Enterprise and Regulatory Reform Bill

Debate between Viscount Younger of Leckie and Baroness Buscombe

Thursday 31st January 2013 Grand Committee

[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.

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[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.

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[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.