Professional Qualifications Bill [HL]

Lord Sikka Excerpts

2nd reading
Tuesday 25th May 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure and honour to join this debate, and I particularly thank the noble Baroness, Lady Bennett of Manor Castle, for raising the issues that she has.

We are all conditioned to place trust in professionals; after all, no one would willingly let an unqualified surgeon operate on them. However, there is a darker side to professional qualifications and trade in professional services, whether at home or abroad, and the mono- chromatic approach of the Bill pays little attention to that.

Professionally qualified bankers have crashed banks and the economy and are implicated in HBOS, RBS and other frauds. Professionally qualified accountants and lawyers are often the masterminds behind money laundering scams and ingenious tax avoidance schemes that plunder the public purse and condemn millions to go without decent healthcare, housing, education, pensions and social infrastructure. Professionally qualified insolvency practitioners unnecessarily prolong insolvencies to collect mega fees. Too many auditing firms, often licensed by the Institute of Chartered Accountants in England and Wales, are complicit in accounting scandals and tax avoidance. On a number of occasions, the courts have concluded that the tax avoidance schemes marketed by accounting firms are unlawful. Despite that, not a single accounting firm whose scheme has been judged to be unlawful has actually been disciplined by the ICAEW, and that is wrong. So my question is this: through this Bill, what will we actually be exporting and importing through mutual recognition of professional qualifications and work experiences?

The faith in professional qualification and regulation is double-edged; it also blocks the emergence of new professions. The Bill does not establish any universal norms or benchmarks for professional education—for example, the principle that professional qualifications must prioritise public welfare and not promote anti-social practices.

Consider the case of accounting and wealth creation. We all know wealth creation requires co-operation among a variety of stakeholders. Shareholders provide finance and get a return in the form of dividends. Employees provide brains and brawn and get a return in the form of wages and salaries. Society provides education, healthcare, security and a legal system, and gets a return in the form of taxes. However, in professional accounting education, payment of wages and taxes is considered a cost, while payment to finance capital in the form of dividend is considered a reward. The self-serving logic is that efficiency depends on cutting costs, so armies of auditing firms and accountants working in those firms are available to squeeze labour, cut wages and design tax-dodging schemes. No professional is ever hired to advise on how to reduce return-to-finance capital.

Alternatives to conventional accounting logics are available but never find their way on to the professional accounting education syllabus adopted by the ICAEW and other bodies. They continue to inculcate individuals into class warfare. This Bill does not check the worst of professional qualifications by establishing principles of good professional education.

I would welcome some clarity from the Minister about Clause 10, which is headed

“Duty of regulator to provide information to overseas regulator”,


and its link with broader regulatory issues which inevitably arise from reliance placed on professionals. Consider the case of Barings Bank, which collapsed in February 1995. Its audits were conducted by Coopers & Lybrand and Deloitte in the UK and in Singapore. The accounting qualifications of some of the Singapore staff were recognised in the UK and enabled them to become members of the UK bodies. However, this did not give the then banking regulator, the Bank of England, access to that staff and the audit firm’s working papers in Singapore. Paragraphs 15 and 153 of the Bank of England’s 1995 report titled Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings said:

“We have not been permitted access to C&L Singapore’s work papers relating to the 1994 audit of BFS [Baring Futures (Singapore) Pte Limited] or had the opportunity to interview their personnel. C&L Singapore has declined our request for access, stating that its obligation to respect its client confidentiality prevents it assisting us … We have not been permitted either access to the working papers of D&T or the opportunity to interview any of their personnel who performed the audit. We do not know what records and explanations were provided by BFS personnel to them”.


I hope that the Minister will be able to say something about the interaction between mutual recognition of qualifications and regulatory co-operation. Would a foreign national enjoying membership of a UK professional body but not resident in the UK be required to co-operate with the Financial Conduct Authority or equivalent? Under reciprocal arrangements, UK citizens would be required to co-operate with foreign regulators.

The Bill applies to 160 professions that are regulated by legislation and a network of more than 50 regulators. This multiplicity of regulators results in duplication, waste and obfuscation. For example, we have four professional accountancy bodies, known as the recognised supervisory bodies, or RSBs, dealing with external auditing. They are overseen by the Financial Reporting Council, soon to become the audit, reporting and governance authority or ARGA. However, there are five recognised qualifying bodies, the qualifications of which are recognised for auditing purposes. In addition, there are four recognised professional bodies, RPBs, dealing with around 1,300 insolvency practitioners. The Bill does not streamline the regulatory maze and says nothing about the autonomy or powers of various regulators. If a qualification is recognised by just one recognised supervisory body or recognised professional body, would others be forced to do the same? Is there a pecking order of the professional bodies? I strongly urge the Government to streamline the regulatory arrangements and eliminate the powers of all the accountancy bodies and transfer them to the FRC or its replacement, ARGA.

The 160 professions covered by the Bill need to be seen in a broader light. The reason is that each profession erects barriers to entry, which erodes competition and the quest for higher quality. For example, UK law requires that only an entity under the control of individuals licensed to carry out an audit can conduct audits, so 51% of the partners of a firm or 51% of shareholders of a company conducting the audit must hold a licence to audit. This is unlike any other market. For example, there is no requirement that a pharmaceutical business must be under the control of qualified pharmacists. The recognition of professional qualifications and the monopolies built around them prevent others, such as technology companies, from entering the audit market to facilitate much-needed change. So the recognition of professional qualifications has consequences, leading to monopolies, lack of competition and inevitable failures. The Government’s impact assessment shows no awareness of such impacts or how the social closure around predetermined qualifications facilitates failure and prevents the emergence of new professions.

The protection of the audit market also has implications for which qualifications get mutual recognition. Many IT qualifications will not be recognised, even though they are useful for audit purposes.

Mutual recognition of qualifications is part of a brain drain which encourages doctors, nurses, engineers and others to migrate from developing and emerging economies to the UK. Despite making a huge investment in social infrastructure and individuals, the home countries will not be in a position to receive the benefits of that investment. This is a huge transfer in not only skills but wealth from poorer nations to the UK. Will the Government compensate poorer countries for the loss of their wealth and human resources, and on what scale? If the UK continues to entice people from poorer countries, what incentives will it have to develop its own education and related infrastructure?

Can the Minister explain the link between mutual recognition and the Government’s immigration policy? Will anyone holding a recognised qualification get priority in securing a work permit and possible settlement in the UK, even if they earn less than £25,600 a year? Also, the Bill does not put any time limit on mutual recognition of qualifications. How will that be addressed? Will it be a once-and-for-all decision?

Finally, the Bill permits specified regulators to recognise foreign qualifications. Thus, the regulators have a clear statutory and public role. Despite this, the Bill does not place all regulators and relevant professional bodies within the framework of freedom of information legislation; these are public bodies and should be within its scope so that ordinary people can ask questions and hold the bodies to account.

[The Deputy Speaker (Baroness Fookes) (Con)]

I understand that the noble Baroness, Lady Wheatcroft, has withdrawn, so I call the noble Lord, Lord Palmer of Childs Hill.