Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Barker) (LD)
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I ask Members in the Room to wear a face covering except when seated at their desk, to speak sitting down, and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded, or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
I will call Members to speak in the order listed. During the debate on each group, I invite Members, including Members in the Grand Committee Room, to email the clerk if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request.
The groupings are binding. Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says “Not Content” an amendment is negatived and if a single voice says “Content” a clause stands part. If a Member taking part remotely wants their voice accounted for if the Question is put, they must make this clear when speaking on the group. We will now begin.
Financial Services Bill
Monday 1st March 2021
(3 years, 1 month ago)
Grand CommitteeRead Full debate Financial Services Bill 2019-21 View all Financial Services Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 162-IV(Rev) Revised fourth marshalled list for Grand Committee - (1 Mar 2021)
Lord Oates
“Considerations in setting capital adequacy requirements
In setting the capital adequacy requirements of a credit institution, the Prudential Regulation Authority shall have regard to—(a) the level of exposure of an institution to climate-related financial risk;(b) the level of compliance of the institution with the recommendations of the Task Force on Climate-Related Financial Disclosure; and(c) the objectives of the Climate Change Act 2008 as amended by the Climate Change Act 2008 (2050 Target Amendment) Order 2019 (S.I. 2019/1056).”Member’s explanatory statement
The purpose of this amendment is to place a requirement on the PRA in setting capital adequacy requirements of a credit institution to have regard to its exposure to climate-related financial risk.
Lord Oates (LD)
My Lords, I declare my interests as the chair of the advisory board of Weber Shandwick UK, as set out in the register. In moving Amendment 28 in my name and those of my noble friend Lady Kramer and the noble Baroness, Lady Bennett of Manor Castle, I will speak also to the other amendments in this group. I once again express my thanks, in particular to Finance Watch, Positive Money and Carbon Tracker for their helpful briefing, and indeed to all organisations that have taken the trouble to provide me with information on this subject.
The context of our discussion of these amendments is one in which, at current levels of carbon emissions, the world will have exhausted within 10 to 15 years the carbon budget it must stick to if we are to meet the Paris objective of keeping warming well below 2 degrees. This is not the alarmist prediction of some fringe organisation or, indeed, even of a Liberal Democrat politician; it is the sober warning of experts in the field, including the United Nations special envoy for climate action and finance and former Governor of the Bank of England, Mark Carney, who spoke in his Reith Lecture at the end of last year of the struggle between urgency and complacency in tackling climate change, highlighting the contrast between the
“urgency of carbon budgets that could be consumed within a decade and the complacency of continuing to add new committed carbon … The urgency to reorient the financial system for the massive investment needed to create a sustainable economy, yet the complacency of many in finance”.
Mr Carney went on to warn that the tensions that exist in our desire to tackle climate change reflect the common challenge of values, including human frailties and market failures. Nowhere could market failures be more evident than in the failure to price climate risk appropriately within the financial system. That is what the amendments we are debating are all about. In the previous group of amendments related to climate, which we discussed last week, we talked about the purpose of prudential regulation, which is surely to manage and control risk. We spoke also about the fact that our system of prudential regulation is clearly not performing that function in respect of the greatest risk facing the financial system and, indeed, the planet as a whole: climate change.
Amendment 28 seeks to take the first steps in addressing this issue. It requires the Prudential Regulation Authority, in setting capital adequacy regulations, to have regard to climate issues, including the level of exposure of an institution to climate-related financial risk and the level of compliance of that institution with the recommendations of the task force on climate-related disclosure and the net-zero objective of the Climate Change Act, as amended.
Amendment 42 requires the Treasury to amend the credit rating agencies regulations to require such ratings to explicitly take account of the level of exposure of an institution to climate-related financial risk.
Both amendments aim to act as a wake-up call to regulators and the City so that, when setting capital adequacy requirements and issuing credit ratings, they take account of and act on the risks that climate change poses to individual institutions and the financial system as a whole.
Amendments 31 and 32 in my name and those of my noble friend Lady Kramer and the noble Baroness, Lady Altmann, focus specifically on fossil fuel exploration, exploitation and production. I am particularly grateful to Finance Watch for its advice and recommendations in this regard. Amendment 31 sets out the risk weight the PRA must apply to the funding of existing fossil fuel production and exploitation; Amendment 32 does the same in respect of new fossil fuel exploration, production and exploitation. They both seek to do so within the existing framework of the Capital Requirements Regulation, which sets capital requirements on a risk-based approach.
The two amendments apply different risk weights to the different activities addressed in each because the financial risks associated with the two activities are different: exploiting existing reserves runs a high risk that some fossil fuel assets will become stranded during their lifetime, whereas exploring and exploiting new reserves comes with a much higher risk—indeed, a near certainty—that they will become entirely stranded.
Amendment 31, dealing with the risk weighting for existing fossil fuel investment, is tailored around Article 128 of CRR as amended in CRR2. This deals with what it describes as:
“Items associated with particular high risk”.
Paragraph 1 of Article 128 states:
“Institutions shall assign a 150% risk weight to exposures … that are associated with particularly high risks”
and that for the purposes of the article, institutions should treat any of the following as exposures with particularly high risks:
“investments in venture capital firms, except where those investments are treated in accordance with Article 132 … investments in private equity, except where those investments are treated in accordance with Article 132 … speculative immovable property financing.”
Paragraph 3 of Article 128 goes on to state:
“When assessing whether an exposure … is associated with particularly high risks, institutions shall take into account the following risk characteristics: (a) there is a high risk of loss as a result of a default of the obligor; (b) it is impossible to assess adequately whether the exposure falls under point (a).”
As Finance Watch points out in its excellent report Breaking the Climate-Finance Doom Loop, paragraph 3 of Article 128 almost appears to have been written specifically to deal with stranded fossil fuel assets: first, because, if we manage to meet net-zero targets, a large proportion of existing reserves will have to remain in the ground, leading to the probability of default of the obligor, the issue addressed in Article 128(3)(a); and, secondly, because assessing the scale of the stranded asset risk is impossible given that it relates to a unique situation for which we have no historical precedent but in which we know that the future economic performance of the assets must be downward—the situation exactly envisaged and provided for in Article 128(3)(b).
Accordingly, Amendment 31 would apply an approach consistent with Article 128 of the CRR to make it explicit that the PRA must apply the 150% high risk weight in calculating capital requirements for existing fossil fuel funding. This risk weight is already applied to venture capital firms, private equity and speculative immovable property, and it is hard to understand how fossil fuel operations can be regarded as posing less risk. The fact is that the existing 100% risk weight is an incentive to the financial markets to continue to act as if nothing has changed. A 150% risk weight, by contrast, would provide a clear price signal reflecting the risk to assets but would not prevent the continued financing of existing fossil fuel operations, allowing an orderly and just transition for those industries and the communities that rely on them.
Amendment 32 addresses the much bigger threat to the climate and to the financial system that arises from new fossil fuel exploration, production and exploitation. It would require such investments to be funded entirely by capital by applying a 1,250% risk weight to this activity. This risk weight is calculated with reference to Article 92 of the CRR on own funds requirements, which obliges institutions to maintain at all times a total capital ratio of 8%. This provides the basis to determine the risk weighting to apply to ensure that new fossil fuel activities are funded entirely from equity.
The 8% total capital requirement is multiplied by the risk weight of 1,250% in accordance with the standardised approach, resulting in a 100% capital requirement for these activities. This risk weight is not some wild or punitive sanction; it is the considered application of the real risk such investments pose to the institutions themselves, to the financial system as a whole and to our ability to stabilise the temperature of the planet. It is also consistent with the existing risk weight applied under the capital requirements regulation for holding companies, as defined in Article 89.
Requiring any fossil fuel investment to be entirely equity funded is surely appropriate, given that these activities will either become non-viable because we have succeeded in stabilising the climate by reaching our net zero targets, or, if we have not, they will be fuelling runaway climate change which will threaten the viability of the whole financial system, not to mention our entire way of life.
The truth is that we have no chance of meeting the objective of the Paris Agreement to keep warming to well below 2 degrees, and ideally to 1.5 degrees, if we burn all the carbon in existing reserves, let alone exploit new ones. The regulatory system has to take account of that, and it has to adequately price risk for those institutions that wish to invest in activities which must become non-viable if we are to prevent catastrophic climate change. In doing so, it will help ensure an orderly and just transition away from fossil fuels.
I want to be very clear that these amendments are not driven by any animus against the fossil fuel industries, whose products have been critical to the development of human society, whether by keeping us warm or driving industry and prosperity. Indeed, my own title in this place is taken from Denby Grange colliery, where my uncles and my grandfather were miners, engaged in the critical but dangerous job of mining the fuel that provided heat and power for the nation.
As we know, coal mining as a major industry in the UK came to an abrupt end in the 1990s. The way it did so, driven by political malice and with no transition planning at all, devastated the mining communities which had fuelled the country’s prosperity over a period of more than 200 years. Abandoned by government, these communities were beset by huge economic and social problems, many of which exist to this day. We cannot allow that to happen in the oil and gas industry.
Lord Holmes of Richmond (Con) [V]
My Lords, it is a pleasure to take part in day three of our Committee deliberations on the Financial Services Bill. In doing so, I declare my interests as set out in the register. I will speak to Amendment 136A in my name, concerning environmental, social and governance—ESG—factors.
The rationale behind my amendment is quite simple: what is the point of profit if there is no planet to spend it on? In this amendment I am seeking to look at the funds’ billions of pounds of assets, under fund managers. It would probably be helpful for institutional investors and individuals to know a lot more about those funds and where their assets are invested. It is a very simple amendment, requiring the Secretary of State to make regulations to have fund managers report on how their funds—and, indeed, all the constituent parts of their funds—stack up against agreed ESG considerations.
The reason I stated it like that in the amendment is so that there can, I hope, be a public discourse around what all parties believe should be measurable and helpful when considering the operations and activities of these funds. The SDGs are obviously important—there is a reasonable level of global agreement around them—but there are other factors specifically relevant to certain sectors or regions of the UK. There could be a public debate, whereby the Secretary of State could consider what would form the particularities of the ESG for fund managers to report on.
I do not believe that the amendment would in any way fetter the market or overstep into the market—it certainly does not seek to—and nor does it seek to direct funds in one particular direction or another. What I hope it would do is throw light on the funds to enable far greater clarity of decision-making by investors, institutional or individual, into those funds. It is in no sense seeking to control or direct activity.
I hope the Minister will accept the amendment in the spirit in which it is being offered. It would aid a greater debate and understanding of funds and their operations. In some small way, it would indicate how we can move forward and have real-time analysis of these funds’ investments using many of the new technologies available to us, not least distributed ledger technology and elements of artificial intelligence, which can instantly adopt, analyse and report on the ESG performance of any fund and constituent part of it. The power that these new technologies affords us would not have been available three or five years ago, never mind a decade ago.
I ask my noble friend the Minister to consider both the positive impact that such a requirement could have and the deployment of new technologies to achieve the objectives set out in Amendment 136A.
Baroness Noakes (Con)
My Lords, most of the amendments in this group are about bank capital. I believe strongly that the setting of the capital requirements of individual banks should be about prudential risk to the capital of the banks and the resilience of the financial system as whole. The setting of bank capital should not get caught up in wider policy issues.
On Amendment 28, the level of exposure to climate-related financial risk should indirectly already be taken into account in the conventional capital-setting process. Climate-related financial risk is very unlikely to be a separate risk category for a bank. It is primarily a credit risk—the risk that borrowers will not repay loans—and it does not need to be separately considered. There may need to be adjustments made to banks’ evaluation of how credit risk will crystallise due to climate change but the essential elements—calculating the exposure at default and the loss that would arise if default occurred—are already in the system.
The impact of climate change on banks is very much an emerging area. I am sure noble Lords will have heard of the so-called biennial exploratory stress test, which the major banks need to submit to the Bank of England later this year. It will focus on how these risks will evolve under various scenarios, which have not yet been published by the Bank of England.
It is pretty unlikely that climate-related financial risk would have a major impact on current bank capital because the determination of bank capital contains buffers which are derived from stress tests that focus on the next five years. Therefore, the impact of risks from climate change working their way through credit risk is unlikely to find its way into bank capital in the short term. That is why the Bank of England’s exploratory stress test seeks to understand how this will evolve over a longer period. In addition to credit risk, there may be an element of operational risk, but that too should be capable of being captured by the existing rules for the calculation of operational risk.
These points are also relevant to Amendment 42, which tries to get climate-related financial risk into credit ratings. I am sure that the credit rating agencies need no reminders about any kind of risk and I would expect the biennial exploratory stress test to be an important input to their thinking on how their ratings will evolve. But, again, this will be over time and not something that is done immediately.
Amendment 28 seeks to ensure that disclosure requirements are also taken account of in setting bank capital. It would be wholly inappropriate to include compliance with disclosure requirements in the calculation of bank capital requirements because disclosure can never have an impact on the amount of capital that a bank needs to keep. It is an extraneous consideration that should not feature in the determination of prudential capital. I have absolutely no idea on what rational basis capital requirements for individual banks could be adjusted for the climate change objectives of the Government, which also features in Amendment 28.
As the noble Lord, Lord Oates, has explained, Amendments 31 and 32 would require mandatory risk weights for exposures related to fossil fuel; namely, 150% for existing exposures and 1,250% for new funding. These are both penal and unrelated to the underlying credit risk. I accept that funding fossil fuel exploration might well carry higher risks in the future than it does currently, but that will be reflected in banks’ evolving lending policies, including pricing for risk, and in the risks that are reflected in how they calculate credit risk-weighted assets.
Risk weighting is about loss at default and these amendments are suggesting that there could be a total loss at default; that is the particular implication of the 1,250% risk weight for new exploration. Neither assumption is realistic. Banks do not lend in situations where default is likely or total losses will occur, and I did not understand the reference to 100% equity funding in the explanatory statement: banks lend money; they do not make equity investments in the companies with which they deal.
In general, corporate borrowing is not linked to specific activities. At the weekend, when I was at home thinking about what I was going to say on these amendments, I found a copy of Shell’s most recent accounts, which I looked at to see how its balance sheet was made up. Most of Shell’s debt is in generic corporate bonds, rather than for specific activities within Shell. Like other major oil and gas companies, Shell has a mix of activities, including those which the green lobby will approve of.
As drafted, by reference to
“exposures associated with the funding of existing fossil fuel production and exploitation”,
the amendments are probably ineffective because lending is not likely to be hypothecated in the way the amendments assume. I should also say that Shell, as a corporate borrower, currently has long-term credit ratings of A+ and Aa2, which imply a low risk of default and therefore a relatively low likelihood of loss needing to be taken account of in the way that assets are risk weighted.
Even if these amendments were drafted in a way that was effective and made sense, I suspect that the only real-world impact would be that debt financing for oil and gas companies would be driven out of the London market. Why on earth would we want to deprive the City of London of relatively low-risk, profitable business?
Baroness Hayman (CB) [V]
My Lords, it is always fascinating to follow the noble Baroness, Lady Noakes. I certainly do not have her level of expertise in financial institutions but, listening to her, I worried that the phrase that the noble Lord, Lord Oates, used about the battle between urgency and complacency was actually rather relevant. We have a very short period of time in which to change the dynamics of what is happening to our world through climate change. I am sure that these amendments could be better drafted, and we may need her technical knowledge and experience to help us find the correct levers to do what Amendments 28, 31 and 32 set out to do, but, frankly, we cannot afford simply to say that this will not work. We have to find ways that will work, which is why I am interested in, and listened carefully to, the powerful and compelling case made by the noble Lord, Lord Oates, in introducing these amendments.
We have to find a way in which to make explicit and transparent the risks contained in continuing investment in existing fossil fuel projects or new ones, and that funding new fossil fuel projects is essentially of the highest risk and should be funded out of equity if it is to go ahead. The risks relate not only to continuing investment contributing to climate change, which itself creates systemic risk through increasing emissions, but to the certainty of these assets becoming stranded, as the noble Lord, Lord Oates, said. That is not in the long term—we are talking about the reasonably predictable future.
A recent report by Finance Watch, Breaking the Climate-finance Doom Loop, highlighted that to limit warming to 1.5 degrees we can emit only a further 500 gigatonnes of CO2. There are currently fossil fuel reserves which, if all were extracted, would emit 3,000 gigatonnes. If we are to have any hope to meet what are not just the aspirations of what the noble Baroness calls the “green lobby” but are actually our national and international treaty obligations, we have to change. Despite the fine words that have been spoken since Paris, $2.7 trillion in funding has been provided since that agreement to the oil and gas industry, with UK banks contributing significantly.
Financial institutions are in the process of quantifying climate-related financial risks, but it is widely recognised that this will take considerable time. Rather than waiting until the middle of the decade when we have made progress in quantifying the risks via the TCFD and climate-related financial risk disclosures, we could start to make changes to the existing capital requirements regulation now, to reflect what we all know are risky investments, even if we do not know the exact quantified risk. Prudential regulations are designed for just such a situation, to regulate markets and ensure long-term stability.
We have to make it very clear what the risks are, because there is danger of interpretation of risk from the transition from brown to green being considered in the light of it being a sudden cut-off of one and a change to the other, so that people avoid any change. We need a measured and adjusted transition. To do that, we need to be aware of risks on all levels.
Finally, I will say a word or two on taxonomy: how we actually define green and brown. In previous Committee debates, the noble Earl the Minister said
“we need to be able to define what we mean by ‘green’.”—[Official Report, 24/2/21; col. GC 225.]
He commented that it will take time to analyse the risks and produce the taxonomy. It is important that we recognise that that taxonomy needs to include a definition of what is a brown asset as well as what is green. We need to look at how we drive investment away from brown, as well as directing it to green.
The New Economics Foundation recently wrote to the Chancellor, saying that
“limiting the taxonomy to green activities will not necessarily encourage a move away from financing activities that undermine climate goals. We equally need the taxonomy to classify carbon-intensive and other unsustainable activities. Importantly, the taxonomy design should not be decided behind closed doors. There must be transparency and public consultation to ensure that a wide range of expertise and perspectives from across civil society and academia feed into the UK’s Green Technical Advisory Group.”
It would be very good to understand government thinking on this issue and on the timing of the work of the green technical advisory group, and I hope that the noble Earl will comment on this when he winds up or, if that is not possible, write to me in the future.
Lord Sharpe of Epsom (Con)
My Lords, I refer to my interests in the register. It is a pleasure to follow the noble Baroness, Lady Hayman, and my noble friend Lady Noakes, who spoke eloquently on the capital requirements. I was planning to do the same, but she has said much of what I was planning to say, so I shall confine myself to a brief question about Amendment 31.
Amendment 31 refers to
“existing fossil fuel production and exploitation.”
I wonder whether all the possible consequences have been considered. The noble Lord, Lord Oates, spoke eloquently on mining, and I, too, claim mining ancestors: my great-grandfather was a coal miner in Seaton Burn in Northumberland. The noble Lord also mentioned stranded and abandoned communities. I wonder whether the amendment, as drafted, would also apply to companies that are actively engaged in the complex process of decommissioning existing facilities, particularly those in the North Sea. In many cases, those are the same companies that are involved in exploitation and exploration. Again, my noble friend Lady Noakes spoke very eloquently about hypothecation when it comes to lending to some of these types of companies. With that in mind, were the potential regional effects of rationing capital to these businesses considered, because that is the likely net effect of the amendments? I suppose that that would have particular reference to and relevance in Scotland.
I am sure we all hope for a world free from fossil fuels, but I am 100% confident that, regrettably, we will need them for a while yet—although it is probably worth stating that they have other uses apart from just being burned. As my noble friend Lady Noakes also pointed out, it is fair to say that financial institutions have a refined—no pun intended—approach to assessing fossil fuel-related risk and are perfectly capable of valuing stranded assets. The proof of that is to be found in the valuation of companies such as BP and Royal Dutch. If, as the amendments imply, we would prefer no lending at all to fossil fuel companies—which is a perfectly legitimate point of view—should we not just say that and agitate for a multinational agreement to that effect, perhaps at COP 26, rather than introduce it via the back door through amendments such as these?
Baroness Ritchie of Downpatrick (Non-Afl) [V]
My Lords, I am not a financial expert, nor was that my academic background, nor do I have family involved in the fossil fuel industry, because Northern Ireland did not have a mining base. However, it is quite clear to me that the Financial Services Bill is silent on the climate emergency and carbon issues. Therefore, I favour the amendments in this group in the names of the noble Lord, Lord Oates, and other colleagues.
A recent Bank of England publication states:
“Climate change poses different risks to the stability of the financial system, particularly for the insurance and banking sectors.”
It states that there are physical, transition and liability risks from climate change. Climate change means that we may face more frequent or severe weather events, such as flooding, droughts and storms. Examples of those recent weather events that have been linked to human-driven climate change include the heatwave and droughts in China in the summer of 2013 and the more recent flood events in the UK. Such events bring physical risks that impact on our society and have the potential to affect the economy, and our financial services sector. If these events happen more frequently, people will become more reliant on insurance to cover the costs of damage to their houses and cars.
Transition risks can occur when moving towards a less polluting, greener economy. Such transitions could mean that some sectors of the economy face big shifts in asset values or higher costs of doing business. One example is energy companies. If government policies were to change in line with the Paris Agreement, two-thirds of the world’s known fossil fuel reserves could not be burned. This could lead to changes in the value of investments held by banks and insurance companies in sectors such as coal, oil and gas.
Liability risks come from people or businesses seeking compensation for losses that they may have suffered from the physical or transition risks from climate change.
It is important to tackle climate change and protect the environment. This is very important in the financial services sector; I think the Chancellor of the Exchequer referred to that in the recent past. As I said, there is no reference in the Bill to climate or the ecological emergency, notwithstanding that the UK Government have the chair of COP 26 this year. There is no mention of green finance, climate risk disclosure or the critical role that the financial services industry will have to play if we are to tackle climate change.
How do the Government intend to deal with this matter from a legislative point of view? It is recognised as a clear priority by the Chancellor, although the Minister who took the Bill through the other place did not see any direct correlation between financial services regulation and the impact and risk of climate change. Parliament should determine that role and ensure that these amendments are made to this legislation. The amendments, which I support, would require the Prudential Regulation Authority to have regard to climate-related financial risk when setting capital adequacy requirements, and would ensure that credit rating agencies have to take climate risk into account in setting credit ratings, with particular relevance to fossil fuel exposures. I think of the fact that the Government wish to pursue a new coal mine in Cumbria.
Do the Government not see the benefit in these amendments to have regard to climate-related financial risk when setting capital adequacy requirements? If not, could they specify what their position is? Will they not admit that there is a direct correlation between the climate change emergency, fossil fuels and financial services regulation? Perhaps the noble Earl could provide us with answers when he winds up.
Baroness Sheehan (LD) [V]
My Lords, it is a pleasure to follow the noble Baroness, Lady Ritchie of Downpatrick. I found myself nodding at her every point. I pay wholesome tribute to my noble friend Lord Oates for the manner in which he introduced this series of amendments and the comprehensive nature of his speech. These amendments get to the nub of the issue.
In 1989, I left a comfortable job in advertising and went back to university, to bolster my chemistry degree and get a better understanding of the scientific evidence and facts behind the litany of dreadful things that seemed to be happening to the planet. The main issues of concern in those days were acid rain, the ozone hole, species loss and radiation in the environment, especially following the Chernobyl disaster in 1986. Another issue causing grave concern was what was then referred to as global warming. I wanted the facts. Specifically, I wanted to know to what extent climate change was anthropogenic.
When I left Imperial, I was in no doubt that the warming planet was due to the accumulation in the upper atmosphere of greenhouse gases, caused by the burning of fossil fuels since the start of the industrial age. The science was incontrovertible then, 30 years ago, and the ball was firmly in the political court. Over three decades later, to my utter frustration, when push comes to shove—and actions not words are needed—the political will appears lacking. I therefore welcome these amendments, especially Amendments 31 and 32, for their clarity of purpose.
I will say a few words about Amendment 28 in the names of my noble friends Lord Oates and Lady Kramer, and the noble Baroness, Lady Bennett of Manor Castle, the purpose of which is to place a requirement on the PRA, when setting the capital adequacy requirements of a credit institution, to have regard to its exposure to climate-related financial risk. It invokes the Task Force on Climate-Related Financial Disclosure and our domestic commitments through the Climate Change Act 2008, as amended in 2019. In my view, the amendment is pretty uncontroversial if you think that we are facing a climate emergency and I hope that the Minister will sympathise with its aims.
In Committee last Wednesday, the noble Lord, Lord Sharpe of Epsom, took me to task when I welcomed Amendment 48’s aim to bring forward the TCFD’s implementation by two years. He rightly said that the methodology to quantify the metrics was complicated and not yet in place. However, a huge amount of work is being done on the issue by UN agencies, EU agencies and the OECD, to name but a few.
I am heartened by the way that we met the challenge of developing and deploying not one but myriad vaccines in the space of a year. It is not much short of a miracle. That was made possible by global collaboration and working at speed, putting aside some artificial barriers to manufacturing by paying upfront to cover the risk of failure. In short, huge challenges were overcome because we faced a global crisis of mammoth proportions. Of course, the issue of scaling up manufacturing capacity to meet global demand remains, not least in developing countries, but that is now an issue of political will. With climate change, we are dealing with a global emergency that has the potential to dwarf the pandemic, so I say to the noble Lord, Lord Sharpe of Epsom, that necessity is the mother of invention. We can do this if there is a will.
I welcome the intentions of Amendment 136A, but it is a little broad and detracts from the central theme of tackling the climate crisis. ESGs are now pretty well established and cover a range of factors that move companies in the right direction, which is to be welcomed. But it is a slow process—it is not compulsory—and they do not explicitly signal climate-related financial risk, which I would like to see.
In conclusion I will say a few words about Amendments 31 and 32. The question to which I would like an answer is: who will pay the cost to society of climate change? The answer is that we as society will pay these costs. But such social costs are not built into the price of oil, gas, coal, gas fires, electricity, natural gas heating, petrol or diesel. As a result, the corporations most responsible do not pay directly for their pollution. That also leaves few incentives to limit greenhouse gas emissions, so problems such as climate change go unabated. I support these amendments as they not only are a shorthand way of building the massive social cost of carbon into investment decisions but also recognise climate-related investment risk.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, it is a great pleasure to follow the noble Baroness, Lady Sheehan, who has made powerful points. A little more than a year ago, we faced the Covid emergency and the Government moved very fast with multiple rules and regulations. The world has moved very fast and science has moved very fast. That is a demonstration of how fast the world can change in an emergency—and we are all in agreement that we are in a climate emergency.
Given that I agree with many of the comments already made on this group of amendments, I aim not to repeat them all but perhaps to take us a little bit forward. To briefly outline, I am speaking on Amendments 28 and 42 in the names of the noble Lord, Lord Oates, and the noble Baroness, Lady Kramer, as well as my name. I also express my support for the principles and direction of Amendments 31 and 32 in the name of the noble Lord, Lord Oates. In his expansive and effective introduction, the noble Lord presented a strong case for the detail contained in these amendments.
With Amendment 136A, the noble Lord, Lord Holmes of Richmond, is heading in the direction of an amendment of mine discussed last week. I spoke about introducing acknowledgment of our international obligations on biodiversity. This amendment heads in the direction of thinking in terms of the sustainable development goals, and that kind of system thinking is very much what we need. It goes a lot further than simply looking at the climate emergency. I would like to see us go further than where we are at. The full SDGs are a big step that we need to take at some point very soon.
The noble Lord, Lord Sharpe of Epsom, noted that there are other uses for fossil fuels than energy generation or transport. Many of those uses are, of course, the production of plastics, which are creating a whole different set of crises in our plastic-choked world: a pollution crisis and a crisis in the impact on animal life and quite possibly on human health.
It is pretty clear that we are already in a carbon bubble. We know from an organisation as radical as the International Energy Agency that we have to leave at least three-quarters of our known fossil fuel reserves in the ground to avoid catastrophic runaway climate change. Yet we still see money being lent, sometimes by the UK Government—the chair of COP 26—to develop and even explore new reserves. This clearly is not the way forward.
To build on what others have said, rather than simply repeat it, I refer noble Lords to an article by Semieniuk et al in volume 12, issue 1 of the journal WIREs Climate Change, published in January/February 2021, entitled “Low-carbon Transition Risks for Finance”. In the conclusion of that article, the authors say:
“Asset stranding combines with other transition costs, notably unemployment, losses in profits, and reductions in real incomes from price changes that generate significant risks for portfolio losses and debt default. Financial actors might become unable to service their own debt and obligations, creating loss propagation within the financial network. The adverse impacts of credit tightening and lack of confidence as well as the direct impact of transition costs to the macroeconomy, could lead to a general economic crisis with further risks for finance.”
They continue:
“Targeted financial policies, however, can dampen some transition risks by direct regulation of the financial sector.”
This element of the conclusion relates in some ways very closely to the debate we will be having tomorrow on the National Security and Investment Bill, but it is worth noting that, with a different cause at its base, it could be taken as a pretty fair description of what happened in the 2007-08 global financial crash.
I referred to that article, at least initially, not primarily for its conclusion but for the detailed calculations and models in its body. I suspect that one answer that we might hear from the Minister in responding to this group is that something needs to be done, but not quite yet—the Augustinian approach mentioned by the noble Baroness, Lady Hayman, in our debates last week. However, the article demonstrates that thorough work has been done and is available to the department to act now. As the noble Lord, Lord Oates, and the noble Baronesses, Lady Hayman and Lady Sheehan, all referenced, we are in a state of extreme urgency—a climate emergency.
However, the noble Baroness, Lady Noakes, gave me a further reason to draw on that conclusion. She said that she relies on the banks in calculating and pricing risk. She said, “Banks do not lend in situations where default is likely.” Well, we all know how that worked out in 2007 and 2008. The noble Baroness also said, “Carbon debt financing could be driven out of the City of London.” If we look at the costs we bore from risky lending and risky actions by the financial sector in 2007 and 2008, we see that that could indeed be a very good thing for our financial security. I do not believe that we would see a direct migration of financing shifting out of the City of London and going to other places. If the British Government were to take this action and become world-leading, as they so often tell us they want to be, that would have an impact on other financial markets around the world. Other people would say, “Well, if London is doing that, perhaps we should have a look at it, too.”
Let us look at the best possible outcome: we entirely prevent a carbon bubble financial crash. One problem, of course, is that you do not get credit for stopping things that never happened, but perhaps we would know that we had done the right thing. Even if we managed only to significantly reduce the size of that carbon bubble crash, we would indeed be world-leading. We are ready to take action: this is an emergency and so we have to take action. I commend these amendments to the Committee.
Baroness Altmann (Con) [V]
My Lords, I thank the noble Lord, Lord Oates, for his excellent introduction to this group of amendments and his work to try to ensure that the Bill rises to the challenge of ensuring that our financial services institutions, regulations and activities are properly concerned with the dangers of climate change. I am happy to add my support to Amendments 28 and 42 in the names of the noble Lord, Lord Oates, and the noble Baronesses, Lady Kramer and Lady Bennett—who it is a pleasure to follow—which seek to ensure that capital adequacy and credit rating agencies take account of climate risk.
I also have sympathy with Amendment 136A, in the name of my noble friend Lord Holmes, which seeks to require that fund management firms should report on their ESG compliance. My only thought on that is that it may not go far enough. Such a requirement could become just a tick-box exercise and I believe we need to go much further than that if we are to meet our obligations to today’s younger people.
Baroness Kramer (LD)
My Lords, I begin by welcoming Amendment 136A from the noble Lord, Lord Holmes, which is the only amendment in the group that does not have my name attached to it. The amendment is useful. In a sense, it belongs with the group of amendments on climate change that we discussed last week, in that it is focused on disclosure and other such issues, which is helpful. The reason why we have this group of amendments is that we require more powerful levers, we need to recognise urgency and we need the financial system to recognise both the risks that it faces as a sector from the implications of climate change and the positive role that it can play.
Mark Carney and Andrew Bailey have both accepted that climate change is the greatest risk that we face to financial stability. That surely should be reflected in the way that the industry is regulated. I was therefore taken aback when Andrew Bailey, in his speech to the Green Horizon Summit in November, laid out a strategy that seemed to depend, essentially, on better data, disclosure and guidance. At the macro level, Mr Bailey confirmed that a climate stress exercise, postponed because of Covid, would launch in June 2021, but then he said:
“We will not use the results to size firms’ capital buffers.”
I found that quite shocking, but, having listened to the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharpe, I realise the kind of pressures that Andrew Bailey must be facing from the industry. Surely capital buffers are a crucial tool of the regulator. If climate change is the most important risk to financial stability, surely the Bank of England must be prepared to reflect that in its capital adequacy requirements.
The noble Lord, Lord Oates, explained the complexity of some of the calculations. I understand that the numbers look really large when they are written down, but of course they are a weighting. The consequence for existing assets is not that a bank will have to hold 150% equivalent to its exposure but rather a percentage of that—around 12% of the exposure, I think. The number is not quite as alarming as it looks. When we look at future exploitation, we see that essentially what is being said is that it is so risky that 100% of capital needs to be held against any loan made—in effect, it is an equity investment because of the nature of its risk and not a risk that can accept the additional risk that is attached to leverage.
When I listened to the noble Baroness, Lady Noakes, a couple of things particularly struck me. One is that I have far less faith than she does in the ability of the banks to assess credit risk. Sometimes they are pretty good at looking at an individual company—though, my goodness, a lot of that was flawed, if we look at the period before 2008. The noble Baroness, Lady Noakes, was on the board of RBS and must have looked back at its credit—not at the time of its troubles being created but afterwards—and probably was in shock at some of the credit practices that were in place. That is similarly true at HBOS, Northern Rock and a wide range of banking institutions.
We should not fool ourselves that banks are all-seeing, even when it comes to looking at an individual company’s credit risk. But where they are really poor is in identifying change and looking at systemic and holistic risk. That is why we ran into that incredible crisis in 2008. The industry struggles to look beyond the small and narrow to understand the broader picture and then apply it to its whole range of credit decisions. I say that as someone who spent most of their banking career in the United States as a commercial banker, looking extensively at credit risk; I very much understand the weakness of the system.
Banking is, almost by definition, a short-term activity, so decisions are made over relatively short horizons. Despite the many changes that we have introduced at governance level to try to inculcate a longer-term culture, it will always be true—partly because of the way that remuneration and promotions are structured, and partly because it is just inherent in the culture of most of these institutions—that the way that banks look is inherently short term. They are particularly bad at assessing long-term risk and understanding how the implications of that should be applied on any given day.
The noble Lord, Lord Sharpe, said that if we do not want to see lending to future fossil fuel exploitation, we should deal with it globally at the COP meeting later in the year. I say to him that we take this same attitude to junk mortgages; I do not remember us saying that we must not do anything to increase the risk of those while we wait for a global agreement. We do the same thing with a wide range of high-risk derivatives and I do not remember us saying we should not act on those until we get a global agreement. When the financial regulator sees risk and recognises it, it has a responsibility to act. I remain, as I said, rather shaken at the idea that we have a financial regulator that will be identifying that risk but then not using it in its power to adapt capital buffers. As I have said, this is almost the last point at which we as parliamentarians will collectively be able to have an impact on the banks’ thinking and it strikes me that we need to seize that opportunity now.
Holding capital is a powerful tool to force a banking institution to face up to the risk that it is undertaking. That is why it is particularly true that the capital adequacy requirements are some of the most powerful leverages to change. In that same conversation, we must also make it clear to banks that they are not too big to fail and that if they undertake high-risk transactions there are consequences—in the past there have not been, as we as a country have bailed them out.
Finally, I will talk to Amendment 42, which deals with credit rating agencies. As the noble Baroness, Lady Noakes, pointed out, an organisation such as Shell has a very high credit rating and who would not lend to an organisation with a credit rating on that scale? We always—I would say this to any individual Minister—have to be somewhat cynical when we look at the product of credit rating agencies. I know that they try to behave with integrity, but the companies pay their fees and their wages and that tends to incline them to think in very narrow terms. None of the credit rating agencies got right the crisis that we saw in 2008-09, even though it developed over quite a period of years leading up to 2008-09. This was not an overnight event; it was a crisis that built over a decade and, in that way, it is very similar to the climate change crisis.
We have an opportunity to put down a particularly important marker to the regulator and say, “You have a tool that matters, a tool that you can use to protect the financial system from risk, which you yourself acknowledge and recognise and which you say you find frankly somewhat frightening. So use those tools.” In these amendments, we have the leverage to make the regulator do so.
Baroness Jones of Whitchurch (Lab) [V]
My Lords, I am grateful to the noble Lords, Lord Oates and Lord Holmes, for tabling these amendments and for their helpful contributions. They provided a welcome extra clarity as to how we can deliver the UK’s climate change obligations across the financial services sector.
In an earlier debate, we identified the important principles which should underpin the application of climate change principles by the regulators and how they should be reported. A number of noble Lords then made strong and compelling cases for changes to the regulatory regime in advance of the Government’s consultation and implementation of the Basel standards because of the urgency of the climate change threat that we all acknowledged in that debate.
These amendments go one step further. Amendment 28 would add a specific requirement on the PRA to take the level of exposure to climate-related financial risk into account in setting capital adequacy requirements. We believe this is right, given the increasing evidence that institutions with overexposure to carbon-intensive investments are not acting prudentially.
In the debate last week, the Minister said:
“There is no evidence that ‘greener’ means ‘prudentially safer’, at least not yet”.—[Official Report, 24/2/21; col. GC 224.]
Although we accept that evidence in this field is still being collected, we believe that there is already a sufficiently strong evidence base on which to act. This has been confirmed by the Bank of England, which is already planning to tighten the supervisory expectations on climate-related risk for banks and insurers. As the Governor of the Bank of England said—and we all seem to be quoting the governors or the bank in different guises in this debate, but all roads lead to the same conclusion—in a recent speech:
“Investments that look safe on a backward look may be existentially risky given climate change. And investments that might have looked speculative in the past could look much safer in the context of a transition to net zero.”
Therefore, let us face it: high-level thinking is changing fast, whether it is by the Chancellor or the Governor of the Bank of England or, indeed, in the quotes from BlackRock that we looked at in the previous debate. There are big changes and big thinking going on. We now need to turn that recognition by all those leadership characters into practical policies for the future, and that is what we are attempting to do. We identify the urgent need to revisit investment assumptions and near-term capital requirements, and that is what Amendment 28 is trying to do.
Amendments 31 and 32 focus on the specific risk weight of investment in fossil fuels, which remain a major contributor to carbon emissions and are inevitably high-risk. We welcome the debate on these amendments and the specific risk weights that are proposed. I listened carefully to what the noble Lord, Lord Oates, and other noble Lords, had to say on this. We feel that the noble Lord was making a very valid point. As other noble Lords have said, the wording of these amendments might not be perfect, but they are certainly worthy of further exploration. On that basis, I look forward to the Minister’s response.
Earl Howe (Con)
My Lords, I am grateful to the noble Lord, Lord Oates, for his clear and succinct introduction to these amendments, and to other noble Lords who have spoken in his support, as well as to those who have sounded a more critical note.
I have already spoken about some of the broader questions relating to climate change and financial services in a previous debate and, in response to the noble Baroness, Lady Ritchie, in particular, I set out last Wednesday the significant action the Government are taking in this area. I also indicated that I have heard and understand the well-argued concerns of noble Lords about the manifold risks arising from climate change. I stand ready to discuss those concerns in the context of this Bill as constructively as I can between now and Report.
To add one more assurance in reply to the noble Lord, Lord Oates, who spoke about the risk of stranded assets and asked specifically about a transition plan, the Government are committed to a managed transition that puts new jobs in the clean energy sector at the heart of our strategy. My right honourable friend the Prime Minister set out details of this in his 10-point plan; further detail will be included in the forthcoming net zero review.
If I may, I will focus my remarks more narrowly on the specific issues raised by these amendments. Noble Lords reflected in earlier debates on the importance of prudential regulation, which aims to ensure the safety and soundness of the financial system. Much of the UK’s existing prudential regulation was introduced as a result of the 2008 financial crisis, to protect our economy by ensuring that financial services firms are adequately capitalised and properly managed to limit the risk of failure and the impact that would have on the economy. We must therefore be careful when considering the use of prudential tools to deliver other policy objectives; my noble friend Lady Noakes was absolutely right to emphasise this.
Indeed, one of the key advantages of the approach taken in the Bill is that it allows the UK’s prudential regulator, the PRA, to react where necessary to changing market conditions and to developments in international work and research on climate risk, particularly the development of a global consensus on what role the financial sector should play in tackling climate change. I believe this is a better solution than the amendments we are discussing here.
Amendment 28 would require the PRA to set capital adequacy requirements of a credit institution while having regard to its exposure to climate-related financial risk. As I have said, I appreciate all the concerns around climate change—there is no question of the Government being complacent about them—but I cannot see how this amendment would deliver more than the PRA’s existing obligations under the Financial Services and Markets Act, which by definition requires it to consider risks to the safety and soundness of financial institutions. I say to my noble friend Lady Altmann in particular that this includes climate risks in the same way as any other risks. The regulators are very alive to climate-related risks and are already acting to make sure they are understood and addressed in the financial system. To prove the point, the PRA will undertake climate-related stress tests in June to ensure that the financial system remains resilient to climate-related risks.
Amendments 31 and 32 would require the PRA to set punitively high risk weights against exposure to existing and new fossil fuel production and exploitation. These risk weights would, in effect, make it more expensive to finance such activities, and thereby make them less attractive. However, the point of the Bill is to support a flexible regulatory system that can respond to changing circumstances and developments as they arise. This framework puts financial stability at its heart through the PRA’s primary objective of safety and soundness. Other relevant public policy considerations are dealt with through the system of “have regard” set out in the Bill. None of these is prescriptive in the way that these amendments are, and they are, quite importantly, subordinate to the PRA’s primary objective. I maintain that this is the most effective way in which to ensure appropriate prudential treatment for all assets. Putting other public policy issues on a par with safety and soundness could lead to decisions being taken that are not sufficiently focused on the core purpose of prudential regulation.
Amendment 42 would require the Treasury to make regulations requiring credit rating agencies to give due consideration in their ratings to the level of exposure of a credit institution to climate-related financial risk. The credit rating agencies regulation sets out the UK’s regulatory regime for credit rating agencies, which are supervised by the FCA. A key principle of the regulation is that the agencies are independent, and the credit ratings they produce are independent, objective and of adequate quality. In producing these ratings, credit rating agencies are required to use methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience. However, the credit rating agencies regulation does not stipulate factors that must be included within the methodologies used by credit rating agencies. In line with this principle of independence, the regulation prohibits interference of public authorities in the content of credit ratings or methodologies when performing their supervisory functions. This is an important principle designed to ensure that ratings have not been unduly influenced.
However, the regulation places requirements on credit rating agencies clearly to disclose their methodologies and the key elements underlying the credit rating or the rating outlook. That ensures that those using the ratings can make an informed choice as to whether a rating gives due regard to the impact of a type of risk on the creditworthiness of the institution in question, including climate-related financial risk. In addition, EU guidance published in 2019 provides that, when a credit rating agency changes a rating, it must disclose whether environment, social and governance factors played a part in that decision. The FCA has publicly communicated that it considers all guidance published by European authorities before 31 December 2020 to be relevant to UK firms and, therefore, UK agencies are expected to continue to apply this principle. More generally, the Government have committed to implementing the requirements of the Task Force on Climate-Related Financial Disclosures in the UK, with a significant portion of mandatory requirements in place by 2023, and all relevant firms reporting in line with the requirements by 2025.
On the topic of disclosures, Amendment 136A would require the Government to introduce an obligation on fund managers to report to the FCA on how their funds are satisfying environmental, social and governance requirements. I have already spoken about the Government’s commitment to implementing the requirements of the Task Force on Climate-Related Financial Disclosures—TCFD—in the UK. Becoming the first major economy to commit to fully mandatory and public climate disclosures is even more ambitious than the proposed amendment, which requires FCA-regulated fund managers only to make disclosures to the FCA. But fund managers do not yet have sufficient information on environmental factors from the wider economy in which they invest. The mandatory TCFD road map set out by the Government will apply to funds and the wider economy in a co-ordinated timeline.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I understand that the noble Baroness, Lady Jones of Whitchurch, may not have completed her remarks before the Minister began. Does she have anything that she wishes to say?
Baroness Jones of Whitchurch (Lab) [V]
Obviously the Minister has now responded. I think I made the point in conclusion that the high-level leadership and thinking, including from the Chancellor and the Governor of the Bank of England, are moving in the same direction. Something more urgent is needed, and the Bill is the ideal mechanism for delivering these changes on the ground; otherwise, we are in danger of this becoming aspirational, when the urgency is more immediate.
I apologise to the Minister. I have just been trying to find out what happened, so I did not hear everything he said. Underpinning all this, I feel that the amendments are worth while and deserve further consideration, and that we need a mechanism to have more targets and better data, assumptions and methodology. We need the regulators to set that; otherwise, if we are not careful, we will end up with annual reports that, as we have said in the past, are just greenwashed and are not in any way held to account. I will finish there and I apologise to noble Lords if they did not hear all the things that I had to say.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
Does the Minister wish to respond? No? In that case, I call the noble Lord, Lord Oates.
Lord Oates (LD)
I thank noble Lords from all sides of the Committee for their contributions. I am particularly grateful to those noble Lords who signed the amendments and spoke in the debate. I am grateful also to the Minister for his courteous response and for agreeing to continue to discuss these issues.
The noble Lord, Lord Sharpe, made the point that we are going to need fossil fuels for some time to come. That is precisely the point I covered in my opening remarks. That is why we need to risk existing fossil fuel operations properly and effectively so that they can continue as we transition.
The noble Lord, Lord Sharpe, and the noble Baroness, Lady Noakes, questioned which companies Amendments 31 and 32 might apply to. The intention was for them to apply to activities as opposed to specific companies, and specifically to fossil fuel activities to try to avoid capturing some companies’ non-fossil fuel activities. I am perfectly happy to accept that the amendments’ wording might be improved, but that was the intention. The issue we have to deal with is the threat of continued fossil fuel activities beyond what we have the carbon budgets for.
Overall, however, I was struck by the absolute complacency from the Government Benches—the lack of realisation of the issue that we are facing and of the urgency of dealing with it and of trying to use whatever tools we can to address it. The noble Baroness, Lady Noakes, appeared to question the very concept of using prudential regulation to achieve the objective of averting climate change. She said that the impacts of climate change were unlikely to find their way into credit risks in the short term. She also said, as the noble Baroness Lady Bennett, reminded us, that banks do not lend in situations where there is a high risk of default. History explicitly and categorically refutes that. The noble Baroness also informed us that credit agencies did not need any help in assessing credit risk—the same agencies which gave their highest ratings to complex securities associated with the subprime mortgage crisis.
Prudential regulation is a tool through which we can, necessarily and legitimately, regulate the sector and ensure its financial stability. My noble friend Lady Kramer quoted the current Bank governor’s rather extraordinary statement that we were not going to use the results of the stress tests of different climate scenarios to inform the size of firms’ capital buffers. But he did say that that does not mean firms should not be thinking about near-term capital requirements. He set out that firms must assess how climate risk could impact their business and review whether additional capital needed to be held against this. He expressly recognised the legitimacy of using capital requirements to tackle climate change.
The IPCC has warned us that if we do not act decisively to mitigate climate change, we are on a global warming path of between 3.8 and 4.8 degrees centigrade by the end of the century, with a range of median values between 2.5 and 7.8 degrees centigrade. That is the seriousness of the situation we face. Central bankers are clear about the huge risk that climate change poses to the financial system. But what is the reaction of the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharpe? It is to say: “We don’t need to do anything now. Let’s wait and see.” We do not have time to wait and see.
We know the risks we face. If we do not act, we are culpable. Is our excuse to our children and grandchildren, nieces and nephews, and grand-nieces and grand-nephews going to be: “Oh, sorry, it was all too difficult. We were busy trying to measure everything and we thought the banks were quite good at predicting risk anyway, and they all let us down”? The noble Baroness, Lady Noakes, asked: why would we deny the City the opportunities of a relatively low-risk, profitable business? There is a simple answer to that: if those activities continue unabated, they will threaten the very future of human society. That is a reality. That is why we have to act.
In view of the Minister’s willingness to continue to discuss these issues, I beg leave to withdraw my amendment.
The Deputy Speaker (Lord Russell of Liverpool) (CB)
We now come to the group beginning with Amendment 29.
Amendment 29
“Further matters for regulators to take into account
When making rules using their powers under the Financial Services and Markets Act 2000, the Prudential Regulation Authority and Financial Conduct Authority must—(a) have regard to competition within the contexts of—(i) the availability of consumer choice and fair pricing;(ii) the development and encouragement of new products and new industry;(iii) the desirability of supporting the international reputation of the United Kingdom for good governance;(b) structure the rules to establish clear categories for different types and sizes of financial service businesses including—(i) in banking, for small co-operative, mutual and community banks;(ii) in insurance, for captives and reinsurance.”Member’s explanatory statement
This is a non-exhaustive example of additional high level policy that could be embedded in the remit for the Regulators.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I support all the amendments in this group and will speak to my Amendment 29, which suggests further measures for regulators to have regard to. I also remind the Grand Committee of my financial services interests, as in the register.
“Have regard” clauses are the only things that the Government are proposing as additional accountability measures in this Bill, or as the “activity-specific regulatory principles”, in the language of the HMT consultation. Indeed, views were sought in question 2 of the consultation concerning more “have regards”.
The first part of my amendment seeks to give the PRA, as well as the FCA, a set of competition considerations relating to consumer choice and fair pricing, the development and encouragement of new products and new industry, and the desirability of supporting the international reputation of the United Kingdom for good governance. These are self-explanatory, but giving encouragement to new products and new industry is something that is important for both regulators. There is overlap here with issues that were discussed in the competition group on the first day of Committee. This is the kind of measure on which it seemed there was more consensus, but I will not repeat that debate.
The second part of the amendment, also under the umbrella of competition, in proposed new subsection (b), suggests that rules establish clear categories for different types or sizes of business, and two examples are given for banking and insurance. The regulators frequently inform us that they apply proportionality, but it is often within an overall regime that does not allow specific or easy identification of a stand-alone category and may not always take advantage of all legitimate considerations.
In banking, I have highlighted regimes for small co-operative, mutual and community banks. I have the impression that these banks have been at best tolerated by the PRA, rather than encouraged; perhaps it is awkward for the PRA to have more banks to deal with, perhaps there is no promotion from working with the small guys, or perhaps it is like it was with the old FSA and everybody wants the big glamour jobs. It seems to me that, for quite a long time, the public and parliamentarians have been saying that they want banks in the community, understanding the community and with purpose linked to the community, but the atmosphere in the PRA still seems to be one of reticence and suspicion.
For insurance, there has also long been a call to have better-elaborated categories that deal with different types of risk transfer. This is something that other countries have done, notably carving out specific regimes for captives and reinsurance, which has given them a competitive advantage. I should like to be able to see what the UK is doing in this regard and compare it much more easily with Ireland, Luxembourg or the Netherlands—or, indeed, Bermuda. It has always been possible; it is nothing to do with being in the EU or not—it is our regulators.
Recital 21 of Solvency II states:
“This Directive should also take account of the specific nature of captive insurance and reinsurance undertakings. As those undertakings only cover risks associated with the industrial or commercial group to which they belong, appropriate approaches should thus be provided in line with the principle of proportionality to reflect the nature, scale and complexity of their business.”
Of course, the attitude of HMT and UK regulators to recitals in European legislation is that they are not binding and so they are not interested, but other countries have taken notice. It is all very disheartening, as it was British MEPs who worked hard to get those words in there. Therefore, I would quite like to have another go with a “have regard”, where at least the regulators would have to explain why they have disregarded it.
The Central Bank of Ireland took the recital to heart and, taking the definition of a captive from Solvency II, has defined a “direct writing captive insurer” for which there is a specific “differentiated supervisory approach” under which the solvency, capital and governance requirements are less onerous. That approach is justified by the narrower risk referenced in recital 21. Are these the sort of more flexible, tailored kinds of rules that the Minister would like to see put to good use in the UK? If so, then maybe, over a decade on, we can get to where we should have been. Even if we do not, this illustrates a significant example where having the regulator’s justification for not “having regard” would at least be useful. I beg to move.
Lord Holmes of Richmond (Con) [V]
My Lords, it is a pleasure to take part in this debate on the second group of amendments and I declare my interests as in the register. I will speak to Amendment 126 in my name and, before I do so, say it is a pleasure to follow the noble Baroness, Lady Bowles of Berkhamsted. I congratulate her on the way that she introduced the group.
My Amendment 126 offers a structure of regional mutual banks, which are successful in other nations but not so present in the UK. With the current situation apropos Covid and the current economic outlook, it seems timely to reconsider the whole concept of mutuality via the structure, as set out in this amendment, of regional mutual banks. If we get this right, it would seem to play very much to the levelling-up agenda, to the regional agenda and to a more collaborative, connected and closer relationship between lender and lendee—with both sharing a part of the journey in whatever endeavour, be that individual or SME.
Elsewhere in Committee I have raised, and will raise later, issues around financial inclusion which are a stain on so many of our institutions and lives. But this is not a question just for individuals shut out of our financial services system; it is a question for the underbanked as well as the unbanked. It is also a question for SMEs, unable to get the lines of credit they require to do what SMEs do best: grow the economy for the benefit of their employees and communities—for the benefit of them all. In Amendment 126, the consideration of regional mutual banks goes to all these points.
Similarly, it could be the basis for a rebirth in this country of true patient capital, which is much in existence in other nations but not, perhaps, so much in recent years in the UK. We may also wish to consider changes to the rules around pension fund investments, which could come through such vehicles as regional mutual banks. We are all aware of the names of some famous and successful international pension funds—Ontario Teachers, to give one example. Why do we know about it, when most people perhaps do not necessarily know about our large pension schemes? It is because of the current rules and approach when it comes to where all that potential investment can be deployed.
Again, the amendment suggests that the whole question of capital adequacy should be considered. If we have a structure with a different funding model, leaning more towards patient capital, should we consider whether the current capital adequacy rules are indeed adequate for such institutions? Are they in fact acting as a barrier, a blocker, to the development of regional mutual banks? With such structures, the amendment seeks to probe a reconsideration of risk and risk profiling when it comes to these kinds of banking operations. The amendment also seeks to look at other social, economic or political limiting factors which may be out there.
Finally, I hope my noble friend the Minister will agree that Amendment 126 offers a helpful suggestion in terms of the seeding of such regional mutual banks. Public finances have rarely been as tight as they are right now; everybody understands that. Perhaps dormant assets could be used to act as some seeding to see where we could take the whole concept of regional mutual banks.
As we come out of Covid, it seems an opportune moment to reconsider, reimagine and potentially reignite the whole concept of mutuality throughout our society, which was so successful and so beloved in previous generations. I hope my noble friend the Minister will agree that Amendment 126 offers a positive, creative structure worth considering for the future. Regional mutual banks could play a key part in the Covid rebuild and in future, as yet unwritten, success stories.
Lord Stevenson of Balmacara (Lab) [V]
My Lords, I declare my interest as a former chair of StepChange, the debt charity. I put my name down to speak in this group of amendments because they give me an opportunity to raise a wider concern about the access we need to low-cost credit. In fact, this fits in very closely with points already made by the noble Baroness, Lady Bowles, on Amendment 29 and the noble Lord, Lord Holmes of Richmond, on Amendment 126, and his important point about financial inclusion and the need to make sure that we do not forget that. I am looking forward to the comments to be made by the noble Baroness, Lady Kramer; she will also touch on these issues when she comes to speak.
When responding to a group in an earlier debate, my noble friend Lord Tunnicliffe mentioned that he grew up in a household where poverty was a constant worry. He mentioned the “jam jar economy”, which often characterised low-income households. It was cash-based: putting small amounts of coin away for future expenditure. Indeed, research a few years ago showed the surprising conclusion that the lowest paid in our society were often the heaviest savers on many measures, mainly because they had to be. It was done outwith traditional credit sources and topped up where necessary by house-to-house lenders, which were often a vital lifeline.
A key problem I want to highlight is the need to solve the problem of how to expand low-cost credit. My noble friend Lord McNicol, when he was speaking in an earlier group, mentioned the problems revealed by a very interesting report by the University of Edinburgh Business School on the financial health of NHS workers—people who were in employment but receiving low wages. It was based on real-time open banking figures. It showed across the 20,000 or so NHS workers who were surveyed that far too many were heavily reliant on a regular basis on persistent overdrafts and high-cost credit, often borrowing to meet the emergency needs they had from time to time, at APRs of well over 1,000%. The report makes for very interesting reading, and I hope that the Government will have access to it when they come to consider these issues further.
I know that the Government are concerned about this and that their financial inclusion work recognises, as previous Governments have, that the availability of low-cost credit is a major blockage to financial well-being. As the noble Lord, Lord Holmes of Richmond, said, it also affects the ability of SMEs and sole traders to operate successfully in a difficult economy.
I hope that the Minister can say a bit more about the plans the Government have when she comes to respond. I know that the Government will pray in aid the idea that credit unions will often be the solution; they have been mooted so often in the past but do not seem to grow. Other countries have other models—Germany has its particular banks focused on the local economy and America has the Community Reinvestment Act—which have solved the problems. Is there not time to consider things that might operate more successfully here in the UK?
None of the individual measures outlined in the amendments in this group, welcome though they are, will solve low-cost credit and the drought that we are suffering from. But they make the point well that the regulatory measures in the Bill should not restrict much-needed support from institutions, banks and other organisations such as credit unions to help those who need to borrow but who cannot do so at the rates or in the period of time which are often required by our major institutions. I look forward to the Minister’s response.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
The noble Baroness, Lady Neville-Rolfe, has withdrawn from this group, so I call the next speaker, the noble Baroness, Lady Noakes.
Baroness Noakes (Con)
My Lords, various amendments in this group address different aspects of small and medium-sized banks and other financial institutions, and I am not opposed to having more and different banks in the financial system. Indeed, anyone who has had a bad customer experience with one of the major banks, as I have in the past year, supports more competition and choice. However, I sound a note of caution: we have to be very careful not to send the regulators down a path that could lead to poorer outcomes for consumers.
I am always reminded of the history of building societies, the number of which has shrunk dramatically over the past 100 years or so. These were often small and regionally based, and the numbers have reduced for two main reasons. One reason for this was obviously the liberalisation measures which allowed a number of them to demutualise—one of the more recent trends—but, over time, the other reason was that these were small organisations which were often not managed particularly well and had insufficient financial resilience, and they often had to effectively sell themselves to other building societies in order to protect members when things went wrong.
Against that background, regional banks, as suggested in Amendment 126 in the name of my noble friend Lord Holmes of Richmond, are, in my view, unlikely to be a panacea. It is less than clear that the failure of a regional bank could easily be prevented in the current regulatory environment. I do not oppose the report that he suggests but I am a bit of a cynic when it comes to seeing that as a useful way forward.
I particularly want to speak to Amendment 91 in this group, in which the noble Baroness, Lady Kramer, has suggested restricting access to the term funding scheme if it is not then available for onlending to other banks and providers of finance. I accept that there may be an element of protectionism in the large banks that have access to the term funding scheme not wanting to share that advantage source of finance with other lending institutions. But the scheme suggested by the noble Baroness, Lady Kramer, would require the major banks to accept the credit risk of dealing with these smaller organisations without any ability to price for that risk. These organisations often struggle to raise equity capital, for good reason: they carry higher risk, they are often not profitable, and they do not all survive.
It seems to me that if the Government think it is a good idea to fund more lenders at preferential rates in order to fund the various lending schemes that have been introduced, they should instruct the Bank of England to vary its lending criteria for the term funding scheme. At the moment, it is restricted to those with access to the discount window facility. It would not take too much to get that changed, without trying to distort the lending decisions of the major banks. If the Bank of England were unwilling to assume that risk itself, it would be open to the Treasury to underwrite it for the Bank, without distorting the decisions made by the banks that do take term funding scheme finance.
Lord Naseby (Con) [V]
My Lords, I will speak to Amendments 29 and 126. Amendment 29 adds a hugely important new clause, clearly positioned by the mover, the noble Baroness, Lady Bowles, to whom I pay tribute.
By way of background, I have been involved in the mutual movement nearly all my life. My parents were active members of a co-operative. I bank with the Co-operative Bank. I have been politically involved since the days when I was leader of the London Borough of Islington, for some three years from 1968. I entered the Commons in 1974 and took an interest in debates from then onwards, becoming a non-executive director of the Tunbridge Wells Equitable Friendly Society in the 1980s. When I left the Commons in 1997, I became chairman of this society, the trading name of which was the Children’s Mutual. We built up a leading position for the child trust fund; to my deep regret, the Government of the day decided to end that fund. Finally, I had a Private Member’s Bill in your Lordships’ House, which became the Mutuals’ Deferred Shares Act 2015. So, I reckon to know a little bit about the mutual movement.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
My Lords, we will stop for a minute while we sort out the problem with the sound.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
My Lords, the noble Baroness, Lady Altmann, has been muted, I am glad to say, so we will now return to the noble Lord, Lord Naseby.
Lord Naseby (Con) [V]
I thank the Lord Chairman. As I was just saying, in both the United States and Canada there has been a change in young people’s attitudes to debt. This is one reason why the credit union movement there is seeing better times and beginning to come strongly back to life. However, two other things have happened here. First, during the pandemic, people have had a chance to look in great depth at their own financial situation; many are responding to approaches by building societies, credit unions and the other mutuals by having interactions, on the basis that they know somebody. They do not know anybody in the banks. I do not have a clue who looks after an account that I have at RBS; all I can do is act on the telephone. Secondly, and in addition, what do we see on the ground? Bank after bank are closing branches. Whereas in the old days I could go to the RBS in Biggleswade, and then to Bedford, now they have all gone. There is an opportunity here that should be encouraged.
Secondly, I will look not at cheap credit—I hasten to say—but what is called “home-collected credit”, which I covered to some extent at Second Reading. That is all about consumer choice and a fair price. Home-collected credit has been around for 150 years. It is highly successful: it is the credit of choice for the working classes, if I may use that phrase in today’s world. People who use home-collected credit take out small, short-term loans perhaps three or four times a year, probably around Christmas, Easter, birthdays and days such as that. They know what the terms are; the terms do not change, and if they run over in terms of repayment, there is not some swingeing increase in the rate charged. They get a single credit charge.
On the other side, there are payday loans. Every one of us in politics knows exactly what those loans are about: they compound interest and offer high-frequency, weekly loans that people get hooked on. When they go a bit wrong, the claims management companies—CMCs—leap in with a huge volume of complaints, most of which are manufactured. The problem is that today the FCA appears to be treating all high-cost credit models in the same way. The regulator is taking a singular sector-wide approach to affordability and repeat lending and pays less or no attention to the crucial differences between these two products. Whereas officials once differentiated between the responsible and the harmful models, now they treat them all the same. There is therefore a real danger of the HCCs being driven out of business.
In 2018 no less a man than Andrew Bailey said that people viewed home-collected credit differently from rent-to-own and payday ones, and that this was the model he thought about because the difference with home-collected credit is that the borrower knows the lender. The agent is the lender; that is, it is a different, almost social relationship that goes on and creates different attitudes. I ask the Minister to have a close look at this, and perhaps a discussion with the FCA and the Financial Ombudsman Service, to ensure that there is a clear differentiation in any investigations that they might want to undertake between these two very different models.
Thirdly, with the permission of the Committee, I would like to go back to the Mutuals’ Deferred Shares Bill, which I took through your Lordships’ House in 2015. I was motivated to do so by my interest in the mutual movement and by the financial crash of 2008. It seemed to me that there was a need for mutual insurers and friendly societies to have a means of raising capital. That is what I set about doing and it became law in 2015. That was, for me, a high day for the mutual movement. Today, there are not hundreds of mutual insurers and friendly societies: in fact, the active ones are the 52 that are members of the Association of Financial Mutuals.
What that Bill—which is now an Act—did was important, first, because it gave access to new capital, particularly for the friendly societies and mutual insurers. Secondly, without that new capital, many mutuals would have been driven into inappropriate corporate forms through demutualisation. Thirdly, a lack of capital limits mutuals’ growth and their ability to develop new services, which is what this amendment is all about. Fourthly, like all businesses, mutuals need to be able to benefit from economies of scale. Fifthly, it is important to learn lessons from that financial crisis I mentioned; if financial services businesses are to build up stronger capital bases, they require the legislated regulatory agility with which to do so. Sixthly and lastly, there are direct benefits of being able to issue new shares; debt—the alternative—is of lower quality than equity for firms wishing to build their capital base.
One dimension of the then Bill had two elements to it. I am afraid the Government of the day decided they would not accept the second arm that I put in the Bill originally, which was the proposal to have redeemable share instruments for co-operative and community benefit societies. At the time, the Government said they were
“unpersuaded about the merit of a redeemable share instrument as these societies already have a means of issuing redeemable shares. The Government do not see a clear need and demand for such an instrument”.—[Official Report, 24/10/14; col. 923.]
I think the world has not changed. The Government need to have another long, hard look at the second element of that Bill. Obviously, I withdrew that section, because I was happy to have what I could get.
The mutual world is dynamic. If we have learned nothing else from Covid—I was in isolation for my 10 days because I caught it at the beginning of January—it is that people work very hard on a local level. We need to capitalise on that. Society wants it. The wind is in the right direction. I hope very much that the amendments that both the noble Baroness, Lady Bowles, and my very good and noble friend Lord Holmes are putting forward find a following wind—not necessarily in the format they have produced them but certainly in some other format—and come to fruition.
Baroness Kramer (LD)
My Lords, I will speak very quickly to Amendments 29 and 126. Like the noble Lord, Lord Naseby, I welcome both. We need to keep putting pressure on the regulator to be far more granular in regulation. There has been significant improvement on predecessor regulators, but there is a lot more work to be done. I will speak in a later group about roles which could encourage the regulator to gap-fill, which is very much related to how it regulates a much more varied set of financial organisations, particularly relatively small ones.
Unlike the noble Baroness, Lady Noakes, I am a very strong fan of the idea of regional banks, so I appreciate the amendment of the noble Lord, Lord Holmes. You have only to look at the Landesbanken in Germany and their capacity to focus on local issues and people; they are there for them during times of crisis when, frankly, big banks tend to flee. Being regional does not guarantee that you are good, but it certainly creates a different dynamic, which we ought to explore—particularly in an era when we are talking much more about the importance of devolution and recognising its significance, and dealing with a levelling-up agenda. I hope all those will generate some thought in the Treasury and Government.
My three amendments—I am sorry there are three and that I have to talk to all of them—are probing amendments into problems that the Government need to get down and fix promptly.
Amendment 43 deals with the proportionality issue, which really is urgent. The level of loss-absorbing capital which medium-sized banks must hold in the UK is decided by the Bank of England. The Bank has been clear in declaring that these banks are not systemic, so we are not looking at systemic risk, but it treats them as if they were major banks, systemically risky, for the purposes of setting the requirement for loss-absorbing capital, and sets what is known as MREL—the minimum requirement for own funds and eligible liabilities—at 200% of their minimum capital requirements.
This is not an international norm. In the UK, the threshold at which MREL kicks in is a £15 billion balance sheet, or 40,000 transactional accounts—that really is a medium-sized bank. In the eurozone, the threshold is a €100 billion balance sheet, and in the US it is $250 billion before MREL kicks in. I really think that the Bank of England needs to go back and look at this.
Lord Tunnicliffe (Lab) [V]
My Lords, despite various initiatives to encourage the emergence of challenger banks and local and regional institutions, barriers to entry remain high and the UK does not have a very positive story to tell. If they were provided with the right regulatory framework, an expansion in the number of local and regional banks could play an important role in addressing local inequalities, building financial inclusion and increasing the proportion of lending going to the real economy SMEs. It is important not to look at this as a zero-sum game; it is not, or at least should not be, a choice between supporting either big corporates or small banks, but rather about creating a financial services ecosystem that covers everybody’s needs.
These amendments seem benign. Nevertheless, banking is a risky activity. It is a funny business: it goes out of its way to look respectable and sound, but, as we know, it is extremely frail. In the financial crisis of 2008, the country almost came to a position of collapse—much closer than we seem to remember. Only through decisive action by the Government of the time, and by other overseas Governments, were we saved from a serious financial crisis that could have crippled the world.
When looking at a bunch of amendments like this, one might be tempted to say that the PRA’s general objective will look after us, and one should remember that its general objective is promoting the safety and soundness of PRA-authorised persons. However, if these amendments were to become a trade-off between the amendments and the PRA’s general objective, that would be a step too far in the safety of the banking structure. Accordingly, I hope that the Government will have listened to the suite of sensible ideas expressed today but judge it as an overall package of goods and bring forward some proposals that capture the best without endangering the banking system. My noble friend Lord Stevenson brought up the fact that individuals desperately need a safe and orderly form of low-cost credit, and that is equally true of SMEs.
Baroness Penn (Con)
My Lords, as has been set out, this grouping considers issues relating to competition and proportionate regulation in support of increased competition. Increasing competition in banking has been a priority for government under successive Prime Ministers; this can be traced back to the immediate period following the financial crisis and, indeed, the work of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards, of which I know noble Lords in this Committee were members.
Amendment 29 seeks to ensure that the FCA and PRA give due consideration to competition in exercising their duties and apply their rules and regulations proportionately to different-sized firms. It is important to note that the FCA and PRA are already required to consider competition as part of their statutory objectives. It was essential to put competition at the heart of the post-2007 financial crisis regulatory reforms. For the FCA, this is one of the three operational objectives and, for the PRA, it is a secondary objective—secondary to its safety and soundness objective. Since being given their competition objectives, both the FCA and PRA have taken significant actions to improve competition in UK financial services.
I shall give some examples. First, the new bank start-up unit was set up in 2016 as a joint initiative of the PRA and FCA to make the process of setting up a new bank in the UK more straightforward. Since it was launched, 20 new banks have been authorised, and the PRA continues to ensure that steps are taken to ensure that it is acting on its competition objective. For example, it consulted in summer 2020 on its approach to new and growing banks and, in November 2020, announced its intention to consider a more proportionate prudential regime for smaller banks, which promotes growth. Secondly, the FCA launched its regulatory sandbox in 2015, the first of its kind globally. This sandbox enables businesses to test innovative propositions with customers, improving the range of services and products available to UK customers. The FCA also recently launched a new digital sandbox to allow early stage firms access to data, which enables them further to develop their innovative ideas.
To give some more examples, the current account switch service, or CASS, was introduced in 2013 to allow customers easily to switch account provider when they see a better deal. As of September 2020, customers have switched over 6.8 million times using the service. The Payment Systems Regulator has been created to ensure fair and competitive access to central payment systems so that payment systems work in the interests of the businesses and customers that use them, and an SME credit data-sharing scheme has been introduced to make it easier for challenger banks and alternative finance providers to check the creditworthiness of businesses, improving their ability to lend to SMEs. I hope that reassures noble Lords that competition is already a key priority for this Government and is being properly considered by regulators.
Amendment 43, in the name of the noble Baroness, Lady Kramer, would remove existing capital requirements for banks with assets below £100 billion. As she has already explained, the intention of this amendment is to ensure that the rules on capital requirements for these smaller banks would be replaced by PRA rules with more proportionate requirements. The Government are committed to supporting more proportionate regulation for small and medium-sized banks and enhancing competition in financial services. The delegation of the relevant prudential requirements in this Bill will allow the PRA to introduce proportionality in its implementation, where appropriate.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received no requests to speak after the Minister so I now call the noble Baroness, Lady Bowles of Berkhamsted.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I thank all those who have participated in what has turned out to be quite an interesting debate. It seems that most or all noble Lords have managed to put their fingers on one or two points. It would be useful if the regulators could look through this debate, and maybe the Government could also look through it a little bit more when we get offline.
The noble Lords, Lord Holmes, Lord Naseby, Lord Stevenson, and the noble Baroness, Lady Kramer, all linked together the fact that, post-Covid, changes will be going on. Younger people in particular are looking to bank in different ways; they want to use their local services. Although I listened to what the Minister said about this Bill enabling the PRA to act in more proportionate ways, I know for a fact that they can already do that but do not. So there needs to be a little bit more encouragement. To go back to my first amendment, if things were more transparent in terms of having a category and saying, “This is how it is for a bank of small or medium size, or mutual,” we would be able to see how that proportionality works. At the moment, we are told that it is there, or “You can’t do it because of the EU”, and that is simply not true. Let us take the example given by my noble friend Lady Kramer about the MREL. You do not have to have the MREL kicking in at such a level for the medium-sized banks; that was very much introduced as something for the larger and more systemic banks.
My plea is: look at what this is asking. My basic “have regards” provisions were asking for us to have something that shows us the categorisations, layers, tiers and the strata—whatever you want to call them—so that it is clear for everybody. As the Minister herself said, there can be lots of places where things are too complex; it is not just for MREL. That is exactly the point I was trying to address: you have to go across the whole suite of regulations and bring together what is relevant for the different categories, not have the smaller banks having to fight their way through and find out that there is no consistent set of proportionality requirements.
We have started an interesting conversation here; there may well be some point that it is worth us pursuing when we get to Report on categorisation as a “have regard”. I see nothing wrong with that: we are not telling the regulators what to do but asking them to have regard because we think there has not been enough of it already. I am interested in carrying that forward, but, for now, I beg leave to withdraw the amendment.
“Skilled person review of supervisory bodies
(1) At least once every five years, an independent skilled person review must be conducted of—(a) the Financial Conduct Authority and(b) the Prudential Regulation Authority.(2) The body set up to conduct the independent skilled person review must include a person nominated by resolutions of the House of Commons and House of Lords.(3) The independent skilled person review must include a review of— (a) internal operations and controls;(b) systems for responding to whistleblowers, Parliamentary correspondence and reports, and public concerns;(c) regulatory perimeters;(d) the effectiveness of relevant legislation and rules and the regulatory burden;(e) whether all statutory and public policy objectives have been met;(f) the operation and effectiveness of engagement practices before and during rule making;(g) the skills base of the Authority’s staff;(h) any other matter the skilled person considers relevant;(i) any other matter requested by a relevant Committee of the House of Commons or House of Lords.”Member’s explanatory statement
This amendment suggests a generalised review, not linked to specific fault or failure, of a kind that exists in other jurisdictions.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I have already trailed the notion of regular independent reviews of regulators in an earlier amendment, but this amendment gives an opportunity to investigate it at greater depth.
In the Government’s consultation and in the context of the Bill, we are told that we are returning to basic FiSMA, getting rid of the statutory instrument layer containing EU-made legislation and going back to what was devised by the UK for the UK. However, it is worth noting that FiSMA never really stood alone, because the EU’s financial services action plan, laid out in 1999 and broadly completed by 2004, meant that the extensive consultation, public transparency and policy co-ordination of the EU was there and growing from the start of FiSMA and, by the time of the 2012 reforms, the EU’s rigorous regulatory and supervisory architecture was in place. Although those things were viewed as annoying by some—perhaps by many—in the UK, changes are now happening by going standalone, including loss of peer-reviewed rules and loss of peer-reviewed supervisory practices. That is especially problematic for the conduct and markets side, given the less developed international co-ordination.
After the financial crisis, the missing element of supervisory quality control was a primary driver behind the EU regulatory architecture reform, its absence being considered part of the reason for the financial crisis—a view much reinforced by the admissions of the FSA in the Turner report. Unwillingness of regulators to see the writing on the wall had certainly been a flaw in the UK. The fundamental gap of supervisory quality control has not been routinely addressed domestically; we just get reviews after failure happens. This gap will be more critically exposed in a standalone system where the regulators make all the detailed policy and all the rules as well as supervising.
Our immediate history, especially with regard to the FCA, is of repeated supervisory failures, already elaborated last week by the noble Lord, Lord Sikka—the latest being the Gloster report showing operational failures. In the news last week was the FCA being too slow on buy-to-let cars, and many more cases are bubbling on. In every case, warnings have been ignored. Private Eye often gives a good summary of what is going on, as do the broadsheets.
Viscount Trenchard (Con) [V]
My Lords, the noble Baroness, Lady Bowles of Berkhamsted, makes a good case for introducing skilled person reviews of the regulators in addition to the parliamentary oversight arrangements that I hope will be agreed satisfactorily. This transfers the boot to the other foot; the difficulty would be in deciding who could be skilled enough to assess the regulators. Would the costs ultimately be borne by the regulated firms?
In the first three years after the introduction of skilled person reviews by the regulators in 2014, fees paid for skilled person reviews, generally confined to a number of issues on parts of a firm’s business, or only one, amounted to more than £500 million. The cost of a review may amount to several hundred thousand pounds. The real cost in terms of diverted management time, legal costs and remediation activities is often much greater than the simple cost.
It is interesting that only some 8% of skilled person reviews have led to enforcement actions, even though many reviews at the time of launch were feared by firms as likely precursors to enforcement. The number of skilled person reviews commissioned by the PRA and FCA increased from 44 in 2017-18 to 51—or nearly one a week—in 2018-19. I worry that regular reviews of the regulators would be very expensive, in terms of money and time. As my noble friend Lady Neville-Rolfe often suggests, is this not a clear example of a case where an impact assessment should be undertaken before introducing a statutory requirement? I look forward to the views of other noble Lords and the Minister on this matter.
Lord Desai (Non-Afl)
My Lords, I very much welcome the amendment. I have been a Member of your Lordships’ House for 30 years. Throughout that time we have had one crisis after another in the financial markets. I have the impression that most of the time they have been due to ignorance by top people of how the market is changing and of the new products and challenges. When I first got here in 1991 we had the Baring Brothers crisis. There was no doubt that the people sitting in London had no idea what a derivatives market was, and nor did the Bank of England. Nobody knew that Nick Leeson was operating on the Yokohama stock exchange. Public information was available, but nobody in London knew where it was. Therefore, they completely missed it. We also had the BCCI crisis, but that was a pure, untechnical fraud. That is another matter.
Most importantly, I remember debating the legislation that set up the FSA. At that time we thought the problem was that self-regulation had failed in various sectors, and that these sectors were interdependent, so we had to have an overarching framework. We set it all up, but it did not help when the crisis occurred in 2008. I remember reading the report by Adair Turner—now the noble Lord, Lord Turner. He said that they had been told by the experts not to disturb the markets and to trust them. We were very impressed by that and trusted the markets, but they were wrong.
Obviously, the interesting point is that by then the market had so many new products, with fairly sophisticated probability models behind them, that it would have been necessary for the regulators to be constantly aware of new developments in this field to be one step ahead of where the market was. I will give a slightly technical example. Adair Turner said that they were told that the markets were efficient, and therefore we should try not to correct what the markets were doing. We now know that the people who believed the market efficiency hypothesis and all that—and who convinced the world—were using very simple normal or bell-shaped distribution to model movements in the stock market. While normal distribution is very easy and frequently used, it is not suitable for every occasion in the market. What we call fat-tailed distribution would have been better and predicted the crisis much sooner. But this is a technical matter.
The regulator might not know what is happening out there in the financial, economics field. It ought to be informed periodically where the knowledge has got to and where the products are. This is not something where the skilled person can necessarily come from the banking sector of one country or another. We might have to find a skilled person who knows how rapidly the market is changing, how new products are being developed, and how the nature of uncertainty itself is changing.
I believe that the amendment is very welcome. I will add one more thing. When I first read the Bill I was appalled that so much weight is being put on the FCA. I really feel that the FCA is not up to the task. I hope that after all this legislation, the Treasury review and so on we might get a better FCA, but I have grave doubts. If we are to have the FCA as it is right now, we urgently need a skilled person review, maybe not every five years but more frequently than that.
The noble Viscount, Lord Trenchard, referred to the cost. I can tell noble Lords that the cost of not doing this will be much more horrendous than the cost of doing it.
Baroness Noakes (Con)
My Lords, having been a director of a regulated bank for most of the last decade and therefore on the receiving end of regulation, the idea of a skilled person review of the regulators is immensely attractive.
The concept of a skilled person review appears in FiSMA as one of the regulators’ tools to be used when investigating the organisations they regulate. It was not used a great deal by the FSA, but over recent years skilled person reviews have become the weapon of choice for the PRA and the FCA, as the statistics given by my noble friend Lord Trenchard bore out. They can be effective tools for the regulators to get to the bottom of issues in individual institutions, but they are also very expensive and usually incentivise the skilled person to extend the work into later stages and wider remits. They can also be highly contentious, especially when the selected “skilled person” turns out to be less skilled than is needed for the task.
If there are to be skilled person reviews of the regulators, one thing that should have been included in subsection (3) of the amendment of the noble Baroness, Lady Bowles, is the use by regulators of their powers under Section 166 of FiSMA and more generally the provisions under Part XI. That could usefully be added to the list of items she has set out in proposed new subsection (3).
I was concerned that “skilled person” is not defined in the amendment—it is in FiSMA, but not in a way that would read across to this amendment. There also seems to be some confusion over whether a skilled person is involved or a body set up for the purpose, as seems to be suggested in subsection (2).
More substantively, I do not believe that a person nominated by your Lordships’ House and the other place should have any part in the conduct of such a review. I am not suggesting that there are no Members of either House who would have the skill to contribute to such a review; rather, I do not believe that Parliament should get involved in carrying out a review. Parliament should concentrate on its outcome, not its execution. I am also concerned that such a review could end up being a political football, given that proposed new subsection (3)(i) allows Parliament to request the inclusion of any matter in the review. The amendment is also silent on whom any report is to be made to and how it would interface with Parliament and its processes; for example, whether it is to be laid before Parliament or considered in any particular way.
I am sure my noble friend the Minister will not accept this amendment. However, if he does not, I invite him to explain to the Committee how the Government are satisfied that the PRA and the FCA are effective and fit for purpose, as it is not obvious that they are. If they are not, this makes a bigger case for bringing in some mechanism for an external review of the regulators to inform Parliament’s understanding of how well they discharge their responsibilities.
Lord Sikka (Lab) [V]
My Lords, I congratulate the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer. I am delighted to support their suggestion for reform.
Last week, a number of proposals for arresting regulatory failures were put forward, each offering to help the regulator—what I call “acting as a guide dog for the watchdog”. This is another proposal which has considerable merit. It builds on the notion of an independent skilled person review, a practice that is already well established to some extent. However, in the details of the amendment, it differs from the conventional notion of a skilled person review in focusing on systemic factors rather than individual cases. These include matters relating to internal controls and operations, regulatory parameters, effectiveness, treatment of whistleblowers, public policy objectives and, more importantly, matters of public concern.
Although the amendment does not explicitly say so, I am sure that the noble Baronesses, Lady Bowles and Lady Kramer, would not be opposed to the independent skilled person review being conducted by a panel of retired judges; that could be feasible. The review in any case should be in the open, take evidence on oath and require the production of key documents from producers, consumers, intermediaries and other key parties in the finance industry. The panel could travel to different parts of the UK to take evidence and report within a specified period, like the Australian royal commission that we heard about earlier.
The main aim of the inquiry would be to focus on systemic problems, get to the bottom of the recurring and unresolved scandals in the industry, enable consumers to share their experiences with the industry and its regulators, and facilitate the legislative changes needed to secure confidence in the industry. The proposed review would be a necessary step to bring about a much-needed change in organisational culture and a sense of personal responsibility and accountability in the regulatory bodies, as well as the industry.
The proposed review and its specified headings of “regulatory perimeters”, “public concerns” and “effectiveness of relevant legislation” can also focus on neglected and emerging issues. A good example of issues totally neglected in the Bill, and by the FCA and PRA, are those about the impact of shadow banking. The shadow banking sector is intertwined with retail and investment banks, insurance companies, pension funds and others, and any crisis there is bound to have a huge impact on the rest of the economy. The sector could be worth nearly $117 trillion, far bigger than the world’s GDP; it is lightly regulated, and normal prudential rules do not apply to it. I remind the Committee that the 2007-08 financial crash was triggered not by mass withdrawals of bank deposits by savers but by the inability of Lehman Brothers and Bear Stearns, key players in the shadow banking system, to meet their contractual obligations arising out of speculative gambles. So there is an urgent need for an independent review; that is what we should be aiming for.
I want to reply to a couple of comments made earlier. The noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes, referred to the issue of costs. As the noble Lord, Lord Desai, pointed out, the biggest cost is associated with the status quo, which has never been cost free. Over the months and years I have spoken to many victims of bank frauds who have lost their homes, businesses, savings, investments and pensions. All that any review panel or committee has to do is talk to them, and they will soon understand that there is a cost associated with the status quo.
The second point was the question of where on earth we would find these skilled persons. It is a sobering thought that it is not the skilled persons who told the world about any of the frauds or scandals. Journalists and ordinary people have been far more aware of what is wrong, and I am quite happy to trust their judgment to tell us what is wrong with the system, rather than having a very legalistic explanation.
I hope that in his response the Minister will now tell us how the Government have weighed up the evidence of systemic failures of the FCA and what assessment they have made of the impact of such failures on people’s lives. So far, Ministers have not supported any proposals for assisting the regulators or put forward any suggestions. Maybe the Government plan to appoint a royal commission or an independent public inquiry under the Inquiries Act 2005, or something else. It would be very helpful to know whether the Government are content or not content with the current state of affairs in the finance industry.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
I understand that the noble Baroness, Lady Neville-Rolfe, has withdrawn, so I now call the noble Lord, Lord Naseby.
Lord Naseby (Con) [V]
My Lords, I would like to thank the noble Baroness, Lady Bowles, for the second time this afternoon for an interesting new clause. I have in the back of my mind the concluding words of the Minister of State, my noble friend Lord Agnew, when he introduced this Bill. Colleagues will remember that he said the Bill
“will support economic prosperity across the country, ensure financial stability, market integrity and consumer protection. It will ensure that the UK remains a world-class financial centre.”—[Official Report, 28/1/21; col. 1814.]
So we all know that the Bill is absolutely key. This particular amendment is about the enhanced role of the FCA and the PRA and, in particular, those who lead them. It means, frankly, that they are ever more powerful and important.
The amendment calls for a review after five years, although the noble Baroness, Lady Bowles, made it clear that, according to her contacts in Australia, a shorter period would have been better. I am quite clear in my own mind that five years is far too long. A great many changes are happening all the time, and I am quite sure that the market will remain dynamic and there will be many opportunities; personally, I would suggest a period of three years. You could argue for two, and I understand why you might, but I think that three years is about right, because it is quite a challenge for those who are running these two organisations to be reviewed after two years, which in effect means 18 months.
Should it be just one person? No, it is far too big a challenge for just one person. I believe there should be a team of three, and it should be the responsibility of one of them to be the chairman of the review, with a casting vote if necessary. In my experience of 12 years on the Public Accounts Committee, quite often a small working group would be set up of just three of us to look at the spread and success or otherwise of our work, and it seems to me that that was a good test market. Secondly, I had the privilege of being chairman of a quoted investment trust for some 10 years on a fixed-term basis. We had a limited number of non-executives and we decided that there should be a review every two to three years of the strategy that the operational company was following.
I say to the noble Baroness: well done for putting this forward. In principle, it ought to find favour from Her Majesty’s Government, although I am sure that the review period should be shorter than five years.
Baroness Kramer (LD)
My Lords, come another Monday, come another financial regulator story—this time in the Times. There are concerns that the FCA is going too slowly in its investigation of the Woodford scandal, to the point that Neil Woodford has felt confident about announcing plans to stage a comeback. It is just one story after another, and it very sadly makes the point. I think it is necessary to say that there are many—plenty—of good people at the FCA and the PRA, but clearly something is not working when we have regulatory scandal after regulatory scandal.
Financial services are notoriously difficult to police. The FCA is knee-deep in reviews that it has carried out after a failure, but the internal remedies that are promised every time perhaps help with the problem but do not seem to really cure it. Any financial services firm with a track record like the FCA would have been required by the regulator to bring in outside expertise to give an objective overview but then also to oversee change.
Lord Eatwell (Lab)
My Lords, one of the most important elements in this amendment is set out in the explanatory statement provided earlier by the noble Baroness, Lady Bowles, which says that the proposed general review is
“not linked to specific fault or failure”.
When we consider the history of the development of both international and domestic financial regulation, it has almost always been reactive: a model of crisis, then response. As a result, regulatory reform has typically been made in an atmosphere of crisis rather than an environment of thorough, calm consideration. So a periodic report by a skilled group might enable our regulatory system to get ahead of change in financial markets rather than persistently lag—and change, as we know, is persistent and indeed accelerating.
Another important factor that favours the proposals by the noble Baroness, Lady Bowles, is the extraordinary complacency evident in the documents issued with the Bill and in those issued so far that are associated with regulatory framework review. Organisations that in the past displayed a total lack of understanding of systemic risk in the markets they were supposed to be regulating should not resist external scrutiny and advice from well-informed parties; indeed, such external scrutiny would be in the national interest.
However—I am afraid I now come to that word—given the assurances of the Minister in summing up the debate we had on parliamentary scrutiny, I wonder whether we are at risk of creating too many committees and too many reviews. A well-resourced parliamentary scrutiny committee, which I trust the Minister has in mind, would recruit expert, experienced advisers to help them in the discharge of their responsibilities and would conduct periodic reviews. I must say that I was struck by the comment by the noble Baroness, Lady Kramer, that the buck stops with Parliament; indeed it does. I therefore suggest that it would be more fruitful for this Committee to concentrate on ensuring that well-resourced parliamentary scrutiny is indeed introduced, rather than taking the path suggested by the noble Baroness.
Earl Howe (Con)
My Lords, this amendment would require an independent review of both the FCA and the PRA every five years, and it sets out a number of things that the review would have to cover. The FCA was created to ensure that relevant markets work well. In practice, that means regulating the conduct of firms to make sure that the financial services sector is serving the interests of individuals, businesses and the economy as a whole. It has a broad remit and is responsible for regulating nearly 60,000 firms.
I accept the point made by the noble Baroness, Lady Bowles: the recent investigations by Dame Elizabeth Gloster and Raj Parker have shown that the FCA does not always get this completely right. However, the FCA is wholly committed to learning from past mistakes. It is addressing the recommendations in both these reports and we can see that commitment being translated into action.
The FCA has set out how it will accelerate its ongoing process of reform, including through its transformation programme led by the new CEO, Nikhil Rathi. It has committed to provide public updates on progress every six months, and it is right that the Government and Parliament hold it to account on delivering these important changes. The FCA absolutely knows what it needs to do, and that it needs to do it under a spotlight, both from the Treasury and from Parliament.
That is one part of my answer to my noble friend Lady Noakes, who asked me how the Government assure themselves that the regulators are fit for purpose. But the noble Baroness, Lady Bowles, spoke about the need for assurance and the noble Baroness, Lady Kramer, similarly, on the need for accountability. I reassure all three noble Baronesses that there already exist a number of mechanisms to hold regulators to account, both to Parliament to the Treasury. I believe that these existing mechanisms are sufficient to achieve the outcomes that this amendment is aiming at. I touched on some of these points in my previous remarks to this Committee, but I will attempt to provide a short summary here.
First of all, the regulators are required to produce annual reports and accounts, which are laid before Parliament by the Treasury and certified by the National Audit Office. The regulators are subject to full audit by the National Audit Office, and the NAO has the associated ability to launch value-for-money studies on the FCA and PRA. The FCA is subject to scrutiny via departmental Select Committee hearings, including the Public Accounts Committee and the Treasury Select Committee, which holds regular six-monthly meetings with the FCA CEO and Chair. The Treasury Select Committee scrutinises the appointments of the FCA Chair and CEO posts, and the Treasury has direct control over appointments to the FCA board and powers under the Financial Services Act 2012 to commission reviews and investigations.
The Treasury is also able to launch investigations under Section 77 of the Financial Services Act 2012 where it suspects there may have been regulatory failure. There are a number of informal mechanisms as well: there is nothing to prevent a Select Committee of either House launching inquiries, taking evidence on them, and reporting with recommendations; that is a decision for them. In speaking to Parliament about this Bill, both the PRA and FCA have stressed that they are committed to appropriate parliamentary scrutiny and will always respond to requests for engagement. Combined, these measures ensure that there is sufficient independent scrutiny of our regulators.
I am the first to agree that this is particularly important in light of Dame Elizabeth Gloster’s findings, but I reassure the Committee that, in addition to these measures, the Economic Secretary meets frequently with the FCA CEO to monitor progress on these critical reforms and ensure that the FCA remains focused on effectively delivering against its objectives. Of course, however, as we have discussed, the future regulatory framework review is considering the appropriate accountability mechanisms for the regulators, so this will provide an opportunity to consider these issues further. I hope that these remarks are helpful and sufficiently reassuring to the noble Baroness to enable her to withdraw her amendment.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I thank everybody who has spoken in what has turned out to be quite an interesting debate, the majority of whom have supported the general notion of my probing amendment, if not exactly all the specifics that I put into it, which perhaps tried to do too much. To clarify my intention, it was exactly as my noble friend Lady Kramer summarised: it was for a regular review that gave oversight to the regulator’s activities. As the noble Lord, Lord Sikka, said, the systemic factors also had oversight of that change.
I am sure that it is possible for this to come from other quarters. The Minister has suggested that it comes from the Treasury. Perhaps it could come from a parliamentary committee, although what I had in mind was not so much a body that solely took evidence but a few people who could get inside and examine procedures and find out how the operations worked.
Like others, I would like to clarify my concerns here. I know how difficult it is to be a regulator, especially to be the conduct and markets regulator, where things are less tangible than in some of the prudential regulation work, but it is about giving a helping hand. Although a lot of good thought and planning goes into how to address the problems that are exposed every time there is a review, if it is done from the inside, that is never the same as having eyes that come from outside. The thing about having an independent regulator is that, if you want independence, ultimately, the review should be independent. Having those reviews monitored through the Treasury is not necessarily the sort of independence that is satisfactory if you want to say that it is independent, and I question whether it is possible to do it through a parliamentary committee.
Baroness Noakes
“Continuity of contract
If the FCA exercises one or more of the powers under Article 23D of the Benchmarks Regulation in respect of a benchmark, any reference to or description of that benchmark in a contract, security or instrument must be, with effect from the date of such exercise, interpreted as a reference to or description of the benchmark as modified by the FCA under its powers under Article 23D.”Member’s explanatory statement
This amendment would ensure that if the FCA revised a benchmark under Article 23D (inserted by Clause 15) there would be continuity of contract by replacing references to the earlier benchmark with the revised one.
Baroness Noakes (Con)
My Lords, in moving Amendment 44 I shall speak to Amendment 45 in this group. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lord Holmes of Richmond for adding their names, especially as I had not expected to have any companions at all for these amendments, which are pretty technical and lack the sex appeal of some of the other groups of amendments.
These amendments concern what are known as tough legacy contracts in the context of the transition from Libor, which is expected to complete by the end of this year. The cessation of the use of Libor was first announced in 2017, and banks and other financial services firms have been working on transition since then. A principal focus for financial services firms has been on ensuring that new loans and other transactions do not reference Libor or, if they do, that there is legally watertight fallback language allowing the use of alternative rates once Libor is no longer available. This may sound easy, but I can assure the Committee that it has not been easy, and work is still ongoing. However, that is not the focus of these amendments, which are targeted at past contracts that reference Libor.
Despite considerable efforts, which will continue throughout this year, the industry has been clear from the outset that it is highly likely that there will be contracts at the end of 2021 which either have no fallback provisions or where the fallback provisions are effectively inoperable or would result in an uneconomic or unintended outcome. The regulators have been clear that the industry should solve this problem itself through bilateral or multilateral negotiations, and very considerable progress has been made. In particular, there is a revised ISDA protocol that will deal with the vast majority of derivative contracts. However, it is the case that not all contracts can be dealt with before the end of the year and possibly not at all, because there will be cases where there is no realistic means of proactive restructuring or where restructuring attempts fail.
The contracts in this legacy bucket are very varied. At one extreme, there are complex bonds which have multiple parties in many different jurisdictions, which range from hedge funds to Japanese retail investors. Getting agreement from all parties, which some bond documentation requires, is not feasible. At the other end of the spectrum are individual or SME borrowers who, for various reasons, such as default or dispute, may refuse to engage with the banks or lenders. The banks are particularly sensitised to the conduct issues that can arise if individuals or SMEs are unduly pressured to engage, especially in the context of the economic and health stresses of Covid-19.
The good news is that the regulators and the Treasury have accepted that there is a problem that needs to be solved, and this Bill contains some changes to the benchmarks regulation which will allow some legacy use of Libor, together with the ability for the FCA to set out how the benchmark is to be determined—the so-called “synthetic Libor”. These provisions have been widely welcomed by the financial services industry. However, the new provisions leave some legal loose ends, which I seek to address with my amendments.
Amendment 44 seeks to ensure that there is continuity of contract, so that any contracts transferred to synthetic Libor under the new provisions of the benchmark regulations are treated as if references to Libor were to the synthetic Libor. This is important, because a counterparty could well argue that the terms of the contract meant that, if Libor became unavailable, the contractual fallback provisions should be used instead of synthetic Libor. In the bond markets, I understand that this will in effect result in a floating rate bond becoming a fixed rate bond. In other commercial lending, the fallback will in many instances be some form of “cost of own funds”, the exact meaning of which is likely itself to be the subject of litigation. I understand that derivative contracts that cannot be restructured have no effective fallback language. I believe that a continuity of contract provision such as that provided in my Amendment 44 is essential to provide legal certainty for these situations.
Amendment 45 is a companion amendment, designed to give safe harbour from any legal claims. The opportunities for litigation could be significant, whether vexatious or not. In the retail and SME space there could even be a new opening for the dreadful claims management companies.
I should say that I claim no particular merit for the drafting of the amendments; I know that parliamentary counsel have their own ways of doing things, were the Government minded to accept the principle of these amendments. I have been assisted in the drafting by the International Capital Market Association and specialist City lawyers involved in its working groups. This has in turn drawn on the drafting of similar provisions by ARCC, the American Alternative Reference Rates Committee, for New York law. Given the international nature of some of the markets affected by tough legacy contracts, I believe the UK would be wise to act in a similar manner.
Since I tabled my amendments, the Treasury has issued a consultation paper on continuity of contract and safe harbour, which is a bit behind the pace but none the less very welcome. I know that the consultation period will run until 15 March; I hope my noble friend the Minister will update the Committee on how the Government now see this progressing.
The problems of continuity of contract and safe harbour cannot be dealt with by the FCA or the PRA because that is beyond their powers. The solution needs to reach beyond “supervised entities”, as it is not just banks and the like that need to be covered. The problems can be solved only by primary legislation. If we lose the opportunity of this Bill, I fail to see how the Government will be able to act, given that the deadline of the end of this year will be rushing up on us. Financial Services Bills are not an everyday occurrence —thank goodness—and it is important to understand how the Government will progress this important issue. I will be especially interested in my noble friend’s comments on how the Government see this. I beg to move.
Lord Holmes of Richmond (Con) [V]
My Lords, it is a pleasure to speak on this group; I declare my interests as set out in the register. It is an even greater pleasure to follow my noble friend Lady Noakes. She declared that she thought she would be a solitary performer on Amendments 44 and 45 because of their technical nature; they are certainly technical, but none the worse for it. They are absolutely necessary, as she set out. Almost irrespective of what happens beyond this point—much needs to happen—she has done a great service in throwing such a spotlight on this issue for everyone involved in this phase.
Like my noble friend, I was concerned about the seeming inoperability of many fallback positions in which various entities will find themselves. Like her, I ask my noble friend the Minister to look at that point. Similarly, can my noble friend the Minister say where the thinking is on synthetic Libor? Does she think that it is complete and that all reasonable eventualities have been considered within that construction? Alongside that, what representations has Her Majesty’s Treasury received, not least from the City and in relation to derivatives, which my noble friend Lady Noakes pointed out are a particularly sticky part of this issue?
On a previous group, my noble friend Lady Noakes described herself as a cynic—not a bit of it. She is certainly a healthy sceptic, and all the better for it.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I am pleased to support the amendment from the noble Baroness, Lady Noakes, which, as she explained, was tabled before the benchmarks consultation was launched. I share her thoughts that something nevertheless has to be done quite quickly if there is to be an opportunity to ensure that one can look forward to stability of contracts, knowing that something will be done before the end of the year. Maybe we are again in the territory of Parliament giving a consultation response through the debate.
Switching from Libor reminds me just a little—it is complicated—of the problem that we had with gilts being indexed to RPI rather than CPI, when RPI was both wrong and not being maintained by the ONS. The Economic Affairs Committee covered this in a report; indeed, we were tempted by Mark Carney to try to get it sorted out. Though I paraphrase, I think the report’s message was to grasp the nettle. That is certainly where I stood. That is really what the noble Baroness, Lady Noakes, is saying with the amendments: there needs to be continuity of contract. We do not want lots of litigation, so there needs to be a safe harbour. It makes one reflect on how wise some of the fallback positions possibly were, but we are where we are; in many instances, nobody really expected them to be activated. They are sometimes maybe not fair between the parties.
The explanations given already are very good. It would be useful to have something in the Bill. It might even be crafted in such a way that it could apply as the general precedent if one came across such circumstances again, heaven forbid. Benchmarks do change from time to time: one discovers that something is flawed, therefore one has to correct it. That should not disturb what could be made into something that can operate with continuity, certainty and without disadvantaging either side. I would therefore like the Government to take something up, if that is possible in the timeframe they have given themselves now that they have launched a consultation.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
The next speaker is the noble Viscount, Lord Trenchard.
I believe the noble Viscount is muted. Would he be kind enough to unmute?
Viscount Trenchard (Con) [V]
[Inaudible]—Amendment 45 in the names of my noble friends Lady Noakes and Lord Holmes of Richmond, and of the noble Baroness, Lady Bowles of Berkhamsted. We are midway through the process of transitioning from the familiar Libor benchmarks, the replacements for which have become more necessary since banks’ funding patterns have changed following the financial crisis. My noble friend Lord Holmes already asked the Minister what he thinks about synthetic Libor. I would also be most interested to hear his reply on that.
The Investment Association welcomes the additional powers for the FCA in the Bill as it will be better able to manage the transition, which should help to mitigate the uncertainty for holders of derivative contracts. There is the additional uncertainty caused by the existence of only temporary equivalence between UK and EU benchmark regulations. It is to be hoped that the EU will soon adopt the European Council’s recommendation to extend the transitioning period for third-country benchmark administrators to the end of 2025.
My noble friend’s Amendments 44 and 45 would be helpful improvements to the Bill, by making it clear that changes to benchmarks made by the FCA will apply to contracts made under benchmarks being revised. Rightly, they offer a safe harbour protecting parties to such contracts from legal actions resulting from benchmark changes. It is encouraging, as I mentioned, that the Investment Association supports this part of the Bill and I welcome these powers being handed to the FCA. My noble friend’s amendments would improve and reduce the risks inherent in exercising these powers and I support them.
Lord Desai (Non-Afl)
My Lords, this is a technical matter and I have nothing to add to what was said by the noble Baroness, Lady Noakes. I am merely an academic but, when these things were going on, I wondered how people who swore by the free market could have had a cartel sitting in a little room, generating a rate of interest on which billions were based. Someday, somebody ought to explain to us how anybody could trust a cartel and hope that it will not be dishonest.
Lord Blackwell (Con) [V]
My Lords, I too support these amendments and welcome the fact that the Bill addresses these issues. While Libor may have been effective in the past, we all know that it was becoming an unviable way of setting rates and was subject to manipulation, in the way mentioned by the noble Lord, Lord Desai. It is therefore important that the regulators have taken a firm line in moving us on from Libor to other benchmarks. But, as my noble friend Lady Noakes set out, in doing that, there are lots of problems with continuity of contracts. The legislation is necessary to help address those issues and ensure that partners in contracts move together to a new common contract based on a synthetic Libor.
We have to recognise that no substitute for Libor will have exactly the same characteristics. There is no perfect substitute. Most contracts will be based on SONIA, the sterling overnight index average rate, but getting SONIA terms that have the same characteristics over time is not perfect, so there will be winners and losers. That is one reason why it is important that, to give certainty, the legislation requires the regulator to ensure that synthetic Libor interest rates are taken in the contracts as substituting for Libor for both parties.
As my noble friend Lady Noakes set out, however, some parties will not accept that. They will take the change in the contract as the basis to believe, argue or litigate that the contract has been abrogated. Some parties will be out of the money in a contract and it will simply serve their convenience to choose this method to abrogate the contract. Safe harbour is therefore an important secondary requirement. If banks are following the requirement of the regulator to stop using Libor, and following its instructions in substituting synthetic Libor, they cannot then be subject to litigation from counterparties claiming that, by following the instructions of the regulator, they have abrogated their contracts. This is an important thing for those contracts, which could, in particularly vulnerable contracts, involve vast sums of money.
The Government have launched a consultation on this, but I do not think that is a reason not to legislate in the timescale of this Bill. The problem has been known about for many months—indeed, years—and has been discussed. I do not believe the Government need a consultation to understand that there is a problem or that it must be dealt with. During the passage of this Bill, if not in these amendments then in the Government’s amendments, it is important for this to be incorporated into the Bill. Otherwise, the uncertainty will go on far too long. Libor will come to an end and these issues will present themselves. This Bill is the opportunity to address them.
In taking this issue seriously, can my noble friend the Minister commit that the Government will bring back amendments, or accept these amendments, during the passage of this Bill through the House?
Baroness Kramer (LD)
My Lords, I know we have to accept the safe harbour provisions in Amendment 45, but it would be slightly less galling if we had not had to drag the FCA kicking and screaming to investigate the Libor scandal. As noble Lords know, it was finally revealed after a series of American journalists published an investigation into Libor; it then took parliamentarians months to actually get the FCA to do anything about investigating. It first did so because, by that point, the Bank of England was involved in manipulating Libor as well, although, as I think I said in my Second Reading speech, it intervened to try to provide some element of financial stability for the more honourable purpose of disguising to the world how badly the banks had been hit by the 2008 crisis. However, all of them had been aware for years that Libor was being manipulated.
I say to the noble Lord, Lord Desai, that this was no secret cartel; traders were shouting their required Libor benchmarks—the ones that would assist their bonuses—openly across the trading floors of various banks. There was nothing secret in this. At the time, under the UK approach—which is that anything not forbidden is permitted; since there was nothing to say, you could not lie in contributing to a financial benchmark —it was apparently not a criminal act or fraud. I do not think it ever even invoked the senior managers regime which came in later, but many of the players who were deeply involved in all this were obviously still around. It is a real stain on London.
I accept the safe harbour, but one of the things that saddens me is that some of those who will be hardest hit by the transition are small companies. Loans with spreads over Libor were not restricted to large, sophisticated companies; those companies will manage to work their way through this and make sure, if they are moving to a particular benchmark or negotiating a contract with the financial organisation they are set up with, that they do not come out damaged. However, many small businesses are exceedingly worried and have no idea which way to turn—do they get shifted to a new benchmark or stay with synthetic Libor? I hate to say this, but I think the assumption will turn out to be justified that, whatever happens, the amount they will pay in interest will be ratcheted up compared to the interest they would have paid had Libor remained. I find it very hard to conceive of banks saying, “We will move you to Sonia and you will pay less than you would have”. I am afraid there will be rounding up involved in all this. I am not sure how we provide any kind of fairness and justice, but maybe the Minister can talk about that.
Lord Eatwell (Lab)
My Lords, the Libor scandal has precipitated a regulatory nightmare. How is the FCA to fulfil its statutory responsibility to ensure that markets function well when one of the foundation stones of those markets, the Libor benchmarks, are to be discontinued and replaced by untried underpinning?
The change in benchmarks is not only a problem for individual contracts, it is a systemic risk that the measures in the Bill do not—the FCA itself admits—entirely mitigate. To quote the FCA:
“Where parties to contracts referencing LIBOR cannot reach agreement on how those contracts would operate in the event of LIBOR’s cessation, discontinuation could cause uncertainty, litigation or loss of value because contracts no longer function as intended. If this problem affects large volumes of contracts it could pose risks to wider market integrity of contracts/financial instruments.”
The section in the Bill dealing with benchmarks attempts to limit the potential damage. The FCA describes one area of potential damage in these terms:
“This is to cater for a scenario where either a benchmark administrator informs the FCA of its intention to cease publication of a critical benchmark, or where contributors to the benchmark have notified the administrator of their intention to withdraw submissions to the benchmark before the relevant provisions in this Bill are commenced.”
Note that this is a plausible scenario in the FCA’s view.
How is it to be met? Among other measures there is the totally unrealistic proposal in Clause 9(3) that the FCA
“compel the administrator to continue publishing the benchmark”.
I cannot think of anything more likely to precipitate the systemic events that the FCA wishes to avoid. Then, remarkably, it amends Article 22(b) so that the FCA must provide
“a written notice stating that it considers that the benchmark is not representative of the market or economic reality that it is intended to measure or that the representativeness of the benchmark is at risk”.
What do we think that would do to the markets?
Despite the attempts in the Bill to deal with the cessation of the publication of a benchmark, there is, as the House of Commons Library notes suggest,
“risk of legal challenge and prolonged market uncertainty”.
That is the core of the problem that the Libor scandal has precipitated. I admit that the clauses in the Bill do their best to mitigate the risk, but even the authors of this section know that there is no entirely satisfactory solution. All they can do is cross their fingers and hope for the best.
The greatest risks are in retail markets: the ordinary family investor or, more pertinently, the ordinary family’s pension fund and, as the noble Baroness, Lady Kramer, said, small companies. They are the ones who are really at risk. There is nothing in this Bill to protect retail customers from that risk. When the Minister replies to this debate, perhaps she could reflect on the protection that should be provided for retail customers should the worst fears of the FCA be realised.
Amendment 44 in the name of the noble Baroness, Lady Noakes, seeks further to strengthen the defences against the plausible scenario by introducing continuity of contract when a benchmark is changed. This is an undoubtedly worthwhile addition to the armoury. It does not prevent adverse market reaction and loss of value—that problem remains—but at least continuity of contract will be there.
As I see it, Amendment 45 removes protection from the retail customer by preventing
“claim or cause … or liability in damages”.
This may well be unfortunate. The noble Baroness referred to claims companies. Pernicious though they may be, they were often the only recourse of the retail customer. As I understand it, the administrators of benchmarks could implement these changes themselves because powers that are given to them under Article 23D, where they are granted discretion, allow them to implement changes themselves, without concern for any consequent damages inflicted on holders of particular financial instruments. While I understand the thinking behind this safe harbour, I fear that it stands in stark contrast to the lack of protection for retail customers. Having read this section of the Bill carefully, I feel that the benchmark consultation is clearly necessary. The problems have not as yet been solved.
Baroness Penn (Con)
My Lords, as this debate has illustrated, when you hear about Libor it is hard not to think about the benchmark’s manipulation in the wake of the financial crisis. However, since then there has been substantial reform to the regulation of benchmarks and significant improvements have been made to the governance and controls around the submission and administration of Libor itself.
As a result of declining activity in the wholesale lending market that Libor seeks to measure, in 2015 the Financial Stability Board recommended a transition away from certain interest rate benchmarks including Libor to alternative rates based on active and liquid underlying markets. As Andrew Bailey remarked in his speech on Libor wind-down last summer,
“Public authorities and market participants … have … been working together to transition away from reliance on Libor for a number of years.”
It remains of the utmost importance that firms continue to prioritise the move away from the use of the Libor benchmark where possible. We need to reduce the number of contracts that refer to the Libor benchmark as much as possible before the agreement between the FCA and panel banks to continue submissions to Libor to facilitate this transition ends. For most Libor currencies, that is the end of this year.
However, it has been clear for some time that there will be certain tough legacy contracts that will not be able to transition away from Libor in time. In May 2020, the Working Group on Sterling Risk-Free Reference Rates highlighted the need for legislation to support these contracts. Without government intervention, parties to these contracts would be left without a means of determining contractual obligations when panel bank submissions cease, resulting in significant disruption.
Shortly after that, the Government announced their plans to give the FCA the powers to manage an orderly Libor wind-down through this Bill in a manner that protects consumers and market integrity. This includes legislation to deal with these tough legacy contracts. The UK was the first country to set out an appropriate regulatory framework to manage the wind-down of critical benchmarks, and this legislation has been very well received by industry.
My noble friend Lord Holmes and the noble Viscount, Lord Trenchard, asked about synthetic Libor. The proposed legislation does not prescribe what a synthetic benchmark might look like but allows the FCA flexibility and discretion as to what methodology change it might choose to impose. For example, the FCA could use this power to direct a change to Libor’s methodology so it is no longer reliant on panel bank submissions. The FCA has recently consulted the market on its proposed policy approach to using this power.
Turning to the amendments, Amendment 44 would require that where the FCA has used the powers given to it in this Bill to impose a change in the methodology of the benchmark, that new benchmark must be interpreted as the same benchmark in any contracts which reference the original benchmark. Amendment 45 seeks to reduce the scope for litigation where the FCA has exercised this power.
Since the introduction of this Bill, the Government have received representations from some key industry participants, highlighting a residual risk of disruption and potential litigation that they are concerned would remain even once the FCA has exercised its powers under this Bill. This risk is separate from the wider risks and impacts on markets that would materialise if the Government had not introduced legislation under this Bill, and it is this potential residual risk that these amendments seek to address. I appreciate noble Lords’ interest in this important issue and I reassure them that the Government are committed to looking at it and, if necessary, providing industry with any reassurance it needs. But I will now turn to the two fundamental reasons why we are unable to accept these amendments.
First, critical benchmarks such as Libor are widely used in a diverse range of products and contracts across the economy, so any action of the kind proposed in this amendment would affect a wide range of individuals and businesses. This must be taken into account before determining whether and how to act. As the noble Baroness, Lady Kramer, and the noble Lord, Lord Eatwell, have described, this would impact people outside the financial services industry.
Secondly, these amendments would intervene directly in private contracts, restricting the ability of contractual parties to seek legal redress were they to disagree with the imposition of synthetic Libor. I am sure that noble Lords agree that any such interference would need to be carefully considered and designed to be as narrow and targeted as possible while achieving the intended effect. It is therefore critical that the Government consider to the greatest extent reasonably possible the full range of Libor-referencing contracts and the impact any legal provisions, such as the ones proposed in these amendments, would have on parties to these contracts before deciding how to proceed on this issue.
For example, I am concerned that Amendment 45 would provide wide legal protection to parties using the revised benchmark against all forms of claim or causes of legal action associated with the exercise of the FCA’s Article 23D(2) power, as opposed to a more targeted form of legal protection. I have not yet been convinced that such a wide-ranging legal protection is appropriate, and it could have serious and significant unintended consequences.
For these reasons, the Treasury published a consultation specifically on this matter on 15 February, which is currently open for responses. This will allow us to properly consider these issues with the benefit of feedback from a broad range of Libor users. As the consultation is still open, I cannot say at this stage whether the responses provide evidence that a provision of this nature is necessary, or how such a provision should be structured, but I reassure noble Lords that the Government take this matter very seriously. Guided by the evidence gathered through this consultation, the Government will be well placed to decide if an intervention along the lines that these amendments intend is appropriate. I therefore ask that these amendments be withdrawn.
Baroness Noakes (Con)
My Lords, I start by thanking all noble Lords for taking part in this debate; I think all have supported my Amendment 44 on continuity of contract, and I think the noble Lord, Lord Eatwell, expressed some concerns in relation to Amendment 45, which dealt with safe harbour.
It is worth re-emphasising a point made by my noble friend the Minister: we should not confuse what happened with the Libor manipulation scandal—which was dreadful and affected not just the London market but the New York and other markets—with the reasons for withdrawal of Libor. As my noble friend has said, these were much more technical reasons regarding the suitability, durability and stability of Libor as a benchmark going forward. It is a more technical issue than harking back to the fact that it had been manipulated prior to the very significant improvements in benchmark administration that came about as a result of the benchmarks regulation.
“32B Gibraltar-based persons: taxation reporting(1) A Gibraltar-based person carrying on an activity approved under Schedule 2A, or which has permission by virtue of relevant Gibraltar provision to carry on an activity, in the United Kingdom must, as soon as reasonably practicable after the end of each financial year, submit to the Treasury a statement in respect of that year of the gross profit made from carrying on that activity or, where it is carrying on more than one such activity, from carrying on each activity.(2) The report under section 32A must specify—(a) the number of Gibraltar-based persons who submitted a statement under subsection (1) in the reporting period concerned,(b) the number of persons referred to in paragraph (a) who, at any time in that reporting period, were also authorised persons on some other basis under section 31,(c) the total of the amounts of gross profit in each statement submitted under subsection (1) in that reporting period, and(d) the total of the amount of tax chargeable in the United Kingdom on the amounts specified under paragraph (c) and, where tax is chargeable on a different basis for different amounts, the amount chargeable on each basis.(3) The report under section 32A must include an analysis of the difference between the taxation regime in the United Kingdom on profits made from carrying on activities of the kind referred to in subsection (1) and the equivalent regime in Gibraltar.(4) The report under section 32A must, in the light of the analysis under subsection (3), include such recommendations as the Treasury considers appropriate for improving transparency in the processes in the United Kingdom, and in the processes in Gibraltar, for levying and collecting tax on activities of the kind referred to in subsection (1).(5) A failure to submit a statement under subsection (1), or a failure to submit a statement under that subsection which is complete and accurate, is to be treated as a breach of the general prohibition.(6) A reference to a relevant Gibraltar provision is to be read with section 23 of the Financial Services Act 2021.”Member’s explanatory statement
This amendment would require any Gibraltar-based person carrying on activities in the UK to provide an annual statement to the Treasury of the profits it has made from those activities. The Treasury would then report to Parliament on the amount of tax chargeable on those profits and make any recommendations it thinks appropriate for improving transparency.
The Lord Bishop of St Albans
My Lords, Amendment 46, in my name and those of the noble Lord, Lord Sikka, and the noble Baroness, Lady Bennett of Manor Castle, probes whether the reporting requirements on financial firms operating from Gibraltar in the UK market are sufficiently robust, and it questions whether we might find a way to make them more transparent. The Gibraltar authorisation regime continues the established practice of companies operating from Gibraltar in the UK, which is why it is important to review whether the UK taxpayer receives a fair deal from this arrangement. The Companies Act 2006 already mandates foreign companies to register and file accounts to Companies House, yet some Gibraltar-based companies with registered subsidiaries in the UK have successfully used this system to reduce their tax bill.
Transfer pricing plays a major role in switching money between jurisdictions so that the costs are burdened on the area with the highest tax rates, with the profits channelled to the areas with the lowest tax. This is of course a global issue that requires global tax co-operation, but that does not mean that where possible we as a nation should not take measures to remedy the situation where we can. Financial services are one of Gibraltar’s primary industries, which is why I have tabled the amendment. Ideally, through stricter and more thorough reporting standards between Gibraltar and the UK, these should apply to all sectors. For example, in the online services and gaming industry, transactions are often placed in the UK by customers but processed by servers in Gibraltar, a technicality that allows what in reality is taxable income in the UK to be taxed in Gibraltar.
If such practices are well documented among the online gambling sector, I do not doubt that they extend to the financial sector as well. Without public country-by-country reporting, identifying dubious transfer pricing will continue to remain difficult. However, that should not deter us from strengthening reporting between Gibraltar and the UK, particularly given our official links. Surely it simply cannot be right that some of the major UK gambling firms pay an actual corporation tax in the UK of between 3% and 13% by either headquartering or using subsidiaries based in Gibraltar. Incidentally, we only know this because the size of these firms has brought them under the scrutiny of journalists who have investigated them. Given the commonality of these methods among larger corporations, financial firms of the SME variety could, and possibly do, engage in similar methods.
The fact that companies have been able to rather openly reduce their corporation tax bill by incorporating some of their operations in Gibraltar calls into question the current mechanisms for the effective and proper exchange of information between the two jurisdictions in relation to profits subject to tax. During his evidence session, the Minister said that corporation tax rate was not a factor in relocation to Gibraltar. No doubt, the Mediterranean climate and lifestyle make it a very attractive place to reside. Indeed, I have thought of little else over the recent cold days. However, for the purposes of reducing your corporation tax bill, only a partial relocation is required. Furthermore, Gibraltar provides a unique service in the “non-resident company”, a simple and cheap offshore corporate tax entity that even the most cursory search online will see marketed as an international investment and tax-planning vehicle, with all the usual connotations that this implies.
I do not want the many good people of Gibraltar to confuse my concerns as an attack on their territory, but the continuation of access to UK financial markets by permitted Gibraltar-based persons without a review into the effectiveness of the information exchange and the transparency of reporting requirements between the two jurisdictions will leave open avenues and incentives for businesses to reduce their actual UK tax obligations through Gibraltar-based tax planning. I hope that the Minister will be able to reflect on some of these issues and perhaps help me understand what we can do to improve the situation because we might need to revisit this later on. I beg to move.
Lord Eatwell (Lab)
My Lords, the provisions in the Bill dealing with relations with Gibraltar raise a number of intriguing questions. The probing amendment in the names of my noble friend Lord Tunnicliffe and myself is really seeking some answers. The Bill in effect creates a single financial market with Gibraltar, even to the extent of offering customers of Gibraltarian entities access to the Financial Services Compensation Scheme. In doing so, it forges a single market with a different jurisdiction, a jurisdiction that includes a different regulatory authority and notably—as the wording of the amendment in the name of the right reverend Prelate the Bishop of St Albans suggests—a fiscal jurisdiction that diverges significantly from that of the UK. I welcome the right reverend Prelate’s amendment.
When this country was a member of the European single market, there was, in essence, a single regulatory regime in the UK and Gibraltar, although the implementation of EU directives was not entirely uniform. In the Bill, the provisions on Gibraltar have been presented as a continuity measure. However, the UK’s new-found ability and declared intention to deviate from EU rules signals a substantial shift in our regulatory framework and potentially in its interplay with that of Gibraltar. The first part of Amendment 47 asks the Treasury to present in detail its assessment of how compatible the regulatory systems in the UK and Gibraltar actually are. It is important that people have confidence in the firms that will be allowed to operate in the UK. The Gibraltar authorisation regime, as it is called, being introduced by the Bill seeks alignment of law and practice in the UK and Gibraltar, but it does not prohibit Gibraltarian divergence.
I turn to the impact assessment. It is pointed out that the Gibraltarian authorisation regime will be established by a mix of primary legislation, secondary legislation, regulators’ rules, MOUs, policy statements and guidance. Given the unique nature of the creation of the single financial market, it is important that Parliament has the opportunity to assess this plethora of measures; hence the need for a Treasury statement in 12 months’ time.
It is further noted in the impact assessment that about 20% of motor insurance policies in the UK are written with Gibraltar-based insurers. When replying to the debate, will the Minister tell the Committee why he thinks that might be? What are the peculiar advantages of Gibraltar that have attracted such an extraordinarily high proportion of this UK business, and will those peculiar advantages continue as a result of the Bill?
At a time when the entire regulatory framework is under review, the Government might consider this to be the time to reassess the financial services relationships with the Crown dependencies as well. I am aware of the very different legal status of the Crown dependencies from that of Gibraltar and the fact that, given that the Crown dependencies were never members of the European Union, the UK’s exit does not pose the same range of new problems. However, the Minister will be aware that the financial services provided in the Crown dependencies are a vital part of the financial infrastructure of the UK, in particular with respect to the flow of liquidity into the London markets. Will the regulatory framework review cover the issue of the financial market relationships between the UK and the Crown dependencies? The regulatory framework review could take note, for example, of the fact that many regulatory practices in some Crown dependencies, such as the registration of beneficial ownership, are significantly superior to current practice in the UK. Given that the UK Government happily promote financial relations with Gibraltar, even though the Gibraltarian fiscal regime is significantly different from that in the UK, are they considering some enhancement of financial relationships with the Crown dependencies by, say, extending access to the Financial Services Compensation Scheme?
Baroness Neville-Rolfe (Con)
My Lords, we have been making slow progress, so I will be brief. I rise to question the appropriateness of these amendments on Gibraltar and the Crown dependencies. I appreciate that the second amendment in the group, Amendment 47, tabled in the name of the noble Lord, Lord Tunnicliffe, is probing in nature and I look forward to the Minister’s reply.
Amendment 46 is extraordinary. It targets Gibraltar with new and additional requirements at a time when it is facing particular challenges following Brexit and with a new treaty with the European Union still under negotiation. It seems that there are three arguments against these proposals. First, Gibraltar is autonomous and has its own democratically elected Government, setting their own regulations and taxes. Secondly, reporting regimes on businesses and the individuals who run them are burdensome and costly, and divert management effort from serving customers and building for the future. Thirdly, in the case of Gibraltar we are talking about our good friends. Many British people love and support Gibraltar. Its Government is well led, as I know from taking evidence from the First Minister to the EU Committee of this House and visiting him and his Government with the committee. I know that they have demonstrated their commitment to meeting international standards on issues such as illicit finance, tax transparency and anti-money laundering. I do not believe that there is a case for making things more difficult for Gibraltar’s businesses or those involved with proposals of the kind in this group.
Lord Rooker (Lab) [V]
My Lords, unlike the noble Baroness, I consider both the amendments to be probing in nature. As I said at Second Reading, I have no expertise or knowledge. I visited Gibraltar privately on holiday in 1977 and 1979, both times quite deliberately to give support because at that time the border with Spain was closed. As I had talked to the Foreign Office beforehand, I had the opportunity to speak with the Governor and members of the Government and the then trade union leader who later became First Minister. The dockyards were winding down, but one thing those people told me they did not want was Gibraltar to be dependent on being a brass-plate economy, and in effect that is what we are talking about. The right reverend Prelate gave some good examples. Transparency is crucial. It is a global issue. Identification of what is going on is required. The gambling figures the right reverend Prelate gave are a concern. My noble friend Lord Eatwell gave the figure of 20% of UK motoring. It is not for no reason that the biggest single donor to the Brexit campaign for exiting the EU has his insurance companies working out of Gibraltar, so there must be some reason that you can make a lot of extra money working through Gibraltar than you can in the UK.
The danger is that if we leave it as it is and build on it, Gibraltar will become the UK’s state of Delaware, the backstreet way to money laundering and other issues. Frankly, the EU will not stand for it. The financial structures of the services of the EU will be working closely and looking in detail at what is happening following Brexit. They are not going to stand for, effectively, a state of Delaware that has been inserted into Europe by the UK. Therefore we have to find a better way of doing this. One way of dealing with it is by openness and transparency. As the right reverend Prelate said, this is in no way an attack on the people of Gibraltar or, indeed, on the structures of Gibraltar. I have always been a strong supporter of Gibraltar having the right to choose, and 96% of Gibraltarians voted not to leave the EU. It was right at the time we did it that we incorporated Gibraltar into one of European UK constituencies. It is different from the other overseas territories of the UK, and because it is different, we must not allow the undermining of the financial system, so we have to find a better way of dealing with it. I look forward to the Minister giving some assurance on this and perhaps explaining, in answer to my noble friend’s question, why such a large proportion of the UK motor insurance system is worked out of Gibraltar. What is the reason for that? It cannot be the sunshine. The only reason can be money and profit—profit where less tax is paid. That is the basic reason that we have these probing amendments today. I look forward to the Minister’s answer.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, it is a pleasure to follow the noble Lord, Lord Rooker. What we might label in shorthand “the Delaware danger” is very real. It was my pleasure to attach my name, as has the noble Lord, Lord Sikka, to Amendment 46 in the name of the right reverend Prelate the Bishop of St Albans. I also welcome Amendment 47 in the names of the noble Lords, Lord Tunnicliffe and Lord Eatwell. We heard from the noble Lord, Lord Eatwell, a clear and welcome outline of the peculiarities of the Gibraltar authorisation regime and the reason why we need to hear a lot more from the Minister about the justification for it and an explanation for some of the peculiarities that the noble Lord, Lord Rooker, just outlined.
I do not regard Amendment 46 as a probing amendment; I suggest that it is a modest amendment for improvement. It builds on an amendment from the noble Baroness, Lady Bowles of Berkhamsted, debated last week, which made broader country-by-country reporting proposals. Given that we have just seen the Government’s welcome incorporation into the Domestic Abuse Bill of a significant number of amendments proposed by noble Lords in that debate, we might hopefully see the same thing here before we get to the next stage of this Bill.
The noble Baroness, Lady Neville-Rolfe, suggested that this might be extraordinary, or be targeting Gibraltar in some way. As the noble Lord, Lord Eatwell, outlined, we are incorporating it in a truly extraordinary way within our system, so it is surely important that we have full transparency about what is happening. The noble Baroness, Lady Neville-Rolfe, said that we should not make it more difficult for Gibraltarian businesses. Whether it is motor insurance or the gambling industry, we are not talking here about the issue for Gibraltarian businesses; we are talking about businesses operating and making their profits in the UK, which should be paying their tax in the UK. On the Tax Justice Network corporate tax haven index—what might be called the ranking of infamy—I note that Gibraltar is ranked 28 on a scale where number 1 is the worst. While it is not the worst, given that there are scores of tax havens around the world, it is pretty well right up there.
It is estimated by the Tax Justice Network that the tax loss that Gibraltarian arrangements inflict on other nations is about US$4 billion. I do not have a breakdown of figures of where those losses are inflicted but, given what we have heard about both the motor insurance and the gambling industries, it is clear that a very significant portion of them will be in the UK. We also have to think about the nature of those industries; the gambling industry, in particular, inflicts significant major damage on individuals and communities in the UK and I believe that even the Government are looking to tighten controls on it.
Certainly, Amendment 46 offers a modest measure towards transparency, honesty and openness. If that should mean that certain industries pay tax on their profits in the UK, I do not see how that could be opposed. I ask the Government to comment on that.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
My Lords, I understand that the noble Baroness, Lady McIntosh of Pickering, has withdrawn, so I now call the noble Lord, Lord Sikka.
Lord Sikka (Lab) [V]
My Lords, I draw attention to my interests as set out in the register: I am an unpaid adviser to the Tax Justice Network. I strongly support Amendment 46 and congratulate the right reverend Prelate the Bishop of St Albans for providing the moral lead in securing tax justice and transparency.
As the noble Baroness, Lady Bennett, just pointed out, Gibraltar is one of the most secretive jurisdictions on this planet; indeed, it is among the top 30 most secretive, and inflicts tax losses on many nations including the UK. We all know that secrecy is an essential ingredient for tax avoidance and illicit financial flows. Over the years, Transparency International has reported that Gibraltar-based companies have been used to purchase properties in the UK, possibly with dirty money. Gibraltar has a population of around 33,000 but it has over 60,000 registered companies: that is, nearly two for every person living on the Rock. Many of these are just shell companies and little is really known about their authentic beneficial owners.
Gibraltar-based companies pop up in smuggling and bribery scandals all over the world. Unsurprisingly, a headline in the Guardian on 9 April 2017 said:
“Defend Gibraltar? Better Condemn it as a Dodgy Tax Haven”.
Little has changed. In February 2020, a report by the Council of Europe’s anti-money laundering body, MONEYVAL, called on Gibraltar to improve its efforts to combat, money-laundering and financing for terrorism.
The right reverend Prelate the Bishop of St Albans has already drawn attention to the tax haven aspects of Gibraltar. Unsurprisingly, many UK insurance and gambling companies are headquartered there because it is considerably more profitable to run UK operations from there by dodging UK taxes and increasing profit-related executive pay.
Research by TaxWatch shows that Gibraltar is indeed a hub for tax-avoidance: some 55% of the remote gambling services provided to UK-based customers are provided by companies based in Gibraltar. Most of the big companies, including William Hill, Ladbrokes and Bet365, have links to the Rock. Unibet’s website states that its servers are based in Malta, Alderney and Gibraltar and that it is registered and licensed in Gibraltar. The company is also listed on the New York Stock Exchange. This organisational maze provides opacity and tax avoidance and obfuscates accountability and the regulators’ ability to investigate.
William Hill has six subsidiaries in Gibraltar and is expected to pay around 12% in corporation tax for 2020, compared with the headline rate of just 19%. One of Ladbrokes Coral’s two licences to operate in the UK is registered in Gibraltar. On 9 August 2019, the Daily Mail reported that 32Red, which is based in Gibraltar,
“paid just £812,000 in corporation tax over ten years—an effective tax rate of just three per cent.”
The company is obviously not in Gibraltar just for the sunshine and the good climate. On 7 August 2020, the Daily Mail reported:
“Over the past two years, Bet 365 paid an effective tax rate of 12.7 percent on profits of £1.4 billion.”
Bet365’s accounts for the period 2015-19 show that the company’s corporation tax bill was £176 million lower because it has various operations in tax havens, including Gibraltar. Adjusting for inflation, Bet365 avoided around £182 million of UK corporation tax for the period 2015-19.
Ministers continue to tell us that companies should be taxed where sales and profits are made, but then we have this Bill, which will enable companies to book their profits in Gibraltar, even though they will have their sales and profits in the UK. The Government’s briefings on the Bill have not stated how much of the profits made in the UK are booked in Gibraltar and what the effect the Financial Services Bill will have on that.
The Government have a legal and moral duty for the good governance of Gibraltar and other jurisdictions to ensure that they do not continue to be what I call the world’s fiddle factories. Through this Bill, the Government are showering more gifts upon Gibraltar but without any quid pro quo; what exactly is it that we are getting in return? Can the Minister explain how these gifts aid tax justice in the UK? I strongly support Amendment 46 because it provides the basis for tax justice and transparency.
Baroness Kramer (LD)
My Lords, I will be very brief—this is not my area of expertise. I do not know if this is a required declaration, but my family have a small apartment in Andalusia; we do not rent it out, so there is no income involved—but it means that we have many neighbours who seem to run their financial affairs through Gibraltar, much to their general advantage.
Gibraltar suffers from a perception that it is something of a tax haven, and, indeed, most of the normal taxes that are levied in the UK or Spain are not levied there. However, I think we all feel great sympathy for Gibraltar; it has absolutely been caught in the Brexit conundrum and has seen many of its sources of income from the Navy and the military disappear over a number of years.
The Minister of State, Cabinet Office (Lord True) (Con)
My Lords, this has been a very interesting brief debate. I will not follow the noble Lord, Lord Rooker, into speculating about Delaware because I am acutely conscious that the new President of the United States represented Delaware in the US Senate for 36 years. However, I appreciate what my noble friend Lady Neville-Rolfe and indeed the noble Baroness, Lady Kramer, said: I think that the people of Gibraltar merit sympathy and understanding.
Before I turn to the specific amendments tabled, it might be beneficial in the light of a number of the questions and comments to set out some of the intentions behind the introduction of the Gibraltar authorisation regime. As the right reverend Prelate said, the financial services industry plays an important role in Gibraltar’s economy, and Gibraltar-based firms have made extensive use of the existing market access arrangements between the UK and Gibraltar. It is true, as has been pointed out in this debate, that currently firms based in Gibraltar service a large retail consumer base in the United Kingdom, particularly in the insurance sector, where, as has been said, more than 20% of motor policies in the UK are written by Gibraltar-based insurers. The reasons for the concentration of motor insurance in Gibraltar are complex and obviously of a commercial nature, but it is natural that growth in a sector can lead to an agglomeration effect. Business attracts business, and that attracts people and talent.
I note the remarks that have been made in the debate on a range of companies. However, I remind noble Lords that the Bill is limited to financial services firms only. It will establish a new legal and institutional framework that provides for mutual market access and aligned standards in financial services between both jurisdictions. The United Kingdom and Gibraltar have a historic and unique relationship in financial services, and the UK has not had the same level of market access arrangements with any other jurisdiction. This regime will enable Gibraltar-based firms operating in the UK to continue to do so provided they meet certain standards. That way, the regime respects Gibraltar’s regulatory autonomy while ensuring high standards of supervision and consumer protection for UK customers.
On the amendments themselves, Amendment 46 would require any Gibraltar-based person carrying on authorised financial services activity in the UK to provide an annual statement to the Treasury of the profits it has made from those activities, and for the Treasury to report on this. This proposal cannot be supported by the Government because it does not reflect Gibraltar’s autonomy. As an overseas territory, Gibraltar is fiscally autonomous, and it has the right to set its own policy to support its economy within international standards and to determine its own tax rates. The scope of the GAR is focused on ensuring continued market access for Gibraltarian firms to the UK market based on the alignment of relevant law and practice. The GAR does not extend to taxation.
As my noble friend Lady Neville-Rolfe said, Gibraltar is already committed to meeting international standards on illicit finance, tax transparency and anti-money laundering, including those set by the OECD and the Financial Action Task Force. Gibraltar shares confidential information on company beneficial ownership and tax information with UK law enforcement bodies in real time and has agreed to introduce publicly accessible registers of company beneficial ownership. The Government were satisfied that the Gibraltar authorisation regime is rigorous and includes the right safeguards to ensure consistent standards of law and supervisory practice. I therefore ask that the amendment is withdrawn.
Amendment 47, in the names of the noble Lords, Lord Tunnicliffe and Lord Eatwell, would require the Treasury to report on the regime, the current position regarding financial services market access enjoyed by the Crown dependencies and the case for extending the regime to the Crown dependencies. I suggest to noble Lords that the first part of this amendment would replicate provisions that already exist in the Bill. Clause 22(3) of the Bill, which inserts a new Section 32A into the Financial Services and Markets Act 2000, already imposes a duty on HM Treasury to lay a report to Parliament on the operation of the regime. This report will be presented to both Houses within two years of the regime coming into force, and every two years from then on. It will specifically include an assessment of whether the alignment condition between the UK and Gibraltar is satisfied before market access is granted for an approved activity.
Noble Lords have alluded to the frequency of reporting. It has been chosen considering a range of relevant factors, including the length of time required to undertake a meaningful assessment. In this context, the amendment would simply duplicate this requirement within 12 months of the Bill receiving Royal Assent, potentially demanding a statement before this is appropriate and before any assessment has been completed.
Turning to the second point raised in this amendment, it is important to note—and the noble Lord, Lord Eatwell, acknowledged this—that no other overseas territory or Crown dependency has the same market access arrangements with the UK as Gibraltar has today. The Gibraltar authorisation regime has been designed to deliver the Government’s commitment to Gibraltar in 2018 to maintain long-term market access for financial services between our jurisdictions, based on shared high standards of regulation and modern arrangements for information-sharing, transparency and co-operation. This commitment and the framework reflect the unique historic position of Gibraltar and the UK, specifically the passporting arrangements that were in place when we were both members of the EU single market, as has been said.
In our judgment, it would not be appropriate to extend the operation of the regime to other jurisdictions that do not have the same starting point of close alignment between our rules and supervisory practice. The Treasury remains committed to working with the Crown dependencies, and there are existing tools, including equivalence, that enable different degrees of access to the UK market and are more appropriate for the circumstances of the Crown dependencies. Having considered those points, I therefore ask noble Lords not to press this amendment.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
I have not received a request from anyone wishing to speak after the Minister, so I call the right reverend Prelate the Bishop of St Albans.
The Lord Bishop of St Albans
My Lords, I am most grateful to the Minister for the points that he has made. I too want to underline my support for Gibraltar. In this new post-Brexit world, I want us as a nation and our neighbouring countries, as well as Gibraltar, to flourish. However, we are also in a time of huge financial stringency, and there are very important issues here about tax justice. As so often when I sit in a debate in your Lordships’ House, I find myself realising that I am in a seminar and learning far more than I am giving. I am grateful to my noble colleagues and friends here for some of their explanations.
I am still unclear how the GAR will be reciprocated in terms of why we are giving these extraordinary benefits. I need time to go away and think about what the Minister has said. I certainly still look at the situation with puzzlement. I was struck by the comment by the noble Lord, Lord Sikka, that there are two registered companies for every citizen on the Rock. It sounds as if there are some extraordinary benefits which to some of us do not look to be reciprocated justly.
I will probably return to this on Report, but in the light of the comments and some of the limitations of the amendment as it is currently drawn up, I beg leave to withdraw it.
Baroness Scott of Bybrook (Con)
My Lords, this may be a convenient moment for the Committee to adjourn.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
The Committee stands adjourned, but in so doing I remind everyone to sanitise desks and everything else within sight.
House of Lords
Introduction: Baroness Chapman of Darlington
Introduction: Lord Etherton
Arrangement of Business
The Lord Speaker (Lord Fowler)
My Lords, the Hybrid Sitting of the House will now begin. Some Members are here in the Chamber and others are participating remotely, but all Members will be treated equally. Oral Questions will now commence. Please can those asking supplementary questions keep them short and confined to two points? I ask that Ministers’ answers are also brief.
Cadet Forces
(3 years, 1 month ago)
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Lord Lingfield
To ask Her Majesty’s Government what steps they plan to take to allow cadet forces to resume face-to-face activities.
Lord Lingfield (Con)
My Lords, I remind your Lordships of my charitable interest as chairman of the Cadet Vocational Qualification Organisation, a post I took over from the noble Lord, Lord West.
The Minister of State, Ministry of Defence (Baroness Goldie) (Con) [V]
My Lords, the cadet forces are following the overarching UK Government and, where applicable, devolved Administration rules and guidance on Covid matters. Throughout the pandemic, cadet headquarters have accelerated virtual training programmes, through innovative IT solutions. There will be a cautious but progressive return to face-to-face cadet activity. Based on previous experience and the development of Covid-safe practices, the cadet forces are well placed to return to normal activity as soon as conditions permit.
Lord Lingfield (Con)
My Lords, I am grateful to my noble friend for her helpful—indeed, hopeful—reply. Does she agree that there seems to be no reason why cadets should not parade as soon as possible, now that schools are back? Does she also agree that cadet activities, whether Army, sea, Royal Air Force or CCF, are not just a welcome recreation for young people, but for many, especially in areas of deprivation, a route away from trouble and the youth justice system, and a pathway towards vocational skills and possibly employment?
Baroness Goldie (Con) [V]
I thank my noble friend for his support of and interest in the cadet forces. Taking his latter point first, I entirely agree that the proven benefit to young people of being in the cadet forces is demonstrable; it has an extremely beneficial effect on them in the development of their personal skills and as they prepare for life in the future. As to return, we shall require to be informed by the relevant guidance and rules at the time. There is certainly an appetite to resume face-to-face activity.
Lord Morrow (DUP) [V]
My Lords, I am most familiar with the Army Cadet Force, because I am a former member and I benefited much from that in my teenage years. The guidance and instruction I received stayed with me. However, it is extremely difficult for cadet forces to function properly without face-to-face activity. Will the Minister assure the House today that the ACF and other cadets—and, indeed, other voluntary youth organisations, which are an intricate part of society—will be given every assistance when some normality returns? Where does she see the ACF and other cadets on her list and what is the indicative timetable? Please will the Minister help us with that information?
Baroness Goldie (Con) [V]
The noble Lord will understand that I cannot give a specific timetable, but I can reassure him that there is certainly a desire throughout the United Kingdom, where the cadet forces are such an important presence for our youth in the four nations, to let them resume their activities as soon as guidance and rules permit.
Lord Lancaster of Kimbolton (Con)
My Lords, like many, I started my uniformed career as a cadet, in my case an Air Force cadet at Kimbolton School Combined Cadet Force. I have no doubt that the discipline it gave me helped me in my modest academic achievements. One of the great success stories in recent years has been the cadet expansion programme, with 500 new cadet forces created by 2016. Will my noble friend update the House on how the target of reaching 60,000 cadets by 2024 is progressing?
Baroness Goldie (Con) [V]
I reassure my noble friend that the expansion scheme has been a great success, exceeding time limits for achievement. Obviously, the pandemic has had an impact, not least on our school recruitment, because we have missed the September 2020 date, for example. But there is a strong partnership between the MoD and our cadet units in schools and we are mindful of that. That is partly governed by the Department for Education as well. I thank my noble friend for raising the issue. It is an important programme and we are confident of it making positive progress.
Lord Stirrup (CB)
My Lords, the cadet forces constitute one of the finest youth organisations in the land, but they are crucially dependent on the adult volunteers who organise them and run their activities. These people have come under increasing pressure in recent years, because of growing regulatory and other burdens, and have found their roles becoming less rewarding. Can the Minister assure the House that, in the wake of Covid, the Ministry of Defence will place sufficient emphasis on recruiting and retaining these adult volunteers, without whom the cadet forces simply would not exist?
Baroness Goldie (Con) [V]
The noble and gallant Lord is absolutely right. We are very mindful of the significance of the role played by our cadet force adult volunteers, to whom I pay tribute for their extraordinary achievements during the pandemic. Undeterred, they have continued to encourage and engage with the cadet forces and are deserving of our highest admiration. We recognise that within the MoD and will support them in every way that we can.
Lord Touhig (Lab) [V]
My Lords, I wish everyone a happy St David’s Day and put on record my interests as president of the Army Cadet Force Association in Wales. Army cadets play an active role in the community through the citizenship training that they receive. They do this thanks to the contribution of our cadet force adult volunteers, who inspire these young people, but these volunteers need to be supported, as the noble and gallant Lord, Lord Stirrup, has just said. Last year, the Army Cadet Force Association made grants totalling £200,000 to volunteers who faced financial hardship because of Covid. So I ask the noble Baroness what specifically the MoD is going to do to help these men and women whose voluntary work makes such a great contribution to the physical, mental, social and economic health of Great Britain.
Baroness Goldie (Con) [V]
I reassure the noble Lord that we shall support them in every way that we can. As he is probably aware, there is a youth and cadets team within the Reserve Forces and cadets division of the MoD, which engages with the DCMS and the National Youth Agency in England. We are doing everything that we can to consult, collaborate, co-operate and support.
Baroness Garden of Frognal (LD)
My Lords, I declare an interest as chair of the cadet health check team, where we have seen tremendous commitment, creativity and sheer hard work from staff and cadets, in creating inspirational online activities in lockdown. As has already been mentioned, the cadets are particularly important for disadvantaged young people, who learn skills, self-respect, leadership and other qualities through active engagement with others. The Minister’s previous answers suggest that she might not be able to say, but what more particularly do school cadets need to do to convince people that they can resume their life-changing work?
Baroness Goldie (Con) [V]
As the noble Baroness understands, the environment of a school is within the jurisdiction of, initially, the head teacher of the school and, secondarily, the Department for Education and its counterparts within the devolved nations. There is a recognition of the valuable work that cadets do and a universal desire to support their return to face-to-face activity.
Lord Lexden (Con)
Is it not the case that the Government’s excellent objective to increase cadet forces in state schools could be greatly assisted by drawing on the long experience of independent schools? Are the Government actively promoting collaboration between the two sectors of education in this vital area?
Baroness Goldie (Con) [V]
I say to my noble friend that we are always anxious to learn. He is quite correct that one of the welcome developments of the expansion programme has been to extend and increase cadets’ presence in the state school sector. I think he will also acknowledge that there are commonalities of interest. Regardless of which sector of education the cadets are in, there is a desire to share experiences and mutual learning.
Lord Tunnicliffe (Lab) [V]
My Lords, last year, the Government published a review of the Reserve Forces and cadets’ associations, which recommended that the council of the RFCAs and the 13 RFCA bodies should be merged into a single executive non-departmental public body. Can the Minister provide an update on this?
Baroness Goldie (Con) [V]
The noble Lord is aware that the MoD committed to implement the recommendations of the report. It has established a programme team to take forward the review’s recommendations, which we are doing in conjunction with the RFCAs. The report has many positive suggestions, which points to a very healthy future for the reserves and cadets.
Lord McColl of Dulwich (Con) [V]
My Lords, as a former Army cadet, I ask the Minister whether she agrees that it is so important to get young people to take plenty of exercise, from both a health and morale point of view. In addition, does she agree that the well-established and efficient way of controlling cadets would minimise or prevent the spread of Covid among them?
Baroness Goldie (Con) [V]
My noble friend is absolutely right: the experience of cadets and the activities in which they engage are conducive to good physical and mental health. We ensure that their activities are Covid-compliant. When face-to-face activities resume, we shall follow whatever the prevailing rules and guidance are.
Baroness Stuart of Edgbaston (Non-Afl) [V]
My Lords, in the West Midlands, we have four Army Cadet Force detachments, three RAF Air Cadet detachments and, even in landlocked Birmingham, 23 Sea Cadet detachments with over 1,000 cadets. They are an important force in the local community. I urge the Minister also to engage with local universities in the summer resumption of face-to-face contact, to ensure not only that the work continues but that new recruits are found.
Baroness Goldie (Con) [V]
The noble Baroness makes a very interesting suggestion, which I will certainly reflect on. Given that the age range for cadets goes up to 18, our principal engagement is with schools, but I will look into this further.
The Lord Speaker (Lord Fowler)
My Lords, the time allowed for this Question has elapsed.
Domestic Energy Efficiency: Retrofitting
(3 years, 1 month ago)
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Baroness Bennett of Manor Castle
To ask Her Majesty’s Government what policies they plan to put in place in relation to the use of domestic energy efficiency retrofitting to meet their goal of net-zero carbon emissions by 2050.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, the UK has made good progress in improving the energy performance of existing homes but reaching net zero will be challenging. We are responding to this challenge by introducing long-term minimum standards, providing financial support where it is needed most and getting the market conditions right so that people can access tailored advice, green finance and quality supply chain. We will set out further details in our heat and building strategy in due course.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, I know that the Minister will not be able to pre-empt the Budget but, given the abject failure of the green homes grant, can he reassure me that the Government are well advanced with plans to bring in a quick, simple and workable scheme to inject government funds—ideally with the administration not outsourced to a US multinational—to deliver the £65 billion in investment for the 2020s that he told me in a Written Answer in November would need to be spent on domestic retrofit this decade to meet the net-zero 2050 target?
Lord Callanan (Con)
The noble Baroness is correct that I cannot pre-empt the Budget, but I agree that there have been significant challenges in getting the green homes grant voucher scheme up and running. We are working closely with the scheme administrator to streamline the voucher issuance and redemption process as a top priority. The noble Baroness might be interested to know that, as of 22 February, we have issued 25,000 vouchers against a total of 110,000 applications.
Baroness Young of Old Scone (Lab) [V]
My Lords, the £1.5 billion green homes grant scheme was launched by the Chancellor last July with a target of 600,000 homes. It was going to reduce carbon, create 16,000 jobs and tackle fuel poverty. The Prime Minister extended it for a year in November, yet here we are in March with it on the verge of being scrapped. As the Minister said, fewer than 25,000 grants have been made and less than £100 million of the £1.5 billion has been spent. What lessons will the Government take from this total failure into a much-needed plan B?
Lord Callanan (Con)
We are of course always keen to learn lessons. I acknowledged in the previous answer that there have been significant challenges in getting the scheme up and running, but I assure the noble Baroness that considerable effort is going into improving its performance.
Lord Mann (Non-Afl)
The Minister cannot pre-empt the Budget, but someone is briefing the press that the green homes grant will be slashed on Wednesday. Our ambassadors are warning that COP 26 is in danger because of the perceptions abroad of government action. Does the Minister agree that there must be a review of where the Government are going with their green policies, very quickly?
Lord Callanan (Con)
We are progressing well with our green policies. The Prime Minister’s 10-point plan indicated the route map forward, and we will be publishing the heat and building strategy shortly.
Baroness Fall (Con) [V]
My Lords, a vital part of our efforts to tackle climate change and reach net-zero targets is catching CO2-emitting boilers in households across the country. This is a painstaking and expensive job that must be rolled out household by household. Can the Minister confirm that the commitment to installing 600,000 heat pumps a year by 2028 still stands, and if it does, are the incentive arrangements in place to deliver this adequate?
Lord Callanan (Con)
The noble Baroness is right that these targets are a challenge, but I can confirm that the target remains the same for heat pump installations. We will set out further details in the heat and buildings strategy. She will be aware of the tremendous commitments that we made in the manifesto to spend money in this area.
Lord Oates (LD)
Does the Minister recognise that, contrary to his earlier assertion that we have made good progress on energy efficiency upgrades, at the rate of progress achieved by the green homes grant scheme it would take 480 years to retrofit all the homes in the UK that need it? Does he also recognise the huge damage that the stop-start, short-term nature of the scheme has done to industry confidence, which is vital if industry is to invest in the skills required to undertake this immense and vital task?
Lord Callanan (Con)
It would of course be best to have long-term guarantees of funding, but we continue to have these discussions internally. I agreed earlier that the green homes grant scheme has been a challenge. We are working hard to improve its performance because we must get it working and up and running to bring about confidence in the supply chain.
Lord Lucas (Con) [V]
My Lords, does my noble friend recognise that the advent of another huge government subsidy scheme will be widely welcomed by cowboys? Can he assure me that the new scheme will work closely with local authorities to ensure that those thinking of having their homes retrofitted can find a reputable person to undertake this easily and quickly?
Lord Callanan (Con)
My noble friend’s reference to local authorities reminds me that the other part of the scheme, the local authority delivery scheme, is working extremely well. We are working closely with a number of local authorities. He is right that we need to invest more in training. We have awarded more than £7.5 million of funding to support the development of new and better retrofit technologies.
Lord Best (CB) [V]
My Lords, can the Minister confirm that Her Majesty’s Government agree with the Sustainable Energy Association—I declare an interest as its president—and the Committee on Climate Change, that a target for all domestic properties to reach energy performance certificate band C by 2035 is important and realistic as the halfway marker to achieving the Government’s net-zero goal by 2050?
Lord Callanan (Con)
We remain committed to getting as many homes as possible to EPC band C by 2035 where it is practical, effective and affordable.
Baroness Wheeler (Lab)
My Lords, the Government heralded the green homes grant scheme as a key programme for retrofitting and net zero, but the scheme has descended into a fiasco, as we have heard, with small businesses not being paid, cuts to funding for the next year and the slow installation of measures. According to the Government’s own statistics, nearly 61,000 voucher applications were from low-income households, but only 799 measures have been installed for those families—just 1.3%. Can the Minister explain why the scheme is failing low-income families so badly?
Lord Callanan (Con)
I am not sure that the noble Baroness’s figures are correct, but I will write to her with the correct information. The scheme is not failing low-income families. We have maximum grants of £10,000 available, many of which are being taken up by low-income families. We have issued thousands of vouchers to installers to retrofit works in low-income families’ homes.
Baroness Scott of Needham Market (LD) [V]
What consideration are the Government giving to reducing or eliminating VAT on energy-efficient products and services, as recommended by the Environmental Audit Committee? I was always told that EU membership prevented the Government doing that, so what is to stop them now?
Lord Callanan (Con)
The noble Baroness is tempting me down the same path as the noble Lord, Lord Mann, of trying to predict what the Chancellor might announce in his Budget. She will need a little patience.
Lord Carrington (CB) [V]
My Lords, does the Minister accept that the proposed energy efficiency rating measurement does not consider vital differences in properties? For instance, rural properties are less likely to be heated by mains gas, and old rural houses with solid walls have a thermal capacity that is not considered. Consequently, it will be disproportionately difficult and expensive for them to be adapted. Will these differing circumstances be recognised?
Lord Callanan (Con)
The noble Lord makes a very good point. I have received a number of representations from rural landlords and others on these matters. We recognise that improving older rural properties may be more challenging. That is why we have provided an incentive for off-gas homes to be insulated under the current eco-system and will focus the future home upgrade grant on poorer performing homes. The noble Lord will also be aware that we produced a range of exemptions under our minimum standards regulations for homes that are too expensive or too difficult to improve.
Baroness McIntosh of Pickering (Con)
My Lords, I remind the House of my interest as president of National Energy Action. Will my noble friend work closely with bodies such as NEA to ensure that the least-efficient homes will obtain the highest amount of warm home grants and other grants that are available through the government schemes?
Lord Callanan (Con)
We work with a wide range of organisations. My noble friend is right to point out that it is important that we target the poorest-performing homes for the first and most urgent action. We will certainly do that as far as possible under many of the current schemes.
United States: Diplomatic Relations
(3 years, 1 month ago)
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Lord Wallace of Saltaire
To ask Her Majesty’s Government what plans they have to conduct their diplomatic relations with the Government of the United States on the basis of sovereign equality.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, we look forward to deepening the close alliance between our two sovereign nations. At the G7 meeting on 19 February we welcomed President Biden’s reaffirmation of the centrality of the transatlantic partnership in dealing with the challenges the world faces. We will work closely with the Biden Administration through our presidency of the G7 and COP 26 this year. With so many commonalities between us, we are confident that the UK/US relationship will continue to prosper and strengthen.
Lord Wallace of Saltaire (LD) [V]
My Lords, the noble Lord, Lord Frost, the Prime Minister and others have declared that sovereign equality is a vital principle for becoming global Britain once more. I assume it ought to apply to all relations with other countries, which suggests we should renegotiate some of the structurally unequal aspects of the US/UK relationship, such as the status of US bases in Britain and the arrangements on extradition. Or do we need an alternative concept for the US/UK special relationship: sovereign dependence?
Lord Ahmad of Wimbledon (Con)
My Lords, our partnership with the US reflects some of the points that the noble Lord has raised and yes, that includes defence and security. The bases in the United Kingdom underline the importance of not just the UK/US relationship but of our working together in partnership to strengthen institutions such as NATO.
Lord Anderson of Swansea (Lab)
My Lords, America is back. President Biden has reset US relations with the Middle East, in particular with Iran, Israel and Saudi Arabia. Will the Government follow the US line in respect of bypassing the Crown Prince of Saudi Arabia and freezing arms sales to Saudi Arabia?
Lord Ahmad of Wimbledon (Con)
My Lords, I acknowledge what the noble Lord says about US re-engagement on important issues on which we partner, and I understand the premise of his question on the relationship with Saudi Arabia. Our relationship is important, but we call out human rights issues, among others, with the Kingdom of Saudi Arabia. Our arms exports are managed through a very rigorous arms export regime.
Baroness Northover (LD)
The Foreign Secretary told the Munich security conference that we have restored sovereign control over our foreign policy, as if we did not amplify our influence through the EU. He also said that the first deployment of our new aircraft carrier to the Indo-Pacific will have a squadron of American F35 jets on board and will be accompanied by an American destroyer. Is this our new sovereignty?
Lord Ahmad of Wimbledon (Con)
My Lords, the noble Baroness will know from her experience that we work very closely with our allies, of which the United States is the important one, and that includes co-operation on defence and security. We should recognise the positive nature of this engagement.
Lord Howell of Guildford (Con) [V]
My Lords, in our relations with the United States, could we please make it clear that what we welcome from the new presidency is more emphasis on partnership in a networked and completely changed world and rather less talk about merely resuming American leadership, as back in the 20th century? For instance, does my noble friend agree that the future of Asia, in which our nation and national story are increasingly involved, goes beyond just US/China competition and that the revival of the nuclear joint agreement with Iran needs a careful coalition of countries and cannot be done by American diplomacy alone?
Lord Ahmad of Wimbledon (Con)
My Lords, I agree with my noble friend. That is why the United Kingdom has engaged on an Indo-Pacific tilt in terms of our foreign policy strategy and development objectives, and it is why we are seeking dialogue status within ASEAN. On the JCPOA, we welcome recent announcements from President Biden’s Administration. It is important that Iran also reach out and adhere to the structure of the JCPOA so that we can progress discussions further.
Baroness Wheatcroft (CB) [V]
My Lords, the noble Lord, Lord Wallace of Saltaire, referred to the unequal nature of the UK extradition treaty with the US. On February 12 last year, the Prime Minister referred to the treaty and said:
“I do think that elements of that relationship are unbalanced, and it is certainly worth looking at.”—[Official Report, Commons, 12/2/2020; col. 1.]
Will the Minister assure the House that the Government will begin to work towards a fairer, more equal extradition arrangement with the US Government?
Lord Ahmad of Wimbledon (Con)
My Lords, my right honourable friend the Prime Minister has stated the Government’s intent. We regard our relationship with the United States as a partnership. The relative size and mobility of the populations of the UK and the US naturally results in a greater number of extraditions from the UK to the US than from the US to the UK. Nevertheless, I note what the noble Baroness said and I think my right honourable friend the Prime Minister has made our views very clear.
Lord Collins of Highbury (Lab)
My Lords, picking up the point made by my noble friend, the biggest humanitarian crisis the world faces is in Yemen. Surely it is now time for the UK to work with our biggest ally, mirror the actions of the United States on arms sales and step up our contribution and humanitarian effort. However, according to press reports, instead of stepping it up and leading the way we are about to cut our aid support in Yemen from £181 million to £90 million. I hope the Minister will be able to say that we will not be doing that.
Lord Ahmad of Wimbledon (Con)
My Lords, the conflict in Yemen has brought great misery to its people, as is clear from our television screens and from what we have seen in the ongoing Covid-19 pandemic. On ODA allocations for future support, Yemen will remain the key priority country, but those decisions are yet to be taken.
Lord Roberts of Llandudno (LD) [V]
It is a special pleasure today to greet the House and say, “Have a very happy St David’s Day”, not only because of the rugby result but because we are discussing American presidents. Two of the greatest—Thomas Jefferson and Abraham Lincoln—were of Welsh heritage. When President Biden comes, I ask that he have discussions not only with Westminster people, with us in this Parliament, but with the Parliaments in Belfast, Edinburgh and Cardiff.
Lord Ahmad of Wimbledon (Con)
My Lords, I am sure the President’s team have noted the noble Lord’s suggestion and will reflect on it.
The Lord Bishop of Leeds
My Lords, notions of sovereignty are clearly contested, even in the way we use the language. Is it time for a public education programme through which the Government can explain why pooled sovereignty with the EU is a deficit for the UK but when it is pooled with the United States, it is seen as a positive?
Lord Ahmad of Wimbledon (Con)
My Lords, your Lordships’ House is always an education for any Minister. I note very carefully what the right reverend Prelate has said. Partnerships are about ensuring that we play to the strengths of the partnerships we have, and that is what global Britain is all about.
Baroness Sugg (Con) [V]
My Lords, from sovereign equality to gender equality. We have seen some very welcome progress from President Biden’s Administration on sexual and reproductive health and rights. Does the Minister agree that we have a great opportunity to work closely in partnership with the United States in international development to make real progress on gender equality and SRHR? Specifically, can he say how the Government will make the most of this opportunity in the coming months and years?
Lord Ahmad of Wimbledon (Con)
My Lords, the short answer to my noble friend is yes. As the PSVI lead on preventing sexual violence I am looking forward to engaging with my US counterparts.
Viscount Waverley (CB)
My Lords, government strategy strays occasionally into individual policy pragmatism over consistency when deemed in the national interest: building back for a better world by ensuring accountable government globally, the eradication of corruption and being in lockstep with respecting human rights, including sanctioning leadership impunity. If that is so, is the right choice therefore not just to be sovereign equals with the US or elsewhere but a combination approach, equally embracing multilateralism and supporting policies because, individually, they are the right ones to champion?
Lord Ahmad of Wimbledon (Con)
My Lords, there is little in what the noble Lord has said that I disagree with. As ever, he provides valuable insights into our relationship with the US and other partners.
Lord Browne of Ladyton (Lab) [V]
My Lords, in 2017, the then Vice-President Biden declared that he and President Obama believed that deterrence of a nuclear attack should be the sole purpose of the US nuclear arsenal. As a presidential candidate, he pledged work to put that belief into practice in consultation with allies. This language was adopted in the Democratic Party’s official 2020 platform. I understand that consultations with the UK have begun. What is the Government’s position on the US nuclear declaratory formulation that the sole purpose of nuclear weapons is to deter nuclear abuse against it or its allies?
Lord Ahmad of Wimbledon (Con)
My Lords, as the noble Lord will be aware, we welcome the re-engagement of the US, in particular on its obligations through NATO. That will form the basis of how the United States continues to strengthen defence alliances with the United Kingdom and others in the defence of not just the interests of the United States but those of its allies.
In paying tribute to the noble Lord, Lord Wallace, as a historian, I remind noble Lords that we come together on the eve of the famous speech given 75 years ago in 1946 by Winston Churchill when he defined what the relationship was all about. He said that
“in the days to come the British and American peoples will, for their own safety and for the good of all, walk together side by side in majesty, in justice and in peace.”
Long may that last.
The Lord Speaker (Lord Fowler)
My Lords, all supplementary questions have been asked. We now move to the next Question, which is the fourth Oral Question and I call the noble Lord, Lord Randall of Uxbridge.
Commonwealth Countries: Reciprocal Pension Agreements
(3 years, 1 month ago)
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Lord Randall of Uxbridge [V]
To ask Her Majesty’s Government whether they have received any requests from Commonwealth countries to discuss reciprocal pension agreements in the last two years; and if so, which countries have made such requests.
The Lord Speaker (Lord Fowler)
I will call the noble Lord, Lord Randall, one more time. He is not there, so I call the noble Baroness, Lady Altmann, to ask her question.
Baroness Altmann (Con)
My Lords, I understand that the Government are in talks with Canada on possible reciprocal arrangements for state pensions uprating. Can my noble friend tell the House whether they are in discussion with any other countries on this issue, including those in the EEA, EFTA and the EU?
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)
The Government are currently negotiating social security agreements with the EEA and the EFTA countries—Iceland, Norway, Liechtenstein and Switzerland—which aim to broadly mirror the new agreement with the EU. The UK state pension has been uprated in these countries as part of the long-standing provision which was in EU law before the UK left the EU, and the Government are seeking to continue state pension uprating for those in scope of the new arrangements. The Government are not in discussion with any other countries on reciprocal arrangements for pensions uprating.
Lord Singh of Wimbledon (CB) [V]
My Lords, the Commonwealth should be united by a common commitment to human rights and the well-being of all. Sadly, this has been marred by our silence over the brutal repression of the farmers’ dispute in India. Does the Minister agree that reciprocal pension arrangements can help restore the image by, for example, allowing retirement to Commonwealth countries, which will reduce healthcare needs in the UK?
Baroness Stedman-Scott (Con)
The UK has different social security arrangements with different Commonwealth countries. While some bilateral agreements provide for uprating, others do not. I am very happy to meet with the noble Lord to discuss this further if it helps him.
Lord Foulkes of Cumnock (Lab Co-op) [V]
My Lords, further to the question from the noble Baroness, Lady Altmann, last week some of us met virtually with Canadian MPs and the Minister of Seniors. He told us that a proposal had been put three months ago to the British Government that would provide some pension justice for the 125,000 British pensioners living in Canada but that they have had no reply. When will the Government respond and can the Minister assure us that it will be a positive response that will help both UK pensioners in Canada and Canadian pensioners here?
Baroness Stedman-Scott (Con)
The noble Lord is as impatient as ever, and so are we, to resolve this issue. The Government received a request from Canada in November 2020 to conclude a reciprocal agreement to include indexation of pensions. We will be responding shortly.
Baroness Janke (LD) [V]
My Lords, people with frozen pensions have often lived abroad for more than 15 years and have also lost their vote. Is it not time that the Government restore democratic rights to these citizens, many of whom still pay their taxes in the UK?
Baroness Stedman-Scott (Con)
The decision to move abroad is voluntary and a personal choice dependent on the circumstances of the individual. For many years now, advice has been provided on the GOV.UK website that the UK state pension is not uprated overseas, except where there is a legal requirement to do so.
Baroness Sherlock (Lab) [V]
My Lords, during the passage of the Immigration and Social Security Bill, we discussed the case of Monica Philip who emigrated to the UK in 1959. After 37 years working here as a civil servant, she returned to Antigua to care for her mother, at which point her pension was frozen. The Minister told me during that debate that she did not know how many of the Windrush generation are affected by this policy. Do the Government plan to look into this any further?
Baroness Stedman-Scott (Con)
I regret that I do not have figures for how many Windrush victims have been impacted. The UK state pension is payable worldwide and members of the Windrush generation who have chosen to leave the UK and have reached state pension age will receive annual index-linked increases if they reside in a country where there is a legal requirement to uprate, such as Barbados or Jamaica.
Baroness Eaton (Con) [V]
My Lords, many British pensioners living in the EU have been anxious about their pensions since we left the EU. What action have the Government taken to protect British pensioners living in the EU?
Baroness Stedman-Scott (Con)
The state pension has been uprated in the EU as part of long-standing provisions in EU law before the UK left the EU. The withdrawal agreement ensures that state pensioners who had already moved to the EU to retire while the UK was a member state will continue to have their state pensions uprated.
Lord Dodds of Duncairn (DUP) [V]
My Lords, more than half a million people are affected by having their pensions frozen while living overseas. The Government have said on a number of occasions that they do not intend to change the overall policy. How can it be right that something so iniquitous and unjust continues to persist, discriminating in respect of which countries people emigrate to?
Baroness Stedman-Scott (Con)
The UK Government have continued to honour their legal obligations in relation to uprating pensions overseas. While I realise this will be disappointing, we have no plans to change that policy at the moment.
Lord Rooker (Lab) [V]
My Lords, I could not defend this policy when I was the Pensions Minister 20 years ago and I did not, but the Treasury would not move on it and this is a real problem. How is asking people to work around the world but freezing their pensions in 150 countries if they retire consistent with global Britain? It is absolutely unfair and incompatible with being an international nation, as we claim to be. I ask the Minister to think about her answers, because it seems she has given contradictory answers on Canada to the noble Baroness, Lady Altmann, and the noble Lord, Lord Foulkes.
Baroness Stedman-Scott (Con)
I am sorry, I do not agree that I have given contradictory answers. I say again that the Government have no plans to change their policy on this. When people retire to different countries, information about the impact on their pensions is made very clear to them.
Lord German (LD) [V]
Can the Minister accept that dignity in retirement should exist for all UK pensioners regardless of where they live as a principle? As raised by the noble Lord, Lord Foulkes, and the noble Baroness, Lady Altmann, the Minister in Canada is waiting for a reply from the UK Government. If, as the Minister here says, it is about a reciprocal arrangement, surely this discussion should start urgently, as both the Government and Members of Parliament in Canada seek a resolution.
Baroness Stedman-Scott (Con)
As I have already said, the Government intend to respond to the Canadian Government shortly. We are committed to ensuring that older people can live with the dignity and respect they deserve. The state pension is the foundation of support for them.
Baroness Gardner of Parkes (Con) [V]
My Lords, what consideration are Her Majesty’s Government giving to unfreezing the state pensions of the 230,000 Britons who have moved to Australia to take into account rises they would have received in their state pensions if they were still living in the UK? Some now receive only £48.75 per week, despite having made national insurance contributions in the UK throughout their working lives.
Baroness Stedman-Scott (Con)
As I understand it, the previous agreement with Australia, which did not include uprating, was terminated by Australia in 2001 due to the UK’s refusal to change its policy on pensions uprating abroad.
The Lord Speaker (Lord Fowler)
My Lords, all supplementary questions have been asked. This brings Question Time to an end.
Covid Contracts: Judicial Review
(3 years, 1 month ago)
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Baroness Thornton (Lab)
My Lords, a year ago, Parliament gave the Government huge power so they could act quickly in the face of the pandemic. Unfortunately, growing evidence suggests that Ministers have taken advantage of these powers to the disadvantage of the taxpayer and to the cost of health workers and patients. The NAO report in November revealed that the Government set up fast-track systems for billions of pounds of contracts for people personally known to Ministers, Peers and MPs. They found that suppliers with links to politicians were 10 times more likely to be awarded contracts than those who had applied to the department in the normal way.
It looks like there is more to be explored here: not just a case of “delayed paperwork” as the Health Secretary has claimed but serious procurement rule breaches. Will the Government urgently publish the names of all companies awarded public contracts through the VIP lane and how much they were paid? What steps are the Government taking to recover millions of pounds of public money from companies which failed meet their contractual obligations?
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Lord Bethell) (Con)
My Lords, I am grateful for the question from the noble Baroness, Lady Thornton. During those hectic days, more than 15,000 suppliers approached us. Many of them were credible, but many sadly were not. It was entirely right and the best practice to have a high-priority lane to triage and prioritise those who were the most credible. A sample of 232 suppliers in that lane reveals that 144 came from Ministers, 21 from officials, 33 from MPs and 31 Members of the House of Lords not in the Government—including many who chose to write to me personally with the names of recommendations. I am enormously grateful to those who got in touch.
Baroness Brinton (LD) [V]
My Lords, the Prime Minister said last Monday in the House of Commons that
“the contracts are there on the record for everybody to see.”—[Official Report, Commons, 22/2/21; col 638.]
However, the evidence questions that statement. Can the Minister say how many PPE contracts entered into in the first wave of the pandemic, up to the end of June, remain unpublished? If the number is not to hand, please will he undertake to write to me with it?
Lord Bethell (Con)
From memory, it is my understanding that 99% of the contracts are published and 1% are outstanding. I am happy to check that and confirm it to the noble Baroness.
Lord Robathan (Con)
My Lords, it is fair to say that I have not been uncritical of some of the Government’s approach to this virus crisis and, of course, it is important that the Government follow proper procedures and are beyond reproach in their procurement policy. However, in relation to the judgment, did the judicial review find any impropriety in the behaviour of the Government, or was it a question of straining every sinew to deliver essential equipment to front-line workers, as the Government were urged to do by Rachel Reeves down at the other end?
Lord Bethell (Con)
My noble friend puts it extremely well. The judge said
“the overall picture shows the Secretary of State moving close to complete compliance. The evidence as a whole suggests that the backlog arose largely in the first few months of the pandemic and that officials began to bear down on it during the autumn of 2020”.
The judgment was entirely about the timing of the publication; it had nothing to do with the awarding of the contracts themselves. From that point of view, it is a ringing endorsement of the actions of officials in this matter.
Baroness Meacher (CB) [V]
My Lords, I strongly support the Secretary of State’s decision to prioritise saving patients’ lives, albeit that the contractual process appears to have breached the rules. Does the Minister agree that the real problem was the failure of Governments over the preceding 10 years to give proper attention to preparations for a pandemic which everybody knew could be around the corner? Can the Minister assure us that this failure will not be repeated, and systems are in place to ensure proper preparation in future?
Lord Bethell (Con)
My Lords, it is not for me to do the post-match analysis; that will be for those in the future. I reassure the noble Baroness that we have 32 billion units of PPE procured, including 19 billion purchased by the DHSC, 10 billion purchased by SSCL and 2.5 billion manufactured by our brilliant UK companies. We have 120 days of PPE ahead of us, and I can very confidently say that we are in great shape for anything the pandemic may throw at us.
Lord Wood of Anfield (Lab)
I declare an interest as director of the Good Law Project, which brought the action against the Government. Can the Minister clear up a confusion about this judicial review? In the wake of losing it, Matt Hancock, the Health Secretary, refused to apologise and said that dealing with the pandemic meant that breaching the legal obligation to publish within 30 days was “the right thing to do”. However, the case revealed emails showing that civil servants’ serious concerns that
“we are in legal breach”
were overridden in order
“to allow No.10 SpAds … enough time to be sighted and given full opportunity to comment”.
Why would the desire of No. 10 to provide comment on the mere publication of a contract legitimise a legal breach? Can the Minister explain the inconsistency between these facts and the Health Secretary’s professed explanation?
Lord Bethell (Con)
The right honourable Secretary of State for Health and Social Care put it extremely well. For those of us who were there at the time, the priority was saving lives, not publishing contracts or focusing on anything other than the protection of those who work and live in care.
Lord Scriven (LD) [V]
My Lords, 25 million masks that could not be used were supplied by a pest control firm in a £59 million deal, while a Mauritius hedge fund got £252 million, and, again, the face masks could not be used. There was also a £70 million contract with a Florida jeweller for gowns that could not be used. Will the Minister commit to a judge-led public inquiry into the handling of such PPE procurement?
Lord Bethell (Con)
As the noble Lord knows, I cannot comment on some of those cases specifically because they are subject to legal action at the moment. However, in broad strokes, I say that there were a lot of people who stepped forward to help us in our time of need; I do not condemn them. Some of them came not from the PPE industry but from others. I am extremely grateful to all those who stepped forward to help us when we needed it.
Lord Harris of Haringey (Lab) [V]
The Minister is on very thin ice. He is following Machiavelli’s teachings that the ends justify the means. He should be careful— this is the same argument that led to French aristocrats being guillotined after the revolution, to Stalin’s terror and to the blackshirts of Kristallnacht. Does he accept that the Government and Ministers have to obey the law? If he thinks that this case was trivial, where does he draw the line? Contracts to cronies? Clearly not—not until No. 10 spads have been “sighted”. Proroguing Parliament illegally? Clearly not. Interning vaccine refusers? Where is the line?
Lord Bethell (Con)
I am enormously grateful for the colourful character of that question. However, the noble Lord makes a serious point. We do respect the law, which is why we have published the contracts. The case found that we had published them 17 days late. Any reasonable person faced with a huge pandemic would think that a 17-day delay is a perfectly reasonable price to pay for saving lives. The noble Lord asked me about the price we are willing to pay and the reasons for standing out on this: saving lives is what this delay was about.
Lord Mackenzie of Framwellgate (Non-Afl) [V]
My Lords, at the beginning of this pandemic, I—like many Members of this House, I suspect—was approached by various suppliers and manufacturers asking how they could assist in supplying, or even making, PPE, ventilators and the like. Indeed, an appeal was made by the Health Secretary to this end. Of course, the difficulty was knowing who to contact. To assist in a similar future crisis, would the Government consider providing a direct hotline to deal efficiently with a large number of calls from people responding with help—rather like what Crimestoppers provides for police appeals?
Lord Bethell (Con)
My Lords, the noble Lord puts it extremely well, and he takes me right back to those days. I remember making a public call for help with diagnostics, and an NHSBSA call centre was overwhelmed by 5,500 calls in a week—triaging them took nearly a month. The noble Lord is entirely right: getting through all of those who sought to help was an enormously difficult task, and those who proved to be effective assistants were not always the obvious ones. I could share anecdotes of surprising people who came forward and gave tremendous help, while those who you would think could help simply did not have what we needed. Those were extremely complicated times, and I pay enormous tribute to the officials who saw us through them.
Lord Wallace of Saltaire (LD) [V]
My Lords, the Minister has been explaining how the centre was overwhelmed by the number of offers. In the early stages, why was it not dealt with by a greater degree of local decision-making and autonomy? Local authorities and hospital trusts were bypassed in this, as in a number of other areas, such as test and trace. Would it not have been much better to have allowed small companies and local authorities to bargain with each other about these offers in the first place?
Lord Bethell (Con)
That is a reasonable question, and, in fact, that was our starting point: the noble Lord will remember that, at the beginning of all of this, we supplied PPE to 252 NHS trusts and no one else—everyone else sorted out their own PPE. The reason we had to change was that this was a global crisis: borders were shut, factories closed down and every country in the world was desperate for PPE. There was no facility for a procurement manager at an NHS trust, let alone a small social care home in the West Country; those avenues were all shut. That is why it took a massive national effort to secure PPE. We now have a portal that supplies more than 50,000 different NHS and social care units; as I explained earlier, we have an enormous stockpile to secure that. This has been one of the big learnings of the pandemic: in order to have resilient supply chains, there needs to be some national muscle to make sure that it works properly.
The Deputy Speaker (Lord Alderdice) (LD)
My Lords, the time allowed for this Question has elapsed; I regret that we were not able to reach everyone on the list.
Uber: Supreme Court Ruling
(3 years, 1 month ago)
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Lord Lennie (Lab) [V]
The Supreme Court ruling of 19 February was a good day for workers in the gig economy and an embarrassing one for the Government. It has taken four years to get this ruling, with Uber kicking and screaming all the way. During that time, the Government commissioned and received, but then ultimately ignored, a report from Matthew Taylor about workers’ rights in the gig economy.
Either the Government accept that workers must have decent, understandable and contractual rights at work—including receiving at least the national minimum wage—or they do not, in which case workers will continue to be exploited by these huge multinational organisations. Do the Government accept that this ruling must apply to all Uber drivers and those other comparable gig-economy workers, such as those who work for Deliveroo? If not immediately, when precisely will the Government bring forward an employment rights Bill based upon the Taylor report and, by doing so, prevent businesses having to interpret this ruling for themselves?
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
The Government are committed to improving the clarity around employment status and to bringing forward an employment Bill, which we will do as soon as possible. The Bill will protect and enhance workers’ rights, promote fairness in the workplace and strengthen workers’ ability to get redress for poor treatment.
Lord Taylor of Goss Moor (LD) [V]
My Lords, the Minister will be aware that Uber has made statements suggesting that it believes that the ruling is limited only to a handful of individuals and that subsequent changes mean that it will not apply to current staff—but that is not the advice that others are giving. HMRC has statutory responsibility for enforcement of the minimum wage, and it can take action either on its own initiative or in response to complaints made online. If enforcement action is taken by HMRC, then it will be for Uber to prove that it has complied with its obligations, and the two-year limit on claims will not apply. Is HMRC expected to take that action, and is government encouraging it to do so?
Lord Callanan (Con)
The noble Lord will be aware that I cannot comment on individual cases, but, of course, HMRC is fully empowered and able to take all the action that it requires in order to get people to comply with the law.
Lord Blencathra (Con)
My Lords, everyone knows that Uber is a thoroughly disreputable and exploitative company, and I warmly welcome the Supreme Court’s decision. Will the Minister now ensure that Uber does not weasel out of its obligation to all drivers, past and present? Will he also encourage HMRC to go after it for its billions in back taxes, and will he bring forward urgent legislation to make sure that all companies in the so-called gig economy are no longer able to exploit the lowest-paid workers in this country? That is a thoroughly Conservative view of these things.
Lord Callanan (Con)
The noble Lord knows the tremendous admiration that I have for him, but I have to disagree with him on this. The thoroughly Conservative thing is that there is choice and competition in the market, and Uber has provided tremendous choice and competition, particularly in London. It is not just Uber—there are other apps as well. The monopoly previously enjoyed by black cabs was bad for the consumer. They were overpriced and Uber has been a thoroughly good thing for the market in London—so I disagree with the noble Lord on that one.
Lord Berkeley of Knighton (CB) [V]
My Lords, I am delighted to agree with the Minister’s remarks. As has already been mentioned, the Supreme Court ruling probably applies to many other areas. I am thinking, for example, of freelance broadcasters in local radio. The Minister has already partially answered my question. It is always better to avoid court if we can, so we do need to simplify the legislation surrounding workers and workers’ rights. Does the Minister agree that that would help to avoid court cases in future?
Lord Callanan (Con)
Of course, it is always better if these matters are settled without court action. As I said in a previous answer, we are committed to bringing forward an employment Bill. I thank the noble Lord for his support.
Lord Monks (Lab) [V]
My Lords, I agree with the noble Lord, Lord Blencathra. Will the Government now enshrine the very welcome Supreme Court judgment in statute by including its principles, plus the availability of workplace pensions, in the long-promised but long-delayed new Bill on employment rights and the gig economy? Will they also reject the expected campaign by Uber and other global tech companies to reverse or limit the judgment and so strike a blow against bogus self-employment, with all the risks to the tax base and other problems that it incurs, and eliminate abuses in the gig economy?
Lord Callanan (Con)
I never thought I would hear the noble Lord say that he agreed with my noble friend Lord Blencathra, but there we are. I make absolutely clear that the Supreme Court judgment is final, and Uber will of course need to align its business model to comply with it. Employers have a duty to automatically enrol qualifying workers into workplace pension schemes. This already extends to engagers of agency workers and those on temporary, fixed-term and zero-hours contracts.
Lord Vaizey of Didcot (Con)
I refer to my entries in the register of Members’ interests. I proudly declare myself a user of Uber’s services, as well as those of home-grown, UK global companies such as Deliveroo. I congratulate the Minister on his thoroughly Conservative—indeed, three-Shredded-Wheat—response to the noble Lord, Lord Blencathra. But why has the position of the Director of Labour Market Enforcement, previously occupied by the distinguished Matthew Taylor, been left vacant, despite his offer to carry on until a replacement is found? It is an important role, given where we are.
Lord Callanan (Con)
I thank the noble Lord for his support. In my view, it is all about choice in the market. Those who wish to use services such as black cabs are free to do so, as are those who wish to use Uber or other home-grown services. That to me is the essentially Conservative thing; it is about choice and competition, which produce better standards for all. In answer to the noble Lord’s question, we will be making an announcement shortly.
Lord Hendy (Lab) [V]
My Lords, it is good to hear that the Government will introduce legislation to simplify this complex area of the law and end repeated litigation over workers’ status. Does the Minister agree that simplicity requires that worker status be limited to a simple binary choice between employees on the one hand and, on the other, those who are genuinely in business on their own account, with their own clients and customers?
Lord Callanan (Con)
As I said, we are committed to considering options to improve clarity on employment status and how best to address that in a post-Covid scenario. However, it is important that we retain the flexible labour market that has served this country so well and has resulted in our unemployment rate being significantly better than that of the rest of Europe.
Lord Faulks (Non-Afl) [V]
My Lords, I too welcome the decision of the Supreme Court. Those who have read the judgment of Lord Justice Leggatt will realise the detail which the court went into in deciding that, whatever the lawyers had devised, the reality of the relationship meant that the Uber drivers were in fact workers. I welcome the news that there is to be legislation, but I suggest that there are some occasions where the courts will have to deal with the reality. Even the best-drafted legislation will have to set out the principles. The courts here were doing precisely what they should do—applying the principles of the Act to the reality on the ground.
Lord Callanan (Con)
The noble Lord has put the case very well. The Supreme Court’s decision is, of course, final. Uber will have to comply with that judgment, as everybody else has to comply with court rulings.
Lord Davies of Brixton (Lab) [V]
My Lords, I want to follow up the issue raised by my noble friend Lord Monks of the implications of this judgment for pension provision. Including these people within the aegis of automatic enrolment throws up a series of practical problems. There is the question of whether back pay will be pensionable. These workers tend, by their very nature, to have widely fluctuating emoluments, which again creates problems. Will the Government be undertaking a study of the implications of this judgment for pension provision, particularly under automatic enrolment?
Lord Callanan (Con)
The noble Lord makes a good point. Of course, pension entitlement is based on employment status, age and income. It is a complex area of law and we will, of course, look very closely at the judgment.
Baroness Goudie (Lab) [V]
My Lords, the Uber case was directly concerned with the national minimum wage, the working time regulations and whistleblowing under the Employment Rights Act, but it applies to all rights enjoyed by workers that are subject to statutory regulation. Pension is deferred pay. Does the Minister accept that workplace pensions and, as my noble friend mentioned, auto-enrolment under the Pensions Act 2008 for eligible job holders, are aspects of what is secured as a consequence of the Supreme Court judgment?
Lord Callanan (Con)
Well, many individuals working in the gig economy will already be eligible for automatic enrolment and all employers have a duty to automatically enrol qualifying workers into the appropriate workplace pension scheme. All workers aged between 22 and the state pension age who earn more than £10,000 a year and are working, or ordinarily working, in the UK will be entitled to be automatically enrolled into a workplace pension.
Education Return and Awarding Qualifications in 2021
(3 years, 1 month ago)
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Lord Watson of Invergowrie (Lab)
My Lords, it is fitting that the Statement emphasises the tremendous efforts of all staff in schools and colleges who have made schools as safe as they can be, at some risk to themselves. I echo these sentiments.
It was obvious before Christmas that there were likely to be problems with grades. Indeed, I and other noble Lords said as much when the ministerial Statement on exams and accountability came to your Lordships’ House on 8 December. Why did the Government sit on their hands and pretend otherwise until it was too late to come up with a genuinely robust proposal? Can the Minister explain why, despite schools closing at the start of January, exam board guidance will not be available until the end of March? That simply increases the uncertainty and anxiety already widely experienced by students, parents and teachers. The proposals for checking and confirming teachers’ grades seem flimsy. It would have been possible to build in much more comprehensive moderation arrangements between schools, using the skills of experienced examiners and exam markers. Without this, there can be no guarantee of consistency and fairness. There is surely a risk that the rigorous will lose out, compared to the less rigorous.
There is also a serious risk that schools, colleges and teachers will be exposed to unreasonable pressure to give students the grades they—or their parents—expect. It must be made clear and emphasised that exam boards, not schools, are responsible for issuing grades and appeals. As things stand, it seems that a school can appeal against a grade awarded by one of its own teachers. This is awkward, to say the least.
The likely volume of appeals and disputes will also present a capacity issue. How can the Government guarantee that the system will be able to cope with these pressures? Faith in the proposals has hardly been enhanced by the very public resignation of Sir Jon Coles from the Ofqual recovery committee just as the new measures were being announced. He was a former DfE director-general and the department’s own nominee to the Ofqual committee. What does this say about the robustness of these proposals?
I turn to the return of schools and colleges. During the first week back, they will be required to carry out three tests for each of the 3.4 million secondary-age pupils. Many schools have lost income or face higher costs because of the pandemic. What support and resources will the Government make available for schools and colleges to deliver the testing, including additional financial support?
In January, the Secretary of State said that he wanted school staff to be in the next wave of vaccinations. Yet, despite the obvious benefits this brings in facilitating the return to school, there has been no commitment since to prioritising school staff. Do the Government no longer believe that teaching staff should be a priority?
Finally, 8 March is also the date on which independent training providers are expected to have the majority of apprentices and trainees back on site. ITPs and their learners seem to be at the back of the queue for receiving Covid home-testing kits. The Association of Employment and Learning Providers says that a general rollout is not expected before April. This cohort includes high levels of vulnerable and disadvantaged learners who are more likely to be affected by Covid-19. It is unacceptable that they should be doubly disadvantaged by a lack of access to testing. Many have little or no access to the technology needed for remote learning, so anything that delays their return to classroom delivery is damaging.
There is an obligation on training providers and employers to provide a safe environment before learning can resume. Already, providers are concerned that they are potentially leaving themselves open to legal action. Can the Minister explain what providers are meant to do in these circumstances?
We all want not simply to see schools and training facilities fully reopened but for it to take place on a sustainable basis. This requires a creditable system, underwritten by a plan B. If the Government have learned anything during the last 12 months, it is surely that a fallback position is necessary to take account of fast-changing events. This Government have been characterised throughout the pandemic by indecision and U-turns. This has had a particularly damaging effect on young people seeking to gain the education and qualifications that will prepare them for the world of work. How can the Minister guarantee that the measures outlined in the Statement will offer a more certain way forward for students, parents and teachers?
Lord Storey (LD) [V]
My Lords, I thank the Minister for this Statement. The last 12 months have been like a giant wrecking ball for the education of our children. We welcome the reopening of schools and the Covid measures that the Government have put in place, but we have consistently argued that individual schools are best placed to respond to their circumstances. We should give head teachers the flexibility to know how to operate their schools safely.
We welcome that Sir Kevan Collins will work on the recovery plan, crucially together with teachers, schools and parents. It is important that we get this right. Each child’s circumstances vary enormously. The learning gap has widened. Today, the Education Policy Institute has reported that sixth-form and college students from poorer homes find themselves about three A-level grades behind their more affluent colleagues. A few extra lessons of catch-up will not compensate for a year’s loss of mainstream education. We need a rigorous and far-reaching plan to ensure that nobody is left behind. I am surprised that there is no mention in the Statement either of additional support for the well-being and mental health of children, or of children with special educational needs.
I turn to this summer’s exams. Thank goodness that there will not be assessment by algorithm. It is right to have teacher assessment. The amount of learning and study that each pupil has been able to access will vary enormously. Teacher assessment is the only fair way to understand individual pupils’ circumstances and learning. Can the Minister confirm that there will be no school league tables of results? Why not use a more broadly based quality assurance model rather than relying on random sampling? I am sure the Minister is concerned about grade inflation. What plans do the Government have to reverse it?
Finally, how will home-educated children and older adults be assessed for GCSEs and A-levels? I am sorry to spring that question on the Minister. If she does not know the answer, perhaps she could write to me.
Teachers and support staff have worked flat out to keep school learning on the road. We owe our school staff a huge debt of thanks for their dedication and professionalism.
The Parliamentary Under-Secretary of State, Department for Education and Department for International Trade (Baroness Berridge) (Con)
My Lords, I am grateful for the support of both noble Lords. We are all waiting with bated breath for next Monday when our children can return to school—I am sure that many parents are as well. I join the noble Lord, Lord Storey, in paying tribute to the staff who have worked tirelessly during this period.
Unfortunately, the new variant at Christmas took us all by surprise with its speed. The levels of community transmission meant that we had to shut down schools for the second time. It was made clear to staff that exams were cancelled and that teacher assessments would be the way ahead, so certainty was given at that point. This is a genuinely robust proposal. As noble Lords will be aware, we had to consult. Ofqual and the DfE put out a joint consultation. There were more than 100,000 responses—maybe the largest ever—the majority of which were from students. It is good that they were obviously interested enough to put forward their views.
Teachers will have been getting on with teaching as much of the curriculum as possible. Whether students are to be assessed by examination or by their teachers, that curriculum has to be taught to those children. There has been no confusion among teachers that that has been their job by way of remote education for the majority of students.
By Easter, the exam boards will issue their guidance. Departmental guidance was issued on the same day as this Statement, so some information is already available about the list of materials and evidence on which teachers can rely in order to assess grades. Grades will be assessed on evidence. There will be both internal and external quality assurance. Internally, the head teacher will have to sign a declaration that they have acted in accordance with the guidance and instructions given by the exam board. There will shortly be a consultation on what should be in that declaration. We are relying on the professionalism of head teachers as to how grades will be assessed within their school.
Externally, the exam boards will be able to inspect a school where they have concerns about the way in which grades are awarded to students. As the noble Lord, Lord Storey, said, this will be random, but it will also be risk-assessed. It has been made clear to schools that a significant misalignment with historical data could be a reason for a school falling within the Ofqual risk profile for assessment. Obviously, we are trying not to peg it to historical data, because certain institutions are improving, but we are making it clear to schools that such data are relevant, though not determinative.
The noble Lord is correct. We need to make sure that we communicate clearly to parents and children that teachers are assessing grades, and grades are awarded by the examination boards. Students will not pay for appeals. An appeal to a school will be of an administrative type. For instance, a child might say, “I’ve got this grade, but have you really taken into account all that assessed artwork that I did?” That kind of appeal is based on process. The examination board comes in if there is a substantive appeal. That is the appropriate boundary between schools and examination boards.
Regarding timing, teachers have until 18 June, so they will get the materials by the end of spring term. They will have to put their assessed grades in by 18 June, and the results dates are 10 and 12 August. That should allow time—we are talking of higher education providers in particular—for any appeals to be put forward, hopefully without prejudicing the transition to the next stage. I just want to pay tribute to the work of Sir Jon Coles, both for the department and for Ofqual. His departure is a matter for himself and Ofqual.
This is an important reassurance on testing, for parents, teachers and students: yes, we are providing support, and have been for the last half term, for the costs of the tests and administering them on school premises. That arrangement will continue. Those schools that applied for expenditure on the basis of full reopening, and have not had to spend that money, can reclaim that cost through, I believe, the NHS Test and Trace service.
It is envisaged that the independent training providers, which will receive tests to do home testing along with everybody else, will use the community testing facilities for that three-week period. As I am sure most noble Lords will know, many local authorities have provided access to asymptomatic community testing sites for those three weeks until they join up with the remote testing system.
Teachers will be assessing, and content will have been taught to, all cohorts—there is no minimum level—such that every student will be able to be assessed with a grade, and students will be assessed on what they have been taught.
In response to the noble Lord, Lord Storey, yes, we do trust head teachers to assess these grades, and they have welcomed the guidance. Over this period, the department has had to issue guidance to schools about how to make schools safer for pupils in line with PHE guidance on bubbles, ventilation, sanitation, et cetera.
For the reasons outlined by the noble Lord, Lord Storey, the national tutoring programme has been extended to the 16 to 19 year-old cohort. The laptop provisions we outlined have been extended to FE colleges as well. Many have been buying those through the bursary fund, but they can now access the central allocation. Also, £102 million has been allocated to tuition for 16 to 19 year-olds for this academic year. Funds are up on last year because of the expected increase in the size of the cohort. So we do have a rigorous plan.
Mental health and well-being have always featured as part of the guidance, and there has been funding for mental health and well-being in return to education, so there are experienced professionals to advise schools. I can assure noble Lords that there will be no performance tables this year. As I have outlined for the noble Lord, Lord Storey, there will be both internal and external quality assurances—by the school and by the exam board.
Finally, private candidates were one of the cohorts particularly affected last year. We consulted on that, and there will be a number of assessment centres. A list will be put up soon. Multi-academy trusts have volunteered to assess private candidates, so private candidates can look at a list. We are assisting with the cost of this. Private candidates can go to an assessment centre and ask to be assessed on the same basis as for a teacher-assessed grade. Obviously, there are separate lists of materials et cetera for those students. Assessment can be done remotely, so a private candidate is not limited to the provision in their town, which might happen not to include an assessment centre. So we are confident that the method we have outlined will put the assessment of private candidates on a par with that of pupils who are within an exam centre. I am also pleased to say we have this year managed to find a way to get those private candidates who were affected last year assessed. I am just grateful to know, as I am sure we all are, that this time next week school will just be finishing for everybody.
The Deputy Speaker (Lord Alderdice) (LD)
We now come to the 30 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers.
Lord Polak (Con)
First, I congratulate the Government on making a clear Statement about public exams in good time. We all agree that school is the best place for children. Having watched the development of my five year-old granddaughter Sienna over the past year of lockdown, it is clear she needs to be in school. My son and daughter-in-law are equally clear that she needs to be in school. Does the Minister agree there is no quick fix, especially for reception children, and that help will be needed over a period of time?
Baroness Berridge (Con)
I am grateful to the noble Lord for highlighting the situation for early years provision, which has remained open during this time, because that kind of education is difficult, if not impossible, to deliver remotely. This is precisely the reason that catch-up will be for the lifetime of this Parliament. The £700 million is the tranche for this academic year. Sir Kevan Collins, whom I am grateful the noble Lord, Lord Storey, mentioned, will be advising us over the lifetime of the Parliament. We are investing £18 million this year on reception and early years to help those children catch up.
The Earl of Clancarty (CB)
My Lords, thinking ahead, will the Government begin a wider consultation to ensure that 2022 GCSEs and A-levels will be fair and that there will be plenty of time to prepare for them?
Baroness Berridge (Con)
That issue and others are precisely what Sir Kevan Collins will be helping us with. We are monitoring interim findings on the amount of learning that has been lost. That will inform some of the basis for assessing how those students are doing. We can really only assess things from Monday to know who has lost what time in education.
Lord Triesman (Lab) [V]
My Lords, I draw attention to my entry in the register as a member of the board of Bounce Forward, a charity concerned with children’s resilience. I agree with the Minister that we all want to see our children back in school. We all want to know that it is a safe process, that children will not be taking the virus home and that we will not be wholly reliant on flow tests that have been hardly reliable.
We have learned that any ambiguity in the advice given can be very counterproductive. The Statement says that with specific medical exceptions, school pupils will wear face masks in school at all times. But apparently, and confusingly, the Government have also issued advice that allows parents to opt their children out of this requirement. We know that many people and communities are sceptical about vaccines and are declining them, which I greatly regret. They may be likely to opt their children out of mask wearing. Will the Minister make it absolutely clear today that wearing masks in schools is mandatory, except where there is a medical reason not to do so?
Baroness Berridge (Con)
My Lords, we have all got used to the fact that there are certain people for whom there is an exemption from wearing a mask, and it is clear that the matter of how mask wearing is enforced in a classroom, or wherever else in a school there cannot be social distancing, is a matter for the school. We do not believe that we should be dictating how schools respond to different situations. There may be a multiplicity of reasons and particular circumstances, so it is up to the schools, as with any other behaviour policy, to monitor the wearing of masks.
Baroness Garden of Frognal (LD)
My Lords, we welcome anything that begins to restore normal educational activity for our young people, who have lost so much in lockdown. The Statement talks of secondary schools’ summer schools. How will these be staffed? Our hard-pressed teachers are exhausted by the demands of virtual teaching. Can we be assured that they will not be required to give up restorative summer holidays to continue to work through the summer on these face-to-face summer schools—but, if not teachers, who?
Baroness Berridge (Con)
My Lords, we are encouraging secondary schools to aim the summer school programme at incoming year 7s, because that is the transitional year. We have given them £200 million in funding to do this. Using existing staff, who might want to come in and be paid, is an option, as is using supply teachers, volunteers or other people. This is up to the schools. We are encouraging them to run these programmes and we are providing them with the resources to staff them as they choose.
Lord Lansley (Con) [V]
My Lords, I should declare an interest, in that I have one child taking A-levels and one taking GCSEs this year. So far as they are concerned, I trust their teachers; I think they will be rigorous and accurate. But, generally speaking, there is a sense of uncertainty associated with the exam boards’ quality assurance process. I heard what my noble friend said about that, but the scale of the interventions by the exam boards has to be just right. Too little and they have no impact, too much and effectively the exam boards will override the judgments made by teachers and head teachers. Can my noble friend give us any more information about the scale of the quality assurance activity by exam boards?
Baroness Berridge (Con)
My Lords, how many times the exam boards decide to intervene will be up to them, in terms of how many random and how many risk-assessed interventions. But I can assure the noble Lord that this is an assessment based on evidence. The exam boards will be training teachers in how to do this; they will be giving exemplar materials—for instance, “This is an example of a grade A essay in history”; and they will be given grade descriptors. We are hoping that all of these, along with the declaration that the head teacher will have to sign, will provide the assurance—but it will be for the exam boards, overseen of course by Ofqual, to do the external quality assurance.
Baroness Blower (Lab) [V]
My Lords, on Friday last, the Secretary of State for Health told the nation that one in five local authorities had seen an increase in Covid cases and that this was still a deadly virus. Is this then the right time to bring 10 million people back into daily circulation? There is a settled view from education staff and their unions that schools and colleges should be open to all as soon as is safely possible. However, from March 8, mitigation should be in place precisely to ensure safe reopening. The use of rotas and a staggered approach, as well as the use of additional spaces and staff to allow for the greatest chance of social distancing, would all decrease the risk of a surge in community transmission on the reopening of schools and colleges. Can the Minister offer any hope that the Government, even at this late stage, will consider these helpful suggestions for mitigation?
Baroness Berridge (Con)
Obviously the return is data-driven, not date-driven. The controls that PHE have advised have been supplemented by the wearing of face masks in certain situations in secondary schools. It is a balance of risk. We are confident now that the public health figures in most areas for the disease are at such a level that they are counterbalanced by the need to get children back into education. But, as the Prime Minister made clear, we will be watching the data and the figures to ensure that there is not the kind of surge the noble Baroness outlines.
Lord Dodds of Duncairn (DUP) [V]
My Lords, can the Minister say whether the Chief Medical Officer’s position on children returning to school is consistent with the views of the Chief Medical Officers of Northern Ireland, Scotland and Wales? For my part, I believe it is extremely important that no child in any part of the United Kingdom is disadvantaged by not having face-to-face teaching as quickly as possible. Is it not the case that children are much more likely to be harmed in the medium and long term by not returning to school and not having that face-to-face teaching than anything to do with the pandemic as things stand at the moment?
Baroness Berridge (Con)
I agree with the noble Lord, as I have outlined, about the harm that we all know of in terms of education loss, and of course the harm for certain vulnerable children who have remained at home and what we sadly expect will be a period of referrals to children’s social care after schools reopen. In relation to education, I do not need to say to the noble Lord that it really is a devolved matter. All I can say is that schools in England are reopening in accordance with PHE and CMO advice.
Lord Addington (LD)
My Lords, would the Minister agree that, if you are going to do an assessment on work that has been done by people going forward, it is very important that the teachers involved know the patterns of the people they are dealing with. If somebody is dealing with, say, a moderate dyslexic who underperforms in essays et cetera—I remind the House of my declared interests here—they might not be in the best place to make the assessment, given that condition, and this might be carrying on for virtually anybody with a special educational need. The teachers may not have the experience to assess what they will do, and these groups often outperform in exams. Will there be an appeals process that goes forward and takes this on? It is a real problem and, as we get better at identifying it, it is a growing one.
Baroness Berridge (Con)
My Lords, obviously many of the mitigations that certain children with special educational needs need in terms of extension of time in exams are not obviously going to be relevant under this system. There is a short list at the moment of assessment materials that teachers can take into account; it is not just “sit an essay”. There is are a range of materials and we would and do expect and hope that teachers will know, in circumstances such as the noble Lord outlines, which materials to set for children with those particular needs. I will write to him about whether there is any specific aspect of the training that exam boards will give in regard to special educational needs students and the outperformance in exams that he outlines.
Lord Lexden (Con)
My Lords, I declare my interests as a former general secretary of the Independent Schools Council and the current president of the Independent Schools Association. Do the Government recognise that independent schools want to work as closely as possible with their colleagues in the maintained sector, strengthening the well-developed partnership between them still further, in order to play a full part in the recovery of the entire national education system? Will there be opportunities for independent schools to contribute to the recovery schemes that the Government are now designing?
Baroness Berridge (Con)
I thank the noble Lord for his persistence in raising this issue. I have the great privilege of meeting at least every fortnight with the Boarding Schools’ Association and the Independent Schools Council. We have certain partnerships with them, particularly in relation to vulnerable children in boarding schools, but I do want to say, in relation to catch-up being for the lifetime of the Parliament, that now is the moment for us as the department and that sector to really try to square this circle and find a larger-scale way in which the good will of the sector and the needs of our children can be aligned so that we can deliver something more substantive.
Baroness Andrews (Lab) [V]
My Lords, can I press the Minister on summer school provision again? The summer school catch-up schemes are going to be absolutely essential. Why therefore are they covering only a third of children on free school meals? When are we going to have detailed plans of what will be the content of the curriculum and the expectations? Will this all be left to schools? In which case, will any standards be set? The Minister mentioned the focus on children in transition years. I welcome that very much indeed, because these are very crucial rites of passage. Can she tell me more about what those plans are and when we will actually see them—and, more importantly, when teachers will actually see them?
Baroness Berridge (Con)
My Lords, yes, the summer school programme is focused on those in secondary schools for the reason that they have less time left in education. As I say, we are encouraging year 7 because of that transition year. There will be enrichment activities as well as education. There will be further information on this for schools and I reiterate that this is in addition to the holiday and activities fund that is running those activities in disadvantaged communities—so it is summer schools plus that.
Lord Austin of Dudley (Non-Afl) [V]
My Lords, the risk here is not grade inflation. It is the exact opposite. It is that pupils from poor or overcrowded homes, with special needs, or from schools that provided fewer online lessons, will not get the grades that they would have if they had not missed a year’s education, and their prospects for the future will never recover. I know that the Government have provided laptops, but lots of pupils are still missing out. There is a huge difference between the amount of online teaching provided by different schools. Will the Government agree that schools and exam boards should err on the generous side and take into account a pupil’s ability and the grades they would have got had they not been robbed of a year’s proper teaching, so that they can go on to the apprenticeship or the college or the university that they would otherwise have been able to.
Baroness Berridge (Con)
My Lords, this method of assessment for grades means that teachers can take into account how much content has actually been taught. We have not mandated a minimum level, but they should be assessed using these materials only on what they have been taught—obviously not on what they have not been taught—so the teachers can know what content the child can be assessed upon. This should help with the differential learning loss. In relation to disadvantaged pupils, the £302 million of Covid premium is actually based on pupil premium—so we are targeting that at the most disadvantaged students.
Baroness Massey of Darwen (Lab) [V]
My Lords, will recovery schemes be compulsory for all children and fully funded? If not, vulnerable children are likely to lose out. Will such schemes ensure opportunities for sport, the creative arts and social education, which are so important in their own right but also improve academic achievement and mental health and well-being?
Baroness Berridge (Con)
My Lords, the recovery scheme summer schools are funded to £200 million and there should be enrichment activities. I am delighted to say that all the wraparound facilities in schools for essential purposes will also be open on 8 March; I am sure that many students are looking forward to being back doing PE and all those other activities when they return to school next Monday.
The Deputy Speaker (Lord Haskel) (Lab)
The noble Baroness, Lady Bennett, has withdrawn, so I call the noble Baroness, Lady Blackstone.
Baroness Blackstone (Ind Lab)
My Lords, in the light of the Sutton Trust’s report last week on the hugely negative effects of university closures, especially on disadvantaged students, will the Government consider advancing the date of their review on when remaining students can return to university, particularly since leaving it to the Easter holidays will give little notice to universities, which need to plan to make a much-needed full return?
Baroness Berridge (Con)
My Lords, there will be a one-week notice period for that. The reason for all these gaps is so that action is taken and data is collected and assessed. There are no plans to change the date of that review, but as the noble Baroness will be aware, students on practical courses should return by the 8th if they have not already done so.
Lord Truscott (Non-Afl) [V]
My Lords, in my view, Her Majesty’s Government made the right decision in resisting calls to vaccinate teachers ahead of vulnerable people. However, can the Minister give your Lordships’ House Her Majesty’s Government’s view on reports that universities are collating secret waiting lists for admission to university?
Baroness Berridge (Con)
My Lords, I have no information at all on secret reports or anything of that nature. As I outlined, we are working closely with the higher education sector, so that after the results days on 9 and 12 August, there will be a period of time to ensure that if a student appeals, any offer they have will be open to them. However, I have not heard of any secret reports.
Lord Blunkett (Lab) [V]
I strongly endorse the intervention by my noble friend Lord Watson. However, I want to pick up on the question the noble Lord, Lord Addington, raised. In the assessment process and the advice that has been given, which obviously will deal with coursework and marks, there is now this added factor of the external tests—call them mini-exams if you wish. How will the comparator—the declaration of heads—be dealt with by the exam boards and the regulator when some have tests and some do not?
Baroness Berridge (Con)
My Lords, during the consultation period the department met with a number of stakeholders—in fact, with just over 100 organisations, including SEND organisations. The tests will be provided by exam boards but they are voluntary; schools will be able to set their own tests. There will be a list of assessment materials that they can use to form the basis of the tests. They can use coursework or something from the first year of GCSE, but they will then sign a declaration. The content of that declaration is being consulted on, but it will say that they have done the assessment process in accordance with the guidance and the outline given to them by the exam boards. However, they will be trained and assisted with grade descriptors and exemplar material so that we can have confidence that grades are as consistent as they can be across different centres.
Baroness Fox of Buckley (Non-Afl)
Can the noble Baroness explain on what evidence the Government made the extraordinary decision to mandate that secondary pupils mask up in the classroom, especially as in August, the Prime Minister described such a policy as “clearly nonsensical”? As this means that children as young as 11 will spend the majority of their waking hours wearing a mask, can the noble Baroness tell us whether any research has been done on the health, educational or social costs of children wearing masks for such an extended period? Finally, can the noble Baroness allay the concern of teachers that wearing face masks in the classroom is not the return of face-to-face teaching, because they are antithetical to classroom engagement? How can the teacher read the room, see who is struggling and see who has understood? That would seem even more important as the Government are now advocating teacher-led assessment, but teachers cannot see whom they are assessing.
Baroness Berridge (Con)
My Lords, the wearing of face masks in secondary schools will be reviewed at Easter. This is a three and a half week period during which Public Health England has advised us to do this, and although it is not ideal—no one is pretending that—it is far outweighed by children not being in school and not having their education delivered face to face. Therefore, it is a compromise and it will be reviewed at Easter.
Non-Domestic Rating (Lists) (No. 2) Bill
Monday 1st March 2021
(3 years, 1 month ago)
Lords ChamberRead Full debate Non-Domestic Rating (Lists) Act 2021 View all Non-Domestic Rating (Lists) Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 146-R-I Marshalled list for Report - (24 Feb 2021)
The Deputy Speaker (Lord Haskel) (Lab)
My Lords, the Hybrid Sitting of the House will now resume. I ask all Members to respect social distancing.
Members will be called to speak in the order listed. Short questions of elucidation after the Minister’s response are discouraged. Any Member wishing to ask such a question must email the clerk. The groupings are binding. A participant who might wish to press an amendment, other than the lead amendment in a group, to a Division must give notice in debate or by emailing the clerk. Leave should be given to withdraw amendments. When putting the question, I will collect voices in the Chamber only. If a Member taking part remotely wants their voice accounted for if the question is put, they must make it clear when speaking on the group.
Amendment 1
Lord Kennedy of Southwark
“Annual Rates Revaluation Reporting
(1) Within three months of the passing of this Act, and every twelve months thereafter, the Secretary of State must publish a report on the timing of business rates revaluations and lay it before both Houses of Parliament.(2) Each report must contain an assessment of the impact of the timing of business rates revaluations on—(a) the prosperity of towns and high streets,(b) the prosperity of small businesses,(c) the ability of high street businesses to compete with online businesses,(d) local authority finances, and(e) business rates appeal waiting lists.(3) Each report must contain a statement detailing how the Valuation Office Agency and local authorities have been consulted in relation to the timing of business rates revaluations.(4) Each report must make a recommendation as to whether action from the Government needs to be taken to prevent adverse impacts arising from the timing of the rates revaluation.”
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I draw the attention of the House to my relevant registered interests as a vice-president of the Local Government Association, chair of the Heart of Medway Housing Association and as non-executive director of MHS Homes Ltd.
Amendment 1 seeks to place a new clause in the Bill whose purpose is to require the Secretary of State to publish a report on the timing of business rate revaluations and to lay that report before the House. The report must address the issues I have laid out in proposed new paragraphs (a) to (e) of my amendment. Each point needs careful attention.
Our high streets were in crisis before the pandemic, and the position has been made even worse over the last year. Hardly a week goes by when we do not hear of struggling high streets and well-known businesses leaving the high street for good, or questions being raised as to their future viability. Sir John Timpson, chairman of the wonderful Timpson Group, addressed this very point this morning on Radio 4, reflecting on the work he did looking at our high streets for the Government before the pandemic. The Bill does not address that fact, but merely moves the date of the revaluation so that it better reflects the effects of the pandemic. While that is welcome, it falls a long way short, and the Government have missed an opportunity here to do more to save our high streets.
I do not think one can disagree with the points set out in my amendment. If the noble Lord is going to resist the amendment, can he set out what he and his department are doing to support the prosperity of our towns and high streets? That must go much further than the towns fund, or other small schemes with limited funding. What must happen is fundamental help for all our towns and high streets. Small shops and small businesses on our high streets deserve support as they will be a crucial to our economic revival, including the much loved British pub, which is at the heart of local communities. I also draw the attention of the House to my being vice-chair of the All-Party Parliamentary Beer Group. I very much support its work, and the part that pubs play in our community lives.
Lord Stunell (LD) [V]
My Lords, I speak in support of Amendment 1, just moved by the noble Lord, Lord Kennedy. It is a real pleasure to follow him and his very measured and careful support for the need to tackle the issues on which I too will comment.
I am disappointed that the Government and the Minister have not thought fit to take on board the range of sensible improvements put to your Lordships’ House in Committee. A wide range of noble Lords spelled out the difficulties that an unamended Bill will impose, particularly on the hard-hit retail sector, where the devastation of Covid-19 lockdowns on top of a decade-long decline in high street sales has wiped out a long string of household names, as the noble Lord, Lord Kennedy, rightly rehearsed
The Chancellor’s emergency business rates relief has certainly been a life saver. The Association of Convenience Stores says that four out of 10 of its members would have gone out of business without that support in the past year. It is no wonder that many Conservative MPs are calling on the Chancellor to extend that scheme, and to provide some continuing support to the high street, at least until Covid restrictions are fully lifted. I hope he will do that but, as we discussed in Committee, that could all be in vain if those retailers are then left waiting for years for the revaluation, which this Bill will trigger, to come into effect. The big risk is that the cavalry will arrive too late—in time to count the dead, but too late to bring success to the high street.
Today’s amendment is in default of any response so far by the Government to these issues. It requires an annual audit of the heavy burdens borne by some, especially high street retailers, alongside the unearned tax holidays given to others, particularly distribution centres and the gigantic out-of-town warehouses of the online retailers. Those businesses are booming and occupy property that is virtually untaxed under the present regime, compared to the high street trader.
The amendment refers to the impact of the timing of rates revaluation, and that is what I want to focus on. I want the Minister to respond to this specific point when he winds up: does he acknowledge that unless the Chancellor’s rate relief scheme is extended, or the effective date of implementation of the revaluation in this Bill is brought forward, there will be a hiatus, when many small shops will face ruin? They will be forced to pay wholly disproportionate property taxes, which are now completely out of kilter with current rental and property values. If he does acknowledge the reality of the hiatus, will he undertake to work with the Treasury to bridge it? That could be by extending the existing scheme set out by the Chancellor, or by bringing forward the effective implementation date of this Bill, or both.
Further to that, it is noteworthy that the Non-Domestic Rating (Public Lavatories) Bill has a retrospective implementation date of 2020. I presume that that means that the Government accept the principle that the benefit of a reduction in rateable value can be backdated. If it can be done for public lavatories, surely it should be done for high street shops as well. If the antecedent valuation date is taken as 1 April this year, as set out in this Bill, surely it makes sense in the current circumstances to make that the date from which the payment amount is calculated. That would not be immediate cash in hand, of course, but it could be a vital, bankable credit for a struggling business and give retailers the incentive and the means to keep going through this crisis until the valuation is actually published. Will the Minister undertake to explore this with the Chancellor as one of the ways of closing the chasm between the end of the Treasury scheme and the coming into force of this Bill?
If the Government are serious in saying that we have to build back better, surely this is exactly the time for some joined-up thinking across government departments. Is this not exactly the simple bridging measure that would help stop the disruption of our high streets? We all know that thriving local communities everywhere need ready access to diverse public and commercial services that serve everyone, and that a healthy and diverse local retail sector is an essential part of that. This is not at all about keeping alive an outdated business model that is able to limp along only with tax cuts and subsidies; it is about putting right a taxation injustice that is now beyond dispute, so that high streets can do what they do best: provide local communities with a focal point for the things they need. I support Amendment 1 and I look forward very much to hearing that the Minister does too.
Lord Thurlow (CB) [V]
I thank the noble Lord, Lord Kennedy, for tabling Amendment 1, which I wish to speak to, and it is a pleasure to follow the noble Lord, Lord Stunell. I declare my interests as set out in the register. I am a non-domestic ratepayer in Scotland, although I know this Bill does not include affairs in Scotland.
The Bill is all about timing; it is not about fairness, fitness for purpose, the impact on business, sorting out the appeals system or any other aspect of what has become, I fear, a broken system. The Bill ignores the most critical timing issue, which is simply that of dealing with the appeals backlog—ratepayers paying the requested sum until an appeal is settled. In the current circumstances, that is critical. We cannot expect the Covid-related rates holiday to last for ever. We have seen a collapse in retail rental values over the past 12 months, and as both the noble Lords, Lord Kennedy and Lord Stunell, have pointed out, it was a crisis long before this. Some tenants are to pay double the appropriate rates bills. This amendment brings the plight of the high street retailer into high relief. The annual report it proposes would focus specifically on small businesses, as set out in subsection (2)(b). I am pleased that it also addresses the elephant on the table of all non-domestic rates discussions in the retail sector: the killer impact of the online assault on the high street, as we have heard from both the previous speakers.
Online retail is not a bad thing and it is clearly the future for a huge percentage of domestic spending. The bad thing is the Government’s inability—after years of notice, for online is not a new phenomenon—to recognise the twin neglects of taxing the profits of online and of fairness in the spread of rates between the high street and that sector. Subsection (2)(d) of the amendment requires that the report address the impact of the revaluation timing on local authority finances. Rates are a critical ingredient in local authority finance, but unfortunately the funding gap that the next revaluation will create will lead to a difficult political challenge: how to replace the fall in rates funding—another reason to delay the reform so desperately needed.
Subsection (2)(e) addresses the subject of waiting lists for appeals, which I mentioned earlier. This has become critical. Waiting list delays are themselves enough to put many out of business—a good example of shooting ourselves in the foot of local authority funding. The end result will be worse.
I must refer also to the fundamental review—a story of delay. It is most disappointing, in that the most vulnerable ratepayers can hardly speak for themselves. This delay will be the death of many small, innovative and hardworking businesses, the very ones the Government claim to champion. Should the noble Lord, Lord Kennedy of Southwark, press for a Division on this amendment, I will certainly support it. But my greatest concern is that the valuation date for the revised NDR lists has been chosen at a point in the market cycle that provides no evidence. In my 40-odd years in this profession, I have seen highs and lows in the rental value market cycle, but I have never seen paralysis. Paralysis is what we now have in the rental market from which the rate levels are derived. It will probably lead, as I explained in Committee, to a huge mass of rating appeals. I ask the Minister to take these comments back to the Government, but I fear that it is too late.
Baroness Bakewell of Hardington Mandeville (LD) [V]
My Lords, it is a pleasure to follow the noble Lord, Lord Thurlow, and I declare my interest as a vice-president of the LGA. I congratulate the noble Lord, Lord Kennedy of Southwark, on his composite amendment which neatly brings all the issues that have been debated previously into one. During those debates, all the relevant arguments were made, and I speak today in favour of Amendment 1.
It is important that there be annual rate revaluation reporting. Business rates reviews cannot be left to drift from year to year, especially as so many businesses are struggling. Keeping a careful watch on how revaluations are affecting businesses is vital to ensuring a healthy economic recovery. Towns and high streets are being decimated by the lockdown, as the noble Lord, Lord Kennedy, said. Some three-quarters of retail outlets are closed and many have been boarded up. Only essential outlets are open: supermarkets, pharmacies, opticians and some DIY stores. As lockdown is gradually released, many shops will, hopefully, reopen, but the effect of business rates may be the last straw. This must be monitored to prevent the total decimation of the high street shopping experience.
The Association of Convenience Stores has welcomed the Bill and the revaluation date being moved to 1 April 2023. It sees this as a positive step forward but it has several recommendations that would further assist its operation, including a reduction in the burden of business rates by resetting the business rate multipliers to more sustainable levels.
The whole issue of NDR is a balancing act between the need of funding local authorities and the economic viability of businesses. Local authority finances are stretched to the limit. Government grants have been radically reduced over the years and many councils now only deliver statutory services and these to the minimum standards permitted. It is not that councils do not wish to provide those vital services which communities rely on, such as grants, improved play areas, adequate and dignified social care, after-school clubs et cetera; it is the sad, realistic fact that they no longer have the finance to do this.
Baroness Pinnock (LD) [V]
My Lords, I draw the House’s attention to my relevant interests as vice-president of the Local Government Association and a member of Kirklees Council. The noble Lord, Lord Kennedy, has tabled a comprehensive amendment, which addresses issues of concern that were raised and debated in Committee. The Minister was unable to provide sufficient reassurances at that stage, hence today’s amendment, which has the support of the Liberal Democrats, as already clearly stated by my noble friends Lord Stunell and Lady Bakewell.
The Bill as it stands simply changes the date of the assessment of the revaluation to 1 April of this year and to delay the publication of the rateable values until 31 December in the year prior to its implementation. As was debated in Committee, these simple changes may have a profound effect on businesses, the prosperity of our high streets, local government finances and on the appeals waiting lists.
First, I will take the effect on local government finance. During Committee, the Minister sought to provide assurances about the financial impact on council income, and I thank him for that. However, there is a wider point of the double whammy on town centre businesses of the impact of Covid lockdowns and the competitive advantages enjoyed by online business. This is likely to mean that town centres will have several empty shops, which will undoubtedly have a knock-on effect on the remaining businesses.
The Government have some support for town centres, but much is limited and scattered around the country. It does not provide sustained help. Part of the answer lies with the radical reform of the whole business rate system. Will the Minister provide the House with a draft timetable for the introduction of a reformed approach, which, as several noble Lords have stated, has been promised for several years.
My noble friend Lady Bakewell has spoken from her experience of the impact of long appeal waiting lists on businesses and council services. As the Minister will know, councils have to set aside considerable sums for the refund of any possible successful appeal. Will he tell the House the total amount set aside by local authorities for this purpose? If he is not able to do so today, will he agree to set out the information in a letter to those taking part in today’s debate? Is the Minister able to consider an alternative to setting aside large sums for potential refunds that clearly make an impact on the day to day services—as described by my noble friend Lady Bakewell—that a council is able to provide?
The current system of business rating is failing, in that it considerably disadvantages those who have a physical presence as opposed to those purely providing an online retail offer. I am not opposed to online shopping but urge the Government to appreciate the value to communities of physical shopping. As the various lockdowns have shown us, there is an intrinsic value to individuals of physical shopping. One simple benefit is that of meeting another person, in the shop or serving at the till. For too many people living on their own, this may be the one chance in the day that they have to speak to someone.
There is also the benefit to communities as a whole. Local high streets provide a sense of belonging to a place. The importance of place-based services has shone through during the pandemic. Local shops and services are part of that sense of place and play a significant role in supporting well-being. We lose it at our peril.
That leads me to repeat the example I gave in Committee of a small shop in the town centre of Cleckheaton, which pays at the rate of £250 per square metre on its 30 square metres of shopping space. In contrast, a large online-only retailer, with an out-of-town warehouse occupying 40,000 square metres, also in Yorkshire, pays just £45 per square metre. If that online retailer were to pay at the same rate as the small town-centre shop, it would be paying a rates bill of £5 million. That would solve a lot of local government finance issues. The retail playing field is hugely skewed to the benefit of online retailers. The Government must act with urgency to address this imbalance and demonstrate that they really do support prosperous local high streets.
The further problem for the Government and Valuation Office Agency is the timing of the valuation assessment. My noble friend Lord Stunell said today that the changes that the Bill will bring may be too late to save more retailers from closing their high street shops. He suggested bringing forward the implementation date to put it in line with the proposals of Non-Domestic Rating (Public Lavatories) Bill, which was discussed last week.
The noble Lord, Lord Thurlow, drew attention in Committee and today to the timing of valuations, when so much of the high street has been closed for several months. Equally, it is not of benefit to town-centre retailers that the current valuation will be that on which their rates bills will be based for the next two challenging years. The Government should address this issue with urgency, but there is no evidence that they are doing so. I look forward to the Minister’s responses on a number of these issues and hope that they are more positive than those we received in Committee.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, I am grateful to the noble Lord, Lord Kennedy, for tabling this amendment, which allows us to return to the important matter of how the revaluation will impact on various parts of our economy. I entirely understand that the House wants to consider the impact of the next revaluation on sectors such as the high street and small business. I point out to the noble Lord that the £1 billion future high streets fund is not insubstantial and forms part of the £3.6 billion towns fund. It is an important part of helping our high streets to bounce back. Also, as has been mentioned by noble Lords, there has been the business rates relief scheme throughout the Covid pandemic, which has cost in the region of £10 billion. It is for the Chancellor to signal how that will continue in his Budget later this week.
A number of noble Lords, including the noble Baroness, Lady Pinnock, referenced the shift over many years, even before the pandemic, towards online and away from place-based shopping on our high streets. It is a matter for the Chancellor, who is carrying out a fundamental review of business rates, to consider how to address that. The interim report is due on 23 March and the review will conclude in the autumn.
Businesses have been calling for frequent revaluations and we had planned for the next one to take effect this year. It would have been based on rental values as at 1 April 2019. In the difficult circumstances in which we now find ourselves, this was clearly unsatisfactory, as those new rateable values would not have shown the impact of the pandemic. Instead, the Bill will move the date on which the next revaluation takes effect back to 2023. This will allow us to use rental values as of 1 April 2021, which will better reflect the impact of the pandemic.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank all noble Lords who have spoken in this debate. The noble Lord, Lord Stunell, rightly highlighted the support the Government have given, which is very welcome. I am very happy to acknowledge that. It has been vital to ensure that businesses have survived through this.
The fundamental question is the unfairness of the present system of business rates. If that is not sorted out, we are going to see the demise of the high street accelerate, and we have to address that at some point. I thank the noble Lord, Lord Thurlow, for his support. As he said, we must address the elephant in the room. As the noble Lord highlighted, it is the twin problem of taxing fairly online retailers—and I wish all online retailers success—to raise revenue from them and the amount of revenue raised from businesses on the high street so that they are taxed fairly as well. Getting that balance right is the issue and that can no longer be ignored.
I thank the noble Lord, Lord Thurlow, for indicating that he would support me if I divided the House. I am often very happy to divide the House, but I have decided that, this time, it is probably not the best thing to do, so I shall not do so—I know the Minister will be very disappointed by that.
The Government must reflect on this. Although it is disappointing that these proposals will not be taken forward, I think that the Government are going to have to do every single thing in my amendment. If they do not do that, they cannot arm themselves with the information they need to take decisions in future Bills and policy, and the crisis will become a complete nightmare on our high streets.
The noble Baroness, Lady Bakewell of Hardington Mandeville, also highlighted the unfairness between online and the high street, and she is right. The risk is that when we return to anything like a normal situation it will not be normal because it will have gone too far and people will not return in numbers to our high streets. I have always supported local shops where I live. I am looking forward to 12 April. I am desperate for a haircut, so I am looking forward to the 12th very much. I am going to my barber straightaway to get it done. It is vital that we support our high streets.
I am very happy to acknowledge the support the Government have given; I mentioned that earlier. It was very welcome and has kept many businesses afloat. It is just a shame that we are not going to address these issues here. I have said before that all the points I have raised will have to be addressed by government because we are going to have to look at the bigger, wider points about what we want from our high streets and how we raise revenue from our high streets and from online so that we can pay for the services we all want. At this stage, I beg leave to withdraw my amendment.
The Deputy Speaker (Lord Haskel) (Lab)
We now come to Amendment 2. Anyone wishing to press this amendment to a Division must make that clear in debate.
Amendment 2
Lord Addington
“Assessment of effects of timing of business rates revaluations on amateur sports clubs and clubs providing other facilities
Within six months of the passing of this Act, and biennially thereafter, the Secretary of State must publish the report of a review analysing the effects of the timing of business rates revaluations on amateur sports clubs and those providing facilities for physical recreation and cultural activities.”
Lord Addington (LD)
My Lords, I return to the subject of support for amateur sports clubs which I raised in Committee. I, too—I might as well clarify it now—do not expect to divide the House at the end of this debate. Of course, the Minister might just manage to inspire me by his answer, but that is not normally his style. Let us see if we can be consistent about that.
The reason why I am raising this again is that, although the Minister gave me some answers, I want a bit more detail and thought about how the Government are planning for the future of sports clubs and sport itself. The Government have accepted their importance by giving them some support throughout the lockdown period, but the problems sports clubs have will, as in all sectors, not stop the minute they get back. Actually, the minute we start activity again, problems will be exposed and identified. All of them can be accentuated by finance. Business rates are part of that. That is where it comes from, so let us see if we can get some idea of whether the Government are prepared to go across department and across thinking to make sure that they accept that this group is worth keeping on.
Why are sports clubs worth keeping on? It is quite simple: in this country we have a tradition of sports clubs running themselves and being set up without government support, often with the help of employers—indeed, employers have set up sports clubs which have survived when the employer has gone. We have a tradition of self-help which has provided the infrastructure for sport to take place. At amateur level, sport is dependent on that structure. These clubs and centres depend, for example, on their bars and on renting out rooms for other functions to keep themselves going. They are small businesses and act in the business environment even with charitable status. They have a consistent relationship of raising their own funds. How the Government are thinking slightly longer term to make sure they can carry on doing that is vital.
Let us not kid ourselves: there is a major problem coming through here. I do not know how enforced inactivity has at the moment encouraged people to retire early from a club; for instance, retiring at 32 as opposed to 35. There has been a break in activity. To take a classic example, you will not get fit as easily as you did and you have started doing something else, so you ask yourself whether you want to go through the pain and discomfort of getting back into shape. It is one of the first considerations. Also, perhaps people think they should spend more time with something else. It is when that interaction stops that people stop going. We all know that; anybody who has been involved in this knows it. I do not know how rugby union is going to handle it, having had probably the biggest break. It is probably the biggest example of this model. It will have to restructure. I do not know how, but it will be something to come back to. The Government have said they value these clubs and all the activity outside, education and structure. Clubs are going to have a problem structuring how they take on their activity and how that relates to funding.
Rates is part of that, so I will be looking to get from the Government today an idea of how they think this bit of government fits in. The idea of getting an initial review and then a continuing one is very important. Let us face it: I am not an expert on rates. Having attended a couple of meetings with my colleagues, I decided that I probably do not want to become one. This is a complicated, difficult thing. Something that has no intellectual friends is probably business rates. There is probably someone hiding in a cupboard in Whitehall who quite likes them, but that is about where they are. Can we have a look at how this local taxation affects sports clubs? How are the Government taking this on? Sports clubs are important. We are hearing about social interaction and mental health problems. Sport is a great medium for that. It is the social connection that goes through. It is physical connection and support, and something that is tied into so many other bits of government that it is not true. I hope that when the Minister answers this amendment he will give us an idea of how his department is taking a lead or feeding in on this, because it is one of the links in the chain. If this link is strong and healthy, the rest of that chain may just survive. I beg to move.
Lord Moynihan (Con)
My Lords, I refer to my interests in sport as set out in the register. It is a pleasure and a privilege to follow my noble friend in sport, the noble Lord, Lord Addington, and support Amendment 2 in his name. During the passage of this Bill, the noble Lord and I have simply sought to point out that, at a critical time as we seek to emerge from Covid-19 in 2021, it is hoped that the Government will finally take the vital opportunity to initiate new policies. This includes the adoption of this new clause to give a new national impetus to sport, recreation and an active lifestyle, which was missed at the last opportunity created by the London 2012 Olympic and Paralympic Games.
Baroness Pinnock (LD) [V]
[Inaudible.]—follow that clarion call to the Minister, but I will try. My noble friend Lord Addington and the noble Lord, Lord Moynihan, have again made a very powerful case again for specific action in respect of amateur and community sports facilities. As my noble friend Lord Addington has reminded us, the Government already provide some support to community sports clubs but it is unlikely to be sufficient to help them balance their books after such a long period of closure due to the various lockdown measures.
I recall that in Committee, the noble Lord, Lord Moynihan, shared the result of an academic investigation by Sheffield Hallam University which valued the impact of community sport at £85.5 billion per annum to the country. The noble Lords have today made a further strong argument for change.
It is not just the impact on the finances of the country that we need to think about in the amendment, but the strong argument made in the discussion on Amendment 1 about the impact on the nation’s health and well-being. That is invaluable in itself. Covid has demonstrated the real importance of daily activity for health and community well-being to us all.
In Committee the Minister agreed with the case made by both noble Lords and said
“I will be a strong advocate” —[Official Report, 4/2/21; col. GC 382.]
of it to the Treasury. We are aware of the benefit of community sports provision. It needs to be valued by the Government for the wider community effect of providing a focus for activity and friendship. Given that the Minister has said how strongly he supports the case, I look forward to his positive response today.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I am very happy to support the noble Lord, Lord Addington, in his amendment. Both he and the noble Lord, Lord Moynihan, made a very powerful case when we were in Committee and they have made an equally powerful case today. I am very happy to support them.
As we heard from the noble Lord, Lord Moynihan, we want to be healthier; we have to get people doing more physical activity, because it will have great effects on their health. That is a good thing as people will live longer and have fewer problems with disease, and that will have a knock-on effect on our health service. That is the most important thing behind all this—getting people to be more active and healthier. The Government are currently running a major campaign, quite rightly, which you see on television, at bus stops and everywhere. I fully support that.
It is also important to ensure that local amateur clubs doing a variety of activities in their communities actually get people doing things. Where I live in south London, there is the Francis Drake Bowls Club—I often go past and see lots of people playing on the bowls green. There is also Lewisham Borough Football Club, an amateur club, and the athletics club that takes part on the track in Ladywell Fields. Those are the things that local people can do to become more active and physical, and if we can support them through the rating system, we should.
As the noble Lord, Lord Moynihan, said, all the amendment is asking for is a biennial report. The amendment is much more generous than I would have been as I wanted one every 12 months. If the Government accept this amendment, they will have to do everything that is in it anyway because they need to have good policy, and good policy needs facts and proper information.
I hope that the noble Lord will tear up his speaking notes to resist this and say, “I agree”. I look forward to hearing his response.
Lord Greenhalgh (Con)
My Lords, in my rush to respond to the noble Lord, Lord Kennedy, on the first amendment, I forgot to declare my relevant commercial and residential property interests as set out in the register, so I do so now.
I thank the noble Lord, Lord Addington, and my noble friend Lord Moynihan for their suggestion that I tear up my speaking notes and do what the amendment says. I will seek to reassure them that we have a real commitment to community and grass-roots sports. In that spirit I will refer to a number of things that the Government are doing. My family, friends and I all benefit from community sports and it is right that we do all we can to support community and grass-roots sport, as Members have highlighted.
As I explained in my response to the previous amendment, we will not know the effect of the revaluation on ratepayers for some time and certainly not within six months of the passing of this Bill. The same points apply to this amendment. However, I appreciate that the noble Lord and others want to understand how the revaluation will affect amateur sports clubs. It may therefore assist the noble Lord if I explain how these clubs are valued for business rates—I will try to make the incomprehensible comprehensible.
First, the Valuation Office Agency must, by law, value a property having regard to its current use. This means, for example, that when valuing the site of an amateur cricket club the valuation officer must have regard to its value to the cricket club and not its value to a developer. As you would expect, this important principle means that the rateable value of sports grounds is generally quite low.
The VOA publishes statistics on the rateable value of different categories of properties. The average rateable value in England of sports grounds is £12,000 but the value of many is much less than this and the median rateable value of sports grounds is only £6,000. That equates to a full annual rates bill of about £3,000, which for many will be reduced by the 80% mandatory rate relief. Under those circumstances, many sports clubs will find themselves with a rates bill of as little as £600 per year or £50 per month.
Of course, I appreciate that some clubs will find themselves paying more than this. Business rates reflect the specific circumstances of the property so some clubs, for example with more facilities than others, may find themselves paying more. We also heard in Committee that some clubs may be not eligible for the 80% mandatory relief for community amateur sports clubs. That is a matter specific to the individual clubs but I can understand that some will still have a particular interest in understanding whether their rates bill may change at the 2023 revaluation.
As I have said, we will not know the answer to that until much later in 2022, at the point when all clubs will be able to see their new rateable values. These valuations will be prepared over the next 18 months and, as with all properties, the VOA will first search for evidence of rents paid on sports grounds as a guide to value. As I have explained, to be good evidence these rents will have to reflect the value to the sports club. These rents should not reflect matters such as the development value where, for example, the club happens to be in a prosperous area. To the extent that the rental evidence, where available, shows that values have risen or fallen over the last six years, this will be reflected in rateable values at the 2023 revaluation.
The VOA expects to use rental evidence for most clubs but, whatever the valuation approach adopted for the property, the VOA is clear in its guidance that for non-commercial clubs valuers can also have regard to ability to pay before setting rateable values. The valuer should ask themselves if the rateable value represents the rent that clubs or organisations of the kind which occupy the type of sports ground concerned could reasonably be expected to pay. The VOA’s guidance specifically recognises that where income is generated from the occupation of these grounds, the costs of occupation will be barely covered despite voluntary assistance. Although I am unable to tell the noble Lord how amateur sports clubs will be impacted by the 2023 revaluation, I hope that this background to how they are valued is helpful.
The noble Lord, Lord Addington, has established to the House the vital importance of our community sports clubs. While the value of the 80% mandatory business rates relief to eligible community amateur sports clubs cannot be understated, I recognise the need for the Government to provide support beyond this, particularly throughout the duration of this pandemic. This Government’s commitment to sport is evidenced by the £220 million provided by Sport England to support community sports clubs and exercise centres since March 2020. In addition, the Government have put in place a £300 million sports winter survival package, which has been used to protect the immediate future of major spectator sports over the winter period, and a £100 million support fund for local authority leisure centres. In total, the Treasury estimates that around £1.5 billion of public money has gone into sports in the last year. I hope the House will agree that this constitutes a significant package of support that this Government have made available to sports clubs and exercise facilities of all sizes.
I hope that I have given the House some assurances about both the financial support that the Government are providing to our grass-roots sports sector, and the process and approach which will be taken over the coming months as amateur sports clubs are revalued by the VOA. We will continue to keep in mind the points on how we can support community sports at the grass-roots level. I appreciate the passion from both the noble Lord, Lord Addington, and my noble friend Lord Moynihan, but, reluctantly, I cannot tear up my speaking notes. Therefore, I hope that with these reassurances the noble Lord, Lord Addington, will agree to withdraw his amendment.
Lord Addington (LD)
My Lords, I thank noble Lords who have spoken in support of us, particularly my friend in sport, although I prefer “collaborator”. I thank the Minister for his reply about the current system and for saying that if you have done the right thing, you will get some benefit out of it. That is fair enough, as such things are fairly hard won in the first place. The noble Lord, Lord Rooker, had a chat about the creation of community amateur sports clubs—a conversation which, I believe, the noble Lord, Lord Moynihan, and I were both in on, in the Moses Room. Civil servants were more or less told to go back and think again, so a precedent has been set that should perhaps be looked at at some point. These groups do good things and do the Government’s job for them.
My amendment also mentioned physical, recreational and cultural activities. We did not really get round to them in the debate but they are also important. Maybe we should think about dance classes, local am dram and music group facilities as well. The Minister has acknowledged that the Government as a whole have a responsibility here. It is not something that can be pushed off to health, DCMS, education or meetings at junior functionary level, and then be ignored; it is a priority. The most important point here is that the Government as a whole should support this as it does their work for them in many fields. I do not think there is much dispute about that.
However, if rates is not the way forward, I look forward to dragging out of whoever happens to be sitting where the Minister is now how they are going to do it and combine the various areas, because that is the important thing to come out of this. Having said that, I beg leave to withdraw my amendment.
Arrangement of Business
The Deputy Speaker (Lord Haskel) (Lab)
My Lords, the Hybrid Sitting of the House will now resume. I ask all Members to respect social distancing. For the debate on the Motion to approve the Health Protection (Coronavirus, Restrictions) (All Tiers and Self-Isolation) (England) (Amendment) Regulations 2021, the time limit is one and a half hours.
Health Protection (Coronavirus, Restrictions) (All Tiers and Self-Isolation) (England) (Amendment) Regulations 2021
(3 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Bethell
That the Regulations laid before the House on 29 January be approved.
Relevant document: 45th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Lord Bethell) (Con)
My Lords, this regulation covers important aspects of the enforcement of isolation. Noble Lords will recognise that isolation is the key tool that most effectively breaks the chain of transmission; if those who are asked to isolate do so, we can beat this awful virus, but if they do not, the cost is measured in lives, the economy and our society. Huge resources are expended on identifying those with the disease, and their contacts.
So many are asymptomatic that the instruction to isolate can strike some as tough. No one likes measures that restrict people like this. I did not join the House thinking that I would stand here like this, and I am sure that many noble Lords will rightly reflect on the costs to liberty of such regulations. However, I would not be before your Lordships now if I did not believe that they were absolutely necessary. If those with the disease, and their contacts, do not isolate, and instead spread the disease in the community, then we are wasting the country’s resources in fighting this disease, because this disease is so virulent that we cannot rely on most people abiding by the guidelines most of the time. We need much higher adherence than that to beat the disease, or else we will be living with a high infection rate, giving the disease the circumstances to mutate and potentially evade the vaccines, so that we are back at the beginning.
These regulations cover detailed aspects of data sharing between test and trace and our police forces. This is a delicate area, because we must be very careful about data being shared between a testing body and an enforcement body. That is why these regulations are so detailed and why we are taking so much time to get them right. The data sharing of these regulations is operationalised by a memorandum of understanding between the National Police Chiefs’ Council and the Department for Health and Social Care. Conscious of the importance of getting this relationship right and retaining public trust in the system, we have sought to give clear legal underpinnings with these regulations. We worked very hard to get this right in the regulations in September, we refined them in January, and we continue to work hard to get this right.
This instrument makes changes to the original regulations from September. These regulations introduced for the first time the legal requirement to self-isolate for individuals who have been notified to do so by test and trace. They provided for some very basic details to be shared by test and trace to the police, specifically name, contact details, the date on which they were told to self-isolate and the end date of the self-isolation period. Non-adherence to those regulations became punishable by a fixed penalty notice ranging from £1,000 to £10,000. Failure to pay could result in court action and conviction.
The amendments that we are discussing today address the data sharing that is required to make those FPNs enforceable. For the police to issue FPNs, in addition to the information covered in the September regulations, they need some very basic extra information about the suspected brief, including, first, evidence to prove that the individual is supposed to be self-isolating—either a test result or a contact connection—and evidence that a person has received a notification from test and trace.
Secondly, there are some further items of contextual information that are needed by the police to help them reasonably manage their engagement with a potential offender. For instance, they need to know if that person might have a disability, so that they can take the right approach. At the other end of the spectrum, they need to know if that person has been threatening or abusive. These amendments allow the minimum necessary information to be shared with the police to ensure that they have confidence with the individual who has been notified and issued with an FPN if necessary.
I have spoken previously of our intention to publish the MoU and I reiterate that. We will publish it shortly, once these loose ends are tidied up.
I will say a word about how all this works in practice. The process deployed since the regulations first came into force protects individual privacy and is only activated by a specific police inquiry. The amendment to the regulations on 29 January does not change that. These additional data points may only be shared,
“for the purpose of the prevention, investigation, detection or prosecution of offences”.
The police receive details of a potential breach, mostly from the public, and will assess this information. Where confirmation is needed that the individual has a legal duty to self-isolate, a specific request is made to test and trace. On receipt, test and trace will check its records and confirm to the police that the individual has been notified. The police do not have access to the test and trace database and that will remain so. The police will then decide whether to contact the individual and, having interviewed them, whether the FPN should apply. To meet the evidentiary test necessary to issue an FPN, the police need to have the same level of certainty of the facts as they do for bringing a prosecution in a court of law. The changes being debated today provide that certainty. Without the additional information, the police would have found it much more difficult to issue an FPN.
We will continue to support people to do the right thing, both through the test and trace support payment scheme and through supporting councils to provide practical help for those struggling to self-isolate. In this country, we rely on the principle of the consent of the people, rather than the threat of imprisonment, for the application of lockdown measures. However, as has been noted by noble Lords in many debates, there must be consequences for those who break the law. The police have a role in upholding and enforcing these regulations. We must ensure that they have the tools—the data—necessary to do so. The urgency of this amendment stems from the feedback received from the police that that additional information was needed.
SI 97 also makes changes to the Health Protection (Coronavirus, Restrictions) (All Tiers) (England) Regulations 2020. It introduces a higher fixed penalty notice to persons aged 18 and over for participating in gatherings of more than 15 people in a private dwelling, educational accommodation or an indoor rave. This new, larger FPN will support wider efforts to improve compliance with regulations during this stage of the restrictions and thereby help to lower transmission rates further.
Taken together, these amendments demonstrate our willingness to take tough action against the most serious breaches of the rules. We also understand that it is crucial to take steps to allow people to return to a more normal way of life. The most effective way of doing this is by continuing to reduce the transmission of the virus while we deliver our vaccination programme. I commend these regulations to the House.
Lord Hunt of Kings Heath (Lab) [V]
My Lords, the Minister has argued persuasively this afternoon that we need to ensure that infected individuals, and their close contacts, self-isolate. He was also persuasive about the need for the police to have the data necessary to strengthen the effectiveness of the current system. In principle, I support this statutory instrument. The police need more support to deter people from breaching self-isolation and increase compliance, as this is so clearly in the public interest. I wish the Government had been as vigorous when it came to quarantine arrangements at our borders.
I note that the Secondary Legislation Scrutiny Committee has welcomed this SI, having previously criticised the Government for not sharing data effectively with the authorities to enable them to enforce self-isolation. Having said that, I am, like the Minister, mindful that allowing the police access to NHS Test and Trace data does raise some uncomfortable ethical questions. Despite supporting this instrument, I think that it may cause some members of the public to be reluctant to be tested as a result. As the BMA has said:
“We are already concerned that some people are deterred from being tested because they are anxious about loss of income should they need to self-isolate—and we are worried should police involvement add to this.”
We have seen something similar with vaccines. As Nick Cohen wrote in the Observer yesterday,
“Theresa May’s ‘hostile environment’ for migrants makes them frightened of visiting vaccination centres. When the NHS shares data with the Home Office and immigration enforcement, they have every incentive to stay away.”
This is a very sensitive matter and I would like an assurance from the Minister that the SI will be rescinded as soon as possible.
Big Brother Watch has raised the issue of the memorandum of understanding with me and other noble Lords. My understanding is that this was agreed between the Department of Health and the National Police Chiefs’ Council last October but it has never been published. The Minister says that it will be published soon, but does he agree that, when it comes to the sharing of information, we are entitled to see the MoU, in the interests of transparency and speed? Can he confirm that “soon” means in a matter of days?
Lord Scriven (LD) [V]
My Lords, four months have passed since the Minister told the public that the memorandum of understanding on data sharing between the National Police Chiefs’ Council and his department was just a small administrative issue, nothing to do with health information that could undermine public health efforts. Yet four months later, the law is in place and data is being passed to the police without Parliament or the public seeing the MoU.
In answer to a Written Question from me on 17 February, the Minister stated that the MoU
“is currently being updated to reflect amendments”
to these regulations
“and feedback from the Information Commissioners Office.”
He added that,
“the MoU will be published as soon as practically possible.”
What are the issues on sharing non-sensitive health information, such as one’s name and address, that have taken four months and required the intervention of the commissioner? Did she require any changes to the original MoU, and if so, what?
As we move to the next stage of dealing with the virus and the new variants, we will still require people to self-isolate. As the noble Lord, Lord Hunt, has said, the BMA has already said that it is concerned that some people are deterred from being tested because they are anxious about loss of income if they need to self-isolate and that it is
“worried should police involvement add to this.”
Evidence has shown that most people do the correct thing and isolate if they have financial security and practical support to do so. These are the key tasks for the Government now if rates of people self-isolating are to be improved on. While some financial support is being made available, for many it is not enough. Will the Minister now commit to paying people their full wages, so that people will self-isolate for the full period without having to worry about paying bills or feeding their family?
Practical support is required too. If you live in a cramped or multigenerational household, it can be impossible to self-isolate in a separate room. Why will the Government not do what other countries have done and pay for some of the closed hotels to be used as isolation hotels? Excellent international practice has reduced the spread of the virus through supporting people to self-isolate, via community well-being and health teams. These teams support with shopping, well-being and other healthcare support. In countries where these teams are deployed, they increase self-isolation and compliance and help reduce the chain of transmission of the virus. These kinds of issues are at the root of improving self-isolation. The Government should focus on them and not four months of fruitless discussions about sharing health data with the police, fines and, potentially, criminalising people who just want the financial security and practical support to do the right thing.
Lord Bilimoria (CB) [V]
My Lords, we are talking about self-isolation and test and trace. It is less than three months since 8 December, when the first inoculation took place, and we have vaccinated 20 million people. Hats off to Nadhim Zahawi and everyone involved, for this is remarkable.
Throughout the past week, companies throughout the UK have continued broadly to welcome the Government’s roadmap out of lockdown—I speak as president of the CBI. Businesses back the step-by-step, data-driven approach to reopening, with the hope of ending the damaging “stop-start” of restrictions. We also welcome the return of schools in a few days’ time on 8 March. The Government’s decision to extend the workplace testing scheme until the end of June was excellent news, alongside the roadmap’s reviews into reopening high-risk sectors such as large events and international travel. It is this workplace testing which will identify asymptomatic individuals and cause them to isolate. Business sees the vital role of this in reopening the economy. Firms conducting workplace testing—both privately and through the government scheme—have noted the benefit of being able to detect asymptomatic cases that would otherwise have gone unnoticed. However, confusion remains about what resource from businesses is required to sustain workplace testing, and how it will interact with community surge testing and NHS Test and Trace, particularly as the economy reopens. Could the Minister tell us more?
Firms undertaking testing privately are highlighting how disparate the testing market is. CBI members are saying that the cost of a single test ranges between £5 and £20, and that is unsustainable. To build confidence and encourage the implementation of workplace testing across all workplaces, businesses require clear guidance on how it interacts with other policies such as Covid-secure guidelines and vaccinations. Does the Minister agree that data, and not dates, should drive the reopening of the economy? If vaccinations increase from half a million per day to 1 million per day—as we have the capacity to do if the supply comes on line this month, as I think it will—that will mean more than 20 million per month, and we will be able to vaccinate the population well ahead of the government forecast. Every day earlier the economy can reopen is every day that livelihoods will be affected, in industries such as hospitality, aviation and tourism. Does the Minister agree that we would need to review those dates if, in the optimistic scenario, we were well ahead of the game and infections, cases and the sad deaths dropped to zero before 21 June?
Lord Blencathra (Con)
My Lords, I begin by praising my noble friend the Minister for yet another appearance at the Dispatch Box. He must have set a record for the sheer number of times he has briefed this House and for his depth of knowledge and courtesy. He is an outstanding Minister, but so too have been the Prime Minister and the whole ministerial team in rolling out the world’s best vaccination programme.
A writer in the Guardian yesterday began with the sentence:
“For diehard Remoaners like me, all this endless good news about jabs and carbon emissions is pretty hard to take.”
He went on:
“Nearly 20 million … doses administered. A forward-thinking procurement plan. The leading large nation, far ahead of the US and, more gallingly for us frothing Remoaners, miles ahead of Europe. Nothing could be more depressing for the honest self-loathing liberal Brit … the vaccine programme has turned out to be a slick collaboration between hard-nosed businesspeople, big pharma and the academic establishment.”
So says the Guardian, so it must be true. So thank you, Ministers, and thank you, Brexit.
I have one point for my noble friend about vaccination refuseniks, and I neither want nor expect an answer today. Along with the vast majority of the public, we demand that all NHS staff either get vaccinated or get out. Everyone has the right to refuse a vaccination, but free choice brings consequences. As a vulnerable patient, I have followed NHS instructions not to visit hospitals in the past year, and all my appointments have been virtual, and all have worked exceptionally well. This is going to be the future for many appointments.
I and millions of others have done our bit to protect the NHS and now it is the duty of all NHS staff to protect us. We have all clapped the dedication of NHS staff who have worked incredibly stressful hours over the last year, but that does not give a minority the right to think that they can do what they like and jeopardise patients’ lives. When we go into hospitals, now that we have highly effective vaccines, we have the right to expect that every staff member in there has been vaccinated—front-line staff and all those admin people I see wandering around wards and corridors carrying files.
If the figure is true, it is appalling that 25% of staff in London are refusing vaccinations. Who do they think they are? Of course, the Government should explain and persuade, but, if that fails, the next step should be a final written warning and then dismissal. Yes, we are short of NHS workers, but the public demand that we do not have thousands of Typhoid Marys wandering around our hospitals and spreading the virus. I commend the care home industry for its policy of “no jab, no job,” and ask that it be extended to all NHS staff. The whole country has been through hell for the last 12 months and we are coming through it. We cannot let the ignorant and selfish wishes of a minority undermine all those sacrifices. We respect the absolute right of NHS staff to refuse being vaccinated, but we ask that they respect our right not to keep them in a job if they refuse.
Lord Clark of Windermere (Lab) [V]
My Lords, I thank the Minister yet again for introducing an SI in a clear manner, which provides much certainty to the police. That is what is needed, and I thank the Minister for it.
This SI is complicated, detailed and technical. The Minister is right, and the Government are right, to try to ensure that it is perfect, but, like many complicated SIs, it depends on basic information. If this information proves to be incorrect or false, no matter how complicated the SI is, it will not work. I will give an example of that by citing an incident which has become public today. We have learned that a number of people have entered Britain from Brazil carrying the dangerous P1 variant. They have managed to trace six of the individuals but cannot trace the seventh because the person who filled the forms in did so incorrectly and provided no contact details. This makes my basic point: if the information provided is incorrect—and it was a standard form—and the form is not checked by any official, we have only that incorrect information. As it was incorrect, we have had someone entering from Brazil carrying a very dangerous disease. We do not know where that person is. Will the Minister try to ensure—I know that it is not easy—that the Border Force has sufficient individuals at the border to check every single form?
Baroness Neville-Rolfe (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Clark of Windermere, for whom I enjoyed working when I was an official at the Cabinet Office many years ago. He was as courteous then as he is now.
Reflecting on our response to Covid has caused me to shift from being mainly a staunch supporter of strong law and order policies to one who is equally worried about the erosion of British liberties. Unfortunately, we know from history that Governments come to regard long-standing emergency measures as essential—look at the delay in lifting rationing after World War II. I would like some ministerial recognition of such dangers that now face us.
Taken together, the Covid rules represent a very authoritarian regime. A criminal offence can ruin an individual’s life chances, excluding them from some walks of life. Will breach of the various provisions we are discussing today give offenders a criminal record? If so, is there a defence against mistakes? A new system of data sharing is being opened up in these regulations. How do we ensure that any this information does not get into the wrong hands or stay on police computers for years?
Finally, when will the powers to which this SI makes changes end? Can the Minister confirm that there will be a proper opportunity for debate before the whole system of coronavirus measures under the Public Health Act is renewed, and will there be an impact assessment next time round? This is a vital way of ensuring that those involved in bureaucracy make sensible and proportionate regulations and, perhaps equally important, that they are ready to make changes if they are wrong—some evidence of which we have seen today.
I end with my personal observations of this past weekend. One London park was packed because of the glorious spring weather. The swings were a riot. The grass areas had been taken over by fathers and children playing tennis and cricket, with others queuing to follow them. Yet the dedicated tennis courts and hard playing areas were aggressively locked. There is a strong case for opening these up earlier in March, to the advantage of all. Can the Minister please think again on this and answer my detailed concerns?
Lord McCrea of Magherafelt and Cookstown (DUP) [V]
My Lords, we have been assured that all the sacrifices that have already been made concerning personal restrictions imposed by the Government have been life-saving measures, and I acknowledge again the debt of gratitude that we owe to all those who have worked within the health service and those who have tirelessly worked to get vaccines that will, I hope, assist in bringing this nightmare to an end. I also applaud those who have been involved in rolling out the 20 million doses of vaccine, and I trust that this will continue.
We have had daily updates on the spread of the virus and the measures commanded by government to save lives. However, during this pandemic we have endlessly talked about our efforts without acknowledging our need for divine intervention and God’s blessing upon our efforts. When our nation faced days of crisis before, our leaders invoked the help of Almighty God and the tide was turned. I was reminded of the psalm that we often read at the beginning of our deliberations:
“I will lift up mine eyes unto the hills, from whence cometh my help.
My help cometh from the Lord”.
I humbly suggest that we need God’s help today.
We are told that these regulations are essential as we move forward in a measured fashion. It is imperative that we do not face another lockdown. This must be the last one, because many across our nation are struggling with serious mental and numerous other medical issues that require urgent attention. We are at a critical point in the Covid-19 pandemic and, bearing in mind the great sacrifices of so many, certainly it is a disgrace that there are those who frequently breach the rules around social gatherings; we have certainly seen that in our Province.
However, allowing police to have access to very personal data held by the Department of Health is certainly a vexed issue, and there is a genuine concern in the hearts of many about how far individual civil liberties and freedoms should be restricted. Self-isolation which is demanded without being assured of receiving financial support from the Government is surely a totally unacceptable situation. Can the Minister give noble Lords the assurance that no one will be financially burdened by being forced into isolation? I trust that the strengthening of the regulations will permit the police to effectively and yet fairly take resolute action against those who act irresponsibly to endanger lives. I appreciate that this instrument extends to England and Wales, but certainly it will be noted by other devolved Administrations.
Lord Bourne of Aberystwyth (Con) [V]
My Lords, it is a great pleasure to follow the noble Lord, Lord McCrea of Magherafelt and Cookstown, who reminds us quite rightly of the important part that faith and faith communities play in tackling this pandemic. I thank my noble friend for outlining the purpose of these regulations and pay tribute to his incredible hard work and good humour throughout this pandemic and in serving our House.
I support these regulations. I believe that the overriding need to contain the spread of the disease means that, where self-isolation is required, it should be properly enforced. I enjoy the honour of serving on the Public Services Select Committee. During our recent inquiry, one very clear fact emerged, which was the frequent need to be more open to sharing data. We saw very clear evidence that bodies which chose to share data were able to rise to the challenges of the pandemic much more readily. So I very much endorse the approach of these regulations in this regard, although, like others, I look forward to the imminent—I hope—memorandum of understanding.
On the stricter control of gatherings of over 15 people, again this seems eminently sensible. Clearly, the larger the gathering, the greater the concern. I suspect that many people would strongly support these regulations and would perhaps even favour a tougher regime. I have a question in this regard for my noble friend. Clearly, the mischief which the regulations seek to address is large unauthorised gatherings. Why then do the regulations restrict themselves to private dwellings, educational establishments or indoor raves? Clearly, they are part of the problem that we need to tackle, but what happens if there is a large gathering on business premises or in a barn, on industrial or charitable premises, or perhaps there is unauthorised use of a public building? It seems that, as drawn, the regulations do not cover these types of activity. It may well be that I have missed something or that some other regulations deal with those situations, but if the problem is large unauthorised gatherings, why are we not tackling all indoor gatherings rather than just some of them? Subject to that caveat and concern, I give strong support to these regulations and once more thank the Minister for all he does for our House.
Baroness Tyler of Enfield (LD) [V]
My Lords, these regulations, dealing with the sensitive issue of medical confidentiality and data sharing with the police, are being debated 30 days after they came into force. This has become a regular pattern in our scrutiny and a very unwelcome one, not least in this case because of the centrality of medical privacy to an effective public health system. We all understand the urgency of responding to the pandemic, but democratic accountability should not suffer in the process. When considering these issues, we must surely remember that we are first and foremost dealing with a public health crisis, not a public order crisis, and our responses should be viewed through that lens.
As we have already heard, these regulations were introduced to increase compliance, which I very much support. We know that a small number of people flout the rules—compliance is estimated at about 90%. However, the issue for most people is self-isolation and the support needed to adhere to the rules. Where people can comply, generally they do. Increased support, particularly financial support, is most urgently needed, as my noble friend Lord Scriven so compellingly set out. As the human rights group Liberty has said, supporting people and helping people follow guidance is the best way to keep everyone safe. That must be right. It is worrying that, owing primarily to a lack of support, a study by UCL this January revealed that 38% of respondents said they were not isolating for the recommended number of days when they had developed symptoms, with 13% not isolating at all.
As others have pointed out, these regulations will give the police more ammunition in enforcing the rules, but, in reality, are we clear how much capacity the police have to enforce this? Also, do we know what impact data sharing and increased fines have had on improving isolation rates, and can the Minister supply the House with those figures?
I turn finally to wider issues. Having had my first dose of the vaccine earlier today, I want to thank all involved in the rollout of the vaccination programme. It has been a great success. I pay particular tribute to the volunteers who are doing such a wonderful job at the vaccination centre I attended. However, despite all this, and the much-needed morale boost that the rollout has given the country, this morning’s news of six cases of the Brazil variant comes as a serious blow. Were we not far too late in introducing the new quarantine and testing on arrival requirements? One person who did not even give basic contact details has slipped through the net completely, and this was not picked up by a basic check. Surely that suggests that the system is not working and needs some urgent re-engineering. What assurances can the Minister give us on this absolutely critical matter?
Lord Balfe (Con)
My Lords, I want to take up the point made by the noble Lord, Lord Scriven, and ask the Minister when we will see the MoU. On 17 February, the Minister wrote that it
“is currently being updated to reflect amendments to the Health Protection (Coronavirus, Restrictions) (Self-Isolation) (England) Regulations 2020 on 29 January and feedback from the Information Commissioner’s Office.”
He added that the MoU would be published
“as soon as practically possible.”
That was two weeks ago. Where is it? When will we see it?
I will make some general observations. This has become very much a middle-class debate. A lot of people in this country are not paying much attention to these regulations. Many of them do not understand what they are for—although they understand that they want to get round them. They see an increasingly authoritarian Government increasing the penalties but the police not implementing the law. There is not a single sign of the law being aggressively implemented in the city of Cambridge, where I live. I do not think the police would like to invade the middle-class enclave and I am not sure they would feel that confident going on to the council estates.
So we can keep on giving the police powers to fine and so on, but we need to understand that what is perceived as a hostile environment, backed up by an authoritarian Government, is not working. Threatening people with a criminal conviction that could stop them being employed for ever is an incentive to get around the law as much as it is to obey it, and we have not really followed that up. People will say, “Why should I take the test? I might be found to be infected. Then I would lose my income. I would have to stay at home.” It is a directive incentive not to take a test, and we do not seem to be able to face up to that.
This was made very clear by the noble Baroness, Lady Finlay, when she said:
“Crippling fines and a police record will only disincentivise people to seek testing and disclose their contacts.”—[Official Report, 22/10/20; col. 1668.]
That is absolutely true.
My final point is that I have been abroad fairly regularly during this, because I have a job that takes me to Brussels. I have regularly handed in my test and trace form. It has always been accepted but has not on a single occasion been checked.
Baroness Wheatcroft (CB) [V]
My Lords, I welcome these regulations. It is essential that those who could transmit this devastating disease should isolate. Although I listened to what the noble Lord, Lord Balfe, had to say, I believe that the majority of people in this country, whatever their class or role, understand the importance of testing and isolating and are doing their best to comply.
The Minister introduced these regulations in his normal straightforward manner, for which I thank him. It is important that the Government should be consistent in dealing with the disease. It is harder for people if they are asked to comply with inconsistent regulations. I declare my interest as chairman of the Association of Leading Visitor Attractions. As others have said—although not this afternoon—it seems completely inconsistent that non-essential retail will open for business on 12 April, but indoor visitor attractions will not be able to open on this date. They will have to wait at least five weeks longer, which means that, once again, they will miss the crucial Easter trading period. All the evidence we have is that visitor attractions can enforce social distancing much more effectively than non-essential retail, so can the Minister explain this difference in approach?
I now refer to the detailed regulations presented today. I understand the need for the police to have access to data and to be able to levy fines on those who do not comply. Those who have to isolate are told to do so by test and trace, yet test and trace acknowledges that when it notifies someone of the need to self-isolate, it relies on that individual telling those who live with them that they too must self-isolate. They are not contacted directly by test and trace. So can the Minister say whether those who are simply told by someone with whom they live that they need to isolate can be subject to fines if they fail to do so? Those people will not have been notified directly by test and trace.
Finally, the SI refers to gatherings. How does the law define a “rave”? The Minister is certainly better qualified than most to help us on this point.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I am delighted to follow my noble friend Lady Wheatcroft. I look forward to the Minister’s answer as to what constitutes a rave.
I congratulate the Minister on bringing forward SI 97. I thank him especially for responding to the two specific points that the Secondary Legislation Scrutiny Committee identified in its report as wanting. The Government are closing these loopholes. They were accused of not sharing data effectively with the authorities to enable them to enforce self-isolation. They are also bringing forward a new fixed-penalty notice in the circumstances set out in the statutory instrument. Even though these measures were introduced six weeks ago in January, I congratulate the Government on the fact that we are now successfully tackling the potential spread. I welcome this instrument, which effectively tackles potential spread in the workplace and at illicit gatherings.
I will focus my attention on what I believe is still wanting and needs to be addressed as a matter of urgency, as other noble Lords have mentioned during this debate. We are failing to secure our borders successfully. It is obviously highly damaging that a potential victim of the Brazil variant of coronavirus is wandering around and has not yet been identified. We are an island, so it is easier for us to control access and entry into the country, whether by plane, boat or Eurostar.
I urge the Minister to go back to what used to happen, and it is a very simple solution. If you were travelling by plane—and this applied also to entry by ship or Eurostar—a white landing card used to be issued, filled in and handed in before landing. Presumably these cards were handed directly to Border Force. I urge my noble friend to have hard copies of passenger locator forms for this purpose on all planes, trains, boats and Eurostar services. That would ensure that any individual entering the country for whatever reason submits details of where they have come from and where they will be staying, so that Border Force and the police can access their whereabouts at the earliest possible stage.
Baroness Fox of Buckley (Non-Afl)
My Lords, as the Minister has noted, retaining public trust is key, especially if we want people to go along with incredibly draconian and invasive tools in terms of isolation. It feels as though this is a one-way street. The Government asked the public to trust the police and the authorities rather blindly and yet, they will not trust people to make the most basic decisions, such as allowing them to assess any level of risk or threat that they might face. They then use threats of criminal conviction far too readily.
As we have heard from noble Lords, there is a lack of imagination when it comes to offering a generous settlement that would allow people to isolate without causing them and their families great hardship. I know many people who cannot afford to isolate; that is the reality and we have to face up to it.
Like the noble Baroness, Lady Neville-Rolfe, I worry about signing up to data sharing, privacy issues, a likely form of ID cards and police access to our most intimate information. These are anathema to a free society. This emergency should not blind us to the dangers of a constant expansion of police powers. Over the weekend, I noted that the Home Secretary and the Policing Minister are looking to extend some of the emergency restrictions on the right to protest. I fear that, unless there is a full public debate about the consequences for freedom of association and redrawing the relationship between the state and the individual, it will, in the end, fuel distrust.
I have one chilling piece of data, as the Government are interested in data. As of 26 February, a few days ago, 356 coronavirus-justified statutory instruments had been made law, without a draft presented in advance to Parliament, and therefore without scrutiny of their justification or proportionality. I want the Minister to understand that if he wants trust, he needs to assure us that there will be an emergency stop on the road map of this kind of democratic government as soon as possible. I am afraid that I am nervous about the rules that they keep bringing in after the effect.
The Deputy Speaker (Lord Haskel) (Lab)
As the noble Baroness, Lady Uddin, is not available, I call the noble Baroness, Lady Stroud.
Baroness Stroud (Con) [V]
My Lords, I add my congratulations to my noble friend the Minister on the enormous success of the vaccination procurement and rollout programmes. They reveal not only the extraordinary feats that can be achieved when the private and public sectors work closely together, but also how, when circumstances require it, we are able to unite as a nation to serve and protect those who are most vulnerable.
However, as encouraging as the initial vaccine rollout programme has been, the Minister is right to highlight that the virus has not yet been beaten. We are all only too well aware that the threat of further mutations means that the coronavirus is here to stay in some form or other. The question now shifts to: how do we live with the threat of Covid going forward, even in a vaccinated population? The answer has to lie in the form of a health response, not a legislative response, to empower individuals to make responsible decisions for their own health and their family’s and community’s health. But here we are today further strengthening restrictions, even as we have charted the way out of lockdown.
These regulations, which came into force on 29 January, introduce a new fixed-penalty notice for those attending a gathering of more than 15 people and amend the self-isolation regulations to provide the police with further tools to identify and enforce self-isolation orders. It is odd that at a time when we should be championing the success of the vaccine programme and restoring our civil liberties, we are passing statutory instruments that further restrict our freedoms.
Will the Minister tell the House what impact on the numbers of people self-isolating has been achieved by this SI? What other proposals were considered to achieve the same policy objective, such as a full salary replacement strategy? A recent study by Oxford University found that Britain is experiencing one of the strictest lockdowns in the world. Only two Governments—Venezuela’s and Lebanon’s—have introduced tougher responses. Why do we think that these powers are needed when the British people have done such a good job at complying? They have not complied because of the threat of legislation, but because they have acted responsibly to protect their own health and the health of their family and community. They have responded to the information that they have been given and made wise choices.
I have enormous faith in the character of the British people. Mobility data clearly indicates that the public responded to public health advice and largely restricted their own behaviours, even prior to official lockdown enforcement measures. There is much to be rebuilt for all Governments around the world as we come out of this lockdown, but one aspect that will need to be rebuilt is the Government’s trust in the people of this nation. I strongly encourage the Government to refrain from further statutory instruments that would seek to limit personal liberties in response to the virus. With the vaccine programme under way, it is time to wind back these measures and empower the British people to take the responsible steps to build back their own prosperity.
Baroness Brinton (LD) [V]
My Lords, here we are again, discussing legislation that was presented to Parliament on 28 January and came into force the following day. Only a month later are we now debating it.
Given that the Government’s intention is to deter people from breaching self-isolation and increase compliance at a time when adherence to self-isolation is crucial, ensuring that infected individuals and their close contacts self-isolate has to be one of the most powerful tools for controlling transmission of Covid-19. If that is the case, can the Minister explain why the new £800 fines that were brought in a month ago are still not published on the Government’s guidance page under the section “if you break the rules”? How on earth can they be a good deterrent if people do not know about them? In short, these regulations are about compliance, enforcement and data sharing but frankly, it is all stick and no carrot.
The Liberal Democrats have been extremely concerned about the half-hearted nature of the approach the Government have taken to self-isolation and quarantine. As others have said, and we agree, we know that in general most people do comply and only very few deliberately choose not to. That is not the issue, as my noble friends Lord Scriven and Lady Tyler have said.
The role of the state is to encourage as well as to force compliance in public health emergencies such as this pandemic. We have repeatedly asked for these carrots to be created and made visible to the public. We know from those nations that run successful self-isolation and quarantine systems that telephone support, food and medicine deliveries and, most important, payment of the equivalent of a minimum wage are what makes them work—not, noble Lords should note, a one-off grant that is almost impossible to get, and sick pay at a level that is a joke and requires the poorest families to decide between isolation and putting food on their table. It is time the Chancellor responded to our calls, because the best way to support people and to help them follow the guidance is also the best way to keep everyone safe.
We note that the regulations increase data sharing for police, including contact details, how the individual was notified to self-isolate and the test result. Has the Department of Health and Social Care monitored whether data sharing has had an impact on people’s willingness to seek help and share their data? Can the Minister say how the data will be kept safe and secure?
May I repeat a question that I asked him 12 months ago, when we discussed the early regulations: what assurances can the Minister give your Lordships’ House that the data will only be used for the purposes of Covid regulations and that the police and any other authority will delete it as soon as it is no longer needed for Covid matters?
All of this is brought into sharp relief with the news headlines today about the travellers who arrived from Brazil last month, and the one whose test result form did not have contact details on it. Without knowing much more about that case, I ask the Minister some questions of first principle. Can a traveller evade registration or notice as they come into the country? Given the remarks of the noble Lord, Lord Balfe, that his forms on coming in were not checked, what guidance is given to border staff to check? Are any links made between the data collected from travellers quarantining at home and NHS Test and Trace, their GPs or local council via the director of public health, or are the two systems completely separate? If so, why are they not joined up? At what point do local councils and tracers become aware of someone coming in from a red country, whether directly or indirectly? Having that local contact could be vital, if a traveller were subsequently to alert key officials if they feel unwell and need a test. It makes the whole issue of support and further testing of contacts so much easier.
If the test form is not completed fully, as in today’s case, can it be checked back to the QR code for the test kit issued, either in a centre or by post, and then reverse-engineered back to small numbers of people and, hopefully, to the individual? Or is it true that it is possible to send it back without contact details and that the laboratory never checks back and queries it? If so, why is that the case? What lessons are being learned from this, very quickly, given that, once again, one of the key elements to managing this virus is putting the lifting of lockdown at risk?
The noble Lord, Lord Blencathra, suggested that the social care sector had decided to introduce a “no jab, no job” policy, and he wondered whether the NHS might follow. I thought that it was the other way around: that the NHS has vaccine rules in its employment contracts with clinicians, but the care sector has not, in the past. The care sector is now applying them to new staff, but is unable to back-date this because of employment law. More importantly, can he say what plans there are to support and encourage social care staff to have their vaccinations, as the low numbers are very worrying? Is the refusal because staff are low-paid shift workers, often without the means to get to vaccine centres, or is it disinformation about the vaccine?
Finally, like the noble Lord, Lord McCrea, I hope that this is the last lockdown, but the end to lockdown is a partnership between the people and government. Compliance is part of it, but people want and need the tools to make it happen. Can the Minister tell us if government will now do that?
Baroness Thornton (Lab)
My Lords, we will be supporting these regulations, but I have a few questions. I just have a request to the House authorities, and I hope the Minister might support me on this. When these statutory instruments are published, could the House authorities put the SI number on the agenda—the green sheets—because, as several noble Lords have mentioned, we are dealing with dozens of them? Those of us who do not have massive offices to support us have to dig into them to work out which statutory instrument we are approaching. I know that one noble Lord made a speech about these regulations the last time we had a debate about regulations, simply because no number was on them. That was just a request.
The regulations were laid before Parliament at 11 am on 29 January, under the “made affirmative” procedure, and came into force at 5 pm the same day. Could the Minister clarify why the Government felt the need to introduce them at such haste, without parliamentary scrutiny, when, as other noble Lords have said, we are discussing them more than a month later? If they were needed so urgently, it begs the question why it has taken so long to introduce them, a year into the pandemic.
This instrument amends the self-isolation regulations to provide the police with sufficient information to verify the identity of an individual, a copy of the notification sent to the individual informing them of the legal duty to self-isolate and why, following a positive test or contact with an infected individual. Regulation 4(4) limits the use of this shared information to
“the prevention, investigation, detection or prosecution of offences under”
the self-isolation regulations. The Department of Health and Social Care states that the disclosure of this information, for these reasons, is proportionate and in line with Article 8 of the European Convention on Human Rights and the Data Protection Act 2018.
Could the Minister advise the House of whether those notified by the app to self-isolate will be covered by these regulations? They were not covered by the original self-isolation regulations, which was probably an oversight, but if that has not been rectified, can the Minister explain why not?
Further, can the Minister clarify whether the regulations extend to those who have been advised by an individual in their household to self-isolate? Other noble Lords have raised that question: what is the legal liability for people in that household who might have to tell them—it may just be a flat-mate or someone they share a lease with—that they also have to self-isolate?
Regulation 2 changes the all-tier regulations to introduce a new fixed penalty notice for each individual who attends a gathering of more than 15 people. I ask the Minister on what scientific basis the magic number of 15 was arrived at. Do gatherings of 14 not attract fines? We had a similar debate about the rule of six and whether six was plucked out of the air. I would be grateful if the Minister could clarify whether children are included within that 15.
Several noble Lords questioned the issue of sharing data and expressed concern, about both how the data that are being collected will be used now and how soon they will be eliminated and will not be accessible to the police or anybody else. The heart of that question is public trust. We need assurances that sensitive health data will be kept private. Many people could be unwilling to take a test or engage with the department’s contract tracers, particularly if there is a threat of harsh punishment if we are not given those reassurances. The British Medical Association is also concerned about this.
There are concerns about the broad definition of who the information may be shared with. It can be provided not only to the police but to anyone else the Government enlist to uphold the rules. Could the Minister advise us who exactly is entitled to receive this information? For example, are volunteer Covid marshals permitted?
We are now in our third national lockdown—the longest to date. It is a very challenging situation, requiring the public to stay at home and away from their friends and family. There has been much talk about personal responsibility but, as many noble Lords have said, including my noble friend Lord Hunt, it is incumbent on the Government to do the right thing by the people who are co-operating with this and to ensure that there is appropriate support for self-isolation.
For many months, the Government have known that rates of self-isolation remain too low. The noble Baroness, Lady Harding, confirmed that 20,000 people a day were not self-isolating when they should be. This is unsustainable if we are going to see success from some of the relaxations of the current measures, which we all want. The rates at which Covid-19 cases have fallen this year are dramatically lower in some of the UK’s poorest regions compared to the wealthy ones, so does the Minister accept that this is a consequence of the failure to offer financial support to help people on lower incomes with the self-isolation requirements? This has been mentioned many times: the £500 test and trace support payment is not reaching enough people. Seven out of eight people do not qualify for it, so they will simply not get tested. If they do, they may just disappear, and that helps nobody.
Lord Bethell (Con)
My Lords, I start by thanking the Secondary Legislation Scrutiny Committee for its work in looking at this legislation. I also echo the words of the noble Baroness, Lady Thornton, and thank all those noble Lords who have shown huge commitment in following these regulations. I completely confess that it is a tough gig, and I am enormously grateful to those who have shown the stamina, forbearance and determination to stick with it. If anyone has any questions, please do not hesitate to contact me directly.
I also echo the thanks of my noble friend Lord Blencathra, the noble Lord, Lord Bilimoria, and others on the vaccine. It is absolutely right that the rollout of it is impressive, but it is also right that we have to remain cautious because of the very large number of people who have not been vaccinated, and we also must be cautious about whether variants may affect the vaccine. That is why we remain determined to get these regulations right.
I shall start by tackling the MoU, which is the most delicate of the subjects raised by noble Lords. We are trying to get this right; when it comes to the data, we took a minimalist approach. The MoU and the regulations we have laid so far have covered the smallest amount of data that we thought could be effective. We are slowly ensuring that the police have the clarity that they need—the noble Lord, Lord Clark, spoke eloquently on this point—and we are adding to it carefully. The moment that we have an MoU that we think is publishable, I assure noble Lords that we will publish it.
It is absolutely crystal clear that the data covered by the MoU may only be used in the
“prevention, investigation, detection or prosecution”
of these specific offences, and it may not be used elsewhere. The data itself is held on the management of police information—MoPI—system and taken off the moment it is no longer needed. This SI will be rescinded in September this year, unless it is rolled over, in which case a debate will be necessary. To the noble Baroness, Lady Thornton, I say that this does not apply to the isolation app because it does not tell us who the person is who has it on their phone—because of its privacy settings.
Noble Lords spoke very eloquently and with such thought on the absolutely critical issue of compliance, and we are very focused on trying to get it right. I completely and utterly disagree with my noble friend Lord Balfe and his very sweeping and uncomfortable generalisations. I believe that most people in this country want to do the right thing, whether they live in a council house, fly by NetJets or anywhere in between; that is what we have seen from the British public.
Several noble Lords asked about the number of FPNs. We have had 42,675—roughly 4,000 a month—in the entire epidemic. That is a very small number, considering that it is not the approach of this Government to try and get compliance with these regulations by enforcement—we have not done that. We have sought to appeal to people’s civic pride and their feelings towards their neighbours and loved ones, and that appeal has largely worked.
However, my noble friend Lady Wheatcroft did speak about consistency and clarity when it comes to the law. One of the things that I have learned during this epidemic is that putting things into law has the benefit of making them clearer: it means you take out the bugs and reduce the amount of flexibility, and that is of enormous help to those who are trying to live their lives by the law and contribute to the well-being of others. In this matter, I completely agree with the sentiments expressed by my noble friends Lady Wheatcroft and Lady Stroud.
A number of noble Lords spoke about deterrence, and we are very alive to this danger: the idea that you may put enforcement measures in place that deter people from taking tests. This has not been our experience to date, but I take on board the comments last week of the noble Baroness, Lady Finlay, and others who have spoken about the dangers of this. This is why we have not put enforcement at the heart of our approach in terms of trying to implement isolation; instead, we have appealed to people’s better nature.
We are doing a very large amount of marketing around isolation during the unlockdown that starts on March 8, and we are making a huge effort to roll out hundreds of millions of tests in the community testing programme, through schools, workplaces, the community testing programme and elsewhere. At the heart of that investment is an appeal to people’s better nature, which, we believe, will make a huge difference. If you look around the world at those who have effectively applied isolation protocols, you see that you need a combination of four things: civic buy-in, a degree of carrot, clarity and the presence of a little bit of stick—that is our approach.
On carrot, I completely take on board the comments of the noble Baronesses, Lady Thornton and Lady Brinton, the noble Lord, Lord Scriven, and others. However, I do not agree with the suggestion posited: we have, in fact, done an enormous amount to support those who are feeling the pinch. We have a very broad furlough scheme and a payment for testing; local authorities have billions of pounds in order to support local schemes. Those who need it have the support necessary for them to comply with isolation.
On a slightly detached note, I want to say a word about the use of data, which has been brought up by a number of noble Lords. We are seeing a revolution in the use of data through Covid, and we are extremely ambitious about this. The use of the NHS number has been massively increased through vaccination, so that everyone who has a vaccine now knows their NHS number, if they did not know it before. Many of them have used the NHS login to reach the website. The Covid app, with 20 million downloads, has been one of the most successful digital health interventions in the world. I pay huge tribute to the IT teams at NHS Digital, NHSX and NHS Test and Trace who have done an enormous amount to produce billions of data points on the testing, tracing and support of those with clinical needs.
We envisage a complete inflection point on the use of diagnostics by the British public. We are hopeful that this experience will lead people to be much more engaged with their patient records, that they will download the logins and apps necessary to stay in touch with their records, and that they will take a much more proactive approach to consumer diagnostics. That, I hope, will be one of the positive dividends of this awful pandemic.
A number of Peers have asked about borders and the Brazilian variant. We have a debate on this tomorrow so I will limit my comments. However, I stress that the managed quarantine process has been an enormous success. It is extremely frustrating that although there was one person did the right thing and stepped forward for a test, their details were not properly captured. We are trying to understand exactly how that happened. But overall, the South African variant is on the decline, and it speaks volumes that families in south Gloucestershire and in Scotland have done the right thing and isolated so that those outbreaks have been contained. I pay tribute to the Project Eagle team, to NHS Test and Trace and to the borders team who have worked so hard to make that happen.
Finally, on the subject of raves, which several noble Lords have raised, including my noble friend Lord Bourne, and the noble Baronesses, Lady Wheatcroft and Lady Thornton, there is a definition in the law book. It is a gathering on land in the open air with music that includes sounds which are wholly or dominantly characterised by the emission of a succession of repetitive beats, causing serious distress to the inhabitants of the locality. That used to be my life.
Perhaps I can give a legal and a cultural explanation for these measures. The legal explanation is that there has been a lacuna in the law. While small and large gatherings were covered by other regulations, gatherings of under 15 in a house were not. My noble friend Lord Bourne will of course remember the origins of the phrase “house music”; it refers to the period after the closure of discotheques when people gathered to listen to loud music in their home, creating house parties which themselves generated the genre of music now known as house music. That is what is happening, and it often arises at times of economic decline. I beg to move.
Arrangement of Business
The Deputy Speaker (Lord Bates) (Con)
My Lords, the Hybrid Sitting of the House will now resume. I ask Members to respect social distancing. The following debate is time-limited to one and a half hours.
National Minimum Wage (Amendment) Regulations 2021
(3 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Callanan
That the draft Regulations laid before the House on 1 February be approved.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, the purpose of these regulations is to raise the national living wage and the national minimum wage rates on 1 April 2021. We are determined to make the UK the best place in the world to work. This has been an extraordinary year presenting extraordinary circumstances. Our approach is to balance the needs of workers and employers.
The impact of coronavirus on the economy has been significant. The UK economy contracted by 9.9% in 2020. This recession has been much more severe in magnitude than previous ones. The effects on the labour market, however, have so far been more muted. The latest ONS headline estimate of unemployment was 5.1% from October to December 2020. This is in part due to government intervention, including the Coronavirus Job Retention Scheme. With the number of employees supported by the scheme peaking at 8.9 million in May 2020, workers were able to retain some form of attachment to a job. At the end of December, there were around 4 million jobs on the scheme.
Turning to these regulations, which will increase the rates of the national minimum wage and the national living wage from 1 April, we estimate this will provide a pay rise to approximately 2 million workers. I am pleased to say that this Government accepted all the recommendations made by the Low Pay Commission in October 2020. This independent body brings together the views of businesses and workers, informed by expert research and analysis, to reach a consensus on its advice. I would like to place on the record my sincere gratitude for its work.
Many low-paid workers have supported the country through these challenging times, but this Government recognise that many businesses are also struggling in the current crisis. In its recommendations, the Low Pay Commission sought to balance these needs against the wider economic conditions. Therefore, 2021’s increase is smaller than in previous years. The Low Pay Commission concluded that these rates would give low-paid workers a real-terms pay rise, recognising their contributions during this pandemic, without presenting a significant risk to employment prospects. The LPC makes its recommendations on the basis of significant stakeholder evidence from business, worker and academic representatives. Business representatives broadly supported a cautious increase to minimum wages.
These regulations will increase the national living wage for those aged 23 and over by 19p to £8.91, an increase of 2.2%. A full-time worker on the rate will be more than £345 better off over the course of the year. The national living wage currently applies to workers aged 25 and over. However, from April 2021 it will be extended to those aged 23 and over. This gives 23 and 24 year-olds an extra 71p an hour, the largest increase for these individuals ever.
The regulations also increase the rates for younger workers and apprentices. Workers aged 21 and 22 will be entitled to a minimum hourly rate of £8.36, a 16p increase. Workers aged between 18 and 20 will receive an extra 11p an hour, taking their rate to £6.56. Under-18s will earn at least £4.62 an hour, a 7p increase. Apprentices aged under 19, or those in the first year of their apprenticeship, will receive an increase of 3.6%—an hourly rate of £4.30, 15p more. The regulations also change the amount that employers can charge workers for accommodation without it affecting their pay for national minimum wage purposes. From April, that will increase to £8.36 per day.
I turn to record-keeping. This year, the Government will make a further legislative change to the minimum wage regulations. This pertains to the records that employers must keep to ensure compliance with the minimum wage. These records currently have to be held for three years. We are extending that to six years. This change will align the period for which an employer must keep records with the period of liability under the National Minimum Wage Act 1998, which is six years, and it follows a recommendation in the Director of Labour Market Enforcement’s UK Labour Market Enforcement Strategy 2019/20. Amending the length of time for which records must be kept will give employers clarity, remove an inconsistency that will aid HMRC investigations into underpayment and ultimately enable underpaid workers to receive the money that they are legally owed as soon as possible.
Looking ahead, the Government have pledged to continue raising the minimum wage rates. As set out in our manifesto, we have set a target for the national living wage to reach two-thirds of median earnings by 2024. To improve fairness for younger workers, beyond the age threshold change this year we will apply the national living wage to those aged 21 and over by 2024. These targets continue to be dependent on economic conditions, and we will of course carefully monitor the labour market.
In conclusion, these regulations ensure that the lowest-paid workers are fairly rewarded for their valuable contributions to the economy. The Government will continue to monitor the impact of the minimum wage as we navigate our way out of this economic crisis. We will shortly publish the remit to the Low Pay Commission for 2021 asking it to make recommendations for new minimum wage rates to apply from April 2022. I commend the regulations to the House.
Baroness Chakrabarti (Lab) [V]
My Lords, I am grateful to the Minister for his introduction to these regulations, which of course must pass this evening. Some will no doubt welcome in particular the 19p rise to the national living wage and its extension to those aged 23 rather than 25, but I suggest that many more people will feel, as I do, that neither measure is enough in practice or in principle, especially in a pandemic that has so amplified poverty in our nations, including in-work poverty, and inequality, sometimes with quite deadly consequences.
Surely it is time to move more quickly towards breaking the £10-an-hour threshold for those in the lowest-paid work. I could not agree with the Minister’s suggestion that the current rates are fair in relation to low-paid workers, many of whom are literally saving our lives in this pandemic.
Surely it is time to end this age discrimination. Even the move from 25 years old to 23 for the national living wage is inexplicable in discrimination and human rights terms. I do not believe that a 23 year-old’s rent will be cheaper or that they will need less expensive food or fuel every week.
Surely it is time to ensure that no one has to risk their own health or that of the community by leaving home to go to work—often insecure work—when they are symptomatic. Surely we have learned during this pandemic that financial insecurity breeds health insecurity, not just for individuals but for society as a whole. Surely it is time to explore a minimum guaranteed income for everyone in our nations.
I was particularly interested in the Minister’s discussion of compliance and record-keeping but I wonder whether, in his summation of the debate, he might say a little more about enforcement. How are these national minima enforced and how much enforcement action have we really seen, not least over the last year?
Finally, given the levels of food poverty and insecurity in our nations in recent times—again exaggerated during the pandemic—can the Minister set out the proportions of the national minimum wage and living wage that have been calculated for adequate food? I believe that the time is right for a legally enforceable right to adequate food in our nations, one of the wealthiest nations on earth.
Lord Bradshaw (LD) [V]
My Lords, I will not follow up the approach of the noble Baroness, Lady Chakrabarti, because I do not think that this is probably the Bill in which to discuss the question of minimum wages being raised by large amounts. What I am concerned about is whether over the last five years the number of inspectors employed to enforce these rules has increased or decreased and what sort of attitude the courts take when people are brought before them. I hope the Minister will reply to me on that and if he cannot do so immediately then in writing. More importantly, a large army of people are being cheated out of the minimum wage by various methods and I certainly agree that if we have a minimum wage it should be something that people can look forward to enjoying. It should be at least a minimum reward for a decent day’s work. Otherwise, I am quite content with the regulations as they are.
Lord Harries of Pentregarth (CB) [V]
My Lords, I thank the Minister for his statement and I welcome the rise of the national living wage from £8.72 to £8.91 an hour, a rise of 2.2%, with commensurate rises for those aged under 22 and apprentices. The rise of 3.6% for apprentices is particularly welcome, taking their pay to £4.30 an hour.
This is little enough but 139 companies were fined last year for failing to pay even this minimum, amounting to £6.7 million in withheld payments. If the Minister is in a position to do so, perhaps he will say something about the steps the Government are taking this year to ensure that the minimum wage is paid by all companies. I particularly look forward to the Minister’s answer to the question posed by the noble Lord, Lord Bradshaw.
I do not know about other noble Lords but speaking for myself I find it very difficult to see how anyone can possibly live on that sum. Even an eight-hour day brings in scarcely £70. I know we have to realistic and that there is a limit to what so many employers are able to pay if they are going to remain solvent, especially in these difficult times; however, wherever possible, we should set our sights higher.
In that connection I commend the work of the Living Wage Foundation in trying to raise the level to a sum that does at least make it a little easier for people to actually live on. It was exactly 20 years ago when London Citizens, a community-based organisation in London, started a campaign for a real living wage. Two priests—one Anglican and one Roman Catholic—were the seminal figures behind this. London Citizens quickly became Citizens UK, a national organisation campaigning for companies and public authorities to voluntarily commit themselves to paying a real living wage. This campaign established the Living Wage Foundation, founded 10 years ago in 2011, which now spearheads the campaign.
In the 20 years since London Citizens started a campaign, and the 10 years since it established the Living Wage Foundation, there have been real successes. Among the companies that have signed up to it are IKEA, Aviva, Nationwide and Everton Football Club. In all, something like 7,000 employers have committed to paying a real living wage, including two-thirds of those companies listed in the FTSE 100 index. The 2021 living wage has not yet been announced but in 2020 it was £9.50 an hour and, in London, £10.75 an hour.
In 2014, a commission chaired by Dr John Sentamu, soon to be the noble and right reverend Lord, recommended that the Government should pay their own employees the living wage, though it should still be voluntary for private companies. I would be very grateful to know the Minister’s response to this recommendation that all public authorities should pay not just the state-based national or living wage but the real living wage as calculated by the Living Wage Foundation.
Even the living wage is little enough, but those in a position to pay it should do so, and statutory bodies in particular should make it a firm policy, not just an aspiration. We should encourage businesses, wherever possible, to sign up for it.
Lord Empey (UUP) [V]
My Lords, as a number of speakers have said, it is clear that this year is obviously not the year in which decisive steps can be taken on the issues that we are discussing today. So many people are still struggling, particularly with food and accommodation costs. The LPC recognised the necessity of ensuring a balanced decision between the needs of individuals and the ability of the many struggling businesses that employ them to deal with the situation today.
However, there is one aspect of this that I would like the Minister to address in his summing up. Here in Northern Ireland, we had experience of an abuse by a number of employers regarding the accommodation being provided to workers. A practice developed where companies were buying houses in various conditions and cramming a large number of individuals, primarily migrant workers, into those dwellings, and deducting sums from their wages at the end of the week. It became an abuse. Can the Minister tell us what steps are being taken to ensure that the allowance that is provided to cover accommodation costs reflects value for money, and that the employees are not also required to purchase goods from their employer? That is another practice that effectively forced people to shop with their own employer, which can lead to all sorts of abuses.
Other speakers have mentioned enforcement. I would be particularly interested to know whether the enforcement to ensure that there is decent accommodation provided at reasonable rates is happening. Regulation 2(4) increases the offset amount, but that does not indicate the level of quality or value for money. Employers can and have required their employees to live in garages and outhouses that have been converted into accommodation units where large numbers of people are accommodated in appalling conditions; we have seen examples on television.
While this is clearly not the year when we can address the matters in the minds of many Members, that does not prevent us preparing the ground for trying to address the inability of many working people even to feed themselves properly. That is another debate, but can the Minister address the issue of accommodation? Who looks at this issue and, if they find there is inadequate accommodation, what steps are taken to ensure that the employer provides value for money?
Baroness Clark of Kilwinning (Lab) [V]
This pandemic has highlighted the very real link between low income and health inequality in a very dramatic way. It is appropriate as part of this debate to put on record the huge concern about the low level of the minimum wage in this country.
The National Minimum Wage Act 1998 was brought in by the 1997 Labour Government. I was a Labour candidate in that general election, in a seat where there were a lot of strong views about the national minimum wage. It was a large rural seat in the south west of Scotland, the seat of Galloway and Upper Nithsdale. Many people were on very low incomes there, particularly rural workers, who were earning perhaps 50p or 75p per hour. That was a very low income even at that time, and definitely not the kind that could lead to people having a living wage if they worked long hours.
In that election, it was repeatedly argued that if we introduced a national minimum wage there would be high unemployment, people would lose their jobs and businesses would go bust. The reality, of course, was very different and that did not happen. That is something we need to be aware of every time we have this debate, because the reality and the backdrop is that people are suffering.
We are seeing big campaigns in the United States at the moment, such as the Fight for $15 campaign, which is trying to get the minimum wage increased to a level people can live on. In this country we have had the McDonald’s campaigns, whereby McDonald’s workers —represented by the Bakers, Food and Allied Workers’ Union—are trying to get £10 per hour and other improvements to their terms and conditions. In Scotland, the GMB trade union is campaigning to get care workers a minimum wage of £15 per hour and is putting pressure on the Scottish Government to deliver that in the upcoming Budget.
I say to the House that this is an issue about justice and economic sense. Frankly, it does not make economic sense to have people on the kinds of poverty wages being discussed this evening. It is also an issue of dignity. It is simply not acceptable if people working full-time are having to rely on state benefits, which they may or may not claim. They simply cannot provide for themselves and their families if the living wage is based on a minimum income of the levels outlined in these regulations. Companies like McDonald’s pay very different rates in different countries, depending on the legal minimums in those countries. In countries such as Denmark, the rates of pay are far higher than in the United States, for example, or indeed the United Kingdom.
What this House needs to be saying is that this is simply not an acceptable level of minimum wage. We need to say this on every occasion when we discuss these issues, because that message needs to get through. Of course, these regulations must go through this evening because £8.91 per hour for someone aged 23 or over is better than the current rate of £8.72, but we should say clearly to the Government that this level of minimum wage does not make economic sense. We know that if you put money into the pockets of the poorest in society, they go out and spend it. We are arguing about issues that have been debated for decades. When we have substantially improved the incomes of the lowest paid, it has been a policy initiative that has made a lot of sense and delivered justice for people who need it.
Baroness Blower (Lab) [V]
My Lords, I welcome the opportunity to speak on this issue, which is of huge concern to the 2 million or so workers paid at or— shamefully and illegally—below the minimum wage. These are workers in sectors such as retail, cleaning, maintenance, social care and hospitality. A rise of 2.2% may not, at first glance, appear too bad at this time, but 2.2% of not very much is very little. At the rate for those aged over 25, which is due to become the rate for those aged over 23, 2.2% amounts, as the Minister said, to just 19 pence per hour. Small wonder, then, that 3,000 care workers in Hillingdon, in the constituency of the Prime Minister, cannot afford £112 a week—what Loughborough University assesses is necessary to feed a family of four—even with two adults in a four-person household working at that level. I am really not sure how the Minister thinks that is a fair reward, as my noble friend Lady Chakrabarti said earlier. The level of the minimum wage is simply too low, and appallingly so in the fifth—or is it the sixth?—richest country globally.
The national minimum wage is not a minimum wage; it is simply an hourly rate, and one that is all too low at that. Even with a much more significant and, in my view, highly justified, increase, the situation for a worker on a zero-hours contract, with no guarantees of how many hours will be available shift to shift, let alone week to week, is not an acceptable state of affairs. It provides no income security at all. For the minimum wage to be an acceptable arrangement, the level should be increased significantly beyond what is envisaged today. But that increase should be part of a collectively bargained contract that encompasses pay and conditions, including hours to be worked and wages to be paid at a level that affords income security and a life free from the fear of the next bill arriving.
In short, fairness and social justice, as well as the Government’s much-vaunted levelling up agenda for all workers, requires the introduction of wages determined through sectoral collective bargaining, not the imposition of poverty pay levels. To quote the OECD:
“Collective bargaining and workers' voice are key labour rights, as well as potentially strong enablers of inclusive labour market.”
Surely that is advice to be heeded.
Baroness Jones of Moulsecoomb (GP)
My Lords, I do not welcome these regulations. I accept that they are necessary, but I do not welcome this pathetic rise. I do not see how the Government can feel justified in bringing forward such a pathetic rise when people are struggling through this pandemic. The last 12 months have exemplified the harsh reality for low-paid workers. We all know that the Government’s national living wage is no such thing—it is a complete misnomer. The Government misappropriated that phrase from some people who had done their homework and we are left with a so-called national living wage that is absolutely pathetic. People find it extremely difficult to live on.
I support everything that the noble Baronesses, Lady Chakrabarti, Lady Clark of Kilwinning and Lady Blower, have said. They have laid out clearly that this is simply wrong. The noble Baroness, Lady Chakrabarti, said that reducing the age limit for the living wage from 25 to 23 shows how arbitrary it is—she called it inexplicable. I hope that the Minister will explain the rationale for that to us, as it seem very strange.
During this pandemic, many of us with higher-paying jobs have been able rapidly to shift to remote working and not face too many struggles. We have been able to wait out the virus at home. But underpaid key workers have had to keep going in and face the pandemic, exposing themselves and their families to the risks of the virus. Then there are those underpaid jobs that have been shut down during the pandemic, such as in hospitality and the arts. These people face huge uncertainty over the future, along with the 20% furlough cut taken out of their already low wages. The Low Pay Commission reported that the lower paid someone was the more likely they were to be furloughed and lose pay as a result. Of people who were furloughed, those who were higher paid were more likely to have their employer top up their furlough to 100% of normal pay. It is just another example of the huge inequalities in the system exposed by this virus. It is no longer the great leveller that our Prime Minister—I say, “our Prime Minister”; I suppose he is our Prime Minister—once described it as.
Overworked and underpaid, every worker should be entitled to take home a real living wage that, no matter what their age, is enough to get by on and leave a little bit over to save for the future. As the noble Baroness, Lady Blower, said, when low-paid people are given more money, they spend it, because they need more food and they need shoes for their children. They spend the money, so it is economically illiterate to underpay people in the way the Government are saying.
The issue of enforcement is interesting as well. This Government are so keen on enforcement for everything. What are they doing about that?
I now have a suggestion, because I do not want just to be negative; I want to give a good idea from the Green Party manifesto. If a Green was put on the Low Pay Commission, it would pay benefits in all sorts of ways. What we should not do is tinker around the edges, which is what is happening at the moment. We need a fundamental shift in the way that our society and our economy approach work. The Government have missed an opportunity to trial a universal basic income scheme in response to the pandemic. It should not matter whether someone is on furlough, unemployed, retired or in work. Everyone should have enough to meet their basic needs in the 21st century. For this reason, I want to ask the Minister to commit to asking the Low Pay Commission to assess the case for a universal basic income. In the same way as it deploys its expertise and resources to assess increases in the minimum wage, it should carefully consider how we could make a universal basic income work to transform our economy into one that is actually fair for everyone.
Lord Davies of Brixton (Lab) [V]
My Lords, there is always a pensions angle. The minimum wage is now a settled part of the employment landscape, but so is auto-enrolment into a qualifying pension scheme. So far, they have been developed in isolation from each other, which is a pity. There is nothing material in the most recent report from the Low Pay Commission about pension provision. This must be wrong. Surely we can all agree, first, that pension provision is essential for all workers and, secondly, that pensions are part of pay, so the provision of a decent pension should be part of the minimum wage. If someone works all their life on the minimum wage but ends up with an inadequate pension, they have not really received what I think should be the minimum wage.
Let us make a rough estimate of what a minimum wage earner might get from auto-enrolment. The annual wage of someone on the proposed standard rate, making a reasonable assumption about their weekly hours, would be about £15,000. They would therefore qualify for auto-enrolment, as the threshold is more than £10,000. The contribution that would go into their pension pot would be 8% of their pay that is in excess of the lower earnings limit, which next year is £6,240. That works out at almost exactly £700.
It should be noted at this point that this is not a contribution of 8%, because the offset is only 4.7% of pay. There is unanimous agreement among those who know anything about pensions that this simply is not enough, even with the new state pension. It means that with a 45-year working lifetime, the contributions put into a member’s pot will total less than £32,000. They will, of course, have the money invested, but current risk-free interest rates are zero, and someone with this level of income should not really be putting their money into risky investments, even if it sometimes offers the chance of higher benefits. With a fund of £32,000 you would get a pension of only some £1,600 per year. It is simply not enough. I ask that in future, the Low Pay Commission and the Government have pensions in mind as future pay, as well as pay in the pocket.
Lord Hendy (Lab) [V]
My Lords, an increase in the national minimum wage must be supported. But for the reasons given by my noble friends Lady Chakrabarti, Lady Clark of Kilwinning, and Lady Blower, there is nothing to celebrate in an increase of a meagre 19p per hour.
The thesis that the national minimum wage should be as low as possible, otherwise it will be too expensive and employers will cease to hire, has been wholly debunked by experience and economists both here and in Europe. In fact, as the noble Baroness, Lady Jones, explained a moment ago, higher wages create more demand in the economy which leads to more goods and services and more jobs. It increases the tax take and diminishes the need for benefits to subsidise low pay. That is why the European Commission is proposing a minimum wage directive across the EU, one provision of which is to require the promotion of collective bargaining. Collective bargaining, particularly at sectoral level, is the most effective way of increasing wages. As my noble friend Lady Blower pointed out, the OECD and the ILO have strongly commended it to Governments in recent years.
In contrast, Government policy in this country has been to diminish the extent of collective bargaining year after year; 82% coverage of British workers in 1979 has sunk to less than 25% today. That is one reason why 9 million people living in poverty are in working families, with the consequences that Sir Michael Marmot has noted.
Yet in the EU-UK Trade and Cooperation Agreement, Article 8.3(7), the Government undertook to
“promote social dialogue on labour matters among workers and employers, and their respective organisations, and with relevant government authorities.”
The Low Pay Commission, although it contains nominees from various bodies, is not a negotiating body and does not fulfil the need for social dialogue; and miserable as the minimum wage rate is, some employers still strive to get away with paying less, as the noble and right Reverend Lord Harries of Pentregarth pointed out. In December 2020, HMRC named 139 companies which had failed to pay £6.7 million to more than 95,000 workers, and we know this is merely the tip of the iceberg. I hope the Minister can agree that the national minimum wage needs to be substantially increased, seriously enforced and subject to collective bargaining.
Lord Balfe (Con)
My Lords, the Opposition are struggling to find something to say. The Government have accepted all the recommendations of the Low Pay Commission and are putting them into force, at a difficult time for the economy and when MPs’ and senior civil servants’ pay is frozen. To my mind, they are doing quite well. I look forward to the Minister’s reflections on enforcement because that has proved to be a problem, and certainly the points made by the noble Lord, Lord Empey, are well worth addressing.
I am proud that, when the London living wage came in, at the time I was the chair of the finance committee of the Reform Club and we were the first London club to implement the London living wage. That was in 2012 and we have stuck to it ever since, as have many others. The London living wage is now far more of an institution in London. The underpinning of the Low Pay Commission, which I should point out, has a number of TUC representatives who have played a significant part. At the end of last week, I asked the TUC whether it had any observations that it wished me to make in this debate. It had none. The Trades Union Congress has no observations to make, presumably because it is happy that its representatives on the Low Pay Commission have done a good job and that the Government have done a good job in accepting that.
When we come to sectoral collective bargaining, it sounds fine, apart from the fact that over 75% of workers do not have a trade union to do any bargaining for them. Who is going to be the sectoral bit that does the collective bargaining? All I would say here is: get real. I was interested in the contribution of the noble Lord, Lord Davies, which will be very welcome in two weeks’ time when the TUC holds its annual pensions conference. I envisage that both he and I will be present and we will contribute to the section about desirable developments in state pension provision. Everything he has said should come up in that discussion because there are things that need to be addressed with reference to the state pension and how auto-enrolment hits the very low paid.
Finally, some of the points that have been made are undoubtedly fair. It is extraordinarily difficult to live on the national minimum wage, but we do now have a national minimum wage. I take no credit for it, but I was present at some of the discussions that the Conservative Party had. We should remember that the Conservative Party originally opposed it, but it is now a strong supporter because it has seen that it works. One of the good things about the Conservative Party, in the words of the late Lord Butler, is that we do not necessarily embrace change speedily, but we watch it, and when it is relevant, we take it on board. The Conservative Party is fully behind the minimum wage and will continue to make it prosper.
Lord Liddle (Lab) [V]
My Lords, I will associate myself with the comments of the noble Lords, Lord Empey, Lord Bradshaw, and my noble friend Lord Hendy, who have all emphasised the need to stop abuse of the national minimum wage and to have better enforcement. However, I welcome the fact that the Government have decided to accept the recommendations of the Low Pay Commission. This is a tribute to the success of the arrangements that Labour put in place when the national minimum wage was introduced. The commission is an example of tripartism and independence, and that is something that we would cast aside at our peril.
When the minimum wage was introduced over 20 years ago, the Government then recognised that it was not in itself a solution to the problem of poverty. What it did was to try to provide a safeguard against exploitation by unscrupulous employers. The approach of the Labour Government in the early 2000s was that, in order to tackle poverty, one had to have effective social support on top of the statutory minimum, essentially through very generous tax credits. We have seen how in the past decade the problem of in-work poverty has grown. One of the reasons for that is the cuts that have been made in tax credits because you will never eliminate family poverty simply by pushing up the minimum wage.
On approaches to reform, I read a very interesting paper by the Learning and Work Institute on The Future of the Minimum Wage, financed by the Carnegie UK Trust, and I hope that the noble Lord, Lord Callanan, and his civil servant colleagues will look at it. It recommends moving to a sectoral approach to tackle where low pay is a very serious problem—sectors such as social care, hospitality and retail. There cannot be collective bargaining in these sectors at the moment, despite what my noble friend Lord Hendy says, because the trade unions have been abysmally unsuccessful in recruiting low-paid workers, particularly in the private sector. Therefore, there needs to be some statutory intervention—some public intervention—if those workers are to have dignity and respect.
I am glad that the Government do not intend to abandon the objective of raising the living wage to two-thirds of the median. However, on top of that, we need a mix of something like the old wage councils and training boards, sector by sector, to try to raise pay in those sectors by raising skills. Fundamentally, it is through improving the productivity of the workforce and its skills that employers will be able to afford to pay higher wages.
It may be that we have to give incentives to employers through national insurance and other means to get them to upgrade and upskill their workforce. This is a sensible approach, which the Government should examine. I understand the horror of what we have been through and how dreadful it is, particularly the lack of respect that low pay brings—I very much agree with my noble friend Lady Clark on that. However, we need new, innovative ways of tackling the problem.
Lord Lennie (Lab) [V]
My Lords, I will make some brief comments and have some questions to follow. When I reread last year’s debate on this statutory instrument, it was interesting to note that the coronavirus pandemic was not mentioned once. A year later, we are in our third lockdown and Covid-19 has exacerbated existing inequalities and injustices in the labour market, in part brought about by some employers paying below the national minimum wage, as the noble and right reverend Lord, Lord Harries, said.
In this discussion my thanks are due to my noble friends Lady Chakrabarti, Lady Clark and Lady Blower and Lord Hendy. None of them is saying that this should be rejected—of course they are not; they are all saying that it should be welcomed. The debate they want to have is about the future and how the minimum wage will rise, as my noble friend Lord Liddle outlined in his interesting sectoral approach in the absence of unions and collective bargaining. We shall see what the Government make of that.
The Low Pay Commission, whose recommendations today’s welcome increases are based on, said that the impact of recent economic upheaval has affected low pay sectors more than others. We know that too many workers are still not paid the national minimum wage. The ONS said that there are over 2 million jobs where employees aged 16 and over were paid below the minimum wage in April 2020—more than four times the number a year earlier. Workers paid less than the national minimum wage are often those who are relied upon during this pandemic. They are our key workers—our essential workers. According to a recent LSE report, just under one in three independent sector care workers was paid the minimum wage in 2019, compared to around one in 14 of all UK workers.
I have some questions. As the economy begins to open up, how will the Government make sure that employers are paying the national minimum wage? Many comments have been made about enforcement, especially for those workers who we have relied on in the past year. As the labour market changes rapidly, we need confirmation of where the national minimum wage fits within the gig economy. With reference to the recent Supreme Court ruling, does the Minister want Uber drivers, and many others in the gig economy, to be entitled to be paid the national minimum wage? Should those drivers have it backdated, having not received the national minimum wage previously?
The Low Pay Commission has said that the pandemic and upheaval in the economy have disrupted many of the usual data sources on which the national minimum wage is calculated. What additional measures have the Government taken to support the commission to overcome this lack of data from its usual sources?
Finally, as the Minister said, this statutory instrument increases the period of time for which employers are required to maintain records from three years to six. How is this being communicated to businesses, especially those that may currently be closed? Are there any additional costs to businesses associated with this change?
Lord Callanan (Con)
I thank all noble Lords who contributed to this important debate. There were a number of valuable contributions, and the points raised show the importance that many noble Lords attach to the issue of providing an appropriate pay rise to lower-paid workers. As my noble friend Lord Balfe pointed out, the national minimum wage and national living wage make a real difference to the lives of millions of workers in this country, particularly during the current crisis. I am glad that there seems to be some agreement across the House that the lowest-paid workers who have contributed during this pandemic deserve an inflation-beating pay rise to protect their standard of living, which these regulations will provide.
The national minimum wage and national living wage have increased every year since their introduction. These regulations mean that, on 1 April, workers on the national living wage will be around £4,030 better off over the year compared to when it was announced in 2015. All noble Lords will be aware that, once again, the Government’s impact assessment has received a green fit-for-purpose rating from the Regulatory Policy Committee. The impact assessment estimates that around 2 million low-paid workers will benefit from these minimum wage increases. We estimate that there will be a total benefit to workers of £419 million. The total cost to employers for implementing the LPC’s recommended rates is estimated at £428 million. This marks a 24% increase in the national living wage since 2016 when the policy was introduced. For the first time, these increases to the national living wage will benefit workers aged 23 and 24. Younger workers will also get more money through the increases to the national minimum wage rates.
We know that most businesses support increases in the minimum wage rates. Through these regulations we are reducing burdens on employers in meeting minimum wage obligations, while maintaining worker protections. Though these increases are more moderate than in recent years, we remain committed to the target for the national living wage to reach two-thirds of median earnings by 2024, provided that the economic conditions allow. We will continue to monitor the labour market closely over coming months.
The changes to record-keeping requirements for employers will improve enforcement of the national minimum wage and ensure that underpaid workers receive the arrears owed as quickly as possible. In response to the noble Baroness, Lady Chakrabarti, I can say that we will continue to prioritise this through HMRC’s ongoing enforcement work, and through the naming scheme which relaunched on 31 December, naming and shaming 139 employers who had underpaid their staff.
The issue of enforcement was also raised by the noble Lords, Lord Lennie, Lord Bradshaw and Lord Empey, the noble and right reverend Lord, Lord Harries, and the noble Baroness, Lady Jones. They all made the important point that enforcement is key to this. The Government take robust enforcement action against employers who do not pay their staff correctly. HMRC’s enforcement and compliance budget has been increased to £27.5 million in 2021, up from £13 million in 2015-16. In 2019-20, HMRC identified over £20 million in arrears for over 263,000 workers and issued just under 1,000 penalties, totalling £18.5 million, to non-compliant employers.
The noble Baroness, Lady Chakrabarti, also raised the issue of age discrimination. The national living wage has historically been limited to workers aged 25 and over, to protect the employment prospects of younger workers. However, the Low Pay Commission’s advice noted that generally employment trends for workers aged 23 and 24 tend to be similar to those of workers aged 25 and over, which is why the Government are accepting the commission’s recommendation to reduce the age threshold for the national living wage from 25 to 23. Evidence shows that younger workers are more vulnerable in the labour market. For example, from October to December 2020 the unemployment rate for people aged 16 to 17 was 25% and for people aged 18 to 24 it was 13%. By comparison, the rate for those aged 25 to 34 was only 4%.
A number of noble Lords, including the noble Baronesses, Lady Chakrabarti and Lady Clark, and the noble Lord, Lord Lennie, raised the crucial point of key workers. The Government value the outstanding work that key workers are doing during these challenging times, which is why we are proceeding with this increase in the national living wage from April. The Government need to balance the needs of businesses and the low paid, including key workers, to ensure that any future increase does not harm their employment prospects. The Government remain committed to helping hard-working individuals earn more while we level up this country. We are delighted to be giving key workers on the national living wage this increase. Public sector workers on the national living wage threshold will benefit from the increase to the rate in line with the rest of the country. In addition, the 2.1 million public sector workers who earn less than median earnings of £24,000 will receive an increase of at least £250.
A point was raised by the noble and right reverend Lord, Lord Harries, and the noble Baronesses, Lady Blower and Lady Jones, about the real living wage and the Living Wage Foundation. The Government consider the expert and independent advice of the Low Pay Commission when setting the rates. The key distinction between the Low Pay Commission’s rates and other rates, such as the Living Wage Foundation’s voluntary living wage is that the Low Pay Commission considers the impact on businesses and the economy as well as the impact on individuals.
The noble Lord, Lord Bradshaw, asked about the number of enforcement staff. There are now more than 400 staff involved in HMRC’s enforcement of the minimum wage. As I said earlier, we have doubled the budget since 2015.
A number of noble Lords, including the noble Baronesses, Lady Jones, Lady Clark and Lady Blower, asked an understandable question about why the national living wage is not higher. The new national living wage rate of £8.91 is a 2.2% increase and will be the highest ever UK minimum wage. I accept the ambition of the noble Baronesses to go even higher, but this increase balances the Government’s commitment to supporting the low paid with the need also to support businesses and employment. Although it reflects a significant adjustment in response to current economic circumstances, this increase still allows the Government to make progress towards their long-term ambition for the national living wage to reach two-thirds of median earnings by 2024. I hope the noble Baroness will be here to welcome that happy step when we finally arrive at it.
The Government are still committed to their goal of ending low pay and reaching the 2024 target, provided that economic conditions allow. We will continue carefully to monitor wider economic interests.
The noble Lord, Lord Empey, asked me about the accommodation offset. This is the daily amount which can count towards minimum wage pay when a worker is charged for accommodation provided for them by their employer. Where a worker is charged for accommodation, either by making a payment to the employer or by a deduction being made in the worker’s pay, and the charge is more than the accommodation offset, it will reduce the worker’s pay for minimum wage purposes. Following these regulations, the accommodation offset will increase on 1 April from £8.20 per day to £8.36 per day, which is a 2% increase. Anyone concerned that they are not getting the national minimum wage should complain to HMRC, which follows up every complaint it receives.
The noble Baroness, Lady Jones, also asked me about the rationale for 23-plus as an age group, and I addressed that question earlier.
The noble Lord, Lord Hendy, made a number of points about his so-called social dialogue. The Low Pay Commission is an independent and expert body which makes annual recommendations on the appropriate rate for the national minimum wage. As my noble friend Lord Balfe pointed out, its commissioners are balanced between employer and worker representatives and independent commissioners. It is also responsible for carrying out extensive research and consultation and for commissioning research projects. It draws on economic, labour market and pay analysis, independent research and stakeholder evidence to produce the best possible recommendations, which we are delighted to accept in this case.
I thank the Low Pay Commission again for its extensive evidence-gathering and for providing its well-reasoned recommendations. The Government will shortly publish the Low Pay Commission’s remit for 2021. With that, I think I have addressed all the questions that were put to me. I commend these draft regulations to the House.
Motion agreed.
Ministerial and other Maternity Allowances Bill
Royal Assent
Monday 1st March 2021
(3 years, 1 month ago)
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