Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019.

Relevant document: 16th 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, I will also speak to the other four statutory instruments listed on the Order Paper.

As we approach EU exit, the department is working to ensure that our energy legislation continues to function effectively after exit day, ensuring that consumers continue to benefit from reliable, affordable and clean electricity and gas. A significant part of the legislation that governs our energy markets takes the form of direct EU legislation. This will be incorporated into domestic law as retained EU law upon our departure from the EU by the European Union (Withdrawal) Act. These instruments amend EU regulations that will become retained EU law and address a range of highly technical issues, from cross-border trade to the energy market objectives of regulators.

The instruments simply remove inoperabilities in retained EU law in the event that we leave the EU without a deal. In the main, they remove references to the EU and EU institutions that would make no sense following EU exit. This ensures that, in the event of a no-deal exit, we would retain the regulatory functions and frameworks needed to keep Great Britain and Northern Ireland’s electricity and gas markets working effectively, facilitating continuity for UK industry and consumers. This is a sensible contingency to minimise uncertainty and disruption to our energy markets.

The instruments make similar amendments to legislation applying to Northern Ireland and Great Britain, although they are not always identical. This will ensure a consistent approach to retained EU legislation that previously applied across the UK while still recognising the unique nature of the single electricity market on the island of Ireland. On the single electricity market, let me be clear that the Government will take all necessary steps to seek to ensure that it can continue in a no-deal scenario. These instruments help to facilitate that. In preparing this legislation, the department has worked closely with Ofgem in Great Britain, and the Department for the Economy and the Utility Regulator in Northern Ireland.

In sifting this and related instruments, the Secondary Legislation Scrutiny Committee Sub-Committee A reported that the draft regulations,

“are necessary to enable UK energy markets to operate effectively if there is no agreement with the EU”,

and that,

“the proposed changes … do not appear to present significant policy or regulatory changes”.

The Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations amend and make “workable” the retained EU electricity and gas legislation that was created to harmonise energy markets and regulation across the EU. They also revoke guidelines for trans-European energy infrastructure which set out processes for development of EU infrastructure, as these will be redundant in a domestic setting.

The Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations amend retained EU gas legislation. They ensure that the regulatory framework relating to gas is maintained, including the technical EU network codes that cover the cross-border gas trade. This will maintain maximum business continuity and efficiency for UK gas operators and UK gas consumers. It also maintains the framework for dealing with security of supply, such as responding to gas supply emergencies by updating the security of supply regulation to remove references to EU institutions.

The Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations address EU electricity legislation relating to markets and trading, ensuring that they operate as part of domestic law. In particular, this instrument amends a wider package of rules, known as EU network codes for electricity. It revokes the guideline on forward capacity allocation and the guideline on capacity allocation and congestion management. These codes govern how cross-border trade operates within the EU’s internal energy market. The EU has been clear that, were the UK to leave the EU without an agreement, we would no longer be part of the internal energy market. These codes would therefore have little to no practical application in UK law and are being revoked. Alternative arrangements for cross-border trade are being put in place by GB interconnectors similar to those that were in place prior to European market coupling. Fallback arrangements will be in place for the interconnectors between the single electricity market and GB to ensure that trading can continue to take place in a no-deal scenario.

This instrument also amends the inter-transmission system operator compensation mechanism regulation, which established a mechanism to compensate national transmission system operators for hosting cross-border flows of electricity. The cross-border elements are removed as they cannot be provided for by domestic UK legislation. Provisions relating to the setting of domestic network charges are retained.

--- Later in debate ---

[Lord Grantchester (Lab)]

I am grateful to the Minister for his full and thorough explanation of the regulations before the Committee. Once again, I note that this instrument is brought forward under a no-deal scenario, such that it merely transposes existing regulations into UK jurisdiction with no appreciable policy differences. I am therefore happy to approve the instrument: it does exactly what it says on the tin.

However, I would add that, as they would normally be negative instruments, I am grateful to your Lordships’ Secondary Legislative Scrutiny Committee for recommending that they be upgraded to the affirmative procedure. I agree that they are important for the internal energy market and, more importantly, for the all-Ireland energy market.

We are nevertheless concerned that, in future scenarios, interconnectors will become a key feature in the supply of electricity to the UK and to the EU. How it will operate effectively into the future is a matter of anxiety.

At present, it is an integrated seamless supply, and the single energy market should be able to operate unimpeded in any situation after withdrawal. Last week, Munir Hassan, head of clean energy at CMS, told Utility Week that even in the event of no deal the internal energy market “just has to continue”. In view of this, and of the fact that the internal energy market is seamless, will it be a bit less easy to understand the nature of the electricity market should frictions be put in place with changes between the all-Ireland energy market and the UK, and across the interconnectors into the EU? Is the Minister confident that these regulations and others will enable all that to happen with seamless continuity?

As a result of these regulations, powers will be transferred to UK organisations such as the Gas and Electricity Markets Authority, represented by Ofgem. I Fourth Delegated Legislation

Committee ask again: what organisational and budgetary support will be offered to these groups by the Government to allow them to cope with every necessary increase in workload?

There is also concern over how the all-Ireland energy market will operate in relation to the EU internal market through southern Ireland and into the internal energy market of the UK. I agree that the regulations are largely technical in nature but they assume agreement. We can agree to a grid agreement update, but this nevertheless brings philosophical anxiety.

Lastly, there is concern that the Explanatory Memorandum has not been amended in relation to the upgrade to an affirmative instrument. Under a negative instrument, there are often sections dealing with compliance with the European Convention on Human Rights, but that has not been included. These points may not be strictly material to the upgrade, but nevertheless it would be informative to understand from the Minister why there has not been a redrafting in relation to the affirmative procedure.

[Lord Henley]

My Lords, as I made clear, these are pretty technical regulations that are designed purely for no deal. We laid a package of five instruments to resolve those inoperabilities across the body of retained EU law. As I think the noble Lord, Lord Grantchester, implied, although the committee that looked at them—I am trying to remember which committee it was; I think it was the Secondary Legislation Scrutiny Committee—recognised that they were absolutely necessary, it felt that the cumulative effect of all five warranted the affirmative rather than the negative procedure. That is why we are here today. Whether that means that the Explanatory Memorandum needs an upgrade, I really cannot tell him. I will write to him and deal with that point if it needs dealing with.

The broader question from both noble Lords, but particularly from the noble Lord, Lord Fox, is whether we would continue to participate in the internal energy market in the event of a deal. In the political declaration we agreed that we should put in place mechanisms as part of the future relationship to ensure as far as possible continued efficient electricity and gas trade over the infrastructure linking the UK and the EU, supported by technical co-operation. Further details are obviously a matter for negotiation. It is our position to seek a deal, and I reiterate that the regulations are for a no-deal scenario only.

It is worth reminding the noble Lord, Lord Fox, if he was being overly negative, that interconnectors are already in place between the UK and France and other countries. There is advantage for both parties in continuing to make use of them.

[Lord Fox]

That was the point I was trying to make.

[Lord Henley]

We use electricity at different times and, therefore, when we have a surplus, we can export it to them and vice versa. I cannot see that that will not continue to happen and bring benefit to consumers.

I move to the question of registration and the remit of Ofgem. Ofgem and its counterpart in Northern Ireland, the Utility Regulator, intend to continue to recognise registrations made by each other and by EU regulators, so we believe this will have no impact on the regulators’ ability to regulate. I hope that they will continue to be able to do the job that they do very well at the moment. We have engaged extensively with them and are confident that they will be able to meet their obligations within existing budgets. Where new systems are required, such as reporting mechanisms under the remit, the cost can be recouped through fees.

Finally, the noble Lord, Lord Grantchester, asked about Ireland and the single electricity market. We are confident that new arrangements can be put in place for trading in a no-deal scenario that will minimise disruption to the single electricity market. We have been working very closely with colleagues in the Northern Ireland Civil Service, the Northern Ireland Utility Regulator, Ofgem, systems operators and interconnectors to understand what day one arrangements for trading between the SEM would be in a no-deal scenario—not only the SEM within Ireland but interconnectors going to and fro between the two countries.

I think that deals with the points made by both noble Lords, and I therefore commend the first of the five regulations.

Motion agreed.

Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations 2019.

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

Motion agreed.

Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2018

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2018.

Relevant document: 10th 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, these regulations, laid before the House on 23 November last year, will amend the domestic minimum standard provisions within the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. In our clean growth strategy, we set out our ambitions to upgrade the energy efficiency of all buildings by the 2030s. The 2015 energy efficiency regulations, which set minimum energy performance targets for properties in the private rented sector, are an important precursor to that work, helping the Government to deliver our fuel poverty and decarbonisation commitments.

Although I appreciate that noble Lords may already be familiar with the minimum standards, some background on the sector and the 2015 regulations may still prove useful before we discuss the specific effect of these amendments. There are about 4.5 million privately rented homes across England and Wales, making it the second largest tenure after owner-occupation. Most of these properties already have an Energy Performance Certificate, or EPC, rating of E or above. However, about 290,000—that is 6% of the market—have a rating of F or G and, as such, are particularly energy inefficient and costly to heat. In fact, it costs about £1,000 more per year on average to heat an F or G-rated home than one rated at band D. Moreover, many tenants of these properties are among the most vulnerable and approximately 45% are in fuel poverty.

The 2015 regulations were designed to drive energy efficiency improvements to these inefficient privately rented homes and established a minimum energy efficiency standard of EPC E for these properties. Since 2018, the regulations have required landlords who let properties below the standard to improve them to EPC E before granting a new tenancy or renewing an existing one. However, the regulations also state that improvements are required only where they can be made at no cost to the landlord, using third-party funding: notably Green Deal finance. Where a home cannot be improved to EPC E, either because funding is unavailable or because of legitimate technical concerns, the regulations permit the landlord to continue to let it, provided they have registered an exemption on the new minimum standard exemptions register. However, access to no-cost funding, particularly Green Deal finance, is more constrained than was originally anticipated when the regulations were made. This means that most F and G-rated properties now qualify for an exemption.

The key amendment under discussion today addresses this by requiring landlords of domestic properties to invest their own funds in energy efficiency measures where third-party funding is insufficient or cannot be secured. To ensure that landlords are not overburdened, this investment requirement will be capped at £3,500 per property, inclusive of VAT and any third-party funding obtained. Ancillary amendments will also be made to the exemptions framework to ensure that the investment requirement delivers improvements where they are most needed.

I shall now briefly discuss the choice of £3,500 for the cap. At consultation, £2,500 was proposed, with a range of other caps presented for comparison. Following overwhelming calls, from 67% of respondents, for a higher cap, and from the results of further modelling, £3,500 was ultimately selected. Our updated modelling shows that of the caps considered in the consultation, £3,500 was the most effective at balancing the costs to landlords against the benefits to tenants and society. Specifically, that analysis shows that under a £3,500 cap: 48% of F and G properties will reach band E, with an average cost of £1,200; the remaining 52% of properties will be able to receive at least one improvement, at an average cost of £2,000; and tenants in improved properties will save an average of £180 a year on their energy bills. The £3,500 cap strikes the right balance between ensuring that a meaningful number of properties are improved to EPC E while ensuring that those improvements are affordable, particularly for smaller landlords who make up the majority of the sector.

However, I should also highlight that, alongside the clear benefits of thermal comfort for tenants, landlords themselves will benefit from the improved energy efficiency of their properties: specifically, in the form of reduced maintenance costs and increases in property capital value, as well as increased tenant satisfaction and following that, one would hope, shorter void periods.

In conclusion, these amendments will help ensure that the domestic minimum standard regulations can operate effectively in line with Parliament’s original intentions and deliver meaningful energy efficiency improvements to the least efficient homes in the private rented sector. I beg to move.

[Lord Fox (LD)]

My Lords, I thank the Minister for presenting this statutory instrument. The noble Lord, Lord Grantchester, is a world expert in the new Green Deal, so I look forward to his contribution and will defer to him in all ways in this area.

First, in many cases we have had to take the Government to task for not consulting but it seems that there has been an extensive consultation in this process, which should be acknowledged.

I became a little confused when I looked back at when this was debated in the other place. I found a debate that goes back to June 2016; if noble Lords can cast their minds back that far, Andrea Leadsom was then the Secretary of State. It appears that this was debated at that time. What happened to it in between—what has been going on? The then Secretary of State refers to all sorts of dates with regard to launching the register, which have passed. Perhaps I have got terribly confused, but it seems that this is the SI that was being debated and that there has been a very long gap in between. In due course I will refer to something the Secretary of State mentioned in that debate.

As the Minister set out, this deals with some of the least satisfactory housing in the country: nearly 300,000 substandard private rented sector homes. As the Secondary Legislation Scrutiny Committee pointed out:

“The Committee is of the view that, as a significant proportion of tenants in ‘substandard’ properties are in fuel poverty”.


The committee recommends that the,

“Department may wish to monitor whether the proposals lead to any adverse impact on vulnerable tenants”,

and recommends that the department might wish to monitor how the proposals lead to the impact on vulnerable tenants and whether they become less or more fuel poor. I would welcome a response from the Minister to that recommendation.

Moving forward, the fact that we have moved from public investment into the new Green Deal to private finance providers flags up concerns—I do not know whether the noble Lord, Lord Grantchester, will go into more detail. We talk about private finance providers. Private finance initiatives in other sectors are clearly not covered in glory at the moment, so I am interested in and concerned about how those finances are regulated and registered and what level of their returns on their finance we are expecting back. What kind of cap do they have on their returns?

As the Minister set out, the key proposal here is the removal of the no-cost-to-landlord aspects of the legislation. I think that that is right, because it is quite clear that work needs to be done and it will come at a cost. The Minister highlights this as being an important element of the green agenda, and it is very clear that there are big wins to be had for relatively small investment.

--- Later in debate ---

So while we support the fact that a cap is now in place that creates an environment for the improvement of properties, removes uncertainty and will necessarily increase minimum standards, nevertheless the assumption that properties in another category of multiple occupancy are still largely excused from the regulations for a further five years is particularly regrettable. We regret that this lower level has been introduced. I ask the Minister whether the Green Deal could be repurposed to provide finance for landlords, above the £3,500 level, to £5,000, such that the future affordability of this very necessary amendment to implement the Green Deal could be brought forward.

[Lord Henley]

The noble Lord would like a higher figure than the one we came to after considerable consultation—the increase from the £2,500 we originally proposed to £3,500, which is what these regulations are about. He has suggested, and I presume this is official Labour Party policy, a figure of £5,000. I suspect that if we had suggested £4,500 or £5,000, he would have suggested £6,000, so I do not think we can win on this. The simple fact is that we thought it right that those landlords who are not making any contribution should be encouraged or made to make some contribution. We are talking only about those 6% of properties that fall below the standard I set out in my opening remarks. The implication behind that is that the landlords of the other 96%—it is actually 94%, I am grateful to the noble Lord, Lord Fox—are doing the right thing, as any sensible landlord would do. It is not just about being good to their tenants—although that has an obvious benefit in encouraging tenants to stay and reducing the amount of void time—but much of the expenditure on improving the property will improve its capital value and be of benefit to the landlord. So although I believe, as a good Conservative, in the rights of property, I think it is right that we offer some encouragement to landlords—and this is more than encouragement—to spend money on maintaining their properties and ensuring that their tenants and the wider public benefit from improving the energy efficiency of those properties to at least band D and to higher bands in due course.

[Lord Grantchester]

I thank the Minister for stating that the added benefit of the rise from £3,500 to £5,000 produces a very considerable increase in the number of properties that would then comply. This would provide a win-win scenario whereby the tenant had reduced future bills for maintaining the property and the landlord saw an increase in the value of his property of more than £8,000: the impact assessment puts the increase at £8,500. Both these figures are considerably higher, so we would have preferred to have seen a £5,000 limit in the regulations.

[Lord Henley]

Again, I note what the noble Lord says; I imagine landlords up and down the country will be listening to his words. We had to make a decision based on a number of factors, but also on the viability of the whole sector. We did not want to see the whole sector being adversely affected on the basis of further modelling of the costs and benefits of the £3,500 cap. The noble Lord, Lord Grantchester, also asked why it had taken so long—four years, as he said—to lay this SI. It took time to build consensus among the wider stakeholder base and to consult properly, which on this occasion was welcomed by the noble Lord, Lord Fox.

The noble Lord, Lord Fox, then confused me by referring to the 2016 debate, implying—I am sure he did not intend to—that that was the debate on these regulations. That debate was to postpone the launch of the exemptions register by six months. It did not relate to this amendment to include a landlord contribution. All this does is to seek that the landlord should make a contribution. These regulations were debated in another place on 14 January this year. They were introduced by my right honourable friend Claire Perry, and it is open to the noble Lord to look at the First Delegated Legislation Committee from that date in Hansard. What happened in between? The 2015 regulations were made on 26 March 2015 and the provisions we propose to amend came into effect in April 2018.

The noble Lord then asked if the register will be made public. Yes, the register opened in 2017, and information registered on it is publicly available and searchable. The noble Lord, Lord Fox, regretted the inclusion of that in the £3,500 cap. We acknowledge that that has an impact on the scale of the improvements that can be delivered, but we nevertheless believe that that is offset by the increase from £2,500 to £3,500. The noble Lord, Lord Grantchester—being more severe than me—would like to take that yet further. Again, these are questions of balance and I believe we got it right with £3,500, even though the £3,500 includes that.

The noble Lord, Lord Fox, asked if the amending regulations are asking landlords to provide three installer quotes and whether that was making it too onerous and complicated. The requirement to provide three quotes applies only where the landlord is looking to avoid making any improvements and to register an exemption on the basis that even the cheapest improvement would exceed the value of the cap. Our analysis showed that virtually all properties can receive at least one measure costing less that £3,500, so we expect this exception to be invoked very rarely. The noble Lord will know that it is plain common sense to get more than one quote. If they are using it to seek an exemption, it is quite right that there should be three.

[Lord Fox]

I appreciate that answer. Clearly, if anyone is considering work, it is helpful to get more than one quote. I was implying that this would be a construct to not do the work rather than to do the work cost-effectively. It is not beyond the bounds of human ingenuity to use the high-cost exemption to get out of doing work. On that basis, I ask that the Minister’s department monitor the use of the exemption and come back to Parliament after some time to tell us whether his thought is correct and it is not being used very often, or whether it is in fact becoming a useful loophole for unscrupulous landlords.

[Lord Henley]

I fully accept the noble Lord’s point that the unscrupulous—we are talking about a relatively small number of very small landlords—could seek exemption by getting quotes from friends and all that sort of thing. We all have our views about certain aspects of the building trade and so on, but I do not think it is worth me going any further at this stage. I give him an assurance that we will do what we can to keep an eye on this issue—to monitor it, as he puts it—and if it turns out that too many exemptions are being sought for the sort of reasons that he mentions, I think my right honourable friend would be the first to say, “This is not working as we intended so we’ve got to try something else”.

The noble Lord, Lord Grantchester, made two other points. The first was about houses in multiple occupation. They will be covered if they are legally required to have an EPC and if they are let on a qualifying tenancy. Some HMOs are not required to have an EPC at this time, but that is something that the department is keeping under review. If we think it is necessary that we act, we will do so.

[Lord Grantchester]

Will the Minister write to me on how many would be exempt and how many would fall into the regulations with which he says they would then have to comply? My understanding was that more would be exempt, and there were a very limited number of occasions on which property in multiple occupancy would have to abide by the regulations.

[Lord Henley]

I offer to write to the noble Lord. I will see if we have the sort of figures that he wants on HMOs and whether I can bring a bit more detail on that.

Finally, I make it clear that the Green Deal has not been cancelled. It still exists. The Government ceased funding it in 2015 but the mechanism remains active and private finance continues to operate in the sector.

[Lord Fox]

I asked one question about the limits on profitability in the private finance investment in the Green Deal. If the Minister wants to write to me on that rather than answering at the Dispatch Box, that is fine.

[Lord Henley]

I apologise to the noble Lord; I am afraid I had not jotted that down. I will write to him in due course and give him an answer on that point. Other than that, I think I have dealt with all the questions.

Motion agreed.

Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019.

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

Motion agreed.

Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulations 2019

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulations 2019.

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

Motion agreed.

Storage of Carbon Dioxide (Amendment and Power to Modify) (EU Exit) Regulations 2018

Lord Henley Excerpts

Wednesday 13th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Storage of Carbon Dioxide (Amendment and Power to Modify) (EU Exit) Regulations 2018.

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

My Lords, this draft statutory instrument ensures that the UK’s regulatory regime for the geological storage of carbon dioxide continues to function when the UK leaves the EU. This will be required in the event that the UK leaves with no deal, but may also be required in a negotiated outcome.

There is broad consensus that carbon capture, usage and storage—CCUS—is vital to keeping temperatures below 2 degrees and at least cost. For example, the Intergovernmental Panel on Climate Change, the IPCC, estimates that, globally, it could be almost 140% more expensive to meet the target of 2 degrees without CCUS; that equates to an additional $12 trillion. That is why this Government are committed to progressing CCUS, which has the potential to support meeting our 2050 climate reduction target and forms an important part of our industrial strategy, supporting the transition to a low-carbon economy.

A functional regime for the storage of carbon dioxide is essential for enabling the deployment of CCUS across the UK. In 2009, the EU introduced the CCS directive, which established a legal framework for the environmentally safe geological storage of carbon dioxide. It covers all carbon dioxide storage in geological formations in the EU for the entire lifetime of the storage sites. The UK implemented these requirements through the Energy Act 2008 and subsequent regulations. This SI ensures that the UK’s regulatory regime for the geological storage of carbon dioxide will continue to function in an environmentally safe way when we leave the EU.

The purpose of this instrument is threefold. First, it corrects references to the UK as a member state and removes obligations to consult with the EU Commission during the licensing and permit process. This will ensure that the UK continues to be able to issue licences and permits to future CCUS projects, and that licences already issued remain fully functional.

Secondly, it will give a new power allowing the Secretary of State to update technical requirements relating to storage site characterisation and monitoring in the light of technical or scientific progress. This is an equivalent to that held by the EU Commission under the CCS directive. I stress that this power can be used only to reflect technical and scientific progress and for no other purposes. It has similar safeguards to the current EU Commission power, ensuring that its use cannot adversely affect the standard of monitoring or level of safety of the carbon dioxide storage sites. Thirdly, this instrument will ensure that there continues to be robust monitoring and safety standards for carbon dioxide stores consistent with the current legislation.

To varying degrees, these amendments make provision in respect of devolved matters, for which we have sought and received formal consent from Scotland, Wales and Northern Ireland. In developing this instrument, we also consulted the Oil and Gas Authority as the licensing and permitting body.

These amendments will not have any adverse impacts or place any additional burdens on CCUS projects, including, for example, the Acorn project in north-east Scotland, which was recently awarded a carbon dioxide storage licence by the OGA. The effect of all these changes will be to ensure that the UK continues to have an effective, robust and safe regulatory regime for storing carbon dioxide, a vital component of supporting the progress of CCUS in the UK.

--- Later in debate ---

[Lord McNicol of West Kilbride (Lab)]

My Lords, I am standing in for my noble friend Lord Grantchester, who cannot be with us this afternoon. This is another of the no-deal Brexit SIs, which would be completely unnecessary if the Government were to do the right thing: agree with Labour and others and rule out the possibility of a no-deal Brexit. If the Government were to do that, this House and the other place could spend more time dealing with far more important and relevant issues, and save the Civil Service, the ministerial Opposition and industry time and money—a simple solution.

This SI has already been through the other place, where it was passed in 10 or 11 minutes, so we are giving it a little more scrutiny in this House than in the other place. I note Dr Whitehead’s comments and those made by the noble Lord, Lord Teverson. On carbon capture itself, Dr Whitehead’s said that,

“it would be rather nice if we had some carbon capture and storage to put into those regulations”.—[Official Report, Commons, 28/1/19; col. 5.]

I have a couple of questions to add to the others asked by noble Lords. As the noble Baroness, Lady McIntosh, said, the Explanatory Memorandum details that BEIS engaged with the Oil and Gas Authority and the devolved Administrations. Could the Minister enlighten us as to the response from the authority and the Administrations?

The Government have stated that no specific monitoring arrangements are needed for this. Can the Minister detail whether the Government envisage any situation where the instrument will need to be looked at again? On the Minister’s second point, on changes to technical or scientific specifications, will there be any parliamentary scrutiny or oversight, or do those changes sit in the hands of the department and the Minister?

[Lord Henley]

My Lords, I am again grateful to all noble Lords for their contributions. On the last point made by the noble Lord, Lord McNicol, I am not aware that there will be any further parliamentary oversight of this order once it has gone through. Of course, as I said in my opening remarks, we are clear that this deals with a no-deal situation, but it might possibly also be necessary in the event of a deal. We have to see what the deal is, and then see what precisely is needed. The important thing at this stage is to provide a degree of certainty to the industry to make sure that it knows what is happening; that is true of a large number of the regulations coming before us.

The noble Lord, Lord Teverson, seems to think that the Government’s action was not sufficiently vigorous, that we have not done enough over the years and that nothing will happen until 2030—that we could leave this order until 2029. I suspect that neither I nor the noble Lord will be here by that stage—the noble Lord, Lord McNicol, looks so young that I am sure he will still be here debating orders of this sort, which he will greatly enjoy. The important thing, as I said in response to the noble Lord, Lord McNicol, is to get certainty.

I believe that we have been ambitious. My right honourable friends Claire Perry and the Secretary of State are ambitious, and, moving wider than CCUS, we have acted well on all other matters relating to renewables. As I said in a recent debate, this applies both to the coalition Government, and therefore to the Lib Dems, and to the previous Labour Government, who passed the Energy Act with all-party support—all sides of the political spectrum have been acting well on this. We have an ambitious action plan designed to enable the first CCUS facility in the UK, with commissioning from the mid-2020s.

I also assure the noble Lord, Lord Teverson, that the CCUS Council has been established. It is co-chaired by James Smith; it held a meeting at the end of last year and will meet again in March. The noble Lord can be assured of action on that.

I can also offer assurance about consultation on the specific point raised by the noble Lord, Lord McNicol. As I said, both the OGA and the devolved Administrations were consulted; the latter, as is appropriate, gave their consent, and the OGA was also content.

My noble friend Lady McIntosh was concerned about consultation. She will not be surprised that we rather expect questions on consultation on all of these regulations, because that seems to be what has been happening. We have not formally consulted, as noble Lords will be aware, on this particular statutory instrument, as the impact on businesses and government will be minimal. This is because the changes are technical and enable the regulatory regime to continue functioning largely as it does now. We did not think it was necessary to consult formally on this, but, as I said, we consulted those particular bodies and published a technical notice in October setting out the climate change requirements in a no-deal scenario.

The noble Lord, Lord Teverson, also asked about the Ospar Convention. I apologise to him because I am unsighted on that matter, but I will write to him. With that, I commend the regulations.

Motion agreed.

Ecodesign for Energy-Related Products and Energy Information (Amendment) (EU Exit) Regulations 2019

Lord Henley Excerpts

Wednesday 13th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Ecodesign for Energy-Related Products and Energy Information (Amendment) (EU Exit) Regulations 2019.

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

While we believe, as we have said on many occasions, that a deal with the EU is in our mutual interest, it would be irresponsible at this stage not to make appropriate plans for a no deal situation. This draft instrument ensures that in such a scenario our ecodesign and energy labelling legislation will continue to function effectively. It provides business and the public with the certainty they need.

Before I talk specifically about this instrument, it may be helpful if I speak briefly about the current EU framework for ecodesign and energy labelling. In recent years, the EU has introduced a suite of product-specific regulations through the ecodesign directive and the energy labelling regulations framework. The EU ecodesign regulations are about minimising the costs and environmental impact of products used in both homes and businesses by setting minimum performance requirements. Energy labelling regulations are about empowering consumers to make informed purchasing decisions through energy labels.

Both ecodesign and energy labelling regulations agreed to date will save household consumers around £100 on their annual energy bills in 2020, and, just as importantly, lead to greenhouse gas emissions savings of 8 million tonnes of CO₂ in 2020. As well as bolstering our commitment to reduce carbon emissions, the policy also serves a purpose for industry. Setting minimum performance requirements can help to drive innovation and increase the competitiveness of businesses, in line with our industrial strategy.

This brings me on to the instrument being debated today. Using the power in the withdrawal Act, this instrument amends EU retained law to ensure that the ecodesign and energy labelling regime remains operable in the event of a no-deal outcome.

I will turn now to the amendments. The instrument replaces references to the “Union market” with the “UK market”, so that ecodesign and labelling requirements continue to apply to the UK market after exit. This amendment is essential so as to prevent less efficient and more polluting products being placed on the UK market. It also gives the Secretary of State the power, currently held by the Commission, to lay ecodesign and energy labelling product-specific regulations. As set out in the Clean Growth Strategy, this power will be exercised to,

“keep step with equivalent standards wherever possible and appropriate, or even exceed them where it is in the UK’s interest to do so”.

The instrument removes the requirement for suppliers placing products on the UK market to enter product information into the EU product database, a new EU online portal, live since January, where market surveillance authorities—the Office for Product Safety and Standards for the UK—can view information uploaded by suppliers. Instead, the market surveillance authority will be able to request technical product information, as it does now, directly from suppliers.

The next three amendments relate to changes the Government are making to the trading of goods subject to EU-wide product-specific rules. They are not specific to this instrument. One of these changes pertains to the conformity assessment of goods to ensure they meet relevant requirements. After exit, products needing to be assessed by a third party in order to show compliance with UK legal requirements will be assessed by UK “approved bodies”. This replaces the pre-exit requirement to use an EU “notified body”. To minimise disruption, however, businesses will for a time-limited period be able to continue using EU notified bodies when selling their goods to the UK after exit.

After exit, a new UK marking will need to be affixed to products for the UK market to indicate conformity with UK requirements. This will replace the CE marking which indicates conformity with EU requirements. To ensure continuity, most manufacturers will still be able to use the CE marking for the UK market. This is intended to be for a time-limited period.

The last of these changes relates to testing standards used for the verification of compliance of products with legal requirements. The current list of EU “harmonised standards” will be carried across but renamed for the UK as “designated standards”.

Finally, this instrument makes minor changes to ensure market surveillance can carry out its enforcement activities with regards to the labelling of household lamps and electric ovens. These are routine changes not related to exit.

In conclusion, these regulations are an appropriate and necessary use of the powers of the withdrawal Act and will maximise continuity in our ecodesign and energy labelling regulations as we leave the EU. I commend the regulations to the Committee and I beg to move.

[Lord Teverson (LD)]

My Lords, perhaps I will be more positive about these regulations and make the Minister feel better. I very much welcome the tone of the Explanatory Memorandum and its emphasis on the benefits of energy efficiency, which is clearly one of the least costly and most effective ways to reduce our carbon footprint. In fact, energy efficiency is one of the reasons why although energy prices have gone up, energy bills for households have gone down. This time, the irony is on not the Government but the broader British media because the famous Brussels-regulations-related vacuum cleaner efficiency scandal foisted on British citizens by the tabloids will remain. I welcome those product standards coming across.

My question are quite practical. I think that the Minister went through this, but who will police or register this matter and what will the additional cost of that be? Secondly, and perhaps more importantly, who will hold the register? Is the IT for that complete? How will what is on the European Union register get on to the UK register? That covers a series of intellectual property rights issues. We came across this with the REACH chemicals database: you cannot just copy this information across. How can we have a robust system that works in this regard? Without that, this scheme cannot work.

I understand the Minister’s point about continuing labels for a while but, more importantly, will it be legal to sell all the electric appliances covered by this SI in our home market from the point of our departure? I want to understand whether the preparation in those technical areas is right and things will work. Legislation is great but if it cannot work, even passing these regulations is not a lot of use.

--- Later in debate ---

More positively, on a matter of special interest to Parliament, we on this side agree that any changes in the legislation would have to come forward via the “made affirmative” procedure, rather than the negative one. I think an opportunity has been missed. The Government could have written into the legislation or the SI that there would be no diminution in or reduction of standards. It does not say anything about protecting and uplifting standards. It is great that this is coming back as an affirmative process, but the diminution of standards could have been ruled out. There are plenty of questions there.

[Lord Henley]

I am very grateful to the noble Lord for ending on a positive note. I think I can say—I will write to him if I am wrong—that any further SIs will be affirmative. It is important to make a distinction between affirmative and negative orders. The noble Lord will know that, whenever legislation goes through, Governments of whatever political persuasion are often tempted to make some small concessions by offering to turn a negative order into an affirmative one. Oppositions often push for this, thinking that they have achieved some great victory. I have certainly done it in opposition. We then very often burden both Houses with some unnecessary affirmative orders. In the past, I can think of a large number of affirmative paralytic shellfish orders that kept littering the Order Paper. I cannot remember what they were about, but they would probably have been far better left as negative. I can see a Minister at some point making some generous gesture in the course of the Committee on a Bill to suit some Opposition of whatever colour. As far as I know, the orders will be affirmative. If, inappropriately, we try to make them negative, I am sure that the appropriate committees, chaired by the noble Lord, Lord Cunningham, and others, will correct us.

I briefly—but not completely—apologise for the size of the regulations. Rather rashly, I am tempted to say, “You ain’t seen nothing yet”. Speaking more honestly and frankly, very often, it makes life more convenient for the users if we put everything into one instrument. We get a better end product. The noble Lord is exactly correct in saying that this one is 81 pages long. There are a further few pages of the Explanatory Memorandum. To have to repeat this debate five times with five instruments—five into 80—might be a less satisfactory process. So I do not really apologise; I think this is the appropriate way of getting these things done.

I say the same to the noble Lord, Lord Teverson, who at least welcomed the tone of the Explanatory Memorandum. He told us just how much actions of this sort—even with rising electricity costs—could reduce one’s electricity bills.

I suggest another mechanism: to get one’s children out of the house, which happens when they get to a certain age. The noble Lord, Lord McNicol, shakes his head, but I think the noble Lord, Lord Teverson, knows exactly what I am talking about.

[Lord Teverson]

I agree, in that my wife’s 40 year-old daughter has just left the house to move elsewhere, so that is a very appropriate comment and I look forward to the reduction in my electricity bill.

[Lord Henley]

I was not thinking of those who had reached the maturity of 40; I was thinking of the somewhat younger ones who, despite their extraordinarily green credentials, take a slightly less purist approach to turning off lights and other procedure.

I shall deal quickly with some of the questions. On the impact assessment, I assure the noble Lord, Lord McNicol, that the instrument’s impact was assessed at below the annual cost of £5 million, which was why a full impact assessment was not required, but a de minimis impact analysis was undertaken to reach this conclusion and, in doing so, the department followed the guidance, so we are happy about that.

On consultation, I assure both noble Lords that we worked very closely with the industry and other organisations, meeting them and keeping them up-to-date via email. Last summer, officials met all the appropriate trade bodies to consult them. Views were sought on the proposal to keep the design of the energy label, remove obligations in relation to the EU product database and retain the legislative functions carried out by the Commission for the Secretary of State. In the main, as far as I know, the trade bodies supported all those proposals and stressed the importance of not imposing new costs on businesses and the UK being able to legislate after exit.

I shall deal with some of the more detailed points. The noble Lord, Lord Teverson, asked about the policing of this. Ecodesign enforcement and control activities are carried out by the Office for Product Safety and Standards. Energy labelling enforcement and control activities are carried out by that office and local authorities’ trading standards departments in Great Britain and by the Department for the Economy in Northern Ireland. The regulations will not result in any change in that policy.

The noble Lord also asked who holds the products register and whether there is one for the UK. There is no UK database, but there is an EU-wide database, which went live on 1 January this year. There have been delays on the public section of that database, but it remains broadly on track and, after exit, we will review whether to introduce a UK database. Again, I can give the assurance that we will consult on that. He also asked whether all appliances under the SI will be covered from the point of exit, and I can assure him that the changes come into force from exit day and there will be no gaps.

The noble Lord, Lord McNicol, was concerned that there could be a reduction in standards, but I can assure him that we continue to support all these policy measures, which cut energy bills and increase energy security. As stated in the Clean Growth Strategy, we will keep step with equivalent standards, but intend to go further where, as I think I said in my opening remarks, we believe that is in the interests of the UK.

I have dealt with the noble Lord’s concerns about consultation, but I just correct myself on the affirmative nature of SIs. Only the SIs that are not identical to EU standards will be affirmative. If they are not identical to EU standards, they will be negative. I think I have it the right way round.

[Lord McNicol of West Kilbride]

It is the other way around.

[Lord Henley]

It is the other way around, but the noble Lord has understood me anyway. He also wanted clarification on “designated standards” in the Explanatory Memorandum. The instrument renames the EU’s harmonised standards—the testing standards that can be used for the verification of products’ compliance with EU requirements—as “designated standards”. Designated standards will give rise to a presumption of conformity with UK legal requirements in the same way that the EU’s harmonised standards do in relation to EU requirements. To ensure continuity and not drive up testing costs, the testing standards in the UK and the EU will remain the same. That is what the UK industry wants. The reference to designated standards will again be published on GOV.UK. I believe that deals with the points that have been raised.

Motion agreed.

Recognition of Professional Qualifications (Amendment etc.) (EU Exit) Regulations 2018

Lord Henley Excerpts

Monday 11th February 2019 Lords Chamber

Moved by

[Lord Henley]

To move that the draft Regulations laid before the House on 19 December 2018 be approved.

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

My Lords, the purpose of this statutory instrument is to ensure that, in the event of the UK exiting the EU without a withdrawal agreement, the system for the recognition of EEA and Swiss professional qualifications in the UK for the purpose of access to regulated professions continues to function effectively, and that existing recognition decisions for EEA and Swiss professionals remain valid. The effect of the statutory instrument is to create a system which retains the best aspects of the current system while providing regulators with more freedom to rigorously check the standard of qualifications prior to granting access to a profession. The instrument will provide certainty to individuals with recognised EU professional qualifications already working in the UK, and the businesses and public sector organisations employing them. Furthermore, it will ensure that the future supply of professionals into the UK in certain key sectors can be maintained. The instrument makes changes to existing regulations using the powers conferred by Section 8 of the European Union (Withdrawal) Act 2018.

Before I turn to the detail of the statutory instrument, I will provide noble Lords with some relevant background on European Union directive 2005/36/EC, which I will now refer to as the directive. The directive sets out a reciprocal framework of rules for the recognition of professional qualifications across borders. It applies to the EU member states, as well as to EEA EFTA states and Switzerland. The directive provides several routes for recognition of qualifications, including automatic and general systems for the purposes of establishment and a mechanism for those who want to work on a temporary or occasional basis. The directive covers a very large number and wide range of regulated professions.

The directive is implemented in UK law by a number of pieces of legislation, including the European Union (Recognition of Professional Qualifications) Regulations 2015, the earlier European Communities (Recognition of Professional Qualifications) Regulations 2007 in respect of Switzerland, and a number of pieces of sector-specific legislation for certain professions. Following the UK’s withdrawal from the EU, the directive will no longer apply to the UK and the domestic legislation implementing it will not operate effectively because it will place obligations on UK regulators that they will not be able to fulfil outside the EU. It is necessary to lay this statutory instrument to ensure that the domestic legislation underpinning the recognition system operates properly.

I will now set out the effect of the statutory instrument in more detail. First, it will protect recognition decisions already made before EU exit and allow applications for recognition which have been made before exit to be concluded under the pre-exit rules, as far as possible, after exit. Secondly, it will also enable professionals who have started offering services on a temporary or occasional basis before EU exit to complete this service provision. Thirdly, it will enable qualifications to be recognised in the future. The changes we are making will retain a version of the general system for recognition, where UK regulators will be required to recognise EEA and Swiss qualifications which are of an equivalent standard to UK qualifications in scope, content and level.

However, it should be noted that some things will change under this statutory instrument. First, we are amending the scope of the existing regulations so that the basis of recognition will be determined by where the qualification was obtained as opposed to the nationality of the applicant. Secondly, UK regulators will no longer be obliged to offer compensation measures and partial access to professions in circumstances where EEA and Swiss qualifications are not deemed equivalent to UK qualifications. Thirdly, we are also removing the obligation on UK regulators to offer EEA and Swiss professionals a mechanism for providing services on a temporary and occasional basis. Finally, farriers and certain health and care professionals, such as physiotherapists, will no longer be in the scope of the amended 2015 regulations. These professions will now be addressed in related sector-specific legislation, to which I now turn.

It is important to note that this statutory instrument and the amended 2015 regulations do not apply to nurses, midwives, doctors, dentists, pharmacists, architects and veterinary surgeons, who are entitled to automatic recognition on the basis that their qualifications meet the EU’s minimum training conditions. The systems for qualification recognition for these professions are currently implemented by legislation that is, fortunately, the responsibility of Ministers in other government departments.

In conclusion, the statutory instrument is vital to maintain the operability of the framework for the recognition of professional qualifications and provide certainty to businesses and professionals. The impact of this SI on businesses and the public sector will be minimal. I look forward to listening to noble Lords’ comments. I beg to move.

[Baroness McIntosh of Pickering (Con)]

My Lords, I welcome the regulations but I will ask a number of questions. The first is, obviously, what are the reciprocal arrangements for the rights of British professionals affected by the terms of these regulations in other EEA countries and Switzerland? Is that matter currently ongoing in the Minister’s department and the other relevant departments for those professions to which he has referred?

There is a reference on page 4 of the Explanatory Memorandum to the situation of lawyers. I must declare an interest because I practised in two separate firms in Brussels as an EU lawyer, as I would call it, with the qualification that I had then as a member of the Scottish Bar—I am now a non-practising lawyer. Could the Minister confirm that the Explanatory Memorandum refers on, I think, page 4 to the statutory instrument relating to lawyers that has already been adopted? What is the exact relationship between the SI that we have already adopted and the regulations before us? What is the position overall of European lawyers from EEA countries and Switzerland wishing to practise here and of British lawyers wishing to practise post Brexit in other EEA countries and Switzerland?

The position of teachers has long posed a particular problem in countries such as Germany. In the consultation that I am sure my noble friend and his department will have done, were any issues raised about reciprocal rights for teachers, and have any issues been raised by existing EEA-national or Swiss-national teachers currently practising their profession in this country? I think my noble friend has answered this question, but the Explanatory Memorandum says that such issues will be the duty of others—for example, paragraph 17.9 says that the Department of Health will look at EEA and Swiss doctors, nurses, midwives and dental practitioners who wish to come and work here. If I have understood that correctly, what will the position be regarding the recognition of EEA and Swiss professionals in Northern Ireland, with there currently being no devolved government there? Is that something his department will look at? For example, the Explanatory Memorandum says specifically that farriers in Northern Ireland will not be covered. I would be very grateful if he would help me to understand particularly how farriers will be dealt with in that regard.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, we have covered a lot of ground in the last half hour or so. One important point which has not been made follows on from those made by the noble Lord, Lord Adonis, and other noble Lords. It is puzzling that the Government have chosen to ignore the question of how our important services trade will survive, both in the event of a no-deal Brexit and, more generally, if and when we leave the EU. This SI in some senses plays to that concern.

In the Trade Bill, which is currently paused in your Lordships’ House and may reach Report shortly, there is virtually no mention of trade relating to services at all, yet that is 80% of our GDP and consumes a huge amount of our resource and activity. At the heart of services activity is the General Agreement on Trade in Services, which we are members of through our WTO membership and which will apply to us once we leave the EU. However, without any statement at all in the Trade Bill and no confirmation that the Government understand and support the very important services work that relies so heavily on professionals and their ability to move and support their work, knowing exactly where the Government are coming from is a bit puzzling.

My noble friend Lord Adonis is right to raise the connection here between the right to free movement of persons and the freedom of establishment, which are key pillars of the GATS deal. He is also right to ask why the opportunity was not taken in this SI—as, indeed, it has not been taken in the Trade Bill—to support those who must deliver services in this country, in the EU and wherever they trade to generate the return and income we will need if we are to continue to enjoy our current standard of living. In that sense, the idea that somehow, through this statutory instrument, we will encourage non-tariff discrimination and barriers seems perverse. I hope that the Minister will have some answers to that question when he responds.

Paragraph 7.16 of the Explanatory Memorandum sets out the issue but then ducks out of it, for all the reasons given by others in this debate. It is not just about farriers, although it is a curious feature of life that they are not regulated in one part of our United Kingdom but they are in the other three. Discriminating against the rights of free movement, persons and services and the freedom of establishment to provide those services is one thing. However, we currently enjoy a system—whether through the EPC or through the EU’s general regulatory arrangements—whereby established regulated professionals in professions with established training standards automatically qualify to trade wherever they are able to do so. We are trading that for the system we are introducing, which will be devolved to professional bodies. Admittedly, some of these are of great stature and longevity and will, I am sure, act in the first instance. However, because it is not a national system and will not be subject to national standards, it is bound to be variable and to raise the concerns mentioned by my noble friend and raised in the other place of a possible tit-for-tat arrangement under which regulations made in this country—regarding accountants or lawyers, for example—are seen as unsatisfactory by others in the EU, who may introduce tit-for-tat regulatory change to prevent our nationals qualifying. That seems an extraordinary situation to open up and I would be grateful if the Minister would respond to that point.

The underlying issue is the approach we will take if we leave the EU—with no deal or with a deal—to protect the way our citizens are treated. My noble friend Lord Adonis is right: it would be a strange Government who set out deliberately to devalue the possibility of their citizens earning a living and a valuable income for this country in the way this instrument appears to suggest. This is probably not the place to raise all the wider issues mentioned by the noble Lord, Lord Dykes, but he certainly has a point when he asks why we are going through the pain to achieve something that does not seem in any sense optimal for those involved in it. Clearly, minimal consultations were carried out and were mainly focused on whether these regulations will apply in Scotland, Wales and Northern Ireland without difficulty.

I would be grateful if the Minister would respond to this statement towards the end of the Explanatory Memorandum:

“Devolved Administrations have confirmed their agreement for UK Parliament to lay this legislation UK wide”.


That is what this statutory instrument does. It goes on to say:

“This has been sought under the terms of the Intergovernmental Agreement”.


I am not sure which intergovernmental agreement that refers to, but if the Minister could write to me with the details, I would be grateful.

[Lord Henley]

My Lords, as the noble Lord, Lord Stevenson, put it, this is not about farriers—I will not deal with that question, unfortunately; my noble friend Lord Gardiner will possibly have to deal with it on some other occasion—or about why they are not regulated in Northern Ireland but are regulated in England, Wales and Scotland. I do not think anyone knows the answer to that question, and I will not try to answer it, just as I do not know why, for example, hairdressers are regulated in Italy but not here. In France, they are doubly regulated; you find that if you want to be a hairdresser who makes home visits you must have one form of qualification, and if you want to operate from a shop, you must have another. Again, we do not consider that necessary, but obviously we have to make provisions for UK citizens who want to work abroad to do so when that is possible.

However, before anyone thinks it is all sunshine out there under the current system—the noble Lords, Lord Fox and Lord Adonis, in their little exchange seemed to imply that as a result of these regulations we would get further restrictive practices—I remind noble Lords of the restrictive practices that happen already. One has only to look at the position of UK ski instructors—to take one example from the 600 or so professions that can be affected—and the problems they have had trying to operate in France, where, for some reason, throughout these wonderful years restrictive practices have always come into effect to try to exclude UK ski instructors from operating.

[Lord Fox]

Does the Minister believe that this statutory instrument will improve the lot of British ski instructors trying to get a qualification in a continental country, or will it make it harder?

[Lord Henley]

No, it will not, but we are making it quite clear that we believe that we will offer that unilateral ability to operate over here—not that there are that many ski instructors here, although I believe there are north of the border. The noble Lord should welcome the unilateral nature of these regulations.

We will talk about no deal; as I said, we hope that with a deal we will be able to cover all the other 600 or so professions or quasi-professions that are covered. However, I make it clear that I will not deal with other professions, which are, quite rightly, a matter for other departments. Therefore I will not answer the point made by the noble Lord, Lord Hunt, about doctors, because that will be a matter for regulations from the Department of Health and Social Care that either might have already gone through or will go through, and the same is true of my noble friend Lady McIntosh’s concerns about legal services. The legal services SI and the BEIS SI are separate legislation, laid by the Ministry of Justice, and are an effect of the legal services directive and the establishment directive. These alternative routes for recognition of lawyers exist now and, as I said, that is a matter for them.

I shall start off with numbers—the noble Lord, Lord Adonis, and other neighbourhoods, expressed concern about numbers. As the noble Lord will be aware, the European Commission maintains a database of the number of qualification recognition decisions awarded to most professions across the EU, the EEA and Switzerland. It does not tell us exactly how many professionals are working in the European Union at any given time, but it gives an indication in the form of the number who have sought recognition of their qualifications. That database tells us that in the 10 years from 2008 to the end of 2017, approximately 20,000 UK professionals have successfully had their qualification recognised in the EU, the EEA or Switzerland, and of those 20,000 decisions, about 12,000 related to qualifications in the scope of this statutory instrument. Further, I can tell the noble Lord that the top five professions having their UK qualifications recognised are: secondary school teachers, with approximately 3,400; lawyers, with approximately 1,600; doctors, with approximately 1,500; primary school teachers, with about 1,500; and, going back to Italy and France, 1,400 hairdressers.

--- Later in debate ---

[Lord Adonis]

I am very grateful to the Minister for giving way. He is talking about the consultation that took place with UK regulators and professional bodies. What consultation has there been with UK nationals who work on the continent, who could well be affected by the lack of reciprocal recognition of qualifications? It is their interests that are entirely unprovided for in the statutory instrument.

[Lord Henley]

I do not think it will be possible to consult them in the way that the noble Lord suggests. I accept that they are affected. We are making the order—a one-sided order—so that those coming to the UK can benefit from it. Obviously, UK citizens abroad are in a different position, but I hope they will take appropriate advice.

[Lord Reid of Cardowan (Lab)]

I am very grateful to the Minister. He mentioned that 12,000 UK citizens were awaiting professional recognition abroad and that 20,000 had thus far had their accreditation accepted in the European Union, as if to imply that that was an inevitable and inexorable acceptance which would continue. Does he accept that for all the 32,000 UK citizens working abroad, according to his estimates, should a reciprocal decision to that taken here be taken by European Union countries—to allow their professional organisations to make the decision—all those 32,000 UK citizens could be subjected to changes in the accreditation system in future, thus threatening the jobs, positions and livelihoods that they hold at present?

[Lord Henley]

I think the noble Lord has misunderstood what I said. Over the past 10 years, according to the EU’s database, 20,000 qualified professionals have had their qualifications recognised in the EU or the EEA. Of those 20,000—it is not a question of adding the two figures together and getting 32,000—12,000 related to qualifications within the scope of this statutory instrument, the implication being that the other 8,000, whether they were farriers from Northern Ireland, doctors or whatever, were not within the scope of this SI; they were within the scope of another. We are talking about 12,000 UK citizens who at some point over the past 10 years have gone to work in the EU. I am advised that the largest proportion of them are teachers, and the same is true of those coming back here. I have given figures for secondary school teachers and primary school teachers. Lawyers and doctors are not within the scope of this SI. I mention also hairdressers, where we can never have reciprocity because, as the noble Lord will be aware when he goes to his barber, we do not regulate hairdressers and barbers, whereas that is the case in Italy, France and no doubt in Luxembourg and other countries. I do not have the precise details of which of the other 27 countries regulate such things.

[Lord Reid of Cardowan]

I do not know whether my barber is regulated or unregulated but, looking at the outcome of his work, I suspect he is unregulated. I thank the Minister for clarifying his figures, but will he now address the substantial point that the 12,000 who have previously been accredited and are employed in jobs, presumably across the European Union, could in the future, if the EU does the same as the Government are doing, which is to pass the power of accreditation down to the professional organisations on the continent, find themselves without accreditation for their livelihood because the professional associations in Europe may well be tempted into what would be the equivalent of a trade war by protecting the interests of their own members vis-à-vis those who come from the United Kingdom? That is precisely the point that people in this Chamber are worried about.

[Lord Henley]

I am not going to comment on the noble Lord’s barber. However, the position of all 12,000—should they still be there and working, because that was over a period of 10 years—will be perfectly all right and they need not worry.

[Baroness McIntosh of Pickering]

My Lords—

[Lord Fox]

My Lords—

[Lord Henley]

There is no point in my giving way every time the noble Lord speaks because I must try to answer the points.

[Lord Fox]

It is only one point.

[Lord Henley]

I apologise to the noble Lord.

There has been guidance from the European Commission on this matter. Decisions on the recognition of our qualifications made by another EU member state before exit will not be affected by our withdrawal from the EU. That is what the Commission has said. Therefore those 12,000, should they still be there, will be perfectly all right. Obviously, for any new person it will depend on what arrangements come into effect. We are dealing with our own arrangements for people coming into the UK. I hope that finally answers the noble Lord’s point.

[Baroness McIntosh of Pickering]

My Lords—

[Lord Henley]

Can my noble friend wait just a minute? In the event of no deal, people seeking recognition of their qualifications after 29 March will be assessed under the host member nation state rules. I shall now give way to my noble friend.

[Baroness McIntosh of Pickering]

I am grateful to my noble friend. I hope he will come on to respond to the precise point about reciprocity. I think that what the noble Lord was trying to say was the question I put to my noble friend earlier. We are proceeding ahead of our European partners. We are ahead of our EEA and Swiss partners for the purposes of this statutory instrument. I think my noble friend will confirm that those new applicants will not have reciprocity because it is a matter for negotiation. Is that the case?

[Lord Henley]

My noble friend has it. We are saying to the large number of French ski instructors who want to come here that they can. It will be up to the French skiing authority. I mention ski instructors because this is just one area where what the noble Lord seemed to think was working perfectly quite obviously was not. I use that, possibly flippantly, just to make that point. French ski instructors will be able to come to Aviemore and qualify. That is what these regulations are about.

[Lord Winston (Lab)]

I remind the Minister that in 1938 that is exactly what we did in Britain. I had a number of colleagues who became great scientists and medics and who were refused their qualifications when they came to this country as refugees. For example, my boss worked as a housemaid for three years before she was able to start looking down a microscope. This is a real issue, not just for ski instructors but for people who are highly qualified as well.

[Lord Henley]

The noble Lord hits the point absolutely on the head. That is what the regulations are doing. That is why we are saying we will recognise their qualifications. Obviously I cannot say that France will recognise the qualifications of a UK ski instructor, or something more important. That has to be a matter for the French authorities, and we hope they will follow what we are doing.

Can I move on to deal with just one or two of the other points? I see that the House is filling up and, I think, wants to move on to other business.

[Lord Adonis]

Perhaps it does not.

[Lord Henley]

Perhaps it does not. I will continue.

I have already mentioned the guidance from the Commission. The noble Lord, Lord Adonis, was concerned that existing qualifications would be recognised, and I mentioned what the Commission said in published guidance about the recognition of other qualifications. We have every faith in that. The noble Lord, Lord Fox, complained that this should be technical and non-controversial—

[Lord Adonis]

My Lords, I am very grateful to the Minister for giving way. These are extremely serious matters. These figures are huge: 20,000 professionals currently have their qualifications recognised, which means that many thousands more will want the same in due course. The Minister referred to what the Commission said. Richard Harrington, the Minister in another place, said:

“In a no-deal scenario, the recognition of qualifications”—


UK nationals’ qualifications on the continent—

“will be assessed under host member state rules. In that scenario, after exit day, our nationals will not be able to provide temporary and occasional professional services as they previously could under the directive, but that will be subject to their host member state’s laws and regulatory frameworks”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; col. 11.]

Those words could not be clearer. We have no basis whatever for being able to offer assurances, let alone guarantees, to UK nationals that their qualifications will continue to be recognised for the purposes of new employment after 29 March. I need hardly point out to the House that what the Minister, Richard Harrington, said will come to pass in six weeks’ time. Any responsible Government would not be putting regulations of this kind to the House unless they had made proper provision in that respect.

[Lord Henley]

My Lords, we are bringing these forward in the event of no deal. We are saying, “We will take in all your qualifications”. The Commission, as the noble Lord acknowledges, has said that it will recognise existing qualifications from UK nationals out there.

[Lord Fox]

My Lords—

[Lord Henley]

The noble Lord will have to wait until I have finished answering this point. He can then interrupt me if I decide to give way, but I think I ought to be allowed to answer a point fully before I take another one.

I will now quote from a letter that my honourable friend wrote to his opposite number following the debate on these regulations in another place:

“Therefore, UK citizens living in EU countries who are working in regulated professions or under protected titles, and who are doing so under a recognition decision under the MRPQ directive, will not have their recognition decisions affected by our withdrawal from the EU and they will not seek further recognition in order to be able to continue working or using their title”.


I will now give way to the noble Lord.

[Lord Fox]

I thank the Minister for giving way and apologise for being so enthusiastic. Richard Harrington said in the other place that,

“the Commission has advised holders of UK qualifications living in the EU to obtain recognition in an EU27 member state before exit”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 4/2/19; col. 11.]

Is the Minister saying that that is wrong or is he saying that his colleague in the other place is right?

[Lord Henley]

My honourable friend is always right. On this occasion, he wanted to clarify his thoughts a little, and that is why I am quoting from the letter he wrote. I hope that response answers the noble Lord’s question.

[Baroness McIntosh of Pickering]

My noble friend is being incredibly generous and I am most grateful to him. I asked what his department is doing on a reciprocal basis, given that this is a matter of negotiation. The example given earlier was of a biomedical scientist, which falls within the scope of this directive, but it could equally be a clinical dental technician or a dental nurse. What is the department doing to ensure that there is two-way traffic and that we quite rightly ensure that EEA and Swiss nationals can carry on or make new applications here? Will he put our minds at rest that that is precisely what the Government and his department are doing for our nationals in the EEA, Switzerland and the EU?

[Lord Henley]

I assure my noble friend that my department and the other relevant departments—this does not just affect BEIS—will seek reciprocity. We cannot offer reciprocity in a no-deal situation. What we are trying to offer in that situation—which is all these regulations are about—is protection for those who want to come into the UK. It is a one-way offer and one would hope others will take it up.

Lastly, I want to deal with the point of the noble Lord, Lord Stevenson, as to whether there is a GATS risk. The current system is based on the nationality of the professional rather than the nationality of the qualification. To keep in line with WTO rules, we have to change that at exit day to avoid being in breach of them. WTO members can recognise professional qualifications gained in other countries provided certain conditions are met. This recognition can be gained unilaterally but it must not operate in a discriminatory way, so we cannot retain a system that provides preferential treatment simply on the basis of a professional’s nationality—it has to be on the qualification.

I believe that I have answered most of the questions put to me. These regulations are important and it is necessary to get them on the statute book.

Motion agreed.

Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

Lord Henley Excerpts

Monday 11th February 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 10 January be approved.

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

My Lords, the changes being made by this instrument relate to the Companies Act 2006 and supporting secondary legislation. In some cases, the changes will have no impact on business; they simply tidy up provisions in the legislation to reflect Brexit. Other provisions will have an impact on business. These provisions are mainly to ensure that certain EEA-based entities will be treated in the same way as other third country entities after exit day. This is an approach that has been taken in many statutory instruments that this House and the other place have considered over the last few months. These changes are made only when necessary to ensure that the UK does not breach the World Trade Organization’s most favoured nation rule upon exit.

I will set out these changes and the impact on companies, but first I would like to briefly highlight two provisions that remove access to EU-based processes and systems. The first is that this instrument revokes the Companies (Cross-Border Mergers) Regulations 2007. This allows the merger of two or more companies or partnerships based in at least two EEA member states. There have been approximately 400 cross-border mergers involving UK companies and a company in another EEA jurisdiction since 2010, around 50 a year. After exit, companies seeking a merger with another company outside of the UK will need to transfer assets and liabilities using contractual arrangements. This already happens now between UK and non-EEA companies, so many businesses will already be familiar with it.

The second provision is that after exit the UK will no longer be part of the Business Registers Interconnection System. This tool connects business registries across Europe. Much of the information that Companies House makes accessible on BRIS is openly available on the UK company register via GOV.UK. Many other member states do the same on their registers for business transparency reasons.

I turn now to how the provisions in this instrument deal with certain EEA entities and EEA—regulated markets. The main practical impacts are around filing changes. EEA companies that have registered with Companies House under the overseas companies regulations will need to provide additional information. This will align the information required from them with that required from non-EEA companies. The additional information is minor, such as the address of the registered office and the law under which a company is incorporated. The same group of companies will also be required to provide more detail in customer-facing material. This includes the location of the company’s head office, its legal form, liability status and whether it is subject to insolvency proceedings.

While these are minor administrative details, they are important for corporate transparency and very useful for the clients and customers of foreign companies with UK operations. These changes apply only to EEA companies that are already registered as overseas companies in the UK. We have provided companies with a three-month notice period to provide the additional information and Companies House will inform them of the requirements. The forms to update their details will be available on GOV.UK on exit day. Further changes affect UK companies which have an EEA corporate appointment—that is, a director or company secretary that itself is an EEA company. Any UK company with this type of appointment will need to provide Companies House with two pieces of additional information within three months of exit. This aligns the filing requirements for EEA and non-EEA corporate appointments.

Another change ensures that EEA credit reference agencies and credit and financial institutions are treated in the same way as those from third countries. After exit the registrar of Companies House will no longer be able to send protected information that they hold on directors to these companies.

I would also like to explain the definitions of the phrases “UK regulated market” and “EU regulated market” within these regulations. These definitions were inserted in the Companies Act 2006 by the Accounts and Reports (Amendment) (EU Exit) Regulations 2019 and are consistent with the definition in the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, which we debated in December last year. The definition confers preferential treatment on certain entities listed on EEA-regulated markets such as the London Stock Exchange and the Frankfurt stock exchange. In most instances we have inserted,

“UK regulated market or an EU regulated market”,

to maintain the status quo. However, in two places we have restricted the provisions to companies listed on a “UK regulated market” to avoid breaching WTO rules. The first is the exemption to the prohibition on subsidiary companies owning shares in a parent holding company. This exemption will be available only to companies that have access to UK-regulated markets. The second provides that only companies listed on a UK-regulated market will be able to benefit from some relaxations on controls on their distribution of profits. We are providing a one-year transitional period for those affected.

Overall, these amendments do no more than is necessary, are broadly technical in nature and will ensure that a clear and coherent company law framework is in place after exit. I commend these regulations to the House.

[Lord Fox (LD)]

My Lords, I thank the Minister for bringing this SI to the House. It is another episode in the unravelling process. I have four comments, along with one pro forma comment on consultation.

The Minister mentioned the Business Registers Interconnection System. My understanding is that that is already part of Companies House. Can the Minister assure your Lordships’ House that there is no change in the information available—in other words that the information that was available on BRIS remains available on the new Companies House system?

That takes me to my second point. There are a number of mentions of a role for the company registrar in this instrument, and a lot of them are time-limited over the three months post exit day. What level of capacity will be needed to handle what will be a surge of registration, inquiry and people wanting to know what to do? What level of information will go out to inform companies that they are required to do these things? Who will hold the buck for putting that information out there? It is not clear how companies will find out about this or whether there will be the capacity within Companies House to handle the three-month surge. I would like to know what kind of risk analysis has been done by the Government and what level of communication they are planning.

Thirdly, as the Minister set out there are a number of technical changes around cross holdings of shares between EEA and UK companies. It is not clear to me how many companies this would affect. What intelligence do the Government have on how many companies will be affected in this shareholding? Obviously, there is time for these companies to change that. Does that significantly change the shareholder profile of many companies in this country? If so, how? Does it have any effect overall on market liquidity? What kind of analysis of what this means has gone on?

The final substantive point is on cross-border mergers. The Minister mentioned those in his introduction. He did not explain what the implications are if there are cross-border mergers already under way now or at the time of exit. What regime are these cross-border mergers governed by?

All of this is regrettable, because we have a functioning system that works very well. I am co-operating in so far as I think it is important that we have some sense of where this is going in the regrettable event of exit day. My final point is this: can the Minister outline what level of consultation has gone on? Again, it looks like none. What is the justification for no consultation?

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, the points made by the noble Lord, Lord Fox, and my noble friend Lord Adonis are very important and I hope that the Minister will be able to respond to them. I have a couple more questions to add that the Minister might wish to respond to when he sums up. To add to the comments made by my noble friend Lord Adonis about the consultation, will the Minister also confirm that, if the Law Society was the only body consulted, why were the CBI and the FSB and others not consulted and can he give adequate reasons for that?

Paragraph 7.22 of the Explanatory Memorandum refers to,

“permitted disclosures to credit reference agencies, credit institutions, financial institutions”,

and the current legislation giving “preferential treatment” to EEA agencies. I take the point made in the Explanatory Memorandum that there seems to be no particular reason for that, but will the Minister comment on whether that raises an issue about data protection adequacy? The Government are on record as saying that they want to ensure that movement of personal data between the UK and the EEA is uninterrupted. If a distinction is to be made in terms of access, does that not bear on adequacy? If so, will the Minister comment?

Secondly, paragraph 7.24 refers to political parties and expenditure. My understanding—I may be wrong and I look forward to the Minister’s comments—is that shareholder authorisation is required for donations to political parties, organisations and candidates by any companies established in the UK to ensure that their intentions in relation to those activities are transparent. I take the point that, if we are crashing out of the EU and becoming an independent body, there is a question about the relevance of payments made to political bodies operating in the EU, but that does not take the trick in relation to transparency. Surely, shareholders of UK companies should know whether their companies are making payments to political parties whether or not they are in the UK, particularly if they are operating in the EU. I would have thought that was of interest to shareholders.

I am not in any sense saying that there is anything wrong with what the Government are doing, but it would be helpful if the Minister could explain their rationale. If it is a transparency measure, it is not relevant to exclude payments made to political parties and organisations for referendums and other things, wherever they take place, simply because we are no longer in the EU. That information would be of value to shareholders. I look forward to the Minister’s response.

[Lord Henley]

My Lords, I thank all three noble Lords for their contributions. I was not surprised that there was comment about the consultation. I repeat that, as we made clear in the Explanatory Memorandum, we were unable formally to consult on the provisions in the statutory instrument. But as my honourable friend Kelly Tolhurst said in the other place:

“On consultation, as I outlined, we have consulted, worked with and used the expertise of Companies House to ensure that we are making the best provisions to enable UK companies to implement the regulations that we require for them to be legal if we leave the European Union without a deal”.—[Official Report, Commons, Delegated Legislation Committee, 4/2/19; col. 8.]


We extensively engaged with Companies House—I think it is the right place, initially—on the changes that will impact EEA and UK businesses. In addition, impacted businesses—I will get on to numbers in due course—were notified of many of the changes in this instrument through the publication of the Structuring Your Business If There’s No Brexit Deal technical notice published in October, including filing changes, the route of access to BRIS and the revocation of the cross-border merger regime.

The noble Lord, Lord Adonis, seems to think that we did not consult the CBI, the FSB and other similar bodies. I shall give him an assurance that applies not just to this order but to a range of other orders and orders that will cover other departments. The CBI, the FSB and others—I could go through a whole list of them—are in the department on a weekly basis seeing the Secretary of State. The noble Lord will find that they are also in the department on a regular basis seeing officials and making officials aware of their concerns. I can give a cast-iron guarantee that any concerns they have will have been noted and we will have been made aware of them. As I said, this applies not just to this order but to a range of orders. We are the Business Department. My right honourable friend the Secretary of State has made it clear that his door is always open to representative organisations, just as I made clear last week when dealing with the intellectual property regulations how recently I saw, for example, the ABPI and the BIA. Irrespective of Brexit or whatever, it is important to us to have regulations. The noble Lord, Lord Adonis, is an old hand and has been a Minister. He will have done that in the various departments in which he served, and he knows that those engagements go on with great regularity.

I shall now start working through the various points and questions that the noble Lord, Lord Fox, put. I shall start with his concerns about BRIS. It will continue to be open to scrutiny by all non-UK interests after exit. In addition, most EEA registries are open and can be accessed through the relevant websites in the EEA states, but that will have to be a matter for where the company is based. GOV.UK lists those websites for the EEA and the rest of the world. There are no changes in the information available.

The noble Lord then asked how many would be affected and whether Companies House has the capacity to deal with these matters. I can assure him that we are in constant touch with Companies House and it assures us that all is well. The impact will be small. For example, there are only five companies in scope of the change around intermediaries being a member of their holding companies and we found no companies in scope of the change to investment in companies’ distribution of profits. Going a bit further, in relation to the filing changes, we reckon there are about 1,900 companies in scope of the changes which will have three months to update their information. Again, I am assured that there are no problems in that area.

The third point made by the noble Lord was about technical changes in relation to cross holding. He asked what analysis we have done. We have made only two changes, which relate to intermediaries dealing in securities being a member of their parent holding company and how investment companies can distribute profits. The regulations will ensure that, after exit, only intermediaries that are members of or have access to a UK-regulated market will benefit from this exemption, and certain investment companies will no longer benefit from some relaxations on controls of their distribution of profits unless they are listed on the UK market.

The noble Lord’s final point was on cross-border mergers. I have a note on that which has been temporarily misplaced. I apologise to the noble Lord; I might have to write to him on that.

I turn to the concerns relating to political parties raised by the noble Lord, Lord Stevenson. The regulations amend Part 14 of the Companies Act, which sets out the shareholder authorisation required for a company’s donations to political parties, organisations or candidates for electoral office. Under the current legislation, that reflects that the UK is part of an integrated European political system. In practice, that means that the same authorisations are required whether the political expenditure relates to the UK or other member states. After exit, these authorisations will apply only to donations and expenditure relating to UK-based political parties, organisations and candidates for electoral office. We are making these changes because, after exit, it will no longer be appropriate for the UK to set shareholder authorisations on donations outside the UK, as the UK will no longer form part of the wider EU political system.

[Lord Stevenson of Balmacara]

It was very helpful of the Minister to read out what is already in the Explanatory Memorandum. However, that was not my point; I was asking why the Government are making the change. If the regulations are there in the first place for reasons of transparency of political contributions, it does not really matter where they are.

[Lord Henley]

As I said, we have to get the statute book in the right place in the event of no deal, and therefore that small change had to be made. I do not think that I need go any further than that, unless I have misunderstood the noble Lord. I will look carefully at what he has said and will possibly write to him.

The final point that I wanted to deal with related to cross-border mergers. The noble Lord, Lord Fox, asked what happens to mergers that are in progress now. Mergers between UK and EEA companies may not be recognised by the destination member state after exit. We informed stakeholders of the change via the Structuring Your Business If There’s No Brexit Deal technical notice, which was published in October and to which I referred earlier. In that, we told them what they ought to do and what advice the impacted companies ought to take.

I believe that I have answered all the points. I will write to the noble Lord, Lord Stevenson, if I have misunderstood him.

Motion agreed.

Trade Marks (Amendment etc.) (EU Exit) Regulations 2018

Lord Henley Excerpts

Wednesday 6th February 2019 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 28 November 2018 be approved. Debated in Grand Committee on 14 January.

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

My Lords, as with earlier instruments on exhaustion and patents, this was debated on 14 January in Grand Committee, where noble Lords raised questions about the consultation and impact assessment process. Noble Lords also put some questions on technical points specific to this SI, seeking clarification on ongoing proceedings, costs and priority dates of pending applications. I repeat my thanks to all noble Lords who shared their time and expertise with the Committee on those matters. I addressed many of the points raised in my letter of 21 January to Members of the Committee. I hope that my answers were helpful and have met the expectations of noble Lords who took part.

The Government have laid these regulations to ensure continued protection in the UK for EU trademarks, thereby providing businesses with maximum security, clarity and certainty. Under current law, businesses can obtain an EU trademark, which, as a unitary right, provides protection across the whole of the EU. When we leave the EU, that protection will no longer extend to the UK. To address this, the Government will create a comparable UK trademark for every EU right that is registered on and before exit day. These comparable trademarks will inherit earlier filing and priority dates recorded against the corresponding EU trademarks and will be fully independent UK rights that can be challenged, assigned, licensed or renewed separately from the original EU trademark. Each comparable trademark will be created automatically and free of charge, meaning that a minimum administrative burden will be placed on rights holders. Those not seeking to hold comparable UK trademarks will be able to opt out by notifying the IPO. The instrument also sets out the Government’s approach for accommodating the 85,000 trademark applications which are pending before the EU Intellectual Property Office on exit day.

A number of technical issues were raised both during and after Grand Committee. Given my answers in my letter to noble Lords, I shall focus on those outstanding concerns which were raised subsequent to my letter. The noble Baroness, Lady Bowles, inquired in Grand Committee about the effect of priority dates on pending applications and compatibility with the Paris convention. I was pleased to have a meeting with the noble Baroness and trademark legal professionals to discuss these and other matters that she raised. At that meeting I clarified that we believe the instrument is compatible with the UK’s obligations under the provisions of the Paris Convention for the Protection of Industrial Property, which contain rules on claiming international priority.

I remain confident that the chosen approach provides the most practical means for preserving the rights of pending EU trademark applications. In respect of issues identified with the conversion of EU trademarks, I have also confirmed to the noble Baroness that such rights will be preserved via provisions contained in the Interpretation Act 1978. A copy of my letter, which addresses the noble Baroness’s concerns on both the Paris convention and conversion rights, will be placed in the Libraries of both Houses. I found our discussions on these two issues most helpful, and was grateful to the noble Baroness for her valuable insight as a trademark and patent attorney. Building on those discussions, I will ensure that her points are reflected in business guidance to be published by the IPO closer to exit day.

In conclusion, these regulations are vital to ensure that businesses do not lose their trademark protection in the UK, and to ensure the continued effectiveness of our domestic trademark system if we do not secure a deal with the EU. I hope noble Lords will support the draft regulations, which I believe provide businesses with clarity and certainty regarding their intellectual property. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, first, I declare my interests. I am a retired European patent and trademark attorney, but, if I were to un-retire, I would find myself among those unfortunates who, going forward, would no longer be able to practise before the EUIPO in respect of trademarks and designs. This matter—that a part of professionals’ representation is cut off—is not one we have discussed before. My noble friend Lord Clement-Jones was interested to hear what the Minister had to say on the issue, and to confirm my interpretation that current UK representatives will no longer be representatives is correct.

This SI largely replicates the provision in the withdrawal agreement, so it is not really a no-deal SI; it is the shape of the SI that will happen in due course—if there is a deal—possibly with some minor changes to dates and other things, but I could not see anything that differed from what one would expect under the withdrawal agreement.

As the noble Lord, Lord Henley, has explained, I had a long meeting with him and officials from the department and the IPO; I thank them very much for their time and for listening to my views and those of some representatives. I apologise to the noble Lord, Lord Adonis, but I did a little secret consultation myself, just to make sure that, being retired, I had not lost the plot. What I wanted was a statement that there would be continuity of rights at the point of Brexit so that, although the SI was internally consistent under UK law—it gave clear instructions as to what our courts would decide—it would also neatly fit within the usual conventions. That required only an assertion, which we have effectively had, that the rights continue—rather than dying and, in some way, being resurrected.

The letter that the noble Lord, Lord Henley, has now placed in the Library, and which was addressed to me on 4 February, is interesting. First, he deals with the priority rights that I discussed in the Moses Room in Grand Committee. The second issue I raised was about an EU trademark application that was refused before Brexit but, under the rules, it can be converted to a national application by applying at the EU end for three months. There was concern that there is no mention of what happened to those applications and to that conversion right. Was is lost or was it not? Some representatives thought that it was lost.

The letter refers to the Interpretation Act, and it is worth pointing out what that Act says. It confirms that an Act that repeals an enactment does not affect,

“any right, privilege, obligation or liability acquired, accrued or incurred under that enactment”.

The letter goes on to say that the EU trademark regulation will constitute EU retained law for the purposes of the European Union (Withdrawal) Act 2018; and that pursuant to the power in that Act, it is repealed and replaced by the UK regulation. This solves the problem. There is a definite assertion here that the right to convert will be retained but the conversion will be done entirely before the UK IPO, instead of starting it off in the EU. This general application of the Interpretation Act would apply to any regulations, not just these; it might be applied to those on patents that we have just discussed. That is one reason why I asked that the letter be put in the Library. It is possible that we contemplated this when we were going round the loop of the withdrawal Act, but I had misplaced it in my mind, and that might be the case for other noble Lords.

I am satisfied that it is “job done” on the confirmation of continuity and the issues I sought reassurance on. I am also grateful to the Minister for explaining that the Government will take into account the various other measures we raised, which are much more to do with practice.

The salient point here is that some 60% of trademark applications are made by individuals for their own businesses, without professional assistance. So it is quite important that the advice the IPO is able to give keeps them up to speed with changes that they might not be aware of, such as that they still have the conversion right and for how long.

There is still a matter to be dealt with: for nine months, there are latent rights hanging about. If you file a trademark application, it might look like the way is clear and then, all of a sudden, it is not, because people want to continue with the one they have under the EU. The question is how the IPO is to deal with notification, so that an applicant knows the full picture before making decisions that might be otherwise prejudicial to their rights when deciding whether to go ahead and have notice sent to people or to withdraw their application. My proposal was that they have to have the right to be able to suspend until that nine-month period is over, if it looks as though there is something in their way. Obviously, this is not a matter for this statutory instrument, but it will turn out to be a matter of concern if a significant number of those 85,000 applications are continued with. From what I can gather, it is likely that more than half will be, so intervening applicants will have a difficult nine months to navigate.

--- Later in debate ---

[Lord Adonis (Lab)]

My Lords, this was the famous statutory instrument which referred to consultation with,

“a small group of trusted individuals”.

We had a long discussion in Grand Committee about who should or should not be trusted at the Government’s discretion. This was not satisfactorily resolved. However, the noble Baroness, Lady Bowles, has continued those conversations; I am sure that her discussions were with wholly trusted individuals and that her further discussions with the Minister have led to improvements in the regime that will follow from the statutory instrument.

I would like the Minister to clarify the issue of renewal fees so that I and the people reading our proceedings fully understand it. This was raised in Grand Committee, and the noble Lord referred to it in his six and a half page letter. As I understand it, the key passage is about what happens when people need to hold two sets of trademarks, rather than one, after renewal. I want to be clear that I have understood this correctly: the letter from the noble Lord, Lord Henley, says that around 10% of trademarks which are renewed each year,

“are held by UK businesses, and so we estimate that 60% of the 1.3 million newly-created comparable UK trade marks will be renewed at an annual cost to UK business of around £2.5 million in additional renewal fees”.

Are those wholly additional fees that businesses and individuals will have to pay, over and above what they would pay at the moment? Have I correctly understood that they need to pay those fees because they are very likely to need to hold two sets of trademarks—for the EU and the UK—in parallel? This has come out only through our consideration of this instrument and was not clear in the initial consultation or the Explanatory Memorandum. I am not in this industry, but this would seem to be a significant additional burden. People need to be aware. Case by case, we are seeing all of these additional burdens as a result of a no-deal Brexit. It is deplorable that we are imposing additional costs on businesses and individuals in this cavalier way.

[Lord Henley]

My Lords, I am very grateful to all those who have spoken. I was particularly grateful to hear the noble Baroness say—I think I have this right—the words, “job done”. I hope we can get this order on the statute book. Although the noble Baroness brings great expertise to this matter, there are others—I dare say the noble Lord, Lord Stevenson, would agree—who do not have that same degree of expertise. There is to some extent the sense of cold towels wrapped around our heads and strong black coffee as we consider these difficult and technical matters. We are grateful for that expertise. Even if the noble Baroness has now retired from this area, we will continue to discuss these issues with her and other trusted individuals, with the noble Lord, Lord Adonis, and with anyone else—trusted, untrusted or otherwise—who has a relevant concern in these matters; it is very important to do so. As the noble Lord, Lord Stevenson, put it—so well, as always—there are benefits to the owners of trademarks and benefits to consumers; it is therefore appropriate that we strike the right balance between those two groups. Dealing with conflicting rights is one of the difficult things that those in government have to do.

The noble Baroness asked about representation at the EU Intellectual Property Office. The EU trademark regulation mandates that a representative must be based in an EU member state in order to represent clients before the EU Intellectual Property Office. Officials in the IPO and in the Ministry of Justice are aware of this issue and have held many discussions with representative groups. As we turn to the future economic partnership, we will seek a comprehensive arrangement on trade and services, including professional and business services.

I want to make it quite clear, as I did in Grand Committee, that we believe it important that the guidance we offer to business is targeted and clear, particularly as the noble Baroness stressed the number of unrepresented businesses. Although the sensible thing would be to take advice from the noble Baroness’s profession, clearly many people prefer to avoid those in the legal and other professions. We will ensure that the right guidance is offered and highlight the importance of searching the EU register. I am grateful to her for raising those issues again.

The noble Lord, Lord Adonis, raised the subject of renewal fees and costs and referred to some remarks from my letter. Analysis of existing UK rights shows that the average cost of renewing a comparable right will be approximately £300, due every 10 years. If rights owners do not wish to renew their UK trademark, for example because they have no interest in preserving UK protection, they do not have to pay the fee. But, as the letter makes clear, businesses will incur additional costs should they want to enforce their UK-compatible rights or defend them against a challenge. That cost will vary depending on the length of proceedings and the amount of evidence considered. However, as the letter says, the IPO estimates that the total cost to UK businesses would be around £330,000 per year. The noble Lord, Lord Adonis, can make use of that information as he wishes in any discussion of the merits or otherwise of Brexit.

On his last point, the noble Lord, Lord Stevenson, will appreciate that it is only possible for us to pass legislation affecting the UK. The withdrawal agreement will provide for reciprocal measures with the EU, when and if that is agreed. I believe I have answered all the questions put to me.

Motion agreed.