Insurance Bill [HL]
Lord Davidson of Glen Clova Excerpts(10 years, 4 months ago)
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Lord Davidson of Glen Clova (Lab)
My Lords, the Minister is to be commended for bringing this Bill before the House and agreeing the procedure for Law Commission Bills. A Bill modernising important elements of the UK’s insurance law is perhaps not likely to achieve public acclaim, but it genuinely contributes to strengthening the UK’s global position in insurance markets. One might also observe that, when the constitutional position of Scotland is under challenge, the Bill is a useful reminder of how Westminster legislation can have direct value to an industry that is a significant employer throughout the UK and a significant contributor to the UK’s overseas earnings. The noble Lord, Lord Sheikh, spoke eloquently identifying the importance of the industry to the UK.
The noble Lord, Lord Carrington of Fulham, described this as a modest little Bill. It is certainly a little Bill—and doubtless it has a becoming modesty—but it is a very useful Bill. He spoke to the question of its clarity. Unlike many Bills that seek to produce clarity, this Bill actually does. Again, that is to be commended.
Turning to the proposed duty of fair representation, I agree that a shift from a remedy confined to avoiding the contract, in the event of a breach of the duty of disclosure, is welcome. The experience of losing insurance cover as a result of a failure in disclosure, which may be wholly unconnected with the loss claimed, has often seemed unnecessarily harsh—or, to put it another way, to have worked disproportionately in favour of insurers. The widespread welcome for these reforms by both insurers and insured demonstrates perhaps that such a change is overdue. The Law Commission correctly identified that the “all or nothing” nature of the consequences of a breach of the disclosure duty actively promotes adversarial disputes, whereas the new proposal should encourage more rational resolution of claims.
One notes that contracting out of these provisions remains possible. Of course, one recognises that as being consonant with freedom of contract. The Law Commission identifies the possible use of “boilerplate clauses” to contract out of the consequences of this reform. The Bill’s use of transparency requirements, however, at Clause 16, should either discourage or make expressly clear where any such contracting out obtains, and that is a useful addition. It would be interesting to know whether the Government are proposing to monitor and test the efficacy of Clause 16 to make sure that it works and to avoid relentless contracting out simply by way of forms. Plainly, the widespread use of contracting out, were it to occur, would undermine much of the benefit of this reform.
The restriction of conversion of representations into warranties in non-consumer contracts and the abolition of avoiding contracts for breach of utmost good faith per se are also welcome changes. The application of the old law regarding “basis of contract” warranties—what in Scotland we still call “uberrimae fidei”—has sometimes left the insured with the sense that they have been cheated out of what they took to be their entitlement. Would it be prudent for some monitoring of contracting out regarding these provisions also to be undertaken?
Turning to fraudulent claims, I think that the greater clarity that the clauses concerning fraudulent claims provide is a useful addition to the armoury against the pernicious but not especially visible area of crime that is insurance fraud. Again, the noble Lord, Lord Sheikh, identified eloquently how this problem requires to be tackled. Fraud by a member of a group insurance scheme has raised a number of jurisprudential difficulties and paradoxes which the Bill seeks to remove—a plainly welcome development.
The statutorily stated exclusion of liability to pay fraudulent claims should have the positive effect of discouraging the notion that deliberately exaggerating an insurance claim is somehow fair game. Expressly identifying the point at which the insurer may treat the contract as terminated should further improve clarity. The past uncertainty of legal advice in this area—I declare an interest as being a member of the Bar, and doubtless some of my advice may not always have been pellucid—has not served either insured or insurers particularly well. On the other hand, the decision not to define “fraud” itself in the Bill is wise reticence where facts and circumstances are so variable and where new means of committing fraud tend to emerge often unforeseen, especially given the various technological developments that we are heir to.
In relation to the amendment to the 2010 Act, I have nothing further to add.
Before concluding, I observe that it is perhaps unfortunate that the Bill could not have found a way to cover the issue of late payment by insurers—I depart from the position adopted by the noble Lord, Lord Sheikh, in this regard. This is not simply a dispute on the grounds of ideology. A remedy for the insured whose businesses have been severely disadvantaged by late payment of a claim is available in Scotland, and that has been the case for many years. It is unfortunate that the remedy cannot yet be extended to the rest of the UK, and the noble Lord, Lord Sheikh, might, in his leisure time, like to examine some of the Scots law in this fascinating area.
However, from this side we welcome the Bill and are pleased to see the latest efforts of the Law Commission and the Scottish Law Commission regarding insurance being rendered into statute relatively speedily.
Genuine Economic and Monetary Union (EUC Report)
Lord Davidson of Glen Clova Excerpts(10 years, 5 months ago)
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Lord Davidson of Glen Clova (Lab)
My Lords, I join all noble Lords in congratulating my noble friend Lord Harrison on chairing the committee, which has produced a welcome assessment of this important and complex subject. The committee, composed of highly experienced and able members, offers views that no sensible Government can easily reject or ignore.
The UK’s engagement with the EU on this subject is of course important. It has potentially dramatic consequences for our globally significant financial sector. History teaches that financial regulation can have serious unforeseen consequences and effects on the sector and the economy. Therefore, this report’s contribution to understanding the implications for the UK of the EU institutions’ proposals is both useful and timely.
Today’s expert and sometimes lively debate, and the exchange that has proceeded, provides Her Majesty’s Government, I suggest, with quite a lot to think about. My noble friend Lord Liddle, unshackled, has also provided something substantial for Labour to consider in this area, paying due regard to his expertise and knowledge. No less, there is to consider the contribution of my noble friend Lord Desai and his view on EMU as a deflationary union, for the UK’s major trading partners are within the EMU. This obviously creates interesting and difficult questions for the future.
I also note the possibly critical view from the noble Lord, Lord Hamilton, of the future of the European Union, given its structure. These observations would be foolish to ignore. They are obviously not accepted by everybody but they should certainly not be treated lightly. My noble friend Lord Davies also made a very interesting point in relation to the warning that he offered between the UK’s regulation in banking and the European zone, and how government can impose costs in a dysfunctional way, as he put it. This is of course one of the problems that government in the UK have faced for quite some time.
We agree that banking union is vital to tackle the effects of the financial crisis, at least in the eurozone. We also agree with the committee that the current proposals fail to break the bank/sovereign debt nexus, as that was the principal rationale for the GEMU project. As the noble Earl, Lord Caithness, observed, that is quite significant. What the committee describes as “sub-optimal” about the SRM—leaving the fiscal backstop substantially in the hands of the individual member states, the resolution fund not being finalised until 2026 and, even then, with only limited, probably inadequate, funds, as my noble friend Lord Harrison observed—leaves the concern about the bank/sovereign debt nexus possibly reduced but certainly not removed. Certain member states in such circumstances will almost inevitably not resist the temptation to game the system, and that of course was the very behaviour that caused the problems of the last crisis.
One is therefore slightly surprised at Her Majesty’s Government’s somewhat reticent response to the report’s clear view that,
“what has been agreed is insufficient to break the vicious circle linking banking and sovereign debt”.
Are the Government of the view that this failing has been resolved or that it will be resolved in due course in negotiations on EMU, or is this simply an issue that HMG accept they cannot influence? Is the concern expressed to the committee by Mr Nigel Farage, MEP, and backed up by Professor Alexander, that certain ECB refinancing operations have perversely reinforced the bank/sovereign debt nexus a concern that HMG share, I assume, or are we simply to disregard what Mr Farage has identified?
The single supervisory mechanism agreement of 2013 is welcomed by the committee but with the caveat that the ECB being expected to supervise some 6,000 euro area banks is “unrealistic”. Even if the ECB is to be confined to larger banks only, as the noble Lord, Lord Lamont, points out, the Government’s assertion in response that the SSM,
“is critical to restoring market confidence”,
and that it,
“ensures that the Single Market of 28 countries is not harmed”,
may seem rather overoptimistic.
The Government expressly recognise that size is not important when it comes to monitoring risk. Economic historians might point out that the UK’s secondary banking crisis of 1973, which featured small banks, precipitated a major crisis. Do the Government not share the committee’s concern about the ECB’s capacity to supervise? Are they confident that the member states’ authorities will, throughout every member state of the eurozone, have the capacity to supervise themselves? Can an absence of ECB capacity to supervise really “ensure”, to use the Government’s word, that the single market is not harmed?
The whole project of the banking union seems to have the Government’s support, observing as they do,
“that the UK stands to benefit from greater financial and economic stability in the EU”,
that banking union provides. That recognition of the interlinked nature of banking is sound. Supranational structures for financial supervision and resolution are of course central to the project. It is correct to say that banking union is another step toward successful ever-closer union, one supposes. Is one nevertheless to assume that the Prime Minister’s oft-expressed but never really specified desire to reform some aspects of the EU would leave this area out of any of his proposed negotiations?
Is it correct that this step to ever closer union will proceed without the Government attempting to revisit the issue; without attempting to renegotiate? Some clarity from the Government on this important subject would be welcome. Perhaps answering the query of the noble Lord, Lord Kerr, as to the logic of keeping the UK out of the banking union, might also be interesting and informative.
Turning to the issue of integrated economic policy, I note that the committee expresses the view that debt utilisation,
“may be inevitable if the single currency is to prosper”,
and that it is “a logical development”. Do the Government agree? I ask because I confess that I was not able to detect the Government’s attitude from their response. I assume that they are not, as the noble Lord, Lord Dykes, put it, wallowing in nationalism on this particular point. It would be interesting if we could have clarity. This is particularly interesting given Germany’s resistance to implementing the concept. Do the Government share the German view? Are they simply unconcerned about the issue, or do they accept that any influence they might have on this issue is inevitably limited?
Influence has been the subject of one of two observations. The noble Lord, Lord Lamont, is sceptical about the utility of influence and there is something to be said for that. Per contra, however, my noble friend Lord Liddle, the noble Lord, Lord Maclennan, and the noble Lord, Lord Jay, from a different perspective, all stress that it is important. They were joined by the noble Earl, Lord Caithness. The noble Lord, Lord Kerr, pointed out the importance of influence and he should know. He also gave useful guidance as to where influence actually lies and how one can use that influence in a way that might possibly overcome the scepticism of the noble Lord, Lord Lamont, about the issue.
The noble Lord, Lord Hamilton, when he characterised the exchanges of poison, as it were, between the respective parties, made a useful point, possibly impliedly, that the diplomatic exchange between the UK and its EU partners could be improved substantially by toning down the rhetoric. Engagement, of course, is always helpful and positive engagement is even better.
As for the implications for the UK, the committee rightly recommends that HMG do not treat the banking union, as the noble Lord, Lord Kerr, quoted, as,
“the sole province of the single currency for all time”.
In trying to decipher the Government’s response, it is not entirely clear what position they now adopt. Clarification would be welcome.
Not unnaturally, the Government note the value of the City of London. Some of us might prefer that they also recognised the substantial contribution made to the UK’s financial sector by other parts of the United Kingdom—Leeds and Edinburgh spring to mind—but that is not my main point. The contribution of the City is substantial and is one of the truly global successful sectors of the UK economy. I am sure that the Minister will agree that government action or inaction can have significant effects on our global position. One notes that in the peroration to the government response they state that,
“a strong and engaged UK (and a strong City of London)”,
are in the interests of all EU members. We agree. It may be, however, that we differ over the meaning of an “engaged” UK. Again, positive engagement is what we would hope for. Where the Government state that the UK’s interests are,
“to be framed in terms of the overall stability and efficiency of EU markets”,
we are in accord. Where they state:
“The Government values the importance of the City of London in Europe”,
we again agree. Is one to assume that, from the point of view of maintaining the City’s global position, the Government are wholly convinced that the UK must remain in the EU? As one is sometimes unsure where they stand on this issue, might the Minister make it clear whether Her Majesty’s Government consider that the UK’s financial sector is strengthened by the UK’s membership of the EU?
I look forward to hearing the Minister’s replies to all these questions—or if not all, at least to some of them. In conclusion, I repeat our welcome of this careful and useful report. We trust that the Government will pay it due and proper attention.
Personal Service Companies (Select Committee Report)
Lord Davidson of Glen Clova Excerpts(10 years, 6 months ago)
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Lord Davidson of Glen Clova (Lab)
My Lords, we on this side welcome the report as a real contribution to the debate about the UK’s tax system and how the objectives of fairness and encouragement of enterprise can be better achieved. I congratulate the noble Baroness, Lady Noakes—
Baroness Noakes
I thank the noble Lord for giving way. I think that my noble friend Lord Stewartby was hoping to speak before the Benches opposite.
Lord Davidson of Glen Clova
In that case, I will sit down and oblige. With her usual courtesy and brisk efficiency, the noble Baroness runs this House as well as she runs her committee.
Lord Davidson of Glen Clova
My Lords, I will try again. I repeat my welcome for the report as a real contribution to the debate. For the second time this evening, I congratulate the noble Baroness, Lady Noakes, on her chairing of the committee, and I congratulate the committee on producing this timely and useful report. Immediately, I should say that on this side we support the committee’s recommendations. Our welcome for the report is tempered by much of the response from the Government. I join the noble Baroness, Lady Noakes, in restraining my enthusiasm for the Government’s response.
Most commentators accepted in 2000 that curtailing the use of personal service companies to disguise employment was a proper target and that IR35 was a reasonable first attempt to deal with the problem. It is plain that the legislation imposed on contractors, as the committee observes, the need to expend a great deal of time and effort, as well as the costs of accounting advice. In a business environment that is much changed since 2000, it is essential to understand the efficacy of IR35. I am glad I stopped and was able to hear the contribution of the noble Lord, Lord Stewartby, because he made it very clear that the question here is about what one is trying to achieve. In 2000, one knew what one was trying to achieve: to prevent disguised employment. But what is the position now? Is it simply about deterring something that is said to be bad but none the less seems to be expanding quite dramatically? It would be very interesting to hear the Minister in due course provide the clarity that the noble Lord, Lord Stewartby, requested.
The core justification for IR35 is recognised, correctly, by the committee as the Exchequer protection resulting from the deterrent effect of the legislation, and one might expect a reasonably articulate view from the Government after some 14 years of operation of this apparent deterrent effect. We are told that the calculated deterrent effect amounts to a figure of some £520 million. The committee’s concern about this issue, and the Government’s response, are instructive. Where the committee seeks “more robust work” on whether the justification for the deterrent is convincing, the response is that the Government are “confident” that their assessment is “robust”—their favourite word—while accepting at the same time that their methodology is based on uncertain assumptions. That is perhaps not reassuring. The government answer that this is “inherently difficult to estimate” is apparently based on “behavioural assumptions”. We are told that these assumptions are,
“consistent with intelligence from operational experts”.
I hear the words and of course understand them, but this is hardly a model of transparency from the Government.
One might also ask what the cost is of the current system to taxpayers—a figure not dependent on “behavioural assumptions”. Does the Minister have any estimate of taxpayer costs: the fees paid to accountants, tax consultants and so on? The size of the IR35 industry, as my noble friend Lady Morgan observes, must be fairly large—that is a cost imposed on taxpayers.
If the Exchequer protection guess is not as robust as asserted, what would the Government do? The Government’s confidence in the figure is not so impressive when one notes that they were not prepared to co-operate with the committee. The plea that “application of legislation” was in issue could not sensibly have prevented a detailed explanation of the core justification for IR35. As the noble Lord, Lord Higgins, observed, the explanation from the Exchequer Secretary is absurd. That answer could, in a sense, be applied by every Minister, who could say, “Oh well, it’s to do with the implications of how one operates legislation”. It would make answering to Parliament perhaps not a very powerful remedy in our democracy.
Presumably the Minister will take a bolder—possibly more robust—stance and explain the Exchequer protection figure with greater clarity than the government response offers. I imagine that the Minister, who is a sensible person, will take on board the observations of the noble Lord, Lord Myners, who describes the Exchequer Secretary’s conduct in this matter as “unacceptable” behaviour. The noble and learned Lord, Lord Hope of Craighead, identified the need for facts in this area. I trust that the Minister will agree. The noble Lord, Lord Higgins, described the Exchequer Secretary’s behaviour as “inconceivable” by his lights. These are quite strong observations. I will not extend the Minister’s pain any further—I am sure he listened to those observations.
When IR35 was introduced, the concern was about the use of personal service companies to disguise—to conceal—what was truly employment and to enable an individual to obtain advantageous, but presumably improper, tax benefits. The aim of IR35 was to produce fairness between employees and contractors. Now it has been seen that the use of personal service companies has expanded considerably, which, on one view, possibly contraindicates the effective deterrence by IR35, although it might be that more behavioural assumptions need to be considered.
More seriously, the committee identifies the use of umbrella companies to employ the lower paid—not through the choice of those workers. As the noble and learned Lord, Lord Hope of Craighead, observed, the potential for the exploitation of such individuals, who often are not fully aware of their rights, is clear. An environment where lower-paid workers are charged fees, confused over their employment rights and encouraged to charge expenses improperly, as my noble friend Lady Morgan pointed out, suggests a need for both strong enforcement and a high level of education. The noble Baroness, Lady Bakewell, draws attention, correctly, to the way in which communication needs to be dealt with sensibly when one seeks to bring information to the lower-paid. I assume the Government will agree with that as a generality, but could the Minister give greater clarity? For example, the government response states at paragraph 2.70 that,
“HMRC is aware that some”—
umbrella companies—“are non-compliant”. Might the House be told what steps have been taken to deal with these companies?
The committee notes the decrease in enforcement: the reduction in the number of investigations by about 70% over a decade. Is this decline a result of the success of the policy, a lack of resources or a change in HMRC priorities? The recent increase in staff, to which the Government allude, may suggest that the answer is not the success of the policy, but an answer would be helpful in understanding the Government’s view of the operation of the legislation.
Part of the thinking behind IR35 back in 2000 was that it might encourage direct employment. Do the Government have a view as to whether this has in fact been a consequence of the legislation? The move to outsourcing and a desire on the part of some employers to avoid the costs of employment legislation may suggest otherwise, but some information on this aspect would be welcome.
From another angle, IR35 was intended to catch the limited number of disguised-employment personal service companies but not to place obstacles in the way of genuine start-up companies. However, an emerging concern has been that start-up companies, perhaps with only one or two clients, without physical premises and without employees, can present as a disguised-employment company—whereas the reality is that it is a genuine start-up that may in fact develop into a business success. In due course, inevitably, some start-up companies will fail and some will succeed, but in the precarious initial stages of these companies, HMRC’s investigations into possible disguised employment can be immensely disruptive—a disruption that their larger, more established, competitors would not face. Is it possible for the Government to say whether there is evidence to bear out this concern and, if the concern is sound, whether any steps have been taken to reduce such a burden on these entrepreneurial enterprises?
Of course, greater and more visible legal clarity would reduce the confusion that sometimes exists on this subject. The risk criteria that HMRC uses in guiding its activities in this area could do with being made rather clearer so that taxpayers might understand where their activities need to be properly vouched. In the past, one understands that doctors, teachers and health professionals all appear to have featured as being within the risk sectors. In the interests of promoting greater clarity, is it possible for the Minister to inform the House of how these risk sectors are identified?
On what is perhaps a more parochial point, at a time when the prospect of different income tax regimes between Scotland and the rest of the United Kingdom is becoming a nearer reality thanks to the Scotland Act 2012, have the Government considered how personal service companies may be used to arbitrage tax rates within the UK? For example, have the current Scottish Government sought to discuss this potentially difficult area with Her Majesty’s Government?
Finally, I turn to the use of personal service companies in the public sector. We share the concerns expressed by the noble Lord, Lord Palmer of Childs Hill. The Government response to one view in this area raises more questions than it answers. As I read it, the Government are committed not only to tackling tax evasion, as all Governments must be, they also recognise the inappropriateness of public sector appointees using personal service companies. The Treasury review of these persons’ tax arrangements issued a recommendation that such persons should normally be on the payroll. Is it possible to state what the effect of the recommendation has been on such appointees’ tax arrangements? Broad-brush answers will do. Further, at paragraph 2.86 of the response, we note that so-called satisfactory assurances were received from 1,940 contractors within departments. Can the Minister indicate the broad nature of those assurances and why they were regarded as satisfactory?
This has been a useful debate in shining a spotlight on this area, which, as all speakers have said, is both difficult and important. The balance between encouraging enterprise and defending the Exchequer’s revenue should properly be kept under continuing review. As the noble Baroness, Lady Noakes, observed, this is unfinished business, and we agree.
Monetary Policy Committee: Inflation
Lord Davidson of Glen Clova Excerpts(11 years, 10 months ago)
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Lord Deighton
My Lords, I could not agree more with the noble Lord’s observation. There is nothing more insidious than inflation, which is why sticking to our inflation-targeting mandate, which the independent Monetary Policy Committee pursues with great skill and judgment, is absolutely the right thing to do.
Lord Davidson of Glen Clova
My Lords, given the objective that the MPC is set by Her Majesty’s Treasury, how does the Treasury propose to modify the inflation rate target, since it appears that it needs to accommodate Mr Carney’s new desire for flexibility? Or—harking back to something that has already been said—is it that the flexibility already exists because it accommodates the Bank of England’s failure for more than two years to meet its statutory inflation target?
Lord Deighton
My Lords, it is extremely clear from the MPC’s own minutes how it treats that trade-off. With the House’s indulgence, I will read the most appropriate lines:
“The Committee discussed the appropriate policy response to the combination of the weakness in the economy and the prospect of a further prolonged period of above-target inflation. It agreed that, as long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation”.
That is the perfect mandate for flexible inflation targeting.
Public Service Pensions Bill
Lord Davidson of Glen Clova Excerpts(11 years, 10 months ago)
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Lord Newby
My Lords, I will start with government Amendments 10 and 11, which would require equal numbers of employer and member representatives to be appointed to each pension board in the public service pension schemes.
The noble Lords, Lord Eatwell and Lord Sharkey, previously argued for an amendment that would have required one-third of pension board appointees to be member representatives. Their amendments essentially sought to create parity with requirements that apply to trust-based occupational pension schemes.
During Committee, I explained why simply importing those requirements was in our view inappropriate, but we accept the principle that employees should be properly represented, so, for the public schemes, we propose that there should be equal representation. That would mean that there will always be equal representation of employer and employee interests, regardless of the number of participating employers in a scheme. Given that public service pension boards will not have a role in setting the scheme regulations, there is no need to engineer a balance that favours either group.
The amendments would not prevent schemes appointing other types of board member. We anticipate that schemes will want to include scheme manager representatives, independent board members and other interests. It is of course right that other legitimate interests can be included alongside the core of employer and member representatives. We believe that our approach offers a fairer and better way to ensure that members’ interests are represented in the public schemes.
The other amendments in the group are straightforward clarifications and corrections. Amendment 9 would reinforce the appropriate reading of the Bill. As we know, there will be multiple scheme managers in the locally administered fire, police and local government pension schemes. The amendment makes it clearer that each of them shall have a pension board.
Amendments 12 and 13 are minor and technical corrections to ensure that the Bill operates as intended. Amendment 12 ensures that a scheme advisory board can be given a role in advising the scheme managers and pension boards in any public scheme that is administered by more than one scheme manager. The previous drafting inadvertently and incorrectly prevented a scheme advisory board being given such a role in the police scheme. The amendment corrects that.
Amendment 13 responds to a point raised by the noble Lord, Lord Hutton, in Committee, by adjusting the provisions that prevent a person with a conflict of interest being appointed to the scheme advisory board. The change means that mere membership of either the pension scheme or a connected scheme does not constitute a conflict of interest. The amendment would mean that the conflict of interest provisions in this clause exactly mirror those already in Clause 5. I commend the amendments to the House.
Lord Davidson of Glen Clova
My Lords, we on this side welcome the amendments. The Minister gave a commitment to the House which we are pleased has been honoured. We recognise that significant movement has been made by the Government in relation to governance and pension boards. In particular, we applaud what the Minister said about equal representation on pension boards. To have employees on such pension boards is a very welcome development.
Perhaps it is a small matter, but the Minister referred to the amendment dealing with conflict of interest. It is particularly gratifying to see that a small matter which might have been seen as an obstacle to equal representation on the pension board has been removed by careful drafting.
Lord Sharkey
My Lords, I shall speak briefly in support of Amendments 9, 10 and 11. I raised the issue of member representation on pension boards at Second Reading, and in Committee, as the Minister said, I tabled an amendment that would have required one-third of members of pension boards to be members of the underlying scheme. I was grateful then for the support of the noble Baroness, Lady Donaghy, and the noble Lord, Lord Eatwell, for the amendment.
With the amendments now before us, I think that the Government have taken a realistic and fair view of member representation. The equality of employer and employee representatives on pension boards is an entirely satisfactory resolution to the problems that we outlined earlier. In fact, I think that the amendments provide a better solution than those proposed previously here and in the Commons. Equality of representation is very simple and clear and completely unambiguous. I know that my noble friend has been instrumental in securing the amendments, along with my right honourable friend Danny Alexander, and I pay tribute to their efforts and thank the Government for proposing the amendments.
“Fair Deal
The Secretary of State will, within twelve months of this Act coming into force, bring forward proposals to ensure that a member of a public service pension scheme is entitled to remain an active member of that scheme following—(a) the compulsory transfer of his contract of employment to an independent contractor; and(b) any subsequent compulsory transfer of his contract of employment.”
Lord Davidson of Glen Clova
My Lords, this amendment, dealing with the fair deal, covers a lot of common ground. But rather as with the last grouping, one finds that the common ground is not found in the Bill. As my noble friend Lord Eatwell has already observed, there is a possibility of an erosion of trust, certainly on the union side, if the outcome of discussions does not find itself reflected in the Bill.
In Committee, the Minister observed that one was not able to accept this type of amendment because one was in the middle of a process of consulting and, therefore, such an amendment might be premature. But the principle appears to be held in common by all sides. The Minister has observed that,
“we are committed to the principle”.—[Official Report, 15/1/13; col. 627.]
We do not in any way doubt his sincerity, but we urge that it could be demonstrated that that commitment is found by putting it into the Bill.
The amendment that is before the House allows the principle to be put in the Bill, and allows for the consultation process. When one looks at the amendment, one sees that it permits the Secretary of State to bring forward the proposals within 12 months. That plainly allows any sensible consultation to take place and be concluded. It would also allow the commitment from Her Majesty’s Government to be honoured expressly.
Ahead of the government amendments in this grouping, I observe very briefly that we were genuinely puzzled as to what they were aimed at and why the Government have seen fit to bring them forward. Elucidation would be gratefully received. I beg to move.
Lord Whitty
My Lords, I speak now according to the convention, although it may be more logical for the Government to explain their amendments. My Amendment 49 is also in this group. It is another one of these whereby what appears to be the implication of this Bill, if nothing else is done, is that it would unravel what has been agreed between the LGA and the trade unions on the Local Government Pension Scheme.
Pensions payable by the LGPS are revalued using the Pensions (Increase) Act 1971. The amendment is required to enable the same methodology to be used for revaluation during service to continue once a scheme member is in receipt of their pensions. But there is a snag. The current situation, under Section 1 of the Local Government Act 2003, is that the Best Value Authorities Staff Transfers (Pensions) Direction 2007 requires this to be applied to those in the best value authorities. So under the existing scheme and direction the provisions relate only to those who are in best value authorities. It does not apply to those members of the LGPS who are employed by other local authorities and other members of the LGPS.
The agreement reached on the position beyond 2014 would provide for all LGPS members who are compulsorily transferred to be able to retain their membership of the scheme subject to the valuations provided in the scheme. I thought that the easiest thing to help the Government out of this one would be to tack on to the back end of the repeals process at the end of the Bill, when everybody is packing their bags to go home, something that simply says that we repeal the direction order. I am informed that it is not possible to do so in that form, but that one way or the other the Government intend to repeal the directions order. If the Minister could tell me how he proposes to do that, and preferably when, my particular concern about this group of amendments might be met.
The measure I am discussing is essentially part of the fair play aspects although the directions order covers slightly wider issues. However, the repeal is essential to achieve what I think most of us are agreed should apply beyond 2014 in the case of the local government scheme. I am really asking the Government to tell us how they are going to do the tidying up. If we cannot do it by repealing that order, how can we do it, and how can we do it so that there is no differentiation between LGPS members who happen to be employed by different member funds of the LGPS scheme? I would be grateful if the Minister could tell me that when he winds up. I hope that that will satisfy me.
Lord Davidson of Glen Clova
My Lords, I have indicated in relation to the government amendments that elucidation would be gratefully received. Accordingly, I thank the Minister.
In relation to my amendment, I have listened carefully to him. We are clearly both trying to achieve the same objective and I immediately appreciate the complexity in having to draft these issues. What he has said is dense, but in a good way, and I wish to read it more carefully. In those circumstances, I beg leave to withdraw the amendment.
Lord Davidson of Glen Clova
My Lords, the aim of the amendment is to push back to 2016 the relative closing date for the Scottish LGPS.
As observed in Committee, it was thought that a greater time would be required for the Scottish scheme to be renegotiated, for scheme regulations to be drafted, for consultation to take place and for implementation to be laid down. There is certainly a view in Scotland that more time will be required for this process. Indeed, in a letter from the Scottish Finance Secretary to the Chief Secretary dated 7 September last year, it is stated that the date was “exceptionally challenging” if it were to be in 2014 or 2015. If the Minister can assure the House that the Scottish Government are now confident that they can meet the current timescale, and that trade unions and employers in Scotland have been consulted, I would plainly be in a position to reconsider whether the amendment should be advanced. At this point, however, pending what the Minister has to say, I beg to move.
Lord Newby
My Lords, the purpose of the amendment is extremely straightforward, and the noble and learned Lord has asked me a question about the attitude of the Scottish Government. As I explained in Committee, the Scottish Government may think that the timetable is challenging but they have not asked for the extension of time that the amendment proposes. There has been a series of correspondence between Westminster and the Scottish Government in which there have been no calls for a delay. In fact, when the Chief Secretary wrote to the Scottish Government asking if there were any particular amendments that they would like us to consider tabling, a request for a delay was not specifically made. I should take this opportunity to reiterate that we do not believe that a delay is necessary. There is ample time—just over two years—for the Scottish Government to prepare before the existing schemes are closed. These important reforms do not come as a surprise either north or south of the border.
The noble Lord, Lord Hutton, recommended back in March 2011 that the key scheme design features should be part of a UK-wide policy framework. Everything that has been done since then, for almost two years now, has proceeded on that basis. Furthermore, the new Whitehall-administered schemes provide an excellent basis for the Scottish Government to consider when finalising their scheme designs. We are not suddenly asking the Scottish Government to start these reforms from scratch.
I should also reiterate the financial implications of introducing a delay. This would result in hundreds of millions of pounds of additional liabilities being accrued in the Scottish schemes. These additional costs would have to be met from the Scottish budget at the expense of Scottish jobs and services, something that I am sure all noble Lords would want to avoid. In addition to the cost implications, we should also consider the disadvantages that Scottish public service workers on lower and middle incomes would face if the reforms were delayed. They would continue to subsidise the pensions of high flyers for another year. Taking all of this into consideration, I hope that the noble Lord would feel that it would be inappropriate for us to accept this amendment.
Lord Davidson of Glen Clova
I have listened carefully to what the Minister has said. It may be that the Scottish Government are treating this with a degree of insouciance because they may recognise that, after a certain event in 2014, they may have quite a lot of free time on their hands. At this point I shall withdraw the amendment.
Public Service Pensions Bill
Lord Davidson of Glen Clova Excerpts(11 years, 11 months ago)
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“(1) The Treasury shall make directions requiring the scheme manager or responsible authority of a scheme under section 1 to publish scheme information.
(1A) The Treasury may make directions requiring the scheme manager or responsible authority of a scheme under section 1 to provide scheme information to the Treasury.”
Lord Davidson of Glen Clova
My Lords, this amendment makes it a requirement for the Treasury to make directions for the publication of scheme data. It retains the permissive nature for Treasury directions in respect of data that are for the Treasury’s own use.
In his report, my noble friend Lord Hutton condemned the data presently available for public sector pension schemes. His report stated that,
“the Commission has concluded that at present the availability of such data is at best patchy: some key data is not available, at least not publicly. This needs to be improved”.
My noble friend Lord Hutton stressed the need to improve the quality and accessibility of scheme data so that comparison can be made between schemes and individual administrators. With better data, comparison could be made in respect of administration costs, membership profiles and, for the 89 funded local government pension scheme funds that manage more than £150 billion worth of assets, with a return on investments, which noble Lords will doubtless consider rather important.
Comparison, as in many areas, allows good practice and permits weak performance to be identified. Once identified, rectification may then be put in place in relation to that performance. It also enables good practice to be distributed throughout the various funds. In terms of accessibility, my noble friend Lord Hutton recommended that data be published as far as possible to common standards and methodologies and collated centrally. Currently, there is no central, publicly available depository of information.
Clause 13(1) of the Bill is permissive and thus fails to ensure that the Government will implement any changes to the current system for collating public service pension scheme data. Given the importance of full and reliable data in assessing the performance of public sector pension funds, that is not a desirable position.
Amendment 74 would replace the permissive language of “information may relate” with the compulsory language of “information shall include”. Over the decades, the argument about “may”, “maybe”, “must” and so on in context has been a fruitful source of income for many lawyers, and I declare my interest as a lawyer. However, in trying to get clarity in this important area, I suggest that the option that means either you do it or do not do it should be replaced with a mandatory position. The permissive nature of the language is not adequate in this area. My noble friend Lord Hutton in his report was very clear that current pension scheme data were not adequate—in his words, “at best patchy”—and some key data were not publicly available.
The report stresses that data should enable the assessment and scrutiny of performance, viability and key facts associated with the different schemes. This cannot be done unless the data are placed in the public domain. I suggest that the Bill should ensure that key data are published and not merely list types of data that the Treasury “may” include should it decide to make directions under Clause 31.
The Minister has frequently referred to flexibility and in many areas that is very useful, but in certain other areas such as this it can be termed, in my noble friend Lord Hutton’s phrase, patchy, which is undesirable in this area. The amendment does not set out to establish every detail of the information to be published but to provide a framework for information requirements.
In Amendment 75 there is an effort to specify that scheme information should include full valuation reports. Again, my noble friend Lord Hutton’s report specifically stated that full valuation reports should be published by our public service pension schemes, yet they are not mentioned in the types of scheme information in Clause 13(3). Without the publication of full valuation reports, comparison between schemes, as noble Lords will immediately appreciate, becomes very difficult. Proposed new subsection (3A) would allow the Treasury to require scheme information to be published to common standards to make it easier to collate. That in turn would help better comparisons between schemes. This is a permissive amendment.
Amendment 76 would require the Office for Budget Responsibility to report at regular intervals on the long-term impact of public service pension schemes. As my noble friend Lord Hutton stressed, there is a need for fiscal policy to take account of the sustainability of public service pension schemes. In that regard, I assume that the view is entirely common. For fiscal policy to be properly informed in relation to the cost of future and past pension promises, there needs to be accurate and independent analysis of the long-term impact of public sector pension schemes on public finances. That is why my noble friend Lord Hutton recommended that the Office for Budget Responsibility should provide a regular published analysis of the long-term fiscal impact of the main public service pension schemes, including the Local Government Pension Scheme. This amendment would ensure that fiscal policy is better informed, and that policymakers and the public are more regularly and reliably informed about the cost of public service pension schemes. Again, one assumes that that is a common objective on all sides of the House.
The Minister in another place said that the amendment was unnecessary, given that the Office for Budget Responsibility already has a responsibility to examine and report on the sustainability of public finances. From this side we suggest that this amendment be accepted, because it facilitates the understanding of the various trends and developments that may take place within the economy that have an impact on fiscal policy, which in turn can have an impact on pension matters. I beg to move.
Lord Newby
My Lords, as the noble and learned Lord, Lord Davidson of Glen Clova, has said, in his final report the noble Lord, Lord Hutton, set out the need for improved transparency of information concerning the public service pension schemes. His report highlighted the range of information that is currently published, including data published by the Office for National Statistics, the OBR, the Treasury and the schemes themselves. However, as he explained, despite this range of data there is no centrally collated information that allows the total impact of the schemes to be readily assessed. Also, differences in the presentation and underlying methodologies and assumptions hamper comparisons between the schemes and, for local government, the funds within them.
Amendments 73 to 75 seek to ensure that Treasury directions require scheme information to be published and specify what that information must include. This is distinct from the current permissive drafting of Clause 13. Greater transparency is absolutely essential if we are to invite analysis and debate on the performance of the schemes. I can reassure the noble and learned Lord that we are committed to improving the information that is made available. It is our intention to use a central direction to ensure that such publications are helpful and consistent across the schemes, and to set out what information will be available—which I think goes a long way towards what the noble and learned Lord is seeking to achieve.
Amendment 74 seeks to require that all information set out in Clause 13(3) is published. However, that list is not intended to be a fixed or exhaustive list of the matters that schemes will be required to publish. Rather, it is intended to set out the core areas of scheme information that the detailed requirements will be built around. The list provides a starting point. The Government are committed to greater transparency, but it is fair to say that there is more work to be done to identify what information should be published, what common methodologies and assumptions should underpin it, and how best to collate or co-ordinate its publication. Once we are doing it on a more systematic basis, we will also want to change or amend the information that is published in the light of comments that are made. I do not necessarily think that even the Treasury will get it absolutely right first time so it would not be helpful to determine a mandatory list now, when information requirements will undoubtedly change as a result of comments made on our first attempts, and over time.
I hope that I can assure the noble and learned Lord that Amendment 75 is not necessary. Clause 13 already allows for Treasury directions to require information to be provided in a particular format. That is the key. Further, Clause 13(3) is not exhaustive, and already allows for schemes to be required to provide or publish full scheme valuation reports.
Finally, I turn to Amendment 76. The OBR already includes the impact of public service pensions in its spring and autumn Economic and Fiscal Outlook reports and in its July Fiscal Sustainability Report. The OBR’s role is established by the Budget Responsibility and National Audit Act 2011. Section 4 of that Act places a duty on the OBR to consider and report on the fiscal sustainability of the public finances, of which the public service pension schemes clearly form a significant part. As we discussed on an earlier amendment, the OBR has already started doing this. The report it produced at the time of the Pre-Budget Report in December does exactly, I think, what the noble and learned Lord is seeking to achieve. The OBR clearly intends to carry on doing that, so that amendment is not necessary either. I urge the noble and learned Lord to withdraw this amendment.
Lord Davidson of Glen Clova
I am grateful to the Minister for his clarification on a broad number of areas. One is gratified to discover that we are ad idem in terms of our objectives. I will consider what has been said by the noble Lord and I congratulate him, again, on the openness of Her Majesty’s Treasury to change, which is always useful. I will reflect on what has been said and will seek to withdraw this amendment.
“Review of standards of administration
(1) Within six months of the day on which this Act is passed, the Treasury shall commission an independent review into the standards of administration in public service pension schemes and how those standards could be improved.
(2) The Treasury shall lay before Parliament the report produced by the review as soon as reasonably practical after the report has been published.”
Lord Davidson of Glen Clova
This amendment would require Her Majesty’s Treasury to commission an independent review into the standards of administration in public service pension schemes. I refer again to my noble friend Lord Hutton’s report, recommendation 22 of which expresses the desire that:
“Government should set what good standards of administration should consist of in the public service pension schemes based on independent expert advice. The Pensions Regulator might have a role, building on its objective to promote good administration. A benchmarking exercise should then be conducted across all the schemes to assist in the raising of standards where appropriate”.
The proposed new clause implements this recommendation by ensuring that the Government will receive independent advice on how standards of administration can be improved in public sector schemes. It also ensures that independent review will be publicly accessible, so that its implementation may be scrutinised and the recommendations easily accessed and implemented by schemes that wish to do so.
The Bill makes provision for the regulator to issue codes of practice at paragraph 14 of Schedule 4, but we say that this provision does not require the regulator or another independent expert to carry out, first, a review and then set out clear principles regarding good administration in public sector pension schemes. Were that to be done, it would, of course, enable these codes to be informed. An independent review would identify areas for improvement in the inevitable drive for better administration. As well as identifying best practice, it could inform future codes of practice and look at the possibility of streamlining and combining the administrative functions of schemes. In his report, my noble friend Lord Hutton observed that the commission,
“received suggestions and evidence from a number of commentators that public service pension schemes offer scope for streamlining and combining of their administrative functions”.
It is suggested that via this amendment one could examine ways in which the Local Government Pension Scheme in particular might benefit from economies of scale. It follows, therefore, that there is potential for sharing administrative costs and services, and creating broad contracts. I beg to move.
Lord Newby
My Lords, we have already taken steps in the Bill to ensure the effective and efficient administration of public service pension schemes. Until now, the schemes have been exempt from much of the legislation that applies to the governance and administration of other occupational pension schemes, but through Schedule 4 we are significantly extending the administration requirements on public service pension schemes. I would not necessarily commend Schedule 4 as it is extremely detailed, but to this extent I would do so because it sets out how we are changing the current arrangements by extending the administration requirements.
The schedule also extends the role of the independent Pensions Regulator in regulating the governance and administration of public service schemes, bringing it into line with the regulator’s role in regulating all other occupational pension schemes. As the noble and learned Lord has pointed out, the regulator will issue codes of practice relating to the responsibilities of public service schemes and be able to enforce compliance where schemes do not meet the requirements of the legislation. We are also taking steps to improve the transparency of the schemes and their governance by introducing pension boards, as we have discussed, as well as scheme advisory boards. Taken together, our changes will deliver the commitment to establish and monitor standards of administration in the public schemes.
The burden of the noble and learned Lord’s amendment is that before the codes can be introduced you need to have a review, and indeed he talked about an independent review. We think that we have dealt with the point about independence by the fact that the regulator is independent. Further, you cannot produce codes without reviewing what is already there. You do not simply sit down with a blank sheet of paper and not look at what already exists in terms of best practice elsewhere in the industry. Our expectation is that the Pensions Regulator will of necessity have to review existing best practice before it can produce its own codes. For those reasons, we think that the amendment is unnecessary. We think that we are going to do what the noble and learned Lord is seeking to achieve, but we do not need a belt-and-braces approach in the form of further cover in the Bill to ensure that it actually happens.
Lord Davidson of Glen Clova
Again, I am obliged to the Minister for his clarification. However, if this side has a prejudice it is that it is always better to be better informed. I will reflect on the Minister’s words to see whether what he has said matches our common objective. Once again, I respectfully seek leave to withdraw the amendment.
Lord Davidson of Glen Clova
This amendment would provide that the regulator must issue codes of practice by changing the permissive expression “may”. As I said earlier, when one comes across this language, one is always presented with an option either to do it or not, and plainly in this context it is not an enabling use of the word “may”. It does not suggest “shall”, so we suggest in this amendment that “shall” would be the better way of proceeding. That is because the desirability of codes of practice must be common, given what the Minister has already said.
As it stands, Schedule 4 allows but does not require the Pensions Regulator to issue codes of practice for public service pension schemes. Under the schedule, these codes of practice would include guidance in relation to the exercise of functions and standards of conduct and practice. Plainly, the intention of these codes is to bring about high standards of scheme governance and administration. We say that there should be a clear requirement that the codes are produced by the Pensions Regulator rather than leaving this as a potentially permissive provision. I believe that the Minister in another place said that this amendment was not necessary, but we take the opposite view in that it introduces a compulsitor on the regulator to make these codes of practice clear to all.
I should say immediately that there are many aspects of Schedule 4 that this side welcomes, specifically the requirement in paragraph 19 that pension board members must have appropriate knowledge and understanding to enable them properly to exercise their functions, and the requirement for public service schemes to establish internal controls, as set out in paragraph 21. However, we are concerned that the regulator is not obliged by this Bill to produce codes of practice for public service schemes. I beg to move.
Lord Newby
My Lords, it would be an interesting little exercise to look at how many hours of your Lordships’ time is spent debating across the Floor of the House whether to use “may” or “shall”, and vice versa. In my view, they are certainly too many.
As we have just debated, Schedule 4 sets out the new role for the Pensions Regulator in providing regulatory oversight of the administration and governance of public service schemes. A key part of that new role is to issue codes of practice. These codes set out in more detail the legal requirements on schemes and how to fulfil them. The regulator already issues codes of practice for private sector schemes and the drafting in this Bill closely mirrors the drafting in the Pensions Act 2004. These amendments would turn the overarching power for the regulator to issue codes of practice into a duty.
Proposed new Section 90A(2), set out in paragraph 14 of Schedule 4, already imposes a duty on the regulator to issue codes of practice in relation to the 11 matters listed in that provision. This sits under the broader power in proposed new Section 90A(1) to issue codes of practice in relation to the exercise of functions under pensions legislation and the standards of conduct of those exercising these functions. The result is that as currently drafted, the regulator will already be under an obligation to issue codes in relation to certain areas of pensions legislation. The power in new Section 90A(1) allows the regulator to issue codes on other areas in addition to those already required by new Section 90A(2).
New Section 90A(2)(j) provides, as does existing Section 90 of the Pensions Act 2004 on which this provision is based, for the Secretary of State for Work and Pensions to add to the list of matters in relation to which codes of practice must be issued. I can therefore assure noble Lords that the regulator will be obliged to issue codes of practice for the public service schemes. These are a key part of implementing the independent oversight and regulation of public service schemes, as recommended by the noble Lord, Lord Hutton.
Amendment 91 in this group relates to codes of practice in Northern Ireland. However, those provisions are all proposed for deletion by Amendment 90, which has already been debated. However, on the main point, I hope that with the reassurances I have given, the noble and learned Lord will feel able to withdraw the amendment.
Lord Davidson of Glen Clova
If the Minister is surprised at the amount of time spent by this Chamber in debate on the potential differences between “may” and “shall”, perhaps he should reflect on the decades that are spent in court having to consider and implement what this House and the other place have actually traduced. I am endeavouring to reduce by a few decades debate in the pensions area on the use of “must” or “shall” instead of “may”.
It is clear that the Government accept that there is a duty for the codes of practice and we welcome that. The difference between us is how far these codes of practice must go. The Minister takes the private sector as the comparator. Sometimes it might be an idea for the public sector to aspire to a slightly higher standard. However, given that no doubt difficult proposition for the coalition Government, I beg leave to withdraw this amendment.
“(1) New scheme regulations made under sections 1 and 3 shall replace existing schemes’ current regulations and shall take effect on the amendment date.
(1A) Following the implementation of new scheme regulations under subsection (1), benefits shall only be provided in accordance with those new regulations.”
Lord Davidson of Glen Clova
Amendment 91A and the other amendments in the group are designed to address the concerns with Clause 16, in particular relating to the Local Government Pension Scheme, as it allows for the closure of each of the 89 funds that make up the LGPS.
Our concern is that allowing closure could have a number of unintended consequences. It was mentioned in Committee that local government schemes are exempt from Section 75 of the Pensions Act 1995, so “closure” would therefore not trigger debts under that section. But that is by no means the only risk of the use of the operative word, “closure”.
There are thousands of employers in local government pension funds, each of which has individual admission agreements governing the terms of the employer’s participation in the fund. Those agreements are not necessarily in standard form, meaning that there are potentially thousands of different admission contracts. It is likely that at least some of these agreements will set out various powers for the local authority in the event of closure, including the power to collect a debt from the employer equal to its share of the scheme’s deficit. This could put a massive strain on participating employers and has the potential to put some of them out of business.
The Minister in the other place assured the House that the Government will not close the Local Government Pension Schemes but, respectfully, this misses the point that the Bill allows local authorities to close their funds and the Government cannot prevent them doing so. For their own reasons, local authorities may wish to close schemes in order to crystallise debts from certain employers. The Government have insisted that the word “closure” be used in Clause 16 but this does not in fact mean closure. We suggest that this might be approached differently, to avoid this explanation.
Closing a pension fund means that there are no longer any active members in the scheme but that the scheme continues. However, the Government insist that in the context of Clause 16, “close” does not mean “close”. Rather, it means that no benefits will be provided under the scheme. That is what I understand the position to be.
As Clause 16 is currently drafted, the word “closure” is not given the different meaning that the Government contend. Clause 16(1) provides that,
“no benefits are to be provided under an existing scheme ... after the closing date”.
That is not sufficient to change the word “closure” from its accepted meaning in pensions law.
If the Government want the word “closure” to have this different meaning, they should explicitly define this in the Bill. These amendments would ensure that schemes do not close but that they are amended. It is suggested that “amendment” is by far a better way of proceeding than continuing with the word “closure”. These amendments are designed to achieve the Government’s desired aims, which we share, but prevent what we suspect would be the unintended consequences that could arise if the Bill continues to allow “closure”.
Amendment 91D is new and provides that the closing date for a Scottish scheme is 1 April 2016. This is to address the fact that administration of the scheme in Scotland is more complex and that more time will be needed. The Bill requires that existing schemes are closed on 5 April 2015. This means that Scottish local government pension schemes have to be renegotiated and scheme regulations drafted. There has to be consultation, approval by the Scottish Parliament and then administrative implementation. This may be achievable in England, because negotiations over the schemes have been concluded and significant work has been undertaken on scheme regulations, as we have already heard. Sadly, this is not the case in Scotland as until this Bill there was no necessity to do so.
A new Scottish Local Government Pension Scheme was implemented as recently as April 2009. The focus was to implement the cost sharing and other provisions of that new scheme. This Bill imposes the principle of the English-negotiated solutions, which were not sought in Scotland.
Two years may seem enough time for the Scots to sort themselves out, but the reality is somewhat different. If one works back from April 2015, the timetable is as follows. At least a full year is required to implement the scheme administratively, which includes software changes; that, I gather, is a minimum period. At least a further year is required to undertake the legal process, including the drafting of regulations, public consultation, ministerial approval and the laying of regulations in the Scottish Parliament. This is based on Civil Service estimates, approved by a Scottish Minister. It is not simply a construct by this side of the House.
That timeframe leaves about two months for initial union consultation with members, negotiation with stakeholders, and then consultation with members and other stakeholders—councils, admitted bodies and so on—about heads of agreement. Pension negotiations, as the Minister will immediately accept, are complex and require extensive data that take a long time to produce. Agreements also require an equality impact assessment, which takes time too.
This timetable assumes that stages progress smoothly, with no significant difficulties. However, as in England, not everything in Scotland necessarily proceeds smoothly—in fact, in Scotland it is possibly less so. Making changes to the Scottish Local Government Pension Scheme is significantly different to doing the same to the English scheme. So far it has taken about a year for the Scottish scheme to catch up with its English counterpart. The last major change in England was in 2008 and 2009 in Scotland. An amendment that delayed implementation in Scotland until 5 April 2016 would therefore have the support of the trade unions, of the Scottish local authority body, COSLA, and of Scottish Ministers. I beg to move.
Lord Newby
My Lords, before I turn to these amendments I would like to notify the Committee of a development with regard to certain Scottish pension schemes.
The regulations made for local government, police or firefighters’ pension schemes in Scotland must follow the framework set by this Bill. However, Clause 3 does not require the Treasury to consent to them before they are made. This reflects existing devolution arrangements. The Chief Secretary sought to agree a mechanism to ensure that both Governments were kept appropriately informed of any changes to these regulations, or factors affecting them with the Scottish Government. This would have operated via a non-binding memorandum of understanding.
However the Scottish Government have now informed the Treasury that they do not consider there to be a need for such a memorandum. I can assure noble Lords that these schemes will not operate in a vacuum. Existing agreements will continue to apply to these schemes, and we will continue to support the Scottish Government in making these regulations fair and sustainable.
Lord Davidson of Glen Clova
Will the Minister briefly elucidate the reasons that the Scottish Government have given for why they do not consider that consent is required? If the Minister cannot do that immediately, I would be happy for him to write to me.
Lord Newby
I think I will have to write to the noble and learned Lord. I am very happy to do so.
I shall return to the amendments and start with Amendment 91D regarding the Scottish scheme. I heard what the noble and learned Lord said about the Scottish Government being unable to implement the reformed schemes in the 27 months available, but the Scottish Government have at no stage asked a Minister for a delay to the implementation of the schemes, and we think there are very good reasons for avoiding a delay.
A delay in implementing the reforms would, for example, result in hundreds of millions of pounds of additional liabilities being accrued in the Scottish schemes. These additional costs would have to be met from the Scottish budget at the expense of Scottish jobs and services. Furthermore, a delay would disadvantage Scottish public service workers on lower and middle incomes by prolonging the period that they will continue to subsidise the pensions of high flyers. I am sure that the noble and learned Lord does not think that that is desirable. The only thing I would say by way of general comment is that it has been clear since the point at which this legislation was introduced that it would apply to Scotland and how it would apply to Scotland. My right honourable friend the Chief Secretary has written repeatedly to the Scottish Government about what is going on in England and how we are making progress, and therefore there is no objective reason why the Scottish Government should not be absolutely marching in lockstep with the Government in London in terms of producing the scheme rules. We think that the time has come for the Scottish Government to get their skates on, and we do not believe that there should be a delay in Scotland for the reasons that I have given.
Lord Newby
I am afraid I cannot because it is not the responsibility of the London Government. We do not seek to micromanage what is happening in Scotland or to follow every minute of what the Scottish Government are doing in relation to these things, not least because if we did, we would be excoriated by the Scottish Government for interfering in Scottish affairs. These are Scottish affairs and I am afraid we cannot second-guess every bit of discussion that is going on in Scotland. It would make us extremely unpopular for no benefit because we are not responsible for the way those scheme negotiations are progressed.
I shall move to Amendments 92A and 93A. Concerns were raised in another place about the closing dates as originally drafted. Although I am confident that the dates as drafted would have worked as intended, to address the concerns echoed here, and following discussions with each of the schemes about their planned timetable for reform, the Government have tabled Amendments 92 and 93 to revise the closing dates. I hope that noble Lords feel that their concerns have therefore been addressed.
On Amendments 91A, 91C and 93B to 93G, I shall attempt to address noble Lords’ concerns relating to the extent and effect of the closure of the existing schemes. Taken together, these amendments seek to provide for the replacement of the existing regulations in order to make these reforms. This would mean that the new scheme regulations made under Clause 1 would have to provide for both accrued rights prior to reform and new service after reform with different rules pertaining to each. That would be unnecessarily complex and inefficient.
The Bill already enables new and existing arrangements for each workforce to be managed and administered together by virtue of Clauses 4 and 5. The new and existing schemes will have the same scheme manager and the same pension board. From the perspective of a scheme member, their existing and new pension benefits and the administration of their pensions will be seamless. I hope I can also reassure noble Lords that there is no need to place in the Bill any requirement to legislate for the new schemes. The Government have made a number of commitments in this House, in another place and elsewhere to enact the schemes in accordance with the relevant heads of agreement.
I realise that a number of concerns have been raised in another place about the use of the phrase “closing date”. We have given lengthy reassurances that these words have only the meaning that can be attributed to them in the context of the clause; that is, that they close the schemes to future accrual only. This was the subject of the correspondence between the Economic Secretary, the shadow Financial Secretary and the chair of the Local Government Association which I circulated to noble Lords a couple of weeks ago in which we sought to minimise confusion about the use of the word “close”. Government Amendments 111 to 114, to which we will come later, have been drafted to achieve that. I hope that noble Lords can now put their minds at rest on the subject.
We have been clear that our intention is to simplify and consolidate the existing legislation relating to the provision of pensions to public servants. In future, public service pension schemes will be made under the powers in the Bill. These amendments, as drafted, would not allow for such consolidation. Although I know what the noble and learned Lord was seeking to achieve, I hope he will understand why I cannot accept his amendments.
Lord Davidson of Glen Clova
I am obliged to the Minister. I remind him that when I referred to Scotland, I said that things do not always seem to move smoothly there. There certainly seems to be a different understanding on this side about what Scottish Ministers, who I take to be the Scottish Government, have expressed by way of a view in relation to timing. As I said, things do not always move smoothly north of the border.
If my learned friend the Minister—he may be learned for all I know and may be my friend—wishes to avoid unpopularity in Scotland, perhaps I may suggest that he refrains from suggesting that the Scottish Government move in lock step with the UK Government and that they get their skates on. In any event, I hear what he says, and we will perhaps return to this in due course when we are both better informed.
In relation to closure, the Minister described possible confusion between the Economic Secretary and his shadow. It may be that this is in effect a difference of approach. I suspect that we will return to this on Report, but at this stage I beg leave to withdraw the amendment.
Lord Newby
My Lords, Clause 16 provides that no person may accrue further benefits in the existing pension schemes after a given date. However, while this is referred to as “the closing date”, it is important to note that this does not mean that these schemes will be closed or wound up on that date. They will continue to exist to pay the benefits accrued up until the closing date, and beyond that date for those who are eligible for transitional provisions.
Although the closing dates as originally drafted would have worked as intended, they were a cause of concern in another place. To address these concerns, and following discussions with each of the schemes about their planned timetable for reform, Amendments 92 and 93 will revise the closing dates. Therefore, for local government workers in England and Wales, the closing date is 31 March 2014, and for all other schemes the closing date is 31 March 2015.
Amendments 111 to 114 are designed to minimise the potential for misinterpretation regarding how the Bill will affect the current schemes. Perhaps I may reiterate what was made clear in another place. There will be no subsequent crystallisation of liabilities when the Bill closes the current schemes to future accruals. To provide further clarity on this point, these amendments will remove references to schemes that are closed and instead signpost to the clauses that restrict the build-up of future accruals in the schemes. I beg to move.
Lord Davidson of Glen Clova
There was initially a spark of hope that these amendments might have addressed the question of closure. That spark has died. However, I hear what has been said. I will confine myself to saying that we may return to this matter on Report.
Governor of the Bank of England
Lord Davidson of Glen Clova Excerpts(12 years, 5 months ago)
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Lord Davidson of Glen Clova
To ask Her Majesty’s Government, in the light of current concerns over the supervision of financial markets, what qualities are required in the successor to the current Governor of the Bank of England.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Financial Services Bill makes provision to strengthen the UK’s financial regulatory structure. The proposals will establish a new system of focused financial services regulation with the Bank of England at its heart. The current governor still has almost a year of his term to serve. My right honourable friend the Chancellor of the Exchequer has confirmed that the process of appointing a successor will not begin before the autumn. The new governor’s qualities will of course reflect the Bank’s new mandate.
Lord Davidson of Glen Clova
I thank the Minister for his Answer. It is essential that the next governor is a man of unimpeachable integrity, or a woman of unimpeachable integrity—certainly a person who in all jurisdictions will command respect through their understanding of financial markets. Surely they will be required to be a person who has an intimate understanding of markets. The UK’s future problems are likely to have a substantial international context. Does the Minister agree that the next governor must have a character and position that enable him to have a strong, effective relationship with central bank governors in other jurisdictions, particularly the Middle East, China and the United States? If Her Majesty’s Treasury agrees with this, will it ensure that the next governor has these qualities?
Lord Sassoon
First, my Lords, for the clarity of the noble and learned Lord, the Chancellor has said:
“When the time comes, the best person for the job will be appointed, whoever she or he may be”,
so he is very clear on that point. The noble and learned Lord goes on to make an interesting suggestion about one of the possible dimensions of the job, and I listen carefully to what he has to say on that point.
Scotland Bill
Lord Davidson of Glen Clova Excerpts(12 years, 9 months ago)
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Lord Davidson of Glen Clova
Perhaps I may add some further Angusian support for the amendment, recognising that Angus is well represented in relation to this particular amendment. It has already been observed by a number of noble Lords that the underlying purpose of the Scottish rate of income tax is to bring real accountability to the Scottish Parliament on behalf of the Scottish taxpayer. As the noble Lord, Lord Forsyth of Drumlean, says, decisions on this tax will have a profound effect and will of course be extremely important for the Scottish Parliament. Therefore, we on this side agree that there should be an obligation to consult interested parties, such as business, charities and pension funds.
The only point that I would raise is that such an obligation to consult might also be useful were a lower rate of tax to arise. I immediately appreciate that this amendment comes from a quarter that does not envisage such a possibility but, perhaps on a logical basis, there may be a reason for both higher and lower outcomes requiring consultation.
Lord Forsyth of Drumlean
I completely agree. I think that if the proposal were to lower the rate of income tax, something so out of order would be going on that it would certainly be desirable to consult.
Lord Davidson of Glen Clova
If such an event came about, any retractions that might be required from any quarter could also be added into the consultation. We support the amendment.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, as my noble friend Lord Forsyth of Drumlean has explained, Amendment 53A would require the Scottish Parliament to consult interested parties prior to passing a resolution that would see a Scottish taxpayer paying a higher rate of tax on non-savings income than the equivalent UK taxpayer. Of course, my noble friend has also explained in passing that there is no such requirement on the UK Government to consult interested parties when they make similar decisions.
There are two reasons why the Government do not see merit in my noble friend’s amendment. First, the underlying purpose of the Bill is after all to provide for greater financial accountability of the Scottish Parliament to its electorate and give the Scottish Parliament a real stake in Scottish economic performance. I hear, and heard in our previous sitting, my noble friend’s doubts about that, but that is the purpose of the Bill. Devolving the right to set a Scottish rate of income tax to the Scottish Parliament is absolutely key and central to that, which clearly my noble friend accepts. In devolving that key power, I do not believe that it is right for the Government to impose conditions on how the power is used. Ultimately, as the noble Lord, Lord Browne of Ladyton, pointed out in the previous discussion, the Scottish Parliament is and will continue to be subject to regular elections. My noble friend seems to be blithely suggesting that somehow the income tax rate will go up and up in Scotland without reference to the fact that it might not be an election-winning strategy. The Scottish Parliament should not be fettered in the consultation processes through the legislation.
Lord Forsyth of Drumlean
My Lords, having managed to get my amendments in a row, I should like to contribute briefly to this debate. I have only one question for my noble friend. There was a definition in the Scotland Act of a Scottish taxpayer, which was required in order to implement the variable rate, to which we were told that the Scottish people had given their consent. Will he tell us specifically what was wrong with that definition that requires all these clauses in this Bill?
Lord Davidson of Glen Clova
My Lords, it might clearly be seen that this group raises significant issues. The Scottish rate of income tax is plainly a major innovation in the structure of UK tax. Where one has a major innovation in taxation issues, usually simplicity is regarded as a virtue. I suggest that simplicity and clarity would be very clear virtues here. The questions that have arisen include definitions. I should like to raise certain of these points. The definition currently being suggested—unlike the bygone definition under the variable rate—is by reference to,
“an individual who is resident in the UK for income tax purposes”.
There is no statutory definition of UK residency for tax purposes but, helpfully, there are 86 pages of guidance which are subject to frequent revision by HMRC. In seeking clarity, will there be a way in which the Government will give some guidance as to how specifically the taxpayer for Scotland will be defined and how residence will be defined?
The Chartered Institute of Taxation has suggested that there should be a statutory residence test for the UK. It would be very interesting to hear from the Minister whether steps are being taken to put in place such a test. The chartered institute is not alone. As the noble Lord, Lord Lyell, indicates, the Institute of Chartered Accountants of Scotland has raised this question, as has the Federation of Small Businesses and CBI Scotland. They all seek to see a concrete definition of residence for this tax. What are Her Majesty's Government doing to address these concerns from the professional experts in the area?
The noble Duke, the Duke of Montrose, raised the question of close connection and the test being employed. Oil workers living in England but commuting to a Scottish oil rig will not have a close connection but the Scottish resident who works in England, returning to Scotland at weekends and holidays, will, apparently, be defined as a Scottish taxpayer. It will be interesting to hear the Minister’s answer to the question of how the Government will deal with mobile workers. They may find it impossible to know where they might be until a day count is carried out at the end of the year.
Concerns have also been raised that there may be unfairnesses that, through a loose definition of Scottish residence, may permit wealthy individuals to arrange their affairs to avoid a higher rate of tax. Plainly, if this is lawful, it is lawful, but it may raise questions as to the extent of avoidance that might take place. It will be interesting to hear whether that has been considered.
It is inevitable that there will be disputes in relation to the definition of residence. Are mechanisms to be put in place to deal with disputes in relation to the application of the rules? Will there be a tribunal system with a right of appeal or will it simply be left to the courts? Where will we stand on this?
I turn to questions of non-UK residents, which tend to excite from time to time. Do the Government agree that a non-UK resident working in Scotland is liable to pay tax in Scotland? Should this be at the Scottish rate? The Bill currently provides that, for example, company directors, sportsmen and entertainers undertaking duties wholly in Scotland would pay UK income tax on income earned entirely in Scotland. Does that seem to be the correct way forward with a Scottish income tax? Employees inevitably will go to their employers in order to seek information on their tax status. They are more likely to do that than to go to the call lines of HMRC. What are the Government doing to support employers, particularly small and medium-sized enterprises, so that they in turn can support their employees in their inquiries?
More broadly, concerns have been expressed by many, including the Chartered Institute of Taxation, that there will be a need to staff up properly to meet an expected flow of difficulties and questions in respect of Scottish income tax. The approach that HMRC adopts towards staffing is one of considerable importance because taxation is perhaps one of the most complicated areas of legislation. While the Scottish Parliament may be able to create new taxes, the questions that will arise are likely to be highly complicated and require a considerable amount of professional input in order to permit clarity to be seen by the Scottish taxpayer.
Another question has been raised which I think might be the subject of a separate amendment but, like the noble Lord, Lord Forsyth, I am not entirely clear on what the running order is at the moment. It concerns the split year. Currently no account is taken of split years where someone may be a Scottish taxpayer for one part of the year and a taxpayer somewhere else in the rest of the United Kingdom for the other parts. The problem is that if one is defined as a Scottish taxpayer at the beginning of the year, it appears that one remains a Scottish taxpayer for the entire year. That may not seem entirely fair or satisfactory. It is perhaps a little unfair to the individual who moves to another part of the United Kingdom, and it creates difficulties for Scottish employers or indeed UK employers who may find themselves having to deal with Scottish rates of income tax in respect of employees who are far away from Scotland. It is a curiosity and seems to be slightly cumbersome. One would be given some kind of confidence that this is going to work well if the Government could indicate how these types of issues will be dealt with. Other changes might be required in relation to pension deduction rules. Should such rule changes be effected through primary legislation by the Scottish Parliament or should they simply be done by subsidiary legislation? It is plain that the former would avoid the lack of clarity that secondary legislation can sometimes create.
One further area of avoidance on which some assistance might be helpful is how Her Majesty’s Government propose to deal with avoidance of Scottish income tax rates by the use of the personal service company. Such a company registered in England would presumably permit the taxpayer to draw dividends from an English company. Those do not appear to fall within the Scottish rate of income tax. Again, this might seem slightly curious.
In relation to the self-employed, it would be useful to know whether the Government have particular proposals that they wish to put in place on how self-assessment tax returns will proceed. Are they to be altered or will they remain the same? In relation to benefits, inevitably there will be an impact on how they operate in the context of the Scottish rate of income tax. Benefits are assessed on after-tax income. If the Scottish rate is higher, and there is a view that it will always be higher, that will have an impact on benefits because presumably the benefit recipient will be entitled to a higher rate of benefit. How are Her Majesty’s Government going to deal with this rather complex problem? If taxation is one of the most complicated areas of our legislation, benefits can certainly give it a pretty good run as the second most complicated area. If, of course, the Scottish tax rate were lower—I accept that this is a possibility—mechanisms may be required to deal with the benefit by reducing it. How is that going to be dealt with?
I accept that I have bombarded the Minister with a range of questions for which I do not seek immediate clear answers. It would be wholly unfair to do so.
Lord Forsyth of Drumlean
When the noble and learned Lord says that he does not expect immediate answers, I would point out that we are at the final stages in the final weeks of this Bill, and he has raised a number of very important points, if I may say so—not least one that I had not thought of, which is that everyone can get around this by setting up a company in England and paying themselves in dividends. Since I had not thought of it, I would like to have an answer to that and to the other questions. If there are loopholes of this kind, they need to be plugged before the Bill reaches Royal Assent.
Lord Davidson of Glen Clova
I am guided by the noble Lord, Lord Forsyth, as to how one should approach the Minister. I note what he has said and I hope that I have at least given the noble Lord some useful advice that will allow him to look at certain issues. However, I will await the answers from the Minister.
There is one further point that I should raise with the Minister, which to an extent echoes what the noble Lord, Lord Kilclooney, said. We are in a position where devolution seems to be taking us to where we may have a separate tax system in Scotland, in Northern Ireland, possibly in Wales and in England. Under the coalition Government there is a new Office of Tax Simplification. It would be helpful to know whether some guidance might be sought as to how simplification might be assisted. I do not mean that entirely frivolously because it is plain that this is an area of great complexity. It would be useful at least to recognise that there may be a step away from a unitary tax system to something that is more complicated, so guidance on simplification from every quarter might be useful. In relation to the various amendments, it will be detected that we are broadly in support of seeking clarity.
Lord Sassoon
I am grateful to the noble and learned Lord, Lord Davidson of Glen Clova, for his measured and reasonable approach. I think that I have had 57 varieties of questions and counting. Some of the questions are very technical and possibly do not go to the heart of the clause, but I will make sure that a letter sweeping up as many of the points as possible is written ahead of the Report stage so that all noble Lords have their queries addressed in good time.
There are one or two questions that I had anticipated which we did not get to, such as the tax position of Scottish astronauts. I am sure that we could have found one or two other cases. The serious starting point of all this is that, as the noble and learned Lord, Lord Davidson of Glen Clova, points out, there is huge complexity already in the UK system on residence matters. We do not want to add unnecessary complexity in this Bill. Quite a number of the issues that have been identified in this interesting discussion already arise under UK tests, and are not particular to Scotland. Others are very much issues particular to Scotland. I believe that they have all been given consideration, but I certainly do not pretend that any of this will be simple.
Lord Kerr of Kinlochard
My Lords, I follow exactly what the noble Lord, Lord Forsyth, is doing but it gets worse and worse. The best answer would be to remove these special categories altogether. Other countries have gone down the road of having special treatment for the public sector nomenklatura and singling it out in legislation. It is not a good road to go down.
Lord Davidson of Glen Clova
My Lords, might I also perhaps encourage the noble Lord, Lord Forsyth of Drumlean, to consider the position of judges. One of the great strengths of the United Kingdom is that Scotland has access to the whole Supreme Court, and therefore some of the finest minds and judiciary in the world. All those members of the Supreme Court have responsibilities for Scotland and it would perhaps be unfortunate if all 12 members of the court were to suddenly find themselves subject to the Scottish rate of income tax. I know he is looking for suggestions for his list, but possibly that one should be removed.
Lord Sassoon
My Lords, I see a clear distinction between the previous category of people and parliamentarians, who are different in a number of respects, not least because they are specifically tied, in a very clear way that we well understand, to the electorate and a constituency in Scotland. However, the extent to which a judge, a Peer or a civil servant could be said to have responsibilities for Scotland will vary enormously from case to case. My noble friend has said that this is a probing amendment and that he is not serious about it, so it would be wrong to criticise the amendment for the flaws in its drafting, but goodness knows how one would go about defining what “responsibilities” means in this context and how the test would apply in practice. It would be very difficult.
I certainly agree with the sentiment that we do not want to go down the slippery slope that the noble Lord, Lord Kerr of Kinlochard, identifies of putting lots of people into some special category. Obviously, many judges, civil servants and, dare I say it, Peers will have a close connection with Scotland and will therefore be caught or encompassed by the definition of “Scottish taxpayer” as defined in the draft Bill. I am with the noble Lord, Lord Kerr, in that I do not think we should go further down this route other than in the specific case of the parliamentarians, where the considerations are different in a number of respects, not least because they are very specifically tied to Scotland in a way that this other, looser, category would not be. It is right that the individuals identified in Amendment 54D should have the conditions A and B applied in the same way as all other taxpayers. On that basis, I would yet again ask my noble friend to withdraw his amendment.
Lord Forsyth of Drumlean
This amendment requires the Treasury to consult before altering reliefs, disapplying or nullifying enactments. In an earlier debate when I suggested that the Scottish Parliament should have to consult before raising a higher rate of income tax, my noble friend said that the whole point of the legislation was to create accountability for the Scottish Government and that they should be free to carry out their powers without any specific requirements to consult. The Treasury using these powers to alter reliefs could have a significant effect on the baseline revenue of the Scottish Parliament. We touched earlier on the position of charities, for example, which remains unclear. It therefore seems to me that at the very least, the Treasury should be required to consult before using these extensive powers. I beg to move.
Lord Davidson of Glen Clova
My Lords, I support the noble Lord, Lord Forsyth, in seeking further areas of consultation. How true it is that the Scottish Parliament, under improved devolution, will have greater powers. None the less, it remains part of the United Kingdom and therefore it would be very important that consultation on areas which could have a significant effect throughout the United Kingdom should be put in place by the Treasury.
Lord Sassoon
My Lords, Amendment 54G would indeed require the Treasury to consult interested parties, specifically including the Scottish Government and Parliament, on its plans. It may be helpful to explain the Treasury’s new approach to tax policy-making, which was published with the 2010 Budget, because that sets out the Government’s commitment to consult on tax changes in legislation. Secondary legislation made under the power in proposed new Section 80G would be treated no differently, so we already have a commitment to consultation through the Government’s general approach to consultation on tax changes. Indeed, in the context of the Bill and through its technical groups, the Government are already consulting on further changes needed as a result of the Scottish rate. The Scottish Government have been involved in these discussions, so I have absolutely no difficulty with the underlying concern that my noble friend seeks to address here. I simply point him to the fact that since 2010, under the new framework which the coalition Government have put in place, we are doing all these things already on a UK-wide basis under the policy that we announced.
It is important to recognise, nevertheless, that any changes which are made as a consequence of the introduction of the Scottish rate will still need to fit within the wider UK income tax system. I believe it is correct that while the Government are committed to consulting with the Scottish Government, Ministers and Parliament, and with others as part of our general approach, the Government should nevertheless have the final say on how these matters are handled, just as they do on how matters are handled across the UK tax system. On that basis, I again ask my noble friend to withdraw his amendment.
Lord Forsyth of Drumlean
Amendment 54J requires the Treasury to consult and obtain the consent of the Scottish Parliament before using its powers to change tax rules by order. This relates to the point that I made previously: the Treasury could knock out the financial planning of an Administration in the Scottish Parliament. If it proposes to do this, it should have to obtain the consent of the Scottish Parliament. I beg to move.
Lord Davidson of Glen Clova
My Lords, we offer our support to the noble Lord, Lord Forsyth, for the intention that lies underneath this amendment. There is clear utility in there being coherence within the UK tax structure. I stress “coherence” rather than “unity”, given the intention to devolve these powers to Scotland, and say nothing further.
Lord Davidson of Glen Clova
My Lords, we on these Benches oppose the amendment at this juncture. While true it is that the Calman commission recommended that this tax be devolved—and true it is also that Labour’s White Paper said that tax should be devolved—if there is any thought that this is a sudden volte-face on the part of Labour, I am afraid that that is not the case.
Her Majesty’s Government said in the Command Paper that air passenger duty was under review. There is a question on whether a tax per plane might be discussed. We consider that it is not appropriate at this stage to devolve this tax until the issue is resolved; I think that we agree with the Government on this. However, the noble Lord, Lord Forsyth, might be relieved to hear that there is a power to create new taxes, which I think he might be aware of. In due course, under new Section 80B, were the air passenger tax to be devolved, this option would be open.
Lord Forsyth of Drumlean
The noble and learned Lord has not been listening to my speech. Frankly, I do not blame him—but I did say that one reason that I tabled this and the other amendment was to get rid of that general power, which I regard as highly undesirable. Perhaps he could help me; why is the fact that the UK Government are reviewing what they want to do about air passenger duty an argument against giving the responsibility to the Scottish Parliament? If it is decided that they are going to abolish or double air passenger duty, or whatever, the revenue may halve or double. We have already been told in a long debate that there is compensation for this, so why on earth would the Government not put it in the Bill now? The fact that they are reviewing it is surely irrelevant.
Lord Davidson of Glen Clova
It is not for me to answer for the Government. Doubtless that will be done in due course but, accepting the kind invitation for the moment, it is plainly desirable to have a coherent starting point. Simply to say, “This can now be devolved and the Scottish Government can set off on their own way, without any regard to what is happening in the rest of the UK”, might be unhelpful not only to the rest of the UK but to Scotland.
I apologise if I did not pick up on his enthusiasm for advancing this in order to reduce the power to create new taxes. I understand his concern about the extent of that power. However, it might be interesting to note that the Holyrood Scotland Bill Committee has accepted that once the future of this tax has been decided, it should be considered for devolution then. Therefore, it would appear that while the noble Lord, Lord Forsyth, is in advance of the Scottish Government in their demands for ever greater powers, at least in Holyrood there has been an indication that they are prepared to wait.
The Earl of Caithness
My Lords, I did not find the argument of the noble and learned Lord, Lord Davidson, at all convincing. Does it mean that the UK Government are now not allowed to look at any taxes which they are proposing to transfer to Scotland? If they are looking at air duty and saying, “No, you cannot give it to Scotland as the UK Government are looking at it”, and given that there is a Budget coming up, presumably, to follow the noble and learned Lord’s argument, we should not devolve anything to Scotland.
Lord Davidson of Glen Clova
My Lords, it is always a danger to generalise from the particular. In this instance, one sees that we on this side are content that the tax be devolved in due course—but where the people in Scotland, as expressed through their Bill Committee, seem to see virtue in waiting, we would agree with them.
Lord Sewel
My noble and learned friend talks about being content for the tax to be devolved in due course. That would be the route that the noble Lord, Lord Forsyth, identified, in which the only parliamentary control is an order. Will my noble and learned friend tell me where he draws the line between those taxes that should be devolved through primary legislation and those that should be devolved through secondary legislation?
Lord Davidson of Glen Clova
I am obliged to my noble friend. There is considerable difficulty in identifying where that line should be drawn. However, where there is a significant tax, the view from this side is certainly that there would be virtue in its being found in primary legislation. If one were using a power under new Section 80B, it would be primary legislation in the context of the Scottish Parliament. I hope that helps.
Lord Sassoon
My Lords, I think I should allow the noble and learned Lord, Lord Davidson of Glen Clova, to continue; he seems to have made the points in a way that I could not hope to match. I suppose I should do more than say that I agree with everything that he said and sit down.
I do not want to reopen all the discussions that we had in the previous Committee session but it is important to recognise that, as the noble and learned Lord said, there is an appropriate series of checks on both sides before any power could be devolved under Clause 28. I remind my noble friend that a similar power exists under Section 30 of the Scotland Act. I see the noble Lord, Lord Sewel, nodding. A power already exists for the Scottish Government to request new powers, including on taxation, under Section 30 of the Scotland Act. Perhaps I should not have gone into this territory, but it provides important background to this matter.
My other point is that Scottish Ministers referred to the Section 30 power when seeking legislative responsibility for a whole range of things, from firearms to consumer protection. As noble Lords will know, in each case the Government rejected the requests made by the Scottish Government. As background to this discussion about air passenger duty, it is important to remind ourselves that there are proportionate powers under Clause 28.
Lord Davidson of Glen Clova
My Lords, this is a very, if I may put it this way, gentle, probing amendment. It looks at Clause 37 and, in particular, subsection (3). The reason that one is advancing this is that one understands from the Command Paper, Strengthening Scotland’s Future, that there would be a current borrowing capacity for Scottish Ministers of up to £500 million. In the terms of subsection (3) that seems to be designed to cover, putting it broadly, a temporary shortfall in receipts.
When one looks at Clause 37, one sees that, in terms of capital expenditure borrowing, if Scottish Ministers wish to use that power they are required to obtain the approval of the Treasury. In subsection (5) there is reference also to the Secretary of State making an order pursuant to,
“the consent of the Treasury”.
What one is endeavouring to ascertain by the amendment is the thinking of the Government in relation to how temporary shortfalls may be met by borrowing, and what control there would be over that. Plainly, at least in Scotland but certainly in other jurisdictions, temporary shortfalls have a way of becoming fairly permanent. Borrowing by subsidiary jurisdictions can occasionally get out of hand, which requires being brought back under the control of central government. One is simply endeavouring to find for what reason no consent order or other order was put specifically on this power in the Bill.
I can perhaps put it better. One sees that there is a power here. It is going to be controlled, we are told in the Command Paper. Why is it not being controlled in the Bill, given that it is the very nature of borrowing that it might run out of control?
Lord Sassoon
My Lords, the short answer to the noble and learned Lord, Lord Davidson of Glen Clova, is that the additional safeguard proposed in his amendment does not need to be written into the Bill in this way because the limit and sources of borrowing are already controlled in the legislation and the Command Paper. I could leave it at that, but I feel that I should say a little more, because I understand what the noble and learned Lord and the noble Lord, Lord Browne, are driving at in their amendment. I agree that control over the borrowing powers needs to be careful and considered. They have given us an important opportunity to look at this matter and to confirm what I believe to be the case; namely, that sufficient controls exist.
The extended current borrowing facility proposed will provide Scottish Ministers with a lever to deal with the deviation between forecast and actual outturn receipts from devolved taxes. It will also enable them to deal with the volatility in revenue flows from taxes as they enter the Consolidated Fund at different times over the tax year and beyond. The current borrowing power will come into operation when the taxes are devolved, up to a limit of £500 million. I do not think that the noble and learned Lord is suggesting that there is anything inappropriate about that—he is confirming that he does not challenge the logic of that. In addition to the current borrowing facility, Scottish Ministers will have the power also to borrow to fund capital expenditure to a limit of up to 10 per cent of the Scottish capital budget in any year, with the overall stock of debt for capital purposes not exceeding £2.2 billion.
Such borrowing will need to be self-financed through increased revenue from taxation in Scotland or a reduction in public spending. So there are controls in place on the levels of borrowing, as there must be. On that basis, the Bill allows Scottish Ministers to access the most competitive source of lending, which is the National Loans Fund.
All other things being equal, Scottish borrowing will increase UK borrowing and debt. The limits in the Bill and the controls set out in the Command Paper will ensure that the Scottish debt is affordable from within the UK fiscal position.
While I support the intention behind the noble and learned Lord’s amendment, which is that borrowing by Scottish Ministers must not risk the UK’s fiscal position, I believe that the borrowing limits reflect a judgment of what is affordable and do not put that position at risk. The limits on borrowing for capital expenditure were judged by my right honourable friend the Chancellor of the Exchequer to represent an acceptable level of risk that he was willing to place on the UK’s public finances. The limits on borrowing for revenue expenditure were based on an assessment of the size of forecast errors in income tax in normal times. Unlike capital expenditure, where a stock may build up, borrowing for revenue expenditure is related to a technical assessment of forecast errors and the timing implication.
The protections already in place in the Bill are sufficient to ensure that the UK’s fiscal position is fully protected. I again thank the noble and learned Lord for stimulating this short discussion, but ask him to withdraw his amendment.
Lord Davidson of Glen Clova
I am obliged to the Minister for his careful clarification of the position. There is much content in what he has said and I shall reflect on it. Meanwhile, I beg leave to withdraw the amendment.
Al-Qaida (Asset-Freezing) Regulations 2011
Lord Davidson of Glen Clova Excerpts(13 years, 1 month ago)
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Lord Davidson of Glen Clova
My Lords, first, I thank the Minister for introducing these regulations. Perhaps I may say immediately that this side of course supports the principle underlying these regulations, particularly as they substantially update, replicate and, to a degree, improve the regulations that were introduced by the previous Government on the same topic. Their purpose to keep in place protections for the UK against financing terrorist activity is wholly supportive. We also recognise the necessity of these regulations to maintain the UK’s criminal penalties for breaches of the underlying European Council regulation.
In discussions regarding the predecessor 2010 regulations, a tangential concern was expressed about the UN processes in designating persons on the target list. While all the time recognising that the Council regulation on which these regulations are based does not merely require a replication of the UN target list, it nevertheless takes considerable account of it. I fully appreciate what the Minister has indicated by way of improved protections at the EU side but it would be interesting to hear from the Minister, following the discussions at UN level, what particular developments have taken place in enabling challenges to be made by an individual to their being placed on the UN target list.
I endorse the observations made by my noble friend Lord Myners in relation to the areas in which he seeks clarification. In conclusion, the Opposition support the balance that these regulations strike between security and liberty.
Lord Sassoon
I am afraid that I did not quite catch the noble and learned Lord’s question and I want to try to give him the service of an answer. His noble friend asked me lots of questions but since the noble and learned Lord asked only one, I want to make sure that I got it right. Perhaps he would not mind clarifying the question.
Lord Davidson of Glen Clova
It will be my pleasure. I was seeking clarification or explication of the processes which the UN employs for putting individuals on the target list and the way in which discussions by the UK Government at the UN level have improved the potential for challenge by individuals finding themselves on the UN target list. One fully appreciates that the UN target list is not simply replicated by the EU target list. It applies its own judgment in relation to these. But, given that the EU takes considerable account of what the UN does by way of placing individuals on the target list, it would be helpful to understand how a challenge might be made by an individual at the UN level. I appreciate that this is entirely tangential but it would be interesting to know as this matter has caused concern in the past.
Lord Sassoon
My Lords, I thank noble Lords very much for this focused short debate and for a number of questions which are absolutely to the point. Even though the noble and learned Lord says that his question is tangential, I do not think that it is at all. It goes to the heart of the UK’s concerns to make sure that when the UN did its review of the regime leading up to June 2011 we made sure that there were additional proper protections. I might come back to that in a minute.
I am grateful that all noble Lords recognise the importance of these regulations but it is equally clear that we should get the details right.
In answer to my noble friend Lady Kramer’s questions, I can certainly reassure her that absolutely nothing will slip through the gaps; there is nothing separating the old and the new regimes. We are putting in place something that ensures that there is a seamless continuation from the old combined resolution regime into the two separate regimes.
On whether there will be any additional burdens on ordinary people, I shall expand that to ordinary people and small businesses because it is important that small businesses do not have any additional burdens placed on them. Consistent with my previous answer, there should be no substantially changed burdens from the previous regimes. In fact, there has been some rationalisation of the drafting of the regulations in the process of coming forward with this new regulation. We continue to have a dialogue with representatives of small firms. I can reassure my noble friend on that. She also asked about the burden on people. It mainly will ensure that private individuals, who are in any way conceivably connected to this regime, have legitimate payments flowing to them. I believe that the regime will continue to ensure that that is the case.
I wondered why the noble Lord, Lord Myners, was writing away so furiously and I now understand that he was setting an exam paper for me.
Civil Procedure (Amendment No. 4) Rules 2010
Lord Davidson of Glen Clova Excerpts(13 years, 10 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
I beg to move that the Grand Committee do now consider the Civil Procedure (Amendment No.4) Rules 2010, but I will also speak to the Rules of the Court of Judicature (Northern Ireland) (Amendment No.3) 2010.
Noble Lords may find it helpful if I start by briefly explaining the wider legislative context of the rules that we are debating today. The ruling of the Supreme Court in the case of Ahmed and others v HM Treasury in January 2010 placed the legality of the Terrorism (United Nations Measures) Order 2009 in doubt. Consequently, the Terrorist Asset-Freezing (Temporary Provisions) Act was passed in February 2010 to protect the 2009 order from being quashed on vires grounds. Subsequently, the Terrorist Asset-Freezing etc. Act 2010 received Royal Assent in December and put terrorist asset-freezing designation powers in primary legislation. I think that all parties recognise that the 2010 Act was absolutely necessary to the United Kingdom’s continued national security and to fulfil our international obligations under United Nations Security Council Resolution 1373.
Both Houses of Parliament gave the Act careful scrutiny during its passage, in particular looking closely at the civil liberties issues raised and how best to address them without compromising national security. The Government made a number of amendments to the asset-freezing regime provided by the 2009 order, including the introduction of a higher threshold for designations lasting longer than 30 days—reasonable belief rather than reasonable suspicion—and a merits-based right of appeal against designation decisions rather than judicial review. I am confident that we struck the right balance in the 2010 Act between protecting national security and protecting civil liberties.
As part of the government amendments which introduced a merits-based right of appeal to asset-freezing designation decisions, a provision was included to allow the Lord Chancellor to make rules of court for such appeals. That was necessary to allow rules to be made quickly after the Bill received Royal Assent. Rules were needed quickly because transitional provisions in the Act deem designations in force under the 2009 order to have been made under the 2010 Act for a short time to ensure continuity of asset-freezes. Rules needed to be made to ensure that there was a framework in place if designated persons wanted to challenge their freezes under the Act.
The Lords Chief Justice of England and Wales and of Northern Ireland were consulted on the draft rules. The Civil Procedure Rule Committee was informed that the Lord Chancellor would be making rules to provide for asset-freezing appeals and was shown an early draft. The Civil Procedure (Amendment No.4) Rules 2010 and the Rules of the Court of Judicature (Northern Ireland) (Amendment No.3) 2010 were laid before Parliament on 23 December 2010 and came into force the next day.
The rules of court made by the Lord Chancellor for designation appeals amend Part 79 of the Civil Procedure Rules and Order 116B of the Rules of the Court of Judicature (Northern Ireland) 1980 respectively. Part 79 was created following the passage of the Counter-Terrorism Act 2008 to provide rules of court for financial restriction proceedings, including asset-freezing proceedings.
Rules in Part 79 cover the use of closed information and special advocates and are intended to ensure that information is not disclosed contrary to the public interest while ensuring that proceedings are properly determined. The existing provisions of Part 79 apply judicial review principles to such challenges. These remain in force for decisions—such as challenges in relation to asset-freezing licensing decisions—that remain subject to judicial review principles.
There are three strands of amendments to the Part 79 rules to allow for appeals. First, Rule 79.1 is amended so that the general provisions concerning the appointment of special advocates, the requirements for disclosure and procedures for determination of proceedings apply also to designation appeals. Secondly, a new Section 3 is inserted. This deals with the mechanics of starting an appeal by setting out the details to be included in the notice filed to start an appeal and the material to be filed with that. It also applies existing rules to any application to the Court of Appeal following a High Court determination. Thirdly, there is one substantive amendment made to the general provisions in Section 4 of Part 79 as they apply to appeals. This concerns disclosure, which in itself is a complicated matter and requires a little explanation.
Rule 79.23 requires the “disclosing party” to search for material that is relevant and, under Rule 79.23(1)(b), to file and serve material: on which the disclosing party relies; which adversely affects the disclosing party; which adversely affects the other party; or which supports the other party.
There is an exception for the disclosure of “closed material” which is dealt with separately. A difficulty arises because the definition of closed material in Part 79 does not cover material which a party holds and which adversely affects not him but the other party, but which he does not wish to use. Therefore, if the Treasury holds sensitive material which supports the case for designation but which, for reasons of national security, it does not want to rely on in an appeal, it could be argued that it should be disclosed under the current wording of Rule 79.23. We think that this interpretation is wrong, given the obligations in the rules to ensure that disclosures of information are not made where they would be contrary to the public interest.
We are therefore using this amendment to make clear the parties’ disclosure requirements so far as the rules apply to appeals. We will ask the Civil Procedure Rule Committee to exercise its power to remove this provision from Part 79 as it applies to other financial restriction proceedings. Let me stress that this change in no way adversely affects the appellant or the proper determination of the appeal. Nor will it affect the Treasury’s obligation to disclose all information which adversely affects the Treasury’s case or supports the other party’s case.
On 4 February, the Joint Committee on Statutory Instruments published its 14th report, in which it drew two issues to the special attention of both Houses. We are grateful to the committee for publishing the report on Friday, rather than tomorrow as would have been its usual practice. Early publication has enabled this debate to go ahead when otherwise it would inevitably have had to be postponed.
The first point to which the JCSI draws special attention is a failure to set out the fact that Section 28(4) of the Terrorist Asset-Freezing etc. Act 2010—one of the instrument’s enabling powers—incorporates by reference Sections 66 to 68 of the Counter-Terrorism Act 2008. Sections 66 to 68 authorise provisions in the court rules which apply to designation appeals. The JCSI concludes, and the Ministry of Justice accepts, that the instrument does not in this respect comply with proper drafting practice. However, there is no effect on the validity of the instruments.
The JCSI has also drawn attention to a reference in each set of rules to “the application” rather than “the appeal”. The Ministry of Justice has made it clear in correspondence with the JCSI that although the meaning should be clear from the context, use of “the appeal” would have been preferable. The Ministry of Justice will draw that to the attention of the Civil Procedure Rule Committee, which can, if it considers it appropriate, make that change next time the Civil Procedure Rules are amended.
I turn now briefly to the Rules of the Court of Judicature (Northern Ireland) (Amendment No.3) 2010. Order 116B was, like Part 79, created following the passage of the Counter-Terrorism Act 2008 and creates rules of court for the determination of challenges to financial restriction decisions. Order 116B has a similar scope and content to Part 79 in that it provides for the use of closed material and the appointment of special advocates. Order 116B is similarly amended by the Amendment No.3 instrument to apply it to designation appeals under the 2010 Act, and is amended in the three ways outlined above for Part 79. If the amendments to Part 79 and Order 116B are approved, any future amendments to Part 79 will be made by the Civil Procedure Rule Committee and any future amendments to Order 116B will be made by the Northern Ireland Court of Judicature Rules Committee.
The court rules we are debating set out the process we expect the court to follow when considering merits-based challenges to designation decisions. They implement one of the key new safeguards agreed for the UK’s terrorist asset-freezing regime. They are necessary to ensure that a proper framework is in place for challenges to asset-freezing designations, and will ensure that appropriately in-depth scrutiny is given to the relevant decision while protecting sensitive material from damaging public disclosure.
Lord Davidson of Glen Clova
My Lords, I am grateful to the Minister for introducing these rules. The previous Government promoted terrorist asset-freezing orders, for very good reasons, to increase the protection of the UK and of its citizens. I am pleased to see that the approach has been continued by this Government. I particularly welcome the refinement in relation to disclosure, which I agree will remove the potential for difficulty.
One appreciates that, prior to the election, many members of the then Opposition made criticisms about anti-terrorist legislation and that this Government contains a number of those who made those arguments—although not, of course, the Minister. Yet those others are, perhaps, now coming to an understanding that the tension between civil liberties and the protection of the UK is rather more complicated and less clear-cut than they first argued. One notes that they are also discovering this in relation to control orders, another area which was of great controversy.
These instruments seek to implement the innovations that the Government thought proper to bring to terrorist asset-freezing orders. The use of judicial review with the addition of a separate merits-based appeals structure adds another level of potential court intervention. Another innovation is the introduction of the distinction between “reasonable suspicion” and “reasonable belief”, which is not pellucid. It now means that where the individual is reasonably suspected of being involved in terrorism, he will not be under a terrorist asset-freezing order after 30 days, unless that reasonable suspicion is shown to move towards reasonable belief standards. I am not sure whether that is particularly reassuring to UK citizens.
There are views that reasonable belief and reasonable suspicion are, if at all different, extremely close in meaning given the application of the objective standard imposed by the use of “reasonable”. This will no doubt be an area for complex argument before the courts, but it is perhaps not easy to see how much of a gain for the civil liberties argument this represents, if the difference is negligible. If, on the other hand, there is a palpable and real difference between the two standards—one notes that the noble and learned Lord, Lord Brown of Eaton-under-Heywood, has identified such an interest in the case of Saik—then the notion that those reasonably suspected of being involved in terrorist activity will be at liberty, after 30 days, to use their assets as they choose becomes a real concern.
It would hardly be satisfactory, where an interim order is made expressly because the individual is reasonably suspected of being involved in terrorist activity and to protect members of the public, that if one falls short of reasonable belief that individual is at liberty to do with his assets as he will. Is the Minister in a position to offer guidance on an interpretation of the difference between reasonable suspicion and reasonable belief? I ask him that because doubtless it will become an issue in the courts. It is doubtless that the provisions in respect of judicial review and appeal will be deployed on these types of arguments as well as on other issues. The expansion of the courts’ role with the addition of a separate merits-based appeals structure regarding terrorist asset-freezing orders against individuals suspected or believed to be involved in terrorist activity will presumably be welcomed by those individuals, at least. In this context, it would be interesting to hear whether the Government consider that the courts’ increased role pursuant to these instruments provides an increase or a reduction in the level of protection to the population at large—for of course it is they who will be among the victims in the event of any future terrorist attacks.
Will the Minister explain whether this expansion of the court’s role creates a tougher or more relaxed environment for potentially highly dangerous terrorists? I ask that question in the light of the expression made by the noble Lord, Lord Carlile of Berriew, in his recent report on the Prevention of Terrorism Act 2005. There is a concern that European Court of Human Rights’ decisions are making the UK,
“a safe haven for some individuals whose determination is to damage the UK and its citizens”.
The question should be asked whether the Government consider the expansion of the court’s role by these orders discourages or encourages those individuals identified by the noble Lord, Lord Carlile.
The Minister has made reference to the report of the Joint Committee on Statutory Instruments regarding the failure to comply with proper drafting practice and defective drafting. I note his explanation and proposed action in relation to these observations and I shall say nothing further on the point. However, we welcome the general continuation of the previous Government’s approach to disrupting potential terrorist activity.
Lord Sassoon
My Lords, I am scripted to say that this has been an interesting debate, but it has been a short, focused and to-the-point exchange. I am grateful to the noble and learned Lord, Lord Davidson of Glen Clova, for being short, sharp and to the point in asking me some key questions about these new court rules.
The noble and learned Lord asked about the distinction between suspicion and belief, and what, if anything, that says about our underlying concern for national security as balanced with proper safeguards on grounds of civil liberties. As the noble and learned Lord will know, various court judgments define the difference between reasonable suspicion and belief. In summary, for suspicion, one believes that something may be so and, for belief, one believes that it is so. I am certainly not in a position to second-guess the courts, which have judged that there are significant differences. The Government certainly believe that national security requirements can be met by this combination of interim freezes for up to 30 days on the basis of reasonable suspicion, during which time further investigations can be made to determine whether the belief can be met. We believe that this balance between the national security and the civil liberties imperatives, which was extensively debated in your Lordships’ House, achieves what is intended. The court rules merely flow from that. I certainly do not think that the court rules in any way cut across or work against that construct.
On the role of the courts and judicial review versus appeal, the question was asked whether these instruments will result in a strengthening or a lessening of the protection of the public or, indeed, of the appellant. As a non-lawyer, I understand that what has been striking in the way that the courts have interpreted judicial review recently is that—in a national security context and, specifically, in relation to control orders—courts have increasingly approached judicial review in a way that is substantively similar to that of an appeal process. When considering the control order in the MB case, the Court of Appeal made it clear that it could substitute its own view for that of the Minister when deciding whether reasonable suspicion existed. We had expected the court to take a similar approach in relation to asset freezes, which would bring judicial review and appeal, in substance, close together in this area. In part, the approach we took in the 2010 Act was to formalise, in effect, what the courts were moving towards. It is better if, in reality, the substance of what the courts were moving towards was an appeal, but we actually put in the legislation, as Parliament has seen fit to do, a full appeals process and then the court rules follow from that. The noble and learned Lord’s question, in a sense, falls away because the courts have been bringing the two processes increasingly closer together.
On the role of the European Court of Human Rights, we do not think that the rules we are looking at here and the thresholds for suspicion and belief will mean any material change as to whether, why and how the ECHR can intervene in any particular case. Without commenting on the discussion on these issues over the weekend, I do not think that anything we are doing in the Act or the rules which we are considering today touches materially on those concerns.
I hope I addressed the less than perfect drafting in my opening remarks. The first of the two issues is a stylistic point that is an omission, but it does not have substantive effect. In the second case, it is clear from the context that the words, “the application” refer to the application to the Court of Appeal and so I think there is no question of possible misinterpretation of the statutory instruments and no substantive risk of being challenged in court. In any event, it will be up to the Civil Procedure Rule Committee to be able to amend the rules should that committee deem it necessary.
I hope I have been able to deal adequately with the noble and learned Lord’s points as I believe it is important that these rules are approved today. They provide the framework for those designated under the Terrorist Asset-Freezing etc. Act 2010 to challenge their asset freeze designation under the new appeals procedure. The court rules will ensure that rigorous scrutiny is given to the relevant decision, while at the same time protecting sensitive material from damaging public disclosure. Therefore, I commend these rules to the Committee.