Delegated Legislation Committee
Draft Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018
The Committee consisted of the following Members:
Chair: Sir Christopher Chope
† Brock, Deidre (Edinburgh North and Leith) (SNP)
† Clarke, Mr Simon (Middlesbrough South and East Cleveland) (Con)
Clwyd, Ann (Cynon Valley) (Lab)
† Donelan, Michelle (Chippenham) (Con)
† Drax, Richard (South Dorset) (Con)
† Fabricant, Michael (Lichfield) (Con)
† Foxcroft, Vicky (Lewisham, Deptford) (Lab)
† George, Ruth (High Peak) (Lab)
† Hall, Luke (Thornbury and Yate) (Con)
Hart, Simon (Carmarthen West and South Pembrokeshire) (Con)
† Heappey, James (Wells) (Con)
† Kerr, Stephen (Stirling) (Con)
† Norman, Jesse (Minister of State, Department for Transport)
Platt, Jo (Leigh) (Lab/Co-op)
† Sheerman, Mr Barry (Huddersfield) (Lab/Co-op)
† Turner, Karl (Kingston upon Hull East) (Lab)
† Western, Matt (Warwick and Leamington) (Lab)
Yohanna Sallberg, Harriet Deane, Committee Clerks
† attended the Committee
Third Delegated Legislation Committee
Monday 19 November 2018
[Sir Christopher Chope in the Chair]
Draft Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018
I beg to move,
That the Committee has considered the draft Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018.
May I say what a pleasure it is to serve under your chairmanship, Sir Christopher? Following the UK’s decision to leave the European Union after the referendum in 2016, the Government have been working to develop a positive future relationship with the EU, including a comprehensive and ambitious air transport agreement. The Department for Transport has undertaken a significant amount of work with respect to the withdrawal negotiations and to prepare for the range of potential outcomes. The best outcome, as we all recognise, is for the UK to leave with a deal. A draft withdrawal agreement that delivers on the referendum, brings back control and protects jobs is now being considered by the House.
May I tell the Minister how relieved I am to hear what he said? If I believed others, I would think that, once we left the European Union, planes could not fly into the UK, and planes from the UK could not fly to Europe. Do I take it that all that was a load of hogwash?
I cannot comment on the wisdom or otherwise of comments made at the time, but on 7 March this year the President of the European Council, Donald Tusk, said,
“I am determined to avoid that particularly absurd consequence of Brexit that is the disruption of flights between the UK and the EU.”
Apropos of that intervention, may I say that I have been a chairman of the Transport Safety Commission for many years, and am chair of the committee on air safety for the Parliamentary Advisory Council for Transport Safety? The industry—this vital sector to our economy and our country—is very worried. I hope that these regulations give some comfort to many in the industry who believe that there are many unresolved issues affecting our ability to travel by air.
The Committee will understand that this is one of a series of affirmative resolution statutory instruments that we are putting before the House. We can discuss each of those issues as it applies to them, but I am sure the hon. Gentleman is pleased that the EU recently commented that, for example, there will be no difficulty in overflying Ireland, which was one of the worries that people had. I expect that positive progress to continue.
As the Department responsible for aviation, we have conducted particularly intensive work to ensure that there continues to be a well-functioning legislative and regulatory regime for aviation. In the technical notices in September, we set out how that would work, and this instrument provides the means to deliver some of those outcomes.
It should be emphasised that this legislation is required only in a scenario in which the UK leaves the EU without a deal or an implementation period. The European Union (Withdrawal) Act 2018 converts EU law as it stands on exit day into domestic law, and preserves laws made in the UK to implement EU obligations. It will provide continuity and certainty to industry and consumers without prejudice to the outcome of the negotiations. However, as in other areas, some fixes are inevitably required to address deficiencies in the retained EU legislation to ensure it continues to function effectively once the UK has left the EU.
I take it that the Minister is in regular communication with the Civil Aviation Authority. Is he also talking to the Irish Aviation Authority? As he knows, one of our biggest carriers, Ryanair, comes under the Irish authority, not the CAA, for regulation.
The hon. Gentleman is absolutely right. The officials and I would not be surprised if, in due course, Ryanair makes an application for a UK operator’s licence, in the way that many other carriers have done already. We are in regular contact, directly and through the CAA, with our opposite numbers among the officials to head off those kinds of concerns and to give that kind of comfort.
Although it is quite tightly defined, this SI relates to a formidably technical and complex area. Many of the references to the EU in what I am going to say later should be taken to include the EEA, depending on context. EU Regulation 1008/2008 provides the basis for the internal market in air services and consolidates provisions in a number of prior regulations that had gradually liberalised the market for air services within the EU. The regulation sets out harmonised conditions for licensing air carriers in the EU and provides the right for any EU-licensed air carrier to operate on any route within the EU without prior authorisation.
The regulation prohibits market distortions that had historically existed in Europe, such as restrictions on pricing or air carriers’ ability to set air fares freely and lease each other’s aircraft. It also sets out common rules for the provision of public service obligations—that is, scheduled flights to peripheral regions that would not otherwise be commercially viable. A further element of the internal market for which the regulation provides is what is known as wet-leasing. A wet-lease is when one air carrier leases an aircraft together with its crew, maintenance and insurance from another operator. EU air carriers can freely wet-lease aircraft registered in the EU, provided that that would not endanger safety, but restrictions are imposed on the lease of aircraft from beyond the EU.
The EU has also pursued an external aviation policy by making comprehensive air transport agreements with third countries, and by seeking consistency in the provisions of the bilateral air service agreements between member states and third countries. Regulation 847/2004 establishes a procedure for member states to notify each other and the Commission, and to work together on the negotiation and conclusion of air service agreements.
The draft regulations we are considering today fix deficiencies in the retained EU regulations, as I have briefly described, alongside the preserved domestic legislation made to implement aspects of those regulations, so that the statute book continues to function correctly after exit day. The effect of those changes was described in the technical notice published in September, which set out how the UK would regulate air carriers. Many of the changes make it clear that the retained legislation applies only to the UK, so, for instance, references to “Community air carrier” are replaced with “UK air carrier”. Alternatively, another amendment requires air carriers to have their principal place of business in “the United Kingdom” rather than in “a Member State”; that is one to which the hon. Member for Huddersfield referred earlier.
Since the UK would no longer participate in the EU’s external aviation policy and the Commission would have no authority in the UK, Regulation 847/2004 would be revoked. The UK would be free to negotiate ambitious bilateral air services agreements with other countries without regard to the Commission or to EU member states.
The European Union (Withdrawal) Act ensures that operating licences previously issued to UK air carriers remain valid. An operating licence is required by air carriers before they can offer commercial air transport, and ensures that UK air carriers are financially robust, appropriately insured and managed by fit and proper persons. A separate air operator certificate is also required, which ensures that the air carrier meets essential safety requirements. While all commercial aircraft operators require an air operator certificate to show that they are safe, some will not provide air transport services: for example, a hot air balloon offering pleasure flights would not do so and thus would not require an operating licence.
Separate instruments on aviation safety, security and the rights of air passengers will be brought to the House in the coming weeks. UK-licensed air carriers will need to continue to meet all the substantive requirements for a valid operating licence, with one exception: the requirement in Regulation 1008/2008 for air carriers to be majority owned and controlled by EU nationals would be revoked, since this is a definition that would no longer apply to UK nationals.
That requirement would be redundant for two reasons. First, nationality requirements are routinely specified in the terms of our air services agreements, which determine the eligibility of air carriers to operate under them, based on the nationality of their ownership. We expect that to include any agreements with the EU. Secondly, UK air carriers would require a route licence in order to operate beyond the UK, and there is a nationality requirement for a route licence. UK route licences predate the EU operating licence, and in many ways were superseded by it, so air carriers were exempted from the requirement for a route licence for operations to the EU.
Route licences serve a useful purpose in that, unlike an operating licence, conditions can be attached to the licence preventing air carriers from operating certain routes. Route licences are provided for free by the CAA to any UK carrier which requires one, and one of the conditions for a route licence is that the applicant should be a UK national, or an undertaking controlled by UK nationals. The Secretary of State also has long-established powers to instruct the CAA to waive this requirement, which he has historically done, most recently for easyJet UK and WizzAir UK.
As a result of this instrument, the rules for wet-leasing foreign aircraft will remain stable. UK air carriers seeking to wet-lease a foreign-registered aircraft will be required to demonstrate to the satisfaction of the CAA, as they do today, that doing so would not endanger safety. If that aircraft was registered in a country other than in the EU, they would also have to demonstrate to the Secretary of State that safety standards equivalent to the UK’s would be met.
I appreciate that we are limited in time, but the Minister is going quite fast through some quite technical stuff. What happens to the air accidents investigation branch and its remit? In future, how will it co-operate across Europe on accidents? We have gone through a long period where we have had very few air accidents, but recently we have had some pretty bad ones; these things go in cycles. The great thing about the European sector is that there is a very good comprehensive agreement on the investigation of every fatal accident. Could he put my mind at rest on that?
It is all very welcome. The hon. Gentleman will understand that the CAA predates the European Aviation Safety Agency, and in many ways has acted as a model, and in some respects a coach, to it. The AAIB has a well-established reputation in its field. I have no doubt they will continue to co-operate very closely. The precise arrangements remain part of the wider picture of the negotiation, but there is absolutely no reason to think that the close co-operation that currently exists should not be extended after withdrawal next year.
I will continue on the issue of wet-leasing. If the aircraft in question was registered in a country other than in the EU, UK carriers would also have to demonstrate to the Secretary of State that safety standards equivalent to the UK’s would be met and that the lease was justified on the basis of exceptional needs, or to satisfy seasonal capacity requirements or overcome operational difficulties. Permission may be refused, of course, if there is no reciprocity with regards to wet-leasing to the country in which the aircraft is registered.
Notwithstanding the continuity provided for and the fixes that I have described, this instrument makes a number of changes to reflect the fact that EU-licensed air carriers would no longer enjoy the automatic right to operate to, from or within the UK. Contracts for public service obligations in the EU can be won by any EU-licensed carrier, but changes made by this instrument would mean that only UK-licensed air carriers, and carriers from countries with which the UK has exchanged the right to operate wholly within each other’s territory, would qualify for PSO contracts in the UK.
As all the PSOs in force in the UK are currently operated by UK-licensed air carriers, there will be no impact on existing services. Similarly, existing domestic regulations provide for a rarely used process in cases where the frequency of operations between the UK and another country is constrained by provisions in the relevant air service agreement.
Although air services are not included within the scope of the World Trade Organisation, there is an international legal framework for the operation of air services—the Chicago convention of 1944. One of its provisions is that scheduled international air services are prohibited except with the special permission of the state concerned. The UK provides this permission through the air services agreements it concludes with other countries and the issuing of foreign carrier permits by the CAA. Amendments made by this instrument would require EU air carriers to apply for a permit before operating to the UK. That will ensure that all air carriers operating to the UK have full and proper safety oversight and that their aircraft are properly maintained and operated.
We envisage granting permits to EU carriers to continue operating to the UK, and I was pleased that, in its Brexit preparedness communication on 13 November, the Commission confirmed that it intends to reciprocate for UK air carriers. In addition to the announcements about visa-free travel, the Commission said that UK air carriers would still be able to fly over the EU, including Ireland, and to land in and fly back from the EU. Those points reinforce what I believe is a positive and encouraging emerging picture of future co-operation.
It is always a pleasure to serve under your chairmanship, Sir Christopher. I will be brief. As the Minister has already outlined, these amendments make minor changes to EU regulations as they come into UK law under the European Union (Withdrawal) Act. It is clear that the Government are attempting to mitigate any potential problems relating to the operation of air services once we leave the EU. There has been considerable concern, however, over operating licences remaining valid post Brexit. Therefore, we very much welcome this clarity. In this case, stakeholders have stated that the Government and the Department for the Transport engaged with them properly. We welcome that as well.
Labour Members believe that a strong aviation sector is crucial to the UK’s status as a global, outward-looking nation, and that is even more important following our decision to leave the EU. We believe that any new service agreements for the aviation industry following Brexit should seek to replicate the existing arrangements as much as possible.
I am a bit worried that my hon. Friend seems to be so positive about this. We have just witnessed the Minister gambolling through—in an entertaining way, but very quickly—this very important piece of delegated legislation. This is complex stuff. Is this the template for what will happen under the agreement to leave the EU: that this kind of legislation will be rushed through in small meetings such as this, with no time to study it or ask for detail? If that is the template, I am very worried.
My hon. Friend makes a valid point. We are clearly concerned about the Government rushing regulations through, but he should be aware that the reason they have rushed this—if he wants to put it like that—is because the Opposition have pressured them for some months to bring forward the regulations to ensure that air service agreements are valid post Brexit. However, I am grateful for my hon. Friend’s intervention.
It remains the UK aviation industry’s priority that the Government achieve a comprehensive, liberal new air services agreement with the EU in any final Brexit arrangement. There is not a huge amount of detail in the draft withdrawal document about what air services agreement will be in place beyond the transition period.
However, despite the ongoing chaos from this Government, we welcome the fact that last week, the European Commission—after much pressure from the Opposition, I must say—eventually published guidance confirming that flights between the UK and the EU would continue in the event of a no-deal Brexit. That was met with widespread relief from the industry.
I am sorry to interrupt my hon. Friend’s very good speech, but what words have the official Opposition had with anyone in Ireland about how these regulations affect Ireland, and the relationship between the Republic of Ireland and Northern Ireland? This is one industry where there is a very strong Irish element in the way that we operate. It is very complex indeed. What level of negotiation and discussion have the official Opposition had with the Irish Government on this?
I have to be honest with my hon. Friend: I do not know the answer to the question. I suspect that colleagues higher up than me in the shadow team have had discussions with colleagues in the EU. For example, I know that the Leader of the Opposition has met officials in the EU.
The Opposition have always maintained that the aviation sector should have been the first priority for the Government in their negotiations with the EU. Given the chaos last week, is the Minister confident that there are no more problems coming down the road?
As this legislation does not make any substantive changes to licensing requirements for air carriers and aircraft operators, and there has been thorough consultation between the Department for Transport and leading stakeholders in the aviation industry, the Opposition support these measures. It is right that the aviation industry has been consulted comprehensively. The aviation Minister in the other place has stated that these amendments do “no more than appropriate”. We agree with that.
I am sorry to intervene again. The Minister said that, as far as he is concerned, there will be no impact on existing services. How can he know that? How can the Opposition know that? I am worried that this big change in regulation will have a very big impact on existing services. We should be much more aware of our rights and responsibilities as parliamentarians in ensuring that things are up to the standard we expect.
My hon. Friend says from a sedentary position that the Minister said there would be no impact. I think the Minister has taken on board the points that my hon. Friend has raised, and I expect him to come back on that.
I have one or two questions of my own for the Minister. Given that the CAA will get further regulatory powers and become the licensing authority to deliver oversight and take measures against carriers if necessary, is he absolutely satisfied that it is fully resourced? Does he foresee any issues in that respect? I look forward very much to his response.
It is a pleasure to serve under your chairmanship, Sir Christopher. Briefly, the Scottish National party’s position is that we support the statutory instrument. Although it is by now clear that we do not support the Government’s wider plans for leaving the EU, we acknowledge the need for continuity in place of the chaos of no deal or a hard Brexit. While enabling a departure from EU agencies and standards, the regulations also enable the means to maintain continuity for travellers. As such, we reluctantly support them as a necessity.
I have some questions for the Minister. In particular, how confident is he that an aviation agreement with the EU will be arrived at? Can he outline the nature of the discussions that have taken place so far on this extremely important and complex subject?
It is a pleasure to serve under your chairmanship, Sir Christopher. My remarks will be brief, and I have been lucky to make so many interventions.
I am deeply worried about the whole process, and not only because I have spent many years involved in air safety. I know quite a lot about the industry and I have very good communications with it. The industry does not think that there will be—to quote the Minister—no impact on existing services. The industry thinks there will be a great deal of impact on existing services. It does not know precisely what because we are in limbo. Nobody knows what the Government are going to do, who the Prime Minister might be or what the Leader of the Opposition or the Opposition think about the current situation. In a sense, we are gambolling though at a fast rate.
I am a great admirer of the Minister’s style and intellect, but he is rushing this measure through with not one word from Back Benchers. Our job is to scrutinise legislation. That is at the very core of what a Member of Parliament should do. I am not sure that I know that people will be safe flying after we leave the European Union. I am not sure that we have the right relationships for investigating the standards and how we operate. I have not had any affirmation that there has been serious communication with the Irish Government. In aviation, we are closely entangled with the Irish and also the United States. Our biggest traffic is across the Atlantic to North and South America. Have there been discussions? As someone who is long versed in aviation safety, I do not believe that the process of scrutiny is good enough.
If the hon. Gentleman does not agree with the manner in which we are scrutinising, is that not more an issue for the Procedure Committee than for this Committee? It seems to me that he is complaining more about how we conduct SIs, rather than the actual meat of this piece of legislation.
I am pleased that I gave way to the hon. Gentleman. I have known him for many years, and both of us are serious about the role of the parliamentary process. Our job is scrutiny. This is a very important Committee because it is one of the first in terms of Brexit. Is this to be the template, where we skate through, do not look at the fine detail, and say, “We can trust the Government and the Opposition”?
Our job as parliamentarians is to go through this stuff line by line, even if it takes all night. That is the importance of air safety: it is one area where everything matters.
There must be a full understanding of the safety systems of international aviation, and I want to know what the relationship will be with IATA and other international organisations that deal with how we safely transport people across the world. I am not sure we have thought this through. I am not sure about the negotiations: I do not know how often the Minister has talked to aviation experts, in Brussels or anywhere else. I hope he will put our minds at rest. This is a most complex area, and as someone who has been in this sector for a long time, I do not believe that we are doing justice to our responsibilities to our constituents, who are the travellers who might be at risk.
I am grateful to all hon. Members who have made interventions and speeches in the debate so far. Let me pick up the various points that have been raised, because they are of considerable interest. I am very grateful to the hon. Member for Kingston upon Hull East for his recognition of the level of engagement that my officials and the CAA have had with their opposite numbers across Europe. He is absolutely right about that, and I know they will be grateful that the Opposition have recognised the work they have been doing.
Secondly, the hon. Member for Kingston upon Hull East says the Opposition’s position is that any agreement should seek to replicate the current law with a comprehensive agreement governing air services, safety, and the like. Of course, that is absolutely right, and the Government agree with him. He has asked me, as has the hon. Member for Edinburgh North and Leith, whether we can be confident that problems will not emerge, or might not emerge in the future. The answer is that no one can predict the future, but the Government believe there is every reason to think that air connectivity will be retained between the UK and the EU. It is in no one’s interest to disrupt air services, and I remind the Committee that the European Commission has confirmed in the past few days that it intends to reciprocate grants of permits to EU air carriers in relation to UK carriers. It has also made announcements about 90 days of visa-free travel and overflights across the EU, including Ireland. All of that points in a direction that gives confidence to anyone who might be concerned, and I am grateful that the issue has been raised.
Having taken many interventions, Sir Christopher, I am sure you will understand if I respond in an orderly way to the points raised. If the hon. Member for Huddersfield wishes to intervene in relation to his own speech, he is welcome to do so.
The hon. Member for Kingston upon Hull East also raised the question of whether Ministers were happy with the resourcing of the CAA. Of course, the answer is yes. The CAA is already the licensing authority for UK carriers. It has conducted internal assessments and, in discussions with officials, has determined that it does not require additional resources, so we think that the CAA will remain the robust and highly effective organisation that it has been for many years.
The hon. Member for Huddersfield raised a series of questions. The first, which he raised in his interventions, was about the AAIB. I want to recognise the work that the AAIB has done very rapidly in relation to the tragic incident at Leicester City football club. That shows what a high-quality organisation it is, and we are grateful that it did not waste any time. The hon. Gentleman asked whether the legislation has been rushed through, and spoke eloquently about parliamentarians’ duty to their constituents to make sure that legislation has been properly scrutinised. Of course, he is absolutely right about that. Precisely for that reason, and because I know he takes an historical interest in air travel, the Committee can be sure, I am certain, that he read carefully the technical notices outlining the Government’s position when they were published some months ago. I am sure we can take it that he knew—I am surprised he did not mention it in his speech—that this statutory instrument was published on 17 October and, therefore, colleagues have had a full month to debate and consider it.
The Minister is being very generous in giving way and I do not want to be unfair to him. We work on transport safety in different sectors very harmoniously. However, can I just ask him how many chief executives and chairmen of major airlines has he spoken to on this? How many people has he spoken to in Europe? I want to know chapter and verse who he has spoken to and at what level before he put this forward to the Committee.
I am very happy to answer that. As the hon. Gentleman will know from his close scrutiny of the Government, the lead Minister on this brief is Baroness Sugg. I am the spokesman in the Commons. She has met many chief executives across the industry. I can assure him that she is extremely expert and has taken plenty of advice and input from all of them. I do not think that there can be much question about the fact that, had the hon. Gentleman wished to avail himself of the time available, he could have given this legislation the scrutiny that he says it deserves. It surprises me that he has not given it that scrutiny.
Order. The hon. Gentleman is trying the Committee’s patience.
On a point of order, Sir Christopher. This is unfair. The Minister alleges that I did not do my homework before I came to this Committee. He knows that I spend a lot of time on this subject and know quite a lot about the industry. He suggests that I, as a colleague, have come to this Committee having failed in my duty as a parliamentarian, because I have not lobbied on this before the Committee met. This Committee is the important place for me to raise these issues on behalf of my constituents, and that is what I am doing.
That is not a point of order.
Thank you, Sir Christopher. I was not, of course, doing what the hon. Gentleman suggested. I was merely pointing out the slight incongruity in suggesting that we had been rushing through a piece of legislation when in fact we have published technical notices and this statutory instrument has been before the House for a month, in which he or any other parliamentarian, and any other public or private party, could have scrutinised it and given it their attention. Unfortunately, there is some evidence from his own speech that he did not, because he suggested that I had said that there would be no impact on existing services, but in fact I said no such thing. I said—let me be clear again—that, in relation to public service obligations, we anticipate that there will be no impact on existing services, and those are all currently delivered by UK carriers, so one can take a high degree of comfort that that will be the case.
We believe and remain confident that we will reach an agreement with the EU, but it is important that the Government prepare for the unlikely outcome that we leave the EU with no deal. This statutory instrument is essential to ensure that a crucial part of the regulatory framework for civil aviation continues to work effectively in the UK from day one after exit, and continues to provide consumers with connectivity, choice and value for money, irrespective of the outcome of negotiations.
I hope that the Committee has found the sitting informative as well entertaining, and that hon. Members will join me in supporting the regulations.
That the Committee has considered the draft Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018.
Draft Textile Products (Amendment) (EU Exit) Regulations 2018
The Committee consisted of the following Members:
Chair: Stewart Hosie
† Charalambous, Bambos (Enfield, Southgate) (Lab)
† Dunne, Mr Philip (Ludlow) (Con)
† Efford, Clive (Eltham) (Lab)
† Furniss, Gill (Sheffield, Brightside and Hillsborough) (Lab)
† Goodwill, Mr Robert (Scarborough and Whitby) (Con)
† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)
Hoey, Kate (Vauxhall) (Lab)
† Lewer, Andrew (Northampton South) (Con)
† Lopez, Julia (Hornchurch and Upminster) (Con)
† O'Brien, Neil (Harborough) (Con)
† Smith, Nick (Blaenau Gwent) (Lab)
Snell, Gareth (Stoke-on-Trent Central) (Lab/Co-op)
† Stephens, Chris (Glasgow South West) (SNP)
† Thomas, Gareth (Harrow West) (Lab/Co-op)
† Thomson, Ross (Aberdeen South) (Con)
† Tolhurst, Kelly (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Whittingdale, Mr John (Maldon) (Con)
Nina Foster, Masrur Ahmedchar, Committee Clerks
† attended the Committee
First Delegated Legislation Committee
Monday 19 November 2018
[Stewart Hosie in the Chair]
Draft Textile Products (Amendment) (EU Exit) Regulations 2018
I beg to move,
That the Committee has considered the draft Textile Products (Amendment) (EU Exit) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Hosie. The draft regulations, which were laid before the House on 10 October, will be made under the powers conferred by the European Union (Withdrawal) Act 2018. They form part of the wider programme of work to adjust our existing legislative framework in readiness for leaving the European Union. While we remain optimistic of reaching a Brexit deal that is of mutual benefit to the UK and the EU, it is the duty of a responsible Government to prepare for all scenarios. That is why we are bringing the draft regulations, and other such instruments, to the House. The regulations are part of contingency planning to ensure that our consumer legislation continues to function effectively after exit day.
Maintaining a comprehensive framework of consumer rights is crucial for prosperity. Household expenditure accounts for about 60% of the UK economy. In 2016, retail sales stood at £800 million for textile stores and £40 billion for clothing stores. Confident consumers help to raise productivity and deliver an economy that works for everyone.
The draft instrument amends EU regulation 1007/2011 on textile fibre names and related labelling and marking. The EU regulation prescribes labelling or marking that must be applied to textile products to inform consumers of the product’s textile fibre composition and the presence of non-textile parts of animal origin, such as fur.
The EU regulations are currently enforced by the individual member states of the European Union, of which we remain one. Our enforcement is currently carried out via trading standards at regional and local level, in conjunction with our National Trading Standards force. That is the system that will be in place if we approve the instrument.
The EU regulation also empowers the European Commission to approve new textile fibre names and to modify technical provisions, such as testing methods. The draft regulations also modify the Textile Products (Labelling and Fibre Composition) Regulations 2012, which set out enforcement provision for the EU regulations in the UK.
The European Union (Withdrawal) Act retains in UK law EU regulation 1007/2011 in its entirety on exit day, but once the UK leaves the EU, the EU regulation will no longer apply to textile products placed or made available on the UK market. To maintain high consumer protection, the draft regulations make essential changes to ensure that requirements to indicate the fibre content of textile products and non-textile parts of animal origin continue to apply after our exit from the EU. The draft regulations also remove provisions that will no longer be relevant, such as requiring a label to be in an official language of the European Union. After exit, the label must be in English.
The draft regulations also transfer the power currently exercised by the European Commission to approve new fibre names, tolerances—the difference between the fibre composition on the product label and the actual composition demonstrated through testing—and testing procedures to a UK Secretary of State. This is necessary because after the UK leaves the EU it will no longer be appropriate for the European Commission to approve new textile fibres for the UK market. Repatriation of the functions will enable the UK to amend its textile labelling requirement to take into account innovation and technical advances in the textiles sector.
My question is similar to that asked by the hon. Member for Harrow West. Will the Minister give us some assurances about what protection there will be against cheap textile copies being imported if the UK leaves the European Union?
As I outlined, we already have a strong enforcement regime exercised by trading standards at local level. Also, trading standards and the Office for Product Safety and Standards work at the borders making checks on products coming into the marketplace that may not be legal under the regulations. That will continue.
After EU exit, businesses will be able to apply to a UK Secretary of State to have a new fibre name adopted for the UK market, just as they can now apply to the European Commission. Finally, to maintain higher levels of consumer protection, the powers and penalties applicable to breaches of the EU regulation will be retained after EU exit. The regulations make only minor amendments to the UK textile labelling regulation to ensure that there are no references to the EU process: for example, they remove the need for the Secretary of State to have regard to the penalties for breaching the EU regulation in EU member states when carrying out a review of the regulation.
The draft regulations deliver certainty and stability for consumers and business—a key objective for the Government.
Further to my earlier intervention, and the intervention by the hon. Member for Glasgow South West, trading standards has been one of the areas of local authority services hardest hit by cuts. Do the Government have any plans to increase funding for trading standards, so that consumers can genuinely have confidence that in the brave new world that hon. Lady imagines, consumers will not suddenly lose out?
The hon. Gentleman raises an important point. It is true that the Government are committed—I am particularly committed—to enforcement and to a trading standards service that carries out its required role. There is, as the hon. Gentleman knows, a consumer Green Paper. We are looking at ways to improve services, and a key priority for me is how trading standards are working nationally. I am extremely aware of the issue, and I recognise the importance of the service as we leave Europe, in whatever way that happens.
Order. I think we will make that the last question specifically about trading standards, as it goes slightly beyond the scope of the regulations.
The hon. Gentleman has asked about funding and, as I outlined in my previous answer, this is an area I am particularly interested in and focused on in relation to trading standards enforcement. We will be looking at the consumer Green Paper, and if I envisage changes being made, I will bring them to the House.
Consumers will experience no practical change as a result of the draft regulations, as after EU exit textile products will continue to be labelled as they are now. Businesses sourcing textile products from UK manufacturers, or importing those products from outside the EU, will experience limited change in the labelling regulations that they must comply with. That will also be the case for UK manufacturers. Businesses importing textile products from within the EU will become responsible for ensuring the accuracy of the labelling or marking of textile products. However, as the UK and EU textile labelling regimes will be very similar at the point of exit, UK businesses can import textile products safe in the knowledge that EU suppliers understand the shared requirements of the UK regulations.
To support innovation, businesses wishing to have a new fibre name approved will need to apply to a UK Secretary of State. It should be noted that in the last seven years, only two new fibre names have been adopted by the European Commission.
Guidance for business and consumers on the changes that the regulations will bring into effect has already been published in the consumer technical notice. The explanatory memorandum also provides business and consumers with further details of the changes that would be made in the event of a no-deal scenario. To help businesses to understand how to comply with the requirements of the regulations, further guidance will be published in due course
In conclusion, the regulations are a sensible and necessary use of the powers in the European Union (Withdrawal) Act 2018 that will ensure that our consumer law continues to function effectively on exit day. I therefore hope that the Committee will approve the regulations.
It is a pleasure to serve under your chairpersonship, Mr Hosie.
We should be proud that the UK has often been a beacon for consumer protections in the EU and globally, with countries across the world looking to our consumer protection laws. Unfortunately, consumers have been left in limbo since the Brexit vote in June 2016, with little assurance about whether they will continue to enjoy the same rights and protections or what the Government’s Brexit agenda will mean in that regard.
The deal announced last week mentions a level playing field for consumer protection for the transition period, but fails to address the future of consumer protection after Brexit, so there are still vast uncertainties for consumers. The Government have failed to properly engage with consumer groups about Brexit, especially at the highest level. That is an abdication of their duty to UK consumers, who collectively put £100 billion into the economy each month.
The regulations are technical and aim to ensure a smooth transition after 29 March 2019. They amend legislation in the field of labelling and composition of textile products. They transfer powers to the Secretary of State to recognise new textile fibre names and testing methods, amend the language that must be used to label textiles and transfer labelling obligations to importers into the United Kingdom.
In principle, we do not oppose what are, on the face of it, technical changes, but I am still not clear about questions of jurisdiction and enforceability after Brexit, as I mentioned in a Westminster Hall debate on consumer protection and Brexit in October 2017. For example, it is crucial that we maintain cross-border consumer protection so that consumers have the confidence and security that the products they are purchasing are safe, but the Government have not been clear about how they will ensure that those mechanisms are ready to go after 29 March, and indeed after the transition period.
As the head of consumer policy at Citizens Advice said in evidence to the Justice Sub-Committee of the House of Lords Select Committee on the European Union,
“It is one thing to say that the rule of law applies, but if there is no right to compensation when travelling abroad, or purchasing from an EU trader, if the cross-border agreements are not there to back it up it is not worth as much as it would suggest.”
Does the Minister have any further details about that? On the regulations, what mechanisms will be in place after Brexit to ensure that any differential changes in future textile product arrangements are enforced accordingly? What impact will any divergence in regulation have on consumer rights and confidence in the UK?
Although not explicitly stated, the regulations will be enforced by local trading standards bodies, but cuts to local authorities since 2010, which have led to some local authorities’ services being cut by in excess of 50% according to a Chartered Trading Standards Institute study, have diminished trading standards’ ability to properly inform and enforce consumer protection laws. There has been a 56% reduction in the number of trading standards officers from 2009 to 2016 according to the National Audit Office, leaving some services with just one qualified officer.
What assessment has been undertaken of the impact of the draft order’s increasing the workload of already financially stretched local trading standards services following the UK’s exit from the EU? Will further funds will be allocated to trading standards to accommodate the extra workload? The Office for Product Safety and Standards is a step forward.
Perhaps I was not listening to the Minister as carefully as the hon. Lady, but the Minister told us that the European Commission does not enforce the EU regulations itself. Those powers are domestic, so the draft order will not actually present a change on the ground.
My point is that the 50% cuts to trading standards are already having an impact on protecting people’s rights in this country. The Minister has given me absolutely no evidence that there will be further funding. I ask her to consider that, because these services are already very pressed. I have already pointed out that many local authorities have only one officer. On the Whirlpool issue, Peterborough has been pulled out because it has become the country’s major trading standards service for dealing with those very dangerous products.
Finally, is the testing infrastructure and particularly expertise in place to undertake the testing of textiles? If so, will further funds be required to sustain an adequate level of testing following the UK’s exit? I hope that the Minister will be able to answer the questions raised.
The draft regulations are made under the powers conferred by the European Union (Withdrawal) Act 2018. They form part of the wider programme of work to adjust our existing legislative framework in readiness for leaving the EU.
As the talks progress, we have made a decisive step forward. We have agreed in principle the terms of the UK’s orderly exit from the EU, as set out in the withdrawal agreement. We have also agreed the broad terms of our future relationship, as set out in the outline political declaration. This puts us close to a Brexit deal—a deal that realises the benefits of Brexit and lets us focus on the big domestic issues that face our country. While we remain optimistic of reaching a Brexit deal that is of mutual benefit to the UK and the EU, it is important and prudent to have in place a regulatory and legislative framework should we leave without a deal. This draft instrument ensures that.
I have demonstrated that the draft regulations are necessary to ensure that textile labelling requirements continue to work effectively in the UK immediately after exit day. The draft regulations deliver vital certainty and stability for consumers and businesses alike. Consumer spending is, and will continue to be, critical to the United Kingdom’s economy. In 2016, retail sales stood at £800 million for textiles stores and £40 billion for clothing stores, as I have already mentioned.
Let me respond to some of the questions raised by the hon. Member for Sheffield, Brightside and Hillsborough. As I mentioned in response to interventions, the Government are committed to the consistency and continuation of the protection of consumers. In the consumer Green Paper, we are looking at ways to strengthen that and to make sure that we operate in the best way possible for the safety and rights of UK consumers. I am sure that in the future I will bring forward further measures that make sure that we protect and benefit consumers in this country.
On the mechanisms in the draft regulations to change the retained EU regulation, any changes would be made by the Secretary of State and would need to be made through a statutory instrument. The hon. Lady talked about enforcement. I have tried to outline for the Committee the fact that the Government are extremely committed to the protection of consumers. I am committed to it, as the Minister responsible.
Trading standards has an important role in enforcement and in giving consumers the comfort they need in relation to accepting that products placed on the market meet the regulations. One of my priorities and one of the Government’s priorities is to make sure that we work strongly as we can to enforce the rules. I am sure that as we leave Europe we shall look at other ways to make improvements for consumers and offer business the comfort of being able to get advice on regulations, and of the fact that the regulations can be enforced.
The hon. Lady also mentioned testing. Today we are agreeing on the regulations going into UK law for exit day. Under the new regulations the testing regime will come under the Secretary of State and we will need to issue further guidance on the UK testing formula. She is right about the highly technical issues relating to textile testing. We would have to make our approach to that extremely clear.
I hope that I have been able to answer some of the hon. Lady’s questions. I think that what has been said highlights the importance of the statutory instrument in continuing to set out clearly the requirements for textile labelling for the UK market, and in ensuring the smooth functioning of the sector.
Question put and agreed to.
Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
The Committee consisted of the following Members:
Chair: Mr Adrian Bailey
† Afriyie, Adam (Windsor) (Con)
† Bacon, Mr Richard (South Norfolk) (Con)
† Clark, Colin (Gordon) (Con)
† Cryer, John (Leyton and Wanstead) (Lab)
† Dodds, Anneliese (Oxford East) (Lab/Co-op)
† Duguid, David (Banff and Buchan) (Con)
† Eagle, Maria (Garston and Halewood) (Lab)
Fitzpatrick, Jim (Poplar and Limehouse) (Lab)
† Flint, Caroline (Don Valley) (Lab)
† Glen, John (Economic Secretary to the Treasury)
† Gray, Neil (Airdrie and Shotts) (SNP)
† Heald, Sir Oliver (North East Hertfordshire) (Con)
† Johnson, Gareth (Dartford) (Con)
† Keegan, Gillian (Chichester) (Con)
† Morris, Anne Marie (Newton Abbot) (Con)
† Smith, Jeff (Manchester, Withington) (Lab)
† Walker, Thelma (Colne Valley) (Lab)
Anwen Rees, Kenneth Fox, Committee Clerks
† attended the Committee
Second Delegated Legislation Committee
Monday 19 November 2018
[Mr Adrian Bailey in the Chair]
Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018.
May I first say what a pleasure it is to serve under your chairmanship, Mr Bailey? Claims management companies offer advice and other services to consumers making claims for compensation. The Government have been consistently clear that a well-functioning CMC market provides vital support for consumers, who may otherwise be unwilling or unable to bring a claim for compensation themselves, and that CMCs benefit the public interest by acting as a check and balance on business conduct.
Robust regulation is important, as CMCs handle millions of pounds’-worth of consumer claims. However, there is significant evidence of misconduct in the CMC sector. Between 2015 and 2017, 443 warnings were issued to CMCs and 135 licences were cancelled by the regulator. As a result, consumers are distrustful of CMCs—76% reported to the legal ombudsman that they are not confident that CMCs tell their customers the truth.
The majority of stakeholders feel that the current regulator lacks sufficient powers and resources to supervise the market properly. That is why the Government are committed to strengthening claims management regulation. The draft order delivers on that objective by making provisions for the transfer of claims management regulation to the Financial Conduct Authority.
The provisions in the Financial Guidance and Claims Act 2018 lay the framework for strengthening the regulation of CMCs under the FCA. The draft order implements that framework by transferring the existing Compensation Act 2006 regulatory regime to the FCA and the Financial Ombudsman Service, with some changes, including extending claims management regulation across Great Britain for the first time. Consumers in England, Wales and now Scotland will have the same protections with regard to CMCs.
The draft order creates seven different permissions for claims management activity. That will make it possible for the FCA to take into account the different types of work and activities across each sector. Each CMC will require separate permissions, depending on the specific activities it wishes to undertake and sectors it wishes to operate in. Depending on which sectors they operate in, some CMCs may require just one permission while others may require several. That replaces the current regime, with a single permission covering all regulated conduct across any combination of activities and sectors.
We have kept the sectors that were regulated by the Claims Management Regulator—personal injury; financial products and services; employment issues; industrial and criminal injuries; and housing disrepair. We have focused on those sectors with the greatest potential for detriment associated with unregulated CMCs or a high number of spurious claims. The majority of claims management activity is in the financial services sector, which accounted for 74% of CMC turnover in 2017-18. We of course recognise that some sectors that CMCs operate in are not named in the draft order. We will monitor developments closely and consider how the Government can best meet that challenge.
The draft order sets out who is exempt from regulation by the FCA for the claims management activity they carry out. The issue of the exemption of solicitors came up during the passage of the Financial Guidance and Claims Act 2018, when some concern was expressed that unscrupulous CMCs would attempt to circumvent regulation by employing solicitors, who are exempt from regulation by the Claims Management Regulator, to carry out their claims management activity. I can reassure the Committee that solicitors are already strictly regulated by the Solicitors Regulation Authority for their work, which is often very similar to claims management work. The purpose of the exemption in respect of their claims management activity is to ensure that solicitors are not unduly burdened by dual regulation. That exemption applies only to the claims management activity that a legal professional carries out in their ordinary work as a solicitor.
The order includes vital provisions to ensure that the transition of regulation is a smooth and orderly process. A temporary permissions regime will be in place after the transfer on 1 April 2019. That will allow firms that have notified the FCA of their desire to transfer to the new regulatory regime to continue to benefit from authorisation until their full permission application has been determined. That should allow CMCs time to adjust to the new regulatory regime.
We are confident that the provisions of the 2018 Act, implemented by the order, will allow the FCA to introduce a regulatory regime that enhances both consumer protection and professionalism in the sector. The Government are confident that the FCA will be well placed and that it has the relevant resources to regulate the sector effectively. Bringing regulation under the remit of the FCA brings its expertise in conduct regulation. In addition, it will be able to leverage its strong existing relationships with other financial services organisations, such as the Financial Ombudsman Service, which will handle complaints about CMCs, and the Information Commissioner’s Office, which enforces the restrictions on cold calling by CMCs.
The Government believe that the new regime defined in the order will bring proportionate and professional regulation to the CMC sector. The Government hold firm to the belief that a well-regulated claims management sector can provide an important service to consumers by assisting them to claim the redress they are due. I hope that colleagues will join me in supporting the draft order, which I commend to the Committee.
It is a pleasure to serve with you in the Chair, Mr Bailey, and to be sitting across from the Minister once again—it is not the first time I have done so in recent weeks, and I am sure it will not be the last.
As the Minister rightly described, this delegated legislation follows on from the Financial Guidance and Claims Act 2018. Clearly, we are not discussing that Act today— we are focusing on the provisions of the order—but I did note that the Minister mentioned cold calling only right at the end of his remarks. Of course, while we are discussing regulatory arrangements and regulatory responsibility, we need to talk about exactly what the responsibilities could be and not just who will discharge them.
A huge element of debate when the 2018 Act was going through the House was about when a ban on cold calling would be implemented. That surely is the elephant in the room when we are talking about this issue. The Minister referred to the activity of the ICO in relation to cold calling, but in the Public Bill Committee a number of hon. Members stated why they felt that the current regulatory regime was not fit for purpose in that regard. It would be very helpful to me, and indeed to other members of this Committee, if the Minister could please indicate exactly what his Department has been doing to move us towards a cold calling ban. We have discussed many times appalling cases in which vulnerable people had been targeted by CMCs, often through cold calls, so I hope that the Minister will return to that issue in a moment. [Interruption.] I am grateful to him for saying yes from a sedentary position and being willing to comment on it.
As the Minister explained, the draft order essentially transfers regulatory responsibility for the activities of CMCs to the FCA. That appears to be appropriate. The measure specifies exactly which forms of activity will be regulated. As the Minister rightly said, it will give us a more finely grained regulatory apparatus, which appears to be highly sensible. Of course, we are talking about some companies that in recent years have made enormous profits—super-profits, some might say—in respect of certain types of claims. I am sure that all of us, as Members of Parliament, have been approached by constituents who believe that they have not been treated correctly by claims management companies, and many of the cases involve a lack of communication.
Of course, on the other side of the coin, CMCs have taken aggressive action to push on to people the opportunity to make a claim, whether that is legal or not. In that regard, it is worth reflecting on what has happened in relation to travel claims, especially for holiday sickness, which have increased fivefold since 2013. Arguably, that is having an impact on the price of holidays in some sectors, which affects everybody, whether they have engaged in that activity or not, so it is right that we take action and beef up the regulation.
I have two questions about how exactly the Government envisage the new scheme operating. First, on the transfer of regulatory responsibility, the Minister set out that there will be an interim regime, but I want to focus on how that will be funded. In particular, how will the skilled staff that we surely need to discharge the regime be brought into the FCA? As I understand it, the scheme will be self-funding through the mechanisms detailed in the 2018 Act, so the £60 million or so that it will cost to deliver will be raised from the claims management companies. As the Minister mentioned, however, the new regime starts on 1 April, so how will the FCA obtain the funds in the interim? Are we confident that it will have sufficient funds?
The FCA is being asked to adopt a new responsibility at the very time it might have to deal with a very high regulatory workload in the case of a no-deal Brexit, as we have discussed in this room many times. It would be useful to hear how that activity will be paid for and resourced in the run-up to the start of April. It would also be helpful to hear more from the Minister about how the FCA’s activity in this regard will be scrutinised and overseen by his Department and in the House. We are talking about the FCA being able to put caps on fees for CMCs, which I am sure many of us would strongly support, but how will that process of oversight operate?
Secondly, the Minister rightly mentioned that not all actors delivering claims management will be specifically covered by the FCA’s regulatory regime. He mentioned the situation for solicitors, but in that connection we could also have discussed the situation for others in the legal profession, as covered by the Law Society of England and Wales and the Law Society of Scotland—the hon. Member for Airdrie and Shotts may well speak to the regime in Scotland. I would find it helpful to hear from the Minister—perhaps through a letter if he cannot talk about it in Committee—what discussions the Government have had with those actors.
Some of us might say that the responsibilities placed on the shoulders of some of those bodies, for example in relation to money laundering, have not always been discharged to the fullest possible extent. I appreciate that the Government do not want to tread on professional toes, but surely we need to find out about the engagement that is going on, if any, to try to ensure that those bodies discharge their responsibilities appropriately.
It is a pleasure to serve under your chairmanship, Mr Bailey. I was involved in the passage of the Financial Guidance and Claims Act 2018, so I recognise much of what we are discussing. Mostly, the measure is necessary and welcome, not least because the Government’s brief highlights that 76% of the public have said that they do not trust claims management companies. Taken with the scandals around the RBS global restructuring group and the mis-selling of payment protection insurance, that highlights the desperate need to beef up the UK Government’s failing regulatory framework to ensure that consumers are treated fairly. Hopefully the FCA will do a better job of that than the Ministry of Justice has to date.
I support much of what the hon. Member for Oxford East has said, including her call for appropriate resources to be directed to the FCA, given its ever-growing burden of responsibility. She also spoke about cold calling, on which I would welcome the Minister’s response. That is something that my constituents and I are plagued by on a daily basis. I know that the Scottish Government passed a legislative consent motion for the 2018 Act, but I would appreciate an update on what discussions about this SI have taken place with the Scottish Government, as well as with actors such as the Law Society of Scotland and others that will be directly impacted.
In conclusion, although much of this is to be welcomed and supported, the five-year wait for a monitoring review is too long. We need earlier monitoring to ensure that what has been done has been done correctly. I hope that the Minister will look at coming back to the House on a voluntary basis to report on the progress of the measures in the Act and this SI, to make sure that this is being done appropriately.
It is a pleasure to serve under your chairmanship, Mr Bailey. I have two or three questions for the Minister. First, in relation to cold calling and the general consensus that there is a great deal of mistrust of CMCs—even though, as the Minister said, there is a place for the CMC model—can the Minister explain what the current status of a person making a cold call would be? I speak from personal experience, because for some reason they have recently started targeting me. Not having experienced it much before, I must have had six or a dozen calls in the past five months, and for some reason, they always refer to an accident on 24 January or a date in early March. I remember thinking at the time, “Is the person making that call currently committing an offence and, if not, will they be under these regulations?” If they refer to an accident that did not take place, some sort of misleading or fraud is plainly going on. Is a crime being committed, or will a crime be committed, either by the person who makes the telephone call or by the promoters or owners of the business? If not, perhaps the Minister can explain why not.
Secondly, I refer the Minister to the BBC magazine programme “You and Yours”, which had an item today—perhaps not coincidentally, because this instrument is before the House today—that included the director general or executive director of the trade body that represents CMCs. They pointed out that many banks were misleading their own customers when they inquired directly whether they had payment protection insurance claims. Those people were told categorically by a series of high street banks that they did not have claims, but discovered subsequently that they did. In one case, a listener had phoned up asking whether he had a claim, knowing full well that he had PPI because he had the piece of paper from 20 years ago, and was told by the bank that he did not. He later got the obligatory apology from the high street bank. My second question is this: to what extent, if at all, does the instrument cover the banks? I assume that they are covered separately by the FCA, but perhaps the Minister could confirm that.
Thirdly, I was interested to hear that solicitors are exempt from the regulations. I was particularly prompted to think about this when the hon. Member for Oxford East mentioned the figure of £16 million, which I understand to be the cost of the scheme. The reason is that some years ago, when the coalminers’ compensation scheme was going on, there was a solicitor in Doncaster, in Yorkshire, who was heavily involved in processing claims for people who had been made medically unfit for work or had become ill in one way or another through working in a coalmine. That solicitor was paying himself a salary of £16.7 million a year. I remember that well, because I got the permanent secretary of the Department of Trade and Industry, as it then was, to confirm on the record that the Government’s policy in managing the scheme was not to make multimillionaires of solicitors in Doncaster, although that was its effect.
I feel that I have to intervene. The hon. Gentleman is right; not just in Doncaster but in other coalmining areas solicitors took advantage of the situation. Even though the Government were paying them for their services in handling the claims, they took compensation money from the individuals concerned. Does he agree that it is important that the Government look at every possible scenario where such loopholes can be found? If we do not think about loopholes ahead of the game, I am afraid that some of these characters will find them.
That is precisely my concern. In my latter years on the Public Accounts Committee, where I was sent to the salt mines for 16 years, the right hon. Lady—I will call her my right hon. Friend for these purposes—served alongside me. Indeed, we went jointly to Commonwealth workshops overseas.
Order. I could never have believed that a debate on claims management companies could get so interesting. However, I feel that the debate is moving off the core issues. If we could return to them, that would be helpful.
I agree, Mr Bailey. I will make one further point, to which the right hon. Lady alluded. We cannot assume that the solicitors who continue to engage in the process and are exempt because, in the words of the Minister, they are regulated separately through the Solicitors Regulation Authority, will all be as high-minded as one would hope they would be as solicitors of the Supreme Court. They might not be. My concern is not that we have dual regulation. Like the Minister, I very much hope that we avoid dual regulation. My concern is that we avoid creating opportunities for regulatory arbitrage.
For my sins, I think I served in Committee for both the Compensation Act 2006 and the Legal Services Act 2007. The point is that claims management companies were brought under regulation in 2006. Solicitors got a hefty improvement, or increase, in their regulation the following year.
I understand my right hon. and learned Friend’s point. He speaks with authority as a former Solicitor General. I hope that the Minister can reassure us that any regulation by the Solicitors Regulation Authority or by the Financial Conduct Authority for what is essentially the same activity but carried out by different parties—whether solicitors or others—should mirror and match, so that opportunities for regulatory arbitrage do not emerge.
I endorse the earlier point about a five-year review period, which seems to me to be generous, if not naive. We should keep a close watch on it. With that, I will make no further remarks.
It is a pleasure to serve under your chairmanship, Mr Bailey. I, too, think that claims management companies are intensely interesting for various reasons.
I wonder whether the Minister can give some assurances about how he expects the regulation to improve over the next period. I concur, as I am sure we all do, that regulation of these companies ought to be much improved to enforce standards, and to increase consumer protection and consumer confidence. The Minister read out the statistics in his opening remarks. One hears about a lot of industries, but not often ones where 76% of their consumers do not believe a word they say. That is extremely poor.
My constituents’ experience of many of these companies is that they set out to rip people off. There is no more careful way of putting it. They are interested in making money by drumming up claims, some of which are dubious in the extreme and some of which should never be brought. In other cases, the consumers who ought to be getting the damages end up with far less than they were led to believe they would get, and most of the money goes to the claims management company.
I concur that better regulation is a good policy aim. Obviously, following the review it has been decided that this is a better way of doing the regulation, but will the Minister set out why he believes the Financial Conduct Authority will be so much better than the legal services ombudsman at dealing with such matters? Can he indicate what he expects to see in terms of compliance and consumer confidence?
I concur with the points made by hon. Members on both sides that a situation such as current one, five years is far too long to leave it before checking whether the intended improvements are working. There is no point in shifting the regulation from one place to another if it is not going to be significantly better and if enforcement is not going to be significantly increased. If the fees that are charged and the permissions that need to be obtained by the companies are not to be used to make a real difference in enforcement, what is the point? It shifts around the arrangements without making much of a difference.
Although there is, I think, agreement across the Committee that the measure is generally good—I was not involved in the legislation, so I did not hear all of the debates—what is it about regulation by the FCA instead of the legal services ombudsman that will be so much better? The industry certainly has conduct issues, including non-compliance with the existing rules, misleading advertising, information asymmetries, large volumes of speculative and unnecessary claims, and phoenixing of unscrupulous companies, which I assume means the resurrection of dodgy companies after they have taken themselves out of the way to avoid their obligations, and they suddenly reappear with a similar name. That is a pretty large charge sheet of what is going wrong in the industry. Why should we think that the move to the FCA under the regime set out in the order will make an enormous difference? Over what period of time does the Minister expect it to do so?
I thank the Committee for the serious questions and the range of issues raised. I will do my best to respond to all the questions. I will start with the hon. Member for Oxford East, who asked about progress on the cold calling plan. The Chancellor announced it in the Budget and laid a statutory instrument two days later banning cold calling in relation to pensions. It will be debated later in the year and hopefully will be in force early in the new year. I texted her counterparts on the Labour Front Bench to make them aware of that.
I will move on to that in a moment. I also want to touch on the point about the ICO as an enforcer, and why not the FCA. There are two debates here. The hon. Member for Garston and Halewood asked about the FCA’s suitability. One issue that has come up—my hon. Friend the Member for South Norfolk mentioned it as well—is the ICO’s experience and powers to enforce the restrictions on CMC cold calling. The ICO can levy fines of up to £500,000 for breaches of the Privacy and Electronic Communications (EC Directive) Regulations 2003. It has the international reach to enable enforcement action when companies are operating abroad, and perhaps calling my hon. Friend.
The ICO and the FCA work together to establish whether the claims management company has FCA authorisation to carry out marketing activity. The FCA will be able to consider whether the CMC is in breach of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and will sanction appropriately. It is really about the concentration of the FCA’s skills and experience in this domain.
I thank the Minister for explaining where the Government are trying to move to in terms of CMC cold calling, which was a hot topic of debate during the passage of the Financial Guidance and Claims Act 2018. What he has described does not go as far as banning CMC cold calling, although he has banned it for pensions. Why is he not banning it? That is what we are getting plagued with. The hon. Member for South Norfolk and many others will be in the same position as me.
The Government believe that claims management companies fuel speculative claims for redress, that consumers struggle to understand the services that they offer, that there is a lack of transparency around how they operate, and that they offer poor value for money.
Good, because I would still like to hear an answer to whether, in making the phone call, the person, who plainly has my name and number and who refers in the opening sales pitch of the conversation to an accident that did not take place, is committing a crime now, or will be under the new regulations.
I will move on sequentially through the points made.
On the question about why the Government are not banning all cold calls, which I think is behind all this, we are determined to tackle CMC cold calling and pensions cold calling, but a balance needs to be struck between ensuring that consumers are adequately protected and providing the right conditions for the legitimate direct marketing industry to operate. I recognise that there is a debate about the extent of the coverage and which sectors should be covered, but we took a view about what should be included at this time so that we could make progress and lay the order. We are actively prepared to consider further sectors that should come under the order.
The hon. Member for Oxford East raised the issue of the interim regime’s funding. The FCA is making a one-off levy from April 2019, and it will continue to collect fees from industry. Having recently closed a fees consultation, it will release a policy statement later this year about the funding mechanism for that transition period.
I asked specifically about the resources available to the FCA for creating that interim regime at a time when it is under enormous pressure in other ways. Is it to be expected to fund all that through its existing budget and receive that levy only after 1 April? Surely that could pose some problems.
The FCA has made provision for the funding of the activity, and it will make a policy statement later this year about how it will work after April.
I was asked about the impact of new FCA regulation on the fees, so I will give more detail. To cover the costs of the transfer, the firms will be required to pay a one-off levy spread over two to three years, which will be collected by the FCA. Clarification will be given later about the regime following that.
On the point about solicitors’ exemption, which goes to the point about regulatory arbitrage raised by my hon. Friend the Member for South Norfolk, there are strict controls in professional regulation under the SRA. The intention has been to have a tougher regulatory regime for CMCs without burdening solicitors with unnecessary regulation, because we believe that they are robustly regulated. Whether the two are aligned is a legitimate issue that needs ongoing review. We are concerned about the risks. The order is designed to close the potential loophole through a provision that removes the exemption for legal professionals if their claims management activity is not part of their ordinary legal practice. That is what has been happening: they have not been subject to FCA oversight because, in effect, they have been doing something that they could say was under their regulator but that the FCA has nothing to do with.
The FCA and SRA have therefore committed to reviewing their memorandum of understanding where it sets out how they will work together, to ensure that the regulation is effective and avoids precisely the matter that my hon. Friend raised.
In relation to FCA scrutiny, there is a statutory duty on the FCA to report to the Treasury, and that will cover CMC activity. The FCA will do that regularly—on an annual basis. Additionally, there are informal, three-weekly conversations between me and the FCA, and obviously I will be subject to scrutiny in the House. That mechanism is a real one: I am obviously pushing the FCA to get this right and it is keen to get it right.
The hon. Member for Airdrie and Shotts asked about the conversation with the Scottish Government. During the passage of the Bill that became the Financial Guidance and Claims Act, the Scottish Government confirmed that it would be proportionate and relevant to bring Scottish CMCs within regulation. This Government have had further, ongoing discussions with the Scottish Government and the Law Society of Scotland throughout the drafting of this legislation, and we are very happy that they are, obviously, included in it.
My hon. Friend the Member for South Norfolk asked about the current status of someone making a cold call. The 2018 Act prohibits anyone from making an unsolicited marketing call in respect of claims management activity. As I have said, that is enforced by the ICO, which has the power to levy large fines and has international reach. Under this statutory instrument, any advertising of claims management services must have prior authorisation by the FCA. Breaching the regulations and failure to have FCA authorisation will be an offence. There has been greater clarity about telephone numbers having to be published, but the ICO is the place where my hon. Friend could take the calls that he is facing.
I am grateful to the Minister for being so generous with his time. May I try to clarify something? Surely we are talking about two different forms of authorisation. This may have been in the Minister’s mind anyway when he was talking; I am not sure. There is authorisation by the regulator, but also by the person who is being rung by the claims management company. Surely they are two quite different things.
Somebody should not be called unless they have given explicit permission to be called, so it is an illegal act if that permission has not been given.
My hon. Friend the Member for South Norfolk asked whether this regulation covers banks. No, they will be covered by their FCA authorisation and supervision, so they are covered but not under these provisions.
It would be a criminal offence, but I will be happy to clarify the situation exactly in a letter to my hon. Friend subsequently. I think that I have covered the point about the SRA and regulatory arbitrage.
A point was raised about other sectors—this point came through a lot in the passage of the main legislation —by the hon. Member for Garston and Halewood. The Government are actively examining the extent of the coverage. According to my initial statistics, in 2017-18 financial products and services claims made up 79% of CMC turnover and personal injury made up all the remaining turnover. A point that has often come up is about coalminers. If they do not already come under personal injury, we will be able continually to observe, and possibly extend, coverage, based on whether a discrete additional category is needed.
In relation to the next steps on this regulation, if the Committee approves the order today, the regulation will transfer to the FCA on 1 April 2019. The FCA regularly updates its rulebook. It is a robust regulator, which I have frequent dialogue with, and is subject to scrutiny.
Does my hon. Friend agree that since 2006 there has been a problem in finding the right regulator for CMCs? The advantage of the FCA is that it is a big regulator that already covers a lot of businesses and has a lot of capacity to tackle the area, unlike the original trading standards-type regulation that was introduced in 2006. It was always intended that what the MOJ did would be a temporary measure. Is it not to be welcomed that the area will now have a robust and substantial regulator?
I entirely agree. That is the purpose of the draft order, which will enable claims management regulation to be transferred to the FCA and the Financial Ombudsman Service. Given the breadth of their existing regulatory oversight, that will satisfy the concerns of those who want a more robust regulatory regime in place. Consumers will benefit from a well-regulated and professional claims management industry. The industry can provide important services to some consumers, but there needs to be confidence in how difficulties are handled.
I do not believe that the Minister has adequately addressed the point raised about the five-year wait for monitoring. He says that he is accountable to the House. Of course he is, but it would be far more useful if he could lay progress reports before the House and have more frequent voluntary reviews to allow proper scrutiny of progress.
My view is that there are clear categories that the Government have been challenged on with respect to inclusion. There was a judgment to be made about what was to be included in the order at this point in time, but I would seek to make regular reports to review progress—far more frequently than every five years, which is the formal requirement. It would certainly be within the FCA’s remit to introduce changes far more regularly; if the hon. Gentleman reflects on the FCA’s work on high-cost credit, he will agree that its interventions have led to more rapid changes. My expectation is that the regulator will respond to market changes and consider the appropriateness of extending to additional categories.
I hope that the Committee has found this evening’s sitting informative and will support the order.
Question put and agreed to.
That the Committee has considered the draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018.