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House of Commons Hansard
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General Committees
04 February 2019

Delegated Legislation Committee

DRAFT DEVOLVED INCOME TAX RATES (CONSEQUENTIAL AMENDMENTS) ORDER 2018

The Committee consisted of the following Members:

Chair: Mike Gapes

† Bebb, Guto (Aberconwy) (Con)

† Campbell, Mr Ronnie (Blyth Valley) (Lab)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Double, Steve (St Austell and Newquay) (Con)

† Edwards, Jonathan (Carmarthen East and Dinefwr) (PC)

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

† Hill, Mike (Hartlepool) (Lab)

† Jones, Susan Elan (Clwyd South) (Lab)

† McLoughlin, Sir Patrick (Derbyshire Dales) (Con)

† Merriman, Huw (Bexhill and Battle) (Con)

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

† Spelman, Dame Caroline (Meriden)

† Stevenson, John (Carlisle) (Con)

† Stride, Mel (Financial Secretary to the Treasury)

† Walker, Thelma (Colne Valley) (Lab)

† Whittaker, Craig (Lord Commissioner of Her Majestys Treasury)

† Yasin, Mohammad (Bedford) (Lab)

Yohanna Sallberg, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

Monday 4 February 2019

[Mike Gapes in the Chair]

Draft Devolved Income Tax Rates (Consequential Amendments) Order 2018

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I beg to move,

That the Committee has considered the draft Devolved Income Tax Rates (Consequential Amendments) Order 2018.

It is a pleasure to serve under your chairmanship, Mr Gapes. The order makes changes to ensure that Welsh taxpayers obtain certain tax reliefs, or are taxed on certain types of income, at the appropriate Welsh rates once Welsh rates of income tax come into effect. The amendments follow as closely as possible the situation already in place for Scottish taxpayers, providing consistency of treatment of taxpayers across the United Kingdom to the extent that the different devolution settlements allow. The order makes two parallel amendments affecting Scottish taxpayers. These two changes make it certain that Scottish taxpayers will obtain tax reliefs or be taxed at the appropriate Scottish rates.

The amendments are minor and technical and affect a small number of people in a limited set of circumstances. The Wales Act 2014 introduces Welsh rates of income tax, which will be implemented in April 2019 and mean that anyone living in Wales and paying income tax will, from 6 April next year, pay the new Welsh rates. Members of Parliament for Welsh constituencies, Assembly Members and Members of the European Parliament for Wales will also pay Welsh rates, regardless of where they live. The Welsh rates will be set by the National Assembly for Wales and will apply to the non-savings, non-dividend income of Welsh taxpayers. Her Majesty’s Revenue and Customs will continue to collect income tax from Welsh taxpayers as usual.

The introduction of the Welsh rates will have implications for other parts of the income tax system. This instrument makes consequential amendments to those aspects of the income tax regime that are not devolved, to ensure that taxpayers obtain reliefs or are taxed at the appropriate rates.

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Anybody reading the explanatory notes will understand that a tax-sharing arrangement between the British Government, Welsh Government and Scottish Government, which is what these measures deal with, is a complicated business. The driver of tax devolution was accountability for the devolved institutions and to incentivise them to develop the economies in Wales and Scotland. If those are the two drivers—accountability and incentivisation—would it not be better to devolve a tax in its entirety than to have a tax-sharing arrangement?

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I think that is an ingenious attempt to open up a wider debate about the provisions of the 2014 Act and the basis on which taxation, or income tax in this instance, will be devolved. However, as the hon. Gentleman will be aware, what we are about this afternoon is some of the consequential changes that need to be made to UK-wide income tax legislation.

The changes made by this instrument will establish that Welsh taxpayers receive tax relief or tax credits at the appropriate Welsh rates on their pension contributions to relief-at-source pension schemes; on their contributions to charities under gift aid rules; from settlor-interested trusts; or when calculating deficiency relief available when a life insurance policy ends. The changes will also ensure that Welsh taxpayers are taxed on income from some trusts and deceased estates, or subject to certain special tax charges, at the appropriate Welsh rates. The amendments will provide for the Welsh basic rate to be used when calculating the tax reduction available under the tax allowance for married couples and civil partners who are Welsh taxpayers.

In the case of charitable donations under gift aid rules and residuary income from deceased estates, we are taking this opportunity to make similar changes to ensure that Scottish taxpayers are taxed or entitled at the correct rate in the event of the Scottish basic rate differing from that in the UK.

HMRC is on track to deliver the Welsh rates of income tax in time for the start of the next tax year, as required by the 2014 Act. These minor technical changes are necessary to ensure that all Welsh taxpayers continue to pay income tax or obtain relief at the correct rates following the introduction of the new Welsh rates and that the devolved income tax rates operate as intended. I commend the order to the Committee.

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It is a pleasure to serve on this Committee with you in the Chair, Mr Gapes. I am grateful to the Minister for his helpful explanation. As he set out, this is a relatively straightforward set of measures that are consequential on the 2014 Act and the current situation with Scottish income tax. We obviously needed to have some of this secondary legislation laid before the House, to ensure that income tax reliefs, deductions and PAYE continue to operate with the Welsh rates of income tax component and also with the changes that recurred in the Scottish situation.

Obviously, this instrument is in keeping with the established procedures relating to devolved powers and we will therefore not oppose it. However, I have one question for the Minister—it might be easier for him to write to me afterwards—about the arrangements for gift aid donations. The explanatory note states that the approach being taken will ensure that no donor will be made worse off as a result of having made a gift aid donation. Similarly, the impact assessment states that there will be no or negligible impact on charities as a result of these measures. Presumably, however, there would be some impact on the Exchequer, given that there is an assumption that individuals would be treated in practice as if they were still UK basic rate taxpayers, and obviously we already see some changes in the Scottish system around the income tax structure. It might therefore be helpful to have a little more information on this. However, that is really the only question I have about these measures.

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It is a pleasure to respond to the hon. Member for Oxford East on this occasion, because normally she has 20 or 30 questions. Today there is but one, which is a great relief—although that denies me the opportunity of selecting which of the 20 or 30 questions I will respond to. I will respond directly to the one question that she has put, on the matter of gift aid, which is a perfectly reasonable question.

The way that gift aid will operate under these circumstances will be that the charity, or the recipient, of the gift will receive relief at the UK rate, that being 20%, as our current basic rate tax is set at that level. The relief that will fall due to the donor under those circumstances, given that they would be a Welsh taxpayer, would be the difference between that and whatever the Welsh higher tax rate or additional tax rate was at that time. At the moment there is no change about to occur due to the decisions taken by the Welsh Assembly in respect of its own tax rate. However, I will write to the hon. Lady on her question about the potential Exchequer impacts from the way in which that system works. On that note, I hope that the Committee can agree to the order.

Question put and agreed to.

Committee rose.

Draft Data Protection (Charges and Information) (Amendment) Regulations 2019

The Committee consisted of the following Members:

Chair: Mr Peter Bone

Bardell, Hannah (Livingston) (SNP)

† Brereton, Jack (Stoke-on-Trent South) (Con)

† Bryant, Chris (Rhondda) (Lab)

† Byrne, Liam (Birmingham, Hodge Hill) (Lab)

† Cartlidge, James (South Suffolk) (Con)

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

† Fletcher, Colleen (Coventry North East) (Lab)

† Glindon, Mary (North Tyneside) (Lab)

† Herbert, Nick (Arundel and South Downs) (Con)

† James, Margot (Minister for Digital and the Creative Industries)

† Jones, Mr Marcus (Nuneaton) (Con)

† Kyle, Peter (Hove) (Lab)

† Latham, Mrs Pauline (Mid Derbyshire) (Con)

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

† Pawsey, Mark (Rugby) (Con)

† Smeeth, Ruth (Stoke-on-Trent North) (Lab)

† Stephenson, Andrew (Vice-Chamberlain of Her Majesty's Household)

Nina Foster, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee

Monday 4 February 2019

[Mr Peter Bone in the Chair]

Draft Data Protection (Charges and Information) (Amendment) Regulations 2019

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I beg to move,

That the Committee has considered the draft Data Protection (Charges and Information) (Amendment) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Bone.

The purpose of the amendment regulations is to implement a new exemption from the annual data protection charge for elected representatives, candidates for election and Members of the House of Lords. Any individual or organisation that decides what happens with the personal data of others is considered a data controller under the Data Protection Act 2018, and that includes many of us in this room, as we have responsibility for often highly sensitive personal information about our constituents.

This House debated the Data Protection (Charges and Information) Regulations 2018 in March 2018 and they came into force on 25 May 2018. The new charging structure they introduced provides increased funding for the Information Commissioner’s Office, which supports the office’s vital work in protecting the information and privacy rights of individuals. Individuals’ personal data is increasingly becoming a commodity in its own right and it is therefore more important than ever that we have a strong and adequately resourced regulator to investigate any data controllers who fail in their data protection responsibilities.

Under the regulations, all data controllers are required to pay an annual data protection charge, unless a relevant exemption applies. There are three levels of charge: micro-organisations, including individuals, pay £40; small and medium organisations pay £60; and large organisations pay £2,900. It is not always appropriate or fair for data controllers to be subject to a charge, which is why the Government have created a number of exemptions. The exemptions ensure that we maintain a fair and flexible framework and do not impose undue financial burdens on, for example, small and medium-sized businesses.

When the 2018 regulations were debated, the Government committed to holding a public consultation on the exemptions, which included the consideration of a new exemption for elected representatives. The consultation, which took place last summer, also sought views on exempting prospective candidates for election as well as Members of the House of Lords, and the Government response was published in November 2018. The consultation exercise was a success, with the Department receiving 430 responses from the public, private and third sectors, as well as from individuals. The consultation demonstrated that there was public support for the current exemptions. It also demonstrated broad public support for the proposed new exemption for elected representatives, prospective candidates and Members of the House of Lords, and it is that exemption that is the subject of the amendment regulations before the Committee.

Dealing with personal and often highly sensitive data is central to the role of elected representatives. A vital part of our duties is to help individuals, and that inevitably involves receiving and using personal data. That is applicable not just to those of us who serve in Westminster or the devolved Parliaments, but to local representatives—councillors, police and crime commissioners—and representatives across all tiers of Government. The Government believe that imposing an annual data protection charge on individuals who are fulfilling their democratic duties to the public is wrong and could present a barrier to democracy and disincentivise people from putting themselves forward for election. Similarly, the Government do not think that prospective or nominated candidates for elected offices should be liable to a charge for the processing of personal data undertaken in support of their candidacy. If incumbents would not have to pay the charge, that would be undemocratic and unfair.

The Government also accept the value-for-money concerns raised by hon. Members during last year’s debates on introducing the charge structure. Many representatives reclaim the charge, either through the Independent Parliamentary Standards Authority or, in the case of local government, from their local authority. That creates an inefficient and duplicative charge on the public purse and does not represent value for money for taxpayers.

As I have mentioned, there was support for the exemption proposed today in the consultation responses. Some responses recognised that processing personal data was an important function of elected representatives.

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I presume that the Minister will come on to this point, but she keeps on talking about elected representatives, and I do not understand why Members of the House of Lords are included. They do not have responsibility for constituencies and they are not elected. Why are they included?

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The issue was debated and it was felt that although Lords are clearly not elected, they handle personal data in the course of their work, or they may do so if they are involved in the passage of legislation or a campaign. People may well contact them and reveal personal data in the course of the campaign, or they may reveal their views on particular legislation in which their lordships are engaged.

Some responses to the consultation recognised that processing personal data was an essential function of our work. The regulations therefore propose a new exemption from payment of the data protection charge for the processing of personal data by Members of the House of Lords; elected representatives, as defined in paragraph 23(3) of schedule 1 to the Data Protection Act 2018, where that processing is in connection with the discharge of their respective functions; and candidates —prospective and validly nominated—seeking to become elected representatives.

The proposed exemption only refers to payment of the annual data protection charge. It does not exempt elected representatives and others from adhering to data controller responsibilities under current data protection legislation. We all have a fundamental duty to uphold and protect the information rights of the individuals whom we serve. The ICO can and will still take enforcement action for non-compliance against any data controller, including those covered by exemptions from charges.

The Government have a duty to ensure that the ICO is adequately funded to deliver on its incredibly important remit. Approximately 18,000 data controllers will fall within the new exemption, which will lead to a loss of approximately £720,000 in the ICO’s total income for any given year. However, I am confident that the impact is manageable. The effects will be mitigated by an increase of approximately £18 million in the ICO’s income in 2018-19 alone, with further growth predicted for future years.

We have of course engaged with the Information Commissioner and her office on the introduction of the exemption. I can report that the ICO is content that the exemption will not impact on its ability to effectively deliver its remit. The ICO will continue to be a staunch protector of individuals’ information rights and continue to provide essential guidance and support to data controllers across the UK. I conclude by assuring the Committee that the Government are committed to maintaining a strong data protection framework, reflecting not only the needs of data controllers and individuals, but also providing a fair and flexible funding model for the important work of our regulator. That includes an exemption structure that ensures that charges are paid only where it is appropriate and proportionate.

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It is a pleasure to serve under your chairmanship, Mr Bone. I am grateful to the Minister for setting out the case for this important exemption. The debate was rehearsed during the passage of the Data Protection Bill and in previous Delegated Legislation Committees, and the regulations enjoy cross-party support.

I want to put two requests to the Minister. The first is for her to underline in guidance to Members of both Houses precisely what their obligations are when it comes to the payment of data processing fees. She will remember that at the back end of last year, the Independent Parliamentary Standards Authority got into a bit of confusion in overstating some of the new responsibilities. In particular, the authority seems to find it difficult to spell out the difference between caseworking data and data collected during the course of canvassing, for example, or other such political campaigning functions. Both are covered by the terms of the Data Protection Act. We, as data processors, can process both kinds of data, but the proximity of a candidate, or Member of Parliament, and a political party working in this field will often lead to some confusion about who precisely is responsible for what, and who therefore pays what. As it happens, political parties, candidates and Members are covered in terms of the data processing obligations, but none the less there remains some confusion overhanging from last year.

The second point of clarity that I seek from the Minister concerns regulation 2(3)(c), which is drafted incredibly broadly in saying that the exemption will be enjoyed by

“a person seeking to become (or remain) an elected representative”

or, indeed,

“a person acting on the instructions”

of someone who is seeking office. In the Minister’s remarks, she used the phrase “validly nominated”. That is not the definition used in the regulation. There is nothing about valid nomination in the regulation, which is pretty de minimis in that regard; it simply defines the exemption as being for a candidate who is seeking office.

What does that mean? Does that mean someone who is seeking office a long time before an election, or a candidate who is seeking office and has been approved by a relevant political party, because political parties are regulated with all sorts of important regulations? Furthermore, what on earth are the safeguards around a person acting on the instructions of someone who is seeking office? When in the electoral cycle does that particular exemption bite? There was a degree of dissonance between the Minister’s remarks and the regulations as drafted. Perhaps she could clear that up before we approve the motion.

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I am grateful to the right hon. Gentleman for his questions, and his support for the amendment regulations. With regard to the issues that all Members had with the Independent Parliamentary Standards Authority’s guidance last year, in the immediate aftermath of the passage of the legislation, Members were rightly very concerned about the guidance that some of their staff members were receiving from officially sanctioned courses and training. For a period, there seemed to be something of a debacle around that issue, but we were able to clarify it.

I think the problem arose because the courses were designed before the legislation had fully progressed through both Houses, so they did not take account of the various amendments that we debated and passed—notably, the exemption for people in elected office to use the lawful basis of democratic engagement to process personal data. I think we have clarified that.

I was not aware, but the right hon. Gentleman has made me aware, that there was similar confusion about charges. Before we created the exemption, elected officials and all the other categories that we have discussed this afternoon were, strictly speaking, liable in law to pay a charge to the ICO. That is why we have introduced the exemption. We debated the exemption during the passage of the Bill, but we have been able to bring it into law only today.

There should be no further confusion about charges. We, as elected representatives, are data processors. Candidates are also data processors as soon as they start dealing with people’s inquiries in their constituencies or wards.

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The Minister uses the word “candidate”, which elides two important definitions. One is that set out in the regulations:

“a person seeking to become (or remain) an elected representative”.

The second is that of an individual who is in that position and has been nominated by a political party. Most Members present think of a candidate as someone who has been validly nominated, rather than the definition in the regulations.

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I was going to come to that, because the right hon. Gentleman made that point clearly in his earlier remarks. I will look into the discrepancy in the language. He has raised an important point. I agree that valid nomination is the definition that we want, and if that is not in the amendment regulations, I will look into that and write to him. I should also point out that the Information Commissioner herself is developing a code of practice for political parties regarding their use of data, and this matter may well be something that she touches on during that work.

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The Minister has sought a test that is not in the regulations, so she is inviting the Committee to approve them using a definition that is not in the regulations, but in her speech. Will she undertake, before she concludes her remarks, to write to me and provide an assurance that she will re-present the regulations if necessary? I am happy to give them our leave this afternoon, but I am also happy for her to re-present them if she thinks the definitions need tidying up to bring them within the definition that she set out in her remarks.

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I will certainly write to the right hon. Gentleman. Since I last rose to speak, I have been informed that the regulations apply to both prospective and validly nominated candidates. We have kept it deliberately broad to prevent unfairness between incumbents and those starting out on the democratic process. I think I have already covered that point.

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I am grateful to the Minister for being very generous and giving way again, but that is not good enough, because anyone could seek to stand for elected office. If she and the Information Commissioner want to avoid a very large number of people seeking those exemptions and destroying the economic base of the ICO, the Minister must act, because otherwise that is what she will get. I think she will have to re-present the regulations, but let us just get something in place now to ensure that there is no lacuna in the law. However, please introduce stronger proposals.

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I will certainly write to the right hon. Gentleman. If it is clear that we need to tighten the definition up, I am happy to re-present the regulations.

Question put and agreed to.

Committee rose.

Draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

The Committee consisted of the following Members:

Chair: Ms Karen Buck

† Bridgen, Andrew (North West Leicestershire) (Con)

† Bruce, Fiona (Congleton) (Con)

† Cadbury, Ruth (Brentford and Isleworth) (Lab)

Cooper, Rosie (West Lancashire) (Lab)

† Creasy, Stella (Walthamstow) (Lab/Co-op)

Cryer, John (Leyton and Wanstead) (Lab)

† Davies, Chris (Brecon and Radnorshire) (Con)

† Esterson, Bill (Sefton Central) (Lab)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

Hendry, Drew (Inverness, Nairn, Badenoch and Strathspey) (SNP)

† Lewer, Andrew (Northampton South) (Con)

Mahmood, Shabana (Birmingham, Ladywood) (Lab)

† O'Brien, Neil (Harborough) (Con)

† Ross, Douglas (Moray) (Con)

† Rowley, Lee (North East Derbyshire) (Con)

† Smith, Nick (Blaenau Gwent) (Lab)

† Tolhurst, Kelly (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

Medha Bhasin, Committee Clerk

† attended the Committee

Fourth Delegated Legislation Committee

Monday 4 February 2019

[Ms Karen Buck in the Chair]

Draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

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May I draw attention to an interest recorded in the Register of Members’ Financial Interests? My law firm, of which I remain a partner, is a limited liability partnership.

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I beg to move,

That the Committee has considered the draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019.

It is a pleasure to serve under your chairmanship, Ms Buck. The draft regulations, which were laid before the House on 10 January, will address deficiencies in retained EU law in relation to the Companies Act 2006 and supporting secondary legislation. They will ensure that UK law in the area continues to function after exit day. Hon. Members will notice that their provisions cover many different areas; I shall briefly summarise them.

The changes to the 2006 Act and the supporting secondary legislation will ensure that the system of regulation underpinning how companies report to and register with the UK companies registrar, Companies House, makes sense after we have left the EU and the European economic area. They will also remove the UK from ongoing participation in two EU-based processes in the field of company law: the cross-border mergers regime and the business registers interconnection system.

The draft regulations also cover other matters. They include a small number of amendments to address how businesses with membership, access and listing on EEA-regulated markets are dealt with; they will remove preferential treatment in such instances and in relation to EEA entities where there is a potential breach of the World Trade Organisation’s most favoured nation rule. Where there is no such breach, and where it is appropriate to do so, we have maintained the status quo to offer certainty and consistency for business, including EEA businesses.

The main practical changes for business that stem from the draft regulations will be filing changes with an impact on some UK and EEA businesses after exit day, including a requirement for UK companies with an EEA-based corporate secretary or director to file two additional details with Companies House. Additionally, after exit day, EEA companies on the overseas companies register will be treated in exactly the same way as non-EEA companies, meaning that EEA companies that register with Companies House will be required to provide some additional details, while EEA companies that are already registered will have three months to provide the additional information required by the draft regulations. Linked to these filing changes is a requirement for EEA-based companies on the overseas companies register to provide additional minor details in their public-facing material, such as their website and letterhead; again, the draft regulations provide three months from exit day for the affected companies to do so.

In line with those changes, the draft regulations will also revoke legislation on two EU-based processes or systems currently administered by Companies House. The first is the cross-border mergers regime. Hon. Friends and noble Lords in Committees of both Houses have drawn attention to the removal of the current process for UK companies. I understand their concern, because I know that certain companies welcome the fact that it allows companies to merge across EEA jurisdictions. However, that is possible only under the EU cross-border mergers regime, which requires legal entities based in two EEA states. As the UK will no longer be an EEA member after exit, it will not be possible to continue to allow cross-border mergers, but companies will be able to transfer assets and liabilities using contractual arrangements.

The other system of which the UK will no longer be part after exit is the business registers interconnection system—a very new system, introduced only in 2017, that is used mainly to identify companies undertaking a cross-border merger or foreign branches of companies. All the information currently provided publicly on the Companies House register will still be available; the only thing that will cease is Companies House’s access to the register to register connections across the EU.

I will now explain the changes made as a consequence of the insertion of a new definition of “regulated markets” into another statutory instrument, in line with regulations that Her Majesty’s Treasury has laid before the House, and its effect in certain sections of the Companies Act 2006. In most places where it occurs, the change will have no material effect. There are only two occurrences where we have made the decision to apply the same requirements to EEA companies as we do to third-country companies. We judged that without such a change, there would be a risk of breaching the World Trade Organisation’s most favoured nation rule.

The practical effect of each change is that certain intermediaries who deal in securities will no longer be able to hold shares in their parent company where they are a UK-based holding company. This benefit will, after exit, be extended only to intermediaries with access to UK-regulated markets. We are providing a one-year transition for that change. Certain investment companies will no longer be able to benefit from some relaxations on controls on their distribution of profits unless they have access to a UK-regulated market. In addition, we will treat EEA-based credit reference agencies in the same way as third-country credit reference agencies after exit. Companies House will no longer be able to send the protected information that it holds on directors to EEA credit reference agencies and processors.

My officials have worked extensively with Companies House throughout the development of these regulations, and I thank them for their expertise. It is also relevant to point out to hon. Members that this has been done alongside ensuring that the UK’s company registry fully reflects the UK’s departure from the EU on exit day. That includes updating all relevant forms that companies use to file information, as well as updating guidance. That should be emphasised, because it means that companies will have certainty and clarity on what they need to do when the UK leaves the EU. We completed a de minimis impact assessment of the regulations, which shows that the overall costs to business are expected to be small.

As the Committee has heard, the regulations provide numerous technical changes to the operation of UK company law, and they respond to the reality of the UK’s leaving the EU. They are not overly burdensome for business and they will ensure that the UK has coherence in its approach to overseas companies. I therefore commend the regulations to the Committee.

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It is a pleasure to serve under your chairmanship, Ms Buck. At the end of the Minister’s speech, I was taken by her remark about “certainty and clarity” when we leave the EU. Oh, my word—nothing could be further from the truth. I do not know whether she was trying to find out whether anybody was listening to her speech. Perhaps it was a test. I heard her, and I can only assume that that was said in a moment of great irony and humour, because it is the last thing that will happen if we leave without a deal, which is what a lot of the regulations are about.

Once again, the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each occasion, my Labour Front-Bench colleagues and I have spelled out our objections to the Government’s approach to secondary legislation. The volume and flow of such legislation is deeply concerning for accountability and proper scrutiny. In this case, it appears that dozens and dozens of regulations are being changed. They are set out in detail in paragraphs 6.1 to 6.6. I shall not go through them all, but Members can count up for themselves to see whether my description is right.

The Government have assured the Opposition that no policy decisions are being taken. That is a very odd thing to claim, because establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity, which are surely policy matters. Secondary legislation ought to be used for technical, non-partisan and non-controversial changes because of the limited accountability it allows. Instead, the Government continue to use it as a vehicle for pushing through contentious legislation with high policy content.

As legislators, we have to get this right. The regulations represent real and substantive changes to the statute book and, as such, they need proper, in-depth scrutiny. As I said at the start of my response to the Minister, there is no certainty or clarity for business—or anybody else—if we leave without a deal, which is ultimately what the regulations are about. In the light of that, we put on record our deep concern that the process surrounding the regulations is not as accessible and transparent as it should be.

The Minister spoke about filing by businesses in the UK and in the EU, and she said that EEA businesses would have two additional filings as a result of the changes. She also said that if the regulations were implemented as a result of a no-deal Brexit, EEA and non-EEA companies would be treated the same.

Companies have three months to implement the changes that the regulations set out, and that does not sound like a long time to ensure that every affected company finds out. Can the Minister tell the Committee what plans the Government have to make sure that every single company affected by the regulations is aware of the changes that it needs to make to be compliant with UK law? If companies are not made aware of the changes, there will be significant consequences for them. I am interested to know what plans the Department has and what process will be followed.

The Minister mentioned the business registers inter- connection system, which is the EEA system that joins our Companies House system with similar systems across the rest of the EEA, if I understand correctly. We will no longer be involved in BRIS when we leave the EU, and that will have an impact on foreign branches of EEA-based businesses. Given her comment that internationally based companies will be treated the same, regardless of whether they are EEA or non-EEA, and that there will not be access to BRIS, what will be the impact for anybody who wants to use the EEA systems —the equivalents of Companies House—that are part of BRIS?

In my experience, we in this country use Companies House to check the legitimacy of a business, inspect accounts, find out who the shareholders are, find the registered office address and carry out checks before trading with another business. It is important for business-to-business activity and to enable consumers to understand whether they are buying from a reputable trader. That is a domestic matter, but at the moment, BRIS means that a straightforward and updated system can be used for such activity across the EEA. As BRIS is ending, what system will replace it?

My assumption—the Minister can confirm it or not—is that for all EEA companies, we will move to the system that we have for companies based in countries outside the EEA. For businesses that are based in the EEA and have branches in the UK, that could lead to a delay in updating the registers. If information is not up to date, the consequence for businesses buying or selling, or for consumers buying, could be that they do not get a true picture of the status of a company that they seek to trade with. Will she clarify whether that explanation is accurate? What plans are in place to deliver the best possible replacement arrangements for international cross-border trade, for businesses and consumers? The existing arrangements provide immediacy, certainty and confidence, which is why BRIS was set up in the first place.

Those are my key questions, but I have a small number of additional comments. In paragraph 7.8 of the explanatory memorandum, the Government refer to the measure applying to a “very few companies”. Will the Minister say how many companies are a “very few”? My other points are, as ever, about consultation and impact. We have this discussion every time we debate a statutory instrument of this sort, and I will not disappoint Members by omitting it today. Paragraph 10.1 indicates that the Government have not been able publicly to consult. That is cause for concern, and it is a reminder that the Minister’s statement about certainty and clarity is odd for yet another reason. Will she explain why the Government were unable to consult before laying these regulations before the House? I know that the Law Society helped to draft the regulations, but without wider input from those who will be affected by them, it is difficult to see how confident we can be that they are entirely satisfactory.

As ever, I remind the Committee that when other jurisdictions, such as the European Union, carry out an impact assessment, they consider the wider impact, and not just the very narrow direct impact of the regulations. It would be extremely advisable for the Government to change their policy and carry out a proper impact assessment. Perhaps the Minister will wish to reconsider her comment that these measures deliver certainty and clarity for when we leave the EU; they do not.

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I thank the hon. Gentleman for his comments. I said that the measures give clarity and confidence to business. This statutory instrument is intended to do exactly that for company law, and to provide companies with clarity about how retained EU law and the register will operate if we leave the European Union in a no-deal situation. Although the hon. Gentleman thought I was joking, I actually meant what I said.

Let me pick up a couple of the points that the hon. Gentleman has made. He mentioned EEA companies, and I assume that he was talking about EEA corporate appointments. A UK company that make a corporate appointment of a director or a secretary will have to file two extra pieces of information, which we have identified as being of low cost to business. Some 1,900 of those businesses have already been identified by Companies House, and they will all be written to. We have already updated the advice and guidance from Companies House on that. The regulations also refer to EEA companies that will register on the UK overseas companies register, and we estimate that to be 3,200 companies. Again, Companies House will write to the companies affected, and the guidance has been updated. As he will have seen from the regulations, those companies have to provide more basic information to Companies House, which is an administrative task. As I mentioned in my opening comments, the front-facing aspects—the websites and letterheads—will also need to show additional information. The guidance will be updated.

BRIS is a publicly accessible database, and the hon. Gentleman is correct to say that we will no longer be part of it if we leave the EU in a no-deal situation. Currently, people outside the EEA can access that information via the website, as we do in the UK through Companies House, so access is not restricted.

I could not find the paragraph in the explanatory memorandum that the hon. Gentleman mentioned that referred to a small number of companies. I think he was referring to the number of companies affected by the changes in the regulated markets.

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I am happy to help. Paragraph 7.8 says:

“This measure applies to very few companies, but transitional provisions have nevertheless been provided that will allow sufficient time for impacted companies to consider the impact of the change on their operations and take appropriate action”.

My question was about how many companies she means by the phrase “very few companies”, which refers to:

“Investment companies that only have shares admitted to an EEA market”.

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I thank the hon. Gentleman for that clarification; that was the area I was thinking of. As far as intermediaries are concerned, five companies would be affected, but our records show that no investment companies have been identified as being affected.

On consultation, as I outlined, we have consulted, worked with and used the expertise of Companies House to ensure that we are making the best provisions to enable UK companies to implement the regulations that we require for them to be legal if we leave the European Union without a deal. By working with those experts, we believe that we have devised the simplest and best way forward.

As I set out, the changes in the regulations cover a variety of amendments to the UK company law framework, so that, on exit day, the UK statute book is workable and coherent. It should be emphasised that certainty is crucial for business confidence. In some cases, the changes are not material and will have no impact on business; they are simply provisions to tidy up the Companies Act 2006 and related secondary legislation. The communication or pre-emption offer to shareholders is one example. The changes are no less important for that reason, however, and they will mean that UK statute is on a stable footing on exit day.

As I have set out, other areas will have an impact. They include the level-down approach for EEA companies in relation to certain filing requirements for the register, as well as the changes for some entities in relation to benefits that are currently based on access to EEA-regulated markets. The removal of the cross-border mergers regime is another example of where businesses will notice a change to processes that existed as a result of our membership of the EU.

The regulations cover many different changes, but, taken individually, their impact on business will be small. My officials are working with Companies House and others to ensure that the register will be operational for exit day, and that will significantly reduce the impact felt by companies that are affected by the changes. Overall, the regulations will ensure that the UK’s company law framework remains coherent, operable and under- standable for business, and I commend them to the Committee.

Question put and agreed to.

Committee rose.

Draft Construction Products (Amendment etc.) (EU Exit) Regulations 2019

The Committee consisted of the following Members:

Chair: Mr Adrian Bailey

† Aldous, Peter (Waveney) (Con)

† Antoniazzi, Tonia (Gower) (Lab)

† Blackman-Woods, Dr Roberta (City of Durham) (Lab)

† Bruce, Fiona (Congleton) (Con)

† Cameron, Dr Lisa (East Kilbride, Strathaven and Lesmahagow) (SNP)

† Donelan, Michelle (Chippenham) (Con)

† Eagle, Maria (Garston and Halewood) (Lab)

† Elmore, Chris (Ogmore) (Lab)

† Green, Chris (Bolton West) (Con)

† Howell, John (Henley) (Con)

Huq, Dr Rupa (Ealing Central and Acton) (Lab)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Leslie, Mr Chris (Nottingham East) (Lab/Co-op)

† Malthouse, Kit (Minister for Housing)

† Powell, Lucy (Manchester Central) (Lab/Co-op)

† Prisk, Mr Mark (Hertford and Stortford) (Con)

† Quince, Will (Colchester) (Con)

Dominic Stockbridge, Committee Clerk

† attended the Committee

Fifth Delegated Legislation Committee

Monday 4 February 2019

[Mr Adrian Bailey in the Chair]

Draft Construction Products (Amendment etc.) (EU Exit) Regulations 2019

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On a point of order, Mr Bailey. Could I have your guidance on whether it is in order for the documentation to which the regulations before the Committee refers not to be present in the room for Members to consult?

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What is being considered is the documentation that you have in front of you. The Government could have provided other documentation, but it is in order to go ahead with the documentation that we have at this moment.

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I beg to move,

That the Committee has considered the draft Construction Products (Amendment etc.) (EU Exit) Regulations 2019.

These regulations were laid before both Houses on 18 December 2018. They are part of the Government’s programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime. Leaving the EU with a deal remains the Government’s top priority—that has not changed—but the responsible thing to do is to accelerate no-deal preparations to ensure that the country is prepared for every eventuality. The regulations are being made using powers in the European Union (Withdrawal) Act 2018 to fix legal deficiencies in retained EU law, in order to reflect the fact that the UK will no longer be an EU member state after exit day.

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Will the Minister give way?

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Let me make a bit of progress.

I will start by providing some context, or background, to the regulations. The construction products regulation, or CPR, is an EU regulation that is directly applicable in all EU member states. It seeks to remove technical barriers to the trade of construction products, and applies UK-wide.

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Will the Minister give way?

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I will not, sorry.

The CPR harmonises the methods of assessment and testing, the means of declaration of product performance, and the system of conformity assessment of construction products. It does not harmonise national building regulations, and individual member states remain responsible for safety, environmental, energy and other requirements applicable to construction works. When a harmonised standard exists for a product, the CPR places obligations on manufacturers, distributers and importers of that product when it is placed on the market, including that the product must be accompanied by a declaration of performance and affixed with the CE mark. At the point at which the UK leaves the EU, the CPR will become retained EU law and will therefore form part of our legal system.

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Will the Minister give way?

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In a moment, please.

Without the amendments made by this instrument, the CPR’s provisions would not have practical application in the UK, because the UK will not be an EU member state. The CPR also confers several functions on the European Commission that will no longer have effect in relation to the UK.

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I am grateful to the Minister for finally giving way, and it is good to hear his explanation of the regulation that this instrument amends. Can he tell the Committee why there are no copies of that regulation in the room for Members who are meant to be scrutinising the instrument to consult?

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As I said in my opening remarks, the instrument has been before the House since 18 December. It has been perfectly possible for Members to investigate it and to seek those documents for the past month and a half. If the hon. Lady has failed to do so, that is not our lookout.

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The Minister may not recall, but during the long period of the Labour Government, when I was in opposition, there were numerous occasions on which not only amendments or documents were not present—

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Numerous occasions.

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When? Name them.

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The entire time when the hon. Gentleman was in government and I was in opposition.

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Name us an example.

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I am very happy to name them—

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Order. Will Members not chunter from a sedentary position?

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My question—which I am trying to ask without interruption from the Opposition—is this. Does the Minister agree that the fact that this instrument has been tabled since before Christmas, and that Opposition Members have not taken the opportunity to do anything about it, suggests that their anger today is somewhat synthetic?

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My hon. Friend has put his finger on the button. From the start of this sitting, it has been obvious that all this is not really about the EU construction products regulations; it is about a rejection of the whole process of properly preparing the country for all eventualities. I know that the hon. Member for Garston and Halewood regards herself as an assiduous Member of Parliament, but I am afraid that I cannot compensate for her dilatory approach to these regulations by producing a paper that she has had well over a month to look at and research.

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I was simply raising the reasonable suggestion that if we are being asked to look at detailed amendments to a regulation, to which the Minister is referring, it is normal practice—it certainly was when I was a Minister—to have enough of every document that an instrument is amending in the Committee room for Members to consult and look at during our proceedings. That is not unusual; it was quite normal when I was a Minister and it is not unreasonable. I am not angry, but I do not think it is reasonable for us to have proceedings such as these without being able to see those documents as we consider the SI. It was quite normal when I was a Minister to ensure that all those documents were present in the room, so it is a matter of some concern that on this occasion they were not.

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I note the hon. Lady’s concern. I would have assumed that, in her no doubt extensive preparation for this sitting, she would avail herself of the facilities in the Library and elsewhere to find those documents and study them, if she was giving a speech or preparing interventions on this subject, but I note her concern for the future.

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Will the Minister give way?

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No.

Back to the point: the general policy is to keep the same requirements but convert them into a UK regime. These regulations do not change the key requirements currently in place. This instrument would ensure that the same standards applied immediately after exit day as applied before the UK left the EU.

The effect of these regulations can be considered in five parts. First, they would preserve current European harmonised standards as UK designated standards. This would mean that, immediately following exit day, the UK’s product standards under the CPR would be identical to those under the EU’s regime, so there would be no change to the standards that businesses must meet. Thereafter, new UK standards would be designated by the Secretary of State, informed by expert advice from the national standardisation body.

Secondly, where a third-party conformity assessment is required for UK standards, it would be undertaken only by approved bodies established in the UK. These regulations grant approved body status to current CPR conformity assessment bodies based in the UK. Where an approved body undertakes the third-party conformity assessment that would be required under the relevant UK standard, the manufacturer must affix the new UK mark, which would be established under a separate instrument laid by the Department for Business, Energy and Industrial Strategy. Details of the mark and guidance for industry were published at the weekend.

Thirdly, alongside the domestic arrangements that I have outlined, we are putting in place a continuity approach for products that comply with the European regime. This would mean that products meeting requirements under the European CPR could continue to be placed on the UK market without any need for retesting or additional marking. This would apply in all cases where the relevant UK and EU product standards remain the same, provided that any third-party conformity assessment has been carried out by an EU-recognised conformity assessment body. As I have mentioned, all EU and UK standards will be the same immediately after we leave the EU. These arrangements are intended for a time-limited period, and we would ensure that businesses are given sufficient notice in advance of this period coming to an end. This approach would ensure that goods continue to flow into the UK market and would help to minimise disruption for businesses and consumers, which is vital to support the UK’s housing and infrastructure ambitions.

Fourthly, there would be an optional route available to enable products that are not fully covered by a UK-designated standard to be UK-marked. This would work in a very similar way to how the CPR currently works on an EU-wide basis.

Fifthly, and finally, this instrument would give the Secretary of State regulation-making powers to enable the UK to make technical updates to the CPR framework. This would replicate the role of the European Commission under the CPR to make “delegated and implementing acts”. This provision is necessary to ensure that the UK’s CPR regime can respond to technical progress and to new or emerging issues. This would enable Parliament to scrutinise any new measures, and provides a similar level of oversight to that of the EU’s regime. Transferring this function is in line with the Government’s approach, across multiple policy areas, to transferring functions currently within the remit of EU authorities to the relevant UK bodies. Transferring this power to the Secretary of State would be the most effective way of ensuring that the regime remains fit for purpose after the UK’s exit from the EU, while allowing for an appropriate level of parliamentary scrutiny.

I should note that the regulations also make a number of technical operability fixes to correct deficiencies arising from EU exit in the market surveillance regime provided for under domestic legislation.

Our overall approach to the amendments is completely in line with the policy and legal intent of the withdrawal Act and enacts the policy that the Government set out in a technical guidance note to industry in September. The regulations serve a very specific purpose: to prioritise stability and certainty if the UK leaves the EU without a deal or an implementation period. Thereafter, they provide a stable basis for Parliament to change the law where it is in the UK’s best interests.

To conclude, I believe that the statutory instrument is necessary to ensure that construction products regulation continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting the draft regulations, which I commend to the Committee.

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It is a pleasure to serve under your chairmanship, Mr Bailey. I thank the Minister for outlining the purpose of the statutory instrument and for giving me some interesting reading over the weekend when, thankfully, there was a lot of snow in Durham and I was snowed in, otherwise I am not entirely sure I would have got to the end of it. I gently say to him that the regulations are very complicated. It would be helpful if he assisted the Committee in its deliberations as much as possible, which means ensuring that information is available not only to himself, but to all members of the Committee.

I am pleased that the Minister made clear that we are having to consider the SI only because the Government have refused to take off the table a no-deal scenario for leaving the EU. It would probably make much more sense to all of us in this room if the Government had, instead of having to go through this lengthy process with all the costs involved—instead of going through SI after SI to try to put in place arrangements to allow for a no-deal scenario—just agreed to take no deal off the table.

If the Government are irresponsible enough to get us to a no-deal situation, I guess we have to recognise the importance of the SI. We must pay attention to the safety of construction products, which is always important, but is especially so post Grenfell. Given that, I can see why the SI is needed.

Paragraphs 2.2 to 2.9 of the explanatory memorandum clearly set out how the Construction Products Regulations 2013, accreditation systems and notifiable bodies work under EU law. It is clear that the system must change immediately if no transition arrangements are in place for leaving the EU. The Opposition recognise that the regulations are needed and we will not press them to a vote, but I have some questions for the Minister.

Paragraph 2.14 of the explanatory memorandum states:

“Existing European harmonised standards will become UK ‘designated standards’”

and “will be identical”. How long can we expect them to be identical? Will the Minister set down a particular period before they can be reviewed or changed?

Secondly, the statutory instrument presents two routes to designate a standard. Will the designation be the same as currently? What dictates the route chosen? Is it that the Secretary of State mandates a UK standardisation body to develop a standard following appropriate consultation, or does the Secretary of State designate that a harmonised standard adopted by the EU standardisation body should be adopted? The instrument states that will happen on a case-by-case basis, but what does that mean in practice? What criteria are to be used?

Paragraph 2.17 makes it clear that existing notified bodies will become approved bodies, but new ones can also be created. Does the Minister intend to ask the Secretary of State to approve new bodies, and is the process outlined in regulations 40 and 41 in part 8 the same one that is currently used to designate such bodies under EU law?

I understand from paragraph 2.19 of the explanatory memorandum that products that meet the EU construction products regulation will be able to be used in the UK. What is less clear, and I would appreciate the Minister saying something about this, is whether the EU, and indeed the rest of the world, will accept the new UK mark.

Paragraphs 2.20 and 2.21 of the explanatory memorandum could be read as quite alarming, and I would be grateful for reassurances from the Minister that providing a route to UK marks for products not fully covered by the CPR will be exactly the same as at present, and that that route will not lead to a lowering of the quality and safety of products entering the UK.

There are other areas of possible concern. For example, regulation 19 in part 5 gives the Secretary of State the power to withdraw the reference to the designated standard where it is no longer considered appropriate. We need more explanation of how and why that would happen, and critically an assurance that that provision would not be used to dilute standards, but only to improve them.

Also in part 5, regulation 28 states:

“The Secretary of State may make regulations, in accordance with Article 60, to establish classes of performance…of…products.”

Again, we need reassurances that any changes to those classes, and how they are applied, will be about improving the quality of products and their safety, not diluting them once new classes are made.

Moving on to regulations 40 and 41 in part 8, can the Minister confirm that the process for designating approved bodies will be exactly the same process as used at present, and that the power to remove them under regulation 50 will be the same as at present?

Lastly, can the Minister tell us what regulations 70 and 71 in part 12 mean? They are clearly about market surveillance. Again, we need to know whether the system of surveillance will change or remain exactly the same.

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I thank everybody who has worked so hard on the regulations, and I thank the Minister for the discussions that he has had with the devolved Governments on these issues.

It is important that regulations maintain standards and safety, while ensuring minimal disruption to business right across the United Kingdom. I agree that there has to be flexibility, and that ongoing scrutiny is essential. Will the Minister say what discussions have been had with the EU and beyond on the recognition of the UK mark?

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The hon. Member for City of Durham asked a series of questions. I hope to answer them all; if I fail to, I am happy to write to her with some detail.

Although they are intended to be time limited, the hon. Lady is right that the regulations do not denote a time. That would be a matter for the Secretary of State, but fundamentally we will consult industry, as we have done in drafting the regulations, before we make any further changes.

On the hon. Lady’s question about harmonisation, as standards are introduced at EU level, our intention is, again, to consult business. As she will know, we are effectively going through a reform of the building regulations, and in particular the construction product process post Grenfell, and that process is necessarily very consultative with industry as we go. We are very keen to buy them in to a change of culture, both within the industry and regarding a new system of regulation around building safety and in particular around products. Frankly, that will be quite a large amount of work for the Department and the industry over the next few years, so it is vital that we stick together.

As for the EU accepting the UK mark, I do not believe that that matter has yet been concluded. It is obviously a matter for the EU; people would have to ask the EU about that. One would hope that, given that things will be identical—certainly initially—the EU would accept the UK mark, but that is obviously subject to the final agreement.

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Can the Minister say something about the rest of the world, as well as the EU? What process do the Government have in place to ensure that the EU and other countries accept this mark?

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As I am sure the hon. Lady knows, the recognition of UK products around the world is subject to a number of agreements, some of which go via the EU and some of which do not, and are global, forming the regulatory regime that is constructed by other bodies.

We want to try to ensure through these changes to regulation that there is as much continuity—certainly initially—for the industry as possible, and that where there may be divergence or changes that are deemed to be in the best interests of the UK in the future, that is done on a very consultative basis with the industry, because although we may have views in the UK about how we want our building products to be manufactured and constructed, we obviously also have to bear in mind their saleability overseas, and where possible, we want to avoid manufacturers having to create two or more products for different sorts of markets.

Much of the attraction for somebody like me who voted to leave the EU is that we can play a much greater part in a global regulatory environment around particular product areas where we excel and where we will do well, because although there is a common regulatory environment within the EU, the hon. Lady will know that that is not true across the whole of the globe. We think that some of those growing markets in India, China and South America would benefit from having a global direction in terms of regulation, and we want to be able to play a part in that. For example, it is quite obvious that pharmaceuticals is moving to a global regulatory alignment, and that can be nothing if not good for a country such as ours, which leads in that sector.

The hon. Lady asked about trading standards being able to enforce this regime. On exit day, UK rules and standards will be the same as the EU’s. That means that the risk of products that do not comply with UK rules entering the UK will be no higher than it is now. The approach to enforcement is now, and will continue to be, intelligence-driven and risk-based.

The hon. Lady also asked a number of questions that were essentially about whether I am able to bind future Secretaries of State or Governments into an ever-upwards ratchet. Certainly, my own aspiration would be that any divergence, whether it is regulation of classes of performance or other matters to do with these products, should lead to an improvement in standards. However, as I say, I cannot speak for future Ministers, Secretaries of State or indeed Governments who might decide to do something other.

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Does the Minister understand that that is the crux of the issue about this particular instrument? A number of consumers and citizens of this country are concerned because, when we leave the European Union, we do not want the quality and standards of our building products or any other products to be part of a race to the bottom. Therefore, I think that he needs to give the Committee at least a degree of assurance that at least this Government will seek to improve the standards of quality and safety, and will not weaken or dilute them.

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I am happy to give the hon. Lady exactly that assurance. As I said earlier, all this work is taking place against the backdrop of our overall work on building regulation and product standards, and indeed product testing, and the entire regime around these products. Our aspiration is to maintain or improve standards—hopefully, improve. Having said that, in the regulations before us we are keen to retain some flexibility, as I said in my speech, to cope with changes in technology and new developments, positive and negative. We now sadly know that, to our cost and in tragic circumstances, aluminium composite material cladding is not a product that should be allowed on the market. There are big questions to be asked about whether the building regulation regime and a product standard regime were functioning correctly.

Retaining flexibility to cope with new standards, technology and developments in the industry is important, not least because the UK is a world leader in some of these developments, and new products might emerge for which the EU, should we separate without a deal, does not have a regulatory regime that is immediately equivalent, and we might need to create one in real time. Who knows? There might be graphene-coated products that come forward for use in construction. We are certainly spending a lot of time and energy on modern methods of construction. The Government are supporting new forms of manufacturing homes, particularly offsite homes, but we need to retain a little flexibility.

Finally, the hon. Lady asked about market surveillance. As far as I can see, the current situation will not change, and our ability to take enforcement action is unchanged by the regulations.

The Government believe the regulations are needed to ensure that the construction products regulations continue to function if the UK leaves the EU without a deal or an implementation period. I hope the Committee has found the sitting informative and will join me in supporting the regulations.

Question put and agreed to.

Committee rose.

Draft Recognition of Professional Qualifications (Amendment Etc.) (EU Exit) Regulations 2018

The Committee consisted of the following Members:

Chair: Sir Gary Streeter

† Afriyie, Adam (Windsor) (Con)

† Clarke, Mr Simon (Middlesbrough South and East Cleveland) (Con)

† Drax, Richard (South Dorset) (Con)

† Flint, Caroline (Don Valley) (Lab)

† Harrington, Richard (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

Jones, Graham P. (Hyndburn) (Lab)

† McCarthy, Kerry (Bristol East) (Lab)

† Mills, Nigel (Amber Valley) (Con)

Morris, Grahame (Easington) (Lab)

† O'Brien, Neil (Harborough) (Con)

† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)

† Smith, Nick (Blaenau Gwent) (Lab)

† Tracey, Craig (North Warwickshire) (Con)

Twist, Liz (Blaydon) (Lab)

† Villiers, Theresa (Chipping Barnet) (Con)

† Whitford, Dr Philippa (Central Ayrshire) (SNP)

Sarah Rees, Committee Clerk

† attended the Committee

Sixth Delegated Legislation Committee

Monday 4 February 2019

[Sir Gary Streeter in the Chair]

Draft Recognition of Professional Qualifications (Amendment etc.) (EU Exit) Regulations 2018

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I beg to move,

That the Committee has considered the draft Recognition of Professional Qualifications (Amendment etc.) (EU Exit) Regulations 2018.

Before your elevation, Sir Gary, I used to say that it was an honour to serve under your chairmanship; now, I can say that it is an extreme honour.

The purpose of the regulations is to ensure that, in the event of the UK exiting the European Union without a withdrawal agreement, the system for the recognition of European economic area and Swiss professional qualifications in the UK, for the purpose of access to regulated professions, continues to function effectively, and that existing recognition decisions for EEA and Swiss professionals remain valid.

The effect is to create a system that retains the best aspects of the current system while providing regulators with more freedom to rigorously check the standard of qualifications prior to granting access to a profession. The regulations will provide certainty to individuals with recognised EU professional qualifications already working in the UK, and the businesses and public sector organisations employing them. For example, that includes approximately 32,000 secondary school teachers who have had their qualification recognised in the UK in the 10 years from 2008 to the end of 2017. Furthermore, this statutory instrument will ensure that the future supply of professionals into the UK in certain key sectors can be maintained. It makes changes to existing regulations using the powers conferred by section 8 of the European Union (Withdrawal) Act 2018.

Before I turn to the detail, I shall provide hon. Members with some relevant background on the 2005 EU directive, which sets out a reciprocal framework of rules for the recognition of professional qualifications across borders. It applies to EU member states, EEA and European Free Trade Association states, and Switzerland by virtue of being annexed to the EEA agreement and Swiss free movement of persons agreement.

The directive provides several routes for recognition of qualifications, including automatic and general systems for the purposes of establishment, and a mechanism for those who want to work on a temporary or occasional basis. The directive covers a large number and wide range of regulated professions, including teachers, lawyers, engineers, underwriters, analytical chemists and a plethora of others. It does not include, I believe, Members of Parliament, as that is not a recognised professional status—perfectly understandably, I might add.

The directive is implemented into UK law by a number of pieces of legislation including the European Union (Recognition of Professional Qualifications) Regulations 2015, the earlier European Communities (Recognition of Professional Qualifications) Regulations 2007 in respect of Switzerland, and a number of pieces of sector-specific legislation for certain professions.

Following our withdrawal from the EU, the directive will no longer apply to the UK and the domestic legislation implementing it would not operate effectively because it would place obligations on UK regulators that they would be unable to fulfil outside the EU, for example, the obligation on regulators under the directive to use the internal market information system—IMI—to process applications and exchange information. As the IMI is a European Commission service, the UK will no longer have access to it after leaving the EU and will not be able to process applications, even unilaterally, using the service. The regulations are therefore necessary to ensure that the domestic legislation underpinning the recognition system operates properly.

Let me set out the effect of the draft regulations in more detail. First, they will protect recognition decisions made before EU exit and will allow applications for recognition made before exit to be concluded after exit under the pre-exit rules, as far as possible. Secondly, they will enable professionals who have started offering services on a temporary or occasional basis before EU exit to complete this service provision. Thirdly, they will enable qualifications to be recognised in the future. The changes that we are making will allow us to retain a version of the general system for recognition, under which UK regulators will be required to recognise EEA and Swiss qualifications of an equivalent standard to UK qualifications in scope, content and level. They will provide certainty to professionals who are already working and living here and will ensure continuity and stability for UK businesses and public services.

Some things will change under the draft regulations, however. First, we are amending the scope of the existing regulations so that the basis of recognition will be determined not by the nationality of the applicant but by where the qualification was obtained, since it will no longer be appropriate to give preferential treatment to EEA and Swiss nationals once the UK is no longer part of the European Union. Secondly, our regulators will not be obliged to offer compensation measures and partial access to professions in circumstances in which EEA and Swiss qualifications are not deemed equivalent to UK qualifications. Thirdly, we are removing the obligation for UK regulators to offer EEA and Swiss professionals a mechanism for providing services on a temporary or occasional basis.

Finally, farriers and certain healthcare professionals, such as physiotherapists, will no longer be in the scope of the amended 2015 regulations; they will be covered instead by related sector-specific legislation. The draft regulations and the amended 2015 regulations do not apply to nurses, midwives, doctors, dentists, pharmacists, architects and veterinary surgeons, who are entitled to automatic recognition on the basis that their qualification meets the EU’s minimum training conditions. The system for the recognition of qualifications in those professions is currently governed by legislation for which other Departments are responsible, and the relevant Ministers are laying their own no-deal statutory instruments to amend legislation accordingly. The European Qualifications (Health and Social Care Professions) (Amendment etc.) (EU Exit) Regulations 2018 were considered in a Delegated Legislation Committee last week, for example.

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I should declare that I am a qualified chartered accountant and my wife is a pharmacist, so we may both be within the regulated professions.

How reciprocal a process does the Minister envisage? He mentioned that in some professions the UK regulator will have to accept that an overseas qualification is equivalent to a UK qualification. Is it possible that a perverse situation could arise in which we think a Cypriot qualification is okay for practising in the UK, but Cyprus does not agree that a UK qualification is sufficient for practising in Cyprus? Will he therefore encourage regulators to look at whether it works both ways? If we do not get reciprocal access to other markets, perhaps we should not be quite so generous in recognising their qualifications.

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If the Minister would prefer to reserve his answers to hon. Members’ questions until after the Opposition spokesperson’s speech, he is free to do so, but it is entirely up to him.

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I am happy to do that, Sir Gary; I think it is probably best.

The draft regulations are vital to maintaining the operability of the framework for recognition of professional qualifications and providing certainty to businesses and professionals. I am pleased that my hon. Friend the Member for Amber Valley is a chartered accountant, not a farrier or a member of any of the other professions outwith the regulations’ scope.

The impact of the draft regulations on businesses and the public sector will be minimal. To answer my hon. Friend’s question, at least in broad terms, we seek to ensure continuity where it makes sense to do so, in order that those who hold European qualifications can continue to come to the UK when they meet our standards and vice versa. Regulators will not need to make significant changes to their current systems. If they wish to do so and have the appropriate powers, they can choose to continue to offer mechanisms for compensation measures, partial access and temporary and occasional service provision; we are merely removing the obligation for them to do so.

I very much look forward to hearing what hon. Members have to say about the proposed changes.

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It is a pleasure to serve under your chairmanship, Sir Gary. I will not attempt to out-do the Minister, who is famous throughout the House for his courtesy and compliments, but it is a real honour to be in this Committee.

I am less happy about the fact that we are discussing a statutory instrument that would make provision for the regulatory framework after Brexit in the event that we crash out without a deal. On the many occasions that we have had these discussions so far, my Labour colleagues and I have spelled out our objections to this Government’s approach to secondary legislation. Many of my shadow ministerial colleagues have made clear that the volume and flow of European Union exit secondary legislation is deeply concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework, for example, inevitably involves matters of judgment and raises questions about resourcing and capacity.

Secondary legislation ought to be used purely for technical, non-partisan, non-controversial changes, because of the limited accountability it allows. Instead, this Government continue to push through contentious legislation with high policy content via this vehicle. As legislators, we have to get it right. These draft regulations could represent real and substantive changes to the statute book. As such, they need proper, in-depth scrutiny. In that light, the Opposition put on record our deepest concerns that the process regarding these draft regulations is not as accessible, transparent or well-scrutinised as it should be.

This statutory instrument deals with what would happen in the event of a no-deal Brexit. Labour believes a no-deal Brexit would risk huge damage to our economy, jobs and living standards. The vote last week shows that a majority in Parliament agree. Labour has called on the Government to take no deal off the table. I welcome the regulations’ transitional provisions to ensure certainty for individuals who have already had their qualifications recognised and for those who have already submitted an application. The General Medical Council said:

“this SI provides us with the necessary transitional arrangements to avoid any legal vacuum for applications made or actions begun but not yet completed by 29 March 2019, thus providing legal certainty for both regulators and professionals during this time.”

As the Minister set out, the regulations amend the European Union (Recognition of Professional Qualifications) Regulations 2015, which currently apply only to EEA and Swiss nationals. After the UK leaves the EU, it will no longer be appropriate to retain preferential treatment for EEA and Swiss nationals, so the SI means that individuals from third countries will be treated the same as those from the EEA and Switzerland when recognising professional qualifications. It also makes the primary consideration the country where the qualification was obtained, not nationality; the amended regulations will apply to anyone who holds an EEA or Swiss qualification and will no longer apply to third-country qualifications held by EEA or Swiss nationals.

The 2005 directive, which the Minister referred to, is a central component of freedom of movement as it allows EEA and Swiss nationals to have their professional qualifications recognised in other EEA states and Switzerland, allowing professionals to work abroad. Qualifications including chartered certified accountant, chartered engineer, and chartered surveyor are all subject to a system that requires regulators to recognise qualifications if they are considered equivalent to the same or similar UK qualifications. If they are not, the regulator must offer compensation measures or partial access if feasible. The draft regulations remove those obligations, allowing regulators to decide for themselves the application process, whether to grant access for equivalent qualifications and whether to put in place any compensation measures.

I have been in contact with various professional associations, including the General Medical Council, the Law Society, the Institute of Chartered Accountants in England and Wales and the Engineering Council. I am pleased to report that the Government have been in consultation with them, too. The Engineering Council welcomed the draft regulations and said that

“taken as a whole, these provisions would allow the UK to maintain the flow of competent engineering professionals who wish to be recognised in the UK while providing realistic safeguards.”

Those associations broadly support these changes, although some flagged potential issues, which I will turn to in a moment.

First, I will make what may be a declaration of interest. Before I came to the House, I was a professional. I have a professional qualification as a chartered electrical engineer. In that capacity, I worked all over the world, including in the European Union but also in the United States, Nigeria and other countries. Engineers, as well as chemists, accountants, lawyers and other professionals, are often highly mobile. Being able to work abroad not only allows them to develop their careers and have exciting opportunities but benefits the UK when they return, bringing back skills, knowledge and networks. There are many British professionals—lawyers who advise clients in Brussels on European Union law or work on global investigations, for example—whose job involves criss-crossing the channel.

Although what regulators in other countries decide to do is beyond the scope of the draft regulations, giving regulators freedom to choose the regulation process and which qualifications are equivalent may lead to accusations of unfairness or to European regulators refusing to recognise British professional qualifications in retaliation. The Institute of Chartered Accountants in England and Wales warned me:

“Elements of the SI are open to interpretation. A UK regulator could refuse an EEA applicant by saying the EEA qualification is not equivalent in some way. There is a chance that EU members states will notice this and potentially do the same in their provisions for considering UK nationals/UK qualification holders.”

What discussions has the Minister had with EEA and Swiss regulators about the recognition of UK professional qualifications?

The UK benefits from having access to a wide pool of professionals from Europe and beyond, so I welcome the fact that the draft regulations would open up access to third-country professionals. Several British industries rely on access to professionals from Europe and across the world, and we must avoid having a shortage after we leave the European Union. The draft regulations give individual regulators the power to introduce their own application processes. It is vital that those processes do not become too difficult or expensive and leave us with a deficit of highly skilled workers.

If regulators are unable to secure co-operation with EEA and Swiss regulators, responsibility for obtaining relevant documents may fall to applicants. That would put an additional burden on applicants and may prolong and complicate the application process, potentially dissuading talented individuals with the skills we need from coming to work in the UK. What discussions has the Minister had with regulators about the ease of future recognition processes for applicants and the protection of certain professions, such as engineer, that currently are not protected in EU law but are protected in certain European countries? I do not advocate that; I just wonder whether he has considered it.

As the Minister mentioned, once we leave the EU we will lose access to the internal market information system—the IMI—and the alert mechanism, which enables regulators to exchange information about applications and qualifications, and notify other states of professional or criminal sanctions and of professionals whose activities have been restricted or prohibited. This statutory instrument encourages regulators to communicate voluntarily with EEA and Swiss regulators. Regulators will have to request documents confirming the applicant’s fitness to practise and professional standing. It is vital that good co-operation is secured among regulators so UK regulators have full access to all the information they need to determine whether a person is allowed to work in sensitive positions—for example, as a solicitor or accountant.

What discussions has the Minister had with EEA and Swiss regulators about their willingness to co-operate with UK regulators on the sharing of information and documents? Finally, what discussions has he had with EEA and Swiss regulators about their willingness to co-operate with UK regulators to notify them of an individual’s professional or criminal sanctions?

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I declare an interest: I am a breast cancer surgeon and my husband is a GP. Although this statutory instrument is not focused on health and health-related professions, a lot of the issues are similar. The benefits that we are talking about all evolved to allow freedom of movement. The problem is that trying to hang on to some of them as we—sadly—celebrate the loss of freedom of movement is quite difficult.

The hon. Gentleman opposite—I apologise; I do not know his constituency, and I have lost my glasses so I cannot even look it up—talked about reciprocity. That is what we have had; people have been able to move to the EU, whether they are in the medical profession or one of the other professions, and EU citizens have similarly been able to come here.

In fact, we have a great need for people to come here. We have workforce shortages in many professions, including medicine, engineering and other STEM areas. We therefore do not want barriers. The burden may fall on individuals, because regulators will find it harder to recognise qualifications, to prove fitness to practise and to prove that someone has no sanction outstanding. The danger is that people who are mobile in their profession will simply choose to go somewhere else, because the workforce shortages are Europe-wide.

I welcome the fact that those who are already here will not face any loss of their qualification, that for those who have already applied, the process will go on to complete, and that those who come here on a transitory or occasional basis have a year in which they can still continue, but what will we do afterwards? In many professions and industries, people come for quite short periods of time to work in the UK, and vice versa. The danger is that we will make it difficult for people at the top end of the medical profession, the oil industry and the construction industry.

My biggest concern is about the loss of the IMI, which will make the processing more difficult, and of the alert mechanism. From a medical point of view, the alert mechanism has been critical, but there are other professions in which it is important to know that someone has sanctions against them before they are recognised. We are losing those benefits of being in Europe. I echo the comments of the hon. Member for Newcastle upon Tyne Central: we are having to rush this because of the threat of leaving the EU without any kind of deal. I abhor that. That is not how it should be done, and the Government should take it off the table.

In Scotland, we need people in general, and we certainly need people from the professions. Anything that makes it harder for our industries or public services to recruit and retain people will make life more difficult.

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I have a few questions for the Minister on some of the practicalities. I welcome the statutory instrument and think it eminently sensible, but even those of us who have more concerns about free movement than the hon. Member for Central Ayrshire accept that we need skilled people to come here, and if they can meet whatever immigration rules we put in place we should enable that and not try to make it harder. We want it to be reciprocal, so that people who have trained here and have good qualifications have the chance to work abroad if that is their desire.

My first question is: if we end up with a clean Brexit at the end of March—I know the Minister is not totally keen on that as an idea—what happens to some of those qualifications and their recognition at that point? Do we expect regulators to have gone through their assessment and published which EEA qualifications meet the requirements in the UK by 29 March, or will there be a period during which we can assume that whatever has been happening until that point will continue, so that if someone wants to come here on 30 March but has not already made an application their qualification will still be recognised, at least for a run-on period? In previous Delegated Legislation Committees we have been told that we will effectively honour the two-year transition period. Is that the case here as well?

My second questions is: what happens when we have different bodies doing the regulatory function in different parts of the UK? I mentioned that I am a chartered accountant. The Institute of Chartered Accountants in England and Wales does England and Wales and there is a Scottish institute that does Scotland. Might we get a perverse position in which we would recognise a Maltese accounting qualification in Scotland and not in England and Wales? Could someone go and work in Edinburgh but not come to work in London? That does not seem to be a sensible situation. Will there be a requirement for the regulators to work together and have a joint approach?

My third question is, are there separate provisions for Irish qualifications? Irish nationals will still have much more generous rights to come and work in the UK, without a visa or permission, so will we have a more blanket recognition of Irish qualifications, which are generally quite similar to ours, or will they be treated in the same way as any other EEA qualification?

Finally, are we still allowed to impose language requirements for certain sensitive professions? I know we are not dealing with medical ones here. Regulation 41 seems to suggest that, so can the Minister confirm that if someone is adequately qualified but does not have adequate English we perhaps do not have to let them come here and start working straightaway?

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There is quite a bit to be going on with; I shall do my best.

First, I must politely not accept the shadow Minister’s view that this is the wrong vehicle for the process. I perceive it as necessary; there are many SIs like it. I accept the hon. Lady’s fundamental point, but on other Committees we have discussed the subject and deem this to be the only available vehicle to achieve our objective which, as she and other speakers mentioned, is to have as much continuity as possible, given that we are leaving the European Union.

I agree entirely with what the shadow Minister said about a hard Brexit—crashing out—causing huge damage to the economy and to living standards, and I hope that she and her colleagues will consider that and vote for the Prime Minister’s deal when it comes back to the House, because most of it is in the areas that she, I and others have talked about. I do not accept the view of my hon. Friend the Member for Amber Valley that that would be a clean Brexit. I think it would be the dirtiest of Brexits. I am in favour of a clean one: a sensible transition period and then a sensible arrangement, so that for most of the business we do it is business as usual. That is what I call a clean Brexit. On the valid point my hon. Friend made about reciprocal rights, we are unilaterally recognising EEA and Swiss qualifications to mitigate the immediate impact of a no-deal exit, because it ensures the very continuity that anyone would want.

The shadow Minister made some good points about how much this country has benefited from people coming not just from the European Union but from all over the world, and vice versa—many people go to Switzerland and other countries to work, in the way that they should. What we have suggested at least means that we will have a system in place on exit day that recognises professional qualifications and that retains the essential parts of the current situation.

On meetings with the regulators about future recognition processes, I have not met the regulators—I do not want to give the impression that I have—but my officials have met them regularly. We reached the conclusion, as the hon. Member for Newcastle upon Tyne Central said, that on the whole, they support the changes. None of them anticipate extensive future burdens on applicants, which would be a very bad part of the system if they were to happen.

That also applies to our engagement with the devolved Administrations through regular meetings. The Department has had technical discussions about the proposed amendments to the regulations and how the policy approach and proposed amendments could have an impact on service provision in the devolved nations. I would not like any Committee member to think that that had been forgotten about or that we were just telling Edinburgh, or anywhere else for that matter, “This is what we are doing.” I hope that that has been fed back to the hon. Member for Central Ayrshire, who has excellent connections with the Scottish Government. We have not picked up anything adverse and I am sure she would be the first to bring something to our attention.

On the point about our professionals not automatically being able to work in the EU or EEA afterwards, because obviously we are giving unilateral rights, the European Commission has previously published guidance on that. Decisions made by another EU member state before exit day about the recognition of our professionals will not be affected by our withdrawal from the EU, but the Commission has advised holders of UK qualifications living in the EU to obtain recognition in an EU27 member state before exit. The Commission will ask member states to consider pending applications made by UK nationals before exit day as if we were still a member state.

In a no-deal scenario, the recognition of qualifications will be assessed under host member state rules. In that scenario, after exit day, our nationals will not be able to provide temporary and occasional professional services as they previously could under the directive, but that will be subject to their host members state’s laws and regulatory frameworks.

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Just to clarify, given that British citizens living in the European Union will be required to regularise their professional qualifications, does the Minister envisage that there could be circumstances in which they would not be able to continue working without doing so?

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I envisage that there could be those circumstances, depending on the individual EU member state, as I explained, but I have every reason to believe that there will not be. The only way that that could not happen is for there to be no crashing out and for there to be a proper arrangement, which I am sure everybody wants to be the case. The hon. Lady has made valid point; I would not say it was a ridiculous point.

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Have British citizens been given the advice that they should apply to have their UK qualification recognised before the end of March to ensure that they do not run into trouble?

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I am not sure of the answer to that, so I will drop the hon. Lady a note about it tomorrow, if that is acceptable. If she wishes to discuss it further, I would be happy to do so.

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It would be desirable if the Minister could ask his officials to look at the potential for those circumstances and the two or three areas that would need to follow, which would be to identify where UK citizens working in the European Union might be and to alert them to that potential, and to do some kind of impact assessment—or at least to write to me to say whether he considers that that needs to be done.

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An off-the-cuff response—I know one should not give off-the-cuff responses—would be that given the current European Union regulations, and given that there is not a registration procedure at the moment, I do not know how we would know which UK nationals were working abroad. However, that is just an off-the-cuff answer, and the hon. Lady is probably going to tell me that I am completely wrong.

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I would never put it quite like that. What I would say is that my concern is not to identify the particular individuals, but the professions and the circumstances in which this situation might occur.

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I apologise for my misunderstanding. I understand exactly what the hon. Lady is saying, and I will happily clarify that issue for her in the next day or so, if that is acceptable.

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I totally understand that the whole point of freedom of movement is that we have no idea who is here and who is in Europe, but I suggest that when taking this issue forward, the Minister might consider publicity, whether through social media or alerting British consulates and embassies in the host countries. With so little time to go, it is really important that people are given warning.

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That is a sensible suggestion. However, all of this information was in the technical notices that were distributed, I think, in October last year, although one might say that people do not read them. There was a lot of information in those notices, but I will look into how we can make sure that there is an easily acceptable and consumer-friendly way of getting that information. I accept that technical notices are somewhat technical, and might be quite dry.

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Will the Minister give way?

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Yes; this is very unusual, but I would be delighted.

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Does the Minister know, through the various professional organisations that his officials may have been in touch with, how many UK citizens are working as professionals in the European Union at the moment whose role may be affected if we crash out of the EU?

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I do not know whether my officials have that information, but I will communicate with the hon. Gentleman directly. I must say that he and I are probably quite unique on this Committee in not explaining that we ourselves have professional qualifications. I am certainly in that position, and I might be doing the shadow Whip a disservice, but I think he is in the same boat as me. I have learned a lot about professional services in the course of this SI and others, but I cannot answer the hon. Gentleman’s question. I will make sure that it is answered in the next couple of days.

I have done my best to answer the questions I can, and hon. Members know that I will be very approachable afterwards if they wish to take up some of these issues. With that in mind, I beg the Committee to accept this SI.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Recognition of Professional Qualifications (Amendment etc.) (EU Exit) Regulations 2018.

Committee rose.

Draft Buckinghamshire (Structural Changes) (modification of the local Government and Public Involvement in Health Act 2007) Regulations 2019

The Committee consisted of the following Members:

Chair: Ian Austin

Burden, Richard (Birmingham, Northfield) (Lab)

† Courts, Robert (Witney) (Con)

† Docherty, Leo (Aldershot) (Con)

† Eagle, Ms Angela (Wallasey) (Lab)

† Elmore, Chris (Ogmore) (Lab)

† Fitzpatrick, Jim (Poplar and Limehouse) (Lab)

† Grant, Mrs Helen (Maidstone and The Weald) (Con)

† Hoare, Simon (North Dorset) (Con)

† McMahon, Jim (Oldham West and Royton) (Lab/Co-op)

† Menzies, Mark (Fylde) (Con)

† Percy, Andrew (Brigg and Goole) (Con)

† Quin, Jeremy (Lord Commissioner of Her Majesty’s Treasury)

† Rashid, Faisal (Warrington South) (Lab)

Reeves, Ellie (Lewisham West and Penge) (Lab)

† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)

† Sturdy, Julian (York Outer) (Con)

† Sunak, Rishi (Parliamentary Under-Secretary of State for Housing, Communities and Local Government)

Ian Bradshaw, Committee Clerk

† attended the Committee

The following also attended (Standing Order No. 118(2)):

Gillan, Dame Cheryl (Chesham and Amersham) (Con)

Third Delegated Legislation Committee

Monday 4 February 2019

[Ian Austin in the Chair]

Draft Buckinghamshire (Structural Changes) (Modification of the Local Government and Public Involvement in Health Act 2007) Regulations 2019

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I beg to move,

That the Committee has considered the draft Buckinghamshire (Structural Changes) (Modification of the Local Government and Public Involvement in Health Act 2007) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Austin. These regulations were laid before the House on 14 January. If approved and made, they will pave the way for further statutory instruments to give full effect to my right hon. Friend the Secretary of State’s decision to implement the locally led proposal to replace the five existing Buckinghamshire councils with a new single unitary council. The regulations are therefore an enabling element in the process of implementing that locally led proposal.

If approved by Parliament and made, the regulations will allow orders to be made under the Local Government and Public Involvement in Health Act 2007 to implement the Buckinghamshire proposal. They provide for part 1 of the 2007 Act to be varied in relation to Buckinghamshire so that first, proposals may be made for the purposes of the 2007 Act by any principal authority in Buckinghamshire on its own initiative; secondly, any proposal received from Buckinghamshire councils by the Secretary of State —including proposals existing before the regulations are made—may be implemented by order, with or without modification; and thirdly, the requirement for the Secretary of State to consult the councils affected by the proposals and other persons will not apply, reflecting the extensive consultation undertaken by the county council and the subsequent period for representations.

The regulations would expire at the end of March 2021, to allow sufficient time for all necessary orders to be made under the 2007 Act to give full effect to the proposals. The Cities and Local Government Devolution Act 2016 requires that, for regulations made on or before 31 March 2019, at least one of the councils must give its consent for those regulations to be made. Buckinghamshire County Council has given its consent to the making of these regulations.

In conclusion, we are responding to a locally led proposal to replace the existing, unsustainable local government structures in Buckinghamshire with a new council that will be able to deliver high-quality, sustainable local services to the people of Buckinghamshire and provide effective leadership at both the strategic and most local levels. All the existing councils have made clear their commitment to delivering the best services for Buckinghamshire communities. These regulations open the door to delivering that commitment, and on that basis I commend them to the Committee.

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It is a pleasure to serve under your chairmanship, Mr Austin. The Opposition do not intend to divide the Committee on these regulations, but we have some questions about the Government’s approach, and it would be helpful to get some feedback on those.

We accept that the initiation of a review has been locally led, but that is not the same as saying that the Government’s current position has universal support at a local level. I will highlight a couple of points: first, as has been mentioned, there was an extensive public consultation to which there were over 3,000 responses. However, only 35% of those who responded supported the proposal for a single unitary council covering the whole of that geography. A greater number of respondents —47%—supported the creation of two unitary councils, so it is not correct to say that the current proposal for a single unitary council has local support. It is also the case that four district councils have opposed the plan that has been tabled.

Of course, the county council is supportive, but that brings me to a further concern: it is my understanding that the Government have decided to impose on the new authority the leadership of the county council leader, and I would like the Minister to explain why the Government think that is appropriate. Surely the leader of any local authority should command the support of that authority, and be either directly elected by the population or elected by the membership of that body; I am not sure that it is in the spirit of localism for the Secretary of State to impose a leader on a local authority. I wonder whether the Minister could point to an example of that action being taken in recent times, so that we can understand a bit more about why the Government have taken that decision. It would always be controversial—there has always been a disproportionate amount of power in a county council compared with the district councils. To move forward in a unified way on a shared platform, surely it would be helpful not to make such a contentious decision right at the start of that new relationship.

My second point is about the drivers for the change. As I understand it, quite a lot of them were the efficiency savings that can be realised when local authorities come together, and I recognise some of the numbers that have been referred to. However, those local authorities combined used to receive £88 million of central Government funding, but by 2020 they will receive zero. Many local authorities around the country are forced to look at new ways of saving money and being efficient—something which many central Government Departments could learn from.

The Government have refused to invest in people-driven services; meanwhile, demand is going through the roof. In particular, in adult social care and children safeguarding, the Local Government Association points to an £8 billion gap in local government funding, which the Treasury has refused to fund. In those circumstances, it cannot be the case that reorganisation is being led solely by the starving of funding from central Government. It is not acceptable that, even when reorganisation is seen as needed, or at least as needing review, central Government come in and impose a plan, which does not have majority support of those who took part in the consultation, involves a difference of opinion between the district councils and the county council, and in which the Government decide that they, instead of the membership of that new authority, should determine who its leader should be.

The Minister needs to outline why the Government have arrived at that decision and point to a very recent example of such a case that we can look at after considering this statutory instrument, so that, hopefully, we can move forward in a way that creates not just a unified local authority, but a sense of common purpose. If the Government do not listen to local concerns and continue to impose a model from the top down, against local public opinion, against where the district councils in that area are at, and then, on top of that, impose a leader, I fear that that is not in the spirit of localism and will not create a sense of common purpose at all.

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Thank you for calling me to speak, Mr Austin. As you know, I am not a member of this Committee. I am allowed to speak, but unfortunately I cannot vote. I was very surprised to hear the hon. Member for Oldham West and Royton declare that he would not force this particular SI to a vote. Obviously, he has made that decision. I encourage colleagues and Opposition Members to vote against this particular piece of subsidiary legislation.

It falls to me to be the only voice for Buckinghamshire in the room.

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I assure the right hon. Lady that I will say a few words after her in support of the points that I suspect she will make.

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I will take support from any part of the House. Perhaps I should have said that I would be the only elected Member for a Buckinghamshire constituency to speak. The hon. Lady and I have been in this House for exactly the same length of time, so she will forgive me for my inadvertent error. I look forward to some support from her.

When the local government reorganisation propositions were put forward from certain quarters in Buckinghamshire, I was one of the few voices at the time to ask a myriad questions of both Secretaries of State who have been involved in these plans. Although I am not intrinsically against local government reorganisation—indeed, it can be very beneficial—I questioned what problems in Buckinghamshire they were trying to solve with this particular set of proposals.

As has been said, the reorganisation was driven by one quarter from the county council and by the local enterprise partnership—one of the LEPs, because unfortunately we have two LEPs in Buckinghamshire. I remain to be convinced that the path the Government have chosen is the best for Buckinghamshire. I am standing up today to represent partly my views, but mostly those of Chiltern District Council, because the constituency of Chesham and Amersham has contiguous boundaries with Chiltern District Council, and if someone is a Chiltern District Council council tax payer they are a constituent of mine.

Chiltern District Council has asked me to speak on its behalf today, because the combined single authority was certainly not its choice. It has said all along that if there was going to be reorganisation, it should be by evolution, not revolution, and I particularly evidence the fact that Chiltern District Council and South Bucks District Council have been working together for years, putting their back rooms together, if people will forgive that expression. They have both put their administration together to save money for council tax payers and to deliver better and more efficient local services.

I would have thought that that very progress that was being made by those district councils coming together would be the way forward and the way to encourage local government reorganisation. There is also the fact that Buckinghamshire is an exceedingly large area, with great differences between the north and the south of the county, and there is much more synergy between the three southern district council areas than there is between all the four district council areas that make up Buckinghamshire County Council. I am afraid, however, that such a way forward was not to be. Nevertheless, my district authority said on the record that if this reorganisation is going to happen, it wanted to work together with the other councils. Until it saw the detail, that was indeed its plan.

I will just mention a few points that Chiltern District Council has raised with me, because I think that they are important for members of this Committee. When the Cities and Local Government Devolution Act 2016 was passed in this House, the Minister said that it was to overcome obstacles to combined arrangements and devolution. However, the Minister—James Wharton MP, as he was at the time, the Parliamentary Under-Secretary of State—actually said that

“it is indeed the Government’s intention to build that consensus…We are not going to impose change on areas that do not want it.”—[Official Report, 7 December 2015; Vol. 603, c. 723.]

While considering an amendment during the passage of that Bill, he said it was important that these matters were delivered in a “straightforward” way as part of a deal, “where there is consensus”.

I think that it is quite obvious that there is not consensus, because sadly four out of the five authorities—the four district councils—did not consent to a single authority. The Minister in the Lords, Baroness Williams of Trafford, who was then the Parliamentary Under-Secretary of State, said, when looking at this area particularly, in a Government response concerning whether a single authority vetoed the change:

“During the passage of the Bill, it became very clear that in certain circumstances, and in particular in relation to structural or boundary change, the consent provisions as initially drafted gave to any single council in an area an effective power of veto over any such change, even if as might be the case in two tier local government, another council in that same area was in favour. The potential for the exercise of such veto may close down consideration and discussion of any such proposals regardless of the wider benefits they could bring to an area or the degree to which they had local support.

Amendment 36 removes that barrier to discussion and consideration of proposals, and, as has been made clear in debate in the Commons, is designed to facilitate the continuation of such wider conversations which it would be hoped would lead to a consensus across the area. We have made very clear that whenever the Secretary of State exercises these powers, he will maintain the preference for consensus, but with this Amendment there is greater flexibility to deliver devolution deals and the underpinning governance which areas want and need.”

I am afraid that there is no consensus.

Furthermore, upon consultation I think that people will find that, as was said by the Opposition spokesperson, there was only one survey that was robust in terms of its statistical analysis, and that survey of residents supported two unitary authorities.

Polls of the parishes also showed over 70% support for two unitaries, and there was greater support for two unitaries from business and stakeholders.

The Secretary of State admitted in his written ministerial statement that there was broad local support for two unitaries, so there is no consensus. I therefore ask the Minister to justify the use of section 15(5) of the 2016 Act, with which he will be familiar. It was intended to be used as a last resort. At the time, the Local Government Association worked with parliamentarians

“to secure assurances from the Secretary of State that the powers to determine the composition of local governance arrangements and remove functions from local authorities without local consent will be used sparingly and only as a last resort.”

In fact, the Minister, James Wharton, said:

“The Government’s intention is to work with local areas to deliver economically sensible areas of devolution, with structures that sit beneath them that allow those things to be delivered and that potential to be realised.”—[Official Report, 7 December 2015; Vol. 603, c. 773.]

There is no devolution deal or combined authority proposal in Buckinghamshire; this is a straightforward local government reorganisation, which, as that junior Minister was at pains to point out, the Secretary of State already has powers to carry out, just as he is doing right now in Northamptonshire by means of an invitation that requires him to carry out local public consultation, so that he properly understands the views of the local area before reaching his decision.

The proposals are not part of a pilot; they are being rushed through. Under section 15(8) of the 2016 Act, the regulation-making power expires—guess when?—on 31 March 2019. The end of March will be such an exciting time. The regulations are being pushed through Parliament before that power expires to circumvent the time limits in the parent Act.

These regulations are being laid before Parliament before the associated order—I have a copy of the draft order here—is laid before Parliament. I think the regulations have been separated from that order to get the regulations through Parliament on time. I understand that officials would advise Parliament to consider the two together; I do not understand why the Minister is not doing that, though if we did, we would not be able to meet the ambitious timetable of the end of March. We know what happens when one is up against timetables: one starts to rush things. I feel strongly that the Committee is being asked to put the cart before the horse, and to judge before we have seen the whole picture.

The Minister mentioned the requirement in the Act for the consent of at least one authority to the regulations being laid before Parliament. Four out of five authorities did not consent. The only authority that consented did so conditionally. The resolution of Buckinghamshire County Council’s cabinet made it clear that it was a subjective consent, based on certain terms in the order that were set out in a letter from the Secretary of State. The order giving effect to the decision set out in the letter is yet to be laid before Parliament.

The county council has said:

“In line with the main report Unitary Transition Arrangements Cabinet is recommended to confirm that the County Council gives consent to the making of the Regulations.”

So far, so good; the council is giving consent. Then comes the rub:

“This consent is on the basis of the Secretary of State’s decision on the draft Structural Changes Order as set out in the letter at Appendix 2 and detailed in the table at paragraph 1 below.”

That order has not yet appeared. The result is that three of our district councils are subjecting the Department to judicial review: Wycombe District Council, South Bucks District Council and my council, Chiltern District Council. They argue that the regulations are ultra vires. I want to hear what the Minister has to say about all of those points. I could probably write his speech for him—they are all going to be brushed aside—but it is important to Chiltern District Council that they are put on the record, so that they are all out in the open.

Dislocating the regulations from the order means asking Members of Parliament to blindly open the door to an order that would impose undemocratic arrangements on Buckinghamshire. As the gentleman who speaks for the Opposition, the hon. Member for Oldham West and Royton said, the imposition of a leader and the usurping of the powers of the shadow executive is likely to result in a new council being created in the image of one of the old ones, Buckinghamshire County Council. That is not a bad council, but the principle is to create a new council that takes the best from all the local councils involved. Effectively giving Buckinghamshire County Council a majority on the executive and potentially imposing that council’s chief executive as implementation leader is not what that process should be about. In addition, without the order, how can Parliament properly scrutinise the modification regulations that are before the Committee?

Creating an irrational executive dominance of the shadow authority—which, as currently drafted, the order that is not before the House does—is going to be a major problem. The functions of the shadow authority will be provided for throughout the order, and will theoretically be extensive: it will have powers to formulate the executive arrangements, the code of conduct and members’ allowances, and must prepare, review and revise an implementation plan. However, in practice, those functions are all but extinguished by article 16, which effectively usurps the shadow authority’s functions. They are to be exercised by the shadow executive itself.

The default position in the order that should come before the House is that the shadow authority is disempowered at the hands and whims of a shadow executive, in a context in which that shadow executive is heavily dominated by the county council and can take any decision by steamrolling over legitimately critical opposition within it. That appears to grant the shadow executive a line of patronage to key offices in the shadow authority, including the appointment of the substantive chief executive of the new council. It reduces those offices’ independence and creates the perception that their scrutiny of the executive is weakened.

I appeal to the Minister to think again. If we are to have local government reorganisation in Buckinghamshire, it will be a once-in-a-generation opportunity to improve local government. Irrespective of any political differences, all of us in this House strive to provide services to our constituents, and to ensure that local government and services are provided at reasonable cost and with reasonable efficiency. The non-consensual approach that is being adopted by the Government carries with it a high risk of creating a new, but unhappy, council that is not on the road to success and could be on the road to failure. I urge the Minister to try to secure local consent for a model that will genuinely be based on excellence, rather than on short-term expediency and the rapid timetable that he is working to, so that we can be seen to be working in the best interests of our residents. I think that is a goal that we all share, and I look forward to hearing the Minister’s response.

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It is a pleasure to serve on this Committee under your chairmanship, Mr Austin. I am glad that I am able to follow the right hon. Member for Chesham and Amersham, who has filled in a bit of the local colour that I assumed might exist when I read the documents that the Committee has been provided with. She has raised some extremely important questions, which I hope the Minister has extremely good answers to.

While looking at the documents, I noticed that, funnily enough, effectively all of the smaller local authorities in the Buckinghamshire area that are going to be swallowed up are against what the Minister is suggesting. Four local authorities—South Bucks District Council, Wycombe District Council, Aylesbury Vale District Council and Chiltern District Council, which covers the right hon. Lady’s constituency—have rejected the final plans for a unitary authority. It sounds to me, listening to the right hon. Lady’s comments a moment ago, that they have reasonable worries, which ought to be properly answered. However, given that the Minister’s powers will expire at the end of March, what we have here appears to be a bureaucratically driven exercise, which is trying to force a change through, despite there being plenty of evidence of local worries and a complete lack of local consent to some of these changes.

Does it matter that the people who object happen to come from the smaller district councils, rather than the leviathan county council, which will be empowered, it seems to me, by these plans? It ought to matter to those of us who are interested in local democracy being meaningful. If these kinds of things are to be done appropriately and in a successful way, it is not appropriate for the Minister to do it in a top-down, fast way, empowering the largest and most powerful local authority in the area, so that it can dominate the rest of the authorities that have been swallowed up by it. That will lead to getting off on the wrong foot, resentments, which will not disappear early, and the alienation of local people, who believe that their district council is being swallowed up in a way that leaves them with little chance to influence the new unitary authority that is being created.

In my area, we have experience of being forced to become unitary: our metropolitan council—the Merseyside one—was simply abolished, with no consent either, it must be said. That leads to a struggle. Despite the fact that we may in principle want authorities to be unitary, surely, if there is local democracy, there must be a local, democratic way of bringing that about, which does not just mean that the largest fish swallows all the smaller fish, whether they want to be swallowed or not.

It seems to me that in their bureaucratic efforts to get this done and dusted in time, the Government are riding roughshod over perfectly reasonable local interests. The fact that the Government have not seen it fit to lay before Parliament the appropriate documentation, so that we can check the assurances that they say they will give us, is a disgrace. This Committee should not be meeting without the appropriate documentation in front of it.

I hope the Minister will consider withdrawing these regulations, until he can sort himself out and bring to the Committee the appropriate documentation, so that everyone in Parliament can have a proper look at what we are meant to be approving. I certainly hope that if the Minister does not do that, the Opposition Front Bench will consider voting against this proposal.

The proposal is half-baked, it does not have the consent that it claims to have and the Minister has not even bothered to provide the appropriate documentation for us to consider. He ought to go back to the drawing board and come back with all the appropriate documentation. I look forward to him explaining that consent does not mean the consent of four of the five local authorities. It looks to me that there is a reasonable case for a judicial review, because of the Government’s lack of ability to put before Parliament and the people in Buckinghamshire the appropriate documentation in an appropriate and timely fashion. I look forward to the Minister’s response, but I would like him to say that he will withdraw this SI temporarily, and bring it back when he has all his ducks in order and has done the appropriate amount of work.

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It might come as a disappointment to my hon. Friend the Minister and the shadow Minister that I do not intend to reprise my mammoth, 55-minute address in support of the reorganisation of Dorset councils. I just want to make a couple of remarks.

I know the Buckinghamshire area reasonably well, having served for three years as a county councillor on the neighbouring authority of Oxfordshire. I shall address my remarks to my right hon. Friend the Member for Chesham and Amersham. I guess the spur to reorganise broadly replicates the spur that forced Dorset to seek reorganisation, which was better value for money for the taxpayer and the delivery of quality services at a time when—I say this as a vice-president of the LGA—the local government family has sustained a significant and sustained financial hit since 2010. Some 45% of its income has been lost, and that has often acted as an impetus to find new ways of doing things.

I hear what my right hon. Friend says, but we had this in Dorset as well. District councils buddy up and work closely together. They screw the maximum amount of savings out of operational costs, but the pressure for savings and greater efficiencies continues, creating the need to re-engineer the local government architecture.

There is little or no doubt that with any change to local government—I empathise entirely with the viewpoint of my right hon. Friend—people feel a strong emotional tie to their district councils, particularly if they have been good ones. However, I think the Minister is right and that the general thrust of the Government’s approach is right. First, Her Majesty’s Government look for grassroots-up proposals and not top-down enforcement. That is really important because one size clearly does not fit all. There will be different models for different geographies.

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Having sat on the LGA, my hon. Friend will know that the LGA guidance said that this particular enforcement from central Government was intended to be used as a last resort, and that the power to remove functions from local authorities without local consent would be used sparingly. With respect, Buckinghamshire is very different from Dorset, and the change is being imposed on Buckinghamshire. As for the savings, a new entity is being created, so most of the workers will have to be TUPE-ed across, and the savings need to be looked at very carefully because they might not be achieved.

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I agree with my right hon. Friend on the latter point. On the idea that the powers were to be used “sparingly”, I would say define “sparingly”. My definition would be “not very often”. I am not aware that the Department and the Government have used that power very often. I therefore suggest it has been used sparingly.

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Will my hon. Friend give way?

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She smiles so beguilingly. Go on.

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My hon. Friend is always charming. In this case, why should Buckinghamshire be singled out as the only one? Why should it be us? Surely we have a voice and a right to be heard? The residents that voted for two local authorities have a right to be heard, but that is being denied to them.

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I think that is probably a question for the Minister, but in anything that my right hon. Friend read out from earlier correspondence either here or in the other place in reference to the sparing use, I did not hear her say, “but never Buckinghamshire”.

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Buckinghamshire is the only one.

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Buckinghamshire might be the only one, but the point still applies.

Mr Austin, I do not want to fall into my trap of speaking for 55 minutes. All I wanted to say to the Minister was all power to his elbow, because I think he is rightly focused on assisting local government to chart a way through in order to deliver even better and more efficient services to their taxpayers. He is absolutely right to recognise that universal support or unanimity will never be found in these things. No one council or third party that has a locus in the process should have a right of veto.

I must say to my right hon. Friend the Member for Chesham and Amersham that, although I understand the knee-jerk reaction to dash off for a judicial review, I know, having had one of our councils in Dorset do exactly that against legal advice, wasting both time and precious public money, that it is not something to be entered into lightly. I say to her that of course such proposals stir emotion and great ties of loyalty to a certain geography, and very often the very worst case scenario is afeared, but we go into our Dorset unitary elections in May, where we have two councils coming forward—because the geography and the scale worked for that—and the organisation and the shadow authority have been working incredibly hard to get it right.

Although the decision may be a disappointment to a number of district councils within the county—disappointment that I understand and with which I empathise—I would suggest that now is the time for everybody with good will towards the electors of Buckinghamshire to put their shoulder to the wheel to make it work, and to deliver for those people who send us either to this place or to the council chamber to serve their needs and best interests.

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It is a pleasure to see you chairing this troublesome Committee, Mr Austin. I say “troublesome”, as one who is presently reading Isabel Hardman’s book “Why We Get the Wrong Politicians”, which goes to some lengths in attacking the delegated legislation process, and statutory instrument Committees for not doing their job properly. I am not sure whether this Committee fits that description.

I am grateful to the right hon. Member for Chesham and Amersham for attending to defend her local interests. She put some very serious questions to the Minister, to which I am sure he will respond in due course. I share the concerns of my hon. Friend the Member for Wallasey, who said that the Opposition should perhaps vote against the motion. However, I recognise that the shadow Minister, for whom I have high regard and who has considerable experience in local government, did not intervene to indicate that he was likely to change our position. Given that I am in a bit of trouble with my Whips Office at the moment for recent votes, I will follow the shadow Minister this afternoon. Added to that is the fact that the regulations are to be made under local government legislation from 2007. I was just out of the Department for Communities and Local Government at the time, so my dabs might be on the original of this somewhere.

However, I think that the Minister has some questions to answer. There was a similar situation in a Delegated Legislation Committee last week when the Government were challenged by our Front-Bench spokesperson for introducing a document that we believed had been revoked, but the Government were bringing it back. Now they are introducing a piece of legislation that the right hon. Member for Chesham and Amersham says is relevant to an order that has not been laid. They seem to be getting into some kind of a muddle in respect of the order in which papers are to be laid. I very much look forward to the Minister responding to the right hon. Lady and persuading the Committee to follow him, as it looks as though we probably shall.

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It is a pleasure to serve under your chairmanship, Mr Austin. If we are all fessing up to our part in this, as the hon. Member for Poplar and Limehouse did, I feel that I should fess up to mine: I was the Devolution Minister for a period when the proposal was under consideration.

I will respond to a couple of points. I think the premise of the contribution made by the hon. Member for Wallasey was that the regulations were not thought through properly. This proposal has been in the mix for a number of years. There were lots of engagements when I was the Minister with various stakeholders—different council leaders, and different Members of Parliament. It has done the rounds. I do not want to go too much into Buckinghamshire in particular, because I spent quite a bit of time trying to kick the can down the road—that seems to be Government policy on a number of issues at the moment—in the hope that something would come along.

I want to respond to the point about consent. It is not possible with such reorganisations always to gain consent. Of course it is not unreasonable for local authorities to object to councils being abolished. My own region has been through that experience several times in recent years. Horribly, we were put into a county called Humberside, which never really existed, our borough councils were all abolished, and then we were restructured again when Humberside was abolished. Nobody has been able to create consensus in our region on what local government structures should look like.

I congratulate the Minister on having the chutzpah to proceed with what is generally a fairly sensible reorganisation. Leaving the matter of Buckinghamshire aside, it is time we dealt with this nonsense of two-tier authorities. There is no reason, in this day and age—[Interruption.] I am not talking specifically about Buckinghamshire; I do not want to upset my right hon. Friend the Member for Chesham and Amersham.

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Obviously I am talking specifically about Buckinghamshire. The problem is that everybody looks to local government reorganisation to deliver the best possible services at the best possible price for the taxpayer, but the consultations point towards two local authorities. I believe that the original proposals began as a result of Aylesbury Vale District Council wanting to go off on its own, but then the county decided to create a huge leviathan of a council. Surely that is not common sense. Surely people should be listened to. The responses were in favour of two district councils; as my hon. Friend the Member for North Dorset says, the geography lends itself to two councils, not one. There would have been a good consensual way forward, so why are we now in a position where the three southern district councils are judicially reviewing the Government’s decision? It seems a sad state of affairs.

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All that I will say on the geography point is that I represent a constituency in the largest unitary authority in the country and I do not necessarily accept the arguments being made. In local government reform, everybody can always make the argument that a particular solution does not fit the unique geography of their area. It is no surprise that whenever there are reorganisations there is always a district council seeking to create a unitary authority based around itself or one of its neighbours. That is not unusual; there have been similar discussions in the other part of my constituency.

All I will say in response to hon. Members’ comments is that this has not been done on the back of a fag packet. There have been years and years of—[Interruption.] I know that my right hon. Friend did not say that; I am not suggesting that she did.

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Will my hon. Friend give way?

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I will finish my point, if I may, but I will give way before I sit down.

There can never be total consensus. When Durham County Council was unitarised in 2009, there were probably people opposed to that. The shadow Minister, the hon. Member for Oldham West and Royton, made a comment about leadership being imposed, but that is not unusual in such reforms. As he will be aware, when we created the combined authority in the Greater Manchester area, the then police and crime commissioner —the hon. Member for Rochdale (Tony Lloyd)—was appointed as interim mayor without any election. Such a situation is not unusual.

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Will the hon. Gentleman give way?

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No, because the hon. Gentleman and I sat on all the Delegated Legislation Committees on the matter at the time. I have heard many similar speeches from him, he has heard many similar speeches from me, and I suspect that we have nothing new to add.

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rose

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I will give way one final time to my right hon. Friend, given that the debate affects her constituency.

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I am most grateful. If I felt that this had been done on the back of a fag packet, I would probably have spoken even more vociferously today, but the point is that we hope that the reorganisation will last some years into the future. Reorganisation does not happen every five or 10 years. Across the northern part of the county, we are just about to embark on the Oxford to Cambridge connecting routes, with all the resulting housing development and growth. As part of that, the Aylesbury Vale area will therefore be growing rapidly, despite the objection that with only 300,000 people it is too small. In addition to that rapid growth, we will face all the housing pressures from Slough and Wycombe in the southern areas of the county. It would have made much more sense to go for the consensual option that people want: two authorities. We are creating a monster for the future, and frankly I think it will need reorganisation much sooner than we anticipate.

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I did not suggest that my right hon. Friend had said that the plans were made on the back of a fag packet; I was referring to another speech. She makes her point, but I consider 300,000 a very small population for an authority and I urge the Government to go much further with reorganisation—I include my own area in that. I have two unitaries, one of which, at 170,000, is too small. We need to come up with proposals to make it a much bigger unitary, potentially by merging it with neighbouring authorities. Some of them would not like that, but it will have to be enforced, if necessary.

I hope that the Minister will have more chutzpah than I did in the same role and will push forward unitarisation. I can be much braver now because I am not the one who has to do the Delegated Legislation Committees and it will not affect my diary quite so much. We really need to deal with the issue. I also ask him to look at the number of councillors. I believe the new authority will have 147—

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Only as a starter.

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I see. I hope that it becomes a more sustainable figure in future.

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I thank all right hon. and hon. Members for their helpful contributions. It is particularly helpful to have contributions from Members who have served in my Department. I pay particular tribute to my right hon. Friend the Member for Chesham and Amersham for the tenacity with which she has represented her district councils’ case, not just today but for many months preceding this debate.

I will take the various issues in turn and pick up on the questions that were posed. I will start by informing the Committee of the Government’s general approach to reorganisation, which my hon. Friend the Member for Brigg and Goole touched on. There is a formal set of criteria that my predecessor, the hon. Member for Nuneaton (Mr Jones), outlined when he had this job. The Government will consider locally led and locally developed proposals according to three criteria: that they would improve local government in the area; that they represent a credible geography; and that they command a good deal of local support.

I agree with my right hon. Friend the Member for Chesham and Amersham; the Government received two proposals, both locally developed and led. As my hon. Friend the Member for North Dorset said, there is no top-down imposition here. One of the proposals was received at the end of 2016 and the other at the beginning of 2017. As we have heard, the process has been going on for some time, in order to get this right. When both the current Secretary of State and his predecessor evaluated the proposals according to the criteria, they concluded that both of them satisfied the criterion regarding demanding a good deal of local support.

We heard some statistics earlier, and it might be worth informing the Committee that there was widespread support from everyone for the principle of reorganisation in general, to simplify the local government structure. For example, 75% of survey respondents said that they believed in supporting reorganisation and 87% of the representations received by the Government also supported the principle. Similarly, all public sector bodies and business groups supported in general the principle of local government reorganisation in Buckinghamshire. There was, of course, disagreement about whether it should take the form of a single unitary or two unitaries, but it is worth the Committee knowing that all public sector providers were in favour of the single unitary proposal, as were the majority of respondents to the open questionnaire, which totalled just shy of 2,500, the majority of opinion in the focus groups, the Buckinghamshire Thames Valley local enterprise partnership, Buckinghamshire Business First, which represents about 10,000 local businesses, and the children’s services commissioner.

That said, both proposals commanded local support. The question for the Secretary of State, therefore, was whether they both also satisfied the two other criteria for local government reorganisation: improving local government and representing a credible geography. For reasons that have been outlined in various statements, the Secretary of State felt that the proposal for two unitaries was not in keeping with those two criteria. One of the LEPs thought that the proposal did not represent a credible geography, and there was concern, especially from the children’s services commissioner, about the fragmentation of services in Buckingham if we went for the option of two unitaries.

As my hon. Friend the Member for Brigg and Goole said, there was a significant question about size. One of the unitaries would have 188,000 people in it, which is considerably below the Government’s published recommendation that local government reorganisation should happen in areas in excess of about 300,000 or 350,000. That judgment is based on research and analysis carried out by the Department and others, which suggests that the optimal size for a unitary authority is 400,000 to 600,000. As my hon. Friend said, some smaller unitaries are more concerned about financial stability, their ability to attract high-quality leadership and other such things, given their small scale.

On that basis, the Secretary of State decided to implement this locally led proposal. I would be the first to acknowledge that it came as disappointing news to the district councils, but the Government and I have strived hard to work with them to alleviate their concerns about the implementation of the proposal. I have had a very constructive meeting with all the district council leaders, and my officials have had several meetings with them. We are currently working with them on the nuts and bolts of the implementation of the proposal, and we are making good, constructive progress.

I draw the Committee’s attention to the press release that all district councils issued when the decision about this proposal was announced. It said:

“This is a golden opportunity to transform all service provision in Bucks”.

I hope that is a statement of their constructive attitude. That is what I have found when dealing with them.

There was mention of a judicial review. I am pleased to quote from the letter received from the district councils, which states:

“The legal action is not intended to frustrate the process of creating a new council. We have been working with our district and county colleagues and will continue to do so.”

I thank them for that.

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I judge that the Minister is about to conclude his remarks?

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That is good, as I will have another opportunity to intervene later.

On the judicial review, I think the district councils have taken that action because they feel that not enough progress has been made. If the Minister is now offering me assurances that progress will be made with my district council and the other two district councils involved in the judicial review, that gives me some cause for optimism. Will he perhaps say when he will meet them again, and what progress he has made since the judicial review was instigated?

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It would be remiss of me to comment in detail on legal proceedings or the legal strategy that district councils might wish to pursue. I met them right at the beginning of the process to understand their concerns and to ensure that the Government work with all the district councils and the county council to put in place structural change orders that can command widespread support.

The Secretary of State’s special adviser is meeting all the leaders tomorrow, and I would be happy—as I always am—to meet them to follow up anything that requires my attention. We have been discussing things such as the number of councillors, the timing of elections and whether the new authority should be a continuing authority. I am pleased to say that, on almost every item of business that the district councils raised with me, we have been able to meet their requirements. There is of course one sticking point, which is the leadership of the shadow executive. The hon. Member for Oldham West and Royton raised that issue, and I will come to it in a second. I am pleased to say that, on almost every other concern they have, the Government have shown them that we are willing to work with them—as, indeed, is the county council, which also deserves credit for its constructive attitude. I remain positive and optimistic that we can all come together, and that the structural change orders, when finalised, will command broad support from all concerned.

That brings me to the question of leadership. It was alleged that the Government are imposing top-down leadership on the new body. It was said that that is not good for localism and is something that the district councils are concerned about. The hon. Member for Oldham West and Royton asked specifically about precedent. I am pleased to tell him that there are considerable precedents for central Government specifying the leader of a shadow executive or an implementation executive in such situations. He may be keen to know that in the last wave of large unitarisations—carried out by the Labour Government in 2009, in Cornwall, Durham, Northumberland, Shropshire and Wiltshire—the Government specified a particular leader for the shadow or implementation executive in all cases. That was also the case in Bedfordshire and Cheshire. I hope that he feels that there is suitable precedent in that regard, at least from his own party.

We are going one better than that, because we believe in localism. From day one, the shadow executive will have the ability to elect its own leader or change the leader that has been appointed, but it will start with an appointed leader who is named. Thereafter, we are specifically discussing that kind of issue with the district councils. I hope that the hon. Member for Oldham West and Royton is reassured that that outcome respects localism and local choice.

I turn to the specific questions about process and the suggestion that the right papers have not been laid, which is not at all the case. As I outlined, we are discussing the regulations that enable the process to take place. The orders that have been mentioned will be the subject of a full parliamentary debate, such as this one, when they have been finalised after discussions with the district councils. There is no question of Parliament being deprived of the opportunity to scrutinise and debate those orders. I look forward to the contributions of Opposition Members and Members on this side of the Committee who have expressed an interest in those orders when we return for that fixture, hopefully in a few weeks or months.

There is no legal requirement for the structural change orders to be laid at the same time as the regulations. That has been possible in the past but, in this case it was not, as the orders are still being worked on with the district councils. That said, a draft of the orders is very much in development and has been shared with all the district councils as it is being worked on and finalised.

On the suggestion that we did not have the right consent to lay the orders, I am pleased to tell the Committee that we received subsequent and unambiguous consent from Buckinghamshire County Council. If there was any suggestion that its original consent was conditional, I would be more than happy to place a copy of that letter in the House of Commons Library, if that will please hon. Members. I assure them that all suitable consents for the regulations have been sought.

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I have two things to say. First, I read a direct quote, as I understand it, from a letter from the Secretary of State that said that that consent is on the basis of his decision on the draft structural changes order. So that is a strange thing for the Minister to say, when that was set out in a letter—I do not have the date it was sent. Certainly, that is how I was advised by my district council.

Secondly, I hope that we will resolve this and get all our councils working together and pulling in one direction, but there needs to be some meeting of minds and joint working. This morning the county council put out a press release, announcing unilaterally its members of the shadow authority, rather than working with the district councils and announcing that jointly, which is not a strong indication that it will work with the district councils. I hope that jumping the gun and doing things unilaterally will become things of the past. If elected representatives would like the new authority to work positively, they should do things together, not separately or individually—that is a red rag to a bull.

The Minister knows that it has been an uncomfortable time in Buckinghamshire for many reasons, and we would like to see that healed. I am sorry that my colleagues are not here to speak up on such matters from their perspective, but I hope that I have put forward the case of Chiltern District Council and the other district councils that are having problems with the way this is moving forward. I urge him to try to find a speedy solution.

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That is a perfect place to conclude. I completely agree with my right hon. Friend. It is time for a fresh start for Buckinghamshire. It is time for people to forget about what has happened in the past, leave aside the tags of district and county, and come together to work for the benefit of residents. I hope that I can work collectively with my right hon. Friend, all hon. Members who are interested in the area and all local government agents in Buckinghamshire, to ensure that we foster that new sense of purpose and of new beginnings. Based on my experience in meetings, I remain positive and optimistic that that is happening. Of course these things are difficult, but we are moving through them positively. I remain confident that, before too long, we will have a happy resolution to all outstanding matters, and that the people of Buckinghamshire can look forward to a bright future.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Buckinghamshire (Structural Changes) (Modification of the Local Government and Public Involvement in Health Act 2007) Regulations 2019.

Committee rose.

Draft Solvency 2 and Insurance (Amendment, Etc.) (EU Exit) Regulations 2019 Draft INSURANCE DISTRIBUTION (Amendment) (EU EXIT) Regulations 2019 DRAFT FINANCIAL CONGLOMERATES and Other Financial Groups (Amendment Etc.) (EU Exit) Regulations 2019

The Committee consisted of the following Members:

Chair: Sir Henry Bellingham

† Bacon, Mr Richard (South Norfolk) (Con)

† Bradley, Ben (Mansfield) (Con)

† Chalk, Alex (Cheltenham) (Con)

† Dhesi, Mr Tanmanjeet Singh (Slough) (Lab)

† Glen, John (Economic Secretary to the Treasury)

† Hayes, Helen (Dulwich and West Norwood) (Lab)

† Hayes, Sir John (South Holland and The Deepings) (Con)

† Jones, Mr Kevan (North Durham) (Lab)

† Knight, Julian (Solihull) (Con)

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

† Robinson, Mary (Cheadle) (Con)

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

† Thewliss, Alison (Glasgow Central) (SNP)

† Walker, Thelma (Colne Valley) (Lab)

† Warburton, David (Somerton and Frome) (Con)

Whitfield, Martin (East Lothian) (Lab)

† Whittaker, Craig (Lord Commissioner of Her Majesty’s Treasury)

Mike Winter, Committee Clerk

† attended the Committee

Fifteenth Delegated Legislation Committee

Monday 4 February 2019

[Sir Henry Bellingham in the Chair]

Draft Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019

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I beg to move,

That the Committee has considered the draft Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019.

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With this it will be convenient to consider the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019 and the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019.

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It is a pleasure to serve under your chairmanship, Sir Henry.

As the Committee will be only too aware, the Treasury has been undertaking a programme of legislation to ensure that if the United Kingdom leaves the European Union without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that. Debates on such SIs have already taken place in this place and in the House of Lords, and the SIs we are debating are part of that programme. We have at least 13 more to come.

The draft SIs before us will fix deficiencies in UK law on the prudential regulation of insurance firms, insurance distribution and financial conglomerates to ensure that they continue to operate effectively post exit. The approach taken in the legislation aligns with that of other SIs being laid under the EU (Withdrawal) Act, providing continuity by maintaining existing legislation at the point of exit but amending it, where necessary, to ensure that it works effectively in a no-deal context.

Three SIs are being debated today: draft amendments to the Solvency 2 regulations, the financial conglomerates and other financial groups regulations, and the insurance distribution regulations. The Solvency 2 regulations set out the prudential framework for insurance and reinsurance firms in the EU. Prudential regulation is aimed at ensuring that financial services firms are well managed and able to withstand financial shocks, so that the services that they provide to businesses and consumers are safe and reliable. Solvency 2 is designed to provide a high level of policyholder protection by requiring insurance and reinsurance firms to provide a market-consistent valuation of their assets and liabilities, to understand the risks that they are exposed to, and to hold capital that is sufficient to absorb shocks. Solvency 2 is a risk-sensitive regime in that the capital that a firm must hold is dependent on the nature and level of risk that a firm is exposed to.

The insurance distribution regulations set standards for insurance distributors as regards insurance product oversight and governance, and set information and conduct of business rules for the distribution of insurance-based investment products. The financial conglomerates and other financial groups regulations set prudential requirements for financial conglomerates, or groups, with activities in more than one financial sector.

The three draft SIs that we are debating amend those regulations so that they function properly in a no-deal scenario. The amendments to be made by the draft Solvency 2 regulations, first, remove references to the European Union and EU legislation, and replace them with references to the UK and UK legislation. It is important to stress that the high prudential standards of Solvency 2 are not being altered. Changes are being made to ensure that the Solvency 2 regime continues to operate as originally intended once the UK is outside the EU.

Secondly, the draft statutory instrument alters the arrangements for the regulation of cross-border European economic area groups of insurance and reinsurance firms that provide services in the UK. As in other areas of EU regulation, insurers and reinsurers are subject to the EU’s joint supervisory framework. That enables the requirements of Solvency 2 for a cross-border EEA insurance or reinsurance group to be applied to the group, with one EEA supervisor allocated lead responsibility for supervision of the group, in addition to supervision of solo firms by their respective EEA supervisors. Supervisory co-operation takes place through a college of supervisors in which all the interested EEA supervisors take part.

After exit, however, in a no-deal scenario, the EU has confirmed that it will treat the UK as a third country and that the UK will be outside the joint supervisory mechanisms that are the basis for the current treatment of groups in the EEA. Cross-border EEA groups may therefore become subject to group supervision by both UK and EEA supervisory authorities in the absence of equivalence decisions.

The statutory instrument will transfer responsibility for making equivalence decisions in relation to third-country regimes. Currently, a third country’s regulatory or supervisory regime may be deemed by the European Commission to be equivalent to the approach set out in Solvency 2. After the UK leaves the EU, Her Majesty’s Treasury will make equivalence decisions for third-country regimes.

The statutory instrument will transfer responsibility for a number of important technical functions from the EU authorities to the UK. Most significantly, the risk-free rate—the rate that insurance and reinsurance firms must use to value their liabilities—will be transferred from the European Insurance and Occupational Pensions Authority to the Prudential Regulation Authority. The PRA is the most suitable UK body to undertake the technical function of compiling the risk-free rate. It will also take on the responsibility of publishing the risk-free rate. In addition, responsibility for making binding technical standards, which are currently developed and drafted by the EU supervisory agencies, will be transferred to the PRA, in a manner consistent with the approach taken in the other statutory instruments that we are laying under the withdrawal Act.

The statutory instrument removes obligations for EU competent authorities to share information with each other. If the UK leaves the EU without a deal, it will no longer be appropriate to require UK regulators to share information with EU regulators. UK regulators will continue, however, to be able to use their discretionary powers to share information when doing so might be necessary to ensure that supervisory responsibilities are carried out effectively.

Preferential risk charges for certain assets and exposures that originate from within the EEA, and which are held by UK insurance and reinsurance firms, will be removed. A UK firm’s exposures from the EEA will now be treated in the same way as exposures from any other third country. The EU has confirmed that it will treat UK exposures as third-country exposures if we leave the EU without an agreement.

I will now turn to the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019. This instrument fixes deficiencies in the regulations and relates mostly to removing inappropriate cross-references to EU bodies and legislation. The instrument transfers to the Financial Conduct Authority the power to make technical standards for a template presenting information about general insurance policies—a standardised document to help customers compare policies and make informed decisions. That power is important as it enables the Financial Conduct Authority to update the document in the future, to ensure it continues to deliver useful information for consumers.

The instrument also transfers relevant legislative functions to the Treasury. Those functions give the Treasury the powers to make regulations about conflicts of interest, inducements, assessments of suitability, appropriateness and reporting to customers, and specifying principles for product oversight and governance.

Finally, I will address the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019. This statutory instrument makes changes to the definition of “financial conglomerate”. Under the EU financial conglomerates directive, a financial conglomerate is defined as a group with at least one entity in

“the insurance sector and at least one…within the banking or investment services sector”.

One of those must be located within the EEA. The others can be located anywhere in the world. This statutory instrument will amend the geographical scope of the definition, so that one entity must be located within the UK, rather than the EEA, to be subject to the UK regime.

This statutory instrument amends the definition of “competent authority” so that it no longer includes regulators based in the EEA. It transfers a number of functions from the EU authorities to the UK regulators. The European financial conglomerates directive requires EU authorities to publish and maintain a list of financial conglomerates, for example. That function will now be carried out by the FCA and the PRA. In addition, as with other financial services files, the responsibility for developing binding technical standards will pass from the European supervisory authorities to the appropriate UK regulator.

Finally, as is the case for the statutory instrument that amends the Solvency 2 regulations, this statutory instrument removes obligations for EU competent authorities to share information. If the UK leaves the EU without a deal, it will no longer be appropriate to require UK regulators to share information with the EU. However, the UK regulators will continue to be able to use their discretionary powers to share information where this might be necessary to ensure that supervisory responsibilities are carried out effectively.

The Treasury has been working closely with the PRA and FCA in the drafting of these instruments. It has also engaged the financial services industry on these statutory instruments and will continue to do so going forward. The Committee will have heard from the Association of British Insurers, in a letter of 1 February, how meaningful that engagement has been. In late 2018, the Treasury published these instruments in draft, along with explanatory policy notes, to maximise transparency to Parliament and industry.

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On the issue of familiarisation costs, which are dealt with in the SI and are specified more precisely in the explanatory memorandum, it is clear that business is impacted and will endure what are said to be one-off costs in the notes. Will the Minister say a word about that to assuage any doubts?

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My right hon. Friend is right to draw attention to the impact assessment, which covers two of the three statutory instruments. One of them, of course, did not require one because of the de minimis impact. We have done our very best to be as transparent as possible and to quantify those. In the vast majority of cases, it has been about one-off familiarisation costs rather than an enduring burden. I thank my right hon. Friend for giving me the opportunity to clarify that.

In summary, the Government believe that the proposed legislation is necessary to ensure that insurance and reinsurance firms, insurance distributors and financial conglomerates continue to operate effectively in the UK, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope colleagues will join me in supporting the regulations. I commend them to the Committee.

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It is a pleasure to serve under your chairmanship, Sir Henry. Once again the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each of those occasions, I and my Front-Bench colleagues have spelt out our objections to the Government’s approach to secondary legislation.

The volume of EU exit secondary legislation is deeply concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity. Secondary legislation ought to be used for technical, non-partisan, non-controversial changes, because of the limited accountability it allows. Instead, the Government continue to push through far-reaching financial legislation via this vehicle. These regulations could represent real and substantive changes to the statute book. As such, they need proper in-depth scrutiny. In light of that, the Opposition want to put on record our deepest concerns that the process regarding the regulations is not as accessible and transparent as it should be.

Our request for a debate on the Floor of the House regarding the markets in financial instruments directive in December 2018 was rejected, but I note that in the Treasury Committee’s oral evidence session last Tuesday, the Chair said that she was writing to the Leader of the House to ask for a debate on the draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019. Given that we now have more parliamentary time due to the cancellation of the February recess to focus on this very issue, I hope the Government will heed the calls now coming from across the House for more in-depth and open debates on these matters.

Today we turn our attention to three items that make provision for the UK insurance industry in the event that we leave without a deal. The UK insurance market, centred on Lloyd’s of London, is the world’s oldest insurance industry of its kind. It attracts business from all over the globe as it is often the only place where the combination of specialists can be found to provide products to cater for all of today’s highly complex risks, especially those of terrorism, cyber-attack and natural catastrophes. From its humble beginnings as a coffee house in the 17th century, Lloyd’s of London has become central to world insurance markets, paying out more than £18 billion in gross claims in 2017. Yet the insurance sector, which is so fundamental to the way in which businesses and individuals manage daily risks, is still in complete limbo over its post-Brexit future.

As I have said in this Committee before, relying on equivalence arrangements will fall short of what our financial sector as a whole needs if we are to use it when we leave the European Union. For the insurance sector, it is obviously even worse, as there is simply no equivalence framework for brokers under the insurance distribution directive. We would therefore be going into uncharted territory. The London Market Group, which represents brokers and underwriters, has said:

“It would be unacceptable to see EU clients left in a detrimental position, not knowing whether their claim would be paid or not.”

Inevitably, we have seen the consequences of that as the insurance community has been forced to move forward with its own contingency plans in the absence of any clarity from the Government. Lloyd’s became authorised to write EEA business from the beginning of the year, and is now working on transferring all EEA business to Lloyd’s Brussels before the end of 2020. Brokers here in London intermediate business all over the world, but the third-country regime was not designed for market participants already operating globally; it was intended to bring external countries into the regime.

The Minister has presented three instruments that the Government argue will allow for a basic framework to function in the event that we crash out without a deal. The first is the draft Solvency 2 and Insurance (Amendments) (EU Exit) Regulations. Given the systemic importance of the insurance industry, there has been a co-ordinated effort over the past decade to ensure that capital requirements are sufficient to protect insurers and policy holders against insolvency. Those regulations have been vital to building a more robust insurance sector post-financial crisis. It is critical, in the view of the Opposition, that there is no move to water them down in the wake of our exit from the EU.

Typically, the industry representatives I meet have no desire to bring about a bonfire of regulation, but there is no guarantee that there are not forces who wish to see that outcome in the UK and plan to lobby for it. The Opposition are strongly against any adaptation of Solvency 2 in such a way that would weaken capital requirements. Although I see no evidence of that in this instrument, the area that is cause for concern relates to the end of preferential treatment for EU sovereign debt.

As we discussed during the Committee on the draft Capital Requirements (Amendment) (EU Exit) Regulations 2018, if we crash out without a deal, the zero risk weighting for EU sovereign debt will instantly change. It will no longer receive preferential treatment, but instead be treated as third-country debt. The reverse would apply with regards to UK sovereign debt. That has the potential to be highly disruptive, as big institutions would be expected to recalculate capital ratios and recapitalise when there has not been any real change in risk.

Sam Woods of the Prudential Regulation Authority insisted during a Treasury Committee evidence session, which the Minister participated in, that this is a decision for Parliament, which is why it has been included in an SI. However, he also emphasised the need for making the change very carefully, through proper risk processes and governance, as it will affect reported capital ratios. In a no-deal scenario, where market conditions are likely to be volatile, the last thing needed is for banks and insurance companies to be uncertain about their published capital ratio.

I therefore ask the Minister: what provisions are the Treasury making for that scenario? It is not mentioned in the impact assessments that have been circulated, which is of deep concern to the Opposition. We urgently want to know what provision is being made. As the Association of British Insurers has directly highlighted:

“The Government has already publicly stated its commitment to applying transitional relief in this area, but it is vital that the PRA applies this effectively so that firms can consider their asset portfolios and make any necessary changes in an orderly fashion.”

Moreover, the ABI has underlined further outstanding concerns shared by the Opposition. The PRA is assuming hugely important decision-making powers, and therefore the ABI views the structure as an emergency process to address immediate challenges. As the ABI has publicly stated, there must be genuine checks and balances on how the PRA exercises those functions, replicating the European Parliament’s existing role in scrutinising how those functions are currently exercised at EU level.

I have made this point in Committees related to other items of financial services legislation: the Government cannot simply port over the same regulatory framework as the European Commission and its regulators, when our Treasury and supervisory authorities do not interact in the same way. In the Opposition’s view, that then becomes an implicit policy decision.

On the draft Insurance Distribution (Amendment) (EU exit) Regulations, the insurance distribution directive was a relatively new piece of legislation that helped to level the playing field for consumers buying insurance and to improve conduct standards. As such, there could be a significant consumer detriment in removing those protections, which try to ensure that policy holders are treated fairly and consistently.

However, our real concern is that we continue to lack any kind of equivalence provision for the IDD in a post-Brexit world. As the London & International Insurance Brokers’ Association wrote in its letter to the Prime Minister in 2018, an enhanced equivalence regime will see intermediaries losing access. Our primary concern must be that markets can continue to function and that there is no consumer detriment, or any legal risks, created for insurers or brokers. Can I therefore ask the Minister to provide some clarity on whether any progress has been made in that field?

I would also like to know why the term “insurance-based investment product” is being redefined here. It is not clear how that flows from the European Union (Withdrawal) Act. Regulation 12 transfers insurance-related regulation-making functions to the Treasury. Why the Treasury, and not the PRA? Why have the Government not publicly rationalised their transfer of some functions to different bodies? As I have said, simply porting functions over to institutions in the UK ignores the fact that EU institutions and regulators interact entirely differently. There should be a wider debate about those decisions, so we can ensure the right checks and balances are in place.

Moving on to the third statutory instrument, the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019, the Opposition has the same concerns with regard to capital buffers and how they are calculated if preferential treatment for EU sovereign debt is removed. Regulation 3 suggests an amendment referring to the “relevant competent authority”. Can the Minister clarify who that might be, and why it is not possible to specify that yet? That is all I wish to ask. Subject to the Minister’s reasonable reassurances, I do not intend to divide the Committee on these draft regulations.

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It is a pleasure to see you in the Chair, Sir Henry, and to join all hon. Members for another Delegated Legislation Committee. I look forward to the 30 more to come; I am sure it will be a delight for us all to spend so much time together.

I agree with an awful lot of what the hon. Member for Stalybridge and Hyde said, and I share his concerns about the way in which this secondary legislation is being made, about scrutiny and about the plans as we go ahead. As an SNP Member, I do not want Brexit to happen and I certainly do not want a no-deal Brexit—that is not what Scotland voted for. In July last year, TheCityUK reported that the number of financial services jobs in Scotland rose 6.6% to 161,000 in the preceding year, outstripping London, which had a rise of 5%. Financial and related services now account for 8.9% of the Scottish economy, so it is no small business that we are talking about, but an essential component that we have to get right. The particular strength of my home city of Glasgow is insurance; I have a strong interest in keeping those insurance companies functioning in Glasgow, with all their employees.

I am glad to see that there is an impact assessment for the draft Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019; that is helpful. The familiarisation cost for those alone is £230,000. I appreciate that for some companies, that is not a huge amount of money, in the wider scheme of things, when it is divided up. It is, however, additional money that they have to come up with. I note also that the provisions place an additional burden on the Prudential Regulation Authority. It would be interesting to know from the Minister exactly how that is being met in the PRA; how many extra staff and financial resources will be required for the additional regulatory burden? More insurance firms will fall into PRA supervision, and there will be increased regulatory and compliance costs for UK firms as a result. It would be interesting to know whether he can put any kind of figure on that, because it may be additional resource that firms have to find, outside the familiarisation costs.

I note the ABI’s concerns about duplication; it says that this will be an additional burden, which could place firms at a disadvantage to their European counterparts. The ABI’s points about those issues were well made, and the hon. Member for Stalybridge and Hyde made most of those points. The ABI wants some assurance about the long-term future of the regulatory structure, and it wants to be part of the review. It says that new regulatory architecture should be within a defined timescale at the end of the process. We are going into a pretty uncertain period, and it needs to know what will happen in advance, for planning and other things.

The impact assessment states:

“The impact on individual firms will depend on the exposures they have, which we do not currently hold information on. Therefore, it is not possible to quantify the estimated impact on the insurance industry in the time available to complete this legislation.”

That comment goes to the heart of the situation we are in. We are building this legislation but we do not have time to deal with it, and there is a prospect of no deal looming. That is a huge worry for many firms and their employees, who do not know what they will be dealing with.

On the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019, I am concerned about the consumer welfare aspect, because of the powers that the Treasury gives itself to adopt delegated acts, and to make regulations about conflicts of interest, inducements and assessments of suitability, appropriateness and reporting to customers. Can the Minister tell us a wee bit more about how he will ensure that consumers do not lose out as a result of this change and what the intended framework will be in the years ahead?

I note that in order for the PRA and the FCA to carry out their functions, the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019 removes the requirement on firms to report to the ESAs and replaces it with a requirement to report to the UK regulators. It would be good to get a bit more detail on how that process might work, because there is a change from one thing to another. It would be good to know what kind of notice firms require for that, and how easy it will be.

There will also be a transitional cost. I believe it is below the threshold for the impact assessment, but it would still be good to get more of an idea of what it will be. Again, for some firms there may well be duplication—having to report twice—and that would be another additional cost. Any additional information on what that cost might amount to for firms would be useful.

As the hon. Member for Stalybridge and Hyde said for the Opposition, we do not seek to vote against these statutory instruments. However, I reiterate my concern that they are incredibly late in the day, that we do not have much time left and that it is very difficult to get a real handle—besides the very helpful briefing from the ABI—about their impact, because things are moving very fast.

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I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their thorough examination of these three statutory instruments, and I note their consistent objection to the use of that mechanism to deliver such changes. All I can say is that the Government have pursued the changes consistent with the powers in the Act, and that great care and diligence have been taken to liaise with regulators and the industry, and to engage with industry participants, as I think the ABI has confirmed.

Of course, the process is designed as insurance in the circumstances of no deal; it is not the Government’s policy that the regulations will need to come into effect. I fully accept the point made by the hon. Member for Stalybridge and Hyde about the broader need to look at the future in a fair way, and the concerns of the London Market Group representative, whom I will meet tomorrow to look at global financial partnerships. The Treasury is not just focused on no-deal planning.

Both hon. Members raised a number of specific points, which I will seek to address as succinctly as I can. They expressed concern about relying on secondary legislation to push through controversial legislation. I re-emphasise that the powers granted in the European Union (Withdrawal) Act 2018, under which the majority of exit SIs are being made, have restrictions to ensure the appropriateness of their use. The central objective of the SIs is to provide legislative continuity, which is what market representatives have sought. Such SIs are, of course, subject to the usual scrutiny provided by the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee. In addition, the Treasury has taken the step of publishing drafts of financial services SIs in advance of laying them before the House, to maximise transparency.

The hon. Member for Stalybridge and Hyde asked about equivalence and whether it was sufficient to protect UK industry. I agree that equivalence is not a sufficiently good outcome, and that is why the Government are working for a deal that aims for enhanced equivalence, which we would embed in the new relationship with the EU by June next year. Obviously, however, if there is no deal, we have to cover ourselves.

The hon. Gentleman also asked whether Solvency 2 can still operate effectively if preferential treatment for EU assets is retained, and whether removing preferential treatment is a political decision that the Government have made. The Commission has made clear that it intends to treat the UK as a third country after exit in the absence of a withdrawal agreement, and therefore we expect EEA regulators to remove current preferential treatment. It is only appropriate for the UK, in the absence of a reciprocal agreement, to treat EEA assets and exposures in the same way. We recognise that that may have a day one capital impact on insurers with EEA assets and exposures; that is why we intend to provide regulators with a transitional tool, as I discussed at the Treasury Committee last Tuesday morning, to ensure that firms have sufficient time to comply with changes overall with respect to legislation and rules.

The hon. Gentleman reflected on the concerns that the ABI expressed in its letter about too much power being transferred to the PRA for Solvency 2. The PRA has the expertise and resources to take on the technical functions being transferred from EU institutions and to ensure that they are met on an ongoing basis. There are existing safeguards within the Financial Services and Markets Act 2000 that place conditions on the PRA’s ability to exercise its powers. The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 also require the Treasury to approve changes to technical standards by regulators to correct any deficiencies before exit day.

The hon. Gentleman asked which functions would come to the Treasury. Wherever the Commission exercises a legislative function, that is transferred to the Treasury, which can make changes to these regulations only through SIs in Parliament, where parliamentary approval will be required. On the lack of democratic accountability for the PRA, the changes are not intended to be long term; regulators, the Treasury and industry will work together to address the framework in the long term.

That will be a significant change, and one that I hope we do not pursue; I think there is a lack of understanding about how significant that change would be. However, we would do everything we could to ensure that we set that framework in the right way. Accountability to Parliament will be a priority whatever happens, and only functions carried out by EU regulators are being transferred. The hon. Member for Stalybridge and Hyde also asked why there cannot be more specificity regarding the relevant competent authority with reference to the conglomerates. The legislation specifies that it is either the PRA or the FCA, depending what type of regulated firm is covered, which fits with the UK’s existing framework.

The hon. Member for Glasgow Central again reflected on the ABI’s concerns, this time about the inefficiencies being created by making cross-border insurers subject to dual group supervision. We recognise that dual regulation may create additional costs for UK insurers that operate across the UK-EU border. However, that is a consequence of the UK’s decision to leave the EU rather than of this instrument, and in applying Solvency 2 in a UK-only context, the PRA needs to apply group supervision at the UK level, as it can no longer participate in the formal college of EU supervisors. Basically, the PRA will need to take account of the systemic risks that exist, and ensure they are covered for.

The hon. Member for Stalybridge and Hyde asked why insurance-based investment product definitions are being changed. The definition is not being changed; it will operate as before, but references to EU institutions and EU law need to be fixed. If there are outstanding issues on that point, I am very happy to correspond with him.

The hon. Member for Glasgow Central challenged the need for the Government to take additional powers in the draft insurance distribution SI. The instrument transfers relevant legislative functions of the European Commission, contained within the insurance distribution directive, to the Treasury. As the hon. Lady clearly understands, the Treasury has the powers to make those regulations about conflicts of interest, inducements, assessments and so on. They are important, because the IDD came into force only last year, and as such the Commission held those powers to ensure that the regulatory regime for the sale and distribution of insurance could be updated. Transferring them to the Treasury is in line with the Government’s standard approach to such powers as part of this process.

The hon. Lady asked about the resourcing of the PRA. As we have also discussed before, regulators are independently funded by levies on industry. The regulators have prioritised Brexit; I seem to recall that the FCA now has 158 full-time equivalents, up from 28 in March last year. I meet with Andrew Bailey regularly. I met him this morning and he confirms that those resources are in place, but if more is required he would be at liberty to raise a levy to secure those.

The hon. Lady referred to consumer welfare concerns about the IDD. I can reassure her that consumers will not lose out. There is no substantive change in the policy requirements on firms under this SI. Firms will still be required to prepare the standardised statement, with the same content as is currently the case and, indeed, as industry wishes.

I hope that I have dealt with the substantive points that were raised. I have a lot more material that I could go through, but I think I have faithfully addressed what was said. I hope that the Committee has found the sitting informative, and will be able to join me in supporting the three statutory instruments.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019.

Draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019

Resolved,

That the Committee has considered the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019.—(John Glen.)

Draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019

Resolved,

That the Committee has considered the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019.—(John Glen.)

Committee rose.