Tuesday, 15 December 2009.
Arrangement of Business
My Lords, perhaps I may start with the usual procedural statement. I remind noble Lords that, in the case of each statutory instrument and legislative reform order, the Motion before the Committee will be that the Committee do consider the instrument or order in question. I should perhaps make it clear that the Motions to approve the statutory instruments and legislative reform orders will be moved in the Chamber in the usual way.
Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2009
Considered in Grand Committee
My Lords, I am grateful for this opportunity to explain how these regulations are going to help 467,000 business properties with their rate bills over the next five years through the transitional relief scheme.
First, I should begin by explaining a little about the rating system and revaluations as this provides important context for the regulations. The system of business rates is a stable and important part of how we pay for local government in England. Rates have existed in one form or another for more than 400 years but the current system of national non-domestic rating was introduced in 1990. Since then, central government have set the multiplier which is used to calculate rate bills and, between revaluations, that multiplier has not increased by more than inflation. This has provided welcome and valuable certainty for business. The 1990 reforms also introduced a statutory requirement to have regular revaluations of rateable values every five years. Regular revaluations update rateable values, which are based on rental values, to ensure that everyone pays their fair contribution and no more.
The process of revaluation is done independently of government by the Valuation Office Agency, which uses experienced and professional valuation staff. They have collected and analysed more than 300,000 rents nationally, which is more rents collected than ever before. From this rental evidence, they have prepared valuations for all 1.7 million properties and, six months ahead of when bills are sent out, they have published those draft rateable values on the internet. They have also sent out summary valuations so that ratepayers can check for any errors and ensure these are corrected in time for rate bills on 1 April 2010. To date, the Valuation Office has received 82,000 inquiries on those summary valuations, of which almost 60,000 have already been resolved.
However, the rateable value is only one part of the rates bill. The amount payable also depends on the rating multiplier and any reliefs, including the transitional relief which we are discussing today. Despite what we may hear, it is not the case that the high property market at 1 April 2008, on which rateable values are based, will lead to higher rate bills. The rules we have in place ensure that not a penny extra is raised in revenue for the Government from the revaluation. To achieve this, the rating multiplier has been reduced for 2010-11 by 15 per cent, taking it to its lowest level for 17 years.
We are aware that some ratepayers struggle with their rates bills. That is why we have introduced relief schemes such as the small business rate relief scheme, which provides up to 50 per cent relief, and this transitional relief scheme. But these schemes also add complexity to the rates bills. To ensure ratepayers understand how these different types of relief affect their rates bills, my department has worked with the Valuation Office and Business Link to produce a business rates calculator on the Business Link website. This business rates calculator is one of the most popular applications on the Business Link website and to date has received something like 100,000 visits. Measures such as this are ensuring that ratepayers have an accurate understanding of their rates bills for next year.
As I said, revaluations do not raise a penny extra for the Government and more than 1 million business properties—60 per cent of all business properties—will see an average decrease next year due to the revaluation of £770 before inflation. The revaluation will provide a welcome and timely boost to sectors such as industry, which will see rates bills fall by 3 per cent, and regions such as the east Midlands where 84 per cent of business properties will see their rates bills fall as a result of the revaluation. The regulations we are discussing today provide a transitional relief scheme to help the minority of ratepayers who are facing increases. This £2 billion relief scheme will ensure that, after adjusting for negative inflation, no small property will face an increase due to the revaluation of more than 3.5 per cent in 2010-11, or 11 per cent for larger properties. This relief will help 467,000 business properties with their rates bills next year. We have adopted this relief scheme after a consultation exercise in the summer which provided more information than ever before about the revaluation. Our chosen scheme secured widespread support. Sixty per cent of respondents agreed that we should provide relief over the full five years of the rating list rather than the four years adopted for the previous revaluation in 2005. Sixty-eight per cent supported the proposed caps on increases for small properties, including the Federation of Small Businesses, and 55 per cent supported the caps on increases for large properties.
Transitional relief works by placing annual caps on the changes in rate bills. Those caps are contained in Regulation 8 of the draft regulations. For instance, the caps on increases for small properties over the five years, before inflation, are 5 per cent, 7.5 per cent, 10 per cent and then 15 per cent in each of year 4 and year 5. So, if a small property is seeing a rise in its bill of 15 per cent before inflation due to revaluation, its bill would be capped at a 5 per cent increase in the first year and a further 7.5 per cent increase in the second year. By the third year, it will have reached its full bill. Other rate reliefs, such as small business rate relief or rural rate relief, are applied after the transitional relief is calculated.
Transitional relief must be self-financing, which means that relief for some payers must be funded from other ratepayers. We considered this carefully at the consultation stage, and 66 per cent of respondents agreed that we should fund the transitional relief by also placing a cap on annual reductions in bills, rather than by levying a supplement on all other ratepayers. Therefore, the regulations also provide that those seeing reductions due to the revaluation should have them capped to help pay for the relief. For example, the caps on reductions for large properties are minus 4.6 per cent, minus 6.7 per cent, minus 7 per cent, then minus 13 per cent in each of year 4 and year 5.
These regulations also have to cope with the various changes that can happen to a property during the five years of a rating list. For instance, the transitional relief scheme must have rules to decide what happens when a property splits or merges with another property, or where rateable value changes. These rules are sometimes complex, but they ensure that no ratepayer is treated unfairly. The rules are not new and both local authorities and other practitioners are well versed in their application.
To ensure that these regulations can be implemented in time for new bills on 1 April 2010, my department has worked closely with the Institute of Revenues Rating and Valuation and the Local Government Association, and we have maintained good working relationships with the software companies that support local government. As a result, we are very confident that accurate bills will be sent out on time for 1 April 2010. For the majority of business properties, the 2010 revaluation will provide a welcome boost in the current economic climate. As I said, more than 1 million business properties will see an average decrease next year due to the revaluation of £770 before inflation. The revaluation will help important sectors such as industry in regions such as the Midlands, which are vital to economic recovery.
The relief scheme before us will provide help for the minority facing increases. After allowing for the effect of negative inflation in September 2009, which will adjust bills for all of 2010-11, next year no large property will see an increase of more than 11 per cent due to the revaluation, while no small property will see an increase of more than 3.5 per cent due to it. The scheme has been widely supported at consultation and I therefore ask the Committee to join in that support today.
My Lords, I thank the noble Lord, Lord McKenzie, for introducing these regulations and declare an interest, being involved in companies which pay non-domestic rates. Despite much criticism in this place and elsewhere, Ministers are pushing ahead with their planned 2010 rates revaluation. New bills will be issued to businesses in March 2010 for payment in April. Although I of course support the transitional arrangements, I am concerned that the Government have adopted a flawed approach to this. Of particular concern is the methodology that has been adopted. April 2008, which was right at the peak of the property boom, has been the time selected on which to base this revaluation snapshot. Certain sectors which were artificially buoyant in April 2008 will now have boom values effectively baked in to their rates bills for the next five years before the next revaluation. Additionally, many small shops could no longer be eligible for small business rate relief as a result, further increasing their bills. Businesses find themselves being forced to pay boom taxes in bust economic circumstances.
In 2007-08, the Government took in £17.4 billion. Next year, it will be £20.8 billion—a huge increase over the recession. Does the Minister really mean to tell us that all businesses will be able to pay and will not go bust in the mean time, and that those projections are accurate? I very much doubt that he can, as the Government have refused to conduct any impact assessment on the effect of the forthcoming 2010 revaluation to gauge its likely effect on businesses. That seems particularly irresponsible given the potentially destabilising economic impact of making changes to a £20.8 billion tax during a recession, changes which businesses could not reasonably have foreseen.
The consultation on the transitional relief scheme closed before the draft rateable values were published, preventing a considered assessment of the implications by respondents. In the previous 2005 revaluation, all details were published a full month before the consultation closed, enabling informed responses. Even if the figure of £20.8 billion is to be believed, we are told that the Government expect to distribute £21.5 billion back to local authorities in the form of grant. Where will the extra £700 million come from? The Government’s figures are in a mess. There is already a £700 million black hole, which will increase as small businesses go bust.
The Government claim that the revaluation should be revenue-neutral. Some firms in some parts of the country may see a fall in rateable values and business rates, although that may be because of a lack of regeneration in those areas, but a significant proportion of firms—40 per cent, or about 700,000 businesses—will face large and destabilising rises during the worst recession on record. It is those 700,000 businesses which will be financing the rest, regardless of their profitability and of whether they are a going concern. We could do worse than consider the decision by the Executive in Northern Ireland to defer the 2010 revaluation to allow the localised effect of the recession to be taken into account. Noble Lords may wonder if the middle of a severe recession is the time to be rocking the boat in this way.
The background to this is worth considering. Without proper consultation, as Chancellor, Gordon Brown slashed empty property rate relief for commercial and industrial premises to raise £1 billion a year, which came into effect in April 2008. That tax rise is particularly harmful in a recession, as firms are often unable to pay rent out of vacant property due to the lack of economic demand, but they must still somehow find the cost of business rates. That is money that firms could otherwise have used to reinvest in premises or regeneration, to create new jobs and business opportunities.
The Local Government Association has noted that four out of five councils have reported an increase in empty properties in town centres during the recession. Two-thirds of councils warned that these empty properties are having a significant impact on high streets.
Yesterday, when these orders were being debated in another place, my honourable friend Justine Greening pointed out the costly effects of the revaluation that make these transitional arrangements necessary. Petrol stations, for example, are likely to be hit with a 33 per cent increase, while the Association of Convenience Stores has pointed out cases where the hike will be more than 200 per cent. Cricket grounds in England and Wales will owe an extra £62,000 each and rugby league grounds can expect a rise in their business rates of 60 per cent. London Zoo will see a rate rise of 155 per cent, up from £260,000 a year to £660,000—a £400,000 hike.
The urban regeneration companies, established to promote regeneration, have warned Ministers that these tax rises have resulted in the prospect of a pre-emptive demolition to avoid the risk of payment and have a deterrent effect on the slow and painstaking business of assembling sites in multiple ownerships. They also talk of the detrimental effect on new speculative factory or office developments that are essential for securing new jobs in deprived areas. Such regeneration is already commercially risky; the prospect of rates payments on newly built but unlet spaces risks killing off private-sector interest altogether.
The effects of the revaluation are therefore potentially disastrous for many businesses. I and my colleagues in the Opposition have urged the Government to postpone the revaluation, and I do so again. If the Minister does not agree to do so, I have no choice but to back the transitional scheme. However, that scheme is not, as I have pointed out, without its flaws. These regulations have been ill thought out.
My Lords, the noble Earl, Lord Cathcart, has made some of the points that I was going to make so I will not repeat them. I look forward to the Minister’s reply.
I will give a qualified welcome to the regulations. The transitional relief scheme is necessary because we are where we are. I am certain that the Government would not wish to be where they are. Hindsight is a wonderful thing. When this process started, I am sure that none of us would have wished to be in the depths of the recession that we are in now. But we are where we are. We all recognise the effects on businesses, some of which face a significant increase, even after transitional relief. This is a further unwelcome blow.
I shall say it again: I am a London borough councillor. That makes me responsible for paying the business rate as well. It is often forgotten that it is not just businesses that pay but those who run public buildings, those who are responsible for schools and so on. I suppose that I am responsible as a business ratepayer.
I wanted to say a few words about what I am going to call “the London effect”. I am delighted to see that the noble Baroness, Lady Valentine, is here too; she will know far more about that than I do. I see that, before the transitional arrangements, London and the south-west are the only regions that face a huge increase in the valuation. The increase in London before transitional relief is 10 per cent. Because of that, much of the benefit of transitional relief will go to London as well, I recognise that, but can the Minister, or maybe the noble Baroness, tell us what the net effect on London will be? We need to add to that. On the same date—1 April next year—larger London businesses will, in addition, pay what has become known as the Crossrail supplement, the business rate supplement. I believe that I am right in saying that the transitional relief scheme does not apply to the Crossrail levy. I say again: this does not apply to just the large multiple retailers. Some 34 schools in my small London borough will be liable for the Crossrail supplement. No one thinks of them as large businesses. Many of them are relatively small schools, but they have a rateable value in excess of £50,000. Therefore, what someone once called a double whammy will come in on the same date: the revaluation—the greatest effects of which are in London—and the Crossrail supplement in London. I look forward to hearing more about that and anything that the Minister can tell us about its double effect.
In his helpful opening remarks, the Minister talked about good working relationships with the producers of the software. I am pleased to hear that; I have no reason whatever to doubt it, but I understand that there have, perhaps inevitably, been problems. Can the Minister give us an update on the exact position now? Do the local authorities have in place software packages that are tested, trialled and operating in order to implement the regulations and, if not, when will they have them? I know that that is not yet the case in my own authority, although it is expected in January.
I began by saying that I give the regulations a qualified welcome. I repeat that, but only because we are where we are—and most of us wish that we were not where we are.
I should declare that I am chief executive of London First—a non-profit-making business membership organisation.
The 2010 revaluation is based on rateable values at April 2008 and, therefore, as has been noted, reflects property values at the peak of the market. Given that boom has since given way to bust, these figures are a long way from current reality. London will see a 32 per cent increase in its overall rateable value. However, this is not a homogenous rise across London. In the run-up to 2008, the West End in particular experienced soaring rents and, therefore, will experience a huge hike in business rate bills. Many properties’ rateable values will increase by up to 150 per cent. I should be grateful if the Minister could clarify some of these numbers, because mine are slightly different—although they may relate to the application of a negative RPI, if I understood the Minister’s introduction.
The Government’s proposed transitional arrangements will mean that the related business rate increases will be phased. However, under these arrangements they still propose that the business rates for properties with large increases in their rateable values will increase by 12.5 per cent—although I think the Minister suggested 11 per cent—which is thoroughly unhelpful, just at the time that we are all seeking slowly to climb our way back out of recession. Furthermore, 20,000 London properties will experience a 30 per cent increase over the next two years.
The Government could help these businesses and the fragile economic recovery by freezing business rates in 2010. I note that both the CBI and the British Retail Consortium, which represent businesses across the UK, recommend that there should be lower upward caps and that this should be funded by smaller decreases. That is an eminently sensible proposal.
My Lords, I thank all noble Lords who have contributed to this debate. I think that we had a qualified welcome, a reluctant acceptance and a qualified comment on the proposals. A lot of questions were asked, each of which I shall try to answer.
The noble Earl, Lord Cathcart, asked about the timing of the consultation paper. I am aware of concerns that the consultation period for the transitional arrangements finished before actual rateable values were published at the end of September. However, we are required by statute to ensure that these regulations are in force by 1 January. Even on the timetable we follow, it was extremely difficult to secure this debate before the House rose. Therefore, extending the consultation period would not have allowed us sufficient time to make these regulations, and that could have meant that billing authorities and their software providers did not have sufficient time to calculate rates bills before next April. Ultimately, this could have meant that ratepayers would not have received the transitional relief they need and deserve. Nevertheless, we released information on the revaluation at a regional and sectoral level in the summer—more information than has ever been released previously at that time in the revaluation cycle. We believe that this allowed ratepayers to respond to our consultation exercise.
The noble Earl referred to these being exceptional times and asked about help for the 700,000 businesses facing an increase. We are putting in place exceptional measures to help businesses with the revaluation. The transitional relief scheme provides more than £2 billion of relief to 467,000 ratepayers to cap and to phase in rises, and it extends this protection for longer—for five years instead of four. I reiterate that no small property will see more than a 5 per cent increase next year, before inflation, because of the revaluation benefiting 366,000 small properties which, on average, will receive £1,000 per property over the five years. After inflation—the difference between the figures we are talking about is because of negative inflation from the base—the maximum increase for small properties will be only 3.5 per cent and 60 per cent of ratepayers, more than 1 million in total, will see their bills fall because of the revaluation. The Government’s preferred option for transitional relief proposes that the increase for large properties would be capped at 11 per cent after inflation. We have also increased the thresholds for rate relief with effect from April 2010.
We have given a range of other support measures to businesses: we have deferred tax payments, there is an additional £1.3 billion of lending for small and medium-sized businesses and a working capital guarantee for businesses. There is assistance for the automotive industry, health checks for businesses to help them ride out the downturn and prompt payment codes. There is a great deal of support quite apart from these transitional relief provisions.
The noble Earl said that local government settlements show that the Government are increasing revenue from the revaluation. That is absolutely not the case. The distributable amount shown in the local government settlement is not the amount of business rates collected from business in any one year but the amount estimated to be available for redistribution to local authorities as part of formula grant. A change in the distributable amount has no effect on the rates bills paid by businesses. Over the five years of the new revaluation list, the revaluation does not raise any extra money. I stress that. Initially we would have collected 1.5 per cent more in 2010-11, but this would then be reduced in later years because of assumed appeals that arise in the system. Once all appeals have been settled, we would expect the amount collected in respect of 2010-11 to be less than that in 2009-10.
The noble Earl referred to the extent to which rates have gone up since 2005. While revaluations do not raise any extra revenue for the Government, the total amount paid in business rates can vary for other reasons. In particular, inflation can increase the multiplier and therefore the rates’ yield, and the RPI inflation between 2005 and recent times is generally between 3 per cent and 4 per cent. Furthermore, physical growth in the tax base—by which we mean extensions and new properties—will also increase the total paid in rates. These factors will contribute to the increase in rates paid since the 2005 revaluation. However, for those properties whose rateable value has not changed since 2005, the ratepayers know that their rates bill before reliefs will not change beyond inflation.
As to why we have not done an impact assessment, the five-yearly revaluations are required by statute and have been a regular part of the rating system since 1990. They maintain fairness by ensuring that rateable values are based on up-to-date information and, as no decisions were required to proceed with revaluation in 2010, no formal impact assessment has been prepared. However, an impact assessment on the transitional arrangements was available from July of this year and contained a great deal of information on revaluation in 2010. From 1 October, ratepayers have been able to put their new rateable values into the excellent business rates calculator on the Business Link website to see the impact of the revaluation on their property. A great deal of information is available to ratepayers and the wider rating profession on the impact of the 2010 revaluation.
The noble Earl raised the issue of empty property rates. The Government stand by their decision to reform empty property rate relief. A £1.3 billion subsidy to owners of empty commercial properties is no longer justified. The reforms to empty property rate relief introduced from 1 April 2008 are principled and right for the long term. Charging rates beyond the initial rate-free period when properties stand empty increases the incentive to re-let and to reuse empty property.
However, the Government have listened to concerns expressed by property owners. PBR 2008 therefore announced that for 2009-10, the year that we are just about to exit, all empty properties with rateable values up to £15,000 will be eligible for full relief. That has been extended for a further year for properties up to £18,000 rateable value in PBR 2009. It is estimated that up to 70 per cent of properties are rated under that threshold and, if empty, will pay no rates in 2009-10. Introducing relief for all empty property would be costly and not well targeted.
The noble Earl referred to certain types of properties—petrol stations, in particular. I say again that revaluation does not raise any extra revenue, it simply ensures that each business pays its fair contribution and no more. Ratings for all properties, including petrol stations, are based on rental value. In the past five years, alongside rising petrol prices, the profitability and turnover of many petrol filling stations has grown significantly. It is only fair to all ratepayers that that is reflected in rates bills. Rental values for petrol filling stations are determined by the market according to the trading potential of the individual site. That is regardless of whether they are independent or part of one of the multinational chains. As I said, the majority of businesses—60 per cent—will see their overall rates liability decrease because of the revaluation.
The noble Earl asked why we are doing this now. Regular revaluations are important, as they maintain fairness in the rating system and keep bills up to date, which is necessary as relative property values change over time. Postponing revaluation would hit hard those businesses which most need our help, such as businesses in the Midlands and in industry, whose relative property value has fallen since the last revaluation and which therefore should pay less in rates. The noble Earl concentrated on those businesses facing increases, but if we were to do as he urged, many businesses would miss out on a reduction. Businesses facing increases are in sectors and locations which have performed better than average since the last revaluation, such as inner London and such as supermarkets. It is only fair that they should pay a proportionately higher share of the total rates bill.
In particular, I instance the fact that the revaluation was based at the height of the property market. It would have been wrong to delay or postpone revaluation, as to do so would, as I said, deprive the majority of business properties—1 million in total—of a deserved reduction in their rate bills. The high property market of April 2008 does not mean higher bills or more money collected by government nationally in aggregate, because rateable values, as we have discussed, are only one part of the rates bill; the other is the ratings multiplier—which, as I recall it, used to be called the rate poundage—which is applied to calculate final bills.
The noble Lord, Lord Tope, who gave the regulations a qualified welcome, instanced issues concerning software. We are not aware of any software problems connected with the revaluation. As I said in my opening presentation, we do not expect any delays. If the noble Lord has more information that he would like to share with us, I am happy to have a discussion outside the Committee, or we could correspond on the matter.
The noble Lord and the noble Baroness, Lady Valentine, talked in particular about London. Of course, London is a key player in our economy, with the highest concentration of business properties, particularly in inner London and the City of Westminster. It has seen the highest economic growth of any region in the UK, and it is only right that it makes a proportionate contribution through business rates. Nevertheless, nearly 45 per cent of businesses in London—124,600—will see their rate liability fall as a result of revaluation. Small shops are expected to be winners, and could see rate bills fall by 3 per cent on average in 2010-11, an overall reduction of £6.5 million. Furthermore, more than 55 per cent of business properties in outer boroughs in the capital will see their rate bills fall next year by an average of £950 as a result of revaluation. We estimate that 16 London boroughs in total will see their total rates liability fall due to the revaluation and transitional relief.
For those ratepayers facing increases, London will benefit more than anywhere else in the country from the transitional relief scheme to help with future business rate liability. While London is expected to see a 10 per cent increase, the transitional relief scheme would see this reduced to 3 per cent in 2010-11. In total, 466,000 ratepayers will benefit from transitional relief, of whom 112,000 are in London—some 24 per cent. Over five years the transitional relief will be worth £2 billion. Of that, £934 million would go to London.
The noble Lord, Lord Tope, asked about London’s so-called “double whammy”. The business rate supplements provide a new tool for local authorities to invest for the longer-term economic development of their area. The GLA and the Mayor of London have just finished consulting on proposals to levy a BRS as part of the funding arrangements for Crossrail, as I am sure the noble Lord is aware. Under these proposals, properties with a rateable value of £50,000 or less would be exempt from the supplement, which would mean that more than 80 per cent of properties in London would not have to pay the supplement. The Mayor of London also has discretion to set a higher threshold exempting additional properties. Furthermore, London will benefit more than anywhere else in the country from the transitional relief scheme, as I said a moment ago.
The noble Lord asked for confirmation that the transitional relief scheme does not apply to the business rate supplement. He is right: the transitional relief is designed to limit and phase in significant increases in business rate liability resulting from the regular five-yearly revaluation of business rates. The majority of business properties, 60 per cent, will see their rates liability fall as a result of that revaluation.
Transitional relief is a national scheme that is funded by other business ratepayers. Extending it to the BRS would mean that ratepayers in parts of the country where rateable values have gone down as a result of the revaluation could be asked to contribute to relief on an increase that did not result from revaluation but was instead the result of a local BRS that had not been levied in their area and therefore would not bring any benefit to them.
I hope that that has covered each of the points raised. The noble Baroness asked what the levels of potential increase were. The 12.5 per cent is before inflation; it becomes 11 per cent after inflation. The 5 per cent is before inflation and becomes 3.5 per cent after inflation because of the 1.4 per cent reduction.
I did not want to interrupt the Minister when he touched on this point, as he was on a roll at the time and fired up by the subject. In my remarks I mentioned the figure of £20.8 billion, which I believe is the amount expected to be received from all these business rates. In response to a Written Question, the Government said that they expect to distribute £21.5 billion back to local authorities by way of the formula grant. I raised the point that there is a £700 million deficit between the two. I think the Minister tried to touch on that, but I did not get it. How is this going to be funded? How will not doing an assessment on the effects of these rate revaluations affect businesses? Will they be able to pay? How many businesses are going to go bust between October last year and next April? That will reduce the £20.8 billion expected, thus increasing the £700 million black hole. Will the Minister respond to that?
I will try. On the general point about businesses going bust, the recession—from which we are not immune because of what has happened across the globe—has given rise to policy changes and initiatives. For example, we have introduced the fiscal stimulus and rescued the banks; we are ensuring that the banking system is working properly; and £5 billion has gone into the DWP to increase its capacity and to help people move back into the labour market. These are all parts of a package of measures to help dampen the impact of the recession, particularly its impact on employment. Given the environment we are in perhaps I should not press the point, but the noble Earl’s party opposed the fiscal stimulus on the general principle of its effect on business and that recovery from the recession would be made more difficult. On the precise point that he raised, I do not have in front of me that figure of £20.8 billion but I shall write to him on the matter.
In principle, two things will happen: first, the business rate will be paid into the fund and, over time, it will be redistributed back to local authorities. There may well be a mismatch in the early years and I shall write to the noble Earl to explain that in more detail. Secondly, no surplus will come out of this for the Government and no cost will go into it; it will be self-financing. It may help the noble Earl if I wrote to him to give him greater clarity on the timescale.
European Communities (Definition of Treaties) (1996 Hague Convention on Protection of Children etc.) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the European Communities (Definition of Treaties) (1996 Hague Convention on Protection of Children etc.) Order 2009
Relevant document: First Report from the Joint Committee on Statutory Instruments
In debating this draft order on 8 December, my colleague in the other place explained its purpose and outlined some of the provisions of the 1996 Hague convention. I hope it will be helpful if I do the same today.
The 1996 Hague convention on the protection of children applies between contracting states across the world. It established uniform rules on jurisdiction, choice of law and the recognition and enforcement of judgments in relation to measures for the protection of children. We believe that the convention will improve outcomes when orders are made for the better protection of children. That is why the Government decided in favour of ratification.
The draft European Communities (Definition of Treaties) (1996 Hague Convention on Protection of Children etc.) Order 2009 will declare that the 1996 Hague Convention on Jurisdiction, Applicable Law, Recognition, Enforcement and Co-operation in Respect of Parental Responsibility and Measures for the Protection of Children is to be regarded as a Community treaty as defined in Section 1(2) of the European Communities Act 1972. Section 2(2) of the Act provides that an international agreement specified as a community treaty may be implemented by regulations.
The 1996 Hague protection of children convention can be specified because it is a treaty entered into by the UK as ancillary to the Community treaties. There is European Union legislation which partly covers the same subject matter, known as Brussels 2a, concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and matters of parental responsibility. This overlap gives the European Union competence over certain provisions of the convention, and this power is shared with member states. However, the convention can be ratified or acceded to only by states parties. The European Community cannot ratify the convention in its own right and, therefore, by Council decision, has authorised member states to ratify the convention on its behalf, in the interests of the Community.
The draft order does not implement the detailed provisions of the convention. It is an enabling measure. The order will specify the 1996 Hague convention as a Community treaty, enabling detailed secondary legislation to be introduced, implementing all aspects of the convention. The draft order was approved in the other place last week. Subject to approval of the draft order by both Houses of Parliament, the order will be made by Her Majesty in the Privy Council. We shall then bring forward next year a statutory instrument to implement the convention for England and Wales, and Northern Ireland. The Scottish Government have indicated that they are preparing their own statutory instrument to implement the convention under Section 2(2) of the 1972 Act.
The Government decided in 2001, following public consultation, that the UK should ratify the 1996 Hague convention whenever it was brought forward for implementation by the European Community. The EU Council decision in 2003 was the subject of scrutiny in both Houses at that time. The UK signed the convention in April 2003. If all the EU member states which have not already done so are ready to ratify by June 2010, the convention could be in force in the UK as early as October 2010. All member states need to be ready at the same time for ratification to proceed. We intend that the UK should be ready to ratify the convention in June next year.
What does the convention do? Measures for the protection of children which may be dealt with under the 1996 Hague convention include residence, contact, and care orders. The main basis for jurisdiction is the child’s habitual residence. As noble Lords will understand well, the court in the state of the child’s habitual residence will generally know more about the child’s situation and is, therefore, best able to take decisions about the child.
Uniform rules of jurisdiction should achieve this and ensure that decisions on children properly made in one country are respected in others, so that there is no need to go to court again about the same issues in cases with an international element. Jurisdiction can be transferred by agreement if this is in the child’s best interests. The convention will also lead to an enhancement of existing mechanisms for administrative co-operation between courts and public authorities in different countries concerned with the protection of a child.
The 1996 Hague protection of children convention will complement and strengthen the operation of the 1980 Hague child abduction convention between states which have ratified both conventions. The 1996 convention is in force between the countries which have ratified it. We hope that ratification en bloc, by the 17 EU member states which are yet to do so, will send a powerful signal to other countries that the convention merits signature and ratification. This is certainly the expectation of the secretary-general of the Hague Conference on Private International Law.
Community rules for recognition and enforcement of judgments are at least as favourable as the rules laid down in the 1996 Hague convention. A declaration made by the UK and other EU member states in 2003 has the effect that relevant internal rules of Community law will apply for the recognition and enforcement of judgments between EU member states. Where a child is habitually resident in an EU member state, Community rules will also apply to determine jurisdiction.
As some noble Lords will know, the decision of the European Council in June last year to authorise certain member states, which have yet to do so, to ratify the 1996 Hague convention was not issued sooner because of disagreement relating to communications between Gibraltar and other contracting parties. Following resolution of this issue in December 2007, the European Union was able to proceed with its approval of this and other conventions. In coming before the Committee today, I am glad to be able to highlight the fact that the decision of the European Council in June 2008 has enabled us to make progress towards UK implementation of this important instrument. I commend the order to the Committee. I beg to move.
My Lords, I thank the Minister for explaining this important measure in great detail. I wish to ask a couple of questions. As I understand it, the Hague convention improves the international protection of children by providing uniform rules on jurisdiction, applicable law, recognition and enforcement for decisions on parental responsibility and measures for the protection of children, which is so important in a violent world. I am sure we all agree that that can only be to the good.
I also take note of the 2008 decision of the European Council, which authorises member states that have not yet ratified or acceded to the convention to do so. That, of course, includes the United Kingdom. In view of depositing their instruments of ratification or accession simultaneously, these member states are to exchange information on the status of the related procedures with the Commission and the Council. This exchange should have taken place before 5 December 2009, after which the date of the simultaneous deposit—that will preferably be before 5 June next year—will be established.
I have two questions for the Minister. What steps have other member states taken to deposit their instruments of ratification and what progress can the Minister report on the implementation of the Hague convention? According to the Explanatory Memorandum, a full impact assessment has not been produced for this instrument as it has no impact on the costs of business, charities or voluntary bodies. Can the Minister give an assessment of the impact on UK law, for the sake of all parties—children, families and legal practitioners—to family law proceedings, that the incorporation of the Hague convention as a Community treaty will have?
My Lords, I, too, thank the Minister for clearly explaining this important order, the background to the Hague convention and how the European Union will fit into it. As he said, we hope that will be by the end of next year. I also thank the chief Opposition spokesman for her remarks and her two interesting questions that command attention. I certainly endorse them and would welcome the Minister’s answer to those points.
Gradually, and at long last, I think we are getting there with the beginnings of the universal protection of children—that will, of course, take much longer—and at least the protection of children in Europe, as we know it, and other advanced territories of the so-called first world. I say that with no condescension in regard to other parts of the planet. This measure has been a long time coming and much pain and agony has been endured by families as it has been developed.
This is a very welcome step; it is progress that is to be welcomed. As the Minister explained, it is an interesting hybrid whereby, although the individual jurisdictional implications are dealt with by the member states only and are not part of EU jurisdictional law, the EU itself comes into the other crucial parts of it that imply the beginnings of the European unified system of child protection. This will enormously help the courts in different member states that have been grappling with these problems for many decades already. It got worse after the Second World War, when there was a lot of movement of families and children for all sorts of reasons.
I welcome the Government’s endorsement of the order. I hope that it will be carried today and that the two Houses will then proceed to ratification, so that the other 17 member states that the Minister referred to will proceed as rapidly as they can to this point. Some of the newer member states may need somewhat longer. Perhaps the Minister has some indication and enlightenment on that point, because we need to reach the conclusion of this in the European context and make sure that justice is done, certainly to families but particularly to children, in these often painful human matters and matters of jurisdiction, control, family welfare and child welfare that are so important in modern society.
I am grateful to the noble Baroness and the noble Lord who have spoken for their support for this measure. On the question of what steps other member states have taken, seven already ratified in 2001. Interestingly, some of them were not members of the European Union, so they ratified before they became members. I am advised that a number are ready to proceed and approximately 11, including us, have proceedings taking place in national parliaments. What steps is the UK taking to implement this? The enabling measure will allow us to use the powers in Section 2(2) of the 1972 Act to ensure that the treaty has the force of law and implements the necessary arrangements.
The noble Baroness asked what the impact would be on UK law. Brussels 2a, which I referred to in my opening, will primarily control jurisdiction and enforcement within the European Union, but the 1996 Hague convention that we are debating today will do a similar job for the UK between other contracting states, which may not necessarily be members of the EU. It will not have an internal effect except in a few circumstances where Brussels 2 does not apply. I have a feeling that my answer is not complete, though. The 1996 convention will also introduce applicable law to the United Kingdom. I hope that that goes some way towards answering the noble Baroness’s questions.
Legislative Reform (Revocation of Prescribed Form of Penalty Notice for Disorderly Behaviour) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Legislative Reform (Revocation of Prescribed Form of Penalty Notice for Disorderly Behaviour) Order 2009
Relevant document: 18th Report, Session 2008–09, from the Regulatory Reform Committee
My Lords, this order was laid before Parliament on 21 October and seeks to remove the requirement for the penalty notice for disorder—or PND, as it is widely known—form to be prescribed by law.
Penalty notice disposal provides the police with a quick and effective way of punishing minor nuisance offending by minimising the paperwork and processing required from the police. It has been in existence for some time. Cases do not have to be taken to court, which also relieves the burden on the courts.
Currently, all penalty tickets are in book form and issued manually. However, a number of police forces, including the British Transport Police, have developed electronic hand-held devices for front-line officers and would like to issue PNDs electronically. It has become clear that the current PND form is unsuitable to be reproduced using the latest technology and that the changes the forces wish to make to it may currently be unlawful. This is because the format of the ticket is required to be prescribed under Section 3 of the Criminal Justice and Police Act 2001. In view of this, the Association of Chief Police Officers requested that changes be made to the current legislation to de-prescribe the form. The Government agreed, a consultation paper was issued and the majority of the respondents were in favour of making this change.
The purpose of the order is to give police forces the freedom to design their own forms, should they so wish, and to remove the obstacle to the electronic hand-held issue of tickets presented by an inflexible format. Electronic completion of the forms would also improve accuracy of recording and may lead to better enforcement. However, I want to make it clear that de-prescription of the form will not affect the legal rights of recipients as the order will not change the statutory provisions of the scheme, such as the right to have a case heard in court. Furthermore, tickets will still contain the remaining six requirements under Section 3 of the Act such as details of the offence, the amount of the penalty and the rights of the recipient. We will also continue to publish detailed operational guidance for police forces, which will contain a model ticket.
The aim of removing unnecessary prescription is to reduce bureaucracy and costs to forces and is in accordance with the recommendations of the Independent Review of Policing by Sir Ronnie Flanagan and the policing White Paper. The Government are convinced that de-prescription will result in efficiency savings and operational benefits, in particular to those forces wishing to automate ticket issue. I invite the Committee to support this statutory instrument. I beg to move.
My Lords, I thank the Minister for not only the detailed explanation but his demonstration in producing one of the necessary books.
As he explained in his introduction, these penalty notices for disorder—I shall refer to them, as did the Minister, as PNDs—are a way of dealing with minor criminal offences without the need for prosecution and court proceedings. As he pointed out, fixed penalty notices have existed for many years. They were introduced for litter and noise offences in the 1990s and were applied to other offences by the Criminal Justice and Police Act 2001. That Act sets out some 21 offences for which PNDs can be issued.
The Minister was at pains to stress that these notices are used as a way to streamline the disposal of minor offences but that, of course, the option is still there for a person issued with a notice to elect for court proceedings if they so wish. As regards this order, the noble Lord has explained that, because PNDs are issued by means of a paper notice, the exact form of which is prescribed in regulations under Section 3 of the Criminal Justice and Police Act, officers must carry with them books containing four different types of ticket—one each for upper and lower-tier offences for adults, and one each for upper and lower-tier offences for juveniles. I think that all noble Lords will agree that that arrangement is overcomplicated and unsatisfactory.
As the Minister tells us that most police forces have now developed electronic hand-held devices in the form of personal digital assistants—or PDAs, as we may call them—for use by officers, it seems sensible to de-prescribe the form in which the notices must be issued. Where the Government are prepared to reduce regulation, cut red tape and apply some common sense, we are only too glad to support those efforts. Sadly, we do not see nearly enough of that. However, I have a few questions for the Minister about the more general application of the disorder notice scheme.
This order has been presented by the Government as a way to simplify how penalty notices are issued. However, I would like an assurance from the noble Lord that these measures, which facilitate the use of electronic equipment, will not lead to an unnecessary increase in the database state. The Lord Chancellor, the right honourable Jack Straw, announced last month that the Office for Criminal Justice Reform will be reviewing the use of fixed penalty notices by the police. Which specific areas of the penalty notices for disorder scheme do the Government expect to be reformed, and is this one of the areas that they have looked at? Can the Minister please also inform us about the consultation that took place, and when it was conducted?
My colleagues in opposition have raised repeated concerns that the Government’s persistent use of fixed penalty notices is letting certain criminals off with what amounts to a glorified parking ticket. We believe, absolutely, that it is vital that people are innocent until proven guilty, and I seek assurances that the streamlining of the regulation is designed to assist police efficiency and that this order is not being used to up the number of notices issued. If the Government are thought to be using penalty notices to raise revenue rather than to check crime, they will only be undermining their own rather weak record in that area.
My Lords, this gives us an opportunity to look at what a penalty notice should contain. One of the major problems arising under fixed penalty notices, which we have always opposed in my party, is that they allow what amounts to an offence brought to justice to be recorded against an individual. There are specifically notifiable offences for which penalty notices can be issued: under Section 5 of the Public Order Act, under Section 1 of the Criminal Damage Act, for theft under the Theft Act and for the possession of cannabis, in particular.
An acceptance of a penalty notice is recorded and notifiable; presumably, it remains on some form of list or computer record. If that is so, I should like to know for how long. Can these penalty notices be used as part of an individual’s record against him in future proceedings, both for the purposes of proving guilt under the provisions which permit that or in the fixing of a penalty? I think that that is the case; I wait for reassurance on that. If it is the case, then the penalty notice itself should make it absolutely clear to an individual that by accepting such a notice and paying what amounts to a minimal figure of £80 or £50—which must be very attractive to an individual who would otherwise lose a day’s work to go to court and contest something—he may cause considerable prejudice to himself, not just in the event of any future proceedings but in applications for jobs, if such a record is recorded and can be produced.
It is a serious matter. The current statutory provisions to which the Minister referred require a penalty notice to state the offence, give particulars, specify the suspended enforcement period during which the penalty notice can be paid, state to the justice’s chief executive where the penalty may be paid, and inform the person of their right to ask to be tried for the alleged offence. As regards penalties, all that is required under Section 3 of the Criminal Justice and Police Act 2001 is for the notice to,
“state the amount of the penalty”.
That legislation extended the use of penalty notices way beyond what was initially intended when they were introduced for littering and other minor matters.
A person may be issued with a penalty notice, as I have said, for something that may count against him in the future—either as regards jobs or possible further proceedings. If I am right in that, will the Minister consider whether the consequences of accepting a penalty notice after this addition should be on the face of a form—in whichever form a police force decides to issue it. That is my main concern.
My secondary concern is that if you send police officers out on the street with an electronic device to give out notices, such as the devices carried by traffic wardens, there is an enormous temptation to use them in circumstances when police action would not normally be taken. The notices can be issued like confetti—not just to the perpetrator of a particular offence, who, for example, is causing a disturbance, but to the people standing around nearby. They may be dragged unwittingly into a system which is highly prejudicial to them.
It is extremely important that the Government review the way in which these penalty notices are being used, report to Parliament on how many are being issued and on whether there has been an increase as a result of the passing of this statutory instrument, report that they have looked at the forms that individual police forces use around the country and state that they are satisfied that the forms comply with the Act as it stands and that, as I argued in my main point, they give fair notice to people of the consequences of accepting a penalty notice, as opposed to contesting it—with all the trouble that that involves. These are the assurances that I am looking forward to hearing from the Minister.
I am grateful to the noble Lord and the noble Baroness for their contributions, particularly to the noble Baroness for her support for this measure.
Penalty notices were introduced as part of the Government’s strategy to tackle low-level anti-social and nuisance behaviour. We believe that they enable the police to deliver swift and effective justice for lower-level criminality, freeing up the courts to concentrate on more serious offences. The aim is to provide the police with a swift financial punishment to deal with misbehaviour and a practical deterrent to future reoffending. PNDs free up the courts to concentrate on more serious offences and ease the position of the police. Issuing a penalty notice takes an officer approximately 30 minutes, compared with two and a half hours to prepare an evidential case file. The police officer is then freed to return to patrolling the street and does not have to attend court.
We think that PNDs have been successful, but the noble Lord, Lord Thomas of Gresford, is right to point out that there are possible dangers in such a system. As the Committee knows, and as the noble Baroness mentioned, my right honourable friend the Secretary of State has set up a review. Indeed, there is a Written Ministerial Statement with yesterday's date on it that sets out the Government’s concerns. We are looking at the use of tickets to seek to avoid inappropriate use, because there have been recent suggestions that they have been used inappropriately for offences that are too serious for a ticket and should, in the interests of both the community and the defendant, end up in court.
The noble Baroness asked me some questions. How long did the consultation last? It ran for six weeks from 22 August to 3 October 2007. Will the electronic devices not lead to even more on-the-spot fines being issued? There is no reason to think that the device itself will lead to an increase in the number of PNDs issued. As I said, issuing tickets electronically will save the police considerable time and reduce the amount of paper that an officer is required to carry.
In response to the noble Baroness and the noble Lord, for a PND to be issued, an officer still needs to be satisfied that an offence has been committed that is suitable for the disposal option, following operational guidance. The noble Lord was concerned that if a policeman went around with a machine that was so easy to use, it might be used inappropriately and too often. One hopes that in the normal course, police officers would not do that. An offence must be committed before they can use that method, and the defendant always has the right to choose trial.
As for reporting, which was the first line of questioning from the noble Lord, PNDs will continue to be recorded as at present. One reason for that is to ensure that no offender receives a string of tickets. They are for recordable offences, and exist on the police national computer. They can be included in an enhanced form and can remain on the computer indefinitely, but I remind the Committee that they do not represent a conviction in the same way as would a court appearance followed by a finding of guilt.
Should a court be able to take note of previous PNDs when sentencing? The Independent Sentencing Guidelines Council’s new magistrates’ courts sentencing guidelines, which came into force in August last year, state:
“The fact that an offender has previously been issued with a penalty notice does not increase the seriousness of the current offence and must not be regarded as an aggravating factor”.
So the court may not sentence more severely just because the offender has been issued with one or more PNDs, but that may properly, so the guidelines state,
“influence the court’s assessment of the offender’s suitability for a particular sentence, so long as it remains within the limits established by the seriousness of the current offence”.
It can be used in criminal proceedings as evidence of bad character and can be cited in civil proceedings too.
In those circumstances, would it not be highly desirable that those consequences should appear on the form? After all, the purpose of the form is not for the police officer to collect the money there and then but for the individual to take that form away, and he then has 21 days in which to pay it or to take the option of appearing in court. Should that not therefore be on the form so that he can study it and decide which option to take—to pay the fine or to contest it?
The noble Lord makes a fair point. Of course, the individual has the 21 days in which he or she can, if they so choose, take legal advice. They may choose not to do so. The review is just beginning. I invite the noble Lord to put into the review—indeed, I may do so on his behalf—the notion that a model ticket in future should contain such a reference.
Community Radio (Amendment) Order 2010
Considered in Grand Committee
My Lords, community radio was established in the UK in 2005 following the Community Radio Order 2004. In a relatively short period of time the community stations have established themselves as an essential part of the radio landscape. More importantly, they have become both a voice and a focal point for the communities they serve.
To date, the regulator, Ofcom, has awarded over 200 community radio licences, of which approximately 150 stations are currently broadcasting. Stations can be heard the length and breadth of the country, from Orkney to the Isles of Scilly, Wales and Northern Ireland, and the range of programming they produce is equally as broad.
A station produces on average 77 hours per week of live broadcasting. Over 30 per cent of daytime output is speech-based, the vast majority of which is highly localised. Stations play a wide range of musical styles, often promoting local musicians and bands. What makes community radio unique, though, is that this content is delivered by an army of volunteers—on average, 75 volunteers per station per year. For these reasons we believe that community radio, while still in its infancy, has already proved a valuable addition to the local cultural and social landscape.
The Community Radio Order 2004 placed limitations on the sources of revenue and licensing of community radio stations. These restrictions were intended to reflect our concerns that a new tier of local radio that would have access to public funding could have a detrimental impact on existing local stations. More fundamentally, the restrictions sought to ensure that community radio be complementary, rather than just a new tier of competition, to the existing radio industry.
However, we have kept these restrictions under review to assess both their impact and the extent to which the protection they afforded remained appropriate. The most recent of these reviews, published in late 2007 by Ofcom, recommended a relaxation of the current regime. Recommendations were also made in the Government’s own review of local radio, conducted as part of the Digital Britain programme. It is in the light of these recommendations and our own subsequent consultation that we now propose the changes set out in the draft Community Radio (Amendment) Order 2010.
The draft order addresses three main issues, as well as some more minor points. I propose to deal with the key issues first. The first proposal is to remove the restriction that currently prohibits community radio stations from taking more than 50 per cent of funding from any one source. This restriction was put in place to prevent stations from becoming overly reliant on a single source of funding and, to a lesser extent, to protect against a majority funder influencing the editorial content of a station.
We still believe these principles to be valid, although we also now accept that they can be achieved in different ways. Not least of these are the impartiality rules set out in the Communications Act 2003, which provide a sufficient safeguard of editorial impartiality for all other types of broadcasting. We also note that Ofcom’s decision in 2008 to allow volunteer time to be offset against revenue has in practice already allowed stations to take single-source funding of greater than 50 per cent.
The second set of proposed changes would remove the restriction prohibiting a community radio station from being licensed in an area that overlapped with a commercial station with a coverage area of 50,000 adults or fewer. The effect of this has been to prevent some areas where there is obvious demand from having access to a community station. In light of our experiences to date, we are now satisfied that the advertising and sponsorship restrictions are sufficient to protect even the smallest of stations. This restriction can therefore be removed.
The third major change would allow existing community radio licence-holders to apply for an extension of their licence for a period of up to five years. This is because we recognise that, in many cases, community radio stations are taking longer than anticipated to become fully established, particularly in building relationships within communities and a volunteering network. We will keep this change under review, alongside the others introduced in this order, to consider their impact.
We have also taken the opportunity of a new order to clarify the licensing regime set out in the Community Radio Order 2004. This sets out more clearly for licence-holders and Ofcom the considerations that need to be made before a community radio licence is granted. However, these two minor amendments are entirely consistent with the policy as we agreed it in 2004.
We believe that the changes set out in the draft order, taken together, will help to build on the successes of community radio and to establish a more sustainable sector for the longer term. I assure the Committee that I am satisfied that the draft order is compatible with convention rights. I beg to move.
My Lords, I thank the Minister for his thorough explanation of the effect of this order. However, I wish to make one or two points. We on these Benches are very positive about the future of radio. We think that local and community radio will continue to make up an integral part of this media sector. These stations provide a vital service that can cater for very specific tastes or a very specific area and so fill a need which risks being overlooked by larger national or commercial broadcasters who deal with broader areas or tastes.
Of these local community stations, 14 per cent, for example, are aimed at minority ethnic groups, 9 per cent are aimed at young people and 7 per cent at religious groups. Local community radio is, therefore, clearly an important part of the network of media available in this country. It helps to define local communities by allowing increased local involvement and a focus on local issues. For example, in Newport on the Isle of Wight there is a station catering specifically for the needs of the elderly; in Belfast there is a station particularly for Irish Gaelic speakers; and in London there is a station for those people interested in experimental radio art. I do not know whether the Minister knows what that is; I certainly do not. There is something for all tastes.
The demand for, and popularity of, these stations is shown by the fact that since the Community Radio Order 2004, Ofcom has licensed 214 stations—the Minister mentioned that—159 of which are already broadcasting. Stewart Purvis, Ofcom's content and standards partner, said:
“Community radio is now an established third tier of radio broadcasting in the UK. This new tier of radio adds richness and variety to the services already provided by the BBC and commercial radio and offers opportunities for people to get involved in local broadcasting”.
With this in mind, we are very supportive of two of the substantive amendments which this order makes. Article 5 modifies the 2003 Act in relation to community radio. It introduces new Section 253A, which gives Ofcom the power to extend community radio licences for one period of not more than five years. We approve of this development because we think that a regulatory regime which is light touch and allows genuinely successful local radio stations to operate as part of a viable local media business is an important development and is to be encouraged. For this reason, we also support the first part of Article 3, which, as the Explanatory Note states, would remove,
“the restriction that a community radio licence may not be granted to an applicant who proposes to receive more than 50 per cent of the income the applicant needs to provide the proposed service from any one source”.
This change is also a step in the right direction towards lighter regulation and allows freedom to grow for genuinely successful local stations which attract significant investment and donation from one source.
However, the Minister will not be surprised to hear that our support is not unequivocal. We have reservations about the change the order brings in which would allow Ofcom to award licences to community radio stations in areas that overlap with small commercial stations; in other words, those with a potential audience of fewer than 50,000 adults. We object to this amendment because, in this instance, the commercial station operates on a very local level anyway. These stations will often be not-for-profit, very locally focused and have significant community involvement. To allow another publicly funded community station a licence in this area would simply mean that it would have the potential to upset the fragile economic balance of this station by competing for listeners. We think it is very important to create a regulatory regime which helps rather than hinders the commercial radio sector—particularly in this difficult economic climate, with the additional instability caused by the big switchover from analogue to digital.
In response to the Government's consultation on this matter, RadioCentre quoted the then Secretary of State for Culture Media and Sport, the right honourable Andy Burnham, who, on 2 March 2009, stated:
“We already have established radio stations that provide an excellent service to their community and we want to work pragmatically to ensure not only that community radio can continue to develop but, with one eye on the rest of the media industry, that it does not threaten the development of commercial services”—[Official Report, Commons, 2/3/09; col. 570.]
Can the Minister inform us what effect this change to the Community Radio (Amendment) Order is expected to have on the status of small, locally based commercial stations? Does he not agree that this amendment will have a potentially damaging impact on their survival by allowing small community stations to compete with local commercial stations which are already suffering? Given the supposedly reassuring words above, and the fact that currently local stations are already handing licences back to Ofcom because they cannot make their businesses work, why do the Government think that this is an appropriate change? What other action is being taken to ensure that the development of commercial services is not threatened?
In more general terms, my Lords, can the Minister give us some idea of hopes for the future regarding community stations and the small commercial stations as we move into the digital age? What impact do the Government expect the switchover to have on local radio? Moreover, what is being done actively to ensure that successful local radio stations can survive to become part of a viable local media sector?
My Lords, I thank the Minister for his introduction to the order. As he said—and we agree—community radio forms a vital part of the broadcasting landscape. Indeed, as both he and the noble Lord, Lord Luke, said, its growth since 2004 has been a great success story, with now more than 200 community stations. We on these Benches share the motives and agree with most of the actions of the Government and with their intent in the order.
The lead-up to the order has not been for want of documentation: there is the Ofcom review of 2007; the interim Digital Britain review; the Myers independent review of the rules governing local content on commercial radio; the final report of Digital Britain; the consultation on amendments to the community radio licensing regime in June; the summary of responses to the consultation and the Government's response of October; and the impact assessment and Explanatory Memorandum to the order. The Government have made their position and their motives clear in the run-up to the order.
We share what the Government have to say, particularly in respect of loosening the regulation on sources of funding, licensing overlap and extension of licence periods. The key thing that the Government have done is to maintain the restrictions on advertising. That is a vital safeguard. We support the general thrust of the amendments, including the retention of those advertising restrictions.
At the same time, we understand the concerns of RadioCentre and others about the impact on small commercial radio stations. Although the impact assessment is welcome as such, it is very thin; it says very little about the impact on smaller radio stations. It states:
“The effect of allowing community radio stations to co-exist with the smallest commercial stations is difficult to quantify. However, it is likely that community radio stations will attract some listeners from local commercial stations. This could affect the value of an advertising slot to a local commercial station”.
The request of the commercial industry for impact assessments when new licences are granted to community radio stations is a valid one that the Minister needs to answer. The general impact assessment is not adequate; the impact in a particular area, however, will be crucial. I hope that the Minister will be able to give a favourable response on that.
The issue of funding for local community radio in this context is very important. I can see the Government’s motives in wanting to allow single-source funding up to a greater figure—75 per cent, I think—but one of the key sources of funding has been the community radio fund. That started off, rather disappointingly, at £500,000; since then, the spending commitments of that fund have increased massively from something like 14 stations to over 200, as we heard today. If the Government are changing regulations and wishing the community radio industry well, I hope that at the same time they will give some indication that the funding for community radio will be improved. It is all very well to wish community radio well and say what an important part of the broadcasting landscape it is but, without willing some additional resource to it, it will be difficult, particularly in the current climate, for it to sustain itself.
I hope that the Minister will be able to answer those two questions, which are highly pertinent to both the future of small commercial radio stations and the community radio movement itself.
My Lords, I thank both noble Lords for their contributions to this debate and for the general welcome that they have given to the order. There is no disagreement between us on the value of community radio or on the value of the small local commercial stations which feel that they are in competition with it.
I will not go over the points that the noble Lord, Lord Luke, covered when he effectively endorsed what is in the order and which I covered in my speech. However, I will attempt to address the questions that he asked, particularly about the proposal to allow community radio in areas of 50,000 or fewer where a commercial station is already in existence. This is indeed in contradiction to one of the majority views in the consultation. The proposals set out in the draft order have been made following significant discussions with the commercial radio sector, and it was a recommendation of the former chief executive of GMG Radio that this change should be made. The advertising and sponsorship restrictions that will apply to all the community radio stations with audience potential of up to 150,000, including the newer stations that will come in with this order, will, we believe, provide the protection for the commercial stations that the noble Lord is seeking and to which the noble Lord, Lord Clement-Jones, also referred.
I will return to the question of the impact assessment in a moment. The noble Lord, Lord Luke, asked about the future of community radio after the digital switchover. The intention is that the digital radio upgrade programme will retain a proportion of FM to help what one might call the ultra-local stations to stay in existence and continue to provide community radio. In practice, we believe that the vacated spectrum will allow for a greater number of community radio stations in future, particularly in areas where stations have been limited by a lack of spectrum.
The noble Lord, Lord Clement-Jones, referred to the funding of community radio through the community radio fund. He raises a good point. The availability of funding is committed until 2010-11. Decisions beyond 2011 have still to be taken but the Government have been working closely with Ofcom and the community radio sector to ensure that we make the best use of the funding that is available by promoting best practice and employing fund raisers. In addition, the Minister for Creative Industries has met representatives of the community radio sector to discuss the future of the community radio fund. He has agreed to write to other government departments to highlight the benefits of community radio in delivering wider government objectives and to seek a financial contribution from them to the fund.
On the impact assessment, we accept that there is little evidence which qualifies the impact of community radio on small commercial stations. However, we are not aware of any commercial station that has closed as a result of the licensing of a community station. Ofcom is required to consider the impact of a community radio station on a commercial station before a community licence can be granted. I understand that Ofcom’s watch on this will be maintained and, if there is an impact on commercial radio stations, Ofcom will intervene and act on it.
I hope that I have answered the questions raised by both noble Lords in this brief debate. If I have missed anything I shall, of course, write to them.
Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2009
Considered in Grand Committee
My Lords, I am being shadowed for the day by a graduate intern, Angela Wynne. I am not sure whether she should be shadowing me or the noble Lord, Lord Hunt. This is an attempt to get her name into Hansard.
I shall start by putting the proposals in this legislative reform order into the context of what we are trying to do as a Government and as a department. We have been working determinedly over the past year to provide real help for businesses, including advice, access to finance and tax relief, to support them through the downturn and to safeguard jobs. The reforms today give certainty to the business climate by simplifying an essential part of business law so that businesses can take risks and concentrate on what they do best—creating wealth and jobs. That is why we are reforming the UK insolvency regime, so that it reflects modern business practices and strikes the right balance between the respective interests of debtors and creditors.
The order makes amendments to the Insolvency Act 1986 and forms part of a package of measures being taken to modernise the insolvency legislation. Changes to the regime for publicising insolvency events were implemented in April of this year and some of those changes were facilitated by an earlier legislative reform order. This next phase of amendments, along with parallel changes being made to the insolvency rules 1986, will substantially change the law. These changes will be implemented next April and thereafter a consolidation of the insolvency rules will be undertaken to make the legislation easier to use. That is planned for April 2011. My officials have worked very closely with insolvency stakeholders as we have developed these proposals, and I am very grateful for the valuable contributions that those stakeholders have made.
The purpose of the order is to reduce the cost of administering insolvency cases and thereby increase the amount of money that can be returned to the creditors. It will do this by amending the Insolvency Act 1986 to enable new and more efficient ways of carrying out certain actions within insolvency procedures and to remove requirements to carry out unnecessary actions. The provisions in this order will operate alongside changes to the Insolvency Rules 1986, which are also being modernised. The changes will come into effect at the same time as this order.
There are seven proposals in all. They are: to allow insolvency office-holders to convene meetings as part of their conduct of insolvency cases other than by attendance at a specific venue; to make communication between insolvency office-holders and creditors more flexible, such as by allowing the use of websites; to make it explicit that electronic communication is permitted within insolvency procedures; to remove the requirement for certain documents to be sworn by affidavits and replaced with less burdensome requirements for such documents to be verified by a statement of truth; to remove a statutory requirement on voluntary liquidators to summon annual meetings for the purpose of laying an account of their actions over the preceding years—instead, the liquidators will be required to send out progress reports; to remove the need for certain documents in individual voluntary arrangements to be filed at court; and, finally, to simplify the procedures relating to realisation of certain assets in bankruptcy and liquidation.
Perhaps the most far-reaching of these seven proposals are those designed to enable the use of electronic communication and websites as a means for communicating information within insolvency cases. We have put in place safeguards to protect the interests of those who cannot or prefer not to use this form of communication. We know from responses to the consultation that this change will be very widely welcomed.
We estimate that the savings across the whole body of insolvency cases from the seven proposals for change to the Insolvency Act 1986 in this draft order, and to the Insolvency Rules 1986, will be more than £30 million a year.
The Delegated Powers and Regulatory Reform Committee of this House is satisfied that the order in its present form meets the tests in the Legislative and Regulatory Reform Act 2006 and is appropriate to proceed as a legislative reform order. The Regulatory Reform Committee in another place has also recommended that it be approved, and the Government intend to bring it forward for approval there early in the New Year.
This order will bring real benefits to those unfortunate enough to be owed money by failed businesses. We must do all we can to ensure that the insolvency processes are administered as efficiently as they can be to help those creditors recover as much as possible of what they are owed. The proposals in this order will help to achieve that. I commend this order to the Committee.
My Lords, I first declare my interests, in particular as a partner in the national commercial law firm Beachcroft LLP, and the other interests set out in the Register.
The order forms part of a long-running project designed to modernise and streamline various administrative aspects of formal insolvencies under the Insolvency Act 1986. The subject matter of this order was the subject of an Insolvency Service consultation which commenced in September 2007. The measures we have before us today were to have been implemented somewhat earlier than now but, despite the delays, they are to be welcomed.
We are all grateful to the Minister and his shadow, whom I welcome to the club of shadows, for setting out so clearly the seven different areas ranging from remote attendance at creditors’ meetings to allowing insolvency practitioners to distribute information creditors by sending a link to a website. Other measures, as the Minister explained, dispense with the requirement to hold annual meetings, which reflects the practice for administrations following the changes to that procedure introduced by the Enterprise Act 2002. Further, the order removes the anomaly in the insolvency rules that required many documents to be verified by affidavit rather than by a statement of truth, which has been standard practice by the civil courts for many years.
The day-to-day business of insolvency practice is much more than administrators or liquidators serving businesses and recovering assets. Insolvency practice is probably one of the most heavily regulated sectors in the UK, and insolvency practitioners, all of whom are licensed, must comply with a host of professional, regulatory and statutory requirements in the day-to-day conduct of their duties. While these requirements are intended to safeguard the interests of creditors and other stakeholders in formal insolvency, and indeed to a large extent they do, they impose considerable compliance and time costs on insolvency practitioners. In most instances, these costs must be borne by the creditors of insolvent companies every time an insolvency practitioner is required to hold a physical meeting or to post information to hundreds, sometimes thousands of creditors. This ultimately comes at a cost to the creditors themselves. We therefore expect that in most insolvencies there may well be material cost savings, once the provisions relating to modernising and streamlining communications with creditors are in place from 6 April next year.
I particularly welcome the provision dispensing with the compulsory requirement to hold annual meetings in members’ and creditors’ voluntary windings-up. The original aim of those meetings was of course to enable creditors to question insolvency practitioners directly about the progress of liquidations. The reality, however, is that most such creditors’ meetings, some of which I have attended, are sparsely attended. It is not uncommon, and I have known this, for no creditors to be present at all. The expense of organising such meetings can often be a material one, particularly in smaller insolvencies.
Alongside the possible practical benefits of these provisions, some of which I have just tried to outline, it is pleasing to see that on this occasion they are in line with the original intention of the legislative reforms introduced by the Enterprise Act 2002. The insolvency provisions of that Act, while principally dealing with the administration process, had the aim of streamlining the insolvency process, reducing the cost and increasing returns to creditors, once we—I had the honour to serve on that Committee—had persuaded the Government to drop some of the unrealistic timetables that they originally proposed.
I pay tribute to the skill of the Enterprise Bill team at that time. They understood the problems and we were able to reach reasonable agreement over the progress of that legislation. Although it has taken some time for the proposals we are discussing today to reach implementation stage, the changes are entirely consistent with the aims of the Enterprise Act. It is pleasing to see in these proposals some recognition of the high administrative burdens on insolvency.
I commend the Minister and his colleagues for recognising in this case that the lifting of a regulatory burden can be in the best interests of those whom the former rules were designed to protect. Many aspects of these provisions give a higher degree of discretion to insolvency practitioners, who, as experienced professionals, are accustomed to making decisions designed to facilitate optimal recoveries for creditors. I acknowledge also their valuable work on turnaround and preventing insolvency in the first place. I welcome the Minister’s commendation of the way in which insolvency practitioners have responded in seeking to increase the efficiency of the process. I pay particular tribute to R3, the trade body which represents 97 per cent of all licensed insolvency practitioners; much of its advice has been extremely valuable. I applaud any change which gives insolvency practitioners greater discretion to do their jobs, rather than being constrained by increasingly burdensome and outdated rules. We look forward to many more proposals designed to streamline the insolvency process and, ultimately, increase returns to creditors.
A criticism one often hears of the insolvency regime is how poor the returns to unsecured creditors usually are. Although returns to creditors are largely a function of the deficit between how much creditors are owed and the assets of the company, any measures to reduce administrative time and costs in insolvency should be welcomed. In some cases, they should at least provide better returns to creditors and, by doing so, help to enhance the standing of the insolvency regime in England and Wales. There is much further work to be done in order to improve and modernise the insolvency regime and we look forward to further proposals to achieve these ends being introduced as soon as possible. Although these provisions are long overdue, they are welcomed as a step in the right direction.
My Lords, I apologise on behalf of my noble friend Lord Razzall, who is unable to be present today. However, it gives me an opportunity to dip my toe into the deep pool of insolvency legislation, although I am not sure whether I shall be taking it out at the end of the debate or taking the plunge.
I have a couple of comments on issues coming from another part of the legislative woodwork, if you like. It is commendable that the order brings the rules up to date with how people want to do the business, which is not a situation in which we find ourselves in every last respect. For example, we recently debated bank note regulations under the Banking Act which make provision for the Bank of England to contact a bank by post, and they explain what sending a letter by first-class post is deemed to mean in terms of the number of days it takes to get there. It is much more sensible to recognise the reality that, in this day and age, no one does any business by post if they can get away with it because they want to move more quickly. This order will allow them to do that.
It is also very sensible to allow remote attendance at meetings. It will be very interesting to see how that works in practice. Speaking to people with whom I work in a professional capacity, I have found a significant reluctance to get involved in video conferencing, even when the facilities are available, and even though it often saves time and money. I suspect that in the case we are discussing it might be more regularly used but it would be a welcome development in terms of efficiency, the environment and reducing carbon footprints. One is always telling companies to use these facilities more, not least because it enables them to reduce their carbon footprint rather than dashing around unnecessarily.
I have a general question about remote attendance at meetings and the use of websites. How far do these provisions reflect the situation under the Companies Act in terms of the way in which companies are allowed to communicate with their shareholders and the extent to which remote access to meetings is legally allowable under the Companies Act 2006? It seems to me that we are looking at these provisions in respect of insolvency but they might have wider applicability. I say this in part because I am a minority shareholder in a small unquoted company and I have just had all the documentation from it on its AGM and its accounts by e-mail, which makes absolute sense. It had no intention of sending that to me in the post, but I wondered whether, technically, it was allowed to do that, or whether there is still a legal requirement for hard copies to be provided. I suspect not, but I would welcome reassurance from the Minister on that point.
I always enjoy looking at the cost-benefit figures. I would love to see the detailed workings that have produced them as in a case such as this it is virtually impossible to know what the savings are. However, I am sure that the basic orders of magnitude are right in that the costs must be significantly outweighed by the benefits of doing all this. With that very much at the forefront of my mind, I am very happy to support the order.
I thank noble Lords for their comments. This is my first insolvency discussion since I have taken up this role. This draft order will undoubtedly bring insolvency procedures into the 21st century. The LRO process is sound, brings huge benefits and requires considerable consultation. However, we are going to have to find a way to speed up the modernisation of the procedures involved at the AGMs of big, small and medium-sized corporations, and I have asked officials about this. This will have a fundamental impact and is long overdue. We will have to amend the insolvency rules considerably, and we cannot take too long over that. The question is, how do we consult but at the same time move speedily? I shall send all the details and the breakdown of the cost-benefit to the noble Lord, Lord Newby.
Clearly, modernising the insolvency rules is long overdue. This is a move in the right direction. Companies can hold meetings remotely. I will write to the noble Lord on the detail of the overall workings of an AGM. This is a very sound move, reflecting good progress, but we now need to reflect on how we might introduce further changes with greater speed. This is all about helping business and the insolvency profession, which is clearly well regulated and plays a key role in the economy. For the reasons I set out earlier, I believe that this order will be helpful to the business community and to creditors. I again commend the order.
Committee adjourned at 5.40 pm.