Tuesday, 18 July 2006.
The Committee met at half-past three of the clock.
[The Deputy Chairman of Committees (LORD HASKEL) in the Chair.]
Before the Minister moves that the first order be considered, I remind noble Lords that, in the case of each order, the Motion before the Committee will be that the Committee do report that it has considered the order in question. I should perhaps also make it clear that this Committee is charged only to consider orders, not to approve or not approve them. The Motion to approve will be moved in the Chamber in the usual way.
I also remind noble Lords that if there is a Division in the Chamber while we are sitting, the Committee will adjourn at the earliest convenient moment after the Division Bells are rung and will resume after10 minutes.
Criminal Defence Service (Representation Orders and Consequential Amendments) Regulations 2006
rose to move, That the Grand Committee do report to the House that it has considered the Criminal Defence Service (Representation Orders and Consequential Amendments) Regulations 2006.
The noble Baroness said: I shall speak also to the Criminal Defence Service (Financial Eligibility) Regulations 2006, and the Criminal Defence Service (Representation Orders: Appeals etc.) Regulations 2006. These are three sets of draft regulations that will give effect to the changes introduced to the Access to Justice Act by the Criminal Defence Service Act 2006.
Noble Lords will recall that the Criminal Defence Service Bill completed its passage in March this year. The finished product benefited from the constructive debate in your Lordships' House and another place. Since then, officials in my department have been working closely with stakeholders to ensure that the draft regulations deliver a system which will be easy to understand and quick to administer. The regulations will also achieve the underlying aim of helping to control spending on criminal legal aid to ensure that legal aid resources are balanced and refocused to where they are needed most.
The draft regulations were first published during the passage of the Bill. A further version reflecting many of the points raised during the helpful debates was published and circulated to key stakeholders in April. Those include the Law Society, the Criminal Law Solicitors’ Association, the General Council of the Bar, the Legal Aid Practitioners’ Group, the London Criminal Courts Solicitors’ Association, the Criminal Bar Association, the Magistrates’ Association, senior members of the judiciary, Liberty, Justice, the National Association of Citizens Advice Bureaux and the Justices’ Clerks Society. As a result, we have made some changes, and will keep the working of the new scheme under active review.
Noble Lords will recall that the Criminal Defence Service Act provides for the introduction of a financial eligibility test for the grant of criminal legal aid and transfers the power to grant legal aid to the Legal Services Commission. The granting of legal aid will cease to be a wholly judicial function administered by court staff. That will allow the Legal Services Commission to exercise greater control over expenditure and ensure consistency. Court staff will remain responsible for the scheme’s day-to-day operation, governed by a service-level agreement between the Legal Services Commission and Her Majesty’s Courts Service.
The Act includes powers to introduce means-testing in the Crown Court, and we are currently considering what that detail of the scheme should look like. We will publish detailed proposals for consultation shortly, with a view to implementing the system in Crown Courts by the end of 2007. The main body of the new scheme for the magistrates’ court is set out in the draft financial eligibility regulations. Those provide for the financial eligibility criteria which defendants must meet in order to receive publicly funded representation.
The transfer of responsibility for the grant of legal aid from the court to the Legal Services Commission is provided for in the representation orders and consequential amendments regulations. The procedure for appeals about the interests of justice test is set out in the appeals regulations.
Under the new system, to qualify for legal aid an applicant will need to satisfy the existing interests of justice test as well as the new means test. There will be an upper threshold above which no representation order will be granted, and a lower threshold under which a representation order will be granted. For those who fall between the two, there will be a more detailed assessment of their financial circumstances. Individuals in receipt of certain qualifying benefits, such as income support and the income-based jobseeker’s allowance, are automatically eligible, as are those under 16, or under 18 and in full-time education.
The means test will measure affordability by weighting an applicant’s income to reflect individual family circumstances and household composition. An individual will be eligible for a representation order if his gross annual income, adjusted to take account of partner or children, is £11,590 or less, and ineligible if it is £20,740 or more. Where it falls between these amounts there will be a more detailed assessment. The individual’s annual disposable income will be calculated, making deductions in respect of any income tax, national insurance, council tax, housing expenses, childcare costs, maintenance and cost of living expenses from the applicant’s adjusted income. If his annual disposable income does not exceed £3,156, the individual is financially eligible.
One of the concerns that noble Lords will recall was raised during the passage of the Bill was about the need to avoid introducing delay. It is essential that measures to control and refocus legal aid expenditure all support our objective of making the criminal justice system as speedy and efficient as possible. There are therefore a number of elements built in to the new system to militate against the risk of delay. For example, the old system required applicants to provide substantial supporting documentary evidence of means before legal aid could be granted, and that led to adjournments. Now, in most cases, applications will need to be accompanied only by the most recent monthly wage slip. Where an applicant is in receipt of benefits, their national insurance number will be sufficient, as court staff will have a dedicated real-time link to the Department for Work and Pensions database to check it.
It is anticipated that correctly completed forms will be processed well ahead of the first hearing, so that in the majority of cases a defence solicitor knows from an early stage whether or not his client is eligible. Solicitors will also be under a duty to advise their client to apply for a representation order immediately after charges are brought. However, where there is a delay in reaching a determination of eligibility, the early-cover scheme will apply. That will allow for a fixed-fee payment to defence solicitors to cover initial preparatory work and representation at their client’s first hearing, where an application is received within two working days of charge, no decision on that application has been made before 9 am on the day of the first hearing and the eventual decision is that the case passes the merits test but the defendant does not pass the means test. If the defendant arrives at court for the first hearing unrepresented, representation can be provided through the duty solicitors’ scheme. The early-cover scheme will also be extended to cover cases where the client has been remanded in custody pending appearance.
During the passage of the Bill, noble Lords argued that there was a need for an appeal to the court on financial eligibility. The Government accepted an amendment in another place to enable regulations to provide for the Legal Services Commission to refer a question to the High Court for its decision. We have provided for that in the financial eligibility regulations, which also set out that, where an applicant believes there has been an administrative error or miscalculation in determining his financial eligibility, he may apply to the Legal Services Commission for an administrative review of the determining officer’s decision. The appeals regulations also provide that, in circumstances where it is alleged that the interests of justice have been applied incorrectly, there will be a right of appeal to the court. In cases where the court overturns a decision reached in respect of the interests of justice, any application will still have to be referred back to the grant teams for a formal determination of financial eligibility.
The draft regulations recognise that while the means-testing scheme is sensitive to individuals’ circumstances, there will be occasions where applicants may fail the means test and yet may genuinely be unable to pay for their defence costs. That may be because of unusually high outgoings, or because they are involved in an unusually costly case. Therefore, defendants will be able to apply for a review by a dedicated hardship unit in the Legal Services Commission, either alongside their initial application or following a decision that they will not be eligible. The review will assess both the applicant’s disposable income and the ability to meet the likely costs of the case from that disposable income. It will require more detailed information and fuller evidence on the applicant’s financial circumstances as well as an estimate provided by the solicitor as to the likely costs of the case. Where the estimate of costs is unusually high, the solicitor will be required to provide additional justification to support that.
Throughout the development of the Criminal Defence Service Act and the supporting regulations, we have listened to stakeholders and are confident that, in doing so, we have struck the right balance between fairness and efficiency. We believe that the new system will be easy for defendants, solicitors and court staff to use. I therefore commend the regulations to the Committee.
Moved, That the Grand Committee do report to the House that it has considered the Criminal Defence Service (Representation Orders and Consequential Amendments) Regulations 2006.—(Baroness Ashton of Upholland.)
First, I thank the Minister, the noble Baroness, Lady Ashton, for giving us such a clear exposition of three rather complex orders. During the progress of the Bill, she kindly provided us with some insight of what was likely to be in these measures; and, to that extent, the comments that I am about to make can be reasonably moderate, if not largely complimentary.
One of the big issues that has, rightly or wrongly, been decided and which lies behind these orders, is whether or not decisions about financial eligibility should in future be made judicially or administratively. That battle has already been fought and lost by the Opposition; and I do not intend to re-open it again. However, I have an observation about the timing of these orders.
We are now in the foothills of the implementation of the Carter report, which is taking an overview of all legal aid matters. If the noble and learned Lord the Lord Chancellor takes up even 50 per cent of what is in the report, it looks as if we are in for dramatic changes. Would it not have been better for the Government to have held their hand on the question of costs in magistrates’ courts until the key decisions on Carter had been made? I ask that not only in relation to the detail, but with respect to the overall financial envelope.
We know that, in Crown Court cases, 50 per cent of the money is spent on 1 per cent of the cases. We fervently hope that the noble and learned Lord will introduce a system that dramatically cuts that amount. If that is the case, can the noble Baroness assure us that, if big savings are made, these eligibility figures will be reviewed? I would not like the lower and upper limits contained in the financial eligibility order to be set in stone for any longer than it takes the Government to implement the Carter measures. I would like to think that the noble Baroness or, perish the thought, any of her successors might come to your Lordships’ House at an appropriate moment to review them.
In addition to those general comments, I have one or two questions of detail, none of which will surprise the noble Baroness. She is well aware of an issue that formed the background to the discussions on Carter, and which was the subject of several speeches made during the progress of the Bill. It will come as no surprise to her that one of our concerns is with regard to the geographical distribution of solicitors, in particular, and, more generally, that of other legal advisers, implied by the financial eligibility test. We do not know what impact it will have on the business viability of legal advisers and we would like to think that the department will keep this matter under constant review.
Sometimes, for example, we may find that someone qualifies under the financial eligibility criteria and yet, because they are a long way away from a solicitor, they are unable in reality to take advantage of it, or they will be penalised despite the fact that they qualify. I know that the citizens advice bureaux often provide a useful stand in but they themselves are under great strain at the moment.
In the other place, the Minister, Mrs Vera Baird, suggested that the telephone line system which operates at the moment may provide a viable substitute—and that may well be true in certain cases—but, in my submission, someone who appears as a defendant at a magistrates’ court, particularly if it is for the first time, would probably not feel that they had had the kind of comprehensive legal advice they would have liked to have had just through a telephone call. I say that simply as an observation on an issue that the noble Baroness should keep under review.
One of the costs of not being legally represented, and therefore having to represent oneself, is that, as a consequence of one’s unfamiliarity with the law and procedure, cases tend to go on longer. If, as a result of this, the percentage of unrepresented defendants increases in magistrates’ courts, and consequently the length of trial extends, we may find that all the savings we had hoped to make by these measures are lost because of the extra costs of running the courts. So that is another factor that I hope the noble Baroness will keep under review.
I do not know whether this is a fair question to put to the noble Baroness in conclusion, but I am going to put it anyway. She indicated in her closing observations that we were a few months away from a similar system being brought to your Lordships’ House to deal with Crown Court matters. Plainly, the department has already been looking at that in some detail and will already have taken a view about the extent to which what is going to be proposed is similar to the magistrates’ court system and the extent to which it is different. I hope the noble Baroness, in her concluding remarks, will be able to say something about that.
I expect that the key difficulty, the sand in the machinery, of the financial eligibility order—if, indeed, there is to be some sand in the machinery—will occur in relation to Regulation 14. Plainly the system is at its most vulnerable where there is a proceeding in a magistrates’ court which is likely to go on for a long time. You may find that someone does not qualify for a representation order because their disposable income is above £20,000 a year and yet they are faced with a very long case in the magistrates’ court. Paragraph 14 provides for that situation; but it seems to me to be quite a stiff hurdle for an applicant to negotiate. I would like the noble Baroness’s assurance that she is aware of that and will be particularly concerned to keep that matter under review.
Having said all that, I thank the noble Baroness for bringing these matters to the Committee and, with no more ado, sit down.
I, too, thank the noble Baroness for her exposition of these three sets of regulations relating to the Criminal Defence Service. When the state-funded Criminal Defence Service was started up some years ago, I opposed it and the passage of the legislation through the House. I subsequently discovered that it was in fact providing a spirited and independent service in the few centres where it had been set up—in Birmingham, Liverpool, Cheltenham and elsewhere. I was very impressed with the work it was doing, not least because I was instructed by it to appear in the divisional court in certain cases, where I thought a very independent line was being taken. I have since addressed its annual conference and a quote from me appears in its annual report. So I hope the noble Baroness appreciates my point of view.
In my early years as a solicitor, I spent my time in the magistrates’ court learning my trade. It did not pay in the early 1960s and it certainly does not pay now. One reason why I moved from one side of the profession to the other was that I was the one partner in the firm who was not making any money. I got fed up with my brother and others making a lot of money, so I decided that it was time to go.
One of the problems arising here has been touched upon by the noble Lord, Lord Kingsland—the coming together of this approach in these orders with the Carter report. The report, for the first time, seems to address the very important issue of how you build into the legal aid system incentives to do cases quickly and efficiently. One of the problems causing the expenditure to which the noble Lord, Lord Kingsland, referred—50 per cent of legal aid expenditure goes on 1 per cent of cases—is the culture whereby a case can run on and on, with various applications being made, some of little worth, because the way in which people were paid encouraged time-wasting. That has been addressed by the Carter report, but I do not think that these orders deal with that sort of problem.
One difficulty is in the eligibility rules: £20,740 is not a very high income. If you earn more than that, you get no legal aid at all. It says in the accompanying notes that only 1 per cent of those who appear in magistrates’ courts—and there are 2 million of them—earn more than £20,740 a year. I find that a very hard statistic to believe and I would like to know what the basis of it is. It seems to me that people with incomes that are barely average and those with incomes above that are frequent attenders in the magistrates’ court.
The area between £11,000 and £20,000 is where the problem lies. Means-tested legal aid has been tried before and, as the noble Baroness knows, it was a failure. It cost so much to deal with the bureaucracy involved in proving income, and so on, that it did not save any money. The proposal now is that a person’s wage slip for one month will be sufficient, or their national insurance number if they are in receipt of benefits. I do not see that system lasting for very long because it is open to all sorts of abuse.
I think it is likely that less legal aid will be available. That is the purpose of the order—to cut down on costs. That means that it will become even more unprofitable to do cases in the magistrates’ court than it was in my early years. What follows from that and from the Carter report is that firms simply will not undertake legal aid. Something like 2,700 firms of solicitors take legal aid cases at the moment, but I can see that figure dropping rapidly. Solicitors do not provide a public service for nothing; obviously they have to make a reasonable income out of what they do. Undoubtedly there will be deserts in the country where representation will not be readily available because a solicitor is sometimes needed at very short notice. I fear that this will be an enormous disincentive to the legal profession to be involved in legal aid work and that it will therefore lead to a lack of representation.
I make this point. A defendant who is represented and whose case is put, one hopes, succinctly and well by professionals to a court saves money. A person who represents himself will go on for ever. Your Lordships will know that from the fact that the professional lawyers in this House talk at much shorter length than others.
I may as well say that—we all know what interests I have to declare. My point is that a case well put will be put without delay and money will be saved. The appeal system, which was put in after some pressure following consultation, will enable appeals to be made only on the ground of the interest of justice and not on financial grounds. But, of course, constant applications and appeals cost money and cause delay, and what is gained by reducing legal aid may be lost by the greater time spent in court dealing with cases where people are appealing or where, alternatively, there is no representation at all.
As the noble Lord, Lord Kingsland, said, setting these arbitrary financial limits may cause an imbalance. Average incomes are higher in London than they are, for example, in Wales, and one can see that we will have an imbalance in that people whose standard of living is no higher in metropolitan areas will nevertheless be above the threshold of the financial limit because their incomes will appear to be higher. So I do not think that this across-the-board financial limit, which takes no account of the costs of metropolitan living and the incomes that are gained here, is necessarily a very good one. I hope that the noble Baroness can tell me either that I am wrong in my assessment and that the limit will not be across the board or that, in the future, some account will be taken of that as the scheme comes into operation.
I understand that a national agency is to be set up. National agencies have been a disaster. The Criminal Assets Recovery Agency, of which I have some experience, has cost taxpayers around £60 million since 2003 and has recovered £8 million. It is easy to farm these things out to agencies but is it cost-effective? The difference there of something like £70 million or £74 million would, in any event, pay for a fair amount of magistrates’ court representation over a year. So setting up an agency and taking this work away from the magistrates’ court or from government departments generally is not necessarily the best way to proceed.
My verdict on these orders is: wait and see—the traditional Asquithian view. I strongly suspect that there will be unforeseen consequences and that the scheme will have to be revised, just as the abolition of means-testing was revised by these orders. It is the ongoing problems that I am sure will come before us again in the not-too-distant future.
I thank the noble Lords, Lord Kingsland and Lord Thomas of Gresford, for the spirit in which they have debated these regulations. I accept that noble Lords have indicated a number of areas where they want to make sure the department and Ministers involved keep an eye on what happens. In my closing remarks I will tackle some of the questions they have raised.
The noble Lord, Lord Kingsland, talked about the fact that there was no appeal. However, we introduced, as a Liberal Democrat amendment in another place, the ability of the LSC to refer questions to the High Court. We have also made sure there is an administrative review, because we want people who feel they have been incorrectly assessed to be able to go back to the LSC and say, “I want this looked at again”. That is very important. There is also the ability to go back and talk about particular concerns about hardship. We think we have the elements there. I know this is not as far as noble Lords originally wanted us to go, but we believe we have created a system—which we will keep under review—that will enable us to ensure that we assess people properly.
I accept too that in the foothills of Carter, as the noble Lord, Lord Kingsland, described it, we need to ensure that this all fits together. We see what the noble Lord, Lord Carter, has said, in his comprehensive consideration of the legal system, as part and parcel of a number of changes we are seeking to make. As noble Lords will know, the consultation takes place over the next three months. The noble Lord’s proposals are one part of our consideration of the criminal justice system and the reform programme, and these regulations represent another part of that. We do not see them in contradiction with each other, however, but as complementary. The noble Lord was fully aware of that situation when carrying out his review.
I take the point of the noble Lord, Lord Kingsland, about keeping the figures under review as we implement the Carter proposals, however the consultation turns out. I accept that we should do that, and commit that we will, to ensure that the eligibility criteria are assessed from time to time to make sure we have got them about right.
As for concern about the coverage of legal aid practitioners, noble Lords will know that the LSC has been piloting the telephone helpline, CDS Direct. I take the point about the citizens advice bureaux being an important partner, but also recognise that it does a huge amount of work, for which I pay tribute to it.
As we have said, the court duty solicitor will remain. In his report, the noble Lord, Lord Carter, acknowledges, with regard to geographical distribution, that one size does not fit all. There will be regional consultation from the Legal Services Commission to ensure that we have coverage in each locality as appropriate. I agree with noble Lords that that is an important part of what we need to do.
Then, as the noble Lord, Lord Kingsland, said, there is the business viability of solicitors. The noble Lord, Lord Thomas of Gresford, described his own experiences in that regard. We must ensure that we have thriving businesses for solicitors who are able to do this work. There is no desire on our part to do anything other than ensure that, but we need to do so in a way that addresses our concerns about legal aid spending. As I indicated in these regulations, one of the issues is the rebalancing of legal aid in the context of the civil and family courts.
The noble Lord also asked me about unrepresented defendants. We have figures for the 12 months to December 2003. I do not have more recent figures with me, but if we have any I will let noble Lords have them. The number of defendants in magistrates’ courts was over 1.8 million, but only 630,000 representation orders were granted for the same period; so about two-thirds were represented by the court duty solicitor, paid privately or were unrepresented. I do not have a breakdown of those figures, but the numbers are significant. I accept that there are issues about those who are unrepresented perhaps taking more time within the court system, and that there are consequences of that in terms of cost. However, things are running pretty smoothly in most magistrates’ courts, and we will monitor the situation to ensure that remains the case.
The noble Lord, Lord Thomas of Gresford, was concerned about real incomes, costs and regional differences, particularly in south-east London. The means assessment provides for housing costs to be taken into consideration. The noble Lord knows well that housing costs are one of the main considerations and drivers behind regional differences in income, so we should be able to militate against unfairness. But if regional factors prove to be decisive, we will look more closely at them—we are alive to regional issues. We think that we have covered them and we are alive to the fact that housing is an important issue.
We have debated the £20,740 threshold. Of course, that is adjusted to reflect family circumstances. Defendants may earn in excess of that but, if they have children, they may qualify. That is the threshold where we introduce issues such as family needs and so on, so there is not necessarily a cut-off at £20,740.
We have not set up a new national agency. In fact, the Courts Service will carry out the means test on behalf of the Legal Services Commission under a contract between them. In part, that reflects our desire to ensure that we have consistency across the country, but we will also have within the Legal Services Commission dedicated staff to tackle complex and high-risk cases, as well as those who will look at hardship. We have deliberately not gone down the route of setting up a new national agency for the reasons that the noble Lord gave.
The noble Lord, Lord Kingsland, asked me to say what the Crown Court scheme might look like. Your Lordships will be kept in touch regarding the development of the scheme. At the moment, the proposed features are that financial eligibility will be subject to the same test that is adopted in the magistrates’ court but, where a defendant is financially ineligible, he will be asked to make an income-based contribution to the costs of the case. Frankly, few defendants will be able to afford to pay the entire costs of a Crown Court defence. The scheme might include a capital contribution based on liquid capital assets held in banks and building societies. As noble Lords know, we will be looking potentially to pilot any such scheme in a prescribed area, as provided for in Section 3(3) of the Criminal Defence Service Act 2006, for a specified period not exceeding 12 months. That may enable us to look at the matter in more detail.
Those are the elements of the scheme thus far and, as I have indicated, I will make sure that we keep noble Lords in touch with any other issues that arise. I think that I have answered most, if not all, of the questions raised, except for one, which the noble Lord, Lord Thomas, asked concerning adequate remuneration for solicitors.
I remind noble Lords that the noble Lord, Lord Carter of Coles, is talking about a new procurement and payment scheme for legal aid. The Legal Services Commission proposes to move to fixed and graduated fees from April 2007 for a wide variety of civil and family work and for most immigration work. That will enable us to promote and reward effective working by suppliers and will restructure funding in family disputes more towards early and amicable resolution wherever possible and away from contested court litigation. That will enable us to promote efficiency, to which the noble Lord referred, and we hope that that will contribute towards ensuring that the costs are used to the best effect. I hope that I have answered all the questions that noble Lords have asked.
On Question, Motion agreed to.
Criminal Defence Service (Financial Eligibility) Regulations 2006
I have already spoken to these regulations and beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Criminal Defence Service (Financial Eligibility) Regulations 2006.—(Baroness Ashton of Upholland.)
On Question, Motion agreed to.
Criminal Defence Service (Representation Orders: Appeals etc.) Regulations 2006
I have already spoken to these regulations also, and I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Criminal Defence Service (Representation Orders: Appeals etc.) Regulations 2006.—(Baroness Ashton of Upholland.)
On Question, Motion agreed to.
Data Protection (Processing of Sensitive Personal Data) Order 2006
rose to move, That the Grand Committee do report to the House that it has considered the Data Protection (Processing of Sensitive Personal Data) Order 2006.
The noble Baroness said: The order facilitates payment card issuers—that is, banks and building societies—in processing sensitive personal data, provided by law enforcement agencies, on customers who have received convictions or cautions for crimes in relation to child abuse images where their payment card was used to commit the offence.
Card issuers’ contracts usually allow removal of a payment card or the closure of an account when it has been used to make an illegal purchase. However, card issuers need access to accurate information on illegal purchases and on whether their customers have been cautioned or convicted of an offence. Without that information, it is difficult for the card issuers to exercise their contractual rights and to remove the cards or close the accounts if they wish to do so. While some card issuers can already process these data based on the explicit consent of customers, others do not have adequate terms and conditions in their contracts. The order provides the necessary safeguards to permit the processing of data passed by law enforcement authorities to card issuers. The data on the offender will go directly to the card issuer who may, if they wish, act on the information. The processing of the data will be supported by a memorandum of understanding.
The background legislation is set out in the Data Protection Act 1998. As noble Lords will know better than I do, the Act sets out how organisations use the personal information they hold on individuals. The data include how they acquire, store, process, share or dispose of information. Specific measures within the Act ensure that individuals’ sensitive personal data are processed in a manner that provides them with an appropriate level of protection. Under the power in Schedule 3(10), the Secretary of State may make an order setting out further circumstances where processing of sensitive personal data can take place.
The order marks the completion of collaboration between my department, the Association for Payment Clearing Services, known as APACS, the UK trade association for payments and institutions that delivers payment services to customers and represents large numbers of card issuers, along with the Child Exploitation and Online Protection Centre—known as CEOP, a national resource that brings together law enforcement officers, specialist children’s charities and industry, all seeking to tackle the growing problem of child abuse. We are also, of course, working closely with our colleagues in the Home Office.
APACS and the Child Exploitation and Online Protection Centre approached my department seeking a way forward to ensure that the necessary safeguards are in place to facilitate the appropriate processing by card issuers of convictions and cautions data from law enforcement authorities. Both organisations were very keen to act, and my department and the Home Office are very keen to support them.
When making such an order, my department is required to consult the Information Commissioner’s Office, whose role, as noble Lords will know, is to ensure that personal information is properly protected and to prosecute those who commit offences under the Data Protection Act. The Information Commissioner’s Office was broadly content with the order but had some reservations regarding closure of accounts. We do not agree with the reservations. If the order did not allow for the closure of accounts and the debit card was used, the card issuer could cancel the card but would then have to keep open the account of an individual whom they knew had broken the terms and conditions of the card and the account.
We feel that it is appropriate to allow card issuers, if they see fit, to process data on the closing of accounts based on a breach of terms and conditions—in other words, the contract between the customer and the supplier of the card. We do not wish to permit them to process this information for one purpose and then to turn a blind eye to conviction for other purposes.
The order does not set up a list of those who have had their cards removed on this basis. The information on convictions and cautions, if passed to the card issuers, is purely to allow them to decide whether the card in commission has been used for an offence that constitutes a breach of contract. While processing the data, card issuers must comply with the principles of the Data Protection Act; they must not keep the data longer than necessary. The details of the offences will not be passed to credit reference agencies or to other card issuers unconnected with that particular card. The removal of the card or the closure of the account does not equal a further or second punishment. These are not criminal sanctions.
The processing of the data allows the card issuers to exercise their contractual rights. When individuals use the card for illegal purposes, they contravene their contractual agreement with the card issuer and, as a result, their contract may be terminated.
When the card involved belongs to joint accounts, the innocent party will be told that the card has been removed or the account closed due to a breach of terms and conditions. They will not be given any further details. Any outstanding monies will be returned to the parties as appropriate and the innocent person in this context will not suffer any detriment.
Noble Lords will be as aware, as I am, that the viewing of child abuse images is not a victimless crime. For every image online, a child in the real world has been abused. We hope that this order will assist in the disruption of paedophilic activity and have an impact on reoffending. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Data Protection (Processing of Sensitive Personal Data) Order 2006—(Baroness Ashton of Upholland.)
I am most grateful to the noble Baroness for her clear exposition of the order. It seems to me that there are three issues arising from its contents. First, would the innocent joint cardholder be told why the card was withdrawn? The noble Baroness effectively covered that point in her opening remarks, and the answer is, satisfactorily, no. Plainly, the innocent party would be told that his or her partner had breached the terms and conditions of the contract; but there would be no obligation to go any further than that—indeed, it is prohibited to go any further than that. That is an entirely satisfactory response from the Government.
Secondly, does the order guarantee that there would be no prejudice to the innocent partner taking out a new account on his or her behalf? It seems to me that, once again, the noble Baroness has answered that question satisfactorily. If there was any doubt that the innocent party would be prejudiced, I am in no doubt whatever that the Government would take steps to ensure that that could not happen.
The final issue relates to the criminal data that form the basis of the knowledge for the bank or financial institution to remove the card. Once the contract had been cancelled and the card removed, would that criminal documentation remain on the files of the bank or the finance firm? Once again, I understand that the answer to that question is no; that would serve no useful function and it would, in my view, be inappropriate for a number of reasons for it to remain.
Those three questions having been answered satisfactorily by the noble Baroness, I am perfectly content with the contents of the order.
It is important to take very seriously retaining the privacy of sensitive personal data, particularly given that the proposal is to grant commercial organisations access to that data. There has to be a very strong case for an order of this kind to be made. I accept that in this case a very strong case has been made; I note in particular that the Select Committee on the Merits of Statutory Instruments has described the order as,
“a good example of an appropriate balance between the rights of the state and the rights of the individual”.
I have just one reservation in connection with the extending of access to the data to cases where there have been cautions and not only to cases where there have been convictions. We know that cautions are given only in first offence cases and where a case is so minor that it does not justify the imposition of a sentence by the court. Given that the loss of the card and the possible closing of the account may cause considerable practical difficulties, both immediately and in the future, to any person to whom it happens, is the noble Baroness satisfied that this is necessarily wholly proportionate? I assume that if this information is provided there will be no opportunity to look at the merits of any individual case in order to decide whether or not withdrawal is appropriate.
I recognise, of course, that what is happening here is, in a sense, merely the giving of information of a breach of contract, but I do not think that that in itself is sufficient to justify it. This contains very much a protection-of-the-children element and I would be interested to hear why the noble Baroness feels it is necessary to extend this to cases of cautions and not merely to convictions.
I am grateful for the comments of both noble Lords. I am delighted that I had answered the three questions of the noble Lord, Lord Kingsland. Indeed, everything that the noble Lord said about the answers to the questions was absolutely correct. I am grateful to him for his support and for recognising that the order is justified.
The current position is that the police send information to the credit card companies when someone is cautioned, convicted or reprimanded. The issue has been that under the Data Protection Act they could not use that information without the permission of the individual. We have simply removed that prohibition for this very particular set of circumstances. This is about the prevention of re-offending. I hope that if we and the credit card companies publicise this measure it may act as a deterrent, which would be a good thing.
When someone is cautioned, it is an acceptance of guilt. It will be up to the credit card companies if they wish to differentiate. The question for them will be whether they consider that the breach of contract which has taken place is sufficient for them to close the account and/or to remove the card. Whether or not they choose to do so is entirely a matter for them; it is not for us to say. It is for them to weigh up the situation, and we do not wish to be involved in the relationship between them and their customers and how they choose to act.
It states on my note that we consider these to be serious crimes. I cannot put it any better. We need to do everything we can to disrupt and curtail the activities of those involved in downloading abusive images of children. As I have already indicated, these are children who have been abused in order for the image to exist at all. It is not disproportionate to say that in these particular circumstances, where the credit card companies have said that they would prefer to be able to consider whether someone should hold a credit card if it has been used for that purpose, we should give them access to the information. While I understand that the noble Lord may feel that there are varying degrees of offence, if someone is cautioned there is no question that they have committed the offence. It is then for the credit card companies to determine what action they wish to take.
We think that this is a very small but important step. The industry came to us to discuss the matter and we have been pleased to respond. We are working closely with the industry and, where we can act, we should act. In this case, we think we should. I commend the order to the Committee.
On Question, Motion agreed to.
Regulatory Reform (Registered Designs) Order 2006
rose to move, That the Grand Committee do report to the House that it has considered the Regulatory Reform (Registered Designs) Order 2006.
The noble Lord said: This order is all about providing the public with a designs registration system that is as quick, accessible and easy to use as possible. It will make it possible to administer the Registered Designs Act 1949 far more in tune with modern trading conditions and also in a manner consistent with the registered Community design system offered by the Community trade marks and designs office in Alicante, which grants a single unitary right across all 25 member states.
Prior to the registered Community design system becoming operational in April 2003, the UK received around two-thirds of its design applications through intellectual property agents, the remainder being received directly from individual designers or small businesses. However, the situation now is that 95 per cent of newly registered designs, which are effective in the UK, are registered at Community level. As a result, the user base of the national designs registry has reversed, with about two-thirds of the total number of applications coming from small businesses without any legal representation. There are, therefore, still recognised benefits to the businesses that do not need, or cannot afford, to register their designs at Community level in being able to register their designs in the UK alone. This is partly because prior disclosure in any member state, especially through registration, will put a designer in a strong position to resist and, if necessary, to invalidate any Community or national design registration gained by a competitor at a later date. These proposals will therefore be of considerable interest to designs applicants and to the intellectual property profession.
The procedure of applying for the registration of new designs will be simplified. Unnecessary burdens will be removed, yet care has been taken to ensure that these new measures do not undermine the interests of the public in general. In particular, the introduction of a multiple design application system will offer savings in terms of the time taken to complete an application to register a number of designs at the same time and also savings with a new fee structure to reduce the cost of registering such multiple designs.
My department has consulted widely and has met with a cross-section of individual designers, as well as with representatives of the legal profession who specialise in intellectual property. I am satisfied that these proposals are accepted as sound and that they reduce processing complexity without unduly affecting the balance between rights holders and third parties. As such, they have been welcomed by those who represent the interests of small and larger businesses alike.
Articles 3 to 5 of the draft order seek to remove burdens from the examination process by stopping the requirement on the registrar to satisfy himself that the design passes the tests of novelty and individual character. At present, only a minority of designs in the marketplace is registered. That had made examination of these grounds very problematic, as such designs are not available to be searched in the registers maintained by the national and Community authorities. This matter was compounded by the new criterion for novelty introduced when the designs directive was implemented in the United Kingdom in 2001, as practically every earlier design in any marketplace in the world must be considered. This makes it impossible for an examiner to carry out a conclusive search in all the relevant overseas territories in order to satisfy himself that a design is indeed a new one.
These problems led the Patent Office to take the decision in 1999 to limit the number of applications it examined to cases where a particular examiner was aware of relevant early designs. The uncertain and somewhat arbitrary nature of this process will be abandoned when these changes take effect because the registrar will no longer be able to refuse to register a design on the grounds of lack of novelty or individual character. This will thus remove the current uncertainty as to whether, and to what extent, any particular design was searched and determined to be new before it was registered.
Articles 11 to 14 of the draft order seek to introduce a multiple design application system so that applicants or their professional representatives may file as many designs under the cover of one application as they wish and without any administrative restrictions. This new system will largely align us with other national systems as well as with the registered Community design system.
Article 15 of the draft order deletes the prohibition on the public inspection of certain classes of registered designs contained in Sections 22(2) and 22(3) of the 1949 Act. This prohibition means that some classes of registered designs cannot be inspected by the general public for a period of two or three years after registration, even though they may be enforced against third parties during that period. It is proposed that new rules made under the Registered Designs Act will require an applicant to provide his consent for the publication of any new design filed at the registry. Such consent may be withheld for up to 12 months, but the designs will not be registered until consent has been given. Once it is given, the designs will be published immediately after registration. This new provision will also give applicants a degree of control over the timing of the publication and consequent registration of their designs to coincide with launching a new product on to the market.
Article 17 of the draft order is designed to make it easier for a proprietor to restore a registration that he has allowed to lapse due to non-payment of the renewal fee. It will have no impact on the general public other than to ensure that the proprietors of registered designs are able to reinstate their legitimate rights in a greater number of circumstances.
I thank the Members of the Delegated Powers and Regulatory Reform Committee for finding that the present proposals are appropriate to be made under the Regulatory Reform Act 2001 and for recommending them to the House. The Committee in another place has also considered the proposals. It concluded that they remove burdens within the meaning of the Regulatory Reform Act 2001 without removing any necessary protections or preventing the exercise of any existing rights or freedoms. Both committees have now unanimously recommended that the order be approved. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the draft Regulatory Reform (Registered Designs) Order 2006 [23rd Report from the Regulatory Reform Committee].—(Lord Sainsbury of Turville.)
I thank the Minister for explaining this draft order in some detail. The regulatory impact assessment states that the aims of the order are:
“to encourage more businesses to seek registration; encourage UK businesses to innovate; reduce the level of copying of new designs in the UK; make the system fairer for all applicants”.
These are laudable aims.
We notice that this system runs in parallel with the Community design system that was brought about by the designs directive. Can the Minister tell the Committee whether it is possible for a UK company to have an approved design under the UK Act and for another company to have an identical, or very similar, design approved under the EC system? If so, what happens when the other company starts to sell its product in the UK in competition with the product of the UK company? Which one is protected from the other?
We welcome the proposal to reduce the standard of care required for restoration of lapsed design registrations to match the standards in other forms of intellectual property protection.
On the proposal to end substantive examination for novelty, the order would remove a burden and would introduce some procedural clarity, albeit that there would be slightly greater legal uncertainty, because a few more invalid applications would be granted than hitherto. I have a concern that the ending of substantive examination prior to grant of approval might lead to an increase in costs for those—we hope very few— who end up in court. Have the Government considered an optional substantive examination, which could be offered at the cost of the applicant, the results of which would be binding and would therefore remove the need for subsequent litigation? It would give applicants confidence that, having made an application, they need not worry that they might yet have to contest their right to it in court.
I also note that the report of the Regulatory Reform Committee of the House of Commons indicated its support for the draft order, as the Minister mentioned, subject to slight revision to ensure consistency in the references in Articles 8 and 9 to “sections of this Act”. That revision seems to be appropriate, and was accepted by the Patent Office. We have no objection to the proposal to allow multiple applications, although we have no evidence on which to judge the savings that would accrue. There is potential for lower costs, but that depends on the level of the fees for applications.
We support the proposal to make all designs open to public inspection. Indeed, we think that the proposal could go further. The Patents Act 1977 changed patent law to open most of the Patent Office correspondence files of published patents to third-party inspection. The same measure was enacted for trade marks by the Trade Marks Act 1994. The files of Community designs are open to public inspection. There is therefore no reason to keep the correspondence files of published registered designs secret. To do so also appears contrary to the spirit of open government. We do not see why the files of designs, unlike any other UK form of intellectual property and unlike Community designs, should be kept secret. Indeed, the files should be opened to allow third parties more effectively to do the job of challenging bad registrations from which the registry proposes to resign. For example, where priority is claimed, the public should have access to the priority document and any translation thereof. Can the Minister make any commitments in this regard?
I join the noble Lord, Lord De Mauley, in thanking the Minister for the way in which he has explained quite a complicated issue. The Minister will know that I have consistently in this Room and on the Floor of the House congratulated the department on how it conducts its consultation exercises. That has not yet persuaded me that my party should abandon our policy of abolishing the Department of Trade and Industry, but it will be important that the culture of consultation survives the transfer of functions as they go to other departments.
There is only one point that concerns me about the consultation. I certainly welcome the proposition that the novelty test should be abandoned. I am slightly concerned that in the public consultation exercise the Chartered Institute of Patent Agents suggested that the registry should consider alternative approaches to the registration process, such as the Australia model, where applications are never examined unless the validity of the design is challenged in litigation proceedings. I am not certain why the Government have simply rejected that proposal, which goes slightly further than what they are suggesting. There is a slightly strange sentence in the regulatory impact assessment, which states that,
“despite some concern over the exact process of examination, they”
“agreed that the Registry should either ‘search or not search’ and that the present situation should be clarified”.
That does not seem to me to answer the question of why the CIPA recommendation has been rejected. I should be grateful if the Minister could explain that.
In general, we support the order and think that it is a very important reform.
I am grateful to both speakers for making those points. I think that the first is relatively easy to answer. Obviously, it is possible for the same design to be registered at a national and a Community level. In those circumstances, the latter design registration would be liable to be declared invalid and registering the earlier design will make it easier to enforce and protect it. If you later register a design in the Community which covers the UK but someone can point to an earlier design in the UK, it is clear that that is the one that is declared valid.
On searches, it is possible for a person to ask the Patent Office Search and Advisory Service to search prior art. That is a commercial service charged at commercial rates. However, the search extends only to registered designs, not to designs in the market place that may have anticipated the demands. So, in this particular case, there is a commercial service but it applies only to the registered designs. I think that the Australian model could not be effected without requiring primary legislation, but I will write to the noble Lord on that point. I commend the order to the Committee.
On Question, Motion agreed to.
Adoption and Children Act 2002 (Consequential Amendment to Statutory Adoption Pay) Order 2006
rose to move, That the Grand Committee do report to the House that it has considered the Adoption and Children Act 2002 (Consequential Amendment to Statutory Adoption Pay) Order 2006.
The noble Lord said: As Members of the Committee will be aware, the Work and Families Act 2006 achieved Royal Assent last month. The Act seeks to deliver a number of the Government’s commitments set out in the Pre-Budget Report of 2004 and in the Government’s response to the work and families consultation in 2005.
The regulations on maternity and adoption leave represent the next step in that ongoing process. Before turning to the detail of these regulations, I would like to say a little about the work and families package in general. This is a significant programme, designed to offer practical and very real support for working families, while bringing forward a number of measures which employers have told us would be helpful for them.
We all recognise that families today face increasing challenges in balancing their home and working responsibilities. It has to be right to offer children the best start in life, but this also has to be achieved against the demands of creating an increasingly competitive economy. The result is that many families struggle to find this balance. This problem will become more acute as we are likely to see more and more of our workforce needing to take time out of the labour market during their careers to care for children or elderly relatives, or both.
Business knows that to succeed it needs to employ the most talented workforce it can. Many employers now realise that an integral part of any strategy aimed at achieving this includes giving employees the opportunity to strike the right balance between work and family life. This gives employers access to a wider pool of talent to recruit from in the first place, and there is increasing evidence showing that a healthy work-life balance reduces staff turnover, reduces absenteeism and raises morale.
The regulations before us today respond to these changing patterns of employment and seek to provide genuine choices about balancing work and family life in the crucial first months, and genuine support for employers in ensuring that the balance works for them too.
I am very proud of the Government’s track record in introducing measures to support working families. We have already created more than 1 million additional childcare places; guaranteed all three and four year-olds a free part-time nursery place; and improved financial support through increased child benefit and working tax credits. Working families have benefited from improved maternity leave and pay, new rights to paternity and adoption leave and the right to request flexible working.
These regulations deliver a number of measures which will benefit both working families and their employers. They result from the close consultation with stakeholders, including parents’ groups, trade unions, businesses and their representative organisations, and individuals.
The Government also worked closely with an advisory group of human resource experts, set up to look at how we could introduce these changes whilst minimising any additional burden on employers. A clear objective throughout the planning of the work and families legislation has been to establish a framework of rights and responsibilities for both employers and employees, consistent with the Government’s better regulation agenda.
Some elements of the regulations derive from powers in the Work and Families Act, while others depend on prior primary legislation. The regulations are due to come into force in October this year, in line with our commitment to common commencement dates for new employment legislation, and will apply to women whose babies are due on or after 1 April 2007 and to adopters whose children are expected to be placed with them on or after that date.
Turning to the detail, the new regulations will mean that all pregnant employees can take up 52 weeks’ maternity leave. At present, all pregnant employees are entitled to 26 weeks’ ordinary maternity leave, and most to a further 26 weeks’ additional maternity leave. However, around 20,000 women per year are excluded from additional maternity leave because they have not worked for their employer for long enough to qualify.
This means that if the Government took no action to remedy the situation, when maternity pay is extended to nine months from April 2007 those women would be entitled to the extended pay but not the leave that would allow them to benefit from it. These regulations remove this inconsistency by removing the existing qualifying criteria for additional maternity leave so that all women will be able to take up to 52 weeks, if they wish, and to make full use of the 39 weeks’ maternity allowance. The extension of maternity and adoption pay from 26 to 39 weeks will be achieved via a separate set of maternity and adoption pay regulations. The pay regulations are subject to negative resolution and will be laid before the House shortly.
With the introduction of these new regulations, more employees are likely to choose to spend longer periods away from work on maternity or adoption leave. This should be of very significant benefit to working families, but in making these changes we also recognise that employers will need to managethose periods of time. Taking that into account, the new regulations introduce a number of measures specifically aimed at benefiting employers. Prior to 2003, a woman was required to give only 21 days’ notice to her employer before starting her maternity leave. When we talked to employers about this issue, they told us that that was too little and that it caused real difficulties in arranging and managing cover.To counter this, we extended the notice period to15 weeks before the baby was due.
In the same way, during the work and families consultation in 2005, employers told us that the28 days’ notice an employee needed to give when changing her date of return from maternity or adoption leave was simply not long enough to allow them to plan ahead properly, particularly given the proposed extension to the pay period. We have listened to that concern, and these new regulations will extend the period of notice that the employee must give to eight weeks if she wishes to return to work earlier or later than previously agreed.
During the consultation, we also heard from some employers that they sometimes felt unable to make contact with employees on maternity leave and that there was a need for a stronger framework to support communication between parents and their employers during leave periods. The regulations are therefore introducing the so-called “keeping in touch days”. These are designed to allow employers and employees to agree that up to 10 days’ work may be done under the contract of service during the maternity leave period. Keeping in touch days will be entirely voluntary and will only take place by mutual agreement. They are essentially a mechanism to allow employers and employees to arrive at their own decisions on how best to prepare for the return to work. The corresponding pay regulations will also allow up to 10 of these days to be worked without the employee losing a week’s statutory maternity pay, as would be the case under the current rules. In consultation discussions, we heard that keeping in touch days are likely to be of particular use for things such as training events and important annual conferences.
We recognise that keeping in touch days will not be everyone’s preferred option. Employers and employees may simply wish to make contact with one another without the employee actually doing any work; for example, to talk about the woman’s plans for returning to work or simply for an update on developments at work while she has been away. The regulations clarify that this type of reasonable contact during maternity leave continues to be not only allowable but also encouraged.
Additional measures to help employers, particularly with regard to the administration of statutory maternity and adoption pay, will be delivered by the pay regulations I referred to earlier.
It is obviously crucial that new legislation is accompanied by clear and helpful guidance. With that in mind, I am grateful to the Equal Opportunities Commission for its helpful recommendation that we should produce a written statement of maternity rights and responsibilities for employers and employees. We are taking that idea forward, and it will help to underpin the legislative changes we are introducing.
The regulations before us today also remove the small employers’ exemption. This move clarifies the rules on the right of return after additional maternity leave, making it clear that a woman cannot be selected for redundancy or dismissed simply because she is pregnant or on maternity leave, regardless of the size of the organisation.
I would like now to speak very briefly on the other statutory instrument before us today. The order makes a technical amendment to the statutory adoption pay legislation, bringing the provisions for unmarried couples jointly adopting a child into line with the existing provisions for married couples and civil partners. The effect will be to ensure that only one member of an unmarried adopting couple is able to receive statutory adoption pay.
The order applies to adopters whose child is expected to be placed with them for adoption on or after 1 October 2006. We expect the number of adopters and employers affected to be very small. In total, about 4,000 adoptions are eligible for statutory adoption pay each year. Only a very small number of those will be affected by this order.
Although the order is not part of the work and families package, we have laid it before the Committee alongside the regulations simply in order to make more efficient use of time, and also to ease implementation for the very small number of people and employers potentially affected.
I commend both the regulations and the order to the Committee. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Adoption and Children Act 2002 (Consequential Amendment to Statutory Adoption Pay) Order 2006.—(Lord Sainsbury of Turville.)
I am most grateful to the Minister for his detailed introduction to the regulations and the order. The Explanatory Notes to the adoption and children order highlight that the change will close a potential loophole which could have allowed both members of an unmarried couple to receive statutory adoption pay. The order makes provision for unmarried and married adopters to be brought into line and, as such, will make life easier for employers. This is an order of little controversy to which we have no objection.
The maternity and parental leave regulations essentially make welcome changes to the maternity and adoption provisions of the 1999 and 2002 regulations respectively which, as the Minister said, will apply to parents of children expected to be born or placed for adoption on or after 1 April 2007. Among other things, the regulations extend the period of notice that the employee is required to give the employer of her intention to return to work earlier than the end of her additional maternity leave from 28 days to eight weeks. They also increase flexibility by allowing an employee to work for up to 10 days during the statutory maternity leave period without bringing that period to an end as a result of carrying out that work. That is most welcome.
I will not rehearse the debates that we had so recently during the passage of the Work and Families Bill. Suffice it to say that, welcome though these measures are—we genuinely welcome them—we had and still have some concerns regarding the administration and working of the new arrangements, especially with regard to small businesses.
During the passage of the Bill, my noble friend Lady Miller questioned the Government as to why they had seen fit seemingly to back away from agreed proposals with the CBI that, in order to reduce the administrative burden on employers, that function would be returned to the Inland Revenue. I should be most grateful if the Minister could comment on that.
My noble friend also pointed out that 95 per cent of small employers have five employees or fewer. They do not have personnel departments or HR resources and the more regulation we put on them, the more difficult their position becomes. We also raised concerns about the complexity of additional paternity leave that we feel could be open to fraud. Therefore, can the Minister tell us what further discussion the Government have held or what representations they have received on the changes following the passage of the Work and Families Bill and whether they are satisfied that they have addressed any concerns raised?
As I said, we welcome the changes, but we are conscious of the concerns of various organisations and will take care to keep an eye on the development of these proposals. I very much agree with the Minister that it is essential that we provide families, parents and carers with genuine choice and flexibility, so that they can balance their family life and work commitments as best they possibly can, and, as the Minister said, in a way that allows employers access to the widest pool of talent. But we also need to provide business with legislation that does not tie it up in acres of red tape and does not cost it its competitive edge.
I welcome the clear explanation given by the Minister on these new orders. I was supportive in the other place, as my party is and has been, of the importance of giving people in the workplace the opportunity to meet their need for maternity and paternity leave, so it is to be welcomed that that is going forward. I hope it will justify what we on these Benches feel is the importance of work-life balance, which the Minister has referred to. That can only be good.
In the past, I have always referred—as did the noble Baroness a moment ago—to the importance of small businesses. It is important that the guidance is good. The Minister has referred to the fact that there is good guidance to support these regulations. I urge him again to ensure that it is good and clear, because many small firms have such a burden to deal with in terms of bureaucracy and red tape, as it is called, and anything that can be done to help them understand the regulations is to be welcomed. It is satisfactory that the Government have listened to the people who asked, during consultation,that the time for notice be amended.
I support the order. It is extremely importantthat there is clarity and agreement, and I think that that will be the result of this regulation, provided that the information given to all firms is clear and to the point.
I thank noble Lords for their general support. I shall deal with the specific points raised.
We dealt in great detail with the question of whether we could pass some of the administrative costs back to the Inland Revenue. We discovered that there were no very significant savings to the employer, and that there would be enormously heavy costs to the Revenue and Customs. We reckoned that that would take up to £75 million in set-up costs and£50 million in annual running costs. That makes perfect sense, because effectively all the information would have to be passed backwards and forwards between the Revenue and the company, which would add a lot of cost to the system and save very little for the individual business.
Regarding further discussions with the industry, we have listened to the concerns of business. We have recently completed a public consultation on the details of the scheme. A government response to that will be issued in due course, which will lead to the development of further regulations. The regulations show that we have carefully consulted industry throughout on the easiest way to do this, and we will continue to do so.
I agree with the noble Lord that guidance and clarity are essential. We will ensure that small businesses have all the information and guidance they need so there is a clear statement of what maternity rights, and so on, are. We have always sought to balance the giving of further rights with spending a lot of time thinking how we can reduce the cost of that to business. Noble Lords can see from the notification periods that we have taken that very seriously. On that basis, I commend these regulations.
On Question, Motion agreed to.
Maternity and Parental Leave etc. and the Paternity and Adoption Leave (Amendment) Regulations 2006
I have already spoken to these regulations. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Maternity and Parental Leave etc. and the Paternity and Adoption Leave (Amendment) Regulations 2006—(Lord Sainsbury of Turville.)
On Question, Motion agreed to.
Television Licensable Content Services Order 2006
rose to move, That the Grand Committee do report to the House that it has considered the Television Licensable Content Services Order 2006.
The noble Lord said: The world of broadcasting is changing at a rapid pace. Over the past few years, the growth of the creative industries has been meteoric. The opportunities brought about by technological advances have revolutionised the way we look at, listen to and—crucially—interact with broadcast content. We need to keep adapting our rules to enable these opportunities to be realised, both for the growth of the industry and for the UK economy in general. If we want the UK to continue to be at the forefront of creativity, we need to ensure that the frameworks we rightly put in place can be flexible enough to adapt to these changes.
Currently, a radio multiplex is distinguished by two key restrictions. It can carry only digital radio and use no more than 20 per cent of its total capacity for data services. It cannot carry television. The aim is to ensure that capacity is reserved for radio and not sacrificed for television.
The orders amend both these key characteristics. First, the draft Television Licensable Content Services Order 2006 proposes to redefine the type of content that digital radio multiplexes can carry. This change will permit TV, as well as radio, to be carried. Secondly, the draft Radio Multiplex Services (Required Percentage of Digital Capacity) Order 2006 will increase the existing limit on data services from 20 per cent to30 per cent. Taken together, the orders will enable digital radio multiplex operators to offer consumers a combined package of television and DAB radio, making best use of valuable spectrum and utilising the most recent technology developments.
Historically, legislation has sought to protect digital radio by preventing TV from being carried on radio multiplexes. This has protected the spectrum for digital radio that could otherwise have been sacrificed for TV services. However, we do not now believe that it is in the consumers’ interest that this limitation should continue. Technological advances in compression techniques and a reduction in the amount of capacity that is needed to carry a service have meant that TV can co-exist with, rather than replace, radio. We believe that rather than protecting spectrum for digital radio, the legislation is now preventing the development of innovative new services which will make digital radio more accessible and appealing by allowing it to combine with other services.
The potential of a mobile TV and DAB package will further increase the attractiveness and demand for digital radio; this was tested in last year’s pilot by BT Movio, a subsidiary of BT. The pilot allowed more than 1,000 mobile phone users with specially designed phones to access three live television services and more than 50 digital radio stations. The trial, which was the largest of its kind in Europe, showed that even with the additional services, consumers listened to more DAB radio than they watched television. Additionally, more than 73 per cent of users said they would be prepared to pay for the service on their network.
Evidence from the BT Movio pilot showed that only 11 per cent of users would be happy with fewer than five TV services. Consequently, BT Movio has stated that it cannot sustain a business model with fewer than five services. That is why we propose to increase the maximum data limit to 30 per cent. That will allow for five TV stations in addition to the existing DAB radio services.
There may be anxiety that this represents an unfair advantage for BT when others will have to pay for valuable spectrum for this purpose. However, I emphasise that there is nothing to prevent other people from developing similar services on local multiplexes or on the proposed new national multiplex. It is important to note that the BT Movio proposals are as a wholesale content provider and that its services will be open to other phone operators.
We all know that the pace of technological change is increasing. Both the Broadcasting Act 1996 and the Communications Act 2003 recognised this and anticipated that the technological changes in broadcasting would need us to revisit the regulatory regime. We believe that these orders will make possible innovative, converged services which can increase the take-up and listening to of DAB services. Not only will more people listen to DAB on new devices but, having got used to these services, they may want all their listening to be on DAB. We hope that this is the case. We at least want the consumer to decide. That is why we are introducing these orders. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Television Licensable Content Services Order 2006.—(Lord Davies of Oldham.)
I thank the Minister for his explanation of the order. This is a somewhat complex area but we agree with the order because it makes sense that the radio multiplexes are also used to carry television and other data services. This seems to be a sensible use of multiplex as there are a limited number for both radio and television. It will allow both radio and data to be loaded on to people’s mobile telephones and so on. A new technology is coming in and we support the order.
I have one question: what impact will this have on analogue switch-off and the move to digital? I presume that it will help further that process. If the Minister could explain, I would be grateful.
I, too, thank the Minister for his demonstration of speech compression. It was not perhaps digital but it certainly worked for me. I am grateful for the care with which both Ofcom and the Government have analysed this problem and for the way in which they consulted with considerable care.
I am a great fan of DAB radio—I think the way it has added to the quality of listening is fantastic—and, therefore, anything which would affect that adversely would be a retrograde step. It is quite clear that the multiplexes can be shared and, as we know, convergence is taking place at a rapid rate. On our mobile telephones we will soon have mp3, mobile television and DAB radio—quite apart from telephony services. I think this is a positive step. It may not be all the way to mobile television but it certainly will enable providers to assess the demand for elements of mobile television, and to that extent it is extremely useful.
A key point made in the regulatory impact assessment concerned the benefits to UK technology. If we are ahead of the game, that gives our technology manufacturers a head start, which is highly desirable.
My questions relate to the issue of charging. I assume that the current multiplexes will provide this as part of, if you like, a free addition to their services; that there will not be additional charges for the commercial multiplex and the BBC multiplex; and that the licensing of the third national multiplex will simply take place in the normal way—that there will not be a notional additional expense as a result of the multiplex being able to be used for mobile television and so on. I am not entirely sure about that.
We welcome the proposal to have a further commercial multiplex. That can only be a demonstration of the success of DAB and of a kind of mobile television. Frankly, neither I nor my party is particularly concerned about the BT Movio issue. It is to be welcomed that it had the sense to take the risk and develop a new service which will be available to service providers on a wholesale basis. It is a pioneering service which is leading the way. We unreservedly welcome these two orders.
I am grateful to the two noble Lords who have contributed so positively to the debate. Unanimity between us is a rare experience and all the more to be welcomed for that.
I should emphasise that although we regard DAB in the UK as a success story, it is not a runaway success; take-up rates are good but not exceptional. I share the enthusiasm of the noble Lord, Lord Clement-Jones, for DAB radio, although whenever the time signal comes through a fraction late I think of the noble Lord, Lord Tanlaw, who makes my life a misery in the Chamber by constantly challenging me on the BBC time signal.
However, having said that, like the noble Lord I appreciate the virtues of DAB radio. We share that appreciation with 3 million of our fellow citizens—or perhaps I should say there are 3 million sets in use. That compares with between 110 million and120 million analogue radio sets in the UK, so we still have a considerable way to go before full enhancement occurs. The industry, of course, is looking at ways of making DAB a more compelling proposition, and these orders will help to do that.
The noble Viscount, Lord Astor, expressed anxieties about analogue switch-off. Analogue switch-off, of course, applies to television; there is no proposal to switch off the analogue signal for radio. As the noble Viscount said, the digital service for television fits in with the new developments.
The noble Lord, Lord Clement-Jones, emphasised the advantages that we have in being ahead of the game at present. We need to stay there to maintain the advantages that have accrued to all of us. The noble Lord asked about charges. There will be an optional cost for the TV service. It will not affect DAB radio listeners, but if people wish to take up the enhanced service they will have to pay for it. The providers will, of course, have to invest in the necessary technology. I have ascertained so far that, although no one will be asked to carry around a telephone quite as large as either of these Dispatch Boxes, the machine which will needed to receive the television service will be somewhat larger than the extraordinarily neat versions of the latest mobile phones. For obvious reasons, there will be a change in that regard once a picture is introduced.
Through the removal of these legal restrictions, operators will, for the first time, be able to offer a package of TV and DAB radio to mobile phones. This will give customers, for the first time, the opportunity to experience DAB services via devices which will be both popular and portable. The mobile telephone demonstrated an extraordinary rate of development. Obviously these devices will be more expensive and we do not expect them to produce growth at quite that rate but, nevertheless, one can readily see the advantages to the consumer of these enhanced services. However, the important thing is that it is for consumers to decide whether to avail themselves of the technology once it is made available to them. That is what these orders seek to do. I commend them to the Committee.
On Question, Motion agreed to.
Radio Multiplex Services (Required Percentage of Digital Capacity) Order 2006
I have already spoken to this order. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Radio Multiplex Services (Required Percentage of Digital Capacity) Order 2006.—(Lord Davies of Oldham.)
On Question, Motion agreed to.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006
rose to move, That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006.
The noble Lord said: I am moving this order on behalf of my noble friend Lord McKenzie of Luton. I am commending to the Grand Committee the change needed to the Financial Services and MarketsAct 2000 (Regulated Activities) Order 2006 to introduce a new FSA-regulated activity related to pensions. This change specifically relates the issue of the regulation of personal pensions by the FSA.
Members of the Committee may be interested to hear that this measure was so uncontroversial that when debated in the other House, it lasted barely one-third of its allotted time. That is not intended as a challenge to the noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott. It probably reflected the overwhelming support for this measure expressed during consultation last year.
Sweeping away the old rules surrounding personal pensions is very much an extension of pension tax simplification and is wholly in line with the deregulation agenda. I should make clear that these changes do not impact on occupational pension schemes, for which there is a separate regulatory framework.
Let me start by saying something about the background to the changes. The pensions market has changed over time and will continue to do so in the future, not least for demographic reasons. Around5 million individuals now contribute to personal or stakeholder pensions. At the same time, the legislative changes the Government have made are reshaping the personal pensions landscape.
While we have changed the pensions tax framework in the face of a fast-changing pensions market, we recognised that the prescribed rules surrounding who can run personal pension schemes have confined it to a small group that potentially limited competition. In the face of such a changing pensions market, we also recognised that elements of personal pensions are beginning to fall outside Financial Service Authority consumer protection.
A formal consultation was held between September and December last year to explore these issues. It sought views on four proposed options for rule changes on who could run a personal pension scheme, including a “do nothing” option as well as the Government’s preferred option of proposing to create a new regulated activity, overseen by the Financial Services Authority, related to,
“establishing, operating or winding up a personal pension scheme”
from April 2007.
We fully considered all 25 responses in detail and published a formal response on 23 March this year. It set out industry views in detail and announced the proposed policy change; namely, that the Government were proposing to create a new regulated activity related to personal pensions. Financial Services Authority permission would then replace the restricted list of those who could run tax-privileged personal pension schemes.
The consultation gave overwhelming support for change with three-quarters of respondents favouring introducing the Government’s preferred option that I am commending. Let me quote some examples from a variety of sources illustrating the extent of that support. The Association of British Insurers, whose members provide most personal pensions in the UK, said that this package,
“offers customers the greatest protection, while maintaining wide choice”.
The Association of Investment Trust Companies said that the package,
“will provide maximum flexibility for future development of the sector over the long term. At the same time, it will maintain the FSA’s strong oversight of pension provision”.
Barclays plc said:
“Establishing a new regulated activity directly related to personal pension schemes…will ultimately benefit both consumers and the wider financial services industry”.
This overwhelming support was not surprising given that we had worked in partnership with the pension industry from the outset to make these proposed changes. As well as a formal consultation in late 2005, there have been informal discussions between the Government and a number of bodies in the financial services industry.
Let me turn to exactly what this change will deliver. While the Financial Services Authority already regulates bodies such as insurance companies and banks that provide personal schemes, a very small number of schemes and activities remain outside FSA supervision, and those elements are expected to grow in future as the pension market evolves. For example, personal pension schemes investing in commercial property would currently fall outside FSA regulation. Similarly, some persons administering pension schemes may also fall outside FSA supervision. It is only right that all aspects of personal pensions in future should be regulated by the FSA. Likewise, all elements involved in consumers choosing a personal pension, including administration, should be covered.
This change will build on the FSA’s existing role of regulating stakeholder pension schemes. It will also provide transparency and improve consumer confidence. As well as providing benefits and protection for all consumers, the change I am commending today is part of a wider package of related changes that will help new providers enter into the market, as it will become the basis for eligibility to establish tax-privileged personal pension schemes. We are not debating that particular finance measure today, but noble Lords should note that the two are inextricably linked. Overall, this package will increase competition and choice, as well as give added consumer protection.
The FSA already regulates many aspects of personal pensions, and it is only right that all aspects should come under FSA regulation as they develop in the future. As pension investments become more diverse, an increasing range of pension activity may fall outside the scope of FSA supervision. Without the changes I am commending there is a risk that consumer protection may fall below the current very high levels.
The order will also enable the FSA to open its doors this autumn to applicants seeking permission to carry out the new activity from April 2007. This will give maximum time for firms to prepare to become registered. The FSA and the Government have worked closely together to ensure a smooth transition for firms to the new regime. This has included waiving Financial Services Authority application fees for firms that are existing personal pension providers.
Not only do we want consumers to enjoy maximum protection, but we want them to have a choice of pension provider. As I have already explained, eligibility to establish a registered pension scheme that qualifies for tax privileges will from next April be based on having permission from the FSA to carry out this new activity. This element of the package will require a separate legislative change in the Finance Act 2004 and one to the Pension Schemes Act 1993. I can advise noble Lords that this legislative change will be made in the Finance Bill 2007, the next guarantee vehicle available, but it will have effect from 6 April 2007 to coincide with the coming into effect of the new activity.
To keep interested parties fully updated, the Economic Secretary to the Treasury in the other House announced details of the legislative timetable for making the necessary amendments. It was published on the websites of the Treasury and Her Majesty’s Revenue and Customs on 12 July. A draft Finance Bill 2007 clause and explanatory note was published on the websites of the Treasury and Her Majesty’s Revenue and Customs at the same time. I commend the order to the House.
Moved, That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006.—(Lord Evans of Temple Guiting.)
This order is basically uncontroversial and I can be brief. I say that because I know that the noble Lord, Lord Evans of Temple Guiting, is standing in for my normal opposite number. We can rest assured that by now he will have wilted in the heat of the gardens of Buckingham Palace.
I have two questions for the Minister that cover issues that were covered in another place by my honourable friend Mark Hoban, and I trust that my request for further clarification will not prove too onerous for the Minister. My first question relates to the costs of regulation and its impact on competition. The Economic Secretary in another place talked about this order being pro-consumer, pro-competition and benefiting the industry. The Minister said as much this afternoon.
These Benches are passionate about the benefits of competition, so we instinctively find this line attractive, but we have an equal passion for minimising regulations and are concerned at the costs involved. I understand from the regulatory impact assessment that the costs for an entrant who is new to regulation will be £100,000 in the first year and £50,000 thereafter. Those are reasonably significant costs that could well deter some forms of new entrant, thus defeating the objective of increasing competition. How many new entrants to the personal pension provision industry do the Government anticipate? In the context of this order, competition can come only from new entrants, because I assume the order will have no impact on existing players in the market.
Secondly, I would like clarification about the gap between now and the order coming into effect. The order does not come into effect until 1 April next year when personal pension provision becomes a regulated activity. The Minister will be aware that there has been increasing activity in setting up SIPPs, not just because of A-day, but in the run up to it. Will the Minister explain what level of protection is currently available to people who set up SIPPs? Having set up a SIPP earlier this year, I should know the answer, but I have to confess that I made no inquiries at the time, so it is good that the Minister is here to enlighten me about the level of protection in place for consumers who wish to enter into personal pension arrangements between now and 1 April next.
I should probably declare a more formal interest than the noble Baroness, as I have been a pension fund investment manager for the past 30 years and I am an active investor in commercial property and a participant in a small, self-administered pension scheme.
The noble Lord said that this order took only a third of its allotted time in the other place, but it still took half an hour. It covers seven pages and, as one would expect, the Minister’s introductory remarks were similar to those of the Economic Secretary in another place.
I was not able to give notice of this question, as I was not aware that the noble Lord, Lord McKenzie, would not be in this Committee so perhaps the Minister will write to me. Arising out of the Chancellor’s humiliating climb-down in the Autumn Statement about what is to be allowed in SIPPs, there is still uncertainty about what will be allowed on a tax-privilege basis in SIPPs. I have two questions in particular. First, will it still be possible for people to invest in residential property through SIPPs on a tax-privilege basis if, as has been reported in the press, they form a club of at least 10 people? It would be very helpful if that could be clarified.
As we know, widespread concern was expressed about all of this. In the other place, Mr Balls described it as a “clarification”. Well, at least he got the first two letters of that right—in fact, under sustained and heavy pressure from the Liberal Democrats, it was a monumental climb-down, rather than a clarification.
My other question is, given that what we are really talking about is commercial property, what protection will people have after this measure comes into force against some of the fly-by-night companies promoting investment in rather exotic locations? Bulgaria is a case in point, where commercial property investment is actively being promoted—a new twist in the “fly to let” investment craze—and some people in the City are concerned that abuses will continue.
I associate myself with the noble Baroness’ sensible questions about costs and coverage. I look forward to the Minister’s reply.
I am wilting under the pressure—my noble friend has arrived.
The first question asked by the noble Baroness, Lady Noakes, was regarding the cost of implementation. Additional costs will be minimal for existing pension providers. It was generally recognised in the regulatory impact assessment and consultation responses that some new providers would face additional costs, to the extent that they would have to become regulated and thus pay FSA fees for the first time. While the RIA made a number of assumptions about possible regulatory fees, those could only be illustrative. FSA fees are reviewed annually, together with the levies for the Financial Services Compensation Scheme and the Financial Ombudsman Service. The FSA consults each year in January or February on regulatory fees and levies that are finalised in May for the fee period of 1 April to 31 March.
The FSA will be required to demonstrate that its fee-raising arrangements are compatible with better regulation principles; fees are expected to be proportionate and not to pose a barrier to entry into the market. For existing members there will be no impact and, under the new rules, new firms will not have to go through third parties. Obviously there will be a saving compared with the current arrangements.
The noble Baroness, Lady Noakes, also asked about new entrants. Consultation respondents identified various categories of persons who should be eligible to establish registered pension schemes. Those included firms already eligible to provide ISA and child trust fund accounts, as well as SIPP providers having to operate through eligible intermediaries.
The noble Baroness, Lady Noakes, was also concerned about protection for consumers now, before this order takes effect. Under the Financial Services and Markets Act, introduced by the Government in 2000, most aspects of personal pensions are already under FSA supervision. For example, insurance companies and banks that are active in personal pensions are FSA-regulated. However, a small number of pension schemes investing in commercial property since 2006 are currently outside regulation, as I stated in my opening remarks. Those schemes are expected to grow. A very small number of activities in the pensions chain, such as advice, may be outside supervision also, as that presently depends on whether the underlying investment in the fund is regulated. This activity is also expected to grow. We are creating this new provision so that all aspects of personal pensions come under FSA supervision.
I think that those points answer the questions put by the noble Baroness, Lady Noakes. If not, as both noble Lords have kindly suggested, my noble friend Lord McKenzie will write to them.
I will write to the noble Lord, Lord Oakeshott, as he suggested, about his first question. The changes today will absolutely maximise consumer protection. These changes will ensure that everyone advising on pensions will be under FSA supervision. The noble Lord also asked about investing in residential property through clubs. That is a Finance Bill matter, but, again, I shall write to the noble Lord.
I am grateful to both noble Lords for being so gentle with me in the absence of my noble friend.
On Question, Motion agreed to.
The Committee adjourned at twenty-four minutes before six o’clock.