Deregulation Bill

Lord Wallace of Tankerness Excerpts

Tuesday 28th October 2014 Grand Committee

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I move Amendment 12 but also give notice that I will oppose the Question that Clause 18 stand part of the Bill. I hope that the Government will accept, as a minimum, Amendment 12, even if they cannot accept the bigger—and in my view better—alternative, which is to drop the clause altogether.

The Government have come up with the rather strange idea of partial authorisation for insolvency practitioners. This would split in two the regulation of what is quite a tiny profession—fewer than 2,000 people. You would then have a profession for company insolvencies and a different one for individual insolvencies. On the basis of no evidence whatever, the Government have decided, in effect, to dumb down the specialist profession of insolvency practitioners. By doing so, they risk helping the larger insolvency firms at the expense of smaller companies, over 80% of which do not believe that they would get much benefit from lower training costs. Indeed, 90% said that they would not train a partial licence holder. The Government admitted to R3, which is the professional organisation involved, that the clause was not being introduced to fix a problem and they have cited no evidence of any undercapacity in the market or any evidence of complaints about the current system. The Joint Committee on the draft Bill, which was ably chaired by the noble Lord, Lord Rooker, was worried about the lack of stakeholder consultation on the issue. Subsequent discussions with the industry have not alleviated any of its concerns.

Clause 18 would allow insolvency practitioners to undertake corporate bankruptcies, which will almost always affect the financial status of individuals involved, with absolutely no training or qualifications relevant to the needs of such individuals when they also face insolvency. Indeed, insolvency practitioners very often do not know at the outset of a case, particularly with micro-businesses, whether they are dealing with a corporate bankruptcy or with a personal insolvency, given the involvement of personal guarantees and the nature of the creditors. The clause would harm small firms, two-thirds of which do both corporate and personal insolvency, just when the Government’s small business strategy is meant to be helping small firms. They do not like this one. Furthermore, it would add enormous expense to the profession, as it would require the development, the delivery and the oversight of new and additional systems of exam qualification. This would be on the basis of the Government’s own estimate that there will be about only 100 such partial licences.

It is hard to imagine how the Government dreamt up this clause. There is no significant demand—we could not find any—for any change. The only suggestion ever to have been around has been for a personal insolvency-only regime, but never for a corporate-only insolvency regime. There is no evidence of there being a group of people who would just love to be IPs and who are dying to enter the market. Indeed, a number of firms are reducing their workforce and there is no evidence for the argument that we need more.

The Insolvency Lawyers’ Association has questioned the logic of operating this proposed two-tier, mixed system. Indeed, in a way, it would be a three-tier system because some insolvency practitioners would be licensed to do individual insolvency only, some would opt to do corporate insolvency only and some would qualify to do both. R3, the professional body, which knows rather a lot about insolvency, has serious concerns about this change. It considers that partial licences would have a negative impact on business and individuals seeking financial advice, as well as on the quality and competitiveness of the UK’s insolvency regime, which, as I am sure the Minister knows, is assessed by the World Bank as being one of the world’s best.

If we look across all the professions, be they doctors, lawyers or accountants, we see that they always start by getting their initial qualification through a broad training that crosses the whole area of their discipline and they then go on to specialise. The Government seem to want to carve insolvency practitioners out of this, making them jump directly to a specialism. Even worse, it could lower standards. Jenny Willott MP, speaking as a Minister in the other House, said that partial licences will reduce a little,

“the high bar on entry to the profession”.

That sounds to me like a dumbing-down.

We are talking about people’s futures—whether jobs are to be saved or a company liquidated, whether it can be sold off so that some of those jobs can be retained, whether individuals will be made bankrupt, whether creditors will get back money that they have already sent to the insolvent company, whether someone with unsupportable debts can be helped to find a way through or whether a company can be sold to someone else who can keep at least some of it running as an ongoing concern. These are big issues that affect people’s futures.

The clause is misguided; it is unnecessary; and it has been criticised by the profession and other stakeholders. The Government would do well just to withdraw it gracefully rather than be forced to do so. My guess is that the clause would never be commenced and that wiser heads would finally prevail. The provision may be in law but I doubt that it would ever be put into practice, so better perhaps to lift the threat now. I beg to move.

[The Advocate-General for Scotland (Lord Wallace of Tankerness) (LD)]

My Lords, I thank the noble Baroness, Lady Hayter, for moving her amendment and speaking to Clause 18. When I came into the Grand Committee—I think that it was during the debate on Amendment 10—I saw the Benches absolutely crowded and I thought, “I didn’t realise insolvency practitioners commanded such interest, not even on a Sunday”.

The noble Baroness made some important points, which I will certainly seek to address, although I think that I will disappoint her, because neither do I feel able to indicate that the Government will accept the amendment nor do they have an intention to withdraw the clause. As she pointed out, Clause 18 will amend the law by introducing a new regime for the partial authorisation of insolvency practitioners. In future, those wishing to become insolvency practitioners will be able to qualify in relation to personal insolvency cases only, in relation to corporate insolvency cases only or in relation to both, as is currently the case.

The effect of the noble Baroness’s amendment would be to allow insolvency practitioners to be partially authorised but only in relation to individual insolvency. As I will come on to when I discuss the clause itself, partial authorisation will remove barriers to entry for those who wish to specialise in just the one discipline. However, I make it very clear that it is not the Government’s intention to restrict this opportunity only to those who wish to deal with individual insolvency. We believe that there should be an opportunity to specialise in individual insolvency, in company insolvency or, and as things stand at the moment, in both. There is no compulsion here; it would be the choice of those wishing to pursue a career as an insolvency practitioner.

The insolvency body R3, to which the noble Baroness referred and which, I acknowledge, is opposed to partial authorisation, has told the Government that 27% of insolvency practitioners work in firms that specialise in corporate insolvency. This compares with 5% who work in firms that deal only with individual insolvency.

The noble Baroness said that take-up of the measure will be small and she asked why we should proceed with it. Existing insolvency practitioners who have gained authorisation for both personal and corporate matters want to continue to cover both areas, but that will not necessarily be the case for new entrants. The Government believe that partial authorisation will be attractive to a minority within the profession who, by focusing on a specific sector or on specific clients, will find that partial authorisation allows them to take appointments in the types of insolvencies that they deal with.

We believe that the changes proposed in Clause 18 will result in lower entry costs into the profession for those who seek partial authorisation and that they will, over time, increase competition and lower fees. That, in turn, can lead to improved returns to creditors in insolvencies. That was certainly my experience when I was a Member of Parliament dealing with companies and small businesses that were often at the receiving end when larger companies went into administration. Very often, it is small businesses that suffer the most when there is an insolvency. If we can improve returns to creditors, including many small businesses, that must surely be a good thing.

It is important to have highly skilled professionals. While we are talking about partial authorisation, company insolvency practitioners and those engaged in personal insolvency matters require a full authorisation. I cannot accept what the noble Baroness says about this being a dumbing-down. Those who pursue that one part of the profession will have a full qualification and therefore I cannot accept that this is about lowering standards. It is important to have highly skilled professionals. We must not forget that imposing unnecessary regulatory burdens on entry into a profession itself has a detrimental impact, particularly on the public, who pay for the services of such professionals.

The noble Baroness mentioned exams and seemed to think that there would be an increased cost. I suspect that if someone is aspiring to become an insolvency practitioner and there are fewer exams to take, there will be a lesser cost for that individual. With regard to exams, I make it clear that the Insolvency Act 1986 provides that the recognised professional bodies that authorise and regulate insolvency practitioners must have in place rules to ensure that insolvency practitioners meet acceptable requirements in relation to education, practical training and experience. A memorandum of understanding between the Secretary of State and the regulators that underpins the Insolvency Act requirements provides that applicants for authorisation must hold a pass in the Joint Insolvency Examination Board exams. I assure the Committee that officials will work with the profession to modify the current exam structure to ensure that partially authorised insolvency practitioners can demonstrate a broad knowledge of both disciplines. The exam structure will obviously have to change, but I cannot see that it is going to lead to the greatly increased costs that the noble Baroness indicated.

As I said, Clause 18 is not about lowering standards; it is about setting appropriate standards. We are asking: why should someone who deals with only personal bankruptcy and individual voluntary arrangements have to know about the finer details of corporate administrations, unless of course they choose to do so? If they do, then of course that choice will still be there. For those insolvency practitioners who at present choose to practise only in corporate or only in personal insolvency, the time and money spent studying an area in which they do not practise will add little or no value to the service that they offer their clients.

--- Later in debate ---

[Lord Sharkey (LD)]

My Lords, to take up some of the points made by the noble Lord, Lord Rooker, the Joint Committee noted that there appeared to be some confusion about the extent of consultation on this clause. We recommended that there be further consultation on what was then Clause 9. In their response to the Joint Committee’s report in January this year, the Government took the opportunity to repeat the arguments in favour of the clause in some detail. They also stated in paragraph 116 that,

“following the Committee’s recommendation, the Government is inviting any further views on this Clause during the passage of the Bill”.

How did the Government go about soliciting these further views? Who did they invite to give those views and what was the general burden of any of those responses that were made after the Government’s response?

As things stood when the Joint Committee reported, we did not feel that there had been sufficient consultation, as the noble Lord, Lord Rooker, was saying, to enable us to express a firm view on the merits of the clause. I note what the Government have said, but I also note the case put forward by R3. In particular, I note R3’s view that partial licences are not being introduced to fix a problem. It claims that there is insufficient evidence of undercapacity in the market and no evidence that the current regime causes concerns about the quality of the advice given. Essentially, it asserts that the system is not broken and asks why the Government are trying to fix it.

The Government, in their turn, advance two reasons for reform. The first is that the partial licences will benefit insolvency practices of all sizes and the personal insolvency market as a whole. R3 has advanced survey data that it says refutes these claims. Secondly, the Government say that partial licences will increase competition, decrease training costs, lower fees and deregulate access to the IP profession. R3 maintains that there is no evidence of the need for more IPs; in fact, it claims that the market is oversupplied. It also challenges the Government’s other assertions.

All this illustrates the position that the Joint Committee found itself in during December. There are competing claims, somewhat unevidenced, and a narrow consultation base, while the Government have not provided an impact assessment on this clause. It would be easier to make a judgment on the merits of the clause if we knew more and had more evidence. There is a strong case for the Government to agree to further substantive consultation on this issue before we reach a conclusion.

[Lord Wallace of Tankerness]

My Lords, I say first to the noble Lord, Lord Rooker, that I did not mention that the provision had started life under the previous Labour Government because I did not know that until he informed me of it. Of course, not everything that the previous Labour Government did was wrong, as I recall from going through the Lobbies at times in your Lordships’ House. I will take the point that the noble Lord makes and find out just who was behind that, if I might make that inquiry.

There were some specific questions asked and I will certainly respond in writing to those who have contributed to this debate. However, it is also important to make the point that existing insolvency practitioners are, by the very nature of their business and profession at the moment, people who are qualified in corporate and personal insolvency. I understand that my noble friend Lord De Mauley has in the past been an insolvency practitioner and he has indicated that these are two different specialisations. Clearly, however, the practitioners are duly qualified and may well question why everyone coming behind them should not go through the same route that they followed.

It may well be, as we believe, that aspiring insolvency practitioners have shown a desire for some partial authorisation. A survey of members of the Insolvency Practitioners Association showed that non-IP members were in favour of this. It would be wrong to go so far as to say that there is an element of protectionism here. However, one of my arguments is that we are looking at people who want to come into the profession—by their nature they are not already there, giving their views—and there are many benefits to allowing that specialisation.

Since I stood up, I have received a further response to the noble Lord, Lord Rooker. I understand that this clause is a development of a policy started under the previous Government. An earlier version of it was proposed for inclusion in a legislative reform order, although the measure was withdrawn and, in the event, the order did not proceed. I will not to try to decipher this note further in case I get it wrong—I will write to the noble Lord.

With regard to the question from my noble friend Lord Sharkey, on 23 January the Government, on the recommendation of the Joint Committee, launched further consultation on whether any changes were required to what is now Clause 18. Responses were considered and included representations from insolvency practitioners, creditor representatives and others. I am not sure whether the responses have been published or whether there is any intention to do so, but perhaps I could write further to my noble friend and give him a flavour of the responses before Report.

My point is that we are dealing with people who are looking to the future and may aspire to a career as an insolvency practitioner but who do not particularly want to take on the whole gamut of it, preferring to specialise in one form or the other.

[Baroness Hayter of Kentish Town]

My Lords, perhaps I should mention—though it is not an interest, being from so long ago—that I was a member of the Insolvency Practices Council, which oversaw insolvency practitioners. I was there as a consumer, not as a trade union member, of the noble collection of insolvency practitioners.

One of the strange things is that this is a deregulation Bill, but it is going to create a new system of exams, oversight and monitoring. That is somewhat odd in a deregulation Bill, but that is beside the point. The assertion is made that it will attract new entrants, without any evidence. The assertion is made that IP fees will be reduced, without any evidence. The assertion is made that training costs will be reduced. Actually, the main training provider, BPP, has to apply its overheads across the exams, so the cost per exam will go up even if you do two exams rather than three. These are assertions, not evidence.

When I was involved in this area—this may answer the question posed by the noble Lord, Lord Rooker, though not to me—there had been suggestions about a personal insolvency-only regime, never a corporate insolvency-only regime. The idea was that people working in debt management companies in particular might want a personal insolvency-only regime. However, despite the fact that I spoke on this at Second Reading and have had lots of lobbying and approaches from everyone else, none of the debt counselling people has approached me to support the idea of a single licence. There has been silence on that. However, it explains why the amendment would be to allow a personal-only insolvency regime. None the less, I remain worried about the idea of a corporate-only insolvency regime, whereby people dealing with corporates would have no training in personal insolvency. It is an issue that we may want the Government to reconsider, but for the moment I beg leave to withdraw.