Finance (No. 3) Bill

Lord Bates Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 7th February 2019 Lords Chamber

Moved by

[Lord Bates]

That the Bill be now read a second time.

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

My Lords, I thank the Economic Affairs Finance Bill Sub-Committee for its close consideration of the draft version of the Bill before the House today and its subsequent reports on HMRC powers and making tax digital. The sub-committee’s findings made for very informative reading, and the Government have carefully studied each of the recommendations. On 22 January, the Financial Secretary to the Treasury wrote to the chairman, my noble friend Lord Forsyth, setting out a comprehensive response to these reports. My noble friend is disappointed that he is unable to attend this debate but he is ably represented by other members of the sub-committee, who we will have an opportunity to hear from. I am pleased to confirm to the House that the Government have accepted the majority of the sub-committee’s recommendations in whole or in part.

Before I turn to the main measures enacted in the Bill, I shall briefly set out the broader economic and fiscal context. In October, the Chancellor delivered a Budget which reflected the Government’s commitment to build a stronger, fairer and more resilient economy. The economy has grown every year for the past eight years, and it is expected to continue to grow every year of the OBR’s forecast. There are 3.4 million more people in work since 2010 and employment is at a record high of 32.5 million. We have higher employment and lower unemployment in every region and every nation of the United Kingdom. Since 2010, almost 75% of the fall in unemployment has been outside London and the south-east, with the biggest fall in Scotland. Real regular wages have risen for eight consecutive months, and wages are now growing at their fastest pace in over a decade, putting more money into the pockets of hard-working families, supported by the national living wage.

We understand that the only sustainable way to improve real wages and living standards is through boosting long-term productivity. At the Budget, the Chancellor set out a number of measures to support that ambition, including, as I will come to, a new structures and buildings allowance which will be enacted in this Bill. The Government’s commitment to restoring the health of public finances is stated and we have now reached a turning point. The deficit has been reduced by four-fifths from its post-crisis peak and debt has begun its first sustained fall in a generation. Borrowing and debt are both lower in every year of the forecast than they were in the spring and, at the Budget, the OBR forecast that the Government met both their interim fiscal targets in 2017-18, three years early. However, debt remains too high. It is around £65,000 for each household, so it is important that we continue to take our balanced approach to fiscal policy, which has enabled debt to fall while supporting public services, keeping taxes low and investing in Britain’s future.

At the heart of the Government’s economic and fiscal policy is a desire to improve living standards for ordinary people. That is why we have taken concrete steps to help hard-working taxpayers by allowing them to keep more of their own money. At the Budget, the Chancellor announced that the Government would deliver on their manifesto commitment to increase the personal allowance and higher rate tax threshold a year ahead of schedule. The Bill enacts that change, introducing a tax cut for 32 million people and increasing the personal allowance and higher rate threshold to £12,500 and £50,000 respectively. This means that a typical basic-rate taxpayer will pay £130 less in income tax in 2019-20 than during this tax year.

The Government also announced that the living wage will increase by 4.9% from this April. The Bill takes further steps to keep living costs down for hard-working people by freezing fuel duty for the ninth year in a row, and by delivering a freeze on the duty on beer and spirits and a real-terms freeze on air passenger duty for short-haul flights.

The Government continue to champion home ownership and are committed to making housing more affordable for first-time buyers through direct spending and changes to the tax system. In the previous Finance Bill, the Government legislated for a first-time buyers’ relief on stamp duty. This has already been used to help first-time homeowners in more than 120,000 transactions. In this Bill, we will help take this a step further by expanding that relief to first-time buyers who enter a shared ownership arrangement, and will backdate this relief to benefit those who entered into their purchase on or before the date of the Budget.

The Bill also enacts new measures to encourage business investment and ensure that the UK maintains its status as one of the best places in the world to start a business. The Government have consistently backed business, including by cutting corporation tax to 17% in 2020. The Bill builds on that foundation, continuing to support businesses by introducing key allowances to important tax reliefs. The new structures and buildings allowance, which came into effect from Budget Day, will provide a vital tax break for those businesses investing in new commercial property. The annual investment allowance will be increased from £200,000 to £1 million for the next two years, ensuring that companies have an additional incentive to invest. Businesses will also benefit from a new good will relief in the intangible fixed assets regime.

The Bill also introduces a new transferable tax history mechanism for late-life oil and gas fields. This will support businesses, jobs and expertise in our vital deep-sea oil industry.

The Bill supports the Government’s commitment to a fair and sustainable tax system by introducing new measures to tackle tax avoidance and evasion. The Government have always been clear that taxes should be low, but they must be paid. This is what has been delivered. Since 2010, we have secured and protected over £200 billion by clamping down on tax avoidance and evasion, and have reduced the UK’s tax gap to less than 6%, which is one of the lowest in the world. The Bill continues that commitment to clamping down on avoidance, evasion and non-compliance. Specifically, it enacts provisions to ensure that non-residents pay tax on capital gains they make on UK commercial property and targets more contrived avoidance and evasion by clamping down on those who artificially lower their tax bill through profit fragmentation, whereby companies reduce their tax burden by artificially shifting their revenues around. The Bill also strengthens our diverted profits tax, which has already brought in and protected £700 million since 2015. These measures and others like them demonstrate the Government’s enduring commitment to ensuring that tax is paid, protecting essential revenue for our vital public services.

This Government have made real progress since 2010 in building a stronger and more resilient economy, but we recognise that there is still more to do. We remain committed to supporting our businesses, boosting productivity, reducing living costs for hard-working people and ensuring that tax is paid where it is due. The Bill supports the Government in these ambitions. I commend it to the House and I beg to move.

--- Later in debate ---

[Lord Davies of Oldham (Lab)]

My Lords, this has been an excellent debate, although the participation numbers are a long way below the usual ones. That is a reflection of the exhaustion which Brexit has brought on noble Lords as we have discussed whether we can see the future of the economy with any accuracy at all in the context of that issue. I think a number of noble Lords are holding their weapons ready for the point which the noble Baroness, Lady Kramer, referred to; we cannot be far off another Budget and a clear economic Statement which will take account of whatever deal the Prime Minister succeeds in bringing back to the nation before 29 March.

The Minister sought to put a number of issues in context—a context that I could scarcely recognise. When will the Government face up to the many failures in their economic strategy of nearly a decade? Their long-term economic plan disappeared as a concept embraced by their Members of Parliament and noble Lords, but a great many of its characteristics have persisted. In particular, the Government still follow a broad strategy of considering austerity to be good for the nation. It was directed, in the first instance, at clearing up the deficit, which was meant to be cleared by 2015. The latest target date appears to be somewhere around 2025. However, the OBR and a number of interest groups in the country think that remains a challenging target. It is a measure of the Government setting out a clear objective and falling many years short of reaching it.

The Government have presided over the slowest recovery since the 1920s. The key indicators of investment, growth and productivity still place us among the lowest of the advanced economies. The Minister referred to the growth rate of 1.6%. My goodness, what an achievement. It is lower than in any other advanced country and a long way below the levels of economic growth to which we had been accustomed before the financial crash. The Government have had nearly a decade to recover from that calamity, but have precious little to show for it.

We consider that the alternative strategy is obvious. We need to borrow in order to invest, so that instead of being starved of resources—particularly in respect of the regional imbalance of resources from the Government—our economy will be able to get the resources necessary for growth. There is no doubt that austerity is not yet over. This Bill offers tax cuts for the richest members of our society and welfare cuts for the less fortunate. We are facing the challenges of Brexit with low investment, low wages and low productivity. The Minister mentioned the recent increase in wage rates, but that is the first year in which the Government have been able to say that for a decade. It is quite clear that the Government’s progress is very slow.

Meanwhile, our public services are suffering. Our Armed Forces have had severe cuts; our police numbers are drastically down, while violent crime is up. But contrast the restrictions on public sector pay with what happens in the private sector. Last year, the chief executives of FTSE companies averaged an 11% pay increase on what was a pretty big number beforehand. When will the Government face up to the fact that they cannot expect to build a good society unless they build a fair society? In the real world, outside the FTSE top earners, homelessness has doubled, use of food banks has increased significantly and the number of rough sleepers has increased, and not just in our northern towns and cities, where it is sometimes suggested so many are neglected, but in London itself. Even Westminster has seen growth in these numbers.

The report of the United Nations special rapporteur on extreme poverty and human rights condemns the UK as a two-speed society, where the very richest flourish yet there are many in poverty. Two-thirds of children growing up in poverty are in households where there is at least one earner. That says something about the payment of wages at the lower end of society. I suggest it will not do for the Government to do anything other than take considerable responsibility for creating this situation. The rapporteur went on to say that it was absolutely scandalous for so many children to be poor in a 21st-century economy. It reflected “a social calamity” for our country and “an economic disaster”.

That is what we think in Her Majesty’s Opposition. We will halt the rollout of universal credit, which has been identified so accurately by noble Lords in this debate; particularly the noble Lord, Lord Morrow, who identified for the Minister some pretty challenging figures on how the Government address low-income families and those dependent on benefits. I hope the Minister will respond to what was, after all, an extremely detailed and significant contribution.

The Government’s record shows little success in improving productivity. I have stood at this Dispatch Box for the past 10 years opposite a succession of Ministers, including Ministers who certainly knew what they were talking about on productivity. They were not able to persuade their Governments and their colleagues to do anything about the appalling levels of British productivity that have sustained through to today. It means that, although the Government have put money into apprenticeships—there is much criticism in industry and commerce about the nature of these apprenticeships and the funding for them—they also slashed the improvement of vocational skills, for which they were directly responsible, and hammered the further education colleges. Although we have seen universities make considerable progress in tackling the tuition fees issue, FE colleges have had a devastating onslaught from this Government. It is clear that they are the biggest losers in education spending.

That is to say nothing of the fact that schools are stressed by inadequate resources. In an economy which needs new schools, it is depressing that adult learners—people who recognise that they need to improve their skills and change the potential of their economic role in society—are down from 5.1 million to 1.9 million. The Government should be ashamed of that figure. If the Government is serious about the tax take, it is clear we need a well-resourced HMRC.

I very much enjoyed the contribution of the noble Lord, Lord Turnbull. He asked specifically about loan charge schemes, and he also identified that the digitisation of tax was misdirected when it expected organisations with such small turnovers to be able to cope. The whole position needs to be rethought. We have a report coming out shortly, to which the noble Lord, Lord Turnbull, referred, but nevertheless, this is pretty obvious incompetence by the Government in this area.

The Government also have a very poor record on climate change. Their response has been to cut support for solar energy and slash the subsidies for onshore wind. This is done against a background where we all know that climate change is going to make big demands on the resources of our society. We are also all obliged to look through a glass darkly on the question of Brexit and its implications for the economy.

I am not expecting the Minister to respond on the Brexit issue at great length today. In the other place, they are going to get another dose next Wednesday. Many noble Lords have indicated that they have said pretty much all that can be said about Brexit. But we still have not entered the final act and cannot, at this stage, predict exactly what it will be. The one prediction we all hope will not be fulfilled is to crash out of the European Community without agreement.

My noble friend Lady Quin asked a specific question of the Minister on the taxation position of a museum. Having been a Member of the other place, she knows as well as anyone here that it is not within the power of this House to render a ready solution to this by any direct action we can take. Nevertheless, I hope the Minister can give some response.

I thank all noble Lords who have participated. I particularly appreciated the contributions of my noble friend Lord Chandos. He did what I thought was necessary at this stage in the debate: he looked at the wider issues to which the Government need to respond. The Minister has got quite a lot to answer, and I am sure he is looking forward to the opportunity as much as we are looking forward to listening to him.

[Lord Bates]

What a kind invitation from the noble Lord. I hope not to disappoint.

The noble Viscount, Lord Chandos, expressed the hope that we might get a day off from the relentless grind of Brexit. I am afraid that we were not quite able to deliver. Brexit was mentioned in the contributions of the noble Lords, Lord Tunnicliffe, who opened, and Lord Davies, as he wound up, and in between by the noble Baronesses, Lady Quin and Lady Kramer. They talked about the uncertainty of the times and the noble Lord, Lord Tunnicliffe, said that these were not normal times—to which the answer, which they have heard many times, is therefore to remove the uncertainty and back the deal, so that we can move on to negotiating the future economic relationship with our friends in the European Union. We could also then remove the necessity to plan for no deal, Yet, so long as no deal remains even as a possible option, it would be remiss of any Government acting responsibly not to plan for that eventuality—although we hope with all our hearts that that outcome does not occur.

This has been an excellent debate and I therefore want to use what time I have available simply to address some of the points raised during the course of it. First, the noble Lord, Lord Davies, talked about income inequality. I should say that income inequality is now lower than it was in 2010 and lower than at any point under the previous Labour Government, in which he was a distinguished Minister. Compared with 2010, there are 1 million fewer people, including 300,000 fewer children, in absolute low income. Moreover, in the context of this legislation the Government’s policy continues to be highly redistributive. In 2019-20, households in the lowest income decile will receive over £4 in public spending for every £1 they pay in tax, while those in the highest income decile will contribute on average over £5 in tax for every £1 that they receive in public spending.

The noble Viscount, Lord Chandos, asked about the reclassification of student loans and its impact. After its review of the treatment of student loans in government finances, the Office for National Statistics has decided that some of the spending on student loans will be included in the deficit when the money is first lent to students. This is a technical accounting decision by the ONS and, although the noble Viscount was very critical of it, I stress that we operate on independent advice in this respect. We support the independence of the ONS and commend its diligence in recognising this.

The noble Baroness, Lady Kramer, talked about Making Tax Digital. I will come back to some of the points raised by the noble Lord, Lord Turnbull, in this respect. She focused on the specific impact on SMEs, on behalf of which she has been a consistent advocate. As the noble Lord, Lord Turnbull, mentioned, that is why only businesses with a taxable turnover above the VAT threshold, which is currently £85,000, will be in the scope of Making Tax Digital. The noble Lord is of course a former distinguished Permanent Secretary at the Treasury, among other things, and he talked about the work done by the committee. He said—I think I have this right—that it would be nice if a Minister were to say, “You did us a good turn there” when the committee advised on making changes and delaying implementation. Having been given that invitation, I am very happy to say that it did a good job there. It did a good turn not just in giving advice to the Government but for small businesses, in terms of how they will be affected.

With respect to all noble Lords, I think that the House will have found the technical analysis of marginal tax rates by the noble Lord, Lord Morrow, very thought-provoking. I will want to take that away and reflect further on it with colleagues. However, the Government are committed to making work pay. The noble Lord said that hard work should be incentivised, and we can all echo that. He said that it was a key measure of aspiration; again, I think we would echo that. In fact, it was part of the rationale for the introduction of universal credit.

The Budget announced that the personal allowance would be increased to £12,500. We are also investing an additional £1.7 billion per year in universal credit to increase the work allowance for working families and disabled claimants. The national living wage will rise to £8.21 from April 2019. In total, it will have delivered a pay rise of £2,750 for a full-time minimum wage worker since its introduction in 2016.

I am hesitant about reading out more such responses, not because they are not right but because I sense that the mood of the House and, certainly, our mood on the Front Bench—my noble friend Lord Young is with me—is that the noble Lord’s analysis is worthy of further consideration. I am delighted that the Financial Secretary to the Treasury and Paymaster-General said in response to the Budget debate that he would write substantively and reflect on that matter. I will take back to him the noble Lord’s contribution today to ensure that that response encompasses some of the points which he has raised.

A number of comments were made on the health of the economy. The noble Viscount, Lord Chandos, talked about the wide range of allowances and then criticised me for not responding to my noble friend Lord Horam in the Budget debate on his point about the 1,200 allowances which exist. Allowances have been used by successive Governments to incentivise right behaviour in certain areas. This Budget is no different, because it increases the annual investment allowance to £1 million for two years, thus significantly increasing the amount of relief given to businesses that do the right thing by investing in their own businesses and therefore increase our productivity—which the noble Lord, Lord Davies, was concerned about—and increase our tax revenues and growth.

One of the allowances referred to related to the issue raised by the noble Baroness, Lady Quin, whom I thank for giving me advance notice. She declared her interest as the chair of the board, but I should declare an interest as having been a beneficiary of the museums of Tyne and Wear as a child and as an adult. I am a frequent visitor to the Shipley Art Gallery, which is a fantastic treasure trove of different art, from old masters to modern, contemporary and regional art, as well as crafts and ceramics. I have enjoyed that since I was taken there as a child at school—education is a key part of it. Anything which enhances the wonderful town of Gateshead, which she and I care for, and its cultural heritage—which is not just the Shipley but the Baltic Centre for Contemporary Art, the Sage, a music centre and the Angel of the North—is welcome. It really is becoming a cultural centre.

The noble Baroness came up with some innovative suggestions as to how the Interpretation Act 1978 could be invoked in the matter that she raised. We have looked carefully at that, and my advice is that the existing legislation is unambiguous and cannot be interpreted in any other way. Any changes would require primary legislation. However—the former Permanent Secretary will be watching carefully what I say here—I think that the spirit and intention behind that measure were clear. Manifestly, it was intended that organisations such as the Tyne & Wear Archives & Museums should be able to benefit from it. The challenge I ask her to leave me with—I have already commenced informal discussions with the Financial Secretary to the Treasury—is how we go about correcting that. Clearly, if it requires primary legislation, which is the current advice, that limits our options as to how quickly we can move, but if there are other ways to do it, we would want to do so. I know that the noble Lord, Lord Davies, echoed his support for efforts in that area and I give her a commitment that it is an anomaly that we want to resolve.

The noble Baroness, Lady Kramer, talked about local authorities. I am conscious that time is short, but loan charges is a hugely important issue that was also raised by my noble friend Lady Noakes in the Budget debate. I wrote to her, and copied in the noble Baroness, Lady Kramer, having gone back to the department and looked again at it. There is no requirement on an individual who is not an employee to use a disguised remuneration loan scheme. The tax system expects people to take responsibility for their own tax affairs and if an arrangement looks too good to be true, then it probably is. Hundreds of thousands of people work and pay tax as self-employed workers or through their company without using highly contrived tax avoidance schemes.

The noble Lord, Lord Turnbull, drew attention to what was new Clause 26. The Government chose to accept new Clause 26 during the passage of the Bill and will lay a report in line with the requirements of that new clause no later than 30 March—that is probably going to be a busy day in Parliament. The report will include a comparison with the time limits for the recovery of lost tax relating to disguised remuneration loans. HMRC is working to help people put things right but can only help those who come forward, so we encourage people to come forward. For those people who settle, there are schemes, depending on the income threshold, whereby people can make those tax settlements over a five to seven-year period. As for why taxpayers do not have the right to appeal against advance payment notices and follower notices, Parliament granted HMRC these powers to discourage tax avoidance. Advance payment notices prevent tax avoiders gaining an economic advantage by holding money during the time it takes to complete lengthy tax litigation. Importantly, these rules in no way affect a taxpayer’s right to appeal their tax liability.

The noble Baroness, Lady Kramer, and the noble Lord, Lord Turnbull, spoke about future plans for Making Tax Digital. The Government set out a vision for modernisation of the tax system through Making Tax Digital in 2015 and our vision remains unchanged. There will be no further Making Tax Digital mandation until the system has been shown to work well. The sub-committee recommended an independent review of HMRC’s powers. The Government agree that HMRC has to balance the collection of tax with important taxpayer safeguards—again, this was raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Turnbull. The powers review was a major project designed to support the merger of Her Majesty’s Customs and Excise and the Inland Revenue. It took seven years and concluded in 2012. There has been no such fundamental change to the department since which might justify a further review. However, the Government keep the tax system under review and note the sub-committee’s recommendation to update the power review in line with principles about the digital age.

I have tried to address noble Lords’ questions. I will review the record of the debate, which has been of a very high quality with lots of points of insight, and if I have missed anything, I will follow up in the usual way and write to those who spoke in the debate. I beg to move.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Bates Excerpts

3rd reading (Hansard): House of Lords
Wednesday 6th February 2019 Lords Chamber

Moved by

[Lord Bates]

That the Bill do now pass.

[Lord Sharkey (LD)]

My Lords, very briefly, I should like to ask the Minister a question to do with the in-flight EU prospectus regulation, which has passed all its legislative stages but has not yet been gazetted, as I understand it, and so cannot be treated as settled legislation and is therefore treated in the Bill under the amendment provisions in Clause 1(2)(b). If the legislation is gazetted while the Bill is in the Commons, do the Government intend to move it into the category of settled legislation, governed by Clause 1(2)(a)? What happens if the legislation is gazetted after the Bill has left the Commons but before 29 March? How will the Government make sure that the power to make adjustments is not applied to the now settled piece of legislation?

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

My Lords, that is a good question. We had hoped that it would be gazetted before then, in which case we could then have made the amendment that we talked about. I was grateful for the noble Lord’s suggestion on that. I cannot say that we have had an explicit conversation about this aspect, but it is going to arrive. Providing that it passes your Lordships’ House, it will be heard in the Commons I think on Monday next week. The same principle would apply—that if it is gazetted we will put it in there. That was certainly the spirit of what we agreed. I will make absolutely sure that the Economic Secretary and the Financial Secretary, who are dealing with this in the other place, are apprised of the commitment that I gave and which we will seek to honour.

[Lord Davies of Oldham (Lab)]

My Lords, I am grateful for that answer, which shows that the Government are on top of the issue—against a background where we must all recognise that time is somewhat short with regard to this legislation. The SI relates to a service industry that is a crucial part of our economy. We could not afford any situation in which a gap occurred; I am sure that the Minister is seized of that fact.

We are all aware of the fact that there are not many days left to the point where we are due to leave the European Community, yet there is still a very large number of SIs to be considered. Slips such as this, which are minor, can be remedied reasonably quickly by appropriate action, as the Minister indicated. But slips such as this could be costly if we are right up against the wire with regard to the legislation we are seeking to pass. We must all be conscious of the fact that the Government’s programme between now and the end of March is pretty demanding, to put it mildly. So, although I accept entirely what the Minister said and am reassured by the promptness of the Government’s response, this is an indication that there is many a slip between cup and lip, and the Government do not have much time for a monumental programme.

--- Later in debate ---

[Baroness Kingsmill (Lab)]

My Lords, before the Minister responds, will he give me some assurances about how these regulations and this legislation, when it becomes legislation, are going to have any particular impact on online financial institutions? I think that they are the ones where the future is going to lie. I declare an interest as a former chairman of Monzo, an online bank. It is important that the Minister gives some reassurance about the particular impact that this could have on a completely different form of financial institution.

[Lord Bates]

I thank the noble Lord, Lord Davies, for his comments. As he has set out, the schedule that we are up against here is pretty demanding. All of us on the Front Benches are in solidarity in recognising the demands of the work going on. It is also demanding on some of the committees of your Lordships’ House, which are having to do an incredible amount of work. I am thinking of the Secondary Legislation Scrutiny Committee and its sub-committees, under my noble friend Lord Trefgarne and the noble Lord, Lord Cunningham of Felling, which is doing a tremendous amount of work.

The noble Lord, Lord Adonis, asked about the progress being made. We have agreed that we will provide regular updates. We have approximately 60 pieces of secondary legislation that need to come through. Around 45 are subject to the affirmative procedure and, of those, 22 or 23 have made their journey through the House, with some benefiting from the scrutiny of the noble Lord himself. That is basically where we are: about half way. We have some 31 sitting days before Brexit, so it is a pressurised and demanding situation.

I turn to the point made by the noble Lord, Lord Foulkes, about the Delegated Powers and Regulatory Reform Committee. I thank that committee in particular because it has done an excellent piece of work. In fact, we almost took the committee’s script to express concerns about the extent of the Henry VIII powers, some of the wording and some of the files that were in flight and which we have just been talking about. I am pretty sure we have addressed all those concerns. If that is not the case, I will write, but from recollection we wanted to address all the points.

The noble Baroness raised the online community. Of course a number of pieces of legislation relate to online financial regulation. I cannot be specific about which ones are relevant but it is a crucial point. We have had many long discussions in Grand Committee in the Moses Room about statutory instruments that have a strong online financial services element to them and make a significant contribution to the success of UK financial services. We want that to continue once we leave the European Union.

[Lord Tunnicliffe (Lab)]

My Lords, perhaps I may say a word or two to put this discussion into perspective. This side hates the idea of a no-deal exit and so on, but the Bill is an outstanding example of co-operation by the Government. The Bill has changed massively from the one introduced at Second Reading. The Government facilitated discussions with the Minister and officials. It is now a much better Bill and, given its task, which we abhor, it is nevertheless a good Bill.

--- Later in debate ---

[Lord Foulkes of Cumnock]

I will ask a supplementary question to follow up the excellent contribution of my noble friend Lord Tunnicliffe about perspective and co-operation. The Bill, with the excellent co-operation of the opposition parties, has taken a number of weeks to get through this House, as the Minister knows. We are now dealing with the Trade Bill, the Healthcare (International Arrangements) Bill, the Agriculture Bill, the Fisheries Bill, the immigration Bill and the withdrawal Bill. Could the Minister, for whom I have great respect because he has a lot of experience here and in the other place—perhaps he has more wisdom than the previous people of whom I have asked this question—give me some indication of how these Bills, of which there are at least six, can be dealt with between now and 29 March?

[Lord Bates]

The noble Lord knows, having stood where I stand, that the Motion before the House is that this Bill do now pass. To be frank, most of us on the Front Bench are taking it one Bill and one SI at a time, so I will sidestep that question. I am sure my noble friend Lord Young, who has provided excellent assistance throughout on this, and is a member of the Government Whips’ Office, will have heard the remarks. I also thank the noble Baroness, Lady Bowles—

[Lord Foulkes of Cumnock]

That is really helpful. Is the Minister now saying that the noble Lord, Lord Young, for whom I have equally great respect, will answer that question?

[Lord Bates]

If my noble friend Lord Young were so inclined, he would probably want to give me a kick from the side and suggest that I keep moving on.

I turn to the point made by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, because it was a good one: there is a great deal of expertise in this House, which could be brought to bear. We even had some free legal advice from the noble and learned Lord, Lord Judge, to help us on our way. When we work constructively and recognise that the Government have a right to make progress with legislation, we can do some good work. Certainly, we can ensure that this legislation leaves your Lordships’ House much more fit for purpose and in better shape as it moves to the other place. That will, we hope, assist in expediting it through its procedures. I beg to move that the Bill do now pass.

Brexit: Outstanding Commitments

Lord Bates Excerpts

Wednesday 6th February 2019 Lords Chamber

[Lord Robathan]

To ask Her Majesty’s Government what agreement, if any, has been reached with the European Union concerning payment in the event of a no-deal Brexit of £39 billion for the United Kingdom’s estimated outstanding commitments.

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

My Lords, the Government are committed to getting a good deal for the UK, and have agreed a fair financial settlement with the EU. Even if the UK leaves without a deal, the Government have always been clear that the UK has obligations to the EU—and that the EU has obligations to the UK—that will survive its withdrawal, and that these obligations would need to be resolved.

[Lord Robathan (Con)]

My Lords, I am sure everyone in the House will agree that we—be it as individuals or as a nation—should pay our debts. But I suspect that most of us would also agree that we should not pay bills when we have received nothing in exchange. I hear that the European Commission is demanding that, whatever happens—should we leave without a deal—it would expect £39 billion from us. This probably has more to do with the hole it will have in its budget when we leave, rather than anything else. Could my noble friend reassure me that we will definitely renegotiate any financial deal should we—regrettably—leave without a deal on 29 March?

[Lord Bates]

The position on the financial settlement was that it went alongside the withdrawal agreement. It is, if you like, looking at our obligations to the EU as a result of our membership. It is not connected to the future economic partnership that we hope to negotiate with our European friends and partners. Were we not to honour that financial settlement, which is part of the withdrawal agreement, that would probably have a significant bearing on our ability to get a good deal for the UK in the future.

[Baroness Kramer (LD)]

My Lords, I thoroughly agree with everything the Minister just said: if we do not honour an obligation that we signed up to, we will have difficulty negotiating a sensible deal with the EU. Does he also recognise that the way we handle this is being watched around the globe? If we are seen as people who do not meet obligations—trying to find some technical angle or way to weasel out of a commitment that we have made—we will have no chance of getting future trade agreements of any value.

[Lord Bates]

The noble Baroness is right. We need to remember that our net contribution, because of the way it is calculated, is made up not just of what the UK sends to the European Commission but of what the European Commission sends to the UK. Therefore, there are two parties to this; both are making contributions, and both need to honour their obligations. We believe that the financial settlement does just that.

[Lord Hannay of Chiswick (CB)]

My Lords, would the Minister not confirm that the £39 billion was entered into in good faith by the Prime Minister and the Government in December 2017, and simply represents what the two sides—the Commission and the British Government—believe is owing in respect of various commitments over many years? If that is so, the suggestion that we do not owe this money if we leave without a deal has no basis.

[Lord Bates]

In that sense, that is correct. The range of the figure in the financial settlement is between £35 billion and £39 billion. The OBR has put it at the top end of that range. When we went into that negotiation, one thing the European Commission wanted to do was discount the rebate, which is a significant element of our contributions and benefits the UK. That was included in the final calculations, so I believe it represents a good settlement, alongside the withdrawal agreement, and should command support on all sides of the House.

[Lord Davies of Oldham (Lab)]

My Lords, is it not right for us to assume that the majority of British people who voted to leave the European Union did so because they had a different perspective on the future of the United Kingdom—particularly on control over decisions? The idea that the country is full of animosity towards the European Union—when, after all, the initiative to leave was taken by us—is false. Therefore, the people expect us to meet the obligations that we entered into as far as the European Union is concerned.

[Lord Bates]

I am very happy to agree with that sentiment. We want a deep, ongoing relationship with our European friends; part of that means honouring what we signed up to. This was what we signed up to at the Council meeting back in November, and we should support it.

[Lord Hamilton of Epsom (Con)]

My Lords, was not the £39 billion made up of our annual contributions for the two years of the implementation stage? I cannot see how we would owe that if we were to leave with no deal. Did a committee of your Lordships’ House not say that we would not owe the EU anything with no deal?

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[Lord Bates]

That position, which was taken by the House of Lords committee, was looked at by the Government, who took a different view, believing that there were obligations. They observed that there was no existing legal mechanism to enforce them, but they said that the European Union would be entitled to pursue litigation through courts to recover payments. As I say, the best way to resolve all these issues is through a deal, and through the deal that is on the table.

[Lord Harris of Haringey (Lab)]

My Lords, the Minister has been extraordinarily helpful to the House today. Maybe he could just confirm something for someone like me, who sometimes finds it very difficult to follow these arguments. Is he saying to people who say that there is some way in which we can just wave aside this £39 billion commitment, that that is bogus and misleading the British public? Can he also confirm that the British Government believe that when they have international obligations, they should meet them?

[Lord Bates]

I agree with all of that. We certainly agree with my noble friend Lord Hamilton, who made the good point that part of the £35 billion to £39 billion covers the implementation period, which is the two years of ongoing contributions to the European Union. He is also therefore correct to point out that if we left without a deal, there would not be an implementation period, so that money would not be paid. However, there would need to be some mechanism to reach a negotiated settlement, or it would be as a result of a legal challenge in some court.

[Lord West of Spithead (Lab)]

My Lords, how will we deal with things such as the £1 billion we have invested in Galileo, which we will now not be able to use? How will that be resolved—as part of the £39 billion, or separately?

[Lord Bates]

All these figures went into the financial settlement; that is how we arrived at those numbers. As regards our future relationship, that is a matter for the future economic framework, which, once we get the withdrawal agreement through your Lordships’ House and on to the statute book, we can look forward to negotiating with our European friends.

Trade Bill

Lord Bates Excerpts

Committee: 4th sitting (Hansard): House of Lords
Monday 4th February 2019 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, 80% of the UK economy—in fact, I think the figure is 85%—comprises services. I support the noble Lords, Lord Stevenson and Lord Purvis, in bringing forward this probing amendment although, for the reasons given by my noble friend Lord Lansley, I am not convinced that we should change the Bill and make ourselves rule-takers on services. If noble Lords will allow, I would like to keep the issue of the free movement of people separate. The question is: do we lose as much from losing the single market on services? It is not very well developed at all. I know this because I tried to cut down barriers on services within the EU when I led the presidency work in BEIS in 2016.

Last week the Chancellor spoke at the UK Finance dinner, which I attended. I was sorry as a result of that—the timing was unhelpful—to miss the last group of amendments, of which mine formed part. The Chancellor talked about liberalising trade in services—a sort of WTO services round—going forward. Of course, this would also extend to the European Union if it were to happen.

I have two questions about services for my noble friend the Minister, the answers to which will help me when we consider the Bill on Report. First, can he elaborate on the Chancellor’s idea, or emerging Treasury ideas, of doing something on services beyond the European Union, which would help us in the European Union as well? Secondly, can he confirm that the Government’s proposed deal—the withdrawal agreement or the political declaration—would not get in the way of bilateral deals with third countries on services, given that the multilateralism that I love is very hard going? In other words, would we be able to conclude a deal with the US—again, very tough—or, perhaps more realistically, with the emerging and already emerged countries of Asia, where we are now selling a lot of services and where it seems that aligning some of the rules on services could be extremely valuable?

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

My Lords, on behalf of all those who have spoken, I thank the noble Lords, Lord Stevenson and Lord Purvis, for bringing forward Amendment 45, the purpose of which is to provide an opportunity for the Government to put some remarks on the record about our approach to services which, as we all agree, is of crucial importance. So, before coming to some of the specific questions that have been raised during this short debate, I will take advantage of that opportunity to set out the Government’s position as it now stands.

As my noble friends Lady McIntosh and Lady Neville-Rolfe, and indeed the noble Lord, Lord Stevenson, said, the UK’s services economy is a global success story. Our internationally competitive industries play host to world-leading firms as well as thriving small and medium-sized enterprises, and we have undertaken significant engagement with the sector on issues related to EU exit.

I would like to reassure the House that the Government are seeking arrangements for services and investment that cover all modes of service supply—my noble friend Lord Lansley correctly referred to the variations; that provide substantial sectoral coverage, including measures on professional business services, which my noble friend Lady McIntosh referred to; that go well beyond both sides’ WTO commitments as set out in the General Agreement on Trade in Services, which my noble friend Lord Lansley also mentioned; and that build on the provisions in existing EU agreements.

Moreover, through the political declaration we have secured a commitment from the EU 27 that our future trading relationship will be ambitious, comprehensive and balanced, and will include market access commitments to ensure that service suppliers and investors do not face quantitative restrictions such as monopolies, economic needs tests or joint venture requirements, which my noble friend Lord Hamilton expressed concern about; national treatment commitments, to ensure that UK service suppliers and investors are not discriminated against by the EU 27 and vice versa, as my noble friend Lady McIntosh referred to; new arrangements on financial services, grounded in economic partnership, providing greater co-operation and consultation than is possible under existing third country frameworks; appropriate measures on the recognition of qualifications, as referred to by the noble Lord, Lord Purvis, to support UK professionals practising in the EU 27 and vice versa; arrangements that allow for temporary entry and stay in each other’s territories for business purposes, including visa-free travel for short-term visits, as the noble Lord, Lord Liddle, rightly identified from his extensive work examining the internal market as a member of the Select Committee; and mechanisms to promote voluntary regulatory co-operation to guard against the introduction of unnecessary barriers to services, trade and investment, to which my noble friend Lady Neville-Rolfe referred. I pay tribute to the work that she did at BEIS in seeking to remove those barriers.

We have also been clear that after we leave the EU, the UK will have an independent trade policy covering all aspects of goods and services. To deliver that objective, it will be important to retain regulatory freedom where it matters most for the UK’s services-based economy.

I turn to some of the points that have been raised.

[Lord Davies of Stamford]

Before the Minister moves on to detailed points, perhaps this might be a good moment for him to tell the Committee, out of all the countries with which we would like to have our own free trade agreements after we leave the EU—if we leave it—how many have indicated that they wish in principle to negotiate and sign such an agreement with this country; how many have said that they would do so on terms identical to their existing free trade agreement with the EU; and how many have indicated that they would not want to pursue such a negotiation at all?

[Lord Bates]

The noble Lord will remember from day three of Committee last week that one of the questions asked was whether we could provide the Committee with some running status on where we are with all those free trade agreements. That is a perfectly reasonable approach and it is something that my noble friend Lady Fairhead agreed to take back to look at and come back on ahead of Report. Rather than using this opportunity to rehearse that, I will say that it is something that we are looking at. Specifically on the EU and Japan, I was going to come to that topic and say that there is a working group with Japan to seek to replicate its effect as part of the continuity arrangements.

[Lord Liddle]

My Lords, on the point about freedom of movement, I have two specific questions for the Minister. I accept what he has said, but I would like to quote a personal example and declare an interest. For a period, my wife was chief executive of the English National Ballet. It was a requirement for the success of the English National Ballet that ballet dancers from all over the world were able to join, but the ENB had great difficulty with ballet dancers from outside the EU because they do not earn anything like the money that is put down in the Immigration Rules to justify easy entry. Are the Government prepared to be flexible on the earnings requirement to enable cultural organisations, which are very important to the British economy, to easily access talent from the EU, where people’s salaries will not initially be that high?

Secondly, if you are a small business in services and trying to expand by getting jobs, projects and contracts on the continent, one of the obvious business strategies you would pursue is recruiting young people from the countries in which you hope to do business. You take them into your consultancy, or whatever, and that gives you language and personal links into the markets you are trying to target. Again, there is no guarantee that, under the immigration policy outlined by the Home Secretary, young people coming from European countries would be able to get jobs in that kind of situation. We asked for a clear statement of the Government’s trade policy. The Government have to be clear on these issues before we can proceed on the Bill.

[Lord Bates]

I am happy to do that, and perhaps get some notes—I know we have a group coming up on the mobility framework, to which those points will perhaps be pertinent. I will, if I can, address them there. I also draw the noble Lord’s attention to section 9 of the political declaration, paragraphs 50 to 59 inclusive, which sets out the Government’s position on that.

The noble Lord, Lord Stevenson, and my noble friend Lord Hamilton pointed to or asked a very important question on bilateral services-only trade agreements. There is no precedent for a bilateral services-only trade agreement. Where service agreements exist, they are notified to the WTO alongside a wider agreement that also covers goods. We are leaving the customs union so that we can set our own tariffs and have an independent trade policy tailored to the strengths and requirements of our economy, which therefore includes—by implication and explicitly—the importance of services to our economy. The political declaration sets out a plan for a UK-EU free trade area for goods, including no tariffs, with ambitious customs agreements. This will be the first such agreement between an advanced economy and the EU.

The noble Lord, Lord Purvis, referred to the situation in relation to Northern Ireland. Without wanting to revisit that whole area in this group, the situation is that in Northern Ireland, under the common travel area, the rights to work, study and access social security and public services will be preserved on a reciprocal basis for UK and Irish nationals in the other state.

I turn to the questions raised by my noble friend Lady McIntosh and, in particular, the two questions raised by my noble friend Lady Neville-Rolfe. My noble friend referred to the Chancellor’s speech on liberalising services and looking for a more ambitious way forward. I am sure that is at the core of government policy, otherwise the Chancellor would not have said it. I do not have the text in front of me, so I cannot comment on its full meaning, but I will write to my noble friend on that point. My noble friend Lady McIntosh also asked a three-pronged question. For a company setting up in the UK, what would its situation be in the event of no deal on day one; in the event of the implementation period; and at the conclusion of a future economic framework? Some of those outcomes will depend on the extent of the negotiation, which we have set out in the heads of agreement in the political declaration. Between Committee and Report, I will write on my noble friend’s specific point relating to that. Again, I thank the noble Lord for giving us an opportunity to raise this very important issue.

[Baroness Neville-Rolfe]

Can my noble friend clarify the point about services and goods? I asked whether we would be able to continue to do deals on services if we had a tight agreement—a customs union or whatever —with the EU. He was saying that goods and services tend to be linked in trade agreements and are never separate. Would that mean that we could not have services agreements, assuming we got something quite tight on goods? That would obviously be a problem. I know that they are linked—often, the service for your car and the computer in it are as important as the car itself—but I had seen them as distinct in the WTO. If my noble friend could write to me on that, I would be very interested.

[Lord Bates]

I will be glad to do so. In a lot of such agreements, especially for the major manufacturers, the bulk of the value of the trade or the deal is the service package and the support provided thereafter. I will be very happy to write to my noble friend ahead of Report.

[Lord Kerr of Kinlochard (CB)]

In the early part of his speech, the Minister read out an impressive list of points that had been achieved or secured before he moved on to his brilliant ex tempore dealing with the questions raised in debate. I confess that I did not recognise those points. I cannot remember seeing them in the withdrawal agreement. Was he perhaps referring to the relevant part of the political declaration, in which case surely those points have not been secured or achieved and what has been agreed is that all these things may be discussed over the next three, four or five years as the long-term relationship is considered?

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[Lord Bates]

Yes, except that the political declaration was of course part of the withdrawal agreement negotiated with the EU 27, so one hopes that it will form the basis of our future economic partnership.

[Lord Purvis of Tweed]

The noble Lord, Lord Lansley, and I have referred to the WTO. My understanding is that there have been objections to the UK’s submission of services schedules to the WTO and therefore they are unlikely to be certified if we leave at the end of March. We can still trade on them, but they are likely to be uncertified. Can the Minister give a little context about what concessions we might make or what discussions we would have with those countries that have lodged their objections? Clearly, they feel that we will not provide the same kind of market access to UK services as under the existing agreements. We could be starting from a situation that is much worse than simply carrying on with where we are at the moment at the WTO. If the Minister cannot respond at the moment, perhaps he could write.

[Lord Bates]

I am very happy to give further detail on that in the general update between Committee and Report, but, as the noble Lord knows, the schedules were tabled in December followed by a 90-day consultation period. There can be a variety of perspectives on them before they are finally adopted. I will get an update as to where we are on that before Report.

[Baroness McIntosh of Pickering]

To clarify, my concern is about British companies establishing their services in what will be a third country, another EU country. I would be happy for my noble friend to write to me.

[Lord Bates]

I am grateful for that clarification. I shall make sure that that is what is addressed.

[Lord Stevenson of Balmacara]

My Lords, it sounds as if we are starting off a new train of activity or various letters. I suspect that it might also be helpful if we had a short meeting on some of the issues just to draw them together. Like the noble Lord, Lord Kerr, I was entranced by the detailed nature of the early part of the Minister’s response and I got a bit lost—I think it was on the fourth point the second time round. We will need to read him and understand not only what he was saying but where these points are to be found in more detail. The chance to be able to do that in the context of the very rich debate we have had would be helpful.

That is not to say that I think there is that much between us: with friends like the noble Lord, Lord Hamilton, how can I complain? We are on the same side here, most unusually and extraordinarily, agreeing on points of some substance. There is some progress, it has not always been easy going and I think the noble Lord, Lord Lansley, was right to point out that this is partly because we are centring on an agreement which is brokered by the WTO through the GATS system. He is correct—his background in the chambers of commerce means that he reads these documents carefully and understands their provenance—that the wording of the amendment is indeed taken from the four pillars, but I was unable to get the fourth pillar in; the clerks would not accept that. The noble Lord, Lord Fox, managed to get it into the next amendment but one, so we will have that debate shortly. That complication sets us off in slightly the wrong direction: we are not trying to change that structure in essence, because that is the overarching world system and we have to be careful we do not try to take on too many battles at the same time.

The political declaration is not the same as the agreement and of course all that gets wrapped up into some form of yet-to-be-understood free trade agreement which may or may not include both customs elements and services agreements. I think the noble Baroness is right to pick up the question of how all that melds together: will we be able to trade off some aspects of our services in order to achieve a better tariff arrangement, or is it better to keep them separate and deal with the different arrangements? I do not think we have a clear answer to that, but I do not think we are very far apart on it. We want this to be the best for Britain. We have done pretty well, against all the odds. Why change it if it is not certain that the changes are going to be beneficial to us?

Having said that, the question from my noble friend Lord Davies is right: what is the point of this amendment if it does not improve where we are? That is where the test has to be. We must look carefully at the responses and make sure we have the right view. There may be some argument for having something, either in this Bill or in the non-continuity Bill yet to come, if that is the Government’s intention. However, at this stage we are unable to say that, so with that in mind, but with thanks to all who have contributed to a very rich debate, I beg leave to withdraw the amendment.

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[Lord Bates]

My Lords, I thank my noble friend Lord Lansley for moving this amendment. He has managed to get on to prime time in this territory. I once represented a seat on Teesside, which is very close to my heart. The idea has been advocated by the excellent mayor there, Ben Houchen, and by some of the local MPs, such as Simon Clarke and Rishi Sunak.

To reassure my noble friend, the Customs and Excise Management Act 1979—CEMA—allows for the designation of free zones, as he mentioned. The Taxation (Cross-border Trade) Act, which the Government passed through your Lordships’ House last September, allows HMRC to make regulations regarding goods kept in a free zone. Under CEMA, operators are free to apply to become a free zone. The Government are open to any ideas that might deliver economic advantages for the UK and will continue to examine the role that free zones may play as part of this. Assuming that we will have an independent trade policy, we will be able to have these types of examinations and innovations.

Existing customs facilitations in the UK offer the same benefits as free zones, but are not geographically limited and can be accessed anywhere across the country, thereby potentially having more widespread benefits for the UK as a whole. For example, a manufacturer could import materials for its products and store them in a customs warehouse anywhere else in the country, without duties being paid on them. The manufacturer or its supply chain could then use those materials in its manufacturing process under inward processing relief and could export the finished goods without any UK customs duty ever having to be paid. Those existing facilitations, therefore, avoid the distortions to which the noble Lord, Lord Davies, referred, which can arise from free zones where a manufacturer or its supply chain would be required to locate on the same site to benefit.

The UK’s ability to formulate a free zone that diverges from the Union customs code will depend on the future relationship with the European Union. The Government have also been clear that it is a commercial decision for operators to make on whether they want to apply for designation of an area as a free zone, and we will review any applications made. I am not able to be more helpful than that to my noble friend at this point, much as I may wish to be.

[Lord Lansley]

Since there is no recent substantial experience of free zones, does my noble friend not think it would be helpful—if we arrive at the point where we exit the Union customs code—for the Government at least to initiate a consultation to look at the criteria that would be applied in examining the designation of free-zone status?

[Lord Bates]

My noble friend will be aware that “consultation” has a specific meaning now in legal terms, which is quite an onerous responsibility of the process. We could seek ways to discuss—perhaps with BEIS as part of the industrial strategy—or to engage with others who are interested. He mentioned Humberside, Teesside and others, and I think we could look at ways in which that could be done. I am very happy to take that thought back to the Treasury and write to him further on that.

[Lord Lansley]

Once again, I am grateful to my noble friend and that is a very welcome comment. I look forward to further discussion about that but, on that basis, I beg leave to withdraw the amendment.

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[Lord Stevenson of Balmacara]

My Lords, a powerful case has been made by the party to my left. My sadness is that the framing of the amendment before us deals largely with how any future trade agreement with the EU should have a relaxed approach to the mobility framework and, picking up the point of our earlier debate, tries to insert in some measure the fourth pillar of the GATS process, which allows for individuals to travel in support of goods and services.

The case we heard, and the emotion it raises, are about the much broader ideas of freedom of movement and the ability to transfer skills, particularly in the creative industries. Although it was not specifically mentioned, presumably it seeks to try to loosen the way in which the Government currently treat overseas students. There is a wider, richer, deeper and more important argument about the need for mobility, its importance for any modern nation state and the contribution it can make to our economy and our culture. That needs to be answered, but it is not picked up particularly by this amendment.

We too discovered this problem when tabling amendments. The title of the Bill means that we can not have as broad a discussion as we would wish. However, there is an immigration Bill coming, and others in your Lordships’ House will want to pick up many of the points made here and raise them in the context of a much wider and more appropriate set of immigration conditions and arrangements, which will satisfy much of the discussions we have heard this afternoon.

On the narrow question of where we move, it would be wrong to try to seek a broader solution to the problems identified through a generic approach. There is no doubt that what appeared to be—and it was appearance rather than reality—unbridled immigration was a factor in the referendum that led to the formation of the Brexit arrangements. We would be stupid to ignore that. There are probably answers and solutions that would be satisfactory to all concerned, but not in this amendment. Nevertheless, I will listen carefully to what the Minister says in response to this point. This issue will not go away and we look forward to returning to it at a future stage.

[Lord Bates]

I am grateful to the noble Lord, Lord Fox, for introducing this amendment, which deals with an important area already touched on this afternoon. It will of course be pored over in some detail as the immigration Bill makes its way to your Lordships’ House.

There is no dodging the key line in the political declaration. At paragraph 56, I think, it makes it clear that free movement will end as the UK leaves the EU. The noble Lord is passionate in his advocacy of free movement, and he has expressed his view that it is a stupid idea—I think I quote him correctly—to get rid of it. But, as the noble Lord, Lord Stevenson, identified, this issue is more complex. To use his term, unbridled immigration was an issue, and we would be stupid to ignore that. Therefore, there is a difference of views here but, as the noble Lord invites me to set out the Government’s position, I will put it on the record if I can.

I appreciate the desire to ensure that businesses and individuals who trade in services and goods between the UK and the EU will have the ability to move across borders to do so. The Government are committed to securing the best deal for UK businesses. We have set out a clear proposal for an ambitious future relationship with the European Union, including a reciprocal framework for mobility. This was reflected in the political declaration on our future relationship. The detail will be discussed in the next phase of our negotiations.

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[The Earl of Clancarty (CB)]

My Lords, earlier the Minister mentioned crossing borders. Would that include onward movement, which is a particular concern of not only individuals and self-employed people in this country but British people living in Europe? Time and again, I have heard that that is a particular concern.

[Lord Bates]

I may not be able to get a categorical answer on that, but I am happy to undertake to write to the noble Earl ahead of Report to clarify that point.

[Lord Purvis of Tweed]

The Minister said that perhaps this amendment would be better placed elsewhere, but I wondered why, in the sequence of events, the UK did not agree a temporary arrangement with Switzerland on continuity, for example, in the case that I raised earlier in Committee. Instead, the Government have agreed a permanent relationship arrangement with the Swiss for free movement of people for three months a year if they are providing services. Clearly, the Government thought it was not sufficient to wait until we debated the Immigration Bill, when we could have considered that aspect of our relationship with Switzerland and others. But the Government have made a decision. So as my noble friend Lord Fox indicated, it is right that we press the Government much more. Why did the Government make a case for giving Swiss nationals a permanent right of visa-free travel and work for three months a year, but are taking a distinct approach to other countries, including our EU partners?

[Lord Bates]

Obviously, those are discussions that will have to be concluded in the future framework. On the specific point about Switzerland, however, the noble Lord suggested that the services elements were additional to the Government’s policy on immigration as set out in the Immigration Bill. That is not correct; it is not inconsistent with the provisions in that Bill.

On the point made by the noble Earl, Lord Clancarty, on onward movement for EU nationals, the UK pushed strongly for the inclusion of onward movement rights during the first phase of negotiations on citizens’ rights in the withdrawal agreement but the EU was not ready to include them at that time. I made that point about reciprocity earlier. We recognise that onward movement opportunities are an important issue for UK nationals in the EU and we remain committed to raising this during detailed discussions on our future relationship. That is the latest position we have at the present.

[Lord Stoddart of Swindon (Ind Lab)]

There has been a lot of concern in the past that the position of the Commonwealth, relative to that of the EU, has been bad—that EU citizens and EU goods can come to this country without let or hindrance, whereas people and goods from the Commonwealth are unable to do so and have to take their place with the rest of the world. As I understand it, following our departure from the EU, our Commonwealth will be in the same position as people from the EU, and indeed the rest of the world. Can we be assured that the Government’s future policy in relation to the Commonwealth will ensure that it will have equal access?

[Lord Bates]

I listened very carefully to the final words that the noble Lord used when he talked about “equal access”, and I draw back from that a little. But on the broad principle, when we talk about the scheme of preferences and economic partnership agreements that we have with Commonwealth countries, if we have an independent trade policy, of course we will be able to take that into account. We would be free to do that. Similarly, if we are not part of free movement within the EU and have our independent immigration policy, we are in a position to set out the terms on which we want to admit people to work in this country. I hope that is helpful to the noble Lord.

[Lord Fox]

My Lords, I thank noble Lords for the minimal debate that we have had around this. I will look closely at Hansard, but I did not hear the Minister refer to the £30,000 threshold issue and the false dichotomy between skilled and unskilled. Between now and Report, I would like the Minister to come back to that, and I apologise if he did indeed raise it.

[Lord Bates]

Before the noble Lord sits down—I have always wanted to say that—I did have some notes on that. Perhaps I could intrude on the noble Lord’s wind-up to say that the Government are committed to ensuring that the future immigration system works in the international interests of all the UK. The Migration Advisory Committee advised that the £30,000 salary threshold should still apply. The Home Office is undertaking an extensive programme of engagement on its White Paper proposals and will discuss with business and a variety of other sectors, including the creative industries, what a suitable threshold should be. If a skilled job is considered to be in shortage in the UK, a lower threshold is likely apply. I hope that helps the Committee and the noble Lord.

[Lord Fox]

It helps somewhat, and I urge the Government to consult extensively with the care and food service sectors. Hygiene skills, for example, benefit the food sector a lot. I am sure most employees there earn less than the scheduled threshold. There is also the issue of freelancers and self-employed people. I will not get the Minister up again but I will be looking for a response on that. I also did not hear from Her Majesty’s loyal Opposition anything other than what I would call a very weak response. It was, frankly, disappointing. With that proviso, I beg leave to withdraw.

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[Lord Stevenson of Balmacara]

I hesitate to become too involved in this debate, which seems rather above the level at which I am accustomed to operating, but one or two things came to mind. As the noble Lord, Lord Lea, explained to me and as came through in his address, the purpose of the amendment is to make sure that we explore all possible options before coming to a conclusion on the many difficult issues before us today. He has done that clearly and it will be interesting to hear what the Minister has to say in response.

It would probably defeat any prospect for active negotiation to play the card that has been played in this amendment at this point, but it is worth bearing in mind the issues that it raises and the much broader point that the noble Lord, Lord Finkelstein, was keen to explore: so many strands to our positioning are being coalesced into a single deal/no deal debate, squeezing out our opportunities for further, richer and more flexible solutions to the long-term problems that we have all recognised and debated today. At this point, it would be best to hear from the Minister what the official line is and then see whether there are issues that we need to come back to on Report.

[Lord Bates]

I thank the noble Lord, Lord Lea, for setting out the rationale for his amendment. He was sincere in his attempt to persuade us and very thorough, as I would expect of a distinguished economist, in setting out in some detail his thoughts on where this option might go. Whether it is plan B, C, D or E, the reality is that it is a proposal that the Government take seriously and I want to respond to it in that manner.

As my noble friends Lord Finkelstein and Lord Trenchard have mentioned, the very topic of EEA membership was debated in another place in relation to the EU withdrawal Act on 13 June last year and again in relation to this Bill on 17 July. The outcome was clear: the EEA is not the right model for the UK.

Membership of EFTA and the EEA would mean accepting the continued free movement of people, which both Conservative and Labour manifestos pledged to end at the last election—which I suspect is why the noble Lord, Lord Stevenson, suggested that this might be a debate that the Labour Front Bench wished to sidestep; of course, on the Government Bench we do not have that luxury.

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[Lord Kerr of Kinlochard]

My Lords, I support Amendment 77 for the reason that the noble Lord, Lord Lansley, has just given, and I strongly support Amendment 80, for the reason that my noble friend Lord Hannay gave.

Amendment 78, however, is very strange. I support it, but we are in Alice in Wonderland territory here. It is an entirely academic interest, because it seems to me implausible that Mr Barclay and Mr Paterson, and their high-powered alternative arrangements group, would come back to this alternative arrangement—the Chequers proposal—given that they ambushed the Government to take it out by their amendment to the taxation Bill.

It was always rather a fanciful idea anyway. In its brief life, it had several forms. First, it was proposed as a reciprocal arrangement. The foreigners would have to clog up Rotterdam, Antwerp, Hamburg and Bremen collecting our tariffs and operating our quotas, segregating our goods from goods going to the EU, which would be charged EU tariffs and subject to EU quotas. Once segregated, in some magic way, our goods would then proceed to the United Kingdom, having paid UK tariffs at their first European port of entry. That was never going to happen.

The second form, once noises from Brussels had been heard, was that we would do it for EU goods but the EU would not be required to do it for our imports at its ports. It was that, I think, which provoked the ire of the ERG: why should we collect foreign tax? But there was no possibility of the EU at any stage agreeing that we should collect its tariffs at our ports.

There are several degrees of lunacy here, and we have this very strange prohibition on the statute book. I think that the statute book should not contain nonsenses, and so I support the amendment. However, it does not matter. The EU would never agree this proposal in any of its incarnations. Mr Paterson, Mr Barclay and these other trade experts are not going to come up with it as an idea in the alternative arrangements committee, because they were dead against it. Therefore, although I support the amendment, I do not think one need spend a lot of time on it.

[Lord Bates]

My Lords, I rise more in hope than expectation of being able to persuade your Lordships. I pick up the sense from the Committee that this is probably something that your Lordships will want to return to in more depth on Report. Perhaps the best service I can offer at this stage is to put on record the Government’s position, respond to some of the precise points and then await further developments as they may unfold between now and Report.

Amendments 77, 78, 79 and 80 relate to changes passed in the other place during the passage of the Taxation (Cross-border Trade) Act 2018. This Act is important legislation as the UK leaves the EU. It enables the Government to create a stand-alone customs regime by ensuring that the UK can charge customs duty on goods, set and vary the rates of custom duty, and suspend or relieve duty in certain circumstances.

I turn now to the substance of the original amendments to the Act, which these amendments seek to remove. Amendment 77 relates to Section 31(5), which requires further parliamentary scrutiny in the event that the power under Section 31(4) is used to implement a customs union with the EU. The Government support the principle of further parliamentary scrutiny in this case. My noble friend Lord Lansley suggested that this was perhaps reflective of the politics of the movement. As a distinguished former Leader of the House in another place, he will be very familiar with how that side of things works. However, as this House is aware, the Government have made it clear that they are not seeking to be in a customs union with the EU as part of our future economic partnership—I say that without wishing to reopen the many debates we have had on “a” and “the”.

It is important to reflect why the Government have taken this view and to consider what leaving the EU means. It means the ability to strike out on our own to forge new trade deals. In order to do this, one important element is to have the ability to set our own tariffs. Being in a customs union would deny the UK this ability and fundamentally undermine our capacity to negotiate new trade deals with old friends and new partners.

The noble Lord kindly outlined, as he saw it, the way in which Amendment 78 arrived, referencing first the Bill and then the amendment. The Government have been clear in their White Paper that the arrangement they are seeking will ensure that both the UK and the EU get their fair share of the revenues from the rest of world trade. Section 54 of the Taxation (Cross-border Trade) Act is in line with the proposals that the Government set out with a view to achieving just that.

Turning to Amendment 79, Section 55 of the Taxation (Cross-border Trade) Act 2018 requires a single UK customs territory. This is a statement of government policy and ensures that the Government will not act incompatibly with the commitments made in the joint report of December 2017, where they committed to protect the constitutional integrity of the UK.

[Lord Purvis of Tweed]

I apologise for interrupting the Minister. I want to add perhaps another degree of lunacy to the several mentioned by the noble Lord, Lord Kerr. New Section 31 of the taxation Act, which Amendment 77 seeks to rectify, contains the following phrase:

“In the case of a customs union between the United Kingdom and the European Union”.


The Government said that that would not apply because the customs territory they are seeking to have will not be a customs union. So even if just to make the legislation neater, it should be taken out.

On defining the scope of the single customs territory, which we are seeking to do, the Government’s Legal Position on the Withdrawal Agreement, command paper 9747, says it is that,

“under which the UK aligns itself with the Union’s external tariff and there can be no tariffs or quantitative restrictions on imports and exports between the UK and the EU. The single customs territory therefore constitutes a customs union for the purposes of GATT19, but it is not the EU’s customs union as defined in Article 28 TFEU”.

It can either be one thing or the other, but the Government’s own document on the legal position says that the customs territory will be a customs union.

[Lord Bates]

I will make some progress, but I will come back to that point—when inspiration arrives.

No UK Government, regardless of their political leanings, could ever accept such a carving up of the United Kingdom—I am referring here of course to the division between Northern Ireland and the Republic of Ireland. Indeed, on 15 October, in another place, the Prime Minister said:

“We have been clear that we cannot agree to anything that threatens the integrity of our United Kingdom, and I am sure that the whole House shares the Government’s view on this. Indeed, the House of Commons set out its view when agreeing unanimously to section 55 in … the Taxation (Cross-border Trade) Act 2018 on a single United Kingdom customs territory, which states: ‘It shall be unlawful for Her Majesty’s Government to enter into arrangements under which Northern Ireland forms part of a separate customs territory to Great Britain.’ So the message is clear not just from this Government but from the whole House”.—[Official Report, Commons, 15/10/18; col. 410.]


Turning to Amendment 80—before I come to some of the points raised during the debate—the Government’s position is that they will not seek to be in a customs union with the EU. We have debated this issue in this House and in the other place throughout the passage of this Bill—leaving aside the very clear response that is on its way to the noble Lord; he should be prepared for that. As has already been highlighted to the House, at Report stage in the Commons, MPs rejected an amendment seeking to keep the UK in a customs union with the EU.

On the specific points relating to import VAT, it is clear that the Government are highly cognisant of the concerns raised. I will deal with that point now because the noble Lord asked some very good questions on VAT treatment, and it is good to have an opportunity to put the position on the record. Goods from third countries are treated as imports, with VAT due accounted for on import or by the 15th of the following month as duty of customs. This means that, unlike acquisitions, there is a cash-flow impact because traders have to pay the import VAT and potentially recover it later when they submit their VAT returns. It also means that there needs to be an option to pay import VAT on the border, as not all businesses have the necessary guarantee to defer payment until the following month. Generally, import VAT is paid sooner on goods from non-EU countries than on goods from EU countries. This provides a cash-flow benefit to companies importing goods from the EU compared to businesses that import from non-EU countries. Without an UK-EU agreement to retain this treatment, goods entering the UK from the EU would be treated as imports and would be subject to the same rules as businesses moving goods from non-EU countries. This would mean businesses paying VAT on imports from the EU sooner, affecting their cash flow. The Government published a series of technical notices in August 2018 to help businesses prepare for the unlikely event of a no-deal scenario. The VAT technical notice, “VAT for businesses if there’s no Brexit deal”, announced that the Government will introduce postponed accounting for import VAT on goods brought into the UK.

The noble Lord, Lord Stevenson, asked why we accepted Section 54—originally New Clause 36—of the Taxation (Cross-border Trade) Act 2018. The Government did so because it was consistent with our position. It requires the Government to negotiate a reciprocal arrangement for the collection and remittance of VAT, customs and excise duties. The Government have been clear that both the UK and EU should agree a mechanism for the remittance of relevant revenue. The Government set out in their July White Paper that they propose a revenue formula that takes into account goods destined for the UK entering via the EU and goods destined for the EU entering via the UK.

The noble Lord, Lord Purvis, asked whether the customs territory is a customs union under GATT, and he deserves a full answer to his detailed question, so I commit to writing to him. That should be very clear to the noble Lord and all Members of the House—well worth waiting for.

[Lord Berkeley of Knighton (CB)]

I ask this question as someone who is not a politician and who therefore sometimes gets quite confused about the repetition of entrenched views, which have led us to the undoubted stalemate that we are in. This really concerns the point made by the noble Lord, Lord Lansley. I heard the Minister’s response, but it seems to me that everything I hear about Brexit suggests that the Northern Ireland backstop is a real sticking point. Is it not conceivable that, to get around that problem, the Government might have to consider some form of customs union?

[Lord Bates]

It is a challenge when someone with the noble Lord’s intellect begins a sentence by apologising for not being a politician and then asks for clarity at the present time. We are discussing this legislation, but we all know that we are in one of the most fast-moving, dynamic episodes of negotiation that this country has ever entered into. We are gradually working our way through. The White Paper was published at a moment when we were seeking to flesh out exactly what the Government’s position was in response to the Commission saying, “We don’t know what the UK’s position is; we don’t know what they want”. Therefore, the White Paper was introduced at that point. Then there was the clamour for clarity for business—what it would do in the event of no deal—so the technical notices were issued. Then, we got to the position where we reached an outline agreement with the European Commission in December, against many people’s expectations, along with heads of terms for what a future economic partnership might be. That was then presented to the other place and roundly rejected. Therefore, we have now begun another process, so I readily accept that if one wants to score points by stopping the clock at various stages along the process and pointing to certain inconsistencies in it, the Government are pretty easy fare for that.

[Lord Kerr of Kinlochard]

The Minister is making a very gallant effort and I applaud it. I enjoyed many of the things he said, particularly when he referred to a no-Brexit deal. I thought that was a very encouraging concept. I really cannot let him get away with where he is now, in this fast-moving situation he describes. Put yourself in the place of the EU 27: what are they supposed to think when the Prime Minister scuttles her own fleet? She orders her party to vote down the backstop in the treaty. The backstop is 21 articles, 10 annexes and 172 pages. The Prime Minister’s officials have negotiated that line by line, month by month and it is there because we asked for it. Then she decides that the best thing to do with it is to replace it with alternative arrangements, which are now being devised by Mr Owen Paterson and Mr Stephen Barclay. The Minister tells us that this is a fast-moving situation and it is quite hard to keep up with it, but there is nothing happening in Brussels but sheer astonishment at the failure of our system.

[Lord Bates]

That is the noble Lord’s position on this: the reality is that the Prime Minister is seeking an agreement that can command a majority in the other place and that requires compromise. That is what the agreement represents. The House made its view on the withdrawal agreement clear; she is now seeing whether that can be addressed with the Commission. Personally, I wish her well and every possible success, as opposed to my own mis-speaking. Lest it be on the record, I am sure that Sigmund Freud would have observed that perhaps I had momentarily let slip an inner feeling, which, of course, has nothing to do with the position of Her Majesty’s Government, which I consistently seek to put forward from this Dispatch Box and proudly support.

The noble Lord, Lord Purvis, asked about support for government amendments that preclude the facilitated customs arrangements. We would argue that there is nothing about the amendments made to the Taxation (Cross-border Trade) Act in the other place that is inconsistent with the draft political declaration that will inform the future relationship. On the point made by the noble Lords, Lord Hannay and Lord Stevenson, about insufficient focus on VAT implications, the Government have been clear that we are aware of the potential impact on businesses of any move away from the concept of acquisition VAT, but we have also set out that in any scenario we are seeking to avoid any adverse effects. Amendment 80 does not affect that in our view.

[Lord Fox]

On that last point, we keep talking about 29 March, but of course sales are already being made and shipping has already been arranged that may well arrive in this country or continental Europe after 29 March. The business decisions to invest, to make things and try to sell them have already been made, so minimising the impact is not possible. The impact has already started.

[Lord Bates]

Yes, there is a reason why we have brought back the agreement—to resolve the situation.

As for whether the amendments have been considered in the other place, the other place voted for two of the original amendments and had the opportunity to vote on another two but decided not to do so, so the other place made its view clear on that point.

[Lord Hannay of Chiswick]

On this point about VAT, I hope the Minister will forgive me for saying that he and I are probably slightly out of our depth on the detail of how this will work. From what he just said and from the guidance that he read out at some stage, it sounds as though the Government and HMRC understand that potential friction will come into our trade with the EU if we do not ensure that something like the present arrangements continue. Back in the 1980s, when I was involved in the matter, we avoided a perfectly appalling idea by Lord Cockfield of having a clearing house in Brussels into which everyone would pay all this VAT. We have a frictionless system and it sounds as though the Government understand that that should be preserved. But I rather doubt that that is consistent with the Taxation (Cross-border Trade) Act, because of the amendment on VAT that was put in by the ERG.

The best thing that we could ask of the Minister this evening is to go back and consider very carefully whether the Government should either accept Amendment 80 or give some fairly lengthy explanation of what they will do and how that is—if it is—consistent with the Act now on the statute book. That would be best. Then, when we return to this on Report, we will all have probably learned quite a lot.

[Lord Bates]

I am very happy to give an undertaking to the noble Lord that I will reflect with colleagues, particularly my noble friend Lady Fairhead, on the comments made on these amendments, notwithstanding the points that I have put on the record about the Government’s position. We can return to these on Report and I will seek to give some further information in the gap in between Committee and Report. I hope, in the meantime, that the noble Lord will feel able to withdraw his amendment.

[Lord Stevenson of Balmacara]

That was an interesting and enlivening evening. I have come up with a brilliant title for my forthcoming novel—Seven Degrees of Lunacy, or could it be eight? That might be easier, although I doubt it. I have speculated at length about whether we are in Alice in Wonderland, as was suggested, but my favourite suggestion is that we are in Gormenghast, because we seem to be trapped in structures not of our own making, with a design that is not of our wish and with an outcome that is very uncertain and probably leads to madness. But enough of that.

One unifying thought was summed up neatly by the Minister in his last remarks when he said that we needed to think a little harder about what the problem is. Everyone who has spoken, other than the Minister, took the view that these issues had a common theme—the reasons may be different but the theme is that they all have the potential to derail us later down the track. The Government should think about that issue rather than the particularities of these issues. If it is going to be problematic to get an agreement in both Houses on a Motion for an extension of a customs union, because of the argument made by the noble Lord, Lord Lansley, about the inherent asymmetry of one set of rules for the US and another for the EU, that may not be helpful. I do not think we are saying any more than that. There is an opportunity here to do something to ease the roadblocks that we can see down the track, whichever track we go down.

Amendment 78 was part of the Chequers arrangements but is now otiose and it is not beyond the wit of others to point out that it still exists in statute and might cause difficulty further down the line. Amendment 79, as my noble friend Lord Hain said, bears directly on the backstop. Is it really sensible to have this power hanging over us in another piece of legislation as we get to the later stages of that, if that is what is going to happen? On VAT, it is not really about the agreement that might be coming but a broader issue about VAT in general, because there might be a better way of collecting VAT that originates outside the UK. It is complicated and a short meeting might be a way to find the common ground that we want to take forward. I am grateful to the noble Lord for wading through that and having the doubtful honour of assigning his name to it in Hansard. It is useful to have it there and we will study it carefully.

I think there is time to have another look at this. Even if we disagree on some of the issues, it cannot be right for Parliament to pass legislation that it knows is not going to be of any use. I think that was the point the noble Lord, Lord Berkeley, was making. If this is where we are, why do we just not do it? We could do it differently and see if we can use the time to clear it up properly. That is the way I would like to see it go forward but it is not in my hands. I beg leave to withdraw the amendment.

Trade Bill

Lord Bates Excerpts

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 30th January 2019 Lords Chamber

[Lord Marks of Henley-on-Thames (LD)]

My Lords, Amendment 37 in my name and that of the noble Lord, Lord McNicol of West Kilbride, would make it the objective of an appropriate authority to secure a bilateral system of civil judicial co-operation between the UK and the European Union, to include arrangements for the choice of jurisdiction, the choice of law and the bilateral enforcement and recognition of judgments.

The amendment is relevant to the Bill in at least three ways: first, to new free trade agreements with third countries that currently enjoy FTAs with the EU, and therefore with us through the EU; secondly, to bilateral FTAs with third countries that might enter such agreements with us in the expectation of further trade through the UK with the EU member states; and, thirdly, in the event of no deal, when, as the noble Lord, Lord Hannay, pointed out earlier, the Bill—which will then be an Act—after exit day will be the only legislation bearing upon the arrangement of future FTAs.

In moving the amendment, we have every reason to believe that we are pushing at an open door. In debate after debate since the 2016 referendum, mine has been just one of many voices arguing that if we leave the EU we must maintain the whole gamut of the arrangements for cross-border judicial co-operation that we presently enjoy as a member of the EU. Every time, the Government have responded that they recognise and will maintain the benefits of these arrangements for the United Kingdom. Only yesterday we considered SIs laid by the Government on this topic. The noble and learned Lord, Lord Keen, was very clear that the SIs were laid only against the undesirable possibility of a no-deal Brexit, and accepted that should that occur we would be losing a significant benefit; I refer to columns GC 231 and GC 233 in yesterday’s Hansard. We would be forced to fall back on less effective, more costly, extremely inconvenient and altogether inferior alternative arrangements.

Whatever outcome emerges from the current impasse, we should do all we can to replicate all the arrangements for civil and commercial cases that we currently enjoy. These stem largely from the Brussels regime and its provision for the determination of jurisdiction and for the mutual recognition and enforcement of judgments. The Brussels regime principally comprises the Brussels Ia EU regulation and is supplemented by the 2007 Lugano Convention, which provides similar arrangements for Norway, Switzerland, Iceland and Denmark. Choice of law in contract cases, which make up the vast bulk of commercial litigation, is governed largely by the Rome I regulation, and Rome I applies throughout the EU except in Denmark, which has an opt-out for judicial co-operation.

If we failed to replicate the arrangements of the Brussels regime, what we would lose is well summed up in two bullet points in the Explanatory Memorandum to yesterday’s SI on civil jurisdiction and judgments. The first refers to,

“a system of uniform jurisdictional rules to identify the appropriate court in which to bring a civil or commercial claim”.

The second refers to,

“a simplified mechanism to recognise and enforce the judgments of EU Member State/EFTA state courts in civil and commercial cases, with a view to reducing costs for litigants and increasing efficiency. The possibility for such simplified and almost automatic treatment of the judgment of one such state in another is based on the ‘mutual trust’ that each state will have applied the uniform rules of jurisdiction”.

These arrangements have been built up over decades and British lawyers, jurists and judges have played a major part in their development. The European Judicial Network in civil and commercial matters, established in 2001 by the European Council, is an important forum for cross-border co-operation between courts across the EU. It seems to me that there is no significant reason why we should not be able to negotiate some continued access to the European Judicial Network after we leave the EU.

Throughout the European Union, citizens and businesses now know where cross-border disputes are to be determined. They know what law is to be applied. Crucially, they can be confident that court orders obtained in one member state will be recognised and enforced without fuss, delay or extra proceedings throughout the Union. This system has been of incalculable benefit not just to those who use our legal system but to our economy as a whole, because it is widely understood that all member states respect the arrangements and decisions of courts in other member states.

It often seems to me—I hope I can say this as a lawyer without special pleading—to be largely overlooked that our legal system has contributed significantly to Britain’s commercial success during the decades of our EU membership. One reason the United Kingdom has been so successful in attracting both inward investment from outside the EU and trade from elsewhere within the EU has been the fact we have not just excellent financial services and a sophisticated financial architecture—another plus is sometimes said to be political stability but I somehow doubt that at the moment—to add to the benefits of the English language and a convenient time zone, but a well-respected commercial legal system, one that functions without undue delays and at cost levels that are reasonably competitive in the international market, and which produces outcomes that are relatively predictable and generally accepted.

A very important component of that success is that our legal system functions internationally in supporting cross-border trade and international commerce. If we lose that, however frictionless we may make our trading arrangements, we will have compromised our future both as a destination for international investment, attracted to the United Kingdom as a gateway to the European Union, and as a trading partner for member states of the EU and the EEA. Put shortly, at a time of major upheaval, we will have needlessly thrown away a significant competitive advantage. That is something we cannot afford to do and it would be folly indeed. I beg to move.

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

I thank the noble Lord, Lord Marks, for moving this amendment and raising this very important issue. He is right to highlight the contribution which UK law has made to the commercial contract area and the success of trade and financial services.

We have long made clear our intention to negotiate a new relationship with the EU which covers civil judicial co-operation. The political declaration provides a positive means for discussion on this. It makes it clear that the UK and EU have agreed to explore a bilateral arrangement on matrimonial and parental responsibility and other related matters. This goes further than the arrangements that the EU currently has with any other third country to date.

The UK also remains committed to future co-operation on civil and commercial matters with the EU—recognising that this is in both our interests, for the reasons the noble Lord, Lord Marks, set out—and to similar co-operation with other international partners. In this area, the UK will, as a minimum, continue to prioritise joining Hague 2005 in our own right and seek also to accede to the Lugano Convention. The UK will engage with EU partners to ensure that these important issues, which provide vital protections for citizens, are the focus of detailed negotiations with the EU.

On the specific issues which the noble Lord referred to, co-operation in this area makes clear that the UK and EU have agreed to explore a bilateral arrangement on aspects of law. This goes further than any arrangements that the EU currently has with a third country. The UK also remains committed to international co-operation in future.

The noble Lord asked what would happen in the event of no deal. As a responsible Government, we are preparing for all outcomes, hence the statutory instruments debated in Grand Committee yesterday. We have published a dedicated technical notice for civil judicial co-operation, detailing how the rules would change in the event that we cannot reach a deal. This is not our preferred outcome—we remain focused on getting a deal that works for the UK and the EU. The rules on civil judicial co-operation rely on reciprocity. After exit, even if the UK were to apply these rules unilaterally, there would be no requirement on EU member states to apply the same rules in the UK. Without the guarantee of reciprocity, our broad approach is to repeal existing EU instruments and revert to applying the rules which the UK currently applies in relation to non-EU matters.

I am grateful to the noble Lord for raising this important matter, and I hope that I have provided as much reassurance as I am able to at this stage.

[Lord Marks of Henley-on-Thames]

My Lords, I am grateful to the Minister for his response, and I will be withdrawing the amendment, with your Lordships’ leave. The plain fact is that the arrangements the Government have in mind in the event of no deal are what I described yesterday as “thin gruel indeed” compared with what we have. They are inferior, bitty and involve a great deal of scope for satellite litigation where parties are having to litigate on issues such as enforcement and jurisdiction in different jurisdictions. This is so important because it highlights an area which has had far too little attention in the event of no deal. It is a significant danger for us—no deal will deprive us of the competitive advantage we enjoy as a member of the EU.

I share the Minister’s confidence that, in the event that we secure an agreement, we will also secure an agreement on judicial co-operation during a transitional period, because it is in the EU’s interests as well as ours. The danger is that people float into no deal by accident, and cost us everything involved in losing judicial co-operation. It is a significant feature that ought to weigh heavily in the minds of all the policymakers involved. With that warning, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, I have to say a few words because my noble friend Lord Grantchester, who would have spoken to a couple of amendments which have not been touched on, unfortunately is unable to be with us this evening as he has a family illness which he had to attend to. I am sure your Lordships will want to send best wishes to him.

The two amendments which have not been referred to are Amendments 47 and 49. One is on time-sensitive goods and the worries here concern the arrangements, particularly around the Channel Tunnel, for goods that are required for immediate delivery. The question underlying the amendment, which the noble Baroness, Lady Neville-Rolfe, also put her name to, was whether the Government had any further information about developments, since if the current arrangement is not going to work, other arrangements will need to be brought into place, as time-sensitive goods are what they say on the tin.

Other noble Lords have spoken about medical isotopes. On behalf of my noble friend Lord Grantchester, I wanted to mention the time-sensitivity of these, not only in the general sense but particularly with air travel, which is often used to transport them. We have experience of problems which have occurred, particularly in Northern Ireland, because the route for radioisotopes required in Northern Ireland is through Coventry Airport, and even under existing arrangements, we have had delays which caused problems for patients, including the cancellation of treatments. Again, any comments from the Minister would be helpful.

On Amendment 49, the pet travel scheme has raised interest among those who travel to Europe with pets, particularly dogs and ferrets, which are the two main groups carried. The existing scheme is thought not to be very effective, and there is a chance to revisit it when it collapses after Brexit. Are Ministers aware that the BVA has set out 16 recommendations on changes to pet travel rules after Brexit? Many of these are sensible and needed, and this would be an opportunity to give the Committee an update on where they are on this matter.

[Lord Bates]

My Lords, I thank noble Lords who have taken part in this debate. The noble Lord, Lord Stevenson, referred to the pet travel scheme. The noble Lord, Lord McNicol, started the debate by talking about transport. The noble Lord, Lord Fox, referred to arrangements for UK-EU chemicals through REACH in particular. My noble friends Lady McIntosh and Lady Hooper talked about legal services. My noble friend Lord Risby talked about horseracing and the tripartite agreement. The noble Baroness, Lady Randerson, talked about transport. My noble friend Lord Lansley talked about authorised economic operators. My noble friend Lord Trenchard talked about horseracing and financial services. The noble Baroness, Lady Kramer, focused very much on financial services. The noble Lord, Lord Foster, talked about telecoms and broadcasting.

That is a flavour of the catch-all that we have here, with 17 amendments. I am looking at the representatives of the usual channels: I am not sure how the grouping of these amendments happened, but they cover a very wide range of agreements. We have heard 12 excellent speakers. They have ranged extensively and generated some 24 questions, to which it falls to me to respond. I am conscious of the time. I will bring my best endeavours to this, but I have the feeling that rather a lengthy letter will be winding its way to noble Lords.

[Lord McAvoy (Lab)]

I expect a full reply.

[Lord Bates]

Yes, of course. I will probably miraculously sit down sometime around 10.39 pm. I think that is the convention. Let me go through as much as I can. I apologise to Members of the Committee and to the reporters of our proceedings for the pace at which I am going.

The noble Lord, Lord McNicol, and my noble friend Lord Lansley referred to the common transit area. As my noble friend hinted, this is an area where we have some good news, because the UK has agreed the common transit convention with the secretariat. Letters were received on 19 December 2018. That is taking shape.

The noble Baroness, Lady Kramer, talked about financial services. The Government are seeking a close future relationship on financial services with the EU that reflects our uniquely integrated markets and respects UK and EU autonomy. The political declaration includes commitments to close and structured co-operation on regulatory and supervisory matters, grounded in the future economic partnership. There will be a certain Groundhog Day feeling to the answers to a lot of these questions, because I will simply say that they are a matter for the future economic relationship, which we hope will be deep and extensive across all these headings. Of course, that is for another piece, or other pieces, of legislation.

The noble Baroness, Lady Randerson, spoke to her amendments. On haulage, the Government have been clear that we want to maintain the existing levels of access for UK and EU hauliers. A mutually beneficial road freight agreement with the EU will support the objective of frictionless trade. I very much take the point that the noble Baroness made about us often talking about Dover in the context of roll-on, roll-off, but there is strategic importance, particularly on the island of Ireland, for Holyhead and movements through there. However, we understand that we need the reassurance that we will have in place the arrangements needed to maintain continued access. On that basis, we welcome the contingency proposals being made by the European Commission on the basis that the Government are seeking a very close partnership based on reciprocal and binding agreements that protect the rights of road hauliers to access EU markets and vice versa.

The noble Lord, Lord McNicol, also talked about rail services, which are mentioned in Amendment 40. The Government are carefully considering the potential implications of leaving the EU, including implications for the continuation of cross-border rail. The noble Lord, Lord Fox, also referred to this through the Channel Tunnel and on the island of Ireland. I assure noble Lords that we understand the importance of maintaining the continuity of these important cross-border rail services, and we will continue to negotiate with our European partners to secure the best possible outcome.

In addressing Amendment 43, the noble Lord, Lord Fox, talked about open and fair competition. The Government recognise that commitments to open and fair competition are fundamental to all trading relationships; continuing the control of anti-competitive subsidies and creating a UK-wide subsidy control framework are crucially important. To support the desire for a future relationship, we propose rule alignment on state aid to be enforced by the Competition and Markets Authority, which already has a strong reputation in the UK. We also have strong proposals in other areas, including non-regression provisions for the environment, social issues and employment to ensure that we maintain the highest of standards, as my noble friend Lord Lansley requested.

Turning to Amendment 62, my noble friend Lord Lansley and the noble Lord, Lord Stevenson, said that it raised important issues for the future relationship with the EU, by providing that the patients should not be disadvantaged. We have given commitments that patients should not be disadvantaged; industry should be able to get its products into the UK market as quickly as possible, and we continue to play a leading role in promoting public health. The Government have already set out their aim to secure participation in the European Medicines Agency. The political declaration sets out the mutual commitment of the UK and the EU to explore working together in future medicines regulation and negotiating the UK’s ongoing co-operation.

[Lord Purvis of Tweed (LD)]

Will the Minister clarify what he said about seeking to participate in the European Medicines Agency? The noble Baroness, Lady Fairhead, in an earlier grouping, said it was the intention to remove Clause 6 from the Bill, or at least bring forward different language about what that participation means. It is pertinent to the point my noble friend Lord Fox made. If it is the Government’s intention to participate in many of these institutions, what do they envisage that participation mechanism to be? If the Government are seeking to change Clause 6, they have to be clear about how they intend that participation to operate.

[Lord Bates]

My noble friend Lady Fairhead made very clear our hesitation in the other place when this amendment was proposed, but it is now in the Bill. We see the commitment to all necessary steps in relation to the European Medicines Agency. We have been very clear that we do not wish to see that extended to other agencies, but it is there in the Bill at present.

[Lord Purvis of Tweed]

Just so that we know what might be coming on Report, is it the Government’s intention to bring forward amendments, as the noble Baroness, Lady Fairhead, said, to remove this?

[Lord Bates]

Our position is simply that we are committed to as close a relationship as possible with the European Medicines Agency. We see its value, we are committed to it, and it is in the Bill. We have made our positions clear on that, in terms of how we would view it if similar amendments were proposed for other agencies.

Amendment 39, on mutual recognition of professional qualifications, was spoken to by my noble friends Lady Hooper and Lady McIntosh and by the noble Lords, Lord McNicol and Lord Fox. The Government have clearly set out their objectives for mutual recognition of professional qualifications in the future relationship with the EU. We recognise the importance of mutual recognition for many sectors of our economy and the public sector. It offers all individuals working in regulated professions a means of having their qualifications recognised so that they can continue to provide valuable services. However, Her Majesty’s Government must be in a position to negotiate the best possible outcome. I note the risk that this amendment could undermine that objective and compel Her Majesty’s Government to reject highly beneficial agreements on mutual recognition simply because an agreement delivered its possible outcome in a way that differed from the detailed requirement set out in this amendment.

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[Lord Taylor of Holbeach (Con)]

Keep it going.

[Lord Bates]

I reassure my noble friend the Chief Whip that I have no problem in keeping it going for as long as he indicates is necessary—such has been the quality of the debate.

I have had a note passed to me which might be important. On Amendment 39, on mutual recognition of professional qualifications, I may have said “Ireland” but I meant to say “Iceland”. I thank the officials for being so attentive.

[Lord Fox]

The Ireland/Iceland point is actually very important. The noble Lord, Lord Hain, made a point earlier about cross-border activity—of midwives who live in the north of Ireland and practise in the Republic, for example—which is now in jeopardy. I am less excited about Iceland, with all due respect, given that the island of Ireland’s economy is driven on the ability to have the mutual recognition of all these skills. I enjoin the Government to work quickly on that one.

[Lord Bates]

The Government are very happy to give that undertaking.

On legal services, raised by the noble Baronesses, Lady McIntosh and Lady Hooper, the outcome of the negotiations of course lies ahead of us, but I assure noble Lords that the Government will push very much for a strong relationship in this area. As EU and EFTA lawyers will be subject to domestic rules in the UK, UK lawyers in the EU and EFTA will be subject to the national rules and regulations of individual EU and EFTA member states, if the UK leaves the EU without a deal. This will vary between member states and within member states, where there will be multiple regulators.

The noble Baroness, Lady McIntosh, asked specifically about close participation in the European Medicines Agency. I think I have already dealt with that one and I do not want to tempt further interventions at this point. However, I am pleased that the Government have been clear that we want to remain part of the EMA, which will include remaining part of the falsified medicines directive.

Let me turn to horses—galloping into the final straight with Amendment 48. I am grateful to the noble Baroness, Lady Hooper, who spoke particularly about polo, and the noble Baroness, Lady McIntosh. I also thank the noble Lord, Lord Risby, who talked about his connections with Newmarket, and the noble Lord, Lord McNicol, who asked about this as well. Amendment 48 dealt with the tripartite agreement on the movement of horses. As part of our ongoing preparations for EU exit, the Government aim to ensure that the movement of horses will continue with minimal delay and bureaucracy, while safeguarding biosecurity and animal welfare. Let me reassure noble Lords that we are already working closely with the equine industry to retain the benefits of the tripartite agreement after the UK leaves the EU. The Government actively support a long-term industry-led proposal to allow horses of high health status from third countries to travel to the EU under the TPA arrangements.

I had a note on the pet travel service. As part of the ongoing preparations for EU exit, the Government aim to ensure that the movement of pets will continue with minimal inconvenience to pet owners while safeguarding the UK’s biosecurity and the welfare of travelling animals. We are already working closely with stakeholders in the veterinary and pet travel industries to ensure that the benefits of the EU pet travel scheme are retained after the UK leaves the EU. The Government will submit their application for listed status within the EU pet travel scheme imminently. The UK is seeking technical discussions with the European Commission on its application. Should the UK become a part 1 listed country, there would be little change to current pet travel arrangements. Only minor changes to documentation would be needed.

I hope that noble Lords will feel that in the time available I have dealt with as many issues as possible, and that the noble Lord will therefore consider withdrawing his amendment at this stage.

[Lord McNicol of West Kilbride]

I have a good 20-minute speech here—no, I am joking. I thank the Minister for his response and all noble Lords and Baronesses for their input to this rather large group of amendments. As I said in my introduction, there is widespread support not just across the House but outside, from organisations, businesses, trade unions and relevant bodies. My takeaway from nearly all the contributions is the mutual benefit that organisations and businesses inside the UK would get from the adoption and inclusion of the amendments. The other word which came from the Government Bench was that their adoption would lead to continuity—a word that has been used many times in the previous two days. With that, I beg leave to withdraw the amendment.

Overseas Aid

Lord Bates Excerpts

Wednesday 30th January 2019 Lords Chamber

[Lord Collins of Highbury (Lab)]

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

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

My Lords, the UK’s commitment to spend 0.7 % of GNI on aid is enshrined in law and has been reaffirmed by the Secretary of State for International Development in another place, the Chancellor of the Exchequer in his most recent Budget, and the Prime Minister on her recent visit to Africa. The aid budget is fully funded and we have firm plans in place to continue to meet that important commitment.

[Lord Collins of Highbury]

My Lords, last autumn, the Secretary of State acknowledged that public funds alone would not deliver on the sustainable development goals. Seeing 0.7% as the target rather than the baseline will not deliver either. The key to eradicating poverty globally is building public services that deliver health and education that are accessible to all; that will encourage greater economic activity and greater investment. The Minister has a proud record on overseas development as both a DfID and a Treasury Minister. I hope he will confirm that at next month’s spending review, there will be no attempt to renege on the UK’s commitment—enshrined in law, as he said—to spend 0.7% of the UK’s GDP on overseas aid.

[Lord Bates]

I am very proud to give the noble Lord the commitment and reassurance that he seeks. The commitment to 0.7% was made by the international community way back in 1970; it was not actually introduced—under this Government, with our coalition partners—until 2013. I am immensely proud of that and we remain committed to it. His point about the SDGs is crucial. Achieving them by 2030, to which he and I are committed, will require some $3.9 trillion per year, according to World Bank estimates. Total global flows amount to some $150 billion. The only realistically possible way to bridge that gap in time is through leveraging and capitalising to get greater private flows through trade and development. We are very committed to that, but the commitment to 0.7% stands.

[Baroness Northover (LD)]

The UK commitment to spend 0.7% of GDP on development was made via a Lib Dem Private Member’s Bill, which in this House was in the capable hands of my noble friend Lord Purvis. It passed with all-party support, for which we were very grateful, in the last days of the coalition. The UK has indeed signed up to the sustainable development goals, which aim to eradicate to extreme poverty by 2030. Does the Minister agree that it is it right that the world—and we are part of the world, regardless of what appears to be happening politically at the moment—signed up to these goals, and that they are vital for global stability? Does he also agree that aid helps to pump prime the economic and human development that people in poverty so desperately need?

[Lord Bates]

I absolutely agree with that. The noble Baroness pointed to the proud record of the Liberal Democrats in actually providing the legislation. I remind her that a Conservative Chancellor is currently delivering on that pledge, giving £14 billion a year to the poorest in this world.

[Baroness Chalker of Wallasey (Con)]

My Lords, will the Minister be ardent in his pursuit of match funding, particularly for health projects, which will valuably use up at least 0.7% of the GNI? There are many countries without the basic GP facilities that we all take for granted, let alone equipment for their health services. We could do far more using training and second-hand equipment from this country as part of the 0.7% spending on those who are the poorest.

[Lord Bates]

I pay tribute to the work of my noble friend as Overseas Development Minister some time ago, before that commitment was met. She is right: health is absolutely central. We need to work in partnership, and that is the reason why we work with the World Health Organization, the Gavi alliance and the Global Fund in doing precisely that work.

[Lord Alton of Liverpool (CB)]

My Lords, the World Bank estimates that some 800 million people are racked by starvation, despair or living below any rational definition of human decency. The Minister is right to remind us that, as long ago as 1970, in Resolution 2626, the United Nations urged us to find this 0.7% figure. Does he agree that people expect their money to be spent well? I draw his attention to a Question that I asked him on the Order Paper today concerning discrimination and persecution in countries such as Pakistan, which is the biggest recipient of British aid—£383,000 each and every single day. Will he ensure that where British money is being spent, it will tackle the plight of minorities, particularly by preventing people from religious minorities from being subjected to discrimination, persecution and even genocide?

[Lord Bates]

I am delighted to give that reassurance. This Government have been at the fore on this issue. The Prime Minister has made announcements on it and has appointed her first Special Envoy on Freedom of Religion or Belief, my noble friend Lord Ahmad. We are proud of that, and we have to uphold, keep to and maintain those standards.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, as a former International Development Minister, I completely respect the Minister’s record. However, Priti Patel has been quoted regularly as wanting to undermine our international development programme; she also has very close links with the newspapers. How did those reports get into the papers today, and will he make it absolutely clear that they are completely wrong and that the Government are sticking to 0.7%?

[Lord Bates]

Of course, Priti Patel, sadly, resigned as Secretary of State for Development a couple of years ago. However, Penny Mordaunt is absolutely committed to the 0.7%—delivered by his kinsmen in Abercrombie House up in Scotland—which is of crucial importance. We remain committed to it.

[Lord Purvis of Tweed (LD)]

I was the Member who took the Act through the House, and I was able to do so only because of the wide cross-party consensus in this House—including the Minister’s predecessor, my noble friend Lady Northover, the Labour Front Bench and the Minister himself in another capacity. That consensus had a core, which could be a component of British leadership. We are the only developed country in the world to meet this target and to enshrine in law that we will continue to do so. Therefore, language such as “unsustainable” raises questions as to whether other developed economies should seek to meet their obligations. The Minister and I are wearing our SDG badges close to our hearts. We know that under the current expenditure profile, those targets will not be met. British leadership in this area can be critical. Can the Minister say categorically that language such as “unsustainable to meet our obligations” will not be heard from a British Cabinet Minister?

[Lord Bates]

First, I pay tribute to the noble Lord for taking through that legislation, which I was delighted to support myself from the Back Benches; it was crucially important. We need to keep at the forefront of our minds that there is a huge need out there. We need to build on the commitments we have already given and the pledges we have made, but as he rightly points out, we also need to encourage others to step up to the plate. Increasingly, however, we see that Governments cannot do this alone. We need to leverage in trade and private investment to bridge that gap if we are to lift people out of poverty.

[Lord Flight (Con)]

My Lords, may I ask the Minister what proportion of the 0.7% goes via EU projects or other EU conduits?

--- Later in debate ---

[Lord Bates]

Doing the maths quickly, I think that DfID spends about 72%, 18% goes through other government departments, and the remaining 10% goes through the EDF, ECHO and heading 4, but a proportion of that needs to be stripped out because it relates to gift aid. If my noble friend can do the calculations, that is the net effect.

[Lord McConnell of Glenscorrodale (Lab)]

My Lords, at the heart of some of the suspicions about the delivery of the commitment lies the spending of ODA through departments other than DfID. Will the Minister take this opportunity to reassure us that in the Government’s Agenda 2030 voluntary national review to the United Nations this summer, they will take the opportunity to explain how overseas development assistance spent by the Foreign Office, the Ministry of Defence or other government departments contributes to the delivery of the sustainable development goals?

[Lord Bates]

I am happy to do that. As the noble Lord knows, having done a lot of work in this area, the majority of the least developed, most fragile countries that we drive our aid spend towards are in that position because of conflict. We need to recognise that although development is one part of this, there is a development, diplomacy and defence nexus. We need to work together, and that is what those cross-Whitehall funds are doing.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Bates Excerpts

Report stage (Hansard): House of Lords
Tuesday 29th January 2019 Lords Chamber

Moved by

[Lord Bates]

1: Clause 1, page 1, line 9, leave out from “appropriate” to end of line 11 and insert—
“(1A) In subsection (1)(b) “adjustments”—(a) in relation to legislation mentioned in subsection (2)(a), (b), (c), (d) or (f), means provision to mitigate or remedy deficiencies in the legislation arising from the withdrawal of the United Kingdom from the EU, and(b) in relation to legislation mentioned in subsection (2)(e) or (g), means changes to reflect, or facilitate the transition to, the United Kingdom’s new position outside the EU, but does not include changes that result in provision whose effect is different in a major way from that of the legislation.”

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

My Lords, I thank all noble Lords for their engagement in this Bill not just in Committee on 8 January, when we had an excellent session looking at the Bill to see how it could be strengthened, but also when we followed that up in various interactions with Peers in the gap after that. There was a meeting on 22 January in which we shared some of the ideas at that point, and that conversation has continued. I place on record our gratitude particularly to the noble Lords, Lord Davies and Lord Tunnicliffe, but also to the noble Lord, Lord Sharkey, the noble Baronesses, Lady Bowles and Lady Kramer, and to my noble friends Lord Hodgson and Lord Leigh for their interaction. I also thank the noble and learned Lord, Lord Judge, for his impromptu legal advice in Committee.

Amendment 1 has been grouped with an amendment in the name of the noble Lord, Lord Davies, and the convention is that I cannot pre-empt what he will say. I will listen to him very carefully, and will simply move my amendment at this stage and address the concerns and issues raised in the noble Lord’s amendment at the end.

Amendment 1 is designed to perform two functions. The first change, as set out in the proposed new subsection (1A)(a), is in response to a recommendation by the Delegated Powers and Regulatory Reform Committee—I again place on record my thanks and appreciation to it for its scrutiny, published in the 42nd report of that committee, under the chairmanship of my noble friend Lord Blencathra. In its report, the committee noted that, for those files listed in the Schedule which are still in negotiation, the justification for the power to adjust is that it is not now possible to know what the final form of that legislation will be. However, the DPRRC noted that the same justification could not be used for files already agreed, and it recommended that the power to adjust be limited only to the files in the Schedule to the Bill. I can now say that the Government are able to implement the DPRRC’s recommendation. These files have been settled while the UK has been an EU member and has been around the negotiating table at all stages with a full voice. We accept the principle that this is settled law that has received UK sign-off and that, as such, an ability to fix deficiencies is more appropriate than one to make policy adjustments.

The proposed new subsection (1A)(a) therefore ensures that, for the first category, the Treasury will have no ability to make policy adjustments when these files are domesticated. These files are: the prospectus regulation; articles 6 and 7 of the central securities depositories regulation; article 4(1) of the securities financing transactions regulation; and articles 37 and 38(2) of the markets in financial instruments regulation. Instead, the Treasury will only be able to fix deficiencies in the manner of the current onshoring process under the established terms set out in the EU withdrawal Act.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I am very grateful not to be the Minister, who has to respond to my noble friend Lady Bowles and the noble Lord, Lord Leigh. I can see that it is a challenge and I hope that if I talk for a few minutes, it will give the Box a little more time to get notes to him.

I think that the House knows that my underlying question has always been how we draw the line so that we know when it is appropriate for change to be carried through by an SI and when it should come to this House as primary legislation, particularly in this field. What happened in the weeks and months immediately following a no-deal exit would shape whether we were in a position to maintain access to the EU market for our most significant industry—the services sector—and indeed for the economy as a whole. I think that in the changes he has made the Minister has got us to a better place and to a much clearer understanding of the Government’s intent. If he wanted to split the difference, he could say “major or significant” and deal with the problems all in one go.

I want to say how much I appreciate the listening that the Minister did and how much we appreciate the listening, thought and effort that his officials put into responding to the queries and issues that we raised. It gives me the feeling that we in this House, including the Government, are all essentially on the same page in understanding the significance of the period that would follow no deal and how carefully and sensibly we would have to approach regulation in the financial services area because of the potential knock-on impacts and unintended consequences, which could be extraordinarily severe.

With that sense that the Minister understands when an issue should be brought to the House because it is a fundamental change of policy and critical to an underlying key sector of the economy, and when it is an issue that can rightly be dealt with under a statutory instrument, I can say that I am very happy with the changes that have been offered and, again, I thank the Minister for them.

[Lord Bates]

I thank noble Lords for their contributions. I particularly thank the noble Lord, Lord Davies, for moving his amendment and giving us the opportunity to comment. I very much concur with the noble Baroness, Lady Kramer, about how the officials have engaged in this process. I do not know whether it is appropriate to refer to them on the Floor of the House but I will do so anyway. I think that they too found it a very useful interaction. This Bill is beginning its journey through the legislative process in your Lordships’ House, and the ability to shape and craft it so that it will have been improved by the time it leaves this House will make the job of the other place, which has quite a lot on its plate at the moment, a little easier.

I also agree with the tribute paid by the noble Lord, Lord Davies, for the work being done by officials and, indeed, by UK Members of the European Parliament and the industry on shaping EU financial regulation over the years to make it effective and proportionate.

I believe that the intent behind the noble Lord’s amendment and behind the noble Lord, Lord Sharkey, putting his name to it was to give the Government an opportunity to put further flesh on the bones of what is meant by “major” and “significant”. They will become the new version of “corresponding” and “similar”, which we discussed in Committee. I do not want to hark back to that debate; instead, I shall focus on these key words. I will put some remarks on the record and then turn to the point made by my noble friend Lord Leigh.

It is clearly important that we find a way of limiting this power appropriately, and I am very grateful for the proposal in Amendment 2, moved by the noble Lord, Lord Davies. However, the noble Lord’s amendment could have the unfortunate and unintentional effect of rendering the power and therefore much of the Bill almost unworkable. The reason the Government settled on the term “major” rather than “significant” in drafting this amendment was the greater clarity provided by the term “major”.

--- Later in debate ---

Moved by

[Lord Bates]

3: Clause 1, page 2, line 13, after “unless” insert “—
(a) ”

[Lord Bates]

My Lords, I again thank noble Lords for their contributions and in particular my noble friend Lord Hodgson. Our debate on the previous grouping focused on what limitations would apply to the power under this Bill. This grouping looks at the complementary subject of reporting to ensure that the Government are as transparent as possible in the exercise of the power. The Bill, as introduced, placed a duty on the Government to publish a report annually on their exercise of the power. It was clear in Committee, however, that there was some room for improvement. I am again grateful and indebted to noble Lords from across the House for their work in Committee and in the period between Committee and Report.

I turn to Amendments 3, 4 and 5. The noble Baroness, Lady Bowles, proposed that, where adjustments or omissions are needed when implementing the files, the Government should publish a report beforehand setting this out in detail to make sure that Parliament has sight of this, and can consider the merits of the proposals. Given the exceptional nature of the Bill and the powers being sought, it can only be right that the Government are clear with Parliament and the industry about how they intend to implement these files. The Government therefore propose introducing a new requirement, as set out in Amendments 3 and 4. These would ensure that, before laying any statutory instruments before Parliament under the affirmative procedure, the Government must first publish a document detailing the proposed text of the regulation with an accompanying report. The report would have to outline what, if anything, has been omitted from the original EU legislation, where there had been any adjustments to the original EU legislation, and provide justification for these adjustments.

As I noted in Committee, the three-month requirement could risk being too long. The essence of this Bill is the speed with which it will allow the UK to keep its regulation up to date and responsive to the uncertainty of a no-deal scenario. The amendment therefore proposes a one-month deadline. However, the Government will of course commit to publishing these documents earlier where possible.

On Amendment 5, in Committee my noble friend Lord Hodgson suggested a more regular reporting cycle than the yearly proposal in the Bill as introduced, and that these reports should set out the Government’s reasoning for why any adjustments might have been necessary. I again reassure noble Lords that it was always the Government’s intention to set out such a justification. This underpins the spirit behind the proposed new subsections (8) and (9) in Amendment 5. This requires the introduction of a more regular requirement for the Treasury to report—now every six months. It requires the Government to specify both how the power has been exercised over the previous six-month period and how they intend to exercise it over the coming six-month period.

This change has the further benefit of clearing up an inconsistency helpfully highlighted by the Delegated Powers and Regulatory Reform Committee in its 42nd report. Previously, the reporting deadlines were set out on calendar dates, whereas the power was to be commenced with reference to “exit day” as defined in the European Union (Withdrawal) Act. This amendment now tidies up the drafting to ensure that the reporting periods are set with reference to the commencement of the power itself. I again convey my thanks to the Delegated Powers and Regulatory Reform Committee.

Finally, proposed new subsection (9A) in Amendment 5 responds to the suggestion from the noble Lord, Lord Adonis, and the noble Baroness, Lady Bowles, in Committee. Here we propose to introduce the same requirement for the financial regulators—the Bank of England and the Financial Conduct Authority—to report on their exercise of any powers sub-delegated to them through the Bill. This follows the model established in the EU withdrawal Act. We agree that it is right that, as they will be implementing much of the legislation contained in this Bill, Parliament and the public should be kept informed of how their functions are being discharged.

I hope these amendments demonstrate the extent to which we believe it is vital that Parliament can properly assess and consider legislation taken forward under the Bill. These amendments on reporting, alongside clearer limitations of the power itself, substantially improve the safeguards that apply to the Bill. I hope these will provide the reassurances that I know the Committee sought.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for listening to everything said in Committee. There really is little else to say other than that he has taken on board three of my amendments. I am very pleased to see them there. I accept that he has cut down the timescale in the pre-legislative report, if I can call it that, to one month from three months because it might be necessary to do things more rapidly.

If I can pick out a theme from the several speeches I made before, it is that Parliament should not be surprised by what the Government intend to do and do. This suite of amendments, including the more frequent reporting suggested by the noble Lord, Lord Hodgson, makes it very clear: we are told before and afterwards. In fact, we might be told before twice by the two reports—the generic one, if I might put it that way, and the precise one. We will also know where things are so that the diligent individual, possibly when dealing with things in the Moses Room in Grand Committee, will not have to search around wondering where things have or have not gone.

I thank the Minister. He has served me and us very well in this.

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[Lord Tunnicliffe (Lab)]

My Lords, I support Amendments 3, 4 and 5. They are the product of ideas from all parts of the House: from the noble Lord, Lord Hodgson, and particularly from Lib Dem Members. Amendment 4 strikes me as a very important innovation. Other parts of the Administration may want to ponder what should be done here, because while it will all be down to the Government how they use it, it creates a mechanism by which we get will close to being able to amend an SI. Clearly, no great measures are going to fall because we have no great power to influence them and we all know that we are not going to vote on such SIs.

However, to be able to discuss an SI with the Government—obviously not on the Floor of the House but perhaps by approaching Ministers on particular issues—before it is laid would be an important step forward. Proposed new paragraph (b)(ii) and (iii), inserted by Amendment 4, is also important for making how such an SI is generated much more structured. I hope this will give real transparency to SIs, which can at times be very complex. I end by thanking the Minister for his efforts on the Bill and almost by celebrating, for want of a better term, the extent to which we have been able to come to consensus.

[Lord Bates]

I thank the noble Lord, Lord Tunnicliffe, for his last intervention. In effect, I think he was saying that in the way we have been working together we have perhaps somehow pioneered a new way of approaching financial secondary legislation. I am pleased that he feels that.

I am grateful to my noble friend Lord Hodgson for his support for the amendments. He was tempting the noble Baroness, Lady Kramer, to rehearse the vigorous and full debate which took place in Committee on these provisions. Perhaps I may step out of the middle simply to reiterate that the Bill is not the Government’s proposed long-term solution for all financial services legislation. The Government will take forward their proposals for a sustainable, long-term model in due course, when there will be lots of opportunities to discuss the important issues which have been raised.

Amendment 3 agreed.

Moved by

[Lord Bates]

4: Clause 1, page 2, line 15, at end insert “, and
(b) that draft was laid more than 1 month after the Treasury published a document (which may be one published before the passing of this Act)—(i) setting out what is proposed (subject to any revisions prior to laying for approval) as the text of the regulations,(ii) detailing which provisions (if any) of the particular EU Directive, or EU Regulation, would not be covered by the regulations, and(iii) detailing any adjustments that would be made by the regulations in reliance on subsection (1)(b) and giving the reasons for considering those adjustments appropriate.”

--- Later in debate ---

Moved by

[Lord Bates]

6: The Schedule, page 5, line 27, at end insert—
“14A The European Commission’s proposal of 24 May 2018 for a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment.14B The European Commission’s proposal of 24 May 2018 for a Regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341.”

[Lord Bates]

My Lords, I again thank noble Lords for their contributions. The noble Lord, Lord Sharkey, made a contribution in Committee in which he expressed concern about the omission of some files from the Schedule and Clause 1. At Second Reading and in Committee the omission of two sustainable finance files, which complete the EU’s sustainable finance package, was raised. I am pleased to confirm to the noble Lord and the House in general, and to the sustainable finance industry, that the Government are happy to add these two files to the Schedule via this amendment. I thank him for pointing that out and I beg to move.

Amendment 6 agreed.

Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 22nd January 2019 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 28 November 2018 be approved.

Considered in Grand Committee on 15 January.

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

I beg to move.

[Lord Adonis (Lab)]

My Lords, I should register the same point, which is that we are expected to agree another statutory instrument without the impact assessment that applies to it, and that situation is wholly unsatisfactory.

[Baroness McIntosh of Pickering (Con)]

My Lords, I should like to make one point before my noble friend replies. I had great difficulty in attending the debate on these statutory instruments last week. For two weeks running, through an unfortunate circumstance of timetabling, these statutory instruments were discussed when an EU item was being debated on the Floor of this House, and I hope that that can be avoided as far as possible. I support the point that has just been made. It is placing us in a very difficult position to take these statutory instruments on trust when we could wait to discuss and pass them once we have the impact assessment before us.

[Lord Bates]

I hear what the noble Lords and my noble friend have said. The Government will of course use their best endeavours to ensure that the impact assessments are always in place. We are not entirely in control of the process—there are other relevant bodies—but we will always try to make sure that all the information is there for the relevant committees, which do outstanding work in processing these SIs. I certainly undertake to take back noble Lords’ comments.

Motion agreed.

Interchange Fee (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 22nd January 2019 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 22 November 2018 be approved.

Considered in Grand Committee on 15 January.

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

I beg to move.

[Lord Adonis (Lab)]

My Lords, I wish to press the Minister further on these regulations, not in respect of the impact assessment, which in relation to these regulations was de minimis, but in respect of the fundamental issue of the interchange fees that will be charged as a result of these regulations to holders of UK credit and debit cards when they seek to use those cards in the wider EEA. Of course, I would have raised this issue in the Grand Committee last week but for the fact that the Grand Committee and the Chamber were both debating EU no-deal regulations at the same time, and, even with my many abilities, I cannot be in two places at once.

The big issue that arose from the debate was that the Government have chosen to apply the caps on fees applying to debit and credit cards which can be charged to traders only within the United Kingdom. They are not proposing to apply those caps to the wider EEA, even in respect of holders of UK credit and debit cards, who could therefore be subject to higher charges either directly by being charged surcharges by traders when they seek to use their cards on the continent or by those higher charges being passed on to traders, who will then put up their prices.

The noble Baroness, Lady Bowles of Berkhamsted, who had played a significant role in the European Parliament on the original interchange regulations that led to these regulations, raised a whole series of concerns in Grand Committee about their asymmetric application. She raised exactly the concerns that I have raised as to what might happen to holders of UK credit and debit cards within the wider EEA if these regulations are passed. She probed the Minister on this crucial policy decision; we are told that these are just rollover regulations but a crucial change is being made to the policy position in respect of credit and debit cards once these regulations go through: the caps on credit and debit cards will now apply only within the United Kingdom; they will not apply within the wider EEA. Holders of UK credit and debit cards could, as I said, be faced as a result of these regulations with a very substantial change in the position after 29 March and be subject to higher charges.

It came out in the debate in Grand Committee that this was a policy choice by the Treasury. It would have been perfectly possible for the Treasury to decide that we would continue to apply the same caps to UK issuers of credit and debit cards within the wider EEA—the same caps as apply within the UK—but a policy decision had been taken not to do so because of the decision to go for symmetrical rather than asymmetrical regulation. I bring this out because it is a huge policy issue; it could have a very significant impact on the lives of British people when they seek to use their credit and debit cards across Europe after 29 March in the event of no deal.

In the normal course of events, this House would seek to debate—at some length, I should imagine, given the interests at stake—this policy change. It would have been subject to proper analysis and scrutiny, but instead there was a 15-minute debate in Grand Committee last week and we are now being invited to pass these regulations on the nod. Why? Because of the urgency of passing no-deal regulations. That situation seems wholly unsatisfactory. The very least I can do on behalf of the wider public is to draw out these issues; the public need to be aware that they could face increases in prices or in their credit and debit card charges after 29 March, purely as a result of these interchange regulations.

[Lord Bates]

I am grateful to the noble Lord for raising that point. It was a point of debate on a technical matter relating to whether you treat a country as a third country, which we believe we have no option but to do since we will no longer be in the European Union. At the end of what was a very constructive debate, with some assiduous scrutiny in Committee by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, I undertook to write to the noble Baroness copied to the noble Lord, Lord Tunnicliffe, responding to precisely that point. I can confirm that I did that this morning; the letter went off and a copy is now in the Library. I would be happy to make a copy available to the noble Lord, Lord Adonis, as well if that would help.

[Lord Adonis]

My Lords, I am sorry to intervene again, but that response could not be more unsatisfactory. Noble Lords seeking to engage in the debate this afternoon on this fundamental issue are supposed to rely on a letter sent to two noble Lords this morning and placed in the Library of the House—a letter of which none of us was aware and could not conceivably have been aware of when we came into the House. That is the basis on which we are supposed to agree fundamental changes to the law, which could have a big impact on holders of credit and debit cards after 29 March. I place on record once again that, when you probe beneath the surface, this no-deal planning that we are engaged in—which is supposed to be technical—involves, if we have no deal from 29 March, fundamental changes to the terms of trade in respect, here, of just one aspect; a whole load of others are coming. All this has been smuggled in with no debate and no proper scrutiny; we are expected just to take the word of the Minister that he has properly considered it.

The issue at stake is not a question of explanation; the Minister can explain it for as long as he likes. The fact is that there is a fundamental change of policy taking place. That fundamental change could lead to higher prices being levied on UK holders of credit and debit cards after 29 March, in the event of no deal, if they seek to use those cards on the continent. It seems wholly unsatisfactory that we should agree to that situation with no debate whatever.

Venture Capital Funds (Amendment) (EU Exit) Regulations 2018

Lord Bates Excerpts

Tuesday 22nd January 2019 Lords Chamber

Moved by

[Lord Bates]

That the draft Regulations laid before the House on 13 November 2018 be approved.

Considered in Grand Committee on 15 January.

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

My Lords, I beg to move the second Motion standing in my name on the Order Paper.

[Lord Adonis (Lab)]

My Lords, I was not able to speak in Grand Committee on these statutory instruments because the Grand Committee and the Chamber were both considering no-deal statutory instruments at the same time. Having now read the debates on these regulations, I see that the three statutory instruments that relate to alternative investment funds were all dealt with together. The noble Lord said:

“The Government have undertaken an impact assessment on these instruments, which we hope to publish shortly”.—[Official Report, 15/1/19; col. GC 82.]


This was not picked up by noble Lords in the later discussion, but the obvious point arising is this: if there is going to be an impact assessment that relates to these instruments, should not the House see it before we approve the statutory instruments rather than after? The noble Lord did not say why the impact assessment on these three instruments concerning venture capital funds is going to be published after we have been invited to approve the regulations. Will he expand on that for the House?

[Lord Bates]

As I said in Grand Committee, whose debate I took note of, an impact assessment will be published shortly. The position has not changed in regard to that. But of course that was in relation to a wider debate that the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, took part in where they recognised that we sought to transpose a body of EU law into UK law so that we avoided a cliff edge that would be damaging and very costly for financial services. The answer remains the same as I gave in Committee.

[Lord Adonis]

I understand the explanation, but I do not find it satisfactory. Why is the House being invited to approve these statutory instruments without the impact assessment that relates to the very statutory instruments that we are invited to approve? The Minister simply restated the fact that the impact assessment will be published after we have been invited to approve the regulations. That is unsatisfactory. Surely we should have the impact assessment before we approve these statutory instruments rather than after. He has not explained why that is not possible.

[Lord Bates]

I realise that the noble Lord is pressing his point and he may find the answer—that the impact assessment will be published shortly—unsatisfactory. Of course the reality is that we are dealing with a volume of statutory instruments to avoid that cliff edge and to avoid costs, because the industry very much supports this process; we agreed it with industry because it wants to avoid that cliff edge. Because we are transposing what is already in existence into UK domestic law to avoid that cliff edge, industry recognises that if it followed those rules before it will follow the same rules thereafter, so the financial impact will be limited. That has been the accepted position throughout this process when we have been going through secondary legislation. None the less we are committed to publishing impact assessments. We are doing that. They are scrutinised by the Regulatory Reform Committee and will be published shortly.

[Lord Adonis]

My Lords, the Minister has not answered the fundamental question of why we cannot have the impact assessment before we approve these regulations rather than after. I think that the House knows the answer, which is that the impact assessment is not ready. Because of the very hurried nature of the no-deal regulatory planning that the Government are engaging in, he is none the less trying to railroad these regulations through the House this afternoon. I understand the reason, but it is not a satisfactory reason. In no other context would noble Lords find it acceptable to be asked to approve regulations before we have actually seen the impact assessment to which the regulations apply. All the Minister has done now, three times, with the elegance of expression that he always deploys, is simply to restate the fact that the impact assessment has not been completed and is not ready. That is not a satisfactory response.

[Lord Bates]

I tried to give a response that explained the situation. Usually in this situation, we are transposing one law that is operating today and saying that that law, which is currently in EU legislation, will be brought onshore and will operate after 29 March in the unlikely event that there will be no deal, to avoid a cliff edge. Therefore, it is the same law. Our view—and I think this is the general view when this has been debated because it applies to all the statutory instruments—is that we are discussing relatively small de minimis amounts, but there is still a process that we need to go through whereby those impact assessments are prepared, submitted to the Regulatory Reform Committee and then released, and they will be released shortly.

[Lord Adonis]

My Lords, I am sorry to labour the point but—

[Lord Adonis]

So it has been published and the noble Lord can therefore make it available to the House.

[Lord Bates]

We submit these things. First, I pay tribute to my noble friend Lord Trefgarne’s work in the Secondary Legislation Scrutiny Committee. It is doing an incredible amount to scrutinise this volume of work. In chairing those two committees, my noble friend Lord Trefgarne and the noble Lord, Lord Cunningham of Felling, are doing incredible work. They considered these regulations, as did the other place, as did the Committee, and they did not feel there was a reason to object to this SI, which is needed by the industry to prepare in the unlikely event that we leave the European Union on 29 March without a deal. That is why we arrive at this point.

[Lord Rooker (Lab)]

My Lords, I am just about to go up to Sub-Committee B of the Secondary Legislation Scrutiny Committee. Sub-Committee A met yesterday. In the papers we have upstairs, the grand total of proposed negatives that both committees and the other place have looked at is something like 165 out of 600. After the sifting committee has dealt with a proposed SI, it goes to another committee and then it may come to the Floor of the House. Next week is the end of January. In a month’s time the sifting committees will not be able to do anything because if they do any work there will not be enough time for the other processes to take place before 29 March. If there are 600 statutory instruments, how come we have dealt with only about 165 of them?

[Lord Bates]

I am surrounded by expertise and am trying to listen attentively with both ears to the guidance offered. Effectively, this position was set out in advance. It was very clear from the EU withdrawal Act. Section 8 said what must happen in preparing secondary legislation. The House then met several times to establish a procedure which would give that level of scrutiny. It involved a sifting committee, the Joint Committee on Statutory Instruments and my noble friend’s committee, the Secondary Legislation Scrutiny Committee, and we agreed that they would each have different roles. One would test whether an instrument should be affirmative or negative. Then they had to be laid. This SI was laid on 29 November. It was considered by the Secondary Legislation Scrutiny Committee on 10 December, which raised no concerns. It was then considered by the House of Commons and then by the House of Lords. That is the position. I think the system is working well, given the incredible strain which the noble Lord referred to in terms of the offices of this House. We are ensuring that an industry that is crucial to this country is protected in the unlikely event that there is no deal.

[Lord Adonis]

My Lords, with very great respect, the noble Lord has not answered the question, which is about the impact assessment. It is not about the wider issues to do with the—