional qualifications and 27 other countries, all of which will have discretion to act as they see fit in the matter of these regulations after 29 March. This is profoundly irresponsible. It is just one facet of the whole business of crashing out with no deal, but I could not conceivably be a party to agreeing it today. If the noble Lord, Lord Fox, chooses to divide the House on it, I shall certainly not support the regulations.

[Lord Dykes (CB)]

My Lords, I feel strongly about these matters along the lines sketched out vividly by the noble Baroness, Lady McIntosh, and the noble Lords, Lord Fox and Lord Adonis—as I think will a number of other Members across the House—because of the chaos behind these SIs and the way in which the Government are presenting them: inadequately and sometimes improperly drafted, and without proper explanation of the provisional import of their content and detail. There are many other examples.

--- Later in debate ---

The views of stakeholders have been mainly positive. They welcome the plan for continuity in the event of no deal and many of the competent authorities are also very positive about the changes we propose. For example, they are happy that they have to make a choice about whether to offer compensation measures or whether they are not obliged to do so.

[Lord Adonis]

I am very grateful to the Minister for giving way. He is talking about the consultation that took place with UK regulators and professional bodies. What consultation has there been with UK nationals who work on the continent, who could well be affected by the lack of reciprocal recognition of qualifications? It is their interests that are entirely unprovided for in the statutory instrument.

[Lord Henley]

I do not think it will be possible to consult them in the way that the noble Lord suggests. I accept that they are affected. We are making the order—a one-sided order—so that those coming to the UK can benefit from it. Obviously, UK citizens abroad are in a different position, but I hope they will take appropriate advice.

--- Later in debate ---

[Lord Henley]

The noble Lord hits the point absolutely on the head. That is what the regulations are doing. That is why we are saying we will recognise their qualifications. Obviously I cannot say that France will recognise the qualifications of a UK ski instructor, or something more important. That has to be a matter for the French authorities, and we hope they will follow what we are doing.

Can I move on to deal with just one or two of the other points? I see that the House is filling up and, I think, wants to move on to other business.

[Lord Adonis]

Perhaps it does not.

[Lord Henley]

Perhaps it does not. I will continue.

I have already mentioned the guidance from the Commission. The noble Lord, Lord Adonis, was concerned that existing qualifications would be recognised, and I mentioned what the Commission said in published guidance about the recognition of other qualifications. We have every faith in that. The noble Lord, Lord Fox, complained that this should be technical and non-controversial—

[Lord Adonis]

My Lords, I am very grateful to the Minister for giving way. These are extremely serious matters. These figures are huge: 20,000 professionals currently have their qualifications recognised, which means that many thousands more will want the same in due course. The Minister referred to what the Commission said. Richard Harrington, the Minister in another place, said:

“In a no-deal scenario, the recognition of qualifications”—


UK nationals’ qualifications on the continent—

“will be assessed under host member state rules. In that scenario, after exit day, our nationals will not be able to provide temporary and occasional professional services as they previously could under the directive, but that will be subject to their host member state’s laws and regulatory frameworks”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; col. 11.]

Those words could not be clearer. We have no basis whatever for being able to offer assurances, let alone guarantees, to UK nationals that their qualifications will continue to be recognised for the purposes of new employment after 29 March. I need hardly point out to the House that what the Minister, Richard Harrington, said will come to pass in six weeks’ time. Any responsible Government would not be putting regulations of this kind to the House unless they had made proper provision in that respect.

[Lord Henley]

My Lords, we are bringing these forward in the event of no deal. We are saying, “We will take in all your qualifications”. The Commission, as the noble Lord acknowledges, has said that it will recognise existing qualifications from UK nationals out there.

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

Lord Adonis Excerpts

Wednesday 6th February 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am happy to follow the noble Lord. He has made some detailed comments and posed some questions which I hope the Minister will be able to respond to. Having said that, I accept that the Minister’s letter of 21 January—running to eight pages and covering a lot of detail—as well as subsequent meetings have done a lot to clarify some of the issues that were before us when this was first considered in Committee. But good scrutiny leads to further debate and discussion, so it is not inappropriate that we should come back and point out areas that are not as good as perhaps they should be as we pass this important, time-limited piece of legislation. I also agree that the clarification about the Silhouette case, which was a confusing passage of discussion in Committee, has made things much clearer and will be helpful to those involved in that issue.

The Government should take away from this process three main things. First, if there is an SI of the sort of significance represented by the three intellectual property regulations before us today, the fact that consultation need not be carried out is not sufficient to assuage the concerns of those who have had to respond, even as late as yesterday, to these issues. There is a lesson to be learned here about the need for more engagement and a more considered approach to the context of these amendments. I accept the pressure of time and the difficulty of fitting everything in, but the consequence of not consulting according to the style and process that people have become accustomed to, just because this is a special case, has meant that we have not had the best advice that would have been available to us in ordinary circumstances.

Related to that, the question of whether one needs an impact assessment is also important. There is of course a de minimis figure, which was in the Cabinet Office rules. But when one thinks about the impact that these new regulations will have, even for a time-limited period, the Government should be prepared at the very least to bring forward for consideration evidence that the de minimis figure has been met. At the moment, all we get is an assertion; we are left to guess whether the figures that might be construed will work. That is not satisfactory in terms of general process.

Thirdly—this does not apply to the SI before us at the moment but applies to the other two—considerable variations in approach have been taken by the different departments on the EU exit SIs. There should be some overall consideration of this when the time comes to review how, in some areas, the limited licence available to ensure that the statute book is in good order as we leave the EU, if we do, on a no-deal basis, has been interpreted differently in different departments. We heard even today that the Treasury has a completely different approach from that of others on the issues of consultation and preparation of estimates that I have been talking about. The public interest would be better served by a slightly different approach.

[Lord Adonis (Lab)]

My Lords, first, I thank the Minister for his extensive letter to noble Lords responding to the debate in Grand Committee. I have a specific question and will then make some comments on the wider issue of consultation which has bedevilled all our proceedings on these no-deal statutory instruments, because the consultation has been so haphazard and unsatisfactory. My question is in response to the Minister’s opening remarks, when he said that it was “not sensible” to put a sunset clause on the current exhaustion regime. That is a judgment which the Government have made but, since this is clearly a matter of extreme importance to the industry, can he tell us what the view was of stakeholders who were consulted on the issue of the sunset clause? I understand that that issue has bedevilled these proceedings throughout.

On consultation, the Minister’s letter was significant; it accepted that the consultation which had taken place had been in confidence. Having secret consultations which are not open to all relevant people, or all those who wish to take part, particularly from the industries consulted, is contrary to almost all of the principles of public consultation. The Minister’s letter has an extremely convoluted paragraph about how this secret consultation was conducted. It says that the Intellectual Property Office, or IPO,

“identified the relevant representative organisations or businesses it would usually engage with, and who would give a range of views. Because of the confidential nature of the review”—

which was entirely self-imposed by the Government; this did not need to be confidential but could have been an open, public review—

“the IPO then identified and invited 12 individual experts who had previously liaised with the IPO in a role within one (or more) of those relevant organisations”.

The letter then lists the organisations. It continues:

“I believe this is consistent with what I said in my … clarifying remarks about this process during my closing speech; the IPO’s understanding was that these individuals were ‘from’ those organisations but they were, as I clearly said, ‘a group of individual stakeholders’ and the IPO ‘consulted them in their personal capacity’. I therefore also agree with Lord Warner that the organisations themselves were not consulted in the way that would usually happen”.


Reading that twice, one realises the truly extraordinary nature of the consultation which has taken place. The Government have arbitrarily and secretly selected 12 individuals because—to cut to the chase—officials happened to know them and had dealt with them previously. They then chose to consult them, telling Parliament that the consultation process was adequate. However, when pressed, it is clear that these people do not in any respect represent the organisations from which they have come. We are not told who the individuals are and they are not in any way accountable for their advice. We are told that the advice was given individually, but we are not told what it was. When it comes to disputes on major aspects of policy embedded in these regulations, the Government blandly assure us that the decisions they have taken are sensible. In my experience, Governments always think that their decisions are sensible; I have not yet met a Treasury Minister who said that their decisions were not sensible. However, the Government will not even tell us whether the “sensible” decisions they have made reflect the secret consultation that took place before the preparation of the statutory instruments.

Because of the unsatisfactory nature of this whole procedure, we will have to approve this regulation. However, in any normal circumstances, we would not approve a regulation on the basis of a secret consultation with 12 individuals—selected secretly by the Government, whose names we do not know and who are not in any way accountable—when there should be a public consultation. I raise this point not only to highlight the unsatisfactory nature of this, which goes to the heart of all this no-deal planning, but because of the cascade of regulations still to come. Every time your Lordships meet, a plethora of regulations appears before us. In the health Bill, which we debated yesterday —I did not participate, but I read the Bill during the proceedings—there was provision for a whole slew of further regulations, with procedures as yet undecided.

I invite the Minister to respond on this, as I think it is important to get this on the record. Can he give some undertakings that consultation on future regulations laid before your Lordships will be done in an open, transparent way, so that we are not faced again with consultations with secretly selected individuals? As noble Lords will recall, when we were debating one of the instruments, we were told that the individuals were “selected and trusted” respondents—presumably on the grounds that a general public consultation with people who were willing to share their views would not engender trust.

This is not good government. In any circumstances other than this national emergency, I am confident that your Lordships would not agree to process, let alone consent to, regulations on this basis. We need some assurance that, in the time remaining, consultations will be conducted in a proper manner, rather than in the secret, cloak and dagger, totally unaccountable fashion that we have seen in respect to this instrument.

[Lord Warner (CB)]

I want to follow up that point. I remind the Minister that after our rigorous series of exchanges in Grand Committee on these regulations, I took the liberty of submitting a Written Question, which was answered extremely helpfully on behalf of the Cabinet Office by the noble Lord, Lord Young of Cookham. I wanted to check that my memory was correct about the Cabinet Office rules on consultation. Not only do they require 12 weeks—during which people can comment in what is often a helpful way for the Government of the day—but the twin leg to this is that the Government have to publish those responses to their consultation. Not only have the Government, as the noble Lord, Lord Adonis, said, cut out the middleman in their approach to consultation, but by doing it that way they have avoided the commitment to publish the responses to that consultation. So there is a twin problem with the Government’s approach to many of these SIs. I suspect it is going to continue in relation to the Healthcare (International Arrangements) Bill, which contains Henry VIII powers for the Government to produce a lot of SIs. If the Government go on behaving on these SIs in the way that they have behaved on those we are discussing today, they will drive a coach and horses through their own Cabinet Office rules on the way we go in for consultation on legislation.

--- Later in debate ---

[Lord Henley]

My Lords, some of us still read books, and some of us still read letters. I shall not follow up the Scottish exchanges that have just taken place; I shall start with the letter referred to by the noble Lord, Lord Stevenson—the letter that I sent, I think, on 21 January. The noble Lord, Lord Adonis, described it as “extensive”; the noble Lord, Lord Stevenson, said that it was eight pages long. What I have in front of me is six and a half pages long, so I just want to be clear that we are all talking about the same letter. I see that the noble Lord, Lord Adonis, and I are going to count.

[Lord Adonis]

I read it on my iPhone, so I have no idea how long it was.

[Lord Henley]

I think that deals with the point about modern technology—but I deal in letters, and mine is six and half pages of A4. I hope we are all talking about the same letter, which I sent on 21 January. I think, and hope, that it dealt with a great many of the points that have been raised.

I shall go through some of the points that came up in the debate. The principal one referred to by the noble Lords, Lord Adonis, Lord Stevenson and Lord Foulkes, is that there has been a failure of consultation—it just has not been good enough. I believe it has been consistent with the approach taken on no-deal legislation across government. The Government’s consultation principles are clear. Consultations should have a purpose. The statutory instruments in question make only those corrections to retained EU law that are necessary to give the UK a functioning statute book in what we have all made clear is the unlikely event of a no-deal exit, and maintain as far as possible the existing domestic position. A consultation on policy change would not have been meaningful as that is not what these instruments do. Again, I set that out in my letter.

I make it clear that there will be full and proper consultation on further changes. All those who have had dealings with the Intellectual Property Office will accept that it has a good record in this respect. It consults properly and will take into account the concerns of all those who have an interest. I give an assurance that the IPO will do that: it will consult and make sure—

Patents (Amendment) (EU Exit) Regulations 2018

Lord Adonis Excerpts

Wednesday 6th February 2019 Lords Chamber

This is the first of the two intellectual property SIs over which the Government have exercised their judgment to try to assist future negotiations and debates by finding an asymmetric solution. I will come back to this in the next SI. We should not take at face value the view that this would roll forward the exact situation that existed prior to our leaving on a no-deal arrangement. There are changes being made. They may be good and sensible, but they have not been subject to the sort of consultation and debate nor to the costings that would have been appropriate were this an ordinary situation.

[Lord Adonis (Lab)]

My Lords, I want to follow the remarks of the noble Lord, Lord Warner. It is deeply unsatisfactory that the only way we can know the interests of those most intimately affected is if an individual Member of your Lordships’ House relates conversations that they have had to this House. In Grand Committee, the noble Lord, Lord Warner, told us about conversations that he had had but which had not been published because there had been no formal consultation.

The Minister said that he has met relevant stakeholders. We are grateful for that. I hope that, in his reply, he will clarify the issue about the duration of SPCs, particularly for the benefit of those of us who do not follow the detail of what is at stake. I take the noble Lord, Lord Warner, to be saying that a substantive change in the duration of SPCs will take place as a result of these regulations and that this will have a major impact on the industry concerned because of the protection of intellectual property. So this is not, as we have been told all along, a technical issue about rolling over existing regulations. It is a substantive change. This has never been clearly brought out in our proceedings.

[Lord Warner]

Just to be clear, the industry is saying that, because of the way in which the Government have drafted this SI, the period of exclusivity will be less than it would have been in the past. So there is a material change in the financial benefit through the period of protection that was previously given. The industry is worried not just about that aspect but about the signal it gives about whether the Government are going to move away from a gold-standard intellectual property framework. They are worried that this is the first step in this particular direction.

[Lord Adonis]

I understand the significant point that the noble Lord makes.

None of this came out in the Explanatory Memorandum’s summary of the non-existent consultation and secret discussions that took place. The only reason this has come before your Lordships is because of the successive conversations which the noble Lord, Lord Warner, has had with the industry. His point seems entirely reasonable. The industry is concerned as to what this means for the wider protection of intellectual property and the big impact it might have on investment in a crucial national industry. This is not a technical issue; it is fundamental. We were not alerted—in any part of the process leading to these regulations coming before the House—about any of these issues.

The Minister said that, since the Grand Committee debate, he has conducted discussions with industry representatives. We should be grateful that, by calling attention to the lack of consultation, this encouraged the Government to engage in more formal consultation after the instrument was laid. In my day, good government involved consulting about instruments before they were laid, not afterwards. The noble Lord, Lord Warner, and I were in the ancien régime when there was Cabinet Office guidance on 12 weeks’ consultation and publication of consultation results to which the Government gave reasonable responses. In this national emergency, all this no longer applies.

I should be grateful if the Minister could bring out precisely—because it is important that we have it in Hansard—what is the substantive change in respect of SPCs and what is in fact at stake in terms of the lesser protection that will be available for crucial intellectual property in the industry. It is still not clear to me from the remarks of the noble Lord, Lord Warner, but since he is doing such a good job of responding to the debate, he may be able to tell us the scale of the impact that this is likely to have. Are we talking about minor changes, because it is calculating differences in dates at which patents were granted, as I understand it, and whether European and UK patents are granted at different times under the new regime? I should be grateful if the Minister could say more and clarify more.

The other significant point about the regulations is that the consultation was not just secret, in the way I set out in my earlier remarks, but in his introductory remarks the Minister did not address the point made by the noble Lord, Lord Warner: that there is still profound dissatisfaction in the industry. All the Minister told us in his rather—if he will forgive me for saying so—bland opening remarks was that he had met industry representatives. He did not say anything about the content of those discussions or what representations were made to him. We only know about the content of those representations because of the remarks of the noble Lord, Lord Warner. I deduced from his remarks that those representatives are profoundly dissatisfied, think that this will be a diminution of the protection of intellectual property in the industry, are worried about the cavalier way in which this has been done and think it might have a big impact on future investment. These are substantial matters. As I said, in the normal course of events, they would lead us seriously to question what is effectively a proposed change in the law.

If we had a proper legislative process, we would be moving amendments and might require formal consultation to take place. It is deeply unsatisfactory that these big concerns are dribbling out only because of the activity of a few noble Lords independently consulting industry stakeholders and pressing the Government to give us some indication of what they have said, while the Government shield behind a claim that these are technical changes, which is denied by the industry. For the Government to say that the consultations that have taken place are necessarily secret is totally unsatisfactory for such changes.

Trade Marks (Amendment etc.) (EU Exit) Regulations 2018

Lord Adonis Excerpts

Wednesday 6th February 2019 Lords Chamber

I do not think that there is a right or wrong answer to that—it is probably where we would want to get to at some point—but it implies a reciprocal activity on behalf of the EU which is still not present. It is foreshadowed in the withdrawal agreement and may well come to pass. If there is a deal, we would probably expect to have a parallel process. If we will continue to operate on intellectual property on all fours, particularly in relation to data protection, this is exactly where we will have to go. That may be right in policy terms, but it marks out this statutory instrument as different from the others. I do not think that the Minister needs to give us too much of a response, because it is a fact, rather than an issue. If he confirms that this is the situation, it would be helpful to have it on the record.

[Lord Adonis (Lab)]

My Lords, this was the famous statutory instrument which referred to consultation with,

“a small group of trusted individuals”.

We had a long discussion in Grand Committee about who should or should not be trusted at the Government’s discretion. This was not satisfactorily resolved. However, the noble Baroness, Lady Bowles, has continued those conversations; I am sure that her discussions were with wholly trusted individuals and that her further discussions with the Minister have led to improvements in the regime that will follow from the statutory instrument.

I would like the Minister to clarify the issue of renewal fees so that I and the people reading our proceedings fully understand it. This was raised in Grand Committee, and the noble Lord referred to it in his six and a half page letter. As I understand it, the key passage is about what happens when people need to hold two sets of trademarks, rather than one, after renewal. I want to be clear that I have understood this correctly: the letter from the noble Lord, Lord Henley, says that around 10% of trademarks which are renewed each year,

“are held by UK businesses, and so we estimate that 60% of the 1.3 million newly-created comparable UK trade marks will be renewed at an annual cost to UK business of around £2.5 million in additional renewal fees”.

Are those wholly additional fees that businesses and individuals will have to pay, over and above what they would pay at the moment? Have I correctly understood that they need to pay those fees because they are very likely to need to hold two sets of trademarks—for the EU and the UK—in parallel? This has come out only through our consideration of this instrument and was not clear in the initial consultation or the Explanatory Memorandum. I am not in this industry, but this would seem to be a significant additional burden. People need to be aware. Case by case, we are seeing all of these additional burdens as a result of a no-deal Brexit. It is deplorable that we are imposing additional costs on businesses and individuals in this cavalier way.

[Lord Henley]

My Lords, I am very grateful to all those who have spoken. I was particularly grateful to hear the noble Baroness say—I think I have this right—the words, “job done”. I hope we can get this order on the statute book. Although the noble Baroness brings great expertise to this matter, there are others—I dare say the noble Lord, Lord Stevenson, would agree—who do not have that same degree of expertise. There is to some extent the sense of cold towels wrapped around our heads and strong black coffee as we consider these difficult and technical matters. We are grateful for that expertise. Even if the noble Baroness has now retired from this area, we will continue to discuss these issues with her and other trusted individuals, with the noble Lord, Lord Adonis, and with anyone else—trusted, untrusted or otherwise—who has a relevant concern in these matters; it is very important to do so. As the noble Lord, Lord Stevenson, put it—so well, as always—there are benefits to the owners of trademarks and benefits to consumers; it is therefore appropriate that we strike the right balance between those two groups. Dealing with conflicting rights is one of the difficult things that those in government have to do.

The noble Baroness asked about representation at the EU Intellectual Property Office. The EU trademark regulation mandates that a representative must be based in an EU member state in order to represent clients before the EU Intellectual Property Office. Officials in the IPO and in the Ministry of Justice are aware of this issue and have held many discussions with representative groups. As we turn to the future economic partnership, we will seek a comprehensive arrangement on trade and services, including professional and business services.

I want to make it quite clear, as I did in Grand Committee, that we believe it important that the guidance we offer to business is targeted and clear, particularly as the noble Baroness stressed the number of unrepresented businesses. Although the sensible thing would be to take advice from the noble Baroness’s profession, clearly many people prefer to avoid those in the legal and other professions. We will ensure that the right guidance is offered and highlight the importance of searching the EU register. I am grateful to her for raising those issues again.

The noble Lord, Lord Adonis, raised the subject of renewal fees and costs and referred to some remarks from my letter. Analysis of existing UK rights shows that the average cost of renewing a comparable right will be approximately £300, due every 10 years. If rights owners do not wish to renew their UK trademark, for example because they have no interest in preserving UK protection, they do not have to pay the fee. But, as the letter makes clear, businesses will incur additional costs should they want to enforce their UK-compatible rights or defend them against a challenge. That cost will vary depending on the length of proceedings and the amount of evidence considered. However, as the letter says, the IPO estimates that the total cost to UK businesses would be around £330,000 per year. The noble Lord, Lord Adonis, can make use of that information as he wishes in any discussion of the merits or otherwise of Brexit.

On his last point, the noble Lord, Lord Stevenson, will appreciate that it is only possible for us to pass legislation affecting the UK. The withdrawal agreement will provide for reciprocal measures with the EU, when and if that is agreed. I believe I have answered all the questions put to me.