Economic Environment: Growth and Jobs

Lord Stevenson of Balmacara Excerpts

Thursday 11th July 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I declare an interest that my wife is a senior construction lawyer working on large infrastructure projects and my three children are, amazingly, involved in financial engineering, especially SME work; that may have an impact on this debate.

I thank the noble Baroness, Lady Neville-Rolfe, for securing this interesting debate. I agree with her that it is refreshing to have an opportunity to stand back from the day-to-day cut and thrust—or, at least, it should be—and talk about deeper policies and issues in principle, but somehow we have missed the opportunity of the slacker time we have in Parliament at the moment to do that. She has stepped up to the plate and I respect her for that. I also echo what the noble Baroness, Lady Fairhead, said about her contribution to British business and the way in which it has informed her debate and the discussion today.

It has been a high-quality debate but it has done more to reveal the complexity of the issues that we are trying to address—the interrelation between growth, productivity, investment and taxation, on the one hand, and, on the other, the unsatisfactory position in which we find ourselves in approaching, taxing and regulating the new digital economy and the fourth industrial revolution. It would take more than just a two-hour debate to get us further down this track, but we should start somewhere. We always need to take a first step in every journey, and we have covered a lot of ground here, which could provide some information for further work.

The context we should deal with was raised by the noble Baroness, Lady Kramer, in relation to the economy. Although it may, on a superficial level, look good, with lots of people in employment and a lot of the indicators going up, that was from a very low base and the reality is that at the lower end of the income spectrum many people are struggling to make ends meet and are not doing well out of the growth in the economy that there is.

Like my noble friends Lord Haskel and Lord Chandos, both of whose speeches opened up new light on these issues, I want to press the Minister on matters which are currently under consideration, and I hope to get some responses from him. I shall make five points. First, there should be no doubt that my party supports a market economy. We were the party that brought in the strong competition environment in the early 2000s which was the basis of much of the growth in the economy that we enjoy today. The Government have a duty to act in the stewardship role referred to by my noble friend Lord Haskel, and where there are asymmetries of information, monopolies, oligopolies or public interest concern—whether that is defence, security or the media—there is a need to create fair markets. For example, payday lenders is an area where the Government had to act because of pressure by politicians.

We need to see the Government take a position which is based on principle and reflects forward what we are trying to achieve as a country. We have before us two good opportunities for this. There is a proposal from the noble Lord, Lord Tyrie, to reform the CMA in favour of a stronger balance towards consumer interest. His recent letter to the Secretary of State was interesting as it posed this not simply as a consumer interest matter but as a way in which the CMA could modernise its activities, sharpen its approach to the imbalances and injustices it sees in the market and work forward in a way which would allow it to pack a much bigger punch in terms of the penalties it could apply. I am a little unclear about where that has got to in government circles and I would be grateful if the Minister could give us some information about that when he responds.

It seems to me that a lot of the issues we have raised today need a strong regulatory component. I am not arguing that regulation is good in itself. Indeed, rather like the noble Lord, Lord Cavendish, I am not in favour of a bonfire of regulations but of good regulation and better regulation—a phrase often used by the noble Baroness when she was a Minister. It is that regulation that has to be enforced, or it is worth nothing. The CMA is a key element of that. A shift away from a fair market model to a consumer interest model should set in train considerable changes to the way in which we operate. I would be grateful if the Minister could bring some information to us on this.

The second piece of work that is also the subject of discussions and debate between the reviewer—in this case, Sir John Kingman—and the Government is how we might reform statutory audits, particularly for public interest entities, or PIEs. That may not seem entirely relevant, but stronger identification of for whom audits are carried out and the responsibilities that will fall from a new regulator, which is likely to have higher standards and enforce bigger changes in the regulatory environment, will have an impact on business and the future of our economy. I would be grateful if the Minister could confirm where we are on that.

That leads into another, slightly smaller point, but one I shall inject into this debate. There is a focus in a lot of regulatory work in government on PIEs and less interest in how SMEs do. This point was raised by the noble Baroness, Lady Fairhead. We need to think very carefully about the role of SMEs in our economy, and I do not think overreliance on Stock Exchange rules and the way in which mergers and acquisitions and other forms of change of ownership take place through the Stock Exchange is of much benefit of SMEs. Indeed, it might be at the expense of SMEs. Much more work about the Small Business Commissioner and attempts to make sure that SMEs get a greater amount of procurement would do more in this area than any amount of regulatory activity. I hope the Government will have some plans for that that they can share with us.

The points made by noble Lords during the debate about the wider context of infrastructure work and the need for more focus on education and better educational standards, particularly in technical areas and apprenticeships, are vital to this, but the point made by noble Lord, Lord St John of Bletso, about visas and the need to make sure that we get a flow of good-quality people who can take forward investment opportunities and work in new companies is important, particularly in the context of Brexit.

We need to think again about the way tax impacts, particularly on the SME sector. This is a theme running through what I am saying. Business rates were mentioned by several noble Lords. I think the time has come for them to be an issue. The important point that has not been made is that it is interesting that the business rate element is now one of the biggest features of local government financing. That has a danger of steering the way in which we think about rates in relation to the original purpose, which was to make sure that businesses contributed to local services. If rates are being used because other money is not available, that may lead to a suboptimal solution. I would be grateful if the Minister could respond on this.

Stamp duty and VAT are also issues which need to be thought about more in the context of SMEs. I was particularly interested in the question about investment reliefs. I spent a lot of time in an earlier career trying to get EIS and VCT to work for the area I was working in, which was the film industry. I was constantly frustrated by the very narrow rules and the difficulty of trying to make anybody in the Inland Revenue realise that investment in film was not just a lovey-dovey thing but was a real thing with real returns, if you get it right, but they would not change the system, and I sympathise entirely with the points made there.

In the time we have left before Brexit, we should think a little more about the impact that tariffs and duties might have on our economy. They have virtually gone from discussions about tax-raising issues because they are no longer part of our everyday experience, but if we are to leave without a Brexit deal—or even with a deal that will involve, at some stage, responsibility for our own trade—we will have to raise the question of what tariffs and duties we will set. That is not to say that they will be good, because to a large extent they may involve extra costs for consumers who are already hard pressed, but they are a source of interesting revenue. Even on the Government’s current interim proposal, which would need to change after consultation, there are substantial tariffs in certain areas where the Government have seen fit to protect certain industries. If that is the model, it opens the door for further consideration. Will the Minister explain what work is being done on that?

This has been a good debate. I have resisted the temptation to do knockabout on politics, but I am happy to talk about that later outside the Chamber if the noble Lord wishes to do so. I have strong views on this. A lot of these issues are to do with what we as a society think about fair tax. What is a fair tax? That is a question I tried to raise when I was working in a think tank a few years ago. I got some interesting responses when I did some detailed work on this. Indeed, we summarised it in a pamphlet which was subsequently published. The first instinct is always to think about income tax, not the wider tax base. For those on the right, it is a relatively straightforward question. They broadly say that taxes should always be proportionate. There is no debate about that; that is what they come up with. Those on the left tend towards an acceptance that that is the right approach, but they would like to see redistribution as part of it. I wonder whether taxation needs a bit more thinking about in terms of that element. Redistributive taxation is always aggressively attacked by the right. That is not necessary if it is done properly and fairly. The most interesting response—I will end with this—was from the Inland Revenue. When asked a direct question, a senior official, who will not be named, said to me that a fair tax was two things at the same time. First, it was invisible—in other words, people paid it without knowing they were paying it—and, secondly, it was hugely proportionate in terms of bringing cash in. The two examples he gave were insurance premium tax—everybody has to have insurance and therefore if you charge them a little bit more on the top they do not really notice it and it brings in loads of money—and air passenger duty. Again, people who have to fly will pay it; it is a relatively small proportion but it brings in lots of money. Those are fair taxes. I leave noble Lords to think about that.

Carbon Budgets

Lord Stevenson of Balmacara Excerpts

Monday 8th July 2019 Lords Chamber

[Lord Henley]

My Lords, I assure the noble Lord that nuclear will continue to play a major part in what we are doing. He is right that it provides useful power with little carbon produced. We will continue to keep nuclear as an option, as I have made clear on a number of occasions.

[Lord Stevenson of Balmacara (Lab)]

My Lords, we welcome the Government’s commitment to reduce carbon to zero by 2050, but we lack the detail of how it will be achieved. The answers today fall into the same trap. Is it not correct that the department has already published a report that says that carbon targets will be missed in the period 2023-27, and will be even worse in 2028-32? What proposals will the Government actually bring forward?

[Lord Henley]

My Lords, we met our first two carbon budgets. We are on track to deliver over 90% of our required performance for the fourth and fifth carbon budgets. We will look at what the Committee on Climate Change recommends for the sixth in due course. I hope it sets meaningful targets that we can meet.

National Minimum Wage Naming Scheme

Lord Stevenson of Balmacara Excerpts

Wednesday 5th June 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am very grateful to the Minister for repeating the Statement. I am still a bit confused, however. He went on at length about the value the Government place on the scheme, but has it actually been suspended during this review, or not? Will he confirm, for the record, that the review the Government are carrying out is actually on the effectiveness of the naming and shaming scheme, not on the scheme itself, that the scheme has not been suspended or dropped, and that naming and shaming will continue until such time as a firm decision has been reached by the Government on the current review? Will he also confirm that, although it is true that the director of labour market enforcement called for an evaluation of the naming scheme, this was only one of 37 recommendations made in the excellent 2018 report? What is happening to the other very important recommendations, including the one to which he referred which called for greater use of, and more publicity for, prosecutions, undertakings and orders, so as to alter employers’ behaviour by raising their risk of being caught and increasing the penalties for breaching the law?

[Lord Henley]

My Lords, naming and shaming is just one of a number of different actions that can be taken, alongside self-correction by employers, the civil penalties that are available, and the criminal proceedings and resulting fines. As the noble Lord said, and as I made clear in the Statement, we will review the naming and shaming scheme and he will have to await further announcements on that. As my honourable friend Kelly Tolhurst made clear yesterday, she considers that it has been effective, but it is obviously quite a draconian measure to use against employers and we should be wary about the effect it might have on them. I think it is quite right that the Government should consider how to operate this in the future: that is what we are doing and I ask the noble Lord to be patient about this and about the other recommendations made by Sir David. In due course, announcements will be made.

--- Later in debate ---

[Lord Henley]

My Lords, I am afraid that I cannot answer the noble Countess’s question, but if I have any further information, I will certainly write to her. However, as I made clear in the Statement, we have increased the resources available to HMRC, more or less doubling them. I am told that last year it completed some 3,000 investigations and issued £17 million in financial penalties to more than 1,000 non-compliant employers. Obviously, more can be done, and we will do as much as we can to make sure that where there is legislation—which has had all-party support—it is effective with regard to the employers concerned.

[Lord Stevenson of Balmacara]

My Lords, I am a patient person, and I was glad that my patience has resulted in getting a statement out of the Minister which he was perhaps reluctant to make. His noble friend asked whether this scheme had been suspended. He ducked that question and said that it had not been suspended, but I took from him—I would be grateful if he could confirm it—that the scheme in its present form is not being used until the results of the review have been published. We do not know when that will be but we hope it will be imminent. Given that most of the 37 recommendations in the very good report we have referred to assume that the scheme will continue, are the Government really considering suspending it completely?

[Lord Henley]

I will not prejudge that review. We have made it quite clear that we believe the scheme is effective, but, as I have made clear, on occasion it can be quite a draconian power. We want to look at how the scheme works, whether it is good, and whether it is, as I put it, a useful tool to have in the box to deal with this issue.

British Steel

Lord Stevenson of Balmacara Excerpts

Wednesday 22nd May 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for repeating the Statement on British Steel made in the other place by his right honourable friend the Secretary of State for BEIS. It rather neatly demonstrates that there is a bit of a gap between what is happening in Parliament, with our discussions on Brexit, and the real world, in which our current political difficulties are causing real and lasting damage to our economy and to our country. If I may say so, the noble Lord rather gave the game away yesterday when his response to the Urgent Question on this same issue contained no information whatever about the state of play in what were ongoing negotiations with the company at the time and merely repeated the hollow sounding platitudes even he must get tired of hearing himself say about how, “Global economic conditions continue to be challenging for the industry”, and that the Government, “are working with the sector, unions and the devolved Administrations to support a sustainable, productive and modern UK steel sector”. Indeed, today’s Statement is almost a repeat of yesterday’s speech with a few added platitudes.

This is absolutely devastating news for the workers, their families and the communities who rely on British Steel directly in Scunthorpe, Skinningrove and on Teesside, and all the way through the supply chain. At least 25,000 people will have been worried sick this morning, wondering whether they will have a job this time next week and what the future holds for them. What plans do the Government have to support the 4,500 people employed directly by British Steel and the 20,000 or so employed by companies in the supply chain?

British Steel is our second-biggest steel-maker and one of only two integrated steel-making sites in the UK. It is the only UK steel plant that produces the rails we use on our tracks, providing almost all those procured by Network Rail and supplying ScotRail, TfL and Translink in Northern Ireland. It also exports a large volume of products across Europe. Surely, in any industrial strategy worth its name, British Steel would be one of the main pillars of our manufacturing capacity and the department would have detailed knowledge of its business plans, finances and operating strategy. Does the Minister agree that it seems to have been blindsided on this?

Yesterday’s UQ response was largely a rehash of an earlier Statement on how BEIS has put £120 million into the company as part of the ETS bailout. We have heard the same story again. The only question the Minister answered yesterday was the one I asked about whether the ETS bailout money would be at risk in an insolvency; he said that the money would be repaid. What due diligence did the Government carry out before agreeing that bailout? Were they really unaware that there were likely to be cash-flow problems in the company sufficient to cause it to go into administration within three weeks of this deal? Does he want to reflect on what he said yesterday?

Secondly, it is surely imperative now that the Government ensure that this business is stabilised and that confidence is given to customers, workers and businesses right across the supply chain. In this context, can the Minister tell us whether the Government have considered taking over the company? My understanding of the situation is that, given the strategic importance of the sector, this would almost certainly be allowed under state aid rules. It would be a good deal, given that it has been estimated that allowing British Steel to collapse could lead to about £2.8 billion in lost wages over a 10-year period and cost the Government about £1.1 billion in lost tax revenues and increased benefit payments.

Thirdly, it is reported that the owner, Greybull Capital, was asking the Government for a loan of £30 million, although there have also been reports that it wanted £75 million. The Minister refused to name a figure yesterday. Can he confirm today what the asks of British Steel were in the negotiations? Was it just the reported £30 million or more? Was a wider package of measures requested, including government action to support steel production? If so, why was that refused?

Finally, Greybull Capital acquired the asset now known as British Steel in 2016 for £1. It is reported that the plant returned to profitability within 100 days of that sale. Of course, the directors of Greybull Capital owe a duty of care to the company and its creditors in an insolvency. Can the Minister confirm whether it is likely that an investigation into possible wrongful or fraudulent trading under the Insolvency Act 1986 will be considered, with particular reference to the substantial management fees paid to directors since 2016, the accrued interest charged at 9% on £17 million of loans made by Greybull to the company, and the £42 million acquisition only last week of a company based in France?

[Lord Fox (LD)]

My Lords, I too thank the Minister for repeating the Statement made in the other place. Yesterday, we talked about the environment of uncertainty around Brexit, which has put pressure on this business. It certainly cannot have helped it in its struggle. I will not repeat those points today, because they have been well made.

Yesterday, the Minister stood at the Dispatch Box and metaphorically tapped his nose and said, “Wait and see”. We did not have to wait long, and what we see is really pretty terrible—for the employees and subcontractors, for Scunthorpe and the other areas in this business and, frankly, for the country. The Government can trumpet the proportion of British steel each department buys, but if this company goes down, there will be a significant lack of steel for these departments to buy.

The Minister says that the Government seek “the best possible outcome”. The best possible outcome for this business is the continuing making of steel in these furnaces. As I am sure the Minister acknowledges, the first job of the receiver is to do everything possible to keep this business going for future use. The priority is to keep the furnaces burning; once the furnaces go cold, the hope for those factories goes cold as well. Can the Minister confirm that this is the number one priority the Government have given the receiver? What other assistance will be available from the Government to keep those furnaces burning?

The Statement alludes to a sticking point around what future aid could be given and EU state aid rules, and reference was made to a letter from the accounting office. Can the Minister tell us what consultation has gone on with the European Union and the Commission, what response they have had in those discussions, who they talked to and when? I am slightly concerned that there is a level of scapegoating going on here.

As the noble Lord, Lord Stevenson, pointed out, there are a number of questions around Greybull Capital. I shall not repeat them, but there are suggestions that the private equity owner of Greybull was unwilling to play ball when it came to the amount of money required to show its commitment to this business. Perhaps the Minister would like to set the record straight on that.

Just up the road from where I live, there is an empty former My Local convenience store; some of my friends were stranded when Monarch went bust; and today, we have British Steel. What is the link? The link is that they all went down on Greybull’s watch. That might be unfortunate, it might be a coincidence, or it might be a pattern. Some would say that these kinds of businesses come with an attendant risk and that sometimes, because of that risk, they fail. But who is taking the risk? Is it Greybull, the private equity owner of this business, or is it the Government who are actually absorbing the risk? We heard yesterday and today about the £120 million granted as a bridging loan. We have heard that the negotiations to rescue this company failed. How much risk are the Swedish and Turkish owners of this private equity company prepared to take? For there to be reward, there should also be risk.

Yesterday, the Minister said that no stone would go unturned. Today, he talked about remorseless activity. Could he tell us which stones are being turned? What actions are open to the Government to make sure that they continue to make steel in those blast furnaces?

British Steel

Lord Stevenson of Balmacara Excerpts

Tuesday 21st May 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for repeating the Answer given in the other place, although it was curious because it did not seem to address any of the points that could bear on the Question which the Secretary of State was asked.

British Steel is our second biggest steel maker and one of only two integrated steel-making sites in the UK. As the only UK steel plant which produces rails used in our tracks, it provides almost all those procured by Network Rail, as well as supplying ScotRail, TfL and Translink in Northern Ireland. It also exports a large volume of products across Europe. Given these facts, your Lordships might well have expected the department to have a very detailed knowledge of the workings of British Steel, which I assume is at the heart of our industrial strategy. For instance, as we heard only last week, and in the Statement, it put £120 million into the company as part of the ETS bailout. Is that money now at risk? Are we to believe that if the company goes into administration tomorrow—as it may do—the money will not actually come back to taxpayers, as was stated? Did the Minister agree with the company’s acquisition of a company based in France, for £42 million, only last week? These things do not suggest a company in trouble, yet we hear today that it needs between £30 million and £75 million to survive.

In order to get some answers, I will ask some specific questions. How much is the company actually asking for? Press reports today range between £30 million and £75 million. What is the figure? What is the current status of the negotiations? There are rumours circulating in the press that the discussions have stalled. Have they? If the company does go into administration tomorrow, what plans do the Government have to support the 4,000 or so people employed directly and the 20,000 or so in the supply chain?

[Lord Henley]

My Lords, I do not think I can take the noble Lord very far on this. His first question was whether the ETS £120 million was at risk. I assure him that that is not the case. That was made clear by the various guarantees that my right honourable friend announced when he made the Statement on 1 May this year. I did offer to repeat that Statement in the House but that was declined. That money is secure. The noble Lord asked a number of other questions about how much British Steel was asking for and what our further plans were. As my honourable friend made clear in the Statement, it would be wrong at this stage to say much more, because detailed discussions with the company have been going on and will continue. As my honourable friend made clear, we will update the House as soon as possible and bring further information to another place and this House when it is appropriate.

Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019

Lord Stevenson of Balmacara Excerpts

Wednesday 8th May 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the content of this statutory instrument is all good stuff, in my view. Greater transparency, enhancement of shareholders’ rights to challenge around remuneration, comparators now with senior executives and average pay within organisations—I would have thought that this was something we would embrace with enthusiasm. Indeed, I hope that the UK was very much engaged in the process of encouraging the shape of this directive. However, it raises a question that I hope the Minister can answer. The directive completed its process through the European Parliament and Council two years ago. The Government expected that we would have left the European Union by this time, yet they had not taken the opportunity to bring forward this statutory instrument and these improvements. They have been forced to do so now because this directive needs to be implemented in regulation by 10 June—and we have not yet left the European Union, so that requirement remains on our shoulders.

I have heard much discussion from the Brexiteer community that Brexit will be an opportunity to set aside regulation, to reduce the burden on companies and to step away from what they consider to be a European view of director and senior executive responsibilities. Is the reason we did not see this statutory instrument earlier because the Government thought we might be able to avoid ever implementing it? I know that the Minister has praised it, but one would have thought that a Government who were enthusiastic about its content would have made sure that it was passed well before the original Brexit departure date. I hope that the Minister will address that, because it will tell us a lot about the Government’s expectation of how, in reality, they will handle regulation post any Brexit.

My second set of questions is around the parts of the directive that are not included in this statutory instrument because they are the responsibility of the Financial Conduct Authority and the Department for Work and Pensions, presumably to introduce through regulation. The Minister also mentioned the Treasury, but I noticed in the briefing we had that one series of rights is the responsibility of the Department for Business, Energy and Industrial Strategy. The other parts of the directive which are not covered by this SI are due to be transposed by 10 June 2019. Does the Minister have every expectation that that date will be met—that the FCA and the others engaged in this are on track to be able to deliver against it? What will happen with the set of shareholders’ rights that do not have to be transposed until 3 September 2020? I am not quite sure what they are, so perhaps the Minister can tell us more; I think it must be the ones that are the responsibility of BEIS. Do the Government intend to make sure that those are transposed or do they intend to discard them on the grounds that they expect that by that date we will no longer be a member of the European Union?

I hope very much that the Minister can help us through this process to enable us to understand why these regulations were not brought to us earlier to ensure that they were part of our statute book at the point of departure from the European Union. Did the Government intend to discard them if they found a way to do so, and if so, what does that tell us about their philosophy and intentions when it comes to issues such as transparency around remuneration for directors and senior executives, and the power of shareholders to be able to challenge?

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for introducing this statutory instrument. I can be relatively brief, because most of my points have already been raised by the noble Baroness, Lady Kramer, and I need only add a couple more things to them. Like her, I was caught immediately by the point at paragraph 2 of the Explanatory Memorandum which explained that this statutory instrument comes from a directive passed on 17 May 2017, and I wondered about the timescale of that.

In addition to the points she made, I point out that the department has a long and distinguished record in looking at directives and regulations that come from the European Union and has always prided itself on the quality of the material brought forward in support of the changes that it wishes to make through an SI, whether it is negative or affirmative. This SI stands out as one that has not been supported by a considerable amount of consultation and debate, and nor is there an impact statement, which I find rather surprising. Perhaps I would not go quite as far as the noble Baroness, Lady Kramer, in suggesting that there is a devilish plan here behind the work done by the department to try to avoid having to do anything in the hope that it would not be necessary because exit day would be before 10 June. Even so, the department has not covered itself in glory in the sense that, although it is true that the difference between where the UK Government have already got to with legislation and this directive is relatively small, these are not unimportant issues. If the department’s heart was in the wish to ensure that shareholders and indeed wider stakeholders had good information that allowed them to assess the performance of directors and to form a view on the effectiveness or otherwise of the company’s approach to directors’ remuneration and performance, these regulations, on the back of the directive, are in fact important. In a sense, that suggests that more work on and understanding of how boards will operate it would have been useful and helpful.

In introducing this SI, the Minister tried to paint a benign picture of how this was all happening anyway and was in line with where the Government were going. But that conceals a concern which has stemmed not just from anything heard on this side of the House but which has come from the Prime Minister, no less, who said that more has to be done to improve the way in which our limited companies system operates. There has been concern from the Bank of England about the whole question of whether tomorrow’s companies will need to be significantly different in terms of powers and responsibilities: it pointed out the much wider group of people who have an interest in the success or otherwise of a company, not just the shareholders. So there is a context here which has not been addressed by the Minister and I hope that he will comment on it.

To be more specific, we could not have reasonably expected the Government on their own to have brought forward regulations to make sure that in future we require that the remuneration of persons in the role of chief executive officer and any deputy chief executive officer must be reported, even if they are not directors. That is a major change, and it will help considerably to better inform those who judge companies.

On the question of how share-based remuneration is described, detail on vesting periods, deferral and holding periods is often lacking. In future, remuneration policy will have to indicate the duration of directors’ service contracts. Again, that will be useful. The remuneration policy must also set out the decision-making process for determination of review and implementation and all significant changes. These are important matters. They may be trivial in themselves, but, taken together, they will give much more information.

The Minister mentioned the split between fixed and variable remunerations and the question of share options. Share options have been a source of long-term concern to those interested in how companies pay their staff, particularly directors. To have that nailed down now is a really important change.

So those changes in themselves are important. The context within which this happens is of political interest. There is a question about why the regulations have been delayed so that we are doing this in a rush, and there is a worry about not having the wider context around consultation and cost, which suggests that something is not quite working here. I look forward to hearing the Minister’s response on that.

Like the noble Baroness, Lady Kramer, I am concerned about the SIs that will presumably be required from DWP on disclosure by asset managers about pension funds. This is also an area of interest, but it would be wrong if the regulations were not in place by 10 June. Can the Minister give us some information on that? Like the noble Baroness, I question how the Department for Business, Energy and Industrial Strategy will take forward the provisions requiring further facilitation of shareholders’ rights. It is a longer deadline—3 September 2020—but, again, further information would be helpful.

These matters are important. The statutory instrument is of great interest and I am happy to support it.

[Lord Henley]

My Lords, as always, I thank both noble Lords for the positive side of their contributions to this debate—but thereafter it went a bit negative. The noble Baroness, Lady Kramer, supported by the noble Lord, Lord Stevenson, seemed to imply that we had been dragged kicking and screaming into bringing the regulations to the House. I assure them that that is not the case.

We were engaged in all the activity related to the EU in developing the regulations, but, as both noble Lords will know—probably far better than me, because they have been involved in BEIS matters for longer—this goes back quite a long way. Various improvements were made in 2013 and in 2018 to company reporting. So we have done quite a lot domestically, and we were involved with the EU in bringing regulations to book which, as the noble Baroness said, were produced in 2017 but do not need to come into effect until June this year. That date we will meet, and that is why we are bringing forward the regulations at this moment.

We have been preparing for a year to implement these measures. Those preparations had to take account of the new Commission guidance on the directive published last year, in 2018, and it would not have been fair to have introduced these new EU rules on UK companies two years before other companies in the EU. It is therefore quite right that we bring them forward at this stage. They form part of the Government’s wider corporate reform package that I mentioned, part of which was implemented last year and part of which was implemented earlier.

Both noble Lords asked about other government departments and the FCA. As I said, the FCA, DWP and the Treasury have to implement other parts. The Treasury will shortly be laying draft regulations. I do not know who in this House will do it; I imagine that it will be my noble friend Lord Young, as my noble friend Lord Bates is off on one of his walks. The measures in the directive are designed to increase transparency in the work of so-called proxy advisers, who advise institutional investors on the companies in which they invest.

DWP will shortly lay draft regulations to implement new measures in the directive covering how pension fund trustees carry out their stewardship roles with investee companies. The FCA will make changes to its handbook to give effect to new obligations under the directive covering asset managers and the disclosure of related party transactions by public companies, but that obviously will not need the same parliamentary scrutiny as these regulations. My department—BEIS—will also bring forward measures. I do not know whether they will be affirmative or negative, but I will advise the House in due course. We will bring forward appropriate measures to implement the final parts so that they can be brought into effect by September 2020.

Finally, the noble Lord, Lord Stevenson, asked about an impact assessment. I think that I made it pretty clear in my opening remarks that we did not think an impact assessment necessary, which is why we consulted widely with all the appropriate bodies, individuals and other parties. As a result of their comments, I am told, we made some changes and felt that an impact assessment was not necessary.

I believe that I have answered all the questions. As I said, we were not dragged kicking and screaming into doing this; we believe that the regulations are an appropriate response from the Government, partly to meet our obligations because we are still in the EU but also as part of the wider package I talked about, which came in last year and on earlier occasions.

Corporate Governance

Lord Stevenson of Balmacara Excerpts

Monday 29th April 2019 Lords Chamber

[Lord Henley]

My Lords, I believe that I have answered his question.

[Lord Stevenson of Balmacara (Lab)]

My Lords, surely the issue here is not philosophical but political. There is a huge gap in the Government’s legislative programme at the moment and plenty of time to fill it. Since the Green Paper of 2016 the Government have been promising to do something about corporate governance but we have yet to see the detail. For example, when are we going to get the full result of the words spoken by the Prime Minister on the steps of Downing Street when she enthused about workers on boards? These things are important but they have never been acted on; it is about time that they were.

[Lord Henley]

My Lords, we have made clear our views about workers on boards. The FRC has also made clear in its revised code that it requires boards to have in place at least one director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. We do not think it is right to go ahead with what the noble Lord is suggesting, and we have made that quite clear from the start. It is a matter for companies to decide what is appropriate.

Employment: Automation

Lord Stevenson of Balmacara Excerpts

Monday 1st April 2019 Lords Chamber

[Lord Henley]

My Lords, I do not quite take the almost semi-Stalinist approach that the noble Baroness is putting forward. What I am saying is that society will change as a result of these things but the Government must also recognise that it is going to change. That is what the industrial strategy is all about, and we will go along with that.

[Lord Stevenson of Balmacara (Lab)]

My Lords, it is all very well to be optimistic, and even to be rationally optimistic, but however boring some jobs may be to those who have better and more highly paid ones, those jobs also pay wages which keep people out of poverty and ensure that families are supported. These are serious issues; we are talking about 1.5 million people losing their jobs and likely to be affected. I hope that the Government have more than some forward thinking about where they might find educational support for these people. In a practical sense, however, is it not possible that this sort of challenge—a big challenge for society as a whole—should be referred to those experts who are able to give us advice on where to go? Will the Minister suggest that this be a central issue in the work of the Centre for Data Ethics and Innovation, which has just been established?

State Aid (EU Exit) Regulations 2019

Lord Stevenson of Balmacara Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Stevenson of Balmacara]

At the end insert “but that this House regrets that the draft Regulations are not accompanied by a strategy or consultation on the use of state aid after the United Kingdom has left the European Union”.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for his introduction. He has covered the ground very admirably. I have taken the step of putting down Motions to Regret for both the State Aid (EU Exit) Regulations 2019 and for the European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019 because I wish to do two things. I want to probe a little further on the detail in the regulations and I will share with the House that my focus will be primarily on the state aid regulations rather than the structural funds arrangements. I also wish to make points on the fact that little consultation and thought has been given to how these very important schemes will be continued in the long term.

In order to help the House, I shall spend a few moments on the second of the two sets of regulations covering structural funds. The main point to make is that the Government are taking the opportunity to continue the existing funds either by paying through to the EU to continue with the existing schemes or by taking on the burden themselves. The problem is that of course the first approach is obviously right, given that these are contracts which are in place, commitments have been made, there are funding streams which are currently in process with recipients who are in urgent need of these moneys. Given that, it is right that they should be continued. However, the problem is that, as and when the Government take over responsibility for these schemes and for the payment of them, that will come under the cosh of the general economic situation at the time and the question of future budgetary opportunities for changing them. To what extent can the Government guarantee that the funding will be maintained at least at current levels and that schemes which need second and subsequent phases to complete will be considered fairly and on their merits as if the original arrangements were in place? I would be grateful for a response from the noble Lord on that point.

I turn to the state aid regulations. The issue here is the question of why it is that we are transferring across into UK legislation exactly the same procedures and processes that have existed up until now through the EU’s policy of state aid. It is fair to say—the Minister should correct me if I am wrong on this—that, prior to joining the EU in 1973 and the passing of the EU Bill and Act in 1972, there was no concept of state aid as such in the UK. The arrangements under which moneys were used to fund regional activity, to promote research and development and to provide for cultural activities were paid out of general taxation funds gathered in by the Treasury and subject to annual approval by Parliament. In a sense, are the Government trying to operate in a rather odd way in this statutory instrument in relation to others that we have considered? The general premise is that the statute book should be complete at the time we leave on a no-deal basis, assuming that we do—although I hope very much that we will not. However, given that this was not a practice before 1972 and did not exist in any form in the years before that, why are we accepting lock, stock and barrel that which is currently happening in the EU?

In order to make the point, I want to spend a bit of time on state aid and how it currently operates. I acknowledge that much of the information that I am going to share with the House is contained in an excellent pamphlet, which I recommend, that was published by the Institute for Public Policy Research in January 2019 called State Aid Rules and Brexit. The first point to make is that state aid is a portmanteau term which does not have direct legal force. It has a definition that is broadly used in the Treaty on the Functioning of the European Union, which states that state aid is any resource made available by a state,

“which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods … in so far as it affects trade between Member States”.

Two important points arise from that. It is for goods only, and it is between member states. These issues are therefore not entirely relevant to a transfer of that particular definition to the UK, where presumably we are talking about trade within the UK because we are not going to be offering state aid for trade outside the UK.

[Lord Flight (Con)]

The EU has used state aid rules effectively in order to tell the British Government what to do with regard to their enterprise investment scheme; that is not goods, it is very much a financial service.

[Lord Stevenson of Balmacara]

I am grateful to the noble Lord for the intervention. I will come on to that; I was quoting a definition only to prove that it did not actually work. He has made my point for me—perhaps I will shorten that bit of my speech. I was going on to say that the rules do not work in practice, because they have been applied to a number of very different activities.

There is a definition—it is not very clear what it means in practice—and it applies to the particular issue of competition between states, and we will not have that situation. Within this, of course, there are a number of variations, one of which we have already touched on. It is generally recognised that state aid can do more than simply reduce distortions in competition. It can enhance public welfare, address inequalities, allow for investment in research and development for which there is no direct benefit to individual companies—which is probably therefore a public good—and address inequalities across various areas and regions. These do not fit very well into the definition, yet they happen and have continued to do so. Broadly speaking, the state aid rules are not really designed to prevent states aiding the enterprises that operate within those states; they aim for state aid to be targeted. Is that one of the issues that will be carried forward in these new regulations, should they be applied and there be no deal? If that is the case, we are talking about a slightly different way in which the Government will be operating to preserve some of the elements being transferred. I could list a number of issues under which state aid has been offered that would exemplify that.

If we are going to accept that state aid has in the past been used, under the general block exemption regime, for regional aid, to help SMEs, to support research and development, to support the environment and for cultural and other reasons, we have to accept that the issues are broadly interpreted. I am anxious to get on the record whether the Government see this historical use of state aid in a European context as the basis on which future state aid arrangements will be made in this country, whether done directly by the UK or by devolved Administrations.

If you look at European spending on state aid, the UK is significantly below the median level and well below the average. It was said in the IPPR document I talked about that,

“UK spending on state aid as a percentage of GDP in 2016 was 0.36 per cent, significantly lower than the EU average (0.69 per cent) and far lower than other western European countries such as Germany (1.31 per cent), France (0.65 per cent), and Denmark (1.63 per cent)”.

State aid should presumably be appropriate to the need that has been defined, but if UK expenditure were on the same level that France spends we would be spending £6 billion more. If we were to raise it to the same level as Germany, we would be spending £19 billion more; if to the same level as Denmark, £25 billion more. These are huge sums of money, and we do not need to spend much time thinking about what would happen to that. Previously, that would have been money funded out of the European budget, in a sense, but obviously that can only come from taxation raised in member countries. If we are bringing this home and bringing back control, we will also have to think about where the resources for that would come. Is there any intention to set a budget figure for what state aid will be, going forward, if these regulations come through? Can the Minister speculate about where the indicative level of spending will be?

What happens after Brexit if we leave on a no-deal basis? Clearly, some of the issues here will work whether we leave with or without a deal. With a deal there will be implications, not just from the transition period but particularly—this is relevant to debates we had only yesterday—on the question of Northern Ireland. If we are working on a backstop arrangement, there are some specific rules, which I am sure the Minister will want to acknowledge, relating to how state aid rules will apply in Ireland, particularly with reference to differential practices across the border. Can the Minister give us some information about how that would happen? If there is no deal, we are back in WTO territory; those are the only rules that generally apply to the use of targeted financial subsidies. They are not as far-reaching or as enforceable as the EU rules, because the EU’s state aid rules come with significant penalties for those who breach them. They will place limits on government, but they are not nearly as bad, so there would be no barrier in a no-deal, WTO environment for the Government to take forward a spending programme which would encourage more spending on state aid in a way which would be helpful to their overall arrangements.

--- Later in debate ---

[Lord Henley]

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

[Lord Stevenson of Balmacara]

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

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

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

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

Amendment to the Motion withdrawn.

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

Lord Stevenson of Balmacara Excerpts

Thursday 14th March 2019 Lords Chamber

Tabled by

[Lord Stevenson of Balmacara]

At the end insert “but that this House regrets that Her Majesty’s Government has still not published plans for future post-Brexit structural or regional support arrangements for the United Kingdom, or confirmed that financial support will be at least equivalent”.

Amendment to the Motion not moved.