India: Citizenship (Amendment) Act 2019

Lord Tunnicliffe Excerpts

Tuesday 25th February 2020 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, I too thank the noble Earl, Lord Sandwich, for securing this debate. The citizenship Act passed by the Indian Parliament in 2019 is a blatant attempt to further undermine persecuted Muslim minority groups, including the Ahmadiyya from Pakistan, the Rohingya from Myanmar, and the Tamils from Sri Lanka. Ultimately, it is for the Indian judiciary to determine whether the Act is constitutional, but it is important to reflect on the domestic reaction in India, as well as international criticism.

Violent demonstrations have led to deaths in Uttar Pradesh, Assam and Mangalore, with protests also in the cities of Mumbai, Delhi and Kolkata. The protests escalated to such an extent that the FCO has issued travel warnings for people visiting India’s north-east region. Is the Minister able to offer any further information as to whether this travel warning is likely to be maintained, rescinded or extended in the near future?

At an international level, the UN High Commissioner for Human Rights suggested that the Act may contravene the International Covenant on Civil and Political Rights, as well as the International Convention on the Elimination of All Forms of Racial Discrimination, both of which prohibit discrimination based on racial, ethnic or religious grounds, and both of which India is a party to. Can the Minister confirm whether the Government have made any assessment of whether the Act in question is compliant with international law?

While this Act alone gives reason to question the safeguarding of human rights under the present Administration, regrettably it comes as only a further step in Prime Minister Modi’s questionable attitude to the human rights of the Muslim population, as seen with the implementation of the National Register of Citizens and the brutal crackdown on freedom of assembly and protest. Can the Minister confirm whether the Government have made any representations to the Government of India on the latter issue?

Of course, there is also the response to the situation in Kashmir to consider. The Indian Government’s decision to withdraw Kashmir’s special status served only to increase tensions in the region, while the deployment of tens of thousands of extra troops and paramilitary police has made a peaceful solution an even more distant ambition. In the light of recent calls, does the Minister believe that there is a role for the United Nations or other independent parties to monitor and report on alleged human rights abuses, to ensure that the Kashmiri people are protected?

While the question of the Indian constitution is one for the Indian judiciary, and Kashmir is one for the people of India and Pakistan, the UK must stand firm and insist that the human rights of religious minorities cannot be infringed. It is encouraging that the Government have previously stated that these issues have been raised with the Minister of State for External Affairs, in December 2019, and with India’s High Commission in London in January 2020. But it is not enough for the Government just to whisper a quiet word in private. They must make it clear that the primacy of human rights triumphs above all else, and should the Indian Government continue with their neglect of these principles, the UK must explore further avenues to press Prime Minister Modi’s Government to protect some of the region’s most vulnerable minorities.

Facial Recognition Technology

Lord Tunnicliffe Excerpts

Wednesday 2nd October 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, surely the problem is that the law in this area is deficient. It is very difficult to balance the utility of the technology against the intrusion on personal rights. Does the Minister not agree that the debate should be held in Parliament and, to that end, that the Government should commit to bringing forward a robust legislative framework for consideration?

[Baroness Williams of Trafford]

As I said before, we must proceed very carefully with such developing technologies. It is very important that the police have clear legal frameworks within which to operate. However—not one month ago—the High Court said that there is a sufficient legal framework for police use of facial recognition technology. This consists of common-law powers, data protection and human rights legislation, and the surveillance camera code.

Customs Safety and Security Procedures (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Tuesday 26th March 2019 Lords Chamber

[Lord Purvis of Tweed]

My Lords, when the Trade Bill first came to this Chamber in September, out of interest I registered with HMRC as a small business trading with the European Union to find out what information the Government would be providing to businesses. One of the core elements was the EORI component. A business that trades either exclusively or predominantly, or indeed at all, with the European Union was told that it would be required to have an EORI number in the event of no deal. The Government have taken that position consistently over a number of months in indicating that preparations for a no-deal Brexit need to be made.

It has been fascinating to observe both the information that the Government have received and how businesses have responded. As I indicated to the Minister, the last time the Government published information about how many businesses were prepared and in a position to trade with their European counterparts the day after a no-deal Brexit, only one-sixth of British businesses were in a position to do so. That meant that five-sixths would not be able to trade legally with their counterparts in the EU 27 countries. Now, a fortnight before the revised exit day if we leave on a no-deal basis, only one-fifth of businesses can do so. Therefore, if we leave with no deal on 12 April, one-fifth of all British businesses that trade with customers in EU 27 countries are in a position to do so legally. In addition, if, as the Minister said, they are in the category of the 145,000 VAT-registered businesses, they are required to be registered with an EU 27-equivalent of HMRC in those countries.

The Government have not published data on that information. It would be very interesting to know whether they are collecting data themselves. Not only do businesses have to be registered with our regulatory body, the HMRC, but for those 145,000 businesses to pay the correct level of VAT, tariffs and customs duties, they have to be registered with the customs or VAT body of the member state concerned. This is the advice that the Government have been giving, so it would be interesting to know how many companies are in that position.

Even if we crash out on a delayed basis in a fortnight’s time, the vast majority of British businesses will not be in a position to trade legally with their European counterparts. Regardless of what the Government have been saying about the need for preparedness for a no-deal Brexit, British businesses are simply not prepared. That may be because they do not believe the Government would be so cavalier with the interests of the British economy or that, in the words of the business Minister who resigned overnight, the Government are,

“playing roulette with the lives and livelihoods of the vast majority of people in this country who are employed by or otherwise depend on businesses for their livelihood”.

Or perhaps they do not believe that the advice provided by the Government has been of a sufficient standard.

I am open-minded about which category they might be in but sympathetic to the latter because, last week, on the day the Government indicated they were open to extending Brexit day, I received an email, as a business, indicating that exit day would still be 29 March. This afternoon, as I listened to the Leader of the House speaking about the statutory instrument for extending Brexit day, I received an HMRC email indicating that the policy of the British Government was still to leave the European Union with a deal; but there was no indication of an exit day at all.

How on earth can British businesses be expected to prepare now with the Government not even indicating a firm basis on which they need to prepare? Given that having an EORI number is only one of a number of requirements on British businesses, the Government—not Parliament—are asking them to make impossible business decisions. They are asking them to take risks to plan for an eventuality that even the Government are not confident will happen. It would be helpful if the Minister, in responding to this short debate, gave an estimate of when the Government expect all British businesses to be in a position of readiness for exiting the European Union. If at the moment, a fortnight out, only a fifth of British businesses that trade with their counterparts in the European Union are prepared, when do the Government estimate that all British businesses will be in that position?

[Lord Tunnicliffe (Lab)]

I too thank the Minister for presenting these SIs. Taking them in the same order as on the Order Paper, the first one concerns customs safety and security procedures. The impact assessment says:

“The main purpose of this regulation is to enable the UK to continue to meet its safety and security obligations under the World Customs Organisation … Framework of Standards by introducing a new UK regime”.


This is the new UK regime. It introduces a safety and security declaration—in a sense, at the UK-EU border—after a six-month transition period. It also introduces an authorised economic operator programme. I could not understand whether this was an asymmetrical situation or a symmetrical one. For the six months while the UK firms do not have to make these declarations, is it possible that EU member states may require declarations from what was to have been this Friday and is now a fortnight on Friday, or do we have a reciprocal deal? The impact assessment gives a feel for the real world. It says:

“In the event of a no deal scenario, the UK will no longer be part of the EU security zone and carriers and operators will need to make safety and security declarations for goods moving between the UK and the EU. Whilst many carriers, specifically large economic operators, are experienced in transporting goods to both the EU and non-EU countries, HMRC anticipates that this will present a significant ongoing administrative burden for them, especially when submitting an ENS as it will be a new legal obligation and an additional cost to submitting a customs declaration for import purposes”.


The intention of this programme is no doubt to smooth the effects of a no-deal scenario but at best it will only reduce the chaos, and chaos there will be—at least, that is what it seems to me. However, let us look at the reason why these instruments are in front of us. Paragraph 3.1 of the Explanatory Memorandum says the reason is that the European Statutory Instruments Committee and the Secondary Legislation Scrutiny Committee both recommended that the instruments should be moved from the negative procedure,

“to the affirmative resolution procedure, as they believe the House may wish to debate the implications the safety and security requirements may have for trade across the Ireland/Northern Ireland border”.

The reference to this in the Explanatory Memorandum is:

“The amendments to the retained EU law contained in this instrument will not have effect in relation to trade in goods between Ireland and Northern Ireland. Further details on the arrangements for trade between Northern Ireland and Ireland will be published as soon as possible”.


I looked at the instrument to see how that retained law was disapplied. Almost hiding in plain sight in regulation 1(3) is this simple statement:

“They do not have effect in relation to the movement of goods between Northern Ireland and the Republic of Ireland or the reverse”.


That has a charming, heroic simplicity about it. In one line it says that a problem that completely destroyed the Prime Minister’s agreement—that is, the backstop—can be ended by that simple statement. What are the plans for the border under these circumstances? The regulation says they will be published “as soon as possible”. One would have assumed that there was a target to publish them before this Friday because it is the 29th, although we now know that exit day is possibly a fortnight later.

The question posed is the question that the best minds of Her Majesty’s Government and the EU have failed to solve: what will actually happen at that border? My understanding is that if we fall back on WTO rules, there is an obligation to impose tariffs and for these sorts of safety and security rules to be enforced. We will in fact end up with a border down the Irish Sea. Are the two parties in Northern Ireland simply going to ignore all their obligations under these various international treaties? If we have here tonight, at this late hour, a solution to the Irish border question, I would be delighted to hear it from the Minister.

[Lord Bates]

I am afraid that I will probably disappoint the noble Lord, Lord Tunnicliffe. In this context, I should say that this is certainly not an objective or outcome that we are hoping will occur; we want to leave with a deal, ideally the withdrawal agreement that has been set out. I will deal with the contributions from the noble Lords, Lord Purvis, Lord Palmer and Lord Tunnicliffe, as best I can. There will be some gaps, so I give notice that I will have to write on a couple of points.

The noble Lord, Lord Palmer, began by asking me to stress the continuity element. I am very happy to say that that is what we are seeking to do. We are simply following the same process as with the onshoring exercise to ensure that we replicate what is there at present. Continuity is the objective. I suspect that the answer to the noble Lord’s subset of questions on number, amount or size of firm is that we are providing continuity of the existing arrangements. I will not be able to answer this evening the point about the innovative idea of firms with 100 employees dividing into two to somehow get around the requirements; I will write on that point if I may.

Let me deal with the noble Lord’s other point. If the UK leaves the EU without a deal, this instrument will remove the requirement for safety and security declarations for six months. He rightly questioned what assessment we had made of this. Taking this approach, the risk to safety and security will not increase after EU exit, given that goods from the EU are not currently subject to safety and security declarations. The transitional period does not apply to non-EU traders that already comply with the current safety and security regulations. After the six-month transition, businesses will be obliged to submit safety and security declarations.

The noble Lord, Lord Purvis, asked what information the Government will provide to businesses on EORI and how to register. I take his point about the level of registrations; of course, we wish it were higher. We have tried to make it as easy as possible to register. He has had the experience of doing it. Our belief is that doing it online takes five to 10 minutes. I do not know whether that corresponds with the noble Lord’s practical experience. I have not done it, but our feeling is that it can be done relatively easily. Businesses need to be aware that it will be important for them to do that in the event of a no-deal Brexit.

[Lord Tunnicliffe]

Will the Minister flesh out the word “important”? Can businesses trade if they do not have—I cannot pronounce the damn thing—this unique identification number?

[Lord Bates]

That is the whole point. We are saying that, in the event of no deal, they would require that to trade. It is a very serious commitment. If they are above the relevant threshold, that will be a requirement.

[Lord Bates]

Clearly, that is a risk. We have put out technical notices and engaged quite significantly with industry bodies on this. We have listened to the industry, which is one of the reasons why we have taken this approach on safety and security, with the six-month transitional period. We have tried to get the information out there as much as possible. However, we are concerned about that as an eventuality and encourage businesses to register, even at this late hour.

[Lord Tunnicliffe]

I hope the Minister will forgive me for pressing this point, but there is a world of difference between being concerned, with perhaps some irritation, minor penalty or whatever, and whatever proportion you want to take—say four-fifths—of the firms that would want to trade across this border not being able to in a fortnight’s time.

[Lord Bates]

Once they became aware of that situation, if that eventuality occurred, the remedy—to get the registration—is a fairly simple and straightforward process. We would like them to do it before then. That is why we have been encouraging them to do that—but we cannot force them to at this stage.

Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Thursday 21st March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I have no issues with the first of these SIs. It is another that deals with errors and omissions; I suspect we will see quite a number of them. I do have serious concerns about the second SI, but not with its content or the fact that we need it if we are to take the step of leaving with no deal. I want to understand what happens to the financial services industry as a consequence. Perhaps the Minister can help me with this. He will know that I have been involved, from the earliest days, with the development of fintechs in the UK. An example is crowdfunders, whether they are US ones that have created a core European subsidiary in the UK, or home-grown ones, of which we have quite a few. We have been a magnet particularly for young people across Europe with a tech and finance interest to come here and start their companies. Those companies have, essentially, been pan-European from the first breath that they took. For example, under the e-commerce directive, a crowdfunder has been able to put up a project and seek investments through its online presence—the only way it exists—all across the UK plus the 27.

I understand from the SI that a crowdfunder based in the EEA will no longer be able to seek investments from UK investors unless it goes through the process of registering with the FCA and having its UK activities regulated by the FCA. I suspect that most will not bother. When you have 450 million people you can go to, going to an additional 65 million is probably not worth the effort. It is taking on the burden of an additional regulator just for a small part of the investor base you will be catching on to. If you do, you have only one regulator to deal with, and I assume that this is reciprocal. So if I am a UK-based crowdfunder, do I now have to go to the regulators in every one of the 27 and seek to become registered, certified or whatever else it is, to be able to continue to raise those funds? It is unusual for a crowdfunder based in the UK to raise most of its money in the UK. As I said, these have been pan-European from the day they took their first breath. They think that way, they are structured that way and their employees are designed in that way. Are we, in effect, hearing a death knell for crowdfunding and a whole series of related fintechs that are UK-based but have been reliant for building their investor or participant base from a pan-European, 500 million-person community? If there is this consequence then I am extremely concerned. Perhaps the Minister can explain; I may have it completely wrong.

After having some conversations I am quite concerned about a second point. Is the Minister clear that the UK companies that would find themselves trapped in this position are aware of it? Looking today at websites such as Seedrs or Crowdcube, there are hundreds of projects up on their systems seeking new investors. Those would presumably be grandfathered in this run-off programme, but dozens of new ones go up every single day. Do they understand that, in a week’s time, they may have to stop putting projects up in a way that can be accessed by a pan-European community? If not, are they in a position where they may be in breach and there may be serious repercussions as a consequence?

We are looking at an industry which many hold up as part of the fundamental future of financial services, an area the UK always considered itself a crucial leader in, and which we see as underpinning so much of our future prosperity. Can the Minister help me understand the consequences of what is about to happen?

[Lord Tunnicliffe (Lab)]

My Lords, I will speak mostly about the first SI, if only to moan a bit. Paragraph 3.6 of the Explanatory Memorandum says that the Secondary Legislation Scrutiny Committee,

“noted that the legislation proposed to be amended by the instrument includes: four Acts of Parliament; seven ‘pre-EU Exit’ statutory instruments; 12 ‘EU Exit’ statutory instruments that have been considered by the House during the last six months; and several items of retained EU legislation”.

As far as I can tell, there are 36 amendments in this SI which have no themes or interrelationship. To get a feel for how difficult it is to work on the SI, paragraph 2.6 of the Explanatory Memorandum gives up almost altogether and says:

“Part 3 also makes minor technical amendments to correct the following financial services EU exit instruments. Further information on these instruments can be found in the EMs accompanying the instruments on legislation.gov.uk”.


If I threw all that in, it would take hours. Indeed, if one devoted just 10 minutes’ attention to each amendment, it would take six hours to read the thing.

The Minister said, rather grandly, that this had been considered by the House of Commons. I too noted that fact and leapt at the Official Report to give me some help. It told me that the Commons committee sat at 6 pm —that is quite keen—but adjourned at 6.11 pm, having completed its work. Members devoted 11 minutes to this SI. I am sure that, due to their natural brilliance, they scrutinised it fully, but I am rather slower than that.

There is a real problem of how we get proper scrutiny. I sought help from the Civil Service, as one is invited to by the Explanatory Memorandum. As I understand it, the amendments fall into three groups. One group corrects errors; I would value knowing how many of the 36 are error corrections. Another group makes previous SIs compatible with those created subsequently by other departments. So we have one bit of government making SIs that create complications in another; it is a bit brave to consider creating complications in Treasury SIs.

The third group comes from a review of the previous legislation. One worries about that until turning again to the Explanatory Memorandum. The Treasury has been consistent and kept paragraphs 7.1 to 7.8 identical in all its 50 SIs. Paragraph 7.4 says that these SIs,

“are not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition to the situation”.

Therefore, I want a categorical assurance that in these 36 amendments there is no new policy. If there is new policy hidden among them, will the Minister tell me what that new policy is?

Turning to the second instrument, I found almost the opposite to the noble Baroness, Lady Kramer. Not that I am suggesting that what she said was not valid, but I thought this was a commendable Explanatory Memorandum. It is a stand-alone document that one could understand and it seemed that it was doing what the SI should do. In other words, it was dealing with inevitable consequences, so I am content with it. I think the essence of what the noble Baroness was saying is that here is yet another bad consequence of leaving the European Union, and to that extent I totally agree with her.

[Lord Bates]

I thank the noble Baroness and the noble Lord for their scrutiny and questions on these points. I shall do this in reverse order because I am waiting for a little further inspiration about fintech—it is arriving. The noble Lord, Lord Tunnicliffe, is always assiduous in these matters and drifts easily between bus operations in Northern Ireland and financial services across the European Union in his scrutiny of SIs. He raises a very serious point: the first of these documents runs to some 26 pages, and 26 pages of Explanatory Memorandum, while the second has 11 pages and 14 pages of Explanatory Memorandum, so there is an awful lot of detail.

During this process—we are now nearing the end of it—we have worked on some 52 statutory instruments and have been grateful for the way the noble Baroness and the noble Lord have engaged with us very constructively over the past four to five months. During that process, of course, there will be consequential amendments that were not foreseen, because some of the 48 affirmative statutory instruments that have gone through this House were laid after the previous ones were made, and therefore changes need to be made. We envisaged, when we began this, what we call an onshoring process to ensure seamless activity, so that there is no disruption for UK financial services. We always envisaged the need for some instrument such as this at the end that corrected any errors and dealt with consequential changes. All the amendments are being made to ensure a functioning financial services regulatory regime in the UK, in any scenario, when the UK leaves. These amendments ensure continuity and clarity.

The noble Lord asked me to make the very specific commitment that no policy changes are involved in these: that is certainly the case. To make policy changes would be in contravention of the letter and spirit of the withdrawal Act and we certainly would not do it. The approach has been consistent. He asked about the number of errors. Around eight drafting errors in previous EU exit financial services SIs are being corrected in this measure.

The noble Baroness raised some issues around fintech and I appreciate her expertise in this area. Fintech is very much a jewel in the crown of the UK. We have some of the most amazing financial services firms in fintech, including start-ups in places, such as Shoreditch, around the City of London: it is a quite incredible and burgeoning industry and certainly one that we want to see continuing to expand. UK providers of online services to the EEA countries will need to continue to comply with a range of EEA countries’ individual legal requirements relating to online activities. The exclusion we are referring to here is limited to online-only activities. We expect that firms will use passporting rights rather than this exclusion; therefore, we estimate the number of fintech firms will be very small.

Spring Statement

Lord Tunnicliffe Excerpts

Wednesday 20th March 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, the Chancellor set out to make a Spring Statement that did not constitute a fiscal event. This is a slightly strange objective for a Chancellor of the Exchequer, but one which he achieved, with the director of the Institute for Fiscal Studies commenting:

“We should not complain. One fiscal event a year is plenty”.


However, while the Chancellor may have cleared his own rather low bar, this Statement marks a missed opportunity. He did little to instil confidence in either the Government’s handling of Brexit or their claim that austerity has come to an end. As we have grown to expect, despite some limited additional funds and the launch of several consultations, he failed to tackle the big issues of the day. Like the Prime Minister, he kicked the can down the road.

Some may say that this is hardly a surprise, given that this Spring Statement was delivered against the backdrop of Brexit uncertainty. Indeed, with the House of Commons having convincingly rejected the Prime Minister’s withdrawal agreement for a second time the previous day, Mr Hammond delivered his speech to an impatient Chamber, with MPs more interested in voting to oppose a no-deal outcome.

The Chancellor was clear that the outlook for the economy was premised on an orderly Brexit. He warned that performance will meet expectations only if MPs pause, reflect and fall into line by backing Mrs May’s deal at a third time of asking—whenever that may be. To bring the point home, he threatened that this summer’s spending review could be delayed in the event of Britain crashing out without a deal in place. This is a worrying state of affairs, given the many hours spent debating statutory instruments in the name of ensuring life goes on after a no-deal Brexit.

Businesses up and down the country will have tuned in, expecting answers to the big questions. But, as has become customary under this Government, they were left with less certainty about the future rather than more. It is no secret that business confidence is low, that investment is falling and that jobs have unnecessarily been put at risk. In his speech, Mr Hammond claimed that by backing the withdrawal agreement, a “deal dividend” would bring about a,

“recovery in business confidence and investment”.—[Official Report, Commons, 13/3/19; col. 347.]

That is a clear acknowledgement of the problems the economy faces as a result of the Prime Minister’s botched negotiations.

Thanks to Mrs May’s red lines, however, and her Ministers’ failure to grip the detail of Brexit, much of the damage has already been done. Our manufacturing sector is struggling. Numerous employers, large and small, have announced job losses or relocations. Many food producers are in despair as they simply do not know whether they will be able to fill the shelves in a fortnight’s time. It is little wonder that the director-general of the Confederation of British Industry remarked that,

“this is no way to run a country”.

While the Chancellor tried his best to present the Office for Budget Responsibility’s economic outlook as a success story, the truth is that it is anything but. This Government have presided over the slowest economic recovery since the 1920s. The deficit has not been eliminated, despite the previous Chancellor promising to achieve that years ago. Real wages are still lower than they were 10 years ago and, according to the OBR:

“Average earnings growth remains below the rates typical before the financial crisis”.


Household debt is plugging the gap, with debt relative to income expected to increase over the forecast period. While the Prime Minister and Chancellor are living on borrowed time, too many households are relying on borrowed money.

Last week, the OBR revised GDP growth down to a level consistent with the European Commission’s winter forecast—the same one that suggests that the UK will languish at the very bottom of the European league table in future years, even in the event of a soft Brexit. Let us be clear: 1.2% annual growth is far below what our economy is capable of. If that is all that is realised, the Government will have failed in their duty to unlock the country’s potential.

Ministers are merely storing up problems for the future. Nowhere is this truer than in the Chancellor’s announcement of £100 million for police overtime to tackle knife crime. That amount covers just a fraction of the £2.7 billion of real-terms cuts in direct government funding to police forces since 2010.

Not enough is being done to future-proof our economy. Britain’s infrastructure ranks bottom in the G7 for quality, and the rate of public investment is among the lowest in the OECD. Despite this, planned public sector investment has been cut. What possible justification can there be for that? And, while the Chancellor may have mentioned the environment this time around—something he failed to do in his Autumn Budget—all we were promised are consultations and reviews, rather than action to deliver green jobs and growth.

The biggest disappointment is that, despite the warm words of the Prime Minister and the Chancellor, austerity is not over. While limited pots of money have been made available for certain projects, any major spending commitment has been postponed until the spending review at the earliest. The can has been kicked again. Even if the Government come good on their promises to end austerity, it will have taken a full year for Ministers to have taken their first tentative steps. That pace is simply unacceptable. It is not what was promised to hard-working people across the country.

At the same time as the Government’s action on tax avoidance falls well short of expectations, benefit claimants have been told that the cruel benefit freeze will continue for a fourth year. Ten million families will have lost an average of £420 a year as a result, exacerbating existing issues with in-work poverty and high rents. Concerns about universal credit continue to be raised by claimants and charities alike, yet there is no mention of the scheme, or further measures to rectify it, in the Chancellor’s speech.

Something needs to change, and not just the Chancellor’s approach to these important Statements. The Government’s priorities are wrong. Their inability to address the imbalances in our economy is stifling too many people’s life chances. Real change is needed between now and the Autumn Budget to ensure that departments have the money they need to deal with the many pressing non-Brexit issues facing the country, to ensure that legitimate concerns are listened to and acted on, and to restore faith in our democratic system. This will mean listening to local councils, which are struggling to provide services to local communities, and to schools, where teachers are having to pay for supplies out of their own pockets, and it will mean taking action on the other pressing challenges we face, be it a shortage of affordable social care, problems in prisons and a failing probation service, or rising poverty and homelessness.

As my noble friend the Leader of the Opposition has observed on a number of occasions, Brexit seems to have brought the usual business of government to a halt. Our hopes for future fiscal events, therefore, are not very high. That is why we will continue to set out our alternative approach to managing the economy, as my noble friend Lord Davies of Oldham will do in his closing remarks. In the meantime, this debate provides an opportunity for the Government to begin the listening exercise I referred to. This House has a wealth of experience. The Chancellor and his Ministers would be well advised to listen to advice and act accordingly.

Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Tuesday 5th March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I shall be exceedingly brief. That the third of these SIs is basically to correct deficiencies in earlier SIs underscores how complex all this is. Obviously we have no objection to correcting errors in earlier SIs. Again, I do not have objections to the first two SIs, on distance marketing—which sounds like cold calling—and buy-to-let credit. My head was spinning when trying to read them but they seem to be logical under the circumstances. But is there something that is not there or that I have misunderstood? In both circumstances, many British people and continental Europeans live their economic lives beyond country borders. They have done so particularly in the context of the EU because we have been part of a single market and a European family.

Many people who think of themselves as not financially sophisticated have economic activities which go beyond the boundaries of the EU; for example, they might have a property in Spain that they let, investments in different countries, or pensions arising from periods of work. There are all kinds of complexities. Do I understand from reading these SIs that the problem that is not resolved is what happens if there is a dispute or an insolvency? Is it that the legal mechanisms that would have been in place with full membership are no longer available and that these SIs have been unable to on-board any mechanism for dealing with disputes, insolvencies and those kinds of issues? If such were to arise, would the UK resident, for example, with a buy-to-let mortgage for a property somewhere in the 27, have to prosecute their case through that country’s national court system, rather than being able to do so as part of the unified ECJ umbrella, and therefore face a series of difficulties which cannot be corrected through SIs?

I say this because we talk constantly of continuity but it seems that there might be partial continuity with discontinuity embedded in it, particularly around the areas of dispute and insolvency. I could be wrong and I stand to be corrected.

[Lord Tunnicliffe (Lab)]

My Lords, we have no objection to any of these SIs. I have read them through as far as I was able, and they seem to be logical.

The distance marketing SI particularly caught my attention, because many citizens are subject to distance marketing that perhaps they do not really want. I note that the Explanatory Memorandum at paragraph 7.30, “Criminal offences”, states that various failures to abide by the rules of the regulation we are creating will be a criminal offence and that those guilty of it will be,

“liable, on summary conviction, to a fine not exceeding level 3 on the standard scale”.

I have a dilemma because, on the one hand, I am going to say that that does not sound very threatening, especially if you are a large firm—I think this relates to firms as well as to natural persons—and I would value it if the Minister would write me a letter on that. I also recognise that, if the SI sought to change that, I would argue that it was smuggling through a policy change. I am not suggesting that it should, but can the Minister clarify whether this is genuine consumer protection that firms fear or whether the punishments for offences are too low to be impactful?

[Lord Bates]

My Lords, having spent the past six months with the noble Lord in Grand Committee and here, I can assure him that the last thing I would ever attempt to do is to try to smuggle through some policy under his astute watch, because I would never succeed—and we would never attempt it, of course.

The noble Baroness, Lady Kramer, made a good point on this. It gives me an opportunity to put some additional remarks on the record—I know she was talking particularly about buy-to-let properties, but the principle will hold. By extending the scope of the distance marketing regulations to EEA firms in a temporary permissions regime, we are ensuring that UK consumers will continue to be protected by appropriate distance marketing regulations. Firms in the temporary permissions regime will be seeking authorisation, and it is therefore in their interests to comply with the UK’s marketing regime—that is not the answer. I am sorry about that. I will get an answer for her. I absolutely got what she was asking.

Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Tuesday 5th March 2019 Lords Chamber

[Lord Deben (Con)]

My Lords, I want to ask a question which follows on from the intervention of the noble Lord, Lord Beith. First, I am still a little at a loss as to how these years work, compared with other SIs. I do not quite understand what would happen if we had a deal and a transitional period. The noble Lord raised something which needs to be explained.

Secondly, I agree with the noble Baroness, Lady Kramer, that it would be wrong to allow these two SIs to pass without reminding the House of the serious effects of Brexit on this particular connection of the United Kingdom. The more we talk about these and the more you unwind it, the more it becomes quite clear how ridiculous the whole process is. I know it is not suitable for my noble friend to comment on this, but I wish only that our Benches were filled with those who think that Brexit is good idea so that they could listen to the realities of what happens if you leave the European Union—let alone without a deal. As usual, none of them is present to listen to the serious effects of Brexit. It is rather like trying to talk about climate change. You never have the climate change deniers present to see what the science is actually about. The House might like to note the non-existence of those who think that Brexit is just a matter of getting there and doing it at once. The people who stand outside with little notices about the WTO clearly have never worked out what becoming dependent on WTO rules means.

Thirdly, of course we have to pass these two SIs. Without them, were we to leave the European Union without a deal, things would be even worse than they need be, but we must not do it thinking that this is going to make things easier. Gibraltar is a sharp instance of the damage that could be done. Will my noble friend explain a little more about the discussions that have been held with the Gibraltar Government and particularly his reference to the Gibraltar Government making their own arrangements should there be Brexit without a deal? What are these arrangements and how do they interrelate with this SI? I do not think that many Members of this House have detailed knowledge of the kinds of things which Gibraltar would have to do were we—and they—to leave the European Union without a deal. It would be helpful to the House if my noble friend would delineate what exactly it is that they have to do and what their powers and responsibilities are in parallel with the two SIs with which we are concerned this evening.

[Lord Tunnicliffe (Lab)]

My Lords, we have no objection to these two SIs, but I have two or three brief questions. The position is summed up in the Explanatory Memorandum to the first set of regulations, paragraph 7.21 of which surprised me. It states:

“The UK government will work closely with the government of Gibraltar to design a long-term permanent framework”.


My impression until I got to that sentence was that the provisions here would change the situation into a stable framework. I would be grateful if the Minister could give us a feel for the extent of difference between the UK system and the system in Gibraltar that means that this bespoke framework is needed, and particularly what will happen if it is not agreed by the end of 2020.

The Minister can respond in writing to my second comment if he would like to do so. I refer to the first bullet point in paragraph 7.15 on the second set of regulations. This is really a cry of anguish because one has slogged through so many of these SIs and has to read every one, and then one reads this final sentence:

“This framework will not apply to the automatic recognition procedure of resolution actions between the UK and Gibraltar”.


I do not have the faintest idea of what that means and not the faintest idea of how to find out what it means. I ask the Minister as a matter of sheer curiosity what it means, and I will accept a letter.

[Lord Bates]

I thank all those who have participated in the debate. Let me try to put a little more flesh on the bones of this process for the noble Lord, Lord Beith, and my noble friend Lord Deben. In the event of no deal we will be left without the necessary legislative framework because the European Communities Act will have been revoked and therefore the body of law will not apply in the UK. We need to make sure that we onshore the current law so that we get a measure of continuity. If that applies to the UK, of course it also applies to Gibraltar. The Gibraltar Parliament has therefore also had to pass its own version of the EU withdrawal Act and is having to go through the process of the onshoring regime, which is what we are doing here. We are in a sense being treated as two sovereign entities.

Let me put a little more structure on to my initial answer to the noble Lord, Lord Beith. As set out in the White Paper on the EU withdrawal agreement Bill, the Bill will amend the European Union (Withdrawal) Act 2018 so that the conversion of EU law into retained EU law will take place at the end of the implementation period instead of on exit day. While the UK remains subject to EU law and before the conversion of EU law into UK retained EU law, there is no requirement for most instruments relating to our exit from the EU to be in force. The intention is therefore that the EU withdrawal agreement Bill will contain provision to delay all relevant SIs that enter into force on exit day until the end of the implementation period. The Bill will also ensure that Ministers can revoke or amend SIs as appropriate so that they effectively deal with any deficiencies arising from the end of the implementation period.

Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Tuesday 5th March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin with a thank you. My noble friend Lord Sharkey and I—I know that the noble Lord, Lord Tunnicliffe, will speak for himself, as he always does so well—very much appreciated the opportunity to meet the Minister, the Economic Secretary and key staff to talk in detail about this statutory instrument. I completely concur with the comments of the Treasury Select Committee that these are sweeping powers which, under normal circumstances, I do not think anybody, in any part of this House, would dream of granting to a regulator. However, under the circumstances we would face in a no-deal scenario, it seems vital that the regulator has the ability to mitigate a crisis cliff edge for key parts of the financial services industry.

I note that in the guidance published by the Bank of England and the FCA last Friday, they will be attempting to limit the transitional period, as the Minister said, to 15 months, so that firms will manage within that 15-month period to go from where we are now, essentially—let us call it scenario A—to life outside the EU in a no-deal scenario, which we will call scenario B. It would give them some 15 months, typically, but with the capacity to extend that to two years if necessary. Also, the Bank of England has made exceptions for the bail-in rules, the stay in resolution rules and the FSCS rules, all of which relate closely to financial stability. We appreciate that it would be very hard to provide any transitional time for those rules and their consequences, but does the Minister have any comment to make around the significance of deciding on those three exemptions? Can he confirm that, if we were to have no deal and find ourselves in that reality and the regulators decided that the situation was better managed by finding some flexibility around these three rules, the regulator has given away the capacity to do so? Or does it retain an opportunity to change its mind and provide some mechanism for adjustment? One would hope that that was not necessary. Across the credit rating agency assessments, we will get only a 12-month extension, though I think all of us recognise that that is probably not problematic for any of the players.

In our discussion, as the Minister indicated, we asked for more frequent reporting than just 12 months from now. It seemed a bit like closing the stable door after the horse has bolted to wait for that period. We very much appreciate that the Treasury and the regulators have agreed that they can update us every six months: that is exceedingly helpful. We also appreciate the description that the Minister gave when he had to make a correction, which we perfectly accept is a very minor correction. The noble Baroness, Lady McIntosh, picked up the fact that the complexity here is extraordinary. It is very hard to predict, very hard to track and very hard to play through the scenarios and understand exactly how each needs to be handled, certainly in advance. So I think we might find ourselves trying to take advantage of the offer from the regulators of specific discussions if a particular issue arises. I am grateful again that the Minister has had a conversation with the regulators that led them to say that that will be open to us: it is exceedingly welcome.

This underscores the point of the noble Baroness, Lady McIntosh, about the extent to which, given all this complexity, there might be some way to provide some mapping of exactly what is happening where—what is moving and what is changing. That is a big ask at the moment, I understand, but if there could be some thought around that, it would be very useful, not just to this House and the other place but to the industry, which I am sure must be struggling with all this, although it very much appreciates the detailed engagement it has had with the Treasury, with Ministers and with the regulators. If we move to a practice of mapping under such circumstances, that might be a healthier environment to get to. It was one of our asks of the Minister that he felt he could not commit to at this point.

Our second ask was for some specific examples. My noble friend Lord Sharkey is unable to be here. He was particularly concerned to work through some specific examples in his head, so he may come back to ask for something more detailed. I particularly appreciated that the Minister gave an example of an issue that, as he knows, has exercised me: how do we manage the fact that our major financial institutions have significant exposure to EU and EEA assets and will incur higher capital ratios because they will no longer have preferred status if we leave on a no-deal basis? I was very glad that he gave us that particular example.

We very much hope that we do not have to use this, and it would be exceedingly helpful to know that we are not going to have no deal, because despite all the preparation that I understand is being done with real concentration and thought, it does not deal with the fact that there is going to be an almighty problem. I can see firms—all of them, though they are competitors—in different stages, different states with different micro-problems, all of which regulators are trying to manage so that there is no knock-on effect on financial stability or to the economy. It is going to be an extraordinarily difficult situation to manage, and anything we can do to make sure it does not happen will be extremely useful. If I can encourage anyone in this House to take no deal off the table, let me use this opportunity to do so.

[Lord Tunnicliffe (Lab)]

My Lords, I feel the need to start with my standard speech about how much I object to being here processing statutory instruments for a no-deal situation. I entirely agree with the noble Baroness, Lady Kramer, in her dislike of such a situation and the chaos that will prevail. Having said that, I am forced to say nice things about the Government and, indeed, about the Lib Dem Front Bench in this whole affair. The Treasury SIs we have passed so far have, to a large extent, despite some of the speeches, been fairly non-controversial. What I have been looking for all the way through are attempts by the Treasury or the Government to smuggle through policy changes, which they promised not to do in the original legislation, and I must say that, broadly speaking, I think the Treasury has not sought to smuggle through any of significance. However, the result of that is that our debates have been rather dry.

This SI was quite shocking on initial reading. Part 7 has such sweeping powers, with no formal parliamentary involvement, that I thought—and we spoke to our colleagues on the Liberal Democrat Front Bench about this—that we really had to take it very seriously. I once again repeat my thanks to the Liberal Democrats for coming along on this and to the Government for the positive way in which they have reacted. For the record, I will briefly run over our concerns and note that they have been largely covered in the speech made by the Minister. We were first concerned about the limitations in the power in Part 7; there is a time limit of two years, and it is important to emphasise that that limitation is not just for making directions—rather, directions must cease within two years of exit day. That is fairly clear from reading the document.

It is more difficult to grasp the scope. One of the useful things we discussed at our meeting with John Glen, the Economic Secretary to the Treasury, was scope. Scope is difficult to get into words, and we thank the Minister for the detailed examples in his speech, which will, we hope, be useful for practitioners in understanding it. In particular, we had some concerns over whether it might be used in crisis circumstances, and received a very strong assurance that separate legislation would be used in such circumstances.

I come finally to the lack of any parliamentary involvement in the process. This was clearly also the concern of the Treasury Select Committee; being a big, powerful committee, using its own mechanisms, it can rapidly draw Ministers to account. It did that with the Economic Secretary to the Treasury, and got assurances from him, as I understand it, that whenever the power was used to create a direction it would be advised. Clearly, it was then able to summon a Minister to hold the Government to account on its use. We did not have such a parallel situation, so we asked, and then got this assurance in the speech, that whenever such a notification went to the Treasury Select Committee, a copy would come to representatives on both our Front Bench and the Liberal Democrats’. The second part of that, in a sense, was an assurance that we would get access. I do not mean to suggest the Minister is not an important person, but at the end of the day his interest is in DfID. He simply speaks for the Treasury here. It was good that the Economic Secretary to the Treasury said that he would make himself available to answer any of our questions about how the power had been used. That was very reassuring.

Embedded deep in the SI and the Explanatory Memorandum is the fact that certain directions may have to be secret. We were concerned that when any organisation has the option of making something secret it tends to do so. We would like to know when and for what reasons that is used. That was also acknowledged in the speech. Clearly this has to be post facto—obviously it has to be when it is no longer embarrassing—but it is important that the use of this power is fully understood.

Lastly, we felt that 12-monthly reports on a power that was going to last for only two years would be insufficient. Assuming it is for the previous 12 months, the report takes a couple of months to write and so on, and then you are half way through the second year. The acceptance of six-monthly reports is extremely welcome. I repeat my thanks to the Government for co-operating in the way they did; it has allowed us to create a mechanism for an involvement of this House in the use of this power and, with those conditions attached, we accept the logic that says it is necessary.

Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Monday 18th February 2019 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I beg to move that the House considers the draft Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019—

[Lord Tunnicliffe (Lab)]

For once, it would be nice to get it right. The Minister is moving that they be approved.

[Lord Bates]

I am always very happy to take correction from the noble Lord. If he would like, I am happy to ask that the House approve these regulations.

Let me try again. The Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying SIs under the European Union (Withdrawal) Act to deliver this, and a number of debates on these SIs have already taken place here and in the House of Commons. The SI being debated today is part of this programme.

The SI will fix deficiencies in UK law relating to the UK’s listing regime, prospectus regime and transparency framework to ensure they continue to operate effectively post exit. The approach taken in this legislation aligns with that of other SIs laid under the EU withdrawal Act, providing continuity by maintaining existing legislation at the point of exit but amending where necessary to ensure that it works effectively in a no-deal context.

Turning to the substance of the SI, many noble Lords will be familiar with the prospectus directive, the transparency directive and the consolidated admissions and reporting directive, or CARD, and with related legislation that is implemented into UK law to set the listing regime, prospectus regime and transparency framework that regulate capital markets activity in the UK.

The transparency directive harmonises transparency requirements across the EU by requiring issuers with securities, such as shares and bonds, admitted to trading on a regulated market to disclose a minimum level of ongoing information to the public. It built on and amended CARD, which co-ordinates the conditions for the admission of securities to official Stock Exchange listing.

A prospectus contains information on an issuer that is seeking to offer securities to the public or is seeking admission to trading on a regulated market. The information they provide is used by investors to make investment decisions. The prospectus directive contains the harmonised rules governing the content, approval, format and distribution of the prospectuses that issuers must produce when securities are offered to the public or admitted to trading on a regulated market in a member state of the European Economic Area.

In a no-deal scenario, the UK would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework. The UK legislation implementing the prospectus directive, the transparency directive, the CARD and related legislation therefore needs to be updated to reflect this to ensure that the UK’s listing regime, prospectus regime and transparency framework operate properly in a no-deal scenario. These draft regulations therefore make the necessary amendments to the retained EU legislation to ensure these regimes are operable in a wholly domestic context.

First, this SI will transfer responsibility for powers and functions currently within the remit of EU authorities to the appropriate UK institutions. Specifically, it will transfer powers from the European Commission to HM Treasury, such as the ability to make delegated acts pursuant to the relevant legislation. It also transfers powers to the Financial Conduct Authority from the European Securities and Markets Authority to create and amend certain binding technical standards. This transfer of functions mirrors the current split between the legislative power of the Commission and the regulatory role of ESMA.

Secondly, it alters the scope of the legislation by ensuring that, post exit, EEA issuers wishing to access the UK’s capital markets will be required to have their prospectuses approved directly by the FCA, as any other third country would have to do. Currently, EEA issuers can passport prospectuses approved by other EEA regulators for use in the UK. This aligns with the approach taken across other financial services SIs laid under the EU withdrawal Act.

The SI also introduces grandfathering arrangements that will allow any prospectus approved by an EEA regulator and passported into the UK before exit day to continue to be used up to the end of their normal validity, as well as supplemented with additional information. The end of validity is usually up to 12 months after the prospectus is approved.

Thirdly, this SI extends the exemption under the prospectus directive for certain public bodies from the obligation to produce prospectuses to the same set of public bodies of all third countries post exit. If a UK-only approach were taken, EEA state public bodies that are currently accessing the UK market would be obliged to produce a prospectus to issue securities in the UK that they would not be required to do to issue securities in EEA states. Additionally, extending the exemption to public sector bodies of third countries is consistent with the UK treating EEA member states and third countries equally.

Fourthly, as the explanatory information for this SI states, in a no-deal scenario, the Treasury intends to issue an equivalence decision, in time for exit day, determining that EU-adopted international financial reporting standards can continue to be used to prepare financial statements for UK transparency and prospectus requirements. This will allow issuers registered in EEA states with securities admitted to trading on a regulated market or making an offer of securities in the UK to continue to use EU-adopted IFRS when preparing their consolidated accounts. This decision is consistent with the Government’s approach to provide continuity following the UK’s exit from the EU. This has been welcomed by the industry and is supported by the Financial Conduct Authority.

Additionally, this SI removes obligations within retained EU law for the FCA to co-operate and share information with EU regulators, as this obligation, with no guarantee of reciprocity, would not be appropriate as of exit day. However, the FCA will still be able to co-operate with EU regulators through the existing framework in the Financial Services and Markets Act as it is currently able to do with all other third countries.

This SI makes further amendments to retained EU and UK legislation to ensure that the UK’s listing regime, prospectus regime and transparency framework operate effectively once we leave the EU. It is important to note that, while this instrument covers the UK legislation implementing the prospectus directive, there is no power to domesticate the provisions of the prospectus regulation that apply from July 2019 in the Financial Services (Implementation of Legislation) Bill. These additional provisions make significant changes to the prospectus directive.

Certain provisions of the prospectus regulation have applied since July 2017 and July 2018, with the remainder of the legislation due to apply from July 2019, after the UK leaves the EU. It is the Government’s intention to domesticate the remaining provisions as they will constitute the prospectus regulatory regime from July 2019. However, the EU withdrawal Act will only convert EU legislation into UK law that is already in force and applies immediately before exit day. Therefore, remaining provisions of the prospectus regulation will be domesticated via a statutory instrument laid under the Financial Services (Implementation of Legislation) Bill. The Bill, as currently drafted, requires the affirmative resolution procedure for every statutory instrument made under it, providing Parliament with an opportunity to debate and discuss each file that the Government are implementing. This change, I acknowledge, was as a result of the scrutiny the legislation received in your Lordships’ House, and we are grateful for it.

The UK has played a leading role in shaping the prospectus regulation for the benefit of consumers and industry. It is welcomed by industry and acts to cut the cost to business of producing a prospectus in the UK.

The Treasury has been working closely with the Financial Conduct Authority in the drafting of this instrument. It has also engaged the financial services industry on this SI, and will continue to do so going forward. On 12 December 2018, the Treasury published an instrument in draft, alongside an explanatory policy note on 21 November 2018, to maximise transparency to Parliament and industry.

The Government believe that the proposed legislation is necessary to ensure that the UK’s listing regime, prospectus regime and transparency framework can continue to operate effectively post exit, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope noble Lords will join me in supporting these regulations, and I commend them to the House.

--- Later in debate ---

[Baroness Altmann (Con)]

My Lords, I rise briefly to express my concern from these Benches that we may set some dangerous precedents in the processes that we are adopting in discussing and passing these SIs. I understand the difference between consultation and engagement on these issues but I have significant concerns. If the SI was indeed ready on 21 November, there has been time for a proper consultation, which does not seem to have occurred. It would be helpful to the House if we had more information on what engagement has taken place.

I fully accept that, as my noble friend Lord Leigh has said, industry is in favour of adopting these regulations, should we enter a no-deal scenario. However, there are reasons for us to be concerned across the House at the procedures taking place. We are being asked to approve legislation based on evidence that we perhaps feel is incomplete. I will not vote against the Government but I would like to express my concerns.

[Lord Tunnicliffe]

My Lords, in trying to take my role seriously, I staggered my way through the Explanatory Memorandum to try to understand this SI. It all seemed pretty straightforward. Basically, at the moment if you have a prospectus approved by an EEA regulator, it can be used in the UK. We are foolishly—no, that is not the party line, is it?—considering crashing out of the EU and we need some substitute regulation. It seems that the bulk of this statutory instrument is saying that whereas before you would have it approved anywhere in Europe, now if you want to market it in the UK it has to be approved in the UK. That seems to be a consequence of leaving the club. I regret that we have not had the level of consultation that Members would have liked but I find it extraordinarily difficult to believe that the alternative—not approving this SI—is anything like as consequential as the intrinsic costs. No matter how much consulting we did, we would still have come to the conclusion that we should approve the SI.

As ever, I tried to look at the Explanatory Memorandum in the context of the basic assumption of the withdrawal Act: everything is transferred and no new concepts are introduced. The one area where I have some questions is on a very narrow point, which is the exemption for certain government and local authority securities. The memorandum says:

“Under the current Prospectus Directive rules, certain public bodies are exempt from the requirement to produce a prospectus when they undertake to offer securities to the public or request the admission of securities to trading on a regulated market. This includes EEA States, EEA local authorities, EEA central banks, and public international bodies of which one or more EEA States are a member”.


The dilemma is whether we continue that exemption. There is an argument that we should but, in order not to recognise EEA states, there then comes the decision to extend that exemption.

There are two ways that that exemption is described. The third bullet point of paragraph 2.5 of the Explanatory Memorandum states:

“Extending the existing exemption from the requirement to produce a prospectus and certain exemptions under the Transparency Directive that currently apply to certain EEA public bodies, to certain third country public bodies”.


That would seem to be a controlled extension of the exemption, which took account of the countries to which the exemption was applied, whereas paragraph 7.22 says:

“To address this deficiency, the government will extend these types of public bodies exemptions to the same types of public sector bodies of all third countries”.


I think Venezuela is a third country, and the idea that the public offers of securities in Venezuela should be treated the same as those in other EEA states would seem somewhat anomalous.

--- Later in debate ---

[Lord Bates]

In those circumstances, we would be dealing with a third country. We would not be part of the EEA, so we could not give them the terms that apply within the EEA at the moment. We had quite a bit of debate on this last time. They would be a third country like any other. We want to develop a very close relationship, but that is a matter for negotiation and discussion.

[Lord Tunnicliffe]

The suggestion that the EEA does not exist, because we are out of the EU, is surely not valid. Many regulations specify how they apply to different countries. It would be entirely available to the Government to say that the exemption for public moneys should apply to EEA countries and not to other third countries. It is an entirely possible outcome; I am not saying whether it is good or bad. I want to know why the Government have moved from the EEA to everybody, including Venezuela.

[Lord Bates]

To allow the House to make progress on this, I will seek some advice on that point.

Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Lord Tunnicliffe Excerpts

Monday 18th February 2019 Lords Chamber

[Baroness Kramer]

I can only agree. We have major transparency problems. I am working on the Trade Bill; it is unconscionable that we do not have available to us information that the EU would not only put automatically on a website but constantly report back on, with discussion between the Commission, the Council and the Parliament.

Let us set that aside so I can move on with this particular instrument. I reinforce the concerns about the impact assessment. I must say that the consolidated impact assessment discussed by my noble friend Lord Sharkey contains three pages dedicated exclusively to this SI—I am sure that the Minister will point that out—but anyone who cares to read it will discover that, although it is usefully descriptive, telling us a bit more about the instrument, what used to happen in the EU and what will happen under this instrument, it cannot be called three pages of impact assessment. It does not even attempt to monetise the impact and give us a sense of the costs and the value of the benefits—that is beyond it—and it never deals with the risks in any way. Never in my commercial life have I seen impact assessments that did not assess risk—but these do not even begin to do so.

That is very disappointing, particularly for the businesses which will be picking this up. They want to make sure that this SI goes through, because anything that reduces uncertainty in any area where there is not a cliff edge will be of great value to the relevant businesses—but, my goodness, they would have welcomed something much richer in terms of the discussion to give them some forward vision rather than one that just deals with the very short period of time that will immediately follow departure under a no-deal scenario. I find that very frustrating and a real weakness in the way in which impact assessments are being dealt with here.

That takes me to perhaps the last issue that I will address, which was touched on to some degree by my noble friend Lady Bowles. There is very little discussion in any of this about what I call reciprocity. In order for equivalence for the industry to be able to function without any kind of cliff edge in no deal, not only does the UK need to provide equivalence but the EU needs to grant equivalence as well. In many instances it has not done so, but it may do so in the future. My interpretation is that at the moment it is doing so only in areas where it thinks that not granting equivalence would cause financial instability, rather than looking at broader market access issues.

I take this as a real shot across the bows that we need to take on board, framing the EU intent as to where it will take future negotiations in this area. That is important and I am rather concerned that the Government do not deal with those kinds of issues in this impact assessment, because an honest discussion of that is crucial for businesses as they use the product and everything that we are printing to try to understand what the context is going forward. It has made me feel very gloomy that we will see a much more fragmented set of financial services. I am sure that London will remain a crucial global centre, but I can see the way in which the pattern is developing. It will have some very significant rivals that will take away very significant pieces of business. Over the long term that has real consequences for the UK.

In all that we have here there is one last issue which perhaps the Minister would address, because it could be my deficiency in reading all of this. At the moment we know that third countries operate, as it were, within the EU because the EU has granted them equivalence. As I understand it, the UK will be granting identical equivalence under this SI for the day that we leave if it is a no-deal scenario. But I am unclear about how many of those third countries are granting us reciprocal equivalence. Not only do we have questions about in which areas the EU is granting us third-country equivalence, I am not clear where we stand, for example, in terms of the US. Will we be granting the US equivalence using exactly the same pattern as that of the EU currently? It is not clear whether the US is granting us equivalence and on what terms—and that is just one of the many different countries with which we have built up a kind of network through mutual equivalence that has been established over the years.

Equivalence is extraordinarily complex. It is not a matter of a simple one-hour discussion about four or five easy to understand factors. It is exceedingly complex, it often comes with conditions and it may be limited in a whole variety of ways such as by time and by content. It may have many issues attached to it, and therefore negotiating new equivalence arrangements from scratch would concern me a great deal. I say that in particular because of what we have seen with some of the trade deals, where Liam Fox was absolutely confident that we could take existing trade deals between the EU and the 71 other countries with whom we had free trade agreements and roll them over. He has now been woken to the fact that most of those countries see this as an ideal opportunity to improve their position and to renegotiate. It has become a much slower, much more difficult and much more complex process. I want to try to understand where we are with our equivalence agreements, because potentially the situation is exactly the same. It is very different having an equivalence agreement to have access to the market in the UK from having access to a market of 500 million people. I do not know how many of these equivalence agreements are in play.

[Lord Tunnicliffe (Lab)]

My Lords, I shall be brief on this instrument and brief to the point of extinction on some of the others. I wish I thought that that would have any significant impact on the length of the debates we are going to have, but I fear that my brevity may be somewhat wasted tonight.

Every time we look at a bunch of these instruments, I hope to be forgiven for making the simple, formal statement that I regret being here doing these SIs. Her Majesty’s Government should rule out no deal. The Prime Minister is behaving irresponsibly in not doing so, but unfortunately no deal seems increasingly possible. From my limited understanding of history, most bad things that have taken place were by accident. Unfortunately we have a Government who are playing a game of chicken and hoping that the EU will blink first without realising that one of the outcomes of a game of chicken is mutual disaster. Accordingly, we will not obstruct Her Majesty’s Government’s legislation in preparing for no deal because it is a genuine probability. It was good that at least one speaker in the debate—I think that it was the noble Earl, Lord Kinnoull—pointed out that industry needs these SIs in order to get on with its business.

Virtually all the Treasury SIs have three parts. They tend to transfer functions, to transfer references, and to have a little policy where a decision has to be made if it is not self-evident where the status quo lies. This SI is similar. Its substance is set out in Regulation 2(1), which states:

“The Treasury may, by direction”,


and so on. In the Explanatory Memorandum there is a very important statement on this power:

“It provides ministers with a temporary power, for up to twelve months after exit day, to make equivalence directions and exemption directions for the EU and EEA member states. This power is intended to be used only in cases where it is necessary to make equivalence decisions for the EU and EEA member states quickly and efficiently to support UK market activity and the continuity of cross-border business”.


Unfortunately, nowhere in the SI is that assurance made. There is no limitation on the powers in the statutory instrument itself. As a minimum I hope that the Minister will repeat the essence of what is in the Explanatory Memorandum and assure us that this power is designed to be very limited. As I understand it, the power can be and in fact will be used after exit day. What I would value is if the Minister could explain the parliamentary process that will be associated with it because, so far as I can see, it boils down to nothing. I assume it just boils down to a Written Ministerial Statement. I hope that he can give us some more comfort that whenever this power is used, we will know about it and that he will be making a statement of some kind.

Finally, towards the end of Regulation 2—one usually runs out of energy before one gets to the end of these—paragraph (6) states:

“The power of the Treasury under paragraph (1) includes the power to revoke or vary an equivalence direction at any time”.


Could the Minister make it clear whether that paragraph dies after 12 months, like the power in paragraph (1)? The power to revoke or vary an equivalence direction—which seems almost as powerful as the power to create a direction—is pretty important and should die at the same time as the power in Regulation 2(1).

I will not make any other general comments, other than to note that all the SIs this evening, as far as I can tell, do not have reciprocity. The whole issue of the negative impact that leaving without an agreement brings is that there is no reciprocity. All we can do is create the rules that allow us to make the move towards the EU, and we have to hope the EU sees the sense in making reciprocal powers. This is just one more reason why crashing out of the EU is a thoroughly stupid thing to do.

--- Later in debate ---

[Lord Tunnicliffe]

Will the noble Lord consider my point on paragraph 2.1 of the Explanatory Memorandum? It assures us that these powers will be used in a narrow way to manage the transition and not to introduce new policy. That is quite a strong statement, but it is nowhere on the record and there is nothing in the instrument to limit the use of the powers mentioned in paragraph 2.1.

[Lord Bates]

The noble Lord did ask me to assure that that will apply, and I am happy to do so. With those assurances, and conscious that we will touch on many of these matters again later in the evening, I beg to move.