Delegated Legislation Committee
Draft Road Vehicle Emission Performance Standards (Cars and Vans) (Amendment) (EU Exit) Regulations 2019 Draft Road Vehicles and Non-Road Mobile Machinery (Type-Approval) (Amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Mr George Howarth
† Brock, Deidre (Edinburgh North and Leith) (SNP)
Campbell, Mr Ronnie (Blyth Valley) (Lab)
† Dodds, Anneliese (Oxford East) (Lab/Co-op)
† Donelan, Michelle (Chippenham) (Con)
† Duguid, David (Banff and Buchan) (Con)
† Foxcroft, Vicky (Lewisham, Deptford) (Lab)
† George, Ruth (High Peak) (Lab)
† Glindon, Mary (North Tyneside) (Lab)
† Hart, Simon (Carmarthen West and South Pembrokeshire) (Con)
† Heappey, James (Wells) (Con)
Killen, Ged (Rutherglen and Hamilton West) (Lab/Co-op)
† Norman, Jesse (Minister of State, Department for Transport)
† Robinson, Mary (Cheadle) (Con)
† Smith, Royston (Southampton, Itchen) (Con)
† Stewart, Bob (Beckenham) (Con)
† Swire, Sir Hugo (East Devon) (Con)
† Turner, Karl (Kingston upon Hull East) (Lab)
Yohanna Sallberg, Committee Clerk
† attended the Committee
Twelfth Delegated Legislation Committee
Wednesday 27 February 2019
[Mr George Howarth in the Chair]
Draft Road Vehicle Emission Performance Standards (Cars and Vans) (Amendment) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Road Vehicle Emission Performance Standards (Cars and Vans) (Amendment) (EU Exit) Regulations 2019.
With this it will be convenient to consider the draft Road Vehicles and Non-Road Mobile Machinery (Type-Approval) (Amendment) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Howarth. As the Committee knows, the Government have a responsibility to be prepared for any scenario on EU exit day and will therefore continue to lay before the House EU exit statutory instruments for a no-deal outcome. If they are no longer required on exit day, we expect to defer, revoke or amend them in time for the end of the implementation period.
As the Department responsible for vehicle regulation, the Department for Transport has conducted intensive work to ensure that there continues to be a functioning legislative framework for this important sector of the economy. Although we strongly believe that leaving with a deal is the best outcome for the UK and the EU, it is our duty to make reasonable preparations for all scenarios. The statutory instruments are an essential part of those preparations, and they will ensure that there continues to be a well-functioning regulatory regime in the UK.
Currently, motor vehicles can be registered and placed on the UK market only if they have a valid EU type approval that demonstrates that they conform to EU standards, including safety and emissions requirements. The legislation governing that is a mix of domestic and directly applicable EU regulations.
The draft type approval regulations will ensure that the Government continue to have control over the registration of vehicles in the UK, while minimising the burden on manufacturers. The regulations were tabled under the negative procedure and considered by the sifting Committees of both Houses, which both recommended that they be upgraded to affirmative, given the potential impact on manufacturers. I thank the Committees for their consideration of these and other statutory instruments.
This is an ill-informed question, and I would be grateful for the Minister’s answer. The legislation seems to pertain to cars and light commercial vehicles. Will there be similar legislation relating to lorries, buses, motorcycles and so forth?
I will come to that issue later, so I will respond to my right hon. Friend then. The most apparently naive questions are always the hardest to answer.
The regulations will require vehicles to be registered using a provisional UK approval, and they allow the Vehicle Certification Agency to issue provisional UK approvals to manufacturers who hold a valid EU type approval without additional costly re-testing. Importantly, the environmental and safety standards to which vehicles will be approved under the UK scheme will remain unchanged from those applicable under the EU regime.
There is a good reason why the UK should not simply accept EU approvals, rather than creating the UK scheme proposed in the regulations. Without the UK scheme, the Government could not act to stop another Volkswagen-type emissions scandal—we could not prevent those vehicles from being put on the road, withdraw approval of them or require additional testing to ensure that they conformed to the applicable standards until the EU had acted on the matter.
The regulations temporarily double the limits for the national small series type approval until the end of 2019. That specific measure reduces the burden of regulation on smaller manufacturers who sell only in the UK market. Many are UK companies that provide essential and sometimes unique vehicles and products to our domestic market.
The regulations are subject to a sunset clause, so they represent an interim arrangement that is valid for a maximum of two years. That allows the additional time required to develop a full UK type approval scheme and to correct the remaining deficiencies in the thousands of pages of technical annexes to the retained EU legislation. We will formally consult on those proposals, and we aim to lay the statutory instrument before the House later this year for Parliament to debate and vote on.
The draft regulations will be made for the most part under the powers conferred by the European Union (Withdrawal) Act 2018. To correct a deficiency in existing UK legislation, the powers conferred by the European Communities Act 1972 will also be used to harmonise the legal definition of type approval certification across the UK. The regulations create a UK approval scheme by amending the Road Traffic Act 1988 in Great Britain and the Road Traffic (Northern Ireland) Order 1981. In addition, the regulations amend the Vehicle Excise and Registration Act 1994 to provide that vehicles entering the UK after exit day can be registered only if they have a UK approval. Further minor amendments are proposed to the Road Vehicle (Approval) Regulations 2009 and to the three retained frameworks for motorcycles, agricultural vehicles and engines for non-road mobile machinery, to ensure that that retained EU legislation remains operable after the UK leaves the EU. The amendments will come into force on exit day, except for the harmonisation of the legal definition of type approval certification across the UK, which will come into force 22 days after the regulations are made.
During the development of the regulations, the Department engaged widely across the automotive sector. We have spoken directly with all the major trade associations—the Society of Motor Manufacturers and Traders, the Motorcycle Industry Association, the Agricultural Engineers Association, as well as those representing specialist manufacturers such as the Wheelchair Accessible Vehicle Converters Association. The meetings have included those who are directly involved in the day-to-day process of type approval, as well as people in managerial roles from manufacturers. Although the industry does not want a no-deal Brexit, it recognises the proposals as a light-touch, pragmatic contingency plan.
I turn to the draft Road Vehicle Emission Performance Standards (Cars and Vans) (Amendment) (EU Exit) Regulations 2019. The existing EU regulations establish mandatory fleet average CO2 emissions targets for all cars and vans registered in the EU each calendar year. For cars, the target is currently 130 grams of CO2 per kilometre, and it will reduce to 95 grams in 2020. For vans, the target is 175 grams of CO2 per kilometre, lowering to 147 grams in 2020. Those requirements have been one of the key drivers towards improving the efficiency of new cars and vans since their introduction.
On the basis of those top-level targets, manufacturers receive individual targets based on a comparison between the average weight of their fleet and the average weight of all relevant vehicles registered in that calendar year. Manufacturers with heavier fleets receive individual targets above the headline target, while those with lighter fleets receive targets below it. As only the manufacturers’ fleet average is regulated, they may sell any vehicle they wish provided that the emissions of their fleet balance out to meet their target. Fines of €95 per vehicle per gram of exceedance are levied on manufacturers that miss their target.
The EU regulation contains a number of provisions that give manufacturers flexibility in delivering their target. Those include derogations, which ease emissions reduction requirements on manufacturers registering fewer than 300,000 cars or 22,000 vans a year; pooling, which allows manufacturers that fall under the same umbrella group to combine their registrations, effectively becoming one manufacturer for the purposes of emissions reduction; eco-innovations, which allow manufacturers to receive credits for technologies that reduce CO2 on the road, but that are not taken into account during vehicle testing—for example, the use of a solar roof—and super-credits, which provide manufacturers with additional incentives for registering ultra-low emissions vehicles.
The regulations align national policy as closely as possible with the existing EU regulation, providing certainty for industry that its already established business plans will not be affected by the UK leaving the EU. The regulations we are considering also ensure that we meet our long-standing commitment to having a post-EU emissions regime that is at least as ambitious as the current arrangements, and they provide the framework for the Government to assume the obligations and functions of the European Commission under the existing EU regulation. That can best be summarised by explaining that these regulations retain the target-setting approach and formulae establishing individual targets, as is already the case under EU law, but they will apply only to cars and vans that have been newly registered in the UK after exit day.
The related provisions that I have outlined—for example, the derogations and pooling provisions—are also amended by the regulations to make sure that those provisions will work sensibly in the UK context while maintaining existing standards. All minor deficiencies have also been corrected as appropriate—for example, by replacing “Commission” with “Secretary of State”. Six related delegated regulations and 25 implementing decisions that will be retained are also amended by this statutory instrument to ensure their continued function in the UK. The amendments will come into force on exit day.
Legislation on CO2 targets does not directly exist in the EU at present, so the targets are for vans and cars only. Provisions on the monitoring and reporting of data from heavy goods vehicles have been laid before the House in a separate statutory instrument.
Although we want a deal that recognises the equivalence of UK and EU type approval schemes, the changes made in the type approval regulations and the new car and van CO2 emissions standards regulations will ensure that we retain control of the registration of vehicles; that we maintain continuity of vehicle approvals and emissions; that we minimise costs to industry; and that the legal framework continues to work after the UK’s withdrawal from the European Union, while maintaining the Government’s commitment, set out in the strategy “The Road to Zero”, to
“a future approach as we leave the European Union that is at least as ambitious as the current arrangements for vehicle emissions regulation.”
I hope colleagues will join me in supporting the regulations, and I commend them to the Committee.
It is a pleasure to see you in the Chair, Mr Howarth, and it is always a privilege to serve under your chairmanship. I do not intend to detain the Committee too long. The proposed changes to the road vehicle emissions performance standards are designed to ensure that after the UK withdraws from the EU, CO2 emissions of new cars and vehicles registered in the UK continue to be regulated in a manner that is at least as ambitious as the current arrangements. Regulations are maintained to match the current arrangements in the UK as closely as possible. That will minimise any burden in relation to administration and environmental performance as a direct consequence of the UK’s withdrawal from the EU. The emission performance standards regulations are entirely sensible, and for that reason the Opposition support them.
The Road Vehicles and Non-Road Mobile Machinery (Type-Approval) (Amendment) (EU Exit) Regulations 2019 will ensure that the type approval regime is effective after we withdraw from the EU. A range of road vehicles as well as non-road mobile machinery are currently subject to obligatory EU approval to ensure that they conform to high standards of safety and environmental protection. The instrument will enable the UK type authority, the Vehicle Certification Agency, to issue provisional UK type approvals to manufacturers that produce vehicles or engines under an EU vehicle or engine type approval issued by the EU27 authorities. Additional testing or inspection will not be required unless the VCA becomes aware of evidence that raises doubts about compliance. That is entirely sensible and will keep disruption to a minimum, and for that reason we support the regulations.
That arrangement is an interim one, pending a review and reworking of the UK’s type approval arrangements. The legislation is planned for mid-2019, which seems quite vague. Can the Minister give us a clearer idea of when exactly the legislation will be introduced?
It is a pleasure to serve under your chairship, Mr Howarth. I certainly hope that Punxsutawney Phil will be along soon, because if this is not “Groundhog Day”, it is just a failed and unfunny joke that is being practised on the people we represent. We are once again debating legislation that we need and already have, but that we are going to get rid of and replace with identical legislation, except for the wee bits we have to change because we are doing something utterly bonkers with the constitution. There are still about 300 of these pieces of legislation to come from the Department for Environment, Food and Rural Affairs alone, so we will be spending an awful lot of time doing very similar things to achieve something that is not sensible in the first place—taking back control by doing exactly the same thing but giving it a different name.
That is an incredible use of the millions of pounds spent on consultants, the thousands of new civil servants hired, and the hours and hours spent here doing the legislative equivalent of watching paint dry. This is all for the sake of a last hoorah at the echoes of global significance. We lost an empire, could not find a role and decided to dive off a cliff, all because of a sense of British exceptionalism that is unsupported by evidence or analysis—an empty, cracked and broken bell that peals only in the imagination of fervent Brexiters.
But let us pass this legislation, which we already had but did not like because some people suspected that it might have been imposed on us. Let us prepare for a chaotic exit from the EU that was brought even closer by yesterday’s manoeuvrings by a Prime Minister who cannot control a Government that barely exist, and that are surviving only because—
Order. I hesitate to interrupt the hon. Lady, but she is making a speech about the process rather than the regulations that we are considering. She is perfectly entitled to do that, but the Committee would be grateful if she moved on to the substance of the regulations.
I will. Forgive me, Mr Howarth, but I sometimes get to the point where I need to vent my frustration at the nonsense that goes on in this place.
Let us pass this legislation so we continue to have some standards on the emissions of vehicles and some control over the quality of motor vehicles, for a while at least, until some maverick Minister decides to remove them all. To cut to the chase, this is rushed legislation with no impact assessment and, like so much of what we are doing, it is needed only because of the chaos caused by the mad dash to Brexit.
There is no impact assessment, because the Department reckons that one is not needed, but the Transport Secretary’s track record does not instil confidence in that judgment. Without a proper policy trail or proper thought about what we are doing, we are asked to nod this legislation through. Proceedings in this place are descending into full-blown farce, so the SNP will abstain on the two statutory instruments.
It is a pleasure to serve on the Committee with you in the Chair, Mr Howarth. I rise to speak briefly on the type approval regulations, because I have a strong constituency interest in the matter. As the Minister indicated, type approval, which is known in the trade as homologation, is essential to the automotive industry. Without type approval, it is impossible for cars to be marketed in different jurisdictions.
That is a particular problem for highly customised models. Every single Mini on the production line at BMW’s Cowley factory in my constituency is produced for a specific customer, and thus individualised, from the beginning. Without type approval, it would not be possible for any of those cars to leave the factory and go to their new owners. Given that the production process starts weeks before the cars leave the factory, and that the Government continue recklessly to entertain the possibility of no deal, we need arrangements to secure the continuity of type approval in the event of no deal, as was mentioned by my hon. Friend the Member for Kingston upon Hull East.
It is important to ensure that British-approved cars can still be marketed in the EU27 and that EU27-approved cars can still be marketed in the UK. There has been considerable concern in the industry about the lack of legal certainty in the area. In fact, getting the arrangements sorted out has been an urgent requirement for some time. I hope that the arrangements can be speedily enacted in the worrying eventuality that they might be needed.
I thank all hon. Members who have contributed. The hon. Member for Kingston upon Hull East asked about the timing of legislation, and I assure him that we expect to lay a second statutory instrument before the House by the end of the summer. That is well in hand.
I am not sure what question the hon. Member for Edinburgh North and Leith asked. She denounced us for being bonkers with the constitution when it is, of course, SNP policy to do exactly the same thing with the UK. I have no doubt that a considerable body of legislation would have to be homologated in Scotland’s own constitutional arrangements, whatever they are, once that had taken place.
This is all very interesting, but I am sure the Minister will now move on to the regulations.
I will indeed, but I think it is important to give the hon. Lady the proper scope, and to acknowledge and recognise her venting. I wondered why she was venting, but then I realised that she had appeared in an episode of “Home and Away”, and therefore it came with the turf. It is right to say that these are serious pieces of legislation. In fact, work has been done on the impact assessment—I think that was the one substantive point that the hon. Lady raised—but it is of a de minimis kind.
The hon. Member for Oxford East rightly raised a point about the urgency of and need for the legislation, and I share her view. That is why we are taking the matter as seriously as we are doing, and it is why we are pressing ahead with the statutory instruments that we are considering and those that are to come.
Draft Road Vehicles and Non-Road Mobile Machinery (Type-Approval) (Amendment) (EU Exit) Regulations 2019
Motion made, and Question put,
That the Committee has considered the draft Road Vehicles and Non-Road Mobile Machinery (Type-Approval) (Amendment) (EU Exit) Regulations 2019.—(Jesse Norman.)
Draft Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Philip Davies
† Chishti, Rehman (Gillingham and Rainham) (Con)
† Dowd, Peter (Bootle) (Lab)
† Fitzpatrick, Jim (Poplar and Limehouse) (Lab)
† Glen, John (Economic Secretary to the Treasury)
† Hendry, Drew (Inverness, Nairn, Badenoch and Strathspey) (SNP)
† Jayawardena, Mr Ranil (North East Hampshire) (Con)
† Knight, Sir Greg (East Yorkshire) (Con)
† Knight, Julian (Solihull) (Con)
† Lord, Mr Jonathan (Woking) (Con)
† Pow, Rebecca (Taunton Deane) (Con)
† Smith, Jeff (Manchester, Withington) (Lab)
† Spellar, John (Warley) (Lab)
Streeting, Wes (Ilford North) (Lab)
† Thomson, Ross (Aberdeen South) (Con)
† Timms, Stephen (East Ham) (Lab)
† Walker, Thelma (Colne Valley) (Lab)
† Whittaker, Craig (Lord Commissioner of Her Majesty’s Treasury)
Peter Stam, Committee Clerk
† attended the Committee
Eighteenth Delegated Legislation Committee
Wednesday 27 February 2019
[Philip Davies in the Chair]
Draft Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019.
May I start by saying what a pleasure it is to serve under your chairmanship again, Mr Davies? The draft regulations—like the draft Securitisation (Amendment) (EU Exit) Regulations 2019, which were debated this morning—are part of our programme of legislation under the European Union (Withdrawal) Act 2018 to ensure that if the UK leaves the EU 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 draft regulations will fix deficiencies in EU law on securities financing transactions to ensure that it continues to operate effectively after the UK leaves the EU. They are aligned with the approach taken in all 52 of the statutory instruments that I have laid before Parliament under the 2018 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.
The draft regulations concern securities financing transactions, in which securities such as equities are used to borrow cash or vice versa. A common type of SFT is a repo—repurchase transaction—in which a party sells an asset to another party at one price and commits to repurchasing it at a different price on a later date. SFTs were not regulated before 2015; there were major concerns about their effect on the economy, especially because during the financial crisis repurchase transactions were associated with increases in leverage and exacerbating boom and bust cycles in the economy.
After the Financial Stability Board identified significant risks associated with such instruments, the EU passed the securities financing transactions regulation to introduce a framework under which details of SFTs must be reported to trade repositories, which are effectively databases for reporting transactions. Under the regulation, such information must then be disclosed to investors, and national regulators are required to act where they identify risky practices by firms.
The regulation is therefore crucial to protecting financial stability and ensuring that the benefits of SFTs remain available to firms that use them and to the wider economy. On exit day, it will be transferred to the UK statute book under the 2018 Act. In a no-deal scenario, however, the UK would be outside the European economic area and outside the EU’s legal, supervisory and financial regulatory framework, so the legislation would no longer be operative.
The draft regulations will make the necessary amendments to ensure that the relevant provisions continue to work properly in a no-deal scenario. First, they will amend the treatment of EEA branches of financial services firms in the UK, so that after the UK leaves the EU, EEA branches operating in the UK must report their transactions to a UK trade repository. That means that they will be treated in the same way as other third-country branches operating in the UK, which is consistent with the approach that we have adopted in other financial services SIs laid under the 2018 Act.
Secondly, the draft regulations will amend the list of entities that have access to data on securities financing transactions reported to UK trade repositories. EU bodies will be removed, making the list UK-specific to reflect the UK’s status as a third country outside the EU in a no-deal scenario. That will not preclude UK entities from co-operating with EU entities in future.
Finally, the draft regulations will transfer to the Financial Conduct Authority the European Securities and Markets Authority’s responsibilities relating to the requirements for the registration of trade repositories, and will amend the rules so that they continue to work in a domestic context. That is appropriate, given the FCA’s current role in supervising and regulating SFTs.
Because of limitations in the powers available under the 2018 Act, one of the main provisions of the securities financing transactions regulation cannot be domesticated at this stage: the requirement for firms to report details of SFTs to trade repositories. Depending on the type of institution concerned, that requirement will not apply until 12 to 21 months after the EU’s publication of relevant regulatory technical standards. Those standards have not yet been published, so the requirement could not be included in the draft regulations, since it will not be
“operative immediately before exit day”,
in the wording of the 2018 Act. However, we have introduced separate legislation—the Financial Services (Implementation of Legislation) Bill, or “in-flight files Bill”, which had its Committee stage yesterday—to ensure that the requirement will apply in a domestic context in due course.
In drafting the regulations, the Treasury has worked closely with the Prudential Regulation Authority and the Financial Conduct Authority. We have also engaged with the financial services industry, and we will continue to do so. On 19 December, we published the regulations in draft, with an explanatory policy note to maximise transparency to Parliament and industry. Prior to publication, we shared a draft with the industry for technical analysis, and we incorporated its feedback into the final draft.
In summary, the Government believe that the draft regulations are necessary to ensure that the UK has a workable regime for securities financing transactions, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues across the parties will join me in supporting the draft regulations. I commend them to the Committee.
It is a pleasure to see you in the Chair, Mr Davies. Once again, the Minister and I are in a Committee Room discussing a statutory instrument that would set up a regulatory framework after Brexit in the regrettable event that we parachute out of the EU without a parachute. On each such occasion, my Labour Front-Bench colleagues and I have explained our objections to the Government’s approach to secondary legislation. The Minister referred to financial stability, but the best way to maintain financial stability would be through continued access to a customs union and a single market—that is a hint that he may wish to take to the Chancellor.
The volume and flow of secondary legislation on EU exit raises deep concerns about accountability and proper scrutiny—I have just raised a very similar matter in the main Chamber. The Government say that no policy decisions are being taken, but establishing a regulatory framework inevitably involves policy and raises questions about resourcing and capacity, as we have heard many times. The Government should be using secondary legislation to make technical, non-partisan and uncontroversial changes, but they are persistently using it to push through contentious legislation with high policy content.
As legislators, we have to get this right. The draft regulations could represent major changes to the statute book, so they need proper, in-depth scrutiny. In that light, the Opposition put on the record our deepest concerns that the process behind them is not as accessible and transparent as it could be, or as the Minister suggests.
The draft regulations will introduce into UK law a regime for securities financing transactions. They set out a process to allow the Financial Conduct Authority to suspend reporting obligations for up to a year. It would be useful to understand the logic of the one-year period. What assessment has been made of the subsequent impact on transparency standards?
Regulation 8 will give the Bank of England and the FCA powers to draft technical standards. Has any consideration been given to allowing Parliament to undertake that role or giving it greater oversight? It is not completely clear—I would be grateful for clarification from the Minister—why the requirement for the ESMA to draft certain regulatory standards is being replaced with the option for the FCA to do so. In particular, will he assure us that the draft regulations are not being used to dilute democratic accountability?
Regulation 23 will give the Treasury the power to make more secondary legislation. I would like the Minister to provide more information on that, if possible, especially in relation to scope and accountability.
Part 4 of this SI makes provision for trade repositories, which is a different subject with different EU regulation. The SI seems to allow the FCA to issue new penalties. The Opposition feel that that is not the sort of thing that should be done through an SI. We note that the FCA has been asked to issue a statement of policy for penalties, but surely that should have been done before the SI was introduced, not afterwards. That seems perfectly reasonable. The explanatory memorandum states that these regulations include:
“Changes to the treatment of EEA branches of financial services firms in the UK, so that after exit, EEA branches operating in the UK must report their transactions to a UK trade repository. This will bring treatment of EEA branches into line with the current treatment of other third country branches in the UK.”
I would be grateful to hear more from the Minister about that. For example, could it represent a change to regulatory standards? That would be quite worrying. I note that the explanatory memorandum refers elsewhere to
“reporting the same data on the same templates, but to two separate trade repositories.”
Again, I seek clarification on whether there could be any changes to such a template.
The explanatory memorandum also states:
“Given the highly regulated nature of financial services, the volume of trade between UK and EU markets, and a shared desire to manage financial stability risks, the UK proposes a new economic and regulatory arrangement that will preserve mutually beneficial cross-border business models and economic integration for the benefit of businesses and consumers. Decisions on market access would be autonomous in our proposed model, but would be underpinned by stable institutional processes in a bilateral agreement and continued close regulatory and supervisory cooperation.”
The use of the word “new” does not suggest continuity. Similarly, the phrase “preserve mutually beneficial” suggests some element of selection and discretion. It will not surprise the Minister to learn that the Opposition do not always share the Government’s analysis of what is beneficial for our economy or our constituents. I would be grateful if the Minister elaborated on the planned “autonomous” nature of the decisions on market access.
Why are parts still highlighted on pages 6 and 7? Is that a drafting error? Is it a sign of the hurried chaos of the process? As the Opposition have made clear numerous times, this process is unprecedented in its scale and scope, and there are unquestionably many areas that have received insufficient scrutiny. The potential for problems to be discovered only after the fact is very real. In fact, on Monday it was rightly acknowledged that there had been mistakes in the drafting of the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019. Last week, the Financial Regulators’ Powers (Technical Standards etc) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019 had to make technical amendments to correct measures passed just last December—not years ago, but pretty recently. I have to say that we opposed those regulations and called for greater scrutiny of them.
The Minister knows that we have identified drafting errors in other SIs that have been presented to us. Indeed, during a Committee sitting last week in the other place, the Conservative peer Lord Lexden voiced concerns about the number of drafting errors in instruments. I want to make it clear that I do not believe that this is the fault of civil servants, who are working enormously hard on this package of legislation in extremely difficult circumstances—they have a Herculean task. The fault is in the process. The Government are recklessly pushing through the process with incredible short-termism and a lack of respect for the magnitude of the task and for Parliament in general.
I note that the ESMA is having its responsibilities shifted to the FCA through regulations. I am forced, once more, to give voice to our concerns and queries about this unprecedented transfer of powers via secondary legislation. What consultation has there been on this transfer? Were other institutions considered? What resourcing has been provided? Has the Minister considered the possibility that too many powers are being given to the FCA—more than is practical?
The Opposition have repeatedly stated our increasing alarm at the Government’s unfolding approach to regulating financial services: still no overall plan, still no indication of how different pieces fit together and still, above all, no clarity. I put on the record again that the Government are continuing to put the economy at risk through their shambolic handling of Brexit. Rather than pushing through such a large volume of piecemeal secondary legislation, we clearly need a consolidated piece of primary legislation that can be scrutinised in the proper way.
I know that the Government do not like a great deal of scrutiny and go out of their way not to enable it—well, there we are—but it does not alter the fact that that is what we are asking for. The regulations will transfer far too much power, have possible ramifications that are too significant, and they are shrouded with too many unanswered questions. We cannot in conscience just wave through something like this. Therefore, we do not feel that it would be responsible to agree that the Committee has considered them adequately today.
It is a pleasure to serve under your chairmanship, Mr Davies. This is yet another part of a poor attempt to patch up the damage to the financial services industry caused by a Brexit that my constituents, and indeed all of Scotland, did not vote for. It is just another piece of Brexit red tape. Any version of Brexit is bad for Scotland, which voted overwhelmingly to remain.
Financial services firms are already voting with their wallets and have moved a trillion dollars from the UK since the 2016 Brexit referendum. Ten years after the financial crash, in which securities played a major role, our financial services sector needs meaningful reform, not new problems stemming from Brexit. Instead of planning to minimise the damage, we should be using our time to plan a successful future inside the EU. This SI does nothing to protect our economy from Brexit and we cannot accept the UK Government’s attempt to run down the clock in an attempt to force their MPs to back Brexit motions. The UK Government must instead extend article 50.
I very much respect the points made by the hon. Members for Bootle and for Inverness, Nairn, Badenoch and Strathspey. I will respond to each of the 10 or 11 points that have been raised in succession. The opening remarks of the hon. Member for Bootle concerned the process with respect to the volume and flow, the adequacy of the resourcing, the capacity and transparency.
I will address all of those points, but I will say that the SI is needed to ensure that the EU law on securities financing transactions continues to operate effectively if we leave without a deal or an implementation period. It is not the policy of the Government to get to that point, because we are seeking a bilateral agreement with the EU that would expand the scope of cross-border activity beyond existing equivalence and ensure structured dialogue to manage regulatory change. Our proposal for a future UK-EU relationship in financial services seeks to be both negotiable and ambitious, but it is obviously prudent and necessary for us to have no-deal preparations such as these.
The hon. Member for Bootle commented on the onshoring project and the powers used. The 2018 Act does not give the Government the power to make policy changes, as has been spelled out in this SI, beyond those needed to address deficiencies arising as a result of exit. They are limited and seek simply to onshore existing provisions into domestic regulators and fix deficiencies as they exist.
The hon. Gentleman then referred to the reliance on secondary legislation. Those of us who have sat through a number of such Delegated Legislation Committees in recent weeks, including the Whip, my hon. Friend the Member for Calder Valley (Craig Whittaker), all recognise that, under the powers granted by 2018 Act to make all these financial services statutory instruments, restrictions are in place to ensure the appropriateness of their use. The central objective of the SIs is to provide, as far as possible, legislative continuity for firms. No policy changes are intended; the exercise is an intelligent onshoring one.
May I probe the Minister a little further? He talks of onshoring policy, not changing it. The FCA is picking up a number of different roles under the draft regulations, particularly on enforcement, so will he assure us that there will be no resulting policy deviation in relation to the penalties that might be imposed?
I am happy to say that the FCA has been intimately involved in the whole process. Its objective is to provide continuity to the market and to ensure that appropriate scrutiny of market activities is undertaken. No extension of power is given to the FCA through this process. As the national competent authority, it is simply taking on more responsibilities that were often elsewhere previously.
Yes. I can tell my hon. Friend that, for example, 158 individuals or full-time equivalents in the FCA are now working on Brexit matters, which contrasts with 28 such individuals or full-time equivalents in March last year. It will shortly be setting out its plan for 2019-20, which will set out how it is allocating resources. The FCA has the power to increase the levy should it require additional resources.
I have sought to address the issue of the reliance on secondary legislation with the inherent restraints placed on the Government in the process. The hon. Member for Bootle went on to ask whether the change in the SI to how branches are treated will lead to duplicative requirements for firms, but firms are simply reporting the same information at the same time using the same template to the UK and EU authorised trade repositories, so yes, there is duplication, but it is straightforward—exactly the same form is sent to two institutions simultaneously.
The hon. Gentleman asked about the suspension of reporting for one year. The draft SI, like other financial services SIs, does not make changes beyond what is necessary to ensure that we have a functioning regime after exit. With regard to the powers to make regulatory technical standards, that reflects an approach that applies across the entire body of onshored legislation. In addition, the SI will ensure that regulators have sufficient flexibility to avoid cliff-edge risks for firms.
The hon. Gentleman asked about the robustness of the SIs and drew attention to the admission that I made on Monday on the Floor of the House about some minor typographical drafting errors, including one or two that happened previously. There are, I think, 1,000 pages of the SIs. My officials and I have done our best, we have acknowledged where those mistakes were made, and we have corrected them as quickly as we could, but they were not meaningful in their substantive legal effect, with the exception of one case, which has now been corrected. We have engaged with industry on the content of the SIs. We usually—I cannot remember circumstances in which we have not—publish the drafts of the SIs in advance of laying them before Parliament, and we have allowed an iterative process to exist.
The hon. Gentleman asked, in connection with regulation 4, whether we should use an SI to allow the FCA to issue penalties. The 2018 Act allows that in limited circumstances, with safeguards, including the affirmative procedure. The FCA needs the power properly to supervise trade repositories. He then asked about resourcing, but I have discussed that in response to my hon. Friend the Member for North East Hampshire.
The hon. Member for Bootle also asked about consultation. We published a document in June that set out our approach and emphasised the aim of ensuring continuity. That was widely welcomed. The draft regulations were published on 19 December, so people have had two months to examine them.
On the unavailability before the debate of a consolidated text, it is not normal practice for the Government to provide consolidated texts for debates on secondary legislation. I think that the hon. Gentleman was making a wider point about the overall need for all financial regulations. Frankly, that would be very difficult to achieve, given the wide range of contingency arrangements that are needed. However, the National Archives will publish an online collection of documents capturing the full body of EU law as it stands on exit day.
The SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey, made a point about the volume of capital moving outside the UK and asked what the Government’s response was to that. The Treasury is in frequent contact with firms and regulators about their contingency planning for EU exit. Although we have been clear that passporting will come to an end after we leave the EU, we are seeking a relationship with the EU that allows for continued cross-border trade in financial services, as set out in the White Paper. Although I acknowledge that there has been movement of some capital and execution of contingency arrangements, there is a great deal of resilience to the City of London and financial services in the United Kingdom. We need to draw a distinction between wholesale movement of jobs, and capital being located somewhere else but still being acted upon in the United Kingdom and the City of London.
The hon. Member for Bootle asked about discretion for mutual co-operation arrangements and market access. The Government’s priority is to exit the EU with a deal that ensures continued co-operation with EU institutions on all regulatory matters, including SFTs. However, we are working hard to ensure that, in the no-deal scenario that we are seeking to cover ourselves for, we can maintain a degree of co-operation with the EU. Like all such SIs, the draft regulations ensure that we are prepared for all scenarios.
I believe that I have answered the points that were raised. I recognise the wider political point about the adequacy of this process, but I hope that Members have found this Committee sitting informative, will respect the answers I have given and will be able to support the draft regulations.
Draft Animals (Legislative Functions) (EU Exit) Regulations 2019 Draft Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: David Hanson
† Beresford, Sir Paul (Mole Valley) (Con)
Blackman, Bob (Harrow East) (Con)
Champion, Sarah (Rotherham) (Lab)
† Debbonaire, Thangam (Bristol West) (Lab)
† Hollinrake, Kevin (Thirsk and Malton) (Con)
† Latham, Mrs Pauline (Mid Derbyshire) (Con)
† Mc Nally, John (Falkirk) (SNP)
Mahmood, Shabana (Birmingham, Ladywood) (Lab)
Mann, John (Bassetlaw) (Lab)
† Moore, Damien (Southport) (Con)
† Pollard, Luke (Plymouth, Sutton and Devonport) (Lab/Co-op)
† Quince, Will (Colchester) (Con)
Reynolds, Emma (Wolverhampton North East) (Lab)
† Rutley, David (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)
† Sobel, Alex (Leeds North West) (Lab/Co-op)
† Stewart, Iain (Milton Keynes South) (Con)
† Watling, Giles (Clacton) (Con)
Medha Bhasin, Committee Clerk
† attended the Committee
Tenth Delegated Legislation Committee
Wednesday 27 February 2019
[David Hanson in the Chair]
Draft Animals (Legislative Functions) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Animals (Legislative Functions) (EU Exit) Regulations 2019.
With this it will be convenient to consider the draft Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019.
As always, it is a pleasure to serve under you in the Chair, Mr Hanson. There are two sets of regulations for members of the Committee to consider. These statutory instruments are made under the enabling power in the European Union (Withdrawal) Act 2018 to take powers currently held by the European Commission and transfer them to the appropriate Ministers in the UK.
I should first make it clear that neither instrument makes any change to policy. The instruments are technical and ensure a smooth transfer of powers from the EU to the UK. I should secondly make it clear that the instruments in no way diminish our controls in the important subject areas covered. There is no proposal to alter or reduce our biosecurity controls for animals or plants, our animal welfare standards or our capacity to protect public health.
Thirdly, Ministers will be able only to make negative resolution statutory instruments on specific procedural or technical matters—I stress that it will be technical matters—that are laid down in the various legislative functions currently exercisable by the Commission. The new enabling powers in these SIs will therefore be confined to only those matters that the EU Parliament and Council have delegated to the Commission to implement by way of tertiary legislation, with input from relevant experts.
Legislative functions are currently conferred on the Commission by EU legislation. They enable the Commission to set out the technical details of the regimes in what is known as tertiary legislation. These two instruments take the powers currently held by the Commission and transfer them to the appropriate UK Ministers. Therefore, the instruments are correcting measures enabled by the 2018 Act. The crucial point is that they do not introduce new policy. They preserve the current animal, fish and plant health regimes and simply ensure that we will continue to operate effectively when we leave the European Union.
The Animals (Legislative Functions) (EU Exit) Regulations 2019—the first instrument we are considering —cover animal health and welfare. They provide for legislative functions to be exercisable by UK authorities. The exercise of those functions will principally be by way of domestic secondary legislation by the appropriate authorities that is made under the negative resolution procedure because it will involve minor technical amendments to the EU retained law. This instrument transfers existing functions currently conferred on the Commission in the areas of animal transport, which is regulations 2 and 6; livestock identification, which is regulations 3 and 5; transmissible spongiform encephalopathies —TSEs—which is regulation 4; seal products, which is regulation 7; animal slaughter, which is regulation 9; animal by-products—ABPs—which is regulations 8 and 10; and zootechnical conditions, which is regulation 11. That allows us to react and develop the legislation in line with changes in technical requirements and in response to any relevant developments in the future.
The functions include such matters as amending implementation rules and procedures when amending detailed rules in respect of sampling and laboratory methods; approval of new scientific disease-related tests; revisions to disease monitoring and surveillance; setting down rules for breeding programmes to recognise disease resistance in livestock; determining feed safety practices; amendment of training and educational programmes; and the uniform application of disease contingency plans. The functions also include the powers to amend the welfare requirements for transporting live animals and to amend animal slaughter methods to take account of scientific and technical progress.
Regulation 12 is a cross-cutting regulation applying across this instrument generally. It contains transitional and saving provisions relating to standard form documents. For example, new forms will be introduced for the UK, but under these regulations it will be permissible to use the current EU forms after exit day for a period of time, so that the movement of products can continue unhindered in a pragmatic way while new forms are being considered and published.
Turning to the Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019—the second statutory instrument before us—I wish to draw to hon. Members’ attention to one matter relating to the explanatory memorandum, which has been amended. The amended version, which was published last week on 18 February, merely deletes incorrect references to powers not included in the SI, and therefore does not affect the content of the SI itself.
The first of these powers—to edit the criteria of listing diseases—was not included in the SI because the focus of the instrument is to ensure day one readiness. The power to amend the criteria, as listed in directive 2006/88, does not require being transferred at this stage, as the current criteria are well established and effective. The power to edit the criteria may be transferred to UK Ministers in future, but it is not required in the short term.
The second change involves the power to set out detailed rules for the introduction into the EU from third countries of aquaculture animals and related products. This was moved from this instrument and covered in the Import of and Trade in Animals and Animal Products (Amendment etc.) (EU Exit) Regulations 2019, debated in the House on 19 February, which contains a number of similar amendments. I apologise to members of the Committee for the inconvenience that might have caused.
The second instrument ensures that a series of legislative functions currently conferred by EU legislation upon the European Commission will be exercisable instead by Governments in the United Kingdom. The difference is that this instrument relates to EU directives, while the previous instrument—the first one we discussed—covers EU regulation brought into UK law by the European Union (Withdrawal) Act 2018.
Directives in this SI are transposed into domestic law by UK regulations and, in some cases, primary legislation when they come forward, so they are already on the UK statute book. However, the functions conferred on the Commission in those directives were not transposed, as it would not have been appropriate to do so, because they refer to EU institutions. They are now being brought in by these regulations to the appropriate Ministers in the UK.
I reiterate my earlier point that Ministers will only be able to make negative resolution statutory instruments on the various legislative functions currently exercisable by the European Commission in specific procedural or technical matters that are laid down. The new enabling powers will therefore be confined to only those matters that the European Parliament and Council have delegated to the European Commission to implement by way of tertiary legislation with input from relevant experts. As with the previous instrument, there is no change in policy.
Part 2 of the second instrument relates to aquatic animal health and part 3 relates to plant health. The regulations relating to plant health do not extend to Scotland—plant health is devolved and Scottish Ministers have chosen to bring forward their own legislation to deal with technical operability issues solely arising from EU exit from plant health legislation.
In part 2, which transfers functions relating to aquatic animal health, the instrument transfers existing European Commission legislation functions to appropriate UK Ministers. It will enable them to amend the list of diseases for disease control purposes, and draw up and, importantly, update this for third countries or parts of third countries, from which aquaculture animals and related products can be introduced into the UK post-exit.
In part 3, which deals with transferring functions in relation to plant health, this instrument transfers the legislative functions to appropriate Ministers in England, Wales and Northern Ireland to make amendments, keeping pace with developments in scientific knowledge or changes in risks in plant health. The appropriate Ministers will also be able to specify import conditions that apply to plants and plant products originating in a third country. This is important in enabling international trade based on an assessment of the risk. It also enables appropriate Ministers to put in place temporary emergency measures for the purposes of preventing the introduction or spread of a plant pest. As I have said, there is no lessening of our prior security controls and these measures will enable us to respond to emerging threats.
These instruments will ensure that an operable legal framework is in place for exit day. They make no policy changes. For the reasons set out, I commend them to the Committee.
It is a pleasure to serve under your chairmanship again, Mr Hanson. The Minister will be relieved to know that the Opposition will not vote against either of the two statutory instruments, but I have a number of questions, which I will be grateful if the Minister can address in his remarks, about the additional resources required for the new duties, the vague nature of some of the new appropriate authorities that the SIs refer to and the potential loss of scientific expertise.
I want to put on the record the Opposition’s general concern about how the Government are rushing through so many statutory instruments and pieces of secondary legislation, which means that scrutiny is often very limited. I note what the Minister said about errors in the explanatory notes. I am grateful to him for setting out what went wrong, but I carefully suggest to him that one reason why mistakes are being made may be the speed and pace of SIs being pushed through his Department. I have a lot of sympathy for the plight of Ministers in the Department for Environment, Food and Rural Affairs, because that Department is most affected by Brexit legislation and has the most SIs to get through. My concern is that, given the speed that they are being pushed through, mistakes can be made and there can be unintended consequences.
The Minister said that all these SIs do is simply transpose EU law into UK law, deleting “Europe” and inserting “the Secretary of State in the United Kingdom”, for instance. Secondary legislation should be used for technical, non-partisan, non-controversial changes, but the Opposition are concerned that the SIs could contain contentious elements that are not being scrutinised sufficiently. Some 400 statutory instruments have been tabled since June 2018. I would be grateful if the Minister can update us on how DEFRA’s SIs are doing. I understand that we are barely a quarter of the way through the pile of DEFRA SIs that is being considered by the House of Commons. My hon. Friends on the Back Benches are very good at turning up for these Delegated Legislation Committees, and they will want to know about them.
Order. We are dealing with just these two today.
Indeed, which brings me to the lack of scrutiny that comes with the frequency and volume of the instruments we are being asked to consider.
On the surface, this SI does not seem particularly controversial, but I fear that we run the risk of exposing ourselves to unintended consequences if we continue to pass rushed legislation. There are elements in these two SIs that deal with some severe and important issues, so it is right that we ask about the scrutiny of them. In particular, I want to ask the Minister about the pre-legislative scrutiny of both SIs. For previous statutory instruments, I have invited the Minister to open the DEFRA reading room to allow parliamentarians and not just invited stakeholders the opportunity to review draft SIs to ensure sufficient scrutiny.
Both SIs deal with very important aspects of biosecurity and animal and plant health, and a certain level of technical expertise is required to understand their full implications. I note that the Minister has said in the past that DEFRA would be looking at opening its reading room so parliamentarians can carry out pre-legislative security, but has since decided against that. I invite him to revisit that decision, because in technical areas such as this, the greater the scrutiny, the better the legislation that comes out of it at the end.
Part 4 of the plant health regulations states:
“Regulations made by the Secretary of State…are to be made by statutory instrument”,
which leads to a number of questions about both SIs. Will the statutory instruments be affirmative or negative? What will their sequence be? Given the volume that is still to be introduced and the separation of key topics across a number of different SIs, we might not see the aggregated effect of the regulatory changes. For instance, today we are dealing with both plant health and animal health. That is a broad range of topics to consider. We know that there will be subsequent SIs on both topics, which means that we are not able to see the whole picture. I invite the Minister to think about whether the sequencing of SIs can be looked at to enable greater scrutiny.
I have mentioned previously my concerns about the loss of expertise and information-sharing with our EU friends as we leave the European Union. At the moment we have access to much EU-wide research and analysis to shape our decisions. The Minister has mentioned the transfer of competences from the Commission to relevant UK authorities, but I would be grateful if he could answer a few questions on scientific advice about plant animal health.
What steps are being taken to ensure that the scientific advice will be of the same technical and authoritative standard after this legislation is transposed? The European Commission has very high data quality, and I expect the UK Government to have similar. Will the Minister set out how he intends to ensure that the data quality will be the same? Will he tell us whether there will be additional funding allocated to authorities to look at the research and data collection that would be required under both statutory instruments? The UK has world-leading science. I do not meant to do down our science, but there is real value in peer-reviewed Europe-wide data that enables us to benchmark ourselves, particularly because plant health and animal health have cross-border implications on biosecurity.
I am concerned that there is additional demand on the resources of the competent authorities that the statutory instruments deliver additional powers to. They create new responsibilities for what will be deemed appropriate authorities after Brexit. In parts 2, 3 and 4, considerable powers are conferred to UK authorities, but it is not entirely clear where those mysterious authorities are and who will exercise those powers. I am reminded of Tony Benn’s five basic questions for democracy on allocation of powers. They include: what powers will they have? In whose interests will they be used? Who are they accountable to? How can we get rid of them if they cross the line? What is not certain about the powers created is the accountability and who will exercise them. I would be grateful if the Minister could respond to that.
There are concerns about the toothless nature of the new environmental protection agency. The Opposition understands why that is necessary following our exit from EU institutions, but we need to ensure that the competent authorities that will exercise those powers are sufficiently well resourced and have accountability and scrutiny of those decisions. Part 2 of the draft Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019 creates new powers for the appropriate authority—without naming it—to amend Annex 1A and Annex 3 to Commission regulation 1251/2008. Having the authority to amend that annex means that the appropriate authorities will be responsible for adding, varying or removing an exotic or non-exotic disease in Annex 1A where necessary. At what point will that be open to scrutiny to make sure the scientific basis of those decisions is appropriate? The EU Commission provides much of that but it is not certain how that will be done in future.
Part 3.10 confers to the appropriate authority
“Power to modify the lists of regulated plant pests and relevant material”
where modification is
“necessary or appropriate in the light of developments in scientific or technical knowledge”
“technically justified and consistent with the risk to plant health.”
Part 3.11 confers:
“Power to make further derogations”.
There are an awful lot of powers there. After many years of austerity and cuts to competent authorities in DEFRA land, what additional funding will be allocated? Has any assessment been made of whether any additional funding will be required for the proper exercise, scrutiny and data collection and reporting of the new duties? Has the Minister made any estimates of additional staffing that will be required?
Part 3.13 confers
“Power to make provision in relation to emergency measures”.
I am of the view that it is best to scrutinise emergency powers before they are used rather than at the point of use. The appropriate authority will have the ability to modify plant health regulations to make temporary provision for the purpose of preventing the introduction of a plant pest into a relevant territory. What additional resources can we put in place to ensure that those emergency powers can be scrutinised?
I was very concerned to read in the explanatory notes that the powers under directive 2006/88/EC and directive 2000/29/EC have not been transferred in this SI, given the lack of urgency. It says that they may be transferred in due course. I would be grateful if the Minister can set out, in relation to my concern about sequencing, when he expects those powers to be exercised in conjunction with the ones we are considering today. As a package, they work together, and individually they do not provide the full picture.
I echo the remarks made by my noble Friend Baroness Jones of Whitchurch in the other place. She made the point that the circumstances in which these controls are put in place in aquaculture seem to relate solely to the adverse economic impact and the likely production or export losses. There is no reference to the welfare or suffering of the species concerned. Could the Minister not have a wider responsibility to ensure good animal husbandry and disease-free environments for those fish and species, regardless of the economic consequences? I realise that this SI transfers current EU regulations, but the Minister knows that there is cross-party concern to ensure that high levels of animals husbandry for all species are transferred appropriately into UK law after we leave the EU. I hope the Minister will take into account the increasing evidence that fish that are farmed in an aquaculture environment that closely replicates their natural environment and are kept disease-free are less stressed, more productive and more robust in the longer term. There is a benefit all round to ensuring that the regulatory environment is appropriate.
The Animals (Legislative Functions) (EU Exit) Regulations 2019—hon. Members will be relieved to hear that I am now 60% of the way through my remarks—is about animal health and welfare, and food composition and labelling. Although it amends a wide breadth of legislation, as with the SI on aquatic animal and plant health, there has been no impact assessment. In previous Delegated Legislation Committees, I have raised concerns about the wording used in explanatory notes about impact assessments, and I would like to repeat them now. The explanatory memorandum says that there is no impact, or little impact, and therefore the Government have not carried out an impact assessment. The precise wording is:
“There is no, or no significant, impact on business”.
Given the volume of SIs that we need to get through, that is an unhelpful phrase, because those are two different things. I realise that the Minister is bound by the duties of the House, and that is the set terminology. I am sure he will blame the House authorities for it. There is a distinction between “no impact” and “no significant impact”. I would be grateful if the Minister can set out which of the two he believes it is, and how he can make that decision in the absence of an impact assessment.
This SI amends 10 pieces of EU legislation and transfers new powers to UK authorities. Individually, they do not seem to be huge changes, but I am concerned about the incremental change and the unintended consequences. I am especially concerned about how, as a nation, we provide identification, keep records, issue health certificates and transport animals. In aggregate, that creates a huge amount of work for the relevant institutions that will be receiving those powers.
My questions are similar to those that I asked about the previous SI. I would be grateful if the Minister can set out what assessment he has made of the requirement for any additional resources to ensure that these powers are appropriately used, and that the results of that work is appropriately reported. We currently rely on EU institutions to do that and aggregate that data, but that responsibility will now be transferring to UK authorities. I am not certain what the implication is of that transfer.
It would also be helpful to know what the appropriate authority referred to in these regulations is, the extent to which its advice is given independently, and whether that advice will be made public. One of the advantages of the fact that the EU scrutinises much of this is that many of its decisions are available on the European Commission website. It is quite a website, and it is not necessarily the easiest place to find that advice, but it is published. Does the Minister plan to transfer over that element of transparency? It is not within the SI per se, but it relates to how the powers in the SI will be delivered.
There are concerns about the level of scrutiny. There is a degree of stakeholder fatigue about the level of scrutiny and expertise that we have in reviewing some of these elements. Understanding the full implications of this SI requires a high level of technical knowledge. I do not for one moment pretend that I have such expertise, so the Opposition rely on outside expertise. That is one of the reasons why the sequencing of this particular SI with the other ones to come creates not only uncertainty about the proper scrutiny of this SI, but also the ones to follow. Will the Minister set out how he intends to address stakeholder fatigue and provide the robust scrutiny that certainly the Opposition and, I am sure, Members on both sides of the House rely on to make sure that what we are passing is appropriate?
The Minster has set out elements of the regulations. Regulations 2 to 9 and 11 give powers to the Minister to push through more statutory instruments. The Minister has set out what those particular SIs enable him to do. As we heard earlier, they range from implementation rules and scientific tests to disease resistance and food safety practices. Feedback from stakeholders in general is that dealing with a jigsaw puzzle one piece at a time does not enable us to see the bigger picture. There are elements here about how the competent authorities will use those individual regulations to create a full picture of the effect on the sectors that will be regulated by them. Will the Minister address that?
My noble Friend Baroness Jones raised a point in discussing this SI a few days ago about transmissible spongiform encephalopathies. You and I, Mr Hanson, might know them as mad cow disease or zombie deer disease in deer and elk. The Opposition are concerned that the regulations on TSE seem to water down the requirement in the annual monitoring programme to check animals in remote areas with low animal density. They also allow the overall programme to be revised based on a comprehensive risk analysis. There seems to be a slightly different effect in contrast to what the Minister set out as a simple cut and paste of EU legislation. On the TSE elements, why has there been no impact assessment on the potential monitoring reduction? Who will carry out any risk assessment to look at TSE? Mad cow disease and its similar forms in other species is an area where it is right and proper that additional questions are asked because of the potential effects. I represent an urban seat in a very rural part of the world in the south-west, so can the Minister give some reassurance to the people who want to know there is no reduction in the monitoring?
In relation to animal welfare, why have cows, goats and sheep been lumped together in an SI on aquatic plant health and disease? I echo the concerns of my noble Friend in the other place who said last week:
“It seems a bit of an act of desperation to produce these composite SIs, which have completely different subject matters, particularly when there are other SIs in the pipeline covering more specific regulations relating to these individual topics.”—[Official Report, House of Lords, 20 February 2019; Vol. 795, c. 484.]
We will not oppose this SI today, but we have concerns about the pace at which the SIs are being pushed through. We simply cannot afford to get it wrong when it comes to plant and animal health and the impact that may have on the environment, consumer welfare and public health. For example, in part 2, regulation 9 refers to Council regulation 1099/2009 on the protection of animals at the time of slaughter. These matters are not trivial and legislation dealing with slaughterhouses requires the utmost scrutiny. Will the Minister confirm that there is nothing in the regulations that will roll back animal welfare standards, especially in relation to slaughter?
In Monday’s REACH debate in the main Chamber, the Minister was unable to satisfy the House that no deal would not risk animal testing having to be duplicated. Some of the implementation of these particular regulations may add additional costs, not just to the public competent authorities mentioned in the SIs, but to those who work in aquaculture and agriculture and associated settings. Can the Minister set out whether he expects there to be any additional costs to those communities?
My general concern about many of the DEFRA SIs that we are considering, including the two before the Committee, is that future animal welfare still looks uncertain under this Government. There are lots of good warm words, but I am concerned about the aggregate effect of many of the changes, and about how they work as an overall picture. There are particular concerns about how one element of animal welfare consideration works with another and what the aggregate effect of changes to responsibilities will be on organisations that will receive additional powers.
To ease my concern, I would be grateful if the Minister spoke about how the SIs will be implemented. Is he asking the competent authorities, once identified, to implement them as they come out of the parliamentary process, or will he look at aggregating them to be implemented en bloc? Knowing whether the SIs will be aggregated for implementation or will be implemented in turn along the way will address how much scrutiny needs to be applied to each.
To conclude, I am concerned that there has been insufficient scrutiny of many statutory instruments, including the two before the Committee. We know that Brexit must not be used as an excuse to reduce or weaken our environment protections. There is a distinction between the protections in law and on the face of regulation, and those that are actually implemented by authorities that have the resource and powers to do so. I would be grateful if the Minister sets out answers to those concerns, particularly on funding for the organisations that may receive additional powers. The Opposition will not vote against the two instruments, but we have laid out our concerns, which I would be grateful if the Minister addressed.
I am grateful to the hon. Gentleman for his characteristically in-depth and thoughtful contributions and his extensive questions, which I will endeavour to address to his satisfaction. I also thank hon. Members for their presence on the Committee.
As we have discussed, the two instruments transfer specified functions to the UK Minister. Without establishing those powers in United Kingdom law, respective UK Ministers would be unable to bring forward measures for which the European Commission currently has authority on behalf of member states.
The hon. Gentleman kindly referred to the fact that DEFRA is under a lot of pressure with respect to SIs. Let us be absolutely clear: as part of leaving the EU, we are onshoring environmental, agricultural and fisheries policy in one go, so there will inevitably be a lot of SIs on the back of that. I am grateful to him and his team for bearing with us, which they have generally done in good spirit in the light of the amount of work going on, as has the ministerial team. I should more than anything pay tribute to officials at DEFRA for the huge amount of work that they do to make this possible.
We have laid out the SIs that are required for day-one exit. Final scrutiny by the Joint Committee on Statutory Instruments determines what needs to happen, and the final few SIs are passing that hurdle as we speak. We are getting most of the SIs into the Joint Committee on Statutory Instruments’ hopper, so we are well through the programme and making good progress. We sorted instruments that are legislative in nature into the affirmative procedure and decided that it was more efficient to pass others via the negative procedure, as hon. Members would expect. The drafts are considered in detail by the JCSI and are published several weeks before the parliamentary debate, so there is time to consider them, but I understand what the hon. Gentleman says.
A huge amount of work is going on, and I ask the hon. Gentleman to bear with us. I have not personally come across what he calls stakeholder fatigue, but I am conscious that there is a lot going on, and we are working very closely with stakeholders to try to provide the information that is required to help them.
It is important to recognise that, given the amount of work that is going on, we are trying to focus on the right piece of legislation at the right time. The policies within the SIs we have brought forward remain unchanged. The hon. Gentleman asked whether there was little or no significant change. I do not want to dance on the head of a pin, but I assure him that these are incredibly minor technical amendments. I know he has gone through them in great detail, and I am sure he can see that they are incredibly technical.
The hon. Gentleman requested further clarity on the appropriate authorities. They are the Secretary of State, the Welsh Ministers, the Scottish Ministers and the Northern Ireland Department. The definition of “other responsible authorities” depends partly on which part of the SIs we are talking about, but in the aquatic animal health and plant health SI they are simply other Ministers or the Northern Ireland Department.
As I said, these are minor technical amendments to retained EU legislation. The hon. Gentleman talked about sequencing. I think—I hope I have got this right—he is concerned about when the future negative SIs that are referred to in the two instruments would come into place. They would come forward when there was a need. We are transferring powers so that the Minister—the UK Minister or the Minister in a devolved Administration —can recognise that there has been a change in circumstances and update the technical requirements as a result. That is what we are talking about. We are not looking at a tsunami of future SIs all in one go. We are transferring powers to respond. At the moment we are in a very good place—we have good positions in place on plant and aquatic health and animal welfare—but we want to ensure that we have the power to make amendments in the future.
The hon. Gentleman asked about consultation and impact assessments. There was no consultation because there is no policy change. These changes are very technical and forward looking. For similar reasons, there was no impact assessment either.
The hon. Gentleman asked a number of very important questions about science. We have outstanding science, which is supported by the Government and the taxpayer, and we are considering how best to allocate resources. The Chancellor of the Exchequer is well aware of our demands, or suggestions, and no doubt of those of other stakeholders.
The hon. Gentleman also mentioned our science agencies. We are very fortunate to have outstanding Government agencies and expert committees, which have genuinely worldwide recognition for undertaking risk assessments and advising the Government. They have been doing that work for many years, and we will be able to retain that expertise. We have the expertise of the Animal and Plant Health Agency and the Centre for Environment, Fisheries and Aquaculture Science. We want to ensure that we retain that and, in time, build on it.
I think I have already answered the hon. Gentleman’s question about the various authorities that would be passed on to different Ministers, and about who those Ministers would be. I hope I did so to his satisfaction. He also talked about ensuring that we have the necessary resources in place. In debates on previous SIs, I have discussed with some of his counterparts what we are doing to support vets, for example. That includes ensuring that there is enough training to enable vets to step up and do what will be required on export health certificates, and we have also made strong representations to the Migration Advisory Committee about returning veterinary surgeons to the shortage occupation list, which I know the hon. Gentleman strongly supports.
The hon. Gentleman also mentioned fish husbandry. The Animal Welfare Act 2006 made it an offence to cause animals, including fish, avoidable pain or suffering. There are mechanisms to ensure that welfare standards are in place. We have no current plans to extend animal welfare legislation to cover specific husbandry requirements for fish, but we do not rule out making such additions in the future.
The hon. Gentleman also made important points about TSEs. I can assure him and other members of the Committee that the TSE monitoring programme will not be watered down by the amendments and will continue unchanged after EU exit. The regulations exactly reflect the current EU programme, and the Government have no plans to revise our existing annual monitoring programme for TSEs, which will remain at pre-EU exit levels for the foreseeable future.
I hope that I have answered just about all the questions. Of course, the hon. Gentleman and I have a good relationship, and I can answer any other questions afterwards—or it can be done in writing. I hope that hon. Members are now more fully aware of why the regulations are needed. Overall, the regimes will continue to function similarly to how they did before. For the reasons that I have set out, I trust that members of the Committee will give the regulations their support.
Question put and agreed to.
That the Committee has considered the draft Animals (Legislative Functions) (EU Exit) Regulations 2019.
Draft Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019
That the Committee has considered the draft Aquatic Animal Health and Plant Health (Legislative Functions) (EU Exit) Regulations 2019.—(David Rutley.)
Draft International Waste Shipments (amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Stewart Hosie
† Benyon, Richard (Newbury) (Con)
Coaker, Vernon (Gedling) (Lab)
† Coffey, Dr Thérèse (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)
† Courts, Robert (Witney) (Con)
† Debbonaire, Thangam (Bristol West) (Lab)
† Dhesi, Mr Tanmanjeet Singh (Slough) (Lab)
Hoey, Kate (Vauxhall) (Lab)
† Kinnock, Stephen (Aberavon) (Lab)
† Law, Chris (Dundee West) (SNP)
† Martin, Sandy (Ipswich) (Lab)
† Morris, David (Morecambe and Lunesdale) (Con)
† Paterson, Mr Owen (North Shropshire) (Con)
Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Pursglove, Tom (Corby) (Con)
† Seely, Mr Bob (Isle of Wight) (Con)
† Stewart, Iain (Milton Keynes South) (Con)
† Sturdy, Julian (York Outer) (Con)
Nina Foster, Committee Clerk
† attended the Committee
Ninth Delegated Legislation Committee
Wednesday 27 February 2019
[Stewart Hosie in the Chair]
Draft International Waste Shipments (Amendment) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft International Waste Shipments (Amendment) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Hosie. This is one of a number of affirmative statutory instruments to be considered as the UK leaves the European Union, as provided for by the result of the 2016 referendum and as subsequently agreed by Parliament. In line with the European Union (Withdrawal) Act 2018, the regulations simply make technical, legal amendments to maintain the effectiveness and continuity of the legislation controlling shipments of waste, which would otherwise be left partially inoperable, so that following our exit from the EU the law will continue to function as it does today.
The statutory instrument is quite lengthy and makes many adjustments. However, I assure the Committee that those adjustments represent no changes of policy, and nor will they have any impact on businesses or the public. The regulations do exactly what they say on the tin: they bring over what is required to ensure that, the day after exit, things operate just as they did the day before—no more and no less. Otherwise, I would have been breaking the ministerial code when I signed the transparency statement. There is no change in policy; the regulations are simply technical.
The territorial extent of this instrument is the United Kingdom. It applies to all of the United Kingdom, including the territorial sea adjacent to it. The legislation in this area is reserved, but this instrument has been the subject of extensive consultation with the devolved Administrations and the UK regulators.
Part 1 of the regulations contains technical introductory provisions. Part 2 corrects outdated references in the Transfrontier Shipment of Waste Regulations 2007 to the Northern Ireland Department of the Environment, which is now known as the Department of Agriculture, Environment and Rural Affairs. It also updates a reference to the legislation governing waste management licensing in Scotland to the current 2011 regulations. Part 3 makes technical changes to the Transfrontier Shipment of Waste Regulations 2007.
Regulations 14 and 15 omit references to “Community Regulation”. Regulations 16 and 17 omit regulations that implement provisions relating to an EU body and historic transitional provisions in the EU legislation from the 2004 and 2007 enlargements of the European Union.
Regulations 18 to 25 make provision for the UK plan for shipments of waste of May 2012 to continue to have effect and to be changed in the future. The amendments provide that any future change must meet Basel convention objectives to have adequate disposal facilities, to minimise the movements of hazardous wastes and to ensure that shipments of wastes are allowed only if the state of export does not have the technical capacity or the facilities to dispose of the wastes in question in an environmentally sound manner.
Regulations 26 to 41 make technical changes to the offence provisions in the domestic regulations. These changes preserve the scope of existing offences and ensure that no new offences are created.
Regulation 42 omits regulation 60 of the Transfrontier Shipment of Waste Regulations 2007, which revoked previous versions of the domestic regulations. This change tidies up the law and is intended to make it clearer. Regulation 43 omits schedule 1, which also relates to historic transitional provisions in the EU legislation from the 2004 and 2007 enlargements of the European Union.
Part 4 makes technical changes by omitting references to the relevant retained EU law in annex 20 to the European economic area agreement, so far as that annex forms part of our domestic law. The references are no longer needed because the retained EU legislation on waste shipments has been amended so that it sets out all the rules that govern shipments to or from European Free Trade Association countries, for example by treating Liechtenstein as an OECD decision country.
Regulations 45 to 109 in part 5 make technical changes to the principal retained EU regulation on waste shipments, namely European Commission regulation No. 1013/2006. Regulations 46, 47 and 50 amend the scope of retained EU law to make clear that it applies to waste shipments to, from or through the United Kingdom. They also correct definitions and out-of-date references to EU legislation to ensure operability and to make the law clearer.
Regulation 48 amends definitions and makes technical changes to ensure that references to competent authorities and to the 2008 waste framework directive, which appear throughout the retained EU legislation, continue to be effective. Regulation 49 omits a deficient reference to the European Union.
Regulation 51 omits or modifies references to “the Community” and, where required, substitutes those terms with appropriate UK terms. It removes an obligation to inform the Commission about national law related to financial guarantees.
Regulation 52 amends EU provisions that allow the regulators to object to shipments of notifiable waste for disposal that are not in accordance with the principles of proximity, priority for recovery and self-sufficiency at EU and national levels. Those principles are currently defined in the context of an obligation to encourage the establishment of an EU network of waste disposal installations and consequently are no longer relevant to the UK. The instrument substitutes references to the principles with Basel convention obligations to have adequate disposal facilities, to minimise the movements of hazardous wastes and to ensure that shipments of wastes are only allowed if the state of export does not have the technical capacity or the facilities to dispose of the wastes in question in an environmentally sound manner.
Regulations 52 and 53 also make technical changes that preserve the existing powers to object to notifiable waste shipments for disposal or recovery where a destination site operates to lower environmental standards than those in the UK.
Regulations 54 to 62 and regulations 64, 66, 67 and 68 omit or modify references to “Community”, “within the Community”, “Member States” “within a Member State”, “competent authorities”, “the Commission” and “third”, as in third country, and where required substitutes those terms with appropriate UK terms. Regulation 63 removes a reference to an EU directive that is no longer in force, substituting it with a reference to the current EU legislation.
Regulation 65 omits article 30, which relates to border area agreements between member states. Regulation 69 omits all of title 3 of the EU regulation, which requires member states to set up systems for internal waste movements consistent with the system used between member states. Given that the UK has a system for internal waste movements, those provisions are considered redundant.
Regulations 70, 71 and 72 relate to the export of waste to EU and EFTA countries for disposal. The technical changes contained in the draft regulations maintain the control procedures for such exports and preserve the existing prohibition on exports of waste for disposal except to EU or EFTA countries. Approval to export waste to the EU for disposal is contingent on a third country providing appropriate justification. A requirement is included for the Secretary of State to provide such a justification to the competent authority in the relevant EU or EFTA country. Regulation 72 also omits redundant obligations to provide documentation to EU customs offices and substitutes references to EU customs officials’ duties to the duties of UK customs officials.
Regulations 73 to 79 make technical changes to maintain the existing controls and procedures that govern the exports of wastes to non-OECD countries, OECD countries, the Antarctic, and British and EU overseas territories and to EU member states for recovery.
Regulations 80 to 89 make changes to maintain existing procedures that control imports of wastes for disposal or recovery and controls on wastes that transit through the UK. The regulations also omit redundant obligations to provide documentation to EU customs offices and substitute references to EU customs officials’ duties to the duties of UK customs officials.
Regulation 90 omits redundant references to “the Community”, movements of waste “in the Community”, “Community legislation”, “third” and “third countries”. Regulation 91 makes a number of amendments to enforcement provisions. The provisions of article 50 have already been implemented in the UK through the Transfrontier Shipment of Waste Regulations 2007 and so some of those provisions will now be redundant and can be omitted. Regulation 90 also modifies those provisions that place obligations on member states to co-operate with each other so that such obligations now fall to the UK regulators.
Regulations 91 and 92 make changes that preserve obligations to provide reports to the secretariat of the Basel convention and omits obligations to provide information to the European Commission on the movement of waste between EU member states. Regulation 93 makes changes to maintain obligations in respect to international co-operation. Regulation 94 omits redundant provisions that require member states to designate competent authorities and contact points to the European Commission.
Regulation 95 makes technical changes that preserve the power for the Secretary of State to designate places at which waste entering or leaving the United Kingdom is controlled. Regulation 96 modifies a provision such that the Secretary of State is required to notify specified information to the secretariat of the Basel convention, rather than the European Commission. The regulation also places an obligation on the Secretary of State to publish UK information previously published by the Commission.
Regulation 97 omits article 57, which relates to an EU body. Regulation 98 omits article 58a, which provides a power to the European Commission to amend annexes to the regulation. Regulation 99 omits article 60, which places obligations on the European Commission to review the regulations. Regulation 100 omits articles 62 to 64, which are considered redundant. Article 62 provides transition rules for shipments of waste approved under the previous EU legislation on waste shipments. Article 63 covers historic transitional provisions in the EU legislation from the 2004 and 2007 enlargements of the EU. Article 64 makes provisions for the entry into force and application of the EU regulation. Regulation 101 omits a reference to the direct applicability of the EU legislation to member states.
Regulations 102 to 104 make technical changes to instructions on the completion of forms. Regulations 105 to 108 update or remove references to redundant EU legislation. Regulation 109 modifies the questionnaire for reports on inspections and enforcement, omitting the elements of the EU questionnaire that related to movements of waste between member states. Regulation 110 makes minor technical changes to retained EU legislation that sets out the control procedures for exports of waste for recovery to non-OECD countries. Regulation 111 makes minor technical changes to retained EU legislation that provides a correlation table between EU customs codes and EU waste codes.
The statutory instrument addresses technical deficiencies in the waste shipment legislation, in order to ensure that the legislation will continue to operate effectively when we leave the EU. As I have said, it does not introduce new policy. In the development of the instrument, we have sought to ensure minimum disruption to businesses that are involved in the shipment of waste, by retaining existing law. No enforcement mechanisms or enforcement bodies are being changed, and there are no significant impacts on the enforcement bodies, such as the Environment Agency, or other regulators. The instrument has been designed to ensure the continuation of the current system for the control of waste shipments, and no significant direct impacts have been identified.
Should the UK leave the EU without a withdrawal agreement in place, 545 of the 556 existing approvals to ship notifiable waste to EU countries will continue to be valid. No new applications will be required to allow the export of those wastes and there will be no additional administrative costs associated with the approval process. Unfortunately, Spain is the only EU member state still to provide a response in respect to 11 approvals. My officials have met officials from the Spanish Ministry of Environment, and given that those shipments have previously been approved, there is agreement on both sides that it is important to avoid unnecessary duplication. Our principal export to Spain seems to be car batteries. We have had discussions with prominent exporters there, and there are certainly other countries in the European Union that could accommodate those materials, if necessary.
For those reasons, I commend the draft regulations to the Committee.
It is a pleasure to serve under your chairmanship, Mr Hosie. The Opposition acknowledge the need for legislation to ensure that, post-Brexit, waste shipments can continue in a timely and effective manner between the UK and the European Union, but we will abstain on the regulations because of our concern about how the Government are tabling such secondary legislation with limited means of scrutiny.
The Government’s last-minute rushing through of SIs has massively constrained our ability to examine in depth their real implications. We have not had the necessary time to consult all stakeholders or to satisfy ourselves that this SI raises any problems. We do not think that the Government have allowed themselves enough time to do that either, which is worrying.
The Commons sifting Committee agreed with the Government that the SI did not require debate in Parliament, but the Lords Committee disagreed. I understand that its decision was made in response to a EU document and because it had concerns about the lack of approvals issued by the UK and EU competent authorities that authorise the shipments of waste.
At the time of the Lords decision, there had been only 61 responses to the 533 letters seeking agreement to roll over the process of waste shipments after Brexit. The Minister assures us that now only 11 approvals have not yet been agreed and that the Department for Environment, Food and Rural Affairs is working with Spanish authorities to authorise the shipment of UK waste to Spain. However, that accounts for only 68,700 tonnes of waste, and there is a worrying degree of uncertainty for the exporters of that waste.
I thank the Minister for her update, but I must ask her how many businesses are waiting on these approvals. What happens if those approvals are not agreed before the UK leaves the EU on 29 March, and what would the cost be to businesses if there were no approvals? If the Spanish Government do not agree to those 11 approvals, is there a plan B in place? If so, can she tell us what it is? Given the risks involved, why have the Government not produced an impact assessment?
In the longer term, how are we going to proceed with waste policy? If, for reasons such as non-alignment between UK and EU waste legislation, we no longer have access to EU recycling facilities in future, where will that waste go? Will material that has previously been recycled at European facilities be incinerated in the UK? How can we ensure that it will not go to less suitable countries that have a dubious record in recycling waste that is registered as having been recycled?
China stopped taking UK waste about a year ago, but during the 12 months to October 2018 the UK exported 611,000 tonnes of recovered plastic packaging to other countries, such as Malaysia and Indonesia, which are both in the top 10 countries for the quantity of waste plastics polluting the oceans. The Basel convention supposedly prevents shipments of waste to countries without sound environmental management, but that has not stopped the UK shipping huge quantities of plastic to Malaysia and Indonesia, where much of it ends up in the sea. What confidence can we have in UK regulations preventing unsustainable waste exports in future? We need a comprehensive and robust strategy to reduce waste and improve UK waste and recycling infrastructure, to not only be more responsible for where our rubbish ends up but to benefit the UK economy and create green jobs.
On the long-term vision, does my hon. Friend agree that rather than having a vision for building the nation’s recycling infrastructure and dealing with core issues right now, the Government’s waste strategy merely talks about voluntary action and distant target deadlines?
My hon. Friend is absolutely right. This is not a debate about the Government’s waste strategy, but leaving the European Union will have an impact on it. The Government need to be cognisant of the fact that without an effective waste strategy that prevents pollution and encourages recycling, leaving the European Union will exacerbate the problem.
The SI cannot guarantee anything, because it is just an administrative tool, but there is a real danger that the UK will become a cheap and less regulated alternative for EU member states to offload their waste on us. What expert advice has the Minister obtained about whether the new arrangements could result in any additional environmental impact compared with our current legislative arrangement with the European Union?
This instrument is about the status quo and ensuring that the current environmental protections on the shipping of waste remain in place on the day of Brexit. However, it is clear that when it comes to the UK’s waste and recycling strategy, the status quo is far from adequate. Plastics and other recyclable materials are piling up in the UK and are being dumped illegally on the other side of the world. Like every other SI in preparation for Brexit, this may be portrayed as simply a copy-and-paste job that amends references to the EU and replaces them with UK equivalents, but we fear that there may be real problems associated with leaving the EU that the Government have still not fully understood.
To respond to the hon. Member for Ipswich, seven businesses in England have been affected by the situation in Spain. I do not have the statistics for countries whose regulators are different from the Environment Agency, but I know that the agency has spoken to each of the seven businesses and they are making contingency plans. As I outlined in my opening comments, there are alternative places for people to send car batteries and other products that are currently being sent to Spanish recycling processors.
It is important to recognise that we are still part of the Basel convention, which itself has international laws. I have explained how we are taking the Basel convention, a lot of which was applied through EU regulations, into domestic law so that we continue to have those obligations. The hon. Gentleman referred to countries such as China not taking waste, but China does still take some waste. It is about the level of contamination. We were exporting a lot more paper waste than plastic waste to China, recognising that packaging often gets remade in China and other countries in Asia. Nevertheless, the Environment Agency, proactively and on an intelligence-led basis, works to target exporters in trying to prohibit, prior to export, the movement of waste that would otherwise be illegal. In some countries—including, I think, in Malaysia —waste seems to have been exported to an illegal business, and the Environment Agency was not informed that that business was illegal. Now that our intelligence is better, measures such as stop notices can be deployed more often, and we need an intelligence-led approach for that.
The United Kingdom has always had a strong legal framework for enforcing environmental protections on waste. In terms of EU countries offloading into the United Kingdom, we are all members of the OECD and there is a convention that, in essence, countries can export to other OECD countries. The receiving country will designate the waste as what it considers to be either high or low risk, and processes are followed in that regard, including on what controls are needed when exporting or importing. EU regulations do not allow EU member states to export their waste outside the EU for final disposal, although that is allowed for recycling, so there is no risk in that regard.
We take waste for disposal from other EU member states, and the EU will need to change its rules if it wishes that to continue. I know of one example where the recycling processor has already made arrangements for that EU member state to divert, so instead of that waste coming to the UK facility, it will go to another facility within the European Union. Contingency plans and preparations are well developed in that field.
I think I have covered the points raised by the hon. Gentleman, and I hope that the Committee will approve this statutory instrument.
Question put and agreed to.
Draft Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Sir David Amess
† Bridgen, Andrew (North West Leicestershire) (Con)
† Cartlidge, James (South Suffolk) (Con)
Creasy, Stella (Walthamstow) (Lab/Co-op)
† Dakin, Nic (Scunthorpe) (Lab)
† Docherty-Hughes, Martin (West Dunbartonshire) (SNP)
† Elliott, Julie (Sunderland Central) (Lab)
† Hoare, Simon (North Dorset) (Con)
† Huq, Dr Rupa (Ealing Central and Acton) (Lab)
† Hurd, Mr Nick (Minister for Policing and the Fire Service)
† Johnson, Dr Caroline (Sleaford and North Hykeham) (Con)
† McDonald, Stuart C. (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)
† Maynard, Paul (Lord Commissioner of Her Majesty's Treasury)
† Mills, Nigel (Amber Valley) (Con)
† Ross, Douglas (Moray) (Con)
† Smith, Eleanor (Wolverhampton South West) (Lab)
† Thomas-Symonds, Nick (Torfaen) (Lab)
† Warburton, David (Somerton and Frome) (Con)
Jack Dent, Committee Clerk
† attended the Committee
Eleventh Delegated Legislation Committee
Wednesday 27 February 2019
[Sir David Amess in the Chair]
Draft Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019.
Sir David, it is an enormous pleasure to serve under your chairmanship, and to propose the regulations to the Committee. The Committee will be aware that the Government are preparing for all scenarios relating to the UK’s withdrawal from the EU, including the scenario in which the UK leaves the EU without a deal in March 2019. As part of those preparations, the Government are bringing forward a programme of secondary legislation that is intended to ensure that there is an effectively functioning statute book on exit day.
This afternoon’s statutory instrument forms part of that programme of secondary legislation. It addresses deficiencies in our domestic statute book that would arise if we leave the EU without a deal and focuses in particular on deficiencies in the area of security, law enforcement, criminal justice and some security-related regulatory systems.
By way of context, the Committee will, I am sure, be aware that the UK currently participates in a number of EU tools and measures that support security, law enforcement and judicial co-operation in criminal matters, some of which, such as the European arrest warrant or Europol, will be very familiar. We also participate in a number of security-related EU regulatory regimes related to firearms, drug precursors and explosive precursors.
Should the UK leave the EU without an agreement next month—the no-deal scenario—the UK’s access to those tools and measures would cease. At the same time, the UK would cease to be bound by those security-related EU regulatory systems. That decoupling would occur as a result of the UK having withdrawn from the European Union—that is, as a result of the article 50 notification, not as a result of the provisions found in this instrument.
The regulations clearly play no part in bringing about the UK’s withdrawal from the EU; rather, their purpose is to make amendments to the UK’s domestic statute book, including retained EU legislation, to reflect that new situation. The changes they make are those that we cannot or should not avoid, in the event of a no-deal exit. The regulations do not contain significant policy choices.
Against that backdrop, let me be clear that the regulations will do three main things. First, they will revoke or amend retained, directly applicable EU legislation and domestic legislation in the area of security, law enforcement, criminal justice and some security-related regulatory systems. That will ensure that the statute book continues to function effectively in a no-deal scenario.
Secondly, where necessary the instrument includes transitional or saving provisions to address live or “in flight” cases—that is, provisions confirming how cases that are live on exit day should be dealt with, or how data received before exit should be treated. That will provide certainty for operational partners such as the police and prosecutors who currently operate the EU tools and measures, and who need to be clear on what activity can continue and on what terms, at the point of exit.
Thirdly, in the case of extradition, the instrument will ensure that the UK has the correct legal underpinning to operate the no-deal contingency arrangement for extradition, which is the 1957 Council of Europe convention on extradition with EU member states.
Overall, the making of the instrument will provide legal and operational certainty to the public sector, including our law enforcement and criminal justice partners across the UK, such as the National Crime Agency and our police and prosecution services. Although it remains the Government’s position that exiting with a deal is in the UK’s best interests, the instrument makes important changes to ensure readiness on exit day in a no-deal scenario.
I should make clear, however, that for the most part the instrument is not a vehicle for implementing the Government’s policy response to a no-deal exit. Our contingency arrangements for co-operation with EU partners on security, law enforcement and criminal justice involve making more use of Interpol, Council of Europe conventions and bilateral channels. Those are alternative channels that are already in use and therefore do not require domestic legislation to set up. That is why these contingency arrangements are largely outside the scope of what the regulations set out to do. Even the Council of Europe convention on extradition, in respect of which this instrument links into our contingency arrangements, is already in place and in day-to-day use by the UK with non-EU countries. For the purposes of our domestic law under the Extradition Act 2003, the instrument re-categorises EU member states so that we can administer requests from EU member states under part 2 of the Act rather than under part 1, as at present.
I should make it clear to the Committee that the instrument would come into force on exit day, as defined in the European Union (Withdrawal) Act 2018. Should we enter an implementation period, the entry into force of these regulations, along with most other EU exit instruments, will be deferred until the end of that period. This would be achieved via the withdrawal agreement Bill. I commend the regulations to the Committee.
As always, it is a pleasure to serve under your chairmanship, Sir David. I want to make it clear that the Opposition do not oppose these regulations or the aim of having a functioning statute book without prejudicing the outcome of the negotiations. I will, however, make a number of observations on the regulations and on the wider security position with regard to our exit from the European Union. I hope that the Minister will be able to comment on them.
The UK participates in about 40 European Union measures that are meant to enhance security, law enforcement and judicial co-operation in criminal matters. They are very important tools, as is our participation in security-related EU regulatory systems. As the Minister has set out, the regulations essentially do three things. First, they seek to revoke or amend retained EU law that is directly applicable to our current domestic legislation. Secondly, they try to deal with a situation in which we would have a live case that has not been completed at the point of exit. That is a particular concern with regard to data: what would be the status of data that we held without a legal means to continue to hold it?
Thirdly, there is the issue of extradition. The Minister has referred to the 1957 Council of Europe convention on extradition, which, according to the explanatory memorandum accompanying the regulations, would be used
“in lieu of the European Arrest Warrant”,
but this is undoubtedly a far more limited measure than the European arrest warrant. It is clear from part 14 of the instrument that the UK and the EU would allow EU extradition requests from other member states in lieu of the European arrest warrant.
Paragraph 3 of article 2 of the convention itself states:
“Any Contracting Party whose law does not allow extradition for certain of the offences referred to in paragraph 1 of this article may, in so far as it is concerned, exclude such offences from the application of this Convention.”
In other words, an EU member state is required to surrender a wanted individual only if there is dual criminality across the two jurisdictions. That would be an important restriction on the regulations, and I would like confirmation that the Home Office is seized of it and an explanation of what it would do to plug that gap.
The Government’s own advice, as set out in the explanatory memorandum, states:
“In 2017/18, the UK arrested over 1,400 individuals on the basis of European Arrest Warrants…issued by the other 27 EU Member States. In the same period, EU Member States arrested 183 individuals on the basis of EAWs issued by the UK.”
It is a very important tool, and there will be practical consequences if the necessary measures are not in place.
We will not vote against these regulations, but does the hon. Gentleman agree that they do not replace the fundamentally important European arrest warrant? The warrant has assisted constituents of mine, including the family of Lisa Brown in the Vale of Leven. Her mother was buried only last week, and Lisa is missing and presumed to have been murdered by a UK national. We used a European arrest warrant to get him from Denmark to Spain.
I entirely agree with the hon. Gentleman, who is absolutely right. Although the Opposition do not oppose the narrowness of the regulations, there is a whole host of wider issues relating to security capacity. The hon. Gentleman is right to highlight the importance of the European arrest warrant mechanism, which has clearly been very important in the situation to which he referred. There is real concern about the potential state of uncertainty, and we need clarity about the impact of different outcomes on our security.
On “The Andrew Marr Show” on 3 February, the Home Secretary refused to dispute claims made by Sir John Sawers, the former head of MI6, that
“the harder the Brexit, the greater the damage,”
and by Neil Basu, the head of counter-terrorism policing at the Metropolitan police, that a no-deal Brexit would be
“a very serious flaw in our security arrangements.”
When pressed, the Home Secretary conceded only that there would be “a change in capability” and that
“most of these capabilities were only relevant for us from 2015 onwards.”
Yet it is clear, even from these regulations, that there is a loss of access to databases. I will come back to that issue.
There is lack of clarity in both the regulations and the explanatory memorandum, which states:
“The practical impact of a ‘no-deal’ exit on security, law enforcement and criminal justice cooperation with EU Member States is outside the scope of the provisions found in this instrument.”
That may be technically correct, but the Government need to set out what they plan to do to at least maintain our security capacity through co-operation with the EU27, and how they propose to build on it. I have read the Government’s assessment of the security partnership. It is a list of ambitions, but there is very little in the way of practical proposals to achieve them.
Quick access to information and co-ordinated work across borders is vital to our security, and there is a Europe-wide interest in working together to keep all our peoples safe. In their negotiations thus far, the Government have failed to get the Schengen information system—SIS II—and the European criminal record information system included in the political declaration. As I have indicated, this instrument would actually revoke access to databases such as Prüm and SIS II.
Similarly, the Government’s current promise to
“establish effective arrangements based on streamlined procedures and time limits”
is insufficient for the UK to maintain the benefits of the European arrest warrant. As I have said, reliance on the 1957 Council of Europe convention on extradition will not have the same effect, because it does not have the same capacity as the European arrest warrant.
Similarly, the Government have not identified exactly what our crucial relationship with Europol and Eurojust will be. To say that they are still working on the terms of co-operation is not good enough—it is nearly three years since the 2016 referendum.
Although the Opposition do not oppose the narrow measures in these regulations to have a functioning statute book on exit day, the Government have to focus on the vital issue of security co-operation and come up with workable solutions to maintain that level of co-operation, rather than allow that capability to be diminished.
It is a pleasure to serve under your chairmanship, Sir David. I will be very brief, because the shadow Minister has said pretty much everything that I would have said. I simply echo his concerns that any sort of Brexit will be a challenge and risks harming security co-operation. In the meantime, we must make the statute book as robust and complete as possible, which is what this delegated legislation is about.
Each week, parliamentarians are asked to look through a host of very detailed and complicated statutory instruments. We get helpful explanatory memorandums alongside them, and Ministers’ introductory statements are also helpful. There is an assurance that stakeholders will be consulted, including devolved Administrations, which is important from my point of view. It would also be useful if we could see a summary of the consultation responses, because all I know is that consultations took place. I have tried to contact various stakeholders to see what they think, but it would be preferable if the Government could provide that, rather than our constantly having to do that homework week after week. Other than that, we fully support what the Government are trying to do with these regulations, which we certainly do not oppose.
I thank both main Opposition spokesmen for their constructive and thoughtful approach to the regulations. They understand them for what they are, which is narrow in scope and design in order to ensure that we have a fully functioning, effective and relevant statute book in a scenario in which we do not expect or want to be.
The main thrust of the argument from the hon. Member for Torfaen takes me away from the narrow scope of the regulations, but I am happy to follow him because the context of this Committee is one of debate and discussion about the way through on Brexit. On no deal, I have been clear to the Select Committee on Home Affairs and others, as has the Home Secretary, that in a no-deal scenario, which we want to avoid, we will fall back on contingency arrangements. They are relatively low-risk, in that they exist and have been tested, but they are not as good as what we have at the moment. That is just fact.
On the European arrest warrant in particular, we will be forced to fall back on slower and clunkier processes, which are therefore sub-optimal. There is no sugar coating that, which is why we want to avoid that scenario. For context, the point that the Home Secretary made—I have said the same myself—is that although we may lose some capability on day one, we can rebuild that over time through bilateral relationships. On day one, however, there is no doubt at all that we will lose some capability.
It is important to note, however, that some of the most significant capabilities have come on-stream relatively quickly. SIS II went live in 2015 and the passenger name record directive went live in 2016, and I do not remember Ministers of previous Governments claiming that the country was unsafe before they came into force. They are good instruments; they work and are embedded into our systems, and with our European partners we have spent years developing such platforms and tools together. We do not want to fall back on the contingency arrangements, but we have to plan for a no-deal scenario.
On the ongoing security partnership, my reading of the political declaration is that nothing is taken off the table. I understand and believe strongly that for any Government the security of the public is the No. 1 priority. The underlying data of all those instruments—the European arrest warrant, Europol, SIS II—shows that the UK’s contribution to their success is fundamental. We are the second biggest contributor of data to Europe. When the Home Secretary and I meet Interior Ministers and counterparts in Europe, as we have done regularly over the past few months, I am very clear and they are extremely clear about the mutual interest in not losing the exchange of data.
I have met Rob Wainwright, who was the director of Europol, and heard about its excellent work. I do not think there is any doubt about the UK’s contribution to that agency and other areas. The issues regarding Europol, however, relate to third-country status and the level of access and quick access. There should be a focus on finding a practical solution to prevent our capability from being diminished.
I could not agree more. That is not nailed down; it is still open to negotiation. The point I am labouring is that when seeking a deal, one looks for the levels of mutual interest in securing that deal. Security co-operation is arguably the area where the mutual interest is clearest, because we have constructed those tools and platforms and they work in large part because of the UK contribution.
I am as clear as I can be that our European partners, at the Interior Minister level at least, are very keen to maintain the status quo as far as possible. The related political reality is that our status will change once we leave the European Union, but I am clear that as far as possible, the intention, both from our end of the pipe and that of our colleagues in Interior Ministries across Europe, is to end up in a place where we have very similar capabilities to those we have at the moment. That is the underlying objective for the security partnership.
Question put and agreed to.
Draft Securitisation (Amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: David Hanson
† Beckett, Margaret (Derby South) (Lab)
† Cadbury, Ruth (Brentford and Isleworth) (Lab)
† Dunne, Mr Philip (Ludlow) (Con)
† Glen, John (Economic Secretary to the Treasury)
Hepburn, Mr Stephen (Jarrow) (Lab)
† Hughes, Eddie (Walsall North) (Con)
† Knight, Julian (Solihull) (Con)
† Linden, David (Glasgow East) (SNP)
† McCarthy, Kerry (Bristol East) (Lab)
† Mak, Alan (Havant) (Con)
† Menzies, Mark (Fylde) (Con)
† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)
† Rowley, Lee (North East Derbyshire) (Con)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
† Smith, Jeff (Manchester, Withington) (Lab)
† Walker, Thelma (Colne Valley) (Lab)
† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)
Dominic Stockbridge, Committee Clerk
† attended the Committee
Seventeenth Delegated Legislation Committee
Wednesday 27 February 2019
[David Hanson in the Chair]
Draft Securitisation (Amendment) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Securitisation (Amendment) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Hanson.
This statutory instrument is part of a programme of legislation under the European Union (Withdrawal) Act 2018 aimed at ensuring that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The SI will fix deficiencies in EU law on securitisation to ensure that it continues to operate effectively after the UK leaves the EU. The approach taken in the legislation aligns with that taken in other SIs laid under the EU withdrawal Act, providing continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context.
The SI concerns securitisation, a process by which financial assets such as loans can be pooled into a single financial instrument called a security, which can then be sold to investors. Securitisation allows banks to transfer some of the risk associated with the assets they hold to investors, freeing up regulatory capital to facilitate further lending. Securitisations can themselves be used to finance business activities and reduce the concentration of financial stability risks.
To respond to concerns about the opaqueness and complexity of securitisation transactions, the EU adopted the securitisation regulation, which is based on international standards agreed by the Basel Committee on Banking Supervision. The EU securitisation regulation simplifies and consolidates a patchwork of earlier rules, and introduces the concept of a securitisation that is “simple, transparent and standardised”, also referred to as an STS securitisation. Under the regulation, those are incentivised through preferential capital treatment. The securitisation regulation is important for protecting domestic financial stability while ensuring that the benefits of those instruments to firms and the wider economy remain available.
The securitisation regulation will be transferred to the UK statute book by operation of the EU withdrawal Act on exit day, but in a no-deal scenario the UK would be outside the European economic area and outside the EU’s legal, supervisory and financial regulatory framework, and that legislation would no longer be operative. The SI makes the necessary amendments to ensure that the provisions continue to work properly in a no-deal scenario.
The SI amends the geographical scope of the EU regulation to ensure that UK investors can continue to have access to the EU market for STS securitisations and to global securitisation markets more broadly. Under the current EU regulation, all parties involved in an STS transaction must be located in the EU. The SI amends that to allow UK counterparties to continue to participate in cross-border STS securitisations where some of the parties are located anywhere in the world, expanding the current scope. That approach is appropriate because most securitisations are structured across borders, and it ensures that third countries are treated equally in the event of a no-deal scenario.
For UK securitisation markets to have maximum depth and liquidity while being subject to the same strict rules introduced by the securitisation regulation, it was important not to constrain the UK market by requiring all parties to be located in the UK. I recognise that that expansion of scope is likely to arouse concerns, but it is also clear that the SI requires at least one of the parties to a securitisation to be located in the UK. The overall effect of that change in scope is to support liquidity in domestic securitisation markets while ensuring that UK supervisors retain effective oversight of securitisation as a whole.
The SI also introduces a transitional regime for the recognition of EU STS securitisations in the UK during a two-year period after the UK leaves the EU. That ensures that UK investors can continue to participate in the EU market for STS securitisations for that limited period. Any STS recognised by the EU during that two-year period will continue to be recognised in the UK until its maturity.
The SI also clarifies the definition of “sponsor” in the securitisation regulation to ensure that, when a sponsor wishes to delegate day-to-day portfolio management to a third party, that third party can be located anywhere in the world and not just in the EU. The securitisation regulation currently limits the location of the delegated firm to the EU. The European Commission has acknowledged that that is an unintended effect and is currently developing an EU-wide solution.
Finally, this SI transfers several functions carried out by the European supervisory authorities to the Financial Conduct Authority and the Prudential Regulation Authority. Most importantly, the SI transfers responsibilities for the authorisation and supervision of trade repositories and the publication of STS notifications to the Financial Conduct Authority. That is appropriate given the FCA’s considerable experience in supervising securitisations and it has been preparing for that role in anticipation of the regulation going live on 1 January this year. The Treasury has worked very closely with the PRA and the FCA in drafting the instruments. It has also engaged the financial services industry and will continue to do so. On 19 December, the Treasury published the instrument in draft, along with an explanatory policy note, to maximise transparency to Parliament and industry. An impact assessment was published on 19 February.
In summary, this Government believe that the proposed legislation is necessary to ensure that the UK has a workable regime regulating securitisations, 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 draft regulations, which I commend to the Committee.
It is a pleasure to serve under your chairmanship, Mr Hanson. Once again, the Minister and I are here to discuss a statutory instrument that would make provision for the regulatory framework after Brexit in the event we crash out without a deal. On each occasion, my Front-Bench colleagues and I have spelled out our objections to the Government’s approach to the process.
Today we are here to discuss the draft Securitisation (Amendment) (EU Exit) Regulations 2019. Given the impact that securitisation had on the wider economy and its role in the 2008 global economic crisis, I am sure I do not need to remind anyone in the room of the importance of ensuring that the securitisation market is properly regulated and monitored. The Opposition have laid out its wider concerns on the no-deal regulatory provision process for financial services, which incorporates dozens of statutory instruments and the in-flight Bill for EU legislation that is in train but not yet implemented. We believe there should have been a consolidated financial services Bill that presented a single overview of the changes proposed, which would allow us thoroughly to scrutinise and assess the new allocation of powers across different regulators and institutions.
This statutory instrument is a case in point. We have already debated one business-as-usual securitisation SI, which was subject to the negative procedure, to implement new European regulations. Now we have another securitisation SI, related to no deal and subject to the affirmative procedure, just a few weeks later. The powers allocated in the other SI are complicated by their interaction with this one, as my hon. Friend the Member for Oxford East (Anneliese Dodds) stated on 13 February in the debate on that instrument.
I want the Minister to clarify some points that are of concern to the Opposition. First, the explanatory memorandum highlights that an exemption is provided to national promotional banks, and that the exemption will continue for UK parties only, namely the British Business Bank. Where does that leave existing securitisation deals with exposure to entities such as the German KfW, given that their preferential treatment will be removed? Will those deals need to be liquidated and novated the British Business Bank? I am sure the Minister agrees that that has the potential to be highly disruptive. What would their legal status be?
Secondly, what long-term plan does the Treasury have to ensure that securitisation regulations will continue to be robust given the volume of powers that will be transferred to the FCA? Much of the securitisation regime has not been developed domestically, as the Minister said, yet we will take full onshore responsibility for regulating and monitoring a regime that might contain substantial risks.
I reiterate my hon. Friend’s comments in the debate of 13 February about the new powers bestowed on the FCA, and on which we still do not have full clarity. It seems that under the Treasury’s proposed approach of transferring powers that rest with the European systemic risk board, the FCA can permit re-securitisation for specified legitimate purposes in an exemption to the general ban. The general ban prevents the underlying assets of a securitisation from being themselves securitised assets, which as we know is the type of circular activity that caused the issues that in many ways led to the financial crisis. Will the Minister explain what checks and balances will be in place to ensure that the development of this regulation is properly scrutinised and monitored? That is all I have for the Committee this morning.
It is always a pleasure to serve under your chairmanship, Mr Hanson. I have a degree of sympathy for the Minister, who I believe is pretty much camped out here in these Delegated Legislation Committees—I am just the latest in the rota of Scottish National party colleagues to cover a DL Committee.
With only a month until the UK leaves the EU, it is frankly a disgrace that the UK Government are only now getting round to sorting out these details. Time is of the essence when we know the UK is due to leave at the end of next month. Scotland’s financial sector has been clear that its interests are best served in the EU single market and customs union. Ten years after the crash, our financial services sector needs meaningful reform, not new problems stemming from Brexit. Instead of planning how to minimise the damage, we should instead be using our time here to plan a successful future inside the EU.
We know that this statutory instrument will not stop the tide of financial services jobs and assets leaving the UK because of Brexit. Financial services firms are voting with their wallets already and have moved assets worth $1 trillion from the UK to the rest of Europe since the Brexit referendum, according to EY. According to Bloomberg, Deutsche Bank AG is repatriating at least €400 billion to Frankfurt, with JPMorgan taking €200 billion, Goldman Sachs €60 billion, CitiGroup €50 billion and Morgan Stanley €40 billion.
We know the impact that these Brexit shenanigans are having on our economy, and I do not think this SI will do anything much to stem that tide of financial services jobs leaving the UK. While I will not be pushing this to a vote, I want to put that on the record. What we see here is a British Parliament and a British Government that are making no sense whatsoever and are not serving Scotland’s interests.
I acknowledge the points made by the hon. Members for Stalybridge and Hyde and for Glasgow East. I accept the wider concerns raised about the extensive use of this mechanism. I have never described it as the perfect solution, but it is a necessary solution to the risk of a no deal situation. I am determined that, by the time we get to the end of this process on 11 March, we will have a functioning regulatory regime in place, but the volume of SIs has been considerable. It was a blessed relief when the hon. Member for Glasgow East convened a three-hour debate on bank closures the other week and gave me a change of venue.
The hon. Member for Stalybridge and Hyde raises three specific points. The first was the removal of preferential treatment for exposures to national promotional banks and how that affects UK firms holding such exposures. Under the EU securitisation regulation, exposures to national promotional banks are exempt from the requirements, so in a no-deal scenario the UK would fall outside the scope of the exemption in the EU and domestic institutions such as the British Business Bank would not be able to benefit from the EU’s exemptions.
This SI removes the exemption for EU national promotional banks such as the one the hon. Gentleman mentioned, ensuring that under the domestic regime only UK national promotional banks would be able to benefit from the exemption. This is in line with the Government’s general approach to treating the EU as a third country if there is no deal and no implementation period. We have raised the point with industry and we understand that it is not likely to create significant difficulties for UK firms.
The hon. Gentleman went on to raise an issue that has been raised previously, and perfectly reasonably, about the adequacy of the resources of UK regulators to handle their new responsibilities. It is important to make clear to the Committee that the purpose of the EU securitisation regulation is to encourage and to ensure that the mistakes of the financial crisis in respect of securitisation are not repeated. By keeping securitisations simple in form and making them more transparent, that will be achieved.
Under the regulation that applied from only January this year, the PRA and FCA already carry out most of the functions conferred on them by this SI. The main responsibilities transferring into the FCA relate to the authorisation and supervision of a small number of trade repositories and the publication of STS notifications on its website. It is not anticipated that that will create a significant new burden. The FCA has specialist securitisation expertise and has made extensive preparations, including training for supervisors in anticipation of the implementation of the regulation and the onshoring of the requirements. It has also carried out an assessment of the resource implications and will keep those under review to ensure that it can deliver on its responsibilities, so I do not have any significant or meaningful concerns about that.
As to checks being made to ensure that the developments in regulation are scrutinised, it is worth noting that the SI does not make any substantive policy changes. To ensure that the UK regime is operative after exit, the UK regulators maintain full oversight of UK STS securitisations after exit, and will have sufficient enforcement powers where there is non-compliance. The regulators will monitor the market, and the Financial Policy Committee will also play a role in ensuring the functioning of the regime.
The hon. Member for Glasgow East raised the issue of moving high volumes of capital out of the UK. The Treasury is in frequent contact with firms and regulators regarding their contingency planning for EU exit. The political declaration reflects the full ambition of our proposals, set out in the White Paper, and is a strong and credible basis for moving our negotiations with the EU forward into the implementation period, to achieve a deal that works in our mutual interests. I acknowledge the significant footprint of financial services firms in Scotland, and in Edinburgh and Glasgow particularly. We believe that what is set out will serve their interests well. While we have been clear that passporting will come to an end after we leave the EU, we are seeking a relationship that will allow for cross-border trade in financial services, and allow firms to continue European operations within the UK.
I think that those were all the points that were raised. The SIs being brought forward are needed, and the one before the Committee is particularly needed, to ensure that EU law on securitisation continues to operate effectively in the UK if we leave the EU without a deal or implementation period, which is not the Government’s policy. I hope that the Committee have found this morning’s sitting informative and will join me in supporting the regulations.
Question put and agreed to.