Legislative Reform (Hallmarking) Order 2013

Lord Stevenson of Balmacara Excerpts

Tuesday 29th January 2013 Grand Committee

I am all for UK plc making £400,000 more profit but what are the costs to our manufacturing trade, to our jewellery industry and to the designers who are able to operate within the UK and who rely on the UK hallmark as part of the stamp of quality? I would like to hear my noble friend’s reassurance on those points.

[Lord Stevenson of Balmacara]

My Lords, I thank the Minister for his very clear and interesting opening remarks and for setting out the background to this order. I am also grateful to the noble Lord, Lord Hodgson, for us being not just a duet. We have not only an extra speaker but somebody who actually seems to know a little more about this. I may be taking a step in the wrong direction to say this but neither I nor my opposite number have anything like the expertise that has just been displayed. I have a number of points to make and would be very interested to hear how the Minister responds to the points made by the noble Lord, Lord Hodgson, particularly on the worry he has about regulatory capture, which I certainly recognised as a worry from reading the notes.

The noble Lord also asked about who actually benefits from this. It is apparently being done for the benefit of the four assay offices, but possibly at the cost and expense of those who design, make and sell excellent quality jewellery and related articles within the UK. We need to have regard to that. One could imagine a scenario in which this legislative reform order was not required because a strong, export-led provision of services dominated the world markets and the quality of hallmarking and assay services offered in Great Britain was sufficient to make the rest of the world take us as the standard without inventing others. However, that clearly is not happening.

It is interesting to note that hallmarking is one of the oldest forms of consumer protection. As the notes make clear, it has been in existence in the UK for some 700 years. The main thrust of my argument is about protecting consumers. As I understand it, hallmarks serve three functions: they are distinguishing marks struck on articles, such as items of jewellery, that are made of platinum, gold, silver and now palladium, which guarantee to the world the purity of the precious metal content of the article; they are an indication that the articles have been independently assayed; and, currently, they confirm that, in the UK, the assaying and hallmarking of precious metals has been carried out by one of the four assay offices, which are located in London, Birmingham, Sheffield and Edinburgh.

The law that governs hallmarking in the UK is the Hallmarking Act, as we have heard, and a number of pieces of subordinate legislation. The draft order contains a number of proposals to amend the Hallmarking Act, but the main one is to enable offshore hallmarking by the UK assay offices and for items bearing those hallmarks to be treated in the same way as items bearing hallmarks struck in the UK. It is on this issue that I wish to respond.

When the Minister responds to the debate, I would be grateful if he could answer the following questions, as well as those asked by the noble Lord, Lord Hodgson. The explanatory document provided by the National Measurement Office, dated November 2012, points out in paragraph 16 that,

“the proposed change to existing law represents a radical broadening of the hallmarking operations currently legally permitted (UK-based only) to the striking of UK hallmarks on, potentially, a global basis”.

Notwithstanding that the consultation process revealed widespread support for this change—although “widespread” has to be interpreted carefully, given the volume of consultees who were approached—the document goes on to explain that it was “the Minister” who decided that the order would be taken under Section 17 of the Act, using an affirmative resolution process, and not under the super-affirmative resolution process that is provided for in Section 18 of the Act. However, the document is rather vague about what evidence was used by the Minister to justify the decision to utilise the Section 17 procedure? Can the noble Viscount enlighten us further on that point?

One of the main risks to this proposal is that control of the hallmarks in the offshore locations will be lost, which might lead to the possibility that all UK assay office marks will be become so tainted as to be devalued. Will that not require continuing and intensive supervision by the Hallmarking Council and indeed by HM Government? Has any assessment been made of that risk? If it is thought to be a real risk, why has no continuing cost been ascribed to it? All we have is the rather small sum of £25,000 allegedly for set-up costs.

Given that hallmarking is at heart a consumer protection measure, as I said, what steps will the Government take to make sure that consumers are aware of these changes? We are, after all, talking about a global trade, worth about £4 billion per annum within the UK at present, with articles increasingly being produced and hallmarked in low labour-cost countries such as Thailand and India. Hallmarks authorised by EEA counterparts will also be sold in the UK. To compound it all, our current style of marks is being changed. It seems to me that this will call for a major, proactive consumer information programme. Who will lead on that in the absence of Consumer Focus? Will it be Citizens Advice? What sort of budget are the Government thinking of? I would be grateful for more information on that, if possible.

The main responsibility for enforcing the Hallmarking Act lies with local authorities through their trading standards departments, although often assisted by the assay masters, as the document puts it. As one of the accompanying documents says, and it puts it rather well:

“Trading Standards Departments have a wide brief, but limited resources, as a result of which the level of surveillance and enforcement activity has reduced over recent years”.

No surprise there. Clearly it is vital now, and even more so if this LRO is passed, for all concerned to ensure that hallmarking law is enforced for the benefit of consumers and, indeed, the trade.

The Minister will be aware, though his work on the ERR Bill and elsewhere, of a number of additional responsibilities that are being transferred to trading standards departments, so I would be grateful if he could confirm that the additional workload on these departments has been adequately assessed. For example, they will need to keep up to date on the number of new offshore assay offices being established, the new marks that are being introduced and the impact of the other changes in this order. It is clearly important that adequate funding and training are provided. I could not see this item in the otherwise very comprehensive impact assessment, so will the Minister spell out the situation?

Finally, there are currently four UK assay offices permitted to apply the UK hallmark. According to the document they all work independently of one another, and, being based in London, Edinburgh, Birmingham and Sheffield, they are apparently very different organisations. What steps will the Government be taking, if any, to ensure that we do not get a glut of offshore hallmarking offices around the globe, perhaps competing against each other? The mind boggles at the prospect of seeing UK assay office London, UK assay office Sheffield, Birmingham, Edinburgh—noble Lords will get the point—in direct competition in gold and silver factories across the globe, when we are in essence talking about a UK standard.

As my noble friend Lord Hodgson asked, will job losses in the UK offices—a risk pointed out in the document—not adversely affect UK-based designers and manufacturers? The British Hallmarking Council is in the lead here and we have to take its advice, but the council’s role is only to advise government on hallmarking policy and any need for legislative change, so the buck stops, I respectfully point out, with the Government. I would be grateful for the Minister’s comments.

[Viscount Younger of Leckie]

My Lords, it has been a somewhat lonely debate, but I am most grateful to the noble Lord, Lord Stevenson, and my noble friend Lord Hodgson for their considerable contributions. The paucity of contributors to the debate has been counteracted by the considerable number of questions, notably from the noble Lord, Lord Stevenson, and I will do my best to answer them all. If I cannot, I will of course follow up in writing.

I also thank the noble Lord, Lord Stevenson, and my noble friend Lord Hodgson for their acknowledgement of the risks facing the UK hallmarking regime. I am particularly pleased that the efforts of the hallmarking community in helping bring about this order have not been in vain. The Government’s task in opening up fresh opportunities for UK hallmarking is nearly complete. It is now for the UK assay offices to grasp such opportunities as they wish and as their commercial judgment deems desirable. As I see it, the most important outcome of this whole venture is that there will be a level playing field between the UK assay offices and their competitors in the European Economic Area, now that the metaphorical bonds tying the hands of the assay offices have been undone.

Also worth mentioning is the widening of choice of sponsors’ marks. This is in its own way a radical step. It is also an eminently sensible one, in that it will make life easier for sponsors, who range from craftsmen operating a small business to large manufacturers. Anything which simplifies the presentation of articles of precious metal for hallmarking is to be wholeheartedly welcomed.

My noble friend Lord Hodgson, supported I think by the noble Lord, Lord Stevenson, raised the issue of the cost benefits of this exercise and change. It is best to be frank and to make the point that it is expected that a limited number of new jobs will be created where assay offices choose to set up offshore hallmarking operations, which is good news. Having said that, the hallmarking community itself acknowledges that there are likely to be some job losses in the UK as a result of the setting up of overseas hallmarking operations.

However, my main point is that the alternative would be far worse. Failure to grasp the opportunity to tap into the demand for offshore marking of high-volume jewellery would further reduce the competitiveness of the UK assay offices, which are already losing business to those competitors who are able to hallmark offshore. For example, one assay office has already lost about a third of its core staff—15 people—with this figure likely to increase to some two-thirds of existing staff, simply because of the inability to compete. Ultimately, failure to change the UK hallmarking law could lead to the closure of one or more assay offices and even greater job losses.

My noble friend Lord Hodgson raised the important question of the potential loss of reputation, as he put it, or loss of quality, as a result of the changes. I can reassure him that different marks are required to distinguish between onshore and offshore hallmarking operations. No diminution of reputation or quality is foreseen, as the British Hallmarking Council is responsible for all hallmarking operations.

My noble friend also raised the issue of the removal of the competitive advantage of UK jewellery manufacturers. Again, I can reassure him that UK manufacturers are mainly bespoke manufacturers, whereas overseas manufacturers focus mainly on the mass produced market, so there is no removal, as I see it, of competitive advantage.

The noble Lord, Lord Stevenson, asked why the procedure was not super-affirmative. We do not consider that the changes being made by this order are of such significance as to require the use of the super-affirmative procedure. There was general agreement among consultees on the proposals. Moreover, a committee in the other place concluded that the affirmative resolution procedure was appropriate. The Delegated Powers and Regulatory Reform Committee of this House did not call for the order to be subject to the super-affirmative procedure.

The noble Lord also raised the issue of state aid and funding for change; in other words, with the changes, whether there would be some state aid. The assay offices are entirely self-financing and, as such, no government money will be used to effect this change.

[Lord Stevenson of Balmacara]

I do not think that I can let that pass. Unfortunately, I have just given away my notes, but I am sure that a close reading of Hansard will show that I never said such a thing and I did not raise that point. It is an interesting one and I am grateful to have heard it, but I did not in fact make that point.

[Viscount Younger of Leckie]

I do apologise; I was under the impression that the noble Lord had raised that issue.

The noble Lord, Lord Stevenson, raised the issue of how to inform consumers about these changes. The procedure is that a dealer’s notice is required to be displayed in all premises selling hallmarked items, and this will include both the onshore and the offshore marks.

Finally, the noble Lord asked about the representation of the British Hallmarking Council. The council consists of 19 members covering eight assay offices, 10 government appointees and one chairman. The 10 government officers include four from industry, while the others are from consumer protection and the independents. I hope that that answer helps the noble Lord.

In conclusion, although there may well be some other questions that need to be answered—