Delegated Legislation Committee
Draft Armed Forces (Specified Aviation and Marine Functions) Regulations 2018
The Committee consisted of the following Members:
Chair: David Hanson
Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)
† Chapman, Douglas (Dunfermline and West Fife) (SNP)
† Ellwood, Mr Tobias (Parliamentary Under-Secretary of State for Defence)
† Elmore, Chris (Ogmore) (Lab)
Evans, Chris (Islwyn) (Lab/Co-op)
† Jones, Gerald (Merthyr Tydfil and Rhymney) (Lab)
Kendall, Liz (Leicester West) (Lab)
† Lefroy, Jeremy (Stafford) (Con)
† Lopresti, Jack (Filton and Bradley Stoke) (Con)
† Morton, Wendy (Aldridge-Brownhills) (Con)
Platt, Jo (Leigh) (Lab/Co-op)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
† Skidmore, Chris (Kingswood) (Con)
Snell, Gareth (Stoke-on-Trent Central) (Lab/Co-op)
† Spelman, Dame Caroline (Second Church Estates Commissioner)
† Swayne, Sir Desmond (New Forest West) (Con)
† Wragg, Mr William (Hazel Grove) (Con)
Dominic Stockbridge, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Wednesday 31 October 2018
[David Hanson in the Chair]
Draft Armed Forces (Specified Aviation and Marine Functions) Regulations 2018
I beg to move,
That the Committee has considered the draft Armed Forces (Specified Aviation and Marine Functions) Regulations 2018.
Thank you very much indeed, Mr Hanson. It is a pleasure to join a stellar crowd of hon. Members enthusiastic—at least on the Government side—to discuss defence matters. On the day in 1915 when the Tommy helmet was introduced to the frontline in world war one, it is poignant that we discuss safety matters. In a rather dubious segue, I will now proceed to promote the statutory instrument.
At present, a commanding officer can require a person to take an alcohol or drug test if the commanding officer has “reasonable cause to believe” that the person is committing a service offence by performing a safety-critical duty while over a set alcohol limit or impaired by drugs or alcohol. Similar powers apply where a commanding officer believes that a civilian subject to service discipline has committed similar offences under legislation relating to safety in shipping and civil aviation. That power and the linked offences help deter and detect the misuse of alcohol or drugs by those performing safety-critical duties and so help prevent accidents.
However, those existing powers are aimed at gathering evidence for a possible prosecution, hence the need for a commanding officer to have “reasonable cause to believe” an offence has been committed. When an accident happens, it may be important to determine whether anyone involved had been misusing alcohol or drugs, even if the commanding officer does not have any immediate cause to believe an offence has been committed.
Section 2 of the Armed Forces Act 2016 amends the Armed Forces Act 2006 to allow a commanding officer also to require a member of the armed forces or a civilian subject to service discipline to co-operate with a preliminary test for drugs or alcohol after an accident. Importantly, in those circumstances a person may be tested without the need for suspicion that any offence has been committed. That gives commanding officers the power to test those who performed aviation or marine functions relating to an aircraft or ship involved in an accident. Those circumstances also apply to anyone who performed a safety-critical function connected to any serious accident. “Serious” in this context means an accident that resulted in or created a risk of death, serious injury to any person, serious damage to any property or serious environmental harm.
That will improve our investigations of such incidents. It is important that accidents in the military environment are investigated thoroughly with a view to contributory factors being identified and appropriate punitive or remedial action being taken. Tests will be carried out by the service police, and the result of a preliminary test can be used in support of criminal and non-criminal investigations. Tests will mainly support service inquiries but may be used in any type of investigation arising from an aviation or marine accident or any other serious accident.
The relevant aviation and marine functions must be specified by regulations made under the amendments in the 2006 Act. The safety-critical functions are set out in the existing offences and powers I mentioned. The draft regulations specify those aviation and marine functions, which are largely based on existing safety-critical duties relating to aviation and shipping.
The duties specified in the draft regulations reflect the wide range of duties undertaken in a military environment that are linked to aircraft or ships. Such duties include: maintenance; acting as crew on an aircraft or ship; loading and unloading fuel, cargo and weapons; and conducting hazardous operations such as parachuting or diving. The duties include similar functions carried out by civilians subject to service discipline, such as those who work on aircraft or ships overseas.
In the event of an accident, a commanding officer may require a person to co-operate with preliminary testing if he or she was carrying out, or had carried out, a specified function at the time of or even, in some situations, before the accident. As I have said, the testing will be carried out by the service police.
It will be an offence for any individual, without reasonable excuse, to fail to provide a sample when required to do so. Reasonable excuse could, for example, include a medical condition that prevented a person from providing a sample of breath.
We hope, of course, that serious accidents will not happen and that there will be no need to apply the regulations. However, it is the nature of military activity, necessarily, to be dangerous—it is a dangerous world that we operate in, and our people are frequently exposed to risk. It is important that, in the event of a serious accident, we uncover whether alcohol or drugs may have contributed to its cause, so that appropriate corrective action can be taken.
It is a pleasure to serve under your chairmanship, Mr Hanson. I hope you will forgive the rather croaky voice in which I make my comments.
I am not sure whether the Government were expecting a Division this morning, but the Opposition are pleased to support the regulations in full. The misuse of alcohol or illegal substances by service members is entirely at odds with the demands of life in the armed services—and even more so in cases when personnel operate equipment, including in the aviation or maritime spheres, when there can be a substantial risk to life or property. For that reason it is absolutely correct to have strong procedures in place to ascertain whether alcohol or illegal substances may have played a part in an incident.
I am confident, as I am sure all members of the Committee are, that the vast majority of personnel abide by the rules set out in service law, but in the minority of cases where an accident occurs, it is of course correct that there should be a thorough investigation. The Armed Forces Act 2016 made a number of important changes to strengthen the regime for investigating incidents. That is one of the many reasons why we are pleased to give our support.
The regulations build on the progress made in the Act in that they set out clearly what constitutes a maritime or aviation function. They also ensure that the functions specified are broad enough to cover activities such as refuelling that may contribute to an incident. For those reasons, we are pleased to support the regulations.
It is a pleasure to speak in the Committee today, Mr Hanson, and to give the third party’s viewpoint, which is that we are supportive of the measure. Obviously the armed forces live and work in hugely dangerous circumstances for a huge amount of time, whether they are in training or on operations. The powers in question, which underline the duty of care of the Ministry of Defence to its staff, and of crew members to each other, concern the investigative process that would take place in the event of an accident. We are very supportive of the measure.
As to the application of the statutory instrument to Scotland and Northern Ireland, will the Minister perhaps explain whether they are covered at the moment? I imagine that that is the case, but I raise it as a point for clarification.
I am grateful for the general support from Opposition parties. As to any suggestion that there might be any division among us on this matter, of course there is not, and I should have been surprised if there were.
The spokesman for the Labour party, the hon. Member for Merthyr Tydfil and Rhymney, reflected on the fact that the absolute majority of those who wear uniform do so with distinction, without problems, and with a commitment to serving Queen and country. We need to be cautious at work and ensure that appropriate measures are in place for when the line is crossed. That is exactly why we are here.
Clearly, there are aspects concerning Scotland and Northern Ireland, with which I am just coming to terms. I am pleased to say that the Act already extends to Northern Ireland and Scotland and will continue to do so. As the hon. Member for Dunfermline and West Fife knows, this is not a devolved matter.
In the absence of further questions, which I hope is the case, I thank all Committee members. I believe that the regulations will support military investigations, particularly service inquiries into serious incidents involving aircraft or ships, or any other serious circumstances. They will certainly add to the suite of measures already in place in the service justice system to deter people from presenting themselves unfit for duty due to the consumption of drugs or excessive alcohol, and for detecting those who do so.
I stress that we can be very proud of the majority of people who choose to step forward and serve our country with distinction. I am very grateful for the Committee’s support.
Question put and agreed to.
Draft Further Education Bodies (Insolvency) Regulations 2018
The Committee consisted of the following Members:
Chair: Graham Stringer
† Beresford, Sir Paul (Mole Valley) (Con)
† Bradley, Ben (Mansfield) (Con)
† Brereton, Jack (Stoke-on-Trent South) (Con)
Coyle, Neil (Bermondsey and Old Southwark) (Lab)
† Creasy, Stella (Walthamstow) (Lab/Co-op)
† Fletcher, Colleen (Coventry North East) (Lab)
† Hands, Greg (Chelsea and Fulham) (Con)
† Hayes, Helen (Dulwich and West Norwood) (Lab)
† Marsden, Gordon (Blackpool South) (Lab)
† Milling, Amanda (Cannock Chase) (Con)
† Milton, Anne (Minister for Apprenticeships and Skills)
† Penrose, John (Weston-super-Mare) (Con)
† Reynolds, Emma (Wolverhampton North East) (Lab)
† Syms, Sir Robert (Poole) (Con)
† Timms, Stephen (East Ham) (Lab)
† Villiers, Theresa (Chipping Barnet) (Con)
† West, Catherine (Hornsey and Wood Green) (Lab)
Yohanna Sallberg, Matthew Congreve, Committee Clerks
† attended the Committee
Fourth Delegated Legislation Committee
Wednesday 31 October 2018
[Graham Stringer in the Chair]
Draft Further Education Bodies (Insolvency) Regulations 2018
I beg to move,
That the Committee has considered the draft Further Education Bodies (Insolvency) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Stringer. The regulations were laid before the House on 5 September. Along with the education administration rules that are due to be laid before Parliament next week, they are the final part of the legislation needed to bring into force the new insolvency regime for the further education sector. I shall set out the context of further education insolvency before we discuss the detail of the regulations.
Further education and sixth-form colleges are statutory corporations governed by the Further and Higher Education Act 1992. They are exempt charities, with the Secretary of State as principal regulator. They enjoy a high degree of operational autonomy and are independent of Government. They appoint their own governors; they make commercial decisions; and they can borrow, invest and set up companies. In this way, FE bodies can develop high-quality provision that best meets local needs for the area they serve, whether that is apprenticeships for local businesses, support for students struggling with maths and English, the new T-levels, or in future the national retraining scheme.
Three things are particularly important to the financial resilience of the FE sector. First, we need a sufficiently funded sector. I am very aware that there are challenges, but they are not the subject of the debate. Secondly, the sector should have outstanding leadership. There are some exceptional and committed governors and principals in the college sector and I pay tribute to their work. We want every college to have great leaders, both principals and governing bodies. We have been supporting the sector so that it can improve and so that all colleges benefit from the great leadership they need in difficult times. We want leaders to spread best practice and provide mentoring to weaker colleges to help them to improve and strengthen. We have a group of national leaders of further education and are recruiting a group of national leaders of governance—experienced governors and clerks who will help to build up the expertise of other governing bodies.
Thirdly, a resilient sector is structured and organised effectively. The area review process that began in 2015 made great strides towards achieving that. In some cases, the reviews led to recommendations for structural change, which are being implemented. We have provided significant financial support to help colleges implement the changes through the restructuring facility. Since 2016, we have made more than £330 million available through that route to support major college restructuring, supporting significant improvements to financial sustainability in the sector. The deadline for the restructuring facility has passed. We are considering the final applications and expect the final figure to rise significantly before the programme ends in March 2019.
I am listening carefully to the Minister. Does she accept that college funding has not increased in cash terms since 2013, and that that has made the likelihood of insolvency, which the regulations address, much greater?
I am very aware of the issue of college funding. We are doing a piece of work on the FE structure to make sure that it is sustainable in future. As I have said, we have put significant amounts of money into FE to make sure that we get the structure and college mix right. We want to make sure that each college has the opportunity to make an independent offer to young learners and prove its financial sustainability. I am sure that, like other Members, the right hon. Gentleman will continue to make representations to the Chancellor ahead of the spending review in 2020.
We wanted to make sure that, once the area reviews were completed and the restructuring facility had closed, there was a new robust set of arrangements in place that recognised college autonomy, enabled FE leaders to manage their college finances and provided support for students in the event that something went wrong. In particular, we wanted to avoid a chaotic failure in the event that a college ran out of money. That was why we announced in 2016 plans to introduce an insolvency regime for the sector. The main provisions for the regime are in the Technical and Further Education Act 2017 and were debated in both Houses when it went through Parliament.
The legislation was introduced to address uncertainty on whether insolvency law applied to FE bodies. The new regime puts in place an orderly process for managing a college insolvency. It delivers a special administration regime known as education administration, which prioritises the protection of learner provision in the unlikely event that a college becomes insolvent.
The regime will give the Secretary of State the power to apply to court for an education administration order. That could happen either in response to an FE body facing insolvency proceedings or if the Secretary of State is persuaded that the FE body is insolvent and that applying to court for an education administration order is the best course of action. At the heart of education administration is the special objective to avoid or minimise disruption to the studies of existing students of the FE body as a whole while ensuring that the education administration is no longer than it needs to be, which is beneficial for both students and creditors. That is what we mean by the protection of learner provision. In contrast, when a business becomes insolvent, the purpose is to get the best deal for the creditors.
The 2017 Act applied certain provisions of insolvency law to the FE sector, subject to modifications that were set out in the Act and that are specified in the regulations we are debating. The regulations modify insolvency provisions in the Insolvency Act 1986 and other legislation to make them work effectively for further education bodies. The regulations are necessary to ensure that the insolvency regime for the FE sector functions properly.
A further piece of legislation will be needed before the special administration regime can be enacted—a statutory instrument setting out the rules that apply to the education administrator’s conduct of an education administration. That legislation will follow the negative procedure. I would be very happy to meet the hon. Member for Blackpool South to discuss the details in further depth.
The insolvency regime is designed to provide certainty to creditors and to the further education sector. It is not certain under the existing legislation what would happen if a college became insolvent. This regime clears that up. It includes the special administration regime to protect provision for existing learners at a college in financial distress. It will not exist as a mechanism to summarily close colleges. Rather, it will be a device to deal with extreme circumstances.
The insolvency regime will sit within a wider financial intervention system, providing a structured and measured approach to preventing and responding to failure. Leaders that manage their colleges effectively will be key to preventing financial distress. This wider system will start with the monitoring of colleges that are experiencing difficulty. If things get worse, there will be a wide range of intervention tools. The insolvency regime is the mechanism of last resort and we would expect it to be used only rarely. However, it will be used if necessary for an orderly process to manage financial distress and protect learner provision. It is important to stress that, when a college becomes insolvent, it will not necessarily lead to provision being closed. Indeed, in some cases, students may barely realise that there has been a change, but our hope would be that they ended up in a more financially resilient college.
The regulations modify provisions in the Insolvency Act 1986 and legislation made under those provisions so that they apply effectively to college corporations. That not only ensures that the regime works technically, but deals with practical issues. For example, as autonomous entities, FE bodies have the power to amend their instruments and articles—it is a bit like a company’s articles of association—following incorporation to better suit their operational needs. The regulations make provisions that might not be contained in those instruments and articles but that are necessary for managing insolvency proceedings. For example, if there is no provision for meetings of governors as required by insolvency legislation, the regulations provide it to ensure that insolvency proceedings can run smoothly.
The regulations also set out provisions for filing documents with Companies House so that insolvency procedures are transparent for further education corporations, as they are for companies. I have stressed the importance of strong leadership to improve financial resilience. Governors, as charity trustees, have responsibilities for good financial management and prudence in the colleges that they run. We are finalising the preparation of guidance for governors on their duties and liabilities, reminding them, through revised general guidance, of their responsibilities, and explaining the position on insolvency so that they are clear about how the legislation affects them and staff in the college.
Support is available through the Inspiring FE Governance service to help colleges to find people with the right skills to join their governing bodies, including chairs of finance committees. We are extending investment in leadership and governance development programmes, including working with the Education and Training Foundation on a tiered programme of development for governors. That will include support on financial management duties and insolvency.
The regulations exempt student governors from certain offences and from duties that will be required of other college governors so that insolvency proceedings work effectively. It would be unlikely that student governors would have a meaningful say in decisions that gave rise to the offence, so it would not be right to expose them to liability.
More often than not, college articles exclude student governors under the age of 18 from voting on decisions about spending money and contracts. If they cannot have a say in financial decisions, they should not be liable for offences linked to those decisions. It would also be unreasonable to expect student governors to comply with some duties expected of other governors—for example, to prepare a statement of the affairs of the college corporation for an administrator or liquidator that included a summary of the corporation’s assets, liabilities and details of its creditors. However, all governors, including student members, will be expected not to make false statements when they make returns, and all governors are expected to co-operate with the insolvency practitioner to allow insolvency proceedings to be concluded efficiently.
Part 3 of the regulations modifies provisions of the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 as they apply to FE bodies that are statutory corporations. Part 4 applies provisions of other legislation relating to insolvency to FE bodies, subject to modifications. For example, the Land Registration Rules 2003 need to be modified in their application to FE bodies to allow references to “company” to include references to “statutory corporations”, which means that the provisions will operate correctly. That will enable the Land Registry to make an entry in the register that an administrator or liquidator has been appointed over a statutory corporation.
Similarly, part 5 modifies provisions of the Companies Act 2006, applied to statutory corporations by regulation 3, to ensure that they work effectively for FE bodies that are statutory corporations, allowing registration of key insolvency documentation with the registrar of companies.
Let me provide assurances about the process we have taken to get to this point. We carried out consultation on the policy adopted in the regulations to be certain that the insolvency regime delivers for the sector. We spoke to insolvency practitioners, lenders, colleges and organisations that represent the sector, including the Association of Colleges and the Sixth Form Colleges Association. We consulted in summer 2016 prior to the introduction of the Technical and Further Education Act 2017, and again as I described earlier. We have also worked closely with both Companies House and the Insolvency Service to ensure that the regulations are fit for purpose and that they do not depart from the standard approach to insolvency proceedings. The regulations apply to FE bodies and companies conducting designated further education institutions in England and Wales. Welsh Ministers are fully supportive of the approach taken in the development of this legislation.
The regulations contain the technical detail necessary to bring into force the FE insolvency regime, including education administration. They are required to deliver much needed protection of learner provision effectively in the unlikely event of an FE body becoming insolvent, and I commend them to the Committee.
It is a pleasure to serve under your chairmanship, Mr Stringer. Having taken through the Technical and Further Education Bill with the Minister’s predecessor, the right hon. Member for Harlow (Robert Halfon), it is a great pleasure to return to an important part of that Bill and to have the opportunity to raise with her a few points on the insolvency regulations.
The Minister started her speech by providing the context for why the regulations are being brought forward at this time. I want to follow her in that process by quoting a note that the Association of Colleges has produced on the insolvency regulations. It is instructive to remember where we started, and the Minister alluded to the structure of FE colleges that has obtained since 1992. The AOC makes the point that the Minister has made: plans for the statutory college insolvency regime were announced in 2016 to coincide with the area review programme.
It is worth remembering what the AOC said about this situation, because it would seem rather curious to people outside this place—perhaps from time to time it seems rather curious to the Treasury as well, but that is another matter. According to the AOC,
“There are currently no clear rules about what would happen if a college ran out of money and the government did not stand behind it. When the Conservative Government transferred colleges out of local government in 1992, it created a new type of statutory corporation to run colleges but it did not make any rules for cases where a college ran out of money. Instead central government (via a succession of funding agencies) has ended up being the funder of last resort—to protect the college’s students, courses and assets. This has meant that the banks have always been paid in full or been able to replace an old loan with a new one.”
If educational historians of the future were to look at that, they might think that it was a rather curious arrangement to have lasted for such a long time, but we are where we are.
The past two years have just increased the financial pressures faced by the leadership and staff of colleges. As the Association of Colleges has said:
“The outlook for the 266 colleges in England has deteriorated in the last 12 months…despite the widespread agreement that education and skills matter for the country’s future.”
It says that the cost of recruiting and retaining the staff needed for high-quality academic and technical education is rising, but the Government have refused to acknowledge inflation in their funding decisions. As my right hon. Friend the Member for East Ham said earlier, the funding rates paid to colleges have been fixed since 2013. The relevance of that to the insolvency regulations is that it makes the guesstimate—that is all it can be—by the team in the Department for Education of how often they might be used a bit more dodgy. The hope that apprenticeships would provide more income has not been realised because of the falling numbers of apprentices, and where employers are training their staff, too many focus on older managers and find ways to use the levy to replace other costs.
Is it not the case that many colleges that rightly focus on technical education have a lot of up-front capital costs because they have to invest in the specialist equipment that is needed for the courses they offer?
My hon. Friend makes an extremely good point, which illustrates the weaknesses of many of the Government’s initiatives in this area. I will not stray into the institutes of technology, but it is the same principle: the Government think a lot about structures in terms of capital expenditure, but seem less ready to address the issues with equipment that she mentions and—this is, of course, a big bugbear with the sector—the funding of progression and salaries.
The explanatory memorandum states:
“There are currently 37 FE colleges that have a ‘published Notice to Improve for financial health’”.
However, the Department estimated last month that on “today’s assumptions”, over the first 10 years of the insolvency regime, an additional 63 could—I am not saying that they will—
“meet the current triggers for a notice”.
The Department’s document goes on to say that,
“as a central estimate, we believe 100 colleges will need to fully familiarise themselves with the insolvency procedures.”
Again, I stress that that does not mean that they are in imminent danger of insolvency; it is a precautionary measure.
In Government and in legislation, we have to plan and hope for the best, but have backstops for the worst. That is the purpose of the statutory instrument. The Department states that there could be a best case scenario of 80 colleges and a worst case scenario of 150 colleges being at risk. It is therefore slightly strange that paragraph 7.9 of the explanatory memorandum rather blandly states that
“in reality we expect that FE colleges entering insolvency would be a very rare event.”
That seems to be written more in hope than expectation.
This extremely worrying situation cannot come as a surprise because the Institute for Fiscal Studies found that spending on FE and skills fell by £3.3 billion in real terms between 2010 and 2017. Those cuts have been most severe in adult education. That is extremely relevant to the proposals because it is often forgotten that adult learners are an important part of the FE learner area. If that group no longer attends FE colleges in the numbers that it has historically, that puts additional pressures on courses and on the colleges’ financial structures. The Sixth Form Colleges Association has said similar things about the shortfall for its students.
As David Hughes, the chief executive of the Association of Colleges said, while
“the regime being introduced in itself is not a bad thing, the problem is that it is likely to come into effect at an historic low point in college funding.”
I also agree with the University and College Union, which said in its briefing for this debate that the Government’s focus on college insolvency, without considering some of the broader issues, sends the wrong message about the importance of FE. The focus on facilitating market exit in FE rather than strengthening the sector and investing in the necessary resources to help institutions thrive sends a negative message to the public about the importance that the Government ascribe to the sector.
I want to ask several specific questions and make a number of observations that arise from the explanatory memorandum. Paragraph 10 talks about the consultation outcome. The Minister has already referred to the 30 formal responses that the Government received. Paragraph 10.3 states that in response to a question whether
“any specific modification to normal insolvency legislation were needed to allow it to apply effectively to FE and sixth form corporations”
“strong support for the FE insolvency regime mirroring standard insolvency procedures for companies, which is the approach that we have taken.”
There is then a reference to several respondents saying there should be an interim moratorium.
In cold grey terms, those are of course some of the necessary things that the insolvency regime must include, but the difference between the companies that the memorandum uses for comparison and further education is that at least three groups of people are affected. One is the staff and the second is the creditors. Some of those are likely to be small business suppliers and others in the local supply chain, of which FE colleges are often a significant part. It is likely that they would be negatively affected by the insolvency proceedings. The third group is students and lecturers.
I appreciate that it is not an easy thing to include in a statutory instrument, but I appeal to the Minister and to the Department for Education in general to take account, when they consider how to take the matter forward, of those broader audiences. I ask them not simply to look at the question with the narrow scope that a bank might apply.
Paragraph 11 of the explanatory memorandum deals with guidance. It states:
“The Department will publish two sets of guidance before this instrument comes into force.”
It does not tell us when they will be published, and it would be helpful if the Minister could tell us—if not today, then by a note to members of the Committee. That is important, because she has talked about the support that the Government want to give, so as to have more experienced governors and clerks. She gave some examples, and I am pleased to hear that the Further Education Trust for Leadership will be involved in the process.
I am bound to say—and I think that it is also an issue in school governance—that at the moment, although it may change in future, the support that Governments of all hues have given governors in piling on to them various responsibilities, including difficult responsibilities for finance and insolvency, has not been commensurate with the extra time and effort involved, and the extra knowledge they are supposed to possess. I do not think it would be out of place if I were to ask the Minister what amounts of money or, for that matter, practical support from the Education and Skills Funding Agency or the Department, are going to be forthcoming on this occasion. I say that because the issue is important.
I want to touch on the special administration procedures. Concerns were expressed during the passage of the Technical and Further Education Act 2017 about how long they would take. The Minister might be interested to know that her colleague who had responsibility for the Bill in the House of Lords showed, in Committee in March 2017, that he recognised that:
“Concerns have previously been expressed…about the time a special administration might take. I share these concerns. However speedily the special administration is concluded, it will be too long for those involved. Staff, students and creditors will want certainty about what will happen to them at the earliest opportunity.”—[Official Report, House of Lords, 1 March 2017; Vol. 779, c. GC215.]
Again, I ask the Minister whether such certainty, or those timescales, will appear in the sets of guidance. If they will not appear in the guidance, will she give the Committee some idea—perhaps through a note, after consulting her officials—of how long that period is likely to be?
These regulations have been deemed necessary. They would have been necessary under any circumstances, but they are particularly necessary because of the sector’s fragility, which has been caused by the cuts that it has faced. I am sorry to say to the Minister—I know she would like not to be challenged on this today—that that was not helped by the Chancellor’s complete failure on Monday to offer any sort of funding uplift to colleges or their staff. That is not to mention the disastrous advanced learner loans policy, for which more than 50% of the allocated funding has been unused and returned the Treasury. Not much of that has been distributed to the colleges that are in dire need of it.
I appreciate that the Minister feels strongly that FEs should have more funding. She has acknowledged that, and made that point again today. She may say, in attempting to erect an air-raid shelter over her Treasury colleagues, that some relief might come on the back of the Augar post-18 report, as a result of issues to do with the Office for National Statistics investigation on resource accounting and budgeting in higher education, which is expected in the new year. The reality, as the Minister just acknowledged, is that the comprehensive spending review will be the first opportunity to offer significant financial relief if the review recommends financial help to FE. That means, in the normal scheme of things, that none of that money will feed through to FE colleges until the academic year 2020-21.
In the meantime, it is fair to ask how many other colleges will slip into a fragile state that might—I stress the word “might”—produce the need for insolvency regulations. It is instructive, in that respect, to quote the FE commissioner, who has been called upon to look at a number of the country’s biggest colleges, which are facing significant challenges as a result of funding cuts and the loans policy. These are simply examples; they demonstrate by no means the full extent of the fragility that has been exposed over the last 12 to 18 months. According to an intervention report from the FE commissioner, Northumberland College has undergone a cashflow crisis. The report says:
“After several years of growth, the college faces a substantial shortfall in income for 2017-18, which is forecast to fall short of the budget target.”
It warns that income is set to decline even further in the college in 2018-19. In July, the Northumberland Chronicle reported that more than 40 staff had taken voluntary redundancy after the college reduced the number of courses on offer.
That is an inevitable consequence of the drip, drip, drip of funding cuts over recent years. To thrive and survive, most FE colleges rely on a diverse mixture of activities, and on money. Money comes from the adult education budget. If there is a shortfall, there are problems. It comes from apprenticeships. Similarly, if something does not take off, there are problems. There are trading activities, and colleges are increasingly reliant on the European social fund and other funding.
That brings us back to the statutory instruments we have debated over the past few weeks and the issue of replacing the European social fund. The Minister is very active in those areas, so perhaps she will say whether she has had more conversations with the Treasury about that since the Budget or before it.
Let me give another example of a college that is in dire straits. Birmingham Metropolitan College was rated in March last year as requiring improvement for the second time in March last year. It is one of the largest colleges in the country, with an income of £61.3 million, total debt for the year of £23.4 million and 16,000 learners. It has had a notice of concern for financial health since July 2015, when it received a visit from the further education commissioner. My third example has been raised on the Floor of the House and elsewhere by my hon. Friends who represent Hull constituencies. It is the dire financial straits in which Hull College has found itself since November 2016, when it was forced to request exceptional financial support from the Education and Skills Funding Agency after its bank withdrew support.
In the light of the things that I have described, the idea that this insolvency thing will be bedded in and called on fairly sparingly might need to be revisited. The Minister was very clear about the timescale for cutting off exceptional financial support for colleges once the insolvency regime is introduced. To be clear, is she saying that her Department will curtail that funding completely? Is she not concerned that, owing to the number of colleges at risk, withdrawing those funds so quickly could have a significant impact on a large number of colleges? What timescale does she envisage, if one has been envisaged, for a transition period between the implementation of the regime that the order will put into place—we all know that such changes do not take place overnight—and the cut-off of that last-resort funding?
The Minister will be pleased to know that I will not rehearse our long-standing criticisms and concerns about the area-based reviews that took place largely under her two predecessors. However, I was hoping that she might be able to tell us how those reviews had reduced the possibility of future financial failures. The statistics I have listed suggest a different picture. What assessment has she commissioned of the impact of the review or their contribution to reducing the possibility of insolvencies? If she has not commissioned an assessment, will she do so—preferably as an external examination, undertaken outside the Department?
I have talked about guidance. The order alludes to the position of students with special educational needs, about whom we have particular concerns. Given the Government’s keenness to be seen to be doing the right thing on disability and equality issues, how does the Minister intend to ensure that there is no disruption to the particular requirements of students with special educational needs in these circumstances, who often require tailored support?
It seems that, as always in these cases, the devil is in the detail. However, the detail is not always there in the memorandum. I raise with the Minister a fairly fundamental issue that we discussed to some degree during the passage of the Technical and Further Education Act 2017 but which does not, needless to say, find itself in these specifics terms today. A primary concern of the Opposition and other organisations, including the UCU, was that the Act basically allowed for the assets of an insolvent college to be handed over to private companies, as long as they were delivering education. Regulation 15, which deals with section 107—the distribution of a statutory corporation’s property—goes into the detail of that, but it does not specify that the college assets that are taken over by a private company should serve the same cohort as the insolvent provider. The regulation reads as if it might allow a college’s assets to be handed to a school or university, or to a much smaller and narrower education institution, possibly for significant profit, without placing any requirement on them to continue to deliver further education as opposed to initial or higher education.
Does my hon. Friend agree that given some of the cowboys—for want of a better word—in the training industry, many of whom face allegations of corruption, it would be a dangerous state of affairs were any of those smaller companies to pick up the work of an FE college?
My hon. Friend is absolutely right to flag that up. That would be of considerable concern. I will not mention particular issues, although readers of FE Week and other publications will have seen some of the references out there, but this is a serious issue that may be disadvantageous to local people in terms of choice. Nor is it simply hypothetical—there are examples of such jiggery-pokery. The Minister was not in the Department between 2011 and 2012. If she is not familiar with what happened then with the Apollo Group and various other organisations, I suggest she consults her officials, because those scandals embodied some of the issues to which my hon. Friend refers.
I do not want to take up too much more time, but let me finally discuss the banks. This issue is partly a result of cashflow problems and the banks removing investment from the sector. The 2018 report on college finances by the Association of Colleges provides more information about those issues, and we should be careful to ensure that the new college insolvency regime considers their consequences. There is an old saying that banks are institutions that lend people umbrellas when it is dry but take them away when it is raining. I am afraid that that is increasingly borne out, not just in banks’ cavalier closure of local branches to the public but in their treatment of some FE and other learning institutions. FE is particularly exposed because, on the whole, colleges, for historical and operational reasons, do not have the resources or the reserves that many—although not all—higher education institutions have.
One of the problems with the Technical and Further Education Act and the statutory instruments that flowed from it is that they have little tie-in with the Higher Education and Research Act 2017, which deals with the protection of students in the event of institutional failure. That is a pity, because one in 10 higher education students study in further education colleges.
The Government’s plans are designed to change behaviour among college leaders and lenders. The UCU acknowledges that and does not criticise it, but states that that means colleges will be forced to aim at bigger surpluses, conserve cash, control staff costs and cut capital spending. As abstract things, those are all very prudent, but at a point at which the country faces difficult economic times, that is not really the response anyone wants from colleges—especially when it is not matched by the investment in the sector to which I referred.
Post-Brexit and post-automation, demand among young people for this type of education will rise, as will businesses’ need for skilled staff. The challenge for the Government is to make sure that they match the backstop of the draft regulations with the positive investment that the FE sector desperately needs.
I hope that I can deal with all the issues that the hon. Gentleman has raised. If I miss anything out, I hope that hon. Members will let me know and I will come back to them, but I think I can answer most of the points that were made.
The hon. Gentleman made some important points. He pointed out that the situation colleges are in is due to legislation passed in 1992, when I was not a Member of Parliament. A long time has lapsed before anybody got round to dealing with this. The previous three Governments, one of which was Labour, did not address this. Although I was not in post when the area review process was kicked off, at that time sharp focus was put on the fact that an insolvency regime was needed for FE colleges, to make sure that the process was orderly and, critically, to make sure that learners were protected.
The hon. Gentleman mentioned the group of people who would be affected, including the staff. We think of teachers, but there are also ancillary staff and everybody else, and that is why this must be done in an orderly fashion.
Nothing has been more at the forefront of my mind in the time I have been dealing with FE colleges than the insolvency regime that is coming down the tracks. The number of colleges that have problems is not a guesstimate. I meet weekly with the FE team. I meet frequently and regularly with the FE commissioner and a great deal of his work has been directed at colleges that are not in trouble, but where the books suggest that there might be a problem. The idea of the FE commissioner’s team is to get in early and give them the support they need in order to balance the books.
In a debate such as this, the danger is that we forget that there are some excellent colleges, so I asked my officials to obtain two examples. Walsall and York are both outstanding for financial management and quality. I am fully aware of the constraints on colleges and their funding, but it is possible to run a very successful college that is both financially sustainable and has very high-quality teaching. Of course, they need the money at the base, but strong leadership and management, along with strong governance, are critical.
I do not have the figures with me, but I mentioned that the Education and Training Foundation was doing a lot of work with governors. In some of the more successful colleges I have seen, getting in good employers, particularly from the local area, has been important to management success. They have the expertise for managing the finances. That close relationship between employers and colleges is important. I went to a college recently that was very pleased about the levy, as it is an income stream for colleges, but I was slightly distressed to hear the college leader say, “Well, it now means that we are starting to go out and talk to business.” I thought, “You should have been talking to business 10 years ago.” A lot of our reforms are making that relationship closer. In many ways, FE colleges are the anchor for all the reforms that we want to bring in in education and in improving skills and technical education.
I do not have the precise date on when the guidance will be published, but I am happy to let the hon. Gentleman know when I do. He also asked how long special administration will last, which I think will be on a case-by-case basis. Protection of learners is very important, as is staff employment in those colleges, because we do not have huge numbers of people queuing up to teach in FE. Finding them alternative posts will be important to the social and teaching capital of the sector.
The hon. Gentleman asked what will happen in this area, and learner protection is important. I was pleased that he and the hon. Member for Wolverhampton North East mentioned young people with special educational needs, who are often taught in colleges and achieve phenomenal results that are well above the original estimates of what they might be able to do at the beginning of their course. They are learners. That is why they will be at the top of the list for protection. The duty to ensure that they have ample and equal opportunity—the word “equal” is important—to go on and have fulfilling lives will be paramount.
The hon. Gentleman asked specifically whether the area reviews have been successful and whether I have commissioned any work. Work is ongoing. In fact, I met the FE commissioner today and our conversation went along those lines. We need to look back and ask what success there has been. Without doubt, there has been success. Of course, we cannot compel colleges to merge or to do anything.
The Minister is being fair and looking at this issue in the round, for which I am grateful. I was making a specific point about whether the Department had done any analysis—I realise it may be too early—of the implications financially for the structures of the institutions, as well as asking about the broader aspects of how things were going.
I should reassure the hon. Gentleman that I do not feel the need to erect an air-raid shelter over anybody, and certainly not Her Majesty’s Treasury, which is quite good at looking after itself to be absolutely honest. I am not really in that business. However, it will be important to look back and ask what has worked and why. The problem is that the debate at the moment, not just in this House but among the public, is all about money. That is a mistake; it is not just about money. I know that the hon. Gentleman appreciates that. It is about what you do with the money. Good management and leadership are important in making these institutions work.
The hon. Gentleman quoted the UCU, but it would be unfair to suggest that we have got to this moment without me or any of my predecessors being acutely aware of where FE colleges get their money and of the need to make sure that that is funded in future. We are doing several pieces of work. He referred to Philip Augar’s review of post-18 education funding. FE colleges come into that remit. We are also looking at level 4 and 5 provision. A lot of universities are providing level 4 and 5 provision. Should that happen or would it be better done in FE colleges?
Clearly there are concerns about funding for FE colleges. One difficulty is that many of them have foreign students and under the current visa regime, if they change their course they have to go back to their country of origin and if they want to go on to university they have to go back to their country of origin. That does not help. When the Government publish the White Paper, I assume that the Ministers who have responsibility for FE will make representations to make the situation a little easier, because this is additional money for the sector that many colleges can earn. Bournemouth and Poole College earns about £1 million a year in such fees, so this is a way in which we could get more money into the sector.
I hesitate to talk about joined-up Government because it never feels as joined up as it ought to be, but joining it up so that a decision about the visa rules does not have an adverse impact on the sector is critical, because having students on courses means financial income. We are doing quite a lot of work on that at the moment, as my hon. Friend might imagine.
I know that Hull has had huge problems; I have spoken to the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) about that. I would just say that money is going in; there is a danger of forgetting that when we look at the base rate of funding of further education colleges. The pot of money that the Treasury made available for the restructuring facility was £700 million, and a substantial amount of that will have been spent; that is important. We will also put in £500 million by 2020, with the full roll-out of T-levels.
On the subject of T-levels, we are putting in £20 million over the two years to March 2020 to support providers as they prepare for them. The hon. Member for Wolverhampton North East mentioned technical education; this is at the heart of that. We are also putting together a £20 million investment, including recently through Taking Teaching Further, which tries to get industry expertise into colleges. People with that expertise are often exactly the people we want teaching in FE colleges. There is quite a light regime regarding what qualifications people need in order to teach in an FE college—rightly so. We need to inject people like that into the system. We are providing a maths premium and £38 million for the initial providers of T-levels, so that they can invest in the sort of equipment that is needed.
I thank the Minister for her generous approach to discussing this. Will she lay out the steps that her Department is taking to deal with poor practice? The National Audit Office has pointed out that there have allegedly been corrupt practices in the past. What is being done differently to avoid that with the training providers?
I thank the hon. Lady for reminding me of the bit that I had left out: the issue around independent training providers and some of the problems there. There was learndirect, which was a quality issue, and recently of course there was 3aaa; that was not a quality issue—it was actually rated quite highly—but a financial issue.
I am a simple soul; I sometimes find it extraordinary that we cannot keep tabs on all this money that we give out, and it is so important. Experiences should teach us lessons that enable us to tighten the regime as we move forward, but it is important that we do not make things bureaucratic, or the costs of applying for, or getting, funding onerous, with disproportionate cost. There are a number of things going on in the Department—not all of which I can share with the hon. Lady—to ensure that we reflect on this issue. Certainly, after learndirect, I asked officials to go back and find out how they could have realised that this was going to happen. In any sector, a number of organisations wait like vultures for the pickings of Government spending. We always have to protect ourselves from that, keeping in mind that the learner is at the heart of this. We also have to make sure that every £1 of taxpayers’ money gives £1 of value for learners.
It is disappointing to me—I am, of course, an advocate for this sector—that this debate is happening here. I would be interested to see whether, by the end of debate on the Budget at 5 o’clock tomorrow, there has been any mention of FE on the Floor of the House of Commons. I hear a great deal about schools and their concerns about funding. I rarely hear—except in obscure Committees such as this, or on one occasion in Westminster Hall—about FE. It is the squeaky wheel that gets the oil in this world, and if the wheel does not squeak, it is hard for me to make the case for the oil. I commend the regulations to the House.
Question put and agreed to.
That the Committee has considered the draft Further Education Bodies (Insolvency) Regulations 2018.
Draft European Union (Definition of Treaties) (Economic Partnership Agreements and Trade Agreement) (Eastern and Southern Africa States, Southern African Development Community States, Ghana and Ecuador) Order 2018
The Committee consisted of the following Members:
Chair: Mr Clive Betts
† Aldous, Peter (Waveney) (Con)
† Bardell, Hannah (Livingston) (SNP)
† Bridgen, Andrew (North West Leicestershire) (Con)
† Burns, Conor (Bournemouth West) (Con)
† Chishti, Rehman (Gillingham and Rainham) (Con)
† Churchill, Jo (Bury St Edmunds) (Con)
Cryer, John (Leyton and Wanstead) (Lab)
† Esterson, Bill (Sefton Central) (Lab)
† Hollingbery, George (Minister for Trade Policy)
† Johnson, Dr Caroline (Sleaford and North Hykeham) (Con)
† McFadden, Mr Pat (Wolverhampton South East) (Lab)
McMorrin, Anna (Cardiff North) (Lab)
† Menzies, Mark (Fylde) (Con)
† Nandy, Lisa (Wigan) (Lab)
† Peacock, Stephanie (Barnsley East) (Lab)
Sheerman, Mr Barry (Huddersfield) (Lab/Co-op)
† Wood, Mike (Dudley South) (Con)
Mems Ayinla, Committee Clerk
† attended the Committee
Third Delegated Legislation Committee
Wednesday 31 October 2018
[Mr Clive Betts in the Chair]
Draft European Union (Definition of Treaties) (Economic Partnership Agreements and Trade Agreement) (Eastern and Southern African States, Southern African Development Community States, Ghana and Ecuador) Order 2018
I beg to move,
That the Committee has considered the draft European Union (Definition of Treaties) (Economic Partnership Agreements and Trade Agreement) (Eastern and Southern Africa States, Southern African Development Community States, Ghana and Ecuador) Order 2018.
It is an enormous pleasure to be serving under your chairmanship today, Mr Betts. I have done so extensively in the past but not in recent times. I am delighted to be here today to debate the European Union economic partnership arrangements with Southern African Development Community states, the Eastern and Southern Africa states, and Ghana, as well as the accession of Ecuador to the EU-Andean free trade agreement.
The Government remain committed to supporting the EU’s ambitious trade agenda, including its development aspects. Trade is an important tool in the fight against poverty. Over the last few decades, around 1 billion people have been lifted out of poverty and international trade has played a significant part in that. I welcome the opportunity to set out why the Government support these EU agreements, which will bring benefits to partner countries and the UK.
The Minister has opened by saying that the Government support the EU’s international trade objectives. Is not the very purpose of leaving the EU to divorce ourselves from those international trade objectives?
The right hon. Gentleman will know perfectly well that there are many motivations for leaving the EU, although we do not need to discuss those today. The Government are very keen that the free trade agreements that exist between the EU and third-party countries should be continued with as little change as possible. That is good for us, good for business and good for consumers.
By championing global free trade, we support economic development, which helps drive growth and jobs in a way that aid spending alone cannot. While the UK remains an EU member state, the Government remain committed to working with Parliament to ensure that is facilitated through scrutiny of EU trade agreements. This debate ensures that Parliament has the fullest opportunity to scrutinise the agreements.
I will first address the economic partnership agreements. The UK is a long-standing supporter of the EU’s EPA programme. EPAs are trade agreements with a development focus, which is not found in conventional free trade agreements. This House has already scrutinised and passed several other EPAs. EPAs take into account the socioeconomic circumstances of partner countries and provide for development co-operation and assistance. EPAs secure immediate, duty-free access to the EU for developing country products. In return, those countries liberalise their markets gradually by reducing duties on around 75% to 80% of imports over a period of up to 25 years. Trade liberalisation is therefore strongly asymmetric in favour of developing countries.
EPAs are of course negotiated agreements. They promote increased trade and investment by putting our trading relationships with African partners and others on a more equitable, mature and businesslike footing, supporting sustainable growth and poverty reduction. The EPAs we are considering today can deliver real benefits for manufacturers and farmers in developing countries and in the communities in which they operate. Specifically, the EPAs eliminate tariffs on processed and manufactured goods, allowing more of the product value chain in developing countries, and providing more opportunities for growth and skilled jobs where they are most needed.
The EPAs offer a more flexible and simpler set of rules of origin, so that in most cases, when a producer in one African, Caribbean and Pacific country uses inputs from another, they do not have to pay customs duties when they export their final product to the EU. Both the Southern African and the Eastern and Southern Africa EPAs contribute towards regional economic integration by joining up smaller markets, benefiting African exporters by boosting trade between neighbouring countries and regions. The EPAs provide development co-operation to help our African partners to address broader issues affecting trade, such as technical barriers to trade, labour rights, the environment and poor infrastructure or inefficient customs and border controls.
EPAs also bring advantages to EU businesses and consumers. They can help to promote the export of new products from African countries by providing EU businesses with key inputs and consumers with more choice, better quality and lower prices, including for beef from Botswana, wine from South Africa, bananas and cocoa from Ghana, and fish from Mauritius. Over their lifetime, the agreements will bring new opportunities for UK exporters as EPA partners gradually liberalise their economies. We estimate that UK exports to the Southern African EPA states will increase by £35 million by 2035 and that imports will increase by £37 million.
Let me turn to South America. Ecuador’s accession to the EU-Andean agreement is estimated to be worth £37 million annually to UK GDP in the long run. UK imports are due to grow, especially in important commodities such as fruit and vegetables, which could mean that consumers benefit from lower prices and businesses benefit from reduced input costs. UK exports will also increase; indeed, the impact assessment suggests that they have already increased since the agreement’s provisional application to Ecuador in early 2017.
The EU-Andean agreement covering Peru and Colombia has delivered demonstrable benefits to businesses and consumers, as outlined in the EU’s annual reports. I am confident that the benefits of the FTA can be enjoyed by importers and exporters of any size. British business will be free to tap into the Ecuadorian market with even greater ease, benefiting from greater access across a range of service sectors and the Government procurement market, and from the removal of remaining tariffs in key industries, including chemicals, textiles and telecoms.
Although it is not the subject of this debate, it is important to say that as well as ratifying the agreements, the Government seek a seamless transition to replicate their effects and ensure continuity when we leave the EU. Under the terms of the draft withdrawal agreement, the UK is to be treated as a member state for the purposes of international agreements for the duration of the intended implementation period. That would provide certainty and confidence that, as we move into the implementation period, there will be no disruption to existing relationships underpinned by international agreements. However, the Government continue to plan for a range of possible scenarios to maintain existing trade relationships after our exit from the EU. We therefore continue to work towards bilateral agreements to ensure continuity in all circumstances.
We are making good progress on ensuring continuity for the SADC, ESA and Ghana EPAs. The process involves making only those technical changes that are necessary to ensure that our new agreements are operable after we leave the EU. That will include replicating the effects of provisions within the EPAs that refer to the EU-ACP Cotonou agreement, but it will not mean replicating the whole Cotonou agreement.
Our partners have broadly welcomed our approach and are keen to work towards a lasting set of agreements with the United Kingdom. For example, on 28 August in Cape Town, I signed a joint statement with Botswana’s trade Minister, Ms Kenewendo, to confirm that trade agreements between the UK, the five Southern African Customs Union countries and Mozambique will be ready to come into force as soon as the EU EPA ceases to apply to the UK.
Likewise, the EU-Andean agreement, now including Ecuador, will apply to the UK during the implementation period. Of course, the Government continue to work towards new bilateral arrangements with the Andean community that would ensure continuity of the effects of the EU-Andean FTA in any event, via a straightforward technical process.
I further note the successful visit of my colleague Baroness Fairhead to Peru and Colombia over the summer, and the UK’s presence—in the form of the Prime Minister’s trade envoy, my hon. Friend the Member for Fylde—at the inauguration of the new Colombian President, President Duque. I hope my pronunciation is correct.
It is perfect, Minister.
I thank my hon. Friend. We look forward to strengthening our ties to those nations through our independent trade policy.
Our consideration of the EU EPAs gives us the opportunity to demonstrate the UK’s strong commitment to ensuring that developing countries can reduce poverty through trade. Agreement to the draft order will also ensure that the benefits of the EU-Andean free trade agreement continue to be enjoyed by importers, exporters and consumers in Ecuador and the UK. These agreements are in the interest of the UK, the wider EU and our partner countries in Africa and South America. I urge hon. Members to support the motion, in order to move those agreements one step further towards ratification.
It is a pleasure to serve under your chairmanship, Mr Betts.
The four agreements that we are discussing will form the basis for future UK deals with the countries covered by the four agreements. The Trade Bill, which is still going through the Lords, prevents us from discussing the contents of the agreements after today’s debate. Having further parliamentary scrutiny, including of any amendments, once those agreements are rolled over or renegotiated—whichever happens after we leave the European Union—will be entirely for the Secretary of State to decide, so we need to take advantage of today’s proceedings and challenge the Government, because there will not be another opportunity.
Reports suggest that the three economic partnership agreements that we are discussing were agreed under significant pressure. It is therefore highly likely—notwithstanding what the Minister said when he quoted one of his counterparts saying that they are ready to roll the agreements over—that there may be a desire to renegotiate. South Africa’s deputy Trade and Industry Minister when the agreements were signed, Dr Rob Davies, said that they were signed “under duress”, at the risk of having tariff-free access to the EU withdrawn. For those reasons, it seems highly likely that these partners will try to renegotiate, so today’s debate is extremely important.
The statutory instrument relates to four multi-country trade agreements, as the Minister said, which we are party to as a result of being members of the EU. There is one free trade agreement and three EPAs, which relate to trade with developing countries. The objective of the agreements is to increase trade and investment opportunities. The explanatory memorandum lists the advantages of developing nation partners as
“providing duty and quota-free access for exports to the EU; more integrated regional markets; more flexible, simpler rules of origin; no undue competition and a context of wider reforms and helping to address broader trade issues such as technical barriers to trade and labour rights.”
Could the Minister let us know what is meant by technical barriers to trade and labour rights? I could not find any further detail on that point. The explanatory memorandum then moves on to the benefits to
“consumers and workers in Europe by the removal of trade barriers, the promotion of exports from developing countries resulting in wider choice, lower prices, better value and wider ethical choice options.”
The benefits to UK businesses are listed in the impact section of the explanatory memorandum. The estimated increase to UK GDP of £24 million as a result of Ecuador’s accession to the EU-Andean EPA is given as an example of the opportunities presented by removing barriers to trade. The Ecuador protocol of accession includes a chapter on public procurement, and the explanatory memorandum suggests that there may be an impact on UK public services as a result. Can the Minister tell us what that impact is likely to be?
The impact assessment of Ecuador’s accession refers to the relationship between trade openness and economic growth. It then quotes the fall in the poverty rate since China opened up its economy as a “striking example”. China may well be a striking example, but it is also strikingly different from Ghana, Ecuador and the Eastern and Southern Africa states, and the Southern African development community states. They do not have the opportunity of modernising their industries by keeping their borders closed, as happened in China, nor do they have the economic power of China.
The impact assessments each make the point that trade is beneficial. Indeed, paragraph 1.3 of the Ecuador impact assessment states:
“Free and fair trade is fundamental to the prosperity of the EU, the UK and the world economy.”
The key point is that it needs to be fair, not just free.
The impact assessments also demonstrate the benefits of free trade agreements. As my right hon. Friend the Member for Wolverhampton South East said, we are of course a member of a free trade agreement, in a market with 500 million consumers—the European Union. It covers 60% of our trade, either directly with the other 27 countries of the EU, or indirectly through agreements that the EU has with other countries, including those we are discussing today. The EPAs under discussion have already been provisionally applied, of course.
The Ecuador impact assessment says:
“the evidence suggests that FTAs enhance trade flows”,
as our membership of the EU has proved. Significantly, the Ghana impact assessment admits:
“There is very little quantitative evidence on the impact of EPAs.”
We support the objectives of supporting trade with the developing nations, boosting their economies and prosperities, and doing so while boosting our own economy, but we must explore whether these agreements will deliver the proposed objectives. It is telling that the Government acknowledge in paragraph 10.1 of the explanatory notes that there had been criticism of the agreements, but that reference is all they have to say about the criticism. There is the slight exception in that three of the four impact assessments contain an index that refers to section 8—“Sensitivity analysis & risks”. Curiously, in each of the three impact assessments that list section 8 in the index, after section 7, “Impact Tests”, the next items are annex A and annex B—“estimated one-off costs” and “most-traded product lines”—followed by a blank page. There is no content for the “Sensitivity analysis & risks” sections in any of them. The fourth, by the way, does not have a section 8.
Will the Minister explain those omissions and tell us what was meant to be in those section 8s? Failing that—or perhaps in addition—will he tell us what the criticisms of the agreements, which are referred to in the explanatory notes, are? I am afraid I was unable to find any reference to them anywhere in what the Government have written.
To give the Minister time to find answers to those questions, I thought it would be sensible to go through some of the concerns that have been raised. Perhaps he might want to say something about that when he responds. Concerns have been raised about the impact on developing nations and about the regional impact of economic partnership agreements. A common criticism is that “most favoured nation” clauses restrict the ability of developing nations to reach trade agreements with their neighbours, as the same benefits, or better, in such agreements have to go to the EU. Instead of opening up trade for developing nations, the concern is that economic partnership agreements risk restricting trade.
I said earlier that the Government admitted in the impact assessments that there is a lack of quantitative evidence about the benefits. The longest-running economic partnership agreement is in the Caribbean. It started in 2008, but according to the European Commission’s impact assessment from 2014, there has been minimal domestic growth in the Caribbean since the EPA was implemented.
According to the International Monetary Fund, the uncompetitive nature of poultry farming in Ghana has left Ghanaian producers unable to deal with the lower cost of imported food following trade liberalisation. Those are the IMF’s words, not mine. The IMF’s Independent Evaluation Office report on international trade policy from 2009 says that the poultry sector in Ghana was much more vulnerable to competition from imports than IMF staff believed. The IMF forced the Ghanaian Government to reverse the Ghanaian parliamentary decision to raise tariffs to protect the poultry industry, with disastrous consequences for poultry farming in Ghana and for the communities that depended on that farming and its economic benefits.
The experience in a number of African countries has been of moving from self-sufficiency, or near self-sufficiency, in food to reliance on imports. Economies have moved from domestic production of food to foreign-owned production of cash crops such as cocoa, coffee, peanuts, sugar, cotton, rubber, palm oil and tobacco. They have moved away from the production of food and towards a reliance on imports of food.
Let us look at the experience of countries such as Tanzania, where the EU already has an agreement. Fish prices have gone up to such an extent that locals are unable to afford fish that has been caught in Lake Victoria; such fish are now almost exclusively caught for export. Some 49% of fish from Tanzania goes to the EU, and most of the rest is exported elsewhere. Locals have to rely on so-called fish skeletons—the remnants from fish that are caught in the Nile or in the lake and exported. The experience in east Africa is of produce being exported to the EU, driving up prices and undermining food security. In this case, the suggestion is that far from helping trade from developing nations, the east Africa economic partnership agreement has restricted it and made industrialisation and growth harder to achieve. The case of Tanzania and the east Africa EPA is a cautionary tale of what can happen if these agreements are not applied with care.
As we leave the EU, we will, as a result of our EU membership, be party to 70 or so trade agreements that we will need to renegotiate. The four agreements covered by this statutory instrument will need to be agreed again. The Trade Bill, which is slowly making its way through the Lords, makes provision for what the Government call the roll-over of these agreements, but the roll-over depends on whether the third-party countries to the agreements want to sign the same agreement or take the opportunity to revisit it. Given the concerns that I voiced at the start of my remarks, we should not be surprised if that happens with some or all of the agreement we are considering.
The hon. Gentleman will know that significant concerns have been raised by the devolved nations, particularly Scotland, about the lack of transparency, consent and consultation on trade agreements. I have no doubt that the Government will have to face up to and think about that carefully.
I feel as though we are revisiting the debates we had in the Trade Bill Committee, but the hon. Lady is absolutely right. I think the Lords will revisit the points she just made. I reiterate that if the Trade Bill goes through unamended, today will be the only opportunity for Members of either House to consider any renegotiation that may or may not come about on these four agreements, or on any of the 70 agreements that will be affected.
Perhaps the Minister can tell us what the impact of a no deal Brexit will be. In the case of agreement with the EU on the terms of Brexit, there will be a transition period, which suggests that there will be an opportunity to renegotiate these agreements. As we said in the Bill Committee, however, it might take a little longer than the 21 months from 29 March 2019 to 31 December 2020 to renegotiate 70 international trade agreements. That may partly explain the Prime Minister’s hint about the need for a longer transition period. It will not be a case of a cut-and-paste roll-over if any of our partners take the opportunity to renegotiate terms.
Regardless of what the Minister said in his opening remarks, there is every chance that that is exactly what will happen in these four agreements. What happens in the case of no deal? What will the status of these four agreements be from 29 March onwards? That is an important question for the Minister to answer. We have consistently heard just how much time and effort is going into the Government’s planning for the disastrous no deal outcome.
As we consider taking on, in our own right, the economic partnership agreements included in this draft statutory instrument, and as we consider how we apply them as members of the EU, I hope that everyone in this room agrees that it is incredibly important that we take our support for countries in developing parts of the world seriously. Concerns about these economic partnership agreements are very real and need to be addressed.
The importance of listening to all voices is clear when we look at what representatives of affected countries say about the EPAs. Carlos Lopes is the High Representative of the African Union, which supports member states in trade negotiations with the EU, and a former executive secretary of the United Nations Economic Commission for Africa. He said:
“Africans have serious concerns about how the EPAs would affect their industrial development and the African Continental Free Trade Area...Uncertainty arising from Brexit has not helped matters.”
That is first time we have referred to the African continental free trade area, which demonstrates my previous point, namely that the most favoured nation clauses in the order restrict the ability of other African nations to benefit. There are 55 nations in negotiations to conclude the African continental free trade area, and their ability to maximise the benefits of trading with other African countries will be seriously restricted by the need to give European countries the same benefits. Carlos Lopes went on:
“In most areas, the EPAs will actually hurt intra-African trade, weakening trade revenues and undermining trade-driven industrialization in Africa…If the EU is to seize the opportunities that Africa offers in a way that is mutually beneficial, it will need to work with the continent’s leaders to build a new kind of partnership that treats African countries as equals.”
I cannot imagine that anybody would disagree with the call to treat African countries as equals, so we need to be very mindful of exactly how these agreements might be applied.
Vera Songwe—the executive secretary of the United Nations Economic Commission for Africa, and formerly a country director and a senior economist at the World Bank—said that
“there should be a strategic pause on the EPA negotiation processes until the finalization”
of the African continental free trade area. We are not in a position to deliver that strategic pause because of the part of the process that we have reached, but we need to think seriously about why these requests are being made.
I ask the Minister to respond to the concerns raised by those who speak on behalf of the people of Africa, and to tell us how he and the Government intend to ensure that these economic partnership agreements are delivered in a way that benefits African people, and does not disadvantage them in the ways my examples have demonstrated. We should not be reaching economic agreements that disadvantage developing nations; we should be well past that point now, in 2018 in the United Kingdom. For the United Kingdom to benefit in the long term, we need trade to be fair, too. Unless our trading partners benefit, and unless their industries and workers thrive under such agreements, they will not be able to buy our goods and services, any more than they will be able to sell to us. For growth to happen, trade must be reciprocal and win-win, not the win-lose of President Trump.
We in the Opposition accept that these agreements should proceed, but we also see the need for their application to be more supportive of those in developing nations than the experience of Ghanaian poultry farmers or Tanzanian fishing communities would indicate has been the case thus far.
I will try to take the points made by the hon. Member for Sefton Central in order; I will be brief on some and perhaps develop a couple a little further, but hon. Members present should be confident that I will not take forever.
First, the hon. Gentleman stated that he felt the Trade Bill prevents us from discussing these issues any further, but that is absolutely not the case. Clause 2 of the Trade Bill was considerably amended on Report in the Commons, which means there is now very full discussion of any changes that are to be enacted by statutory instrument. Indeed, a report will be produced on the effects and changes in any free trade deal that is transitioned.
During the debate on the affirmative instruments, there will be a supporting explanatory memorandum, which will point to exactly the changes identified in the report that have been made by that statutory instrument. Therefore, the House has every right, every ability and every chance to debate those changes, and no doubt will do so.
The hon. Gentleman said that it was entirely for the Secretary of State to decide whether something is ratified. For the same reasons, that is absolutely not true. The House will have any number of opportunities to debate all the small changes, or even larger changes—we hope very much there will be no larger changes—in these transitioned agreements. He asserted that EPAs have been agreed under pressure.
The process that the House will be able to use is to delay, using the Constitutional Reform and Governance Act 2010. The House cannot amend the agreements, can it—unless the Minister is telling me that the Government will table further amendments to the Trade Bill in the Lords?
As the hon. Gentleman will know, the House can actually delay indefinitely through the CRAGA process, but if it decides not to pass essential modifications that enact the practical legislative effects of any agreement, it will make that agreement difficult to operate. The House will have full opportunity to discuss those SIs in Committee. It is certainly not the case that the Secretary of State gets to decide; nothing could be further from the truth.
We were talking about the EPAs being agreed under pressure, but that is just not true. If it were true, I suspect there would be very little appetite among nations with whom we have these agreements to replicate them, but I can be clear with the hon. Gentleman that there is an appetite to replicate them. As for Rob Davies, the Trade Minister in South Africa, I met him in August and he was keen that we replicate the agreement. We agreed, around a table with officials, that we should instruct our officials to ensure that that was done in a timely fashion and as soon as possible; so either he has changed his mind, or he did not believe that in the first place.
I am not quite sure I understood the hon. Gentleman’s question about the technical barriers to trade, but I am very happy to provide him with some illumination about what they are. We can talk about customs and all sorts of different issues—those are the technical barriers to trade. Technical barriers to labour rights may, I suspect, be legislation within individual jurisdictions.
Paragraph 7.6 of the Minister’s explanatory memorandum refers to addressing
“broader trade issues such as technical barriers to trade and labour rights.”
I was asking him to explain what he meant by
“technical barriers to trade and labour rights.”
In that case, I meant exactly what I just said. It is not technical barriers to trade and technical barriers to labour rights, but technical barriers to trade, such as poor customs systems and so on and so forth, which the Department for International Development has very considerable programmes to address. The TradeMark East Africa programme has been enormously successful, for example in reducing the time taken for items to clear customs by 32% over the life of the programme. By “address…labour rights”, we mean that it is also our intention to tackle the issue of labour rights. I hope that will satisfy the hon. Gentleman.
On the reference to public services, EU publicly funded services are excluded from liberalisation in all free trade agreements. That is an absolutely standard clause in all EU free trade agreements, and we are clear that in the free trade agreements we sign, we will also be protecting our public services from private competition. The right to legislate in the public interest in public services will be enshrined in our FTAs.
The hon. Gentleman made the not unreasonable point that the EPAs are not of the same scale as China and so on. That is the whole point of the EPA programme. There is a 20-year period in which liberalisation happens. There are also all sorts of breaks and control mechanisms, and indeed mechanisms for discussing certain issues if they arise and are acute for any particular country at any particular time. I am convinced that the mechanisms that sit around these agreements allow for modification, for change and for emergency procedures to be brought in, to deal with real difficulties that individual countries might face.
May I ask the Minister to rewind 30 seconds? He said that the UK intended to replicate in any future FTAs the public service provisions that currently exist in European Union negotiated trade agreements. For my own benefit—I may have missed it—is this the first time that that has been said, or has it been said elsewhere by the Department for International Trade? If so, where?
All I can say is that it is absolutely the intention of the Department, when negotiating free trade agreements, to ensure that there is an understanding in those agreements that UK public services will be the province of the Government and the Government alone. There will be, as there have been in the various free trade agreements that have come through recently, an understanding in such agreements that there is a right for partner nations to regulate their own public sectors in the way that they see fit. I believe that I am repeating something that has been said in the House many times before.
As we know, there is a system in the European Union for conducting EPA reviews. This has not yet been finalised or finally thought through, but the UK intends to ensure that where we have EPA-type provisions under UK law, we will look at them regularly to see whether we can improve them. We have real ambitions for these agreements and believe we can do more with them. Statistics indicate that where free trade agreements—EPAs are a form of free trade agreement—have been negotiated, over time there is a consequential increase of up to 32% in trade between partners. That probably applies more to direct FTAs without the EPA envelope, so we are talking about a different category of partner, but nevertheless it demonstrates that free trade considerably increases trade between partners.
It is true that for a large number of partners within EPAs, the access they get to European markets is far superior to what they would achieve through unilateral systems of preferences. For many, there would be no access without the EPA, and certainly not on the terms on which they are currently engaged. The mere fact that they are signed up to EPAs suggests to me that they find them useful.
The hon. Member for Sefton Central made considerable reference to issues relating to undermining the economic prosperity of regions by doing individual deals with individual countries. The EU has always sought to do EPA deals with regional blocs as they define themselves. Those interact considerably across the continent of Africa, in particular, with members being members of more than one bloc, and that can create difficulties. It is sometimes also difficult when individual regional political issues force disagreement between the partners in these unions and agreements. Therefore, the EU has taken the view that it is better to do deals with individual countries that wish to be involved than not to do so at all. That is why it pressed ahead, for example, with the Ghanaian agreement.
It is worth reflecting that the Eastern and Southern Africa programme was itself a reaction to the fact that the Lomé convention and the deals that were set up under preferences for a number of these countries were found not to be WTO compliant. The ESA programme was a reaction to make sure that the absolute minimum that needed to be done to be WTO compliant within development frameworks was done.
I will correct the hon. Member for Sefton Central on a couple of the more emotive examples he gave. He talked about Tanzania and fish skeletons. Tanzania is not a partner to an EPA agreement with the European Union. He also talked about chicken production in Ghana and the difficulties that the EPA had caused. It is also the case that chicken is specifically excluded from liberalisation in the Ghanaian EPA. I hope that that will give him some reassurance.
Finally, I turn to the issue of a no deal Brexit. The Department is working incredibly hard, as the hon. Gentleman said, to ensure continuity if and when that happens. I re-emphasise to the Committee that is something that many of us hope very fervently will not happen. We hope that we will have a free trade agreement or a future economic partnership with the European Union, and that there will be an implementation period. The Government have to recognise that there is a possibility that no deal will occur, and we must plan for all circumstances. We are negotiating at length with our bilateral partners with that in mind, and progress is very encouraging. We cannot be certain in every case exactly what we will achieve and when, but we have made detailed progress on the vast majority of the agreements and I believe that come a no deal Brexit—if it should come—we will be in a good position.
Question put and agreed to.
That the Committee has considered the European Union (Definition of Treaties) (Economic Partnership Agreements and Trade Agreement) (Eastern and Southern Africa States, Southern African Development Community States, Ghana and Ecuador) Order 2018.