Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 22nd January 2019 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 28 November 2018 be approved.

Considered in Grand Committee on 15 January.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I beg to move.

[Lord Adonis (Lab)]

My Lords, I should register the same point, which is that we are expected to agree another statutory instrument without the impact assessment that applies to it, and that situation is wholly unsatisfactory.

[Baroness McIntosh of Pickering (Con)]

My Lords, I should like to make one point before my noble friend replies. I had great difficulty in attending the debate on these statutory instruments last week. For two weeks running, through an unfortunate circumstance of timetabling, these statutory instruments were discussed when an EU item was being debated on the Floor of this House, and I hope that that can be avoided as far as possible. I support the point that has just been made. It is placing us in a very difficult position to take these statutory instruments on trust when we could wait to discuss and pass them once we have the impact assessment before us.

[Lord Bates]

I hear what the noble Lords and my noble friend have said. The Government will of course use their best endeavours to ensure that the impact assessments are always in place. We are not entirely in control of the process—there are other relevant bodies—but we will always try to make sure that all the information is there for the relevant committees, which do outstanding work in processing these SIs. I certainly undertake to take back noble Lords’ comments.

Motion agreed.

Interchange Fee (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 22nd January 2019 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 22 November 2018 be approved.

Considered in Grand Committee on 15 January.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I beg to move.

[Lord Adonis (Lab)]

My Lords, I wish to press the Minister further on these regulations, not in respect of the impact assessment, which in relation to these regulations was de minimis, but in respect of the fundamental issue of the interchange fees that will be charged as a result of these regulations to holders of UK credit and debit cards when they seek to use those cards in the wider EEA. Of course, I would have raised this issue in the Grand Committee last week but for the fact that the Grand Committee and the Chamber were both debating EU no-deal regulations at the same time, and, even with my many abilities, I cannot be in two places at once.

The big issue that arose from the debate was that the Government have chosen to apply the caps on fees applying to debit and credit cards which can be charged to traders only within the United Kingdom. They are not proposing to apply those caps to the wider EEA, even in respect of holders of UK credit and debit cards, who could therefore be subject to higher charges either directly by being charged surcharges by traders when they seek to use their cards on the continent or by those higher charges being passed on to traders, who will then put up their prices.

The noble Baroness, Lady Bowles of Berkhamsted, who had played a significant role in the European Parliament on the original interchange regulations that led to these regulations, raised a whole series of concerns in Grand Committee about their asymmetric application. She raised exactly the concerns that I have raised as to what might happen to holders of UK credit and debit cards within the wider EEA if these regulations are passed. She probed the Minister on this crucial policy decision; we are told that these are just rollover regulations but a crucial change is being made to the policy position in respect of credit and debit cards once these regulations go through: the caps on credit and debit cards will now apply only within the United Kingdom; they will not apply within the wider EEA. Holders of UK credit and debit cards could, as I said, be faced as a result of these regulations with a very substantial change in the position after 29 March and be subject to higher charges.

It came out in the debate in Grand Committee that this was a policy choice by the Treasury. It would have been perfectly possible for the Treasury to decide that we would continue to apply the same caps to UK issuers of credit and debit cards within the wider EEA—the same caps as apply within the UK—but a policy decision had been taken not to do so because of the decision to go for symmetrical rather than asymmetrical regulation. I bring this out because it is a huge policy issue; it could have a very significant impact on the lives of British people when they seek to use their credit and debit cards across Europe after 29 March in the event of no deal.

In the normal course of events, this House would seek to debate—at some length, I should imagine, given the interests at stake—this policy change. It would have been subject to proper analysis and scrutiny, but instead there was a 15-minute debate in Grand Committee last week and we are now being invited to pass these regulations on the nod. Why? Because of the urgency of passing no-deal regulations. That situation seems wholly unsatisfactory. The very least I can do on behalf of the wider public is to draw out these issues; the public need to be aware that they could face increases in prices or in their credit and debit card charges after 29 March, purely as a result of these interchange regulations.

[Lord Bates]

I am grateful to the noble Lord for raising that point. It was a point of debate on a technical matter relating to whether you treat a country as a third country, which we believe we have no option but to do since we will no longer be in the European Union. At the end of what was a very constructive debate, with some assiduous scrutiny in Committee by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, I undertook to write to the noble Baroness copied to the noble Lord, Lord Tunnicliffe, responding to precisely that point. I can confirm that I did that this morning; the letter went off and a copy is now in the Library. I would be happy to make a copy available to the noble Lord, Lord Adonis, as well if that would help.

[Lord Adonis]

My Lords, I am sorry to intervene again, but that response could not be more unsatisfactory. Noble Lords seeking to engage in the debate this afternoon on this fundamental issue are supposed to rely on a letter sent to two noble Lords this morning and placed in the Library of the House—a letter of which none of us was aware and could not conceivably have been aware of when we came into the House. That is the basis on which we are supposed to agree fundamental changes to the law, which could have a big impact on holders of credit and debit cards after 29 March. I place on record once again that, when you probe beneath the surface, this no-deal planning that we are engaged in—which is supposed to be technical—involves, if we have no deal from 29 March, fundamental changes to the terms of trade in respect, here, of just one aspect; a whole load of others are coming. All this has been smuggled in with no debate and no proper scrutiny; we are expected just to take the word of the Minister that he has properly considered it.

The issue at stake is not a question of explanation; the Minister can explain it for as long as he likes. The fact is that there is a fundamental change of policy taking place. That fundamental change could lead to higher prices being levied on UK holders of credit and debit cards after 29 March, in the event of no deal, if they seek to use those cards on the continent. It seems wholly unsatisfactory that we should agree to that situation with no debate whatever.

Interchange Fee (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 15th January 2019 Grand Committee

Moved by

[Lord Bates]

That the Grand Committee do consider the Interchange Fee (Amendment) (EU Exit) Regulations 2018.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Treasury has been undertaking a programme of legislation to ensure that the UK continues to have a functioning legislative and regulatory regime for financial services in the event that the UK leaves the EU without a deal or an implementation period. This statutory instrument will fix deficiencies in UK law relating to interchange fees applicable to card payments, as well as in rules for card schemes, issuers, acquirers and merchants.

The approach taken in this legislation aligns with that of other statutory instruments being laid under the European Union (Withdrawal) Act. While fundamentals of current financial services legislation will remain the same, amendments are required to ensure that it continues to function effectively. Every time someone makes a payment using their debit or credit card, interchange fees are paid from a merchant’s payment service provider—for example, their bank, which is referred to hereafter as an “acquirer”, to a card user’s payment service provider, referred to hereafter as the “issuer”.

Interchange fees are typically set by card schemes, for example Mastercard and Visa. The EU interchange fee regulation of 2015 introduced two main policy interventions. First, it imposes caps on the interchange fees where both the acquirer and the card issuer are located within the EEA. The caps do not apply where either the acquirer or the card issuer are located outside the EEA. The caps limit these interchange fees to 0.2% of the total value of the transaction for consumer debit cards, including prepaid cards and 0.3% for consumer credit cards. It allows member states to set lower caps for domestic debit and credit transactions where both acquirer and issuer are in that country. Secondly, the EU interchange fee regulation sets rules on cards schemes, issuers, acquirers and merchants; these include requiring the separation of card schemes and processing entities, for example WorldPay.

Under a no-deal scenario, the UK would be outside the EEA; the scope of the EU interchange fee regulation would therefore no longer include the UK. As a result, the interchange fees set by card schemes would no longer be capped for payments that involve a UK acquirer and an EEA card issuer.

Higher interchange fees could in turn be passed on to UK businesses and consumers directly or indirectly. Without a change in scope of the UK legislation, caps would still apply to card payments involving an EEA acquirer and a UK card issuer. This would result in asymmetrical obligations on UK businesses.

This statutory instrument will make amendments to retained EU law related to the EU interchange fee regulation 2015 to ensure that it continues to operate effectively in the UK. First, it will reduce the scope of the EU interchange fee regulation in the UK from the EEA to the UK; the result is that the interchange fee caps will continue to apply to card payments where both the merchant’s acquirer and the card issuer are located in the UK. Card payments where either the merchant’s acquirer or the card issuer are located outside the UK but within the EEA will no longer be subject to the interchange fee caps. This statutory instrument mirrors the EU interchange fee regulation with regard to setting the level of the cap for domestic card transactions. It allows the Treasury to set lower caps on UK consumer debit and credit card transactions by making regulations exercisable by statutory instrument, subject to the negative procedure.

The statutory instrument also transfers powers from the European Commission to the Payment Systems Regulator to make regulatory technical standards regarding the requirements for separation of card schemes and their processing entities. This is in keeping with the Treasury’s general approach of delegating responsibility for technical standards to the appropriate UK regulator. The Treasury has engaged with the Payment Systems Regulator and industry in drafting the SI.

In November, the Treasury also published the instrument in the draft, along with an explanatory policy note to maximise transparency to Parliament and to the industry. The Secondary Legislation Scrutiny Committee requested further information on the costs that might result to businesses and consumers. As explained, and as is included in the updated Explanatory Memorandum that was relaid on 19 December, the most significant impact in this area is that interchange fee caps will no longer apply where either the merchant’s acquirer or the card issuer are located outside the UK but within the EEA. Any adjustment to interchange fees thereafter would be a commercial decision. Such impacts would be as a result of the UK leaving the EU, rather than as a result of an approach taken in this SI. The direct costs as a result of this SI are minimal.

In summary, therefore, this SI is necessary to ensure that the UK’s legislation and regulatory regime remains effective in the event that the UK leaves the EU without a deal or an implementation period. This will be to the benefit of UK businesses and consumers. I hope noble Lords will agree, and join me in supporting these regulations, which I commend to the Committee.

[Baroness Bowles of Berkhamsted (LD)]

I thank the Minister for his introduction. It is said that if you drown, your past life floats before your eyes. I feel a bit like that every time we meet to discuss these onshoring of SIs. Not only are we drowning in them, but there is rather a lot of my past life wrapped up in them. I got a double dose yesterday. It occurs to me that if I were to pick this up for the first time, as is the case for other noble Lords, I could not rely on the Explanatory Memorandum to help me out with the complete background and context of why there was such legislation in the first place. We know what the EU did and what it does in imposing the cap, but why it is done or why it was done is relevant to remarks that I will make on how the onshoring has been done.

Placing a cap on card payment interchange fees was a hotly contested debate at the time, not for great party-political differences, but by the payment service providers, who did not want a cap on their profits or to have to be transparent about the breakdown of costs. I recall that it was incredibly difficult to get a true handle on what was or was not reasonable as a cap, because the lobbying was so confusing and lacking in transparent facts. If I further recall correctly, the UK Government were quite sensitive to the lobbying and were not among the most hawkish when it came to fixing the cap. In Parliament we harboured rather greater suspicions about the credit card companies. What was known was that EU consumers paid billions in interchange fees, because the costs, of course, are passed on to the goods. It was €9 billion in 2011. There had been competition investigations by national competition authorities and the Commission, which took proceedings against Mastercard and Visa.

The key problem was that cardholders, who are generally unaware of interchange fees, or at least their size, are encouraged to use cards that generated higher fees; at the same time the card companies competed to attract issuing banks by offering them the higher interchange fees. Those mechanisms operate to drive fees up rather than drive them down. As a consequence, that caused the disappearance of some of the cheaper cards, and the UK was among the countries that suffered—so did the Netherlands, Austria, Finland and Ireland.

On the receiving end of the fees, the merchants and consumers had no power of redress on the competitive balance, even though the cost of the interchange fees was ultimately borne by them. So market intervention was needed, and that, in the end, resulted in the agreement of these caps. The measure was copied by other countries because there are benefits to that regulation, even in an individual territory.

There was an added cross-border dimension in the EU because it enabled banks from other countries that offered lower fees to come in and compete. Prior to the legislation, card schemes were able to apply rules to prevent retailers using better-priced schemes from other countries. The difference could be significant. Interchange fees varied from 0.1% to 1.5% in 2014, prior to the cap. The UK was neither one of the worst nor one of the best. From the largest providers, debit card rates were of the order of 0.24%, and credit card rates were 0.9%. The new caps of 0.2% and 0.3% were clearly an improvement, and applied to cross-border transactions within the EEA as well as domestic ones, as has been explained.

I fully understand the logic of how the onshoring has been done, in that the UK and EEA will be third countries to one another, and the Explanatory Memorandum makes it clear that cross-border transactions with the EEA will no longer be capped. That comes from the third-country provisions of the regulation and presumably how the UK will be treated by the EU. I have no doubt that, where relieved from an obligation, credit card companies will seize the opportunity of making more profit.

In particular, I draw attention to paragraph 12.4 of the Explanatory Memorandum:

“It is technically possible that, in this instrument, the UK could mandate interchange fee caps that apply to the interchange fees that UK card issuers would be permitted to charge to international transactions. However, this would place asymmetrical obligations on UK businesses vis-à-vis third countries, whereas the current situation provides symmetry with EEA countries. The default onshoring approach to fixing deficiencies relating to the scope, is therefore to reduce the scope of the regulations to UK-only, rather than extending the scope worldwide”.


There might well have been other ways of dealing with it. I have seen a lot of these onshoring SIs now, not just from the Treasury and other departments, and sometimes symmetry is aimed at—sometimes not. Sometimes the EEA is put in the third-country box and sometimes not. Sometimes a continuing, although asymmetrical, arrangement is used. We have examples of that in the next batch of SIs on funds. We have already had it with regard to occupational pension funds.

I greatly regret the choice that the Treasury has made. It has given in to saying we will let card issuers make more profit. What is the justification beyond defaulting to symmetry? If I go on holiday and use my UK cards, will I find that merchants start to add on surcharges? Will I find that my UK cards might not be accepted? Was there really the need to aim for symmetry? If the fees on the cards are increased, those are the kinds of consequences that we saw before we had PSD1 and PSD2, the payment services directives. I cannot find a reason why the credit card companies should be protected rather than the UK consumer. Those companies are being given a windfall.

Of paragraphs 12.2 and 12.5—I think they were added in addition due to the Secondary Legislation Scrutiny Committee—the former says:

“Businesses may potentially face more significant costs as a result of the scope of the regulations”,


but that is going to rely on,

“commercial decisions taken by card schemes”.

Paragraph 12.5 addresses the effect on the consumer—it is all going to result from,

“the commercial decisions of businesses to adjust interchange fees, as opposed to the onshoring approach taken in this instrument”.

But the onshoring approach could have been taken as one to protect the consumer rather than to give the credit card companies their head. Would it not have been better to try to maintain the current state and, then, if for some reason it was not working, to give the Treasury the power to make a change?

I would like a little more information from the Minister about what efforts were made to see whether costs for the UK end could be properly pinned down. Just because the EU end can become a rip-off does not mean that the same practice should be condoned at the UK end. I do not count it as a competitive disadvantage to not be able to rip off customers. After Brexit, the issuers in the UK will no longer be in direct competition with the issuers in the EU. To say that they are at a competitive disadvantage—I think that is what “asymmetric obligations” is meant to imply—does not hold. All that is being allowed is a potential rip off, and what is the logic of that?

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, last night, the House expressly rejected no deal in its vote. That is also Labour Party policy. These orders should not be necessary, but when the Government put instruments in front of us, our role is to ensure effective scrutiny of all SIs and to expose any serious concerns. We believe that this is consistent with our role as a revising and scrutinising Chamber. Having said that, and having listened to the splendid seminar on credit cards by the noble Baroness, Lady Bowles, which leaves me better informed, if not necessarily wiser, I have very few comments to make on this particular SI.

I start by expressing my sheer irritation with the failure to provide timely impact assessments. It seems utterly absurd. Paragraph 12.5 of the Explanatory Memorandum states:

“A full Impact Assessment will be published alongside the Explanatory Memorandum on the legislation .gov.uk website, when an opinion from the Regulatory Policy Committee has been received”.


That might have been snuck out in the past two or three days, but there is no reason to have an impact assessment if it arrives only after all the legislative procedures have been completed. We should have a thorough explanation from the Treasury as to why that is happening.

Once again, having said that, the Treasury produced guidance on these SIs—at paragraphs 7.1 to 7.9, I think—which are, word for word, the same in all Treasury no-deal Explanatory Memorandums. Therefore, I have had to read them in increasing detail. My favourite sentence is at paragraph 7.4:

“These SIs are not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition to this situation. The scope of the power is drafted to reflect this purpose”.


As an amateur in this field, all I can do is try to test the SIs against that promise. It seems to me that the test is whether they are necessary and whether they obeyed the constraints of new policy. An interesting new area has been introduced by the noble Baroness: was there a better solution that still stopped within the test? I am persuaded that they are necessary; indeed, the Economic Secretary to the Treasury, as is required, signed a statement to that effect. I suppose that if they were left unmade, the credit card companies could rip the public off even more than where we are. I do not think that they introduce new policy, but the theme that runs through many of these SIs concerns symmetry and asymmetry. The noble Baroness has suggested that a better solution for the UK customer would have been an asymmetric solution. I will be very interested in the Minister’s response to that.

I note that the order comes into force on exit day. What I really want to know is how will the order be repealed if there is a deal. Can the Minister assure us that it is a genuine no-deal-scenario instrument and that it will be removed from the statute book if there is a deal? That seems the fundamental proof that it is a no-deal instrument.

My only other comment is that, because a no-deal solution is such a dreadful idea, virtually all these statutes create a situation in which the consumer is less well off; this is no different. As has been pointed out, consumers in the UK trading with a UK bank and suppliers will continue to enjoy protection, but there will be no protection overseas. I find it very sad that the Government believe that the chances of that happening are sufficient to require these SIs. I hope that we do not go down this road, because each of these little increments of loss of protection, particularly for consumers, is highly undesirable.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, and the noble Lord, Lord Tunnicliffe, for their scrutiny of these SIs and I shall seek to address the points they made. First, in relation to the noble Lord’s point on the impact assessment, in line with the better regulation guidance the Treasury considers that the net impact on a business will be less than £5 million a year. There is potential for limited costs relating to compliance reporting to the Payment Systems Regulator. Firms will benefit from the reduction in uncertainty under a no-deal scenario. Without this instrument the legislation would be defective and firms would be left to deal with an unworkable and inconsistent framework that would substantially disrupt their businesses.

[Lord Tunnicliffe]

Is the Minister therefore offering a different reason for there being no impact statement from the one given in the Explanatory Memorandum? It seems that a different reason has been put forward.

[Lord Bates]

I will come to that point in a minute. There is a group of impact assessments before the Regulatory Reform Committee, the body within BEIS that reviews these. It is currently considering them and will publish an impact assessment on a wider group of SIs, including this one. If that is not the case, I shall certainly come back to the noble Lord. However, that is why it sounds as though there are two answers when in fact there is one.

[Lord Falconer of Thoroton (Lab)]

My Lords, I missed the whole of the statement of the noble Lord, Lord Bates. I thought the beginning of the debate was at 3.30—which it was—and I arrived at 3.32. If the noble Lord, Lord Bates, takes the view that I should not intervene, I would quite understand. However, I am interested in this and I wonder if he would allow me to do so. Or perhaps the noble Lord, Lord Young, as the guardian of the procedure, will allow it. If he says no, I will accept that. I leave it to the noble Lord. I throw myself at the mercy of the Whips. Please say no if you do not want me to intervene.

[Lord Bates]

I am content of course to hear the noble and learned Lord, who is a senior Member of the House.

[Lord Falconer of Thoroton]

I am obliged. Is my understanding correct that there will be an impact assessment that covers a range of SIs—including this one—but it will be published after we have considered this?

[Lord Bates]

This specific SI, to which the noble and learned Lord refers, does not have a direct impact assessment of its own because it fails to reach the de minimis threshold of £5 million. Remember, we are seeking to transpose what already exists into UK law, and the costs of doing this are meant to be de minimis. A wider group of assessments is currently going through the regulatory reform process, which will look at the impact of these SIs as a group. This is one of potentially 45 affirmatives and 14 negatives which are coming through. That work will be helpful in satisfying noble Lords on this.

The noble Lord, Lord Tunnicliffe, asked whether the SI will be repealed if there is a deal—which, I underscore, we hope there will be. In the event of an implementation period—which will be delivered through separate legislation; the EU withdrawal agreement Bill—this legislation would not come into effect in March 2019 and would be delayed until the end of that period. It could be amended to reflect an eventual deal on the future relationship or a no-deal scenario at the end of the implementation period.

The Government re-laid the Explanatory Memorandum to include additional information requested by the Lords’ Secondary Legislation Scrutiny Committee on impacts. Therefore we do not consider it necessary to publish the de minimis impact assessment at this stage.

[Lord Falconer of Thoroton]

I am trying to follow this, but is the Minister saying that all of these no-deal regulations assume that there is a deal and will therefore be repealed by the EU withdrawal implementation Bill—which is a requirement under the European Union (Withdrawal) Act at the moment—to implement a deal, or is he saying something different?

[Lord Bates]

I am saying that the SIs we are dealing with derive their power from the EU withdrawal Act—in Section 8(1), as we have been through many times before. They are necessary because that Act, in whose passing the noble and learned Lord was an active participant, contains a repeal of the European Communities Act 1972. It will therefore be necessary to have something to supplement that. In the event of a deal it is anticipated that there will be an EU withdrawal agreement Bill, which would pass through both Houses, and within which provisions would be made to address the continuation of these arrangements into an implementation period. The noble and learned Lord is looking at me—

[Lord Falconer of Thoroton]

I am bewildered by this for the following reason. I understand that these regulations are required because if there is no deal, there is no implementation period. If there was an implementation period, everything would continue as before. Separately from that point, Section 13 of the EU withdrawal Act requires another Act of Parliament after a deal is approved by the Commons to give effect to the deal, whatever it is. I do not want to be too pressing but I am not getting clarity from the Minister about what the Government envisage—assuming we do a deal—in that Bill, which is required by the EU withdrawal Act. Will they simply repeal all these no-deal regulations? This instrument is a good example of the reason it matters. If it continues in force when there is a deal with a two-year implementation period, two regimes will on the face of it apply to the capping of the charges that can be put on consumer credit transactions via debit and credit cards. I may have misunderstood this but it is quite important that we know how the Government will prevent there being two regimes in practice.

[Lord Bates]

I do not think the noble and learned Lord has misunderstood it. He makes a fair point as to how this will operate. The clarification I offered in my previous comments is that the withdrawal agreement Bill, which we are talking about, will delay the need to implement the provisions and allow them to be amended or repealed. It effectively gives a choice as to how these SIs would be handled. This instrument would not be required or in force during the implementation period. In that event, current EU law would continue to apply. I think it was on that point that the noble and learned Lord sought an on-the-record response.

The noble Baroness, Lady Bowles, gave a helpful analysis of the situation with regard to why we did not cap interchange fees for UK card issuers. At the moment, the interchange fee regulations maintain symmetry for payment service providers. If HM Treasury applied the interchange fee caps vis-à-vis the EEA without corresponding commitments from the EEA, that would constitute a policy change. The noble Lord, Lord Tunnicliffe, has been consistently assiduous throughout our engagements on these matters in ensuring that there should not be—

[Baroness Bowles of Berkhamsted]

I am not quite sure that I buy that line. I can use the examples of the regulations we are about to debate, or the ones on occupational pensions. There, funds contain UK assets and EEA assets. When they are onshored, the symmetrical position and the one that we might expect the EEA to take is to narrow down the fund content: just to the UK for the UK and the continuing EEA for the EEA. That was what was done for occupational pensions, but then the point was made that that requires a lot of divesting of assets for funds—it is far better to have diversity—and that is generally not good for investors or for pensions. The occupational pensions regulations were changed so that the diversity of assets could remain. That is the proposal with the regulations we are about to debate on the subgroup of funds—the venture capital and social entrepreneurship regulations.

At the same time, third countries are still treated differently, so there is not a uniform choice that we go it alone or go down the third country route. There are occasions when this midway has been chosen to continue to stick within the greater EEA area. The noble Lord, Lord Bates, was here yesterday when we discussed this regarding parallel imports. He might have been thinking about what would be coming later, but this choice between symmetry and asymmetry, and the fact that we now have divided up into three potential territories—UK only, UK plus EEA and third country—exists. There are precedents. I am afraid that I do not think that the arguments the officials have presented the noble Lord with stand up to scrutiny.

[Lord Bates]

I certainly recall every word of the four glorious hours we spent waiting to debate these instruments in Grand Committee yesterday. I also remember the eloquence of the noble Baroness’s exposition on patents, drawn from her experience as, I believe, a patent attorney in Europe.

I can only repeat that what we are doing here might not be satisfactory to the noble Baroness. She has highlighted—it is to the benefit of the Committee that she has done so—that there is a choice here. She is making the argument that there is a choice. Our view, in consultation with the industry and the Payment Systems Regulator, is that the way we have presented this best reflects the way we have onshored this approach, remaining consistent with the commitments and undertakings given in Section 8 of the withdrawal Act. I will certainly take back to my friend the Economic Secretary to the Treasury the point the noble Baroness has made. If she will allow me, I will write to her with some more details as to why that policy choice was taken. It is a choice that is there and the one used in the statutory instrument. I commend it to the Committee.

Motion agreed.

Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 15th January 2019 Grand Committee

Moved by

[Lord Bates]

That the Grand Committee do consider the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018, the Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018, and the Venture Capital Funds (Amendment) (EU Exit) Regulations 2018.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, as with the previous statutory instrument, the Treasury is in the process of laying statutory instruments under the European Union (Withdrawal) Act. These three statutory instruments are part of the same legislative programme and will fix deficiencies in UK law relating to the regulation of investments.

The approach taken in these SIs aligns with that of other SIs being laid and debated under the EU withdrawal Act by maintaining existing legislation at the point of exit to provide continuity, but amending it where necessary to ensure that it works effectively in a no-deal context. These instruments have already been debated in the House of Commons on 9 January.

The alternative investment fund managers regulations relate to the management, administration and marketing of alternative investment funds. Investment funds are investment products created to pool investors’ capital and invest it in financial instruments such as shares, bonds and other securities. Alternative investment funds are investment funds that are not covered by the directive for undertakings for collective investments in transferable securities, commonly known as UCITS, which are aimed at retail investors. Alternative investment funds include hedge funds, venture capital and private equity funds, and are often aimed at professional investors. The EU alternative investment fund managers directive—AIFMD—created the alternative investment fund framework, and was domestically implemented primarily through the Alternative Investment Fund Managers Regulations 2013.

The second and third SIs relate to two subcategories of alternative investment funds. Registered venture capital funds aim to promote investment into small and medium-sized enterprises, such as start-ups, whereas social entrepreneurship funds focus on social enterprises whose main objective is tackling societal challenges, such as youth unemployment. These regulations create a UK-only regulatory framework for alternative investment funds in the UK. Regulations for alternative investment fund managers, venture capital funds and social enterprise funds enter into what is to be known as a temporary marketing permissions regime. The alternative investment fund managers regulations create a temporary marketing permissions regime. Currently, European Economic Area funds can make use of the EU passporting regime, which gives funds the automatic right to market across the EEA. In a no-deal scenario, the passporting system will no longer operate and EEA funds would lose the right to market into the UK, and would not be able to continue servicing UK customers as they would have before.

In December 2017, the Government announced they would introduce a temporary permissions regime for inbound passporting EEA firms and funds. The draft alternative investment funds regulations create a temporary marketing permissions regime for EEA managers of alternative investment funds, including the European venture capital funds and European social entrepreneurship funds. This will allow EEA fund managers who currently have a marketing passport to continue to market funds as they could before exit day for a temporary period. This period is for three years. However, subject to an assessment by the Financial Conduct Authority as to the effect of extending, the Treasury can extend the period by no longer than 12 months at a time.

As outlined in my letter to the noble Lord, Lord Tunnicliffe, on 7 January, the Treasury has now committed that any extension of this or any other temporary regimes would be preceded by a Written Ministerial Statement issued to both Houses of Parliament. The Statement would give Parliament advance notice of the Government’s decision to extend the temporary permissions regime ahead of the extension SI being laid. This commitment responds to the concerns raised by the Secondary Legislation Scrutiny Committee and by my colleagues in this House. While it is our continued position that the negative procedure is appropriate, we take parliamentary scrutiny seriously and hope this commitment will allay the House’s concerns in this regard.

The temporary marketing permissions regime provides continuity and certainty for passporting funds that enter the regime and the UK customers they serve. The FCA will have the power to oversee operation of the regime and have supervisory oversight of all funds with temporary permissions. While in the temporary marketing permissions regime, fund managers will be directed by the FCA to notify under the national private placement regime, which is the current mechanism that allows non-EU third country fund managers to market in the UK.

On the other provisions of these instruments, first, all these draft regulations remove references to the Union and to EU legislation, which are no longer appropriate, and replace them with references to the UK and UK legislation. Secondly, in the alternative investment fund managers regulations, the definition and scope of alternative investment funds will be amended to reflect the UK leaving the EU. Any fund that does not meet the new definition of UK UCITS will be defined as an alternative investment fund. This will therefore mean that all EEA UCITS will be regarded as an alternative investment fund in the UK. UCITS funds are a simple and regulated type of fund intended for retail investors, whereas alternative investment funds are more complex, aimed largely at professional investors, and have additional requirements, such as transparency of reporting. Requiring EEA UCITS to meet additional requirements for an alternative investment fund would be disproportionate. Recognising this, this instrument removes certain aspects of the regime for alternative investment funds that were not designed for retail funds, such as reporting requirements. This will ensure that UCITS funds will continue to be regulated proportionally in the UK as retail funds.

--- Later in debate ---

[Lord Bates]

I thank the noble Baroness, Lady Bowles, and the noble Lord, Lord Tunnicliffe, for their questions and for their focus on and scrutiny of these important regulations.

I shall start with the impact assessment because there is a different answer to the usual one we have given of “de minimis”. The Government have undertaken an impact assessment on these instruments, which we hope to publish shortly. As a whole, these SIs will significantly reduce the costs to business in a no-deal scenario, as without them the legislation would be defective. In making these changes, we have attempted to minimise disruption to firms and their customers. We have identified the main costs to firms as familiarisation costs arising with the new legislation, transition costs because of changes in legal definitions and changes in the reporting requirements for firms using a temporary marketing permissions regime.

The noble Baroness, Lady Bowles, asked why the asset management stripping provisions have been contracted and how they will apply to EU AIFM firms in a temporary marketing permissions regime. Such firms will be able to market under the same conditions as they could pre-Brexit. That follows the consistent approach we have sought to take in drafting these SIs: by considering how they will work and consulting with the industry. They will therefore be subject to the asset-stripping provisions in their home member state, which of course—without wanting to give the noble Baroness flashbacks to her 20 trilogues in the European Parliament—will continue to govern such activities.

[Lord Tunnicliffe]

If I may gently challenge the Minister, he said that the Treasury has taken a consistent approach with these SIs but it has not. Sometimes it has chosen to be symmetric and sometimes it has chosen to be asymmetric. That may be perfectly reasonable if there is a good explanation—particularly for why it would choose an asymmetric approach—but such an approach, which at least disadvantages some parts of the UK’s financial services industry, should be justified by the fact that it gives greater benefits than not having that asymmetric approach available.

[Lord Bates]

I hear what the noble Lord says. On that particular point, I was referring to the general objective of the onshoring process in which we are engaged. This is to effectively onshore the current rule book to allow for no or limited disruption to UK firms—and, most importantly, their customers and clients—in the unlikely event of no deal. I accepted that point on the previous SI. I will reflect on the point raised by the noble Baroness, Lady Bowles, and the noble Lord, Lord Tunnicliffe, about how the choice will be applied in future—how it will be arrived at—and I shall copy them in on my letter.

The noble Lord, Lord Tunnicliffe, asked me to clarify how the passporting regime will work for third countries post-Brexit. The passporting regime between the UK and the EU will cease in a no-deal scenario. There is a third-country passport, which is currently not in force. The SI transfers to the Treasury the Commission’s function of appointing the day when this passport comes into effect. If in force, the third-country passport can be used to allow third-country fund managers to be authorised to manage and market funds in the UK.

The noble Baroness, Lady Bowles, asked about opening up to third countries in the future, which is a pertinent question. This instrument deals only with the inoperability that comes with withdrawal from the EU in the event of no deal. However, the national private placement regime is a functioning regime for any third country to take advantage of.

[Baroness Bowles of Berkhamsted]

I understand fully that to some extent we do not need a third-country passport because our national private placement regime is sufficient to do almost the same job. But in my question I was also talking about the assets that the venture capital funds and social entrepreneur funds are allowed to hold. Would those be opened up and be able to have third-country assets in the fullness of time? I do not mind being written to about that.

[Lord Bates]

We may have to do that but I will go as far as I can with the information which I have. There is some more information which I can convey to the noble Baroness and the Committee. The Government recognise that the alternative investment fund managers regime and the UCITS regime aimed at retail funds do not intertwine perfectly. This is why we have made fixes, where possible, within the confines of the EU withdrawal Act.

Section 272, which the noble Baroness referred to, is to ensure that EEA retail funds are treated as any other third-country funds, in keeping with the UK’s obligations under the World Trade Organization rules in a no-deal situation. It is not possible for UCITS to buy or build a controlling stake in the securities of a company or to hold private equity interests. The small number of non-UCITS recognised under Section 272 are all subject to UK-equivalent rules for retail funds on eligibility of assets, borrowing and risk spreading. I undertake to reread the record of this debate and ensure that the noble Baroness’s point is addressed directly, if that did not quite cover it.

The noble Lord, Lord Tunnicliffe, asked about exit day. Is it 29 March and how will this instrument be switched off if there is a deal? Exit day is defined in the EU withdrawal Act as 29 March 2019. As I said in the previous debate, the withdrawal agreement Bill will contain provision to change the commencement date of the SI in the event of a deal.

The noble Baroness, Lady Bowles, and the noble Lord, Lord Tunnicliffe, asked about the volume of assets under management for these various fund categories. At the moment, the numbers we are referring to are fairly small. They combine fewer than 50 European venture capital funds and European social entrepreneurship funds in the UK, based on FCA estimates. But as a result of these changes and the temporary permissions regimes, we may get greater visibility of them. I share her desire regarding venture capital, which of course provides seed corn to many small and medium-sized enterprises that will be vital to our economic future, and regarding the importance of social entrepreneurship funds. I know that many departments across government are looking at those funds as a way to implement the sustainable development goals and leveraging private sector capital to meet those objectives.

I think that covers most of the points raised by the noble Lord and the noble Baroness. Again, I thank them for their assiduousness in looking through these regulations. I also recognise and thank the Secondary Legislation Scrutiny Committee for its work, which was extremely helpful in this regard, and I commend these instruments to the Committee.

Motions agreed.

Yemen: Humanitarian Situation

Lord Bates Excerpts

Monday 14th January 2019 Lords Chamber

[Lord Ahmed]

To ask Her Majesty’s Government what assessment they have made of the humanitarian situation in Yemen.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the humanitarian situation in Yemen remains the worst in the world. It is imperative that the parties act in good faith to implement the Stockholm agreements and UN Security Council Resolution 2451. Any military escalation must be avoided, and Hodeidah and Saleef ports and onward supply routes must be kept open. Alongside our diplomatic efforts to end the conflict, we continue to respond to the humanitarian crisis financially, through our £170 million in aid this year.

[Lord Ahmed (Non-Afl)]

My Lords, I thank the Minister for his reply. The Iranian-backed Houthi drone attacks killed top military personnel last week, and Saudi-led coalition airstrikes supported Mansur Hadi’s Government in Hodeidah and Taiz. As he has mentioned, the ceasefire talks have not resulted in anything. Eighty-five thousand children have been starved to death, and 80% of the population are in need of aid. Ten million people are about to starve in Yemen. Will the UK diplomats tabling a Security Council resolution—this week, we hope—warn both Iran and Saudi Arabia not to have their proxy war, which is killing children and innocent civilians, in Yemen?

[Lord Bates]

The noble Lord is right to focus on the humanitarian situation. It is the worst in the world—a crisis. Ten million are one step away from famine, and there are massive cholera outbreaks. It is a dreadful situation. The drone attacks, and breaches he has referred to, continue to exercise concern. The UN redeployment mission there is headed by General Cammaert, who is experienced in these areas. He is working with the Government of Yemen and the Houthi forces to try to ensure that, initially in Hodeidah, there is peace and it holds, as that is where most of the supplies come through. It remains an immensely fragile situation, and the UK, as penholder at the UN Security Council on Yemen, will continue to do everything it can to support the peace efforts.

[Lord Howell of Guildford (Con)]

Does my noble friend recall that back in October the UN co-ordinator said that between 12 million and 13 million people would starve in Yemen? Since then, we have had the Stockholm agreement; can he update us on where that has got to? Has the airport in Sanaa been opened? Is there evidence that the Houthis have been manipulating the aid provided? Will the Hodeidah ceasefire hold, or is it breaking down? Are there other plans to reconvene that Stockholm agreement if the present one begins to be pulled apart?

[Lord Bates]

Stockholm is a process, not an event, so it needs to be ongoing. The situation in Hodeidah remains fragile, but we believe there is still a commitment from all parties to keep it open. Yemen is in this predicament because it relies so heavily on imports of food and fuel to serve its population, through the Red Sea ports. The latest figures we have for December show that 81% of food and 89% of fuel managed to get through. That is a reason for cautious hope, but it remains fragile, and the consequences of this not holding are well stated.

[Lord Lea of Crondall (Lab)]

My Lords, how far does the noble Lord think it is possible to reconcile deadlock in the UN and building on the mission’s developing role, such as keeping the Sanaa-Hodeidah road open and so on?

--- Later in debate ---

[Lord Bates]

The way to do that is by seizing on every element of hope. Hope was represented in the outcome of Stockholm. That was then consolidated into a UN Security Council resolution that was not blocked by other P5 members. We have international agreement. There is reason for hope. We must put all efforts behind trying to secure it.

[The Lord Bishop of St Albans]

My Lords, as well as the huge famine—I congratulate Her Majesty’s Government on what they are doing to respond to it—we are also seeing unfold before our eyes a huge medical crisis, with possibly the largest cholera epidemic in recorded history. Will the Minister update us on what plans and action are being taken with our partners to bring in medical help urgently to try to address this unparalleled, Dickensian level of preventable disease?

[Lord Bates]

The right reverend Prelate is absolutely right that this is the largest cholera epidemic. Again, one small, cautious reason for hope is that, from its peak, that outbreak has begun to reduce due to heroic and selfless actions by humanitarian workers on the ground and by organisations such as the World Health Organization and UNICEF, funded in part by the United Kingdom.

[Baroness Sheehan (LD)]

My Lords, the drone strike last week at the Al Anad air base showed the need to try to broaden the ceasefire agreement to cover the whole of the country, but this would require a resumption of the talks between the Yemeni Government and the Houthis. Does the Minister think that the likelihood of that happening has gone up since the US’s announcement in the last few hours that it will support the political process? Secondly, can the Minister assure me that the grain in the mills in and around Hodeidah will not be lying there unused much longer but get out to those starving families across the country?

[Lord Bates]

Yes, I can give that assurance. That is what we want to see. The Red Sea mills were a crucial part of why we wanted the ceasefire to start. We are at small beginnings. The situation is catastrophic, but there is a glimmer of hope. We must all work towards it.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Bates Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

[Lord Adonis]

My Lords, the sunset clause is for two years, which is nearly half a Parliament. The fact that there is a sunset clause does not somehow legitimise everything that takes place in that period. There is no case for these provisions at all. Let us be clear that we are talking about further changes to the existing law; these are the provisions that are causing such difficulty for many of us in the House. We are prepared to grant the Minister powers to simply transpose existing provisions into UK law—indeed, I am not even sure that under the European Union (Withdrawal) Act he needs legal powers for that. The key issue here is that it all concerns further changes to the law. The statute book constantly needs to be capable of being updated; the whole purpose of Parliament is to debate further changes to the law, and we have established procedures which go back to time immemorial for doing that. They involve Second Reading, Committee, Report and Third Reading stages in both Houses of Parliament.

There is no reason whatever for subverting those principles simply because the Government are overloaded, which is essentially the argument at the moment. The answer is either not to make those changes in law, if effectively they can be made only by exercising powers by decree, or to create the necessary time to do so, which means the Government having the right priorities in what they put before Parliament. We always have to set priorities. As a former Minister, I know that what you do and do not put in the Queen’s Speech and the legislative programme is a matter of priorities. If necessary, the House must sit for longer.

Finally, if it comes down to whether this House should sit somewhat longer to debate major changes to the law of the land on financial services, I for one feel that it is our duty to sit here, debate these changes and not give the Government the power to legislate by decree. I hope that the noble Lord, Lord Hodgson of Astley Abbotts, feels the same because he has been responsible for financial services regulation in the past. That is effectively the power being granted here, potentially in significant areas that are not to do with simply transposing existing or in-flight European law into UK law. I am sorry to say this to the Minister, but the objections to the Bill are fundamental, not incremental. He may well find that, unless he can meet those objections, substantial parts of the Bill will be removed by the House on Report.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I thank noble Lords for contributing to the debate and speaking to their amendments. Let me set out the Government’s position regarding the amendment moved by the noble Baroness, Lady Bowles, and the amendments spoken to by the noble Lords, Lord Sharkey and Lord Davies. I will then come back to some of the points made during the debate by the noble Baroness, Lady Liddell, and the noble Lord, Lord Adonis.

I will speak to Amendments 1, 3, 5 and 7 together, if I may. They relate to the breadth of the amending power, which was central to the speech of the noble Lord, Lord Adonis, and the ability to account for the UK’s specific position outside the EU for the two years in which the power would operate. As I understand it, Amendment 1, moved by the noble Baroness, Lady Bowles, stems from her concern—repeated by all Members who spoke in the debate—that the power is currently drafted too broadly. The amendment would require that no legislation can be made under this Bill which is corresponding but not similar, or vice versa, to the original EU legislation. It is clearly important that we go into the precise definition of each term, as they have different interpretations and implications. In doing so, I hope that we will add to the body of information that can be referred to in future to clarify the Government’s intent in this process.

First, we take “corresponding” to mean “identical in all essentials or respects”. The term “similar” means “having a resemblance in appearance, character, or quantity without being identical”. In practice, of course, the legal interpretation of the two terms can vary, with some judging that “corresponding” affords a wider latitude. However, it is nevertheless clear that on the basis of the current drafting, any exercise of the power would need to be limited in subject matter and purpose. It will be possible to exercise the power only to achieve the aim of the original EU legislation, with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not, therefore, allow for wholesale changes to the character and intent of the original legislation.

For example, if the Government were implementing a file on pensions regulation, they would need to seek to achieve the same purpose, even with adjustments, and remain focused on that subject matter—not extend it to another policy, such as insurance. However, the Bill provides the ability to best reflect UK circumstances in the implemented legislation, which is key. The intent is to clarify that, in a no-deal scenario, the UK has the tools to ensure that it remains an attractive and competitive place to do business and continues to implement the latest international standards, with regulation that reflects the best interests of UK markets and those international standards. The wording suggested in the amendment would allow provisions to be made under this Bill only should they be corresponding and similar. This would require the legislation as it is implemented to fulfil two different legal standards simultaneously. We consider that this would be a highly uncertain legal bar to pass and in some cases it may even make the power essentially unworkable.

I would also like to reassure the Committee that the formulation “corresponding, or similar” is well established and has been used—to provide recent examples—in the Pension Schemes Act 2015 and the Recall of MPs Act 2015. I hope that this will reassure the noble Baroness regarding the limitations that will apply and the formulation “corresponding, or similar”, for which there are precedents. In short, the current wording is already intended to ensure that the powers under this Bill cannot be used to create substantively new policy outside the bounds of the original EU legislation.

I turn to Amendment 3 tabled by the noble Lord, Lord Sharkey. I understand that this comes from a similar place, intending as it does to forbid the Government’s amending legislation in such a way that it would create significant new policy separate from the original EU legislation, a concern also expressed by the noble Lords, Lord Adonis and Lord Davies. I hope that my response to the amendment of the noble Baroness, Lady Bowles, will provide noble Lords with some degree of the reassurance that is needed. As drafted, the Bill would not allow the Government to significantly alter, expand or run contrary to the primary purposes of that original legislation.

I turn now to Amendments 5 and 7, tabled by the noble Lords, Lord Tunnicliffe and Lord Davies, and spoken to by the noble Lord, Lord Davies. They would limit the power in the Bill to make adjustments in a similar manner to the limitations in the EU withdrawal Act—limiting changes to legislation purely to a fixing of legal deficiencies. I understand the concern across the Committee that the power in this Bill goes beyond that of the EU withdrawal Act. I have already touched on the importance in a no-deal scenario of ensuring that European Union legislation implemented in domestic law best serves the interests of UK financial services, so I will not rehearse the same arguments again at length. However, I will reiterate that we cannot be certain about what files will look like once they are finalised or of the context in which the files will be implemented. The powers in the EU withdrawal Act are strictly limited, and the purpose of the legislation we are making under the Act is to ensure that there is a workable legal framework in place at the point of exit and to minimise disruption to financial services firms and their customers who currently operate under the existing EU rules. It is therefore appropriate to keep any changes made on exit day to a minimum.

There is a fundamental difference between this legislation and the EU withdrawal Act, and this comes directly to the point raised by the noble Lord, Lord Adonis. The withdrawal Act deals only with the legislation which has been agreed at the EU level, with the UK present at all stages of the negotiations. As my noble friend Lord Hodgson pointed out in his intervention, this Bill provides a temporary solution, specifically in a no-deal scenario, to deal with the dynamic regulatory landscape for the financial services industry after the UK has left the EU negotiating table and taken its own path. This is a different challenge that requires a different solution.

[Lord Adonis]

I am grateful to the Minister for giving way. In that case, why should there not be primary legislation?

[Lord Bates]

For the points I will come to in a minute, which the noble Lord has slightly pre-empted. Obviously he has read the wind-up speech I gave at Second Reading—the arguments about volume of legislation and timeliness remain consistent—but I will come back to that.

[Lord Flight (Con)]

Would I be correct in describing the reason for that legislation as enabling us to meet equivalence requirements going forward if we have not otherwise dealt with things?

[Lord Bates]

Equivalence is one of a range of considerations that could be taken into account at that point.

[Baroness Kramer (LD)]

We will have amendments discussing equivalence more directly later, but will the Minister confirm that nothing could be done to step away from or undermine equivalence, or does this allow that? That is certainly the way it has been read by most Members of this House.

[Lord Bates]

We will have the debate under the future group of amendments on equivalence. We are not setting here the test or the bar as one of equivalence. We are simply talking about the specific directives and regulations before us and mentioned in the Bill: the 15 here; the four already agreed, which are mentioned on page 1 of the Bill; and the further 11 mentioned in the Schedule accompanying it, which have not yet been agreed. Because they have not been agreed and may be under debate or amendment without the UK at the negotiating table, we are simply adding in that greater level of power to say that the UK, in the event of leaving without a deal, would need to look after the interests of the UK financial and industry sector and could not give a blank cheque in the opposite direction to the EU to pass whatever regulation that we would automatically implement because of adherence to a notion of equivalence. That cannot be right for UK financial services. We need to look at what comes to us, then act within the interests of the UK financial services sector at that time.

I will deal with some of the specific points raised. The noble Lord, Lord Sharkey, talked about the recommendation of the Delegated Powers and Regulatory Reform Committee. I pay tribute to the work it did on this and the quick turnaround and punchy conclusions it arrived at. We are considering its recommendations, which the noble Baroness, Lady Liddell, asked us to look at. I will be happy to meet with noble Lords ahead of Report to discuss where we stand. I thank the Delegated Powers and Regulatory Reform Committee for its work and recognise that it raised some very pertinent issues. We want to look at them in greater detail, and I would be happy to discuss that with noble Lords ahead of Report.

I hope I have gone some way to addressing noble Lords’ points at this stage. We will come to a number of the other points in future debates and groups.

[Lord Sharkey]

It seems the Minister has relied heavily in his responses on Clause 1(1)(a) by using this to demonstrate that there is really a tight restriction on what kind of things can be done by Clause 1. But he has not at all mentioned Clause 1(1)(b), which in many ways is the root of the problem because it contains the word “adjustments” and the phrase “consider appropriate”. To many of us, that seems to extend without limit the reach of the Treasury’s powers. That was the underlying purpose behind almost all the amendments in the first group. Could the Minister speak to Clause 1(1)(b)?

[Lord Bates]

I am happy to do that. As the negotiations on these files continue, further amendments may be agreed, proposed or dropped that the Government will wish to domesticate or remove using the powers under this Bill. As the final outcome on many of these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This might, for example, include areas where the final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, with global standards or with the UK’s position as an open global financial market. It is important therefore that we have the power to adjust these inconsistencies when bringing them into UK law. I acknowledge that this is a—

[Baroness Kramer]

I am sorry, but the Minister just said that Clause 1(1)(b) allows an interpretation not to remain with the objective described in the European directive. His whole argument under Clause 1(1)(a) was that the words “corresponding” and “similar” provide, in different legal ways, for us to take steps only where it is consistent with the objective of the European directive. He is now directly saying that Clause 1(1)(b) allows us to take steps that are directly opposed to or completely inconsistent with the European directive. Could he provide us with some clarity on this? It seems that the power allows the Government to move in any direction they wish, and that is exactly the issue we are trying to raise here. Under those circumstances, is that for Parliament to decide or for the Treasury to decide through statutory instrument?

[Lord Bates]

I thank the noble Baroness for her intervention. There is a difference between the two elements and between the use of “adjustments” and the terms used earlier, “similar” and “corresponding”. Effectively, they relate to the two different groups that we have here. The first group is those for which we have been party to the negotiations and to agreeing. Following engagement, we know that the industry is keen to see those transposed into UK law, and we support it in that respect. Then there are those other elements that are incomplete, the final shape of which we do not yet know. Once the final shape is known—in all likelihood, that will be after the date in this scenario and once we have left the European Union and the negotiating table—we will have the power to adjust. Those are the two different elements.

[Lord Adonis]

My Lords, the noble Lord speaks as if there is not that power at the moment. There is: it is the power to introduce primary legislation. The Government do not lack this power; it is the power the Government have, in all cases, to recommend to Parliament changes in the law. What he has not made the case for is why the power should be given to the Government to make these changes by decree, which is, let us be clear, what Orders in Council amount to, with just a straight yes/no power in respect of the whole provision. He has not made that argument at all.

The Minister says that it is restricted, but the restrictions are entirely unsatisfactory. There is a time restriction of two years, which is more than enough time for the Government to do what they like with large parts of the statute book. The second, to which the Minister has just referred as though it is some kind of safeguard, are the measures listed in Schedule 1. But the list is incredibly extensive. These are fundamental and wide-ranging changes to the law, which in many cases, as the noble Lord himself has just said, we will not have played a part in agreeing within the democratic institutions of the European Union. Effectively, the Minister is saying that we will neither have played a part in agreeing them within the democratic processes of the European Union, nor will this Parliament have a proper role to play. The only people who will agree them are the Minister, the Chancellor of the Exchequer and a few officials in the Treasury, and we will then be expected to rubber-stamp them. I am afraid that that is totally unsatisfactory.

[Lord Bates]

That is not the case. I accept that the noble Lord is presenting a caricature of the situation that proves a particular point, but of course that is not what will happen. First of all, certain guarantees are presented in terms of reporting, which we will come on to again later. There are certain processes in terms of scrutiny of secondary legislation, not only by the Secondary Legislation Scrutiny Committee, which does incredible work and of course has a role set out in Standing Orders as to how it must scrutinise secondary legislation. Also, the affirmative SIs must be debated in your Lordships’ House. In addition to that, we have also undertaken that there should be proper engagement with the industry in talking about this and with other stakeholders too. There is a wide range of things.

We will delve deeper into some of the points in the noble Lord’s own amendments later. I appreciate that the role and purpose of Committee is to elicit from the Government further explanations about what these terms mean. We may have a difference about whether the noble Lord’s view is shared by the Front Bench, and whether all these matters should be dealt with by primary legislation in 15 Bills or by secondary legislation, which has been the convention, particularly when it comes to financial services.

[Baroness Kramer]

My Lords—

[Lord Bates]

I will just finish this point if I may. That is why the noble Lord, Lord Tunnicliffe, and I and indeed the noble Baronesses, Lady Kramer and Lady Bowles, spent so much time in Grand Committee talking through various pieces of secondary legislation on financial services. That has been the conventional way in which we have worked. The noble Lord, Lord Adonis, believes that the legislation ought to be primary in this case. That is his view. It is not the Government’s view and it is my job to outline the Government’s view on this. We are following established procedures and providing powers under scrutiny to allow us to deal with a unique set of circumstances, which we have never had to deal with before.

[Baroness Kramer]

My Lords, this is genuinely a question of clarification. Is the Minister saying to me—I cannot read it in the language of the Bill—that Clause 1(1)(b), which states:

“with any adjustments the Treasury consider appropriate”,

excludes the category of in-flight legislation described as,

“specified EU financial services legislation”?

I assume that it includes that. Therefore, the Minister’s argument is that the Government will have to stick with the underlying objective for specified EU financial services legislation—which is what Clause 1(1)(a) is talking about—but the same legislation can then be overturned and dealt with completely differently under Clause 1(1)(b), which frankly allows adjustments as long as a piece of string. That is what I am trying to clarify. I understand that they are two different groups, but paragraph (b) surely applies to both groups.

[Lord Bates]

Perhaps it would be helpful at this stage to agree that these issues will be addressed in future groups. We will choose some wording—if not today, then certainly before Report—that is quite rightly required by the Committee to reassure itself about what is and is not referred to in that respect. With that, and with the undertaking to meet with colleagues specifically on the report of the Delegated Powers and Regulatory Reform Committee before Report, I invite noble Lords not to press this amendment.

[Lord Rowlands (Lab)]

As a member of the Delegated Powers Committee, I specifically draw the Minister’s attention and the attention of the Committee to our paragraph 16, which states that:

“The power to make adjustments is a very broad one with no restrictions”.


We have very deep concerns about the powers proposed in the Bill. I hope, listening to the Minister, that he will address this issue and recognise that it is fundamentally important.

[Lord Bates]

I am happy to give that undertaking. I thank the noble Lord for his work on the committee and thank it for its report, which raises specific concerns. I will address those initially through a meeting with interested colleagues ahead of Report and then, more formally on the record as a result of that, on Report.

[Lord Judge (CB)]

I am not proposing an amendment to an amendment, but I wonder whether it would help clarity of thinking for all of us and for the Minister, when he is reflecting on the various arguments that have been put forward in the debate, if we took out “(i)” and “(ii)”, put “(b)” before “any provision”, and took out “but” and that “(b)”, so that the provision read:

“corresponding, or similar, to the provisions, or any of the provisions, of any specified EU financial services legislation, or

(b) any provision that might”.

We could then limit the adjustments point to the second part.

[Lord Bates]

Her Majesty’s Government are, of course, very frugal and are always willing to take free legal advice, particularly when it comes from such a distinguished source. I shall add that suggestion to the others that I will take away. We appreciate it. Oh, something has miraculously appeared. It cannot be in response to the last suggestion—that would be far too quick—but is in response to the point made by the noble Baroness, Lady Kramer. “Adjustments” applies to both provisions, but the limitations come from “corresponding, or similar” and the limitation implied by the word “adjustments” itself in the glossary. Just for clarification at this stage, let me add the definition that we are working to so that people can see it. “Adjustments” means that it will be possible to exercise the power to achieve the aim of the original EU legislation only with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not therefore allow for wholesale changes to the character and intent of the original legislation. “Adjustments” is an inherently limiting word. With that, and with the commitments that I have given to reflect on the comments made by noble Lords and the legal advice that has been given, I invite the noble Baroness to withdraw the amendment—

[Lord Adonis]

What the Minister has said was clearly written for him by the Box: “‘Adjustments’ is an inherently limiting word”. Will he explain to the House how it inherently limits?

[Lord Bates]

The noble Lord is familiar with the way this works. I used to sit on that side of the House while he was having similar words prepared for him. Adjustment leads to an altered version of the original. Changes that produce something completely different go beyond adjustments. Dictionaries make it clear that adjusting is about making small changes to achieve a desired fit or to adapt to a new situation. I hope that helps.

[Lord Adonis]

Therefore only small changes can be made, not large changes. My reading of the provisions in the Schedule is that they involve large, not small, changes.

[Lord Bates]

I am getting a certain sense of déjà vu having sat through the early morning debates on the EU withdrawal Bill, as it was at that stage, on words such as “appropriate”. I do not particularly want to rehearse them here. It is very important that, when we use terms, the Government are required to define what they mean by them. I have presented what we believe is meant by “adjustments”, which is that it is inherently limiting in capacity. Should we wish to clarify that further, we will do so on Report. Similarly, if noble Lords have further suggestions, they are at liberty to table amendments suggesting additional wording at future stages.

[Lord Adonis]

Let us be grown up about this. The Minister knows that people disagree about the meaning of “limited” in these contexts. I do not think that we think that the Minister’s assurance that the provision will be limited amounts to much, because then we will of course have a big argument about what “limited” means. The only way we could have a meeting of minds on this would be if there were some satisfactory procedure for deciding what “limited” means. The procedure which comes to mind is an independent committee, such as the Delegated Powers and Regulatory Reform Committee. The Minister is extremely open-minded about suggestions from the Committee. Would he suggest introducing an amendment on Report giving the committee responsible for deciding on these regulatory powers the power to decide whether in fact a regulation meets the word “limited” in respect of adjustments?

[Lord Bates]

I am not going to direct what committees of this House opine on—it is certainly not within my powers to do so—and of course they are at liberty to express their views. From a constitutional point of view, having placed on the record, as a Minister of the Crown, our belief of the interpretation and meaning of the word “adjustment” in this context, I think that, when assessing an affirmative statutory instrument against the measures in this Bill, bodies such as the Secondary Legislation Scrutiny Committee will seek to link the two to test whether that is in fact the case. I am sure that the very fact that I have made that remark will be picked up in years to come as the various statutory instruments make their journey through your Lordships’ House. However, we will of course reflect on all these elements between now and Report.

[Lord Eatwell (Non-Afl)]

My Lords, as the chairman of a regulatory organisation, I find the discussion about the word “adjustment” very disturbing. I shall give the Minister an example. If a door is open and then you close it, you adjust the door, but it is still in essence the same piece of wood moving within a frame. Taking that over to financial regulation, if a particular regulatory structure permits a given activity and you then close the door and that activity is no longer permitted, that is an adjustment within a given framework. I suggest that when the noble Lord takes this back, the word “adjustment” should be considered very carefully, because in a regulatory context it does not work in the way that he has described.

[Lord Bates]

I certainly defer to the noble Lord’s great experience in this area of regulation. One purpose of this Bill is to give assurances and certainty to precisely the people whom he has spoken of—the regulators—so that they are clear about the Government’s intent. When we spoke to the regulators and the industry, they pointed out that we do not know what will be contained in these files once they land in a legislative context post Brexit in the unlikely event of no deal. Therefore, there has necessarily been a widening of the powers to cope with potentially changing circumstances of which we are not aware at this stage. However, I will certainly take back the points made by the noble Lord and others, and I thank Members of the Committee for raising their concerns.

[Lord Bilimoria (CB)]

I want to make one point. When we were dealing with the withdrawal Bill, one of our greatest fears concerned these Henry VIII powers. This is the first time that we are having to apply them in a specific Bill, and we are already scared about the consequences. Noble and learned Lords are already asking, “Have you thought about wording such as ‘adjustments’ and the interpretation of words?” From my experience, every time there is a grey area in a contract, it can be interpreted in different ways. It leaves the door open, and that is very dangerous. I ask the Minister, whom the whole House respects, to take all that into account; otherwise, on Report this will be badly defeated because a precedent is being laid here with a fear that the Henry VIII powers will demolish our whole democracy and the reason for our Parliament. That is really frightening.

[Lord Bates]

I hear what the noble Lord and the Committee have said. That is what a Committee stage is for: it is for the Government to listen to what noble Lords have to say. I am grateful for what they have said, and I undertake to take it back, reflect on it and discuss it with colleagues ahead of Report. In the meantime, if the noble Baroness is happy to withdraw her amendment, I shall be grateful.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his replies. Part of his early response sounded quite encouraging when he said that things would not move outside the bounds of the original EU legislation, but it got a bit worse later on when he said this meant that things could still be domesticated or removed to match the peculiarities of the UK financial markets, which basically means not doing it if we do not feel like doing it. That is certainly how it was presented, interpreted and ended up in the EU when I was in charge of putting through a lot of this legislation.

With regard to my own amendment, I think he has said that “corresponding” is tight, in that the provision has to be identical in all respects. But he went on to say that this is one of two definitions that give wider latitude; “similar” was somehow a looser term but did not have that same latitude. He made the point that trying to satisfy two different legal criteria can be confusing, and I would side with that view. He also said, I think, that one of the terms was meant to apply to one category of the legislation and the other, looser term—whichever that turns out to be—applied to the other.

If I understood correctly, he said that the list that appears in subsection (2)—which is the finished though not yet active legislation: there are no changes, it is all done and we know what it says—would be subject to the tighter of the definitions, which is possibly “corresponding”. Those in the annex, which have not been finished and possibly might not be finished until after we have left—so we will not be involved in the last tweaks—may need to be tweaked more and will be subject to the term “similar”. This starts an interesting discussion, which we can continue when we talk on other groups, of whether we should completely separate out how we deal with the legislation that we already know about and can already analyse regarding whether it works for the UK markets, as opposed to where things are not definite and one needs more reservations. I push that out as a point.

Other amendments, particularly Amendment 3 in the name of the noble Lord, Lord Sharkey, would also solve some points, as they go back to the question of the “primary purposes”. The key anxiety is that this Bill enables legislation to be made through a secondary method which is incapable of having scrutiny and will not necessarily have had scrutiny even at the European level by way of the adjustments, and there is no way to amend it. It could depart from the purpose, no matter what is said, because the Bill does not actually say there is to be no departure from the purpose. If you put in Amendment 3, or some other amendments that we will come to later, then you can tie it down and make clear where you will depart and where you cannot do so.

Let us be clear that one of the elephants in the room is whether we will implement the legislation at all. There is nothing compelling this. One can cherry pick it—we will come on to that in the next group of amendments—but there is nothing that says it will be onshored, so one could simply not have it at all. It is absolutely clear if you look at the first articles in subsection (2)(a),

“Articles 6 and 7 of the Central Securities Depositories Regulation”—

we know what the issue is there. I am sure there are people in this Chamber right now who could debate the benefits and otherwise of those particular articles. It was thought that the EU might not be able to make the technical standards, or that they would somehow be withdrawn. But no, the technical standards have been made; we know what they are and the likelihood that they will become active in 2020. The question could be put now: are we going to have it, or are we not? If we are not going to have it, should that be at the whim of the Treasury? This has significant repercussions on all kinds of other parts of the market where we may or not be deemed to have equivalence. We might as well discuss this now. It should not be someone sitting in an office and saying, “Well that can go and damn the consequences”.

We have a lot more to discuss around this as we go into the next groups but for the time being I beg leave—

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[Lord Judge]

I apologise for not leaping to my feet before the noble Lord, Lord Tunnicliffe; I was looking at something else—I am very sorry. Perhaps I may be allowed to say just a few words in support of the general idea behind Amendment 6.

We are going to embark on a huge body of secondary legislation. I have spoken in this House on a number of occasions about secondary legislation and I think that my views on its dangers are quite well known to a number of Members. One problem with secondary legislation, if we are honest, is that we have no idea what we are looking at. When secondary legislation comes through, I doubt whether more than 1% of the Members of this House actually look at it; I doubt whether more than 5% of the Members of the other place look at it, and it goes through.

We are here dealing with very complex legislation and doing it as best we can in a hurry, in the demanding situation that we are in. Would it not be helpful for an explanation to be given about any individual piece of secondary legislation, identifying, for example, the legislation in the EU with which it corresponds or to which it is similar? We could then look at it and say, “Yes, that’s fine. No need to argue about it”. Otherwise, we tend to leave it so that we examine it blind. There is something to be said for us knowing what is going on.

[Lord Bates]

My Lords, I thank noble Lords on all sides for their constructive suggestions during this short debate. I am grateful for these contributions. The noble Lord, Lord Tunnicliffe, made a fair point about the approach we have taken on considering secondary legislation in Committee. We have brought through 16 statutory instruments so far—we have the joy of another four awaiting us in Grand Committee tomorrow afternoon—out of a total package of some 60, 47 of which will use the affirmative procedure. So there is an element of scrutiny. The noble Lord rightly focused on the provisions of the EU withdrawal Act, which is the substance of Amendment 7, but then we were dealing with known entities and rules.

In introducing this amendment, the noble Baroness, Lady Bowles, made a very fair point and the noble Baroness, Lady Kramer, added to it. If I am paraphrasing her correctly, she recognises that, had she not been there, the legislation coming across to us might not have been dealt with in the interests of the United Kingdom financial services industry. I agree with that, from what I know of her role on that committee in that Parliament. Her input—and that of other members—at that stage was vital in shaping the legislation which subsequently came across. We thank her for that service. She is no longer there and, in the scenario for the future files that we are dealing with, neither will her successors be. Therefore, there needs to be a difference in the way these are treated—between the narrow definition in the EU withdrawal Act, when we knew what we were dealing with, and directives and regulations into which we may have had no input and no responsibility for shaping. These could, potentially, be damaging to the UK financial services industry. There is a long way to go with this debate, but that is the crux of it.

I turn to Amendments 2, 4 and 6, the aim of which is to require the publication of a report three months prior to the exercise of the powers under the Bill. This report would need to explain any policy adjustment or decision to omit aspects of the originating file. The noble and learned Lord, Lord Judge, also referred to this. I reassure noble Lords that the Government’s clear intention would be to set out this information in the reports currently required by the Bill.

Further to that, as is standard practice, the Government would of course seek to engage with interested parliamentarians and the industry on the legislation before taking any statutory instruments forward. Where the secondary legislation omits aspects of any EU files, it would certainly be in the public interest to be open about the choices the Government have made in not implementing them.

Regarding the requirement to publish the reports three months ahead of each exercise of the power, the Bill currently sets the requirement that any implementing legislation be subject to the affirmative procedure. This would require laying the relevant statutory instrument before Parliament, and an accompanying Explanatory Memorandum setting out the policy intent, before the debate on the SI itself and well ahead of implementation. This is the established process for scrutinising such statutory instruments and for this reason it is the model we have chosen to follow.

I am also mindful of the fast-moving nature of financial services. In particular, there may be a need to respond quickly to market developments, and it may be important to avoid imbalances with the EU for even a short period—for example, where the files may be of a deregulatory nature. With respect, I suggest that a three-month gap between a report and laying is too long to respond to market developments. Such a three-month requirement would place at risk the basic aim of the legislation, which is to safeguard the reputation, competitiveness and efficiency of UK financial markets. However, having listened to the points that the noble Baroness, Lady Bowles, made in moving her amendment and to the subsequent points of the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, I am willing to consider, ahead of Report, exactly how a process might run in the future to keep noble Lords better informed. Just to manage expectations, we will probably regard three months as too long for what might need to be very fast changes to ensure that UK financial services are not disadvantaged, but I signal my willingness to discuss the issue with the noble Baroness and see whether we can find an acceptable way forward.

[Lord Tunnicliffe]

Does the Minister accept that the problem he faces is bigger than that? It is not just about this group but about the fundamental fact that we parliamentarians dislike secondary legislation that changes the law. He faces a significant defeat in this House if we cannot come to some compromise agreement that seriously limits the ability of the Executive to impose law upon this Parliament. It is important that he recognises that—otherwise, we will end up deciding what the Bill says, and that is usually not good in terms of using the law in the future.

[Lord Bates]

I am always willing to engage and it is helpful, if I may say so, to engage in that debate, because the point the noble Lord is making is more on general principles than on detail. I subscribe to that, provided that we can agree to recognise that what the Government are seeking to do here is to deal with, effectively, processes that I am not aware have ever been dealt with before. We may be giving an undertaking to implement certain directives and regulations over which we have not had control and of which we do not yet know the precise nature. That is a different challenge from the normal routine of the types of onshoring that we are doing with the other statutory instruments. I am prepared to accept the noble Lord’s point if he will recognise the difference that we are dealing with between those two different types: that would be helpful.

[Lord Tunnicliffe]

I recognise that there is a difference, but at the end of the day my noble friend Lord Adonis’s point is valid: in day-to-day life the world changes, we have to react quickly to it and, where needed, we have to enact primary legislation. We are not creating a new environment where the Government enjoy executive power to change the laws in this area; surely we are seeking only to manage the transition. I do not see that it is the end of the world if the Government see something develop in Europe, say it is wrong, and say that that will not be covered by this Act and that we will have to bring forward primary legislation. We have done it in the past and we will have to do it after two years; that is the way new ideas should be introduced to this Parliament.

[Lord Bates]

I hear what the noble Lord is saying. Without wanting to rehearse Second Reading again or to undermine any of the progress that I feel we have already made on this in Committee, I will conclude by saying that from my perspective, the noble Baroness has made a proposal to deal with the length of time and the reporting—to address the noble and learned Lord’s point—about where there are changes, what changes have been made and why, and whether that report could be received in advance of the statutory instrument being laid and then debated in the House. In the spirit of recognising the points referred to, I have said that I am prepared to look at that. Three months may be too long but I am prepared to have a discussion ahead of Report on whether another time period may be more acceptable. With that, I hope that the noble Baroness will feel able to withdraw her amendment.

--- Later in debate ---

[Lord Tunnicliffe]

My Lords, we are superficially attracted to this amendment and we await the Minister’s comments with interest.

[Lord Bates]

I thank noble Lords for their contributions to this debate. I shall begin by looking at what I think is an area of common ground: we all recognise the importance of the financial services industry to the UK. Perhaps I may pick up on a point made by my noble friend Lord Flight, that one of the main purposes of this Bill is to ensure that the UK remains an attractive and competitive place to do business, retaining our place as a world leader in financial services. To do this in a no-deal context, it is essential that the UK retains sovereignty over our rules. From the perspective of financial stability and protecting the UK taxpayer, it is essential that the Government, the Bank of England and the FCA have the tools available to ensure that the UK markets are appropriately and effectively regulated.

It would be wrong to set a condition over the UK’s regulatory framework that means decisions which are made about the UK’s future regime are determined through the lens of maintaining equivalence to the EU, irrespective of the quality of those rules and how future legislation and the market itself may evolve.

[Baroness Kramer]

I think that there may be a misunderstanding. This would mean that statutory instruments could not be used to create divergence—it does not mean that primary legislation could not be used to do so. That is the underlying point.

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[Lord Bates]

The legislation we are dealing with is in its very composition a temporary measure; it is a temporary piece of primary legislation with a sunset clause.

[Baroness Kramer]

I know that we will discuss the sunset clause later. It does not mean that the statutory instruments created under this legislation die after two years, it means only that the powers in the overarching legislation will die. However, those two years are the critical period, so the sunset clause does not have the consequence that I think the Minister might suspect it does.

[Lord Bates]

To go back to first principles, I am saying that the power in this Bill is not in effect to make policy—rather, it is the ability to produce secondary legislation that has a policy content to it and which would then be subject to scrutiny in this House. That power is being put in place for an extraordinary set of circumstances—I think we all agree that these are extraordinary circumstances and in fact I should underscore that we hope that these powers will not be required to be acted upon, because there will be a deal and we will continue to have access to the market in financial services across the EU. That is our aim, but we are preparing for all eventualities.

The noble Baroness will be aware that equivalence determinations are autonomous decisions with the EU and, in turn, the UK retaining autonomy for determining if a foreign jurisdiction has equivalent standards and supervision. The EU takes a varied approach to assessments of equivalence, tailoring its approach to individual regimes with regard to how the assessment is conducted. The Commission itself has stated:

“It is the equivalence of regulatory and supervisory results that is being assessed, not a word-for-word sameness of legal texts”.


Indeed, for a recent example, one need to look only at the EU’s statements on equivalence in a no-deal scenario. Within these, the EU has been clear that equivalence decisions of the UK will be made where justified in the interest of the Union and its member states, with time limits and conditions to their decisions where appropriate. As such, it is very difficult to judge what the EU will take into account in its future assessments and how its autonomous third-country regime will evolve. Such an approach, plus the breadth and variety of considerations that form part of equivalence determinations, from the rules themselves to supervisory approaches, means that it would be very difficult to determine what effect, if any, a change or adjustment that the UK makes to our laws might have on a future equivalence determination in a given area, given that these are autonomous decisions taken by the EU. It is therefore difficult to see how the test set out in this amendment could be met.

Let me reiterate the importance of, in the case of a no-deal situation, retaining the ability to adjust our legislation so that it best serves the aims and objectives of the UK once we have left the EU, as my noble friend Lord Flight has identified. It is crucial to ensure that we can bring into force pieces of legislation in a way that works best for the interests of UK markets. The Government are also committed to doing this as transparently as possible, which is why we have set out the strict reporting requirements to which I know we will return on Report. In the light of that, I invite the noble Baroness to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his response. I shall deal first with the point that this might be legislation that will never need to be implemented. But the fact is that something like this will probably be needed when we get to the next cliff edge, and in any event by passing this Bill, we will also set a precedent for what might then follow in subsequent legislation. You cannot get some dodgy things through on the basis of reasoning, “Oh, we might never need it”. We know only too well the effect of having let something slip through once. I can assure the Committee that that is not something I had a reputation for in Europe and I would not allow it here if I had anything to do with it.

Like my noble friend Lady Kramer, I fully accept the point made by the noble Lord, Lord Flight, that the legislation might not be “sensible” when looked at from the UK perspective. This is what is meant by not being able to fit in with the specificities of the UK. However, the trouble is that that is a very vague description. We would need far more of an indication of what is meant by that to allow it to be any kind of gatekeeper. I think that the point about equivalence is fundamental and it can be a gatekeeper. It is probably completely wrong not to contemplate having an equivalence Bill which actually lays out in more detail the sort of tests that would be applied. Looking further into the distance of how we deal with financial services legislation, we are not going to bring to the Floor of this House all the detail set out in the regulations and directives that I had to negotiate. The majority of that will no doubt be passed off to the Treasury and the regulators in some way that will not concern us. I am not sure that I agree with that, but I can see the writing on the wall. However, something big such as whether we want to stay aligned or whether we think that it has progressed too far—it is too uncertain, we cannot deal with this kind of uncertainty, and what are the tests?—could well be put into legislation.

I reject the notion that we cannot have a limitation such as this in some form or other as a guardian within this legislation because of the attitude of the EU and how it makes decisions. You know for sure that doing certain things would remove any chance of equivalence—such as leaving out a couple of articles of the main legislation. Boom! Not equivalent. There is no question. Because certain things are done in a slightly different way, maybe tweaking a little bit in a delegated Act would not be a bar, so that could possibly pass the test and go through.

I come back to subsection (2). The very first item there is a yes/no decision: are we having this, or will we neuter it to the extent that we do not have the buy-in regime of the CSDR? That is what it is all about. If we did not have the buy-in regime of the CSDR, we would not be equivalent in quite a lot of things to do with securities transactions, and maybe in things to do with our clearing houses or our exchanges. I remind the House of my interest as a director of the London Stock Exchange. These things are under active consideration, so doing something like that would, in my personal judgment, put equivalence at risk. I think you can make a dividing line through this.

Especially if there is some tentative encouragement from the Labour Front Benches, I think this is one of those amendments that usefully goes into the pot that we should be working on. The alternative is that you get even less, probably a very tight and improved version of Amendment 7, because an amendment such as this might offer not a great deal but a tad more flexibility—a tiny bit more. With that, I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Bates]

My Lords, I again thank all noble Lords who have taken part in this debate, particularly my noble friend Lord Leigh. His amendment touches on the critical point with regard to the Bill, which is the importance of safeguarding the competitiveness of the UK’s world-leading financial services industry as well as maintaining proportionality in the regulations that govern these markets. These are two of the key reasons this Bill has been introduced. It will ensure that our regulatory system remains up to date in the period following a no-deal exit and that UK firms are not left at a competitive disadvantage as regulations are updated in the EU. I can of course assure my noble friend that the Treasury will exercise its powers under this Bill with competitiveness and proportionality firmly in mind, which my noble friends Lord Flight and Lord Hodgson encouraged, and which my noble friend Lord Deben urged it to do.

When people are talking about the market in the City, people instinctively think of very large institutions, but having worked in the financial services industry, I recognise that it is made up of many small firms delivering outstanding benefits and value to their clients. There are some 58,000 small and medium-sized businesses operating in financial services.

In answer to the points raised by the noble Lord, Lord Adonis, the reason the UK is so successful and the City of London so respected around the world is the strength of the regulatory basis. Reputation and trust are all when it comes to conducting financial services. If people are investing their life savings or pensions with organisations, they need to have confidence that the organisations they are investing in will look after them well and that they will get the return or benefit that they anticipate.

I therefore appreciate my noble friend’s helpful and well-intentioned amendment. However, I am mindful of the difficulties of placing these assurances on a statutory footing, given the difficulties of defining these terms clearly in legislation. In particular, judging the exercise of powers against a hypothetical case—for example, the state of the UK financial market had the UK not left the EU—would be highly challenging. It is also worth noting that many of the files are themselves being designed, with the UK’s input, at the moment, to aid competitiveness and proportionality issues. It is right that we put that on record at this point. My noble friend Lord Leigh set out clearly at the beginning that we pay tribute to the work of the Commission in listening to the voice of small business, a point to which my noble friend Lord Deben returned. Examples are the prospectus regulation listed in Clause 1, which creates a more proportionate regime for all firms, including SMEs, and key measures such as the introduction of a new growth prospectus—a lighter, less burdensome document—to be used by SMEs within the regulation. I hope my noble friend will recognise that the Government are alert to his concerns in this area and support the need to maintain the competitiveness of the UK financial services industry and to ensure that any regulatory burdens are applied to small and medium-sized enterprises in a proportionate way. In the light of these reassurances, I hope my noble friend feels able to withdraw his amendment.

[Lord Leigh of Hurley]

I thank my noble friends Lord Flight and Lord Hodgson for supporting this amendment. They have become the wise old birds. I was very pleased to have two people supporting this amendment who have started financial services businesses in London and grown them to be global financial services businesses. It goes to show the power and expertise that resides in this House.

I thank the noble Lord, Lord Adonis, for his comments. I am sure he was not seeking to stereotype Tories. Curiously enough, although many people would regard captains of industry as natural Tories, one finds that the large multinationals are the companies that want more, not less, regulation because it consolidates their position. From the perspective of small businesses, as the noble Lord, Lord Adonis, said, we look for more appropriate regulation, rather than less regulation.

I am very grateful to him and to my noble friend Lord Bates for picking up my complimentary remarks about the EU Commission. I am a bit worried that I will be drummed out of the ERG after this. Nevertheless, it is true that the Commission has listened. My worry is that it listened to us because we had a voice. However, if we leave under a hard Brexit, we will not have a voice through bodies such as the QCA and therefore, because it does not really understand AIM and other aspects of the financial services industry in London, it will produce inappropriate regulation. We will need a very effective and immediate reaction to that, which I believe the Treasury is capable of doing.

I say to the noble Baroness, Lady Kramer, that the naked short selling by market-makers in the AIM market is essential to liquidity. It is not to be confused with naked short selling by hedge funds, which is a very risky and different proposition. It just goes to show that it is a complicated area. I will be honest: I am not wholly sure that I understand it or how it works but I understand that much—that it is essential to liquidity.

The noble Lord, Lord Tunnicliffe, is right. Essentially this is about unintended consequences; none the less, it is always nice to get into legislation protection for the financial services sector and small businesses.

With the very welcome reassurances from my noble friend Lord Bates, I beg leave to withdraw the amendment.

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[Baroness Kramer]

I will just say from these Benches that we agree.

[Lord Bates]

My Lords, first, I am sure that I speak for the whole Committee in thanking the noble Lord for his succinctness in presenting his amendment. I recognise the old adage that everything needs to be said but not everyone needs to say it. That is a good principle. In following him in that spirit, I will put on the record a few comments that I believe will be helpful for our wider debates.

We appreciate the concerns across the Committee regarding the Henry VIII powers and, where they are proposed, it is clear that their necessity must be well evidenced. In the case of the financial services legislation, to which the power in this Bill will apply, I hope that noble Lords will accept the need for such a power.

An inability to amend existing primary legislation such as the Financial Services and Markets Act 2000 will render it impossible to implement this necessary body of legislation. Further, as noble Lords will be aware, the exercise of many functions under financial services legislation is carried out by the independent regulators—the Financial Conduct Authority and the Bank of England. The capacity and expertise of the financial regulators will be absolutely crucial to the effective implementation of these pieces of legislation and, consequently, to the resilience and prosperity of the financial services sector here in the UK.

The amendment would remove the ability to delegate to the regulators because, as a general rule, a power to make secondary legislation does not include a power to sub-delegate. An inability to effectively delegate powers to the regulators in implementing the legislation contained in this Bill would severely undermine the value of transposing the original legislation into UK law. In many cases, it would effectively render legislation unenforceable, and the Bill would simply not be able to achieve its central goal of ensuring that the UK continues to be an attractive and competitive place to do business in the immediate two-year period post exit, in the unwelcome and unlikely event of a no-deal scenario. Given this context and the context of the previous debate, I invite the noble Lord to consider withdrawing his amendment.

[Lord Davies of Oldham]

My Lords, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Tunnicliffe]

My Lords, we have an open mind on the amendments. The noble Lord, Lord Deben, hit the nail on the head in saying that the gap between primary legislation and the SI process is too wide. Since we are shovelling a lot of stuff into the statutory instrument process, this is a good time to consider some intermediate action. I do not move from my commitment to tighten up what is available for secondary legislation under this Act, and we will be pursuing that, but I shall listen to the Minister’s response with care to see whether this would be the occasion to make some progress in this important area and give two views of a piece of secondary legislation, instead of the usual process. No matter how hard the Minister and I, and colleagues on the Liberal Democrat Benches, try to give some life to the affirmative SI process, we know in our hearts that we are not going to vote against it because we are not going to provoke a constitutional crisis. Some process in between the two—this may be the right one—deserves careful consideration.

[Lord Bates]

I thank the noble Lord, Lord Adonis, for introducing his amendment, and all noble Lords who have spoken. I will touch on some of the points made, but before I do, perhaps I may say that, as we are moving rapidly through the different groups, it is important that we keep updating where we are. In earlier groups, I was responding positively to my noble friend Lord Deben’s point that the legislature needed to be better informed about the effects where changes are made and where we are derogating from existing directives that are in flight. I dealt with the concerns that had been raised by the Delegated Powers and Regulatory Reform Committee, and agreed to meet and talk further about them—so as we move along I do not want to lose sight of the fact that this is an unfolding story. Already, three hours into Committee, we have agreed to undertake and look carefully at some of the points raised.

I recognise the immense wealth of expertise which is here, not least in ministerial office from the noble Lord, Lord Adonis. I would not dare try to calculate the years of ministerial office represented by my noble friend Lord Deben, especially when I have my noble friend Lord Young of Cookham to my left; between them they could put up a cricket score of years.

There needs to be proper scrutiny; I accept that. The Secondary Legislation Scrutiny Committee already scrutinises all instruments laid before each House that are subject to parliamentary proceedings, and it is required to draw to the special attention of the House those instruments which are politically or legally important, or which give rise to issues of public policy likely to be of interest to the House. In addition, Standing Orders set out that the Joint Committee on Statutory Instruments must report on affirmative statutory instruments before debates can be scheduled. This is the established process for scrutinising statutory instruments, and it is a model we have sought to follow.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

I certainly was talking in terms of what was delegated and how it was dealing with the things that it then had to deal with. I am not sure that that was the same as the mover’s view, but mine was in the category of doing what was within its power.

[Lord Bates]

I agree, in that spirit, to take back that point and look at it in the wider context of my opening remarks in responding to the noble Lord, Lord Adonis. I hope that he will feel able to withdraw his amendment at this stage, because we will return to these issues in some detail at Report, hopefully with some more to say.

[Lord Adonis]

My Lords, I am grateful to the Minister for that characteristically open-minded and engaging response. I would welcome the opportunity for further discussions. The interaction between my amendments and Amendment 7 is crucial. If Amendment 7 is carried, the scope of the changes we are talking about reduces so markedly that the need for advice also reduces. In particular, if Amendment 7 is carried, it is not clear to me that the generality of the issues in the Schedule would come before the House in the form of statutory instruments anyway; they would come before the House in the form of primary legislation.

Primary legislation is of course subject to all those processes of parliamentary scrutiny and decision-making that deal with the underlying concern that there will not be enough exposure of the issues at stake to debate and consultation. The interaction between Amendment 7 and my amendments is crucial. A good deal of the case for my amendments depends on what the Government and the House decide to do in respect of the issues raised in Amendment 7.

However, the wider issue that has come out in this debate and comes up time and again in this House is well worth us considering further on Report: namely, how Parliament deals with secondary legislation and statutory instruments. The point made by the noble Lord, Lord Deben, my noble friend Lord Tunnicliffe and the noble Baroness, Lady Bowles, is completely right. I thought it was neatly put by my noble friend: there is far too big a gulf between the way we consider statutory instruments and the way we consider primary legislation.

The noble Lord, Lord Hodgson, mentioned bars. We have a very high bar for changing the law by primary legislation, with hour after hour of debate—in discussing this two-clause Bill we are now in our fourth hour of Committee. We have had a Second Reading, and we will have Report and Third Reading. Those procedures are tried and tested.

When it comes to secondary legislation, much of which introduces changes to the law—particularly under this Bill, potentially—that are equivalent to changes brought about by primary legislation, our consideration of these changes is cursory. It is a brief debate if you are lucky when a statutory instrument is debated by the House, and there is no power to amend it. As my noble friend Lord Tunnicliffe said, if we try to reject it we will get immediately into a constitutional crisis because there cannot then be the process of reconciliation between the two Houses that takes place in the case of ordinary legislation.

Time and again we come up against this issue. To be blunt, time and again we duck it, because there is no great desire on the part of the Government to give us powers to amend statutory instruments or to have more elaborate procedures for discussing them, precisely because that would, in fact, make your Lordships more powerful on statutory instruments because we could then amend them and ask the House of Commons to think again. The issues raised by the Bill and all the requirements to do with leaving the European Union put this in stark relief, because a very substantial part of the legislative business of Parliament over the next two to three years if we leave the European Union will be conducted by means of statutory instruments, including all the fundamental changes to the financial regulatory system set out in the Schedule.

The conclusion I draw from all this is precisely the same as that of the noble Lord, Lord Deben: we are at one on the fundamental issue that we should not be leaving the European Union in the first place. One of the reasons why we should not be doing so is that we are not taking back control but giving the Government unprecedented powers to rule by decree—which is, of course, farcical. We have far more control at the moment, from the combination of our established procedures for primary legislation when it comes to our changes in the law, plus all the democratic processes we have within the European Union in respect of changes to the law made at the European Union’s behest, than we will ever have by leaving it and having no role to play in the changes recommended or brought about by the EU, and then having to go through this truncated rule by decree process in this Bill and the EU withdrawal Act.

So the right response to all the debate we have had today is not to leave the European Union and to have a people’s vote to give us the opportunity to express the ever more pronounced view of the public that this whole thing is deeply antipathetic not just to the best interests of the country but to our proper parliamentary procedures. But it is probably going a bit too far to press the Minister to accept that whole case just in responding to my one amendment, so just for now I will beg leave to withdraw.

--- Later in debate ---

[Lord Tunnicliffe]

My Lords, we have constantly been debating the same issue, which this amendment addresses from another direction. I am afraid that my experience of government producing annual reports is that, on average, they tend to appear every 18 months, rather than 12 months. I am not quite sure what the last report of the two does anyway, and the idea of one meaningful report every six months has a lot to commend it. Being prescriptive about its contents would also be quite useful, and I look forward to the Minister’s response.

[Lord Bates]

I thank my noble friend Lord Hodgson for ably introducing this amendment. A substantial part of my speaking notes is remarkably similar to those for Amendment 2, when I responded to the comments made by the noble Baroness, Lady Bowles, on early reporting. Again, we have made some progress, so let us perhaps just leave that on the record.

I will make a couple of specific points about my noble friend’s amendments, and those which the noble Baroness, Lady Bowles, has put her name to as well. These amendments would require the Government to lay reports on the use of the power every six months, rather than every year; to set out why the power would need to be used; and to include a table setting out the provisions of the EU legislation that have or have not been transposed into domestic legislation, as the noble and learned Lord, Lord Judge, mentioned in an earlier debate. Again, I can assure noble Lords that the Government’s intention has always been to set out such reasoning and detail as part of the reports referenced in subsections (8) and (9).

As to the frequency of the reports, the current drafting has been designed so that the reports will provide an overview of how the powers have been used in the first year, and how the Government propose to use them in the second year. The intention behind this is to allow enough time to pass for a meaningful report to be drawn together. I hope this helps to clarify the Government’s intention to be as transparent as possible in the exercise of these powers.

As with the amendments tabled earlier by the noble Baroness, Lady Bowles, I have listened carefully to the arguments being presented on all sides, and particularly in this instance by my noble friend Lord Hodgson. It may be that we need to consider further exactly how such a process can run, so that we can provide the House and Parliament with the necessary assurances that it seeks. In that regard, I ask my noble friend to withdraw his amendment, given my commitment that we will look again at this issue and seek to make some constructive suggestions on a new way forward at Report.

[Lord Hodgson of Astley Abbotts]

I thank all those who have taken part. I thank the noble Lord, Lord Tunnicliffe, for his two-thirds of a loaf, and the noble Baroness, Lady Bowles, whose amendment I should have referred to in my opening remarks; it was rude of me not to have done so. A table of derivations and destinations is what I think such a table would be called in UK law; it would be a very helpful addition to the schedule to the reports that we have in mind. My noble friend was smooth—to the point that I thought he was going to turn me down on, but at the end the horse swerved in and jumped the fence. I am glad that he has agreed to put this into the mix. I am grateful to him and happy to withdraw the amendment for the time being.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, it is time to be kind to Ministers when one gets to this end of the Bill. My advice to the Minister is to indicate what a logjam of SIs there would be four years on from the consequences of this strategy. I understand entirely, and sympathise very much with the intent behind the amendment, but if I were the Minister I think I would point out a few of the practical difficulties.

[Lord Bates]

There speaks the voice of experience. From his time speaking from this side of the Chamber, the noble Lord has perhaps pre-empted some of the concerns that we would have about this proposal, but let me put them on the record.

I am grateful to the noble Lord for giving us an opportunity to debate this important area. In implementing files under the Bill, it will be necessary to amend existing legislation to reflect updates to the regime. Should all powers under the Bill lapse at a stroke, without replacement, the legal effect on amended legislation would be unclear.

At a time when we should be seeking to provide industry with clarity and certainty, I am afraid that the amendment would have the unfortunate and unintended effect of providing just the opposite. Rather than minimising the cliff-edge risks, it would create a new series of cliff-edge challenges to be faced in the coming years. The potential for this legislation to lapse without replacement does not provide certainty to firms. Compliance with new regulatory regimes can be costly, and it would have a negative effect on firms’ confidence in the Government’s ability to set effective and proportionate regulation should we implement vital legislative reform only for it to drop away after a given period.

I appreciate the noble Lord’s concern that regulations made using this power will have a lasting effect on the structure of the UK’s financial services regulatory framework. This is why the power can apply only to a limited set of important files, which have been set out on the face of the Bill. In a no-deal scenario, implementing those files could be crucial to avoid conceding a competitive advantage to businesses operating in EU-based markets or to remain compliant with the Basel rules and meet our G20 commitment to international standards.

The noble Lord is clearly right, however, in pointing out that this cannot be a long-term model for a regulatory framework. Beyond this temporary solution, once we have left the EU in a no-deal scenario, the Government recognise the clear need for an approach that balances parliamentary oversight of financial services legislation with maintaining the flexibility and competitiveness of our regime. To that end, we will take forward proposals for a sustainable, long-term model in due course.

It is perhaps worth pointing out also that the Small Business, Enterprise and Employment Act 2015 requires the inclusion of a statutory review clause in secondary legislation that regulates business if the legislation continues to have effect five years after its entry into force. When taking forward SIs under the Bill, the Government will therefore be under a duty to make provision to undertake a post-implementation review after five years or to publish a statement that it is not appropriate in the circumstances to do so. In this light, I hope that the noble Lord will feel able to withdraw this amendment.

[Lord Sharkey]

In the light of the Minister’s very informative response, for which I am very grateful, I am delighted to be able to withdraw the amendment.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, I, too, raised this issue at the conclusion of my speech at Second Reading. I quite understood, with the vast range of issues that the Minister had to respond to on that day, his feeling unable to go into great detail on this one. That is why I was delighted to sign up to the amendment put forward by the noble Lord, Lord Sharkey. The Minister has a real case to answer here, and I hope that we will have a constructive response.

[Lord Bates]

My Lords, I hope I can oblige the noble Lord, Lord Davies, with a constructive response to end Committee. I thank all noble Lords who have taken part. I understand that several Members have received representations from the sustainable finance industry. This amendment seeks to add to the Bill’s Schedule two EU files that complete the European Union sustainable finance package.

As I have mentioned already, the Government acknowledge that the power being sought in this Bill is broad. That is why it has been designed with a number of safeguards and limitations in place. One of these is for the power to be limited to a specified set of EU legislative proposals, named on the face of the Bill. In order to focus the power as narrowly as possible, the list of files in the Schedule to the Bill was determined through an assessment of the importance of files to the stability and competitiveness of the UK’s financial services sector. The noble Lord, Lord Sharkey, highlighted this as one of his concerns when moving his amendment. In short, these are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario.

I will, of course, be very happy to meet the noble Lord, and the noble Lord, Lord Davies, on this issue. I think we are already going to be meeting quite a bit between now and next week. I have listened carefully to the arguments in favour of the merits of adding these files to the Schedule, and I undertake to reflect on the matter ahead of returning to it on Report. In the light of this, and of the discussions that will take place, I invite the noble Lord to consider withdrawing his amendment at this stage.

[Lord Sharkey]

My Lords, I am very grateful for the Minister’s answer and look forward to what may be several meetings between now and Report. As the last speaker tonight, I hope that the Committee will allow me to make a very quick, general observation. As I listened to the debates today, it seemed to me that there was a real, structural problem with the Bill. It sets out to do two things: first, to onshore approved, but not applied, EU legislation; and, secondly, to make possible the onshoring of specified in-flight legislation. The problems we are discussing tonight are largely because we are trying to do both of those things using the same mechanism. That is going to be very difficult.

It might be better to consider simply applying the strict rules of Section 8 of the European Union (Withdrawal) Act—or Amendment 7—to all those approved, but not applied, pieces of legislation listed in Clause 1(2)(a) and (b); and, separately, to require primary legislation to deal with the in-flight legislation coming our way, as suggested by the noble Lord, Lord Adonis.

I thank the Minister again for his observations on Amendment 18 and beg leave to withdraw.

Yemen

Lord Bates Excerpts

Thursday 20th December 2018 Lords Chamber

[The Lord Bishop of St Albans]

To ask Her Majesty’s Government what steps they are taking to provide humanitarian relief to Yemen following the agreement of the ceasefire in Hodeidah.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, following the positive outcomes of the Stockholm consultations, it is imperative that the parties act in good faith to implement the agreements. Any escalation of military activity must be avoided, and the ports of Hodeidah and Saleef and onward supply routes must be kept open. We continue to address the deteriorating humanitarian situation through our £170 million response this year. The UK is also discussing how best to support the ceasefire agreement with partners.

[The Lord Bishop of St Albans]

I thank the Minister for his response. I am glad that we are able to make a significant contribution but this humanitarian disaster is horrific in scale: 85,000 people have already starved to death, 420,000 children are being treated for malnutrition and we have seen the worst cholera epidemic in the past decade. What are Her Majesty’s Government doing to consider whether we can provide additional help? In particular, what representations are they making to other countries to step up to the plate and address the shortfall so that we can try to resolve this humanitarian crisis?

[Lord Bates]

The right reverend Prelate is absolutely right to point out that this humanitarian crisis is without precedent. It is not going too far to repeat the words of the Humanitarian Affairs and Emergency Relief Coordinator, who said that this could be a famine on a scale that we have not seen for 100 years. The response needs to match that statement in its urgency. So far, the response to this year’s $3 billion appeal is around 80%; the UK’s contribution has been £170 million. We are the fifth-largest contributor behind Saudi Arabia, the UAE, Kuwait and the United States. Next year, the appeal will be set at $4 billion. There will be a pledging conference in Geneva on 26 February. The world must step up to address the humanitarian crisis and seize this window of opportunity with the ceasefire to address the desperate needs of the people of Yemen.

[Lord Collins of Highbury (Lab)]

My Lords, the situation is obviously very fragile. Yesterday, the Foreign Secretary’s Statement on the drafting of the UN resolution was repeated here. I repeat my tribute to Mark Lowcock, who ensured that humanitarian support was included in that resolution. However, the resolution not only acts as a trigger for the peace process and opening up the ports; as the right reverend Prelate said, it also gives us the opportunity to demand more assistance from the rest of the international community. I hope the Minister will ensure that we do so at the United Nations.

[Lord Bates]

I am very happy to give that assurance. A draft is in circulation. It rightly seeks to embody in text at the Security Council the positions and agreements agreed in Stockholm, but it also includes a significant element on the humanitarian crisis and the need for the international community to come in behind that UN Security Council resolution, perhaps agreed today, to ensure that those needs are met.

[Baroness Sheehan (LD)]

My Lords, I put on record my admiration for the persistence of all those involved in bringing the warring parties to the negotiating table. We are told that, following talks in Stockholm, further talks are scheduled for January in Kuwait, I believe. Does the Minister share my concern that the fragile agreement might have failed irrevocably by then and that reconvening the parties at an earlier date would be desirable?

[Lord Bates]

In a sense it might be desirable, but that was the agreement made in Stockholm. That is what we have to follow with the six-week commitment. During that time we will see whether the other commitments to opening the ports of Hodeidah and Saleef and the prisoner exchanges happen. There are a number of steps along the way, but I certainly join the noble Baroness in paying tribute to British diplomats, of whom we can be proud, such as the UN special envoy Martin Griffiths and our own Sir Mark Lowcock, formerly a Permanent Secretary at DfID, for the work they have done.

[The Earl of Sandwich (CB)]

My Lords, as the noble Lord will know, some of us tried to find out during the Statement yesterday what exactly is happening in the port of Hodeidah. It is such a significant port for getting humanitarian aid in. Does the Minister have any up-to-date information? Given the ceasefire, we would expect a higher proportion of the dockside facilities to be available.

[Lord Bates]

Yes, we would expect that to happen. The latest data we have is from November, with 60% of food and in particular fuel coming in through that port. We have been monitoring it very closely. The agreement in Stockholm requires a weekly update back to the UN Secretary-General to see what is happening with delivery on the ground. I am sure he will follow that closely.

[Lord Alton of Liverpool (CB)]

My Lords, in the aftermath of this welcome ceasefire the rebels said that they might provide maps and details of where IEDs, landmines and booby traps have been laid. That would obviously save many lives if it could be facilitated. Also, could the Minister say whether good will gestures such as the exchange of prisoners might take place as well?

[Lord Bates]

That provision of maps is an essential precursor to the delivery of humanitarian aid. There is about 140 miles of very remote, rough countryside between those two ports. If goods and people are to travel along it delivering aid, it is essential that they can do so in safety. It is a condition of the Stockholm agreement.

[Baroness Hayman (CB)]

My Lords, as was made clear yesterday, humanitarian agencies from the UK and elsewhere are functioning in Yemen, despite the difficulties, but does the Minister agree that, because of the collapse of public institutions, people’s access to essential services—water, sanitation, healthcare and education—have completely collapsed? Humanitarian agencies could do a lot more if they were allowed to, but they can never compensate for government spending. Is the right reverend Prelate not absolutely right to say that our Government need not only to step up their own efforts but to ensure that the international community does so as well?

--- Later in debate ---

[Lord Bates]

I wholeheartedly agree. In doing so, I pay tribute to the noble Baroness’s work in leading the Disasters Emergency Committee appeal on Yemen, which has raised so much from the British people. There is a huge amount more to be done in this area, but she is right to recognise the humanitarian workers in this situation, who are putting their lives on the line for humanity. It is right that, at this Christmas time, we remember and give thanks to them for the work they do to ease the suffering of the people of this world.

Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Wednesday 19th December 2018 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 23 October be approved. Considered in Grand Committee on 12 December

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, with the leave of the House, I would like to move the three Motions standing in my name on the Order Paper en bloc—

[Lord Foulkes of Cumnock (Lab Co-op)]

Object!

--- Later in debate ---

[Lord Foulkes of Cumnock]

My Lords, I was unable to attend the Grand Committee because of business in the House. Will the Minister confirm whether this is one of the many hundreds of statutory instruments needed because of a possible no-deal exit from the European Union, which no one wants and which would be disastrous for this country, and on which many civil servants are spending a great deal of time when they should be doing many other more useful things?

[Lord Bates]

My Lords, I confirm that this is indeed one of a whole series of statutory instruments—secondary legislation—which has been going through Grand Committee. The noble Lord may not have been in Grand Committee, but other Members of this House were. We had an excellent debate which raised a number of issues that have been taken into account in the consideration of these Motions.

Motion agreed.

High Street Banks

Lord Bates Excerpts

Wednesday 19th December 2018 Lords Chamber

[Lord Lea of Crondall]

To ask Her Majesty's Government what powers they have to require retail banks to maintain a presence on the high street.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, decisions on branch closures are a commercial matter and are taken by the management team of each bank without intervention from government. However, the Government recognise that branch closures can be disappointing for customers, and believe that the impact on communities must be understood, considered and mitigated wherever possible.

[Lord Lea of Crondall (Lab)]

My Lords, I thank the Minister for that reply. Karen Doyle runs a small bakery on the main street of Sowerby Bridge in West Yorkshire, a town that had six banks a decade ago, but the last one closed this July. She told BBC News:

“Bank closures have just ripped the heart out of the town. What really annoys me is that as taxpayers we bailed the banks out when they were in trouble and now they’ve left places like Sowerby Bridge behind”.


Lloyds Bank springs to mind, does it not? Does the Minister agree with the sentiments expressed so cogently by Karen Doyle? She could have added that it is a half-truth that everyone now happily relies on telephone banking. Given that two-thirds of bank branches have already closed, has the time not come for the high priests of the Treasury, instead of washing their hands of this exemplar of creative destruction, to start planning for a bank for regional regeneration? Otherwise, perhaps let it be set up—

[Lord Lea of Crondall]

If people interrupt, this will take longer.

Otherwise, perhaps let it be set up as an offering of seasonal good will by the European Commission.

[Lord Bates]

I thank the noble Lord for his question. As for the situation in Sowerby Bridge, he will be pleased to know that there is now a much tougher access to banking standard, which was set up by UK Finance following a review by Professor Griggs, and requires impact assessments to be undertaken. He will further be able to reassure the resident of Sowerby Bridge that she has access to the Post Office network—some 11,500 outlets—and that as a result of the banking framework agreement now in place, 99% of personal banking services, and 95% of the small business banking services to which she referred, can now be transacted through the Post Office in Sowerby Bridge. I hope that that will bring some reassurance, and even festive cheer, to the noble Lord and to the bakery concerned.

[Lord Shutt of Greetland (LD)]

My Lords, the nearest town to Greetland is Elland. We did have six banks; we now have none. Just up the Calder Valley, as the noble Lord has said, are Sowerby Bridge and Hebden Bridge; they are in the same position. Real hardship to customers, retail businesses and small businesses is a fact. The mighty banks should not treat their loyal customers with such disdain. If I may comment on what the Minister said—

[Lord Shutt of Greetland]

It will be a question, do not worry.

There is a mighty Act, the Financial Services and Markets Act 2000, which is over 300 pages long. Although it makes no reference to branches, there is a regulation-making power in Section 426. I put it to the Minister: could an order be laid authorising the Financial Conduct Authority to give due regard to the need for banks to give proper branch services to towns and communities without banks?

[Lord Bates]

Fair banking principles are upheld currently by the Financial Conduct Authority. I come back to the point that the access to banking standard is now in place, and has been in place since last year. It requires much greater consideration and consultation before branches are closed. Alongside that, the Government have been investing in the Post Office network to the extent of some £2 billion since 2010. Those two factors will, I believe, help address the majority of concerns.

[Lord Flight (Con)]

My Lords, I declare an interest as a director of Metro Bank. Are the Government aware of the extent of the services and branches that the new banks are bringing to this country? Metro Bank has just opened its 62nd branch and will continue to add branches. It has gained 1.5 million customers in less than 10 years. My point is that modernisation is happening, and it is often the new banks that are providing what people want.

[Lord Bates]

Modernisation is indeed happening and challenger banks are making a big contribution to the way that banking services are delivered. The reality is that digital online banking is now conducted by 71% of the population. Next year, mobile apps will overtake digital banking in service delivery. That is leading to changes in our high streets, communities and villages. They need to be taken into account, but so too does the changing way in which we pay for services.

[Lord Davies of Oldham (Lab)]

My Lords, the banks are closing 12 branches a week and yet those who are taking the decisions at the highest level are undoubtedly enjoying city bonuses which are well over 20% this year. Instead of talking about mitigation, why do the Government not think in terms of some machinery to control the situation and introduce an element of fairness to communities? We believe that banks should be permitted to close only after local consultation and the Financial Conduct Authority has given its assent.

[Lord Bates]

I understand the point about consultation but that was the whole point of Professor Griggs’ review and the new access to banking standard, which is upheld by the Lending Standards Board. We cannot be in the position of asking whether we are going to subsidise five of the six banks to remain open with taxpayers’ money. We have decided to respond by coming up with an arrangement for the Post Office to be the place of choice for people to transact their personal, face-to-face banking needs. I think that that is a better way forward.

[Lord Hunt of Wirral (Con)]

Will my noble friend the Minister take time in a busy day to read the interim report of Natalie Ceeney into access to cash? I declare an interest as a non-executive director of LINK. There is a vital need, particularly among vulnerable people, to have access to cash.

[Lord Bates]

My noble friend is absolutely right. The access to cash review by Natalie Ceeney, who is a former member of the Financial Ombudsman Service, will be a critical contribution to our assessment of those factors going forward. I understand that she is due to produce her full review in the spring of next year and we will very much look forward to taking it into account.

Capital Requirements (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Wednesday 19th December 2018 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 15 November be approved. Considered in Grand Committee on 12 December

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, I was unable to attend the Grand Committee because of business in the House. Will the Minister confirm whether this is another of the many hundreds of statutory instruments that this House has to consider to prepare for a no-deal exit from the European Union, which no one in their right mind wants and on which a large number of civil servants are spending time which they could use more profitably?

[The Minister of State, Department for International Development (Lord Bates) (Con)]

The noble Lord will find out there were 17.4 million people in their right minds who voted for this. The Government are following through that proposal.

Motion agreed.

[Lord Bates]

Payment Accounts (Amendment) (EU Exit) Regulations 2018Motion to Approve3.43 pmMoved by That the draft Regulations laid before the House on 6 November be approved. Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A), considered in Grand Committee on 12 December

--- Later in debate ---

[Lord Harris of Haringey (Lab)]

My Lords, further to the point made by my noble friend Lord Foulkes, this has obviously taken up barely a minute or two of your Lordships’ House’s time, but could the Minister tell us how many other such instruments he expects to bring in a similar vein to this House and through the procedures that the noble Lord, Lord Trefgarne, mentioned? How much time does he therefore expect the House to have to devote to these matters?

[The Minister of State, Department for International Development (Lord Bates) (Con)]

We are in the process of preparing, which any responsible Government should do, for the no-deal situation, which is not what we want. We want the deal to go through, but we have to prepare for every eventuality. I commend the work of my noble friend’s committee in providing very detailed scrutiny of these regulations, as I also commend those Members who did actually attend Grand Committee on 12 December and provided that scrutiny in person.

[Lord Foulkes of Cumnock]

Could the Minister also commend the work done by the other committee, chaired by my noble friend Lord Cunningham?

[Lord Bates]

I would be very happy to commend it.

[Baroness McIntosh of Pickering (Con)]

My Lords, there is a statutory instrument available in the Printed Paper Office this week entitled the Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations. Has this already been considered? If not, what is the proposed timetable for considering this instrument?

[Lord Bates]

There is an agreed procedure in Section 8(8) of the EU withdrawal Act, which sets out exactly what can be done. We are following exactly that course of action, with proper scrutiny and a huge amount of work being done by your Lordships’ House and our terrific civil servants in preparing for this eventuality, and doing so professionally, openly and transparently. That is why we commend the regulations to the House.

[Baroness Smith of Basildon (Lab)]

My Lords, the Minister says that this is essential good responsible planning from a Government in case there is no deal. Would it not then have been more helpful to Parliament as a whole had the Prime Minister not pulled the expected votes last week, so that Parliament could have voted on whether it considered no deal an acceptable option at all?

[Lord Bates]

The responsible thing to do would have been for Her Majesty’s Opposition to support the deal on the table. Then we would not need these no-deal statutory instruments.

[Lord Berkeley (Lab)]

My Lords, the European Commission has today published a paper entitled Preparing for the Withdrawal of the United Kingdom from the European Union on 30 March 2019, which gives various scenarios for financial services, transport, air and everything that we discussed yesterday. It says that it will allow a certain time for arrangements to be put in place, provided that the UK Government match it with similar concessions the other way with UK residents on the continent and everything else. How will the Minister and the Government deal with the responses to that paper and have them debated in your Lordships’ House?

[Lord Bates]

The usual channels will arrange for these discussions to take place and have debates on them. We are debating the Motion standing in my name on the Order Paper. The regulations have been reviewed by the committees, as has been referred to. They have been reviewed and debated in Grand Committee and passed without objection, which is why they find themselves on the Order Paper.

The Lord Speaker decided on a show of voices that the Motion was agreed.