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Hallmarking Act 1973 (Application to Palladium) Order 2009

Volume 712: debated on Wednesday 15 July 2009

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Hallmarking Act 1973 (Application to Palladium) Order 2009.

Relevant document: 19th Report from the Joint Committee on Statutory Instruments.

The draft order is intended to apply the Hallmarking Act 1973 to the precious metal palladium. I thank the Commons committee for carefully considering and approving the draft order earlier this afternoon.

The Hallmarking Act makes it an offence, during the course of trade, to describe an unhallmarked article as being wholly or partly made of gold, silver or platinum, or to supply it with such a description attached. This order proposes to apply the Hallmarking Act to palladium in a similar manner. Palladium has not hitherto been prescribed by the Hallmarking Act because manufacturing difficulties led to high costs and low demand. These difficulties have now been overcome and the market for palladium articles is expected to grow considerably.

Given the value of the metal, which is less valuable than platinum and gold but more valuable than silver, there is an increased danger of fraud. A consumer may not be able to tell by eye the difference between articles made from palladium and those made from cheaper precious metals such as silver and white gold, or from base metals. To protect consumers from fraud and counterfeiting, I propose that the Hallmarking Act should be applied to palladium.

Another reason why palladium should be prescribed in this way is that, under our obligations to the International Hallmarking Convention, of which we are a member, we shall shortly be required to recognise palladium articles stamped with the convention hallmark. This will be done under an amendment to existing legislation—the Hallmarking (International Convention) Order 2002—but we require the Hallmarking Act itself to apply to palladium to enable it to apply in a consistent manner to all precious metal articles affixed with the convention hallmark.

We conducted a full public consultation on this measure in autumn 2008. It is supported by all stakeholders, including the precious metals and jewellery industry, the British Hallmarking Council and all four UK assay offices.

The order will come into force on the day after it is made. I agreed this at the request of the precious metals industry to enable it to meet its Christmas rush, which peaks in September/October. I consulted the Sub-Committee on Productivity, Skills and Employment, which is part of the ministerial committee on economic development, and it agree with this decision not to apply a common commencement date.

It will become an offence to apply to an unhallmarked item a description that it is wholly or partly made of palladium or to trade in such an item. This brings palladium into line with the same offence that covers gold, silver and platinum. The offence provision will apply to palladium with a fineness or purity not less than 500 parts per 1,000. This value of minimum fineness is common to the international hallmarking convention and those EU member states that prescribe palladium. Small palladium articles weighing less than 1 gram are exempt from hallmarking. Similar minimum-weight provisions apply to the other prescribed precious metals.

Hallmarking is not compulsory for any palladium article manufactured before 1 January 2010 but it will become an offence to trade in unhallmarked articles that are manufactured after that date. In the intervening period, manufacturers and traders may voluntarily have palladium articles hallmarked if they so wish. This delay in the offence provision is intended to give the trade time to prepare for the prescription of palladium. It mirrors the same procedure that was successfully introduced for platinum when that precious metal was first prescribed in 1973.

To avoid confusion and to protect the consumer, there are only three permitted fineness levels with which palladium may be hallmarked. These levels conform to the international convention requirements. As with the well known pictorial hallmarks—for example, a lion or Britannia for silver—the trade has requested an optional pictorial mark for palladium and has chosen the head of Pallas Athene, the Greek goddess of war, wisdom and crafts, after whom palladium was named.

Palladium is formally ranked as being more precious than silver but less precious than gold or platinum, to enable manufacturers to conform to coating or plating rules. A precious metal article may be coated only with the same precious metal having a greater fineness or by a precious metal that is more precious.

As I said, these regulations are supported by the precious metals and jewellery industry because they protect both buyers and sellers in an area that is expected to grow in the next few years. They are also required to protect articles hallmarked under the international hallmarking convention. For these reasons, I commend the order to the Committee.

I thank the Minister for introducing the order. It does not seem particularly controversial, but I have a few questions. Some or all of them may have been asked in the other place when the order, as the Minister explained, was debated today. If that is the case, I apologise, but I would point out that it is impossible for noble Lords to have read Commons Hansard if it has not yet been produced. I venture to suggest that to schedule for an order to be debated in both Chambers on the same day makes a mockery of parliamentary procedure; a proper gap between the respective debates allows the benefit of questions consequent upon the answers given by the Minister in the other place.

According to the Explanatory Memorandum:

“A reasonable amount of public interest in this order is expected as this is the first precious metal to be added to the Act since it was enacted in 1973”.

The very next paragraph implies that consultation has been completed and that the Government have responded. I hope that noble Lords will forgive me for saying that. A cynic might suggest that either there has been consultation or that public interest is expected. To say both is to imply that the public have not been fully consulted. I am sure the Minister can explain that satisfactorily.

We read that the United States does not have a hallmarking regime such as that in place here in the United Kingdom. The regulatory impact assessment suggests that the result of this is “very significant levels” of what it quaintly calls “under-carating”. Can the Minister elaborate on this? Specifically, what volume of US unhallmarked goods, gold and silver for example, have traditionally been imported into the United Kingdom? I ask this because the answer might mean that essentially some of the problems envisaged under the voluntary scheme option referred to in the regulatory impact assessment exist anyway and will not be resolved if there is any quantity of US stock washing around in our system here.

We are told that, within Europe, Estonia, Latvia, Lithuania, Romania and Slovenia have prescribed palladium as a precious metal in broadly the same way as the provisions of this order. Can the Minister explain why other major European countries such as France, Germany, Italy and Spain are yet to take action, and whether this will give rise to problems analogous to the scenario I have envisaged in respect of US imports?

The argument for including palladium in hallmarking regimes centres largely on an expectation of increased palladium jewellery sales, derived at least in part from advances in manufacturing techniques. The market price of palladium, however, has more than halved in the last 18 months, from a high of $579 in February 2008 to $250 at present. We must hope that this does not suggest that the commodity markets are not quite as optimistic about the future of palladium as the Department for Business, Enterprise and Regulatory Reform.

Lastly, the department envisages a one-off cost to jewellery traders of £10 for each information sign they must alter, under Section 11 of the 1973 Act, to list palladium as a precious metal. Can the Minister clarify the source of this estimate, which to us seems rather low?

I do not pretend to be an expert on this subject, but none the less I am fairly well briefed on it. The importance of this piece of legislation is that palladium will be included as a precious metal, and as we have heard, it will be third in ranking behind platinum and gold, with silver coming last. That is a significant development for palladium. The legislation applies to precious metal articles wholly or partly made of palladium and relates to the lack of consumer protection, which is very important. The order summarises the costs and benefits of adding palladium to the list of precious metals.

Interestingly, Her Majesty’s Government estimate that sales in palladium jewellery could be worth £5.4 million in five years’ time, and reach 15 per cent of the UK jewellery market in 10 years. I have a number of additional questions for the Minister in order to give some indication of what we are likely to experience as a result of this legislation.

Have the projected increases in the sale of palladium taken into account the recession? There was some indication from the Official Opposition Front Bench that this might be so. What impact might this have on the use of palladium in other areas, such as catalytic converters where it is commonly used? How many other countries have adopted some form of hallmarking for palladium? We have just heard what is happening in that area. What increase in taxation receipts do the Government anticipate from the increased sales of palladium which they predict will follow hallmarking? Finally, what experiences were learnt from platinum being added to the hallmarking regime in 1975 in terms of fraud prevention? This legislation sets out fairly clearly the differences between platinum and palladium.

In addition, do the Government expect hallmarking to boost the value of palladium? Around the year 2000, palladium was more valuable than platinum, trading at $1,000 per ounce—platinum was around $600—due to shortages from Russia and demands from car manufacturers which needed it for catalytic converters. In response to those questions, perhaps the Minister will give us an indication of what is likely to occur as a result of this legislation.

I thank the noble Lords, Lord De Mauley and Lord Livsey of Talgarth, for their questions, which I will attempt to answer. The noble Lord, Lord De Mauley, asked: given that there was a public consultation, why do we expect there to be public interest in the hallmarking of palladium? Having been through the legal requirement of carrying out a consultation, we believe that the announcement of the hallmarking of palladium will be of interest, because this is the first time that a new metal has been hallmarked since 1973. It will bring the existence of palladium to the attention of the public and the consumer. It will have a positive effect because of palladium’s relative potential as a lighter metal than some of the others that are usually used for jewellery. The use of palladium, a lighter metal, will make possible more modern designs for earrings, for example. That will cause some interest and be of marketing benefit to the trade.

The noble Lord is right in his comments about the United States. My understanding is that we do not have any data on the volume of imports of unmarked goods into the United Kingdom. I will look into whether the department has any further information. If we do, I will write to him. I should stress that US marks are not recognised in the United Kingdom and must be assayed on import into the UK.

As for other EU countries and hallmarking, the position is that some countries do and some countries do not. It is based on a country’s own national legislation on hallmarking. I agree with noble Lords that that identifies a potential difficulty in terms of a common approach towards the hallmarking of jewellery and other goods across Europe.

As for imports into the United Kingdom, the hallmarks that the United Kingdom recognises as equivalent can be imported without further costs and without them being further assayed. The marks that are not recognised by the UK must be assayed. I will write to the noble Lord, Lord Livsey, to give him a full list of the countries that hallmark across the range of precious metals and those that do not.

As for the effect on the market, noble Lords have already highlighted the volatility of the price of palladium and of a number of other metal commodities over the past year. Our analysis of the market leads us to suggest that the current rapid increase in sales of palladium products will continue independently of the volatility of the price, for the reasons that I mentioned concerning its suitability for more modern jewellery. We believe that this change to the regulations is necessary because of the way in which we have seen the trade volumes move.

We have been given unofficial trade figures by manufacturers—I stress that they are not government figures—which indicate the number of kilograms of palladium traded per month. They show an increase from 1 kilogram of palladium for July 2008 to 3 kilograms for July 2009, and then to 4.5 kilograms for August 2009. So we have seen a threefold increase in the trade volume of this material, which is why we believe that the order is necessary.

The impact on the market for catalytic converters is something that I will have to write to the noble Lord about when I have done some investigation. We do not envisage that this order will have a significant material impact on taxation receipts.

I believe that I have answered all the questions raised. If I have missed any, I will write to noble Lords. I thank noble Lords for the light that they have shed on this important issue through their questions. I am sure that the industry will welcome the development in the regulations for hallmarking and that consumers will see the benefit in the development of new and effective products. I commend the draft order to the Grand Committee.

Perhaps I could ask the noble Lord to pass my comment about scheduling same-day business through the usual channels.

I am grateful to the noble Lord. He has a very good point and I will pass on his strong concerns, which I share, through the usual channels.

Motion agreed.