House of Lords
Introduction: Lord Livingston of Parkhead
Death of a Member: Lord Chitnis
The Lord Speaker (Baroness D'Souza)
My Lords, I regret to inform the House of the death of the noble Lord, Lord Chitnis, on 12 July. On behalf of the House, I extend our condolences to the noble Lord’s family and friends.
Retail: Portas-plus Package
Lord Naseby
To ask Her Majesty’s Government, further to the Answer by Baroness Hanham on 12 February (HL Deb, col. 557), what proposals they have to boost independent retailers in addition to the Portas-plus package.
Lord Naseby
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest in that a member of my family works in the retail trade.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, following the Portas review, we have lifted planning restrictions, doubled small business rate relief to help small shops, and provided communities across the country with a multimillion pound package of support so that they can drive new ideas for their local economy. Beyond the Portas pilots, the Government have invested millions through the High Street Innovation Fund and high street renewal awards. This is alongside more than £115 million of government funding to boost enterprise and initiate business start-ups.
Lord Naseby
Is the Minister aware that the Portas proposals and the extensions to them that she has just announced are enormously welcome to everybody in the retail trade? Nevertheless, two dimensions are hitting Britain’s high streets today. The first is low demand for the past two and a half years, which we all understand, because of the state of the economy and what we inherited in that dimension. The second, however, is business rates. Business rates have now reached the extent that they are the largest single overhead of any retailer, particularly the independent retailers. Against that background, can my noble friend confirm that there will be a commitment from the coalition Government to find a fairer way to tax both the high street and the online traders?
Baroness Hanham
My Lords, as the noble Lord will know, the Government have doubled the level of small business rate relief for the past three and a half years, and the higher level of relief will be available throughout the next year. Approximately half a million small businesses in England are estimated to benefit from that. We have also given authorities powers to grant their own business rate discounts, and central government is funding 50% of that. We have also reduced, and are reducing, corporation tax for larger businesses and corporate structures. Although I understand that concern is expressed by some about their business rates, I am not aware of any plans to change the system.
Lord Cotter
My Lords, pro rata to turnover, small shopkeepers provide more jobs than the big supermarkets do, although we are also seeing a great increase through mini-expresses and other means employed by the supermarket chains. It is welcome that the Government have come forward with schemes for business rates but those schemes lack a certain breadth and viability for many people. Will my noble friend look into the unfair situation whereby small shopkeepers frequently pay considerably more in business rates, based on turnover, than the big chains do?
Baroness Hanham
My Lords, I am not totally sure that they do. Business rates, as the noble Lord knows, are levied on the rate of rent paid so that, whatever happens, payments will be consistent. I am aware that there is concern about this, as I have acknowledged. However, I think that the Government feel at the moment that there is nothing to do to change that except to give small businesses the relief that I have already described.
Lord McKenzie of Luton
My Lords, the Question of the noble Lord, Lord Naseby, refers to “independent retailers”. Is that a distinction which is reflected in government policy, and what definition has been adopted?
Baroness Hanham
My Lords, I have accepted my noble friend’s interpretation. Independents, of course, are small retailers which, as the term suggests, are not part of a chain. On the other hand, small retailers may be part of a chain. It depends on the size of the business. To be clear, we are looking to ensure that small businesses can thrive in high streets. I have outlined the measures that we have taken to try to ensure that and to support them over the coming years.
Lord Phillips of Sudbury
Will my noble friend please take into account, when considering improvements to this already useful package, the fact that we are, in our times, seeing a decrease in the cohesion of local communities? Independent shopkeepers give character to town centres but also, more importantly, very often support local community activities in a way that the supermarkets totally fail to do. Will the Government take account not only of that but of the crazy disparity in tax payments between the little local shop on the high street and some of the big online retailers?
Baroness Hanham
My Lords, I totally agree with my noble friend that local, small and independent shops help provide community cohesion. There are many in my area which I know are very valued for the work that they do. One of the reasons why we are very anxious to see the high street flourish is that these independent traders are there, as well as others. After all, they are the centre of local communities, and they should be the generator. You meet people in the local butcher’s, and you meet people on the high street. They are also keen to take part. I fully accept that from my noble friend.
Baroness Farrington of Ribbleton
My Lords, will the Minister tell the House whether any government support or money is available for the conversion of space above high street shops to housing accommodation? There is a great demand for affordable housing in the centres of many of our towns and small cities. What are the Government doing to assist that?
Baroness Hanham
My Lords, as I indicated in my opening remarks, the Government have made changes to the planning regime which will enable local shops to become residences if that is a suitable change. I totally agree with the noble Baroness about the empty space above so many shops. Yes, we are very anxious to see those brought into use, and under permissive development they could be, but there are often structural reasons why they cannot, for example because they have no separate entrance. However, I take the noble Baroness’s point, which is very well made.
Medical Litigation: Impact on Medical Innovation
(10 years, 10 months ago)
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Lord Saatchi
To ask Her Majesty’s Government what assessment they have made of the impact of medical litigation on medical innovation.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, it is the Department of Health’s view that no assessment is required as no changes are needed to the law or medical guidance in this area. The current system allows for doctors to initiate novel treatments provided that they are evidence-based, in the best interests of the patient, and with patient consent. While the law does not seek to block innovation, it does require new forms of treatment to be rigorously tested before being introduced.
Lord Saatchi
My Lords, would my noble friend allow me to share the latest figures with your Lordships’ House? The number of lawsuits filed against the NHS last year was double the level of four years ago. Last year the payout of claims against the NHS was £1.2 billion. The current Treasury provision for likely payouts in the future for litigation against the NHS is now over £19 billion. Against that backdrop, is there not a danger that the growing fear of medical litigation leads to a growing bias against medical innovation? Will my noble friend consider the warnings of judges about the tendency of current law to inhibit medical progress? For example—
Lord Saatchi
I will shorten what I was going to say. Will my noble friend consider the warnings of judges, including that of the noble and learned Baroness, Lady Butler-Sloss, that under current law no innovative work—such as the use of penicillin, or performing heart transplant surgery—would ever be attempted?
Earl Howe
My Lords, naturally I share my noble friend’s concern about the level of litigation in the NHS. Having said that, I have seen no evidence that a particularly large or indeed significant element of that bill relates to medical innovation. We need to reflect that all treatments in routine use in the NHS today began as innovative treatments. We continue to support the introduction of new and innovative treatments in the NHS. I think that, if anything, doctors have more concerns about being reported to the General Medical Council than they do about being sued.
Lord Campbell-Savours
My Lords, is there not a danger that the requirement to publish the patient mortality rates of individual surgeons will act as a disincentive for surgeons to innovate and take risks in circumstances where patients themselves might want those surgeons to take a risk?
Earl Howe
There is indeed a danger that if the information that is published has not been carefully scrutinised to make sure that it is balanced and reflects faithfully the performance of the individual surgeon or the surgical team. I share the noble Lord’s concern that we should not just release information that has not been carefully examined in that sense, but there is a value, I suggest, to patients and clinicians themselves to have benchmarking metrics against which to judge performance.
Lord Walton of Detchant
My Lords, does the Minister agree that there is a longstanding Bolam judgment—which to the best of my knowledge is still active—to the effect that, in the management of a particular patient, a doctor is not negligent if he or she has acted in accordance with the views of a group of informed medical opinion? It does not have to be the majority medical opinion so long as the individual has acted in accordance with the views of a well recognised group of other doctors.
Lord Mawhinney
My Lords, by how much are litigation figures reduced by the intervention of mediators or arbitrators?
Earl Howe
I cannot give my noble friend a figure for that, but I can tell him that mediation and arbitration are increasing features in cases of this kind. We are very keen for that mechanism to grow, because the more that cases get into the hands of lawyers—I say this with great respect to noble Lords who are lawyers—the higher the bill to the NHS and the more distress there is to patients and families.
Baroness Wall of New Barnet
My Lords, I congratulate the noble Lord, Lord Saatchi, on linking these two important issues of innovation and litigation. I worry that the innovation that has become part of the Liverpool care pathway has had the reaction that it has. We understand today that there is going to be a cessation of that care pathway, because people are reporting being tarnished by it, whereas many patients have had great experiences and families’ involvement in that. It concerns me that we will either stop something because there is an issue about it or stop innovating.
Earl Howe
I share the noble Baroness’s concern, but at the same time I recognise that the noble Baroness, Lady Neuberger, and her expert group have done a very thorough job of work. It is now up to the Government and the whole medical community to consider and reflect on the conclusions that the noble Baroness has reached. One thing that she has said is that her decision is not a recommendation to move away from best practice in end-of-life care.
Lord Marks of Henley-on-Thames
My Lords, while of course we need to be cautious about encouraging a compensation culture, does my noble friend agree that medical litigation not only secures compensation for many who deserve it but does a great deal to maintain and improve medical standards in this country?
Earl Howe
My noble friend makes an extremely important point. Our policy is that it is right that NHS patients who are injured as a result of clinical negligence should be able to obtain correct and full compensation. Under the current system, compensation is in general paid only where legal liability can be established. The underlying principles are clear cut and enshrined in common law.
Lord Patel
My Lords, does the Minister agree that the only bar to surgeons introducing new surgical procedures is that they subject them to external audit to make sure that they do not harm patients?
Airports: Passenger Numbers
(10 years, 10 months ago)
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Lord Clinton-Davis
To ask Her Majesty’s Government how many passengers used each of the United Kingdom’s main airports in May 2013; and how many in May 2012.
Lord Clinton-Davis
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare that I am life president of BALPA.
Earl Attlee
My Lords, the noble Lord asks for a lot of data. The Civil Aviation Authority publishes monthly statistics on the number of passengers at each reporting airport. By way of example, passenger numbers at Heathrow exceeded 6 million in May this year, up 5% compared with May last year. At Gatwick, passenger numbers exceeded 3 million, up 8% from the same time last year.
Lord Clinton-Davis
I thank the noble Earl for that information. Does he agree that inordinate delay in selecting a new hub airport can only give Paris, Amsterdam and Frankfurt a real, perhaps decisive, advantage, which will be immensely difficult, if not impossible, to reverse? Why do the Government not recognise that, with improved access, Heathrow will provide a speedier answer than any other airport in existence today—one that would hugely benefit British aviation and our economy as a whole?
Earl Attlee
My Lords, I do not agree that there is inordinate delay. This is an extremely important decision. There is no right answer and when we find our solution we must have national consensus. The Airports Commission is the right way of determining the right answer and getting national consensus.
Lord Spicer
My Lords, how long will it take to complete the latest Boris Johnson wheeze?
Earl Attlee
My Lords, I am sure that the Airports Commission will take into account the practical difficulties and advantages of “Boris Island”.
Lord Foulkes of Cumnock
My Lords, does the Minister agree that there would be many more flights out of United Kingdom airports if air passenger duty was not so high? This is particularly the case for the Caribbean: the friends and family of people who live there are unable to go back to visit them because of the very high level of air passenger duty. A proposal has been put to the Department for Transport to change the level for to the Caribbean, but we have not yet had a response. Could the Minister say when that response will be forthcoming? I hope that he will give it sympathetic consideration.
Earl Attlee
My Lords, it is first important to understand that air passenger duty is essentially a revenue-raising tax—that is its purpose. It is not so much an environmental tax. APD is not a tax on international aviation fuel, which would be prohibited by the Chicago Convention. As I said, APD is a revenue-raising tax, which needs to be clear and simple and to ensure a fair contribution from the sector to public finances.
Lord Bradshaw
My Lords, I wonder whether the noble Earl agrees that, in answer to the Question of the noble Lord, Lord Clinton-Davis, the key issue is how many people move from one aeroplane to another at airports; and to exclude from some of these large figures all the people who stop here for a period? That way, we can separate the number of interlining passengers from the destination passengers.
Earl Attlee
My Lords, as usual, my noble friend is on the money. The Airports Commission has access to the statisticians and data available at the Department for Transport to inform its research and decisions.
Baroness Scotland of Asthal
My Lords, I wonder whether the noble Earl would reconsider the answer he gave to my noble friend Lord Foulkes, when he said that air passenger duty is simply a revenue-raising tax? Is the noble Earl suggesting that Her Majesty’s Government do not take into account the severe impact that such a tax has on a region that is vulnerable and in need of help and support?
Earl Attlee
My Lords, the Government do consider the effect of APD. For instance, we have devolved APD to Northern Ireland because we faced competition from Dublin, which meant that the Belfast airports were getting into difficulties with the transatlantic trade. I understand the noble and learned Baroness’s point and that of the noble Lord, Lord Foulkes, about families wanting to go to the Caribbean, but I should also point out that there is quite a lot of holiday traffic to the Caribbean as well.
Lord Naseby
How can it be right that this tax is lower if you go all the way to Los Angeles than it is to get to the Caribbean? We do not have too many families going to Los Angeles on the lower rate but we have thousands who want to go to the Caribbean.
Earl Attlee
My Lords, as I tried somewhat clumsily to explain, we have to make sure that air passenger duty is not a tax on fuel. Therefore, we cannot tax per mile because, effectively, that would be a tax on fuel and we would fall foul of the Chicago Convention. It is, I accept, a fairly crude calculation and you can get peculiar results, as my noble friend suggests.
Lord Faulkner of Worcester
Can the Minister give an assurance that the claims of Birmingham Airport will be considered in the airport review, bearing in mind that it is the one airport in the country that has spare capacity; that there is not the degree of opposition to expansion and building new runways there that exists at Heathrow, Gatwick or Stansted; and that it will be less than an hour from London by high-speed train?
Earl Attlee
My Lords, I can assure the noble Lord that the Airports Commission will take into account the benefits of Birmingham Airport and, in particular, the arrival of HS2, because that will make a big difference. I am certain that that will be within its calculations.
Lord Davies of Oldham
My Lords, the Minister must have noticed considerable activity by airport interests in putting their case before the public. When the Minister travels by Tube, as I am sure he does, in recent weeks he must have left this House and walked past advertisements raising that issue. What reply do the Government give to those important interests? Is it the same lame reply of long delays that we get in this House?
Earl Attlee
My Lords, I am confident that the Airports Commission is well able to see past an advertising campaign.
Digital Strategy
(10 years, 10 months ago)
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Baroness Lane-Fox of Soho
To ask Her Majesty’s Government what plans they have following their digital strategy to enable adults to acquire the necessary skills to make use of digital services.
Baroness Lane-Fox of Soho
My Lords, I beg leave to ask the Question standing in my name on the Order Paper and, in so doing, declare an interest as chair of Go ON UK.
Lord Wallace of Saltaire
My Lords, we are setting up a cross-government team to lead and co-ordinate the Government’s work on digital inclusion. This will help offline adults and businesses to develop their digital skills. The team will work closely with Go ON UK, as the noble Baroness is well aware.
Design of assisted digital provision is in the early stages. This is how offline adults will access central government digital services. We are considering how to include an element of learning in that provision to encourage offline adults to use digital services independently in future.
Baroness Lane-Fox of Soho
My Lords, I thank the Minister for his Answer, and I commend the Government’s use of digital services. However, as he will be aware, all the data show that it is the lowest income households who have the most to gain from those services but are often the hardest to reach. I wonder what steps the Government are taking to ensure that this complex problem is addressed and that no one is left behind.
Lord Wallace of Saltaire
My Lords, I was visiting a large housing association in Bradford on Friday morning and was happy to learn that it provides for its tenants centres where people who do not have the skills can go to be helped to use the internet. That is very much part of what is in line. The noble Baroness will be aware that there is a joint DWP-DCLG scheme, which is working with the private sector to provide that for social landlords. That is one way in which one reaches one of the harder areas of the population which we must reach.
Lord Clement-Jones
My Lords, as regards the Government’s digital strategy, the NAO has recently pointed out that there are slipping projections for superfast broadband to rural areas, a lack of competition and the need to change the procurement model. Are not these serious criticisms, and is not the plan not to implement the Digital Economy Act until 2015 another disappointment?
Lord Wallace of Saltaire
My Lords, I am something of an expert when it comes to which parts of the Yorkshire Dales National Park one cannot get mobile access. I am conscious that there are all sorts of contradictions in wanting to develop rural broadband, with national parks resisting having mobile phone masts put up all over them.
Some weeks ago, the Chief Secretary to the Treasury announced, as part of the Investing in Britain’s Future package, that there will be an additional £250 million match-funded to extend superfast broadband to such hard-to-reach areas.
Baroness Bakewell
My Lords, are the Government aware that more and more councils are going online? In fact, they are offering a bribe—a reduction for people who pay their bills online—thus penalising the millions of older people who are not willing or able to go online themselves. Surely the health cost of isolating more and more older people from the free running of society and their councils is something the Government should take into account.
Lord Wallace of Saltaire
My Lords, the Government very much take that into account. Incidentally, the statistics do not show that all older people are incapable of using digital services. The assisted digital scheme is precisely a means of helping people who do not find it easy to access the internet. They are given incentives to encourage them to ask their friends and others in care homes and elsewhere to help them to access the internet. I admit that the only government service that I have yet used online is renewing my driving licence. I understand that the most complex procedure that you can currently do entirely online is the enduring power of attorney, which I suspect one needs younger people to help with.
Baroness Wheatcroft
My Lords, instead of a subsidised TV licence or free television licence for the elderly, might not subsidised broadband be a good idea?
Lord Wallace of Saltaire
My Lords, I had better take that one away and think about it.
Lord Wright of Richmond
My Lords, is the Minister aware—I doubt whether he is yet—that one way to acquire digital skills is to have as many grandchildren as possible?
Lord Wallace of Saltaire
Yes. I have also discovered that one of the ways to go backwards in digital skills is for your son to emigrate. You cannot then ask him to help in the middle of the night.
Lord Reid of Cardowan
My Lords, the disconcerting element of the Minister’s Answer to the noble Baroness in the first case was that this is at an early stage. We are now decades into the internet. We are at least a decade on from envisaging digital services. Whether it is a matter of the social justice of excluding people who cannot use this, of hygiene and security on the internet or, indeed, of the chronic shortage of skills that we have as regards cyber for the future, will the Minister reassure us that, while he may be at an early stage in this process, rapid progress will be made? I declare an interest as a twice-over grandfather.
Lord Wallace of Saltaire
My Lords, things are actually moving quite fast. This is not simply something that central government are attempting to impose. I am encouraged by how much is being done at the local level by voluntary organisations and by partnerships between the public and the private sectors. The assisted digital scheme is intended to pull a number of these together and make sure that they are encouraged to help precisely in those areas of the country where digital skills are least well developed. The speed at which people are moving over to digital as mobile smartphones expand is very rapid.
Lord Avebury
My Lords, I am sure my noble friend is aware that according to the Office for National Statistics, 3.8 million disabled people have never used the internet. How are those people going to claim universal credit when the applications have to be made online? If they all go to the centres that he mentioned, will they not be completely overwhelmed?
Lord Wallace of Saltaire
My Lords, that is precisely what the assisted digital and digital inclusion schemes are intended to deal with. They encourage people to learn how to use the internet themselves and, where they find it difficult to do so, to assist them and advise them on how to gain the access they need.
Lord Stevenson of Balmacara
In the last quarterly report of the GDS, the figure of 20% of the population needing some sort of assistance is quoted. I make that about 10 million people. Will the Minister comment on the fact that in the recent report on the rural broadband programme, the chairman of the Public Accounts Committee said that only 9 of 44 locally managed programmes are expected to meet the 90% superfast broadband coverage target? The programme now will not be delivered until March 2017—nearly two years late. What is plan B?
Lord Wallace of Saltaire
My Lords, things are actually changing very rapidly. I am fed up in Saltaire with the number of letters Virgin has put through my door telling me that it has now wired the entire village. The speed at which superfast broadband is being expanded is very rapid. This is not a matter simply for the Government. One of the things that worries me about the current statistics of where the Government need to catch up is that 60% of the population have shopped online and continue to shop online but less than 30% have accessed government services online. That is where we hope to catch up.
Highway and Railway (Nationally Significant Infrastructure Project) Order 2013
(10 years, 10 months ago)
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Earl Attlee
That the draft order laid before the House on 15 and 16 May be approved.
Relevant documents: 3rd Report from the Secondary Legislation Scrutiny Committee, 2nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 10 July
Supply and Appropriation (Main Estimates) Bill
(10 years, 10 months ago)
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Marriage (Same Sex Couples) Bill
(10 years, 10 months ago)
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Baroness Anelay of St Johns
My Lords, this is a procedural matter, which is why I have leapt to my feet in advance of my noble friend Lady Stowell. I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Marriage (Same Sex Couples) Bill, has consented to place her interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Amendment 1
“Survivor benefits under occupational pension schemes
(1) The Secretary of State must arrange for a review of the following matters relating to occupational pension schemes—
(a) relevant differences in survivor benefits;(b) the costs, and other effects, of securing that relevant differences in survivor benefits are eliminated by the equalisation of survivor benefits.(2) For the purposes of this section, each of the following are relevant differences in survivor benefits—
(a) differences between—(i) same sex survivor benefits, and(ii) opposite sex survivor benefits provided to widows; (b) differences between—(i) same sex survivor benefits, and(ii) opposite sex survivor benefits provided to widowers;(c) differences between—(i) opposite sex survivor benefits provided to widows, and(ii) opposite sex survivor benefits provided to widowers.(3) The review must, in particular, consider these issues—
(a) the extent to which same sex survivor benefits are provided in reliance on paragraph 18 of Schedule 9 to the Equality Act 2010;(b) the extent to which—(i) same sex survivor benefits, and(ii) opposite sex survivor benefits,are calculated by reference to different periods of pensionable service.(4) The arrangements made by the Secretary of State must provide for the person or persons conducting the review to consult such other persons as the Secretary of State considers appropriate.
(5) The Secretary of State must arrange for a report on the outcome of the review to be produced and published before 1 July 2014.
(6) If the Secretary of State, having considered the outcome of the review, thinks that the law of England and Wales and Scotland should be changed for the purpose of eliminating or reducing relevant differences in survivor benefits, the Secretary of State may, by order, make such provision as the Secretary of State considers appropriate for that purpose.
(7) An order under subsection (6) may amend—
(a) England and Wales legislation;(b) Scottish legislation.(8) In this section—
“occupational pension scheme” has the same meaning as in the Pension Schemes Act 1993 (see section 1 of that Act);
“opposite sex survivor benefits” means survivor benefits provided to surviving spouses of marriages of opposite sex couples;
“same sex survivor benefits” means survivor benefits provided to—
(a) surviving civil partners, and(b) surviving spouses of marriages of same sex couples;“survivor benefits” means survivor benefits provided under occupational pension schemes.”
Baroness Stowell of Beeston
My Lords, I will speak also to Amendments 2 to 5, on the subject of occupational pension benefits. I am grateful to my noble friend Lord Lester, the noble Lord, Lord Alli, and the noble Baroness, Lady Royall, for adding their names to this group of amendments.
The Government have listened carefully and understand the concern that has been expressed that same-sex married couples will be in a different position from opposite-sex married couples as regards occupational pension benefits. The effect of the difference in treatment, which is permitted under the exception in Schedule 9 to the Equality Act 2010, is that currently civil partners and, by virtue of the provision made in Schedule 4 to this Bill, people married to someone of the same sex may not benefit from their civil partner or spouse’s pensionable service prior to 2005 in respect of any survivor benefit payable on the death of their civil partner or spouse.
We discussed this issue at some length in Committee and on Report, when we had a full debate on Amendments 84 and 84A, tabled by the noble Lord, Lord Alli. I am grateful to him and other noble Lords for highlighting this important issue and for engaging in constructive discussions during the passage of the Bill, which have led us to bring forward this group of amendments.
I will begin by making clear that we are talking here about which period during which contributions were actually made to a pension scheme will be taken into account when calculating survivor benefits on the death of the pension scheme member. Therefore, this issue does not affect people whose pensionable service began in 2005 or later. For those whose pensionable service began prior to 2005, the concern is that contributions that they have made will not benefit their partner on their death. I should also make clear that if the Government were confident that equalising these benefits was straightforward and sustainable, we would be happy to support a move towards equalisation. But as a matter of principle, and as I have explained previously, successive Governments have avoided imposing retrospective costs on pension schemes, particularly private sector pension schemes, which have not been taken into consideration in their funding assumptions.
It would be irresponsible of any Government to commit themselves to imposing potentially significant costs on businesses and the taxpayer without first undertaking an assessment of all the implications and knock-on effects, and assessing the scale of the costs involved. This group of amendments therefore requires the Government to arrange a review of the differences in survivor benefits in occupational pension schemes between opposite-sex couples and same-sex couples in legal relationships, both marriage and civil partnership. It will look at the issue in the round and will include looking specifically at the effect of eliminating differences in treatment because of sexual orientation in terms of survivor benefits between people married to someone of the opposite sex and people married to someone of the same sex. I can therefore assure the House that the review will include an exploration of the issue which is the focus of the concern of the noble Lord, Lord Alli.
As I have said, we must also look at the full costs and implications of any change. This means looking at the effect of equalisation across the board, because any changes made for one group could have significant wider implications. The review will therefore also consider the differences in treatment between widows and widowers of marriages of opposite-sex couples and the impact of removing the current exception permitting these gender-based differences of treatment provided by Section 67 of the Equality Act. It is important to emphasise, however, that these existing gender-based differences in treatment for widows and widowers in relation to survivor benefits arise from changes that have been made over time as a result of societal change. These longstanding differences reflect the historical fact that in the past many women were not economically active and relied on their husbands for their pension. These differences are therefore not consequences of the measures in the Bill, but it is important that the review considers all the interdependencies between the arrangements for different groups in occupational pension schemes in the round.
It is also important that interested parties are consulted and that all relevant voices are heard. The review will also therefore include consultation with those interested parties that the Secretary of State considers appropriate. This point was raised by my noble friend Lord Higgins. I can assure him and the House that consultation will include, for example, pension scheme trustees and industry bodies, as well as organisations representing the interests of lesbian and gay employees.
Following this comprehensive review, the amendments require the Secretary of State to publish a report of the outcome before 1 July 2014. The amendment also includes an order-making power. This ensures that if on consideration of the outcome of the review the Secretary of State thinks that the law needs to be changed in order to reduce or eliminate differences between survivor benefits, this can be achieved through secondary legislation, subject to the affirmative procedure.
I hope that these amendments reassure the House that we have listened to the strength of feeling on this issue and have responded in good faith with a sensible and measured way forward. The Government’s amendments will ensure that if we were to make any changes to the existing arrangements for differences in survivor benefits we would do so with an understanding of the full implications of such changes and of the potential costs both to schemes and to the taxpayer. I beg to move.
Lord Alli
My Lords, I thank the Minister and my noble friend Lady Royall of Blaisdon for making this amendment possible. I am glad that the Government will re-look at this issue and that if they can they will change the law.
This is also my last opportunity to speak on the Bill. I want to say thank you not just to the Front Benches on both sides of the House but to the House. I have been truly humbled to have been part of the Bill in this place. This week will mark the 15th anniversary of my entry into your Lordships’ House. As a gay man, over those 15 years you have changed my life. You have given me dignity where there was sometimes fear, you have given me hope where there was often darkness and you have given me equality where there was sometimes prejudice. Those who want radically to reform this place come with their plans. Let me say this to them: witness this day; witness this Bill; judge us on the creation of the liberties that we protect and extend.
This is a special place and I am proud to have figured in it. My life and the lives of many others will be better today than they were yesterday, and I thank the House for that.
Lord Lester of Herne Hill
My Lords, I am glad that I put my name to these amendments. I add my support to the Minister for the wisdom of the amendments. It is an open-ended consultation that is not prejudged, it is time-limited so there will not be undue delay, and if there are changes it will be subject to affirmative procedure, which means that Parliament will be able to be properly consulted, as the public and all the interested groups will have been.
To add a further point, if change is brought about it will avoid the need for further litigation that could finish up in the European Court of Human Rights, as I read its case law, because if there is to be change it will remove a source of discrimination that, it could be strongly argued, is not compatible with convention rights. For all those reasons, I am very glad to support this.
The noble Lord, Lord Alli, has described me in the past as a lone ranger, but I was not sure that that was a compliment. I sit among my Liberal Democrat tribe not as a lone ranger; we are full of support for that team. I should say, though others will also say it from these Benches, that we are very proud of the fact that we were the first to think of civil partnership, to do civil partnership in a Private Member’s Bill and then to support the admirable Equality Act, so I do not think that I am a lone ranger. Anyhow, I do not watch cowboy films because I am too frightened of what will happen to the horses of the Indians.
I join in the tributes to the Minister and her extremely skilled team. Part of that team was responsible for the Equality Act 2010, which I have described as the best civil rights legislation in the world, and that I believe to be the case. The Minister has had to deal with the Bill in difficult circumstances; there are some in the House who are strongly opposed to it. However, the way in which amendments have been considered and debated across the House honestly and transparently has been extremely important, and I have learnt a great deal from listening to those debates.
I joined the House 20 years ago and I can tell those who are a bit younger that it would have been quite inconceivable for the House to have been able to approve this measure then. It would have been fairly impossible 15 years ago. What has changed for the better has been the modernisation of this House through appointments, and I pay tribute to the previous Government for the appointments that they made that I think have secured a House that is truly countermajoritarian and truly concerned with individual rights and with protecting minorities against the abuse of powers by the tyranny of the majority.
Lord Rowlands
My Lords, I rise to make a brief contribution—my one and only contribution to the Bill—because listening to the debates and reading the correspondence has brought vivid memories back to me of voting at 4.27 am, 46 years ago this month, by 99 votes to 14 for Mr Leo Abse’s Sexual Offences Act decriminalising homosexuality. I was a 27 year-old Member of Parliament who had only been elected the year before, totally unexpectedly so because I was not expected to win a Conservative stronghold. That brief political experience did not prepare me for the vehemence of the reaction to my stance in that year. I have never since come across anything quite like the level of abuse and vehemence that I received in certain quarters of the constituency because of my support for that Bill. How could I possibly legitimise such horrid, heinous and sinful practices? The church, at that time, took rather a curious position on the Bill. It kind of supported it because it could help in the mission to save the sinful souls of homosexuals. The Bishop of London of the time said that it would allow,
“the reformation and recovery … of those who have become the victims of homosexual practices”.—[Official Report, 13/7/67; col. 1291.]
I do not know how well that mission has succeeded since.
Lord Higgins
My Lords, I join other noble Lords in congratulating my noble friend the Minister on the Front Bench on the way in which she has handled this Bill throughout. Indeed, I join all those who expressed appreciation to the noble Lord, Lord Alli, and others who have carried on the debate in such an eloquent and satisfactory manner. I am particularly grateful to the Minister for saying that the review will take into account the position of pension fund trustees and other beneficiaries in ensuring that equality is maintained. I would ask particularly whether the position will be protected so that those in a same-sex marriage do not gain access to a closed pension scheme in a way that would prevent members of the company’s other scheme entering it. Perhaps that point might be taken into account by the review. Can my noble friend say what the composition of the review is to be? I am at rather a loss to understand what interests of Her Majesty are involved in this; that came straight out of the blue. Can my noble friend clarify that particular point?
Finally, I am glad that the order resulting from this review is to be subject to a resolution so that the House will be able to debate the result of the review without having to resort to a prayer. Overall, I think that we have made significant progress. I still have grave reservations about the position of registrars and so on, which I understand was a whipped vote on the other side. In any event, on this particular aspect of the Bill, the Minister has certainly done an excellent job and I am very grateful to her.
The Lord Bishop of Norwich
My Lords, I support this group of amendments. A review of the benefits accruing to all survivors under occupational pension schemes is both desirable and necessary. The principle of equity under the law for those whom the law holds to have the same status in relation to the deceased is a sound one. Hard-pressed pension schemes must be tempted to limit benefits, and the complexity of some schemes may hide inequity, so this principle is clear and just and I support it. Indeed, the Church of England pension scheme already treats surviving civil partners in precisely the same way as widows and widowers.
There is a wider reason for supporting these amendments. It is no secret that the majority of Christian churches and other world faiths do not believe that same-sex marriage accords with their understanding of marriage itself. However, many of us, including on these Benches, welcome the social and legal recognition of same-sex partnerships and believe that our society is a better and healthier one for such recognition. That is why I support this group of amendments. This point has sometimes been obscured in public commentary on what has been taking place here, but not in the debates in your Lordships’ House. The courtesy and clarity with which your Lordships have listened to each other represent our very best traditions, and I echo all that has already been said in this brief debate.
I, too, thank the Minister for her work and the Government for accommodating the needs of the Church of England and other faith traditions, and for wanting to do so. That has also been a characteristic of this House as the Bill has been debated. While the Bill is necessarily complex as a result of meeting many needs—and we are making it a bit more complex again—it will serve very well both its supporters and those who are still unconvinced about it, and that is a signal achievement.
Baroness Royall of Blaisdon
My Lords, I was very pleased to add my name to this group of amendments. I thank the Government for listening and recognising that action should be taken in order to get rid of this last inequality, which in my view is an anomaly. However, it is of course right that consultation, a review and an assessment should be undertaken before any final action is taken. I especially thank the Minister, who steered through the discussions on the compromise with her usual aplomb, skill and understanding. I am glad that we can all agree that this is the best way forward.
Lord Elton
Before the noble Baroness sits down, since there is no opportunity for a Back-Bencher to join in after that, and she sprang rather quickly to her feet, I wish to say that I welcomed the attempt to produce equality in this aspect of the Bill at each stage and that I am particularly glad to support it now. Perhaps it is best to pass over the rest of the debate we have heard.
Baroness Stowell of Beeston
My Lords, I am very grateful to all noble Lords who have spoken in this debate and for their support for these amendments. I will respond to some of the questions that were put by my noble friend Lord Higgins. He asked whether those who are currently excluded from a defined benefit scheme would not get access to such a scheme to a greater advancement than anyone else as a result of this review. I can assure him that that is not the case. The purpose of the review is purely to look at the contributions that people made before 2005. The noble Lord asked about the composition of the review. We will publish terms of reference in due course, and at that time we will be able to offer a little more detail.
As to the role of Her Majesty the Queen and the comments of my noble friend Lady Anelay before I moved Third Reading, I do not have a comprehensive response to that question except to say that that was just a formality that is sometimes necessary on the government Chief Whip’s part before a Bill passes on to the Commons. It is all to do with various, specific interests that Her Majesty may have in a piece of legislation. In no way does it pre-empt proper process or the granting of Royal Assent. It is a pure formality and there is nothing unusual in it.
I will respond more broadly to this debate and to those that we have had on the Bill in your Lordships’ House over the past few weeks. At Second Reading, I urged the House to ensure that the protections that allow the church and other faiths to maintain their legitimate belief that marriage is only between a man and a woman should work properly. I also said that this House should debate and scrutinise whether the Bill protects freedom of speech. Your Lordships have done that, and I am grateful to all who have contributed. Those of us who have supported the Bill in principle, and those who have been concerned about protections for those who did not, have together made this an even better Bill.
While the amendments we have made were all tabled by the Government, they have all been inspired by your Lordships and by the debates we have had in this House or through the work done in its committees, particularly the Delegated Powers and Regulatory Reform Committee. During the passage of the Bill through both Houses, the Government have made 23 substantial amendments, 17 of them while the Bill has been in this House. The most significant include the reviews to which we are committed—on civil partnerships, humanist marriages and the equalisation of survivor benefits for same-sex and opposite-sex married couples—as well as the amendment to the Public Order Act, which is a significant protection for freedom of speech.
We have also made amendments on religious protections, in particular one that clarifies the word “compel” in Clause 2. Religious faiths, notably the Catholic Church and others who are neither the Church of England nor the Church in Wales, and who did not wish to opt in to marrying same-sex couples, wanted us to strengthen further the clause in the Bill that states that a person may not be compelled to conduct a marriage of a same-sex couple. This matter was also debated in the Commons and the movers of the amendment there were defeated by 321 votes to 163. Even though the will of the Commons was clear on this point, the Government said that they remained open-minded and would continue to listen. We did so, and were persuaded to come forward with our own amendment on Report. The Bill is now clearer, and says:
“A person may not be compelled by any means (including by the enforcement of a contract or a statutory or other legal requirement)”.
I was pleased that the noble Lord, Lord Brennan, whom noble Lords will remember was critical of the Bill at Second Reading, commended the amendment, saying that it dealt with concerns about public functions comprehensively. He said:
“I cannot remember seeing in a statute—certainly not in one of this kind—the words ‘by any means’. That is an all-embracing, protective phrase and I commend the Government doubly for such a courageous use of language to achieve one of the protections that they said they wanted to achieve: institutional independence”.—[Official Report, 8/7/13; col. 105.]
Lord Higgins
I am sorry to interrupt, but is it not the case that registrars will effectively be compelled, even if they have conscientious objections, to marry same-sex couples?
Baroness Stowell of Beeston
The amendments to which I am referring concern religious protection. The point that was made during our debate on registrars was that they are public servants, carrying out a public function, and are therefore not in the same position as people of faith as to the requirements if they are conducting a marriage in their own church. They are employed to do a job as public servants.
Our debates have provided evidence to support something else I said at Second Reading. It is possible for us to allow in law something that not everyone agrees with, and to respect our differences of view. In particular, I note the comments of the noble Lord, Lord Rowlands, about the contrast between our debates and those of the past on previous gay rights legislation. I note, too, what the right reverend Prelate the Bishop of Norwich said when he paid tribute to the way in which we have debated the Bill in your Lordships’ House.
“( ) an order under section (Survivor benefits under occupational pension schemes);”
Lord Cormack
I understand that this is the time that one would make a brief contribution on this Motion. I am very sorry to be doing it now in a sense because my noble friend the Minister in effect wound up the proceedings on the Bill when she was answering the amendments. However, I was not to know that she was going to do that. I want to make a very brief speech and congratulate all those who have campaigned for this measure on their success. However, in doing that, I ask them to bear in mind that although this may be a day of unqualified rejoicing for them, many in our country, who by no stretch of the imagination could be called either homophobic or bigoted, are unhappy about this Bill. They are unhappy about it because it changes the structure of society by changing the definition of marriage.
I hope that all those who enter into marriage under its new definition will, indeed, live happily every after, but the sincerity of that wish in no sense prevents my saying to them, “I understand that you feel euphoric today but please have a thought for those who have different views and for the many, not just thousands but millions of people in this country, for whom marriage will always be equated with what remains in this Bill the Christian definition of marriage”. I hope that in recognising that, they will also remember the great Churchillian motto: magnanimity in victory.
Those who support the Bill have won; there is no doubt about that. It would be churlish and ridiculous to pretend otherwise and I, for one, would never do so. I hope that the divisions in our society which I fear will not come to pass. For my part, I will do my best, in whatever way I can, to ensure that they do not. However, if we are to have a society that is not embittered, and bitterness is the most corrosive of all emotions, it is important that both sides of this argument recognise the validity of the other side. The noble Lord, Lord Alli, for whom I have developed a very real regard during these debates, is, indeed, a doughty campaigner and has every right to feel pleased with the result of his campaign. However, I say to him, and through him, “Please remember the millions of decent people for whom this is not a day of rejoicing”.
Lord Framlingham
My Lords, I, too, wanted to make a brief contribution, having sat through all the remaining stages and the Motion that the Bill do now pass. I am one who does not think that it should.
Today has the potential to be deeply sad for this House and for millions of people—children, parents, families, teachers, clergymen—indeed, anyone who believes in the traditional family unit and its fundamental role in the life and cohesion of our country. If this Bill in its present form becomes law, a large number of people with understandable aspirations will be given new freedoms and be made very happy. But surely it must be right and only fair that your Lordships’ House should give some consideration to a much larger number of people, running into millions, whose lives will be less happy and whose concerns and problems will be increased by this legislation.
Have we got the balance right? I think not, particularly as the opportunity to adjust the balance was spurned by the Government’s complete rejection of any meaningful amendments. Happiness won at the expense of other people’s happiness is rarely trouble-free in the long term.
The questions that many are asking are: why now and why the haste? The simple truth is that the coalition Government have colluded with equal love campaigners and the European Court of Human Rights in bringing a case—an appeal—against our country’s long-established and settled position on marriage. There was a suggestion—some would call it a threat—that if legislation were not brought forward by June this year then changes would be forced on us. The House of Lords Library tells me that as legislation is proceeding the case in the European Court of Human Rights will probably not now be pursued. What outrageous, behind-the-scenes arm twisting.
The result is that not one meaningful amendment has been accepted, not because none has been worth while but for the sake of entirely contrived deadlines, which suit campaigners in a hurry and a Government who want it off their plate well before the next general election. How cynical and how dangerous. Given the huge effect the Bill, if passed, will have on millions of people, what an abuse of the parliamentary system to put speed before truth. So many important issues causing great concern have been left unresolved and hanging in the air, such as the effect on teachers, faith schools, the issue of adultery, consummation, the effect on registrars, which has already been referred to, and the use of premises—issues touching the lives of thousands every day, not to mention the effect on marriage itself.
Those of us who have sat through all the stages of the Bill and have watched the Government knock down amendment after amendment have despaired at their intransigence. This House prides itself on being a revising Chamber. On this Bill it has been a bulldozer. We are being used to bulldoze through an ill thought through Bill, the ramifications of which the people have not begun to understand. All great issues are essentially very simple. We make them complicated when we do not want to face them or when we are anxious to hide their true meaning and purpose. This Bill is built entirely on pretence. It pretends that there is no difference between a man and a woman. From this deceit have sprung all the problems we have been wrestling with—problems we have failed to resolve and which will bedevil generations to come. How can we possibly give our blessing to legislation built on pretence?
To those noble Lords who simply voted for this Bill at Second Reading for constitutional reasons, to those who have come to understand during our scrutiny its far-reaching measures, to those who are dismayed at the lack of concern for the worries of millions of people by the rejection of all the amendments, to those who believe that rushed, ill-thought-through legislation is dangerous, and to those noble Lords who prefer scrutiny to bulldozing—I realise that I am asking too much at this late stage—I was going to plead with your Lordships to vote against this Third Reading to defend this House’s integrity and to grant adequate time for Parliament and the people fully to understand what is going on and, I believe, to receive the thanks of millions of people.
Lord Fowler
My Lords, in some humility, I say that I disagree with both my fellow Conservatives who have just spoken, and in particular with the last speech. I do that in the context of paying tribute to the very high standard of the debate that has taken place. I pay tribute to the noble Lord, Lord Dear, and his colleagues for the way it has been conducted.
It is never ever been our case—those of us who want reform—that opposition is homophobic. That is not remotely the case that we have been putting. There is a central division between us. When opponents of the Government’s legislation have said, “Remember what people outside are saying”, that goes two ways. We might remember also what many tens of thousands of gay and lesbian people outside are saying. It is important to them, as the noble Lord, Lord Alli, so movingly said, in personal terms. I am struck and touched by the numbers of people who have been in touch with me to say what an important decision this is. It is, of course, after years and years of discrimination. That is what makes their support so moving.
The second point is that it is important in another way. During the passage of the Bill, I have been, as it happens, to a range of countries where discrimination against gay and lesbian people is not only an underlying feeling, but it is set out either in legislation or in official attitudes of those countries. I think in particular of a country I am recently back from—Russia. I think of Ukraine and Uganda. Personally, I hope that the message of this House of Lords is that there is a better way of doing these things than the way that those countries are doing them. It is a plea for equality and for non-discrimination. That is the hope and the message that I hope goes out from this House. I believe that, very shortly, the Government will have done a great thing here and I congratulate them on it.
Lord Dear
My Lords, I start my brief but sincere comments by thanking very much the Minister for the compliments she just paid me. I am grateful to her. I also thank all of those who have spoken on all sides of the House in the numerous debates that have taken place about the Bill, and especially those who supported me in the passage of the Bill through your Lordships’ House. All of us from my side were more than a little surprised at the level of support that the Bill has attracted within the House. If one looks at the opinion polls taken outside among the general public, it runs at about 57% in favour of the Bill. The votes in your Lordships’ House ran 20% or so ahead of that. I make no comment about that except that it surprises, and others will take considerable pleasure from that.
All I say, very sincerely, is that despite the serious doubts that some parts of our society harbour about the wisdom of the Bill, I—and I am sure I can speak on behalf of my supporters—fully recognise the parliamentary process and willingly accede to it. We all hope very sincerely that if passed by the House of Commons, the Bill will prove to be a success.
Baroness Farrington of Ribbleton
Earlier today in your Lordships’ House, there was a reference to grandchildren being able to teach those of us who are grandparents about information technology. I have also found through listening to children out in the country that, unlike some of us from our generation, we are not actually changing what is happening in the country, we are recognising it. As a 12 year-old said to me, “What is the problem with that? Two people love each other”. Our grandchildren’s generation, and many of our children’s generation, live in what the Japanese call the house of tomorrow. I thank all my colleagues around the House who have been involved in steering the Bill through, but in particular the Minister, who, if she does not get George Clooney, perhaps could be on her way to sainthood because of the patience she has shown during the passage of the Bill.
My only worry comes from my experience in the education service, where stories appear which say that a school is going to ban Christmas or going to do this or that. I am proud of this House for the trust it is putting in trustees, governors, local vicars, parents, communities and teachers through the passage of the Bill and make a plea to all concerned for when the stories start appearing, as they will. Fortunately, in August, which is known as the funny month, most schools are not sitting—with the exception, I believe, of those in Scotland—so the press stories will not start just yet. However, my plea to anybody who reads a critical story connected with the passage of the Bill, such as one saying, “We told you so” or that it is not working, is to remember the story of the local vicar in Lancashire who was castigated in the press for saying that you could not put “gran” on a monument in the churchyard because it was not serious enough. That turned out not to be true and the poor man spent the rest of his clergyman’s life being castigated for something he had never done. When the stories start, as they will, please wait to hear the outcome of the due process and whether somebody is found guilty of something by the governors through appeals and the disciplinary procedure. Do not get caught out by the knee-jerk reaction that the media will try to create in certain circumstances. Let us make certain that this Bill is a success and that this House has done a good thing. Yes, there are people who do not want change—there are always people, of course, who do not want change—but we have recognised change and we should be proud of it.
Baroness Barker
My Lords, the passage of the Bill has been a remarkable thing. Having sat through every bit of it, I have to say that the discussions in your Lordships’ House have been not just of the highest calibre but deeply thoughtful about the nature of the society that we wish to pass on to future generations; none more so than the contributions from the Bishops’ Benches. The Bill represents a real sea change for gay people and for our society—a good one that heralds the start of a new relationship between minority groups and faith groups. All those groups have an important part to play in building strong communities for the future and that is why we on these Benches have supported this Bill at every stage.
We have been helped enormously by the Front Bench team in dealing with some quite difficult, tricky and intricate issues. I say to the noble Lord, Lord Cormack, that, no, there is no room for triumphalism. However, he will perhaps allow some of us today to celebrate what for us is a really important step towards equality and equal treatment. There is no room for intolerance but this House should be very proud.
Baroness Thornton
My Lords, the custom at this stage of the Bill is for all of us to look at each other and congratulate ourselves on the piece of legislation that we are just about to sign off. Of course, I realise that not all noble Lords feel the same sense of satisfaction at a job well done that the Minister, other noble Lords who have supported the Bill and I feel at this moment. I regret that they are not sharing the sense of joy and happiness that some of us are experiencing. Certainly, if the London Gay Men’s Chorus’s tuneful offerings outside the House are anything to go by, very many others feel the same. Some of us, indeed, could not resist wearing pink carnations. However, I note that even the noble Lord, Lord Cormack, is somewhat resplendent in pink himself.
To noble Lords who opposed the Bill I say that you have tested the Bill to within an inch of its life, and for that I congratulate you. No one expected that getting the Bill through your Lordships’ House would be a walk in the park, and I think that noble Lords have done their job as they see it with dedication and commitment.
There were moments at midnight when we were again discussing adultery when I thought we were never going to reach this point. Those moments were made all the more memorable by the description by the noble Baroness, Lady Stowell of Beeston, of what is adultery and what is not. I refer noble Lords to col. 146, 8 July 2013, if they are in any doubt. I wish her well with George Clooney, and I myself do not think that he is anything like worthy of the noble Baroness.
I very sincerely hope that time will change the views of noble Lords who are still concerned about the Bill. I hope that the happiness the Bill will bring to thousands of same-sex couples will persuade everyone that, after all, Parliament was right in its huge majorities on free votes, which led us to where we are today. I hope that your own marriages will indeed come through this change unscathed and as whole as ever, and that marriage itself will actually be strengthened and deepened by the Bill.
We must recognise that when the Prime Minister, to whom I pay tribute for his steadfast support, my right honourable friend the leader of the Opposition, Ed Miliband, and the leader of the Liberal Democrats all speak in unity, then the issue has powerful friends. However, even with those powerful friends, free votes ran through the Bill on all the major votes, and were won all the way through with huge majorities.
I pay tribute to the Minister, the noble Baroness, Lady Stowell of Beeston, for the way in which she steered the Bill through the House. Patient, energetic and always ready to listen, she never lost her sense of humour or proportion. Ditto her helpmates, the noble and learned Lord, Lord Wallace, and the noble Baroness, Lady Northover. Indeed, we worked together on this Bill, and I am glad of it. The Bill team were always helpful and friendly, and are to be congratulated on their very hard work. I know that the demands that were made on humanism, pensions and a host of other issues meant that they and the Ministers had to go back and persuade their colleagues in government that they needed to revisit or revise matters they thought already settled. I know how hard that is.
Across the House there has been remarkable work by groups of Back-Bench Peers, co-operating to win the free votes on the Bill. My noble friend Lord Alli has been remarkable; not only did all of us on the Labour side receive bulletins and information about what was going to happen and when votes were taking place, but he also organised some light entertainment for Labour colleagues. On Monday the actor Richard Wilson and last Wednesday evening Paul O’Grady, aka Lily Savage, joined us in Committee Room G. I thank them for their support and generosity. My noble friend Lord Alli has talked to everyone all the time, which I think helped the good humour and tolerance which characterised the debates even when we fiercely disagreed.
There are other Members one should thank. The noble Lord, Lord Harrison, and the noble Baroness, Lady Massey, fought the corner for humanist weddings. The noble Lady, Baroness Meacher, and the noble Lord, Lord Lester, helped to find a way through on humanist weddings. My noble friend Lady Gould explained with great clarity the issues faced by transsexual people, matters not yet resolved and to which we may return some time in the future, but not on this Bill. Many of my colleagues have been here all the way through. I thank you all.
I personally have been blessed with support and equal sharing, as it should be, by my noble friend Lady Royall, who fitted the Bill in with her many other duties. I thank her. My noble friend Lord Tunnicliffe sat next to me all through the Bill, and kept us to time and calm while under duress. I also thank the back room: Bethany Gardiner-Smith from the Opposition Whips’ Office, whose research, political management and inspired amendment-drafting made many things possible.
Baroness Stowell of Beeston
My Lords, I am very grateful to the noble Baroness, Lady Thornton, for ensuring that everybody got a fair mention in tributes. Having spoken at some length at the end of the previous debate, I shall keep my remarks brief. I am sorry if my remarks then seemed to pre-empt a debate on Bill do now pass, but I was not sure whether there would be a debate on that and felt that there were some important things that I wanted to get on record, which is why I took the opportunity when I did.
I said at Second Reading, and have done so a couple of times since, that we all move at different paces when faced with change. I most certainly respect anyone who has a different view about whether couples of the same sex should be able to marry, and I would never seek to criticise anyone who disagrees with me on this point. I have been pleased to say repeatedly that the belief that marriage should be between only a man and a woman is legitimate; people are free to express that view; and the protections in the Bill ensure that religious freedoms cannot be called into question. That is so important. I am grateful to my noble friends for making the points that they did and for giving me the opportunity to restate that, because I cannot say it too often.
The amendments on which the House divided during the time that the Bill was in this House were not agreed, but I do not agree with my noble friends that no meaningful amendments have been made to the Bill while it has been here. I spoke at some length in responding to the previous debate about the changes that we have made, so I shall not go through them all again in detail. However, as I said, 23 substantial amendments have been made to the Bill—that does not include any consequential amendments. Seventeen of them have been made while the Bill has been in your Lordships’ House. Even though amendments brought by other Peers have not been accepted by this House, the Government have brought forward amendments to the Public Order Act to ensure the protection of freedom of speech. As I have said previously, we have clarified issues around the word “compel”, because we thought that it was possible to do that without introducing any other uncertainty in the Bill or diluting its principle. I am pleased that we were able to do that, and that it was received and accepted so graciously by those who sought those changes.
It is so important to say how much I respect all noble Lords and their views on this Bill. I believe that we have brought forward a Bill that is a force for good and that the change it brings about is right and reflects the change in society. However, there is no question whatever that anybody who disagrees with it should in any way feel that their views have not been properly taken into account during our debates. I said before that I wanted to see that it was possible to put something into law that not everyone agrees with, while respecting our differences of view. I think that this is what we have achieved. On that note, there is probably little more to say, except how grateful I am to all noble Lords for their contribution to the passage of this Bill.
Local Audit and Accountability Bill [HL]
(10 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
17:00 - Division on Amendment 2 - Ayes: 170 / Noes: 205 - Amendment 2 disagreed.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, in moving the amendment, I will speak to the other amendments in this group as well. As noble Lords will doubtless recognise, Amendment 1 is a paving amendment and the substance is in Amendments 6 and 9. Amendment 9 is consequential on Amendment 6.
The proposition is straightforward, and we had understood there was consensus. Notwithstanding this, we have not seen a government amendment to give it effect. The amendments provide a route to securing a central procurement of auditors in the future. As we discussed on the first day in Committee, by the time the key provisions of this Bill come into force, it is expected that all the audit contracts with principal local bodies will be undertaken by private sector firms, under arrangements entered into with the Audit Commission. This will comprise some 800 principal authorities, including local authorities, NHS and police bodies, and so on.
The contracts—I think that there are 10 of them—run to March 2017, but can be extended for three years. When these contracts have run their course, the authorities will make their separate appointments, although there is flexibility for authorities to jointly procure, together with other bodies. It is generally accepted that the central procurement exercise undertaken by the Audit Commission has generated substantial savings for local bodies—some 40% reduction in fees—and had some, albeit limited, impact on broadening the diversification of provision in the audit market.
The Government’s own impact assessment has recognised that individual audit procurement is unlikely to match central procurement in generating reduced fee levels. Research shows that market concentration in audit services leads to higher audit fees, and while there is a credible argument that individual procurement will act against market concentration, major providers in the market are large, economically powerful entities with resources to invest in tackling the new opportunities.
One risk is that the larger authorities will fare well in this, because they will be more attractive clients to the big firms. In practice, smaller authorities will end up with less choice, being the junior partners in joint appointments and perhaps missing out on the services of the larger firms or being unable to afford them. The Government will doubtless remind us that authorities can group together. They can, but there is no clear framework to support this. Indeed, there is no explanation, for example, of what happens if there is joint provision when a conflict develops between one of the authorities and the firm involved.
The amendments, particularly Amendment 9, which is at the core of it, adopts the approach already included in the Bill for potential central procurement for smaller authorities. It enables regulations to specify a person to appoint auditors with relevant powers relating to fees, et cetera. It especially encompasses the prospect of authorities being able to opt either in or out of the arrangements, which we know is a key requirement of the Minister. The Minister has expressed an appetite for facilitating ongoing central procurement, provided that it is not mandatory, and a hope to be able to return on Report with some ideas. Perhaps we can now hear what they are. We know that the Minister and officials have been having discussions with the LGA, but we do not necessarily think that arrangements run by it are the only, or, indeed, the best approach. If we are to preserve central procurement, we need the legislative basis to do that. That is what the amendments provide. I beg to move.
Lord Palmer of Childs Hill
My Lords, in Committee, my noble friend said that the Government would commit to amend the legislation to create a framework to support a voluntary national procurement exercise. When she replies, I would appreciate it if she could put some meat on that earlier commitment.
Dealing with the point made by the noble Lord, Lord McKenzie, if one was always looking in terms of cost savings, which seemed to be the main thrust of his speech, we would have almost the demise of all local authorities. It would be a case of, “Let us have it all done nationally and then we would save some money”. We as a Government are committed to localisation. The idea that local authorities should be to a degree able to choose their auditor is part of that localisation. There was a feeling of despair in the noble Lord’s comment about how local authorities would be less hard negotiators than the Audit Commission. I doubt whether that will be the case. Many local authorities would be very hard negotiators on their own behalf in fixing the audit fees, the level of audit taking place and how it will dovetail with the internal audit systems of the local authority. A local authority that has a good local internal audit system can probably negotiate much harder with the external auditors, because of its knowledge of its internal audit system, than the Audit Commission has in the past.
I believe that the amendments are unnecessary, and I would welcome and wait for my noble friend’s comments on how the Government will keep the commitment that she made at an earlier stage of the Bill.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I thank the noble Lord, Lord McKenzie, for introducing the amendments so succinctly and clearly and my noble friend Lord Palmer for reminding me—although I am not sure that I made a total commitment—that I said that we would return to the matter.
Both noble Lords have laid out the situation very clearly. The proposal in the Bill is that local authorities should be able to purchase or contract for their own auditor. They can do that individually, in conjunction with another authority or in a group. That is about as wide as the Bill takes it. The noble Lord and the Local Government Association have made strong recommendations that we should consider further the current situation, which is that the Audit Commission has purchased the contract for all local authorities. We have made it clear that there must be optional arrangements about this. Local authorities must be able to get their local auditors in the way that they wish. However we accept—and did accept—that there was potential for wider procurement, with a procurement body such as the Audit Commission, which did not require local authorities to purchase from it, but could be used by local authorities if they wished. So we accept that there is potential for such arrangements.
I have asked departmental officials to work with the Local Government Association to clarify what arrangements it envisages might need to be made and to get the detail right for any amendments that we would propose elsewhere. The Government intend to make an amendment to the Bill in the Commons, which will allow arrangements for optional centralised procurement to be made in regulations. I am happy to keep noble Lords who are interested in this informed.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply and the noble Lord, Lord Palmer, for his contribution to this short debate. I say to the noble Lord that I do not advance the proposition that all local authorities will not be hard negotiators. My point was that there could be a differentiation between the smaller authorities and the larger authorities. I am sure that the larger authorities will be well capable of looking after themselves—they prove that on a daily basis.
Localism and audit appointments within a regulatory framework are more complex issues than localism generally in the context of provision of services. Cost savings is one feature, but it seems to me, particularly in the current climate, that it is a very important feature of what we should be helping local authorities to achieve.
The Minister has in a sense reiterated what she said before. I do not honestly believe that that takes us any further forward. We have accepted that there should be a permissive, not a mandatory, regime. If that is where the Government are, I am not sure what is in this that cannot be accepted because it provides a route to set up exactly that sort of regime.
The Minister said that there was an intention to bring forward an amendment in the Commons. With respect, however, in the next breath—as I understood it—she said that that was not certain. I do not know whether the noble Baroness might be able to clarify that point for me before I conclude—it is fairly critical.
Baroness Hanham
My Lords, I want to make it clear that it is the Government’s intention to see that the proposed arrangement is fulfilled, so that there might be wider procurement than there is at present. In order to do that, I am unable to say today that it will follow exactly these provisions because discussions need to take place. The Local Government Association in its briefing, as I am sure the noble Lord will have seen, is happy that that should be the situation. It is content to have those discussions and to see that an appropriate amendment is put forward in the Commons.
As a politician, one should never hedge. What I am told is that there will be an amendment. I should never have put any doubt in the noble Lord’s mind about that. I hope that will help to clarify the situation and prevent the noble Lord feeling that he has to press this amendment, when I suggest that it is completely unnecessary.
Lord McKenzie of Luton
My Lords, again, I thank the Minister for that. Indeed, I was tempted to press this amendment but I take her assurance that an amendment will be brought forward in the Commons that will enable central procurement, but not on a mandatory basis. If that is the proposition we can take from this discussion, that is as far as I can take this amendment today and accordingly I beg leave to withdraw.
Lord McKenzie of Luton
“(6) Before the commencement of this section, the Secretary of State must be satisfied that effective successor arrangements are in place or achievable for—
(a) the management of existing audit contracts entered into with the Audit Commission;(b) the maintenance and updating of Value for Money profiles; and(c) certification functions currently undertaken by the Audit Commission.”
Lord McKenzie of Luton
My Lords, I will speak also to Amendment 3. The more we delve into this Bill, the clearer it becomes that the decision to close the Audit Commission was taken without a clue as to how some of its functions were to be carried out in the future or how some of the savings that it has driven could be maintained.
We have just discussed how a central procurement function might be preserved, and we will come on to discuss how the commission’s efforts to prevent and detect maladministration and error can be carried out in the future. Amendment 2 focuses on three specific areas, which are,
“the management of existing audit contracts … the maintenance and updating of Value for Money profiles; and … certification functions currently undertaken by the Audit Commission”.
It requires that robust processes are in place for these before the Audit Commission is closed. We have discussed these before and received assurance that the Government have these matters in their sights, but we are again sadly lacking in detail as to what is proposed.
As we discussed in Committee, the management of ongoing audit contracts is not a straightforward, passive matter. It requires the availability of certain powers that are currently available to the Audit Commission; for example, in relation to fee setting. Given the public interest in local public audit, any successor arrangements will need to ensure transparency in audit quality monitoring. The FRC is to monitor major audits and it is unclear what public reporting there will be on this. All other audits can be subject to cyclical monitoring by the supervisory bodies but there is no commitment yet to any public reporting on the results of this monitoring. Perhaps the Minister will tell us now what is proposed in this regard.
In Committee, the Minister told us that,
“we are giving consideration to the transfer of current Audit Commission tasks, including the value-for-money profiles”.—[Official Report, 17/6/13; cols. GC 25-26.]
Now is the chance for the Minister to be a little more specific. The value-for-money profiles are widely used; there were some 9,000 visitors to the commission’s website in the past financial year. They bring together data about the costs, performance and activity of local councils and fire authorities. The profiles show how organisations are spending resources, what services they perform and how these cost and performance levels compare between organisations and over time. The commission is enhancing the visibility of these profiles by presenting information about how spending and activity have changed over time, how councils’ performance differs, and factors affecting variation in activity and cost. Can we be very clear on this: are these profiles to be maintained and, if so, how?
It is accepted that certification processes may diminish as grant funding streams are reformed and phased out but there will certainly be the need to deal with housing benefit funding before this is absorbed fully into universal credit. Can the Minister give us some assurance on just this one matter, if not the generality of the replaced certification regime?
We have so little hard information on these areas and the Bill is about to leave your Lordships’ House. We should remember that it is actually three years since the decision to close the commission was announced. In these circumstances, requiring these matters to have been satisfactorily dealt with before the Audit Commission is closed seems the very least that we can do.
The same applies to being satisfied as to how the new audit regime is to be co-ordinated across government and how accounting officers will be entitled to obtain assurances on the effectiveness of financial management arrangements. There will be no organisation to publish the outputs from the audits of over £200 billion of public money. Accounting officers will need to continue to have access to analyse the outcomes of local work, and individual government departments will need arrangements to receive the outcome of audits. We are entitled to be assured that this is all in place before the commission disappears.
That is all that this amendment seeks to achieve, but it is very important. I beg to move.
Lord Palmer of Childs Hill
My Lords, the purpose of Amendments 2 and 6 is clearly to try to improve the transitional arrangements. It seems to be felt that we need a certain overprotection for transitional arrangements, but when private corporate bodies change their auditors and way of management, some transitional arrangement always has to take place. It works in a natural way, without the Secretary of State being involved in every item.
Amendment 2 inserts three paragraphs. The first deals with,
“the management of existing audit contracts entered into with the Audit Commission”.
One of the main purposes of the Bill is to make the audits of the various local authorities much more the responsibility of the local authority. Its appointment of the auditor and dealings with the auditor, and the auditor’s dealings with the authority, will become a more localised matter. However, because there are a limited number of audit firms, there will be a consistency in the types of audit operated.
The main point that the noble Lord spoke about was,
“the maintenance and updating of Value for Money profiles”.
Value for money in the external audits of local authorities has been a very important and costly factor in terms of the time that the Audit Commission and private firms of auditors have spent on those activities and how much they have charged for them. Two or three years ago, the value-for-money audits carried out by external auditors were more limited. There was no large-scale review of the use of reserves, assets and finance. Under the current arrangements, external auditors do not have to carry out a prescribed list of value-for-money exercises.
Currently, before the Bill, that situation is very much localised. There is a virtue in that localisation. Different firms of auditors will possibly take a different view on what is needed within that particular local authority, and that view will have an effect on the fees charged to that authority and on how much work needs to be done. As the years progress, it will be interesting to see how different local authorities have their value-for-money details published. We hope that all local authorities will publish these, and there may need to be some national gathering of that information for comparison purposes. However, that does not necessarily need to be in the Bill. Although I understand where the noble Lord is coming from on this, I think that it amounts to a little too much control which is not needed.
Baroness Hanham
My Lords, I thank my noble friend Lord Palmer for bringing some rationality into this particular aspect. I support him very much in reminding the House that this is an intention to bring to a local level the management of an extremely important part of local government’s responsibilities, which is to have proper audited accounts, but to do it in a slightly different way from what has been done in the past, without the overall management of the Audit Commission but having to take into account the fact that these have to be properly done, whether they are done on the optional basis that we are talking about—having the wider procurement—or because they have taken account of having these on their own requirements.
Lord Christopher
My Lords, before the noble Baroness sits down, will she kindly explain a point on which I am very unclear? Some time before 2017, someone will have to decide whether the existing contracts are to be extended or not. My view is that they should be extended because they are cost-effective. Who will handle that, and who will deal with the situation that would arise if perhaps a small number of local authorities covered by a particular contract do not wish to renew while the remainder do?
Baroness Hanham
My Lords, the current contracts are due to last until 2017, and there will then be an interim arrangement between 2015 and 2017, as I have described. After 2017, unless for some reason it is decided universally to extend the contracts again en bloc—which is completely outside what we are talking about today, and it is probably unlikely—it is for the local authorities to make their own decisions about the contracts: where they want them to be, and with whom. Following 2017, within that interim period between 2015 and 2017, local authorities will have to decide what they will do and how to manage it.
Lord McKenzie of Luton
Again, I am grateful to the Minister for her response and to the noble Lord, Lord Palmer, for his challenges. I will start with the noble Lord. I sought to focus on the contracts that are in existence, not the subsequent regime, in which local authorities may or may not appoint their own auditors. However, there is a bundle of contracts, to which my noble friend Lord Christopher referred, which are ongoing at the moment but which will need management. That management is more than just a passive affair, so it needs to be put in place.
I thought that the arrangement about extension was that it would ultimately be a decision for the DCLG about its 10 bundles of different contracts—you do not necessarily have to make the same decision in respect of each of them. I say to the noble Lord, Lord Palmer, that I did not say that there should be some standardised approach to value-for-money issues. I sought to ensure that there was security of the value-for-money profiles that the Audit Commission currently produces—data that are available to all authorities and others as well—so that authorities are able to make their own judgments and undertake their own exercises, whatever they may be. After the Minister’s response, this is the area I feel less confident about. We do not know from the reply whether they will be maintained, even broadly, in their current form, or whether they will be available as a valuable tool for local authorities and health bodies in the future.
It was not my intent to get the Secretary of State involved in all things. The purpose of the amendment is to require the Secretary of State to be assured that these matters are in place—not that the Secretary of State is operating them—by the time the Audit Commission closes. Once the Audit Commission goes, that will be a very clear break with the current situation. So far as the role of the FRC and supervisory bodies is concerned, I understand their role in that, but the key issue is on how transparent the result of their work will be. We do not yet have clarity on what will be the consequences of their auditing of audit work and what will happen to that. That was part of what I was inquiring about.
Perhaps the noble Baroness can first deal with that point about transparency of the FRC’s supervisory activities or the supervisory bodies: what is likely to be in the public domain as a consequence of their work? It would be helpful if we could have an answer on that. I should also like some clarity on the value-for-money profiles. Is it intended that the data will still be collected, maintained and available to relevant bodies—whether in precisely the same form as now, or not? Is it intended that these profiles be available in the future, once the Audit Commission has closed? This is an important issue, so could the Minister give some further clarity on it?
Baroness Hanham
My Lords, I may need to write to the noble Lord on the detail of this. However, our understanding is that clarity and transparency will remain as they are at present, so that the Financial Reporting Council will have much the same monitoring role. Anything that it does in relation to councils and local audit will have to be as transparent as is necessary. I would prefer to write to the noble Lord, particularly on this issue, and to make sure that the information is put into the Library of the House.
Lord McKenzie of Luton
I am grateful to the Minister for that but perhaps it is time we stretched our legs. I beg leave to test the opinion of the House.
Lord McKenzie of Luton
“(7) Before promulgating a statutory instrument containing regulations or an order which would fall within section 40(7), the Secretary of State shall publish and consult with relevant persons on a draft thereof.”
Lord McKenzie of Luton
My Lords, this is a rerun of the amendment we moved in Committee concerning hybridity. It was prompted by the report of the Delegated Powers and Regulatory Reform Committee which drew attention to Clause 47 of the Bill relating to regulations under Clause 2. Clause 2 enables the Secretary of State, by affirmative resolution, to include someone as a relevant authority and to make provisions about how the Bill affects them. This is the case even though the regulations might be a hybrid instrument, although Clause 47 requires it to be treated as not being a hybrid instrument. The Delegated Powers and Regulatory Reform Committee made it clear that if the hybrid instrument procedure is not to afford protection in cases of hybridity, there should be another form of protection—hence our amendment concerning publication and consultation.
In Committee, the Minister told us that instances of hybridity will be rare. Indeed, I do not think that we have yet had an example of one. There was, however, acknowledgment that, where they arose, there would be an especially compelling reason for the Government to consult. In response to the Delegated Powers and Regulatory Reform Committee, the Minister reiterated the Government’s acceptance of the need to consult and promised an announcement on Report. We look forward to that announcement and, specifically, to hearing why the commitment should not be carried in the Bill. I beg to move.
Lord Palmer of Childs Hill
My Lords, from these Benches we also look forward to the Minister giving that information. Although there is worth in the amendment, I wonder whether it needs to be in the Bill rather than being done by regulation at some stage in the future.
Baroness Hanham
My Lords, as the noble Lord said, I was sympathetic about his amendment in Committee. It would ensure that if the Government were to bring forward what might amount to a hybrid instrument under the powers in Clause 2, the bodies affected would be consulted before regulations were laid. This, indeed, would need to be through regulations. We do not expect that the need to bring forward regulations would be anything less than rare.
As I said in Committee, we recognise that in these cases there would be especially compelling reasons for the Government to consult. In our previous discussion I referred the noble Lord to our forthcoming response to the DPRRC’s report. We have accepted the committee’s point and informed it that we would announce our commitment, which I am doing, and consult affected bodies at Report. We confirmed that this will not entail the need for any amendment to the Bill. I am happy to give that commitment today, and to consult relevant persons on a draft of any statutory instrument containing regulations or an order falling under Clause 40(7) of the Bill. Any such regulation would be subject to the affirmative process, so Parliament would have the opportunity to scrutinise it. In the light of that commitment, I hope that the noble Lord will feel that we have satisfied his requirements.
Lord McKenzie of Luton
I am grateful to the Minister for that commitment which is very clear. I would still prefer to see it in the Bill, but I will not press that point. The answer is clear and I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton
This is a return, briefly I expect, to a drafting point. Under Clause 4 there is a requirement that,
“a relevant authority … must be audited … in accordance with this Act and … by an auditor appointed by that authority in accordance with this Act”.
The second requirement cannot be met before 2017 at the earliest when the appointments made by the Audit Commission come to an end. It could be three years later if any of these contracts are extended.
The concern is how the general requirements for audit provided for in the Bill can operate before local appointments are operative. I believe that we see eye to eye with the Government on the issue. The Minister’s letter of 25 June states:
“Officials believe that when the provisions are commenced, we will be able to commence different provisions for different purposes and as a result, we will be able to avoid any of the unintended consequences you highlight”.
I accept that there is flexibility on commencement of provisions but remain unclear as to how this would operate in the circumstances highlighted. Is it being contended, for example, that Clause 4(1)(a) could be commenced before Clause 4(1)(b)? It would be good to have some clarity on this issue before the Bill leaves your Lordships’ House. I beg to move.
Lord Palmer of Childs Hill
My Lords, I would also welcome the Minister clarifying some issues, particularly if there is, indeed, a problem of a practical nature. At present, most local authorities are audited by a professional firm. A fairly small proportion is audited by the commission. Those audited by professional firms will be audited under the continuing contracts until 2017. The local authority will then have the ability to appoint a new auditor. This is what happens in the commercial world. One has an auditor, the auditor audits for a period—generally for the year, in this case for slightly longer—and then there is a new appointment. This is quite the natural way of things. I am not sure—and I hope that the Minister and the noble Lord, Lord McKenzie, will clarify this—why we need to have this because, in a practical sense of the word, auditors are there for a period, they finish their term of office and then they, or another auditor, are appointed. That is the natural way of things whatever we decide or do not decide in your Lordships’ House.
Baroness Hanham
My Lords, first, I confirm that it is possible to introduce different parts of the Bill at different stages, and the order in the Bill can be switched around. I think the noble Lord asked whether Clause 4(2) could be introduced before Clause 4(1) and the answer is that it could—it is a case of whatever is convenient. The Bill introduces powers to commence different parts of the Bill at different times and to make savings on provisions relating to the Audit Commission Act 1998. Therefore, we would expect to commence this reference in line with the introduction of the local appointment, which I think we were discussing when the noble Lord, Lord Christopher, was here.
If the noble Lord wants to know our wider intention of how to manage the overall transition to the new audit framework, it may be helpful if I say a bit more about that. Our intent remains, as I said, to close the commission in spring 2015. The existing audit contracts will continue to run until 2017, but management of those will transfer to an interim body. We have discussed these over the three previous amendments. As the contracts will run until 2017, authorities will not need to make their own appointments until that stage, but they will have to have made those appointments so that there is a smooth transition between the contracts currently managed by the Audit Commission and whoever manages them subsequently, into the local authority’s own regime. We therefore expect that much of Part 3 of the Bill, which deals with local appointment, will not be commenced until closer to 2016, which then gives them a year to do that. It will be 2016 when procurement of auditors for 2017 is likely to begin.
The current intention is that the new eligibility and regulatory framework and provisions on the conduct of audit will come into effect immediately following the closure of the commission in 2015. It is our intention to make arrangements to enable us to do this under the powers in the Bill, subject to analysis of the transitional arrangements—again as we have discussed, there have to be transitional arrangements—that may arise.
Lord McKenzie of Luton
I missed the Minister’s first point. Would she mind repeating the beginning of that sentence?
Baroness Hanham
It is our intention to make arrangements to enable us to do this under the powers in the Bill. Our current intention is that the new eligibility and regulatory framework and provisions on the conduct of audit will come into effect immediately following the closure of the commission in 2015. The provisions will then relate to whatever interim arrangements for the body are in place. I hope that that is sufficient clarification for the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for her reply and the noble Lord, Lord Palmer, for his contribution. I say to the noble Lord, Lord Palmer, that my point was not about auditors and succession of auditors but on quite a narrow drafting point. One of the requirements in Clause 4 is that the audit must be undertaken,
“in accordance with this Act … by an auditor appointed by that authority”.
Obviously, until 2017, the auditors will have been appointed by the Audit Commission, and the question is how the system works under those circumstances. I accept the broad point that matters can be introduced at different stages but I am still a little mystified as to how the new framework is to operate from 2015, so long as Clause 4(1)(b) is there—unless that is simply excluded from what is introduced in 2015. Perhaps I should read the record and we might have a further discussion on this in due course if necessary.
Lord Palmer of Childs Hill
Before the noble Lord, Lord McKenzie, sits down, I will just comment on the point about the appointment of the auditor by the Audit Commission. In practical terms, the Audit Commission currently suggests who the auditor should be—for example PricewaterhouseCoopers, or Grant Thornton, which has a large number of these audits. The local authority is the one that appoints the auditor, under its own constitution, although it accepts in practice the auditor that has been put forward by the Audit Commission—whether it is the Audit Commission itself or a professional firm. I would have to go back to the constitution but, as I understand it, the local authority has a constitutional duty to appoint an auditor, which it currently does on “the instructions” of the Audit Commission. However, the appointment cannot be foisted on a local authority, because it is a legal body in itself.
Lord McKenzie of Luton
My Lords, the noble Lord makes an interesting point but my understanding is that the contracts for the audits are with the Audit Commission not with the local authority. If the noble Lord is right, that in fact unlocks this particular conundrum: although it is not a contract organised by the Audit Commission, if it is nevertheless an appointment by the authority, then I think the problem goes away. With respect to the noble Lord, I do not think that is the position but we might just follow up on that. Having said all that, I beg leave to withdraw the amendment.
The Deputy Speaker (Lord Geddes)
My Lords, before calling Amendment 6, I should point out that there is a mistake on the Marshalled List. It should read: “Page 5, line 28”.
Baroness Hanham
Baroness Hanham
My Lords, in moving Amendment 7, I will also speak to Amendment 8, which between them make small changes to Clause 7. These amendments enable two or more auditors to be appointed to exercise jointly one or more functions and enable a different auditor to be appointed to act separately to undertake one or more functions. The noble Lord, Lord McKenzie, first raised this issue by tabling two amendments in Grand Committee, which would have enabled auditors appointed jointly to issue advisory notices or to seek judicial review either individually or jointly.
I said that we would consider the drafting of Clause 7 to check that it provides the desired level of flexibility for auditors to work jointly and individually. The two amendments that we are bringing forward are a result of those deliberations and give relevant authorities greater flexibility in the way in which they can appoint more than one auditor. Authorities will of course be able to appoint just one auditor. Alternatively, they will be able to appoint more than one: jointly, to exercise one or more functions; separately, to undertake different functions or different parts of the accounts; or some combination of those. We consider that it will very rarely be the case that authorities wish to appoint more than one auditor to act jointly throughout the whole audit. However, where they choose to do so, the auditors must act jointly. The clause already enabled auditors appointed separately to undertake some functions jointly if those functions overlapped, but it did not allow auditors to be appointed with the purpose of undertaking some functions jointly and others separately. I am grateful to the noble Lord for raising this matter. I hope that the amendment will enable a more flexible approach, and I beg to move.
Lord McKenzie of Luton
My Lords, obviously we are content with these amendments, and I thank the noble Baroness for taking forward this issue. We did retable our original amendment as Amendment 21, but that was simply to make sure that something was on the agenda. Clearly, I will not move it when we reach that stage.
Baroness Hanham
Lord McKenzie of Luton
“(10) Such regulations shall in particular provide that an individual shall be ineligible to act as a member of an audit panel if that individual has any disqualifying interest.”
Lord McKenzie of Luton
My Lords, the purpose of the amendment is to test the scope of the term “independence”, although it is written in terms of an audit committee rather than an audit panel. I regret not having been able to attend the meeting which the noble Baroness, Lady Hanham, kindly organised to consider these issues, but I am grateful for the note which was provided.
We have reflected on the proposition that all principal authorities must have an audit committee whose functions include those required of an audit panel, and we see some merit in the Government’s argument that this could be too restrictive. We consider that all principal authorities should have an audit committee to undertake the range of functions with which we are familiar. Given that the appointment of auditors is a new function, the audit committee would be a natural place to provide the appropriate scrutiny and oversight of the relationship with the external auditor.
However, given the importance to that scrutiny and oversight role of the independence requirements, we think these should be paramount. These independence requirements are not mirrored in audit committee arrangements, and the CIPFA guidance is more focused on the separation of engagements of executive and scrutiny members. That guidance does not require a minimum number of independent, non-councillor members. So if we insist on audit committees to carry out the auditor panel role, and on the independence requirements to be satisfied, it seems to be the case that many local authorities would have to substantially restructure their arrangements. We encourage them to do so, but to require them to do so where audit committees are currently functioning well is perhaps against the spirit of localism.
The suggestion that the auditor panel might be a small sub-committee of an existing audit committee almost gets the best of both worlds, and may at least provide a transitional solution. However, the primary purpose of the amendment was to address the definition of independence. For this purpose, the Bill requires members of the audit panel to be independent of the authority for which the auditor is to be appointed. In the Bill independence is defined in terms of individual positions; that is, membership and relationships—so parent or grandparent. It does not cover influential business relationships, for example. The amendment is intended to open up this possibility.
It seems from the briefing note received just last week that it is intended for these other matters to be covered through a combination of regulation and guidance. This is welcome, but we should at least ask when we might see a draft of this. When will it be ready for colleagues in the Commons to consider, if not for ourselves? The Bill has spelled out in some detail the membership and personal relationships components of a definition of independence, but we have little or no information on these other components. I would be grateful to hear further from the Minister. I beg to move.
Lord Palmer of Childs Hill
My Lords, the amendment of the noble Lords, Lord McKenzie and Lord Beecham, says that an individual will be ineligible if that individual has a disqualifying interest. Yet it seems, by all the purposes of any law there is, that if you have a disqualifying interest you are by nature ineligible. I listened to the noble Lord, Lord McKenzie, and I still struggle to see why one needs to clarify and why one needs the amendment, because if one has a disqualifying interest one would be ineligible. I raised this matter at early stages of the Bill. As for who should sit on these panels, yes, the members of the local authority who are qualified may sit on the panel, and there then seems to be a great emphasis on independent members.
At this stage I declare an interest, and I probably should have done so earlier in the course of this debate. I am currently a chairman of a local authority audit committee. I do not think that this disqualifies me, and perhaps it qualifies me particularly to comment on this. One of the interesting things which I hope the Minister will address in her answer is that it is currently quite the custom in many local authorities, including my own, for a member of that local authority who is of a different political party from the ruling party to be the chair of the audit committee. That very often provides a very independent chairman or chairwoman of that committee.
I am worried that if we change that and require an independent committee chair, will that chair be as independent as an opposition chair? By the nature and appointment of audit committees, when looking for people who will be independent, particularly in the case of chairs, there is in some cases a possibility that those appointing will look among people they know who may have political sympathy with the ruling administration. The current arrangements seem to give chairs greater independence. This is probably wider than the amendment of the noble Lord, Lord McKenzie, but it seems to me to follow on from what is a disqualifying interest. I think we are giving that too much concentration, rather than the actual and real independence of the person who chairs that committee.
Baroness Hanham
My Lords, my noble friend and the noble Lord, Lord McKenzie, raised several issues, seeking clarification about the auditor panel. I start by reminding noble Lords how the auditor panels will operate, and how we are moving to keep arrangements streamlined and flexible in terms of whom the auditor panel is made up of. First, I want to confirm what I said in Committee, that we do not expect these auditor panels to be large. We expect them to be quite small, probably three or five people at the most. This does not exclude members of the audit committee being members of the panel, as long as they are independent members. If the audit committee has an independent member, that member can be a member of the audit panel. I do not think that there would be anything to exclude them being chair of the panel, if that is required. It would not actually preclude a member of the opposition being chair of that panel. We can see that that is how they will be made up.
Other than that, they can appoint a completely separate auditor panel outside the audit committee regime. There again, they will have to make sure that the members of that panel are majority-independent. Again, that would not preclude any member of the local authority being part of it, even though they might be considered to have some relationship with what is going on because, by definition, they were a member of the council. None the less, we think that there might be some virtue in having a councillor or councillors on the auditor panel to help with the selection.
Amendment 10 goes back to our discussions on wider issues; that is, the assessment of the independence of auditor panel members beyond direct personal links to the audited authority. I hope that I have explained that we need them to be really independent. Some concern was expressed last time, a concern which I do not think the noble Lord raised this time, about significant business relationships. By any definition, a significant relationship with a local authority, particularly on a contractual basis, would preclude somebody being a member of the panel.
We do not want to make much more regulation, but I think that we need to look at giving some guidance about who can and cannot be on an auditor panel. We will do this as the regulations are considered later in the year.
Baroness Eaton
Can the Minister give a bit more information about the process of selection for independence? That would deal with the point made by the noble Lord, Lord Palmer, about political affiliations sometimes not being absolutely clear. Is there likely to be a clearly defined process for how local authorities select independence? Rather than their just saying, “That is an independent person; we’ll have them”, is there going to be due process?
Baroness Hanham
My Lords, local authorities have due process already, as the noble Baroness knows, on how to appoint people, panels, independent committees and standards boards where independent members are required. I would not want to tie this down too firmly, other than to say that they must be pretty clear that nobody on the panel has a connection with any firm that may be applying to do the audit. If they have a political affiliation that should be declared so that, before the auditor panel is set up, it is known if they have a particular affiliation. Apart from, as I have suggested, there perhaps being one councillor on the panel, it is pretty clear that people should have some experience of audit so that they know what an audit looks like and what they might be expected to do.
We do not rule out independent members possibly being a member of a political party but it is essential that that is known so that there is transparency about it. We would hope that not more than one person, who would probably be the person off the council, would be that member.
It will be essential for members of auditor panels to declare any wider interests, commercial as well as political, and any other interests that they might feel had any relevance. Those would need to be taken into account in an appointments process that the committee undertook. If members of the audit committee were making the appointment they would have to make a balanced judgment on the balance of the panel, aligned with what I have already said. If it is an external appointment it will have to go through an external appointments process.
I think that it is clear that there should be, and be seen to be, independence in the auditor panel. I think that it is clear that local authorities have experience of dealing with external appointments. Although I understand the concern that the panels could be “stuffed” with political appointees, I think that there has to be transparency as to who is appointed. If it were found that it was just a political panel, it might be very open to question.
Lord McKenzie of Luton
I thank the Minister for her reply. The noble Lord, Lord Palmer, criticised the drafting of the amendment. I should explain that its purpose was simply to put down a mechanism which could be used to address wider issues of independence. We had in mind, specifically, significant business relationships. The Bill defines independence in terms of personal relationships; it should cover as well, for example, significant business relationships, which was the purpose of the amendment.
I was comforted by the briefing note that was produced following the meeting. It states:
“Through this combination of regulations and statutory guidance the Government intends to address other important aspects of independence for an auditor panel. We intend to work with interested parties and the sector to develop the detail of these, but as an example they might cover … the necessary skills and experience of panel members … specifying that certain persons are not independent where they have … significant commercial relationships with the authority or audit firm … the process through which independent members should be appointed … considerations around political balance, where the panel includes elected members … the conduct of members and, for example, how declarations of interest are managed on an ongoing basis”.
Each of those points, or at least some of them, were touched on by us in Committee. I took comfort from that. In a sense, that was the issue or the focus that my—clearly inappropriately drafted—amendment was seeking to address.
I reiterate where we are on the issue of audit committees or auditor panels. I think that, because there is in some instances a potential conflict between wanting to fulfil the independence requirements and the broader role of the audit committee, the best solution where they cannot be aligned is the sub-committee approach. I am not quite sure who at the meeting raised that, but the briefing note again confirms that the auditor panel could simply be a sub-committee of the audit committee. As long as that auditor panel fulfils the independence requirement, honour and justice are satisfied. That seems to us to be a helpful way forward which still encourages local authorities all to have audit committees and to move to greater independence relating thereto.
Baroness Hanham
Although I do not think that I mentioned sub-committees, I think that I made it clear that where there are audit committees, the membership could be drawn from the independent members of that committee, with possibly a local councillor. The implication is that audit committees are meant to be there and could form the basis of the auditor panel.
Lord McKenzie of Luton
My Lords, I am grateful for that and beg leave to withdraw the amendment.
Baroness Hanham
“( ) omit “, 23A(1)”, and”
Baroness Hanham
My Lords, Amendment 11 is necessary following a recent amendment to the Companies Act 2006 made by regulations. As I am sure noble Lords are instantly aware, paragraph 21 of Schedule 5 to the Bill modifies Section 1253(5) of the Companies Act 2006. That section specifies the conditions for delegating functions, such as the function of recognising supervisory bodies, to an existing body and refers to Schedule 10 to the Companies Act 2006, which is also applied by Schedule 5 to the Bill. On 8 July 2013, the Statutory Auditors and Third Country Auditors Regulations 2013 were laid. One effect of these regulations is to insert a reference to paragraph 23A(1) of Schedule 10 in Section 1253(5) of the 2006 Act. Paragraph 23A of Schedule 10 to the Companies Act is expressly omitted by paragraph 27(2)(f) of Schedule 5 to the Bill. This is because paragraph 23A of Schedule 10 concerns arrangements for independent monitoring of third country audits, which are outside the scope of this Bill.
Therefore, for consistency with the other modifications to Section 1253 in paragraph 21 of Schedule 5 to the Bill, we are providing for the omission of the new cost reference that the Third Country Auditors Regulations 2013 will contain. This is a minor, extremely clear and easily understood technical amendment that responds to an amendment to the Companies Act 2006 and I beg to move.
Lord McKenzie of Luton
My Lords, we are perfectly happy with this amendment.
Lord Wallace of Saltaire
Lord Wallace of Saltaire
My Lords, this group of amendments deals with amending the scope of the auditors’ work. Amendment 12, which amends Clause 19, puts into the Bill a requirement for auditors of relevant authorities, other than health service bodies, to satisfy themselves that the statement of accounts presents a true and fair view. This requirement for health bodies is already in Clause 20.
The noble Lord, Lord McKenzie, moved a similar amendment in Grand Committee. In response, we provided assurance that it is indeed the Government’s intention to require larger relevant authorities to produce statements of accounts which are “true and fair” and for local auditors to give an opinion on whether this is achieved. We explained that this is not included in the Bill, but the same outcome will be achieved through a combination of the Bill and the regulations to be made under Clause 31, mirroring the same approach that is currently used.
We have reflected on this and other related discussions since Grand Committee, and consider that there are benefits to placing an explicit requirement in the Bill for auditors to give an opinion on whether the statement of accounts is “true and fair”, rather than retaining the current approach. The key benefit, of course, is alignment within the Bill between the audit requirements for health bodies in Clause 20, and those for local government bodies in Clause 19. Furthermore, presenting accounts that are “true and fair” is an established accounting and audit concept which is also used in legislation governing the audit of central government and companies.
The amendment will make clear that the accounts of the larger relevant authorities must meet the same high standards. However, because Clause 19 applies to all non-health bodies subject to audit under this Bill, this amendment will apply the “true and fair” standard to the audit of all relevant authorities. As we said in Grand Committee, the Government do not consider it appropriate that the “true and fair” standard should apply to smaller authorities. Smaller authorities are required to ensure that their accounts “present fairly” or “properly present”, which are briefer and more proportionate forms of accounting.
It will therefore be necessary to modify these requirements for smaller bodies, which the Government intend to do through the regulations under Clause 5. The modifications will retain the audit requirements on smaller bodies so that auditors of smaller bodies are required to continue to satisfy themselves that the accounts “present fairly” or “properly present”.
We are not planning to make the other amendment to Clause 3 that the noble Lord, Lord McKenzie, moved in Grand Committee, which would require relevant authorities to prepare statements of accounts which are true and fair. We believe that the amendment to Clause 19 achieves all that is needed. The duty on auditors in Clause 19 will effectively require the authority to prepare to true and fair standards. We will confirm that requirement in the regulations that will be made under Clause 31, by requiring the chief finance officer of larger relevant authorities to certify that the accounts show as true and fair. This is similar to the approach for health service bodies—which are required to keep proper accounts showing a true and fair view—and the Companies Act which says that the directors must not approve the accounts unless they are satisfied that they give a true and fair view.
Amendments 13 to 17 amend Clause 20, which sets out the general duties of auditors of health service bodies. These are needed to provide that the auditor of the accounts of special trustees is not required to give a regularity opinion. Clinical commissioning groups—which are covered by Clause 20—are funded by Parliament to commission healthcare services. As such, they are accountable to Parliament for how they utilise these resources. Clause 20 therefore requires the auditor to give an opinion on whether the CCG has used these resources as Parliament intended and in accordance with guidance covering financial transactions.
However, this clause currently requires auditors of the accounts of special trustees to provide a regularity opinion of these accounts. Special trustees are appointed by university or teaching hospitals under Section 212 of the National Health Service Act 2006 to hold property on their behalf. There are currently only three boards of special trustees in existence: for Great Ormond Street Hospital in London, the Royal Orthopaedic Hospital and Moorfields Eye Hospital. As these bodies do not receive funds voted by Parliament, there is no need for a regularity opinion by the auditor on their accounts. The general duties of the auditor of a special trustee are otherwise the same as for a CCG.
Finally, Amendment 65 is consequential to the amendments made to Clause 20 and technical in nature. It is required to enable Clause 20 to apply to audit of the accounts of NHS trusts and the trustees of NHS trusts in the same way as it applies to special trustees. I beg to move.
Lord McKenzie of Luton
My Lords, I thank the noble Lord, Lord Wallace, for introducing these amendments. We are happy with them. I will speak first to Amendment 12. We debated this issue of accounts being required to show a “true and fair” view in Committee, as the noble Lord said. We had drawn attention to the disparity of wording in the Bill between the general duties of auditors of relevant bodies which are health service bodies and those which are not. The requirements for local authority accounts to show a true and fair view was part of the process towards full GAAP compliance in the whole of government accounts.
In response to our amendment, the Minister, the noble Baroness, Lady Hanham, reassured us that it was a requirement for larger relevant authorities to present accounts that were true and fair and this was achieved through the interaction of primary and secondary legislation—the Audit Commission Act 1998 and the Accounts and Audit (England) Regulations 2011. The Minister said in Committee:
“We intend to mirror this requirement in the regulations to be made under Clause 31”.—[Official Report, 17/7/13; col. GC 30.]
However, the Minister went on to say:
“This approach is less complex than specifying ‘true and fair’ requirements in the Bill, because further amendments would be required to disapply these provisions … for smaller authorities, which, as the Bill makes clear, are not required to ensure that their statement of accounts are true and fair”.—[Official Report, 17/7/13; GC 31.]
As I said, we support the government amendment. I was going to inquire about how that latter point would be dealt with, but the noble Lord covered that in his presentation.
Before commenting on Amendments 13 to 17, I take the opportunity to thank the Minister and the Bill team for facilitating a meeting about the differing effects of the Bill on local authorities and health service bodies, and for the helpful follow-up tabulation. That tabulation presaged the amendment in noting that a regularity of opinion was necessary in respect of clinical commissioning groups, because they were funded by Parliament to commission healthcare services. This is not the case for NHS trusts which receive income from contracts.
The Bill already disapplies the regularity requirements for NHS trusts in Schedule 13 and, under this group of amendments, does so for special trustees. The amendment specifically restores the other requirements of Clause 20(1) in paragraphs (a) to (c) for special trustees. However, it is not immediately clear how those provisions are reinstated in respect of NHS trusts—that is, those which are not special trustees. I think that the clue to that is in Amendment 65, to which the noble Lord referred, but it would be helpful to have clarification on that point. Subject to that, we are happy with the amendments.
The Archbishop of York
My Lords, on Amendment 12, if the statement is true, are not the words “fair view” fatuous? Could you have a true statement which needs qualifying as being unfair? If it is true, it is true. Are those warm words, are they warming up the word “true”? What do they add, those words “fair view”? If it is true, it is true.
Lord Palmer of Childs Hill
My Lords, unfortunately in accountancy there is a certain jargon. “True and fair view” is jargon used by firms of accountants and auditors from time immemorial, probably since the formation of the Institute of Chartered Accountants of Scotland, which was the first institute.
My query is whether this is not something which could be included in the external auditors’ audit report in the normal way. Currently, the external auditors’ audit report will say that the accounts have been true and fair and all the other jargon that goes with it in a format which has evolved over the years. The amendment seems to provide that the auditors must be satisfied that the local authority presents its accounts in a true and fair way. If that be the case, I wonder whether my noble friend can say, either now or in writing, whether the auditors’ report itself will need to be amended. Currently, the auditors’ reports just say that the accounts are, in their opinion, true and fair—or words of that nature. Now we seem to be saying that the external auditor must be satisfied that the local authority has presented its accounts in a true and fair way, which seems to be going beyond the opinion that those figures are true and fair. I know that we have a jargon and that the statement should be true but not fair seems completely wrong, but this is a form of words which has been used by accountants for years and is being replicated in the Bill.
The government amendments raise the question of other accounts which the external auditors are auditing at the same time and which are included in the audit of that local authority’s accounts. For instance, when a local authority’s accounts are audited, the auditor—it is not necessarily the same auditor, and if it is, it is a section of that auditor separated by a Chinese wall—audits the pension fund of that local authority. That is treated by external auditors as a separate audit. Because of national accounting requirements introduced about three years ago, those pension fund accounts had to be incorporated within the accounts of a local authority, producing some very strange figures and below-the-line amendments, which sometimes make accounts of a local authority understandable only by a very rare breed of people. I believe that there is someone in Whitehall who is meant to understand them. Will my noble friend comment on that inclusion within the audit report and how it affects the supplementary accounts which are amalgamated by law, such as pension funds of the local authority?
The Archbishop of York
Does not the noble Lord think that a legislature is entitled not purely to accept jargon, however old it is, because the law needs to be very clear about what it is stating? Yes, jargon may have been there for centuries. In the council of the Church of England, the jargon is well known, but when we draft a Measure to come to your Lordships’ House it will be in a language understandable by the people. So yes, that may be the jargon, but what is the meaning? What is it getting at? Do you still have to keep jargon when you are legislating?
Lord James of Blackheath
My Lords, my attempts to help in this House usually end up in worse confusion, but let me try. I raised the same question about 40 years ago when the phrase was first coming into regular usage. The explanation I got at the time was that the accounts will be true but they may not be fair because they do not answer the question which accountants never ask at an audit stage: that is whether there is a working capital certificate sufficient to support the cash flow. Therefore, you have to say that the accounts are true, but they may not be fair because they may not highlight the pitfall that the cash is going to run out. So “true” and “fair” belong to each other, but they have a separate and subtly different meaning.
Lord Wallace of Saltaire
My Lords, I have been sitting reflecting on the Psalms which are read to us in that wonderful translation at the beginning of Prayers each day and the number of redundant words which are used in repeated phrases in the course of them. I think that it is not only accountancy which uses phrases which might possibly be pruned if one wished.
Let me try to answer some of the questions which have been raised. Amendment 65, about which the noble Lord, Lord McKenzie asked, amends Schedule 13, which makes provision for NHS trusts. On the question of auditors and related audits, I take the point raised by the noble Lord, Lord Palmer, and think that I had better promise to write to him. The next group of amendments tabled by the noble Lord, Lord Wills, raises some large issues about the related audits, which we certainly need to discuss seriously.
I am briefed to say that “true and fair” is an established audit concept. The National Audit Office’s code of audit practice will set out how that is to be reported in auditors’ reports, so the NAO will tell the auditors exactly how to interpret the auditors’ jargon. I beg to move.
Lord Wallace of Saltaire
“(2A) In auditing the accounts of special trustees for a hospital, a local auditor must, by examination of the accounts and otherwise, be satisfied—
(a) that the accounts present a true and fair view, and comply with the requirements of the enactments that apply to them,(b) that proper practices have been observed in the preparation of the accounts, and(c) that the special trustees have made proper arrangements for securing economy, efficiency and effectiveness in their use of resources.”
Lord Wills
“Auditors right to documents and information of private contractors
(1) A local auditor has a right of access at all reasonable times to audit documents from private companies that the local authority have contracted services to during the last financial year.
(2) Local auditors only have a right of access to audit documents from private companies, under subsection (1), that relate to the service provided to the local authority by that company.
(3) A local auditor must publish any audit documents, obtained under subsection (1), as part of a local audit publication.”
Lord Wills
My Lords, both amendments aim to improve transparency in the new arrangements for local government. Amendment 18 is very similar to one that I tabled in Committee, and Amendment 23, with which it is grouped, is identical to the one that I moved then. Both were resisted by the Government, and I am bringing them forward again to give Ministers the opportunity to think again about whether it is really in the best interests of the Government, let alone in the public interest, to restrict transparency in the way that continuing to resist the amendments would.
I set out the case for the amendments in Committee, so I will not repeat those arguments in detail now. However, since then, both Ministers and their officials have met me to discuss the amendments, and I should like to place on record my gratitude to them all for all the time and trouble that they took in doing that. The noble Baroness, Lady Hanham, then followed up with a letter, which, I understand, has been copied to all interested Peers, setting out in some detail the grounds of the Government’s resistance to the amendments. Again, I am very grateful to the Minister for the careful and thorough way in which she and her officials have approached these issues, and I think they are now owed the courtesy of a response to their arguments.
Their first argument is that the amendments represent an increase in transparency and would bring auditors under the Freedom of Information Act in a way that they were not under the previous regime. I regard this as an argument for the amendments, not against them.
The recent Grant Thornton report for the Care Quality Commission showed just how important transparency can be in the work of those scrutinising the delivery of public services. What the Secretary of State for Justice last week rather politely referred to as,
“a significant anomaly in the billing practices under the current contracts”,—[Official Report, Commons, 11/7/13; col. 573.]
for electronic tagging has shown how important transparency is for scrutinising the work done by private sector companies for the public sector. In the light of what has been revealed recently about such work and about what has happened in the NHS, I am baffled as to why Ministers should still be resisting increasing transparency.
However, these amendments are not only about increasing transparency; they also set out to tackle a decrease in transparency brought about by the new arrangements. The Audit Commission, which is being replaced by the provisions of the Bill, was covered by the Freedom of Information Act. My understanding is that, in addition to information that it held for its own purposes—which was of course covered by the Freedom of Information Act—some information held by auditors would also have been regarded as being held by the commission in certain circumstances; for example, when it was investigating a complaint against a specified auditor, when it was conducting a quality control of their work, or when it had required an auditor to provide information for the discharge of wider Audit Commission functions, such as making judgments on local authorities’ use of resources. In such circumstances, the information would have been deemed to have been held by the Audit Commission and so subject to the Freedom of Information Act.
These are important categories of information that cover significant areas of public interest and concern. Yet, as far as I can see, no public authority, as defined in the Freedom of Information Act, has inherited those responsibilities from the Audit Commission, so under the new regime such information will no longer be covered by the Freedom of Information Act. I think it should be. This restriction of transparency damages the public interest. These amendments seek to prevent that happening.
Next, the Government appear to believe that there are already sufficient provisions for transparency for these amendments not to be necessary. However, as I set out in Committee, the fact that local authorities themselves are covered by the Freedom of Information Act does not always provide the necessary transparency for private sector bodies carrying out public sector work. Nor does the right of electors to inspect accounts and audit documents always provide the necessary transparency, important though that right is and has been for all the years that it has existed.
The Minister will be well aware of all the information that would not be available for scrutiny by the public under this regime. Why should the citizen have to resort to the cost and trouble of going to court under the Government’s regime—as the Minister suggested in her letter—to secure rights to transparency, when such rights could be made available to them under the more accessible regime of the Freedom of Information Act?
The Government then argue that exemptions under the Freedom of Information Act, particularly regarding commercial sensitivity and audit activity, mean that little extra information would be made available under these amendments. The Minister, however, will be aware that these exemptions are subject to a public interest test. That is a relatively high hurdle to overcome, so it may mean relatively little information will become available through the means of these amendments. However, when the hurdle is overcome it means that the information that does become available is—by definition—in the public interest. I believe such information should be made available to the public. I am surprised that Ministers want to deny it to them.
Finally, we come to the nub of the Government’s arguments, which is that transparency increases cost and so increases audit fees and, ultimately, the cost to taxpayers—and that it may also restrict competition as some auditors will be deterred by the requirements of transparency from bidding for such work.
These arguments crumble as soon as they are examined in any detail. Quite apart from the fact that the Government admitted, in answering a Parliamentary Question from me on 3 July, that they have made no estimate of the cost of bringing local auditors under the Freedom of Information Act; quite apart from the fact that greater transparency can often save money by revealing fraud, corruption, incompetence and inefficiency; quite apart from the question of why anyone should want an auditor carrying out crucial scrutiny of public services who would be deterred from such work by making what they do subject to scrutiny by the public they serve; quite apart from all that, the Government's own figures suggest, as far as I have understood them, just how flimsy this argument is.
Lord Shipley
My Lords, I remind the House of my vice-presidency of the Local Government Association. I was unable to discuss this matter when it was raised by the noble Lord, Lord Wills, in Committee, but he is making a very powerful case. I hope Ministers will be able to respond in a way that meets the issues that he has so rightly raised.
It is clear in Amendment 18 that a private company that is contracted, let us say, to run a refuse collection service or to run a leisure centre will appoint its own auditors to carry out an audit of the service that it undertakes. However, I do not think that that will prove sufficient. The public interest requires, where public money is being spent on a service, that the auditor on behalf of the public sector should have access to information that lies with the body that is providing the service through a contract. This appears to be an attempt to prevent a local government auditor having access to information that would assist the undertaking of that audit because a service has been provided by a private sector company. That does not stand the test of public accountability.
The noble Lord, Lord Wills, has got it right with Amendment 18. It is reasonable to say:
“A local auditor has a right of access at all reasonable times to audit documents from private companies that the local authority have contracted services to during the last financial year”,
and it is reasonable to say:
“Local auditors only have a right of access to audit documents from private companies … that relate to the service provided to the local authority by that company”.
In both respects, that is a reasonable requirement for a local auditor to expect. The public interest is best served by the auditor having those powers because this is about contract compliance in financial matters and service delivery. It is a basic requirement if an audit is to be undertaken successfully. How else can the general public have confidence that public money is being efficiently and properly spent on their behalf? I hope that we will hear from the Minister something that will convince us that Amendment 18 is not necessary.
On Amendment 23, there should be no diminution in the rights under the Freedom of Information Act. When it comes to transparency, particularly in view of the matters that have occurred recently, of which the noble Lord, Lord Wills, reminded us, your Lordships’ House has a duty to ensure that transparency in public expenditure and the delivery of the public interest actually happen. I hope that the Minister can give us the assurance that the noble Lord, Lord Wills, is seeking.
Lord Palmer of Childs Hill
My Lords, this is a very interesting amendment. I just wanted to add one other perspective. Any local authority worth its salt, particularly in this time of outsourcing, when so much is being outsourced to outside companies and bodies, will insist—as I have always insisted in my own local authority—that it has a right within the contract with the outside contractor to be able to audit the documents of the outside contractor. The place to do all the things that my noble friend has suggested is very often within the contract between the local authority and the contractor.
How that works in practice is that the local authority and its internal auditors need to see what the audit processes are within that outside contractor. The idea that the auditor of the local authority will go in on a normal basis and delve into the detailed books and records of the outside contractor is probably stretching the imagination a bit. The trouble with audits—this is where the noble Lord, Lord Wills, really hits the nail on the head—is that they are, in general, historical and you are looking at what went wrong. The noble Lord, Lord Wills, gave two good examples of what went wrong. The question to the noble Lord, Lord Wills, is: if the Government or the local authority had the ability to go in and audit the sort of companies and organisations the noble Lord described, would they have found these particular problems at that stage?
The noble Lord, Lord Wills, is on to a very important point. But I believe—as I hope that my noble friend the Minister will tell your Lordships’ House—that those protections of being able to audit should be more properly contained within the contract between the local authority and the outside body to which it is contracting.
The Earl of Lytton
My Lords, I have some knowledge of procurement issues. I, too, declare my interest as a vice-president of the LGA, but my knowledge comes mainly from the All-Party Group for Excellence in the Built Environment, which last year looked at the question of public sector procurement.
One of the things that we identified was the difficulty that many local authority and public sector bodies have in getting these very complicated contractual arrangements right. If they were not got right, you had some form of mission creep. You had this wall of contractual arrangements that could not be looked at until long after the event; for instance, the provision of a sports centre or a school over quite a number of months. Things had gone wrong in a number of cases because there was not the ability to oversee the thing properly or the knowledge of these very complex matters within the particular procuring body—not necessarily local government—to get a real grip on these things. The question was raised as to whether there should be an external procurement adviser to steer the body through. As I say, it might have been a local authority or it might have been a charity or something like that.
The noble Lords, Lord Wills and Lord Palmer, have hit on a very important point here: at which point can you see through into the detail and at which point do you get to “thus far and no further” in terms of the audit not running into some sort of mission creep? It is plain to me that there must be safeguards. Some very significant sums of money are involved. The earlier that problems are picked up and the process can look at structures and get feedback, the sooner they can be put right or something put in place to limit damage.
If not necessarily for the same reasons, I think that the noble Lord, Lord Wills, has raised an extremely important point, and I hope the Minister will feel able to respond positively to that.
Lord McKenzie of Luton
My Lords, we are sympathetic to my noble friend’s amendments and supportive of the intention behind them, which is to improve transparency in the new arrangements for local government. As I said in Committee, these open up a very important area of discussion.
Freedom of information legislation has played an important part in opening up government to the public. With some local authorities now outsourcing large portions of their services to firms such as Capita, questions must be asked about how to hold such firms accountable, given the significant amounts of public money that they now manage; for example, some councils will be handing over control of critical council services such as planning, licensing and environmental health to private, for-profit companies. This will make it harder for local residents to get answers and action on issues affecting them. It will also make it harder for elected councillors to monitor and scrutinise these services on behalf of local people. It will make it almost impossible to change services if councillors and residents decide that they want things done differently. My noble friend and others have mentioned the G4S and Serco revelations of last week, which have rightly caused much outrage. We have called for freedom of information legislation to be extended to the delivery of public services by the private sector in order to give greater accountability and transparency.
Lord Wallace of Saltaire
My Lords, this has been quite a wide-ranging debate and I recognise the importance of the issue that is being raised. I thank the noble Lord, Lord Wills, for the discussion that we had the other week and for the determination with which he is pursuing this. The Government are not persuaded that these amendments serve the cause. It seems to us that the current arrangements provide the requirement for transparency in outsourcing, but I recognise the much wider issues that the noble Lord is raising, such as the growth of outsourcing over the past 25 to 30 years, the potential conflicts of interest that then arise and the rise of substantial amounts of public money that are now being spent by private contractors. The current and recent cases of alleged fraud and error that have arisen in a number of areas of outsourcing of the work programme have not been mentioned. However, noble Lords will also remember that there have been a number of worrying cases.
This has grown up over a long period, from well before this Government took office, but it is with us now and we certainly need to look at it. I promise the noble Lord, Lord Wills, that if he would like to pursue this we are open to further discussions. This is the sort of subject that is perhaps appropriate at some stage for a committee of one or other of the Chambers to look at, to see whether the current rights of freedom of information, rights of access, and challenges from electors and others are adequate, or whether there is a systemic problem that needs to be addressed by legislation.
Local authorities are covered by the Freedom of Information Act and information is directly available from the auditor through the right for local electors to ask questions and raise objections. These cover contractual arrangements with private contractors. The DCLG consulted on bringing local auditors into FOI in spring 2011, when the consultation asked whether local auditors should be brought into the FOI Act. The conclusion was that they should not be brought within the Act, because it was believed that doing so would add little to local authorities being covered in the FOI Act, and because provisions in the Bill retain,
“rights for electors to inspect the statement of accounts and audit documents, and to raise questions and objections with the local auditor”.—[Official Report, 24/6/2013; col. GC 203.]
As I said in Committee, all respondents to this question said that bringing auditors into the FOI Act would increase audit fees. I shall not repeat the argument that I presented in Committee in resisting these two amendments, but the Government’s door is not closed on this. It is a matter that affects all parties and all those in charge of local authorities, future Governments, this one and past ones.
A previous Prime Minister said that the FOI Act was the single biggest mistake that he thought he had made. We disagree with him. It is painful, but necessary. The universality of outsourcing across a range of areas means that from time to time we need to look at this overall, but we are not persuaded that on this particular occasion in this particular Bill these amendments are necessary or appropriate. With that assurance, I hope that we are open to further discussions and that the noble Lord may be willing to withdraw his amendment at this stage, recognising that the question is not therefore necessarily closed.
Lord Wills
My Lords, I am grateful to everyone who has contributed to what has been a valuable debate and from all sides brought to it a wealth of experience and expertise. I am grateful to the noble Lord, Lord Shipley, for his support. The noble Lord, Lord Palmer of Childs Hill, and the noble Earl, Lord Lytton, brought invaluable experience to bear on these issues, and I am grateful to them. They both made a valid point about the fact that the audit can discover problems only after the fact, and the noble Lord, Lord Palmer, asked me directly why I thought that these amendments would still be valuable in the light of that. They would be valuable for many reasons. Perhaps the most important one is that knowing what you do will be subject to public scrutiny is a powerful incentive to getting it right. If you know that what you are doing can be covered up successfully, that is more likely than anything else to ensure fraud, incompetence and inefficiency. I hope that that reassures the noble Lord, Lord Palmer. I am also grateful for the support of my noble friends on my own Front Bench.
I am particularly grateful for what the Minister said; I am grateful to him and his officials for the way that they have engaged with this issue so far. I hope that I am not wrong in detecting just the slightest imperceptible budging from their resistance to these amendments that I saw in Committee, or at least a willingness to carry on engaging with the issues. I welcome this. I also disagree with the view of the former Prime Minister on the Freedom of Information Act and agree with this Minister.
I shall withdraw the amendment today, but I hope that we can return to these issues at Third Reading. The Government have said that they are prepared to look at this again and I welcome that. Even if they do not accept these particular amendments, if they can come up with something better I am happy to discuss that with them. I also ask the Government to look at two issues between now and Third Reading, because they bear on the whole purpose. First, in his response the Minister did not really address my arguments about the inadequacies of the current regime. With all respect to him, he just repeated the arguments in the noble Baroness’s letter to me. I have said why I took issue with those arguments, and I hope that he will look at Hansard and look again at the problems that I have with the regime that is proposed.
Secondly, there is the question of cost. This has not been the time to get to grips with this, but I still think that the argument about costs is unpersuasive. The fact that a consultation produced a predictable response from the predictable vested interests is no argument for government policy to be made on that basis. So I hope that the Government will look at what the actual costs of compliance are likely to be, how much of a deterrent they are likely to be, how far those costs can be absorbed by auditors and how far they would have to be passed on.
I am happy before Third Reading to extend to the Minister and his officials the invitation that he so kindly extended to me in Committee of meeting them again, discussing these issues and seeing if there is a way that we can find some common ground. If not, we will probably have to return to the matter at Third Reading. In the mean time, I beg leave to withdraw the amendment.
Lord Wallace of Saltaire
Lord Wallace of Saltaire
My Lords, this amendment makes a small change to paragraph 1 of Schedule 7. It slightly changes the requirements on a local auditor when issuing a public interest report. The Bill currently places a duty on local auditors to inform the auditor panel before making a public interest report. The amendment changes that duty to a duty to inform the panel,
“as soon as is reasonably practical after”
making a public interest report. The noble Lord, Lord McKenzie, moved a very similar amendment in Grand Committee. At that time we agreed with the intent of the amendment that the auditor panel should not influence the auditor’s decision as to whether to issue a public interest report. After further reflection, we consider that such an amendment would be a helpful clarification and would reduce the risk that the auditor panel could be perceived to be influencing the auditor’s judgment. I beg to move.
Lord McKenzie of Luton
My Lords, we have Amendment 20 in this group. Obviously, we support the government amendment because it is in keeping with the amendment that we moved in Committee. In Committee we sought to strengthen independent around the process of an auditor issuing a public interest report, and without sight of the government amendment we have retabled our Amendment 20. The sequence has been: in the draft Bill, a requirement to consult with the audit panel; in the current Bill, a requirement to notify the panel before the public interest report is issued; in our amendment, a requirement to notify when it is issued; and now, in the government amendment, to notify as soon as is reasonably practical. This is a progression with which we could not possibly disagree, and we thank the Government for accommodating this point.
Lord McKenzie of Luton
“(d) to assist in the prevention and detection of maladministration and error.”
Lord McKenzie of Luton
My Lords, this, too, is a re-run of the amendment moved in Committee, which we consider is unresolved business. Its intent is to add to the purposes for which data matching can be used the prevention and detection of maladministration and error. At present, data matching can be used for the prevention and detection of fraud. The relevant Minister can add certain specified purposes by regulation, but only after a consultation exercise. The prevention and detection of maladministration and error is not currently one of these additional purposes. Accepting the amendment would not immediately bring this purpose within the scope of data matching but would allow it to be included in future after due process.
The Audit Commission currently undertakes data-matching exercises for the purpose of the prevention and detection of maladministration and error but does so under its audit powers. I refer again to the national duplicate registration initiative relating to GP lists and the role played by data matching. When we asked about how this would proceed in future, we did not receive an answer. Perhaps we can have an answer today. How would that initiative go forward with the Audit Commission having been abolished?
The amendment is only about preserving opportunities for tackling maladministration and error, not extending them, a matter on which I would assume we had common cause. In Committee on 26 June, the noble Lord, Lord Wallace, said:
“I understand that the Audit Commission has already run exercises looking at error rather than fraud, using its other powers and that furthermore, following the abolition of the commission, such exercises might not be possible. I am, therefore, interested in better understanding the outcome of such exercises … and … the risks and benefits of including a power such as that proposed”.—[Official Report, 26/6/13; col. GC 223.]
Will the Minister share with us the conclusions of the further deliberations and discussions with the Audit Commission on this point? I remind him that the amendment enables only the introduction of a power. Further steps would have to be taken before it could become effective.
Lord Wallace of Saltaire
My Lords, I begin by informing the House that, following careful consideration of all options, the Cabinet Office will assume responsibility for the national fraud initiative, subject to the passage of this Bill. The transfer to the Cabinet Office will allow the national fraud initiative to continue and develop its effective and important work to complement wider government activities to tackle fraud.
Officials are continuing to discuss transitional issues over the coming months to ensure a smooth handover once the legislation is in place. Perhaps it would be appropriate to remind noble Lords that I am the Lords spokesman on the Cabinet Office. I was indeed being briefed by the Cabinet Office fraud and error team some weeks ago. We are considering whether or not to draft a data-sharing and data-matching Bill for the consideration of the House. We face some very large issues at national as well as at local level, which involve issues of data privacy and identity assurance, all of which we need to discuss within the wider framework of national and international consideration of this as well as consideration by local authorities. Noble Lords may remember that in Committee I expressed some surprise at just how far local authorities and the Audit Commission had gone in this direction when the national Government were being very hesitant about how far it would be appropriate to go in some of these areas.
On this Bill, it is the Government’s intention that the data-matching clauses should, before we move towards discussing the much larger issues in the changing digital revolution that we are concerned with at present, remain consistent with the provisions in the Audit Commission Act 1998 to ensure continuity and stability on its transfer to its new home. Amendment 22 would insert a fourth potential purpose for data-matching exercises: to assist in the prevention and detection of maladministration and error. The noble Lord, Lord McKenzie, made a very persuasive case for this amendment in Committee and provided some helpful examples of the types of exercises that the Audit Commission had already run, looking at error rather than fraud, using its other powers.
My noble friend Lord Palmer of Childs Hill rightly highlighted the issue of function creep in relation to data-matching exercises. In doing so, he brought to the House’s attention the need for very careful consideration of these matters, Perhaps I should say that as a liberal in every sense, I am battered on both sides on the question of the convenience that the digital revolution provides us with but also the enormous threats that it offers to individual privacy if we are not careful about how we manage data holding, data sharing, data matching and data mining. I am sure that all noble Lords are aware of the distinctions between all of those. This is a very difficult area, and while the detection of error as well as of fraud is inherently valuable, it would allow the new owner of the national fraud initiative to continue the Audit Commission’s work. Any amplification of ministerial powers in this area therefore requires careful consideration. I assure the noble Lord that my officials are working with a range of interested parties to gain an in-depth understanding of past and potential future uses of this power. This includes representatives from the Information Commissioner’s Office, and I will be meeting the Information Commissioner before the summer on this matter.
My officials are also seeking further advice from the Audit Commission about exercises it has carried out using its other powers and the risks and benefits that such an extension might entail. I look forward to meeting the noble Lord in due course to update him on progress in this area, recognising that we are tip-toeing around the edges of one of the major issues that any future Government will be facing in the next three to five years: how we cope with the explosion of digital information available on cloud computing. I hope with those assurances that the amendment can now be withdrawn.
Lord McKenzie of Luton
My Lords, I must express some disappointment with the Minister’s response. I am grateful for the information on the transfer of the NFI to the Cabinet Office and I am reassured that it will be in the safe hands of the noble Lord as the Minister in your Lordships’ House. I share the concern about the enormity of some of the data holding, data sharing and data mining privacy issues. I took it, perhaps from what the Minister said, that there was the prospect of some broader legislation not too far down the track. However, I hang on to my point that this amendment would not extend one little bit what happens at the moment. In fact, the amendment would not even take us as far as we are today with the Audit Commission because it would need those further processes before it came into being. Whatever else is going on and whatever the scale of these other issues—I share the noble Lord’s concerns over those—I fail to see why this provision cannot be taken forward. It seems to me that there is a diminution in the Government’s task of tackling maladministration and error without these powers being available. I do not think the noble Lord explained how they would be dealt with differently once the Audit Commission goes out of existence and how this range of opportunities would be replicated under the new arrangement. I do not know whether the noble Lord would like another go at trying to convince me on that, but it would be helpful if he could. What will happen to the Audit Commission’s current audit powers to deal with maladministration and error? What will replace those just to have an equivalent process when the Audit Commission goes?
Lord Wallace of Saltaire
The Cabinet Office is looking at the issue of fraud and error in government as a whole in a wider context and would like to examine the experience of the Audit Commission further and to feed that into our wider discussion about the future of data sharing, data mining, data matching and that whole area. We do not intend to leave a long-term hole but to treat this within the broader context of what is happening. Some of us have been concerned in rather a different context with the shift from household electoral registration to individual electoral registration, where, as it happens, some of the same issues arise.
Lord McKenzie of Luton
I am grateful for that further explanation. I take the point that this will not just be left lying fallow but that there will be some active consideration of it. I still hang on to my point that the active consideration could take place without implementation by having the amendment in the Bill. If not, we will need primary legislation of some sort in the future to bring it into being as part of the data-matching process, if that is what the conclusion is on further analysis. Having the amendment in the Bill does not mean that it has to be activated, because the Minister has to go through a consultation process to do that. As there is going to be this broader look, it seems to me that the Government have reached the wrong conclusion. They could have adapted the Bill to include this amendment even if they never implemented it. I think we have probably been around this enough, unless the Minister wants to say something further.
Lord Wallace of Saltaire
I note the noble Lord’s preference for belt and braces. I have some doubts about how many pieces of legislation we have passed that have not been commenced, so perhaps I am slightly in the other area on this. However, I promise to write to the noble Lord further about how the Government intend to take this forward.
Lord McKenzie of Luton
I am grateful for that. I recognise that the Minister sees this as extremely poor, as, indeed, do the Government. I beg leave to withdraw the amendment.
Baroness Hanham
Baroness Hanham
My Lords, in June, the Delegated Powers and Regulatory Reform Committee published its report on the Local Audit and Accountability Bill. The report made a recommendation regarding the provisions in the Bill to prevent local authority newsletters unfairly competing with local newspapers. We have considered the recommendations in this very useful report carefully, and this group of amendments is the result of those considerations.
The committee said that in certain circumstances it is inappropriate for powers to make the code mandatory to be exercisable by directions rather than by statutory instrument, and subject to no parliamentary procedure. The committee recommended that, where the Secretary of State wishes to exercise his power to issue a direction to all local authorities in England or to a specified description of authorities, the affirmative resolution procedure should apply. While recognising that there can be circumstances where it is appropriate for the Secretary of State to be able to give directions to a class of, or to all, local authorities, we accept the committee’s recommendation that the exercise of this power in relation to classes of, or to all, local authorities, should be by affirmative statutory instrument.
We also agree with the committee’s implicit view that, where the power is exercised in relation to a single authority that the Secretary of State believes is not complying with the code, it would be appropriate for this to be by way of direction. However, we do not agree with or accept the committee’s recommendation that, where the power is exercised in relation to a single authority otherwise than where the Secretary of State believes the authority is not complying with the code, this should be by negative statutory instrument.
Our aim is simple: to be able to take effective action against those authorities that are giving rise to concern about their publicity, particularly relating to the publication of newspapers. Above all, in the case of such authorities, quick and effective action needs to be taken. These amendments ensure that the Secretary of State can continue to take that quick action against individual authorities. In cases where groups of authorities or all local authorities in England are being required to comply with some or all of the publicity code, we agree that this should be by order, subject to the approval of both Houses of Parliament. I beg to move.
Lord Beecham
My Lords, we are now coming to that part of the Bill that reflects several of the obsessions of the Secretary of State, not necessarily of the Minister. It is interesting that the draft Bill committee had, of course, no opportunity to consider these matters because they were not part of the original Bill; they were tacked on to the Bill at a later stage. I suppose we should be grateful that at least the Delegated Powers Committee has had an opportunity to comment on it. In fairness, I am grateful to the Minister and to the Government for accepting at least part of its recommendations, the part that referred to directions given to all local authorities. However, I find it difficult to follow the reasoning for the rejection of the second recommendation about directions to an individual authority.
The committee indicated that a power does not merely afford a specific and targeted enforcement mechanism but could—and would, if the relevant subsection is relied on—have the character of a legislative power. It took the view that it is inappropriate for powers of this kind, to make the code mandatory, to be exercisable by directions rather than by statutory instrument. Hence the two recommendations it made; in fairness, the Government have accepted one of them, although they did not accept the other. That decision was communicated to the committee and is reported in its sixth report, which was printed as recently as 11 July. In fairness, the report was written in June, but it does not indicate exactly when. However, it was considered by the committee only a matter of a few days ago—or at least, its report was published only a few days ago.
Baroness Hanham
My Lords, as the noble Lord knows, on the code of conduct, as regards publicity, and in general, it would be fair to say that the code is probably reasonably well observed among the majority of authorities. There could be occasions—I say “could be” because that is how we need to put it—in which a number of authorities breach all or part of that code, in which case it would be essential that the Secretary of State was able to take action. If it is a large number, there would, presumably, by definition be some really serious element that had come about so that the Secretary of State needed to be aware of it. However, this could do with a further look at in Parliament, and further consultation. We fully accept that that would need parliamentary time.
We already know of local authorities that are breaching the code in terms of a number of publications—what is in the publication and what relates to them at the moment. Since we now know about these it would not be sensible to have to wait and waste a lot of time in delaying taking the direction to stop them, getting them to comply, getting that matter dealt with and moving on.
We have responded in as straightforward a way as we can to the DPPRC’s recommendation, except for on this one area. Indeed, it may be that these individual directions to these individual authorities and would be the most that would be applied. I do not expect there to be many; as always, with these things, there are those who breach and cause trouble for the rest. However, there is no doubt that we would expect or hope to continue with the provisions in the Bill as have been outlined and, for the reasons that I have said, that it makes sense to get individual local authorities to stop what they are doing as quickly as possible. They are probably just breaching individual aspects of the code.
Lord Tope
My Lords, I shall also speak to Amendments 28, 30, 33, 35, 36 and 37. Before doing so, I must, for the first time in your Lordships’ House, declare my interest as a vice-president of the Local Government Association, now for very nearly two weeks. It gives me great pleasure to do so, and to begin by not doing what the LGA will not wish me to do. The LGA remains resolutely opposed to Clause 38; we will have an opportunity very shortly to look at that. The preferred position of the LGA—and, I think I am right in saying, of all the political groups in that body; it most certainly is the position of my own Liberal Democrat group there—is that it would prefer to see the deletion of the clause entirely.
I have tabled this collection of amendments because I recognise that the Government will not be able to agree to do so because the terms of the coalition agreement state:
“We will impose tougher rules to stop unfair competition by local authority newspapers”.
That is what is in the coalition agreement, and the Bill is the vehicle that the Government have chosen to implement that part of the agreement. I accept that I, too, am bound by that agreement. My clutch of amendments is therefore an attempt to meet the terms of the agreement which I personally signed up to, as did my party. However, it is targeted, rather than the broad-brush approach that the Government seem to have at present.
The problem with Clause 38 is that it is rather more than a catch-all, although it does apply to all local authorities. It gives the Secretary of State power to intervene, regardless of whether the local authority is complying with the code or not. That is not in accordance with the coalition agreement which is quite specific about dealing with unfair competition. In reality, it means that those authorities—if there is more than one—which are producing a weekly newspaper, paid for by commercial advertising that arguably might have gone to a local commercial newspaper, are in competition with that local newspaper. That part of the agreement attempts to give some protection to local newspapers going through a difficult—probably terminal—period. Whether that is a correct analysis of the situation for local newspapers—and it certainly is not a complete analysis, nor is it a subject for debate today—that is the position we are in.
Amendments 25 and 28 seek to limit the rather wide-ranging power that the clause currently gives to the Secretary of State and to target it on those authorities deemed to be in breach of what is, at the moment, a voluntary code. That gives the Secretary of State the power—which he feels is insufficient at the moment—to deal with a real problem and not just the threat of a possible problem. We all accept—and the Minister has said many times that she accepts—that the overwhelming majority of local authorities, regardless of their political complexion, are complying with the code, have shown no signs of not doing so and are certainly not coming under the terms of the coalition agreement.
Amendment 25 and Amendment 28 are the targeted approach. Amendment 30 and Amendment 36 simply extend the period in which the Secretary of State has to give notice of a direction from a very short 14 days, which includes non-working as well as working days, to 28 days. This is in accordance with best practice; it is certainly in accordance with common practice. It gives a local authority a reasonable, though not a long, time to make its case if it feels that the direction is misplaced—as any local authority in that position is very likely to do; otherwise it would not have put itself in that position in the first place.
Amendment 33 and Amendment 35 state the method by which the Secretary of State has to inform an authority. At the moment the clause is silent on how this is to happen. I have a horror that it is likely to be done via a press release from the Secretary of State—something for which he is quite well known. The first the local authority might know of the fact that it is the target would be if it were to receive something through the media in the language that the current Secretary of State is renowned for using. So these amendments state how the Secretary of State must issue that direction.
The Earl of Lytton
My Lords, I willingly gave my name to the amendments in this group. Like the noble Lord, Lord Tope, I did not feel that this was the right stage of the Bill to argue about whether Clause 38 should stand part, although I am aware of the LGA’s concern on that. It leaves hanging the question of justification, to which the noble Lord, Lord Tope, referred. The rule seems to be designed to deal with the very few, to the potential disadvantage of the many. That is a questionable approach. The purpose of Amendments 25 and 28 is to address this.
On Amendments 30 and 36, the period of 14 days is manifestly too short for the sort of notification and response that is required in this situation. I am advised that 28 days is regarded as appropriate and the norm. Will the Minister be kind enough to explain why the norm must be cut in half?
Amendments 33 and 35 concern the basis on which the Secretary of State will inform an authority—perhaps he might choose to do so by text message to the chief executive, or something like that—and the clarity of the procedures for that confirmation, which are worthy of being tightened up. I hope that there will be a favourable response to that suggestion as well.
On Amendment 37, it seems that the present code allows for latitude in what the authority shall “consider” or “have regard to”. It might be a value-for-money consideration or something like that. The question is whether, in transition from the current voluntary code to the proposed statutory code, the latitude will continue to be there. That is the nub of the question, and the bit that has not yet been answered satisfactorily. Having said that, I very much support the thrust of the amendments in this group.
Lord Beecham
My Lords, as I listened to the noble Lord, Lord Tope, moving his amendment—which, given an opportunity, we would support, faute de mieux—I was reminded of the remarkable film of the man who walked on a high wire between the Twin Towers in New York. It was an extraordinary experience. With this amendment, the noble Lord is navigating the gap between the Bill and the coalition agreement. I do not recommend that he emulates the high-wire artist, because he is very likely to fall precipitately to the ground, judging by what he has advanced tonight.
To begin with, the noble Lord assumes—he may be right—that the Government’s proposals are directed at unfair competition. That is the term used in the coalition agreement. It may be the case, but what constitutes unfair competition is far from clear. What the evidence is for unfair competition existing is even less clear. I will quote, as I did in Committee, from material supplied by the National Union of Journalists. One might have thought that it would be fairly sympathetic to the Government’s point of view, since journalists’ jobs are presumably more at risk if there is unfair competition in the newspaper industry than are the jobs of a handful of local government press officers. The NUJ pointed out:
“The last select committee charged with investigating the matter, observed that there was no evidence of a link between high-frequency local authority publications and the decline of ad revenue, circulation etc of the local press in the local authority catchment area”.
It also pointed out that the Audit Commission—perhaps this is one of the reasons that it is being abolished—in 2010,
“effectively debunked the assertion of newspaper proprietors that local authority publications represented unfair competition and were commercially damaging to other local newspapers”.
The Audit Commission found that the money spent by councils was not unreasonable, that few council publications were published sufficiently frequently to be a viable media for most local advertising, and—a matter to which no doubt we will return—that the current accountability framework would ensure that any misuse of public money could be dealt with.
Those are fairly strong views by an interested party that, one might have assumed, would be sympathetic to the Government’s position but is not. Its evidence is substantial in that respect. It also points out that the press began reducing its workforce many years ago, and that already something like 61% of local newspapers in the area it contacted had closed or struggled. One reason was the decline in advertising revenue, but it was not to be attributed to local authorities including advertising in their publications, because, as the Audit Commission pointed out, in almost all cases the publications were too infrequent to have that impact. Some 55% of newspapers cited competition from the new media.
It does not stop there. There are free newspapers in circulation. The Evening Standard is a free newspaper. I am not sure about the new paper launched by the Independent. It may be free, or cost a nominal amount. Some of the newspaper groups themselves publish freesheets. Metro is published by a newspaper group and carries advertising. Therefore, the notion that somehow local authorities are responsible for the difficulties is ludicrous.
Even if local authority publications constituted competition, to what extent would it be unfair? Is it unfair because the publication is free, or in some other way? Are advertisers not able to make a commercial judgment about what would suit them better? I should have thought that that was central to government policy. The proposal to dismiss the Government’s suggestions here would not constitute a breach of the coalition agreement because there is no evidence that the unfair competition part is at all relevant to what the Government are trying to do.
There is another issue. The Government’s proposals would apply to the code, but the code can change. We do not know what restrictions the next code will bring in. Most of the code, as it stands, is fairly reasonable and acceptable. I dispute the necessity to limit titles to four publications a year, but most of the rest is fairly balanced. What is to stop the Government tightening the code and deciding on a range of things beyond those that they now say should not be published—or, conversely, should be published—in local newspapers? This would give a blank cheque to a Secretary of State to tie the hands of democratically elected local authorities in terms of how they communicate to their electorate, who, after all, should have the final say in what is done locally.
Of all Secretaries of State, the present one is the last person I would like to see entrusted with those powers. I would be quite happy, or relatively happy, for the noble Baroness to have that power but I would not be at all happy to have the present Secretary of State exercising it. Nothing in the Bill would prevent him tightening up the code and using this mechanism to ensure that it is enforced. My preference is for the whole clause to go. I am anticipating what may be said, perhaps rather more briefly, in a subsequent debate. The noble Lord’s amendment would moderate the damage but in my view he should have stuck to his guns and his party’s principles and recognised that he would not breach the coalition in so doing. Then we could have perhaps exercised a bit more leverage on his coalition partners, for the time being, and improved the Bill rather than allowing it to go forward to the statute book in its present form.
Baroness Hanham
My Lords, I am probably in danger of saying the same thing three times as there is no doubt that these amendments stray into each other. We have heard some pretty wide comments on the code as it stands, which probably go slightly wider than the intention behind the noble Lord’s amendments. None the less, we should be very clear that we are talking about the publicity code. I think that guidance is given to local authorities on seven aspects of the publicity code, their behaviour in relation to it and what it involves. It is a statutory code but compliance is voluntary at the moment. If the Secretary of State had to intervene, it would become mandatory only as regards the aspects on which he gave directions, if that was done across the board. If the Secretary of State gave an individual direction, that would be mandatory only for the relevant local authority. This is not a case of putting the whole code on a mandatory basis but of directing local authorities where they are seriously breaching the current code. We are interested only in those local authorities—and there are some—which are giving rise to concern about their publicity because they are producing far too many weekly or fortnightly publications—the terms of the code are three monthly—or are going beyond the reaches of propaganda or stepping outside what they should be doing and producing publicity which is too political. Those are the areas we are dealing with. As I have said several times, I totally accept that the majority of local authorities comply with the code without thinking about it. It is part of their lives, as it were, and they do not set out to breach it. However, some do and this Bill gives us an opportunity to make sure that they are put under some constraint.
Amendment 25 would require the Secretary of State to be satisfied that a local authority had failed to comply with the code under Section 4. The amendment is not necessary and inappropriate. It would needlessly complicate and risk delaying the exercise of the power of direction, which, as I have explained, needs to be quick. Having the making of a direction formally conditional on this simply opens the door to even more debate, argument and delay. That is not compatible with our aim of rapid, targeted action.
Amendment 28 would remove the power for the Secretary of State to give a direction to an authority whether or not he thinks that authority is complying with the code to which it relates. This would remove the Secretary of State’s power to issue a direction where there was doubt over compliance with the code in the future. It is right, when legislating for a new provision, to ensure that as far as possible the provisions cater for different eventualities so that you do not have to keep coming back to the various aspects but cover them so that they do not need to be followed up.
Amendment 30 would lengthen the period a local authority might continue not to comply with the publicity code. The noble Earl, Lord Lytton, agreed with my noble friend Lord Tope that the 14-day period was too short. Local authorities will know perfectly well when they are breaching the publicity code, so a two-week notice period is perfectly reasonable under those circumstances. The notice must be given in writing. A text message or an e-mail will not do. A formal notification must be given, marking the start of the 14 days’ notice. I am sure that the local authority concerned would have plenty of time to raise its concerns.
I return to the important point made by the noble Lord, Lord Beecham, on the form of the code. The Secretary of State cannot just change the code any old how. Any changes to the code would have to be approved by both Houses of Parliament, and any revision to it can be made only through the negative resolution procedure, so it would have to come before this House. The noble Lord shakes his head but a negative resolution can be turned into a proper debate in this House, as he knows as well as I do. The revision must be laid in draft before each House of Parliament and cannot be laid until after 40 days. This is the norm. If you laid the changes before 40 days, the noble Lord, Lord Beecham, who keeps an eye on these things, would leap on it after day three. If either House votes against the proposed change, it cannot go ahead. I think that is more or less the situation with any such proposal.
Amendment 35 is similar to the amendment on the notification. I think it is intended to require the Secretary of State to write to individual local authorities—I have already indicated that he will—modifying or withdrawing a direction. Any notification between the Secretary of State and a local authority would have to be in writing.
Our amendment, which makes provision that the exercise of the power by the Secretary of State to ensure compliance with the code in relation to all local authorities in England of a specified description, or to all local authorities in England, should be made by an affirmative statutory instrument, removes the need for these amendments. It would be highly unusual for an order-making power to be subject to a requirement for the Secretary of State to bring it to the attention of relevant authorities. To make special provision for the publicity code in this instance would bring confusion to other order-making powers, and is unnecessary.
Amendment 36 would build on Amendment 30 which, as I have said, would lengthen the period a local authority might continue not to comply with the publicity code. For the reasons I have set out and because we wish to move swiftly where there is an abuse of taxpayers’ money, I see no reason to extend the 14-day period.
Finally, Amendment 37 would require that a direction must take into account whether the authority has demonstrated to the external auditor that acting outside the code is in the financial interests of the authority to whom a possible direction may apply. This amendment would, I am afraid, once again delay the process. Local authorities know when they are spending too much money. In some circumstances, local authorities can act outside the code and issue notices, leaflets and newsletters as long as they are straightforward. I think that we will discuss that later.
This is also unnecessary. The provisions already allow local authorities to make representations before a direction is made requiring them to comply with the code. The 14 days does give them an opportunity to comply. Those representations could include a view from the auditor if the local authority wants it, but we would not require it. Taken as a whole, we do not consider the amendments necessary. I do not suppose that the noble Lord will be entirely reassured by what I have said but we have other amendments and we will no doubt consider them even further. I hope that from what I have said so far, the noble Lord will be happy to withdraw his amendment.
Lord Tope
My Lords, I am grateful to the noble Earl, Lord Lytton, for clearly supporting my amendments and putting his name to them. I am not entirely clear whether the noble Lord, Lord Beecham, was supporting them, grudgingly or not, but I am grateful to him for at least recognising my high wire act. I shall endeavour to remain on the wire. I am grateful to the Minister for at least a detailed reply on the amendments. To say that I am disappointed would imply that I had higher expectations in the first place. I am sad to say that I probably did not.
I was surprised at the Minister’s dismissal of the issue of the 14 days to 28 days notice, as 28 days is normal, good practice. It is hard to understand what is to be of such urgency that it can be dealt with under the 14-day notice but is so urgent that it cannot be dealt with in 28 days. I am surprised more than disappointed. The Minister will know that these provisions are causing widespread alarm, much of which I believe to be understandable but misplaced. I hope that in her further replies, which she herself said she will have to make, she will give greater reassurance on a number of the examples that I gave in moving the amendment—whether they are of the more standard publicity-type notices that local authorities issue, such as bank holiday recycling arrangements or notices about public health, or the rather more difficult ones concerning the third runway or HS2. I hope that we can get some reassurance on that.
A great majority of authorities cope within the voluntary code but we know that most local authorities are risk averse. They need to be and should be risk averse. They are advised by lawyers who are by nature risk averse. I fear that the consequences of what we are doing here will be far greater than even the Secretary of State intends. We will continue with this issue. I am quite certain that it will continue throughout the passage of the Bill. I hope that the Government will be willing not to dig in their heels but to look at how they can better and more specifically achieve their objectives than is currently the case. I beg leave to withdraw the amendment.
Baroness Hanham
Baroness Hanham
Baroness Hanham
Baroness Hanham
Baroness Hanham
“4B Power to make order requiring compliance with code
(1) The Secretary of State may by order made by statutory instrument impose a duty on all local authorities in England, or all local authorities in England of a specified description, to comply with a code issued under section 4 that applies to those authorities.
(2) An order under this section may impose a duty to comply with—
(a) one or more specified provisions of a code, or(b) all of the provisions of a specified code.(3) A order under this section may—
(a) specify the steps that an authority to which the duty applies must take to comply with it;(b) specify the time within which such an authority must comply with the duty.(4) The Secretary of State may make an order under this section which applies to an authority whether or not the Secretary of State thinks that the authority is complying with the code to which the order relates.
(5) An order under this section—
(a) may make different provision for different cases or classes of case, including different provision for different descriptions of local authority;(b) may make incidental, supplementary, consequential, transitional or transitory provision or savings.(6) A statutory instrument containing an order under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(7) In this section “specified” means specified in an order under this section.”
Lord Beecham
“(3) In section 4 of the Local Government Act 1986 (codes of recommended practice as regards publicity) after subsection (8) insert—
“(9) In respect of the characteristics set out in section 4 of the Equality Act 2010, nothing in section 38 of the Local Audit and Accountability Act 2013 shall restrict the rights of authorities in pursuance of their obligations under section 149 of the Equalities Act 2010 to publish at any time factual material by way of correction or rebuttal of inaccurate statements which promote discrimination, harassment or promotes or constitutes other unlawful acts.””
Lord Beecham
My Lords, this amendment stems from concerns raised at a meeting of the all-party group inquiry into electoral conduct, to which I referred in Committee. Doubts have been expressed about whether it would be possible for local authorities at any time, but even during elections—perhaps especially then—to correct mis-statements of fact that could give rise to problems in relation to the Equality Act, such as racist or discriminatory statements that might apply to particular groups.
The noble Baroness said that she would look into this and write to me to clarify the position. I am grateful to her for doing that. She confirmed that it is permissible for local authorities to do exactly that, even during an election period, which is probably the most urgent time, provided that it is a factual statement. The purpose of the amendment is simply to allow the Minister to repeat for the record and Hansard the assurance that that is the position. That would be of some comfort to electoral officers and local authorities that might be confronted with this situation. Given some of the things that are being said up and down the country by various groups, it is likely that at some point local authorities will feel constrained to issue material of that kind, perhaps during an election period. It would be good to have that assurance on the record. I am extremely grateful to the noble Baroness and indeed to the Government for acknowledging that perhaps there was a doubt and for clearing it up so comprehensively.
Baroness Hanham
I am happy to confirm what I have written to the noble Lord and I will read it out. The publicity code explicitly provides for a local authority to correct or rebut misinformation, making explicit provision in the sections about objectivity and care during periods of heightened sensitivity. Moreover, it contains provisions about equality and diversity, specifically allowing local authority publicity to seek to influence the attitudes of local people or public behaviour in relation to matters including equality, diversity and community issues.
During an election period, for example, local authorities may publish factual material. A local authority should take care when issuing publicity and should not be issuing publicity that seeks to influence voters. However, this does not prevent an authority from fulfilling its role in seeking positively to influence people in terms of equality and diversity. Hence if there is disinformation in circulation promoting harassment, a local authority may take action to correct it at election time or indeed any other time. The provisions in the Bill do not change the contents of the publicity code that have been agreed by Parliament. Rather they give the Secretary of State the power to ensure that taxpayers’ money is not being wasted by local authorities by disregarding the publicity code. Nothing in the publicity code prevents local authorities addressing issues of discrimination or harassment and tackling them head on. No local authority can claim that the provisions in the Bill to tackle non-compliance with the publicity code prevent them complying with the Equality Act.
In short, this amendment is not necessary and I hope that, with the reassurance that I have given the noble Lord and what I have said in the House today, he will be willing to withdraw the amendment.
Lord Beecham
Indeed, I am, and I repeat my thanks to the Minister for making the position clear. Now it is on the record. I beg leave to withdraw the amendment.
Lord Beecham
Lord Beecham
My Lords, in the parallel universe occupied by the Secretary of State, Pulitzer prize-style municipal correspondents can no longer haunt the corridors of town halls, rigorously holding local authority leaders and councils to account. They have now been supplanted in his imagination by what he describes as “town hall Pravdas”. To adapt a phrase, it seems that the local authority devil wears Pravda. In so doing, the local civic newspapers disseminate propaganda at public expense.
As I have demonstrated, there is very little evidence to support any of that, still less that the effect has been damaging to the local media. On the contrary, local media have very consciously and over many years withdrawn from reporting local government. I remember in the early 1980s, when I was leader of Newcastle City Council, urging the BBC to appoint a local government correspondent. They had a very good reporter there who has now made a national reputation, Mr Michael Blastland, who covered local government and much else. That was rather unusual for a local television and radio station, but it was not by any means a full-time job and the idea did not seem to catch on.
Furthermore, at a later point, the local papers in Newcastle, the Journal and the Evening Chronicle—which, strange to say, my constituents and those of the noble Lord, Lord Shipley, when he was a councillor and leader of Newcastle City Council, were able to distinguish from the city council newspapers occasionally distributed, contrary to what the Government appear to think happens in the real world—apparently decided that they would reduce the amount of coverage of local affairs. They attended meetings and contacted members of the council, me and others, less frequently.
I raised the point with them and made it nationally as well. The Journal in Newcastle, the morning newspaper, said that it had conducted a survey and its readers were not interested in local affairs. Therefore, it ceased to be to any extent a paper of record, which is what good newspapers ought to be. It did this not because of competition from half a dozen issues of Newcastle City News but because, in its judgment, the readers were not interested. Some of us like to think that the virtue of local media is that they seek to educate and inform the local community. They have abdicated that responsibility; they have done it of their own volition and it is ridiculous to suggest that that has been caused by local authorities.
The conflation of a variety of issues that have been adduced to support the Government’s position on the whole issue of a code of publicity is entirely unconvincing. There is no significant cost to local authorities. There is no evidence, as I have already reported, via the National Union of Journalists, that it has had an impact on the circulation of local papers and the decline of revenue. On the contrary, there are many other explanations, which I will not rehearse again. As for the other main argument, that there is a danger of political abuse by some of these papers advocating a party line or support of the authority in control of the local council, of course that can and should be dealt with without a code, because it would be unlawful as matters stand to conduct propaganda in that way.
We have debated at considerable length the role of the auditors. The auditors have a responsibility in this and other matters. They are entitled to look at whether council expenditure, in the area of publicity, for example, is lawful and appropriate. In addition, there are other sanctions that can be applied, including, in extremis I suppose, judicial review. Therefore, both props of the Government’s case fail. It is not necessary to emulate the man on the wire to deal with these matters. It is simply the case that the Government are overreaching themselves.
I have to comment on the hypocrisy of a Government who allow, possibly promote, their Civil Service spokesman to make statements using the personal pronoun. Therefore, government spokesmen—not Ministers, or even MPs or Peers—in the form, presumably, of press officers or civil servants are all too often quoted as saying, “We are taking action on it”. It might be on welfare benefits or whatever. That is a politicisation of the Civil Service that is a step too far. It happens all too regularly. I do not say that it did not happen under the previous Government. I cannot recall such events, but it may still have happened. Under any Government, it is wrong for that to happen. If that were to happen in local government, there would be a legitimate outcry. It would be quite wrong for a chief executive or an officer of an authority to use the personal pronoun on a political issue, as opposed to saying that it is the council’s policy.
In addition to all the other grievous sins of omission and commission that the Government commit in this area, this is something that they ought to look at on their own account before they descend on local authorities in the way that they propose in the Bill. Again, I remind your Lordships that the draft Bill committee was given no opportunity whatever to discuss matters of this importance. It is not surprising that the Local Government Association is completely united across the political divide about this, hence my amendment opposes that the clause should stand part.
Baroness Hanham
My Lords, the trouble with clause stand part debates is that they tend to come after everything else has been said. The danger is that one says it all over again. As I said, three groups of amendments have all covered more or less the same ground. I must ask the Chamber to forgive me if I cover some things that have already been said. It is clear that the Government do not see the situation in quite the same way as the noble Lord, Lord Beecham, has laid out tonight, nor as the Local Government Association has seen it in wanting all these provisions removed. We do not believe that should happen. We accept, as I said, that the great majority of local authorities will never breach the code. They will always do, and be guided by, the right thing.
I shall not say which local authorities we already know are breaching the code. I have them. I could do it, but I think it is probably not helpful. I hope noble Lords will accept my assurance that at least a dozen are breaching it at the moment. Either they are publishing publications, very frequently, outside the terms, or they are including propaganda or their own political statements. It is there and it is wrong; that is not what was meant to happen. As I say, with legislation the opportunity comes to try to put that right. Once again, it is putting it right for a minority—I totally accept that—but put it right we must. The Secretary of State is not taking very draconian powers. If the Secretary of State would have to put a broad direction out to a whole lot of authorities, we would be very worried about what local authorities were doing. That provision is there in case it is needed, but we are much more concerned at the moment about the individual authorities doing individual transgressions.
There are two elements of this, as I have said right from the outset. The provisions are necessary to make sure that taxpayers’ money is not abused; to see that local authorities produce publicity, not propaganda; and to ensure that local newspapers—which the noble Lord, Lord Beecham, slightly downgrades—hold local government to account. They are often full of what is going on; they are the proper means by which that should be done. The provisions do not change the publicity code itself; the guidance remains the same, allowing local authorities to communicate effectively with their communities. However, the clause provides the Secretary of State with the power to direct one or more authorities, as I have said. The clause also sets out the procedure to be followed, as we discussed—14 days’ notice in writing—and provides for a direction to be modified or withdrawn in writing.
Lord Beecham
I thank the Minister for her reply, of course, but I simply do not recognise the world she describes. I am in my 47th year as a councillor in Newcastle and have seen very successful journalists, now on the national stage, cutting their teeth as municipal correspondents on both the morning and evening papers in Newcastle. I have seen them coming to council and committee meetings and telephoning and speaking to members of the council, leaders and opposition leaders over the years. There was then a gradual decline, from about the late 1980s. Journalists now very rarely attend council meetings and hardly ever attend a scrutiny meeting—a function that ought to be made more of in local government and in the local media. As I understand it, they rarely contact officeholders.
We all agree that the local broadcast and print media should be informing people and helping to hold local government, and indeed other public organs, to account. However, the fact is that they are not doing it and they are not doing it because they are facing a cyclical decline as they are overtaken by other forms of media, to which I fear most of us are contributing these days on our BlackBerrys or iPads. The world has moved on, which is unfortunate, and it seems entirely wrong that the Government should seek to restrict what councils themselves can do to explain what is happening to their communities in the way that is being described. It would of course be wrong for them to use these publications for political purposes; as I have already indicated, that can and ought to be dealt with under existing audit procedures or otherwise. However, it is clear that the Government are not going to move on this—the entire Government, as the coalition partners are unfortunately united—and, in that case, there is no prospect of this amendment carrying. I therefore beg leave to withdraw it.
Lord Beecham
Lord Beecham
My Lords, this amendment refers to the Government’s proposal—which, again, was not subjected to scrutiny by the draft Bill committee—to introduce, effectively, an element of retrospection into the question of whether a referendum should be held. The Bill affects councils that have set council taxes for 2013-14 that would have been excessive if the clause becomes law, by virtue of the change that the Government are imposing in relation to levies by other organisations. Fortunately, it turns out that only a small number of authorities would be affected by the Government’s proposals. Those authorities are Wandsworth—an authority well known to the noble Baroness and other noble Lords—Bolton, Bury, Manchester, Oldham, Rochdale, Stockport and Tameside. There is clearly a clutch around the Greater Manchester area, which presumably relates to some joint organisation in that area which collects a levy. Why Wandsworth should be affected, I really cannot say, although that does not really matter.
In Committee, the Minister indicated that councils had been notified by, I think, 31 January, that this might happen. However, that is a very late stage in the budget-making process, and it would have been very difficult at that stage to have reduced their council tax to the level which, if the Government were to apply the new rules, would have been operative. I repeat that the problem is not about the council’s own budget, it is about the levy imposed by other organisations. Had it been a precepting authority, the precepting authority itself could have had to call and finance a referendum on its own budget.
Many of us are extremely unhappy about the whole concept of these compulsory referendums, which of course do not apply when the Government increase taxes, with a considerably greater effect on the household budget than a corresponding increase in council tax. A 2% VAT increase takes a lot more out of people’s pockets than a 2%, or even slightly higher, council tax increase. Be that as it may, the effect is curiously different between a levying body and a precepting body; a levying body simply passes the cost on. The total amount of money is not enormous and would seem to amount to some £7.3 million. If the councils had been able to reduce their council tax to match the levy that they have had to impose, that would have been the cost to them, to be taken out of services. Nevertheless, it is a significant encroachment and, of course, if that were now to trigger a referendum—because the referendum limit becomes lower in future and councils may feel that they have to go for one—the cost of that, across these authorities, is likely to be pretty much the amount of the total levy across all those authorities. It is a bizarre situation. Given that it is now clear that it applies only to a very small number of authorities, in one particular cluster—in what, by the look of it, must be the special circumstances of Greater Manchester—I hope that the Government will reconsider this matter.
I suppose the Government do not have to apply the provisions of the Bill. If they do not want to amend the Bill and they want to reserve the power, so be it, but I strongly urge the Minister to think again about imposing this. It is wrong in principle, and it is an unnecessary reaction to what turns out in any event to have been a pretty small problem in terms of the number of authorities and the cash affected. It would be a statesmanlike move on the part of the Government to accept that perhaps, in the circumstances, they rather overreacted, fearing worse than has actually transpired, and to indicate that at the very least they would reconsider whether to proceed with the implementation of the clause, if they insist on its standing part of the Bill. I beg to move.
Lord Shipley
My Lords, I speak in support of Amendment 43, and will be brief. I agree with the noble Lord, Lord Beecham. I think it is bad policy to backdate the definition of an excessive council tax rise so that it includes a levy from April 2013. I understand that in January this year letters were sent out to local authorities suggesting that the Government might take this course of action. I will say two things about that. The first is that it is simply not enough notice. Council tax-setting takes much longer than just a few weeks. There is a requirement that council tax is effectively set by the beginning of March, so that bills can be sent out. In my view, given the lengthy periods of consultation that local authorities are required to undertake, a period of six months would have been more reasonable.
My second reason for objecting to the Bill as it stands is that one should have respect for the law at the time at which the law is applied. I believe that councils and levying authorities abided by the law at the time. As the noble Lord, Lord Beecham, quite rightly pointed out, it is a comparatively small problem. Retrospective change, whether or not there was a warning, seems to me to be wrong in principle, and should therefore be resisted. The noble Lord, Lord Beecham, said that he felt that the Government were overreacting. I concur with that, because I believe that it is an overreaction to backdate in the way the Government propose.
The Earl of Lytton
My Lords, since my name is to Amendment 43, I would like to voice my support for the point that has just been made, and was also made by the noble Lord, Lord Beecham, about the undesirability of retrospection. Notwithstanding the comments made by the Minister at a previous stage of the Bill, there is no question in my mind that Clause 39(15) and (16) are, beyond peradventure, retroactive in their effects. Apart from the self-evident difficulties that that will create within the continuum of local government finance, one supposes that there must be some reason why this has been put in the Bill. I would like to inquire what that reason is, because to date we seem to have had reassurance that there is no intention that this should be retrospective. I do not wish to work out how many angels dance on the head of a pin between retrospection and retroactivity, but I prefer the term “retroactive”.
It seems to me that this is almost calculatedly destabilising, and I cannot believe that that was really the intention. It seems to me that there is a necessity for some further words of qualification, so that the clause is targeted at whichever particular issue needs it, and it is not capable of any sort of generic destabilisation of previous years of local government finance settled business, or what should be settled business. I hope the noble Baroness will be able to give an explanation.
Baroness Hanham
My Lords, Amendments 42 and 43 would remove subsections (15) and (16) from Clause 39. Amendment 45 allows for transitional provisions to be made in respect of previous arrangements or contracts entered into prior to 2013-14. As noble Lords have said, subsections (15) and (16) are not linked and they fulfil different purposes. However, I understand that the noble Lord, Lord Tope, originally tabled these to address a single concern, although he has not spoken tonight. It was made clear in Committee by the noble Lord, Lord Tope, and now the noble Lords, Lord Beecham and Lord Shipley, that Clause 39 and subsection (15) in particular have a retrospective effect, and that the clause would be impractical and councils would have insufficient time to take account of the changes.
With respect to the noble Lord, Lord Shipley, I must restate the Government’s disagreement with this view. Neither the clause nor subsection (15) is retrospective. They do not interfere with the council tax and levies set last year. Those increases have been made and are in authorities’ tax base for future years.
Subsection (15) simply allows the Secretary of State—should he so choose—to set a referendum principle for 2014-15 focusing on authorities where the council tax, including levies, increased by a large amount in 2013-14. The Secretary of State will consider whether he wishes to do this later in the year as part of the usual round of principle-setting. Authorities and levying bodies will have an opportunity to make representations on principles, which will be put to the other place for approval.
Furthermore, authorities will have the opportunity to set an overall increase in council tax and levies in excess of the principles, making the case to the local population in a referendum if that is where they need to go. If noble Lords work it out—as I think the noble Lord, Lord Beecham, has done—they will find that very few authorities are likely to be affected because the combination of the levies and the council tax potentially gives a bigger pot for the percentage increase.
The approach proposed in the clause is entirely consistent with previous and current practice. Perhaps I may go back to the unhappy word of capping. As part of the setting referendum principles, the Secretary of State considers all relevant factors. These always include council tax decisions taken by authorities in previous years. It is worth highlighting that 2012-13 and 2014-15 have been the only two years since the 1980s when levies have not been part of excessiveness considerations. We are simply reverting to the definition of excessiveness used by successive Governments from 1984 to 2010. This approach resulted in some smaller authorities with a history of lower council tax being set more generous referendum principles in 2013-14. No one accused the Government of taking retrospective action when they took this approach.
The possibility of the Secretary of State setting specific principles for those authorities where substantial levy increases resulted in substantially higher bills in 2013-14 should come as no surprise to them. His speech to the New Local Government Network and his Written Statement of 30 January 2013, and letters to all authorities, could have left them in no doubt as to the possibility. Council tax and levies for 2013-14 were set in full knowledge of the Government’s intention for 2014-15—that is, a year later on.
The Government have been clear from day one that council tax payers should be protected from excessive increases, and this clause will extend that protection. It will also increase fairness for local authorities by ensuring that all the money raised through council tax is potentially subject to a referendum if it is in excess of the principles. At present, there are areas where more than 50% of the local council tax bill is made up of levies and is therefore not subject to a referendum.
The legislation is not retrospective. We have been clear about what the situation is since January this year. Existing legislation already gives powers to the Secretary of State to determine different categories of authority, so the measures will not necessarily be across the piece.
Amendment 43 would remove subsection (16) from the clause. It may be helpful for me to explain the purpose of that subsection, which is not, as noble Lords have already admitted, directly linked in purpose with subsection (15). To be able to determine whether an excessive increase has been set in 2014-15, all authorities will need to make a like-for-like comparison between the council tax in 2014-15 and that set in the previous year. The principles will be based on an amount including levies in the next year, so the removal of the provision would not be helpful for many local authorities. It would mean that their previous year’s relevant basic amount of council tax would be at a much lower level than that of the subsequent year, against which it was being compared. Subsection (16) simply means that the 2014-15 figure can be compared with the one for 2013-14, which includes the levies that were set for that year. Without subsection (16), authorities would be effectively required to compare apples with pears, and the whole clause would be unworkable. I am sure that that was not the noble Lord’s intention.
The Government have been entirely open with authorities about their intention to bring levies within the scope of the referendum legislation and to take into consideration the previous increases when setting future referendum principles. A Statement approving the referendum principles for 2013-14 was laid in the other place on 13 February—so between January and February plenty of notice was given. Amendment 43 would undermine the Government’s commitment to protect council tax payers and prevent all authorities and levying bodies being subject to the same kinds of accountability and financial discipline. In view of the comments that I have made, I hope that the noble Lord will not press the amendment.
Amendment 45 replicates one which was proposed in Committee, so I shall expand on the response that I made then. The issue here is city deals and the levies that are envisaged by combined authorities in future years following the agreement between the Government and local authorities, particularly in West Yorkshire. The city deal implementation plan agreed between government and the Leeds City Region included the following summary text:
“Leeds City Region will establish a £1bn West Yorkshire … Transport Fund overseen by the new Combined Authority. The Fund will be financed by a levy that the Combined Authority will place on individual councils”.
In Committee, the noble Lord, Lord Tope, read into the record an e-mail from the director of finance at Bradford Metropolitan District Council. Bradford’s contribution to the city deal is funded by a £1.2 million increase to its levy each year.
We have looked at these figures carefully. These levy amounts would produce a council tax increase in Bradford of 0.7% in 2014-15, falling to 0.5% by 2023-24. We have also established that similar percentage figures apply across authorities in West Yorkshire. There is therefore no need for any transitional or other provisions to be made for contracts already entered into, as the levies envisaged by the authorities in the Leeds city deal area are substantially below the current 2% referendum threshold. I therefore hope that the noble Lord is willing to withdraw his amendment.
Lord Beecham
My Lords, it comes to this, it seems to me: you have a system which takes no account of levies, you change that system weeks before the statutory date for the budget so that the levy in that year can be taken into account in settling a referendum limit for the following year—and yet that is not considered retrospective. I seem to speak a different language from the Minister and the Government, and the dictionary speaks a different language as well. It is simply a semantic quibble to say that it is not retrospective.
It is a complicated matter for authorities. The noble Baroness referred to the city deal in West Yorkshire. This was entered into months before the budget. The Minister, with respect, rather airily dismisses the impact of the potential application of the principle in terms of the referendum limit. She quoted Bradford. Leeds is the largest authority in the area. It will gradually build up a contribution until it reaches £15.5 million. That represents a council tax increase of 0.2%, then 1% in 2015-16 and 0.7% per annum right up to 2022-23; 0.7% is a third of the referendum increase threshold. That is quite a substantial chunk, given the pressures that we all know are—and will continue to be—visited on local authorities, as envisaged by the LGA. The Minister’s successor by one or two as leader of Kensington and Chelsea is, of course, the LGA’s chair. As a percentage it does not sound large, but as a percentage of what is committed by way of an increase, it is very large; and that is in the case of a group of authorities of roughly comparable size, function and budget.
It gets worse than that if, for example, one looks at the position of the Lee Valley Park area. This runs along the Lee Valley, through east London and the Hertfordshire-Essex border. It gets its money from 32 London boroughs, the Corporation of London—which will probably not miss a few bob here or there—Hertfordshire County Council, Essex County Council and Thurrock unitary authority. So there is a vast number of authorities there, not all of which are represented on the board.
In fact, the riparian authorities are limited to Essex, Hertfordshire and other councils and only one member from six of the London boroughs—whereas the total cost is met by 32 London boroughs. Two of their representatives sitting in this Chamber tonight can confirm that. So here is a levying body which individual authorities cannot really influence, yet what it does will have an impact on their referendum.
That is objectionable in principle, but I urge the Government to realise, particularly in relation to the levies that accrue as a result of a deal entered into by the Government—the city deal proposal—that a transitional arrangement would be desirable. I hope that the Government will revisit that. They may not need legislation to do it—I would not imagine that they would—but I hope that they will look at this again. It seems unfair that an arrangement with the Government could precipitate difficulties of that kind. However, in the light of tonight’s debate, I beg leave to withdraw the amendment.
Finance Bill
(10 years, 10 months ago)
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The Commercial Secretary to the Treasury (Lord Deighton)
As noble Lords are aware, this Government came to power in the midst of an economic crisis and inherited the largest deficit in our peacetime history. Since then, the Government have taken resolute action to deal with our debts and get the economy moving again. The Finance Bill before us represents the latest stage in those plans by legislating for measures to deal with the deficit, to encourage economic growth and support businesses of all sizes and to create a fairer and more efficient tax system.
I turn first to growth and competitiveness. The Government have set out our ambition to have the most competitive tax system in the G20. We have already made significant progress towards that goal. In 2013, the main rate of corporation tax will be 23%, far lower than the uncompetitive 28% rate that we inherited. However, we want to do more to relieve the tax burden on business. Clauses 4 and 6 will reduce the main rate of corporation tax to 21% from April 2014, and to 20% from April 2015—the joint lowest rate in the G20, and lower than any comparable EU member state.
It was also announced in Budget 2013 that once the main rate has fallen to 20%, it will be unified with the small profits rate to create a single headline rate of corporation tax—simplifying the system. These changes have been widely welcomed by business groups such as the Confederation of British Industry and the British Chambers of Commerce, but competitiveness is not only about the corporation tax rate. The Government are also supporting the innovative sectors that will drive future economic growth.
Clause 7 and Schedule 1 increase the annual investment allowance from £25,000 to £250,000 for two years from April 2013. That will provide additional, time-limited support for businesses investing in plant and machinery, and will particularly benefit small and medium-sized firms. Clause 34 introduces a new, more generous above-the-line tax credit for large companies’ R&D expenditure, providing more visible and more certain relief to those companies engaged in ground-breaking research in the UK. Clause 35 introduces new tax reliefs to support the UK’s creative economy, including animation and high-end TV. Those will be among the most effective reliefs available anywhere in the world. As John Cridland, Director-General of the CBI, said:
“Providing further support for our world-beating creative industries … and increasing the rate of the above the line R&D tax credit will … have a material impact on some of the most important sectors of the UK economy”.
Creating a competitive tax system goes hand in hand with making sure that companies and individuals pay the taxes they owe. That is why this Finance Bill includes significant new measures to tackle tax avoidance by the small minority of individuals and businesses who are not willing to pay their fair share. I know that this is an area in which noble Lords have shown great interest.
Clauses 203 to 212 and Schedule 41 establish the UK’s first general anti-abuse rule, or GAAR. That is a major new development in UK tax law, and will provide HMRC with an important new tool to tackle abusive tax avoidance. It sends a clear message to those who create and promote abusive tax avoidance schemes that their activities will not be tolerated.
We are also strengthening the disclosure of tax-avoidance schemes—or DOTAS—regime. DOTAS has already been highly successful, with more than 2,000 tax avoidance schemes being disclosed to HMRC since its introduction in 2004. This Finance Bill will further improve the information that promoters of tax-avoidance schemes have to provide about the use of their schemes, making DOTAS an even more effective tool.
The Government will also continue to introduce anti-avoidance rules to address specific types of avoidance in areas of the tax system. This Finance Bill includes legislation to close 15 loopholes which have been used to avoid tax.
Taken together, those measures will raise tax revenues by almost £2 billion up to 2017-18, as well as protecting future revenues. Noble Lords will also be aware that the Government have been at the forefront of international efforts to strengthen tax standards and tackle avoidance by multinational companies. The OECD will present its action plan for tackling base erosion and profit shifting to the G20 in July.
Tackling tax avoidance is an important part of delivering a tax system that is fair. There is, however, more to fairness than tackling avoidance. This Government recognise the financial pressures that many families are currently experiencing and are determined that hard-working families should be able to keep more of the money they earn. That is why this Government have set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which will in fact be reached one year early, in April 2014. Clause 2 takes an important step towards that ambition, by setting the value of the personal allowance at £9,440 from April this year. This is the largest ever cash increase in the personal allowance, and represents a tax cut for 24 million people. It will save a typical basic-rate taxpayer £267 a year.
This Finance Bill also takes action to ensure that the wealthiest members of society make a fair contribution. It introduces a new annual charge on enveloped dwellings to ensure that owners of high-value properties cannot avoid paying their fair share of tax by placing their property in a corporate envelope.
The Bill legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of these reliefs by high-income individuals who want to reduce their tax bills. The cap will be set at £50,000 or 25% of a person's income, whichever is the greater, ensuring that these reliefs cannot be exploited unfairly.
The Bill reduces the pensions tax relief lifetime and annual allowances to £1,250,000 and £40,000 respectively. This will limit the amount of relief available to the top 2% of pension savers and curb the growing cost of pensions tax relief, which has doubled in the decade since 2001.
By rewarding work and ensuring that reliefs are properly targeted, this is a Finance Bill that delivers a fairer tax system. The Government are committed to greater consultation on tax policy changes. Most of the measures in the Bill were announced at Budget 2012 and have been subject to extensive consultation. We published more than 400 pages of draft legislation for comment in December, and received more than 400 responses. This consultation has ensured better legislation with fewer changes required. I take this opportunity to thank the noble Lord, Lord MacGregor, and noble Lords on the Economic Affairs Committee for their detailed examination of the draft Finance Bill and the thoughtful and constructive comments in the report before us today.
To conclude, the Bill sets out measures to improve our competitiveness, tackle tax avoidance, and help hard-working families and businesses. It builds on the progress that the Government have already made to deal with the enormous debts we inherited and get the economy moving again. The underlying damage to our economy has turned out to be greater, and the road to recovery longer, than anyone had thought. We are, however, on the right path. I commend the Bill to the House.
Lord MacGregor of Pulham Market
My Lords, I am very pleased to introduce the report of the sub-committee of the Economic Affairs Committee on the draft Finance Bill 2013. In the time available, it is right that I should focus not on the Finance Bill as a whole, tempted though I am to do so, but on our report, much of which is technical but none the less important for that. Indeed, my noble friend has referred to the three measures already.
As always, we had to work at speed. I am grateful to our witnesses, professional and official, to Bill Sinton, our committee clerk, and his team, and to our special advisers Trevor Evans and Tony Orhnial, who served us well in previous years and have done so again, not least because of their expert knowledge and experience of HMRC and Finance Bills. I should also like to thank my fellow members of the sub-committee for their knowledge and wisdom, their objective approach and their speedy and intensive work.
I particularly want to emphasise an important and, as it turned out, for us valuable change this year, to which my noble friend has just referred. In December 2010, the Government introduced a new approach to tax policy-making which set out a number of stages at which consultation should be undertaken. It involved a draft of the Finance Bill being published in December, some three months before it was laid before Parliament. This was a very welcome change from many points of view, not least the work of the sub-committee. In previous years, we could start our work only after the Finance Bill had been published. Therefore, we had to work in great haste to have any influence at all on the debates in the other place. Inevitably it was always late in the day. However, outside commentators, including most chartered accountancy and taxation bodies and one former Treasury Minister, had frequently alluded to the expertise in our committee and the more useful role it could perform.
Consequent to this new approach, this House revised the terms of reference of the sub-committee so that it could start its work earlier in the year and examine the provisions of the draft Finance Bill. The draft Finance Bill was published in December 2012 and we began our inquiry in January 2013. Starting earlier provided us with the opportunity to influence the content of the Finance Bill as published, as well as the Committee stage debates in the House of Commons.
Not least because of the shortage of time, the sub-committee has to focus and this year it examined three topics concerned with the avoidance of tax: the general anti-abuse rule, or GAAR; the annual residential property tax, later renamed the annual tax on enveloped dwellings; and the cap on the availability of certain reliefs. I can touch on only some of the main points.
The sub-committee devoted the majority of its time to the general anti-abuse rule, which is a radical approach to countering the avoidance of tax. The GAAR is narrowly targeted at abusive transactions that fail a stringent “double reasonableness” test; the provisions also include the formation of an advisory panel to agree guidance and give its opinion on the application of the double reasonableness test to a given set of tax arrangements. It followed the recommendations of what became known as the Aaronson study.
Our report considered the narrow GAAR a “reasonable starting point” but recommended a wider post-implementation review after five years, which would look in particular at how the double reasonableness test had been applied in practice, and its deterrent effect. We thought it important that it be made clear to the press and the wider public that the GAAR would not apply to structural issues involving the taxation of multinational groups. These have to be dealt with by reviewing the international tax rules in fora such as the G8, the G20, the OECD and the EU. We argued that the Government need to communicate much more clearly what the GAAR can and cannot achieve.
Since we published our report in March, there has been a huge amount of publicity and debate in Parliament and the press about corporate tax avoidance among multinational companies, with the spotlight on Google, Starbucks and Amazon—not least from the Public Accounts Committee in the other place. Of course, we welcomed—and our report argued for—the lead given by the Prime Minister and the British Government at the recent G8 summit and the decisions taken there. It is important to recognise that the GAAR is only a small part of that and the two are in many ways separate.
I should add that having dealt with Scottish independence, in the spring our main committee embarked on a new topic: “Taxing Corporations in a Global Economy: Is a New Approach Needed?”. This does cover these wider issues and we hope to complete our report before the Summer Recess.
We agreed with our witnesses on the importance of guidance from HMRC and the advisory panel on how the GAAR would apply to particular transactions. We recognised that progress was being made in drafting this guidance but we remained concerned that our witnesses felt that it was far from acceptable as it stood at the time of our inquiry. We thought it important for the guidance to include as many examples as possible, illustrating up-to-date arrangements on both sides of the boundary between abusive and non-abusive.
We also thought it important for the advisory panel to have a balance of views and we recommended that the opinions of the panel on whether proposed tax planning schemes are caught by the GAAR should be publicised so that taxpayers can see how the GAAR is being applied. There were also concerns about the application of the GAAR to inheritance tax planning transactions, and a specific concern concerning the imposition of the charge where adjustments arose from the application of the GAAR.
The Finance Bill as published on 28 March was redrafted to deal with the point concerning the imposition of the charge and we were pleased to see this. The finalised guidance was published on 15 April and had been very substantially redrafted, consistent with the recommendations in our report. There was specific recognition that the GAAR could not apply to most structural international tax planning, and the number of examples had doubled, including an increase in the number of inheritance tax examples.
In the Commons debate on the GAAR, our report was quoted with approval. The Opposition had tabled an amendment to require a post-implementation review after two years. I have ploughed through all the Hansards of the Commons in relation to these issues and have noted the number of times that our report was commented on. The Government rejected the requirement to have a post-implementation review after two years, arguing that a two-year period was too short. We agree with this. However, while we welcome the Government’s acceptance that the operation of the GAAR will need to be monitored carefully, we continue to believe it necessary to set a timeframe for such a review, notwithstanding the difficulties that the Exchequer Secretary highlighted at Report stage in the Commons. Our report had suggested five years and we recommend that with a change as important as this the Government should commit themselves to a post-implementation review around the five-year point.
The application of the GAAR to the sorts of multinational company tax-planning issues to which I have referred was raised by several Members of Parliament. The tendency to promote the GAAR as a panacea for dealing with the problem of tax avoidance was deplored and we agree with that. “The valuable scrutiny” of the Bill provided by our report was commended. Building on this, the need for the taxation of multinational groups to be tackled in international fora was discussed in the debate on the GAAR and other clauses, including at Report stage. As we know, at the G8 summit the Prime Minister and other G8 leaders set the ball rolling by asking the OECD to draft a template for multinational companies to report the tax that they pay in each of the jurisdictions in which they operate.
It is important that this first step is treated as urgent and that the momentum achieved at the G8 is maintained. We argued for that in our report. The need for the advisory panel to have a wide balance of views was discussed in the Commons debates and the Exchequer Secretary assured the House that the panel would be broadly based and have commercial expertise to provide reassurance that the GAAR would not be abused, with too much power being placed in the hands of a part of the Executive. We welcome that too.
The annual tax on enveloped dwellings is part of a package of measures to address stamp duty land tax avoidance by using companies to buy expensive residential properties, a practice known as “enveloping”. We agreed with our witnesses that the Government’s proposals might have been more appropriately designed had they consulted interested parties at the outset, but we recognised that once consultation was under way, the Government responded to the need to exempt certain businesses and other organisations.
We remained concerned about the relief for farm houses and thought that this needed further work. We shared the concern of witnesses about the practical workability of this tax and encouraged HMRC to set out in detail how it would implement the provisions and we recommended a review of its operation after three years. We thought that further work was needed on the capital gains charges on de-enveloping properties. We agreed with a widespread concern about whether the problem that the legislation sought to address justified its length and complexity.
The Finance Bill as published responded to the need for further work on the relief for farm houses and the two clauses implementing this were substantially redrafted. Our concerns around the length and complexity of the legislation were not alleviated by what appeared in the Finance Bill as published. Much of Part 3 of the Bill is devoted to this particular tax. Some 107 pages involving 84 clauses and four schedules is hardly tax simplification.
Finally, on the cap on income tax reliefs, our report expressed concern about the potentially adverse effects of limiting relief for genuine trading losses and recommended a review of the potential impact of this measure in time to inform the Finance Bill debates in the House of Commons. It was disappointing that the Government did not respond to this recommendation. However, the measure’s impact on businesses, particularly smaller ones, was raised in the debates in the Commons. We continue to believe that it is important to monitor carefully the potential disadvantage to small businesses of restricting relief for genuine trading and other losses so that remedial steps can be taken if this proves to be a problem.
In conclusion, we were gratified by the extent to which the recommendations in our report were acted on by the Government and also informed the Finance Bill debates in the Commons. We continue to believe it important that the effect of these measures is assessed by way of systematic and independent post-implementation reviews. It is our view that a commitment to carry out post-implementation reviews is as important as the Government’s very welcome commitment in their new approach to tax policy-making to consult on the design and implementation of a measure.
To sum up, I believe that the new system overall has proved its worth and that it makes even more relevant the work of the sub-committee on Finance Bills of the Economic Affairs Committee in that it enables much wider debate and consultation with all the many relevant companies, private sector experts and tax and accountancy committees, not least through the medium of our committee, and it gives the House the opportunity to make recommendations to the other place in a timely manner, not, as in the past, rather late in the day. I commend our report to the House.
Lord Wakeham
My Lords, my noble friend Lord MacGregor has said in his usual clear way virtually all that needs to be said about our report, so I want to add very little. I would like to reflect for a few minutes on the process by which Parliament approves Finance Bills and how it has changed over the years. I have been involved in Finance Bills, year by year, for some 40 years, sometimes as a Minister in the Treasury, sometimes in opposition and sometimes as a Back-Bench supporter of the Government. In some ways things have improved and in some ways they have not, but there really is nothing more important in the parliamentary year than the granting of supply to the Government.
Many years ago, when I had some responsibility for these matters, one of the things that I tried to get agreement to was two annual finance Bills, one at this time of year dealing with rates of tax and major matters and one in the autumn to deal with technical and other smaller matters that otherwise get crowded out. For a number of reasons we were never able to get agreement to that and I do not think it has been pursued since, but it is an improvement that ought to be reconsidered. As a result, the passage of the Finance Bill is done mainly in a bit of a rush just before we rise for the summer.
The big change this year is that we have a draft Bill, which is an excellent innovation. The Minister has given us a good account of it and I congratulate him on what he said. What has also changed substantially in those 40 years is the ministerial representation in the House of Lords. For many years, under both Governments, we did not have a Treasury Minister in the House. That has now changed, and very good Ministers they have been, but quite often we did not have one.
I recall one instance when I was Leader of the House, when a Minister not in the Treasury made a very good speech from the Dispatch Box introducing the Finance Bill. Something made me ask to see the briefing that he had received from the Treasury, and it was an absolute disgrace—I was appalled. I put it in a brown paper bag and sent it to the Permanent Secretary, saying, “If you think this is the briefing a Minister in the Lords should be given to introduce your Finance Bill, it’s not my idea”. I got a very good letter of apology from him and I think that things have improved since, although of course now we also have Ministers who are able to look after themselves. Still, I hope that the message was received loud and clear in the Treasury that in this House there are many noble Lords who are more experienced than many Members of the House of Commons, and that that experience ought to be used.
Finance Bills are not always treated on their merits; sometimes they get caught up in a wider debate. For instance, a good many years ago the Opposition thought that a Conservative Government—this is strange, really—were about to bring in a Bill to change the trade union levy to opting in and not opting out. We were told that if this was true, their opposition to the Finance Bill would know no limits. I was government Chief Whip at the time and I knew this not to be true. I eventually managed to persuade the Opposition that it was not true, and the then opposition Chief Whip claimed credit for the whole thing. He had persuaded the Government not to go ahead with their proposal, but he had to agree to give us the Finance Bill in, I believe, one week, which was the object of the exercise in the first place. It was a great victory for their wonderful Chief Whip. The concession was given. The whole purpose of the exercise was to get a very difficult and dispirited Opposition into some sort of order and disciplined enough to pass the Finance Bill, with proper scrutiny but no filibustering, and to get both Houses up before the Summer Recess. I will not mention the name of the opposition Chief Whip but those sitting on the opposition Front Bench know exactly who I am talking about—a great man.
Some things change and some stay the same. One thing that has changed, of course, has been the Economic Affairs Select Committee sub-committee of this House that considers the Finance Bill. That has not always been easy. Gordon Brown, when he was Chancellor, strongly disapproved of it and did what he could to get rid of us because he did not approve of the House of Lords having any say on taxation matters. He was quite wrong. The House of Lords, of course, has an absolute right to discuss and debate Finance Bills in any way it wishes. What we do not have the right to do is to amend or delay them. The terms of reference under which the sub-committee operates are a self-denying ordinance that we, as the House of Lords, have imposed on the sub-committee, which we could change if we wanted to. In fact, I see no particular need to do so.
This year we considered, as my noble friend said, a draft Finance Bill under his excellent chairmanship, and we have done a very good job in a totally non-partisan way. We made a number of practical suggestions, which have found their way into the Finance Bill. They are sensible and often detailed suggestions that will make the legislation work better. One part of our work that I find particularly valuable is the hearing of evidence from experienced practitioners, who make mostly useful suggestions to us on how the legislation can be worked, with plenty of emphasis on the difficulties.
This year our deliberations on the so-called GAAR—the general anti-abuse rule—were especially important. We thought that the Government were right to bring this in, but it was never going to be able to solve all the problems of what we now call aggressive tax avoidance. We explain ourselves in some detail in our report, but I will make a further suggestion to HMRC to tackle these matters. Each new rule sets off clever people to think of ways to avoid it, and the more specific the rule, in some ways the easier it is to find a way around it. I was brought up in a different age, when “true and fair” were the watchwords. In a way, the GAAR seeks to replace them. However, the more we can relate our taxation, and particularly tax planning, so that the taxpayer is under an obligation to demonstrate that the records of the enterprise to be taxed show a “true and fair” view of what has been going on, the sooner aggressive tax avoidance will become yesterday’s problem. Years ago, in the Ramsay case in the House of Lords, which was a very special case, the courts gave a very clear signal that they would support that straightforward way of looking at things. The Government have certainly made a start in these matters, but there is still a long way to go.
Baroness Kramer
My Lords, it will surprise no one that, in my mind, the most significant measure in this Finance Bill is the lifting of the tax threshold to £9,440, shortly to rise to £10,000. More than 23 million people are now paying £700 a year less in tax—that is cash in their pocket—and 3 million of the lowest paid are out of income tax altogether. It has led to a fairer society. I was very pleased to read the ONS study, which named this as one of the key elements in income now being shared more equally between households than at any time since 1986. That is a very significant achievement.
I was also exceedingly pleased by the change in capital allowances—the temporary uplift in the capital allowance from £25,000 to £250,000. From my work with small businesses I am very aware that one of the competitive deficits in the UK is small businesses which have not invested in new technology in their production lines. This gives them a real incentive to do so and to do it now. The timing of that, as we begin to emerge from recession and companies have new opportunities to grow and expand, is absolutely essential and will be an important element in the economic growth that we are all seeking.
I was very privileged to be a member of the Finance Bill sub-committee. I thank the noble Lord, Lord MacGregor, for his fair but effective chairing of that committee. It has been one of the most enjoyable committees in which I have participated; that was shown by the work we achieved and the consensus that existed right across those from different political parties and on the Cross Benches. Like the noble Lord, Lord MacGregor, I emphasise that the work we looked at, particularly on the GAAR, does not cover international and multinational tax abuse. It does not cover issues such as forms of avoidance by deferring income from one year to another, as that is not its purpose. We have to emphasise that, as so often friendly politicians fall into the trap of thinking that the GAAR fulfils that role. It does not and should not. Christian Aid and others asked for clauses to be introduced into the Finance Bill that might do some of that work, but that is not appropriate as this has to be an international effort. I understand that they want a study—which seems right—on the impact of UK tax structures on developing countries. However, that is outside the scope of the Finance Bill.
Ironically, if the GAAR is a success, in a sense we may almost never see it used. Its role is very much one of deterrence. It makes the judgment as to whether a GAAR works quite difficult. However, the review is absolutely crucial. If it turns out that general rules—the noble Lord, Lord Wakeham, spoke eloquently on this issue—are far more effective in partnership with specific rules in managing the constant attempts of companies to find mechanisms around attempts to get them to pay their fair share of tax, we will need to start to think through whether or not we should consider an anti-avoidance GAAR. Like many others—I notice that the noble Lord, Lord Haskel, who spoke eloquently on this issue, is not here today—I note the importance of including a clearing system, which has been discarded as being too expensive at this time.
I am one of those who are somewhat concerned by the narrowness of the GAAR, not because it is anti-abuse but because we have the double reasonableness test. I understand where the Government are coming from in introducing such a test, but I have two concerns. One is that there is quite a lot of deference by the Government to the accounting profession. It would be wise sometimes to be more cynical and challenging to that profession around these issues. Also, if it is taken to its extreme so that nothing is ever an abuse because somebody can always come up with a reason as to why it has some economic basis, this whole exercise will have been in vain. Therefore we need to look at the application; that is a very particular vulnerability, and one in which we have to have an ongoing watching brief.
I will move quickly to the issues around stamp duty, land tax avoidance and the annual residential property tax which we also examined. I know the legislation is complex, but I believe that it is a crucial step. For many people the unfairness of watching those with very large and expensive properties avoiding the stamp duty and the inheritance tax that they bear on their smaller properties has tended to undermine the sense of common bond that is necessary in our tax system. My concern is less about what is in the legislation than the fact that, as yet, it does not capture some of those opportunities for abuse—for example, the use of the Cayman Islands for trusts and companies that have also been used by those seeking to avoid those kind of taxes. If I am wrong, I should be glad for the Minister to correct me. There are still loopholes and none of us wants to see them exploited.
I also found myself defending the Chancellor over his cap on income tax relief. This is not an approach which is palatable to everybody. For many years, I lived in the United States where the alternative minimum tax plays this kind of role. No matter how people choose to invest—whether or not it is in economic growth—on the basis of fairness, I believe that everyone should participate in the income tax system, and the tax on reliefs gets us much more into that territory. Fairness matters, especially in a time of austerity—we are all in this together.
This issue has been widely debated and there is little else that I can add to the speeches that came before mine, except to say that I think this has been an important Finance Bill which helps to position us for a fairer society, as well as one that is growing economically.
Baroness Wheatcroft
My Lords, I echo the words of my noble friend Baroness Kramer in saying what a pleasure it was to sit on the committee chaired by the noble Lord, Lord MacGregor. This is not a subject that everybody would find intensely intriguing, but our deliberations were always entertaining, as well as interesting.
The most important thing that this Government have done on income tax is to make sure that the wealthiest pay the most. The top 1% now contributes more to the coffers of the country than in the past. This is a principle to which we need to adhere and I am glad to see that it will continue. The theory is—and I am sure it will be proved right—that, even as the top rate comes down, we will get more income from the wealthy. There are ways that they can move their domicile and their tax status, should they find their surroundings uncongenial.
However, we need to go a lot further in simplifying tax. My noble friend Lord MacGregor referred to the Office of Tax Simplification. It was created in July 2010, though I fear that tax has not become much simpler since. Indeed, the latest edition of Tolley’s Tax Guide now runs to 16,220 pages. The individual guides on income tax, corporation tax and capital gains tax each run to more pages than War and Peace. There must be progress that we can make there; I would like to think so.
Moving to the Finance Bill, the two issues I wish to address are the GAAR—which has been much spoken about—and the income tax relief limit. The GAAR is going to be a disappointment to a lot of people, and we should not be surprised by that. The hostility to the way in which many multinationals organise their tax affairs runs deep. The hope is that the Government are doing something about it. The GAAR cannot and does not attempt to do that, nor can the Government do so alone. It is right that the route that we are taking is through international organisations such as the OECD and the G8 because, as a country, we cannot move unilaterally to deal with the taxation of multinationals.
Winston Churchill, always a good man to quote, said:
“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.
It is a good image. If we go out on a limb and create a tax regime that is inhospitable to other countries’ companies, we will be the ultimate losers. We need a regime that is fair, and the only way that this can be done is on a multinational basis. We are going in the right direction and leading the discussion, but I am under no illusion about our chances of success any time soon.
In the mean time, what is to be done? The debate in the other House spent a long time discussing the possibility of companies having to declare the amount of corporation tax that they pay in this country. The Government do not want to go in that direction. However, they could encourage a degree of boasting. Would it not be a good idea if companies were encouraged to declare proudly how much tax they were paying in this country? I do not mean fudging it by folding into their total tax bill VAT, national insurance and anything else that they can think of. We want to know about corporation tax. It would be very good if some companies followed the lead of RTZ, for instance, and spelled out proudly what they were paying, to see whether that would win them a few brownie points from consumers. It was intriguing to see how Starbucks eventually reacted to public fury over its tax bill. While proclaiming all along that it was doing nothing wrong—which was absolutely true in legal terms—it felt obliged to offer a bung of £25 million. That was a strange thing to do in the circumstances: “I’m not guilty but, just in case I am, here you are”.
The GAAR cannot deal with this. As my noble friend Lady Kramer said, it will not be the easiest thing to operate. A double-reasonableness test is a hard one to get over. Not only must an action be seen to be reasonable, even if it is not in some minds reasonable, but the individual undertaking the action need only contend that he had a reasonable belief that it was a reasonable action for the action not to fall foul of the GAAR. One of the most interesting sessions that our committee had was when two tax counsel came before us. Their eyes lit up at the prospect of the work to come. These things will be contested.
Nevertheless, it has to be a step in the right direction, and it is already beginning to change behaviour. I am told that fewer questionable schemes are being put forward. It is good to think that the creativity that has gone into finding ways around the tax laws might be used in more positive ways. Avoidance on the aggressive scale that has been in evidence is against the interests of the country, and it is absolutely right that a measure such as the GAAR should be brought in to try to deal the worst cases of abuse.
The other item in the Finance Bill that I will talk about probably needs very speedy changing. It is the limit on reliefs. I understand why the Government feel that it is right to limit the amount of tax relief of which any individual can make use. However, the law of unintended consequences could mean that entrepreneurs are restricted in what they do at a time when we need businesses to flourish, and young businesses in particular to grow and invest. It would be perverse to bring in something that could involve an individual facing a tax bill that is higher than the profits from their business. The Minister may have seen the evidence put forward by the Chartered Institute of Taxation, which is deeply concerned about how this may work. In the end, our committee recommended that there should be a review of these provisions. It was perhaps unfortunate that the Government did not follow their own tax consultation framework in driving through the proposals. Therefore, a speedy review is a very good idea.
Lord Bilimoria
My Lords, I declare my interests in this area. I remember when qualifying as a chartered accountant it was very clear that tax avoidance was legal and tax evasion was illegal. Recently, there has been a huge public outcry about avoidance having escalated to abuse and companies operating within the law have been vilified.
The tax gap has been estimated at around £32 billion. Within that tax gap, it is estimated that the annual cost of tax avoidance is around £5 billion and the annual cost of tax evasion about £4 billion. The official definition of tax avoidance is,
“bending the rules of the tax system to gain a tax advantage that Parliament never intended. … It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning”.
Tomorrow an event will be held by the All-Party Parliamentary Group for Social Science and Policy entitled, “What can policy makers do to reduce tax avoidance by large companies?”. The invitation letter to the event states:
“Tax avoidance by multinational companies such as Google, Starbucks and Amazon has sparked a public outcry. A recent poll commissioned by ActionAid found that 80% of people want the government to take tougher action. In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn—less than the £2.5m it received in government grants. Thames Water paid no corporation tax and pocketed a £5m credit from the Treasury. Every pound lost through tax avoidance could have been spent on protecting public services—yet last year HM Revenue & Customs wrote off £5bn in tax as uncollectable. It estimates the … ‘tax gap’ at £32bn”—
as I said—
“while many tax experts believe the … figure is twice that”.
I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee, of which I was proud to be a member, and all the officials—Bill Sinton and the team. It was a tremendously constructive and pro-active committee in which to take part.
In his opening speech, the Minister said that the objectives are to improve competitiveness, tackle tax avoidance and help hard-working families. The noble Lord, Lord MacGregor, made the very important point that, for the first time, we as a committee were able to meet in advance of the Finance Bill being published and look at a draft version. I congratulate the Government on allowing us to do this and thus take advantage of this House’s expertise.
There is no question that the intentions of the GAAR—the general anti-abuse rule—are good. However, does the Minister accept that it is too narrowly targeted and focused through the double reasonableness test, and therefore will not catch the Googles, the Amazons and the Starbucks? Do the Government accept, as the noble Lord, Lord MacGregor, said, that they need to communicate very clearly to the press and public that this will not happen, although the intentions are very good, given that people have the expectation that now that the GAAR is there, all this tax avoidance—tax abuse on a large scale—will disappear?
As the noble Lord, Lord MacGregor, said, the important point is that this needs to be tackled internationally. Are the Government confident that they will be able to do that on an overall basis? Furthermore, I do not think that the public understand clearly where the tax that is generated comes from or the composition of the tax pie. Will the Government confirm that they will publish tax information to enable everyone to understand where the tax they are paying is going so that they understand clearly that corporation tax actually makes up a very small proportion of the tax that is generated in this country? The companies that are being attacked should pay more corporation tax but are they being sufficiently congratulated on the employment they are generating, the taxes generated through that employment, the innovation they are generating and the business they are bringing to this country? Are things being looked at in proportion? However, as the noble Baroness, Lady Kramer, said, there is no question that the GAAR should at the least be a deterrent and send out a signal that tax avoidance which becomes abuse is not acceptable.
The cap on income tax reliefs was not consulted on properly by the Government. It was ill thought through and I agree with the noble Baroness, Lady Wheatcroft, that it risks restricting reliefs for genuine trading and other losses. In fact, she described it as perverse. I request that the Government do a more detailed review to get a better understanding of the effect of the cap because it could hamper business investment. The Government did very well in consulting on the GAAR, but unfortunately I do not think that they consulted adequately on the caps and reliefs. The noble Lord, Lord MacGregor, spoke about simplification and the noble Baroness, Lady Wheatcroft, spoke about Tolley’s Tax Guide getting bigger and bigger. Surely the Minister would agree that the Government should be working towards simplifying tax. Could he confirm that?
President Clinton spoke here in London a few years ago and I remember him clearly saying that, increasingly, we live in a world that is more interconnected and integrated. Now the time has come to work together to tackle this tax abuse on a global scale. Better transparency is the only way that we can deal with it. The noble Lord, Lord Wakeham, as a fellow chartered accountant, summed it up beautifully when he talked about being true and fair. That is what we were brought up to do. Audit reports had to reflect a true and fair view. We have to aim for that.
Once again, I thank the committee, the noble Lord, Lord MacGregor, and the officials. I also thank the Government for consulting and allowing us to meet in advance so that the House of Lords can play a role and use our expertise, even though we have no power whatever over financial matters. Here is an opportunity for us to give our views in advance, and to have them listened to and taken into account by the other place, so that, as the Minister said, we have a tax system that will tackle avoidance, is fair and, most importantly, is competitive, transparent and simple.
Lord Bates
My Lords, I, too, pay tribute to the Select Committee on Economic Affairs for its excellent report. I did not serve on that committee, and I speak in the debate not because I want to speak about the report but to clarify Her Majesty’s Government’s position on another matter, which relates to hard-working families and specifically has to do with the position of the married couple’s tax allowance.
Page 41 of the Conservative Party manifesto, way back in 2010, states a desire to,
“make Britain the most family-friendly country in Europe”—
and specifically said that it would,
“end the couple penalty in the tax credit system”,
which it has largely done through the introduction of universal credit. Next, it said that it would,
“recognise marriage and civil partnerships in the tax system”.
This is a day when we have been celebrating marriage and its role in society. I welcome the Bill that has passed today for keeping marriage relevant and updated by reflecting the way in which some tax-paying citizens choose to live their lives in this country. That is a good thing. When my noble friend Lady Stowell introduced this important Bill at Second Reading, she set out clearly Her Majesty’s Government’s position, when she said:
“Marriage remains, as it has for centuries, the way in which most people choose to declare their commitment publicly and permanently to the person they love. When we hear two people exchange their marriage vows, whether in a place of worship or at a registry office, we know that we are witnessing a couple commit to the kind of values that we associate with the special enterprise of shared endeavour—loyalty, trust, honesty and forgiveness. We know that through marriage existing families are extended, as is their commitment and support to new family members. We think that it is a good thing”.—[Official Report, 3/6/13; col. 938.]
The tax system is a very useful tool for Governments to recognise things which they regard as a good thing. Twelve million people, or perhaps more, as a result of today’s legislation are part of that good thing—giving strength to their families, their communities and society.
Where are we vis-à-vis that commitment made in the manifesto? We had an unexpected turn last week. Following what was described as a lunch,
“with political reporters at Westminster”,
a report appeared on 11 July in the Daily Telegraph. It reported the Chancellor as saying:
“I have always been committed to introducing a married couples’ tax break ... David Cameron campaigned to be leader on that promise and I was his campaign manager”.
It went on to report the Chancellor as saying:
“I am absolutely committed to introducing it … and I think you can expect to see it in the Autumn Statement”.
That is all very encouraging. Some of us who have experienced the way politics works will perhaps be forgiven if we seek further general reassurance from the Minister, as it is possible that many a word of truth has slipped between the dining table of Westminster and the front-page splash of a national newspaper.
Can my noble friend clarify the position of Her Majesty’s Government in relation to the proposed married couples’ tax allowance in the Autumn Statement later this year? I particularly want clarification because we know that this was in the Conservative Party manifesto. We know that it did not make it through the negotiations with our Liberal Democrat coalition partners into the coalition agreement. In the same report of 11 July in the Daily Telegraph, there was a quote in response to this conversation at lunch from the Deputy Prime Minister, who ridiculed the proposals as,
“patronising drivel that belong in the Edwardian age”.
Later on in the report, clarification was sought from Downing Street—a great exercise in journalistic reporting; there was triangulation going on at a great level. The Prime Minister’s official spokesman said that the Prime Minister is a “big believer in marriage” and,
“That is why he thinks it is important to recognise the family—
and marriage—“in the tax system”.
There is a clear position there, perhaps a shift. I would very much appreciate if the Minister could help clarify and enlighten us.
Lord Davies of Oldham
My Lords, I shall leave that last contribution for the Minister to answer because it would be ill thought of me to intrude on coalition difficulties over an issue of that kind. I am sure the Minister will delight in replying to the noble Lord, Lord Bates, in a moment. I want to express, first, the gratitude of this side of the House to the Economic Affairs Committee and its chair the noble Lord, Lord MacGregor, for the work that they have done in this very important area. As the noble Lord indicated, there have been some advantages this year in being able to address these issues somewhat earlier than the actual arrival of legislation.
It has given them time also to concentrate in particular on the general anti-abuse rule. As the noble Baroness, Lady Wheatcroft, indicated, the proposals are sketchy enough at present that it is right that we return to evaluation of them fairly rapidly. I understand the Government’s resistance to the opposition amendment in the Commons on this matter for two years. However I take some succour from the point made by the noble Baroness, Lady Wheatcroft, that we will need to look at this carefully, not least because the problem with the GAAR is that it is a British concern but an international problem. It will work effectively only if we are able to broaden the similarities of other countries with regard to the operation of corporation tax and so on in their countries in order to make it effective.
The noble Lord, Lord MacGregor, indicated that although the committee had probed the Government, it had not got full clarity from them about how the GAAR would work. None of us is surprised by that—these are early days. However, none of us ought to underestimate either the enormous pressure from outside this House on the Government to do something about the scandals that were revealed of the avoidance of taxation—legitimate avoidance—by the multinational companies that have been identified, or the country’s obvious belief that fairness requires them to meet their dues in countries where they are making their profits and where they have vast numbers of customers.
We all recognise that this is a big challenge of the multinational age, which presents all Governments with very specific issues with regard to taxation. I am very grateful for the progress that the committee made on this matter but this is an enduring problem for us all and it will be recognised that the work done so far has merely proved a trailer for the major work that needs to be done. After all, Mr Aaronson, who commented on the general anti-avoidance rule, said that the scheme set out only to tackle egregious, unaggressive tax avoidance schemes. That indicates how narrowly focused it appears to him, as an expert. We need some breadth to it if it is to prove effective.
I welcome the contribution of the noble Lord, Lord Wakeham, although I did wince at the concept of two Finance Bills a year, as I am sure many Members of this House will and even more will at the other end. He made a very real and proper call for companies to be true and fair in their reports and in their responsiveness to the need for taxation. However, the problem there again is that we are not talking about the perspective of a decade or so ago but about a situation now where a great deal of British expenditure is on multinational companies in which these particular concepts may look a little too Anglo-Saxon, or even too British, to strike home with them. We clearly need a strategy that is embraced in our legislation but which fits with what other major powers, particularly of course the Americans, are able to do with regard to multinational challenges.
The Minister presented a short synthesis of the Finance Bill and I think we are all grateful for that—not many Ministers have been able to describe a Finance Bill in seven minutes. I am not going to criticise it for much more than seven minutes—indeed, I hope to criticise it in much less time—but criticise it I will. This Finance Bill does nothing to boost growth or improve living standards. Growth, as the Minister will recognise, is at an abysmal level and has been since this Government came to power. We are making the slowest recovery from a recession in the past 100 years and it will not do for the Minister to suggest that the Bill is apposite to our present circumstances. It is not.
The noble Baroness, Lady Kramer, commented on the fact that one element of the Bill gives some tax relief to the lowest paid in our society, but real wages have fallen by 2.4% in the past four years. That is a reflection of the fact that people are getting poorer at work—not the people who have to pay the bedroom tax and who the Government are able to challenge in those terms, nor those people who will be hit by the withdrawal of benefits, but people at work. They are poorer under this Government and it will not do for the Minister to ignore that fact; nor will it do—after all, he takes considerable responsibility for infrastructure—that the Government’s record on that at the present time is appalling. Of course, he was not directly in his post when the Government managed to produce only one school out of the 216 that the Secretary of State promised would begin under his programme of expansion.
The IMF made clear to the Government what could be done with investment. It said that £10 billion in social housing could produce circumstances in which 400,000 houses could be built and 600,000 jobs could be created. What have the Government done on that front? Nothing that any of us could notice. Meanwhile, this Finance Bill also causes affront to our people. This is not only over the question of how strongly it will address the issue of corporate taxation for the multinationals and those who do not pay their proper tax. How can one talk about fairness in our society when millionaires are singled out for the top-rate tax cut, and when hedge funds get a cut on their investment position as a result of the Bill?
The Government are giving away with one hand to the very well-off in our society, while the rest of the nation quakes under the strains of the Government’s failure to emerge from recession. That is why the Finance Bill, which we can merely comment on and not amend, has such weaknesses that the Minister surely ought to spend the next few minutes producing a rather more articulate defence of it than he did in his opening remarks.
Lord Deighton
My Lords, I thank all noble Lords for their excellent and insightful contributions. I will do my best to respond to them. Let me take first the attack of the noble Lord, Lord Davies, on current government policy. When I entered the Treasury I found myself confronted with the financial state which this Government inherited from the previous Government. I find it quite difficult to know where to begin in comparing and contrasting a government strategy which left this nation financially on its knees with the steady and consistent plan which this Government have put in place to recover the situation.
This Government have succeeded in reducing the deficit by a third, and have the confidence of international markets. This Government have put in place a growth strategy in terms of reducing taxes, and making sure that this is an economy in which investors want to invest and companies want to grow. This is the basis for sustained improvement in the decade to come. I agree that issues on infrastructure need addressing. This is because over generations—I think that this really applies to many previous Governments—we have not put in place the long-term approach to sorting out the economic infrastructure that was needed. This Government deserve credit for actually taking the right long-term steps to sort that out, which I hope will put in place a regime that will work very effectively for many years ahead.
Let me get to the specifics of this particular debate and the Finance Bill. The Bill reflects the Government’s continuing commitment to making tax policy in a transparent manner through improved consultation. Many measures in the Bill have been subject to extensive consultation and scrutiny. I take great comfort from the comments at large that the consultation process has been extraordinarily effective. My noble friends Lord MacGregor and Lord Wakeham made the point that we gave the Committee the ability to look at the draft and at the changes we put in place. I think that that is progress all round, which we should enjoy. That robust approach to making tax policy ensures that we can effectively legislate to restore the economy to growth and address the enormous deficit that was inherited. This Finance Bill is part of our plan to put the country on the right path through supporting enterprise, helping families and ensuring that everybody pays their fair share of tax. Part of this plan includes the biggest ever cash increase in the income tax personal allowance, as my noble friend Lady Kramer noted. In her view, that was the most important part of the Bill.
However, we also take firm action against those who do not pay their fair share of tax. There has been quite a detailed discussion of GAAR in this evening’s debate. Given the amount of consultation that has gone on around it and the debate that we have had, I am not sure that there is much more I can add. Insightful comments on it were made by my noble friends Lady Wheatcroft and Lady Kramer and the noble Lord, Lord Bilimoria. GAAR is part of an overall approach and works together with specific tax rules. It does not attempt to address the broader question of the tax behaviour of big multinational companies, which I think we all agree and understand needs to be dealt with through international collaboration. I am proud to be part of a Government who are leading on that issue. We will hear later this week the OECD’s proposals to the G20 to move forward on these issues following up on the ball that we rolled into play at the recent G8 meeting, so that is well under way.
On when we should review GAAR, we rejected the two-year suggestion. On whether five is the right number, the Government reserve the right to keep all taxes under review. I agree with the general sentiment that the way this works needs to be bedded into the system and therefore needs particularly careful management. Overall, I think that the Government’s approach of driving down taxes generally to make this economy more productive, and avoiding the Winston Churchill problem of the man in the bucket, is the right one. Combining that with our rigorous approach to the collection of taxes that are due is exactly the right balance for this age. I wish that our predecessors had got to grips with those two important issues much earlier so that we did not have to deal with them right from basics now.
I also agree with the general sentiment expressed by the noble Baroness, Lady Wheatcroft, and the noble Lord, Lord Bilimoria, that, in an ideal world, we would drive more simplification into the tax system. It is an easy concept to embrace but a difficult one to put into practice given everything that we are trying to accomplish. There is an Office of Tax Simplification whose mandate it is to cause some of these things to happen.
On whether we have done quite the right thing on tax reliefs, the Government are committed to supporting growth and we take action to support business tax relief in an effective way, but it cannot be without limit. We promote business investment through targeted tax relief schemes—some examples of those are the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and the venture capital trusts—and, as I have said previously, we are driving down the overall level of taxation. The balanced package leaves companies of all sizes in a very attractive tax environment which should be good for the growth of the economy.
In response to the question asked by my noble friend Lord Bates about tax relief for married couples, I can confirm that my right honourable friend the Prime Minister made a commitment to recognising marriage in the tax system. We intend to announce our plans shortly and it will be at the earliest opportunity. My noble friend was absolutely right to quote my right honourable friend the Chancellor, who said in an interview a few days ago that,
“the Government is committed to introducing it and I think you can expect to see it in the Autumn Statement”.
I hope that that is a strong enough commitment. It sounds pretty good to me.
As noble Lords are well aware, this Government inherited enormous debts. It was essential that we addressed that and got the economy moving. We have taken difficult decisions and resolute action to tackle the challenging legacy that we inherited. The Finance Bill 2013 is part of the Government’s plan to put this country back on the right path, through supporting enterprise, helping families and ensuring that everyone pays their fair share of tax. I commend the Bill to the House. I beg to move.
Draft Finance Bill 2013: Economic Affairs Committee Report
Lord MacGregor of Pulham Market
That this House takes note of the report of the Economic Affairs Committee on the Draft Finance Bill 2013 (1st Report, Session 2012–13, HL Paper 139).