Monday 15 December 2008
Arrangement of Business
Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument the Motion before the Committee will be that the Committee do consider the statutory instrument in question. I should perhaps make it clear that the Motion to approve the statutory instrument will be moved in the Chamber in the usual way.
Kaupthing Singer & Friedlander Limited (Determination of Compensation) Order 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Kaupthing Singer & Friedlander Limited (Determination of Compensation) Order 2008.
Relevant document: First report from the Joint Committee on Statutory Instruments.
My Lords, today there are three instruments before the Committee: the draft compensation orders for Bradford & Bingley plc and the UK subsidiaries, Kaupthing Singer & Friedlander—which, with your Lordships’ agreement, I shall refer to henceforth as KSF—and Heritable, of the Icelandic banks Kaupthing and Landsbanki. In moving that the Committee consider the first of these orders, I will speak also to the second two.
I turn first to the Bradford & Bingley plc Compensation Scheme Order. Having already debated the Bradford & Bingley plc transfer order on 13 November, many of the Committee will be aware of the background to the order that we are considering today. I shall briefly summarise events in the run-up to taking Bradford & Bingley into public ownership. Following the turbulence in global financial markets, Bradford & Bingley found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution. On Saturday 27 September, the Financial Services Authority determined that the firm no longer met its threshold conditions for operating as a deposit-taker under the Financial Services and Markets Act 2000 and FSA rules.
Once the extent of those problems became clear, the Government had two options: risk letting the bank go under, or provide support. Letting the bank go under would have risked instability spreading, with serious consequences for the UK’s financial system and wider economy. It was because of that risk to stability, rather than the risk to shareholders, that the Government chose to save the bank.
The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors while minimising the exposure of taxpayers. Officials worked over the weekend to bring about a part-public, part-private solution that best meets those objectives. I think noble Lords will agree that it was right to explore every option to achieve that outcome. The tripartite authorities had explored a range of private sector solutions before taking action. However, it was concluded that it was not sustainable to run the bank on a stand-alone basis, either as a listed company with public support or as a publicly owned company. A subsidy on the scale required would not, in the Government’s judgment, have provided the best value for the taxpayer.
A transfer order under the Banking (Special Provisions) Act 2008 therefore allowed for an immediate transfer of Bradford & Bingley into public ownership and for the onward transfer of the retail deposit business to Abbey National plc. That was crucial for maintaining financial stability and ensuring that customers retained access to their accounts. These actions taken in relation to Bradford & Bingley demonstrate that the Government stand ready to do whatever is necessary to maintain the stability of the UK’s financial system.
Today’s Committee is considering only the Bradford & Bingley plc, Heritable and KSF compensation scheme orders, which I will come on to now. The draft Bradford & Bingley plc Compensation Scheme Order, which the Treasury has laid before Parliament for affirmation, is made under Section 5 of the Banking (Special Provisions) Act 2008. As noble Lords will be aware, in the event of the Act being used to transfer shares or to extinguish share options, Section 5 requires the Treasury to establish a scheme to determine the amount of any compensation payable to shareholders, or to holders of share options, within three months of the day of the transfer order.
The Heritable and KSF determination of compensation orders are made under Section 7 of the Banking (Special Provisions) Act. As Noble Lords will be aware, in the event of that Act being used to transfer liabilities or rights, Section 7 requires the Treasury to make provision, by order, for determining the amount of any compensation payable by the Treasury to the authorised UK depositor concerned. That means that the three compensation orders we are considering today need parliamentary approval before the end of this year. I regret that the recent turbulence in the financial markets has prevented an earlier decision with respect to compensation in the case of Bradford & Bingley and the Icelandic banks, allowing more time for parliamentary consideration.
This draft Bradford & Bingley plc Compensation Scheme Order reflects the model used in the Northern Rock plc Compensation Scheme Order in most respects, and provides for an independent valuer to assess any compensation payable to the former shareholders of Bradford & Bingley. As in the case of Northern Rock, noble Lords will recognise the need for a fair and proper way to assess the amount of compensation, if any, that should be paid in these circumstances. The Banking (Special Provisions) Act, whose provisions both Houses have debated and agreed, makes it mandatory for any compensation scheme to be based on the assumption that state support has been withdrawn and that no such support will be provided in future.
Crucially, this compensation must be fair, which means that it should be based on a realistic assessment of the shares’ value without public support. It is fair and right that the Government should not be required to compensate shareholders, or others affected, to the extent that taxpayers’ support inflated the value of their shares. Taxpayers should not be expected to pay compensation for value that would not exist without their support. The mandatory assumptions in the Act give effect to that.
However, it is important to note that this order does not impose the same assumptions on the valuer of Bradford & Bingley that were imposed on the valuer for Northern Rock. In the Northern Rock compensation scheme order, as well as assuming that state support had been withdrawn and that no such support would be provided in future, the valuer was required to assume that Northern Rock was not a going concern and that it was in administration. That difference is because the position of Bradford & Bingley was not the same as Northern Rock’s.
When taken into public ownership in February 2008, Northern Rock had been in receipt of substantial institution-specific financial assistance for over five months, in the form of both loans from the Bank of England and the provision of Treasury guarantee arrangements. By contrast, no such guarantee arrangements had been provided to Bradford & Bingley, and the Bank of England had provided no loan facilities to it that were not also open to all qualifying institutions. As a result, it is right to impose no further assumptions beyond the mandatory assumptions under the Banking (Special Provisions) Act 2008. It will be for the valuer to assess the implication of those assumptions.
The order sets out that the amount of any compensation payable will be determined by an independent valuer, appointed by the Treasury. We intend to advertise for expressions of interest in that position in the new year, if the House and the other place agree to this order. After a proper selection process, and after consulting the Institute of Chartered Accountants in England and Wales, the Treasury will make an appointment. We will, of course, be looking for someone independent of all interested parties and with both extensive company valuation skills and the ability to handle a range of relevant stakeholders. Once an independent valuer has been appointed, he or she will decide on the process to be followed. The valuer will then determine the value of Bradford & Bingley shares on the transfer date, on the assumption that public support was withdrawn and no further support was provided, and come to a decision on the amount of any compensation payable.
Once that assessment has been made, anybody affected will be able to ask the valuer to reconsider his or her determination; a revised assessment will then be made. Anyone affected who is dissatisfied with that revised assessment will then be able to refer the matter to the Financial Services and Markets Tribunal. This order is the fairest way forward for both shareholders and the taxpayer. It is fair that the value of any compensation should be determined by an independent valuer, but only on the assumption that public support was no longer available. This order allows for that to happen in a clear way, with opportunities for the valuer’s decision to be challenged at an appropriate time.
I turn to the compensation orders with respect to the UK subsidiaries Heritable and KSF of the two Icelandic banks, Landsbanki and Kaupthing. On 7 and 8 October 2008 respectively, the FSA decided that Heritable and KSF no longer met their threshold conditions and were unlikely to continue to be able to meet their obligations to depositors. Accordingly, the Chancellor announced that by orders made under the Banking (Special Provisions) Act 2008, the retail deposit business of Heritable and KSF were to be taken into public ownership. Heritable and KSF were then placed into administration and their retail deposits subsequently transferred to ING Direct.
The position of Heritable and KSF differs from that of Bradford & Bingley, as the former shareholders still own the shares. The compensation to be assessed relates to the transfer of liabilities: that is, the retail deposit book and associated rights. It is therefore considered that a much simpler compensation mechanism is appropriate in such circumstances. Matching amounts of cash provided by the Treasury and the Financial Services Compensation Scheme backed the subsequent transfers of the retail deposits to ING Direct. Heritable and KSF are required to pay back the total of all costs and liabilities owed to the public sector in transferring the liabilities.
The Government negotiated reductions in the amounts to be paid to ING Direct by the FSCS and the Treasury for transferring the retail deposit books. Those reductions were £1 million for Heritable and £5 million for KSF, and the Government’s claims in the administration of Heritable and KSF will be reduced accordingly. Without the provision by the Treasury and the FSCS to the purchaser of funds equal to the liabilities transferred, the deposit books would have been unsaleable and have represented negative value to any potential purchaser.
Given that the transfers were made up primarily of liabilities to repay retail deposits and associated rights, that they would not have been possible without significant public support, and that Heritable and KSF have obtained the benefit of the £1 million and £5 million negotiated with ING for the deposit books through the reduction in those companies’ repayments to the Government, we consider that no compensation should be payable for the transfers. The compensation orders therefore provide in each case that the compensation payable is to be determined as nil.
I hope that I have explained clearly these orders’ background and purpose. It is right that we should establish a fair way to assess the amount of any compensation payable to people who have lost their shares or had share options extinguished. The three orders we consider today set out fair compensation processes, and I commend them to the Committee.
I thank the Minister for introducing these three orders. My remarks will mostly concern the Bradford & Bingley order, but I will start with a few remarks on the Heritable and KSF orders. As the Minister has explained, those two orders set the compensation at zero; it would be difficult to put together a case for a value of more than zero when transferring liabilities—unless there was significant other value. Now, there may well be a moot point about whether the total of £6 million that the Treasury managed to negotiate as part of that transfer was sufficient recognition of the intangible value attached to the deposit books. Nevertheless, it is clear that no plausible valuation would produce a positive value for those two companies.
I note that Section 7 of the Banking (Special Provisions) Act 2008 says:
“The Treasury must by order make provision … for determining the amount”,
of any consideration. It does not say that the Treasury may determine the consideration, but clearly indicates that some kind of process should be put in place to determine the consideration payable—one which would, presumably, take account of all matters like the appeals processes that the Act contains. So is the position of the Government that they can use the valuation provisions of the 2008 Act to impose the Treasury’s view of value of compensation without any rights of redress other than the wholly inadequate judicial review process? I am not necessarily saying that we disagree with the result in this case, but it is an interpretation of the 2008 Act that is not without controversy. It does not seem to be something contemplated when the then Bill passed into law, so I would value the Minister’s comments on that. The Act has a shelf life of only another couple of months, but we ought to be clear about the matter in the context of the rather different provisions of the Banking Bill, on which we will start work tomorrow.
I have a few questions for the Minister about the Bradford & Bingley order. The first concerns the basis of valuation that the valuer must use. The Minister pointed out that the formulation in the order is the same as that for the Northern Rock order, with one important exception; namely, it does not have the equivalent of Article 6 of the Northern Rock order, which refers to both the “going concern” assumption and the assumption of being in administration. The Minister will be aware that Article 6 of the Northern Rock order is itself controversial and is being challenged by the Northern Rock Shareholder Action Group. The Minister sought to explain the difference by saying that Bradford & Bingley was not the same as Northern Rock and that, because Northern Rock had some institution-specific assistance, that meant it was appropriate for the Government to make the assumptions in Article 6. It is not necessarily for today’s Committee to determine that; it will be determined by the court in due course.
However, it is rather anomalous that Bradford & Bingley, having had its deposit book and branch network transferred to ING, is now in some kind of asset realisation process. Its website confirms that it is not offering new mortgages, so it appears not to be trading as a going concern. On the other hand, Northern Rock has had a rather expensive new board installed and is very much open for business and carrying on trading, albeit on a somewhat modified basis from its pre-nationalisation state. Therefore, we have the paradox that Bradford & Bingley, which clearly is not now a going concern, can be treated as one for valuation purposes but Northern Rock, which clearly is a going concern, is deemed by the Treasury not to be. I find that confusing; no doubt others will as well. Perhaps the Minister might like to explain the Government’s reasoning on the two. I am not sure that simply institution-specific assistance is enough to justify the differences.
The nationalisation of Bradford & Bingley was justified in part because it did not meet the FSA’s threshold for a deposit-taker. Of course, the Government have given no detailed information to back up that position, which means that both Parliament and the financial services world, which needs to understand these things, are in the dark. The issue will become even more relevant in the context of the Banking Bill, where the threshold conditions are referred to as well. I hope that the Minister can say a little more today about the way in which Bradford & Bingley did not meet the threshold conditions, because that is important for people in the financial services world to understand. Not meeting the threshold condition could imply that Bradford & Bingley was not a going concern as a deposit-taker, but it indicates nothing about whether it could continue as a going concern on another basis. Do the Government consider that Bradford & Bingley was a going concern at the time of nationalisation? That would influence the amount of valuation.
I am glad to see my noble friend Lord Eccles in his place today. He prayed against the Bradford & Bingley nationalisation order last month. Unfortunately, I was not able to be present at that debate, but I have read the report of the proceedings of the House. He raised a number of concerns, including the paucity of information about the cost of nationalisation and the lack of a business plan. This order and its accompanying Explanatory Note are no more illuminating than the information available for the original order, so what estimates are the Government making of the run-off of the Bradford & Bingley loan book? Has a business plan been prepared? As my noble friend Lord Eccles pointed out, a plan for the rundown of the business, which clearly appears to be happening, is not complicated. Alternatively, are the Government set to use the Bradford & Bingley vehicle for future mortgage-backed lending? Again, the lack of information there causes considerable concern.
Can the Minister confirm that, once the valuation has been completed by the valuer, and subject to any appeal processes, any amounts due will be paid to shareholders without delay? There has been a suggestion that shareholders may have to wait until all the assets are realised and the creditors, such as the FSCS, have been paid off. Is it possible for the valuer to come up with a valuation on the basis that the shareholders will have to wait until all the cash flows have come through?
The Minister will be aware that, as is typical for a demutualised company, the shareholder basis is characterised by a large number of smallholdings. However, those smallholdings can represent a significant amount of the financial assets for the people concerned and they need to know when they might be paid. The Bradford & Bingley Shareholder Action Group wrote to the Chancellor about this on 10 November but I understand that it has not yet had a reply. Will the Minister say whether the Chancellor intends to reply and, if so, on what terms?
The action group pointed out in its letter that the Government had not communicated with the shareholders at all. It seems that out of common decency the Government should at least do that. They should tell the shareholders what is planned and over what timetable they can expect to receive something. I emphasise that in this instance we are talking very largely about small shareholders; we are not talking about those who are capable of reading about issues in the Financial Times and following matters at a higher level.
It is about time that the Government set out clearly what they expect their nationalisation of Bradford & Bingley to cost. Has the net amount payable in connection with the transfer of the retail deposits and branch network to ING been finalised? Will the Minister say what that is? That would then leave the mortgage book, which is presumably now generating cash as no new mortgages are being entered into. Can the Minister say what the gross amount of the mortgage book was at the time of the nationalisation and what provisions have been made against those gross amounts? What is the total of any other liabilities, about which I assume there is no uncertainty, and is what is then left positive or negative? In other words, what is the ballpark number of the net amount left for shareholders or due to be picked up by the Government?
Will the Minister also state the position of Bradford & Bingley’s securitisation vehicle, which I believe is called Aire Valley? There have been market rumours that Aire Valley will go the same way as Northern Rock’s Granite—that is, one or more triggers will be used to put the vehicle into rundown, which, in turn, will delay cash flows into Bradford & Bingley and raise the issue of the long-term value of the seller’s share, which will be the last to be paid out after all bondholders—
I cannot sing along with that mobile phone, which is a great pity. Perhaps I could if I could get the tune.
Lastly, will the Minister say what estimates have been made of the cost of the valuation process? Perhaps that should have been dealt with in the impact assessment for this order, which the Minister himself signed, but it is silent, so this is the Minister’s opportunity to inform the Committee. At the same time, will he update the Committee on the likely cost of the Northern Rock valuation process? I understand that a fixed fee was agreed with the valuer but that a lot of other costs for staff are included and that various advisers are now working for the valuer. Therefore, the fixed fee that was put into the public domain is by no means the end of the valuation story for Northern Rock. Perhaps the Minister would care to compare that likely cost, which is based on a much more prescriptive valuation base, with what is now expected for Bradford & Bingley.
I thank the Minister for introducing the order in what I think is his first outing in the Moses Room. As he can see, there can be quite a lot of detailed questions, even on what might appear to be a relatively straightforward order.
I start by saying that we on these Benches believe that the Government did the right thing in the end—I stress those words—with regard to both Bradford & Bingley and the Icelandic banks. In contrast to the noble Baroness, Lady Noakes, I propose to spend more time talking about the Icelandic orders and the situation in Iceland, but of course I will start with Bradford & Bingley and Northern Rock.
I listened with interest to the Minister’s carefully chosen words about the compensation process for Bradford & Bingley, but I am bound to say that on Northern Rock, it does not seem that there can be any outcome other than a zero from the process. Indeed, as the noble Baroness said, I would be concerned if the costs escalate beyond the fixed fee since it is bound to be public money that is spent on the process. From what the Government are saying, Bradford & Bingley appears to be a little more complicated. At this point, I should declare my interests both as a pension fund manager for the past 32 years, and, specifically to this case, as an investment manager and a director of a subsidiary of Close Brothers plc. It has a banking licence and we operate to some extent in the same areas as parts of KSF.
As an investment manager and having listened to the noble Lord, I find it hard to believe that there can be value in the shares of Bradford & Bingley in the way described. My general view is that a bank which runs out of cash and credit, which I am afraid basically was the situation at Bradford & Bingley at the moment when it had to be rescued, has no value. Sad though it is—we saw this situation to some extent with Northern Rock—whether the shareholders are large or small, equity shares are equity shares. If the taxpayer is being asked to put his hand in his pocket to recompense shareholders, that is money which is not available elsewhere for vital purposes. I do not prejudge this, but while the outcome for Northern Rock is clear, it is difficult to see how there will be compensation payable as regards Bradford & Bingley. However, I accept that it is a grey area and that it is important that the valuation is done properly and professionally.
Again, I do not agree with the implication of the noble Baroness that Northern Rock is now a going concern. The fact that the shell or hub of the company has been recapitalised at great expense to the taxpayer is relevant to the calculation of whether it was a going concern at the time, but no doubt the noble Lord will give his views on that.
I turn now to the Icelandic orders. By 7 or 8 October, there was no alternative because it was a very grave situation. However, the shocking figures before us show that there is a liability from Heritable Bank plc of £500 million to the FSCS, which basically is all of us as customers of British banks and financial institutions. It is not a separate pot; this is essentially British savers’ money. Some £45 million is owed to the Treasury, while Kaupthing owes £2.5 billion to the FSCS and £550 million to the Treasury. These are shocking sums, and the question that arises and which I want to put to the Minister—he has only recently taken over so I do not expect a full response today, but I will hand him the documents so that he can prepare one—is: why was the situation of the shaky Icelandic banks allowed to drag on for so long? Specifically, what did the Treasury, the Financial Services Authority and the Bank of England know in the spring and what did they know in the summer? I tabled Parliamentary Questions which were answered on 14 and 15 July about the extent to which the British financial authorities were taking steps independently of the Icelandic authorities to satisfy themselves about the stability and solvency of Icelandic banks—particularly Icesave—which, as noble Lords will recall, were at the time advertising vigorously in this country for deposits. Money went on pouring into them right up to the moment that those banks hit the wall on 7 and 8 October. The Answers from the Treasury on 14 and 15 July can only be described as extremely evasive and incomplete.
My honourable friend Vince Cable wrote to the Chancellor on 27 October to ask why those Questions were not properly answered and why, in particular, the Treasury failed to answer the Question about the outstanding compensation scheme. Did not the Treasury know? If not, why did it not find out in July and ask for a full statement about the sequence of events which involved the Treasury and the FSA seeking reassurances from Icelandic and other sources, briefing themselves on the protection scheme and taking any necessary action to strengthen protection?
The noble Baroness said there has been some delay in Bradford & Bingley shareholders hearing from the Treasury; it took six weeks, until 9 December, for the Chancellor to reply to Vince Cable on this very urgent matter involving billions of pounds of council tax payers’ and other people’s money being at risk. The answer ignored the main point of the question and started the sequence of events in August when, by that stage, it was too late to do much.
What happened in the spring? Did the Treasury, the FSA and the Bank of England really have no idea what was going on—that the IMF was seriously concerned, as we now know—and was it really only in August that the Treasury started to get worried? If so, it was negligent and ignorant of the red lights flashing all over Iceland and its banks in the market; if not, why did it not give me a proper answer to my Questions on 14 and 15 July? I will hand the letter and the totally unsatisfactory answer from the Chancellor to the Minister and I hope that he will ensure that we receive a proper answer.
The compensation arrangement negotiated by the Treasury on those days—the £1 million, £5 million and so on—was probably the right thing to do under the circumstances; in a financial panic such as that, people have to do the best they can. I do not criticise that but I ask how on earth, and why, this situation was allowed to drag on for so long. I ask the Minister for proper answers when he has had a chance to check with the Treasury what happened and why.
I declare a non-interest in that my wife is Icelandic. I obviously have family in Iceland but neither I nor my wife has bank accounts in Iceland. I make that absolutely clear because I wish to refer to financial aspects of this issue.
My noble friend will know that I have been tabling Questions to his department asking for information. I wish to read a Question and the Answer I was given and I would like my noble friend and the civil servants in the department to consider it. I asked:
“What conversations took place on what dates between representatives of the government of Iceland and its banking industry and persons representing the interests of United Kingdom depositors in Icelandic banks on impending difficulties in the Icelandic banking sector; and whether they will place transcripts or reports of those conversations in the Library of the House”.
I also asked:
“What discussions have taken place, are taking place, and are planned with representatives of Iceland on financial support that can be given to Iceland to help that country during its period of difficulty in the banking sector”.
My noble friend replied:
“Treasury Ministers and officials have meetings and discussions with a wide variety of organisations in the public and private sectors as part of the process of policy development and delivery. As was the case with previous Administrations, it is not the Government’s practice to provide details of such meetings and discussions”.—[Official Report, 25/11/08; col. WA 281.]
I say gently to my noble friend that that is not a fair answer for the Treasury to give either a Member of the Commons or a Member of this House. We require far more detailed information than the Treasury is giving us at this stage. If these questions had been asked in a Select Committee of this place, the answers would have been far more substantial and, in the event that they could not be answered during proceedings in the Select Committee, the Ministers or civil servants would probably have offered to provide additional information in a written memorandum to that committee. Indeed, in January, I understand, the Treasury Select Committee in the other place will probably carry out an inquiry and I am sure that it would not be satisfied with answers as brief as that one, which was obviously provided to my noble friend by people in his department.
The reason this is relevant is because, in the daily conversations that take place between my wife and myself and the other half of our family in Iceland, we are repeatedly told that people simply do not understand what is going on. I saw this morning five editions of Morgunbladid which had just arrived in the post as I left. My wife was trawling through them for information and it is quite clear that many people in Iceland simply do not grasp the nature of the crisis and they are desperate for more information. I saw it, in part, as my role at least to secure information from within the United Kingdom.
Earlier this year the Icelanders were publishing through their Central Bank press releases as to developments in Iceland prior to the crisis. I received from the Central Bank in Reykjavik a list of all the press releases that were given earlier this year, which will no doubt be of interest to the noble Lord speaking from the Liberal Democrat Benches, on what was being said about meetings on the issue of the stability of the banking system in Iceland.
On 20 May this year, Moody’s downgraded Iceland’s ratings. That information was published in the Icelandic media and there was a press conference in Reykjavik. Why did not that information get through to the United Kingdom? If it did, why was not that information relayed to the local authorities and other institutions that were busy placing money there? On 22 April this year, Fitch Ratings issued a report on Iceland. On 17 April, Iceland sovereign ratings were lowered on external funding risks—outlook negative. This information came from the rating organisations. On 9 April this year, Moody’s issued an annual report on Iceland which was negative. On 1 April this year, Standard & Poor’s ratings services placed its ratings on the sovereign of Iceland on credit watch with negative implications. On 1 April, the same day, Fitch changes Iceland’s outlook to negative. On 5 March this year, Moody’s assigns negative outlook to Iceland’s ratings. In other words, material was available earlier in the year which should have alerted the United Kingdom institutions investing on behalf of public bodies to the fact that there was a problem in the stability of the Icelandic banking system.
I want answers to my questions because I wish to dovetail that information with the information available in Iceland. When people in Iceland read about this, they conclude that people abroad must have known something was wrong, so why did they keep on investing? That is the question they put and there might be a simple answer. I am not a banker—I am a widget maker by origin; a manufacturer—but if this information was available, why did it not get through? Is it not fair for Icelanders to question to what extent they are culpable in view of the information that was being made available within the United Kingdom?
The other question which has arisen during my browsing over the material that came from the Central Bank in Iceland concerns Glacier bonds, which I understand are króna-denominated Eurobonds. It seems that the Icelanders closely researched developments in New Zealand some years ago where, because it was short of internally available money for investment, New Zealand issued Kiwi Bonds, and the Icelanders copied them with Glacier bonds. As a number of these bonds mature in the years to come, I do not know whether they are included in the published figures about the liabilities of Iceland to institutions in the United Kingdom. I have been reading a very interesting article by Thorvardur Tjorvi Olafsson on this issue, which he wrote in 2005, several years before the crisis, in which he sets out the problems that could arise with the sale of these bonds on western markets. As I say, I am not a banker and I do not know the answer. I do not expect my noble friend to give a specific answer today, although he is very knowledgeable on these issues and perhaps he does know a little about it. However, if he does not, I hope that he will write to me with some information on the matter.
Finally, I go back to my original proposition and ask that more information and more detail be published on the background to the meetings that took place. People are entitled to know what has been going on over the past six, seven or eight months with regard to the impending crisis—or what we now know to be the current crisis—in the Icelandic banking sector.
I join other noble Lords in thanking the Minister for his explanations this afternoon. I draw attention to my interest as a director of a financial institution that holds significant policyholder funds invested in financial institutions, including Bradford & Bingley.
I think we all recognise the difficult circumstances that arose when Bradford & Bingley and the other institutions were dealt with and the imperative that drove government action. I think we also all recognise that it is right that shareholders bear the risk before depositors. None the less, I should like the Minister to confirm that his statement this afternoon and the specifics of the individual cases represent government support for the principle that shareholders should, as far as possible, be treated fairly in such situations, if and when they occur in the future.
In deciding what is fair in the particular circumstances of Bradford & Bingley, I draw attention to two characteristics of the situation. First, my understanding is that it was liquidity, and in particular a low ratio of deposits to loans, rather than capital adequacy that drove the decision to take Bradford & Bingley into public ownership. Indeed, I understand that when Bradford & Bingley was taken over, its tier 1 capital ratio was in the region of 10 per cent, which, as I believe the chairman of Bradford & Bingley said when he wrote to the Government at the time, implied that there could be a significant surplus value from the liquidation of the assets. Of course, the capital ratio does not necessarily guarantee that value is left for shareholders—liquidity is also an important responsibility of shareholders—but the fact that the capital ratio was as high as the Government are urging other institutions to achieve is a significant factor in this case.
Secondly, we need to recognise, as I hope will the valuer, that, in addition to the interests of the 850,000 small private shareholders in Bradford & Bingley, major institutions had been encouraged to invest further funds in discussion with the Government in the period before the decision to take Bradford & Bingley into public ownership. As the Minister knows better than most, these institutional funds also represent the interests of millions of individual pensioners and savers. Clearly, it is not a good signal to encourage the further participation of institutions in this kind of structured solution to banking problems if that participation, encouraged by the Government, is not recognised if there is not a successful outcome to the problem.
Therefore, I welcome the fact that this draft instrument has provision for an independent valuation. It clearly is up to an independent valuer to weigh up the circumstances and take them into account. I also welcome the fact that, unlike Northern Rock, the valuer has not been instructed to value on the basis that Bradford & Bingley was not able to continue as a going concern. However, I should welcome an explicit government assurance that this change in wording is significant and deliberate in recognising the potential value for shareholders in this circumstance. I should also like an assurance that the fact that the valuer has to assume that there was no government support does not imply a premise that there is no value in a company as an ongoing business or that the business had no value in rundown. If the Minister cannot go as far as my noble friend Lady Noakes would like in saying whether the Government regard Bradford & Bingley as having been a going concern, will he say whether the Government will present evidence to the valuer on their belief or not in the bank’s potential as a going concern at the time?
Finally, a suggestion was made by the major financial institutions at the time of the takeover to volunteer a non-executive director to be appointed to the board to help oversee an orderly rundown of the book of business if that is what transpires. Would the Minister like to comment on how that proposal has been received?
Noble Lords have debated whether the Government were entitled to take Bradford & Bingley into public ownership by relying on Section 2(2)(a) of the Banking (Special Provisions) Act 2008. If they were not so entitled, we would not be considering this order. The test in the Act is,
“maintaining the stability of the UK financial system in circumstances where the Treasury consider that there would be a serious threat to its stability if the order were not made”.
On 13 November I asked for,
“an explanation of the judgment made by the Treasury that on 29 September, Bradford & Bingley triggered the purpose of the Act”.—[Official Report, 13/11/08; col. 824.]
It did not appear then—nor does it now—that there was in Bradford & Bingley a serious threat to stability on that day. In his response, the Minister frequently referred to “maintaining stability”, but did not explain the Treasury’s reasons for considering the threat to be serious. Similarly, in his letter of 27 November, he did not refer to a “serious threat”. Such additional information as he did give—here I wholly agree with the noble Lord, Lord Campbell-Savours, that we are extremely short of information on all these matters—went to confirm that the problems at Bradford & Bingley, although real and in need of action, did not constitute a serious threat to stability. For example, he detailed the withdrawal of deposits over the four days leading to the Treasury’s action as being to the value of £326 million. That is a significant figure in itself, but not so much within a total of £20 billion-worth of deposits.
Nevertheless, I think we all agree that the market had become a place where Bradford & Bingley, in company with the much larger Royal Bank of Scotland and Halifax Bank of Scotland, was finding it close to impossible to continue. It was this wider market failure which led just 10 days later to the bank recapitalisation scheme. That leaves open the question: why was not Bradford & Bingley included in the recapitalisation scheme, having received financial assistance from the Treasury or possibly the Bank of England to tide it over for 10 days until the announcement of 8 October? That action restored a degree of confidence in some much larger banks that were in trouble. Why was this course of action not an option for Bradford & Bingley? Why was it left out? There may be a good explanation, but we have not been given it.
It is profoundly unsatisfactory that the Government refuse to describe all the options they considered in late September. They constantly mention the private sector but leave out of the account that there might have been an alternative public sector solution to the problem. The Government say that they believe in competition and do not wish to manage banks at all, let alone in run-off, yet by summarily bringing the 160-year Bradford & Bingley history to a close, they have both reduced competition and given themselves a job of administration for which they are unqualified.
It is high time that the Government provided the information to demonstrate that the test in the Act of “serious threat” was met—if it was. There were surely options open that would have better protected long-term stability, depositors and the taxpayer. The solution chosen will cost the taxpayer much more than would have been the case if Bradford & Bingley had been put in a position to continue. In their determination to be seen to be doing something, the Government have failed to see that continuity was greatly to be preferred to compensation. We never needed to be asked to consider this order.
The range of questions asked was considerable. If I fail to answer any, I will carefully examine Hansard and ensure that I provide full answers to Members of the Committee who raised them, with copies to all those who participated in the debate.
I start with the comments from the noble Baroness, Lady Noakes. For obvious reasons, I will not say anything that relates to the forthcoming court action in respect of Northern Rock which is being raised by two hedge funds and another party. The argument that Northern Rock can be continued as a going concern can be only on the basis that it continues to enjoy substantial government support, a point with which I think that the noble Lord, Lord Oakeshott, would agree. I shall say a little more in a moment in response to the observations of the noble Viscount, Lord Eccles, about whether Bradford & Bingley met threshold conditions and the threat that the situation constituted to financial stability.
The noble Baroness, Lady Noakes, asked me to speculate on the gross amount of the assets, net of provisions and liabilities, of Bradford & Bingley. I understand that Bradford & Bingley continues to be under an FSA reporting obligation and that that information will in due course be provided, as indeed will further information about Bradford & Bingley, as required to be declared in a business plan that has to be filed not later than the end of March 2009 in respect of state aid and restructuring requirements. That will also answer the questions that the noble Baroness, Lady Noakes, asks in connection with the securitisation vehicle Aire Valley.
I was also asked about the cost of the valuation process. The appointment of the valuer will be through an open competition. I am assured that that is the method most likely to produce an outcome that represents good value for money. In the case of Northern Rock, where the valuer appointed is from BDO Stoy Hayward, there is a fixed-cost arrangement in respect of the fee for the valuer. There are arrangements for other incidental costs as might be required in the carrying out of the valuer’s duties. I am sure that the valuer recognises the need to exercise caution there, but they must not be fettered in their ability to complete a thorough evaluation.
The noble Lord, Lord Oakeshott, raised a number of questions on the Icelandic banks and has, through the Clerk, passed me a letter that I will ensure receives appropriate attention. I note what the noble Lord says about the replies he received to his Questions of 14 and 15 July. The FSA intensified its supervision of the Icelandic banks from the beginning of 2008. However, as a matter of good practice the FSA does not disclose its confidential negotiations with individual institutions. The Committee will, no doubt, be aware that my right honourable friend the Chancellor of the Exchequer, in the PBR statement, indicated his intention to write to the European Commission about issues arising in consequence of the experience of the Icelandic banks and the implications for the passporting under EEA arrangements; he has now done that.
My noble friend Lord Campbell-Savours, who has asked previously about Icelandic institutions, drew attention to the reports issued during 2008 by the rating organisations Moody’s, Standard & Poor’s and Fitch. Those reports were, of course, available both in Iceland and elsewhere. He says that depositors should have been alerted by the announcements from those rating agencies, and I completely agree. Informed investors should have been taking those rating announcements into consideration in deciding whether they wished to continue placing deposits with Icelandic institutions.
I note what my noble friend says about the paucity of information available on what is happening in Iceland. He also asked specifically about New Zealand bonds; I must confess that I will have to ask for further information on that matter, and will arrange for a reply to be sent to my noble friend.
If I heard my noble friend correctly, he said before that the FSA would not comment on negotiations that were going on during this period—so, from the beginning of the year. That must apply to banks that still trade, but surely if a bank comes to the end of its life there can be a justification for publishing that information. Surely, commercial sensitivity is substantially reduced in those conditions. Also, it is the Glacier bond that I referred to for Iceland.
If I used the word “negotiation”, I apologise; I was referring more to communication and discussions. The FSA’s position—with which I have sympathy—is that, notwithstanding what might happen, it would prejudice its ability to have open and full communications with a regulated entity if that entity were to believe that details of those conversations were subsequently to become a matter of public record.
That is a pretty ridiculous situation. Now that we know, many months on, that disaster has struck, are we seriously to say that we are not allowed to find out when what appears to have been grossly negligent regulator failure has happened? Do we have to ask through the Freedom of Information Act? Surely when something like this happens, which we all agree has been pretty disastrous, neither the FSA nor anyone else can hide behind that position.
I thank the Minister for his assurances that he will look into the matters I have raised. Given what he has just said to the noble Lord, Lord Campbell-Savours, about the fact that informed investors could and should have been aware of these rating downgrades in April and May, was the Treasury aware of those downgrades at that time and, if so, what was it doing about it, particularly given its responsibility for guiding and helping local authorities, many of which went on putting further sums of money into these banks right up until the end?
I am sure the noble Lord, Lord Oakeshott, appreciates that the responsibility for regulatory oversight of the Icelandic banks lies with the home state authorities, and that is where the primary focus of questioning to understand the failure of these institutions must be.
That is a wholly unsatisfactory answer. These banks had operations in the UK and there are bodies in the UK, not least the Treasury, that have measures of responsibility for them. To say that questions have to be asked of the Icelandic authorities is simply unacceptable; we are talking about actions by the UK Government. That is what our questions are about.
My noble friend will know that I have tabled Questions raising that issue about two other banks. The reality is that in Iceland the bank was run by three people—the governor and two others—with a supervisory board, elected by the Members of Parliament, that clearly did not know what was going on in great detail. Are we saying that banks operating within the UK, where billions of pounds are at risk, can be subject to the whims and decisions of three men sitting in an office in Iceland, determining exactly what is going to happen with regard to the management of that bank and all the implications of that? Surely that cannot be right.
I believe that that was precisely what drove the Chancellor of the Exchequer to write to the European Commission asking for a careful and considered review of the implications of the EEA passporting regulations in respect of regulatory oversight and the adequacy of compensation arrangements. I am not in a position to comment upon the management of individual Icelandic banks in Iceland or the action of the regulatory authorities in Iceland.
I turn to the second point raised by the noble Lord, Lord Oakeshott. The Department for Communities and Local Government made it clear in its guidance to local authorities that they should have regard to risk and diversification rather than rate. As my noble friend Lord Campbell-Savours has noted, the deterioration in the health of Icelandic banks, as indicated by the rating agencies, was information that informed investors should have been taking into account. The Treasury, however, does not direct local authorities in respect of their deposit placement activities.
A slightly misleading answer there from the Minister, who is new to his brief. The guidance under which local authorities place deposits is actually joint guidance from the Treasury and the Department for Communities and Local Government. I know that because my honourable friend Vince Cable and I got that guidance from them, which is why on the “Today” programme I was able to challenge the director of the Local Government Association, whom I believe has just been suspended from his job. Since it was involved in the joint guidance, the Treasury should have been aware of the situation and take partial responsibility for it.
I no doubt stand corrected by the noble Lord. I well remember listening to his interview with a member of the local government community on the “Today” programme, an interview in which the noble Lord came out the clear winner.
I turn to the points raised by the noble Lord, Lord Blackwell. He said that he wishes for assurance that it is the Government’s intention that shareholders will be treated fairly. I confirm that that is our intention. I also confirm—and I believe that in so doing I will address the points raised by the noble Viscount, Lord Eccles—that the noble Lord’s understanding is correct: the problem at Bradford & Bingley was not one of capital adequacy but one of liquidity. The bank was experiencing the early stages of a run, as reported by the chairman of Bradford & Bingley, Mr Pym, in his evidence to the Treasury Select Committee.
The noble Lord, Lord Blackwell, welcomed the appointment of an independent valuer and the valuation assumptions that are to be used. He asked for confirmation that the wording of the valuation assumptions was “significant and intentional”. I am pleased to give such confirmation. He also asked that I should make clear that there should be no presumption that there was no value in the shares of Bradford & Bingley, and I am similarly pleased to give such confirmation. I cannot anticipate the evidence that HMT or the other tripartite bodies might give to the valuer in support of the valuer’s process.
The noble Lord, Lord Blackwell, mentioned that institutional shareholders had volunteered a willingness to appoint a non-executive director to the board of Bradford & Bingley. The Committee will be aware that it is intended that the shareholding in Bradford & Bingley should be placed under the supervision of UK Financial Investments, which will have a largely independent non-executive board drawn from people with appropriate experience in the private sector. I believe that that body will perform the function that the institutional investors had in mind.
I believe that I have answered, or have gone as far as I can in answering, the points raised by the noble Viscount, Lord Eccles. The problems facing Bradford & Bingley represented a serious threat to financial stability. This was a large banking institution that was experiencing a run, the details of which have already been provided to the other place. A number of other options were considered by the board of Bradford & Bingley and the Government. The Committee will be aware that Bradford & Bingley explored a number of options with its own shareholders, with a group of institutional shareholders who were willing to increase their shareholding in the company and with a private equity group called TPG. None of those routes provided a satisfactory solution to a situation that was driven, in the end, by liquidity problems rather than problems of capital adequacy.
I reinforce the question I asked. I understand that there were explorations within the private sector to find a solution; indeed, the solution that was found included a fairly large private sector option to transfer the deposits. But was a public sector solution considered? That is the burden of the argument I was putting forward. We were only 10 days from the bank recapitalisation scheme, which must have been known to the Treasury. In order to get through those 10 days, public sector financial assistance would have secured that Bradford & Bingley could enter the recapitalisation scheme and continue, instead of being brought to a halt.
I understand that a wide range of options was considered, but it was the determination of the FSA over that weekend that Bradford & Bingley no longer met its threshold conditions and therefore would not have been allowed to take deposits on the Monday.
As I said in my opening remarks, I am sure there are a number of points that I have failed to cover. If that is the case, I will ensure that the Committee receives full written responses.
Heritable Bank plc (Determination of Compensation) Order 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Heritable Bank plc (Determination of Compensation) Order 2008.
Relevant document: First report from the Joint Committee on Statutory Instruments.
Bradford & Bingley plc Compensation Scheme Order 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Bradford & Bingley plc Compensation Scheme Order 2008.
Relevant document: First report from the Joint Committee on Statutory Instruments.
Arrangement of Business
Before the next item of business, I wish to refer to an incident where a mobile telephone went off persistently and somewhat interrupted the Committee’s proceedings. This did not emanate from any Member of the Grand Committee, but it is important that this should not happen again. I hope that anyone present in the Room will turn off mobile phones, or at the very least have them on silent mode.
Could I just add to that? I find it highly embarrassing if a mobile goes off, but I do not fiddle with it for five minutes—I jolly well get the hell out of the room. I just wish that other people would do the same.
Child Benefit (Rates) (Amendment) Regulations 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Child Benefit (Rates) (Amendment) Regulations 2008.
Relevant document: First report from the Joint Committee on Statutory Instruments.
Child benefit, together with tax credits, delivers financial support to the families of children in the UK, and both are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations, which increase the rates of child benefit. In my view, the regulations are compatible with the European Convention on Human Rights.
Child benefit is payable to over 7 million families for around 13 million children and young people, providing almost all families in the UK with a worthwhile contribution towards the cost of bringing up their children. The Government are providing further support to those families in these difficult times. We have brought forward our commitment to increase child benefit to £20 for the first child and to £13.20 for subsequent children to come into effect in January 2009 rather than in April. As a result of these changes, a family with two children will gain £24 from bringing forward the increase to child benefit. For the first child this is an increase above inflation and the Government continue to meet their commitment to increasing child benefit in line with prices. As a result of these increases, the rate payable for the oldest qualifying child remains over 25 per cent greater in real terms than the rate payable in 1997. A family with two children now receives more than £33 a week.
In addition, although not part of these regulations, the Government are bringing forward their commitment to increase the child element of child tax credit by £25 above indexation in April 2010 to April 2009. Added to the existing commitment to uprate CTC this means that the child element will therefore increase by £75 above indexation. Next year, a family with two children with a single earner working full time on the minimum wage will receive around £10 extra in tax credits per week.
We remain committed to the Government's long-term aim of eliminating child poverty within a generation and halving it by 2010; child benefit and tax credits will remain a key part of this. I commend the regulations to the Committee.
I thank the Minister for introducing these draft regulations, but the fact that he has done so in relatively brief terms will not necessarily influence the amount of attention that I shall give them. Fundamentally, the regulations are not controversial in that they set out the expected uprating for child benefit and lay the ground for bringing forward the date on which it is paid from April to January, but that needs to be passed in another order rather than the regulations before us.
These regulations are part of the Government’s famed fiscal loosening. According to the Pre-Budget Report, it will cost the government finances £170 million, so taken on their own they will not do much in the context of our economy, which has of course suffered from 10 years during which the Government have wilfully racked up one of the largest structural deficits in the world. That structural deficit is a severe constraint on the Government’s ability to use fiscal measures to stimulate our economy, as many such as the OECD and the IMF have correctly pointed out. We believe that the policies outlined in the PBR are fundamentally flawed since they will saddle future generations with a level of unaffordable debt. If the Government’s growth forecasts prove to be optimistic, as many observers believe, the outlook for the country’s finances is even more dire.
Against that background, we will not oppose this little bit of fiscal loosening on the simple grounds that we would choose to run the economy in a different way. However, we would like to understand why the Government have chosen child benefit as one of the few measures in the PBR. I assume that they have done so on the careful basis of its impact on the economy. Indeed, that was what the Chancellor was trying to convince us about in the PBR. However, we find the use of child benefit, a universal benefit that is not taxable, a curious choice, and I hope that the Minister will explain the rationale. In that context, will he tell us what estimates the Treasury has made of the amount of the additional child benefit that will be spent, saved, or used to reduce debt? Since the benefit is payable to families whatever their income, the impact is likely to be less direct than, say, if child tax credits were used. I believe that the PBR is broadly predicated on a spend half/save half assumption. Can the Minister shed light on the assumptions in relation to child benefit?
The Minister raised the subject of child poverty, and that is what I now turn to since child benefit is one of the tools the Government claim they are using to reduce child poverty. It is not a particularly targeted tool in that regard, but the Government claim it as one that they wish to use. In the Pre-Budget Report speech, the Chancellor referred to child benefit immediately after making the usual commitment to eradicating child poverty by 2020, and of course through the forthcoming Bill, on which we look forward to working. However, we have yet to be convinced that there is any substance behind the Government’s commitment and whether a Bill can help that, but my noble friend Lord Skelmersdale is looking forward to working on the detail.
The Government like to brag about their record since 1997 on reducing child poverty, but the statistics simply do not add up. The number of children living in families on less than 40 per cent of median earnings, which is an absolute poverty measure, has risen in the past decade by 600,000. In 1997, there were an estimated 3.4 million children in relative poverty on the Government’s favourite measure. By the end of 2006-07, the latest period for which we have statistics, there were 2.9 million. However, the Government pledged to reduce that figure by 25 per cent by 2004-05, which is nearly four years ago, to 2.55 million, so they have missed that in spades and are still missing it. In the two years to 2006-07, child poverty increased by 200,000.
The Minister has already referred to the Government’s next target, which is to reduce child poverty by 50 per cent by 2010, and that requires a further 1.2 million children to be removed from relative poverty. However, will the Minister say whether the Government have any chance of meeting that target on current policies, because 2010 is getting awfully close? The ultimate target is eradication by 2020, as the Minister reminded us, although the Government have never said exactly what they mean by “eradication”, and they have certainly not said how they will get there. If the Minister has any more information on that, that will be valuable.
The PBR claims that measures since the 2007 Budget will lift 500,000 children out of relative poverty, which of course is nothing like enough to meet the 2010 target. However, the PBR does not differentiate between the different measures that contribute to this figure of 500,000. We have had the 2007 Budget, the 2008 Budget, the 10p rate climbdown in April 2008 and now the latest Pre-Budget Report. Paragraph 4.18 of the most recent Budget made exactly the same claim as is in this PBR—that 500,000 children will have been lifted out of poverty since the 2007 Budget. This implies that the PBR itself, including the measure before us today, will have no impact on child poverty, because exactly the same claim was made in the Budget last March. Alternatively, it may mean that since the last Budget the direction of child poverty has gone backwards again and that this Pre-Budget Report is required to correct that movement. I hope that the Minister will cast some light on what is happening in child poverty. It is important to understand not only what the Government are doing today but whether they have any hope whatever of meeting the targets for the future.
We on these Benches welcome this measure as far as it goes. I do not propose to make a slashing attack on government economic policy over the past 11 years, as the noble Baroness, Lady Noakes, has just made the case most powerfully. The audience consists of seven noble Lords, most of us pressed men and women. I see the noble Baroness the Conservative Chief Whip but, apart from her, we all have to be here and I am not sure that that will really be very productive. However, we believe that this provision is a way of getting money to people who are likely to spend it.
On the general economic argument, we do not believe that the 2.5 per cent VAT cut will be in any way effective. Indeed, I bought a set of Leeds Monopoly last week. It cost £25 in WH Smith and £20 in Zavvi. I bought it in Zavvi, which charged me £19.46. It had not even bothered to show the new price with the VAT cut, so I think that shows us how ineffective the cut has been.
This is a clear and simple benefit. Although it is not means-tested—I shall be interested to know whether the Minister has any figures on this—it tends to get spent on children by the parent, usually the mother. To that extent, we think that it is a sensible way of putting some spending power into the economy at this desperate time.
The Conservatives are against fiscal loosening in principle and therefore we are not sure why the noble Baroness, Lady Noakes, does not oppose these regulations, even though they involve only a little bit of fiscal loosening. However, we support them. I shall leave it there and look forward to the Minister’s reply.
I thank both noble Lords who have participated in our discussions to date. Each in their own way has welcomed the regulations, the noble Baroness, Lady Noakes, perhaps in a slightly unseasonal manner, although she acknowledged that they were uncontroversial. The £170-million cost is correct and is reflected in the PBR. The noble Baroness referred to the level of debt. We could debate it endlessly but I do not accept her assertions on our relative position. She certainly poured some doubt on the Government’s growth forecast. As we have debated on a number of occasions, the record of the Government and the Treasury in growth forecasts has overall proved to be stronger than a range of external commentators.
The noble Baroness asked me: why child benefit? As I explained, that is not the only thing we are doing; we are also bringing forward the child tax credit improvements as part of the package of measures. It is a universal benefit and therefore reaches the people for whom it is intended. It is one of the key measures we deploy to impact on child poverty. That is why we are using the mechanism of child benefit as a part of the package.
The noble Baroness asked what we mean by “eliminating”. She will be aware that we are scheduled to introduce a child poverty Bill in this Session of Parliament to take stock of where we are and how we can drive forward to eliminate child poverty in 2020. Along the way there will be a consultation which will reflect, in part, on where we are and on what other mechanisms we might deploy to meet that target. I would have thought that “eliminating” means that we no longer have the disparities relating to the 60 per cent measure that we have at the moment.
The noble Baroness raised a number of points about the progress we have made to date. Perhaps I am repeating a message that we have debated on a number of occasions over the years, but we look at this, in part, in the context of where we were when we took office. There had been a substantial period where child poverty had increased dramatically and reversing that is a significant achievement. The Government are committed to ending child poverty and we have the record to prove it. A total of 600,000 children have been lifted out of relative poverty since 1998-99 before housing costs, and 500,000 after housing costs. This represents significant progress.
The noble Baroness asked about the various measures that we have deployed to achieve that. There has been a combination of tax credits and child benefit increases. From April 2009, the child element of the child tax credit will increase by £75 above indexation to £2,235, bringing forward the commitment that was originally stated for April 2010, as I have already outlined; and we are discussing the child benefit increases at the moment. In addition, we have committed in respect of child maintenance to ensure that there is a total disregard in the calculation of benefits. That is another significant weapon in our armoury to tackle child poverty. We have made progress but there is no doubt that it is very challenging to make the progress that we want to. That is why we need to enshrine that commitment in legislation and, along the way, make sure that we identify all the levers that will help us to do so.
Before the noble Lord leaves child poverty, perhaps I can remind him of my question about the claim made in the PBR that since the 2007 Budget, some 500,000 children will be lifted out of child poverty compared with the identical claim made in the 2008 Budget. That implies that this PBR either does nothing for child poverty, which was not what it implied, or that it is necessary to reverse some other adverse trends, which would not be surprising given that child poverty has been rising in the statistics for the two years up to 2006-07, the latest for which we have them.
I say simply that the PBR is an update of the forecasts which takes account of what has happened since we looked at these issues during the 2008 Budget. That should be crystal clear.
The noble Lord, Lord Oakeshott, did not think that the VAT measures would work. Frankly, we will have to see. We are just at the start of the process of the reduction and we believe that it is a better measure for encouraging people back into prompting demand in the economy. It will run for a total of 13 months, and as I say, we are at the start of the process. Of course there is heavy discounting in the stores at the moment, but who knows how long that will continue. Both noble Lords asked me about the propensity for people to save child benefit sums in comparison with other amounts. I do not have specific data on that and my officials do not have it to hand. However, if there is anything, I shall certainly write to noble Lords
I stress that this is part of a package to help hard pressed families. We shall come on to talk about pensioners in the next order. Given the economic challenges we face because of the global credit crunch, I believe that this is an important step and I commend the regulations.
Christmas Bonus (Specified Sum) Order 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Christmas Bonus (Specified Sum) Order 2008.
Relevant document: First report from the Joint Committee on Statutory Instruments.
This order is made under Sections 148 and 175 of the Social Security Contributions and Benefits Act 1992. Its purpose is to award a one-off payment of £60 to provide direct and swift financial support to vulnerable people in our society: real help, when and where it is needed most. We recognise that older people are concerned during the current economic downturn, and that is why this year we are spending approximately £900 million on additional Christmas bonus payments. This will put an extra £60 in pensioners’ pockets in addition to the regular £10 Christmas bonus received annually in December. This is equivalent to the largest possible amount someone could have gained if we had brought forward the uprating of the basic state pension from April to January 2009.
Eligible recipients are those on various pensions, disability, care, industrial injury, war and bereavement benefits. This year’s Christmas bonus will be received by 15 million people, 12.5 million of whom are pensioners. We are determined to give pensioners more cash to help them through the winter and ease their worries about bills. This payment will go to all pensioners in receipt of state pension and pension credit, many of whom are on fixed incomes. Some 2.5 million others will also benefit from this one-off payment. The money will go to around 2 million disabled people, including 300,000 children, around 350,000 people who are carers and around 150,000 people in receipt of bereavement benefits.
The Christmas bonus will be paid in two instalments. Recipients will still get £10 this month, as in previous years, with the additional £60 to be paid between January and March in the new year. The majority of state pensioners should receive the £60 payment in January 2009, in addition to their pension. The remaining 3 million customers will get their £60 in February or March 2009. In practice, that is the earliest we can make these payments, after seeking and obtaining the approval of the Committee and of the other place. The need to obtain both Houses’ approval also explains why the qualifying week for this year’s Christmas bonus has been moved, by an order subject to the negative procedure, from the first week in December to the week commencing 22 December 2008.
Not only is this much-needed cash for those that need it most during challenging times; it is done via automatic payment, so that no one need worry about how and where to claim. Importantly, this stand-alone payment is a tax-free lump sum that will not affect the recipient’s entitlement to income-related benefits that they may already receive. Those who argue that we should do nothing are wrong; I am sure the many people receiving this payment will agree.
In these tough economic times, this one-off payment will provide genuine help to the UK’s most vulnerable people. As a valuable means of support for many who need it most during a time of increased financial pressure, it builds on a variety of other measures in the Chancellor’s Pre-Budget Report that were targeted to help the most vulnerable—including an increase in the full basic state pension from £90 to £95 a week, and the biggest increase in pension credit since it was introduced, so that no pensioner need live on less than £130 a week from April 2009.
Those increases add to the significant measures already in place to help pensioners, such as an increase in the winter fuel payment and an extra £50 for households with those aged 60 or over, or £100 for households with people aged 80 or over. It makes the claims process for these measures simpler and easier, as through one phone call you can now claim pension credit, housing benefit, council tax benefit and state pension. There is also free off-peak bus travel, free eye tests, free TV licences and, from April 2009, free swimming. The Government have recognised a need to help those on the lowest incomes now and, as I have outlined, we are introducing this one-off payment to help address that issue. I commend it to the Committee.
The Committee will be grateful, although doubtless not as grateful as pensioners and those on the specified social security benefits, for the noble Lord’s explanation of this beneficent order which, for one year only, raises the annual Christmas bonus from £10 to £70, but in two chunks. There is £10 before Christmas, which has almost entirely gone out—the Minister would be able to confirm that— and £60 some time between January and March, without, importantly, affecting such benefits as pension credit.
One of your Lordships told me a story about the first year of the Christmas bonus. It seems that a retired miner in Scotland went into the post office to get it. In those days, it was the norm to get social security benefits in cash from the post office—alas, no longer. Once he had it in his hot hands, he announced loudly, “I’m damned if any bugger is getting any of this”, marched straight over the road to the pub and spent the lot. I assume it was on drink, as history does not relate whether some was spent on cigarettes, which, according to James Bond, as I remember, double the hangover. Being a habitué of both vices, I could not possibly comment. Needless to say, he was carried back home completely paralytic.
That is exactly what the Government are hoping will happen now—not paralytic pensioners, but for pensioners to do their bit toward what the German Finance Minister calls “crass Keynesianism”, spending our way out of recession. Indeed, paragraph 7.5 of the Explanatory Memorandum says as much. Pensioners will, of course, be most grateful for the extra money, the second £60 of which they may not receive until March. The problem is that spending is likely to be the last thing they will do.
Officials, if not the Minister, will remember research that was carried out either by the DWP or the Department for Social Security—I cannot remember the exact date—on what pensioners do with any small amounts of extra money that they receive. I mention pensioners in particular as they are to receive 85 per cent of the £900 million that this order will cost the taxpayer. The research revealed that most pensioners saved it for a rainy day, perhaps for the boiler breaking down or for their funeral. What the other recipients will do with it is totally unknown. I am very much afraid that the pre-Christmas £10 will be spent and that the post-Christmas £60 will be saved or used to pay off debt. This hardly helps the economy in the way the Government hope. It will have exactly the effect that the reduction in VAT is having—and I agree with the noble Lord, Lord Oakeshott, on that point. We will await the results of spending over Christmas, which will be revealed in the new year. I doubt that it will be very different from last year’s Christmas spend.
Spending billions of pounds on preserving the banking system in this country is something of which we all approve, but, as my noble friend Lady Noakes almost said, putting small amounts of money temporarily into the economy simply will not have the effect the Government hope it will. It is quite possible in this recession, as my right honourable friend David Cameron said the other day, to help pensioners and others on benefits who pay tax by giving them a short tax holiday; the trick for the Government is to get help to those who do not pay tax. I am afraid that the prognosis for this order is not nearly as good.
I start by sharing with the Committee an acute observation that my noble friend Lady Walmsley has just made. She is sitting here patiently waiting until the Committee comes to her order, and I am sorry that our proceedings have rather dragged on today. She points out that the fact the payment is being made after Christmas probably means that pensioners have more chance of having some money to spend on themselves rather than on their grandchildren.
We welcome this payment on a rather grudging and limited basis, not because we do not think that pensioners need £70 but because they need an awful lot more. So long as the Government persist in their mean and means-tested policy on basic state pensions, pensioners will need every bit of extra help they can get, so we support it. But we do not like the policy that Gordon Brown has constantly promoted in his Budgets, which is a series of one-off stunts, wheezes and individual payments to pensioners. They are entitled to a decent basic state pension on which they can live without means-testing and the problems of destroying incentives that our heavily means-tested pension system involves. Pensioners should not be put in the position of cottagers waiting for the squire or his lady to come round and hand out a turkey at Christmas; they should be paid a pension on which they can live every week of the year.
In the Commons, Tony McNulty proudly said that the increase in the state pension—up, from April 2009, to the magnificent sum of £95.25 a week—would represent a real-terms rise in the state pension of 7 per cent since 1997. Pensioners are better off by 7p in the pound on the basic state pension after 11 years of Labour government. What has been the rise in average real incomes generally over that period? I imagine that the figure is about 30 per cent; perhaps the Minister could confirm that. Pensioners’ basic state pension has risen only one-quarter as fast as real incomes generally for other people.
On the means-tested state pension, I challenge the Minister to say how it can continue to be fair that pensioners who have saved a modest amount of money in their life—over £6,000—have their savings credit deducted on the assumption that they are able to earn 10 per cent on their savings, so that for every £500 they can earn £1 a week. In fact, it is slightly more than 10 per cent. Where can pensioners possibly get any rate like that? They could not get it even from a dodgy Icelandic bank a few months ago, and now pensioners, like other savers, are seeing their returns cut to ribbons. Will the Minister and his department urgently reconsider this grossly unfair limit and reset it at a level that more fairly reflects the returns that pensioners can get from their savings?
I thank both noble Lords for their welcome and support for the order. Each reflected on the fact that it will be paid in two chunks and that the £60 will not be paid until between January and March. That is a logistical issue; obviously if it had been possible to pay it earlier it would have happened. However, this is a good mechanism with which to create the same effect as with the accelerated payment of the basic state pension on its uprated basis until January.
The noble Lord, Lord Skelmersdale, challenged whether it would be spent. We believe that it will. It is more likely to be spent than if the resources were directed to other groups. Why do I say that? Generally pensioners are less indebted than other members of the community and generally, of course, pensioners are less concerned about the prospect of loss of employment. They therefore make savings to provide for this kind of rainy day. We believe it is as likely to be spent by this group as by any other. The noble Lord suggested that these are small amounts which would not make much difference. They are not insignificant to the recipients of them and, again, are part of the package.
The noble Lord, Lord Oakeshott, referred to the basic state pension and the adequacy or otherwise of that. He will be aware that the reforms we debated and dealt with in the Act last year will provide in 2012 or by the end of the next Parliament, depending on resources, that the basic state pension will be uprated in line with earnings. He is aware of the changes and improvements that have been made to the state second pension as well. When considering incomes for pensioners, you need to take account of occupational pension provision and, again, the noble Lord will be aware of the significant changes in the Act that we passed a few weeks ago.
On the rate of the basic state pension, I have in mind the statistic on which we had some exchange during the passage of the Bill—that is, if you double the basic state pension in 2012, in 2050 you would still have 25 per cent of the population on some kind of means-tested benefit. To assume that jacking up the basic state pension on an affordable basis would eliminate means testing is not right.
As to the impact of the £5 increase on the basic state pension, you need also to consider what has happened to the minimum income guarantee in pension credit. On the basis of the upratings, a single person will receive a minimum of £130 a week and a couple £198 a week. These are significant improvements from where we started. The Government were right, and continue to be right, to target resources on those pensioners who most need it.
Is that not a slightly different point? The point about the order and the benefits that flow from it is that they are universal benefits—in other words, they go to taxpayers and non-taxpayers.
The noble Lord is right; I was dealing with the broader point that the noble Lord was pressing about the adequacy of the basic state pension. I was seeking to address the issue of where the Government direct their resources.
I thank the noble Lord for giving way. While we are on that point, can he give us the latest estimate of the number of pensioners who are not claiming the pension credit to which they would be entitled? I believe that the latest figure I saw was 1.8 million. Can he update us on that?
I think that the number is somewhere in the briefing and I hope that by the time I finish this response it will appear from the Box.
I want to deal with the assumed rate of interest on savings, which can sometimes be taken out of context. As the noble Lord is aware, there is a disregard for the first £6,000 of savings—£10,000 for those in a care home—and the tariff applies only to savings above that level. Therefore, if you had £7,000 of capital, you would have £2 a week deemed income. That is a quite different exchange rate from the 10 per cent that the noble Lord asserted. It is also right to say that quite a high percentage of people in receipt of pension credit do not have savings above the £6,000 threshold. In fact, the majority—around 80 per cent—of pensioners who get pension credit have savings of £6,000 or less. I believe that the tariff that applies for pensioners is also about half the rate assumed for working age benefits.
With regard to take-up, 3.3 million are currently claiming pension credit. We believe that between 59 per cent and 67 per cent of pensioners entitled are receiving pension credit, but take-up of the guaranteed credit, which is paid to the poorest pensioners, is between 68 per cent and 78 per cent. The noble Lord will be aware that there is a lot of activity to try to ensure that that rate is increased. When I moved the order, I referred in particular to the opportunity to claim state pension, pension credit, housing benefit and council tax benefit in one phone call. However, there is no doubt that we need to continue to drive take-up forward, because these are sums to which pensioners are entitled. They are targeted on pensioners and poorer pensioners, and we need to do everything that we can to ensure that the benefit is available to them.
I thank the noble Lord for that figure. Of course, those estimates really mean that between one-third and two-fifths of pensioners do not receive the pension credit to which they are entitled. Perhaps I may ask him for a specific figure. The point that he made related to the disregard and the assumption of a 10 per cent interest rate, but what was the rate of interest that pensioners could achieve when that rate was fixed? If it was fair then, it can hardly be fair now when they can receive only 2 per cent or 3 per cent.
Clearly, with interest rates at a lower level, the rate will have gone down. However, the key point is that most people do not have £6,000-worth of savings and do not come within the tariff, and therefore the interest that they receive is effectively ignored in this calculation. I do not have the data regarding when the threshold was first fixed and what the interest rates were then, but I shall be perfectly happy to have that checked and shall write to the noble Lord. Since the tariff has been introduced, interest rates have gone up and down—and who knows what their future passage will be? However, I stress again that 80 per cent of pensioners do not have savings above that level and are therefore not affected at all by the tariff.
I hope that that has dealt with each of the points raised, although, if not, I shall be perfectly happy to try again. Otherwise, I ask that the order be accepted.
Local Authorities (England) (Charges for Property Searches) Regulations 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Local Authorities (England) (Charges for Property Searches) Regulations 2008.
Relevant document: 32nd report, Session 2007-08, from the Joint Committee on Statutory Instruments.
The regulations were laid before the House on 13 November 2008.
Property searches form part of home information packs—a subject that interests noble Lords—but our regulations today are on a very specific aspect of property searches and one that is very much identified as bringing benefit and a better service to the consumer.
I turn to the regulations. Property searches are a well established component of the home buying and selling process. Incidentally, since the introduction of HIPs, local authority searches have gone down by 23 per cent, which is a great credit to local authorities. When buying a property, a consumer needs information to uncover issues relating to the building or its surrounding environment that may impact on the value of the property or affect their desire to live in it—for example, assurance that any previous building work has been carried out properly. Local authorities hold all the data required to compile property searches but there is a market in producing searches. Local authorities produce official searches and the private sector has an equivalent product known as a personal search. They compete to supply these products to consumers and search companies are, therefore, reliant on having access to local-authority-held data.
The problem to be addressed in these regulations is that some authorities are reluctant to provide access to data as they are concerned that they may not be able to recover the costs of providing it; similarly, some search companies are reluctant to pay for property research data claiming that local authorities do not have the powers to charge for the data. Either way, there is no framework that enables a level playing field to operate and it is the consumers who suffer; they are caught in the middle of all this. The problem is therefore not only a lack of standardised charging but a lack of a clear framework to drive fair and consistent practices. That is what the regulations are intended to do.
In circumstances where a local authority restricts access, the private search sector has historically used insurance to cover for missing data. In practice this means that on occasion consumers do not have all the information on which to base their decisions. In turn, that can lead to buyers incurring additional costs if their solicitor subsequently advises them to commission an additional local authority search as a replacement. Regrettably, some search companies have been able to use insurance to avoid responsibility for providing all available data in a search. That is not acceptable. Consumers are paying for, and rightly expect, accurate and comprehensive information. They certainly should not have to pay twice.
On the use of insurance in personal searches, my right honourable friend the Housing Minister announced on 8 December that the practice of private companies being able to use insurance will end on 6 April 2009. This will allow time for local authorities and the private sector to adjust working practices to the charges regulations. This is driven by evidence. The issues of access and charging are long-standing and inextricably linked. They were picked up by the Office of Fair Trading in its study of the property searches market in late 2005. The OFT made a number of recommendations to deliver improved competition in the delivery of property searches; in particular, it recommended equal access for all parties to data and clarity on how local authorities charge. The Government support this and we have taken action accordingly.
In January this year we acted to address the first of these recommendations when we published Good Practice Guidance for Local Authorities and Personal Searchers. This set a benchmark for local authorities to provide access to data within three working days and provided guidance to facilitate better working local arrangements between the public and private sectors. The Local Authorities (England) (Charges for Property Searches) Regulations—which I shall refer to as the charges regulations from this point—are a response to the second part of the OFT recommended reforms. They aim to ensure that consumers receive prompt, quality, value-for-money property searches. The charges regulations are intended to provide clarity on how local authorities charge for search data.
The existing charging provisions allow local authorities to charge for data but, as I say, this is disputed by some search companies. But, significantly, the charges regulations put this beyond doubt by establishing a framework that will ensure a common basis and transparency on what local authorities can charge for, how they calculate charges for data and how they must account. Flexibility is provided for authorities to recover the costs of providing property search data so that local council tax payers do not in effect subsidise them.
I turn briefly to the particulars of the regulations. Regulation 5 will allow a local authority to charge for granting access to data used for compiling property searches on the basis that any such charge should also be applied internally to the different parts of an authority that require access to the data. Regulation 6 sets out how charges must be calculated; that is, the factors that ought to be taken into account. Regulation 8 gives a local authority the power to make charges for its own compiled search products—its “official search”. In doing so, a local authority has discretion, but must,
“have regard to its costs”.
Regulation 9 ensures transparency in relation to the setting of charges by requiring local authorities to publish annual information on the charges made under the regulations.
The underlying principle to ensure the fairness of the charges regulations is that authorities must make search information available to all on equal terms. If it costs an authority £20 to produce the necessary data, it must charge a search company £20 for that data and no more. It is from this starting point that the “level playing field” envisaged by the OFT is established and from which competition begins. The charges regulations are based on existing local authority accounting practice as set out in the approved Best Value Code of Accounting Practice, so the framework will therefore not only deliver transparency but provide an appropriate route for challenge. Furthermore, we will publish guidance to support the charges regulations.
I have said that these regulations are very much evidence-based. In developing them, we carried out two public consultations. There have of course been differing views and some in the private sector raised concerns about charging, but in general local authorities welcome the clarity they will provide and the fact that they address long-standing concerns. The OFT supports our approach, which it considers will lead to greater competition and efficiency in the sector and as a result create savings for consumers. Some private search companies raised concerns about the ability of local authorities to charge for certain data that might be “environmental information” or to set unreasonable charges. We addressed these concerns as we developed the proposals while ensuring that the needs of consumers remained paramount. The regulations would not apply where the information must be provided free of charge or another power applies. Property search charges will also be subject to local government accounting procedures.
I shall outline the benefits of the regulations. Once they are in place and the use of insurance is no longer allowed, competition in delivering property searches will improve. But it is the consumer who we expect to benefit most from these changes. They should benefit from improvements to the quality of searches as they will contain all the required data. Consumers will therefore receive better value for money through not having to pay twice, in some cases commissioning a second search because the initial one had missing data. We also expect there to be further reductions in the price of property searches. As I said earlier, local authority prices have already fallen on average by £30 over the last 18 months. We believe that search companies will also benefit. Improved access to data will negate the need for insurance, improving the quality and acceptability of their search products to the legal profession and mortgage lenders. More important, this will remove any competitive advantage that some companies derive by simply not obtaining data. This will no longer be an option. Local authorities and ultimately local council tax payers will benefit by recouping the costs of delivering property searches data.
I am confident that the charges regulations are proportionate, transparent and right. I believe, in conjunction with the other action we are taking to reform the property searches market, that they will deliver significant benefits to consumers. It cannot be right that consumers receive poor value for money through incomplete searches, particularly where the data are already available. That is an absurd situation. I hope that noble Lords will approve the regulations and I look forward to hearing the debate.
I am grateful to the Minister for her explanation of the background to these regulations. Indeed, in principle one cannot quarrel with what the Government are trying to do in this field; they are clearly trying to produce a situation that treats everyone equally, which must be admirable, and which is clear and plain so that everyone can understand what is happening. Until now that has not been the case, so to that extent these regulations are thoroughly welcome. They give rise, however, to one or two questions.
In life, timing is all. One cannot help but wonder whether the timing of the arrival of these regulations is particularly fortunate. I was going to say that the housing market was in ferment. The trouble is that it is not; it is almost in a state of terminal decline. That is going to cause real problems for the local authorities, because there is no doubt that they will properly have to gear up what I would call their property search departments to cater for the huge demand that there has been in the recent past. That is fine and good, but for anyone working in that sector in local government there is a problem. We know from what mortgage lenders are saying that the number of applications for new mortgages has almost vanished—not completely, but it is way down from where it was. Any local authority now budgeting for next year on the basis proposed in the regulations will have historic costs based on a high volume of inquiries, and a realistic estimate of the number of inquiries next year will probably be no more than 25 per cent of that. That in turn suggests a relatively high charge.
If, as the regulations require, you balance the cost with the number of inquiries and produce a charge as a result of that calculation, the cost of an individual search could be relatively very high, especially in comparison with what was happening only a short time ago. At that point, there will be howls of complaint from most consumers about over-inflationary increases in costs. There is a real difficulty here for both local authorities and purchasers. What are the Minister’s thoughts on this? In the present circumstances, we do not want to do anything that might increase the costs of property transactions. There are enough difficulties in the market without adding this one to it.
The other oddity that I have come across recently arose at the Land Registry. I declare an interest as a property owner, and it was my own circumstances that produced this question; it is not particularly related to this issue but it is an interesting one. The Land Registry is the other half of the search side that has to be done on a property and its attitude can sometimes be different from that of the local authority. I was not aware of this until I put a property on the market. The property is and always has been two separate cottages, but they are semi-detached on one side. The local authority, quite properly, has two charges on them—they are both rated separately and all the services charges are separate and so on—but, because I am one owner, the Land Registry says that there is only one property. It is an interesting little conundrum.
I wonder whether we need to think—not with regard to these regulations; I merely wanted to raise the issue with the Government—about how we deal with that inconsistency. For instance, it could arise if a housing association were selling properties. How would the Land Registry treat what might be hundreds of houses all on a congruent site but with only one owner? Is that one Land Registry search or will it be 100? It is a separate issue but it relates to this general subject.
I agree in principle with the wording relating to the new way in which charges are to be calculated, but we have to be careful of some very unfortunate side-effects that may cause an adverse reaction. My personal view is that, while the local authority must publish these figures, as it is required to do, if it is wise it will none the less absorb a large proportion of the otherwise huge increase in unit cost that will arise in the coming year in order to try to keep search charges down and thus not provide a disincentive for people in the housing market.
I, too, thank the Minister for her explanation of the regulations. On these Benches we believe that the criteria for judging them should be whether in the end a better service will be provided for the home-buyer. It really is not acceptable that anyone should be provided with incomplete search information, but it occurs to me that, if the local authority is able to charge the recovery cost of supplying information, it should certainly provide as much information as it has access to. I have received representations from lobbies on both sides of the argument: vested interests from local authorities and vested interests from commercial organisations which make their living by obtaining these data and selling them on to customers.
I should like to put some questions to the noble Baroness. First, however, I want to make a point about the charges. I agree that it is best that charges should be set by local cost determination, but I wonder whether that will lead to postcode charging, as it were. Are local authorities likely to do this through the auspices of the Local Government Association? The order provides that local authorities have to predict the cost for the coming year, using as evidence the costs incurred during the preceding three years. The noble Lord, Lord Dixon-Smith, assumed that in a falling property market the charges are likely to be too high. However, I would point out to him—and I shall check with the Minister that I am correct—that, if this is genuine cost recovery and not the cost of funding the whole department which has been built up over preceding years in a booming property market, there may in fact be economies of scale when dealing with a lot of inquiries. Fewer inquiries may cost a little more to deal with but, according to these regulations, I understand that local authorities would not be justified in charging the whole cost of maintaining the data. Can the Minister confirm that, although a local authority may justify charging for modernising and updating the database and the quality of the information that it will supply, it cannot make a charge for the whole cost of maintaining the data; it can charge simply for searching for the data and supplying them to the inquirer?
The Local Government Association has a few questions that I should like to put to the noble Baroness. Can she confirm that a charge for access can be applied to every individual property subject to the request rather than to a single request relating to a whole bunch of inquiries that have all been put in together? That relates to the question put by the noble Lord, Lord Dixon-Smith, about the Land Registry. Further, under these regulations will local authorities have the freedom to differentiate charges based on the level of service? For example, if an inquiry required an urgent response, would the local authority be justified in charging more for that? Finally, what steps will be taken to ensure that local authorities do not overcharge, especially given the current difficulties with the property market? There is bound to be a temptation, shall we say, to do so.
The commercial organisations that have written to us have raised an important matter of principle and are threatening judicial review on the issue. I am sure the noble Baroness will have heard rumours about this. They say that the underlying feature of the regulations is the reversal of a long-standing legal presumption enshrined in case law that public information which was freely available is now to be restricted by cost. They wonder whether this will have a major impact on many small businesses and create a precedent that could be used elsewhere. They are most anxious that local authorities charge only the cost recovery and not the whole cost of maintaining the databases.
These organisations are also asking about regulation and monitoring. Will this be carried out by the district auditor? In what way will local authorities be checked as to whether it is genuine cost recovery? To the man in the street, the information would be gobbledegook; no one would understand it. It will need someone who is knowledgeable and able to analyse the way in which local authorities publish and charge, and say whether or not that is reasonable.
How are we going to know that there is a level playing field and equal access to this information? It is right that there should be a level playing field and that taxpayers should not subsidise organisations which are making a profit out of their activities, but it needs to be fair. Some serious questions have been raised on both sides of the argument and I hope that the Minister will be able to answer them.
I am grateful for the welcome that the regulations have received. The appearance of the noble Baroness on the Front Bench on this issue is very welcome. I cannot greet her perspicacious questions so warmly, but it is very nice to see her.
It is only temporary.
I understand it is temporary but I look forward to seeing her again.
The important point raised by the noble Lord, Lord Dixon-Smith, has to be considered seriously because, clearly, everything that we are doing in housing at the moment is conditioned through the prism of what is happening in the housing market. Whatever we do, we have to be careful that it will add to people’s capacity and ability to buy and sell houses. Whether they are lenders, buyers or estate agents—the whole industry—we do not want to put any accidental or deliberate obstacles in the way of the process. The fact that the OFT has committed to looking at the process as a whole is a welcome step forward. We are working closely with all the stakeholders in this field, including the consumer bodies, Which?, the Royal Institution of Chartered Surveyors and so on.
The noble Lord’s final argument was that the discipline of a falling market means that people are going to be careful about how they do things, including how they charge. The regulations give us far greater transparency on the costs—how they are incurred, what is being charged and value for money. People will not be fobbed off by a private search company telling them that they cannot get hold of the information, because now they will be able to do so. Competition is now built in and the cost of searches has been dropping. That should hold steady because, for the first time, we have a genuinely competitive situation.
Paragraph (2) of Regulation 6 reads:
“Subject to paragraph (3), each charge or recharge … for access to property records made during a financial year must be calculated by … dividing a reasonable estimate of the likely total costs to the local authority in granting access to property records … during the financial year; by … a reasonable estimate of the number of requests for access to property records likely to be received”.
In my view, that is explicit. It does not leave a great deal of room for manoeuvre on what the charge should be; or does it? If it does, perhaps I should be content, but my reading of the wording is that it is very explicit and that it almost sets the charge.
The crucial words there are “a reasonable estimate”. I think that local authorities know what they are up against these days and they are aware of their responsibility to try to maintain as lively and thriving a market as possible. However, other factors come in as well. My advice is that Regulation 6(2) regarding the unit charge applies only to access to a property search; the costs to the consumers are discretionary. So two things are happening there and I am grateful for clarification on that.
The other thing that we need to think about is that, in trying to remain competitive in a declining market, the private sector will be restrained in passing on additional costs to consumers. I think that improved competition based on the OFT’s envisaged level playing field will place additional pressure on search prices to fall, certainly in the medium to longer term. The guidance also states that local authorities are allowed to charge for units of data, so they will not be so reliant on collecting data for a property search.
The noble Baroness asked whether you would be paying to maintain your archive. The answer is no. The costs you would pay would relate to what you have to deliver to the consumer, so we can be certain that it would be the relevant portion of the specific data.
The noble Baroness asked some specific questions and perhaps I may address the important one about whether we have reversed an existing point of law. We certainly would not agree with that. Essentially, the regulations are intended to clarify a point of law which was disputed by some. We were of the view that the previous regulations allowed local authorities the discretion to charge for data where the statute is silent on charging, although the personal searchers certainly disputed that and some local authorities were unsure. It is worth putting that on the record because the new regulations put the issue beyond doubt. That was explicitly covered in the original consultation on charging, which ended in April 2008, and it is also the position that the OFT set out in its 2005 report.
Essentially, property search data fall into three categories: data held on public registers that can explicitly be inspected free of charge; data held on public registers where the statute says nothing about charging; and data not held on a public register. We believe that local authorities always have the power to charge for the latter two categories, and the new charging regulations reflect that. I hope that that satisfies the noble Baroness.
She also asked whether the local authority would be checked by the district auditor. That will indeed be the case. She asked whether the local authority would have the freedom to differentiate between different levels of service support—if, for example, there was a particular challenge or a particular urgency—and, again, the answer is yes. She also asked me something that I cannot answer; I am afraid that I shall have to write to her about that. I think I have picked up most of the questions that the noble Baroness asked.
On the noble Lord’s final question about bundling up, I am not sure what the Land Registry’s practice is. I will look into that. It seems not to be entirely logical if the registry does not distinguish between units of dwelling in property searches. I will check. My understanding is that there would have to be an individual property search on each property—in fact, I am sure that that is the case—but I will see if I can throw some light on this strange situation that may have arisen with the Land Registry.
I think I have answered all the questions but, if I have not, I will be happy to do so in writing when I have read Hansard tomorrow.
I thank the Minister. I am deputising for my noble friend Lady Hamwee and ask that the Minister and her officials copy the letter to her; she is more likely to make head or tail of it than I am.
Safeguarding Vulnerable Groups Act 2006 (Prescribed Criteria and Miscellaneous Provisions) Regulations 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Safeguarding Vulnerable Groups Act 2006 (Prescribed Criteria and Miscellaneous Provisions) Regulations 2008.
Relevant document: 32nd Report, Session 2007-08, from the Joint Committee on Statutory Instruments
The draft regulations we are debating today set out the offences that will lead to automatic barring under the new vetting and barring scheme. I thank both the Joint Committee on Statutory Instruments and the Merits Committee for their careful consideration of these draft regulations. I have noted their comments on the issue of the name change from the Independent Barring Board to the Independent Safeguarding Authority.
Barring decisions under the new scheme will be taken by the new Independent Safeguarding Authority, or ISA, currently referred to in the legislation as the Independent Barring Board. We intend to legislate at an early opportunity to put that change of name into law, an issue that noble Lords raised last time, so that we can make things simpler in the law in future.
The Safeguarding Vulnerable Groups Act also provides for automatic barring where the individual has committed one of a set of prescribed offences. I have published an information note for noble Lords to support this debate that explains the offences in these regulations in more detail and explains how the barring processes will work. The ISA will make barring decisions on the cases referred to it, basing its decisions on information gathered from police sources, regulatory bodies and referrals from employers. The ISA will write to individuals whom it proposes to bar, informing them of their right to make representations and, if the bar is confirmed following representations, their right to seek leave to appeal. However, some offences, which are listed in these draft regulations, are so serious that the perpetrator must be barred automatically. Where guilt has been established, in the case of a conviction, it has been proved beyond reasonable doubt or, in the case of a caution, the individual has admitted guilt. The offences listed in these regulations are sufficiently serious for the presumption to be made that the individual poses a risk of harm.
We consulted experts and took account of offences which lead to an automatic bar on List 99 or a disqualification order. In the most serious cases, such as a serious sexual offence with violence, there will be no prospect of mitigating circumstances that might cause the ISA to overturn the bar and the individual will not be able to make representations against it. In other cases, we accept the possibility that there may be mitigating circumstances, and the draft regulations allow representations to the ISA. Where an individual has been barred, they will have the right to seek permission for a review after a set period has elapsed. The information note gives more detail on that aspect of the scheme.
While these regulations are mainly about the offences, they contain two other provisions—at regulation 7, about independent schools, and at regulation 8, about disqualification orders from working with children. The purpose of regulation 7 is to give independent schools the same duty to refer cases to the ISA that maintained schools have under the transitory provisions order that your Lordships approved last month. Regulation 8’s purpose is that if a court imposes a disqualification order after ISA decision-making has started, the ISA must automatically bar the person instead of the Secretary of State barring them and then returning the case to ISA. That will create a more streamlined procedure.
On the list of offences itself; automatic barring is a serious matter and Parliament, quite rightly, required in the Act that the regulations establishing offences which lead to automatic barring should be by affirmative resolution. However, this is not the first time that these offences have been subject to public scrutiny and it may be helpful if I outline the steps that we have gone through.
While the Bill was proceeding through Parliament, we published an information note setting out how we intended to exercise the power. In summer 2007, we conducted a full public consultation on the list of offences. The Government’s response was published in November 2007 and there was widespread support for the proposals. In March, Parliament debated and approved the transitional version of these regulations. That version contained only the “no representations” offences as its purpose was to determine which currently barred individuals are to be placed on the new barred lists with no right to make representations. However, in order that Parliament could see the whole picture, we produced another information note for those debates stating how we intended to use the powers for automatic barring.
Finally, last month we debated an order that will allow the ISA to take barring decisions on referrals to the current schemes together with a foreign offences order allowing us to include equivalent offences in these regulations. Noble Lords will see that we have indeed included such foreign offences here, as I undertook to do in that debate, which was again supported with a further information note on our intentions for the automatic barring offences.
Automatic barring in the children’s workforce has operated since February 2007 under the List 99 arrangements. These include all the offences in current List 99 regulations so noble Lords may be assured that there will be no diminution in safeguarding from approving these new arrangements. When the new scheme comes into force, which we intend should be from October 2009, it will cover the wider range of workforces specified in the Safeguarding Vulnerable Groups Act. Before then, however, the ISA will make the decisions to bar people on referral to the existing barred lists under the terms of the transitory provisions order that we debated last month.
We intend that the draft regulations will come into force at the same time as the transitional ISA decision-making phase, subject to parliamentary approval, on 20 January 2009. The effect of these regulations will continue in force once the transitional period is over and the new scheme is operational. Nothing is more important than safeguarding children and vulnerable adults from those who pose a serious risk of harm. It is a responsibility that we all share. The Government are determined to do everything they can to play their part in this work. I commend the regulations to the Committee.
I thank the Minister for a well-informed introduction. Noble Lords will be aware that when the Bill was discussed my noble friend Lady Morris of Bolton made clear our view that protecting the most vulnerable in our society is of the utmost importance. For that it was essential that the Government should ensure that training and support are provided.
In declaring an interest in adult social care, I should say that my staff often work with vulnerable people. While I accept that CRB, POVA and POCA checks are asked for, will the Minister look at ensuring that the costs of these inquiries do not continue to increase as rapidly as they have recently as this will lead to less scrupulous employers taking short cuts? It is also important in terms of the impact on individuals who want to take up voluntary roles.
I want to touch on a point raised by my noble friend Lady Morris concerning the significance of a caution. People often accept cautions without understanding the full seriousness of the implications. Can the Minister tell us what action the Government have taken to ensure that the police are improving public understanding of cautions? To ensure clarity on this issue, in the case of crimes committed over 10 years ago, is the person who committed the crime then able to work with vulnerable children and adults? Further, if a crime was committed a long time ago but the conviction made more recently, does that allow the convicted person to work?
Again mainly for clarity, given that the Minister referred to automatic barring for foreign workers who may pose a threat, are we now linked into the European criminal database, Schengen Information System II? Without this system, how can we stop dangerous offenders who come from outside the country working with vulnerable groups? I ask this given that one in 10 carers working with children in the UK is from overseas, and that only three of the 26 countries concerned actually pass on any information to the UK about child protection registers. I am sure that the Minister will accept that this is a dreadful position and that the Government were wrong to reject amendments that could have assisted in providing protection in these vulnerable areas.
I seek a further point of clarification. Social care staff barred from working with children and vulnerable adults may be unable to exercise their right to a fair appeal hearing when the system changes next year. David Pearl, a senior judge, has said that individuals would not be able to challenge a judgment of the Independent Safeguarding Authority if they considered the sanctions to be too harsh. The honourable Judge Pearl said that:
“This provision appears to be contrary to Article 6 of the European Convention on Human Rights—the right to a fair trial”.
What does the Minister have to say in response to the fears raised by this issue?
Finally, can the Minister elaborate further on why regulation 7 will mean that independent schools have to refer to the ISA rather than to the Secretary of State in cases where a member of staff appears to be unsuitable to work with children?
I, too, thank the Minister for her explanation. I share the concerns of the noble Baroness, Lady Verma, about the issue of cautions and foreign workers, and I believe that I have said so on the several previous occasions that we have debated the subject. How regularly will the House receive updates on the UK Government’s relationship with foreign Governments and on the information we obtain regarding the offences of those who want to come to this country to work with vulnerable people?
These regulations, which allow the ISA to deal with non-migration or new cases, are of course necessary. However, as the Minister might recall, when the original legislation was debated in your Lordships’ House, we on these Benches were concerned about two of the four ways in which individuals could be barred from working with children and vulnerable people. We felt that the balance between protecting vulnerable people and children and the human rights of individuals might not be quite right in certain small matters of detail.
Perhaps I may list the ways in which people can be barred and say which ones we are still concerned about. The first four are: automatic barring without the right to representation; automatic barring with the right to representation; barring at the ISA’s discretion based on previous actions of the person concerned; and barring at the ISA’s discretion on the basis that it judges that the person may behave in a way which would harm a vulnerable person. We still have concerns about the first and last of those. Can the Government assure us that we will get a report on the second way in which people can be barred—that is, barred automatically but with the right to representation? The basis of the decisions following such representation may shed light on whether the first way of barring people—that is, without representation—is the right way to go. If people are automatically barred but then go on to make representations that are accepted and are allowed by the ISA to work with vulnerable people, then perhaps we should look again at the category of those who are barred automatically with no right of representation. If we can be assured that we will receive regular reports on those cases, we might be able to consider whether the first category—barring without representation—is the right way to go.
On the fourth group, the Minister will recall that we were concerned that the ISA has the discretion to bar someone on the basis of what it thinks they might do rather than what they have actually done. It would be helpful to know whether there will be a review of how the ISA has used these powers. It would enable us to judge whether the fourth category of barring is the way to go or whether there are still concerns about the human rights of those being considered for barring.
I have a couple of questions about two other aspects of the regulations. The first is on the representation period. As the Minister said, the ISA will notify the individual when he is automatically barred, and, when it is allowed, he will have eight weeks in which to make representations about it. I notice that the ISA has discretion to extend that period if it is satisfied that there is a good reason for doing so. Can the Minister give any examples of the sorts of reasons that the ISA might accept as justifying an extension of the period from eight weeks?
On the minimum review period, it is right that there should be variable review periods for people of different ages. There has been considerable discussion about the under-18s and, if I remember correctly, the Government made a concession by reducing the no review period to one year, given that young people sometimes do foolish things and then change as they grow up. However, I do have a question on this issue. There is no right to a review—it is at the discretion of the ISA—and the barred person has to show that their circumstances have changed in order to be allowed one. Can the Minister give any examples of the kind of circumstances that might be acceptable to the ISA for it to grant a review? For example, would undergoing an anger management course, sexual therapy and so on be considered valid when a barred person asks for their case to be reviewed after the appropriate period of time?
On putting independent schools on the same footing as maintained schools with regard to the duty to refer a case, I disagree with the noble Baroness, Lady Verma. I think the measure is perfectly justified and I welcome it. My questions refer to the details of the barring issues.
I hope that I can respond comprehensively to the questions. However, before I do so, I have been rather remiss because I should have welcomed the noble Baroness, Lady Verma, to her position. I think I am right in doing that. We are starting a new Session and I feel that I should have done so at the start. I look forward to working with the noble Baroness. She will bring to this brief her forensic grasp of the importance of the detail of this subject and a great perspective of the bigger picture.
The noble Baroness started her contribution with a very important point. I agree wholeheartedly about two issues: first, the importance of training and support for all staff working in these important areas with vulnerable people, and I have no doubt we will cover that theme again and again in the coming months in our deliberations on the whole issue; and, secondly, the need for Criminal Records Bureau checks to be accessible. Of course, if they are not accessible, the system will start to creak. It is important that that is on the record. Volunteers should not pay a fee for their criminal record checks. That will continue in the new vetting and barring scheme where volunteers will not be charged for registration. We expect volunteers to play their part and become registered in the new scheme and it is important that they do not have an onerous financial burden placed upon them.
The noble Baroness also asked about Regulation 7 and the question of why independent schools should refer to the ISA. The point we are making is that this merely puts independent schools on the same footing as maintained schools. Once the transitional provisions order comes into force, all referrals relating to safeguarding concerns will have to be made in a set way to the ISA regardless of what part of the system the schools are in.
Members asked about automatic barring and the question of a conflict with human rights. We are very clear that there is no conflict between human rights and automatic barring. It is the Government’s view that such barring takes place because of the operation of law. The act of automatically barring a person from engaging in regulated activity without the right to make representations does not constitute the determination of their civil rights. There is no conflict with the human rights convention because automatic barring happens as a consequence of the criminal justice system following on from the conviction, so it is an extension of that conviction. We provided information on that point for the Merits Committee earlier this year when the transitional version of these regulations was debated. I am happy to circulate further the communication with the Merits Committee if that would be helpful.
Both noble Baronesses talked about whether ISA appeals are compliant with the ECHR. We believe that the scope of ISA appeals, which can be on a point of law or on a finding of fact, complies with the right to a fair trial. The current scope of appeals gives the upper tribunal that will hear ISA appeals all the powers it needs to overturn an unsound barring decision. In particular, an appeal on a point of law can include an appeal on the basis that an ISA decision might be unreasonable, so that is the option. Appeals should not be extended to the ISA’s expert judgment on whether or not to bar a person, which is separate from the ISA finding a fact about that person. The tribunal will not be in a position to make a similar judgment. The Act’s compliance with human rights was tested thoroughly through the passage of the legislation. We take this issue seriously and have been careful to think through the implications of automatic barring and the question of how the appeals work where an appeal is possible.
Members asked about the flow of information from the EU. As we discussed last time, there was an EU Council decision in November 2005 that an EU member state must inform the UK if a UK national is convicted in that other EU state. Under the same decision—I think we talked about this on the last occasion, and I apologise if we have already done so—criminal conviction information can also be sought on EU nationals being proceeded against in the UK. To answer the noble Baroness, Lady Verma, a further framework decision is currently under discussion in Brussels to make it compulsory for EU member states to provide us with information on their nationals being proceeded against here. A standard format for securely exchanging information electronically was agreed at the Justice and Home Affairs Committee on 24 October. As the noble Baroness suggested, it will make it much easier. Indeed, it would be unacceptable if it were not to happen. It is important that we have a flow of information.
Noble Lords asked what further work needs to be done in order to gather criminal information from overseas. On 4 December the Government published their response to Sir Ian Magee’s review of criminality information and agreed steps to expand information flows with other countries based on a more proactive, risk-based approach. We have accepted that we should make a more co-ordinated approach to other countries, which I think was the point the noble Baroness sought to make with regard to vetting and barring as priority areas. Our strategy for doing so will be developed by January 2009—next month—so that is a strong commitment for us.
The noble Baroness, Lady Walmsley, asked about the basis for decisions on extended periods. An example might be if a person had moved and there was a delay in forwarding mail, including letters from the ISA, to his new address. These are matters of practicality rather than of substance about the offence itself. I am happy to write to the noble Baroness if there is more information that I can share with her. She asked a number of questions about the right to review, and it might be helpful for me to write to her about that and circulate the letter to other noble Lords.
The noble Baroness, Lady Verma, asked about time lapses in offences and how being convicted of an offence some years previously might affect the ISA’s consideration. We have before us a long list of serious offences, and we must be clear that where those offences have been committed some years ago, if the conviction stands and there is an automatic bar in place, it will stand. It is also important to say that the ISA can take into consideration such information as it sees fit. The noble Baroness, Lady Walmsley, asked about the ISA’s remit to make decisions about things that people might do. We have to make assessments about the risk that people pose to children and vulnerable adults. It is about making a judgment and, from time to time, the ISA may have to make preventative judgments about people.
I accept all that the Minister has just said, but my question was whether information about how the ISA uses these powers will be put in the public domain. If it is, it will enable us to check whether the legislation, particularly those parts of it that give us cause for concern, is working properly.
That leads me to my final point, which is that the ISA will be reporting to Parliament. Obviously, it is an independent organisation but this is precisely the kind of information that we will want to see—that is, where the balance of the numbers falls. Again, I should be happy to write to noble Lords further about the reporting process if that would be helpful.
Perhaps I may clarify one point which I may have missed completely. Did the noble Baroness say that we were signed up to the European criminal database, or is that the Government’s aspiration for January 2009?
The aspiration is to have a strategy for maximising the information flow and making that work practically. Again, perhaps I may give the noble Baroness a fuller response in writing. I commend the regulations to the Committee.
Legislative Reform (Verification of Weighing and Measuring Equipment) Order 2008
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Legislative Reform (Verification of Weighing and Measuring Equipment) Order 2008.
Relevant document: 14th Report, Session 2007-08, from the Regulatory Reform Committee.
This draft order is about the verification of weighing and measuring equipment, and I should perhaps begin by explaining what that means. I was tempted to say that I was hoping to punch above my weight on this issue but then I thought that perhaps I would not.
Weighing and measuring equipment that is used for trade has to be checked against the relevant statutory requirements at various stages in its life. This process is called verification, and it happens both before equipment is put into service and once it is in service, when it is subjected to any form of maintenance that could affect its accuracy. Equipment which passes the test is marked with a Crown stamp or other indication of its successful verification.
The draft order before the Committee today is the final step in a process of reform of the law on verification that began more than 20 years ago. It also corrects, as I shall explain, what appears to have been a mistake in the drafting of the current law in 1999.
In 1985 the Eden Committee on the Metrological Control of Equipment for Use for Trade concluded that manufacturers and repairers of weighing and measuring equipment should be able to verify equipment for themselves rather than have to rely on the services of hard-pressed local authority inspectors. Fourteen years later, after a number of further consultations and legislative false starts, the Deregulation (Weights and Measures) Order 1999 was made and came into force. It amended the Weights and Measures Act 1985 to permit the Secretary of State to approve manufacturers, installers and repairers of weighing and measuring equipment for the purposes of verifying equipment that they had themselves manufactured, installed or repaired.
There had been some concern from Trading Standards, when the 1999 order was proposed, that approved verifiers would deliver a service that would in some sense be inferior to verification by inspectors. To meet that concern, it was agreed that approved verifiers would need to demonstrate that they followed specified quality assurance procedures and that their work would be closely monitored by accredited certification bodies and the National Weights and Measures Laboratory through a programme of audits and inspections.
After the scheme had been operating for a couple of years, two things became very clear. First, approved verifiers were doing a very good job. Retailers—particularly petrol retailers, whose equipment is subject to quite frequent repair—were saving a fair amount of money in being able to use approved verifiers to both repair and verify equipment rather than having to call out inspectors to do the verification work every time their equipment needed repair. Secondly, although the system was working well, the 1999 order had missed a trick because, although it allowed manufacturers, installers and repairers of equipment to be approved for the purposes of verifying equipment that they had repaired, it did not allow them to be approved to verify equipment that they had adjusted. I hope that the Committee will stay with me on this.
Members may be forgiven for wondering what the difference is between repair and adjustment. Briefly it is this. Repair is what engineers do when a petrol pump is mechanically broken or is not measuring within the prescribed legal limits of accuracy. Adjustment is what they do when the pump is not broken and is within the legal limits of accuracy but the retailer nevertheless wants to adjust it to measure more accurately still—in other words, to have as close to zero error as possible. As petrol pumps are adjusted quite frequently, it was a significant restriction on the usefulness of approved verifiers that they could not verify after adjustment, meaning that retailers still had to involve an inspector whenever their equipment was adjusted.
In 2003 a committee of interested experts concluded that, in terms of the technical competences involved, anyone suitably qualified and equipped to verify after repair should be equally capable of verifying after adjustment. In 2005, there was a consultation under the regulatory reform Act on extending the approved verifier scheme to permit self-verification after adjustment. Overall, consultees were in favour of these. Some were not—namely, a minority of local authorities worried that the potential loss of income would make it difficult for them to continue to offer the service—so the National Weights and Measures Laboratory has worked very closely with them over the past year or two to resolve any outstanding concerns that they had.
There is now no reason for any further delay in carrying out the deregulation of verification, which was recommended in 1985 and began in practice in 1999, to its logical conclusion. The draft order does that by adding a reference to adjustment to Section 11A of the Weights and Measures Act 1985. This would enable the Secretary of State to approve suitably qualified manufacturers, installers and repairers to verify equipment that they had adjusted. The committees, both here and in another place, have found that the order meets the preconditions laid down in the Legislative and Regulatory Reform Act 2006 by removing the need for retailers to engage inspectors where they had used approved verifiers to adjust their equipment.
This order should lead to annual savings of £615,000 for an industry in which the majority of outlets—up to 7,500—are still owned or operated by small or medium-sized businesses. As well as assisting them financially, the order, by making it cheaper and easier to adjust equipment more often, will enable them to keep more accurate records of their stock and so detect environmentally harmful leaks more quickly.
This final piece of verification reform is long overdue. It poses no risk to consumers and it will make life significantly easier for business.
I thank the Minister for introducing the order and explaining it so clearly. Any removal of an unnecessary inconsistency in legislation is welcome. I was a little surprised that this LRO hailed from the Minister’s department rather than from BERR, which would seem to me to be the most obvious home for it. I assume that it is to do with the fact that the process of verification is undertaken by verifiers, verifiers have skills and skills are within the responsibility of the department. But that does stretch the logic a little far, especially given that the essence of the LRO is to do with the weighing and measuring of equipment and that the skills and their holders are somewhat ancillary to that. Perhaps the Minister will explain.
Is this LRO part of the Government’s stated aim to reduce regulatory burdens by 25 per cent by 2012? If not, what process did lead to it? It sounds like we need more of it. Either way, if it is necessary to produce a 60-page explanatory document to justify adding a single word to an Act of Parliament—a word that is added only to remove an inconsistency—it is hardly surprising that progress towards that 25 per cent reduction is slow. I hasten to add that I do not criticise the document for any lack of perfection—rather the opposite; the word “overengineered” springs to mind. Are we on track to achieve a 25 per cent reduction by 2012? It seems that we have a fair way to go. How many more LROs can we expect in order to achieve the 25 per cent target?
Turning back to the LRO in question, I understand from the substantial document—60 pages to justify a saving to business of £615,000—that there is a risk that consumers might suffer as a result of an abuse or a conflict of interest, but the Government have made a satisfactory argument for why that risk is minimal. In any event, as the Minister pointed out, it is no greater than is presently the case for repaired equipment. The last thing I want to suggest is that we would oppose the order. My point is simply that the procedure of legislative reform orders needs to be streamlined and swiftly brought into the 21st century or we will certainly fail to achieve anything useful by 2012.
I think that I am the “Lord High Substitute” today because I am now speaking on behalf of my noble friend Lady Sharp of Guildford. We, too, welcome the order. It is clear that some local authorities may lose a little revenue because of it, but since this is only a matter of cost recovery, it is not really a matter of concern. What matters is how it will affect consumers and retailers. Local authorities will lose a certain amount of monopoly in this regard. That will open things up to more competition which, it is hoped, will ensure that charges are reduced for end users, those who buy the products being measured. However, competition is not always just about costs—sometimes speed of response can give a competitive edge. Nothing is more frustrating than pulling into a petrol station and finding that half of the pumps have those “out of use” sleeves over them. You then have to back out and find somewhere else. If more competition means that the situations described by the Minister are verified or put right quickly, it will be a good thing for the motorist.
Can the noble Lord tell us a little more about how the verification will be monitored? I think that there are to be spot checks by weights and measures inspectors. Will these be carried out with or without notice? Will there be any effect on the retailer while they are being carried out? For example, will the petrol pump be out of use for an extended period? How will the Department for Innovation, Universities and Skills ensure that the inspection of the verification system is sufficiently robust? How often, for example, will tests be carried out and how much will the department spend on this?
It is a matter of consumer confidence that these measures are carried out robustly. Given the economic outlook, every penny and every millilitre counts, so it is important that consumer confidence is not eroded. Although these measures are mainly connected with the production of beer in breweries, I assume that they will also affect the amount of beer being dispensed at the pump in pubs, and hopefully ensure that pubs do not get away with serving half a glass of beer and half of foam, particularly at this time of year when people want to celebrate.
That brings me to my final serious question for the Minister. There is a very disconcerting rumour that someone is going around the country impersonating Members of your Lordships’ House by wearing red robes trimmed with white fur and dispensing large quantities of goodwill to all men without the benefit of weights and measures inspectors or indeed any form of verification. Can the Minister tell me whether this person really exists? If it is the case, what are the Government going to do about it?
In answer to the noble Lord, this issue comes under DIUS because the department deals with national weights and measures. It is not technically an administrative burden, but we are still looking for a reduction of 25 per cent. When the noble Lord drew my attention to the fact that the document is 60 pages long, I thought that those of us who watched the antics of the Circumlocution Office in “Little Dorrit” cannot help but think that there is probably some latter-day relevance to them. I agree that this ought to be part of the process of reducing regulation, but I am glad that the noble Lord shares our view that this issue is worthwhile if costs to business are reduced and procedures made simpler.
I agree with the point made by the noble Baroness, Lady Walmsley, about both the speed of response and competition. That will help the process, as it seems to be common sense that the verifiers will be able to do the work instead of having to call out the inspectors. I was asked who monitors the monitors, or verifies the verifiers, and I am reliably informed that trading standards officers will operate in this area. I am also informed—and I share this exact concern, because I have often pushed back a pint of beer when more than an inch of it was foam—that it will apply to beer pumps as well.
As for that other legendary red figure, I noticed in the papers the other day that a teacher had been dismissed for denying that he exists. Far be it from me, then, to upset those noble Lords who still believe in the existence of that red-coated figure. Other than that, I commend this order to the Committee.
Committee adjourned at 6.46 pm.