World Bank: Selection Process for President

Lord Hodgson of Astley Abbotts Excerpts

Thursday 28th February 2019 Lords Chamber

[Lord Bates]

I do not accept that description of the World Bank’s work. It does an incredible amount for the world’s poor through investing in infrastructure and food—for example, for the Rohingya population. It is absolutely committed to eradicating extreme poverty around the world, which is why we support it.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, once the nomination process has closed, will my noble friend let the House know when he expects the shortlist of candidates to be published?

[Lord Bates]

The nomination process will close on 14 March. The candidates will then be assessed by the executive board of directors and a decision will be made ahead of the spring meetings in Washington between 12 and 14 April.

Returning Jihadists: Treason Act

Lord Hodgson of Astley Abbotts Excerpts

Thursday 21st February 2019 Lords Chamber

[Baroness Williams of Trafford]

My Lords, I hope the noble Lord agrees that the recent legislation has given more powers to the courts to prosecute. I am pleased that the noble Lord supported that Bill through its passage. I agree that the Treason Act 1351 is rather old. It was updated relatively recently—in 1861, I think—but whether a prosecution is justified in individual cases, and whether treason is the appropriate charge, will be a matter for the courts. I am not dismissing it. The Home Secretary has said that he will consider the matter—we keep all laws under review—but whether that charge is brought will be a matter for the courts.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, during the passage of the Counter-Terrorism and Border Security Bill, to which my noble friend referred, my noble friend Lord Faulks and I tabled an amendment to the Treason Act 1351 to try to give the Government wider powers to deal with the fast-moving challenges to our security that now exist. In asking that the amendment be withdrawn—which it was—my noble friend said,

“in the knowledge that there is ongoing work in the Home Office to examine whether there are further gaps in our law, and in order to help us counter hostile state activity”.—[Official Report, 31/10/18; col. 1382.]

Could my noble friend update the House on the progress of that work?

[Baroness Williams of Trafford]

My noble friend is right to raise this matter because we have to constantly keep our laws under review to keep up with the fast-moving methods by which terrorists will seek to destroy the unity of this country. Laws are kept under review. Noble Lords have talked about an espionage Bill and a treason Bill. Certainly the CT Bill in which my noble friend took part was significant in updating some of our laws.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Report stage (Hansard): House of Lords
Tuesday 29th January 2019 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

I shall speak briefly in support of the Government and the clause as drafted, primarily because of the points just made by the noble Lord, Lord Sharkey. When I went to the Oxford English Dictionary to check, I got the results he has just described, but it seems to me that the Government’s choice of word is better than the one now being advanced by the noble Lords, Lord Sharkey and Lord Davies. I urge my noble friend to be of good courage and stick with it.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for a good set of amendments that respond across the piece to concerns that were raised in Committee. I shall probe a little further on what can and cannot be done for the purpose of clarification.

Clause 1(1) states that this is about converting,

“the provisions, or any of the provisions, of any specified EU financial services legislation”.

So the option is still there not to convert it or to convert only parts of it. At an earlier stage, I suggested that that could be adapted. I noticed that when the Minister spoke, he used the word “files” as if the files were all transposed at once, but we must recognise that some things may not be transposed. I believe that is the intention. Here, I should give my usual reminder to the House of my interests as set out in the register, in particular as a director of the London Stock Exchange. In the first set of EU legislation—that which is completed but not yet active—you could still omit some or all of it and do an EU-type adaptation, but you could not adapt it if you chose to convert it. It has got to be relatively straightforward.

For the not yet completed, there is greater flexibility. I have a few little tests of my own to see whether this would be allowed. First, what if you wanted to keep a current provision instead of having a new one? That is quite simple: you probably just leave it out and do not convert it, which falls within what is allowed. If you want to reflect more closely an international standard—let us say that the EU has embellished it in some way—could you do that? I think you probably could because you are still going back to the originating international standard, but it would be interesting to hear what the Minister has to say about that. What if you want to reflect more closely UK market data because it has been calibrated on EU data, by then absent us? I expect most of that happens in technical standards, but it would be interesting to have the Minister’s view on whether the Government could make such a change. I think it would be allowable.

What about aligning with alternative provisions made in other major international markets? That would be departing from alignment with the EU into alignment with somewhere else. Let us say that you wanted to align tick sizes with Hong Kong or the US, rather than staying with the EU regime. Would that be allowed? I think that is quite a marginal issue. The Minister does not have to use that particular example, but it would be interesting to know where that would lie in the tests. If you want to avoid disrupting the functioning of UK markets—the sort of comment you often hear—you are probably left with the option of not converting that element.

My final test is, what happens about proportionality for SMEs and SME markets? I am not sure how that would work out: if the legislation has not included proportionality, is it reasonable and within scope to put some proportionality in? That measure is probably relatively popular from a UK perspective, so it would be nice to know whether that could be covered.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for listening to everything said in Committee. There really is little else to say other than that he has taken on board three of my amendments. I am very pleased to see them there. I accept that he has cut down the timescale in the pre-legislative report, if I can call it that, to one month from three months because it might be necessary to do things more rapidly.

If I can pick out a theme from the several speeches I made before, it is that Parliament should not be surprised by what the Government intend to do and do. This suite of amendments, including the more frequent reporting suggested by the noble Lord, Lord Hodgson, makes it very clear: we are told before and afterwards. In fact, we might be told before twice by the two reports—the generic one, if I might put it that way, and the precise one. We will also know where things are so that the diligent individual, possibly when dealing with things in the Moses Room in Grand Committee, will not have to search around wondering where things have or have not gone.

I thank the Minister. He has served me and us very well in this.

[Lord Hodgson of Astley Abbotts]

My Lords, I add my thanks to my noble friend and his officials for Amendment 5, which in large measure answers the points I tried to raise in Committee. I am extremely grateful to him and to the Government.

An epochal event such as Brexit will obviously require a certain degree of statutory flexibility. That is why I support the principle of the Bill, but that does not mean that the powers under it should be exercised below the radar. I am therefore extremely grateful to my noble friend for having set the reporting periods, when he made it clear that it is not just a question of reporting: it is a question of why it is being used, as well as that it has been used. That is important to maintain confidence.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

If I may anticipate the Minister’s response, I suspect that he might say something about needing to respond quickly and something about the legislative burden. On responding quickly, this issue arises all the time in respect of legislation, and it is not satisfactory for the Government to make major changes to the law of the land by decree simply because they do not believe that there is enough time for Parliament to debate them. That argument could apply to all legislation at any time, and it does not seem to justify the powers in the Bill. On there not being enough parliamentary time, I am sorry to keep returning to this, but parliamentary time is a commodity at the disposal of the Government and this House. When it comes to major changes to the law of the land, such as significant reforms to financial services regulation—things like the prospectus directive that the Minister refers to will apply to potentially every company in the country, affecting vitally their business and their ability to compete in the global marketplace—it is perfectly reasonable that this House and the Government should make enough time for us to debate propositions in a way that they can be amended and go through the normal legislative procedures. No case is made for the provisions set out in the Bill.

[Lord Hodgson of Astley Abbotts (Con)]

The noble Lord has already referred to the two-year sunset clause. Does he accept that in the short run, the imposition of the Brexit deadline will require things to be done quickly, and in those circumstances, if the sunset clause were shorter, would he be happier?

[Lord Adonis]

My Lords, the sunset clause is for two years, which is nearly half a Parliament. The fact that there is a sunset clause does not somehow legitimise everything that takes place in that period. There is no case for these provisions at all. Let us be clear that we are talking about further changes to the existing law; these are the provisions that are causing such difficulty for many of us in the House. We are prepared to grant the Minister powers to simply transpose existing provisions into UK law—indeed, I am not even sure that under the European Union (Withdrawal) Act he needs legal powers for that. The key issue here is that it all concerns further changes to the law. The statute book constantly needs to be capable of being updated; the whole purpose of Parliament is to debate further changes to the law, and we have established procedures which go back to time immemorial for doing that. They involve Second Reading, Committee, Report and Third Reading stages in both Houses of Parliament.

There is no reason whatever for subverting those principles simply because the Government are overloaded, which is essentially the argument at the moment. The answer is either not to make those changes in law, if effectively they can be made only by exercising powers by decree, or to create the necessary time to do so, which means the Government having the right priorities in what they put before Parliament. We always have to set priorities. As a former Minister, I know that what you do and do not put in the Queen’s Speech and the legislative programme is a matter of priorities. If necessary, the House must sit for longer.

Finally, if it comes down to whether this House should sit somewhat longer to debate major changes to the law of the land on financial services, I for one feel that it is our duty to sit here, debate these changes and not give the Government the power to legislate by decree. I hope that the noble Lord, Lord Hodgson of Astley Abbotts, feels the same because he has been responsible for financial services regulation in the past. That is effectively the power being granted here, potentially in significant areas that are not to do with simply transposing existing or in-flight European law into UK law. I am sorry to say this to the Minister, but the objections to the Bill are fundamental, not incremental. He may well find that, unless he can meet those objections, substantial parts of the Bill will be removed by the House on Report.

--- Later in debate ---

Further, the fact that small listed companies’ representations have been invited to propose proportionate amendments to EU legislation, and that the Commission has made such amendments following these direct approaches, demonstrate that the Commission is open to amendments to the rules to ensure that they are more proportionate in order to support SME listings. Allowing the Treasury the objective and power to ensure that financial services regulations do not impose a disproportionate burden on small companies would merely be a continuation of current Commission policy and practice. It should not be objectionable and, therefore, should not in any way be seen as a threat to equivalence. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I have put my name to this amendment. My noble friend has raised an important point about Brexit itself and its implications for the regulatory regime. I do not propose to follow up on his technical discussion, but there is a wider point to be made. Here, I will draw on the remarks of the noble Baroness, Lady Kramer, who said that, in the two-year period during which the Bill provides powers, things will happen. We can set out our regulatory stall, but our strategy for regulation needs to become clearer during the two years in which the Act will be in effect.

It is important that the Government do some serious thinking about how this country will present itself to the world via its financial services as part and parcel of the new regime. Noble Lords will know that, for a number of years, I was a director of one of the self-regulatory organisations which governed the City before the passage of the Financial Services and Markets Act. A wise old bird once told us that we should think about it like a high jump. If you set the bar too low, everybody can clear it and you will attract to your market all sorts of undesirable characters and firms, and there will inevitably be failures and problems, which will damage your overall reputation and therefore you will lose your world standing. By contrast, if you set the bar so high that nobody can get over it without enormous cost, bureaucracy, time and difficulty, you may have a market relatively free of failure but it will have very many fewer participants. I encourage the Government to think about how we set that high-jump bar for regulations, given the comments my noble friend made in his opening remarks.

The only other point I want to make is this: regulation tends to be on an upward lockstep. For the most part, regulators do not have a reverse gear. Few regulators come along and say that, given that the world has changed, they no longer need the powers they have because they can do a perfectly satisfactory job without them. Rather, they are left with those powers, which then have to be enforced and have a cost. The commercial vessel then gets more and more barnacles and slows through the water, and it is never able to go in for a hull clean.

My remarks are not an argument against regulation per se. They urge the Government to have regular reviews of regulation to ensure that it is properly focused and achieves a worthwhile result.

[Lord Adonis]

My Lords, the longer the noble Lords, Lord Leigh and Lord Hodgson, spoke, the more concerned I became about their intentions in relation to the powers proposed in the Bill.

I fully accept the noble Lords’ perfectly reasonable intentions. We can have a debate on the right hygiene bar for the regulation of financial institutions—if Britain leaves the European Union, it will be a debate. The Foreign Secretary, Jeremy Hunt, opened it last week in his speech in Singapore, when he set out a vision of Britain being Singapore-on-sea, with a light-touch regulatory regime, offshore from Europe, ready to start competing—as I took it—on a lower bar. It perhaps will not be as low as the hygiene level mentioned by the noble Lord, Lord Hodgson, that starts to discredit us as a reputable financial centre, but he clearly wants it to be lower—he is a Tory, and generally speaking this is what Tories want. There is no great secret around what it is that the noble Lords, Lord Leigh and Lord Hodgson, want.

The crucial issue, however, is how the noble Lords’ intentions relate to the capacity of the Government, under this Bill, to effectively legislate by decree. If the Government want to make big changes in our regulatory regime, they should be debated openly and fully in this House and in the House of Commons. Indeed, if they are substantial departures from existing practice, the more difficult it will be to deliver paragraph (b) in the amendment, which states that,

“financial services regulations do not impose a disproportionate burden on small listed companies”.

That is all the more reason why they should go through the full and proper legislative procedures of this House: Second Reading, Committee, Report and Third Reading. That way, we can debate whether the hygiene level of the noble Lord, Lord Hodgson, is satisfactory. They make no argument whatever for giving the Government the power to rule by decree.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

For the Hansard writer, I did not say “hygiene”, I said “high jump”.

[Lord Adonis]

I did not hear the noble Lord across the Chamber, but it does not affect the point. He wants to vary the level of the bar—that is the issue. I do not object in principle: he has a right as a parliamentarian to put forward proposals for changing the level of the bar. However, I object strongly that the Government should be allowed to make those changes by decree, the power that is given to them by this Bill, but we will return to that on Report.

At the moment, the intentions of the European withdrawal Act are elaborately debated in this House, precisely to meet the objective rightly set out by my noble friend Lord Tunnicliffe: that there should be a transposing of European legislation to British law and any further changes to the law should be sufficient only to prevent, remedy or mitigate deficiencies in retained EU law. That is a limited objective which justifies the power of the Government to do this by Orders in Council. As soon as we get to much wider political objectives—the kind that the noble Lord has just set out and as set out by this amendment—it completely undercuts the justification for this Bill. The justification for this Bill should surely not be for major departures of this kind in the law and the regulatory regime to be made by Orders in Council rather than by the full, open and proper debate which is necessitated by introducing primary legislation.

--- Later in debate ---

Moved by

[Lord Hodgson of Astley Abbotts]

12: Clause 1, page 2, line 16, leave out “April 2020” and insert “October 2019, and at six monthly intervals thereafter until the end of the period specified in subsection (5),”

[Lord Hodgson of Astley Abbotts]

My Lords, in moving Amendment 12 I will speak to Amendments 13, 14 and 15, all of which are consequential. In this we will touch on some of the points raised in Amendment 6 by the noble Baroness, Lady Bowles. I am extremely grateful to her for having put her name to these amendments, as I am to my noble friend, Lord Leigh of Hurley.

The debate at Second Reading on 4 December and the debates on the amendments we have had this afternoon showed the very wide executive powers the Government are taking under the Bill’s provisions, notwithstanding the existence of a two-year sunset clause. The Government argue, in my view with some justification, that in the event of a no-deal Brexit these wide powers will be needed to cover the wide range of eventualities that might result from such an outcome. Further, given the great importance to the UK of the financial services sector, these powers are doubly needed. But if the Government accept, as I believe they do, that these powers are unusually wide, they surely cannot object to the legislature having a higher degree of transparency regarding when and why these powers will be used, so that it might undertake its proper constitutional role—referred to by the noble Lord, Lord Adonis, and others—while scrutinising the activities of the Executive and holding them to account.

I respectfully suggest that the Bill as drafted fails in this purpose. Under Clause 1(8) the only evidence or check of the Government’s use of the power is the report by the Treasury, which it must provide at the end of 12 months—that is, April 2020. Noble Lords will be aware that this is already half way through the two-year period. The phrase about shutting stable doors and bolting horses comes to mind. No less importantly, while Clause 1(8) requires the Treasury to report when it has used the powers, it does not require any explanation as to why they have been used. The Treasury report in April 2020 under this subsection could be just a series of one-line entries.

My amendments have two very simple purposes: to shorten the reporting period and to require the report to include some qualitative explanation as to why it was felt necessary to use the powers in the first place. Amendment 12 would shorten the reporting period so that instead of there being just one report during the Bill’s life, there would be three: in October 2019, and in April and October 2020. Amendment 14 would require each of these reports to give a forward look on any expected use of the powers in the next six-month reporting period. Finally, Amendment 15 would require an explanation of the reasons why the powers are being used in the period under review and why their use is planned in the following six-month period.

Under the Bill, the Government are taking exceptional powers that, as has been pointed out repeatedly this afternoon, could in certain circumstances be used quite arbitrarily. I do not have the purity of approach of the noble Lord, Lord Adonis—perish the thought. I am not sure that his purity of thought is entirely aimed at preserving the UK constitution; I think that he might have a wider objective, but never mind. However, I accept the broad argument of the unique challenge of a no-deal Brexit justifying the Government’s approach and the powers they propose to take. But I cannot and do not accept that the Bill as drafted gives sufficient opportunity for the legislature to scrutinise, let alone obtain justification of, their use. These modest amendments would redress this imbalance, achieve the degree of transparency commensurate with the seriousness of the intended powers and so help to maintain public trust and confidence. I beg to move.

--- Later in debate ---

[Lord Bates]

I thank my noble friend Lord Hodgson for ably introducing this amendment. A substantial part of my speaking notes is remarkably similar to those for Amendment 2, when I responded to the comments made by the noble Baroness, Lady Bowles, on early reporting. Again, we have made some progress, so let us perhaps just leave that on the record.

I will make a couple of specific points about my noble friend’s amendments, and those which the noble Baroness, Lady Bowles, has put her name to as well. These amendments would require the Government to lay reports on the use of the power every six months, rather than every year; to set out why the power would need to be used; and to include a table setting out the provisions of the EU legislation that have or have not been transposed into domestic legislation, as the noble and learned Lord, Lord Judge, mentioned in an earlier debate. Again, I can assure noble Lords that the Government’s intention has always been to set out such reasoning and detail as part of the reports referenced in subsections (8) and (9).

As to the frequency of the reports, the current drafting has been designed so that the reports will provide an overview of how the powers have been used in the first year, and how the Government propose to use them in the second year. The intention behind this is to allow enough time to pass for a meaningful report to be drawn together. I hope this helps to clarify the Government’s intention to be as transparent as possible in the exercise of these powers.

As with the amendments tabled earlier by the noble Baroness, Lady Bowles, I have listened carefully to the arguments being presented on all sides, and particularly in this instance by my noble friend Lord Hodgson. It may be that we need to consider further exactly how such a process can run, so that we can provide the House and Parliament with the necessary assurances that it seeks. In that regard, I ask my noble friend to withdraw his amendment, given my commitment that we will look again at this issue and seek to make some constructive suggestions on a new way forward at Report.

[Lord Hodgson of Astley Abbotts]

I thank all those who have taken part. I thank the noble Lord, Lord Tunnicliffe, for his two-thirds of a loaf, and the noble Baroness, Lady Bowles, whose amendment I should have referred to in my opening remarks; it was rude of me not to have done so. A table of derivations and destinations is what I think such a table would be called in UK law; it would be a very helpful addition to the schedule to the reports that we have in mind. My noble friend was smooth—to the point that I thought he was going to turn me down on, but at the end the horse swerved in and jumped the fence. I am glad that he has agreed to put this into the mix. I am grateful to him and happy to withdraw the amendment for the time being.

Amendment 12 withdrawn.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

2nd reading (Hansard): House of Lords
Tuesday 4th December 2018 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, it would be hard to argue with the importance of having the necessary financial architecture in place to protect and sustain the UK’s position in the event of a no-deal scenario. The ability of the appropriate authorities to act decisively to maintain financial stability and public confidence is critical in any country, and nowhere more than in the United Kingdom, given the size and importance of our financial services sector. So the Bill certainly has my “in principle” support, and although it seems narrowly drawn, covering only regulations which are in process as the UK leaves the EU, there are a number of particular importance, as the noble Lord, Lord Sharkey, pointed out.

When the tide went out as a result of the 2008 financial crisis, it did, in Warren Buffett’s famous phrase, reveal a number of people who had been swimming naked. As a result of that, the UK Government faced a crisis and had to become a significant shareholder in a number of major UK financial institutions. That must surely be inappropriate unless and until the shareholders, bondholders and creditors have borne their share of the pain. So ensuring that the UK keeps up to date with Bank and central counterparty recovery legislation is very important. We cannot allow gaps to appear in the regulatory framework that may offer opportunities for what is known as regulatory arbitrage. At a more practical level, as my noble friend pointed out in his opening remarks, the move to a more focused regulatory approach to the prospectus requirements, particularly for SMEs and investment managers, must be a welcome development. The UK needs to adopt these regulations if it is to avoid being at a competitive disadvantage.

However, as has also been pointed out by the noble Lord, Lord Sharkey, the Bill, though narrowly focused, nevertheless gives the Government extraordinarily wide powers. I am sure that in Committee we shall need to prove the extent to which they are necessary and the ways in which the Government anticipate using them. At this stage I have a handful of points to raise with my noble friend. At paragraph 1.9 of the policy note that accompanies the Bill, there is an assurance that the Government will:

“undertake engagement and co-operation with key stakeholders throughout the process”.

That is potentially a very important restriction on inappropriate use of the powers in the Bill, but as it stands it is quite a bland statement. It would be helpful if my noble friend could give a little more detail about what the Government envisage in terms of their links with the sector during this very important two-year period.

Another constraint is the reporting requirement in Clause 1(8). The clause requires a report 12 months after a no-deal Brexit. After a no-deal Brexit, 12 months will be a very long time indeed. Have the Government given some thought to bringing forward a shorter regulatory period so that their use of these extraordinarily wide powers becomes more transparent more quickly? Moreover, the requirement, as I read it as presently drafted, requires only a statement of the actions that have been taken. It would surely be more helpful to the outside observer if the Treasury was also required to give a statement about why it had felt it necessary to take individual actions, not just that they had been taken.

My final point concerns the paragraph in the letter kindly sent to us by the Chancellor of the Exchequer. Here I am going to cover ground that my noble friend and the noble Lord, Lord Sharkey, have covered. The important paragraph reads:

“It is of course vital that any financial service legislation best serves the interests of UK businesses and customers once we have left the EU, rather than the UK simply accepting EU laws wholesale. The measures in the Bill will therefore allow for the government to choose to implement only those EU files, or parts of those files, which it deems beneficial for the UK, and to make adjustments and improvements to the legislation as it is brought into UK law to ensure that it works best for UK markets in a ‘no deal’ scenario”.


That is a broad power, as my noble friend said in his opening statement. That whole paragraph contains some pretty challenging implications. For example, who is going to deem what is necessary for the UK, and who is going to ride herd on them to make sure that their judgments are being exercised properly?

These early decisions, taken against the background, as they will be, of a no-deal Brexit scenario, may well have a fundamental impact on the shape and structure of future UK securities legislation and consequently on the competitive position of the City of London. Further enlightenment on the background to this paragraph would be helpful when my noble friend comes to wind up.

I have said that I support this Bill, and I do. When I wrote my notes for it, I said that at least it provides an essential stop-gap—again a phrase that came up in my noble friend’s opening remarks—but stop-gaps cannot be, and cannot substitute for, a carefully crafted strategic plan. In Committee we shall need to explore in more detail the extent of the powers the Bill gives to the Government and the way in which the Government anticipate using them.

Poverty Premium

Lord Hodgson of Astley Abbotts Excerpts

Monday 10th September 2018 Lords Chamber

Asked by

[Lord Hodgson of Astley Abbotts]

To ask Her Majesty’s Government what assessment they have made of the implications of the decline in the use of cash for the “poverty premium” payable by the most financially disadvantaged.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, modern technology has delivered many important benefits to us individually and to society as a whole. But some among us have not been able to take advantage of these trends, in some cases because of unfamiliarity with the particular technology and in other cases, more importantly, because the individual’s personal financial position is too stressed to allow them to do so. I focus my remarks on this last group.

I draw the House’s attention to my entry in the register. I am chairman of CMS Ltd—Cash Management Solutions. The company provides analytical services to banks and retailers on the best methodologies for cash handling. The work of the company has no direct relevance to our debate tonight, but it has given me an insight into the interaction of cash and credit in our society. I say “no direct relevance” except in one sense. It is often argued, as my noble friend may argue shortly, that non-cash transactions—credit cards, direct debits et cetera—are cheaper than cash payments. I am afraid that this assertion is wrong. Non-cash transactions can be safer, more secure and leave a better evidence trail, but they are not cheaper. There is general agreement that non-cash transactions cost about 0.25%—one-quarter of a per cent—to fulfil. By comparison, cash costs are about 0.15%, just over half.

The practical implications of a paper-based payment system were brought home dramatically to me when I was a member of the Secondary Legislation Scrutiny Committee of your Lordships’ House. We examined Instrument 2017/427 entitled the Universal Credit (Tenant Incentive Scheme) Amendment Regulations. Under this statutory instrument, the East Lothian Housing Association wanted to reward its tenants by reducing their rent by £10 if they paid by direct debit or standing order and a further £20 per month where the tenant had no rent arrears.

The purpose of the regulation was to ensure that the reduction in rent payable did not affect the benefits payable under universal credit. They were clearly a trial run which, if proved successful, was likely to be rolled out across the whole UK. So far, so good, but I wondered why there were two rewards and not one. Enquiries with the relevant department revealed that there was, in fact, only one reward. If the tenant did not or could not sign a direct debit or a standing order, they were not eligible for the second £20 reduction, even if they were up to date with the rental payments due.

Inevitably, families on low incomes have to budget very carefully. Signing direct debits cuts across such budgeting because, as will be familiar to the House, a direct debit mandate allows the deduction of the sum due on the date agreed without any reference to the account holder. Many people on low incomes, aware of the ebbs and flows of personal expenditure, not to mention the inevitable emergencies, will be reluctant to sign up to the open-ended commitment of a direct debit. Apart from anything else, if a direct debit is refused and has to be re-presented, there will be a further charge to the account holder by the bank of between £10 and £20. One of the dangers of these regulations was that the most financially stretched in our society were apparently never going to be able to take advantage of the additional room for financial manoeuvre that the proposals would offer. It is not a small amount: £30 a month is £360 over a full year.

That is only the beginning. Noble Lords may care to examine their utility bills carefully. They will see substantial savings for those who can, or are prepared to, sign direct debits. I do not like direct debits and I do not sign them. I have here my recent utility bills. One says: “You will save £33.36 a year on your electricity standing charge if you pay by direct debit”. Another says: “You will get a continuous discount as a lower daily standing charge when you pay by direct debit. Over a year you will receive a discount of £40 on our electricity charges and £50 on your gas charges”. Looking across the whole piece, there are substantial numbers of other things such as council tax, telephone and utility bills generally. It is quite possible to argue that the poorest members of our society are paying £500 to £600 more than those who can sign a direct debit for precisely the same service.

In fairness to the Government, they are aware of some of these charges. The Department for Business, Energy and Industrial Strategy published a Green Paper in April this year—Command Paper 9595—which has a section headed:

“Ensuring vulnerable consumers are treated fairly”,


which, over a series of paragraphs, explains the problem. It will be very important that, in the follow up to the Green Paper, the Government move from statements of good intent which recognise the problem to implementing policies which actually provide some answers to the issue. These solutions must also apply across all government departments. While this Green Paper is being discussed, other departments are implementing policies, such as those affecting the East Lothian Housing Association, which will accentuate the disadvantage faced by the poorest in our society.

For example, my noble friend’s department, the Treasury, also has a consultation out on cash and digital payments in the new economy. Perhaps inevitably, there is a good deal of focus on the way the use of cash facilitates money laundering and tax evasion. However, the paper also points out that, across the UK, no fewer than 2.7 million people are entirely reliant on cash. Even more significantly, half that number— 1.35 million people—have household incomes of less than £15,000 per annum. Any inability to sign direct debits or standing orders is likely to make a significant reduction in the disposable incomes of these groups.

To conclude, it would be facile to deny the conflicting pressures that exist. No one wants to encourage tax evasion or impose unnecessary administrative and paperwork burdens. However, there is a need for a joined-up, cross-departmental government approach if we are to create, in the words of the Prime Minister,

“a country that works for everyone”.

Economy: Spring Statement

Lord Hodgson of Astley Abbotts Excerpts

Thursday 15th March 2018 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the Members of the Bishops’ Bench in your Lordships’ House have a long record of making distinguished and distinctive contributions to our debates, and I think the speech we have just heard continues that tradition—not that I would have expected anything else from the right reverend Prelate, given his far-reaching personal, academic and pastoral background. This includes not just the wide-ranging work in the United Kingdom which he described; I am told on the highest authority that he is an exceptionally accurate sprinkler of holy water. He has a son and family living in Australia, which gives him a world dimension, and he himself studied in California, where he received a master’s degree in sacred theology. I hope I am not being irreverent, but I am surprised there are degrees in theology that are not sacred. Whatever the rights and wrongs of that, he has made a powerful contribution to our debate this afternoon, and I am sure that I speak for the whole House when I say that we look forward to hearing from him again soon.

As I turn to my own remarks, I need to draw the House’s attention to my entry in the register—my chairmanship of several companies. I also ought to remind the House that I am currently chairman of a Select Committee of your Lordships’ House looking into citizenship and civic engagement. It is not directly relevant to our debate today but some of the evidence we have received has informed the background to my remarks.

My noble friend on the Front Bench has taken a certain amount of incoming fire so I begin by offering congratulations to the Government on their overall economic performance. I do so, first, as regards the continuing reduction in the Government’s borrowing requirement, which at £37.7 billion in the 10 months to the end of January is the lowest since 2008. Secondly, they have created economic conditions where tax receipts continue to outperform expectations so that the next financial year looks as though we will run, excluding capital investment, an overall surplus.

However, we live in uncertain times for reasons that we have been debating long into the night and will continue to debate long into the night, so there is still work to be done with borrowings at over £40 billion and the net debt at £1.73 trillion—84.1% of our GDP. I support the Chancellor in his determination to continue a responsible fiscal policy. I have to say to the party opposite that I fear for our future if Mr Corbyn has a chance to plant his magic money tree, as I think that would undo all the hard work done in the past few years.

In my remaining remarks, I want to look to the future and for my noble friend to comment on progress in three particular areas. The first is what the Government call emerging tech, and particularly the area of artificial intelligence and robotics. Over the next 10 to 15 years AI and robotics will transform the way we live and the way we work. In 2015, 5.5 million consumer robots were sold and next year 40 million are expected. They will free us, as that tide comes along, from doing many tasks that are dull, dangerous and dirty. It will be a huge important worldwide wave of change and it is important that this country is in the vanguard of it. Perhaps my noble friend could update the House on the Treasury’s perspective on progress in that regard.

However, as is always the case, there is a downside. To date, robotics have tended to affect employment in manufacturing—the manufacture of things. The next wave will deal with services, and this country is very service-oriented. Financial services, insurance, auditors and paralegals will find that a large number of their jobs no longer exist in the new world. At a further lower level, humdrum jobs will disappear. Commentators say, “Yes, yes, yes”, but in agriculture, for example, where there is expected to be quite considerable employment, albeit lowly paid, we can see from YouTube that a machine in California is now starting to pick strawberries mechanically, and in Lincolnshire a machine can pick cabbages and lettuces. They are not commercial yet but they will become so. Therefore, the idea that there is a large level of unemployment in these areas in the future is mistaken.

The implications for our society are for many fewer jobs overall. This will be the first industrial revolution that destroys more jobs than it creates, and it will be a society that looks like an unbalanced hourglass in terms of work prospects: a small blob at the top for those who are successful, a long thin middle and another blob at the bottom for those able to do the humdrum jobs that cannot be mechanised. All this will cause stresses and strains on our social cohesion. It will be emphasised because, over the next 25 years, we will see an ineluctable drift in wealth from the West to the East. The rising economic powers of the next 25 years will be India, China, and south-east Asia. Whether we like it or not, we will be in a relatively slower part of the stream. That, too, will emphasise problems that we might have in this country. That is my first point.

My second point is how to do more to make sure that our existing resources—our people here—are better equipped to deal with these very challenging conditions. Of course, productivity has been our Achilles heel for as long as I can remember. There are things we can do to improve productivity. The first is training, and I welcome my noble friend’s emphasis in his opening remarks on the Government’s commitment to training—the apprenticeships programme and the T-training. It has always seemed to me that a well-trained technician is likely to have a more satisfactory, well-paid and fulfilling job than someone with a 2.2 in media studies.

There is a second challenge, which is about trying to get people to work, and it is a question of infrastructure. One of the companies I chair is in central Manchester. It is a small company, employing about 40 or 50 people. We take on about four or five every year. We can recruit people from Manchester but we find it extremely hard to recruit from Bolton, Blackburn and—dare I say it in the presence of the noble Lord, Lord Davies?—Oldham, because the travel-to-work times from those towns to Manchester are very high. People are not prepared to commit to a job that requires them to spend too much time travelling to work every day. For another company in Runcorn which I chair, the situation is even worse.

If my noble friend asks his officials to get out the social mobility report of November 2017 and turn to page 75, they will see that planned spending per head on transport in London is £1,943, but in the north-west it is £680—one-third—and it is even less in Yorkshire and Humberside. The Treasury needs to think about the generality and the particularity if we want to make serious inroads on the imbalance between London and the south-east and the rest of the country.

The third element of this is getting UK employers to understand the importance of recruiting members of the settled population. When I say “settled population”, I mean settled—it is not another word for white. I do not mind about racial background, religion or anything, just the settled population. Noble Lords will have read, as I have, hundreds of articles saying that we are crying out for engineers, but I meet young engineers—young men and women who have a 2.1 in engineering—who find it hard to get a job. When you ask why, they say it is because employers say that they have no experience. Of course, you cannot get experience without a job and you cannot get a job without experience, so they are hooked into this very difficult situation. It can be easier to hire someone from overseas—it is probably no more expensive; it is perhaps cheaper—who will have two or three years of practical experience thrown in. This issue of crowding out needs to be addressed. If overseas recruitment is the default option—for employers it is economic and rational to do that because they get better-quality employees for a lower price—it will have implications for our society.

This takes me to my last point. Against this challenging background, we need to consider the fact that our population continues to increase very fast. Some people have said, “With Brexit, that’s all over”. Well, it is down but it is still very high. Every single day in the year to 31 December 2017, on average, the population of this country went up by 1,196 people. That is a large village or a small town every week. Approximately 500 was natural increase—that is to say, the excess of births over deaths—with 500 from outside the EU and 250 from inside the EU, balanced by about 150 people from Britain going to live overseas. The ONS projection is that we will have another 7 million people here over the next 25 years. To house them, we will need three cities the size of Manchester—with all the ancillary services that go with that.

We have these three trends: a move to the East, resulting in our living standards growing, at best, more slowly; an AI robotics revolution, which will reduce—potentially dramatically—employment opportunities; and a rapidly increasing population. In my view, though I hope I am wrong, this all suggests challenges to our social cohesion and our community life. I say to my noble friend that only the Treasury is in the position to assess the impact of these trends. Every other department is bound by its silo mentality, its own bit of turf. When he comes to wind up, can he say whether these sorts of long-term strategic issues even register in the Treasury? What sort of intellectual horsepower is being deployed to them? If he is not able to say that this afternoon, perhaps he could write to all of us who have participated in the debate to explain how the Treasury sees these trends working out or, if it is the case, why it disagrees with them.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I join in the welcome to the right reverend Prelate the Bishop of Lincoln. He is obviously supported by the noble Lord, Lord Cormack, and my noble friend Lord Taverne, but when he mentioned that the doorkeepers largely hail from Lincoln, that is when I knew we had a real power to be reckoned with in this House. We know where genuine authority lies. We very much appreciate his speech. He focused very much on a divided society, and that issue was picked up by others in this debate—the noble Lord, Lord O’Neill, was talking about the north/south divide, although the right reverend Prelate the Bishop of Lincoln reminded us that it is not just geographic, as those who struggle can very well be located in the south as well. This is timely in the context of this particular Statement.

I join with others—the noble Lord, Lord O’Neill, seemed to have had the same reaction to the trailers that came ahead of the Spring Statement—in saying that I had thought we were going to get some really super growth figures. Frankly, that should not have been so unexpected, because if we look at the markets that we export to, they were on steroids in 2017: the euro area grew at 2.5% and the US at 2.3%. I was genuinely quite shocked when the Chancellor announced that growth in 2017 had slowed from 1.9% in 2016 down to 1.7%—not quite as bad as expected in the autumn, but in light of this great global growth pretty difficult to explain. A falling performance when the going is good is really pretty extraordinary, quite frankly. But the forecasts for the future are worse. The noble Lord, Lord Skidelsky, described a stagnant and becalmed economy. The OBR is forecasting growth for the UK in 2018 at 1.5% and it drops after that, while in contrast the OECD, which released its numbers on the same day as the Spring Statement, forecast growth in 2018 as 2.9% for the US and 2.3% for the euro area.

I recognise that we have a productivity problem and an investment problem, but I disagree with the noble Lord, Lord Skidelsky, in one area. He basically suggested that the fundamental problems we have are not in any way related to Brexit. But I join with others—we heard from the noble Lords, Lord Livermore and Lord Higgins—in saying that, if it were not for Brexit, the capacity to draw investment into the UK would enable us certainly to improve growth and productivity. Brexit has now become that kind of barrier. We have seen it in the numbers—particularly foreign investment numbers in the course of this year. To me that is very significant. If I may pick up the point that the noble Lords, Lord Hodgson and Lord Freeman, and others made, we are at a point where we are entering a fourth industrial revolution, where everything will change, thanks to AI and robotics. That makes it the most crucial time to draw in that kind of investment. If you do not ride the change, you are left behind. The last thing we should be doing for our young people—in the Box or otherwise—is to let ourselves get left behind at this absolutely critical point in time. So I am exceedingly concerned.

If we turn more broadly and look at our population at large—you would not have known it from the Chancellor’s words—people are feeling pain. The day before the Spring Statement, we got the February numbers for UK consumer spending. Consumer spending fell in February by 1.1% year on year, declining for the ninth time in 10 months. Wages are stagnant—we are all aware of that—and inflation is running at over 3%, and it is making life for ordinary people exceedingly difficult. Frankly, a lot of that sits at the door of Brexit. Yes, it is part of a longer-term pattern of modest economic growth, but the inflation rates that we have seen really are Brexit in origin. The impact on people’s lives is very significant.

The right reverend Prelate the Bishop of Portsmouth, the noble Viscount, Lord Chandos, and others talked about the general suffering of the population at large, but the Chancellor did not really address public spending pressures very much in his Statement. There was a bit of a sense of light at the end of the tunnel and maybe we would be able to lift our foot off the austerity pedal a little at some point in future, but it seems to me that is completely out of kilter with the reality that we are facing. I argue that the pressures to increase funding in the public sector have simply become unavoidable. Just last week, the NAO, in its report Financial Sustainability of Local Authorities 2018, warned that 66.2% of local councils with social care responsibilities have now eaten heavily into their reserves. Social care is struggling in many parts of the country. The NHS is not coping; indeed, routine operations were cancelled for a whole month this winter. Schools are asking parents for money; the noble Lord, Lord Young, talked about the struggles that his local primary has, and they are repeated nationwide. My noble friend Lord Taverne, the noble Viscount, Lord Chandos, and others talked about the welfare cuts that are still to bite. We simply cannot continue in this vein.

Even though the Chancellor now anticipates that day-to-day spending will come into balance in 2019, which is of course good news, it is very far from salvation. As the IFS said following the Chancellor’s speech, borrowing is only down to pre-crisis levels, at 2% of national income, but debt is twice its 2008 levels. Realistically, this is the time when we absolutely have to look at raising taxes. At the very least, we need to reverse the cuts since 2015 in corporation tax—which surely could have been left at 20%; I do not believe a penny below that has encouraged any company to put more money into any investment—and reverse the cuts in capital gains and inheritance tax, which would give us a bit of breathing space.

However, I argue that the NHS and social care are now such a funding challenge that they require a more radical solution. I very much regret that none of the many studies that the Chancellor announced this week included an assessment of a dedicated NHS and social care tax, which, frankly, looks like the only way to put these key services on a sound footing long term. Since a new structure takes time, my party is calling, as my noble friend Lord Taverne said, for a penny-in-the-pound increase on income tax to provide £6 billion this year to prevent another near-term crisis in the NHS and social care.

I also very much regret that the Government failed to consider giving local authorities the powers to become major builders of affordable and social homes. The Government are making some movement on housing but not at the scale required, certainly to deliver social and affordable housing, and again those pressures are becoming completely unsustainable. I believe it was the noble Viscount, Lord Chandos, who talked about the homeless problem that we have; we have all seen it develop. However, that is only a minor symptom of a much broader and deeper problem that has to be tackled. We know that, given those kinds of powers and the ability to go out and borrow, local authorities can deliver the kind of housing that we need because they have done so in the past. This is the time to take off the ideological cap, recognise that the housing market is fundamentally broken and empower local authorities to deliver the kinds of houses that we definitely need.

I join others in being glad that the Chancellor is looking once again at the apprenticeship levy. That is a really messed-up piece of policy, and I hope very much that we can read in the Chancellor’s words that he is going to sort out the nonsense. For small companies, and I talk to many of them, it has simply turned into a tax, not a mechanism to deliver either training or apprenticeships. In the same way, I join others in being glad that we are getting another look at late payments, but this time could we have a solution rather than another report?

I support the Government’s decision to find a more effective way to tax digital companies, perhaps on their revenues rather than their profits. It is an outrage to see large, successful companies essentially paying very little tax. However, I think the Chancellor’s proposal is too narrow. It really should be almost just a first step. Big brand companies such as Starbucks can outwit the tax system just as well as Google. A fundamental part of the problem is that we do not know how to deal with the value of things like brands and intellectual property, but that is the shape of so many companies of the future. We have to crack that problem now, or we will find ourselves without any effective tax base. I hope that the accounting profession will get wrapped into this, frankly. In the scandal of the collapse of Carillion, a big part was the completely inadequate pricing of the value of contracts and good will by the accounting firms, so that the company looked artificially healthy when it was crumbling. Others should investigate who should have known what and when, but it is all part of the same issue.

I also regret that the Chancellor did not take this, as he was doing so many studies, as an opportunity to look at intergenerational fairness. We really have a very unbalanced tax system. Each working person is now supporting 1.7 people and the number is rapidly headed to 1.9 people. That is unsustainable. The noble Lord, Lord Hodgson, talked as if we have too many people, but the problem is the shape of our demographics. We are desperately short of working-age people. That is one of the reasons why cutting back on immigration is particularly ironic at this time.

[Lord Hodgson of Astley Abbotts]

The issue is also that we are not prepared to employ older people. Once you are past 55, you are on the scrap-heap. A great deal more could be done. We have done a lot of work in other areas of prejudice, but ageism is a prejudice we have yet to tackle.

[Baroness Kramer]

My Lords, around this House we can see many people who might mistakenly be classed as older but who can demonstrate that they have a great deal to contribute. We may want to do it in a different way, with part-time work and different opportunities. I agree that employers are unimaginative. But it does not get us away from the problem; if we hit a dependency ratio of 1.9, we are not functional as an economy. I cannot see any way, without rational immigration, of doing it.

We have a sluggish economy with fundamental problems of productivity and investment. We have public services that are often on the brink of break-down. We lack key pieces of infrastructure, especially affordable and social housing. Our national debt remains high. Ordinary people are feeling the pinch of stagnant wages and high inflation, and our young people are carrying an unwarranted burden. Frankly, there could not be a worse time for Brexit, with all the additional costs that it places on businesses and a future in which the economy and our businesses have less access to both markets and talent.

I join those around the House who take the view that, until we make up our minds that we need to be in the single market and the customs union, we frankly do not have much of a hope of seeing a substantial reversal in the kind of economic patterns that were embedded in the OBR report. I was as astonished as others that the Chancellor felt that he must be “Tiggerish”. It made me think that life in Cabinet must be pretty dreadful if, when you present a report like this on an OBR statement, you find yourself happy.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

Moved by

[Lord Hodgson of Astley Abbotts]

69: After Clause 41, insert the following new Clause—
“Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK
(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.(2) The register must be implemented within 12 months of the day on which this Act is passed.”

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I begin by giving two apologies to the Committee. The first is on behalf of my noble friend Lord Faulks, in whose name the amendment was tabled. He is unavoidably detained overseas. As I shall explain in a moment, he and I tabled a similar amendment during Committee on the Criminal Finances Act, and he asked if I would take up the cudgel on his behalf tonight. I went to put my name down to the amendment but found that several other noble Lords had beaten me to the punch. Secondly, I apologise to the Committee for not having taken part in proceedings on the Bill before, but I have taken the precaution of reading the relevant sections of Hansard with care. With that, and knowing that several noble Lords want to contribute to this debate, I will cut to the chase, if I may.

At the outset, I thank the Minister my noble friend Lord Ahmad for his offer of a meeting to discuss this matter. Although I am always delighted to meet him, it seemed to me that such a meeting might be more productive after this debate, when he has had a chance to reflect on the range of concerns that may be raised around the Committee and that that might be a better use of his time.

The purpose of Amendment 69 is simple: it inserts a new clause which increases the pressure on the Government to fulfil their long-stated commitment to introduce a public register of the beneficial ownership of UK properties owned by companies and other legal entities overseas. To those Members of your Lordships’ House who were present during proceedings on the Criminal Finances Act earlier this year, the arguments are familiar—some might say, depressingly familiar—but we have a new pilot at the helm tonight, although he has temporarily left the Chamber. I am delighted to be talking to my noble friend Lord Bates. I was offered a meeting with my noble friend Lord Ahmad, so I thought that he might reply to the debate, but never mind. We have a new pilot, anyway, in place of my noble friend Lady Williams of Trafford, who was the Minister on the previous Bill, so, for my noble friend who is coming fresh to this topic, let me summarise the position.

The reasons why UK property is an attractive asset class for someone from overseas can be simply stated. First, property rights in the United Kingdom have been sacrosanct for nearly 400 years. Mr John McDonnell, the shadow Chancellor of the Exchequer, flirted with the idea of seizing property in North Kensington to be handed over to former residents of Grenfell Tower, but I am not sure that that has become Labour Party policy. Secondly, the cities of the United Kingdom remain attractive, engaging and safe places to live. Finally, in recent years at least, UK property as an asset class has appreciated in value.

If you live in less secure and happy circumstances than prevail in this country, where better than in the United Kingdom to buy a bolthole—the value of which has in recent years most conveniently grown enormously? The result has been a veritable flood of overseas money into the property market of London and other major cities. How great a flood is unclear—indeed, one purpose behind the amendment is to try to shed greater light and transparency on the extent of the flood—but, to put it no higher, there is suspicion that not all the hands from which the money to purchase these properties comes are as clean as they might be.

Noble Lords will have received briefings from the pressure group Global Witness which are self-explanatory. They may also have caught the article in last Sunday’s Telegraph, headed, “Fears that ‘dirty money’ paid for Uzbek dictator’s daughter’s £17 million Mayfair and Belgravia homes”.

As I said a few minutes ago, my noble friend Lord Faulks and I tabled an amendment to the Criminal Finances Bill on Report with broadly similar purposes to this one which we are discussing tonight. In her reply, my noble friend Lady Williams of Trafford gave some encouraging and soothing words. She said:

“I am pleased to have the opportunity to return to this issue. The clear abuse of the London property market and high-value properties across the country … to launder money, including the proceeds of corruption, has to be stopped. We must not allow this city to be a haven for kleptocrats hiding their ill-gotten gains. That is why the Government share the ambition of creating such a register”.


She went to say:

“Subject to the outcome of the general election, it remains our intention to introduce legislation to create the register as soon as parliamentary time allows. I hope this provides my noble friends”—


that is, my noble friend Lord Faulks and myself—

“with the reassurances that they seek”—[ Official Report, 25/4/17; cols. 1333-34.]

The general election is now out of the way, but no progress seems to have been made as regards to the implementation of this important policy promise.

It should not be forgotten that as long ago as May 2016, at the international anti-corruption summit held in London, the Government committed to creating a new register showing the beneficial owners of overseas companies that own or want to buy property in the UK, and of overseas companies involved in central government contracts. So this amendment is well in line with government policy.

In her ministerial foreword to the relevant consultation establishing such a register, Margot James MP emphasised that it was important,

“to ensure the integrity and reputation of the UK property market … A higher level of transparency will boost investor confidence”.

Responses to that consultation have now been in for more than six months, so what now is happening?

Of course I understand the eternal pressure of a crowded legislative programme, which has been made significantly worse by the results of Brexit, but the Long Title of this Bill makes it clear that its purposes are,

“to make provision for the purposes of the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing Standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system; and for connected purposes”.

So no one can suggest that this amendment is out of scope with this Bill. Rather, it seems absolutely within the scope of the Bill and, moreover, consistent with government policy and, frankly, a matter of some urgency.

Given that the setting up of the register does, as I understand it, require primary legislation, I now have to ask my noble friends on the Front Bench the question: if not now, when? It is simply not adequate once again to respond by saying, “When parliamentary time allows”. I suspect that parliamentary time will not allow it in the near future, and this really important step for stamping out corruption will drift further and further into the middle and long distance.

There has been a tendency to think that this is an issue confined to London, so before I finish, I draw my noble friend’s attention to the extent that, as London property prices have risen, overseas purchasers have begun to turn their attention to other UK cities. In preparation for our debate earlier this year, I took some time to trawl through the provincial press and I found examples, inter alia, in Birmingham, Bristol and Manchester. I used the Manchester example in the debate then because I thought it would be of particular interest to my noble friend Lady Williams, because she is Baroness Williams of Trafford, in the City of Manchester.

The example in Manchester was of a development of 282 flats over 29 storeys at One Cambridge Street in that city. Purchasers were drawn from 18 different nationalities, including Azerbaijan, China, Japan and Zimbabwe, and 125 flats were bought as a bloc for £25.7 million by OFY, a company based in the British Virgin Islands. Only two of the 282 flats are owned by Britons. The developer’s sales brochure includes the statement:

“The generously proportioned apartments have … appeal to owner-occupiers, investors and renters. In other words, the scheme is appealing to several sectors of the market, including those looking to make the step towards getting on to the housing ladder and more established owner-occupiers”.


Whether first-time buyers would really think that a 99.2% overseas ownership was a fair result I leave to others to judge.

--- Later in debate ---

[Lord Bates]

That is right. We are certainly not going to shrink from the commitment from the previous Prime Minister, with which the current Prime Minister is in agreement. We want to see that happen. We have also, of course, taken certain actions in relation to this area. For example, the annual tax on enveloped dwellings, known as ATED, was introduced in April 2013 to ensure that those who place UK residential property in a company pay a fair share of tax.

My noble friend Lord Hodgson asked whether the number of purchasers was increasing. The anecdotal evidence and the facts suggest that. The ATED receipts in 2015-16 were £178 million, a 53% increase on the previous year. It is at least an indicator of the scale of the undoubted challenge. We stand by the commitment made earlier this year. However, because we lead the world in seeking to be the first major economy to have such a register, there are legal consequences. The same lawyers who do the conveyancing will be reading through the fine print of any legislation that comes forward. We have to make sure that it is watertight to ensure that the right people are affected by it and, as the noble Lord, Lord Collins, said, that other people are dissuaded from making those investments here.

With those reassurances and the commitment to meet again, I hope that my noble friend will withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

My Lords, I am very grateful to all noble Lords who have spoken in support of this amendment: the noble Baroness, Lady Bowles, the noble Lord, Lord Rooker—he has shown that his investigative nose is as sharp as ever—my noble friend Lord Freeman, the noble Baroness, Lady Kramer, and the noble Lord, Lord Collins of Highbury.

My noble friend Lord Bates defended his wicket a great deal better than the English test team has been doing in Australia. He quite fairly drew attention to the Government’s efforts in relation to additional tax for properties owned inside a company and so on. But we have been round the familiar arguments, and nine months after the consultation closed seems a very long time for careful consideration.

I think we will take the Minister up on the invitation offered by his friend for a meeting. I am concerned that there will be a response early in the new year, just as we wave goodbye to this piece of legislation. I am not clear whether this requires additional primary legislation. If so, how will it be fitted into our programme? It could be tacked on to this Bill but once it has gone I am not aware of much else coming down the track where this register and all the other stuff could be included

We have been round this a great many times. I am grateful for the Minister’s initial response. He understands the strength of feeling on all sides of the House that this situation should not be allowed to continue. We look forward to the meeting and, in the meantime, I beg leave to withdraw the amendment.

Amendment 69 withdrawn.

Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations 2011

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 5th July 2011 Grand Committee

[Lord Hodgson of Astley Abbotts]

My Lords, my noble friend Lord Phillips, from his lengthy experience in the charity field, has carried most of the points with him. I shall attempt to sweep up behind a little, if I may, and raise a couple of issues. Before doing so, I need to declare interests as president of the National Council for Voluntary Organisations and as chairman of the Armed Forces Charities Advisory Company.

I wanted to speak on this issue because, first, the concept of exempt charities is complex and their structure and rationale is not immediately apparent. Secondly, these exempt charities are of course educational charities, and it is around education and health, but particularly education, that the whole issue of public benefit and charitable status revolves in the case of private schools. Therefore, it is important that we give these instruments a proper degree of scrutiny.

One danger and one problem or issue that arose during the passage of the Academies Act was whether we had undermined the issue of presumption, because the Act merely stated that these institutions would be charitable, full stop. Having spent a great deal of time earlier removing presumption and making sure that all charities had to justify their public benefit status, it seemed strange and possibly dangerous that we would suddenly say that a group of charities—in this case, schools—was exempt. Therefore, the question of how they are going to be regulated and the nature of the regulator is important.

As for when the regulator takes over from the Charity Commission, originally the 2006 draft Bill suggested that exempt charities could only disappear. Originally, the Bill as drafted allowed only for exempt charities to be removed; the original concept was that they would finally fade out. However, some of us, including my noble friend Lord Phillips and I, decided that it would be better to have a two-way valve, not a one-way valve. Indeed, it is the two-way valve that is being used to create a new category of exempt charities.

When we examined some of the exempt charity regulators, there were some surprises, which have a read-across to this debate. The regulator for universities is the Higher Education Funding Council for England. It has always been surprising that that is the regulator because it has no charitable knowledge at all; it is merely a funding body. I shall come back to that again in connection with the proposals for the regulator and the Secretary of State in the current regulation. We have had some grave disappointments. Given that we were trying to create a proportionate regime, it was a shame that the MoD was not prepared to take on some of the requirements of the exempt regulation for Armed Forces charities, because there are many hundreds of them and they require a particular light touch.

On the upside, you can have light-touch and proportionate regulation focused on a particular group of exempt charities, but there is a down side, which is regulatory arbitrage. You can find ways to fall between the cracks of the regulatory regime, which is something that we have to be very careful about. As I understand it, there will be two principal regulators. One of them is the Secretary of State for Education—that is very clear, although there are some down sides that my noble friend has just mentioned—but in the Welsh situation the regulator is a “responsible person”, which is defined in Regulation 6(2). It means a person who,

“is or was … a Welsh Minister”,

was,

“acting on behalf of the Welsh Ministers”,

or was,

“a member of a committee established by the Welsh Ministers”.

This is not an attack on the devolution process but it does mean that nobody is identified as the regulator for the Welsh educational institutions. I think that responsibility should lie with someone, or some defined body, and there is a danger here of having an amorphous and opaque nature of responsibility with regard to Welsh educational institutions.

On the question of memoranda of understanding, through which we can avoid regulatory arbitrage, I assume that there will be two—one with the English regulator, the Secretary of State, and one with the Welsh person. It will be interesting to know from my noble friend who that person will be in the light of the rather opaque drafting of the regulation. This will be the first time that we have had two regulators—one for England and one for Wales. As I look through the other exempt regulators, I see that DCMS regulates museums and galleries for both England and Wales. We are now dividing them for the first time and creating an interesting precedent.

I share the concerns that my noble friend Lord Phillips raised about role of the Secretary of State for Education in respect of England. This is a tiny part of his empire and can hardly have the attention that it might deserve. There is the issue of independence that my noble friend underlined, as well as the question of conflicts of interest that may arise in the future. I was quite attracted by the idea that the YPLA should be a regulator. If it is to be succeeded by the education funding agency, so be it. After all, if the Higher Education Funding Council is doing universities, why should the education funding agency not do this group of educational institutions? As the Explanatory Memorandum says:

“In practice, the YPLA (and its proposed successor the EFA) will carry out much of the necessary information gathering which would then be used to report to and advise the Secretary of State”?

Why not just have them carry out the role? It would be a good devolution of power. It would remove the role from the Secretary of State and avoid the conflicts of interest to which my noble friend referred.

In conclusion, I understand that these are technical questions. I am sorry that my technical e-mailing skills are not sufficient to have been able to get them to my noble friend in advance of this afternoon’s debate, but I think that they are important. In these stringent, difficult and suspicious times, we need to maintain the culture of the charity brand, especially in the field of education. Some precedents are being set here and we need to be careful that we are not doing something that we will later regret. I think that, in line with the Government’s overall policy, devolving power for regulation to the lowest possible level is appropriate, and therefore I do not quite see why the Secretary of State has to have a continuing role here. That seems to be centralising rather than devolving.

[Baroness Royall of Blaisdon]

My Lords, I, too, am grateful to the Minister for introducing these orders. Of course, it is right to ensure that there is proportionate but effective oversight of charities under charity law while keeping the regulatory burden to the minimum necessary, but that regulation must be effective and ensure proper compliance with charity law. Therefore, I share the concerns of noble Lords who have spoken about the potential conflict of interest and perhaps the impact on the independence of charities if the Secretary of State is to be the regulator for so many of these institutions. I, too, think that again this is a demonstration of centralisation rather than enabling organisations to flourish, and that dismays me. I should be grateful for the Minister’s views but I also hope that the Government will reflect on potential conflicts of interest in relation to the Secretary of State’s role as regulator and his role as Secretary of State for Education.

I find no reference to free schools in the documents before us and I do not understand their status. Are they charities or not? I do not know. All academies are included. However, I do not know what the status of free schools is and I should be grateful for some clarification. If they are charities, who is the principal regulator?

In the Academies Act 2010, as the Minister said, it was agreed that a principal regulator would be required for academies and, as noble Lords have said, it was proposed that this should be the YPLA. Then along came the Public Bodies Bill and the aim to abolish the YPLA. Of course, the Bill is still in Committee in the House of Commons.

I have a few questions. First, is it not precipitate to appoint the Secretary of State for Education as the regulator when the YPLA has not yet been abolished? Like the noble Lord, Lord Hodgson, I wonder why the Education Funding Agency should not be the regulator rather than the Secretary of State. Secondly, the memoranda of understanding are clearly extremely important and I wonder whether Parliament will be able to see them before they are concluded.

My last question is a small one. The section relating to monitoring and review is a little perplexing. A review is supposed to commence later this year. However, this will be pretty worthless in relation to the regulator because the review of the 2006 Act is expected to follow shortly after the change is made by these regulations. Essentially, I am asking: why have two reviews? Why not have one review in three years’ time? That would obviate a lot of work that will go into reviewing in the mean time.

--- Later in debate ---

[Baroness Verma]

Since this is a legal and technical matter, perhaps I could write to my noble friend. I know that such words can change the law very quickly, and I shall not be drawn into that trap by my noble friend today.

On the issue of independence, both the Charity Commission and the Cabinet Office are satisfied that the appointment of the Secretary of State for Education and the Welsh Minister as principal regulators will not give rise to an inherent conflict of interest. The commission and the principal regulator will work together to ensure that a charity’s independence is maintained. The functioning roles already have accountability. There is no conflict, since assurance is largely derived from the funding function and both roles require similar levels of assurance.

We all accept that the law on exempt charities is an incredibly complex area with a complex history. More than anybody else in this Committee, my noble friend is aware of the difficulties that this law raises. I accept that we would rather be in a better position, but we are where we are and it is difficult to unpick some of the complexities. As a result, we should go for a simpler legal regulatory framework for exempt charities. It has always been intended for exempt charities to be exempt. When the ASCL Bill was enacted, it was agreed that this would be done through exempt-charity SIs. That is what these instruments do.

My noble friend Lord Hodgson spoke on the MOUs. Principal regulators are not expected to be experts in charity law. It is not their job to be, nor is it their duty to promote charity law unless charity law compliance requires it. Expertise in charity law lies with the Charity Commission. That is why the commission has investigation and enforcement powers in relation to exempt charities.

My noble friend also asked why the Education Funding Agency is not the regulator. As I said to my noble friend Lord Phillips, the EFA will be an agency of the Secretary of State. It will not have a separate legal personality, so it cannot be appointed as the principal regulator.

[Lord Hodgson of Astley Abbotts]

Will the MOU be in place when the regulations come into force on 1 August?

[Baroness Verma]

I have been told by my experts behind me that it will be shortly afterwards.

The noble Baroness, Lady Royall, reminded us of the effectiveness of the regulators. The principal regulator approach will not mean less effective regulation. It will be entirely valid to use different models of regulation to fit the circumstances so that we end up with smarter regulation that maintains trust and confidence in charities. Using an existing regulator’s processes and procedures to oversee charity compliance avoids costly and wasteful duplication.

The noble Baroness asked also about free schools. Free schools are a type of academy. They are charities in the same way as other academies. She asked also about the MOUs between the Charity Commission and principal regulators. MOUs will be published on the Charity Commission website. We are happy to deposit copies in the House Library.

I suspect that I have not given satisfactory answers to my noble friends who are experts in this area. I hope that they can be assured that I will provide written responses to questions to which they feel they have not answers.

The regulations are about making the system leaner and smarter. I therefore commend them to the House.

Charities Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Thursday 5th May 2011 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, I declare interests as president of the NCVO and chairman of the Armed Forces Charities Advisory Company. I add my thanks to the Minister for bringing forward this Bill and my congratulations to all those who have been involved in its preparation. I do so on the grounds of the important principle, which has been referred to already, that there is nothing more infuriating or dispiriting than starting off to research new legislation which you find is amending previous legislation and which, when you get to it, amended earlier legislation and so on ad infinitum. It reminds one of those archaeological programmes where they slice away the side of a street and you find what was thrown on to it in about 1200, then layer on layer below.

That makes the law unfriendly and, as my noble friend Lord Phillips has said, it is particularly important that charity law should be as user-friendly as possible for the simple reason that most charities are run on voluntary effort. Of course, some will require the expert advice available from firms such as that where my noble friend Lord Phillips was previously a senior partner. However, as far as possible, DIY is a good principle for charities and that is facilitated by consolidation.

In at least two senses, however, I find this a slightly strangely timed Bill. First and most importantly, this being the year of our Lord 2011, the Charities Act 2006 is about to start the quinquennial review which, as my noble friend said, was written into Section 73 of that Act. It is and will be an extensive review because it requires the examiner to look at,

“public confidence in charities … the level of charitable donations … the willingness of individuals to volunteer”,

and,

“the status of the Charity Commission as a government department”.

It is clear from the word on the street that considerable changes will be suggested to the examiner when they set to work, so I fear that this consolidation Bill, while welcome in one sense, will not be the last word and that we shall be reploughing this ground before too long.

The second and more proximate reason for my surprise is the forthcoming charity tribunal hearing on the issue of public benefit. As noble Lords will recall, the 2006 Act ended the presumption of public benefit and required all charities to show that they had a public benefit requirement in their operation. That has always been controversial, as it takes you straight into the heartland of private schools and private hospitals. When we debated the 2006 Bill, some noble Lords found it counterintuitive that schools charging fees of £30,000 could be charities. For the record, I do not find that counterintuitive at all as you do not strengthen the weak by weakening the strong. Yet the strong have a contribution to make to our society in the form of bursaries, useful facilities, teacher exchanges and so on.

A further difficulty about the public benefit test is the rather obscure nature of the test case. The noble Lord, Lord Phillips, can expound on this at great length and has done so. It is the case of Re: Resch. which, as a non-lawyer, I find difficult to understand. It is about an Australian private hospital—a fee-paying institution—set in the grounds of a state, or free, hospital. That whole area of public benefit is quite obscure and difficult to deal with and one objective that we had in 2006 was to ensure that the thing was not further confused or compounded by introducing political angles into that tricky area from either end of the political spectrum. That was why the Charity Commission was given the role of establishing the public benefit test.

[Lord Phillips of Sudbury]

The noble Lord cited my name on Re: Resch., and he is quite right that it is a leading Privy Council case, but it is wonderfully obscure. He may remember that, during the debates on the 2006 Act, I moved an amendment to try to give the Charity Commission a little help in giving guidance and making judgments on public benefit. In many ways, it is a pity that we left it nude and relying on a paucity of very unsatisfactory cases.

[Lord Hodgson of Astley Abbotts]

The noble Lord, Lord Phillips, is one of the prime charity solicitors, and if he says Re: Resch. is obscure, who am I to disagree? I bow to his expert opinion. As he said, the Charity Commission was left with the task, and we now have a reference by the Attorney-General to the charity tribunal for a determination on the public benefit test. The hearing is later this month, so we are holding this Second Reading debate on the cusp of potentially significant changes for the charity sector. Some noble Lords may say that is all about private hospitals and private schools—that they deserve what is coming to them—but I think a word of caution is required because, as has been pointed out, the decisions made in those proceedings will affect not just fee-paying independent schools but potentially all fee-charging charities. That will include playgroups, nurseries, care homes, healthcare charities, museums, theatres, amateur sports clubs, advice centres, veterinary care charities, heritage and visitor attractions, housing associations and alms-houses. It has a very substantial possibility of changing the sector. When coming in to the House, noble Lords may have seen the huge queues outside Westminster Abbey of people wanting to go in to see the abbey today. It will be affected by the tribunal’s determination. While I absolutely support the Bill, I think we are holding this debate at an unusual point in the development of charity law.

As my noble friend pointed out, this Bill is a consolidation measure containing no new legislative proposals. I will not repeat what the noble Lord, Lord Phillips, said on the points that he made. The guts of the Bill are in Clauses 3 and 4 and are to do with the public benefit test and the test for charitable purposes. I entirely support what my noble friend said about the charitable purposes clause. I was surprised that Section 2 in the 2006 Act, which is headed “Meaning of ‘charitable purpose’” and seems absolutely clear, is replaced by a clause headed “Charitable purpose: purposes which can be charitable purposes”. That does not clarify anything; it seems to obscure things. That issue needs to be chased down.

Secondly, the words “under the old law” which, as my noble friend pointed out, now appear at the end of Clause 3(1)(m)(i), are a further confusion. Perhaps the Minister will explain why Section 2(8) in the 2006 Act, which contained the definitions of charity law and existing charity law, seems to have dropped out of the Bill. Maybe they appear somewhere else or have proved otiose or redundant, in which case, I am perfectly happy, but it would be helpful to have some words on that in due course.

One of the glories of consolidation Bills is that they provide a brief opportunity for reflection on where we got it wrong in the past and the direction of travel for the future. The Minister and my noble friend Lord Phillips referred to fundraising, which has proved a tricky subject and is clearly still in need of further treatment.

There are three brief issues that I would like to signpost this afternoon. The first is the role of the charity tribunal. The idea of the charity tribunal was to provide a quick, user-friendly, cheaper alternative to High Court proceedings so that small charities were not burdened by the risk that they would have to undertake if they appealed against Charity Commission hearings. I am afraid that it has not worked. There have been very few cases. Those that there have been have been highly legalistic in their approach and we are back with Silks, lawyers and everything else. The idea that we had for a simple remedy has not been fulfilled. One problem was the terms of the old Schedule 4, which is very prescriptive. We tried to persuade the then Labour Government that it would be a good idea to remove the schedule, but we were not able to do so. It is now reproduced wholesale in Schedule 6. If we are to make the tribunal as effective as we had hoped that it would be, a whole fresh eye is needed.

The second problem concerns dealing with the emergence of social investment. Recent years have seen the emergence of people who wish to make investments for social as well as financial purposes. They have an interest in making an investment and want to see a financial return but they also have a social purpose. The present proposals for charitable investments to be able to get improved results if they are successful—for example, as regards prisoner reoffending, getting people into work and ending school exclusions—would mean that the charities would get a better return.

There are implications for this whole area, including individuals. We have the counterintuitive idea that you may give the money to a charity to do something but you may not invest in it. That cannot be sensible. People who invest in charities or one of these schemes would get back their money or perhaps a modest return. That surely would be a sensible way of increasing the volume of money available for the sector. For charitable trusts, this would mean tackling the issue of permanent endowment, which cannot be spent. Therefore, many charities find it impossible to support schemes which are entirely in line with their objectives because of the issue whereby they cannot invest in schemes where there is a social return characteristic. That is a new area which has come to the fore in recent years. As we move forward we need to take time to think about it.

The last and greatest issue is of course the future regulatory structure. This afternoon, we have talked about charitable trusts. But there is now a welter of different corporate forms. You might be a charitable trust, a company limited by shares, a company limited by guarantee or a community interest company—a CIC. You could be an unincorporated association or an industrial and provident society, and you are shortly going to be able to become a charitable incorporated organisation—a CIO. Each of those forms of company or structure has different regulatory requirements as regards governance and fundraising. I am not sure that we have begun to think about how we get some coherence into the whole sector. I think that we can look at those issues in the future.

In conclusion, I entirely support this Bill. The UK charitable sector is glorious in its diversity. Therefore, this Bill has my strong support. But it is not the end of the road. Important decisions lie ahead if we are to find the right way to engage our fellow citizens in this critical area.