Professional Qualifications Bill [HL]

Lord Sikka Excerpts

2nd reading
Tuesday 25th May 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure and honour to join this debate, and I particularly thank the noble Baroness, Lady Bennett of Manor Castle, for raising the issues that she has.

We are all conditioned to place trust in professionals; after all, no one would willingly let an unqualified surgeon operate on them. However, there is a darker side to professional qualifications and trade in professional services, whether at home or abroad, and the mono- chromatic approach of the Bill pays little attention to that.

Professionally qualified bankers have crashed banks and the economy and are implicated in HBOS, RBS and other frauds. Professionally qualified accountants and lawyers are often the masterminds behind money laundering scams and ingenious tax avoidance schemes that plunder the public purse and condemn millions to go without decent healthcare, housing, education, pensions and social infrastructure. Professionally qualified insolvency practitioners unnecessarily prolong insolvencies to collect mega fees. Too many auditing firms, often licensed by the Institute of Chartered Accountants in England and Wales, are complicit in accounting scandals and tax avoidance. On a number of occasions, the courts have concluded that the tax avoidance schemes marketed by accounting firms are unlawful. Despite that, not a single accounting firm whose scheme has been judged to be unlawful has actually been disciplined by the ICAEW, and that is wrong. So my question is this: through this Bill, what will we actually be exporting and importing through mutual recognition of professional qualifications and work experiences?

The faith in professional qualification and regulation is double-edged; it also blocks the emergence of new professions. The Bill does not establish any universal norms or benchmarks for professional education—for example, the principle that professional qualifications must prioritise public welfare and not promote anti-social practices.

Consider the case of accounting and wealth creation. We all know wealth creation requires co-operation among a variety of stakeholders. Shareholders provide finance and get a return in the form of dividends. Employees provide brains and brawn and get a return in the form of wages and salaries. Society provides education, healthcare, security and a legal system, and gets a return in the form of taxes. However, in professional accounting education, payment of wages and taxes is considered a cost, while payment to finance capital in the form of dividend is considered a reward. The self-serving logic is that efficiency depends on cutting costs, so armies of auditing firms and accountants working in those firms are available to squeeze labour, cut wages and design tax-dodging schemes. No professional is ever hired to advise on how to reduce return-to-finance capital.

Alternatives to conventional accounting logics are available but never find their way on to the professional accounting education syllabus adopted by the ICAEW and other bodies. They continue to inculcate individuals into class warfare. This Bill does not check the worst of professional qualifications by establishing principles of good professional education.

I would welcome some clarity from the Minister about Clause 10, which is headed

“Duty of regulator to provide information to overseas regulator”,


and its link with broader regulatory issues which inevitably arise from reliance placed on professionals. Consider the case of Barings Bank, which collapsed in February 1995. Its audits were conducted by Coopers & Lybrand and Deloitte in the UK and in Singapore. The accounting qualifications of some of the Singapore staff were recognised in the UK and enabled them to become members of the UK bodies. However, this did not give the then banking regulator, the Bank of England, access to that staff and the audit firm’s working papers in Singapore. Paragraphs 15 and 153 of the Bank of England’s 1995 report titled Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings said:

“We have not been permitted access to C&L Singapore’s work papers relating to the 1994 audit of BFS [Baring Futures (Singapore) Pte Limited] or had the opportunity to interview their personnel. C&L Singapore has declined our request for access, stating that its obligation to respect its client confidentiality prevents it assisting us … We have not been permitted either access to the working papers of D&T or the opportunity to interview any of their personnel who performed the audit. We do not know what records and explanations were provided by BFS personnel to them”.


I hope that the Minister will be able to say something about the interaction between mutual recognition of qualifications and regulatory co-operation. Would a foreign national enjoying membership of a UK professional body but not resident in the UK be required to co-operate with the Financial Conduct Authority or equivalent? Under reciprocal arrangements, UK citizens would be required to co-operate with foreign regulators.

The Bill applies to 160 professions that are regulated by legislation and a network of more than 50 regulators. This multiplicity of regulators results in duplication, waste and obfuscation. For example, we have four professional accountancy bodies, known as the recognised supervisory bodies, or RSBs, dealing with external auditing. They are overseen by the Financial Reporting Council, soon to become the audit, reporting and governance authority or ARGA. However, there are five recognised qualifying bodies, the qualifications of which are recognised for auditing purposes. In addition, there are four recognised professional bodies, RPBs, dealing with around 1,300 insolvency practitioners. The Bill does not streamline the regulatory maze and says nothing about the autonomy or powers of various regulators. If a qualification is recognised by just one recognised supervisory body or recognised professional body, would others be forced to do the same? Is there a pecking order of the professional bodies? I strongly urge the Government to streamline the regulatory arrangements and eliminate the powers of all the accountancy bodies and transfer them to the FRC or its replacement, ARGA.

The 160 professions covered by the Bill need to be seen in a broader light. The reason is that each profession erects barriers to entry, which erodes competition and the quest for higher quality. For example, UK law requires that only an entity under the control of individuals licensed to carry out an audit can conduct audits, so 51% of the partners of a firm or 51% of shareholders of a company conducting the audit must hold a licence to audit. This is unlike any other market. For example, there is no requirement that a pharmaceutical business must be under the control of qualified pharmacists. The recognition of professional qualifications and the monopolies built around them prevent others, such as technology companies, from entering the audit market to facilitate much-needed change. So the recognition of professional qualifications has consequences, leading to monopolies, lack of competition and inevitable failures. The Government’s impact assessment shows no awareness of such impacts or how the social closure around predetermined qualifications facilitates failure and prevents the emergence of new professions.

The protection of the audit market also has implications for which qualifications get mutual recognition. Many IT qualifications will not be recognised, even though they are useful for audit purposes.

Mutual recognition of qualifications is part of a brain drain which encourages doctors, nurses, engineers and others to migrate from developing and emerging economies to the UK. Despite making a huge investment in social infrastructure and individuals, the home countries will not be in a position to receive the benefits of that investment. This is a huge transfer in not only skills but wealth from poorer nations to the UK. Will the Government compensate poorer countries for the loss of their wealth and human resources, and on what scale? If the UK continues to entice people from poorer countries, what incentives will it have to develop its own education and related infrastructure?

Can the Minister explain the link between mutual recognition and the Government’s immigration policy? Will anyone holding a recognised qualification get priority in securing a work permit and possible settlement in the UK, even if they earn less than £25,600 a year? Also, the Bill does not put any time limit on mutual recognition of qualifications. How will that be addressed? Will it be a once-and-for-all decision?

Finally, the Bill permits specified regulators to recognise foreign qualifications. Thus, the regulators have a clear statutory and public role. Despite this, the Bill does not place all regulators and relevant professional bodies within the framework of freedom of information legislation; these are public bodies and should be within its scope so that ordinary people can ask questions and hold the bodies to account.

[The Deputy Speaker (Baroness Fookes) (Con)]

I understand that the noble Baroness, Lady Wheatcroft, has withdrawn, so I call the noble Lord, Lord Palmer of Childs Hill.

Professional Qualifications Bill [HL]

Lord Sikka Excerpts

Committee stage
Wednesday 9th June 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I put my name down in this group in order to speak to Amendments 19 and 29, but I shall say a few words first on Amendments 52 to 55. Normally, I do not support Report amendments, which are a slightly lazy way of trying to open up a debate on wider issues, but in this case I think they have a point.

The Government’s impact assessment is, to use a tactful term, pretty light. It certainly does not analyse very much impact, probably because the Government do not have a clear idea of what they are going to do with the powers in the Bill. If that is not clear from the Bill itself, it is certainly clear from the report of the Delegated Powers and Regulatory Reform Committee. Poor impact statements are a widespread problem and we will not solve that for this Bill, but it is incumbent on the Government to be transparent about the impact of a Bill once it becomes law.

I shall therefore be listening carefully to what the Minister says, because it may well be that some or all of Amendments 52 to 55 will need to be considered again on Report. Alternatively, as my noble friend Lord Lansley suggested, we could legislate for post-legislative scrutiny; after five years might be an appropriate time for a report. However, it is very important that we monitor the Bill’s impact.

If the noble Baroness, Lady Hayter, has one defining characteristic, it is her determination to get the consumer interest felt, and she frequently finds all kinds of surprising ways to do that in Bills, but I want to explain why in this instance she is wrong to try to get the Bill amended with her Amendments 19 and 29. I was particularly struck by a briefing from the British Dental Association that commented that this Bill appears to focus on services, consumers and trade. Those are inappropriate concepts to describe the healthcare professions, which are certainly one of the major reasons given for this Bill being enacted and are cited as the professions likely to be covered by the regulations under Clause 1.

Those terms may well be appropriate for other professions which qualify and oversee professionals who trade their services, though I am not sure that “consumers” is always the right description for those other professions. For example, I do not really know who the consumer is in relation to regulated auditors, who are covered by this Bill via the Financial Reporting Council. The healthcare professions are focused on safety rather than on what consumers want or need from the profession, and we should never lose sight of that.

I do not think that either the consultation requirement in Amendment 19 or the board membership requirement in Amendment 29 fit well within this Bill, given the focus on the healthcare professions that is likely to follow once the Bill becomes law. I completely get that regulated professions and their regulators must not be focused on their own narrow interests but bear the public interest in mind. But that is usually achieved through regulators being independent of the professionals they regulate, and they often have independent members comprising some or the majority of their boards. If they are not on their boards, they are certainly well entrenched in their disciplinary processes. That aspect, the independent characteristic of the regulators, is what we should focus on in this instance, rather than the consumer interests.

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to speak in this debate, especially after the noble Baroness, Lady Noakes. I support Amendment 55 in the name of the noble Baroness, Lady Bennett of Manor Castle.

This amendment takes a broader view about the nature of skills shortages and human consequences from the recognition of professional qualifications. There are many reasons for this Bill, and one is the failure of the United Kingdom to produce skilled labour, and the relative absence of any coherent government strategy to produce the desired skilled labour force. The problems have been well documented. For example, in 2000 a report published by the National Skills Task Force said that there were

“external skill shortages, that is, recruitment difficulties due to an excess of demand over supply of required skills in the external labour market”.

Examples included

“highly-paid occupations requiring specific technical qualifications such as engineers and technologists and health and related occupations … and craft and technician vacancies in the engineering industry”.

It also referred to internal skills shortages—that is,

“skill deficiencies among existing employees”.

Similar skills gaps were identified in the 2019 report by the Industrial Strategy Council, which said that about 21 million workers—two-thirds of the workforce—might

“lack the basic digital skills”

that employers will need in 2030.

Some businesses have responded to skills shortages by renting talent from external partners—for example, through outsourcing partnerships. Of course, that creates its own logistical and organisational problems. Nevertheless, in the absence of a coherent strategy, neither the Government, the industry nor universities have been able to address the perennial problem of skills shortages.

Finding appropriate PhD students, as the noble Lord, Lord Patel, mentioned, is also highly problematical. It is simply too costly for many individuals to undertake a PhD in the UK. In supervising PhD students for nearly 30 years, I can only recall about one or two indigenous British students who came to do a doctorate in accounting, business or finance. It is so rare.

At the moment, the Government and industry are not even connecting the dots. The spate of hiring and rehiring workers on inferior pay and working conditions will not address skills shortages and will have a negative effect on attracting new local talent to crucial industries. After all, if the wages and working conditions are poorer, why would somebody want to go into that industry?

The Government’s strategy so far has been to enrol and recruit foreign workers to fill the gaps. That is especially evident in the National Health Service. Brexit has added new dimensions because it has alienated many EU workers residing in the UK. Their departure and the unwillingness of many other EU citizens to work in the UK have deepened and widened the skills shortages.

The Government are now looking to recognise foreign qualifications to address the local skills shortages. The aim, as always, is to poach skilled persons from abroad. The traffic will predominantly be one way from developing countries to the UK. I doubt that many Brits will actually want to go and work in countries such as Ghana, Zimbabwe or Nigeria, where the wages may be lower and the working conditions may not be comparable.

This ability to poach workers from other places will inevitably dilute the pressure on the UK to develop its own institutional structures to address the skills shortages. That development is highly necessary, and we need a government strategy. Therefore, it is absolutely right that Parliament must monitor the impact of this Bill on the management of strategies for addressing skills shortages, as has been extremely well articulated by the noble Baroness, Lady Bennett of Manor Castle.

To be clear, I am not against mutual recognition of qualifications, as this increases opportunities for individuals, but I am very concerned about the negative consequences for developing countries. They spend millions of pounds to educate and train engineers, doctors, surgeons and other skilled persons, but will never see the full benefit of their social investment. It can take more than a decade to train a skilled doctor or surgeon and, at the end, having developed those individuals, the developing countries will be unable to receive the benefits. There are also other consequences. To put it another way, if the UK started to see its highly educated citizens leave on a scale already observed in many developing countries, it would find itself with a smaller and less educated workforce. Such changes would coincide with a more rapidly ageing population due to the fact that emigrants tend to be younger adults.

For a long time, the UK has taken the cream of the skills from developing countries with absolutely no compensation. This brain drain retards the development of local economies and social infrastructure. It results in a huge transfer of wealth from poorer countries to the UK, while they suffer from a lack of sufficiently skilled personnel in both the public and private sectors. With a loss of skilled labour, poorer countries cannot offer universal healthcare to their citizens. That is just one example. The only appropriate redress is a bilaterally managed scheme of direct reimbursement of the value lost to each of the countries affected by migration of skilled labour. I sincerely hope that the Minister will give such an undertaking and, in due course, bring legislation to provide further details and make the compensation to developing countries a reality.