Charities: Government Grants
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Lord Harries of Pentregarth (CB)
I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare a non-financial interest as chair of the Commission on Civil Society and Democratic Engagement.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, less than 7% of the £130 billion of grants paid each year goes to the non-profit sector. From 1 May, departments will be required to insert the clause in all new and renewed grant agreements unless Ministers decide, in exceptional circumstances, to qualify or remove the wording. Before 1 May, departments are encouraged to engage with any grant recipients who are likely to be affected by the clause. It will be for departments to employ existing financial controls and take appropriate action if they believe a clause to have been breached.
Lord Harries of Pentregarth
I thank the Minister of his Answer, but would he not agree that charities that are so often at the front line of meeting human need are in the best position to gauge the effect of government policies on those whom they are trying to help? Therefore, they have a duty to bring any concerns to bear to the Government. In the light of that, does the Minister agree with the compact signed by the Prime Minister in 2010 with civil society that the Government will,
“respect and uphold the independence of civil society organisations to deliver their mission, including their right to campaign, regardless of any relationship, financial or otherwise, which may exist”?
Lord Bridges of Headley
First, I pay tribute to the work that the noble and right reverend Lord does in this area and all his contributions to this debate. I understand that there has been concern about this clause. I assure him, the House and charities that, of course, charities will be able to provide advice and guidance to government if it is part of the work that they are being paid to do. This clause aims to prevent taxpayers’ money being used to lobby politicians and government on all manner of other issues. The Government believe that the new clause is compatible with the compact and does not in any way prevent grant recipients from campaigning and lobbying, using their other funds. It simply requires clarity on what the grant funding can be used for.
Baroness Barker (LD)
My Lords, the Government have adopted this policy following a lobbying campaign by the Institute of Economic Affairs, according to its 2014 accounts, funded by a source which it declines to disclose. Is it the Government’s intention that charities commissioned by the Government for their expertise will have their ability to influence government policy restricted, while charities funded by anonymous donors, such as tobacco companies, will not?
Lord Bridges of Headley
I slightly dispute the second point. I draw the noble Baroness’s attention to the fact that DCLG has used this clause in 56 contracts since February 2015. For example, the Church Urban Fund, which the noble and right reverend Lord will know, the LGA, Mencap and the Royal College of General Practitioners have all received grants under the new clause. Shelter, likewise, has received a grant, and is currently running its Power to Renters campaign. A number of noble Lords will no doubt have received communications from it as regards the housing Bill.
Lord Leigh of Hurley (Con)
My Lords, I declare an interest as having served on the Etherington review of fundraising by charities. Would my noble friend the Minister not agree that, given that individual donors in this country give some £8 billion a year to charities, they should be encouraged to give greater transparency and accountability for the funds that they use for lobbying rather than for good purposes?
Lord Bridges of Headley
I entirely agree with that. I pay tribute to the excellent work that charities do up and down the breadth of this country and to the considerable contribution that many millions of people make in time, energy and commitment. I point out to your Lordships that, obviously, this clause is aimed at the £130 billion paid out in grants annually. While we may be talking here about charities, we should not forget the £74 billion of grant funding that goes to local government, the £24 billion to ALBs and public corporations, the £8 billion to international recipients and the £4 billion to the private sector.
Baroness Royall of Blaisdon (Lab)
Would the Minister agree that charities are and must be seen to be independent of government, regardless of their financial arrangements? Would he also agree that any perception that charities are being limited in what they can and cannot say about public policy issues because of their funding would be damaging to public trust in civil society?
Lord Bridges of Headley
Of course I agree with that, but I strongly believe that this clause does not do that. I point out that for a number of years government departments have included a provision that taxpayers’ money should not be used for political activity and this new clause simply clarifies what that means.
Baroness Hayter of Kentish Town (Lab)
My Lords, on Tuesday last week we completed the Charities Bill. At 8.32 am on Saturday the Government announced this new policy. Did the Minister know about it on Tuesday when we completed it and would it not have been better to announce it then, when there could have been a debate on this important matter in Parliament, rather than issuing it by diktat?
Lord Bridges of Headley
On the first point, I assure the House that this actually goes much wider than just relating to charities. As I said, it relates to numerous other points. I would also draw your Lordships’ attention to that fact that this has existed in the DCLG and been piloted since February 2015. The DCLG has not received any complaints that it has hindered the work of those charities involved.
Lord Hay of Ballyore (DUP)
My Lords, we have huge salaries being paid to senior charity staff right across the United Kingdom. Some of these staff are being paid more than the Prime Minister. How can that be justified at a time when many of these charities are struggling financially? Can I ask the Minister whether any of the money paid to charities from government grants goes towards salaries?
Lord Bridges of Headley
Part of the process that we are trying to ensure is that these grants are properly audited and that we know exactly where the money goes. Regarding the salaries that charities pay to their senior employees, that is obviously a matter for the charities, but I am sure that they will be noting the considerable public scrutiny that they are under—and rightly so.
Lord Dubs (Lab)
My Lords, will the Minister accept that there is a world of difference between money going from government to a charity for project work and money that the charity earns by its own fundraising? Surely the fundraised money should be used for purposes not covered by what the Minister said, and charities should be free to spend their money for advocacy as they think fit.
Lord Bridges of Headley
That is exactly right and that is what they will continue to be able to do.
European Union Subsidiarity Assessment: Electoral Law of the EU (EUC Report)
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The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, the noble Lord, Lord Cashman, did not ramble at all. He was very eloquent. I thank the European Union Committee for its report and, much more importantly, for its work in the round. The list of your Lordships who devote time and energy to its work is long, but I thank them all, in particular my noble friend Lord Boswell and the noble Baroness, Lady Kennedy of The Shaws. This committee is a shining example of this House at its very best, picking to pieces legislation and exorcising the devil from the detail.
Before turning to the specific details of this issue, I shall put it in context—context of critical importance. Over the weekend, I reminded myself of public opinion of the European Parliament, since this seems to be the nub of the issue that the proposals are trying to address. The European Parliament is, according to the Parliament itself, suffering from a problem: declining participation rates in its elections. In the early 1980s, voter turnout was over 65%; in the last elections, it had fallen to beneath 42%.
It is worth noting, too, what voters think of the Parliament. Over the weekend I spent a few hours looking in the bowels of the European Parliament’s website. According to its November Eurobarometer survey, while seven out of 10 voters think that it plays an important role in running the EU, just one in four voters has a positive view of the Parliament. Those who do not trust the European Parliament outnumber those who trust it. The main reason given for not trusting the European Parliament is that it is,
“too far away from ordinary citizens”,
as the noble Lord, Lord Judd, said. I say this without any glee or satisfaction, but this is the worrying backdrop to the proposals for the reform of European law that the Parliament has itself proposed.
As has been said, these are proposals from some of those in the European Parliament. They believe that this voter apathy and mistrust can be tackled in part by changing how the elections themselves are conducted. They are perfectly entitled to their views and I do not wish to impugn their motives. It is always worth considering whether voter engagement might be improved by changing electoral processes. However, I question, gently, as did the noble Lord, Lord Judd, whether this should be the priority of the European Parliament now, with all the other enormous problems that we are facing.
Consider what voters across Europe have told the European Commission are their priorities. According to polls conducted for the Commission itself last year, immigration, the state of the economy and unemployment are voters’ top three priorities. A relentless focus on identifying credible solutions to these problems in a way that respects national sovereignty is the way to increase public engagement and trust in the European Union.
This brings me to the proposals themselves. As I was reading them, the wise words of the Dutch Government,
“European where necessary, national where possible”,
were ringing in my ears. It is not necessary for Europe to micromanage the system for European elections, whereas it is both possible and desirable for national governments to do so. Unsurprisingly therefore, the Government do not agree with these proposals as they stand. For example, there is no public support for details of European political parties to appear on ballot papers, or for harmonised quotas of women candidates at European elections. Such provisions on electoral law should be a matter for national parliaments and individual political parties.
The Government therefore share the concern of the committee that the proposals do not comply with the principles of subsidiarity and that the issues that they are designed to address should be decided at a national level and not at European level. As the members of the committee have pointed out, there are concerns with the level at which the action is proposed, concerns on whether the measures suggested are proportionate to the issues being addressed and concerns as to their added value.
I shall focus briefly on two particular proposals that the committee has highlighted. The European Parliament has proposed that the lists that the political parties put forward at European elections should ensure gender equality. Like the noble Baroness, Lady Kennedy, the Government believe that democratic institutions make the best decisions when they have a mix of people with different skills, backgrounds and experiences from across the country. We must ensure that women are better represented across all walks of life. The proportion of women in the British MEP group and that among MPs at Westminster have risen steadily over the years and I hope and expect that they will keep rising in the future. The Government do not, however, consider that it would be right to mandate a legal quota in order to effect change. Nor would it be right to install a one-size-fits-all solution for all countries and all political parties within them.
It is also proposed that EU citizens, including those living or working in a third country, should be able to vote in European elections. Of course, UK law already provides that British citizens living abroad—whether in another member state or otherwise—may register to vote in European elections in the UK for a maximum of 15 years after they were last registered to vote in the UK. The same time limit applies to voting in UK parliamentary elections. The Government are committed to scrapping the rule that bars British citizens who have lived abroad for more than 15 years from voting and will introduce stand-alone legislation to deliver this as a permanent change in due course. However, the Government share the committee’s concern that this sort of issue should be decided at a national level.
I shall also comment briefly on the European Parliament’s proposed changes to the way that the President of the European Commission is selected—the so-called Spitzenkandidaten process. The position of President of the European Commission is obviously important, so changes in this area need to be forensically scrutinised. If there are to be changes to the way the President of the Commission is selected, these changes must be seen as wanted and necessary by all member states. Consensus among member states is absolutely vital. The Government remain of the view that selection of the Commission President should remain a European Council decision and based in current EU law. The European Parliament has the right to draw up proposals under Article 223(1) of the Treaty on the Functioning of the European Union regarding the election of its members and it is within its rights to propose measures relating to that. However, it is the scope of these measures, both individually and as a whole, that is problematic where they breach subsidiarity.
Finally, there is the issue of the veto. All member states would need to approve the proposals in order for them to take effect. Perhaps anticipating some nations’ opposition to these proposals and their tenor, draft Article 14 proposes to remove the veto for these matters. This, too, is unacceptable, as it would be wholly inappropriate for issues such as these to be decided by QMV.
Therefore, the Government wholeheartedly share the committee’s concerns on subsidiarity, both in terms of the content of the proposal and as regards procedural aspects. An important part of ensuring compliance with subsidiarity is the requirement for EU institutions to provide a robust assessment and justification for why an objective can be better achieved at EU level. As the committee has highlighted in its report, the case has not been made.
It is worth noting that the UK Government are not alone in having reservations regarding these proposals. During early discussions, other member states have expressed concerns on these proposals. Some 16 chambers from 10 member states have signed a letter to the European Parliament expressing their concerns on procedure regarding national parliaments. Similarly, a number of parliaments are considering issuing reasoned opinions on these measures.
All too often, the EU has exercised power in areas where decision-making could and should be done at a national, regional or local government level without interfering with the operation of the single market or the effective functioning of the EU. The EU must respect the layers of government that are closest and most accountable to European citizens, and national parliaments have a key role to play in ensuring that happens.
In conclusion, politicians across Europe wish to increase political engagement and trust in politics. This Government believe that the way to do this is by strengthening the role of this Parliament and of all national parliaments. Europe should focus on advancing our prosperity and security—the issues that citizens care about. For these reasons, the Government cannot and will not support the draft proposals that the committee has so expertly scrutinised.
Baroness Kennedy of The Shaws
My Lords, I thank all my noble friends for their participation in this debate. We have learned a lot about the importance of dialogue, which is the message that comes through from the Motion.
My noble friend Lord Davies mentioned to me last night that he would be opposing the second Motion. We did not have any discussions about it, because I was speaking to amendments to the Immigration Bill and it was not a time when I could enter into a discussion with him. However, I hope that, having been absent from the discussion in the Select Committee, he has been persuaded after having had the benefit of hearing the good reasons why we reached the conclusion that there should be a reasoned opinion and why the report was created in the way that it was.
As the noble Lord, Lord Boswell, said, this is not about being antagonistic towards the European Parliament but about pointing out why procedure matters. It is very important for the relationship between member states and the Parliament in the European Union. These ways of working are important and it is how you inspire trust. I hope that the House will support the Motion and that my noble friend Lord Davies will, too.
Charities (Protection and Social Investment) Bill [HL]
Lord Bridges of Headley Excerpts(8 years, 9 months ago)
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Lord Bridges of Headley
That this House do agree with the Commons in their Amendments 1 to 7.
“( ) The Commission may vary or withdraw a warning under this section.
( ) Subsection (2) applies to the variation or withdrawal of a warning as it applies to a warning.
( ) Subsections (3) to (6) apply to the variation of a warning as they apply to a warning, except that—
(a) in subsection (5)(a) references to the warning are to be read as references to the warning as varied, and
(b) the matter to be specified under subsection (5)(b) is any change as a result of the variation in the action previously proposed by the Commission.”
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, it is a pleasure to be back at the Dispatch Box to debate the amendments made in the other place to this important Bill. It is good to be in the final lap, so to speak, with the chequered flag fluttering in the distance. I will try to keep my comments brief.
Commons Amendment 1 is a sensible tweak which would enable the Charity Commission to withdraw or vary an official warning issued under Clause 1. The Charity Commission already has powers under the Charities Act 2011 to vary, revoke or discharge its orders, and we consider that the commission should have a similar ability to vary or withdraw an official warning. Any variation of a warning would be subject to the same processes and safeguards as issuing a new warning.
Commons Amendment 2 would remove Clause 9 from the Bill. This is perhaps one area where there has not been the same degree of agreement across the House as is the case for most of the Bill—a rare exception. But the Government’s position on this remains that Clause 9 is unhelpful and could have damaging unintended consequences for charities. The rationale for Clause 9 when it was introduced into the Bill on Report in this House was that it would send a clear signal to the Government about concerns relating to our manifesto commitment to extend right to buy to housing associations. The principal concern was that charitable housing associations could be compelled to sell their assets in a manner incompatible with their charitable purposes.
The Government listened to the concerns raised and, rather than legislate to deliver the right to buy, we reached a voluntary deal with the housing associations. Under the voluntary deal, there can be no question of housing associations being compelled to sell their assets in a manner incompatible with their charitable purposes; nor is there anything in the Housing and Planning Bill that would compel this. I also point out to noble Lords that the Housing and Planning Bill has been brought to this House and this represents the right place to make points about the Government’s housing policy.
Putting to one side the points about right to buy, our main concern about Clause 9 was that such an attempt to reflect the case law in a simple statutory provision would simply not work and would have potentially damaging unintended consequences for charities. For example, it was not clear how the clause would affect compulsory purchase orders or other court or Charity Commission orders. It was not clear what impact the clause might have on charity financial assets and investments. It was not clear how it could impact existing rights such as the preserved right to buy or right to acquire, which benefit 1.4 million housing association tenants. Some of your Lordships may wish to repeat or echo concerns about this issue but, for the reasons that I have just set out, I strongly encourage the House to support Commons Amendment 2.
Commons Amendments 3, 4 and 5 relate to the disqualification provisions in the Bill. Clause 10 extends the effect of disqualification to the most senior executive roles in a charity, normally the chief executive officer and, where there is one, the chief finance officer. We became aware that there was a risk that under the unamended provision, a person employed by a charity but who did not exercise any management function could still be caught. This may be the case in small charities in which only the trustees are involved in the management of the charity. Commons Amendment 3 addresses that in relation to automatic disqualification. Commons Amendment 4 makes the same change in relation to the proposed Charity Commission power to disqualify in Clause 11, where the same problem could otherwise arise.
I should point out that in response to various concerns raised by rehabilitation charities in relation to the Bill’s disqualification provisions, the Minister for Civil Society committed to a period of at least 12 months before the automatic disqualification provisions would be commenced. The Government and Charity Commission will work with rehabilitation charities ahead of implementation to assess the impact of these provisions on such charities, and will seek to ensure, where possible, that the provisions do not undermine their important work.
Commons Amendment 5 was another concession that responded to a point raised by rehabilitation charities. Under the proposed power to disqualify in Clause 11, one of the conditions for the exercise of the power—condition B—is that the individual has been convicted outside the UK of an offence against a charity or involving the administration of a charity, which, had it been in the UK, would have automatically disqualified the individual. Under Clause 11, the commission would be able take into account only an overseas conviction that is not spent under the law of the territory concerned, where the conviction took place. Rehabilitation charities pointed out that it would be more proportionate if this limitation related to the UK rehabilitation period for an equivalent UK sentence, rather than the rehabilitation period of the overseas jurisdiction. Commons Amendment 5 makes that change.
When the charities Bill was last discussed in your Lordships’ House, there was much interest in and support for strengthening the regulation of fundraising. Noble Lords will remember that in response to last year’s fundraising scandals my honourable friend the Minister for Civil Society, Rob Wilson, asked Sir Stuart Etherington, the chief executive of the National Council for Voluntary Organisations, to chair a cross-party panel tasked with exploring whether the system of fundraising regulation as a whole is the right one. I once again express my particular thanks to my noble friend Lord Leigh of Hurley, the noble Baroness, Lady Pitkeathley, and the noble Lord, Lord Wallace of Saltaire, who all forsook their deckchairs to spend much of last summer deliberating on this question.
I am pleased to say that the Government accepted the recommendations of the Etherington review. Charities have one last chance to show that self-regulation is the appropriate way to govern fundraising. I am very grateful to my noble friend Lord Grade of Yarmouth for agreeing to act as interim chair and set up the new fundraising regulator. I am sure that noble Lords will join me in congratulating him on his new role and wishing him well for this important endeavour. I also take this opportunity to draw your Lordships’ attention to the Public Administration and Constitutional Affairs Committee report on charity fundraising, which was published last week. I welcome its main finding, namely that charities must seize this opportunity to show that self-regulation can work effectively. The Government will consider all the committee’s recommendations and respond in due course.
That brings me on to Commons Amendment 6, which seeks to extend the existing reserve power to regulate fundraising in Section 64A of the Charities Act 1992 and should act as a safeguard if self-regulation fails. It would do so in two main ways. First, new Section 64B would enable regulations made under Section 64A to prescribe a fundraising regulator with which charities must register and pay fees, which would have to be set in line with regulations, comply with the regulator’s requirements and have regard to its guidance. The second element is in new Section 64C, which would enable regulations to confer the power to regulate fundraising on the Charity Commission. It would enable the commission to subcontract day-to-day delivery of fundraising regulation while retaining overall control, and enable fees to be charged under Section 19 of the Charities Act 2011.
As the Minister for Civil Society said in the other place, he hopes that these powers will not be needed and that charities will get behind self-regulation and make it work. I am happy to report that many of the largest fundraising charities have already said that they will commit to the new system by registering with the new body which my noble friend Lord Grade is setting up. I commend them for their initiative and dedication to reforming charitable fundraising in such a way, which will safeguard the interests of the public and beneficiaries alike. The extended reserve powers sought in Commons Amendment 6 send a clear signal regarding the Government’s intention to see better regulation of fundraising in future. Fundraising regulation can no longer be allowed to be governed by vested interest or to turn a blind eye to free riders and those seeking to exploit the extraordinary generosity of the British public. The changes made to the Bill in Commons Amendment 6 will ensure this and I hope that noble Lords will join me in supporting it.
Finally, I turn to Amendment 7. This is the standard-form provision added on Third Reading in this House to avoid issues of privilege. Privilege issues would otherwise arise because the Bill authorises expenditure and charges, which are set out in the Ways and Means resolution. In accordance with standard procedure, the privilege amendment was removed at Commons Committee stage. There ends my canter through these amendments. I hope that your Lordships will support the Commons amendments, and I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I should like to join others and pour a little more honey over my noble friend’s head and over the head of the Bill team, which has worked hard to bring the good ship into harbour. I shall focus on Amendment 6 and I congratulate the Government on that amendment and the fundraising aspects of it. I urge them to keep up the pressure and wish my noble friend Lord Grade every success in this difficult task.
It is important that we are trying to strike a balance here, which is quite rightly focused on the public not being unduly hassled and being asked in the right way. That is absolutely appropriate, but we must not lose sight of the charities’ right to be able to ask, because if they cannot do so, the effect on our charitable sector, which is vital to our civil society, will be quite extreme. When I carried out the review for the Government a few years ago, it was clear that that balance had not been reached appropriately, given the alphabet soup of regulatory bodies and the different types of fundraisers who blame each other for their bad reputation, along with the fact that the public were confused and wanted a single point of contact. In my report, which was sent to Ministers in July 2012 and accepted by Ministers, I suggested a six-month deadline. Three years later, last summer, as the noble Baroness, Lady Hayter of Kentish Town, pointed out, we had the flashpoint over fundraising, caused by the sad case of Olive Cooke. I congratulate Sir Stuart Etherington and the Members of your Lordships’ House who took part in that review. I think they have come up with some excellent proposals. But this is the last chance of the last chance of the last chance saloon; we have been around this now two or three times.
I am not in favour of statutory regulation against a rapidly changing scene. However, I have to say to my noble friend and to the Minister that in my conversations with the sector there remains a distressing tendency still to see this as somebody else’s problem—still to say, “We are a charity and our reputation is everything, therefore we wouldn’t do anything wrong and how can you possibly think that we are doing anything wrong?”. It is an issue that has still to be hammered home in certain parts of the charity sector to make sure that the message gets over. The reputation of the sector is as strong as the weakest link in the chain, and there remain too many weak links in the chain, which I hope that my noble friend and his colleagues will be able to tackle.
My noble friend has to keep fingering the trigger marked 64C. We have to see his knuckle tightening around the trigger to make the sector understand that this is really important because the distressing tendency to think it will all go away remains. Last week, one charity said to me, “We don’t need to worry about it because we’re good. We’re a charity and the Government don’t want to pull the trigger anyway”. My noble friend must be ready to pull that trigger and make it clear that he will do it. I want to see his trigger finger whitening over the next few months.
Lord Bridges of Headley
My Lords, I am extremely grateful for those incredibly kind words. The Bill has been through a long journey of consultation, pre-legislative scrutiny and parliamentary scrutiny and has emerged all the better for it. I thank a number of noble Lords for all they have done, not just in this parliamentary Session but well before it to make the Bill such a success. The Bill has seen this House at its very best. Where we have differed, we have managed to iron out our differences on the Floor of the House and off it. We have made concessions in the light of very good points that were made by a number of noble Lords. The Bill is all the stronger for it.
I will keep my remarks very brief, but I associate myself with a lot of what my noble friend Lord Hodgson said. I thank him in particular for what he has done to make the Bill what it is today. We can get into lots of clichés about having last orders in the last chance saloon with my finger on the trigger. I think we all agree that the charitable sector must heed the measures now before it. It must act and show that it is acting in short order. We will all be keeping our eye on what it does.
On that point, I thank my noble friend Lord Grade for his update. We are right behind him as well as alongside him. I urge him to make all the use he can of the expertise and good will on all sides of this House as he ventures out on his enterprise. There is a lot of wisdom to be drawn from this House and a lot of good will to make sure that his regulatory flourish produces the results we all want.
Before I finish, I will say a couple of words of thanks. I thank the Whip, my noble friend Lord Younger of Leckie, the noble Baronesses, Lady Hayter and Lady Barker, and the noble Lord, Lord Watson of Invergowrie, all of whom have helped me on this, my first Bill. I repeat my thanks to the noble and learned Lord, Lord Hope of Craighead, and my noble friend Lord Hodgson of Astley Abbotts. I thank again my noble friend Lord Leigh of Hurley, the noble Baroness, Lady Pitkeathley, and the noble Lord, Lord Wallace of Saltaire, who helped me a lot during the summer, enabling us to make fast progress on the fundraising front. I thank the Cabinet Office and Charity Commission officials in the Bill team for their work in supporting the passage of the Bill.
We will soon hand over the Act to be implemented by the Charity Commission. I know that noble Lords will be watching closely to ensure that the powers in the Act are used fairly and proportionately. I am sure that they will be, and I look forward to a positive report when the Act comes to be reviewed in three years’ time. Charities’ life-blood is public trust and confidence, which have been undermined by several regulatory failures. The Bill will do much to support the effective protection and regulation of charities and will help restore the public trust and confidence on which charities rely.
Bank of England and Financial Services Bill [HL]
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The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, this is an amendment to Clause 30, which in effect will require certain individuals with annuities valued above a threshold to take advice before selling an annuity on the secondary market. Clause 30(3) gives the Treasury the power to make regulations to exempt some individuals from mandatory advice. The amendment changes the nature of that power so that the regulations are made under the affirmative, rather than the negative, parliamentary procedure.
On Report, the Delegated Powers and Regulatory Reform Committee recommended that the power to exempt some individuals from mandatory advice should be subject to the affirmative procedure. The Government agree that this is an important part of the consumer support package and that your Lordships should have the opportunity to debate this issue before it is set in legislation. That is why an amendment is being brought forward to change the power so that it is subject to the affirmative resolution procedure.
Along with the power to specify certain individuals who will be exempt from the advice requirement, Clause 30 gives the Treasury the power to specify which annuities will be subject to the advice requirement, including the specification of any threshold annuity value, and a further power to specify what type of advice individuals must have received. Ahead of laying the appropriate secondary legislation, the Government will be consulting later in the year on our proposals for the details of the advice requirement allowed for in these delegated powers. I beg to move.
Lord Wallace of Tankerness (LD)
My Lords, I had not at all intended to intervene until the Minister mentioned the affirmative resolution procedure, which of course means that the order will come to your Lordships’ House for approval. Does the Minister really mean that—and, if he seeks the approval of the House, is he willing to accept that the House might not approve it?
Lord Bridges of Headley
My Lords, I am sure that the Government will see sense and will wish to acknowledge the views of the House.
“( ) In section 429(2B) (regulations subject to affirmative procedure)—(a) after paragraph (a) (inserted by section 21) insert—“(b) provision made under section 137FBA(3);”;(b) the words from “provision made under section 410A,” to the end become paragraph (c).”
Lord Bridges of Headley
My Lords, the amendments in this group make minor and technical changes to correct oversights in the Bill. Amendments 3 to 6 deal with the use of the terms “institution” and “group entity” in the new Section 57B inserted by Clause 32. This section requires the Bank to provide information related to resolution plans for institutions and group entities. Subsection (5), which allows the Treasury to direct the Bank not to provide this information in relation to specified institutions, omits group entities. These changes correct this and make consequential amendments to the rest of the clause.
Amendment 7 alters Schedule 2 to ensure that the definition of “banking group company”, found in Section 189(1B) of the Financial Services and Markets Act 2000, applies to the use of that term in the new subsection (1ZB) of that section, which is inserted by this part of the Bill, and not just to its use in subsection (1A), as is the case now.
On Amendment 8, as we are ending the PRA’s status as a subsidiary of the Bank, Schedule 2 of the Bill removes a series of requirements in existing legislation for consultation between the Bank and the PRA that are no longer necessary. One such requirement, in Section 129A of the Banking Act 2009, was overlooked, and this amendment removes it.
Amendment 8 also reinstates a requirement for the Bank and the FCA to inform each other that they are satisfied that the conditions for application for a bank insolvency order for which they are respectively responsible are satisfied before either can make such an application. The amendment made by paragraph 56 of Schedule 2 to the Bill to Section 96 of the Banking Act 2009 inadvertently removed this requirement.
Finally, Amendment 9 corrects the reference to the Financial Services (Banking Reform) Act 2013 in paragraph 69 of Schedule 2. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, I am grateful to the Minister for explaining these amendments, which he has assured the Opposition are purely technical. I would not doubt the word of a Minister in such circumstances at any time, but certainly not at a time when, as will be recognised, the Bill is being considered first in this House. Therefore, if there were any failure to meet the criterion of technical amendments, I have no doubt that my colleagues in the other place would light upon it with some alacrity, so I am happy to support these amendments.
“(a) for “subsection (1A)” substitute “subsections (1A) and (1ZB)”;(b) omit the definition of “bank”;(c) in the definition of “banking group company” for “that Act” substitute “the Banking Act 2009”.”
Lord Bridges of Headley
My Lords, I believe it is customary at this stage to thank all those who have helped ease the passage of this Bill through the House. It is fair to say that at times, the passage has not been entirely easy. The list of those I have to thank is therefore long but noble Lords will be glad to hear that I will refrain from an Oscaresque thank you, complete with thanking my mother and bursting into tears, and will simply thank a few people. I thank the Bill team of course, for their excellent guidance and advice, and my excellent Whip and noble friend Lord Ashton, who helped keep me on the straight and narrow throughout. I thank the Governor of the Bank of England, as well as Andrew Bailey and the officials there, and Sir Amyas Morse and officials at the NAO for all the work they did on various parts of the Bill and the negotiations over that.
Those Peers on all sides of the House who were members of the PCBS also deserve my thanks, especially the noble Lord, Lord McFall, and the most reverend Primate the Archbishop of Canterbury, and those on the Cross Benches who made excellent contributions on a range of possible technical issues during the Bill and spared the time to explain to me their thoughts and concerns, especially on the NAO and Bank issue. In particular I thank the noble Lord, Lord Bichard, as well as the noble Lords, Lord Burns, Lord O’Donnell and Lord Turnbull. At one stage in proceedings, one of your Lordships asked for a collective noun to describe three former Permanent Secretaries. The answer is, of course, “a Humphrey”.
I thank my noble friend Lord Naseby for his contribution regarding mutuals, and the noble Baroness, Lady Worthington, for her thoughts on the Green Investment Bank and auditing issues.
Finally, of course, I thank especially both of the Front Benches—the noble Lords, Lord Tunnicliffe, Lord Davies and Lord Sharkey, and the noble Baroness, Lady Kramer—for all the time they spent meeting me and discussing detailed aspects of the Bill. Sometimes we agreed and sometimes we did not. But the discussion was always amiable, civilised and, above all, thanks to their efforts, we did what this House is meant to do, which is to scrutinise and test the legislation.
I said at the start of the Bill that I see this process as a form of legislative acupuncture. At times it was undoubtedly a bit painful, but, thanks to the contributions of your Lordships, the Bill leaves this place in better shape than when it began, and for that I am thankful.
Baroness Kramer (LD)
I very much join in the thanks, particularly to the noble Lord, Lord Bridges, for the way in which he conducted the work of the ministerial Front Bench. He was always open to meeting and kept us incredibly well informed—frankly, above and beyond the usual. I extend those thanks to the noble Lord, Lord Ashton of Hyde, and to the whole of his Bill team for the generous way in which they handled this piece of legislation. The Government listened, particularly on one key issue which these Benches were concerned about—oversight of the Bank of England —and the Bill will now be stronger for that.
I have to say, very briefly, that there were areas where the Government did not listen, and we will all live to regret two of them. One is the decision to end the reversal of the burden of proof, which would have had a big impact on the culture of banking, and for the better, and the other is the concern we raised over the independence of the FCA. Both those concerns have been very much underscored by the recent disclosure that the FCA has cancelled its review of the culture of banks and by the timing of the way it did so, just a few weeks after the Bank of England parachuted an executive director into the FCA to supervise this area. So we have concerns, which I am sure will be picked up in another place and by the Treasury Select Committee. But I very much thank those who worked on the Bill and who did so with great graciousness.
Bank of England and Financial Services Bill [HL]
Lord Bridges of Headley Excerpts(8 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
“( ) In section 3C (reviews) after subsection (1) insert—
“(1A) Where they consider that to do so would contribute to the discharge by the court of directors of any of its oversight functions, the non-executive directors of the Bank (or a majority of them) may arrange—
(a) for a review to be conducted under this section in relation to any matter by a person appointed by those directors, and(b) for the person conducting the review to make one or more reports to the court of directors.””
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I am grateful for the discussions we have had on Bank governance to date. In this group, I would like to bring forward three amendments that respond to those debates: first, to ensure that the non-executives on the court can always initiate performance reviews; secondly, to prevent the court from delegating oversight functions to a sub-set of its members; and, thirdly, to provide clarity on responsibility for the financial stability strategy.
The noble Baroness, Lady Kramer, and the noble Lords, Lord Sharkey, Lord Tunnicliffe, and Lord Eatwell, have raised concerns that the transfer of the oversight functions to the court could unintentionally weaken the non-executive majority. Noble Lords have argued that a majority of non-executives might be blocked from initiating a review if the executive was united in opposition and enlisted one or two non-executives to their cause. The first amendment laid by the Government addresses these concerns. The government amendment to Clause 3 ensures that a majority of non-execs can always initiate performance reviews without needing to secure the agreement of a majority of the whole court. If just four non-executive directors want a review, they will be able to initiate it. This will reinforce oversight of the Bank’s activities and provide additional protection against groupthink. The initiators of a review would determine who should carry it out. This could be someone external, or internal, including the Bank’s new Independent Evaluation Office.
At this point, it is worth pointing out a related change that the Bill makes. The 2012 Act required that:
“If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank”.
The Bill removes that condition, so that a majority of the court or a majority of non-executives will be able to appoint an officer or employee of the Bank without needing to secure the Governor’s consent.
Lord Davies of Oldham (Lab)
My Lords, I am grateful to the Minister for his introduction to this debate. He will not have been at all surprised that one or two penetrating questions have been put forward. I put on the record the assiduous way in which he set out to make changes to the Bill in response to our debates at Second Reading and in Committee. In doing so, he greatly assisted those of us who were able to negotiate with him to see the advantages that could be obtained by moving some way back to the future, as it were, and re-establishing the Bank as it was.
I think that lessons have been learned over recent years. My noble friend will appreciate that the original Bill that came before this House effectively ended the oversight committee and reduced the power of the non-executive directors. The Minister has taken steps to respond to the great concern expressed on all sides of the House on these issues and has brought the non-executives into a position of considerable significance, not least in determining the remuneration of executives’ pay, in which it is important that the non-executives should be in a substantial majority. Also, they have the right to carry out the oversight functions on which we pin such a great deal of emphasis. Therefore, we are grateful to the Minister for the extent to which he has moved.
I am grateful to my noble friend Lord Eatwell for his insightful contribution. He will know that this is only the first shot at this Bill as far as Parliament is concerned in this noble House. But it will certainly be taken on board in the other place, and it may be thought that it is the other place that ought to deliberate quite significantly on the role and position of the Treasury Select Committee in relationship to the Bank of England. I do not think any of us have thought that either the chairman of the Treasury Select Committee or the committee itself have been backward in coming forward when issues have presented themselves that needed inquiry. Therefore, I think that my noble friend Lord Eatwell can derive from this debate some satisfaction from the fact that there will be an opportunity for that to be debated further.
The House has concentrated on the question of the role of the non-executives. I am grateful to the Minister for having responded to those anxieties and presented amendments that have, to a very large extent, brought the situation back to a position of some significance. However, it was the case that, at Second Reading in particular, there were very great anxieties about the extent to which the government proposals significantly reduced the power of the non-executives, and that we were faced with a Bank in which their role was nothing like the role that they had played in the more recent past. I think that we have, through these amendments, met the wishes of the House. I am grateful to the Minister for having listened to the House and to several representations that we have been able to make. I am also grateful that he has been able to meet significant figures from the Bank—the chairman of the court and the chief executive—to understand the nature of the issues before us. So these amendments are to be commended and we support them.
Lord Bridges of Headley
I begin by thanking the noble Lord, Lord Davies, for his kind words. Let me reciprocate by saying that it has been a pleasure having discussions with him, and with the noble Baroness, Lady Kramer. I hope that this constructive spirit is retained all afternoon.
The noble Lord, Lord Myners, made a good point: why are we bothering and why do we need to do this? The point that the noble Lord, Lord Davies, made answered that in large part: it is because there was concern. But specifically, the court’s powers of delegation are limited by paragraph 11 of Schedule 1, and it may not delegate duties and powers that are expressly imposed on the court in legislation unless it has express permission to do so.
This has been a good debate, and I return briefly to the points made by the noble Lord, Lord Eatwell. He asserted that we have gone back to 1997. I would dispute that that is the case. The Government have given the Bank the tools and powers that it needs to deliver its financial stability mandate. In particular, the Bank is now the statutory resolution authority with primary operational responsibility for financial crisis management. On top of that, we have created the FPC as a statutory committee of the Bank with the responsibility for monitoring and mitigating systemic risks for financial stability.
As to why prudential regulations should reside with the Bank, one of the key weaknesses of the tripartite system was a failure of co-ordination between those responsible for overseeing the financial system. We do not want to return to that. As the Chancellor said during the passage of the 2012 Financial Services Act, the Bank of England is the natural home for the microprudential, macroprudential and monetary policy functions because the interconnections are so great between these three critical functions. Having the PRA as part of the Bank also reduces underlap that could be harmful in the event of a crisis.
I turn to the issue of democratic accountability of the Bank. Since 2012, a number of measures have been introduced that have significantly enhanced the transparency of the Bank, and I will briefly recount some of these. For example, the court is now required to publish minutes of every meeting within six weeks. It has also voluntarily published historical records of court minutes, including those during the financial crisis, and, through this, Parliament and the public now have greater insight into the governance of the Bank and the key decisions made. Similarly, the Bank has introduced measures to enhance the transparency of the Monetary Policy Committee following the recommendations of the Warsh review. Clearly, therefore, the Bank is a more transparent institution than it was in 2012. However, there obviously remains room for further improvements. This Bill builds on those reforms through changes to the Bank’s governance, to its policy committees and to its accountability. However, as I argued previously—and as the noble Lord, Lord Turnbull, has argued—this amendment is not necessary.
Lord Eatwell
My Lords, I am impressed by the extensive lack of support for this amendment throughout the House. I say in response to what the Minister has said that, of course, the powers have developed and lessons have been learnt since the financial crisis, but I was referring to the recentralisation of powers rather than some of the extra powers that have resulted from the lessons learnt.
The main argument made against my amendment was that the power exists already. If the power exists already, the amendment does no harm—I have not heard anyone express the view that it does. However, the key reason for the need for my amendment was expressed clearly by the noble Lord, Lord Myners, who asked why conditions requiring members of a board to act were in the Bill at all. They are in the Bill because the action has not been present in the past. It is because of this lack of action that Parliament has lost a degree of confidence in relying just on the actions of the court and has decided that, to ensure appropriate transparency and efficiency in the operations of the court, it may be required to do certain things. That is why the Government have put into the Bill measures instructing the court to behave in particular way and why my amendment is there—because the court has not always responded to the requests of the Treasury Select Committee. It has not, for example, responded to repeated requests to publish a detailed review of its own actions during the financial crisis. My amendment, small in terms of changing circumstances though it might be, would have assisted the development of the democratic accountability of the Bank. However, in the circumstances, given the widespread lack of support around the House, I beg leave to withdraw the amendment.
“( ) Paragraph 11 of Schedule 1 to the Bank of England Act 1998 (matters which may be delegated by court of directors) is amended as follows.
( ) In sub-paragraph (2) after “paragraph” insert—
“(a) include duties and powers conferred on the court of directors by section 9A (financial stability strategy), but(b) except as mentioned in paragraph (a),”( ) After sub-paragraph (2) insert—
“(3) The court of directors retains responsibility for a duty or power which it delegates under this paragraph.””
Lord Bridges of Headley
My Lords, I turn to amendments on NAO reviews, which concern Clause 11. One of the objectives of the Bill is to enhance the accountability of the Bank of England, and these clauses, which allow the NAO to conduct value-for-money examinations of the Bank for the first time, are key in that respect.
We have debated these clauses at great length. That is only right, as we set out to define the respective roles of two vital public bodies. I thank those of your Lordships who contributed in Committee and earlier. Although it is invidious to name names, I thank in particular the noble Lords, Lord Bichard, Lord McFall, Lord Davies, Lord Higgins and Lord Young, and the noble Baronesses, Lady Noakes and Lady Kramer.
Since Committee, officials from the National Audit Office, the Bank of England and the Treasury have been working closely together to reach an agreement on how to address the concerns raised in debate so far.
Lord Davies of Oldham
My Lords, the Opposition are of course glad that peace has broken out. As a token of that peace, I say how much I agree with the question asked by the noble Baroness, Lady Noakes, which I hope the Minister will address. Both at Second Reading and in Committee, the House was greatly exercised by the potential disagreement and difficulties that attended on the formulation of the Bill at that time, with these two tremendously significant institutions at loggerheads. The situation was not helped by the fact that the noble Lord, Lord Bichard, felt unable to contribute to our debate at that stage. We were all very anxious indeed about the position.
I hope that the Minister will answer quite straightforwardly the question asked by the noble Lord, Lord Higgins. I do not think that it is a question of whether there will be a publication, but of when. Whether it could be done in time for the process being considered while the Bill goes through the other place is a different matter. That certainly would be a great advantage and it ought to put pressure on the two bodies concerned to ensure that this memorandum of understanding is complete and published in short time.
On the more general issues, all parts of the House were greatly exercised by the position that developed as a result of the publication of the Bill. I am very glad to endorse the fact that peace has broken out, although on this occasion the Opposition did not have much to do with it.
Lord Bridges of Headley
My Lords, I thank all those who have offered me congratulations, which really should be to those in the Bank, the NAO and the Treasury who have been labouring long and hard on this. I have just been trying to oil the wheels as they go along. I am very nervous about the phrase “Peace in our time”, which one of your Lordships used. I get very nervous when that phrase is used, but I am very pleased with where we got to.
My noble friends Lord Higgins and Lord Young, and the noble Lord, Lord Myners, rightly pressed on the publication of the MoU. I can assure the House that the Government will provide an update on progress as the document develops, before the Bill has passed. Once complete, the MoU will be published and laid in the House Library. I do not want to tempt fate regarding the timing of this. However, as I said in my opening remarks, the process of drafting the MoU has only recently begun. I am sorry to say that I am not, therefore, in a position to share more details on this right now.
My noble friends Lord Higgins and Lady Noakes also raised the issue of what happens if the Bank and the NAO disagree. This amendment removes the court veto over what constitutes policy—the main concern of the House in Committee—and, instead, there is a requirement in the MoU for the NAO and the Bank to agree the process for resolving disputes. I will point out a few things here. It is important to note that much of the work which the NAO carries out across the public sector is governed by the National Audit Act 1983, which does not contain a statutory mechanism for resolving disagreements between the NAO and the number of public bodies it oversees about the scope of its reviews. The NAO works constructively with those bodies to define the scope of its work without the need for codified dispute resolution processes. I therefore hope that, in the vast majority of cases, issues arising between the NAO and the Bank will be resolved without needing recourse to a formal process. However, in the unlikely event that a matter cannot be resolved, the amendment goes further than the National Audit Act by requiring that a formal dispute resolution process is set out as part of the memorandum of understanding. As I said, this will set out in more detail how the NAO and the Bank will act to settle disagreements and how those will be recorded and published, where appropriate.
My noble friend Lord Higgins also wisely raised the subject of quantitative easing. In the case of companies of the Bank which are carrying out indemnified activities, such as the asset purchase facility—the Bank’s QE vehicle—new Section 7C, inserted by Clause 10, will apply. In those circumstances, the Treasury has the power to direct the company of the Bank to send its accounts to the Comptroller and Auditor-General, who would then be required to conduct a financial audit of the accounts and issue an accompanying report.
I thank all noble Lords who have contributed to this and to making this process and the agreement possible.
“(3A) An examination under this section is not to be concerned with the merits of—
(a) policy decisions taken by the Financial Policy Committee, the Monetary Policy Committee or the Prudential Regulation Committee;(b) policy decisions taken by a committee or other body within the Bank for the time being having responsibilities for the supervision of payment systems, settlement systems or clearing houses, so far as the decisions relate to that supervision.“(3B) Subject to subsection (3C), an examination under this section is not to be concerned with the merits of policy decisions taken by a committee or other body within the Bank for the time being having responsibilities for the exercise of any of the Bank’s resolution functions, so far as the decisions relate to those functions.
(3C) Where the Bank has exercised relevant resolution functions in relation to a financial institution, subsection (3B) does not prevent an examination under this section being concerned with the merits of policy decisions within that subsection which are relevant to the Bank’s exercise of its resolution functions in relation to that institution (whether or not those policy decisions are also relevant to other financial institutions).
(3D) “Relevant resolution functions” are—
(a) any of the stabilisation powers;(b) any of the Bank’s functions (other than its functions as the Prudential Regulation Authority) under or by virtue of—(i) Part 2 or 3, or section 233, of the Banking Act 2009,(ii) Part 6 of the Financial Services (Banking Reform) Act 2013.”
Lord Ashton of Hyde
“Financial Conduct Authority
In Chapter 1 of Part 1A of the Financial Services and Markets Act 2000 (the Financial Conduct Authority), after section 1J insert— “Recommendations1JA Recommendations by Treasury in connection with general duties
(1) The Treasury may at any time by notice in writing to the FCA make recommendations to the FCA about aspects of the economic policy of Her Majesty’s Government to which the FCA should have regard when considering—
(a) how to act in a way which is compatible with its strategic objective,(b) how to advance one or more of its operational objectives,(c) how to discharge the duty in section 1B(4) (duty to promote effective competition in the interests of consumers),(d) the application of the regulatory principles in section 3B, and(e) the matter mentioned in section 1B(5)(b) (importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime).(2) The Treasury must make recommendations under subsection (1) at least once in each Parliament.
(3) The Treasury must—
(a) publish in such manner as they think fit any notice given under subsection (1), and(b) lay a copy of it before Parliament.””
Lord Davies of Oldham
My Lords, it is only a short while ago that my noble friend Lady Worthington was speaking from the Front Bench, so it is somewhat otiose for me to seek to surpass her eloquence on the crucial issue of climate change, on which she has spoken in this debate and earlier this afternoon following the Statement on the outcome of Paris. The noble Lord, Lord Bourne, also distinguished himself in that discussion, as he did during his work in Paris. I therefore hope that the Minister, who, as my noble friend hinted, comes from a slightly different quarter—the Treasury—will not be any less enthusiastic in his response to Paris, where 195 countries reached agreement on aspects of what needs to be done. Of course, the Government have a little ground to make up after the past six months, when they seemed to many to be pursuing policies counter to the concept of the green and long-term sustainability agenda—but I am sure the Minister will take full opportunity to show his enthusiasm today.
Lord Bridges of Headley
My Lords, I am sympathetic to the intent of the amendment, and it is important that the Government consider how they can ensure that economic growth is resilient to risks arising from long-term fundamental changes. As the noble Lord, Lord Teverson, said, it is not just about climate change; there are technological and demographic changes, all of which could have significant implications for the global financial system. It is also important for the Government to understand and adopt best practices for the disclosure of climate-related financial risk. I agree with the noble Baroness, Lady Worthington, and she is right to raise this issue. However, as I hope I shall explain, the amendment is unnecessary and I hope noble Lords will agree with me.
The current legislation already provides for the statutory framework for the Financial Policy Committee to consider long-term systemic risks such as those listed in the amendment. Indeed, at its meeting of March 2015, the FPC discussed precisely one of those risks—to financial stability. This is evidence that the FPC considers risks across the breadth of time horizons and will continue to identify long-term as well as more immediate risks. The Bank is also taking action on longer- term systemic risks through other channels. The issue of climate change, for instance, has been added to the Bank’s One Bank Research Agenda. Requiring the Treasury to produce an additional report on sustainability would mean unnecessary duplication of work.
On the topic of admission of securities to growth markets, the UK’s financial markets are obviously crucial to the efficient allocation of capital that supports jobs and growth, including to unquoted companies where the Government allow certain tax exemptions to improve access to the finance necessary for companies to expand. AIM, as the biggest SME growth market in the UK, plays an important role in providing funding opportunities beyond bank finance for unquoted SMEs which cannot fulfil the requirements of the main market at this stage of their life cycle.
Turning to the specific issue of disclosing climate-related financial risks, at the Paris climate change conference the Governor of the Bank, in his capacity as chair of the Financial Stability Board, announced that the FSB is establishing a task force on climate-related financial disclosures—the point the noble Baroness mentioned. This announcement follows the “Breaking the Tragedy of the Horizon” speech given by Governor Carney at Lloyd’s of London earlier this year. The newly established task force, under the chairmanship of Michael Bloomberg, will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders.
It is our firm belief that climate change as a global phenomenon can be tackled most effectively through co-ordinated international action. As the noble Baroness mentioned, to date a lack of co-ordination on the topic of disclosure initiatives has resulted in an estimated 400 different climate-related disclosure schemes. There is a real risk that this inconsistency makes it challenging for investors and other stakeholders to judge climate-related risks effectively.
The Financial Stability Board, as the authoritative forum for considering potential financial stability risks, provides the ideal international setting in which climate-related financial risk disclosures should be discussed, standards agreed and recommendations made. This Government are therefore fully supportive of the work of the FSB task force and have instructed government officials to engage fully in this international debate to ensure that the long-term financial risks associated with climate change are given full consideration.
This amendment requires the reporting of recommendations on standards for the disclosure of climate-related financial risk within 12 months of the coming into force of the Act. Considering that the task force is scheduled to complete its work within a year, this suggested timetable risks pre-empting the work of the task force already under way.
This is not to say, however, that domestic action does not have a role to play in improving climate-related risk disclosure. In fact, regulations made under the Companies Act 2006 already require all quoted companies to report on their greenhouse gas emissions. I submit that between our considerable spending commitments, our stance in international negotiations and our leadership in mobilising the financial system to help combat climate change, the Government are at the very forefront of efforts to understand and address the full range of financial risks that long-term fundamental change, such as climate change, could pose. I therefore, with respect, ask the noble Baroness to withdraw her amendment.
Baroness Worthington
My Lords, I am grateful to the Minister for his response. I am not entirely satisfied that this issue has been looked at in sufficient detail by the Treasury. I am grateful to the Minister for his answer in response to the FSB, but in London now we have some of the brightest and best minds in the financial services sector and we can begin to address this problem ahead of our international efforts.
In particular, I am interested in how we are regulating unlisted companies. The Minister is correct to point to the disclosure requirements on listed companies, but we are giving substantial tax incentives to a fairly unregulated part of the financial sector upon which a large part of our economy relies, and more scrutiny is needed on that sector in particular.
However, at this stage, I am happy to withdraw the amendment, and I hope that this debate and this topic of conversation will continue in this House and in the other place. I beg leave to withdraw the amendment.
“( ) The Financial Services and Markets Act 2000 is amended as follows.
( ) ”
Lord Bridges of Headley
My Lords, Amendments 17, 18 and 19 make some small technical changes to the Bill. The purpose of Clause 19 is to enable the regulators to include the full range of transitional provision in their rules when they bring in new senior management functions. The clause also gives the Treasury a wider power to make additional provisions in regulations to deal with complicated cases.
Amendments 17 and 18 implement a recommendation of the Delegated Powers and Regulatory Reform Committee in relation to those regulations. The amendments will ensure that the affirmative resolution procedure applies to any regulations under the new Section 59AB, which make provisions modifying, excluding or applying primary legislation.
Turning to Amendment 19, under the approved persons regime, the regulators have only the power of approval to perform a controlled function or, of course, to reject the application for that approval. The Financial Services (Banking Reform) Act 2013 gives the regulators the power to make senior management approvals subject to conditions or time limits. Clause 20 makes changes to these provisions to allow time limits as well as conditions to be varied after the initial approval has been given. Amendment 19 corrects an anomaly in these new provisions. The amendment will ensure that, where a regulator wishes to vary an approval on its own initiative, it must consult the other regulator if that regulator gave or varied the approval in question. Without this amendment, the other regulator would have to be consulted if it had given the original approval but not if it had only varied an existing approval. I beg to move.
Lord Davies of Oldham
My Lords, as these are technical changes we do nothing but endorse them and comment on the obvious fact that the Minister has not been in post overlong but has shown proper respect for the Delegated Powers and Regulatory Reform Committee and has moved with alacrity to enforce its request.
“( ) In section 429(2B) (regulations subject to affirmative procedure) for “contain” substitute “contain—
(a) provision made under section 59AB(2) which modifies, excludes or applies with modifications any provision of primary legislation;(b) ”.”
“( ) after subsection (4) insert—“(4A) Before one regulator varies an approval which was last varied by the other regulator, it must consult the other regulator.””
Lord Bridges of Headley
My Lords, this amendment has led to a very interesting debate. I would like to pick up on what the noble Lord, Lord McFall, said, and remind the House of the context. As he so well knows, and everyone here will remember, seven years ago, the world was engulfed by a financial crisis, triggering a deep recession. It was a crisis caused, in part, by the reckless actions of some bankers and it was a crisis which our regulatory system failed to prevent. Today, we are all still paying the price for it and we are still hearing cases of crimes and misdemeanours in our financial services, as my noble friend Lord Lawson mentioned.
Although a number of banks have paid eye-watering fines for their misdemeanours, it is wholly unacceptable that so few bankers have themselves been held to account for their wrongdoings. The current regime, the approved persons regime,
“has created a largely illusory impression of regulatory control over individuals, while meaningful responsibilities were not in practice attributed to anyone. As a result, there was little realistic prospect of effective enforcement action, even in … the most flagrant cases of failure”.
These are not my words but those of the Parliamentary Commission on Banking Standards. The Government are absolutely clear that this has to change.
Our regulatory system needs to be able to hold individuals—I repeat, individuals—and not just banks to account for misconduct or recklessness, a point that the noble Lord, Lord McFall, rightly made in Committee and my noble friend Lord Lawson echoed. More than that, regulation needs to deter misconduct and recklessness in the first place. Good regulation is a spur for good behaviour and, as such, is crucial to driving the cultural change in the industry which we all want.
What are the characteristics of such a regulatory regime? It is one in which individuals’ responsibilities are crystal clear. It is one where individuals cannot shirk responsibility for their actions or those of their employees. Tasks may be delegated, but never accountability. A good regime is a regime where ignorance is no excuse. It is a regime where there are strong, simple principles that guide people’s conduct. Above all, it is a regime in which all senior managers understand that if something goes wrong in their team—be it a team of 20 or 20,000 —or on their watch, they will be held individually accountable. That is a good regulatory regime. Are these the features of the current approved persons regime? They are not but they are the hallmarks of the new senior managers regime that we will implement. As the noble Lord, Lord Grabiner, eloquently argued, the new regime will be tough and it will help to change the culture across the financial services industry for the better, which is what the noble Lord, Lord Tunnicliffe, desperately wants.
I am aware that there are concerns that the replacement of the reverse burden of proof with a statutory duty of responsibility will leave us in the same position as under the approved persons regime, where it can be very difficult, as I have said, for the regulators to hold senior management to account. I can reassure your Lordships that this is simply not the case. Let me set out exactly how the new regime will deliver a step change in senior manager accountability. First, the clarity of responsibility which has been so desperately lacking under the approved persons regime will be embedded in the system. This will be achieved in a number of ways.
An application by the firm for approval of a senior manager must be accompanied by a statement of responsibilities setting out what the senior manager will be responsible for managing in the firm. This must be updated if the responsibilities of a senior manager change. That ensures that both regulators and the firm will have the necessary clarity about who is responsible for what, and senior managers will take full ownership of their respective areas of responsibility.
This requirement is bolstered by the regulators’ rules, which require each firm to have, and to submit to the regulators, a “responsibilities map” setting out how responsibility for the business of the firm as a whole is allocated amongst its senior managers. This minimises the risk of any responsibilities falling through the cracks between different senior managers. On top of that, under rules of conduct made by the regulators, it is made clear that a senior manager must take all reasonable steps to ensure that any delegation of their responsibility is to an appropriate person, and they must oversee the discharge of any delegated responsibilities effectively.
Secondly, tough rules will apply to the senior managers. A senior manager can now be found guilty of misconduct if a breach of regulations occurs in the area of the firm’s business for which they are responsible and if they did not take such steps as a person in their position could reasonably be expected to take to prevent it. Crucially, it does not matter whether or not the senior manager is aware of the regulatory breach. Ignorance is no defence. What matters is whether they have taken reasonable steps to prevent the breach. If they have not, they are guilty of misconduct. They will not be able to avoid liability simply because the email trail has gone cold. The regulator will not—I repeat, not—be completely stymied if all conversations and exchanges take place in an environment where there are no minutes, no emails, no memos and no existing trail.
Indeed, as the noble Lord, Lord Pannick, said, the very fact that there is an absence of such an email trail, and that a senior manager is totally unaware of what is going on in an area of the firm for which they are responsible, may very well suggest that they have been guilty of failing to take reasonable steps to prevent a breach of regulations. This is the new system we are introducing and the Bill before Parliament does not change any of what I have just said. The measures in this Bill do not take us back to the days before the financial crisis.
Noble Lords need not take my word for it. According to Andrew Bailey, deputy governor for Prudential Regulation and chief executive officer of the Prudential Regulation Authority, the introduction of the statutory duty of responsibility, instead of the reverse burden of proof,
“makes little difference to the substance of the new regime. Once introduced, it will be for the regulators (rather than the senior manager) to prove that reasonable steps to prevent regulatory breaches were not taken. This change is one of process, not substance”.
Furthermore, the removal of the reverse burden of proof does not change the penalties which can be applied. If found guilty of misconduct under the statutory duty of responsibility, a senior manager could face an unlimited fine and/or prohibition from working in the industry. All this means that situations where things go wrong because of irresponsible, reckless or negligent management by a senior manager will be less likely to occur in future, because of the strong deterrent effect of the statutory duty of responsibility. If they do occur, the regulators will be much better equipped to take action against senior managers who have mismanaged the firm.
To those who would still like to keep the reverse burden of proof, I would say this. First, Andrew Bailey has highlighted to the Treasury Select Committee in the other place that the way banks are starting to prepare for the introduction of the reverse burden of proof next March is unhelpful. We understand that some of their legal advisers are being asked to prepare checklists, as the noble Lord, Lord Tunnicliffe, said, of “reasonable steps” which their senior managers should follow. I would say to the noble Lord that the point about checklists is this: presenting evidence that a template or checklist had been followed could enable the senior manager to meet the burden of proof for the defence, but would leave the regulator to prove that the steps taken were not reasonable.
In practice, the reverse burden of proof would not give the regulator a significant advantage but could sow the seeds of a new tick-box culture. The reverse burden of proof will add no significant weight to the regulators’ powers of enforcement, but instead risks creating a great deal of lucrative work for City lawyers. Secondly, the Government are expanding, as has been said, the senior managers and certification regime so it covers all authorised financial services firms, the majority of which are small. The tick-box culture I have described risks leading to the perverse outcome whereby senior managers in the largest firms are less exposed to legal risk under the reverse burden of proof, thanks to being able to employ the best lawyers and compliance officers.
I have been pressed on why the Government cannot introduce a two-tier system, with the reverse burden of proof applying to deposit takers but not to other firms. First, I have described the potential for detrimental effects on small firms. These issues are also relevant for small deposit-takers—for example, small building societies and credit unions, the latter often relying on volunteers for their staff. This approach would also raise serious issues of cross-sectoral competition. Noble Lords on all sides want a vibrant, innovative financial services industry that offers high-quality, good-value products to consumers. To achieve that, the regulatory system must, as far as possible, deliver a level playing field to support competition.
A reverse burden of proof that applied only to the banking sector would undermine this. For example, both deposit-takers and non-deposit-takers can engage in mortgage advice. A small building society or bank, for which the reverse burden of proof would apply, engaged in direct competition with firms, for which it would not apply, could find it more difficult to attract key members of staff. There could be a particular issue for challenger banks, especially those seeking authorisation for the first time.
Legitimate questions of fairness would also be asked about why senior managers in deposit-takers, particularly small ones, should be subject to the reverse burden of proof while those in firms such as large insurers or investment firms, which may pose greater risks to positive consumer outcomes and market integrity, are not. This approach would also create a great deal of complexity in large groups that contain firms which have deposit-taking permissions and firms that do not.
So, introducing a two-tier regime would introduce unnecessary complexity, when we have a tough, fair and practical alternative—the statutory duty of responsibility —that can be applied consistently to all firms. This is why the Government do not believe it appropriate to retain the reverse burden of proof. Is it needed to prove a senior manager culpable for a misdemeanour? No. Is it needed to clarify responsibilities of individuals in firms? No. Is it needed for the regulator to prosecute a senior manager if the email trail goes cold? No. Is it the silver bullet that will make the individuals who manage our banks responsible for their actions? No.
Instead, as I have explained, the new regime, with its statutory duty of responsibility, is a formidable tool for holding senior managers to account and for changing behaviour and culture in banks and across the entire financial services industry—a change we and the British public so very much want. I therefore ask the noble Lord to withdraw his amendment.
Lord Tunnicliffe
My Lords, I am conscious that there are two possible tests for deciding when to bring a debate to a conclusion. One is when all arguments have been exhausted, the other when there are no minds left to change. I suspect that the second test is the more acute one, therefore I will be brief.
Many noble Lords have taken part in the debate. In many ways I do not need to answer the points, in that it has been a balanced debate and points have been contested across the House. I am particularly grateful to those noble Lords who agreed with me; I am less enthusiastic about those who disagreed with me. A particular point raised was the matter of human rights. I counter that with the point that the noble Lord, Lord Deighton, affirmed that this part of the Bill is compatible with the regime.
I thank the noble Lord, Lord Sharkey, for speaking in support of my position and, in particular, for bringing out in how many areas the reverse burden of proof is in our law. It is not common, but it is there in particular cases.
I note the point made by the noble Lord, Lord Hunt, on credit unions. In my speech I made the point that we were willing to enter conversations with the Government so that they could come forward at Third Reading with a sensible carve-out from the overall effect. I plead with the noble Lord—he may remember way back when he was in opposition—that we have modest resources. Putting together a series of sensible additions to do the carve-out would not be sensible. We are very happy to agree carve-outs with the Government.
I thank my noble friend Lord Brennan for once again reminding us of the Health and Safety at Work etc. Act 1974. That is one of the most outstanding pieces of legislation in the British system. Its impact on safety in this country has been phenomenal. I and many managers in this country have laboured under the reverse burden of proof that that Act brings. The reverse burden of proof can be the right thing to do and has proved so in safety. We believe that it would prove so here.
The noble Lord, Lord Pannick, said that we have not brought out sufficient justification. He says that it is difficult to prove. No: it has so far proved impossible. I thank my noble friend Lord McFall for reminding him, us and fellow commissioners of how forcefully they supported the reverse burden of proof in their report—I have pulled out extracts but I will not take up the time of the House and read them.
“In subsection (2)(a)—
(a) references to a member, or a survivor of a member, of a pension scheme include a member, or a survivor of a member, of a pension scheme for which the PPF has assumed responsibility under Part 2 of the Pensions Act 2004 or Part 3 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)), but(b) in relation to such a member or survivor, the reference to the flexible benefits that may be provided is to be read as a reference to the money purchase benefits (within the meaning of that Act or that Order) that may be provided by the PPF by virtue of sections 161 and 170 of that Act or articles 145 and 154 of that Order.(2B) ”
Lord Bridges of Headley
My Lords, this group makes several small pensions amendments, which I shall highlight briefly.
The first amendment is technical in nature and closes an unintended gap in guidance provision, ensuring that people in the Pension Protection Fund—the PPF—are able to access Pension Wise guidance. At present, Pension Wise is able to provide guidance only to a member, or the survivor of a member, of a pension scheme. As the PPF is a compensation fund, not a pension scheme, individuals whose schemes have transferred into the PPF are not able to obtain guidance from Pension Wise.
Where a defined benefit scheme transfers to the PPF, usually following the sponsoring employer becoming insolvent, it is possible that any money purchase benefits which a scheme member has built up, most likely as a top-up to their defined benefit scheme, could also transfer in. The amendment will allow these members to receive guidance on options around what to do with their money purchase benefits. Pension Wise should be available to all who wish, and are able, to take advantage of the pension freedom reforms, and it is right that we are taking action now to ensure that all are treated consistently.
Next is a series of amendments that make changes to Clauses 27, 30 and 32. These ensure that powers currently given to the Treasury will be given instead to the Secretary of State. This is so that when oversight of Pension Wise moves to the Department for Work and Pensions, my right honourable friend the Secretary of State for Work and Pensions will be able to exercise this power.
I turn finally to the amendment creating a new clause. This amendment is technical in nature and allows appointed representatives of authorised financial advisers to advise on the conversion and transfer of safeguarded benefits, which are the special valuable features of certain pensions, such as defined benefit pensions and pensions with guaranteed annuity rates, for the purposes of the advice safeguard established in Sections 48 and 51 of the Pension Schemes Act 2015.
These amendments to Sections 48 and 51 of the Pension Schemes Act 2015 will amend the definition of “authorised independent adviser” to include appointed representatives. As a result, they will be able to give appropriate independent advice to satisfy the advice safeguard. They will also amend the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001 to the same end. Around two-thirds of financial advisers are appointed representatives who have a special contract to provide services on behalf of their principal, who will be an authorised financial adviser regulated by the FCA. This measure puts the eligibility of appointed representatives to advise on these transactions beyond doubt.
The amendment extends eligibility to advise on these transactions only to the appointed representatives of financial advisers. What this will not do is reduce consumer protections or weaken the accountability of financial advisers, or their appointed representatives. Where an appointed representative advises on these transactions, the directly authorised firm, as the principal, takes full responsibility for the quality of the advice and compliance with FCA rules.
The pension freedoms which came into effect in April have given people real freedom and choice in how they access and spend their income at retirement. This amendment will help to ensure that they operate as intended for customers with safeguarded benefits. I beg to move.
“Advice about transferring or otherwise dealing with annuity payments
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After section 137FB insert—
“137FBA FCA general rules: advice about transferring or otherwise dealing with annuity payments
(1) The FCA must make general rules requiring specified authorised persons to check that an individual—
(a) who has a right to payments under a relevant annuity, and(b) if the Treasury make regulations under subsection (3), who is not an exempt person by virtue of those regulations, has received appropriate advice before transferring or otherwise dealing with the right to those payments.(2) The reference in subsection (1) to a right to payments under a relevant annuity does not include a contingent right to such payments.
(3) The Treasury may by regulations provide that an individual whose financial circumstances meet criteria specified in the regulations is an exempt person for the purposes of subsection (1)(b).
(4) Regulations made under subsection (3) may (amongst other things) specify criteria based on the proportion of the individual’s financial resources that is represented by the payments under the relevant annuity or the value of that annuity.
(5) The rules made by virtue of subsection (1) may include provision—
(a) about what specified authorised persons must do to check that an individual has received appropriate advice for the purposes of those rules;(b) about when the check must be carried out.(6) For the purposes of this section—
(a) “relevant annuity” means an annuity specified (by type, value or otherwise) as a relevant annuity in regulations made by the Treasury;(b) “appropriate advice” means advice specified (by reference to the person giving the advice or otherwise) as appropriate advice in regulations made by the Treasury;(c) “specified authorised person” means an authorised person of a description specified in rules made by virtue of subsection (1).(7) If regulations under subsection (3) or (6)(a) make provision about the value of an annuity, the regulations may also make provision about the basis on which the value of an annuity is to be calculated.”
(3) In section 138F(2) (notification of rules) after “137FB,” insert “137FBA,”.
(4) In section 138I (consultation by the FCA)—
(a) in subsection (6), after paragraph (aa) insert—“(ab) section 137FBA;”;(b) in subsection (10)(a) after “137FB,” insert “137FBA,”.”
Lord Bridges of Headley
My Lords, this amendment introduces an advice requirement for some of those consumers who wish to sell their annuity income streams on the secondary market.
We have already debated the extension of Pension Wise, enabling it to offer guidance for consumers in this market. The Government recognise the importance of protecting all who have a right to receive an income under a relevant annuity, not just the primary annuity holder, and this has been a concern raised by noble Lords previously. That is why we can clarify that we will be making the free and impartial Pension Wise guidance service available to anyone with a relevant interest in a relevant annuity.
Today, the Government are introducing a new measure to ensure that consumers are adequately supported when making the complex decision of whether to sell their annuity income streams. A regular income stream from an annuity is a valuable asset and, for the majority of individuals, it will be in their best interests to keep their annuity. Therefore, it is important that annuity holders understand the value of their income stream and are informed about the options available to them.
The Government have consulted on the steps that should be taken to support consumers with this complex decision. In addition to Pension Wise guidance, we asked whether consumers should be required to take financial advice in order to receive a tailored recommendation to inform their choices. We also asked whether the safeguards in place should vary depending on the value of an annuity to ensure that consumers with lower value annuities do not have to pay disproportionately high costs in order to sell them. There was broad support from both industry and consumer groups for requiring advice above a threshold. The Government have listened and are putting this measure in place through a government amendment to this Bill today.
This proposed new clause will place an obligation on the Financial Conduct Authority to make rules requiring certain authorised firms to check that advice has been received before annuity holders may sell their annuity income stream. The FCA will determine which businesses will be required to make these checks, what the checks will entail and when they will be carried out. We expect that the FCA will be consulting on its proposed rules during 2016.
The threshold for advice, including how it will be calculated, will be set out by government through secondary legislation. The Government will also lay secondary legislation to specify what type of advice individuals must have received. In specifying appropriate financial advice, the Government’s intention is to require advice to be FCA-authorised and regulated. The Government also intend to legislate that all UK buyers in the secondary market for annuities will be FCA-regulated. This will allow the FCA to design specific rules governing the conduct of both financial advisers and buyers in this market, and the Government will work with the FCA to consider any conflicts of interest that may arise between these parties. The Government are engaging with financial advisers and their representative bodies with the aim of ensuring that there will be enough participating advisers to meet consumer demand when the market opens. Within the financial advice market review, the Government are considering how the availability of financial advice can be improved, particularly for those who do not have significant income or wealth. The review is to publish its recommendations by the time of Budget 2016, and the Government will ensure that the financial advice requirement in the secondary annuities market fully reflects the outcomes of this review.
A further power will allow the Treasury to exempt from this advice requirement those individuals whose financial circumstances meet certain criteria. The Delegated Powers and Regulatory Reform Committee has recently recommended that this power be affirmative rather than negative, and the Government will respond to the House on this recommendation at the earliest opportunity. The Government will consult on the regulations to be made under all powers afforded by this clause in 2016.
Today’s debate coincides with the Government’s publication of their response to the March 2015 call for evidence on the creation of a secondary market for annuities. This sets out the wider set of proposals around, and the next steps for, the implementation of the secondary market. The response gives further detail on how the market will operate, including tax considerations as well as further details on the consumer support framework, part of which the Government are legislating for in this Bill. Your Lordships will no doubt be minded to consider the wider policy in today’s discussion, and your views on these proposals are welcomed. I beg to move.
Baroness Drake (Lab)
My Lords, I refer to my entry in the register of interests, in particular my membership of the board of the Pensions Advisory Service. I am also on the Delegated Powers Committee.
There is no pre-existing secondary annuity market which can inform an assessment of whether it would be a well-functioning market, what the key risks are or what is an appropriate level of consumer protection. I have had little time to digest the Government’s response to the consultation on this market, published today, but up to 5 million people could participate in this market—although interestingly, the Pensions Minister and the Economic Secretary both advise that for the vast majority of customers, selling an annuity will not be the best decision. There is a real tension in the policy on this secondary market. The Government have to ensure a robust consumer protection regime consistent with their asserted view, which I do not disagree with, that the right decision for most people is to retain their annuity. At the same time, an effective market needs a sufficient level of demand from consumers to sell their annuities and a sufficiently wide range of purchasers. These two requirements do not sit easily with each other.
While it is welcome that the Government are taking further steps through their Amendment 25 to protect the consumer, I have real concerns about the sufficiency of those protections. The Government will now also allow the original issuers to buy back annuities. This will be allowed only indirectly when facilitated through a regulated intermediary, such as a broker or financial adviser—presumably to enhance consumer prospects of a better deal—although annuity providers can still buy back low-value annuities directly. That raises several issues. What will be the threshold at which direct buyback of low-value annuities will be allowed? How will this be measured—by income stream, by income stream in relation to the individual’s financial resources or by the annuity’s value on the secondary market? Indirect buyback through an intermediary will mean an extra layer of costs for consumers, paying in effect for their own protection. How will the Government control those costs?
As individuals will be required to take advice, how will the Government ensure that advisers are willing to provide advice at a reasonable charge, particularly to those with modest value annuities? This is a problem under the required advice regime for individuals transferring defined benefit assets to defined contribution arrangements, so similar problems are certain to arise in a secondary annuity market. Will sufficient brokers enter that market to enable a fair price? Allowing buyback, directly or indirectly, must increase the risk of consumer inertia as individuals choose to stay with their original provider, notwithstanding any advice that they receive, heralding a weak demand size which is already so common in the pensions and annuities market. The Government intend to bring forward legislation to create a further regulated activity for buying back an annuity. What is the timetable for that legislation and will we have time to consider it properly?
Lord Davies of Oldham
My Lords, I am not here to pile Pelion upon Ossa. I counted that at least 12 questions of considerable complexity have been addressed to the Minister, and all of them are important. My two noble friends have of course reflected the considerable anxieties on this side with regard to the position with pensions, particularly for secondary annuities. I hope the Minister will do his level best to respond to real questions that need to be addressed, which would also minimise the amount of time we will need to spend at Third Reading on the issue.
Lord Bridges of Headley
I start by thanking the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for sparing the time to meet me and officials last week. I will also say now that I apologise for the timing on these things. I will not try to give a “dog ate my homework” excuse—these things are sometimes just unfortunate—and I heed what the noble Lord, Lord McKenzie, has to say about the timing of the report. I make no commitments right now about Third Reading, but I am happy to meet both the noble Lord and the noble Baroness, Lady Drake, and will answer a number of the points that have been raised. As the noble Lord, Lord Davies, said, some were pretty technical, so I hope noble Lords will forgive me if I do not cover them all, in which case I will write as soon as I possibly can with detailed answers.
To start, the noble Baroness, Lady Drake, spoke of the tension in the policy. All I would say in response is that many of the responses to the consultation welcomed the proposal to extend the pension freedoms to those who had already bought an annuity. As the Government have always made clear, for many people, an annuity, which provides a guaranteed income for life, will remain the right choice. However, the Government believe that there is no reason why they should impose barriers that prevent individuals being free to make their own decision about what to do with their annuity rights, purchased with the money they have saved throughout their working life.
“Independent advice on conversions and transfers of pension benefits: appointed representatives
(1) The Pension Schemes Act 2015 is amended as follows.
(2) In section 48(8) (independent advice in respect of conversions and transfers: Great Britain), in paragraph (a) of the definition of “authorised independent adviser”, after “Secretary of State,” insert “or is acting as an appointed representative (within the meaning given by section 39(2) of that Act) in relation to a regulated activity so specified,”.
(3) In section 51(8) (independent advice in respect of conversions and transfers: Northern Ireland), in paragraph (a) of the definition of “authorised independent adviser”, after “Northern Ireland,” insert “or is acting as an appointed representative (within the meaning given by section 39(2) of that Act) in relation to a regulated activity so specified,”.
(4) The Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001 (S.I. 2001/1217) are amended as follows.
(5) In regulation 2(1) (descriptions of business for which appointed representatives are exempt) after sub-paragraph (cca) insert—
“(ccb) an activity of the kind specified by article 53E of that Order (advising on conversion or transfer of pension benefits);”.(6) In regulation 3 (requirements applying to contracts between authorised persons and appointed representatives) after paragraph (3G) insert—
“(3GA) A representative is also to be treated as representing other counterparties for the purposes of paragraph (1) where the representative gives advice (in circumstances constituting the carrying on of an activity of the kind specified by article 53E of that Order) on behalf of other counterparties.”(7) The amendments made by subsections (4) to (6) do not affect the power to make further subordinate legislation amending or revoking the amended regulations.”
Constitutional Convention Bill [HL]
Lord Bridges of Headley Excerpts(8 years, 11 months ago)
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Baroness Hayter of Kentish Town
Indeed, but I understand that the Government were very happy to overturn the votes of this House, which decided that 16 and 17 year-olds should be able to vote in the referendum. There are bits of the electoral system that are worth looking at, if only because the Government seem unable to hear either the will of this House or the views of 16 and 17 year-olds.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I will make just a few, short points. First, I again congratulate the noble Lord, Lord Purvis, on this Bill. I always find it interesting to discuss these points. I am grateful to the noble Lord, Lord Steel, for being here and heed what he and the noble Lord, Lord Kerr, said. I will not repeat all the points I made at Second Reading. All I will say, briefly, is that this very short interchange shows that we will probably need a convention about the convention because it is so clear that we cannot quite agree on any of the terms. My noble friend Lord Forsyth called it ambitious. I think that is mandarin-speak for “virtually impossible to agree” on all these points. He said he was looking for the kitchen sink. We have the kitchen sink and, in the next debate, I think we are about to discuss the wiring and plumbing.
Lord Purvis of Tweed (LD)
It is probably fair that I respond to some elements of this debate, and in so doing I thank, first, the noble Baroness, Lady Hayter of Kentish Town. It is a pleasure to follow her and I also thank her for the throat pastilles that she gave me. It was a relief to see that this could be a relatively short Committee stage, so my voice can survive it. However, I can rely on the noble Lords, Lord Grocott and Lord Forsyth, to make sure that it is fully debated, in this “Second Reading in absence” debate that we have just had, in many respects.
I turn to the specifics raised by the noble Lord, Lord Grocott, before turning to some of the wider aspects that the noble Lords, Lord Kerr and Lord Forsyth, raised. It is a fair observation to say that the Bill states the need for reform of the electoral system. The noble Lord, Lord Grocott, is always very welcome to attend the all-party group, which considered the intention behind this. He might attend it as a radical, as the noble Lord, Lord Forsyth, said. There will be political theorists studying Hansard, so if the noble Lord, Lord Forsyth, is describing the noble Lord, Lord Grocott, as a radical, I need to go back to my political study books. The all-party group considered the number of systems that we have, including the changes brought forward in the Scotland Bill, whereby the Scottish Parliament will be responsible for its own franchise and mandate—and, in addition, how they all interact.
The fundamental feeling was that it was right that a convention should consider the interaction of all the electoral systems from the point of view of the voter and not from that of the institutions. In many respects, some of the debates on the role of Parliament and the institutions have been from the perspectives of the institutions themselves and not from that of voters. I see that the noble Lord, Lord Grocott, is itching to intervene, and I shall give way in just one moment. It is about that interaction, and how they operate; it is about how voters in my former area, for example, see two Parliaments, one elected on a proportional basis in Scotland and one here, where, as my noble friend Lord Wallace said, the Government were elected on 37% of the vote. The noble Lord asked me whether I referred to the electoral system of the United Kingdom Parliament, but that can only be a partial system, unless he is referring to the by-elections of hereditary Peers in this House.
Baroness Hayter of Kentish Town
My Lords, I am not absolutely certain that the Labour Party has a position on this. However, as it has never called for a written constitution, I am going to take it that the Labour Party is against a written constitution—or at least, I am. As I said at Second Reading, I had a lovely cartoon from the New Yorker showing bewigged, 18th-century gents writing the American constitution and then putting at the end, “And no one will ever alter this”.
I do not support my noble friend on this amendment. However, had he used the word “concordat”—something to get the relationship between the two Houses agreed, which in some sense goes to what the noble Lord, Lord Forsyth, said earlier about function; that we should agree what the role of the two Houses are—I would have thought that this was a brilliant amendment. The idea of us having that serious conversation is one that I absolutely support. There are really big questions about that. It is not just about whether we get to vote on statutory instruments. It is about the relative roles in that and how often it is used. Particularly when we think of our size, if we become smaller and still have no retirement age, we will have an increasingly older and smaller group of people doing that diligent work on statutory instruments. Those are important discussions. I like one part of the amendment, which is to give some serious thought as to the function of both Houses. But please, while we may not be bewigged we should not be setting in stone the way in which we work in the short term.
Lord Bridges of Headley
My Lords, I do not think it will surprise noble Lords to hear, at 12.50 pm on a grey Friday, that the Government do not support a written constitution. I agree much more with the noble Lord, Lord Kerr. He spoke very eloquently about the need for flexibility. Of course, as noble Lords will know, this country did once try a written constitution—in 1653, if memory serves me right. It lasted for about four years with the Instrument of Government. It was not a particularly happy time in our nation’s history and we have survived quite well without one for getting on for 400 years. As the noble Lord, Lord Kerr, says, we have flexibility borne out of various parts of our legislative past—the Magna Carta, the Bill of Rights, the Act of Settlement and the Great Reform Act. Parliament has been adding to that canon, and advancing and evolving the constitution for centuries. That is a fundamental part of our polity.
On the specific clause, as my noble friend Lord Forsyth made clear, this is adding even more to the work of the superhuman convention, manned by the world’s constitutional experts, who will be working frantically to get it all done. I would just point out that were this Bill to be passed, there is no detail on the scope or content of the written constitution. As this short debate has highlighted, we are not entirely clear what would be included and what would not—maybe the entire process of the convention itself. Furthermore, it is not entirely clear that the Secretary of State would be able to make any further provision or provide any guidance on this constitution when it was presented, which was a point made so eloquently by my noble friend earlier. The convention would have superhuman powers not only in the sense of its ability to come up with solutions, but in the effect that it would have. Therefore, I fear that the amendment would not enhance the Bill but make it even less feasible.
Lord Wallace of Saltaire
My Lords, I would just reflect on how solid is our base and how flexible is our constitution. From what I have been reading and hearing about the Magna Carta this year, I understand that two clauses of it are still in force and 75 are no longer in force. If one reads the Bill of Rights carefully, there is a very substantial anti-Catholic element, some of which is actually still in force, but has been weakened. The things that we refer back to as the foundations of our constitution are in many ways deeply inappropriate and we get by by ignoring them.
Lord Bridges of Headley
I heed what the noble Lord so rightly draws out. My point would be that these are the foundation stones on parts of which we have been building over the centuries.
Lord Purvis of Tweed
My Lords, I enjoy the interactions with the Minister on this aspect, although we do not see eye to eye. I think he was referring to the previous constitutional history of England when he said “this country”. It is worth mentioning that. We often have to reflect on the previous errors of England in the constitutional history of these nations—plural.
I understood the amendment to require, as the noble Baroness, Lady Hayter, indicated, a more codified relationship between the House of Commons and House of Lords, and that it was not a consideration of a wider British written constitution. But I respect the extensive experience of the noble Lord in the other place and in this House, and share many of his views about the need for a more codified relationship in respect of our governance. It is interesting that those who now seem to set their faces against that—primarily the Government—are happy to institute processes that do not necessarily have any end or focus at all.
One example was the debate we had on incremental and gradual change of the House of Lords. Any objective observer of that process would feel that what the Minister said was a criticism of my Bill, but it could be applied exactly, in fact more so, to the process of reform that his own party is putting forward. That is amplified by the fact that the noble Lord, Lord Strathclyde, has proposed that external people should interfere in the procedures of this House, a point made by the noble Lord, Lord Forsyth. It is probably more appropriate for the Government to adopt a slightly different tone, because there is now justification for moving towards a more codified system of relationships between the nations and our governance.
I shall go back to the point made by the noble Lord, Lord Kerr. Incidentally, if the Minister thinks that a superhuman expert is required for the running of such a convention, the more the noble Lord, Lord Kerr, contributes to that debate, the better. Much as he may indicate that he is ruling that out, I cannot think of anyone more qualified or who could give me greater assurance in running this constitutional convention. He pointed out some of the difficulties we have been having without a more codified system that also ultimately seeks a degree of flexibility.
Turning to the amendment, if the conclusion of the convention’s deliberations was that our relationship with the legislation we consider needs to be dealt with through a written constitution, that would be one of the benefits of such a convention and a justifiable part of it. I take on board the points made by the noble Lord, Lord Hughes, but I ask him to withdraw his amendment on the basis that the convention should be empowered to consider this issue itself.
Bank of England and Financial Services Bill [HL]
Lord Bridges of Headley Excerpts(8 years, 11 months ago)
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Lord Bridges of Headley
That the amendments for the Report stage be marshalled and considered in the following order:
Clauses 1 to 13, Schedule 1, Clauses 14 to 16, Schedule 2, Clause 17, Schedule 3, Clause 18, Schedule 4, Clauses 19 to 33, Title.
Lord Ashton of Hyde (Con)
My Lords, I beg to move the Motion standing in the name of my noble friend Lord Bridges on the Order Paper.
Cyberattack: UK Defences
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Lord Giddens
To ask Her Majesty’s Government what is their assessment of the vulnerability of the United Kingdom to organised cyber-attack.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, as the Chancellor of the Exchequer said in his speech to GCHQ on 17 November, despite a huge amount of investment, effort and world-class tools and capabilities, we are not where we need to be, particularly given the pace of innovation in cyberspace. Since 2011, we have invested £860 million in a national cybersecurity programme. As announced in the national security strategy and strategic defence and security review 2015, we plan almost to double investment in cybersecurity over the next five years.
Lord Giddens (Lab)
My Lords, I thank the Minister for that very helpful reply. One of the most serious threats we face is that of a co-ordinated cyberattack against the UK financial sector. The Bank of England has shown that individual banks, especially the large banks, are pretty well protected but there are huge vulnerabilities in the connections between the banks and the rest of the economy, which some people say could lead to panic. One quite seasoned observer described the possibility of financial Armageddon—the meltdown of the system—given that most money today is electronic and no longer held in the form of cash. This is a matter for the Government, not just for the Bank of England, so what concrete steps are the Government taking to address this issue?
Lord Bridges of Headley
I pay tribute to the work of the noble Lord and a number of other of your Lordships in this area. On the specific point, the financial sector, including the City of London, has undertaken a number of exercises in recent years: Waking Shark I, Waking Shark II and the Market Wide Exercise, as well as the more recent Resilient Shield exercise between the US and the UK last month. In June, the FPC agreed that the Bank, the PRA and the FCA should also establish arrangements for CBEST tests to become one component of regular cyber resilience assessment within the UK financial system.
Lord Sugar (Non-Afl)
My Lords, the Minister may be aware that the infrastructure in most of the exchanges of internet service providers in this country is supplied by a Chinese company, Huawei. In the previous coalition Government, Sir Malcolm Rifkind was commissioned to inquire about this country’s vulnerability to a possible instruction by the Chinese Government to shut our systems down. Does the Minister have the results of this investigation? He should also be aware that the United States does not allow that company to operate there.
Lord Bridges of Headley
I will write to the noble Lord about his specific point. However, we are not complacent on this issue. As the noble Lord, and other noble Lords, will know, virtually every telecommunications network in the world incorporates foreign technology. Most manufacturers have some of their equipment built in China and use technical components from a global supply chain, regardless of the location of their headquarters.
Lord Clement-Jones (LD)
My Lords, I should declare an interest as a former adviser to Huawei. Given that 90% of larger companies suffered a security breach last year, I welcome what the Chancellor and the Minister have said about setting up a national cyber centre. To date, the Cabinet Office has been responsible for the national cybersecurity programme. Can the Minister confirm that it will continue to be so, and to be responsible for the national cyber centre, rather than handing it over to the tender mercies of the Home Office, which is not known for its business-friendliness?
Lord Bridges of Headley
I can confirm that and draw the noble Lord’s attention to paragraph 7.7 on page 82 of the National Security Strategy and Strategic Defence and Security Review, which sets out a very nice organogram for who is responsible for what.
Lord West of Spithead (Lab)
My Lords, will the Minister confirm that the firing chain for Trident is air-gapped in its entirety, as it certainly was until 2006, and is therefore invulnerable to cyberattack? Will he also confirm that any upgrades that may be planned for that firing chain will remain air-gapped? If not, there will clearly be a vulnerability.
Lord Bridges of Headley
The noble Lord speaks with immense experience in this area and I will write to him on the specific point. I cannot comment on the detail of the security arrangements for our nuclear deterrent but we can, and do, safeguard it from threats, including cyber.
Lord Hennessy of Nympsfield (CB)
My Lords, will the Minister update the figures on substantial attacks on British government institutions and businesses which last year were running at between 150 and 200 per month? Has that figure changed substantially and has there been the slightest indication that, since the Chinese leadership pledged to the Prime Minister that they would lay off, there has been an easing from that quarter?
Lord Bridges of Headley
I can give some figures. GCHQ typically responds to an average of 70 sophisticated attacks on government networks per quarter. In summer 2014, GCHQ responded to approximately 200 incidents and this figure doubled to nearly 400 during summer 2015.
Banking: Financial Crime
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Lord Sharkey
To ask Her Majesty’s Government whether they expect senior managers to be held to account following the imposition of a £72 million fine on Barclays Bank for failing to minimise the risk that funds might be used to facilitate financial crime.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, the Financial Services and Markets Act 2000 prescribes the regulatory framework under which action can be taken by the regulators against firms and individuals. Under this framework, decisions on whether to take enforcement action are for the regulators, and it is entirely right that they should be independent of government.
Lord Sharkey (LD)
The fact is that so far we have not managed to hold any senior managers to account. That is because the regulatory regime does not work, and it is precisely why we were due to replace it next April with a tougher regime. However, the Government are about to scrap the new regime before it starts and to go back to a lighter-touch regime. Can the Minister explain how the lighter-touch regime can do what the current regime cannot?
Lord Bridges of Headley
Clearly, this was an appalling case of mismanagement on the part of the managers at Barclays at the time, and the record fine that Barclays has faced reflects that. I agree with the noble Lord that financial regulatory change is needed, as well as a change in culture of many financial firms. Key to this is ensuring that senior managers’ responsibilities are crystal clear. I stress that the most important task is to find out who is responsible for such failings as we have seen at Barclays. Up till now, regulators have sometimes found it difficult to hold senior managers personally accountable for management failings in the area for which they are responsible because there is such lack of clarity about who is responsible for what. This is precisely what the new senior managers regime addresses. The Government think it perfectly reasonable for the regulator then to show that the senior manager failed to take reasonable steps to avoid the failings.
Lord Mackenzie of Framwellgate (Non-Afl)
My Lords, on the wider point of strengthening corporate governance, and given that most employees know what is going on in a company, what plans do the Government have to safeguard whistleblowers in the financial sector?
Lord Bridges of Headley
The Bill does not change any existing obligations on individuals working in the financial services industry to report wrongdoing whether within their own firm, to regulators or to other authorities. To address the noble Lord’s question directly, the FCA published in October a package of rules designed to encourage a culture in banks where individuals feel able to raise concerns and challenge poor practice and behaviour. Those rules will also constitute non-binding guidance for other financial services firms.
Lord Flight (Con)
My Lords, does the Minister agree that the new senior managers regime imposes extremely detailed requirements for dealing with both accountability and responsibility—it is virtually micromanaged and reported on—and that the suggestion that the new arrangements have gone soft is completely wrong?
Lord Bridges of Headley
I entirely agree with the noble Lord. The new system will be robust and proportionate.
Lord McFall of Alcluith (Lab)
The £2 billion deal on behalf of Qatari clients saw Barclays deliberately breach its own rules on money laundering and financial terrorism, bringing the total fines that it has paid from 2010 to £500 million. The FCA judgment was very clear: it was done to generate revenue and new business. The FSA has neither named people nor taken action against them. Given that the Parliamentary Commission on Banking Standards, comprising individuals from this House and the House of Commons, said in its primary recommendation that individual executives have to be personally accountable, when will the Government implement this sensible recommendation from an all-party committee?
Lord Bridges of Headley
My Lords, I cannot comment specifically on this case; the noble Lord, who is much more experienced than I am in these matters, will understand that. On the reverse burden of proof, the regulators could use that only once they had established that there was a regulatory breach and that the senior manager was responsible for the area of the firm where the breach occurred. It was only at that point that they could ask the individual to prove that they took reasonable steps to prevent the breach occurring. Under the proposed statutory duty, the new statements of responsibilities will make it much easier for the regulators to establish quickly who is responsible. The regulator will then simply need to establish that the senior manager did not take those steps.
Lord Campbell-Savours (Lab)
My Lords, why is it that the American regulatory authorities frequently prosecute and we do not?
Lord Bridges of Headley
My Lords, I echo the point made by the noble Lord, Lord McFall: the financial companies face severe financial penalties. Furthermore, a new criminal sanction was created by the previous Government for those who manage firms in a reckless manner.
Baroness Kramer (LD)
My Lords, the sophisticated and complex money laundering scheme for nearly £2 billion of Middle Eastern money is unlikely to have been a one-off. What assurances can the Minister give the House that this transaction and others like it were not using funds from terrorism or that the funds generated were used for terrorism?
Lord Bridges of Headley
My Lords, I am sorry but I cannot go into greater detail on that point. However, I draw the noble Baroness’s attention to the fact that, under the FCA’s rules, money laundering reporting officers will have to be senior managers. The FCA will also require firms to allocate overall responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime to an approved senior manager, who could be the MLRO but does not have to be. This will ensure that there is accountability for financial crime matters at the top executive level.
Lord Tunnicliffe (Lab)
My Lords, the problem with the regime so far is that there have not been successful prosecutions. Perhaps I may pick up on the point that my noble friend Lord Davies has been pressing in Committee on the Bank of England Bill. The Government have yet to provide a rationale for their change of heart on the code for senior managers, having moved from the reverse burden of proof to a duty of responsibility. The senior managers and certification regime is not due to come into force until next year so something must have changed their mind. We on this side of the House would like to know what that was. Will the Minister give an assurance that, before Report, noble Lords will be given access to the minutes of the meetings that the Government have had with banks, their lawyers and whoever else they met when coming to this conclusion?
Lord Bridges of Headley
My Lords, it is no secret that a number of banks did not believe that the reverse burden of proof was a good idea. This is public knowledge. Why are we making this change? Because we are rolling out the more rigorous SMCR regime across all authorised financial services firms. We want to do so in a way that is proportionate but robust and which delivers a level playing field for competition across the industry. The new approach does just that.
Representation of the People (England and Wales) (Amendment) (No. 2) Regulations 2015
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Lord Bridges of Headley
That the draft regulations and order laid before the House on 12 and 21 October be approved.
Relevant documents: 6th and 8th Reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 23 November.