National Savings and Investments

Lord Newby Excerpts

Tuesday 14th January 2014 Lords Chamber

[Lord Naseby]

To ask Her Majesty’s Government what assessment they have made of the impact of the introduction of a new computer system at National Savings and Investments.

[Lord Newby (LD)]

My Lords, National Savings and Investments has been moving customer accounts and investments to a new banking system. That follows a major review which concluded that upgrades were necessary to modernise and simplify NS&I products. It will enable products to be managed online, by telephone or post and ensure long-term customer satisfaction. NS&I recognises that a small number of customers may be frustrated, as is often the case during any such period of change, and has taken measures to ensure that customers understand the reasons for its actions.

[Lord Naseby (Con)]

My Lords, will the Minister explain why the NS&I cannot be like every other investment house and send to investors, without asking, a half-yearly statement which lists their holdings and the value of those holdings, plus such transactions as have taken place in the previous six months, and eventually produce a total value of all their holdings?

[Lord Newby]

My Lords, I think the correct analogy with NS&I is with a bank or building society, where common practice—this is what NS&I is moving towards—is that people get a statement on the anniversary of when they took out savings and that customers are able to look online for a comprehensive statement of all their various policies and holdings.

[Lord Lamont of Lerwick (Con)]

My Lords, although we all appreciate that exceptionally low interest rates have been necessary to shore up the finances of borrowers, particularly mortgage holders, does my noble friend recognise that this has been an extremely difficult time for savers? It is a great pity that during a period in which, until today, inflation has been above the Bank of England’s target, National Savings has withdrawn the inflation-linked savings certificate. Will the spokesman encourage National Savings to help to end that misery for savers and, at least for small savers, introduce some new products with rather better rates of interest?

[Lord Newby]

My Lords, as the House is aware, when we have very low interest rates, which have been necessary in the economic circumstances in which we have found ourselves, that helps very many consumers, households, mortgage holders and businesses and is on balance, in our view, beneficial to the economy. The downside, as the noble Lord mentions, is that savers get a lower rate of interest. I think it is unrealistic to expect NS&I to promote products with a higher rate of interest than market rates, because its remit is to get best value for money for the Government, but I am sure that the noble Lord and the whole House will welcome the news that inflation is down to 2%, which is the target level.

[Lord Davies of Oldham (Lab)]

My Lords, returning to the original Question, surely the noble Lord, Lord Naseby, is right: NS&I ought to be an exemplar of good practice in informing its investors rather than apparently seeking to catch up.

[Lord Newby]

My Lords, NS&I needs to be able to compete effectively with best practice across the financial services sector. The truth is that NS&I has been behind the curve. It is undertaking a major programme to get all its customers online. Bear in mind that NS&I has 25 million customers in this country. That is a massive operation. When it is finished, it will be able to give information to the standard that people expect from the best of the other high street brands.

[Lord Forsyth of Drumlean (Con)]

Did my noble friend really say that it was the role of National Savings to get the best return for the Government? Surely its role is to provide a safe haven—as it advertises— for savers. Are not the savers getting a poor return because the Government are indulging in quantitative easing, which is a transfer of money from those who have done the right thing to those who have borrowed?

[Lord Newby]

My Lords, the Government are not doing quantitative easing, the Bank of England is. On the rate payable on National Savings, as the noble Lord will know, the role of National Savings is to contribute to the Government’s funding requirements. In doing that it has to operate in line with market rates because otherwise the Government are paying more for their money via National Savings than through the gilts market.

[Lord Barnett (Lab)]

My Lords, does the noble Lord’s answer to the noble Lord, Lord Lamont, mean that the Chancellor is advising the Governor of the Bank of England that if he has early plans to increase interest rates the Chancellor will use the reserve powers given to him under the Bank of England Act to stop it?

[Lord Newby]

My Lords, the reserve powers in the Bank of England Act are to be used principally when inflation is outside the target level. That is not the case at the moment. The question of interest rates is very much a matter for the Bank of England. It has adopted a new policy that incorporates forward guidance, which was agreed with the Chancellor in the middle of last year, and that is the basis on which it is operating.

Banks: Payment Protection Insurance

Lord Newby Excerpts

Monday 13th January 2014 Lords Chamber

[Lord James of Blackheath]

To ask Her Majesty’s Government what plans they have to require all banks which have refunded payment protection insurance (PPI) monies to customers to send each such customer a statement, without charge, setting out how much money has been refunded under each of the three separate elements comprising a PPI payout.

[Lord Newby]

My Lords, the Financial Conduct Authority requires banks to explain clearly to customers, free of charge, how their PPI redress offer has been calculated. The FCA is actively monitoring banks to ensure that they are complying with this requirement. If a bank has not provided this information, or it is not clearly presented, the consumer can bring a complaint against the bank and, if it is not resolved, raise a complaint with the Financial Ombudsman Service.

[Lord James of Blackheath (Con)]

I thank the noble Lord for that Answer, but will he take it into account that the banks got off on the wrong foot with the repayment programme by refusing to write a letter to everybody telling them that they owed them some money? It was left to customers to initiate their own claim and there is no certainty that many have not slipped through the net. The noble Lord’s Answer does not allow for the possibility that there are a great many people out there who have no knowledge that a great deal of money is still owing to them.

[Lord Newby]

My Lords, I can assure the noble Lord that the FCA is taking this matter seriously and I am sure that someone would be happy to meet him to discuss this in more detail. The FCA is already looking at this general area as part of the thematic review it is currently undertaking into PPI complaint handling.

[Lord Wrigglesworth (LD)]

My Lords, does my noble friend not agree that the breathtaking scale of the PPI scandal is matched only by the volume of telephone calls that have been received by many people throughout the country, offering to help, and taking a slice of the proceeds that are then obtained? Will the Government look into this to see whether another scandal is not under way?

[Lord Newby]

My Lords, I think that all Members of your Lordships’ House will have had such telephone calls. I can reassure the noble Lord that the Government have acted in this area. During last year’s passage of the banking reform Act, we gave the claims management regulator the power to impose penalties on claims management companies which make speculative claims. We are also giving the regulator more enforcement staff and requiring claims management companies to pay for this extra effort.

[Lord Campbell-Savours (Lab)]

But they are still doing it.

[Lord Newby]

My Lords, every call made in respect of PPI is not necessarily inappropriate. Some are. Many people have used claims management companies because they did not feel confident going through the process themselves. I accept that there has been abuse. The key thing we have done is to give the regulator power to crack down on firms which make speculative claims to the banks when there is no justification for it.

[Lord Eatwell (Lab)]

My Lords, the noble Lord has not answered the point made by the noble Lord, Lord James, which was that individuals have to apply to the banks for restitution of PPI claims rather than the banks recognising the obligation that they know they have. Why are the Government letting the banks off the hook?

[Lord Newby]

My Lords, the Government are not letting the banks off the hook. The banks have paid out almost £13 billion in respect of PPI claims, which is about 70% of the total we think is payable, and a lot more claims are in the pipeline. The concern raised by the noble Lord in his Question relates primarily to the way in which the detailed amounts were calculated and the extent to which individuals can understand those calculations from the material that they receive from the banks.

[Lord Soley (Lab)]

My Lords, is not the problem around individual complaints that very often those people who do not claim are the most vulnerable?

[Lord Newby]

My Lords, a great deal of publicity has been generated on this issue, and consumer organisations are looking at how they can do more. As I have said, a very considerable number of claims have already been made.

[Lord Davies of Oldham (Lab)]

My Lords, the noble Lord will recall that in 2011 the chief executive of Barclays said that the period of remorse and apology should now be over. Since then we have had this scandal, described by the noble Lords, Lord James and Lord Wrigglesworth, as breathtaking and utterly unacceptable. We have Lloyds Bank, which is still being funded from the public purse, in the middle of it. Since 2011, we have had the rigging of LIBOR and we have had RBS, another publicly supported bank, handing out massive bonuses while declaring a pre-tax loss. When are the Government really going to get tough with the banks and make sure that the Vickers reforms are honoured in spirit and in practice?

[Lord Newby]

I think that the noble Lord must have been somewhere else in recent months because I seem to remember spending many days over last autumn in your Lordships’ House putting through, under the banking reform Bill, the tougher new approval regime for senior bankers, instituting the new criminal offence of reckless misconduct and more generally looking at ways of vetting the suitability of bank staff to a greater extent. The legal framework within which the banks operate moving forward is substantially different from that in place when this Government came into office, and it will make it much more difficult, although not impossible, for many of the problems we have seen in the past to recur. It will be much easier for the regulators to take effective action if they think it is necessary to do so.

[Lord Elystan-Morgan (CB)]

My Lords, it is not for the claimant to put his or her claim forward, but for the banks to justify the holding of moneys to which they are in no way entitled. If the banks know that to be the case, are they not deliberately withholding those funds from their rightful owners? If they do not know, although in most cases and with few exceptions they should know, that puts them constructively in a position of trust with regard to the holding of those moneys. Is not that the way to look at it?

[Lord Newby]

My Lords, there is a certain amount in what the noble Lord says, but I repeat what I have said: there has been a huge amount of publicity around this issue and not only have a very considerable number of people made claims, but £12.9 billion has been paid out in respect of those claims.

[Lord Hamilton of Epsom (Con)]

When will my noble friend go a little further than Vickers and actually break up those banks that are too big to fail and seem also to be too big to manage?

[Lord Newby]

My Lords, again this is something that we have debated at some length. The Government have taken effective steps to ring-fence retail banks and to make sure that a resolution position is in place so that if they get into difficulties, there is a prearranged way of dealing with that to ensure that the Government are not faced with the problems they had in 2008, when essentially all the banks which got into financial difficulties had to be propped up.

Co-operative and Community Benefit Societies Bill [HL]

Lord Newby Excerpts

Monday 13th January 2014 Lords Chamber

Moved by

[Lord Newby]

That the Bill be read a second time.

[Lord Newby (LD)]

My Lords, it is a pleasure to open the debate on the Bill. This is a consolidation Bill which brings together and modernises the law relating to co-operatives and community benefit societies, and other societies registered or treated as registered under the Industrial and Provident Societies Act 1965, with amendments to give effect to recommendations of the Law Commission and the Scottish Law Commission.

As a consolidation Bill, the Bill aims to remove ambiguities but does not seek to introduce any new policy or make substantial changes to law. It is still, however, an important step in reducing legal complexity for new and existing societies. In January 2012, the Prime Minister announced that, in support of the co-operative movement, the legislation dealing with co-operatives and other mutual societies would be consolidated into one co-operatives Bill. This Bill represents the Government’s delivery of that commitment.

The industrial and provident society sector forms a major part of the mutuals landscape, with a diverse mix of over 7,000 independent societies in the UK. Given their clear importance to the diversity and strength of the UK economy, the Government are keen to continue their support for the sector. This consolidation Bill is one element of the key reforms we are making to help ensure that industrial and provident societies are well placed to play a central role in the UK economy for years to come.

As part of the Government’s continued efforts to simplify and modernise legislation, the Law Commissions made a number of recommendations for modifications which have been incorporated into the Bill. For example, the language regarding the conditions for registration as a community benefit society has proved problematic. The Bill now clarifies this position and provides that a society may be registered as a community benefit society only if it is shown to the Financial Conduct Authority’s satisfaction that the society’s business is being, or is intended to be, conducted for the benefit of the community.

The Law Commissions also identified areas where some of the language used in the legislation was unnecessarily complicated. For example, there is no reason to distinguish between documents in electronic format and those in other forms. The approach has been harmonised in the Bill, with relevant sections applying to all of a society’s business correspondence and other business documentation in any form. The Bill has been warmly welcomed by sector trade bodies, particularly Co-operatives UK.

In addition to the consolidation Bill, we are taking further steps to modernise industrial and provident society legislation by commencing various sections of the Co-operative and Community Benefit Societies and Credit Unions Act 2010. The Government are also introducing a package of measures in support of co-operative societies through secondary legislation, and the consolidation Bill takes account of these measures. These are due to come into force in August 2014 and are: first, increasing the cap on the amount of withdrawable share capital that an individual can put into a society, which will increase from £20,000 to £100,000; secondly, allowing for troubled societies to enter insolvency rescue proceedings; thirdly, giving the FCA additional powers to investigate societies; and, fourthly, making electronic submission of registration documents simpler.

Following a public consultation earlier last year, all of these measures have been warmly welcomed by sector representatives. Co-operatives UK, the main industry trade body, has welcomed the changes, saying that:

“The appetite and commitment to do business the co-operative way has not waned”,

and that this is,

“a massive vote of confidence in the strength of the co-operative sector and recognises the movement’s ambitions for growth and development”.

This is a useful and overdue Bill.

[Lord Tunnicliffe (Lab)]

Will the measures that the Minister has just described come before Parliament, either as affirmative orders or as negative orders?

[Lord Newby]

My Lords, I believe that they will. I will confirm that to the noble Lord, but that is my understanding.

As I was saying, this is a useful and overdue Bill, which will allow the Government to continue their support for the mutuals sector, as underpinned in the coalition agreement where it sets out their commitment to foster diversity and promote mutuals. The Bill is a key part of wider legislative reforms aimed at strengthening the sector and encouraging increased investment in the country’s co-operative sector, allowing it to thrive. In short, this Bill is good for the mutuals sector, and I commend it to the House.

--- Later in debate ---

[Lord Tunnicliffe]

My Lords, before I commence, I wonder if the Minister has some information from the Box that he might share with me in response to my question.

[Lord Newby]

My Lords, I am extremely pleased to be able to reassure the noble Lord that the four measures that I referred to will be brought before Parliament shortly. One will be brought forward in an affirmative resolution and the other three in a negative resolution.

[Lord Tunnicliffe]

I thank the Minister for that response, which will make my brief speech even shorter.

At somewhat short notice we were asked if we would take this consolidation Bill and it fell to me as the sort of second tier on our team—because we have only two now—to look at it. I thought, “What is a consolidation Bill?”, so I looked it up and it seemed that the first role of the Opposition was to have a reasonable confidence that it was a consolidation Bill. The test is in the Companion at 8.205 and there are five reasons, (a) through (e), and it is fair to say that the Bill seems to fall among (a), (b) and (c).

The first thing I did was to get a copy of the Bill. I was just about to start reading it when I got another document, the table of origins, which convinced me that I should not read it. Almost fortuitously, the Printed Paper Office offered me a copy of the Law Commission report, and I have read that. I take the point that these Bills have to be looked at very carefully to ensure they pass the test for a consolidation Bill but, reading the Law Commission’s report a little bit carefully, its recommendations seem to fall within the overall requirement.

Certainly, when one goes on to read how this Bill will now proceed, to the Joint Committee on Consolidation Bills, where there will be detailed scrutiny of the origins of the parts of the Bill and the Government, through their witnesses, will have to assure the committee that it meets the test, we can be comfortable that this is a proper consolidation Bill and serves a useful purpose.

The thing about consolidation Bills is that no parliamentarian—except when you are in government, I suppose—can be other than joyful about their arrival. I cannot think of parliamentary language to describe much of our legislation but, having sat through so many variations of financial services Bills—FiSMA and so on—in the sure and certain knowledge that no reasonable human being using the source document could possibly understand it, consolidation Bills are a joy to the eye.

However, one has to ask: why this one? The Government’s response to the consultation offers the rather nice words that it will,

“consolidate existing IPS legislation in one place, and is an important step in reducing legal complexity for new and existing societies”.

I agree that it is an important step but I ask the Minister: why this Bill and not many others? Do the Government have a plan for a programme of consolidation Bills? I particularly hark back to the travail that he and I and others have been through with the various financial services Bills. I have to say that the Treasury did a splendid job of producing Keeling schedules and such things to help us but even with all that help it was an uphill battle. Will the Government bring forward further consolidation Bills?

The next area I was going to venture into concerns the merits of the other actions that stand alongside the consolidation Bill and are set out in the consultation document. Because of the Minister’s assurance that they will come in front of Parliament as either negative or affirmative instruments, I will not waste the time of the House on those issues now and will not ask the Minister questions he would have to promise to write to me about.

Accordingly, we broadly support the concept of a consolidation Bill. We wish it well and I wish the members of the Joint Committee who have to go through all this paperwork all the luck in the world.

[Lord Newby]

My Lords, I am grateful to noble Lords who have spoken in this pleasingly short debate at this time of the evening.

The noble Lord, Lord Hodgson, asked me some very technical points and I will of course write to him as he suggested. He asked about the extent to which the FCA will prioritise looking at IPSs. The FCA is committed to maintaining the registration requirements of being a bona fide co-operative or community benefit society. One of the measures that the Government will bring forward will give the FCA additional powers to investigate these societies for irregular activities, as well as disqualifying directors where appropriate. There has been a long-held view that the FSA has devoted very little attention to this sector, but there is a logic in the regulators putting in more effort to make sure that, as the sector grows both in size and prominence, it is well regulated. However, I will certainly pass on his view that this is a sector which the FCA certainly cannot afford to ignore.

The noble Lord, Lord Tunnicliffe, very kindly welcomed the Bill. One advantage of consolidation Bills is that if you do attempt to read them, the first parts—until one gets into the schedules—are often a much better read than what preceded them. This is a consolidation Bill albeit with the Law Commission’s drafting amendments to clarify various ambiguities. Why, he asks, are we consolidating in this area rather than in a lot of others? We have been very keen as a Government to simplify and develop the law in this area. It has been a bit of a patchwork quilt. There has been a long tradition that mutuals legislation is introduced as private Member’s legislation, and more than with other types of legislation, little pockets of provision have developed over the decades. As the sector grew, however, it needed legislation that was commensurate to its new status.

There will be other consolidation Bills in due course. The challenge is, as much as anything else, around resources. Sadly, this Government are no less keen than their predecessor to produce a large volume of legislation; and sadly, from the parliamentary counsel’s point of view, there are limited resources. The other challenge, as always, is to consolidate at a time when there are often new changes which are sometimes difficult to provide for legislatively. However, the whole process of consolidation is an important one in terms of keeping the law up to date and useable. The Government are committed to maintaining that approach.

I am grateful to noble Lords who have spoken. We believe that this is a useful piece of tidying-up legislation, and I commend the Bill to the House.

Bill read a second time and committed to the Joint Committee on Consolidation Bills.

National Insurance Contributions Bill

Lord Newby Excerpts

Tuesday 7th January 2014 Lords Chamber

Moved by

[Lord Newby]

That the Bill be read a second time.

[Lord Newby (LD)]

My Lords, it is a pleasure to open this debate on the National Insurance Contributions Bill. Before I describe the main measures in the Bill in detail, I should like to mention two which in particular are aimed at supporting jobs and economic growth.

First, by introducing the employment allowance, employer national insurance contributions will be cut for up to 1.25 million employers, taking 450,000 out of employer NICs altogether and making it less expensive for businesses to take on new staff. Secondly, as announced in the Autumn Statement, from 6 April 2015 onwards, employer class 1 NICs will be abolished on the earnings of employees aged under 21, up to a limit of £813 a week. This is a Bill that will help jobs and job creation.

In addition to the two measures just mentioned, the Bill contains three principal other measures. First, it gives effect to the general anti-abuse rule, or GAAR, for NICs. Secondly, it amends existing powers in the Social Security Contributions and Benefits Act 1992 to allow regulations to be made for the certification of non-UK employers of oil and gas workers. Thirdly, it makes changes in connection with two elements of HMRC’s partnerships review. I should now like to explain each of the main measures in a little more detail, starting with the employment allowance.

As part of the Government’s efforts to grow the economy and increase employment, the Chancellor announced in his 2013 Budget the creation of an employment allowance, which will come into effect from 6 April this year. The intention is that businesses, charities and community amateur sports clubs in the UK will be entitled to an allowance of up to £2,000 towards their employer NICs liability. The objective of the allowance will be to support businesses with the cost of employing their staff by reducing their employer class 1 NICs bill each year. It will support thousands of small businesses which are aspiring to grow, perhaps by hiring their first employee or expanding their workforce, as well as those already employing others or facing temporary cash-flow problems.

Up to 1.25 million employers will benefit from the allowance, with around 450,000 employers—around one-third of all employers in the country—being taken out of the requirement to pay employer NICs altogether. The benefits of the policy will be most keenly felt by small businesses, with more than 90% of the benefit of the allowance going to businesses with fewer than 50 employees. The allowance will be a permanent feature of the national insurance scheme. It will be simple to administer, delivered through standard payroll software and HMRC’s real-time information system. The cost of the allowance is estimated to be £1.255 billion in 2014-15, rising to £1.725 billion in 2017-18. The allowance has been warmly welcomed by the business community and, as I mentioned earlier, it will not just be businesses that are eligible; charities and community amateur sports clubs will benefit too.

The second main element of the Bill implements the announcement by the Chancellor of the Exchequer in the Autumn Statement that employer class 1 NICs will be abolished for employees under the age of 21 from 1 April 2015. This is brought into effect by introducing a zero rate of secondary class 1 NICs for all employers on the earnings of those employees under the age of 21. As the Chancellor made clear, the Government believe that this measure will help to support young people and make sure that no one is left behind as the economy recovers. The measure will apply both to new and existing employees aged under 21 and is not time-limited.

There are two important features of the new clause which I should like to explain to the House. First, there are regulation-making powers to add an age group to those in respect of whom a reduced rate of secondary class 1 NICs applies and to specify what that reduced rate is; and to reduce the rate of secondary class 1 NICs for a previously specified age group. For example, the Government could in the future allow for an increase in the age bracket of employees falling into the zero-rate band of secondary class 1 NICs. This power is capable only of placing an employee in a lower percentage bracket, so will be a relieving power only.

Secondly, there is a regulation-making power to ensure that the benefit of the zero rate, or a reduced rate of secondary class 1 NICs, can be enjoyed only in respect of earnings below a certain level. This will initially be set at the level of the upper earnings limit, expected to be the equivalent of around £42,000 a year in 2015-16. In the year that it is introduced, 2015-16, the abolition of employer class 1 NICs for under-21s will cost £465 million. This effective abolition of employer NICs for employers of those under 21 years of age has been warmly welcomed by the business community.

I now turn to the other main measures in the Bill, starting with the general anti-abuse rule, or GAAR. Noble Lords will be aware that the Government announced in the 2012 Budget that they had accepted the recommendations of the Aaronson report to introduce a GAAR targeted at abusive tax-avoidance schemes. The GAAR was introduced by Part 5 of the Finance Act 2013 and has been in force since July last year. Provisions in the Bill apply the GAAR to NICs. The Government have always been clear that the GAAR should apply to NICs and the clauses in the Bill are the earliest opportunity for this to be effected.

The GAAR is designed specifically to target those arrangements which are regarded as abusive by considering whether the arrangement can be regarded as a reasonable course of action. The rule, once it is applied to NICs by the Bill, is estimated to increase combined receipts of tax and NICs by £60 million in 2014-15, rising to £85 million in 2017-18. However, the main purpose is not to raise revenue but to deter abusive avoidance practices in the first place.

The Government have made it clear on numerous occasions that they will take a robust line in tackling tax avoidance. It is simply not acceptable that a small, but persistent, minority try to find ways around our tax laws to avoid paying their fair share, especially at a time when the public finances are under considerable pressure. The GAAR is one new weapon in our armoury.

I turn now to the provisions in the Bill concerning oil and gas workers on the UK continental shelf. Noble Lords may recall that in last year’s Budget the Chancellor announced that the Government would strengthen legislation in respect of offshore employment intermediaries. The measure in the Bill is specifically intended to address the non-payment of employer’s national insurance in the oil and gas industry involving the placement of the employer of oil and gas workers who work on the UK continental shelf outside the UK. This measure was subject to consultation last autumn.

The Government intend to address these offshore employment schemes largely by using existing powers contained in social security legislation. This Bill supplements those with a new certification provision for the oil and gas industry. This provision will apply where the national insurance obligations are fulfilled by someone on behalf of the person deemed to be the employer for national insurance purposes.

This clause is part of a measure that, as a whole, is expected to bring in the region of £100 million per year to the Exchequer without having a significant economic impact on the oil and gas industry. Staff costs for businesses will increase only if they have not previously been accounting properly for all tax and NICs. This proposal has been broadly welcomed by a range of bodies, including the Oil Taxation Action Committee, the RMT and the Association of Chartered Certified Accountants.

Finally, I should like to refer to the provisions in the Bill that flow from HMRC’s partnership review conducted between May and August last year. Clause 13 addresses a tax issue arising under existing partnership tax rules where the immediate entitlement to partnership profits is restricted by the alternative investment fund managers directive. The majority of fund managers will not be affected—only those who operate through a partnership. Under existing partnership tax rules, tax is charged to profits as they are earned, rather than when they are received. An unfunded tax charge can therefore arise on profits that are allocated to an individual partner of an AIFM partnership and which are then deferred in line with the regulatory requirements of the AIFMD. This is because the partner cannot access the deferred profits before the tax becomes due and payable.

The new mechanism that the Government propose will allow the partnership itself to pay tax at the additional rate of profits which are deferred in line with the regulatory requirements. It is designed in such a way that it will also meet the government objective of the partnerships review to achieve fairer taxation by stopping tax-motivated allocation of profits in mixed membership partnerships that typically include individual and corporate members.

The new power introduced under Clause 13 will support the introduction of the mechanism and will be used to change the relevant NICs legislation by regulation once the related Finance Bill 2014 legislation becomes law. It will also allow the NICs legislation to be amended in the future to reflect any subsequent changes in the income tax legislation in this area so as to maintain symmetry between the tax and NICs positions.

Clause 14 provides an express power to treat LLP members who meet certain conditions as employed earners for NICs purposes. The conditions will be set out in regulations and will follow the income tax legislation to be introduced under the Finance Bill 2014. Broadly, this will be that the individual member of the LLP is wholly, or almost wholly, rewarded by a fixed salary and has neither significant influence over the affairs of the LLP nor capital at risk. These conditions will be based on proposals on which HMRC has consulted. It has been advised that, in response to these proposals, structures with only corporate members were being promoted as a way around the proposed legislation. The schemes involve the individual establishing a personal service company or other intermediary, and that intermediary becoming a member of the LLP in place of the individual in order to avoid these provisions.

Clause 14 provides a power to make regulations to achieve the policy objective of the measure and to counteract the artificial interposition of a company or intermediary to avoid the impact. The regulations will follow the new income tax legislation included in the Finance Bill 2014. This power will enable the reclassification, by regulations, of certain LLP members as employed earners for NICs purposes, even when they hide behind a company or intermediary. The treatment of members of LLPs as self-employed was designed to replicate the position of traditional partnerships. This clause ensures that those tax rules are not used to create a tax advantage and creates a level playing field between those partnerships that have not sought to misuse the tax rules for LLPs and those that have. These tax and NICs changes are expected to bring in approximately £3.27 billion to the Exchequer over the period to 2018-19.

This is an important and necessary Bill. It will allow us to support businesses with the cost of employing their staff and it will support small businesses aspiring to grow. It also includes an important package of measures aimed at activity that attempts to reduce the amount of NICs payable to the Exchequer. In short, this Bill is good for growth, it is good for jobs and I commend it to the House.

--- Later in debate ---

[Lord Newby]

My Lords, I thank both noble Lords for their broad welcome for the proposals in the Bill. I am very grateful to my noble friend Lord Razzall for setting the Bill in the context of all the other measures that we have taken to support business, particularly SMEs. The Bill contains useful and valuable measures but, as my noble friend pointed out, they are only a couple of pieces in the large jigsaw of provisions which, taken together, we believe will help to sustain the recovery and put Britain on the path to strong, prosperous growth in the years ahead.

The noble Lord, Lord Razzall, referred to the findings of the Federation of Small Businesses’ survey in this area and what small businesses said they would do with the additional resource. I thought that one of the more interesting aspects of that survey was that a substantial proportion of respondents said that they would increase wages. Given that I think both the Government and the Opposition are keen that wages at the bottom end are improved, if the measure does have the impact of increasing wages—as well as generating new jobs in other cases—that will mean that it has been effective.

The noble Lord, Lord Davies, slightly chided me on the fact that I had no support on my Benches. He will have seen support flooding in during this short debate.

[Lord Davies of Oldham]

If the Minister will allow me, the verb “flood” in the present circumstances is not the right one to use.

--- Later in debate ---

[Lord Newby]

My Lords, the noble Lord is of course absolutely correct. He is also aware that the number of people in the Chamber is normally in inverse proportion to the degree of support for a measure. The fact that the Chamber is largely empty just shows how popular this measure is.

The noble Lord slightly chided the Government on the fact that the regional employers’ NICs holiday had not been as effective as we had originally hoped. That is undoubtedly the case. However, it did support over 90,000 jobs, and I suspect that the people in those jobs think it was a pretty good scheme. It certainly did not have the scale of effect that we were looking for. Although that was in no small measure because of the overall economic environment into which that programme was launched, having a nationwide permanent scheme rather than a temporary targeted scheme is likely to make the impact of the scheme that much more difficult.

The noble Lord also slightly chided me on the fact that we were not bringing in the abolition of employer NICs for under-21s sooner than 2015. That is largely because of the need for computer systems to be changed. The view taken by HMRC in consultation with business was that it would be extremely difficult to get all that sorted out by next April, which would be the alternative.

The noble Lord also said that it would be impossible to accurately assess the impact of the scheme because we had not introduced it on a pilot basis. Of course the conundrum is that, if you do something on a pilot basis, you are only allowing a small proportion of the overall audience that you seek to affect to be part of that pilot. Particularly with the employment allowance, we wanted to make the scheme available to everybody as soon as possible. As the FSB survey suggests, we are confident that it will be effective.

I agree with the noble Lord that quite a lot of the implementation of this legislation will obviously be done by secondary legislation. The primary legislation is already pretty complicated; the secondary legislation will be even more technical. We will be very happy to discuss our approach to that with him when we get to Committee.

For today, the Government believe that the Bill does and will enable the reduction of taxation of labour nationally through the employment allowance, and provides support to employers of under-21s. As I have said on several occasions, the Bill is good for growth and good for jobs. I commend it to the House.

Bill read a second time and committed to a Grand Committee.

EU: Financial Transaction Tax (EUC Report)

Lord Newby Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Newby (LD)]

My Lords, I am extremely grateful to the noble Lord, Lord Harrison, for introducing the report, and to all noble Lords who have spoken. I think that all bar a couple of members of the committee have participated in the debate or are here. I therefore feel that I am giving evidence to the committee rather than making a speech to the Grand Committee, which makes the challenge all the more formidable. As one would have expected from the committee, the document is thorough and well researched, and is bound, as previous reports on this subject have been, to help colour perceptions and debate in Brussels and across the EU, where sometimes the reports of your Lordships’ EU Committee are read more carefully than they are in the UK.

The committee’s report makes a number of points with which the Government strongly agree. First, the committee expresses strong misgivings about the legality of the FTT proposal. Obviously, the Government share those misgivings and that is why we have taken the case to the European Court of Justice. As the committee notes, of particular concern to the UK is the extraterritorial impact of the so-called residence principle, which, for example, would bring into scope of the tax a UK pension fund buying UK government bonds from the London branch of a bank headquartered in Frankfurt. This is, in our view, an infringement of the provisions of the treaty designed to protect the position of non-participating member states under enhanced co-operation, and that is at the heart of our challenge to the proposal.

That brings me on to the second point that your Lordships’ committee discussed and which has been raised this afternoon: the credibility of enhanced co-operation as a way of doing business at all. The committee makes the perfectly valid point that there is a real risk of harm to the credibility of enhanced co-operation as a tool in the future because of the way that it has been operated in this case. We agree that there has been a triple failure: in bringing forward this legislation in undue haste; in paying insufficient regard to the views of non-participating member states; and in failing to support the proposal with a sufficiently thorough impact analysis—a point tellingly made by the noble Lord, Lord Hamilton. We completely agree with the committee that, particularly if this tool is to be more frequently used, it must command the confidence of all member states. Indeed, this is the very point that the Government have been making to Council colleagues during these negotiations.

The conditions that govern the use of enhanced co-operation are set out in the treaty in quite high-level terms, which makes it important during these early uses of enhanced co-operation that the right precedents are set in order to give the kind of confidence that we believe all member states need if it is to be used more frequently. Like the committee, we do not believe that this has been a helpful precedent in that respect. The conditions set out by the noble Lords, Lord Vallance and Lord Kerr, about the future use of the procedure seem eminently sensible.

The third concern, rightly highlighted by the committee, is that it is highly unclear how the tax will be collected, and what collection obligations are implied for non-participating member states. What is clear, as the committee points out, is that the UK will be required to fulfil any obligations it incurs under the mutual assistance in recovery directive. For that reason, as the committee acknowledges in its report, we have included in our legal challenge the ground that an FTT would impose collection costs on non-participating member states that should properly, under the terms of the treaty, be fully borne by the participating member states.

However, there is a theme in the report on which I cannot agree with the committee: the suggestion that the Government have been in any way complacent in relation to the risks of an FTT. The Government made their concerns about an FTT clear from the outset. In November 2011 the Chancellor highlighted the serious problems with the Commission’s original proposal to other member states, and indeed UK-led opposition to what was on the table resulted in that proposal being dropped.

It was obvious then that the proposal had not gone away, and the Government were very soon considering, and indeed taking legal advice on, the implications for the UK of an FTT under enhanced co-operation. When Council authorisation for enhanced co-operation was sought at ECOFIN this January, we tabled a statement to the minutes of the meeting recording our serious reservations about the legality of the authorising decision. The report acknowledges the Government’s point that it would not have made a difference to a vote if we had voted against the decision, rather than abstained, but argues that we should have sought support for a blocking vote.

[Lord Kerr of Kinlochard]

It is certainly true that the report quotes the Government’s view, but I do not think that we shared the Government’s view or acknowledged it as being correct. The view of the committee was that it was a pity that the Government had not been out seeking allies against the tax.

[Lord Newby]

My Lords, we will probably have to agree to disagree on this. As the previous Financial Secretary pointed out in the correspondence that the noble Lord, Lord Kerr, quoted, it was clear from discussions that took place in the lead-up to the ECOFIN meeting that a qualifying majority of member states was prepared to support the authorising decision. Moreover, abstention had no bearing on the prospects for our subsequent legal challenge. The noble Lord, Lord Kerr, talks about building alliances, an issue that arose when we last discussed this matter, but we have to accept, as the noble Lord, Lord Liddle, pointed out, the strength of the political will across much of the EU to introduce this tax. The UK standing up to say, “We are going to vote against it” would not have affected that. It is inconceivable that this would not have gone ahead at that meeting, whatever we had done.

[Lord Harrison]

Perhaps the Minister can be helpful. The committee has made that point time and again. Would it be useful if the Minister demonstrated the activity of the Government in Brussels in talking to other member states: what canvassing they did and with whom they spoke? We would like to see the ocular proof of the Government’s enthusiasm to block this tax.

[Lord Newby]

My Lords, I will not go through a blow-by-blow account of which member state we spoke to at which point. The view was taken, which I believe was the correct one, that at that stage this proposal was unblockable, because of the political will to which the noble Lord, Lord Liddle, referred. We may think that other member states are misguided. History may prove they are misguided. But there is a slight tendency in the UK to believe that we always know best. We may well know best in this case, but the French and the Germans think they know best, and it is a bold UK Government—or committee of your Lordships’ House—who are unambiguously sure that they know better than a large number of major EU member states.

[Lord Davies of Stamford]

My Lords, I put it to the Minister that the Government’s position is completely absurd. He is saying that the Government did not vote against this proposal because they thought they had a majority against them. Any democratic institution would break down if no one bothered to vote because they thought that at any one time there might be a majority against them. If the Government really felt strongly about something, so strongly that they were prepared to litigate, which is a much more provocative thing to do because it would put at risk all sorts of good will, the least they could have done would have been to have voted against it when they had the opportunity to do so. By not doing so, they lost a great deal of credibility.

[Lord Newby]

As I said earlier, we will have to agree to disagree on that. I do not believe that the Government have lost credibility in the EU because of the stance they took. People believe that the Government understood the political realities.

[Lord Kerr of Kinlochard]

I am sorry to interrupt the Minister again, but from all I hear, I do not think that there was a campaign with a ministerial delegation and a City delegation visiting capitals other than the 11 arguing the damage to their markets and ours—the overall EU market—which would result from the FTT. If I am wrong about that and such a delegation did go out to Europe, I will withdraw my criticism.

I believe that Policy Network is right when, in its report this week to the City of London Corporation, it states that there is an urgent need to:

“Upgrade the UK’s presence and leadership in Brussels by building up close ties with like-minded member states. Moving from a reactive to a preventive and agenda-setting position seems particularly paramount in that respect”.

I hope that the Minister will at least agree with that.

[Lord Newby]

My Lords, I completely agree with it.

[Viscount Brookeborough]

Perhaps I may ask a simple question. I think the Minister said that the majority of politicians in Europe wanted this tax and therefore it would be difficult. Can he explain how 11 out of the total of the member states comes out as a majority?

[Lord Newby]

I apologise if I said that. What I meant to say was that there was not a qualified majority against the proposal. There was not a sufficient weight to prevent the proposal going through. I think that that was borne out by what happened at the relevant Council meeting.

[Lord Kerr of Kinlochard]

My Lords—

[Lord Newby]

My Lords, I have 12 minutes, of which I have used 11, and I have not answered a single substantive question posed by noble Lords. It is just possible that I might do so if I am allowed to respond to some of the points that have been raised.

I was asked where matters stand in terms of discussions in the Council. A Lithuanian document was produced last week which I think has been rather mischaracterised as to its significance. It is a short document and I have it with me. It was discussed briefly at last Thursday’s working group, but many participants were reluctant to discuss it, taking the view that the technical discussions should not run ahead of and potentially prejudice the more substantive discussions, so consideration of it was limited. There has been no substantive breakthrough in the negotiations recently, largely because of the situation in Germany. As noble Lords will be aware, the German coalition deal has now been ratified and we expect more progress in the new year.

The noble Earl, Lord Caithness, asked about the timing of the resolution of the difference between the Council and the Commission legal opinions. The conflicting opinions of the Commission and Council legal services were discussed by the 12 December working group and it is now for the Council members and the 11 participating member states to weigh these as they begin to consider a compromise proposal. We are not aware of any challenge from Luxembourg.

On the timing of the legal challenge, we have exchanged written arguments with the Council. Several member states and other eligible parties have intervened. Written proceedings will come to a close in January, and it is then down to the court. But, as noble Lords will be aware, oral proceedings would ordinarily take place after written proceedings close.

On the argument that has repeatedly been made about our engaging positively with other member states, the UK has been closely engaged with these negotiations from the start. We have held numerous meetings with other member states about the FTT. UK officials are closely engaged in the Council working groups, of which there have been five, including submitting detailed written technical questions to the committee. It simply is not the case that we have not been and will not continue to be fully engaged.

I have gone over my time, for which I apologise. I thank the noble Lord, Lord Harrison, and members of the committee again for the report, and for generating what has been, as usual, an extremely stimulating debate.

[Lord Harrison]

I apologise; the noble Lord’s comments have provoked a number of interventions. Can he promise the Committee that he will write to us on those many questions which he was eager to answer, and give us full and ample replies to those which he was not able to reach?

[Lord Newby]

I would be delighted to do so.

Barnett Formula

Lord Newby Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Newby (LD)]

My Lords, this is an important subject and I am grateful to the noble Lord, Lord Shipley, for giving us the opportunity to debate it this afternoon, and for all the contributions that have been made.

For what is essentially a mathematical equation, the Barnett formula retains the capacity to generate considerable passion and debate, as we have demonstrated today. Clearly, noble Lords are aware of the formula’s origins in the late 1970s. The Government of the day decided at the time of the devolution Acts in 1998 to retain the block grant and Barnett formula arrangements for determining the budgets of the devolved Administrations. The noble Lord, Lord Jones, gave us some gory details of the state of the British economy at the time but also of the extremely civilised way in which the noble Lord, Lord Barnett, grappled with them. I am sorry that there is only water on offer to the Committee this afternoon.

Successive Governments have taken the view that while the Barnett formula may not be perfect, a persuasive case has yet to be put that an obvious alternative exists that would simultaneously satisfy the devolved Administrations in Northern Ireland, Scotland and Wales and all the other bodies competing for funding from the Government—not least Whitehall departments and local authorities. While it clearly is not perfect, the Barnett formula has proven to be a relatively transparent, durable, robust and fair method of calculating changes in budgets for the devolved Administrations since devolution. It operates at a high level, based on population shares and changes to spending by comparable UK departments. Despite a considerable element of transparency, once you look into it in any detail, it does feature certain aspects of the Schleswig-Holstein problem and at the margin gets extremely complicated.

Since today’s debate was prompted by the Local Government Association’s concerns about the formula, I stress that the Government understand the concerns of English local authorities. That is why in the Autumn Statement we recognised concerns about the administration of the new homes bonus by giving that back directly to local authorities, exempted local authorities from any further reductions in annual revenue budgets to assist them in freezing council tax in 2014-15 and 2015-16, and made additional funding available to support housing and other infrastructure development.

I will make a number of general comments now and come back to some of the specific comments under the headings England, Scotland and Wales respectively. The Government are reluctant to join those who call for a rapid demolition of the funding architecture for the devolved Administrations but we recognise that there is a range of valid views on alternatives. Changes to the devolution settlements already legislated for in relation to Scotland and in prospect for Wales are increasing the levels of accountability and flexibility the devolved Administrations will have in future over their own fiscal position.

--- Later in debate ---

[Lord Newby]

My Lords, as I was saying, changes to the devolution settlements already legislated for in relation to Scotland, and in prospect for Wales, are increasing the levels of accountability and flexibility the devolved Administrations there will have in future over their own fiscal position. That has been warmly welcomed in both those parts of the United Kingdom. Similarly, in England, the Government have already initiated an historic shift of power to local areas by removing ring-fences from £7 billion of local government funding and giving councils the ability to retain 50% of the business rates they collect; I will come back to that in a moment.

At least one other noble Lord has referred to the House of Lords Select Committee in 2009, which concluded that, despite some shortcomings,

“the advantages of the Barnett Formula—simplicity, stability and the absence of ring-fencing—are important and should be maintained whatever the future methods of allocating funds to the devolved administrations”.

While we recognise the concerns expressed about the formula, as made clear in our programme for Government, this Government’s priorities remain that we deal with the deficit, bring debt down, and build on the growth we are beginning to see demonstrated right across the UK. There are therefore no plans to review the formula in this Parliament.

I move on to the English, Scottish and Welsh contributions to the debate in turn. The noble Lord, Lord Shipley, made a powerful argument for more devolution within England and greater autonomy for the core cities, and London in particular. I have considerable sympathy with that. I was very much involved in plans for regional government during the previous Administration. My preference would have been to have powerful regions as counterpoints to, to a certain extent, Scotland and Wales. However, that vision of how we might manage affairs in England rather crumbled to dust.

It is interesting to note how the core cities have stepped up to the plate and are coming up with a number of innovative proposals, to some of which the noble Lord referred, to enable greater devolution to them. However, the problem with the core cities approach to devolution goes to the point made by my noble friend Lord Teverson, which is that they have the mass and momentum to take devolution forward, but if you are not careful, that will leave a lot of the rest of the country behind. It is difficult to see how to get some kind of uniformity of approach if the cities themselves take a huge leading role.

I agree completely with the need to develop further the place-based approach to financing local government. Although this may be a little pessimistic, it is one of the relatively rare innovations in public policy which I think has been an unambiguous success. I hope very much that we press on with it because not only does it give the flexibility that enables considerable efficiencies to be driven forward, it also gives local authorities a greater sense of their own destiny, which is important if they are to flourish in the medium term.

As part of his argument, the noble Lord, Lord Shipley, discussed the inequality in per head allocations between England and the devolved Administrations. There are, of course, very considerable differences between the regions of England. As he knows, the north-east has higher public spending per head than, for example, does Wales. There are obvious reasons for that, but it is worth pointing out that England differs considerably in the level of expenditure per head that it enjoys at the moment.

My noble friend Lady Bakewell was one of a number of noble Lords to set out the straightforward English case for a review of the formula as proposed by the LGA. I understand absolutely why she feels so strongly about it. She talked particularly about adult social care. As she will be aware, the Government are making enough funding available to ensure that local authorities do not need to reduce the level of social care services that they are providing through to 2015-16, and the range of reforms we are introducing are all aimed at allowing local authorities to do more in order to deliver better outcomes, including the new £3.8 billion health and social care integration pool. That is another example of taking an integrated approach rather than a silo-based one which, whatever is done with the Barnett formula, is very important.

My noble friend Lord Bradshaw enjoined the Government to start working on how we might replace the Barnett formula and suggested that we might adopt a cross-party attempt to do so. I suspect that that would be quite tricky between now and the next election, and I think that the most he can realistically hope for is a clear statement in each of the manifestos on how the parties plan to deal with this issue in the next Parliament.

The noble Baroness, Lady Eaton, pointed out the extent to which the Government are moving towards at least some of the LGA proposals, not least in terms of long-term indicative financial statements. That is a very welcome move, particularly because it has taken so long to do it. We are sometimes pretty reticent about claiming progress when we make it, but that is something which local authorities have been asking for for a long time, and there is real movement.

The noble Lord, Lord Teverson, as I have mentioned, talked about the rural/urban divide. He basically said that we should not get too obsessed by Barnett, but should worry about the whole raft of issues. I have a lot of sympathy with him on that.

The noble Lord, Lord Kennedy, made a point about the funding in West Oxfordshire. The only thing I would say about funding for any local authority area is that, if the Barnett formula has elements of the Schleswig-Holstein problem, local government funding allocations in England are vastly more complicated than Schleswig-Holstein ever was. Despite there being allegedly objective formulae for determining that, I have always found it difficult to get from the formulae to the actual results; no doubt that is my inability.

The noble Duke, the Duke of Montrose, asked us to confirm a number of figures in relation to Scotland. I believe that they are correct, but if I am wrong I will write to him. He asked whether the Scottish Government’s current block grant absorbed the cuts. The cuts to devolved Administration budgets have tended to be proportionately smaller than those to Whitehall departments, but that is due to the comparability factor built into Barnett: specifically, the protection to English health and school budgets.

The noble Lord, Lord Wigley, discussed the challenges in Wales in this area, and talked not least about the Holtham commission, which was an extremely thorough piece of work and demonstrated one approach to an alternative needs-based formula to Barnett. Clearly, it is not absolutely straightforward to get from where we are now to a needs-based approach which everybody agrees is the optimal way forward, but I pay tribute to the Holtham commission for its work.

Finally, on the complications of making comparisons, several noble Lords, including the noble Lord, Lord Wigley, referred to the public expenditure statistical analysis figures on per capita expenditure. It is worth clarifying that these are not simply devolved Administration budgets. They include some bits of UK-wide expenditure, not least welfare. One must take that into account when looking at the comparability.

I know that I will not have been able to completely satisfy my noble friend Lord Shipley and other noble Lords, but I hope that I have been able to demonstrate that we are alive to the issues and are moving towards greater place-based delivery for England, which will help local authorities deal with the challenges that they face. I am extremely grateful to my noble friend Lord Shipley for initiating the debate.

--- Later in debate ---

[Lord Newby]

My Lords, there is to be a Statement before the Commons rises for Christmas about the funding for the next financial year, which will give the noble Lord’s colleagues in the other place, if not necessarily here, the chance to ask a lot of detailed questions about that. Perhaps it is a subject for another debate in your Lordships’ House.

Committee adjourned at 6.59 pm.

Pensions

Lord Newby Excerpts

Thursday 12th December 2013 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what action they propose to take on the report by the Financial Services Consumer Panel concerning the selling of pensions annuities.

[Lord Newby (LD)]

My Lords, when people have saved up for retirement, the Government agree that they should get the best from their retirement savings. That is why we are already taking action to combat excessive pension charges. It is also why we set up the Open Market Option Review Group, which introduced measures to prompt consumers to shop around for an annuity and secure a better retirement income. The Financial Conduct Authority is also looking, through its thematic reviews, into the important issues that this report raised. The report is a useful contribution to ongoing work in this area.

[Lord Foulkes of Cumnock (Lab)]

My Lords, will the Minister join me in thanking the Daily Telegraph and Daily Mail for exposing this latest example of financial institutions cheating their customers? Will he ensure that the Financial Conduct Authority deals with them firmly, as it did yesterday with RBS and Lloyds? Could he also look at some way of ensuring that the people who are punished are those in the institutions responsible and not the bodies themselves, which pass on the costs to their long-suffering customers?

[Lord Newby]

My Lords, I am not sure that I ever thought I would say this, but I join the noble Lord in thanking those newspapers that have drawn yet another financial problem to more general interest and view. The Financial Conduct Authority has new powers and is already showing that it intends to use them very rigorously. It has powers in respect of individuals as well as institutions, and will use them.

[Lord Forsyth of Drumlean (Con)]

My Lords, will my noble friend, in making his statement that it is important that those who have saved throughout their life get the best return on their savings, bear in mind that the Government’s quantitative easing programme is one of the major reasons that annuities are so poor? Can we have some indication of when the Government might abandon QE?

[Lord Newby]

My Lords, we have discussed many times the fact that low interest rates are a key determinant in supporting growth, and that growth is in the long-term interest of the entire community. The Bank of England has given forward guidance in respect of when interest rates might rise. Monetary policy is firmly in its purview rather than the Government’s.

[Lord McFall of Alcluith (Lab)]

My Lords, the research in this report indicates that insurers can make £35,500 out of a £100,000, 25-year pension pot. That illustrates that this is a dysfunctional market. The Government have been told this for years. Given that the annuities market will double by 2015, is there not a case for the Government to consider a standing commission on pensions, which can look at the industry and pensions in the long term to ensure that people are not ripped off and that they get the best deal for their retirement?

[Lord Newby]

My Lords, as the noble Lord will be aware, the big new development in pensions is around auto-enrolment. In this area, the Government have set a cap on allowable fees, precisely to deal with the problem of high fees going forward. More generally, the FCA is undertaking a thematic review of annuities, which will look at fees among other things. There is a lot going on and we will see action without needing to set up any further bodies to bring it about.

[Lord Phillips of Sudbury (LD)]

My Lords, would the Minister not accept that, after the latest in an apparently endless series of disillusioning revelations about the cynicism of too many parts of the financial sector in particular, it is about time that we as a Parliament, and indeed the Government, made clear to the people of this country that there is a limit to what we can do in these issues? They bear on profound moral issues. Perhaps the time is right for us to, in effect, throw the ball back into the court of Mr and Mrs Britain and call upon them to exercise their own, individual moral autonomy and power to effect some sort of reformation of what is becoming a very depressing state of affairs.

[Lord Newby]

There are obvious limits to what government and Parliament can do, but I have always believed that one of the very important things that Parliament can do is to act as the bully pulpit and set out what it thinks is the correct way of behaviour. In terms of the financial institutions we have instituted, as the noble Lord knows, a number of pieces of legislation in this area but, as the Parliamentary Commission on Banking Standards pointed out, culture is very important—that is, the culture of the industry and also of consumers. A big problem around pensions in particular is that virtually no consumer understands the product that they are buying, which makes it very difficult for us to get people to accept responsibility. They find it very difficult to get to grips with a pretty complicated product.

[Lord Tunnicliffe (Lab)]

My Lords, unusually, the report of the Financial Services Consumer Panel on annuities is even more alarming than the press reports. Its final paragraph states:

“The chances of mass consumer detriment”—

I emphasise, mass consumer detriment—

“are, in our judgement, too high to trust to current market-driven solutions alone: hence our recommendations for further regulatory and government-led structural reform”.

Will the Minister commit to using the Pensions Bill to require a regulator to set best practice standards for those offering annuities and to require pension schemes to take responsibility for directing savers to brokers who meet those standards?

[Lord Newby]

My Lords, there is already the open-market option review, which brings together the Government, the regulator, providers and consumer groups. It is looking at how we can promote best practice. There is also an ABI code which, for example, requires insurers to no longer send out application forms so that people take out an annuity automatically with the company with which they have their pension pot. We are bearing down on this issue, and what the report that was produced only this week shows, is that there is further to go. However, we have the structures in a new regulatory framework, and we are determined that it will work.

Payday Loans

Lord Newby Excerpts

Wednesday 11th December 2013 Lords Chamber

[Lord Selsdon]

To ask Her Majesty’s Government what steps they are taking to regulate the issue of payday loans to those without a regular income.

[Lord Newby (LD)]

My Lords, the Government have made it clear that payday lenders should make loans only to those who can afford to pay them back. From April 2014, the Financial Conduct Authority will require lenders to undertake thorough affordability assessments to ensure that borrowers are able to make sustainable repayments. No later than January 2015, the FCA will cap the cost of payday loans so that borrowers in financial difficulty do not face spiralling debt.

[Lord Selsdon (Con)]

My Lords, I am most grateful to the Minister for his reply, but he has not actually given me the answer I needed because my skills at mathematical calculations are not great at the moment. If my noble friend wanted, for example, to take out a payday loan for £1,000 to cover him over the Recess, what would the rate of interest and repayment be over a matter of a few weeks?

[Lord Newby]

Almost certainly too high, my Lords.

[Lord Mitchell (Lab)]

My Lords, in 2008, 12 million people viewed advertisements for payday lending companies. Last year, the total was 7.5 billion. Do the Government feel that the time has come for us to ban advertising for payday lending on television, particularly when it is directed at children?

[Lord Newby]

My Lords, the Advertising Standards Authority has been looking at a rising number of complaints about payday loan advertising on television. It has the power to ban misleading ads and already has done so in respect of ads placed, for example, by Cash Lady and FirstPayDayLoanUK. From April next year, the FCA will have the power to ban misleading financial promotions. It will be able to look at advertising and the whole way in which payday loans are promoted under that new power.

[Lord Martin of Springburn (CB)]

My Lords, there is deep concern in the social and community-based housing movement because the payday loan operators get access to people’s personal accounts to take the direct debit. The danger is that when people receive a rollover loan, in many cases the payday loan company has taken all the money out of that account and left the housing association with a tenant who is in deep arrears. Sometimes they are forced to take out eviction notices, which they are very reluctant to do. Can this be looked into?

[Lord Newby]

My Lords, this matter has been looked into. The Financial Conduct Authority, which takes responsibility in this area from next April, has already proposed limiting continuous payment authorities to two payments and reducing rollovers to two. It has the power to constrain them further than that if that is still seen to be an issue. That is one of the things that the FCA will look at as part of its assessment of the total cap of the cost of payday loans, which it is currently considering.

[Lord Razzall (LD)]

My Lords, I will follow the previous two speakers but extend the question a little more widely. What steps do the Government propose to take to ensure that payday loan operators cannot simply move their headquarters overseas and operate outside the restrictions that are going to be brought in?

[Lord Newby]

My Lords, under the e-commerce directive, which was introduced during the lifetime of the last Government, payday loan operators are able to relocate. However, a majority of EU member states already have some kind of cap on the cost of payday loans, even if not necessarily as comprehensive a cap as we have, and there is an ongoing debate in those member states that do not yet have a cap about implementing one. There are already a majority of EU member states to which it would almost certainly be uneconomic or pointless for payday loan lenders to switch their bases of operation.

[Lord Kinnock (Lab)]

My Lords, when the lenders invariably advertise the ease of access to money and, even more crucially, the ease of repayment, can their adverts ever be anything but misleading?

[Lord Newby]

My Lords, a lot of effort is being undertaken by the FCA to make sure that the adverts are not misleading. We debated this at Third Reading of the banking reform Bill. The key thing is that people should know what the repayments are, not just in terms of the interest rate—people are very often not desperately familiar with that—but in terms of being absolutely clear about what they have to repay and when. The point that possibly lies behind the noble Lord’s question is whether there should be payday loans at all. As long as payday loans are legal, people have to make some sort of assessment about whether they are going to be in a position to repay them. What the Government and the FCA are committed to doing is to make the costs as clear as possible and limit the potential downside of less than prompt repayment.

[The Lord Bishop of Truro]

My Lords, what consideration, if any, has been given to introducing a real-time database of payday loans in order to ensure that the proposed FCA rules can be properly monitored and enforced and, in particular, to avoid the problem—a special one at this time of year—of people being able to take out multiple loans from different companies at the same time?

--- Later in debate ---

[Lord Newby]

My Lords, a real-time database is one of the things that the FCA will be looking at. In some of the countries and US states where they have effective caps on the cost of payday loans, such systems have been seen to work efficiently and be very effective.

[Lord Davies of Stamford (Lab)]

My Lords, we heard a moment ago about the danger of lenders from other EU countries undercutting any legislation or regulation that we introduce in this country. Has the noble Lord considered discussing with the European Commission the possibility of legislating on an EU-wide basis for the single market as a whole?

[Lord Newby]

My Lords, this is a rapidly moving area. If you go back five years, it was not an issue. We are discussing with other member states the operation of the consumer credit directive, for example, and the way in which the market is evolving. As the FCA moves towards putting in place a cap of the total cost of payday loans, we will see exactly how the system is working in the majority of those member states that already have a cap and whether there is any real advantage in moving to a Europe-wide system, or whether the series of national caps is proving effective.

EU: Fraud (EUC Report)

Lord Newby Excerpts

Wednesday 11th December 2013 Grand Committee

[Lord Newby (LD)]

My Lords, I am extremely grateful to my noble friend Lord Stoneham for his introduction to this report, to all noble Lords who have spoken and to the committee itself for the detailed report into the fight against fraud on the EU’s finances.

It may be blindingly obvious, but I start by saying that the Government also take fraud and the management of taxpayers’ funds very seriously. We have adopted an increasingly robust stance on financial management, and we remain committed to securing and enforcing the most effective means of fighting fraud at both a national and EU level. Fraud against the EU budget remains a matter of great concern, and this Government have adopted a leading role in calling for improvements to the way EU finances are managed.

I remind noble Lords that we are the first Government to take a firm stance on fraud against the EU budget by voting against the Council’s decision to recommend discharging the Commission of its responsibility to manage the EU budget. We took a stand by abstaining on the Council position on discharge of the 2009 EU budget and increased the pressure by voting against the Council’s recommendation to discharge in 2010 and 2011. We have also continued to encourage like-minded, budget disciplinarian member states to join us in sending the strongest possible message that financial management needs to be improved. In 2010 and 2011, Sweden and the Netherlands joined the UK in voting against the Council’s discharge recommendations and issued a joint statement calling for improvements to the way EU funds are managed.

We have also been at the forefront of the drive for real changes to improve errors within EU budget expenditure. For example, in the light of the European Court of Auditors’ reports confirming that much of the expenditure error is due to excessively complex rules, the Government successfully worked with allies to push for the significant simplification of the complex rules for beneficiaries of EU funds. I note what the noble Lord, Lord Bowness, said about it being disappointing that the Court of Auditors has been unable to provide a positive statement of assurance for the most recent budget, as has been the case for a number of years. The noble Baroness, Lady Morgan of Ely, explained why it is quite difficult to get to the necessary level of assurance. As the noble Lord reminded us, and as I have, over the years, reminded Eurosceptics within your Lordships’ House, it is a very long time since the DWP budget received a similar assurance statement.

When the Government replied to the report in July, the Financial Secretary gave a detailed response to all the findings. While that response still reflects the Government’s overall position, I will seek to respond to some of the additional requests for clarification made by noble Lords.

A number of noble Lords raised concern over the estimated level of fraud against the EU budget. The Government appreciate that the Commission’s assessment of the amount of fraud against the EU budget is an estimate and cannot give a full picture, by which I mean that the real level of fraud is necessarily going to be higher than the figure that it has produced. In order to get more nearly to a figure, it is therefore important to ensure that the quality and consistency of reporting by all member states is of a standard that allows the Commission to receive accurate information upon which to base its estimate.

It is also important that other contributing factors, such as the constant updating of the database, are resolved to improve the data that the Commission receives and holds. The noble Baroness, Lady Morgan of Ely, explained some of the complexity of the process, and although it is very easy to damn it on the basis that it should be possible to sort this out, in practice it is extremely difficult in a 27-member Union to get the kind of consistency and quality of reporting that gives us absolute confidence that the final correct figure has been reached. As the recipient of reporting information from member states, the Government believe that the Commission is best placed to provide such a clear estimate, but more work needs to be done.

I am sorry that the committee finds the Government’s decision not to recognise its estimate of actual fraud disappointing, but we maintain the view expressed by the Financial Secretary in his substantive response. I have a lot of sympathy with the noble Viscount, Lord Eccles, who said that we should not get excited about the absolute estimate of fraud but should worry much more substantively about bearing down on it.

With that that in mind, I turn to our reporting of fraud against the budget. The Government remain committed to this work and do not accept the view that we are lacking in enthusiasm or drive in our approach to tackling such fraud. In line with existing reporting obligations, the Government rigorously collate comprehensive data on fraud and consistently report them to the Commission.

As identified in the committee’s report, the UK does not have a central department or agency responsible for the fight against fraud. Individual departments and agencies are responsible for monitoring and acting on fraud against the EU funds they receive and spend. This does not demonstrate a lack of commitment or dedicated resource but reflects the UK’s national arrangements for handling EU funds. When one is talking about funds being spent by Administrations in Northern Ireland and Scotland, it is natural for them to be contacting the EU directly with information. Furthermore, the Government have a new approach to fraud because the creation of the National Crime Agency has given us the opportunity to pull expertise in anti-fraud work into a dedicated Economic Crime Command. The ECC will work closely with national police forces and partners, as well as with the EU and international equivalents. However, the Government remain of the view that the Commission, as the recipient and collator of fraud statistics, is best placed to provide a breakdown of fraud at an EU level and within individual member states. I shall come back to the question of the single point of contact.

A number of noble Lords raised the issue of VAT fraud, which has been and remains a significant problem. It is, however, worth pointing out that since 2005-06 NTIC fraud estimates have decreased from between £3 billion and £4 billion to around £1 billion in 2011-12, which demonstrates that effort has been put in to tackle this very serious, arguably the single biggest, area of EU fraud that affects the UK. We have had a significant positive impact.

We take seriously all forms of fraud, which is why in the 2010 spending review HMRC was allocated an additional £917 million to help it recover unpaid tax and excise duties in the next four years, of which some £90 million is being spent on tackling organised criminal attacks, and we have had some significant successes. Further, the number of criminal prosecutions across a range of taxes, including VAT, is to be increased fivefold. I am not sure that that is quite the target that the noble Baroness was looking for, but it is an indication of the Government’s ambition in this area. However, it is clear that VAT fraud is not solely a concern for the UK and, noting the committee’s concern and points raised by noble Lords, I can confirm that we encourage other member states to maintain the pressure to reduce VAT fraud within their jurisdictions with the same enthusiasm and vigour that we employ.

I turn to our engagement with the European anti-fraud office, OLAF. It is clear that its success relies on effective co-operation with partners in member states, third countries, international organisations and EU institutions. The Government fully cooperate with OLAF’s work in the UK. Its efforts to detect and tackle fraud, including through seeking financial redress for the EU budget where possible, is highly important to us. The UK, through the National Crime Agency, provides a number of UK-wide liaison services and is taking steps to improve our engagement with Europol, Eurojust and OLAF. This includes, through the NCA, providing bureau services to Europol and Interpol and being home to the UK Financial Intelligence Unit. It does this through the Europol national unit, which is based in the UK International Crime Bureau of the NCA and is supported by the UK national unit based in The Hague. The ENU provides a channel for all UK law enforcement engagement with Europol. The Government believe that the NCA’s work with these agencies and services, including Eurojust, Europol and OLAF, will strengthen co-operation with our European and international partners to fight cross-border fraud.

I return to the question that many noble Lords raised about our response to the requirement to provide a single point of contact. This is, as noble Lords mentioned, something that has been under discussion for some time. City of London Police has indeed offered to be such a contact point and continues to be in discussion with the Home Office. As noble Lords will be aware, the Home Office works in an extremely deliberative way and I hope that we will have a decision on this as soon as possible.

[Lord Rowlands]

I apologise for interrupting the Minister. What is “as soon as possible”, given that we have already had a 12-month pause?

[Lord Newby]

My Lords, it is a slightly flexible definition. The best I can do is draw to the Home Office’s attention the strength of feeling that clearly exists in your Lordships’ House that this decision should now be taken quickly.

Moving on to the European Public Prosecutor’s Office, the Government accept that multijurisdictional crime against the EU budget is European in nature but believe, as noble Lords pointed out, that an EPPO is not the only or the right solution to the problem. The noble Lord, Lord Rowlands, gave some of the arguments for that, but I repeat our view: a centralised European prosecutor with harmonised powers to initiate investigations and order investigative measures is incompatible with the division of responsibilities in many EU countries where law enforcement and prosecutors have different roles from that of the independent judiciary. As such, it would require fundamental changes to those member states’ legal systems and existing operational structures to implement the Commission’s vision of a supranational body with powers of investigation or prosecution within UK jurisdiction.

The Committee asked how the UK would address the shortcomings in existing processes for tackling fraud in the absence of being a participating member of the EPPO. The Government will continue to focus on preventing and tackling fraud against the budget and draw on their new approach to policing fraud. On the response to identified crimes, the Serious Fraud Office uses a similar model to the EPPO by bringing prosecutors and police together to fight serious fraud but there are differences. There are limits to the SFO’s statutory investigative powers but the existence of the SFO at national level is evidence of a domestic model that is similar to the EPPO proposal. Further, the creation of the National Crime Agency’s Economic Crime Command means that we have an opportunity to pull expertise in anti-fraud work into a dedicated policing unit. The ECC will work closely with national police forces and partners as well as the EU and international equivalents.

[Lord Davies of Stamford]

I am grateful to the Minister for giving way. If, as on the Minister’s own admission, the Serious Fraud Office and the ECC have structures that are very similar to the proposed EPPO in that they combine investigative and prosecuting functions, what is the ideological objection to accepting the EPPO? It appears that we have already accepted that those two functions should be shared by the same agency. The Minister will know that there is no suggestion that the courts—the judicial function—should be combined with the EPPO. The EPPO having decided to prosecute would have to do so in front of judges who would be quite independent from it.

[Lord Newby]

As I said, among other things there are differences between the SFO’s investigative powers and the EPPO proposal’s powers. As I should have said, it was a component of the coalition agreement that the UK would not support our involvement with such an organisation. That remains our view.

[Lord Davies of Stamford]

I am grateful for what is clearly a very honest and frank statement by the Minister. That gets to the heart of it. His previous remark left the impression that he was desperately trawling around to find some minor detail of difference between the structure of the SFO and the proposed EPPO to justify a decision that cannot be justified on pragmatic grounds. As he said, it is essentially a political decision. The Committee, the House and the public will be grateful for his frankness.

[Lord Newby]

My Lords, I think that the noble Lord is slightly confused about the difference between a political decision and a sensible decision. Just because something is in a political agreement does not mean that there are not very serious substantive reasons for it, apart from any reasons that he would disapprove of. I am sure that that is the case in this particular example.

There were two final things that I wanted to pick up on. The noble Lord, Lord Bowness, asked about the relationship between OLAF and the Supervisory Committee and what could be done and might be happening. This is an extremely unfortunate dispute that has arisen, and there is a limited amount that the UK Government can do on their own to resolve it. We accept that the Supervisory Committee has an important role but, equally, it is important that it does not operate in such a way as to impede OLAF’s work. We are trying as best we can not to knock heads together—that is perhaps too strong—but to use what influence we have to get these two bodies to work together. It is extremely depressing to read that part of the committee’s report and evidence because it is the kind of thing that legitimately gets the EU and its ways a bad name.

The final issue that I want to address, which the noble Baroness raised, is on how we would engage with committees on the PIF directive. This has raised difficult issues for the UK, and Ministers across government have been considering how best to approach the proposal. Discussions within government are now reaching their final stages, and we hope to be in a position to offer the relevant scrutiny committees a fuller explanation shortly. At the same time, we will seek to address the concerns about the opt-in trigger point.

This has been an extremely useful debate on an extremely important issue. I hope that I have been able to explain how the Government are tackling it. I realise that I will not have satisfied noble Lords in every respect, but I will speak sternly on noble Lords’ behalf to colleagues in the Home Office so that we might make progress at least in that respect.

Finally, I thank the committee for its work and for holding the Government to account in this area of our work.

Financial Services (Banking Reform) Bill

Lord Newby Excerpts

Monday 9th December 2013 Lords Chamber

Moved by

[Lord Newby]

9: After Clause 18, insert the following new Clause—
“Vetting by relevant authorised persons of candidates for approval
After section 60 of FSMA 2000 insert—“60A Vetting of candidates by relevant authorised persons
(1) Before a relevant authorised person may make an application for a regulator’s approval under section 59, the authorised person must be satisfied that the person in respect of whom the application is made (“the candidate”) is a fit and proper person to perform the function to which the application relates.
(2) In deciding that question, the authorised person must have regard, in particular, to whether the candidate, or any person who may perform a function on the candidate’s behalf—
(a) has obtained a qualification,(b) has undergone, or is undergoing, training,(c) possesses a level of competence, or(d) has the personal characteristics,required by general rules made by the regulator in relation to persons performing functions of the kind to which the application relates.(3) For the meaning of “relevant authorised person”, see section 71A.””

[Lord Newby (LD)]

My Lords, these amendments do two things. First, and most obviously, they implement the changes that have been agreed with members of the Parliamentary Commission on Banking Standards to implement the commission’s recommendations for a licensing regime.

The Government’s amendments in Committee put in place the key element of those recommendations, the pivot on which the commission’s concept of a licensing regime rests, giving the regulators the ability to make rules for employees who were not senior managers, but commission members were concerned that the Government’s amendments did not give sufficient visibility or, as I put it, “full weight and impetus”, to the commission’s proposals and we undertook to bring forward amendments at this stage which will, as I said in Committee,

“put beyond doubt the determination which we all share to see real change in this area”.—[Official Report, 26/11/13; col. 1343.]

In brief, these amendments make explicit the requirement on banks to certify staff and enforce banking standards in the first instance. Amendment 12 delivers the commitment to require banks and PRA-regulated investment firms to verify that people are fit and proper before appointing them to functions in which they could do significant harm to the firm. It also requires firms to review that assessment annually. This gives effect to the commission’s recommendations in paragraph 634 of its final report. Indeed, the Government have gone further. Amendments 9 and 11 impose similar obligations on firms in respect of senior managers and other persons who have been approved by the regulators.

Amendment 12 also imposes the obligation on these institutions to issue certificates to persons performing functions in which they could cause significant harm to the firm to confirm that the fitness and properness checks have been carried out. As I explained on Report, it would not be appropriate to describe these documents as licences—the commission’s preferred term—but it is quite in order to call them certificates and they fulfil the same function. The amendment also imposes obligations on banks and PRA-regulated investment firms to maintain records of persons who have been issued with certificates. It is not, of course, necessary to require firms to keep lists of senior managers as their appointments will have been approved by the regulators and they are included in the financial services register kept by the FCA.

Amendment 14 requires banks and PRA-regulated investment firms to notify the regulators of disciplinary action that they take against any of their staff, not just senior managers and persons who have been issued certificates. I can assure the House that notifiable disciplinary actions will not include verbal ticking-off, for example, for turning up late to work. Only formal disciplinary action, such as a written warning, need be notified and only if it is for reasons specified by the regulators in their rules. This gives the regulators the ability to check up on how firms are policing the conduct of individuals and it delivers on the recommendations in paragraph 642 of the commission’s report.

Amendment 13 requires banks and PRA-regulated investment firms to notify individuals that banking standards rules apply to them. This delivers on recommendations in paragraph 643 of the commission’s report. Amendment 13 also requires banks and PRA-regulated investment firms to ensure that the individuals concerned understand their obligations under banking standards rules. This includes by providing suitable training. Amendments 9 and 12 also provide that, in checking that someone is fit and proper, firms must have regard to whether someone has a qualification or has undergone training prescribed by the regulator in its rules.

As your Lordships would expect, the Government will seek to ensure that Clause 15 is removed when the Bill returns to the other place. The amendments I have just explained do, however, deliver what the parliamentary commission recommended and, indeed, go further in some places. Clause 15 would simply not deliver what the commission recommended, or anything like it. As we will explain in the other place, there are a number of areas in which Clause 15 is incompatible with the recommendations of the PCBS. First, it would retain but re-label the approved persons regime, which the PCBS sought as far as possible to remove. Secondly, it would impose on the regulator an obligation to check fit and properness annually, while the PCBS emphasised that it should be the bank, first and foremost, that took responsibility for maintaining standards. However, I hope the noble Lord, Lord Eatwell, will feel that the inclusion of material on training and professional qualifications in Amendments 9, 12 and 13 clearly shows that his underlying concerns on those points have been met.

Finally, I turn to Amendments 17, 18 and 25. These amendments were tabled to address an essentially consequential issue which arose from the other amendments. Branches of foreign banks and investment firms operate in London. Often international banks will have both branches and subsidiaries. A branch is not a separate legal entity unlike a subsidiary company. However, it is likely that there will be staff working in branches in the UK who should be covered by the senior managers regime or the certification regime and so be subject to banking standards rules. Amendments 17 and 18 therefore give the Treasury the power to extend the senior managers, certification and banking standards regime to the UK branches of foreign banks and investment firms by order, after undertaking appropriate consultation. This will mean that branches and subsidiaries can be treated identically. Amendment 25 ensures that the order can be made only if approved by both Houses under the affirmative procedure so any such order will benefit from proper parliamentary scrutiny.

The amendments here complete the implementation of the parliamentary commission’s recommendations for what it called a licensing regime. They provide a comprehensive regime for raising standards of conduct in banking and demonstrate our determination to see that change really does happen. I beg to move.

--- Later in debate ---

[Lord Eatwell]

My Lords, I am glad to see that the introduction of Clause 15 on Report has at last seen the Government take the recommendations of the Parliamentary Commission on Banking Standards seriously in this matter and introduce these amendments that capture most, though not all, of the recommendations. What we have left, as the noble Lord, Lord Turnbull, has pointed out, is something of a tripartite muddle because we now have three different regimes affecting persons working within banks. I am afraid that this is characteristic of so many parts of this Bill and will need to be sorted out in future.

I would like to ask some questions about Clause 17 which, as was pointed out, brings branches into part of this aspect of regulation. As the House will be aware, in recent months the Prime Minister has significantly weakened Britain’s regulatory protections of its banking system by encouraging the establishment of branches in this country. Previously, the regulatory authorities had strongly discouraged this because they are not then regulated by British regulators but by their home regulator. The Prime Minister has chosen to weaken this protection particularly by encouraging the establishment of Chinese branch banks, which will be regulated by the Chinese authorities.

However, what is particularly interesting about Clause 17 is that it brings some branches possibly within some British regulatory ambit. I say possibly because according to this clause the Treasury may by order provide that authorised persons falling within any of the descriptions are relevant authorised persons. Relevant authorised persons, for those who have not participated in these debates before, are actually banks. The Treasury can choose which branches will be brought into the ambit. It is enormously important that the branches should be. The noble Lord, Lord Newby, was absolutely right in this respect. I hope the Prime Minister will not undermine this legislation by instructing the Treasury to exclude particular branches, perhaps those emanating from Chinese banks, from this regulation.

[Lord Newby]

My Lords, I am very grateful to noble Lords for the general welcome that they have given these provisions. I have some sympathy with the noble Lord, Lord Turnbull, and the tripartite system of regulation which we now find ourselves with but the approved persons regime is still needed, in our view, not least for people responsible for money-laundering. At some point we may want to see whether it is possible to rationalise all these provisions but I do not think at this stage it would be sensible to attempt it.

The noble Lord, Lord Flight, asked about banks in Crown dependencies and referred to the discussions that he had with the Financial Secretary on this. I will take his concerns back to the Financial Secretary and ensure that we bring some clarity to these discussions so that people in the Crown dependencies and banks can be clear of their position.

The noble Lord, Lord Brennan, asked about the role of directors and responsibility for the enforcement of the standard. One of the key things we are trying to achieve here is to put the responsibility on the banks to ensure that their staff on appointment have and continue to follow adequate standards. The alternative is to say to the regulator, “You have a look at all these people and make sure that they are behaving in a responsible way and have the appropriate qualifications”. We believe that the banks should not be able to duck out of that and that it is for directors and the board to ensure that they follow the rules and do not hide behind the regulator.

The noble Lord, Lord Eatwell, asked whether it would be possible for the Treasury to choose certain categories of branches and treat them in a different way from other categories: in other words, whether it would be possible to deal with Chinese banks in a different way. Your Lordships’ House has spent many a happy hour discussing the meaning of “may”. My belief and understanding is that in the situation we are discussing “may” means that the regulators will adopt rules in respect of branches and will treat all branches equally.

[Lord Eatwell]

That is very helpful, but will the noble Lord therefore explain why proposed new Subsection (3B) begins with the word “If” rather than “When”?

[Lord Newby]

I think that is consequential on using “may”.

Amendment 9 agreed.

--- Later in debate ---

Moved by

[Lord Newby]

20: After Clause 123, insert the following new Clause—
“Duty of FCA to make rules restricting charges for high-cost short-term credit
(1) In section 137C of FSMA 2000 (FCA general rules: cost of credit and duration of credit agreements), after subsection (1) insert—
“(1A) The FCA must make rules by virtue of subsection (1)(a)(ii) and (b) in relation to one or more specified descriptions of regulated credit agreement appearing to the FCA to involve the provision of high-cost short-term credit, with a view to securing an appropriate degree of protection for borrowers against excessive charges.
(1B) Before the FCA publishes a draft of any rules to be made by virtue of subsection (1)(a)(ii) or (b), it must consult the Treasury.”
(2) In Schedule 1ZA to FSMA 2000, in paragraph 11 (FCA’s annual report), in sub-paragraph (1), after paragraph (h) insert—
“(ha) any rules that it has made as a result of section 137C during the period to which the report relates and the kinds of regulated credit agreement (within the meaning of that section) to which the rules apply,”.(3) The FCA must ensure any rules that it is required to make as a result of the amendment made by subsection (1) are made not later than 2 January 2015 and apply (at least) to agreements entered into on or after that date.”

[Lord Newby]

My Lords, I turn to the Government’s amendments on high-cost, short-term—or payday—lending. The Government are committed to action to protect borrowers from the harm that these lenders cause. We have already taken decisive action to overhaul regulation of the payday lending sector, with the Financial Conduct Authority taking on its broad new powers in relation to consumer credit from April.

The FCA has already set out tough proposals to clamp down on the key causes of consumer detriment, including capping the number of rollovers and curbing the misuse of continuous payment authorities. However, the Government have agreed to do more. We want to put an end to the unfair and extortionate cost of borrowing from payday lenders and to prevent the spiralling costs faced by those struggling to repay their loans.

There is a growing evidence base, including lessons from other countries, that a cap on the costs is the right way forward for consumers. Of course, we are not just talking about an interest rate cap, which evidence shows is likely to be far less effective. A cap should include all fees and charges which may be incurred in relation to a payday loan, including default charges and rollover fees.

FCA powers are already sufficiently broad to ensure that charges of all kinds can be covered in the cap. This Bill presents the ideal opportunity to ensure swift action to protect consumers from unfair and spiralling costs and to give the FCA a definitive parliamentary mandate to act now. That is why the Government are introducing this amendment to require the FCA to impose a cap on the cost of payday loans. Under this new duty, the FCA must use the powers given to it by the Government in the Financial Services Act 2012 in relation to such loans.

In Committee, noble Lords asked about the framework within which the cap will be designed, and I will explain a little how this amendment delivers that framework. Designing a cap on the cost of credit is not a job for government; nor is it right that the detail of a cap should be enshrined in primary legislation, given that the industry it is intended to bind is so fast-moving and innovative. That is why the cap must be set by the independent and expert regulator, which has flexible powers to ensure that the cap remains effective. The FCA must be allowed to design a cap that works in UK consumers’ interests and fits the UK market.

However, the amendment makes clear the FCA’s overarching objective in this endeavour: it must make rules to impose a cap to protect consumers from excessive charges imposed by high-cost, short-term lenders. This language echoes the FCA’s consumer protection objective. The FCA must make rules to advance one or more of its operational objectives—consumer protection, market integrity and competition. This applies to the rules to implement the cap, just as it does to all FCA rule-making. The FCA’s competition duty also applies. It must consider how the rules affect the ability of the market to serve consumers’ interests.

Introducing a cap is not without risks or potential adverse consequences, including reducing access to credit for some individuals who are in financial difficulty. The FCA will not be able to eliminate those risks but it will seek to manage them. It will be important that the FCA strikes the right balance in designing and setting the cap. That is why it must publish a cost-benefit analysis on the impact of its proposals and undertake a consultation. The amendment specifically requires that the FCA must consult the Treasury before it publishes and consults on any draft rules. To reflect the importance of keeping the rules current and effective, the FCA must report on any rules it makes under Section 137C, including rules imposing a cap on loan costs, in its annual report.

Finally, I should point out why it is not worth defining payday lending in great detail in primary legislation. Putting a narrow definition in primary legislation could lead to unintended consequences. Lenders may just try to circumvent the definition. The amendment therefore allows the FCA to specify precisely which types of high-cost, short-term loans are captured when it makes its rules to effect the cap.

I now turn to the matter of timing, which is the subject of the amendment proposed by the noble Lords, Lord Eatwell and Lord Mitchell, and the noble Baroness, Lady Grey-Thompson, which proposes to bring the timetable for implementing a cap forward to 1 October next year. I fully support the intention to bring the cap into force as soon as possible in order to protect consumers. That is precisely why the Government are taking this opportunity to bring forward legislation to require the FCA to impose a cap, so that the FCA can get on with implementation as quickly as possible. Introducing this new duty on the regulator ensures its efforts are focused on implementing the cap rather than on having to spend time and resources making the case for using its cost-capping powers in the first place.

The amendment provides a backstop date for implementation. The cap must be in place by at least 2 January 2015. Noble Lords should be in no doubt that, if the FCA can deliver sooner, it will. But there are a number of steps that must be taken before the cap is to be implemented. All of these are important. If rushed, they could put consumer protection at risk for the sake of speed. As I have already said, the risks of getting the cap wrong are also high—reducing credit for individuals or potentially pushing them into the arms of less regulated lenders.

Perhaps it would be helpful if I set out the FCA’s proposed timetable. The FCA’s current timetable for implementing a cap is ambitious but deliverable, and crucially allows the FCA to draw on the Competition Commission’s rigorous investigation of the market, which is currently underway. The FCA has already made good progress on background research on capping the cost of credit. It will start its detailed analysis phase in the new year, including drawing on the evidence the Competition Commission has already collected, through existing statutory information gateways between the two organisations, and where necessary, seeking information from firms.

The Government are bringing forward secondary legislation to allow the FCA to gather information from the industry as soon as possible to help it design the cap. The FCA will consult in the spring on its draft proposals, at around the same time as the Competition Commission is due to publish its provisional findings. It will have to publish the cost-benefit analysis when it consults. Consultation will take place over the summer, and the FCA plans to make the rules in the autumn. Again, this is likely to be around the same time as the Competition Commission’s final report. Lenders will have the rest of the year to update their systems and processes to ensure they comply with the new requirements, and the cap will come into effect at the beginning of January.

Were a 1 October implementation date adopted, the FCA would be so far out of sync with the Competition Commission’s work that it would not get the full value from the Competition Commission’s insight into the market to ensure the cap helps to secure the best outcomes for consumers. Such an early date would mean that important components of the FCA’s rule-making processes would need to be jettisoned, be that evidence-gathering in preparation of a cost-benefit analysis, consultation with interested parties on the proposals, or preparation time for the lenders to get their systems and processes in order to meet the new requirements and become responsible, compliant lenders. Noble Lords opposite may laugh at this, but if we were not proposing to do this, they would be the first to criticise the Government for not properly doing every single phase of what I have just described.

These processes are vital to ensuring that the cap works in the best interests of consumers and avoids the risks and unintended consequences I described earlier. Difficult though this choice is, the Government are not prepared to compromise the process, and I hope that noble Lords will agree. I am grateful to noble Lords for putting the spotlight on the timetable, but I hope that I have been able to persuade them that the risk to borrowers of rushing the design and implementation of a cost cap is simply too great and that the FCA is committed to implementing the cap as quickly as is reasonably possible. This, I trust, provides sufficient reassurance to convince them not to move the amendment.

I turn now to the amendment of the noble Lord, Lord Sharkey, who has spoken so passionately during the Bill about the lessons we can learn from the way in which the state of Florida has approached regulation of payday lenders. His amendment aims to ensure that the FCA must impose restrictions on the number of loans an individual may have and the times a loan may be rolled over at the same time as it makes rules imposing a cap on the cost of payday loans. The Government fully agree that regulatory action is necessary to tackle both of these issues. The FCA has already proposed to curb rollovers. The noble Lord is, I know, convinced of the need for an outright ban, as in Florida. I have considerable sympathy with that conviction, but I have not seen robust evidence to show that a ban is the right approach for UK consumers. The ability to roll over a loan—for instance, if an unexpected expense crops up one month—offers a flexibility which is valued by some consumers.

In its consultation published on 3 October, the FCA has suggested a limit of two rollovers but has specifically also sought views on permitting one rollover only. This is a significant advance on the industry’s own codes of practice—which limit rollovers to three—with which, sadly, far too few lenders comply. The consultation period has just closed and the FCA is currently considering responses. Legislating to ban rollovers now could prejudge that consultation and evidence-gathering exercise. I am sure the noble Lord will agree that the outcome should be guided by the evidence.

Of course, a cap on the cost of payday loans, which will include rollover charges, will be a key factor in undercutting lenders’ reliance on rollovers as a generator of profits. I am confident that a cap on the cost of the loan and a cap on the number of rollovers, as the FCA has proposed, should help stop the cost of rolled over loans spiralling while still meeting borrowers’ needs.

The noble Lord also proposes that the FCA must curb multiply sourced simultaneous loans. I again have great sympathy with his intention here but in this case, too, the FCA is committed to taking action. The FCA is approaching the solution differently from the noble Lord but the effect is the same. Rather than limiting irresponsible borrowing, as the noble Lord proposes—particularly as this could have the side-effect of restricting choice and flexibility for consumers who are able to repay—the FCA has focused on restrictions to tackle irresponsible lending. It has proposed to put strict new requirements on firms to undertake affordability assessments to ensure that a borrower can afford to make sustainable repayments. This will include looking at other loans a borrower has outstanding.

However, the FCA is not stopping there. The quality and value of lenders’ affordability assessments clearly relies to a significant degree on the nature of the data available on an individual’s borrowing. The Government and the FCA have real concerns that data sharing is not working to support responsible lending and consumers’ interests. The FCA has already warned the industry that it must improve and that, if it fails to improve, the regulator will take action. The FCA has committed to exploring the best way to improve data sharing and thereby lending decisions. I will ask the FCA to keep noble Lords updated on this work.

I hope the noble Lord has been reassured that the FCA is committed to taking decisive action to curb rollovers and multiply sourced simultaneous loans. It will take action as soon as it assumes its regulatory responsibilities for this sector in April, so it is not necessary to expand the FCA’s cost-capping responsibilities to include these areas. I am very grateful to him, however, for drawing these issues to the House’s attention and highlighting the lessons we, and in particular the FCA, can learn from Florida. I trust that he will feel able not to move his amendment.

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[Lord Eatwell]

My Lords, my noble friend Lord Mitchell in speaking to his amendment on the proposed date referred to 90 days. One might ask how 90 days can make a difference. Surely when the Government need something to be done they can get it done. The idea that somehow the whole process is so darn elaborate that they cannot do it in a period of time which saves 90 days on their side is, in the true meaning of the word, incredible. On the other hand, for the borrower 90 days includes Christmas Day 2014. That is a big issue, because this is the period when short-term borrowing is at its peak. That is why it is incumbent on this Government to take swift action. They have been dragging their feet on this issue for four years. It is incumbent on them to take swift action and that is why Amendment 22 is so important.

The noble Lord, Lord Sharkey, has raised a crucial and frightening point—that payday lenders within the European Economic Area could lend within the UK. I hope the Minister will be able to tell us that we are not wasting our time completely this evening—because that is what that would mean we would be doing—and that the noble Lord’s fears are unfounded.

Swift action is so important that when this amendment is called I intend to test the opinion of the House.

[Lord Newby]

My Lords, noble Lords have raised a number of issues and questions. I shall do my best to answer. The noble Baroness, Lady Oppenheim-Barnes, discussed the way in which the total cost of the loan, as opposed to the interest rate, is portrayed, and of course many people do not understand interest rates. The Government are discussing with the European Commission the relative prominence of the total cost of the loan. This discussion is taking place in the context of the Commission’s review of the consumer credit directive, so I hope we are well on top of that.

My noble friend Lord Sharkey asked a raft of questions. I hope that I managed to write them all down. He asked whether the FCA understood the particular problems of multiply sourced simultaneous loans. I can assure him that that is within its remit. My noble friend talked about rollovers and asked whether the FCA would look at one or none as part of this review. I can give him that assurance. He asked whether he could see a draft regulation in a timely manner. We will try to do that. Of course, if we are going to consult on draft regulations, things such as the odd 90 days here and there make a lot of difference. Our ability to consult properly at any point in this process requires us to follow something like the timetable that I set out earlier. He asked whether data sharing is being considered as part of the FCA’s remit. I can assure him that the FCA is looking at that.

My noble friend asked for a definition of “excessive” and why it was not in the Bill. The FCA will be looking at existing definitions of excessive, including that in Florida. Different people in different places who cap payday loans have different definitions of excessive. There is no single definition that is uniquely right. It has to be taken in the context of all the other factors and the overall design of the scheme. The FCA will be looking at international definitions as part of that work.

My noble friend asked whether there will be an opportunity and time in Parliament for debate on the publication of the draft rules. That partly goes to the speed with which we do that. If, as I set out, the FCA publishes a consultation paper by the end of May, it will be perfectly possible for Parliament to debate it. There are a number of ways in which that could be done. In your Lordships’ House, it is now very easy for individual Members to get a debate on an issue within a very few weeks, even if no other formal debate was allowed. I would be very happy to raise that issue in the usual channels. Finally, my noble friend asked whether the FCA will consider the limit to cover both the amount and the term of the loan. I can give him that assurance.

The noble Lord, Lord Higgins, asked why we do not refer to interest in the Bill. The provision covers every aspect of the cost of a payday loan, of which interest is only one part. The definition in the Bill subsumes interest.

[Lord Higgins]

Would it not be better none the less at line 9 of the amendment to say “against excessive rates of interest and charges” as the rate of interest is quantifiable whereas charges are much more amorphous?

[Lord Newby]

Charges are also quantifiable. The aim, as we have set out very clearly, is to cover all components of the total cost of the loan.

The noble Lord, Lord Higgins, asked about the high charges that high street banks sometimes impose. Issues there can be investigated by the FCA and no doubt it may well wish to do so.

The noble Lord, Lord Mitchell, asked a number of questions. I first congratulate him and my noble friend Lord Sharkey on the persistence with which they have pursued this issue, bringing before the House evidence of what is really happening in the market and helping everyone involved in the process to gain a better understanding of the scale of the problem. I can confirm that the government amendment does what it says in that the FCA will not have any option but to make rules. It has to do it. The “must” is a real “must”. In terms of the powers that the Treasury will have, the purpose here is to ensure that the Treasury has an input into the consultation and development of the policy by the FCA. However, we have been very clear that the primary responsibility must rest with one body and that the appropriate body is the FCA. I will come back to the noble Lord’s point on timing in a moment.

The noble Baroness, Lady Cohen, said that she wished that credit unions could be more like payday loan companies. I think many noble Lords would share that view but, sadly, they have some way to go before they get into that position.

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[Lord Sharkey]

Before the noble Lord sits down, perhaps I may prompt him to address the question of payday loan companies operating outside the UK but in the EEA trading in this country. Do they or do they not? Will they be subject to the cap or not?

[Lord Newby]

My Lords, this is a complicated area that we have just begun to start looking at. In order to minimise the extent to which overseas operators might be able to operate in this area, we need to take our time and do the job properly. It is another contributory argument for doing the job in a deliberative manner.

[Lord Sharkey]

My Lords, I am grateful for the answers that the Minister has given, with the possible exception of the last one. I should be grateful if, as these deliberations take place, he would consider writing to us to tell us the latest position on these people trading from outside the country in the country. If that turns out to be possible, we need a radical rethink of exactly what we are about today. Leaving that to one side, I am reassured by the answers that my noble friend the Minister has given but I particularly want to stress that absolutely critical to this working at all is a real-time database. This is not about data sharing or the old system of batch processing. It will work only if real-time data processing and real-time lending information are available to the regulator and the lending companies. I hope that as the FCA proceeds it will come to an understanding that that is absolutely the case and an absolutely necessary requirement. Having said all that, I beg leave to withdraw the amendment.

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Moved by

[Lord Newby]

23: After Clause 123, insert the following new Clause—
“Role of FCA Consumer Panel in relation to PRA
In section 1Q of FSMA 2000 (the Consumer Panel), after subsection (5) insert—“(5A) If it appears to the Consumer Panel that any matter being considered by it is relevant to the extent to which the general policies and practices of the PRA are consistent with the PRA’s general duties under sections 2B to 2H, it may communicate to the PRA any views relating to that matter.
(5B) The PRA may arrange to meet any of the FCA’s expenditure on the Consumer Panel which is attributable to the Panel’s functions under subsection (5A).””

[Lord Newby]

My Lords, I now turn to an amendment which will better position the PRA to take account of consumer interests by drawing on the views of the FCA’s Consumer Panel. This follows the debate at Lords Report stage where the noble Lord, Lord Eatwell, proposed amendments which would have created a role for the Consumer Panel by creating a duty on the PRA to consider representations made to it by the panel and to publish its responses, equivalent to the duty on the FCA.

We have considered the issues carefully, as I said we would on Report, and have proposed alternative arrangements which are more proportionate to the PRA’s prudential remit, but deliver, we believe, the essence of the noble Lord’s amendment. Our amendment will confer a role on the panel by allowing it to raise issues it is considering with the PRA; for example, through meetings or in correspondence. It will also enable the PRA to meet the expenses of the Consumer Panel when the Consumer Panel discharges this function. This will ensure that the PRA can benefit from the expertise of the panel without the undue burden on either the PRA or the Consumer Panel of a binding requirement on the PRA to consult the panel each time the PRA changes its rules or policies.

I have no doubt that this amendment, which has been welcomed and supported by the chair of the Consumer Panel, will strengthen the voice of consumers at the PRA, and I am pleased to add it to the list of improvements we have been able to make as a result of constructive debate and scrutiny in your Lordships’ House. I beg to move.

[Lord Eatwell]

My Lords, I welcome this amendment, which will add important coherence to the consideration of consumer affairs within the regulatory structure.

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Moved by

[Lord Newby]

26: After Clause 129, insert the following new Clause—
“Recovery of expenditure incurred by Office for Legal Complaints
(1) The Schedule to the Compensation Act 2006 (claims management regulations) is amended as set out in subsections (2) and (3).
(2) The provision in paragraph 7 becomes sub-paragraph (1) of that paragraph.
(3) In paragraph 7, after sub-paragraph (1) insert—
“(2) The fees that may be charged by the Regulator by virtue of sub-paragraph (1) include fees in respect of costs incurred by the Regulator for the purposes of meeting any leviable OLC expenditure.“Leviable OLC expenditure” has the meaning given by section 173(7) of the Legal Services Act 2007.”
(4) The Legal Services Act 2007 is amended as set out in subsections (5) and (6).
(5) After section 174 insert—
“OLC expenditure relating to claims management services174A OLC expenditure relating to claims management services
(1) This section has effect at any time when no person is designated under section 5(1) of the Compensation Act 2006 (the Regulator in relation to claims management services).
(2) In determining the leviable OLC expenditure for the purposes of section 173, any expenditure incurred, or income received, by the OLC in connection with the exercise of its functions in relation to claims management services is to be disregarded.
(3) The Lord Chancellor may by regulations charge periodic fees for authorised persons for the purposes of meeting any costs incurred by the Lord Chancellor in respect of relevant OLC expenditure.
(4) “Relevant OLC expenditure” means the difference between—
(a) any expenditure of the OLC incurred in connection with the exercise of its functions in relation to claims management services, and(b) the aggregate of the amounts which the OLC pays into the Consolidated Fund under section 175(1)(g), (h) or (n), so far as relating to the exercise of its functions in relation to such services.(5) Regulations made under subsection (3) may, in particular—
(a) permit the charging of different fees for different cases or circumstances (which may, in particular, be defined wholly or partly by reference to turnover or other criteria relating to an authorised person’s business);(b) enable the person exercising functions of the Regulator under section 5(9) of the Compensation Act 2006 to collect fees on behalf of the Lord Chancellor;(c) specify the consequences of failure to pay fees (which may include anything which could be specified in regulations under section 9 of that Act as a consequence of a failure to pay fees charged under those regulations).(6) In this section “authorised person” and “claims management services” have the same meaning as in Part 2 of the Compensation Act 2006 (see section 4 of that Act).”
(6) In section 206 (Parliamentary control of orders and regulations), in subsection (4), after paragraph (o) insert—
“(oa) section 174A(3) (power to charge fees on persons providing claims management services);”.”

[Lord Newby]

My Lords, I turn finally to the amendments that deal with claims management companies and the Office for Legal Complaints. It is essential that a new route of redress is available to consumers who feel that they have received a poor service from those providing claims management services, commonly referred to as claims management companies, or CMCs. It is also right that the claims management industry bears the cost of providing this new route of redress. I thank the noble Baroness, Lady Hayter of Kentish Town, for raising this issue at Report stage and I am delighted that she has put her name to this amendment.

Section 161 of the Legal Services Act 2007 already makes provision for bringing complaints about regulated CMCs under the jurisdiction of the Office for Legal Complaints. Once commenced, this will give consumers greater scope for redress against regulated CMCs, including awards for financial compensation. Before Section 161 can be commenced, however, the correct mechanisms need to be put in place to ensure that the costs incurred by the OLC in relation to complaints about CMCs can be recouped. It is also necessary to ensure that these costs are borne by the claims management industry. It is right that costs associated with complaints about CMCs are paid for by the industry which creates them. It is also right to prevent the legal profession having to foot the bill for these costs or benefit from any income generated from recouping these costs.

Turning to the detail of the amendments, it is usual practice for the designated regulator to recoup the costs of redress from those it regulates. In this case, the Claims Management Regulator, or CMR, is the designated regulator. The Legal Services Board, or LSB, will then levy the regulator for the OLC’s costs and reimburse the OLC. To ensure that the Claims Management Regulator can recoup the OLC’s costs, these amendments change the Compensation Act 2006 to enable the Secretary of State to make regulations to allow the Claims Management Regulator to charge CMCs, as part of their fees, for the OLC’s costs associated with CMC complaint-handling. The Legal Services Act 2007 already provides for a levy on the Claims Management Regulator, if one is designated. This enables the LSB to levy the regulator for costs incurred by the OLC in relation to claims management costs.

That mechanism is applicable only when there is a designated person as the Claims Management Regulator. When no person is designated as the Claims Management Regulator, as is currently the case, this role falls to the Secretary of State. The mechanism does not operate in this situation as the Secretary of State cannot be levied. To address this, amendments to the 2007 Act are needed. They will change the Act to give the Lord Chancellor a new power to make regulations to allow him to recover the OLC’s costs associated with CMCs. These powers allow the Lord Chancellor to charge a periodic fee on regulated CMCs.

Finally, in this situation further amendments are needed to address cross-subsidisation. The amendments will change the levy mechanism in the Legal Services Act 2007 to ensure that the calculation of the OLC’s expenditure which is leviable on the legal profession excludes both its costs and its income in relation to CMCs.

These amendments are an important step in improving the redress system for consumers who have suffered from poor service from the claims management industry. It is right that consumers who have been treated unfairly are able to access this new route for redress through the OLC. I beg to move.

[Lord Brennan]

My Lords, these final amendments allow me to raise a point of general importance about the Bill. The amendments create yet a different and welcome addition to the commission’s original proposals.

The Bill came to this House at 30 pages long. With today’s amendments, it is going to be about 200 pages long, with about 150 clauses. I suggest to the House that it is incumbent on all of us—but on the Government, in particular—to assist public understanding of where the Bill is now at. It is going back to the Commons, where most of it will not have been debated, and the strain on people in this House over the past few weeks has been immense. Therefore, I suggest to the Government two measures that they might consider taking.

The first—although it sounds remarkable, it is of utility—is to prepare a set of Explanatory Notes on the Bill as it now is when it goes back to the Commons and when it is considered, as it will be, by the City of London in general and by the banking community and the lawyers in particular. The second point is that, from page 50 onwards, the Government’s response to the commission’s report of July 2013 very helpfully sets out 114 proposals with notes against them and proposed action. The Government have taken different positions on some of those, and there are additions to that list. It would be a great help if the list were revised, bringing it up to date to reflect what has actually happened.

I do not want to appear tedious but the fact is that this is a major Bill and we need to do everything we can to make it as well understood as it can be.