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House of Commons Hansard
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General Committees
05 December 2016

Delegated Legislation Committee

Draft Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016

The Committee consisted of the following Members:

Chair: Mrs Cheryl Gillan

† Argar, Edward (Charnwood) (Con)

† Cruddas, Jon (Dagenham and Rainham) (Lab)

De Piero, Gloria (Ashfield) (Lab)

† Dinenage, Caroline (Parliamentary Under-Secretary of State for Women and Equalities)

† Evennett, David (Lord Commissioner of Her Majesty's Treasury)

† Green, Chris (Bolton West) (Con)

† Hall, Luke (Thornbury and Yate) (Con)

† Haselhurst, Sir Alan (Saffron Walden) (Con)

† Mackinlay, Craig (South Thanet) (Con)

† Mercer, Johnny (Plymouth, Moor View) (Con)

Reed, Mr Jamie (Copeland) (Lab)

† Sharma, Mr Virendra (Ealing, Southall) (Lab)

† Siddiq, Tulip (Hampstead and Kilburn) (Lab)

† Swayne, Sir Desmond (New Forest West) (Con)

† Trevelyan, Mrs Anne-Marie (Berwick-upon-Tweed) (Con)

† Turner, Karl (Kingston upon Hull East) (Lab)

Glenn McKee, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee

Monday 5 December 2016

[Mrs Cheryl Gillan in the Chair]

Draft Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016

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I beg to move,

That the Committee has considered the draft Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016.

It is a pleasure to serve under your chairmanship, Mrs Gillan. The Childcare Act 2016 delegates powers to Ministers to create regulations that provide for an additional 15 hours of childcare for children of working parents in order to create what is known as the 30 hours free childcare entitlement. The Government are committed to doubling the amount of free childcare for working parents of three and four-year-olds from September 2017. We know that the cost of childcare poses a barrier to work for families with small children, and this policy provides significant support, worth about £5,000 a year, to working parents.

All three and four-year-olds are already entitled to 15 hours a week of free early learning. Take-up is high, at about 95%, and the quality of provision continues to improve, with 86% of children taking up their place in a good or outstanding setting. On top of that, the most disadvantaged two-year-olds can receive 15 hours a week of free early learning, because we know that when they arrive at school less advantaged children can be behind their better-off peers.

Let me make it clear that we will retain the same stringent quality standards as we apply to the existing entitlements, so providers delivering any part of the 30 hours entitlement will need to follow the requirements of the early years foundation stage and must be registered as an Ofsted early years provider. We debated the eligibility criteria and the detail of the 30-hours policy extensively during the passage of the Childcare Bill last year. The regulations provide more detail and clarity on the design and delivery of the additional 15 hours, including all the eligibility criteria.

My Department continues to undertake extensive informal consultation and engagement with key stakeholders, including childcare providers, local authorities and national childcare provider organisations. That has helped tremendously in ensuring that those who will deliver the 30 hours have contributed to the development of the policy and how it is delivered to parents. I appreciate the fact that all those involved have worked so constructively with me and my team.

It is important to view our 30 hours offer as one part of a much bigger Government commitment to childcare support. All three and four-year-olds already receive 15 hours a week of early learning, as do the most disadvantaged two-year-olds, and the early years pupil premium provides additional support for the most disadvantaged three and four-year-olds. Our new special educational needs inclusion fund and disability access fund, worth £615 per child per year, offer targeted support for children with special educational needs and disabilities. The Government will introduce tax-free childcare early next year, and our flagship welfare reform programme, universal credit, allows low-income working parents to claim up to 85% of their childcare costs, even if they work only a few hours a week. Together, those childcare support offers amount to funding worth £6 billion a year by 2019-20. That is a major package of support for working families. I hope that the Committee will support the regulations.

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It is a pleasure to face the Minister again under your chairmanship, Mrs Gillan. It will come as no surprise to anyone listening that the Labour party welcomes any initiative to extend free childcare, but examining the regulations and the explanatory memorandum provides another opportunity to touch on several important concerns about the policy that have been expressed by Labour Members and sector leaders since it was first announced. None the less, the Opposition do not intend to divide the Committee on the regulations, as above all else we want swift progress ahead of the national roll-out of the entitlement.

The regulations are largely practical in providing a statutory framework for the policy, but the context presents a challenge to their feasibility. Childcare providers and local authorities will be keen to know whether they can truly expect to meet the demands being placed on them. Before I ask about the pressures faced by providers and authorities, I will say that the Government’s response to the early years funding formula consultation, which has somewhat changed the terms of the guidance we are discussing, offered some much-needed changes, which I welcome wholeheartedly.

Maintained nursery schools offer an excellent education to some of the most disadvantaged young children, so the guarantee of their supplement throughout this Parliament is welcome. It removes at least one unnecessary challenge for local authorities in fulfilling the measures outlined in part 4 of the regulations. Furthermore, the Opposition welcome the recognition in paragraph 9.8 of the draft explanatory memorandum of

“issues with the way the funding system currently works to support children with SEND”.

The extra funding offered for disabled children is certainly a welcome change in step, but the response from providers and sector leaders still shows the latest offer from the Government to be insufficient to achieve the requirements set out in the regulations and the policy more broadly. The difference between the cost of delivering free entitlement places, per the regulations, and the funding received from Government remains significant. Sector leaders at the National Day Nurseries Association and the Pre-school Learning Alliance have been clear that unless the gap is closed entirely, it will be difficult to secure free childcare, per part 2 of the instrument. Does the Minister believe that the concerns over the latest funding announcement are well founded? Can she say with certainty that the current offer is sufficient to implement the regulations?

Given the duties on local authorities outlined in part 4, Committee members may wish to note that the chair of the Local Government Association’s children and young people board said:

“Both councils and childcare providers are under severe financial pressures”,

and that councils

“remain very concerned that the increase in funding will not be sufficient”.

That is important because the main difference between the 2014 regulations and the draft 2016 regulations is a 20-page definition of a working parent. The decision to restrict the additional entitlement to working parents will therefore produce significant bureaucracy for local authorities and may ultimately confuse parents about whether they actually qualify. I would appreciate the Minister’s reflections on whether local authorities are equipped to handle the regulations. Specifically, it would be good to hear whether her Department has considered the extra bureaucracy being generated and whether it has a plan in place to deal with that.

I welcome the analysis in paragraph 9 of the explanatory memorandum—on the Government’s consultation—regarding the delivery of the extended entitlement, but I was surprised by some significant omissions. I am worried that there is no mention of the fact that almost two thirds of the early years providers responding to the same consultation said that they were concerned about funding. I am surprised that a memorandum covering guidance to support parents into work makes no mention of the fact that of the 25% of providers who thought there would be an impact on disadvantaged families, just 4% thought that impact would be positive. I hope the Minister will comment on some of those omissions, which constitute some of the most important findings of that consultation. The guidance seems to be missing a long-established trend in the early years acknowledged in Sir Michael Wilshaw’s annual report: that the increase in early years places has not kept pace with the increase in the early years population. How confident are the Government that there is sufficient capacity to meet demand for the extended entitlement?

The instrument before us has several laudable aims: to impose a duty on local authorities to secure early years provision; to have high quality within that provision; and to provide proper framework of eligibility. However, the positive aims, which I welcome, must be backed up with adequate resources and, most importantly, proper funding to guarantee the long-term viability of the scheme. Members of Parliament from both sides of the House and across the country have been campaigning relentlessly on behalf of early years providers and families in their constituencies to get the needed support. In particular, I thank my right hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) and my hon. Friends the Members for Manchester Central (Lucy Powell), for Kingston upon Hull East, for Ashfield, for Dagenham and Rainham, and for Ealing, Southall for all the work they have done.

The idea of 30 hours of free childcare is absolutely welcome but it must be fully funded. My fears are that it is not, so I would appreciate reassurance from the Minister t his afternoon.

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I thank the Opposition spokeswoman, the hon. Member for Hampstead and Kilburn, for her welcome for some parts of the policy. I am grateful for her constructive approach and will be happy to respond to some of her questions.

I start by reiterating my opening comments—that we want the 30 hours free childcare entitlement to have a real impact on the lives of working families by making childcare more affordable. That will ensure that parents have real choices about work and are not constrained by the cost of childcare. As I mentioned, we have undertaken extensive consultation with key stakeholders, including childcare providers and local authorities, to ensure that those who will be delivering the 30 hours of free childcare have contributed to the development of the policy. I know that their commitment will be key to making the policy a success, and I have been encouraged by their enthusiasm and determination to meet the needs of parents and children.

We have been very pleased with the early implementers, which is why we went live with the 30 hours offer in eight local authorities in September. The programme is going extremely well, with more than 3,700 children already accessing a 30 hours place. I had the opportunity to visit Swindon last week, to see at first hand how the offer is working for those involved. The early implementers have trialled focuses on different challenges of the policy: Northumberland focused on rurality and Staffordshire and Portsmouth on low-income families, which the hon. Lady mentioned. Swindon is championing flexibility; it has a nursery that is co-located at a hospital site, where staff work some obviously quite challenging shifts. Newham is supporting children with special educational needs and disabilities; I hope to visit them in the next week or so. Wigan and Hertfordshire are also exploring partnership working and focusing on low-income families. We are capturing the learning from those areas throughout the year and sharing it with every area, to make sure that the full roll-out benefits from learning from their successes and experiences.

With regard to the funding, the hon. Lady is absolutely right: we need to get the funding right and ensure that early years providers are funded on a fair and sustainable basis. That is why we are delivering our promise by spending an additional £1 billion a year by the end of this Parliament on free childcare. That will provide more than £300 million a year to increase the funding rate and it will be allocated on a much more fair and transparent basis. In the Government response to the consultation on the funding formula, which was published last Thursday, as the hon. Lady mentioned, we announced that the new national average funding rate paid to local authorities would be £4.94 per hour per child. We have also introduced a minimum funding rate of £4.30 an hour, which will reassure some of the areas that are at the lower end of the scale.

Equally important is ensuring that that funding reaches providers, so that they can deliver all of the free entitlements on a sustainable basis. The new funding rate will give local authorities the scope to pay providers, but we are also maximising funding to the frontline by requiring local authorities to pass 95% of the funding through to providers, and we are making sure that there is fairness in local formulae by moving towards the universal base rate for all providers in a local area. We are also creating a better deal for children with disabilities, as the hon. Lady mentioned, by introducing a new £12.5 million disability access fund, which is worth £615 per child per year, and we are legislating for every area to set up a local inclusion fund for children with special educational needs.

The hon. Lady is rightly concerned about the burden on local authorities. We have committed to undertake a new burdens assessment for the extended entitlement, and we will respond to the findings. We are committed to ensuring that we do not add unnecessarily to the workload of local authorities, which is one of the reasons that the guidelines for the way that this is calculated is done in partnership with tax-free childcare. The aim is not to impose an additional administrative burden on families or add to their confusion.

The hon. Lady mentioned sufficiency. We do not expect that the 30 hours free childcare offer will double the demand for childcare places, as we know that many parents of three and four-year-olds are already accessing more than the 15 hours of free childcare per week and paying for the additional hours themselves. We expect that the market will need to adapt and respond to meet the need of additional demand for places. It has shown that it can do that through the successful rollout of the 15 hours of free childcare for disadvantaged two-year-olds that was introduced in the last Parliament.

As well as learning from the eight early implementer local authority areas, which I already mentioned, we are supporting localised sufficiency needs by providing £50 million of capital investment to support the creation of additional places. We have also appointed a new delivery contractor, Childcare Works, which will be a conduit between the Department for Education and local authorities and work with local authorities to ensure that there will be sufficient 30-hours places from September 2017.

I am grateful to the hon. Lady for her comments on maintained nursery schools. We very much recognise the work that they have done to help the most disadvantaged children to achieve their potential, and we also know that they bear costs over and above other providers. It is important that they have certainty to be able to plan for the future. I am also grateful for her comments on provision for children with special educational needs and disabilities, which I think I have covered. The local authorities’ inclusion fund in their local funding systems for children with SEN will be helpful in that.

I am pleased that the regulations are broadly supported. We all agree with the underlying policy that we must do more to support parents with childcare.

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There is a small, technical point that the Minister might be able to help me with. It relates to the calculation of income for the self-employed in regulation 6(3). There are some concerns that the regulations are introducing a different method for calculating self-employed income from normal bases. We now have cash basis for smaller businesses, which allows items of a capital nature to be deducted in calculating the old D1 income under self-employment, but regulation 6(4) says clearly that

“receipts and expenses of a capital nature are to be disregarded.”

It therefore seems that we will be going back to the normal basis that we are all used to in calculating someone’s income under self-employment, but I am rather concerned that we will have two bases with one for tax purposes and another for calculating what is deemed income under the regulations. That is a fairly technical point and I wonder whether my hon. Friend can offer some assurance.

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My hon. Friend makes an important point. We have sought as far as possible to co-ordinate everything we have done with other Departments to avoid any misunderstanding of that kind or extra bureaucracy or burdens, but to be on the safe side, I will double-check and write to him with the answer to his question.

Question put and agreed to.

Committee rose.

Draft Bank Recovery and Resolution Order 2016 Draft Bank of England Act 1998 (Macro-Prudential Measures) Order 2016

The Committee consisted of the following Members:

Chair: Mark Pritchard

† Allan, Lucy (Telford) (Con)

† Ansell, Caroline (Eastbourne) (Con)

† Barclay, Stephen (Lord Commissioner of Her Majesty's Treasury)

† Beckett, Margaret (Derby South) (Lab)

† Blackman, Kirsty (Aberdeen North) (SNP)

Clwyd, Ann (Cynon Valley) (Lab)

† Glen, John (Salisbury) (Con)

† Kirby, Simon (Economic Secretary to the Treasury)

† Letwin, Sir Oliver (West Dorset) (Con)

† Mactaggart, Fiona (Slough) (Lab)

† Menzies, Mark (Fylde) (Con)

† Miller, Mrs Maria (Basingstoke) (Con)

† Mullin, Roger (Kirkcaldy and Cowdenbeath) (SNP)

† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)

† Shelbrooke, Alec (Elmet and Rothwell) (Con)

† Smith, Jeff (Manchester, Withington) (Lab)

Woodcock, John (Barrow and Furness) (Lab/Co-op)

† Wragg, William (Hazel Grove) (Con)

Clementine Brown, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

Monday 5 December 2016

[Mark Pritchard in the Chair]

Draft Bank Recovery and Resolution Order 2016

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I beg to move,

That the Committee has considered the draft Bank Recovery and Resolution Order 2016.

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With this it will be convenient to consider the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2016.

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It is a pleasure to serve under your chairmanship this afternoon, Mr Pritchard.

Since the financial crisis, the Government have implemented significant reforms to address the problems of the past and make the financial sector safer and more stable. In addition, these reforms have ensured that a bank failure can be managed in a way that protects the wider economy and financial sector without relying on taxpayer bail-outs. I will speak to both orders, which concern two key planks of these reforms: macro-prudential regulation and resolution.

I will begin with the Bank of England Act 1998 (Macro-prudential Measures) Order 2016. The Government have reformed our financial regulation so that risks to the whole system are identified and addressed. The Financial Policy Committee addresses macro-prudential risks through its powers to issue recommendations and, importantly, directions.

Mortgages are the single largest asset class held by UK banks, which makes them sensitive to the performance of the housing market and exposes them to direct risks when borrowers struggle to pay back their loans. Work done by the Bank of England suggests that buy-to-let mortgage lending can amplify the housing cycle. As house prices go up, buy-to-let investors are incentivised to enter the market and accrue capital gains, which pushes prices up for all homebuyers. As prices fall, buy-to-let investors are incentivised to sell their properties, which can drive prices down further.

The lessons of the recent financial crisis are still fresh in our memory, and we all know that the costs of financial instability are huge. That is why, in his Mansion House speech on 12 June 2014, the then Chancellor committed to ensuring that the FPC has

“all the weapons it needs to guard against risks in the housing market.”

In 2014, the FPC recommended that its powers of direction be expanded so that it could effectively tackle the systemic risks in the UK housing market. The Government agree with those recommendations and have, indeed, already legislated to grant the requested powers regarding owner-occupied mortgages. Today’s order will provide similar powers over buy-to-let mortgages. It will allow the FPC to direct the financial regulators—the Prudential Regulation Authority and the Financial Conduct Authority—to require regulated lenders to place limits on buy-to-let mortgage lending in relation to loan-to-value ratio and interest coverage ratio. This instrument is another step taken by this Government to ensure that our financial system is resilient and supports the wider economy.

I will now turn to the Bank Recovery and Resolution Order 2016. The UK’s special resolution regime provides the authorities with the tools to manage the failure of financial sector firms without relying on taxpayer bail-outs. The EU bank recovery and resolution directive established a common approach across the EU to the recovery and resolution of banks and drew on key aspects of the UK’s existing resolution regime. Since the transposition of the BRRD in January 2015, industry and the regulators have had time to digest the new rules, and they have uncovered a small number of areas where the UK’s special resolution regime could be improved. This order therefore makes changes to strengthen the UK’s special resolution regime so it works more smoothly and effectively. The Government have consulted extensively on the draft legislation through both public consultation and close engagement with the banking liaison panel. The changes have the support of industry.

The Bank Recovery and Resolution Order 2016 makes changes in three key areas. First, it makes amendments to allow the Bank of England or the Treasury to activate contractual default event provisions where they would assist a resolution. That will support the Bank of England’s efforts to resolve a failing firm and maintain financial stability.

Secondly, the order introduces new stand-alone early intervention powers for the PRA and the FCA, which could be used when an institution’s position is deteriorating to try to prevent it from failing or requiring resolution. The stand-alone powers, which include the power to require the removal of senior management, clarify the scope of the existing powers.

Thirdly, the order provides new backstop powers for the Bank of England to resolve branches of third-country institutions operating in the UK, independently of the third-country resolution authority. The circumstances in which those independent powers would be used are exceptional. The preference of UK authorities is for co-operation between authorities.

The order also addresses a couple of other issues. First, it introduces powers to enable the bridge bank tool to be applied through a share-transfer scheme for building societies. Secondly, it introduces powers for the Treasury and the Bank of England to recover bail-in expenses. As I said earlier, the changes will strengthen the UK’s resolution regime. I hope hon. Members will support both orders.

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What a pleasure it is to see you in the Chair, Mr Pritchard. I thank the Minister for his introductory remarks.

The Opposition support measures to protect and enhance the stability of the financial system, including plans to avoid another banking crisis. Recent history has unfortunately revealed that the insolvency rules and legislative framework that applied to all companies were highly unsuited to the particular circumstances of bank failure. As the Minister said, this bank recovery order follows on from the Banking Act 2009. It is absolutely vital that we as legislators get this right. There is simply no room for error. These are measures that will be used only once in the event of a bank failure. There is an incredible duty on our shoulders to protect the people we serve—indeed, the Labour party takes that responsibility with the seriousness it commands.

In that light, we have concerns that the guidance for these orders is not as accessible and transparent as it might be. Not only does that make it challenging for the Opposition to provide effective scrutiny, but it raises questions about how usable the regulations will be by the industry itself and, indeed, the wider public.

Article 15 of the banking recovery order amends section 48Z of the 2009 Act to allow the Bank of England or the Treasury to activate default event provisions. The order states that the

“Bank of England…or the Treasury (in the case of a share transfer order)”

need to

“consider that such provision would advance one or more of the special resolution objectives.”

We have previously raised concerns that that will give considerable discretion to the relevant authorities. In a letter to my Front-Bench colleague in the other place dated 24 November 2016, the Government promised further guidance on the types of contracts, which could include clauses that are activated by the use of a crisis prevention or management measure. Will the Minister update us on whether any progress has been made in that regard?

Given that the power to remove directors is significant, we would want some oversight of a kind not covered by this provision of the people chosen by the regulator to serve as replacement directors. We would also like clarity about the tribunal under proposed new section 71G, which will presumably sit under the FCA. Are we to understand that it is to be a police force, a judge and a jury in all cases? I wonder whether anyone might claim it is unlawful, either via a judicial review or a human rights appeal, for the regulator to be able to make all those decisions using its own people when taking a bank from its shareholders.

What consideration have the Government given to providing for a periodic report back to Parliament or a review by an outside oversight committee to see what the regulator has done? More generally, we would like a clear assurance from the Government that the measures do not represent the risk of a spaghetti of committees—perhaps the FCA, the PRA, the FPC—making decisions in various contexts.

Moving on to the shorter macro-prudential measures order, I want to probe concerns about the power that the FPC will gain. If I understand the Minister’s remarks correctly, the FPC now has the ability to interfere with mortgage business on the basis of a cost-benefit analysis. Will he elaborate on this, as some fear that article 3 is somewhat vague? Is the idea to empower the FPC to constrict the buy-to-let mortgage market as much as possible? Although we support restricting that market, we have concerns about a committee of the Bank of England doing so without external oversight and without parliamentary referral. It would therefore be helpful to have assurances that any oversight is transparent, meaningful and democratic.

We are all aware that the issues raised by the orders have a topical significance. The decisive victory of the no side against proposed constitutional changes in the Italian referendum followed by the resignation of Prime Minister Matteo Renzi represents a challenge to ongoing efforts to break Europe’s economic malaise. Despite major changes for the better, there are those who fear that the European banking system remains one with large and unresolved problems. As the Bank of England UK bank stress tests last week emphasised, Government and financial authorities must ensure that precautionary measures are ready for use if needed to prevent contagion and to protect depositors and taxpayers.

We know that people and society want and need banks in which they can safely deposit their money and savings, which lend responsibly and provide credit to finance investment and growth across the country. We will support financial services where they deliver a clear benefit to the whole community and we will work with the finance sector and the Government to develop this new deal with finance for the British people.

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I am aware that the Committee is not able to propose amendments. I will certainly want to support the orders, but can I induce the Minister to make a comment, which might be useful for the purposes of subsequent legislation and perhaps any subsequent court actions, in relation to article 32, particularly the removal of directors and senior executives under section 71B? May I draw his attention to an oddity of drafting? He will see that under section 71H the regulator can impose the requirements for a new temporary manager only if he reasonably considers that it is necessary for the requirement to take immediate effect. That seems to be proper drafting. However, under 71B, bizarrely and very unusually in this kind of illustration, there is no reference to reasonableness as a test. It states,

“If the appropriate regulator is satisfied that the conditions in section 71D(1) and (2) are met”—

essentially, if there is significant deterioration in the bank’s solidity, the appropriate regulator may require the firm to remove the person who is a director or senior executive, so there is no reasonableness test there. I think that is an oversight in the drafting, but we cannot change the drafting. Is the Minister therefore willing to put on the record what I think must be the intent of the Government, namely that 71B would apply only where the regulator is reasonably satisfied that the conditions are as such? I take it that that is the way the court would then read it and I think the possibility for mischief would be removed.

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I shall be brief. I have just a couple of questions for the Minister. I will say at the outset, however, that if the risks of failure are to be mitigated, the key issue to address is the culture in the institutions, as we have argued for a long time, and that cannot be addressed by regulation alone.

I want to come back to the opening remarks of the Minister when he talked about macro-prudential regulation and risks. Will he clarify exactly what assessment of risk has been taken post-Brexit? There are two components of risk that I am particularly interested in. First, what is the estimate of the probability of increased risk of failure? Secondly, what would the nature of that failure look like post-Brexit?

I support what the hon. Member for Stalybridge and Hyde said about the need for oversight of the appointment of directors, and I would like to know more about the Government’s thinking in that regard.

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I thank right hon. and hon. Members for their contributions. These are important instruments and it is right that they are debated properly and that questions about them are answered properly.

The Government continue to learn the lessons of the financial crisis and take action to strengthen financial stability. The instruments will enable the authorities to take action to address and mitigate systemic risks in the UK’s housing market and to improve the functioning of its resolution regime. These powers are another important step in making the UK’s financial system resilient so that it works for everyone.

The Opposition spokesperson, the hon. Member for Stalybridge and Hyde, mentioned that oversight of the new directors could create problems. In answer, I can say that anyone chosen to act as a director in place of an existing board will have to satisfy the same standards and be approved by the regulations.

The hon. Gentleman said that the amendments were not clear and were hard to understand. The Government acknowledge the technical nature of the changes; HM Treasury’s special code of practice and the Bank of England’s guidance document should be helpful in increasing understanding, but these are technical measures and we have done our very best. He also mentioned that the requirements were unclear. The Bank of England Act requires the FPC to act proportionately, to publish guidance on how it will use the powers and to publish an explanation, including a cost-benefit analysis, when using those powers.

My right hon. Friend the Member for West Dorset asked about the difference between proposed new sections 71B and 71H and about the concept of reasonableness. The regulators will exercise their powers under section 71B reasonably, and they can be challenged if they act unreasonably. I hope that that is very clear.

The hon. Member for Kirkcaldy and Cowdenbeath mentioned risk assessment. The FPC has published two financial stability reports since the referendum, which make interesting reading.

I hope that right hon. and hon. Members on the Committee will support both measures.

Question put and agreed to.

DRAFT BANK OF ENGLAND ACT 1998 (MACRO-PRUDENTIAL MEASURES) ORDER 2016

Resolved,

That the Committee has considered the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2016.(Simon Kirby.)

Committee rose.

Draft Representation of the People (Electronic Communications and Amendment) (Northern Ireland) Regulations 2016

The Committee consisted of the following Members:

Chair: Robert Flello

† Anderson, Mr David (Blaydon) (Lab)

† Burrowes, Mr David (Enfield, Southgate) (Con)

† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con)

† Dakin, Nic (Scunthorpe) (Lab)

† Garnier, Sir Edward (Harborough) (Con)

† Goodman, Helen (Bishop Auckland) (Lab)

† Heaton-Harris, Chris (Daventry) (Con)

† Hepburn, Mr Stephen (Jarrow) (Lab)

† Hopkins, Kris (Parliamentary Under-Secretary of State for Northern Ireland)

† Howarth, Sir Gerald (Aldershot) (Con)

† Mackintosh, David (Northampton South) (Con)

† Marris, Rob (Wolverhampton South West) (Lab)

† Metcalfe, Stephen (South Basildon and East Thurrock) (Con)

† Phillips, Jess (Birmingham, Yardley) (Lab)

† Soames, Sir Nicholas (Mid Sussex) (Con)

† Sturdy, Julian (York Outer) (Con)

Marek Kubala, Committee Clerk

† attended the Committee

Third Delegated Legislation Committee

Monday 5 December 2016

[Robert Flello in the Chair]

Draft Representation of the People (Electronic Communications and Amendment) (Northern Ireland) Regulations 2016

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I beg to move,

That the Committee has considered the draft Representation of the People (Electronic Communications and Amendment) (Northern Ireland) Regulations 2016.

What a pleasure it is to serve under your chairmanship, Mr Flello. The draft regulations amend the existing legislative framework for elections in Northern Ireland to allow people to register online.

In Great Britain, people have been able to register to vote using the online system since 2014. The online digital service offers a quick and easy alternative to the more traditional option of paper application forms. It is right that the people in Northern Ireland should be offered the same choice and I want to make it clear, at the outset, that it is a choice. There is no suggestion that the move would introduce an online registration system that would replace the existing paper one. Applying to register on a paper application form will remain an option, but for individuals in Northern Ireland who want to take advantage of the digital service that already operates successfully in Great Britain, the draft regulations allow its extension to Northern Ireland.

Figures suggest that about 9% of those registering in Great Britain this year, outside the canvass period, did so using the online service. I am sure that hon. Members would like to see increased political participation among young people, including in Northern Ireland, and I am pleased to report that since the introduction of online registration in Great Britain a record 2.4 million applications to register have been made by people aged between 16 and 24.

Under the draft provisions, a Northern Ireland online application will work in essentially the same way as in the rest of the UK and require the same personal data as the existing form. I have had a demonstration of the system and can say that it is excellent, quick and easy to use, taking no longer than five minutes. I have arranged for Northern Ireland Members who want to see how the system works to come to my office in the coming weeks for a demonstration.

I appreciate that some hon. Members might have concerns about electoral fraud, and will wish to seek reassurance that the Northern Ireland system remains secure. In Northern Ireland, the usual requirement for those applying to register is to provide a handwritten signature. In an online application through the digital service, the act of submitting the application, in conjunction with the declaration at the end of it, will constitute an electronic signature.

Hon. Members will be aware that there are strict rules on absent voting in Northern Ireland, and they will continue to be enforced. Unlike in the rest of the UK, every successful digital registrant in Northern Ireland will be issued with a digital registration number. The number will act in place of a signature, to ensure that digital registrants’ postal vote applications can continue to be scrutinised appropriately. The number will be unique to the individual, last for their lifetime, and remain unaltered no matter how many times they move or change their name.

We have consulted the Electoral Commission and it agrees that the provision of an identifier to replace the signature check in the postal vote process is necessary. However, it has expressed concerns about the number of individuals who might lose their number. Therefore, we have put in place a system that allows for a lost number to be reissued. Officials will work closely with the chief electoral officer to monitor the successful operation of the digital registration number procedures.

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Is the Electoral Commission content with that approach?

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Yes, it is. I will comment on that later, but both the Electoral Commission and the Electoral Office for Northern Ireland are content.

We have changed the wording of the declaration at the end of the registration number for both digital and paper applications. Applicants will be required to declare that they are the person named in the application and that the information they have provided is true. There will also be a special provision for people with a disability. The declaration makes it clear that the application and the declaration can be submitted on behalf of someone who is unable to do it themselves due to disability, as long as it is done in their presence.

The draft regulations make comprehensive provisions for the exchange of data. That exchange is necessary to facilitate digital registration and allow applications to be verified against Department for Work and Pensions databases. I assure the Committee that those data-sharing provisions are necessary and include all the necessary safeguards. The provisions have been modelled on existing provisions for Great Britain and have been scrutinised and approved by the Information Commissioner for Northern Ireland.

The implementation of digital registration is fully supported and welcomed by the Electoral Commission and the chief electoral officer for Northern Ireland. The regulations have been approved by the Information Commissioner’s Office for Northern Ireland. If the Committee approves the regulations, the precise timing of the introduction of digital registration will be determined by the successful testing of the Electoral Office computer system. I hope that all the necessary checks will be passed by the end of February. It will be the intention to sign the regulations as soon as possible after that date, when the digital platform is ready to be launched. The regulations will then effectively come into force the day after that signature.

I hope the Committee will agree that the introduction of digital registration in Northern Ireland will be a major step towards modernising the delivery of elections in Northern Ireland. It is an excellent service that will offer people in Northern Ireland the level of choice and service that we all expect in these modern times. I hope that will lead to an increase in political participation among a range of groups, and particularly young people.

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It is a great honour to serve under your chairmanship, Mr Flello; I had not realised you had risen up the ranks, but well done.

I welcome the Minister’s statement, and particularly that digital registration will be a choice, rather than compulsory, which is really good. There would be worries about people’s access if this were made compulsory, but he put my mind at ease on that straight away. More choice in the way that people can sign up is really good. I acknowledge what he said about the number of people—young people in particular—who have been added to the list over the last couple of years. It is a shame that those 2.4 million people have been excluded from the Boundary Commission review that is under way at the minute, but that is a debate for another day.

It is very welcome that fraud prevention is a key part of this. Given the discussions had about digital registration, will the Minister assure the Committee that he will keep this under review and report back to the House about whether it is working? If there are problems, we need to work together to ensure we put them right. I welcome what he said about the security within the system—clearly none of us wants to do anything that will create opportunity for fraud—but I want to ask him a more basic question: is he confident that the system will be effective? Will it work? Is it exactly the same system as the one working in the rest of the United Kingdom? If so, has that system been shown to be effective? If not, what assurance can he give us that the system will work?

I do not have much more to say. At the moment, there are five electoral offices in Northern Ireland, and people working in those offices have expressed concerns to me about whether these measures will ultimately have an impact on their jobs. I know that the Minister shares my concern about the loss we have seen in recent months of a huge number of private sector jobs in the north. Really good, high-level, strong jobs in manufacturing have basically disappeared. Despite the Government’s attempts to rebalance the economy, outside forces have put that beyond the Minister’s and my control. Will he assure us that there will be no impact on either individual staff working in electoral offices or the towns in which those offices are based?

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It is a pleasure to serve under your chairmanship, Mr Flello, particularly as you are a fellow west midlands MP.

I have four questions for the Minister. I spent three years in the Northern Ireland Office, and seem to recall that historically there have been problems in Northern Ireland with personation and the intimidation of those who donate to political parties, meaning that the electoral architecture has been somewhat different there from that in Great Britain.

First, paragraph 7.3 of the ever-helpful explanatory notes to the regulations states:

“The signature obtained on the application form is not used to check the veracity of the registration application but is used in the scrutiny of absent vote applications. There is no such requirement in GB.”

Will the Minister explain why there is no such requirement in Great Britain but there is in the Province?

Secondly, as the Minister mentioned in his helpful introductory remarks, and as is explained in paragraph 7.4 of the explanatory notes, there will be a new declaration for the system in Northern Ireland. It will be different and, as far as I could tell from what he said, although I may have misinterpreted him, tighter than the declaration in Great Britain. If a tighter declaration would be helpful in Northern Ireland, why do we in Great Britain not have the new wording that has been developed?

Thirdly, paragraph 7.7 of the explanatory notes states:

“In contrast to Great Britain the Chief Electoral Officer will not be required to send all applications through the Digital Service as there may be circumstances in which the Chief Electoral Officer does not find this necessary.”

On the face of it, it sounds like the provision will be weaker in Northern Ireland, where it will not be necessary for all applications to be sent through the digital service, than it is in Great Britain. I may have misunderstood, so I hope the Minister can explain that anomaly and the difference between the two systems.

Fourthly, paragraph 7.17 of the explanatory notes states:

“As there will be no signature obtained at registration for digital registrants these Regulations provide that all DOIs”—

declarations of identity—

“will be checked against the signature on the absent vote applications rather than the register”.

Again, I may have misunderstood, but having read that I appreciate that, after the regulations are passed, as it looks likely they will be, that system will obtain across the United Kingdom—it already does in Great Britain and will in Northern Ireland. In terms of the risk of personation and the selling of postal votes and so on, it sounds like a weakening because the signature check for a digital application, whether done in Great Britain or Northern Ireland, clearly cannot be made against a human signature because the application is digital.

When checking whether the voter is who they say they are, officers will have to check the postal vote application, rather than the register, as they would be able to if all registers contained the signatures of every voter. A fraudulent person could make a fraudulent application for a postal vote with a fraudulent signature, and that fraudulent application would be signed off because when the person voted the signature would match with the signature provided on application. There would be no physical signature on the register with which to compare it because it is a digital signature. I appreciate that there is a balancing act when encouraging people to register to vote—the Minister mentioned the extra 2.4 million applications, and it is a pity they will not be taken into account for the boundary changes—but is he sure he has got it right?

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I thank the hon. Member for Blaydon for his simple questions, compared with more challenging ones offered by the hon. Member for Wolverhampton South West. I welcome the support of the hon. Member for Blaydon. We have common cause on young people voting, and we obviously never want to see fraud in an electoral system, so we have ensured that the system is robust and has been well tested. The system we are discussing is the same system, with one or two modifications, as is in place in the rest of the United Kingdom, which has proved to be very successful in its roll-out. I reiterate that if Members from Northern Ireland would like a demonstration of that, we would welcome any feedback from them, from people on the ground and from officers who are delivering the service during the roll-out of the system.

The hon. Member for Blaydon spoke about challenges in the system. I encourage all Members to participate in the ongoing electoral consultation. I have had constructive dialogue with the trade unions. The consultation remains open until 9 January, and I am sure that, with his interest in this subject, he will make a positive contribution.

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The Minister says there is a consultation. I know it is the responsibility of the Committee of Selection and not the Minister to choose the members of this Committee, but does he not think it a little odd that there is not a single member with a Northern Ireland constituency?

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The hon. Lady is absolutely right that it is not my choice, but she makes an astute observation.

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On a point of order, Mr Flello. Monday is a big shooting day for the Northern Ireland MPs. They do not arrive until 7 pm.

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I am not sure that that is a point of order.

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On jobs and the future, the economy in Northern Ireland is strong and continues to grow. I hope we can all make a positive contribution.

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I might have missed it in thinking about the shoot in Northern Ireland, but are the jobs at the five offices secure? Are there going to be any issues for them?

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It is for the chief electoral officer to make that choice, and they will make the choice as a consequence of the consultation. I cannot make a commitment now because we are talking about the specific issue of digital registration.

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If there is difficulty with reduction, will the Government offer to work with electoral officers in Northern Ireland to put in place an effective transition?

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I reassure the hon. Gentleman that there is positive dialogue and a working relationship between the chief electoral officer and the Northern Ireland Office.

The hon. Member for Wolverhampton South West raised some detailed points, and I will not go into all the details. It is appropriate to ensure that he has a detailed written response to each of those questions, but I will touch on them. First, there is a difference in Northern Ireland because verification is important. Maintaining confidence in the process is the one key point from the electoral review. Everything we have done seeks to provide reassurance. I am confident that there are mechanisms in place, including on the exchange of data, so that digital registration is cross-checked with existing Government databases to ensure that the information is right. Where absentee votes are sought, that is reinforced by a manual check against some of the known or expected forms of identification.

It is important that we put in place the framework to make this process work, but it is the chief electoral officer who must have confidence in the system that has been put in place. I talked about the relationship being strong. The office is open to challenge; we have maintained a really good dialogue. As a Department, we have been talked through how the mechanism is constituted and I have confidence in that process as well. Regarding the hon. Gentleman’s specific points, I will ensure that he receives a full written response to them in the hope that he can be as confident as I am.

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I am grateful to the Minister for that generous offer. On the general point, perhaps he could say a little more today. If and when this statutory instrument becomes law, the system in Northern Ireland will still be somewhat different, as I understand it, from the system in Great Britain. Is that because the Government think there should be a difference because of the particularities of the situation in the Province? Alternatively, is it because some things in Great Britain need changing and learning from the experience in Great Britain has informed a somewhat tighter system in Northern Ireland in the regulations?

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The hon. Gentleman drags me into an area that is outside my area of responsibility, but I can make a comment. The challenges that people have faced in Northern Ireland is confidence—it is about ensuring that people are who they say they are when they turn up to vote.

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And when they register to vote.

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Absolutely. The system has to be absolutely robust. Do I think it is a good system? Yes, I do. Do I think we could learn from the Northern Ireland system? There is an opportunity to do so. Work has been undertaken by my right hon. Friend the Member for Brentwood and Ongar (Sir Eric Pickles), the former Secretary of State for Communities and Local Government, who has looked into fraud. I am sure he will take on board some of the good practice that has been deployed in Northern Ireland.

Question put and agreed to.

Committee rose.