House of Lords

Friday 1st March 2024

(2 months, 3 weeks ago)

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Friday 1 March 2024
Prayers—read by the Lord Bishop of Winchester.

Death of a Member: Baroness Henig

Friday 1st March 2024

(2 months, 3 weeks ago)

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Lord Haskel Portrait The Deputy Speaker (Lord Haskel) (Lab)
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My Lords, I regret to inform the House of the death of the noble Baroness, Lady Henig, yesterday. On behalf of the House, I extend our condolences to the noble Baroness’s family and friends.

Retirement of a Member: Lord Bamford

Friday 1st March 2024

(2 months, 3 weeks ago)

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Lord Haskel Portrait The Deputy Speaker (Lord Haskel) (Lab)
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My Lords, I should like to notify the House of the retirement with effect from today of the noble Lord, Lord Bamford, pursuant to Section 1 of the House of Lords Reform Act 2014. On behalf of the House, I should like to thank the noble Lord for his much-valued service to the House.

Alternative Investment Fund Designation Bill [HL]

Second Reading
Moved by
Baroness Altmann Portrait Baroness Altmann
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That the Bill be now read a second time.

Baroness Altmann Portrait Baroness Altmann (Con)
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My Lords, the Bill seeks to remedy legislative errors that have contributed to a haemorrhaging of funds away from UK-listed investment companies. Flawed interpretation of EU regulations, which no EU country has applied as we have, has stoked massive selling pressure, with pension funds, wealth managers and retail investors having to abandon listed investment companies here.

I am grateful to my noble friend the Minister, her officials and other Treasury colleagues, including the EST, my honourable friend Bim Afolami, for their engagement on the Bill. I am particularly grateful for the guidance, knowledge and insights of the noble Baroness, Lady Bowles, and Herbert Smith Freehills, who have helped to draft the Bill. I am also grateful to the officials in the Public Bill Office, who have assisted so ably; my honourable friend John Baron MP, who has raised this issue within government; many industry leaders, such as the London Stock Exchange, the Investment Association and the Association of Investment Companies; and colleagues across the House who support the aims of the Bill.

Investment trusts are a long-standing British success story, democratising investment for small savers and delivering excellent returns. They also provide the only way for most pension funds to gain access to expertly managed specialist portfolios of less liquid assets in UK sustainable growth, infrastructure, social housing and other areas, which pension investors want and need to diversify into and which the Government want them to support.

This important financial sector comprises over one-third of the FTSE 250, and 60% of these companies specialise in managing portfolios of real assets and small growth firms. But waves of selling have led to large discounts in these UK investment trusts and added to the overall weakness of the FTSE itself. Between 2014 and 2021, over £70 billion was raised by investment company IPOs and secondary fundraising, but under £1 billion has been raised since then. The problem has worsened since 2013, when UK-listed investment companies were unfortunately included in the EU-derived Alternative Investment Fund Managers Regulations—AIFMR—introduced after the 2009 global financial crisis, when regulators wanted to bring Wild West unregulated vehicles, like private hedge funds, that potentially posed systemic risk under some regulatory control.

By contrast, UK investment trusts were already well regulated under the requirements of stock exchange listing rules and pre-existing corporate and company law. Boards were providing the governance responsibilities that AIFM regulations were intended to provide for unregulated funds, and they were disclosing all their costs transparently in regular shareholder reporting.

As far back as 2009, our Investment Management Association had written to the EU Commission, stressing the importance of the UK listed-investment company structure to UK financial markets and investors, and stressing that they should be excluded from the AIFM classification. Listed investment trusts were far more extensive and important to UK markets than in other EU countries. Nevertheless, in 2013, all these companies were classified as alternative investment funds. This may have been a minor irritation for UK investment trusts, adding extra costs estimated at £50,000 to £100,000 a year for each fund. AIFM duties included cash-flow monitoring services, asset safekeeping and due diligence over net asset value reporting, which generally duplicated some liabilities of the board of directors. It also introduced potential conflicts of interest, as the investment adviser is allowed to double up as the AIFM. But the sector adapted, absorbing the costs.

Clause 1 would exclude closed-ended investment companies listed on a UK-recognised exchange from the 2013 regulations. In subsequent years, EU-derived MiFID rules for financial product distributors, PRIIPs requirements for retail investors, KIDs and further tightening of consumer charge disclosure rules were all unhelpfully applied to UK-listed investment trusts and REITs. The result has been a disaster for many UK investment companies, which must now disclose exaggerated and misleading investor charge figures. In line with the classic boiling-frog principle, each ongoing layer of regulatory change added extra burdens, now reaching the point of existential damage.

Of course, investors must be fully informed of all charges—those that they pay directly out of their investment each year. However, the combination of UK financial regulations, which have evolved to encourage investors to select investments on the basis of lower cost, charge caps introduced for workplace pension funds and flawed rules intended to give consumers full charges information so that they can make properly informed decisions is having the opposite effect.

Regulators decided that charge disclosures should focus on just one figure: the so-called ongoing charges figure, or OCF. I believe in full transparency with no hidden fees, but information must be clear and not misleading, which is precisely where the problems that this Bill seeks to address have arisen. The way in which the FCA applies the EU-derived PRIIPS and MiFID rules to UK investment companies misinforms investors, telling them that they bear costs that they do not actually pay. No other EU country, by the way, applies those same rules as we do. The inflexibility of the UK requirements, focusing on one reported high-level figure, has undermined this sector, worth more than £0.25 trillion. The corporate expenses for managing these funds and their business are labelled as “ongoing investor costs”, making them look artificially expensive to own and driving investors to switch into overseas companies or higher-risk individual shares instead.

The market dysfunction is exacerbated by UK-listed funds which have chosen simply to ignore the legal requirements, without any regulatory consequences, and by overseas competitors receiving unfair competitive advantage. UK wealth managers and pension funds must double-count or exaggerate investment costs, so they have been selling their holdings, despite large discounts. Also alarmingly, flawed OCFs have caused retail investment platforms such as Fidelity to remove UK investment trusts or incorrectly label them as extremely expensive, blocking retail access to funds that invest in areas such as wind farms, solar farms and battery storage—crucial areas for our future sustainable growth. Investors are now selling these good-value assets on the basis of flawed information. I believe that the obsession with driving down costs is also resulting in investors being misled into believing that the investment charge, the OCF, is more important than expected returns and ignoring the vital elements of investment decisions that need to be understood before purchasing assets, such as liquidity factors and discounts or premia to net asset value.

Clause 2 of the Bill would remedy a clear misinterpretation of the wording in the MiFID regulatory annexe, which the FCA has interpreted differently from everyone else. It states that charges which must be disclosed are any deductions from the value of the investment. For listed companies, consumer value is the share price. It does not, and should not, include the management fees or other expenses that are not deducted directly. But the FCA seems not to agree and refuses to bring its own interpretation into line with everyone else’s, despite the damaging consequences for the markets and our economy. This Bill could help Parliament take back control by excluding investment companies from MiFID disclosure rules which should never have been applied.

The Chancellor asked the FCA to remedy this problem urgently in his Autumn Statement, but its subsequent forbearance announcements, widely anticipated, made no difference in practice. It says that it cannot do more under current legislation, but this seems questionable, since it could simply adopt the interpretation that all other countries have given to these same rules. The FCA could just forbear on its own enlarged interpretation to end the misleading charge disclosures. Does my noble friend agree, or could she check with her department, that the FCA could just bring its guidance into line with everyone else in the world so that its own interpretation of the current legislation no longer causes this market and economic detriment?

Clause 3 seeks to remedy an erroneous interpretation of the PRIIPS regulatory disclosure requirements. These cost disclosures need apply only to funds with a redeemable value, so they should exclude investment trusts. Unlike open-ended funds, investment company shareholders have no right to redeem their investment at net asset value on the next dealing day; they must sell at the market price, possibly at a significant discount. The FCA has suggested that such investments are savings products. I am afraid that seems utterly misguided. They are not savings products; they are not used as such. Just because, for example, Sainsbury’s has a share option scheme does not make all Sainsbury’s shares a listed investment company. Removing those companies from PRIIPS charges disclosures would again stop the requirement to mislead the retail investor by telling them that they are paying costs that they do not directly bear. Of course, the costs are still fully disclosed in the relevant documentation that they must produce.

This Private Member’s Bill is a simple, short-form measure to correct regulatory errors that have had increasingly damaging consequences over time. It seeks to offer the fastest-possible legislative route to help industry and regulators uphold the principles on which our financial system is based, as instructed and intended by Parliament.

Sadly, the FCA has failed to take urgent action. Its eagerly anticipated forbearance statement is no resolution and may even add to investor confusion, because UK investment companies now have to report, or are able to report, two different OCF figures, one for the fund KID, which is more correct, and one for the distributor—the OCF—which is still wrong. So the European MiFID template, which is that used by the whole industry for the OCF figure, is unchanged. It is also important to note that the ongoing dithering and delays are leaving many excellent UK investment companies vulnerable to predatory takeover or even to collapse—a collapse that could be alleviated by the rapid issuance of new regulatory guidance, requiring the industry to use EMT data feeds accurately to display correct OCF information. By not requiring these firms to do so, the FCA is responsible for retail platforms and authorised corporate directors but is encouraging them to produce misleading information rather than going by its own statutory duty to ensure that information is clear, fair and not misleading. It is also breaching its duty to ensure orderly markets, maintain international competition and promote growth and sustainable investment in financial markets.

I hope the Government will support this Bill, notwithstanding the apparent concerns that my noble friend the Minister expressed in our recent meeting. Even better, I urge the Government to try to persuade the FCA that it should issue new guidance urgently so that the Bill is not even necessary. I hope that our unique interpretation and application of the legislation, which is damaging vital parts of the UK economy and cutting them off from capital flows at a time when the Government seek to encourage more pension and private funds into productive investments, can be remedied to the benefit of all in society. This Bill is both important and urgent. I beg to move.

Lord Davies of Brixton Portrait Lord Davies of Brixton (Lab)
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My Lords, I very much thank the noble Baroness, Lady Altmann, for her detailed and comprehensive explanation of why this Bill is needed. The matter before us is straightforward, and the question that has to be answered is why we would not correct this total inconsistency in the way information is provided to potential investors.

With most investments, the charges are added after you invest the money. With investment trusts, the expenses are included within the price you pay. That is the essential difference. To require these two completely different approaches to expressing expenses is clearly inconsistent and properly addressed by this Bill. This is a valuable way in which to present the issue before us, but it is unfortunate, as the noble Baroness explained, that we have to go through the process of doing it through primary legislation when other avenues might be swifter or more straightforward. Unfortunately, they are not available, for whatever reason, so we have to resort to this legislation.

The key reason why this is important is that expenses are important. There may be a slight difference in tone on this issue between me and other commentators on investment matters, but expenses are important; we know what they are and they can be declared. Issues such as value for money and expected future return are important, but they are to a greater or lesser extent assumptions based on assumptions—they are hypotheticals—whereas the expenses are there as part of the contract that is being entered into. There is a tendency within the investment industry to try to downplay the importance of expenses, but they are crucial and it is right and proper that they are the subject of this Bill.

As someone who has been following the financial press for far too long, 60 years or so, I know that the question of investment trusts makes regular appearances in the financial press. It is a staple of the financial journalist to come up with these articles, and they do it on a regular basis. Nevertheless, they are still a bit of a niche approach to investment; there are certain aspects, and to an extent you are presented with a basket of investments—and, very often, they are being sold to you at a discount. You think, “Well, I’ve got a bargain here”, but you have to ask why they are at a discount and whether there is an additional element of risk that you should have in mind when making your decision.

Nevertheless, those investments should be available, and should be presented with the information in a way that provides what the potential investor needs to know. There is a pension point involved here, because they are suitable investments. In some ways, I think they are more suitable for pension funds, which have the resources and expertise to undertake a proper evaluation of the potential investment. Nevertheless, having the expenses declared in a clear and consistent way is an important principle.

That brings us finally to the question of the FCA. What is illustrated here is the extent to which the Financial Conduct Authority is answerable to Parliament; it is an illustration that it is not answerable to Parliament. I hope that our new financial regulation committee will look at this and arrive at a more consistent pattern, whereby these issues receive proper parliamentary consideration.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD)
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My Lords, I declare my financial services interests as in the register. I congratulate the noble Baroness, Lady Altmann, on her speech and on the great energy that she has put into seeking clarity for the consumer, and fairness for listed investment companies and their investee businesses.

A series of legislative time bombs planted under listed investment companies have culminated over the past two years to force misleading information to consumers and strangle a thriving sector that is over a third of the FTSE 250. The first bomb was the alternative investment fund managers directive, and this Bill starts by excluding listed investment companies from the UK version. Industry representations to the EU Commission in 2009 explained that listed investment companies were already significantly regulated and transparent, but they were never explicitly excluded—and indeed the UK itself then removed wriggle room that other countries use. This was the start of the UK ignoring the fundamental structure and regulation attached to a listed company.

AIF categorisation meant that these listed companies had to have fund managers and reporting requirements that are expensive and duplicative of listing requirements and set aside the proper role of company directors. Then the FCA further railroaded listed investment companies along a track that should never have existed. It was the start of pretending that they are the same as open-ended funds when they are not, and the start of misleading consumers into thinking that they should select by the same criteria, focused on assessed net asset valuations and fund manager costs rather than the real market value of shares, bought and sold using the established indicators of premium or discount that signpost market sentiment about assets, performance and costs or expenses. Explicit details of each of those were always presented anyway.

AIF classification seeded the treatment of a listed security as a financial product, which is remarkable given that the definition of a financial product is that it has a value derived from reference values not set by the market. But ignoring market valuation is a central plank of the FCA’s excuses for levering listed investment companies inside subsequent legislative bombs when the EU legislation itself actually did not.

Bomb number two came along with packaged retail investment and insurance products legislation. The clue is in the name—“products”—and as I have said, a listed security is not a financial product, but the FCA pretends it is. The PRIIPs legislation even contains its own definition of the collective investment undertakings to be included. The definition is:

“an investment ... where the amount repayable is subject to fluctuations because of exposure to reference values or the performance of one or more assets which are not directly purchased by the retail investor”.

But listed company shares do not have an amount repayable; you sell the shares on the stock exchange. This is among the issues I have challenged with the FCA. It reverts to suggesting—albeit in witnessed mumbled verbal comment rather than a written response, but witnessed—that there “can sometimes be amounts repayable, in some circumstances”, by which it means insolvency, hardly a mainstream interpretation. In Ireland, when the then FSA’s interpretation first became known, three counsels’ opinions were commissioned, all of which stated that listed investment companies did not fall within the definition, so Ireland kept them out, as did everybody else.

Listed investment companies can be found on stock exchanges all over the world but only the UK, through the FCA, maintains its own irrational interpretation that differs from common understanding. As a consequence, the tangle of ill-fitting and misleading disclosure requirements started which has destroyed the market. Clause 3 removes listed closed-ended funds from the misapplied cost methodology in PRIIPs.

The coup de grâce came via MiFID II in 2018, when Investment Association guidance—it insists that it follows FCA interpretation—resulted in the UK forcing firms to allocate listed investment companies’ corporate expense numbers into an EU-wide industry reporting data template, which then displays them as ongoing cost forecasts on platforms such as Hargreaves Lansdown, AJ Bell, Fidelity and so on. The displayed information indicates that there are ongoing charges in connection with holding listed investment companies. This is untrue, of course, because the share price has already factored them in: that is what you have bought, and that is why every other country puts “zero” in the template. It also feeds in to wrongly elevate the costs of funds holding investment companies. Everyone in this chain of misinformation, from authorised corporate directors to platforms, is part of an FCA-sponsored failure of consumer duty that has killed off investment by frightening away consumers and causing fake breaching of cost caps.

This coup de grâce would never have happened if the legislation were interpreted as written, but the FCA has, again, its own conniving explanation to wheedle listed investment companies into a slot where they do not belong. It deliberately misinterprets “value”. The annexe of the MiFID Commission delegated regulation is clear that only deductions from the value of the investment should be aggregated as ongoing costs, because that is what the investor loses. But the FCA insists that deductions from assessed net asset value must be included in the cost disclosure and, as a direct consequence, the investor is informed as if they have to pay them again, and annually, when the truth is that the efficiency of the company and its expenses are already taken into account in the actual market share price—share price undeniably being the investment value to the consumer.

Ignoring the harm, the FCA listens to voices urging this fake comparison with open-ended companies. You might as well compare ice cream and toothpaste—they are sometimes both white—even while the FCA’s own consumer panel is warning against simplistic measures such as these. Nowadays, even the superficial similarity with open-ended funds is gone, with most listed investment companies investing directly in real economy assets, not other listed equities. Meanwhile, the FCA takes no action against a few large firms that do not comply, probably knowing it would lose the litigation, showing inconsistency and further distorting competition, knowing that ACDs and smaller firms cannot take the risk.

The FCA also claims that it cannot help, as it has no leverage over an industry-run reporting template, despite the fact that it is based around the FCA’s core misinterpretation and all the actors are regulated by it. It would have to say only, “It is really a zero”, but the leading official has said—witnessed, in the presence of their superiors and more than once—that they do not want zero and “What’s the problem? They can always not list under chapter 15”. That means that they are reading different listing rules than I am. Clause 2(3) clarifies that, for closed-ended listed investment companies, the value is the share price. Other amendments clarify that there is nothing relevant in UCITs.

Baroness Swinburne Portrait Baroness Swinburne (Con)
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My Lords, eight minutes is guidance, but we appreciate it if people try to stick to it. If the noble Baroness will close, I will be very grateful.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD)
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I will exercise my privilege to continue, if the House is willing. It is necessary for such an important subject.

The FCA alleges that it cannot change the rules to undo the misleading cost allocations, as they are in retained EU law, but as has been said, it has to change only its own interpretation. For the record, the damage that the FCA’s illegal, irrational and inconsistent interpretation is causing includes: some £15 billion and counting of lost investment in real UK assets that has largely gone overseas; depriving SMEs in manufacturing, technology and infrastructure companies in the real economy of investment, affecting jobs, tax revenue and causing cheap asset sales to foreign buyers; depriving consumers and pension funds of investment opportunity in the real economy; and causing reputational damage to UK markets and regulation. And, yes, we are being laughed at for this mess. EU people phoned me up at Christmas to tell me that.

Add to that harming international competitiveness and presiding over a market failure caused by knowingly tricking the consumer, and I ask myself how many jobs should go at the FCA. Do not be fooled into thinking that it cannot do anything. It is “won’t”, not “can’t”, and it is accountable for that. If nothing is done, our system is demonstrably broken. This Bill and Parliament can offer a fix.

Lord Reay Portrait Lord Reay (Con)
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My Lords, I am very pleased to support this Private Member’s Bill, introduced by my noble friend Lady Altmann, which seeks to remove investment companies from the scope of AIFMD, and exclude them also from PRIIPs and CCI disclosure, including concerning costs. As the noble Baroness stated, this would correct regulatory errors. I declare an interest as an owner of shares and some investment trusts.

My noble friend Lady Altmann and the noble Baroness, Lady Bowles, have outlined how we have arrived at this unfortunate situation. I applaud them both for their tenacity and perseverance in attempting to find a solution to this issue. The Bill is required to address the malaise in the listed investment company sector, which has resulted in the withdrawal of investors from the market and depressed valuations. This, in turn, is leading to city brokerage firms exiting the sector, and job losses among salesmen, traders, market makers and bankers.

The malaise extends to the UK equity markets in general, which are suffering from the damaging shift of our pension funds out of equities into fixed income over the past 20 years. The withdrawal of institutional funds, resulting in reduced liquidity and lower valuations, has ramifications for the overall health of the UK markets, and notably in the decisions of UK and overseas companies on whether to list on AIM or LSE rather than other international stock exchanges. A stock market with reduced liquidity and valuations also runs a risk of an increased number of take-privates, which, while not necessarily a problem per se, does serve to reduce the overall size and depth of the public markets. So, while the Chancellor can be congratulated for personally engaging with the Chinese fashion retailer Shein, to persuade the company of the merits of a London Stock Exchange IPO as opposed to a New York listing, I hope that the Treasury might also bring influence to bear to resolve the strife in the investment company sector.

In many ways, the perilous position in which the investment company industry finds itself has similarities with the disastrous unintended consequences brought about by MiFID II, in respect of the unbundling of the costs of research from the services provided by equity brokers to their investing clients. The junior and mid-tier City brokers hit by the additional bureaucracy and associated costs discovered that there was not a market or culture among institutional investors to pay separately for unbundled research. As a result, within a short timeframe, numerous broking firms slashed their research product and sacked their analysts, and some were forced into mergers. Research coverage, particularly for junior companies, has been decimated. This has had a knock-on effect of reducing share liquidity and company valuations.

I welcome the fact that the regulators are consulting on revoking MiFID. Action cannot come soon enough, although much damage to the City’s equity research product has already been done. In both these instances, excessive regulation has resulted in investor withdrawal, and consequently lower share liquidity and valuations. Both situations have resulted in considerable harm to the overall health of the stock market and the equity departments at brokerage houses. Some firms are exiting the investment trust sector entirely. Before this situation deteriorates further, the FCA needs to act by amending its interpretation of existing legislation, or the Bill needs to be passed.

With its new secondary objective of enhancing the competitiveness of the UK market, the FCA should be focusing on resolving the excessive and unnecessary regulatory burdens that have been highlighted by the Bill. Instead, the regulator seems to be spending far too much time and energy introducing consultations, such as its recent paper, Diversity and Inclusion in the Financial Sector. Among other things, this paper proposes requiring firms to set diversity targets which must be disclosed, and to show progress towards meeting them. Firms will be forced to recognise a lack of diversity and inclusion as a non-financial risk. Other requirements of the consultation would suggest that the FCA may be pursuing gender ideology at the expense of women’s rights.

Perhaps my noble friend the Minister can explain how this consultation is compatible with the FCA’s objective of facilitating international competitiveness and the growth of the UK economy, and, further, how this meddling is appropriate while a major constituent part of our listed equity market is struggling as never before.

Lord Macpherson of Earl's Court Portrait Lord Macpherson of Earl’s Court (CB)
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My Lords, I declare an interest as chairman of the Scottish American Investment Company, which last year celebrated its 150th anniversary, and also as a happy shareholder in several investment trusts. I therefore feel well placed to speak both for retail investors and for the providers of investment trusts more generally.

I congratulate the noble Baronesses, Lady Altmann and Lady Bowles, for introducing the Bill, and for securing this timely Second Reading debate. I also thank them for their tireless advocacy of sensible regulation that protects consumers, even though, when I was at the Treasury, I was sometimes on the receiving end of their complaints.

The investment company industry is a British success story, but, above all, it is a Scottish success story, contributing to Edinburgh’s role as an international financial centre. Investment companies are an effective way of building a diversified portfolio. Their closed-end nature means that investors are not subject to the vagaries of sustained outflows, and the potential lock-in or gating of their savings. Looking back over their history, they have always been at the respectable end of the savings industry, providing reliability and resilience. Unlike more conventional open-ended funds, investment companies have independent boards, whose role is to put the interests of shareholders first.

Investment companies have therefore provided a great savings vehicle for all investors, including those with modest means, as well as the better off. I was recently looking at the original subscribers to the Scottish American Investment Company back in 1873. They may have included the odd wealthy widow, but they also included one William Mackenzie, a sergeant major of Stirling, who bought 20 shares, as well as John Bothron, a fish curer from Anstruther, Fife, who bought 12. Hard data on who owns investment trusts today is more difficult to come by. However, given the easy access to shareholding provided through the proliferation of platforms, I am confident that the investor base in investment companies is more diverse than it was 150 years ago. The investment trust sector manages some £260 billion-worth of assets and provides important capital to companies who need it, both in the UK and across the world. In short, the sector provides the investment resources for sustainable growth.

Like many in this House, I supported the UK’s membership of the European Union, for all its limitations, and I feel that, whatever its political benefits, Brexit has damaged the performance of the British economy—but that is water under the bridge. Where I can agree with successful advocates of Brexit, such as my former Minister at the Treasury, the noble Lord, Lord Lilley, is that we are all now united in wanting to grasp every opportunity Brexit provides to support economic activity. It is a little disappointing that, seven years on from the referendum vote, the Government have not made more progress in removing unnecessary regulation.

The fact is that the Alternative Investment Fund Managers Regulations 2013 were not the European Union’s finest hour. I admit to being implicated, because I was the Permanent Secretary to the Treasury at the time. As I recall, the Treasury and the FCA did their best to improve its drafting—but clearly not enough. The so-called PRIIPs regulation imposes requirements on investment companies that do not apply to listed trading companies or, even more bizarrely, real estate investment trusts. I am all in favour of transparency when it comes to transaction costs and charges, but, as defined by PRIIPs, the relevant cost metrics are positively misleading and are as likely to harm consumers as to protect them.

I will highlight a couple of areas, and I apologise if they are a little technical. First, the inclusion of future performance estimates based on evidence from past performance is a flawed approach, as any shareholder in Northern Rock or RBS can bear witness to. If any disclosure on performance is necessary, it is surely right that, in line with the current UCITS KIID requirements, past performance becomes a standard disclosure and replaces the need for future performance estimates, which have the clear potential to mislead consumers.

Secondly, I highlight the inclusion of gearing costs in the ongoing charges figure. The cost of the debt must be disclosed without information on the borrowing terms—critically, the interest rate and term to maturity. The key point here is that the costs of gearing do not benefit the investment manager; they are actually paid to the lender. Often, borrowing enhances shareholder value, especially if you took out the borrowing when interest rates were lower.

The flaws in the PRIIPs regulation discourage savers from investing in investment companies. Although I would not like to exaggerate their effect, they are potentially contributing to the scale of discounts to net asset value that many companies are currently experiencing. I therefore welcome the recent publication by the Treasury of its draft statutory instrument on the UK retail disclosure framework. The residual Treasury official in me has some sympathy for the view that, if we are to reform EU legislation, we should go about it in a holistic way. I recognise that it is important to get things right, but the result is that we are missing easy wins, and I fear that the best is becoming the enemy of the good.

In conclusion, I encourage the Minister, even at this late stage, to support the Bill. If she cannot, can she confirm that the Treasury’s and the FCA’s intent is to implement the spirit of the Bill? In short, will they amend the law so that listed investment companies will no longer be classified as alternative investment funds? Can she give us a clear timetable indicating from when any changes to the law will come into effect?

Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con)
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My Lords, I am delighted to follow the noble Lord. I was introduced to investment trusts by my late father, who was a proud Scot and a modest investor. Sadly, since his passing, my investment portfolio seems to have been on the downward trajectory.

I congratulate my noble friend Lady Altmann on the excellent and timely Bill before us, along with the noble Baroness, Lady Bowles, who is supporting it. I lend my full support for the proposals contained therein. I commit to their energy and enthusiasm for the provisions of the Bill and the aim of protecting investors, whether minor or major, who are shareholders in investment trusts. My noble friend called for the urgent issue of guidance, and I support her request. Can my noble friend the Minister say whether there is any reason why guidance could not be issued? That would support the call from the noble Lord, Lord Macpherson, for an urgent review and revision of the law.

I press the Government on the matter of a consultation. Will my noble friend the Minister bring forward a consultation at the earliest possible opportunity, with a view to introducing legislative measures in short order thereafter? Presumably, that could be by way of statutory instrument and regulations, rather than the need for primary legislation such as that before us today.

Further, does my noble friend the Minister agree with my noble friend Lady Altmann, the noble Baroness, Lady Bowles, and others who have spoken that the current situation is unacceptable and—as the noble Lord, Lord Macpherson, said—highly misleading to potential investors? This is a serious but typical case of gold-plating, whereby, as I understand it, the original directive was not prescriptive but a domestic interpretation, through regulation, added bells and whistles.

This is not the only example of this. From my personal experience of serving as a Member of the European Parliament, I know of the abattoir directive. That was very much a framework directive, but the home department, the Ministry for Agriculture, Fisheries and Food, looked at it as the opportunity to close a number of family-run abattoirs, with the perverse effect that animals had to travel further to slaughter. Another example is the toy safety directive, which, in its domestic implementation, added all sorts of provisions that meant that the donation of second-hand toys to charity shops dried up. That led to the then Trade Secretary—the noble Lord, Lord Heseltine—calling time on that highly-damaging practice to the domestic industry.

In support of the Bill, I can do no better than quote my noble friend Lady Altmann from a recent article in Money Marketing. She wrote:

“UK investment companies have historically been a world-beating success story, offering an excellent way for investors to back sustainable British growth. But this once thriving sector, with over 350 companies quoted on London stock markets and assets exceeding £250bn, is in crisis”.

She concluded:

“It is … galling to see new EU-derived cost disclosure rules, not applied in the EU or any other country”,


“a once thriving UK financial sector”.

In the words of the noble Lord, Lord Macpherson, the Brexiteers won and have achieved their goal, but they must accept that this is the complete opposite of a Brexit dividend. It is highly damaging to both existing and potential investors, and has been highly damaging to the financial sector. The Bill is an opportunity for my noble friend the Minister to address that, and I hope that she will take that opportunity today.

Lord Hannan of Kingsclere Portrait Lord Hannan of Kingsclere (Con)
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My Lords, I congratulate my noble friend Lady Altmann on introducing this proportionate, timely and sensible measure. I also congratulate the noble Baroness, Lady Bowles, on setting out clearly where the existing legislation is going wrong. Some 11 years after the event, I belatedly offer an apology to the noble Baroness and some of her colleagues in the European Parliament. We served there together, representing the same region. In common with a number of Conservative MEPs, I used to tease our Lib Dem colleagues by saying, “They will sign anything that is put in front of them from Brussels. They never read it; they unambiguously support it”. But that was not really true—and it was not true on this occasion.

For all the reasons we have heard, this legislation was using a sledgehammer to miss a nut. This was legislation intended as a response to the financial crisis, but, as somebody put it, when there was a general melee in the bar brawl, instead of looking for the person who started it, they just hit the nearest person.

I remember the unanimity in this country against the AIFMD in 2013, in the industry itself, in the City more widely and among all the political parties. I remember one of the fund managers saying, “This is such a needless and costly measure that we are exploring whether just to break it and pay the fine and call that a fee. We think that that may be less intrusive than having to assimilate the compliance costs”.

I assumed that, the day after Brexit, this would be at the top of the list of the measures to be axed, since it had literally no support. In fact, I had assumed—rather innocently and naively, I now see—that the first response of the Government after Brexit would be to go back and look at all the measures that the UK had opposed and voted against in council, and at the departmental arguments raised against them, and then see whether those still applied. I am afraid that that has not happened. I had underestimated what Milton Friedman called the tyranny of the status quo: the way in which, however irrational and arbitrary your arrangements, some people have found a way of making a living out of them and become opponents of change.

I am afraid that this is one of the dynamics that makes deregulation very difficult. AIFMD is maybe not the best example, but it is an example none the less of the entire industry opposing something, yet, once people have assimilated the compliance costs themselves, they lose interest in repeal. Indeed, in some cases it is not just that they lose interest in repeal; they do not want the next guy to come in and undercut them, so they sometimes perversely become advocates for the thing they used to oppose, because they now see it as a barrier to entry.

By the way, this goes way beyond the field of financial services. It applies to some of the more bizarre SPS and food safety things we have inherited, right the way through to the REACH directive. People say, “Well, the industry is now in favour of it”. Of course they are—once they have taken on the compliance costs. However, the role of a Minister and of a Government is not just to act as the agent, tool or mechanism of the existing producer interest, but to think about the companies that do not yet exist and about the consumers, the start-ups and the entrepreneurs.

As some of your Lordships know, I was quite wet about Brexit: I wanted a Swiss-type deal all the way through, and I argued that we should have maintained a lot of the accumulated single market measures, which would have solved a lot of problems. We did not do that. The Theresa May Administration took a different attitude, and we paid a fairly high price in the disengagement talks for the right to regulatory autonomy. Okay; I am on board with that if that is the policy. However, surely we can all agree that the worst of all worlds is to pay that price in the talks and then not use the regulatory autonomy. It is bizarre to insist on the ability to have these freedoms and then, even in a case like this, where all sides agree that we are doing something costly and needless, we do not use them.

I get that there will be probably a majority in this House who, in other areas, want a much closer deal now with the EU and to go back into some kind of customs union arrangement. Fine; but I think we are all agreed that we are now autonomous and competing globally in financial services, and we need to make the City of London a place where people want to invest.

I close by saying to my noble friend the Minister that when she sees my noble friends Lady Altmann and Lady McIntosh of Pickering, and the noble Baroness, Lady Bowles—and indeed, I assume, the noble Baroness, Lady Kramer, although she has yet to speak—all effectively lining up and saying, “We need to be doing more to take advantage of our Brexit freedoms”, perhaps something has gone wrong and this is the time to act.

Baroness Kramer Portrait Baroness Kramer (LD)
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My Lords, as the first of the winding-up speakers, I will just say that in this area I lack the expertise of everyone who has spoken up to now, so I will not attempt to summarise the contents of the Bill or discuss the detailed nature of the industry. However, I hope the Government understand that although the Bill may have many highly technical elements, in fact a much more fundamental issue is being addressed. Frankly, it is about the survival of a crucial and key part of our financial sector that makes up both the life of the City of London and of Edinburgh, and of our financial services industry more generally.

I do not think I have ever before participated in a debate where every speaker from every side of the House—for example, the noble Lord, Lord Davies of Brixton, on the Labour Benches, and there is another Labour Member to follow—is of the same view, be it the noble Lord, Lord Hannan, the Cross-Benchers, the Liberal Democrats or the Conservatives. I hope that the Minister will understand the message embedded in that. We are looking at an issue of real significance and urgency, and I stress the word “urgency”.

The one group resistant to tackling this issue in a timely way, minimising the damage already done and preventing further damage, appears to be the regulator, the Financial Conduct Authority. The Government are in a position, through Treasury, to invite the FCA to take a look again at the regulation it has in place and encourage it—I know they cannot instruct it—to act much more rapidly to stem the issues raised today and the sense of anger across this House, because the regulator seems quite complacent in its response to a deep and underlying problem.

It is clear from today’s speeches that we are dealing with the most extraordinary misapplication of legislation and gold-plating, and I doubt whether a single person in either Chamber would defend those two fundamental approaches. I join others in giving special thanks to the noble Baroness, Lady Altmann, and my noble friend Lady Bowles. It is extraordinary that, although we have an expert regulator, we have had to rely on the chance factor of expertise in the House of Lords in order to perhaps be able to force action. I hope the Government will look at the expertise and resources embedded in the FCA, because I cannot believe that if it truly understood this issue, it would be taking the complacent approach it seems to be taking.

There are obviously beneficiaries from this approach, but none of them are British. The United States will be a major beneficiary of the outflow of business, as will, ironically, Luxembourg, Paris and Dublin. As I say, it is very much a gold-plating issue, as many of us here today have discussed.

I wanted to pick up on an issue the noble Lord, Lord Reay, raised: the FCA’s focus on diversity in financial services. I hope my speech will not be seen as an endorsement of that. It is important that our whole industry and every sector understand the issues of diversity, but in no way should that be a distraction from dealing with a fundamental issue concerning the listed investment companies.

In conclusion, these Benches are entirely behind the noble Baroness, Lady Altmann, my noble friend Lady Bowles and the others who drafted and shaped this legislation. I recommend that the Government hand them the pen, as they really have the ability to sort this problem out. However, if they cannot do that, will they turn directly to the FCA and again invite it to take the necessary steps? I think there are powers they can use to issue that invitation in fairly strong language and with strong impact, in order to get a resolution—and rapidly.

Lord Livermore Portrait Lord Livermore (Lab)
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My Lords, it is a pleasure to take part in this debate and to listen to and learn from contributions from many genuinely expert noble Lords. I congratulate the noble Baroness, Lady Altmann, on securing the Bill and pay tribute to her not only for raising this issue to the prominence it deserves in your Lordships’ House and for the hard work I know she has put in to get her Bill to this stage, but for her tireless campaigning on behalf of consumers, pensioners and investors, not just on this topic but on many others over many years.

In her excellent and persuasive opening speech, the noble Baroness made an extremely compelling case for action. I agree strongly with much of her analysis and many of the objectives of her Bill. I will briefly review some of the key points that underlie the Bill.

First, we have seen in the debate today a clear consensus on the importance of this sector to the UK economy. It makes up over 30% of the FTSE 250 and supports vital economic growth areas, as well as a wide range of environmental and social investments. It is also clearly a sector that we as a country should feel pride in. As the noble Lord, Lord Macpherson of Earl’s Court, and the noble Baroness, Lady McIntosh of Pickering, said, UK investment trusts are a long-standing British success story, offering for over 150 years access to ready-made portfolios which the vast majority of investors could neither put together nor manage themselves. The noble Baroness, Lady Bowles of Berkhamsted, who has highlighted this issue in your Lordships’ House several times already, today took us on a thorough and concerning tour from her own expert perspective of how we ended up where we are today.

It is clear from what we have heard in this debate that charges disclosure rules, derived from the EU, have been inappropriately applied to UK-listed investment trusts. As a result, those companies have been forced to show misleading information to investors, exaggerating the costs of holding their shares. Despite the Financial Services and Markets Act specifically empowering UK regulators to shape financial regulation in the national interest, this inappropriate application has made UK-listed investment companies appear misleadingly expensive for investors to hold.

This has likely given rise to three key consequences. First, it has contributed to UK investment trusts being starved of capital because waves of selling, lack of buyers and share price weakness have stopped capital raising for vital growth sectors, as UK investment companies suffer an exodus of capital from institutions and wealth managers.

Secondly, funding has materially declined as investors use non-UK-listed investments or riskier individual shares instead. This has exacerbated the UK’s shortage of an important source of growth capital for the very areas that we need the private sector and pension funds to support, since most investment trusts invest in real assets, including vital infrastructure projects such as schools, motorways, affordable housing, police and fire stations, and NHS hospitals. Taking the right action now could bring stability back to the investment trust sector and help to harness the power of UK pensions, ISAs and retail investments in order to better support the British economy.

Thirdly, UK-listed investment trusts have been made to look uniquely unattractive compared with our global competitors. Investors are needlessly switching out of UK markets, depriving consumers of dependable dividend-paying investments and denying them access to ready-made portfolios that could add diversification and improve their long-term returns.

The Financial Services and Markets Act specifically introduced the secondary competitiveness objective in order to speed up the pace at which regulators can act when UK competitiveness is under threat. Yet that does not appear to be happening here. Neither does it appear that the new consumer duty is being upheld, as the current system arguably misinforms consumers by exaggerating the costs involved and preventing them making properly informed decisions about what investments to buy.

Ultimately, the Bill of the noble Baroness, Lady Altmann, calls for the Government to act with urgency. That must be right. There is widespread and cross-party agreement, as reflected in the contributions we have heard in today’s debate, that these rules clearly are not working for UK-listed investment trusts. The ultimate responsibility for remedying that and making progress must lie with the Government.

We have been reminded during today’s debate that, in his most recent Autumn Statement, the Chancellor asked the FCA to take action to remedy the problem of charges disclosure regulations forcing investors to sell UK-listed investment trusts and driving pension funds to buy overseas investment companies instead. Since then, what has changed? It would appear that nothing has changed; in fact, the exodus of capital from the investment companies sector has actually accelerated. Having recognised that the rules guiding charges disclosures for UK-listed investment companies are misleading investors, the much-needed urgent change simply has not materialised. I would therefore be grateful if the Minister could set out when she responds to the debate the concrete steps that the Government will now take to remedy this problem. Action is needed; if the Government decide to take the appropriate action, we will support them in that.

I end by once again congratulating the noble Baroness on her Bill. It is a timely piece of legislation exposing a significant problem that has been left unsolved for too long, at considerable cost to both the sector and the wider economy. This Bill unarguably makes the case that urgent action is required. I hope that this debate, as well as the further passage of this Bill, will help to expose these issues and compel the Government and regulators to move further and faster than has so far been the case.

Baroness Vere of Norbiton Portrait The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
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My Lords, I, too, congratulate my noble friend Lady Altmann both on securing this important Second Reading debate on her Bill and on her excellent contribution setting out the challenges that she hopes to fix. I am grateful to her for her engagement on this issue; I hope that it will continue as we continue our work in this area. I am also extremely grateful for all the contributions made in your Lordships’ House today. I note that there was violent agreement that something must be done; I hope to set out the Government’s plans to do this, but I will ensure that my colleague, the Economic Secretary to the Treasury, has a look at Hansard because it is important that he understands the breadth of feeling and some of the important issues that were raised.

As noble Lords have heard, this Bill would amend the Alternative Investment Fund Managers Regulations to remove listed investment companies, also known as investment trusts, from scope. It would also make amendments to other assimilated law, formerly retained EU law, in order to make changes to cost disclosure requirements for listed investment companies.

The Government share my noble friend Lady Altmann’s drive to champion the investment company sector and ensure that the UK’s capital markets continue both to thrive and to drive forward our economy. It is true that, over the past two years, there have been relatively few initial public offerings globally; the UK has not been immune to those trends. This market turbulence has also impacted the investment company sector, in which the UK is undoubtedly a world leader. However, London continues to be Europe’s leading hub for investment; it raised more capital in 2023 than Frankfurt and Amsterdam combined.

The Government are committed to building on the UK’s strong foundations in this area by taking forward, through the smarter regulatory framework, ambitious reforms to streamline the regulatory rulebook, boost investment into UK markets and improve the competitiveness of the UK as a listing destination.

Investment companies are a wonderful British—more specifically, Scottish, according to the noble Lord, Lord Macpherson; he is right—invention dating back more than 150 years. The way in which they have become such a backbone of our investment economy is quite incredible. I assure all noble Lords that the Government are committed to supporting this very important sector.

However, I must express some reservations about my noble friend Lady Altmann’s Bill, although we recognise the rationale behind its being brought forward. I will first address the amendments that would exclude listed investment companies from the Alternative Investment Fund Managers Regulations, or AIFMR. Amending the scope of these regulations could have a significant impact. It would not be appropriate for the Government to change the regulatory perimeter using this Private Member’s Bill in isolation, without proper and appropriate consultation and further consideration.

As part of building a smarter regulatory framework for financial services, the Government are already carefully considering how to make AIFMR more streamlined and more tailored to UK markets. The Government recognise the concerns about regulatory inefficiencies for listed investment companies under AIFMR. However, we are also conscious that some investment companies value being regulated financial services providers; at this point, I note the warnings put forward by my noble friend Lord Hannan.

Given the spectrum of views on this issue, it is vital that the Government provide an opportunity for all impacted stakeholders to comment. It is for this reason—this is the first time that it will be publicly known, I think—that the Government will consult in the next quarter on how the UK should approach AIFMR. This will, I believe, fulfil my noble friend Lady McIntosh’s requirement for some consultation. Obviously, we want to do this as speedily as possible, but we need to get information from the industry, the investment companies sector and beyond about how to take it forward. Once we have that, we should be able to move fairly rapidly.

We know that only through careful consultation and consideration can we provide listed investment companies with the longer-term certainty of an appropriate regulatory framework. I agree with the noble Lord, Lord Macpherson: sometimes, it is really important to get these things right. Although some people often criticise the Treasury for taking too long and being—dare I say this as a Treasury Minister? I am not sure—a bit staid and sober, we have to get things right.

Baroness Kramer Portrait Baroness Kramer (LD)
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I have a question for the Minister. With much of this gold-plating, I am not sure that the regulator consulted on implementing it. Why would it then have to consult on removing it?

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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I will come on to gold-plating. I am not entirely sure that everybody is in alignment on whether or not this regulation is implemented, but consultation is just good government. I do not see us making substantial changes to the regulatory scope on the basis of having not done it before we are not going to do it now. We need to get it right, but we absolutely support the investment company sector and want to get on with this. That is why I am so grateful to my noble friend Lady Altmann for bringing this forward, allowing us to have a conversation in the Treasury and beyond.

I turn to the second element: cost disclosures. My noble friend Lady Altmann has rightly identified that EU-derived legislation is not currently fit for purpose, as many other noble Lords, the Government and the Financial Conduct Authority would agree. The packaged retail and insurance-based investment products regulations, commonly and more easily known as PRIIPs, were originally meant to provide more transparent and standardised disclosure for retail investors across the European Union. Noble Lords are well aware that there are many problems with the EU PRIIPs regulation. It is prescriptive, misleading to retail investors and prioritises comparability over a wide range of financial products at the expense of consumer understanding.

That is why, as part of the Edinburgh reforms, the Chancellor announced that, as a priority, the Government would reform PRIIPs. We have already made significant progress on delivering this commitment. Most recently, at the Autumn Statement last year, the Government published a draft statutory instrument to replace PRIIPs with a new framework tailored to UK markets.

We understand industry’s concerns regarding broader legislation that prescribes firms to calculate their costs as they are required to do so now, and so the Government and the regulator have not stopped there. At the same Autumn Statement, the Government announced that they would bring forward the repeal of relevant cost disclosure provisions in the markets in financial instruments directive, or MiFID, alongside the replacement of PRIIPs.

Many noble Lords have mentioned that the FCA has published the forbearance statement, and some feel that it has not gone far enough. I will ensure that the FCA is made aware of the debates that noble Lords have had today. There has been significant criticism, which it will no doubt be interested in, and some suggestions of how it might be able to go forward.

I hope that this brief summary has provided sufficient reassurance to my noble friend Lady Altmann, and to all noble Lords, that the Government are treating this as a priority. We have a comprehensive plan to alleviate the harms faced by the investment company sector, but are committed to making sure that we get it right for the long term, to ensure that 150 years already gone by becomes another 150 years in the future.

I have mentioned consultation, so I will move on from that to cover some points raised in the debate on timelines. I accept that, for many noble Lords, and indeed Ministers, it is never fast enough. This was mentioned by my noble friend Lord Hannan and the noble Lord, Lord Macpherson. We are delivering a very ambitious programme to build the smarter regulatory framework for financial services. At Mansion House, the Government removed almost 100 pieces of unnecessary EU legislation from the statute book, and now we are looking at wider reforms—those mentioned in the debate today and others, including Solvency II—that will deliver the biggest potential benefits.

I note that my noble friend Lord Hannan would have liked us to go through things in a different way. The Treasury is very much focused on looking at where we can have the biggest and quickest potential benefits to economic growth. We are conducting a phased approach to bringing in this change of regulation because we must also ensure that the system and different financial sectors can cope with this change in legislation.

I note the invitation from the noble Lord, Lord Macpherson, to make commitments from the Dispatch Box on certain matters. I am not able to do so just yet—maybe soon.

There is debate around gold-plating. I hope that that will all be laid to rest as we are able to reform this and ensure that we have the right framework going forward.

My noble friend Lady Altmann mentioned investment companies being removed from platforms. We note and recognise the frustration that some investment companies feel at having been removed from investment platforms. I reassure her that, although this is a commercial decision, the Government and the FCA are well aware of this issue and are carefully considering what options are available. Ditto in the use of the EMT, the MiFID template. This is a voluntary template, but we understand that it may not be providing the best information to retail investors at the current time.

Many noble Lords have noted the competitiveness of the UK capital markets. That is what underpins the smarter regulatory framework. Despite recent challenges, the UK has many vibrant and dynamic capital markets, and they remain some of the deepest and strongest globally. However, we cannot rest on any laurels; we have to keep moving forward in this area. That is why the Government are delivering on my noble friend Lord Hill’s listings review, the wholesale markets review, and the Chancellor’s Edinburgh and Mansion House reforms.

The noble Lord, Lord Davies, mentioned the FCA’s activities and scrutiny of the regulator’s role. My noble friend Lord Reay mentioned the FCA’s D&I work, as did the noble Baroness, Lady Kramer. Parliament does have scrutiny over the FCA and many other regulators. Assimilated law is being replaced, in line with the UK’s domestic model of regulation. This means that the UK’s independent financial services regulators will generally set the detailed provisions in their rulebooks, instead of firms being required to follow EU law. This approach was following two consultations and it received broad support across the sector. Parliament debated this approach during the passage of the Financial Services and Markets Act 2023, and it secured parliamentary support then.

The Government recognise the importance of effective parliamentary scrutiny of the regulators, including their approach to rule-making and other activities that they may choose to undertake. That is why FiSMA 2023 introduced additional mechanisms to strengthen Parliament’s existing ability to scrutinise the regulators’ work, including requirements for the regulators to notify parliamentary committees, such as the new Financial Services Regulation Committee, of their consultations and to explain, when publishing final rules, how representations by parliamentary committees have been considered. I warmly welcome the formation of that committee. It will be hugely helpful, and it is quite right and proper that independent regulators are held to account by Parliament.

I will write with a few further comments on the investment in the UK capital markets by UK pension funds and on a few other issues which have arisen and need a fuller response. For the time being, I am very grateful to my noble friend Lady Altmann and many other noble Lords for their continued championing of the investment company sector.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD)
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I am sure that my interruption is unwelcome, for which I apologise, but it is quite important. Further consultations have been measured and, as my noble friend Lady Kramer pointed out, the aspects of PRIIPs and MiFID where there has been gold-plating that is causing these problems were never consulted upon. It is within the gift of the FCA to make changes.

These cost disclosure issues have featured massively already in two consultations from the Treasury on PRIIPs and in evidence that was submitted to the Treasury last summer, after my own attempt to amend FiSMA 2023. On these discrete issues, legislation does not need to be amended; what the FCA is doing needs to be amended. Support has been heard from these Benches and the Labour Benches for the Government taking more intrusive action. Has that message been received or are we still bogged down in officialdom and consultations? That is what we want to know.

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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As I set out in my closing remarks, the consultation is for AIFMR. It is not related to the other issues that the noble Baroness has raised, because, as she says, they have already been consulted on. That element of it is under consideration by the Economic Secretary to the Treasury. There may be more news fairly shortly.

I am grateful to all noble Lords who highlighted the substantial challenges faced by this uniquely British, nay Scottish, asset. I am also grateful that the noble Baroness brought her concerns to the Government’s attention. I hope I have reassured noble Lords directly that the Government take this issue very seriously, that we are working at pace on finding a resolution and that I will ensure that all Ministers and regulators are aware of the strength of feeling in your Lordships’ House. I hope to have further news in due course.

Baroness Altmann Portrait Baroness Altmann (Con)
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I thank my noble friend for her concluding remarks and engagement with this issue. I hope that she will indeed take some of the messages back to the department because, so far, they do not seem to have been taken on board as seriously as one might have hoped. We all want thriving capital markets in this country, and I thank all noble Lords—I will thank them individually rather than taking up the House’s time now—who each explained so clearly why this is so important.

That is where I would urge my noble friend to focus, because the SIs for PRIIPs and MiFID, even if they were introduced “quickly”—which presumably means in the coming months—would still require further consultation before anything changed in the market, unless listed investment companies are excluded from the definition of the CCI. But that is not the current proposal. We are actually keeping them in there, despite the industry unanimously recommending against that; hundreds of members of the industry have said that this needs to be done. If this is not achieved—and it sounds to me as if it may not be in the plan—the Bill would be the quickest way to resolve the problem that is affecting the market now.

I urge my noble friend to urge her colleagues to speak to the industry, because selling waves have begun again. This is depriving the economy and investors in this country of capital that otherwise would be directed here. It seems there is a sense of complacency at the regulator and a fear of change, even when it is clearly required. As so many noble Lords have said, we need to ensure that investment comes back to the UK.

Could my noble friend perhaps write to me—I hope that we can engage further on the Bill in the coming weeks—on whether it is the FCA’s interpretation of the legislation that is causing the problem? No EU country is interpreting the very same rules in the way that the FCA has applied them to our investment companies. No other investment company, either in the EU or anywhere else, is misleading investors in this same way. If that is the case, the guidance from the FCA could be brought into line with that everywhere else in the world, and that would solve some of these issues in relatively short order.

As I have said, I would be happy to withdraw the Bill or discuss amendments with my noble friend—for example, to add a clause saying that there must be consultation on removal from the AIFMR, if that is considered essential. I hope that the views of the House, which have been unanimously expressed, will prevail, as this matter cannot be left to languish any longer, because the industry of which we are so proud is under existential threat. Capital is fleeing this country and we need it to come back. I thank my noble friend for all her engagement.

Bill read a second time and committed to a Committee of the Whole House.

Employment and Trade Union Rights (Dismissal and Re-engagement) Bill [HL]

Second Reading
Moved by
Lord Woodley Portrait Lord Woodley
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That the Bill be now read a second time.

Lord Woodley Portrait Lord Woodley (Lab)
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My Lords, I am grateful for the opportunity to propose for your Lordships’ consideration what I believe are urgently needed changes in the law to protect UK workers from gross exploitation. I am referring to the shameful practice of dismissal and re-engagement, otherwise known as fire and rehire, where workers are threatened with the sack unless they agree to cuts to their pay, terms and conditions.

Exploitative employers have abused a legal loophole for many years by threatening to sack staff while protecting themselves against unfair dismissal claims, with so-called substantial reasons for the firing. This immoral practice took off in the pandemic, when major firms, such as British Airways, British Gas and many more took advantage of the crisis to boost profits off the backs of their own workers.

Fire and rehire continues post pandemic. At PHINIA in Gillingham, workers began industrial action in January over plans to remove paid lunch breaks, and the firm has now threatened to fire and rehire everyone to force through this pay cut. This does not affect just the private sector; Wiltshire Council is trying to fire and rehire care staff, social workers, traffic wardens and others to remove unsocial-hours payments. Border Force staff at Heathrow Airport are fighting against proposed pay cuts of up to 20% due to changing their shift patterns and allowances.

We ask ourselves how on earth this can be allowed to happen. Firms currently have free rein to cut workers’ pay, terms and conditions, as long as they tick a few boxes, such as claiming financial difficulties and holding a superficial consultation. There is no need to prove that the proposed cuts are necessary to save the business from collapse or for redundancy payments if staff do not agree to new contracts. They just lose their jobs. It is scandalous. There is also no need for company directors and executives to cut their pay and pension pots; that is just for the little people.

The Government accept that fire and rehire is a problem, but say that legislation is not needed because they have a new code of practice. While I welcome the Government’s efforts, the code as written is completely toothless. There is no requirement for employers to open the books to prove that the pay cuts or other changes are absolutely necessary to stop a firm going bust.

The code creates no new legal obligations on employers at all. In fact, paragraph 12 is clear that breaching it does not make a company liable to any proceedings. The worst that can happen is that they might—I emphasise “might”—have to pay an extra 25% on any compensation awarded by an employment tribunal, no matter how small. With respect, this is woefully inadequate punishment for such abusive behaviour.

Of course, we all know that employment tribunals are notoriously hard for workers to win. As I have said many times, what is needed to end these fire and rehire abuses is legislation. I offer my Employment and Trade Union Rights (Dismissal and Re-engagement) Bill to your Lordships for consideration.

I am grateful to my noble friend Lord Hendy for drafting the Bill alongside Professor Keith Ewing. I am grateful to Barry Gardiner for bringing the Bill to the other place and raising public awareness. I am very grateful to the TUC and its numerous member unions who support the Bill, and particularly to my union, Unite. I am very grateful to my party, the Labour Party, for backing the Bill enthusiastically, and for committing to end fire and rehire abuses within the first 100 days of government.

Before I explain what the Bill does, let me explain and make clear what it does not do. It does not ban fire and rehire completely and utterly in all circumstances. That is an important point, which I ask the Minister to take note of. I accept that, when a company is in financial crisis, this might sometimes be necessary, as a last resort, when the alternatives really are seeing the business going down. I think we can all agree that this would be a regrettable but acceptable use of fire and rehire. I am sure the Minister agrees, because this is exactly the scenario the Government always use when they say we must not ban fire and rehire—extreme circumstances, where the alternative is bankruptcy. Likewise, I am sure the Minister will also agree that fire and rehire should never be used simply as a tactic—a “bully-boy tactic”, in the words of a Minister in the other place.

That is exactly what my Bill seeks to address. Quite simply, it puts on a statutory footing the procedure that decent employers—and there are many of them—already follow. Central to this is the requirement for employers to show workers and the trade unions that such an extreme step really is a last resort; to show that, without this drastic action, everyone would lose their jobs because the business would go under. As my Bill puts it, they must show that

“there is a real threat to continued employment”

because of

“the economic situation affecting the employer”.

This is exactly what the new code of practice does not do—not at all. Respondents to last year’s consultation suggested that

“the Code should use a tighter definition of when dismissal could be used, for example when the employer has shown that it is required to ensure the survival of its business”.

Disappointingly, the Government do not agree with this tighter definition, so it is not part of the code.

My Bill would compel bosses to hand over any information

“without which the appropriate representatives would be … impeded in carrying on consultation with the employer”.

Unions could also involve the Central Arbitration Committee if bosses drag their feet or refuse to engage in meaningful consultation. This would be far more effective than the Government’s meek suggestion to employers, at paragraph 26 of the code, that they,

“should share as much information … as is reasonably possible”.

Remarkably, the code then suggests that bosses can avoid sharing even the basics by claiming imminent bankruptcy—how convenient. Paragraph 32 says that,

“if a business is suffering a financial crisis … the employer may not be able to provide as much information as a business in more settled times”.

Then, in paragraph 35, the code gives a get-out clause for any information that bosses believe to be “commercially sensitive or confidential”. How convenient, yet again. My Bill would allow information to be withheld only if sharing it would

“seriously harm the functioning of, or … be prejudicial to”

the operation of the business. I suggest that this is a fairer way of operating.

My Bill would also provide enhanced protection to any workers who refuse changes and find themselves fired as a result. Above all, it would help level, at least to some degree, the unequal playing field between bosses and workers. Right now, bad bosses are using fire and rehire as a tactic to boost their profits at the expense of workers. For these bosses, it is not about saving their business from bankruptcy; it is about using the current cost of living catastrophe as cover, basically to blackmail workers into worsening wages. It is simply not right to treat a loyal workforce—many with long service—in this way. That is why I am asking for support to take the Bill into Committee, where it can rightfully be fully scrutinised and, I am sure, vastly improved by the many fine minds we are fortunate enough to have in this place.

In finishing, I ask the Minister the following questions. Does he accept that my Bill does not ban fire and rehire in all circumstances but simply stops it being used as an abusive tactic by bad bosses to boost profits? Does he appreciate that fire and rehire could still be used as a last resort when a company is genuinely facing financial ruin, and that this line of argument should not be used as a reason to oppose my Bill? Does he believe that the code would have stopped British Airways, British Gas or, to take a live dispute, the Border Force at Heathrow Airport, where the Home Office is firing and rehiring loyal staff over rosters and allowances? Does he appreciate that the 25% uplift—the one and only sanction contained in the code—applies only if a worker wins at an industrial tribunal, which is difficult at the best of times? Does he understand that this lack of any serious consequences is why the code is widely seen as toothless? Will he explain why the Government did not agree with the consultation respondents who said that dismissal should be used only when needed to ensure the survival of a business? Does he agree with respondents who warned that the code was “too weak” and would actually “legitimise” fire and rehire? I thank noble Lords for their patience and consideration. I beg to move.

Lord Balfe Portrait Lord Balfe (Con)
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My Lords, it is a pleasure to follow the noble Lord, Lord Woodley, in this debate. I trust that what I say is fully within the guidelines laid down by my noble friend Lord Cameron when, as the then Prime Minister, he appointed me here and said, “See what you can do to help the trade unions—just make sure it does not cost us any money”. I think the Bill helps the trade unions and I am not sure it costs the Treasury any money—so it is within those guidelines.

First, I should make some personal declarations. As the register will record, I am the honorary president of BALPA, the pilots union, and very proud to be. I have also spent most of my life as a member of AUEW, TASS and its successors, which now puts me in the same union as the noble Lord, Lord Woodley. When I began my trade union career at the age of 16, it was in the Civil Service Clerical Association, which is now the PCS. On this day, when it launches its ballot for industrial action, it gives me great pleasure to endorse what the PCS general secretary, Fran Heathcote, said: fire and rehire is nothing short of bullying and is a nasty ploy used by unscrupulous employers to drive down pay, terms and conditions. It is worth placing that on the record. It was with that union that I held my first union position, when I became the acting chairman at 17. Because the communists of the Labour Party could not agree who should be the vice-chairman, it ended up as me, and then the chairman very inconveniently fell ill. At the age of 17, my bedtime reading was Citrine. I will not move today that the previous question be put, but that was one of my favourites in the Citrine handbook.

Let me move on. This Bill effectively tightens the rules around fire and rehire, but it really is an absolutely disgraceful practice for workers such as those I just quoted in the PCS ballot, many of whom have had their terms and conditions for 20 or 30 years—this is not something they got in a recent industrial action. This is not the way you build good industrial relations. Now, the CIPD recently did a survey and could not work out how many employers had used fire and rehire. It decided in the end that it was about 3% who had done so by dismissing and rehiring workers. That sounds a very small number, does it not? But it is over 40,000 employers. That is a big number, so we need to remember that, while this is not the biggest problem in Britain, it is certainly a big problem, particularly if you happen to be one of the workers involved.

I have spent my entire life in bits of the trade union movement; 25 years of it was spent in the European Parliament. One of the differences between that Parliament and our Parliament is that with the people in that Parliament who sit on this side of the House—the Christian Democrats, which was where I was for at least some of the time I was there—there is a trade union organisation within the party, led by a German Christian Democrat trade unionist. We used to have regular meetings, and our job was to harmonise the relations between capital and labour—not to stir them up but to make them work better, in the interests of society and industry. That is best done by co-operating with each other.

The trouble I sense with the present Government, I am afraid, is that the default position seems to be disinterest bordering on hostility. That is not a sensible way forward in industrial relations. All the people who go to work every day—I often use this example in my union—do not come from privileged backgrounds. Most pilots have worked their way up; they have been to technical school, found places in universities, become graduates and then engaged in very expensive training to do this hugely skilled job. The reason BALPA’s strapline was “Every flight a safe flight” was because the pilot is responsible for possibly 300 passengers and £150 million-worth of equipment. There was not a single fatal passenger plane crash in the world last year, but that exists because of work between the two sides of industry—and that should be our standard.

The standard we should be working to—I am afraid I have a lot of unfortunate heroes in my life—is that put forward by the late Ted Heath. He genuinely believed —although he got it a bit wrong on occasions—that the two sides of industry had to work together. They do have to work together; that is how we get a prosperous economy.

Apart from my history lectures, one of the things I talk about from time to time is the Conservative Party and its tremendous ability to reinvent itself. It has been doing so ever since it stood up for James II in 1688; noble Lords will recall that that does not appear in the manifesto anymore. But the fact of the matter is that, if we are going to move forward, the new Conservative Party has got to take a leaf out of the Ted Heath book and the European progressive trade union book, and has to learn that the future prosperity of Britain rests on both sides of industry working together for the common good. Working people need a decent wage and the employers need a decent dividend, but what they should not be doing is preying at each other’s throats all the time. That is not the way to build a successful country and a successful economy. I am pleased to support the Bill.

Baroness O'Grady of Upper Holloway Portrait Baroness O'Grady of Upper Holloway (Lab)
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My Lords, I declare my interest as former leader of the TUC. It is a pleasure to follow the noble Lord, Lord Balfe, and also to congratulate my noble friend and fellow trade unionist Lord Woodley on bringing forward this Bill.

In the wake of the P&O Ferries scandal, Grant Shapps, who was Secretary of State for Transport at the time, said on Sky News that the Government would

“send a clear message … that we will not allow this to happen again. That where new laws are needed, we will create them. Where legal loopholes are cynically exploited, we will close them. And where employment rights are too weak, we will strengthen them”.

The Government’s new code of practice, sadly, comes nowhere near meeting that promise. It does not close the legal loopholes that allowed P&O Ferries to evade the law and financial sanctions. It does not strengthen unfair dismissal rights to prevent an employer sacking their workforce, and either rehiring or replacing them on inferior conditions. A 25% uplift in compensation hardly adds up to a deterrent. Noble Lords will recall that the P&O boss brazenly admitted that employers can simply price-in the cost of one-off payments.

Emma Wayland of Keystone Law has said:

“The cynical might say that this can be treated as a tick-box exercise that will present no more than a minor inconvenience to an employer, for whom the threat of fire and rehire can still be used”.

That cynicism is justified and rooted in real experience. It is disappointing that Ministers have pushed through this code when it does not have the confidence of the very people who are on the front line fighting fire and rehire—namely, workers and trade unionists. Businesses use fire and rehire tactics for the simple reason that, in Britain today, sacking workers and rehiring or replacing them on worse paying conditions is far too cheap and easy. Those guilty of this practice over recent years are not just those running a few back-street sweatshops, or a few struggling employers who have fallen on hard times. The roll of shame includes big names in the mainstream, which have absolutely no excuse—the likes of Tesco, British Gas and British Airways.

In many cases, unions have fought back and won, but no working family in Britain should be put through the worry, hardship and humiliation of being treated as throwaway labour. Workers need stronger protection against unfair dismissal from day one in the job and tougher tests that require employers to consult with unions with enough time to explore reasonable economic alternatives. Instead of making it harder for workers to protect their pay and conditions, as with the Strikes (Minimum Service Levels) Act, the Government should recognise that, when faced with the threat of fire and rehire or replacement, workers must be able to respond quickly and exercise their democratic rights to withdraw their labour. Where an employer flouts the minimum standards set out in law, for example by not following the required steps for consultation before sacking workers, those workers must be afforded an immediate remedy, notably automatic reinstatement.

Finally, let us recognise that fire and rehire is often just a fancy name for casualisation: long-standing hotel staff on full-time contracts being rehired on short-hours arrangements; university lecturers facing similar, not least at SOAS, where worse conditions for staff mean a worse education service for students; and seafaring crews on collectively agreed terms and conditions being replaced by agency staff paid a pittance. As TUC analysis shows, it is no accident that black and ethnic-minority workers are twice as likely to find themselves on the sharp end of fire and rehire.

Paying lip service in the form of a code is not good enough. The Bill offers the Government a second chance to get this right, to make good on their P&O promises and to stop the slide towards insecure employment in Britain. I urge the Government to support the Bill so that the decent employer is not undercut by the bad, and so that everyone at work gets the respect and dignity that they have earned.

Lord Hendy Portrait Lord Hendy (Lab)
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My Lords, it is a pleasure to follow my noble friend Lady O’Grady. I too compliment my noble friend Lord Woodley on securing the Bill. I declare my trade union interests as in the register.

Fire and rehire is widespread, as my noble friends Lady O’Grady and Lord Woodley and the noble Lord, Lord Balfe, have demonstrated. It places workers in an awful dilemma: they must accept a cut to their standard of living or face unemployment. The anguish of that horrible choice needs little elaboration at a time when real wages have been stagnant since 2007.

The Office for National Statistics reports that median regular pay in November 2023 was as low as £27,588 per annum, which means that half the working population —16 million workers—earn less. Indeed, a quarter of the UK’s workers earn less than £16,068 per annum. No wonder the Joseph Rowntree Foundation, in its report UK Poverty 2024, estimates that 14.4 million people were in poverty in 2021-22 and nearly 3.8 million people experienced destitution,

“an extraordinary 148% increase over just five years”.

That is significant, because TUC research shows that fire and rehire is used predominantly against the lower paid, and disproportionally represented among the lower paid are, naturally, women, ethnic minorities and those with a disability.

The use of the tactic is not just bad for the workers on whom it is inflicted; it is bad for the economy. According to the ONS, the UK’s economy grew by 0.1% last year and has declined since. Reducing the spending power of workers shrinks the economy still further. That is a powerful reason to address this obnoxious practice.

Currently the tactic is lawful so long as the employer gives the employees the minimum notice of dismissal—contractual or statutory, whichever is the longer. The risk of a successful unfair dismissal claim is minimal for the employer that can show an economic need to reduce labour costs—what the legislation calls “some other substantial reason” for the dismissal. Even if that defence fails, the employer can argue that the offer of reduced terms was reasonable in the circumstances, and that dismissal for rejecting it was not unfair. So in effect the potential 25% uplift on compensation under the proposed code of practice is useless, as my noble friend Lord Woodley said and as the P&O Ferries scandal to which my noble friend Lady O’Grady referred shows, in relation to statutory capped compensation.

Fire and rehire is currently lawful because the law allows both the employer and the employee to give notice to terminate the contract of employment. For that fundamental reason, it is impossible to ban the practice, yet the tactic is plainly unacceptable where it is deployed simply to exploit managerial power in circumstances where the business faces no existential threat.

Its use may at least be understandable, if still not acceptable, in the rare situation where a business faces a dire and sudden crisis. The Bill allows for that so, as my noble friend Lord Woodley has pointed out, it does not ban fire and rehire. Instead, it imposes modest procedural obligations on employers seeking to reduce labour costs in this way. It applies only to establishments with 50 or more employees. It applies only where there is shown to be a real threat to continued employment or to contractual changes likely to affect 15 or more employees. In those circumstances the Bill imposes two obligations on employers. The first is to consult with a view to reaching agreement to avoid dismissals or contractual changes. Those consultations will be, as elsewhere in the legislation, with representatives of recognised unions or elected representatives. The second obligation is to disclose the information necessary to have meaningful negotiations and as required for good industrial relations.

There is an exception for information whose disclosure would seriously harm the undertaking or be contrary to the interests of national security. Any disputes over disclosure can be referred to the industrial relations expertise of the Central Arbitration Committee. Likewise, a dispute over whether there is proper consultation or proper disclosure can be referred to the CAC, which can then either refer the complaint to ACAS for conciliation or determine the complaint itself and make an order. In the case of non-compliance with a CAC order, a worker’s representative can seek a court injunction to compel compliance or to render void any dismissals or contractual changes in breach of the order.

Alternatively, a worker offered re-engagement on different terms may obtain an employment tribunal declaration if the tribunal concludes that the employer breached the Bill’s requirements of consultation and disclosure. In that case, “just and equitable” compensation may be ordered in respect of losses attributable to the dismissal or contractual changes. An employment tribunal may also declare that any “less favourable” variation of a contract of employment is void if brought about by the threat of dismissal where the consultation and disclosure obligations have been breached.

Where an employee is dismissed for refusing a contractual variation, “some other substantial reason” will no longer serve as a justifiable defence; and the two-year qualifying period for unfair dismissal protection will not apply. Dismissal in breach of a CAC order or a collective agreement will render a dismissal automatically unfair. The remedy of reinstatement or re-engagement is strengthened by the Bill in these circumstances.

The Bill will also relieve trade unions of the procedural burdens in relation to industrial action in response to an employer’s proposal to vary terms and conditions under threat of dismissal. The Bill provides that the Secretary of State must be notified of situations giving rise to the obligation to consult, and it will be an offence on the part of the undertaking and of any responsible director or manager not to do so.

By these means, so long as the employer does its reasonable best to consult and disclose, it has nothing to fear from litigation and can achieve variation of terms and conditions, if necessary by compulsion. I commend my noble friend Lord Woodley’s Bill to the House.

Lord Prentis of Leeds Portrait Lord Prentis of Leeds (Lab)
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My Lords, what happened at P&O was a dreadful abuse of employment rights—an abuse that was rightly condemned but one that, regrettably, is not limited to a few ruthless employers such as P&O. Employers across our economy, public sector and private sector alike, are now routinely using fire and rehire to force through unilateral changes to employment contracts—British Gas being among the worst.

During the 2020 Covid-19 lockdown, while the nation applauded our essential workers, British Gas, unbelievably, threatened to fire and rehire its entire workforce of 20,000. In May 2020, all employees were told that they would have to sign new contracts—contracts far worse than the ones they had—or face redundancy. The new contracts increased hours with no extra pay, took away payments for weekend working and undermined the long-standing pay agreements within gas. Trade unions such as mine that stood up for the workforce were threatened with derecognition; for British Gas, the current legislation is an irritant to be ignored.

Many in this Chamber have expressed their concern at the dreadful salaries earned by our care workforce. The care service is on its knees, with hundreds of thousands of vacancies, yet who would believe that care workers could be the victims of fire and rehire? But that is what is happening to care workers employed by Shaw healthcare in Powys. Carers, already the lowest paid, are losing their contractual 30-minute paid break; their shifts are being extended with no extra pay; their contractual right to eating prepared food with residents is being snatched away; and their livelihood is gone if they do not sign new contracts.

Fire and rehire is now routinely used across our public services to undermine employment rights. Sandwell Leisure did not want to pay the nationally agreed 2.75% pay increase. So what did it do? It fired and rehired its entire workforce of 280. Bristol-based St Monica Trust, a care trust, in seeking to cut the pay of senior staff by 21% and all other staff by 10%, threatened to sack care workers if they did not accept the pay cut. For some, the pay cut was over £3,000. Clarion Housing, the UK’s largest landlord, is using the threat of fire and rehire to force through worse pension arrangements for staff transferred from local government. Councils, too, from Tower Hamlets to Caerphilly and Wiltshire, are issuing new contracts with care workers and social workers told to accept worse conditions or be dismissed. The list goes on.

I make it clear that today is not about seeking to improve the pay and conditions of vulnerable workers; that is for another day. Today I want to impress on noble Lords that the devastating use of fire and rehire, dismissal and re-engagement, is not the tool of a few recalcitrant employers who can be ignored. When we talk about fire and rehire, we use terms such as “unscrupulous”, “abhorrent”, “cynical” or “a few bad apples”. The implication is that we are dealing with a few ruthless employers. Nothing could be further from the truth. Employers across the whole economy, including public service employers, are increasingly using fire and rehire and increasingly just paying lip service to current legislation.

The draft code of practice from our conciliation service will do nothing to constrain employers while the current legislation is so weak. That is why I ask this House to support my noble friend Lord Woodley’s Bill, rather than relying just on a draft code of practice—a code which is not fit for purpose and which we all know is toothless.

Lord Sikka Portrait Lord Sikka (Lab)
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My Lords, I congratulate my noble friend Lord Woodley on this much-needed Bill, which will make the UK a better place for workers and businesses alike. As my noble friends Lord Woodley and Lord Hendy have explained, the Bill does not completely ban fire and rehire; it merely curbs the abuses and requires companies to properly consult employees on a statutory footing before any major restructuring that might lead to fire and rehire.

The Bill has reminded me of the words of a former US Republican President, who said:

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration”.

That President was Abraham Lincoln and his views are as relevant today as they were in 1861.

We all know that within our economic system there are antagonisms between labour and capital, but there is also a mutual dependence of the two. Workers’ rights are an indispensable part of wealth creation and building a sustainable economy. The Bill comes at a time when fire and rehire is being used as a bully-boy tactic to undermine workers’ pay and conditions across a number of industries.

A study by the Observer newspaper stated that 70% of employers using fire and rehire of staff on worse contracts maintained healthy profit margins and that, in most cases, also increased executive pay. British Gas used fire and rehire tactics to dismiss 500 engineers, but it has now reported a tenfold increase in profits in just one year. At Asda, some 7,000 workers are being impacted by fire and rehire as private equity owners seek to boost their returns.

We cannot build a sustainable economy by increasing worker insecurity. That has not been done anywhere, yet it is what the Government are trying to do here. Workers’ economic security is undermined wherever employers wield the capacity to demand, deny or discontinue work completely at will and with impunity. The Work Foundation estimates that in 2023, around 6.8 million workers—around 21% of them—were in severely insecure work, with wholesale and retail, agriculture, professional and scientific, and hospitality workers particularly badly affected. The Chartered Institute of Personnel and Development has reported that, since the pandemic, nearly one in 10 workers have been told to reapply for their jobs on worse terms and conditions or face the sack.

Women are 2.3 times more likely to be in insecure work than men. People from ethnic minorities, 18 to 25 year-olds and 1.45 million disabled workers are more likely to be in insecure work than any other sections of our population. Fire and rehire increases insecurity, anxiety and physical and mental health problems. Up to 300,000 people with mental health problems arising from their work situation lose their jobs each year. Around 51% of long-term sick leave is due to stress associated with work and insecurity. Since 2019, the total annual cost associated with poor mental health has increased by 25%. Employers are losing £56 billion a year because of the insecurities created for workers. Through this Bill, we can recover a part of that: it offers a road to economic recovery and improved labour supply.

A considerable body of scholarly research shows that improved worker rights and rewards provide a solid foundation for strong and stable economic growth by supporting demand and stabilising local currencies and financial systems. Better worker rights are essential for levelling up and result in higher productivity growth, thus leading to faster, stronger and sustainable economic growth. Improved worker rights result in a better distribution of income, both among workers and between workers and companies. In other words, better worker rights lead to a larger output that is more evenly distributed as well. As the benefits of faster growth are more evenly distributed, local demand tends to be stronger and more stable, preventing our town centres becoming economic deserts with swathes of empty shops.

In the face of fewer safeguards for workers, cuts in income reduce demand and Governments increasingly rely, as the current Government are doing, on a shrinking proportion of the population to reflate the economy. Households with unpredictable employment rights and loss of livelihoods resort to pawning things and borrowing money, which ultimately leads to lower spending, lower consumption, a higher risk of financial distress and higher risks to the financial system. We all know what happened before the 2008 banking crash; many people simply could not afford to pay their mortgages. That is one of the consequences.

In short, the Bill curbs the abuse of fire and rehire policies and facilitates economic benefits. I strongly urge all Members of this House to support it

Lord Browne of Ladyton Portrait Lord Browne of Ladyton (Lab)
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My Lords, it is a genuine pleasure to follow my noble friend Lord Sikka. It is not the first time his admirable forensic skills have made the House much better informed. He is, in my view, the antithesis to the widely held view that accountants are boring; he is certainly not.

I also commend my noble friend Lord Woodley and the ecosystem that supported him, not just for drafting this legislation but for the powerful, comprehensive and convincing speech he introduced the debate with. Mostly, I thank him for securing a Second Reading that helpfully coincides with the publication and laying of the Government’s feeble draft code of practice. It is remarkably easy, as all the speeches today have shown, to support this legislation. It is even easier to criticise and disaggregate the useless code the Government have come up with. I intend to spend a bit of my time trying to do that.

I have read almost every word that has been recorded in Hansard about the practice of firing and rehiring, and there seems to be a broad consensus on the unfairness of this practice. The debate is not a diagnostic one; we all know that this is a problem. It is rather a debate about solutions. While I recognise that recently the Government have fulfilled their commitment to publish and lay a draft statutory code of practice, I simply do not believe that it will have a material impact on removing the thumb on the scales that currently tilts the balance of power strongly in favour of unscrupulous employers. There is a catalogue of companies, and now, unfortunately, local councils, which have used this dreadful practice. There is no point in going through them; we all know that.

Given that the introduction of this code was first announced in response to P&O Ferries instituting mass redundancies in March 2022, I understand those who feel a little sceptical when the Government claim they wish to provide urgent redress. What can explain the slowness with which they have moved in this matter? The then BEIS Minister, Paul Scully, explained the Government’s commitment to introduce a statutory code of conduct in emotive and highly colourful language. He described the practice of firing and rehiring as “deceitful”, and “disgraceful”, labelled the actions of P&O “appalling” and “unscrupulous”, and vowed that the Government would “stand up for workers” against the “flagrant disregard” shown by companies that use sudden mass dismissal as a negotiating tactic. What has been the response to this clarion call—the Government’s own clarion call? We have seen the glacial emergence of a code of conduct over two years that will impinge on employers only at the point if a case were to reach a tribunal.

Given that, it may be worth examining the degree to which the tribunal system is currently calibrated to provide swift and effective redress for victims of this practice at all. Although backlogs have eased from pandemic levels, the average waiting time for claims to arrive at final hearing has increased, with some cases taking between 12 and 18 months from the date of issuing a claim. Furthermore, the Government have just begun a consultation on reintroducing fees for those who wish to bring a case before an employment tribunal. The last time this was tried, the Supreme Court ruled that unlawful in UNISON v Lord Chancellor 2017, and the judgment in that case was unambiguous. It cited the Leggatt report, which had identified the absence of fees as one of the three key elements that had made tribunals successful, and it concluded that levying fees was unlawful because

“it has the effect of preventing access to justice”.

The fees currently being considered by the Government are appreciably lower and accompanied by a fee remission scheme. They will certainly not encourage victims of fire rehire to have recourse to the tribunal system, and they will likely act as a further discouragement.

My final point on the tribunal system concerns the Government’s reasoning for introducing fees. The open consultation they have started explains that it is unfair for the taxpayer to bear the burden for the tribunal system while those who have recourse to it can access it without charge. Are they serious? There are some areas of policy in which this reasoning holds true, but this is not a question of repaying an investment or a discretionary activity; it is about access to justice for the vulnerable, which is a fundamental tenet of a civilised society.

Rather than reposing its faith in the forthcoming code of conduct, the Bill enshrines good practice into law and provides clearer lines of redress where appropriate standards are not met. Ultimately, the Bill is about justice and accountability. It protects workers from having their pay and conditions degraded under duress and ensures that, where companies or public sector employers, such as councils, choose to do this, they will do so only at the price of breaking the law.

Guidelines in the form of a non-binding code of conduct are simply inadequate. I do not believe that managers who threaten to fire several hundred employees unless they accept a pay cut do this without knowing that they are doing something wrong. They simply choose to do it anyway. The Bill prevents that, enshrining good practice into law. As my noble friend Lord Woodley told your Lordships’ House, the Bill would mandate appropriately deep consultation with unions. It would allow employees automatically to claim unfair dismissal in the absence of the best practice, and it would allow unions to do what they are designed to do and take rapid action where a reaction is needed to a fire and rehire threat.

Clause 2 speaks directly to the debate about equity between employers and their staff. First, it states that any change to an employment contract would be void if it was obtained under threat of dismissal. Secondly, it removes one of the arguments currently in the Employment Rights Act 1996 that an employer can make, in the case of fire and rehire, to show that such a dismissal was fair—namely, that there is “some other substantial reason”. Instead, the employer would be obliged to prove bad conduct, lack of competence, a threatened breach of the law or that the employee’s job had become obsolete. This specificity will ensure that fire and rehire will no longer be possible as a negotiating tactic.

Crucially, as my noble friend stressed and re-stressed, the Bill does not ban fire and rehire outright. There are cases where it is the only means of protecting jobs by preventing a company from collapsing altogether. The Bill is an attempt not to strangle enterprise but to ensure that those whose hard work has made an enterprise possible are protected from having their pay and conditions changed by managerial fear.

I began my remarks by saying that politicians of all stripes have acknowledged that the use of fire and rehire as a negotiation tactic is wrong. Granting that, the question that follows is about what solution we believe will be most effective: is it the passing of provisions that will explicitly prevent this practice, or placing our trust in adherence to a code of conduct that is not legally binding? My answer to that question is reflected in the support I offer the Bill and the support I will offer any similar measure that will come before your Lordships’ House.

Lord Davies of Brixton Portrait Lord Davies of Brixton (Lab)
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My Lords, I should declare that I am a member of Unite, an excellent trade union. I am glad to follow my distinguished noble colleagues in this House; it is an honour. In truth, this has not really been a debate. The case has been set out with total clarity and force. Indeed, there have been no dissenting voices—I am hesitating slightly because my questions will be directed at the Minister, but the Whip is here and can no doubt pass on notes.

The context of the Bill is Labour’s new deal for labour, which would be a much broader and more effective way of addressing the problems that workers face, but the Bill is still valuable, and I congratulate my noble friend Lord Woodley on bringing it before us now, particularly given that is in line with the Government’s stated objectives.

In March 2022, the Department for Business, Energy and Industry Strategy stated that it intended to

“clarify and give some legal force to government expectations that employers should behave fairly and reasonably when seeking to change employees’ terms and conditions”—

that is exactly what the Bill does—and it went on to promise the broad outlines of what the Government wanted to achieve. Given that we are all agreed, including the Government, on the need to take action in this area, I want to highlight and reiterate questions that I hope the Minister will be able to answer.

First, does the Minister accept that this Bill, worth while but limited, will simply stop abusive tactics? That is its intention and that is its effect. It is not a blanket ban on fire and rehire; it is targeted exactly at abusive tactics. Does the Minister accept that that is the Bill’s intention and effect?

Secondly, does the Minister accept that the Bill focuses on being a last resort, where employers are genuinely facing financial ruin, and is not a generalised ban on changing conditions of employment where it can be justified? Does he also accept that there is a weakness in depending on the code? I am sure he would not agree that it is a toothless code, but I hope he can agree that it does not fully address the issues with which workers who are challenged in this way need support.

The issue here is consultation. Again, I quote from what the Government said in March 2022: that the process would involve

“fair, transparent and meaningful consultations”.

What we have in the code is a generalised objective that I suggest does not fully comply with that objective. There is a generalised call for consultation. Consultation must be meaningful, and to be meaningful, it requires not just disclosure of information but a response from the employer to the questions that the workforce puts in response to that information. It must not become just a sort of ritual—“Here’s the information, and we’re going to stick with doing what we wanted to do in the first place”; it needs to be a meaningful, to-and-fro process. I hope the Minister agrees that that is correct and that, given the strength of that definition, the code before us is insufficient.

I hope the Minister will also say that he understands that the 25% uplift on compensation from an employment tribunal, achieved way down the road, is not a sufficient penalty to ensure compliance with the code. My noble friend Lord Browne of Ladyton raised the problems that employment tribunals are facing. Given those problems, an extra 25% compensation way down the road is not a sufficient deterrent. Rather, for some employers it simply becomes a cost of business.

The key issue is that the Bill, narrowly focused, will be used to ensure that this tactic—we do not call it “fire and rehire”—will be used only when it is important for the survival of a business and the protection of employees’ jobs. Maybe the Minister thinks it does not quite get the balance right, but let us sort that out in Committee. I strongly urge the House to support the Bill.

Lord Watson of Invergowrie Portrait Lord Watson of Invergowrie (Lab)
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I am grateful for the opportunity to speak in the gap. I would have had my name on the list, but I did not expect to be here for the start of the debate. I declare an interest, in that this year, I shall clock up 50 years of membership of the union that is now Unite—that is the fifth name the union has held over the years, through a number of nominal mergers, although it did not always feel like that. I was also a full-time official of the union for 12 years, before becoming an MP.

As an MP, I participated in 1992 in the passage of the Trade Union and Labour Relations (Consolidation) Act in another place, an Act probably best remembered for ending secondary picketing and the closed shop and introducing strike ballots, although it also provided some protections for workers in industrial disputes. But it is appropriate that that is the Act my noble friend Lord Woodley seeks to amend through his Bill.

I will not go into the various arguments as there is not time for that. Certainly, I agree that the whole issue of “fire and rehire” should be cast into the wilderness, except in the very rare cases my noble friend mentioned. However, I want to say something about the code. My noble friends Lady O’Grady and Lord Browne said that it was toothless and a waste of time, and that is true. My noble friend Lord Browne said that it comes into use only in industrial tribunals. As a full-time official, I remember representing members at many industrial tribunals. I am not a lawyer, and it was a real uphill struggle. It is always an uphill struggle, unless you have a top-class lawyer—like one or two noble Lords here today—to represent you. So that is not normally a situation in which it is easy to get a meaningful decision. The code is really a waste of time.

It is important that emphasis be put on the whole question of what companies seek to get away with and think they can get away with. It has to be made absolutely clear that those practices are totally unacceptable. The code will not assist with that, but this Bill would, and I look forward to contributing to discussions in Committee.

Lord Leong Portrait Lord Leong (Lab)
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My Lords, I thank all noble Lords who have contributed today, and especially acknowledge the contribution of the noble Lord, Lord Balfe, on the Conservative Benches.

I declare my interests as the director of several businesses and companies, as set out in the register. I have been in business for the past four decades and employed several thousands of people. One of the most important things I have learned from my time in business is that good employee relationships are absolutely vital for business success. My employees have worked hard to enable the business to succeed and grow, and several of them have become very close family friends. I believe that most businesses are good, responsible employers that do the best for their employees. This Bill is not targeted at businesses like those. No, the Bill will affect only a few bad apples in business, those who disrespect their employees and seek to exploit them. As already mentioned by my noble friends Lord Woodley, Lord Hendy, Lord Browne and Lord Davies, the Bill will not prevent any employer changing the terms of its employee contracts or arrangements because of an impending financial cliff edge.

I pay tribute to the dogged determination of my noble friend Lord Woodley, no stranger to long, drawn-out bargaining over employment rights, in bringing the Bill to the House. He has spent decades fighting for workers’ rights as a union official and a union general secretary, and now in this place he brings his Private Member’s Bill, the third attempt in recent years by Labour parliamentarians to seek to make this Government act and recognise that current employment law fails to address the injustice of fire and rehire. This omission, as others have argued, enables companies to threaten their workers with losing their jobs if the management decides it wants to weaken agreed terms of employment. Every year, such shameful bullying has a devastating impact on the security, lives and livelihoods of millions of workers in this country, and despite recent high-profile scandals, fire and rehire continues to be used. Naming and shaming does not work. Expecting bosses to do the right thing has not worked. It is long past time to change the law to make it work for workers.

When the most recent scandals appeared in the media, warm words from the Prime Minister were cold comfort to those who have suffered from the sharp practice of fire and rehire. It is not just the high-profile cases of well-known, iconic British companies that my noble friend Lord Woodley famously described as trading under this country’s name but not in this country’s interests. What is especially galling is that it appears that some of the companies that treat their workers so poorly in fact received financial support from the Government during the pandemic. The Government could have required that companies receiving assistance would not engage in such practices. They chose not to do so. Most shockingly of all, government departments, including local authorities and statutory bodies that really should know better, have offered procurement contracts to companies known to have threatened workers with fire and rehire tactics. Even with my low expectation of the Government, even knowing their heartless attitude towards hard-working people in the public sector, this came as a surprise to me.

There has also been an attempt to give the impression that fire and rehire has mainly been a last resort in the exceptional circumstances of the Covid pandemic. The thorough response from the TUC to the Government’s proposed code of practice demonstrates that this practice was being used before Covid, was used during Covid and has in fact gained prominence in negotiations during the years since the lockdowns ended. The TUC has estimated that one in 10 workers, almost 3 million people, have been subjected to fire and rehire tactics since the first lockdown. Young workers, women, black, Asian and minority-ethnic workers, as referred to by my noble friend Lady O’Grady, and those on low pay have been disproportionately impacted, which only exaggerates the inequalities that many of them already face. This alone is reason enough to consign fire and rehire to the history books by getting this Bill on to the statute book. Roads paved with good intentions, whether labelled promises, pledges or non-binding, just-published codes of practice, lead only in one direction. It is the workers, threatened with either losing their job or continuing to do it in worse conditions, who will always feel the heat. That is why so many of us support my noble friend’s Bill.

Labour’s new deal for working people recognises that outlawing fire and rehire means that workers can be safe in the knowledge that terms and conditions negotiated in good faith cannot be ripped up on threat of dismissal. They will be more secure and more able to plan and save for the future with legislation that gives them security in their pay and terms.

The Bill enshrines in law necessary improvements in consultation procedures where employers want to change employees’ contracts. It will make it illegal to dismiss workers for failing to agree to a contract that leaves them worse off. The Bill ensures that the highly restrictive trade union legislation introduced by this Government does not inhibit action to protect existing terms and conditions for employees. Recent experience shows that fiddling with a code of practice will not be enough. I agree with Unite the Union’s response:

“The idea that a ‘code of conduct’ is going to stop employers like P&O from doing this is just a bad joke”.

The TUC and lifelong veterans of the union movement, such as my noble friend Lord Woodley, know from bitter experience that in the real world, without legislation to prevent fire and rehire, workers will continue to be exploited.

The Bill offers the Government a chance, an opportunity to do the right thing to get ahead of the curve and outlaw this cruel and unjust practice, and to do it now. It will be a terrible irony if the issues addressed by the Bill are dismissed by the Government in favour of a non-binding code that offers weaker legal protections. The time is long overdue to put an end to fire and rehire with robust and binding legislation. My noble friend Lord Woodley’s Bill does just that.

Does the Minister agree that good industrial relations result in higher productivity? Also, will the Government bring forward the long-awaited employment Bill? I look forward to his response to my and other noble Lords’ questions.

Lord Johnson of Lainston Portrait The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
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I am, as always, extremely grateful to noble Lords for this debate. Before we begin, I direct Members of the House to my register of interests, although I do not believe there is any conflict relating to the Bill today. I am very grateful to the noble Lord, Lord Woodley, for bringing this Private Member’s Bill to this House. It affords us an extremely helpful debate, and I will go through some of the points shared by so many Members of this House who are rightly concerned that the primary function of a strong economy is a fair workplace regulatory framework.

I absolutely agree with the noble and wise comments of the noble Lord, Lord Leong, at the end of his address, that we should have strong relationships between the people who work in our industry and the people who employ them—with the shareholders, investors and consumers, and in fact with our entire habitat and environment. That is exactly the sort of harmony that this Government are trying to deploy.

I will talk about some of the technical elements around the Bill and dispel some misconceptions. The first misconception to dispel, if noble Lords will allow me, is that the P&O situation was a dismissal and re-engagement process. It was not. If I may, I will correct noble Lords who have conflated that situation—which in my view was absolutely abhorrent behaviour by an organisation with such lineage as P&O towards its staff, who had such loyalty to the company. It was strongly condemned at the time by the Government and is continually condemned by the Government today, and by me personally. I am aware that there is an inquiry by the Insolvency Service into P&O, on which it would be inappropriate for me to comment, but at no point should noble Lords conflate what P&O did with the concept of dismissal and re-engagement.

I will also touch on the principles around the proclivity of companies to use this practice to control their workforce. There is a great deal of anecdotal evidence, but there is not a great deal of specific evidence to suggest that this is as widespread as noble Lords may recommend. In fact, some of the high-profile cases—they tend to be so because they are relatively unique; this is important—often resulted in better outcomes for the employees post the relationship renewal with the unions. It is important to understand how big a situation we are dealing with here; it is not as significant as people suggest. The statistics vary significantly—from one in 10 to 3%, whatever that may be—which causes me concern. I am delighted to make a commitment to continue to do more work on how significant a so-called problem this is.

I will make two very important points about the principle of dismissal and re-engagement. First, for me, it is an extremely useful and powerful mechanism to allow employers to engage effectively with their workforce to create and establish new terms and conditions that may be appropriate for the modern age or for the needs of the company at the time. It is very important that we retain those flexibilities. The concept of dismissal and re-engagement is also very valuable in resetting and clarifying employment terms; I am sure that I am surrounded by people with far greater legal expertise on that than me. As I said, it is not simply a question of using this as a mechanism to bully staff; it is a very important legal process for the contractual relationship between the employer and the workforce.

My next point is something I think we are all agreed on. While I have great respect for the Bill of the noble Lord, Lord Woodley, and indeed for the noble Lord himself, we must have the flexibility to enable companies to manage their workforce in times of crisis. I am sure that, when we are faced with these situations ourselves, either as employers or workers, and we need to come together to respond to an economic crisis such as Covid, it is absolutely right that we have mechanisms to enable us to protect the workforce. This is about fairness, protecting workers and allowing us to have a flexible workforce. It will allow me and my friends, associates and children, and the rest of our citizens, to have the opportunity to work in a flexible environment that has not become too rigid or ossified to respond to economic volatility.

However, very importantly, this should never be used to bully the workforce. The code is very strong on this; it is extremely clear that it is not to be used inappropriately to try to force unacceptable terms on a workforce. Instead, what the code does is clarify the obligations of the employer to ensure that they have to consult with their workforce. For the first time, they have to—this is very important, when you look at the other reasons for dismissal and re-engagement—look at alternatives, not just to the overall plan but to how the individual workers themselves are treated.

There is the 25% uplift, and I take noble Lords’ comments, including those of the noble Lord, Lord Browne, on the tribunal service; I am very sensitive to that. I will come back to the noble Lord on his comments on the workability of that process, because it must be an easy-to-use process that is accessible; that is absolutely at the core of protecting workers’ rights. But we do have the 25% automatic uplift that can be fed into the process. There is an obligation—I believe the code advises it in every case—to consult ACAS when it comes to using dismissal and re-engagement. These are actually quite significant.

Clarity is very important. As we know from statutory codes—again, I defer to noble Lords who have greater legal experience than me—they are central in ensuring that we have a strong framework for navigating employment law and giving protections to workers, and, very importantly, also giving obligations to employers. Having been on both sides, and certainly as an employer, the more clarity I can have about how I can work with my workforce, the better. It is very clear from the tone of the document and this Government that it is the expectation that this is a last resort, that there is a significant degree of consultation and that every other option is exhausted before it is appropriate to use dismissal and re-engagement.

Lord Leong Portrait Lord Leong (Lab)
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I thank the Minister for giving way. Does he agree that the Bill offers employers the flexibility to consult their workers before the terms of the employment are changed? It does not ban the practice; it is just a last resort that offers a consultation period with the employees.

Lord Johnson of Lainston Portrait Lord Johnson of Lainston (Con)
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I am very grateful for that challenge. I will now turn to the Bill. As I said, many elements of its sentiment are wholly welcome, but its practical application would result in less fairness, wealth and job security than the noble Lord might wish. There are several reasons for that. First, the increased consultation becomes extremely onerous on companies. Often you have a very limited period of time to react to a significant economic circumstance. As I said, this is dismissal and re-engagement, rather than simply some type of long-term planning for a business. We must be extremely careful about the onerous conditions that we are placing on companies. I have looked through the Bill, and they are substantial and, I am afraid, heavily tilted towards union practices—maybe because every Member of the House who has spoken so far, apart from the Front-Bench spokesman opposite, is a member of a union. In many instances, not all companies have union bodies represented within them and not all workers are members of unions, so it is possible to conflate those two consultation processes, which is inappropriate.

It is also very difficult. While I have a great deal of sympathy with the principle of a so-called bankruptcy clause, it is not a position that those running a business want to be in that they can do something only if they are about to go bankrupt. The reality, as I think Hemingway said, is that you go bankrupt:

“Two ways. Gradually, then suddenly”.

You have limited time to act and have to be precipitous. You must try to prevent the point at which you go bankrupt, because otherwise all your staff will lose their jobs.

The principle of what we are discussing is how to protect as many workers as possible, in a difficult situation. The code does, but I am afraid that the Bill that the noble Lord, Lord Woodley, has put forward would put at risk the security of more workers than it would protect. Importantly, it removes the breadth and range of principles around which dismissal and re-engagement can be used. That is difficult, because businesses require flexibility and it should not be up to politicians to decide this on a case-by-case basis. That would cause enormous problems, reduce flexibility, make it far harder for businesses to operate appropriately, and reduce employment in this country and security for workers.

However—and I personally will be pleased to engage in this—before the code comes into force in the summer, there will be a full debate in both Houses. I have been very clear with my officials in the department and to my colleagues that we will keep this under review. It is right that we understand exactly how many companies are using this practice and to assess that more appropriately. As I said, I will look into the comments from the noble Lord, Lord Browne, around tribunals.

As the noble Lord, Lord Woodley, knows, I continue to be extremely desirous of continuing to engage with him on this important subject. Nothing is more relevant to this Government than strong relationships between investors, companies, the people who work in those companies, consumers, the broader citizenry and the environment to create the sort of harmony that gives us growth and security for the future.

Lord Woodley Portrait Lord Woodley (Lab)
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I thank the Minister and your Lordships. I think we can all agree that this has been a stimulating and valuable debate. I do not know about anyone else, but I have certainly learned some lessons from today’s speakers and I thank them for their excellent contributions.

I thank my noble friend Lord Balfe; it was nice to have cross-party support, especially as nobody here has spoken against my Bill. Also, on this important issue, it is nice to listen to your own trade union roots. One interesting comment—which I thought about mentioning but did not—is that, in a recent analysis, in which around 1,800 participants were surveyed, 3% indicated that they had used fire and rehire. Across the business population of Britain, as was said that this could equate to 40,000 employers; it is actually 48,500 employers. So this is not a small issue. If you look at the scope and size of the problem surrounding us at the moment, you see that it is almost a pandemic.

As always, I found my noble friend Lady O’Grady’s contribution stimulating. She is correct to suggest, again, that the Government did not give very strong commitments to stop these abuses happening in the past and, to make sure they do, they need to put legislation in place to stop the casualisation of our industry, which blights working people. There is no doubt in my mind that assuring the importance of workers’ rights from day one would go some way to helping prevent the abuse that is out there.

I thank my noble friend Lord Hendy for his forensic analysis of the Bill and for explaining the legal logic behind it. It is always interesting to listen to an expert and it is good to know that people know what they are talking about. We all owe him a great debt of gratitude for drafting this elegant and powerful piece of legislation. He points out that the millions of predominantly low-paid, black and ethnic minority workers who will be, and are indeed being, attacked by fire and rehire are not protected at all under the current proposals, which is why we need legislation. I thank him for those comments.

I thank my noble friend Lord Prentis for confirming what I have said: this is not just about the private sector but is endemic right across the public sector. The examples that he gave were clear for everybody to see.

I thank my noble friend Professor Lord Sikka for highlighting the important economic advantages to the Bill that are so desperately needed to rebuild our broken economy and to give people security in their jobs and as workers. All that is really important and is contained within the Bill. If anyone disagrees with me that at the moment our country certainly needs that security—there is no doubt at all about that.

On my noble friend Lord Browne’s comments, I did not appreciate until he mentioned this earlier today that the Government were indeed thinking of bringing back employment tribunal fees. When you realise what that could mean in relation to the proposals that the Government have down there, never mind the outrageous time it takes to even get an industrial tribunal heard, that is detrimental to the well-being of workers right across our country.

To my noble friend Lord Davies, I say that there is no doubt that a new deal would be incredibly important for us. He mentioned that the limitations within the code of conduct are clearly there for everybody to see, and he highlighted, as indeed did numerous speakers today, the limitations of what is presently on the table. That is why it needs changing.

I am grateful to my noble friend Lord Leong and, as I said in my speech, I am grateful for the support that my own party has shown for the need for change and for the Bill. It is really important that we bring in the legislation that is needed, and I sincerely hope that if we cannot get this Government to move at the moment, my own party in power will indeed honour its commitments.

The Minister mentioned P&O and said that, to some extent, it was not a case of fire and rehire. I accept those comments, but at the same time, with respect, it got away with it, and did so when the Government promised that it would not. It is as simple as that. The Minister said that what is actually happening out there may not be as significant as speakers point out. I say to the Minister that, with respect, he is absolutely wrong on that—hence the comments that the noble Lord, Lord Balfe, made in his contribution.

I thank the Minister for his response, but I am bitterly disappointed that, although the Government accept that there is a problem with fire and rehire, they are not prepared to give real support to struggling workers who are facing the prospect of being forced out of their jobs and seeing their wages and conditions slashed. It is simply unacceptable that workers can be fired and rehired without proper consultation and fair compensation, and, despite the Minister’s assurances, the code of practice is simply no substitute for legislation, as all speakers today have expressed to him very clearly. As I said, nobody here today has opposed the Bill.

I am also disappointed that the Minister has not answered satisfactorily the straightforward questions that I posed to him, and I respectfully request that he write to me on those particular issues.

I will just say this to the Minister. We have nothing to fear from the Bill and, if I am honest, I have yet to hear any coherent argument against it. If the Government have serious objections, I urge them and the Minister to engage with the Bill in Committee. I thank all noble Lords again for their contributions and for being part of this debate today and I beg to move.

Bill read a second time and committed to a Committee of the Whole House.

Schools (Mental Health Professionals) Bill [HL]

Second Reading
Moved by
Baroness Tyler of Enfield Portrait Baroness Tyler of Enfield
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That the Bill be now read a second time.

Baroness Tyler of Enfield Portrait Baroness Tyler of Enfield (LD)
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My Lords, I am delighted to introduce this Bill on a subject that is very close to my heart. I have been calling for counselling to be available in all schools since I first entered the House. I declare an interest as vice-president of the charity Relate. My heartfelt thanks go to the many organisations in the sector that have shared their expertise and briefings with me in preparing for this debate.

Only last Thursday, we had a good debate on the vital role that schools play in promoting good mental health and well-being. Along with other noble Lords, I talked about the need for a whole-school approach to mental health and highlighted evidence pointing out the links between children and young people experiencing mental health difficulties and attendance, exclusion, bullying and academic attainment. My Bill, which provides for all schools—primary and secondary —to have a counsellor or equivalent-level mental health professional, very much fits with that whole-school approach.

Our many previous debates on children’s mental health have revealed a fair degree of consensus that the scale of the problem is growing and requires an ambitious and comprehensive response. It is also clear that the Government take this issue seriously and have taken important steps to improve mental health support in schools, the NHS and the community. I have always welcomed that action. The only real difference is whether that action is sufficient and nationally available. My Bill is about plugging one vital gap in mental health support teams that many who are active in the sector have highlighted, which would improve much-needed mental health support for many young people.

Our debate today is timely. This week’s Resolution Foundation report, on poor mental health preventing people in their 20s working, provoked a predictably wide range of reactions in the press. However, there is simply no getting away from the fact that, unless they are tackled early, mental health problems can easily escalate as a young person enters adulthood and the workplace.

Let me briefly explain why the state of our children’s mental health and the support available to them is so important. I know that it is familiar territory for many noble Lords here, but it is vital to put my Bill into context. According to NHS statistics, almost one in five—18%—of children between the age of seven and 16 years old have a probable mental disorder. For slightly older children, almost half—44%—of those aged between 17 and 18 were classified as experiencing high psychological stress.

According to a report last May by the Children’s Commissioner, the number of young people urgently referred to mental health services had tripled since 2019. Last year, less than half—44%—of the 1.5 million children who needed additional support had received a CAHMS appointment. The average waiting time in England between referral and the start of treatment is the highest it has been in two years.

According to a survey conducted last year by Young Minds, 65% of the young people surveyed who were struggling with their mental health had not asked for any sort of formal help. Critically, 61% of those waiting for some support had stopped attending school, college or work, with one in five children waiting for support missing six months or more of school. According to a YouGov poll commissioned by Barnardo’s, 61% of parents with school-age children experiencing mental health difficulties said that those difficulties were affecting their performance at school. Almost half noted a drop in concentration and focus on their schoolwork.

The cause of this increase is much debated, including in this Chamber. In last week’s debate, although I recognised that many schools are doing a great job, I pointed to the increasing pressure from the academic environment, the growing influence of social media and the online world, and the lasting impact of the pandemic. Indeed, surveys show that most parents are worried about their children’s mental health, with the impact of social media a major cause of concern.

In January 2023, the House of Commons Education Committee stated that it had seen

“overwhelming evidence indicating a radical increase in mental health difficulties amongst school pupils since the Covid-19 pandemic”.

Additionally, the committee argued that the capacity of mental health services was “grossly inadequate”.

I turn to the detail of the Bill. Clause 1 places a duty on governing bodies of state-funded schools in England to provide access to a qualified mental health practitioner or school counsellor. Clause 1(2)(b) states that the qualified mental health professional or school counsellor should be an individual with a graduate-level or postgraduate-level qualification of that name accredited by NHS England. Normally that would be a counsellor or a psychotherapist. Clause 1(2)(c) states that schools with 100 pupils or fewer may collaborate with other schools and share access to this provision, while Clause 2 places a duty on the Secretary of State to give, or make arrangements for, financial assistance to state-aided schools to help them to meet their duty to provide this mental health support.

Before explaining precisely what the Bill would achieve, I reiterate my support for the concept of mental health support teams in schools, which were first piloted in 2019. These teams support a whole-school approach to mental health, working closely with school staff and delivering group and individual interventions offering low-intensity therapy—that is what cognitive behavioural therapy is called in the trade—for children and young people with mild to moderate mental health difficulties.

The teams are mainly staffed by educational mental health practitioners—I am sorry about all the jargon today—who study on a one-year postgraduate course. By last December, nearly 400 mental health support teams were operating in schools and colleges across England covering some 3 million children, which is roughly 35% of pupils. The Government have said that they aim to increase that coverage to 50% by April next year, although that will be considerably lower for primary schools and of course it still leaves millions of children and young people without any support.

An early evaluation of the programme found that many schools reported that they needed most help for children and young people whose mental health exceeded the threshold that the mental health support team practitioners could provide but either did not meet the threshold for CAMHS or needed support while they waited, so a gap in provision is becoming clear. However, I was encouraged by the evaluation showing that, where mental health support teams and counselling services were already working together, the teams were able to pick up and deal effectively with the lower-intensity need, enabling counsellors to work with the more complex issues. Those are two different roles and skill sets but they are a mix that works well together.

I was struck by the research evidence from Barnardo’s, which delivers a number of these teams across England. It found that support teams are effective at supporting children and young people with mild to moderate mental health problems; they improve outcomes for those with access to them and, critically, are cost effective, saving the Government £1.90 for every £1 invested. However, the research also identified a specific gap in the current model in addressing the needs of children with moderate or more complex needs, those with special educational needs or younger children for whom cognitive behavioural therapy is often not appropriate or who do not respond well to its structure. Simply put, some children need to explore their feelings more fully in other ways that are not time limited. The report recommended that the model should include school counsellors to fill this gap, which is what my Bill is all about: ensuring that every school also has access to a qualified school counsellor or psychotherapist.

I shall explain what has been called this missing middle in what I hope are everyday terms. Qualified counsellors and psychotherapists can work safely with young people who are experiencing trauma and abuse, self-harm, suicidal thoughts, violence, anger, issues with food and eating, bereavement, bullying and so on but none the less still do not meet the threshold for CAMHS. Lower-intensity interventions that are currently delivered by existing mental health support team practitioners might include such issues as motivation, exam anxiety, mild to moderate anxiety and depression and behavioural difficulties. Please do not get me wrong: existing practitioners within these teams provide a vital and valuable role, working with children experiencing less intensive symptoms linked to their poor mental health, but many are not trained to work with children who are seen to be at active risk, such as those who may be self-harming or experiencing suicidal thoughts.

There is a clear need for a wider range of therapeutic interventions to be delivered in schools by counsellors and psychotherapists, whose training generally lasts between two and four years, which enables them to hold a greater level of complexity and risk. Without a clear pathway to counselling where required, issues can easily spiral, increasing pressure on already overstretched CAMHS. It is very much a question of both/and, not either/or.

I turn briefly to workforce considerations. When we have had these debates before, Ministers have often raised workforce issues as the reason for the slow pace of rollout or the limited scope of support teams. However, there is good news to be had. The workforce challenge is not simply a question of training more practitioners from scratch. The major counselling and psychotherapy registration bodies—BACP, UKCP and NCPS—collectively represent over 25,000 therapists who currently work with children, most of whom are trained to work with considerably greater levels of complexity than existing support team staff. According to BACP’s most recent member survey, these existing therapists have the capacity to offer over 50,000 counselling sessions for children and young people every week. I strongly urge the Government to look at ways of harnessing the capacity of this workforce in schools, including exploring the integration of counselling within the national mental health support team model. This model has a richer skill mix and the benefit of providing important career progression opportunities and learning opportunities for existing staff, where there have been high levels of turnover.

I cannot end without a quick word on funding. Of course, it is important to acknowledge that the last couple of years have seen welcome increases in funding, but the money is not ring-fenced, nor is it presented in a format that easily enables us to look at total spending across the NHS, schools and elsewhere. There is simply no getting away from the fact that years of underfunding and neglect of children’s mental health services have taken their toll. Recent increases do not in any way match the scale of demand. Back in 2022, the House of Commons Health and Social Care Committee, in those days chaired by the current Chancellor, called on the Government to increase the funding and scale of mental health support teams to cover all schools by 2027-28. Might we expect to hear something to this effect in next week’s Budget?

To conclude, we have the opportunity to transform the landscape if mental health support teams are rolled out to all schools and colleges, as I fervently hope they are, and within that model include a school counsellor in every school, as my Bill proposes. I beg to move.

Baroness Berridge Portrait Baroness Berridge (Con)
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My Lords, I thank the noble Baroness, Lady Tyler, for this Private Member’s Bill, which enables your Lordships’ House to focus once again on the mental health needs of young people. The figures of the increased prevalence in young people of mental health symptoms and illness are alarming and I dare say that there is no one in today’s debate or in your Lordships’ House generally who does not know of a young person struggling like this.

The underlying mischief that the Bill seeks to address is to get mental health support early through school counsellors to avoid those mild to moderate symptoms deteriorating and therefore to sustain access to education, which is vital. Whether through the mental health support team, designated senior lead, school nurse, educational psychologist or school counsellor, mental health services need to be accessible via schools. I suggest that the school counsellor could also be the person who co-ordinates the education provision when a child is so mentally unwell that they can no longer access education in school, a cohort that I think is even beyond that outlined by the noble Baroness.

Within the statistics on this issue, one of the most startling is the rise in the prevalence of eating disorders. Among 11 to 16 year-olds, the incidence rose from 0.5% in 2017 to 2.6% in 2023, while among 17 to 19 year-olds it rose from 0.8% to 12.5%.

When the Mental Health Act was passed in 1983, it was not envisaged that children would be detained, save possibly under the Part 3 criminal justice provisions of that Act, but many children are indeed detained under the Act. NHS Digital recorded 997 detentions under the Act of people aged 17 and under in 2022-23, although the true figure will be higher, as not all providers submitted data. The figure also did not include those children who consented to be admitted, or whose parents consented to them being admitted, to a secure institution. The Children’s Commissioner report in 2020 outlined not only racial disparities in admissions to secure facilities, but more girls being detained and consenting to admissions than boys, which may of course be due to the rise in eating disorders that I outlined, which are more prevalent among girls.

Continuing education for those in secure units is so important. Although education can be provided remotely, it may be more difficult if the child has been placed out of area—an issue that I know His Majesty’s Government have been grappling with for years. Can my noble friend the Minister outline whether out-of-area placements of children and young people have ended if they are detained under the Act? If you are so detained, do you then come out with an EHCP, or is it the obligations under Section 117 on aftercare that help you get additional resources to catch up on lost education?

In 2018 the Department for Education prepared a very helpful research paper into the education provided for children in secure mental health institutions, but only 58% of units providing education in the secure estate responded to the call for evidence. Encouragingly, in most units that did respond, discussions with home schools were reported to take place at all points during the pupil’s time in the unit—their admission, their stay and as part of reintegration to the home school. But units had mixed experiences when obtaining sufficient information on baseline levels and progress from pupils’ home schools, with only 60% indicating that this was provided for more than half their pupils. That is 60% of the 58% that replied, so less than half of those trying to teach children in these units have significant information.

We need to ensure that teachers whose careers are dedicated to teaching in the secure mental health estate—I pay tribute to them—have all the necessary information about the child’s previous education. The Bill’s suggestion of every school having access to a school counsellor would provide a person who could ensure that secure units have sufficient information about a child’s current education. It could reassure noble Lords that someone is informed or aware of what is happening in the 42% of institutions that did not respond to the research paper. That represents hundreds of young people whose education we do not know about while they are in the secure mental health estate. It is a gap that I believe needs to be filled.

While the need for mental health expertise in schools is obvious, I am not convinced that legislation is needed to achieve this. It could, in fact, be counterproductive. What if one school has a major event, such as the school next to Grenfell Tower? If that had been part of a multi-academy trust, which it was not, could not all the mental health professionals be reassigned to that school for a period of time? Sadly, that could not happen under the Bill as currently framed, for fear of acting unlawfully.

What is the sanction if a school does not provide access to such support? Sadly, recourse to the courts by way of judicial review looks like the only enforceability option. Do we really want to encourage that? Is a school leader not free to say, “I will spend my resources elsewhere, as my school is in one of the 75 local authority areas that has a family hub and students have access to mental health support and counsellors there”?

I also wonder why the requirement in the Bill is not proposed to extend to the independent sector, as to provide such services would match the requirement to provide PSHE in independent schools. While arguably, of course, some will have access to private mental health support, often late diagnosis there will put the same strain on resources in the NHS that the noble Baroness seeks to avoid, and it will have similar adverse effects on the student’s prospects. As 70% of secondary schools and 52% of primary schools in England already offer counselling services, this causes me to doubt the wisdom of needing to legislate.

It is so encouraging that 14,400 settings have claimed a grant to train a senior mental health support lead. Can my noble friend the Minister reassure me that she has used her well-known expertise with data to look at the settings that have not applied? Are they in areas of deprivation? Is there cross-referencing with NHS data for areas where young people are most at risk of poor mental health outcomes to check whether these are the settings that have not applied for the grant and to enable them somehow to do so?

I am grateful to the noble Baroness for giving your Lordships’ House the opportunity to focus on the mental health of children and young people. While the progress by His Majesty’s Government could perhaps be quicker in its rollout, I regret that I cannot support legislation as the appropriate means to fulfil this important aim.

Lord Watson of Invergowrie Portrait Lord Watson of Invergowrie (Lab)
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My Lords, we are indebted to the noble Baroness, Lady Tyler, for introducing this important Bill. It is certainly welcome because the extent to which young people are exhibiting mental health disorders in school has increased dramatically and the measures introduced thus far by the Government are proving inadequate to the task in hand.

In her powerful opening speech, the noble Baroness demonstrated an existential crisis in the mental health of far too many school students. Why should that be? To paraphrase The Who, one of the seminal bands of my childhood, the kids are not all right—at least, not according to the Programme for International Student Assessment, PISA. Its 2022 survey, whose results were published recently, showed that 25% of UK students reported that they are not satisfied with their lives, compared with the OECD average of 18%. The question is why, but I am afraid it is not one that we can begin to answer today.

As the noble Baroness said, around one in five children and young people aged eight to 16 years in England had a mental health disorder. That in itself is most worrying, but even more so is the fact that, as reported by the Local Government Association, evidence suggests that NHS specialist mental health services are turning away one in three children and young people referred to them for treatment. The NHS, the Government, the system—point the finger wherever you want—but the reality is that young people who need support with their mental health are being failed.

It is hardly necessary to add that experiencing mental health problems can impact educational outcomes, including attainment and attendance, in only a negative way. On the other hand, there is evidence to show that, when effective, mental health interventions are likely to improve educational attainment, particularly in high-risk groups. One example, a study of school-based interventions delivered by the children’s mental health charity Place2Be, found that school-based counselling positively influences educational engagement.

Clearly, although the extent of mental health cases among children and young people had been increasing before the Covid pandemic, they exploded following the weeks and months of school closures. Those latest figures that I mentioned earlier showed an increase from one in eight in 2017, with three-quarters of a million children and young people accessing NHS-funded mental health services in England during 2023. The extent of the crisis is greater than those figures suggest, because the Royal College of Paediatrics and Child Health reported a year ago that more than 400,000 children and young people were waiting for treatment. We can only imagine the compounding effect that being denied the treatment they require will have on their conditions.

The most recent parent survey by Parentkind, the membership association for PTAs, showed that the most common causes of school stress and mental health problems were exam stress, homework-related stress, anxiety, depression and bullying. In each of those categories, the figures were considerably higher for pupils in academies—part of a MAT or stand-alone—compared with maintained or community schools. I am not sure what that tells us, but the disparity requires closer scrutiny.

It is clear that too many children are going into school not ready to learn. This places additional burdens on teachers, many of whom are taking on responsibilities that go way beyond their teaching and learning responsibilities. Last year a survey undertaken by Education Support, a charity dedicated to supporting the mental health and well-being of teachers and education staff in schools, found that three-quarters of education staff often helped pupils with matters beyond their academic work, while almost 70% helped pupils to process their emotions and talked to them about their mental health. A third had even helped pupils to resolve a family conflict. A significant number of education staff feel that there is insufficient support for their pupils from other public services such as CAMHS, social services and the NHS; 11% said there was no such support at all.

These additional demands naturally increase staff working hours and have a negative impact on their own mental health and well-being. This matters, because schools cannot properly support children and young people if their workforce is mentally exhausted or unwell. Healthy teachers are more engaged and effective in the classroom. Proper mental health support in schools is needed to support children and the staff responsible for their learning. Mental health support should be embedded in every school, accessible to every pupil through a school-based counsellor or mental health practitioner. School-based mental health services need to deliver both targeted and universal provision through a whole-school approach.

The Children and Young People’s Mental Health Coalition has called for the Government to embed whole-education approaches to mental health and well-being in all their policies and across all education settings to promote positive mental health and well-being for both learners and staff. This would have a universal impact on the health of every child and young person. The coalition estimates that a whole-school approach programme in England would cost approximately £530 million a year. In the longer term, the cost of not adopting such an approach would be much more.

In fairness, the Government recognised the mental health issues associated with children and young people’s support as long ago as 2017, when they published the Green Paper that led to the introduction of mental health support teams, based on the principle of early intervention. However, by the end of last year, the Government reported that although nearly 400 mental health support teams were operational in England, these covered a mere 35% of school pupils. Understandably perhaps, the Government did not look beyond 2025, by which time they have projected that the figure will have increased to 50% of pupils, which of course means that 50% will not be covered—an entirely unsatisfactory position for the parents and families of children waiting for help, support or treatment.

The other strand of the Government’s approach has been the establishment of mental health leads in schools. That is well intentioned, but cannot be seen as a replacement for adequate capacity in children’s mental health services. Making teachers social workers or therapists by stealth cannot be the answer to this complex challenge. It requires greater funding than the £1,200 grant that schools and colleges can apply for to train a mental health lead. Last month, the DfE reported that more than 15,000 schools had applied for the grant, which equates to around 60% of all schools, again leaving many thousands of children and young people without access to even that limited level of mental health support.

It is to be hoped that the Bill will ramp up the level of support provided. Noble Lords may be aware that the Labour Party has promised to legislate for the provision of quality mental health support in every school, giving every child the support they need to transition back to school and manage personal challenges, with access to qualified in-school counselling staff. It remains to be seen what that means for the level of staff provided. The Bill of the noble Baroness, Lady Tyler, spells out that a qualified mental health professional or school counsellor is an individual with

“a graduate-level or postgraduate-level qualification … earned through a course commissioned by NHS England”.

That is a reasonably high bar, and it suggests that funding will be required to attract people qualified at that level. I certainly hope that will be the level to which a Labour Administration will aspire in their aim to place mental health within their children’s recovery plan.

For now, we can only wish the noble Baroness, Lady Tyler, well with her excellent Bill and hope that it receives the support and fair wind from the Government that it certainly deserves. I hope that the Minister will not tell us that she believes it is unnecessary because the Government are already doing all they can to support the mental health needs of children and young people. What they have done is good, but, as the young people’s organisations that have provided briefings for today’s debate have made clear, it is not nearly good enough.

Earl Russell Portrait Earl Russell (LD)
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My Lords, it is a great pleasure to speak in this debate in support of my noble friend Lady Tyler’s Bill. I pay tribute to the years of work that she has done in this area.

The first line of the House of Lords Library briefing reads:

“This private member’s bill would require every school in England to have access to a mental health professional”.

My first reaction to this was: why is this not the case already? I declare my interest to the House again as a parent of a child who has gone through a past prolonged period of very poor mental health. In her case, the illness arrived like a freight train on the level crossing of her life. I am pleased that she is better now, and I am aware and, frankly, feel profoundly guilty that perhaps the only reason that she is better is because we, as parents, were able to find and financially afford the means to pay many tens of thousands of pounds for a prolonged period of private residential care.

I am all too aware that many other children are also suffering, often in silence. Too many children are struggling right now to keep themselves safe and well. Equally, too many parents and carers are not getting the help and support that their children need. Poor mental health is a trauma that affects and impacts whole families. I speak only as a parent and, I hope, as a voice for other parents who are going through similar situations and are struggling to find access to the support and care that they need.

I want these children and young people who are suffering to understand that we, as politicians, get them, and that we are here to work together to try to make their lives better. I shall probe and pressure, but my voice is intended to be a constructive and helpful one. I know that Ministers in this place and across government are not only aware of this issue but are working on it and have already provided significant resources to meet these needs.

I will run through some of the arguments again here very briefly, as I have made them before. We face what I call a children and young people’s mental health emergency. There is an unprecedented crisis in children and young people’s mental health. As we have heard, one in five young people now has a probable mental health condition, up from one in nine in 2017. The causes are many and complex, but the headlines are clear, and they are that our young people are suffering. The demand for services is at an all-time high: nearly half a million young people require help, and 2023 saw the highest number of emergency referrals ever. Despite this, many children—perhaps two-thirds—do not have any contact with the NHS.

CAMHSs suffer from chronic underfunding. The average wait time is 21 weeks for a first appointment, and 80% of CAMHSs say they are not able to meet the demand. Many young people are effectively denied treatment, even after episodes of self-harm and attempted suicide. I have called on the Government to accelerate the rollout of mental health support hubs to all schools and colleges nationwide. I ask the Government to commit to bringing forward their target of 50% access by 2024-25 and making it 100%. While I recognise that resources have already been delivered, I hope that the Budget next Wednesday brings some extra much-needed money to this important issue.

The Bill, put simply, is about plugging a service-level gap, the physical health equivalent of which would be only doing blood pressure checks and urgent cancer operations but not providing any other healthcare in between. The rollout of mental health support hubs is welcome and vital, but their intended purpose is for lower-level issues, such as mild depression and low self-esteem. Treating these issues before they worsen is essential. At the same time, many children with already moderate to severe needs are either waiting far too long for access to CAMHS treatment or are being denied any treatment at all.

This is exactly where the Bill comes in, to plug this real and considerable service-level gap in the system. Frankly, it is a very innovative and clever proposal, and I ask the Government to give some serious consideration to it. Even with the rollout of mental health support hubs, it has been estimated that some 6 million children with moderate-to-severe needs will remain in this treatment no man’s land. The Bill will cover what is known as the missing middle—those children with moderate to more complex needs, such as those experiencing trauma, abuse, self-harm, and suicidal ideation. These matters require help to be provided by therapists and councillors with a higher degree of training.

Filling this missing middle under a whole-school approach, in combination with mental health support teams, begins to get us towards the united service delivery system that we need. This system will help to provide early access to treatment, to help to prevent matters escalating and to help to keep children in school, where they need to be. This would also help to relieve the pressure on CAMHSs and help them to specialise as well in the most urgent and challenging cases of all—providing the more immediate treatment that is so desperately required. The number of briefings provided to Members on these issues shows the level of interest in the wider professional community, where these measures carry support.

Finally, while I am aware that there is extra cost associated with these measures, this comes against a background of chronic underfunding in these areas. Only 8% of mental health services spending was allocated to children and young people’s mental health in 2021-22, despite children and young people’s referrals accounting for 18% of the overall NHS mental health demand.

Lord Jackson of Peterborough Portrait Lord Jackson of Peterborough (Con)
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My Lords, it is a pleasure to follow the noble Earl, Lord Russell, who made a sincere and moving speech. I wish him well in his endeavours, and his family for the future.

I welcome the Bill presented by the noble Baroness, Lady Tyler of Enfield, not least because we are both members of the Chartered Institute of Personnel and Development. She obviously has enormous expertise arising from her time with Cafcass and with Relate. However, I take a similar view to that of my noble friend Lady Berridge, in that I am not wholly convinced that new legislation is what we need. We need a holistic, joined-up, integrated and co-ordinated strategy for children and young people’s mental health, and I am not sure that new primary legislation would deliver that.

The noble Baroness was good enough to refer to the great progress the Government have made following the Green Paper, Transforming Children and Young People’s Mental Health Provision, in 2018, which gave rise to the mental health support teams. I accept that there are now 398 teams and that only a third of children are covered, but there is good progress, and we are going in the right direction. Integrated care boards also have a mandate to provide the appropriate commissioned services for children and young people in their areas. Reference is made in the 2019 NHS Long Term Plan for staffing to putting significantly more money into mental health services. That is good.

I am indebted to my noble friend the Minister for her very helpful Answer, which just got in under the wire and came yesterday, to the Question I tabled on 19 February. It talked about

“delivery of the Special Educational Needs and Disabilities (SEND) and Alternative Provision Improvement Plan, which was published in March 2023”,

which is of course a work in progress. It went on to say that the department

“is establishing a single national system that delivers for every child and young person with SEND, so that they enjoy their childhood, achieve good outcomes, and are well prepared for adulthood and employment”.

We have had heavy briefing and lobbying on this Bill. I make the point again that it is a very laudable Bill and I agree with the spirit of it. We would of course support a full national rollout of mental health support teams in all schools and a fully resourced national implementation programme to support every school, college and university. My own daughter has just gone to university, and I know that that is a big mental health challenge in terms of loneliness, homesickness, socialisation and other issues.

However, I am going to concentrate on a particular area of interest of mine. I declare an interest in that my brother, Stephen, is a professor of cognitive neuroscience at Nottingham University and has occupied that position for 20 years. He has done an enormous amount of work on human movement studies, in relation not just to Parkinson’s disease but to Tourette’s. I want to talk about a specific area of concern, children with Tourette’s. It is an acute issue, in that those children and young people fall between the gaps in provision in NHS specialised commissioning services and between mainstream and SEND education. They are often bounced around the system—the term is “service neglect”. Often, they are expelled and removed from schools and then, even if they get to the NHS, they are stuck between paediatric services, neurology services and other mainstream services. Often, they have no diagnosis. When they do have a diagnosis, it is a document that lies unused, in effect, and they do not have any follow-on care. Often, as the noble Earl, Lord Russell, made clear, parents are forced to pay for private provision. Those children often suffer isolation, school refusal and alienation. There is only one clinic in the whole country that specifically looks after children with Tourette’s syndrome and provides out-of-area referral, and that of course is Great Ormond Street Hospital.

Tourettes Action has done what it can over the years, and I am indebted to it for the help and support it has given me. In fact, I led a Westminster Hall debate 14 years ago when I served in the other place—so long ago that we had a coalition Government, and the Health Minister was Paul Burstow. That was in October 2010 and, in all fairness, there has been great improvement since but there is more to be done. Tourettes Action is involving itself in training and support, not just in schools and colleges but workplaces, where it supports employers who have employees with Tourette’s, as well as in youth centres and job centres, disability advisory facilities and prisons.

Just to recap, Tourette’s syndrome is an inherited neurological condition. It is not rare and affects one schoolchild in every 100. This is a similar prevalence to autistic spectrum disorder and paediatric epilepsy. However, unlike with the latter, there are no NICE guidelines in place for its care. Over 300,000 children and adults are living with TS in the UK and, as noble Lords will know, the key features are tics, involuntary sounds and movements. In many areas, there is currently no pathway for children or adults to be accepted into local or even regional services for the diagnosis and treatment of Tourette’s syndrome.

Specific support in schools is vital for children with TS. Children with the condition have to live with the consequences of their education. If they are not given the right support in school, to which all children are entitled, they risk ending up facing unemployment and social exclusion. Special educational needs teachers are currently not given any specific training on Tourette’s syndrome, even though TS prevalence in SEN classes is high. Tourette’s syndrome has hitherto been treated as the subject of risqué jokes and ribaldry, but for the children and young people afflicted with the condition, who are fearful of its effects on themselves—and of the understandable fear and ignorance of strangers—it really is no laughing matter. They too deserve to have a hearing from our policymakers.

I hope that my noble friend the Minister will reassure us that there is at least a commitment to develop a policy on the condition between the Department for Health and Social Care and the Department for Education, because a coherent strategy across government will not only save taxpayers’ money in the long run but help to relieve TS sufferers and their families of a lonely burden that they have carried for many years. I hope that my noble friend can address some of these issues in her response, or at least write to me at her convenience on the issues I have raised. In the meantime, I again thank the noble Baroness, Lady Tyler, for this debate and the opportunity to discuss these very important issues because, at the very least, we are all committed to improving the lives of children in our country.

Lord Bishop of Winchester Portrait The Lord Bishop of Winchester
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My Lords, I am grateful to the noble Baroness for bringing this Bill to us for its Second Reading. We indeed face a crisis in this area and need to be aware of the long-term consequences of not addressing it.

The Bill would pave the way for just the kinds of interventions that are sorely needed. The NSPCC and our own Library briefing state that more than 20% of children and young people are living with poor mental health. CAMHS referrals are provided for only the most severe presenting issues, while early intervention, though widely recognised to be key to good long-term outcomes, is now a thing of distant memory. The sobering fact is that children are taking their own lives while they wait to be seen, and that is deeply shameful.

Last summer, the Church of England published the document Our Hope for a Flourishing Schools System, which makes specific mention of mental health, it being the issue school leaders most often raise with us. It states:

“Children’s mental health and wellbeing is prioritised and resourced generously by a society that invests in the long-term future of its nation by placing children first in funding and political direction. The fulfilling of a child’s potential should never be hindered, blocked or prevented by the system in which they find themselves”.

However, those words are, sadly, far from being the current reality.

There is, of course, much good practice out there. In my own diocese, Abbotts Ann Primary School has a group of “gardening grannies”, who have helped the children plant and maintain their own veg patch. Milford uses its “beach school” activities to engage pupils with beach art and games, to help them feel better connected to the natural world. St Katherine’s in Bournemouth has “head, heart, hands” time every Friday, to promote mental, spiritual, emotional and physical health. St James’ school in Pokesdown has just rethought pupils’ mental and emotional health, with several designated rooms where children can receive extra support—in the sunshine room, the rainbow room and the harbour.

There are many other excellent examples I could cite, but, excellent as they are, they are not a substitute for policy consistently applied. Schools need specific training in children’s mental health and on its impact on pupils’ behaviour, their attendance and their ability to access learning. This should be for all staff, not just for one individual, as all staff have contact with pupils. Schools also need access to specialist expert support to support and manage children’s mental health in their own settings. This is critical, since access to CAMHS has become so limited over recent years. Schools should not have to find the funding for this from their own budgets.

The intersectionality of mental health with poverty, those involved with social care and other disadvantaged groups must also be considered, since pupils are much more likely to be excluded or refused schooling the more disadvantaged they are. I chair the ChurchWorks Commission, and it is no surprise that our three priorities are vulnerable children and families, tackling poverty, and mental health and well-being. This issue sits at the intersection of all three. According to the Church of England’s toolkit on UKME mental health, a disproportionately large number of people from a GMH background will come into contact with mental health professionals not through the NHS or education system but through the criminal justice system. School and government policy needs to recognise all of the above, and not negatively disadvantage pupils who struggle because of their mental health, leading to yet more severe issues and, ultimately, to disengagement from education.

More broadly, we must recognise that the quality of education matters much more than standards in education. I welcome the fresh approach of Ofsted to include mental health training for its inspectors, but it is tragic that it took the death of a dedicated head teacher to precipitate that. Quality must always trump standards, for without high quality you will not have high standards. Specifically, a narrow focus on attendance statistics might be positively counterproductive. Poor attendance needs addressing by prevention, via high-quality, value-rich education, rather than by simply penalising non-attenders, because poor mental health is the main reason that children—especially those with special needs and disabilities—give for failing to attend. So investing more broadly in mental health via holistic person-centred education would effectively address the Government’s narrower focus on attendance.

In closing, I will set this in an even broader context: we must look at causes. There are abundant reasons why young people today might suffer from poor mental health. The world in which they are growing up is an increasingly dark place. They live with the growing threat of climate change and against a background of the rise of aggressive, dominant and domineering global powers. Is it any wonder that they face the future with anxiety? We may feel that we have little agency in the face of such pressures, but we have much more than the children of whom we speak today. I feel this very much as a new grandparent. What kind of world will Josiah Arthur Zachary, just five weeks old, grow up in? What kind of world are we making for him? I hope and pray we will not let him down, nor so many others like him.

Baroness Wyld Portrait Baroness Wyld (Con)
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My Lords, I refer the House to my education interests as set out in the register, including as a non-exec board member at Ofsted, though of course I am speaking in a personal capacity. I am also the mother of three young girls, aged 13, 11 and nine, all in state schools. I am not sure whether that makes me more or less qualified to speak in this debate—I think they would probably say less.

Before I get to the noble Baroness, Lady Tyler, I say to the noble Earl, Lord Russell, as my noble friend did, that I was profoundly moved by what he said about his daughter. I know he has referred to her in a previous debate, and I send my very best wishes to the family. I very much back his point about continuing to speak up and talk about these matters. We are fortunate to have someone such as him to speak on them, as we are to have the noble Baroness, Lady Tyler, whom I congratulate on her Bill and her tireless work for children and families. I have been lucky to work with her on numerous committees in this House, and it is a pleasure. We are very lucky to have her.

I want to try to weave a message of hope into my speech, without sounding like I am being dismissive or not calling out where there are major problems. We all care passionately about this issue, and inevitably we have to call out where things are going badly wrong. It is essential that we do that for the children we want to help.

It is also very important that young people know that many people are committed to this cause, including, I know, my noble friend the Minister. The tone of the debate generally has recognised some of the work that the Government have already done, and I endorse that.

I absolutely support the principle of the Bill. Like the noble Baroness, Lady Tyler, I have campaigned for better mental health provision in schools for some years. I promise that this is not a co-ordinated move, but I share most of my noble friend Lady Berridge’s concerns and am not completely convinced that the practicalities of the proposed legislation would work. However, I acknowledge that the noble Baroness, Lady Tyler, would want to explore this if the Bill were to get to Committee. I think it will take a lot of work.

I want to use my time to talk a bit more about the wider context and the critical role that schools play. I have three points to make. My first point is about homes and families. I agree with the analysis of the noble Baroness, Lady Tyler, of the scale of the problem. Everybody has set it out very well, so I will not repeat what has been said. Under the strain of the pandemic, every young person in this country, at whatever stage they were at, spent some formative years at a time of extreme national anxiety. I do not think we yet fully understand the full impact that that has had, but we are recognising it and we are taking children’s mental health seriously. It is important to do this thoughtfully.

To go back to parents, one of the most important and hardest jobs for parents and carers is being able to strike a balance and understand when difficult feelings are normal and part of growing up and when professional intervention is appropriate. I do not know who said that there is a lot of jargon in this area—and there is—but somebody apologised for the jargon which makes it more difficult for parents and families. I have raised before the difficulty of navigating the system.

Even before we get to the school stage, I draw attention to the family hub model, which again has been mentioned. It should be able to help with this and create a partnership between homes and schools. In the same way that, in the early years, people have been able to turn to their health visitor and ask whether development is normal, we need to have a culture whereby people can say, “Is this mental health development normal, or do we need something else here?” The partnership between homes and schools is so important.

Attendance at school is so important for mental health and well-being. I see the stress on attendance as coming from a place of caring, not wanting to be punitive. The Chief Medical Officer was entirely right to say that it is often better for children with mild or moderate anxiety to be in school. I saw myself, during the pandemic, the impact on many children in our local community, and how they missed the structure and the social side of school, and the fun they had, even if they were not missing double maths.

However, provision has to be there. The noble Baroness, Lady Tyler, is entirely right: the key point about mental health is the importance of early intervention and tackling problems, rather than letting them fester and escalate. We should applaud, and we have, the work already being done in many schools. I am grateful for all the briefings we received. I am aware that I am beginning to sound like a stuck record in my pleas to the Minister, which are straightforward, but this needs to be prioritised in funding decisions.

I hope my noble friend is shining a spotlight on the evidence base; I know she will be. The data from NHS Digital and Place2Be around school attendance is compelling, and I have seen the impact of these projects myself on school visits. I have seen the work of charities such as Place2Be. When you hear it from the children and see the development that is made, it is really heart-warming. We should acknowledge that the Government are rolling out services and targets.

Like everyone else in this debate, I remain hugely worried about the number of children who fall through gaps in support. The “missing middle” is a horrible term, but there is no other way to say it quickly. We need to make people’s experience of navigating the whole system kinder and more human, because the people who work in this field are kind and human, and there is help out there, but the system sometimes feels impossible to navigate. Signposting and possibly better use of government communications could help with this.

My final point, and the thing I really want to say, is about admiration for the current generation of children and young people. As policymakers, we all need to be more adult in the way we talk about them. I hate seeing anything about “snowflakes”, or “Why aren’t they more resilient?”, because on Select Committees with the noble Lord, Lord Hunt, and the noble Baroness, Lady Tyler, we have taken evidence from the bravest, most resilient children I have ever met. It is our job to speak up for them. I wish they did not have to be so brave and resilient, because the fact is that they are having to be resilient every single time something happens to them and it is impossible not to be despondent when a young person does not get the treatment that they deserve.

However, there are absolutely brilliant people working in this area. There is proof that early intervention works. The system can work incredibly well, with insightful triaging and access to the right help at the right time. Young people need to know that feelings do not have to last for ever. I was trying to think of an equivalent song to counter the example from the Who and I cannot think of one—but we have got to give them some hope.

Once again, I congratulate my noble friend Lady Tyler and thank her for her commitment to children and young people. I know that I keep saying, “Can you just do more?”, but that is my message: just do more.

Lord Storey Portrait Lord Storey (LD)
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My Lords, I obviously start with a big thank you to my noble friend Lady Tyler for this Private Member’s Bill. She is a worthy parliamentarian to take up this issue and to stick with it until she gets the result that is so needed for our children, schools and colleges.

I have rarely been in a debate where I have agreed with every single point that colleagues have made, whether it is about eating disorders, gardening grannies or Tourette’s. I was so glad the noble Lord, Lord Jackson, talked about it, because I had not thought of the effect on children themselves. I suppose that, in some respects, it has all been said before. Indeed, we had the precursor to this Private Member’s Bill last week. Good: the more we talk about it and the more we raise these issues, the more we all learn, and Governments of the day take action.

I look back on my 23 years as a head teacher, and mental health was not talked about in schools. Yes, there was bullying, and schools had bullying policies. Yes, there were behavioural problems, and schools had behavioural policies. Yes, there were children who perhaps behaved in odd ways, and did not turn up for school, et cetera. The right reverend Prelate the Bishop of Winchester and the noble Baroness, Lady Wyld, were absolutely right to say that you do not deal with non-attendance by penalising but by finding out the reason why pupils are absent—it might well be because of a mental health problem. The last thing that we want in the world is for those people not attending school to suddenly decide to be home educated so they will not be penalised.

So these things did not happen and then gradually local authorities and the health service started establishing CAMHS. That was a lightbulb moment for all of us; we saw how effective CAMHS could be in supporting children and young people. And then, sadly, through no fault of politicians perhaps, along came the recession and Covid. Everything ground to a halt. Cuts were made and services suffered. I look back, as I have said many times before, to my local authority of Liverpool. We lost a third of our budget and so looked for things that had to go. Some support services were lost.

I will make a few brief points. We talk about mental health support for children and young people, but get this: it is also needed for teaching and non-teaching staff in schools. Two months ago, I met a head teacher of a very large primary school who had had a serious mental breakdown. He was so busy being concerned about and supporting his staff and pupils that his own health suffered. He should have had support readily available.

As my noble friend Lady Tyler said, across the political divide, we all want the same result: qualified and readily accessible mental health support provided in our schools and colleges. There are variations in what we can provide and how we make that provision. We on these Benches feel that it should be for all schools, not just secondary schools, although we recognise that it may make sense to share that provision across smaller primaries. As my noble friend points out in her Bill, we need properly qualified staff, with wraparound support from other professionals. We understand that there will have to be a rollout, but this should not be an opportunity for delay and penny-pinching.

I also make the obvious observation that early intervention by proper diagnostic support is the most effective provision. The earlier the support needs are identified, the better the pupil, student or staff member can be helped.

The noble Lord, Lord Jackson of Peterborough, used the term “lobbying”—well, the more they lobby me, the better. We have had important briefings from a number of organisations, such as the Mental Health Foundation, Barnardo’s and the Centre for Mental Health. The Mental Health Foundation makes the important point that levels of mental health awareness within education settings remain highly variable. It calls for a minimum level of provision and qualified mental health professionals in every school. It also stresses how important anti-bullying programmes are to young people, as the noble Lord, Lord Watson, pointed out. Mental health issues often start with low-level bullying.

The Centre for Mental Health called for the full rollout of mental health support teams in schools and colleges and a fully resourced national implementation programme to support every school, college and university so they can adopt a whole-education approach to mental health and well-being.

Barnardo’s backed the call for mental health support in all schools, but made the important point, as did my noble friend Lady Tyler, that mental health support teams do not work for all children. Many with moderate or complex needs cannot be supported by MHSTs and do not meet the criteria for child and adolescent mental health support—CAMHS. It believes that the model should be expanded to include counsellors to allow children to access a consistent offer of support.

I think we were all moved by the personal tale from my noble friend Lord Russell. Perhaps “courage” is the wrong word for it, but good on him for being able to stand up and use his own personal experience.

I have two questions for the Minister, which may already have been raised. First, where does mental health figure in the training of teachers, if at all? I think the right reverend Prelate mentioned that. If it does not, why not? Secondly, we are talking about schools but there has been some mention of universities and higher education. I am conscious that universities and the higher education sector are either wholly autonomous or semi-autonomous, but how do we make sure that the necessary support and provision are there? Is it just left to those stand-alone institutions to provide it?

Finally, we must all hope that my noble friend Lady Tyler is successful with her Private Member’s Bill, and I once again say a big thank you to her.

Lord Hunt of Kings Heath Portrait Lord Hunt of Kings Heath (Lab)
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My Lords, it is a great pleasure to wind up for the Opposition. I agree with the noble Lord, Lord Storey, that this has been an incredibly well-informed debate. We are all grateful to the noble Baroness, Lady Tyler, for bringing the Bill forward and for the way she argued for every school to have access to a qualified mental health professional.

The growing increase in the incidence of mental disorder suffered by so many young people is alarming, as the noble Baroness, Lady Berridge, rightly said. My great fear is that we are storing up so much trouble for the future that, unless we deal decisively with the issues now, we as a nation will face severe problems in the decades ahead. That is not confined to mental health: last month, the Academy of Medical Sciences released a very stark report highlighting wide-ranging evidence of declining health among children under five in the UK. More than a fifth of five year-old children are overweight or obese, one in four are affected by tooth decay and vaccination rates have plunged. Although we are focusing on mental health today, we must recognise that there is a much wider health dimension to the situation for many of our young people. As the right reverend Prelate suggested, this will have an impact on them for generations and on our economy, in terms of the number of people who will be fit to work in the future.

My noble friend Lord Watson correctly asked why that is happening and the noble Baroness, Lady Tyler, had a go at answering. She suggested that it was because of pressure in education and I agree with her. I will not mention SATs much today, but there are issues around the pressure that some children feel because of the insistence on the SATs process. There is also the impact of social media and the pandemic. The right reverend Prelate also mentioned concerns about climate change. I think he was thinking of malevolent, dominant global powers; we know what he means by that.

This issue, however, is surely also linked to the persistent absence of children. In dealing with that, we have to understand the underlying causes. I look forward with interest to the Minister giving her analysis of why she thinks it is such a persistent and worrying problem.

The second major issue that comes across is the challenge for us all—particularly as parents, grandparents, guardians and those concerned about young people—in what to do when faced with a young person in distress and the problem of navigating the system. Again, I ask the Minister to explain more about what she thinks is, and ought to be, the response of local agencies to that gap. I particularly want to understand the relationship between education and the integrated care services in the health service. What mechanisms are there to provide some kind of point where one can go to seek help? I am afraid that, at the moment, barriers are set up and rationing processes are put in place. For parents desperately concerned about the impact of mental health issues on their child, it becomes alarming, so we need to think about what immediate help we can give.

Noble Lords quite rightly commented on the number of young people affected by mental ill health and the problem of providing appropriate access to services. The scary thing for me is that one in three children and young people referred by a professional was unable to access any mental health treatment whatever. That has been called the missing middle—the gap. We also heard the noble Lord, Lord Jackson, speak very movingly about a small coterie of people struggling hugely to get the support that they need.

The noble Earl, Lord Russell, spoke so movingly about some of the challenges that parents face. Again, can the Minister say what we are going to do, faced with this massive number of children—it is estimated to be 232,000—who cannot access any support whatever? Of course I recognise that schools can be tremendously helpful in this regard. As I understand it, in research they are the most commonly reported source of advice and help by families. However, the question is whether they have enough resources or enough access to other resources to be able to fulfil that responsibly.

The economic case for investing in support for schools is pretty overwhelming. There is a direct link between the number of children with poor mental health and those who do not do well in education. The Resolution Foundation found that if children aged 11 to 14 suffer poor mental health, they are three times more likely not to pass five GCSEs, including English and maths, compared with healthy children. That, of course, goes right through the system. They do not get into work as effectively and their life outcomes are very poor. As a society, if we are concerned about the future, and are therefore concerned about the number of people in the working-age population who are not in work at the moment, as we certainly ought to be, the case for investment in young people’s mental health and in schools in particular is very strong indeed.

Like other noble Lords, I acknowledge that the Government, through NHS England, have rolled out nearly 400 mental health support teams, and more are planned. The Minister will of course know that one can hardly resist the temptation to quote Jeremy Hunt at her; he said that the current programme is “unacceptable” with regard to progress in rolling it out to the rest of schools. I ask her again whether at this point the Government will review this and listen to the arguments that have been put today to ensure that we give it the right priority.

As regards the Opposition—the Labour Party—we believe that we have to put far more energy and focus into: improving mental health services; cutting waiting lists for mental health services by recruiting more staff; introducing specialist mental health support for children and young people in every school; having open-access children and young people’s mental health hubs in every community to meet some of the gap that noble Lords have identified today; and passing legislation for a new register of home-schooled pupils to keep track of those not in mainstream schooling, as part of a new package of measures to deal with persistent non-attendance.

In conclusion, in welcoming the Bill of the noble Baroness, Lady Tyler, and what she said today, we cannot be complacent. The scale of mental health disorder among young people is now so great that their future and the country’s future are very much at risk. I hope the Minister will be able to respond positively to this afternoon’s very well-informed debate.

Baroness Barran Portrait The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
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My Lords, I also offer my congratulations to the noble Baroness, Lady Tyler of Enfield, on securing a Second Reading for her Bill. I thank all those noble Lords who shared their personal experiences of how the mental health issues of their children and wider families have had an impact on them. I join noble Lords in recognising the extraordinary job that our schools do in supporting pupils every single day and, of course, I thank those charities that work in our schools and outside them to support young people.

I am grateful to my noble friend Lady Wyld for stressing the importance of good attendance as a protective factor for children’s mental health. As she rightly said, the Government approach this with a very caring intention. There must be boundaries around it as well as consequences in certain cases where children do not attend and parents facilitate that without good reason. The intention is clear. Of course, enabling children and young people to thrive is a priority for this Government, which is why we actively explore approaches that could improve young people’s mental health and well-being.

Of course, I welcome the noble Baroness’s tireless commitment to ensuring that mental health support is available for all children, but I must express reservations about this Bill. As the noble Baroness acknowledged, most schools already have in place mental well-being provision, including counsellors, educational psychologists and pastoral support staff. All of those can play a valuable role, but maintaining a school’s flexibility to choose what works best for its pupils is paramount. For instance, depending on their needs, not all children will benefit from specific mental health interventions such as psychotherapeutic counselling. Schools are well placed to decide which approach will be most effective, drawing on specialists where necessary.

Beyond this, it is important to reiterate that schools are not health services and should not be expected to act like one in terms of managing specialist staff. They may choose to do so where they have appropriate expertise, but we believe that our current approach, which encourages collaboration with specialist services where appropriate, avoids putting the extra role and burden on schools that the Bill would involve.

On the co-ordination between the health service and schools, my noble friend Lord Jackson of Peterborough asked, specifically in relation to Tourette’s syndrome, whether there is co-ordination between the two departments. We are more broadly taking a joint approach to workforce planning and reforms to the special educational needs and AP systems. There is an implementation board, chaired jointly by Education Ministers and Health Ministers.

Returning to our schools, our aim is for schools to be a place where positive well-being is promoted and mental health difficulties are picked up on early, with referral to specialist services as needed—an aim that is being pushed forward through our programme of grants for senior mental health leads in schools and colleges and the continuing rollout of mental health support teams. My noble friend Lady Berridge asked about the take-up of grants for senior leaders in different areas, including whether schools with particularly high levels of disadvantage had lower take-up. I do not have that specific data for her, but we know that lower take-up has been seen in London, the east Midlands and the east of England, so we are working hard there to encourage higher take-up.

The Government’s focus, as many noble Lords have advocated, is to support schools to develop a whole-school approach. That wider approach to well-being works alongside more specialist support, which is why we agree with the spirit of the Bill, if not its specificity. That is why we have a comprehensive plan to roll out mental health support teams, including access to education and mental health practitioners, who deliver interventions and support schools to develop their whole-school approach.

The noble Lord, Lord Storey, asked whether there was more focus on mental health in the initial teacher training and early career framework. The very recently updated framework, published in the past few weeks, has a much greater integration of special educational needs and disabilities, including mental health within that. We expect these teams to cover at least 50% of pupils by April 2025.

We come to the issue of funding, which a number of noble Lords, including the noble Lord, Lord Hunt of Kings Heath, mentioned. He will understand very well that it takes time to train mental health professionals. Although I absolutely acknowledge and share the urgency that noble Lords have expressed this afternoon, it is important that we learn from early intervention to make sure that the support team model is as effective as possible—but we are also trying to co-ordinate and take a responsible approach to rollout, working with NHS England to make sure that we do not draw professionals away from the wider mental health workforce, which clearly would not be desirable.

We are also building on the learning from the independent evaluation of the Green Paper programme and data and intelligence from the ground, which will help to shape future delivery. One of the strengths of the mental health support teams is that they are an NHS service focused on supporting schools and pupils in a responsive way. That need for it to feel human, as I think my noble friend Lady Wyld phrased it—the noble Lord, Lord Hunt of Kings Heath, also referred to the difficulty that people sometimes have in navigating these systems—is absolutely critical. They are specifically trained to do that, and to build those links between sectors.

It is also true that even a significant number of additional staff in mental health support teams cannot provide all the help that pupils need, which is why the range of pastoral support and early interventions that schools already provide, including drawing on counsellors and educational psychologists, is so important. We have been working with the mental health support teams to make sure that they support that provision and do not displace it. But we are concerned that, by specifying just two types of professional support, the Bill is likely to constrain the range of support options that pupils can benefit from, which I know is not the noble Baroness’s intention.

We have also committed to offering all state schools and colleges a grant to train a senior mental health lead by 2025, enabling them to introduce effective whole-school approaches. More than 15,000 settings and the great majority of secondary schools have claimed a grant so far. This training and associated support equip schools to offer the right support from the full range of sources, making the best use of their funding.

Lord Watson of Invergowrie Portrait Lord Watson of Invergowrie (Lab)
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I do not know whether I picked this up correctly, but I think the Minister said that all schools would have access to mental health support teams by 2025. I thought the figure the Government were aiming for was 50%. Have I got that wrong?

Baroness Barran Portrait Baroness Barran (Con)
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There are two different elements, and I apologise to the noble Lord if I was not absolutely clear. He is quite right that with the mental health support teams we aim to cover 50% of schools by April 2025. What I was referring to just now was the senior mental health lead training, so that there will be a senior mental health lead in every school, supporting staff in their response and giving them confidence to respond to children, which we know is so vital.

My noble friend Lady Berridge referred to children in secure mental health institutions. I will write to her. We are reviewing and redesigning provision to support the move to more community-based provision closer to home—a concern that my noble friend rightly raised. I am not aware of whether there is updated data on this but if there is, I will share it with my noble friend and put a copy in the House Library.

In conclusion, we believe that, to continue to support children and young people, rather than having a new set of requirements in schools, we should continue with the rigorous implementation of the evidence-based approach exemplified by the mental health support teams and the senior mental health leads. For that reason, we cannot support the noble Baroness’s Bill.

Baroness Tyler of Enfield Portrait Baroness Tyler of Enfield (LD)
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My Lords, I thank the Minister for her thoughtful response. It is true that we share broadly the same aspirations and, as she said, there is plenty in the spirit of the Bill that we can all agree on. I thank all noble Lords who contributed to this excellent debate. I know we often say, “It’s been an excellent debate”, but this really has been, and I have learned so much from it. It has really added to my understanding.

I particularly thank the noble Baroness, Lady Berridge, for pointing out the position of children detained under the Mental Health Act and in secure units. That was an extremely important point. I thank the noble Lord, Lord Watson, for his support and for emphasising that children need to go into schools ready to learn. At the moment, too many do not. I thank him for his support and for saying that the Bill would ramp up the provision needed.

I am particularly indebted to my noble friend Lord Russell, who, as other noble Lords said, so movingly referred to his personal experience. He highlighted the plight of parents who cannot afford to pay for the provision that they know their children and young people need. It is heart-rending, frankly, to think of that. He vividly described the missing middle that I have been talking about in the Bill. I just wish I had thought of that analogy myself.

I thank the noble Lord, Lord Jackson, for his insightful contribution and for raising the issue, which I had not thought of before, of children with Tourette’s, and how that is another example of children falling through the gaps in provision. The right reverend Prelate the Bishop of Winchester made a powerful and wide-ranging intervention; I was grateful to him for drawing the links with poverty and disadvantage.

It has been my pleasure to work closely with the noble Baroness, Lady Wyld. I am so grateful for her support for the principle of the Bill and for reminding us about the importance of family hubs. As she said, there must be hope, and I hope that the Bill can in some way add to that hope.

I thank my noble friend Lord Storey for his historical perspective on the development of mental health provision in both the NHS and schools. I thank him for his focus on teaching and non-teaching staff, which was a really important point.

I was grateful to the noble Lord, Lord Hunt, for his general support and welcome, and particularly for the way he highlighted the problem of navigating the system, which so many people and parents find so difficult.

Putting that all together, I have been heartened by the cross-party support for the spirit of the Bill. There is a strong understanding that at the moment too many young people are in that missing middle and falling through the gaps in provision. I am firmly of the view that mental health support teams, which do an excellent job, must contain professionals who are properly qualified to help young people who have moderate to more complex needs so that they do not fall through the gaps because they still do not meet the threshold for CAMHS.

I thank everyone for their contributions. It is heartening to have so much support on the principle. There is perhaps slightly less agreement on the precise way of securing it, but the consensus on the importance of this issue has been exemplary. That is why I hope we can carry on these discussions. I would welcome any amendments to the Bill to explore the practicalities that people have pointed out might not be quite right at the moment. I hope we can find a way that will allow us to take this debate forward and find a way forward. We all wait with bated breath for next week’s Budget—let us see what happens there—but I hope to continue engaging with the Minister on this important issue.

Bill read a second time and committed to a Committee of the Whole House.
House adjourned at 2.35 pm.