Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2019

Lord Henley Excerpts

Thursday 28th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 17 December 2018 be approved.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

Motion agreed.

Agency Workers (Amendment) Regulations 2019

Lord Henley Excerpts

Thursday 28th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 17 December 2018 be approved.

Special attention drawn to the instrument by the Joint Committee on Statutory Instruments, 46th Report. 12th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A).

Motion agreed.

Employment Rights (Miscellaneous Amendments) Regulations 2019

Lord Henley Excerpts

Thursday 28th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 17 December 2018 be approved.

Relevant document: 12th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, as well as the Employment Rights (Miscellaneous Amendments) Regulations 2019, I will also speak to the Agency Workers (Amendment) Regulations 2019 and the Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2019. These three statutory instruments contain five measures to clarify and extend workers’ rights, taking forward the Good Work Plan—the biggest boost to workers’ rights in over 20 years.

The Employment Rights (Miscellaneous Amendments) Regulations contain three measures. First, they extend the right to a written statement of employment particulars to workers. Currently, only an employee is entitled to a written statement, and only after a month with the same employer. In his report, Matthew Taylor recommended greater transparency by extending the right to a written statement to workers. We agree that all workers should have the same clarity of information that employees currently benefit from.

The second measure amends the Information and Consultation of Employees Regulations 2004, lowering the threshold for a request to set up information and consultation arrangements in the workplace from 10% to 2% of the total employees. The Government agree with Taylor that voice and engagement is key to good work. Therefore, we are making it easier for workforces to request that employers be more open about what is happening in their workplace. It is important to note that this statutory instrument does not change the important rights that information and consultation representatives have, including paid time off and protection against detriment, the number of employers in scope of the regulations, which is staying at those with 50 or more employees, or the minimum of 15 employees required for a request to set up information and consultation arrangements. Good employers engage regularly with their workforce. To quote Taylor:

“Well-run companies recognise the importance of the people who work for them. They invest time and effort in good management relationships”.


The third measure increases the maximum penalty available to employment tribunals where there has been an aggravated breach of workers’ rights. From 6 April, a maximum penalty of £20,000 will be available, quadrupling the current amount. The current maximum penalty of £5,000 does not always reflect the higher value awards. The new maximum aligns with the current maximum penalty per worker for non-payment of the national minimum wage. It is important that all parties are aware of this penalty. We are providing guidance to increase awareness and highlight how tribunals can make use of these powers. This measure is targeted at businesses that breach the law in ways that are deliberate or malicious. Compliant businesses will welcome this deterrent against anyone seeking advantage by exploiting workers.

The second statutory instrument—the Agency Workers (Amendment) Regulations 2019—abolishes the “Swedish derogation”. At present, agency workers can opt out of the entitlement to equal pay in return for pay between assignments through a Swedish derogation contract. Taylor highlighted that Swedish derogation contracts can be exploitative, and workers sometimes do not receive the equal pay they are entitled to. Our consultation and earlier BEIS research uncovered cases where pay between assignments was not given. We concluded that agency workers are not benefiting from the Swedish derogation and we are therefore taking action. I think that this reform has been welcomed across parties.

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[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank the Minister for his introduction to these SIs. Many of the points that I intended to make have already been made by the noble Baronesses, Lady Burt and Lady Gardner, and my noble friends Lady Donaghy, Lady Drake and Lord Monks. The House will be pleased to hear that I shall therefore not repeat everything that has been said as well as the many questions that have been asked. However, there are a couple of issues that I want to highlight and reinforce, and a couple of questions I want to ask.

The greatest concern on this side of the House is that these regulations do not do justice to the, admittedly limited, Taylor report. When first published, my honourable friends in the other place warned that its recommendations did not go far enough, yet it seems that the Government are failing to meet even those basic suggestions.

There is also the issue of the considerable delay. After years of consultation and press releases, what has eventually been published amounts only to some minor tweaks and limited changes to employment laws. Ultimately, this is only further evidence of the Government’s failure to address the growing inequality in the quality of work, and increasing insecurity and low pay, across the UK. It will soon be three years since the review was first commissioned. Before I move on to the specific instruments at hand, can the Minister confirm that all 53 of its recommendations will finally be implemented by that milestone?

The crux of the Employment Rights (Miscellaneous Amendments) Regulations 2019 is to ensure that workers, rather than employees, are given a written statement of certain information relating to their position. The fact that a written statement will be given is welcome, but it is disappointing that that information is contained in separate negatives. Why has it been decided that this information would not be in this instrument? It is also questionable what a statement will achieve without the necessary routes to challenge the information given in the document. Regarding that, what exact mechanisms will exist for workers to challenge the information given in the statements, if they had understood the particulars to be different?

My noble friend Lord Monks has already touched on information and consultation. I support his points on that.

The Agency Workers (Amendment) Regulations 2019 seek to amend the loophole in the regulations which has meant that agency workers employed on permanent contracts with recruitment agencies can miss out on the right to equal pay, in return for a promise of pay when the agency cannot find them work. As the House has heard, these are known as payments between assignment contracts, or Swedish derogation contracts. The removal of the Swedish derogation is welcomed by this side of the House. The TUC has previously found that, as a result of this loophole, workers have been earning up to £4 an hour less than directly employed staff, even though they may carry out exactly the same work. Unfortunately, the changes will not come into force until 6 April 2020. Why will workers have to wait another year before they receive equal pay?

As a result of these regulations, there will be a significant burden on the EAS to enforce the changes. Can the Minister confirm that the inspectorate will be fully equipped to ensure that all businesses which exploit agency workers will be taken to task?

As my noble friend Lord Monks said, there is also the issue of other loopholes in the legislation, which could lead to the original purpose of the regulations being undermined. Have the Government considered fully removing the 12-week qualifying period, as that would help remove one of them?

Finally, I come to the conduct of employment agencies regulations. In a similar vein to the other regulations, this SI sets out new provisions in the conduct regulations, meaning that agency workers will be entitled to further key information about their assignments. It ensures that employment agencies provide agency workers with a key information document before signing the terms of employment. Any attempt to address issues of pay confusion are, and will be, welcomed, but it is unclear whether this new document will be in the most appropriate format. Will guidance be given to businesses on how the document should be formatted? In common with the other regulations debated today, it is important that provisions of enforcement have been considered. Unless enforcement is properly resourced, even the limited proposals announced will amount to very little. How does the Minister envisage enforcement taking place?

In conclusion, the limited regulations debated today are welcome and have qualified support, as my noble friend Lord Monks said. The issues that have been raised show that the problems lie largely with the fact that they are too timid. If the Government were serious about improving the lives of workers, they would be implementing a far more transformative set of policies rather than these tweaks, especially in the light of the recent prime ministerial statement attempting to woo the trade unions and Labour MPs to support her deal on Brexit. Are her offers of strengthening workers’ rights now gone, with her threat to resign? If not, how do the Prime Minister’s interventions fit with today’s SIs?

[Lord Henley]

My Lords, I thank all noble Lords who have spoken for their generally fairly positive response to the regulations. I will start by correcting myself, and trying to assist the noble Baroness, Lady Donaghy, who accused me of poetic licence in describing these as the most significant change in 20 years. I must make clear that I was not saying that these regulations were, in themselves, the most significant change; it was our Good Work Plan that was. I offer a small correction to her and say 19 years and 360 days, to allow her her 20th anniversary of the minimum wage, which the coalition Government and this one have continued. I think all parties agree that the national minimum wage, and the national living wage introduced by the Conservative Government, have made a great difference. The Taylor report was commissioned by this Government, and my right honourable friend came up with the Good Work Plan after it. The noble Baroness will be familiar with it; she will have gone through all the recommendations and noticed the large number for which the response is “Accept, accept, accept”, or “We will consult”, or “We will do this or that”. We have a good record and I will amend the 20 years to 19 years and 360 days. That obviously makes her happy.

It is important to remember that these are just one small part of that package. The Good Work Plan sets out a very ambitious programme of work to do, some of which will require primary legislation, some no legislation at all, and some secondary legislation of this sort. We are committed to bringing forward further legislation. The noble Baroness, Lady Drake, and others will obviously have to wait until we get that. We will continue in that vein.

The noble Baroness, Lady Drake, expressed her concern that we were going to fall behind Europe. As I have made clear on other occasions—she knows my views—we are well ahead of European provisions in many areas. One has to look only at paternity pay, which was introduced by this Government, and at where we are on maternity pay. I could go on, but will not because we are debating only these three sets of regulations at the moment. There is a proud tradition, in all parts of the House, of getting workers’ rights right. We regularly surpass UK standards and are leading the way internationally in tackling challenges to modernise the labour market, at a time when it is, necessarily, changing because technology and the way we work change.

Holiday Accommodation

Lord Henley Excerpts

Tuesday 19th March 2019 Lords Chamber

[Baroness Doocey]

To ask Her Majesty’s Government whether they have plans to improve transparency for consumers comparing the quality of holiday accommodation.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, consumer protection legislation protects consumers when buying holidays. Currently, the law requires information such as inclusive pricing to be clear and transparent, so that consumers can make an informed purchasing decision. Failure to comply with the legislation results, where appropriate, in enforcement action.

[Baroness Doocey (LD)]

I thank the Minister for that Answer. However, it is not mandatory for hotels and guest houses in England to display food hygiene ratings. Even some five-star hotels choose not to display them, because they have either had a very poor rating or, in some cases, failed the hygiene inspection. Will the Government make it a legal requirement—as it already is in Northern Ireland and Wales—for food hygiene ratings to be displayed prominently in order to drive up standards and, crucially, to enable informed consumer choice?

[Lord Henley]

My Lords, I note what the noble Baroness says. She will know that we review this legislation every five years, and are currently reviewing it. There is a call for evidence at the moment; no doubt she and others will want to feed into it, and we can then consider whether changes can be made.

[Baroness Gardner of Parkes (Con)]

My Lords, is the Minister aware—I am sure he is—of my interest in short-term accommodation? Rarely do the people letting such accommodation reveal their situation. Does he consider that comparing the quality of holiday accommodation—as is referred to in this Question—should include the issue of whether or not it is legal?

[Lord Henley]

I am aware of my noble friend’s interests in this matter. Her question is slightly wider than the one on the Order Paper, but I will ensure that her point about making sure that it is legal is taken into account.

[Lord Rooker (Lab)]

I say to the Minister that there is no legislation to be reviewed because there is no legislation—in England it is voluntary. Wales passed legislation; so did Northern Ireland. When I launched the scheme, as chair of the Food Standards Agency, in December 2010, the plan was to get every local authority to join voluntarily. By about three years ago they all had. It does not cost anything to display membership of the scheme: the only cost involved for the person in the premises is to take the sticker out of the envelope that they have been sent, walk to the window and put it on the door. That is the only cost involved in making sure that we have mandatory display.

[Lord Henley]

I am very grateful for the advice that the noble Lord is passing on to us. He is right that there is no legislation that insists that food standards advice should be put up. There is consumer regulation in this field: I refer him to the Consumer Protection from Unfair Trading Regulations 2008 and the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013, which he probably remembers from his time as a Defra Minister.

[Baroness Burt of Solihull (LD)]

My Lords, food hygiene ratings exist to help raise food safety standards in business, and consumers welcome the “scores on the doors”. However, in England—the only nation in the United Kingdom where it is not compulsory to publish these ratings—only 28% of food businesses that score between nought and three display them. Does the Minister agree, therefore, that standards will not improve until businesses are made to display their ratings and literally clean up their act?

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[Lord Henley]

Again, I do not think I can take the noble Baroness much further than in previous answers, other than to note what she says and promise that it will be taken into account.

[Lord Harris of Haringey (Lab)]

My Lords, I may have misread the Question, because I thought it was about the transparency of the costs of holiday accommodation—although we have covered many other interesting points. But can the Minister tell the House what the Government plan to do about search engines such as Google which have a mechanism for ensuring that it is not always immediately transparent whether they are displaying those offers where they get a rake-off—or are paid for advertising—high up their list? More particularly, what will the Government do about biases in their listings of the prices of particular holiday accommodation? I refer to my interests in the register.

[Lord Henley]

My Lords, like the noble Lord, I probably misread the Question, because I thought it was going to be about the matters that he referred to—I did not think we would be talking about food regulations in restaurants. But that is by the by. I agree with him, however, that one needs to be careful about the consumer comparison sites. It is an area that might need further regulation; it might not. At the moment, however, I think that such sites can help consumers compare costs of holiday accommodation—for hotel bookings or whatever.

[Baroness Hayter of Kentish Town (Lab)]

To follow that up, the CMA has finally done some really good stuff—started by this House—on things such as viagogo, and the fact that Google takes money to put things in a particular order. Will the Minister undertake at least to have a similar conversation with the CMA about what it can do about these comparison websites?

[Lord Henley]

My Lords, I think that the noble Baroness is referring to the investigation that the CMA launched in 2017 into accommodation booking sites. We are very grateful for the work that it has done. The investigation followed the CMA’s market study of online comparison tools. The CMA had its concerns and expressed them—about how a lack of clarity and accuracy in the presentation of information can mislead people. The important thing is that the CMA will monitor compliance with the commitments that the industry—the various booking sites—made, and I hope that, following that monitoring and having listened to any further advice that the CMA gives, the industry will take note. The CMA is clear that its advice should be followed.

International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 19th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 31 January be approved.

Relevant document: 17th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B). Considered in Grand Committee on 12 March.

Motion agreed.

State Aid (EU Exit) Regulations 2019

Lord Henley Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 21 January be approved.

Relevant documents: 15th and 16th Reports from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I beg to move that the draft State Aid (EU Exit) Regulations be approved. I will speak also to the draft European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019, which were laid before the House on 28 January.

The draft State Aid (EU Exit) Regulations transpose the existing EU state aid regime into UK domestic law by correcting deficiencies in retained EU law. In doing so, they transfer the state aid regulatory functions of the European Commission to the UK’s Competition and Markets Authority. The regulations will ensure that state aid rules continue to operate in a domestic context and will come into force on exit day in the event of a no-deal exit.

State aid rules govern the way subsidies can be given, and exist to stop companies getting an unfair advantage over their competitors. The rules are not intended to prevent public authorities supporting industry, but rather to do so in a way that minimises distortions to competition. Where there are good justifications for state aid, the rules enable it to be given. The state aid rules are about supporting fair and open competition. Ultimately, they are good for taxpayers, consumers and businesses.

The existing principles for the regulation of state aid will remain substantively unchanged in the domestic regime, in accordance with the aims and powers under the withdrawal Act 2018. The provisions in the regulations will therefore have minimal impact on public authorities that grant state aid or entities that receive it.

The main practical change under the new regime is that the rules will be regulated by the CMA. To prepare for EU exit and its new state aid role, the CMA received £20 million for 2019-20. This is in addition to the £23.6 million it received for 2018-19. The Government are working to ensure that the CMA will be ready to take on this new role and have every confidence in its ability to do so.

The CMA will adopt the Commission’s existing state aid guidelines, which provide clear parameters for how and when aid should be approved. It will also receive enforcement powers broadly equivalent to those of the Commission. I should, however, explain one point of divergence from the EU regime. Under EU rules, the European Council has the power in exceptional circumstances to intervene and approve aid before the Commission has reached a decision.

We do not consider it necessary or appropriate to use the regulations to vest the Government with similar powers. Ultimately, the Government could bring forward legislation to amend the state aid rules if deemed absolutely necessary. This option is not readily available to the European Council in the EU context.

[Lord Wigley (PC)]

Will the Minister give way?

[Lord Henley]

I shall not give way at the moment. I will take advice from the noble Lord, Lord Adonis, who pointed out earlier that the noble Lord will have his moment to speak later. It would probably be helpful if I get through what I want to say and the noble Lord can speak later.

I mentioned earlier that state aid rules will ensure fair and open competition throughout the UK. Over the past year, the Government have engaged extensively with each of the devolved Administrations and shared drafts of the regulations. The Government have also offered to sign a memorandum of understanding about the operation of the state aid regime with the devolved Administrations, which we hope to agree. These discussions have indicated broad agreement on the substance of the Government’s policy to establish a UK-wide state aid regime that mirrors the EU’s. We will of course continue to work closely with the devolved Administrations on state aid policy.

In conclusion, as we leave the EU, these regulations will give certainty to public authorities and recipients of state aid, and help maintain confidence for businesses across the UK.

I turn now to the overview of the structural funds SI. In a no-deal scenario, this instrument will repeal the European regulations concerning the European structural funds, while ensuring that they can continue operating domestically. It will also repeal the regulations for the Cohesion Fund, for which the United Kingdom is not eligible. Structural funds include the European Regional Development Fund and its cross-border European Territorial Cooperation component, and the European Social Fund. Structural funds support regional investment across the UK and are funded via the EU budget, with match-funding from project participants. In a no-deal scenario, the United Kingdom is expected to lose access to European funding.

HM Government have guaranteed funding for structural funds projects signed before the UK leaves the EU. The guarantee also enables new projects to be signed after exit until 2020. This guarantee covers UK beneficiaries, all beneficiaries of the PEACE programme in Ireland and Northern Ireland, and Interreg VA in Ireland, Northern Ireland and Scotland.

This instrument facilitates the domestic delivery of structural funds in a no-deal situation. It repeals the European regulations for these funds, as they would become inoperable retained law. It also ensures that for European Regional Development Fund and European Social Fund projects started before exit, current fund delivery rules are upheld through existing funding arrangements—without keeping redundant EU regulations. The powers to continue paying beneficiaries for projects already exist under domestic law. This instrument does not make provisions for projects started after exit. New projects will none the less continue to be signed using existing domestic powers and delivery systems, with appropriate simplifications. Structural funds delivery will also remain a devolved matter.

The instrument also makes special provisions for European Territorial Cooperation programmes that fund collaborative projects. It includes a transitional provision that enables the guarantee to be paid out to bodies involved in a European Territorial Cooperation programme. The power to fund beneficiaries of cross-border programmes currently comes from European law, and therefore needs to be continued in domestic law through this instrument to protect beneficiaries in a no-deal situation. The EU has made special provisions to enable the United Kingdom to continue in PEACE and Interreg VA in a no-deal scenario if the United Kingdom continues to pay its share of the programmes. The transitional provisions in this instrument enable the United Kingdom to make such payments to the EU. This is consistent with the United Kingdom’s commitments to PEACE and Interreg VA.

In this arrangement, the European regulations do not need to be retained. The United Kingdom will sign an agreement with the EU to ensure that programme beneficiaries continue to follow relevant rules. The EU regulation does not resolve the question of payment powers addressed by this instrument. That is why we need both the EU regulation and this instrument to safeguard these programmes. The transitional provision to pay the guarantee to European Territorial Cooperation beneficiaries also ensures that beneficiaries of cross-border programmes other than PEACE and Interreg VA can be paid through the guarantee. Without this instrument, delivery departments would lack the powers to pay out the guarantee to beneficiaries of European Territorial Cooperation programmes.

In conclusion, in a no-deal scenario, this instrument repeals redundant European law while ensuring that projects previously supported by the EU, including those supporting peace in Northern Ireland, are protected. I commend the regulations to the House and I beg to move.

Amendment to the Motion

Moved by

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[Lord Purvis of Tweed (LD)]

My Lords, I am happy to follow my noble friend Lord Fox. I endorse the strong points he made towards the end of his speech, because I live in a very rural part of the Scottish Borders. On my journey to this House every week, I drive past a number of local infrastructure investments that have been made and areas where projects have been brought about by the partnership between the devolved Administration in Edinburgh and the support of the UK Government, but funded by EU structural funds. There is a whole suite of different funds, which the Scottish Borders local authority has been able to link with directly.

I can only emphasise the point made by my noble friend. The Scottish Borders can be excluded from certain types of funding from the normal budget-per-capita distribution of funds of the Scottish or UK Government. However, it has been able to use the fact that it has the second-lowest wage profile in the country to tap into cohesion funds, because these have been set at a European level on a certain set of parameters, which are not the same as the budgetary distribution formula from the Treasury used by the UK Government. This has meant that the Scottish Borders has benefited from projects from these direct funds and the way they have been established, using objective criteria that are not used in the normal way of distributing funds. Therefore, it would be most helpful if the Minister could provide a degree of clarity as to how the formula would be used for any successor support that would be provided. If it is different from what is currently used, there will need to be some urgent readjustment from the local authorities and the Scottish Government in how they will offer match funding.

Linked with that, in the multiannual financial framework 2014-20, including all European funds, Scotland received 14% of the UK funds with a population of just 8.3% of the UK. This is because of the particular circumstances of the Scottish industries and the Scottish economy. It would be a major disruption if that kind of financial balance had to be adjusted over a short period, especially in the context of a no-deal Brexit.

That leads to my next point. I have heard the Minister commit to offering security for funded projects to be supported for their lifetime. I stress, from my direct experience of having been elected in the Scottish Borders and working very closely with the then local enterprise company and the local authority, that the typical long-term basis of the six-year period of the multiannual financial framework has been pivotal, especially in the context that these funds have to secure match funding, which can be over two or three spending review periods of any Government, either a UK Government or a devolved Administration. That period has been critical when there have been other funds and they have had to secure other forms of match funding. If there will be simply a normal three-year spending review period replacing the longer-term multiannual financial framework, that will be very damaging to the ability to secure some of the projects associated with it.

That is also why it has been typical in my area of Scotland for projects often to run on from the funding period. That has been a beneficial approach by the European Commission, which instituted the principle of n+1, n+2 and n+3 so that projects that have been initiated and are operating can continue to receive funds after the formal closing of that funding period. The funding has been committed but there is no guillotine period at the end of the funding round. In certain areas that has been pivotal. An equivalent commitment would be helpful.

We now have reference to the areas linking in with the devolved Administrations, certainly for Scotland, and we have the UK fiscal framework, which has been negotiated between the UK Government and the Scottish Government and is the basis on which the non-own revenue funding that the Scottish Parliament is responsible for is distributed. Is it the Government’s plan that there will be discrete funding components, as my noble friend asked for clarity on, or is it their intention that the funding will be operated through the UK fiscal framework? I can tell the Minister straightaway that if it is the latter I can see a situation where certain parts of Scotland will be harmed because they will not be able to tap into the targeted methodology of many of these project funds. Clarity on that would be very important.

Furthermore, it is also very important to know whether the Government intend to continue the principle that some funds can be bid into. Scotland has a better record of success in bidding into EU-wide funds that are open for bids because of its particular set of circumstances and its economy. In my experience, it has been a very positive element to ensure that all levels of government—local authorities, the Scottish Government and the UK Government—work together with local enterprise leaders to ensure that bids into EU projects have been the strongest they can possibly be. If that is weakened, the whole quality of economic development policy will be harmed. Do the Government intend that there will be some funds that can be bid into? That has been a positive element.

Finally, on the element of the structural funds in this support, is it the Government’s intention in their negotiations that, if we are to leave the European Union, parts of the UK will be able to continue bidding into European-funded projects, as those in Norway can? I understand that the Minister may say that this will depend on a negotiation with the rest of the EU, but a signal that this is the Government’s intention would be most helpful.

Turning to state aid, I am most grateful to the noble Lord, Lord Stevenson, for tabling his amendment to allow us to ask these questions. The points he raised are very important. He and I—and the noble Viscount, Lord Younger, who I see on the Government Front Bench—have debated at length the interaction with the devolved Administration on trade issues as a whole, but also on state aid as a component part of them. In leading up to this statutory instrument, the Minister said that the Government have been working closely on state aid issues. It would be helpful to know if the Government formally communicated the draft text to the Scottish Government before bringing forward this statutory instrument. The Minister will be aware of the operation of Section 2 of the Scotland Act 2016, which states:

“It is recognised that the Parliament of the United Kingdom will not normally legislate with regard to devolved matters without the consent of the Scottish Parliament”.


It is the view of the Scottish Government, endorsed by the Parliament, that state aid is an issue of competence, and that when areas of EU competence in state aid issues are brought back to the United Kingdom, they should fall fully within the legislative competence of the Scottish Parliament. It is an area of dispute between the UK Government and the Scottish Parliament. I am assuming—and hope the Minister can clarify—that this issue has now been resolved. It would be fairly regrettable if this statutory instrument was brought forward without any consultation with the Scottish Government, given that they believe that this will be fully within the legislative competence of that Parliament.

This leads directly on to the very good point made by the noble Lord, Lord Stevenson, and my noble friend Lord Fox: what will be the interaction with the CMA? Ordinarily, UK regulatory bodies operate within reserved areas, and the devolved Administrations know that if there is interaction between a devolved Administration and a UK regulator, whether it is Ofgem or Ofcom, the statutory underpinning is UK-reserved legislation.

This is an area where there is not agreement. The Scottish Government and Parliament believe that state aid issues are fully within the legislative competence of the Scottish Parliament. What will the interaction be of a UK regulator not operating under UK legislation when one part of the United Kingdom believes that this is fully within the scope of a devolved Administration? I can tell the Minister that conceptually it is not a new idea. When the Committee on Climate Change was established, the Scottish Parliament made a conscious decision that it would have an oversight role and a formal link to the devolved Administration. That was proactively asked for by the Scottish Parliament, and a mature relationship then developed. It would be very regrettable if this was the reverse—if the UK Government were insisting that a regulatory body had some form of oversight of devolved competences when they themselves will have no regulatory or formal relationship with that devolved Administration. I cannot see it working, but maybe the Government will be able to clarify.

I hope that the Government are able to provide a degree of clarity on the areas where I believe there is still dispute. It would be very regrettable if something so critical to many parts of the Scottish economy started with a major constitutional dispute about the competences and how it will be interactive.

[Lord Henley]

My Lords, I will start by dealing with one or two of the points made by the noble Lord, Lord Purvis of Tweed. He lives just north of the border and, as he is probably aware, I live north of Hadrian’s Wall but just south of the border, so we both have an interest in that area. I presume he noticed the announcement, among many others, by my right honourable friend the Chancellor in his Statement yesterday about the £260 million available for the new borderlands deal. He is probably also aware of what my right honourable friend the Secretary of State for Scotland said about welcoming that deal. Irrespective of all other matters that we might discuss, this is a wonderful example of cross-border working which he and I, and no doubt others who have slightly less interest in the immediacy of the Anglo-Scottish border, would welcome.

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[Lord Fox]

We would be satisfied with that kind of comment if we knew what vehicle the debate about these future issues will come in. Will it be in primary legislation brought to this House straight away? Would it be merely a series of Command Papers? If the Minister could explain the structure by which future negotiation or legislation will go ahead, we could perhaps be more satisfied by that.

[Lord Henley]

I will see how I get on in my response to the various remarks made by the noble Lord, Lord Fox, and others. I was going to start with state aid rather than on structural funds but we all know about the shared prosperity fund. I think it was back in July that my right honourable friend made a Written Ministerial Statement on that subject. The noble Lord will know, as that Statement made it clear, that it is designed to tackle inequalities between communities, especially in those parts of the country whose economies are furthest behind. It will achieve that by investing in the “foundations of productivity” and so on, as outlined in our industrial strategy, which is now—gosh, it is a year and a half old. But it will be an integrated, simplified fund, operating across the UK. I do not know at this stage whether it will need primary or secondary legislation, or whatever, and it would be wrong to speculate.

[Lord Purvis of Tweed]

Before the Minister moves on to the structural funds, I want to come back on the previous issue. I understand that there may well be a difference of opinion between the UK Government and the Scottish Government, in particular, on where the legislative competence on state aid issues arises. But it does not matter if there is a difference of opinion because we operate on a statutory basis. The Scotland Act 1998, as a constitutional Act, provides for the legislative competence of the Scottish Parliament to be total unless there are specific areas reserved in its Schedule 5. So it does not matter what the Government’s opinion might be since unless that is reflected in Schedule 5 to that Scotland Act, as amended by the 2016 Act, the legislative competence falls within the Scottish Parliament.

Even if this statutory instrument were on an emergency basis—the basis of leaving the European Union—that statutory competence would therefore be the Scottish Parliament’s, unless the Government bring forward an amendment to the Scotland Act to reserve it. It is important that this is now resolved in this statutory instrument, as in others, because unless the Government intend to amend Schedule 5 as per the Scotland Act 2016, the legislative competence for state aid will rest with the Scottish Parliament.

[Lord Henley]

My Lords, I do not accept the point that the noble Lord is making. I made it clear that we believe that state aid is a matter reserved for HMG. As I said, we recognise that there is a difference of view; that can be resolved in due course but I do not think it necessarily needs to be resolved in advance of this SI. He and I will obviously have to continue to disagree on that matter.

I was going to deal with these matters in the order that I originally set out, starting with questions relating to state aid and in particular to the amendment moved by the noble Lord, Lord Stevenson. What is important on this occasion is that we do not conflate the rules that govern the overall aid framework with the provision of aid itself. Decisions by public authorities on how and when to provide funding to business and industry after EU exit are quite separate from the decision in front of the House today, which is on whether to approve a state aid framework to ensure fair and open competition throughout the UK. By keeping the rules as close as possible to how they operate today, compared to what has been the case, will provide continuity and certainty in the immediate aftermath of the UK’s departure from the EU. This will ensure that aid can be provided in a similar way to now.

Individual choices on how and when to give aid within that regulatory framework will obviously be for each public authority to make. That applies equally to successive Governments, the devolved Administrations and local authorities. As with the other public authorities granting that state aid, the Government will of course continue to consult individual spending authorities where it is appropriate to do so after the UK leaves the EU. But our strategy for supporting business and industry before and after EU exit is comprehensively set out in the industrial strategy, which we have debated on various occasions. As I said, it was launched almost a year and half ago and is already having an impact. That is how it should be set out.

As I made clear, and I repeat it, we have engaged constructively and intensively with each of the devolved Administrations on the state aid regime, including discussing the details of the proposed regulations and the accompanying set of commitments to underpin how the regime will operate. I think the noble Lord, Lord Fox, wanted more detail on this—perhaps it was the noble Lord, Lord Purvis—and we hope to conclude a memorandum of understanding in due course with the devolved Administrations. No doubt when we have concluded that, it can be published. Our discussions over the last year have shown a broad alignment on the substance of the policy to establish a UK-wide state aid regime that mirrors the EU’s. We will continue to work with the devolved Administrations and, as agreed, each of them will be responsible for managing communication between their respective aid givers and the CMA. They will not need to go through my department, as is the case at the moment.

[Lord Fox]

I thank the noble Lord for beginning to flesh this out. Rather than continue the debate here, it would be helpful if the Minister could go back to his department and then write to us about the basis for the assertion by Her Majesty’s Government that they have predominance on this issue over Scotland and the devolved authorities. On what basis in law do the Government assert that UK-wide role? Can he also flesh out the mechanics for the CMA operating in Scotland? Rather than detain the Minister at the Dispatch Box, a written response would be helpful.

[Lord Henley]

I am more than happy to offer a written response, but the Government have been clear throughout. My noble and learned friend Lord Keen set out our position in various debates on the withdrawal Bill and so on. I will dig that out and offer it to the noble Lord. Other Ministers, equally learned in the law, have also made similar points in another place. As I said to the noble Lord, Lord Purvis, this is a matter for the Government but we believe we should continue to consult the devolved Administrations.

The noble Lords, Lord Fox and Lord Stevenson, also wanted me to flesh out the role of the CMA and asked whether it would have the power to overturn legislation. I repeat that our intention is to make sure that the regime covers the same sectors, applies to the same actors and does the same job as it does at the moment. It is worth noting that there are very limited circumstances in which aid is granted directly by Act of Parliament. To ensure that aid granted by any future Act of Parliament can be reviewed in a non-binding way by the CMA, which is the domestic regulator, Schedule 3 creates a process for it to consider aid that may be granted directly by an Act of Parliament. It provides for a Minister of the Crown to seek a non-binding advisory opinion on proposals for grant aid by an Act of Parliament. It also provides for interested parties to request the CMA to prepare a non-binding advisory opinion. I hope that explains the matter, but I will expand on it in any letter that I write to noble Lords in future.

The noble Lord, Lord Stevenson, also asked how we were intending to use this provision in future. I will expand on this a little more. The rules are not intended to prevent public authorities supporting industries or businesses, or even—dare I say it—nationalising assets. A rigorous state aid system is good for taxpayers and consumers and ensures an efficient allocation of resources. There is a large degree of flexibility in the rules to ensure that a wide range of interventions can still be deployed, but in a way that minimises distortions to competition. The future regime will still allow the Government to act swiftly if necessary, much as they have been able to under the existing one. EU state aid rules do not prevent, and have not prevented, the UK pursuing its active industrial strategy. In practice, the existing EU rules have always been sufficiently flexible to allow the UK to make innovative state aid interventions where necessary.

--- Later in debate ---

[Baroness McIntosh of Pickering]

Could my noble friend confirm the match-funding aspect of what would have been paid by Brussels, and that the UK Government will pay not just what they would have paid in match funding, but the whole amount the Commission would have paid—effectively both parts of the fund?

[Lord Henley]

The noble Baroness is too fast for me. I had two final points, one of which was to deal with concerns about match funding and whether that guarantee would underwrite it. The guarantee will underwrite the funding previously received by the EU. Match funding will continue to be provided by existing match-funding providers, such as the National Lottery.

My noble friend also asked about our future participation in Horizon. All I can say at the moment is that decisions on future such EU programmes will come as part of the spending review.

I appreciate I have not answered all the questions that have been put to me, but I believe I have answered most of those that are directly relevant to the statutory instruments before us. I appreciate that the noble Lord, Lord Fox, would like—and will receive—a letter. That letter will set out more about the possibilities for the future, and I will write to the noble Lord, Lord Purvis, in greater detail about our possible disagreement on where responsibility lies.

[Lord Fox]

The Minister may have answered this question, so I apologise if I missed it. In dealing with the shared prosperity fund and its disbursement, we come back to that paradigm of what happens in the United States, for example. Do the Minister and the Government foresee that the CMA will have a role in policing that process? If not, how do we prevent regions bidding up, which we have experienced in some RDAs? The Minister again said we will have ample opportunity to debate this in the future, but it is not clear to me through what vehicle this debate will continue.

[Lord Henley]

I am sure the noble Lord will find it easy to raise the subject, and will do so. Whether there will be the opportunity through primary, secondary or whatever legislation, I do not know. On his broader questions about the shared prosperity fund, he will have to wait for the guidance that the right honourable Secretary of State will provide. That might be his moment to consider such matters. With that, I beg to move.

[Lord Stevenson of Balmacara]

I notice the noble Lord did not ask me to withdraw my amendment. I am sure he therefore wants to accept it, but I am going to disappoint him because I will be withdrawing it anyway, so he does not need to panic too much.

Having said that, I am afraid we did not get answers to many of the deeper and far-reaching questions about state aid or the European structural and investment funds’ continuation schemes. That is partly because the particular issue is the need to cope with a no-deal Brexit and, therefore, some of the bigger issues do not come into play. For the record, I do not feel that we have had a sensible answer to my question about why the Government are asserting that state aid rules are necessary to ensure that competition with the EU is not distorted. If we are leaving the EU under a no-deal situation, they will be a series of third countries and there is no logic in trying to make sure that our competitive approaches are maximised. There would be a good argument for saying that, if we have to leave the EU with no deal, and we are therefore just competing with them, we ought to use the maximum freedom available under the WTO to subsidise all our exporting companies as much as possible, for the benefits of UK plc. I am not supporting that; I am just saying that there is an alternative. The argument for why we need the proposed comprehensive set of rules needs to be explained better.

Secondly, we have not had an answer to why Parliament has not been brought into this process. Again, this is an issue of supreme importance to many people; the sums of money are enormous. The impact of the structural funds and European investment over the years has been fantastic; in times of austerity, they have saved many communities, economies and lives, and we should not forget that. Therefore, Parliament should have a role. We are not getting the right answers on how the devolved Administrations will operate in this new process and we are certainly not getting answers about how the CMA and its powers will operate.

However, these issues are for the future. I am sure that, once we read Hansard, a number of issues will be clearer. I will do that, and I also hope that a few letters will come from the mighty pen opposite, which will also help. If the Minister feels that a meeting to discuss some of these issues might help to clear the air, we would be willing to do that. With that, I beg leave to withdraw my amendment.

European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019

Lord Henley Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Henley]

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

Relevant documents: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I beg to move, but I have already spoken to these regulations. I intervene only to apologise to the noble Lord for forgetting that we were speaking to his amendment and not to my Motion. I will not make such a procedural mistake again.

Amendment to the Motion

Tabled by

Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2018

Lord Henley Excerpts

Tuesday 12th March 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 19 December 2018, 28 and 31 January 2019 and 7 February 2019 be approved.

Relevant documents: 12th, 16th and 17th Reports from the Secondary Legislation Scrutiny Committee (Sub-Committee B). Considered in Grand Committee on 4 March.

Motions agreed.

International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 12th March 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019.

Relevant document: 17th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, these regulations, which were laid before the House on 31 January, aim to address failures of retained EU law to operate effectively in the field of accounts and reports of UK corporate bodies. They also address certain other deficiencies arising from the UK’s exit from the EU.

The international financial reporting standards, abbreviated to IFRS, are a set of international accounting standards used by multinational companies to produce their annual accounts. They are required or permitted in over 125 countries, including all EEA countries and 15 of the G20 countries.

EU Regulation 1606/2002, known as the IAS regulation, requires that all publicly traded companies in the EU use IFRS, as endorsed and adopted by the EU, when preparing their consolidated accounts. In the UK, the Companies Act 2006 also permits other UK companies to produce their accounts in accordance with these standards. In total, approximately 15,000 companies in the UK use IFRS.

Once the UK leaves the European Union, the EU framework for adopting IFRS will no longer apply. These regulations provide for the continued use of IFRS by implementing a national framework that provides continuity and clarity to UK business, and they aim to provide such continuity and clarity by bringing the European framework for adopting IFRS into UK law. This will ensure that UK-registered companies will not have to change their processes for preparing annual accounts.

The powers to endorse and adopt these international standards for use in the UK will be transferred to the Secretary of State. These transferred responsibilities will be bound by process and scrutiny. Furthermore, assessment criteria consistent with those in the European regulation will apply to all new endorsement decisions in the UK. They are that the standards provide a “true and fair” view of an undertaking’s financial position and that their adoption is conducive to the,

“long-term public good in the United Kingdom”.

The regulations also specify that, for all new endorsement decisions, the Secretary of State must consult stakeholders with an interest in the quality and availability of accounts, and that the final decisions will be published. The Secretary of State will be required to lay a report each year before Parliament detailing the carrying out of his responsibilities.

Further, the regulations provide for subdelegation of the endorsement and adoption powers to a designated UK body. A subsequent affirmative SI will transfer these powers to a new UK endorsement board. We currently expect this board to be hosted by a subsidiary of the Financial Reporting Council. As such, it will benefit from the FRC’s existing operational processes, such as HR and premises. The FRC’s role will be limited to monitoring governance and due process of the endorsement board. It will have no role in the process for adopting standards.

As the Committee will be aware, a comprehensive and detailed report of the independent review of the FRC, making 83 recommendations, was published in December. The Government welcome and share the review’s vision for a new regulator with a new mandate, new leadership and stronger statutory powers, and will take swift action to deliver that. The FRC’s role in relation to the endorsement board will be transferred to the new regulator once it is operational.

Throughout the development of these regulations, the Government worked closely with businesses and regulatory bodies. Informal consultations were carried out with companies, their advisors and investors. In addition, a dedicated stakeholder group also helped inform decisions about these regulations. Stakeholders were strongly in favour of both establishing a UK framework for the continued use of IFRS and the requirement for consultation before an international standard is adopted for use in the UK.

The regulations also make amendments relating to societas Europaea companies, or SEs: a Europe-specific type of public limited liability company that will not be able to register in the UK after EU exit. Regulation is already in place to convert automatically existing UK entities on exit day into a new corporate form—a UK societas—to ensure that they have a clear legal status. The amendments in the regulations relating to these entities do three things. First, they preserve a particular employee involvement provision to maintain employment rights wherever practicable. Secondly, they apply the Overseas Company Regulations 2009 to SEs registered in other member states. This will ensure that UK branches of entities registered in other member states are treated in the same way as UK branches of any other overseas company. Finally, they make a number of minor consequential amendments to other legislation, such as replacing references from SEs to UK societas to ensure that the UK has a functioning statute book on and after exit day.

A de minimis impact assessment of the regulations estimated low overall costs to business. The IFRS-related changes were estimated to have an equivalent annual net direct cost to business of £2.4 million per year. The estimated impact for the SE-related changes was £10,400 per year. Both figures are under the £5 million threshold necessary for a full impact assessment.

I commend these regulations to the Committee and ask the Committee to support and accept them. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I begin by congratulating the Minister’s team—it is always said that the British Civil Service is the best in the world. They must have realised that their Minister might take a bit of incoming over the FRC tonight, as they produced this headline for the front page of the Financial Times: “FRC to make way for stronger accounts watchdog after a string of audit failures”. To get that on the front page of the FT just as we are to discuss the FRC as a possible delegated body is above and beyond the call of duty.

I need to declare some interests. I have served in the City for most of my life and remain a director of a number of limited companies, which are listed in the register of your Lordships’ House. I am also a member of Sub-Committee B of the Secondary Legislation Scrutiny Committee, which considered these regulations. I am coming back to have a second bite at the cherry, having had a go under the noble Lord, Lord Cunningham.

I will make a couple of points. It is easy—my noble friend, in his emollient style, flows so easily over the issues—to think that accounting standards are humdrum and commonplace. In fact, their exceptionally wide-ranging implications are felt in every part of our corporate system. They have an impact on directors and their boards and companies; if you serve as a company director, the two great things your lawyers and accountants always tell you about is trading while insolvent and maintaining capital. Failing to do that exposes you to some nasty and unpleasant risks and penalties—quite rightly. On the other side, they are for investors who need a clear basis on which to decide whether to invest their money in a particular venture.

Years ago, I was sitting where the noble Lord, Lord Stevenson of Balmacara, is now sitting, leading the Opposition on what became the Companies Act 2006, to which my noble friend referred in his opening remarks. We spent quite a bit of time on the Section 393 “true and fair” view, which is a statutory requirement. If there is to be a clash between international standards and UK law, UK law must prevail because it is the law of this country. In those circumstances, how will we determine the final arbiter of what is true and fair?

I will give the Committee a brief example because although it may seem quite simple to decide what is true and fair, it is exceptionally difficult. Revenue and recognition have been a problem behind a number of companies recently—notably Carillion—where you have a long-term contract with an assured client, perhaps the Government. Let us say it is a 10-year contract. You will have to put in some additional work in year one to provide the systems that are going to last the 10 years. Boards and auditors will argue fiercely about how this should be done. Some people would say that to show that you would make a loss in the first year of a 10-year contract, when you will make additional profits in the next nine, is not a true and fair view from the investor’s point of view. A true and fair view can be conservative and restrictive, or neutral, or positive and expansive. Of course, in the case of Carillion, it was positive and expansive and they recognised too much revenue early on.

These concepts go to the heart of our corporate governance and systems—and the public trust in and have confidence in those systems—so these are not just economic decisions; they have big political implications. I would argue that while the Secretary of State may appropriately delegate some of the detailed powers, he or she needs to retain an overarching power to ensure that the system works properly. Noble Lords on the Committee will have seen the ABI briefing, which says:

“We disagree that the Secretary of State should delegate all his functions to the Endorsement Board. Firstly, we think it would be counterproductive and secondly, we think it inconsistent with the aims of the Withdrawal Act … We strongly urge that, in the House of Lords debate on this SI, assurances are sought from the responsible minister that the new SI will provide for active political oversight of the Endorsement Board by the Secretary of State”.


If these matters are to be delegated in their entirety, this country will lose part of its political influence in international negotiations surrounding changes in these worldwide standards. That will impede the UK Government in ensuring that future IFRS continue to reflect the interests of UK companies. That would be a strange decision for us to take in the light of us looking to hew a more independent line, post Brexit. I hope that my noble friend can reassure me and the Committee that there is a real understanding of the political implications that overarch the accounting technical implications of this statutory instrument. That is my first point.

My second point concerns the body to which any delegation may be made. I do not want to dance on the grave of the FRC, but some of the reports to which my noble friend referred in his opening remarks are absolutely devastating. The points include that the FRC,

“is not fit for purpose”,

and that it,

“has serious problems in how it recruits top staff”.

Another point states:

“A new body should have statutory funding and a clearer remit”.


Another states:

“The watchdog needs some new powers”.


One wants an assurance from the Minister that this unfortunate body, which has undergone regulatory capture in the views of many, will not have anything other than a passing interest in the establishment of the body that will enforce the regulations in the future.

It would be helpful if my noble friend could give the Committee more detail on how we will move forward. When his department wrote to the Select Committee of the noble Lord, Lord Cunningham, on which I sit, it said:

“The Department is currently working with the FRC to build capacity to set up the new Endorsement Board (EB) in time for EU Exit”.


We must be quite well on in that process, since we are only 10 or so days away from it. The Committee was also told:

“In addition, stakeholder input helped us define the extent of the FRC’s role in relation to the new Endorsement Board”.


It is important that we get some clarity on where we are in that process. We really do not want stuff to be set in concrete at this point. We need to know how the FRC will slide away and how the new endorsement board will be set up in the next two or three weeks.

Inevitably, particularly tonight, our focus is on Brexit and associated issues. However, this statutory instrument and its successor, which will bring the endorsement board into being, will have serious long-term implications for our corporate governance, the way our companies operate and the confidence of investors in our corporate system—all of which have come into question in recent years over a series of failures and scandals. We need to learn from that and plot a better course for the future. I look forward to hearing from my noble friend how the Government anticipate that being done.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, I declare my interest as a retired fellow of the ACCA. Although I have not practised as an accountant very much during my membership—very little, in fact—I retain an interest in the processes of accounting and the impact it has on business and the economy as a whole, which have been so well described by the noble Lord, Lord Hodgson, and the noble Baroness, Lady Bowles. Both have contributed a great deal to the debate, which leaves a number of very uncomfortable questions for the Minister to try to respond to. I am afraid we will probably not get to the bottom of them today. They have set out an agenda, particularly the noble Baroness, for work that needs to happen over the next few months if we are to get the best out of the current changes.

I will put another review on the table as well, which we have not yet had an opportunity to discuss in our House. I hope there will be an opportunity to do so in the not too distant future. Very significant changes are being made through what appears to be a process of correspondence and speech-making between the new chair of the CMA and the department, under which what looks like a substantial shift of public policy on competition issues will be introduced to put consumer interests at the heart of much competition policy—a change which I would welcome.

This would be a significant change in the powers and abilities of the CMA to investigate and to seek out remedies where malfeasance has been found, and a completely different sense and sensibility relating to the work that has previously been done under the CMA on investigations more generally. I say that because it seems a rather important leg of the various bodies involved in a broader conception around how public trust is to be generated in economic operators. One could also add that a similar responsibility towards consumer interests and consumer focus is needed for the regulatory powers in financial services, for which the Minister will be aware we have been arguing for some time, if we are to get the best out of that system. That has been much discussed in the context of whether there should be a duty of care on financial organisations dealing with consumers, a matter to which we will no doubt return.

By way of introduction, I align myself with the two speeches that have already been made, and will ask three questions on the Explanatory Memorandum. I will preface those with the point made very strongly by the noble Baroness, Lady Bowles, but raised also by the noble Lord, Lord Hodgson, that it is the cruellest of misfortunes for those who have been responsible for designing this new structure that they are trying to find analogues for the existing system in Europe, which has run and operated our overall structure for reporting on public accounts and public bodies, when the whole of that structure is being completely refigured through the FRC review and the consultation now going through. The question that concerns me most is about the structure being proposed. The Secretary of State takes on, broadly speaking, the responsibilities of the Commission, but the political control is reduced to a situation which we find more commonly in Britain than in other countries—about which the noble Baroness, Lady Bowles, has been fairly critical—where the devolved responsibilities are to a body that is being created out of nothing and allocated to a body that is in transition and will not have proper supervisory powers. There is a real problem in this, particularly since, as we read in the recent consultation about the independent review of the FRC, about a third of the recommendations are in category three. As the Minister will know, this relates to reforms that will require primary legislation and have wider ramifications, and therefore require deeper consideration and wider consultation.

I do not understand how the Government think they can get away with a process changing the nature and function of an important construct that relates to a whole economic activity and the accounting process underpinning it in terms of public trust—and do so when they are signalling that they will not be in a position to do it until they get primary legislation ready, let alone through, at a time when it seems impossible to legislate on anything except Brexit. I will leave the Minister to respond to that if he can.

My questions in response to the points raised so far are relatively straightforward. First, in paragraph 7.5 of the Explanatory Memorandum, the policy intention is for the Secretary of State to delegate the function to an independent endorsement board when it is constituted satisfactorily in 2019. Am I right in assuming that this is what is referred to in the Chapter 1 recommendations on the need for a statutory authority, which will require primary legislation? If so, can we have more information about the timing? It does not seem likely that it will be finished this year, let alone in time to enforce the work. I would be grateful for a comment on that.

Secondly, paragraph 7.6 makes the point that the instrument enables the Secretary of State to revoke the delegation to the endorsement board if he or she wishes. Is that right? I do not regard that as good law. It is certainly not parliamentary language. Can we have some examples of the sort of issues that might be raised? The only example we have here is the endorsement board being deemed unsuccessful—but by whom and under what criteria? Do we have any principles under which that judgment can be made? If so, what are the processes under which it will happen?

Thirdly—I have already touched on this point—the principles of financial reporting are taken without question as providing a “true and fair” view of undertakings and a position “conducive” to the long-term public good. These are familiar words. They are contained in the IFRS and apply in the UK GAAP but they are not without some difficulty in terms of their overall understanding. They require judgment at the local level in terms of the individual accounts and in the round about whether the processes were correct. The instrument places an obligation on the Secretary of State to consult those with an interest in the quality and availability of accounts. In pursuit of my concern that the consumer and the broader public interest require a much broader cut through this, can the Minister confirm that the consultation process will include not just the Big Four and the accounting professions, and look genuinely at the wider stakeholder interests?

[Lord Henley]

My Lords, I thank all three noble Lords for their interventions, which were based on considerably more expertise than I have. I hope they will be tolerant of my response. If I fail to answer any questions I might have to write to them.

It might be helpful if I remind them of the purpose of these regulations. As usual they have the words “EU exit” in them. They are designed for a no-deal exit and ensure that the IFRS can continue to be endorsed and adopted for use by UK-registered companies after exit from the EU. They are laid using powers under the EU withdrawal Act 2018. It is again worth reminding noble Lords of the constraints within that Act and that the powers within it would not allow the Secretary of State to go wider into some of the other matters that are of concern to all three noble Lords. That is why, as I made clear earlier, that there will be a further SI later on.

We have been talking about Kingman who, as we know, published his report on 18 December. We also know that my right honourable friend the Secretary of State issued his initial consultation on the recommendations on that only yesterday and that the closing date for responses is 11 June. No doubt all three noble Lords have copies of that. I think I saw a tweet from the noble Baroness, Lady Bowles, on it today, so I presume she has seen a copy. I regret that we are not in a position to debate it today, but there will be many other opportunities to debate it and to feed in responses in due course.

To some extent, that deals with the initial concern from the noble Baroness about whether the FRC is a suitable body to host the new endorsement board, in light of Sir John Kingman’s report and the response that will have to be made to that. As I said, there are the constraints of the EU withdrawal Act. My right honourable friend is trying to deal with the deficiencies so that we can get on with the eventualities, should there be a no-deal Brexit.

I shall say something about the consultation on the Kingman review. It is important and we are grateful for the very comprehensive review he gave. We think the recommendations are well-considered, far-reaching and transformational. As noble Lords know, the Government published our initial consultation on those recommendations, highlighting our approach in taking forward the review’s recommendations. The Government welcome and share the review’s vision for a new regulator with a new mandate, new leadership and stronger statutory powers and intend to move as fast as possible on this. I would say move swiftly, but the noble Lord will have to be tolerant because the process to implement reforms and overhaul the sector must be gone through. In the interim, until the new regulation is in place, the Government will work with the FRC to take forward 48 of the review’s recommendations, including addressing issues such as lack of transparency and shortcomings in the enforcement activities. Further detailed consultation on those measures will follow.

[Lord Hodgson of Astley Abbotts]

One of the words that worries me is “hosting”; this relates to the question raised by the noble Baroness, Lady Bowles. Are we just getting a defective organisation—Sir John Kingman’s review makes it clear that it is defective—to be the handmaiden or midwife of this new organisation? What does hosting mean? Does it mean that all the staff are the same? Will there be an independent unit within the FRC? This may be too detailed for this discussion and I would be perfectly happy if my noble friend wrote to us. However, for the reasons we have explained, and in order to have the public’s trust, it is important that it must be seen to be independent and not infected with the problems of the FRC.

[Lord Henley]

I take my noble friend’s point. In my opening remarks, I tried to make clear that the FRC would host it purely in terms of human resources and other such matters. It will be an independent body to which my right honourable friend can delegate powers. Some noble Lords—I think it was my noble friend and the noble Lord, Lord Stevenson—asked about this. My right honourable friend will retain overarching power to ensure that that endorsement function operates well. If he retains that overarching power, he can revoke designation and retain overall control.

The endorsement board will be required to report annually to the Secretary of State on carrying out its functions. Sitting with the FRC is a matter of convenience in terms of HR and such matters, but it does not mean that its staff has to come from there. If there is anything more I can say, it might be best if I wrote to my noble friend and copied the letter to other noble Lords. I want to make it clear that the board will be made up of independent members. Its chair will be independent and it will not be part of the FRC. Having used the word “hosting”, I am trying to think of some appropriate metaphor but I cannot offhand. I hope that my noble friend will understand what I am getting at.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

I have a couple of comments. The Minister referred to this being done under the withdrawal Act, and that is quite correct. There is no problem with the way in which Regulation 7 and things around it operate. That is a copy-and-paste job and exactly what the withdrawal Act provides for. I do not think that that Act requires there to be any delegation or sub-delegation. It enables such things to happen but does not require them. But it is in there and at this stage we are unlikely to resist the statutory instrument going through.

However, given everything that has been said, the next statutory instrument, which is also affirmative, will have to contain constraints and requirements ensuring proper, not-captured behaviour for there to be the confidence to allow it to go through. There is no problem with the Secretary of State doing an endorsement. There are people who can assist and advise, and the Secretary of State can perfectly well organise consultations and those kinds of things, so I would not consider delay of the next stage sacrosanct. Given the whole situation, the nature of this debate and the concerns from all who have spoken, I hope that that message about the next stage can be taken to the Secretary of State. I would be very unhappy about trying to pass something in the next month or so without there being many more safeguards.

[Lord Henley]

At this stage, all I can say is that I note what the noble Baroness has said. Regarding when the next SI will appear—whether it will be in the next month or so—I cannot say, but I will certainly keep her informed and let her know exactly what our thinking is.

Motion agreed.

Unpaid Internships

Lord Henley Excerpts

Tuesday 12th March 2019 Lords Chamber

[Lord Holmes of Richmond]

To ask Her Majesty’s Government what plans they have to eradicate unpaid internships in the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the Government are working to stop illegal unpaid internships. The law is clear that anyone performing work for an employer must be paid. HM Revenue & Customs has written to almost 13,000 employers in industries which often offer internships to draw their attention to the national minimum wage rules and help them avoid being non-compliant.

[Lord Holmes of Richmond (Con)]

My Lords, last year the Government spent £1.48 million on raising awareness of NMW legislation, and £25.3 million on enforcement. Can my noble friend therefore say what reduction there has been in unpaid internships, and how many prosecutions?

[Lord Henley]

My Lords, I am not aware of any prosecutions, but I can confirm that we have spent considerable sums on enforcement in this area, as well as on other areas relating to the national minimum wage. As I made clear in my original Answer, it is important that we continue to try to enforce these matters but also to offer advice to employers to make sure that they are aware that it is illegal to offer internships that amount to work and not to pay for them.

[Lord Anderson of Swansea (Lab)]

My Lords, it is extremely important that legal careers be open to all talents and to students from all social backgrounds. Knowing that pupillages at the Bar are the gateway to the profession of barrister, are the Government satisfied with progress in ensuring that pupillages are now paid?

[Lord Henley]

My Lords, pupillages at the Bar have changed considerably since the noble Lord’s day and even since my day—which is also a very long time ago. In those days they were unpaid. I will take advice from my noble and learned friend sitting beside me, but I think the noble Lord will find that most pupils are paid now.

[Baroness Burt of Solihull (LD)]

My Lords, in 2016 the Social Mobility Commission said that any work placements lasting more than four weeks should be classified as internships and that those doing them should receive at least the minimum wage. The Bill of the noble Lord, Lord Holmes, has progressed through the Lords unamended, so it is clearly the will of this House that it should pass. Will the Minister have a word with the usual channels in the Commons to get the Bill tabled there as soon as possible?

[Lord Henley]

My Lords, we will leave the last point to the authorities in another place. I appreciate that my noble friend’s Bill went through this House unamended. The Government set out their views on it. As they explained at that time, the problem with the four-week rule was that it might risk giving employers the impression that all shorter unpaid internships are legal. We want to make it clear that this is not the case. The length of the internship is not an indication as to whether it is or is not work. It is the nature of the internship that matters.

[Baroness Bull (CB)]

My Lords, unpaid internships are one of the factors contributing to the lack of socioeconomic diversity in the creative industries, many of which are clustered in London. The Sutton Trust estimates that it costs £1,019 a month to carry out an internship in London. This limits unpaid opportunities to people who can draw on the bank of mum and dad. Does the Minister agree that ending unpaid internships would level the playing field in the creative industries for people without the cushion of parental resource?

[Lord Henley]

The noble Baroness is right to draw attention to the creative industries as an area where unpaid internships are particularly prevalent. My honourable friend Kelly Tolhurst and colleagues in the Department for Digital, Culture, Media and Sport will hold a round-table meeting shortly with representatives of employers in the creative sectors. This meeting will be used to underline our policy on eliminating unpaid internships to sector leaders and to encourage them to take practical measures to stop their use in this sector.

[Lord McNicol of West Kilbride (Lab)]

My Lords, on this side of the House our preference would be a ban on the use of illegal unpaid internships. The 2017 Taylor review said:

“The Government should ensure that exploitative unpaid internships, which damage social mobility in the UK, are stamped out”.


I will try a different tack. If the Government are not going to ban them completely, will they undertake an analysis of the social class and background of those who get internships? I am sure it will further highlight the inequality which leads to those who have both the opportunity, as well as the means, being able to work for nothing.

--- Later in debate ---

[Lord Henley]

I note that the noble Lord says that his policy is to legislate in this area. He quoted Matthew Taylor, who made it quite clear that:

“There have been calls for a separate ‘intern’ status in employment law but we believe this is unnecessary. We believe that the law is clear as it currently stands. If a person is obtaining something of value from an internship, they are most likely to be a worker and entitled to the National Minimum or Living Wage”.


We do not believe it is necessary to legislate. I will certainly look at whatever research we are doing in this area and let the noble Lord know.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, in any action my noble friend takes, will he bear in mind the impact on the charity and voluntary sector? A lot of charity and voluntary groups like to take on interns, and do so to the mutual benefit of both sides, but not all charities—especially smaller ones—can afford to pay.

[Lord Henley]

I note what my noble friend says and that he feels that charities might not be able to afford to pay, but if people are offering something that amounts to work, the simple fact is that the law says that they should be paid. That is where I stand.