Grand Committee
(2 years, 6 months ago)
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Arrangement of Business
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The Deputy Chairman of Committees (Lord Lexden) (Con)
My Lords, I will now open this session of the Grand Committee. Members are encouraged to leave some distance between themselves and others—it is hardly necessary to point that out—and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and will resume after five minutes if all Members have cast their votes in that time.
Organics (Equivalence and Control Bodies Listing) (Amendment) Regulations 2021
(2 years, 6 months ago)
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Lord Benyon
That the Grand Committee do consider the Organics (Equivalence and Control Bodies Listing) (Amendment) Regulations 2021.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)
My Lords, for organic products imported from another country to be legally sold as organic in Great Britain they must be certified as organic by a third country or third-country control body that the UK has recognised as having equivalent or compliant standards.
The lists are currently contained within retained EU Commission Regulation EC number 1235/2008. Annexe III of this regulation lists third countries recognised as equivalent and gives the name and website of the competent authority for each country, along with a list of the control bodies operating in that country, their control body codes and websites. Annexe IV of the regulation lists third-country control bodies recognised as equivalent and gives the name, address, website, code numbers, applicable countries and approved product categories for each control body.
This statutory instrument was made to streamline the process of listing and accessing the details of the third countries and third-country control bodies that we recognise as compliant and equivalent for the purposes of UK organic regulations. The amendments made by this instrument do not constitute a policy change.
As the law stands, it would be necessary to pass a new SI to confirm recognition of a new country or control body, or for changes to existing recognition, such as changes to their name, website address or approved goods categories. With hundreds of organisations listed, this information can change frequently. When the UK was an EU member state, these changes were advised on by the European Commission and approved by representatives of the EU member states at the regulatory committee on organic production, not by the European Parliament.
Given the administrative nature of these changes, we believe that making numerous new SIs to reflect them would be disproportionate. The time taken to pass such SIs to update the lists would have a negative impact on trade in organics. Details held on these lists are necessary for port health authorities, local authorities and other relevant parties to ensure that the goods in question have been certified in a recognised third country or by a recognised third-country control body. The delay between the changes taking place and being reflected in legislation would result in discrepancies between the documents and legislation. This can cause disruption to trade, as even minor discrepancies may delay goods being checked at ports.
This SI will not alter the criteria according to which third countries and third-country control bodies are recognised. I would like to reassure the Committee that the process for allowing third-country products to be placed on the GB market as organic remains robust and follows highly technical criteria set out in the retained organics regulations: Council Regulation 834/2007 and Commission Regulations 889/2008 and 1235/2008. This SI simply seeks to move the lists currently referenced in legislation to the GOV.UK website, where they can be updated directly by officials. We will continue to uphold the high standards expected by UK consumers and businesses.
Our approach with this SI follows best practice in other policy areas, where minor amendments are made to lists on various topics without requiring an SI. For example, the register of protected geographical food and drink names, which determines what goods can be sold under particular names in GB, is updated by the Secretary of State on the advice of officials. These decisions are made by evaluating the merits of each case in accordance with criteria outlined in legislation. This change will also improve the accessibility of these lists for stakeholders by providing all the relevant information in a single location, removing the need to consult multiple pieces of legislation, a problem that stakeholders have raised in the past.
These proposed changes have been welcomed by stakeholders including UK port health authorities, UK organic control bodies—through the UK organic certifiers group—and the devolved Administrations at the UK organics four nations working group. International partners such as the United States Department of Agriculture have also welcomed the proposed changes.
The proposed lists on GOV.UK will be updated to reflect the terms of the trade and co-operation agreement, extending EU organic equivalence recognition until 31 December 2023 as agreed, without the need to pass an additional SI. Current UK legislation includes EU recognition only until 31 December 2021, so the lists will need to be amended before that date to be in line with the trade and co-operation agreement. If this SI does not pass, a separate instrument will be required to extend EU recognition to the end of 2023. If a new SI is not passed by the end of the year, that could cause a delay to trade and there would be a risk of political controversy.
A breach of our commitments under the TCA would potentially leave the UK open to retaliatory action from the EU, such as withdrawal of its recognition of UK organics standards, which would prevent GB organic goods from being sold in the EU. Given the importance of the EU market to UK organic producers, this would risk a severe impact on the sector and its contribution to the UK economy. The UK has committed to updating the lists of recognised third countries and third-country control bodies to reflect changes that occurred shortly before the end of the transition period but were not captured in the retained legislation. This includes adding, removing and amending some control bodies in Annexe III and Annexe IV.
Until this SI comes into effect, goods certified by those newly recognised control bodies risk rejection at the border and we also risk that goods certified by control bodies that are no longer recognised may enter the GB market. Delay to these changes would cause disruption to trade and risk a perception that we are in violation of our treaty obligations. Under the current terms of the Northern Ireland protocol, EU organics regulations continue to apply in Northern Ireland as they do in the EU. As such, Northern Ireland continues to use the list of recognised third countries and third-country control bodies in EU law and this SI will have no effect on trade in Northern Ireland. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I am most grateful to my noble friend for setting out the remit of the statutory instrument that is before us this afternoon. We have been greatly assisted by the 14th report of the Secondary Legislation Scrutiny Committee, which my noble friend will be aware has a number of outstanding concerns that I will raise.
Paragraph 7.5 of the Explanatory Memorandum says that
“instead of laying new statutory instruments for new recognitions or changes to existing recognitions, the law be amended”
in the way that my noble friend outlined. It concludes:
“This will save a considerable amount of officials’ and Parliamentary time and allow for greater speed in updating information.”
I do not think that Parliament has ever asked for less time to scrutinise legislation. As my noble friend will recall, when much of the legislation went through under the treaties and the Acts taking us out of the European Union, concern was expressed at the amount of parliamentary scrutiny that there would be.
My first question to my noble friend is this. Paragraph 10.1 specifically states:
“The changes to the listing of control bodies and third countries have been discussed with UK control bodies … and with the devolved administrations at the Organics Four Nations Working Group.”
I am interested to know whether that was just one meeting. Was there the opportunity for the devolved Parliaments and Governments to raise any concerns that they must have?
My noble friend will be aware that, in this very Room last week, the Common Frameworks Scrutiny Committee met to raise a number of issues. His department was mentioned, as there are, I think, 14 common frameworks that relate to it. I might be wrong, but I do not think that Parliament has seen a single one of those. Obviously, it is of great interest to us to see what has been agreed. I mention that as background. I would like to think that the Scottish, Welsh and Northern Irish nations have had the opportunity for both their Parliaments and Governments to raise any concerns that they had.
I turn briefly to the issues raised in appendix 3 of the 14th report of the Secondary Legislation Scrutiny Committee—the exchange of letters with our honourable friend Victoria Prentis, in the other place, as Minister for Farming, Fisheries and Food. The Secondary Legislation Scrutiny Committee has done the House a great service in pointing out its concerns. I would like to quote from the report:
“These Regulations replace a legislative process for updating a list of third countries and third country control bodies which are recognised as equivalent in relation to organic standards, with an administrative process.”
It concludes that
“there should be parliamentary oversight of updates to lists.”
Will my noble friend explain to us this afternoon why there is the need for such speed in this regard? Can he convince us that there has been proper parliamentary oversight of what was delegated to the Government to perform this?
The report goes on to cite a letter from the Lord President to the chairman of the committee, our noble friend Lord Hodgson of Astley Abbotts:
“I agree that it is important that Parliament has the opportunity to scrutinise significant changes in addition to streamlining processes to ensure that the regulatory system best serves the needs of British businesses and consumers.”
Obviously there was a long debate about equivalence at the time that the legislation went through. Noble Lords ought to know my admiration for the organic sector and its importance to the rural economy.
I conclude by again raising an issue that was raised by our noble friend Lord Hodgson of Astley Abbotts with our honourable friend Victoria Prentis. On page 30 of the report, the committee sets out again its concern that the decisions before us this afternoon have been removed from the oversight of Parliament by switching from a legislative to a purely administrative process. I am not entirely sure that my noble friend has set out the context for why we will not in future be able to look at these statutory instruments, albeit briefly, or why we are losing the parliamentary oversight, which seems to be the nub of the concern expressed in the 14th report of the Secondary Legislation Scrutiny Committee.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I am grateful to the Minister for his introduction to this SI. I thank him and his officials for the useful briefing that they took the time to provide to me and to the noble Baroness, Lady Jones of Whitchurch. As has been said, the SI allows third countries equivalence on organic produce without the need for the time-consuming process of passing secondary legislation on each occasion. The power now rests with the Secretary of State to decide.
Paragraph 2.2 of the Explanatory Memorandum states that changes to the lists of countries and produce
“will be communicated to relevant stakeholders in a timely manner”.
Can the Minister say exactly what “a timely manner” is? Will the list always be updated immediately after equivalence is granted, or will there be occasions when this may take longer?
I note that no impact assessment was prepared for this SI, as the changes are said to be merely administrative. I am sympathetic towards streamlining procedures relating to legislation but do not believe that Parliament should be bypassed in all cases, especially when trade agreements are being considered.
The noble Baroness, Lady McIntosh of Pickering, has already raised my next point. The chair of the Secondary Legislation Scrutiny Committee, of which I am also a member, wrote to Minister Prentis challenging the assumption that the new administration process was merely technical and would have low impact. The committee took the view that making an equivalence decision on a third country would almost certainly be more important than suggested and felt that removing the oversight of Parliament by switching from a legislative to a purely administrative process was a concern. In her response, Minister Prentis indicated that
“when a third country applies for equivalence recognition for the purpose of organics trade, it must provide all necessary information, including details of its control system and production standards, on the basis of which a decision can be made … recognition is limited to … three years. The Secretary of State may recognise a third country as having equivalent organic standards only once they are satisfied that these criteria for recognition have been met … Additionally, a third country recognition is generally part of a wider trade agreement, which would require Parliamentary ratification”.
If Parliament is to be involved in a trade agreement with a third country, why cannot it be involved in that country being added to the list for organic equivalence, especially if that is going to be part of its trade agreement? Can the Minister indicate how many countries are likely to apply for organic equivalence which are not in negotiation for a wider trade agreement? This might help us to see just what the scale of the workload would be if each was to go through the statutory instrument process instead of the informal administrative process proposed today.
As the Minister said, there is a cut-off date for reassessment of 23 December 2023. What will happen after that date? Will this be a cliff edge, or will there be renegotiations prior to that date?
A number of countries are in negotiations for trade agreements with the UK. How can the public be assured that the very high standards that they currently enjoy on organics will not be lowered during negotiations? I remain concerned that this speeding up of the administrative process has no legislative grounding and look forward to the Minister’s response and possible reassurance.
Baroness Jones of Whitchurch (Lab)
My Lords, I am grateful to the Minister for introducing this SI and for the helpful briefing that he organised beforehand. On the face of it, this seems to be an innocuous change, but, like other noble Lords, I do not feel that it is quite as straightforward as it first appears. I therefore have a number of questions that I want to raise.
First, we have a strong and blossoming organic sector in the UK and it is important that we protect the very high standards that consumers expect of organic products. In particular, it is vital that the UK organics market cannot be undercut by inferior products from third countries claiming to be of the same organic standards. When this was debated in the Commons, the Minister, Victoria Prentis, made it clear that organic trade between the UK and any third country in the future will be the subject of the provision of free trade agreements or treaties.
This immediately rang alarm bells because, as we have seen with other trade deals, most notably the one with Australia, the Government have been prepared to sell out our high food standards when it suits them to have a wider trade deal. Can the Minister clarify the status of our current organic standards? If, as he says, they are set out in retained EU legislation, could they be disregarded in a future trade deal?
Victoria Prentis also said that Parliament would have oversight of those trade deals that might impact organics. Can the Minister clarify whether this is the same oversight that exists for all other trade deals, on which Parliament has in truth had no real say and, as we all know, the views of the Trade and Agriculture Commission, which was set up to act as a mediator, if you like, are widely disregarded? Would organics be caught up in that same process?
Secondly, one of the main arguments put forward in the Explanatory Memorandum for the change is that ports, local authorities and businesses will be able to find an up-to-date list of the organic products that can be imported, as they will be listed on the government website rather than in legislation. I do not find this a compelling argument. I do not really see why this cannot be done in parallel with the original scrutiny process of making changes via SIs. For example, the Minister, Victoria Prentis, said that there were 13 countries, plus the EU, and about 55 control bodies currently listed. Despite what the EM says, I cannot imagine that there will be a swamp of new applications which will become unmanageable. If the concern is that those organisations change their addresses frequently, surely the solution would be to deal with this aspect of approval administratively rather than through the whole recognition of a new country or control body. I would be grateful if the Minister could clarify why it is not possible to have those two systems working in parallel with the original parliamentary scrutiny that we have previously enjoyed.
Thirdly, as noble Lords have said, the Secondary Legislation Scrutiny Committee has drawn these regulations to the special attention of the House on the grounds that they are politically or legally important. We agree with its analysis
“that secondary legislation is indeed an appropriate vehicle for the type of changes that are the subject of this instrument, and that the Secretary of State’s general accountability to Parliament is not a suitable replacement for parliamentary oversight of individual decisions in this area.”
As my colleague Daniel Zeichner said in the Commons in agreeing with the Secondary Legislation Scrutiny Committee,
“We have all heard that argument and we know how well that works in practice. Frankly, we need something better than that.”—[Official Report, Commons, Delegated Legislation Committee, 21/9/21; col. 5.]
To press the Minister on this, if the SI goes through, how would we in practice hold the Secretary of State to account for listing an organic producer that we thought was in danger of undercutting our current organic standards? If a trade deal were signed that opened up the market for a third country for organics with lower standards, which of the many Secretaries of State would we be trying to hold to account anyway? Would it be the Secretary of State from Defra or from the Department for International Trade? Whom will we chase on these issues if such an event occurs?
Finally, I ask the Minister about the devolution implications of this SI. In an exchange in the Commons with David Doogan of the SNP, the Minister revealed that there is a long-standing disagreement about whether this issue is a devolved matter. Rather than getting legislative approval from the devolved Governments, as would be the normal process, the Government on this occasion sought the approval of the organics four nations working group. Does the Minister feel that this is a satisfactory way to proceed? What is being done to get the devolution disagreements back on track so that we can have the proper process of agreement in place?
While I am on that, there is some question over whether the UK organic certifiers have agreed to the proposals, as suggested in the Explanatory Memorandum. As my colleague Daniel Zeichner reported, they reported to him that their preferred form of scrutiny of future applications is an independent expert group, rather than their having to rely purely on the Secretary of State to make those decisions.
We feel that this SI is unsatisfactory in a number of regards and hope that the Minister will be prepared to reflect further, not only on our concerns but on those of the SLSC, which we feel were well made. I look forward to his response.
Lord Benyon (Con)
My Lords, I am grateful for noble Lords’ interest in this issue and for the questions that have been asked. To start with, I say to my noble friend that this is of course a massive increase in scrutiny. When we were a member of the EU, this did not ever come before Parliament; it did not even come before the European Parliament but was dealt with by a committee in the Commission. Everything we are doing is open to all Members of both Houses to scrutinise in the ways in which they ingeniously will, holding Ministers and the Executive to account. There are mechanisms in it, which I will come to in a moment.
I will answer as many of the questions as I can. If I cannot, I will write to noble Lords. My noble friend Lady McIntosh asked about the frequency of meetings of the four nations working group. My understanding is that it meets every month, so this is a very regular affair. I will come on to the points my noble friend made about the slight tension between the devolved Governments.
I think my noble friend Lady McIntosh also asked whether SIs are appropriate, whether they are a frequently used vehicle for minor changes in other policy areas, and why they should not be used here if they are used for many minor matters. The changes to lists that would be covered under this updated process would be administrative changes based on technical evaluations; they do not represent a policy change. These include very minor changes to information required about control bodies, such as their name, legal address and other contact details. Although minor, these details are necessary for port health authorities, local authorities and other relevant parties to ensure that the goods in question have been certified in a recognised third country or by a recognised third-country body.
We are aware of a number of cases in which minor changes to a control body’s information have resulted in goods being delayed at a port due to discrepancies between the details on certification documents and in legislation. As such, delays in updating this information in the list could result in a disruption to trade. Without the move to online lists effected by this statutory instrument, any amendment, however small, would be delayed by the time taken for a further SI to go through the legislative process. The faster mechanism introduced by this SI will enable the UK businesses that depend on this to take advantage of new opportunities to trade more quickly. This may provide a competitive advantage over other nations, such as those in the European Union burdened by cumbersome and lengthy processes.
My noble friend and others mentioned that we have legal agreements with 13 countries and 55 control bodies and asked whether updating their lists would be necessary. Yes, we have equivalence agreements with 13 countries, the EU and the EEA states, and 55 control bodies. However, the situation is much more complex in practice because third-country control bodies can certify businesses operating in a number of different countries, with different rules for their operations in each.
Equally, where a third country is recognised as equivalent, the control bodies in that country must also be listed individually. A full list of recognised countries and third-country control bodies runs to over 100 pages, with each page containing significant detail. As we continue to recognise new third countries and third-country control bodies as an independent trading nation, this is likely to expand over time.
Water and Sewerage Undertakers (Exit from Non-household Retail Market) (Consequential Provision) Regulations 2021
(2 years, 6 months ago)
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Lord Goldsmith of Richmond Park
That the Grand Committee do consider the Water and Sewerage Undertakers (Exit from Non-household Retail Market) (Consequential Provision) Regulations 2021.
The Minister of State, Department for the Environment, Food and Rural Affairs and Foreign, Commonwealth and Development Office (Lord Goldsmith of Richmond Park) (Con)
My Lords, the technical amendments in this instrument, which was laid before the House on 21 July, amend the Water Industry Act 1991 to reapply developer service duties to water and sewerage undertakers —generally known as water companies—operating in retail exit areas wholly or mainly in England.
As part of competition introduced into the water sector, a “retail exit area” is where a water company, such as Thames Water, has transferred its “retail”—business or non-household—customers, such as supermarkets, to a separate company or “retailer”. The retailer liaises with Thames Water for the water and sewerage services to be provided to the business customer and the retailer bills the business customer for the services and offers it advice on how to improve its use of water.
This market allows business customers to have all their water and sewerage services looked after by one retailer, saving them time and money in dealing with billing for these services. This was not possible when water companies dealt with business customers directly. The market also enables retailers to work directly with housing developers for their water and sewerage services, which they need when building new homes, as housing developers are of course also businesses.
To set up the developer services for retailers, we disapplied some water company duties through the Water and Sewerage Undertakers (Exit from Non-household Retail Market) Regulations 2016. These disapplications have had unintended consequences for developer services, which is why we are now seeking to reapply the duties and to set up developer services for retailers in a slightly different way. I should make it clear that all the amendments introduced by this instrument are therefore technical operability amendments and do not introduce any policy changes.
The Water Industry Act 1991 is the principal piece of legislation setting out the duties and functions of water companies in England and Wales. The retail market is a devolved matter and the 2016 regulations applied to English water companies only. The market opened in April 2017, but water companies did not all transfer business customers to retailers when the market opened. The last water company to transfer its business customers to a retailer was in 2019. The effects of the way in which the developer services market was set up were therefore not fully realised for a few years after market opening.
When setting up the market for developer services, Defra recognised that some developers might still wish to work with the water company for the housing developer services, for example. We envisaged that housing developers choosing this route would make their own contractual arrangements with the company. However, in subsequent discussions with Ofwat, the economic regulator of the water industry, and with the water industry itself, it emerged that contractual arrangements are not straightforward. They do not sufficiently replicate the water company duties within the 1991 Act that were disapplied and the unintended consequences include Ofwat no longer being able to determine complaints from a housing developer about the developer services provided, as well as water companies having restricted access to water and sewerage pipes to maintain them.
Retailers are also choosing largely not to be part of the developer services market, for two principal reasons. The first is that, due to the technical nature of developer services and the expertise required, retailers are generally not big enough to be able to provide that. Secondly, as most residents of new developments are household rather than business customers, the retailer does all the work to get the water and sewerage connections made but then must transfer the household business to the water company, so the retailer does not increase its customer numbers.
Baroness McIntosh of Pickering (Con)
My Lords, I thank my noble friend for talking us through the regulations today. I remember that, when the original legislation went through—rather than the regulations themselves—concern was expressed about what would happen if a retail company were to fail. I do not know whether that has been resolved in the existing regulations; as my noble friend has explained, it seems that these regulations apply to that very narrow area of a retailer providing services to housebuilders.
I want to take this opportunity to ask a question in that regard. My noble friend is aware of my passion for SUDS—sustainable drains. Where housing developers build major new developments, is it envisaged within the original regulations that SUDS could be applied as a condition of planning permission for the work being agreed?
The Explanatory Memorandum says that the instrument—I believe it is the second regulation—will
“reinstate the … duty on undertakers to provide connection services, on request, in retail exit areas”.
Is that deemed to be an automatic right to connect? Is there any leeway to ensure that we can actually insert a condition that SUDS must at that stage be envisaged? That could save any contribution to flooding down the line.
The Explanatory Memorandum says at paragraph 7.3:
“The main retail services provided to non-household customers through the retail market”,
as my noble friend said,
“are billing and administration services. However, with the opening of the market, it was designed so that retailers could also provide new water and sewerage connections services to business customers.”
My noble friend said that this was limited. Has it been so limited as to have never actually happened, or has it happened in literally only one or two cases? Paragraph 7.3 goes on to say:
“These services primarily concern connections to water and sewerage services for new developments, involving predominantly housing developers.”
My noble friend is aware of my interest. I latched on to something he said during the passage of the Environment Bill before it went to the other place: the automatic right to connect no longer being automatic. Will that apply in these as well as other cases?
Paragraph 7.6 goes on to say: “We”—and I presume the “we” is the Government—
“consider that ‘non-household premises’ includes new housing developments which are under construction before anyone is using the premises as their home.”
Does that mean that existing housing developments do not fall into this category? Is there any chance that the regulations before us this afternoon will apply to those existing housing developments? It goes on to say that
“Until people move in, we consider that a development does not fit that definition”,
as given in that paragraph. On what basis has the department reached that conclusion? What background brought it to that position?
Paragraph 7.7 says that
“There are several unintended consequences”,
as my noble friend set out,
“of the 2016 Regulations’ amendments. These concern new connection services, the laying, inspecting, maintaining, adjusting, repairing”.
I still maintain, as I am sure my noble friend is aware, that, when making these new automatic connections automatic, we are dealing with Victorian, antiquated piping. Whether it is the retailer or the water company providing these services, the pipes are deemed to have to connect. At the moment, the water company is not a statutory consultee, whereas the Environment Agency, for example, is; I do not believe that the advice the water company is giving planning authorities has the same legal force as that from the Environment Agency.
I ask my noble friend whether the problems with the regulations set out in Paragraph 7.7 could be avoided by ending the automatic right to connect. It is unacceptable; we have an opportunity, at this stage in the regulations, for the water company or retailer to say that they cannot make physical connections when housing developments are being made and that there will be overflow into the storm drains and the possibility that sewage will come back into either the new developments or, worse, existing developments that have not been affected in the past.
I welcome this opportunity to ask questions on those points, with a special emphasis on whether sustainable drains can be part and parcel of this, and that the water company or retailer should say whether the existing infrastructure simply cannot take the amount of wastewater envisaged to come out of any new houses.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank the Minister for introducing this SI and for his comments. On the face of it, it seems like a straightforward change in the legislation to bring the retail sector into line with domestic housing arrangements following the changes made in the Water and Sewerage Undertakers (Exit from Non-household Retail Market) Regulations 2016. I note that this instrument relates only to England, but the extent of it is England and Wales where there are cross-border issues.
The water and sewerage industries were privatised in England and Wales in 1989. In 2014, reform of the Water Act enabled competition in the market. In 2016, the transfer of non-household retail business prevented the provision of retail service to new non-household customers that arose in its area. Given what we now know about the effects of supply and demand on water and sewerage systems, this would seem a sensible step.
Paragraph 7.4 of the Explanatory Memorandum enables
“developers to make new connection requests to their retailer.”
There is no mention in the Explanatory Memorandum, nor in the instrument itself, of whether there would be capacity for new development to be safely connected under the automatic right to connect, which the noble Baroness, Lady McIntosh of Pickering, has already mentioned.
The Minister will know that during the passage of the Environment Bill there were many debates about the effect of effluent being discharged into rivers, lakes and other watercourses and the extremely detrimental effect this has on both water quality and the wildlife that previously inhabited those areas. I ask the Minister whether the local relevant sewerage and water capacity will be part of the consideration when developers apply for connection for retail. The automatic right of developers to connect for housing developments has caused considerable problems, not only in effluent discharge, but has contributed to localised flooding during prolonged periods of rainfall.
This is a minimal change to the legislation, but the legislation relating to domestic properties is far from perfect. Once the drainage and sewerage management plans are in place, that should ensure better collaboration between developers and those dealing with the supply of water and disposal of sewage. But these are not yet in place. Duties in Section 41 and 45 no longer apply to premises in a retail exit area. To indicate that new households under construction are not classified as household premises until people move in is somewhat late in the day to deal with capacity issues and whether sewerage systems are able to cope with the additional demand.
A Section 98 duty to comply with sewer requisition is the duty to provide a public sewer or a lateral drain. This appears not to apply in relation to premises in the retail exit area that were not household premises. Just what is the legal obligation to ensure that there is sufficient capacity in the sewerage system for new connections from retailers? This might be a small retail outlet, or it might be retail premises relating to an already overlarge housing development, which would be a much larger connection.
I am sure the Minister can understand my concerns and I would be grateful for his reassurance that capacity will form part of the connection requirements. I note that a consultation period took place between 29 April and 25 May 2021. This period included a bank holiday. Seventeen responses were received but the EM does not say whether Water UK or the Consumer Council for Water were among those. However, I understand from officials that, since there were responses from some water providers if not from Water UK itself, there seems to have been a general positive agreement in the industry in response to this SI.
I would be grateful for the Minister’s clarification on the consultation exercise. I understand why Defra has introduced this new measure but remain extremely concerned about the effect on flooding of connecting retailers to the sewerage system without first checking that the system has the necessary capacity.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank the Minister for his introduction to this SI. I am sure he will be relieved to hear that we accept that it is broadly technical in nature and, as such, will not be opposing it. It deals with relatively small consequences of the reform of the water industry and the right of water companies to exit the non-household retail market in their sector. As the Minister has said, several unintended consequences have arisen from the new provisions and this SI deals with one such anomaly relating to new housing developments.
I have to say I was amused to read the Commons Minister Rebecca Pow stating when introducing this measure that it was underpinned by the Government’s commitment to
“strong, independent regulation that protects customers and the environment”—[Official Report, Commons, Delegated Legislation Committee, 22/9/21; col. 4.]
because, arguably, that is exactly what we do not have. This is why water companies such as Southern Water get away with regularly pouring sewage into our rivers and sea with no comeback from their customers or for their customers. But I accept that that is a slightly wider issue than the SI before us today.
Lord Goldsmith of Richmond Park (Con)
My Lords, I thank noble Lords who have contributed to this debate. If nothing else, it has highlighted the complexity of the water industry and the legislation which governs it.
My noble friend Lady McIntosh takes a very keen interest in this issue, as I have discovered since taking part in these debates. The right to connect is an issue that she has raised before and which has been discussed at length in connection with the concerns raised during the passage of the Environment Bill over storm overflows, in particular the right to connect surface water drains to foul sewers. This is outside the remit of developer services and these regulations, which concern only the construction of new sewers and the connecting of new homes to wastewater sewer services. However, in providing developer services, water companies will often proactively discuss with the developer how they will drain their sites, suggesting ways to avoid connecting surface water drains to foul sewers.
The issue of possible failure is being considered as part of the post-implementation review, and Defra is reviewing SuDS as part of our review of Schedule 3. My noble friend raised the issue of retailer involvement. Some retailers have been involved with the new connections but mainly with retail developments. Most retailers are referring developers to water companies.
The noble Baroness, Lady Bakewell, raised issues around network capacity. Amending the duties to reference capacity would effectively be a new duty on water companies and would therefore also be out of the scope of these regulations. Also, reapplying Section 98 would also reapply Sections 99 and 100, which concern the financial arrangements regarding any new public sewer. Section 100(4) enables the water company to include in the costs charged to the developer the costs reasonably incurred in providing new public sewers and any reasonable proportion of costs incurred to provide additional capacity in existing sewers that have been constructed in the previous 12 years.
My noble friend also raised the issue of drainage and sewerage plans. Plans are currently being produced now for drainage and sewerage management. Draft plans will be consulted on in April next year, and these are currently non-statutory. My noble friend asked whether the Consumer Council has responded to the consultation. The answer is yes. We also spoke at length with Water UK, which agreed with the changes.
Many of the hugely important issues raised by the noble Baroness, Lady Jones, were debated during the passage of the Environment Bill. She raised the case of Southern Water, whose pollution of our waterways has been met with a reaction from the courts, leading to fines and so on. The regulatory regime that governs water companies and the pollution of waters and rivers is an issue that has been raised effectively by my noble friend the Duke of Wellington through various amendments. There is no doubt that the water companies will have to step up and that Defra will have to take a more robust approach to dealing with them. I do not think that anyone in the country regards the pouring of raw sewage into our waterways as a routine matter, as opposed to an emergency situation for the prevention of deaths. It is not acceptable, and that is our view in Defra.
We have been working closely, and discussions will continue, with my noble friend the Duke of Westminster —the Duke of Wellington. I can only apologise to my noble friend, for the fourth time; it is becoming a tick that I cannot rid myself of. Someone is playing games with me.
Lord Goldsmith of Richmond Park (Con)
It is my noble friend Lady Bloomfield.
I look forward to meeting my noble friend the Duke of Wellington shortly to discuss progress on some of the issues that he raised.
The noble Baroness, Lady Jones, raised the devolved nations. Scotland has its own process; Wales does not have a retail system in place. We are exploring the Scottish process with it, as part of the post-implementation review.
The noble Baroness also raised the issue of water companies providing the developer services. Water companies have provided services, in discussions with developers, and ensure that discussions about connections to sewers and SUDS provision occur to reduce surface water being sent to public sewers.
I think that I have answered the questions that were raised, so I will close there. All the changes introduced by this instrument, as the noble Baroness, Lady Jones, noted, are technical, operability amendments required to ensure that we are able to continue to operate the regulations and the retail market appropriately. They make no changes to water retail policy for developer services; they just enable us to refine our legislative approach to how we deliver them. I therefore commend the draft regulations to the House.
Airports Slot Allocation (Alleviation of Usage Requirements) (No. 2) Regulations 2021
(2 years, 6 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Vere of Norbiton
That the Grand Committee do consider the Airports Slot Allocation (Alleviation of Usage Requirements) (No. 2) Regulations 2021.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
My Lords, these draft regulations will be made under the powers conferred by the Air Traffic Management and Unmanned Aircraft Act 2021, known fondly by everybody as ATMUA. ATMUA created a more flexible set of powers for Ministers to implement slot alleviation measures related to the impacts of Covid-19, subject to a vote in both Houses. It allows us to tailor our response in ways that were not possible beforehand.
Ordinarily, airlines must operate slots 80% of the time to retain the right to the same slots the following year; this is known as the 80:20 rule or the “use it or lose it” rule. However, the powers provided by ATMUA enable the Secretary of State to provide alleviation from this rule if he is satisfied that there is a reduction in demand due to the Covid-19 pandemic and that the reduction is likely to persist.
Under ordinary circumstances, the 80:20 rule helps to encourage efficient use of scarce airport capacity while allowing airlines a degree of flexibility in their operations. In response to the Covid-19 pandemic, the EU Commission waived the 80:20 rule for the summer 2020 and winter 2020 seasons. Following the UK’s departure from the EU, the UK Government decided to extend this waiver to cover the summer 2021 season, going through until the end of October 2021, through the Airports Slot Allocation (Alleviation of Usage Requirements) Regulations 2021.
Through the provision to airlines of legal certainty that they would be able to retain their slots even if not operated, the commercial impacts of the Covid-19 outbreak on the industry were mitigated. This is because airlines might otherwise have opted to incur costs and operate flights at low load factors merely to retain slots. That would have been bad for emissions and, of course, bad for their finances.
Due to continued uncertainty and low passenger demand forecasts, we set out a package of measures on 19 July to alleviate slot usage requirements for the winter 2021 season, which runs from 31 October 2021 through to 26 March 2022. This package was developed following consultation with the aviation industry and careful consideration of the responses that we received. Industry expressed a range of views, ranging from calls for a full waiver to support for no alleviation at all.
The draft instrument being considered today applies to England, Scotland and Wales. Aerodromes are a devolved matter in relation to Northern Ireland and, as there are no slot co-ordinated airports in Northern Ireland, the Northern Ireland Executive agreed that it was not appropriate for the powers of the Act to extend to, or apply in relation to, Northern Ireland.
In the draft instrument, the Government have set out a package of alleviation measures designed to work together. These include changing the minimum usage ratio to 50:50, meaning that airlines are required to use their slots at least 50% of the time to retain the right to operate these same slots the following year. The reintroduction of a utilisation rate should encourage efficient slot use while also supporting sector recovery.
Secondly, the draft regulations also allow airlines that hand back a full series of slots to the slot co-ordinator—
Baroness Vere of Norbiton (Con)
My Lords, we were talking about the content of the SI and discussed the first element, which changes the minimum usage ratio to 50%.
The second element is that the regulations allow airlines which hand back a full series of slots to the slot co-ordinator before the start of the season to retain the right to operate that series of slots the following year. This will provide an opportunity for other airlines, including new entrants, to apply for and operate these slots on a temporary or ad hoc basis. This measure will apply to traded and leased slots but not to newly allocated ones; this is to prevent carriers acquiring slots with no intention to operate them. Airlines which have announced that they have permanently ceased or will permanently cease operations at an airport before the start of the winter 2022 season will not benefit from this measure in winter 2022.
Finally, the draft regulations expand the reasons which airlines may use to justify not using slots to include Covid-19-related restrictions. This provides a backstop against the risk of unforeseen Covid-19-related measures or restrictions being imposed during the season. This will apply where unforeseen Covid-19-related measures—including flight bans and quarantine or self-isolation requirements—are applied at either end of a route and have a severe impact on demand for the route or its viability. It will apply where restrictions could not reasonably have been foreseen in time to hand back the full slot series. There will be a three-week recovery period during which these provisions, sometimes known as force majeure, may still apply following the end of the Covid restrictions. These measures will cover the winter 2021 scheduling period, as I have noted. We are currently considering alleviation for summer 2022 and plan to consult with industry to inform our policy decision later this year.
This instrument provides necessary relief for the aviation sector for the winter 2021 scheduling period. Through this package of measures, we have aimed to strike a balance between supporting the financial health of the sector and encouraging recovery. I commend this instrument to the Committee.
Baroness Randerson (LD)
I thank the Minister for her very clear explanation. I certainly appreciate the need for these adjustments to take the heat off the airlines during what is still a difficult time for aviation.
I note that one of the reasons why the non-use of slots is justified is a result of government-imposed measures which make routes unviable. It is a pity that the airlines are getting the benefit of this alleviation on slot allocation when there appears to be no clear obligation on those same airlines to return money to consumers on the basis of the same government restrictions on flying. Not all airlines by any means have behaved badly, but the CMA has recently cited a lack of clarity in consumer legislation for its abandonment of attempts to ensure that all airlines did the decent thing and offered proper refunds. Can the Minister say whether the Government have any intention to clarify consumer law?
I note also that there has been no impact assessment because this legislation is designed to be for a period of less than 12 months. But in fact, although it sets out rules for 2021-22, it also bestows rights to the control of future slots into 2023. That is what the winter period of 2022 becomes—it moves over into 2023. This situation has already existed for 18 months, and, as the Explanatory Memorandum itself points out, slots have significant competitive operational and financial value. Taken together, this will have a distorting impact on the industry—it can have nothing else. The Explanatory Memorandum warns of the impact on smaller airports and the likelihood that the relief to a 50% level for the use of slots will have an impact on small airlines wanting to accumulate new slot rights at congested airports. Therefore, although this measure is undoubtedly environmentally desirable and commercially necessary at this time, it will favour the big and established airlines. I would be interested to hear the Minister’s comments on that.
Paragraph 7.6 of the EM recognises the dubious practices of some airlines, which seek basically to game the system by seeking to accumulate new slots for this winter which they have no intention of using, simply to gain historic rights for use in the future. So my question to the Minister is this. In the past, Gatwick has had some concerns about what it saw as unfair hoarding of slots. Is the Minister aware of this issue—I am sure she is—and has it been resolved to the satisfaction of Gatwick Airport?
Paragraph 3.1 of the EM refers to reasons for delay in laying the draft SI and the need to use the latest data on the level of air traffic. Can the Minister please give us an update on what the latest level of air traffic is at the moment? What percentage are we up to compared with 2019, for example?
Finally, is the Minister aware of what action our neighbouring countries are taking on this issue? Are they taking similar action on slots? Everyone started from a similar position on the rules on slots across the EU and in neighbouring countries. In the early period of the pandemic, I recall that they all moved forward in a fairly similar way. Are we still in tune with the actions of our neighbours?
Lord Rosser (Lab)
I too thank the Minister for her explanation of the content and purpose of this instrument, which comes into force at the end of this month. As has been said, in essence, the effect of this statutory instrument is further to suspend the usual rules that UK airport slots must be used for 80% of the time to minimum to avoid the airline concerned losing the slots for the following season. The suspension is due to the Covid-related reduction in air traffic.
The 80:20 rule was waived by EU legislation for the summer 2020 slot-scheduling season and for the winter 2020-21 season, and the Government put in place a similar waiver for the summer 2021 season, which runs until 30 October. In the light of current UK flight traffic levels, the Government now consider it necessary to provide continuing relief and amend the 80:20 rule to cover the winter 2021 season, which, as the Minister said, runs from 31 October this year to 26 March next year.
These regulations make three changes in relation to slots allocated for the winter 2021 season, as set out by the Minister in introducing this statutory instrument, including reducing the required percentage rate from 80% to 50%. The regulations also enable an air carrier to retain rights to a series of slots for the winter 2022 season, if it returns the complete slot series on or before 7 September 2021. Could the Government say how many and which air carriers—if the date was 7 September 2021—have exercised their rights under that part of the regulations?
Earlier this month, it was reported that while easyJet operated at 58% of its 2019 capacity during the summer months, that was expected to increase to 70% over the winter months. Do the Government regard 70% capacity over the winter months as a likely figure for industry-wide levels, and, if not, what capacity figure do the Government expect over the coming winter months? How confident are the Government that this will be the final suspension of the 80:20 rule due to the Covid-19-related reduction in air traffic? I take it that the answer is “not very confident” from a comment that the Minister made, I think, in relation to the summer of next year. If the Government are not confident, is consideration being given to lowering the 80% level at some stage, on a more permanent basis?
The Government’s Explanatory Memorandum states:
“The Department for Transport received 54 responses to the consultation from air carriers, airports, and trade and representative bodies.”
Since it is not clear from the EM, how many of those responses supported all three of the changes made by these regulations, as set out by the Minister, in relation to slots allocated for the winter 2021 scheduling period? Since it is not clear from the EM how many of those responses supported all three, could the Government now provide that figure? I await the Government’s response.
Baroness Vere of Norbiton (Con)
I thank the noble Baroness, Lady Randerson, and the noble Lord, Lord Rosser, for their contributions to the short debate today and for their welcome—I think—for these regulations. I think they do the right thing for the industry. As ever, both have asked me questions that I am unable to answer today, so I shall be writing, but, in the meantime, I hope to run through a few of the elements that have been raised.
First, it is worth reflecting on where the aviation sector is at the moment. Obviously, it remains not where we want it to be, but it is in a much better place than it was. As of the end of September 2021, UK flight traffic continues slowly to recover but remains 49% below corresponding 2019 levels. Even with the ongoing relaxation of restrictions and the anticipated reopening of travel to the US, Covid-19 is likely to remain a considerable source of uncertainty for some time. I think that also addresses the point made by the noble Lord, Lord Rosser, who asked where we see things going in the future. It is not really possible for us to say what we think capacity is going to be like over the winter months, and certainly we will need to maintain as much flexibility as possible. We have to make sure that we discourage slot hoarding and inefficient slot use. We need to make sure that we support the airlines’ financial health as much as we can, and we have to protect future connectivity, both domestically and internationally.
Part of what the Government are working hard on at the moment is what the future for aviation looks like, because we recognise that it has been an incredibly challenging time for what feels like a long period now and the sector is vital to our future as a global trading nation. My department is working on a strategic framework for the aviation sector which will focus on building back better and ensuring a successful UK aviation sector in the future. The framework will explore a number of issues, including workforce and skills, regional connectivity, noise, innovation and regulation, and the consumer issues so rightly highlighted by the noble Baroness, Lady Randerson. The framework will of course also consider climate change and decarbonisation, as well as the role that aviation plays in the UK’s global reach. We hope to have that published by the end of the year. I look forward to discussing it with noble Lords then.
The noble Lord, Lord Rosser, asked what proportion of full slot series have been handed back. I do not have that data, and I am not entirely sure that we would have it, for commercial reasons, but if I am able to find out a bit more information I shall certainly write to the noble Lord and set it out. Whether they use slots has to be a commercial decision for the airlines; they will take into account the services and routes they operate. The provision allows them such flexibility so that they are able, before the start of the season, to do something about what they think is going to happen if they potentially have too many slots that it is clear they will not need. We are aware that a number of airlines have returned their slots and then reapplied for a proportion of them as ad hocs. This is a legitimate use of the provisions, which are designed to promote flexibility. These slots may of course have been allocated to another carrier. In those circumstances, the decision is not exactly risk free, but it was obviously the right one for the airlines that chose to do that.
The noble Lord, Lord Rosser, also asked for greater detail on the breakdown of the 54 respondents and who felt what about which of the interventions we are proposing. I do not have that. I have said previously that there was a range of views. We felt that the 50% minimum usage threshold was supported by the largest number of respondents, and it is consistent with proposals being put forward by IATA—again, that is helpful.
The noble Baroness asked what the EU is doing. It is doing something fairly similar at the moment. I think we have slightly more flexibility because we have the powers under ATMUA, but, given that aviation is so interconnected, we look at what the EU is doing as well as at what is happening in the US, where domestic flights have continued to a significant degree but international flights have not. We believe we have the right balance.
The noble Baroness, Lady Randerson, asked about an impact assessment and highlighted some of the impacts that have been set out very well in the Explanatory Memorandum. There are pros and cons. It is a careful balance that we are trying to achieve, but a formal impact assessment is not needed—obviously, my officials checked this out carefully—because the regulations apply for a six-month period; that is, it is less than 12 months. However, we have done what we can to set out clearly the benefits and potential disbenefits of the interventions in the Explanatory Memorandum. Given that our interventions are matched by so many other countries, I believe it is probably the right way to go.
I turn to some of the longer-term issues relating to slots. It is the case that we are considering the whole slot allocation system as part of future aviation policy. We are not entirely convinced that the current system is working as efficiently as it could. It is worth looking at it because, as we recover from the impacts of Covid-19, we want to make sure that we have the right level of competition to ensure that the customer gets the best levels of connectivity and indeed price. This work will involve consultation with our international partners and all our UK stakeholders. It is not a small endeavour but it is something that we will be looking at in future.
Without the instrument, we would return to the default 80:20 slot usage rule. I do not believe that noble Lords want to go there and no one has indicated that that is the case. I therefore think that the instrument provides an appropriate way forward and I beg to move.
Heavy Commercial Vehicles in Kent (No. 1) (Amendment) Order 2021
(2 years, 6 months ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Heavy Commercial Vehicles in Kent (No. 1) (Amendment) Order 2021.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
My Lords, the two instruments that I am speaking to today, along with the Heavy Commercial Vehicles in Kent (No. 3) Amendment (No. 2) Order 2021, are a package of measures and it is important that they should be debated together. I am grateful to the House for facilitating this. While the Heavy Commercial Vehicles in Kent (No. 3) Amendment (No. 2) Order 2021 requires the negative procedure, it should be taken into account when considering the two amending orders, as it completes the whole picture. Taken together, they support the effective management of Operation Brock and strengthen the enforcement regime that underpins it.
As noble Lords will be aware, the Government have been working with partners in the Kent Resilience Forum to continue to develop Operation Brock. Operation Brock is a co-ordinated multiagency response, owned by the Kent Resilience Forum, to manage heavy commercial vehicle traffic during cross-Channel travel disruption, specifically when capacity for HCVs to leave the UK through the Port of Dover or the Channel Tunnel—together, the short straits—is significantly restricted.
In the instances to date when Operation Brock has been deployed, it has successfully managed to limit the effects of traffic disruption on freight traffic and other road users, both on the main motorway and local road network. We need to be able to continue to use Brock should cross-Channel disruption occur in future—for example, due to bad weather or industrial action. The existing legislation will expire at the end of the month and the amending orders seek to put it on a stable footing by removing the sunset clauses. Together they are a vital part of Operation Brock, as they provide the enforcement and the traffic restriction regime that underpins its operation.
By way of background, the legislation was first put in place in 2019 in preparation for a potential no-deal departure from the EU. It was updated in 2020 in preparation for the end of the EU transition period and once again in 2021 in response to the coronavirus pandemic.
The No. 1 2019 order provides powers to traffic officers to support Operation Brock and sets the amount of the financial penalty deposit for breaching restrictions created by the three orders. The amount of the deposit for breaching the restrictions introduced by the instruments is set at £300. The No. 1 amendment order removes the sunset clause and removes references to redundant offences from the Road Safety (Financial Penalty Deposit) (Appropriate Amount) Order 2009 to reflect amendments made by the other amending orders.
The No. 2 2019 order restricts cross-Channel HCVs from using local roads in Kent other than those on the approved Operation Brock routes when Operation Brock is active. The amending order updates which roads are restricted and removes the sunset clause.
To complete the picture, the Heavy Commercial Vehicles in Kent (No. 3) Amendment (No. 2) Order 2021, which is subject to the negative procedure, will again remove the existing sunset clause provisions from the No. 3 2019 order. That order restricts access for cross-Channel HGVs to the motorways in Kent, including the contraflow on the M20 and use of the M2, when Operation Brock is active.
To summarise, these amending instruments continue the powers from the 2019 orders by removing the sunset clause. In doing so, Brock will be an available option for the Kent Resilience Forum to keep traffic moving to, from and through Kent. These orders remove the extraneous elements that are no longer needed—the provisions relating to the EU transition period and to the Covid-19 pandemic, which were intended to be temporary. We wanted to underpin the core enforcement and traffic restrictions of Brock for the longer term. These orders are of vital importance to allow sensible traffic management in Kent. Operation Brock has proven to be an efficient traffic management measure. I commend the orders to the Committee.
Lord Naseby (Con)
My Lords, I am grateful to my noble friend on the Front Bench for expanding a little on what is in orders No. 1 and No. 2. I took the opportunity to have brief consultations with some hauliers in my former constituency of Northampton South. I will go through the paragraphs of the Explanatory Memorandum that I think are relevant; they are coterminous across the two orders.
My noble friend talked at some length about the sunset clause, in paragraph 2.6. In my experience in both Houses, the purpose of a sunset clause is that it is a time to review a situation. It ensures that the department involved knows that there is a particular time when the order, or whatever it may be, must be reviewed. If the Government of the day decide that they no longer need it, okay, it is finished. But my noble friend said that they would like to keep it, just in case they might need it at some future time. With great respect, that is a burden on the industry because hanging over it is the fact that, at any point in time, Her Majesty’s Government can suddenly bring it in again, even though it is in a modified form. My conclusion is that there should be a sunset clause, maybe in 10 years or whatever is an appropriate time, because that ensures that there is then a proper review. Otherwise, all we do is add to legislation sitting there to no purpose. That is my view on that.
On paragraph 7.1, has there been any report on the review of the effectiveness of Operation Brock? That is an important dimension, particularly to hauliers. There is no mention that there has been, but I would have thought that somebody must have done one and that, if they have, it ought to be published. On paragraph 7.3, is my noble friend saying that the requirements listed are definitely no longer needed at all—in which case, has this been publicised sufficiently to the industry?
Paragraph 7.6 is about the supply chain, which we all know is causing a problem. Do Her Majesty’s Government expect normally not to need any further legislation, as has happened over the recent change on inviting in foreign truck drivers? No legislation was needed and an announcement was made. While I am on that, I have to say frankly that it has gone down like a lead balloon among UK hauliers, for two reasons. First, the hauliers ask, “If the short-term people from the continent can be given multi-drops and pick-up cabotage in a difficult situation, why on earth are we UK hauliers not allowed to do that?” Quite frankly, there is a great problem out there—it is painfully obvious —so if we are giving it to the foreigners coming in, which I welcome, why are our own people not allowed to do the same for a short period as well?
Paragraph 10.2 on consultation says that there were just 14 responses. I am not quite sure how to read that. Is that 14 companies—if it is, it would have been helpful to list them as companies—or 14 people who are interested in the industry who have responded? What is it? The universe of that is really quite important. If it is companies, is it just companies using Dover, or is it some other universe? It would be enormously helpful if my noble friend could tell us what the universe is.
The haulier handbook in paragraph 11.1 is very welcome and the trade welcomes that. Regarding the 17 locations, I am not quite clear, but I assume that this affects all ports trading between the UK and the EU. I did not have time to work out how many ports there are, but it must be a fair number. So, if the 17 locations are all related to Dover, that is fine, but if they are across the UK then that is not quite so fine.
Finally, I raised the training of HGV drivers with my noble friend on the Floor of the House the other day. My noble friend will know that there was a scheme for professional career development loans for drivers and for some reason it was closed in 2019. The amount of the loans available were from £300 to £10,000. These were for families that were probably not that well off and probably could not find that money very easily. If we have a shortage of HGV drivers—which we appear to have—why on earth was the scheme closed to new entrants in 2019? I do not expect an answer today, but can my noble friend have a look at that situation and see whether we should not be reopening that straightaway?
Baroness Randerson (LD)
I start by thanking the Minister for her explanation. I share some of the noble Lord’s concerns. I have real concerns about these SIs. Although they seem to be perfectly reasonable attempts to introduce a more systematic way of dealing with the pressures on Kent roads and ports, especially Dover, in practice this is yet another step in the creeping accumulation of powers by this Government. This is an issue to which our attention was drawn by the Secondary Legislation Scrutiny Committee.
This is an unusual example, because they are SIs that were introduced for one reason; that did not occur, but the Government are using the opportunity to take away the sunset clause and make it a permanent situation. They were introduced under cover of emergency procedures, hence without the usual consultation and safeguards, and are now being converted into long-term measures. This general trend in a number of pieces of legislation is exacerbated by Covid and the pandemic—although that is not relevant in this particular case.
In practice, these amending orders remove the sunset clauses in existing legislation. They make the powers that make up the response which is Operation Brock a permanent feature. The county of Kent will live under a series of extraordinary measures with certain categories of vehicles requiring passports to enter the county. Operation Brock is now to be used as a response to unforeseen disruption; for example, bad weather or industrial action and, I assume, other forms of unforeseen disruption as well. But these are occasional disruptions, and they happen across the UK as a whole, not just in Kent, so there is always the danger that this will be seen as a precedent.
My unease is even greater because when the Government originally introduced these measures, they anticipated—I have to say, I believed them—that there would be long queues on motorways because of new port procedures following our leaving the EU.
In fact, that has not happened, partly because the number of HGVs using the motorways has fallen, partly because there are not any drivers, or at least anything like the number that there used to be, because there has been a general falling-off in levels of trade with the EU, and because the trucks that used to take the land bridge between Northern Ireland and continental Europe now go largely via the Republic and straight down to the rest of the EU. Added together, these issues have meant a reduction in the number of HGVs, so there has not been the level of queuing. The Government took other measures which undoubtedly alleviated the possibilities of queuing. Although it complained vociferously about it, after the first few weeks, the industry became better prepared in terms of the paperwork than it was feared that there might be.
Kent access permits, which the first order is concerned with and as the noble Lord has pointed out, are undoubtedly an additional bureaucratic hurdle for the logistics trade at an already difficult time. It is yet another piece of paper, another form to be completed. I am interested in the practicality of this. Can the Minister explain how often these powers have been used? She referred to that briefly, but can she give us a little more detail about how often these powers have been used so far and how long Operation Brock has been in force on these occasions? Also, how is the logistics industry informed that Operation Brock is active? Someone might be aware that it is snowing, but perhaps not if they are in Newcastle and it is snowing in Kent.
This is an additional piece of bureaucracy for local hauliers too, albeit so that they can continue to use local roads, which obviously is important for them. Paragraph 10.2 of the Explanatory Memorandum referred to the consultation and said that there were 14 responses, and that the majority were in favour. What were the views of the industry representatives? I am particularly interested in the views of local councils because they represent local residents, who have had their lives seriously disrupted by traffic issues in the past. It was hoped that Operation Brock would solve this.
Paragraph 13.2 says:
“The vast majority of HCV drivers travelling via the Channel Tunnel and Port of Dover work for foreign hauliers”.
We know that this balance has changed in recent months, so it would be very useful for all of us if the Minister could update us on the most recent percentages and the balance that there is now between UK domestic hauliers and foreign hauliers using those routes. I look forward to the Minister’s responses.
Lord Rosser (Lab)
Again, I too thank the Minister for her explanation of the purpose and content of the orders we are discussing.
The Department for Transport has said that Operation Brock was originally created to deal with disruption caused by our exit from the European Union and then in response to the Covid-19 pandemic. As I understand it, Operation Brock creates, among other measures, a contraflow road layout on the M20 and the setting up of concrete barriers so that lorries heading for mainland Europe can queue on the coast-bound carriageway if there are disruptions or delays at Dover or the Channel Tunnel. Any decision to put out or remove the concrete barriers involves the Government.
The Government now want to remove the sunset clauses from Operation Brock on the basis of the argument that this will mean the Kent Resilience Forum will be better prepared to respond to any type of traffic disruption in the area not related to our EU exit, including industrial action and severe weather. I do not know whether the industrial action reference is to possible action by heavy goods vehicle drivers, who have sought unsuccessfully to get a better deal following the Prime Minister’s assurance that they should be paid more.
This Government claim to be averse to ratcheting up regulation, yet here we have a regulation that was brought in on a temporary basis to address the chaos of the Prime Minister’s Brexit deal and his inadequate response to the Covid-19 pandemic—as set out in the recent joint report from two Commons Select Committees, both chaired by two of his own MPs—now being made permanent, despite the fact that the Government have removed most Covid restrictions and tell us that the PM’s Brexit deal has only upsides and no significant downsides. Can the Government explain why, if disruption at Dover and the Channel Tunnel from industrial action and severe weather is such a threat that these temporary orders must now be made permanent, it was not considered necessary to bring them in in the nine years from 2010 to 2019?
The striking thing about the two Explanatory Memoranda is that they offer no evidence or explanation why making these orders permanent is necessary or what the consequences, based on past experience, would be if the sunset clauses were applied to Operation Brock. In essence, the Explanatory Memoranda—and thus the Government—are saying that these powers would be nice to have in perpetuity, even though we have no clue how frequently and for how long they would be needed, even based on past experience. In the absence of any proper case being made, this appears to be an example of a government desire to have powers for the sake of it.
The other possible explanation for making these powers permanent is that the Government know that the Prime Minister’s Brexit deal has significant downsides and are expecting significant disruption or delays at Dover and the Channel Tunnel if relationships with the EU in general, and the French in particular, deteriorate still further. In that situation, the Government would attribute the need to make these orders permanent primarily to delays for some other reason—such as industrial action or severe weather—rather than admit that the Prime Minister’s brand of hard Brexit is not all sweetness and light for Britain. The Explanatory Memoranda slip in a reference in paragraph 8 to
“delays from customs checks at the international borders in Kent”,
which may refer to the continuing problems associated with the Prime Minister’s Brexit deal.
I ask the following questions, to which I would like a full government response, either today or subsequently. As far as I can see, although I may be wrong, none of these questions is addressed in the Explanatory Memorandum. First, what happened before Operation Brock when there were delays at Dover and the Channel Tunnel unrelated to our EU exit or Covid? Once again, if those delays were so bad that the Operation Brock powers now need to be made permanent, why did the Government allow that position to continue for nine years from 2010?
Secondly, on how many occasions since 2010 has disruption caused by severe weather been such that Operation Brock would actually have been brought into operation, and for how long, had the now proposed permanent powers been available?
Thirdly, on how many occasions since 2010 has disruption caused by industrial action been such that Operation Brock would actually have been brought into operation, and for how long, had the now-proposed permanent powers been available?
Fourthly—as the noble Baroness, Lady Randerson, asked—on how many separate occasions since the present regulations first came into effect has Operation Brock been brought into operation in full, for what reason, and for how long on each occasion? As has been said, we have not had an evaluation of the effectiveness or otherwise of Operation Brock to date, yet these powers are being made permanent.
Fifthly, what is the cost of building and removing on each occasion the Operation Brock contraflow barriers on the M20? Have there been any occasions when the barriers have been put up and then removed without being used?
Sixthly, how many additional traffic officers have already been required in connection with Operation Brock and it being brought into effect, and how many will be required if the sunset clauses are removed and the order becomes permanent?
My seventh question relates to the Explanatory Memoranda, which refer to a national consultation between 26 May and 20 June this year, and say that key affected stakeholders in Kent were
“made aware of the consultation when it launched”,
whatever that phrase means in practice. We are then told, as has already been pointed out, that the consultation received 14 responses, which the Government admit was “low”, but that it included “members of the public”. Has any other national consultation received just 14 responses? Were the views of local residents actively sought? In some quarters, Operation Brock has proved controversial, with complaints from some local residents affected about disruption caused during work to install the required infrastructure.
I hope that the Government in their response will, not only today but subsequently, provide answers to the questions that I and others have raised, but also provide a rather better argued case than is contained in the Explanatory Memoranda as to why this order must now become permanent, contrary to what we had been told would be the case up to now. Clearly, something of some significance must have happened or come to light, which could not have been known or appreciated before, to justify the Government’s change of mind over bringing into effect the sunset clauses. We are entitled to be told exactly what that something is and the detailed case for the Government’s U-turn over the sunset clauses. I await the Government’s response.
Baroness Vere of Norbiton (Con)
My Lords, I thank all noble Lords for their considered contributions today. I hope to put their minds at rest—but also I shall write, because I do not quite have all the answers to the questions. That always annoys me a bit, but I shall do my best.
Briefly, I would like to take noble Lords back, although I am afraid that my memory is a bit dodgy, to what is probably just over 10 years ago, when I remember spending many hours with my children in a hot car in Kent trying to get across the short straits. It was dire. I sat on a local road in Kent for hours. I think it was due to industrial action—it was a sunny day, so it probably was not bad weather. But we know that, when there is disruption at the short straits, Kent stops. What we are trying to put in place today is something to help the people of Kent. I shall endeavour to set out the rationale behind that and how the interventions that we have put in place to deal with a potential no-deal exit and Covid turned out to be good things—progress, so to speak. That progress should be grasped on this occasion, and not left to rot.
Looking at where we are, the whole point of these regulations is to put in place a permanent framework around a temporary traffic management solution. My noble friend Lord Naseby asked whether it had been successful. I would say that the proof of that is in the pudding. It has been successful; we have not had great big tailbacks in Kent. We also know that it is more effective than the previous intervention, Operation Stack, which really did not go down very well with the local community.
The whole point of Operation Brock is that it allows HCV drivers to be stationed on the M20 and stops them rat-running through local roads and blocking them, as happened on my very unfortunate journey many years ago. It will only ever be used in the event of significant disruption at the short-strait crossings. The noble Lord, Lord Rosser, read an awful lot into that, which I am afraid is simply not there. All sorts of things could cause disruption at the short straits. The whole point of what we are trying to do today is that, if there is any disruption, the county of Kent does not come to a standstill, because that is not good for people trying to cross the short straits and certainly not good for the people of Kent.
Baroness Vere of Norbiton (Con)
To return to discussing the Operation Brock traffic management scheme, maybe I can take noble Lords back, not as far as previously but just a couple of years, to when we bought the quick movable barrier. This was an opportunistic purchase; someone came along and said, “Oh look, there is a machine that you can store on the side of the M20 and can quickly put out these blocks.” Previously we had put up a metal barrier that had taken a very long time to put in, and when it was in then it was in and you could not take it back down again. It caused massive amounts of disruption.
The whole point of the QMB was that it was an opportunistic purchase, because the technology became available, and we realised that it would work incredibly well in Kent and form part of Operation Brock. That is why we went ahead and did it. This is one of those things that sometimes happen when you have to reach out for solutions, and one becomes available that actually looks good for the longer term. That is just what has happened in this case.
As noble Lords will know, when we put out the QMB, it allows HCVs either to use the coastbound section of the M20 in free flow or to be controlled using a traffic light system at the front of the queue to split the port of Dover and Eurotunnel traffic. It basically organises all the freight movements going through Kent. What we propose is that, when Operation Brock is in place, those HCVs are not drifting around the local roads of Kent, blocking people’s driveways and stopping them doing their day-to-day business.
The noble Lord, Lord Rosser, asked about the cost of the QMB, and I am happy that I have the answer for him today. The estimates for the ongoing resourcing of the QMB, when implemented over a six-month period, are £9.5 million and £5 million for National Highways and Kent County Council respectively. The cost of deploying and removing the QMB for an incident are in the order of £200,000.
What is the current status of the QMB and Operation Brock—how many times we used it and so on—so far? Noble Lords will recall that the closure of the border by the French Government towards the end of last year caused vast amounts of chaos for the traffic in Kent, although that was somewhat improved by the fact that we had Operation Brock, and so on. So we deployed the QMB going into the start of 2021, and we stood it down in April. It was deployed for a further couple of weeks in July when we felt that there may be delays, not at our border but potentially in leaving the country because of the checks at the French border.
Operation Brock is not currently deployed, so the moveable barrier is stored quite nicely all along the side of the M20. It just sits there, not doing anything. There are no obligations on hauliers—nothing happens at all. I point out to the noble Baroness, Lady Randerson, who seemed to be under the impression that there is some sort of Kent access permit that will still be in place, that there will not be—it will be taken away. If I am a local haulier, the only bureaucracy I am seeing from this is that I should speak to my local county council to get the pass that I will need to make sure that I am not stuck in Brock queues—we would not want that to happen. They will probably do that, because it is definitely in their interests to do so. If I am a haulier travelling around the UK, I will want to know whether Brock is in operation. The haulage grapevine works incredibly well, but even if it does not, the national highways VMS—variable messaging systems—would say “Operation Brock is currently in operation”. All hauliers know what Operation Brock is; there is no confusion whatever in that regard.
What is the alternative if we do not take these powers? I sense that there is a feeling that there is a bit of power mission creep here. We have this lovely QMB, which we purchased because it was a good opportunity to purchase good technology. The alternative is for us to put the QMB in place and have no powers of enforcement whatever, which would be slightly pointless. We need to continue to make sure that if a pesky haulier decides to wander into the local roads of Kent, which would be very bad for the local people, the Kent Police can go to that haulier and say, “Excuse me, Madame”—or Monsieur—“where are you going?” If they say, “I’m going to the short straits” and they are not where they should be, they will get a £300 fine. That is exactly what these powers are designed to do. If we do not have them, we cannot do that. We could put in the QMB, and you could say, “You have to come back to Parliament and ask for the powers then”. Neither I, we or the people of Kent have time for that. It is therefore important that we have all these things in place just in case they are needed. Of course I hope that they will never be needed, but you know what? There will be disruption due to bad weather; we will probably need it, and it is good that we have it.
My noble friend Lord Naseby asked whether this had been successful in the past. The proof of the pudding in this is how effective enforcement has been in the past, when we have had to use these regulations owing to EU exit or Covid reasons. When the Kent access permit was mandatory, in the three-and-a-half-month period from 1 January to 19 April, which was the period in 2021 I talked about, there were 2,174 offences, each carrying a £300 penalty. As of 31 August, 2,129 of those had been paid. That is, 98% of those fines were paid, which is good: £638,000 of fines were collected. This is good for the people of Kent.
We asked the hauliers, and not that many people responded. That does not surprise me at all, because I should imagine that they know what Operation Brock is, and it is good for them that there is a sensible system of queuing. However, I will provide more in-depth information if I have it about what people said in their response. We received feedback from local residents. There was an open consultation in summer 2021, and we sought the views of local residents and received and considered a number of responses. I do not know how many, so I will check and write to the noble Lord on that.
On the removal of the sunset clause, I thank the SLSC for its work on this, but I was a little concerned by it saying that this would mean
“making Operation Brock permanently available”.
That is a good thing; I think the people of Kent would think that a good thing. It would mean that Operation Brock was permanently available, but not permanently in place. It would be in place only in those periods when, otherwise, Kent would literally come to a standstill. We looked at where we were with the legislation and decided that we did not need sunset clauses. We can of course come back to the legislation at any point in the future—for example, in five years’ time, if we are fortunate enough still to be here—and a discussion can be had. If we have not used Operation Brock in all that time and it is asked why we have all these powers, maybe at that stage we can have that discussion, but I do not think it worth while having it now, because we need the powers to make sure that the system works as effectively as it should. Given that there is no time-limiting factor on any potential cause or reason for using Operation Brock, there seems to be no reason for a sunset clause.
I hope that I have put noble Lords’ minds at rest. I am very focused on the people of Kent and their amenity to use their local roads, as well as on the hauliers, so that they can get from A to B as efficiently and effectively as possible. I know that noble Lords have some reservations, so I shall write with further details to try to reassure them. In the meantime, I commend the regulations to the Committee.
Heavy Commercial Vehicles in Kent (No. 2) (Amendment) Order 2021
(2 years, 6 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Vere of Norbiton
That the Grand Committee do consider the Heavy Commercial Vehicles in Kent (No. 2) (Amendment) Order 2021.
Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
Tuesday 19th October 2021
(2 years, 6 months ago)
Grand CommitteeRead Full debate Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 View all Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 9 September 2021 - (9 Sep 2021)
Lord Greenhalgh
That the Grand Committee do consider the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill before Second Reading.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, this is a Bill with two distinct and important measures. The first is a measure to change the valuation assumptions that are applied when making business rate determinations in the light of Covid-19. The second measure provides for the investigation and disqualification of the former directors of dissolved companies.
Let me start with the business rates measure. Clause 1 of this Bill is about how the impacts of Covid-19 should be accounted for in rateable values, the key component of business rates liabilities. This clause will ensure that the coronavirus and its effects will not be considered as a material change of circumstance for the purposes of assessing rateable values. This measure is needed to respond to the unprecedented volume of appeals received by the Valuation Office Agency since the start of the pandemic. It will provide local authorities with certainty and security against a potentially crippling financial blow. It will ensure that the law operates in the way it was designed to do, by using general revaluations of non-domestic properties to reflect the impacts of major economic events in rateable values. As noble Lords will recall from when we debated and approved the Non-Domestic Rating (Lists) (No.2) Bill, a matter which I am sure is at the forefront of all noble Lords’ imaginations, the next revaluation in England has been moved to 2023 based on the market at 1 April 2021 so that the system can better reflect the impact of the pandemic.
The pandemic has of course hit businesses hard, and the Government have responded with unprecedented support. To take business rates alone, over this financial year and the last one, we are providing £16 billion of business rates relief for retail, hospitality, leisure and nursery properties. We are introducing a further £1.5 billion of relief in recognition of the complex ways in which Covid-19 has impacted the economy and supply chains. Local government has also needed government support. Business rates provide a stable source of income for local authorities to plan the financing and delivery of local public services. The events that necessitated this measure threatened that stability and certainty in a profound way.
The Local Government Finance Act 1988 provided the source of our valuation and local business taxation systems. Ensuring that this system operates as it was designed to do is a vital part of the Government’s rationale. Business rates bills are calculated by multiplying the rateable value of the property by the multiplier or tax rate, then applying various reliefs. The rateable value of a property is, broadly speaking, its annual rental value at a set valuation date. These rateable values are updated at regular revaluations undertaken by the Valuation Office Agency, which provides a consistent tax base for all businesses and a stable income stream for all local authorities.
Of course, ratepayers can challenge rateable values outside of general revaluations for a number of reasons, such as to correct a factual error or to reflect what is called a material change of circumstances, or MCC. If not satisfied with the outcome of the challenge, the ratepayer may appeal the VOA’s decision to the valuation tribunal.
The MCC system was not designed to reflect changes in economic factors, market conditions or the general level of rents. The 1988 Act was not designed with Covid-19 in mind, and the MCC system has never been used in response to an event with such economy-wide impacts as Covid-19. Moreover, the Government are clear that relying on the MCC system to help businesses that need further support in light of the pandemic would be misguided. It would mean significant amounts of taxpayer support going to businesses with properties such as offices, many of which have been able to operate normally throughout the pandemic, of course. It would also mean resolving such disputes through the courts. This could take many years and would create additional uncertainty for ratepayers and local councils.
Instead, the Bill will clarify the law such that coronavirus, and the restrictions put in place in response to it, cannot be used as the basis for making a successful MCC challenge or appeal. It will ensure that changes to the physical state of the property can continue to be reflected in rateable values as and when they occur, irrespective of whether this is as a result of coronavirus, but that the general impact of the pandemic on the property market will not be reflected until the next revaluation in 2023. This approach will provide much-needed certainty to councils and ratepayers alike.
We have of course worked closely with the devolved Administrations on these and other matters over the last 18 months. Following a request from the Welsh Government and amendments tabled on Report in the other place, the Bill will extend to Wales as well as England. Scotland has begun its own legislative process, which mirrors our approach.
The Government welcomed the support of Labour Members in the other place. The Public Accounts Committee also recorded its approval for the Government’s approach, as did the local government witnesses in Committee. These endorsements speak to the fundamental soundness of the policy rationale behind the business rates measures in the Bill.
The second part of this Bill addresses the problem of potential abuse of the process whereby companies are struck off the register and dissolved. I am proud to pay tribute to the resilience and determination of the many thousands of British company directors who have steered their companies through challenges from lockdowns, social distancing, and other restrictions on trading, all of which were necessary to limit the spread of Covid-19 and to keep our country safe. The responsible and effective stewardship of companies has helped to save countless jobs and livelihoods and will continue to provide an invaluable contribution to the economy as it recovers from the effects of the pandemic.
Unfortunately, there will always be those few individuals who do not comply with their duties as directors, and who do not act in the best interests of the company, its employees, or its creditors. It is important that that majority of honest and diligent directors, and the wider public, are protected from the potentially very damaging actions of those few bad apples. Directors who behave recklessly or irresponsibly can expect to have to answer for their conduct and may face proceedings to disqualify them from acting in the management of a company. Evidence to support disqualification action comes from investigation of companies and the conduct of their directors, and I would like to explain a little of how this process works in practice.
For insolvent companies, conduct is investigated through powers in the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. Insolvency officeholders submit returns to the Secretary of State, reporting on the conduct of the directors in question. These are vetted, and where misconduct is suspected, it is assessed on the basis of public interest; for example, how much harm there has been to creditors and the wider public. Further investigation may be undertaken through examining company records and seeking information from third parties, including creditors, and directors themselves will also be asked to provide information and given opportunities to explain their actions. Where evidence of misconduct is found, a period of disqualification may then be sought. Investigations may also occur in live companies, using powers in the Companies Act 1985.
This Bill extends the circumstances in which the Secretary of State may investigate the conduct of directors to where the company has been dissolved without being subject to insolvency proceedings. It will extend the deterrent effect of the disqualification regime to those directors who abuse the company dissolution process. The Government consulted on this measure in 2018, when it was welcomed by stakeholders. Implementation is now particularly important to help reduce the risk of the fraudulent avoidance of repayment of government-backed loans made to businesses to support them during the pandemic.
It is an unfortunate fact of life that people who abuse the system will seek to take advantage wherever they can, so counterfraud checks were built into the lending process for bounce-back loans. For example, as a condition of the guarantee agreement, lenders were required to undertake appropriate anti-fraud and anti-money laundering checks before loans were made, and if they did not, they would not be able to call on the Government’s guarantee in the event of a borrower’s default. The new power to investigate and disqualify former directors of dissolved companies will back up those anti-fraud measures by deterring wrongful avoidance of repayment, and so help to ensure that public funds are protected. It will also pave the way to seek compensation from disqualified directors guilty of misconduct that has caused loss to others, including in relation to bounce-back loans.
Noble Lords may also be interested to hear about other actions taken by my department to minimise the risk of companies fraudulently avoiding repayment of their bounce-back loans. In March 2021, the department entered a blanket objection to any company with an unpaid bounce-back loan being struck off the register. This has prevented almost 51,000 companies, with total unpaid loans of over £1.7 billion, being dissolved. This action has ensured that lenders can continue to make recoveries on loans due to be repaid and will ensure that the public purse is protected. I commend this Bill to the Committee.
Baroness Blower (Lab)
My Lords, there are many in this Committee with considerable and specific expertise in relation to the matters covered by this Bill, none more so than my noble friend Lord Sikka. I venture to speak in this debate, however, to seek clarification from the Minister on matters relating to the role of local councils.
On 25 March, Her Majesty’s Government announced that they would give councils £1.5 billion to offer grant relief to businesses, excluding retail, hospitality and leisure, that have been hard hit by the Covid pandemic. As I understand it, this relief is an alternative to any adjustment to rateable value as a result of changes in circumstances. I therefore have a number of questions for the Minister. I do not think that the basis of the calculation of £1.5 billion is known, except presumably by those who made it, nor is it unambiguously clear to me how the money will be disbursed. Can the Minister say what will happen if the fund is exhausted and whether perhaps any local councils would be expected to top it up?
Further, in regard to local councils, given that one assumes there will be criteria for disbursement, is it foreseeable that there may be disputes and possibly appeals? If there were, this would inevitably result in additional administrative and IT costs. It is not clear that any additional funding or financial support will be available to local councils to carry out these duties and responsibilities. Can the Minister tell the Committee whether local councils—their finances already hard hit, not just because of Covid but from years of cuts—will be expected to bear the administration costs of the scheme? If so, what assessment has been made of the impact on local ratepayers and local services? I look forward to the Minister’s response.
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Blower, who certainly made some very telling points. I thank my noble friend the Minister for setting out the purport of the legislation, which is clearly important. It is legislation that I broadly support. It clearly comes in two parts, “Rating” and “Directors Disqualification”.
On the “Rating” part, it is worth making the point that the Government have given some £280 billion of support to business since the start of the pandemic and that, during 2020-21, more than half of business rate payers have paid nothing. That support continues, and quite right too. The material change of circumstances would be a blunt instrument in the present situation and I can certainly see the point, on financial rectitude and common sense, of proceeding to the basis of valuation in 2023 on an unchanged basis. In the other place, the Public Accounts Committee has approved of that approach.
I have a similar question to the noble Baroness about the £1.5 billion of support. The noble Lord quite rightly referred to the importance of certainty for business, but there is uncertainty as to how this particular fund is going to be disbursed and which businesses will benefit from it. It would be good to hear when there will be clarity on that because, to reiterate the point, certainty is vital for business—as it is for us all in our everyday lives.
There is then the question of whether it will be enough and what will happen if it is not. The case has been well made in relation to, for example, airports. I know that might not be a fashionable point as we approach COP 26, which I strongly support, but we are all heavily dependent on airports in our everyday lives, as we have clearly seen, so it would be good to have some reassurance for that section of the community.
In passing—I appreciate that it is probably beyond the pay grade of both Ministers—I look forward to the Budget next week and perhaps some indication of some tax changes so that digital businesses and the Netflixes of this world, which clearly have not been paying enough tax on a fair basis, are perhaps brought into a position where they pay a fairer tax. I hope that we will get some indication of when that is going to happen.
I move to the second part of the legislation, which relates to “Directors Disqualification”. As the Minister rightly said, this disqualification change predates the Covid pandemic. In a sense, it has nothing to do with Covid; it is something important that needs to be done quite independently of Covid. I appreciate that we all have a great interest—quite apart from tackling the fraud—in ensuring that the bounce-back loans are properly dealt with, but it would be good to hear that this is not the sum total of what is intended here.
It has been a serious issue over a period of time that directors have used the ability to dissolve their company to dodge the impact of insolvency legislation. I hope this is not going to be limited to the bounce-back provision, and I hope the Government are minded to use the Insolvency Service more widely to tackle other frauds. Many creditors of companies are in a very parlous position because of this considerable loophole, which has been abused over a period of time.
I certainly welcome the partial closing of the loophole, but it would be good to hear that the Government intend to move further than that. It has been suggested by the Insolvency Service that more than 5,000 dissolutions of companies a year have sidestepped the insolvency protections of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. This particular legislation deals only with the protection offered by the Company Directors Disqualification Act. It does not seem to do anything about the Insolvency Act protections, because we do not know that the company is necessarily going to be brought within the purport of the insolvency legislation. There are considerable protections in that 1986 Act that will not govern these companies, notwithstanding the provisions in this legislation.
As I say, this legislation is worth one or two cheers but not three because, as far as I can see, it does not go far enough. It would be good to hear that the Government recognise that and intend to take it further to protect other creditors and to tighten it regarding those who abuse the provisions of the Companies Act—the ability to operate through a company and the separate personality provisions entailed in that. I look forward to hearing more on that point.
I also want to raise the point about reimbursement. This deals with the disqualification of directors and tightens that particular screw for directors using dissolution inappropriately, but as far as I can see it does not do anything directly in relation to them disgorging the profits that they have made fraudulently. It is important that that should happen. The Minister referred to this in a rather vague, amorphous way, but it would be good to hear specifically what it means. Is this going to be by virtue of a compensation order? How is it going to be done?
Further to that point, given what I have said about the number of companies that come within this particular provision—up to 5,000 a year, on a calculation made by the Government themselves—what are we doing about the resources for the Insolvency Service? It is stretched already and, if it is expected to take on this extra work, it will need extra resource if, as we all hope, it is to do the job appropriately.
I support the legislation, but we should not run away with the idea that it solves all the problems in this area. It does not, and we will need more action.
The Earl of Lytton (CB)
My Lords, the procedure for this debate before Second Reading was queried at the time of the Chief Whip’s commitment Motion. I had not realised that not only has this procedure been used only once before—namely, last October during our hybrid phase—but, so far as I know, the Procedure Committee has not reported on it. I have to say that I consider it unsatisfactory to separate in time and place the bulk of debate here from a decision to give a Second Reading some other time in the Chamber. Can the Minister confirm what discussions with the Procedure Committee have taken place about using this procedure now that we are out of hybrid mode? He may need to come back to me on that on some other occasion.
As to the matter for debate, noble Lords will know of my involvement, over a lifetime as a property professional, with business rates and local government finance and in this House, from the day of my maiden speech to the present time. With my having declared that matter, it will come as no surprise that it is the rating part in Clause 1 of the Bill that I seek to address, and that only. I do not propose to disappoint the Minister in what I have to say, but I apologise in advance because I will need a little time to explain it. I declare at the same time that I am an occupier of business premises and I benefit from a small-business exemption—but, for the avoidance of doubt, I did not claim any Covid grant or relief for the interruption of business activities.
I acknowledge that the Government have made great efforts to relieve business rate payers of many of the worst effects and burdens that have arisen during the pandemic, but it is far from the case that it has been applied equally to all, or indeed evenly across the spectrum of property. Nor has it been in any way linked to impact or means, so far as I can tell.
I also acknowledge that, having introduced measures to grant emergency relief, it might be seen as perverse to allow those who benefited from them to make further claims for the same period due to material changes of circumstances, or MCCs. However, it would be simplistic to go down that road. I do not believe that those who set about to make MCC appeals were those same beneficiaries or intended to claim for the same period, given that the duration of relief was not known at that time. Indeed, it is likely that they were not one and the same. Either way, it should be a simple matter to make provision to prevent such double counting, if indeed there is evidence of it.
MCCs have always been available where substantial change has affected the assumed annual value of property; a supermarket opening up down the road, affecting traditional high streets, or changes in highway arrangements, affecting trade—that sort of thing. However, the Government suggest that this was never intended to address an issue of global impact such as a pandemic. From the dawn of rating under the statute of Elizabeth I to the General Rate Act 1967—on which I cut my professional teeth—and on to the present day, there has been plenty of time to ponder such matters, and yet we have this measure only now. Coincidence? I think not.
The reality is that in the pandemic some sectors did well, others realigned their processes and activities to stay afloat, and a further group floundered and continue to do so. It is not correct to say that the pandemic produced a general downturn lasting for more than a year, which is the usual benchmark for dealing with material matters for rating valuation purposes.
It is a concern that the Government took so long after the commencement of the lockdown to come forward with a measure of this type. Effectively, a year elapsed before the Government chose to lay, initially, a statutory instrument with prospective effect, with the promise of a Bill with retrospective effect—which is where we are now, of course. I do not believe that proper consultation with business rate payers was part of that process.
The courts have been at pains to point out that rateable values are meant to represent the benefit of occupation to the occupier. Where government prevents or limits such beneficial use, rateable values should reduce—but not, it seems, where HM Treasury deems otherwise. As a result, appeals against assessments on grounds of MCCs were made in good faith, in time, and were validated long before the end of March 2021. No attempt was made to avoid this wasted cost and effort during the period when doubtless many public servants were furloughed, but equally the resources were there to consider and act in an appropriate and timely manner on such issues. The Valuation Office Agency was actively involved in negotiations regarding these MCC appeals, in conjunction with ratepayers’ representatives.
I have received representations from, among others, Heathrow Airport—referred to by the noble Lord, Lord Bourne of Aberystwyth—and some advice from rating experts Gerald Eve. If ever there was an MCC event sufficient to interrupt the operation of the nation’s largest airport, this had to be it. While late in the day a grant scheme was set up, it was capped at £2 million per hereditament, so amounted to a flea-bite of a concession in something like the Heathrow rates bill.
Worse than that, it selectively, and, I suggest, unreasonably, failed to address the issues affecting very large assessments and operations such as Heathrow and Gatwick, which to all intents and purposes were completely shut down by force of law while, at the same time, support was given to other types of activity that were still able to keep going, as we have heard. It is therefore hard to comprehend precisely what sort of a material change of circumstances would afford any relief to such a large enterprise, given the effect of the Bill. Nor does it dispel the impression of selective discrimination against a specific class of undertaking.
It is not just about mega-businesses of this sort—many others have suffered equally. Although the productivity may have held up, the double overheads of supporting remote working staff and maintaining empty office buildings have none the less been significant. The Government have protected office tenants from being hounded by their landlords to pay rent for space that they were prevented from physically occupying but have offered them zero protection when it came to business rate bills. That seems to be nothing short of double standards.
The Government have promised to set in place a £1.5 billion discretionary business rates relief fund in place of the MCC reductions that this Bill will now negate. I doubt whether many local authorities will exercise discretion in favour of an international airport, or indeed any but a relatively local cause célèbre, however significant the larger employment and economic activities are of big undertakings that underpin local economies and employment.
The explanatory paper produced at the same time as the SI gives examples in which a ratepayer with a £95,000 assessment might get £7,300 of relief, despite their turnover collapsing to zero. What that tells us is that any benefit is likely to be minimal and that £1.5 billion is a drop in the ocean. To follow what other noble Lords have said, could the Minister please clarify how the Government arrived at this sum of £1.5 billion as appropriate recompense for ratepayers badly impacted by the pandemic? Having been announced in March 2021, in the 2021 fiscal year, does this sum relate only to that year, with nothing further, or is it intended that there should be some further funding for 2021-22?
I find it disturbing that a deliberate decision has been made not to provide information as to how the £1.5 billion will be apportioned between councils and how they should make decisions as to which businesses in their areas should receive some of it—until, that is, this Bill is passed. Of course, that leaves businesses and billing authorities alike in no position to make any plans in relation to it. Can the Minister explain why he cannot today publish a draft of the proposed allocation of the £1.5 billion to each local billing authority and share the draft guidance planned to be issued to councils explaining the circumstances in which the Government believe that businesses should qualify for a share of the cash?
The apparent intention is to make the distribution according to the official data on the impacts of the pandemic on different sectors and not according to estimates of the impact on a property’s value. All this is apparently to ensure
“an even and more proportionate allocation of support”.
We were told that this would enable a speedier payment of support than would have been possible under the usual MCC appeal rules. I am afraid that I do not entirely follow that.
I feel that this is a matter of a veil of obfuscation. Fundamentally, it is about protecting Treasury income streams, first and foremost—and I am afraid that it is just too bad if businesses crumble. It lacks equity and fairness; the most desperate of businesses will be least able to mount a case or may have already gone under, waiting in desperation for government support that has failed to materialise. There is nothing in prospect for those at tipping point now. I have long said, and will say again, that if HM Treasury can think of nothing better to do than to disadvantage businesses which suffer serious losses, due in significant part to government edict, it will be of small concern to it that, in response, reduced exposure to a tax on business floorspace—perhaps by trading increasingly on the web—becomes a standard business plan and, for those who cannot avoid it, a fetter on the nature and extent of the financial risks they will be prepared to underwrite on behalf of the taxman. The moral hazard in all this is that it continues to underpin government willingness to game the system without taking adequate responsibility for the outcome. I suspect that, by the time the £1.5 billion fund kicks in, it will be too little and almost certainly much too late.
Of course, part of the answer is much more frequent revaluations—that, of course, is well beyond the scope of this Bill—but there was supposed to be a fundamental review of business rates, and many expected it to have progressed beyond the 2017 findings. I invite the Minister to give us an update on that if he is willing, but it is no wonder that some on the political spectrum suggest abolishing business rates altogether. It does not need to be so. It would be a perfectly good, fair and cheap-to-run system save for government insistence on overworking it and, essentially, unfairly treating businesses ever since the arrival of the poll tax in 1990. It is a salutary tale of mismanagement, and Clause 1 of this Bill continues the fundamental error.
I leave your Lordships with this thought: what else follows from this further incursion into business rate payer protections and stability of local government budgets?
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to follow the noble Earl and to take part in this pre-Second Reading debate, which brings me to my first question for my noble friend the Minister. Can he enlighten noble Lords as to when Second Reading is due to take place?
I support this Bill in general, but associate myself with some of the comments from the noble Earl and from my noble friend Lord Bourne of Aberystwyth. I ask my noble friend the Minister to go back to the department and consider all possible new technologies which could assist in reclaiming BBLS, CBILS and other funds which may otherwise disappear into the ether for want of new technologies which can trace and track down such potentially fraudulent activity.
I support the Bill, but want to test the Minister to see whether we can take the opportunity of this small piece of legislation to go broader and look at the whole area of insolvency practice and potentially to consider in Committee whether it is high time to have a single independent regulator and ombudsman for the insolvency sector. They could consider both individual and corporate insolvencies and be funded through a levy. These ideas are hardly radical; they were certainly seen in other parts of our economy decades ago. This Bill offers an opportunity to look at the insolvency arena through these new governance glasses.
What is the situation now? There is a code of ethics which is voluntary. One can join a recognised professional body, of which there are currently four—there have been more—which do not necessarily act in concert or with consistency and which also act as trade associations for this part of economy, with practitioners able to shop between these RPBs if the mood suits, for reasons which we can all appreciate.
This sector of the economy is too important to be left to be governed as it currently is. It is also extraordinarily unique as an outlier when one considers it in comparison with, for example, legal or financial services.
What could we achieve with this Bill if we took a couple of amendments in Committee? We have the opportunity to end this inconsistency, to bring clarity and to stop the perception of conflict and, in some situations, the actuality of conflict. It is better for IPs and for everybody—better for businesses and better for the entire economy—bringing confidence to all involved, and confidence in this part of the economy. Any economy relies not just on brilliant businesses being built and succeeding but on how we deal with businesses when they get into difficulties. It is so important that this is run efficiently and effectively. If we see that a company is distressed and goes into insolvency procedures, how effectively could it be operated? Potentially, it could maintain employment, supply chains and the local community, if run optimally.
This is too important to be left as it currently is, and it was foreseen six years ago in the Small Business, Enterprise and Employment Act, in which powers—yet to be implemented—were given to the Secretary of State to have a single regulator for this service. Would my noble friend agree that six years is long enough to wait? If we bring amendments forward in Committee, it would make complete sense to implement that part of the Act.
We have the opportunity to end inconsistency and bring coherence and confidence to this sector and the wider economy. I look forward to returning to these points in Committee. I wish the Bill a swift and safe passage through Second Reading, whenever that might be, and I look forward to my noble friend’s comments at this and future stages.
Lord Cormack (Con)
My Lords, I am very glad to follow my noble friend Lord Holmes of Richmond. I associate myself with some of the remarks made by my other noble friend, but particularly underline the very real importance of the speech made by the noble Earl, Lord Lytton, who has a lifetime’s experience here.
I must begin by declaring an interest that, for almost half a century, I have from time to time given advice to the Machinery Users’ Association, which was founded as long ago as 1884 to advise—I see the noble Earl nodding—industry and business on the rating of plant and industrial machinery. There is real concern in the association on behalf of its many members in many businesses and industries. There is an element of retrospectivity in this legislation, which is not good.
I am also somewhat disturbed by the way in which we are debating Second Reading but not debating Second Reading. This was scheduled to be taken on the Floor of the House on 26 October. It was then scheduled to be taken on the Floor of the House yesterday. The change, I might say, had nothing to do with the tragic events of Friday; it had been announced before then. I do not really think this is the way we should legislate when the legislation is very broad-ranging.
I will say nothing about the directors—with broad agreement over that section of the Bill, I do not need to—but we have real uncertainty facing many businesses. The noble Earl put this very graphically in talking about the £1.5 billion. When will we know how this will be distributed? What will be the criteria? We ought to know. Business ought to know.
I asked the MUA to give me one or two examples. I will not detain or weary the Committee by going into great detail, but I am told that the owners of a former British Home Store in Barnstaple, in Devon, cannot market it or let it—they could not begin to let it during lockdown—yet they were required to pay 100% of the rates and were not entitled to a retail discount. For another totally different company, a tenant in Sloane Street—an exclusive address, with costs to match—had premises effectively vacant from the beginning of the first lockdown. This could be replicated up and down the country. I do not dissent at all from anything the noble Baroness, Lady Blower, said about the importance of business rates to local authorities, but local authorities will get nothing at all if they are surrounded by bankrupt businesses, and it is very important—even at this late stage in the progress of the legislation—that the Government come clean a little more clearly.
The sum of £1.5 billion sounds extraordinary and magisterial—to all of us in this Committee it is—but not when spread over a whole country. How long is it for? What precisely will happen when revaluation comes about in 2023? I am delighted to see the noble Baroness nodding vigorously, because these questions must be answered. People’s livelihoods and the livelihoods of local authorities depend to a large degree on this. It is a most unsatisfactory piece of legislation. It is two pieces of legislation cobbled together. One of them I do not particularly dissent from, because nobody could conceivably approve of fraud, and fraud perpetrated at the expense of the taxpayer during a pandemic is about as low as you can get. We would all agree with that. However, the rating put on at the beginning is a different subject which needs more comprehensive and joined-up thinking.
I am sorry that my noble friend Lord Callanan has been called away, but I ask my noble friend who will reply to this debate whether we can have some conversations, if not before Second Reading then at least before Committee, because it would not be beyond the wit of man and certainly should not be beyond the wit of government to table one or two amendments that would bring a degree of cohesion to the Bill. It should be accompanied by a reasonably detailed statement about how this £1.5 billion is to be used.
I could go on, but I will not. However, I am very grateful to the noble Earl, Lord Lytton, for bringing his lifetime of professional experience to our deliberations.
Lord Sikka (Lab)
My Lords, I am delighted to participate in this debate. I particularly commend the speech by the noble Lord, Lord Holmes of Richmond, and agree with almost everything that he said. I will confine my comments to the second part of the Bill, relating to insolvency. It is unlikely to achieve its aims.
The Bill assumes that the Insolvency Service will act in a timely manner, but it is hard to find much evidence to support that. Carillion collapsed in January 2018. Only on 12 January 2021 did the Insolvency Service apply for director disqualification orders against eight directors and former directors of Carillion. To date, none has been disqualified. BHS, which was mentioned earlier, entered administration on 25 April 2016 and liquidation on 2 December 2016, but it was only on 5 November 2019 that former BHS director Dominic Chappell was disqualified for 10 years. A number of executive and non-executive directors, including the BHS chairman, were severely criticised in the joint report by the House of Commons Work and Pensions Committee and the Business, Innovation and Skills Committee, but to date none has been disqualified. It is business as usual.
Of course, little people get picked on. The Bill has not really been preceded by any changes to the law relating to the formation of companies. Anyone, from anywhere in the world, can form a limited company in the UK. There is no authentication check on the identity of individuals forming the company, its directors or its shareholders. Private companies in the UK need one director only, who must be a natural person, and the BEIS website very helpfully tells people that directors do not have to live in the UK. How on earth will the Government enforce the UK legislation against directors who do not live in the UK?
Public companies need at least two directors but only one of them needs to be a natural person. The other can be a shell company located in an opaque tax haven where absolutely nothing is known about directors of companies. There are plenty of examples of that. UK-registered companies have around 7 million directors at the moment. I hope the Minister can tell the Committee how many of those are resident outside the UK or are bodies corporate registered in opaque tax havens. How many of those named are fake and do not exist? You can use any name you like.
Companies House acts mainly as a filing box and rarely performs any meaningful checks. Thousands of companies have directors whose addresses are in offshore jurisdictions and it is impossible for the UK to call foreign nationals to account for corporate offences. Can the Minister again please explain how the Insolvency Service will act against those individuals?
UK company law also permits nominee shareholdings and directorships, which enables concealment of the identity of real controllers and beneficiaries. How will the real controllers of companies be disciplined or disqualified? The Government also act in a very inconsistent manner when taking action against the filing of false information. I will give the Committee a pretty well known but real example.
Individuals connected with the mafia in Italy formed a company in the UK with the name Magnolia Fundaction UK Ltd. The company’s officers used Italian to file information at Companies House. When translated into English, the document said that the name of one of the directors was “The Chicken Thief”. He gave his occupation as “fraudster” and the address given was “The Street of the 40 Thieves in the town of Ali Baba, Italy”. Companies House dutifully accepted such documents. When the matter was raised in the House of Commons on 14 September 2017, the Minister said,
“No action has been taken”—
I think the sound of the Division Bell is the cue for me to stop. I will return to the actions of the Chicken Thief afterwards.
Lord Sikka (Lab)
To recap, I was talking about the individuals connected to the mafia who had a company in the UK called Magnolia Fundaction UK Ltd. They filed information saying that the director’s name was “The Chicken Thief”, his occupation “fraudster” and the address “Street of the 40 Thieves in the town of Ali Baba, Italy. Companies House gratefully accepted this and filed it away—that was it. When the Secretary of State was asked on 14 September 2017 what she was going to do about it, the reply was:
“No action has been taken at this time against the promoters and officers of Magnolia Fundaction UK Ltd for filing inappropriate information in Italian at Companies House.”
Nothing has changed since; it is exactly the same.
I knew the names of some well-known convicted mafia criminals and, out of curiosity, I put one of their names into the Companies House website. The person turned out to be a director of an organisation called Business Bank Italy Ltd, registered in the UK. It had a website that was inviting people to invest. I reported that matter to the shadow Chancellor at the time, Anneliese Dodds, she raised it in the other place and eventually the website vanished.
Nobody in authority at the Insolvency Service or anywhere else even bothers to see whether criminals’ names appear in the Companies House database. It is that bad, and we think that that kind of institutional framework will help us deal with misdemeanours by directors; it is not going to do that. What the Government have done is prosecute someone who demonstrated how easy it is to form a company with a false name and then announced in a newspaper that he had done it. So they went and prosecuted him—effectively, he was a whistleblower.
The proposed regime under the Bill for dissolved companies will suffer from the same problem as the current regime for live companies: the requirement that an interested party, most likely a creditor, raises concerns about the conduct of a company’s directors with the Insolvency Service. But how will the creditors know that a company is being dissolved? Directors are required to notify creditors of the proposed dissolution, and such creditors have an opportunity to object to the proposed dissolution before it takes effect, but not all such creditors may be notified. You can have pre-packs without any creditors meeting. People do not even need to be told. All kinds of things happen.
Once a company has been dissolved, there is no equivalent of a liquidator or an administrator of an insolvent company who has a duty to investigate the conduct of directors and report them to the Insolvency Service. This makes it more likely that only the particularly egregious examples of misconduct significant enough to come to the attention of the interested party will be investigated in respect of the directors of dissolved companies.
Companies can also be dissolved without any formal legal process. For example, Companies House can dissolve a company if it fails to file annual accounts. You do not need to go through any legal process; just do not file the accounts. Every year, thousands of companies do that, so many rogue directors can choose this method to dissolve companies. Such possibilities do not even appear in the Bill, as to who is going to find out and what they are going to do about it.
The Bill places considerable reliance upon insolvency practitioners but the insolvency industry has been engaged in corrupt practices for years. About 20 years ago I published a monograph—titled, appropriately, Insolvent Abuse—which documented many of the corrupt practices of the insolvency industry. Hardly anything has changed in the last 20 years. The industry is still running amok. This week the Financial Reporting Council confirmed its fine of £13 million on KPMG and £500,000 on its insolvency partner, together with costs of £2.8 million for investigation. The reason was that KPMG and its insolvency partner pushed Silentnight, which was a client of the accountancy firm, towards insolvency, so that the private equity group HIG, the client that it really wanted to cultivate, could buy the business out of administration by dumping the defined-benefit pension scheme for Silentnight’s 1,200 staff. KPMG’s partner lied to the Pensions Regulator and to the Pension Protection Fund.
KPMG has been central to numerous scandals, and its involvement in another will perhaps not surprise many in this House. However, it is still in business, and its lying partner is not facing any criminal investigation or charge. Perhaps the Minister can explain why there is one set of laws for ordinary mortals but another for accountancy firm partners, where they go in front of kangaroo courts and lie but still continue with their lives.
In case anyone thinks that was a hefty fine for the partner, usually the partnership agreement states that the firm will reimburse the partner, so his £500,000 fine will be reimbursed, while the £13 million fine for KPMG will go not to the members of the Silentnight pension scheme, who have lost some of their pension rights, but to the coffers of the Institute of Chartered Accountants in England and Wales, which authorised the cheating, lying partner. The institute will be quids in. It is akin to someone being fined for mugging and then being told, “By the way, make the cheque payable to the Institute of Muggers.” That is what we have by way of self-regulation, and it is wrong on every count.
I urge the Minister to act to ensure that the money goes to the victims of KPMG, not the ICAEW, which does not deserve it. It has already recovered the costs of the investigation. These RPBs—recognised professional bodies—must not benefit from the misconduct of their members; in fact, they should be in the dock for authorising those members. What kind of supervision do they actually carry out?
The corrupt practices of the insolvency industry are also documented in last month’s publication by the All-Party Parliamentary Group on Banking, Resolving Insolvency: Restoring Confidence in the System. It notes that insolvency practitioners
“sell their independence, and their considerable powers, in return for an appointment to an insolvency case.”
Who usually appoints them? Banks. So they are basically colluding with banks. The report says that conflicts of interest are regularly being ignored. The interests of banks are prioritised and too many innocent people have lost their homes, businesses and savings as a result. Your Lordships can see the evidence; it is in the monograph that I launched.
Many victims claim that banks and insolvency practitioners have forged their signatures in order to repossess assets. Evidence of that has appeared in national newspapers and on the BBC, but the National Crime Agency has sat on the evidence for months or even years and has done absolutely nothing. I have been told by authoritative sources that there are hundreds of such cases, but nothing is getting done. The recognised professional bodies are essentially accountancy trade associations—I am sorry; I will finish. They have no independence from their members and have a long history of sweeping things under their dust-laden carpets.
About a year ago, replying to one of my Written Questions, the Minister said that 7,962 insolvency cases had still not been resolved, and that their age was between five and nine years, while 3,642 were more than 10 years old, and 14,328 were more than 15 years old. No regulator asks why insolvency practitioners are milking insolvencies. The longest one that I know of lasted 30 years, and that related to Israel-British Bank. PricewaterhouseCoopers made it last for 34 years, and it came to an end when there was not a penny left in the business. These are real-life sharks, and they really need to be dealt with.
There was a report by Sally Masterton, codenamed “Project Lord Turnbull”, which was written in 2013 and formally published in June 2018 by the All-Party Parliamentary Group on Fair Business Banking. It referred to fraud at HBOS. There was no action by any recognised professional body, although the report made it clear that the fraud could not have been carried out without the complicity of the partners. There has been no investigation into the RPBs either. In the last 10 years, some 8,000 complaints about insolvency practitioners have been lodged with the RPBs and—guess what—only five out of 8,000 have had their licences withdrawn. Over the last seven years, only three IPs had their licences revoked. Is the Minister really content with that?
I finish with two specific requests. Can the Minister arrange two things? One is an independent public inquiry into the insolvency industry. Secondly, could he arrange for a relevant Minister to meet me and a former police and crime commissioner to see and hear the evidence about how banks, lawyers and insolvency practitioners are colluding and perpetrating devious practices that have deprived people of their homes, businesses and savings? I am sure that he does not tolerate corrupt practices and will willingly agree to these two requests.
Baroness Pinnock (LD)
My Lords, I draw the Committee’s attention to my entry in the register of interests, which includes my roles as vice-president of the Local Government Association and as a member of Kirklees Council. The Bill includes two elements, which the noble Lord, Lord Cormack, described as being “cobbled together”—I cannot but agree. The only connection that I could find was that they both relate to businesses. Clause 1 concerns business rates, and Clauses 2 and 3 address the “directors disqualification” part of the Bill title. I anticipated a rather dull afternoon discussing this, so I thank the noble Lord, Lord Sikka, for changing my view of directors’ disqualification. It has been a lively debate, and I think that a lot of people will be reading Hansard as a consequence.
I want to start by talking about Clause 1, which is the part about non-domestic rates. Many businesses have had a very tough 18 months during which they have endeavoured to keep afloat. I accept that the Government have provided considerable financial support to businesses to mitigate the worst of the impacts of the Covid pandemic. Nevertheless, it is not surprising to me that many have tried any potential route that may provide financial relief. As we have heard, this has resulted in businesses applying to the Valuation Office Agency for what is called a check of their rateable value, the aim being to get a revaluation based on material change of conditions that has impacted on their business as a consequence of Covid restrictions and measures. At this point, I thank the House Library for a very helpful explanation to a non-professional of the measures in the Bill.
The purpose of the Bill is to manage this growing number of checks. The government argument is that businesses have been able to access government loans and some grants to tide them over the Covid period and that these are sufficient to address the trading difficulties resulting from lockdowns and restrictions imposed by the Government. The problem with this argument is that, undoubtedly, some businesses will have not been able to access these funds and the recourse taken by unusually large numbers of applying for MCCs is a warning sign that all is not well. I concur with the noble Earl, Lord Lytton, and the noble Lord, Lord Cormack, on this matter, particularly that the £1.5 billion fund that has been set aside by the Government for relief to compensate for these changes is almost certainly inadequate. The pleas that we have heard from the noble Earl and the noble Lord, as well as from the noble Lord, Lord Bourne, that we must see the detail of the fund before we progress this Bill are urgent. I hope that the Minister can give us some assurances that this will happen before Committee.
Clause 1 is retrospective and has a catch-all approach. The only circumstances that businesses can use to apply to the VOA will be physical changes to the property and special considerations in relation to mineral extractions and waste disposal firms. I accept that unless this legislation is passed, the business rates system will be undermined. That is its purpose, but lots of things are not adequate. I am sure that the Minister will have put them right by the time that we are in Committee.
Noble Lords
Baroness Pinnock (LD)
We have a really lively session; it is excellent.
As a measure that will deal with an immediate problem flowing from the very rare circumstances of a pandemic, we can but agree with it. However, I have a few questions for the Minister. Can he explain the financial impact of these changes on local government? About 25% of local government funding comes from business rates, so any change, however small, can have a considerable impact on really tight council budgets. It is important for those of us who are concerned about local government, as the noble Baroness, Lady Blower, said, to know exactly what the impact will be. When the noble Lord, Lord Callanan, introduced the Bill, he emphasised the importance of certainty of local government funding from business rates.
Can the Minister explain what estimations have been made of the impact of impending rises in interest rates on businesses that have accepted government loans during Covid? The implications for what might happen are obvious. Concerning the £1.5 billion relief fund, we need to know the details and what happens when the fund runs out, as I suspect it will. Also, we need answers to the questions asked by the noble Baroness, Lady Blower, about administrative costs for local government in handling it.
Next, can the Minister say when much-needed fundamental changes to the business rate system will occur? We have been promised them for quite a long time now, and there is a lot of concern around local government and the business world that the current system is not answering the questions it needs to on town centre businesses on the one hand and digital businesses on the other, as the noble Lord, Lord Bourne, said. My concern is about warehouse and distribution centres, which do not pay their fair share by any means. That must be put right. Finally, will the Minister confirm whether a review of these measures is being planned within, say, a year of their introduction, so that we know what is going on?
I turn to Clauses 3 and 4, which relate to director disqualification. The last-minute changes to the timing of this debate have ensured that a number of people who would have spoken are not available. This includes my noble friend Lord Fox, who actually could have spoken because the Bill he has been speaking on has finished. I am sure he will be here for Committee but he has provided me with the following words, as this is definitely not my area of knowledge, let alone expertise.
He writes that these Benches welcome the intentions of the director disqualification part of the Bill. It is right that powers be created so that those who have fraudulently benefited from payments introduced to protect businesses during Covid are brought to book and the money recovered. Like other noble Lords, we received a briefing from R3, which represents insolvency practitioners; I am sure the Minister and the department also heard from it. Its members must file a report on the directors’ conduct with the Insolvency Service when acting as officeholders in a formal insolvency process, so its experience in this is welcome. Its concerns, like ours, focus on how the Bill will actually work and how it will help the wider creditor network.
First, we should be clear about one thing. The work of the Bill should not be at the expense of investigations into insolvent rather than dissolved companies. As R3 explains:
“R3 members already repeatedly express their frustration that not all their reports highlighting suspected serious legal breaches are acted on.”
Can the Minister assure the Committee that additional resources will be available to take on the extra activity created by the Bill, rather than it cannibalising an already stretched situation? Perhaps he can offer some crumb of comfort to the wider insolvency community by talking to his colleague the Chancellor of the Exchequer about this. Given that the Chancellor is embarking on a “non-spending review”, an activity such as this which brings money both back to government and into legitimate circulation will benefit the economy and pay back many times.
Our second point seeks detail as to how in practice this legislation will recover the money. What will be the mechanisms to recoup money from culpable directors? Do the Government intend to use tools such as compensation orders? This is significant because, unlike an insolvency process, where returns are made to the creditor body, the so far little-used compensation orders normally benefit only one creditor—in this case, we guess, HMRC.
Although the Government have indicated that they will expand the number of creditors who can benefit from a compensation order, this has not been made clear in the legislation, so we have to assume they will not. Where there are multiple creditors, an insolvency procedure has to date been more successful at recovering money owed to these creditors. How will the Bill protect all the other creditors as well as HMRC? I look forward to the Minister’s response.
Baroness Blake of Leeds (Lab)
My Lords, I refer to my interests as laid out in the register. Following on from the noble Baroness, Lady Pinnock, one thing I am fast learning in this place is that the debates that look relatively boring often turn out to be those which have the most depth and interest, as this one has certainly proved.
I am extremely grateful for the evidence and expertise that we have heard from many speakers in the debate today, in particular from the noble Earl, Lord Lytton, and in the eloquent contribution from my noble friend Lord Sikka.
The Bill has the broad support of the Opposition Front Bench, but I refer to its limited objectives in that regard. The provisions to rule out Covid-19-related material change of circumstances business rates appeals, as well as the steps to give new powers to the Insolvency Service, are both appropriate and necessary.
On the first issue, we accept the logic of disqualifying Covid MCC appeals, given that a large number of these appeals could effectively result in a shadow revaluation and, as we have heard, a full revaluation is already scheduled for 2023. The demand for such appeals would certainly put strain on the system when the most effective use of the Valuation Office Agency’s time and resource is the upcoming revaluation of business rates.
On the Insolvency Service, we support the closing of a legal loophole that for too long has allowed unscrupulous company directors to evade responsibility for their financial decisions. However, I would appreciate clarification from the Minister as to whether the service has sufficient resources to carry out this extra work. I also refer to the excellent contribution from my noble friend Lady Blower, who highlighted the real risks faced by local authorities if this situation is not resolved and the impact on local ratepayer services without the necessary resource and income.
As we have heard from several contributors, there remains an enormous question around how the amount of £1.5 billion was arrived at and whether there is any realistic prospect of it being adequate. The noble Earl, Lord Lytton, highlighted in particular the plight of the mega-large companies, which I think all of us have received some interest from, but also all the other anomalies—those of the smaller companies and the plight that they found themselves in. The answer to the question of resource is urgent.
With this in mind, our main concerns with the Bill are less in regard to what is in it than in regard to what is not in it. My Front Bench colleague in the other place, the shadow Chancellor, has called on the Government to cut, and eventually entirely scrap, business rates. The outdated rates system must be replaced with a new system of business taxation fit for the 21st century. We must look to shift the burden of business taxes to create a level playing field, unlike with the current system, which punishes investment, entrepreneurship and the high street. The noble Lord, Lord Cormack, stressed just how urgent this situation is. We must look for more frequent revaluations, instant reductions in bills where property values fall and rewards for businesses that move into empty premises. Ultimately, this is the only way we can help bricks-and-mortar retailers compete with online tech giants. In this sense, the Bill is a missed opportunity.
In the later stages of the Bill, we will seek amendments that can pave the way for this root-and-branch reform of business rates, but also explore ways to better tackle corruption. On this, I am pleased that the Bill will help the Insolvency Service to investigate directors, take disqualification action and potentially implement 15-year bans—but again we have to ask: does the service have enough resource to tackle the job in hand?
Given the significant losses to creditors that corrupt practices in insolvency and dissolution processes can bring, we would like to see wider legislation. We know that not only do these reckless, rogue directors cause enormous harm to the economic state of affected businesses, but the emotional harm done to so many people working in business is truly immense. Unfortunately, the Bill is narrow in scope and therefore difficult to amend, but we will consider options for increasing reporting. As has been said repeatedly in this debate, the Government need to do much more.
As I said earlier, the Opposition Front Bench supports the provisions but, as is often the case with limited Bills such as this, it represents a missed opportunity. Business rates reform needs far more than a four-clause Bill to support our business community. If the Government are serious about confronting corruption, they must do far more than closing loopholes. I hope the Minister will provide assurances that the Bill is not the sum total of their efforts in these two areas.
I end by further emphasising just how important it is that draft guidance for local authorities on how to administer the scheme is laid down and published as soon as possible, including on how the resource will be apportioned between local billing authorities. I do not think it can be said often enough how stretched local authorities currently are. Budget discussions are happening across all levels of local government in a state of some despair. The atmosphere of uncertainty and concern about the future ability of councils to deliver services is something that we in this place all need to treat with the utmost seriousness and concern.
The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
My Lords, it is a pleasure to close what has been an engaging and informed debate. I thank noble Lords for their contributions both in the Room and in discussions outside—although I have to say that 10 officials were present for a drop-in session and no one turned up. I am very happy to have engagement on this, but it has sometimes been difficult. This is a short Bill, but the measures contained in it are important issues of public policy and I am grateful for all perspectives.
It is hugely important that the integrity and clarity of the valuation system that underpins business rates are maintained. That is why we are taking forward this important measure to clarify that coronavirus and its impacts should not be considered grounds for a material change of circumstance appeal. The alternative would be to allow the pandemic to have a hugely distorting effect on the rating system, casting local government financial planning into jeopardy. I say in response to the noble Baroness, Lady Pinnock, that these would have been considerable sums. Places such as Westminster obviously have a huge business rate base that is then allocated more widely. Clogging up the appeals courts for years to come is not the way forward and would have set a dangerous precedent for the future.
I am grateful for noble Lords’ support for the director disqualification measure in the Bill, which brings the conduct of former directors of dissolved companies into scope for investigation and potential disqualification proceedings. The United Kingdom has a world-class insolvency regime, and a strong enforcement framework is vital to that. Additionally, this measure will be an important tool for helping to combat bounce-back loan fraud and for deterring others from acting in breach of their duties as company directors.
Before I address the many points in this debate, which forms the largest part of my speech, I put on record that I have commercial property interests and am a company director—I should have raised that right at the start of my speech. Like the noble Earl, Lord Lytton, I did not claim from any of the schemes that we have been discussing today to mitigate against the payment of business rates.
In response to the noble Baroness, Lady Pinnock, I have to say that the purpose of the Bill is to restore the law to its intended practice and so no ratepayer will face seeing their bill increase as a result of the Bill. There will therefore be no material impact on the ratepayer.
The noble Earl, Lord Lytton, is a master of understanding procedure in the House, but I have been assured that this debate taking place in Grand Committee before Second Reading was agreed between the usual channels to prevent a very late sitting on Monday 18 October. In response to my noble friend Lord Holmes of Richmond, the Second Reading will take place tomorrow but without further formal debate.
The noble Baronesses, Lady Blake of Leeds and Lady Blower, raised the issue of how the £1.5 billion would be split and the approach to that. It will be allocated to local authorities based on the stock of properties in the area whose sectors have been affected by Covid-19 and which have not been eligible for existing support linked to business rates. Local authorities will then use their knowledge of local businesses and the local economy to make awards. The noble Baronesses, Lady Blower and Lady Pinnock, raised the issue of the additional administrative burdens. This will of course fall within the new burdens doctrine so that any administrative costs to local government will be covered.
Many noble Lords, including the noble Baronesses, Lady Blake and Lady Pinnock, the noble Earl, Lord Lytton, and my noble friends Lord Bourne and Lord Cormack, asked whether £1.5 billion is enough. This new £1.5 billion relief comes on top of an unprecedented £16 billion of relief over two years provided by the Government for the ratepayers most affected by the pandemic. This new scheme will be targeted at sectors that have been affected by Covid-19 but are not eligible for support linked to business rates. The new £1.5 billion of relief will enable local authorities to provide a meaningful level of support to those who have not been eligible for support linked to business rates.
My noble friend Lord Cormack and others raised the issue of the legislation’s retrospection. The Government are intervening because we want to ensure that the law regarding valuation operates correctly while providing significant relief to ensure that support is provided to businesses most in need. Allowing rateable values to fall for market and economy-wide matters such as the Covid-19 measures would be out of line with the principles of rating, where such matters are reflected at general revaluations. It is right that we ensure that the law continues to follow these principles.
My noble friend Lord Cormack and the noble Baronesses, Lady Blower and Lady Blake, all wanted to know when the guidance for local authorities on the operation of the relief scheme will be published. I recognise that it is important because it will help local authorities make decisions over the design of the relief scheme. We will publish the final local authority guidance as soon as the Bill receives Royal Assent. I want to let Members know that we are engaging very closely with the Local Government Association, the Institute of Revenues, Rating and Valuation and, obviously, CIPFA, in ensuring that we get this right.
My noble friend Lord Bourne and the noble Earl, Lord Lytton, all raised the issue of airports. It is a core principle of the business rates system that market-wide economic changes affecting property values, such as the pandemic, can and should only be considered at revaluation. The drop in demand for airports in light of the pandemic is therefore exactly the sort of economic change which should not be reflected between revaluations. The next revaluation in 2023 will be based on the market on 1 April 2021 and therefore will better reflect the impact of the pandemic.
My noble friend Lord Bourne noted that the measure is itself not enough for bounce-back loan recovery. The Government have been clear that bounce-back loan facilities are loans and not grants and have worked closely with lenders to develop industry-wide principles for the collection and recovery of bounce-back loans. This includes the recovery approach that lenders should take in the event that a borrower defaults and there is a claim on the guarantee with net proceeds being returned to Her Majesty’s Government.
Lord Bourne of Aberystwyth (Con)
That is not the specific point I was concerned about. With respect to the Minister, I quite appreciate that it is right to go after the bounce-back loans. My concern was that it did not extend to other creditors who are owed money and that there is a focus just on the bounce-back loans, whereas there is obviously a large field of creditors who have no redress if that is the only concern that the Government have.
Lord Greenhalgh (Con)
Beyond bounce-back loans, the Government are working closely with lenders to develop industry-wide principles so that we can learn from this and apply those in areas beyond bounce-back loans. However, I will write to my noble friend on that specific point.
The noble Baroness, Lady Blake of Leeds, and my noble friend Lord Bourne asked about the funding for the Insolvency Service. The Insolvency Service’s resources are not limitless. However, all cases are carefully reviewed and assessed to determine the degree of harm caused to the public and to business, with the most serious cases prioritised.
The noble Baroness, Lady Pinnock, mentioned compensation orders and my noble friend Lord Bourne asked about the steps to get directors to reimburse. I want to clarify that compensation orders may be sought for a creditor or creditors, a class of creditors, or as a general contribution to the assets of the company. These are the rules for insolvent company director cases now and we are seeking to extend the same rules to dissolved company directors. The amount and to whom the compensation is to be paid is specified in the order or undertaking. The provision in the Bill extends this to former directors of dissolved companies, although it is unlikely that the court would order a contribution to the assets of the company in such cases.
I will not have to write to my noble friend Lord Bourne, because I have found the relevant note—I hope that noble Lords appreciate that this is not my ministerial area and I am having to pick this up as I go along. My noble friend asked whether the new measure would deal with all fraud and not just the bounce-back loans, and it will. It will, for example, deter directors from the practise of phoenixing, where the debts of one company are dumped using dissolution and a new company starts up doing the same thing. It sets that precedent to deal with the specific example of phoenixing.
In response to my noble friend Lord Holmes on the wider reform of insolvency, the Government recognise the important work that insolvency practitioners do and are currently reviewing the regulatory framework that governs them to ensure that the best possible outcomes are achieved for creditors. As part of this, the Government issued a call for evidence in 2019 to seek the views of stakeholders on the impact of the regulatory objectives introduced for the insolvency profession in 2015. The Government will respond in due course.
There was a tremendous speech from the noble Lord, Lord Sikka, from which I learned an awful lot. He raised issues related to company and insolvency law. Obviously, a number of them go beyond the scope of this four-clause Bill, but we keep the wider company and insolvency law frameworks under constant review and will bring forward amendments to the House as and when needed. However, the noble Lord will know that the Government are considering wider reforms to the register of companies, and that work is ongoing. Unfortunately, it is above my pay grade to be able to approve an independent inquiry such as he called for, but I am sure he can engage with colleagues at BEIS and take forward some of those points, and I know that the team here is very aware of his concerns.
Lord Sikka (Lab)
Will the Minister be gracious enough to arrange for me and a former police and crime commissioner to see the relevant Minister so that the evidence that has been accumulated, showing corrupt practices by insolvency practitioners together with banks and lawyers, can be shown?
Lord Greenhalgh (Con)
I think that by “a former police and crime commissioner” the noble Lord is referring to me, as a former Deputy Mayor of London for Policing and Crime. Where there is criminality, there are plenty of ways for the noble Lord to put forward his evidence. If he is having difficulty in presenting it to the Government, I shall do all I can to ensure that he gets to the right person. At the moment, this is beyond my direct area, but I am happy to engage and help him in any way possible.
I want to address a point raised by the noble Lord, Lord Alton of Liverpool, who could not be here today, but I know will be following the debate with interest, particularly after the contribution from the noble Lord, Lord Sikka. He wished to convey to me the plight of the English language teaching sector, an important sector that has suffered terribly throughout the pandemic. The Government are carefully looking at the different sectors as we design the new £1.5 billion relief scheme for businesses that have not been eligible for existing support linked to business rates. We will confirm the eligibility of sectors in due course when we publish guidance in the proper way, but certainly the English language teaching sector is one of those that we are looking at very carefully. Ultimately, decisions on individual awards of relief will be a matter for local authorities.
I thank all noble Lords for their participation and engagement. My noble friend Lord Callanan and I look forward to working with noble Lords on future stages of the Bill and, hopefully, seeing it swiftly through its remaining stages, given the support that we have seen. I beg to move.