Corporate Insolvency and Governance Bill

Baroness Garden of Frognal Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020 Lords Chamber

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

We now come to the group beginning with Amendment 23. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate, and that any Member wishing to press this or any other amendment in this group to a Division should make that clear in debate.

Amendment 23

Moved by

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[Baroness Neville-Rolfe [V]]

My Lords, as time is short, I will focus on my Amendment 60. A court of administration normally involves pre-packs, and that is why, with the support of my noble friend Lady Altmann, I want to provide a quick and easy way of ensuring that the power we gave HMG in the Small Business, Enterprise and Employment Act 2015 can be restored. This power was the victim of a sunset clause and a delay in making the necessary regulations. There are later amendments that we may reach today on pre-packs and the encouragement of the pre-pack pool. All of them reflect the fact that a group of us across the House who spoke at Second Reading, including the noble Lords, Lord Vaux and Lord Mendelsohn, think that we need early action on pre-packs. I imagine that we are all rather disappointed—although the usual opportunity for a discussion in the Bishops’ Bar is not available—by the Minister’s response at Second Reading. His suggestion was that strengthening professional standards and existing regulation would be adequate, and if not, there could be legislation at a future date —a sort of mañana.

My amendment is very simple: it would give the Government back the power to make the necessary regulation on pre-packs but it would sunset that power after a year, both to provide the incentive for speedy resolution of this issue and to avoid any unwelcome use of the delegated power for other purposes down the line. I would obviously be delighted if the simple sunset clause I have used in Clause 62 might also help us to consider and find a path to resolving some of the important delegated powers issues we were discussing earlier; I am very hopeful that the Government will be listening in that regard.

I hope that my noble friend the Minister and his department will listen to those of us who have concerns and agree to amend the Bill to deal with the pre-pack issue, perhaps in the way that I have proposed.

[The Deputy Chairman of Committees]

The noble Lord, Lord Adonis, does not seem to be in his place in the Chamber, so we will go to the noble Baroness, Lady Altmann.

[Baroness Altmann [V]]

My Lords, I will be brief. I support the amendments in this group. Amendment 23 from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox—which the noble Baroness, Lady Bowles, explained very well—helps to explain the importance of increasing the protection for unsecured creditors being pushed further down the list of priority by the measures in this Bill. Following on from some of the remarks by the noble Baroness, Lady Bowles, I suggest to my noble friend the Minister that the Government could even consider offering super-priority for less than a Section 75 debt but still recognise the debts owed to the pension scheme, if it has a deficit. That could be in the form of Section 179 debt, which would at least cover the PPF level of benefit, or even for technical provisions, so that at least that has some extra security, especially in light of the current level of annuity rates following extensive quantitative easing and the extra cost of Section 75 debt.

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As far as my noble friend Lady Neville-Rolfe’s Amendment 60 is concerned, I merely add my support to the wise words she has already laid before the Committee.

[The Deputy Chairman of Committees]

The noble Lord, Lord Hain, has had to withdraw, so I call the noble Lord, Lord Palmer of Childs Hill.

[Lord Palmer of Childs Hill [V]]

I did not realise someone was withdrawing. I asked to speak mainly to support Amendment 60, but also to inquire whether this will achieve what the movers want to achieve. With sale to connected persons, there is always a worry in any liquidation or moratorium as to whether those connected persons are getting a benefit, to the detriment of other creditors. It is also a fact that very often a sale or arrangement with connected persons is a way of saving a company by connected persons taking some of the business out of the company. If there is a situation in which that company can survive enough to pay all its creditors, sales to connected persons could be a valuable tool. I just want to ensure that the Minister says this is an open book and can help in some ways and police in others.

[Lord Fox]

My Lords, we have heard descriptions of a series of power imbalances. There are two large, powerful entities on the scene; one is covered by this Bill and the other is not. One is the banks and financial institutions, and the other is of course HMRC, which is covered in the Finance Bill but not in this. My noble friend Lord Palmer referred to that as the elephant in the room. Those two wield the power, and then we hear the tale of small creditors, small businesses, pensioners and workers eking out a return.

In proposing this Bill, the Government have destabilised what had been a static relationship. Things are moving, and we need to understand in detail how the Government see all this movement shaking out. The Bill, letters and now assurances from the Minister have moved everything around. It is still not clear to me—perhaps it is clear to others—where the power has moved in the end. At the moment, it still looks as if the financial institutions will get increased power as a result of this Bill and HMRC will get increased power as a result of the Finance Bill. If that is not the case, I am happy to be surprised by the Government.

I will say just one other thing. I welcome the suggestion from the noble Baroness, Lady Altmann, to perhaps look at different levels of pension fund debt below that of the Section 75 debt. That could be one way of alleviating some of the concerns. I hope the Minister is able to catch up on what the noble Baroness, Lady Altmann, had to say just now, because there was some wise suggestion there.

[The Deputy Chairman of Committees]

I call the noble Lord, Lord Stevenson of Balmacara. Is he there? No? I call the Minister, the noble Baroness, Lady Bloomfield of Hinton Waldrist.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank noble Lords for their amendments on these important issues and their comments in this short debate. The amendments include making additional changes to insolvency legislation in the provisions regarding the prescribed part, which is the amount of a company’s net property that must be reserved for the benefit of unsecured creditors when a company enters insolvency. There is what I take to be a probing amendment, which will provide the opportunity to discuss the effect of priority on creditors, such as pension fund deficit, as flagged by the noble Baroness, Lady Bowles. There is also an amendment in this group from my noble friend Lady Neville-Rolfe to enable the regulation of pre-packs and connected sales in administration. As this matter is being dealt with in group 10, I hope my noble friend will not mind if her amendment is spoken to in full in that group.

The measures in the Bill are intended to help companies maximise their chances of survival during the Covid-19 emergency, to protect jobs and to support the recovery of the economy. That is why other measures that would not alleviate the impact of the current emergency have not been included in the Bill.

I shall first deal with the probing amendment from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox. It is correct that the priority rules, which apply to some debts when a company enters insolvency following the end of a moratorium, change the way in which a company’s assets are allocated among different types of creditor, but the Government consider there to be compelling reasons why the moratorium provisions should give priority to certain types of creditor. These relate to rent and goods and services supplied during the moratorium, which will enable the company to pull through as a going concern.

For example, they include amounts owed to employees —which, as I am sure noble Lords agree, should rightly be considered a special category—and liabilities involving financial services, where default could result in the company facing a demand to repay a much larger amount, which would prevent the rescue of the company as a going concern. For the moratorium measure to operate successfully, it is essential that providers supplying these types of goods and services during the moratorium have some level of assurance that they will receive payment for those supplies.

The amendments from the noble Lords, Lord Hendy, Lord Hain, Lord Monks and Lord Stevenson, would change the value of the prescribed part and alter the way in which an insolvent company’s property is distributed between different categories of creditor. The rules for calculating the prescribed part were recently amended by statutory instrument in April this year. The noble Lord, Lord Hendy, asked how this was calculated: the proportion set aside for payment to unsecured is calculated at 50% of the first £10,000 of assets plus 20% of the rest up to—he was correct—a current cap of £800,000. This amendment was as a result of a consultation that ran between March and June 2018. As a result of these changes, the maximum amount of the prescribed part was increased from £600,000 to £800,000.

When this issue was consulted on, respondents expressed concern that further alterations to the rules for calculating the prescribed part were likely to have an adverse effect on lending, as floating charge holders may not be able to accurately assess their level of risk and anticipated recovery in the event of the debtor’s insolvency.

The noble Lord, Lord Mendelsohn, asked why the Government have not introduced measures to support the provision of debtor-in-possession rescue finance for distressed companies, in line with other jurisdictions, such as the Chapter 11 arrangements in the US. While the current UK restructuring framework does not provide explicit debtor-in-possession finance provisions, it allows rescue finance to be used to help rescue a financially distressed company. The Government previously consulted on various ways in which rescue finance could form a more prominent part of the restructuring package but, at that time, feedback from stakeholders was that the new measures would still allow for rescue finance with all the features found in other jurisdictions. I hope that answers the noble Lord’s question.

Lastly, the noble Lord, Lord Fox, mentioned the Finance Bill and HMRC taking precedence. I am not sure that he is aware that its precedence relates only to moneys it holds on behalf of employees, such as national insurance. For the reasons I have set out, the Government are not able to accept these amendments. I hope the noble Lords will therefore withdraw their amendments.

[The Deputy Chairman of Committees]

I have received a request to speak after the Minister from the noble Lord, Lord Stevenson of Balmacara. We were unable to hear him earlier due to a technical error.

[Lord Stevenson of Balmacara [V]]

My Lords, I want to make a brief point. The Minister’s response was interesting but very much couched in the existing paradigm. We seem to be in a situation where, as somebody said, the Government have lifted the lid on the debate over how we work out what goes into the insolvency waterfall, as it were, and how to compensate those who lose out as a result of that compression. Pensions should be part of wages and salary; they should not be where they are. Small businesses always seem to suffer. Thirty per cent is just a figure; it is beneficial but it does not go to the heart of the problem of how we deal with creditors and who comprises the neediest in terms of the analysis of what must be paid back and how that should be organised.

As the Minister was trying to argue, I think, there may be a short-term fix to get this thing back on the road, but these reforms will not be sufficient to resolve the inadequacies of the present arrangement. Does she agree that the time has come—but perhaps it is already too late—to review this area critically, with particular reference to issues such as debtor-in-possession financing? Obviously, there is a crisis because of Covid-19; that crisis provides an opportunity to say that we need to look at this issue again. This would be a good time to do so.

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Amendments 24 and 25 not moved.

[The Deputy Chairman of Committees]

We now come to the group beginning with Amendment 26. I remind noble Lords that anyone wishing to speak after the Minister’s reply should email the clerk during the debate. The Minister should allow me to call these Members before seeking a decision on Amendment 26, and anyone wishing to press this or any other amendment in this group to a Division should make that clear in the debate.

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[The Deputy Chairman of Committees]

I call the noble Baroness, Lady Neville-Rolfe. She is not there, so I shall call the noble Lord, Lord Stevenson of Balmacara.

Corporate Insolvency and Governance Bill

Baroness Garden of Frognal Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Tuesday 9th June 2020 Lords Chamber

[Baroness Barker (LD) [V]]

My Lords, I wish to address the different types of company that will be impacted by the legislation but about which there is little in the Bill. There are 43 building societies and 27 friendly societies registered under the Friendly Societies Act 1992, some 9,000 registered under the Friendly Societies Act 1974, co-ops, mutual benefit societies and credit unions, all of which have binding rules with regard to the holding of their AGMs—plus 22,000 charitable incorporated organisations, as well as 4,500 more in Scotland. While the temporary provisions of the Bill, such as the relaxation on the holding of AGMs and some types of filing, are welcome, the permanent provisions should have been subject to greater scrutiny than is possible in three short days, and including them in the Bill is opportunistic of the Government.

I want to look at Clause 10, containing the new arrangements regarding wrongful trading. Many charities that may be constituted as companies limited by guarantee or charities that are beneficiaries of wholly owned trading companies have not been eligible for the furlough scheme or CBILS. The sector has lost £4 billion in the 12 weeks from April to June. Charities on average hold reserves of between three and six months’ expenditure, and charities that are active in the area of arts and sports, even if they are open soon, are unlikely to generate income at pre-Covid levels. For all of them, Clause 10 will be most important from July until the end of 2020. I therefore ask the Government whether they will think now about changing the timescale for Clause 10.

The main proposals that apply to CIOs are in paragraphs 43 to 49 of Schedule 3. Paragraphs 58 and 59 enable regulations to be made to apply the moratorium provisions to co-operatives and community benefit societies, while paragraph 54 alters the definition of “insolvency” in the Insolvency Act 1986 as it applies to organisations of those types. What do the Government intend to include in those regulations? When will they be published? When will CIOs, mutuals and co-ops know how the regulations will apply to their businesses? Have the Charity Commission, Companies House and the CIC regulator been involved in the drawing up of the regulations that apply to these companies?

Could the Minister explain the exemptions for registered social landlords? Given the potential rise in extensive homelessness, that is very important. Have local authorities been involved in the discussions about those companies?

In their initial handling of Covid, the Government made a fundamental mistake in March by putting in place measures that treated all companies the same. They are not. These companies are different; they are subject to different tax regimes and different laws. The Bill must not compound the problems that are currently in danger of putting thousands of charities and social enterprises out of business. Will the Minister agree to meet representatives of charities and social enterprises before the Bill reaches its next stage? For once this sector should be at the forefront, not the end, of the Government’s considerations.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

I understand that the noble Baroness, Lady Kennedy of Cradley, will no longer be speaking in this debate. I therefore call Lord Flight.

Covid-19: Businesses and the Private Sector

Baroness Garden of Frognal Excerpts

Thursday 21st May 2020 Lords Chamber

[Lord Campbell of Pittenweem (LD)]

My Lords, we shall not succeed unless we have the most effective partnership that we can between public and private, any more than we will not succeed if we do not accept the advice of the noble Lord, Lord Heseltine, expressed last night in an interview on Channel 4, that it is essential to utilise local initiative, knowledge and experience.

What I want to know is what forward thinking is taking place in the Government. There was a lot of wartime language at one stage, in the early days of our understanding of this virus. It is worth remembering that the Butler education reforms were conceived in the course of the Second World War, as indeed were the Beveridge proposals for social security. We certainly need equivalent foresight now.

There are two particular responsibilities which seem to me necessary for the Government. The first is education —to some extent I am echoing some of the sentiments just offered by the noble Baroness, Lady Falkner of Margravine. Once and for all we should put vocational education upon a par with higher education.

It is also necessary for the Government to embark on a serious programme of retraining. Those Rolls-Royce employees who are going to lose their jobs have a skills base that would easily allow them to be retrained for other similarly skilled opportunities. How shall we pay for this? I do not believe that the wholesale raising of taxes makes sense, as it will depress both demand and initiative; nor is cutting public expenditure possible. There can be no return to austerity; indeed, we may need to increase public expenditure.

The solution is obvious. Interest rates have never been more favourable. The Government should—

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

We seem to have lost Lord Campbell. I will move on to Lady McIntosh of Pickering.

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[Baroness Ritchie of Downpatrick (Non-Afl)]

My Lords, I thank the noble Lord, Lord Dobbs, for initiating this debate. I will bring a perspective from Northern Ireland. As far back as 26 March, 100 private sector companies diversified, showing skill and expertise to help in the Covid pandemic. They made scrubs, ventilators and PPE equipment because of the paucity of those items. Many restaurants and coffee shops provided much-needed meals to those who were shielding or who could not provide for themselves because of the inequalities that had arisen.

The Government provided finance through the furlough scheme and the self-employed scheme, but we have to look to the future. It is quite clear that there were many problems with our existing economy. We now have two shocks—the first was Brexit—and I hope Northern Ireland businesses will not face many barriers as they try to face what happens in terms of the Irish Sea and what was announced yesterday. It is important that there is unfettered access.

The second issue is that we have to look at the level of redundancy that will ensue whenever the furlough scheme ends. As the Ulster Bank survey last week showed, we are facing a vice-like grip on our economy—a major contraction of around 10%. What plans do the Government have, along with the devolved institutions, to bring forward regional and national strategies to build our business confidence, a business strategy and an economic strategy in the post-pandemic era? That is very important, and I would like to hear the Minister’s views on it.

[The Deputy Speaker]

I call the noble Earl, Lord Shrewsbury. Do we have him? I do not see him. I call the noble Lord, Lord Hussain.

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[Lord Wei (Con)]

My Lords, declaring my interests as in the Lords register, especially in tech, I join other speakers in praising the contribution of the private sector, which by and large has really stepped up to play a role in helping tackle this crisis that is bigger than just making money for shareholders. It has supported us so much as a nation, and we need to look out for business and employees in the coming economic crisis.

I have three questions for the Minister, bearing in mind the time. First, in future can the private sector be engaged through the furlough scheme and a modified industrial strategy, taking Covid into account, to transition to a more resilient world, so that businesses are never again caught out because they operate only in a physical way? We have heard many examples—pubs becoming supermarkets, et cetera. This would help us all help those who will be unemployed move into the new jobs of the future. Rather than everyone being paid to stay at home and not work, perhaps we should start paying people a little to start imagining what the future could look like.

Secondly, could more be done to build trusted hubs online? For example, I think of the excellent work of Frontline.live, set up within weeks recently to facilitate requests for PPE and suppliers that can provide it. Rather than relying purely on government procurement technology, we could look at things such as leisure technologies and blockchain to find ways to eliminate fraud, increase transparency and ensure that supplies are delivered to spec faster and less bureaucratically, using different trusted platforms that need to be built. In this context, I think particularly about the many low-margin businesses in this country in food production or other areas that right now are struggling to raise finance, operate or pay off invoices. Could there be ways in which we could help support more resilient supply chains in low-margin industries, especially post Brexit, and create the ability for them still to have the funding they need to keep our critical services and goods and products flowing, even in crises such as this?

My final question relates more to health. There have been some signs in parts of the NHS and Public Health England of a slightly anti-private sector attitude, which may have contributed to some of the challenges we have had in securing PPE and in supply chains around testing labs and so on. Could more be done to enable the NHS and, especially, Public Health England and other public bodies to have greater awareness of the potential to work with business, so that together we can solve future problems and crises more effectively and rapidly?

[The Deputy Speaker]

My Lords, we now come to two speakers who are out of order on the main list. We will first hear from the noble Lord, Lord Tyrie, and then from the noble Earl, Lord Shrewsbury, who we hope will have regained his signal. Then we shall have the Front-Benchers winding up. I call the noble Lord, Lord Tyrie.

[Lord Tyrie (Non-Afl)]

I declare an interest as chairman of the CMA. I will say a few words about what the CMA is doing to try to assist in this crisis. In a nutshell, the CMA has three jobs during the crisis. First, it needs to ensure that competition law does not get in the way of necessary co-operation between firms in the crisis, especially to ensure the maintenance of essential medical and food supplies. I am pleased that the Government have acted on CMA advice to exclude a number of agreements between firms on competition law that would otherwise have been prohibited.

The second thing we can do is to act rapidly and robustly against the small minority of traders that may have been exploiting consumers’ vulnerability. The CMA’s statutory base contains no provisions for emergency action of that type but we have a taskforce for exactly that job. We have sent over 250 letters to firms asking for an explanation of their conduct. To address price gouging, deterrence is essential in the long term, and even in the next few months, as are time-limited emergency powers, like those introduced in many other countries, especially where they have been put in place as part of the emergency. Something like that in the UK would boost deterrence further. We have offered the Government advice on this.

The third point, and the most important in the long term, is the contribution that the CMA can make to post-crisis reconstruction. The starting point will not be good. Big recessions usually weaken competition, as market concentration rises. Legislation is going to be needed and, as a number of noble Lords have pointed out, to play a full role we will need a stronger legislative base.

[The Deputy Speaker]

Do we have the Earl of Shrewsbury? I think he still does not have a signal, by the look of it. I call the noble Lord, Lord Fox.

Trade Marks (Amendment etc.) (EU Exit) Regulations 2018

Baroness Garden of Frognal Excerpts

Monday 14th January 2019 Grand Committee

[Lord Henley]

For once, my Lords, I thought the noble Lord had said that my explanation was completely explicable but I imagine that he said it was inexplicable, so I will certainly include that in the letter that I write. I beg to move.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

The Question is that the Grand Committee do consider the Trade Marks (Amendment etc.) (EU Exit) Regulations 2018.

[Lord Adonis]

Not content.

[Baroness Crawley]

Not content.

[The Deputy Chairman of Committees]

My Lords, I must remind the Grand Committee that a single call of “Not content” has the effect of negativing the Motion. With that in mind, I put the Question again.

[Lord Adonis]

Not content.

Higher Education and Research Bill

Baroness Garden of Frognal Excerpts

Report: 4th sitting (Hansard): House of Lords
Wednesday 15th March 2017 Lords Chamber

[Lord Wallace of Tankerness (LD)]

My Lords, I shall speak to Amendments 184, 193 and 194 in my name. Amendments 184 and 194 are supported by the noble Lord, Lord Patel. In many respects these amendments complement the amendment that has just been moved. I will describe briefly what they would do. Amendment 184 would require that, before approving a research and innovation strategy for UKRI, the Secretary of State would be obliged to consult the devolved Administrations. Amendment 193, which relates to Clause 100, would add an obligation to the general duties of UKRI to have regard to the promotion of research and innovation in Scotland, Northern Ireland and Wales. Amendment 194 refers to guidance that would be given by the Secretary of State to UKRI. It states that the Secretary of State,

“must have regard to the promotion of research and innovation in Scotland, Wales and Northern Ireland”.

I apologise that I was not able to be here in Committee as I was abroad at the time, but I noted the debate and the amendments moved very effectively and eloquently by the noble Lord, Lord Patel. He emphasised that this is not special pleading for Scotland or any of the devolved parts of our United Kingdom; rather, it seeks to address a situation where UKRI will have a remit right across the United Kingdom but, in respect of some parts of its business, will be focused on England only. We know that, with the best will in the world, if you are dealing day by day with one part it is sometimes easy not to have the full picture of—I do not mean ignore—what is going on in other parts of the United Kingdom.

We know from what has been said in previous debates that the contribution of Scotland’s universities to United Kingdom research and innovation has been immense. Scottish universities certainly punch well above their weight in terms of the research funding that they have received from the research councils. That is a mark of the quality of the research that goes on in Scottish universities and, in turn, of what they put back into United Kingdom research and innovation. That is something I am sure we all wish to see continued.

There have of course been reassurances from the honourable Member for Orpington—the Minister, Mr Jo Johnson MP—and from Sir John Kingman that UKRI will work for the benefit of all parts of the United Kingdom. I do not for a moment doubt the sincerity of these aspirations and the personal commitment, but the principal of the University of Edinburgh—I declare an interest that it is one of my almae matres—Professor Tim O’Shea, said in a letter to Mr Jo Johnson on 17 February:

“I remain concerned that UKRI’s attention to devolution issues relies on personal trust rather than being hard-wired into the statutory framework of UKRI”.


These amendments would ensure that some of that hard-wiring was put in statute.

I read the Minister’s response to the debate on 30 January. I also express my thanks to him and his officials for meeting me earlier this week to discuss these amendments. In response to the amendment on statutory consultation he said:

“I disagree that this should be achieved by requiring the Secretary of State to formally consult with the devolved Governments on reserved UK government policy, which would undermine the whole devolution settlement”.—[Official Report, 30/1/17; col. 1004.]


With respect, there is a bit of hyperbole there; nor do I think it is wholly accurate, as I will deal with in a moment.

There is no doubt that important aspects of research and innovation are devolved. I recall when I had responsibility in the Scottish Executive as Minister for Enterprise and Lifelong Learning. The annual letter that I sent out to the Scottish Higher Education Funding Council referred to priorities, including priorities for research. Research and innovation are in a number of respects devolved matters. The Scottish Government put money into research and innovation in Scotland. This is not a situation where, as was perhaps suggested, having statutory consultation would trespass on a reserved matter. It is important that we have such consultation because important work in research will be going on with which the Scottish Government, or for that matter the Welsh and Northern Irish Administrations, are wholly cognisant.

The Minister’s department, BEIS, will be dealing day in, day out with what is going on in England. It will have a much better picture of what is going on in England, but it is no criticism that it will not be as familiar with the landscape of research and innovation in Scottish institutions. It would not be a very effective use of public funds if, through lack of proper consultation, it led to duplication or it cut across things that were being done in Scotland that could have been done much more effectively and efficiently if there had been that consultation.

My preferred option would certainly be that the Minister would accept the hard-wiring of a statutory requirement, but he knows that devolution has shown flexibility as it has proceeded. There are memorandums of understanding between the United Kingdom Government and the Scottish Government, and indeed the other devolved Administrations. I hope he would be willing to consider that a memorandum of understanding would be possible if he does not feel that the statute book is the proper place for these requirements. Regarding the guidance that the Secretary of State would give to UKRI in Amendment 194, a commitment from the Minister that that guidance will not be in statute but nevertheless would include a direction to UKRI to have regard to the promotion of research and innovation in Scotland, Wales and Northern Ireland would be very welcome indeed.

I said that it was not wholly the case that these matters were reserved. The reservation in head C12 in Part II of Schedule 5 to the Scotland Act 1998 refers to:

“Research Councils within the meaning of the Science and Technology Act 1965. The subject-matter of section 5 of that Act (funding of scientific research) so far as relating to Research Councils”.


That has been amended quite significantly. That amendment, passed by a Section 30 order under the Scotland Act in 2004, added the Arts and Humanities Research Council. When it was established it was not covered by the reservation in the Scotland Act 1998. I recall that when the then Higher Education Bill was going through this Parliament, I had to take the legislative consent Motion through the Scottish Parliament to allow the Arts and Humanities Research Council to apply in Scotland. There was subsequently an order—I think that it was the first ever order which reserved something which had previously been devolved back to the Westminster Parliament. My concern is that the minor repeals schedule to this Bill—it is a small-print detail—puts the work of UKRI into Schedule 5 to the Scotland Act. The Bill defines the functions of UK Research and Innovation as to,

“carry out research into science, technology, humanities and new ideas”.

That is probably quite right, because, as we stand here today in March 2017, we do not have a clue what kind of issues will be here in, let us say, March 2027, where it would seem perfectly right and proper for there to be research council activities. However, I do not see “new ideas” in the 1965 Act. Therefore, what I think is being done by this legislation is to extend the reservation. I am not sure that the legislative consent Motion picked that up. I do not think for a moment that it is a deliberate subterfuge or land grab, but I think that it has not been fully thought through. I invite the Minister to address that, because he knows that we are in sensitive times dealing with devolution and devolved and reserved issues.

My main point to the Minister is that he should recognise the different landscape—the different environment —for research and innovation. There is great merit in going forward as a United Kingdom, but the specific arrangements in Scotland, Wales and Northern Ireland have to be catered for.

[Baroness Garden of Frognal (LD)]

My Lords, I support the amendments in this group. I add thanks from these Benches to those expressed to the noble Lord, Lord Prior, and the noble Viscount, Lord Younger, for the government amendments that they have brought forward and for supporting those from noble Lords, which have certainly made it a much better Bill.

Amendment 162 mirrors an amendment which we brought forward in Committee. For all the good reasons which the noble Lord, Lord Stevenson, has expressed, it seems niggardly to have one person trying to represent the three devolved Administrations. The arrangements would be stronger if there were somebody with experience of each of the three. There are distinct differences in higher education provision in the four parts of the United Kingdom. UKRI would benefit if it had relevant experience of all. We note that the amendment insists not that the person be Scottish, Welsh or Northern Irish but that they have experience of those three devolved Administrations. I hope that the Minister will look favourably on it.

[The Earl of Lindsay (Con)]

My Lords, the amendments proposed by the noble Lord, Lord Stevenson of Balmacara, and the noble and learned Lord, Lord Wallace of Tankerness, address an important issue. I acknowledge that the significant proportion of research policy and funding reserved to Westminster offers advantages in its ability to support and encourage a cross-UK research ecosystem that can benefit all parts of the UK. I have had first-hand experience of what such cross-UK advantages can achieve from a Scottish perspective.

Until recently, I was chairman of a Scottish HEI with a strong research track record. The HEI that I refer to is SRUC, or Scotland’s Rural College. In the 2014 research excellence framework results, SRUC, in collaboration with the University of Edinburgh, came top in the UK for research power for agriculture and veterinary and food science. This is just one example of the extent to which Scotland contributes significantly to the overall strength of the UK research sector.

However, the ability of a cross-UK research ecosystem to benefit all parts of the UK, and in turn to benefit from all parts of the UK, relies on the research infrastructure. More specifically, it relies on a research infrastructure designed and operated in such a way that it clearly involves, understands, reflects and serves the needs of all parts of the UK equally.

In this respect, I am aware of well-placed concerns about the currently proposed design arising from the view that the different parts of the UK need a better defined role and involvement in setting overarching UK research policy and direction, hence my interest in Amendments 162, 184, 193 and 194 and my hope that my noble friend will support their intent.

The amendments would result in more structured, more certain and less ambiguous protection of UKRI’s duty and capacity to act in the interests of the whole UK. It could make sense for UKRI’s research strategy to be subject to consultation with the devolved Administrations. It could make sense for UKRI and for the councils to include members with experience drawn from the devolved jurisdictions of the UK to ensure that decisions were informed by knowledge of the diverse contributions made by different parts of the UK. It would also make sense for Innovate UK’s priorities to be informed by the specific economic policies of the devolved jurisdictions as well as by the UK Government’s economic policies. I hope that my noble friend will acknowledge the importance of the issues that the amendments address.

Higher Education and Research Bill

Baroness Garden of Frognal Excerpts

Committee: 7th sitting (Hansard): House of Lords
Monday 30th January 2017 Lords Chamber

We also believe that the OfS and UKRI need to have other forms of meshing together—which demonstrates that the Government have divided responsibility at departmental level. It is very important to establish that the processes and guidelines that exist, and those elements that could be in the Bill, are there to ensure that there is an effective and close working relationship between the research and teaching functions. I beg to move.

[Baroness Garden of Frognal (LD)]

My Lords, I support the noble Lord, Lord Mendelsohn, in his introduction to this part of the Bill. He commented on the danger that some universities may ditch research, but there are also concerns, following the first part of the Bill, that some universities may look rather critically at their undergraduate provision and wonder whether that is all worth while.

I have added my name in support of Amendment 508C in this group, which was suggested by a number of higher education organisations, including MillionPlus. Holistic oversight of the higher education sector is essential for its continuing success; the Bill must have measures in it that will ensure that the two major bodies, UKRI and OfS, do not work in silos. The work of each organisation is, after all, complementary to the other. A joint committee and an annual report would help to achieve this and deliver a closer working relationship between the two organisations, which would benefit students, providers and employers and provide parliamentary oversight.

Universities thrive through close collaboration between teaching and research, and in the previous part of the Bill we have already proposed that UKRI’s research expertise should be brought to bear in co-operating with the OfS in awarding research degrees. The other areas identified in this amendment are also key to the health of the sector. These issues are too important not to have some specific measures in the Bill to ensure that such co-operation and oversight takes place.

[Lord Mackay of Clashfern (Con)]

I have an amendment in this group, Amendment 509, which suggests a somewhat more vigorous role for co-operation than the amendment that has just been referred to. It appears to the noble Lord, Lord Smith of Finsbury, who cannot be here today, that the Office for Students is dealing with matters concerning research, but the whole object of this part of the Bill is to set up UKRI as the great authority on research. It seems extraordinary that the Office for Students should deal with research questions—the awarding of research degrees and the integration and teaching of research students—without utilising the resources of UKRI.

The Bill has very remarkable provisions on joint working. I do not want to examine the detail just now, except to say that joint working is permitted only in respect of UKRI in very restricted circumstances, which have nothing to do with the general power to award research degrees or deal with research students. It is about a particular kind of funding. That suggests to me that the idea of joint working seems very restricted in the Bill, and it is a matter of extreme importance. As I tried to say in my speech on Second Reading, it is a fundamental unity in many of the great universities in this country that they both teach and do research.

Some of the best teachers, in my experience, are those who are at the very forefront of research, because they usually have an enthusiasm for the subject which on lecturing they can transmit to their pupils. I think that I have some experience of that myself. People who really are at the heart of research are the best possible teachers, so to divide up the organisation of the university between the Office for Students and UKRI goes to the very heart of a fundamental unity which has been part of the strength of many of the great British universities for many years.

Therefore, I propose, in conjunction with my noble friend and with the noble Lord, Lord Mendelsohn, that the arrangement should be that, when research matters are an issue, the decision should be a joint one between UKRI and the Office for Students. The arrangements for having observers or members across the divide are no doubt worthy of consideration, but we need to go to the very heart of this matter to ensure that research matters are considered by people with expertise in research, chosen for that purpose as the leaders of the research establishment, if you would like to call it that, in this country.

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[Lord Sharkey (LD)]

My Lords, this amendment proposes a change to the wording of paragraph 2 of Schedule 9. Sub-paragraph (5) of paragraph 2 concerns itself with the experience of those appointed as members of UKRI. The intent of the sub-paragraph is clear: the Government want to make sure that the members of UKRI have experience in the various areas listed in the sub-paragraph. These are all important areas. However, a very important area is missed, which we will come to in the next group of amendments.

I think no one would disagree with the areas of expertise proposed. If UKRI is to do its job properly, it is vital that its members have between them the experience set out in the Bill. The problem is one of drafting. The Bill states:

“The Secretary of State must, in appointing the members of UKRI, have regard to the desirability of the members (between them) having experience of”,


and the Bill goes on to list the areas of experience. This is a very weak formulation and, in reality, imposes no real condition on the Secretary of State. It requires him to,

“have regard to the desirability”,

of UKRI members having the experience listed, but this is not equivalent to saying that they must have it. In fact, it allows for the possibility that a Secretary of State may conclude, no matter how perversely, that it is not desirable for UKRI members to have the listed set of experiences. Or it allows him to conclude that it is desirable that they have only some of these experiences between them. In any case, even if the Secretary of State were to conclude that it was desirable for UKRI members to have some or all of the listed experience, the Bill as drafted does not compel him to do anything about it.

Given the importance of UKRI and what I take to be the intent of paragraph 2(5) of Schedule 9, it would be much better and clearer to impose a duty on the Secretary of State, which my Amendment 472 sets out to do. It would revise paragraph 2(5) so that it read: “The Secretary of State must, in appointing the members of UKRI, ensure that the members have (between them) significant direct experience of … research into science, technology, humanities and new ideas … the development and exploitation of science, technology, new ideas and advancements in humanities, and … industrial, commercial and financial matters and the practice of any profession”.

UKRI’s membership is far too important to be left to the rather vague drafting that imposes no necessary structure on it. If we are to have a provision in the Bill to regulate membership of UKRI, it should have some practical force. Amendment 472 does this. I beg to move.

[Baroness Garden of Frognal]

My Lords, I added my name to my noble friend Lord Fox’s Amendment 473, which is remarkably similar to the one my noble friend Lord Sharkey has just spoken to. I therefore agree with my noble friend Lord Sharkey.

[The Earl of Selborne (Con)]

My Lords, these amendments certainly seem uncontroversial in that, if you look at paragraphs 2(5)(a) to (c)—we will come to a proposal later that another sub-paragraph be added—it is clear that these are experiences and expertise that will be highly valuable.

This gives me an opportunity to point out that, under sub-paragraph (c), one of the categories is experience of,

“industrial, commercial and financial matters”—

this is for a member of the UKRI board. This will be particularly essential, because of course Innovate UK will be subsumed as one of the nine councils within UKRI. It will have to have access to a completely new field of expertise, which Innovate UK does not have at the moment, particularly the ability to leverage new financial funds. Otherwise, you cannot expect the great expansion that we would like to see of Innovate UK, if it is to play the critical role in bringing research councils and commercial research into a closer relationship and improving our rather abysmal productivity levels—which, indeed, can probably be improved only by a successful rollout of innovation.

There will be a clash of cultures if UKRI is heavily weighted, as it almost certainly will be, towards,

“research into science, technology, humanities and new ideas”.

There simply must be people who understand the concept of risk, which is a completely different concept to the one that research councils at the moment have. I therefore point out just how critical it will be to have such experience not just on the council of Innovate UK, where inevitably all this expertise must lie, but it must be well represented on the UKRI board. Otherwise, the idea of bedding the two together will be doomed to disaster.

Higher Education and Research Bill

Baroness Garden of Frognal Excerpts

Committee: 7th sitting (Hansard - continued): House of Lords
Monday 30th January 2017 Lords Chamber

Moved by

[Baroness Garden of Frognal (LD)]

483: Clause 86, page 55, line 12, leave out paragraph (h)

[Baroness Garden of Frognal (LD)]

My Lords, I shall move Amendment 483 in my name and that of my noble friend Lord Storey and speak to Clause 90 stand part, to which the noble Lord, Lord Mendelsohn, has also added his name.

The previous group has already addressed these issues in some detail and so I shall be brief. These are probing amendments of course. We recognise that UKRI is effectively a fait accompli, but following concerns raised both tonight and elsewhere by supporters of Innovate UK and of the research councils that the proposed combining of forces may have unintended consequences, this seemed to be a moment to raise the issue again. Amendment 483 would remove Innovate UK from UKRI. In the previous debate, the noble and learned Lord, Lord Mackay, the noble Baroness, Lady Neville-Jones, and the noble Earl, Lord Selborne, all addressed this proposal without necessarily supporting it.

Innovate UK is primarily business focused. It works with the private sector and is generally supported by the business community. It should perform a key role in the industrial strategy, and it performs a valuable function in ensuring that the UK benefits from UK research. As the noble Lord, Lord Mair, set out, there are too many examples of research that is carried out in the UK by UK academics being commercialised elsewhere or undersold in the UK. Innovate UK has been successful in addressing and improving that situation. The noble Lord, Lord Broers, also addressed this issue, and the Minister addressed it in his closing remarks on the previous amendment. However, the challenges of Brexit add to the need for Innovate UK to work well, and there seems to be no good reason for changing its structures.

Concerns have also been expressed by the research community that the interests of pure academic research might be disadvantaged by being under the same governance as the commercial arm. We have heard those concerns expressed again this evening.

Clause 90 follows from that. It sets out clearly that Innovate UK has the purpose of increasing economic growth, to benefit business and improve quality of life. Those are all admirable aims, and after tonight’s discussion there may be additions to them. What assessments were made of possible detriment to Innovate UK and the research councils of being under the same umbrella? What evidence is there that such a combination will be successful? Is there any provision for a review in case any problems arise with this multifaceted and enormously influential institution? I beg to move.

[The Earl of Selborne]

My Lords, we have discussed at good length the various problems that Innovate UK might or might not face within UKRI. I would like to explode one myth in case anyone has any illusion about the linear model or believes that ideas automatically start in academia and go in one direction only—into commerce. That model has long since been exploded. Ideas go in both directions and academia benefits as much from interaction with commercial activity as the other way round. Once we have got that into our heads and realise that we need to bring them all together and provide an opportunity for each to spark the other, then we will see how Innovate UK might realistically and helpfully be embedded in the organisation.

It did not help that the consultation in the early days, before the Bill was published and after the Nurse review, was, quite frankly, inadequate. There has been a great deal of excellent consultation since, which is why many of us have changed our minds—or at least are prepared to accept that it could be made to work—and I hope that we can be given further assurance about the issues referred to in the earlier debate about autonomy and being business-facing.

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[Lord Prior of Brampton]

My Lords, we could debate this issue for two or three hours, but we must restrain ourselves. I turn first to the two points raised by my noble friend Lord Willetts. I will indeed have to write to him about the powers the Secretary of State will be planning to delegate to Innovate UK. In a way that also answers his second question because he referred to “old think”, and indeed some of that could be construed in this Bill when comparing it with the requirements of the industrial strategy. But if the delegation to UKRI and Innovate UK from the Secretary of State is right, I think it will be perfectly possible to reconcile that with the industrial strategy.

I would actually take issue with the noble Lord, Lord Mendelsohn, because I think that Brexit has made the coming together of Innovate UK with the research councils within UKRI even more necessary, but I agree that Innovate UK is only a part of the answer. We have to have a competitive fiscal regime, long-term risk capital and a well-trained technical workforce among many other things. Innovate UK on its own is not going to shift the productivity dial for the country, although we believe that it has an important part to play.

The noble Baroness, Lady Garden, asked about an assessment of Innovate UK. A detailed business plan was made, although I am afraid that I cannot remember when it was published. I shall certainly endeavour to send her a copy of that report. The fact is that this is more of a judgment than something which can be proved with spreadsheets and the like. I think that the right judgment is to bring innovation together with research; that is the right thing to do because the reality is that one of our weaknesses, as other noble Lords have mentioned, is that we have a fantastic research base but have not been able to take maximum commercial advantage of it. That is a space which Innovate UK has filled and will continue to do so.

The extra investment being made by the Government in UKRI is a clear vote of confidence, and our support for the central role of Innovate UK in delivering our future knowledge economy will include a substantial increase in grant funding. The Bill seeks to name Innovate UK in legislation for the first time. It will retain its own individual funding stream and grow its support for business-led technology and innovation as a key part of the industrial strategy. I think it is worth quoting Ruth McKernan, the chief executive of Innovate UK:

“The establishment of UK Research and Innovation, including the research councils and Innovate UK, recognises the vital role innovation plays and further strengthens the UK’s ability to turn scientific excellence into economic impact”.


That is one of the 10 pillars of the industrial strategy referred to earlier by the noble Lord, Lord Mair. It is absolutely fundamental to our future and bringing these organisations together is critically important. Only by bringing Innovate UK into UKRI will we remove the remaining barriers to greater joint working between research and business at all levels. Businesses will be able to identify more readily possible research partners and will benefit from the better alignment of the outputs of research with business needs in, for example, technology and data skills. Researchers will benefit from greater exposure to business and commercialisation expertise so that they can achieve maximum impact. It will be simpler to find and form partnerships and there will be easier movement between academia and business. The UK will benefit from a more strategic, agile and impactful approach across UKRI’s portfolio which can respond to real-world challenges and opportunities.

The critical achievement is reaching the right balance between freedom and autonomy for Innovate UK while recognising at the same time that, ultimately, the Secretary of State has to be held financially accountable in Parliament for the money that is spent. With that, I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Garden of Frognal]

My Lords, I thank the Minister for his reply and other noble Lords for their contributions to this short debate. As the Minister said, we could have carried on debating this for rather a long time, but of course we will not.

One of the points made by the noble Lord, Lord Mendelsohn, about Brexit is that it generates an extra degree of uncertainty, and with all the uncertainties already around, this may not be a propitious moment to be creating another uncertainty by combining Innovate UK with the research councils. I look forward to another letter for the dossier, and indeed we are acquiring quite a number of them at the moment. If there is any more clarification, I would also welcome that. In the meantime, I beg leave to withdraw the amendment.

Amendment 483 withdrawn.

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[The Earl of Selborne]

My Lords, I strongly support the noble Lord, Lord Watson, on this. I assure noble Lords that I have entered the premises of the James Hutton Institute, which is held in high regard not just in this country but internationally.

Here we have a situation where government departments are, very reasonably, keen to try to live within their means, and there is a suspicion among the research councils that public sector research establishments might be unloaded on to research council funding. When I wrote to my noble friend Lord Younger, having raised this matter at Second Reading but without referring specifically to the James Hutton Institute, he was good enough to admit that that was the concern. Those who were concerned did not want departments to get rid of their responsibilities by passing the funding over to research councils.

This is a typical government spat, with public sector research establishments not being allowed to apply for research council funds. As I understand it, this is a ruling made through the Department for Business, Energy and Industrial Strategy. Of course, as the noble Lord, Lord Watson, pointed out, the irony is that the James Hutton Institute is not even a PSRE, so it gets caught by a sort of collateral fire. It is an international institute but, through this ruling that any institute that gets funding of more than 50% cannot apply for research council funding, it cannot apply for international funding either, whether at an EU or an international level. This is a clearly pernicious ruling that has no bearing on the James Hutton Institute. As I said, it is there to prevent PSREs being unloaded on to research councils. It lies within the power of the Minister, standing at the Dispatch Box today, to say that Clause 88(4), which says that,

“UKRI must have regard to the desirability of not discouraging the person from maintaining or developing funding from other sources”,

can be put into operation immediately. Forget the rather infelicitous double negative; it is saying, “We encourage people working in research to look for funding wherever they can”, but of course that must be based on the quality of the science—supporting excellence, as the previous amendment referred to. No one doubts that the James Hutton Institute is a centre of excellence that should be encouraged to apply for international funding and indeed for research council funding. It needs this pernicious ruling to be abolished, and that could be done here and now.

[Baroness Garden of Frognal]

My Lords, my noble and learned friend Lord Wallace of Tankerness, who, along with the noble Lord, Lord Watson, originally tabled his opposition to the clause, is not able to be here today, and I regret that I can claim no connections at all with Invergowrie.

As has been explained, the Bill in its current form risks acting as a catalyst, which, under Brexit, may magnify and exacerbate the negative impact of the 50% rule on research organisations such as the James Hutton Institute. Of course, it may, as has also been explained, cause these long-established, highly respected organisations to downsize or close operations. It is already having an impact on attracting and retaining staff. It also creates an unequal playing field because, conversely, there are no restrictions on organisations that are majority funded by research councils. It seems a very unfair and archaic rule. I add my voice to those of the two noble Lords who have already spoken and urge the Government to work with Research Councils UK to remove the rule to ensure a fair and sustainable funding environment.

--- Later in debate ---

Moved by

[Baroness Garden of Frognal]

503: Clause 95, page 60, line 3, after “(1)” insert “must respect the principle of institutional autonomy set out in section 2(6A), and”

--- Later in debate ---

[Baroness Garden of Frognal]

My Lords, I will speak very briefly to Amendments 503, 505 and 506, to which I added my name. All simply assert the importance of having regard to the principle of institutional autonomy, which we have raised at various times throughout the Bill. It seems appropriate to reassert the principle of the autonomy of higher education institutions in these three places. I beg to move.

[Lord Prior of Brampton]

My Lords, as with similar amendments regarding the OfS, I assure noble Lords that the Government agree that institutional autonomy is of the utmost importance, and that we are actively considering how to address the concerns that have been raised.

On Amendment 503, Clause 95 already protects institutional autonomy by stipulating the unhypothecated nature of Research England’s funding allocations—and it does so in stronger language than that proposed.

It is unnecessary to make Amendment 505 as the same protections given to Research England’s funding in respect of grants also apply to the Secretary of State’s power of direction. As I have already stated this evening, the power to give directions is limited to financial matters; it is not a power to direct UKRI more generally. This power is similar to that currently afforded by the Science and Technology Act 1965 and does not reduce the autonomy of institutions.

Amendment 506 would be overly restrictive and could also undermine the dual-support system. It would blur the distinction between the two funding streams of dual support and erode, if not end, grant funding awarded on the basis of peer-reviewed project excellence. UKRI and its councils need to retain strategic oversight of the research that they fund, just as the research councils do now. Unlike Research England, UKRI’s remit will not be limited to higher education institutions. UKRI will have a strategic vision for research and innovation across the UK. It will fund and engage with research institutes and facilities, as well as businesses, both domestically and internationally. The principle of institutional autonomy does not apply in the same way to many of these organisations. As such, I ask the noble Baroness to withdraw her amendment.

[Baroness Garden of Frognal]

I thank the Minister for his reassurances and explanation, and I beg leave to withdraw the amendment.

Amendment 503 withdrawn.