Bereavement Benefits (Remedial) Order 2022
Viscount Younger of Leckie Excerpts(1 year, 11 months ago)
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Viscount Younger of Leckie
That the Grand Committee do consider the Bereavement Benefits (Remedial) Order 2022.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, I am pleased to introduce this remedial order, which was laid before the House on 13 October. It will extend the higher rate of bereavement support payment and its predecessor, widowed parent’s allowance, to bereaved cohabitees with dependent children. These benefits can currently be paid only to survivors who were in a legal union—that is, married or in a civil partnership—with the deceased on the day they died.
In the McLaughlin judgment in the Supreme Court, handed down on 30 August 2018, and the Jackson case in the High Court, handed down on 7 February 2020, the legislation on WPA and the higher rate of BSP respectively was declared incompatible with Article 14 of the European Convention on Human Rights. This article requires all rights and freedoms set out in the Act to be protected and applied without discrimination. In both cases, the courts found that, by restricting eligibility to those in a legal union, current legislation discriminates between children on the grounds of the legal status of their parents’ relationship.
This order provides a remedy for both Great Britain and Northern Ireland. It does so by amending the Social Security Contributions and Benefits Act 1992, the Social Security Contributions and Benefits (Northern Ireland) Act 1992, and the Pensions Act 2014. I am satisfied that the provisions of the order are compatible with the European Convention on Human Rights. The Joint Committee on Human Rights has reported on this draft order and recommended its approval.
I will put this draft remedial order into some context. It was in 1925 that financial assistance following a bereavement, in the form of national insurance pensions for widows, was first introduced. This was open to all widows whose husbands fulfilled the contribution conditions, paid at a flat rate with additional allowances for children. This reflected the widely held expectation at that time that a woman would not return to work after marriage.
Further reforms culminated in the introduction of three new bereavement benefits: widowed parent’s allowance, bereavement allowance and the bereavement payment, all in 2001. WPA replaced widowed mother’s allowance, and extended support to both widows and widowers with dependent children. Like its predecessor, it was intended to provide ongoing financial support following the death of a spouse or, from 2005, a civil partner.
The bereavement payment was a one-off payment for surviving spouses, both with and without dependent children. Bereavement allowance was a short-term payment for widows and widowers aged 45 or over with no dependent children. It was not possible to get both widowed parent’s allowance and bereavement allowance.
It became evident that this system of bereavement benefits, based on outdated assumptions, was complex to understand and administer, and could be unfair to claimants. With universal credit’s introduction—a benefit designed to help with ongoing living costs—there was a need to look again at the whole package of bereavement benefits, but especially widowed parent’s allowance, which could be paid for the same purpose. So we modernised bereavement support by introducing a new benefit, the bereavement support payment, from 6 April 2017, to help with the more immediate costs of bereavement and to allow for a period of adjustment.
Although we do not specify what these costs are, it is our intention that they should be those associated with the bereavement. Each family will have different priorities. For some, it could be funeral costs or dealing with debts left by the deceased. For others, it may include budgeting adjustments following a loss of income or additional travel simply to meet family members.
BSP consists of an initial lump sum followed by 18 monthly instalments, and a higher rate is paid for those with dependent children to recognise that families with children may need extra help. Unlike its predecessors, it is tax-free and disregarded for the purpose of income-related benefits, thereby helping those on the lowest incomes most.
Bereavement benefits have only ever been payable to those who were in a legal union with their deceased partner. They are contributory benefits, with eligibility linked to the national insurance contributions of the deceased partner. Such inheritable benefits, derived from another person’s national insurance contributions, have historically been based on the concept of a legal union.
I will now move forward and outline what this draft order covers. Eligibility for WPA and the higher rate of BSP will be extended to surviving partners with dependent children who were living with their deceased partner as if they were married or in a civil partnership on the date of death. This includes partners who are or were pregnant on the date of their partner’s death, and there will be no qualifying period of cohabitation. This change will benefit thousands of families with dependent children.
This draft order applies to those who would have been entitled to either of these benefits on, or from, 30 August 2018. This was the date on which the Supreme Court, in the McLaughlin case, ruled existing WPA legislation incompatible with the European Convention on Human Rights and, effectively, the date on which the incompatibility was accepted as final. The Committee will know that it is exceptional to make social security change retrospectively; we consider this a logical and fair start date.
For BSP, where the death occurred before this order becomes law and the claim is received within 12 months of that date, claimants will get the full amount due to them. If the claim is received later, the claimant will get up to three backdated monthly payments, plus any remaining monthly payments due. The claim must be made within 21 months of the order coming into force for any BSP to be payable.
Where a claimant’s partner died before 30 August 2018, we will make a part payment and no initial lump sum will be payable. Where the death occurred after this order comes into force, BSP will be paid subject to the usual claim time limits: 12 months for the initial lump sum and three months for each instalment.
Claimants will be eligible for WPA where their partner died before 6 April 2017 and they continued to meet the entitlement conditions on 30 August 2018. They too must claim within 12 months of the date the order comes into force. They may also be entitled to ongoing payments if they continue to meet the WPA eligibility criteria at the point of claim.
Extending these benefits to cohabiting partners means that there may be cases where more than one person claims for the same death. This could apply in cases of polyamory or people dividing their time between two households, or where there is a separated spouse who no longer lived with the deceased. As noble Lords can appreciate, this is a complex area and my officials have been working hard to develop an approach that balances protecting taxpayers’ money and the contributory principle, while ensuring that any approach reflects people’s real-life circumstances.
In these cases, this order proposes that we pay just once per death, prioritising who was living with the claimant on the date of death. Where there are claims from different addresses, entitlement would be established as part of the normal decision-making and appeals processes.
In very rare cases, more than one potential claimant may have been living with the deceased on the date of death. Here, entitlement will be decided according to a hierarchy, intended to reflect the most established relationship as this person would usually bear the majority of the bereavement costs. Should this leave more than one potential claimant and become more complex, the Secretary of State would determine who is entitled.
Transitional protection will ensure that those already in receipt of WPA or BSP before the date this order comes into force do not lose their entitlement for the duration of their award. WPA is treated as income for the purpose of income-related benefits, such as universal credit, and is assessed at the point of award.
This order provides for all retrospective WPA payments up to the date of claim to be treated as capital and disregarded for 12 months, or 52 weeks for the purposes of income-related benefits. This ensures that claimants will not lose any existing entitlement to income-related or passported benefits, such as free school meals, as a result of receiving a retrospective award. This order also ensures there is a disregard for the same period for retrospective BSP awards. The usual rules will apply to future BSP and WPA entitlements.
We do not propose any changes for the treatment of income tax; BSP is already tax-free and WPA will be taxed according to the period of entitlement, as per the existing rules. We will communicate to make WPA claimants aware that any payment under this order may incur an income tax liability. The payment of BSP does not affect a person’s tax credit entitlement. WPA will be treated as income for tax credit purposes, as is common practice for social security benefits. It will be assessed in the year of payment rather than entitlement, so no adjustments to past years will be needed.
In accordance with paragraph 3(1) of Schedule 2 to the Human Rights Act 1998, a proposed draft of this order was laid for a 60 sitting-day period on 15 July 2021 to allow for Members of both Houses and other stake- holders, including the JCHR, to make representations. I fully considered all the representations made on the draft proposed order before preparing this draft for affirmative resolution. In doing so, I agreed with the recommendation of the JCHR to amend the order to ensure that pregnant WPA claimants were covered in the same way as those in a legal union. I also agreed with its recommendation to ensure that the implications of the retrospective effect of the order on entitlement to income-related benefits be taken into account. I have also included a number of technical amendments in response to comments made by the JCHR.
Finally, I emphasise how straightforward it will be, as we see it, for people to claim. We already know from our evaluation that claimants have a very positive experience of claiming bereavement support payment, with 97% reporting satisfaction with the process. We have also provided a paper claim form especially for cohabitees, accessible online at GOV.UK or by calling DWP’s bereavement service. For BSP, there will also be the option to claim online.
With that detail behind me, I have pleasure in commending this order to the Committee. I beg to move.
Baroness Hayman (CB)
My Lords, I am grateful for the opportunity to speak today and to the noble Viscount for the clarity with which he introduced this order. As he made clear, there are many complexities around the subject but the reason that I am here today is very simple.
In October 2020, I received an email and I shall read some of it: “Dear Madam, I am writing to you to raise an issue with the Department of Work and Pensions. On 12 September 2020, my partner of 12 years sadly passed away after losing his five-year battle with kidney cancer. He leaves behind me and our six year-old son. When going to apply for a bereavement support payment, I learned I was not entitled to claim this support as my partner and I were not married or in a civil partnership. I am writing to you because I feel this is a very unfair law and needs to be reviewed straight away, especially when we are going through a national pandemic and I find that I am not the partner of a very strong and resilient man any more, and I have been left these difficulties and increased anxiety as I face bringing up a child alone. I am by no means begging but I do think that this is discrimination to couples who love each other and live with each other as man and common-law wife with children, because they haven’t got a piece of paper to say they are together. I hope you can raise this issue.”
Viscount Younger of Leckie (Con)
My Lords, I start by thanking the Committee for its overall support for and approval of this order. I wholly appreciate that I am very much the messenger here as I am new to the role. For once, having spent 12 years in the Lords, having dealt with some challenging legislation and issues and having said myself that something will be brought forward “in due course” or shortly, I am the messenger for the great work that my predecessor, my noble friend Lady Stedman-Scott, has done and brought to fruition. I am delighted that we have come to this point, with this order bringing cohabitees into this area; as I say, I pay tribute to my predecessor for that.
A vast number of questions were asked. Many of them were very technical so, again, I feel that I have been thrown in the deep end. All the questions were fair; I will do my best to answer them. I know that I will not be able to answer all of them; certainly, I can already feel quite a detailed letter coming the way of noble Lords to be sure that I answer all their questions. When bringing in a new order of this nature, such questions are obviously natural. I am particularly aware of the question asked by the noble Baroness, Lady Brinton; I will come to it towards the end of my speech. I am not sure how much I can help her, but she referred to an interesting case.
Let me start with the noble Baroness, Lady Hayman. First, I thank her for her points. Secondly, I thank her for the letter she mentioned; as I moved into this role and took over from my predecessor, I picked up a letter, and there is a letter answering some of the noble Baroness’s question on its way to her. Her first point was very fair. She asked why this order has taken so long. My answer is that remedial orders can take longer than many other orders because they involve extensive consultation and, of course, parliamentary scrutiny. Also, in the introduction of the pandemic, we needed to divert departmental resources.
That said, the main reason was the delay resulting from the McLaughlin judgment in 2018; it made sense to wait for the conclusion of the Jackson case in 2020 before deciding how to proceed. Let me be the first to say that I appreciate that there was a pretty long gap between laying periods, but it is by no means unusual. I would also say that it was too long; I know that from the different cases that have been raised.
Additionally, officials have had to work through a number of complex policy, drafting and implementation issues, including those raised by the Joint Committee on Human Rights, which have required careful consideration. It is also vital that we get this right—I would say that, wouldn’t I, but I mean it. Throughout the process, the remedial order has remained a priority for this department and will continue to do so. Bearing in mind the number of questions that have been raised, I know there is quite a bit of work to do to see this through. I hope that provides some reassurance.
The question of raising awareness was raised by a number of noble Lords, starting notably with the noble Baroness, Lady Hayman, and continuing with the noble Baroness, Lady Sherlock. We are taking a range of steps to raise awareness of the remedial order, including updating GOV.UK and using existing DWP channels to communicate about this change. We are also working closely with external organisations to ensure that people have what they need to make an informed decision about making a claim.
To go a little further on this and answer a question raised by the noble Baronesses, Lady Hayman and Lady Sherlock, we want to ensure that people have what they need to make an informed decision about making a claim, but we will not be contacting previous claimants directly. We do not routinely keep details of people who had originally claimed and been refused benefit on the basis of being in a cohabiting relationship. However, my officials will develop an effective communication strategy that reaches out to as wide an audience as possible. That may not entirely satisfy the noble Baronesses who raised this question, but we were prepared for it and this is where we stand on that issue.
There is more, because how DWP staff reach out is also important. These changes will be delivered by the DWP’s existing bereavement services team, and officials have already been developing guidance, training and other products to ensure operational readiness on the go-live date. I am sure that there is more that can be done, but I hope that helps to begin with.
My noble friend Lady Altmann and the noble Lord, Lord Davies of Brixton, asked how payments of WPA are usually treated for tax and benefit purposes. As I think I said in my opening remarks, but to clarify, WPA is taken into account as income when assessing entitlement to other means-tested benefits, so is also taxable. I can and will write, because there is further detail that I can give the noble Baronesses on the lump sums, which they raised specifically.
The question of tax credits and how they will be treated was raised, again, by my noble friend Lady Altmann and by the noble Baroness, Lady Sherlock. Payment of BSP does not affect a person’s tax credit entitlement. To be clear, WPA will be treated as income for tax credit purposes, as is common practice for social security benefits. It will be assessed in the year of payment rather than in the year of entitlement, so no adjustments to past years will be needed.
However, I know that the noble Baroness, Lady Sherlock, raised a point about back payments. I do not have an answer to that, so I will write to her and copy in all Members of this Committee to answer that question.
My noble friend Lady Altmann asked about claimants’ use of their retrospective payments and whether, as I mentioned in my opening speech, it is viewed as deprivation of capital. We have a duty to ensure that means-tested benefits are paid to those who most need them, while also ensuring fairness to the taxpayer. The deprivation of capital rules are intended to apply to those who act with the intention to access or get more benefit. Therefore, provided any capital is spent reasonably, and not with the purpose of accessing or getting more benefit, claimants should not be treated as having notional capital. To define that, notional capital is taken into account in the same way as normal capital, where claimants get a retrospective lump sum. That was a bit of a convoluted response, but I hope that the department’s consideration of this was helpful.
A broader question from my noble friend Lady Altmann was on how payments of BSP are usually treated for tax and benefit purposes. She may know this, but the lump-sum element of BSP has a grace period, as it is intended to meet immediate needs—I think I alluded to this in my opening remarks—and is disregarded as capital for a full 12 months of universal credit. Additionally, the smaller monthly instalments of BSP are not taken into account as income for the full duration of the benefit award. This is more generous than the previous bereavement benefits, which were taken into account for income-related benefits. Unlike the previous benefits, BSP is not taxed.
The noble Lord, Lord Davies of Brixton, raised some further points about tax. Perhaps I might give an overarching response. BSP is tax free, as mentioned, while only WPA is taxed and is a legacy benefit; it can be paid only for deaths before April 2017. BSP and WPA are available only to working-age people, which I think the noble Lord will probably know.
Questions were raised about the ease of navigation. I hope that I can be helpful on that to the noble Baroness, Lady Sherlock, and the noble Lord, Lord Davies. This is an important point, as the operation of it is essential. I am happy to say that we already know that the process for claiming BSP is quick and clearly explained. I mentioned that the satisfaction level is very high at 97%. I am sure there is more that we can do but I am aware of some of the concerns raised about this. We are alive to this, as it is very important that people are not put off by not being able to operate the system properly.
My noble friend Lady Altmann and the noble Lord, Lord Davies, also asked about awareness of the changes. This perhaps goes a bit further than I went earlier. I already mentioned updating GOV.UK; I may also have mentioned that we are working closely with external organisations to ensure that people have what they need to make an informed decision about making a claim. I am pleased to say that for those previously refused entitlement, either by the Secretary of State or the tribunal, it will be open to them to make a new claim for benefit. The remedial order deliberately extends the time period for making such claims; this should ensure that all who qualify can access support, irrespective of whether they have claimed before. I think I pointed out, as far as I could, what we are doing to make people who had claimed unsuccessfully before aware that they could claim again.
The noble Lord, Lord Davies, and the noble Baroness, Lady Sherlock, raised a very important point on the evidence of cohabitation. They asked what evidence people will need to provide. The Committee will know that the onus will be on the claimant to prove cohabitation. We intend to use existing DWP IT systems to verify information provided by the claimant as part of their claim. If the information provided cannot be confirmed, the claimant will be required to provide two forms of documentary evidence. We will accept evidence in line with that currently accepted by DWP as proof of address. Where claimants are unable to provide documents, we will take a customer declaration over the phone. This approach follows the existing evidencing strategy for married couples and those in a civil partnership. We believe that this is a pragmatic and compassionate approach which minimises the impact on the claimant, is deliverable and protects against the risk of fraud. I would say also that, as this is new and coming in, we will obviously monitor it carefully, but that is where we stand at present.
The noble Lord, Lord Jones, asked an interesting question about the statistics on future retrospective payments and the average amounts. Unfortunately, as he might probably guess, I am unable to give the figures to him. They are not yet in the public domain but, of course, I am happy to write—but not quite sure when I can write—to him with the figures. It may be that somebody behind me can say it might be soon. The point is that his question is very much noted; I think it was echoed by the noble Baroness, Lady Sherlock.
Baroness Sherlock (Lab)
I am grateful to the Minister and thank him for the answers he has been able to give. He was unable to answer questions from my noble friend and me about the treatment of the lump sums, which are extremely important. They are at the heart of the way this order will be operationalised. Given that, according to the order, it takes affect the day after it is made, can the Minister undertake to write as quickly as possible?
Viscount Younger of Leckie (Con)
The noble Baroness raises a very fair point. I will speak to the team and see what we can do to write a letter quickly covering all the points, not just that particular point.
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(11 years, 7 months ago)
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Baroness Stowell of Beeston
That this House do not insist on its insistence on Lords Amendment 36 and do agree with the Commons in their Amendments 36C to 36E.
Baroness Stowell of Beeston
My Lords, I will also speak to Motion B. We return to discussion of the equality provisions of the Enterprise and Regulatory Reform Bill. The House debated these issues on Monday and strong views were expressed, on which the Government have reflected very carefully. On Monday, as on other occasions, the noble Baroness, Lady Campbell, spoke eloquently and with passion about the importance of the commission’s general duty. I very much respect the knowledge that she and others contributed during the passage of the Bill.
The Government want the commission to be a strong equality and human rights body: our national expert whose opinion is respected and valued. This is what our legislative proposals, alongside our non-legislative work, are intended to achieve. We recognise that the general duty is important to many people as a symbolic statement of the Equality and Human Rights Commission’s overarching purpose. After the debate and Division in the House on Monday, the Government reflected further and decided to no longer press for its removal from the Equality Act 2006. However, as I argued on Monday, the general duty has a practical effect, as Section 12 of the Equality Act 2006 requires the commission to monitor and report on society’s progress against the aims set out in the general duty. We continue to believe that the commission will be more effective if the monitoring and reporting that it is required to do focuses clearly on its core equality, diversity and human rights duties.
The Motion we are considering today enables the commission’s general duty at Section 3 to remain in the Equality Act 2006. It also proposes that the commission should monitor progress against the duties specified in Sections 8 and 9 of the Equality Act 2006 —equality, diversity and human rights—the very areas where the commission can make a difference in society as our national equality body and national human rights institution. I should make clear that the commission will continue to be required to monitor and report every five years on changes in society in areas that it is uniquely placed to influence and change: in other words, those specified in Sections 8 and 9.
I come now to some technical amendments and beg the patience of noble Lords. Retaining the general duty at Section 3 also requires a consequential amendment to ensure that the word “groups” in the general duty is defined effectively. Amendment 36C, agreed by the other place, reinserts the parts of Section 10 that define “groups” for the purposes of the Act. Amendments 36D and 36E are technical and consequential amendments.
These proposals, which were fully supported yesterday in the other place, address the concerns raised during debates in this House. They build on the good progress already made. The Equality and Human Rights Commission is now well placed to go from strength to strength. I beg to move.
Baroness Stowell of Beeston
That this House do not insist on its insistence on Lords Amendment 37 and do agree with the Commons in their Amendments 37C to 37F in lieu.
Baroness Stowell of Beeston
My Lords, this House has debated caste and caste discrimination at each stage of this Bill since Grand Committee. I pay particular tribute to the noble and right reverend Lord, Lord Harries, and my noble friends Lord Avebury and Lord Deben, for their important, impassioned and at times moving contributions to these debates. I also acknowledge many other noble Lords who spoke in heartfelt and well informed ways, many for but some against the different amendments relating to caste discrimination being incorporated into the Equality Act 2010.
Earlier this week we considered this issue again in some detail, and this House repeated its view that caste should be directly included in the Equality Act 2010 as an aspect of race. The Government have always said that we are against any form of caste prejudice or discrimination. What has been at issue is how best to tackle any such prejudice and discrimination that may occur.
We have listened carefully to what this House has said, and we acknowledge the strength of opinion that has been expressed. While I need to record that we remain unconvinced that the evidence shows that legislation is the right way to resolve problems associated with caste prejudice or discrimination, we none the less accept the need to resolve this matter. We have therefore made the commitment, after full and extensive consultation, to legislate. Noble Lords will recognise that this is the essential difference compared with our earlier proposals.
The amendment that was last debated in this House would have seen caste directly become an aspect of race for the purposes of the Equality Act 2010. Instead, we propose an alternative form, which was originally proposed as an amendment in this House in Grand Committee. Under this amendment in lieu, what is currently a discretionary power in the Equality Act to add caste to the list of race characteristics will become a duty on the Secretary of State. This amendment still gives effect to the need to legislate, while giving us greater flexibility to pick up the key issue of public consultation, which I believe the House recognises to be necessary and useful.
There are important issues on which we need to consult widely. The first concerns the definition of caste in the Act and any associated exceptions. Second is the issue of non-legislative concerns, some of which were highlighted by the Opposition in the other place and raised in this House, for example the guidance needed by business or by courts and tribunals, or the vexed question of caste identification and monitoring. Finally, there are wider issues to do with caste, such as gathering the right evidence that may be needed for the eventual statutory reviews, to which I shall come in more detail in a moment.
The secondary legislative approach, which the Government are proposing today and which I think was supported by a number of speakers, gives us better assurance that we get the legislation right, as well as greater flexibility on its timing. I should add that we intend to continue with our Talk for a Change education programme in relevant communities, which we continue to see as having an important role in effecting cultural change over time. We also wish to involve and work closely with the Equality and Human Rights Commission on broader issues of caste and caste-related discrimination.
Noble Lords will also see that there is a further element in the Motion. We have provided for the possibility of a review of the exercise of the caste power and any order made under it. This safeguard is in response to the various concerns raised by parliamentarians of all parties, here and in the other place. It looks beyond any immediate need for caste legislation, and concerns the importance of ensuring that legislation does not inadvertently embed in British society the concept of caste, together with those aspects of it that are inappropriate to the modern world.
We see no place for caste in today’s Britain, and we want caste distinctions to disappear over time. This power gives us the opportunity to review the ongoing need for such legislation to remain, together with a means for its removal should it no longer be considered appropriate. As I have already said this evening, the Government have listened carefully. We are committing to legislate after we have carried out the consultation which this House has recognised to be necessary, before we exercise the power to make caste an aspect of race in the Equality Act 2010. We are also putting in place the option to review that legislation after it has been enacted. I trust that noble Lords will accept these proposals, one of which mirrors an earlier proposal put forward in this House. The other picks up on a suggestion put forward by the Opposition, among others. I beg to move.
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(11 years, 8 months ago)
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Baroness Stowell of Beeston
That this House do not insist on its Amendment 36, to which the Commons have disagreed for their Reason 36A.
Motion B1
Baroness Stowell of Beeston
That this House do not insist on its Amendment 37, to which the Commons have disagreed for their Reason 37A.
Baroness Stowell of Beeston
My Lords, we come now to the issue of caste and whether it should be made an aspect of race and thus a protected characteristic under equality law.
The whole House agrees that prejudice and discrimination based on caste is wrong. It is unfair and unacceptable in a modern society and is certainly unacceptable in Britain. There is no place for it and we need to take the right action to ensure that there is no place for it. It was your Lordships’ view when we last debated this that caste should be directly and immediately included in the Equality Act as an aspect of race. The other place has taken a different view and said we should not legislate at all without further consultation. There has, as yet, never been a full public consultation on this issue.
I will be absolutely clear. The Government have listened to what your Lordships’ House has said. We acknowledge the widespread support among noble Lords for legislation and the strength of opinion that has already been expressed. Today, I will explain the additional steps the Government are taking in response to the strength of that opinion. Since we last debated this matter, significant concerns have also been expressed about the implications of legislation. These concerns have not come only from those we would expect to be against legislation. Her Majesty’s Opposition also raised legitimate and serious questions during the debate in the other place. As I said during our earlier debates, this Government are not against legislation as a way of tackling caste discrimination. However, we do not have all the information that we believe is necessary to decide that the power in the Equality Act 2010 should be exercised. We think a responsible Government should consider all relevant issues and the implications of legislation before going down that route.
During our previous debate, my noble and learned friend Lord Mackay of Clashfern suggested that having the provision for caste in the Equality Act had given the courts reason, which they might not otherwise have had, to doubt whether the existing legislation protects people against caste discrimination. This helps to illustrate a very important point. We must ensure that whatever we do next does not create new, unintended consequences which could make it harder for people to seek redress. However, at the same time, we must of course be conscious of the need to bring what we do next to a conclusion as quickly as possible.
If we are able, shortly, to reassure ourselves on these points and decide, after consultation, to exercise the power that already exists in the Equality Act, then an advantage of this power is that we can do so via secondary legislation. In other words, I want to reassure your Lordships that there need not be a requirement for new primary legislation and therefore any unnecessary delay. I should note, however, that the amendment brought before the House today would not permit any meaningful public consultation or allow any flexibility through secondary legislation in the way that the Opposition, among others, have been arguing. Caste would simply join colour, nationality and ethnic origin as an aspect of race in the Act, and that would be that.
In a moment I will explain what additional information and steps we think are necessary before the Government will decide, and what the timescale is for that decision. First, I shall summarise some of the concerns that have been raised. First, there are concerns about whether we are actually legislating on the right ground. Some organisations have suggested that descent is more appropriate than caste, and this is an issue that the Opposition have also raised in debates in the other place. I am aware that there are differing and strong views on the question of descent, which we cannot go into today. However, the fact that there is genuine uncertainty over the definition of what we are legislating about clearly suggests that we should not be adding further to the law before carrying out the sort of consultative process proposed by both the Government and the Opposition, although I acknowledge that the Opposition have a different proposal in terms of consultation.
There are also concerns about individuals having to indicate their caste in any monitoring. The NIESR report is clear that some people would not want to do this or indeed admit to caste existing at all. We all have to consider what business would need to do to comply sensibly with such a provision and, if so, what costs this would entail. Would there need to be a code of practice, and if so, would it be reliable in such sensitive matters? To take one important stakeholder in this area, the CBI has stated that,
“on this terribly complex issue time must be taken in order to craft the right intervention, rather than rushing the process in order to comply with the timetable of the ERR Bill”.
At the moment, I believe it is not clear that we have all the information that we need on these and other questions. A significant number of Hindu and Sikh organisations, including some representing people from the perceived lower castes, have expressed concerns that they have not had a chance to provide considered views and would be strongly opposed to immediate legislation on this. For example, the GAKM UK which represents the Mochi community, which is deemed one of the lower castes, believes that by enacting the clause in law, the Government could undo all the work done by our communities over the past 20 years to try to remove the differentiation by caste in all aspects of life.
I am, of course, aware that some noble Lords may say that this is the sort of argument that could have been used to delay the advent of race or indeed of any other discrimination law. However, there is a fundamental difference with caste in that not only do we wish to get rid of caste prejudice from British society, we actually see no useful value in caste itself, or of anyone defining themselves by their caste. In that sense it is not like colour or ethnic origin, or any of the other protected characteristics. We need to ensure that the action we take, particularly if in legislation, sets us towards this aim and not in the opposite direction of embedding caste as a concept in domestic law.
As your Lordships will be aware, on 1 March this year, the Government announced a programme of educational work within the affected communities. At that time we also said that the Equality and Human Rights Commission will investigate the right way of tackling the problem of caste prejudice and discrimination, using the evidence in the NIESR report and earlier material from ACDA and other groups as its starting point. In last week’s debate in the other House, the Minister for Women and Equality announced that in parallel with this work a public consultation will be undertaken on the use of the caste power in the Equality Act. As I have already stated, a full, balanced public discussion is something that has not previously happened, and we think it is crucial that it now does so.
Viscount Younger of Leckie
That this House do not insist on its Amendment 38 and do agree with the Commons in their Amendments 38A and 38B to words so restored to the Bill.
Viscount Younger of Leckie
My Lords, this is an issue that has already been debated in some detail. Noble Lords will recall that the Government were nearly successful in persuading the House to accept the vote on Report, losing by the smallest of margins—indeed, by just two votes. Nevertheless I reassure noble Lords that the Government have listened to and carefully considered both the extensive arguments made, and the heartfelt concerns expressed, about the possible effects of this change. However, the Government feel strongly that a measure to reassure business is necessary, and the other place clearly endorsed that view by a majority of 75 when it voted on this issue last week.
This measure is one of a number of reforms designed to address the much wider issue of the perception of a compensation culture and the fear of being sued that this generates. It is a fear that drives employers to overimplement the law, incurring unnecessary costs, and that undermines their confidence to grow and develop their businesses. It is a problem that I believe we all recognise needs to be tackled, and one that we have not only considered in relation to this clause but, as many noble Lords will recall, debated in some detail in relation to my noble friend Lord Young of Graffham’s report Common Sense, Common Safety. It is because of this wider context and its detrimental effect that the Government remain of the view that it is not reasonable or fair that employers should be held liable to pay compensation when they have done nothing wrong and taken all reasonable steps to protect their employees.
We acknowledge that this reform will involve changes in the way that health and safety-related claims for compensation are brought and run before the courts. However, to be clear and to avoid any misunderstanding that may have arisen, this measure does not undermine core health and safety standards. The Government are committed to maintaining and building on the UK’s strong health and safety record. The codified framework of requirements, responsibilities and duties placed on employers to protect their employees from harm are unchanged, and will remain relevant as evidence of the standards expected of employees in future civil claims for negligence.
As I set out on Report, the clause provides for a power to make exceptions. It is already planned to make such an exception in respect of pregnant workers in order to comply with the terms of the relevant EU directive. We have thought carefully about whether there are more exceptions that should be made at this stage, but have not identified any other examples. However, I assure the House that we will seriously consider any further exceptions that are suggested.
To be successful in providing the reassurance that businesses need to overcome their fear of being sued, we need to take decisive action that will send a clear and effective message. The Government believe that the proposed single amendment to the Health and Safety at Work etc. Act achieves this by providing a consistent approach to civil litigation across all health and safety legislation, which will be simple for both employers and employees to understand.
To clarify a point of detail, I should also explain that amendments regarding the words “so restored to the Bill” have the effect of reinstating government amendments agreed without objection in Grand Committee. These amendments were made to comply with the Delegated Powers and Regulatory Reform Committee recommendation to remove a new regulation-making power that had been inserted as proposed new Section 47(2B) of the Health and Safety at Work etc. Act. The Government reflected on the committee’s comments and accepted that it was not necessary to take such a power, as there are no current plans to extend the policy to other legislation.
For the reasons that I have set out, I ask that noble Lords do not insist, as the noble and learned Lord, Lord Hardie, asks, on their Amendment 38. I beg to move.
Motion D1
Moved by Lord Hardie
As an amendment to Motion D, leave out from “House” to end and insert “do insist on its Amendment 38”.
Viscount Younger of Leckie
My Lords, I have again listened with interest to the arguments made and thank noble Lords for their careful consideration of this very important issue. I start by challenging the noble and learned Lord, Lord Hardie, and the noble Lord, Lord McKenzie, on whether there is a compensation culture. The noble and learned Lord raised that point. I clarify again that my noble friend Lord Young and Professor Löfstedt underlined that health and safety regulations, more than any other area of regulation, suffer from misinformation and overcomplication in the media and elsewhere. I was grateful for the intervention by my noble friend Lord Faulks on this issue.
As Professor Löfstedt found in his independent review, these myths lead to confusion about what the law requires and a fear of being sued which drives employers to overimplement the law in an effort to protect themselves. This does not lead to better protection for employees but means that employers are spending significant time and resources on activities and services which are not necessary or far in excess of what the law requires. Concern about “getting it wrong” discourages employers from looking at ways to develop and grow their business and consequently from taking on new employees. I reiterate to the House that this is a real issue and that there is a perception in this regard. We believe as a Government that we should be tackling it.
The noble and learned Lord, Lord Hardie, referred to certain cases which were raised in the other place by the honourable Member for Middlesbrough. We have been able to check the facts of two of those cases. In both of them there is prima facie evidence of negligence on the part of the employer. We would expect that such cases would still be brought as negligence claims if brought after this amendment to the Health and Safety at Work etc. Act. It is important to clarify that point.
The noble and learned Lord, Lord Hardie, mentioned removing the right to compensation and depriving families of it in the event of an employer’s breach of statutory duties. The Government’s view is that it is fair and reasonable that this burden should be removed from an employer who has done nothing wrong. The fact that someone has been injured at work does not mean that they are automatically entitled to compensation. Ours is not a no-fault system. Many health and safety duties require the injured employee to show fault on the part of their employer. It is interesting to note that currently claimants do not recover compensation in about 30% of claims.
There can be cases of misfortune to which I alluded on Report, which cannot and should not be laid at the employer’s door. In order effectively to tackle the fear of being sued and of unjustified reputational damage, and the costly burdens on business this brings, employers need to know that they have a fair opportunity to defend themselves.
The noble Lord, Lord Pannick, spoke of the burden of proof shifting to the employee, as he put it, being unreasonable. However, the cases that will be most significantly affected by this change are those which would have previously relied on an absolute or strict liability duty. Under the existing system, employees have to prove that their employer breached the standard required in the regulations and that the breach caused the injury. In practice, the issues and evidence that will need to be examined in relation to a claim for negligence will be similar to those currently examined in relation to a claim for breach of a duty which is not a strict one and qualified by, for example, the wording,
“so far as is reasonably practicable”.
That point was raised earlier. Indeed, most cases are currently brought for both breach of statutory duty and negligence, so it is anticipated that most claims will still be able to be brought.
The noble Baroness, Lady Turner of Camden, said that a different approach had been taken to Professor Löfstedt’s recommendation. The Government agreed with Professor Löfstedt’s recommendation in principle, recognising the unfairness which results where employers are liable to pay compensation regardless of having taken all reasonable steps, and agreed to look at ways to redress the balance. Excluding civil liability only in relation to specific strict liability offences would mean making a large number of amendments to more than 200 regulations and could result in different approaches to civil liability being applied within a single set of regulations and across the regulatory framework. This would add a layer of complexity to the current system leading to greater uncertainty for both employers and employees about the duties that apply in respect of compensation claims. Making a single amendment to the Health and Safety at Work etc. Act has the significant advantage of delivering a consistent approach across all health and safety legislation.
I reiterate that this reform is not about reducing the number of claims made, but about establishing the important principle that employers should always have the opportunity to defend themselves against a compensation claim when they have done nothing wrong and have taken all reasonable precautions to protect their employees. By providing the reassurance that they will not be liable if an accident happens which is totally outside their control, this change will support responsible employers who take care to protect their employees by giving them the confidence not only to take sensible steps to manage health and safety risks but also to expand their businesses into new areas and activities and to take on new employees to achieve this. The Government believe this to be a fair and proportionate response to the impact that strict liability duties currently have in the civil litigation system.
Business is fully behind the need for action in relation to the perception of the compensation culture. More specifically, it is supportive of the approach that the Government want to take in relation to the issue of strict liability duties. I am most grateful to my noble friend Lord Faulks for his succinct intervention, backed by his experience in the field. This support was also reaffirmed by both the British Chambers of Commerce and the Federation of Small Businesses in correspondence received in the last few days. I therefore ask again that noble Lords do not insist on their amendment on this issue.
Lord McKenzie of Luton
Before the Minister sits down, can he just help us with one issue? If it is the Government’s position that the problem to be addressed is the perception of a compensation culture, why should that be addressed by making the reality of accessing compensation claims more difficult?
Viscount Younger of Leckie
I reiterate that the balance is not right. We have been much helped by the report from my noble friend Lord Young and Professor Löfstedt, who have provided this perception and provided the evidence to allow us to act. This is the right approach for the Government to take.
Lord Hardie
Does the Minister accept that regulations that have the qualification of reasonable practicability afford an employer the opportunity of defending himself against a breach?
Viscount Younger of Leckie
The noble and learned Lord makes a fair point. Employers will continue to need to have to defend themselves. The issue depends entirely on the particular case in hand but this government action redresses a balance that is long overdue.
Lord Faulks
Before the Minister sits down, I am sure he will agree that, while some of the regulations have the defence referred to by the noble and learned Lord, quite a few of them do not provide this defence at all and there can be automatic liability without any fault. Does he agree that one of the problems of the perception of a compensation culture—there was perhaps an inadvertent hint of this—is the fact that these changes are not welcomed by safety consultants or those who are concerned to gold-plate some of these regulations?
Viscount Younger of Leckie
I am grateful for the points made by my noble friend. That is a very helpful intervention.
Lord McKenzie of Luton
Can the Minister give us some examples of where there is gold-plating of regulations under health and safety provisions?
Viscount Younger of Leckie
I believe that I covered in Committee and on Report all the aspects that I need to.
Lord Hardie
I am grateful to noble Lords for their contributions to this short debate. I note that the Minister and the noble Lord, Lord Faulks, accept that there are a number of regulations which have the qualification of reasonable practicability. Those regulations afford the employer the opportunity of defending his actions by saying, “I complied with these regulations so far as was reasonably practical”. If he proves that to the satisfaction of the court then he will avoid liability.
That brings me back to a point that I sought to make earlier. Why should a right of action be excluded from those regulations? If the intention of the Government is that employers should not be blamed for something that they have not done and should have an opportunity to defend themselves, then the qualified regulations do precisely that. There is no justification in law or in logic for removing the right of action in those regulations, which, as I have said, comprise the majority of the regulations.
I am grateful to the noble Viscount for researching the cases mentioned in the other place by Mr McDonald. I accept what the Minister said—that two of the cases would have succeeded at common law, contrary to what Mr McDonald said. However, according to the Official Report, there was a specific finding by the court that there was no common-law liability in the case of the roofer and slater, Mr Hill, who,
“fell from scaffolding during the course of his work and suffered very serious injuries resulting in incomplete tetraplegia. The accident occurred as he came down the scaffolding on a portable ladder that was not fixed or in any way secured; he fell to the ground, causing the injury. His injuries were so severe that damages were agreed at just under £2 million. The court held that there was no liability at common law, but there was liability under the Work at Height Regulations”.—[Official Report, Commons, 16/4/13; col. 236.]
That is a specific example of a case where common-law liability was unsuccessful but the plaintiff managed to secure damages because the employer had failed to comply with regulations designed for the safety of his employees and that failure was the cause of the accident. If Clause 61 had been in force, Mr Hill would have received no damages because he would have failed to have established his common-law claim for negligence.
The issues have been well canvassed and I feel strongly that this clause interferes with a fundamental right. No justification has been put forward for it and the Commons has not really considered the Lords’ discussions on this matter and has given no reasons for disagreeing with Amendment 38. I would welcome the opinion of the House.
Viscount Younger of Leckie
My Lords, on Report we debated the amendment in the name of the noble Baroness, Lady Hayter, on letting and managing agents. I made it clear then that the Government could not accept her amendment but that we were giving most serious consideration to the issue of redress. The noble Baroness confirmed that it was a redress mechanism that she was seeking in her amendment.
The Government have given serious consideration to these issues. We have considered reports by the Office of Fair Trading, Which?, the Royal Institution of Chartered Surveyors and others, and we have listened carefully to the debate here and indeed in the other place. The Government recognise that the fact that not all agents belong to a redress scheme has been an issue of growing concern. We are satisfied that making this a requirement would provide both the means of addressing complaints when things go wrong and a means to improve service quality across these important parts of the housing sector.
Providing access to redress would deal with many of the failings that people are concerned about in their day to day dealings with letting and managing agents. At the same time, the existing consumer protection and leasehold legislation remains in place and is already available, and is indeed used for the more serious matters.
Having listened to the concerns raised most specifically in this House by the noble Baroness, Lady Hayter, and others, including my noble friend Lady Gardner, the Government have introduced in the other place an amendment in lieu of the amendment tabled by the noble Baroness, Lady Hayter. The government amendment gives powers to require letting and managing agents of privately rented and residential leasehold homes to belong to a redress scheme. It gets to the heart of what the noble Baroness, Lady Hayter, was seeking, but without subjecting letting and managing agents to the additional layers of regulation that are in the Estate Agents Act and on which her amendment was based.
I am pleased to say that, while clearly some would have liked the Government to have gone further than redress, this amendment has been warmly welcomed and was approved without Division in the other place. Indeed, the honourable Member for Streatham, shadow Business Secretary Chuka Umunna, described it as,
“a victory for tenants and landlords””.—[Official Report, Commons, 16/4/13; col. 229.]
The Government’s approach has also been welcomed by key organisations. For example, the National Approved Letting Scheme welcomed it as a common-sense approach to improving the consumer experience of renting and letting and a sensible alternative to the heavy-handed bureaucracy of a formal regulatory regime. Similarly, the National Landlords Association has endorsed the Government’s approach of meeting the challenge of regulating letting agents head on, rather than simply applying the standards of estate agency to a distinct sector with its own significant risks.
If these clauses are enacted, the next steps will be for the Department for Communities and Local Government to consult on the details of the measures and to go through the formal scrutiny processes so that the necessary orders can be brought forward for approval in both Houses. We would expect consultation to be under way by the summer.
In their consultations, the Government will wish to take account of a number of the points that have been raised in the other place, for example on how existing codes of practice will be reflected in the redress schemes. There were also questions in the other place about the residential leasehold sector, generally echoing concerns that have been raised by my noble friend Lady Gardner of Parkes. The Department for Communities and Local Government is taking forward work on these issues, following its recent round table meeting, which my noble friend attended. I know that it will continue to involve my noble friend and a broad range of other interested parties on these matters.
My honourable friend in the other place, the Housing Minister, Mark Prisk, has spoken to the honourable Member for Worthing West about the points that he raised on the Leasehold Advisory Service and has now written to him.
The Government consider that this amendment can make a real improvement to the operation of letting and property management agents, for a very modest and proportionate regulatory burden. I am grateful to bodies such as the Office of Fair Trading and Which? for rightly bringing attention to these issues, and to noble Lords who have worked hard to bring these measures within the current Bill, in particular the noble Baroness, Lady Hayter, and my noble friend Lady Gardner. I also acknowledge my honourable friend in the other place, the Housing Minister Mark Prisk, who has a long-standing interest in this issue and has worked hard to deliver a workable redress mechanism within the current Bill.
I therefore ask that noble Lords do not insist on their amendment and instead agree with the other place on its amendments in lieu. I beg to move.
Baroness Hayter of Kentish Town
My Lords, I welcome and support Motion E. I pay tribute to a number of key players who have brought us to this happy position. First, there is the coalition of those interested in the well-being of tenants and landlords, as the Minister has mentioned, such as Which?, Shelter and RICS, which have given me a lot of help not only in drafting but in the persuasion, if I may say, of this House and then the Government, who perhaps were a little reluctant to start with but have made a very large step forward. The coalition that came together included representatives of tenants and landlords, as has been mentioned, but also the British Property Federation, the Mayor of London and various London councils, as well as the professional organisations to which some of these bodies belong.
The amendments in lieu are not exactly the whole of what the House asked for in passing my original amendment, in that they do not include a role for the OFT in debarring agents who go seriously astray. However, I am confident that with the build-up of intelligence by the various redress schemes, evidence will come to light on which the OFT or Trading Standards will be able to take action.
Furthermore, as happened with estate agents and as has been suggested in the consultation, ombudsmen will develop codes of conduct for letting and managing agents—based, no doubt, on the professional codes that they have in place now—to give member agents guidance as to how an ombudsman will decide a case. That is perhaps a backdoor way to the adoption of a code, but is very welcome for all that.
In due course, I and consumer groups will no doubt be asking for further regulation of letting and management agents if this measure proves insufficient to protect landlords and tenants, and I have a feeling that the noble Baroness, Lady Gardner, is not about to let this wider issue drop.
For the moment, I conclude by thanking our Lords PLP staff, Beth Gardiner-Smith, Sophie Davis and Ian Parker, for their help, and saying a very genuine thank you to both the Ministers who are with us this evening. They took a lot of trouble to listen to our concerns very carefully and—I am sure at some personal risk to themselves—battled with their colleagues at the other end to win through. This House has brought some good home sense to an issue that is of great importance to thousands of our fellow citizens.
Baroness Gardner of Parkes
My Lords, I congratulate the noble Baroness, Lady Hayter. This is a great personal success on her part. She has been persuasive. She has managed to encourage us all by winning that important amendment, and without that we would never have got to this point where people have really looked at things and decided that something can be done.
As the noble Baroness said, this is not something that we are going to let die, or lie, because there is still so much more to be done. Another hopeful thing has been the new Minister for Housing. With experience and work in the field as a surveyor, he knows what we are talking about, and this has made a big difference, particularly when we have had various round-table meetings. People have adopted the attitude that they want to look into things further. We have been given hopes that that they will look into everything much further later in the year, and I will be pressing that in my questions. As you know, I am particularly interested in reducing the percentage of people required to have commonhold instead of leasehold, because that would solve a lot of problems, but everyone agrees that 100% is an impossible requirement.
I pay tribute to the two Ministers. My noble friend Lord Younger has done a great deal, and it is marvellous that he has allowed housing to come into this, which was such a BIS affair. I cannot speak too highly of my noble friend Lady Hanham, who knows the housing issue so well. It is due to her persuasiveness that we have managed to get things to this point and have received notice today of these amendments. As has been said, perhaps they do not deal with everything, but they go a long way and are a huge first step. That is what we need, and again I am delighted to welcome these changes.
Viscount Younger of Leckie
My Lords, I am grateful for the contributions to this short debate. We have heard a small number of contributions today on the amendment on the letting and managing agents. As we know, this is a practical measure that can be taken forward rapidly to make a real difference to the experiences of landlords, tenants, freeholders and leaseholders.
In an attempt to answer my noble friend Lord Sharkey’s question, although the timetable is unclear at the moment I am not out of step to say that we fully expect orders to be brought forward by the end of the summer. It might be earlier.
In conclusion, I commend this Motion to the House.
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(11 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, I beg to move that this Bill now be further considered on Report.
Lord Foulkes of Cumnock
My Lords, before we move to consideration of the matters before us today, I wonder whether I have missed something. Has this House appointed the noble Lord, Lord Geddes, to adjudicate on matters of order? I ask because my noble friend Lady Turner was interrupted disgracefully by a loud heckling by the noble Lord, Lord Geddes, from a sedentary position, because of his interpretation of what is right and wrong in this Chamber. It is disgraceful that she was treated in such a manner.
“18 (1) Section 93 (regulations and orders) is amended as follows.
(2) In subsection (4) after “8(5),” insert “26C,”.
(3) In subsection (5A) after “section” insert “26C or”.”
Viscount Younger of Leckie
My Lords, government Amendment 70A corrects an error made in government Amendment 26P, tabled in Committee. The purpose of Amendment 26P was to change the procedure for making a national class consent order, to ensure that it is subject to affirmative resolution. This responded to a recommendation made by the Delegated Powers and Regulatory Reform Committee. Unfortunately, Amendment 26P replaced the wrong paragraph of Schedule 17 and therefore did not achieve the intended result. Amendment 70A is a minor and technical amendment to put this right. I beg to move Amendment 70A.
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(11 years, 10 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, in its 10th report of this parliamentary Session, the Delegated Powers and Regulatory Reform Committee considered that the exercise of a number of the powers in these provisions should be subject to the affirmative procedure, at least the first time that they are exercised. The amendments in this group take heed of this recommendation. I am pleased to say that, in fact, they go further by requiring that not just the first use of the powers but all uses be subject to the affirmative procedure. I trust that this additional, significant safeguard in the Bill gives due comfort and assurance to those who have expressed concerns about the exercise of these powers. I beg to move.
Lord Clement-Jones
My Lords, I shall say just a few words on the Minister’s very welcome amendments in response to the 10th report of the Delegated Powers and Regulatory Reform Committee. It is very interesting. The committee demonstrated the value of a collective memory, as it took us all back to the Digital Economy Act and the comments that it made at the time; it has been entirely consistent. It is good to see that the Government have responded. However, I wonder, especially in light of the fact that the Minister has confirmed that the affirmative process will be used for Clause 68, whether he will also confirm that the affirmative process will be used when the Hargreaves exceptions are introduced under the European Communities Act. The Minister has clearly stated that the Government will not be using Clause 66 when those exceptions are introduced; it will be purely for penalties. We very much welcome the assurance that the Minister gave on Monday. However, will he take the opportunity to confirm that the scrutiny process will be by the affirmative procedure of both Houses when those draft statutory instruments come under the ECA procedure?
Baroness Buscombe
My Lords, I add my welcome for these amendments and thank the Minister.
Viscount Younger of Leckie
My Lords, I begin by expressing my thanks to my noble friend Lord Clement-Jones for the important part that he has played in the passage of the Bill so far. This is indeed a complex area and his contributions have demonstrated an unrivalled depth of knowledge and a robust grasp of the intricacies of this debate. I appreciate and respect the vigour with which he has presented his position to the Committee. The Government know that at the core of his work on the Bill is his determination to see a stronger and fairer copyright framework in the UK. In answer to his question concerning the affirmative procedure when the Hargreaves exceptions are implemented, I can confirm that we will use the affirmative procedure. This will, I hope, go some way towards answering the question raised by the noble Lord, Lord Stevenson.
I am pleased that these amendments have been accepted in the spirit in which they were intended. The Government recognise that the powers in these provisions could have a significant impact on creators and users of copyright works. I am confident that these amendments ensure that any use of those powers will be subject to significant parliamentary scrutiny.
Lord Stevenson of Balmacara
My Lords, we on this side of the Room support the introduction of the measures to do with orphan works and believe that the extended collective licensing system represents a good way forward, albeit, as has been pointed out by the noble Lord, Lord Clement-Jones, that it has to be done in conjunction with the copyright hub, which provides the missing ingredient in a lot of what we have been discussing recently.
As was made clear, we have some reservations about how the Government intend to ensure high standards of operation for collecting societies which are, after all, effectively monopolies in many sectors, so we are keen to see, at a very minimum, clarity on the standards to be set for collecting societies and transparency over the way the powers that the Government are taking will operate in practice. We also want to make sure that everything that needs to be done is done to make the copyright hub work well. The new regime and the copyright hub should ideally be brought into existence contemporaneously.
However, we are confident that things are moving in the right direction, and we hope that there will be opportunities for your Lordships’ House to be regularly updated on matters such as this so that we can feed in our continuing thoughts and support. I particularly refer to the point about photography, which I absolutely endorse. There is an issue there that we will need to keep an eye on. Assuming that everything is going well, we cannot support the noble Lord, Lord Clement-Jones, in opposing Clause 68 standing part of the Bill.
Viscount Younger of Leckie
My Lords, the very limited extent to which orphan works can be used is not just a cultural issue, but a real economic issue. The clause will allow for commercial and non-commercial use of orphan works in the UK. The Government estimate this could lead to benefits of up to £220 million a year. Nine out of 10 respondents to the Government’s consultation were in favour of commercial use of orphan works. The UK scheme has more safeguards than the EU orphan works directive. It includes a requirement that any diligent search is verified by an independent authorising body. The authorising body will not be able to license itself.
We are also making provision for remuneration of rights holders at an appropriate rate for the type of work and type of use. The directive is less restrictive about this. Remuneration will be paid whenever a work is used. It is yet to be determined how long such money should be kept on escrow for the returning rights holder. However, after a certain period it is envisaged that unclaimed money will be redistributed. Where the money has come from publicly funded institutions, such as archives, it may be possible for that money to be returned to fund archiving, preservation and digitisation costs.
The Government are pleased that the digital copyright hub is developing but have not yet made any decisions about who will run the orphan works scheme. However, regardless of its final decision, these powers are needed to enable the chosen organisation legally to operate the scheme.
The noble Lord, Lord Stevenson, my noble friend Lord Clement-Jones and other noble Lords raised concerns about the potential impact of these proposals on photographers. The Government continue to work with the photography sectors. The working group on orphan works and extended collective licensing contains significant representation from the world of photography, including the Association of Photographers, the British Association of Picture Libraries and Agencies and Stop43.
The Government appreciate that the stripping of metadata is a real problem for photographers. As noble Lords have noted, this is a current problem, and the practice continues despite the existence of legal instruments making it an offence. I am willing to meet noble Lords, who, in the course of this Committee session, have raised concerns, to discuss possible solutions to the problem of metadata stripping. This is an issue that is also being examined by the industry-led digital copyright hub, following Richard Hooper’s July report. However, the Government do not believe that the introduction of the orphan works scheme will negatively affect photographers, because historical photographs held in museums, archives and libraries, will form the bulk of photographs licensed under the scheme. If anything, the orphan works scheme will very likely improve matters, as it will become more obvious if works are being used unlawfully. Officially licensed orphan works, whether sourced from digital or analogue sources, will carry a reference to the authorising body. Courts may also take a dimmer view of infringement, if there is a legitimate and legal means of using orphan works.
The provisions on extended collective licensing are designed as a tool to help streamline rights clearance, but only where the sector wants it. We know that some collecting societies already operate extended collective licensing-type schemes, which are unregulated and unlawful. This means that rights holders are unprotected and could be missing out on money owed to them. A statutory basis for such schemes would help remedy this. The Government know that extended collective licensing might not be appropriate for all types of works or rights, which is why it can be initiated only by a representative collecting society acting with the explicit support of its members. The Government would have no power to impose extended collective licensing on a sector. Collecting societies tend to be monopoly suppliers in their sectors, so members and licensees cannot simply shop elsewhere.
The clause and schedule introduce provision for the statutory regulation of collecting societies, where self-regulation fails. Any collecting society that fails to meet the Government’s minimum standards for self-regulation would be required to adhere to a statutory code of practice. Collecting societies would have to comply with specified criteria, including on compliance and enforcement. The Government welcome the progress that the industry has made on a self-regulatory framework. Self-regulation remains the Government’s preferred approach. The safeguard of enforceable minimum standards will help to ensure that collecting societies operate in a manner that promotes open and efficient markets. If it works effectively, the reserve power will not be used.
Noble Lords have raised a number of questions. My noble friend Lord Clement-Jones raised the issue of having to wait for the hub before undertaking extended collective licensing, and pointed out that we need extended collective licensing because we have the hub. Both schemes are designed to facilitate legal and properly remunerative use of works; they are two sides of the same coin. The fact that ECL-type schemes are already in use in the UK demonstrates that there is a need. ECL cannot be imposed on a sector; if rights holders prefer to use direct licensing through digital copyright exchange, the hub or another method entirely, that is their decision. The hub cannot act on orphan works without the legislation in Clause 68 in place.
My noble friend Lord Clement-Jones raised an issue that the noble Lord, Lord Stevenson, raised previously, on photographers suggesting that we delay the implementation of the orphan works directive until the October 2014 deadline, and then implement only to relieve any restrictions that the copyright hub failed to address. I understand the concerns behind this suggestion, but this is not an option because we need to implement the orphan works directive in full, and we cannot go outside the requirements of the directive without this clause. This means that no one, including the copyright hub, would be able to license orphan works without the power of this clause.
My noble friend Lord Clement-Jones, in a further question, raised the issue of foreign rights holders who would not be able to monitor what is going on in the UK. The collecting society must produce evidence with its application to show how it deals with those affected, including foreign rights holders. I hope that that answers his question. He also raised the question of FOCAL and BAPLA, which were unhappy with the ECL. Photographers do not have to have ECL—it is voluntary and can be initiated by the collecting society only with the consent of members, as I mentioned earlier.
I believe that my noble friend Lady Buscombe stated that extended collective licensing in Nordic countries is different and guarantees remuneration for rights holders. However, collecting societies in the UK must also show how they will find non-member rights holders and distribute money that is collected to them. I hope that that goes a little way to answering my noble friend’s question. I commend the clause to the Committee.
Lord Lucas
My Lords, I rise not least for the pleasure of supporting entirely what my noble friend Lord Clement-Jones and the noble Lord, Lord Stevenson of Balmacara, have just said. This is a very present problem in the way that the world is developing. We are getting some very large corporations controlling a lot of the flow of copyright material. The noble Lord mentioned the likes of Facebook but Amazon is just as bad, given the rights you are left with as an author as it moves into the publishing of e-books. If you put an e-book through to Amazon, you have to sign over to Amazon the entire control over what your work is sold for. The terms that it goes for are most astonishing. Generally, we need to remember that copyright is about enabling people to create and remunerating them properly for it, not enabling vast corporations to reap the benefits that we intend for the creators. I entirely support this change and very much hope that the Government, if not accepting this exact amendment, will see their way to doing something equivalent.
Viscount Younger of Leckie
My Lords, a change to the scope of the Unfair Contract Terms Act 1977, as envisaged by this amendment, would warrant considerable investigation and public consultation. For example, contracts governing copyright are specifically excluded from that Act. The Government would need to assess the potential implications of amending the Unfair Contract Terms Act to insert copyright within the scope of that Act. We believe that we understand the intent behind this amendment, which is to address issues surrounding contracts between individual creators and other businesses. However, it is unclear whether the amendment achieves this, since some parts of the Unfair Contract Terms Act would not apply to business-to-business contracts. I would be very happy to have further discussions on this complex matter with my noble friends Lord Clement-Jones and Lord Lucas, and indeed with the noble Lord, Lord Stevenson. I hope that in the light of the above, my noble friend Lord Clement-Jones will be able to withdraw his amendment.
“(2) The regulations may provide that, if a licensing body fails to adopt such a code of practice, any code of practice that is approved for the purposes of that licensing body by the Secretary of State, or by a person designated by the Secretary of State under the regulations, has effect as a code of practice adopted by the body.
(3) The regulations must provide that a code is not to be approved for the purposes of provision under sub-paragraph (2) unless it complies with criteria specified in the regulations.”
Viscount Younger of Leckie
The government amendments in this group are in response to the Delegated Powers and Regulatory Reform Committee’s 10th report of this parliamentary Session. Government Amendments 33A, 46A and 46B are intended to put additional safeguards into the Bill. In particular, Amendment 33A seeks to ensure that when a code of practice is put in place for a licensing body, it must comply with the criteria specified in the regulations. As the regulations will have been through the affirmative procedure, this gives parliamentary oversight of the code being put in place for a licensing body.
Amendment 46A makes it clear that all the provisions under sub-paragraph (1) are included, while Amendment 46B is intended to clarify that both the determination that there has been a breach and any related sanctions are subject to an appeal process. Amendment 46B, I should mention, gives effect to the intention behind Amendment 47, tabled by my noble friends Lady Buscombe and Lord Clement-Jones. Finally, Amendment 50A removes the power to make regulations which impose requirements on licensing bodies by reference to guidance.
I trust that these additional safeguards will reassure the Committee and demonstrate that the Government have listened to the recommendations of the Delegated Powers and Regulatory Reform Committee and have taken action. I will not at this point speak to the amendments in this group that other Peers have tabled. I will instead wait to hear what they say, but I beg to move Amendment 33A.
Baroness Buscombe
My Lords, I thank the Minister for bringing forward the series of amendments in this group and for his explanation. Although the government changes to Schedule 21 are to be welcomed, I suggest that the Government could edge even closer towards improving the Bill yet further. Briefly, I should like to respond to the government amendments and then introduce those in my name; namely, Amendments 34 through to 51, excepting Amendment 49, which is in the next group.
Amendment 33A responds to the concerns of the 10th report from the Delegated Powers and Regulatory Reform Committee. Its concern, as we have already heard, was that the Bill will allow the requirements of the default code, enforced by penalties, to be imposed or revised without parliamentary scrutiny, given that failure to comply may lead to sanctions. Equally important as parliamentary scrutiny, in my view, is the fact that it is indispensable that the code criteria should be subject to consultation by interested, informed parties. That would be the effect of my Amendments 43 and 51.
I very much welcome the Minister adding his name to Amendment 46, which I tabled. That will help to ensure that the regulations must now set out the process for determining non-compliance, determining the type or size of the sanction and for providing a right of appeal. I also welcome Amendments 46A and 46B. As financial penalties will ultimately be borne by the collecting society’s members, fines should be imposed as a last resort. A right of appeal is essential. Also Amendments 50A, 51A and 51B are welcome additions to the Bill.
I turn to the series of amendments that I have tabled. Although the government amendments put forward are very welcome and a big step in the right direction, my amendments address separate issues which, with respect, still need to be considered. The purpose of these amendments is to provide even greater clarity in the Bill for Schedule 21, which would help to ensure that the Bill meets the stated aim of fostering successful self-regulation. The effect of the changes would be to reduce the considerable uncertainties surrounding future regulations because the powers currently provided for by this legislation are simply too vague, even with the Government’s latest amendments.
Collecting societies have invested considerable time and money in adopting and operating voluntary codes of conduct. PRS for Music introduced a voluntary code of practice for licensees as far back as 2009 and then one for its members in 2010. Many other collecting societies have followed suit. The British Copyright Council’s Principles for Collective Management Organisations’ Code of Conduct, known as the BCC principles, are important to reference here, as many of these codes of conduct for members and users comply with these guiding principles, which have at their heart a commitment to transparency, accountability and good governance. I suggest that those are all good Conservative principles.
These collecting society voluntary codes also have regard to the Government’s recently published minimum standards for collecting societies and, therefore, include an independent complaints review ombudsman. Independent adjudication of a complaint is obviously an important feature of any sensible self-regulatory system. Those BCC principles also include provision for an independent code review process. This first such review is intended to start in November 2013. In short, the principles of good self-regulation are established and are generally being operated successfully by collecting societies.
Amendments are necessary to the Bill to make the path from voluntary to statutory regulation much clearer than is currently outlined in the legislation. It is only reasonable, I suggest, to give businesses the certainty that they deserve. After all, it is a big step to move from self-regulation to underpinning with state regulation.
First, it should be clarified that the majority of the powers in Schedule 21 are exercisable only in a scenario where it has been adjudged through a fair, robust and transparent process that there has been an unremedied failure of self-regulation. The imposition of a statutory code, and/or any statutory appointment of an ombudsman or code reviewer, will lead to significant additional costs and potential exposure to penalties, and should therefore be imposed only when it is clear that self-regulation has failed. Collecting societies need to have visibility of what triggers the imposition of statutory regulation so that they are not left in the dark about whether they are close to or far from crossing the line.
Equally, given that collecting societies are already offering, or on the point of offering, ombudsman dispute-resolution services and providing for a code reviewer, the regulations should also make it plain under what circumstances the Secretary of State would appoint a statutory ombudsman or code reviewer. Amendments 34 and 50 serve to clarify the processes and specific circumstances that would enable the Secretary of State to impose such regulation.
Improvements to the Bill can also be made so that the penalties for non-compliance much clearer and more proportionate. This is why I am proposing Amendments 44, 45 and 48. The Bill provides for sanctions in case there is failure to abide by a code. These sanctions include financial penalties that may be imposed on directors and other personnel. The highest fine stated in the legislation is £50,000. Under the Companies Act 2006, penalties on individuals arise in relation to very specific failures. Codes of conduct are typically of a general nature. I therefore believe it is unacceptable to impose personal liability and financial penalties for undefined offences that are less specific than UK company law.
Let us remember that all collecting society revenues are distributed to members after management costs are deducted, and fines are therefore a direct penalty on the membership itself. Any fines would be paid for by the members of the collecting society. There is a strong argument that fines on societies should be imposed only as a last resort. Instead, it would be more sensible to provide appropriate help or assistance to a society that has been deemed to have failed, as opposed to simply punishment.
I have also tabled Amendments 35 to 42, which are effectively technical. Paragraph 3 refers to a licensing code ombudsman. Codes of practice typically govern a collecting society’s relationship with its members and its licensees. I propose that the phrase “licensing code” should be deleted because it is not appropriate.
Let me conclude by saying that we should not forget that compliance with regulation is costly; and, ultimately, the resources which are devoted to regulation must in effect be paid for by the creator members themselves. It is entirely reasonable that the penalties for non-compliance are clearly set out and proportionate. This Government support the principle of good self-regulation; they should therefore take this opportunity to do just that and reduce the uncertainties provided for by the current drafting.
Lord Young of Norwood Green
My Lords, these government amendments, brought forward in response to the DPRRC recommendations, put flesh on the points that we made in respect of the previous group. As we said, we support the introduction of measures to deal with orphan works and believe that extended collective licensing is the way forward. We also want to see the copyright hub being developed, as we have said. These amendments go some way towards ensuring greater clarity over the standards to be set for collecting societies and transparency in how the powers that the Government are taking will operate in practice, and we are happy to support them.
The amendments proposed by the noble Baroness, Lady Buscombe, aim to put more detail into the Bill on how the Government intend to supervise collecting societies and on what might constitute the minimum conditions and procedures that might be required, which would ensure that the Government can step in and require a body to adapt the Government’s standards for collecting societies. I shall listen carefully to what the Minister says in response to the amendments proposed by the noble Lord and the noble Baroness, but at present we take the view that much of what is requested is more appropriate for secondary legislation.
I take the opportunity to say, as somebody who spent a few months of my life dealing with the previous Digital Economy Bill, of which orphan works were a part, but they unfortunately disappeared in the wash-up process, it is nice to know that at long last we seem to be getting near to liberating orphan works for the collective benefit of society as a whole. I welcome the Minister’s comments.
Viscount Younger of Leckie
First, I appreciate the general support of the noble Lord, Lord Young of Norwood Green.
On Amendments 34 and 50, there is already provision in the Bill for consultation before the appointment of a code reviewer. We have considered the proposals to put all processes for the appointment of an ombudsman and the implementation of a statutory code on the face of the Bill. However, the Government, together with stakeholders, need to learn how the schemes work in practice and respond as they evolve. This will help us quickly to remedy any unforeseen issues that result in problems or injustices for rights holders. We have considered Amendments 35 to 42 carefully and believe that the term “licensing code ombudsman” more accurately describes the functions of the role. That role is to investigate and determine disputes about a collecting society’s compliance with its code of practice.
On Amendments 43 and 51, as I noted with regard to Amendments 34 and 50, the Bill already makes provision for consultation when appointing a code reviewer. This is important to ensure independence of process. Codes of practice will be subject to specific criteria, which will be set out in regulations subject to consultation. Therefore, the Government do not consider that additional consultation is necessary.
We have spent some time looking at Amendments 44 and 45 on the power to impose sanctions on individual directors. Where it can be demonstrated that a director is responsible for non-compliance with a code, it is only right that they should be sanctioned. The default should not be to penalise collecting society members. The Government agree with the intent behind Amendment 46, which is consistent with the comments made by the Delegated Powers and Regulatory Reform Committee. Therefore we accept this amendment.
On Amendment 47, I confirm that an appeal mechanism will be available for decisions on non-compliance and for any resulting sanction. This was earlier clarified in government Amendment 46B.
Finally turning to Amendment 48, the Government can confirm that these fees will apply only to a licensing body being regulated. If a licensing body adopts a code of practice which complies with the criteria specified in the regulations, no fees arise in connection with paragraph 1 of the schedule. In addition, paragraph 6(2) of the schedule contains a protection for licensing bodies, limiting the aggregate amount of fees payable for administration and operation of the regulations.
I shall respond to a number of questions raised by noble Lords. In her general comments, my noble friend Lady Buscombe raised the code criteria, which should be subject to consultation. Although I may well have covered this in my previous speech, the code criteria will largely be based on minimum standards on which there will already have been consultation. Specified criteria will be part of the regulations and will be consulted on.
In her general comments, my noble friend Lady Buscombe also raised the work done by the collecting societies on self-regulation. The Government welcome the work they have done and what they have achieved. I repeat that self-regulation is the preferred option, but we need a back-stop if it fails, a protection for licensees and members when dealing with monopoly suppliers. My noble friend Lady Buscombe also said that fines should be used only as a last resort. I entirely agree that they should be a last resort. We do, however, need an ultimate sanction, and fines would provide that.
My noble friend Lady Buscombe also mentioned collecting society revenues which are distributed to members, who are affected by fines, instead of giving help to failing collective societies. I agree with her; this is why, if a director is responsible, he or she, rather than the collecting society members, should be held accountable. Finally, my noble friend Lady Buscombe asked what triggers statutory regulation. The provisions for an independent code reviewer, who will independently assess the performance against the code, are the trigger. I hope that I have answered all the questions raised by noble friends and, if not, I will certainly write to them.
Baroness Buscombe
My Lords, I thank the Minister for his explanation of the various amendments to which I have spoken today. Of course, I want to think about what he has said, but the confirmation of an appeal mechanism is very welcome. I am always concerned about leaving too much to regulations. I remember that when we were in opposition the previous Government too often left so much to regulation, and we always complained about that. I find now that we are in a similar situation. It all comes down to certainty and clarity, hence the main purpose behind the amendments we have tabled. It is a huge step to go from pure self-regulation to having a back-stop power. I think it is right to say that the industry in large part does not oppose that back-stop power in principle. It is asking for as much certainly and clarity as possible and for the Government to recognise the work the industry has done and is continuing to do to put and keep its house in good order, so that creators and the works that they do are protected, and properly so.
We welcome the Minister’s support and understanding of the position of creators and their concerns in this regard. For my part, I think that the key to successful self-regulation is that all the parties involved in it are positive and buy into the system. It works extremely well as long as there is no uncertainty or a spectre of what they would deem unfair or disproportionate state interference. So often, the bottom line is that state interference leads to delay and cost. Just as within any court of law, delay and cost never produce a happy outcome, even for the person who comes out on top. It is not a happy resolution, and that is why I also referred to dispute resolution. I am pleased that the Minister has said that the Government want to be seen to be helping the industry as opposed to coming in with something of a cosh to deter those working in the industry doing the right thing or feeling that what they are doing is worth while and is properly protecting their members.
I do not want to delay this further, so I thank the Minister for his supportive comments. I will take his thoughts away and consider further whether we should come back on Report with further amendments, just to provide certainty in the Bill.
Viscount Younger of Leckie
My Lords, I shall begin with Amendment 49. I can confirm that it would not be possible to make unconnected changes to the jurisdiction of the Copyright Tribunal under the power in Schedule 21.
Turning to Amendments 56A and 56B, I can assure the Committee that the proposed schemes already take account of the range of interested parties affected by them. Let me explain how. First, on extended collective licensing, the Government intend that the regulations will allow any affected party the chance to comment on a collecting society’s application before a final decision is reached. A collecting society authorised to grant licences must take into account the interests of affected parties including its members, its licensees and non-member rights holders. These obligations are required to be in the collecting society’s code of practice. An independent code reviewer will measure performance against these obligations. Where there has been an alleged breach of a code, rights holders and licensees will have recourse to an independent ombudsman.
Turning to orphan works, the orphan works authorising body is independent and will not be able to license itself. I submit that this is a stronger safeguard than that proposed by these amendments. The Government concur that representative rights holders, wherever possible, should be on the governing body. In practice, this will not always be possible with some types of orphan works, for example, old diaries, correspondence and other material never intended for publication or commercial use.
I would like to clarify an issue which was raised by my noble friend Lady Buscombe concerning Amendment 49. Any changes to the jurisdiction of the tribunal should be subject to full parliamentary scrutiny. All regulations, including changes to tribunal jurisdiction, are now subject to the affirmative procedure.
The Government have carefully considered these amendments, and I hope that in the light of my response my noble friend Lady Buscombe feels able to withdraw her amendment.
Baroness Turner of Camden
My Lords, I support my noble friend on this amendment. I sat through the earlier discussions which were not within my particular area of involvement but this certainly is. Of course, transparency is very important in employment relations. My noble friend has just said that my party has no problem with high pay, but we all have problems with low pay. Taxpayers have problems with low pay because it involves the Government paying out welfare. That is the sort of problem that shareholders should be forced to face from time to time, and would be bound to do so under the terms of this amendment. Therefore, I hope that the Government will understand that this is in line with good practice, that it operates throughout the best part of English commerce and industry and that it is something that we should have in the Bill. I hope that the Government will feel inclined to support it.
Viscount Younger of Leckie
My Lords, noble Lords are very familiar with the arguments in favour of action on directors’ remuneration in quoted companies. In my opening remarks, I will be echoing many of the sentiments expressed by the noble Lord, Lord Mitchell, and particularly picking up on the transparency aspect, as expressed by the noble Baroness, Lady Turner.
Over the past decade, directors’ pay packages have risen on average by 13% per year, while the value of many of the companies they run has remained broadly static and workers’ wages have risen at a much slower rate. Business and investors recognise that this disconnect between pay and performance is damaging and not in the long-term interests of the economy. As Sir Roger Carr, president of the CBI has said:
“Now is the time to be more transparent, more responsible and more accountable”.
It is not government’s role to micromanage company pay, but there are actions that we can take to address what is a clear market failure.
Eighteen months ago, the Government initiated a broad, national debate on this issue. This has encouraged shareholders to become more engaged as owners of companies during the so-called shareholder spring. In 2012, several firms saw their remuneration reports voted down, including big companies such as Aviva and WPP. We have also seen many companies taking the initiative and engaging constructively in response. This is an important step for encouraging more responsible paysetting.
The Government’s reforms will build on this, and promote better engagement between companies and shareholders. By giving shareholders clearer information about what directors are paid and binding votes on pay policy, shareholders will be better equipped to hold companies to account. Business and shareholders agree that this comprehensive package of reforms strikes the right balance. It will promote a stronger link between directors’ pay and company performance but avoid placing unnecessary or inappropriate burdens on companies. The head of the Association of British Insurers has said that these proposals,
“are practical, workable and should help tackle excessive executive pay”.
The amendment requires that companies report on high and low pay outside the board. The issue of high pay below board level is most prevalent in the financial services industry because poorly designed remuneration structures can incentivise excessive risk-taking—a point alluded to by the noble Lord, Lord Mitchell. The Government are committed to improving remuneration disclosure in banks and achieved progress on disclosure below board level as part of Project Merlin. At the same time, Europe has proposed bringing in its own disclosure rules. We await the outcome of these negotiations before deciding on how to proceed with any domestic proposals for disclosure below board level at banks. The Government will argue strongly for the right outcome and remain committed to ensuring that the UK has a transparent and comprehensive remuneration disclosure regime for all companies, including the financial services sector.
However, we do not believe that high pay below board level is a major issue in other sectors. Through our consultations with investors, we learned that there is no demand for such a disclosure, which, if adopted, would place an unnecessary regulatory burden on companies.
Regarding the pay of employees more generally and how directors’ pay compares to that of lower-paid workers, the Government recognise that this is an issue of concern for shareholders, employees and the public in general. We want remuneration committees to consider the broader context when setting top pay. That is why, under government proposals, companies will have to say more about how they have taken into account pay of employees at all levels, and publish the percentage increase in pay of the chief executive officer compared to that of the workforce.
Last year, we published a draft of the regulations that will implement these proposals. These regulations will determine the content of remuneration reports in future. We invited people to comment on the draft regulations and a copy is available in the House Library. Noble Lords will have the opportunity to debate this matter thoroughly later this year when these regulations are brought forward.
Amendment 58BB would mandate that regulations prescribing the content of directors’ remuneration reports must require companies to disclose information about fees paid to remuneration and recruitment consultants in respect of directors’ remuneration. Noble Lords will be aware that the Secretary of State already has the power to require companies to disclose this type of information in the directors’ remuneration report and that we have published draft regulations that would give effect to this. Under these proposals, companies would be required to explain how consultants have been appointed, what services they have provided and how much they have been paid. By way of an update for the noble Lord, Lord Mitchell, we invited comments on these draft regulations and are currently considering the responses.
The noble Lord, Lord Mitchell, rightly drew attention to pay in banks, which I alluded to in my remarks. However, it is worth re-emphasising that high pay outside the boardroom is most prevalent in financial services, and we want to see greater scrutiny of how senior executives in large banks are incentivised because their behaviour can have a material impact on a firm’s risk profile. That is why we have committed to extending pay disclosure in large banks to highly paid non-board executives. This would mean that the UK had the most transparent bank pay of any major financial centre, but we do not propose to apply this in other sectors, as mentioned earlier, where it is less relevant. We consulted on this and found that there was no demand from investors for this extra information. Indeed, it would be an unnecessary extra reporting burden on companies.
I thank the noble Lord for raising this issue, but I suggest that the amendment is unnecessary, given that the Government already have the power to do this and have proposed considerable action in this area. I therefore ask the noble Lord to withdraw the amendment.
Lord Mitchell
I thank the Minister for that reply. I think we are not too far away in our philosophy and in what we would like to do in this section of the Bill. What we are suggesting would perhaps give the Bill a little more bite than it has at the moment. It is something we need to think about. My instinct is that we need to pursue these amendments.
I shall say one thing in particular. I do not understand why non-financial companies are not part of this. If I were a shareholder, I would like to know this information, even if it were—to name one company—WPP, which is not in financial services. There are many companies out there that pay pretty massive salaries, and I do not understand why they should be excluded from this. The Minister said that consultation with the investment community showed otherwise, but for all of us who invest in companies, this is key information that we should have. I hope the Minister takes into account what I have said. I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, I concur with the noble Lord, Lord Young, in his interesting remarks that the interests of employees are important as a company cannot excel, or indeed properly function, without a workforce that is committed, motivated and content. This includes being content with their remuneration package in relation to their peers and superiors.
I should also like to pick up the point he raised concerning companies taking into account employees’ pay and their views. He is quite right: in revised remuneration reports, companies will now have to say whether, and if so how, they have taken into account employees’ views on executive pay and policy. In addition, they will have to publish the percentage increase in pay of the chief executive officer and that of the workforce, as I mentioned earlier. These will be discussed in more detail when we debate the regulations.
Amendment 58BC would require companies to consult an employee representative if they propose to change their remuneration policy before the next AGM. The Government agree with the view that it can be useful for companies to engage with their employees when considering directors’ pay. It is important that remuneration committees make their decisions based on a broad range of reliable and robust information. We know that some companies are already doing this and we want to encourage more to do so. That is why we have proposed that, in their annual remuneration reports, companies disclose whether, and if so how, they have sought employee views. They must also say how they have taken employee pay into account.
We also encourage employees to take up existing mechanisms to air their views, such as information and consultation arrangements, employee representative committees and works councils. However, we do not believe that it is necessary to create a statutory duty to consult employees on this matter. It is up to companies and their shareholders to decide whether, and if so how, to go about it. I therefore ask the noble Lord to withdraw Amendment 58BC.
Lord Young of Norwood Green
I thank the Minister for his comments, some of which I found helpful. I will read the points he has made carefully in Hansard. Some of them were a step in the right direction and we will consider whether they have gone far enough. I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, Amendments 58BD, 58BF and 58BG would make the vote on remuneration policy a special resolution, requiring companies to secure the support of 75% of shareholders to pass. The level of support required for remuneration resolutions is a matter that the Government have consulted on extensively. The vast majority of investors agree that the vote on pay policy should remain an ordinary resolution. They would be concerned if a minority of shareholders could overturn the views of a majority. In cases where voting turnout is low, it would take only a small number of activist investors to reject the pay policy.
Investors have welcomed the Government’s decision to keep this as an ordinary resolution. They have shown this year that a majority of shareholders are often willing to vote against egregious pay policies. In 2012, we saw a succession of companies lose the vote on pay policy with at least 50% opposition from shareholders, as the noble Lord, Lord Mitchell, said. Special resolutions should be reserved for rare issues that have a major impact on shareholder rights or company value, such as recapitalisation or changing the articles of the company.
However, the Government agree that companies should have to take action when a large minority of shareholders reject a remuneration resolution, even if legally it has been passed. Therefore, the Government welcome the Financial Reporting Council’s commitment to look at whether companies should formally respond when a significant number of shareholders vote against a pay resolution and to consult on this being in the Corporate Governance Code.
Amendment 58BE would remove the requirement for companies to put their remuneration policy to a shareholder resolution at least every three years—triennially—and instead require that this is done annually. We considered that carefully when consulting with investors and companies. They welcome the option of a three-year pay policy, which encourages companies to plan for the long term and discourages them from making annual tweaks to pay packages. Investors agree that this will help to put a brake on annual pay ratcheting.
Major investors and investor bodies, including the Association of British Insurers, have backed this approach. The ABI has said that it will,
“help the task of keeping executive pay proportionate and aligned to corporate strategy”.
Of course, companies can choose to have an annual vote on pay policy and will be required to if they make any change to it. However, if the policy remains totally unchanged, it is an unnecessary burden on both companies and shareholders to require a vote on it.
We have, however, built in a safety net. Shareholders will continue to have an annual advisory vote on how the pay policy is being implemented. If they are not satisfied, they can oppose the advisory vote and this will trigger a requirement to have a binding vote on the pay policy at the next AGM. Shareholders also have the existing right to force a resolution at an EGM. That means that shareholders could force an annual binding vote on remuneration policy, should they wish to.
The noble Lord, Lord Mitchell, asked whether the high-profile votes against pay last year were a flash in the pan. As he said, last year we saw several such votes against high pay—he cited some examples—which were a step in the right direction. We are pleased that shareholders and businesses are increasingly working together to sort out pay issues, but it will take more than one year to do so. The government reforms will come into force in October this year and will give shareholders more power to push for change. Looking further ahead at least 18 months, if we see less public anger over pay because companies have sensible pay packages, we will have gone some way towards succeeding.
The noble Lord, Lord Mitchell, echoing remarks made by my noble friend Lord Razzall, raised the recent Kay review, and I am grateful to noble Lords for their welcome of that review on how to encourage a more long-term view in our equity markets. This is one of the reasons why, after consultation, we considered that a three-year vote best enabled us to focus shareholders and directors on the long-term value of the company.
Given the wide support for the approach that the Government have taken on this issue, I ask the noble Lord to withdraw his amendment.
Lord Mitchell
My Lords, I thank the Minister for his comments. We are perhaps a little further away from each other than we were on the previous amendments. As the noble Lord, Lord Razzall, said, it is some event when the TUC and the CBI come together on such a key issue, but we still feel that the annual side of this is an important issue.
I shall deal with the special resolution and the 75%. It is part of what we are saying about the need for this issue to be treated as important. In the next round, we would probably want to keep it as it is, but I will think about it. As for the annual side, and the request that it stays on a triennial basis, every single year at annual general meetings a series of issues go through, such as the approval of auditors and accounts. I do not see any reason at all why there should not be an approval of directors’ remuneration principle and package; it should slot in: one; two; three. I am sure that is the correct way for it to be. It does not matter what companies want to do. It is what we should be telling companies to do, so that those who invest and are stakeholders in those companies can really understand what has been going on in the past 12 months.
Having made those points, I beg leave to withdraw the amendment.
“( ) particulars of any remuneration payment (within the meaning of Chapter 4A of Part 10) made or to be made to the person after ceasing to be a director, including its amount and how it was calculated,”
Viscount Younger of Leckie
My Lords, Amendments 58BH, 58BJ and 58BK relate to the information that must be published by a company when a person ceases to be a director. They seek to clarify the information that must be disclosed and ensure complete transparency. Whenever a person ceases to be a director, shareholders want to know the details of their exit package. At present they may have to wait several months before they find this out. We believe that requiring companies to publish this information as soon as possible after a director departs will help to put pressure on companies to moderate such payments. Clause 72 introduces this requirement and requires the company to publish on its website details of payments for loss of office. However, because of the complexity of directors’ pay, some payments made after loss of office will technically be classed as remuneration payments rather than loss of office payments, so, legally, companies would not have to include details of them. Such payments can represent a substantial part of an individual’s exit package and so should form part of the disclosure on a company’s website. These amendments address this gap, bringing within scope,
“particulars of any remuneration payment … made or to be made to the person after ceasing to be a director, including its amount and how it was calculated”.
This will close a loophole which could otherwise have been exploited by companies attempting to evade the spirit of the legislation by not making full disclosures on exit payments. I beg to move.
Lord Mitchell
My Lords, we welcome this amendment. It is in the spirit of giving shareholders more information. We are very happy to support it.
Viscount Younger of Leckie
I am pleased to have support for these minor and technical amendments.
“Supply of customer data
(1) The Secretary of State may by regulations require a regulated person to provide customer data—
(a) to a customer, at the customer’s request;(b) to a person who is authorised by a customer to receive the data, at the customer’s request or, if the regulations so provide, at the authorised person’s request. (2) “Regulated person” means—
(a) a person who, in the course of a business, supplies gas or electricity to any premises;(b) a person who, in the course of a business, provides a mobile phone service;(c) a person who, in the course of a business, provides financial services consisting of the provision of current account or credit card facilities; (d) any other person who, in the course of a business, supplies or provides goods or services of a description specified in the regulations.(3) “Customer data” means information which—
(a) is held in electronic form by or on behalf of the regulated person, and(b) relates to transactions between the regulated person and the customer.(4) Regulations under subsection (1) may make provision as to the form in which customer data is to be provided and when it is to be provided (and any such provision may differ depending on the form in which a request for the data is made).
(5) Regulations under subsection (1)—
(a) may authorise the making of charges by a regulated person for complying with requests for customer data, and(b) if they do so, must provide that the amount of any such charge—(i) is to be determined by the regulated person, but(ii) may not exceed the cost to that person of complying with the request.(6) Regulations under subsection (1)(b) may provide that the requirement applies only if the authorised person satisfies any conditions specified in the regulations.
(7) In deciding whether to specify a description of goods or services for the purposes of subsection (2)(d), the Secretary of State must (among other things) have regard to the following—
(a) the typical duration of the period during which transactions between suppliers or providers of the goods or services and their customers take place;(b) the typical volume and frequency of the transactions;(c) the typical significance for customers of the costs incurred by them through the transactions;(d) the effect that specifying the goods or services might have on the ability of customers to make an informed choice about which supplier or provider of the goods or services, or which particular goods or services, to use;(e) the effect that specifying the goods or services might have on competition between suppliers or providers of the goods or services.(8) The power to make regulations under this section may be exercised—
(a) so as to make provision generally, only in relation to particular descriptions of regulated persons, customers or customer data or only in relation to England, Wales, Scotland or Northern Ireland;(b) so as to make different provision for different descriptions of regulated persons, customers or customer data;(c) so as to make different provision in relation to England, Wales, Scotland and Northern Ireland;(d) so as to provide for exceptions or exemptions from any requirement imposed by the regulations, including doing so by reference to the costs to the regulated person of complying with the requirement (whether generally or in particular cases).(9) For the purposes of this section, a person (“C”) is a customer of another person (“R”) if—
(a) C has at any time, including a time before the commencement of this section, purchased (whether for the use of C or another person) goods or services supplied or provided by R or received such goods or services free of charge, and(b) the purchase or receipt occurred—(i) otherwise than in the course of a business, or(ii) in the course of a business of a description specified in the regulations. (10) In this section, “mobile phone service” means an electronic communications service which is provided wholly or mainly so as to be available to members of the public for the purpose of communicating with others, or accessing data, by mobile phone.”
Viscount Younger of Leckie
My Lords, we announced at Second Reading our intention to introduce into the Bill a new provision on Midata. There are three elements to this new provision. The first relates to the supply of customer data, the second relates to the enforcement regime for the supply of customer data and the third is supplemental and explains how regulations would be introduced. I will explain each of these in more detail, but let me first say a little about what we are seeking to achieve by these amendments.
Midata is currently a voluntary programme led by an independent chair, Professor Nigel Shadbolt. Its aim is to encourage suppliers of goods and services to provide to their customers, upon request, their personal historic transaction and/or consumption data in an electronic machine-readable format. The provision we are seeking to introduce into this Bill is a power to impose a duty on business to supply certain data upon request from a consumer. Let me be clear that business already holds this information electronically and is simply being asked to give it back to consumers.
Let me reassure the Committee that the Government remain keen to see businesses continue to engage with the voluntary programme so that quick progress can be made without the need to resort to regulation. What we want, however, is flexibility to give the Midata programme legislative backing, if it is appropriate to do so, for the benefit of consumers and business in this area of increasing economic potential for the UK.
Midata gives consumers more control and access to their personal and transaction data, and UK businesses will be able to take advantage of new opportunities as potential developments in the data market continue to emerge. There are two main benefits from Midata. First, services which analyse and make sense of consumers’ transaction data will emerge and will help people to manage their spending much more effectively, putting them in a stronger position and better able to deal with the increased cost of living.
How valuable could that be? The company, billmonitor, estimates that 74% of UK mobile users with a contract spend an average of £171 more each than they need to every year, equating to almost £6 billion per year in unnecessary costs. A better alignment between consumer need and purchasing will enhance competition and this in turn will reward firms offering the best value products in particular markets, allowing them to win more customers, make profits and better utilise resources.
Secondly, Midata will act as a platform for innovation and will help to strengthen the competitive digital economy in the UK. It will lead to the creation of new businesses which will help people to manage, interpret and interact with their consumption data in many innovative ways. So what might people do? Services such as Money Dashboard or lovemoney already provide people with an instant, true view of their finances in one place, which helps individuals aggregate information about their money from multiple different financial services providers to gain a rounded picture of their financial affairs but are hampered by constraints in accessing the data. At present, consumers cannot always receive this information through existing mechanisms, or they may struggle to find it in a format that can be easily reused.
Giving consumers the right to obtain their own transaction and consumption data in portable electronic format will make it easier for them to use tools such as those I have described. They would simply be able to plug their past transaction or consumption data in at the press of a button. Automating the provision of data will also make such services cheaper to provide while making it easier for companies to provide innovative new services which can make use of the data. In this way, Midata can help turn a niche market for sophisticated money management tools into a mass market.
Viscount Younger of Leckie
My Lords, I welcome the general support given to Midata by the noble Baroness, Lady Hayter, in her initial remarks. I listened carefully to the large number of points that she raised. She has clearly put a lot of thought into the issue and I would like to address as many of the concerns that she raised as possible. It may well be that I do not cover them all, in which case, I will write to her.
The first issue I want to address is the point that the noble Baroness, Lady Hayter, raised concerning the British Retail Consortium and the objections that they have expressed on Midata. To re-emphasise the point—the focus of the power of this Bill are the four core sectors of energy, mobile phones, current accounts and credit cards. We cannot say that there will never be circumstances where Ministers believe including supermarkets within the regulations is worthwhile. But, before they do so, they will have to take account of the factors set out in proposed subsection (7) in Amendment 58C. The relevant legislation to effect such a change would be subject to enhanced parliamentary scrutiny through the affirmative procedure.
The noble Baroness, Lady Hayter, asked whether it was true that consumer bodies had been warning about the risk of this programme for some time. It is true that the Government continue to work with consumer representative groups and business to tackle any potential risks to consumers—the point that she raised. A range of consumer bodies endorsed the principles of Midata published by the Government in 2011, such as Citizens Advice, Consumer Focus and the Office of Fair Trading. Members of these consumer organisations also sit on the Midata strategy board, which is responsible for driving the direction of the overall programme. However, the Government are taking these concerns seriously and the Department for Business, Innovation and Skills will continue to work closely with consumer groups to ensure that consumer privacy is protected.
The noble Baroness, Lady Hayter, asked whether the Information Commissioner actually wanted the role of enforcement. I can reassure her that Ministers have discussed this with him directly and he was, indeed, willing to take on the role. The noble Baroness also asked if this was an appropriate role for the Information Commissioner and whether he had enough resources to undertake this particular role. We have had detailed discussions with the ICO on how the enforcement regime could work for Midata. If regulations are brought forward in the future, we are confident that the ICO’s existing expertise in data protection will help it to effectively enforce the Midata right for consumers. In addition, we did not want to place any additional cost burden on business, but we have included provisions enabling other bodies to be designated as enforcers, if that is later decided to be more appropriate than the ICO. For example, if we were to regulate for one sector only, it might be appropriate to designate a particular sector regulator.
The noble Baroness raised the issue of data protection. Existing consumer protections would still apply under Midata. All organisations that process personal data in the UK, including for the purposes of the Midata initiative, must comply with the Data Protection Act’s eight data protection principles. The DPA is enforced by the independent Information Commissioner’s Office, which has powers of prosecution and can issue monetary penalty notices requiring organisations to pay up to £500,000 for serious breaches of the DPA.
The noble Baroness also raised the issue of exclusions for smaller companies. I mentioned earlier that she will remember the issue of micro-businesses. The power allows flexibility for smaller companies to be excluded at the regulation stage. I hope that reassures the noble Baroness on that particular point.
The noble Baroness, Lady Hayter, also raised the issue as to whether consumers would be charged. The regulations could allow for consumers to be charged if that is considered appropriate at that particular stage. The new clause already limits such charges to the cost of complying with the request for data.
There are two more questions raised by the noble Baroness. First, she asked why there has been no government lead on providing public sector data. These measures will not apply to the public sector. However, in parallel, the Government are looking at issues of public sector data. The Open Data White Paper sets out the Government’s position and plans on public sector data release.
The noble Baroness also asked what form the regulations would take. The Government want first and foremost to encourage voluntary progress on this particular Midata programme. If regulations are subsequently brought forward, they will be shaped by consultations with stakeholders first.
The Government will continue to engage with business, consumer groups, regulators and trade bodies involved in the voluntary programme to accelerate progress as well as to broaden our engagement with other sectors. In bringing forward these amendments, we are conscious that a balance needs to be struck between the rights of individuals, the costs to businesses and wider benefits to the economy. This balance also needs to reflect the digital age and the increasing amount of data that is now unavoidably available.
We believe that giving consumers the right to obtain their own transaction and consumption data in portable electronic format, thus enabling them to use tools to manage this information in a smart way, is an effective way to empower consumers in the 21st century, which is good for business and good for the economy.
Lord Whitty
It seems to me that the Minister was talking about charging by the current owner of the information, or provider—the person with whom you are dealing through your mobile phone company. But I understand that the Government envisage there being new intermediaries in this area that will obviously be looking for a profit out of it for themselves and to use that data in different ways. Would that restriction on charging apply to them? In a sense, you have doubled the administrative time with a provider and an organisation that is being subcontracted by that provider to deal with the consumer. It also complicates data protection and potential liability and redress.
Viscount Younger of Leckie
The noble Lord, Lord Whitty, makes an interesting point. I will need to double check and revert to him to clarify his point.
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for his reply. I am particularly reassured by the ongoing discussions with consumer groups. Perhaps it was not clear in what he said—I did not quite hear it—but it seemed to me that he said that no extra resources would be made available to the Information Commissioner. If that is not the case, perhaps that could be clarified.
“Supply of customer data: enforcement
(1) Regulations may make provision for the enforcement of regulations under section (Supply of customer data) (“customer data regulations”) by the Information Commissioner or any other person specified in the regulations (and, in this section, “enforcer” means a person on whom functions of enforcement are conferred by the regulations).
(2) The provision that may be made under subsection (1) includes provision—
(a) for applications for orders requiring compliance with the customer data regulations to be made by an enforcer to a court or tribunal;(b) for notices requiring compliance with the customer data regulations to be issued by an enforcer and for the enforcement of such notices (including provision for their enforcement as if they were orders of a court or tribunal).(3) The provision that may be made under subsection (1) also includes provision—
(a) as to the powers of an enforcer for the purposes of investigating whether there has been, or is likely to be, a breach of the customer data regulations or of orders or notices of a kind mentioned in subsection (2)(a) or (b) (which may include powers to require the provision of information and powers of entry, search, inspection and seizure);(b) for the enforcement of requirements imposed by an enforcer in the exercise of such powers (which may include provision comparable to any provision that is, or could be, included in the regulations for the purposes of enforcing the customer data regulations).(4) Regulations under subsection (1) may—
(a) require an enforcer (if not the Information Commissioner) to inform the Information Commissioner if the enforcer intends to exercise functions under the regulations in a particular case;(b) provide for functions under the regulations to be exercisable by more than one enforcer (whether concurrently or jointly);(c) where such functions are exercisable concurrently by more than one enforcer—(i) designate one of the enforcers as the lead enforcer;(ii) require the other enforcers to consult the lead enforcer before exercising the functions in a particular case;(iii) authorise the lead enforcer to give directions as to which of the enforcers is to exercise the functions in a particular case.(5) Regulations may make provision for applications for orders requiring compliance with the customer data regulations to be made to a court or tribunal by a customer who has made a request under those regulations or in respect of whom such a request has been made.
(6) Subsection (8)(a) to (c) of section (Supply of customer data) applies for the purposes of this section as it applies for the purposes of that section.
(7) The Secretary of State may make payments out of money provided by Parliament to an enforcer.
(8) In this section, “customer” and “regulated person” have the same meaning as in section (Supply of customer data).”
Baroness Hayter of Kentish Town
My Lords, we very much welcome the amendments tabled by the noble Lord, Lord Razzall, and the noble Baroness, particularly their intention to clarify investors’ fiduciary duty. The amendments, as have been suggested, would clarify that institutional investors are not legally obliged to maximise short-term profits at any cost but “may”—that word was emphasised—take into account wider factors, such as the long-term sustainability of returns. This is modelled on Section 172 of the Companies Act 2006, which similarly clarified that company directors may take account of longer-term and wider factors, such as their impact on communities or the environment.
We on this side tabled remarkably similar amendments to the Financial Services Bill last year. We remain of the view that the position of those who hold money or assets on behalf of others, and who take decisions about those assets, should have their real owners’ or beneficiaries’ interests centre stage. The Kay Review of UK Equity Markets of July 2012 acknowledged a problem with misinterpretations of fiduciary duties, based on what he said was,
“a narrow interpretation of the interests of … beneficiaries which focused on maximising financial returns over a short timescale and prevented the consideration of longer term factors which might impact on company performance, including questions of sustainability or … social impact”.
This can lead to unhelpful short-term behaviour by investors and is a barrier to the adoption of the stewardship approach. The Kay report concluded that,
“there is a need to clarify how these duties should be applied in the context of investment, given the widespread concerns about how these standards are interpreted”.
The Bill in front of us is about enterprise and long-term growth. The Government are giving shareholders additional rights, which we welcome, but these must be balanced with duties to the underlying beneficiaries, who may have wider interests than just immediate returns. These amendments propose that there should be no legal barriers to consideration of those beneficiaries’ interests. They do not mandate anything but they clarify the law. The amendments are, we would say, permissive rather than prescriptive, and would ensure that the law does not prevent trustees from taking a broader approach. The provision does not mandate them to do so; in fact, it restores the primacy of trustees’ discretion in deciding how best to serve their beneficiaries, as opposed to assuming that the law restricts them to taking a particular approach.
The amendments make it clear that the duty of fiduciary investors is solely to their beneficiaries, and that the interests of beneficiaries must be the basis for all decisions. They clarify that this need not always mean maximising short-term profits: if trustees believe that their beneficiaries’ interests will be better served by taking into account wider factors, they will be empowered to do so. Indeed, where trustees choose to take account of purely non-financial factors—such as beneficiaries’ ethical views or implications for their quality of life—the amendments specify that this must not be to the detriment of beneficiaries’ long-term financial interests.
Perhaps I may give one example to show why this amendment is so needed. A large pension fund, which I fear does not wish to be named in this debate, received legal advice to the effect that its policy on shareholder engagement and responsible investment might be unlawful. Its policy stated that the fund would seek to exercise voting rights in listed companies in which it held shares, and that it would take into account environmental, social and governance issues with the potential to affect the long-term value for the fund’s beneficiaries. This position is firmly grounded in the financial interests of beneficiaries, and is widely accepted as best practice within the industry. The Government endorsed such an approach by promoting the stewardship code, through its package of enhanced shareholder rights on executive pay, and, in the Commons, where Pensions Minister Steve Webb said that,
“the coalition Government fully support the highest standards of corporate governance and ethical behaviour. We agree that a socially responsible investment strategy is a sound choice for pension schemes”.—[Official Report, Commons, 20/1/12; col. 1044.]
Despite this, the advice from a large and reputable law firm took an extremely narrow view of beneficiaries’ best interests, and suggested that the costs involved in exercising voting rights might render the policy unlawful unless the firm could demonstrate that such stewardship brought monetised benefits to the individual fund. The opinion cast doubt on whether such benefits could be demonstrated. This illustrates why the Government’s approach to responsible capitalism, which has focused on giving shareholders more rights, needs to be complemented by measures to remove any perceived legal barriers to the responsible exercise of these rights.
For long-term, sustainable growth and returns, we want responsible shareholder engagement with listed companies. The Kay review recommended, and the Government agreed, that the Law Commission be asked to review the question of fiduciary duty, with Kay himself indicating that statutory clarification may be necessary to resolve this. We would therefore ask Minister to confirm today that, if the Law Commission thereby recommends such statutory underpinning, the Government will take action.
Viscount Younger of Leckie
My Lords, these amendments would introduce a statutory requirement for institutional investors to act in the best interests of their clients and beneficiaries. They seek to clarify that these investors are not legally obliged to maximise short-term financial returns, but may take into account longer-term considerations, including the social and environmental impact of the companies in which they invest.
I am grateful to my noble friend Lord Razzall, supported in name by my noble friend Lady Brinton, for giving us the opportunity to debate the vital issue of fiduciary standards in the investment industry. As noble Lords may be aware, the duties of investment intermediaries were considered by Professor John Kay in his 2012 independent review of equity markets and long-term decision-making. The noble Baroness, Lady Hayter, mentioned this in her speech. The Government have broadly accepted the recommendations of the Kay report in this area. Specifically, they have made clear their support for the view expressed by Professor Kay, and echoed in Amendment 58F, that institutional investors should not automatically assume that maximising short-term returns is sufficient to serve the interests of their clients or beneficiaries. Instead they should take into account long-term factors relevant to their clients’ interests over the time horizon of the investment. However, the Kay report also found that there was no clear agreement on what the law currently requires of those investing on others’ behalf, and recommended that the matter be referred to the Law Commission.
The Government have therefore asked the Law Commission to undertake a review of the legal obligations arising from fiduciary duties that dictate what considerations are appropriate for trustees and other intermediaries acting in the best interests of their clients and beneficiaries. The Government also support Professor Kay’s view that there should be a common minimum standard of behaviour required of all investment intermediaries. While I therefore have great sympathy with the spirit of my noble friends’ intentions, I do not believe that the approach taken in these amendments would achieve this. The amendments attempt to enshrine aspects of the common-law concept of fiduciary duties in statute, and to apply these to certain institutional investors in all circumstances. This includes applying them to certain FSA-authorised firms without due regard to the FSA’s existing regulatory requirements. This approach would add to confusion and uncertainty about the meaning of the word “fiduciary”, the circumstances in which a fiduciary relationship already arises and the standards already expected of investors in regulation.
The government response to the Kay report is very clear in setting out the principle that all investment intermediaries should act in the best interests of their clients or beneficiaries in line with generally prevailing standards of decent behaviour. In order to embed this principle effectively, the Government have asked the FSA, and its successor organisation, the FCA, to consider to what extent current regulatory rules in this area align with this principle and to determine what action might be desirable. This includes, if necessary, changes to regulatory requirements at EU level.
With these reassurances, I hope that my noble friends will feel able to withdraw their amendment.
Lord Razzall
My Lords, I must say I am slightly disappointed by the Government’s response to this. This amendment is not about looking at the issues that the noble Viscount has suggested need to be looked at. It has nothing to do with the FSA or European regulations. Its entire purpose is to clarify the existing law. For example, it seeks to clarify that institutional shareholders which had a shareholding in Cadbury’s were entitled to take the view that they did not have to accept a very successful financial bid if they were concerned about other characteristics. That is not an FSA point or a European regulation point; it is a simple matter of clarifying the law. That is all we are asking for.
I have serious reservations and concerns about the matter being referred to the Law Commission because I predict that we will be debating this in five or 10 years’ time—those of us who are still alive then—when the Law Commission eventually comes back with a recommendation that will cover much wider areas than are dealt with by the amendment, as the Minister has indicated. To my mind, that is typical of the way in which Governments respond to things, in that you propose a relatively small amendment and they say, quite fairly, that the whole area, which is huge, is being looked at, of which the amendment is just a small part, and therefore they cannot do anything about the small amendment until that huge area has been looked at. That is the problem, and that is what I worry about. However, in the mean time, I shall withdraw the amendment.
Viscount Younger of Leckie
I would like to clarify this matter or go some way to clarifying it. I re-emphasise that the Government are currently discussing the precise terms of reference for the review with the Law Commission and, as mentioned earlier, will make an announcement in the coming weeks. The objective of the review is to provide clarity for institutional investors on their legal obligations. It would not be appropriate to prejudge the Law Commission’s review on whether there is a need for legislation to achieve that end. I hope that goes a little way to clarify our position, but an announcement will be made in the coming weeks.
Lord Razzall
If I may say so, that very short response was more helpful than the Minister’s previous comments. I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, this amendment seeks to amend the Insolvency Act 1986 to prevent suppliers withdrawing their services from a company after it enters formal insolvency. The amendment also seeks to address concerns about whether all utility providers are bound by an existing provision to prevent them demanding so-called ransom payments as a condition of continuing supply, which is an issue that the noble Lord, Lord Stevenson, highlighted in his speech. In addition, it seeks to extend that provision to IT suppliers.
The Government recognise the concerns that have been raised here and are looking very closely at these issues. My noble friend Lord Razzall recognised the difficulty in creating a balance here. We are committed to exploring any option which might help to rescue viable businesses and jobs, or which would improve the outcome for creditors of insolvent companies. The UK’s insolvency regime is very well regarded internationally. The regime continues to rank highly in World Bank reports for its ability to deliver quick and effective business rescue mechanisms. We want to maintain that standing and, indeed, build upon it.
However, I am sure noble Lords will recognise that this is a complex issue and that proper consideration must be given to the consequences that might result from such a change. For example, forcing suppliers to continue to supply an insolvent business might interfere with commercial behaviours and contractual rights. Freedom of contract is an important tenet in English law. Restricting a supplier’s right to terminate might also lead to knock-on insolvencies and could affect the pricing of contracts. While we recognise the advantages that such an amendment might bring, in the light of the important issues it raises, the Government wish to understand more clearly the consequences before deciding whether, and if so how, to change the law. In that way, we can satisfy ourselves that the right balance is being struck between the competing interests. I thank noble Lords for tabling this amendment and I assure them that the Government will consider this important issue very carefully.
Turning to Amendment 58HZA, this proposed new clause would require the annual report on HMRC’s charter to include a review of how its standards and values interacted with HMRC’s strategic objectives for the relevant year. It would also require the report to be made with the aim of taking a long-term view when considering proposals from individuals to repay their debts. The charter sets out HMRC’s role and the standards of behaviour and values to which the department aspires when dealing with everyone. The charter contains nine rights and three obligations. Examples include: the right to help and support; honest and even-handed treatment; professional behaviour; and acting with integrity. HMRC has six strategic objectives. These include improving the customer experience and maximising revenue to close the tax gap. The standards and values set out in the charter cover all aspects of HMRC’s work to meet these objectives, as well as its interactions with individuals and businesses.
At this point, I want to acknowledge the reference made in the speech of the noble Lord, Lord Stevenson, to StepChange. He produced some statistics and used the word “grim”. They are indeed grim figures, which I listened to extremely carefully. Whether HMRC should report on levels of personal debt was a question that the noble Lord raised. We very much recognise the issues that he raised about vulnerable customers and consumers, and the level of personal debt that he highlighted so eloquently. The Government very much recognise the need to look at these issues and we are doing so, which I should stress goes beyond HMRC’s remit.
Viscount Younger of Leckie
Noble Lords will be aware that the reforms to the debtor-initiated bankruptcy process being introduced by the Bill remove the order-making function from the court and replace it with a new administrative process. These are minor and technical amendments to the “Extent” provisions in Clause 78 relating to those reforms. Individual insolvency law is a devolved matter in Scotland and these reforms will have no substantive effect on legislation in Scotland.
The jurisdiction of the adjudicator is limited to the determination of bankruptcy applications received from debtors who meet the jurisdictional criteria of having resided or traded in England and Wales for the required period. However, certain consequential amendments made by the reforms extend to Scotland. The purpose of these amendments is to ensure that we have the legal power to make all those consequential amendments that are necessary to give effect to the reforms being made in England and Wales. The amendments make no substantive changes to bankruptcy law in Scotland, which is a devolved matter. I therefore beg to move.
Lord Stevenson of Balmacara
My Lords, we have read the amendments and recognised the points. Rather surprisingly, given the volume of correspondence that we received on everything else in the Bill, we received no comments from anyone on this matter and therefore have to rely entirely on our own judgments. In this case, we are happy for the amendments to go forward.
Viscount Younger of Leckie
My Lords, given that this is the last group of amendments in our Committee discussions, I would like to place on record my thanks to our Deputy Chairmen and the clerks who have masterfully steered our way through all the amendments; to the Bill teams involved; to the Hansard writers who have admirably recorded our discussions and, indeed, were obliged to stay somewhat later than the extended time allotted last week; and to the Doorkeepers for their unstinting assistance.
We have given the Bill careful and detailed scrutiny and I pay tribute to noble Lords opposite as well as my noble friends who have participated in our debates. Although there have been areas on which we have not wholly agreed, which we will discuss further on Report, as one would expect from this House, they have brought a depth of knowledge and analysis to the wide range of issues covered by the Bill. I would also like to thank my noble friend Lady Stowell for the part she has played and my noble friend Lord Popat and many other noble friends who have assisted and supported me and my officials.
The Government’s amendments to Clause 79 have two effects. The first is to commence all powers to make subordinate legislation by statutory instrument on Royal Assent. This is to assist with the orderly commencement of the Bill’s provisions. I should make it clear that these amendments should not be seen as suggesting that all the powers in the Bill will be exercised straight after Royal Assent, or indeed at all. Some are reserve powers which will be needed only if certain circumstances apply—for example, Clause 45 on the powers of sector regulators. Amendment 60AD adds further provisions to the list in Clause 79(2) which are to come into force automatically two months after Royal Assent without the need for a commencement order. I beg to move Amendment 60AA.
Lord Whitty
My Lords, it is probably totally inappropriate for me—as I am probably the person who has been here least in recent days—but I would like to join the Minister in thanking the clerks, the support staff and everybody who has participated on all sides during these debates. I also thank the various Chairs, including our current Chair. I extend that to the Minister and his colleagues and to the noble Lord, Lord Marland, who, many moons ago, started us out on this course.
Lest the Minister think he is going to get away after that, I have a couple of questions on this virtually final clause. As he says, the powers do not necessarily come in at the first date that is stipulated here in terms of implementation, but the Secretary of State will be able to implement them. In Amendment 60AB, he has already referred to proposed new paragraph (b), which relates to concurrent powers in Clause 45. The Minister may recall that during the debate on this there was considerable concern expressed about how the balance between the sector regulator and the new CMA would work. My understanding is that there will be different times in practice when each of the concurrent powers cease or are otherwise redefined; does that mean that, as it stands, Clause 45 would come in all at once on whatever date the Secretary of State determined after the first date? In fact, there may be a different date for Ofcom and the CMA or Ofgem and the CMA or the other sector regulators. It would be heavy work for the Government if they were all to come in at the same time, because there are different considerations in each of the sectors and there will be some inquiries which are still ongoing and some which need to be completed. In any case, we will probably have to return to the substantive issue on Report to get further clarification—if not to move further amendments—but it would seem that if all of Clause 45 were brought in applying to all sectors at the same time, it would be a problem.
My second point is about proposed new paragraph (f) in Amendment 60AB. This effectively says that anything that does not happen to be listed here can nevertheless come into play on the first day after Royal Assent. It seems, since Her Majesty will be signing them off, that this is getting fairly close to his late Majesty, King Henry VIII, in that if you do not specify the date in which various sections come into operation, then bringing any Section forward to an immediate date—even though it is not specified in this commencement clause—could seriously disturb the arrangements of the particular bodies that apply. For example, if there is a commencement of a particular power to either commence or cease, people need to know that in advance. Therefore, it is important that the Bill specifies that rather than have a catch-all ability for the Secretary of State, or some future Secretary of State, to bring any clause into play on the first day. If the noble Viscount tells me that this is normal, of course I shall withdraw it, but it is not something that I see in many pieces of legislation. Perhaps he could clarify the position.
Viscount Younger of Leckie
I thank the noble Lord, Lord Whitty, in the sunset of this Bill, for bringing up these issues, which I regard as quite technical in terms of the timing. I appreciate what he has asked and it is obviously my business to get back to him with some answers. It may help him to know that it is the powers only that will be commenced on Royal Assent; the substantive provision will come in separately later. It might help to facilitate the commencement of the Bill. That is the reason for it. It should reduce the number of commencement orders and the commencement dates. It is important for me to re-emphasise exactly why we are bringing in this issue. However, I might not have addressed his concerns entirely but I would be more than happy to take up this matter later and give him a proper response in writing, with a copy placed in the Library.
(a) section 19;(b) section (Power to remove concurrent competition functions of sectoral regulators);(c) section 51;(d) sections 66 to 69 and Schedule 21;(e) sections 74 to 80;(f) any other provision so far as is necessary for enabling the exercise on or after the day on which this Act is passed of any power (arising under or by virtue of that provision) to make provision by regulations or order made by statutory instrument.”
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(11 years, 11 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Curry of Kirkharle
My Lords, I declare an interest in that I chair the Better Regulation Executive, which was very much part of recommending these changes. I am delighted that the noble Lord, Lord McKenzie, recognises the value of the scheme and I pay tribute to the previous Government for having introduced it because it is a valuable tool and has reduced significantly the burden on businesses that have participated in it. My concern about the proposed amendment is the definition of “to a material extent”. It will create a lot of debate and potential confusion around how one defines “material extent”. The trade associations that have been consulted and would be keen to participate in this scheme have members who all have a common interest. I see this as providing a real opportunity to take a significant regulatory burden away from businesses that are members of a trade association and would wish to participate in such a scheme, so I have a problem with Amendment 28ZDA.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, before I turn to these amendments I would just like to thank the noble Lord, Lord Stevenson, for his very kind and extensive words of welcome at the previous Sitting of Committee. I look forward to a continuing and fruitful dialogue with the noble Lord. As he said himself, we sing in the Parliament choir together, although I hazard a guess that his tunefulness is somewhat superior to my own. I look forward to working closely with him and other noble Lords over the coming weeks on this Bill. I also confirm that I intend to propose meetings on the various matters where it was suggested this would be helpful at earlier stages of the Committee.
Turning to this group of amendments, I thank the noble Lords, Lord McKenzie and Lord Stevenson, for their amendments to Clause 59 concerning eligibility for the primary authority scheme, which I shall respond to in turn. This scheme was of course introduced by the previous Government, as the noble Lord, Lord McKenzie, mentioned, and has been much welcomed.
Clause 59 broadens the criteria for businesses to be eligible for the primary authority scheme. It will mean in practice that many small businesses that operate in only one local authority area will be able to join, together with similar businesses which share an approach to compliance. I hope that I can answer the question from the noble Lord, Lord McKenzie, about what that means.
The Government see a shared approach to compliance as one that a business consistently follows in order to fulfil its regulatory obligations. Such an approach should result from guidance or procedures issued from a single point, such as a head office or a trade association. This will mean that franchises of the same brand or members of the same trade association, for example, could qualify. They will be able to enjoy the valuable assurance that a primary authority partnership can bring.
The new eligibility criteria have been intentionally drafted broadly. This is to ensure that as many small businesses as possible can benefit from reduced regulatory burdens. A business will be able to join the scheme only if the Secretary of State is satisfied that the business meets the eligibility criteria, and statutory guidance will provide more detail about the matters likely to be taken into account in assessing eligibility under the new criteria.
It is intended that further detail as to the circumstances likely to constitute a shared approach to compliance will be included in statutory guidance. Adding further detail to the drafting of the clause could inadvertently restrict participation in the scheme for the very businesses that this clause is attempting to help.
Of course, having a broad definition of a shared approach to compliance in the legislation means that a wide variety of groups of businesses could qualify for the scheme and the nature of the resulting partnership will rightly need to vary. For example, where a trade association acts purely to distribute information to its members, the primary authority partnership will be very different from one which involves a trade association that provides a fully audited accreditation scheme for its members.
This type of detail will also be given in the statutory guidance and the statutory mechanism for scrutiny of proposed new partnerships by the Secretary of State provides assurance that shared approaches to compliance will be handled appropriately.
Amendment 28ZDB seeks to impose a statutory requirement for consultation before the Secretary of State issues statutory guidance on shared approach to compliance. Guidance for businesses and local authorities will be very important to provide detail of how the extended scheme will work in practice. The views of all interested parties will be vital in making the scheme work as well as it possibly can. For this reason, a commitment was given during Committee debates in the other place that,
“any guidance published as a result of the clause will be developed in consultation with stakeholders, including businesses, local authorities, trade associations and business groups”.—[Official Report, Commons, Enterprise and Regulatory Reform Bill Committee, 12/7/12; col. 606.]
I should like to pick up on a number of the comments raised. My noble friend Lord Deben asked about continuing the process. The Government are committed to the primary authority scheme. It is a key tool in reducing red tape and ending the tick-box culture of regulation.
The noble Lord, Lord McKenzie of Luton, asked at the beginning of the debate whether there were any extensions to primary authorities in the pipeline. I can confirm that the Government are consulting on extending primary authorities to include several new regulations, including those on sunbeds, if I read the noble Lord correctly. He also asked about statutory guidance and consultation. The Secretary of State already issues statutory guidance in relation to the primary authority scheme, and Clause 59(5) provides that the Secretary of State can also issue guidance on the matters likely to be taken into account in assessing whether a business meets the new “shared” approach to compliance test. In Committee in the House of Commons, a commitment was made to develop guidance in consultation with stakeholders, including local authorities. I can confirm that the existing statutory guidance will be updated to include further content relating to these proposals. This will be in place, in time for the proposed extension of eligibility becoming effective.
In summary, I hope that noble Lords will not press their amendments, because I hope that I have provided sufficient reassurance that these matters will be dealt with by guidance, taking into account the views of interested parties.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply, which has helpfully taken us forward a little bit. The extension proposed is much more focused on the assured advice component of the primary authority, rather than inspection plans. But I will not pursue that at the moment. I welcome the repeated reassurance that consultation will precede any issue of guidance. That is helpful. I am certainly pleased to see the enthusiastic support of the noble Lord, Lord Deben, for this approach, and indeed that of the noble Lord, Lord Curry.
The wording “material extent” was simply a peg on which to hang an amendment so that we could have the discussion that we have just had. I accept entirely that if it appeared in its current form in the Bill it would not be particularly helpful. I thank the Minister for his comments and I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, I thank the noble Lords for their amendments to the inspection plans clause, to which I shall respond.
Clause 60 strengthens inspection plans so that local authorities must not deviate from a valid plan without prior agreement from the primary authority. This will ensure that inspection plans can have maximum impact to reduce the burden of regulation for businesses and regulators, and target scarce resource where it is most needed. Amendment 28ZDC proposes that the legislation should require inspection plans to have regard to the way other regulatory bodies exercise equivalent functions.
This is an interesting idea and it gives me the opportunity to underline the Government’s view that it is paramount for regulatory bodies to work together consistently within the system. That said, we do not feel that this amendment is necessary. The legislation already requires primary authorities to take into account relevant recommendations of other regulators relating to inspections when developing inspection plans. The statutory guidance reinforces this requirement.
Further, processes have been agreed with the regulatory bodies, which ensure that national regulators have the opportunity to comment on draft inspection plans before the Secretary of State gives consent. There are support mechanisms that allow primary authorities to raise queries and assure themselves that their course of travel is in line with policy and best practice in the area.
Amendment 28ZDD proposes that an exception be made to the binding nature of inspection plans where a local authority believes that it is not appropriate in the circumstances to carry out particular inspection activity in accordance with an inspection plan. The Government agree entirely that there may be circumstances where it is not appropriate for inspection activity to follow inspection plans.
The underlying statutory guidance accordingly makes clear that inspection plans apply only to routine inspections carried out in a proactive way by the local authority. An inspection plan would not impede a local authority in responding to specific complaints or local intelligence. In fact, a plan is likely to strengthen an officer’s ability to react by providing important information about the company and its approach to compliance.
I should like to make it clear that there is nothing in the proposed changes to the operation of the primary authority scheme or inspection plans that would prevent or delay local authority action in response to complaints or specific local concerns. The Government firmly believe that primary authority inspection plans must become binding and I shall give detailed reasoning for that in the stand part debate, which we will come to in a few moments.
I will pick up on a point raised by the noble Lord, Lord McKenzie, concerning the Health and Safety Executive’s role in relation to local authorities. As the noble Lord described in detail, the Health and Safety Executive worked through local authorities for categories of businesses considered as low-risk. I should clarify that “primary authority” applies only to local authority regulators. The Health and Safety Executive responded to Professor Löfstedt’s recommendations separately. I hope, therefore, that noble Lords will not press these two amendments as the existing scheme for inspection plans contains the necessary safeguards.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for his response. I certainly do not propose to press these amendments or take them forward on Report. I am not sure that the Minister’s reply, which was generally helpful, fundamentally dealt with the position of the HSE and the split enforcement role of health and safety between local authorities and the HSE, particularly with the quite clear proposal that came from Professor Löfstedt’s report. I suspect that this is a debate for another occasion and not for the content of this Bill. Accordingly, I beg leave to withdraw the amendment.
Lord Curry of Kirkharle
My Lords, I will also try to reassure the noble Baroness, Lady Greengross. Under the new governance arrangements that exist for the primary authority scheme with the Better Regulation Delivery Office, there is significant representation from local government on that governance body. I therefore hope that she will be reassured that there will be considerable discussion between the Better Regulation Delivery Office and local government on how the scheme will be implemented.
Viscount Younger of Leckie
My Lords, Clause 60 strengthens primary authority inspection plans. Its effect is to make it binding for local authorities to act in accordance with a plan which is in force. Strengthening inspection plans in this way is a crucial measure for the Government’s aim of,
“ending the culture of ‘tick-box’ regulation”.
Under the current provisions, primary authorities and businesses can work together to establish an inspection plan. Several businesses have done so, and report more informed and better targeted enforcement as a result. As things stand, local authorities must have regard only to plans, and are not bound by them. We have been told by primary authorities that plans and requests for feedback are not being followed in many cases. This means that the full benefits of inspection plans are not being realised, and many businesses are put off developing them because they do not have confidence that they will be followed.
With this clause, it is our intention to remedy this problem and to improve inspection plans. We are giving them the teeth that they need to deliver as much benefit for businesses as possible. This will ensure that businesses and primary authorities have certainty that inspections will be carried out in accordance with the plans in which they have invested. It will also mean that essential, timely feedback is received to keep the business informed of its key risks. Inspection plans are a crucial tool in enabling businesses to earn recognition for their compliance procedures and to reduce the burden of regulation. They also allow firms to focus on the key risks to their business and optimise their procedures, saving valuable time and wasted effort and allowing them to provide a better service to their customers.
Viscount Younger of Leckie
My Lords, these three government amendments have the effect of removing new Section 47(2B) of the Health and Safety at Work etc Act 1974, and any references to it from Clause 61. New Section 47(2B) is a new regulation-making power. The effect of the power is to enable the Secretary of State to make regulations, subject to affirmative procedure, which make changes to the extent to which,
“other health and safety legislation”,
is actionable.
“Other health and safety legislation”,
is defined as,
“any provision of an enactment which relates to any matter relevant to any of the general purposes”,
of Part 1 of the 1974 Act.
The general purposes of the Health and Safety at Work etc Act include securing the health, safety and welfare of persons at work; protecting persons other than persons at work against risks to health or safety arising out of, or in connection with, the activities of persons at work; and controlling the keeping and use of explosive or highly flammable or otherwise dangerous substances.
In its report published on 15 November 2012, the Delegated Powers and Regulatory Reform Committee, although content with the other regulation-making powers in Clause 61, was concerned that the power in Clause 47(2B) appeared to be very far-reaching, particularly since the purposes of the 1974 Act went beyond the health and safety of people at work. The committee considered that the power was inappropriate and recommended that the new power in Section 47(2B) should be removed from the Bill.
The Government have reflected on the comments of the Delegated Powers and Regulatory Reform Committee and, on further consideration, accept that it is not necessary to take such a wide power to amend other legislation as there are no current plans to extend the policy to other legislation. I am happy to say that we have therefore accepted the recommendation of the Committee. These three amendments give effect to that recommendation. I trust that noble Lords will support this improvement to the clause. I beg to move.
Lord McKenzie of Luton
My Lords, we are happy to support these amendments. They seek to remove a very extensive power which could draw a wide range of circumstances into the ambit of duties which cease to be actionable. As the Delegated Powers Committee put it, there is no discernible policy objective to the inclusion of the proposed new Section 47(2B). The scope could be incredibly wide: any provisions of any enactment which link to any matter relevant to any of the general purposes of the 1974 Act—that is the Health and Safety at Work etc. Act. The Delegated Powers Committee has pointed to just one example: the control and keeping of dangerous substances. It is therefore absolutely right that the Government have backed off on this; they are very wise to do so. It is illustrative of a dangerous desire to accumulate draconian powers, but I am pleased that the Government have stepped back from that on this occasion.
Lord Deben
I welcome this, and ask the Minister to carry back the message that it is extremely valuable for people to listen to the advice given by committees. He may be involved in the forthcoming Bill which is entirely incorrectly called the Growth and Infrastructure Bill, in which there are some very uncooked suggestions. It would be of great help to the Committee were he to give an assurance that he will do his best to make sure that the Government listen with the same care to some of the suggestions that come from other committees as they appear to have done on this occasion in listening to the specialist committee that has advised this particular action.
Viscount Younger of Leckie
First, I thank the noble Lord, Lord McKenzie, for his support in this respect. I also take note of the comments that have been made by my noble friend Lord Deben.
Viscount Younger of Leckie
My Lords, I have listened very carefully to the debate this afternoon. I understand the concerns of noble Lords about the importance of protecting people at work from risks to their safety and long-term health so eloquently put forward by the noble Baroness, Lady Turner, and the noble Lord, Lord McKenzie, and, indeed, by the noble Lord, Lord Browne, in an impassioned and extensive speech. If noble Lords will bear with me, there is much to say in response to the many views and concerns expressed.
First, I reassure noble Lords that the purpose of this clause is not to weaken or reduce the existing protections for employees. It is about helping to increase the confidence of responsible employers to continue to do the right things to protect their employees. I stress emphatically that the law, which sets out the standards that employers must meet and the duties which employers must perform, including in relation to self-employed contractors on construction sites, is not affected by this proposal and is not changing. The Health and Safety Executive will continue to investigate serious incidents and complaints about poor practice and will take enforcement action, including, where appropriate, prosecutions, against those employers who fail to meet their responsibilities in line with the executive’s established policies and procedures, so let me explain why it is appropriate to take action.
We all recognise that the world has changed since 1974, when the Health and Safety at Work etc. Act was introduced to replace large numbers of detailed regulations with a proportionate risk-based approach to health and safety. Indeed, the late Lord Robens, on whose recommendations the 1974 Act was based, noted,
“that the sheer mass of this law, far from advancing the cause of health and safety, may well have reached a point where it becomes counterproductive”.
Clearly, every death and serious injury is a tragedy that should not happen. The noble Baroness, Lady Donaghy, referred to this earlier in Committee and has spoken about it again today. However, considerable progress has been made in reducing the incidence of injury and ill health. I listened carefully to the heartbreaking stories of those who have been killed or injured, as outlined in the speech of the noble Baroness, Lady Donaghy. Each one represents a tragic human story for individuals and for their relations.
Progress has been illustrated by the successful delivery of the Olympic Games, where there were no work-related fatalities on the whole of the London 2012 construction programme. This is the first time that any host nation has achieved that. The noble Baroness, Lady Donaghy, specifically raised the issue of construction sites. The substantive law that sets out the duties and responsibilities on employers, and to whom these are owed, including to self-employed subcontractors on construction sites, will not change. Therefore, the ability for such workers to bring a claim for negligence will also remain the same as now. Anyone who directly employs or engages construction workers or controls or manages construction work is a contractor for the purposes of the construction regulations. The duties on contractors apply whether the workers are employees or self-employed or agency workers. There is no distinction.
We are committed to the continued improvement of health and safety standards at work and to building on the progress made to date. The effectiveness of the health and safety regulatory framework has more recently been thoroughly examined by my noble friend Lord Young of Graffham in his report Common Sense, Common Safety.
Baroness Whitaker
Will the noble Lord confirm that the noble Lord, Lord Young, did not touch on the matter of Clause 61 in his report?
Viscount Younger of Leckie
I would need to refer back to the report to give the noble Baroness a full answer. Indeed I shall do so.
The effectiveness of the health and safety regulatory framework has also been highlighted by Professor Löfstedt, as has been mentioned today by several noble Lords, in his independent review, Reclaiming Health and Safety for All. Both my noble friend Lord Young of Graffham, whose report received much support across the House when it was debated, and Professor Löfstedt found that there is no case for fundamental change of the health and safety framework itself and that the existing regulatory requirements are broadly right. In fact, the biggest problem today is the way in which the regulatory requirements are interpreted and applied.
No one can be complacent. If we are to build on the steady progress made, we need to take action to tackle the current myths about health and safety, myths which the Health and Safety Executive see as such a problem that it has set up the Myth Busters Challenge Panel to provide a mechanism so that anyone who receives advice in the name of health and safety which they believe is disproportionate or inaccurate can challenge that advice.
Businesses consistently report that these myths lead to confusion about what the law actually requires and a fear of being sued, which, in turn, drives employers to overimplement the law in an effort to protect themselves and indeed discourages them from expanding their business. This in turn reinforces the perception that the application of health and safety law is unduly burdensome. I shall have more to add to that later.
This situation results in responsible employers taking an overly cautious approach, which has a detrimental effect on their approach to controlling risks properly in the workplace. For example, spending considerable resources on disproportionate paperwork and record-keeping, far in excess of what is necessary to comply with the law, diverts employers from taking a sensible approach to identifying the risks that actually affect their business and their employees, and taking sensible day-to-day precautions to protect their employees from those risks.
In the interests of both employers and employees, the aim is to improve understanding of what the law actually requires and to allay fears about possible litigation to help build employers’ confidence to take on new activities and further develop their businesses and to include recruiting new employees, which is so vital today.
To address these issues, the Government are implementing a package of measures, based on the recommendations of my noble friend Lord Young of Graffham and Professor Löfstedt, to reform both the civil litigation system and to restore a common sense approach to health and safety. This measure forms part of this package and I would reassure noble Lords that its introduction into the Bill at a later stage is purely due to the timing of the publication of Professor Löfstedt’s report and the Government’s desire to address the concerns he raised at the earliest opportunity.
We have already put in place a programme of work to improve understanding by simplifying the supporting guidance that explains what the law requires and to consolidate and clarify the body of health and safety regulation in a number of key industrial sectors. This programme builds on the work carried out as part of the better regulation initiative led by the previous Administration.
The clause does not change the duties placed on employers, but amends Section 47 of the Health and Safety at Work etc. Act so that in future, unless the legislation provides for an exception, it will be possible to bring a claim for compensation in respect of a breach of health and safety legislation only where it can be proved that the employer has been negligent.
Claims for breaches of the general duties of the Health and Safety at Work etc. Act can already be brought only for negligence. The change in this Bill simply extends this position to regulations made under the Act to create a consistent approach to civil litigation for all health and safety legislation. This means that if an employer fails in their duty of care towards their employee they can of course be successfully sued. However, where an accident has taken place and the employer could not have reasonably done anything about it, they should not be liable.
In the knowledge that they will not be liable if an accident happens which is totally outside their control, this change will support responsible employers, who take care to protect their employees, by encouraging them to take sensible steps to manage workplace risks. I am grateful for the speech made by my noble friend Lady Brinton and the example that she gave to support the helplessness that some businesses can experience where there is no defence for them. This will not assist irresponsible employers who fail to comply with the law as they will have no defence to an accusation that they did not take all reasonable steps to protect their employees.
This amendment to the Health and Safety at Work etc. Act has been adopted in preference to amending each strict liability duty, as Professor Löfstedt suggested, because an approach targeting each strict duty would be much more complex, and therefore complicated for businesses and their employees to understand.
The noble Baroness, Lady Turner of Camden, brought up the concern that the law would go backwards, which I think was her expression, and the employer would hold all the cards. I would like to assure her and all noble Lords that the provision will affect only a small number of duties that are unqualified. In any claim for negligence, the existing regulatory requirements on employers will remain relevant, as the courts will look to the statutory duties, approved codes of practice and established guidance to inform them about what risks a reasonable employer should be aware of and the steps they would be expected to take to manage those risks. I stress again that this change will only assist responsible employers who have done what is required of them and can demonstrate this.
This amendment reflects an adjustment to help rebalance the civil litigation system and, as part of the wider reforms of the system, is a proportionate response to the impact that strict duties currently have in the civil litigation system identified by Professor Löfstedt. It also has the benefit of creating a consistent approach to civil litigation for all health and safety legislation.
Currently, most claims are brought for both breach of statutory duty and negligence and, in practice, it is anticipated that the vast majority of claims will still be capable of being brought for negligence. For the small number of cases where this is not possible, as now, individuals will be able to claim for financial and other support through the state benefit system.
This measure is not about reducing the number of claims. It is about establishing the principle that an employer who has done nothing wrong should have the opportunity to defend themselves on the basis of having taken all reasonable precautions. Providing employers with this important reassurance will help them to manage health and safety risks in a sensible and proportionate way.
Lord Browne of Ladyton
At the heart of the noble Viscount’s argument there are general arguments about numbers. The Health and Safety Executive’s impact assessment says that this change will affect 200 sets of health and safety regulations. When it seeks to answer its own question about the number of cases that this will effect, it says that it has not a clue. In the light of that information, which I have here in this assessment before me, could the Minister please tell the Committee on what basis he estimates that this will impact on a small number of regulations and cases? If that is wrong, we are legislating here on a false basis. The HSE has no idea what the statistical base of this is.
Viscount Younger of Leckie
I thank the noble Lord, Lord Browne, for that intervention. I shall answer his questions in a moment.
It now falls on me to answer a number of questions, which I will do in a particular order, if I may. The first substantive question came from the noble Lord, Lord McKenzie, and concerns the basic concept of why there was no review or consultation, as he put it. I assure him that the noble Lord, Lord Young, and Professor Löfstedt consulted widely and found that there was significant and consistent evidence from businesses that the perception of a compensation culture and the fear of being sued have a significant effect in driving overimplementation of the law, and going beyond what the law requires creates unnecessary costs for employers, diverting them from focusing on taking the practical day-to-day steps to protect their employees. Professor Löfstedt, in addition, had concerns that the wider reforms to the civil litigation system and changes to simplify the health and safety system would be less effective if business continued to overimplement the law due to a fear of being sued.
Lord McKenzie of Luton
If the Government’s case is that there was consultation and that Professor Löfstedt undertook that consultation, why did the Government not follow his recommendations?
Viscount Younger of Leckie
As has been mentioned earlier, we are following the vast bulk of his recommendations.
Lord McKenzie of Luton
I shall try not to prolong this, because I know that the Minister has a lot to get through and the clock is ticking. Clearly, the Government did not follow the recommendation related to strict liability. Or is the Government’s case that it did?
Viscount Younger of Leckie
In answer to the noble Lord, I would say that it is not black and white that we followed all the recommendations from Professor Löfstedt, but I shall certainly write to him to explain which recommendations we did follow and which, perhaps, we did not.
The noble Lord, Lord McKenzie, also raised the issue of whether the issue is wider in scope than the Löfstedt recommendation. Amending each strict liability duty individually, as Professor Löfstedt suggested, would be complex, as I mentioned earlier, requiring a large number of changes to many sets of regulations, and confusing for employers. A single amendment to the Health and Safety at Work etc. Act addresses the same policy objective, is simple to understand and provides a consistent approach to civil litigation for all areas of activity covered by health and safety at work legislation.
The noble Lord, Lord McKenzie of Luton, also raised the question of whether the change would mean that cases were more difficult and costly to prove, and that employers would hold all the information. Employees will still have the right to bring claims when fault on the part of their employer can be proved. Currently, most claims are brought for breach of statutory duty and negligence, and in future it is expected that most claims will still be able to be brought for negligence.
Lord McKenzie of Luton
I am sorry, but we are dealing with some very important points here. On this mantra that most claims are brought under negligence and breach of statutory duty—even if it is right, and I am prepared to accept the Minister’s word on that—is it not right that they do not necessarily all proceed to the end of all those processes? The breach of statutory duty process leads to negotiations of settlement way beyond what you get for some of the burdens claimed for negligence.
Viscount Younger of Leckie
It is clear that the vast majority of cases will be covered by negligence and that a small number of cases will fall outside. We should be clear about that.
Many health and safety duties are qualified by “so far as is reasonably practicable”, as was mentioned earlier. In practice, the tests applied for negligence and breach of statutory duty, qualified by “so far as is reasonably practicable”, are likely to be very similar. The record-keeping requirements of health and safety legislation will continue to ensure that information is available to employees where an accident has taken place.
I turn to the question raised by the noble Lord, Lord Monks, concerning the European position. Under European Union law, member states can generally decide what sanctions and remedies to put in place to enforce EU obligations, subject to certain rules. In Great Britain, health and safety obligations are backed by various enforcement powers and criminal sanctions as well as the opportunity to claim for compensation in the civil courts, which will remain through the right to sue for negligence. Taken as a whole, the sanctions available for the enforcement of EU directives are, and will continue to be, effective.
I turn to the various points made by the noble Lord, Lord Browne. One of the questions that he raised concerned how much money is currently returned to the state by the Compensation Recovery Unit, and how much will be lost by this amendment. That is a very straight question. It is not possible to disaggregate the amount because the benefits available are dependent on individual circumstances. He also raised a point about the reform in terms of shifting the burden of supporting employees who are unable to make a claim to the state. Again, that was a very straight point. As I mentioned to the noble Lord, Lord McKenzie, it is recognised that a very small number of employees may not be able to claim in future under the new arrangements. None the less, this change is important as part of the wider package of government reforms in signalling an end to the perception of the compensation culture. Provision for non-contributory no-fault compensation payments—I emphasise that—for disablement caused by an accident at work is already available to individuals through the Industrial Injuries Scheme. All serious incidents will continue to be investigated by the Health and Safety Executive.
The noble Lord, Lord Browne of Ladyton, also brought up the perception of the compensation culture. Businesses have expressed concerns about this fear. It is true and it has long been a driver of overcompliance. That was very clear to the noble Lord, Lord Young of Graffham, and, indeed, to Professor Löfstedt.
One of the crucial questions that the noble Lord, Lord Browne, raised, which was also raised rather more obliquely by the noble Lord, Lord Young of Norwood Green, was that of evidence. I should emphasise that, in conducting his review, Professor Löfstedt consulted most widely, including 30 meetings with individual stakeholders and several business forums. He also received 250 written submissions. The findings of his review build on the work completed by the noble Lord, Lord Young of Graffham, in his report, Common Sense, Common Safety. In preparing his report, the noble Lord consulted 132 wide-ranging organisations representing relevant professionals, including personal injury lawyers, businesses and associated organisations. He also spoke to more than 100 individuals, including health and safety professionals, Members of Parliament, councillors and leading academics in the field of law. I hope that goes a little way to answering the noble Lord’s question.
The noble Lord, Lord Browne, also asked what the Government’s assessment was of the number of claims that this change will affect. It is anticipated that there will be only a small reduction in the number of claims made as most will still be able to be brought for negligence, as mentioned earlier. The only claims that are significantly affected will be those which rely on a breach of the law where there is no, or insufficient, evidence to prove the employer was negligent.
Finally, the noble Lord, Lord McKenzie of Luton, raised the issue of negligence and the fact that the breaches of statutory duties were not equivalent and that the tests for negligence were nebulous. I think that was the term he used. Negligence and breach of statutory duty are different tests but most statutory duties require an employer to take such steps “as are reasonably practicable”. The common law requires an employer to take reasonable care for the safety of their employees. In practice, in the vast majority of cases the issues in dispute will be the same and the standard expected of the employer is likely to be very similar as now. As I mentioned earlier, the statutory framework will continue to inform the courts about the standards expected of the reasonable employer.
For the reasons that I have outlined, I commend the clause to the Committee.
Lord McKenzie of Luton
The noble Viscount referred to my use of “nebulous”. If I remember correctly, that is the Government’s word, and was in the impact assessment. Coming back to the timing of this clause being introduced into the Bill, he referred to the fact that it could not go in earlier because of the Löfstedt report. Professor Löfstedt reported in November 2011, and indeed the Government responded in November 2011. That was time enough to get it in earlier.
Viscount Younger of Leckie
I have certainly noted the point that the noble Lord has made. I was clearly of the understanding that that was the reason but I will certainly revert and check, given the dates that I have just received from him.
Baroness Turner of Camden
In responding to the Minister, I begin by thanking everybody who has participated. We had an excellent debate, drawn from a lot of experience and expertise. It really has been very good indeed, and I am very grateful to everybody who has contributed. However, I am sure that the Minister will not be surprised to learn that I do not accept very much of what he has got to say. I still think that Clause 61 should not become law. I cannot understand why he says that it will help good employers. A good employer is helped by the existing legislation, and if the Government are concerned to improve health and safety at work arrangements, then they should be supporting the Health and Safety Executive instead of diminishing its resources. If they think they need to do more on health and safety, the HSE is highly respected and ought to have more resources, rather than fewer—which is what the Government’s present policy seems to be.
I really do not accept a great deal of what the Minister has said today. I cannot understand why he is going on about compensation culture. I have made some contributions about my experience in that situation when I worked for an insurance company. We have been talking about claims by employees which often take years to settle, particularly if it is a death; frankly, what sort of compensation culture is that? There is a case for looking at aspects of our legislation, but certainly not via this clause, which takes away some of the support that people currently have in the area of health and safety at work.
I am not at all in favour of what the Minister has said. Of course, in Committee we do not have votes. However, I can assure the Minister that this will be back again at Report, because a number of us feel very strongly about it. I certainly do and I am sure that my noble friends do as well. He has not heard the last of this. In the mean time, I do not press this question.
Viscount Younger of Leckie
My Lords, this may be a convenient moment for the Committee to adjourn until Wednesday at 3.45 pm.
Leveson Inquiry
Viscount Younger of Leckie Excerpts(11 years, 11 months ago)
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Viscount Younger of Leckie
That this House takes note of the report from Lord Justice Leveson on the culture, practices and ethics of the press (HC–780).
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, it is a privilege to open this debate today. The response to Lord Justice Leveson’s report is a weighty moment for this Government and for this House. Within its 2,000 pages the report provides significant insights and recommendations, the result of nine months’ painstaking work, and we are most grateful to Lord Justice Leveson.
I know that many distinguished Peers have contributed both to the inquiry and to the wider debate, which has been shaped by their experiences and knowledge. We look forward to hearing their views today and in the days to come. I would first like to acknowledge some notable contributions. Among many others are, first, my noble friends Lord Hunt of Wirral and Lord Black of Brentwood, who were instrumental before the report’s publication in developing and presenting a new structure of self-regulation for the press. I look forward to hearing my noble friend Lord Hunt’s views today. Secondly, there is the noble Baroness, Lady O’Neill of Bengarve, who has been a highly respected contributor on issues of press and media freedom, and the noble Lord, Lord Soley, who has brought his wisdom and experience over many years to the debate on the subject of press regulation.
I am delighted to welcome the noble Lord, Lord Trees. I am sure that the whole House looks forward to his maiden speech today. I am grateful also to my noble friend Lord Taylor of Holbeach, who has the honour of responding to the many views, proposals and reflections that we will hear.
At the outset, it is vital to note that there is broad agreement on the principles espoused by the Leveson report. They are principles that all sides of the debate have accepted. I reiterate that it has never been about whether but how these principles are enacted. This is now the focus for the Government, as well as for the cross-party discussions, and I hope that today we in this House can continue and add to the debate with the wisdom and clarity of thought that has marked it so far.
The UK has a history of setting standards for democracy and press freedom in the world, but the current practices, culture and accountability of some parts of the British press have let us down badly and it is widely agreed that the status quo is no longer an option. We all agree that there must be significant change. We all agree that the abuses of the past must never be allowed to happen again, and that a new system of tough, independent self-regulation is needed urgently to ensure that this is so.
At the heart of all this lies our deep conviction that victims must be better protected. Their suffering in the past has been made significantly worse by the unacceptable levels of relentless press intrusion inflicted on them. We must have a new, independent self-regulatory body that can deliver: independence of appointments to and funding of that body; a standards code by which the press operates; a new arbitration service for victims submitting civil law claims; a fast and thorough complaints-handling mechanism for handling breaches of the press code of conduct; the power to demand apologies, designed to carry equal weight in their exposure to that of the transgression; and the power to levy fines.
I will now update the House on progress since Lord Justice Leveson’s report was published in November. The report contains detailed recommendations, and the Government continue to lead cross-party discussions to consider the best way to implement them. The latest of these talks took place just yesterday. In addition, there are ongoing discussions with stakeholder groups, including the press industry and the campaign group Hacked Off. The Government have been very clear that this process needs to be transparent and robust if it is to produce an effective solution, and to that end they are seeking a collaborative approach to achieving the principles outlined by the report.
Much attention has also been drawn to the function and nature of the body that Lord Justice Leveson recommended should recognise any new press self-regulator. We should remember that, however this recognition body is established, Lord Justice Leveson himself said,
“The goal must be a genuinely independent and effective self-regulatory system”.
He also notes very clearly in his report that,
“not a single witness has proposed that the Government or Parliament should themselves be involved in the regulation of the press”.
The gauntlet has been thrown down to the industry to develop a model of tough and independent self-regulation that fulfils the principles of Leveson. I believe that it has now picked up that gauntlet, and whatever it comes up with will need to meet the Leveson principles in order to gain recognition. We in this House must keep the pressure on it to ensure that such a model swiftly materialises. Delay would be unacceptable.
The Prime Minister has said that he does not believe that statutory legislation is necessary to achieve the principles outlined by Leveson. However, noble Lords should be aware that my right honourable friend the Secretary of State for Culture, Media and Sport has been equally clear that if the industry does not deliver a tough new independent self-regulatory system, she will not shy away from going down the statutory legislation route. That would be the only option left.
As noble Lords will be aware, some work has already been done on a draft Bill, as well as on Bills drawn up by the Opposition, by my noble friend Lord Lester of Herne Hill and most recently by the campaign group Hacked Off. These Bills constitute one of several avenues being explored in the cross-party talks. However, the Culture Secretary is clear that she remains committed to a non-statutory route. As such, the cross-party talks are also exploring the idea of a royal charter as an alternative means of fulfilling the Leveson principles.
What progress has been made so far? There are some aspects within the report that the Government have been able to act swiftly on. First, on incentives and sanctions, a key question is how to encourage newspapers or media organisations to sign up to a new regulatory body. A range of options are being considered, both within and outside government; some would require government intervention while some would lie in the hands of any new self-regulator. A proposal that has gained momentum in recent weeks is the suggestion made by Lord Justice Leveson that a system of damages be instigated to punish the worst transgressions of the press. As incentives to sign up for the new scheme, membership would be a factor for the courts in considering whether to award exemplary damages and, if so, how much. This would always be at the discretion of the court. However, these issues are not black and white, and the Ministry of Justice continues to consider the proposals in depth.
Secondly, progress has been made on access to justice. Although this issue has not taken the centre ground, the report and the reaction to it have clearly highlighted widespread concerns about access to justice for litigants, particularly where they are of limited means. In response to this, the Government have already referred the question of how costs should work in defamation and privacy cases to the Civil Justice Council. It will report back in March, and it will be imperative that the conclusions of the Leveson report feed into its work. In the mean time, we have also announced that we will partially delay the reforms in the Legal Aid, Sentencing and Punishment of Offenders Act, so that conditional fee agreements will continue to be available in defamation and privacy cases.
Thirdly, I shall update noble Lords on the Leveson recommendations relating to the police and the press. The report addressed many issues of policing, which I have no doubt my noble friend Lord Taylor will refer to in his summing-up of the debate. The report makes a number of recommendations in relation to transparency and accountability. However, Lord Justice Leveson himself acknowledges that the landscape of policing is already changing, in part due to work undertaken by the Home Office and the Association of Chief Police Officers on behalf of the police. We should not forget the importance of this aspect of the report. The Home Secretary will report on all these measures to Parliament in the near future, and I know that she will take account of the Leveson principles when she does so.
Fourthly, data protection is another area of the report that the Prime Minister and the Culture Secretary identified as an issue warranting careful consideration immediately. There are serious issues at stake around questions of investigative journalism; they must not be brushed aside but should be given due weight and diligence in our consideration of them. Lord Justice Leveson makes a range of recommendations on both the role and powers of the Information Commissioner and the application of an amended Data Protection Act to the press. Within these suggestions there are fundamental issues at play. The balance between the competing rights to privacy and freedom of expression is not easy to strike. The Information Commissioner has already published his own response to the recommendations that are aimed at him. In doing so, he acknowledges that extending the scope of the Act to cover journalism is a matter that needs careful consideration, and that is precisely what the Government will do.
The concerns and issues that I have outlined are but some of the areas that noble Lords will wish to debate today. Much work remains to be done, and the extensive debate since the publication of the report is likely to continue. The Government will issue a full response to the report shortly. I am aware that there will be many and varied viewpoints in the Chamber today and that noble Lords will present their arguments with passion, eloquence, balance and wisdom. I look forward to hearing them, in order that this House might play an important role in securing the right path for the future.
The press plays a key role in our democracy. However, with that privilege comes considerable responsibility. There is much more that unites us than divides us on taking forward the Leveson recommendations. The outcome that we all aspire to see is a set of proposals that truly reflect the spirit of his report, putting in place a robust, independent self-regulatory system for the press that is capable both of protecting the public and of safeguarding freedom of expression. I beg to move.
Enterprise and Regulatory Reform Bill
Viscount Younger of Leckie Excerpts(12 years ago)
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Viscount Younger of Leckie
I thank noble Lords for their suggested amendments and I appreciate the sentiments expressed by the noble Lord, Lord Whitty, regarding this part of the Bill.
Beginning with the amendments in the names of the noble Baroness, Lady Hayter, and the noble Lord, Lord Whitty, Amendments 24ZA and 24ZC seek to add specific references to some of the CMA’s competition functions and duties into its overarching duty, which is,
“to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
These include, for example, references to the CMA’s role in tackling mergers and abuse of dominant positions, and in reducing cartels and monopolies.
The CMA’s duty to promote competition reflects its unique position as the UK’s principal competition body, its leadership role in tackling anti-competitive behaviour as part of ensuring markets work well for consumers, and its domestic and international advocacy role. It does not seek to set out all the CMA’s functions. In addition to this overarching duty, the CMA will inherit the full range of the competition functions of the OFT and the Competition Commission, as well as additional consumer enforcement powers.
These functions and powers include: strengthened Competition Act enforcement powers to enable the CMA to tackle anti-competitive monopolies, monopsonies and cartels; strengthened merger controls to enable the new authority to address more effectively anti-competitive mergers that can lead to high prices and poor quality for consumers; a wide range of investigative and remedy-making powers to ensure that markets work well for consumers; and finally, the use of consumer enforcement powers to address business practices that distort competition or impact on consumer choice, even where markets are competitive. We are also providing more speed and rigour in market studies and investigations, and anti-trust cases, to give consumers faster and more robust decisions.
Given that the CMA will have a range of powers to ensure that competition and markets work well, it would not be appropriate to legislate for the CMA’s overarching duty to focus on one of these important competition and consumer tools over another. It is also important to preserve the independence of the CMA to choose the right tool to promote competition and tackle anti-competitive practices. We therefore do not consider that it is necessary or right to specify the particular kinds of anti-competitive features set out in these amendments.
There is also a particular concern over the way in which Amendment 24ZC seeks to gloss the meaning of a dominant position by specifying that it is normally to mean control over a quarter or more of a market. This would contradict European Union jurisprudence on dominance and therefore introduce, by way of a provision in the CMA’s overarching duty, a conflict with the CMA’s actual powers and responsibilities and with the European Union law which underlies them.
Determining whether an undertaking is dominant requires an economic analysis of the state of competition in a market as it is best defined. Market shares can be important indicators but may not be decisive—for example, where there is significant buyer power or low barriers to entry such that the undertaking’s exercise of its power is constrained by the threat of new entry. By introducing this more mechanistic approach to dominance, the amendment would conflict with the way dominance is assessed under European competition law. So it would be wrong for us to introduce this scope for inconsistency and uncertainty by way of an amendment to the CMA’s overarching duty. I hope that noble Lords will accept my explanation, which has taken a little time, for why the overarching duty is just that and why I do not believe that more specific additions are appropriate.
Amendment 24ZCA, tabled by my noble friend Lord Lucas, and bearing in mind his reference to and comments about Amazon and its great buying power, seeks to empower the CMA to investigate any company or arrangement to establish whether a cartel, monopoly or monopsony exists or is being abused without receiving prior complaint. The CMA will, as the OFT can now do, be able to make inquiries whether or not it has received a complaint and will be able to take action on its own initiative in markets where it observes a problem. Indeed, it will inherit the function of obtaining, compiling and keeping under review information about matters relating to the carrying out of its functions under Section 5 of the Enterprise Act 2002.
However, for the authority to use its far-reaching powers of investigation under the Competition Act 1998—such as powers to require the production of specified documentation or information and powers to enter business premises with or without a warrant—Section 25 of the Competition Act 1998 requires it to have reasonable grounds for suspecting that an anti-trust prohibition has been infringed. This strikes the right balance between giving competition authorities effective powers and protecting businesses from overzealous enforcement. If the amendment is intended to undermine this threshold, it would represent a significant weakening of a protection for businesses. As such, as the noble Lord, Lord Borrie, mentioned, I do not consider that the amendment is required. I understand the noble Lord’s concern that allegations of anti-competitive behaviour should be properly investigated and the facts established. Decisions on individual cases and priorities will be for the CMA, which will of course be independent of government.
At the end of the day, it will be for the management of the CMA to ensure that it is a highly effective competition authority, vigorous in the pursuit of anti-competitive behaviour, and the provisions of the Bill, including the creation of the CMA, will assist in this. They are designed to deliver greater coherence in competition policy and practice and a more streamlined approach to decision-making through stronger oversight of the end-to-end case management process, more flexibility in resource utilisation and better incentives and powers to apply the anti-trust and markets tools to deal efficiently with competition problems. In addition, this clause will give the CMA a duty to promote competition, something which neither the OFT nor the Competition Commission have. I hope that my noble friend Lord Lucas will accept that these changes should go a long way to securing that the CMA will be the active champion of competition that we all wish to see.
In the light of my explanation, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I thank all noble Lords who have spoken, in particular the noble Lord, Lord Lucas, because he gave an example that I should have thought of. It is clear that Amazon has a dominant position in a buying and selling market. It is exactly the kind of case that we need to be absolutely sure that the provisions of the Bill cover. My noble friend Lord Borrie and the Minister both said that it already does and I hope that is right, but we need to underline the Minister’s words for future use. In a situation such as that of Amazon, in relation to both the suppliers or subcontractors from whom it derives its products and the people to whom it sells, this is a growingly dominant force in all our lives. That is a good example and one we need to test against all the provisions of the Bill.
My thanks also to my noble friend Lord Borrie and to the Minister for rightly saying that monopolies and market dominance are not always a bad thing. That would usually be my line because the assumption that a free market will ultimately always deliver the best outcomes for consumers is not necessarily true. Nevertheless, I would argue that there is a tendency for the less competitive markets to give consumers a worse deal and that improving competition in almost all circumstances—not all, I agree—will give consumers a wider choice. There are situations where broadening competition in practice reduces choice, but in general the consumer benefits from more competition and choice and less market dominance. That means that we have to be quite subtle in defining the overarching role of the CMA. I was slightly puzzled by the Minister saying that we should not augment or unduly prescribe the overarching role. The problem with the way that the Bill is currently set out is that, whereas the OFT and the CMA had clearly defined major roles in the beginning of their respective statutes, this does not. All it says is:
“The CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Nobody will argue with that. It is one and a half lines. It does not say what the CMA should look into and how it should judge it. I certainly agree that all market situations into which it looks should be judged as to whether they are an abuse of power to the detriment of consumers.
There are other issues involved in looking at market structures, including international competitiveness et cetera. There are wider issues as well but my amendments attempt to say what the subject matter of the new CMA would be. I do not think that we have yet got that situation. However, clearly my amendments as drafted do not meet universal acclaim. I hope that the Government will, before the Bill finishes, think about whether they need to be a bit more definitive in this area so that we in Parliament and the public in general know exactly what this new organisation is setting out to do.
On the threshold point, there are references in existing legislation to 25% so it is not a new thing. I accept that that should probably not be in the overarching aim. I suspect that we will return to the threshold as we move further into the Bill so I will not prolong that one. I have made the point. I hope the Government will at least give this some consideration and perhaps come up with a different drafting when we move to later stages of the Bill. For the mean time, I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, these amendments recognise the fundamental importance of consumer support and consumer protection, whether it comes in the form of education, advocacy, advice or enforcement of legislation. I therefore thank the noble Lord, Lord Whitty, for the opportunity to discuss this important issue.
Competition is one of the pillars of a strong and vibrant economy. It makes businesses efficient and innovative, allowing the best to grow, innovate and enter new markets. It also drives investments in new and better processes, pushing prices down and quality up for consumers, but competition is only one side of the coin. To reap fully its benefits, consumers must be informed and have the confidence to exercise choice effectively. Unless consumers have the ability to make effective choices, vibrant competition will be inhibited and the businesses offering the best price or the best quality will not necessarily grow.
The current landscape provides consumers with a bewildering array of public, private and voluntary bodies with overlapping responsibilities. Each individual organisation does a very good job and is highly regarded but, taken together, they form a complex landscape that can be difficult for consumers to understand. The complexity and split of responsibility on enforcement cases has also led to a gap in enforcement. The National Audit Office’s 2011 report, Protecting Consumers, which reviewed consumer protection in the UK, found that consumer detriment occurs at national and regional level but the incentives are weighted towards tackling local issues. This contributes to an enforcement gap where large regional and some national cases may not necessarily be addressed.
The OFT estimated the cost to those affected and to the wider economy of activities such as unfair commercial practices and scams to be at least £6.6 billion annually. Any gap in enforcement is therefore significant to consumers and to the economy. The combined competition and consumer landscape reforms aim to deliver a better deal overall for consumers by setting out clearer responsibilities and better co-ordination between enforcers and the consumer advisory bodies.
Specifically, we will better equip trading standards departments to take greater responsibility for consumer law enforcement, and we have created a new National Trading Standards Board with responsibility for prioritising national and cross-local-authority boundary enforcement, tackling issues such as scams, illegal moneylending and rogue and incompetent traders, to provide a more coherent approach to trading standards enforcement.
The CMA will have primary expertise in unfair contract terms legislation and additional consumer enforcement powers to tackle business practices that distort competition or impact on consumer choice, even when markets are generally competitive. This could take the form of tricking consumers into tie-in contracts that might inhibit them from switching suppliers, subjecting consumers to unclear surcharges, or using misleading reference pricing. The CMA will also operate the combined OFT and Competition Commission’s markets regime to ensure that markets work well for consumers. As such, it will have powers to investigate markets such as payment protection insurance, which is a live issue. Business education will be shared between trading standards departments, which will deal with most business-facing initiatives, and the CMA, which will lead on competition advocacy and business education on unfair contract terms legislation.
In addition, as mentioned by the noble Lord, Lord Whitty, we have created SIPEP, the Strategic Intelligence, Prevention and Enforcement Partnership, involving the CMA, the National Trading Standards Board, the new Financial Conduct Authority, Citizens Advice and representatives from Scotland and Northern Ireland collectively to identify issues causing consumer detriment and agree priorities for enforcement, information and education.
These landscape changes have been welcomed by a number of consumer experts. For example, Gillian Guy, chief executive of Citizens Advice, said that this reform, “is good news for consumers”. Ron Gainsford, chief executive of the Trading Standards Institute, said to the committee in the other place that the current proposals strike about the right balance on the relationship that the institute was seeking. Mike O’Connor, the chief executive of Consumer Focus, said of the new strategic partnership:
“Consumer Focus welcomes the creation of SIPEP and we believe that it can make an important contribution to promoting consumers’ interests”.
In order for this new landscape to work in practice, it is essential that there is clarity of responsibility and accountability. Requiring the CMA to provide strategic direction on consumer support functions for which other bodies will be responsible, as provided for by Amendment 24ZB, would undermine in this area and risk further confusion for consumers across the landscape.
I shall now address Amendments 24F, 24G, 24H and 24J collectively. They would widen the transfer scheme set out in Clause 22 to enable the transfer of the OFT and Competition Commission’s functions to bodies other than the CMA and a Minister of State. It would therefore be helpful for me to set out how we intend to enable the transfer. We will be relying on Clauses 20 and 22 and Schedules 4, 5 and 6 to create the CMA and transfer the functions, including those I set out earlier, from the OFT and Competition Commission to the new authority.
In addition, we will be using two orders under the Public Bodies Act to enact changes to the wider consumer landscape. The first order is being laid in draft before Parliament today and we hope that it will come into force in April 2013. This order will transfer the OFT’s function of supporting a public consumer advice scheme to Citizens Advice services in England, Wales and Scotland. We will then transfer the levy for this service. We are also making amendments to a range of consumer legislation to modify the enforcement functions of the OFT.
The second Public Bodies Act order will transfer Consumer Focus’s statutory functions and powers to the Citizens Advice service, and wind up Consumer Focus. It will also transfer the OFT’s estate agency functions to trading standards. We expect to lay this order late in 2013 for it to come into force in 2014.
Finally, Amendment 24 seeks to transfer the OFT’s function of “promoting good consumer practice” to the CMA. We do not consider that this function needs to be transferred to the CMA. In the current regime, Section 8 of the Enterprise Act 2002 gives the OFT a general function of promoting good consumer practice, which recognises its leading role in providing consumer education and its function in relation to approving consumer codes. It is also the provision on which the OFT relies to conduct its international consumer advocacy work.
The noble Lord, Lord Whitty, was concerned that Section 6 of the Enterprise Act 2002 would not be transferred to the CMA. Paragraph 61 of Schedule 5 to this Bill transfers to the CMA the OFT’s function for the provision of information to the public.
Lord Whitty
Either I mis-expressed myself or the noble Viscount has misunderstood. Section 6, which deals with education, is indeed being transferred and then devolved to Citizens Advice and, to some extent, trading standards offices, but Section 8 is being deleted in its entirety, as I understand it.
Viscount Younger of Leckie
I note the point that the noble Lord has made and I will come back to that technical issue shortly.
As I have mentioned, in the new consumer landscape, the Citizens Advice service will take on the lead role in providing consumer-facing education from the OFT, as well as taking over responsibility for consumer advocacy from Consumer Focus. The role of approving consumer codes will be transferred from the OFT to trading standards. The CMA will continue to have an international consumer role; for example, to represent the UK at the OECD’s Committee on Consumer Policy. A specific provision has been made for this in paragraph 19 of Schedule 4 to the Bill.
I will pick up the point made by the noble Lord, Lord Whitty, and the noble Baroness, Lady Crawley, about how trading standards offices will provide a high standard of support against a backdrop of reduced funding. Local authorities make their own decisions about what proportion of their budget to invest in local trading standards services. This had led to variations in the costs and resources allocated to trading standards services. While we are unable to pre-empt local funding decisions, in 2011 the National Audit Office assessed that local trading standards services vary significantly in capacity and annual budgets range from around £240,000 to more than £6 million.
The Government recognise the impact of the current financial climate and our structural reforms, supported by central government funding, for national leadership and co-ordination of enforcement activity will help local services to target high-priority cases for maximum effect. We will continue to ensure that national expenditure complements the local authority contributions and offers as much leverage as possible to ensure overall efficiency.
The noble Lord, Lord Borrie, asked whether the Citizens Advice service would receive additional funding for taking on the consumer advocacy function. Citizens Advice will be allocated an additional £3.72 million to carry out general consumer advocacy work and consumer education and information, previously undertaken by Consumer Focus and the OFT.
I hope that noble Lords will accept my explanation of the relationship between the competition and consumer reforms as to why additions to the CMA’s role and widening of the transfer schemes in this way would not be appropriate. Therefore, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, before I start on the detail of what has just been discussed, I welcome the noble Viscount, Lord Younger, to his Front Bench duties on the Bill. We have met on a number of other occasions across this space. I am pleased that he is now able to engage with us on this Bill, which we find of great importance. We look forward to working with him on this and other matters.
We had some doubts about whether we should join in on this clause stand part debate because we were not quite sure where it was coming from. Indeed, I am still not quite sure where the two halves conjoin. There seem to be two different discourses. We are obviously in a two-act drama. Maybe when we get to Clause 21 and hear the other part of the noble Baroness’s speech, we will be able to judge more closely how this comes together. In the debate we have had so far, as so often in clause stand part debates, we begin to distil some of the concerns that have bounced around in some earlier debates. It is worth just reflecting on what we have heard.
From the official Opposition’s point of view, as my noble friend Lord Whitty said, we are not against what is being proposed in principle but have a number of reservations that we will want to feel have been properly tested before we finally sign off on it. We will have opportunities both on Report and possibly at Third Reading to do that. At the moment, having listened to the debate on the first two groups, the jury must still be considered to be out. We have had a lot of confusing signals about what exactly is happening, how the Government wish to approach this and the timing. Very importantly—and it has been the substance of a number of contributions we have heard on this group—what exactly is happening to the functions that are not explicitly stated within the front part of the Bill? Where do they go and with what timing? Most importantly, will the funding required to deliver the functions that are currently being properly delivered be available to support that?
I was very struck by some of the points made by the noble Baroness, Lady Oppenheim-Barnes, about the problems that will come from currently having two separate bodies. The OFT and the Competition Commission have their separate focuses and cultures, one investigative and one judgmental. That careful construction of two separate operations patrolling a common area but with very different functions and levels has been judged over time to be very successful. How will they be brought together and how in particular will the phase one and phase two elements and splits work out? Like the noble Baroness, I looked at the diagram. I did not quite bring out the medical textbook or the nasty intestinal disease analogies that she did, but I can understand where she was coming from in that. It is a rather odd structure. It does not seem to fit any of the management textbooks that I am familiar with in terms of clarity of exposition or additional information that would not be provided by a textual analysis. It is jolly colourful and we should be grateful for that.
We are creating something quite different. As I said, we are not against this but we need to be satisfied about why the Government have chosen this particular route and method of doing it. As was mentioned by the noble Viscount, Lord Eccles, it includes the Public Bodies Bill but also ignores what that says about how to go about this, in creating a body which in a sense already exists. The chair of that body is available should he wish to speak. Perhaps he could share with us what he thinks of the colour diagram that we are talking about—but perhaps he will not. It would be helpful if we could get a little bit more from the Minister about some of the intertextual material that has been brought out in this discussion. I want a better feel for the timing, a sense of certainty about what is or is not being retained within the central core of the CMA and why stuff is being taken out and under what constraints that has been done. Particularly for trading standards and Citizens Advice, I want an absolute assertion from the Minister when he comes to respond that the funding will be available to deliver the sort of services to which we all aspire but which, I am afraid, will not be available in the time.
Viscount Younger of Leckie
My Lords, I say at the outset that I am very grateful for the comments of the noble Lord, Lord Stevenson. I am particularly grateful for the contributions from my noble friends Lady Oppenheim-Barnes and Lord Eccles, who bring a wealth of valuable experience to this debate. I also appreciate the useful meetings that they have had either with me or with officials, or indeed with both.
The UK has one of the best competition regimes in the world but in the current economic environment we need to strive for improvement and further embed conditions in which companies can operate freely in competitive markets that encourage innovation, investment and growth and in which consumers secure the benefits of competition.
Despite its world-class ranking, there are problems with the current regime. As my noble friend Lord Razzall recognises and as he said at Second Reading, the UK competition regime is among the slowest in the world. I am grateful that he has reiterated that point today. Data published in Global Competition Review show that we are one of the three slowest countries when it comes to conducting investigations into anti-competitive agreements, and in the bottom four for investigating abuse of dominance cases. The current regime has also led to problems in terms of the length of time that it takes to conduct market studies and market investigations, which prolongs consumer detriment and uncertainty in markets. For example, between 2002 and 2011, OFT market studies took between three and 21 months, and the end-to-end process of market investigation, including the time taken for the OFT to make a referral, as well as the appeals process, ranged between 33 and 67 months.
Another issue is the uneven nature of references made to the Competition Commission, making it difficult to manage resources. For much of 2006, the Competition Commission was working on five market investigations and in 2008 it was working on four, whereas no references were received in 2008 or 2009. The pattern of merger and regulatory references is also uneven, and that contributes to an overall work pattern of peaks and troughs.
This clause therefore establishes a new Competition and Markets Authority, which will bring together the Competition Commission and the competition and markets functions of the OFT into one body. Despite looking on paper like a medical student’s study sheet—a euphemism for what was mentioned by other noble Lords—the creation of the CMA will mean a single, strong voice for competition which can provide leadership for the sector regulators on competition enforcement. It will mean less duplication and greater consistency of information requests between phase 1 and phase 2, and more flexible deployment of resources and specialist expertise across all its competition tools. It will also mean prompter referrals to phase 2 where necessary, and greater certainty for business from faster and clearer timeframes and more robust decision-making. Finally, it will also mean a one-stop shop for businesses to help them to understand and comply with competition law.
The creation of the CMA has also been welcomed by business groups and practitioners, including the CBI, the Federation of Small Businesses, the Institute of Directors, the Forum of Private Business and the City of London Law Society, which all consider that it will provide efficiencies and boost business confidence. The CMA will be the UK’s premier competition authority and will have at its disposal a full range of approaches to tackle anti-competitive behaviour and make markets work better for consumers and businesses.
This clause therefore gives the CMA a duty to seek to promote competition for the benefit of consumers, both within the UK and internationally. It will be concerned with how firms interact with each other—that is, the supply side—and how firms interact with customers, which is the demand side.
In creating the CMA, we have drawn from the best of the OFT and the Competition Commission. The CMA will therefore retain the separation of decision-making between phase 1 and phase 2 in merger and markets cases, with independent expert panellists taking the phase 2 decisions. These features were highlighted as key strengths of the current regime by Sir John Vickers and some of the other witnesses to the Committee in the other place, and we shall protect those features. The provisions are set out in detail in Schedule 4.
I should like to bring up a matter raised by the noble Viscount, Lord Eccles. He asked what the relationship or distinction was between this Bill and the Public Bodies Act. Section 5 of the Public Bodies Act provides for the modification of the functions of the Office of Fair Trading and the transfer of functions to other bodies. The PBA also allows for the OFT’s functions to be abolished. Further, Section 2 of the PBA provides that the OFT and the Competition Commission may be merged. However, we will not use the Public Bodies Act to enact reforms to the competition regime or to abolish the OFT or CC. Instead, we will be relying on Clause 21, which provides for the abolition of both the OFT and the CC. This is because while the Public Bodies Act allows us to abolish both bodies, and modify and transfer their functions, it does not allow us to create wholly new competition functions and powers for the successor body, the CMA.
I should also like to address a point made by the noble Baroness, Lady Oppenheim-Barnes, on the separation of decision-making in markets and mergers—a matter also raised by the noble Lord, Lord Stevenson. The independence of the phases will be preserved, in as much as paragraph 28 of Schedule 4 specifies that unless otherwise specified, functions of the CMA are exercisable by the CMA board. Similarly to the Competition Commission’s arrangements, paragraph 36 of Schedule 4 requires that where under any enactment—the Enterprise Act or sectoral legislation—the chair of the CMA is required to constitute a group to carry out an inquiry. He must appoint members of the CMA’s panel to an inquiry group in accordance with that enactment and Part 3 of Schedule 4. I hope that that goes some way to reassuring noble Lords.
Finally, I should like to address an issue raised by the noble Lord, Lord Stevenson, about the funding of trading standards departments; this matter was brought up earlier. I covered in our previous debate the issue of where the funding will be. The noble Lord, Lord Whitty, asked specifically about trading standards funding. Perhaps I may add that in 2011-12, we allocated a total of £10.6 million for national and cross-border enforcement in England, Wales and Scotland. However, looking ahead to 2012-13, we have allocated £12.1 million. This is in recognition of the additional responsibilities that trading standards will take on as functions are transitioned from the OFT. This funding is subject to budgets being agreed and the effects which any emerging central pressures may have on the proposed levels of funding. I hope that this goes a little way to answering the comments of the noble Lord, Lord Whitty.
Lord Stevenson of Balmacara
I want to ensure that the record is correct. The previous figure of £10.6 million has now been superseded by £12.1 million. I think that was the sense of what the Minister said. I notice that he has not given us the comparable figures raised by the noble Baroness, Lady Oppenheim-Barnes. What exactly is the Citizen Advice component of that? It would be helpful, if he does not have them, if he could write to us and make sure that we have the figures because several have been floated. It would be nice to have them on the record.
Viscount Younger of Leckie
I note what the noble Lord said, and I will return to him in writing. I commend this clause to the Committee.
Lord Skelmersdale
My Lords, before the Minister responds, I note that the noble Baroness, Lady Hayter, has tabled Amendment 24BA, which is obviously a second string to her bow in this matter. I am rather surprised that it has not been grouped with this amendment. Be that as it may, it seems to me that rather than having another panel under the CMA, it would be far preferable to have a consumer representative on the panel that already exists under the Bill.
Viscount Younger of Leckie
My Lords, I thank the noble Baroness, Lady Hayter, for this amendment, which seeks to establish a CMA consumer panel, and I note her very considerable experience in chairing consumer panels over many years.
Close co-operation between the CMA and consumer organisations will be essential to ensure that the CMA is well informed on issues that cause consumer detriment, and that it takes action in the right areas. Competition authorities are well used to taking account of consumer welfare in their activities and this will be the case for the CMA in particular, given its objective to promote competition in the interest of consumers. This is why we have established SIPEP, a new strategic intelligence, prevention and enforcement partnership, which will bring together key consumer bodies, including Citizens Advice and representatives from Scotland and Northern Ireland, to work together to identify those issues that impact on consumers and collectively agree priorities for enforcement, information and education. These will assist in guiding the CMA’s policies and priorities.
In addition to this, the Bill already has extensive provisions on transparency and consultation with consumers and other bodies. The CMA must consult stakeholders, including consumer representative bodies and the general public, on a range of issues that guide its policy. For example, paragraph 12 of Schedule 4 to the Bill provides that as part of its annual plan, the CMA must consult on its main objectives for the year and the relative priorities of each of those objectives. The CMA must also consult on statutory and non-statutory guidance which sets out much of the CMA’s policy and processes. The super-complaint process, in which the OFT is required to provide a fast-track response to certain consumer bodies, will also be retained for the CMA.
Given the consultation requirements, the new approach to enhanced working between the CMA and bodies across the consumer landscape, and the super-complaint process, I hope that the noble Baroness will consider that the arrangements for consulting consumers are already sufficient and will agree to withdraw this amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that response and my noble friend Lord Borrie and the noble Lord, Lord Skelmersdale, for their comments. As usual, my noble friend Lord Borrie goes straight to the point that the name is wrong. Maybe we can negotiate on “consumer forum” or “consumer round table”. However, right as he is on that, wrong are the Government in their response.
Before I turn to the Minister’s comments, perhaps I may say that the comment made by the noble Lord, Lord Skelmersdale, was interesting. It is about whether one person on a board is sufficient to represent all consumers, an issue which the consumer movement has discussed a great deal. It is like being the only woman in a committee and people assuming that you can speak on behalf of all women. When the noble Baroness, Lady Oppenheim-Barnes, was first at meetings—I hope she does not take this badly—she was very often probably the only woman present. Even women of my age are still experiencing that situation now. As the one woman, it was somehow expected that you would speak for all women. It can be the same with consumers. However, as I found on panels, there were BME consumers, rural consumers, old consumers and young consumers, and you need a broad panel, if you like, to reach in, understand and get to a hearing in that way. A middle-class woman such as myself as a consumer rep does not do it, but a much broader-based panel does.
I hope the noble Lord, Lord Skelmersdale, understands that it makes it easier for one consumer representative on a board if there are mechanisms for a much broader consultation.
Baroness Hayter of Kentish Town
My Lords, the noble Lord has raised some really important issues. Certainly we would like to hear from the Minister why the Government have chosen this particular set-up, which is an argument that we have just been having in relation to the Financial Services Bill. The question remains as to why any panels under this Bill are not hearing cases completely independently of the CMA board.
I am sorry that I went on earlier about my consumer panel experience but I also have to say that I was a member of the determinations panel of the Pensions Regulator. We were completely independent of the Pensions Regulator. We were appointed by it to ensure that we knew something about pensions but that was about it. Other than that, we were completely independent. We did not work there and we did not know the staff, other than bumping into them in the loo and so on, but we were very independent of them. It was therefore more than a Chinese wall—it amounted to a gap of a good few miles.
Similarly, in our discussions on the Financial Services Bill, we have been trying to ensure that the Regulatory Decisions Committee of the FSA is equally independent of and separate from the FSA. That is partly to do with independence but also because it seems that we should look at whether there is a difference between the two roles of serving on the CMA board and doing hearings and taking decisions. The role of serving on the board is really about setting strategy and policy, whereas the work of the panels is often quite different and calls on a slightly different skill set. Therefore, we are interested in knowing why the Government have not made sure that the investigators are separate from the decision-makers and that their roles are not blurred— I think that was the word used earlier by the noble Baroness, Lady Oppenheim-Barnes, in quoting a former chair of the monopolies commission.
I assume that we all want a strong firewall between investigations and decision-making, so perhaps it is better to make them absolutely separate from the start, rather than going through convoluted ways of achieving that end.
Viscount Younger of Leckie
My Lords, these amendments affect the provisions that provide for a partial overlap of the CMA board, which is responsible for the CMA overall and phase 1 decisions in mergers and markets in particular, and the CMA panel, whose members are responsible for phase 2 decisions in mergers and markets and regulatory appeals. The governance and decision-making arrangements in Schedule 4 are designed to establish a single, coherent competition authority while retaining the separation of decision-making between phase 1 and phase 2; in particular, merger and markets cases.
Paragraph 1 of Schedule 4 provides that at least one person be appointed to both the board and the panel. In the Government’s response to the competition reform consultation, we said that we intend to appoint two or three such people to the board and the panel. The membership provisions being debated here are designed to ensure that the board includes members with experience of the phase 2 processes, and so to address any reluctance of the board to have a matter referred to a group of independent panellists whose decisions are, under paragraph 49, to be taken independently of it and over which it will have no direct control. Ensuring that there is a steady flow of appropriate market investigation is one of the key intended benefits of the creation of the CMA, so the provisions will play an important role.
I believe that the provisions in the amendment in the name of the noble Baroness, Lady Hayter, will undermine the separation of decision-making by allowing board members to take phase 2 decisions. I assure her that the Government would also be concerned about the risks resulting from some of the same people involved in a decision to make a referral also being involved in final decisions at phase 2. It is for this reason that paragraph 33 prevents this from happening.
Paragraph 33 works prospectively, so that where the board will be considering whether a matter should be referred to the chair of the CMA for the constitution of a group of panellists who will be responsible for a phase 2 inquiry, the chair must first determine whether a member of the board might be expected to be appointed to a resulting group. In these circumstances, the person so identified must not participate in the board’s consideration of the referral.
Finally, because the Government intend to appoint two or three people who will be board members and panellists, even where one board member is excluded from considering a referral, other panellists—who will not be involved in the group taking on an inquiry if the matter is referred—will still be able to participate in the board discussion. This provision therefore protects independence of decision-making, while also ensuring that the board includes members with responsibilities across the CMA’s range of functions, and is therefore able to act, at a strategic level, as a coherent body. I therefore ask my noble friend to withdraw his amendment.
Viscount Eccles
My Lords, I am afraid that I am not comforted by that description, least of all by the even flow of work. If that is going to be continually put forward as a serious reason for the structure we are going into, it is very regrettable.
All businesses have to be prepared to flex, to take on more work at some times and less at others. If things are still as they were, quite a lot of the staff of the Competition Commission are seconded; they can be taken back; there is the possibility of bringing in consultancy advice, or not bringing it in; there is a very considerable ability within the present system to flex the resources. If we are going to be told that this even flow is very important, we need to have something in support of the regulatory impact assessment as to how much money we are actually going to save.
We have dismissed the Public Bodies Act, which was about reducing the number of quangos when we could and saving money. That is where this thing started from—we should not forget that. All the rest of it has been tagged on, no doubt as a result of long-term planning inside BIS, which may indeed have seen the Public Bodies Bill as quite an interesting challenge—“Let us see what we can put forward”.
So I am not comforted, but it gets worse than that. I do not want to go through the whole string; I have drafted a series of amendments to try to reassure myself that it is possible to build a Chinese wall. I have not put them down yet and I am not going to talk about them today, but I am going to talk about the panel. It is becoming a technocratic panel under this Bill. It has 11 members; I expect that there may well be more. The composition of this panel and the way in which its prospective members are appointed is very different from the way in which panels have been appointed to the Competition Commission in the past.
This panel has no one in charge—it cannot have anyone in charge. As my noble friend has said, it cannot have the chairman of the CMA in charge because that would knock down the Chinese wall. So who is in charge? No one is in charge. If there was an away day for the panel, who would sit in the chair, for example, if it wanted to discuss how it is to operate as a Competition and Markets Authority group? The panel does not set any rules for that; the rules are set by the CMA. It does not have any staff, so how does it know that it will get the people that it wants?
I remember very well someone who was absolutely gripped by cost-benefit analyses and, when I was looking at a proposed merger between a Canadian whisky company and a Scottish whisky company, I said, “For goodness’ sake, do not send me that cost-benefit analysis”. He was a splendid fellow, but not on this merger inquiry. The way this is structured there will be no one on the panel who will be in a position to behave like that. The panel will have no management authority and no executive responsibility; those will be delivered to it by the CMA.
It may be that noble Lords are glad that I am not a lawyer representing someone coming in front of one of these panels, but I assure the Committee that I could make a seamless argument which said, “This panel is not independent”. At least I would get an adjournment, which would upset my noble friend Lord Razzall because the thing would take longer.
For now, I shall withdraw my amendment, as the Committee would expect. However, I shall revert to the subject and there are other amendments in front of the Committee that offer the opportunity to discuss these matters. At the moment, this phase 1/phase 2 is completely unconvincing. I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, I thank the noble Baroness, Lady Hayter, for her amendments, which propose changes to Schedule 4. The Government are committed to increasing transparency and accountability in the public appointments process.
The amendment seeks to make it a statutory requirement for the appointment of the chair of the CMA to be approved by a Select Committee of Parliament. There is already a system in place, introduced by the previous Administration, for agreeing between Parliament and the Executive which of the Government’s public appointments will be subject to a pre-appointment scrutiny hearing. Under this system, the Secretary of State discusses and agrees with the chairman of the relevant Select Committee which appointments will have such a hearing. The Cabinet Office publishes a list of these appointments, most recently in August 2009.
The Government, in their response to the Liaison Committee’s report on Select Committees and public appointments, encouraged Ministers to engage with Select Committee chairs to ensure that the right appointments are receiving Select Committee scrutiny prior to appointment. The current system works well and the Government do not believe that there is any advantage in formalising this process in legislation in respect of individual roles such as that of the chair of the CMA. Indeed, under the current system, a pre-appointment hearing process is already in place for the chairs of the Competition Commission and the OFT.
Amendment 24AB seeks to make it a statutory requirement for the Secretary of State, in appointing the chair of the CMA, to be satisfied that that person has demonstrated an understanding of the impact on consumers of competition and its absence, particularly on vulnerable consumers, as well as of relevant experience in wholesale and retail markets. The appointment of the chair of the CMA is regulated by a code through the Commissioner for Public Appointments, which clearly states that ultimate responsibility for public appointments rests with Ministers. As such, the Secretary of State has been involved in the appointment process for the CMA chair-designate from the beginning and has agreed the selection process and criteria. The published person specification for the CMA chair-designate appointment made clear that knowledge of competition and consumer policy issues, and their implications, was a key requirement.
As noble Lords are aware, at the conclusion of the appointment process, the noble Lord, Lord Currie of Marylebone, was appointed as the chair-designate to the CMA. I am pleased to note that he is in his place. His formal appointment, assuming that the present Bill receives Royal Assent, will entail a pre-appointment hearing by the BIS parliamentary Select Committee. I am sure that noble Lords will agree that since his appointment as CMA chair-designate, the noble Lord has amply demonstrated his knowledge and understanding of the impact of competition and the effects of its absence on consumers.
I agree that it is important that any candidate for the CMA chair role demonstrates their knowledge of competition and consumer policy, as well as relevant experience in wholesale retail markets. However, formalising in legislation that the Secretary of State must be satisfied as to a candidate’s understanding of these issues is unnecessary in practice. It would also give unbalanced prominence in statute to these, albeit important, areas at the expense of other, equally important areas of understanding or qualities that any candidate for the CMA chair role should be able to demonstrate. For this reason, we do not think it necessary or appropriate for there to be such a statutory requirement.
Finally, Amendment 24BB concerns the pay structures of the CMA. Fair pay in the public sector is evidently more essential than ever in the current climate, as is openness of public bodies in their mandates and resource allocation. In light of this, the Government have implemented a number of measures to support recommendations made in Will Hutton’s report on fair pay in the public sector. For example, public bodies are required to publish in the remuneration reports of their annual resource accounts the pay multiple or ratio between the total remuneration of the highest-paid director and the median total remuneration of the staff excluding the highest-paid director. Public bodies, including the OFT and the Competition Commission, are also required to publish pay details, including names, of their most senior civil servants with a salary of more than £150,000. We do not, however, agree with placing a ban on managers earning more than 20 times the pay of the lowest-paid full-time employee in their organisation, as suggested in proposed new sub-paragraph (4) of this amendment. This was rejected by the Hutton review of fair pay in the public sector.
In light of this, we do not consider that a specific statutory requirement is needed for the CMA to ensure fair pay. We also disagree with the part of the amendment that apparently seeks to require that all CMA members appointed for more than three months be in the direct employment of the CMA. It is quite right that the staff of the CMA who are in full-time employment should not be employed through personal service companies, or similar, and therefore be able to avoid paying full national insurance contributions. However, the membership of the CMA will include both non-executive directors and independent panel members. Both of these types of member are needed to bring external expertise to the management of the CMA or particular inquiries. It is an accepted principle of good corporate governance that non-executive directors should scrutinise the performance of the executive management while providing them with external advice, support and scrutiny. I therefore ask the noble Lords to withdraw these amendments.
Baroness Hayter of Kentish Town
My Lords, the good news for the Committee is that this is the last it will hear from me for a bit. I will hand over to my noble friend Lord Mitchell, whose great success in the Financial Services Bill will, I hope, make the Minister quake as he receives my noble friend’s amendments.
The first of the two amendments in this group, which I move on behalf of my noble friend Lord Whitty and me, concerns the make up of the CMA board, and ensures that, as has already been mentioned, at least one of its members has expertise in representing the interests of consumers. There is a large pool on which to draw for this. For example, they may be former employees or board members of ombudsman schemes or consumer bodies or panels, or else active in the wider consumer movement. I know from the testimony of the financial industry and not just the consumer movement how well received Mick McAteer’s appointment has been, in his work at both the Financial Reporting Council and now the Financial Services Authority. He was formerly with Which?, has been a consumer advocate with long experience of representing consumers at both UK and EU levels, and has brought realism grounded in consumer experience, expertise and a clear consumer focus to the FSA for the past three years—to widespread acclaim. Earlier, a former chair of the National Consumer Council—not one of the two with us today—proved herself to be so invaluable to the FSA that it promoted her to become its vice-chair. Other examples abound.
Our proposal is modest. It is for just one such person, but having that in the Bill also reinforces the fact that the CMA is all about consumer interests and that consumers’ voices must be heard at the highest level. As I said previously in response to a question by the noble Lord, Lord Skelmersdale, this is not instead of a consumer panel. No one person can represent all consumer interests. What is interesting is that that person can be a channel and focus, albeit that they take the full corporate responsibility for the whole board.
The second amendment in the group, Amendment 24BK, is based on the assumption, which we do not necessarily share, about the proposed panels and the tiers mechanism in the new architecture. We have argued that that might not be for the best. For the moment, accepting that that structure is there, our proposal is again to emphasise the need for consumer and competition experts on CMA panels to avoid the risk of making their deliberations insufficiently consumer focused. That would make sure that the CMA and its decision-making panels represented the interests of consumers throughout their work. I beg to move.
Viscount Younger of Leckie
My Lords, Amendment 24BA adds a requirement to appoint at least one person with consumer representative expertise to the CMA board. A similar amendment was proposed by the Opposition in Committee in another place. We share the concern of noble Lords opposite that the reforms promote consumer interests, as mentioned in an earlier debate today. Consumer interests will be at the heart of the CMA. Given this, the amendment is not necessary. It could also undermine the perceived fairness of the CMA. We agree with the point made in the previous Government’s 2001 White Paper on a world-class competition regime that decisions should be made independently on the basis of sound economic analysis of the effects on competition. Independence of government and between the phases enables better decisions, greater certainty for business and more clarity in the regime.
Viscount Younger of Leckie
My Lords, I am grateful for these amendments, initiated by the noble Lord, Lord Mitchell, which highlight the importance of competitive markets to small and medium-sized enterprises. I welcome the noble Lord to the Dispatch Box and I hope that I can do a little better, in his eyes, in addressing his issues and concerns than perhaps I did before.
I agree that Britain’s small businesses are absolutely vital in leading the economic recovery, and the Government take its role in this area very seriously. This Bill contains a number of measures that will deliver real benefits to SMEs by strengthening and streamlining the competition regime; for example, it will make entry into markets easier, deter anti-competitive practices and speed up competition cases. While I support the overarching intention behind Amendment 24BC—to support SMEs—I do not believe that a dedicated SME unit within the CMA is necessary.
First, the competition authorities already undertake a range of work that directly benefits SMEs. For example, following an OFT market study into the retail pharmacy sector, a number of administrative restrictions on entry were removed, which enabled more competitors, including SMEs, to enter the market. Another example is in banking, which I know the noble Lord, Lord Mitchell, is particularly focused on. OFT interventions in markets such as personal current accounts, small and medium-sized enterprise banking and cash ISAs have found long-standing problems, such as high concentration, low transparency of fees, low levels of switching and high barriers to entry, which hamper effective competition.
The OFT has launched a programme of work designed to achieve a more competitive and customer-focused retail banking sector, and this will consider both personal and SME banking. The OFT also works actively with bodies representing SMEs, such as the Federation of Small Businesses and the British Chambers of Commerce, to identify competition problems faced by SMEs. The Government expect this engagement to continue when the CMA is established.
I urge caution against restricting the CMA’s ability to allocate its resource independently, according to the priorities of the day. There is also a risk that a dedicated SME unit would be inundated with complaints about competitors, rather than competition issues. This would take vital resources away from competition enforcement itself.
The new clause inserted by Amendment 25G would have the effect of bringing small businesses within the definition of “consumer” in Part 4 of the Enterprise Act, which deals with market investigations. This means that super-complaints could also be brought to the CMA about potential competition issues affecting small businesses.
We need to take care when thinking about small businesses within competitive markets, so that the line between consumers and competitors is very clear. The Government consulted on whether to extend the super-complaint system to SME bodies, as the noble Lord’s amendment proposes. The consultation asked for evidence of the type of issues that may be brought to the CMA as a potential super-complaint by small business organisations, but we did not receive any. Furthermore, the majority of responses to the consultation on this question actually opposed the proposal. Respondents felt strongly that SMEs should not be given special status, which could allow them to challenge business practices that might be pro-competition and efficiency-enhancing.
Amendment 26E would have the effect of bringing small businesses within the definition of “consumers” for the purpose of Part 4 of the Bill, which deals with competition reform. This would have the effect of enabling the CMA to launch a market study into a market which seemed not to be working well for small businesses.
I agree with the sentiment behind this amendment, that the CMA should be able to look at markets that are not working well either for consumers or small businesses. I do not believe that it is necessary because the existing legislation has not to date constrained the OFT from considering business-to-business markets. If there are competition issues in these markets, they will usually ultimately affect end consumers as well.
For example, the OFT’s current review of retail banking will look at SME banking as well as personal consumer banking. The OFT’s aggregates market study, which has now been considered in more detail by the Competition Commission for a market investigation, considered how easy it was for small ready-mixed concrete businesses to source cement and aggregates competitively. I hope that noble Lords will see that the competition authorities already carefully consider competition issues that affect SMEs in the existing regime and that legislating to assign resources to a particular area may prevent the CMA from focusing where enforcement is most needed. I would, therefore, ask the noble Lord to withdraw his amendment.
Lord Mitchell
I thank the Minister for his comprehensive reply. There is a need for a dedicated unit; small and medium-sized enterprises need a particular focus point to which they can refer. Our amendments are a “may”, not a “must”. The Minister gave an example of banking and the OFT. That may be, but here we are today, with high street banks still dominating and other types of banking organisations only just coming through.
In summary, we are trying to set up a mechanism that will enable the CMA as it progresses to take actions in favour of the SME sector—to enable it specifically in that area. I ask the Minister to think about what I have said. We will think about what we have said, and with that, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, these amendments speak for themselves, so I hope that I can be brief. They are to remind the CMA, and to be certain that it includes in its reports, that it must set out the consumer benefit to be achieved and then monitor and evaluate it in its objectives and priorities. That will make its accountability for achieving this easier to ensure and will enable Parliament, the public, consumer groups and others to have clear evidence on which to assess progress.
Amendment 24BE means checking that the staff are up to the task set for them and that the resources are properly allocated to meet key objectives. Amendment 24BF is to allow Parliament and others to evaluate the cost of this merger into a single body, not just in money, important though that is, but on whether competition is healthier and that cases are being heard more quickly. We all, I assume, support post-legislative scrutiny. This amendment would produce the evidence on which to base that work. I beg to move.
Viscount Younger of Leckie
I am grateful once again to the noble Baroness, Lady Hayter, for the suggested amendments. Amendment 24BD would impose a requirement on the CMA that its annual plan for a forthcoming financial year should contain the consumer benefit that will be achieved as a result of the CMA’s main objectives for the year, and the prioritisation of those objectives.
Under the OFT spending review settlement, the OFT is currently required to provide an estimate of direct savings to consumers from its activities and to assess the associated benefit cost ratio against the current target of 5:1. In 2011 this figure was exceeded to deliver a benefit to cost ratio of 7:1. For the OFT, such a requirement serves to encourage it to maximise benefits to consumers in deciding what work to take forward. By comparison, however, a requirement for the CMA to assess the impact of its future work would be considerably less precise. As well as difficulties in assessing the future benefits of particular cases, the CMA’s caseload itself is not predictable. This amendment could therefore incentivise the CMA to underestimate and underachieve and could also potentially leave the CMA at risk of judicial review if forecasted consumer benefits were not realised.
Amendment 24BE seeks to provide a statutory requirement for the CMA to report in its annual performance report on the skills of its staff and to estimate the resources needed to perform its functions in the following two financial years. As drafted, the Bill provides a statutory requirement for the CMA to produce an annual plan and performance report in which it must set out its objectives for the coming year and the relative priorities, and how it has delivered against these. In addition, both the OFT and the Competition Commission already publish information relating to their staff, such as the development, diversity and engagement of their staff. We expect the same of the CMA. While it is imperative that the CMA has a skilled workforce to carry out its functions, to report on the skills of its workforce on an annual basis will be unnecessarily burdensome to the CMA, we believe.
Finally, Amendment 24BF proposes that the CMA’s first performance report provides an assessment of the transition costs and the impact of reforms on the speed of referrals. Evaluating whether the policy delivers the objectives is essential to ensuring that the CMA is getting it right, as is an assessment of the transitional costs against benefits. However, such an evaluation must provide an assessment of the costs against benefits over an appropriate time period: to do otherwise would not provide an accurate picture of the impact of the policy. A requirement to assess the costs and benefits to the competition regime within the first financial year of the reforms would be far too soon for a realistic assessment of the transition costs and benefits in either financial or competition terms. The Government’s impact assessment of the proposed reforms to the UK competition regime, which includes the transition to the CMA, commits government to a review of the policy in 2018. That is an appropriate point at which to consider the impact of the transition to the CMA in both financial and competition terms. For this reason, we do not consider that it is right for there to be a statutory requirement for the CMA to include within its first annual performance report an assessment of transition costs in both financial and competition terms.
While I welcome the intention behind these amendments, their practical impact could serve to hinder the efficient and smooth working of the CMA as a high-performance organisation. I therefore request that the noble Baroness withdraw these amendments.
Baroness Hayter of Kentish Town
I thank the Minister for that. I assume from what he just said that the requirement on the OFT to measure the balance of its saving to consumers will continue into the CMA.
Baroness Hayter of Kentish Town
In case Hansard did not record that, the answer was a very welcome “yes”, for which I thank him.
The Minister talked about the requirement for reporting on diversity of staff. Needless to say, we welcome that, but it seems to me that if you set up an organisation to do a job, making sure that it has the appropriate staff is central. Its human resources department will know if it is not got enough IT people, it will know if it is short of various staff. All we are asking is that it should share that knowledge with us. For those who say that this is extra work, I believe that a well run organisation knows about staff turnover, who it is recruiting and who it cannot recruit.
Finally, I welcome the fact that there will be a review in 2018. Of course, it is a bit late by then to do anything about it if the Government have made a mistake in doing this. I suppose that it is better late than never, but I hope that the Ministers at the time will at least be asking those questions, even if it is not a statutory requirement. I beg leave to withdraw the amendment.
Lord Whitty
My Lords, we now come to what may prove next week to be an interesting area: the relationship between the CMA and the sector regulators. This is the first point where it arises in the Bill, and it relates to the list of sector regulators. It is not a substantive point in terms of the nature of that relationship, but because the Government seem to think that that relationship is not entirely right at the moment and we know that we will be getting a hefty amendment in the name of the noble Lord, Lord Marland, next week on the Secretary of State’s powers in relation to the sector regulators and the CMA, it is important that the list of designated sector regulators is in fact the right list.
This amendment and a later one on the more substantive issues attempt to alter the list as set out in the Bill in two ways. The first is to remove Monitor from the list. The second, which I will deal with first, is the issue of how we will deal with the Financial Services Bill, which has yet to receive Royal Assent, and the establishment of the Financial Conduct Authority, because that will be the equivalent sector regulator for financial services and its powers will not be quite the same in some respects as those of the sector regulators that regulate the one-time nationalised industries such as water and gas. Nevertheless, it is the equivalent body and should therefore have an equivalent relationship with the CMA. There is no reference to any financial regulator in any of these lists. That may simply be for the technical and probably constitutional reason that the Financial Services Bill is not yet in law but, if that is the case, then presumably the FSA should appear there. I would like to know the Government’s intentions on that.
There is another complication regarding that Bill: in some respects, the prudential regulator could have an effect on the structure of markets as well. There is therefore a crossover there with the role of the CMA. We will come back to the substance of that, but it would be interesting to know the Government’s intention in that respect.
The other point relates to Monitor. Monitor is the economic regulator, and various other things, under the new National Health Service regime. The issue of competition in the health service was one of enormous complexity during the passage of the NHS reform Bill. It was one over which the Government gave substantial reassurances that the role of competition would not cut across the primary concern of NHS patients, which was that they would be treated effectively, resources would be deployed effectively for them and there would be seamless integration of the health service regarding their treatment. That will cut across the competition criteria that apply to the other sectors covered by the other regulators. Indeed, Monitor itself in its own objectives set out that integration and co-operation are its main priorities.
I think I am right in saying that at least once during the course of the NHS Bill the noble Earl, Lord Howe, indicated that in issues where there was conflict between competition and co-operation in providing a seamless service to the patient, then co-operation would trump competition. I am not arguing that the role of Monitor in increasing competition in the health service should be reopened, but I am saying that it is an entirely different situation from that which applies, for example, to Ofgem or the railways, where there are clear criteria, either continuously or at the point of franchise, about competition. Here, though, it is not the main aim of the health service to maximise choice; choice can be a contributor to patient comfort and outcomes but the main purpose is actually to provide an effective service for the treatment of that patient. The interaction between the CMA and Monitor in the health service, therefore, would be entirely different from the interaction between it and the other sector regulators. That is why I wish to remove Monitor from the list. There may be a separate reason for a relationship, but it is not the same as the rules being proposed for the overall relationship between the CMA and the sector regulators.
I advise the Government, gently, not to reopen this matter—health service reform was difficult enough for them. People are settling down now to make it work but the idea that another authority might come in under this Bill and overrule a health service body trying to square off competition and co-operation would reopen huge anxieties among health service professionals, patient groups and the new commissioning body. The Government would be wise to take it out. They can do it at this point without too much attention but if what they are proposing gets out there, they will be in serious trouble. I beg to move.
Viscount Younger of Leckie
I thank the noble Lord, Lord Whitty, for tabling Amendments 24BFA and 24BG.
Amendment 24BFA would remove Monitor from the list of sector regulators covered by the CMA’s duty to publish an annual concurrency report. The concurrency arrangements to be reported on are the arrangements for co-operation between the CMA and sector regulators in relation to their functions under the Competition Act 1998, in other words anti-trust cases, and under Part 4 of the Enterprise Act 2002, in other words market investigation references.
The concurrency report is part of a wider package of concurrency reforms designed to give the CMA stronger powers to co-ordinate competition work. The Bill will also give the regulators more explicit duties to consider using their general competition powers instead of sector-specific powers. The concurrency report ensures that there is transparency about how the CMA and sector regulators have worked together and how concurrent powers have been used in the regulated sectors. Monitor, whose role is to protect and promote the interests of patients, as the noble Lord, Lord Whitty, has mentioned, will have both regulatory powers—for example, the provider licence—and concurrent powers to address anti-competitive behaviour that is against the interests of patients.
The regulatory powers will reflect the Government’s commitment to retain sector-specific rules for health, building on those put in place by the previous Administration. Monitor will be subject to the new arrangements on the co-ordination of concurrent powers provided for in Clause 45, subject to one exception. The Government have been clear in response to the consultation on competition reform that Monitor’s new explicit duty to consider Competition Act enforcement before taking enforcement action through the provider licence provided under Schedule 14 to the Enterprise Bill will not be commenced until a future date, reflecting the unique characteristics of the health sector.
Subject to this, Monitor will become part of the same concurrency regime as the other sector regulators. So it is right that the concurrency arrangements between the CMA and Monitor and the use of concurrent powers in the health sector should be covered by the concurrency report. This will provide greater transparency and assurance that concurrent competition powers are being used effectively and in the interests of users of health care services.
Turning now to Amendment 24BG, I believe the amendment is intended to ensure that the CMA will have to report on how concurrency arrangements and co-operation and scrutiny of financial services more generally have worked with the FCA and the PRA. However, neither the FCA nor the PRA will have concurrent powers, so the amendment will in practice have no effect.
I know that noble Lords have questioned whether the FCA should have concurrent competition powers. However, the Government accepted the recommendation of the Treasury Select Committee that the case for market investigation reference powers had not yet been made and that the issue should be reviewed when the FCA had bedded into its new role. The Financial Services Bill instead gives the FCA a new competition remit which provides the mandate for the FCA to use its powers to promote effective competition and it will be able to carry out reviews of financial markets. The Financial Conduct Authority will have a tailored power to refer matters to the CMA, which may conduct market investigation or bring Competition Act enforcement proceedings. This mechanism was widely supported by consumer groups and industry and by the Treasury Select Committee.
In addition, the Financial Services Bill includes provision for the competition authorities independently to scrutinise the impact of both the FCA’s and the PRA’s actions on competition. It will of course be important that the FCA and OFT co-ordinate. The FSA and OFT already have an MoU in place and a new one will be put in place between the FCA and the CMA. The CMA, FCA and PRA will be required to report on their performance in their annual reports. I therefore ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I am afraid I do not really accept either of those two propositions. On the financial side, it is true that the FCA does not have the whole range of concurrent powers that all the other regulators do, or in the same form, but it has a substantial number of powers in relation to its treatment of market abuse and consumers and its ability to conduct market studies. I hoped the Minister would say, “We will wait until the Financial Services Bill has passed and then at a later stage in this Bill we will produce a clause that deals with the relationship between the CMA and the FSA as will be, and possibly other parts of the financial regulation side”. I fear that what he actually said is that the abyss has been rolled over by the Treasury.
Quite often in consumer law, we find that general consumer propositions are deemed by the Treasury and the Bank of England not to apply to them. That may indeed be part of the reason why the previous system of regulation of the banking system fell flat on its face. The Minister and his colleagues in this need to be a bit braver in facing up to the Treasury and ensuring that it is subject to the same possibilities of market and consumer abuse as other sectors and therefore should be covered by the same propositions, even though there would be some slight variation in the range of powers. I hope that at some stage in the Bill there will be a point where we take on board the final version of the Financial Services Bill and put that back in.
On Monitor, I fear the Minister is making a serious political misjudgment. It is true that during the course of the NHS Bill the House eventually accepted that there should be a significant increase in competition within the health service structure, but when you look at the actual decisions that will have to be taken by the individual bodies within the health service, their prime concern is that patients and patient groups get the best integrated service for their condition. Therefore, for example, commissioning bodies will need to ensure that, where they commission services from one particular trust or specialist service, that will continue without competitive challenge through the course of treatment for those patients for a number of years. Otherwise, the specialisms within the health service will be destroyed and the seamless journey that is part of Monitor’s objectives for the individual patient will be interrupted by somebody saying, “Actually, you have not observed competition rules in this respect”.
That is not to say that there are not some aspects where there is an overlap. I am saying that the relationship between the CMA and Monitor is different from that for the other sector regulators. I would take it out of that list and the other lists that appear here. If there needs to be a separate memorandum of understanding, let us provide for that, but it will not be the same. If the Government hint that it is the same, I am afraid that there will be a reaction out there that they will find difficult to contain. That will be at best an embarrassment and at worst a threat to the other changes they are trying to make within the health service. I plead with them on this. It is in the interests of Monitor to devise its own structures and relationships and not to assume that it will operate in the same way as a competition authority in other markets. I hope that the Government will change their attitude on this in the course of the Bill. Meanwhile, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, despite the financial sector nominally being competitive—in that there is a choice of banks—we have seen a real lack of satisfaction with banks among consumers.
We do not need to rehearse the mis-selling scandals, with unwitting customers, including small businesses, being sold—as a nice little earner—products that they do not need. We have a reminder of the banks’ record in the newspapers today. Furthermore, we know how hard it has been for people to switch bank accounts— a case made very strongly by the noble Lord, Lord Flight, who is not in his place now, during the discussions on the Financial Services Bill. We know that banks have been unbelievably slow to react to complaints about bank charges—in fact, without the OFT a number of malpractices would still be going on—and that they remain resistant to transparency on fees and charges. Indeed, what I find odd is that no other supplier of a service can simply remove money from one’s bank account without first submitting an invoice or agreeing the amount with the customer.
Banks are slow to deal with complaints, they are resistant to the ombudsman’s activity, and it sometimes feels as though they exist for their staff and their bonuses, rather than to serve the consumer. This smacks of a failing market. Therefore, Amendment 24BH seeks to test that allegation by asking the CMA not to rely on a collection of anecdotes—which does not evidence make—but to undertake some serious consumer research into this market, and to present that, together with any recommendations flowing from it, to the Secretary of State, who should then report back to Parliament.
The other evidence of the lack of a functioning competitive market is the virtual seizing up of finance for small and medium-sized enterprises, and indeed for high-growth businesses, as set out earlier by my noble friend Lord Mitchell. Yet we know that our economic regeneration, and our future, rest on their shoulders. Something is amiss.
This does not feel like a competitive industry when customers cannot get what they want: money for investment. Thus Amendment 24BJ seeks to force the CMA to undertake some serious research on competition in the financial services sector. When we discussed these issues during our debates on the Financial Services Bill, we were told that the CMA would be the lead regulator on competition—the FCA’s role being to promote competition, it seems, rather than deal with its absence—so now we ask the CMA to do just that. I beg to move.
Viscount Younger of Leckie
I thank the noble Baroness, Lady Hayter, for these amendments.
To be effective, the CMA needs to be able to independently determine its own priorities, but its ability to do this would be undermined by the obligation under Amendment 24BH to undertake regular reviews of one particular sector. As we have discussed, the Government are of course determined to improve financial regulation. Markets and market regulation evolve and, by requiring the CMA to carry out studies every two years, this amendment might have the effect of limiting the ability of the CMA to carry out higher-priority work.
The CMA also needs to be able to choose which tool to deploy. During the course of a targeted investigation, Amendment 24BH could require the CMA to produce a general report on the financial sector. In these circumstances, the reporting requirement could waste resources, interfere with an investigation or even act as a disincentive to initiate a separate investigation in the first place.
Finally, while the CMA will be the central competition authority, the FCA will be the lead regulator in the financial services sector, funded by an industry levy. It would be duplicative for the CMA to be required to carry out detailed scrutiny of conduct in the financial services sector at taxpayers’ expense, as required by Amendment 24BH. The OFT and the Competition Commission’s scrutiny powers will be transferred to the CMA by order, under this Bill. New arrangements for co-operation between the CMA and the Financial Conduct Authority will ensure that the two bodies work well together. They will both, of course, have the power to carry out research and publish reports, as envisaged by these amendments. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that. There is one bit of that which I can accept—that it may not be necessary to do this every two years. But there is a major problem in this sector of financial services, and it is time that the Government accepted that. In the Financial Services Bill they are rejigging the architecture, a bit like this, taking the FSA and splitting it in two, sending one bit to Threadneedle Street and letting the other bit stay in Canary Wharf. None of that will seize the problem of the banking industry. I wonder whether the Government are ever going to do it. This was another way to say that this is an industry, and a market, that needs looking at. If it is not going to be done by the FCA, which is not going to have the same powers, surely it should be done by the CMA—if not every two years, even as a one-off now—to see whether we can sort this industry.
This is something that we will certainly need to come back to. The Minister referred to arrangements between the CMA and FCA, but so far the Government have absolutely refused even to accept the obligation to have an MoU between those two. We will come back to that in this Bill. There is something fundamentally wrong in this enormously important sector, which is failing to serve consumers and industry, small companies in particular, and no one seems willing to do anything about it. We will come back to this, maybe without the reference to “two years”. For the moment, I withdraw the amendment.
Viscount Younger of Leckie
My Lords, the CMA will be equipped with a wide range of tools to remedy anti-competitive practices and to promote effective competition in markets across the UK economy. It has been somewhat of a challenge today to answer the questions raised by my noble friend Lord Eccles, but I am prepared to have another go.
At the beginning and at the end of the day, my noble friend raised the question: why reform the current institutional structure; why make the change? I reiterate that bringing the Competition Commission and the competition functions of the Office of Fair Trading together in a single body provides the opportunity for greater coherence in competition policy and practice, a more streamlined approach to decision making, a stronger oversight of the end-to-end case management process, as I mentioned earlier, more flexibility in resource utilisation and better incentives to use anti-trust and markets tools to deal efficiently with competition problems.
Furthermore, it provides a single powerful advocate to speak for competition across the economy in Europe and globally. While it is not a central driver for the creation of the new CMA, there will be scope for some long-term savings, in particular in corporate governance, back-office functions and accommodation costs. I reiterate that this process is not solely about saving on costs. Some costs will be saved, and it is fully expected that some synergies will be made, but a vast number of skills will be transferred over to the new CMA. I hope that that helps somewhat to allay my noble friend’s fears.
My noble friend Lady Oppenheim-Barnes also raised some questions about the fundamental concept of setting up the CMA. Ministers consider competitive markets to be vital to the economy. That has been said many times in recent weeks and months. BIS Ministers have consistently made it clear that the main purpose of the exercise is to strengthen the competition regime and to support growth rather than to cut costs. The new CMA will be sufficiently resourced to deliver its functions but will not be immune from wider pressures to help deal with the UK’s massive deficit. Savings delivered by the creation of the CMA will mainly be from streamlining, which I mentioned earlier, and eliminating overlaps between phase 1 and phase 2 of investigations. These savings will help to deliver the Government’s existing spending review targets.
The Government are committed to ensuring a smooth transition process and will work closely with the OFT and the Competition Commission to minimise disruption to the organisations while they continue to carry out their important roles and services. I wish to reassure the noble Baroness, Lady Hayter, that this whole process was looked at most carefully in Cabinet.
In response to a question raised by my noble friend Lady Oppenheim-Barnes on the transition, as we are aware, the Government have appointed the noble Lord, Lord Currie of Marylebone, as chair designate of the new CMA and is in the process of recruiting the chief executive designate. Together they will lead the transition to the new CMA. During our Second Reading debate, the noble Lord, Lord Currie, said that in addition to creating a high-performance organisation he was committed, in transition terms, to ensuring,
“that the casework of both the Office of Fair Trading and the Competition Commission continues unimpeded and that the transition of work in progress to the new authority is entirely seamless”.
He assured noble Lords:
“We will safeguard business as usual.’—[Official Report, 14/11/12; col. 1561.]
Finally, I shall answer a question raised by my noble friend Lord Deben about what will happen to the Financial Services and Markets Act in relation to the OFT oversight of the regulatory regime, if I read him correctly. Consideration of competition must be a central feature of the new financial services regulatory regime so we will therefore retain a regime for scrutiny of the regulation of financial services by the CMA. This will apply to both the Financial Conduct Authority and the Prudential Regulation Authority.
Clause 21 and Schedules 5 and 6 provide for the transfer of relevant tools and functions of the OFT and the functions of the Competition Commission to the CMA. The new authority will operate the anti-trust mergers and markets regimes and will determine regulatory appeals and references made to it in the major regulated sectors. It will carry out various ancillary competition scrutiny functions and provide businesses with advice and guidance to help them to understand and comply with competition law. Schedule 5 also provides that certain functions under the Enterprise Act, in particular phase 2 of the mergers and markets processes, will be the responsibility of groups of independent panellists. I commend Clause 21 to the Committee.
Viscount Eccles
Before my noble friend sits down, could I ask that my questions that have not been answered are dealt with in writing? I would appreciate that. As far as I am concerned, this is definitely not the end of the matter. I will review my very real worries about what is being done here and no doubt come back to them at the next stage of the Bill.
Viscount Younger of Leckie
I did not necessarily expect to answer all my noble friend’s questions. However, I have attempted to address on many occasions the question that he has put in terms of the fundamentals of setting up the CMA. I hoped that I had answered him. Clearly I have not and I will certainly write to my noble friend to address the questions that he feels are unanswered.
Viscount Eccles
For the last time, the fundamental question is: are the Government sure that the supposed benefits outweigh the risks? We have not really coped with that at all today. There is a real risk. When the thing is not broken, why try to mend it? The competition regime has been very good over many years. In my opinion, the Government are taking a quite unjustifiable risk of running that regime into a brick wall. That is the question and that is why I am not satisfied that the Government have really thought this through if they cannot tell me that they have taken proper legal advice about the risk they are running. For a very long time, the whole of business and industry has understood that this was done in two places. There was a reference from here and an investigation and determination over there. Change that and—believe you me—a lot of people, when they find out that that is what has happened, are not going to like it. If their lawyers come with them, there could be real trouble. I feel very strongly that the matter of risk needs to be dealt with. It is not a matter of efficiency or effectiveness—you can imagine all sorts of efficiencies, effectiveness and even economies—but a matter of risk.
BBC: Resignation of Director-General
Viscount Younger of Leckie Excerpts(12 years, 1 month ago)
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Viscount Younger of Leckie
My Lords, I wish to repeat an answer to an Urgent Question tabled in the other place made by the right honourable Secretary of State for Culture, Media and Sport, which is taken as a Statement in your Lordships’ House. The Statement is as follows.
“The BBC is a global British institution, of huge importance and value to millions of licence fee payers and people all over the world who look to it as an exemplar of independent public service broadcasting. In light of the ongoing crisis, it is crucial that the BBC puts the systems in place to ensure it can continue to make the first-class news and current affairs programmes on which its reputation rests.
George Entwistle has taken full responsibility for the failings of “Newsnight” in his role as editor in chief and it was for this reason that he decided to resign yesterday. The circumstances of his departure make it hard to justify the level of severance money that has been agreed. Contractual arrangements are a matter for the BBC Trust but the trust also has clear responsibilities to ensure value for money for the licence fee payer. I know that the noble Lord, Lord Patten, has written to the chair of the Culture, Media and Sport Select Committee outlining why the trust took the decision it did and this letter has been made public.
It is right that the trust should account publicly for that decision. I have repeatedly emphasised the need for full transparency to rebuild public trust. Members will know that there are now in place procedures to scrutinise the BBC’s decisions in terms of delivering value for money—procedures strengthened by the Government. The National Audit Office is empowered to conduct a value-for-money review of any issue. If it decides to review this issue then I expect that the BBC would co-operate fully.
The BBC is in the midst of the most serious of crises. I have made it clear, both publicly and privately, that the trust was slow off the mark in responding to the initial crisis over Savile. It is now acting decisively with three reviews, one of which reported yesterday and the other two ongoing. It is in the long-term interests of the future of the BBC to have a period of stability to see this important work completed.
In my conversations with the noble Lord, Lord Patten, I have been clear that the overall aim of the trust must be to rebuild the public’s trust in the BBC. I know that the noble Lord, Lord Patten, agrees. There are three clear things that the BBC needs to do to achieve that. First, the immediate task for the BBC must be to address whatever failings there have been within the editorial process, particularly in “Newsnight”, to restore public confidence in the BBC. The trust needs to act swiftly to ensure that the management and leadership issues are resolved and that these failings cannot be repeated. It is clear from the interim director-general’s interviews today that the BBC is looking seriously at what went wrong, where responsibility lies and how to address this in the longer term. I welcome this.
Secondly, the trust must get the right director-general in post. I know that the noble Lord, Lord Patten, has indicated that he will do this as soon as possible, but above all the trust must get the right candidate to stabilise the BBC and drive through the change that is necessary. As I have said before, the BBC is a global British institution and needs to function effectively and in an exemplary fashion.
Thirdly, we must not lose sight in all this of the inquiries that are at the heart of these events. None of the developments of recent days should overshadow the investigations into the alleged horrendous abuse of children in institutions around the country. It is vital that that the BBC responds correctly and decisively to both Pollard, looking at the decision to drop the “Newsnight” item on Savile, and the Smith inquiry looking at Savile’s abuses and the culture and practices of the BBC.
The BBC is an independent institution and its independence is not and never will be in question. Ultimately, the only organisation that can restore the public’s trust in the BBC is itself”.
My Lords, that concludes the Statement.
Viscount Younger of Leckie
I thank the noble Baroness, Lady Jones, for her response. I entirely agree with her and appreciate very much the support she has given and the offer of cross-party support in this most difficult of times for the BBC. I entirely agree with her that we must allow for some stability and some calm, both for the trust and for the executive of the BBC, to allow them to see through these very difficult problems. I also agree entirely that we must not forget the precise issue that we are talking about, which is focused on the sexual abuse of vulnerable and young people. These, and the reasons behind them, are the issues which are to be investigated. It is vitally important that we get to the bottom of these, find out what happened and make some decisions accordingly. Clearly, there has been an endemic failure of leadership within the BBC. I have every confidence that my noble friend Lord Patten of Barnes has acted decisively and is making the right decisions to take things forward at this time.
The noble Baroness asked a number of questions. As for the level of severance pay for Mr Entwistle, it is up to him to decide whether he wishes to—how shall I put it?—give any money back that he will be receiving. It is entirely up to him. I agree with the noble Baroness about the job description of the director-general. It is not up to the Government to say what the job description should be and how it should be outlined. That is a matter for the BBC. There could well be a rethink of the job description and a relook at the current candidates. However, I again emphasise that that is a matter for the BBC to decide. We must allow the noble Lord, Lord Patten, to continue to work through these issues. He acted decisively yesterday to put in place a procedure for finding a new permanent director-general. I confirm that details of letters will be made public as and when they arrive.
Finally, I concur with the noble Baroness that the BBC is, indeed, a much loved institution. The priority, in a spirit of cross-party support, is to give every support that we can to the BBC at this time.
Baroness Stowell of Beeston
My Lords, before we start with the Back-Bench contributions, I will give the usual reminder that, as this is a Statement, noble Lords have the opportunity to make brief comments and questions only.
Lord King of Bridgwater
My Lords, the Minister is absolutely right to say that this is a matter finally for the BBC to resolve. Certainly, the BBC will survive. That great institution will continue to play an outstanding part in our public life, with the support of all parties in this House. However, Parliament has not served the BBC well in introducing the ludicrous structure of the trust and a separate director-general and his executive board. An all-party Select Committee of this House criticised that proposal at the time. It is now enshrined in a royal charter but it is not impossible to change it. Will the Government give urgent consideration to the mechanics of getting back to a sensible position in which the governors of the BBC are directly involved in issues and the chairman of the BBC has direct responsibility for them, as opposed to this rather remote arm’s-length arrangement? The exact problem about which the committee warned has now occurred.
Viscount Younger of Leckie
I take note of what my noble friend said about the structure of the trust and, indeed, of the BBC. However, I believe that now is not the time to review this. As I said earlier, we must have a period of calm and stability to allow the BBC to make the important decisions that it needs to make. The current BBC charter expires on 31 December 2016. As it is a free-standing instrument, changes to the charter cannot be made by Parliament. It is possible to make changes to the charter before that point only with the agreement of the trust itself.
Baroness Williams of Crosby
My Lords, the BBC and the trust have a direct responsibility to explore in great detail how sexual abuse could take place in the BBC’s own buildings and under its own culture and aegis. Having said that, let us not forget that the BBC is one of the most outstanding achievements of this country. It is a model to other countries and has a structure that has allowed for balance between different opinions and different views without ever being discouraged from pursuing the truth. It is a great institution and the sooner its management recovers the sense of that, the better for all of us. Having said that, I make one other crucial point. We cannot excuse the BBC Trust completely from the rather unwise judgment it made about the compensation to be paid to a director-general who was in place for two months, or slightly less. For the ordinary citizen in our country that is an extraordinary piece of behaviour and one they cannot begin to understand—and neither can I. I hope that candidates who were unsuccessful in the original competition will, like anybody else of outstanding ability and commitment, be included in the BBC Trust’s current selection process for the new director-general. However, as the noble Lord, Lord King, suggested, the BBC Trust needs to look at itself, not just at everybody else.
Viscount Younger of Leckie
I thank my noble friend for her supportive comments about the BBC. Putting aside the awful events that have happened, I wholeheartedly agree that the BBC acts as a role model throughout the world for high-quality journalism and, indeed, high-quality investigative journalism. Your Lordships will know that two inquiries are going on. One is looking into the culture and practices of the BBC, which is more of a long-term investigation. Mr Pollard is looking at editorial matters to find out why the “Newsnight” programme was in the position that it was in. The report will be out at the end of November.
Mr Entwistle’s compensation, to which I alluded earlier and which was mentioned by my noble friend, is a matter for the BBC. I do not wish to go into its precise details.
Lord Pearson of Rannoch
My Lords, the Government rightly say that the only organisation which can restore the public’s trust in the BBC is itself, but can the BBC do so under its present chairman and trustees? I ask that because in at least two of the most important areas facing this nation, they are marching determinedly in the opposite direction to the views of a growing majority of the British people. First, an analysis of the trustees reveals that a large majority of them are climate change enthusiasts.
Lord Pearson of Rannoch
Yes, indeed, my Lords, so it is not surprising that the BBC has decided not to allow informed debate on this subject. Secondly, the BBC remains blindly Europhile—I can prove that too—as exemplified by its chairman, who has a large EU pension which he could lose if he went against what the European Commission regards as the interests of the European communities. I need scarcely add that those interests are no longer the interests of this country.
Viscount Younger of Leckie
I do not wish to comment on the European matters mentioned by the noble Lord. As I said, although the trust could have acted more quickly with its initial inquiries, I feel that it is now acting decisively to address this crisis. The noble Lord, Lord Patten, has a key role in ensuring that this crisis is handled well. Again, I support him in everything that he is doing to sort out the mess.
Lord Jay of Ewelme
My Lords, it seems that the BBC has made two quite bad but very different mistakes over this period. It also seems that the BBC has become virtually ungovernable. I understand why the Government and the Opposition do not want to meddle in the BBC’s affairs, but to do nothing while the BBC deals with these difficulties seems to me to be quite difficult to justify. I wonder whether the Minister could confirm that he will do all that he can to support the noble Lord, Lord Patten, in the radical overhaul of the governance arrangements of the BBC, of which he spoke, so that once again we can have the confident, world-class, thoroughly professional BBC that has been so important for this country and its reputation both in Britain and abroad.
Viscount Younger of Leckie
I do not know whether it is true to say that the BBC is actually ungovernable. As I said earlier, some very serious problems need to be addressed within the BBC. I absolutely agree with the noble Lord that we should give the noble Lord, Lord Patten, every support that we can to sort out these issues at this very difficult time.
Lord Morris of Aberavon
My Lords, the extent to which the BBC lost the plot is illustrated by its failure in what I hope is an exceptional incident: to put to Lord McAlpine the facts that it was alleging. Why was there such an elementary failure to put these matters to him, contrary to law and natural justice? It is not rocket science.
Viscount Younger of Leckie
The noble and learned Lord makes a passionate point. I agree that what happened concerning the naming of Lord McAlpine was completely abhorrent. There are inquiries into the matter and I do not want to comment any further. We are looking to get to the bottom of that through the BBC. It is a matter for the corporation.
Lord Inglewood
My Lords, although I recognise the ghastliness of the events that we are talking about, does the Minister agree that the independence of the BBC is a central phenomenon that we must retain and that it would be a mistake, particularly as none of us knows the true facts, for those in positions such as ours to shoot from the hip? Will the Minister confirm that when the facts are clear and the steps that should be taken have been taken, the matter will come back to the House so that we can have a full debate on exactly what has occurred?
Viscount Younger of Leckie
I agree that it is very important indeed to uphold the independence of the BBC, but at this stage I cannot confirm whether there will be a debate. I am certain, however, that discussions are taking place to decide if there will be one in the future.
Lord Grocott
While everyone is agreed on the seriousness of the crisis that has engulfed the BBC, it is worth reflecting that it was a BBC programme, “Panorama”, which investigated the problems surrounding the Savile issue. One recent aspect of the crisis that has overtaken us is that BBC news bulletins have been leading on this issue hour after hour, day after day. Does the Minister agree that it is difficult to think of any organisation, let alone any news organisation—print or broadcast—which, having acknowledged incredibly serious editorial errors, would be as unremittingly self-critical and as open to public scrutiny?
Viscount Younger of Leckie
The noble Lord makes a very good point. Putting aside the very difficult issues that have arisen over these programmes—which I will not go into—the BBC inquiries will look at all the details and I am sure that in due course we will hear precisely what happened.
Lord Low of Dalston
I certainly associate myself with the important points that the noble Lord, Lord Grocott, made and that the Minister acknowledged. The BBC has obviously sustained a blow to its credibility and to the trust that is widely reposed in it, and I suppose that this may be described as a crisis. However, I hope that the Minister would agree—and I take it from what he said that he would—that these things must be kept in proportion and that it would be absurd to suggest that a feeding frenzy over particular incidents, however serious, constitutes a global threat to the BBC’s brand, which remains strong overall and rightly continues to command widespread trust and respect.
Viscount Younger of Leckie
I agree very much with the comments of the noble Lord; we must keep the issues in proportion. He is completely correct. I was alarmed by the feeding frenzy that came out of the press, particularly some of the headlines regarding the resignation of Mr Entwistle. I believe this should be a period of calm; there is a need for stability to allow the BBC to work through these very difficult problems. I appreciate the comments made by the noble Lord.
The Lord Bishop of Ripon and Leeds
My Lords, I am very grateful that in the initial Statement the Minister said that we must continue to recognise the needs of those who have been abused. He spoke of the BBC facing a series of crises. Those who were abused face a far more serious series of crises. Will he stress again that the primary concern at this point needs to be the protection of children and young people? Will he also stress the continuing desire of us all to encourage those who have suffered abuse to come forward so we can change the culture of how we deal with such issues?
Viscount Younger of Leckie
The right reverend Prelate makes a very important point, with which I concur. I encourage all people who have suffered this horrendous abuse to come forward, as a large number already have. I also agree with him that our thoughts today should be with these people who have suffered so badly. His point is well made.
Lord Campbell-Savours
My Lords, will the Minister confirm that heads have rolled at the BBC as a result of a story written not by a BBC journalist but by a freelancer—a Mr Angus Stickler? He sold his story to a “Newsnight” team which was reeling from the consequences of the fallout of the Savile business. The “Newsnight” team was in chaos as a result of that. I am not trying to excuse what happened but let us be absolutely clear: it was not a “Newsnight” employee. It was someone from outside the organisation who, I hope, will no longer be providing information or stories to the BBC in the future.
Viscount Younger of Leckie
The noble Lord makes an interesting point. It is still the case, however, that the BBC remains responsible, despite the fact that, allegedly, there was a freelance journalist involved. Again, these issues will be looked at as part of the ongoing inquiries.
Baroness Jay of Paddington
My Lords, perhaps I may echo or follow the comments of my noble friend Lord Grocott and the noble Lord, Lord Low. One of the things that I was always taught when I worked as a BBC journalist many years ago—and I declare that interest—was the priority of balance, and balance in this matter is absolutely essential. I would ask the Minister to observe that, at the same time as this whole firestorm about the various “Newsnight” problems, which are indeed reprehensible, was occurring, the BBC was once again demonstrating its enormous global power in its coverage of the American presidential election and of the events in Beijing while at the same time maintaining its very close watch—as the noble Lord, Lord Grocott, said—on the problems at home which it itself had partly created. I think that we should observe very strongly the question of balance, particularly when we take note, or do not take note, of the comments of some sections of the press.
Viscount Younger of Leckie
I agree with the noble Baroness’s comments. I consistently have said that we need a period of calm and stability, and the question of balance crops up as part of that. We need to take a balanced look at the issues, and there needs to be balance generally in looking at these very difficult issues.
Lord Roberts of Conwy
My Lords, my noble friend may wish to know that Mr Iain Overton, the editor of the Bureau of Investigative Journalism which produced the offending piece of shoddy journalism for “Newsnight”, has resigned today. Will my noble friend make certain that we and the BBC are fully informed as to how the organisation headed by Mr Overton secured such a trustworthy position with “Newsnight” so that its work on the north Wales child inquiry was not properly investigated and checked?
Viscount Younger of Leckie
I thank my noble friend for that information. I was alerted to it just before I came into the Chamber. However, I do not have any further details and I would not wish to comment further about the name mentioned. However, I imagine that this issue and the name mentioned will be taken up as part of the inquiry into these issues.
Lord Stoddart of Swindon
Does the noble Viscount agree that the selection pool for the BBC Trust is very narrow? Would it not be as well that that pool should be widened so that a perhaps more critical attitude could be taken of the operations of the BBC? Perhaps one of the new candidates could be the noble Lord, Lord Pearson of Rannoch.
Viscount Younger of Leckie
I would not wish to comment on any particular candidate. I presume that the noble Lord was referring to the search process that the chairman of the trust has said that he would carry out. I am not able to comment on that particular process at the moment. That is a matter, indeed, for the BBC.
Lord Harris of Haringey
My Lords, the right reverend Prelate has rightly reminded the House that the people we should be most concerned about in all this are those who were the victims of abuse. Can the Minister comment on whether the Government feel that the frenzy around the existential crisis of the BBC is not really a distraction from concerns that there was very real abuse in children’s homes in north Wales and elsewhere; that there was an individual who, because of his celebrity, was able to abuse children all over the country; and that we are in danger of being deflected, which of course plays into the hands of those who would rather cover up what happened and the names of those who were ultimately responsible?
Viscount Younger of Leckie
The noble Lord makes a very important point—that we must not lose sight of the awful events that have taken place and of why the BBC is in the position it is in at the moment. However, given a bit of calm and stability the immediate issues will, one hopes, blow over, and those who are now taking the right decisions will make those decisions and follow them through. I am sure that there will be a number of days of continued press reports but I absolutely take the noble Lord’s point that we must not forget the real issue behind these terrible reports.
Education: Conservatoires
Viscount Younger of Leckie Excerpts(12 years, 2 months ago)
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Viscount Younger of Leckie
My Lords, I am grateful to the noble Lord, Lord Lipsey, for this opportunity to set out the Government’s position on the funding of conservatoires—or “conservatories” as I noticed was displayed on the screen today. First, let me put on record my wholehearted support for the excellence of our conservatoires. They are a crucial part of our national cultural heritage and in this year which has seen the Olympics, Paralympics and the Queen’s Jubilee we have seen how these events have drawn on the talents of our creative sector and the amazing skills and determination cultivated by our conservatoires. Who can forget the sight of the Royal College of Music chamber choir singing in the rain at the Jubilee pageant?
The Olympics saw conservatoire alumni at their best. The contributions of stars such as Dame Evelyn Glennie, Annie Lennox and Kenneth Branagh showcased Britain and British talent around the world. The Paralympics witnessed the inspirational David Toole, the dancing star of the closing ceremony, and Errollyn Wallen, a teacher from Trinity Laban, whose work contributed to the amazing spectacle. Noble Lords have alluded to their own areas and I have taken note of the contribution from my noble friend Lord Lexden, who rightly highlighted the position as regards a Northern Ireland conservatoire, and the noble Lord, Lord Grocott, who focused on Birmingham. I also noted the reference to Aldeburgh and Britten, where I have been myself, as noted by the noble Lord, Lord Haskel. The contributions from that beautiful part of the country are clearly invaluable and well renowned.
My own commitment to our conservatoires and the arts is sincere, although my participation in the Parliament choir, along with the noble Baroness, Lady McIntosh, may not be of a sufficient standard to meet the entry requirements for some of these highly prestigious institutions, where there is often only one place for every three or four applicants.
As has been clearly articulated this evening, notably by the noble Lords, Lord Lipsey and Lord Aberdare, and my noble friend Lord Maclennan of Rogart, our conservatoires are a significant national asset and their impact is felt beyond these shores. They, including Trinity Laban, are worth more than £130 million to our economy and are a force for good. I recognise that there are concerns for conservatoires, as there are within the broader higher education sector, to do with the impact of the Government’s higher education funding reforms.
However, I welcome this chance, if not to resolve all funding concerns, at least to place them in context. That context is, of course, the tough decisions that have been forced upon us by the global downturn. We have had to reform our higher education finance system and to rebalance funding between the state and the student while ensuring that those from lower-income backgrounds have no barriers to access.
This month, the first cohort of students will arrive at English universities under the new tuition fees regime. While UCAS reports an overall drop in entrants this year, some of which is due to a demographic dip in the number of 18 year-olds—I take note of the views expressed by the noble Baroness, Lady Jones—there are of course still very many more applications than places both at our conservatoires and across higher education. Competition remains fierce.
I know the noble Lord, Lord Lipsey, recently met the Universities Minister to discuss the position of Trinity Laban. They had a productive discussion in which the Minister was able to provide some assurances that the unique challenges faced by conservatoires will continue to be reflected by the funding council. Despite all the controversy, the financing changes that we have introduced are in the best interests of universities, students and the nation in the long term. They will provide a sustainable funding system for institutions, underpinned by a solid student support system.
Public funding will continue to flow to our conservatoires through the government-backed tuition fee loans for students and the continued central funding to support the extra costs of running high-cost specialist institutions, such as conservatoires. In addition, support for strategically important and vulnerable subjects will remain. The funding council and research councils will continue to support the conservatoire network.
I have certainly noted the comments made by the noble Lord, Lord Lipsey, on funding. In England, Higher Education Funding Council funding alone for conservatoires will amount to more than £40 million in 2012-13, which includes support for teaching, research and widening participation. My noble friend Lord German has highlighted the importance of consistency and I hope that he finds this information helpful.
Perhaps to the surprise of many of your Lordships today, the latest assessment of the financial health of English higher education institutions showed the sector reporting strong surpluses, large cash balances and healthy reserves. It is a sector financially well prepared for the new funding system. The study showed the majority of the key financial indicators as the best on record. This will help institutions to manage the challenges arising from the transition to a new funding regime where the coalition has been able to cut public spending without reducing the overall funds reaching our universities. The withdrawal of the block grant will bring a healthy market to the sector and student choice will drive up quality as institutions strive to attract students. Overall, the total public investment in the English higher education sector remains significant—some £14 billion this year.
If we focus for a moment on capital projects, we have to manage our financial resources prudently. However, this evening, I am delighted to announce that the Chancellor was able to say that there will be an additional £200 million for the Research Partnership Investment Fund for supporting long-term university capital projects. This fund, launched in the 2012 Budget with a government investment of £100 million, will support universities to develop infrastructure projects if they can match the funding by at least double from private companies or charities. That might partly answer the concerns of the noble Lord, Lord Lipsey, as regards the peeling paint at Greenwich.
I now turn to the importance of philanthropy. I understand that it is a challenge in these financially strapped times for every institution to diversify its income streams. Conservatoires already do well in this and do not rely solely on central government funding. Indeed, for some, their public funding is a minority income stream. But although our universities have made progress in recent years and funds raised by voluntary giving in the UK in the past five years have increased from £513 million to £693 million, I am sure all institutions will find there is more that they want to do to generate an increase in philanthropic giving. All will want to develop strategies to stimulate donations in order to position their institution as an attractive proposition to enable them to draw in funding to support their goals.
This Government salute our philanthropists and we think the work that they do is incredibly important. We want to do everything we can to recognise it. I know that many of our conservatoires have been highly successful in attracting donations and endowments. Just last month the Royal College of Art opened the Dyson building, which was built with a £5 million donation from the James Dyson Foundation.
Of course, elsewhere the arts are well supported. Taking account of lottery as well as government funding, the Arts Council will receive some £2.3 billion over the next four years.
I move on to the question of US loans for students, highlighted by the noble Lord, Lord Wills, and the noble Baroness, Lady Warwick. I understand that there have been changes to the terms of United States federal loans for US students who are studying abroad. The new requirement is that foreign institutions must have their own degree-awarding powers, in their eyes, in order for their US students to be eligible for US federal aid overseas. That affects some, though not all, of our conservatoires—I believe Glasgow was mentioned this evening. My honourable friend the Minister for Universities is continuing to pursue this matter with Martha Kanter, under-secretary at the US Department of Education, to explain the problem posed for these distinctive institutions. A further discussion is due to be held next week, but of course this is a decision taken by our American cousins and not something for which Her Majesty’s Government can take responsibility. I urge all noble Lords with any contacts to use their influence in the United States to press this case.
Many comments have been made, mainly by the noble Lords, Lord Low and Lord Wills, as well as my noble friend Lord Geddes, about international students and post-study. I will need to get back to noble Lords on those because time is running on.
This has been a stimulating debate and I welcome this opportunity to hear from the many noble Lords whose experience with conservatoires and universities is richer than my own, but I want to conclude by assuring your Lordships that our higher education sector is in good health, and that our conservatoires are recognised as beacons of excellence nationally and internationally. It is an unfortunate truth that it is never possible in a publicly funded system that every funding need for every priority can be met. Government must balance its priorities. We are entering a new age of uncertainty, with the bulk of funding following student choice, but I hope your Lordships will appreciate the significant steps that have been taken by the funding council, and by the Government, to recognise the unique nature of the conservatoires, to fund them appropriately, and to support their valuable contribution to our nation’s cultural health, well-being and heritage.
On international students and post-study, the unique contribution made by international students cannot be overstated. While the Government are clear that they cannot tolerate abuse of the visa system, make no mistake that they are committed to continuing to welcome bright, creative people to our institutions. London Metropolitan was unfortunate, but our top priority has been to support legitimate students to continue their studies. Replacing the post-study work route was essential, but those in creative occupations can still apply through Tier 5 by applying from overseas. Twelve months’ leave can be granted and extended to two years without a salary threshold. On that note I will finish.