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House of Commons Hansard
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Public Bill Committees
19 November 2020

Financial Services Bill (Third sitting)

The Committee consisted of the following Members:

Chairs: † Philip Davies, Dr Rupa Huq

† Baldwin, Harriett (West Worcestershire) (Con)

† Cates, Miriam (Penistone and Stocksbridge) (Con)

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

† Davies, Gareth (Grantham and Stamford) (Con)

† Eagle, Ms Angela (Wallasey) (Lab)

† Flynn, Stephen (Aberdeen South) (SNP)

† Glen, John (Economic Secretary to the Treasury)

† Jones, Andrew (Harrogate and Knaresborough) (Con)

† McFadden, Mr Pat (Wolverhampton South East) (Lab)

† Marson, Julie (Hertford and Stortford) (Con)

† Millar, Robin (Aberconwy) (Con)

† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)

† Richardson, Angela (Guildford) (Con)

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

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

† Thewliss, Alison (Glasgow Central) (SNP)

† Williams, Craig (Montgomeryshire) (Con)

Kevin Maddison; Nicholas Taylor, Committee Clerks

† attended the Committee

Witnesses

Dr Susan Hawley, Executive Director, Spotlight on Corruption

Public Bill Committee

Thursday 19 November 2020

(Morning)

[Philip Davies in the Chair]

Financial Services Bill

The Committee deliberated in private.

Examination of Witness

Dr Susan Hawley gave evidence.

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We will now hear from Susan Hawley, from Spotlight on Corruption, who is joining us remotely. I remind colleagues that we have until 12.15 pm for this session. Sue, please could you introduce yourself for the record?

Dr Hawley: Hello. I am Susan Hawley, executive director of Spotlight on Corruption. We are an anti-corruption charity that monitors the UK’s enforcement of its anti-corruption and economic crime laws.

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Q139 Thank you for giving us your time today, Sue. You have also given the Committee some written evidence, which I will come to in a second. Before I do that, I just want to let you know that a number of witnesses on Tuesday were more clearly focused on the European end of the Bill—the onshoring of various regulations—but with you we will probably concentrate more on the later clauses in the Bill. Before I come to your written evidence and your specific suggestions about financial crime, what is your general impression of the Bill?

Dr Hawley: Than you, Pat. We very much focus on, and our expertise is on, the potential of the Bill to bring the UK into greater equivalence with the EU on money laundering and to ensure high standards of corporate governance in the financial services sector. Overall, we support some of the points made by our colleagues, which I think you might be hearing later today—from Jesse Griffiths of the Finance Innovation Lab, for example—around ensuring that there really is strong parliamentary accountability for regulatory changes.

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Q May I come to your specific suggestions? You submitted written evidence that focuses on a suggestion for an amendment to the Bill on the prevention of economic crime. Could you talk us through your suggestion and where you think the Bill may have a gap to fill in that area?

Dr Hawley: Absolutely. We really welcome this opportunity, and many thanks for inviting us to give evidence to the Committee. We want to make the case for the urgent introduction, through the Bill, of a “failure to prevent economic crime” corporate offence. We think that could fit in the “Insider dealing and money laundering etc” part of the Bill. We want it to focus particularly on the areas of fraud, money laundering and false accounting.

Just to explain the problem we think needs addressing, fundamentally at the moment, particularly after the judgment in the Barclays case, which was the only prosecution for financial crime following the last financial crisis, there is increasing legal commentary that large financial institutions are beyond the reach of prosecutors for certain economic crimes. Legal attempts to resolve this have failed—in fact, the Barclays judgment has now made it even more difficult for prosecutors to prosecute large financial institutions—and only action by Parliament can change that.

If I may, I will say a little about the reasons why this amendment is needed. We outline in our evidence four broad areas that we think the amendment would resolve. One of them is about the protection of market integrity. The real issue is whether the current state of the law, particularly after Barclays, promotes strong enough corporate governance and deters corporate wrongdoing. The Treasury Committee has already highlighted that it does not—in its words, it is “wrong” and “dangerous”.

The second issue is about fairness and ensuring equality before the law for large and small financial institutions and companies. That is particularly important, we think, in the context of the burgeoning fraud crisis, which is being exacerbated by the pandemic. It cannot be fair or right that small companies face the burden of prosecution in the UK and that large companies can be seen as getting away with it.

The third area is about equivalence, or parity with international standards, on the enforcement of economic crime. The Law Commission—I will come on to the Law Commission later in our evidence, if I may—has announced it is doing a review of corporate crime rules. It has said that one of the reasons for that is so that the UK does not fall behind. We think there is a real danger that the UK falling behind might happen very speedily. It is already quite behind the US—we have seen a lot of commentary from legal experts about how the UK, effectively, outsources its economic crime enforcement to the US, which means that some British institutions are being fined very heavily by the US authorities, and that money is going to the US Treasury.

It is not just the US, but the EU. There is a real emerging issue with the sixth EU anti-money laundering directive, which requires EU states, from early December this year, to have strong corporate criminal liability for anti-money laundering. That liability must include where there is a lack of supervision or control, and the Government recognised when they looked at whether we should opt into this directive—which they chose not to do—that the UK’s corporate liability regime would not fit the directive but would need to be amended if the UK were to opt in. A real issue here is that UK companies might end up operating in the EU to higher standards than they are operating to in the UK, and that might become more of an issue of market access for UK financial services.

The final area is consistency across economic crime. We have seen a “failure to prevent” offence introduced for bribery and for tax evasion. No less harm is caused to society by fraud and money laundering than is caused by the other offences, and it creates real problems for enforcement agencies. Prosecutors have long asked for that “failure to prevent” offence to be extended to other economic crimes. We think its introduction would benefit the UK, because it would see more enforcement—higher fines—coming into the UK Treasury, and it would benefit society, because when companies have in place procedures that prevent economic crime, it helps to reduce the cost of that crime to society.

I will stop there, in case there are any questions. I am very happy to talk about how we think this amendment is compatible with the ongoing Law Commission review.

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Q I have a couple of questions, and my colleagues might too. There are quite a lot of different parts to this, and I want to ensure that I understand properly what you are saying. You referred, I think, to a corporate offence. Is the first big point that you are making here that, although individual prosecutions may be rare—you are right that on LIBOR, for example, they were very rare—even then it tends to be the individual trader who gets prosecuted, rather than the organisation they were working for? The organisation they were working for can always say, “We didn’t know what he or she was doing,” and wash their hands of it. Is the first essential point you are making that you want to create a corporate offence rather than an individual offence whereby somebody goes to jail for a certain number of years for committing an economic crime?

Dr Hawley: Absolutely. We think that the corporate offence is essential, but that does not mean we do not think that individual accountability is very important. There is also a real issue about how senior executives are held to account. If we take LIBOR as an example, I think there were four convictions out of 13 prosecutions for the rate rigging in the UK, and in a lot of those cases people said, “The management knew we were doing this.” That was their defence. If that is really the case, you are not going to change the culture. There are two really important reasons for having a corporate offence, and part of it is about changing the culture. If corporates know that they might face a huge fine, they will put in place procedures to stop that happening. That is really important.

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Q The other part I want you to explain a little more is that you said that small and large companies are treated differently under the law as it stands, and you implied that there is a greater sense of liability for small companies. Can you explain that a little more to us? What do you mean by that, and why is that the case?

Dr Hawley: Under the current law, if there is not a “failure to prevent” offence in a piece of legislation, a company can be held to account only if its directing mind can be found to have intended for the crime to occur. In a small company, the directors are much more hands-on, so it is much easier for prosecutors to pin the blame on someone at a senior level—it has to be at the board level—and therefore prove that the company is guilty. That is not how large corporations and businesses work, and that is what prosecutors have been saying for a long time. They work on a much more devolved basis.

The problem is that the way the law is at the moment, not only does it make it easier to prosecute small companies —small companies bear the burden of prosecution—but it incentivises bad corporate governance in larger companies because it encourages people to insulate the board from knowledge about wrongdoing. That is the point that prosecutors and people in the legal community have been making for some time.

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Q So there is almost an incentive for the board to be in ignorance, because that is a legitimate defence when wrongdoing is exposed in the company. Is that what you are saying?

Dr Hawley: This is what we write about in our evidence. HMRC, in its consultation on its new “failure to prevent tax evasion” offence, specifically highlighted that these laws encourage bad corporate governance. It says that they provide incentives for senior management to turn a blind eye to wrongdoing in order to shield the corporate body from criminal liability and they disincentivise the reporting of wrongdoing to senior members of corporate bodies. That is not me; that is the Government consultation on the “failure to prevent tax evasion” offence for criminal finances, but that is no different from the other economic crime offences. That is a corporate governance issue that cuts across all these economic crimes.

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Q The final question I want to ask you is about what you said about equivalence. We had a series of bodies give evidence to us the other day, all of which said that they had no desire for a race to the bottom, that they want the highest possible standards of regulation and corporate governance, and that that is good for the UK, the financial services sector and so on. You are implying that there is a danger here of a looser standard on this issue in the UK than in the EU. Could you explain that to us a bit more? What is the difference in terms of the way that they will view corporate offences and the gap that you see in the UK?

Dr Hawley: In the UK at the moment there are two ways in which companies could be held to account for money laundering. One of them is under the money laundering regulations, and that is a minor offence. To give you a comparative example, if it is an individual being fined for that, they would get two years in prison. The kinds of fines we are seeing are around the £5,000 mark. There have been some higher marks—sorry, that was HMRC’s enforcement at a regulatory level. We have not seen any corporate criminal fines in this space at all. There is no criminal enforcement going on under the money laundering regulations, but that is a different issue. To explain the law, theoretically companies could be held to account, but it is a relatively minor offence. That is very different from holding them to account for the main offences under the Proceeds of Crime Act, which, for an individual, carries a maximum sentence of 14 years. You can see from that that it is a very different type of offence, and the courts would treat it very differently.

Under the EU’s sixth anti-money laundering directive, all states must have corporate criminal liability and must impose criminal and non-criminal sanctions that are proportionate and dissuasive. We are already seeing countries such as Germany taking really strong steps to implement that. It has a corporate sanctions Bill coming up, which has a clause that requires prosecutors to investigate suspicions of corporate crime. It is a very strong Bill. Before that, Germany was the outlier and had no proper corporate criminal liability. We see it in the Netherlands as well, where increasing levels of corporate fines are being imposed for money laundering, and there is a very strong corporate liability framework there as well. In Ireland, the Irish Law Commission has recommended changes to the law on corporate liability. We are seeing a raising of standards across the EU that the directive will bring in the context of money laundering.

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I have no further questions, although my colleagues might have.

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Q Thanks for giving evidence, Susan. Following the December 2018 Financial Action Task Force mutual evaluation on the UK, which was pretty positive, there were a few elements that we need to address. You will know that BEIS is taking forward a lot of that work with Companies House and looking at the registration of overseas entities as well. This Bill ensures that HMRC retains its ability to access the ownership of beneficiaries of UK-linked overseas trusts. Can you explain to the Committee how important that is, notwithstanding what you have just been talking about?

There is a Law Commission consultation going on. We have fully transposed the fifth anti-money laundering directive in line with international best practice. You gave us some perspectives on Germany and Holland in terms of future orientations, which is something that I imagine we would look at in the context of that review. How would the provisions of the Bill help?

Dr Hawley: Obviously, we have welcomed the leadership that the Government have taken on beneficial ownership and the implementation of the fifth AMLD. My colleagues from Transparency International, who are giving evidence later to the Committee, have done more work on the beneficial ownership side. They are the people to talk in more detail about how the Bill specifically relates to that.

We hope that there will be other legislative vehicles brought forward soon to introduce the property register of beneficial ownership and the Companies House reforms. It is excellent that that consultation has now come out and the Government have taken strong steps towards looking at how Companies House can be strengthened, because, as FATF noted, it was, as you have mentioned, an area of weakness.

I do not want to bang on about it, but FATF also highlighted the lack of high-end money laundering convictions in the UK and questioned whether that was really reflective of the risk within the UK. We are carrying out some analysis into what is happening with regulatory fines in this space. The number of fines seems to be going down dramatically, and we are not seeing an increase in high-end money laundering convictions. To be honest, we are a bit worried that the Law Commission review, which we really welcome, will take too long.

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Q To be clear, you are really arguing that we should pre-emptively bring forward measures before that review has been completed.

Dr Hawley: I am actually saying something different. That review rightly focuses on the identification doctrine that was the primary focus that the Law Commission was given, and it is absolutely right that the Law Commission does that. We monitor bribery cases as they go through the courts, and we have seen that, even with the Bribery Act, there is still an ongoing unfairness. A small company can be prosecuted for a main offence and a “failure to prevent” offence. We have heard directly from prosecutors that they can say to a small company, “Look, if you co-operate with us, we will only prosecute you for failure to prevent. But if you don’t, we will prosecute you with section 1 or section 2.” We also have the fact that a section 1 or a section 2 offence incurs mandatory debarment from public procurement and a “failure to prevent” offence does not. So small companies face the risk of being excluded from public procurement in a way that large companies do not. We think that that is not compatible with the Government’s stated intention of levelling the playing field for small companies in public procurement.

What we would say—and it is something we have always said—is that we absolutely need the Law Commission to look into the identification principle, but we do not think it would pre-empt the review to introduce the “failure to prevent” offence for these crimes, because we already have that offence for bribery and tax evasion. That would complement the Law Commission’s work. We still need the review of the identification doctrine, and that cannot be done by anyone other than the Law Commission.

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Thank you very much. I will now let other colleagues take part.

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Q Thank you, Dr Hawley, for the information you have shared so far. Can I refer you point 16 of your written submission? It says:

“However, there is no corporate offence in the FSA and it is therefore not clear that prosecutors would be able to hold companies to account were similar conduct to reoccur.”

I will be open and honest with you: I do not have a legal background, so perhaps you could elaborate on that further. Either there is the ability to do something or there is not. That ties in with the remarks about Barclays in point 21, which quotes remarks that it

“effectively removes companies with widely devolved management and functioning boards”.

The term “effectively” implies that it could or could not. Can I have a little more clarity on that point?

Dr Hawley: Yes, absolutely. We have checked that with lawyers, and it is the case currently under the Financial Services Act that if you wanted to bring a prosecution for misleading statements on benchmarks—let us hope that will not happen again because financial institutions have learned the lessons from last time—the only way that you could hold a company to account would be under the directing mind principle that I mentioned earlier. You would have to show that one of the directors knew and intended for this to occur. There is no comparative offence, as there is under the Bribery Act, of a failure to prevent misleading statements being made, for which there could be a corporate fine. That would be almost impossible to do if a bank were making misleading statements.

The Barclays judgment has made that even more difficult and narrower. Prosecutors and the Serious Fraud Office can no longer say, “We’ve got the evidence on the CEO and CFO, and we think we can prove it, so we will take this to court.” The court then turns round and says, “No, it’s not just that. You have to show that the board actually delegated authority to these people.” It set a whole new hurdle for how you hold corporates to account. What we are hearing from people is that this is going to lead to a massive decrease in corporate prosecutions, because the grounds for bringing a company to account are so narrow now that they are almost impossible. I cannot say that it would not happen, but I can say that it would be an extremely brave prosecutor to risk public money in the courts to try.

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Q Thank you for that clarity. To play devil’s advocate a little, in terms of the individual versus collective responsibility, which is effectively what is being inferred here, do you see any dangers in going down that route?

Dr Hawley: The corporate route?

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Yes.

Dr Hawley: We do not see any dangers, because, generally, if you can hold the company to account, you are more likely to be able to hold the individuals to account. There is some evidence from the US, where the lack of senior executives going to jail has been contentious.

I think there is a real issue around senior executive accountability. We have seen a series of acquittals in the UK courts, in the Tesco’s case and in the Barclays case. There are some quite serious issues that need to be looked at in terms of how senior executives are held to account. I could argue to bring forward an amendment to address that as well, but that is not what we have done in this written evidence. We are just focusing on the corporate offence, and we do not see any reason why it would undermine efforts to hold senior executives to account. I would be interested to hear those arguments, because I have not heard any coherent arguments about why it undermines individual accountability.

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Thank you.

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It might be helpful for colleagues and our witness to say that we have 18 minutes left and three people who want to ask questions, so people might want to be mindful of that.

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Q I want to go back to what Mr McFadden and Mr Flynn talked about, particularly regarding this Bill, so that I have a better understanding. One of the things I am concerned about is that there seems to be more of an onus on punishing the individuals, in comparison to the companies. Earlier in your comments, when questioned about creating corporate and not individual offence, you mentioned holding a company to account, and that, to an extent, that can be done by holding the individuals to account. However, there have been concerns about holding senior executives to account, particularly with Barclays and Tesco. Do you have any direct recommendations that can strengthen the Bill so that it can hold companies to greater account so that we do not have that loophole where individuals are held responsible for this?

Dr Hawley: We actually have two suggestions. One is to introduce a “failure to prevent” offence for individuals, where, effectively, you are in a senior position and this happens on your watch. That is one way of doing it. The other way is to do what happens with the Competition and Markets Authority, where the court has the power to disqualify a director where there is a corporate offence. That is something that was put down in an amendment to the sanctions and money laundering regulations. Those are two legislative options—one of them a bit more radical than the other. The Competition and Markets Authority one is already there in law; it is just a matter of making it effective for these particular economic crimes.

We also think that there needs to be some more blue-skies thinking about whether, when there is a deferred prosecution agreement, companies should be required to claw back some of the money from the senior executives who were running the company when the wrongdoing occurred, because it is unfair that they get to move on, often with huge financial benefits. We saw that with the recent Airbus case—the director left with a massive golden handshake, and then the company and shareholders were left to pick up the fine. I think there is a way to make how the corporate fine is shared fairer. There are quite a lot of potential ways to do it, and we would be happy to provide a paper on that before 3 December, if it would be useful to the Committee.

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Q That would be helpful. The Bill also increases the maximum sentence for criminal market abuse from seven to 10 years, in line with comparable economic crimes. Do you think that is a strong enough incentive to prevent offences? Is that something you have come across, with crimes going on for some period of time? Do you feel that the maximum sentence will deter that?

Dr Hawley: It is welcome that it has increased. Higher sentences are important, as we see in the US—there are higher sentences for white-collar crime, and people actually go down. To be honest, it is also about enforcement. Actually, quite a few prosecutions for a certain level are better than very few for a high level. It all comes down to regular enforcement, which is something that we very much hope there will be greater thinking about—enforcement resourcing for any of the laws that will be put in place.

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Q Thank you. I have a final question, which is about your report. I know that my right hon. Friend the Member for Wolverhampton South East asked you a question about the prospect of smaller companies being at a higher risk of fines, which you said you were concerned about. Is there anything specific that could be put into the Bill to help ensure that does not happen? You mentioned earlier that it is easier for smaller companies to be prosecuted, because it is easier to identify the people involved. That seems like a massive and unfair disadvantage for smaller businesses. I am worried that if we do not address this issue, smaller businesses will be prosecuted whereas, effectively, larger companies will not. Do you have specific recommendations that could be looked into?

Dr Hawley: The basic and essential one is that if you introduce a “failure to prevent” economic crime, it immediately covers that gap; it immediately brings larger companies into the reach of prosecutors for economic crimes. We still think the Law Commission will need to look at how the identification doctrine still applies and carries on creating unfairness, even after you have introduced a “failure to prevent” offence, but it would be an immediate stopgap that would stop that happening. I cannot think of any other way of doing that.

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Thank you.

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Q Thank you for your evidence, Susan. I think we all agree that it is such an important area, and your evidence is really interesting.

I was looking at some of the specialist fraud and financial crime law firms’ response to the Law Commission’s review, particularly how it relates to the “failure to prevent” suggestion. They have called the Government’s desire to look at that in the round a very measured approach, and they have pointed to the fact that there have been lots of developments in regulatory and legal environments since the call for evidence. They have said that, actually, the best approach is probably to wait and see—to review, and to look at the entire issue in the round. Given the complexity and the cost to business, what is your response to that?

Dr Hawley: What has happened since the call for evidence closed is the Barclays judgment. We have also had a judgment in the Serco case, in which Serco was involved in procurement fraud against the MOJ, and it could not be the party to a deferred prosecution agreement—only its subsidiary could—because of these corporate liability rules. How it fits with the regulatory system is a really important question. As you will have seen from our evidence, we think that can be really properly thought through and hammered out at the guidance stage to the “failure to prevent” offence. That is where you would have a really good discussion with the private sector, bringing them in to show how you make those parts fit together.

I would like to add that on the regulatory side, as I mentioned earlier, we are seeing a worrying decline in the number of fines imposed by some of the regulatory bodies, for instance in the money laundering space. Creating a criminal offence—it is important to note that it is not a new criminal offence, but a different way of holding people to account for the same criminal offence—would open up a broader range of people who might bring action against a company. We have seen criticism in the paper, including from some of the law firms, about a lack of action by the Financial Conduct Authority on money laundering regulations, very few investigations and no prosecutions of corporates. If it were a criminal offence, companies might be looking at investigations by the SFO, which would really make them sit up.

I think it is about deterrence and how you ensure that compliance with the regulations is not just a box-ticking exercise, which is the risk if you take only a regulatory approach. What is really interesting about the responses to the Government’s call for evidence is that the vast majority of respondents do not think that where a serious crime occurs, a regulatory approach is appropriate; there need to be criminal approaches. I was really struck by how common that was. I think there is some urgency, if I am honest, particularly in relation to the UK falling behind emerging standards elsewhere, but also with the problem of inequality before the law, which I think could become really heightened when the response to the covid crisis plays out. You might get quite a lot of resentment when large actors are seen as getting away with it.

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Q I have just one quick follow-up question. You are quite right that in that evidence there was quite a consensus on the need to act. Is it fair to say that there was less of a consensus on exactly how to act—that plays into what we are looking at, waiting for the Law Commission to respond—and that, given the length of time since the call for evidence, there might be less consensus because there have been more actions since?

Dr Hawley: Since the call for evidence, we have seen the SMCR and the money laundering regulations, but they were kind of around and being introduced—the SMCR in 2016 and the money-laundering regulations were on the books for 2017—so I do not think that there has been anything dramatically new since then. Those were on the cards at the time of the 2017 call for evidence. This does need private sector consultation and it needs to be thought through carefully.

On the consensus about where to go, another problem we are worried about is that that lack of consensus will be replicated in the Law Commission’s consultation, because you have essentially two options—that is how it has been put to me, quite often by prosecutors. You go with the US model, with vicarious liability, or you have a “failure to prevent” offence. There was not really any clarity in the way the call for evidence was worded that would result in a kind of consensus. Quite a lot of law firms think we should have vicarious liability, because that is the strongest form of liability there is.

I worry about coming to the end of the Law Commission consultation with exactly the same result: no consensus about the way forward, let’s not do anything, and then we will be stuck in the same place. Do you see my point with that?

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I do, but I will let someone else come in. Thank you.

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Q You said something astonishing today. You said that, in your opinion, we have outsourced our enforcement on economic crime to the US.

Dr Hawley: That is not my wording; I think that one of the business press has used that phrase. Do you want me to explain why I think that?

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Q I was just getting you to reaffirm that is what you meant: that essentially that is what we have done, because presumably you think that our enforcement and activity against this kind of economic crime is much inferior to what is going on in the US?

Dr Hawley: I am afraid it is widely held consensus that what we do here is significantly inferior to what happens in the US, and I do not think there can be any doubt about that. I could share some research we did in 2019, which very specifically compared only London and New York banks, so that we did not get an unfair comparison because of the much larger size of the US. The level of fines that the US imposes, both criminally and on a regulatory level—that is, the money laundering space—is 22 times higher.

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Q It would be very useful if you would share that information. What can we do to improve the incentives to prevent this activity? Is that more about enforcement and the almost wiping out of action fraud and much of the criminal work that goes on to prevent fraud, which—let’s face it—has fallen off a cliff in terms of its success rates? You have made some very interesting points about how you think the law should be changed, but is that about the law or is this an enforcement problem? Do you think the FCA is fit for purpose when it comes to the enforcement for which it is responsible?

Dr Hawley: The law is certainly an issue with fraud, money laundering and false accounting.

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By the way, without meaning to be rude, you have three minutes to answer this or the Chair will cut you off.

Dr Hawley: Absolutely, it is an issue of the law and of enforcement—law is only as good as its enforcement. We need a fairly wide consensus among the enforcement community, non-governmental organisations and academics in this space. We need a massive boost to economic crime enforcement in this country.

With the FCA, what we hear is it is much easier for them to bring civil actions, and that is what they do. For corporates, they are not using the corporate criminal liability laws that we think need to be used to ensure real deterrence, and that corporate wrongdoing, when it does occur—by the few bad people—is properly held to account and prosecuted. I know the Competition and Markets Authority wants to get rid of its prosecuting function to the SFO. Some people, such as Jonathan Fisher QC, have argued that we need one big super-enforcer in the criminal sphere, because regulators will always have more interest in taking the easier, quicker and cheaper route, taking the regulatory approach rather than the criminal approach.

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Q Finally, because you answered that so fast, do you think that the way to deal with the larger global companies is vicarious liability, rather than “failure to prevent”? Should we be thinking of introducing a law saying that after a company gets beyond a certain size, we switch to vicarious liability, because this idea of directing mind is simply not present in larger global corporates?

Dr Hawley: It is a really complicated issue, which I am very pleased the Law Commission is looking at. One of the options is vicarious liability. Some people feel a bit uneasy about vicarious liability and say it is too strong, but that is where you need the best legal minds of the Law Commission. However, the immediate gap can be immediately filled by the introduction of the “failure to prevent” offence. Otherwise, large companies are beyond the law; the “failure to prevent” offence brings them within the reach of the law.

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Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank our witness for her evidence on behalf of the Committee. That brings us to the end of the morning sitting. The Committee will meet again at 2 pm in the same room to take further evidence.

Ordered, That further consideration now be adjourned. —(David Rutley.)

Adjourned till this day at Two o’clock.

Environment Bill (Eighteenth sitting)

The Committee consisted of the following Members:

Chairs: James Gray, † Sir George Howarth

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Anderson, Fleur (Putney) (Lab)

† Bhatti, Saqib (Meriden) (Con)

† Brock, Deidre (Edinburgh North and Leith) (SNP)

† Browne, Anthony (South Cambridgeshire) (Con)

† Crosbie, Virginia (Ynys Môn) (Con)

† Docherty, Leo (Aldershot) (Con)

† Furniss, Gill (Sheffield, Brightside and Hillsborough) (Lab)

† Graham, Richard (Gloucester) (Con)

† Jones, Fay (Brecon and Radnorshire) (Con)

† Jones, Ruth (Newport West) (Lab)

† Mackrory, Cherilyn (Truro and Falmouth) (Con)

† Moore, Robbie (Keighley) (Con)

† Pow, Rebecca (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)

Thomson, Richard (Gordon) (SNP)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

† Zeichner, Daniel (Cambridge) (Lab)

Anwen Rees, Sarah Ioannou, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 19 November 2020

(Morning)

[Sir George Howarth in the Chair]

Environment Bill

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Before we begin, I would like to remind hon. Members about social distancing. Spaces available to Members are already clearly marked. Hansard colleagues would be grateful if you could send any speaking notes to hansardnotes@parliament.uk. I also remind Members to please switch electronic devices to silent. Tea and coffee are not allowed during sittings.

We continue with line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. Please note that decisions on amendments do not take place in the order they are debated, but in the order they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates.

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On a point of order, may I highlight the terrific leaf-covered suits of the Minister and her PPS and, indeed, the green jacket of the hon. Member for Putney, as part of a tribute to the cause of this great Environment Bill Committee?

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As the hon. Gentleman is fully aware, that is not a point of order. However, the point has been made and I am sure it will be appreciated by those to whom it was directed.

Clause 93

General duty to conserve and enhance biodiversity

Amendment made: 223, in clause 93, page 95, line 21, after “England))” insert—

“(a) in subsection (1), after ‘conserving’ insert ‘or enhancing’;”. —(Rebecca Pow.)

This amendment adds a reference to enhancing biodiversity to section 41(1) of the Natural Environment and Rural Communities Act 2006.

Question put, That the clause, as amended, stand part of the Bill.

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I thank my hon. Friend the Member for Gloucester for his lovely comment on my suit. As I explained to the Chair earlier, it is my lucky suit. I wore it for both Second Readings—we have had two already—and I thought, as we are doing nature, I should wear it today.

Public authorities can and should play an important role in improving our nature. Under the current duty, a number of public authorities have undertaken projects with the aim of conserving biodiversity, such as changing cutting regimes for roadside verges to allow wild flowers to flourish. The hon. Member for Cambridge mentioned something going on in his own area along those lines, and I am pushing my county council in Somerset to do exactly that.

Such efforts are not consistent across public authorities, nor are they enough when compared with the Government’s wider ambitions for recovering nature and the country’s desire to build back better. They are also not enough to address the drastic decline in biodiversity seen over past decades, which we have referenced several times in Committee. I believe we all agree about the need to address it.

The existing duty was criticised in a House of Lords Select Committee report in 2017, with environmental groups such as Wildlife and Countryside Link giving evidence that the duty was ineffective. We have listened and clause 93 therefore strengthens the biodiversity duty to better reflect the ambition set out in the 25-year environment plan and to give public authorities a better approach to building biodiversity into their core activities. It just needs to be part and parcel of everything in the future. We are changing the nature of the duty away from considering biodiversity every time that a function is exercised, when in many cases it will not be relevant or it will be too late in the implementation process to make the most effective change. We want public authorities periodically to take a strategic look over all their functions, identify where they can make a change that will improve biodiversity as they are developing their policies and procedures, and then take action.

Public authorities must also have regard to local nature recovery strategies, species conservation strategies and protected site strategies—I mentioned those in the previous sitting—when they consider biodiversity. That is an important underpinning for the strategies and is crucial to their implementation.

The strengthened duty seeks to embed consideration of how biodiversity can be conserved and enhanced in the overall performance of public authorities’ functions across England. I urge that clause 93 stand part of the Bill.

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Let me start by reassuring hon. Members that my hon. Friend the Member for Southampton, Test is not suffering undue excitement from the previous sitting, but is on a late-running train from Southampton and will join us soon.

May I also thank you, Sir George, for allowing us to sort out the slight procedural difficulty that we had at the end of the previous sitting? It was a long sitting and finished in a bit of a rush. The Government introduced a whole range of important new clauses relating to clause 93, to which I will now be making reference. A huge set of amendments were introduced about species conservation strategies and protected site strategies. Of course, it was not possible to discuss that provision in evidence sessions, and the Opposition were disappointed that that was not possible. It prompts a whole range of questions, and perhaps the Minister can answer some of them in her reply. We are not clear on why the provision was introduced at such a late stage. Although some of it is welcome, there are some questions of detail, which I will go into. It is not clear to us why the provision was introduced at such a late moment.

I have to say that this goes back to the argument that I have been making—you missed the first half of it, Sir George—as I have questioned who was responsible for, in the Opposition’s view, so diminishing the power of the Environment Bill. We think that there is an interaction with the Government’s planning White Paper, and I ask the Minister just to say a little more about the interaction that she thinks that there will be with these proposals.

I draw the Minister’s attention to a piece in The Planner, which I am not sure she is a regular reader of—I confess I am not. The question was raised over the summer of the interaction between the planning White Paper and the good proposals in this Bill and clause 93. One question raised by Huw Morris, one of that publication’s key writers, is this: in a streamlined planning system, how will local plans be assessed from an environmental and sustainability point of view, and how will individual schemes be environmentally assessed to provide the right mitigation? The point is that in the planning White Paper, we have new categories, including of course the growth category, where none of these things will be done in detail. Huw Morris says that the picture gets murkier in growth zones, where schemes will be allowed automatically. With sustainability appraisal scrapped and environmental impact assessments not carried out at the outline stage, how will a development’s green footprint be judged, if at all?

That is a very big question. I appreciate that the Minister might not want to respond immediately, but I hope that she has some opportunity, in the discussions, to give some reassurance to people, because this potentially, in our view, undermines many of the good points that we have talked about. That is why we were so keen to have an evidence session.

In relation to clause 93 and new clause 25 on species strategies and licensing, we have looked at this provision closely and are disappointed that we were not able to examine it more closely in a proper evidence session, because the interaction between some of these suggestions and existing legislation is quite detailed. Strategic approaches to species conservation are clearly essential. We agree with them. It is vital to preserve biodiversity and enable the recovery of nature. As I think we have already said, that is important because 46% of conservation priority species in England declined between 2013 and 2018, and many of those species would certainly benefit from a strategic plan resulting in all relevant public bodies taking appropriate actions to save and restore them.

Sadly, this proposal has to be understood in the context of the net-gain offsetting that we have already discussed, and our fear is that there could be unintended consequences. We are advised that the overall result could sadly be to allow the destruction of habitats and protected species in return for new habitat creation elsewhere. A developer could be licensed to proceed with activities that destroy habitats and species in return for contributing to habitats that support the wider population of that species.

It is a complicated point, but I am sure that the Minister knows what we are driving at. Our worry is that it would allow a developer to proceed without protecting every specimen of a protected species and without always undertaking site-specific survey work. The result would be to speed up development and reduce costs, which seems to us—this is the argument that I am trying to build—to be the effect of the planning White Paper. It seems to be the very opposite of what we are trying to achieve in the Bill.

If the proposal is implemented well, it certainly could be a positive way to contribute to the conservation of certain species, but if it is managed badly or applied to inappropriate species it could sadly become a shortcut to getting round some of the protected species obligations. The evidence for that is provided by conservation organisations that tell us that the implementation of strategic approaches to species protection, such as district licensing for great crested newts, have not been proven effective. The Minister claimed that they had been, but that is not their view.

The Government notes do not give us cause for optimism. In the fourth bullet point of the notes that were issued alongside the clauses, the Government say that there are

“concerns limiting the development and roll-out of such existing schemes: 1) uncertainty about how effective they are and 2) whether they can be considered to meet the high standard of certainty required by law.”

That is the point that we are seeking to pursue.

We are told by environmental organisations that monitoring has been incomplete, that there is little evidence that it has protected the most important newt populations from development, and that the overall benefits for the species are unproven. That could have been probed and tested in evidence, but sadly we have not been given that opportunity. We are concerned that the Government seek to advance on the roll-out of district licensing around the country, with a duty to co-operate forcing the hand of local authorities, many of which are already saying that they are concerned about the effectiveness of the scheme.

We can see the dangers, and we think that high risks would come from extending that kind of approach to other species that have distinct conservation needs. As far as we are aware, no assessment has been undertaken to establish which, if any, other species would be ecologically amenable to this or similar approaches. Can the Minister tell us whether that work has been done? Again, I do not necessarily expect her to have the answer to hand, but if she cannot tell us today, she could write to us.

We are looking for some serious reassurance that the species conservation strategies will not lead to perverse outcomes. We need to ensure that they are delivering gains for nature rather than gains for developers. This may be slightly tedious, and I apologise, but again because we have not had the opportunity to interrogate these matters we think it is important to put it on the record.

Greener UK has raised several legal details with us that we would like addressed. It asked us why the clause has not been worded to ensure that each species strategy is required to identify priorities for the protection of habitats in addition to the existing priorities of creation or enhancement of habitats. Greener UK’s concern is that purely focusing on enhancements, as is currently the case in the clause, would undermine the planning process by undervaluing the need to protect existing habitats, and it wonders why the clause has not been worded to ensure that each strategy must give precedence to the mitigation hierarchy.

That is an important point because, as we said in earlier discussions, offsetting and licensing through species plans should be the very last option rather than considered earlier in the process. Greener UK is particularly concerned that site surveys should still take place when existing data is inadequate to identify impacts on key species. The worry through all this is that this is an attempt to speed up the process for development rather than to protect species.

Site surveys covering features important to species as well as habitats are particularly important for bats and invertebrates. Bat roosts, which are essential to the species’ survival, and endangered insects on private sites, are easily overlooked and are often detected only in pre-development site surveys.

To return to the powers, why is it only a power, rather than a duty, for Natural England to publish the species conservation strategies for species listed under section 41 of the Natural Environment and Rural Communities Act 2006 that are in decline or are persisting at unsustainable levels where, under that legislation, actions by any public body are likely to contribute to the recovery of that species? A duty would help to ensure that species conservation strategies focus on environmental rather than development needs. Again, the point is about the interaction between new and existing legislation.

We are concerned that, on the evidence we have seen, it is pretty clear that when authorities only have to have regard to wildlife, sadly, that is often interpreted as thinking about rather than taking action. Why has that not been strengthened to ensure that authorities have to take actions that will contribute to the objectives of the species conservation strategies?

Currently, there is no duty to report on the status of a species subject to a species conservation strategy. There should be clear responsibilities for monitoring and reporting on the status of species within the areas covered, with relevant data published to enable scrutiny. The clause also contains no wording to prevent the continuance of species conservation strategies that are not working. It should be a long-term process. Any strategy that is failing should be revoked or replaced by a significantly strengthened strategy.

Can the Minister explain why those things have not been done? Can she confirm that, in every case, conservation gain and the method of achieving it within each strategy will be agreed by the Natural England species specialist and external non-governmental organisations before strategic approaches are applied, and that each strategy will be framed around the action needed to achieve specific conservation objectives and favourable conservation status? Those objectives will vary across species, as each species requires a tailored approach based on its specific needs and area-specific pressures.

I would also like the Minister to confirm that, where species conservation strategies are used in cases of development planning, species’ needs will dictate the outcome, with the overriding presumption and priority being for on-site or local, rather than off-site, mitigations. Will she also confirm that biodiversity net gains will be additional to meeting the legal and policy requirements within the species conservation strategies?

As the clause stands, it looks as if the Government are racing ahead to deploy strategic approaches as a licence to give developers freedom to potentially destroy important species that they view as an impediment to planning. That is a seriously different outcome from the one that I suspect all Committee members would like.

We welcome the principle of new clause 26. At the moment, sites are often harmed by the cumulative effect of successive developments without a strategic view of how they can be alleviated. Of course, that then leads to disputes later when those sites are pushed to breaking point. That is in the context of 61% of sites of special scientific interest being in an unfavourable condition. Frankly, I am surprised we even know that, because I am told that half of those SSSIs have not been monitored for more than 60 years. That is not a criticism of Natural England.

An excellent report published by the Prospect trade union last week indicated—this goes back to earlier points about funding and capacity—that Natural England’s grant in aid budget has declined by 49% in the last six years. Its chair said:

“We are now running with some serious risk to our core, statutory functions.”

There is a real risk that the good intentions will not be realised, so it is important that we take a more strategic view of the conservation needs of sites. The measures in new clause 26 aim to do that by mitigating those pressures in advance and ensuring that the needs of the ecosystem are considered as part of each individual application and in the round.

Many sites are also affected by water extraction, pollution from nearby land, and a range of other activities that are regulated by public bodies and could be addressed in a co-ordinated way by a protected site strategy. Again, those must not serve as an excuse to destroy valuable habitat for development or forgo the need for site-specific consideration, assessment and advice.

Organisations have raised legal issues with us. Why is the preparation and publication of protected site strategies a power of Natural England, rather than a duty on them? A cynic would say that it is a way of helping Natural England solve a funding crisis. Frankly, it is passing the buck and will not achieve the outcome we are looking for. We would like confirmation that site-specific impact assessments at the time of planning or of other consent applications should still be carried out to ensure that all impacts are identified and addressed. We need confirmation that each strategy will be framed around the conservation objectives of the sites concerned, as well as any other conservation considerations. Each strategy should be properly underpinned by a clear understanding of what successful achievement of those conservation objectives should look like for those sites, with clear monitoring and reporting.

Finally, new clause 27 is a particularly difficult one: it tackles a complicated issue around the way licences are granted for activities that could “harm, remove or disturb” wild animals and wild plant species that are protected either under the Wildlife and Countryside Act 1981 or under the Conservation of Habitats and Species Regulations 2017. The issue is particularly complicated, and has not been subject to consultation. Strong concerns have been expressed to us that the changes could weaken the protection for some species. Greener UK are certainly recommending that aspects of new clause 27—particularly subsection (1) and subsection (2)—should not be agreed until further consultation has taken place. I seek the Minister’s assurance that there could be further consultation on that. On that basis, I will not go into the fine details of the relationship between these pieces of legislation, which are tricky. Subsection (1) could result in a licence under habitat regulations overriding the additional protection currently afforded by the Wildlife and Countryside Act 1981.

An example I have been given is that a licence to allow the capture of natterjack toads under the habitats regulations could then permit reckless disturbance of the natterjacks that is otherwise prohibited under section 9(4)(b) and (5) of the Wildlife and Countryside Act 1981, but not under the habitats regulations. It is complex stuff, and it does require looking at, as otherwise we may end up with unintended consequences.

Similarly, subsection (2) of new clause 27 amends the Wildlife and Countryside Act 1981 to allow for licensing activities to take place under a new ground of so-called “overriding public interest”. That would allow development to proceed if it meets the bar of “overriding public interest” even when it would result in the killing of protected species such as grass snakes, if licences are granted to cover that.

There is a range of difficulties in terms of the different levels of protection in different pieces of legislation, and we want those to be resolved, if possible. I apologise for speaking at some length on the matter. They are important amendments that have been introduced late in the process, and we seek reassurances from the Minister that these questions can be answered.

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I rise in support of the objections and concerns raised by the shadow Minister about clause 93 and, specifically, new clauses 25 and 26 on species conservation strategies. The strategic approaches to species conservation are essential to preserving biodiversity and enabling nature’s recovery. They should include protecting, restoring and creating habitat over a wider area to meet the needs of individual species. The additional clauses, along with shining a light on species conservation, are welcome. It is clear that current rules are not working and—as already mentioned—46% of conservation priority species in England declined between 2013 and 2018.

I was concerned, however, to read the reports from Greener UK, which is a coalition of 13 major conservation and environmental organisations. It says that the various strategies may be undermined by the way they are written and the way they are enforced, actually resulting in faster development with lower standards. That cannot be the aim of the clauses at all. Were the strategic powers to be managed badly or applied to inappropriate species, they could become the loopholes that developers would use straightaway to put costs before species protection, and to get away with undermining species protection. That would be as a result of these clauses, which cannot be right.

I am concerned that it has been raised by Greener UK that experienced operators of existing licensing systems are not currently providing protection for animals such as great crested newts, so the district licensing does not work at the moment. Has the Minister met those organisations? Has she talked about these issues and the outcomes on the ground?

I ask the Minister to look again at this clause, which must be amended to explicitly state that site surveys should take place when existing data is inadequate. If the barrier is too high to progress with the site survey, it will not be done, except in abnormal situations or when it is too high a bar. It will not be done in all the places where conservation is failing, which is why we are having this decline. Such an amendment would be vital to this clause so it will be enacted in a way that means we can conserve species.

There is no room for error on this. We cannot wait for 10 years then review this, and find out that lots of habitats have been decimated, and that species have not been conserved and have gone because of this. We need to be on it right from the start. What will be the monitoring of the impact of these clauses? Will the monitoring be fast and rigorous, to ensure that the outcome is conservation and protection of special sites, rather than seeing developers riding roughshod over the regulations and using the rules as a loophole for continuing decimation of our important sites?

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I thank hon. Members for their comments. As the hon. Member for Cambridge said, he has raised a large number of points in one go. He has given me a large task, and I will write to him if there are points that I miss out, because it was an awful lot to take in at speed.

The hon. Gentleman is right to be asking these questions because we need to make sure that we have got this right. I give him the assurance straight away that new clauses 25 to 27 will not diminish the Bill, but will add to it. That is what we have in mind and there has been a lot of discussion in order to come to that conclusion. We have listened to a lot of comments. That is why clause 93 strengthens the biodiversity duty, to better effect the ambition set out in the 25-year environment plan and to give public authorities a much better approach to building biodiversity into their core activities, so that that is part and parcel of everything rather than being done on an itsy-bitsy, one-off basis.

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No one on the Opposition Benches questions the Minister’s commitment to this, but why was it introduced at a late stage? If she can explain that, it would go some way to assuaging some of our fears.

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As the hon. Gentleman knows, this Bill has been in the making for a very long time. It began long before I came along as the Environment Minister. We have spent a whole year working on it, which has enabled us to strengthen it and to work more closely with all the bodies and organisations, particularly Natural England.

The hon. Member for Cambridge talked about Natural England, with whom we have worked really closely. In fact, it will play a big role in all this and we have had full discussions with it. Indeed, Natural England launched a project about 10 days ago. I would have gone, had it not been for the lockdown, so all I could do was a speech. The project was about how nature recovery networks, which is a generic term, and strategies will be pulled together with the protected sites. The launch went well and about 500 people attended the Zoom event, to show how these things will work as we go forward and make sure that in the future biodiversity is embedded into all that we do.

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I will not keep intervening, but my concern is about the section on nature in the 10-point plan that the Prime Minister launched yesterday. There is no mention of net biodiversity gain, which seemed to us to be surprising. That is why we are suspicious. It is difficult, because we have new proposals coming forward from other bits of Government and our worry is that the strength of this Bill has been undermined.

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I thought the 10-point plan was brilliant. It put a massive focus on decarbonising and the renewable energy sector, which I know the hon. Member for Southampton, Test is particularly interested in. It was addressing other elements of the whole green recovery. We were really pleased that we got the tree mentioned in there.

The whole area of net gain and biodiversity is another huge agenda for this Government. We have made it a top priority in everything that we say. It was in our manifesto to improve the environment and leave it in a better state. I can assure the hon. Member for Cambridge that the Prime Minister is fully on board with this.

The hon. Member for Cambridge was asking about how these strategies will work with the new planning system. They are designed to support better and faster greening of planning decisions. The intention is that they will support development. We all agree on that. We must have our housing, hospitals and schools. There is a massive demand, regardless of party, for those things. The intention is that they will support the development by creating improved processes to meet requirements under the habitats regulations. They are designed to be fully compatible with the reforms set out in the “Planning for the future” White Paper. They will not reduce existing protections; they should make it easier to make existing protections successful.

The hon. Member for Cambridge alluded to the state of the sites of special scientific interest. Yes, there is a great amount of work to do on that. It must be done through this new system. Our net biodiversity reporting requirement, which is being introduced in the Bill, will help towards that, as will the other measures such as the local nature recovery networks. All those things should meld together in a fabric to create a better environment.

Conservation is explicitly in the legislation; development is not. The strategies are for conservation, enhancement and protection of species and protected sites. That must be pointed out. The Government are working closely with MHCLG on this, so that we can develop this green strand going forwards. We fully intend to do that. The planning reforms will reinforce the implementation of these measures, including the biodiversity duty. They should not contradict them.

I want to say a bit about the individual strategies. We have protected site strategies and conservation species strategies. The protected site strategies will be targeted and designed to help protect specific sites where they can be most efficient and effective. They will be particularly useful where we have problems. Maybe it is all hunky-dory in Cambridge, but in Somerset we have had a recent issue with nitrates. We have to come up with helpful plans, so we can look after our wonderful Somerset levels, which are an internationally acclaimed wetland site where lots of great work already goes on, but we do not want to stagnate everything to do with development. Coming up with strategies for that would be helpful.

We already have some good examples of that. The South Humber Gateway is an award-winning scheme. I do not know if the hon. Gentleman has visited it, but I think it would be a good plan. We cannot do any visits now, but when we can, we should go on a joint visit. That mitigation scheme successfully unlocked the development of hundreds of hectares of land, helping to deliver an anticipated £2 billion of investment and 15,000 associated jobs. At the same time, funding has been secured to create 275 hectares of new wet grassland habitat. That will be an enormous benefit for the birds that go there in numbers of up to 175,000. That is a good example of a scheme developed by people involved locally. Having this better protected site strategy will really help.

I visited another project in the Solent, where they also have an issue with nitrates —now we will have a phosphates issue as well—because too much nitrate is going into the Solent, and they had to work out how they could build the houses, because a lot of nitrate is associated with waste water and increased housing, as well as agriculture. They have offset some land. The farmer will reduce his usage of fertilisers and nitrates, and they can build the houses: everybody is happy.

That is a really good example. We have now launched five pilots on schemes like that one across the country to assess them, see what they are doing and whether we could copy them or tweak them for other areas. That is what the protected site strategies are. The hon. Member for Cambridge asked—it was a good point, and a question that I have asked myself—whether they alter existing legal protections on designated sites; they do not. They are still there. Where a development project impacts adversely on a protected site, a habitat regulations assessment will be needed. The protected sites strategy will make it easier and quicker to find solutions where we have problems. I hope that that gives some clarity. I am convinced that it is a very sensible idea.

Let us move on to species strategies. The hon. Member for Cambridge mentioned district-level licensing for great crested newts, which everybody keeps talking about. I am a great newt lover. Some 85% of funding goes directly towards habitat creation and habitat restoration management and monitoring, compared with 16% approximately under the traditional licensing approach. He had some information that showed that those schemes were not working. We have lots of data to say that they are very successful, on the whole. The additional investment is really working and early monitoring data shows that 34% of new ponds are colonised in the first year, which is more than double the rate that would normally be expected. There is a lot of good data to say that those schemes are working. Natural England has been very involved in developing those schemes and scaling them up so they can be used elsewhere.

The idea is to then come up with other strategies for other species. Of course, they would not be the same as for newts. Bats, for example, have different habitats—they live in roofs and churches, have different flightpaths and need to have avenues of trees where they can do their echolocation to get to their roosts. I have actually made a few films about lesser horseshoe bats, which I would love to share with the Committee—I think they are on YouTube.

I know what the hon. Member for Cambridge means and great care has to be taken. There is potential to come up with a specific approach for other species—for example, bats or dormice. The idea is not to be detrimental to our lovely bats and dormice; it is to help them. That is the idea behind this measure.

Natural England has been piloting a system for self-licensing by independently accredited surveyors. The hon. Member for Putney touched on that point, which is really important. Who will do all that work? Natural England is already working on that and has some pilots running.

I will write to the hon. Member for Cambridge about the points on the Wildlife and Countryside Act, because they were very specific and very detailed. I hope that I have covered a lot of the issues he touched on.

All the measures in the Bill will be knitted together so that they work together for the overall fabric, which should be better for our nature and the environment, and we have to work with MHCLG on the planning White Paper so that the environment is absolutely integrated into our building back faster and better, which is something I believe the people of this country want.

Question accordingly agreed to.

Clause 93, as amended, ordered to stand part of the Bill.

Clause 94

Biodiversity reports

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I beg to move amendment 142, in clause 94, page 95, leave out lines 28 and 29 and insert—

“(a) all public authorities and persons or bodies exercising functions of a public nature, and”.

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With this it will be convenient to discuss the following:

Amendment 186, in clause 94, page 95, line 30, at the end insert—

“(d) Natural England and the Environment Agency”.

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I assure the Committee the going may be slightly lighter for the next period. That was complicated. I appreciated the Minister’s response, but I think there are two takes we can have on this: one is the optimistic take, which she presents, but others are a little more sceptical and suggest that even if the bulldozer is hydrogen-powered, it is still a bulldozer, so we need to be careful.

We welcome clause 94, because it remedies a weakness in the Natural Environment and Rural Communities Act 2006, which lacked a reporting duty for public authorities with regard to the biodiversity objective. The world moves on and we want to do better, so the clause is good. Those reports will be important in regularly recording the actions that public authorities take to conserve and enhance biodiversity.

I am grateful to the Minister for her letter referring to the burdens on local authorities. She was very swift in writing to me. I am not certain that my council colleagues will be totally convinced, but apparently there is a new burdens doctrine, which sounds slightly severe. In her letter, she was very specific about some elements that will apparently be funded, but I suspect that, with all these measures, whether it is the reporting duty or anything else, many local authorities will ask where the resources will come from to enable them to do it. Nevertheless, we would like it to be done, because we think that these reports will help to improve information on protected sites, priority habitats and priority species.

The clause could helpfully be amended, to realise the full potential of those reports, so I will continue my theme of trying to strengthen the legislation and achieve the outcome that we all want. Extending the range of public authorities that are required to provide reports, providing more direction on report content and expanding the list of topics that public authorities should report on would be helpful. Currently, the requirement to produce biodiversity reports applies only to local authorities in England other than parish councils, local planning authorities in England and designated authorities. We think that it would be beneficial to extend the range of public authorities required to provide reports, to make sure that all bodies that have influence over the natural environment are properly included. Our amendments 142 and 186 seek to do that.

Amendment 142 would make it a requirement that

“all public authorities and persons or bodies exercising functions of a public nature”

have to produce these reports, spelling out how they are meeting the biodiversity objective; and amendment 186 would add Natural England and the Environment Agency to the list of designated authorities required to publish biodiversity reports. We think these amendments would be helpful. We will not pursue a vote, but it would be helpful to hear the Minister’s response.

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You will be very pleased to hear that I will not speak for as long as I did previously, Mr Howarth.

I thank the hon. Gentleman for his amendments. Importantly, the addition of a reporting requirement strengthens the Bill. The reports will be a valuable source of information, facilitating the sharing of best practice and providing both transparency and accountability.

Clause 94 designates some public authorities and provides the Secretary of State with a power to designate in secondary legislation which other bodies will be required to report. We are clear that local authorities and other planning authorities have important contributions to make to restoring nature, so we have designated those authorities in the Bill. We will require reporting from other relevant public authorities, including Government Departments with large estates and bodies that undertake statutory requirements, such as the public utility companies.

Amendment 142 would significantly broaden the duty to report on action taken under the biodiversity duty, which would not be appropriate for some public authorities that are small and have few resources. Parish councils, which we have mentioned previously, are a clear example of such authorities, but there will be others for which it would not be a sensible use of their limited resources to produce and publish biodiversity reports. I am sure that they will all want to have their say, but they could feed that in to their local authority.

Under amendment 186, Natural England and the Environment Agency would be named specifically in the 2006 Act as needing to produce biodiversity reports. The decisions on which public authority should be asked to report are best considered in detail as we develop the regulations that will flow from the Bill. All interested stakeholders will have the opportunity to engage with us to make sure we get the list of public authorities right. I think it is important that that is done. Consideration and consultation are important parts of the process, and while Natural England and the Environment Agency undoubtedly have crucial roles in our effort to enhance biodiversity, there are other important public authorities. I urge the hon. Member to withdraw his amendment.

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I anticipated that response, but I do think there is a missed opportunity here. Part of the problem goes back to the existing pressures on organisations like Natural England and the Environment Agency. They have to prioritise. The danger is that they will not be able to do some of the things we are asking them to do unless we actually specify and lay them out. The worry that has been expressed to me is that they sometimes struggle to carry out their biodiversity duties. Unless we actually press them and make it an obligation, they are not going to report on it or be able to do it. That is not a criticism of them; they are working with limited resources.

It comes back to the very basic point that it depends on how important one thinks any of this is. We think it is really important. I will gently say that, in the lead-up to COP26, where nature-based solutions are going to be a key theme, we could be setting a lead here by showing how we are pushing nature and biodiversity up the agenda—not at No. 9 on the 10-point plan, but much higher up, which is certainly where we would put it. I think it is a missed opportunity.

On parish councils and other authorities, which we will perhaps come on to a bit later, perhaps I am slightly obsessed by environmental land management schemes because of my role on the Agriculture Bill, but it seems to me that an awful lot is being put on these schemes. I said during the discussions on that Bill that there was a clear opportunity for local input, and it would be local knowledge that made these measures work. There is a role for these authorities, and this is exactly the kind of place where we could set that obligation.

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I have been wanting to intervene and give reassurances on that very point that everything in the Bill will also dovetail with the measures in the Agriculture Bill and the environmental land management schemes. That is essential, I am working very closely with the Farms Minister and the Secretary of State to make sure the Bills work together. The environmental land management schemes will deliver much of the biodiversity and nature enhancement, and public goods including clean water, carbon capture and climate change mitigation, in large part through nature-based solutions. The measures in this Bill will help towards that, and the local authority biodiversity reports will particularly help, as well as the local networks that are developed. They show what nature is where, what needs enhancing where, and how different groups of people can join up through catchment-based approaches. I think what the hon. Gentleman wants to happen is what has been designed. Does he agree?

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I am grateful to the Minister for giving me the opportunity to say how disappointed we were that the Government did not take the opportunity we offered in our amendment to link the Bills together, not least because they came in the wrong order, being driven by a Brexit timetable rather than an appropriate timetable to do this in the right way. We are not convinced they have been integrated in the correct way. We are only a few weeks away from that new system potentially beginning, and there is a lot of work to do, to put it mildly.

We think that there should be local input from the very beginning, much like the schemes we are losing—economic development, leader schemes and so on—that worked on a local level before. Who knows where the sustainable investment is going? A lot is being lost at the moment. To return to the amendment, we feel that a strengthened reporting obligation would actually help the Government, as we are trying to do, to achieve the outcomes they are seeking more effectively. None the less, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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I beg to move amendment 141, in clause 94, page 95, line 43, at end insert—

“(e) an analysis of how actions taken have contributed to delivery of priorities identified in the Local Nature Recovery Strategies.”

This is a continuation of the same discussion, in effect, because we are looking at how the biodiversity reports could be improved. In the Bill, in the list of topics that the biodiversity reports should contain, there is no reference to any consideration of local nature recovery strategies. I have already spoken with some passion about the need to link all these things up to make them work. We agree that if we are going to tackle the biodiversity challenge, co-ordination is needed. The local nature recovery strategies are designed to do just that, so tying them into biodiversity reports would help to achieve that core purpose of directing local nature recovery activity.

Our amendment would do that by adding to the clause that biodiversity reports must contain analysis of how the actions of public authorities have contributed to the delivery of the priorities identified in the local nature recovery strategies. Our concern—this is a consistent theme—is to lock in a guarantee that something actually happens. The danger is that often good intentions are parked somewhere within authorities that, quite understandably, have many other things going on, and nothing happens. We need to ensure that things are considered in key decision-making processes and that actions are properly monitored, with decision makers held to account. Again, the amendment is a probing one to tease out of the Government how they think the provision will work. There will be no need to divide the Committee.

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I thank the hon. Gentleman for the amendment. We intend the biodiversity reports to be proportionate and flexible. Designated public authorities will report every five years on how the measures throughout the clauses dealing with nature and biodiversity deliver the intended improvements for nature. To achieve that aim, we should not be too prescriptive by specifying in the Bill what the reports must contain.

There will be considerable variety across the public authorities designated to report. For many, it might well make sense to frame reports against the context of the relevant local nature recovery strategy. The requirement in the clause to “have regard” to the strategies while determining what action to take will encourage that. Indeed, we anticipate that biodiversity reports will be a valuable source of information for local nature recovery strategies when they are reviewed and republished. This should be a two-way process.

For many public authorities, however, having to specify the contribution to every relevant strategy would be a disproportionate burden. A public authority with national reach would find it challenging to provide a meaningful analysis of its contribution across a very large number of strategies. As I said, the idea is that the report is workable, is flexible, but that people are actually able to do it. A lengthy analysis could prevent the public authority from producing a report that is clear, readable and focused on the most important action that it has taken to help nature recover.

We therefore believe that such detail is best left to regulations and guidance, which allow for greater flexibility and, where suggested, content can be better tailored to individual circumstances. On those grounds, I urge the hon. Gentleman to withdraw his amendment—I think he said it was just a probing amendment.

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Once again, I might have anticipated that response. My concern continues to be that insufficient leverage is being applied to ensure that such things actually happen. That is the only point at issue. Having heard the Minister’s response, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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I beg to move amendment 12, in clause 94, page 96, line 27, leave out “may” and insert “must”.

This is our familiar “may” or “must” discussion. In this case, clause 94 currently outlines that the Secretary of State “may” make regulations to

“require biodiversity reports to include specified quantitative data relating to biodiversity”.

I want to say a little about some of the data issues, because we think that this is rather important. Paragraph 846 of the explanatory notes makes a very good case for the amendment. It says:

“This will ensure key quantitative data is reported in a consistent fashion across all reports, thereby making comparisons across the reports easier. Having such data defined in regulations will also allow for it to be updated in the future as required.”

The Minister will say that that means it is good to have it in the regulations, but we think it should be stated up front.

We believe that good data will make a big difference to how effective public authorities can be in improving biodiversity outcomes. This carries over into some of the discussions around the environmental land management scheme, which is why we pressed very hard for an environmental baseline to be established. Sadly, that was not taken up by the Government, but we think that they will probably have to do it at some point anyway. None of these worthy processes will be possible without good data. Of course, the world has changed in that there are many new and innovative ways of scanning, recording and assessing that may not have been possible a decade ago.

The Secretary of State himself said in his speech on environmental recovery in July:

“We want everyone to be able to access an accurate, centralised body of data on species populations so that taking nature into account is the first, speedy step to a”

planning application. That is a laudable ambition, which we absolutely support, but to do that the Government have to get the data in place. I pay tribute to the army of volunteers who gather data at the moment. We have fantastic volunteers in this country. I suspect that many people here watch and count butterflies, bees, birds and so on, which is all helpful. I have been very impressed by the Bumblebee Conservation Trust—I have already mentioned the ruderal bumblebee—which does excellent work in recording what is happening to bumblebees.

All such organisations require support and the volunteers sometimes need training, because is not always obvious how to gather the data. There then needs to be a process of recording, verification and infrastructure, and there are costs to all of that. Although we have some wonderful not-for-profit organisations and there is a good tradition of volunteering, we feel that it is important that the Government provide support to ensure that we get the centralised, accurate body of data that the Secretary of State referred to. That, of course, will then allow the data sharing, the comparison and the mechanisms that are needed to ensure that we get the biodiversity gains that we are looking for.

I have said on many occasions that we think that local authorities are already struggling to fund, resource and support the kind of work that will be needed to make all these good intentions come to fruition. Fewer than a third of them have an in-house ecologist or biodiversity officer, and we fear that Natural England does not even have the required resources, as I have said, to carry out its current statutory duties in some cases, let alone the extra responsibilities. We think that there needs to be an investment from Government in the right data and environmental information infrastructure to ensure that nature conservation can work.

Again, this is not an issue on which we wish to divide the Committee. However, I would be grateful to hear from the Minister how she proposes to make sure that that fantastic pool of data is going to be put in place and maintained, to ensure that we can make the progress we are all looking for.

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I will narrow my comments down because this is a “may” and “must” amendment again. As I have previously explained during discussion of similar amendments from the hon. Member and others, primary legislation consistently takes this approach to the balance between powers and duties. I assure the hon. Member that the Government intend to make the regulations.

We cannot ask public authorities to produce such reports unless we set out via regulations which bodies should do so and what the report should contain. However, as I have said previously, it is entirely appropriate to provide the Secretary of State with flexibility as to how the provision is given effect. To turn a power to make regulations into a meaningful duty risks rushing consideration of the potential content of reports when an alternative approach may be more suited as some of the potential content. For example, we will want reports from local planning authorities to include detail about biodiversity net gain, but we will want to ensure that that fits with the implementation of those measures.

The hon. Gentleman is right about the importance of data and how crucial that will be to informing all the plans and strategies. I want to reassure him that we are exploring the potential for an environmental census, which was recommended by the Natural Capital Committee as I am sure he will know. That would ensure that we get good baseline data against which to measure progress towards improving the environment. I am particularly interested in that, and believe it is important. Work is going on exploring that. I hope that gives the hon. Gentleman some reassurances.

I agree with the hon. Gentleman that citizen science and the army of volunteers are so wonderful, helpful and knowledgeable in many cases in gathering a lot of our species data, so we want to harness that too. As he says, they already feed a lot of valuable data into our environmental record centres, for example, to which our local authorities often go when they need data in discussing planning applications and such like. Those things will remain important.

I reassure the hon. Gentleman that the Government intend to make the regulations and that the Bill provides an appropriate power for the Secretary of State to do so. As such, we believe the amendment is not needed. I respectfully ask him to kindly stick to what he suggested earlier and treat this as a probing amendment.

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I find much of that reassuring.

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As a trained mathematician, I fully support the use of data supporting policy and as chair of the Government’s Regulatory Policy Committee, it was my job to ensure that we had evidence-based policy making. However, I do not think it is good enough just to say that there should or must be data unless we specify what that data is. The risk, otherwise, is that we come up with the wrong sort of data.

Given our shared belief in data, I have been doing a bit of data gathering myself—not counting butterflies and so on, but counting “musts” and “mays”. In clause 94, I counted not just one or two—not three, four or five—but six “musts” and only two “mays”. That shows how strong the paragraph is, with the “musts” outnumbering the “mays” by three to one. Do Opposition Committee members welcome that fact?

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Order. We are straying into the territory of the Shakespearian debate about the use of “thee” and “thou”. Interesting though it is, I am not quite sure it adds any edification to our proceedings. It is for the hon. Member for Cambridge to decide whether that intervention has any influence on him.

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I am grateful, Sir George, and I am grateful to my constituency neighbour, the hon. Member for South Cambridgeshire. As the chair of the all-party group on data analytics, I, too, can bore for Britain on that. He is right about the “musts” and the “mays”, but a lot depends on where they come in the paragraph. Sadly, there are lots of “musts” and then, quite often, whether something will be implemented or not is followed by a may. There is a hierarchy of “musts” and “mays” that also needs to be taken into account, which shows the difficulties that sometimes arise with using data. It does not always tell the whole story.

Data will be important, particularly as we go down the environmental land management route. I have concerns about that because of the complexities involved. The only way they will be able to work, I suspect, will be through good collection of data. If we are going to move to outcome-based measures—and I think that that is where many people want to get to, finally, on many such issues—it will be essential to be able to measure, record and draw conclusions. I think that we are probably all going in the same direction, and I suspect that we all want the things that are proposed to happen. It is just a question of how quickly they happen, and when. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 94 ordered to stand part of the Bill.

Clause 95 ordered to stand part of the Bill.

Clause 96

Preparation of local nature recovery strategies

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I beg to move amendment 13, in clause 96, page 97, line 27, leave out “may” and insert “must”.

This is one of the most exciting provisions. I do not want to be in danger of getting over-excited, but we think that the set of provisions that we have now reached is very important. That is why I must go back to the ninth of the 10 points yesterday, and say that I found the references—and there is a reference to a local nature recovery network—slightly confusing, as it was in the context of landscape recovery projects.

We are in danger of drowning in a sea of acronyms, I fear, and one thing that we would look for from the Minister is clarity about how all those things will work together. We want a coherent framework that will drive an approach that will reverse nature’s decline across the country. We genuinely believe that that can be done, but we feel that the potential for the local nature recovery strategies is constrained by the current wording and, yet again, we are trying to suggest improvements to help the Minister.

We have already touched on some of the weaknesses of the duty in question, and the need for monitoring in biodiversity reports. The amendment has been tabled to underline the point that the full positive impact of local nature recovery strategies will be realised only if authorities are given clear and effective procedures to follow when they are preparing, producing, reviewing and publishing their local strategies. I am afraid that it is again a may/must issue.

Also, it is a concern of ours that in some instances the affirmative procedure will not be used. There is a strong feeling that, were there to be wider discussion, the legislation would be improved. Allowing third parties, including experts in a sector, to have input into the procedures through public consultation, would be only to the good. We seek the Minister’s comments on whether she can make sure that happens.

We worry, also, about the timing. There is no date to begin the preparation of some of the things in the clause and our worry that they could go on the back burner. Will the Minister give some indication of when she thinks they will be in place and implemented, and when the good work is to begin? Once again, we are trying to find out information. We do not seek to divide the Committee—I can anticipate the Minister’s response. I should like to hear what she has to say.

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I thank the hon. Gentleman for the amendment, but it will not surprise him to hear that we do not believe it is necessary. The backbone of the local nature recovery strategy clauses is a series of duties on the Secretary of State: first, to ensure that there are local nature recovery strategy areas covering the whole of England; secondly, to appoint responsible authorities to lead local nature recovery strategy preparation; and, thirdly, to provide the responsible authorities with the necessary information. The Government are also seeking the power to create regulations to establish the process for preparing a local nature recovery strategy. That is to enable that process to work smoothly and to create consistency in what each responsible authority produces.

I am not sure whether the hon. Member for Cambridge is aware, but just for information, I point out that five pilots are already running on local nature recovery strategies. One is in Cornwall. There were lots of areas where the pilots on the strategies could have run, but on the whole the areas chosen were those that had already done quite a lot of work in this respect and so had lots of good processes and plans and thoughts. My hon. Friend the Member for Truro and Falmouth probably knows about that initiative, given that it covers her patch. I hope that that explanation gives assurances. The work is ongoing, so the lessons will be learned about all that. That will help for the quick roll-out of these things; others will be able to copy what has been done and put them in process.

We have developed local nature recovery strategies to be an important new tool in delivering a wide range of environmental commitments, such as tree planting, peat restoration, natural flood management and the creation of the nature recovery network, which was touched on by the hon. Member for Cambridge. These commitments for this overarching improvement of nature—that is, the nature recovery network—are set out in the 25-year environment plan. The environmental improvement plan clauses in the Bill will establish duties to monitor and report performance against the commitments—it should be remembered that the first environmental improvement plan is the 25-year environment plan; that is how this all knits together—creating ample incentive for Government to ensure that local nature recovery strategies work effectively to help to meet all our commitments. That will very much be part of it.

I would like to provide reassurance that we intend to waste no time in producing the regulations following Royal Assent to the Bill. It has to happen that we get on with these things pretty fast. Changing this proposed power to produce regulations into a duty to do so would serve no purpose. The Government are clearly committed both to the establishment of local nature recovery strategies and to the role that the regulations will play.

I hope that what I have said gives a bit more clarity on the direction that the hon. Gentleman was asking about and I ask him whether he would kindly withdraw the amendment.

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We still do not feel that there is sufficient speed. That is our concern. Pilots are great, but we have seen with the environmental land management scheme that we can go through pilots and pilots and pilots; the question is whether the crisis is being addressed sufficiently speedily. We would like things to move more quickly, but I hear what the Minister says, and on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 96 ordered to stand part of the Bill.

Clause 97

Content of local nature recovery strategies

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I beg to move amendment 143, in clause 97, page 98, line 6, at end insert—

“(c) a statement of how the strategy is expected to contribute to achievement of relevant environmental targets.”

We move from pace to content. We would like to say a little about this—we have a number of amendments, which we can probably go through fairly swiftly—because we think that some things could be done to strengthen the content of local nature recovery strategies. Amendment 143 is to underline that we believe that there need to be clearer links between these requirements and the target-setting framework established at the outset of the Bill.

We believe that the strategies should be required to be developed with regard to the need to contribute to delivery of the environmental targets. We fear that, without that, there will be no means to measure how well the nature provisions are contributing to the overall goal of nature recovery. A clear link would ensure that each local nature recovery strategy delivered local and national objectives, as intended.

Local nature recovery strategies need to be the primary means by which ambitious national environmental commitments, priorities and investments are targeted to deliver maximum public and ecological benefits—the whole range, from tree planting to nature-based flood defences. In combination with those clear national priorities and ecological advice, working with local knowledge and expertise, they can be channelled into delivering measurable achievements through the local strategies. That is the way to make these strategies a success.

We think this amendment is helpful, provides clarity and knits the Bill together. From the outset, our worry has been that the Bill is a rather disparate set of measures. Through the amendment, we could tie it all together and make it work better. Once again, the amendment is an attempt to draw out from the Minister the Government’s thinking on the issue, and we will not seek to divide the Committee.

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I understand the hon. Member’s intent in tabling the amendment, but I do not think it is necessary. The Government already have ample measures at their disposal to ensure that the local nature recovery strategies play their part in meeting the relevant targets, once those have been determined. As time goes on there will be opportunity for all manner of targets on nature to be set. That link has already been made.

First, as we have discussed, the Bill gives the Government the power to issue regulations setting out how each local nature recovery strategy must be prepared. Secondly, it will enable Government to issue statutory guidance on what local nature recovery strategies must contain, expanding on the detail on the face of the Bill. Thirdly, it will require the Government to provide the responsible authority with information to assist in preparing these strategies. That information includes a national habitat map as well as the location areas that the Secretary of State believes could contribute to the establishment of a network of areas across England for the recovery and enhancement of biodiversity in England as a whole.

In combination, these measures provide the opportunity for Government to set out a national spatial framework for the nature recovery network and to shape how it is reflected in each local strategy. The Bill also introduces a duty on the Secretary of State to meet the long-term environmental targets. All that reporting and monitoring will feed into that, starting from the ground upwards. All these measures will feed into achieving those targets.

The duty will be sufficient to ensure that the Secretary of State will use the tools referred to and provide responsible authorities with clear information on how local nature recovery strategies should contribute to achieving those specific targets. It will ensure that the Secretary of State has every incentive to monitor the effectiveness of these contributions. I urge the hon. Member to remember that the framework of reporting, monitoring and being held to account will all be part of making sure that we improve nature. I urge him to withdraw the amendment.

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I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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I beg to move amendment 144, in clause 97, page 98, line 16, at end insert—

“(e) a description of how actions intended to meet the net gain objective and land management changes supported by public funds should be spatially targeted through Local Nature Recovery Strategies in order to contribute most effectively to environmental improvement.”

This amendment clarifies the relationship between LNRSs, net gain, ELM and other policies.

I suspect that we are trying to achieve the same things through slightly different means. Amendment 144 seeks to ensure that local nature recovery strategies are comprehensive and bring all an area’s environmental gains into a cohesive plan. They should co-ordinate all the local biodiversity net gains arising from planning as well as from the land management changes pursued under ELM schemes. As I have said, we think that linkage to ELM is absolutely key to ensuring a cohesive approach. Again, we think the amendment would strengthen the Bill, which is rather important. I have referred to the Prime Minister’s 10-point plan, which I think needs to be strengthened.

We are helping the Minister here; she could win many brownie points by pointing out to her colleagues that, given that COP26 is nature-based, this is an opportunity to absolutely deliver on nature recovery. I am offering her an early Christmas present, really, and I am afraid that on this occasion we will divide the Committee, because it is a perfect opportunity for her to show that she wants to join us in strengthening her very own Bill.

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Christmas seems to come earlier and earlier.

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I thank the hon. Member for Cambridge for the amendment and for his constant endeavour to strengthen the Bill, which we want to be a strong one—he is right about that—but I do not believe that this amendment is necessary, and I will set out why.

Local nature recovery strategies will be a powerful new tool to help us take a more strategic approach to how we plan for nature’s recovery and to how we use nature-based solutions to address wider environmental challenges. The hon. Gentleman is absolutely right about nature-based solutions, but they are very much part and parcel of this new will to deliver for nature and for all those other benefits—flood control, better water quality, carbon capture and sequestration, and so on—so I think we are on the same page on that.

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I think the point that the Minister is trying to make, which I reiterate, is that a lot of those schemes are in their infancy. We have just discussed the five pilot plans, one of which my constituency is involved in. If the Bill is too prescriptive, we will be unable to tweak those plans later if they do not work. It is important that we set out the intention on the face of the Bill and let the pilots do their work, so that Ministers and experts in the field have the flexibility to learn from and use best practice moving forward.

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I thank my hon. Friend for highlighting that; I could not have put it better myself. That is why we are running the pilots, and it is great that they are already running. The hon. Member for Cambridge asks when we are going to do all this, but we are actually already doing it. My hon. Friend is absolutely right to say that each area will be different: Cornwall will be quite different from south Humber or Keighley. Those areas’ requirements and demands will vary and that is why we need to run pilots.

We do not want the pilots to go on forever—the hon. Member for Cambridge is absolutely right about that—and the Secretary of State and I are at pains to say, “Yes, we want all the data and feed-in, but we do need action.” I like to think that we will see action. The Secretary of State said on Second Reading that we have to ensure that we work to promote actions through the environmental land management scheme and that those actions work with what we are putting into our local nature recovery strategies. The idea is that those will all work together and that we will then deliver our biodiversity net gain, which will also be helped by the strengthened biodiversity duty on public authorities in the Bill.

Beyond the Bill, the strategies will support local authorities in protecting and enhancing biodiversity through the planning system, and encourage more collaborative working between the public, private and voluntary sectors, to establish and achieve common goals. We are keen that each responsible authority leading production of a strategy properly understands and considers the different mechanisms through which the net gain and adding to nature could be achieved. The responsible authority will not always have direct control of all those different delivery mechanisms, however, so they will need to work collaboratively with other organisations, as we have proposed.

Simply requiring the responsible authority to give its opinion on processes that it does not control will add little to the strategy and could deter partners from engaging constructively. My intention is instead to use the statutory guidance provided with the clauses to explain how the responsible authority should take account of potential delivery mechanisms when preparing its strategy. I agree with the hon. Member for Cambridge: he is absolutely right that we are coming up to a crucial year, with COP26. However, I hope he is very pleased that nature and adaptation are part of the COP. That is why it is so important that we demonstrate that we are going to lead by example, with the pilots and all the measures in the Bill, which show that we are taking these issues seriously; it can work and add to nature. I therefore kindly ask the hon. Member to withdraw the amendment.

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That was a helpful set of interchanges, but I have to say that we need something stronger than, “I’d like to think that we are going to see some action.” The urgency is much more pressing. There is a danger of ending up with perpetual pilots, and we want to go much more quickly and more strongly. On that basis, we will press the amendment to a Division.

Question put, That the amendment be made.

Division 37

19 November 2020

The Committee divided:

Ayes: 4
Noes: 10

Question accordingly negatived.

View Details

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I beg to move amendment 145, in clause 97, page 98, line 23, before “are” insert

“an ecologically coherent network of sites that”.

This amendment clarifies that local habitat maps should contribute to a coherent ecological network.

Obviously, I am very disappointed that the Minister felt unable to accept my Christmas gift, but we will move on.

Amendment 145 seeks to ensure that local habitat maps, which are included in local nature recovery strategies, are set out in an ecologically coherent way. It is important to get some clarity, because the sites should relate to each other in a coherent way to form part of a wider integrated network for nature’s recovery. We do not want to see local habitats stagnating in isolation; they should relate to one another.

Our understanding is that the intention is for local nature recovery strategies to be produced, as the Minister has already made reference to, in a bottom-up way, to create a nature recovery network at a national level by way of creating corridors of habitat across the country.

I wonder slightly about the national level. As has already been referenced, we have quite clear regions and sub-regions, and it depends on the landscape. Our point is that there should be some coherence. There is a slight risk that there will be a lack of coherence. For instance, we could see a situation where a local authority prioritises a green space for people, quite rightly, but neglects the fact that it could be a crucial stepping-stone between two vulnerable habitats, which could be resolved by creating a corridor of trees that links those habitats.

The basic point we are trying to address is that there should be some integration. By linking strategies together, we believe they can form the building blocks of a national nature recovery network—a joined-up system of nature-rich places, as originally envisioned in the 25-year plan for the environment. We will not seek to divide the Committee on this amendment, but we want to get a sense of whether the Minister shares our aspirations.

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I have to go back to the last comments from the hon. Member for Cambridge. He said that, “I’d like to think” we might have some environmental improvement. I am thinking about it all the time, as my team know. All my thinking will lead to action, through the Bill—I just want to make that very clear.

I understand that the intention behind the amendment is to ensure that local nature recovery strategies consider the ecological coherence of any areas that they identify in their local habitat map, and I reassure the Committee that I recognise how important ecological coherence will be in the strategies. The current clauses allow us to publish statutory guidance to set out in more detail what each strategy must contain, so we intend to draw on examples of existing good practice in spatial prioritisation for nature, to ensure that ecological coherence is reflected in the strategies. Quite clearly, “link up” and “join up” are very important, and wildlife corridors are exceptionally important.

Without ecological coherence, local nature recovery strategies will not be able to perform their essential role of proposing suitable locations to create or improve habitat in order to establish the nature recovery network. As I have said before, the nature recovery network is obviously a key commitment in the 25-year environment plan, and the Bill makes that plan statutory. I have already referred to the national partnership that was launched earlier this month by Natural England to bring together key bodies to support the establishment of the network. It is really important that we pull together all those that might have an influence on a large area’s ecological coherence, so that they can all work together.

The amendment would limit the consideration of ecological coherence to only part of the strategy, excluding existing protected sites, which are the areas of greatest value for nature. I am sure that is not what is intended, but that is how it might be interpreted. Nor would the requirement apply to locations where the recovery or enhancement of biodiversity could make a particular contribution to other environmental benefits, which is a key aspect of the strategies. I do not believe that is the intention of the hon. Member for Cambridge. I therefore ask him to consider the reassurances I have given and to withdraw the amendment.

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I am grateful to the Minister for her reply. We probably have slightly different views on this issue, but we are both trying to get to the same place. My concern—it goes right back to the planning White Paper, where these issues are touched on very lightly—is about the lack of integration, rather than having a coherent, planned overall approach. That makes the whole approach less effective. We have heard what the Minister says, however, and we do not seek to push the amendment to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Leo Docherty.)

Adjourned till this day at Two oclock.

Financial Services Bill (Fourth sitting)

The Committee consisted of the following Members:

Chairs: Philip Davies, † Dr Rupa Huq

† Baldwin, Harriett (West Worcestershire) (Con)

† Cates, Miriam (Penistone and Stocksbridge) (Con)

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

† Davies, Gareth (Grantham and Stamford) (Con)

Eagle, Ms Angela (Wallasey) (Lab)

† Flynn, Stephen (Aberdeen South) (SNP)

† Glen, John (Economic Secretary to the Treasury)

† Jones, Andrew (Harrogate and Knaresborough) (Con)

† McFadden, Mr Pat (Wolverhampton South East) (Lab)

† Marson, Julie (Hertford and Stortford) (Con)

† Millar, Robin (Aberconwy) (Con)

† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)

† Richardson, Angela (Guildford) (Con)

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

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

† Thewliss, Alison (Glasgow Central) (SNP)

† Williams, Craig (Montgomeryshire) (Con)

Kevin Maddison; Nicholas Taylor, Committee Clerk

† attended the Committee

Witnesses

Hugh Savill, Director, Association of British Insurers

Duncan Hames, Director of Policy, Transparency International

Jesse Griffiths, CEO, Finance Innovation Lab, and Fran Boait, Executive Director, Positive Money

Hon. Albert Isola MP, Minister for Digital and Financial Services, HM Government of Gibraltar

Public Bill Committee

Thursday 19 November 2020

(Afternoon)

[Dr Rupa Huq in the Chair]

Financial Services Bill

The Committee deliberated in private.

Examination of Witness

Hugh Savill gave evidence.

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Good afternoon, everyone. We will now take evidence from the first of our afternoon witnesses, who is joining us remotely. I remind hon. Members on the right-hand side of the room and in the Public Gallery to use the microphone near the window when they pose their questions. We will hear first from Hugh Savill, from the Association of British Insurers. We have until 2.45 pm for this session, so lots of time. Hugh, will you introduce yourself for the record, please?

Hugh Savill: I am Hugh Savill, director of regulation at the Association of British Insurers.

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Thank you. We will start with the Minister, John Glen.

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Q158 Thank you, Dr Huq, and thank you very much, Hugh, for giving evidence to us this afternoon. Thank you very much also for the written evidence that the ABI has submitted, I think through you, and for the welcome that you give to the measures, particularly on Gibraltar, the overseas fund regime, PRIIPs and money laundering.

I would like to probe your views on the measures that we are introducing with respect to access arrangements between the UK and Gibraltar for financial services firms. How do you see the issues around maintaining the same quality of regulation between the Gibraltarian and UK regimes? Do you foresee any challenges with that? How important do you think that that level playing field will be?

Hugh Savill: A level playing field between Gibraltar and the UK is essential. I think that about 20% of the British motor insurance market is in fact serviced by firms from Gibraltar so, clearly, whether people are working from the UK or from Gibraltar, that needs to be on the same basis. Given that you have two regulatory authorities, and that can always be quite awkward, we think this strikes a good balance. There is good dovetailing of the relationship between our regulators and the Gibraltarian regulators, and we really hope that the Gibraltar authorisation regime works and provides a smooth basis for business in the future.

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Q I understand from your written evidence that, as a body, you have some reservations about the setting of conduct rules at an international level. Would you like to say a bit more about that and explain what implications it has for how we should approach this issue going forward?

Hugh Savill: This is mainly derived from our experience of conduct regulation at the European level over the past 10 years or so. To be honest, it has not shown the European Union at its best. We have the PRIIPs regulation, which is mentioned in the Bill—well, we are having to correct it—and there have been other measures, such as the insurance distribution directive, which, frankly, have been no better. It is not entirely to do with the way that the European Union makes rules; it is because consumers expect different things in different countries. All you have to do is put together all the things that consumers want. It makes for a very heavy-handed—[Interruption.]

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I’m sorry, Hugh, could you please pause for a moment? We have a noisy bell. It is gone now, so please carry on. Can you start that sentence again?

Hugh Savill: Worse things might happen at my end.

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We won’t go there.

Hugh Savill: The fact is that consumers expect different things; they have different traditions. Introducing conduct regulation at the international level—setting what people expect from their bank, so that it fits the conditions in Japan, Brazil and the UK—is too big an ask. You will end up with a very unwieldy rule book that is not particularly suitable for British consumers. We think the retail conduct rules need to be set with British consumers in mind.

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Thank you very much, Hugh. I will pass you on to Pat.

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Q Good afternoon, Hugh. I want to follow on from the questions that the Minister asked you. I think it is fair to say that ABI has been a part of the financial services sector that has perhaps been more critical than others of the way that EU directives have applied to your sector. Given that the Bill onshores quite a lot of that regulation and gives it to the UK regulators, what differences are you hoping for in the way you will be regulated in the future compared with these directives, which you have been unhappy with in various ways?

Hugh Savill: I should say that we are equally blunt when we see shortcomings in British regulation, as well as European regulation, but, yes, we have criticised some of the European rules. In effect, the Bill sets out the first step towards a UK regime for financial services, and there will be others that follow. Really, this needs to be tailored to the needs of the British market—first to the needs of British consumers and secondly to the needs of British providers of financial services. Now that we have left the European Union, we think that is the way to go forward, and that is what we are hoping our legislators and regulators will concentrate on.

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Q Can I go back to the issue of Gibraltar? Gibraltar has lots of friends across the parties in Parliament, and the Bill sets out a special regime for Gibraltar. Given the generous access to the UK market envisaged in the Bill for Gibraltar-based firms, is there any risk or danger that UK-based insurance companies might have reasons to relocate to Gibraltar and do their business from there?

Hugh Savill: I would be surprised. Ideally, what the Gibraltar authorisation regime sets out is the same basis, whether you are doing business in the UK or from Gibraltar. It is quite an enterprise to move your business to Gibraltar, and I am not certain you would be able to take all your skilled people with you. It is expensive to shift domicile like that. I see no big advantage in firms that are servicing the UK market from the UK moving to Gibraltar. Most of the Gibraltarian firms that have moved into the UK market, particularly the motor market, have done so as new entrants.

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Q Is there any tax advantage to being located in Gibraltar?

Hugh Savill: I will have to let you know on that point. I believe there is a small value added tax advantage, but I will let you know that in due course.

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Q Okay. Is there a particularly good reason for creating this sort of regime for Gibraltar, but not having something similar for, say, the Channel Islands, the Isle of Man or other Crown dependencies elsewhere in the world?

Hugh Savill: They are all slightly different circumstances. I am by no means an expert on the relationship between, say, the Channel Islands and the UK, Gibraltar and the UK, and so on. What was unusual about Gibraltar was that it was part of the single market in a way that the Channel Islands were not, so you had an existing passporting arrangement between Gibraltar and the UK, which, for the sake of the smooth continuation of the motor market, would be helpful to continue.

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Thank you very much. I don’t have any further questions.

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So we go to the Scottish National party spokesperson, Alison Thewliss.

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Q The briefing that you provided on the Bill mentions referring any disputes to the Financial Ombudsman Service. Can you tell me a bit more about how that works at the moment and your fears about what the proposals might mean?

Hugh Savill: There was a question about whether British consumers who were using Gibraltarian firms had access to the Financial Ombudsman Service in the UK. We think it is extremely important that all British consumers have access to the Financial Ombudsman Service—it looks at individuals’ difficulties in a way that other regulators cannot. I am particularly pleased that that has been clarified in the Bill. Let us hope that it works well.

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Q Are there any other risks to consumers within the UK from this move?

Hugh Savill: I never say never, but all the people who operate in the British market are subject to the conduct rules of the Financial Conduct Authority, so I think there should be the same standards for those selling from Gibraltar as in the rest of the UK.

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Q Do you think that consumers are aware of where their insurance policies are coming from? Will this lead to people thinking about that a little bit more?

Hugh Savill: Some of them will be, some of them will not. I am not a great reader of the small print in my insurance policy, any more than anybody else is, but if we have a similar regime, I hope that that would not be a major preoccupation of somebody buying an insurance policy.

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I open the questioning to other members of the Committee. Does anyone else have questions? I call Miriam Cates.

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Q You said that consumers expect different things in different markets. In your briefing note, you said that the Bill will allow the FCA to develop a methodology that is more accurate and that works for the UK market. Can you give an example of a characteristic that is specific to the UK market and how the Bill will help to meet those expectations?

Hugh Savill: If you are buying insurance in the UK, you tend to buy it online for general insurance, or you will quite often use an independent financial adviser to buy life insurance and savings policies. That does not happen on the continent of Europe. There, there is a little shop in most small towns, and people go and buy their general insurance from that shop. If they want savings policies, whether that be insurance or other kinds of savings vehicles, they will go to their bank, so it is a completely different approach and entry into financial services.

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Q Thank you very much for giving evidence today, Hugh. One quick question about the market access arrangements: do you think there will be any price implications from those for UK consumers? Could we see price inflation via premiums increase as a result?

Hugh Savill: Sorry, from the market access arrangements, did you say?

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Yes, just generally. We are seeing a large provider have access to our markets. That could traditionally see increased supply. Increased supply tends to mean price competition, with consumers benefiting both in quality and innovation of product and in the price they pay for it, but equally it can work the opposite way. So do you think there will be any price implications for UK consumers as a result of these measures?

Hugh Savill: I do not think they would be because of these measures, in that the suppliers from Gibraltar already have 20% of the market, and it is not this Bill that is going to change that. There will be changes in price—there are always changes in price, and there will be other things that drive that—but I do not think that will be driven by this Bill.

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Q You suggested there was a small VAT benefit to companies being based in Gibraltar. Obviously, this legislation would remove any other bar in terms of being based in Gibraltar but still being able to operate in the UK. Could you clarify what you mean by a small VAT benefit?

Hugh Savill: That is why I offered to write. I am afraid I do not know exactly what the VAT arrangements are, and I will have to write it down. If I said any more, I would get something wrong.

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So that will be followed up by letter?

Hugh Savill: Yes, absolutely.

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We await it with impatience.

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Q I am happy to let other Members come in if they have questions, rather than hog the platform. There were some comments on equivalence in the briefing you put together. Can you tell us a wee bit more about your thoughts on equivalence both in the wider sense of it being used as a potential political weapon and in the narrower sense of what happens to investors if equivalence is withdrawn?

Hugh Savill: We do not think very much of equivalence as a means of arranging market access. As set out by the EU, it is extremely easy to end equivalence and to leave both provider and client hanging and not knowing where their policy is going to go. We also think that the European system of equivalence is far too open to political interference in what ought to be a technical matter.

This said, if I look back to the Chancellor’s very welcome statement last week, in the supporting document to that, the Treasury set out a far more grown-up view of what equivalence ought to be—a rather more technical decision, where there is open consultation and a discussion between the two jurisdictions, that is actually looking for a long-term relationship between the two jurisdictions, and that cannot just be terminated at short notice. On equivalence generally, we really do not think much of the way that the EU runs its equivalence regime. We are very reassured by the vision of equivalence that the Treasury has put out.

Turning to the detailed point about those accessing the overseas fund regime, what is important is that, in the unlikely event that a trusted jurisdiction moves out of trusted jurisdiction status into untrusted jurisdiction status, there are, as the Bill suggests, mechanisms for ensuring that customers are not orphaned from their provider. That is extremely important, particularly when you have some long-term contracts such as annuities.

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Q What further information do you think would be required for people who have invested, to give them further reassurance?

Hugh Savill: I think they should have enough reassurance here. The overseas fund regime allows investors to access a much wider range of funds than would otherwise be available. As I said, choice is a good thing. It gives a wider choice and, ideally, better products and prices. I think the safeguards are there.

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Q I am just curious because you said that, for the regime to fully work for customers, situations such as this need to be clarified. I thought that you were asking for further detail or reassurance.

Hugh Savill: Not at the moment, no.

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Q I had a further thought on the question of tax advantage. A quick search tells me that Gibraltar’s corporation tax level is 10%. There may be some caveats around that—it was a quick search—but if that is the case, that is quite a hefty advantage for a company, compared with the UK rate, is it not?

Hugh Savill: I am not aware of the corporation tax differences between the UK and Gibraltar, so, again, I am sorry but I will have to cover that in my reply later.

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Thank you. This letter is getting longer.

Hugh Savill: Do not worry—I will not make it too long.

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Good, good. If there are no further questions, all that remains is for me to thank you, Hugh, for your evidence as our first witness this afternoon. We finished a bit ahead of time. Thank you for that.

Examination of Witness

Duncan Hames gave evidence.

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We move on to our second witness this afternoon and the only one who is appearing in person today. Duncan Hames is no stranger to this place. He is now from Transparency International. Duncan, do you want to introduce your job title for the record, and what you do?

Duncan Hames: Yes, happily. My name is Duncan Hames and for more than the past four years I have served as the director of policy at Transparency International UK. Transparency International is part of a worldwide anti-corruption coalition, and because those engaged in corrupt activity need to launder the proceeds of their crimes, we have become quite knowledgeable about the practice and policies around the prevention of money laundering and the need to have effective supervision and enforcement.

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We have until half-past 3 for this session, so a good long time. Unusually, we are going to the two Opposition spokespeople first, and then to the Minister. We are shaking it up a bit. We will start with shadow Minister, Pat McFadden.

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Q Thank you, Dr Huq, and thank you, Duncan, for coming. Let me first ask a broad question. On transparency, when you look at the regulators’ duties as changed by the Bill, do you want to see any additional duties placed on the regulators on the transparency front, or do you think they are properly armed and equipped as they are?

Duncan Hames: There is much in the Bill that I am not qualified to comment on, but certainly in relation to regulatory duties around money laundering it is our contention that the challenge is as much about means of implementation and the expectations placed on the private sector in relation to supervision, which needs addressing. There is an analysis—in fact, it was probably our conclusion on seeing the Financial Action Task Force evaluation—that there are many good policy measures in place, but that they are yet to be fully implemented, and therein lies the nub of this problem.

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Q Do you want to see more duties on companies or do you think that, at least on paper, the duties on companies in terms of corporate declarations and so on are currently fit for purpose?

Duncan Hames: We have found with the UK Bribery Act 2010, which has been in force for 10 years now, that a “failure to prevent” offence within that legislation has served to enhance corporate governance. That is not just our view; it was the conclusion of the parliamentary post-legislative review into that legislation a year or two ago. Government Ministers have expressed their interest in seeing that model—which they have described when introducing it in other areas, such as failure to prevent tax evasion, as effective—applied more widely in areas of economic crime. That is certainly something we would consider there was an opportunity for in the Bill.

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Q We had a witness this morning from Spotlight on Corruption, who argued for the addition of a “failure to prevent economic crime” measure to the Bill at the appropriate place. Is that something you would support?

Duncan Hames: Yes, we would. That is separate to the discussions about the identification doctrine, on which, as I am sure you will be aware, the director of the Serious Fraud Office has frequently shared views and on which now the Law Commission has been invited to bring forward its own options for reform. These are complementary measures.

We now have a “failure to prevent” offence in relation to two areas of offending: one, the Bribery Act and, two, failure to prevent the facilitation of tax evasion. Applying a “failure to prevent” offence more widely, while still considering reform of the identification doctrine in regard to the substantive offence, would be entirely complementary, rather than the House having to consider doing one or the other.

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Q I suspect if we got into this in Committee, on Report or wherever, the counter-argument would be, “Look, the Law Commission has just launched this great consultation, and we should not be pre-empting that by jumping to a conclusion. We might do this, but we have to wait for the Law Commission.” What is your response to that argument, in case we hear it at some point?

Duncan Hames: If I were in the business of money laundering, I would be laughing at the glacial pace at which reform happens. So I would counsel against waiting. As I say, we have two “failure to prevent” offences, and it would be entirely possible to apply that more widely in economic crime. Sadly, it has taken the Government over three years to reach their conclusions in response to the call for evidence on failing to prevent economic crime, and Law Commissions are not generally considered to move more quickly than ministerial responses to consultations. I would not want to estimate quite how long we will have to wait before the conclusions of the Law Commission are enacted in law. I think that is plenty of time to put in other measures, which will help the corporate sector improve their corporate governance, as we have seen in the case of Bribery Act.

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Q In terms of potential amendments to the Bill, that would be top of your list. Are there any other areas that you think could usefully be amended or added to?

Duncan Hames: I certainly think we need to look at the area of supervision. This is a regulatory function. We have private sector supervisory bodies tasked with helping the business sector to put in place the necessary preventive measures to prevent money laundering.

While we welcome the introduction of the Office for Professional Body Anti-Money Laundering Supervision a couple of years ago, its reports—these are not activist or campaigner reports; these are Government regulatory reports—have been very damning of the effectiveness of the supervisory bodies. It is very fragmented—I think there are 14 supervisory bodies for the accountancy sector alone.

OPBAS has identified conflicts of interest between the advocacy and supervisory functions of those bodies. The effectiveness of their enforcement activity is really inadequate. If we take Her Majesty’s Revenue and Customs as one of the supervisory bodies, the fines imposed are barely a couple of thousand pounds and will quite possibly be less than the value of the commission or fee on any individual transaction. That is clearly an inadequate incentive for private sector actors to say no to handling illicit funds.

The quality of the money laundering defences in the private sector has also been found to be poor. The Solicitors Regulation Authority recently conducted reviews into about 60 companies. In nearly half of those cases, they are pursuing the findings they had for potential disciplinary action. A similar proportion of cases were found to be areas of weakness in money laundering defences in other sectors.

So we have a problem with supervision. The first line of defence against money laundering is tasked to the private sector, and yet the supervisory bodies that are meant to ensure that that is being done well, both in terms of guidance and in subsequent enforcement of regulations, are not effectively ensuring that those defences are good.

At the end of the day, the police estimate that the impact of money laundering on the UK economy is of the order of £100 billion a year. We can have lots of good measures and lots of good policies, which at times the Government will have been congratulated for, but the upshot is that we still have a big problem, which is not going away. That is why we think taking action where we can to improve the defences is urgent.

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Q The last thing I wanted to ask you is about the most recent FinCEN files. This all comes out through the United States authorities. We find out about the actions of British financial institutions through the actions of a regulator in another country. How would you fix that so that the actions of UK companies are uncovered and publicised here, rather than coming out through another body in another country?

Duncan Hames: We have to recognise that the FinCEN files were a leak; I would want us to be hearing about suspicious transactions as a result of enforcement having been taken by law enforcement agencies. It has been a concern of the now Secretary of State for Justice that too often we see enforcement, effectively, outsourced to the United States authorities. I do not think that is good for the corporate reputation of UK plc, and I do not think it is how we would want things to proceed as Britain defines a newly independent role in international commerce.

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Thank you. I will stop there.

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Q Good to see you, Duncan. You have offered a wide-ranging critique on general aspects of anti-money laundering and anti-corruption matters. You rightly draw attention to the FATF report, which was generally, in the international context, seen as a very favourable assessment of the UK. Department for Business, Energy and Industrial Strategy activities include the Companies House review, the registration of overseas entities work and the limited partnerships reform.

This Bill ensures that HMRC retains its ability to access information on the ownership and beneficiaries of UK-linked overseas trusts, building incrementally on things that have been done previously. Can you explain why this information is important? This is a key measure and, I would have thought, the most relevant.

Duncan Hames: It is certainly a welcome measure. We have found that some of the complexities of the structures and design of different corporate entities have proved difficult, in terms of the implementation of existing legislation. That was a feature of the recent Baker et al case in relation to appeal against an unexplained wealth order; there was a South American foundation, which was perhaps not the corporate structure that Members of this House had in mind when that legislation was being decided.

Addressing trustees and overseas entities, to strengthen and ensure there are no loopholes in existing legislation, is definitely to be welcomed. In the past, when the House has been considering legislation to address money-laundering risks—do not forget that another piece of legislation related to leaving the European Union is the Sanctions and Anti-Money Laundering Act 2018—it has focused on what can be done about the transparency of ownership, and not just of UK limited companies but of overseas entities, too.

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Q In your comments to the shadow Minister you referred to the glacial speed of activity in the UK, but we have, as you have acknowledged, now transposed the fifth anti-money laundering directive into law, in line with our international obligations. I recognise that this morning we heard evidence about what Germany and Holland will be doing in the future, which we reserve the right to look at. Last year we also published the economic crime plan, which was about bringing public and private sector enforcement closer together. Do you have any observations on which elements of that are most integral to improving the situation and where emphasis should lie?

Duncan Hames: Certainly. Although some of the things we have already discussed this afternoon are not in the economic crime plan, there is much in that plan that we welcomed at the time. It was about 15 months ago that that plan was adopted by the Government. Some of the measures in that plan require legislation, and I am sure the Minister is itching for legislative opportunities to enact his policy.

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Always!

Duncan Hames: For example, there is the reform of Companies House, to ensure it can verify the accuracy of the data that is on the UK registers.

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Q The consultation is under way on that.

Duncan Hames: Indeed. I think we have recently completed a consultation on it, and I hope, therefore, that it will be in the Queen’s Speech.

The register of beneficial owners of overseas entities enables us to know who really owns the foreign companies that own property real estate in this country. It was a Government commitment announced around the time of the London anti-corruption summit, which was four and a half years ago. Although that legislation has already been through pre-legislative scrutiny in both Houses, the conclusions of which were, “Get on with this; we must advance quickly,” it still has not been brought forward. These are both measures in the economic crime plan. It is great that they are in the economic crime plan, but it would be much better if they were implemented. I hope that that will be addressed very soon, but, equally, given how long one waits for legislative opportunities to keep up with the pace of nefarious actors in economic crime, if you have an opportunity to make progress in this Bill, in any additional manner, we would obviously be keen to see you take it.

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Q May I just ask one further question? You referred to OPBAS and the different bodies that regulate different entities, such as the Solicitors Regulation Authority. I have had a lot of interaction, as the Minister, with representative of those bodies, on a regular basis, during my tenure, and obviously HMRC works with them to try to identify best practice and improve what they do. Are you saying that that fundamental organisational entity is not appropriate? I am just not clear exactly what you think should be the alternative. I think the argument would be that those membership bodies contain the expertise within the different sectors, which have very specific entry points and risks, and therefore they need to be dealt with collectively as an entity. What is your view? Is just an anti-private sector view, or a measure to deal with that? What would you see as a meaningful alternative?

Duncan Hames: I think we would see the creation of OPBAS as a very helpful staging post in addressing this problem of inadequate supervision, albeit that it can address and challenge only the professional body supervisors. HMRC has been found wanting, and I have already criticised the level of its fines. OPBAS cannot do anything about HMRC, and I think we have been party to discussions about that in other proceedings of the House.

What OPBAS has found is pretty devastating. In its 2018 report, 62% of accountancy supervisors had some overlap between their advocacy and regulatory functions. Those represent a conflict of interest. There are some really choice quotes from OPBAS in that report, about what supervisors said about the impact on their membership income, were they to take more assertive enforcement action. That really is a conflict of interest in these supervisory bodies.

I think what we need, Minister, is for you or your colleagues to have the ability to respond to these reports—I think we have now had two annual reports from OPBAS—and, where necessary, to strip the supervisory duties from bodies that are failing in this regard. Obviously, all bodies should address their own conflicts of interest, but performance is a really important issue.

The report I was referring to earlier was HMRC finding that about half of the businesses it had reviewed were non-compliant with its anti-money laundering regulations. So, the changes that have been made recently to the regulatory landscape, in and of themselves, are not enough to address the holes in our money laundering defences that are overseen by this very fragmented regulatory arrangement. I said there were more than 14 accountancy sector supervisors; I think we are at 25 anti-money laundering supervisors, altogether.

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I call the third Front Bencher, Alison Thewliss, for the Scottish National party.

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Q Thank you, Dr Huq. I agree with a lot of what you have said, Duncan. Having served on the Joint Committee on the draft Registration of Overseas Entities Bill, I am also hugely frustrated that nothing really has happened with that, since all the evidence was given and the recommendations to Government were quite clear. Are there any other aspects you have not touched on so far where you feel this Bill is a missed opportunity, and where amendments could easily be tabled to improve it?

Duncan Hames: We might want to talk about beneficial ownership transparency. As I say, Ministers had a duty placed on them in the Sanctions and Anti-Money Laundering Act in relation to Britain’s overseas territories and what would need to happen if they did not adopt public registers of their own volition, and I think they have found that duty helpful. Certainly at a diplomatic level, Ministers in the Foreign Office would celebrate the statements that have been made by those overseas territories as that deadline has approached. That is illustrative of how effective using legislation like this to convey a duty on a Minister can be, in order to rachet up the pressure for change.

The problem we have, of course, is that in some cases, those overseas territories are quite grudgingly coming around to this position. The last statement to complete the set was from the British Virgin Islands, and in his statement the Chief Minister—having agreed to the things the Government were hoping he would agree to—started to list a whole list of reservations and conditions, and concluded by saying that of course, this would only happen at a pace at which they consider deliverable. That does not fill me with hope that, without further incentive or, ultimately, the threat of action through Orders in Council, this will actually happen, which brings me back to my original point about implementation. It is one thing to have the policy—another, even, to have the laws—but if we have not had the implementation, we have not really changed anything. I would encourage you to look at what levers you might be able to grant Ministers through additional measures in a Bill such as this.

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Q Indeed. I remember from previous conversations about the overseas territories and Crown dependencies that they were essentially turning things back on to us and saying, “Get your own house in order as well”, in terms of Companies House and other accuracy issues and registers here. Is there anything further on that that you think ought to be in this Bill?

Duncan Hames: That is a creative tension, isn’t it? I think we should welcome international scrutiny of the effectiveness of our own measures. As the Minister said, there has been a consultation about new powers and duties for Companies House, in relation to the quality of the data we have. We are already beginning to see signs of a cultural change in Companies House as a result of the directions it is being given and the anticipation of future legislation. We need it to be a partner in preventing crime, not just a registrar—not just providing a service to companies that wish to be registered.

As I say, we recognise the pattern of change there, but ultimately it has to work within the law, and if the laws do not empower it to take the actions necessary, we need to change that. We are anticipating that the Government will bring forward legislation, so that when we are trying to persuade other financial jurisdictions to address their own contribution to money laundering, including in Britain’s family of offshore financial centres, we are able to hold our head up high and know that we are doing everything we can to ensure that the quality of our own defences is adequate.

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Q I absolutely agree. You talked about the outsourcing of regulation. Do you think Parliament needs to have more of a role in terms of scrutiny, rather than handing things over to regulators? My concern is that once we hand everything over to the FCA and the Prudential Regulation Authority, we will not really know that there is a problem until something gets too big.

Duncan Hames: I suspect that it is Parliament’s role to hold Government to account for acting on what those regulators are finding. They are often quite forthcoming in their criticisms of where things are going wrong, but they need the frameworks in which they can act on that. As I have said, I think the powers rest with Government to strip supervisory bodies of their duties where they are failing, but I cannot think of a time when it has happened. I believe OPBAS has provided plenty of evidence—indeed, unattributed in some reports—but I am sure it could point the finger for Ministers where necessary, in order to be able to take action.

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Q Is there more that could be done in the Bill to open up trusts and make them more open to scrutiny?

Duncan Hames: I think trusts are intended to be in the scope of the registration of overseas entities Bill. That is definitely something required by the fifth anti-money laundering directive as well, so we should consider them within scope. Whether we have yet got that working, I am not so confident. For example, if we take something that I am sure is of interest to you—Scottish limited partnerships—the Financial Action Task Force report, which the Government are very pleased with, noted that there remains a weakness in terms of scope for abuse of that corporate structure. I should acknowledge that those are regulated by UK law, not by decisions made in Scotland. Those partnerships can be partnerships with two corporate entities—so, no human personality. If those two corporate entities are registered in jurisdictions where beneficial ownership is not clear—it is not public—we essentially have a UK entity that has got around all of the strictures that the Government are very proud of, in terms of the transparency that the UK’s own registry demands.

There are other issues with having corporate partners of a legal partnership. Obviously, it all comes down to accountability. It is very important if we want to be able to hold corporate entities accountable for their role in economic crime. I am afraid that many such complexities remain to be addressed. We cannot just take the bits we like when a report like that is presented.

The Minister is correct: the UK outcome was very favourable compared with other FATF evaluations. I hope, by the way, it will give the Treasury the confidence next time around to invite civil society representatives to give evidence to the FATF assessors. None the less, FATF came up with a number of things that it identified needed to be addressed, and the Government have a plan, but we seem to lack a timetable for implementing a number of these things. If the Minister is able to give us a timetable for when the legislation to introduce measures such as robo, which is in the economic crime plan, will be introduced, I think we would all be very glad of it.

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The point is, as Duncan well knows, that a whole range of interventions have been provoked by that FATF report. I am glad he acknowledges its world-leading nature for the UK. It is good that we should be pleased about that, but there were significant elements that need to be worked on. They are obviously taken in different ways across Whitehall, and there will be more to be said about that in due course. I am responsible for what I am responsible for in this Bill, and the purpose of this conversation is about that.

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Q An issue that I have around SLPs and enforcement is the fines. Is there work to be done within the scope of the Bill to increase fines in any of the parts mentioned? You mentioned earlier that the level of the fines is minuscule compared with the profits made.

Duncan Hames: I doubt you need primary legislation to fix that. I expect that secondary legislation giving direction to Ministers and regulatory bodies to ensure that fines are commensurate with the level of offending would be helpful. I suggested that the level of fines by these professional bodies supervisors and by HMRC is just not commensurate with the financial advantage of taking part in these transactions.

Indeed, if you are a solicitor, and someone complains to the Solicitors Regulation Authority about you because you have been holding up a transaction, that will still be investigated. You will still incur quite a discomfort in responding to that investigation. That is quite a powerful incentive just to go along with the transaction, whereas the fine you might receive for having gone along with a transaction that you should not have could well be less consequential for you. That needs to be addressed.

Fines wielded against trust and company service providers by HMRC, for example, are pitifully low. We were told by the trade body that its experience of fines imposed by HMRC on trust and company service providers was typically no more than £1,000.

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Q Even when fines ought to be due, they are not enforced. I ask periodically about Scottish limited partnerships and how many people have been fined for failing to register a person with significant control. Every time I ask, it is not in, which is ridiculous. My last question is about the issues to do with Gibraltar. Do you have any concerns about that, or anything that the Committee ought to know?

Duncan Hames: I do not think that the measures with regard to Gibraltar particularly focus on money laundering. Obviously, Gibraltar is covered by the fifth anti-money laundering directive. I think they would consider themselves to be among the earlier adopters of the measures required under that directive. What we see in the Government’s language is an emerging global standard. That has been recognised in the past year or so by the Crown dependencies and, increasingly, by British overseas territories.

Although the US starts from a very far-back position on public beneficial ownership transparency, on the basis of bipartisan—as I think they call it, or on both sides of the aisle—working on this issue, even with a Republican Senate it seems set to advance new regulatory requirements around a central register of beneficial ownership. The tide is definitely moving in the direction of greater transparency. I think it would help British overseas territories to be encouraged to keep up with that direction of change.

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Q Thank you for your evidence; it is really interesting and this is an important area. We have heard reference to—you used the phrase—the UK outsourcing the prosecution of financial crime to the US. I am sure you will correct me if I am wrong—I do not have it in front of me—but on Transparency International UK’s own list of corruption, the UK comes out 12th out of 198, whereas the US comes out at 23rd, so by comparison with the US, the UK does very well.

I am interested to hear your reaction to the criticisms of the report that that phrase came from. It was felt that the scope of the report did not include, for example: the bribery and corruption statistics, including on the “failure to prevent” provisions; the period after the financial crisis, which meant that much implementation was not included in the report; or the way prosecuting in the US often involves plea bargains, which are used to extract fines, so the measurement of the extraction of fines is not necessarily a justified comparison between the UK and the US. What is your reaction to that?

Duncan Hames: The corruption perceptions index measures views of the prevalence of corruption in public sectors, whereas for the most part here we are talking about enforcement of corporate wrongdoing. None the less, you are right to record where those countries are in the index.

“Exporting corruption”, our recent report produced for the OECD anti-bribery working group—part of a series of reports published every other year—is the one in which the UK is recognised to be an active enforcer of anti-bribery laws and laws to prevent foreign corporate bribery. None the less, the US is top of the table and, while it is good that Britain remains an active enforcer, the calculation that grants that assignation is such that the UK hung on by a hair’s breadth this year and there is no room for complacency.

The statement that I reference from the Secretary of State for Justice was made when he was Solicitor General, at the Cambridge International Symposium on Economic Crime. His words were that these differences in how the law operates

“result in other jurisdictions holding British companies to account where ours has not.”

He said he was making that observation in an argument in favour of moving towards the “failure to prevent” approach to economic crime.

For all of America’s challenges, I do not think anyone would criticise it for being less assertive in enforcement of the law that it has. Even at a time when one might have feared political interference or the undermining of the Department of Justice, its level of enforcement has remained high, without signs that it is falling back. I think we have to reflect on why that is. It is partly to do with resourcing, but it is principally to do with the challenges of our arrangements for prosecutors.

Lisa Osofsky, the director of the Serious Fraud Office, describes what we have as “a very antiquated system”. She said:

“We are hamstrung right now by the identification principle”.

She explained to the Justice Committee that she can “go after Main Street”—forgive the American references; I am sure you will be able to translate them—but she

“cannot go after Wall Street, and that is unfair”.

When we think about the businesses that each of you represent, you would want there to be a level playing field, where traditional businesses with perhaps traditional ownership models are not facing a greater requirement to uphold the law than much larger, perhaps more anonymous, conglomerates in complex corporate structures spread over many jurisdictions.

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Q You mention Lisa Osofsky. I was looking at various practitioners who work on fraud and corporate fraud, and they have welcomed the fact that the Law Commission is going to conduct a review. It is easy to scoff, I suppose, about, “Let’s wait to the end of the review,” but this actually has huge cost implications for business. It is a very complex area. Those practitioners have actually said that it can only be a good thing that the Government are not amending the current law without full consideration and that the Government are taking a very measured approach.

Duncan Hames: I think Ministers observed that responses to the consultation were mixed. It is regrettable that responses to the consultation are not public and people can form their own views about them. If you conduct a consultation about enforcing criminal law and those who might be subject to that enforcement, in a way that they are not currently, are able to make submissions in response to that proposition, then one would hope that in evaluating those responses they would not carry the same weight as more objective respondents. If we were asking how much chicken wire we should put around the hen coop, I would hope that we would largely disregard the foxes’ views.

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That is an interesting comparison.

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Q I was thinking more of asking turkeys whether Christmas was a good idea. I want to follow up on this, because I have been waiting for the Law Commission on another piece of work that I worked on, which is already a year and a half overdue. It is not connected to financial services, but it indicates some of the challenges of waiting for the Law Commission to follow up on the FATF report, which makes some specific requirements about Gibraltar. This legislation is about the ability to trade between Gibraltar and the UK.

I want to ask your opinion on whether we might be able to learn from the specific proposals in that report. In particular, it recognises that although this does tend to happen, there is no legal requirement to reject applicants with a criminal background in Gibraltar. If we will allow Gibraltar and the UK to operate in the way that this Bill does, do you think we could make it a requirement in the Bill to look at the criminal background of people applying for financial services?

Duncan Hames: I should acknowledge that Gibraltar is not within the scope of the work that I do. I will not profess expertise on the rules as they apply in Gibraltar. I think Bloomberg reported today on a bank in Luxembourg and some of its practices. You ask a good question about the personal credentials that enable one to take on responsible roles in our financial system, whether in banks or other institutions.

I note, for example, that the proposals in relation to Companies House are not that it should be more discerning in the acceptance of the directors of companies registering, but rather that it should simply verify the accuracy of the identity and the information provided. Current initiatives do not go as far as you are suggesting would be reasonable. It seems hard enough just to get us responsible for ensuring the accuracy of the data, which is provided as a piece of our economic infrastructure, without getting to a position of demanding some kind of individual assessment.

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Q I am just following up on what the Minister said. He was looking at what he could do to address some of the things that came out of that report. I appreciate that you are not particularly sighted on Gibraltar, but the FATF report also says that there is no dedicated supervision of accountants and tax advisers in Gibraltar, which means that they are perhaps not as cognisant of where people might be trying to launder money. Given that the Bill gives us powers of lines of sight into Gibraltarian firms, do you think that is something we should consider in this legislation, so that when we allow Gibraltarian firms to operate in the UK environment in the way that this Bill does, we could build in some of those safeguards now, with a view to then extending things when the Law Commission eventually reports?

Duncan Hames: Dedicated supervision of the accountancy sector is part of what has got us into this mess of having 25 supervisory bodies. I think one must weigh the benefits of particular sectoral knowledge and some of the issues I raised earlier around potential conflicts of interest and incentives to supervise assertively. As we explained in our report “At your Service”, which was published about this time last year, it is definitely the case that the non-financial sector is very much touched by the money laundering problem. It is not enough to rely on the requirements of banks without raising our defences in other sectors—whether that is accountants, solicitors, estate agents, trust and company formation agents and so forth. In some areas, such as private education or charitable giving, an educational training supportive approach might be appropriate to try to raise standards, but in other areas, as I have outlined, clear financial incentives need to be addressed. A firmer approach to supervision is proving necessary given the findings of, for example, the studies that I cited from HMRC, the SRA and OPBAS.

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If there are no further questions from the Committee, I thank Duncan Hames for his evidence and we can move on to the next witnesses.

Examination of Witnesses

Jesse Griffiths and Fran Boait gave evidence.

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We will now hear from Jesse Griffiths and Fran Boait, who are from Finance Innovation Lab and Positive Money. We have until 4.15 for this session. Jesse and Fran, do you want to introduce yourselves?

Fran Boait: I will go first. I am the executive director of Positive Money, a non-profit organisation that campaigns and researches on reform of the money and banking system to enable a fair, democratic and sustainable economy.

Jesse Griffiths: I am the CEO of Finance Innovation Lab, a charity that helps people to try to transform the financial system for people and the planet.

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Thank you. We will return to the traditional format with questions first from the Minister and then from the two Opposition spokespeople.

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Q Thank you, Jesse and Fran, for your willingness to come before the Committee. One of the key elements in the legislation is the need to give our regulators significant delegated powers to implement and enact some of the technical standards. From your perspective, as civil society organisations influencing policy in financial services, how do you engage with the regulators and how do you find that process?

Fran Boait: Shall I kick off? This is definitely one of the key issues in the Bill that I wanted to raise. Although I understand that the Bill is about regulation and tidying up a few things, it does set the framework and direction for future financial regulation. It is important to say at the outset that we are only 11 years on from a global financial crash that resulted from deep regulatory failures. Neither my organisation nor Jesse’s existed 10 years ago—they were formed since the crash. Without a number of amendments to the Bill, it could pave the way for a repeat of that failure.

To put it in context, I remind you that, according to the Bank of England’s chief economist, Andy Haldane, the banking cash cost Britain about £7.4 trillion and it would take the financial services sector’s tax contribution about 100 years to make up for that. It is a really important Bill that sets the direction, but accountability and transparency are severely lacking in its current form. The civil society sector is tiny, relative to the industry lobby. Although we have engaged in FCA and PRA consultations, the fact that we are onshoring so much legislation right now means that we need to think about the balance of input from the industry and civil society. It is worth noting that the EU, which obviously to date has been where the scrutiny for much of this legislation has been, funded civil society consumer, environmental and social groups in order to provide a balance to the industry lobby, because it recognised that this area is severely complex and critical.

The substantial transfer of power to the financial regulators—the Treasury, the FCA and the PRA—is concerning if there are not increases in parliamentary scrutiny and more detail about the accountability framework. I noted this morning that a number of amendments have been put forward, and I think a lot of them enhance accountability and require parliamentary scrutiny and reporting. I would really welcome that. I could list them—I have some of the numbers. An MP put forward a suggestion for a new specialist financial services Joint Committee between the Commons and the Lords, and that would be welcome, especially if it engaged with civil society.

From where we are starting, in its original form the Bill really is quite concerning in relation to accountability and transparency, but we would welcome all the amendments being put forward—and more—to improve those aspects.

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Q Can I come back on that? Obviously, on 19 October the Government put out the future regulatory framework review, which looks holistically at the options for putting the future constitutional relationship between the Treasury, Parliament and the regulators on a firmer basis. The measures in this Bill have an accountability framework.

The Financial Services and Markets Act 2000, introduced under the previous Labour Government, was about setting an approach for how the regulators worked, looking at an outcome-based approach with the observation of technical standards. I note that you refer to the proposal about Parliament’s role. Are you really saying that you do not support that fundamental architecture? Given the complexity of the regulations and technical standards, do you think it is realistic for Parliament, in terms of capacity and expertise, to offer the sort of scrutiny that you think is lacking?

Fran Boait: Fundamentally, we want robust frameworks that allow for input and do not just allow legislation, such as the capital regulation requirements, to be changed without scrutiny, because they have really significant consequences for the whole UK economy. That is why I started by laying out how critical the direction of financial services is.

It is worth saying that we are not out of the repercussions of 10 years ago, so we do not want in any way to go back to the days of regulation being done behind closed doors. I understand that there is a capacity issue, but is about having those opportunities for both Parliament and the wider public—civil society—to feed in.

It is also worth thinking about the regulators themselves. For example, one of the things that the new chief executive of the FCA has said is that they will also be liable for legal attacks on what they are having to implement, so putting all the onus on them is an issue. At the same time, we know that there has been an issue with the revolving door between our regulatory bodies—the Treasury, the FCA, the PRA and the Bank of England—and the industry.

There is a grave concern about this transfer of power. If capacity is an issue, Parliament surely wants to be looking at how to resource things better, in terms of more Clerks or staff, plus thinking about how the EU funded civil society, rather than saying, “Actually, no, it’s fine. We will just have reduced transparency and accountability.”

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Q I just want to make the point that that is not what we are saying. There is a review looking at this holistically—for, I think, 12 weeks—to provide an opportunity to absorb those very relevant points, but I would be very happy now to hand over to Jesse to respond to the same questions.

Jesse Griffiths: Thank you. I think they are extremely important questions, and that is one reason why this Bill is so important as part of the other important consultations and discussions that you have mentioned—because we are now setting, if you like, the precedent for how we might deal with financial sector regulation in the new era, where the focus will be in London and not in Brussels. Actually, I worked for seven years in Brussels on related issues, so I have some experience from there to share.

I think I agree with the points that Fran has made about the fundamental importance of trying to find ways to support broader civil society engagement in these types of discussion. Perhaps it links to another important point on the Bill, which is that part of the issue will always be ensuring that the purpose of the regulations and the regulators includes social and environmental purpose, so that it is clear that that is an extremely relevant angle from which to discuss these things. One thing that definitely came out of my experience in Brussels was that the role of Parliament is very important, or can be very important, not just because it is important in itself, but because it does open a window for broader input and discussion.

I will explain one particular amendment or change we would welcome. As I understand it, the current Bill allows changes to capital requirements and other regulations under the affirmative procedure. That is obviously more welcome than the negative procedure, but it does not actually specify a role for specialised Committees, so finding a way in which specialised Committees in the House of Common or Lords, or both, could have input would be both a useful step and an entry point for a broader discussion for groups likes ours to help to support the new framework.

Could I say one other thing on a kind of related point? We recognise that it is important that different institutions have different regulatory frameworks and that this is not just about making every single type of institution abide by extremely stringent regulations. That sort of principle is involved in the Bill, and we would welcome that being extended to, for example, the nascent mutual banking movement. We know that the co-operative banking movement is struggling to get off the ground, because the regulations are not tailored to its particular circumstance. I would be willing to talk more about that. It is something that could perhaps also accompany this Bill as a commitment and that Government might like to think about.

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I am very supportive of your observations there, and I look forward to further engagement on that. I think that, in fairness to other Members, I should now pull back and hand over to Pat.

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Q Thanks to both of you. We had a bit of a discussion earlier about a suggested reform for preventing economic crime. We were saying that when we get into it, we are probably going to be told to wait for the Law Commission. I have a feeling that, on accountability, we are going to be told to wait for the future regulatory framework review to conclude, but I do want to ask you about this area and about the duties on regulators, and I would like to start with the latter.

The Bill, in schedules 2 and 3, sets out new accountability frameworks for the regulators. They are to abide by relevant international standards and to have regard to the relative standing of the UK as a place for internationally active investment firms to be based, or to other matters specified by the Treasury. I would like to ask whether you think it is appropriate for broader goals to be considered in that regulatory framework, and I am thinking particularly of environmental, social and governance goals. The UK wants to be a leader in that area. The Chancellor of the Exchequer set out an ambitious environmental agenda for our financial services industries in his statement about 10 days ago. Do you think that the Bill is an opportunity to put regulatory weight behind the ESG agenda?

Fran Boait: That is a really great question. It is definitely something that stood out for me when I first read through the Bill. The Bill sets the direction, and it needs to integrate the needs of the wider economy, social responsibility, the environment and thinking about how we set a direction that is different from the one that led to the global financial crash in 2008.

As you mentioned, there is clearly cross-party agreement, and we have had announcements from the Government this week and last week on wanting to be a leader in green finance, especially ahead of COP26. There is also pretty much cross-party agreement on issues such as the banking sector severely under-serving small and medium-sized businesses. In his speech yesterday, Andy Haldane, the chief economist at the Bank of England, mentioned that the funding gap is £20 billion. We know there is cross-party agreement on wanting more of our productive and manufacturing sectors to grow, and we need to level up. Some Conservative MPs, such as Kevin Hollinrake and Danny Kruger, have done reports on that and on the need for a different banking system. We have to recognise that that will all require quite a significant shift in the direction of financial regulation, yet there is not anything in the Bill that suggests that such a shift in direction is something that the Treasury is interested in at the moment.

We would certainly support the hardwiring of ESG considerations into the regulation. I looked this morning at the proposed amendments, and we would be very supportive of amendments 20 and 24, which have regard to climate and net zero in terms of investment firms and CRR—that is on climate and environmental. There are some other amendments on social practice and corporate governance that are really important, and there are potentially bigger amendments that we could be thinking about, which would embed sustainability in the regulatory framework of our regulators, such as the FCA and the PRA. That would involve further amending the Financial Services and Markets Act, which I know is being amended already in the Bill, but we could add an environmental sustainability objective, for example, to the FCA’s or PRA’s objectives.

It is worth noting that the UK’s financial institutions are among the worst culprits in Europe for fossil fuel financing. HSBC and Barclays alone have funnelled about £158 billion into fossil fuels since the signing of the Paris agreement. If the UK really wants to be a leader in green finance in a serious way, we need our regulators to be on board with that mission. Obviously, that starts with this piece of legislation and others. We would fully support the amendments to the Bill that have been put forward already, and we would potentially suggest further ones.

Jesse Griffiths: I think that the absolutely fundamental issue with regards to the Bill is that it is an opportunity to put social and environmental purpose at the heart of both the regulation and the duties of the regulators. I do not think it would take a huge change, or huge amendments to the Bill, to set that precedent and really kick-start what I agree is a cross-party consensus that we need to deal with the climate crisis and the rising problems —inequalities caused by covid and so on—and that the financial system is central to that. How it is regulated determines a lot about how it will react to those points.

I can give some examples. Of course, it would be helpful if the Bill required the FCA to refer to the Climate Change Act when preparing secondary legislation. If you wanted to be more ambitious, it would obviously be helpful if capital requirements for investment firms introduced weightings on environmental, social and governance issues—for example, by penalising assets that have climate risks.

I know the Bill covers legislation on PRIIPs—packaged retail and insurance-based investment products—which is a huge, €10 trillion market in the EU. One specific example we have suggested is that, if we could improve the key information document that investors receive when they are looking at PRIIPs to include disclosure on environmental, social and governance issues, and ask the FCA to ensure that that happens, that would be an important signal.

I think that there are real opportunities here to change the nature of the discussion and set the UK as a leader in this area. We know that the direction of travel is towards much greater ESG integration across the financial sector. Investors are pushing for it. We do a lot of work with the big four banks in the UK, and many of them are pushing a purpose-driven agenda. It is the way that we are going, and I think about this as a real signal that the UK wants to be the leader in this field and takes it very seriously.

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Q Thank you, both. The second thing that I want to ask you about is accountability. It is true that proper scrutiny of all this requires resources, but that is a question not just for Parliament but for the regulators, which are being given big additional tasks. You have indicated that you are in favour of a more active ongoing role for Parliament, and I would like to give you the chance to tell us a bit more about that. Obviously, the regulators have to have day-to-day freedom to apply regulation at the level of the individual firm, but you are absolutely right, Fran, that in the financial crisis capital was at the heart of this and how we regard that level of resilience for firms.

If we are giving the regulators these big new responsibilities, both at the prudential and the conduct level, how would a more active role for Parliament work? We have one Select Committee that is active in this area, which already has a really broad agenda of work—the Treasury Committee. We have members of it on this Bill Committee, and they all do a great job, but things are pretty thinly stretched. Could you tell us more about how you think Parliament could have a more active role after the onshoring of all this regulatory responsibility? Again, I will start with you, Fran.

Fran Boait: I think we agree that this is the critical part of the Bill. That is why I mentioned the suggestion that has been put forward of a new potential Joint Committee between the Commons and the Lords. That would be absolutely right. The direction of the financial services sector is fundamental to the direction of the UK. We are really at a crossroads. We have been a large financial sector in the world, and generally the Treasury would say that it has prioritised the international competitiveness of our financial sector in the global market. It has held that in greater reverence than domestic competition that serves the needs of the people—your constituents, your businesses and the productive UK economy.

I think it is in Parliament’s interests to think about how we set up processes for greater scrutiny and about engaging civil society actors in that as well. I would have thought that quite a few people sitting within those regulatory bodies would welcome that. They are under immense stress from the last 10 years of post-crash change. As I mentioned, they are subject to legal challenge from the industry.

Although, ideally, there would be greater scrutiny in Parliament, and I think that a Joint Committee would be good, some of the amendments that have been tabled on specifics, such as an annual review of capital regulation requirements, are really great additions—I hope the amendment on that will go through.

I also think that we need to ensure that the regulators are given the right direction for financial services, which is why I would also welcome the amendment that was put to us about this Government’s strategy for financial services. As I said, we are at a kind of crossroads, and understanding what direction the Government want to take it in is critical for the regulators. I support a lot of the amendments that have been put forward. Setting up a new Select Committee or some kind of Joint Committee is also a strong proposal.

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Q Jesse, you have experience of this at EU level where they have the ECON Committee, which looks at things before they are implemented. We have also had a suggestion from the hon. Member for Hitchin and Harpenden (Bim Afolami) for some kind of specific financial services Committee in Parliament. Would you think of that suggestion?

Jesse Griffiths: I think it is extremely important that there should be some Committee, whether it is a financial services Committee or some other way of doing it, that gives Parliament that role. That could be operationalised in a number of different ways, but it should be done in a way that makes sure that consideration is given to the way the Bill and, I presume, future legislation delegate a lot of power to the Treasury and the regulators to change, through secondary legislation, regulations that were previously agreed jointly between the European Parliament and the European Council. Some kind of check that that has been done in the correct way, and that it has been done with regard to the fundamental purposes of that legislation, is the role that the Committee would fulfil.

Obviously it would need more resources, which is a key lesson from the European experience. You are right to say that it is not an easy thing to do, nor is it something that can be done in addition to what is already being done by the Treasury Committee, for example. Resources is a key point.

The second key point, of course, is that such a Committee, and potentially the Bill and some of the amendments that have been referenced, can allow the regulators to report and explain more clearly why they are making certain changes, so that is a useful transparency and information point. The third point is that, without such parliamentary oversight, it becomes extremely difficult for civil society organisations such as ours, which are trying to ensure that the voice of the environment and social issues are raised in financial sector regulation, to be heard as effectively as other voices that are trying to influence that regulation. So it helps to create a better balance of lobbying, if you like, or of advocacy in this area.

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Okay. I will stop there and leave it to others.

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Q I would like to thank Finance Innovation Lab for the briefing, which was really quite interesting and a different approach. Pat has hoovered up some of the questions that I was going to ask, but is there anything else in particular that you would like to see in the Bill?

Jesse Griffiths: One of the main issues that we would have loved to have seen in the Bill—I recognise that it would be outside the scope to introduce it now—is a proportionate regulatory regime for mutual banks. One thing that is important, or one problem that is very evident in the UK financial sector, is its lack of diversity of institutions. Across Europe, co-operative banks have an average of more than 25% of assets, and in the UK they were not even legal until 2014. The mutual banking movement is now trying to establish that vital part of the system that would help to improve services for customers, improve competitiveness and bring important countercyclical and social and environmental benefits. That would have been nice, given that the Bill recognises that there is a need for a different regime for investment firms from banks, for example. There is a huge unmet need for a more proportionate regime for those institutions. That would be my wish list of what might have been in the Bill. Perhaps as part of the Bill discussions, we might get a commitment to consult on such a proportionate regime.

Of course, the other point to make here—to repeat some of the points we have made about social and environmental purpose and accountability—is that the main issues with the Bill are the things that are missing that could make it much more ambitious and set a much better precedent for financial sector regulation going forward.

Finally, one issue that is worrying to us is the danger of a return to framing the purpose of financial regulation as being about the competitiveness of the UK financial sector globally. That appears in a few places in the Government’s explanatory notes to the Bill. The key point is to make a distinction between competition, which is good, and competitiveness, which can be dangerous when applied as a principle for regulation. Framing regulation within that competitiveness framework is widely recognised as one of the main contributors to the global financial crisis. It was easy to make the case for relaxing regulation to make any particular financial sector more competitive compared with others, when actually I think what we want to establish, through the Bill and other actions, is that the UK financial sector will seek to set high standards and to be the leader in that, not to introduce a competitiveness framing that raises the risk of standards being lowered.

Fran Boait: I can build on that. I agree with a lot of what Jesse has said. For us, the overarching areas are accountability and seeing more that it in the Bill, the environmental, social and governance aspects, and the purpose. On that last point, while we understand the Bill is onshoring and tidying up, as I have said before, it sets the direction, and that strategy for the financial services sector has not been laid out by the Government. I think that is key because, as Jesse has mentioned, it is concerning to see competition and competitiveness in there—in the run-up to the crash, that was shorthand for deregulation—at the same time as handing a lot of power to regulators. Again, it is worth noting that the FCA chief executive said himself that they would prefer high standards to the idea of competition, so there is support for that. Making the direction clear is critical.

On a few specifics that have been left out, over the last few years Positive Money has been working on things such as access to cash and the need to protect people’s right of payment in different ways—I noted that there were a few questions on that—and thinking about financial inclusion. Thinking more about the financial services’ role in the wider UK economy is absolutely critical at this time, and there is not too much in the Bill in terms of the direction of that.

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Q In terms of saving for people who are at the margins, have you any thoughts about the Help-to-Save scheme and the measures on that?

Fran Boait: I welcome the Help-to-Save scheme, but again, I point to the wider issue—it is the focus of what Positive Money does—of how the financial services sector contributed to the global crash, which has undermined a lot of our economy in terms of people being able to meet living standards, pay bills and so on. Critically, we have to understand that where the money goes from financial services really determines that shape of the UK economy. If most of the money goes into property and financial markets, which it does, and we have four big banks occupying pretty much the whole market in the UK, as Jesse mentioned, we have an economy that has an oversized finance sector and property bubbles, and we have less money going into creating jobs, supporting small and medium-sized businesses and getting into people’s wages. We have a crisis of living standards in this country, as well as a household debt crisis. I am not a debt specialist, but I welcome some of the changes put forward for breathing space and debt repayments.

Again, we need not only to look at fixing some of the symptoms, but to think about the cause. I sound a bit like a broken record, but this is why, unless we get a grip on the direction of the financial services sector that we want—whether we want financial services to serve the UK domestic economy and not just international financial markets—I do not see us really stemming the problems with problem debt, limited savings and incredibly low savings across low-income households in the short, medium and long term.

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Q Lastly, Jesse, I think the phrase you coined, accountability deficit, is quite useful. Can I ask a wee bit more about the risks that moving everything over to the regulators might have?

Jesse Griffiths: Before I turn to the risks, I want to recognise that it is not the case that more regulation is better or that regulators should not have leeway to design proportionate regimes. That is absolutely not the case, and we need to recognise that. However, I think there are risks involved in turning over quite so much authority to regulators as the Bill proposes. As we mentioned, it will allow them to make changes to important regulations with limited parliamentary oversight. Secondary legislation will become one of the main ways in which regulations are changed.

The risks come from different angles. The obvious risk—we have seen this in the past in the run-up to the global financial crisis—is that there is a potential problem of regulatory capture, where the regulators become very close to the people they are regulating, who have regular discussions and meetings with them. The more those decisions take place behind closed doors, the greater that risk becomes.

From our perspective, another big risk is that you miss out on the opportunities to have a broader section of voices contribute to framing regulatory changes, from the kind of organisations that Fran mentioned, which represent the people who are the most badly affected by problems in the financial sector—those with problem debt or who are highly financially vulnerable—to those who think about the environmental impacts of the different regulations. The other risk is that we will not be able to reflect some of the most important impacts that changes in regulation will have.

I will make one final point. It is extremely important for Members to think about how they can actively encourage participation and engagement in those discussions by more of the groups that represent those affected by the financial system. This is in no way a criticism of the Treasury, which I know has a lot on its plate now, but there was an important consultation we noted over the summer that had a one-month consultation window during August, which basically made it impossible for groups that are not directly involved in that particular issue to think about the implications and whether they should contribute. Having requirements to consult in a certain way that allows more groups to participate would be useful.

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I have seen two other Members indicating. First, I will come to Abena Oppong-Asare.

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Q I found your comments really insightful. I have several questions, but first I want to go back to your comment about how the Bill does not mention any environmental priorities. You have come with several recommendations, and you said that you have seen the amendments, particularly amendments 20 and 24, which you support.

I want to clarify something you mentioned, which is that there should be an element of penalising large organisations for not carrying out environmental risk assessments. As we know, there are large organisations and companies such as Barclays that do that. I wanted to hear from you about how those penalties would be carried out. Are they financial ones? The concern that I have is that big companies would be able to afford to pay financial penalties, so is that really a great incentive or way of holding them to account?

Fran Boait: This idea is really in the capital requirements regulation, the idea being that financial institutions and banks lending towards high-carbon sectors would have to hold much more capital against that loan. I agree with the concern that they would maybe go ahead and do it anyway, but I think this is an important mechanism for pricing in climate risk, which has taken off in the past couple of years. There is obviously a recognition from the Financial Policy Committee of the Bank of England that climate risk is a huge risk to financial stability—both transition risk and physical risk—so we need to think about that.

Implementing a penalising factor requiring them to hold higher capital should have an important effect. We have seen a similar thing already done in the housing system, which has not completely solved the problem because it is systemic, but it is an important step forward in regulation and really signals to the market that the regulators do want to keep control of the situation. It is not going to solve everything—it is not going to completely stop lending into the fossil fuel industry—but it is quite an important step forward.

The key here is that there should also be a mechanism for scrutinising the CRR that we are onshoring. At the moment, it seems to say, “We are not going to say what we are going to do. We are going to let the financial regulators decide what it is,” which is very dangerous. As Pat McFadden pointed out, it was capital and the lack of banks needing to hold it that resulted in the crash, and it will be the lack of banks needing to hold capital against fossil fuel lending that will keep that carbon bubble, if you like, being pumped up. I am keen to continue the conversation about wider regulation and other things that need to be done alongside that in order to ensure a transition out of fossil fuels, and towards a green economy.

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Jesse, do you have any further comments?

Jesse Griffiths: Yes. I think it is another extremely important question, and it is an extremely important way to think about the impact of regulation, as being about what kind of incentives it places on different actors to behave differently.

With regard to climate, there are three key points. One is about disclosure: that is why, for example, we made the recommendation on the PRIIPs point that the key information document should have better disclosure on environmental and social governance issues. That creates an incentive between the sellers of those products and the investors buying them, and we know there is strong demand in the investment industry to know much more about those issues and try to redirect their investment towards greener ends. That is important. Disclosure is obviously also important in terms of civil society and the public understanding what different institutions are doing, and also the Government.

The second point on incentives is the point that Fran has made, which I would fully support. Finding ways to disincentivise or penalise fossil fuel investments in particular is extremely important. The scientific research shows us that if we exploit only those oil and gas reserves that are already being exploited, we will still go above the dangerous 1.5° threshold, without even taking coal into account. There really is not any room for further investment in fossil fuels, so it would be an important signal to think about how we fundamentally disincentivise that by introducing penalties for that within the capital requirements of organisations.

The third point is that this is a newish area for regulators. Although we have been thinking about it for a long time and many regulators have been discussing it, it is not like all the answers are known. We had a report a couple of years ago called “The Regulatory Compass”, which explored what it would look like if regulators put a social and environmental purpose at the heart of what they do. There is a lot to do, and a lot of thinking to do there. The first step is, through Bills such as this, giving regulators the responsibility to think about that. I think that is extremely important.

Those are the three main things. The fourth incentive point is that regulation does not solve everything, as Fran said. It is important not to try to solve all problems through this lens, but to think about all the other things that we should be doing—investing in the green future and so on—if we are to solve the climate crisis.

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Q The Bill mentions a statutory debt repayment plan; I want to get your thoughts on that. Are there elements that you are concerned about? Do you think it goes far enough, and if not, can you make some recommendations? Can I go with Jesse first?

Jesse Griffiths: You can. I do not have anything in particular to say that goes beyond the evidence from StepChange and others on this point. I fully support what they said.

Fran Boait: Similarly, a point that StepChange brought up that it is critical to keep in mind when looking at this kind of regulation is how we look at debtors and the stress and strain that they are under. We need to ensure that their needs are prioritised above those of creditors.

Earlier I made a macroeconomic point about financial services: unless we get our financial services sector better aligned with the needs of the people, small businesses and different parts of the economy in this country, household debt will keep rising. Obviously, we also need good direction from the Government’s fiscal spending plan. The direction of financial services and the direction of Government spending are critical in tackling household debt. If we do not look at some of those underlying systemic causes, we will keep kicking the can down the road, in terms of household debt being a problem. Although changes such as breathing space are welcome, they do not tackle the underlying causes and the need to get the number of people in problem debt down.

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Q I want to follow up on a couple of things. First and foremost, Jesse, you were talking about the co-operative banking sector, what we could do, and what would be within the scope of the Bill, given that co-operative and mutual banking would be covered by the Prudential Regulation Authority. Obviously, there are a number of requirements on co-operative banking that we could consider superfluous now that we have this legislation. I am thinking in particular about section 67 of the Co-operative and Community Benefit Societies Act 2014, which has some unnecessary constraints, given the capital structure it requires. Do you agree that it would be helpful in creating a level playing field, and ensuring that co-op banks and mutuals could compete, to recognise that as the Bill provides prudential regulation that covers those banks, those earlier provisions are superfluous?

Jesse Griffiths: Yes, I think that is very sensible. The main point I would make is that those institutions are very different from other types of financial institution, and need a proportionate regulatory regime. The point that you raised is important. They frequently raise the idea of establishing a network of 18 regional banks on the model of the German Sparkasse system. For that to work, they would need to centralise IT and other services so they do not have to replicate those across the different institutions. As they have, embedded in the network idea, an agreement that they will not compete with each other, they can fall foul of competition regulations, so those would need to be considered.

Those are some of many examples that show you need a different regime for these types of institutions. On following a model like the Sparkasse system, in Germany those regional institutions are jointly responsible for each other, so that creates a very powerful incentive for them to be prudent and responsible lenders. If that internal incentive is already there, you should consider which other regulations are not so necessary for those institutions because, by their nature, they are highly prudent lenders.

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Q I take your point that being concerned only with competitiveness is a very narrow view of what is good for the consumer. That piece of regulation does not prevent co-op banks from holding a banking licence, but it could be seen as preventing the competitiveness of co-op banks. If the Government are interested in co-operative banks and supporting their ability to compete, it would be a good thing to remove.

You and Fran talked powerfully about trying to ensure that this Bill has at its heart a positive approach to consumer regulation. Perhaps one of the things missing from it is consideration of its inevitable impact on consumers. Do you have a view about the benefits of reviewing how the Financial Conduct Authority has acted for consumers, and are there are areas where you think it could have gone further and been more proactive? The Bill gives the FCA new regulatory powers. I have an interest in high-cost credit. If we wanted the FCA to take a more proactive view in using these new regulatory powers for consumers, where would you want it to act?

Fran Boait: That is a great question. To build on what Jesse said about mutuals and your wider point about consumer regulation, the issue with our financial services regulation is that all regulation tends to favour the status quo—the incumbents. That is where Parliament’s voice is so crucial, as is having more of a civil society voice than we had pre-crash. It might not be obvious how the FCA regulates a mutual bank. Without direction from Parliament that the regulator’s purpose is to look at diversifying the UK banking or financial services sector to include different ownership models, the FCA is not really in a position to understand fully or quickly, or move fast on how it can support the emergence of new banks.

On banks and consumers, since the crash, we have seen all these challenger banks coming in, but they are operating very much the same model of a shareholder bank, with short-term profits, and without any kind of wider thought for environmental or social mission-driven aims, or regional considerations. We have not really diversified the sector, and it will be very challenging for us to do so unless the regulators think differently. I think that Jesse and I agree that one of their goals should be to diversify the sector’s ownership models, in terms of mission, geographic location and so on. For consumers, and especially someone setting up a new local co-op or small business, that would be a lot better, particularly as we emerge from the pandemic wanting to build back better.

I definitely support a lot of your work on high-cost credit, but although there were some wins on payday loans and in other areas, that issue tended to be transferred to other areas, such as credit cards; some good proposals were put forward on how to regulate those. Obviously, we hope to see the FCA moving fast on trying to ensure that regulation is put forward as quickly as possible where there is a clear issue with extremely high interest rates on high-cost credit.

I repeat that we need to bring this back to the systemic problem of such a large sector of society being on low pay with high living costs. We need to think about the underlying macroeconomic issues, which are very relevant to the direction of financial services. If we are serious about taking things in a more positive direction as we emerge from the pandemic and Brexit, we need more voices for consumer rights in financial services, and for environmental and social considerations. That will be critical if we are to see a more positive direction from financial services, in terms of serving consumer needs.

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Q Jesse, you may wish to answer this. Fran talked powerfully about mission. Our regulatory structure talks about consumer protection. In previous evidence sessions, we have talked about, and indeed the Bill contains provisions for, debt respite, which is very much about protecting consumers when things go wrong. Is there a case for being more proactive about the consumer experience, and perhaps charging our regulators with being more proactive on consumer detriment to try to prevent some of those problems? For example, we could look at what we could learn from capping high-cost credit, and extend that across the whole credit industry—or to sectors where there is no regulation, but we can see that consumer detriment is likely to occur from the model. We could move to a more proactive approach from the regulator, with horizon scanning for what might happen to consumers.

Jesse Griffiths: Absolutely; I agree. On consumers, to bring this back to high-cost credit—this links to the point about the purpose of regulation—regulators should always have at the front of their mind the impact on the most vulnerable people in society, and those who are in many ways excluded by the financial system. This is not just about consumers as a whole, although they are important; it should be about those consumers who will lose most if their needs are not taken into account.

One example that we have been discussing are the new regulations on open banking and open finance, which can lead to further exclusion of marginalised people, who might get their income, withdraw it as cash, and operate in the cash economy, or who often—this has been raised—get income from a lot of different sources, and in such small amounts that it is not recognised as income by the open banking system, as it is set up. Those are just small examples, but if the regulator is not thinking, “What is the impact on these people?”, they get missed. Unfortunately, in that example, it feels a bit like that discussion has been, “Well, if it works for 95% of consumers, then it is good.” If it does not work for 5%, that is probably the biggest impact that we should care about.

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I thank both witnesses for their evidence. Our final panellist is poised and ready to go, so thank you, Jesse and Fran.

Examination of Witness

Hon. Albert Isola MP gave evidence.

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We have a treat now. Every other word seems to have been “Gibraltar” this afternoon. Our final witness is the hon. Albert Isola, Minister for Digital and Financial Services in Her Majesty’s Government of Gibraltar. Minister, thank you for being with us. Will you introduce yourself for the record?

Albert Isola: I am Albert Isola. I am charged with responsibility for financial services in Her Majesty’s Government of Gibraltar. I have with me the chief executive of Gibraltar Finance, who has driven much of the work on the matters under discussion today, and Mr Julian Sacarello, who is the head of policy at the Gibraltar Services Commission. You cannot see them, but they are in the room with me.

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Good value! Thank you. We will start with our Minister, John Glen.

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Q Minister, thank you very much for taking the time to join us as we start our scrutiny. It would be helpful for the Committee if you could set out the nature of the relationship between the UK and Gibraltar on financial services, whether you welcome the measures in this Bill, and what you see as the most significant elements of the legislation.

Albert Isola: I thank you and your team in the Treasury, as well as the regulators at the PRA and the FCA, who have engaged with us over a three-year process of looking at all the areas of market access, all the challenges and opportunities, and how, post Brexit, we can best replicate what we had under the European Union, as that ends and we begin something new. It has been an interesting and almost enjoyable journey. It has been extremely hard work, but the professionalism of your team has been exemplary, and I am extremely grateful to all of them for the conversations that we have had. Sometimes they were difficult, but they were always positive and proactive in looking for solutions, for which I am extremely grateful.

On the relationship between Gibraltar and the United Kingdom on financial services, it is important to remember that when the United Kingdom joined the European Union in 1973, because the United Kingdom was responsible for Gibraltar’s external relations, we joined with you. As a consequence of that, for many years, up until 2001, we were striving to enjoy the benefits of that membership. With that came the responsibilities of adhering to the many directives and complying with regulations that were passed from Brussels.

We talk about 28 or 27 member states, but there was another competent authority, the Gibraltar Financial Services Commission, in financial services; it was able to issue a banking licence, an insurance licence or any other financial services licence in exactly the same way as all the other competent authorities within the remainder of the European Union. I ask the Committee to think through the fact that Gibraltar has complied with all European Union directives and legislation in all areas, including financial services. That includes all the anti-money laundering perspectives, which you may wish to discuss later.

For all intents and purposes, Gibraltar and the UK, from a financial services perspective, are aligned. We have the same rules. As we discussed with your teams over the past few years, this is about outcomes—where we get to, and how we get there. We have been through a very long assessment with an independent contractor that was jointly engaged by Her Majesty’s Government and the Government of Gibraltar to deep-dive into insurance, which is the largest area of interest between the United Kingdom and Gibraltar, to analyse in enormous detail, and to conduct a sort of gap analysis of whether we were getting to the same outcomes. Where we felt that we were not, we have dealt with that.

Parallel to that process, we also had what you call the legislative reform programme, which was a three-year piece of work, which started before Brexit, to completely redo our financial services legislation. Before, we had 87 pieces of legislation; we now have one Financial Services Bill, which encompasses everything, and is far more aligned to the Financial Services and Markets Act 2000 than we were previously.

This legislation came into play in January this year. Section 20(2) refers to the Gibraltar regulatory regime aligning its standards and supervisory practices with that of the United Kingdom. We had that before, and we again have it in 2020. We are drawing closer together under the new regime that we are discussing; that relationship should continue and prosper, so that consumers in the United Kingdom can have more choice and competition. At the same time, we can know that our aligned standards of law and practice match those of the United Kingdom. I apologise if I have gone on a bit long, but I thought it was important to put today’s discussions in context.

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Thank you very much. It was extremely helpful of you to set the context for the Committee. I have no further questions. I will invite my colleagues to probe a bit further into what you have experienced in the past few years, and how you see the future.

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We have until 5 pm for this session, so there is a good length of time.

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Q Minister, thank you for giving us your time this afternoon. There is a long-standing and warm relationship between the UK and Gibraltar that informs the measures in the Bill. The Government are trying to create a sort of mini-single market in financial services between the UK and Gibraltar to ensure your continued market access to the UK in future. I am sorry we cannot do much about your market access to the other 27 states to which you currently have market access, but sadly that is beyond the powers of the Committee. Can I ask you, in simple terms, are you happy with the Gibraltar provisions in the Bill as they stand?

Albert Isola: The fundamental question for us is, do we continue to have market access? The answer to that, of course, as you know, is yes. As you have rightly pointed out, we lose single market access to the remainder of the European Union with the United Kingdom on 1 January, and this is where we will look for our future. If I can put it a slightly different way, some 90% of our financial services business before Brexit was with the United Kingdom, so that puts in focus how important this legislation is for all of us here. In each of the different areas in which we have worked, we have developed a niche—an area of specialisation and expertise—that has served those who work here with us well. We very much hope that that will continue into the future.

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Q We have heard quite a lot of references today to the proportion of motor insurance policies in the UK that are sourced out of Gibraltar. I think it is roughly 20%. Looking at the market access regime established by the Bill, is it Gibraltar’s ambition to grow the proportion of UK-purchased financial products from Gibraltar—for example, in other areas of insurance, other savings products, or other parts of financial services? Is it a platform on which you want to grow?

Albert Isola: As the Minister with responsibility for financial services, I would love to see our businesses grow —of course I would—but responsibly and in a manner that matches the standards that we have with the United Kingdom in terms of the regulatory approach. The reason that we have been successful in motor insurance is because we have developed expertise and specialisations in the firms that have come here. It is not that we switched on one morning and had 20% of the United Kingdom motor market; that has grown over a 15-year period. As they have grown, so have we, in terms of the business we do with the UK. There are a number of other businesses that have tried in other areas of insurance, and they do well, but with nothing like the success that the motor insurers have enjoyed in working with the UK.

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Q My final question is one that I touched on with the Association of British Insurers in its evidence earlier this afternoon. Given the platform that is being created by the Bill, do you see any potential for attracting businesses currently in the UK to relocate to Gibraltar? Would there be any corporation tax advantage for them in doing so, for example?

Albert Isola: My experience, put quite simply, is that of all the firms that have come and set up here in the last seven years while I have been in this job, not one of them has ever said they are coming for tax purposes. There is a tax differential—I think the rate of the UK’s corporate tax, or profit tax, is 19%; in Gibraltar, it is 10%—but that has never been cited as one of the reasons for setting up in Gibraltar.

It is far more about our agility as a jurisdiction and the accessibility of the regulator. I can arrange to meet every single insurance company in Gibraltar in two weeks if there is something that I would like them to do or be more conscious of. That is just not possible in the United Kingdom. The accessibility of our regulator for all our insurance firms is the No. 1 point that they measure as to why Gibraltar has been so good to them. They have that access and they have that contact. Then you have the expertise we have developed: the lawyers, the accountants, the insurance managers, who are able to provide the services that they need. These are far more important to the firms than the corporate tax. I have to say, if I may—allow me this plug—the quality of life is obviously important too. The sun shines here for a little longer than it does in the City of London, and I think that is important too.

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I am sure it is; your weather is certainly better. I have no further questions. Thank you very much, Minister.

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Q I just have a couple of questions. You mentioned that insurance is the largest area; are there any other aspects of financial services that require any further legislative action, or are you content with the way in which the legislation is set out?

Albert Isola: Forgive me, I did not hear the question particularly well. Would you mind repeating it?

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Apologies; you are quite far away, I suppose. You mentioned that insurance is the largest area in which you have dealings. Are there any other aspects of financial services that are not covered in this Bill that require any further legislative action, or does the Bill cover everything that you require it to?

Albert Isola: This legislation is like the enabling legislation, if I can call it that. If I can just say what it does for us, this requires alignment of normal practice, and it also requires, as a secondary condition—if I can call it that—co-operation between regulators and between Governments. In terms of the aspect that you are referring to, what will actually happen post 1 January 2020, I expect, when we begin the serious work, is that we and the Treasury will work through each of the different activities that we wish to have to access to, to the United Kingdom. The Treasury will then satisfy themselves, or not, that we meet the standards required to be able to have those passed through a statutory instruments in 2022, as one of the subsets of the activities that we can do. Insurance will be one; banking will be another; funds will be another. All of these are different subsets of controlled activities regulated in the United Kingdom, which we will work on with the Treasury in the coming 12 months to satisfy it of our ability to meet and match the standards that we have discussed here today.

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Q Thank you. Presuming that all these standards are met at the current time, do you have any worries about meeting those standards or any implications that not meeting those standards would have?

Albert Isola: No, not at all, but again, simply because today we can passport our services under the European Union or Gibraltar order, mirroring the European Union provisions. We both have the same rules today: that is obviously true in insurance, in banking, and in the funds sector. We all have the same rules and regulations today, so I have every confidence that we will meet the standards that the Treasury will ask us to meet in the next 12 months in each of those different areas, because we are at one already today.

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Q Do you think that the rules give adequate protection for UK as they are set out in the legislation?

Albert Isola: Yes, because we need to be aligned in terms of authorisations, supervision, capital finance and enforcement, so the whole array of measures that a UK consumer can expect to receive in the United Kingdom, they can fully expect to receive from us also.

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Q You do not foresee any diminution of that protection that UK consumers have?

Albert Isola: No, no, absolutely not. On the contrary, as the UK moves in whichever direction it moves post 1 January 2021, whether there is divergence or not, we will obviously, in respect of the areas that we seek market access, follow those through.

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Thank you very much.

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Stephen Flynn, could you make your way to the mic and speak right into it? That one will work, although it has Duncan Hames’s name by it.

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Q I am sure that Duncan would be overjoyed to be associated with me.

Thank you, Minister Isola, for presenting yourself before us today and for the information that you have provided. I would like to follow on from the shadow Minister’s questions about the competitive advantage that Gibraltar may or may not have. As I see it, the Bill seeks to create a level playing field, but it could be inferred that Gibraltar has a competitive advantage over our constituent parts of the United Kingdom—indeed, the home nations—given that it has abilities in relation to corporation tax and other forms of taxation that the home nations do not. How would you assess that? I appreciate that you sought to answer Mr McFadden in that regard, but do you feel that we could see a situation in which businesses will seek to take advantage of what is clearly a level playing field with a competitive advantage for yourselves?

Albert Isola: The simple answer is no, and I will tell you why. If you think about it, we have been setting our own tax rates for the past 20 years, during which we have had access to the United Kingdom market through the European Union single passporting system. I do not think that I have ever heard any discussion in the financial services environment about different tax rates in different member states of the European Union, let alone Gibraltar, having an impact. It is not as if an advantage were being created by the Bill that would endure to 1 January next year and beyond. Where we are today is where we have been for the past 10 or 15 years with different tax systems.

I do not think that you will find a company that—with the level of investment that it requires in terms of capitalisation, particularly with respect to insurance—will make a judgment call on a difference of 9% in corporate tax, assuming that it can make a profit. As I said to the shadow Minister, the information that I have from the firms that have come here is that that is very low on their list of priorities, if it is there at all. I do not see it having the impact that you suggest; if there were such an impact, it would already have happened a long time ago. As I mentioned, the firms that are in Gibraltar today have been here for a very long time, and as they have grown, so have we. Our market share has been 20% for the past year or two; it was a lot less before those businesses grew and became more successful.

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As there are no further questions, I thank you, Minister, for joining us remotely from Gibraltar as our final witness of the day. This is the end of our fourth and last evidence session.

The Committee will meet again, not here but in Committee Room 14, on Tuesday at 9.25 am—bright-eyed and bushy-tailed for our first sitting of line-by-line scrutiny.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Adjourned till Tuesday 24 November at twenty-five minutes past Nine o’clock.

Written evidence reported to the House

FSB 02 Building Societies Association (BSA)

FSB 03 Finance Innovation Lab

FSB 04 Revolut

FSB 05 Association of British Insurers (ABI)

FSB 06 Spotlight on Corruption

Environment Bill (Nineteeth sitting)

The Committee consisted of the following Members:

Chairs: James Gray, † Sir George Howarth

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Anderson, Fleur (Putney) (Lab)

† Bhatti, Saqib (Meriden) (Con)

† Brock, Deidre (Edinburgh North and Leith) (SNP)

† Browne, Anthony (South Cambridgeshire) (Con)

† Crosbie, Virginia (Ynys Môn) (Con)

† Docherty, Leo (Aldershot) (Con)

† Furniss, Gill (Sheffield, Brightside and Hillsborough) (Lab)

† Graham, Richard (Gloucester) (Con)

† Jones, Fay (Brecon and Radnorshire) (Con)

† Jones, Ruth (Newport West) (Lab)

† Mackrory, Cherilyn (Truro and Falmouth) (Con)

† Moore, Robbie (Keighley) (Con)

† Pow, Rebecca (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)

† Thomson, Richard (Gordon) (SNP)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

† Zeichner, Daniel (Cambridge) (Lab)

Anwen Rees, Sarah Ioannou, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 19 November 2020

(Afternoon)

[Sir George Howarth in the Chair]

Environment Bill

Clause 97 ordered to stand part of the Bill.

Clause 98

Information to be provided by the Secretary of State

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I beg to move amendment 146, in clause 98, page 98, line 45, at end insert—

“(3A) The Secretary of State must produce a strategy to inform the development of a Nature Recovery Network, including a spatial description of the opportunities for recovering or enhancing the environment through actions to protect or restore biodiversity, in terms of habitats and species, in England.

(3B) The Secretary of State must publish guidelines that set out a process for review and approval of Local Nature Recovery Strategies by Natural England to confirm the priorities and proposals identified in the Local Nature Recovery Strategy would contribute adequately to the delivery of a national Nature Recovery Network and relevant environmental targets.”

The amendment requires the Secretary of State to undertake the mapping and planning work necessary to carry out their functions in relation to the national habitat map.

We welcome the provisions of the clause. It requires the Secretary of State to assist public authorities in preparing their local nature recovery strategy by publishing a national habitat map for England, and to help identify national conservation sites and other areas of particular importance to biodiversity. Predictably enough, we have one or two concerns and comments about that, which our amendment 146 allows us to address.

If this national habitat map is to be effective in informing the preparation of local nature recovery strategies, it needs to be available in good time for the preparation of local nature recovery strategies. As we touched on earlier, we want that to be done speedily, so the national map needs to be done speedily.

It will not be sufficient simply to present national conservation sites on the map. We will also need critical information—on, for example, the condition of sites and the opportunities for recovery—to help direct public authorities in their important work to improve and restore national conservation sites.

The Government’s proposal is a start—it provides some of the information that authorities will need—but good planning for the natural environment requires more than the identification of isolated patches of nature on a map; it requires a strategy for enhancing and linking sites, throughout urban and rural areas, to facilitate nature’s recovery. What is missing from the clause is provision for the Government to undertake work to identify habitat opportunities. Nor is there any national system of review of the local and national recovery strategies put in place—any quality control to check that each one is making a meaningful contribution. Our amendment 146 would address these omissions by requiring the Secretary of State to

“produce a strategy to inform the development of a Nature Recovery Network”;

to

“set out a process for review and approval of Local Nature Recovery Strategies by Natural England”;

and to confirm that each one

“would contribute adequately to the delivery”

of the national nature recovery networks that we need. Those requirements would give the Secretary of State responsibility for knitting local nature recovery strategies together, which is what the Minister said she wishes to do, so that they function as a coherent national network.

As this is a good opportunity to help the Minister in her endeavour to rescue and strengthen the Bill, I will give her one last opportunity to accept our assistance; we will seek a Division on the amendment.

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I welcome the hon. Member’s ambition of providing a national framework to inform the development of the nature recovery network, but the Bill already provides for a framework.

Part 1 of the Bill requires the Government to publish an environmental improvement plan, setting out the steps that they intend to take to improve the natural environment. It also establishes the 25-year environment plan, which, as I said this morning and so many other times, is the first environmental improvement plan. That first plan commits the Government to establishing a nature recovery network, and to publishing a new strategy for nature that includes the network. We have no intention of reversing any commitments made in the 25-year environment plan. Of course, the Office for Environmental Protection will also hold the Government to account on their progress in implementing the environmental improvement plans, including for the nature recovery network.

The clause requires the Secretary of State to provide information that we intend will offer a national spatial framework for the network. This framework includes a national map of areas of existing value for biodiversity, as well as areas where there are opportunities to enhance biodiversity and associated wider environmental benefits. There is also provision in the Bill for the Secretary of State to issue statutory guidance on what the local natural recovery networks should contain and regulations on how they should be protected. These mechanisms will allow the shaping of how each responsible authority reflects the information provided under clause 98.

Natural England has a key role to play in supporting the establishment of the local nature recovery strategy, as I explained earlier. We want them to help produce national guidance to support the responsible authority in producing each strategy and to be the responsible authority themselves where needed. These roles are provided for in the Bill. Regulations produced under clause 96 will be crucial for establishing roles and responsibilities. Provisions for local nature recovery strategies in the Bill will form part of environmental law. This means that the Office for Environmental Protection will have oversight of these provisions, as it does over all aspects of environmental law.

I hope that the hon. Member is reassured that the Bill, as a whole, provides a suitable framework for the nature recovery network, as well as appropriate mechanisms to ensure that local nature recovery strategies contribute to its development. Therefore, I request that amendment 146 be withdrawn.

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I am grateful for the Minister’s response and to her for reintroducing the OEP at this stage. As she will recall, this side were not entirely convinced of the efficacy of this new organisation, and some of us do worry that it will just be a desk in the Department for Environment, Food and Rural Affairs in the early new year, and we want it to be much tougher than that. I suspect her response on this has been the same as on many of these attempts from our side to strengthen and add vim and vigour to this process. However, I am afraid I am still not persuaded or convinced, but I do thank her for the charm and courtesy she has shown in our exchanges. I would still caution her to beware the bloke on the bulldozer, and we do think there is a danger that this Bill’s good intentions are undermined. We would like to press the amendment to a vote.

Question put, That the amendment be made.

Division 38

19 November 2020

The Committee divided:

Ayes: 5
Noes: 10

Question accordingly negatived.

View Details

Clause 98 ordered to stand part of the Bill.

Clause 99

Interpretation

Amendment proposed: 147, in clause 99, page 99, line 16, leave out “95” and insert “93”.—(Dr Whitehead.)

Question put, That the amendment be made.

Question accordingly negatived.

Amendment proposed: 148, in clause 99, page 99, line 31, at end insert—

“(4) ‘Public Authority’ means—

(a) a Minister of the Crown, a government department and public body (including a local authority), and

(b) a person carrying out any function of a public nature that is not a devolved function, a parliamentary function or a function of any of the following persons—

(i) the OEP;

(ii) a court or tribunal;

(iii) either House of Parliament;

(iv) a devolved legislature;

(v) the Scottish Ministers, the Welsh Ministers, a Northern Ireland department or a Minister within the meaning of the Northern Ireland Act 1998.”—(Dr Whitehead.)

Question put, That the amendment be made.

Question accordingly negatived.

Clause 99 ordered to stand part of the Bill.

Clause 100

Controlling the felling of trees in England

Question proposed, That the clause stand part of the Bill.

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With this it will be convenient to discuss the following:

That schedule 15 be the Fifteenth schedule to the Bill.

Clause 101 stand part.

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I appreciate that there are no amendments in this group, but I think it is worth having a brief stand part debate here to mark the fact that we have moved from talking about nature and biodiversity to a very brief section in this Bill on trees. I say very brief section, because even though the heading above clauses 100 and 101 and schedule 15 is “Tree felling and planting”, it does not actually deal with planting at all. It only deals with cutting trees down.

We think, among other things, that is a tremendous opportunity missed. Although we are limited in this particular group to talking about the clauses and schedule, I ought to draw the Committee’s attention to our proposed new clauses later in the Bill on this particular subject that do address tree planting. As we know from the Prime Minister’s 10-point plan, the question of tree planting is very much on everyone’s minds, and for the obvious reason that tree planting is going to be crucial to reaching our future net zero targets.

There have been various estimates of how many trees need to be planted over the next period to sequester the relevant amounts of CO2 to create a significant negative contribution to our net zero target by 2050.The tree-planting ambition is not a question of running on to a site, sticking a number of saplings in the ground, running away again, and hoping that they will all have grown into large trees in 30 years and will sequester carbon satisfactorily. The process of planting trees requires an enormous amount of loving care and attention, both in the planting and in the subsequent maintenance of the trees.

If we were running around planting large numbers of trees, squirrels, deer and various other animals might get to them over a short time, or landowners might decide, after a rush of enthusiasm for planting on their land, that they did not like the trees very much—we will discuss nature covenants later. Come 2050, if those trees are to count not just for the sake of counting, but for the purpose of sequestration, they have to go through their lives more or less intact, subject to some natural losses.

At the moment, there are some agreements and controls on planting trees in return for grants for management, stewardship and development, but one would have thought that on planting, the Bill presents an opportunity to put precisely those sorts of protective measures in place to ensure that trees are not only planted, but actually go ahead in their careers and become the best trees that they can be for the purpose of sequestration. Indeed, the Government are drawing up a tree strategy at the moment, but it does not seem to have come anywhere near the Bill. We have no clear understanding of what legislation that strategy might lead to or whether it will end up being entirely voluntary, which would be a terrible idea if we want to ensure that planted trees live their lives in the best way possible.

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My hon. Friend is making a powerful point. After all, page 99 of the Bill includes “Tree felling and planting”, which are the two sides of the coin, but the whole of the next page gives everybody the authority to cut down trees, as he has quite rightly pointed out. Does he agree that that is a rather negative way forward?

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My hon. Friend makes an important point. If someone chanced upon the Bill, flicked through it, looked at the contents at the front and said, “There is a section on tree felling and planting; that’s good, because we want to know about tree planting,” and then found that there was no tree planting, that would be rather an odd outcome, yet that is what we have in front of us. I would like to know, at the very least, what the Minister thinks can be done to rectify that omission and whether she intends, when the tree strategy is mature, to amend the Bill or, if this Bill has already gone through the whole of the House, introduce a subsequent Bill that will match up with what will be in the Environment Act, to give whole-life regulation and protection to tree planting, which is absolutely necessary for our ambitions for the future. Although we do not want to amend these clauses, because we accept that they are within the limitations written into the Bill, we give notice that we intend to proceed to rectify at least part of the issue concerning the heading of the clauses as we move on to the new clauses.

There is an indication, certainly in schedule 15, that the problem of maintenance and stewardship for the future is not anticipated, even on the question of felling and restocking trees. Schedule 15, which is an amendment to the Forestry Act 1967, requires restoration orders to be put in place—a good thing in itself—where people have felled trees when they should not have done or without the proper provisions being applied for.

Schedule 15 provides a welcome advance, in that there is clear regulatory guidance on restocking, but that guidance then starts to fall down, inasmuch as the restocking orders last for only 10 years. The precise problem that we have outlined with replanting could arise for the restocking orders. The person who has knocked the trees down might grudgingly replant more under the restocking order, but 10 years later, he or she can pull them all up again.

That is certainly not in line with the sort of stewardship that we think has to take place for trees, both in general and in particular with regard to the restocking orders. I would appreciate it if the Minister could comment this afternoon on whether she thinks the provisions in schedule 15 for the duration of restocking orders are sufficient in the light of our discussion, or whether she might review that for future reference.

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I know that I represent millions of people across the country in wanting to speak more about trees and seek more about trees in the Bill. There are some things in these clauses that we can agree on. I know that the Minister is a lover of ancient woodland and that the clauses are close to her heart as a chair of the all-party parliamentary group on ancient woodland and veteran trees.

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I am no longer allowed to be the chair.

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As a former chair, she has said of ancient woodland:

“It is an absolute travesty that only 2% remains and we must ensure that no more is lost.”

We agree on proposed new section 96A(1) of the Highways Act 1980, as inserted by clause 101, in which it becomes statutory for local authorities to

“consult members of the public before felling a tree on an urban road”.

Constituents in Putney will welcome that measure, because in many cases, they do not know why a tree has been felled and they would like to have had a say. It gives our fantastic volunteer tree wardens more power to look at the trees in our urban areas.

We also agree that the Bill is landmark legislation that legislates for urgent action on the biggest environmental challenges of our time. Therefore, it is disappointing that clause 100 is sadly lacking. We will talk about a tree strategy later when we debate new clause 19, but that is where this clause could have come in. Putting an English tree strategy on a statutory footing is key to delivering the commitments in the 25-year environment plan, alongside which the Bill sits.

The 25-year environment plan has targets for net zero carbon emissions by 2050 and for planting 30,000 hectares of trees a year across the UK. We need interim and overall targets in the Bill to ensure that we deliver on those targets. Why is that? Trees sequester carbon, support biodiversity, protect against floods, stabilise the soil, improve our physical and mental wellbeing, filter air pollutants and help to regulate temperatures. The Environment Bill seeks to do all of these, and more on trees would enable us to do it better and make it that landmark legislation. However, 53% of UK woodland wildlife is in decline. Woodland expansion is well below the rate necessary for the future. DEFRA has a woeful track record of missing tree planting targets. It cannot be left out of this Bill and just left to happen. History shows that it does not just happen. We really need a statutory England tree strategy.

There is currently no formal mechanism to set targets for protection, restoration and expansion of trees and woodland in England. Here is the opportunity to legislate and address the importance of trees in tackling the climate and nature crisis we face. This Bill aims to restore and enhance green spaces, yet it falls short in not containing a necessary clause about a tree strategy. There should be a strategy with the following objectives: increasing the percentage of tree cover in England, increasing the hectares of new, native woodland creation by planting and natural regeneration, and increasing the hectarage of plantation of ancient woodland undergoing restoration.

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I pay tribute to the work of the Woodland Trust, which has helped schools in the hon. Lady’s constituency, I am sure, as well as those of all members of the Committee. Does she agree that the sort of projects it leads will help the Government to achieve their goals of planting masses more trees across the country and involving school children?

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I thank the hon. Member for his intervention noting the work of the Woodland Trust, which is in agreement with the points I have just made. In fact, this is exactly what it is calling for. Indeed, given that he has talked about the excellent work of the Woodland Trust, I hope he will be supporting new clause 19 when we come back to it. The Woodland Trust would like an English tree strategy to be put on a statutory footing and gave evidence to that effect to this Committee previously, and many constituents from across the country have written in to support this also.

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The point I was trying to make was to highlight the good work that the Woodland Trust is doing alongside the Government, rather than to necessarily support the Opposition’s suggested amendments to the Bill.

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I understand the clarification. I would say that the Woodland Trust is doing fantastic work, but it is also calling for this statutory framework. I put Members on notice that we will return to this issue when we come to new clause 19. Therefore, I ask all Committee members to hastily look that up and, I hope, support it when it comes. Alternatively, as the shadow Minister has mentioned, let us see an actual, whole tree Bill come to Parliament with all urgency. That would be excellent as well.

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It will not surprise those hon. Members who have spoken that I share their passion for trees and ancient woodland particularly. Indeed, I also praise the work the Woodland Trust does and has done, particularly with young people, schoolchildren and all those who want to get involved with this future environment, as was intimated by my hon. Friend the Member for Gloucester.

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I wonder whether the Minister will also pay tribute to the work of the Scottish Government, as over 80% of new plantings in 2018-19 were in Scotland. Are there lessons to be learned there?

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I thank the hon. Member for Edinburgh North and Leith for that intervention. Indeed, it is all credit to Scotland. It has a different, much wilder landscape, where trees are very well adapted to the landscape. I do take my hat off to the tree planting that Scotland does, and we all like to learn from good practice across borders. Forestry is, of course, devolved, and that is why introducing a statutory target for the UK is not appropriate for this stage. I just want to touch on general points about tree planting before I address what the actual clause is dealing with, which really pertains to tree felling.

Yes, we do have an England tree strategy, which does set out the means to protect existing trees and see more planted across the country. We have a massive commitment to more tree planting to the tune of 30,000 hectares by 2025. It is ambitious, but we do have, and we are bringing forward, the measures to make that possible. That long-awaited and talked-about tree strategy will be launched in the spring of 2021. A huge amount of work has gone into liaising on that consultation.

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The Minister is quite right to highlight the good work that has already been done. Does she agree that there is a specific opportunity in many parts of the country in recycling centres? As more councils gradually get out of the business of landfill, there is an opportunity to transform the landscape of these existing recycling centres into places that can generate eco-woodland and green energy and fulfil lots of good environmental purposes.

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I thank my hon. Friend for a slightly off-the-wall intervention. I bet he has a recycling centre in his own constituency in mind. There will obviously be opportunities.

I will not say that the whole tree planting industry has to be kick-started, because there was a brilliant piece on “Farming Today” this morning—I do not know whether anyone was awake that early—about massive tree planting going on in the north. There is a huge private forestry scheme; it is private and has lots of input by Natural England and the Forestry Commission. It feeds into a big sawmill; the sawmills need the wood, and we want to stop the wood being imported, so we need to grow it at home. Although one may not think that the word “trees” is mentioned enough, all the policies we are putting in place to deliver biodiversity net gain and local nature recovery, or a great many of them, will involve tree planting.

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Does the Minister not agree that, although it is great to have the tree planting strategy coming up next year, this is a missed opportunity to put it in the Bill, making it a really good, comprehensive, joined-up piece of work?

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I thank the hon. Member for that. While she makes a good point, I point her to the fact that we did a public paper this summer, which explored whether a statutory target for trees in England would be appropriate under the target-setting process of the Environment Bill. Perhaps the shadow Minister missed it, but it shows that all of this work is ongoing. We have this target-setting measure in the Bill, and this will be a prime example of where a target ought to be set.

I would take issue. I do not honestly believe that picking out individual things right now, putting them in the Bill and saying there should be a target on them is the right way to go about it. We need the ability to make the target, but we also need to get absolutely right what that target should be. On those grounds, one could say, “We’ll have a target for reeds, for pennywort and for some corncockle.” That is not the way the Bill works. I hope I am making that quite clear. I hope I am also making it quite clear that we have this massive commitment to tree planting. Indeed, that was outlined in our manifesto, and the Prime Minister made his announcement this week in his 10-point plan linking it all together.

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Will the Minister commend Solihull Council, which in line with its commitment to plant a quarter of a million over the next 10 years has linked up with the Woodland Trust to plant nearly 12,000 trees in the first year? It did not need a statutory footing to do so.

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I absolutely applaud Solihull if it has already planted that many trees. There is a massive amount of voluntary work and other initiatives going on. I will also point out that tree planting will completely dovetail with the environmental land management scheme to deliver lots of those big projects, especially the landscape-scale projects. That will obviously help the climate change, the carbon sequestration work and all the things Members have touched on.

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Does the Minister agree that the Queen’s Commonwealth Canopy has also played a helpful role? Many of these plantings were done specifically by primary school children.

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I meant to reference that just now, so I am glad my hon. Friend mentioned it. I believe that all MPs got sent three trees—I cannot remember what year that was, but we were—and I planted my three using the instructions. Some other MPs called me up to say, “Gosh, what do I do with these things that look like twigs? How do I plant them?” I talked them through it, because some of the trees had obviously been in the box for quite a long time. It is a great project to link up these areas and to get children, in particular, planting trees.

I am going to deal now with what is actually in the clause. I would not belittle this clause about tree felling and planting at all. It is very important. We have committed to planting and protecting all these trees, and the clause will help us to protect the trees we plant. Street trees are often the closest green infrastructure to people’s homes—the hon. Member for Putney talked about how much value people in urban areas get from trees.

Clause 101 places a duty on local highway authorities to consult before felling street trees, guaranteeing the local public an opportunity to understand why a tree may be felled and to raise concerns if they wish. That is really important, because we have had issues elsewhere in the country, where it has caused an absolute storm when the council has come and cut down trees and people simply cannot understand why that was being done. It is really important to get the messaging right.

Local highway authorities should have regard to guidance the Government will publish. This will provide certainty on how the duty should be implemented, as well as consistent street tree management across the country. Under certain circumstances, however, trees are exempt from the duty, thereby not impeding action to address trees that might have to be urgently felled—for example, due to a tree disease, which would then make them a danger. The introduction of this duty reflects the Government’s commitment to protecting our urban trees, which people value so highly and which are important in the urban space.

While reported illegal tree felling rates are low, no level of illegal felling is acceptable. We propose to address this through clause 100 and schedule 15. The felling licence system works well, but is now over 50 years old. Since its introduction, the driving forces behind illegal felling have changed, and statutory protections no longer serve as a deterrent to some illegal felling. Our forestry enforcement measures resolve this and support effective enforcement of the felling licence regime.

First, we will increase the penalty for illegal felling to an unlimited fine, addressing the gains that can be made from illegal felling to realise the value of the land. Court powers to compel replanting will also be increased. Secondly, the measures will ensure that potential buyers or new owners of illegally felled land are made aware of their obligation to replant that land. That will ensure that restocking is achieved, regardless of whether that land is sold.

The hon. Member for Southampton, Test raised the issue of restocking and the 10-year issue in the schedule. If a person replants following the restocking order, but then fells the trees again, that is breaking the law. The trees can be felled only with a licence, so a fine could be applied in those circumstances. It is thanks to other changes in the Forestry Act 1967 and the changes that the Environment Bill is making that that will be the case. I hope that clarifies the issue.

The public obviously care very deeply about trees, and clauses 100 and 101 and schedule 15 will ensure that we have powers to protect and value them. That will allow us to retain the benefits they deliver for us—capturing carbon, providing shade in our streets and homes, creating homes for wildlife and, not least, looking beautiful. When I chose my flat to live in in London with my allowance, one of my chief criteria was that I could see a tree from the window, which I can. It gives me a great deal of pleasure and makes me breathe easy.

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I am sure that the Minister knows this already, but there are many ways of getting rid of trees other than felling them. The issue here regarding proposed new subsection 3(b) relates to the requirement

“to maintain those trees in accordance with the rules and practice of good forestry for a period not exceeding ten years”.

Maintenance in terms of the practice of good forestry might include various things, such as making sure that the trees do not get eaten, or making sure that they are sufficiently watered so that they do not die, and various other things that do not involve felling. However, the penalties in the legislation at the moment are for felling. She may want to have further thoughts about this 10-year rule in the light of that particular observation. This issue is not just about felling; it is about a number of other aspects of good forestry management of trees as they grow to maturity.

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I think I have given a very clear answer about the felling. If someone replants, that is an offence; they will be prosecuted for it. I think I have made that very clear. I agree with the hon. Gentleman that maintenance is important; quite clearly it is. I also agree that planting a tree is not a simple thing; it has to be planted, watered, maintained and protected from pests, and there is a great deal of work to be done. However, I think there is an understanding of that for anybody who plants trees. Indeed, particularly when we bring forward these bigger schemes, maintenance and all that side of it will be an important part and parcel of those projects and those schemes.

I hope that I have covered this issue quite clearly in my explanation and answered the questions, and I ask the Committee to agree that clause 100 stand part of the Bill.

Question put and agreed to.

Clause 100 accordingly ordered to stand part of the Bill.

Schedule 15 agreed to.

Clause 101 ordered to stand part of the Bill.

Clause 102

Conservation covenant agreements

Question proposed, That the clause stand part of the Bill.

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With this, it will be convenient to discuss the following:

Clauses 103 to 106 stand part.

Clause 107 stand part.

Government amendments 224 and 225.

Clause 108 stand part.

Clauses 109 to 115 stand part.

That Schedule 16 be the Sixteenth schedule to the Bill.

Clauses 116 to 120 stand part.

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Can I just check that I am speaking about all those clauses in one go, because that was a lot to take in?

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Thank you. This part of the Bill is based, by and large, on the excellent work done by the Law Commission; I thank the Law Commission for the ongoing support that it has given us.

Conservation covenants are private agreements entered into voluntarily to deliver a conservation purpose for the public good. They can cover conservation of the natural or heritage features of the land; that is set out in clause 102(3). Importantly, they can bind subsequent landowners, giving them the potential to deliver lasting conservation benefits for future generations; that is referred to in clause 107.

Conservation covenants are crucial, because there is currently no simple legal tool that landowners can use to ensure that conservation benefits are maintained when land is sold or passed on. Current workarounds are costly, complex and have limitations, so opportunities to secure long-term conservation outcomes are being lost. Our consultation last year found significant support from a range of bodies, including farmers, landowners, and conservation organisations, for the whole idea of conservation covenants. The covenants will provide a way of giving biodiversity net gain sites and other key areas for nature the long-term conservation management that they need, and will make it easier for businesses and others to fund nature recovery.

Conservation covenants are made between a landowner and a designated responsible body, such as a conservation charity or a public or for-profit body. Organisations must apply to the Secretary of State to be designated and show that conservation is one of their core functions. Applications will be assessed by the Secretary of State against published criteria, as outlined in clause 104. Responsible bodies will monitor delivery of the covenants and can take enforcement action if necessary.

Conservation covenants are a flexible tool: the parties can design them to suit their own circumstances, and the duration of a covenant will be whatever the landowner and responsible body specify and agree. If they choose not to specify a duration, it will default to an indefinite period for freeholders and to the remainder of the lease for leaseholders, as covered in clause 106.

Conservation covenants can include positive as well as restrictive land management obligations. A conservation covenant might be used, for example, when a wildlife charity that is a responsible body identifies an area of land containing the habitat of a key species. The responsible body could offer to make a payment to the landowner in return for the landowner’s agreement to maintain the land as a habitat for that species. The conservation covenant agreement would set out the steps that the landowner would need to take, such as coppicing woodland, maintaining a wild flower meadow, or any other kind of land management that might be required.

A conservation covenant agreement must be in writing and signed by the parties, and it must appear from the agreement that the parties intend to create a conservation covenant, as referred to in clause 102. Our guidance on conservation covenants will emphasise those requirements and include suggested wording that could be used to demonstrate that an agreement is intended to create a conservation covenant. We have engaged with stakeholders on our draft guidance, and we will continue to do so before it is finalised. I have had meetings and discussions with a range of organisations, including the National Farmers Union, which particularly wanted to talk about the issue. As outlined in clause 107(5)(b), a conservation covenant has to be registered on the local land charges register to bind subsequent landowners, and that register is available to the public.

Finally, Government amendments 224 and 225 to clauses 107 and 116 respectively will clarify that the reference in the clauses to section 3 of the Local Land Charges Act 1975 is to the version that has been substituted by schedule 5 of the Infrastructure Act 2015, and not to the original version. I have covered quite a lot there, Sir George.

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We have no feelings this afternoon that we want to oppose these clauses. On the contrary, we think that the establishment of conservation covenants is a good idea, provided that those covenants can really last in the way they work. The Minister has given a good account of how the covenants will work and can be enforced. Although this is a lengthy number of clauses in a lengthy part of the Bill, I hope hon. Members will not feel that we have failed to examine it. Indeed, having examined it, we think that these are a proper series of measures to take, and we hope that conservation covenants will, as the Minister mentioned, be an important part of the process in years to come.

Question put and agreed to.

Clause 102 accordingly ordered to stand part of the Bill.

Clauses 103 to 106 ordered to stand part of the Bill.

Clause 107

Benefit and burden of obligation of landowner

Amendment made: 224, in clause 107, page 105, line 10, after “1975” insert

“(as substituted by paragraph 3 of Schedule 5 to the Infrastructure Act 2015)”.—(Rebecca Pow.)

This amendment clarifies that the reference in clause 107(6) to section 3 of the Local Land Charges Act 1975 is to the text as substituted by the Infrastructure Act 2015 and not the original text. The original text still has effect in certain local authority areas to which the new text does not yet apply.

Clause 107, as amended, ordered to stand part of the Bill.

Clauses 108 to 115 ordered to stand part of the Bill.

Schedule 16 agreed to.

Clause 116

Power of responsible body to appoint replacement

Amendment made: 225, in clause 116, page 109, line 13, after “1975” insert

“(as substituted by paragraph 3 of Schedule 5 to the Infrastructure Act 2015)”.—(Rebecca Pow.)

This amendment clarifies that the reference in clause 116(4) to section 3 of the Local Land Charges Act 1975 is to the text as substituted by the Infrastructure Act 2015 and not the original text. The original text still has effect in certain local authority areas to which the new text does not yet apply.

Clause 116, as amended, ordered to stand part of the Bill.

Clauses 117 to 120 ordered to stand part of the Bill.

Clause 121

Duty of responsible bodies to make annual return

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I beg to move amendment 14, in clause 121, page 111, line 17, leave out “may” and insert “must”.

I will be brief. This is a further clause concerning mays and musts. I am sure that my hon. Friend the Member for Cambridge will be fascinated by this clause. He will observe that, in the clause, two musts are cancelled out by one may. The clause states that a designated body must make an annual return to the Secretary of State and that the annual return must give any information that is prescribed under subsection (4). However, that subsection states that the Secretary of State may by regulations make that provision in the first place. Basically, clause 121(1) and (3) put in two musts and, indeed, there are further musts below that. I am sure that my hon. Friend will want to reflect that in his calculations on these matters in the future. Perhaps there will be further opportunities to reflect further as the Bill progresses, but I do not want to press the amendment to a Division. I merely wish to point out that the musts and mays continue in substantial numbers as we progress through the Bill.

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I thank the hon. Member for welcoming the conservation covenant, and I am tempted to ask whether it has driven him to excitement.

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Steady on. I would not go quite that far. I am sort of elevated.

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Order. This is all very entertaining, but it is not getting us any further with the Bill.

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Sorry, Sir George. I could not resist it, because we were referring to the hon. Member’s excitement on Tuesday. I thank him for his proposed amendment.

Clause 121 places a duty on responsible bodies to make an annual return to the Secretary of State. The return must state whether they held any conservation covenants during the relevant period, the number of covenants and the area of land that each one covers. As the duty is already on the face of the Bill, in clause 121, no regulations will be needed to require responsible bodies to provide that information. However, conservation covenants are a tool that are intended to be used over the long term. It is therefore important that the Secretary of State should be able to obtain additional information in annual returns, if that proves necessary in the future.

Consequently, the clause also provides the Secretary of State with the power to make regulations about the annual returns. That power can be used, if needed, to require from responsible bodies more information than that already required by the Bill. I cannot anticipate at this point what such additional information might be, but any information required to be provided must be about, or connected with, the responsible body, its activities, any conservation covenant that it held during the relevant period, or the land covered by any such covenant.

As I have previously explained about similar amendments, it is therefore entirely appropriate to provide the Secretary of State with flexibility as to when and how the regulation-making provision is given effect. Primary legislation consistently takes such an approach to the balance between powers, which are mays, and duties, which are musts. I therefore ask the hon. Member to withdraw what I think is just a probing amendment anyway.

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I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 121 ordered to stand part of the Bill.

Clause 122 ordered to stand part of the Bill.

Schedule 17

Application of Part 7 to Crown land

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I beg to move amendment 71, in schedule 17, page 222, line 36, leave out from beginning to end of line 9 on page 223 and insert—

“Demesne land

3 (1) Where land belongs to Her Majesty in right of the Crown but is not held for an estate in fee simple absolute in possession—

(a) Her Majesty in right of the Crown is to be regarded for the purposes of Part 7 and this Schedule as holding an estate in fee simple absolute in possession in the land, and

(b) any estate granted or created out of the land is to be regarded for those purposes as derived from that estate in fee simple.

(2) The land referred to in sub-paragraph (1) does not include land which becomes subject to escheat on the determination of an estate in fee simple absolute in possession in the land if—

(a) it is land to which an obligation under a conservation covenant related when the estate determined, or

(b) it is not land to which such an obligation related at that time and Her Majesty in right of the Crown has not taken possession or control of the land, or entered into occupation of it.

Land subject to escheat

3A (1) This paragraph applies where land becomes subject to escheat on the determination of an estate in fee simple absolute in possession in land to which an obligation under a conservation covenant relates.

(2) The conservation covenant is not terminated on the determination of that estate, even though the appropriate authority has no liability in respect of the obligation unless and until the Crown—

(a) takes possession or control of the land, or enters into occupation of it, or

(b) becomes the holder of—

(i) an estate granted by the Crown out of the land, or

(ii) an estate in land derived (whether immediately or otherwise) from an estate falling within sub-paragraph (i).

(3) If the Crown takes possession or control of the land, or enters into occupation of it—

(a) the Crown is to be regarded for the purposes of Part 7 and this Schedule as holding an estate in fee simple in possession in the land, and

(b) that estate is to be regarded for those purposes as immediately derived from the determined estate.

(4) If the Crown grants an estate out of the land after having previously taken possession or control of the land, or entered into occupation of it, the estate is to be regarded for the purposes of Part 7 and this Schedule as immediately derived from the estate mentioned in sub-paragraph (3)(a).

(5) But if the Crown grants an estate out of the land without having previously taken possession or control of the land, or entered into occupation of it—

(a) the acts of the Crown in granting that estate are not to be regarded for the purposes of Part 7 and this Schedule as taking possession or control of the land, or entering into occupation of it, and

(b) the new estate is to be regarded for those purposes as immediately derived from the determined estate.

(6) In this paragraph and paragraph 3B ‘the Crown’ means Her Majesty in right of the Crown or of the Duchy of Lancaster, or the Duchy of Cornwall, as the case may be.

Bona vacantia

3B (1) This paragraph applies where an estate in land to which an obligation of the landowner under a conservation covenant relates vests in the Crown as bona vacantia.

(2) The appropriate authority has no liability in respect of the obligation in relation to any period before the Crown takes possession or control of the land or enters into occupation of it.”

This amendment replaces paragraphs 3 and 4 of Schedule 17 with three new paragraphs. Paragraph 3A is new and deals with the application of Part 7 to land to which a conservation covenant relates which becomes subject to escheat to the Crown (for example where the land is disclaimed by a trustee in bankruptcy). Paragraphs 3 and 3B are derived from the current paragraph 3, subject to some minor changes arising from consideration of paragraph 3A.

This amendment ensures that conservation covenants survive when land passes to the Crown through a process known as escheat. Doing so provides consistency in our overall policy on conservation covenants, which is to ensure that they can continue to affect land when it changes hands. The Bill as introduced has the effect that conservation covenants survive when land passes to the Crown as bona vacantia, or ownerless property. Land passes on bona vacantia in various circumstances, such as—in some cases—when a person dies without a will. That actually happened to the house I bought: they could not find who the house was left to in a will, so it went to the Crown and was sold by auction. This Government amendment replicates that effect for land that passes to the Crown by virtue of a process known as escheat. That can happen in a range of circumstances—for example, when a liquidator disclaims freehold land that belonged to a company that is wound up. The purpose of the amendment is to ensure that, in those circumstances, the conservation covenant is not extinguished by the escheat of the land.

Amendment 71 agreed to.

Schedule 17, as amended, agreed to.

Clauses 123 and 124 ordered to stand part of the Bill.

Schedule 18 agreed to.

Clause 125 ordered to stand part of the Bill.

Schedule 19

Charges for single use plastic items

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I beg to move amendment 187, in schedule 19, page 229, line 9, at end insert—

“provided that such regulations do not regress upon the scope or purpose of REACH regulations as applied prior to the amended regulations being enacted”.

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With this it will be convenient to discuss the following:

Amendment 3, in schedule 19, page 229, line 9, at end insert—

“(1A) Regulations made under this paragraph must not regress upon the protections or standards of any Article or Annex of the REACH Regulation.

(1B) Subject to sub-paragraph (1A), the Secretary of State—

(a) must make regulations under this paragraph to maintain, and

(b) may make regulations under this paragraph to exceed parity of all protections and standards of chemical regulation with any new or amended regulations of the European Parliament and of the Council concerning the regulation of chemicals.”

This amendment would set a minimum of protections under REACH and remove the possibility that a Secretary of State might lower standards than are in place currently, whilst reserving the right for them to set higher standards should they choose.

Amendment 198, in schedule 19, page 229, line 13, at end insert—

“both in general and, in particular, the precautionary principle referred to in Article 1(3).”

This amendment would require Ministers, in considering consistency with Article 1 of the REACH Regulation, to pay specific attention to the precautionary principle.

Amendment 174, in schedule 19, page 229, line 32, at end insert—

“provided that such regulations do not regress upon the scope or purpose of the REACH enforcement regulations as applied prior to the amended regulations being enacted”.

New clause 11—Ongoing relationship with EU-REACH—

“(1) The Secretary of State must not use regulations under Schedule 19 to diminish protections provided by REACH legislation.

(2) The Secretary of State must by regulations seek to maintain regulatory parity with any new or amended regulations of the European Parliament and of the Council concerning the regulation of chemicals after IP completion day.

(3) It is an objective of Her Majesty’s Government as part of any trade negotiations with the European Union to seek to secure associate membership of the European Chemicals Agency for the United Kingdom after IP completion day to enable it to continue to participate in the EU-REACH framework.

(4) Regulations under subsection (2) are subject to the affirmative procedure.

(5) In this section, ‘IP completion day’ has the same meaning as in section 39 of the European Union (Withdrawal Agreement) Act 2020.”

This new clause would require continued parity with REACH.

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As you have indicated, Sir George, amendment 187 is being dealt with alongside a number of other amendments, in my name and those of other Opposition Members, and a new clause, which we fully support, in the names of a number of Members who were on the Committee but are on it no longer.

Hon. Members will be aware that we have now moved away from conservation covenants, trees and biodiversity towards a very important new issue: chemical regulation, imports, exports and trading in this country post January 2021. The amendments, and indeed the schedule that they amend, deal with a particularly perverse decision by Her Majesty’s Government upon leaving the EU. They do not wish to have a negotiation or a discussion with the ECHA, the European Chemicals Agency, about associate membership of the agency, under which the REACH regulations—on the registration, evaluation, authorisation and restriction of chemicals—sit, and I will come to that in a moment. Instead, they wish to wholly recreate a UK series of REACH regulations to be regulated by the Health and Safety Executive rather than the ECHA.

The REACH regulations are one of the substantial achievements of the EU. They are a series of regulations that comprehensively sort out the transportation, trade, appearance on particular markets, and safety of chemicals across the EU. They also provide a comprehensive regime for identifying chemicals—a sort of institutional memory of what has gone on with chemicals. Companies that deal with chemicals have to systematically provide additions to the European database of chemicals, which now stands at something like 23,000 different chemicals. That database is available to all EU member states to inform their policies relating to what they consider acceptable for chemical trade and chemicals landing in their countries, what they can avoid bringing into their countries, and what safety regulations should be applied to the chemicals. All of that has a tremendously advantageous effect on how we steward our environment.

I would go so far as to say that the REACH regulations have played a tremendous role in protecting Europe from all sorts of chemical harm, chemical malpractice and dumping of chemicals in markets an. It is generally environmentally advantageous to have regulations in such a good form, in such a comprehensive way and available for all to look at.

I might add that the REACH regulations were brought about in the EU substantially through the agency of the UK. It was UK regulations and the advance of the situation that we had in the UK at the time that persuaded those involved and assisted the development of the REACH regulations. What we did for European chemical safety is something we can proud of.

One might think that one threw all that away at one’s peril, but that is precisely what the Government have just done. They have decided that, despite quite strong indications that the UK could have engineered an associate relationship with the ECHA. The EU would have been happy for that to proceed, not least because a close, harmonious relationship in dealing with activities relating to various chemicals across Europe is a great advantage for everybody across Europe. Close harmony on chemical standards is beneficial all round.  Frankly, the Government have made a perverse decision, which I cannot fully understand, to effectively completely recreate everything that was in EU REACH on a free-standing basis, subsequent to the HSE in the UK.

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My hon. Friend is making a powerful and important point from a safety perspective. Does he agree that it is odd that the Government have yet to provide a single good practical reason or advantage for severing ties with the world-leading EU chemicals system?

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