Brexit: European Arrest Warrant (European Union Committee)

Lord Young of Cookham Excerpts

Thursday 8th February 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, perhaps I may take the opportunity first to thank the EU Home Affairs Sub-Committee for producing its report, Brexit: Judicial Oversight of the European Arrest Warrant. I am grateful to all those who have spoken in the debate, and in particular to the noble Lord, Lord Jay, for securing it. The Government welcome the next inquiry, which he referred to in his opening remarks. The noble and learned Lord, Lord Brown, implied delicately that I am a newcomer to this subject and as such I welcome the clarity of the report, its sharp focus on the key issues, and the outline in the concluding paragraphs of a possible way forward. During the debate other noble Lords, including the noble Lord, Lord Marks, suggested their possible solutions and ways forward. However, I am a former Member of Parliament, and some of my constituents were on the receiving end of EAWs and occasionally sought my advice as to how they might possibly evade their reach, and of course as a member of the Cabinet I sat around the table when we opted back into the EAW in 2015, so I am not wholly unfamiliar with the issues raised today.

A range of views have been expressed across the Chamber, but I am reassured by the broad consensus across the House, first, that the EAW is the most effective means available to apprehend individuals wanted by other member states and to ensure that those who have fled the UK are returned to face justice; and, secondly, that the Government should look to sustain as close a partnership as possible with our EU neighbours on security, law enforcement and criminal justice matters after we leave the EU, and that effective extradition arrangements should form part of that new relationship. A number of noble Lords, including the noble Lord, Lord Jay, quoted the Home Secretary, who said that she regarded the European arrest warrant as “an effective tool” helping us to deliver,

“effective judgment on … murderers, rapists and paedophiles”—[Official Report, Commons, 6/3/17; col. 550.]

and that it is a “priority” for the Government to ensure that we can maintain those arrangements. As the noble Lord, Lord Hannay, and others said, these are arrangements of major importance to the country.

In the future partnership paper that we published on 18 September last year, we indicate that we will look to reach an agreement with the EU that provides for practical operational co-operation, facilitates data-driven law enforcement and allows multilateral co-operation through EU agencies. We believe that such an agreement would be in the interests of the EU and its member states, as well as the UK. We are confident that our EU partners share our view on the importance of reaching an agreement that protects the safety and security of citizens and upholds justice in the UK and across the EU. The guidelines adopted by the EU 27 at the December European Council reaffirmed their readiness to,

“establish partnerships in areas unrelated to trade and economic cooperation, in particular the fight against terrorism and international crime, as well as security, defence and foreign policy”.

Previous examples of the EU’s co-operation with third countries—which is what we would be post Brexit—on security, law enforcement and criminal justice have so far generally been limited to agreements covering individual measures, such as Europol or passenger name records, but our assessment is that other approaches are legally viable. The UK’s geographical proximity to its European neighbours, the volume of cross-border movements between the UK and the EU—including, for the purposes of this debate, the volume of extraditions to and from the UK, which the committee highlights in its report—as well as the high degree of alignment in the scale and nature of the threats that we face, call for a new, more ambitious model for co-operation than those that currently exist.

With this in mind, the Government see a strong case for developing a new, dynamic treaty that provides a comprehensive framework for future security, law enforcement and criminal justice co-operation between the UK and the EU. This treaty would provide a legal basis for continued co-operation between the UK and the EU in this area.

To function properly we need dispute resolution, as referred to by many noble Lords during the debate. An arrangement along the lines that we have proposed will need to be supported by a means of resolving any disputes between the UK and the EU. It would be in the interest of both sides to ensure that the rights and obligations contained in the agreement can be relied upon, that both parties have a common understanding of what the agreement means, and that disputes can be resolved fairly and efficiently. This has been to some extent at the heart of the debate.

Dispute resolution mechanisms are common in EU third-country agreements and other international agreements, including those agreed by the UK. A number of examples are set out in the future partnership paper Enforcement and Dispute Resolution, which the Government published last August. They illustrate the range of ways in which the parties to international agreements, including the EU, have obtained assurances that obligations in those agreements will be enforced, that divergence can be avoided and that disputes can be resolved.

[Baroness Ludford]

I apologise for interrupting the Minister, but how is that relevant to an individual disputing the execution of a European arrest warrant? How does state-to-state dispute resolution apply in the circumstances of a judicial process?

[Lord Young of Cookham]

I will come in a moment to the distinction between how country-to-country agreements are enforced and how individuals enforce any rights they might have in the countries concerned.

One common feature of most international agreements, including all agreements between the EU and a third country, is that disputes are not resolved by giving the courts of one party direct jurisdiction over the other. Noble Lords will be aware that one of the Government’s key commitments in leaving the EU, as set out in our future partnership paper Enforcement and Dispute Resolution, is that we will bring about an end to the direct jurisdiction of the CJEU in the UK. I know that that is particularly unpalatable to the noble Lord, Lord Marks, but it is a clear statement of government policy.

Previous examples of the EU’s co-operation with third countries on security, law enforcement and criminal justice demonstrate that direct CJEU jurisdiction is not a requirement for such agreements. Even the more ambitious and strategic relationships that the EU has adopted—for example, the Schengen association agreements and the European Economic Area agreement—do not involve direct jurisdiction of the Court of Justice of the European Union in those third countries.

There is no precedent, and indeed no imperative driven by EU, UK or international law, which demands that enforcement or dispute resolution of future UK-EU agreements should fall under the direct jurisdiction of the CJEU, or indeed that UK courts should have direct jurisdiction over the EU. However, I agree with the noble Baroness, Lady Kennedy, and others that if you do not have the CJEU, you need some other mechanism for resolving disputes. We will therefore look to engage constructively to negotiate an approach to enforcement and dispute resolution that meets the key objectives of the UK and the EU in underpinning the effective operation of a new partnership in this area. We do not underestimate the complexities involved in negotiating our future relationship with the EU, but we are confident that there is recognition on both sides of the importance of addressing them and reaching a robust agreement.

The noble Baroness, Lady Ludford, mentioned some of the problems with the EAW, and the noble and learned Lord, Lord Brown, touched on them. Noble Lords may recall that, in 2014, we reformed the operation of the EAW to make sure that it worked effectively and better protected UK citizens. As has been mentioned, individuals will not now be extradited where a case is not trial-ready or where it is disproportionate so to do.

The noble Lord, Lord O’Neill, put it graphically when he said that the EAW has enabled us to get rid of the bad guys we do not want and get hold of those we do. The EAW has enabled the UK to surrender more than 10,000 individuals accused or convicted of a criminal offence to other member states, including those accused or convicted of murder, child sexual offences, terrorism or, as the noble Baroness, Lady Kennedy, mentioned, human trafficking. During the same period, the EAW has been used to surrender more than 1,400 individuals back to the UK.

As the committee noted, we are a net contributor to the EAW system: for every one person arrested on a UK-issued EAW, the UK arrests eight on EAWs issued by other member states, so in the balance of trade of those under arrest, we are net exporters. For all these reasons, agreeing effective extradition arrangements will be an important part of negotiations and of mutual interest to both the UK and member states.

Perhaps I may touch for a moment on transitional arrangements, which the committee also raised in its report and were referred to in our debate. The Prime Minister was clear in her Florence speech that an implementation period should be based on the existing structure of EU rules and regulations, and that the UK would take part in existing security measures during such a period. The Prime Minister was also clear that we may start off with the CJEU still governing the rules we are part of for that period. We therefore do not anticipate the cliff edge that the committee was keen we should avoid and which was touched on during our debate. We hope that we do not see the ghost of Banquo, though I am sure he would be familiar with the panelled rooms of this stone building. That commitment was confirmed by the Minister for Immigration, Nick Hurd, when he gave evidence to the Home Affairs Select Committee on 23 January. As I said a moment ago, it is in the interest both of the UK and the EU to agree the precise terms of the implementation period as quickly as possible, and we are confident that we will come to an agreement on this in March.

On the case of O’Connor, I am somewhat limited in what I can say as this is a live case. We are monitoring what is going on and we cannot speculate on the outcome. My understanding is that the Irish Supreme Court has yet to formally refer the matter to the CJEU or, indeed, to determine what the question should be. We will continue to work with our counterparts in the EU to ensure that those who have fled justice in the UK return to face it.

A number of noble Lords mentioned the time it took to negotiate the extradition agreement between Norway and Iceland and the EU. With respect, we are starting from a slightly different position, in that they started from a position of total divergence whereas we are starting, in this case, from a position of total alignment. The starting point for negotiations will be different from that of either of those countries: we start, as I said, from a position of total alignment since we operate the same EU tool, the EAW, and that was not the case for Norway or Iceland.

The noble Baroness, Lady Kennedy, asked whether we would be able to get an agreement on this without accepting the CJEU as ultimate arbiter. I have made it clear that we do not think that that is acceptable and I outlined other scenarios where that was not the case. Indeed, the EU has extradition agreements with a range of third countries, as noted in the committee’s report. None of those involves the CJEU having jurisdiction in those third countries, nor is there another common court between the parties, although I note that in our debate there was a very strong view that there should be some judicial oversight over how disputes are resolved.

Where agreements between the UK and EU give rise to rights or obligations for individuals—the case raised by the noble Baroness, Lady Ludford—those rights or obligations will be enforced by the courts in the UK, and ultimately by the UK Supreme Court. Individuals operating within the EU should similarly be provided with means to enforce their rights or obligations through the courts of the remaining 27 member states, with interpretation by the CJEU where that is appropriate. On facts and figures, table 1 in paragraph 10 has some key statistics, but if the noble Earl, Lord Kinnoull, wants more granularity I would be more than happy to provide that for him.

There was a comment about the Charter of Fundamental Rights. The noble Baroness, Lady Ludford, will have heard what my noble friend Lord Callanan said in winding up the debate on the withdrawal Bill last week. Our intention has always been that, in itself, not incorporating the charter into UK law should not affect the substantive rights that individuals already have, because the charter was never the source of those rights.

I should emphasise that the Government are committed to maintaining and strengthening the co-operation that keeps all European citizens safe, a point that noble Lords have made, and that the desire to do what is necessary to keep our people safe is not one-sided. My ministerial colleagues have spoken to their counterparts in other EU countries and I am reassured to hear that there is a shared understanding of the importance of effective, ongoing co-operation. For our part, we have made clear that the UK’s responsibilities, as a good neighbour, for the security of European citizens as well as our own, will remain on leaving the EU. We will be looking for a future partnership that ensures that those responsibilities can be met.

We recognise the challenges around negotiating a new relationship, including those around designing a new mechanism for resolving disputes between the UK and the EU. The Government are grateful to the committee for its report and its observations about the complexities involved in negotiating new arrangements. We are committed to addressing them and ensuring that we can continue to uphold justice in the UK and across the EU. I reiterate my thanks to the noble Lord, Lord Jay, and to all noble Lords who have taken part in this afternoon’s debate.

Civil Service Impartiality

Lord Young of Cookham Excerpts

Monday 5th February 2018 Lords Chamber

[Lord Hunt of Kings Heath (Lab)]

My Lords, I beg leave to ask a Question of which I have given private notice.

[Lord Young of Cookham (Con)]

My Lords, the Ministerial Code says:

“Ministers must uphold the political impartiality of the Civil Service”.


Our Civil Service is envied the world over and, as the Home Secretary said over the weekend, has the complete confidence of the Government. The Constitutional Reform and Governance Act 2010 enshrines in legislation the core principles and values of the Civil Service, which include impartiality, integrity and objectivity. These values are set out in the Civil Service Code, which states that civil servants,

“must not … knowingly mislead ministers, Parliament or others”.

I do not believe that they do.

[Lord Hunt of Kings Heath]

My Lords, I am grateful to the noble Lord for that Answer. Of course, he more than anyone has upheld the Ministerial Code during a very long and distinguished ministerial career. However, in the last few days we have had assertions made, both by Ministers and by Members of Parliament, that officials are deliberately frustrating Brexit or fiddling the figures. Those civil servants cannot defend themselves in public. Does the noble Lord agree that officials must have confidence in being able to provide robust and dispassionate advice without fear of intimidation? Given that No. 10 Downing Street and the Prime Minister have failed to slap down those Ministers and MPs in his own party who have made these disgraceful slurs, is it too much to ask of the Prime Minister that she finally show some leadership?

[Lord Young of Cookham]

So far as Ministers are concerned—I answer for Ministers, not for Back-Bench Members of Parliament—the Minister concerned made a fulsome apology in another place on 2 February. He said:

“I accept that I should have corrected or dismissed the premise of my hon. Friend’s question. I have apologised to Mr Charles Grant, who is an honest and trustworthy man. As I have put on record many times, I have the highest regard for our hard-working civil servants. I am grateful for this opportunity to correct the record and I apologise to the House”.—[Official Report, Commons, 2/2/18; col. 1095.]

The noble Lord generously referred to my experience as a Minister. I think I have done 20 years on and off—probably more than anyone else in this House—but with many discontinuities, and I have never had occasion to question the impartiality or objectivity of civil servants. They have spoken truth unto power. They have quite often said things that I did not want to hear, but I would never accuse them of some of the things that have recently been levied against them. I think we should be proud of our Civil Service, and I reject the smears that have been made against it.

[Lord Wallace of Saltaire (LD)]

My Lords, the Minister will recognise that this is not just a British issue. The current attack by the President and his Administration on the FBI in the United States raises rather similar issues. Can the Minister assure us publicly that, when we say that civil servants are expected to be impartial, they are not expected to be impartial between evidence and supposition, and that when Ministers prefer faith or fantasy to evidence, civil servants have the right to point out that good governance depends on paying attention to the evidence, wherever one can find it?

[Lord Young of Cookham]

The noble Lord is absolutely right. I quoted a moment ago the Civil Service Code, which includes objectivity. Objectivity is defined as,

“basing your advice and decisions on rigorous analysis of the evidence”.

It is these standards for which our Civil Service is renowned.

[Lord Blencathra (Con)]

My Lords, can I ask my noble friend’s honest opinion? He will be familiar with this document: the Treasury analysis of May 2016 forecasting a complete collapse of the British economy if we were to vote to leave. I have maintained that this document is propaganda from top to bottom, and it turns out to be utterly untrue in reality. My noble friend has praised the objectivity of those who produce government statistics. If I continue to criticise the mandarins and the Ministers who approved the statistics and this document, does that make me a snake-oil salesman or a 1930s German Nazi—or maybe a bit of both?

[Lord Young of Cookham]

I think my noble friend should distinguish between criticisms of Ministers and criticisms of civil servants. The document that he has in his hand was publicly presented by the Chancellor of the Exchequer at the time. Any criticism should be directed at the politicians who presented it. I think it was also endorsed at the time by the noble Lord, Lord Darling. They are the ones who should be criticised, rather than the civil servants.

[Lord Watts (Lab)]

My Lords, the Minister says that the Minister concerned has already apologised but has faced no sanction. Does that now mean that a civil servant can break the code and not face any sanction if he apologises later?

[Lord Young of Cookham]

That would be a matter for the Civil Service Code. There are penalties levied against civil servants who break the code. Depending on the severity of the offence, they can lose their job, as has happened in some cases, or they can apologise. In this case, the Minister has apologised. He has explained the circumstances. He had no reason to believe that what was being said at the time was not true. When he discovered it was not true, at the first opportunity he came to the House and apologised. I think that was the correct thing to do.

[Lord O'Donnell (CB)]

My Lords, I had the pleasure of working with the Minister in his many guises and, if ever there was a Minister who lived by the code he has just talked about, it is the noble Lord. Does he believe that those making allegations without supporting evidence against serving civil servants, who will not respond, are undertaking a form of bullying that, to be honest, actually diminishes those making the attacks but, more importantly, damages our democracy?

[Lord Young of Cookham]

Well, whether the accusations made in the House of Commons last week constitute bullying, I am not quite so sure. I think they were ill-advised, given that the evidence did not stack up for the accusations that were made. But I agree with what the noble Lord said in his final remarks that the people who come out of it worse are those who make the accusations, rather than those they are levied against.

[Lord Tugendhat (Con)]

Does my noble friend believe that those MPs and Ministers who impugn the impartiality and good faith of our civil servants are behaving very much as President Trump does in the United States with regard to the FBI?

[Lord Young of Cookham]

I am not sure I want to open up a fresh front from the Dispatch Box, but I hope President Trump will read what my noble friend has just said.

[Lord Davies of Stamford (Lab)]

My Lords, is it not the case that every sane business carries out an investment appraisal before it embarks on an investment, that every sensible person will always produce a business plan before starting a business, that responsible and sensible Governments must engage in cost-benefit analyses and policy analyses and that, if we gave up those habits, it would be deeply damaging to the future of the country? That is the logic that some of these people are trying to drive us to: that we should not have any experts, we should not have any studies and we should not have any analysis at all.

--- Later in debate ---

[Lord Young of Cookham]

I have not seen the documents that are the object of this exchange, but I understand that they were looking at a number of post-Brexit scenarios from an economic point of view. I also understand that the Prime Minister subsequently said that they were looking at off-the-shelf options, and she has made it clear that she is not looking at off-the-shelf options.

[Lord Hennessy of Nympsfield (CB)]

My Lords, nearly every political generation experiences a reprise of this question. In the early post-war Treasury, Hugh Dalton was given some unpalatable advice and denounced his officials as “congenital snag-hunters”, but surely that is what we pay them for. Does the Minister agree that it would be pointless to hire ciphers for the beauty of their political opinions because that would be the road to a politicised Civil Service which would be ruinous for this country?

[Lord Young of Cookham]

I agree. It is the job of civil servants to bring to Ministers’ attention the consequences of their policies and to argue forcefully against them if they believe they are misguided but, once the decision has been taken, to go out and deliver them as best they can. My experience with civil servants is that that is exactly what they do, and I agree with the noble Lord.

[Lord McColl of Dulwich (Con)]

Does my noble friend agree that disparaging remarks were made in a debate 10 days ago in this House by a Member of the Opposition Front Bench who impugned the integrity of the civil servants in our Library because she did not agree with the brief that they produced? I went straight to the Library, apologised on behalf of the House and said that no one would agree with her.

[Lord Young of Cookham]

I hope my noble friend will understand if I pass on that one, not having been privy to the accusations that were made or the evidence, but I am sure my noble friend did what he felt was right in defending the Library.

Capita

Lord Young of Cookham Excerpts

Thursday 1st February 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by the Cabinet Office Minister, Oliver Dowden, to an Urgent Question in the other place. The Statement is as follows:

“Mr Speaker, I have been asked to comment on the stock market update issued by Capita plc yesterday and its potential impact on the delivery of public services. I completely understand that this is a matter of significant interest to many in the House, following the recent failure of Carillion, but I can assure Members that this is a different situation.

To be clear, this announcement was primarily a balance-sheet strengthening exercise, not purely a profit warning, and, indeed, as has been widely reported, the company has significant cash reserves on its balance sheet. We do not believe that Capita is in any way in a comparable position to Carillion. Further, Capita has a different business model.

The issues that led to the insolvency of Carillion will come out in due course, but our current assessment is that they primarily flowed from difficulties in construction contracts, including overseas. In contrast, Capita primarily is a services business and 92% of Capita’s revenues come from the UK. We regularly monitor the financial stability of all our strategic suppliers, including Capita. As I have said, we do not believe that any of them are in a comparable position to Carillion. The measures that Capita has announced are designed to strengthen its balance sheet, reduce its pensions deficit and invest in core elements of its business. Arguably, these are measures that may have prevented Carillion from getting into the difficulties that it did. Of course, the impact of this has been to reduce dividends and shareholder returns in favour of others: evidence of shareholders—not the taxpayer—taking the burden.

My officials met with senior executives of Capita yesterday to discuss the impact of the announcement. We continue to work closely with the company to monitor the execution of its plan, and, of course, to ensure the continued delivery of public services. We continue to engage with all of our strategic suppliers and make continuing assessments as appropriate as well as contingency plans where necessary. It would not be appropriate to discuss in any further detail contingency plans associated with particular contracts due to issues of commercial sensitivity.

The priority of the Government is the continued delivery of public services. This is exactly what we achieved with Carillion. In respect of the collapse of Carillion, there has been minimal disruption to the provision of public services following its liquidation. We are continuing to make sure that public services continue to be delivered and that has happened”.

--- Later in debate ---

[Lord Young of Cookham]

I am grateful to the noble Lord for his questions.

There are two levels of risk assessment. One is at the point at which a particular contract is let. A risk assessment that is obviously proportionate to that contract is made at that point, making sure, for example, that there are adequate cash reserves to see the contract through. Then, at a slightly broader level, one monitors continuously the broad health of the company concerned. On that point, there is a Crown representative in Capita and has been throughout the period in question.

In a moment, I will come on to the question of diversity of supply. On pensions, we do not believe that there is a risk to the pension funds that are administered by Capita. We think that that is perfectly safe. On Capita’s own pension scheme, its deficit in June 2017, I think, was £381 million. A triennial review is going on. The outcome is widely anticipated to be a lower deficit. Part of the announcement yesterday was on further resources being put into the pension fund.

The important issue that the noble Lord raises on trying to broaden the base of contractors that work for the Government is a priority. We have a target of allocating I think 30% of public sector contracts to SMEs. Work is ongoing. There is a good question as to whether work that is subcontracted by a major contractor to smaller contractors scores or whether the smaller contractor should be, as it were, the prime contractor. This work is ongoing, but we take the point. We want to see a greater proportion of work going to SMEs.

On SMEs, Capita’s record on prompt payment is quite good. Capita generally paid 70% to 90% of all subcontractors within 30 days. It has introduced a new payment system and aims to pay 100% of subcontractors within 30 days. I hope that that will be of some reassurance.

On the comparison with Carillion, I tried to make the point at the beginning that the steps that Capita announced yesterday were perhaps steps that Carillion should have announced earlier. They were designed to strengthen the balance sheet, reduce dividends and make sure that the fate that befell Carillion does not happen to Capita. Of course, Carillion was exposed to some major construction contracts. Capita’s business model is quite different. If I have not answered all the noble Lord’s questions I will drop him a line.

[Lord Adonis (Lab)]

My Lords, does the noble Lord think it appropriate that Capita is paying any dividends, given the huge stress that it is currently under? Will he tell your Lordships whether the Crown representative, who is currently on the board of Capita, has been continuously in post for the last 12 months?

[Lord Young of Cookham]

On the first question, I understand that dividends have been suspended. That was part of the announcement. That, together with the rights issue of some £700 million, will mean that there will be some additional £900 million available in cash to the company. I will write to the noble Lord. I have asked about the Crown representative. I was assured that one had been in place. I will drop him a line on the specific question of 12 months, but there has been, and indeed is, a Crown representative on the board.

[Baroness Kramer (LD)]

My Lords, I hope that the Government will understand that they now have a very strong warning sign from both the Carillion and Capita events that they have been concentrating their outsourcing on far too small a group of companies, but also companies that, partly through their concentration, are too complex not just to manage, but to audit, or for the analysts or the credit rating agencies to get a grip on them. Will the Government strengthen the assessment capability for central and local government, and other parts of the public sector, so that they can comprehend the risk far more accurately at the prequalification stage, when contracts are to be let, and during the period of supervision? Picking up on diversification, which is certainly crucial to small entities, does he understand that diversification in and of itself is necessary to break the systemic risk that comes with overconcentration?

[Lord Young of Cookham]

On the noble Baroness’s first point about it being too complex, I believe that the chief executive officer himself, Jon Lewis, said yesterday that it is too complex and he wants to streamline it, hence the asset disposal and the streamlining of the operation.

I know that more personnel have been recruited within the Cabinet Office to beef up the Government’s capacity to supervise these contracts. I take on board the point that the noble Baroness made about making sure the Government have the resources to monitor the contracts we have placed with private sector companies.

We are at one on her final point. We would like to reduce the concentration of these big contracts to a small number of companies. We would like to broaden the base and see more companies bidding for these contracts and winning them.

[The Viscount Thurso (LD)]

My Lords, further to the answer that the Minister has already given about SMEs, now that we know the risks of a small number of contracts with some very big companies, will he accept that it is the procurement process that drives people to tier 1 contractors? Will the Government look at improving the procurement process so that SMEs have a better chance to get contracts?

[Lord Young of Cookham]

I agree entirely with the point that the noble Viscount has just made. If we are to hit our 30% target, we will indeed have to look at the procurement process in order to ensure that smaller companies are able to bid for and win these contracts.

[Lord Mackay of Clashfern (Con)]

In construction contracts, is a guarantee given by an insurance company or some other sufficient guarantor for the performance of contractual arrangements?

[Lord Young of Cookham]

I will need to write to my noble and learned friend on that. Basically, the Government pay for work that has been undertaken, so we do not pay in advance. Before a contract is let, though, detailed questions are asked about the financial ability of the company to carry out the contract. Whether they are actually underwritten and guaranteed by an insurance company is a more detailed question, the answer to which is not in my folder.

Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017

Lord Young of Cookham Excerpts

Thursday 1st February 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Orders laid before the House on 4, 19 and 20 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, these three orders relate to the mutuals sector, which encompasses co-operatives, community benefit societies, credit unions and building societies. In the mutuals sector the interests of members, not shareholders, are paramount. Mutuals are an important part of Britain’s diverse and resilient economy, and we wish to keep it that way. Recognising this, the Government have brought forward a package of measures to provide further support for the sector and level the playing field between mutuals and companies.

There are nearly 7,000 co-operatives in Britain today, which together contribute more than £36 billion to the UK economy. They employ over 200,000 people and are part-owned by 13.6 million members of our society. The Government recognise the value of co-operatives and want to ensure they are not saddled with unnecessary administrative burdens. Since 2012, small companies have enjoyed an exemption from the requirement in the Companies Act 2006 to have their accounts fully audited.

The first statutory instrument, the Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017, will increase the thresholds at which co-ops are required to appoint a professional auditor from £2.8 million in assets and £5.6 million in turnover to £5.1 million in assets and £10.2 million in turnover, in line with those for companies. While this proposal is deregulatory, noble Lords can be confident that appropriate controls remain in place. Members must vote to apply the exemption and the regulators can still demand a full audit if they have concerns over the management of a co-operative. Furthermore, co-operatives which disapply the requirement to appoint a professional auditor will still be required to prepare a less onerous audit report.

The second of the three orders before the House is the draft Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018. Building societies serve over 20 million UK customers and are an integral source of loans to first-time buyers. In order to offer fixed-rate mortgages, building societies must hedge against the risk of interest-rate changes and may do so by buying derivatives. The European markets infrastructure regulation of 2012 requires all derivatives to be centrally cleared. This means that building societies must either become direct members of a clearing house or clear through third-party members.

However, as it currently stands, the legislation prevents building societies complying with the membership rules of the main UK clearing house. The specific rule which we are concerned with requires that, in the event of a member defaulting, other members must bid for a portion of the defaulted member’s derivatives portfolio. Under current legislation, building societies cannot take part in this process because they are prohibited from trading derivatives for any purpose other than to hedge balance-sheet risk. As a result, building societies must clear indirectly through third parties which are members, placing them on an uneven footing as compared to banks. Clearing through third parties incurs expensive broker fees and makes building societies dependent on clearing-house members continuing to offer this service.

This SI will amend the Building Societies Act 1986, which I believe I put on the statute book, to allow building societies to trade derivatives not just to hedge their balance-sheet risk but for the purpose of complying with the membership rules of a clearing house. The Government have consulted representatives of the building societies and the Prudential Regulation Authority in developing these proposals, and they are content.

The last order before the House concerns mutuals in Northern Ireland including, for this purpose, credit unions. Under the Financial Services and Markets Act 2000, mutuals in Great Britain are registered with and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. As noble Lords will recall, prior to the appointment of the FCA as the primary financial services regulator, this function was performed by the Financial Services Authority. Following the failure of Presbyterian Mutual in October 2008, at a cost to the taxpayer of £50 million, Northern Ireland Ministers and HM Treasury agreed that responsibility for regulating Northern Ireland credit unions and other mutuals should transfer to the FSA. Responsibility for regulation was transferred in 2011. The aim of this transfer was to provide members of those mutuals with access to the Financial Services Compensation Scheme and the Financial Ombudsman Service, among other benefits.

It was intended that the registration of Northern Ireland’s mutuals should follow in due course, once the establishment of the new Financial Conduct Authority and Prudential Regulation Authority was completed. It is clearly logical for registration and regulatory oversight to lie with a single authority. The Northern Ireland registering authority, the Department for the Economy, also supports the move. A good deal of preparatory work has now taken place, and Department for the Economy and FCA officials are working closely to ensure that Northern Ireland’s mutuals are supported during the transfer of registration, which is set to occur on 6 April this year. Societies previously registered with the Department for the Economy will not have to re-register; their records will simply be transferred to the FCA.

I trust that the Members of the House will agree that these orders represent a welcome update to mutuals legislation across the country for the wider benefit of the sector. I commend the orders to the House.

[Baroness Kramer (LD)]

My Lords, I have a few questions to ask the Minister on these orders, although I cannot see anything major wrong with them. The first order the Minister described lifts the threshold at which point a co-op is required to have a professional audit. I have two questions on that. Looking through the attendant paperwork, I notice that responses to the consultation came from different co-operative societies. It is no surprise that they would wish to be on a level playing field with their various competitors which are privately owned companies, so I perfectly understand why they feel it is unfair that they should carry a cost burden which their competitors of the same size do not. But there is a difference between a private company and a co-op, which is that the membership of the co-op, which in effect is its ownership, is typically much more widely cast and made up of a large number of people who may not have a great deal of financial sophistication, whereas the owners of a privately owned company may have much greater awareness of the financial structure and happenings within that company. So I wonder to what extent the Government in their consultations took into account the exposure of relatively small people to losses that might seem quite small to those who have very large incomes but might be significant to those who are part of the membership of a co-op. It is the first area of concern.

Secondly, I am curious to understand the choice of benchmark. From the outside, it looks slightly random. I wonder whether it was done on a percentage of size within the industry or whether there was some structural characteristic within the industry that led to the choice of that benchmark.

The second issue the Minister addressed was the provision of the order that would allow building societies to be members of clearing houses. I think that all of us in this House agree that it is crucial that interest-rate swaps are cleared through a central counterparty—in the UK that would usually be the London Clearing House—and that it is very frustrating for building societies and mutuals to have to go the agency route and pay a brokerage fee, usually through an existing member which, quite frankly, is fairly disinterested in the service that it provides to that building society, never mind charging for it—so I am entirely on board. Can the Minister strengthen his confirmation that this provides no capacity for building societies to engage in speculation? It seems to be very clear that it does not. We all recognise that anyone providing a fixed-rate mortgage can do so only if they can hedge it through a derivatives contract, so that is an entirely appropriate and necessary use of a derivatives contract, or by doing it at the level of the balance sheet to achieve the same kind of protection.

--- Later in debate ---

[Lord Mawson (CB)]

My Lords, I agree with the noble Lord, Lord Kennedy. Although I am not sighted on the detail of the co-operative and community benefit societies order, it feels like the right direction of travel. My point is really just a general one. I spend a lot of my life in SMEs and small charities, and at the moment many of them are becoming overwhelmed by the amount of bureaucracy, red tape and other things that are appearing on their desks. My question is really one that the Minister might take back to government. Someone needs to look carefully at what is happening to these small organisations, in terms of the amount of red tape and things that are appearing on their desks, and whether we can create this direction of travel for some of them. It is just a general point and a concern.

I was at a small charity last weekend, with one member of staff and two part-time people working in it, which is doing a great piece of work around education in the local community. The amount of treacle and stuff they were having to deal with was immense and extraordinary. You can feel many good people, who want to do good things in their community, wondering how much longer they can have a role in these kinds of things. They become very fearful of the 92-page document that appears on their desk. It is a general point, but one that needs to go back to government.

[Lord Young of Cookham]

My Lords, I am grateful to all noble Lords who have taken part in this brief debate and hope to address as many points as I can in response.

The noble Baroness, Lady Kramer, asked why the figures for the thresholds had been chosen. The reason is given at point 7.4 of the Explanatory Memorandum:

“These thresholds are out of step with both inflation over the last decade, and current company law. Over the same period, the thresholds for private limited companies of comparable size have been updated”.


We are aligning the thresholds in this order with those for companies. As we heard from the noble Lord, Lord Kennedy, this has by and large been welcomed. The noble Baroness made a different and wider point, which goes to the heart of the Co-operative movement— namely, how it takes decisions. Not just those on audit, but all decisions in co-operatives are nominally taken by the members. If she wants to press that issue, it goes to the heart of what the Co-operative movement is and how it is regulated. It is a much broader point than the specific one on audit. As I said, they would have to vote for this exemption. In addition, there is still an opportunity for the regulator to intervene if he is concerned, and there will still have to be an ordinary audit of the accounts.

A number of noble Lords, including the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, asked about the exemption for building societies and were slightly concerned that it might go broader. But if one looks at new paragraph (d) in Article 2 of the SI, it is very narrowly drafted. The general exemption, which the noble Baroness referred to, is lifted in the very constrained circumstances of complying with,

“an obligation imposed by a recognised clearing house”.

So it does not open the building societies into the wider field of trading in derivatives and of speculation.

The noble Baroness asked a general question about cascades. When I introduced the order, it was in the specific context of a limited failure and the members having to bid for the interests of the defaulting member. On the broader question of what happens if the whole system collapses, the briefing I have here says, “I will write”. It is a good question about what happens if there is a systemic failure. As I say, I will write about that.

The noble Lord, Lord Kennedy, asked about consultation with the Building Societies Association. Yes, we consulted representatives of the BSA and they are supportive of the change. As I said a moment ago, the exemption is sufficiently narrowly drafted so that building societies will not be able to engage in speculation.

The noble Lord, Lord Tunnicliffe, asked about the delay in transferring the registration responsibilities from Northern Ireland over to the FCA. It was caused, first, by the transfer of the responsibilities of the FSA to the FCA and PRA, which were established in 2012. Secondly, time was needed to prepare for the transfer between the FCA and Department for the Economy officials. I do not think there is anything sinister behind it. Northern Ireland Ministers agreed with HM Treasury to transfer the function, and the Department for the Economy in Northern Ireland has indicated that it does not have the resource to continue providing this function. If it had kept on doing it, it would have had to increase the fees. As I said when I introduced the order, it is logical to have registration and regulatory oversight sitting with the same body.

The noble Lord, Lord Mawson, raised a more general point about regulation for charities. I will take that away, but we have recently made it easier for charities to reclaim the tax through Give As You Earn, by making it less bureaucratic to claim the extra tax. I think I remember taking through an SI, or indeed a Bill, on that a year ago. I will write to the noble Lord, because he raises a good, general point about the regulatory burden on charities, which we certainly want to lift.

I think I have covered all the points raised, apart from the systemic one about cascade failure. I beg to move.

Motions agreed.

Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018

Lord Young of Cookham Excerpts

Thursday 1st February 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Order laid before the House on 21 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, the order amends existing regulations to clarify an outstanding regulatory issue for the peer-to-peer lending industry. Peer-to-peer lending is not what happens at the Bishops’ Bar, but a thriving business activity which I will describe in a moment.

Specifically, the order, drafted in consultation with the Financial Conduct Authority and the Prudential Regulation Authority, will set out when a business borrowing via a peer-to-peer lending platform would need to have a deposit-taking licence to do so.

Peer-to-peer lending is a relatively new financial service, with the world’s first peer-to-peer loan originating in the UK in 2005. This nascent industry has experienced rapid growth and, at the industry’s request, the Government legislated to bring running a peer-to-peer lending platform into the scope of financial services regulation. Running a peer-to-peer platform is a discrete activity and not, for example, another type of asset management service. It allows investors, including consumers, to lend money directly to businesses or other consumers via the peer-to-peer platform.

The Government therefore introduced bespoke legislation regulating peer-to-peer lending where it interacts with consumers. This means that all P2P platforms used by consumers need to be authorised by the FCA and comply with financial, organisational and conduct requirements. These requirements include rules regarding separation of client money, business conduct such as fair treatment of customers, financial promotions and creditworthiness and affordability assessments.

This approach to regulation has allowed the industry to thrive, and £3.5 billion was lent via peer-to-peer platforms in 2016. In 2016, peer-to-peer lending to businesses grew 36% compared with the previous year, and was the equivalent of 15% of all new loans by UK banks to microenterprises in 2016. These impressive statistics demonstrate the Government’s commitment to fostering a diverse and competitive financial services sector which delivers quality services at efficient prices.

There is a degree of risk in members of the public making deposits, as they may not necessarily have the same degree of financial literacy as professional lenders. As a result, regulation surrounds businesses accepting deposits from the public. Under current legislation, conditions set out that if a business wishes to accept deposits from the public in order to wholly or materially finance their activities, such as a bank, they must be authorised and regulated by the FCA and the PRA. This could be termed “accepting deposits by way of business”. The regulatory permission for accepting deposits by way of business is known colloquially as a banking licence.

Currently when a business borrows money via a peer-to-peer platform, the legislation could be read as saying that businesses are technically accepting deposits from the public “by way of business” and therefore require a banking licence. In reality, it is not the case that the core business of these borrowers is accepting deposits. If it were, they would, for example, be operating like a bank and require FCA and PRA oversight.

However, for the vast majority of commercial borrowers, borrowing via peer-to-peer platforms is simply a way of financing their business—for example, capital expenditure. In the existing legislation as inherited by this new industry, there exists uncertainty as to whether those who are not accepting deposits as their core business would still need to be regulated.

It remains the case that peer-to-peer platforms used by consumers should be regulated, but some peer-to-peer platforms are therefore unsure as to whether businesses borrowing via their platform would require a banking licence. The practicalities of obtaining and then maintaining a banking licence just to borrow via a peer-to-peer platform would be burdensome for both the borrower and the platform, increasing costs and making it unviable as an efficient source of finance.

The order therefore provides clarity for peer-to-peer platforms and their business borrowers regarding the regulatory framework. It does this in a number of ways, specifically by making clear that where a peer-to-peer borrower is using deposits solely to finance their other business activity, they should not need a banking licence, and by ensuring that regulated financial institutions still need a banking licence to accept funds from the public, regardless of whether they do so via peer-to-peer or other means.

The order is required to provide certainty to peer-to-peer lending platforms and the businesses which fund their growth and other costs through this means. The certainty provided by the order will ensure that no undue burdens are placed on the sector or businesses because of legislation which predates the invention of this financial service. I beg to move.

[Baroness Kramer (LD)]

My Lords, I may have been the first person in this House to use the phrase peer-to-peer lending, to the enormous amusement of Lord Peston, who misunderstood it as “pier to pier”, which, as he said, was impossible. It is now a widely accepted, very successful strategy. I am not sure if this is officially a conflict of interest, but I declare that one of my children is an employee of a peer-to-peer lending platform. Back in the old days—and certainly before my son was involved—my noble friend Lord Sharkey and I helped to construct the framework that sits behind the regulations. We obviously missed a trick in allowing this discrepancy to enter the regulation, and for that, I—also on behalf of my noble friend—apologise. I am very glad that the Government are clearing up this misconception.

--- Later in debate ---

[Lord Young of Cookham]

I am grateful to both noble Lords who have spoken in this debate. I accept the mea culpa from the noble Baroness, Lady Kramer, although I assume that there was a Minister involved who also failed to spot this as the legislation went through. But it was generous of her to accept full responsibility for not spotting this lacuna.

In response to the noble Lord, Lord Tunnicliffe, this order is borrower facing; it does not affect the platform or the investor. The platform may be able to give greater assurance to borrowers that, because of this SI, the borrower need not worry about having to get a banking licence, but it is essentially, as I said, borrower facing.

On the issue of regulation by the FCA, like the noble Lord, I made a few inquiries about this, because, like him, I am new to this. There are roughly 60 P2P platforms active in the UK. Before the FCA’s regulatory regime was introduced, I understand that some platforms ceased trading and a couple of very small P2P platforms failed in the UK, but it is not known whether lenders lost any money as a result. But all this happened before the FCA’s regulatory regime. Since then, the FCA is keeping an eye on the industry. Occasionally, as with many other financial services firms, they have told platforms to take down a certain advertisement or amend a part of their business model. To be authorised in the first place, some firms have to make substantial changes to pass the FCA’s rigorous threshold conditions for advertising. But also there is a review, conducted by the FCA, going on at the moment, and I shall certainly feed the concerns of the noble Lord into that review, and into the wider P2P industry as a whole.

I think that I have answered all the questions that have been raised, and commend the order to the House.

Motion agreed.

European Union (Withdrawal) Bill

Lord Young of Cookham Excerpts

Tuesday 30th January 2018 Lords Chamber

[Lord Morris of Handsworth (Lab)]

My Lords, this is a unique debate, the first of its kind, certainly in my experience. However, we are not debating principles. The people have spoken and now we must respond. Nor are we debating timing, methodology or process because these factors, important as they are, have already been determined and, indeed, concluded in another place. Therefore, this House is primarily concerned with the execution and consequences of the decision taken by the British people to leave the European Union. It is now the duty of this House in this debate, as in the other place, to respect and deliver the will of the people.

I am very much aware that the House has had a number of debates on the decision to leave the European Union and the implication has been well examined, so I will not dwell on the particulars. Nevertheless, there is one area where the outcome amounts to success or, indeed, failure: that is the free movement of people. Therefore, my question to the Minister is: where in the thousands of pages which reflect the debate in the other place are the contingencies and the planning for exit day?

We already know that there is currently a steady stream of European returnees who feel unwanted living in a hostile environment in the UK. This is not specific to one sector or profession, north or south; already some sectors are preparing for the worst. The horticultural industry is seeking workers to replace those planning to leave. The NHS is planning for the worst as the European NHS workers start to go home, and this is also true in agriculture, construction and social care, among other sectors. I trust for all our sakes that the planning process to fill the gap is well advanced. When the Minister responds to the debate, will he tell the House where is the contingency plan to sustain economic stability? When will it be developed and implemented?

By the end of the debate I hope that we will be clearer about many of the issues which worry many of our fellow citizens whose lives will be affected whether they voted to leave or to stay. The way people voted does not devalue questions about, for example, animal welfare, food additives or joining or leaving the single market. The debate was much more parochial and was influenced by populism in respect of the yes or no vote. I have a great many questions, far too many to consider in these few minutes. However, what guarantees will there be as regards maintaining and enhancing workers’ rights so that they do not fall behind the rights of workers across the EU? An amendment in the other place required that after Brexit any change to employment rights and protections for consumers and the environment would require primary legislation and proper scrutiny by Parliament. It was narrowly defeated by the Government.

Regulations covered by the European Social Charter, including drivers’ hours and the working time directive protected not only workers but the health and safety of us all. Why would the Government reject proper scrutiny? Similarly, the Government have argued that we will no longer enjoy, or be protected by, the jurisdiction of the European Court of Justice. What will replace the jurisdiction of the ECJ? The proposals set out in the European Union (Withdrawal) Bill will require UK courts to interpret legislation passed before Brexit in line with EU law and European Court of Justice judgments, but there are uncertainties in relation to the way this will be interpreted in future. Will the Minister consider that point and calm our worries?

In many rural areas, farmers had difficulty last year in finding people to pick their fruit and vegetables. Even workers who had regularly travelled from Europe for this seasonal work chose instead to stay in Europe, where the environment was more hospitable. Many employers have difficulty finding local people with the willingness and skills to do certain work, including, as I have indicated, the NHS, care services and hospitality. Am I alone in feeling there is too relaxed an attitude to this problem, not just in our Government but in many communities and sectors of our economy?

Finally there is the problem of the continuing use of UK and EU citizens as bargaining chips. It is affecting every industry and shattering the lives of thousands. The application process, which we are told will settle this problem, clearly will only make matters worse. Migration experts warn that hundreds of thousands of EU nationals living in Britain could struggle to secure Home Office permission to stay in the UK after Brexit. Already, applicants for citizenship are being turned away by the Home Office—

[Lord Young of Cookham (Con)]

Noble Lords have been very good about observing the advisory limit of six minutes. I urge the noble Lord to pay similar respect to the time limit.

[Lord Morris of Handsworth]

I accept the noble Lord’s comments and will wind up.

In view of the points already made, British workers will not return to the status of poor relations. They will defend the working time directive, the drivers’ hours regulation and the social charter. As with all major challenges, there is no turning back. As a nation, we have made our bed, and there we must lie.

Contaminated Blood

Lord Young of Cookham Excerpts

Monday 29th January 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, with the leave of the House, I shall repeat in the form of a Statement the Answer given by the Minister for the Constitution to an Urgent Question in another place. The Statement is as follows:

“The contaminated blood scandal of the 1970s and 1980s was an appalling tragedy that should never have happened. Victims and their families have endured so much pain and hardship and they deserve answers about how this could have happened. I am grateful to the honourable Lady for bringing this issue to the House today, and for her leadership, alongside the honourable Member for Worthing West, Sir Peter Bottomley, of the all-party parliamentary group, which has done such consistent and constructive work on this issue.

As honourable Members will know, following the Prime Minister’s announcement in July last year that there would be an inquiry into these terrible events, the Department of Health launched a consultation on what the form and scope of that inquiry should be. I would like to thank all those who contributed to that process: we understand how difficult and painful describing these events must have been. The responses to that consultation were carefully considered by Cabinet Office officials. As a result, we confirmed that the inquiry would be statutory, established under the Inquiries Act, and we moved the sponsorship of the inquiry from the Department of Health to the Cabinet Office.

Before Christmas, we announced that the inquiry would be chaired by a judge. We have asked the Lord Chief Justice to provide us with a nomination. We hope to announce the name of that judge very soon. Once the appointment has been announced, the Cabinet Office will have early discussions with the chair about setting up the inquiry, and will encourage the chair to quickly hold further consultation with the affected communities over the inquiry’s terms of reference.

Finally, I want to reiterate again that I, the Minister for the Cabinet Office, and the Prime Minister are determined that those affected by this appalling tragedy will get the answers they deserve”.

--- Later in debate ---

[Lord Young of Cookham]

I am grateful to the noble Lord for that very constructive response, and I endorse what he said about the all-party group. The Haemophilia Society has also been very active in this area for many years. I expect the chair to be announced in days rather than weeks; that is how I interpret the “very shortly” commitment that was given in another place.

It will fall to the chairman to determine the terms of reference. Before he does so he will, as the noble Lord suggested, want to consult the affected community on those terms of reference. Once he has done so, and has made a recommendation to the Minister for the Cabinet Office, I anticipate that there will be another Statement to the House setting out the scope of the inquiry. The noble Lord asked a final question about whether the terms of reference will include what happened afterwards, as well as what happened before. As I said, we expect the chair to consult on the terms of reference, and I am sure he will take on board the point that the noble Lord has just made in drawing up the terms of reference that he will submit to the Government.

[Baroness Featherstone (LD)]

My Lords, sadly, I have to declare an interest. Some noble Lords will know that my nephew died; he was a victim of the contaminated blood scandal. Concerns have been voiced over the timing of this inquiry, and I want some assurances from the noble Lord. He mentioned the Haemophilia Society, but I do not know how aware he is of some disquiet and concern among the haemophiliac community about the society. Can he assure me that the Haemophilia Society will have no special status in this? A vast number of victims feel that the Haemophilia Society contributed to the scandal, rather than alleviated it. That does not reflect on the noble Baroness who is now president of the Haemophilia Society. This scandal has gone on for 40 years, but it is still very important that those who are affected do not feel that the Haemophilia Society has the special ear of the chair or the Government. I want also an assurance that the terms of reference will be broad enough to catch the harms that were done, and that the victims will have the ability to input to those terms of reference.

[Lord Young of Cookham]

I am grateful to the noble Baroness, and I am very sorry to hear that she lost a nephew as a result of this tragic sequence of events. I looked at the Haemophilia Society website earlier today, and I did pick up the controversy that she has just referred to. I think it will be an important, but not exclusive, witness and giver of evidence to the terms of reference, and I am sure that the chair will be aware of the anxieties that the noble Baroness has just referred to. We want to ensure that all those who want to give evidence are able so to do. I hope that the chair will take the advice of many of those who gave evidence that there should be a regional dimension to this inquiry. People should not have to come to London if they want to give evidence.

[Baroness Masham of Ilton (CB)]

My Lords, will Scotland and England be treated the same? Will the inquiry cover all of the countries involved, including Northern Ireland, Scotland and Wales as well as England? There have been some problems in the case with which I was dealing with regard to compensation if you lived in Scotland and were contaminated in England, or vice versa.

[Lord Young of Cookham]

I am grateful to the noble Baroness. This is a UK inquiry. The problem affected the whole of the UK. There are provisions under the Inquiries Act for consultation to take place with the devolved Parliaments and Assemblies, but it is a UK inquiry. There is a specific issue about the arrangements made for helping those who suffered. It is a devolved responsibility. Those particular responsibilities may differ in Scotland from the rest of the UK.

[Lord Elystan-Morgan (CB)]

My Lords, while I welcome the Government’s initiative in this matter, may I ask about an inquiry that was conducted about 10 years ago by the late Lord Archer, a former law officer? It was privately commissioned, but published thereafter. I think that the recommendations were accepted by the Government of that day. Can the Minister tell us something more about that, which was apparently a searching and revealing study into this matter?

[Lord Young of Cookham]

The noble Lord asks a question that is right at the extremity of my familiarity with the subject, but I looked it up and the noble Lord is quite right. There was an independent inquiry in the early 2000s by the former Solicitor-General for England and Wales, Lord Archer. I understand that it held no legal or official status at all. It was unable to subpoena witnesses or demand the disclosure of documents, but it looked at some of the issues and discovered that some important documents had been destroyed. There were issues of missing evidence. After he reported, Lord Jenkin, who was also a former Secretary of State, voiced his difficulties about obtaining documents for the inquiry. That inquiry is available and will be available to the statutory inquiry. I hope that it will be able to build on some of the work that Lord Archer undertook.

[Baroness Meacher (CB)]

My Lords, can the Minister assure the House that the different groups of sufferers within this community will all be consulted by the chair and the panel? There are widows, people who are still suffering, people with HIV and people who do not have HIV and they have all been treated differently and in many cases grossly inadequately over the years. This is one of the concerns. People do not want the Haemophilia Society to be the one group that is consulted, because people from these different situations want to speak for themselves. I would like to think that the Haemophilia Society reflects everyone’s interests, but I absolutely respect the wishes of the different groupings. That assurance would be very helpful to them.

[Lord Young of Cookham]

I am very happy to give that assurance to the noble Baroness. As she may know, there were more than 800 responses to the consultation that we launched in July, which concluded in October, so it is quite clear that there is a substantial body of people who take an interest in the subject and have already made representations. I am sure that the chair will want to consult with a wide range of people—survivors and relatives—before he or she finalises terms of reference.

Public Bodies: Appointments

Lord Young of Cookham Excerpts

Thursday 25th January 2018 Lords Chamber

[Baroness Prosser]

To ask Her Majesty’s Government what assessment they have made of whether recent appointments to public bodies have adhered to (1) the spirit and rules of the Governance Code on Public Appointments; and (2) relevant legislation, and of whether all such appointments have been made on merit.

[Lord Young of Cookham (Con)]

My Lords, the Governance Code on Public Appointments was introduced in January 2017. Ministers make appointments in accordance with the code as well as the relevant legislation. In addition, the Commissioner for Public Appointments provides independent assurance that the governance code is followed.

[Baroness Prosser (Lab)]

I thank the Minister for that reply. However, despite his comments about the Commissioner for Public Appointments, in recent years there has been a reduction in the number of employee or trade union representatives appointed to public bodies, despite those people having demonstrated appropriate knowledge and experience. An employee representative was not appointed to the Institute for Apprenticeships, despite the history and recognition of the role that trade unions have played in developing the apprenticeships programme with the Government. TUC candidates have been sidelined from the ACAS council, the Industrial Injuries Advisory Council and the Social Security Advisory Committee. Do the Government fear the knowledge and experience that union reps will bring to the table? Are the Government not supportive of a partnership approach to developing our public services?

[Lord Young of Cookham]

I am grateful to the noble Baroness. Perhaps I may make a general point and then come to her specific question. If the Government are to make real progress in tackling some of the challenges that confront this country—low productivity, reskilling the workforce, getting underrepresented groups back into the labour market, driving up the quality of apprenticeships and reducing the gender pay gap—we will make faster progress if we have a positive and constructive relationship with those who represent the workforce; that is, the leaders the noble Baroness has just mentioned.

On the specific issue of appointments, until I spoke to the noble Baroness last night I had not appreciated that behind her Question was a concern about the perceived—in her mind—bias against trade union appointees to public bodies. I should like to make some inquiries on this. It is the case that Paul Nowak, deputy general-secretary of the TUC, was reappointed to ACAS last year; Sally Hunt, the current president of the TUC, was reappointed to ACAS in November last year; Michael Hayes, who sits on the Unison national executive, was appointed to the HSE in November; and David Chrimes of the FDA was appointed to the Social Security Advisory Committee in October. However, I should like to do some more work on this and write to the noble Baroness.

[Lord Robathan (Con)]

My Lords, while the Minister is doing that work, could he also look into the political affiliations declared by people for public appointments? It has been said, although I have no idea if it is true, that the number of political affiliations declared in, say, the last 10 years are quite dramatically in favour of the Opposition rather than the government side.

[Lord Young of Cookham]

First, the number of appointees with declared political activity has fallen; it has halved since 2010, so there are fewer political appointees. Of those appointed in the last year for which I have statistics, we appointed more candidates who have declared affiliations to the Labour Party or the Liberal Democrats than those with affiliations to my party—something that may irritate someone sitting behind me.

[Lord Dholakia (LD)]

My Lords, last October the Prime Minister launched the race disparity audit following critical reports on race issues in the country. Will the Minister arrange the publication of ethnic breakdowns of appointments to public bodies, and do so on an annual basis, so that progress can be measured on equality of access and outcomes in public appointments?

[Lord Young of Cookham]

I am grateful to the noble Lord. He may be aware that we published a diversity commitment back in December with a declared target of increasing to 50% the number of public appointees who are women by 2022, and to 14% those from black and minority ethnic communities. At the moment, I think the figures are 43% and 10%, but if one looks at the most recent year for new appointments, 2016-17, the proportion of new appointments for women rose from 34% in 2013 to 49% last year. We will be publishing statistics regularly about the progress we are making to those declared targets for 2022.

[Lord Bassam of Brighton (Lab)]

My Lords, in view of recent revelations, can the Minister explain to the House what specific account the Government take of historical social media output when considering public appointments?

[Lord Young of Cookham]

I welcome the noble Lord to the Back Benches, although it means that Ministers are now exposed to the forensic questions for which he is renowned. I believe he is referring to Toby Young. Perhaps I may make it clear that although Toby Young is the son of a life Peer, he is not the son of this one but of Michael Young, founder of the Consumers’ Association and the Open University: a good and great man, notwithstanding his support for the Labour Party.

On the serious issue that the noble Lord raises, the Commissioner for Public Appointments, whom I mentioned in my reply, is reviewing the Toby Young appointment and has already referred to the need for due diligence about social media. We await his report with interest, and it may be that we need to revise the Governance Code on Public Appointments, which at the moment has a section on standards in public life and handling conflicts and includes something on the lines of potential embarrassments and so-called skeletons in the cupboard, before anything goes to Ministers. We are aware of the growing importance of social media in this respect.

[Lord Morris of Aberavon (Lab)]

My Lords, will the Cabinet Office expand the pool from which appointments are made to limit the same people moving seamlessly from one quango to another when each quango obviously has different needs?

[Lord Young of Cookham]

I think that criticism is more relevant to some of the appointments of non-execs in the City than to public appointments, but I take on board the noble and learned Lord’s point. Each case is looked at on its merits against the background of the criteria, but if he is concerned that the same people are going round and round, I will certainly pass that on to the Cabinet Office to see whether we need to review the procedure.

European Parliamentary Elections (Amendment) Regulations 2018

Lord Young of Cookham Excerpts

Monday 22nd January 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, I shall speak also to the draft European Parliamentary Elections Act 2002 (Amendment) Regulations 2018. These instruments make changes to the existing procedure for filling MEP vacancies in Great Britain and Gibraltar in order to reduce the likelihood of any costly by-elections in the run-up to us leaving the European Union.

Following the EU referendum, the UK will be leaving the EU. However, while the UK remains a member of the EU, we are obliged to make arrangements to fill any MEP vacancies that may arise—for example, due to the resignation or death of a sitting MEP. Currently, electoral law provides that in Great Britain and Gibraltar a vacant MEP seat will stay with the party that won the seat at the previous European parliamentary general election and is filled with reference to the unelected candidates on that party’s list of candidates at that election in the region where the vacancy arises. If it is not possible to fill a vacant seat from the winning party’s list because there is nobody else left on it who is willing or suitable to take up the seat, a by-election is held to fill the vacancy. To date, no by-elections have been needed to fill a vacancy, as it has been possible to fill vacant seats from the relevant party list.

We consider, however, that in some areas there is now a significant risk of a by-election being necessary due to the number and circumstances of the candidates remaining on some party lists. For example, UKIP won a seat in Wales in 2014 and, although there are three persons on its reserve list, we think there may be difficulties, not least following the events over the weekend, in filling any vacancy that may arise, and this could lead to a by-election being necessary. The cost of a by-election in Wales would be about £7 million. Elsewhere, by-elections could cost up to £20 million. Existing MEPs may resign ahead of the end of the Parliament to pursue career opportunities elsewhere. Those lower down the list, drawn up some years ago, may no longer be as enthusiastic as they were.

The Government consider that, in the current circumstances, there is strong justification for taking action to reduce the likelihood of a by-election occurring before the UK leaves the EU. As I have indicated, there would be significant financial costs in holding a by-election, and given that the UK will be leaving the EU, the turnout at such a poll could be low and electors may query the value of holding the poll. These statutory instruments therefore make sensible, precautionary changes to the process for filling vacant MEP seats that will reduce the likelihood of any costly by-elections in Great Britain. The instruments provide that, if a vacancy cannot be filled from the list of candidates for the party that won the seat at the previous round of elections, the party that holds a vacant seat may instead nominate a person to fill the vacancy and be returned as an MEP for that party.

I turn briefly to the details of the proposed changes. The European Parliamentary Elections Act 2002 (Amendment) Regulations 2018 amend the regulation-making powers in Section 5 of the European Parliamentary Elections Act 2002 concerning the procedure for filling vacant MEP seats. Then, using these new powers, the European Parliamentary Elections (Amendment) Regulations 2018 amend the European Parliamentary Elections Regulations 2004, which set out provisions governing the conduct of European parliamentary elections in Great Britain and Gibraltar.

The proposed changes in the European Parliamentary Elections (Amendment) Regulations 2018 address the position where a vacancy has arisen and it is not possible for the regional returning officer—the RRO—to fill the vacant MEP seat from the list of the party that won the seat in the region at the previous election. Under the proposed changes, where the outgoing MEP stood for a registered party, the RRO will still initially seek to fill the vacancy through approaching in turn the reserve candidates on the party’s list of candidates in the relevant region. If the RRO is unable to fill the vacancy from the party list because it is exhausted, this will no longer automatically trigger a by-election. Instead, the RRO must ask the nominating officer of the party that previously won the seat to nominate a person to fill the vacant seat and be returned as an MEP for that party. The person must meet the existing requirements to be an MEP, for example, in terms of age and nationality.

Under the proposed changes, the nominating officer must respond within 28 days to the RRO, giving the name of the person who is to fill the vacant seat. In the event that the nominating officer was unable to nominate a person within 28 days, this would cause a by-election to be held to fill the vacancy. We think it would be extremely unlikely that a party would not be able to nominate a person to fill the vacancy within the specified 28 days and so cause a by-election.

The regulations make similar provision for independent candidates and jointly nominated candidates. The changes are modelled on the process previously agreed by Parliament for filling MEP vacancies in Northern Ireland, and which has been successfully used to fill a vacant seat there. I should explain that the single transferable vote is used for European parliamentary elections in Northern Ireland, which differs from that used in Great Britain. Under STV, there are no party lists, and in the event of a vacancy, the nominating officer of the party that previously won the seat will nominate the person to be the new MEP, who will then be returned to the seat by the Chief Electoral Officer for Northern Ireland.

We have consulted on the instruments with the Electoral Commission and with others such as the Society of Local Authority Chief Executives, the Association of Electoral Administrators and the Government of Gibraltar. We have also consulted with a Parliamentary Parties Panel which advises the Electoral Commission. There is general agreement among those whose views were sought on the instruments that it would be desirable to avoid a European by-election across a region just before the UK leaves the EU.

I should also explain that our law provides that, if a vacancy occurs less than six months before the next European parliamentary general election, the seat remains vacant until that election and it is not necessary for a by-election to be held. We are maintaining this position. Without these changes, there would be a period for almost a year where it would be necessary to hold a by-election if a vacant seat could not be filled from the candidates on the relevant party list.

These statutory instruments make sensible and proportionate changes to the process for filling vacant MEP seats that are designed to reduce the likelihood for any European parliamentary by-elections to be held in Great Britain before the UK leaves the EU. I commend them to the House.

[Lord Rennard (LD)]

My Lords, these regulations are designed to avoid a situation, if possible, that has not arisen before, is most unlikely to occur in future, but which may happen anyway, irrespective of the passing of these regulations. If the Minister knows anything more specific about any political party which may have difficulties of vacancies occurring among its MEPs—including, perhaps, the Conservative Party in Scotland—perhaps he might enlighten us on why it is so necessary to introduce these regulations.

Since the introduction of proportional representation with the closed party list system in 1999, there have been 12 vacancies among our MEPs arising out of a death or resignation. Most of them have been as a result of an MEP being elected as an MP, or appointed as a Peer. All those vacancies for MEPs—five from the Conservatives, four from Labour, and one each from the Lib Dems, the Greens and UKIP, have been filled by someone from the relevant list of party candidates from the previous European parliamentary elections. I was the first person from any party to confirm the filling of a vacancy in this way. As the Liberal Democrats’ nominating officer at the time, I confirmed that my now noble friend Lady Bowles would become an MEP in 2005 when a vacancy occurred because she was next on my party’s list from the 2004 European Parliament elections. Because of arrangements such as this, there have not been any by-elections for MEPs in the past 19 years.

Some of us still hope that the UK will elect MEPs in 2019. As the Minister said, existing law provides that there would not be a by-election if a vacancy were to occur and a party could not fill it from its list in the six months before European elections were due. So the window in which we are anticipating the possibility of a vacancy and the potential problem of it not being possible to fill it from the existing lists of candidates is between the passage of these regulations into law and some time around December of this year—a very short window. It seems surprising to me, therefore, that they have been considered necessary.

On the longer-term issues, reference is made in the Explanatory Notes to work by the Law Commissions highlighting the need to modernise and codify the entire provisions of our electoral laws. Does the Minister accept the case for doing so, and do the Government intend making progress on this?

Will the Minister also agree in particular that these regulations should be reversed in the event that Britain does not leave, or rejoins, the European Union? Normal democratic provisions should allow voters to choose their representative in a by-election in the event that nobody on a party’s list accepts the position. The solution proposed to an unlikely problem may be acceptable in the short term, but such expediency, in which more power is handed to political parties rather than to voters, would not be acceptable in the long run, and it should not be extended or repeated wherever list systems are used.

In the meantime, political parties will of course still have the power to ensure that a European Parliament by-election occurs following a vacancy if nobody on their list is willing or able to accept the position and it refuses to submit a nomination for a substitute. So if the intention of the regulations is to prevent any by-elections for MEPs, they may still not succeed. This is considered in the Explanatory Notes to be extremely unlikely, but it is a tactic that could be employed by a party to force a by-election—or it may be that a vacancy occurs in an MEP’s seat held by a party that during the relevant period is no longer registered with the Electoral Commission. For example, I understand that Ladbrokes today is offering odds of 5-1 that UKIP will not be registered as a political party by the end of the year. Is this perhaps a factor in the Government’s thinking on these regulations?

--- Later in debate ---

More seriously, I have a question about the situation arising when an MEP elected under a party label decides, during his or her term of office, to leave the party or is expelled from it. We have seen an example of this recently. They are expelled from a party, or leave it by their own volition, and become an independent. They subsequently resign as an MEP. What is the position? Does the replacement come from the original party under the banner of which they were elected? Paragraph 4.1 of the Explanatory Memorandum says that the regulations provide for substitutions to be made in the case of independent candidates. Will the noble Lord explain how that works?

[Lord Young of Cookham]

My Lords, I am grateful to all who have taken part in this debate. I will try to answer the various questions that have been raised.

I start with the relative costs of by-elections. My noble friend was quite right: I mentioned a figure for Wales, where the total cost of a by-election would be £7.1 million. If there was a by-election in the south-east, it would be £19.585 million. The difference is accounted for by expenses for delivery of the poll. In Wales, this would be nearly £5 million, but in the south-east £13.4 million. I suspect that is because there are more electors in the south-east and it has more MEPs than Wales, which has three. There is a slight increase in the cost of relevant services supplied by the returning officer and a significant difference in the cost of delivering the mailings at public expense—£2 million in Wales and nearly £6 million in the south-east. The difference is, basically, related to the number of voters.

The noble Lord, Lord Rennard, asked me a question which he has asked me before about the Law Commission review. I am afraid that the answer is the same as I have given him before: the Government continue to work with the Law Commission on taking forward its review of electoral law.

I return to some of the main issues raised in the debate. I welcome all the contributions. I agree with the noble Lord, Lord Rennard, that this is most unlikely to happen and it is a small window, but it is quite a large sum of money. We therefore believe that this is a proportionate and sensible step to take in order to potentially save a significant amount of public money.

The noble Lord also asked whether a by-election would still take place if the nominating officer was unable to nominate somebody as the list had been exhausted. All the MEPs elected at the last European election represented major registered parties. I think it is most unlikely that a nominating officer would not be able to find anybody from a party to take up a vacancy. I am sure that the Liberal Democrats would be able to find somebody to fulfil that role, and I am sure the same would apply to any other party.

As regards Scotland, I am not that familiar with what happens north of the border, but I understand that due procedure was followed. The noble Lord, Lord Hunt, implied that if we pass these regulations, it would prevent that happening. It would not. We would still have to go through the list member by member before the provisions in this regulation were activated—namely, having exhausted the list, there would not be a by-election; there would be a nomination.

The noble Lord, Lord Rennard, tempted me to answer a hypothetical question: what would happen if, for whatever reason, we did not exit the EU? That is a hypothetical question which is beyond my pay grade to answer. However, these regulations would remain on the statute book unless they were revoked, which would be an option were that eventuality to arise.

It was implied in some of the remarks that it is undemocratic to allow the party machine—as I think the noble Lord, Lord Hunt, referred to it—to fill a vacant seat. These changes are modelled on the process that his Government agreed to fill MEP vacancies in Northern Ireland, and have been used already to fill a vacant seat there. I am not sure whether allegations of undue use of the party machine were made by the Labour Party at that point.

Another hypothetical question was asked: what happens if UKIP becomes unregistered, or if it does not have a nominating officer? If it does not have a nominating officer, the nominating officer cannot nominate somebody, by definition, and there would then be a by-election. That would happen if the party became unregistered.

I was asked what happens to a vacancy where the MEP has changed party. As I think I said from a sedentary position, the vacancy is filled by the next person on the list of the party that won the election at the previous election. I think that is the right thing to do democratically because that is how people voted at that election—they voted in those numbers for a Conservative Party or Lib Dem candidate. When that candidate is no longer fulfilling that post, I think it is right that the party that got the requisite number of votes at that relevant election should fill the vacancy.

As paragraph 4.1 of the Explanatory Memorandum states, the European Parliamentary Elections Act 2002 is being amended to enable the changes to be made to the 2004 regulations. This is, as it were, a paving Bill, if I can use that term, for the substantive regulations that we are debating.

I detected no fundamental opposition in principle to what the Government are doing. There were a number of very interesting questions which I have done my best to address.

[Lord Tyler (LD)]

My Lords, it would seem from what the noble Lord is saying that we are all prepared to accept a short-term solution to this problem. However, does he accept that in the longer term it could not be a solution? He described the question of my noble friend Lord Rennard as entirely hypothetical. Has he not noticed that an increasing number of people, even Mr Farage, think that Brexit might not happen? It may be, of course, that in his case, since he says he is skint, he is beginning to think that his continuing MEP salary might be rather desirable.

However, can the noble Lord, in his usual fashion, give us an undertaking that, if there is a possibility that this ceases to be a short-term problem and becomes a longer-term one, we should at least expect the Government to produce some form of contingency plan beyond March 2019? He surely must accept that this provision before your Lordships cannot be allowed to stand for ever. That is undemocratic. It does not even really meet the requirements that his party has set out in the past for truly democratic representation in the European Parliament. If, this time next year, we find ourselves still not sure whether we are going to be exiting from the European Union, surely a responsible Government should look again at what should be put in place of these regulations.

[Lord Young of Cookham]

The noble Lord is very plausibly trying to tempt me further down a route that I embarked on, probably ill-advisedly, in responding to the noble Lord, Lord Rennard. I think that I can best shelter behind paragraph 7.1 of the Explanatory Memorandum:

“Following the EU Referendum, the UK will be leaving the EU and it is not expected that the UK will be participating in the next elections to the European Parliament in 2019 (the date of the poll has not been confirmed”.


It then goes on to say that, while we remain a member of the EU, we have to return MEPs. I can go no further than what I said in response to the noble Lord, Lord Rennard—that if these regulations are approved by both Houses, they will govern the position of any vacancies where a party list is exhausted. In that unlikely event, there are European elections next year and the list would be refreshed. However, as the Government’s policy is to leave the EU, I shall venture no further down that path or I will get into real trouble, except to say that these are sensible precautions given that, following the EU referendum, the UK will be leaving the EU.

Motion agreed.

European Parliamentary Elections Act 2002 (Amendment) Regulations 2018

Lord Young of Cookham Excerpts

Monday 22nd January 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 December 2017 be approved.

Motion agreed.