Competition (Amendment etc.) (EU Exit) Regulations 2019

Lord Stevenson of Balmacara Excerpts

Tuesday 4th December 2018 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, my understanding is that these draft regulations will apply only if we crash out or similar with no deal at the end of March next year. As the noble Baroness said, there are some interesting questions, to which we need answers.

I should like to get some answers from the Minister about what happens to some of the cases that are being considered at present by either the CMA or the European Commission competition authorities. Such cases run for years. They may have started now, but they certainly will not finish. Presumably anything that starts before 29 March next year will continue to some conclusion by the competition authority in the Commission. Is there a time limit on that? How will the relationships between the UK parties, if you like, and the Commission and the other parties be handled in that transition period, which may go on for a great deal longer than any transition that the Prime Minister may be negotiating? Some of these competition cases go on for years.

One case I have got slightly involved in watching is between two railway manufacturing companies, Siemens and Alstom. Siemens has its head office in Germany and Alstom has its head office in France, I think. They have been proposing a merger of all their businesses for several years now. The European Commission has got to the stage of issuing something that is not technically an opinion, but seems to me to be an opinion, which suggests that a merger would be a bad idea for competition across Europe in the whole railway sector. The companies appear to have been trying to promote the merger as a way of preventing Chinese industries taking over everything in Europe, including the UK. Both companies have subsidiaries in the UK; some make trains, some make signalling and some do other things. If that merger went ahead on the continent—in Europe—could the CMA stop a merger between their subsidiaries in this country, or vice versa? How would it work? If they wanted to merge in this country, would the CMA’s decision apply in Europe?

Presumably, if any of this is to work at all, there has to be some communication between the CMA and the European Commission’s competition department on issues such as this. I would welcome a comment from the Minister as to how that conversation—it may be only a conversation—would happen and the extent to which a decision by one party would be binding on the other. I look forward to his comments.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am very grateful to the Minister for letting me have a letter before this debate; it came in good time and was correctly addressed. I am sure he will be delighted to know that our discussion across the Dispatch Box in the Moses Room on our previous SI has borne perfect fruit, and I have enjoyed being able to get myself up to speed before dealing with the matter at hand.

I am looking forward to the Minister’s comments on the points raised by the noble Baroness, Lady Burt, and my noble friend Lord Berkeley. Between them, they have exposed some of the difficulties with this SI. Although there is very little that one would object to in what it tries to set out, it raises a number of doubts and concerns about the process that has been going on which are not entirely related to Brexit. Many of the SIs that we are seeing under the general heading of “EU exit regulations” are effectively cut-and-paste, substituting “UK and its institutions and authorities” for “EU”. But in a case such as this, which, as my noble friend says, could go on for years and may have to be transferred across and dealt with under joint arrangements, there is material that is subject to fine investigation and discussion. It affects thousands of consumers in many countries and many areas, and there are difficulties in trying to calibrate that effectively. It is not quite the same as the general ones. I just wanted to make that point.

There are general questions here as well as specific ones about the documentation, and I will cover both sets of questions as I go through it. My main concern relates to paragraphs 7.3 and 7.4 of the Explanatory Memorandum, which is otherwise very good and very clear. I thank the officials for their work on it. We miss impact statements, which are often a source of much more information about the issues before us, but in their absence the Explanatory Memorandum is very good. The first and main point here is the Government’s decision—there are other ways of dealing with this issue—to repeal Section 60 of the Competition Act, which provides that, as far as possible, the CMA and UK courts must interpret UK competition law in a manner consistent with EU competition law. There is a straightforward issue here about whether that would be appropriate in a no-deal Brexit situation. The Government could have had a number of options here, one of which would have been to be more generous in terms of the wish to see the best jurisprudence brought to bear on any cases that might be in front of the CMA. They could choose not to disallow the interpretive obligation but take it as appropriate, or some other wording. That would have been a way of ensuring that the best decisions were reached even though it might transgress a red line on the role of the courts in the EU post a no-deal Brexit.

If that is the issue, have the Government got it right by repealing Section 60 and bringing forward a modified section, Section 60A, to replace it, which provides in some detail that the competition regulators and the UK courts will continue to be bound by an obligation to ensure that there is no inconsistency with pre-exit EU competition case law but makes it impossible to bring in any jurisprudence that takes place afterwards except in limited circumstances? I am sure that Ministers have thought about this carefully and I would be grateful if the Minister would share with us a little of that thinking. It seems to me that, in an attempt to give expression to the red-line areas, they are causing what might turn out to be a legal—I am trying to think of the appropriate word—

[Lord Berkeley]

Minefield?

--- Later in debate ---

[Lord Stevenson of Balmacara]

Feast, for those who have interests in these matters. This is a bit of a dripping roast, if you do not mind me mixing my metaphors.

The point is that, in attempting to find a way of arguing that there should be no leakage of EU jurisprudence into decisions post-crash-out Brexit, the wording used—the solution mentioned in new Section 60A(7)—provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria, one of which is a post-Brexit development in EU law. However, it goes on to say that other criteria may include—these are terms used in the regulations but there is no apparent way of checking back to see what they mean in fact—differences between EU and UK markets, development in economic activity, generally accepted principles of competition analysis and the particular circumstances under consideration. Like the noble Baroness, Lady Burt, I am no lawyer, and I am not trying to pretend to be one, but that wording is very open and, presumably, will be subject to a lot of discussion and debate.

Those criteria are wide-ranging and broadly expressed and their interpretation is likely to be the subject of considerable debate in many quarters up and down the land. My point is narrow in the sense that the Explanatory Memorandum is perhaps, as I hope the Minister will agree, somewhat optimistic in stating that the provision,

“will provide UK courts and competition regulators with clarity as to how Chapters I and II are to be interpreted after exit”.

I do not think that it is clear at all. I think it is raising a huge amount of interpretative, probably good and proper, debate but it is not providing the sorts of certainty that businesses want as the transition goes ahead. I will leave that point there.

The other relevant point is that there will be transition from a system which is largely co-operative and run across national boundaries under an EU regulatory regime to one that is UK-only, based on UK legislation and UK activities, in this case by the CMA and by other regulatory bodies that have authority.

I do not want to overegg the case but the worry is whether the CMA will be properly resourced to undertake its anti-trust responsibilities as well as the responsibilities relating to the new state aid rules. The CMA itself has said that it will need to carry out a lot more work on more complex cases. It is apparently working on secondary legislation that will facilitate that, and is also increasing staff numbers. That is probably the right response to the problem—both previous speakers raised these issues—but, if that is the case, we are not seeing the last of the legislation that will relate to this. Presumably, we are being promised further secondary legislation to tie up some of the issues that the CMA may wish to raise on its own. Therefore, we are not doing the cut-and-paste job that I criticised the Government for doing. Will the Minister confirm that that is the case? If so, what is the likely timetable and change that we can expect? In particular, will there be more statutory instruments on this set of laws before we reach exit day? It would be nice to know if that is to happen.

My other points are relatively minor. They also relate to the Explanatory Memorandum, in particular, the question raised in paragraph 7.7. There is a slightly convoluted expression of how timetables work on transitions. It states:

“For the purposes of calculating the limitation period to bring these claims in respect of a case which the European Commission has not concluded before exit day, the period before exit during which the European Commission was investigating will not be counted when calculating whether the time period to bring a standalone claim has expired”.


That may make sense in the real world, but I could not understand it. Can the Minister explain it to me from the Dispatch Box or, if necessary, write to me, so we can be clear?

The point here is that there are implied restricted timetables for people who want to make claims in any case over which the UK authorities have control. How do they fit in to where we will have got to on exit day in relation to claims being held under the European Commission? Is there an issue there which we should be aware of? There may not be, but I should like that confirmed.

The Minister spent a lot of time on the block exemption regulations. I do not have much to say on that. It is a difficult area of law because of its subjective nature, but there is another issue about timescale in paragraph 7.18. I do not want to go into detail about it now, but again, if the Minister could write to me about it, I should be very satisfied.

Finally—this is a particularly narrow point—paragraph 7.21 states that the regulations amend secondary legislation related to the Enterprise Act, as the Minister said. It states:

“These changes include amending the definition of insurance undertaking and financial institution so that the statute book is functional after exit”.


I have no complaint about that. But it continues:

“These amended definitions correct deficiencies but do not contain any substantive changes to the definitions”.


I have read them. I do not see many changes. Perhaps the Minister could respond to that now or write to me about it. I want to be sure that the exact nature of the changes is clear and that they have been exposed in this House.

[Lord Henley]

My Lords, I thank all three speakers for their comments and questions and shall endeavour to answer as many as possible. First, I emphasise that, as with other statutory instruments that will be coming before the House, these are no-deal regulations. If there is a deal—if everything goes through—they will not be necessary. I do not know where they will sit, but they will gradually perish, die or whatever.

There will be more regulations—I am not absolutely sure whether there will be more regulations on this specific subject—and the noble Lord, Lord Stevenson, and others will be debating them with me in due course, and I am sure we will have a busy time over the coming months. I hope that we will at least get a break for Christmas.

I can assure the noble Baroness, Lady Burt, that the regulations will not affect our ability to tender for contracts. They are merely about mergers and anti-competitive behaviour. Ability to tender for contracts is a matter for debate on another day. She also asked about the impact of the regulations. I can assure her that they will have minimal impact on the taxpayer and businesses, as the changes in the instrument only remove deficiencies and enable the statute book to continue to function after exit. This statutory instrument aims to create clarity in law, which would minimise litigation risks. Most of the costs associated with the changes to the competition regime flow directly from EU exit, not from this statutory instrument. There may be some cost to business associated with familiarisation with the regulations, but that is the case with any legislation.

The noble Lord, Lord Berkeley, asked what happens to live cases at exit. In a no-deal scenario—I re-emphasise that that is what we are talking about—there would be no agreement between the UK and the EU on jurisdiction over UK aspects of live cases. This instrument does all it can unilaterally to clarify jurisdiction and provide clarity and certainty in the event of that no-deal exit. After exit, the CMA may conduct investigations into breaches of UK competition law that occurred before or after exit day, including live European Commission cases. In practice, I believe that the CMA would undertake a review to ascertain, among other things, the litigation risk and impact on UK consumers of opening an investigation. But if the European Commission has reached a decision before exit, the CMA will not have the power to open a new case.

The noble Lord also asked what would happen to live merger cases. It does all it can to clarify the jurisdiction in the event of a no-deal exit. At the point of exit, the EU merger regulation no longer applies. Consequently, if the European Commission has not issued a decision before exit, that regulation will not prevent the CMA taking jurisdiction over the UK aspects of the merger. The Government recognise the importance of continued co-operation between the CMA, the European Commission and national enforcement agencies. In a no-deal scenario, the Government would seek to establish bilateral or multilateral co-operation agreements with key member states and the European Commission as soon as possible.

The noble Lord, Lord Stevenson, also asked about changes to Section 60. There is a deficiency in the wording of the current section, because it requires UK courts and regulators to act consistently with EU law. The Government have therefore removed the section and introduced the new Section 60A. This provides that UK courts will continue to be obliged to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but allows them to depart from such pre-exit law where it is considered appropriate. That would be a matter for the CMA in the light of specified circumstances. This approach will provide continuity and consistency in the law for businesses and consumers, as pre-exit EU competition law will form the bank of case law from which courts and regulators will draw, while also allowing them to diverge from old case law where appropriate.

The noble Lord, Lord Stevenson, also asked what regard the courts would have for decisions of the European courts after our exit. The withdrawal Act is clear that the UK courts will not be bound by any judgment of the European courts after the UK exits the EU. However, it will be possible for UK courts to have regard to such judgments, so far as they are relevant to the matter before the court. The noble Lord also asked about the clarity of the wording of the new section. We believe that the changes to Sections 60 and 60A are targeted, reasonable and proportionate. They will reduce litigation risk for the CMA and provide courts and businesses with legal clarity.

The noble Lord, Lord Stevenson, also asked about resourcing for the CMA. We are confident that it will be ready for exit day and it continues to plan for such an outcome. My department continues to work with the CMA to ensure that this is the case. It will obviously represent a significant challenge but it will also be an opportunity for it. The National Audit Office reviewed the CMA’s exit planning and readiness and concluded that it has robust plans in place to take on a larger competition case load. As part of the Spring Statement, the Chief Secretary to the Treasury announced that the CMA had been allocated an additional £20.3 million in 2018-19 for competition, in preparation for the EU exit. The Treasury has received the CMA’s bid for additional funding for EU exit preparations in 2019-20. We will be announcing further details in due course.

The noble Lord also asked about the time limits in paragraph 7.7 of the Explanatory Memorandum. If the noble Lord is content, I would prefer to write to him on that matter, and obviously I will write on any other matters that I have failed to address. But I think that I have picked up most of the points.

Postal and Parcel Services (Amendment etc.) (EU Exit) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Tuesday 4th December 2018 Lords Chamber

[Baroness Burt of Solihull (LD)]

My Lords, I am grateful to the Minister for his explanation. My understanding of this piece of legislation is that it pulls us out of retained EU law that will no longer be applicable on our withdrawal from the EU if we get no deal and crash out; unfortunately the noble Lord, Lord Framlingham, who asked the “crashing out” question, is no longer in his place. Again, there is no impact assessment. I take the point that the Minister made earlier but I ask for his patience and for assurances on a couple of issues. I am sure he will be able to supply them.

My first question relates to the directives that we are rejecting which opened up the sector to competition and defined a universal postal service as a right. What will the situation be post Brexit for remote communities, for which the universal postal service is vital, even though it might not be economically viable to provide? As the Minister said, Regulation (EU) 2018/664 increases price transparency and regulatory oversight of cross-border parcel delivery services. Can the Minister explain for the ignorant what difference this is likely to make to price transparency and the prices of cross-border parcels to and from the UK?

Finally, what do the Government assess will be the effect of removing us from these EU regulations? Will our ability to send and receive parcels cross-border be affected in the future? I am not asking the Minister to look in his crystal ball here, although it would be helpful if he had one to hand, but does he think that it will be harder or easier? The Government have produced no impact assessment, but how can there be no effect of withdrawing from this legislation?

[Lord Stevenson of Balmacara (Lab)]

My Lords, again, I am very grateful to the Minister for the very full letter about this SI that I received last week. He covered all the points that he has made in his speech—and, in fact, a few more—and it was very useful in getting us ready for this debate.

However, there was one thing that I wanted to pick out relating to the Postal Services Regulations 1999, which were set to become redundant and will be revoked in full. I presume that the rationale for wishing to revoke them is that they are derived from an EU directive, I think, rather than a regulation, and they require member states to designate a national regulatory authority in the UK. In this case, Ofcom is the designated authority. The letter goes on to say that the functions of the Secretary of State and Ofcom in regulating the sector are set out in the Postal Services Acts 2000 and 2011, but I question whether the removal of the 1999 regulations, which designate Ofcom as a specific post of national regulatory authority in the UK, does not in some way discriminate against Ofcom as being the likely regulator for postal services in the UK. It is really a question of whether there will be any diminution in Ofcom’s authority as a result of this. I would be grateful for reassurance that there will be no change in substance, even though there will be a change in the legal basis on which it is appointed.

The noble Lord has spent a lot of time discussing the role of the ERGP and the future of that body with Ofcom as an attendee. It is an obvious point but attending is not the same as being a participant, and even though it is an informal body largely operating by consensus, there will still be a difference, so we will be a rule-taker and not a rule-maker in a very real sense. Again, I would like reassurance that there is no question that we will lose out in terms of how our postal services flow and our parcels are delivered in the future.

I have two further points. Like many noble Lords, I am sure, we have received a number of representations from those involved in cross-channel activities, particularly about getting access to goods and bringing them through the Channel Tunnel to make sure that markets in the UK are satisfied. Therefore, this is about inward goods but it is also about external goods. A lot of material flows out through the tunnel to other places, and a particular issue is time-sensitive goods. Is there anything that the noble Lord feels it appropriate to share with us, particularly in relation to recent comments by his colleagues in the Department for Transport about the difficulties in ensuring that goods move backwards and forwards? Would that impact on anything that these regulations should do? Time-sensitive goods are obviously the most important, such as fresh goods and other materials that need to arrive at a particular time. These will be affected by blockages and changes in the overall system. Where they are postal, additional regulatory authority and other issues may be engaged, and there may be costs involved that we are not yet aware of. I would be grateful for some comments on that.

Finally, paragraph 7.6 of the Explanatory Memorandum deals with Article 7 of the EU parcel delivery regulation. I recently saw documentation from the Institute for Government, which has been looking at the Government’s readiness for Brexit in the case of a no-deal crash out. One issue flagged as red, and therefore not ready, is parcels. Does the Minister have any information on that, given that it falls within his brief? Is there a problem here and, if so, is it something that he wishes to share with us? The Explanatory Memorandum makes the point that the EU parcel delivery regulation is largely covered by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. It goes on to say:

“Therefore, the EU Parcel Delivery Regulation will become substantially redundant following the UK’s exit from the EU”.


But “substantially redundant” is not the same as “completely redundant”. Will the Minister spell out the differences that are envisaged?

[Lord Henley]

My Lords, I thank noble Lords for their contributions to the debate. I hope I can answer the questions that have been put to me. Again, let me assure noble Lords that these amendments to primary legislation governing the postal services will have no impact whatever on the UK’s universal postal service and will preserve, as far as possible, the rights, responsibilities and protections offered by the existing system. They make only those changes necessary to ensure that the regime continues to be fully functional on exit day. As I said on previous regulations, this will increase legal clarity and be of benefit to national regulatory authorities, businesses and consumers.

The noble Baroness asked about the cost to the taxpayer. This will have minimal impact. The regulations qualified for the de minimis threshold, which means that direct impact on business or civil society organisations is less than £5 million annually, and as such a full regulatory impact assessment was not considered necessary. As I have made clear, we will continue to offer the same postal and parcel services throughout the United Kingdom as we do now, and as we do to remote communities. There will be no change in liabilities or obligations. Royal Mail will continue to deliver that universal service in line with requirements set out in domestic law.

The noble Baroness also asked what will happen as a result of revoking the cross-border parcel services regulation. Revoking that regulation will mean that the UK will not be required to share pricing information for cross-border parcel deliveries with the European Commission. Ofcom can request pricing information under the UK’s domestic provisions, which will mitigate any data gap between the UK and member states. There are also price comparison websites that provide information about prices for parcel deliveries from the UK’s service providers. Therefore, comparing prices for cross-border parcel services between the UK and EU member states will continue to be available to consumers.

The noble Lord, Lord Stevenson, asked why the Postal Services Regulations 1999 are being revoked by these regulations. The 1999 regulations designated Ofcom and the Secretary of State as our national regulatory authorities for postal services, as was a requirement of the postal services directive, and that simply no longer applies after EU exit. In any event, the functions and duties of Ofcom and the Secretary of State relating to postal services are set out in the two Acts I referred to: the Postal Services Act 2000 and the Postal Services Act 2011. There is therefore no longer a requirement to designate them as the national regulatory authority under separate regulations.

[Lord Stevenson of Balmacara]

I may not have made myself entirely clear. This may be a point that is not worth exploring further, but just to be precise, the existence of the 1999 regulations requires the Government to appoint a single national regulatory authority for post, which is Ofcom. Removing that, as is proposed in these regulations, means that in theory it is possible for the Government to appoint other regulators to take over Ofcom’s rules and functions. I wondered if that was the implication and therefore whether there was any danger to Ofcom’s position.

[Lord Henley]

There will be no change in the position. There is no hidden agenda that a shadow Ofcom will be set up or some such other body. I can give that assurance to the noble Lord.

The noble Lord was also concerned about Ofcom’s new role on the European Regulators Group on Postal Services, and whether it was now, as he put it, a rule-taker rather than a full participant. I stress that the ERGP is just an advisory body. It does not make any binding rules or take any decisions. Leaving that and merely having an observer status will not have a detrimental impact on Ofcom’s ability to participate in it or its ability to regulate the postal sector and engage with other EU regulators. As I said, Ofcom wishes to have that observer status just to ensure that it can continue to participate to the full extent necessary.

The noble Lord also asked about customs arrangements and whether they might affect the post. We will obviously be engaging with businesses about new customs arrangements if the UK leaves the European Union without an agreement. The Government have published the customs White Paper and sent out technical notices. Royal Mail is working with HMRC to ensure that it is prepared for changes so that we can continue to operate in the same way after exit.

I hope that that deals with all the questions. As I said on the earlier regulations, the regulations do not represent a policy change to the operation of postal services and they preserve, as far as possible, the rights, responsibilities and protections offered by the existing system. I commend these regulations to the House.

Textile Products (Amendment) (EU Exit) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Wednesday 21st November 2018 Grand Committee

[Lord Stevenson of Balmacara (Lab)]

My Lords, it has been an informative little debate, blessed as we are by the noble Lord, Lord Foulkes, to proceed in a relatively calm and considered way. I hope we can move smoothly to a conclusion.

The other two speakers have been supportive of the statutory instrument and I am not going to object to it either. The trouble with these things is that, however simple they appear on the surface, they raise questions in your mind. We have already heard examples of a couple of things that need to be responded to. I do not think that was done in any way to negate what is proposed, but it raises wider questions that we perhaps might return to at some future date.

I want to ask three or four questions of the Minister, and I am happy to receive the answers in writing if they are not available today. Most relate to the Explanatory Memorandum, which I thought was clear and good, and I congratulate the department on the way it has been produced.

I should just say that this is the first time I have dealt with an EU exit regulation. I think it might be sensible to lay down a few ground rules so that we can do it better as we go forward. There are several hundred still to come, or more, and, as others have said, if the department is at any point ready to define the total, that would be helpful for overall planning. For instance, I do not think it is necessary to circulate the annexe statements under the European Union (Withdrawal) Act 2018 Part 1 table of statements—a reference to that could perfectly easily be put somewhere and we could look it up for ourselves. That would save paper, complications and reading time.

Secondly, the department started—I do not know whether it is continuing—to write to Front-Bench spokespersons with details of certain SIs that were due to come forward, perhaps if there was something a bit more tricky or interesting about them. The trouble is, the letters became scattergun. I have had four. My noble friend Lord Grantchester has had six. Others may have had other numbers—I have not had time to ask round. If they are going to come at all, it would be helpful if they came to me as the leader of the group and I could disperse them. If they are not going to come, fine; that was a nice little flurry and it was very nice to get them, but the moment has passed.

My detailed points mainly concern the memorandum. Paragraph 7.6 says:

“The Textile Products Regulations provide sanctions and enforcement powers for UK market surveillance authorities (local authorities’ Trading Standards departments) to ensure compliance with the EU regulation”.


Of course, the burden here falls on trading standards departments, which, as we all know, have been suffering because of reductions in funding from local authorities. While the department, which has allocated additional responsibilities to trading standards departments, has also notionally allocated money to them, I worry that trading standards as a group is being asked to carry the burden of a lot of things which nobody has really costed or understood whether it is able to carry out the work. Have any discussions taken place with local authorities on this? For example, has a lead local authority taken responsibility for this, as is the case in some areas? Has it been discussed with the Trading Standards Institute? What is the rough estimate of the additional cost that might be involved?

The noble Lord, Lord Foulkes, mentioned paragraph 7.10 and issues around that. I have a similar point in relation to the functions of the Secretary of State. There are agencies currently in play which do work on the testing of products and related issues. Will the Office for Product Safety and Standards, which has responsibility for some of these issues, be involved in this process? The idea that the department is just going to absorb all this work seems slightly odd. Could a bit more clarity be provided on that?

The question of cost flows into the question of whether an impact statement is to be prepared. There is a general statement that if the costs are less than £5 million annually it will not be done. Changing over the whole system for all clothing manufacture in this country from one which was taking a template organised by the EU to a new one that takes its template from the UK will involve transitional costs. I would be very surprised if those were not close to £5 million. There is no particular point that I want to make here. I just wondered, as the department would have had to make a rough calculation of what the costs would be to invoke the de minimis threshold, whether the Minister might share it with us just so that we can have confidence that it is being done properly.

My other points are more generic. First, this is being done as a UK instrument and applies from its implementation date to the United Kingdom, yet there are within the United Kingdom a number of very specialist manufacturers of various textiles—I think of Harris tweed and things that relate to the particular wool that comes from Welsh sheep; Northern Ireland has its own distinctive history in linen. Why is this a reserved issue? If it is to be a reserved issue, what arrangements have been put in place to ensure that the devolved Administrations are involved in the process? The question is probably easily answered but raises a bigger point about how we might think about this in future, particularly as the Government have conceded on geographical indicators—GIs—and that therefore there will be quite a number of these, not necessarily related to textiles.

Secondly, the Explanatory Memorandum says that although no formal consultation was undertaken prior to the instrument being laid,

“discussions were held with industry experts and business representative groups”.

A little note about who was consulted and roughly on what areas would be helpful. I look forward to that confirmation from the Minister in due course.

--- Later in debate ---

[Lord Henley]

I will write in greater detail to the noble Lord, just to make sure that he is absolutely clear. In passing, on the question of correspondence, I give an assurance that from now on I will send all letters from my department on matters relating to SIs to the noble Lords, Lord Stevenson and Lord Fox: I will copy letters to one and the other. I am sorry if he has been confused: on some occasions I have written to the noble Lord and on others to the noble Lord, Lord Grantchester. I shall inform my office that in future it will be entirely himself. If the noble Lord, Lord Lennie, would like to receive those letters, I will send them to him too.

[Lord Stevenson of Balmacara]

In no sense was any blame to attach to the Minister personally: in fact, several of the ones that went to my noble friend Lord Grantchester were from his colleague Kelly Tolhurst. I got a couple from the Minister himself and my poor noble friend Lord McNicol got none.

[Lord Henley]

The poor noble Lord, Lord McNicol, got none, but I think I wrote to the noble Lord, Lord Lennie, on something. Anyway, between myself and my honourable friend Kelly Tolhurst we will look at our entire system and make sure that there is one recipient of all letters on the Official Opposition Front Bench and that similarly, the noble Lord, Lord Fox, will be a recipient of all other letters.

I move on to the question of the impact—the cost, as the noble Lord, Lord Stevenson, put it. After exit, the responsibilities for UK manufacturers or a business sourcing textile products from UK manufacturers, or importing them from outside, will remain the same; it will be the same for manufacturers. Anyone importing products from manufacturers in the UK would be putting a textile product on the market and so would become responsible for ensuring that it contains the appropriate label or marking and that it is accurate according to the retained EU regulation. The practical impact of this will be limited. I think any impact on business will fall far below £5 million annually and, as a result, we do not believe that a full impact assessment is necessary.

On exit day, UK and EU labelling laws will remain highly aligned. Textile products imported from the EU will therefore be compliant with the shared requirements and the saved EU regulation does not mandate any costly technical testing or the production of documentation as proof of compliance. Similarly, there would be no administrative costs at the border to demonstrate compliance. Many businesses already undertake compliance activities as part of their due diligence programmes. That includes asking for proof of fibre composition or procuring their own fibre composition test. As a result, it is unlikely that businesses would need to put in place additional checks to demonstrate compliance with the saved EU regulation. The Government will, in due course, provide further guidance to businesses to ensure that they have understood the requirements of the saved EU regulation.

The noble Lord, Lord Fox, asked about applications for new fibres. Businesses wishing to introduce a new textile fibre name or manufacturing tolerance will be able to make this application to the Secretary of State. The Government will, in due course, publish further guidance, including the process by which the Secretary of State will assess the various applications. Lastly, I was asked: will businesses have to apply to both the United Kingdom and the European Commission to have a new fibre name approved for both UK and EU markets? Yes, in a no-deal scenario, it will no longer be appropriate for the European Commission to approve new textile fibres which can be made available on the EU market and therefore they will have to apply to both. I hope that will not be an onerous burden.

As I said, I remain optimistic, as always, that we will reach an agreement with the European Union, but it is important and prudent to have a regulatory and legislative framework in place should we leave without a deal. That is entirely what this instrument ensures.

Artificial Intelligence (Select Committee Report)

Lord Stevenson of Balmacara Excerpts

Monday 19th November 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the committee very much for its report. From the debate today, it sounds as if it was a good event in itself. When it was meeting, I would quite often see what I now know were members of the committee in the corner discussing arcane issues about artificial intelligence. That is something you do not often find in your Lordships’ House but it was refreshing and welcome, although the technology sometimes left me a bit lost. This is a good report, with nearly 80 detailed recommendations. Such productivity is not often matched around the wider economy but obviously we can do here what others are not able to do. It demanded a high-level response from the Government but, as others have said, their response does not quite match up to the quality of the report.

I am sure I am not the only person present today who was extremely pleased when the noble Lord, Lord Clement-Jones, did a rather brilliant précis of the report in his opening speech. Obviously, as a lawyer he is used to this kind of thing—gathering together ridiculous facts, bringing them together in a convincing narrative and winning us over with the skill of his language and the brilliance of his metaphors—but I am sure the reality is that others must have experienced the report as I did. I rather struggled with it and certainly struggled with the evidence, some of which was way out of my league. But when the noble Lord finished and sat down, I felt that I had been there and owned it.

I thank all speakers who have contributed. It is interesting to note that 13 of the 20 speakers before me were not involved directly in the committee. That is unusual and worth remarking on. Normally these committee reports, good and worthy though they are, tend to be restricted to those who have been through the pain of the events and want to get it out of their system by speaking in the debate. To get so many external speakers wanting to contribute to this debate is a very good test of this report reaching out. It has generated a very good debate, one of the best of its type. Committees are the gold standard of our work, and their reports are very important. They travel out and do the job of explaining to people what we do. It is in the best traditions of the House to make sure that we issue reports and discuss them. It is good that the Government were able to respond quickly enough for the report at least to be within recent memory. Like the noble Lord, Lord Janvrin, I think it is nice to be talking about something real and not related to B-R-E-X-I-T—or not particularly.

There were many good speeches so I shall not select any to make particular points and I am not going to follow the noble Baroness, Lady Grender, in going through them. I want to mention two contributions which for me marked out this debate: my noble friends Lord Reid and Lord Browne pulled off the rather difficult trick of opening up a much wider perspective about some of the issues that were raised in the report. One of them spoke on the ethical and philosophical issue, which was very interesting and reached out to everyone here, and one of them spoke on a very pragmatic and potentially dangerous issue. Both of them were talking outside the box.

I shall very quickly cover some individual points that the Government should respond to and have not done so well in response to the report. Our whole approach to AI and our ability to make it one of our winning combinations in this country will not happen unless there is proper physical infrastructure. The report states:

“We welcome the Government’s intentions to upgrade the nation’s digital infrastructure as far as they go”.


I think that is the point. The report goes on:

“However, we are concerned that it does not have enough impetus behind it to ensure that the digital foundations of the country are in place in time to take advantage of the potential artificial intelligence offers”.


This takes us back to issues that were discussed in other places and also raises a question about the responsibility in government for this. The Government’s response, although perfectly adequate, is just a list of announcements that they have previously made about money. It does not pick up the issues that underlie what I think the report is about: we do not think hard about what is ahead of us, what facilities are going to be required for mobile, fibre to the home rather than to the cabinet, and the 5G revolution that is with us. We are not going to be ready to take advantage of any of the stuff that should be coming down the track. What are the Government doing about this? Is it not time to get away from the ridiculously unachieving universal service obligation and replace it with something that takes us to the 1-Gig economy so that we are talking about a standard which will allow those who wish to participate, whether they are SMEs or big companies, in the city or rural, to have the coverage, contention ratios and competition driving the rollout of this technology that will really make a difference? I look forward to hearing the Government’s response.

As for who drives this policy, the issue is the confusion of bodies that seem to be being set up. There is an AI council, an AI department, the Centre for Data Ethics and Innovation, the GovTech Catalyst team and the new Alan Turing Institute. I could not make out from the government response where they all sit. I think the committee was urging the Government to try to be proactive in policy to harness the potential and to mitigate the risk, but it also points out that they will not do that unless there is clearly leadership at the top. Many other noble Lords mentioned this point. If there is to be a national policy framework for AI to be in lockstep with the industrial strategy, it is surely not sufficient simply to say that we have an industrial strategy and that will do it. We are saying that AI is the key to lots of things within the industrial strategy and it needs to be given its own responsibilities and arrangements to take it forward. It is important that the Government own this as a separate part of that activity. We need to think further about which departments are involved, which Cabinet committees will be responsible for it and how the various elements between DCMS, BEIS, health and other departments are going to be handled. Where does this co-ordination take place and how will that be taken forward?

On the question of an AI code, the recommendations again are to be supported. It needs to be something that will give guidance and regulatory security to the companies that want to become involved. The debate today has highlighted the needs here. The Government’s response just states:

“There are a number of high level themes emerging around the ethical and innovative uses of data … some of which are highlighted within the Committee’s report”,


and that some of them are not very new. I do not think that is getting behind what the recommendation was trying to do, which is to say that there will be a competitive advantage for the companies involved and for the country if we have a clear statement of what is expected of them and how this will be taken forward.

Who will review the policy and how will it be done in a way which will be a feedback loop? The committee’s report states:

“For the UK to be able to realise the benefits of AI, the Government’s policies, underpinned by a co-ordinated approach, must be closely monitored and react to feedback from academia and industry where appropriate”.


I do not see where that is going to happen in the structures that are in the Government’s response. Will the Minister respond on that point in particular?

Enough people have talked about the problems about DeepMind and Google to ensure that the Government will respond on that, and I look forward to it. They are clearly examples that should send shivers through all the work that is currently going on, all the discussions we had during the passage of the Data Protection Bill and all the thinking that has been done since then about how data is to be organised and made secure, how personal data is to be protected and how the value in that data is to be unlocked in an effective and efficient way. This links into a section in the report about data trusts which was very interesting, but to which the Government’s response again did not match up. Will the Minister explain the thinking a bit more? The issues are well discussed, the balance between the practical issues and the ethics is rehearsed, but the idea that this will be a solution to all the problems that companies and individuals will have in their data being used is naive. It is very important that AI systems are trusted and used, but they will not be unless we can make sure that those who have responsibility for the data and those who own the data are able to get the satisfaction they need out of that. This goes back to discussions we had during the passage of the Data Protection Bill on whether there would be copyright in individuals’ data. I will be interested to know whether the Government have anything to say on that and on whether it is possible for an individual who has personal data to be a data controller for that. Both those solutions have a lot of advantages in relation to data trusts and how they might be used, and I will be interested to know whether there is any further information.

That links into data monopolies and who owns the data once it has been given into a system, whether or not those who have given it know that they are doing so. If that is the case, do we have the regulatory authority to make sure that the monopolies that will emerge can be controlled effectively? Others have spoken about that.

On autonomous weapons, I do not think there is anything more to say from the Dispatch Box in relation to my noble friend Lord Browne’s comments. The Government might wish to come back to this because it seriously worries a lot of people and should be dealt with.

On the related issues about the impact on the labour market and the need for much more work, I do not think the Government’s response is up to it. On the impact on social and political cohesion, there are too many issues to be raised specifically, but again, to rely on a digital charter is not going to get the answer to the questions that people have been raising here today.

Finally, there is the question of inequality. There is always concern about those who have public office and concern about that was specially brought out by the report in terms of the risk that greater societal and regional inequalities will emerge as a consequence of the operation of AI. That was not dealt with by the Government’s response.

This is a very good report and it was matched by a very good debate. There are issues that need to infuse virtually all aspects of what we do in the industrial strategy, but they go much wider than that and deal with personal and ethical issues which also have to be looked at. The Government said in their response that they broadly accept the principles in the report. The sad thing is that there are very few examples of actions that have been taken to deliver them.

Productivity: Work-related Stress

Lord Stevenson of Balmacara Excerpts

Thursday 15th November 2018 Lords Chamber

[Lord Henley]

My Lords, that is a very interesting suggestion. I cannot remember the precise details of all the recommendations in the Stevenson/Farmer report as to whether that was one of them, but it certainly recommended that large employers—organisations with more than 500 people—should take certain actions. The Government recommended applying that to employers with more than 250 people, an improvement on that figure. I will certainly take the noble Baroness’s suggestion on board and ensure that it is looked at.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I do not wish to trivialise the issue but I want to bask in the reflected glory of the name Stevenson. Unfortunately, it was nothing to do with me. I guess there must be quite a lot of stress in the party opposite in the current circumstances so I send them my best wishes at this difficult time.

Does the Minister accept that work-related stress is one of the components of job quality? On page 118 of the 254-page Industrial Strategy, the Government set out a programme of work stemming from Matthew Taylor’s review, which assessed job quality and success—including the well-being of workers and employees, which is said to be fundamental. Can he say what progress has been made on that work stream?

[Lord Henley]

My Lords, if the noble Lord can be patient, he will get a further response to the Taylor review in due course. I assure him that there is no stress in the Conservative Party or the Government at the moment.

Industrial Strategy

Lord Stevenson of Balmacara Excerpts

Wednesday 31st October 2018 Lords Chamber

[Lord Henley]

My Lords, I am afraid that I cannot give the noble Lord a precise date. I accept that it is not spring and that British Summer Time has ended. I had better say that, as the noble Lord knows, one member, the chairman, has been announced. The remaining members will be announced—dare I say it—shortly. I look forward to being able to share the names of those members with the noble Lord—in due course.

[Lord Stevenson of Balmacara (Lab)]

We have obviously stumbled into an audition for “Yes Minister”; I congratulate the noble Lord on his response. Would he agree with me that the industrial strategy has to be for the whole country? If so, why does the Cabinet sub-committee, chaired by the Prime Minister, charged with supervising the industrial strategy have no representatives from Scotland, Wales or Northern Ireland in its membership? Can he confirm that the new strategy board—or strategy council; I thought it was the strategy board—will have representation from businesses, economists and academics from every nation and region of the United Kingdom?

[Lord Henley]

My Lords, on the Cabinet committee that will be looking at this issue, the noble Lord will be well aware that many members of the Cabinet —including my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy—have responsibilities that cover the entire United Kingdom, so the whole United Kingdom is covered in that respect. On the membership of the council itself, there will be 20 members. One member has been announced; the remaining 19 will cover the entire United Kingdom, covering as many different areas as it is possible for 20 members to cover. Again, I look forward to sharing that list of members with the noble Lord and with the noble Lord, Lord Fox—in due course.

Life Sciences Industrial Strategy (Science and Technology Committee Report)

Lord Stevenson of Balmacara Excerpts

Tuesday 23rd October 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, the debate has been excellent. At times, I felt privileged to listen to those who know a considerable amount about this issue sharing with those of us with lesser knowledge and experience some of the issues they are grappling with. In some cases, the analysis and diagnoses we heard left me in awe. I am worried about how on earth the Minister will respond to the various points in the sort of detail we hope for.

My background may have been in chemistry but I am an accountant and public servant by training, so I am not up on the life sciences. The issues raised today have made me think very hard about the process under which the debate was created. We have here a very substantive report, to which others have given credit; I wish to add my praise for the 32 recommendations, the analysis and the discussion that have gone into the report, which prompted today’s debate.

The report critiques another report in turn, that of Sir John Bell, which I read and found extremely interesting, useful and informative. It generated a prompt response from the Government, which is unusual; some of the comments must have hit a few nerves because the response came back very quickly. I am not trying to be unfair but I read it as a rather defensive report; other noble Lords have picked up on the way in which it tried to swamp responses rather than argue them intellectually, which is a pity.

I am left with the fact that when the chairman introduced the report, he said that it was trying to help to move the debate forward and move the idea of a sectoral approach to the life sciences further into action. That is probably right, but his key question left me floundering a bit. Although it is referred to in the report, the question “Who’s driving the bus?” seemed to take us off on the wrong track, if you will excuse the pun. I do not think that this is about the driver; I think that it is about the bus. I will come back to that. “Why is it a bus and why is it one bus?” might have been the better question. That is where I want to go with this.

If possible, I want to stand back from the debate because passions have been ignited. People care about our NHS very strongly. It is a fantastic and wonderful organisation; anybody who has ever had anything to do with it knows that we need it here for everyone. The problem is that the concerns about the NHS as an operating activity are interfering with its ability, or our concern about its ability, to develop as a source of innovation and move forwards to the other benefits that we think should come from it. I will come back to that.

In the original Industrial Strategy from November 2017, the aim is very clear:

“We will create an economy that boosts productivity and earning power throughout the UK”.


It mentions productivity and earning power. It does not have a sectoral view; it is about generic issues. Five key policies—ideas, people, infrastructure, business environment and places—are lined up against four grand challenges to,

“put the UK at the forefront of the artificial intelligence and data revolution … maximise the advantages for UK industry from the global shift to clean growth … become a world leader in the way people, goods and services move … harness the power of innovation to help meet the needs of an ageing society”.

Where does that leave health and life sciences? I am not sure that the language is a very good match. That also got me thinking. It is important that those with expertise, knowledge and experience of issues that can be supported through policy and finance are able to create the jobs, productivity and wealth that we need as a country. Does it have to be done in one bus though? That is my question. How do the creative industries deal with the issues that are raised as generics under the industrial strategy and life sciences? The DCMS is a different department, with different thinking; we have had this discussion across the Dispatch Box in the past and it is not clear to me. What about education, one of our biggest export earners, and higher education in particular? What about health?

We do not need everybody doing the same thing to have an industrial strategy that creates an economy which boosts productivity and earning power throughout the United Kingdom. If that is true, the sector deals have to be given their own space and their own ability to move forward. The reason I have been thinking about buses is because of why we are getting so exercised about the particularities of the NHS and the problems it faces, rather than thinking about how to solve those in one way while leaving space, time and effort to ensure the developments needed in order to create the industrial strategy are given space to breathe.

To go a little deeper into why I want to take that approach, a couple of speakers from both sides of the House said that if you look at the Government’s recommendations, it is very surprising they have not taken the advice of the committee to ensure the Bell report is implemented in full. If you have a strategy and it is what the sector wants, why are you not getting behind it and pushing it forward? They have not done that. Why is the report so full about the number of committees it has set up and the additional money that has been found or reannounced? There is no analysis about those difficulties and problems. The Secretary of State’s powers are retained and not devolved in any sense. The Secretary of State might be required to give approval to certain things and is allowed to be on a committee but is not necessarily going to be giving up any power to the sector in order for it to get on and drive its own bus, as it were.

What are the problems that make the NHS so difficult and problematic? If it is a cost prevention driven organisation, why is that not being tackled? Why are we not thinking about terms of trade that would allow it to do better in terms of productivity and support? These are issues I do not see answered in the Government’s response, and they are good questions which need to be resolved. The data problem, the visa problem, the education and training problems, how we get behind an organisational structure that bumps into other parts of government are not picked up well and not resolved. My analysis maybe a bit rough, but if that is right, there are commonalities about the sector we are talking about here—health and life sciences, as well as the creative industries and others. They all have the same problems.

The sector deals need to be taken away from the direct control of BEIS. We should have the strength to look at the way in which the Government are running this area of activity. If we are going to create an economy that boosts productivity, then we need to ensure that the generic issues—visas, the need for better education and training, the support that is required through all the sectors—are dealt with properly. They should be dealt with by BEIS, but the other departments need to step up to the plate and sort out the issues specific to them.

I conclude that the industrial strategy, which is a great thing for the UK if it can be made to work, needs to be supported, but it should be very limited. I put it to the Minister that we think harder about the issues that are best done by BEIS and those that need to be devolved to other sectors. We should look at long-standing problems that affect everyone—to those already mentioned could be added housing and cultural issues. They would need to be sorted at Secretary of State level. We should also look at the way delivery happens in the sponsor department, rather than worrying about the difficulties within BEIS. In that way, we might all make progress in a number of buses delivering to appropriate destinations.

Space Policy

Lord Stevenson of Balmacara Excerpts

Wednesday 18th July 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for repeating the Statement made earlier in another place. We welcome this investment in the UK space sector. Having said that, the ink is scarcely dry on the Space Industry Act, a skeleton Act focusing, quite rightly, on important insurance concerns and on making sure that this fledgeling sector is not stifled at birth by planning issues, complaints about noise or nuisance or environmental concerns. If it is to thrive, the industry we all want to see will require a strong regulatory framework, so when will the secondary legislation that the Minister referred to be brought forward for consideration by this House?

The global space economy market is currently valued at around £160 billion and it is estimated that it will grow to nearly £400 billion by 2030. Most of the expertise and activity is based in the USA, so setting up in direct competition is certainly a bold step. We have heard today that the UK industry is worth £13.7 billion and employs 38,000 people which are big numbers. The target set out in the Statement is 10% of the global market, or £40 billion, which is a big jump. We need a bit more detail about how the Government intend that to happen. The Minister might be aware that the Government’s industrial strategy promised £1 billion of investment in space technology over four years. This announcement is significantly less than that. When do the Government expect to announce the release of further funds for developing spaceflight capabilities? Since there has been some mention of it in the Statement, when will the Government publish a sector deal for space which might also give us some of the detail of how the money is to be created and spent?

Finally, the proposed vertical spaceport site in Sutherland will be the northernmost operational spaceport in the world. As a Scot, I am all for the message this sends to the UK and to Scotland—and indeed for the support it implies for the union. As I am sure the Minister will acknowledge, however, spaceports are overwhelmingly sited near the equator. This is not just for the weather; it is where the earth’s rotational speed is highest, allowing rockets to harness an additional natural boost. There is a point about polar orbits which I recognise, but this is an outlier decision. Can the Minister confirm that the funding announced today takes into account the potential extra costs associated with this location? Can he also set out the countervailing arguments that were used in choosing this location? Linked to this, what steps are the Government taking to ensure a fair regional distribution of space sector supply chains and the associated impact this will have on good jobs in the sector across the whole of the United Kingdom?

[Baroness Randerson (LD)]

My Lords, these announcements are good news for Sutherland and Cornwall—if we have in future a space industry to use them. I am a member of the EU Sub-Committee on the Internal Market. We recently visited Harwell, which is mentioned in this Statement. The scientists working in the industry there are very concerned, rather than very excited, because they are already being squeezed out of aspects of the Galileo programme. They reported that companies and highly skilled individuals in the industry are already moving abroad and companies are planning to move abroad in the future.

There is something very Alice in Wonderland about this Statement, in that it avoids mentioning the Galileo programme. Also, of course, it avoids mentioning Horizon. There is also something rather Alice in Wonderland about the naive enthusiasm for President Trump’s promises for trade, because they have already proved a rather uncertain basis on which to predict the future. My first question to the Minister is: have the Government now received assurances from the EU that we will be able to continue in Galileo? By that—this is a key point—I mean: will we be able to be awarded contracts under the Galileo programme as well as to undertake research as part of the scheme? The scheme involves paying in and getting out as part of the research programme. As I understand it, the problem that has been raised in relation to Galileo would have an impact on our right to receive commercial contracts.

Secondly, the amounts of money in the Statement are welcome—of course they are—but this is a very expensive industry. As the noble Lord has just said, the Government have promised relatively small amounts of money here in comparison with the overall figures previously mentioned in terms of investment in the industry. So I should like to press the Minister for more detail about planned future government investment in the industry. How does that £2 billion pan out over the next few years?

Lastly, I live in Wales, and I should have liked to see Wales included in this. North Wales offered a potential site for a spaceport. That was supported by the Welsh Government and could have been a very useful partnership. Once again, the people of Wales are in a position where we have put forward a plan for large-scale investment but it has been rejected. First, it was electrification across south Wales, then it was the tidal lagoon in Swansea and now it is the spaceport. A pattern is developing here, and it is a very depressing one if you come from Wales. Why was Wales not awarded this? Was it considered as a serious contender and, if not, why was that information not given out earlier so that expectations in Wales were not raised?

Helicopters: UK Design and Manufacture

Lord Stevenson of Balmacara Excerpts

Tuesday 10th July 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Lord, Lord Ashdown, for securing this debate this afternoon. He clearly has a personal stake in this narrative, and we salute his service. I also pay tribute to the RAF on its centenary.

Others who have spoken have covered much of the ground at the centre of this debate. I come to it relatively unformed, because it is not an area of expertise for me. I spoke on bees last week; I am much happier on that aerial form, and able to contribute. I am prepared to indulge the House and go into more detail, if noble Lords would like, because it seemed to go down quite well at the time—but perhaps not. However, I would like to claim that I went to the trouble of visiting Yeovil and the area that we have been talking about to prepare for this debate, but it was because I managed to take a wrong turning last week and ended up on the M5 when I should have been on the M4. I happened to end up at a rather splendid helicopter museum, which actually was extremely useful for this debate—and I actually talked to some local people about some of the issues. So I have a little vestigial information to back up my rather narrow approach to the issue.

I have listened to what has been said, which makes a case that I want to move on to later, which will be mainly about where the industrial strategy might come to meet some of the issues that have been raised today. The noble Baroness, Lady Smith, mentioned a similar debate on this issue that was held in the other place and led by Marcus Fysh, the MP for the area. It was actually the defence spokesman who responded in that case, but today we are graced by the presence of a Minister from BEIS. That helps my argument, because I think that it will be possible therefore to pass on questions about the industrial strategy, and I hope that he will be able to bring us up to date with where we are going on that.

I suppose it was inevitable, given the former connections that have been mentioned in this debate, that it will be centred around Yeovil and the company Leonardo. However, it should not be forgotten that there are other manufacturers of helicopters in the UK; I think that all noble Lords have received a briefing from Airbus about its work. It wanted to draw attention to its design and maintenance facility in Oxford, where more than 30 design engineers are based; to work that it has been doing in RAF Shawbury; and to the £500 million a year which it invests—

[Lord Ashdown of Norton-sub-Hamdon]

I am grateful for the noble Lord’s helpful contribution, but I want to make it clear that Airbus maintains, changes and alters helicopters; it does not build them. That is a significant difference.

[Lord Stevenson of Balmacara]

I am grateful to the noble Lord for his intervention. I was going to come on to that. My first point is that we have a strong existing helicopter industry which, in part, is led by strong innovation and design. The stress is placed on trying to make sure that innovation comes on the basis of the excellence of the work that has been produced, which is something on which we should build. We need to bear in mind that, without our own helicopters, and other defence aerospace products, we will have to be in the market for others’ designs and projects. Will the industrial strategy work for this sector now and in the future? How will it actually work in relation to helicopters? Reading the industrial strategy in detail, as we have had to do for other debates, we see that there is no mention of helicopters as a particular product, or of the aerospace industry as a key area, although it is mentioned in a number of places. Yet it fits many of the main challenges, including one which is a good strand of the industrial strategy—trying to build on strong, local clusters. As we have heard today, the Yeovil area is very much a place where that is happening.

With a strong existing centre of research, innovation and excellence, what could the country do to try and make something of this for our own consumption and for exports? It is quite clear from the people I spoke to on my visit—and it has been mentioned again today—that the area itself has no problems with the activity going on there. The place obviously has a good sensibility for that, but it will not work if there is no local support. It is quite clear that the area takes great pride in the firms that work there. Everybody around there probably has friends who work in the factory or have had some experience with it. So there is more here than just helicopters. It is about what happens in an area which has a single employer, or a restricted number of them, and there are threats to that.

I will pause at this point to say that it is a little ironic that we are talking about a firm that is owned by an Italian Government-controlled firm; the Government of a fellow EU member have a controlling interest in this operation. I gathered, from talking to people, that there is a sensibility around that the company is prepared to put in more investment here and would be more prepared to do so if it was being matched by the UK Government. Again, we have a problem with what our Government often do. They try to exhort others to take up the load in terms of investment and everything else but do not seem able to do so themselves.

How do we make progress if the industrial strategy is saying that we are looking for locally based, well-constructed, good contributors to our overall economic activity, yet we are not prepared to invest directly? There are obviously other things that Governments can do. The issue, to which I hope the Minister will respond, is that there needs to be some joined-up thinking, and a clear plan for infrastructure and skills development, if we are going to get this area up to the level we want. It is about raising the competitiveness of the whole industrial environment in the south-west. It is not just about helicopters. How best do we promote innovation and train and educate in technical and other skills? How do we have a strategy that plays back to the needs of local people as well as to the economy?

We have had mention of, and I am sure the Minister will also highlight, the Government’s strategic partnering arrangement with Leonardo, which will clearly make a huge difference to how the firm can make the products of the future, such as unmanned aerial vehicles and all their potential technology spin-offs, including battery development and so on. However, there is also the question of how the Government can work with the company and others to stimulate a broader range of inward investment. The irony here is that the area around the factory is very much supported by it; it is very much a single-company town. It is clearly necessary to diversify, but how will that happen? Again, what is the role for Government? Strategic partnering is a major achievement, but it needs to be built on. However, it needs sustained wider government involvement as well as early, clear and efficient procurement decisions that will allow the company to plan properly. Without that, nothing will be successful.

The support here has to come not just from the Ministry of Defence but from BEIS and the Department for International Trade. There is a nascent iAero hub, led by the county council and the local enterprise partnership. Can the Minister indicate what level of support will be available for this from his department, and what can the Department for International Trade do? Does it have any specialists in this area that will be able to support the company as it seeks export markets?

We are all pulling together on the question of productivity—the problem that has bedevilled the UK’s industrial progress over the last 20 or 30 years. It obviously depends heavily on initial skills and on upskilling during a person’s career. There have been calls for the Government to support Yeovil as a centre of excellence area for technological skills, with an institute of technology as a first step in the provision of offers. Can the Minister confirm that this could also be considered?

Companies (Miscellaneous Reporting) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Monday 9th July 2018 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I am conscious that Members of the House want to move on to other business, so I shall concentrate on two issues in the regulations that I think warrant being brought out and receiving attention.

There is a cross-cutting concern that, in referring to directors’ reporting responsibilities in relation to engagement with and having regard to the interests of their employees, the regulations do not refer to their “workers”; they refer only to their “employees”. This is a weakness in the regulations, as they do not encompass the reality of modern employment practices and business models, explicitly referred to in the Taylor review and the impact assessment. Reporting on a company’s impact on employment should be reflective of the entire workforce and not just direct employees.

A significant minority of the UK’s workforce is now not covered by the term “employee” and there is a correlation between indirect employment and low pay and insecurity. Excluding indirectly employed workers, some of whom are the most vulnerable, from the scope of these regulations contradicts a key rationale for statutory intervention—promoting equality and fairness. It will mean that directors’ reports will present an incomplete picture of engagement with the people whose work contributes to companies’ output and value. Therefore, do the Government intend to review Section 172 of the Companies Act to allow reporting on directors’ duties to address the workforce as a whole and not restrict it to employees only?

Another element of the regulations concerns me. Regulations that require reporting on the pay ratios of CEOs’ remuneration to employees’ remuneration are to be welcomed, but there is a risk that these regulations will fall short of what is needed. Again, they refer to employees and not the whole workforce, and that could result in misleading evidence on those pay ratios. The public interest is in the gap between wider workforce pay and executive remuneration. There is a precedent: gender pay-gap reporting covers both workers and employees, not just employees.

If evidence on pay ratios is to contribute to restoring public trust in business, it is important that there is integrity around the data collected and reported. Clear audit requirements need to be put on these pay-ratio exercises, and the lessons learned from the reported gender pay gap, highlighted by the Financial Times analysis, should not be missed. The Financial Times revealed that one in 20 UK companies that has submitted gender pay-gap data to the Government has reported numbers that are statistically improbable and therefore almost certainly inaccurate. Therefore, when do the Government intend to extend pay-ratio reporting to cover both workers and employees, and how will they satisfy themselves about the quality of the data provided on these pay-ratio reports?

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am conscious that the House wants to move on but it would be wrong to pass over these regulations, because there are rather important points within them. My noble friend Lord Haskel raised a number of points about the overall shape of the Government’s response to company powers. He talked about the need to think again about the way that shareholders are always given priority and the missed opportunity to stress the importance of productivity. My noble friend Lady Drake raised a number of points about how the figures can be used in a positive way, and I want to come back to that, although I will not go through all the points in detail. In fact, a lot of them were covered by the noble Baroness, Lady Bowles, although I am afraid that she lost the House during her speech. It may be worth reading again what she said, because a lot of it was very relevant to what our future agenda needs to be.

First, I congratulate the team behind these regulations. The Explanatory Memorandum that accompanies them runs to 55 pages and is one of the best that I have seen, but I bet that very few people here have read it. They should do so because, even if they are not up to speed with the latest arithmetical terms, it will tell them about averages and means in a way that will bring home any questions that they might have had about why people use one term or another. If I may say so, it has chosen the wrong term, but has done so in a way that has allowed it to at least shine a spotlight on the difficulty of comparing, for instance, the pay of the top person in a company with the median or average or whatever other term you want to use. It points out more difficulties than it solves so it is worth reading.

Secondly, on the date of application of the regulations, some Members of the House will be aware that I have concerns about the fact that we are observing in its absence the common commencement dates for when new regulations are placed on companies and businesses. These regulations come in 21 days after they are passed and not on the common commencement dates, which are 6 April and 1 October. I am keeping a score of the Minister’s efforts in this matter. He will be delighted to know that, of the 13 regulations he has brought forward recently, his score is now 11:2, and even those two were almost cheating because one of them was done by exception and another was done a year late. Nevertheless, I appeal to him to try to up his game.

The key point is: why are the Government not doing more on Section 172(1) of the Companies Act 2006? This section requires directors to act in a way that they consider in good faith promotes the success of their company as a whole and to have regard to, among other things, the long-term consequences of their decisions and the interests of their employees. This needs to be looked at very seriously and rewritten for the 21st century. As part of that, the review should look at the issues that should be in place for all directors, whether in private or public companies, and should include matters such as late payment of suppliers, productivity and the use of powers to try to ensure that stakeholders of the company benefit from it.

Thirdly, the point has already been made that the threshold of 250 UK employees mirrors existing thresholds, but it does not make any sense for it to be limited to UK citizens only. The Government should make it clear that the intention of the legislation is for companies to report on their whole workforce. My noble friend Lady Drake asked why we are not including “workers” as well as “employees”. All employees are workers but not all workers are employees, and it is time that this was updated to reflect that. I think the Minister has already accepted that, in time, they will do that.

My final point is that, without some central registry of reports, this requirement will not be satisfactory. I hope that the Minister will take account of what I have said and perhaps write to us on the key points, in order that we might make progress today.

[Lord Henley]

My Lords, like the noble Lord, Lord Stevenson, I would like to make progress, and I suspect that the House would also—I am sure the Chamber is not as full as it is purely to listen to me wind up on this order.

I start by dealing with the noble Lord’s comments about common commencement dates; I know this is a matter of great concern to him, and I always try to comply. Wherever practical we like to follow them but, because we are proposing to introduce these significant new regulations designed to coincide with the start of the company reporting year, we felt that 1 January might be more suitable. I will allow him to continue to keep his scorecard and on those rare occasions that we diverge from the common commencement dates—although they are perhaps less rare than they might be—I will make it clear why we are doing so.

My noble friend Lady Neville-Rolfe asked whether we could have a review of some of the arrangements in five years, particularly in the light of her comments on pages 41 to 51 of the impact assessment. I give an assurance that we will do that. The success criteria include company executives focusing more on long- term performance, and the new Section 172 reporting requirement must include reporting on the impact of directors’ decision-making in the long term.

I appreciate that although the noble Lord, Lord Haskel, welcomed the regulations, he felt that they possibly should go further. He expressed concern about the reluctance, particularly of some institutional shareholders, to intervene. It is important to remember that increasing knowledge is always a benefit to any shareholders. I think that he recognised this and that shareholders were increasingly becoming more assertive in holding companies to account. They have, for example, strongly backed pay ratios and other rules introduced today. The Investment Association’s new public register of shareholder dissent, to which I referred in my opening remarks, is putting significant and welcome new pressure on companies to listen to their concerns.

The noble Baroness, Lady Drake, asked about the definitions of “employee” and whether they should also cover other workers. The regulations we are using are made under the Companies Act and, therefore, we will follow the definitions of “employee” in that Act—that is, someone employed under a contract of service with the company. Having said that, I recognise her more general concerns about the definitions of “employee”—we have discussed these matters on other occasions—given the changing nature of the workforce. The Taylor review has addressed this issue and the Government will need to respond further in the light of that and recent court decisions. However, for the moment, for these regulations it is necessary that we stick to the Companies Act definition.

As the noble Lord, Lord Stevenson, suggested, it would be right for me to write in greater detail on some of the questions put to me in the course of the debate. However, I have heard a general welcome for these regulations.