Communications Act 2003 (Maximum Penalty for Contravention of Information Requirements) Order 2011 Debate

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Lord Stevenson of Balmacara

Main Page: Lord Stevenson of Balmacara (Labour - Life peer)

Communications Act 2003 (Maximum Penalty for Contravention of Information Requirements) Order 2011

Lord Stevenson of Balmacara Excerpts
Tuesday 5th July 2011

(13 years, 5 months ago)

Grand Committee
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Lord Moynihan Portrait Lord Moynihan
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My Lords, my intervention on this will be very brief. I echo my noble friend’s comments about the Minister’s excellent introduction. I should like the Minister to give us a little more clarity, if possible, on the consultation outcome. The rise from £50,000 to a maximum of £2 million, based on a value judgment, is large. Descending on the £2 million is the issue that I shall focus on. Could the Minister, in replying, let us know a little more about the level of response to the consultation exercise which was supportive of the figure of £2 million? The Explanatory Note includes a breakdown of small groups and groups that took different views, but I should be grateful if the Minister could tell us whether there was overwhelming or significant majority support for the proposal that she has brought to the Committee today.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara
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My Lords, I, too, welcome the Minister’s introduction, which was extremely fulsome and interesting. Like other noble Lords who have spoken, I understand and broadly welcome the objectives of the order. However, I, too, have a number of points that I want to draw out and the Minister to respond to when she is able to do so.

We understand that the need for the order is the EU directive and the requirement to implement the better regulation directive. The Minister said that she had no discretion on that, but there is quite a lot of discretion within the directive because it does not specify a figure of £2 million, as has already been mentioned by the noble Lord, Lord Clement-Jones. It is a ministerial decision that this is the way to be “appropriate”, “effective” and “dissuasive”—the terminology used. Is it appropriate? Will it be effective? Will the net effect be dissuasive? That point came through in earlier speeches and I shall be interested to hear the Minister’s response.

As far as we can tell, Ministers have judged that £50,000 in fines is not dissuasive. Whichever way we read the impact statement—it was rather a heavy read—the evidence may support that level of penalty as regards certain companies, and certainly for those where the returns are much greater than £50,000 for an alleged breach of not providing the information. However, is it really appropriate to increase fines by 40 per cent in order to remedy a lack of provision of information? It is not exactly on the same scale as the examples given by the Minister. The only real example that I could find was where companies were undertaking short-term scams, although it was not clear what those were—perhaps we could have a discussion about them in the response—or what sort of returns there were on them. If they were that profitable, I should like to know more about them.

To explain, we are not really against the order but there are some questions. Is £2 million the right figure? The argument that it is the same figure that they have used in other places is not sufficient. We need to know more about what the £2 million does in terms of dissuasion and whether it is indeed appropriate and effective. Has consideration been given to another penalty? We were given one option, which was discussed, but it would not be difficult to think of a more dissuasive penalty in a situation whereby, as a result of the lack of the provision of information, the company concerned gained significantly in its trading activities. It is quite hard to see what that would be, but let us assume that that is the case. If the company made a significant profit as a result, perhaps the appropriate and dissuasive penalty would be the removal of that gain.

The potential impact on a smaller company certainly came through in some of the responses but has not really been picked up on. Many companies in this field do not have profits greater than £50,000 per year. To be fined at the level of £2 million is an awesome thought.

We were told that there was a large consultation but I agree with noble Lords that the information about who was actually consulted is not available. We were told that the responses were broadly supportive but we were unable to identify—certainly by size or by range—what those companies were. On reading the impact statement, it seems that the evidence used was only the 11 cases that have been considered by Ofcom since 2005, of which three were multiple occurrences. So we are talking about only eight different cases, which seems to be quite a small sample on which to base such a draconian increase.

In making a judgment that this measure is appropriate and proportionate, the Government are acting as both judge and jury. I am not sure that that is the right way to approach this. I would have liked to have seen more quantitative evidence in the impact statement.

The comment made in some of the paperwork is that as a result of this change there may well be an increase in the number of appeals made against such fines. That will obviously cost and it may be that the overall effect is not significant. In her summation, the Minister said that this would be good for business and good for consumers. I am not sure. This is more likely to be another example of gold-plating what is required by the EU directive, which is aimed at providing only appropriate, effective and dissuasive powers. It is not a fixed amount. It is perhaps not so much gold-plating but platinum-plating. It is hardly a light touch; rather, it is a heavy plundering.

Baroness Rawlings Portrait Baroness Rawlings
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My Lords, this has been a constructive small debate, and I am very grateful to noble Lords who have contributed. The change that I have outlined today will raise the level of penalty that the independent regulator, Ofcom, is able to levy for a breach of its information-gathering requests from £50,000 to £2 million. It is a necessary and welcome part of the United Kingdom’s implementation of the European framework on electronic communications. As in any fast-moving and dynamic sector, it is vital that the regulator is able to make necessary and timely decisions in response to changes in the market. The increase in penalty will help to make certain that the regulator’s enforcement powers for such a breach are sufficiently dissuasive and that the United Kingdom is fully compliant with European law.

I turn to the questions from my noble friend Lord Clement-Jones. The other changes have been passed and were made law on 26 May. They were passed by negative resolution in a statutory instrument. The change has been decided with Ofcom, and £2 million will make certain the equivalence with other enforcement measures.

We have listened to many people concerned, who have said that the level of this penalty must be proportionate to the breach. My noble friend Lord Moynihan asked for more details of the consultation level. We conducted a full and proper consultation from autumn last year. The response from industry was clear; it is vital that Ofcom is able to make properly informed decisions about this fast-moving sector. This means gathering all the necessary information through the effective and proportionate use of its information-gathering powers. Although a small number of businesses raised limited concerns about the level of the penalty sanction, the majority of the people concerned supported the Government’s proposals. In fact, all respondents to the consultation recognised that it is important for Ofcom to be able to levy dissuasive penalties for the breach of such powers, particularly on those operating short-term scams, as I mentioned, when the potential gains to the operator can exceed the amount of fine.

Four hundred and twenty organisations were consulted, and from 70-plus came replies. There were also more than 80 separate meetings, events and round tables with the industry, the regulator and consumer groups.

The noble Lord, Lord Stevenson, asked whether the change was necessary and whether it was not gold-plated. Changes to Ofcom’s information-gathering powers are intended to enable Ofcom to fulfil its role as the regulator more effectively. This change should not place significant burdens on industry, and it will apply only to businesses in breach of the UK regulation.

The noble Lord, Lord Stevenson, asked as well about the choice, which was between keeping £50,000 as a maximum and finding a sum that was consistent. There were more than 70 responses to the consultation, and most responses on this change were in favour of the £2 million sum. Only some of the larger companies were against.

The short-term scams mostly concern premium rate numbers run for 30 days. Sums run into the hundreds of thousands. They have been a serious concern for the regulator and for the European Commission.

The noble Lord asked about the impact on smaller businesses. The penalty does not have to be £2 million; that is the maximum. As I said earlier, it needs to be appropriate and proportionate. It is for Ofcom to decide, subject to appeal to the Competition Appeal Tribunal.

Her Majesty’s Government believe that this is a necessary and important change to the powers of the regulator. As I said, it will benefit both businesses and consumers. I recommend the order.