Communications Act 2003 (Maximum Penalty for Contravention of Information Requirements) Order 2011

Lord Moynihan Excerpts

Tuesday 5th July 2011 Grand Committee

[Lord Clement-Jones]

My Lords, I understand the purpose of this order; the reasons for it were very cogently set out by my noble friend. European directives in the telecoms area have been extremely important in making sure that we have a level playing field in telecommunications across Europe. I doubt anybody would deny that the European framework is extremely important. However, this is only one part of the implementation of the changes to the European framework of directives. The question that occurs to me is: why are we not dealing with all the other aspects of the changes at the same time? One could then see the full context in which those changes are being made. I wonder whether I may have missed three statutory instruments this month, which is easily done, especially in this House. I may not have missed them—they may be coming down the track—but it would seem convenient for us to deal with them and this rather draconian order at the same time. The impact assessment that comes with the Explanatory Memorandum deals with the whole slew of other changes being made to the European framework and the other five directives that are part of it. Therefore, it would have been convenient to deal with them at the same time.

As the Minister says, the consultation broadly supported raising the level of the sanction to £2 million. However, “dissuasive” is, on the face of it, quite a subjective word. I wonder whether the Minister could define “dissuasive”—a word she used three or four times in the course of her excellent introduction. For instance, what is dissuasive about a penalty of £2 million as opposed to £1 million? I wonder whether this is less of a legal definition and more of a value judgment. I am perfectly okay with it being a value judgment, but we need to accept that it is and that it is a judgment made by the Government, who are not really objective in the circumstances.

I fully understand the nature of the changes being made to the authorisation directive in terms of specific sanction. However, I find parts of the impact assessment confusing. Looking at the impact assessment that deals with the authorisation directive, policy option 1 is:

“Implementation of the Authorisation Directive—articles for which there are no options in implementation”.

Then we move swiftly on to policy option 2, which is:

“Preferred implementation of the Authorisation Directive—articles for which there are options in implementation”.

Which option have we chosen? It is not clear to me from this impact assessment which option we have chosen. I assume that we have chosen policy option 2, but there was no explanation of that in the Minister’s introduction. It would be extremely valuable if she could explain which of the policy options has been adopted. Indeed, perhaps I was not even looking at the right impact assessment; that is always a possibility.

[Lord Moynihan]

My Lords, my intervention on this will be very brief. I echo my noble friend’s comments about the Minister’s excellent introduction. I should like the Minister to give us a little more clarity, if possible, on the consultation outcome. The rise from £50,000 to a maximum of £2 million, based on a value judgment, is large. Descending on the £2 million is the issue that I shall focus on. Could the Minister, in replying, let us know a little more about the level of response to the consultation exercise which was supportive of the figure of £2 million? The Explanatory Note includes a breakdown of small groups and groups that took different views, but I should be grateful if the Minister could tell us whether there was overwhelming or significant majority support for the proposal that she has brought to the Committee today.

[Lord Stevenson of Balmacara]

My Lords, I, too, welcome the Minister’s introduction, which was extremely fulsome and interesting. Like other noble Lords who have spoken, I understand and broadly welcome the objectives of the order. However, I, too, have a number of points that I want to draw out and the Minister to respond to when she is able to do so.

We understand that the need for the order is the EU directive and the requirement to implement the better regulation directive. The Minister said that she had no discretion on that, but there is quite a lot of discretion within the directive because it does not specify a figure of £2 million, as has already been mentioned by the noble Lord, Lord Clement-Jones. It is a ministerial decision that this is the way to be “appropriate”, “effective” and “dissuasive”—the terminology used. Is it appropriate? Will it be effective? Will the net effect be dissuasive? That point came through in earlier speeches and I shall be interested to hear the Minister’s response.

As far as we can tell, Ministers have judged that £50,000 in fines is not dissuasive. Whichever way we read the impact statement—it was rather a heavy read—the evidence may support that level of penalty as regards certain companies, and certainly for those where the returns are much greater than £50,000 for an alleged breach of not providing the information. However, is it really appropriate to increase fines by 40 per cent in order to remedy a lack of provision of information? It is not exactly on the same scale as the examples given by the Minister. The only real example that I could find was where companies were undertaking short-term scams, although it was not clear what those were—perhaps we could have a discussion about them in the response—or what sort of returns there were on them. If they were that profitable, I should like to know more about them.

To explain, we are not really against the order but there are some questions. Is £2 million the right figure? The argument that it is the same figure that they have used in other places is not sufficient. We need to know more about what the £2 million does in terms of dissuasion and whether it is indeed appropriate and effective. Has consideration been given to another penalty? We were given one option, which was discussed, but it would not be difficult to think of a more dissuasive penalty in a situation whereby, as a result of the lack of the provision of information, the company concerned gained significantly in its trading activities. It is quite hard to see what that would be, but let us assume that that is the case. If the company made a significant profit as a result, perhaps the appropriate and dissuasive penalty would be the removal of that gain.

The potential impact on a smaller company certainly came through in some of the responses but has not really been picked up on. Many companies in this field do not have profits greater than £50,000 per year. To be fined at the level of £2 million is an awesome thought.

We were told that there was a large consultation but I agree with noble Lords that the information about who was actually consulted is not available. We were told that the responses were broadly supportive but we were unable to identify—certainly by size or by range—what those companies were. On reading the impact statement, it seems that the evidence used was only the 11 cases that have been considered by Ofcom since 2005, of which three were multiple occurrences. So we are talking about only eight different cases, which seems to be quite a small sample on which to base such a draconian increase.

In making a judgment that this measure is appropriate and proportionate, the Government are acting as both judge and jury. I am not sure that that is the right way to approach this. I would have liked to have seen more quantitative evidence in the impact statement.

The comment made in some of the paperwork is that as a result of this change there may well be an increase in the number of appeals made against such fines. That will obviously cost and it may be that the overall effect is not significant. In her summation, the Minister said that this would be good for business and good for consumers. I am not sure. This is more likely to be another example of gold-plating what is required by the EU directive, which is aimed at providing only appropriate, effective and dissuasive powers. It is not a fixed amount. It is perhaps not so much gold-plating but platinum-plating. It is hardly a light touch; rather, it is a heavy plundering.