Drug Dealing Telecommunications Restriction Orders Regulations 2017

Lord Young of Cookham Excerpts

Monday 4th December 2017 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations and Order laid before the House on 12 October and 11 September be approved.

Considered in Grand Committee on 29 November

Motions agreed.

Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2017

Lord Young of Cookham Excerpts

Wednesday 29th November 2017 Grand Committee

Moved by

[Lord Young of Cookham]

That the Grand Committee do consider the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2017.

[Lord Young of Cookham (Con)]

My Lords, the draft order, for which the approval of the Committee is being sought, has been laid under the Government Resources and Accounts Act 2000. This allows the Treasury by order to provide for the accounts of a body to be audited by the Comptroller and Auditor General. The body must exercise public functions or must be entirely or substantially funded by the Government. It is intended to give the C&AG responsibility for auditing the accounts of a number of public sector bodies and companies. The draft order also removes from auditing, by the C&AG, 61 public bodies and companies because they have ceased operation and are, therefore, no longer subject to public sector audit.

The main provision in the draft order is to give the C&AG responsibility for auditing both Ebbsfleet Development Corporation and the Housing Ombudsman. These are central government bodies and should be audited by the C&AG. The Ebbsfleet Development Corporation is a new body set up by the Ebbsfleet Development Corporation (Area and Constitution) Order 2015. Currently, the accounts and statement of accounts of the Ebbsfleet Development Corporation are audited by the C&AG by agreement, which means that he is not the statutory auditor. This order appoints the C&AG as statutory auditor for Ebbsfleet Development Corporation accounts.

The Housing Ombudsman was incorporated by the Housing Ombudsman (Corporation Sole) Order 2013. Under the Housing Ombudsman scheme, the ombudsman prepares annual accounts in accordance with an accounts direction approved by HM Treasury. These accounts were audited by the C&AG, but the scheme gave no authority to lay the accounts in Parliament. This order corrects that anomaly and will ensure that the Housing Ombudsman’s annual accounts can be laid before Parliament. This meets the statutory requirement of the C&AG reporting to Parliament by laying certified accounts of government departments and other public sector bodies.

This draft order also makes provision for six public bodies constituted as companies to be audited by the C&AG. These are: BPDTS Ltd, the College of Policing, English Sports Development Trust Ltd, the Oil and Gas Authority, Phone-paid Services Authority Ltd and Revenue and Customs Digital Technology Services Ltd. Section 482 of the Companies Act 2006 disapplies the auditing requirements in that Act where a non-profit-making company is subject to have a public audit by the C&AG under the Government Resources and Accounts Act 2000. For this exemption to apply, the non-profit-making company must be included in an order under Section 25(6) of the Government Resources and Accounts Act 2000. There are further conditions applicable to this exemption. These are that: the company is non-profit-making; if the company is a parent or subsidiary undertaking, all undertakings in the group are non-profit-making; and the balance sheet contains a statement that the company is entitled to exemption under Section 482 of the Companies Act 2006. As currently constituted these six companies will meet these requirements, provided they include an appropriate statement in their balance sheets.

Finally, this draft order amends primary and secondary legislation to remove 61 public bodies and companies from the scope of audit by the C&AG because they have ceased operations. The primary and secondary legislation being amended for these purposes is: the Industrial Organisation and Development Act 1947; the Offender Management Act 2007; the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Orders 2003, 2005, 2008 and 2012.

In conclusion, the proposals in the draft order confirm the Government’s commitment to achieve consistency in the public audit arrangements for public bodies and provide a net gain for both Parliament and the public. I commend the draft order to the Committee.

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[Lord Tunnicliffe (Lab)]

My Lords, I am sorry to be a bit picky, but I hope that the Minister has not moved the order; I hope that what he has in fact moved is that the Grand Committee do consider the order. The order itself, whatever his Treasury-produced paper says, will be taken on the Floor of the House after consideration by the Committee. I note the Minister nodding in agreement. I hope that his authors will get that little bit right in future.

I thank the Minister for introducing the order to the Committee this afternoon. The order provides for certain public bodies to be audited by the Comptroller and Auditor-General. In addition, the scope of audit is removed from the Comptroller and Auditor-General for a number of public bodies and companies that are no longer in operation, no longer exist or no longer meet the criteria for public sector audit. It is on the whole concept of criteria that I wish to ask one or two questions.

First, does the primary legislation that established these bodies have Henry VIII clauses that allow the changes to be made by delegated legislation? Secondly, with reference to those bodies being omitted from the scope of National Audit Office audit, why are they being omitted and against what criteria? Will the Minister outline the criteria to the Committee? Thirdly, why are the specific eight bodies being added, under what criteria are they being added and why are the Government adding them at this specific moment? Lastly, what other bodies are either waiting to or likely to be added to the list of bodies to be audited by the National Audit Office? Is there a question about the quality of the bodies waiting to be added?

Although I understand that the order is largely procedural, I would welcome a response from the Minister on those questions to give greater clarity to those who are affected by the order about why they are affected. In very simple terms, the Minister gave us an overall view that it was to add consistency, but I should have thought that that consistency must be against a general view of what should or should not be audited by the National Audit Office.

[Lord Young of Cookham]

My Lords, I am grateful to both noble Lords who have spoken in the debate and will try to respond as best I can.

In answer to the last point made by the noble Lord, Lord Tunnicliffe—he asked: what is the big picture?—the big picture goes back to the year 2000 and Lord Sharman’s report, which recommended that all public bodies should have as a statutory auditor the C&AG. Since then, most new bodies that have been set up have had the C&AG as their auditor, and most existing bodies have been swept up and are now caught by the C&AG. One or two have slipped through the net, which is why we need the order to capture them. That is the basic principle—that the C&AG should be the statutory auditor of all public bodies in the interests of transparency and other broad goals.

The noble Lord, Lord Jones, asked about the Ebbsfleet Development Corporation and, in particular, I think, who reads its report and what the whole development corporation costs. I would like to write to him as I do not have those figures at my fingertips. The responsibility for the development corporations rests with the Department for Communities and Local Government, and I will contact it to pass on the noble Lord’s concerns and make sure that he gets the information that he has rightly asked for. The Ebbsfleet Development Corporation is delivering 15,000 homes and creating a 21st-century garden city in north Kent, taking advantage of HS1.

Turning to the questions asked by the noble Lord, Lord Tunnicliffe, I think I have explained the broad context of audit and accountability and where central government believes responsibilities should rest. The first statutory instruments under Section 25(6) of the Government Resources and Accounts Act 2000 made the C&AG the auditor of certain non-departmental public bodies. The C&AG was also given greater powers of access to documents held by persons in receipt of grants from, or in relation to contracts with, bodies audited by the C&AG. Under the Companies Act 2006, the C&AG was given power to audit companies and specific provision was made for the auditing of non-profit-making companies. This order continues the long-standing approach of implementing Lord Sharman’s recommendations, which I mentioned at the beginning, and which have been adopted by different Governments.

I shall address the specific points raised by the noble Lord, Lord Tunnicliffe. On whether the primary legislation that established these bodies has Henry VIII clauses that allow these changes to be made by delegated legislation, for the bodies included in the scope of C&AG audit by this order, I can advise that no such provisions are available. For the bodies that are removed from that scope, the order amends provisions previously made by earlier GRAA orders and there are no other legislative provisions which would enable all the necessary changes to be made.

Regarding the bodies that are being omitted from the scope of the NAO audit, as I said in my opening remarks, these 61 bodies have ceased operation and there is therefore nothing left to audit and they are being removed. They are listed in one of the schedules to the order. Regarding the addition of the eight bodies, again, in my opening remarks I tried to outline the criteria. To address the noble Lord’s question on why this is presented now, the Treasury originally laid the order in March 2017. However, debates were not possible as a result of the election and so the order was re-laid in September, in slightly amended form, with the Commons debate scheduled for 12 December, and was presented to the Lords today. Lastly, the noble Lord raised a question on future GRAA orders. The Treasury has informed me that no further affirmative orders are planned, which I think is good news for both of us. The last affirmative GRAA order was in 2012.

We support the policy that all public bodies should be subject to C&AG audit to increase parliamentary accountability. We are now implementing that policy, bringing full accountability to Parliament for public bodies and other central government bodies that are consolidated within a department’s accounts. The draft order before us today is an important step to realising that ambition.

[Lord Tunnicliffe]

Will the Minister forgive my unreasonable curiosity and tell me what GRAA stands for?

[Lord Young of Cookham]

Government Resources and Accounts—Act. I got three out of four off the cuff. That was a very fast ball the noble Lord bowled me right at the end, and I got three out of four.

Motion agreed.

Brexit: Devolved Administrations

Lord Young of Cookham Excerpts

Thursday 23rd November 2017 Lords Chamber

[Lord Wigley]

To ask Her Majesty’s Government what progress has been made in discussion with the devolved Administrations relating to the establishment of an agreed intergovernmental forum between Westminster and the devolved Governments to decide on appropriate competence for powers relating to devolved functions repatriated from the European Union following Brexit.

[Lord Young of Cookham (Con)]

My Lords, the Joint Ministerial Committee (EU Negotiations) facilitates engagement and collaboration between the UK Governments and devolved Administrations on the UK’s exit from the European Union. Important progress was made at the most recent meeting on 16 October in agreeing a set of principles that will underpin the establishment of common frameworks as powers are repatriated from the EU. Following agreement of the principles at that committee, the Government are working with the devolved Administrations to make quick progress on the potential role for frameworks in some specific policy areas. The committee is due to meet again in December, ahead of the European Council.

[Lord Wigley (PC)]

My Lords, does the Minister accept that, when repatriated powers return from Brussels over wholly devolved functions such as agriculture, those powers should be transferred automatically to the devolved Governments, but an intergovernmental mechanism should immediately be put in place to resolve any issues that might distort the UK single market? Does he accept that the fear in Cardiff and Edinburgh is that any such mechanism will deliver only token consultation, with substantive decisions being taken here at Westminster? Could he give an assurance that decision-making will be on the basis of unanimity or qualified majority voting within such a forum, as is currently the case for EU decisions taken in Brussels?

[Lord Young of Cookham]

I think those fears—that Westminster will hang on to all the powers that are repatriated from the EU—are misplaced. We want to release as much as we can to the devolved Administrations, consistent with our ability to maintain a single market in the UK, our ability to maintain international treaties that the Government have entered into, our ability to negotiate new trade agreements post Brexit, and our responsibility to manage common resources and assure justice in cross-border areas. Subject to those constraints, we want to make quick progress and devolve as much as we can to the devolved Administrations.

[Baroness Eaton (Con)]

What consideration have the Government given to involving councils as well as the devolved Administrations in this business?

[Lord Young of Cookham]

Repatriation of powers from the EU opens opportunities to devolve powers down to local government. We are in consultation with the city region mayors, the local authorities and the LGA as we leave the European Union, to understand the impact and challenges of Brexit, but also to see what repatriated powers can be devolved from Westminster down to local authorities at all levels.

[Lord McConnell of Glenscorrodale (Lab)]

My Lords, I welcome the very positive response from the Minister, but there are clearly a number of significant decisions still outstanding in this regard. I urge the Government to consider at the end of the day, when these discussions have all taken place, having an independent element in the final judgments, because there will be a question of interpretation between the position of the UK Government on reserved responsibilities and the devolved Administrations and Governments on devolved responsibilities. It is vital that we respect the devolution settlement and the principles behind it from 1999 but, at the same time, reach an agreement that does not lead to increased tension inside the United Kingdom. Could there be an independent element in the final judgment when those discussions are reaching their conclusion?

[Lord Young of Cookham]

We want to reach consensus with the devolved Administrations on which powers go straight through and which are retained under what is called a common framework. If one looks at the communiqué that was issued at the end of the last meeting, one can see that real progress was made. I think the devolved Administrations concede that some powers will have to be subject to what is called a common framework, for the reasons that I outlined. Greater clarity on this will be obtained once we hit Clause 11 of the European Union (Withdrawal) Bill in the other place. There are a number of amendments along the lines of those referred to by the noble Lord on resolving that issue but, at the moment, we believe that the Joint Ministerial Committee is the right place to try to seek agreement quickly. It may be possible to release some of the powers immediately we leave the European Union, if good progress can be made.

[Lord Wallace of Saltaire (LD)]

My Lords, do the Government recognise that the interests of the English regions, which are different from those of London and the south-east, risk being pushed to one side in dialogue between the devolved Administrations and the central Government in London? The noble Baroness, Lady Eaton, has already touched on this. The population of Yorkshire is slightly larger than that of Scotland; the economy is as large. As a region it will be affected quite severely by the loss of EIB funding and a whole range of other things. What mechanism do the Government envisage to bring the interests of England outside the south-east into this dialogue?

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[Lord Young of Cookham]

I recall a powerful case made by the noble Lord and others when we debated a report last year on the northern regions, but the answer is the one I gave to my noble friend Lady Eaton: there are regular meetings between Secretaries of State, the city region mayors and leaders of local authorities to understand the impact and challenges of EU legislation. I am sure that ministerial colleagues in DCLG, among others, are anxious to see that the interests of the regions are taken on board as we leave the European Union.

[Lord Elystan-Morgan (CB)]

The Minister has made a significant and important statement to the effect that certain of the powers now held in Europe will be devolved and delegated to the devolved Administrations. Can he give assurance that there will be a constitutional precept to the effect that there should be a transfer of all powers unless there is a clear case to the contrary and that the onus should be with those who are against devolution, rather than otherwise?

[Lord Young of Cookham]

It is always slightly worrying when the Minister is told that he has said something important at the Dispatch Box when he believes that he has stuck to the departmental brief. I say to the noble Lord, who has asked me a number of questions on this, that I have set out clearly the reasons why we think there is a strong case to retain some powers at Westminster. For example, it would be ridiculous if wheat grown in one region was unable to be used to bake bread in another region because of different rules on pesticides, so we need to keep some powers in Westminster. Subject to those requirements, which were set out in the agreed communiqué, it is indeed the case that we would like to devolve as much as we can to the devolved Assemblies.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, given that the Government have undertaken to share with the EU Committee exactly the same access to the sectoral analyses, which are due in the Commons on Tuesday, can he confirm that they will arrive here that day? What plans are there then to share them with the devolved Administrations? Further, the Commons was told that the impact assessment for the whole of the Welsh economy does not exist, but the Chancellor has said that the Government’s modelling enabled the impact of Brexit to be analysed by country. Can the Minister advise the House whether such work on the impact of Brexit on, for example, Wales will be shared with this House and the devolved Assemblies?

[Lord Young of Cookham]

May I write to the noble Baroness on her first Question? On the second, there is an outstanding Written Question from the noble Lord, Lord Wigley, asking whether there will be an analysis of Brexit’s impact on Wales. That Question is due to be answered shortly—I think not by me. So there will be clarity on our position on whether there is a particular analysis of the impact of Brexit on Wales once that Question is answered.

Universal Credit

Lord Young of Cookham Excerpts

Thursday 16th November 2017 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, I am sure that we all want—wanted—universal credit to succeed, so in opening this debate I first pay tribute to the noble Lord, Lord Freud, who has heroically sought to build UC. It has been badly battered by HMT, but his architecture is still there. Secondly, I thank our Lords Minister, the noble Baroness, Lady Buscombe, who has been so helpful and approachable. It is a pleasure to work with her.

With so much early good will, why is UC in so much trouble, its effects on so many claimants catastrophic? People newly claiming UC from today on will not get their first payment until after Christmas. How will they cope? The story of UC is now a story of broken promises. During the Second Reading debates of 2011, Mr Duncan Smith and the noble Lord, Lord Freud, in good faith made three core promises to us all.

On 9 March 2011, Mr Duncan Smith said,

“work will always and must always be made to pay”.—[Official Report, Commons, 9/3/11; col. 921.]

The second promise, by the noble Lord, Lord Freud, was made on 13 September 2011, when he claimed that UC would lift,

“600,000 adults and 350,000 children out of poverty”.—[Official Report, 13/9/11; col. 629.]

Thirdly, Mr Duncan Smith said that UC would be,

“a regime that is easy to understand”.—[Official Report, Commons, 9/3/11; col. 923.]

The noble Lord, Lord Freud, said that a single UC benefit would be simple to claim and access.

Three promises: work would always pay; families would be lifted out of poverty; and a single benefit would ensure a simple structure. UC would, we hoped, be transformational. Three core promises, and every one broken. Why? HMT’s cuts and, to some extent, DWP delivery. The DWP fought Treasury cuts and lost. Now that UC is far meaner in its payments, nastier in its sanctions and harsher in its delivery than tax credits, HMT is suddenly anxious to roll it out ever faster—10 times faster, laying waste to DWP promises and our fellow citizens’ lives.

My examples come mainly from the deeply distressing 650 pages or so of last month’s written evidence to the Work and Pensions Select Committee. One claimant wrote that UC can transform lives,

“that is certainly true, by catapulting the ‘only just managing’ into poverty and debt”.

That is in UCR 0019.

Broken promises: let me count the ways. Promise one was that work would always pay. No. The IFS says that 3 million working families will, on average, be £2,500 a year worse off. The work allowance, which is taper free, before UC withdrawal kicks in, has been cut by up to £2,000 for a lone parent, and for single people, scrapped. A lone parent with one child now has to work 25 hours a week on UC to get the same income as working 16 hours a week under tax credits—60% more hours for the same income. Would we?

Second earners, mostly partnered women, are even worse hit, with no work allowance, so 63p in the pound taper from the first pound, tax and NI, childcare and loss of council tax support can take some 93% of her earnings. Why work when, with travel costs, you can be worse off? Would we?

The self-employed are especially exposed, as are disabled families. One client told the charity, Turn2us, “I will be better off giving up work because with the new UC I will be £200 worse off … so contemplating unemployment in 2018”. That first promise that work always pays is not for him, nor in future, when UC reaches 7 million people, for many thousands of others, so the DWP uses the whip of unbelievably harsh sanctions to get people into work that for too many does not pay. The first core promise is therefore broken. The second core promise was that UC would lift 350,000 children out of poverty. Instead, says CPAG, drawing on DWP and IFS stats a fortnight ago, HMT’s repeated cuts to UC will send 1 million more children into poverty by 2021, their lives blighted. How in all decency can we defend this even to ourselves? Promise number two is therefore broken.

I come to the third broken promise on smooth delivery. Where to begin? There are missed payments, delayed payments, wrong payments, cases lost or closed, making late appeals impossible, staff unable to handle contributory benefits, claimants lacking acceptable ID, reputable advisers such as CAB unable to act for clients in hospital because they lack explicit consent, staff asking for the wrong information, documents getting lost, keeping incomplete records and giving conflicting advice. Claimants have informed the DWP that they could not attend an appointment as their employer refused them time off. They were sanctioned. They were in hospital: sanctioned. An appointment posted by the DWP to the wrong address: a three-month sanction.

Take IT. Parts of rural Norfolk lack internet access; in any case struggling claimants, especially older or disabled people, cannot afford dial up or smart phones, nor can they always get to jobcentres, 87 of which, unbelievably, are closing just at the time when we should be boosting jobcentre support. What can they do? A claimant had an appointment for 10 am. He notified the DWP that his first local bus arrived at noon: he was sanctioned. One man—reference: UCR 0065—with a traumatic brain injury affecting his memory, was late for his appointment. He was sanctioned and lost several hundred pounds. He self-harmed, and, unable to afford the bus fare to hospital, he closed his wound himself with super glue.

Tribunal judges are scathing. The greatest problem, however, is the six-week or more waiting period, and then monthly payments in arrears—supposed, if I may say so, to moralise some of the most marginal in society into behaving like middle-class salaried professionals resilient with savings. The Government must know the stats: 58% of those on UC are paid weekly or fortnightly, not monthly. Plymouth Community Homes has 14,000 tenants; 75% of its claimants are paid weekly, fortnightly, or have limited hours, so payment delays sink those claimants deeper into the quagmire of debt. In Gateshead, 221 of 231 tenants on UC have arrears over £800; in Halton, 920 of its 1,000 tenants have these arrears. Croydon, Southwark and Tower Hamlets have an average debt for all UC payments of about £1,000. Many, I fear, will never get out of the debt we have constructed for them. Family members, themselves struggling, are trying to support other family members. As one sister said, it is “the poor that are supporting the poorest”.

More than a quarter of claimants are waiting more than six weeks for their initial payment; one in 10 is waiting for more than 10 weeks—without earnings, benefits, or savings. They are pawning their belongings and missing meals. Charity workers are finding fivers out of their own pockets to put the meter back on for some lighting and heating. All these people are facing Christmas.

Half of new UC claimants now claim advance payments, which is surely evidence that the six-week model was flawed from its very beginning. But, unlike the low cap in tax credits debt recovery, for the next six months DWP takes up to 40%—often far more with other debts—from your UC standard allowance for advance payments, council tax and utilities arrears. Each month, your personal, private debt rises to cover the shortfall from your public debt, as handled by DWP.

The second largest delivery issue is that UC is not paid directly to landlords on request. Some 79% of UC claimants are in rent arrears. Some have already been evicted by social landlords. In Northern Ireland and Scotland, at tenants’ request, UC can be paid fortnightly rather than monthly in arrears and the housing element paid directly to the landlord. If it can be done in Scotland and in Northern Ireland, why not in England?

DWP is extending its trusted partner and landlord portal scheme, but not to the private sector. Private landlords need their rents to finance their mortgages. Some tenants are waiting for 10 or 12 weeks—yet eight weeks of arrears are mandatory grounds for re-possession.

So what changes might, in my view, help to rescue UC? What might begin to redeem those broken promises: that work should always pay; that people would be lifted out of poverty; and that delivery would be simple? Of course, I would like a reinstatement of the cuts, from benefit freeze to second child policy—those are big ticket items. But, in particular, we hope to see a four-week rather than a six-week initial payment period in the Budget.

We want, at tenants’ request, fortnightly payments of UC and direct payments of the housing elements to landlords, as in Scotland and Northern Ireland. We should cap and slow down DWP debt recovery to avoid even deeper debt.

We should raise the work allowance; pilot some second earners to see whether their own work allowance would bring them into work. Two-thirds of children in poverty have a working parent. If work really paid, a second earner could lift her children out of poverty—and that must matter, I am sure, to us all.

Here is a proposal from someone who knows how UC works. Most UC problems hit and hurt claimants within the first three or four months. A fortnight’s UC grant at the beginning of a UC claim—with no clawback, just a fortnight’s grant until first full payment as now—would keep so many families afloat.

This would be a grant that does not need be repaid. But how much would it be? By 2021, it is calculated, total social security cuts and welfare reforms will be “saving” HMT £37 billion per year—86% of that falling on women, of course. A two-week grant, costing between £400 million to £600 million, combined with four weeks until first payment, could indeed transform lives for the better. It could be a grant financed, perhaps, by last year’s £680 million underspend on tax credits, as pointed out by the OBR. People are so scared out there. The work and pensions evidence that I have here is completely draining in its wretchedness.

Two people are facing Christmas. Donna—UCR 0060—is a lone parent with three children, who has been working zero-hour contracts, on UC, for 18 months. When her hours were cut as a ZHC worker, as little work was available, she tried to get an advance payment but was told—correctly, according to the rules—that it was too late. It was her fault, they said—she should have budgeted better. She says, “I wanted to say, ‘You don’t know my situation. I work, I work, 40 hours a week if I can get it. You don’t know how hard this has been. I’m a person!’”.

Steve, a 55 year-old maintenance engineer, was made redundant in April 2016. After four visits and three months, he got his first payment. The stress and fear led to angina and he was hospitalised, so he missed an interview and was sanctioned for two months. The resulting rent arrears of £1,000 meant that he lost his home. He did everything right. We did everything wrong. We broke our promises—and we broke him with it. What Christmas is there for Donna or Steve? We can and must do better than this. Sir John Major said last month that UC was,

“operationally messy, socially unfair and unforgiving”.

Was he wrong? I beg to move.

[Lord Young of Cookham (Con)]

My Lords, this debate is very well subscribed and is taking place within a tight timetable. I urge all noble Lords to stick within the five-minute limit.

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[Baroness Armstrong of Hill Top (Lab)]

My Lords, I draw the attention of Members to my interests in the register. I also congratulate my colleague and noble friend Lady Hollis on getting this debate. I want to raise two practical problems that I know, from my experience, are already happening with early claimants of universal credit.

First, I echo the points made by my noble friend Lady Drake about the problems arising with the two-child limit and its effect on kinship carers. I hope that the Minister has been well briefed on the debates that we had in this House on the Welfare Reform and Work Bill, when we were told that kinship carers would be exempt from the two-child rule. Unfortunately, the regulations subsequently issued have left a loophole, which my noble friend Lady Drake explained well. A kinship carer is unable to claim child tax credit for any baby to which they give birth if there are already two or more children in the household—even if they are looking after those children because the natural parents are not able to do so. This is not in the spirit of the debates that we had during the passage of the Bill or in the spirit of the speech—the gracious speech, I might say—made by the Minister in conceding on this issue. I hope that this is a mistake and that the Minister will be able to reassure those of us who were active around this issue that the regulations will be corrected to get back to the promise made. Children from the extended family whose natural parents are not able to care for them should not be part of the two-child rule in any circumstances.

I ask the Government to link this to the knowledge that, other than in some boroughs in London, the north-east has the highest proportion of kinship carers in the country, as well as having among the lowest wage rates in the country and the highest number of children in poverty. These things come together and the Government need to pay attention to these people, who really have been left behind.

Secondly, I chair a charity called Changing Lives, which is based in the north-east but also works across Yorkshire, in Merseyside, in other parts of the north-west and in the West Midlands. We work with people with multiple and complex needs—women as well as men. We run the Fulfilling Lives project, funded by the Big Lottery, in Newcastle and Gateshead. It is a long-term project, working with service deliverers on seeking a more holistic response for people with complex needs. Newcastle was nominated as a “test and learn” city for the rollout of universal credit. That means we have been helping some of our clients navigate their way through the new system. For the most vulnerable clients, universal credit is a real problem. In the Fulfilling Lives programme we use a navigator, who works one-to-one with individual service users.

The whole programme is proving exceptionally difficult. Many of the people we are working with are still a long way away from the labour market. As an organisation, Changing Lives has an unrivalled record in getting many of our clients work-fit and into work, but it is often a very long and difficult process. With the most vulnerable, universal credit is, ironically, making it more difficult, not more straightforward, to get them job-ready and into whatever jobs are available. I do not have time to raise the case studies today, but if the Minister would find it useful, I will send her more details.

In the main charity, we have been innovative both with Housing First and with bringing empty properties back into use for homeless people. We have done more than any other organisation in the country on these programmes. In Newcastle, with full rollout of universal credit, we are now seeing arrears of 23% compared to arrears in the rest of the country, in programmes that we are working with, of only 6%. Every universal credit claimant whom we are working with is in arrears. The level of arrears for the charity from universal credit claimants is £51,620.13 as of yesterday. In Home Life, 22 out of 27 tenancies have arrears of over £1,000. People who fall into arrears generally do not get back out. We as a charity are having to budget for increased arrears as universal credit is rolled out. I simply ask the Minister to reflect on this and to consider the devastating effect on those individuals who are trying to put their lives back together.

[Lord Young of Cookham]

My Lords, the five-minute margin that we had in the bank has already been eroded. I urge noble Lords to try to stick within the five-minute limit.

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[Lord Kerslake (CB)]

My Lords, I declare my interests as chair of Peabody and president of the Local Government Association. My other interests are as listed in the register.

Universal credit stands as an almost perfect example of what the French call “the politics of the stiff neck”—a stubborn, haughty refusal to change one’s mind in the face of all the evidence to the contrary. The consequence of this stubbornness is to cause quite unnecessary misery for a large number of very vulnerable people.

I hope that today’s debate, which I congratulate the noble Baroness, Lady Hollis, on organising, will go some way to persuading the Government to change their minds. There can be few—there are none in this Chamber—who disagree with the aims of universal credit: to simplify the benefits system and make work pay. The key problem lies not in the aims but the execution.

It is a complex project that has to take account of a lot of different individual circumstances. If you are really going to make work pay, there is a cost, which goes against the relentless reduction in welfare spending. No one expected this project to be easy. Indeed, when it ran into trouble during the coalition Government, there were big issues to resolve. They were largely internal problems, however, and the pain, such as it was, was confined to Ministers and officials responsible for that implementation. The crucial difference between then and the current crisis is that the pain now will be felt by thousands of claimants and that number will grow dramatically to some 7 million people as the project is rolled out.

If anybody doubts the malign impact that universal credit in its current form is having, I would refer them to the Smith Institute Report Safe as Houses: The impact of Universal Credit on Tenants and Their Rent Payment Behaviour, commissioned by the London Boroughs of Croydon and Southwark, and Peabody. Seven hundred and seventy-five rent payment accounts of tenants starting universal credit in August and October 2016 were analysed and compared with 249 tenants starting on housing benefits at the same time—a control sample. In addition, 36 in-depth interviews and four focus groups were held. The results are absolutely clear cut: growing rent arrears, with high arrears at the start that are never fully recovered; delayed payments and consequential financial hardship; a one-size-fits-all approach that does not take account of the individual circumstances of tenants; and severe impacts on those tenants who are the most vulnerable. The statistics tell a story but the individual cases, as we have heard today, are heart-rending. What is particularly sad is that the feelings claimants now have about universal credit—which was intended to help them—are generally, if not universally, negative.

Claimants really do not want to be in debt. They do not want to rely on friends or, even worse, on loan sharks. Our research at Peabody has calculated that without change, 41,000 children in the UK are at risk of being in penniless homes over this Christmas due to the wait for universal credit. I think Members on all sides of the House will see this as utterly intolerable.

What can be done? Some good practical steps can be taken now: remove the seven-day wait at the start of a new claim; reduce the waiting period to two weeks, as with housing benefit; offer everyone alternative payment arrangements—let the claimant make the decision on whether they want their rent paid direct, not have the state decide what is good for them; inform everyone moving on to universal credit that advance payments arrangements exist; and put in place a comprehensive support package to help with the application process. These measures will not deal with all the deep issues with universal credit at the moment, but they would be an incredibly good start. I add that the Government, if they are serious, should also establish an independent body to review the progress and impact of universal credit at each stage of the rollout. I say to Ministers that these are not big asks; they do not threaten the future of the project. Why on earth do the Government not agree them now?

Good government is not easy. We make mistakes; we learn from them. But to press on with this project without amendment when there is such clear evidence of the distress and hardship it will cause is not just bad government—it is cruel. I look forward to the Minister’s response.

[Lord Young of Cookham]

My Lords, the situation is becoming critical. More and more questions are being asked of the Minister but she has less and less time in which to answer them. I urge noble Lords to make sure that their speeches end by the time the clock hits five minutes.

Working-age Benefits

Lord Young of Cookham Excerpts

Thursday 16th November 2017 Lords Chamber

[Lord Young of Cookham (Con)]

I begin by thanking the right reverend Prelate the Lord Bishop of St Albans for securing this debate—his second debate this week, each focusing rightly on the least well-off in society. I am grateful for the way he set out his case and for what he said about families, much of which was endorsed by my noble friend Lord Elton. The other speakers in this debate are all veterans of previous debates on universal credit—an important qualification which I hope has reassured the noble Baroness.

The noble Baroness wanted to look at history. If I may, I shall do exactly the same, going back a little further than she did. This debate is very different from one that might have taken place when I first entered government in 1979 as a Minister at the Department of Health and Social Security, a precursor to today’s DWP. Welfare spending on people in work barely existed at that time, often leading to a sharp drop in income as people moved off supplementary benefit into work, with all the disincentives that went with it.

In the decades that have followed, we have seen in-work support evolve from its inception through family credit and housing benefit to the introduction of statutory sick and maternity pay in the 1980s and then on to tax credits, which started in the late 1990s and have grown in importance ever since. The more than £25 billion that the Government now spend on in-work benefits and tax credits sits at the heart of a welfare system dedicated to supporting people, first, to seek and find work, and then to stay in work and take home more of what they earn. This has been a dramatic change in priorities over my political lifetime.

I hope it does not sound hard-hearted to say that work is the best route for families to get out of poverty and become self-reliant. I genuinely believe that to be the case. Earnings provide people with the best opportunity to grow their income and become financially secure. Across the UK, the unemployment rate is at its lowest level in over 40 years and there are fewer households where no one is in employment than at any time since comparable records began. That is why we are committed to incentivising work for those who can. This debate, however, is about the next step.

What happens to living standards when people have found a job? Here, the Government have taken a number of steps, not all of which have been mentioned in the debate. They have cut income tax for over 30 million people and taken 4 million low earners out of income tax altogether. As of April this year, a typical basic rate taxpayer will pay over £1,000 less income tax, compared to 2010-11. Our plan, as the noble Lord, Lord Kirkwood, mentioned, is to increase the tax-free personal allowance further to £12,500 by the end of this Parliament.

Other measures, such as freezing fuel duty and reducing social rents to 2020, will mean more money in the pockets of those social tenants paying their own rent and a lower housing benefit bill. If one puts it all together and takes into account the national minimum wage, in 2010 a single person on the national minimum wage working 35 hours per week would have taken home £9,200 after tax and national insurance. Following the national living wage and changes to the personal allowance, they would take home £12,500, an increase of £3,300.

The national living wage has had a big impact. It has given the UK’s lowest earners their fastest pay rise in 20 years. In 2016 their full-time earnings increased by 6.2%—well above median growth of 2.2%. Since 2010 the annual average income of the poorest fifth of households has risen in real terms by more than £300, while the incomes of the richest fifth have fallen. Our aim is for the national living wage to reach 60% of median earnings in 2020. Since 2010, we have 600,000 fewer people living in absolute low income on a before-housing-costs basis, and 1.2 million fewer people on out-of-work benefits, so income inequality is down.

My noble friend Lord Elton and others mentioned working families on low income. Here we have made the childcare element of universal credit more generous. Parents on universal credit can now claim back up to 85% of eligible childcare costs, compared with 70% in working tax credit, a change that is benefiting 500,000 working families. Working families in England with children aged three and four can now get up to 30 hours of free childcare a week in England, worth up to £5,000 per child. This amounts to a record investment by the Government in childcare. By 2019-20 we will be spending over £6 billion per year to support working families in this way. Helping the younger unemployed, we have seen more than 3 million apprenticeships start since 2010, with a commitment to 1.9 million more apprenticeships by 2020, helping young people into better-paid employment. Youth unemployment has fallen by over 40% since 2010, and the proportion of young people who are unemployed and not in full-time education remains below 5%

While the debate has focused on the specific impact of the benefit freeze, we should put on the other side of the scales the many measures that I have just mentioned. If we do that, we get a fuller and more balanced picture.

At the time of the 2015 summer Budget, we estimated that the benefit freeze would save £3.5 billion in 2019-20, equating to an average notional loss of £6 per week in 2019-20. Some of the other measures I have just referred to should be taken into account before one comes to an overall judgment.

The noble Baroness, Lady Sherlock, and others, contrasted the freeze in working-age benefits with a more generous regime for the state retirement pension. There is a key difference that justifies this. Once you reach state retirement age, there is no turning back. For most, there is no opportunity to increase their income through paid work, whereas those of working age and who are fit have this opportunity. Between August and October of this year there were 780,000 job vacancies. Just to make the point, around 80% of people leave JSA within six months of making a claim, indicating that this is a stream rather than a pool.

A number of noble Lords raised statistics about poverty. We can trade statistics about relative or absolute poverty, before or after housing. Since 2010, on a before-housing-cost basis, there are 600,000 fewer people on absolute low income—a record low—including 200,000 fewer children, 100,000 fewer pensioners and 300,000 working-age adults.

In his opening remarks, the right reverend Prelate said that one of the three criteria should be fairness. I agree. The Treasury published a cumulative distributional analysis alongside the Autumn Statement in November last year, showing the impacts on household income of tax, welfare and public expenditure changes implemented—or planned to be implemented—since the 2010 general election. This is the most comprehensive analysis available, covering the effects of not only direct cash transfers between households and government but of front-line public service provision. This analysis shows that the state is highly redistributive. On average, the 10% of households with the lowest incomes receive over four times as much support in spending as they contribute in tax, while the 10% of households with the highest incomes contribute over five times as much in tax as they receive in spending. The Government’s policies have repeatedly increased the tax contribution of the wealthy through measures such as the reform of dividend taxation and the increase in stamp duty. Income inequality is now lower than it was in 2010.

My noble friend Lord Elton mentioned children and families. We are committed to supporting families and tackling the root causes of child poverty and disadvantage. We know that children do worse in households where no one is in work. A child growing up in such a family is almost twice as likely to fail at all stages of their education as a child living in a working family. Children in households without a working member are five times more likely to be in poverty than those in households where all the adults work. Hence the emphasis in our policy on getting people into work wherever possible.

I shall touch briefly on some of the points raised in the debate. I join the noble Lord, Lord Beecham, in paying tribute to the voluntary sector and the work it does in helping some of the families we have been talking about. On the spare room subsidy—rather than the bedroom tax—he will know that discretionary housing grants are available to help those in need as a result of the change. My noble friend Lady Buscombe addressed the two-child policy in the debate that has just concluded. I should like to write to the noble Lord if I do not touch on all the points he raised.

On the benefit cap, there is a basic issue of fairness which, I think, resonates with the public as a whole. It is absolutely right that you cannot get more from a life on benefits than from work. This is the principle behind the cap.

I am grateful to the noble Lord, Lord Kirkwood, for curtailing his speech on the earlier debate. I will pass on to the Chancellor his suggestion of switching the resources from cutting the personal tax allowance to putting more into universal credit. He asked why we used primary legislation to freeze the benefits and tax credits. Legislating for four years brought certainty on levels of welfare spending to benefit recipients, the taxpayer and the Exchequer. The annual uprating includes benefits for carers and disability premiums. My understanding is that, once we come to the end of the freeze, we revert to the default position of uprating on the normal basis.

The noble Lord asked about the SSAC. The annual uprating order that provides for increases in benefits and pension rates is not subject to SSAC scrutiny. The order is fiscal policy and that is why the four-year benefit freeze was provided for in primary legislation and not as part of the annual review.

This is a Government who support families. We support people below state pension age with over £90 billion a year in payments, providing a robust welfare safety net. We support families who face additional obstacles and costs as a result of disability or illness by maintaining the value of the payments they receive. We support parents to get into work and out of poverty, to earn more, to gain financial security for their families and to give their children the best prospects for the future.

Risk Transformation Regulations 2017

Lord Young of Cookham Excerpts

Tuesday 7th November 2017 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 12 October be approved.

[Lord Young of Cookham (Con)]

My Lords, I hope that the noble Lord, Lord Tunnicliffe, will be in an equally benign mood when he addresses the regulations in my name.

The Risk Transformation Regulations 2017 introduce a bespoke regulatory framework for insurance-linked securities business in the UK, announced at Budget 2015. The regulations comprise three main elements. First, they provide for UK regulators to apply a new authorisation and supervisory regime for insurance-linked securities vehicles in the UK. Secondly, they introduce a new type of company to enable multiple insurance-linked securities deals to be managed in a single company. Finally, they set out the rules for the issuance of insurance-linked securities investments so that the interests of protection buyers and investors are protected.

In an insurance-linked securities transaction, risk is transferred from an insurer or reinsurer to the capital markets. An insurer contracts with an entity specifically established to take on insurance risk. These entities are often known as insurance special purpose vehicles, and are called “transformer vehicles” in the regulations. The insurer transfers a specified risk to the transformer vehicle, paying reinsurance premiums for the risk transferred, and the vehicle then raises collateral to cover that risk by issuing securities to capital market investors. Investors earn income on their securities from the premiums paid by the insurer. Should the insured event take place, the collateral is released to the insurer to compensate them for their loss. If the insured event does not take place, the collateral is returned to investors. Investors are attracted to insurance-linked securities transactions as they offer a return that is uncorrelated to the performance of traditional financial markets.

Insurance-linked securities are now an important and growing part of the global specialist reinsurance market. As of 2017, more than $90 billion-worth of insurance-linked securities have been issued. By enabling insurers to access alternative sources of capital from the capital markets, this business has brought much-needed additional capacity to parts of the reinsurance market. However, despite the importance of London as a global insurance hub, the rapid growth of the insurance-linked securities market has taken place elsewhere.

The March 2015 Budget therefore announced that the Treasury, PRA and FCA would work closely with the London market to develop a more effective framework for insurance-linked securities business. The London market established an industry group, the insurance-linked securities task force, and over the past three years, the Treasury, PRA, FCA and insurance-linked securities task force have worked together to design the fit-for-purpose regulations that are before the House today. At its heart, therefore, the insurance-linked securities project aims to ensure that London and the UK maintain their position as a global insurance hub—and I am sure that noble Lords will agree that any attempt to increase the competitiveness of the UK’s financial services offer is welcome.

The regulations are split into four parts, and they achieve three broad aims. Part 2 implements a new authorisation and supervision regime for insurance-linked securities vehicles, which will be overseen by both the Prudential Regulation Authority and the Financial Conduct Authority. The PRA will be the lead regulator. By providing a robust and efficient framework for the supervision of insurance-linked securities, consistent with requirements set out in EU law, investors and protection buyers that use UK vehicles will benefit from the world-class financial regulation that the UK provides.

Part 3 ensures that only sophisticated or institutional investors can be offered insurance-linked securities in the UK. As I explained a moment ago, in an insurance-linked securities deal, when an insured event occurs, investors are liable to lose some or all of their capital. These are complicated financial instruments, and it would be wrong for public retail investors to be able to purchase these investments. That is why the regulations restrict the types of investors who can purchase insurance-linked securities; these investors will often hold investments in a number of different insurance-linked securities vehicles to both diversify their holdings and minimise the risk of losses.

Part 4 introduces a new form of corporate body called a protected cell company. A protected cell company allows multiple insurance-linked securities deals to be managed in a single company. Each new deal is held in a cell, and the structure of a protected cell company ensures that each deal’s assets and liabilities are ring-fenced from one another. This type of structure is already common in the insurance-linked securities market and allows for a more efficient management of risk than a new vehicle being set up for each individual deal. Protected cell companies will be carefully regulated by the PRA and FCA, with the PRA ensuring that each cell is fully capitalised.

Unlike conventional reinsurance, insurance-linked securities transactions do not pool risk. Indeed, the regulations require risk to be segregated: the transferred risk of one insurance or reinsurance entity cannot be combined with the risk of any other entity. Nor do these transactions lead to the leveraging or undercapitalisation of risk. They are not a way for insurers or reinsurers to avoid their responsibility of carefully ensuring that their risk is suitably capitalised.

In insurance-linked securities transactions, the transformer vehicle takes on a specific risk and must hold collateral that is at least equal to the risk that has been transferred to that vehicle. The Bank of England and Financial Services Act 2016, which amended the Financial Services and Markets Act 2000 to provide the enabling powers for the risk transformation regulations, defines risk transformation as the activity of assuming risk from an entity and fully funding exposure to that risk by issuing investments.

Regulations therefore ensure that each and every insurance-linked securities deal in the UK will hold capital that is at least equal to the risk that it has assumed. There can be no leveraging, pooling or undercapitalisation of risk in these transactions. This will ensure that insurers can rely on the protection they arrange through insurance-linked securities deals. That is an important point to bear in mind, considering the terrible impact of Hurricanes Harvey, Maria and Irma in the US and the Caribbean recently. These hurricanes represent some of the largest loss events that the insurance industry has seen and have tested the insurance-linked securities market’s capacity to respond and pay out on claims.

To summarise, the regulations before the House today are aimed at improving the competitive position of the UK insurance market by giving insurers and reinsurers a fit-for-purpose regulatory regime for insurance-linked securities.

We have heard that insurance-linked securities are a growing market—indeed, 2017 has seen a record issuance of insurance-linked securities, with more than $11 billion issued this year alone. EY has estimated that the market could grow to $224 billion by 2021, and the CEO of Securis, a UK-based insurance-linked securities fund has said that,

“the opportunity set for ILS has never been better”.

It is therefore the right time for the UK to improve its offer in this market. These regulations will be accompanied by new tax regulations that provide for a more competitive and straightforward tax treatment for authorised insurance-linked securities vehicles in the UK. The moves have been welcomed by the industry. I am pleased to say that the London Market Group, which represents London’s insurers and reinsurers, has welcomed this new framework for insurance-linked securities business. I beg to move.

[The Earl of Kinnoull (CB)]

My Lords, I thank the Minister very much for his clear explanation of something which I suspect was not his home ground. It is, however, my home ground in some ways. This is an important statutory instrument, and I declare my interests as set out in the register of the House, in particular those in respect of the non-life insurance industry. I very much welcome the instrument, as it will allow London to take a full part in this extremely interesting new reinsurance market. I say a full part because London has been part of issuing and buying insurance-linked securities for some time, we just have not had the apparatus of protected cell companies, an apparatus which exists conveniently in Guernsey and very conveniently, in a market-leading sense, in Bermuda. I should also say that the first issuer in London of such a thing was my company in 2002, so since then, from a standing start, the market has got to the size that the Minister mentioned.

I very much congratulate the Treasury, which has slaved away for two years with a whole team of people, but I know that the London Market Group has been a particular part of that, and has shown considerable flexibility in changing a mindset, because protected cell companies are a very different structure to those we are used to in this country. It is a big market. I found some notes from when I was sitting on a panel discussing insurance-linked securities in New York in 2011. Then, the worldwide issuance was US$30 billion, and the London Market Group tells me that it is $89 billion—I am pleased to hear that it has grown by $1 billion overnight to $90 billion. The average maturity of the securities is under three years, which means that market issuance is about $30 billion a year, so it is a very big market for those who are going to run PCCs to have a go at.

There are one or two other benefits for London which were not mentioned in the introduction. First, these securities are listed—obviously, we have two very convenient stock exchanges here, which I hope are hungry for business. Secondly, the money in these structures has to be managed, and we have plenty of fund managers who are happy to do that. Also, being here in the London market will be of benefit because one is very close to innovation. There is a lot of innovation in London. The Caribbean wind storms that have gone through recently need a lot of innovation, because those islands do not have the wherewithal to buy traditional reinsurance—it is too expensive—and this may provide a route. I know that people are working on that. I know that a number of people who are working are assuming that we will approve the regulations, and their great hope is that the first transaction will be done before year end.

If I had any concerns, and purely to ask the Minister something—I do not really, because I think that we have taken the best of breed from all the PCC structural developments around the world—it would be that I note that the PRA is left with a couple of powers which if incorrectly exercised could lead it to deal damage to the market. The first is the cost of each cell and the costs of regulation. Of course, when you are deciding on the jurisdiction of your special purpose vehicle, cost is key. I hope that the PRA will think about that. Secondly, paragraph 63 enables the PRA to ask for information about each new cell when it arrives. Obviously, it could ask for a tremendous laundry list of stuff. I hope that it will be proportionate in what it does. Can the Minister confirm that the PRA intends to be pragmatic and proportionate in its approach to this new market in the UK?

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing the order so thoroughly. As he outlined, the Risk Transformation (Tax) Regulations 2017 create the regulatory and supervisory framework for insurance-linked securities. ILSs allow companies to obtain reinsurance protection from a new pool of capital separate from traditional reinsurance, meaning the direct transfer of reinsurance risk to the capital market. The proposed framework is composed of three elements: the corporate structure for insurance special purpose vehicles or ISPVs, called protected cell companies or PCCs; an authorisation procedure for the PRA and the FCA; and the specific tax arrangements for ILSs.

Before I turn to some specific questions which arose from my reading of the regulations, impact assessment and consultations, I will say something about ILSs in general. The assumption—I use that word deliberately—is that they ought to have little or no correlation with the wider financial markets as their value is linked to non-financial risks such as natural disasters, and therein lies my concern. The Government have made no attempt to conceal the fact that the UK will be venturing into the unknown. Indeed, on the first page of the impact assessment the Treasury states:

“London would be the first major financial centre to offer ILS solutions and we think that a major and well trusted financial centre can help grow the global ILS market”.


This is not a statement of certainty. Given the admission that the UK is breaking new ground, I would have expected the Government to have been keen to assess the impact that the introduction of more risk to the market could have on the financial sector as a whole. An IMF working paper puts it well, stating:

“The growth in recent years of Insurance-Linked Securities has widened the exposure of investors (mostly hedge funds and specialist investment vehicles) to insurance risks originated and managed by insurance companies ... But the effect is that catastrophic insurance losses can now be transmitted directly to investors without the cushion of the insurance company's balance sheet”.


There seems to be an untested assumption, throughout the Government’s proceedings, that there is no correlation between ILSs and economic stability. Am I wrong? Have the Government carried out such risk assessments? If they have, I would be grateful if the Minister could publish them. If not, will he go back to his department and urge it to produce them? It is this lack of inquiry which makes me doubly concerned about the lack of a requirement for a formal review to take place.

The Government have stated that there are a number of issues they intend to review periodically, including whether protected cell companies could be used for other purposes and the untested authorisation and supervision of ISPVs and MISPVs. How did they arrive at the view that a formal review, perhaps within a year of these regulations coming into force, was not necessary? I suggest that there are plenty of measures which would merit review: the extent to which ILS shares are traded on a secondary market, the usage and impact of PCC gateways and the tax treatment. The noble Lord knows that conventions dictate that we do not test the opinion of the House on such matters, but let that not undermine the importance that I place on these questions.

I have a few specific points. The first relates to the tax measures. This third component is in separate regulations —the Risk Transformation (Tax) Regulations 2017 — which are not being debated today. Surely it would have made more sense for the two instruments to be debated alongside each other? Can the framework come into force without the tax elements in place? When does the Minister expect this House to debate the tax treatment for ILSs?

Moving to the insurance mechanisms, a PCC will comprise a core— which is the legal entity—and a number of cells. Will there be a limit to the number of cells each ISPV will be authorised to have? Has the department carried out any analysis on the estimated number of cells each company will run? I ask with particular concerns that an unlimited number of cells would increase the risk of instability in the market, especially if cells are grouped. I understand that this grouping of cells will be allowed in limited circumstances. The Government consulted on how the PRA may impose limitations on how PCCs use these gateways, so as to ensure that cells are used with care and are consistent with the EU Solvency II directive. Will the Minister outline the circumstances in which the PRA would enforce such restrictions?

My final point is about the Government’s decision, as a result of listening to consultation feedback, to change from a pre to a post-transaction notification period to the PRA for new multi-arrangement insurance special purpose vehicle cells, or any assumption of new risk. Why the change? What objections were raised to what sounds like a perfectly reasonable suggestion? As a result of this shift in approach, the Government have stated that the necessary safeguards are in place. Will the Minister outline what these are? The consultation response goes on to say that,

“it will be proportionate for the PRA to give permission to mISPVs to enter into specified kinds of risk transfer deals in the future without the need for further authorisation, provided that those future deals are in accordance with the limitations as set out in the mISPVs permission”.

Is it the PRA’s responsibility to monitor whether deals are in line with expectations or is the onus on the company to report it?

As I have made clear, although we will not vote against this order, I am deeply concerned that the Government are inviting further risk into an already unstable and uncertain market without fully considering the consequences. I hope that the noble Lord can relieve some of my worries in his response.

[Lord Young of Cookham]

My Lords, I am very grateful to the noble Earl, Lord Kinnoull, and the noble Lord, Tunnicliffe, for their comments on these regulations, the light they have shed on them and the perceptive questions they have raised. I am grateful to the noble Earl for identifying that his company—clearly in the forefront of developing this market—has been dealing with these securities for some time. He made the point that the infrastructure needs improving if we are to capitalise on our strengths, and that developing these vehicles in London means that they can then utilise some of the other strengths of the London capital market, such as fund management. He raised issues about the costs. I understand that the PRA and FCA have both set out the costs of authorising ILS vehicles. The proposed costs are already known to the market and so far the industry has not expressed any concern about them. Indeed, the fact that we are developing a fit-for-purpose regulatory structure has been welcomed.

The PRA is aware of the concerns about timing and has said that it aims to improve straightforward ILSs within a six to eight-week timeframe. Given that this is a new activity for it, I expect there will be a learning curve. As time progresses, this may be less steep and it may be able to turn applications round more quickly. However, once the initial authorisation of a vehicle has taken place—this is the protected cell company—each ILS deal can then be added, without having to be approved by the PRA, so long as it complies, as the noble Lord, Lord Tunnicliffe, has just said, with the vehicle’s overall business plan. This will allow ILS deals to be conducted at speed within an authorised vehicle.

On the question of these instruments being listed on the stock exchange, the regulations do not prevent the trading of these instruments on a secondary market. However, as I said when I introduced the regulations, if trading of these instruments is to occur, the secondary marketplace should be accessible only to sophisticated or institutional investors, and this will be regulated by the FCA. We do not want retail investors to be able to purchase these securities as they are clearly unsuitable for retail investment.

On the important issue raised by the noble Lord, Lord Tunnicliffe, the Government’s view is not that we are entering into the unknown by seeking to attract this business to the UK because, as we heard from the noble Earl, ILS is now a well-established and well-understood industry that has been part of the global reinsurance market for some 25 years. Therefore, the ILS business model and the contribution it makes to increasing capacity is well understood and it is clear that ILS has made a positive contribution to global reinsurance capacity. The ability to conduct ILS business in the UK, or indeed across the EU, is not new. Indeed, under the EU’s Solvency II Directive, the UK is obligated to permit and regulate this business. What is new is the regulatory fit-for-purpose framework we are introducing through these regulations, which will ensure not only that we remain a competitive market but that ILS business is conducted to high prudential standards.

The noble Lord referred to impact assessments. As he will know, government departments are required to produce impact assessments for any new regulations they seek to introduce. One such assessment was submitted for the Risk Transformation Regulations and cleared by the Regulatory Policy Committee. As ILS is already possible in the UK, the purpose of that impact assessment was to determine whether the new framework would increase costs for business or the regulators. The conclusion, consistent with the objective to make the UK a competitive environment, is that it would not. What is difficult to estimate is how much ILS might be attracted to the UK.

The noble Lord also raised the important issue of the impact that developing this market might have on overall financial stability. This will not be the case. Unlike conventional reinsurers, ILS transactions do not pool risk, as I explained. Deals must be fully collateralised—the transformer vehicle must raise and hold collateral which is sufficient to meet its reinsurance obligations. These deals are not a way for insurance companies to leverage or hedge their risk or avoid the proper capitalisation of risk that is required under the Solvency II directive, so each risk is in a sense insulated within its own cell. Indeed, I would argue that if these transactions are arranged prudently, they can contribute to financial stability because of the way they are composed. The noble Lord may be interested to know that Hiscox carried out an insurance sector stress test in January of this year which underlined the importance of ILS in providing an alternative source of capital for insurers to draw on in times of crisis.

The noble Lord addressed the point that I made that this market was not correlated with general financial markets. A range of publicly available studies has looked at this issue, so again, we are not dealing with the unknown. For example, one report published in 2016 by the Chartered Financial Analysts Institute concluded that:

“ILS products allocate capital efficiently while providing positive returns for investors—returns that offer true diversification because they are not correlated with returns of the traditional asset classes”.


The clearest evidence of this view being reliable is the performance of ILS investments during the financial crisis. While financial markets in general were hit by the crisis, ILS instruments continued to perform well.

The noble Lord asked about the tax regulations. The Risk Transformation (Tax) Regulations, which set out the tax treatment for these vehicles, are made under the Finance Act 2016 and will be considered in another place. I will write to the noble Lord on the question he raised about the timing and why they are not being introduced simultaneously.

The noble Lord asked about the number of cells that a protected cell company will be able to use. This is not limited by legislation but will be a matter of interest to the PRA, the regulatory body. The PRA will judge what scale of business, including the number of deals, is prudent if individual transformer vehicle applications go down this route. Protected cell companies are designed so that the number of deals should have no impact on the stability of the market as a whole because each cell, as I said, is self-financed.

The noble Lord may have raised other issues and I apologise if I have not addressed them. He asked if we would keep the regulations under review: I think he put that in a slightly more direct way. The Government will, of course, keep these regulations under review to ensure that they are working for both the consumer and the industry.

In conclusion, I am grateful to the noble Earl and the noble Lord for their contributions. I will write to pick up the points that I have not dealt with. I commend these regulations to the House.

Motion agreed.

Banking Act 2009 (Service Providers to Payment Systems) Order 2017

Lord Young of Cookham Excerpts

Tuesday 7th November 2017 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Order laid before the House on 19 July be approved.

[Lord Young of Cookham (Con)]

My Lords, these statutory instruments improve the valuable legislation that has been put in place to bolster the financial stability of the UK. They are both about methods of payment, from the traditional banknotes that are familiar to us to the newer payment systems.

The Service Providers to Payment Systems order will enable the Bank of England to supervise service providers to payment systems for financial stability purposes. The UK’s payments infrastructure is the plumbing of our financial system. Every year, our payment systems process around 21 billion transactions, worth over £75 trillion, between businesses and consumers. They underpin almost all commercial activity in the UK and are vital to the day-to-day lives of every member of the public. It is therefore extremely important that they are secure, stable and reliable.

In 2009, through the Banking Act, the Government gave the Bank of England formal powers of oversight of certain interbank payment systems, with the aim of promoting the robustness and resilience of key UK payment systems. The Act also gave the Treasury powers to specify which interbank systems are to be supervised by the Bank. The Bank’s supervisory powers enable it to directly request information from the operators of the relevant payment systems, and to issue directions or impose regulatory requirements on them where necessary and appropriate. Amendments made via the Digital Economy Act in spring this year extended these powers to enable the Government to specify types of payment systems that are not interbank. These steps have gone a long way towards ensuring the security, stability and reliability of payment systems for the UK. This draft legislation is a further step towards achieving this aim. The proposed SI will enable the Bank of England to supervise service providers to the supervised payment systems. Service providers can include companies that provide infrastructure and technology to the payment systems, the firms that provide the hardware and software to payment systems that enable the transfer of these 21 billion transactions every year. In some cases, these services are critical to the smooth running of the payment systems. Enabling the Bank to have oversight of these service providers will support its supervision of systemically important payment systems.

This legislation will not automatically bring any service providers into the Bank’s oversight. As with payment systems, the Treasury will specify which service providers to recognised payment systems are to be brought into supervision with an order. HM Treasury will weigh up a number of issues when considering a service provider for supervision. The Treasury is required to consult the Bank of England, the PRA, the FCA and the PSR, notify the service provider and the payment systems to which it provides services and consider any representations made before specifying that service provider for Bank supervision. The Government believe that oversight should be proportionate to the level of risk presented by a firm, and the proposed legislation will give government the tools it needs to address any risk and to further shore up the robustness and resilience of the UK’s payments infrastructure.

The second SI moves the authority to issue banknotes in Scotland from one legal entity within the Royal Bank of Scotland group to another. This change is necessary due to the structural changes RBS is making to implement ring-fencing. The UK is unique in that certain banks in Scotland and Northern Ireland are authorised under the Banking Act 2009 to issue their own commercial banknotes alongside the Bank of England. Currently, four Scottish banks and three Northern Irish banks have this authority. These seven banks are proud of their authority to issue banknotes, and the Government are keen to support them.

Due to the ring-fencing legislation put in place after the financial crisis, from 1 January 2019 our ring-fencing regime will require structural separation of core retail banking from investment banking for UK banks with retail deposits of more than £25 billion. As a result of this, RBS is separating its retail bank from the rest of its banking group. The legal entity that currently has the responsibility for issuing banknotes will sit outside the retail part of the bank after separation. RBS believes that banknote issuance best sits within the retail bank, the Bank of England agrees—and so, less importantly, do I.

This change moves the authority to issue banknotes in Scotland from the non-retail legal entity to the legal entity that will shortly become the RBS retail bank. Authority to issue banknotes is inherent to a specific legal entity and cannot be moved from one legal entity to another without making these changes. These changes will not impact RBS’s ability to issue banknotes or the value of the banknotes already issued. It is purely a technical change required to implement ring-fencing legislation. The Bank of England and the Financial Conduct Authority both approve of this action. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing the orders and regulations this afternoon. Both instruments amend the Banking Act 2009. The first, the Banking Act 2009 (Service Providers to Payment Systems) Order 2017, extends the Bank of England’s formal powers of oversight to service providers to recognised payment systems. The 2009 Act enabled the Bank to supervise interbank payment systems. However, Part 5 was extended to all payment systems by the Digital Economy Act 2017. The second instrument, the Scottish Banknote (Designation of Authorised Bank) Regulations 2017, will ensure that once the Royal Bank of Scotland has separated its core retail banking from its investment banking, the “new” ring-fenced RBS can continue to issue Scottish banknotes. We support both measures but I have a number of questions for the Minister.

First, on the extension of Bank of England supervision to all service providers, the Explanatory Memorandum states that in this context a service provider,

“may be an organisation that designs, builds or operates a payment system’s infrastructure”.

It goes on to say that,

“only service providers that are considered systematically important”,

to the UK,

“would be considered for supervision”.

In these circumstances it seems entirely appropriate that the Bank of England has oversight and regulatory powers as it relates to financial stability. But who in the Bank of England will have specific responsibility for this? Many of our discussions during the passage of the Bank of England and Financial Services Act 2016 came back to this exact point: what constituted “the Bank” and where did power, responsibility and, ultimately, accountability lie? I will be interested to hear what the Minister has to say on this point.

As the Minister stated in his opening remarks, this is just an enabling piece of secondary legislation. As the Explanatory Memorandum outlines:

“This instrument does not automatically bring any service providers into scope of supervision by the Bank”.


The Treasury needs to specify the service provider by including it in the “recognition order”. How many service providers does the Treasury intend to recommend to the Bank of England for supervision, and will these recommendations be subject to parliamentary scrutiny?

The order is surprisingly vague about what the process of being included in the recognition order would entail. What criteria are used to determine whether the Treasury recommends that the Bank of England supervises a service provider? What does this oversight entail in practical terms? Given that it will be for the Treasury to initiate the proceedings, I would have expected it to produce guidance regarding this instrument. However, the Explanatory Note suggests that it will be for the Bank itself to provide information to service providers.

When the Bank of England supervises banks, it has considerable powers of insight into those banks and has rights to alter structures and to constrain their behaviours. Will the Bank have the same powers when it comes to these service providers? I recognise that the Government say that they have consulted with industry. However, this was not a formal process, therefore I would be grateful for some more details. The Explanatory Memorandum states that the industry was “broadly supportive” of the measures that were bought forward. What elements were there disagreements about, and were amendments made to the draft regulations accordingly?

Finally, on this order, what has spurred the Government to act now? Was it the industry, the Bank of England or the Treasury that requested an extension in scope of the regulations? Closing a gap in supervision is an important step, which we support. However, I remain unclear as to why this change was deemed necessary, how many service providers will be affected and what the supervisory and regulatory framework will look like in practice. I look forward to the Minister’s response.

On the second instrument, which relates to the issuance of Scottish banknotes, page 2 of the regulations states that,

“the Treasury must determine the designation date for the purposes of these Regulations”.

Can the Noble Lord give the House an idea of when this date could be? How much notice do the Government believe is required before the ring-fencing deadline of 1 January 2019?

[Lord Young of Cookham]

My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his broad support for the regulations in front of us, his courteous response and for the questions he has asked, most of which I hope to be able to address; if I am not, I will write to him.

The noble Lord started by asking who in the Bank of England had the responsibilities set out in the regulations. The answer is that the Bank’s Financial Market Infrastructure Directorate is responsible for carrying out the supervision of FMIs, which includes the systemic payment systems that we are dealing with in these regulations. That directorate reports to the Bank’s FMI board, which is an executive committee constituted by the governor and chaired by the Bank’s deputy governor for financial stability. It exercises the Bank’s powers and, in turn, escalates issues to the Bank’s governors when appropriate. The Bank publishes an annual report on supervision of market infrastructure, which is laid before Parliament, and of course the governor and other officials of the Bank of England are regularly summoned to give evidence before the Treasury Select Committee.

The noble Lord asked how many service providers might be recommended to the Bank of England for supervision and whether these recommendations would be subjected to parliamentary scrutiny. To specify a service provider, the Treasury has to go through the process which I outlined of consulting the PRA and the FCA, and notifying the service provider and the payments system to which it provides services, after which it considers any representations made. The Treasury then specifies a service provider for recognition by an order, which is published on its website. The order is not subject to further parliamentary scrutiny or published as legislation because the process and criteria for making the orders specifying the service providers are already set out in the Act.

The noble Lord asked what sort of issues might trigger the Treasury into notifying a service provider. The answer is that it will look at: the size and systemic importance of the payment system to which the service provider provides the service; how critical that service is to the payments system; the substitutability of both the service provider and the payment system; and the changing payments market. It will consider the representations made by the Bank and others before finally making the appropriate designation.

Under the Act, the Bank has a power to publish the principles and code of practice to be followed. It can require rule changes, give directions to require or prohibit particular actions, set standards to be met and impose penalties for failures to comply. The Bank will publish its approach to the supervision of critical service providers shortly, to ensure that the approach is as transparent as possible.

[Lord Tunnicliffe]

I am not looking for an answer now but can the Minister check whether the powers will be similar to those that the Bank has with other banks, to intervene and require changes in their management and boards? Will those powers be paralleled under this order? I do not expect an answer now but would be grateful if he would write to me.

[Lord Young of Cookham]

I am grateful for the noble Lord’s recognition that that information may not immediately be at my fingertips. It would be much safer to get an authoritative reply, rather than an off-the-cuff one. He asked what had spurred the Government to action now. Basically, the Treasury has identified the increasing importance of electronic payment systems and therefore of service providers to payment systems. We have done this as part of making sure that our payment system has robustness and can cope with risks and changes.

We did consult industry but it was not a formal process. As the noble Lord said, the industry was broadly supportive of the measures brought forward. In late 2016, the Treasury notified supervised payment systems and major service providers of its intention to lay this order and concluded that these stakeholders were broadly supportive, as no objections were raised.

I am conscious that I have not answered the noble Lord’s specific question about timing, relating to the second of these SIs. If he would agree, I would like to write to him when I have an authoritative answer to that question. In the meantime, I ask that the Motion be agreed.

Motion agreed.

Scottish Banknote (Designation of Authorised Bank) Regulations 2017

Lord Young of Cookham Excerpts

Tuesday 7th November 2017 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 12 September be approved.

Motion agreed.

Housing: Rental Market

Lord Young of Cookham Excerpts

Thursday 2nd November 2017 Lords Chamber

[Baroness Gardner of Parkes (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and remind the House of my interests as declared in the register.

[Lord Young of Cookham (Con)]

My Lords, the Government support the sharing economy. In London, residential premises can now be used for temporary sleeping accommodation without a change of use, as long as the number of nights of use does not exceed 90 in a calendar year. There are no plans to discourage the use of residential properties for both longer-term and short-term letting.

[Baroness Gardner of Parkes]

No doubt the Minister is aware of the recent press reports on the effectiveness of the landlord licensing scheme operated by Newham Council, which has prosecuted 1,215 bad landlords and recovered £2.8 million in council tax. Does he not think it is time that the Government gave all local authorities the right to opt for similar licensing schemes to deal with illegal and often untaxed lettings, which are damaging the long-term housing market?

[Lord Young of Cookham]

I am grateful to my noble friend. In our recent debate on housing the spokesman for the Opposition mentioned the scheme in Newham and invited me to visit Newham to see it in operation. I agree with my noble friend that selective licensing is a useful tool, among other measures, to assist local authorities in addressing serious problems in the private rented sector in specific areas. The department plans to carry out a review of selective licensing shortly, which will apply to properties let under tenancies or licences as people’s only or main residence in the private rented sector. Finally, the London Borough of Newham has submitted its proposals for a licensing scheme for all private landlords in the borough, which the department is currently considering. We will certainly take on board my noble friend’s commendation in that process.

[Lord Clark of Windermere (Lab)]

My Lords, I draw the Minister’s attention to the fact that the Question is not only about London. Will he look at the possibility of extending the financial arrangements that now apply to longer-term renting to short-term renting—because otherwise so much damage will be done to rural areas and villages?

[Lord Young of Cookham]

I am grateful to the noble Lord, who raised this issue on a previous occasion. I will look at it. However, it is important to remind the House that many farmers are diversifying into tourism and the short-term letting of accommodation that may be surplus to their requirements is a useful source of income. It is important that rural areas that depend on tourism have a good supply of short-term accommodation for letting in order to support a viable tourist industry.

[Lord Tope (LD)]

My Lords, is the Minister aware of the research done for the Residential Landlords Association which showed, among other things, a 75% increase in a year in London in the number of multi-listings on the Airbnb website, despite the company’s announced crackdown? Does he agree that this suggests that a growing number of landlords are switching away from long-term letting—which, frankly, London desperately needs—because of the greater financial incentives for short-term lettings? What consideration are the Government giving to offering incentives to landlords to provide more longer-term tenancies?

[Lord Young of Cookham]

I am grateful to the noble Lord. It is not possible for landlords in London to switch rented accommodation wholly over to short-term letting because of the restriction that I mentioned earlier: short-term lettings can only be for up to 90 days. Therefore, it would not be possible legally for a landlord to let his property on a short-term basis throughout the year. One has to get a balance. London has to compete with other tourist destinations and tourists expect to find a range of accommodation through organisations such as the one the noble Lord mentioned. Many London boroughs do not have an adequate supply of hotels, and therefore one needs a supply of short-term letting accommodation. Also, many Londoners, in their efforts to make ends meet, like to rent out their home on a short-term basis when they are not using it themselves.

[Lord Campbell-Savours (Lab)]

My Lords, is not the Minister wrong in his calculations? You can get more money out of a 90-day B&B than you can get out of a 365-day let.

[Lord Young of Cookham]

I am not sure that I would sign up for a short-term letting on those sorts of terms, which sound penal. Many landlords would rather have their property occupied throughout the year rather than for up to 90 days and then not used for the rest of the year. The balance we have tried to get in London is to safeguard the stock of long-term accommodation for rent by Londoners with the freedom for Londoners, when they are not using their home themselves, to let it out to other people who want to rent it.

[Lord Best (CB)]

My Lords, does the Minister agree that the real deterrent for landlords letting on the open market to people on lower incomes is the policies of the Department for Work and Pensions, which mean that, if the tenant is on universal credit, the landlord will not get any money for six weeks and will then not get the full market rent and therefore is having to make a sacrifice? With those deterrents from the welfare system, is it not likely that homelessness will rise as private landlords increasingly will not accept anybody who is on a low income?

[Lord Young of Cookham]

The noble Lord is right to raise the issue of universal credit. It is one of the issues that is now being looked at as we run up to the Budget later this month. We will also have a debate on universal credit later this month, before the Budget, when he can make the point again. However, in certain circumstances the rent can be paid direct to the landlord in order to provide the security of income that the landlord may need.

[Lord Beecham (Lab)]

My Lords, given the depth of the housing crisis, is it not time to review the application of planning laws and the planning system to this and related issues, which simply make it more difficult for people to find a permanent home?

[Lord Young of Cookham]

As I said a moment ago, outside London there is no restriction on what home owners can do with their homes. They can let them on a series of short-term lets. Precisely to protect the stock in London we have a 90-day rule to prevent the leakage of rented accommodation for Londoners wholly into the tourism market. We will look at the issue again, if the noble Lord insists—but, as a former MP for a London seat, I will need some convincing that we have not got the balance about right at the moment.

[Lord Palmer of Childs Hill (LD)]

Can I try to convince the Minister with the statistic that longer than 90-day lettings in London have increased by 23%? Given this, the Government must increase the funding for local authorities in order to enforce the rule. We may have a 90-day rule in London but there has been a vast increase in people advertising lettings of over 90 days, and trading standards are no good at enforcing the rule in all but one or two London boroughs.

[Lord Young of Cookham]

It would be for planning departments rather than trading standards to enforce the rule. The Government have recently announced that planning authorities can increase their fees by up to 20% precisely to give them the resources they need, among other things, to enforce planning legislation.

Democratic Political Activity (Funding and Expenditure) Bill [HL]

Lord Young of Cookham Excerpts

2nd reading (Hansard): House of Lords
Friday 27th October 2017 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I am grateful to the noble Lord, Lord Tyler, for the opportunity to discuss these important issues and to all noble Lords who have spoken in today’s debate, who have experience of fighting and funding elections and being involved in the electoral process. I commend his tireless energy in seeking to reform and improve the democratic process in this country. I have enjoyed working with him on these issues over many years, particularly when we were both in opposition and therefore operating under fewer constraints. Like other noble Lords, I have reread our proceedings from 10 March. I particularly liked the last line:

“House adjourned at 1.04 pm”.—[Official Report, 10/3/17; col. 1624.]


The noble Lord has raised the issue of party funding and expenditure a number of times in recent years and it is right to return to this subject. Many unresolved matters have been touched on during the debate. The rules on both the funding and expenditure of political parties are set out in the Political Parties, Elections and Referendums Act 2000. Both of us took an interest in that legislation in another place. Despite several attempts at reform no agreement has so far been reached on substantial changes to that system. I agree that it would be unusual to have major constitutional change introduced by a Private Member’s Bill.

There are two elements to the Bill: reforming the funding of political parties, and reforming the balance of spending of political parties and candidates at elections. Both of these are complex issues and the Bill proposes significant structural changes.

Party funding is an issue we have returned to many times in recent years. Since the current system was established by the PPER Act 2000 there have been several attempts at reform. Indeed, party funding has been the subject of talks for a decade. Examples of proposals for reform include the plans put forward by Sir Hayden Phillips in 2007 and the Committee on Standards in Public Life in 2011.

In 2012 and 2013, wide-ranging cross-party talks were held with representatives to discuss many of the issues raised today and which appear in the Bill. Unfortunately, as on previous occasions, the political parties were unable to reach a consensus and all the obstacles faced in those talks have not gone away. As has been obvious from our debate and from what my noble friend Lord True and the noble Lords, Lord Whitty and Lord Kennedy, said, there is still a lack of agreement on some of the key elements in the Bill. I agree with the noble Lord, Lord Kennedy: it would not be appropriate for the Government to impose major changes on political parties without cross-party consent. It is in everyone’s interest that the democratic process should continue for the moment to be funded in the way it is. We should not undermine the democratic process unless we are absolutely confident that there is a better way of funding in the future.

I am anxious to make progress with the noble Lord, Lord Tyler, so I met him in September to discuss particular clauses of the Bill where he felt progress could be made. He was good enough to recognise that the Bill as a whole was ambitious, but he hoped there might be some common ground. One subject he raised fell within the broad subject of party funding but was relatively self-contained and is found in Clauses 10 to 14, some of which the noble Lord, Lord Kennedy, just referred to on gift aid, tax relief and the rest. The Bill suggests replacing the delivery, at public expense, of one candidate’s election address leaflet to each elector or household with the provision of a single booklet for each constituency, to be produced by the returning officer, as part of the way of funding some of the elements in that clause. He also suggested the abolition of policy development grants as a further means of funding those clauses.

Following our meeting, I made some inquiries to see whether this was practicable. A booklet system already exists for the limited number of mayoral elections that have taken place, as the noble Lord, Lord Kennedy, mentioned, but there would be several complexities in introducing booklets for constituencies at general elections, not least the volume and number of different versions to be produced. Returning officers who cover several constituencies would need to manage the production and printing of booklets for each constituency, which would place significant additional pressures on them and their print suppliers at the time they are most busy printing ballot papers. Furthermore, political parties on all sides may have reservations at being tied to set timetables for the production and delivery of these booklets. At the moment, for example, parties can arrange for different members of the same household to get the election address on different dates; that flexibility would be lost.

There is also no certainty that moving to a booklet system would lead to an overall cost saving to the public purse. At present, while the postage costs for the delivery of one leaflet to each elector or household per candidate are funded by the state, the candidates and parties pay for their production. The Bill suggests that returning officers would manage the production of booklets, with candidates asked for a contribution towards the costs. While the aim may be for candidates to fully fund these booklets, in practice this is not what happens for the existing booklets at mayoral elections. In some cases, only a nominal amount is requested from candidates. It is possible that any savings to the taxpayer made by reducing postage costs could be offset by the production of the new booklets. The noble Lord may wish to reflect on those points and refine his proposals to take them into account.

The other source of money to fund those clauses was the abolition of policy development grants. These total about £2 million and help political parties develop proposals for their manifestos. I think there is a public interest in having credible, well-founded manifestos. If the grant were abolished, and the sum redistributed in the way the noble Lord suggests, it is not clear that there would be much difference in the relative distribution of those funds. Unless viable ways of funding the new schemes for supporting political parties set out in the Bill can be identified, they would all involve an additional cost to the taxpayer. I think the noble Lord has conceded, as the former Deputy Prime Minister Nick Clegg said, that,

“the case cannot be made for greater state funding of political parties at a time when budgets are being squeezed and economic recovery remains the highest priority”.—[Official Report, Commons, 23/11/11; col. 25WS.]


We also discussed the noble Lord’s proposals for varying the relative amounts of central party local candidate expenditure, something mentioned by the noble Lord, Lord Rennard, and others. On the subject of campaign spending, as noble Lords will know there are separate systems governing the spending of political parties on one hand and candidates on the other. This is another complex area that the Bill seeks to reform. There have been several recent examples of political parties being sanctioned by the Electoral Commission over their campaign spending. A case concerning candidate spending is also currently before the courts. Ensuring that the system operates effectively and is well understood is important for all of us—I agree with the noble Lord on that. Once all the cases are concluded, the Government can make a rational assessment of the effectiveness of the current legislation on election spending, as well as taking on board the many points that have been made in our debate this afternoon. The issue may be more one of timing than one of principle.

Reducing the spending limits of political parties and increasing those of candidates, as the Bill suggests, would not of itself necessarily deal with all the problems that have so far occurred. Any consideration of shortfalls in the current system would also need to look at other issues not mentioned in our debate, such as whether there is currently sufficient time for political parties to make accurate spending returns.

I mention in passing that one area not mentioned in our debate or in the debate in March is the abuse of candidates, an issue that the Government are seeking to address. It is important to our democratic process that no one is deterred from standing for office due to the fear of suffering abuse and intimidation. That is why the Prime Minister asked the Committee on Standards in Public Life to undertake a review of the intimidation of parliamentary candidates. The independent committee is considering the protections and measures in place for candidates and has gathered evidence, through a call for evidence and oral evidence sessions with the police, the Crown Prosecution Service and the political parties. A report of the recommendations to further tackle the issue will be provided by the committee to the Prime Minister in December.

I turn to some of the issues raised in the debate. I am grateful to my noble friend Lord True, who I think suggested that there should be some restriction on the ability to reintroduce in a subsequent Session a Private Member’s Bill introduced in a previous one. He said that this might save the noble Lord, Lord Kennedy, and myself from repetitive stress. I see some advantage in that; on the other hand, if I have to spend a Friday here I would rather spend it redoing a Bill on which I already knew something than having to tackle one from scratch. My noble friend was concerned with two issues. As I said in March, we are considering the issue of the donation he referred to alongside a number of others related to donation matters, although one would have to reflect on whether any legislation would be retrospective. Likewise, we need to reflect further on the issue with the Green Party. I endorse what the noble Lord, Lord Kennedy, said about my noble friend’s contribution to local government and we look forward to his contributions to the House.

The noble Lords, Lord Wrigglesworth and Lord Whitty, raised the very important issue of social media, which has added a new dimension to our campaigning. It simply was not there when the legislation was introduced and we need to ensure that the legislation is fit for purpose. At the moment, any spending on social media will generally be subject to existing spending limits and reportable after the poll. It will normally be reported under the categories of advertising or unsolicited campaign material, but the Electoral Commission is actively considering how the regulatory framework should adapt to the use of social media by political parties.

The right reverend Prelate the Bishop of Salisbury added a spiritual dimension to our discussions and quoted from Prayers. I have often wondered whether, if there was something offensive to the Church on the Order Paper, the Bishop who took Prayers could simply run through the psalm book at the beginning of our proceedings so that we would never actually sit. I wonder what the Whip on the Bench would do if those ingenious tactics were ever used. The right reverend Prelate mentioned expenditure by the main parties. Expenditure at elections by my party has gone down for each of the last three elections; the less we have spent, the better we seem to have done. In 2015, we spent £15.6 million and the Labour Party spent £12.2 million, so we were ahead but there was not a huge difference. I take very much what he said about good will. We will need good will from all sides if we are to make progress on this issue.

The noble Lord, Lord Kennedy, asked me about updating some of the limits in the PPER Act. Section 155 allows the Secretary of State to update certain figures using secondary legislation and to do so by inflation. The question of using the Moses Room for Committee stage of a Private Member’s Bill is something to be discussed through the usual channels.

On Northern Ireland, progress has been made. We believe in the importance of transparency to the political process, and in line with that aim, the Secretary of State intends to bring secondary legislation before Parliament that would provide for the publication of all donations and loans received by Northern Ireland parties. That would take effect in respect of donations and loans received on or after 1 July 2017. The order is at an advanced stage of drafting and we hope to lay it before Parliament very soon.

Reaching agreement on the areas raised in the Bill will be complex. Political parties have wide-ranging views and finally achieving consensus on this subject will not be an easy task. Investing significant time in cross-party talks and—even in the unlikely event that consensus could be reached—finding time in the legislative agenda to make complex changes to the system cannot be a priority. The legislative programme for this Session is already at full capacity and there is no scope for additional measures.

That is not to say that the Government do not take electoral issues seriously. We continue to consider issues as they arise and make appropriate and proportionate changes. Rather than embarking on another attempt at root-and-branch reform, we are identifying small ways in which the existing system can be improved—I have just referred to the question of Northern Ireland. When he appeared before the Constitution Committee in March this year, the Minister for the Constitution said that the Government would be open to considering small-scale measures in relation to party funding, such as looking at charitable payments and the changing role of technology. I am happy to repeat to the noble Lord the offer of a meeting that was made last time we spoke. I think one had been arranged, but it was disrupted by the general election.

However, as we have heard this afternoon, wholescale reform of the party funding and campaign spending regime does not currently have cross-party backing. Without consensus on these fundamental issues, it is only right for me to say that the Government have reservations on a Bill on such matters at this time.