(8 years, 11 months ago)
Lords Chamber
To ask Her Majesty’s Government what plans they have to reduce the number of Ministers in the House of Commons proportionately to the intended reduction in the overall number of members in order to avoid any increase in executive influence over the elected House.
My Lords, we have acknowledged the link between the size of the House of Commons and the size of the Executive, both in this House and in the other place, and we will continue to keep the number of Ministers under review as the consequences of the forthcoming boundary reforms are delivered and begin to take effect.
My Lords, does the Minister agree that there is no other first Chamber in a democratic Parliament in the western world which has as high a proportion of people caught up in government as in our House of Commons? Would he also agree that that is part of the cause of tension between the two Houses, and the Commons as a result does not do its work of scrutinising and holding the Government to account as vigorously as a democratic Parliament ought to do and that, as we reduce the number of MPs, it is vital that we reduce the number of Ministers in the Commons as well?
First, I pay tribute to what the noble Lord did on this issue in the last Parliament, in which I seem to remember that this matter was discussed quite considerably. Just to illuminate the issue, as the noble Lord said, a number of comparisons could be made between the other place and other Chambers around the world. Some 14.6% of Members in the other place can be appointed Ministers, which compares with Australia where Ministers account for 23% of their Parliament and New Zealand where, also, 23% of their Parliament comprises Ministers. I, for one, think that the other place actually does a very good job, although I would like to pay tribute to this place as well, as it performs an excellent role in what I consider to be legislative acupuncture, which can be quite painful for those standing in this place but can be very good for the nation as a whole.
Did the Minister manage to read the article in the Telegraph about a proposal to reduce the size of this place by 20% by what the former Leader of the House described as a “hair cut”? How does he reconcile that with the introduction of Peers two by two, day after day and week after week?
It is always good to see the noble Lord on such fighting form. I did read that—I always read the newspapers on a Sunday morning, obviously. It is always interesting to read about what might or might not happen in the weeks ahead. I shall save what might happen for the noble Lord, Lord Strathclyde.
My Lords, Parliament was invented to control government. No Minister was allowed into either Chamber until the reign of George I; then they came in by invitation or permission. Since then, they have multiplied, and the body that was invented to control them is now populated by large numbers of them. If we are going back to basic constitutional principles, surely we should increase the weight of parliamentarians and reduce that of the Government.
I am sure that noble Lords and Members in the other place will wish to return to this matter as the boundary review continues its work. Let me remind noble Lords that, if the number of MPs were reduced to 600 but the percentage of Ministers in the other place were to remain the same, the number of Ministers would need to fall by about seven, in my calculation, from 92 to 85. However, as the noble Lord points out, over the years there has been a considerable rise in the number of Ministers. In researching for this Question, I came to the understanding that there were about 60 Ministers when we had an empire. In the intervening period, while we may have lost an empire, Ministers have certainly found a role.
My Lords, is it not a little disingenuous for international comparisons to use just the number of Ministers? Should the Minister not look at the total payroll vote, which includes Parliamentary Private Secretaries, and rework those figures to give a more accurate picture of the power of the Executive over Parliament?
The noble Lord makes a very good point. On my calculations, if the number of MPs was reduced from 650 to 600 but the number of Minister and PPSs in the other place remained static, the percentage of Ministers plus PPSs as a proportion of the other place would be 22.2%. That is equal to what it was in 2001.
My Lords, does the Minister agree that the noble Lord, Lord Wallace of Saltaire, really has quite a nerve in asking this Question, because the most obvious abuse of influence over the House of Commons is the Liberal Democrats’ massive overrepresentation in this House, which they can use to defeat the will of the elected Chamber—or can we assume that some 70 Liberal Democrat Peers are about to resign?
My Lords, the noble Lord, as usual, makes an interesting point. I am sure it is one that he will wish to continue to make in future.
My Lords, is the real issue not that the Government do not like to be challenged, whether in your Lordships’ House, by Back-Benchers in the Commons or by the Opposition? How otherwise can the Minister explain that while the Chancellor apparently employs 10 political advisers at taxpayers’ expense, and the cost of special advisers to Conservative Ministers rose by £2.5 million over the past five years, the Government are cutting the Short money which helps the Opposition hold the Government to account?
Of course I understand the interest that the noble Baroness has in this issue, and she is quite entitled to ask this question. Taxpayer-funded Short money has risen year on year from £6 million in 2010-11 to £9 million in 2015-16. That is a 48% rise. Subject to confirmation by Parliament, the Government propose to reduce Short money allocations by 19%. This will save in the region of £10 million. Under these proposals, state funding to opposition parties will be greater than the special adviser pay bill.
Will my noble friend say whether he has heard whether there is any suggestion to increase the number of hours sat by the House of Commons to make it a full-time affair instead of a part-time one?
As always, my noble friend makes a very interesting point. I am sure that the other place will listen to his words with interest.
Does the Minister accept that there is a growing problem with the way that our constitution is working? Many changes have been made and they have left a number of things very unsatisfactory, and his answers today have indicated some of that dissatisfaction, not least the wider issue of the constitution of the UK. Will the Government please begin a serious look at this problem and maybe have a debate in this House where we can start to look at the more serious changes that need to be made over a period of time?
My Lords, this House is an extremely good place to debate a number of the constitutional changes that we are making. We have done so in the past few weeks over the Scotland Bill, and the noble Lord, Lord Purvis, has a Bill before this House on the convention idea, which again we will be discussing next week. We will continue to perform this useful role in all these matters.
My Lords, when is the situation in the Commons that is politely called “programming” going to cease so that Bills that go into Standing Committee there are properly scrutinised and debated? It is a total disgrace that they come to this House with only one-third of the Bill having been examined. It is high time that there was proper scrutiny there and programming was brought to an end by both parties.
The noble Baroness speaks with a great amount of experience and wisdom on these matters, and I am sure that the other place will take note of what she has to say.
(8 years, 12 months ago)
Grand Committee
That the Grand Committee do consider the European Parliamentary Elections (Miscellaneous Provisions) (United Kingdom and Gibraltar) Order 2015.
Relevant document: 8th Report from the Joint Committee on Statutory Instruments
My Lords, the draft order relates to the functioning of the Political Parties, Elections and Referendums Act 2000 as it applies to Gibraltar. The Act provides the regulatory framework for political parties and campaigners at elections and referendums. In 2004 the Act was updated to take account of the extension to Gibraltar of the franchise for European Parliament elections. This included establishing which Gibraltar individuals and bodies were eligible to campaign at European parliamentary elections in the south-west region, or to donate to political parties contesting those elections. As far as possible, the eligibility criteria follow the principles that determine which UK individuals and bodies are eligible to donate to political parties and campaign at national elections.
Noble Lords will be aware that the proposed referendum on our membership of the European Union will also take place in Gibraltar. As a result, the European Union Referendum Bill, currently being debated in the Chamber on Report, applies various provisions of the Act that deal with Gibraltar matters.
In drafting the EU Referendum Bill, and from discussions with the Government of Gibraltar, it has been clear that certain references to Gibraltar legislation in the Act are now out of date or otherwise inaccurate. To ensure the effective functioning of the EU referendum, as well as future European parliamentary elections, it is necessary to update and correct these references, and the order will deliver that.
The order also substitutes references to the “House of Assembly of Gibraltar” with references to the “Gibraltar Parliament”. The Gibraltar Parliament replaced the House of Assembly of Gibraltar as a result of the Gibraltar Constitution Order 2006.
Finally, the order also removes certain redundant transitional provisions which accounted for circumstances before the publication of the first version of the Gibraltar electoral register for the purpose of European Parliament elections.
I reassure noble Lords that, in accordance with the Government’s statutory duty, the Electoral Commission has been consulted on this order and has confirmed that it is content with it. Officials have also worked closely with the Government of Gibraltar in preparing the order. I therefore commend it to the Committee.
My Lords, I have no comment to make about the order. It is all very straightforward, so I am very happy to support it.
(8 years, 12 months ago)
Grand Committee
That the Grand Committee do consider the Representation of the People (Scotland) (Amendment) (No. 2) Regulations 2015
Relevant document: 6th Report from the Joint Committee on Statutory Instruments
(8 years, 12 months ago)
Grand Committee
That the Grand Committee do consider the Representation of the People (England and Wales) (Amendment) (No. 2) Regulations 2015
Relevant document: 6th Report from the Joint Committee on Statutory Instruments
If there is a Division in the Chamber, the Committee will adjourn for 10 minutes.
My Lords, the instruments before us today will enhance the operation of individual electoral registration, which was successfully introduced last year. In Great Britain, more than 12 million people applied to register under IER, with three quarters of those applying online.
The Minister for Constitutional Reform has spoken about the future vision for electoral registration: maximising opportunities for a complete and accurate register, and making sure that as many of our citizens as possible can participate in our democracy. We know that people rightly expect digital services to be built around them. The Government want to do this while making the system as efficient as possible and driving down costs. These instruments make a modest contribution towards that.
First the instruments remove the requirement for IER applicants to provide their previous name if it has changed in the previous 12 months. Instead, they allow an applicant to provide their most recent previous name if they wish, but provision of this information is not mandatory. The application form will explain that, where previous name details are not provided, additional personal information may be required to verify the application.
Secondly, the instruments make changes to the correspondence required to be sent by electoral registration officers to electors and applicants for electoral registration. Thirdly, the regulations update the electoral registration application form and the annual canvass form to bring them in line with changes made by the Criminal Justice and Courts Act 2015 to the jury-summoning age in England and Wales. This will ensure that the correct information for jury summoning is collected on the electoral register. They will also authorise EROs in England and Wales to inspect marriage records in order to improve the accuracy and completeness of the electoral register. Finally, they make a minor consequential amendment relating to the provision of personal identifiers for postal voting.
The Scottish instrument does not make provisions consequent on the change to the jury age because the changes do not apply in Scotland; nor on the change to access to marriage records, as EROs in Scotland are already authorised to inspect these records.
The previous Government originally intended to make the giving of the most recent previous name mandatory in draft regulations last year. Following concerns raised by users, including from the transgender community, that provision was removed so that further consultation could take place. It emerged that a more acceptable solution would be for IER applications to require the applicant’s most recent name on a voluntary basis. The regulations before your Lordships effect such a change.
The changes to correspondence are designed to help reduce the administrative burden on EROs and the potential for confusion among members of the public by avoiding multiple pieces of correspondence. The regulations will amend the way in which EROs send confirmation of registration to successful applicants and the information that that confirmation must contain. When EROs have conducted a review of an individual’s entitlement to registration, they will require the ERO to notify that individual in writing of the outcome, and provide information about the appeal process. They also require the ERO to send the individual notice in writing of the outcome of a hearing of a review, and provide information about any appeal process. They will amend the categories of cases in which the ERO does not need to send a letter to any person affected by an alteration in the electoral register.
On the provisions related to the upper age limit for jury service, the register is used as the basis on which people are called for jury service in England and Wales, and EROs have a statutory duty to supply this information. The age limit will change from 70 to 75 in early 2016, and the regulations will require an applicant who is unable to provide their date of birth to specify if they are 76 or over. EROs also issue canvass forms pre-populated with details of electors, including whether they have indicated that they are over 70. These regulations will require the form to specify whether an elector is 76 or over.
Finally, giving authorisation for EROs in England and Wales to inspect marriage records could alert EROs to electors who may wish to change their name on the electoral register, and could also be used to verify the identity of an applicant whose identity cannot be verified using DWP data-matching. That is because proof of name, surname and date of birth is now required in order to marry in the UK. This would reduce the number of applicants who have to provide documentary evidence to establish their identity.
There has been considerable consultation on these provisions. On the previous name and correspondence provisions, the Electoral Commission, while content overall, said that there was some uncertainty about the likely impact on electors and the electoral administration process and that the Cabinet Office should therefore consider how best to assess the impact of the change. The Cabinet Office has responded that it will, together with the commission, continue to monitor completeness and accuracy of the register. It has also given assurances to the commission that the online registration website will be amended to ensure consistency with amendments to the paper application form, and that there is no change to the requirement that, when individuals apply to register by telephone or in person, the ERO must record the required information in writing and submit the completed form for verification. The Cabinet Office also confirmed that it intended to make the regulations in December 2015, subject to parliamentary approval, and would continue to consult with the commission over form design.
The Information Commissioner’s Office—the ICO—while welcoming the intended explanation to applicants that provision of previous name information was not mandatory, suggested including further clarification that, when previous name information was not supplied, additional personal information might be required to verify an application. This suggestion has been adopted in the draft regulations. The Association of Electoral Administrators and other electoral administrator organisations consulted responded that making provision of the most recent previous name voluntary would probably have a negative impact, since people may not provide the information, and applicants should be asked to give all previous names. The Society of Local Authority Chief Executives considered that it would lead to more time spent resolving queries. The Government have carefully considered these issues but have decided not to change their policy on previous names. The extra words of clarification suggested by the ICO will give a stronger message about the consequences of not providing previous name information.
On the jury age provisions, the Electoral Commission was content with the proposed timetable for the instrument. The commission pointed out that, if the referendum on the United Kingdom’s membership of the European Union were held in autumn 2016, it could have an impact on the timing of the publication of the register after the 2016 canvass and the consequent availability of information about jurors. The Government responded that, in the event of the timing of such a referendum impacting on the 2016 canvass, this would be considered alongside any other pertinent issues relevant to the conduct of the 2016 canvass. The commission will also make reference to inspection of marriage records in its guidance for EROs.
The ICO was also consulted on the jury age and marriage records regulations, and did not consider that they raised any new or significant data protection or privacy issues. On jury age, SOLACE raised the point that information about over 75 year-olds would not be available until after the 2016 canvass. The Government responded that this is why the measure will not come into force until after 1 December 2015. The Government Equalities Office raised some concerns regarding EROs inspecting marriage registers and how this might potentially affect transgender people. The Government informed the GEO that guidance on the use of this information would be a matter for the commission, and ensured that there was a discussion between the GEO and the commission on the production of guidance.
In conclusion, the Government believe that the instruments before the Committee today will enhance IER, and I commend them to the Committee.
My Lords, these regulations make a number of changes to the information that needs to be supplied to EROs when applying to register to vote under IER, along with changes to jury summoning in England and Wales, and to correspondence and postal voting. On this issue the Government have on far too many occasions got the balance wrong between completeness and accuracy. They have continued, as they did in the last Parliament, to fail to secure cross-party agreement on these matters, which is a matter of great regret. When my noble friend Lord Wills was in the other place, he had responsibility for these matters. He always sought to get cross-party agreement, which he took seriously. We are not doing that now and it is very regrettable.
I accept that these are relatively small matters, but I fail to see how they help to improve the completeness of the register. The noble Lord said that the Electoral Commission referred to the uncertainty of the impact on electors and on the electoral administration process. Furthermore, as the noble Lord mentioned, the Association of Electoral Administrators thought that this would have a negative impact, as we are moving from mandatory to voluntary previous name provision. SOLACE thought the same.
I find the comments in paragraph 7.2 of the Explanatory Memorandum extraordinary. You are saying that the provision of a previous name increases verification rates, whether it has changed after more or less than 12 months, so you then remove the 12-month mandatory rule and totally ignore the professionals who think that this could lead to fewer people giving the information, thereby increasing the cost and bureaucracy and making the register less complete. This is an example of the Government interfering where they are not wanted. They should have left well alone.
I did not see any reference to political parties in the consultation, which the noble Lord talked about in his remarks. It is not good enough for the Government to say that they will leave it to the Electoral Commission to talk to the political parties. To be clear, it does not do so on these matters. The Government need to consult with the political parties about elections as part of the process. Many experts in all the parties’ headquarters give advice on these things.
Will the noble Lord also provide me with a copy of the ministerial guidance referred to in paragraph 9.1 of the Explanatory Memorandum and explain further how the Cabinet Office will review the completeness and accuracy of the register as referred to in paragraph 12?
I thank the noble Lord for his short but sweet intervention. I am sorry to say that we might disagree on some points. I do not believe that these provisions quite do what he says. I believe that they will enable us to create a more complete and more accurate register.
The noble Lord asked some detailed questions about how we made these decisions. I will review his questions and, if I may, write to him in due course. In particular, I am more than happy to pick up his point on consultation with political parties as we look ahead in the months to come. Even if we disagree on certain matters, we all certainly agree that we want to see more people engaged in our political system and registered to vote. That is an aim we all share, and I am more than happy to consider ways to work with him on that.
I am very pleased to hear that. Before the noble Lord was in the House and had his present responsibilities, I was never convinced by that at all. We could do far, far more. As we all know, millions are not registered to vote in this country. That is an absolute disgrace for a democracy such as ours. We could do much more on this, but we are just not getting there at all at the moment.
I am happy to talk to the noble Lord outside of the Room on that precise point. I do not want to rehearse all the arguments we had on the IER debate a few weeks back, but I believe that there has been some confusion over those who are not on the register and those who are entitled to vote. We need to get more people on the register and encourage greater engagement. I am more than happy to discuss that with the noble Lord. As I said, I will endeavour to write to him to address any of the other points.
(9 years ago)
Lords ChamberMy Lords, I shall say a brief word. My noble friend Lord Sharkey and the noble Lord, Lord Davies of Oldham, have both been very calm on this issue, but I shall admit that, frankly, I am outraged. The obligations that exist for so many people in the public sector to report misconduct—on teachers, police officers and members of the NHS—are taken as absolute requirements. There is no question of whether they are costly; it is understood that the importance of propriety and integrity in all those activities is crucial. I suggest that, after the years that we have been through following the financial crisis, no one should doubt that integrity in this sector is absolutely vital.
When we sat on the Parliamentary Commission on Banking Standards, we discussed whistleblowing extensively. Every single institution that we talked to and everyone we could identify had in place mechanisms for whistleblowing; the problem is that none of them was effective. The kind of issues that were reported through whistleblowing systems were situations such as when someone had noticed someone sliding a £5 note out of a cashier’s desk—they were on that kind of scale. So none of the major abuses, whether it was PPI, the LIBOR scandal, the mishandling of credit issues or money-laundering, came to the surface through any kind of whistleblowing system. This measure—the statutory requirement to report a breach when someone sees or recognises that it is happening—is one of the few mechanisms that we could conceive of to try to counter that particular set of problems. Without exception, everybody who gave evidence to the parliamentary commission talked about the importance of making whistleblowing much more effective. So far as I can see, there is no replacement to this requirement that is effective, that has been proposed—and, frankly, if there is a burden, surely any burden is significantly smaller than living with the consequences of sustained and ongoing abuse.
My Lords, I thank the noble Lord, Lord Sharkey, for provoking this short debate. I heed what the noble Baroness, Lady Kramer, and the noble Lord, Lord Davies, have said. I shall try to explain the Government's position. I need to examine the very insightful comments made by the noble Lord, Lord Sharkey, and may want to return to some of them in writing. If I do not address them here, I shall endeavour to do so in writing.
At first glance, this seems an obvious and straightforward requirement to impose on authorised persons. As the noble Lord will be aware, this requirement was introduced by the coalition Government through the Financial Services (Banking Reform) Act 2013. It is through that planned implementation of this provision that we have learnt that it is simply disproportionate.
Before I go into more detail, I reassure noble Lords that this does not mean that firms will be under no obligation to report wrongdoing to the regulators. First, a separate proviso in the 2013 Act will still apply: the requirement for firms to notify regulators that they have taken disciplinary action against an individual subject to the conduct rules, be it through dismissal, a reduction in pay or a written warning. Secondly, this requirement builds on the regulators’ existing principle for business that firms must tell them of anything that may be of interest to them. If a significant issue arose with the conduct of a member of staff that for some reason did not lead to disciplinary action, the firm would still need to consider whether it would be appropriate to alert the regulators.
In this context, the Government believe that a blanket requirement to report all known or suspected breaches of the conduct rules is disproportionate. In particular, an obligation to report suspected breaches is potentially open-ended and wide ranging for it forces firms to work out the point at which possible indications of breaches of rules of conduct would amount to a genuine suspicion. Then the firm would have to train staff to spot and assess those indications, and finally firms would need systems—
The argument the Minister has made suggests that he does not believe that whistleblowing is a justified process. Almost every whistleblower who raises a suspicion is very unlikely to be able to present a signed and sealed case. It is surely the responsibility of the organisation where the whistleblowing has taken place to explore that. In fact, they constantly guarantee that that is exactly what they will do. The Minister is now saying that that is far too onerous. I find that incredible.
I am not saying that. I am saying that the process as a whole is potentially too onerous. I heed what the noble Baroness says, and of course whistleblowing is important. I shall continue, and we can continue to have this debate.
Finally, firms would need systems to ensure that the information is captured and transmitted to regulators, but it does not stop there. Having been notified of a suspicion, the regulators would have to decide whether to investigate and then, if appropriate, to consider what action to take. No doubt there would be many cases where there was only suspicion and nothing more and no action would be taken, but all cases would have to be investigated to some extent, and it would be difficult for regulators to do nothing at all once they had been notified.
Noble Lords should also note that, although the Government believe that an inflexible requirement to report all known and suspected breaches of conduct rules by all employees subject to them is inappropriate, the regulators can impose more targeted proportionate rules in this area if it supports the pursuit of their objectives.
The noble Lord, Lord Sharkey, raised costs. The costs in the impact assessment are based on the detailed cost-benefit analysis published by the regulators when they set out how they would implement the regime. I understand it is available on the FCA website, but I will write to the noble Lord and all interested Peers on this point. On that basis, I ask the noble Lord to withdraw the amendment.
I thank the Minister for that answer and those clarifications. I cannot help feeling that removing the statutory obligation and replacing it with something that is still not yet entirely clear is perhaps not the best way of proceeding. However, under the circumstances, I beg leave to withdraw the amendment.
My Lords, I thank the noble Baroness, Lady Drake, for prompting this short debate and for her thoughtful and thorough speech on the subject. As she rightly says, we need to improve the way the financial services industry treats its customers. We all want to see better standards in the banking and financial services industries, and to ensure that the customer always comes first. The question before us, however, is whether this amendment would achieve that. I am sorry to say that I am not at all convinced that it would—and I am conscious that your Lordships have been around this issue before, not least in 2013. I read the Hansard report of that debate yesterday. None the less, let me clarify the Government’s position.
The Government do not consider that introducing a fiduciary duty or a duty of care in legislation would help to drive up standards within ring-fenced banks because, as noble Lords know, banks are already subject to a wide range of legal duties. First, a bank is subject to obligations under the Financial Services and Markets Act 2000 and the regulators’ rulebooks. Under the latter—the principles for business—a firm is required to act with due skill, care and diligence, and to pay due regard to the interests of its customers and treat them fairly The enforceable rules of conduct that will apply to banks under the SM&CR, to which the noble Baroness referred, will put the same requirements on the vast majority of bank employees, complementing the obligations on the firm, requiring them to give due regard to customers’ interests and to treat them fairly.
In addition, ring-fenced banks are subject to obligations under their contracts with their customers. These include implied terms—under Section 13 of the Supply of Goods and Services Act 1982 or Section 49 of the Consumer Rights Act 2015, where the consumer is not an SME—that the ring-fenced body will perform the service with “reasonable care and skill”. So, it is not clear that imposing a fiduciary obligation on a bank to its customers or small businesses would add any value. I would argue that a fiduciary obligation is not appropriate in the relationship that a bank has with the majority of its customers. It is a specific kind of obligation that a director owes to a company, or a trustee owes to a beneficiary under a trust.
It would be appropriate for a bank to have such an obligation when it was acting as a custodian, and such obligations can and do arise quite naturally in such circumstances. But, and this is the point, deposits with a bank are not property held on trust, so a fiduciary obligation simply would have no place in the contractual relationship between a bank and its customer—for instance, in a sales relationship. Clearly, it would be meaningless where the bank has lent the customer money.
Some time ago—noble Lords may not remember this, as it was in 1848—the case of Foley v Hill held that the relationship between a bank and its customer was that between a debtor and a creditor: a contractual, not a fiduciary, relationship. It was therefore not within the jurisdiction of the court of equity.
Furthermore, a fiduciary duty, even if it were to be imposed, could only deliver change if it was enforceable. Only the beneficiaries—the consumers and small businesses—could enforce it. This would obviously be expensive, requiring court proceedings, and would only produce financial compensation. The Government firmly believe, therefore, that the amendment would not add anything to the duties that already apply to ring-fenced bodies. Rather, it would add confusion where there is clarity. Banks can comply more easily with specific requirements, and customers and regulators can more effectively hold the bank to account when they do not comply.
I declare an interest here. I spent much of the last few years trying to ensure that one of the country’s largest high-street banks treats its customers fairly and earns their loyalty. In the light of that experience, I point out that the high level of competition and choice that now exists, and the increasing ease with which consumers can switch accounts, makes it even more imperative for banks to treat their customers not just fairly but personally and with real integrity.
This amendment would not improve on the regulations that already govern banks’ relationships with their customers. It would not give banks or their senior managers a clear understanding of what is expected of them, or provide a viable and effective means of holding banks to account. I therefore ask the noble Baroness to withdraw it.
I thank the Minister for his reply, and I will not enter into iterative debate on a fiduciary duty, other than to say that I will persistently argue from these Benches that the UK’s regulatory framework is inadequate for the consumer. Slowly but surely, in certain areas such as the introduction of independent governance committees in the insurance sector which embrace a fiduciary responsibility, there is a growing recognition that the current regulatory framework is not delivering the right response to behaviours in the banking and financial sector. Yet more layers of sedimentary rock in the regulatory system will not deliver that. None the less, I beg leave to withdraw my amendment.
My Lords, I endorse the remarks of my noble friend Lord McFall in introducing the debate on the amendments. My remarks are necessarily cut short because the noble Lord, Lord Deben, provided a great deal of the supportive evidence and arguments the Government ought to take seriously; we hope that they will.
There was a time, not so very long ago, when we prided ourselves on the extent to which this country was to the fore in being aware of the problems of climate change and taking the necessary action to reduce the frightening possibility of the rise in temperatures and general climate change, which would make such great difficulty for the whole world. I know that my noble friend Lady Worthington, who is, unhappily, not with us today, is very concerned that the French this year have taken steps that are somewhat in advance of what we have made so far. They passed a law requiring listed companies to disclose in their annual reports how exposed they are to the financial risks related to the effects of climate change, and what measures have been adopted by the company to reduce those risks. The law also requires pension funds, insurance companies and other institutional investors in France to disclose how they are managing climate change risk. This law makes France the first country in the world to introduce a carbon-reporting obligation on financial institutions.
Amendment 29B gives an indication of the road we could tread. I therefore hope that the Minister will at least commit the Government to creating a standardised set of questions that financial services providers must ask to gather and present information on companies and asset owners. The aim would be to make it easier to compare and assess risks to which companies may be exposed because of the impact of climate change. That is not asking too much of the Minister, in his more constructive mood, and I hope I will establish that point very shortly.
I always try to be constructive with the noble Lord, Lord Davies. I thank the noble Lord, Lord McFall, for introducing this amendment. It is a shame that the noble Baroness, Lady Worthington, is not with us. What strikes me from this interesting and useful discussion is that at issue is not whether we disclose more but how we do it in a meaningful way that people can understand and that is consistent.
Just taking a step back, as I outlined in my response to the noble Baroness, Lady Worthington, on Monday, I fully recognise that climate change, as well as demographic change and technological change, which she referred to, are important structural issues that could have a significant impact on not just financial stability but society more broadly. As my noble friend Lord Deben, who has a lot of experience in this field, said, climate change cannot be put into a silo and seen as the responsibility of one government department, nor, in a business, one part of the business. It needs to be seen as a common endeavour to tackle.
It is right, therefore, that the UK’s macroprudential authority should be alert to climate change as well as to the other long-term systemic risks that I mentioned and that it, and other parties, should have access to clear and sufficient information to make an educated assessment of those risks. As the noble Lord, Lord McFall, and others, are well aware, the Government have put in place legally binding, long-term commitments to reduce our greenhouse gas emissions in the Climate Change Act 2008, and we will be pushing strongly for an ambitious and global agreement on climate change at this December’s United Nations conference of parties in Paris, involving commitment by all countries to act. The steps that will be taken to meet these commitments will involve a range of adjustments to production and consumption across the global economy, and the Government fully recognise the importance of ensuring that this transition is as orderly as possible.
As the noble Lord, Lord McFall, said, the Governor of the Bank, in his capacity as the chairman of the Financial Stability Board, has already highlighted the risks that climate change could pose to financial stability—and, more pertinently to the amendment, the role that consistent, clear and comparable disclosure at international level could play in responding to those risks. As your Lordships will know, the Financial Stability Board has been actively considering these issues and recently, at the end of September, convened a workshop of public and private sector participants to consider how the financial sector should take account of climate-related issues.
Following that workshop, the FSB published for this month’s G20 summit a proposal for an industry-led task force on climate-related risks. The G20 will then recommend principles for climate-related disclosure. I do not want to prejudice that discussion but agree with the noble Lord that obviously more could be done with disclosure practices. As he rightly said, so many disclosures—ironically and perversely in an age where we want more information—could add to confusion and not add clarity. We look for added clarity and consistency.
In the light of the need for comparable information across countries, I would argue that this issue is rightly considered at that international level. That said, one may well ask what the Government are doing at a UK level. I point your Lordships to what happened last week when the Treasury concluded a written consultation on reform to the UK’s business energy efficiency tax landscape. This included questions related to greenhouse gas reporting, including a requirement under the Companies Act 2006 for quoted companies to report their greenhouse gas emissions as part of their annual directors’ report. As I said, that is out for consultation.
Could my noble friend explain the logic that says that Britain moves on modern slavery to set an example by enforcing it at home before we have international agreement, but refuses to move on this because there is to be a discussion about international agreement? Would it not be better for us just to move on it and set the example? That would help guide the discussions that might take place thereafter.
As always, my noble friend makes a perceptive point. As I said, I do not want to prejudice the outcome of the discussions that will likely take place. Obviously, my noble friend makes a good point. I simply make the point in return that, in the case of disclosure, we want to try to make sure that this is as internationally recognised as possible. I heed what he said and will no doubt make that point to those who will be present at that discussion.
On primary issuances, the relevant regime is the prospectus directive—which is currently under review. We are working closely with the European Commission and other European partners to achieve a positive outcome on that. We look forward to hearing any suggestions on how to improve this regime. I thank the noble Lord—and the noble Baroness who sadly is not with us—for this amendment. I hope what I said gives some reassurance that the Government take this issue seriously, but I ask the noble Lord to withdraw the amendment.
My Lords, I shall speak to paragraph (f)(i) and (ii) in the amendment which refer to the secondary annuity market, and I draw the attention of the Committee to my registered interests, in particular my membership of the board of the Pensions Advisory Service, which is a delivery body for the current Pension Wise.
In the summer Budget Statement, the Chancellor confirmed that he wishes existing annuity owners to have the freedom to sell their annuity income but announced that plans for a secondary annuities market would be delayed until 2017 to ensure that there is an in-depth package to support consumers. The Pensions Minister, the noble Baroness, Lady Altmann, confirmed that the delay was to ensure consumer protection adding:
“We can’t launch without safeguards”.
It is important, as paragraph f(i) in the amendment provides, first to identify very clearly the risks in this market and the potential advantages and disadvantages to the consumer of converting an income for life into a cash sum before agreeing the regulations with regard to guidance to be provided to individuals considering trading their annuities. If the infrastructure of such a secondary annuity market were to be put in place, it is not yet clear who would be the buyers of the annuities. There are still lots of unknowns about how that market would operate. Until we understand more about how that secondary market will operate and what regulatory restrictions will be imposed, it will be difficult to assess whether customers are able to get a good deal. If an individual got a poor deal in the first place, selling the annuity on would not necessarily reverse that; indeed, it could make it worse. If, as the Chancellor argues, the pensioner freedom reforms were needed in part because the annuity market was not working in the best interests of all consumers for the simpler proposition of selling someone an annuity, why would it be expected that the reverse secondary market, where someone would resell an existing annuity, would work any better?
Some people will certainly be tempted to cash in their annuity for what looks like a large sum but their annuity may be bought at a heavily discounted price. Selling their guaranteed income could prove expensive because of the cost of individually underwriting each transaction. There will be costs to trading, complex pricing systems and consumer vulnerability to poor behaviour by some firms. So many pensioners may not be better off as a result, and it may be difficult to assess whether the lump sum that they have been offered is a fair swap for what they would be giving up. Actually, though, once they have given that up, the decision is irreversible.
The Bill refers to protecting the interests of those who have an interest in a particular annuity, and that certainly needs to be considered. What is the situation in a joint life annuity? What is the definition of those who have an interest? How will their interest be protected? What if a person is not named on a joint life annuity contract? These may seem irritating points of detail, but they will be matters of significant substance for some people who may be the beneficiaries of an income stream from an annuity.
The Government have also advised, as my noble friend Lord McKenzie said, that they want to consider how to explain the interaction between annuity income, capital and deprivation laws in the welfare, social care and council tax reduction system—something that we rather tripped over when implementing pension freedoms. In making that clear to people who are considering selling their annuity, the guidance would need to explain clearly the implications of that interaction.
In the secondary annuity market, the appropriate form of consumer protection has to be an integral part of any proposals to allow people to resell annuities, and therefore a clear identification and consideration of the safeguards and guidance that are appropriate is required before regulations come into force. It is important to be assured that they are actually fit for purpose. Creating a secondary annuity market is certainly not a simple proposition, which presumably is why the Chancellor has delayed his plans until 2017, although I accept that the proposed expansion of pension guidance to those considering selling their annuity is to be welcomed. However, it will be important for Parliament to understand what guidance will be delivered, and how, to people looking to trade in a secondary annuity market, because such a market will come with risk and complexity and that has to be reflected in the quality and comprehensiveness of the guidance provided. This is not going to be a proposition without problems. Some people have suggested introducing a requirement to take independent advice but even that is not a simple proposition, not least if a requirement to take advice significantly reduces the value of the transaction to the seller.
Lastly, the complexity of a secondary annuity market means it is essential that the pension guidance that is provided is of a high quality, delivered by people with the necessary skills and expertise. This is not going to be a straightforward set of guidance. Reflecting on experience to date, it is very important that those who bear responsibility for signposting to the guidance those who want to trade in the annuity market are not organisations with conflicts of interest in whether that guidance is followed. Sometimes, being better informed and better guided does not make people such good customers. Given that this is even more complex than the pension freedoms market, it is really important to get this proposition right.
My Lords, once again, I thank noble Lords for their very useful and constructive comments and speeches. I thank the noble Lord, Lord McKenzie, in particular.
As your Lordships know, the Government want to ensure that those who will be able to sell their annuities on the secondary market have access to high-quality information and guidance that enables them to make informed choices. That was endorsed by many responses to the recent consultation. We want to build on the success of the existing Pension Wise service, for which the satisfaction levels remain high. The Government are committed to using the lessons learned from the implementation of existing freedoms and the Pension Wise service to help consumers in both this market and the new secondary market for annuities.
I draw your Lordships’ attention to the work that the Government are already doing—in both what is happening now and what is planned—through the prism of the amendment that the noble Lord, Lord McKenzie, has brought before the Committee. First, the amendment would commit the Government to undertake and publish a review of the new pension freedoms and pensions guidance. On this point, the Government have already set up a working group of representatives from industry, regulators and government to review the pension freedoms. This group will collect and analyse information on the choices that people are making when accessing the new pension freedoms and related guidance and advice. It will also identify key information gaps and seek to address them.
In addition, early information from HMRC and the regulators has been published, and key data from the Pension Wise service will soon be available on the Government’s performance platform. Pension Wise is also in the early stages of procuring external research, which will cover the extent to which the pensions guidance has enabled customers to make informed and confident choices about their pension arrangements.
Secondly, the amendment would commit the Government to tracking consumer outcomes from pensions guidance. The Pension Wise research that I have just mentioned will aim to do just that. It will help the Government to understand what customers do following their Pension Wise appointment.
I am conscious that the noble Lord asked me some very specific questions about uptake. If he does not mind, I would like to write to him once I have the appropriate information on those points.
Thirdly, the amendment would require the Government to review pension providers’ reporting requirements. In line with its remit to protect consumers and ensure that markets function in consumers’ interests, the Financial Conduct Authority has specifically committed to monitor developments in the retirement income market and to take action where the market is not operating as intended. The first of these mandatory data requests was sent to firms in September. It includes information on both the stock and the flow of pensions savings held by firms, as well as on sales of retirement income products by providers and cash withdrawals.
The amendment also calls for safeguards against pension scams to be strengthened. A priority of this Government is to protect people from scams. A number of cross-cutting initiatives are already in place, but we will continue to look at ways to strengthen messages for consumers and to arm them with the information they need to protect themselves against scams. For example, the Government are already co-ordinating action to raise awareness of, and tackle, scams through Project Bloom, a National Crime Agency-led task force. It includes the regulators, anti-fraud groups, such as Action Fraud, and police forces. In addition, both the Financial Conduct Authority and the Pensions Regulator have their own pension scam awareness campaigns.
Finally, the Government have put a number of protections in place through the directly provided pensions guidance service, Pension Wise. Pension Wise alerts customers to the risks of scams in guidance sessions, and the website and output document contain warnings and guidance.
(9 years ago)
Lords ChamberMy Lords, I thank the noble Lord, Lord Sharkey, for filling my morning, because it took me a little time to work out what this amendment meant. It brought home once again the value of professionals in producing the consolidated version of the various Acts. Unfortunately, they did not produce a consolidated version of FSMA 2000, as amended, and it took me some time to find it on the website. It is worth doing because although this Bill intends to delete the appropriate provisions in favour of the Prudential Regulation Committee, what it does is bring out the essence of the point being made by the noble Lord, Lord Sharkey. Reference is made to paragraph 9(b), but first you have to read paragraph 8 of Schedule 1ZB, which states:
“The Bank must secure that a majority of the members of the governing body of the PRA are non-executive members”.
I stress that, because when one turns to the proposed replacement for this schedule to FSMA 2000, which is now Part 3A of what will be the Act as amended by this Bill, no equivalent reference is made to paragraph 8 about there being a majority of non-executive members. As the noble Lord, Lord Sharkey, alluded, it goes on to state:
“For the purposes of paragraph 8 and for the purposes of”,
the principles to which Section 3C requires the PRA to have, none of the following can be non-executive members:
“(a) the members referred to in paragraph 3(a), (b) and c), and
(b) a member who is an employee of the PRA or of the Bank”,
to which the noble Lord proposes to add proposed new sub-paragraph (c),
“the chief executive of the FCA”.
I want to bring out two points. First, I agree entirely that in no way can the chief executive of the FCA be seen as a fully independent non-executive. The Minister was at a very fine point the other day when he said that Martin Wheatley was not sacked. My understanding is that his term was to run until March 2016 but I believe that he departed in September, presumably on gardening leave. He did not exactly leave quietly. When addressing a meeting at the Queen Elizabeth II conference centre in London, he said:
“I am disappointed to be moving on”,
and that he was doing so,
“with a sense of unfinished business”.
He later listed the ongoing work as being to clean up markets through the Fair and Effective Markets review and the implementation of the Senior Managers Regime, which is intended to hold top bosses to account when things go wrong. The article reporting his speech added that the clean-up was prompted by the LIBOR rigging scandal.
Martin Wheatley had many critics and I am sure that he is not a card-carrying member of the Labour Party; I doubt whether he has ever voted Labour, but he was to many citizens who took an interest a man of the people. He took the banks on in a pretty robust way, and I think that an awful lot of people in society felt that the banks needed to be taken on in a robust way. I am sure that he was first leaned on and then eventually fired. It is interesting to note that if you look up the CV of his successor, she is listed as only an “acting” chief executive. In no way can this person be considered to be independent. I assume that when the noble Lord accepts the amendment, he will tidy it up and make a reference to the Prudential Regulation Committee which is to take over the responsibilities presently listed in FSMA 2000. That would introduce a new subsection to what is presently Section 30A of FSMA, which requires there to be a sufficient number of non-executives to outnumber the executives of the Bank plus the chief executive of the Financial Conduct Authority. I think that that is the intent of the amendment even if it is not what it actually says, and I support that.
The whole of the debate on this Bill has been about influence and independence. We will be moving on to the Prudential Regulation Authority or the Prudential Regulation Committee in the clause stand part debate, but I think that not making it clear that there should be a majority of NEDs on the committee is a retrograde step. It almost implies, through the wording of this subsection, that the chief executive of the Financial Conduct Authority is independent.
I have had the privilege of working for Her Majesty’s Government, not as a civil servant but in the public sector. I know about being leaned on and I have to recognise that it is very effective. The one thing you cannot say at the end of the exercise is that you are independent.
My Lords, I thank the noble Lord, Lord Sharkey, for provoking this debate. Unlike the noble Lord, Lord Tunnicliffe, I have not had the enjoyment of spending my morning looking at FSMA consolidated Acts, but I have been looking into this matter. I do not want to go on at length and repeat ad nauseam what I was saying on Monday. As the noble Lord, Lord Tunnicliffe, said, this comes down to a matter of independence. He is absolutely right to pinpoint that. Despite hearing the cases that he and the noble Lord, Lord Sharkey, mentioned, I remain in no doubt that the FCA CEO should be counted as an external member. She is not an executive of the Bank and the FCA is an independent body entirely separate from the Bank.
Noble Lords should also be aware that the legislation further reinforces external representation on the new Prudential Regulation Committee, as compared with the PRA. The majority of external members, as has been said, is increased compared with the PRA board with at least seven external members, at least six appointed by the Chancellor in addition to the FCA CEO, compared with only five internal members: four officers of the Bank and one appointed by the governor. So, for the PRC, external members will be in the majority by at least two. This compares with a requirement for a majority of one on the PRA board.
It could be argued that if you use the power to add an extra deputy governor to the PRC, that majority of externals is lost. I would argue that the power to add an extra deputy governor to court and to the committee requires secondary legislation, so Parliament will have its say. Furthermore, Clause 1 provides that if secondary legislation is used to add a deputy governor to the PRC, it may also provide for an equal increase in the minimum number of members appointed by the Chancellor of the Exchequer to ensure a continued balance of internal and external members.
I shall leave it at that. I hope that the explanation I have provided satisfies the noble Lord and that he will withdraw his amendment.
I start by thanking the noble Lord, Lord Tunnicliffe, for his support, and for reminding us that if the Government get their way in Clause 12, we will need to revisit the provisions governing the number and the definition of external directors of the new arrangements. I remain unconvinced that the CEO of the FCA can in any reasonable way be described as independent. The Government seem to be relying on the force of simple assertion rather than evidence, but I am sure we will come back to this on Report. In the mean time I beg leave to withdraw the amendment.
My Lords, again, I support the noble Lord, Lord Sharkey, on his general thrust in this debate. I come at it from a slightly different direction, although I think that the fundamental proposition is, “If it’s not broken, why are we trying to fix it?”. In fact, the supporting paperwork says that it is working well. We need to go behind that—back to the 2012 Act, the FiSMA 2000, as amended, and all that sort of stuff—to look at how the Bank is now going to work.
I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC. Regarding the control of interest rates and the Government’s injections of cash, depending on which textbook you read, it was the actions of banks in creating credit that formed the bubbles that caused the crisis of 2008-09. I believe that is the technical reason and that we are seeing many bubbles emerging again. As to the process of the FPC, by reading through the consolidated Act we see that its many powers—to make recommendations about new tools, for example—and all the things it is able to do to control the creation of credit, among other things, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy.
Now, what is the thing that keeps this clean? The thing that keeps it clean is the fact that the PRA is a subsidiary—an independent company, as mentioned, governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it.
The reform included in the Bill ends this subsidiary status. The PRA board will be replaced by the Prudential Regulation Committee and, as I said, that must have the right balance. The Government so far, frankly, have not come up with a good reason for this change. The noble Baroness, Lady Kramer, made the point that mechanisms for information transfer are there, and therefore that is not at risk. The whole purpose of being in a subsidiary company—I headed a subsidiary company of a large organisation—is to get focus on its business, so that there are very clear responsibilities. I think that the move in the Bill away from its being a subsidiary is a bad thing, and I hope that the Government will reconsider the inclusion of this clause.
My Lords, once again I thank the noble Lord, Lord Sharkey, for provoking a very interesting debate and for the thoughtful contributions that he, the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and my noble friend Lord Carrington of Fulham have made.
The noble Lords, Lord Tunnicliffe and Lord Sharkey, absolutely got to the nub of the matter here. We are seeking a PRA that is effective and independent, and getting the balance right between those two aims, and making sure that we achieve both, is absolutely crucial. I would argue that the proposed changes will increase the PRA’s effectiveness—making it better still, to address the point made by the noble Lord, Lord Tunnicliffe—but do not undermine its independence.
Let me first address the issue of increasing effectiveness, and I will try here to steer clear of management-speak. The governor has explained the links—I have crossed out the word “interdependencies” that was in my brief—between monetary and financial stability and why, therefore, it is right that both these macroeconomic policy responsibilities should rest with the central bank. The Bank is also committed to implement a set of changes to its internal organisation, aiming to ensure that different parts of the Bank work even better in pursuit of its twin aims of monetary and financial stability. The Bill builds on and reinforces these organisational reforms.
Ending the subsidiary status of the PRA will reinforce the Bank’s efforts to strengthen its capacity to work effectively across its responsibilities. At Second Reading, it was suggested that ending the PRA’s subsidiary status and creating the Prudential Regulation Committee might represent a downgrade of the prudential regulation function—a point that has been alluded to. I entirely disagree with that. I would argue that this change will have the precise opposite effect. Placing the Prudential Regulation Committee on the same footing as the MPC—and, with our changes, the FPC—means elevating the microprudential role to the same level as monetary policy and macroprudential policy.
This is, I would argue, an upgrade that reinforces not just to the Bank staff but to the wider public, to whom the Bank must be transparent and accountable, that the Bank is not simply an organisation dedicated to setting interest rates but one with equally important macro and microprudential responsibilities.
The Bank has told us that closer integration has increased the feeling among PRA staff that they are an integral part of the Bank’s mission and have broader opportunities for progression across the whole Bank. This can only assist recruitment of the best people to the supervisor, which I am sure is something that all your Lordships will support.
As we are in Committee, I will briefly come back to the noble Lord opposite about whether the Bank of England or the PRA is the right organisation for this. The Green Investment Bank is the Green Investment—I emphasise—Bank, so it seems to me appropriate. I want to make clear that we are open to other suggestions to solve this, if the Government and Minister do not believe this is the best way.
For instance, I am involved in an organisation called Regen SW, which used to be a wholly owned subsidiary of the South-West of England Development Agency. It was privatised and is very successful. I am one of three trustees who look after it. If there were a hostile takeover by a non-green organisation, there are three of us who can exert power to make sure that the original aims of Regen SW are maintained. If something creative can be done in that way, I would be absolutely delighted and we would like to hear it.
My Lords, I thank the noble Baroness, Lady Kramer, and the noble Lord, Lord Teverson, for their extremely constructive remarks—and, indeed, the noble Lord, Lord Davies, who on Monday offered me sympathy for my position and today offered to be very constructive. Where do we go next? It is going to be very interesting.
My Lords, I would be prepared to exchange sides, if the Minister can arrange that.
The noble Lord can come and join us. I fully understand the intentions behind the amendment. Indeed, I have read the debate that took place last week with my noble friend Lady Neville-Rolfe on the Enterprise Bill, in which the noble Lord, Lord Teverson, set out his party’s position eloquently. I believe that all parties are agreed, as the noble Lord, Lord Teverson, and the noble Baroness, Lady Kramer, said, that the Green Investment Bank has been a real success story, and we need to build on that success. That is why the Government want to allow the Green Investment Bank to continue to go from strength to strength by moving it into private ownership. As part of our work to achieve this, it has become apparent that the existing legislation which governs the bank, the Enterprise and Regulatory Reform Act 2013, would very likely constitute government control over the bank and result in its remaining classified to the public sector. That is why, as the noble Lord and the noble Baroness said, the Government intend to repeal that legislation through an amendment to the Enterprise Bill, which will remove control and ensure that a privatised Green Investment Bank will have the freedom to borrow and raise capital without affecting public sector net debt.
I note, as my noble friend Lady Neville-Rolfe noted, the concern that the repeal would remove the Green Investment Bank’s statutory lock over its green mission, and that is where these amendments come in. The noble Baroness, Lady Kramer, eloquently drew a parallel with the privatisation of Royal Mail and its regulation by Ofcom, and whether the Government might replicate that kind of arrangement for the Green Investment Bank. First, there is a difference between regulating a company such as Royal Mail, which provides a public postal service and is a utility, much like energy or water, and the Green Investment Bank. As a country, we regulate mails as an industry, and the regulator for postal services, Ofcom, has designated Royal Mail to provide a universal postal service for the whole of United Kingdom, as set down by Parliament under statutory obligation. That means that, regardless of the nature of its ownership, for as long as Royal Mail holds the role of universal service provider, it must comply with specific regulatory conditions imposed upon its operations for the purpose of providing a universal postal service throughout the United Kingdom, as well as other regulatory conditions which apply to all postal operators in the market. If Royal Mail was not the designated universal service provider, its operations in the postal market would be subject only to those general market regulations that apply to all other postal operators.
The parallel here would be for the PRA to regulate the green investment market, could such a thing be defined. Not only would this amendment increase regulation at a time when the Government are trying to reduce it, but increasing regulatory costs in the sector would be likely to reduce overall green investment. I am sure that is not something that the noble Baroness, Lady Kramer, would wish. I must reiterate that the Government are implementing the repeal of legislation only as a necessary measure in allowing private capital into Green Investment Bank, reflecting advice from the Office for National Statistics. As I have said, to be classified to the private sector, an organisation cannot be subject to significant government control, and that includes control through excessive regulation. The decision on whether an organisation is classified to the public or private sector is made by the ONS on the basis of EU-wide rules. The ONS looks at all factors of control when deciding whether a corporation can be declassified from the public sector. If the Green Investment Bank was not free to change its articles because of public sector control, it would very likely remain classified to the public sector. Similarly, if the bank as a single entity were to be regulated in this way, it would still be likely to be considered as under public sector control, so this would not provide the solution that noble Lords are seeking.
The Government want to work constructively with noble Lords across the House to secure the future of the Green Investment Bank. I totally agree with the noble Baroness, Lady Kramer, that we need to work across government as a whole, and I shall make sure that all parts of the Treasury are aware of her remarks and see the debate. However, I hope that the noble Baroness, Lady Kramer, the noble Lord, Lord Teverson, and, should he so wish, the noble Lord, Lord Davies, will meet my noble friend Lady Neville-Rolfe at BIS to discuss this matter further. I hope that the noble Baroness will agree to withdraw the amendment.
I am that sure my question is as much of a concern to the Minister as it is to me. The purchasers of this bank could just buy it as an asset to wind down—just to buy the cash flow into the future—which none of us would want. But if there was a public sale, it could indeed happen. That is separate from the ongoing green credentials. Do the Government have an approach to how that might be solved or prevented?
The noble Lord makes an extremely good point, and one that the CEO, Shaun Kingsbury, was asked directly. I am not going to prejudice what my noble friend the Minister in BIS is working on, but that is clearly something that we need to look at. I note that Mr Kingsbury himself said that he believed that the purchasers of or investors in the Green Investment Bank would look expressly to ensure that the specialisms that the bank currently has would continue, and we would want to make sure that that specialism and focus are the core of their investment. That said, I heed entirely what the noble Lord says and will draw it to my noble friend’s attention.
My Lords, I was actually quite heartened by the Minister’s reply, although I suspect not in the way that he intended. He suggested that there were very few obstacles to using the PRA as an appropriate regulator in this case—so perhaps there is an avenue there to be explored. Can the Government look seriously at this issue? I know from having been in government very briefly that to direct the lawyers to look at a way to achieve rather than stop something is a very significant challenge. I hope that now the energies of the Treasury will be focused on this, as well as the energies of BIS. Frankly, if we lose the Green Investment Bank in the role that it plays, we will all be losers. It would be very frustrating to think that that was unnecessary and had only required some significant legal effort to avoid it. I beg leave to withdraw the amendment.
My Lords, this has been an excellent debate and the Minister has a great deal to which he needs to respond. It is little surprise that we have been exercised with these amendments, because they go to the very heart of people’s trust and confidence in the financial services industry.
I would suggest that perhaps one reason why this change has been effected by the Government is because of the lack of transparency in the government proceedings. That is why the controversy has arisen. None of us has been privy to the process whereby the Government produced this significant change to the senior managers and certification regime. Clearly, decisions have been taken behind the scenes and without consultation. I do not think that there is much of an email trail on either of those factors.
The fact is that the Government did not even consider that this might be much of a problem, and today’s debate identifies just why that is. I hope, therefore, that the Minister will be able to demonstrate the thought processes behind these changes. The age-old argument that it is not working in practice scarcely holds, because the SM&CR never had a chance to work in practice—so the Government will have to come out with a better argument than that. What advice did they get that convinced them that these changes were the best approach? Did an event occasion the change? Are the meetings that the Minister had on such a significant issue as these proposed changes on the public record?
We also need to consider the role of the regulators and how we can ensure that they are bold enough to spot when misconduct takes place. Has their job not been made harder by the fact that there will no longer be a duty on firms if they suspect wrongdoing? Can the Minister please go into some detail about how the Government propose to ensure that the regulators will be able to rule out ineffective management? We have had a refresher course today in just what ineffective management—and, indeed, corrupt management—has done in terms of damage to so many people’s lives. We ought not to forget that.
I hope that the Minister will be able to address these points in some detail. Of course, he has to take into context just what this debate has demonstrated: how difficult the issue is, but how fundamental it is to the welfare of our society. I expect the Minister to give a detailed response.
My Lords, it has been a very good debate and I thank all noble Lords who have spoken eloquently, and powerfully at times.
I start by taking a step back. As was mentioned by the noble Baroness, Lady Kramer, and many others, the financial crisis obviously exposed deep flaws in the functioning of parts of the financial services industry, with enormous consequences, as we all know, for the economy and people’s living standards. Since then we have also seen cases of malpractice and, at times, criminality—for example, attempts to manipulate benchmarks for personal gain. That is why, as the Chancellor said, the Government are entirely committed to ensuring that the UK financial services sector is the best regulated in the world with markets of unquestioned integrity and the highest standards of conduct. To that end the Government have made far-reaching reforms to financial regulation—reforms that form the backcloth of today’s debate and reforms that your Lordships know all too well.
I shall remind your Lordships of just a few. The Government have introduced a criminal offence of misconduct in the management of a bank. This means that senior managers who recklessly cause their institutions to fail may face a seven-year prison sentence. The UK’s regime for regulating the remuneration of senior staff who can pose risks to financial stability is now the toughest of any major financial centre. PRA-approved senior managers in banks will face deferral of a significant proportion of their remuneration for seven years, and possible clawback to their pay for up to 10 years where there is a material failure of risk management in their business.
These measures apply to exactly the individuals targeted by the amendment of the noble Lord, Lord Sharkey, and encourage the responsible management that he and of course we all wish senior staff in banks to display. To be clear, I am in complete sympathy with the outcomes that the amendment seeks to deliver. Before I turn to the senior managers regime in more detail, I make another point, which my noble friend Lord Hunt of Wirral made. To restore trust in financial services, strengthened regulation needs to be supported by industry action. That is why I welcome and wholeheartedly support the efforts by the financial sector to strengthen the culture and ethics of all staff. In particular, the Banking Standards Board, formed of the largest banks and building societies, is doing vital work. The fair and effective markets review established by the Chancellor is also prompting change. The review concluded that,
“markets require stronger collective processes for identifying and agreeing effective standards of good market practice”.
As a result, more than 30 firms from a broad cross-section of financial markets have combined to achieve these aims.
The extension of the senior managers and certification regime across the financial sector will support and reinforce all these initiatives to improve individual accountability and raise standards. As Andrew Bailey said,
“it creates the framework to establish effective responsibility within firms, while maintaining the role of the public authorities, the PRA and FCA, for supervising and enforcing the public interest”.
Under the current approved persons regime, the regulators can take action only against those individuals whom they pre-approve if they breach one of the statements of principle set out by the regulators—enforceable standards of conduct that apply on an individual level—or if they are knowingly concerned in activity that causes the firm to breach regulations. The range of approved persons covers significant influence functions, such as the chief executive and directors, and customer-dealing functions, such as sales staff. The new SM&CR focuses pre-approval activity much more closely on those at the top of the firm with enhanced powers for the regulators to impose conditions and time limits on these approvals. This is supported by an ongoing requirement for the firm to assess senior managers’ fitness and propriety annually. The regime requires these individuals to have statements of responsibilities to give absolute clarity about who is responsible for which parts of the firm. It will not be as impenetrable as the noble Baroness, Lady Kramer, said. Beneath the senior managers layer is the certification regime. This puts a statutory responsibility for ensuring the fitness and propriety of key staff below senior managers clearly on the firm both at the point of hiring and annually thereafter.
The new regime also enables the regulators to apply enforceable rules of conduct to all employees if the regulators judge that this will advance their objectives. For senior managers, this includes a rule on effective and responsible delegation, which addresses the “nothing to do with me” argument that the noble Lord, Lord McFall, eloquently talked about and the noble Lord, Lord Tunnicliffe, mentioned. The rule states:
“You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively”,
as well as requiring them to ensure that the area of the firm for which they are responsible can be controlled effectively.
(9 years ago)
Lords ChamberMy Lords, when the Bill was published, I wrote to the Economic Secretary to the Treasury on this territory, because I could not really understand how the reorganisation of the Bank was intended to operate, or what it intended to achieve. Part of the reply I got was:
“The Governor has said that: ‘Our strategy will be to conduct supervision as an integrated part of the central bank and not as a standalone supervisory agency that happens to be attached to a central bank’. De-subsidiarisation, together with the organisational changes being put in place by the Bank as part of its ‘One Bank’ strategy, is an important element of this, and will help to break down any remaining barriers that could stand in the way of a unified culture and impede flexible and coordinated working across the Bank”.
I thought about this and looked at the structure. In answer to the points raised by the noble Lord, Lord Eatwell, what struck me was that “the Bank” actually means “the Governor”.
I begin by thanking noble Lords who have spared the time to meet and discuss aspects of the Bill. I am grateful to the noble Lord, Lord Tunnicliffe, for his kind words, but it was clear that some of my epistles have caused more confusion than I would wish. I will try and address that, and the points made by the noble Lord, Lord Eatwell. I am conscious that the noble Lord, Lord Eatwell, like so many others in your Lordships’ House, has a lot more experience in this, so bear with me as I set out the Government’s case on this specific point.
It is a good point to start with because we are, as a Committee, seeking to answer the question, which the noble Lord posed very eloquently, of “What is the Bank of England?”—which is a good place to start with in a Bank of England Bill. As he rightly said, during Second Reading he worried that this definition might be an amorphous entity and I completely agree that a full answer to his question is overdue. Let me try to answer it.
The noble Lord referred to the 1998 Act. The Bank of England is defined in the Interpretation Act 1978, which tells us:
“Bank of England means, as the context requires, the Governor and Company of the Bank of England or the bank of the Governor and Company of the Bank of England”.
Acts amended by this Bill either refer to “the Bank” and define that expression as “the Bank of England”, or refer initially to “the Bank of England”, so that it is clear what the subsequent references to “the Bank” mean.
This is all well and good for making sure that the corpus of legislation functions neatly, but I know that it does not quite get to the nub of the noble Lord’s question, which is: what does it mean when legislation such as this Bill names “the Bank”, who does the work and, as the noble Lord rightly said, who is responsible? Legislation generally confers powers and duties on the Bank of England in two ways: either directly on the Bank or on a statutory committee of the Bank. Sometimes legislation grants roles directly to court, and we will get on to what that means when we discuss Clause 5.
However, for now I want to focus on the question of what it means when powers and duties are conferred on the Bank. Who is responsible for the Bank in relation to these powers and duties? The answer is: the court is. As the governing body of the Bank, the court is responsible for deciding how powers given to the Bank should be exercised and ensuring that the Bank fulfils its duties. Powers and duties granted to the Bank include, as the noble Lord said, those in relation to note issuance, resolution and supervision of financial infrastructures. As he rightly said, he should take the first letter he received as the position on this.
The court may delegate these powers and duties within the Bank as it deems fit, a situation the noble Lord’s amendment would try to replicate. However—this is the heart of the matter—the court remains responsible for that delegation, and where it decides to delegate powers and duties the court still retains ultimate responsibility for the exercise of those powers and duties. I hope that gives some shape to what the Bank is and who is responsible within the Bank for determining how it fulfils the responsibilities conferred on it.
Some powers and duties are not conferred on the Bank but on statutory committees. Powers and duties conferred on a statutory committee are for that committee to exercise according to the terms of its legislation. The court cannot exercise the powers conferred on a statutory committee. That said, even when powers and duties are conferred on a statutory committee, the court still has responsibilities. As the governing body of the Bank, the court is responsible for ensuring that the statutory committees exercise their statutory roles and responsibilities effectively, including that they are adequately resourced and supported to do so.
The Bill reinforces this role of court by making the oversight functions the responsibility of the whole court, a point we will come on to. For example, the oversight functions include keeping under review the Bank’s performance in relation to the duty of the FPC.
I am conscious that the noble Lord may have further questions in regard to what I have said. Let me pick up on one point. He asked about the FPC and who is doing the consulting. It is for the court to approve changes to the code of practice for, I think it is, the MPC because it is responsible for managing the affairs of the Bank. I hope that addresses his point.
My Lords, we will come to address that. Responsibility for these functions still rests with the court, and I think that is perfectly clear. I am happy to meet the noble Lord to address these points in more detail, and we will come to the FPC in due course. I hope I have begun to provide further clarity on the Bank’s governance, but I can see from the noble Lord’s face that I may not have done. Even so, I hope he will withdraw his amendment.
My Lords, I am grateful to those noble Lords who have spoken, and in particular to my noble friend Lord Tunnicliffe for his exposition of yet further confusion in letters from the Bank of England, or from whoever, attempting to explain what the Bill is really about. I must say that I am sympathetic to the suspicion in the mind of the noble Lord, Lord Flight, that “the Bank” means “the governor”.
The noble Lord, Lord Bridges, has said that the answer is that the court is responsible for deciding what “the Bank” means, and the court may delegate those purposes how it might wish. This House spent many hours working carefully with the noble Lord, Lord Deighton, who I am delighted to see in his place, to define precisely the roles of different committees within the Bank of England and their responsibilities. It is very striking that in the crucial role of financial stability, this definition is lacking. For the Monetary Policy Committee the definition is clear and, in respect of other activities within the Bank, if one reads the Bank of England Act 1998, one can see that the responsible entity is clear. In respect of the vital role that arose from the financial crisis and the failures of the Bank of England during that crisis, however, there is to be no clarity or clear definition of role.
I think it will be necessary to amend the Bill to make the position clear, because if it is not amended, parliamentary scrutiny has less insight than it requires to perform the role of ensuring that the Bank is democratically accountable. At this time, I will say that unless the noble Lord amends the Bill appropriately on Report—he may be encouraged to do so—I will produce appropriate amendments myself. In the mean time, I beg leave to withdraw the amendment.
My Lords, the noble Lord does himself a great injustice by saying that these amendments are not epoch-making. I see this process as a form of legislative acupuncture—not that I have ever gone through acupuncture, but I am reliably informed that every needle makes a difference. I am delighted to answer these points.
Clause 1 makes the deputy governor for markets and banking a member of the Court of Directors. Following the expansion of the Bank’s responsibilities through the Financial Services Act 2012, a deputy governor for markets and banking was appointed, as noble Lords will know, with responsibility for reshaping the Bank’s balance sheet, including ensuring robust risk-management practices. This important position, currently filled by Dame Minouche Shafik, is not a statutory member of court. This clause amends the Bank of England Act 1998 to make this position statutory, ensuring equal status for all the Bank’s deputy governors and simplifying the Bank’s governance structure.
In addition, Clause 1 provides enhanced flexibility to add or remove a deputy governor or to alter the title of a deputy governor. Correspondingly, it provides the ability to make changes to the composition of the court, the FPC, the MPC or the new PRC where a deputy governor is added or removed. It should be noted that this power will not permit the Treasury to remove a deputy governor or change his or her title while that deputy governor is in office. This is a measure to ensure flexibility for future need. The Government will be able, by order—a point I will return to—to adapt the size and shape of the court to bring in new expertise when necessary. Thus the Bank’s senior management team can be easily adjusted to meet future requirements.
The Bill also provides for the continued balance of internal and external members on the FPC, the MPC and the PRC. When a deputy governor is added or removed from a policy committee, the Bill enables a comparable change in the number of appointed members to that committee. In a little more detail, if one or more deputy governors is added to the FPC or the PRC, there may be an equal increase in the number of members appointed by the Chancellor. Similarly, if one or more deputy governors is removed from the FPC or the PRC, an equal number of members appointed by the Chancellor may be removed. The situation is comparable for the MPC. If one or more deputy governors is added to or removed from the MPC, then there may be an equal increase or decrease in the number of members appointed by the governor of the Bank. External expertise on these committees is important to ensure a range of views are considered. This provision is necessary to facilitate a diversity of opinion and counter the risk of groupthink.
The noble Lord raises a number of issues in the amendments and I will try to address them. The first issue is where the responsibility for adding, removing or altering the title of a deputy governor lies. In the Bill, this power is conferred on the Treasury rather than specifying, as the noble Lord’s amendment wishes, the Chancellor of the Exchequer. This does not mean that the Chancellor is not consulted. Obviously the Chancellor would be kept fully informed of anything as important as adding or removing a deputy governor, but where a more minor administrative change is made, such as the title of a deputy governor, it may be more appropriate for a junior Treasury Minister to take the lead. Retaining the existing drafting provides this element of flexibility but—I think this is the key point—the Chancellor remains accountable, whatever the phrasing of the Bill, to the public and to Parliament for the decisions and actions in his department.
Secondly, the noble Lord proposes that the Treasury should publish the reasons for making changes to the composition of the FPC, the MPC or the PRC. This gives me the opportunity to clarify the process of making changes to the membership of these bodies following a change to the deputy governors. If the need to alter, add or remove the position of a deputy governor is identified, the Treasury will discuss this with the governor of the Bank. The need for the change could initially be identified by either the Treasury or the Bank. If, following these discussions, the Treasury believes that the change is required, along with any associated changes to the membership of the MPC, the FPC and the PRC, the Treasury will present secondary legislation to Parliament. It will then be for Parliament, as the noble Lord said, to determine whether the change goes ahead. I therefore hope it is clear that Parliament plays a key role in this process. It is the ultimate decision-maker and, in passing an order on the membership of these committees, the Government will need to outline their reasoning to this House and the other place in order to pass our and their acute scrutiny and debate. It is in this context that the reasoning will inevitably be published.
In short, it seems that the noble Lord’s amendments, while worthy of debate, are unnecessary, and I hope that he will feel able to withdraw them.
As I indicated, my Lords, we tabled these amendments in order to clarify the thinking behind these proposals, and I am reassured on the crucial aspect that the answerability to Parliament is contained accurately within the Bill. It therefore gives me great pleasure to beg leave to withdraw the amendment.
My Lords, I will make just a few comments, if I may. I join my noble friend Lord Sharkey, and the noble Lords, Lord Tunnicliffe and Lord Eatwell, in their concern about the changes being proposed and the implications that would follow from them.
Will the Government confirm that, under the arrangements to reduce the number of non-executive directors to seven and increase the number of officials on the board to five, it would take co-operation from only one non-executive director with those officials to effectively prevent any investigation into any area of Bank activity? That is, I feel, a completely unacceptable balance that is being proposed today. The Government will have to come up with a very great justification for why the hurdle must be so low—four current officials—to prevent investigation of historical activity.
Clause 4 effectively falls if Clause 3 falls. Clause 4 makes the situation yet worse, because it contemplates not that the whole court will act as an oversight committee but that a sub-committee can be created in order to carry out that work, comprised of as few as two non-executive directors. For two non-executive directors to be considered sufficient for the important work of investigation, review and oversight of the Bank of England strikes me as completely extraordinary. It is also noticeable that the number two applies to the sub-committee responsible for the remuneration of officials at the Bank.
We are moving into a “two best friends” provision here, and I find it exceedingly disturbing. The Government will have to come up with some justification for why a sub-committee of two NEDs is sufficient to carry out a crucially important task that was absent during the many years in which the Bank of England essentially failed to meet the necessary standards to prevent a systemic crisis in finance in this country. I would like to hear their justification for the number two.
My Lords, I thank all the noble Lords who have made very powerful contributions and thoughtful points.
I will not detain your Lordships with lots of history; you know it much better than I do. However, to remind the Committee how this came about, I will repeat something that has already been said. The Financial Services Act 2012 gave rise to the Oversight Committee, largely in response to recommendations made in the report Accountability and the Bank of England from the Treasury Select Committee in the other place. That report recommended that the court should be reformed into a board, with powers to conduct ex-post reviews of the performance of the Bank; that board members should be authorised to see all the papers submitted to the MPC and FPC; and that the board should be responsible for reviewing the processes of the Bank’s policy committees.
The Treasury Select Committee argued that the new board should be called the Supervisory Board of the Bank of England but, despite this name, the structure that was proposed was in fact a unitary board. As has been said, the Financial Services Act 2012 took steps to implement these recommendations, by creating a set of statutory oversight functions. However, instead of conferring powers on the court itself, the powers were conferred upon a new statutory Oversight Committee, made up exclusively of the non-executive directors.
Would the Minister agree that it was the Bank itself that suggested that?
That is my understanding. If I am wrong, I will correct myself.
The noble Lord, Lord Sharkey, made his points very forcefully and I fear we may still have to have further discussions—if he can bear it—but let me restate the Government’s position. The problem now faced by the Oversight Committee is simple. As the noble Lord said, for the non-executives to hold the executive to account effectively, they need to meet together, not separately. There needs to be full and frank discussion between the governors and the non-executives on how best to exercise the court’s oversight functions. I am sure the noble Lord would agree that the challenge and recommendations of the non-executives need to be informed by in-depth knowledge of the Bank’s operations. Effective oversight needs to be carried out by the executive and non-executives in partnership, not in silos.
It bears repeating that the key powers of oversight, which are necessary and working, are not lost as a result of their transfer to the whole court. The court will continue to be able to commission reviews as it sees fit. Moreover, the non-executives will continue to be a majority on the court and will also continue to meet together as a group after each meeting of court, in line with best practice. As was discussed earlier today, court contains a high quality non-executive majority and is therefore well placed to oversee the work of the Bank.
It is entirely appropriate that court, as the governing body of the Bank, should be responsible for exercising these oversight functions.
I hate to stop the noble Lord, Lord Bridges, in his flow, but could he confirm that, under the proposed structure, if the officials of the Bank collectively believe that an area is not appropriate for investigation, they need the support of only one non-executive director?
As the noble Baroness points out, that would obviously be the maths. We will probably have to have further discussion on this, but I would like to come back to the powers.
It is entirely appropriate that court, as the governing body of the Bank, should be responsible for exercising these oversight functions. The Bill is putting in place a model which is widely regarded as best practice in the United Kingdom. It also completes the model that the Treasury Select Committee recommended in 2011, and was subsequently endorsed by the PCBS in 2012. That model is a streamlined unitary board, with express powers to commission performance reviews. Parliament would still see copies of the reports of any performance review published by the court, just as would be the case for reports published by the Oversight Committee. Parliament’s powers are not being reduced and the Treasury Select Committee can summon any non-executive director to give evidence.
Surely there is a world of difference between the phenomena of groupthink in either one of the policy committees or on the court than the phenomena of the seven NEDs meeting alone. If they do produce a piece of groupthink, the most harm they will do is require a part of the activities of the Bank to be examined. It is very unlikely that they would do that, but it would do no great evil and cause little inconvenience. We are talking about a radical difference in balance when it comes to the powers of the NEDs to question the executives of the Bank.
My Lords, it is clear that I still have some persuading to do. I would argue that those powers have not changed in the sense that they have been transferred from the committee to the court.
The Minister said that the powers have not changed, but would he agree that who exercises the powers has changed significantly? Officials had no opportunity to exercise those powers; they were the powers only of non-executive directors. Now they can be easily exercised by the officials plus one NED.
As the noble Baroness rightly points out, obviously her maths is correct and there would be robust discussion. This comes back again to the quality of those who are on the court and their ability to persuade people that such a review is necessary.
That is all I wish to say on this matter.
The noble Lord, having not been present at our discussions, sadly, three years ago, has not appreciated the loss of confidence in this House in the general accountability of the Bank of England.
Given the structure of the Bank of England and its role in national and international life, the position of the governor is extremely powerful, and quite rightly so. He needs to carry the gravitas and status of his or her office. However, in those circumstances, it is important that an Oversight Committee, charged with retrospective evaluation of the performance of the Bank with respect to its objectives, should not include the governor or the deputy governors. That is a crucial element of our thinking which underpinned the 2012 Act. In repeating that powers have now been simply transferred but still remain, the noble Lord has failed to take that aspect into account and has failed to reflect on the experience of the financial crisis of 2008 and the Bank of England’s performance during that crisis.
Once again the noble Lord makes a powerful intervention. I am sorry that I was not here for what were obviously those interesting debates and I heed what he has to say. I would simply repeat that I am more than happy to meet with him if he so wishes to discuss these points in more detail. Clearly the court would continue to be able to delegate and to meet as a sub-group of non-executives to look into matters as they see fit, but I believe that this Bill will put in place a more transparent, accountable, effective and recognisable board structure for the Bank, and I hope that I have been able to convince noble Lords that this clause should not stand part of the Bill.
(9 years ago)
Lords ChamberMy Lords, in moving Amendment 5 I will speak also to Amendment 6. Amendment 5 would omit the subsection that transfers the power for the creation of the financial stability strategy from the court to the Bank. Amendment 6 would specify in the Bank of England Act 1998 that the Chancellor of the Exchequer should be consulted in relation to the development and production of the financial stability strategy.
The maintenance of financial stability is arguably the overwhelming role of the Bank of England and its committees. If you look at what has gone wrong in the recent past, it has overwhelmingly been issues of financial stability that have impacted on the financial system and, much more importantly, on society as a whole, both in our country and across the world.
It is interesting to look at what is supposed to happen now. The appropriate part of the Act, which I can read from the consolidated document that the Treasury was kind enough to provide us with, is Section 9A—“Financial stability strategy”—which says:
“The court of directors must … determine the Bank’s strategy in relation to the Financial Stability Objective (its ‘financial stability strategy’), and … from time to time review, and if necessary revise, the strategy … Before determining or revising the Bank’s financial stability strategy, the court of directors must consult about a draft of the strategy or of the revisions … the Financial Policy Committee, and … the Treasury”.
That seems quite straightforward. It seems to put the court at the centre of the creation of the stability strategy, and to invite the right other parties to be involved.
Indeed, the importance of that process is demonstrated by the fact that it gains a place on my favourite piece of paper, which is a print-out of a splendid one-page summary on the Bank’s website, called “How we are governed”. It says:
“The FPC is a sub-committee of Court and its objectives are set by reference to the Bank’s Financial Stability Objective. The Bank’s Court is required by statute to prepare and publish a Financial Stability Strategy, in consultation with the FPC and HM Treasury”.
That is all very straightforward. Sadly, it has not been a great event so far. A strategy document was produced in 2013, called The Strategy for the Bank’s Financial Stability Mission 2013/14. It was five pages long and it was approved by the court on 25 September 2013. The strategy was revised and published in the 2014-15 report, which was signed by the chairman on 4 June 2014. If I read that document correctly, the strategy was reduced to one column and, while asserting a negative is always rather difficult, in the Bank’s 2015-16 report I could find no mention of a financial stability strategy in the ownership of the court.
It looks as though the Executive have to some extent pre-empted this part of the Bill by letting the responsibility of the court wither on the vine. My amendments are really simple and probing. What has happened to the financial stability strategy and what will happen under the new arrangements? Who will produce the financial stability strategy or have the Government effectively decided that the role of producing it should be subsumed into the FPC and, if it is being subsumed, where in the Bill or in the subsequent amended Act is that enabled?
My other area of concern about the situation is that, reading through the document, we find increasing references to HM Treasury’s input to the strategy. So on the one hand, you have responsibility for the strategy clearly drifting away from the court. As far as I can see, the Bill intends to take it away totally from the court and I would value confirmation of whether that is true. On the other hand, one seems to be having increasing input from Her Majesty’s Treasury. I do not wish to comment particularly strongly on whether that is a good or bad thing but I would certainly value the Minister confirming whether the Government intend to take this role away from the court and increase the role of HM Treasury in this important area. I beg to move.
My Lords, I thank the noble Lord, Lord Tunnicliffe, for his introduction to his amendments. We discussed the Bill’s changes to the arrangements for the financial stability strategy at Second Reading. I hope to address the issues raised during that debate and some of the points that the noble Lord has just raised again. As I said earlier, legislation generally confers powers and duties on the Bank of England in two ways: either directly on the Bank or on a statutory committee of the Bank, such as the Financial Policy Committee. Consistent with this approach, Clause 5 moves responsibility for determining and revising the Bank’s financial stability from the court to the Bank. I reassure the noble Lord and the Committee that the court, as the body responsible for managing the Bank’s affairs, will retain ultimate responsibility for determining the financial strategy. But by naming the Bank instead of the court, we would grant the court the ability to delegate production of the financial stability strategy to those best placed within the Bank.
I argue that this flexibility is important given the broad range of policy that the financial stability strategy covers, which obviously extends beyond the responsibilities of the Financial Policy Committee. For example, responsibility for resolution policy, regulation of financial market infrastructure, note issuance and macroprudential policy are held within separate parts of the Bank, but the financial stability strategy will need to cover all these areas and others to be truly comprehensive. The clause as drafted does not affect the court’s ultimate responsibility for determining the Bank’s strategy, while granting the court additional flexibility as to who within the Bank undertakes the work to pull together the actual document. As I have said, the court will be able to delegate production of the strategy within the Bank but, as the noble Lord, Lord Tunnicliffe, asks, who will be left holding the pen? It is for the court to determine who is best placed to produce the strategy, and this may shift over time as the Bank decides to prioritise particular elements of its responsibilities. However, it is clear that a document of this importance will require significant engagement by the Bank’s senior management. I expect that the Bank’s governors will all be heavily involved when the strategy is determined or revised. I should add that there is no intention to increase the role of the Treasury in the Bank’s financial stability strategy. As I have just said, the court will be responsible for the strategy, although it will be required to consult Her Majesty’s Treasury, as now.
My Lords, I begin by thanking the noble Baroness, Lady Worthington, for sparing the time to meet me to discuss this amendment before today and repeat my offer that, should she wish to have further meetings with me or the Bank of England I am sure that I can happily facilitate it. I thank the noble Baroness, Lady Kramer, for once again making a very eloquent contribution to this debate.
I am sympathetic to the motives behind this amendment. Climate change, demographic change and technological change are important structural issues, as the noble Lord has just said, which could indeed have a very significant impact on financial stability. It is right that the macroprudential authority should be alert to these, and other, long-term systemic risks. However, as I hope other noble Lords will agree, in the light of what I am about to say, the amendment is unnecessary, so I do not feel able to accept it.
I start by stressing one point. The current legislation places no limit on the time horizon of the systemic risks that the FPC must consider in its assessment of the risks to the resilience of the UK financial sector. Therefore, the current legislation already provides for the consideration of 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: the risks to financial stability from climate change. This is evidence that the FPC has previously considered longer-term systemic risks, and may do so again in future, should it see fit. Although the FPC concluded that the risks from climate change would not materialise within its typical policy horizon, the Bank is also taking action on longer-term systemic risks through other channels, given the importance of these issues. I shall draw noble Lords’ attention to just three, although I am happy to meet to discuss the issue further.
First, the issue of climate change has been added to the Bank’s One Bank Research Agenda. I would be very happy to arrange for the noble Baronesses, Lady Worthington and Lady Kramer, to meet with Bank officials to discuss this issue in more detail. Secondly, the governor of the Bank is using his chairmanship of the Financial Stability Board to consider the risks that climate change poses for financial stability and the steps that could be taken to mitigate them, including through improved disclosure. I remind your Lordships of what the governor said in the speech to which the noble Lord referred. He said:
“With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower-carbon economy”.
He set out in quite a lot of detail what he considered the most effective disclosures are—they are,
“consistent, comparable, reliable and clear”,
and “efficient”.
Thirdly, the Bank’s open forum will host a public discussion of some of the types of risks raised in this amendment, such as how financial innovation and technology can support the economy and how financial markets can regain their social licence. Those are just three of the steps that I would like to highlight. I would be more than happy to meet the noble Baroness again. I hope that what I have said addresses some of her points and that she will withdraw her amendment.
My Lords, I am genuinely grateful for how the Minister has responded to this amendment. It was intended to stimulate debate and elicit a reassuring response and, indeed, the Minister’s words have been reassuring. It is clear that the stakes are very high when it comes to climate change, and every aspect of government policy needs to think through the implications so that we do what we can in the time that we have to avert and limit the risk. It has been a significant new intervention from the governor to make this part of the Bank’s One Bank Research Agenda, and we hope that that will bear fruit.
I know that the governor is pursuing initiatives with the FSB that are international in nature. My point was to try to stress the fact that the UK sits at the global table when it comes to financial services, and the City of London makes such a valuable contribution, not only to our economy but globally, that we can show leadership here. We should not simply say that this can be sorted out by an international process. There are things that we can do as the UK Government and as we sit here now, with the legislation in front of us, to send a strong signal. But as I say, I am reassured.
On the issue of disclosure, more can be done now for us to start to think through what those standardised reporting requirements might be. I have tabled an amendment today that will enable us to have a further, more detailed discussion on that point.
Although there is no limit on the time horizons considered by the committee, I hope that over time the culture of the Bank will change through as many efforts as we can make and that in future, if there is a need for legal change, we might revisit this. Changing culture is a difficult thing. As the Minister said, every needle makes a difference, and I hope this needle will hit the mark and cause this debate to continue because this needs to be thought through now because it is incumbent upon us to act. I beg leave to withdraw the amendment.
My Lords, I support the noble Lord, Lord Higgins, and the noble Baroness, Lady Noakes. I was a member of the Parliamentary Commission on Banking Standards which looked at the word “reasonable” and concluded that it is a lawyer’s word. If it is a lawyer’s word, it costs a lot of money, and if it costs a lot of money, it can obscure the truth. Let us get rid of it and invest the authority in the Comptroller and Auditor-General which will save everyone time and money.
My Lords, as my noble friend Lady Noakes said, the noble Lord, Lord Davies, is once again being incredibly modest and reasonable about his reasonableness amendment. I think the amendments merit a full response, so I hope he will forgive me. I will try my best, and I will pick up on the point made by the noble Lord, Lord McFall. I heed what he said about this in the past.
I shall set out the Government’s position. Clause 9 gives the Comptroller and Auditor-General a new role in the financial audit process of the Bank. The Comptroller and Auditor-General will be consulted on the appointment of the financial auditor and on the work programme that that auditor sets out to deliver. The Comptroller and Auditor-General will have the right to attend the relevant parts of the meetings of the Bank’s audit and risk committee. This is intended to assist the NAO in conducting value-for-money examinations of the Bank under Clause 11.
Clause 10 provides for increased public scrutiny in circumstances where a Treasury indemnity has been granted to the Bank, or to a company of the Bank. Fortunately, times when a Treasury indemnity is deemed necessary are rare, but it is right that where there is a direct risk to public funds the Treasury can require the Bank to prepare a financial report on any activities that have been indemnified, so that the extent of the risk to public funds can be assessed, and that this report is subject to review by the Comptroller and Auditor-General. I agree that in both of these contexts the question of access to information is critical. It is central to the ability of the Comptroller and Auditor-General, assisted by the National Audit Office, to carry out effectively the roles defined for him in the Bill. So I am pleased that the noble Lord, Lord Davies, has tabled the amendments and that the issue has been raised, but I am unable to accept them.
To address my noble friend Lord Higgins’s point, the language used in the Bill regarding the Comptroller and Auditor-General’s access to information mirrors the relevant wording from the National Audit Act 1983, which provides in Section 8 that,
“the Comptroller and Auditor General shall have a right of access at all reasonable times to all such documents as he may reasonably require, for carrying out any examination under section 6 or 7”,
in the National Audit Act,
“and shall be entitled to require from any person holding or accountable for any such document such information and explanation as are reasonably necessary for that purpose”.
As far as I am aware, the inclusion of requirements of “reasonableness” in this section has not created difficulties for the Comptroller and Auditor-General in the context of value-for-money examinations carried out in relation to other public bodies, and I see no reason why it should cause a problem now.
Some may argue that the Bank would be able to use this reasonableness requirement to delay examinations, but if the Bank did not comply with its obligations under this clause then the Comptroller and Auditor-General would be able to seek an injunction from the courts to enforce his rights. As such, it seems to me that the amendment is unnecessary, and I ask the noble Lord to withdraw it.
My Lords, I am not going to withdraw it without first expressing my enormous appreciation for the support from the government Benches for what I had regarded as modest amendments. The noble Baroness, Lady Noakes, often expressed herself with great vigour against any proposals that I put forward when we were in government, but today I have found some favour with her when I did not quite anticipate it. Obviously the noble Lord, Lord Higgins, is always reasonableness itself, so I knew that he would speak very well on this matter.
The issue was not so much that I did not think it was worth airing the question of reasonableness. I accept very much the Minister’s coherent and proper response to this very short debate, and I think that we very much appreciated the tone that he adopted. The reason why I was concerned about these amendments at this stage was against the background that they are immediately before what we all recognise is a pretty substantial issue regarding the Bill, and I know that others are going to present that argument with considerable force. It seemed only reasonable if on this occasion I couched my expressions in modest terms. I promise not to make a habit of that, and beg leave to withdraw the amendment.
My Lords, I do not enjoy the role of opposition a great deal but, just for once, in the light of this debate I am glad that I am here this evening and not where the Minister is sitting. He has been presented with a very difficult situation. I assure him that it is not often that in this House we have not just the Official Opposition presenting a strong case on an issue but two very experienced Members on his own Benches—on this occasion, the noble Baroness, Lady Noakes, and the noble Lord, Lord Higgins—pressing the need for change in a Bill. The equally experienced—although more so in the other place than here—noble Lord, Lord Young, indicated that there has to be some way out and that it is time the Government pursued it. It certainly is.
What a mess the Government are in and what great difficulty, I am sure, the Minister will have in defending how they arrived at this ridiculous situation. Time is of the essence. Even if the Government stagger through this House without too much challenge—I am still not convinced about how sharp that challenge should be—the other place will consider this matter shortly and there will certainly be a great deal of difficulty down there unless change is effected. I accept what the noble Baroness, Lady Noakes, suggested: it is best to get it right in this House before Report, so the Minister does not have too much time.
My Lords, it is always nice to start off with some sympathy for my position from the noble Lord, Lord Davies. I thank all noble Lords who have spoken and made some very thoughtful contributions. I start by letting your Lordships know that detailed discussions are ongoing between the Bank, the NAO and the Treasury to find a way forward on this issue that all sides find acceptable. These discussions have not yet concluded but I hope to be able to update the Committee before Report.
I should like to set out the Government’s position and will address the amendments and the stand part debate relating to Clause 11 in one fell swoop. However, before I continue, I thank the noble Lord, Lord Bichard. He met me last week and talked me through the amendments that he had hoped to table for today. I thank him for engaging so constructively and I very much hope that that dialogue with me can continue, even if he is unable to contribute to this debate in Committee.
I begin by emphasising that by extending, for the first time, the NAO’s ability to conduct value-for-money reviews of the Bank, the Bill will deliver a significant increase in the transparency and accountability of the Bank to the public and Parliament. The Government are strongly of the view that enhancing the accountability of the Bank of England is in the public interest but it is also in the Bank’s interest—strengthening public trust in the Bank will only add to its credibility.
The issue of how the Bank uses public resources is long running, as my noble friend Lord Higgins said. There has been debate on it ever since the Bank was nationalised in 1946. While researching this debate, I came across correspondence on this issue from my grandfather, who happened to be a Permanent Secretary at the Treasury in 1946 and during the 1950s. So something in the Bridges genes means that we have to deal with these things, although I do not know quite know what that is.
Since the 1950s, the relationship between the Bank and the Government has clearly evolved. Now, we regard the independence of the central bank as critical to our economic security and prosperity. As the noble Lord, Lord McFall, said, independence has been an issue of debate not just here but elsewhere. As Ben Bernanke, a previous chair of the Board of Governors of the Federal Reserve System, said:
“A broad consensus has emerged among policymakers, academics, and other informed observers around the world that the goals of monetary policy should be established by the political authorities, but that the conduct of monetary policy in pursuit of those goals should be free from political control”.
As a number of your Lordships have said, today the Bank of England occupies unique territory in the foundation of the UK economy, and policy decisions by the Bank are of vital importance to everyone. To deliver its mandate effectively, it is essential that the Bank’s independent status is preserved.
The NAO also plays a vital role as Parliament’s auditor. Its own independence is crucial to ensuring that there is effective review of the effectiveness and efficiency of the public sector and for maximising public accountability. Parliament, and in particular the Public Accounts Committee, relies on the work of the NAO to scrutinise properly the value for money of taxpayer-funded activities. It is therefore important that the NAO be allowed to do its work in as unfettered a way as possible.
The Minister referred to the PAC. On the whole, we seem to be rather short of any input from the PAC, although it is, crucially, using the results of the NAO studies. Would the Minister at least consult them as to whether they have any views on the debate that we are considering now? The PAC has a very definite interest.
My noble friend makes a good point and I will be happy to mull it over.
Turing to the Bill, a number of your Lordships expressed concern that the provisions in Clause 11 fetter the independence of the Comptroller and Auditor-General. As your Lordships know, this view is shared by the NAO. Others, including the Bank, have been concerned to ensure that the proposals do not undermine the role of court and infringe upon the vital independence of our central bank. The position put forward in this Bill is therefore one of compromise, as my noble friend Lord Young of Cookham eloquently pointed out. It is a unique arrangement that seeks to strike a balance and protect the independence of two vital public bodies that, unsurprisingly, approach this issue from very different vantage points.
There are two main areas where the arrangements set out in the Bill are different from those that are typically put in place between the NAO and its counterparties. In both cases, the purpose of these special arrangements is to protect the operational independence of the Bank’s policy-making.
First, a bespoke carve-out has been designed to ensure that the Bank’s policy functions are out of the scope of the NAO’s value-for-money reviews. This reflects the differences between the policy objectives of the central bank versus those of a government department. I will turn to this issue in more detail when we come to specific amendments.
Secondly, we have designed the process to unlock disagreements between the Bank and the NAO over what constitutes policy. This is particularly important given the complexity of the Bank’s functions, which makes drawing this distinction especially challenging. To be clear, the process is this: if the court is of the opinion that an NAO review is seeking to examine policy, the court must notify the Comptroller and Auditor-General of its concerns. If, following consultation, the court is still of this opinion, the Comptroller must not proceed with the examination of that area. The Bill also requires that any such disagreement be made public to ensure transparency and to facilitate public and parliamentary scrutiny.
The arrangements set out in Clause 11 seek to increase the accountability of the Bank, while protecting its independent status and recognising the complex nature of its activities. I believe that the proposals are effective and transparent, but this is, as we know, a complicated area. This is why discussions between the Bank, the NAO and the Treasury are ongoing.
I will now turn to the tabled amendments. Amendments 14 and 16 seek to replicate the language of the National Audit Act 1983. It is well understood that the NAO is bound not to consider the merits of the policy objectives of any body with which it engages, but the Government believe this language to be difficult to apply in this specific instance. This is because, as a number your Lordships have said, the Bank of England has a unique role in the United Kingdom economy. The intent of the Bill is to convey the same meaning as set out in the National Audit Act 1983 but phrased in a way that is more applicable in the context of the Bank. Indeed, the policy carve-out is very similar to that which currently applies in the case of NAO oversight of the PRA. The Government do not believe, therefore, that this confuses or obfuscates the boundaries of the Comptroller and Auditor-General’s oversight.
Amendment 15 seeks to remove the requirement that the Comptroller and Auditor-General consult with the court of the Bank before the NAO initiates a value-for-money study. I understand that such consultation is standard practice and consistent with the normal manner in which the NAO goes about its work. The reason why it is particularly important here is due to the role that this Bill establishes for the court of the Bank in determining what constitutes policy. New section 7E in Clause 11 provides that the court may inform the Comptroller and Auditor-General if it considers that a proposed value-for-money study is concerned with the merits of the Bank’s general policy in pursuing its objectives. Consistent with this, the Bill provides that the court must be consulted prior to the initiation of any value-for-money study that the NAO wishes to carry out.
Amendment 17 is concerned with what happens when there is disagreement between the Comptroller and Auditor-General and the court. Clause 11 provides that, should the court continue to be of the opinion that an element of the Comptroller and Auditor-General’s review constitutes policy, the Comptroller and Auditor-General will be unable to proceed with the examination in relation to that policy, and will be unable to include the results of the examination which relate to that policy in any report produced. However, in order to provide the appropriate balance and to protect the role of the Comptroller and Auditor-General, where there is an unresolved disagreement, the nature of this disagreement must be published. This again will open up any disagreements to full parliamentary scrutiny.
A number of your Lordships referred to precedent. I do not believe that this sets a precedent for the NAO. The Bank of England is truly unique, in that no other organisation can claim to be the central bank of the UK or to play such a critical role in our economic prosperity and security.
Finally, I turn to new Section 7H. This does not place any restriction on the Comptroller and Auditor-General’s access to information. Therefore, I do not agree with those who argue that it would restrict the ability of the Comptroller and Auditor-General to examine the Bank fully and openly. This section would be relevant only in narrow circumstances in which the disclosure of certain types of information would be of serious detriment; this includes sensitive information on monetary policy and financial stability, for instance. Both these roles of the Bank are obviously highly market sensitive, and it is straightforward to imagine circumstances in which disclosure of information, even in aggregated form, would undermine financial or economic stability. Section 7H is included in this Bill to protect against such eventualities, while ensuring that the Comptroller and Auditor-General has full access to information held by the Bank. These same limitations apply to the regulators and, indeed, to the external auditors of the Bank. For these reasons, I reject the amendments to Clause 11 and beg that they should not be pressed.
The noble Lord, Lord McFall, raised the issue of the Federal Reserve and its audit. I would like to say briefly that it is important to note that, in the US, the debate is, as I mentioned, far from closed. Indeed, legislators, policymakers and commentators in the US have been engaging for a long while in similar discussions to those that we are having today. Just as in this debate, there are those who want a greater sense of accountability for the central bank and there are those who argue that the sufficient protection of central bank independence is important. Of course, there may be valuable insights to gain through inspecting the accountability frameworks of international central banks. That is something that the Government have done in drafting the legislation, and will continue to do as the Bill develops. But to suggest that there is an easy solution that we can transplant into this system from elsewhere is wrong.
To summarise, the provisions in this clause have rightly attracted a great level of debate. This level of debate is only proper because the provisions concern two incredibly important public bodies, and I expect that we will continue this debate as the Bill progresses. These clauses are an important step in increasing the accountability of the Bank. I ask that this clause stand part of the Bill.
(9 years ago)
Lords Chamber
That it be an instruction to the Committee of the Whole House to which the Bank of England and Financial Services Bill [HL] has been committed that they consider the bill 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 30, Title.
(9 years ago)
Lords ChamberI do not challenge that. The noble Lord has made the point for me. We are talking about people who are registered or not registered and not about the ghost voters whom we are talking about in this debate.
There are other areas of deprivation where they have cleansed the register very effectively. There is a whole series of authorities in Wales—places such as Bridgend, Cardiff, Swansea and Rhondda Cynon Taff. All of them have low figures of problems, if I may use the term, in cleansing their registers. I have not raised this, but if it is right that it was possible in Wales to have cleansed the registers in those sorts of authorities, why is it not the case in London? If it is suggested that this is to do with boundaries, then the places that will suffer are the valleys of Wales because they have cleansed their registers. The boroughs of London which have not cleansed theirs will benefit.
In conclusion, we have been talking about this group of people—these ghosts—as if there is no burden. There is a substantial burden on local authorities. They have to print the electoral rolls with all these people on them, many of whom should not be there. They issue polling cards. They issue ballot papers. There has to be freepost provision for these people for some elections. There is an attendant burden. No wonder the AEA makes its views clear on what it thinks would be the best position. It recognises that there is an unnecessary burden on a large number of local authorities. If one removes retained voters from the register, we will not be sending out all the unnecessary cards, ballot papers, freeposts, et cetera, during the upcoming election.
My Lords, I hope that the noble Lord will forgive me. A lot has been said this afternoon. It has been an excellent debate, and there have been very good contributions from all sides, although I profoundly disagree with some of what has been said, as I will come on to. It is always nice to be reminded by the noble Lord, Lord Wills, that I have not read my Aristotle. He firmly puts me in my place.
I shall start by taking a step back to make two fundamental points, on which I hope we can all agree. First, we all agree that we want more people to engage in the democratic process and register to vote, but those who are not on the register today will clearly not be affected by the measure we are discussing, which is the removal of ghost entries. Secondly, as my noble friend Lord Lexden said in his excellent speech, nobody will lose their right to vote as a result of the government proposals that we are debating today.
Instead, the core of what we are debating comes down to the accuracy of the new electoral register. Do we keep on the new register ghost entries—entries of people who may have moved house or died or may never have existed in the first place? Are these ghost entries living, breathing voters, as the noble Lord, Lord Tyler, calls them, or hundreds of thousands of database errors which need to be removed ahead of the important elections next year? As the noble Lord, Lord Alton, rightly pointed out—let us not disguise this fact—for the sake of completeness, the Electoral Commission wants to keep those entries on the register, even if this means that the accuracy of the register is undermined. It judges the risk of fraud to be acceptable, and the Government disagree.
First, we believe that after 18 months of transition and more than a decade of waiting, as we enter a year of elections and possibly a referendum on Europe—possibly—the time has come to move fully to the new system. Secondly, we see the risk of fraud as unacceptable. Thirdly, we believe that people have been given ample opportunity to register on the new system. That said, fourthly, we entirely agree with those who want more people to register to vote and participate in the elections, but we do not make the register more complete by stuffing it with inaccurate registrations.
I shall take those points in turn. As the noble Lord, Lord Empey, said, we have been waiting for the full transition to individual electoral registration for more than a decade. As the current chair of the Electoral Commission said:
“This change is something we’ve been calling for since 2003 and is an important step towards a more modern and secure electoral system”.
To give the former Labour Government their due, they legislated to introduce individual electoral registration in 2009. The coalition Government further legislated in 2013 and, finally, in the summer of 2014, the new system was introduced. I remind your Lordships that at the general election, in its manifesto, the Conservative Party committed that:
“Building on our introduction of individual voter registration, we will continue to make our arrangements fair and effective by ensuring the Electoral Commission puts greater priority on tackling fraud”.
This Government believe that it is time to finish the process, and finish it now. This decision is not, as the noble Lord, Lord Kennedy, said, rash.
Let us consider the progress that has been made. Back in May, 96% of the electorate was successfully registered under the new system. It is the remaining 4%—the so-called “carry forwards”—that the Government believe should be removed from the register at the end of December. It is not the entire register that we are questioning, as the noble Lord, Lord Tyler, seems to suggest; it is the 4%. Then we have to ask ourselves: what do these entries represent; who are they; do they exist? The reality is that neither we nor the Electoral Commission know who they are. They may be people who have moved or have died, or they may never have existed in the first place. However, we have gone the extra mile to find out whether these entries actually are people living at the registered address. Electoral registration officers have been working tirelessly to confirm whether the remaining entries are real people or whether they are merely ghosts.
These people will have first been sent three invitations to register. If they had not done so by last autumn, an electoral registration officer would have visited the address linked to the entry. If this failed to elicit a response, a further letter would have gone to the address earlier this year. Where carry-forward still exists, these addresses will receive three further letters and another visit from an electoral registration officer this autumn. That is the second fact that I would ask noble Lords to remember. These people, if they are people, will have been contacted at least nine times by December. I ask noble Lords to compare that with the number of times people are contacted about renewing their TV licence—four times. These people, if these entries do indeed represent people, have been contacted nine times. On top of this, as the noble Lord, Lord Empey, said, the Government made available to councils up to £3 million of additional funding to support extra efforts targeted specifically at carry-forward entries, and £1.2 million of that was drawn down.
I am grateful to the Minister for giving way. He has always been very courteous when we have been debating issues of the constitution. He will be aware that the Electoral Commission has taken everything that he has said into consideration, yet, as the noble Lord, Lord Alton, has said, it has still given a very clear recommendation that the transition period should not come to an end early. One reason is the significant polls scheduled for May 2016. The Minister knows that I was a Member of the Scottish Parliament. On an issue of principle such as this, it is inconceivable to me that the Government would not have consulted the Scottish Parliament in bringing forward the transitional period, given the significance of the polls in May 2016. Can he confirm formally, at the Dispatch Box, whether the Government did or did not consult the Scottish Parliament? If they did, what was the view of the Parliament?
My Lords, the timetable for the start of IER was agreed with the Scottish Government and allowed the referendum to take place before IER got under way. There is no legal requirement to consult on this order, and electoral registration is at present within the competence of the UK Government. I will come back in a moment to the other points raised by the noble Lord.
I refer those who argue that we should wait for another year to the Electoral Commission itself. It said that such efforts are likely to see:
“Diminishing returns because a greater proportion of these electors are no longer resident at that address”.
On the point that the current canvass will address this issue, I agree entirely. The canvass going on at the moment means that we can be even more sure that the vast majority of these entries are ghost entries.
I come to the next point. Where are these ghost entries? Six of the local authorities with levels of carry-forwards above the national average have been identified as among the authorities more at risk of electoral fraud. As my noble friend Lord Hayward said, one of these boroughs is Tower Hamlets. There, the election judge slammed the “extremely lax” registration rules of the previous system as opening the door to electoral corruption. It is worth noting that the London Borough of Tower Hamlets was awarded top marks in the Electoral Commission’s performance standards for electoral integrity.
In Hackney, which is not even one of those six authorities, there were in May 43,000 carry-forwards. That is 23% of its electorate—I repeat: 23%. It is worth noting that in Hackney the register has increased by 10% since the introduction of individual electoral registration. The Electoral Commission states that the increment in the number of entries,
“may have therefore been inflated by a high volume of inaccurate entries”.
What might be the cause of those inaccuracies?
Hackney, and many other areas where there are large numbers of ghost entries, share a common characteristic: their population is, as has been mentioned, mobile—and in mobile populations many people rent their homes. Again, the Electoral Commission itself has suggested that those who rent private sector accommodation are more likely to have been carried forward. Why is that? One in three households in the private rented sector moves every year. It is therefore hardly surprising that we see a high percentage of carry-forwards in these areas given that the entries to the register are over a year old, dating from February 2014, which was before the introduction of the new system. As my noble friend Lord Hayward pointed out, these numbers are not just in Labour areas; the last time I looked, Kensington and Chelsea, Wandsworth and Windsor were blue.
The noble Lord has quoted the Electoral Commission several times. As a matter of process, the opinion of the Electoral Commission is extremely important. As a member of the coalition Government, my clear understanding was that we had agreed that we would complete the process by December 2016 unless there was—as the Electoral Commission has confirmed there is—compelling evidence that it was not necessary to go that far. The Electoral Commission has said, very clearly, that it thinks we are mistaken in what we are doing. Is the Minister saying that the Government consider the commission not to be relevant in this crucial area, although he is using it to support his argument in other areas? Why do the Government not regard the Electoral Commission’s argument? I repeat that this is a matter of the rules of politics, which have to be seen as fair.
I completely agree with the noble Lord that the rules of politics must be seen to be fair, which is why we are taking this action today. We believe that it is wrong to have so many inaccurate ghost entries on this register and that the facts have changed, in that by December these four out of 100 voters will have been contacted at least nine times. I will go on.
The Minister keeps referring to this figure of 96%. Can he be absolutely clear that he accepts that 85% of the eligible population has registered to vote? In other words, 15% of those eligible are not registered. Many noble Lords have made the point in this debate that the process now under way, which the Government are hurrying forward in this way, will prejudice attempts to get that other 15% on to the register.
My Lords, I completely agree that we need to get more people on the register. However, let us not confuse apples and oranges—these are two separate things. If people are not on the register, there is absolutely no way they can be taken off the register, which is what we are saying today. I do not understand—maybe I am not explaining it clearly enough. However, I will go on, if I may.
When people move, we should not leave their entries on the register. That increases the risk of not only electoral fraud but benefit and financial fraud. In advance of Northern Ireland moving to a system of individual electoral registration in 2002, the police said that it would,
“go a long way to eliminating the opportunities for fraudsters to commit the offence of personation”.
The noble Baroness, Lady McDonagh, asked about fraud. Let us just remind ourselves that since 2002-03, courts have imposed jail sentences for electoral fraud in Ashford, Blackburn, Bradford, Bristol, Burnley, Coventry, Derby, Guildford, Oldham, Peterborough, Slough and Walsall.
Will the Minister agree that in I think all those cases, but certainly in almost all of them, the fraud was linked to postal vote and proxy vote fraud, not registration fraud?
My Lords, it is electoral fraud; we are trying to make sure here that—
No—I am absolutely clear. We need to make sure that we take every step possible to cut down on electoral fraud. Therefore, after such an effort to contact the ghost entries, which puts pestering PPI calls in the shade, and given these facts, the Government believe that the time has come to remove these entries from the register.
I will repeat a crucial point which I made at the start. Even if someone is removed inadvertently from the register, he or she has not lost the right to vote, as some would have it. Indeed, as I have said before, we want more people to register. A number of noble Lords, such as the noble Lord, Lord Rennard, have highlighted the number of those who are not on the register already. I agree—they are right—there are too many of them, and we need to encourage them to register, as I said at the start. Individual electoral registration will help them do that. It is now easier to register than ever before and takes minutes to do online: 460,000 applications were made on the registration deadline for the general election alone—that is five applications a second.
As the Minister for Constitutional Reform said in his speech last week, the approach to registration needs to be updated and modernised, building on the success of online registration. This will help to meet the challenges of finding and registering those currently missing from the register and build on the excellent work that was done under the coalition.
The key point is this: the need to encourage voter registration has nothing to do with removing the inaccurate carry-forward entries on the register. As I just said, if a person is not on the register already, they obviously cannot be affected when these ghost entries are removed from the register. As I said at the start, the answer to underregistered groups, such as young people or expatriates, is not to stuff the electoral roll, and potentially the ballot boxes, with the names of people who do not exist but, instead, to encourage more people to vote.
A number of your Lordships referred to the boundary review, which, as your Lordships will know, begins its work early in the new year, fulfilling the Conservative Party’s manifesto commitment to cut the number of MPs and make votes of more equal value. If we are to create constituencies of equal size, the electoral registers used for the boundary review must be accurate across the UK. Otherwise, areas with large numbers of carry-forwards will get more MPs than those with small numbers.
This should not be a partisan point, despite what the noble Lord, Lord Tyler, said. Areas with high carry-forwards include Conservative authorities such as Windsor and Maidenhead, and Kensington and Chelsea. It is right that overregistration be tackled in these areas. Equally, Labour councils such as Barrow, Cardiff and Hartlepool have below average numbers of carry-forwards. Surely it cannot be right that we leave 17,000 carry-forwards on the register in Kensington and Chelsea, according to May’s figures, while there are just 558 in Hartlepool. If we allow this to happen, it will distort the distribution of seats, hitting, in particular, Wales and Northern Ireland, where there are no carry-forwards as they already have individual electoral registration. A full transition to the new system will ensure fairness—something we all should want.
As we enter a year of elections, the Government believe that we should not retain these ghost entries on the register, making it inaccurate and perhaps making elections open to fraud. As has been said, we are not alone in thinking this. As my noble friends Lord Lexden and Lord Hayward said, the Association of Electoral Administrators supports ending the transition this year for primarily this reason, saying that:
“It is crucial to have the most accurate register possible”.
All democracies depend on a weighing up of interests and a careful consideration of the facts. This is no less true of our electoral system. As the noble Lord, Lord Alton, said, we must take an approach that strikes the right balance between safeguarding the integrity of the register and ensuring that the electors registered to vote for the elections next May are accurate. The Government believe that we are past the tipping point. Remember, 96 out of every 100 electors have successfully registered on the new system. By December, at least nine attempts will have been made to contact those entries that were carried forward. The chance of a large number of the remaining carry-forward entries being eligible to register to vote is vanishingly small. No one is losing the right to vote and registering is easier than ever before. This is why the Government oppose the Motions today.
Although I heed the words of the noble Lord, Lord Alton, I would like to echo the words of my noble friend Lord Cormack. Having broken a convention yesterday by failing to respect the primacy of the other place, the House supporting these Motions would defeat a statutory instrument, not on the grounds that it has been improperly made but because the noble Lords who tabled them disagree with it. It is up to your Lordships to make your decision clear, but it would be killing a statutory instrument—something this House has done only five times since World War II. With a further fatal Motion on the Order Paper for later today, the House is being invited to withhold its approval to three statutory instruments in two days; doing in two days what this House did in the 13 years between 1997 and 2010.
The House will be doing so partly because the Electoral Commission has advised us to do so. That is the question the noble Lord has not answered.
As the noble Lord, Lord Empey, said, the Electoral Commission is an independent body but we are not bound to observe it. As I have set out very, very clearly, we believe that we have a strong case for proceeding as we have.
Although this House is unelected, I believe that we should be doing our utmost to protect the integrity and accuracy of our electoral system. That is the duty we have to voters. We believe that it is time to finish the transition to individual electoral registration in December 2015 so that we can all be confident in our electoral register.
My Lords, this has been an excellent debate. I think the noble Lord, Lord Tyler, is going to accept my amendment, so I am grateful to him for that. The Minister has not made a convincing case to the House this afternoon. The Government also failed to persuade the Electoral Commission, an independent body set up by Parliament which is expert in this field, to which a number of noble Lords referred, particularly the noble Lord, Lord Alton.
As has been said, the Electoral Commission urged the House to support the Motion in the name of the noble Lord, Lord Tyler. My noble friend Lord Wills made a powerful contribution, particularly pointing out that the Electoral Commission recommended the use of ID cards at polling stations. The Government have not moved on that and they should do so if they have concerns about electoral fraud.
The noble Lords, Lord Empey and Lord Lexden, made reference to the Northern Ireland schools initiative. I agree that it is a very good initiative and I have repeatedly said from the Dispatch Box that the Government should introduce it in Great Britain, but to no avail so far. I know that EROs target groups, and supporting the Motion today will be giving more time to EROs to do more work on the register.
The noble Lord, Lord Rennard, made an excellent point about the completeness of the register, which underlines the underregistration problem we have in Great Britain today. It is important to note that a cut-off date of 1 December 2016 was in a government amendment. It has been mentioned here before and nothing has changed since then. No one suggested here today that it is so successful that we can take a year off the period. From my time on the Electoral Commission, I can assure the noble Lord, Lord Cormack, that it worked with great determination on IER. It was the champion initially and worked really hard on completeness. When it says that this is a risk, we need to look at that very carefully.
My noble friend Lady McDonagh made an excellent contribution, highlighting the data-matching issues that have been experienced across the country. The case has not been made today.