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Legal Services Bill [HL]

Volume 688: debated on Monday 22 January 2007

House again in Committee on Schedule 4.

On Question, Whether Schedule 4 shall be agreed to?

I have two points on which I seek further advice from the Minister. This schedule sets out the existing regulators in the table, but paragraph 3 provides for a body that wishes to authorise persons to apply to the board. It might be helpful if the Minister could let us know—if not now, at a later stage—what sort of bodies had already expressed an interest in authorising persons to carry on one or more reserved legal activities. When the Joint Select Committee took evidence, a number of bodies indicated that they might be interested; as we examine the way that Schedule 4 will develop, it would be helpful to the Committee to know what sort of bodies we are talking about, so that we could review the arrangements that will be made.

The Minister may not yet have noticed that there is mention of the Lord Chief Justice in paragraph 9, “Advice of the Lord Chief Justice”. I do not know whether she has yet been able to communicate our view of the remark made by her noble and learned friend the Lord Chancellor that consumers rightly see the Lord Chief Justice as another lawyer in the process, because we feel that he is much more than that. That is demonstrated by the mention of the Lord Chief Justice being given the power virtually to say “no”, for various reasons.

That gives me the opportunity of raising again the issue of the Lord Chief Justice, because I have been greatly assisted by Michael Clancy, the director of law reform at the Law Society of Scotland. Until he gave me a copy of it, I had not focused on the Legal Profession and Legal Aid (Scotland) Bill, which was passed by the Scottish Parliament on 14 December 2006 and, I understand, has not yet received Royal Assent, but, no doubt, soon will. During the passage of that Bill, the Scottish Parliament decided to amend it to give the Lord President of the Court of Session, Scotland’s senior judge, roles to fulfil in the appointment and removal of the commissioners—the equivalent of the boards and the office that we are debating under this Bill. The Lord President was also given a role as a consultee in making rules to govern the commission.

The Lord Chief Justice is mentioned here as playing a significant role, and I hope—it is a hope to which I am sure the Minister will not yet respond, as she said that will think again about the whole question of the independence of the legal profession—that that will give us an opportunity to press again the fact that the Scottish Parliament has taken a step in the right direction. I just hope that the Government will take a similar step with this Bill.

In Schedule 4, we are concerned primarily with approved regulators, and it would be helpful to know how many are lining up. Perhaps only tentative discussions have taken place so far, but I should like to know whether many regulators have come forward and how many applications are likely to be made once the Bill receives Royal Assent.

I am grateful to the noble Lord. With regard to Schedule 4, I know that the Association of Law Costs Draftsmen Ltd, which is currently going through the Courts and Legal Services Act procedure, has expressed interest in regulating probate, as has the Council for Licensed Conveyancers. There may be others, but those are the two that I know of. I do not have an estimate of the number of likely applications, but I shall consult the department and write to the noble Lord about that. However, the two bodies that I have mentioned are good examples of the kind of organisation that may well take part in this work.

I referred to the position in Scotland when we discussed that part of the Bill, and I responded to points raised by, I believe, the noble Baroness, Lady Carnegy of Lour, who almost inevitably raises issues concerning Scotland. The noble Lord is right to point out that the position there is different.

I said that I will think very carefully about the question of independence. I think that I also said that my noble and learned friend, in particular, felt that the relationship with the Lord Chief Justice—although he may well wish to consult him, he did not wish to see that process in the Bill—was clear and consistent with government policy, and I do not envisage a change in that. But I said that I would look at the question of independence in that context and I shall do so. I hope that that gives the noble Lord the answers that he seeks.

Schedule 4 agreed to.

Clauses 20 and 21 agreed to.

Schedule 5 agreed to.

Clauses 22 to 25 agreed to.

Schedule 6 agreed to.

Clause 26 agreed to.

Clause 27 [Approved regulator’s duty to promote the regulatory objectives etc]:

[Amendment No. 43 not moved.]

Clause 27 agreed to.

Clause 28 [Prohibition on the Board interfering with representative functions]:

44: Clause 28, page 13, line 38, leave out “prejudiced” and insert “improperly constrained or influenced”

The noble Lord said: Further to the recommendations of Sir David Clementi’s committee, the Bill requires professional bodies to separate their regulatory responsibilities from any representational role they might have and to ensure that regulatory decisions are not subject to undue representational influence. We support the provisions in Clause 29 requiring the board to make rules concerning internal governance. These will ensure that decisions on regulatory functions are taken independently from decisions relating to representational functions.

The purpose of the amendment is to ensure that the Legal Services Board will interfere only with the regulatory functions of the approved regulators and not with the representative arm. This is a probing amendment designed to prohibit any interference with the representative functions of an approved regulator by the board. We are sure that that is the Government’s intention, but we are not convinced that they have achieved it.

Of course, we support the Clementi recommendations that require professional bodies to separate their regulatory responsibilities from any representational role and ensure that decisions on regulatory and representative functions are taken independently. However, we are concerned that the current drafting of the provision inadvertently risks constraining perfectly proper activities of the representative body. The concern stems from the use of the word “prejudiced”. Our preoccupation is with whether the provision inadvertently risks constraining perfectly proper activities of the representative body.

For example, a professional body might properly provide a service to its members in which it defends them in the event of disciplinary action being taken against them on similar lines to the work of the Medical Defence Union. One would hope that the regulatory arm would regard that as a perfectly proper exercise of the representative body's role and would indeed recognise the importance of those facing serious disciplinary charges being properly represented. However, it may be that the regulatory arm would take a different view, particularly if the defence service led to a number of people being cleared of disciplinary charges. In those circumstances, the regulatory board might argue that its effectiveness was being prejudiced by the representation side’s activities. For that reason we have suggested wording that would not allow such an interpretation.

We support what we believe are the Government’s motives here, but we would like to see that clarified and amended so that only improper activity would entitle the regulatory body to notify the Legal Services Board. I beg to move.

I support my noble friend. I ask the Minister why the word “prejudiced” has been chosen, particularly as I feel that my noble friend's alternative of “improperly constrained or influenced” really meets the circumstances that the Government envisage here. “Prejudiced” is a much wider and stronger word. It would be helpful to know why that word has been chosen. I hope that the Minister agrees with my noble friend’s amendment.

I am grateful to both noble Lords for raising this issue. As ever, I shall look at the wording to see whether we have it exactly right. The word “prejudiced” is an appropriate word. We seek to ensure that the regulatory arm is aware of the influences placed on it; in other words, the representative arm will not necessarily do anything other than quite reasonably and quite rightly lobby on particular issues and do things that are designed to take forward the representative functions. I have no difficulty with that at all.

The issue for me is how the regulatory arm knows that it has been influenced. I suggest the onus is on those who are being influenced to know that they have been influenced. We have chosen that word because it is not about improper behaviour at all; it is about asking, “Do you know that you have been influenced and are you aware of the fact that, with two arms, one is operating on the other?”. That is why “prejudiced” is used; it does not suggest that something untoward has happened.

Members of the Committee will recognise that on occasions one is lobbied by people one knows well on issues with which one is familiar. When looking at regulation, you have to be clear that you know you have been influenced and can justify its nature. That is the way I have approached the matter.

I am happy to look again at the wording of the provision, but I do not particularly like that suggested by the noble Lord, Lord Kingsland. It suggests something untoward, which is not what this is about. It is about asking, “Are you conscious that you have been influenced in a way that might effect what you decide to do?”. That is what I am seeking to achieve.

I am grateful to the noble Baroness for her reply. She will have heard the illustration I used to advance my argument. I take it from the fact that she made no reference to my illustration that she sees no difficulty in the representative arm of a body which also provides a regulator being entitled to represent its members in front of that regulator in certain circumstances. I take it also that the noble Baroness does not perceive that as being in any way prejudicial. There are other examples which might in the noble Baroness’s perception be less clear-cut.

As I said at the outset, this is a probing amendment and I am not particularly attached to the wording we have used. I simply foresee that in certain circumstances “prejudiced” might not accurately deal with the problem we have identified. In order that we should not extend the debate further, I say simply that as the noble Baroness has kindly said she will reflect on the matter between now and Report, that is sufficient for me to say thank you. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 agreed to.

Clause 29 [Rules relating to the exercise of regulatory functions]:

45: Clause 29 , page 14, line 31, at end insert—

“(3A) With regard to subsections (1) to (3), the Board must satisfy itself that approved regulators have established organisational structures and procedural practices which distinguish sufficiently clearly between their regulatory and representative functions.”

The noble Lord said: Again, this is a probing amendment. It is designed simply to elicit a short answer from the noble Baroness which I am reasonably confident she will be able to give. The amendment seeks to probe the ability of the Legal Services Board to ensure that the approved regulators have established an adequate distinction between their regulatory and representative functions. We are all agreed that this distinction, as exemplified by the debate on the previous amendment, will be crucial to the effective work of the Legal Services Board.

Amendment No. 45 has been put forward to seek an assurance from the Minister to that effect. I beg to move.

I hope that I can give the noble Lord the assurance he seeks. Clause 29 reflects the recommendations of the Joint Committee. Those are that the Bill should require regulators to separate fully their regulatory and representative functions; that the separation should require all regulatory decisions to be taken by an independent regulatory arm; that arrangements must be made to ensure that the regulatory arm has the resources it reasonably requires; and that it should be required to seek the intervention of the Legal Services Board if it feels that any action or inaction on the part of the relevant professional body is damaging to its independence or effectiveness.

The Joint Committee said that it would help to ensure that the Legal Services Board acts proportionately if approved regulators separate fully and transparently their regulatory and representative functions. That would mean that there would be a high level of public confidence and less reason for the LSB to intervene. I completely agree with that. In line with the model that we have adopted, we think it is appropriate for the approved regulators, following the board’s internal governance rules, to organise themselves in such way as they see fit in order to achieve that. If the board is not satisfied that the regulatory functions of an approved regulator have been separated from its representative functions, it is able to direct the approved regulator to take sufficient action to achieve that. I hope that clearly sets out the Government’s position. We do not wish to put further considerations on the face of the Bill, but I hope that answers the noble Lord’s point.

I am most grateful to the Minister for her entirely satisfactory response. This is one amendment that she will not be seeing again on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 agreed to.

46: After Clause 29, insert the following new Clause—

“Separation of functions: proportionality

(1) In exercising its functions under sections 28 and 29, the Board shall pay particular regard to what is proportionate.

(2) Without prejudice to subsection (1), nothing in sections 28 or 29 shall exclude prima facie—

(a) the exercise of or involvement in regulatory and representative functions by the same persons or bodies within an approved regulator; (b) the exercise of regulatory and representative functions from common premises.”

The noble Lord said: This amendment follows our earlier Amendment No. 33 in urging proportionate treatment of the approved regulators by the Legal Services Board, and it again relates to the separation of approved regulators’ functions into representative and regulatory. This is another amendment inspired by the Chartered Institute of Patent Attorneys and the Institute of Trademark Attorneys. I make no apologies for that because noble Lords are aware that those two bodies, and the way they operate, raise considerations that are in many respects quite distinct from the considerations that affect an approved regulator such as the Law Society.

These small, highly specialised, very technical approved regulators simply cannot be expected to separate their representative and regulatory roles completely, particularly in terms of staff and premises—here I refer to physical separation. They have neither the human nor the financial resources to do so. Unfortunately, there is no reasonable prospect that the burden of the costs of having to do so could be recovered from the regulated persons. We submit that the limited resources of these two associations and those of other smaller approved regulators should be taken into account. We have already indicated at earlier stages in the Bill that we totally accept the Government’s reasons for proposing a complete separation of functions, but in some cases that may not be possible, or at least, not possible at anything other than an exorbitant and disproportionate cost. In the absence of any manifest risk of conflict, we believe that Chinese walls should be permitted in agreed instances, so in this respect, we would like the Government to be flexible. I beg to move.

I am grateful to my noble friend for moving this amendment. I thank the Minister for paying tribute to the recommendation of the Joint Committee. I will try to square the circle here. Although I agreed with my noble friend that the issue has to be proportionate, we considered it very carefully in the Joint Committee, and took evidence from the existing regulators.

The Bar Council and the Law Society told us that they had already taken steps to meet Sir David Clementi’s recommendation that there should be a separation between the regulatory and the representative elements of their work. ILEX indicated that it accepted the need for a separation and would complete the process of splitting its regulatory and representative functions by the end of last year. CIPA and ITMA said that they could implement such a split if required to do so. I refer to question 228 and the answers given by Dr Harrison and Philip Harris. We were told that the notarial profession already distinguishes between regulatory and representative functions, and the issue did not arise for the CLC, which is a purely regulatory body with no representative functions. That is why we concluded that the draft Bill should be amended to require approved regulators to separate fully their regulatory and representative functions.

I have to say that we did not receive any evidence that Chinese walls or some similar procedure was necessary with some of the smaller regulators; rather the contrary. We received reassurance that they were perfectly able to implement the split. Therefore, I feel slightly confused as to why this evidence has arisen now that separation is not complete, particularly as we spent considerable time in the Joint Committee considering the position before we reached our conclusion.

I am hopeful that I can clarify where we are on this question. I agree completely that proportionality is very important and that the board must have regard to it when exercising its functions under Clauses 28 and 29. We believe that that is covered under the duty in Clause 3, which states:

“The Board must have regard to … the principles under which regulatory activities”,

including its functions under Clauses 28 and 29 should be proportionate. I do not, therefore, want to set out an additional requirement for the board to pay particular regard to what is proportionate under Clauses 28 and 29, as it rather gives the appearance that it does not have to do so when discharging all its functions or that the tests for other functions should be of less significance. That would not be desirable.

I agree with the noble Lord, Lord Kingsland, that there might be instances when it may be more efficient and cost-effective for approved regulators to operate from the same premises, where the overheads can be shared between the regulatory and representative arms, or for some individuals to carry out functions that could have both regulatory and representative aspects—for example, if those individuals are carrying out support rather than policy or decision-making roles. However, there may be circumstances where it is appropriate to make such a requirement, and it is right that the board should be able to describe this without being constrained by considerations set out in legislation.

I recognise that the amendment states that the requirement is without prejudice to proportionality. However, given that the board is already under this duty, and it must ensure that the regulatory and representative functions are appropriately separated, I do not think that we need to put the additional detail in the Bill.

I hope to allay concerns, in a sense, in both directions, that the detail is better set out in the internal governance rules under Clause 29, which allow the board to take a proportionate approach. So, yes, separation, but that does not necessarily always mean separate buildings; indeed, there may be specific circumstances where individuals can carry out particular functions. I do not think that there is any difference between us. That is how we see it working.

Will the Minister accept that this has the particular impact of erecting Chinese walls, to which my noble friend referred, in alternative business structures and multi-disciplinary partnerships?

I am sure we will debate that at great length when we get to Part 5 and the importance and relevance of alternative business structures. I know that noble Lords will be keen to deal with that. The context here, however, is very much about how the regulators operate and the recognition that separation does not always mean a change of physical location in particular.

The Minister has been most helpful. I emphasise that those who have been talking to me about this do not intend in any way to resile from the principle of separation. Indeed, they entirely accept it. It is simply that their size and the resources available to them make physical separation impossible, a separation that perhaps we shall see in the case of the Law Society. The Minister has taken that point extremely well. The noble Lord, Lord Hunt, is not in his place at the moment. I cannot explain why these points were not made to the Joint Committee, but they have certainly been made to the Opposition. The Minister has given a very helpful response, so I have no difficulty in begging the leave of the House to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 30 [Performance targets and monitoring]:

[Amendment No. 46A had been withdrawn from the Marshalled List.]

47: Clause 30, page 15, line 3, leave out “one or more of”

The noble Lord said: In moving Amendment No. 47, I shall speak to Amendments Nos. 48, 50, 51, 54, 55, 59, 60, 67, 68, 76 and 77. The amendments would ensure that the various powers of intervention of the Legal Services Board in the regulatory work of approved regulators are triggered only by an adverse impact on the regulatory objectives as a whole. Under the Bill, the board’s disciplinary measures could be enforced on the basis of an adverse impact on only one of the regulatory objectives.

The Joint Committee agreed that it was important for the Legal Services Board to have these formal powers and that it should have several effective measures at its disposal to exercise them. However, it also regarded it as essential that these powers are used only when necessary, when the approved regulators are clearly failing, and that in normal circumstances there would be no threat of an over-intrusive board micromanaging the approved regulators.

The amendments are consistent both with the Government’s response to the Joint Committee that the Legal Services Board should act only where there is clear evidence of failure on the part of an approved regulator, and with the policy that the lead responsibility should rest with the approved regulator—themes which have already been rehearsed in debates on several amendments this afternoon and earlier this evening.

The committee advised that differences should be resolved by agreement in as many cases as possible by making the threshold for intervention by the Legal Services Board higher than it is in the Bill. It is hoped that the amendments would lead to agreement in more instances than otherwise, and would discourage the board from acting in an excessively heavy-handed manner.

The reference point for the failure of an approved regulator will obviously now be the regulatory objectives established in the Bill. The inevitable difficulty is that the objectives themselves will often conflict. Training prior to qualification may have an adverse impact, for example, on competition in legal services, while its absence might have an adverse impact on consumer interests.

The regulatory objectives should be taken as a whole. Almost any exercise of its functions by an approved regulator will lead to some adverse impact on at least one of the regulatory objectives. If the threshold for intervention were too low, the Legal Services Board would become a front-line regulator flying in the face of its supervisory role. The potential for constant interference by the board would go completely against the Clementi vision of the LSB as a small oversight body.

If the LSB is allowed to depart from its supervisory role—and it is to the Act that it will refer, not any Joint Committee recommendation or government response—it will also drive up costs. The board must be allowed to take a balancing approach before intervening against the approved regulators by assessing whether the act or omission has had a detrimental effect on the regulatory objectives as a whole.

The amendment does not impose an artificial threshold by specifying the number of objectives that must be affected before the board can act. It would still be open to the Legal Services Board to punish an approved regulator for breaching only one of the regulatory objectives, as long as that was sufficiently serious to have an adverse impact on the objectives taken together. These amendments would ensure that the board does not look at each objective in isolation but considers the wider and effective application of the objectives laid out in Clause 1, which we are sure the Government would like to see. I beg to move.

I support the amendment and in particular the concept that there must be a balanced approach. To give one example, the interest of promoting competition might be in conflict with the independence and quality of advice. I keep coming back to that point because it is not in the Bill yet. In a conflict where there has to be a balance, it must be tipped in favour of the public interest. I suggest that that is the crucial effect of the public interest amendments to Clause 1.

We believe that the threshold for intervention should be raised in the various powers in the Bill. They are too low at the moment. We therefore support the amendments.

I also support the amendment. Under Clause 30(2)(a), the words “one or more” may make it possible to look at each individual regulatory objective, and one may be at odds with another. In particular, protecting and promoting the interests of a section of consumers may not be compatible with protecting or supporting the other regulatory objectives. I believe it is extremely important that there should be a broad, objective view of how the particular approved regulator may have been in breach and whether being in breach of one objective may be acceptable because the regulatory body was supporting another objective. In that instance, there is a greater importance. I would support a broader approach, and the word “one” is worrying.

I was not going to intervene on this amendment but was saving my fire for the next group. I will forgo that plan and say what I wanted to say now.

This group of amendments—this run of amendments—seems quite dangerous. I declare an interest as chair of the National Consumer Council. By raising the threshold of potential intervention, we are taking away from the Legal Services Board its judgment on how serious the need for intervention might be. In speaking to this group of amendments, Members of the Committee have talked about explicitly raising the threshold, and the noble and learned Baroness has just talked about a situation where the public interest might overrule the consumer interest. That is a matter of judgment for the board. In the next group of amendments it is a matter of judgment for the board to decide whether something is “significant” or important and whether the word “significant” adds anything to that process.

I am deeply suspicious of these amendments because they undermine the board’s ability to intervene. I remind the Committee that one reason for the Bill is that the very body which will now be an approved regulator has thoroughly failed to protect consumer interests for many years; namely, the Law Society. It is therefore important that the intervention of the Legal Services Board is subject to its judgment and not to undue restraint in the Bill.

I do not think that the noble Lord, Lord Whitty, needs to be as anxious as he feels. If something is done which is plainly adverse to the interests of consumers, the fact that the board has to take a balanced approach will not prevent it moving in aid of consumers. However, it will probably assist the board in producing a judgment which the nation as a whole regards as fair and just to remind it that it must take a balanced approach.

I agree with my noble and learned friend Lord Lyell. Until the intervention of the noble Lord, Lord Whitty, we had been getting on exceedingly well. I do not know why he felt it right to throw abuse at the Law Society in the way that he did, but I completely disagree. He is just being a little over- anxious. No doubt he has heavy responsibilities as chair of the National Consumer Council, but in this group of amendments we are just trying to get the balance right. I agree with my noble and learned friend that the triggers for the Legal Services Board exercising its formal powers in respect of the approved regulators just need to be balanced in some way.

I recall that the Government said in response to the Joint Committee’s report that the Legal Services Board should act in partnership with the approved regulators, exercising its formal powers only when approved regulators are clearly failing. The question of whether a regulator is failing naturally needs to be looked at by reference to the regulatory objectives. The noble and learned Baroness, Lady Butler-Sloss, is right. We must make sure that the current formulation is narrowed to some extent. It is just too wide and could be misleading in many ways.

The problem is that the regulatory objectives are to some degree in contention with one another. Almost any act or omission can be regarded as having an adverse impact on at least one of the regulatory objectives. I give as an example the requirement to undertake prescribed training prior to admission as a solicitor. It would plainly have an adverse effect on competition in legal services if everyone with a law degree could simply be admitted as a solicitor immediately. The potential supply of solicitors would be that much greater. On the other hand, failing to require appropriate pre-admission training would have a detrimental effect on the interests of consumers, and probably on one or two of the other regulatory objectives. Under the current formulation in the Bill, the Legal Services Board would be entitled to take action against an approved regulator whatever approach it took to pre-admission training. So I think that my noble friend’s amendment is well placed.

I can assure the noble Lord, Lord Whitty, that the decision on whether to take action in any particular case must be for the Legal Services Board. It is not possible to prescribe detailed quasi-mathematical criteria for the exercise of the power. We are going to have to rely on the judgment of the Legal Services Board, subject to whatever arrangements for challenge exist in a particular case. But it is important for the statute to guide the board appropriately on the approach that it should take, and in this context the board needs to take a balancing approach. It needs to decide whether the act or omission has had an adverse impact on the regulatory objectives considered as a whole. That does not mean that the Legal Services Board can act only where a failing of the approved regulator affects more than one regulatory objective; it could still deal with it on one objective. An act or omission which adversely affected competition, for example, without being justifiable by reference to one or more of the other objectives would be sufficient to justify action taken by the Legal Services Board.

It is important that a balancing exercise is carried out so that the board does not intervene where an act or omission constrains competition, but there are sound reasons in the other objectives for the approach which the approved regulator has taken. I support my noble friend’s amendment because he is establishing that principle.

The first four parts of the Bill deal with two important features relating to the independence of the legal profession. The first is appointment to the Legal Services Board and its structure, and the second is the board’s enforcement powers to intervene. We are concerned with the second of those features. I sympathise with the intent of this group of amendments, but I doubt their effectiveness. The phrase “taken as a whole” does not raise a threshold; it fudges it. It introduces a legal state of affairs in which seven objectives, one of which has a subset of four principles, can all be looked at as a whole. That is an extremely difficult intellectual task and one which, rather than creating a sensible threshold, in my view works to the opposite effect. The next amendments, referring to “one or more of” and inserting an adjective before “adverse”, could be far more effective.

I disagree with the noble Lord, Lord Brennan. It is important to take the balanced approach that has been earlier contended for. There are times, when I read literature that I receive from the National Consumer Council and when I listen to the noble Lord, Lord Whitty—for whom I have the greatest respect and indeed for whom I had the greatest admiration when he was on the Front Bench—that I think that they see the Legal Services Board as the consumer council writ large. If the suspicions expressed by the noble Lord, Lord Whitty, were to form a part of the ethos of a Legal Services Board with a lay chairman and a majority of lay members, it would be asking for trouble; it would be a bad day for the legal profession as a whole. When the board considers how to use its powers, it should not take a single contravention, as it sees it, of one of the objectives as a trigger. It should look at whatever objectives may be involved—it will not be seven; it may be two or three—and decide whether there is a sufficient case for it to intervene. That is not fudging; it is sensible.

I apologise to my noble friend Lord Brennan for not seeing him seeking to speak; I did not know he was behind me.

It is a delight to see my noble friend Lord Whitty. I say that because, as noble Lords will be aware, there are a lot of lawyers in the Committee, and there have been two or three references to the lay chair and lay members. I wanted specifically to note the presence of my noble friend because it is a good reminder to us of the strength of feeling of consumer organisations and individuals over this legislation. Whether noble Lords agree with what my noble friend said or not, it is right and proper that we should hear those voices. In discussing this legislation outside your Lordships’ House, I have heard these voices on several occasions. They have been far more concerned than anything that my noble friend has said might suggest.

I hope that I can allay some of the concerns raised. I do not dispute the need for the Legal Services Board to think about the regulatory objectives as a whole when it carries out its regulatory functions and considers exercising its powers. Indeed, the Government have consistently set out the policy that the board should be able to judge the relative importance of each regulatory objective. This would allow the board to balance the impact that actions or omissions may have on the objectives and to consider the overall effect. That is consistent with the approach taken by Sir David Clementi in his review of the regulatory framework in England and Wales.

However, it is important that the board is not restricted in acting where only one of the regulatory objectives has been adversely impacted, if it is appropriate for it to do so. To put it another way, the Legal Services Board will have to consider to what extent there has been an impact on each one of the regulatory objectives and then take its final decision on whether to take regulatory action in the round. In such a case, it must be free to act where, after careful consideration, it judges that there has been an impact on only one of the regulatory objectives but that that impact is sufficient to warrant some form of regulatory action.

I am therefore concerned that the amendments would prevent the board from being able to take appropriate action where there has been a detrimental effect on only one of the regulatory objectives. An example might be where a regulator has not put in place arrangements to increase public understanding of citizens’ legal rights and duties, even where the board has sought to achieve that through dialogue. It would be appropriate for the Legal Services Board to act if dialogue had failed to resolve the issue. Currently, the board can exercise a power if there has been an adverse effect on one or more regulatory objectives, provided that a number of safeguards have been satisfied. Those safeguards include the requirement for the board to be satisfied that, in all the circumstances of the case, it is appropriate to take that course of action, and a right of approved regulators to make representations.

It is worth repeating that, under Clause 3, the board must have regard to the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases where action is necessary. Those are important safeguards, and I hope that noble Lords will reflect on them. So there is, of course, the principle of looking in the round, but that is not to say that there will never be circumstances where the impact of failure to deal with one regulatory objective is such that the Legal Services Board should take action. That is the right way to pursue this, and I hope that the noble Lord will feel able to withdraw his amendment.

Before my noble friend replies, I should like to draw attention to the clause’s heading: “Performance targets and monitoring”. When I was in government, they tended to be called “performance indicators”. There was a notion that one person’s performance indicator was another person’s poison. I suspect that that remains true, whether they are called performance targets or something else.

The noble Baroness has wisely said that the matter should be looked at as a whole and in the round. The noble Lord, Lord Brennan, commented on the exact wording of the amendments. I simply urge the noble Baroness to say that she will reflect on this. Her words may be valuable in Pepper v Hart terms, if it ever came to that, but it is much better to have good phraseology in the Bill.

I am of course extremely grateful to the noble Baroness for her response, but surprised to hear her approach to the interpretation of Clause 1. As I understand it, the Government have not sought to differentiate in weight between any of the considerations set out in Clause 1(1); they all have equal weight. That is the Government’s position, and there is nothing in Clause 1 to indicate that any differentiation applies.

If that is so, I suggest that simply focusing on one of those objectives would be tantamount to acting in an arbitrary fashion. Under Clause 30, since an adverse impact on just one of these objectives is sufficient to have a triggering effect, what is to prevent the LSB simply extracting one of those seven and, without looking at any of the other six, deciding that an adverse impact is justified and intervening? In my submission, that would be a wholly improper way for the LSB to act, simply by virtue of the way in which Clause 1(1) is drafted, yet that is what Clause 29 entitles it to do.

When considering action under Clause 29, the proper approach of the board has to be to analyse each one of the seven objectives before it acts. If that is the obligation on the LSB, it must, as a consequence of analysing each one, then engage in a balancing exercise—it must ineluctably follow—and, as a result of that exercise, come to a conclusion.

In the light of the structure of Clause 1(1) and the way in which the Government have told the Committee that they interpret it, there is a conflict in the Bill between Clauses 1(1) and 29. In my submission, the Legal Services Board has no choice; it has to go through the procedure that is laid down in our amendment.

The noble Baroness is looking uncharacteristically perplexed. She may or may not want to intervene again. I see that she does.

I am interested in what the noble Lord is saying. I hope that he accepts the premise that even when looking in the round, there are circumstances where the failure in one of the regulatory objectives is such that the Legal Services Board should act. I think that he does. If so, there is little between us, as the noble and learned Lord, Lord Lyell, said. I think that we have done that and Members of the Committee think that we have not, so I am happy to try and ensure that we have done what we set out to do.

To return to what my noble friend Lord Whitty said, it is important that we do not water down by accident—which I know is not what the noble Lord, Lord Kingsland, is seeking—what is arguably the most important aspect of the Legal Services Board. If you fail to provide proper access to justice, that can, on its own, trigger action—if you fail to do something and that is quite clear even when it is looked at in the round. We must not lose that. However, the Government’s position is that we want to ensure that we look in the round. We think that we have achieved that. If Committee Members feel that we have not, I am happy to look at it again. However, it will be in the context of thinking that we are already there, so I am not promising to do anything other than explain things more effectively.

I want to pick up on what the noble Lord, Lord Brennan, said because it is not part of the amendment, but refers to a later group—the word “significant”. I totally take on board what the Minister said—that an individual regulatory objective may have been so clearly breached that action must be taken. But one clearly has to take into account the general functions of the board under Clause 3, as the Minister has pointed out, and look at that in order to come to a conclusion under Clause 30(2)(a) and (b). To make it clear to the Legal Services Board, if the board is to take one individual objective as having been breached, it must be significant, otherwise it may be at odds with what the board is supposed to be doing under Clause 3. “Significant” might be helpful.

I have a question arising out of what the Minister just said. In looking at the regulatory objectives, we have been at pains to say that the Bill must not rank them in any particular order. Is she now saying that the board can? The board could single out one of the regulatory objectives and say, “That one is the most important”.

I have not for one second implied that. I said that we believe that, when looking at what is occurring, the board will look at the regulatory objectives. It will look at the impact of what has happened and make a judgment. That is what it is for. That is what we have set it up to do. It can say, “In the circumstances, we believe that action is required around this particular objective having been breached”, having failed, there having been an omission or whatever. I have already indicated that one would hope that many of these issues are dealt with long before we get to that point, by dialogue and so forth, but they may occur. What matters is that we look at this case by case. In a particular set of circumstances, it is right and proper that the failure of one of the objectives requires action. It is not about ranking or anything other than the particular circumstances that exist.

I accept the way in which the noble Lord, Lord Kingsland, began. Of course, the regulatory objectives as a whole are important. But it is quite clear that there could be a failure in one area that the board deems important. I will come to “significant”, which I will not accept on the face of the Bill, but I do accept the principle behind the board looking to see what has occurred in each case. We think that that is completely reasonable. To tie the hands of the board any further would be wrong. I have made it clear that I will look and make sure that that is how the Bill currently stands, and if it is not, I will be in touch with the Committee to discuss the matter.

By using the words “most important” I am nervous that the noble Lord is trying to lead me down a path down which I do not wish to go.

May I quickly just point to the Explanatory Notes, rather than mislead the Minister? They say:

“The Board… will be best placed to consider which objectives and/or principles are the most important in a particular instance”.

I think that that is what the Minister is saying.

I was resisting using the words “most important” because of the earlier conversation, which was about trying to suggest that a weight was given to the different objectives by the board before it began. In a particular set of circumstances the board may consider that there has been a failure in one of the regulatory objectives, even looked at as a whole, that warrants action. In that context, that will be more important—but it is in those circumstances, taking into account all the factors. A key part of that is looking at the regulatory objectives as a whole.

That is something, as I think that I indicated when introducing the amendment, with which we respectfully agree. It would be possible in our view, in the context of the amendment, for the board to act in relation to a breach of only one of the regulatory objectives as long as the breach was sufficiently serious to have an impact on the objectives taken together. That is the point—and it is a crucial point because it flows from the clear obligation on the board under Clause 1(1) to consider all the objectives. If it then decides that the breach of one of those objectives is so serious that there is an adverse effect on the objectives collectively, it may act.

The Opposition would be extremely grateful if the Minister would reflect on this issue between now and Report. As I have in relation to one or two other amendments this afternoon, I think it only proper that I indicate to the Minister that this is one that we take very seriously. We hope that some accommodation can be reached between the Government and the House leading up to Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 48 not moved.]

Clause 30 agreed to.

Clause 31 [Directions]:

49: Clause 31 , page 15, line 32, leave out “an” and insert “a significant”

The noble Lord said: These amendments again raise the issue of trigger conditions for regulatory action by the LSB, this time by ensuring that the board can exercise its powers only following a significant rather than a merely marginal adverse impact on the regulatory objectives. Under the new regulatory regime established by the Bill we again emphasise that lead responsibility is intended to rest with the approved regulators.

Under the new regime for approved regulators, with the splitting of the regulatory and representative arms, the regulatory bodies will be appointed on known principles and there will be substantial lay involvement. In those circumstances the approved regulators are entitled to expect considerable discretion to act on their own analysis of what is appropriate. The board should not exercise its powers simply because it would have reached a different decision. As long as the board is satisfied that the approved regulator has taken into consideration all the factors that it should have done, the fact that the board might disagree with the decision of an approved regulator should not be grounds for intervention. If it were, then in effect the board would become a front-line regulator, which is precisely what the noble Baroness says that the Bill does not intend.

Again, as the Government themselves said in their response to the Joint Committee, the Legal Services Board should exercise its powers only when an approved regulator is “clearly failing”. Those are the Government’s own words. In our submission the Bill as it stands does not reflect this philosophy as it allows intervention whenever there is evidence of adverse impact, whether significant or not. To bring to life the Government’s own vision of a light-touch regulator that intrudes only when one of the professional bodies is “clearly failing”, there must be some qualifying adjective. We have suggested “significant”, but “serious” is another possibility. Any sort of impact or qualification would be better than simply an adverse impact. I beg to move.

We have in a sense partly had this debate. I apologise that I cut off the noble and learned Baroness in her prime, but I was trying not to deal with amendments out of synchronisation, as it were.

I have thought about this. I am sure that the noble Lord, Lord Hunt of Wirral, will not mind my saying that the Joint Committee raised this question in its report on the Bill. We said in response that the LSB should exercise its powers only where approved regulators are clearly failing. While we made it clear that the LSB would need to establish detailed rules providing for the use of each of its powers, we confirmed that it was considering whether the Bill needed to include thresholds. We have looked very carefully at the proposals for the words “serious” or “significant”, and discussed these with both our own lawyers and parliamentary counsel. The difficulty we have is that these are tests that would have to be tested in a sense. One can think of circumstances where a very small number of people might be badly affected by a measure. The matter of whether that was significant or serious would be called into question. I am concerned that we should not put ourselves in the position of having to test what we mean by the provision.

As the Bill is drafted, the board will be able to exercise a power provided it is appropriate to do so, as it is possible to prove with the test that there has been an adverse impact on one or more of the functions. In doing that the board must have regard to the principles that regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases where action is needed. These ensure that the board will exercise its powers only where it is appropriate to do so and will further ensure that when it does so the board will be fully and publicly accountable. Judicial review will also be available. The safeguards lie in the powers themselves. For example, I refer to the requirement that the board has to be satisfied that in all the circumstances of the case it is appropriate to take a course of action. I refer also to the right of approved regulators to make representations.

The legislation contains clear safeguards. It has clearly established rules on the use of powers that will enable us to get this matter right. Including the words “significant” or “serious” would impose difficulties in how one interprets that and whether eventually one would need to interpret it through the court.

I am not entirely sure how appropriate it is to put forward ideas which do not come within the existing amendments. However, I hope that the Minister might consider a possible alternative under Clause 31, headed “Directions”. I suggest that subsection (1)(a) should read,

“that an act or omission of an approved regulator is likely to have an adverse impact”.

If one could ask the board to take that into account and be satisfied, having taken into account the duties under Clause 3, which refers back to its general duties, it may be that that would meet what was needed. I do not know; I have not consulted anyone else. I am concerned that this does not necessarily remind the board of its Clause 3 duties.

We are always delighted to get suggestions to reflect on. It is one of the great joys of Committee stage that noble Lords are able to help us think things through. There is so little between us on these issues. We are concerned to make sure that the powers are used effectively and that we do not hamper the powers by putting in additional words, which the noble and learned Baroness will know very well can lead to the kind of legal unravelling that one would not wish to see. I am happy to take it away; I have no idea whether it will work. I am happy to think about it.

I will briefly add to what has just been said. The “adverse impact” test to trigger intervention is a very loose phrase. It is far more important, as far as many on these Benches are concerned, to have that test properly defined as against the kind of phrase that featured in the last group of amendments. What about “substantial”? It was not generally welcomed on Second Reading, but I remind the Minister that in the Corporate Manslaughter Bill, which is going through this House, the word “substantial” is expressly used to determine criminal liability fit for a jury to decide. Why not “substantial” or “serious” in this context? This is not a semantic quibble; it is a desire to have the national and international reaction to this Bill, in this context, see that there are serious hurdles before you can intervene.

I was going to make in essence the same suggestion. We need a test that has to be tested; in some way we have to find that. It has to be defined, and “substantial” is a usual form of definition. If you add “substantial effect” or something like that, it is a matter for consideration. We need something for the reasons that have been given by my noble friend Lord Kingsland.

I can only say to the noble Lord what I have already said. I am not minded to look at adding new words into the Bill that require us to leap through another set of hurdles for the Legal Services Board to achieve its objectives. The Bill is very clear about the framework within which the board should operate. It is clear that it is subject to judicial review if the circumstances so warrant. It is clear, as I have already said, that it has to think about the regulatory objectives and consider the impact.

I am very concerned not to lose the ability of the board to think about a regulator having an impact by what it does on a small number of people in very particular circumstances, or on one objective in a very particular way, and we believe the board may wish to say, “Taking everything into consideration, we none the less feel this is important”. The more that we add in “serious” or “substantial”, it begins to feel like an opportunity to stop the board from being able to exercise the kind of diligence that I would expect. If one considers the strength of feeling by other consumer organisations about ensuring that we have a proper, strong regulatory framework, balanced by all the things I have already said, noble Lords will understand my reluctance to start adding in adjectives that could make a different determination for the board.

There seem to be different ideas of what constitutes a fair balance. This is not the time of the evening to discuss it.

Briefly, the previous group of amendments and this amendment were not taken together for good reason, no doubt, but they overlap. While I entirely support the objective of my noble friend Lord Kingsland, we can all reflect on the interplay of the wording. It is noticeable that in Clause 34 and the succeeding clauses, having decided that there is an adverse impact, whether or not one adds an epithet like “significant” or “substantial”, the board absolutely has to consider whether “in all the circumstances” of the case it is appropriate to act—bringing in all the questions of proportionality and so on. That is what we were asking for in the previous group of amendments. I have a feeling that as long as we get satisfaction in one or other group of amendment, we shall be there. While this may not be the moment to say it, I urge the Minister to look carefully at the previous group of amendments; we might then be less worried under this lot.

I agree with my noble and learned friend that this group and the previous group should be looked at together and that if we can find a solution that reflects what we are seeking to achieve, we should not worry excessively as to whether the words of one amendment or another are respected in terms.

Before I withdraw the amendment, I shall allow myself a final reflection. We have talked much this afternoon about the relationship between the Legal Services Board and the approved regulators and have said that the LSB is the supervisor and that the primary regulator is the approved regulator.

In responding to the last intervention made before my noble and learned friend stood up, the noble Baroness was keen to emphasise the concerns of the consumer lobby; she mentioned that on a number of occasions throughout the afternoon. One of the difficulties that we face in the Bill is that although the Government have accepted the Clementi philosophy—that the front-line regulators are the approved regulators—the impression is growing on me that the consumer lobby does not trust the approved regulators and that the only regulator that it trusts is the Legal Services Board. That is why the noble Lord, Lord Whitty, intervened in the previous amendment and is, I suspect, why the Government are reluctant to put on the face of the Bill the principle that they say is the governing principle that lies behind the Bill—that the approved regulators are the primary regulators.

It is late in the evening and my reflection is general rather than being specifically related to the Bill; but if I am right about this, we have a problem, do we not? Try as we might, the Government’s concerns about the consumer lobby would always prevent them from putting the Clementi philosophy in the Bill.

Perhaps I may clarify the position of the consumer lobby in this respect. Yes, I do not trust the existing regulators; however, I believe that the structure put forward in the spirit of Clementi would actually ensure that those regulators behaved properly in relation to consumers and that the intervention of the LSB would be pretty rare. I am not in favour of it, nor is the consumer lobby, as the noble Lord put it; so I hope that I have clarified that position. I want light-touch regulation, but regulation which results in a front-line regulator that we can all trust.

Let me be clear about the Government’s position. I think that I mentioned the consumer lobby on only three occasions today, although it may feel like more to the noble Lord. In the main, my references concerned the Consumer Panel. I hope that noble Lords will not mind my saying that I am also aware that, save for the presence of my noble friend Lord Whitty, rather a large number of lawyers are involved in our debates. Although I am not suggesting that noble Lords do not have consumers very firmly in their minds, none the less it is important that we remind ourselves of the greater generality.

Whatever the views of the consumer groups, the purpose of the legislation is to look for a good and proper form of regulatory regime that will give everyone—the professions, regulators and consumers—confidence in the system. I am entirely balanced in my view in this regard and I reflect the Government’s balance. Sometimes in our debates I feel as though I am listening to a legal lobby and sometimes as though I am listening to a consumer lobby, and sometimes the noble Lord, Lord Kingsland, thinks that I am more attuned to the consumer lobby than I am to any other. The purpose of our Committee stage is to enable us to reflect on all these different aspects and to end up with a Bill that is in good heart and fit for purpose, and I find our debates extremely interesting.

The Government accept that there is a strong, important and critical role for the approved regulator. My noble friend Lord Whitty is absolutely right to say that we would not expect the Legal Services Board to act very often but, when it does, we would expect it to act properly.

I do not want to be misunderstood. I entirely understand the concerns of the consumer lobby and, rightly, it wants to see a system of regulation that is a great deal better than the one it has enjoyed in recent years. But this system essentially depends on the effectiveness of the approved regulator. The Government have accepted the Clementi philosophy, which requires them to trust the approved regulator. That trust should be reflected in the Bill but we do not believe that it has been. I shall of course withdraw the amendment but the noble Baroness knows that we shall return to these matters on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 50 and 51 not moved.]

Clause 31 agreed to.

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at 10.08 pm.