Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017

Lord Young of Cookham Excerpts

Thursday 1st February 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Orders laid before the House on 4, 19 and 20 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, these three orders relate to the mutuals sector, which encompasses co-operatives, community benefit societies, credit unions and building societies. In the mutuals sector the interests of members, not shareholders, are paramount. Mutuals are an important part of Britain’s diverse and resilient economy, and we wish to keep it that way. Recognising this, the Government have brought forward a package of measures to provide further support for the sector and level the playing field between mutuals and companies.

There are nearly 7,000 co-operatives in Britain today, which together contribute more than £36 billion to the UK economy. They employ over 200,000 people and are part-owned by 13.6 million members of our society. The Government recognise the value of co-operatives and want to ensure they are not saddled with unnecessary administrative burdens. Since 2012, small companies have enjoyed an exemption from the requirement in the Companies Act 2006 to have their accounts fully audited.

The first statutory instrument, the Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017, will increase the thresholds at which co-ops are required to appoint a professional auditor from £2.8 million in assets and £5.6 million in turnover to £5.1 million in assets and £10.2 million in turnover, in line with those for companies. While this proposal is deregulatory, noble Lords can be confident that appropriate controls remain in place. Members must vote to apply the exemption and the regulators can still demand a full audit if they have concerns over the management of a co-operative. Furthermore, co-operatives which disapply the requirement to appoint a professional auditor will still be required to prepare a less onerous audit report.

The second of the three orders before the House is the draft Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018. Building societies serve over 20 million UK customers and are an integral source of loans to first-time buyers. In order to offer fixed-rate mortgages, building societies must hedge against the risk of interest-rate changes and may do so by buying derivatives. The European markets infrastructure regulation of 2012 requires all derivatives to be centrally cleared. This means that building societies must either become direct members of a clearing house or clear through third-party members.

However, as it currently stands, the legislation prevents building societies complying with the membership rules of the main UK clearing house. The specific rule which we are concerned with requires that, in the event of a member defaulting, other members must bid for a portion of the defaulted member’s derivatives portfolio. Under current legislation, building societies cannot take part in this process because they are prohibited from trading derivatives for any purpose other than to hedge balance-sheet risk. As a result, building societies must clear indirectly through third parties which are members, placing them on an uneven footing as compared to banks. Clearing through third parties incurs expensive broker fees and makes building societies dependent on clearing-house members continuing to offer this service.

This SI will amend the Building Societies Act 1986, which I believe I put on the statute book, to allow building societies to trade derivatives not just to hedge their balance-sheet risk but for the purpose of complying with the membership rules of a clearing house. The Government have consulted representatives of the building societies and the Prudential Regulation Authority in developing these proposals, and they are content.

The last order before the House concerns mutuals in Northern Ireland including, for this purpose, credit unions. Under the Financial Services and Markets Act 2000, mutuals in Great Britain are registered with and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. As noble Lords will recall, prior to the appointment of the FCA as the primary financial services regulator, this function was performed by the Financial Services Authority. Following the failure of Presbyterian Mutual in October 2008, at a cost to the taxpayer of £50 million, Northern Ireland Ministers and HM Treasury agreed that responsibility for regulating Northern Ireland credit unions and other mutuals should transfer to the FSA. Responsibility for regulation was transferred in 2011. The aim of this transfer was to provide members of those mutuals with access to the Financial Services Compensation Scheme and the Financial Ombudsman Service, among other benefits.

It was intended that the registration of Northern Ireland’s mutuals should follow in due course, once the establishment of the new Financial Conduct Authority and Prudential Regulation Authority was completed. It is clearly logical for registration and regulatory oversight to lie with a single authority. The Northern Ireland registering authority, the Department for the Economy, also supports the move. A good deal of preparatory work has now taken place, and Department for the Economy and FCA officials are working closely to ensure that Northern Ireland’s mutuals are supported during the transfer of registration, which is set to occur on 6 April this year. Societies previously registered with the Department for the Economy will not have to re-register; their records will simply be transferred to the FCA.

I trust that the Members of the House will agree that these orders represent a welcome update to mutuals legislation across the country for the wider benefit of the sector. I commend the orders to the House.

[Baroness Kramer (LD)]

My Lords, I have a few questions to ask the Minister on these orders, although I cannot see anything major wrong with them. The first order the Minister described lifts the threshold at which point a co-op is required to have a professional audit. I have two questions on that. Looking through the attendant paperwork, I notice that responses to the consultation came from different co-operative societies. It is no surprise that they would wish to be on a level playing field with their various competitors which are privately owned companies, so I perfectly understand why they feel it is unfair that they should carry a cost burden which their competitors of the same size do not. But there is a difference between a private company and a co-op, which is that the membership of the co-op, which in effect is its ownership, is typically much more widely cast and made up of a large number of people who may not have a great deal of financial sophistication, whereas the owners of a privately owned company may have much greater awareness of the financial structure and happenings within that company. So I wonder to what extent the Government in their consultations took into account the exposure of relatively small people to losses that might seem quite small to those who have very large incomes but might be significant to those who are part of the membership of a co-op. It is the first area of concern.

Secondly, I am curious to understand the choice of benchmark. From the outside, it looks slightly random. I wonder whether it was done on a percentage of size within the industry or whether there was some structural characteristic within the industry that led to the choice of that benchmark.

The second issue the Minister addressed was the provision of the order that would allow building societies to be members of clearing houses. I think that all of us in this House agree that it is crucial that interest-rate swaps are cleared through a central counterparty—in the UK that would usually be the London Clearing House—and that it is very frustrating for building societies and mutuals to have to go the agency route and pay a brokerage fee, usually through an existing member which, quite frankly, is fairly disinterested in the service that it provides to that building society, never mind charging for it—so I am entirely on board. Can the Minister strengthen his confirmation that this provides no capacity for building societies to engage in speculation? It seems to be very clear that it does not. We all recognise that anyone providing a fixed-rate mortgage can do so only if they can hedge it through a derivatives contract, so that is an entirely appropriate and necessary use of a derivatives contract, or by doing it at the level of the balance sheet to achieve the same kind of protection.

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[Lord Mawson (CB)]

My Lords, I agree with the noble Lord, Lord Kennedy. Although I am not sighted on the detail of the co-operative and community benefit societies order, it feels like the right direction of travel. My point is really just a general one. I spend a lot of my life in SMEs and small charities, and at the moment many of them are becoming overwhelmed by the amount of bureaucracy, red tape and other things that are appearing on their desks. My question is really one that the Minister might take back to government. Someone needs to look carefully at what is happening to these small organisations, in terms of the amount of red tape and things that are appearing on their desks, and whether we can create this direction of travel for some of them. It is just a general point and a concern.

I was at a small charity last weekend, with one member of staff and two part-time people working in it, which is doing a great piece of work around education in the local community. The amount of treacle and stuff they were having to deal with was immense and extraordinary. You can feel many good people, who want to do good things in their community, wondering how much longer they can have a role in these kinds of things. They become very fearful of the 92-page document that appears on their desk. It is a general point, but one that needs to go back to government.

[Lord Young of Cookham]

My Lords, I am grateful to all noble Lords who have taken part in this brief debate and hope to address as many points as I can in response.

The noble Baroness, Lady Kramer, asked why the figures for the thresholds had been chosen. The reason is given at point 7.4 of the Explanatory Memorandum:

“These thresholds are out of step with both inflation over the last decade, and current company law. Over the same period, the thresholds for private limited companies of comparable size have been updated”.


We are aligning the thresholds in this order with those for companies. As we heard from the noble Lord, Lord Kennedy, this has by and large been welcomed. The noble Baroness made a different and wider point, which goes to the heart of the Co-operative movement— namely, how it takes decisions. Not just those on audit, but all decisions in co-operatives are nominally taken by the members. If she wants to press that issue, it goes to the heart of what the Co-operative movement is and how it is regulated. It is a much broader point than the specific one on audit. As I said, they would have to vote for this exemption. In addition, there is still an opportunity for the regulator to intervene if he is concerned, and there will still have to be an ordinary audit of the accounts.

A number of noble Lords, including the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, asked about the exemption for building societies and were slightly concerned that it might go broader. But if one looks at new paragraph (d) in Article 2 of the SI, it is very narrowly drafted. The general exemption, which the noble Baroness referred to, is lifted in the very constrained circumstances of complying with,

“an obligation imposed by a recognised clearing house”.

So it does not open the building societies into the wider field of trading in derivatives and of speculation.

The noble Baroness asked a general question about cascades. When I introduced the order, it was in the specific context of a limited failure and the members having to bid for the interests of the defaulting member. On the broader question of what happens if the whole system collapses, the briefing I have here says, “I will write”. It is a good question about what happens if there is a systemic failure. As I say, I will write about that.

The noble Lord, Lord Kennedy, asked about consultation with the Building Societies Association. Yes, we consulted representatives of the BSA and they are supportive of the change. As I said a moment ago, the exemption is sufficiently narrowly drafted so that building societies will not be able to engage in speculation.

The noble Lord, Lord Tunnicliffe, asked about the delay in transferring the registration responsibilities from Northern Ireland over to the FCA. It was caused, first, by the transfer of the responsibilities of the FSA to the FCA and PRA, which were established in 2012. Secondly, time was needed to prepare for the transfer between the FCA and Department for the Economy officials. I do not think there is anything sinister behind it. Northern Ireland Ministers agreed with HM Treasury to transfer the function, and the Department for the Economy in Northern Ireland has indicated that it does not have the resource to continue providing this function. If it had kept on doing it, it would have had to increase the fees. As I said when I introduced the order, it is logical to have registration and regulatory oversight sitting with the same body.

The noble Lord, Lord Mawson, raised a more general point about regulation for charities. I will take that away, but we have recently made it easier for charities to reclaim the tax through Give As You Earn, by making it less bureaucratic to claim the extra tax. I think I remember taking through an SI, or indeed a Bill, on that a year ago. I will write to the noble Lord, because he raises a good, general point about the regulatory burden on charities, which we certainly want to lift.

I think I have covered all the points raised, apart from the systemic one about cascade failure. I beg to move.

Motions agreed.

Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018

Lord Young of Cookham Excerpts

Thursday 1st February 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Order laid before the House on 21 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, the order amends existing regulations to clarify an outstanding regulatory issue for the peer-to-peer lending industry. Peer-to-peer lending is not what happens at the Bishops’ Bar, but a thriving business activity which I will describe in a moment.

Specifically, the order, drafted in consultation with the Financial Conduct Authority and the Prudential Regulation Authority, will set out when a business borrowing via a peer-to-peer lending platform would need to have a deposit-taking licence to do so.

Peer-to-peer lending is a relatively new financial service, with the world’s first peer-to-peer loan originating in the UK in 2005. This nascent industry has experienced rapid growth and, at the industry’s request, the Government legislated to bring running a peer-to-peer lending platform into the scope of financial services regulation. Running a peer-to-peer platform is a discrete activity and not, for example, another type of asset management service. It allows investors, including consumers, to lend money directly to businesses or other consumers via the peer-to-peer platform.

The Government therefore introduced bespoke legislation regulating peer-to-peer lending where it interacts with consumers. This means that all P2P platforms used by consumers need to be authorised by the FCA and comply with financial, organisational and conduct requirements. These requirements include rules regarding separation of client money, business conduct such as fair treatment of customers, financial promotions and creditworthiness and affordability assessments.

This approach to regulation has allowed the industry to thrive, and £3.5 billion was lent via peer-to-peer platforms in 2016. In 2016, peer-to-peer lending to businesses grew 36% compared with the previous year, and was the equivalent of 15% of all new loans by UK banks to microenterprises in 2016. These impressive statistics demonstrate the Government’s commitment to fostering a diverse and competitive financial services sector which delivers quality services at efficient prices.

There is a degree of risk in members of the public making deposits, as they may not necessarily have the same degree of financial literacy as professional lenders. As a result, regulation surrounds businesses accepting deposits from the public. Under current legislation, conditions set out that if a business wishes to accept deposits from the public in order to wholly or materially finance their activities, such as a bank, they must be authorised and regulated by the FCA and the PRA. This could be termed “accepting deposits by way of business”. The regulatory permission for accepting deposits by way of business is known colloquially as a banking licence.

Currently when a business borrows money via a peer-to-peer platform, the legislation could be read as saying that businesses are technically accepting deposits from the public “by way of business” and therefore require a banking licence. In reality, it is not the case that the core business of these borrowers is accepting deposits. If it were, they would, for example, be operating like a bank and require FCA and PRA oversight.

However, for the vast majority of commercial borrowers, borrowing via peer-to-peer platforms is simply a way of financing their business—for example, capital expenditure. In the existing legislation as inherited by this new industry, there exists uncertainty as to whether those who are not accepting deposits as their core business would still need to be regulated.

It remains the case that peer-to-peer platforms used by consumers should be regulated, but some peer-to-peer platforms are therefore unsure as to whether businesses borrowing via their platform would require a banking licence. The practicalities of obtaining and then maintaining a banking licence just to borrow via a peer-to-peer platform would be burdensome for both the borrower and the platform, increasing costs and making it unviable as an efficient source of finance.

The order therefore provides clarity for peer-to-peer platforms and their business borrowers regarding the regulatory framework. It does this in a number of ways, specifically by making clear that where a peer-to-peer borrower is using deposits solely to finance their other business activity, they should not need a banking licence, and by ensuring that regulated financial institutions still need a banking licence to accept funds from the public, regardless of whether they do so via peer-to-peer or other means.

The order is required to provide certainty to peer-to-peer lending platforms and the businesses which fund their growth and other costs through this means. The certainty provided by the order will ensure that no undue burdens are placed on the sector or businesses because of legislation which predates the invention of this financial service. I beg to move.

[Baroness Kramer (LD)]

My Lords, I may have been the first person in this House to use the phrase peer-to-peer lending, to the enormous amusement of Lord Peston, who misunderstood it as “pier to pier”, which, as he said, was impossible. It is now a widely accepted, very successful strategy. I am not sure if this is officially a conflict of interest, but I declare that one of my children is an employee of a peer-to-peer lending platform. Back in the old days—and certainly before my son was involved—my noble friend Lord Sharkey and I helped to construct the framework that sits behind the regulations. We obviously missed a trick in allowing this discrepancy to enter the regulation, and for that, I—also on behalf of my noble friend—apologise. I am very glad that the Government are clearing up this misconception.

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[Lord Young of Cookham]

I am grateful to both noble Lords who have spoken in this debate. I accept the mea culpa from the noble Baroness, Lady Kramer, although I assume that there was a Minister involved who also failed to spot this as the legislation went through. But it was generous of her to accept full responsibility for not spotting this lacuna.

In response to the noble Lord, Lord Tunnicliffe, this order is borrower facing; it does not affect the platform or the investor. The platform may be able to give greater assurance to borrowers that, because of this SI, the borrower need not worry about having to get a banking licence, but it is essentially, as I said, borrower facing.

On the issue of regulation by the FCA, like the noble Lord, I made a few inquiries about this, because, like him, I am new to this. There are roughly 60 P2P platforms active in the UK. Before the FCA’s regulatory regime was introduced, I understand that some platforms ceased trading and a couple of very small P2P platforms failed in the UK, but it is not known whether lenders lost any money as a result. But all this happened before the FCA’s regulatory regime. Since then, the FCA is keeping an eye on the industry. Occasionally, as with many other financial services firms, they have told platforms to take down a certain advertisement or amend a part of their business model. To be authorised in the first place, some firms have to make substantial changes to pass the FCA’s rigorous threshold conditions for advertising. But also there is a review, conducted by the FCA, going on at the moment, and I shall certainly feed the concerns of the noble Lord into that review, and into the wider P2P industry as a whole.

I think that I have answered all the questions that have been raised, and commend the order to the House.

Motion agreed.

European Union (Withdrawal) Bill

Lord Young of Cookham Excerpts

Tuesday 30th January 2018 Lords Chamber

[Lord Morris of Handsworth (Lab)]

My Lords, this is a unique debate, the first of its kind, certainly in my experience. However, we are not debating principles. The people have spoken and now we must respond. Nor are we debating timing, methodology or process because these factors, important as they are, have already been determined and, indeed, concluded in another place. Therefore, this House is primarily concerned with the execution and consequences of the decision taken by the British people to leave the European Union. It is now the duty of this House in this debate, as in the other place, to respect and deliver the will of the people.

I am very much aware that the House has had a number of debates on the decision to leave the European Union and the implication has been well examined, so I will not dwell on the particulars. Nevertheless, there is one area where the outcome amounts to success or, indeed, failure: that is the free movement of people. Therefore, my question to the Minister is: where in the thousands of pages which reflect the debate in the other place are the contingencies and the planning for exit day?

We already know that there is currently a steady stream of European returnees who feel unwanted living in a hostile environment in the UK. This is not specific to one sector or profession, north or south; already some sectors are preparing for the worst. The horticultural industry is seeking workers to replace those planning to leave. The NHS is planning for the worst as the European NHS workers start to go home, and this is also true in agriculture, construction and social care, among other sectors. I trust for all our sakes that the planning process to fill the gap is well advanced. When the Minister responds to the debate, will he tell the House where is the contingency plan to sustain economic stability? When will it be developed and implemented?

By the end of the debate I hope that we will be clearer about many of the issues which worry many of our fellow citizens whose lives will be affected whether they voted to leave or to stay. The way people voted does not devalue questions about, for example, animal welfare, food additives or joining or leaving the single market. The debate was much more parochial and was influenced by populism in respect of the yes or no vote. I have a great many questions, far too many to consider in these few minutes. However, what guarantees will there be as regards maintaining and enhancing workers’ rights so that they do not fall behind the rights of workers across the EU? An amendment in the other place required that after Brexit any change to employment rights and protections for consumers and the environment would require primary legislation and proper scrutiny by Parliament. It was narrowly defeated by the Government.

Regulations covered by the European Social Charter, including drivers’ hours and the working time directive protected not only workers but the health and safety of us all. Why would the Government reject proper scrutiny? Similarly, the Government have argued that we will no longer enjoy, or be protected by, the jurisdiction of the European Court of Justice. What will replace the jurisdiction of the ECJ? The proposals set out in the European Union (Withdrawal) Bill will require UK courts to interpret legislation passed before Brexit in line with EU law and European Court of Justice judgments, but there are uncertainties in relation to the way this will be interpreted in future. Will the Minister consider that point and calm our worries?

In many rural areas, farmers had difficulty last year in finding people to pick their fruit and vegetables. Even workers who had regularly travelled from Europe for this seasonal work chose instead to stay in Europe, where the environment was more hospitable. Many employers have difficulty finding local people with the willingness and skills to do certain work, including, as I have indicated, the NHS, care services and hospitality. Am I alone in feeling there is too relaxed an attitude to this problem, not just in our Government but in many communities and sectors of our economy?

Finally there is the problem of the continuing use of UK and EU citizens as bargaining chips. It is affecting every industry and shattering the lives of thousands. The application process, which we are told will settle this problem, clearly will only make matters worse. Migration experts warn that hundreds of thousands of EU nationals living in Britain could struggle to secure Home Office permission to stay in the UK after Brexit. Already, applicants for citizenship are being turned away by the Home Office—

[Lord Young of Cookham (Con)]

Noble Lords have been very good about observing the advisory limit of six minutes. I urge the noble Lord to pay similar respect to the time limit.

[Lord Morris of Handsworth]

I accept the noble Lord’s comments and will wind up.

In view of the points already made, British workers will not return to the status of poor relations. They will defend the working time directive, the drivers’ hours regulation and the social charter. As with all major challenges, there is no turning back. As a nation, we have made our bed, and there we must lie.

Contaminated Blood

Lord Young of Cookham Excerpts

Monday 29th January 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, with the leave of the House, I shall repeat in the form of a Statement the Answer given by the Minister for the Constitution to an Urgent Question in another place. The Statement is as follows:

“The contaminated blood scandal of the 1970s and 1980s was an appalling tragedy that should never have happened. Victims and their families have endured so much pain and hardship and they deserve answers about how this could have happened. I am grateful to the honourable Lady for bringing this issue to the House today, and for her leadership, alongside the honourable Member for Worthing West, Sir Peter Bottomley, of the all-party parliamentary group, which has done such consistent and constructive work on this issue.

As honourable Members will know, following the Prime Minister’s announcement in July last year that there would be an inquiry into these terrible events, the Department of Health launched a consultation on what the form and scope of that inquiry should be. I would like to thank all those who contributed to that process: we understand how difficult and painful describing these events must have been. The responses to that consultation were carefully considered by Cabinet Office officials. As a result, we confirmed that the inquiry would be statutory, established under the Inquiries Act, and we moved the sponsorship of the inquiry from the Department of Health to the Cabinet Office.

Before Christmas, we announced that the inquiry would be chaired by a judge. We have asked the Lord Chief Justice to provide us with a nomination. We hope to announce the name of that judge very soon. Once the appointment has been announced, the Cabinet Office will have early discussions with the chair about setting up the inquiry, and will encourage the chair to quickly hold further consultation with the affected communities over the inquiry’s terms of reference.

Finally, I want to reiterate again that I, the Minister for the Cabinet Office, and the Prime Minister are determined that those affected by this appalling tragedy will get the answers they deserve”.

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[Lord Young of Cookham]

I am grateful to the noble Lord for that very constructive response, and I endorse what he said about the all-party group. The Haemophilia Society has also been very active in this area for many years. I expect the chair to be announced in days rather than weeks; that is how I interpret the “very shortly” commitment that was given in another place.

It will fall to the chairman to determine the terms of reference. Before he does so he will, as the noble Lord suggested, want to consult the affected community on those terms of reference. Once he has done so, and has made a recommendation to the Minister for the Cabinet Office, I anticipate that there will be another Statement to the House setting out the scope of the inquiry. The noble Lord asked a final question about whether the terms of reference will include what happened afterwards, as well as what happened before. As I said, we expect the chair to consult on the terms of reference, and I am sure he will take on board the point that the noble Lord has just made in drawing up the terms of reference that he will submit to the Government.

[Baroness Featherstone (LD)]

My Lords, sadly, I have to declare an interest. Some noble Lords will know that my nephew died; he was a victim of the contaminated blood scandal. Concerns have been voiced over the timing of this inquiry, and I want some assurances from the noble Lord. He mentioned the Haemophilia Society, but I do not know how aware he is of some disquiet and concern among the haemophiliac community about the society. Can he assure me that the Haemophilia Society will have no special status in this? A vast number of victims feel that the Haemophilia Society contributed to the scandal, rather than alleviated it. That does not reflect on the noble Baroness who is now president of the Haemophilia Society. This scandal has gone on for 40 years, but it is still very important that those who are affected do not feel that the Haemophilia Society has the special ear of the chair or the Government. I want also an assurance that the terms of reference will be broad enough to catch the harms that were done, and that the victims will have the ability to input to those terms of reference.

[Lord Young of Cookham]

I am grateful to the noble Baroness, and I am very sorry to hear that she lost a nephew as a result of this tragic sequence of events. I looked at the Haemophilia Society website earlier today, and I did pick up the controversy that she has just referred to. I think it will be an important, but not exclusive, witness and giver of evidence to the terms of reference, and I am sure that the chair will be aware of the anxieties that the noble Baroness has just referred to. We want to ensure that all those who want to give evidence are able so to do. I hope that the chair will take the advice of many of those who gave evidence that there should be a regional dimension to this inquiry. People should not have to come to London if they want to give evidence.

[Baroness Masham of Ilton (CB)]

My Lords, will Scotland and England be treated the same? Will the inquiry cover all of the countries involved, including Northern Ireland, Scotland and Wales as well as England? There have been some problems in the case with which I was dealing with regard to compensation if you lived in Scotland and were contaminated in England, or vice versa.

[Lord Young of Cookham]

I am grateful to the noble Baroness. This is a UK inquiry. The problem affected the whole of the UK. There are provisions under the Inquiries Act for consultation to take place with the devolved Parliaments and Assemblies, but it is a UK inquiry. There is a specific issue about the arrangements made for helping those who suffered. It is a devolved responsibility. Those particular responsibilities may differ in Scotland from the rest of the UK.

[Lord Elystan-Morgan (CB)]

My Lords, while I welcome the Government’s initiative in this matter, may I ask about an inquiry that was conducted about 10 years ago by the late Lord Archer, a former law officer? It was privately commissioned, but published thereafter. I think that the recommendations were accepted by the Government of that day. Can the Minister tell us something more about that, which was apparently a searching and revealing study into this matter?

[Lord Young of Cookham]

The noble Lord asks a question that is right at the extremity of my familiarity with the subject, but I looked it up and the noble Lord is quite right. There was an independent inquiry in the early 2000s by the former Solicitor-General for England and Wales, Lord Archer. I understand that it held no legal or official status at all. It was unable to subpoena witnesses or demand the disclosure of documents, but it looked at some of the issues and discovered that some important documents had been destroyed. There were issues of missing evidence. After he reported, Lord Jenkin, who was also a former Secretary of State, voiced his difficulties about obtaining documents for the inquiry. That inquiry is available and will be available to the statutory inquiry. I hope that it will be able to build on some of the work that Lord Archer undertook.

[Baroness Meacher (CB)]

My Lords, can the Minister assure the House that the different groups of sufferers within this community will all be consulted by the chair and the panel? There are widows, people who are still suffering, people with HIV and people who do not have HIV and they have all been treated differently and in many cases grossly inadequately over the years. This is one of the concerns. People do not want the Haemophilia Society to be the one group that is consulted, because people from these different situations want to speak for themselves. I would like to think that the Haemophilia Society reflects everyone’s interests, but I absolutely respect the wishes of the different groupings. That assurance would be very helpful to them.

[Lord Young of Cookham]

I am very happy to give that assurance to the noble Baroness. As she may know, there were more than 800 responses to the consultation that we launched in July, which concluded in October, so it is quite clear that there is a substantial body of people who take an interest in the subject and have already made representations. I am sure that the chair will want to consult with a wide range of people—survivors and relatives—before he or she finalises terms of reference.

Public Bodies: Appointments

Lord Young of Cookham Excerpts

Thursday 25th January 2018 Lords Chamber

[Baroness Prosser]

To ask Her Majesty’s Government what assessment they have made of whether recent appointments to public bodies have adhered to (1) the spirit and rules of the Governance Code on Public Appointments; and (2) relevant legislation, and of whether all such appointments have been made on merit.

[Lord Young of Cookham (Con)]

My Lords, the Governance Code on Public Appointments was introduced in January 2017. Ministers make appointments in accordance with the code as well as the relevant legislation. In addition, the Commissioner for Public Appointments provides independent assurance that the governance code is followed.

[Baroness Prosser (Lab)]

I thank the Minister for that reply. However, despite his comments about the Commissioner for Public Appointments, in recent years there has been a reduction in the number of employee or trade union representatives appointed to public bodies, despite those people having demonstrated appropriate knowledge and experience. An employee representative was not appointed to the Institute for Apprenticeships, despite the history and recognition of the role that trade unions have played in developing the apprenticeships programme with the Government. TUC candidates have been sidelined from the ACAS council, the Industrial Injuries Advisory Council and the Social Security Advisory Committee. Do the Government fear the knowledge and experience that union reps will bring to the table? Are the Government not supportive of a partnership approach to developing our public services?

[Lord Young of Cookham]

I am grateful to the noble Baroness. Perhaps I may make a general point and then come to her specific question. If the Government are to make real progress in tackling some of the challenges that confront this country—low productivity, reskilling the workforce, getting underrepresented groups back into the labour market, driving up the quality of apprenticeships and reducing the gender pay gap—we will make faster progress if we have a positive and constructive relationship with those who represent the workforce; that is, the leaders the noble Baroness has just mentioned.

On the specific issue of appointments, until I spoke to the noble Baroness last night I had not appreciated that behind her Question was a concern about the perceived—in her mind—bias against trade union appointees to public bodies. I should like to make some inquiries on this. It is the case that Paul Nowak, deputy general-secretary of the TUC, was reappointed to ACAS last year; Sally Hunt, the current president of the TUC, was reappointed to ACAS in November last year; Michael Hayes, who sits on the Unison national executive, was appointed to the HSE in November; and David Chrimes of the FDA was appointed to the Social Security Advisory Committee in October. However, I should like to do some more work on this and write to the noble Baroness.

[Lord Robathan (Con)]

My Lords, while the Minister is doing that work, could he also look into the political affiliations declared by people for public appointments? It has been said, although I have no idea if it is true, that the number of political affiliations declared in, say, the last 10 years are quite dramatically in favour of the Opposition rather than the government side.

[Lord Young of Cookham]

First, the number of appointees with declared political activity has fallen; it has halved since 2010, so there are fewer political appointees. Of those appointed in the last year for which I have statistics, we appointed more candidates who have declared affiliations to the Labour Party or the Liberal Democrats than those with affiliations to my party—something that may irritate someone sitting behind me.

[Lord Dholakia (LD)]

My Lords, last October the Prime Minister launched the race disparity audit following critical reports on race issues in the country. Will the Minister arrange the publication of ethnic breakdowns of appointments to public bodies, and do so on an annual basis, so that progress can be measured on equality of access and outcomes in public appointments?

[Lord Young of Cookham]

I am grateful to the noble Lord. He may be aware that we published a diversity commitment back in December with a declared target of increasing to 50% the number of public appointees who are women by 2022, and to 14% those from black and minority ethnic communities. At the moment, I think the figures are 43% and 10%, but if one looks at the most recent year for new appointments, 2016-17, the proportion of new appointments for women rose from 34% in 2013 to 49% last year. We will be publishing statistics regularly about the progress we are making to those declared targets for 2022.

[Lord Bassam of Brighton (Lab)]

My Lords, in view of recent revelations, can the Minister explain to the House what specific account the Government take of historical social media output when considering public appointments?

[Lord Young of Cookham]

I welcome the noble Lord to the Back Benches, although it means that Ministers are now exposed to the forensic questions for which he is renowned. I believe he is referring to Toby Young. Perhaps I may make it clear that although Toby Young is the son of a life Peer, he is not the son of this one but of Michael Young, founder of the Consumers’ Association and the Open University: a good and great man, notwithstanding his support for the Labour Party.

On the serious issue that the noble Lord raises, the Commissioner for Public Appointments, whom I mentioned in my reply, is reviewing the Toby Young appointment and has already referred to the need for due diligence about social media. We await his report with interest, and it may be that we need to revise the Governance Code on Public Appointments, which at the moment has a section on standards in public life and handling conflicts and includes something on the lines of potential embarrassments and so-called skeletons in the cupboard, before anything goes to Ministers. We are aware of the growing importance of social media in this respect.

[Lord Morris of Aberavon (Lab)]

My Lords, will the Cabinet Office expand the pool from which appointments are made to limit the same people moving seamlessly from one quango to another when each quango obviously has different needs?

[Lord Young of Cookham]

I think that criticism is more relevant to some of the appointments of non-execs in the City than to public appointments, but I take on board the noble and learned Lord’s point. Each case is looked at on its merits against the background of the criteria, but if he is concerned that the same people are going round and round, I will certainly pass that on to the Cabinet Office to see whether we need to review the procedure.

European Parliamentary Elections (Amendment) Regulations 2018

Lord Young of Cookham Excerpts

Monday 22nd January 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 December 2017 be approved.

[Lord Young of Cookham (Con)]

My Lords, I shall speak also to the draft European Parliamentary Elections Act 2002 (Amendment) Regulations 2018. These instruments make changes to the existing procedure for filling MEP vacancies in Great Britain and Gibraltar in order to reduce the likelihood of any costly by-elections in the run-up to us leaving the European Union.

Following the EU referendum, the UK will be leaving the EU. However, while the UK remains a member of the EU, we are obliged to make arrangements to fill any MEP vacancies that may arise—for example, due to the resignation or death of a sitting MEP. Currently, electoral law provides that in Great Britain and Gibraltar a vacant MEP seat will stay with the party that won the seat at the previous European parliamentary general election and is filled with reference to the unelected candidates on that party’s list of candidates at that election in the region where the vacancy arises. If it is not possible to fill a vacant seat from the winning party’s list because there is nobody else left on it who is willing or suitable to take up the seat, a by-election is held to fill the vacancy. To date, no by-elections have been needed to fill a vacancy, as it has been possible to fill vacant seats from the relevant party list.

We consider, however, that in some areas there is now a significant risk of a by-election being necessary due to the number and circumstances of the candidates remaining on some party lists. For example, UKIP won a seat in Wales in 2014 and, although there are three persons on its reserve list, we think there may be difficulties, not least following the events over the weekend, in filling any vacancy that may arise, and this could lead to a by-election being necessary. The cost of a by-election in Wales would be about £7 million. Elsewhere, by-elections could cost up to £20 million. Existing MEPs may resign ahead of the end of the Parliament to pursue career opportunities elsewhere. Those lower down the list, drawn up some years ago, may no longer be as enthusiastic as they were.

The Government consider that, in the current circumstances, there is strong justification for taking action to reduce the likelihood of a by-election occurring before the UK leaves the EU. As I have indicated, there would be significant financial costs in holding a by-election, and given that the UK will be leaving the EU, the turnout at such a poll could be low and electors may query the value of holding the poll. These statutory instruments therefore make sensible, precautionary changes to the process for filling vacant MEP seats that will reduce the likelihood of any costly by-elections in Great Britain. The instruments provide that, if a vacancy cannot be filled from the list of candidates for the party that won the seat at the previous round of elections, the party that holds a vacant seat may instead nominate a person to fill the vacancy and be returned as an MEP for that party.

I turn briefly to the details of the proposed changes. The European Parliamentary Elections Act 2002 (Amendment) Regulations 2018 amend the regulation-making powers in Section 5 of the European Parliamentary Elections Act 2002 concerning the procedure for filling vacant MEP seats. Then, using these new powers, the European Parliamentary Elections (Amendment) Regulations 2018 amend the European Parliamentary Elections Regulations 2004, which set out provisions governing the conduct of European parliamentary elections in Great Britain and Gibraltar.

The proposed changes in the European Parliamentary Elections (Amendment) Regulations 2018 address the position where a vacancy has arisen and it is not possible for the regional returning officer—the RRO—to fill the vacant MEP seat from the list of the party that won the seat in the region at the previous election. Under the proposed changes, where the outgoing MEP stood for a registered party, the RRO will still initially seek to fill the vacancy through approaching in turn the reserve candidates on the party’s list of candidates in the relevant region. If the RRO is unable to fill the vacancy from the party list because it is exhausted, this will no longer automatically trigger a by-election. Instead, the RRO must ask the nominating officer of the party that previously won the seat to nominate a person to fill the vacant seat and be returned as an MEP for that party. The person must meet the existing requirements to be an MEP, for example, in terms of age and nationality.

Under the proposed changes, the nominating officer must respond within 28 days to the RRO, giving the name of the person who is to fill the vacant seat. In the event that the nominating officer was unable to nominate a person within 28 days, this would cause a by-election to be held to fill the vacancy. We think it would be extremely unlikely that a party would not be able to nominate a person to fill the vacancy within the specified 28 days and so cause a by-election.

The regulations make similar provision for independent candidates and jointly nominated candidates. The changes are modelled on the process previously agreed by Parliament for filling MEP vacancies in Northern Ireland, and which has been successfully used to fill a vacant seat there. I should explain that the single transferable vote is used for European parliamentary elections in Northern Ireland, which differs from that used in Great Britain. Under STV, there are no party lists, and in the event of a vacancy, the nominating officer of the party that previously won the seat will nominate the person to be the new MEP, who will then be returned to the seat by the Chief Electoral Officer for Northern Ireland.

We have consulted on the instruments with the Electoral Commission and with others such as the Society of Local Authority Chief Executives, the Association of Electoral Administrators and the Government of Gibraltar. We have also consulted with a Parliamentary Parties Panel which advises the Electoral Commission. There is general agreement among those whose views were sought on the instruments that it would be desirable to avoid a European by-election across a region just before the UK leaves the EU.

I should also explain that our law provides that, if a vacancy occurs less than six months before the next European parliamentary general election, the seat remains vacant until that election and it is not necessary for a by-election to be held. We are maintaining this position. Without these changes, there would be a period for almost a year where it would be necessary to hold a by-election if a vacant seat could not be filled from the candidates on the relevant party list.

These statutory instruments make sensible and proportionate changes to the process for filling vacant MEP seats that are designed to reduce the likelihood for any European parliamentary by-elections to be held in Great Britain before the UK leaves the EU. I commend them to the House.

[Lord Rennard (LD)]

My Lords, these regulations are designed to avoid a situation, if possible, that has not arisen before, is most unlikely to occur in future, but which may happen anyway, irrespective of the passing of these regulations. If the Minister knows anything more specific about any political party which may have difficulties of vacancies occurring among its MEPs—including, perhaps, the Conservative Party in Scotland—perhaps he might enlighten us on why it is so necessary to introduce these regulations.

Since the introduction of proportional representation with the closed party list system in 1999, there have been 12 vacancies among our MEPs arising out of a death or resignation. Most of them have been as a result of an MEP being elected as an MP, or appointed as a Peer. All those vacancies for MEPs—five from the Conservatives, four from Labour, and one each from the Lib Dems, the Greens and UKIP, have been filled by someone from the relevant list of party candidates from the previous European parliamentary elections. I was the first person from any party to confirm the filling of a vacancy in this way. As the Liberal Democrats’ nominating officer at the time, I confirmed that my now noble friend Lady Bowles would become an MEP in 2005 when a vacancy occurred because she was next on my party’s list from the 2004 European Parliament elections. Because of arrangements such as this, there have not been any by-elections for MEPs in the past 19 years.

Some of us still hope that the UK will elect MEPs in 2019. As the Minister said, existing law provides that there would not be a by-election if a vacancy were to occur and a party could not fill it from its list in the six months before European elections were due. So the window in which we are anticipating the possibility of a vacancy and the potential problem of it not being possible to fill it from the existing lists of candidates is between the passage of these regulations into law and some time around December of this year—a very short window. It seems surprising to me, therefore, that they have been considered necessary.

On the longer-term issues, reference is made in the Explanatory Notes to work by the Law Commissions highlighting the need to modernise and codify the entire provisions of our electoral laws. Does the Minister accept the case for doing so, and do the Government intend making progress on this?

Will the Minister also agree in particular that these regulations should be reversed in the event that Britain does not leave, or rejoins, the European Union? Normal democratic provisions should allow voters to choose their representative in a by-election in the event that nobody on a party’s list accepts the position. The solution proposed to an unlikely problem may be acceptable in the short term, but such expediency, in which more power is handed to political parties rather than to voters, would not be acceptable in the long run, and it should not be extended or repeated wherever list systems are used.

In the meantime, political parties will of course still have the power to ensure that a European Parliament by-election occurs following a vacancy if nobody on their list is willing or able to accept the position and it refuses to submit a nomination for a substitute. So if the intention of the regulations is to prevent any by-elections for MEPs, they may still not succeed. This is considered in the Explanatory Notes to be extremely unlikely, but it is a tactic that could be employed by a party to force a by-election—or it may be that a vacancy occurs in an MEP’s seat held by a party that during the relevant period is no longer registered with the Electoral Commission. For example, I understand that Ladbrokes today is offering odds of 5-1 that UKIP will not be registered as a political party by the end of the year. Is this perhaps a factor in the Government’s thinking on these regulations?

--- Later in debate ---

More seriously, I have a question about the situation arising when an MEP elected under a party label decides, during his or her term of office, to leave the party or is expelled from it. We have seen an example of this recently. They are expelled from a party, or leave it by their own volition, and become an independent. They subsequently resign as an MEP. What is the position? Does the replacement come from the original party under the banner of which they were elected? Paragraph 4.1 of the Explanatory Memorandum says that the regulations provide for substitutions to be made in the case of independent candidates. Will the noble Lord explain how that works?

[Lord Young of Cookham]

My Lords, I am grateful to all who have taken part in this debate. I will try to answer the various questions that have been raised.

I start with the relative costs of by-elections. My noble friend was quite right: I mentioned a figure for Wales, where the total cost of a by-election would be £7.1 million. If there was a by-election in the south-east, it would be £19.585 million. The difference is accounted for by expenses for delivery of the poll. In Wales, this would be nearly £5 million, but in the south-east £13.4 million. I suspect that is because there are more electors in the south-east and it has more MEPs than Wales, which has three. There is a slight increase in the cost of relevant services supplied by the returning officer and a significant difference in the cost of delivering the mailings at public expense—£2 million in Wales and nearly £6 million in the south-east. The difference is, basically, related to the number of voters.

The noble Lord, Lord Rennard, asked me a question which he has asked me before about the Law Commission review. I am afraid that the answer is the same as I have given him before: the Government continue to work with the Law Commission on taking forward its review of electoral law.

I return to some of the main issues raised in the debate. I welcome all the contributions. I agree with the noble Lord, Lord Rennard, that this is most unlikely to happen and it is a small window, but it is quite a large sum of money. We therefore believe that this is a proportionate and sensible step to take in order to potentially save a significant amount of public money.

The noble Lord also asked whether a by-election would still take place if the nominating officer was unable to nominate somebody as the list had been exhausted. All the MEPs elected at the last European election represented major registered parties. I think it is most unlikely that a nominating officer would not be able to find anybody from a party to take up a vacancy. I am sure that the Liberal Democrats would be able to find somebody to fulfil that role, and I am sure the same would apply to any other party.

As regards Scotland, I am not that familiar with what happens north of the border, but I understand that due procedure was followed. The noble Lord, Lord Hunt, implied that if we pass these regulations, it would prevent that happening. It would not. We would still have to go through the list member by member before the provisions in this regulation were activated—namely, having exhausted the list, there would not be a by-election; there would be a nomination.

The noble Lord, Lord Rennard, tempted me to answer a hypothetical question: what would happen if, for whatever reason, we did not exit the EU? That is a hypothetical question which is beyond my pay grade to answer. However, these regulations would remain on the statute book unless they were revoked, which would be an option were that eventuality to arise.

It was implied in some of the remarks that it is undemocratic to allow the party machine—as I think the noble Lord, Lord Hunt, referred to it—to fill a vacant seat. These changes are modelled on the process that his Government agreed to fill MEP vacancies in Northern Ireland, and have been used already to fill a vacant seat there. I am not sure whether allegations of undue use of the party machine were made by the Labour Party at that point.

Another hypothetical question was asked: what happens if UKIP becomes unregistered, or if it does not have a nominating officer? If it does not have a nominating officer, the nominating officer cannot nominate somebody, by definition, and there would then be a by-election. That would happen if the party became unregistered.

I was asked what happens to a vacancy where the MEP has changed party. As I think I said from a sedentary position, the vacancy is filled by the next person on the list of the party that won the election at the previous election. I think that is the right thing to do democratically because that is how people voted at that election—they voted in those numbers for a Conservative Party or Lib Dem candidate. When that candidate is no longer fulfilling that post, I think it is right that the party that got the requisite number of votes at that relevant election should fill the vacancy.

As paragraph 4.1 of the Explanatory Memorandum states, the European Parliamentary Elections Act 2002 is being amended to enable the changes to be made to the 2004 regulations. This is, as it were, a paving Bill, if I can use that term, for the substantive regulations that we are debating.

I detected no fundamental opposition in principle to what the Government are doing. There were a number of very interesting questions which I have done my best to address.

[Lord Tyler (LD)]

My Lords, it would seem from what the noble Lord is saying that we are all prepared to accept a short-term solution to this problem. However, does he accept that in the longer term it could not be a solution? He described the question of my noble friend Lord Rennard as entirely hypothetical. Has he not noticed that an increasing number of people, even Mr Farage, think that Brexit might not happen? It may be, of course, that in his case, since he says he is skint, he is beginning to think that his continuing MEP salary might be rather desirable.

However, can the noble Lord, in his usual fashion, give us an undertaking that, if there is a possibility that this ceases to be a short-term problem and becomes a longer-term one, we should at least expect the Government to produce some form of contingency plan beyond March 2019? He surely must accept that this provision before your Lordships cannot be allowed to stand for ever. That is undemocratic. It does not even really meet the requirements that his party has set out in the past for truly democratic representation in the European Parliament. If, this time next year, we find ourselves still not sure whether we are going to be exiting from the European Union, surely a responsible Government should look again at what should be put in place of these regulations.

[Lord Young of Cookham]

The noble Lord is very plausibly trying to tempt me further down a route that I embarked on, probably ill-advisedly, in responding to the noble Lord, Lord Rennard. I think that I can best shelter behind paragraph 7.1 of the Explanatory Memorandum:

“Following the EU Referendum, the UK will be leaving the EU and it is not expected that the UK will be participating in the next elections to the European Parliament in 2019 (the date of the poll has not been confirmed”.


It then goes on to say that, while we remain a member of the EU, we have to return MEPs. I can go no further than what I said in response to the noble Lord, Lord Rennard—that if these regulations are approved by both Houses, they will govern the position of any vacancies where a party list is exhausted. In that unlikely event, there are European elections next year and the list would be refreshed. However, as the Government’s policy is to leave the EU, I shall venture no further down that path or I will get into real trouble, except to say that these are sensible precautions given that, following the EU referendum, the UK will be leaving the EU.

Motion agreed.

European Parliamentary Elections Act 2002 (Amendment) Regulations 2018

Lord Young of Cookham Excerpts

Monday 22nd January 2018 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 December 2017 be approved.

Motion agreed.

Carillion

Lord Young of Cookham Excerpts

Monday 15th January 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, with the leave of the House, I shall repeat an Oral Statement made by the Chancellor of the Duchy of Lancaster in the other place. The Statement is as follows:

“Mr Speaker, I wish to make a Statement to update the House on the situation relating to Carillion plc. Today the directors concluded that the company is insolvent and that it is going into liquidation. The court has appointed the official receiver as liquidator. It is regrettable that Carillion has not been able to find suitable financing options with its lenders, and I am disappointed that the company has become insolvent as a result. This is the failure of a private sector company, however, and the company’s shareholders and lenders will bear the brunt of the losses. Taxpayers should not, and will not, bail out a private sector company for private sector losses or allow rewards for failure.

I understand that members of the public and employees will have concerns at this time. The Government are doing everything possible to minimise any impact on employees. Let me be clear: all employees should continue to turn up to work in the knowledge that they will be paid, and to support the staff we have set up a helpline using Jobcentre Plus, through its rapid response service. The Government are also doing everything they can to minimise the impact on subcontractors and suppliers, who will continue to be paid through the official receiver. The action that we have taken is designed to keep vital public services running, rather than providing a bailout on the failure of a commercial company. The role of the Government is to plan and prepare for the continuing delivery of public services that are dependent on these contracts; that is what we have done.

The cause of Carillion’s financial difficulties is not, for the most part, connected with its government contracts but with other parts of its business. Private sector contracts account for more than 60% of the company’s revenue; the vast majority of the problems the company has encountered come from those contracts, rather than the public sector. Our top priority is safeguarding the continuity of public services, and we have emphasised this to the official receiver. We are also laying a departmental minute today notifying the House of a contingent liability incurred by my department in indemnifying the official receiver for its administrative and legal costs.

The official receiver will take over the running of services for a period following the insolvency of the company. The Government will support the official receiver to provide these services until a suitable alternative is found, either through another contractor or through in-house provision. The court appointment of the official receiver will allow us to protect the uninterrupted delivery of public services, something which would not have been possible under a normal liquidation process.

The official receiver is under a statutory duty to investigate the cause of failure of any company, and it is under a duty to report any potential misconduct of the directors to my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. My right honourable friend has asked that the investigation look at the conduct not only of the directors at the point of its insolvency, but also of any previous directors and whether their actions may have caused detriment to its creditors; this includes detriment to any employees who are owed money. It will also consider whether any action by directors has caused detriment to the pension schemes.

Carillion delivered a range of public services, across a number of sectors, including health, education, justice, defence and transport. In most cases, these contracts had been running successfully. We have been monitoring Carillion closely since its first profit warning in July 2017. Since then, we have planned extensively for the current situation and have robust and deliverable contingency plans in place. These are being implemented immediately to minimise any disruption and to protect the integrity of public service delivery. Other public bodies have been preparing contingency plans for the contracts for which they are responsible. The majority of the contracts awarded after the company’s July profit warning were joint venture, where the other companies are now contractually bound to take on Carillion’s share of the work.

I recognise this is also a difficult time for pension holders. The Pensions Advisory Service has set up a dedicated helpline for staff and pensioners who have concerns about their pensions. Those already receiving their pensions will continue to receive payment from the Pension Protection Fund. For those who have started an apprenticeship programme with Carillion, the Construction Industry Training Board has set up a task force to assist apprentices to seek new employment, while working with the Education and Skills Funding Agency to find new training placements. The official receiver will be in contact with all apprentices. Companies and individuals in the supply chain working on public sector contracts have been asked to operate as usual. Normally in the event of a company going into liquidation, the smaller firms working for it move across to the new contractor which takes on the work.

The private sector plays an important and necessary role in delivering government services, something recognised by this and by previous Governments of all political parties. Currently, 700 PFI and PF2 contracts reflecting capital investment of approximately £60 billion are being delivered successfully. Furthermore, we have a number of service provision contracts being delivered successfully by a range of companies. These contracts allow us to leverage the expertise of specialist providers and deliver value for money for taxpayers.

I would like to reassure the House that we are doing all we can to ensure the continuity of public services that were provided by Carillion and to support an orderly liquidation of the company. I shall write to Members today to summarise the situation and inform colleagues of a helpline for the use of Members and their staff, to provide answers to any constituency problems that may arise.

Along with other ministerial colleagues, I shall keep the House updated on developments as the official receiver starts to go about its work, and I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Lord Stunell (LD)]

My Lords, I thank the Minister for repeating the Statement. The collapse of the second-largest construction company in the country and a major provider of public services across the country is cause for concern and regret, not least for those employed by that company and those who depend on it because they are part of a long supply chain in many different industries, particularly the construction industry. The official receiver has been appointed and the Statement says that one of his duties will be to hold an inquiry. Can the Minister say something about the status of staff and employees working on public sector service provision and those working on private sector contracts? What is their future? What do the Government intend to do to protect them?

There is, of course, anger on the part of many of those working for and with the company that the warning signs were not quickly followed up by the Government after the alert in July—not least that a Crown representative was not appointed when good practice and ministerial guidelines say that that should have happened. I hope that the Minister will say something about that. If the official receiver’s inquiry does not cover such issues, I will certainly join the noble Lord, Lord Hunt, in calling for a wider inquiry.

In view of Carillion’s role in delivering numerous large-scale infrastructure projects, what are the implications of its collapse on those projects and their timetables, and what impact may it have on the Government’s industrial strategy? We should bear in mind that construction and construction training were key elements of that strategy and that many apprentices are employed not just by Carillion but by those in the supply chain, whose continuing apprenticeships are clearly at risk. Can the Minister help us on that? What are Ministers doing to minimise damage to public services and the capacity of the construction industry? Subcontractors face a very difficult time. It is one thing to say that contracts can be transferred to their partners—for instance, on HS2—but what about the backlog of unpaid bills that Carillion will owe them? Will that be coughed up by their new partners? Is that part of the deal that was arranged when the partnerships were set up, or is it more likely that the subcontractors will be expected to bear the loss?

Finally, what does the Minister have to say about the governance of that company and the way that the warning signs were there? Even the chairman has some form from times past. What exactly do the Government believe is the right governance structure for a major contractor for public services so that in future there will be protection for the public, for employees and for the country?

[Lord Young of Cookham]

I am grateful to both noble Lords for their interventions, and of course I understand the anxiety shared, I think, on all sides of the House, about the future for the employees and for those in receipt of the services provided by Carillion. To put it into perspective, if one looks at the current live contracts held by Carillion, roughly one-third were let before 2010, roughly one-third were let between 2010 and 2015, and roughly one-third were let between 2015 and now.

On the point about taxpayers’ money being at risk, as a matter of principle, money is transferred from the Government to contractors in return for work that has been undertaken. Looking ahead at the money we are going to pay for services, it would have been paid to Carillion for the relevant services, and obviously it will now be paid through the official receiver. The Government will look to the official receiver to sell off, if that is his decision, those profitable operations to get some resources in.

Reference was made to the statutory obligations of the receiver to look at the conduct of the company. I understand that the Select Committee on Public Administration and Constitutional Affairs in another place has already announced that it will make an inquiry. The National Audit Office and the Public Accounts Committee may also take an interest in this—that is a response to the point made by the spokesman for the Opposition as to how the Government will be held to account; there is a variety of means by which that can happen.

On contingency plans, before Christmas the Government made local authorities, academy trusts and others aware of the financial problems confronting Carillion and advised them to put in place contingency arrangements. From what I have heard so far today, most of the contingency arrangements are working satisfactorily—although, as I said, there may continue to be some difficulties.

As regards the loss, obviously the shareholders have been wiped out and the banks advanced substantial sums of money to Carillion, so the primary losers here will be, as I said, the shareholders, the banks, and any others who have lent money to Carillion.

On pay and conditions, I understand that for the time being they remain the same; the official receiver will continue to pay and employ them. There is a distinction to be made at some point between those carrying out public sector work and those doing private sector work for Carillion—a point raised by the spokesman for the Liberal Democrats. On contracts held by Carillion not with the Government but with private sector companies, I understand that the official receiver is allowing a period of up to two days for those companies to decide whether they want to take over the contracts. So far as the public sector contracts are concerned, as I said, the Government’s top priority is continuity of service. The official receiver will continue to make resources available to fund the public services.

The noble Lord asked about terms and conditions. I am very reluctant to give an off-the-cuff reply about whether TUPE and similar things will apply, and I hope that he will understand if I take advice on that rather than try to answer it.

On the pension fund, I think that there are 14 schemes under the Carillion umbrella, some of which may be in surplus and others of which are not. The Pension Protection Fund will carry out an assessment. If the schemes are not viable, they will be taken in-house by the PPF, together with the assets of the scheme. Those already receiving their pension will continue to get it. Those who are yet to retire will get, I think, 90% of their entitlement, subject to a cap of somewhere around £35,000.

On the supply chain, it is important that the subcontractors continue to turn up. The official receiver has the necessary resources to continue to pay them.

On the question of apprenticeships, I understand that the CITB, the Construction Industry Training Board, is aware of the issue and will try to find other companies to take on those apprentices who have been displaced by Carillion or the subcontractors, and indeed those who are hoping to take up employment with them.

I think that I have answered most of the questions that I am able to. I am conscious that I have not answered all of them but my right honourable friend will keep the House of Commons updated on developments as the official receiver starts to go about his work, and I am sure that that applies to your Lordships’ House as well.

[Lord Lawson of Blaby (Con)]

My Lords, the opposition spokesmen have called for inquiries into the Carillion affair, but the Minister has pointed out that one or two inquiries are likely to take place anyway. However, perhaps I may suggest to him that the time has come for a thorough, independent inquiry into the whole PFI—private finance initiative—process.

This idea, I think, originated in Australia and it came to me when I was Chancellor 30-odd years ago. My Treasury officials were keen on it but I refused to have anything to do with it. Subsequently, my successors—particularly, but not exclusively, Mr Gordon Brown—were enthusiastically in favour of it. Its purpose, in the eyes of the Treasury officials who tried to persuade me to take it up, was that it enabled you, at least in the short term, to dress up considerable amounts of public expenditure and put them off the public sector balance sheet. That is not a good reason for adopting something which, in my judgment, does not give good value for money for the taxpayer, and it introduces a degree of moral hazard, which we see very much in the Carillion affair—and there have been other examples. It is important that we take stock at this juncture and decide whether the whole PFI scheme should be proceeded with further. We have now had enough evidence that it is not good value for money and therefore not sensible from the point of view of the taxpayer.

[Lord Young of Cookham]

I am grateful to my noble friend. I agree with the first half of his question but I would not go quite as far as he did in the follow-up. It is important not to condemn all PFIs. This initiative has enabled the country to invest in infrastructure at a faster rate than if the investment were wholly funded by public borrowing, thereby enabling us to improve productivity. There are many very successful examples of PFI.

My noble friend’s first point was about a review. A review of PFI, which I read last night, was carried out in 2010 by the NAO, which stood back and looked at the lessons learned. It came up with a number of conclusions—for example, that the public sector should make sure that it had adequate negotiators to deal with the very skilled negotiators in the private sector. It is beyond my pay grade, but my noble friend’s suggestion that we should take this opportunity to stand back and look at the PFI model to see whether there are any improvements to be made in the light of the Carillion and other affairs seems wholly worth while. However, I hope that the Government do not go quite as far as he implied; namely, that we should rule out this form of partnership for ever and a day.

[Lord O’Neill of Clackmannan (Lab)]

My Lords, is the Minister aware that the supply chain is of some significance here? Is he also aware that many of the companies engaged in that supply chain at the second and third-tier levels employ fewer than 10 people? I should say that I have declared my interests in the register. Given the payment structure which Carillion adopted, many companies in the supply chain have completed the work but are still waiting to be paid because of the 120-day period between completion of the work and payment being made for it. From what has been said today, these people seem to have been forgotten about. They have done their duty under their contracts with Carillion and have now been left hanging with no prospect of payment or of getting any kind of money for the supplies they have utilised and the workforce they have engaged.

[Lord Young of Cookham]

The noble Lord asks a very good question—so good that I asked it myself when I met officials earlier today. It is a serious issue that there may be circumstances where Carillion has been paid but the money has not filtered down the supply chain. I have made inquiries about this. The priority of the official receiver is to maintain continuity of service and I gather that there is provision within the resources available to the receiver, in the circumstances that the noble Lord has just mentioned, for the payments that have not filtered through to be made, in order to ensure that continuity of service is provided.

[Lord Trefgarne (Con)]

My Lords, I am aware that the Ministry of Defence had important business with Carillion. Can the Minister say how that will be affected?

[Lord Young of Cookham]

The Government have been in touch with a range of government departments which have an interest, including the Ministry of Defence. The top priority is to make sure that the catering, cleaning and maintenance services provided by Carillion continue to run effectively, and I have been assured that the contingency planning carried out by the ministry means that there will be minimal impact on service personnel and their families as a result of what has happened today.

[Baroness Randerson (LD)]

My Lords, the ongoing relationship with Carillion is yet another example of poor judgment at the top of the Department for Transport. Carillion is the second-largest supplier to Network Rail and, as has already been stated, the contract with HS2 was signed after early profit warnings for the company were issued. Can the Minister now assure us that the Government will review the guidelines for and operating procedures of departments across government so that concerns about financial stability are taken into account before contracts are awarded, and so that no firm can be awarded a contract unless it can demonstrate its financial viability?

[Lord Young of Cookham]

My Lords, I am grateful to the noble Baroness. It is worth making the point that of the seven contracts that were let post July, six were joint ventures; in other words, there was joint and several liability to undertake the work if one of them collapsed. In the case of HS2, which was the largest at £1.4 billion in total, Kier has already announced this morning that it has put in place contingency plans to ensure continuity of service. The two MoD contracts were joint ventures, as were the two HS2 ones, and so was the Network Rail contract to Carillion Powerlines. Only one relevant contract was not a joint venture where Network Rail is now transferring the work to another framework contractor.

However, the noble Baroness has made a good point. When one assesses who has won a tender, one has to do it against a number of set and published criteria. If you do not, you are up for judicial review. One of those criteria is financial stability. Clearly, whatever the test was back in July, it was passed. It relates to a point made by my noble friend Lord Lawson, which is whether one should take this opportunity just to stand back and look at whether the criteria used for assessing financial stability are correct and robust enough or whether they need firming up.

[Lord Lea of Crondall (Lab)]

My Lords, is not a picture emerging of some prima facie creative accounting going on? The noble Lord, Lord Lawson, makes a fair point when he suggests that not every contract should come directly from the Government. The picture now is that in almost everything done by Wimpey, Costain and so on, they are called subcontractors, and that applies to the workforce as well. Does the inquiry not need to cast a beady eye over how far the culture of subcontracting everything—much more so than was true previously in the construction industry—is part of the background to this problem because no one can take an overall view of what is happening on the balance sheet?

[Lord Young of Cookham]

That is quite a complicated question. One can make a good argument for having subcontractors—namely, people who specialise in a particular discipline and compete against each other for contracts, rather than one company trying to cover the whole spectrum of services. Many very successful industries are built on a structure of contracts and subcontracts. Noble Lords need look only to the airline industry to see a whole range of contracts: companies lease the aeroplanes and subcontract baggage handling and catering and so on, and, on the whole, it is a satisfactorily run industry. I would not want to get drawn into conclusions about what structure is the right one for a particular industry. On the question of accounting, I should have said that the FCA and the FRC are both conducting their respective inquiries—one, I think, into audit, and the other into statements that were made or not made about the company’s prospects. These particular aspects are being looked at by the relevant authorities.

[Lord Elystan-Morgan (CB)]

On the issue of pensions, is it not the case that the statutory body that will be reimbursing loss will do so not to the tune of 90% but 85%? If I am wrong in that, I am very happy to be corrected. However, in any event, and whatever the figure, do the Government accept a moral responsibility in this matter to ameliorate so far as they possibly can the loss that many people will feel in respect of quite modest pensions?

--- Later in debate ---

[Lord Young of Cookham]

I am trying to find the appropriate information—and I have now found it. It says that it is likely that the majority of pension schemes will transfer into the PPF with a consequential effect on members’ benefits. Pensioners receive 100% compensation and non-pensioners receive 90% of their accrued pension, subject to an overall cap, which is what I think I said in response to an earlier question. If by any chance this briefing is wrong, the person who wrote it will be writing very quickly to the noble Lord. On the broader issue, the Pension Protection Fund is funded by a levy on all pension funds, and I am confident that it has the resources to take on board the liabilities it is likely to inherit from Carillion. The PPF will, of course, get the assets of the scheme, which, at the time of the last audit, were worth £2.267 billion.

[Lord Higgins (Con)]

My Lords, following up the point on pensions, clearly a heavy burden will fall on the Pension Protection Fund. If I understand what my noble friend says, there are a number of individual pension funds involved. What is the position of the trustees of each of those, and will an inquiry be made into the extent to which they have fulfilled their obligations?

[Lord Young of Cookham]

That is a very good question and I hope that whoever has the responsibility for making sure that the trustees do their job—it is probably the Pensions Regulator—takes my noble friend’s question on board. There are 14 separate defined benefit pension schemes involved, which the Carillion group acquired as it expanded. Overall, there is a significant pensions deficit of £523 million as at 2013—some estimates indicate that it is now up to £1.6 billion. Perhaps I could write to my noble friend about the responsibilities of trustees, because I do not want to imply in any way that they have not been conscientious in discharging their responsibilities.

[The Lord Bishop of Durham]

My Lords, I note the comments already made about apprentices, but it is often those at the beginning of their careers who are most affected and most quickly forgotten. Carillion itself committed to creating 5,000 apprenticeships by 2019, and its website states that around 2,000 students are in training as part of an apprenticeship programme across 13 centres at any one time, so we are not talking about a small number. How can the Minister assure us that those apprentices and students—because some are on student schemes—will be given serious consideration to ensure that their careers are not affected?

[Lord Young of Cookham]

I am grateful to the right reverend Prelate. I said in my opening statement that the official receiver will be in touch with all of the apprentices with a view to finding alternative placements for them to continue their work. I also identified a role for the Construction Industry Training Board. The right reverend Prelate raises a crucial point and I will write to him with more detail about exactly how we will pursue the issue of making sure that the apprentices continue their apprenticeships and that new apprentices have somewhere to go now that they cannot go to Carillion.

[Lord Berkeley (Lab)]

Can the Minister possibly explain something? In the last five years, contracts such as for the railways, HS2 and maybe others have become more and more complex. Therefore, the cost of responding to them can, I am told, be £10 million or £20 million. These companies are not making a lot of money, so if they lose a contract they have lost that £10 million or £20 million. This may happen to rail franchises as well. If this goes on, I worry about who will be next. It is getting more and more complex, the cost is greater and the companies do not really make that much profit to get a reward. I would be interested in the Minister’s comments.

[Lord Young of Cookham]

That goes slightly wider than the Statement. There are a few limited circumstances where the Government have undertaken to reimburse people bidding for a contract for the costs of tendering. As a general principle, the Government do not pay—nor does any customer pay—for people to produce a bid. Obviously, there would be consequences for public expenditure if we went down that road. At the moment, it is not such a deterrent that we are failing to get good competition for contracts. If it appeared to be a serious deterrent, we would look at it again, but at the moment I do not think that that is the case.

[Lord Birt (CB)]

My Lords, the Carillion share price crashed in July and pretty much overnight lost 75% of its value, leaving a company with £900 million worth of debt, a pension deficit of £600 million, a market cap of £60 million and three major public sector contracts of considerable value seriously overrunning. As the Minister said, subsequent to July, seven contracts were awarded by the Government or the public sector. Was that wise? Surely, the noble Lord, Lord Lawson, is right. We must look again at the ways that contracts are awarded, and frankly at the competence of the Government in managing such contracts.

[Lord Young of Cookham]

I said a few moments ago in response to another question that, of those contracts let since July, six were joint ventures where the exposure to Carillion was substantially reduced by having other contractors underwriting Carillion if it were to withdraw. The Government can take some credit for making those precautions available. On the noble Lord’s general point, which reinforced what my noble friend Lord Lawson said, I indicated in response to an earlier question that if the assessments made of the robustness of Carillion in July ticked all the boxes in the tender document and they had to be adhered to, I agree with my noble friend Lord Lawson that this is something that we should have another look at.

[Lord Fox (LD)]

My Lords, I do not believe that the role of the auditors has been mentioned. Auditors clearly have an important role in assuring the security of companies such as Carillion. Does the Minister agree that the official receiver, which is one of the small number of companies that conduct audits in this country, may not be entirely dispassionate or capable of making the right sort of assessment of this service?

--- Later in debate ---

[Lord Young of Cookham]

I think I said a few moments ago that the Financial Reporting Council had taken an interest. Again, if I am wrong I will correct myself, but I think that is the body that looks at whether auditors have correctly discharged their responsibilities. I am sure that they will be taking an interest in this case.

[Lord Naseby (Con)]

My Lords, is my noble friend aware that the depth of his response is greatly welcomed by your Lordships’ House? I re-emphasise the importance of reminding the official receiver that the payment of subcontractors is vital, because this is not the first time this happened. I have worked in the construction industry, and it was fairly common knowledge 12 months ago that Carillion was in considerable difficulty. Will my noble friend look at who in Her Majesty’s Government keeps a watch on these major contracts across departments? That question needs to be asked.

[Lord Young of Cookham]

On my noble friend’s first point, the Government subscribe to the Prompt Payment Code. Indeed, we honour that in our payments to Carillion. We would expect the official receiver to abide by the same terms in making payments on the Government’s behalf. Was his second point about the robustness of the assessment?

[Lord Naseby]

If I may help my noble friend, many of us in the industry were well aware 12 months ago that this particular company was in considerable difficulty.

[Lord Young of Cookham]

Again, that underlines a point made by a number of noble Lords, which I certainly take to heart. We should see whether the method of assessing the financial viability that we have to undertake when we award a tender needs to be reviewed in the light of what has happened to Carillion.

House of Lords: Membership

Lord Young of Cookham Excerpts

Wednesday 10th January 2018 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government whether they intend to pause making further nominations for membership of the House of Lords by virtue of a life peerage until arrangements for reducing the size of the House have been agreed.

[Lord Young of Cookham (Con)]

My Lords, while the House cannot keep growing indefinitely, it is important that the House’s expertise can be refreshed and renewed from time to time to ensure that it continues to fulfil its vital role in scrutinising and revising legislation. The Government thank the noble Lord, Lord Burns, and his committee for their work and the House for expressing its views in the debate on 19 December. We are now considering the committee’s recommendations carefully.

[Lord Foulkes of Cumnock (Lab)]

I am grateful to the Minister for his response, but does he recall the debate on 19 December, when the collective wisdom of this House was very strongly that the Prime Minister should show restraint in making any further nominations to the House while we are considering the question of the size? Would it not be an embarrassment and make a nonsense of any further consideration of the Burns report if the Prime Minister were to go ahead and make a series of nominations before we have considered it fully?

[Lord Young of Cookham]

The point that the noble Lord has just made was made in the debate. I thought that it was dealt with very well indeed by the noble Lord, Lord Butler of Brockwell, who said:

“We are told that a further list of appointments is about to be published but I do not share the apocalyptic view expressed earlier by the noble Lord, Lord Steel. I believe that this can be regarded as a legacy issue arising from the May general election that does not inhibit the adoption of the approach in the Burns report”.—[Official Report, 19/12/17; col. 2017.]


I hope the noble Lord is reassured by the words of the former Cabinet Secretary.

[Baroness Smith of Basildon (Lab)]

My Lords, I always enjoy listening to the noble Lord’s answers: he has perfect comic timing. As my noble friend Lord Foulkes said, there is widespread support in your Lordships’ House for the principles and recommendations of the Burns committee to reduce the size of your Lordships’ House. We know that for Burns to be effective the Prime Minister has to exercise restraint and a sensible, proportionate approach to appointments. It would be entirely unacceptable for Mrs May to announce a raft of new appointments and only later to accept Burns—I think that that was part of the point that my noble friend was making. I am happy now to make an offer and give a commitment to the noble Lord and to the Government that if the Government are prepared to accept the Burns proposals, including that departures from and introductions to this House should be on the basis of two out, one in and a 15-year term limit, probably from the recent general election, we will abide by that. Will the Government agree to do so as well?

[Lord Young of Cookham]

As I said, the Government are considering the report and will make their views known shortly. But to pick up the point that the noble Baroness just made, in her speech—she made a good speech, if I may say so, as did my noble friend and the Leader of the Lib Dems—she said:

“It is not about giving up patronage or appointments but about showing some restraint, as it used to be”.—[Official Report, 19/12/17; col. 2105.]


The Prime Minister has demonstrated restraint. Putting on one side David Cameron’s resignation honours, in the past 18 months the Prime Minister has appointed eight new Peers: five Cross-Benchers and three Ministers. I think that is demonstrating the restraint that the noble Baroness has just asked for.

[Lord Tebbit (Con)]

My Lords—

--- Later in debate ---

[Lord Tebbit]

My Lords, is there not another way that this little dilemma might be resolved? It is quite clear that when we look at the electorate as a whole and the votes that have been cast in recent elections, the Lib Dem Peers are grossly overrepresented here. Suppose 50 of them did the decent thing and resigned, this would all be resolved.

[Lord Young of Cookham]

If I may say so, my noble friend’s question is addressed not to me but to the Benches opposite. It is indeed the case that on almost any objective basis the Liberal Democrats are overrepresented. In credit to them, they actually recognised this during the debate. The noble Lord, Lord Newby, when he spoke on behalf of the Lib Dems, recognised that their numbers would have to come down under the proposals of the Burns report. However, for the Lib Dems to unilaterally cut their numbers without anybody else doing anything at all would be to exhibit a generosity for which the Liberal Democrats are not well known.

[Noble Lords]

Oh!

[Baroness Hayman (CB)]

My Lords, looking beyond the issue of restraint at the current time, the conclusion of the report was:

“Our proposals would only work, though, if the Prime Minister (and her successors) undertook to appoint no more new members than there were vacancies, and to do so in the proportions implied by our recommendations”.


As has been said, the agreement of the Prime Minister is absolutely central to implementation of the report, and that was stressed throughout the debate. The Leader of the House was in listening mode during that debate. I ask the Minister: has the Leader had the opportunity to discuss the issues with the Prime Minister, and if she has not yet, will she do so in the very near future?

[Lord Young of Cookham]

As the noble Baroness said, my noble friend sat through nearly all the speeches in that debate. I can say that she will be having a discussion with the Prime Minister to discuss both the Burns report and the debate that we had in this House, and the Government’s recommendations or views will be known in due course. I hope the House will understand that there were only three sitting days after the debate on 19 December. We have been back after Christmas for only three days. The Prime Minister has had personnel matters on her mind in the meantime. So I think the Government are entitled to a little bit of time before they come out with their views.

[Lord Tyler (LD)]

In the discussion to which the Minister has just referred, will he and his colleagues make it absolutely clear to the Prime Minister that a very large majority of the speakers in that debate on 19 December made it absolutely clear that the proposals of the Lord Speaker’s committee are wholly dependent on the Prime Minister accepting the principle that was inherent right through the report that there must be two out before there can be one in? Will the Ministers on the Front Bench make that clear to the Prime Minister? If she is not prepared to respect that, how can we expect anything to come from this exercise?

[Lord Young of Cookham]

In the analysis of the speeches in that debate, by my calculation, only nine out of 95 contributors were opposed to what was in the recommendations. I think that is as near a consensus as you are ever going to get in this House. I have to say that I thought the noble Lord struck a slightly different tone in his wind-up speech from that of his noble friend Lord Newby. Winding up for the Liberal Democrats —despite what the noble Lord has just said—he referred to Burns as,

“a temporary expedient … a process appropriate for the membership of a gentlemen’s club”—[Official Report, 19/12/17; col. 2100]—

and an “incestuous” process that runs the risk of leading to our abolition. That does not sound to me like wholehearted support for Burns.

Local Government Elections (Referendum) Bill [HL]

Lord Young of Cookham Excerpts

2nd reading (Hansard): House of Lords
Friday 15th December 2017 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I begin by congratulating my noble friend Lord Balfe on his success in the ballot and on introducing this interesting debate about alternative means of electing local councillors. He certainly sparked off a wide variety of ideas, which I will focus on in a moment.

We welcome the debate that my noble friend has initiated on democratic representation in local government and how best to choose our leaders in local authorities. It is a long time since I served on a local council. It is 46 years since I lost my seat on the London Borough of Lambeth, to which I was elected in 1968 alongside Councillor John Major and also, much to her surprise, Councillor Lady Young, who was a paper candidate in an unwinnable ward in Clapham which my party won. I agree with what has been said about the importance of local government and take this opportunity to pay tribute to councillors of all parties who have managed with reduced levels of grant over recent years but have none the less maintained, on the whole, good-quality services and, in some cases, actually increased public satisfaction.

Our debate today has been underpinned by a desire to ensure popular engagement with this important local democratic process and to protect the transparency and integrity of our electoral system at local level—principles which all who have spoken would support. This is clear across all parties: successive Labour and Conservative Administrations have introduced directly elected mayors for some local authorities and the combined authorities taking on the most significant devolved powers, as well as directly elected police and crime commissioners.

I take the point made by a number of speakers that the current system can lead to domination by one party, with few opposition members. However, I think that that argument has less force now than when I was on the local authority because we have had the introduction of overview and scrutiny committees which can challenge the executive in a way that was not possible with the old committee structure that I was familiar with. On top of that, we have audit committees and officers of the council who have responsibilities on legality and value for money.

I also think that the notion of safe seats or safe wards has less validity now than it used to given the volatility of the electorate. At parliamentary level, we have seen my party lose Tatton and Dr Taylor win Wyre Forest, so I think that the notion of safe seats and safe wards is less valid. I think it was the noble Baroness, Lady Jones, who mentioned Sheffield. Within my memory, Sheffield has been run by three different parties, so it is not the case that there are parts of the country that are the monopoly of any one party.

My noble friend Lord Balfe shared his background in the Co-operative movement, which shaped his views on electoral reform. He also mentioned Wales. One consequence of devolution of course is that different parts of the UK can go their own way, and it does not follow that because Wales has gone in a particular direction, England has to follow. He also mentioned ward boundaries. As I understand his Bill, there is nothing in it that would affect ward boundaries, so the particular issue that he raised would have to be dealt with in a different way. He mentioned his support for the Greens. The Greens have shown that they can win wards—and indeed local authorities—under the existing system, so I would not accept that the existing system is a barrier to what were initially small movements.

My noble friend and the noble Lord, Lord Kennedy, mentioned that they favoured the additional member system, if we were to go down this particular route. I think that the smaller the boundary, the more difficult it is to have additional member systems. There is already the allegation that they are “second-class citizens”. That argument has less validity if you are looking at a region or a country but, when you get down to individual wards, if you were to have additional members sitting for such a small geographical area, there would be real difficulties in persuading people of their credibility.

The noble Lord, Lord Lipsey—speaking, if I may say so, from an unusual position in the Chamber, but on a familiar theme—addressed some of the deficiencies in the Bill and made it clear that he was anti-referendums. He also made the point that some of the difficult decisions about the Bill had been subcontracted to the Secretary of State, who would have to introduce a Bill to address some of these problems. I was interested in what he said about citizens’ juries, but I think that his proposal would put a huge weight on an as yet untested system of such juries taking important decisions on local democracy.

The noble Baroness, Lady Jones, asked me to answer the question of why is it fair that the DUP should have so many seats and the Greens so few. The answer is that the country had a referendum and decided that it wanted to stay with first past the post, and it is first past the post that produced the outcome that the noble Baroness referred to. In her closing remarks, she said that we should trust the people. If we are going to trust the people then I think that we have to honour the result of that particular referendum.

The noble Lord, Lord Tope, argued generously for a system that would give my party more representation in the London Borough of Sutton. I have to say that, next May, we hope to do that on our own, without the benefit of his proposed system. But, like others, he identified some deficiencies in the Bill. On the question of turnout, one can argue it both ways. I think I am right in saying that, when we moved from first past the post to the regional list system for the European Parliament, turnout fell from what it had been under first past the post—so it is not always the case that changing the system drives up turnout.

My noble friend Lord Balfe was somewhat dismissive about manifestos, but I have to remind him that my—and his—party’s manifesto commits us to,

“retain the first past the post system of voting for parliamentary elections and extend this system to police and crime commissioner and mayoral elections”.

In his remarks, the noble Lord, Lord Kennedy, said that he wanted to reduce the number of different systems. That is exactly what my party’s election manifesto does: it proposes moving back to first past the post as the system for the elections to which I have just referred.

To return to my noble friend Lord Balfe’s speech, far from moving towards the system advocated by his Bill, subject to local referendum, there is the clear commitment in the party’s manifesto to move in the opposite direction, which means it is difficult for us to support this particular piece of legislation.

We want to ensure that the laws governing our local elections can be understood and applied with confidence. Under first past the post, electors select their preferred candidate or candidates for their ward, the system is well understood by the electorate and it is straightforward for electoral administrators to deliver election results accurately and quickly.

Opinion has been tested—I referred to this a moment ago—and appetite among the public for a move from first past the post is not evident. The referendum in 2011 on changing the system of parliamentary electoral representation from first past the post to alternative vote was 67.9% against to 32.1% for on a turnout of 42.2%. The Bill before us seeks to apply PR rather than the alternative vote, and to councils rather than Parliament. None the less, significant public support has recently been expressed for first past the post. The Government’s position is that local government is local. First past the post ensures a clear link between the councillor and their ward in a manner that systems of PR may not. Local government has a strong tradition of having as its essential component the local councillor. Between them, these councillors represent the spectrum of different political parties; a number of councillors represent no party and stand as independents. The current system of representation facilitates this.

Electoral systems used to achieve PR are often more complex than first past the post; systems such as the single transferable vote require ballots to be counted multiple times in order to allocate seats. First past the post entails a relatively simple count which usually need be conducted only once, minimising the pressure on the administrative process and the possibility of error.

Elections using first past the post produce lower numbers of rejected ballot papers compared with other systems, including PR systems. According to the Electoral Commission, the Scottish council elections using STV led to 37,492 ballot papers being rejected: as a proportion of total ballots cast, that is nearly six times higher than under first past the post in the general election. High numbers of incorrectly completed ballot papers place pressure on the administrative process at the count by requiring electoral administrators’ adjudication.

We have had a useful debate. I thank all those who have contributed. I expressed reservations about the provisions of the Bill, as have other contributors to our debate. We have clearly stated our intention not to move away from the tried and tested first-past-the-post system. We have no plans to enable the change to the voting system for elections to English local authorities that the Bill could provide for, nor indeed do the Government propose to introduce the legislation envisaged by my noble friend. I am sorry to have to close my speech with remarks that I know he will find disappointing.