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Grand Committee

Volume 718: debated on Thursday 25 March 2010

Grand Committee

Thursday, 25 March 2010.

Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument the Motion before the Committee will be that the Committee do consider the statutory instrument in question. I should perhaps make it clear that the Motions to approve the statutory instruments will be moved in the Chamber in the usual way. If there is a Division in the House, the Committee will adjourn for 10 minutes.

European Parliamentary Elections (Northern Ireland) (Amendment) Regulations 2010

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the European Parliamentary Elections (Northern Ireland) (Amendment) Regulations 2010.

Relevant document: 9th Report from the Joint Committee on Statutory Instruments.

My Lords, the three instruments I am moving this afternoon all deal with electoral matters in Northern Ireland.

I turn first to the draft Representation of the People (Timing of the Canvass) (Northern Ireland) Order. This order removes the requirement for a canvass to be held in 2010, and has been brought forward following a recommendation to the Secretary of State from the Chief Electoral Officer for Northern Ireland.

It may assist noble Lords if I provide some background to the order. Noble Lords will be aware that there is a system of individual registration in Northern Ireland. Electors must provide a signature, date of birth and national insurance number when registering. The chief electoral officer may also require proof of a resident’s entitlement to be registered, including, for example, proof of nationality or residency. These measures are vital to protect against electoral fraud and to restore confidence in Northern Ireland's electoral process. They have also helped to ensure that the electoral register remains as accurate as possible.

However, requiring electors to provide such information annually through the canvass was becoming a burden on both electoral administrators and electors. The Northern Ireland (Miscellaneous Provisions) Act 2006 amended the Representation of the People Act 1983 to remove the requirement for an annual canvass to be conducted in Northern Ireland. Alternative methods would instead be used by the chief electoral officer to maintain the accuracy of the register; for example, using information received from specified public authorities to verify a person's entitlement to be registered.

That provision did not entirely remove the requirement for a canvass to be held in Northern Ireland. Section 10ZA of the 1983 Act, inserted by the miscellaneous provisions Act, provides for a canvass to be held in 2010 and every 10th year thereafter. The requirement for a canvass to be held in 2010 was included as a safeguard because it was not clear at that stage how effective the alternative registration methods would be. For that reason, the requirement to conduct this canvass may be removed by order, but such an order can be made only if the chief electoral officer recommends against a 2010 canvass on the basis that it is not needed for the purpose of meeting his registration objectives.

I can inform noble Lords that the chief electoral officer has written to the Secretary of State recommending against a 2010 canvass. The order before us this afternoon would give effect to this recommendation. I reassure noble Lords that the removal of the requirement for a 2010 canvass does not mean that there will not be a canvass until 2020. Indeed, the law states that a canvass must take place in 2016 if one has not been held in an intervening year.

Furthermore, a canvass may be held in any intervening year if the chief electoral officer recommends that a canvass is necessary in order to meet his registration objectives, and if the Secretary of State is satisfied that the public interest requires a canvass to be held for that purpose.

I now turn to the remaining instruments before us today, which would amend the way in which vacant European parliamentary and district council seats in Northern Ireland are filled. The draft Electoral Law Act (Northern Ireland) 1962 (Amendment) Order amends the process by which casual vacancies on district councils in Northern Ireland are filled. Under the current procedure, if a seat becomes vacant, a replacement may be co-opted without the need for a by-election. However, any proposed co-option will fail if any of the remaining councillors object to it. If the co-option fails, a by-election must be held to fill the vacancy.

Noble Lords will be aware that elections to district councils in Northern Ireland are held under the single transferable vote form of proportional representation—or PR-STV. By-elections in PR-STV systems are undesirable because they may distort the careful party and community balance existing at the time of the election. Co-option has worked well in many councils over the years, but there has been increasing concern that the current requirement for unanimous agreement provides scope for individual members to object and force a by-election against the wishes of the vast majority of the council. Noble Lords may be aware of the proposed move from 26 to 11 district councils in Northern Ireland. These 11 councils will be much larger than the existing councils with around 40 to 60 members each, and unanimous agreement to a co-option will be even more difficult in these circumstances.

The Government undertook full public consultation on a proposal to allow the party to which the vacating member belonged at the time of the election to nominate a replacement. It was further proposed that independent members should be replaced by reference to a list of substitutes submitted by them to the chief electoral officer prior to vacating a seat. There was overwhelming support for this from respondents to the consultation, and the order before us therefore amends Section 11 of the Electoral Law Act (Northern Ireland) 1962 to give effect to these proposals.

The draft European Parliamentary Elections (Northern Ireland) (Amendment) Regulations seek to make similar amendments to the method of filling vacant seats at the European Parliament. Current regulations provide that any vacancies arising during term must be filled by by-election. I have already expressed my view that by-elections are undesirable in a PR-STV system due to the potential to distort the party balance in existence at the time of the election. With only three Members in the European Parliament from Northern Ireland, it is even more important to ensure that party balance is maintained. Consultation in 2008 demonstrated widespread support for vacant European parliamentary seats to be filled by replacement by party nomination or substitution. However, amendment was required to the European Parliamentary Elections Act 2002 to allow for regulations to be made that would permit this, and noble Lords may recall that such amendment was made by virtue of Section 26 of the Political Parties and Elections Act 2009. These European regulations therefore contain similar provisions to the district councils order to allow for replacement by party nomination or substitution, with some minor technical differences to take account of the different procedures for being returned to the European Parliament.

Noble Lords will also be aware that it is possible for candidates to stand in the name of two or more parties at an election. These instruments make provision to cater for such circumstances, so that if such a vacancy arises, the nominating officers of both or all of the parties concerned will be required to provide a joint nomination.

These statutory instruments have the support of various interested groups in Northern Ireland, including the political parties, district councils and MEPs. I believe that there are strong reasons to remove the requirement to hold a canvass in 2010, and I hope that noble Lords will be reassured that a canvass must take place in 2016 or in an intervening year if the chief electoral officer recommends this. There is also very strong support for reform of the method of filling vacancies in district council and European parliamentary seats in Northern Ireland for the reasons I have outlined. This will ensure consistency with the method of filling vacancies in the Northern Ireland Assembly, which has worked well since its introduction last year. Noble Lords will also be interested to know that many respondents to the consultation on district council vacancies emphasised that these amendments would encourage those councillors holding other elected offices to give up their council seat, safe in the knowledge that it will be retained by their party.

I know that noble Lords have been concerned about the issue of “multiple mandates” for some time. I remain of the view that this issue would be best resolved by agreement between the parties themselves in Northern Ireland. However, the Government stand ready to help facilitate and encourage any such agreement, and I believe that the legislation before us will do just that. Once again, I am grateful to noble Lords for permitting me to speak to all three instruments together this afternoon. I beg to move.

I thank the Leader of the House for once again laying out and explaining these statutory instruments so clearly. I have absolutely no objection to the canvass because it is a very sensible thing to do; and 2016 seems a sensible backstop, so I support that too. However, I consider the other two instruments to be undemocratic and a sort of gerrymandering with the electoral process. I hear what the noble Baroness has said about what the Government are trying to do, and there is indeed some logic behind it, but that logic is in many ways forced on us by a totally inefficient means of running the whole Northern Ireland process. We have the d’Hondt system and a whole lot of other means and different forms which might be considered strange—I shall not go as far as saying gerrymandering—and where nobody can ever reach agreement on anything.

I entirely agree with the noble Baroness about large councils—particularly once we have 11 local authorities, if we ever do, as opposed to 26—never reaching a unanimous agreement on who the replacement should be. If we accept that it will not happen, then it seems absolutely logical that it should be the electorate who decide. If the council cannot decide, then put it out to the voters—that is the right way to go. The second best way is where there is a list system and the electors and community know at least who will replace a person should they, for example, die or become ill. If we leave it as the Government wish—where, if I understand it correctly, the party concerned can go out into the street and say, “Hey, Johnny, I want you to come and join us on the council”—that will not ring the bells of democracy. My party in the other place voted against these orders, and if we were voting today, I would also be bound to do so.

My Lords, I, too, thank the noble Baroness the Leader of the House for introducing these orders so clearly. I can tell the Committee at the outset that we support the orders. On the first order, which amends the way in which vacant European parliamentary seats in Northern Ireland are filled, my party, simply put, supports the single transferable vote system as being the best and fairest system of election to any Parliament, and we fully support its use in Northern Ireland European elections.

However, the Government’s proposed system of nomination also has the problem of, at best, not providing for sufficient public scrutiny. We wonder whether they have given consideration to the importance of democratic transparency. For instance, do they feel it is important for those who are nominated to fill vacancies to be known to the electorate at the time of the original election and to be subject to scrutiny? That may well answer the concern which the noble Lord, Lord Glentoran, has mooted. As for independents who might stand, we are pleased to see that the order of preference will be indicated in the substitutes list, as otherwise it would be impossible to know how to choose between substitutes.

The draft Electoral Law Act (Northern Ireland) 1962 (Amendment) Order amends the way in which vacancies in district council seats in Northern Ireland arising during a term-time are filled. We welcome this order as well. It makes sensible consequential amendments to the 1962 Act in relation to council elections in Northern Ireland. We agree with the analysis that it is unrealistic to retain co-option following the reduction in the number of district councils to 11 with the subsequent increase in the number of members of each council. Given that vacancies in the Assembly and the European Parliament are to be filled by substitution, and that STV is used as the electoral system for all those elections, it makes sense that council elections in Northern Ireland are filled in the same way. We are also pleased to see that the order will replicate the system for filling council vacancies where a person has stood in the name of two or more parties, which has been provided for European vacancies of this sort. The order ensures that there is cohesion across the three types of election in Northern Ireland where STV is used as the electoral system.

Finally, on the Representation of the People (Timing of the Canvass) (Northern Ireland) Order, the Northern Ireland (Miscellaneous Provisions) Act 2006 abolished the annual canvass in Northern Ireland and replaced it with a canvass every 10 years. One could be held in 2010, as the noble Baroness the Leader of the House has reminded us, but if the chief electoral officer requested that no canvass take place for a particular reason—in this case, I assume that he was satisfied that the register was very effective—then a canvass could be held in subsequent years, and in 2016 at the latest, which would be 10 years after the previous canvass in Northern Ireland, which was in 2006.

With the continuous registration process having started in 2007, there is now a much more robust and accurate electoral register. In fact, I understand that there are currently 1,170,336 people on the register, which is approximately 90 per cent of the voting age population. From these Benches I congratulate all those who have been involved in this very successful process.

The chief electoral officer's annual report for 2008-09 sets out a number of innovative and impressive initiatives to increase electoral registration in Northern Ireland, including the schools initiative, which is aimed at registering young people who are still at school. Will the noble Baroness the Leader of the House also inform the Committee what steps or new initiatives are being taken in advance of the general election this year to ensure that a comprehensive register is available on 1 April?

My Lords, I, too, thank the noble Baroness the Leader of the House for introducing these three instruments. Like the noble Lord, Lord Glentoran, I have no difficulty at all with the proposals for the canvass, which seem to me eminently sensible. With respect to the proposals on co-option in the European Parliament, I am also very willing to accept the argument advanced by the noble Baroness because—technically, at least—there is a possibility that a by-election might be called following the tragic or unfortunate death of the nationalist or republican Member for Northern Ireland in the European Parliament. There could be a consequence thereby that if a by-election were to be held under normal Westminster rules, if you like, the nationalist community would be deprived of representation in the European Parliament for at least until the next election. That concern is sufficiently serious for us to have to accept the proposals that the noble Baroness has put forward today, even though the noble Lord, Lord Glentoran, is right that from a certain point of view in democratic principle and practice it is an ambiguous move. However, I think that the balance of argument here favours the course which the noble Baroness has proposed.

I am less sure about the proposals for co-option in local councils. I would at least like to air the difficulty as it exists. Noble Lords may not be aware of quite how dramatic this process can be in Northern Ireland. When we previously talked about this on 4 February 2009, I drew attention to the fact that between 2006 and 2009 in one ward, Dunmurry, in the Lisburn City Council area, there had been five co-options in three years, which meant that the majority of those on that council from that area were as unelected as Members of your Lordships' House. There is a pretty heavy irony in the fact that we read in the newspapers that the Government are about to advance proposals for your Lordships’ House to be a completely elected House while at the same time they are bringing forward proposals this afternoon which tacitly accept that a significant number of local councils will be filled in the real world by a process of co-option. That makes the mysterious arrival of Members of your Lordships’ House look remarkably clear cut and well defined. I draw attention to the fact that there is an irony in government policy. There is certainly a contrast between the proposals for the future of this House and what the Government are prepared to accept for councils in Northern Ireland.

There is an uneasy feeling that co-option arises partly because of the difficulties caused for the larger parties by certain events. For example, the result of the previous significant council by-election in Dromore produced a shock for the leading unionist party. It was a well-noted shock which continues to reverberate in some ways through the political process.

I am also not quite sure why it was not desirable recently in the case of Castlereagh council following the resignation of the MP, Mrs Iris Robinson, from her position at Westminster and all her other elected offices. In view of all the issues raised—issues which touch on the working of Castlereagh council as well—I am not quite sure that it would be healthy in a democracy for the electorate immediately to register their views on these matters. So there is a greater problem with the proposals which the noble Baroness is advancing for local councils. She is basically right in her defence of corruption as regards European elections. When I raised this point before, she was kind enough to say in reply that she accepted that this was not an ideal situation.

I know that there is little to be done about it today. I also know that in the circumstances which exist in Northern Ireland at present, and for many reasons of practicality, we have to proceed with the orders as they stand. However, I ask the Government to think and reflect on the contrast between their commitment to democracy at all levels, including the election of this House, and on their apparently less fervent commitment to democracy at all levels and in local council elections in Northern Ireland.

My Lords, I am grateful for what I think I would call the broad support for these statutory instruments. I also note the varying views about democracy. All noble Lords have supported the way in which the statutory instruments propose filling vacancies for European parliamentary elections, but more concern has been expressed about filling local council seats. I understand that concern. The noble Lord, Lord Bew, drew a parallel between my Government’s view on the need for an elected second Chamber and our proposals for Northern Ireland. I note the disparity. However, I think we would all recognise that in Northern Ireland we are seeking to maintain the political and cross-community balance. That is very difficult, and it would be extremely difficult to maintain the balance while having by-elections under an STV system. That is why we are where we are.

The noble Lord, Lord Glentoran, drew our attention to a list system, and I can see its attractions. In this case, however, it would be better to go down the line that we are proposing. If candidates were to publish their proposed replacement at the time of their election, which is essentially a list system, the electorate would justly expect that individual to replace the member. We also believe that it might not always be possible to do so because the proposed replacement might be unwilling or unable to fill the seat when the vacancy arose. The electorate could then feel that they had been misled.

I would suggest that when electors vote for the representatives of political parties, they usually do so because they support the party’s position on certain matters in line with the party’s manifesto. They are therefore essentially voting for the party and not for the person. The proposals before us respect the fact that the electorate vote for the party rather than the person. I would also point out that the PR-STV system has been well established in Northern Ireland since the 1970s. If we were to have a closed party list system, the public would not know who would replace the candidate then, either, so that would perhaps not be the best solution.

The noble Baroness, Lady Harris, raised issues in relation to the canvass. I celebrate with her the fact that there appears to be a robust electoral register in Northern Ireland. I add my congratulations to all those involved. I was interested to hear of the schools initiative. That is something that we as a Government, and perhaps other political parties, should consider adopting in the rest of the United Kingdom.

The chief electoral officer sets out in his business plan his strategy for improving registration levels. These include mini-canvasses and events to target registration of under-represented groups. Recent legislative amendments to allow the transfer of information will assist the process. He is being very proactive in trying to ensure that more people register before the forthcoming elections. That is a very useful thing, because we want to maximise democratic participation in Northern Ireland, as in the rest of the United Kingdom.

I hope that I have answered all questions to the satisfaction of noble Lords, and that they will approve the regulations in due course. The important thing is that there has been wide consultation in Northern Ireland; the statutory instruments have the support of the various interested groups there, including the political parties, district councils and MEPs; and therefore they appear to have the support of the people of Northern Ireland.

Another strong point made by the noble Baroness, Lady Harris, was consistency in the method of filling vacancies in the Northern Ireland Assembly. If one has the same method for the Northern Ireland Assembly as for the European parliamentary elections, it is very consistent to have the same method used for council elections. I hope that noble Lords will support these statutory instruments.

I will make just one comment. The noble Baroness and I have debated Northern Ireland matters across the Floor for quite some time. As Leader of the House, she has a huge workload, and I thank her—because this might be the last time we face each other across the table—for all the interest, time and effort that she has put into promoting good things in Northern Ireland.

Perhaps I can echo, from these Benches, what the noble Lord, Lord Glentoran, said. We have been delighted with the work that the Leader of the House has done on Northern Ireland, to bring us to what we hope is a final conclusion. It has been a pleasure to work with her.

I will say briefly that my Cross-Bench colleagues will entirely agree with what has been said. Those of us who are interested in Northern Ireland affairs are much in the noble Baroness's debt and very grateful for the role that she has played.

My Lords, I will end by saying that it has been, is, and, I trust, will be a pleasure to work with noble Lords on Northern Ireland issues. In this House we have worked on a cross-party basis throughout, which has enabled us to reach the point where we are now, when we can celebrate the fact that in the past week we devolved policing and justice to Northern Ireland, and that now we are about to adopt these regulations. I beg to move.

Motion agreed.

Electoral Law Act (Northern Ireland) 1962 (Amendment) Order 2010

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Electoral Law Act (Northern Ireland) 1962 (Amendment) Order 2010.

Relevant document: 9th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Representation of the People (Timing of the Canvass) (Northern Ireland) Order 2010

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Representation of the People (Timing of the Canvass) (Northern Ireland) Order 2010.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

National Assembly for Wales (Legislative Competence) (Housing) (Fire Safety) Order 2010

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the National Assembly for Wales (Legislative Competence) (Housing) (Fire Safety) Order 2010.

Relevant document: 9th Report from the Joint Committee on Statutory Instruments.

My Lords, this legislative competence order has already been approved by the other place and by the National Assembly for Wales. It has been brought forward by Ann Jones, the Assembly Member for the Vale of Clwyd. It is the second LCO to come before this House to have been brought forward by a Back-Bench Member of the National Assembly, and is supported by the Welsh Assembly Government.

The Government strongly support the ability of Assembly Members to propose LCOs. It demonstrates the flexibility and versatility of the system for conferring legislative competence on the National Assembly and allows individual Assembly Members to participate directly in enhancing that competence.

The order has benefited from pre-legislative scrutiny by the Constitution Committee of this House, the Welsh Affairs Committee in the other place and a committee of the National Assembly for Wales. The Government are grateful to the committees for the work they have undertaken, and I shall return to the minor changes that have been made following scrutiny in a moment.

I turn to the content of the draft LCO. The order inserts a single matter into Field 11, the housing field, in part of Schedule 5 to the Government of Wales Act 2006. It would enable the National Assembly to legislate in relation to the provision of automatic fire suppression systems, such as fire sprinklers, in new residential premises. The LCO also sets out that “new residential premises” means premises constructed for, or converted to, residential use. However, an Assembly measure could not require retrospective fitting of fire sprinklers in existing residential premises.

This is a narrowly defined order with a clear purpose. Ann Jones has said from the outset that the purpose of the LCO is to allow the Assembly to legislate to reduce the possibility of death and injury from fires in newbuild houses in Wales. She has argued that a requirement to fit such systems in all new residential premises would be a preventive measure so that people could get out of their homes safely in the event of a fire occurring. It would also reduce the risk to firefighters who are called to deal with domestic fires.

Noble Lords will be aware that Parliament has already agreed that the Welsh Ministers should assume responsibility for building regulations from the end of 2011. Provision to require the installation of fire sprinklers could be made under those regulations. It is therefore important to be clear that the issue in relation to this draft LCO is whether or not the Assembly, rather than the Welsh Ministers, should decide on the installation of fire sprinklers in new homes in Wales—not the merits or otherwise of fire sprinklers themselves. I firmly believe that the Assembly should be able to decide this significant issue, and so give that decision more democratic legitimacy and accountability.

I would like to reassure those who may have concerns about the possible effects of this LCO on the Welsh housebuilding industry in these difficult economic times. No one—not this Government, not the Assembly Government and certainly not Ann Jones herself—would want to place unnecessary, arbitrary burdens on Welsh housebuilders. Indeed, Ms Jones has written to the Parliamentary Under-Secretary of State for Wales acknowledging that there are concerns in some quarters, and committing to working with the CBI and the wider business community to ensure that any subsequent legislation is workable. I have made available copies of Ann Jones's letter for noble Lords to read.

The process of making Assembly measures has built-in safeguards to ensure that laws are made sensibly. Any proposed measure brought forward as a result of this LCO would be subject to extensive consultation and rigorous impact assessment taking full account of all the issues and concerns—including the potential additional costs to housebuilding, issues about water pressure and ongoing maintenance. Only minor and technical changes have been made to the LCO following pre-legislative scrutiny. One such change amended the name of the order to incorporate the words “fire safety”. This is in line with the views of the Welsh Affairs Committee, which commented that the name of the LCO should accurately “reflect and communicate” its contents.

Other minor technical drafting changes have been made purely to improve drafting. In particular, the opening words of Matter 11.1 now refer to the,

“provision of automatic fire suppression systems”,

rather than to,

“provision for and in connection with a requirement”

that such systems be installed. This slightly broader wording does not limit the Assembly to requiring that automatic fire suppression systems are provided, but remains consistent with the objectives identified by Ann Jones.

If this draft LCO is approved, an Assembly measure resulting from this competence could be brought forward by Ann Jones herself or the Assembly Government. The legislative competence that this LCO confers is clear and specific. Accordingly, I commend the order to the Committee and beg to move.

I thank the Minister for outlining the purpose of this order and I can assure him that around 30 seconds ago I received a copy of the letter from Ann Jones, which I have had time to skip through and understand.

As the Explanatory Memorandum makes clear, the purpose of the order is to give the Welsh Assembly legislative competence to pass a measure relating to the provision of automatic fire-suppression systems in new residential premises. In most cases, this would amount to the provision of water sprinklers, but these could be replaced by other systems as technology evolves. This is the second so-called Back-Bench legislative competence order to fall to be considered by the Committee, and the proposal is remarkable for the length of time it has taken to arrive at this point.

The Assembly Member in question, Ann Jones, won the ballot of Assembly Members as long ago as June 2007. It is extraordinary, therefore, that such a long time should have elapsed before the LCO was made. It perhaps begs the question of whether the LCO procedure is entirely appropriate in the case of Back-Bench proposals, which usually have a single and often narrow measure in mind. The Minister may wish to contemplate whether a more streamlined procedure could be adopted for such proposals, and I suspect that all in your Lordships’ House would agree with that. Dealing with things that are four or five years old in this way is ridiculous.

I have some observations which I should be grateful if the Minister would consider. First, what soundings have been taken in the Welsh construction industry, which is presently suffering as a result of the economic downturn? The same can be said of the rest of our construction industry. The Explanatory Memorandum indicates at paragraph 7.22 that the cost of installing such systems is estimated to be around 1 to 2 per cent of the total cost of construction. Those who are swift mathematicians will realise that that could be a significant sum. It will be difficult in the current climate for builders to add such costs to the selling price, and therefore they will probably be obliged to absorb the additional costs themselves, or perhaps offer these systems as an extra to the potential purchaser. What is the attitude of builders to this proposal? What have the Minister and his party discovered in their consultation?

As the Explanatory Memorandum makes clear, the current legislative framework for fire safety in new residential premises is provided by the building regulations. If I remember rightly, building regulations have just been devolved to the Welsh Assembly and, at the time, I wondered whether it had the competence and the resources to manage that load. Having been in the construction industry for 30 years, I know a little about building regulations.

Last November, an order was made transferring functions relating to building regulations to the Welsh Ministers. That is due to be effected next year. Given that such functions have been transferred to the Welsh Ministers, is it possible that the provisions of the proposed order have been overtaken by events and are now unnecessary? Subject to the above, I have no further observations to make.

I do not speak against the order, but it will have a significant impact on the construction and housebuilding industry in Wales—something, as I said, that I have been part of for most of my life, although not in Wales. The cost of putting sprinkler systems and automatic fire prevention into low-cost and medium-cost housing is bound to knock the profitability of the industry. The housebuilding industry, and the building industry generally, is a vital part of the Welsh economy, both from the point of view of money flow and of employment. I am not very happy about this LCO, but I support it.

I understand that, as I was unable to be here at the start, I have lost the right to speak to this Motion.

I am sorry about that loss, although, in responding to the noble Lord, Lord Glentoran, I may respond to issues which the noble Lord might well have raised on the order.

On the question of the length of time, I accept the point made by the noble Lord, Lord Glentoran, about the order, but I am not prepared to accept the generalisation. A number of LCOs have come through—some more rapidly than this one—and I agree that it would reflect badly on the system as a whole if they all took as long as this proposal. The explanation is fairly straightforward. It is somewhat more complex than many of the other orders, in part because of the relationship between devolved powers and the overall building regulations standards for England and Wales. I entirely accept the thrust of his point, which is that if we are to be satisfied with the LCO procedure, it must be a little snappier than it has been in this case. I do not think that this case is representative of the general process. Therefore, I am sure that we shall not have to entertain that criticism in the future.

On the question of costs, we are all mindful of the fact that the construction industry is facing obvious difficulties in times of economic recession. We all know of the limitations on the availability of finance for housebuilding, and of the limitations on demand. I emphasise that the most extensive efforts have been made to ensure that this order is a product of very thorough consultation with the House Builders Federation, which was engaged in the early stages of scrutiny by the Assembly committee. The CBI also has made a contribution to this.

I will add another obvious point, which I know the noble Lord, Lord Glentoran, will appreciate. It is important that we are reassured about the necessary consultation, but there are further stages to go. The Assembly has to operate the competence and I have not the slightest doubt that it will be extremely thorough in its discussions before this goes ahead. It will be against the background to which the noble Lord was right to draw our attention. Anything that imposes additional costs presents an issue: 1 per cent to 2 per cent is not insignificant.

However, if one looks at the building industry and the issues with regard to demand, other, much greater factors relate to the level of housebuilding at the present time. This is a marginal additional cost, on which it will be for the Welsh Assembly eventually to take a view. It is likely to take the view that the enhanced security that it provides, and the reduction in public costs if we can reduce the impact on the fire authorities, will give obvious advantages. Those advantages would be not just to the private sector, the industry and the purchaser, but also to the public purse.

I do not think that the issue has been overtaken by events. Certainly, when the Welsh Assembly Government finally come to deliberate on these matters, they will take account of the current circumstances. I hope that those then obtaining will be somewhat more advantageous than they are at this particularly bleak time. As the noble Lord will already have appreciated, there are indications that the Welsh economy, like the British economy as a whole, is emerging out of recession, which will be a great stimulus to housebuilding.

My Lords, I am sure that the Minister will agree that the upside of this LCO is that it will involve the saving of lives. In the notes, there is a graphic statement that 20 people lose their lives to fire each year in Wales, and that about 80 per cent of fire-related deaths and injuries occur in the home. This will save life and grief to families. For the fact that it is going through, Ann Jones deserves a lot of praise. We are very happy to support the LCO.

My Lords, I did not doubt that the deftness of the noble Lord, Lord Livsey, would enable him to contribute to our deliberations, and I am grateful that his contribution is positive. No doubt it was even more positive in the light of the questions that the noble Lord, Lord Glentoran, asked, which I hope that I have answered satisfactorily. On that rising note, I beg to move.

Perhaps I may formally declare an interest and apologise for forgetting to do so earlier. I have been a member of the National House-Building Council for six years.

My Lords, I do not think that anyone doubted the noble Lord’s general interest, but it is good of him and appropriate that he should identify the particular interest.

Motion agreed.

National Assembly for Wales (Legislative Competence) (Culture and Other Fields) Order 2010

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the National Assembly for Wales (Legislative Competence) (Culture and Other Fields) Order 2010.

Relevant document: 10th Report from the Joint Committee on Statutory Instruments.

My Lords, this draft LCO has been approved in the other place and by the National Assembly on 23 February. The Government recognise the wide range of cultural services and activities that local authorities provide, and the contribution such provision makes to the life of local communities. These services also contribute to the Welsh Assembly Government’s agenda for health, community regeneration and education. Recognition of this contribution is at the heart of this legislative competence order.

The Assembly Government’s aim is to widen participation in the full range of artistic, cultural, sporting and recreational activities. The background of people, their level of income or where they live should not be barriers to them accessing high-quality cultural experiences. This LCO will allow the Welsh Assembly Government to fulfil a commitment in its One Wales programme of government to place a statutory duty on local authorities to promote culture, to encourage partnership and to deliver high-quality cultural experiences for their communities.

Turning directly to content, the LCO inserts three matters into Part 1 of Schedule 5 to the Government of Wales Act 2006, one in each of three fields. These are:

“Field 2: ancient monuments and historic buildings, Field 3: culture”,


“Field 16: sport and recreation”.

Each matter relates to the functions of local authorities in the support, improvement and promotion of the following: Matter 2.1 covers the public appreciation of archaeological remains, ancient monuments, buildings and places of historical or architectural interest, and historic wrecks; Matter 3.1 relates to arts and crafts, museums and galleries, libraries and historical records, and cultural activities and projects; and Matter 16.4 relates to sport and recreational activities. The LCO is framed in relatively narrow terms, in that it is limited to the functions of Welsh local authorities in these specified areas. It is not seeking broader powers over other aspects of culture in Wales, but the scope encompasses a wide range of cultural services and activities which local authorities provide.

The LCO has benefited from pre-legislative scrutiny by the Constitution Committee, the Welsh Affairs Committee in the other place and a committee of the National Assembly. I am grateful for the thorough scrutiny that has been undertaken, and some changes have been made to the draft LCO since that scrutiny took place. We have amended the Explanatory Memorandum in response to certain of the Welsh Affairs Committee’s recommendations, and taken a further look at the exceptions contained in the LCO. The committee noted that Matter 2.1 in the proposed LCO refers specifically to local authority functions,

“in the support, improvement and promotion of the appreciation by the public of archaeological remains”,

and ancient monuments, whereas the other matters in the LCO—Matters 3.1 and 16.4—make no reference to public appreciation. The committee’s view was that the rationale for this difference should be set out in the Explanatory Memorandum; this has now been done at paragraph 7.10.

The Assembly committee also recommended that all the fixed exceptions in the proposed LCO be removed, taking the view that it was important for the Assembly to have powers to legislate in the whole area covered by Matters 2.1 and 3.1. The LCO has been revised to remove these specific exceptions. The UK and Welsh Assembly Governments, having considered the recommendations carefully, agreed with the Assembly committee’s view and concluded that removing the fixed exceptions gives the Assembly appropriate flexibility and competence over a coherent area.

In considering the recommendations, we have been mindful of previous comments made by the Welsh Affairs Committee that LCOs should be drafted with the aims of clarity and simplicity in mind, and that excessive use of exceptions risks making the devolution settlement complex and difficult to understand. The Government very much agree and, following careful consideration of the scope of Matters 3.1 and 16.4, the UK and Welsh Assembly Governments have agreed to insert only one additional exception. This relates to the,

“licensing of sale and supply of alcohol, provision of entertainment and late night refreshment”.

The phrasing of this exception mirrors the exception contained in paragraph 12 of Part 1—headed “Subject”—of Schedule 7 to the 2006 Act. It relates only to Matters 3.1 and 16.4.

We also carefully considered whether the six general or floating exceptions in the proposed LCO were needed. Three of the general exceptions have been removed, as they have no effect on the competence to be conferred. Three floating exceptions, which do relate to the matters, remain in the LCO. These are:

“(1) Public lending right.

(2) Classification of films, and video recordings. ...

(1) Betting, gaming and lotteries”.

I would like to assure the Committee about the potential impact of a new cultural statutory duty on local authorities in the current economic climate. Any proposed measure brought forward as a result of this LCO would be subject to extensive consultation and a rigorous impact assessment. These would take into account all issues, especially finance. Indeed, the Assembly Government Minister for Heritage, Alun Ffred Jones, has made it absolutely clear to the National Assembly that this will be the case.

The Assembly Government are also mindful of the need to ensure that any statutory duty will preserve the flexibility of individual local authorities to determine and meet the needs of their own communities. Key stakeholders, particularly the Welsh Local Government Association and individual local authorities will be fully consulted on the use of any new powers introduced as a result of this legislative competence order.

I am sure the Committee will agree the important role that culture plays both in our communities and at a national level, and that this LCO is a modest but important extension of the Assembly’s competence. Accordingly, I beg to move.

My Lords, I thank the Minister for outlining the order. Its purpose is to supply the Welsh Assembly with legislative competence in respect of ancient monuments, historic buildings, culture, sport and recreation, all of which, I am sure, are of extreme interest to the population of Wales, and are very available. Essentially, it seeks the power to impose duties on local authorities in connection with the provision of recreational, sport and cultural activities as well as the improvement and promotion of historic buildings. These are areas in which local authorities already have powers. The policy of the Assembly Government, therefore, appears to be to seek to compel local authorities to provide such services, rather than simply to encourage them to do so.

Indeed, this is made clear by the Explanatory Memorandum. It states:

“Issuing guidance to local authorities (which the Welsh Assembly Government could do under existing powers) which is not backed by a statutory duty would not achieve the policy aim of the One Wales commitment”.

The element of compulsion will inevitably result in additional cost to local authorities at what is, by any measure, a difficult economic time. Will the Minister indicate whether the Welsh Assembly Government intend to provide financial support to local authorities for complying with the new compulsory regime, or will the cost of compliance fall on the taxpayers?

Perhaps the Minister could also assist with a further matter. The Explanatory Memorandum indicates that there is,

“a need to ensure that putting culture on a statutory footing does not create a minimum standard which could have the unwanted impact of lowering provision in some areas rather than securing improvement”.

Will the Minister please explain how it is proposed that this should be done? If standards are to be prescribed by the Assembly Government, they will of necessity be minimum standards and the feared consequence might be realised.

Finally, will the Minister please clarify the exceptions set out in Article 3 of the draft order? These relate to public lending right, classification of films and video recordings and betting, gaming and lotteries. The original draft LCO also included exceptions in respect of broadcasting, government indemnities for objects on loan and payment to Her Majesty’s Revenue and Customs in respect of property accepted in satisfaction of tax apart from property in which there is a Welsh national interest.

The Explanatory Memorandum records that the Government have concluded that those three exceptions, which do not appear in the draft LCO before the Committee, have been removed as they have no substantive effect on the competence conferred by it. Will the Minister please formally confirm that he still considers this to be the case and that the order, in its final form, will have no impact on any of the exceptions which have been deleted from this order? I support the order in principle and await the noble Lord’s comments.

My Lords, before speaking to this LCO, I must declare a number of interests. I am a founder vice-president of the Hay-on-Wye Festival of Literature. I am also a member of Brecon Museum Art Fund, which selects art in local areas to be displayed within the county. I am president of the Welsh Association of Disabled Cricketers—not surprisingly, I suppose, having done 35 seasons in the field. Also, I am president of the Abbey Cwmhir Association. Abbey Cwmhir is a monastic relic in Radnorshire and the grave of Llywelyn ap Gruffydd, the last native Prince of Wales. His headless body was buried there by the monks in 1282. So I declare a great interest in this particular LCO.

The historical interest is very important because relics in Wales have not always been all that well looked after, although the organisation Cadw, which is a conservation body in Wales, is doing an excellent job in putting that right. Local authorities do their best in difficult circumstances to maintain their buildings and local arts and crafts—sport is also catered for—but in all those areas, the voluntary sector is heavily involved and raises funds which are often matched either by the Assembly or by the local authority. We know that that will be extremely difficult in future, especially given the settlement that the Assembly is likely to get.

I associate myself with the remarks of the noble Lord, Lord Glentoran, and, in particular, his questions to the Minister on the exceptions and the fact that there are a number of statements about the inability to raise money. The Explanatory Memorandum mentions that,

“Welsh ministers may by order make provision preventing local authorities from doing, by virtue of this power, anything that is specified, or is of a description specified, in that order”.

A little explanation of that would be helpful to the Committee. The principle of support for culture is extremely important in Wales. I certainly welcome the LCO and shall watch the enactment with detailed attention to see how successful it will be.

My Lords, I am grateful to both noble Lords for their broad support for the measure, while having some pertinent questions to which I shall do my best to reply—leaving the most difficult one until the end, if I may.

I begin with the most straightforward question. The noble Lord, Lord Glentoran, was anxious about whether the three floating exceptions removed from the LCO could impact on the three matters in the order. They do not impact on the three matters in the order at all. I can confirm that position. That question was addressed in consultation. It is right of the noble Lord to seek that assurance, which I can give him categorically.

The interesting and more difficult question to answer—I left the most difficult question until the end—theoretically is whether the LCO will result in a minimum standard of lower cultural provision being created in authorities, because once one makes a position universal, there is a danger that the bedding down of that universality will be below that already provided in the best circumstances.

That is an important consideration and I reflect that the Welsh Assembly Government were concerned about this matter. They want to preserve flexibility for individual local authorities to determine and to meet the cultural provision needs of their communities. As will be appreciated, on certain archaeological and historic aspects, local authorities have very different levels of needs and responsibilities because of somewhat chance factors. In putting forward this proposal, the Welsh Assembly Government have stated quite clearly that they are mindful of the danger of an unwanted impact on loan provision in some areas, which is already high because a minimum seems to be set.

They have to be trusted to meet that objective. After all, the whole point of a legislative competence order is that the responsibility will rest with the Welsh Assembly Government. Their responses in support of this position indicate how mindful they are of the very point raised by the noble Lord and provide some security that we will not see this measure produce a reduction to a common minimum. When one thinks about the differential provision of cultural opportunities across Wales, it will be recognised that the sheer diversity of that country means that those who are the most fortunate through historical factors such as past investment and the resources of the local authority will scarcely set their standards by the minimum of the less well resourced and well blessed of the authorities, the disparity being so great. I do not think we should worry about this too much, but I appreciate the point.

The noble Lord, Lord Livsey, mentioned the explanation in the explanatory note. It is subject to the general restrictions in Part 2B of the Government of Wales Act, which covers the limitations on conferring functions on Ministers of the Crown or creating criminal offences. All those were part of the Government of Wales Act, so I hope he will appreciate that that is the context in which this order is being presented.

On an issue which no doubt exercises all noble Lords who have addressed themselves to it: what is the point of a cultural minimum and an increased obligation on local authorities if those authorities are strapped for cash as regards meeting the obligations they already have? In formulating their statutory duties, the Welsh Assembly Government have already made it absolutely clear that they will take funding issues fully into account in taking forward proposals on this statutory duty. The opportunity for law making that we are seeking to extend to the Assembly Government is not within the timeframe we all expect of the present economic difficulties. After all, this will be a legislative possibility for many years to come. Of course, the Welsh Assembly Government will take decisions and reach conclusions on the basis of the resources they have available. I want to emphasise in particular to the noble Lord, Lord Glentoran, that under the partnership agreement with local government there is a requirement that all new burdens on local authorities in Wales are funded, so the Welsh Assembly Government know exactly where they stand in regard to the legislative burden. Consequently, we are bound to assume that they will cut their suit according to their cloth in the immediate future.

Yes. It is their responsibility. I hope that the Committee understands clearly that we are creating a framework for the Welsh Assembly Government to take decisions, but that the democratically elected Government in Wales must take as much account of the resources that they demand from the people of Wales as the United Kingdom Government do of what they demand from their electorate. I commend the order.

Motion agreed.

National Assembly for Wales (Legislative Competence) (Education) Order 2010

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the National Assembly for Wales (Legislative Competence) (Education) Order 2010.

Relevant document: 10th Report from the Joint Committee on Statutory Instruments.

My Lords, this legislative competence order has already been approved in the other place and by the National Assembly for Wales. Good governance is at the heart of our schools and is central to providing the high-quality education that we want for our children. Good governance underpins and supports the work that schools do by setting high standards and targets and by creating an environment conducive to learning. This LCO forms part of the Welsh Assembly Government’s legislative programme for 2009-10. It will complement the wide-ranging competence in the education field already enjoyed by the Assembly. The school governance model in place is more than 20 years old. The legislation covering school governance does not have the flexibility to allow the Assembly Government to respond to the changes and challenges emerging from the development of policies in Wales.

The order that we are debating will allow the Assembly to pass measures to strengthen and improve the governance of local authority maintained schools. For example, it will allow the Assembly to legislate to enhance the training and support available to school governors. It will enable legislation to bring about improved collaboration and shared good practice. It will also allow for the possibility of establishing bodies such as school companies or other educational bodies to provide services to schools and to exercise education functions on behalf of local authorities.

The order inserts three matters into Field 5—Education and training—in Part 1 of Schedule 5 to the Government of Wales Act 2006. Matter 5.2A relates to the conduct and governance of schools maintained by local authorities. Matter 5.2B relates to securing collaboration between persons or bodies with functions in relation to schools maintained by a local authority. Matter 5.2C enables persons or bodies with functions related to maintained schools to establish a body such as a company which could carry out activities related to education and training, and could exercise education functions on behalf of local authorities.

I thank the Constitution Committee of this House and the Welsh Affairs Committee in the other place for undertaking scrutiny of the proposed legislative competence order. The order has also benefited from scrutiny by a committee of the Assembly. The Welsh Affairs Committee considered the scope of the proposed LCO in relation to staffing and finance and noted that it could be clearer in this respect. A new Annexe A has been inserted into the Explanatory Memorandum to explain what is within the scope of the LCO in respect of staffing and finance. The committee also recommended that consideration be given to amending Matter 5.2A with regard to staffing and finance. The Welsh Assembly Government carefully considered this recommendation, but concluded that any amendment to Matter 5.2A was unnecessary and could cause confusion, especially when compared with the competence conferred by Matter 5.12 in respect of further education. However, the explanatory note to the LCO has been amended to make it clear that an Assembly measure made as a result of this LCO could not, for example, amend the provisions of the schoolteachers’ pay and conditions document. This matter exercised the minds of those who expressed anxiety on this score.

In relation to Matter 5.2C, the committee recommended that the wording be reviewed to ensure that local authority functions other than education and training are not within scope. The matter has been amended to make clear that bodies can be established to carry out only the education functions of local authorities in addition to carrying out education and training activities generally. This order is about education.

References to the education functions of the local authority have also been inserted in anticipation of an order being made under Section 162 of the Education and Inspections Act 2006. This provision enables the Secretary of State to repeal references to a “local education authority” and replace it with “local authority” in England and Wales. The Constitution Committee highlighted the need to consider this issue and we have included a transitory reference in the LCO in relation to such an order. This LCO has been improved as a result of intensive pre-legislative scrutiny and complements the Assembly’s existing legislative competence in education. Accordingly, I commend it to the Committee and I beg to move.

My Lords, once again I thank the noble Lord, Lord Davies, for his explanation of this legislative competence order. The purpose of the proposed LCO is to confer on the Welsh Assembly additional legislative competence in education, primarily relating to the governance of maintained schools. The Assembly already has extensive competence in education. This proposed LCO, however, would extend the competence further to relate to the governance of maintained schools in Wales.

The role of the governing body in maintaining schools is, of course, of crucial importance. The Explanatory Memorandum tells us that studies of school governance have been commissioned by the Assembly Government which conclude that the effectiveness of governing bodies varies and that the training being made available to governors is uneven, with weaknesses in consistency of approach, availability and take-up.

The three matters proposed to be inserted into Field 5 of Part 1 of Schedule 5 to the Government of Wales Act 2006 would provide the Assembly with competence to legislate with respect to the conduct and governance of maintained schools. There are a few issues which I wish to raise with the Minister and I hope that he will address them in his closing remarks.

First, I am rather concerned to see that the Assembly could, pursuant to the powers proposed to be devolved, pass legislation not only in relation to the creation of bodies responsible for school governance, but also their abolition. Can the Minister say whether this means that boards of governors could be abolished altogether? It is clear from the Explanatory Memorandum that the merger of governing bodies of different schools is already contemplated. However, the role of governors is crucial in relation to public accountability. It would be extremely worrying if such accountability were to be removed by their abolition.

Secondly, the Explanatory Memorandum makes clear that changes to school finance and school staffing are not within the competence proposed to be conferred by the LCO. It states that:

“If new models for governance arrangements were created as a result of the LCO, there would be some linked changes to the persons or bodies exercising functions relating to staffing and finance, but the LCO does not confer competence to change the substantive nature of those functions”.

Is that a weakness in the proposed order? If new governance arrangements are created, would the Assembly not need the flexibility to deal with the consequent necessary changes relating to staffing and finance?

Thirdly, Matter 5.2C confers competence on the Assembly to create new bodies for the carrying out of activities relating to education or training and exercising education functions on behalf of local authorities. This is a very wide power indeed. Although the Explanatory Memorandum gives a fairly narrow example of what the Assembly might do pursuant to the power—creating an educational body to provide services to schools and FEIs—the power is manifestly much broader in its scope. Is the Minister able to give other examples of actions that might be available to the Assembly under the terms of this matter and which are presently being contemplated by the Assembly Government?

These questions are important and I look forward to hearing the Minister’s response.

I do not have any direct interests to declare, but my mother was a teacher with Breconshire County Council for 25 years, and I am a former school governor of a primary school. We know that the devolution of education in Wales has been a long-standing fact. Over time, we have refined the functions of education in Wales to the benefit of all our young people. I agree with the noble Lord, Lord Glentoran, when he alluded to the fact that sometimes there are, shall we say, differences in the quality of provision in some places, but that is due largely to the legacy of the decline in heavy industry and a lot of poverty in the south Wales valleys. On the other hand, the area I come from offers excellent education provision but for a declining number of children.

That is a problem in its own right in that the closure of some rural schools is an issue which is exercising people. Flexibility is therefore needed about decisions on whether governing bodies are amalgamated or even, in some instances, primary head teachers have to be responsible for more than one school. That certainly is the case at the primary school I once went to, which now has a shared head teacher. The flexibility provided in the LCO is important in order to ensure that proper provision is made.

Reference is made to Matter 5.2A, which covers the:

“Conduct and governance of schools maintained by local authorities, including … property, rights and liabilities”.

This is important because the condition of some school buildings has deteriorated and often emergency repairs have to be carried out. However, many of the areas of concern have been covered by the noble Lord, Lord Glentoran, and I have no wish to repeat them. What I would say about this LCO is that it is particularly important because it enables and encourages collaboration and co-operation between schools maintained by local authorities as well as with outside bodies such as voluntary organisations whose expertise can only enhance the quality of a child’s learning experience.

I end my remarks by saying that where I come from, there is an active local history society. In the Easter holidays, we are bringing together people who grew up during the Second World War and who attended the primary school. I am one of those people, and I will describe what it was like to be in that school during the war. Two of my fellow pupils at the time will do the same. Exemplars are very good and there are plenty of local communities in which co-operation and collaboration is extremely important.

My Lords, the noble Lord, Lord Glentoran, declared his interest when we debated the first order, and I am glad to see that the noble Lord, Lord Livsey, declared his interest as we debated the third. He will appreciate the envy with which I respond, having been born in south Wales but never having had the benefit of attending a primary school there. He has the advantage over me—but not with regard to this particular order, I hasten to add, as I hope that I am adequately briefed to answer the questions that noble Lords have asked. It will be recognised that the measure relates to school governance—an important but limited issue. Therefore, I will give clear responses to the points about the extent to which the LCO confers competence.

The noble Lord, Lord Glentoran, asked one of those questions to which there is only a yes or no answer. The answer to the question of whether the order confers competence to abolish school governors is yes. The Explanatory Memorandum explains this. However, the order declares a competence but does not announce a policy—far from it. Whether the Assembly would ever put forward such a measure is, under the terms of the order, for the Assembly to decide. Of course, as will be readily anticipated, the Assembly places great emphasis on the contribution that school governing bodies make to Welsh education. Far from it having a policy intention to abolish them, it seeks ways to ensure that they fulfil their functions more effectively. There is no doubt—and I do not think that this is a party-political view: my Government have done some enhancement in recent years, but I pay due respect to the Opposition, and to the Liberal party, as well—that we all recognise that the contribution of the community to local schools, as expressed by the governing bodies, is of very great importance.

There was a time when a great deal of English and Welsh education was directed from the centre, and it could be thought that governing bodies were often implementing and rubber-stamping positions that had been adopted. That was always something of a caricature, because the real authority to which governing bodies related was their local authority, not central government. In so far as there was ever a failing, it was that too many circulars on these issues would appear from departments of state. However, in recent times, greater devolving of power to governing bodies has enhanced the participating role of local communities, which has been very much to the benefit of education.

So I will answer the noble Lord, Lord Glentoran, factually and accurately. The order does provide for this power. However, it is no statement of policy—far from it. There is no question of the National Assembly taking that view. This is about legislative competence over the long term. Quite properly, the Assembly wants to ensure that it is equipped with powers so that any future Assembly, a long time from now, will be able to carry out the democratic decisions that the Assembly makes. That is why it wants this competence in the framework.

I turn to whether the exclusion of school staffing and finance from the scope of the order is a weakness. In my introduction, I emphasised that they are excluded, but I do not think it is a weakness of the order. After all, the issue concerns school governance and, as the Explanatory Notes make clear, the order certainly permits measures that would move responsibility for staffing and/or governance to or from school governing bodies. It permits this but provides sufficient flexibility should new governance arrangements mean that the functions need to be reordered. My answer to the noble Lord, Lord Glentoran, is that under this order flexibility is sought for the potential change. The staffing and finance functions are outside the scope of the order but there is flexibility for new governance arrangements, which means that in due course functions could be reordered.

I again emphasise that the noble Lord is asking a question about the Assembly's intent in seeking this legislative competence. It is not to provide for school governors to be directly involved in the payment of staff or directly involved in finance matters, because local authorities in Wales have an important role and the Welsh Assembly Government have pretty clear views on their relationships with local authorities. On the previous order I indicated how much the Assembly Government are concerned to safeguard and preserve their relationships with local authorities. As the noble Lord will be only too well aware, the Assembly Government cannot function effectively if they do not create the right relationship with local authorities. Therefore, on those issues, there is no intention of giving school governing bodies that competence at present.

As for the examples of the bodies that might be created through the order, I emphasise that the competence is quite broad. It is deliberately so in order to permit the National Assembly to pass measures that could create bodies that it thinks are necessary. The bodies might provide services and support for schools and school governors as well as governor training; we can all think of organisations that are concerned with enhancing the training of governors and the extent to which this has already produced dividends. There is no doubt at all that for a very long time people joined school governing bodies and were expected to learn on the job, or that they often came along with perspectives which were pretty hidebound. It is now widely appreciated that members who serve on school governing bodies have a very significant responsibility to their local community and that training is important. That is the kind of body that we think the Assembly might reasonably want to develop. However, it is for the Assembly to make up its mind about what kind of bodies should be established. It has the breadth for that, and that is to be commended. I therefore commend the order to the Committee.

Motion agreed.

Al-Qaida and Taliban (Asset-Freezing) Regulations 2010

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010.

My Lords, the regulations before the Committee seek criminal penalties for breaching the EC regulations giving effect to the United Nations asset-freezing regime against al-Qaeda and the Taliban within the European Union, and to give proper effect to that regulation in the United Kingdom. Noble Lords will be aware that the United Nations Security Council has mandated two separate terrorist asset-freezing regimes, with different applications and procedures. The first regime, chronologically, was established in 1999 by UN Security Council Resolution 1267 and applied an asset freeze against the Taliban. It was subsequently broadened by successor resolutions to apply an asset freeze against Osama bin Laden and individuals associated with al-Qaeda or the Taliban.

After the terrorist attacks on the United States in September 2001, the UN mandated a separate terrorist asset-freezing regime in UN Security Council Resolution 1373, whereby all states are required to identify and freeze the assets and resources of people who commit, or attempt to commit, or participate in or facilitate the commission of terrorist acts. There are two key differences between these two regimes. The first concerns the nature of the targets. The UN 1267 regime applies only to Osama bin Laden and those associated with al-Qaeda or the Taliban. The UN 1373 regime applies more generally to those involved in terrorism, regardless of whether they are linked to al-Qaeda or the Taliban.

The second key difference between the two regimes concerns their geographical scope and listing procedure. The UN 1267 regime is global in application. The UN holds a central list of targets, and listing and delisting decisions are made by a committee of the UN Security Council. Once individuals or entities are listed, their assets must be frozen by all states. By contrast, under UNSCR 1373, freezing decisions are taken nationally and apply nationally, although individual states are encouraged to share information about national freezes so that, where appropriate, the assets of those involved in terrorism can be frozen across national boundaries.

The regulations we are debating apply only to the UN al-Qaeda and Taliban regime—the 1267 regime. They do not apply to the UN terrorist asset-freezing regime under Resolution 1373. The reason for this is the different position of the two UN asset-freezing regimes under European law. The European Union does not provide a legal basis to fully implement our obligations under UNSCR 1373 to freeze the assets of terrorists. This is because the EC regulation for that resolution deals with asset freezes only for persons who are involved in acts across the borders of the EU. It would not allow us to freeze the assets of home-grown terrorists, which UNSCR 1373 also requires. Consequently, following the Supreme Court’s decision that Orders in Council made under the United Nations Act 1946 cannot be used to give effect to UN asset-freezing obligations, the Government are addressing our implementation of UNSCR 1373 through primary legislation.

The Terrorist Asset-Freezing (Temporary Provisions) Act was passed last month, and the Government have published a draft Terrorist Asset-Freezing Bill to provide a durable legal basis for freezing the assets of terrorists. As I said when the temporary Bill was debated in the House, the Government are committed to ensuring that there is proper scrutiny of our draft legislation. That is why we have published a public consultation document seeking the views of interested parties and the general public on our draft legislation and the Government's approach to terrorist asset freezing. I very much hope that interested parties and the public will engage with the consultation and submit responses. I am already looking into the issue raised in the House by the noble Baroness, Lady Hamwee, in connection with people feeling safe in making representations in connection with the consultation. I hope to be writing to her and to others who participated in that debate in a few days’ time with a letter of reassurance about the procedures that will be followed and the necessary protections afforded.

The legal position of the UN al-Qaeda freezing regime is different. In 2002, the EU adopted Regulation 881, which implemented the al-Qaeda regime throughout the European Union. EC Regulation 881 is directly applicable in national law, and therefore the assets of those listed under the UN al-Qaeda regime have remained frozen in the UK, through the EC regulation, despite the Supreme Court’s decision to quash the Al-Qaida and Taliban (United Nations Measures) Order 2006.

However, the quashing of the al-Qaeda order has removed the criminal penalties for breaching the EC regulation in the UK. It is therefore necessary to reinstate the enforcement provisions for EC Regulation 881 in national law, and that is what the Al-Qaida and Taliban (Asset Freezing) Regulations 2010, which we are considering today, are intended to do. Section 2(2) of the European Communities Act 1972 sets out that the appropriate legislative vehicle for doing that is a statutory instrument. However, the Government take the view that, given the points raised by the Supreme Court and the obvious public and parliamentary interest, it is right that these regulations should be subject to approval by Parliament under the affirmative procedure, and I welcome debating these regulations today.

Before I explain the detail of the regulations, I turn to the central purpose of the al-Qaeda and Taliban sanctions regime and to some of the issues that it has raised about due process. The central purpose of the al-Qaeda and Taliban sanctions regime is to stop the flow of funds to al-Qaeda and the Taliban, and those associated with them, and therefore to disrupt their operations. That is a necessary and vital task at a time when the threat from international terrorism remains severe and when British forces in Afghanistan are being killed by the Taliban and their allies. I am sure that the whole House will agree with the legitimate purpose that the UN sanctions regime is trying to achieve.

The Government remain of the view that maintaining and implementing UN-wide asset freezes against al-Qaeda and the Taliban is important to help to counter the threat that those bodies pose to international peace and security. We know that al-Qaeda and the Taliban source funds from all over the world. Therefore, the response must be global, and the best way of achieving that is to maintain a central UN list of sanctions targets. Within the UK alone, about £140,000 of funds are frozen under the UN al-Qaeda and Taliban regime, in addition to about £150,000 frozen under the terrorism orders.

Noble Lords will be aware that the Supreme Court raised concerns about individuals on the UN list not being able to challenge their listing at the UN in a court and that this consideration was central to the court’s decision to quash the al-Qaeda order. The Government are committed to continuing to improve the UN 1267 committee’s processes for listing and delisting. I am pleased to be able to say that, as a result of the UK’s work with our Security Council partners, the UN has made great strides to improve its listing and delisting procedures. Reviews of all cases must now be conducted every three years, and Security Council members are working towards reviewing all current cases on the list by the end of June this year. In December, the Security Council agreed further improvements to listing and delisting procedures, including the establishment of an ombudsman who will be able to work with Security Council members to support the review process. We believe that this is a significant step forward and are pressing for this position to become operational as soon as possible.

None the less, it is true that individuals are not able directly to challenge their listing within the UN system and there remains no independent judicial oversight of decisions taken by the UN Sanctions Committee to list individuals. It is important to note, however, that EC Regulation 881 does not automatically give effect to the UN list. Rather, the regulation establishes an EU list of targets. This means that when someone is added to the UNSCR 1267 list, their name must also be added to the EU’s list in order for the asset freeze to take effect under the EC regulation. The EU’s practice is to follow the UN’s list in adding or removing names, and the EU’s list is currently up to date in reflecting the UN list. A person who is added to the EU list may challenge the decision to list him by the EU in the EU courts. Noble Lords will be aware that such challenges have in fact been brought, most notably in the Kadi case, and a number of further challenges are currently before the EU courts.

Let me explain how the regulations we are considering today are intended to work. EC Regulation 881 implements UNSCR 1267 asset freezes in the EU by requiring that all funds and economic resources belonging to persons listed under the regulation are frozen; prohibiting funds or economic resources from being available to and/or for listed persons; prohibiting deliberate circumvention of the prohibitions and requiring persons to notify national competent authorities of any circumvention; and requiring persons to provide information that facilitates compliance and to co-operate with national authorities. It also requires each member state to determine effective, proportionate and dissuasive sanctions for breaching the regulation.

The regulations set the criminal penalties for breaches of the EC regulation. In order to set these criminal penalties and to give proper effect to the EC regulation in the UK, the al-Qaeda regulations need to set out in detail to whom the sanctions apply, the nature of the prohibitions, licensing arrangements, criminal penalties, information gathering powers and appeals mechanisms. This is because although the EC regulation sets out the requirements of the asset-freezing regime, it does not do so with the precision and authority that is needed for proper implementation under UK law, in particular regarding the creation of criminal offences. The regulations before the Committee therefore take the EC regulation as the starting point, but provide more detail with a view to creating a regime that is clear, effective and proportionate. This does no more than the minimum necessary to implement the EC regulation, and all the provisions of these regulations are necessary to enable us to fulfil our EU obligations; namely, to implement the EC regulation effectively and to provide proportionate and dissuasive penalties for breaching the provisions of that regulation.

The al-Qaeda and Taliban regulations define a designated person as someone listed in Annexe 1 of the EC regulation; define the scope of the provisions that apply as a result of the asset freeze; provide criminal penalties for breaches of the prohibitions; provide a mechanism for granting licences; and create an offence where a person knowingly or recklessly provides false information or documents to obtain a licence or acts outside the terms of that licence. They include provisions for the gathering and sharing of information; create an offence for failing to comply with Treasury requests for information; and amend the Counter-Terrorism Act 2008, so that someone affected by a Treasury decision made under the regulations—effectively a licensing decision—may apply to the court to have the decision set aside.

The scope of the prohibitions reflects our intention to make the regime proportionate and to seek to limit its impact on innocent third parties. The prohibitions mirror those set out in our draft Terrorist Asset-Freezing Bill. Thus, the regulations set out that the prohibition on making funds available for the benefit of a designated person applies only where the designated person is able to obtain a significant financial benefit, and the prohibition on making economic resources available to a designated person applies only where a person knows or has reason to suspect that the resource will be used to generate funds, goods or services.

I hope that I have explained why it is important that the UK fully meets its obligations to enforce the UN al-Qaeda and Taliban asset-freezing regime. I hope that I have also explained that although noble Lords may have concerns about the UN listing and delisting procedures, the UK has been at the forefront of action in the Security Council to improve the procedures, and that significant progress has been made. I have also explained that the European Union’s implementation of the UN 1267 regime provides designated persons with the opportunity to challenge their listing within the EU, and indeed that this right has been acted on and tested.

Finally, I have also explained the content of the Al-Qaida and Taliban (Asset-Freezing) Regulations and that in the Government’s view they represent an effective, fair and proportionate way of giving full effect to the EC regulation within the UK. I therefore commend these regulations to the Grand Committee.

My Lords, I thank the Minister for introducing these regulations. I reiterate what I said last month when we debated the emergency legislation—that these Benches support the Government in their actions to deal with threats to the UK and the rest of the world from terrorist activity. For that reason we will support these regulations today, but our support is never unconditional. From time to time, the Government have sorely tested our support by introducing measures that seem to have a civil liberties bypass. It is interesting to note that the Joint Committee on Human Rights reported today along those lines in relation to the Government’s approach to terrorist legislation. The regulations before us raise similar issues.

Late last week, the Government issued a consultation on the draft terrorist asset-freezing legislation to which the Minister has referred. This is necessary to replace the regime under the United Nations Act 1946, following the Supreme Court’s judgment. The Treasury at that stage decided to pursue a sticking-plaster approach, involving the emergency temporary Act which was passed on 10 February, followed by consultation on draft legislation. The temporary Act runs out at the end of this year, but the Treasury has only just issued the consultation and therefore has used up a month of the rather short time left to implement a permanent regime.

We did not think that the Treasury had chosen the correct route last month, and we continue to believe that. We believe that it would have been better to attempt to legislate on the full regime last month, and that there was plenty of time to do that. However, the rather dilatory way in which the Government have chosen to initiate this consultation—given that the consultation document contained little more than could have been produced overnight in February—is another sign that they have perhaps given up on governing. The regime applied to asset freezes under EU Regulation 881/2002 is covered by these regulations, but is not within the consultation on terrorist asset-freezing legislation. I asked the Minister yesterday why this was, but he did not provide an answer. He merely referred to the fact that the debate on these regulations was due to take place today.

I completely understand that the individuals whose assets are frozen will be determined at the level of the United Nations and then the EU, and I will not raise any issues today in relation to how those determinations take place. I was interested to hear what the Minister said about improving the UN’s processes, but clearly there is some way to go before people could be entirely satisfied with that. As the Minister has explained, these regulations cover the important areas of the licensing regime and offences. I do not understand why the Government would not want these to be harmonised under the Bill on which they are currently consulting. It seems to me, at the minimum, to be messy to have two legislative routes to cover what is effectively the same thing, with the only distinction being the origination of the designation process.

My concern is not so much about these regulations for the rest of 2010. We have accepted that the temporary Act will frank the existing regime for the other terrorist asset freezes until the end of the year, with consultation on a permanent replacement. It seems to me that we ought to do the same for these regulations in relation to the designations under EC Regulation 881. Will the Minister explain why these regulations are not also sunsetted for the end of 2010 and included in the replacement legislation?

I am aware that the Treasury has been crafting its terrorist asset-freezing orders in its usual minimalist way with a view to avoiding the fatal flaws in its earlier efforts, which were identified during the progress of the Ahmed case through the courts. The draft legislation basically builds on that position, but is different in some respects from these regulations. In particular, these regulations have no formal procedure for challenging the Treasury's decisions under them. While the Treasury have no say in designation, other decisions—for example, on licences and information—need proper appeal mechanisms. Why are the Government keeping this regime separate in terms of offences and such things as information powers from the rest of the terrorist asset-freezing regime?

It is by no means clear to me that Parliament will accept the draft legislation which is being consulted on as it stands. The biggest area is likely to be the need to have better routes than judicial review or judicial review lookalikes in order to challenge the Treasury. We are not convinced that the offences are correctly formulated in the new legislation. The Treasury might think that it has a final and definitive view of what should be included in asset-freezing legislation, and that consultation is a bit of a formality, but I would not like the Minister to be under any illusions about this. The Second Reading and Committee stages of the temporary Bill in February indicated that it was far from clear that there would be a consensus on a way forward on the basis of the draft legislation.

The Government have brought these regulations under the affirmative procedure, but we must not pretend that this represents a good degree of parliamentary scrutiny for what is in the regulations. The Government know that our custom is not to reject secondary legislation and that we have no opportunity to amend the regulations. I am less than clear that this represents the substantive parliamentary scrutiny that was in the minds of the Supreme Court in the Ahmed case. Furthermore, there is no way in which the Government would be obliged to bring these regulations back if Parliament takes a different view on some of the fundamentals when it considers the legislative replacement for the emergency Act.

Will the Minister agree that the consultation on the new draft legislation should cover whether the content of these regulations should be found a home within the new legislation? If he cannot agree with that, will he agree that, if any new legislation makes substantively different provisions from any which are in these regulations, the Government will return to Parliament with revised regulations to replace these?

My Lords, I hope that the envelope I have just been passed is not relevant to the debate. I thank the Minister for his explanation of the regulations and of their relationship—or non-relationship—to parallel legislation. The context in which we are debating the draft regulations includes the report of the Joint Committee on Human Rights, which calls for a review of all anti-terrorism legislation. When I made a note yesterday of the few things that I wanted to say on these draft regulations, the first thing that I wrote down was “piecemeal”. It would be more than helpful—in fact, it would be proper and appropriate—for us to look at anti-terrorism legislation across the board, rather than to apply what the noble Baroness called a sticking plaster. Dealing with this bit by bit is not satisfactory. When the bits include a statutory instrument that we cannot amend, it is even less satisfactory.

Another part of the context is the amount that is currently frozen. When we debated the emergency legislation last month, the Minister gave us a figure of about £150,000. He gave more figures today, but I did not catch whether that amount covered both regimes or whether it was a similar amount for this regime. Previously, we debated the fact that however small the amount—£150,000 is not much—one can create a lot of havoc with very few resources. I will not make too much of that.

I still find it difficult that we are not taking the 2001 Act as a starting point, extending it to cover the UK and so on. In particular, creating offences by secondary legislation makes me very uncomfortable, whatever the 1972 Act said. I agree with the noble Baroness that, if we cannot use existing legislation, we should look at the proposed permanent legislation for both regimes. When we debated the emergency legislation, we heard explanations of why the 2001 Act would not work. But this says to me that the Government should get the primary legislation up to scratch, so that we have something that is complete, scrutinisable—if that is a word—and amendable.

I thank the Minister for taking on board the point that I made yesterday about consultation on the proposed new permanent legislation. The issue occurred to me only just before going into the Chamber, and I hoped that it would not put me on the right wing of the argument if I appeared to suggest that there should be more confidentiality than was proposed. I did not mean that, but I am beginning to get a greater feel for the complexity of some of these matters than I had when I took on the home affairs brief only three months ago.

We appreciate and share the objective of restricting funds that might go to terrorist causes, or might have terrorist applications, provided that it is properly done. We will not oppose the regulations. We are where we are, and some of the issues highlighted in the cases that ended up in the Supreme Court, particularly human rights issues, remain.

At the time of the emergency legislation on 5 February, a Written Statement was made about licensing and the factors that the Government would take into account. I found that Statement very reassuring because of concerns about descriptions of the draconian effects of the orders—the word “draconian” was used by the Supreme Court. I am unclear whether that approach applies to those who will be affected by this statutory instrument. It would be helpful to have on the record the fact that that approach is formally a matter for this statutory instrument as well as for the legislation that we debated and passed last month.

Regulation 9, to which I would have tabled a probing amendment had I been able to do so, deals with the offences of “a body corporate etc”. I am interested in the “etc”. Individuals may commit an offence where their own body corporate is guilty of an offence; that is where the offence is committed with the consent or the connivance of an individual or is attributable to any neglect. The term “neglect” seems to me to be very wide and certainly wider than “consent” and “connivance” and is something that is more likely to happen than recklessness—it is further along the spectrum.

I have a degree of concern about that. One can be neglectful without intending to be and without intending the effect. The Minister may say that, if there is a trial, that will be taken into account when sentencing. Can the Minister say anything about that provision? I would also have tabled amendments rather similar to those moved by my noble friend Lord Thomas of Gresford on the length of time, the number of repeat directions, the need for findings of fact, and appeal and judicial oversight. The Minister has referred to some of those and I note what he said about the UN proceedings and an ombudsman. That is helpful.

Although the subject matter is immensely important, we on these Benches are uncomfortable about approaching the matters this way, although clearly, at this stage in the parliamentary cycle, that is what we will have to do.

My Lords, this is rather outside the ordinary territory which the noble Baroness, Lady Noakes, and I normally occupy of discussing issues relating to the economy, the banking system and finance. It is a particular delight to have the noble Baroness, Lady Hamwee, join us in this discussion to give us variety and her own particular perspectives on these issues relating to individual and personal liberty.

My Lords, I am grateful for that. The person who is most delighted is probably my noble friend Lord Newby.

It is pleasant to speak on an issue where there are no opportunities for banker bashing. I also remind noble Lords of my personal declarations of interest: I record my membership of Amnesty and Liberty. I am deeply concerned about many of the issues that lie at the heart of some of the matters that we are considering today.

On behalf of the Government, I also welcome the support that the Conservative Party and the Liberal Democrats are giving to the necessary steps that we are taking to protect the security of the country. I recognise the concerns expressed by the noble Baronesses, Lady Noakes and Lady Hamwee, but I also applaud the fact that, notwithstanding those concerns, they encourage the passing of the necessary provisions.

The noble Baroness, Lady Noakes, referred to the consultation process. I remember well the debate that we had at Second Reading in the House about the sunset provision. We produced the consultation document in March, having laid the draft legislation on 5 February. The consultation document is deliberately wide to encourage as broad as possible a range of issues to be brought forward, rather than asking narrower questions. I agree with the noble Baroness that, in view of that approach—which, of course, was the consequence of deliberation on our part—the document did not take a great deal of time to prepare. The key issue is the length of time that it takes people to prepare and consider their responses. That is why we need the time for proper scrutiny of the Bill, including through public discussion and debate about the issues to which it gives rise.

Consideration of the draft legislation can start as soon as we believe that the consultation process has completed its necessary stages. There will of course be a full debate on the proposed formal legislation. I look forward to that, because issues were certainly raised in respect of the temporary legislation which, in view of the time available, were probably not fully debated. These are issues which need to be debated with great care. We look forward to and welcome the debates that will take place as the Bill works its way through Parliament.

To pick up one or two other questions, the noble Baroness, Lady Noakes, asked yesterday why the consultation on the terrorist asset-freezing regime specifically excludes those covered by the al-Qaeda and Taliban asset-freezing regime. As I explained, the answer is simply that EC Regulation 881/2002 has direct effect in UK law. The UK is required to provide effective and proportionate penalties for breach of the EC regulation. Given the limited purpose of the Al-Qaida and Taliban (Asset-Freezing) Regulations, a consultation would not be appropriate for the al-Qaeda asset-freezing regime.

However, the Government take the view that, given the points raised by the Supreme Court and the obvious public and parliamentary interest, it is right that the regulations should be subject to approval by Parliament under the affirmative procedure, and I welcome the fact that we are debating the regulations today.

Perhaps I may come back on that. The Minister has repeated what he already said, which is that the people under this regime can be dealt with by regulations that go through only the affirmative procedure, and that the regime will be kept separate from people under other procedures. I have not heard a substantive reason why that is so. As he said, the regime is not minor; it covers offences and is a licensing regime. These are not small issues. I have not heard a substantive reason why the content is to be kept separate in legislative terms from people dealt with under the other UN resolution.

I thank the noble Baroness for adding that observation. As I have said, these regulations implement EC regulations, but her observation is important. There is limited scope for us to determine how we implement the Bill but, given that the information-gathering powers largely replicate those of the Bill, we will of course consider these regulations again in the light of the Bill’s passage.

I am aware that the point is being made—by, I think, both the Conservative and Liberal Democrat spokesmen—that the process does not, for instance, allow the tabling of amendments. The noble Baroness, Lady Hamwee, has identified an area where she would table an amendment, if only for probing purposes. I am much persuaded by the argument. I will therefore reflect carefully with officials on whether there is a process by which we can allow the orders to be subject to further parliamentary approval in a manner that would allow noble Lords to table amendments, either in the belief that they should be passed or, at least, to probe more carefully the Government’s thinking.

I will also further reflect on the noble Baroness’s observations on whether a consultative process should be linked to these regulations, as they were to the previous ones. There is a significant degree of overlap here, but we need to reflect carefully on whether there is a case for some further consultative process to inform thinking and decision-making. That is another reason why it is incumbent on the Government, having persuaded the House to allow a sunset date of the end of December, to take full and complete advantage of the time that we have secured. Parliament did not grant us that time on the basis that we would dither or drag our feet in preparing the necessary work but that we should be able to evidence that we have used the time as part of a good process to consult widely, and to permit Parliament to engage in close and detailed scrutiny of all aspects of this regulation.

I, for one, am deeply aware that there are very fine issues of balance which need to be achieved here, between protecting society against a risk that the security forces continue to tell me is high and, at the same time, being respectful of civic liberties and individual rights. Having taken note of what the noble Baronesses, Lady Noakes and Lady Hamwee, said on this point, I may write in due course with further consideration. However, I would like them both to be very clear that, to the extent that I have any future involvement in this process, it will be my wish that there should be full and proper scrutiny. I say that not, of course, in having any doubt about the outcome of the forthcoming general election, but the Prime Minister might come to the conclusion, as many people in the House already have, that there is probably somebody better able to do this job than me—proud as I am to be doing it.

The noble Baroness, Lady Hamwee, asked about the figures. Perhaps I might repeat that £140,000 of funds is frozen under the UN al-Qaeda and Taliban regime; in addition, there is £150,000 frozen under the terrorism order, so the total is just under £300,000. The noble Baroness also asked about Regulation 9 and the use of “neglect”. I am advised by officials that neglect means a lack of care that a reasonable person would show. We would expect that any prosecution would be brought only if there was clear evidence of a failure to follow proper procedures.

A question was asked about challenges to licensing decisions. Schedule 2(1) adds these regulations to the Counter-Terrorism Act 2008. The effect is to provide a procedure for applications to a court to set aside licensing decisions. I am also aware of the JCHR report on counterterrorism and human rights, which I believe was published only today. I have not had an opportunity to study it, and no doubt the Government will want to look carefully at what the JCHR has said.

As the Explanatory Memorandum makes clear, the regulations before us are compliant with the Human Rights Act. The EC regulation is already UK law. The freeze on al-Qaeda and Taliban assets is already given force through EC regulation. However, it is important that we pass these regulations to enforce the sanctions and to provide penalties for breaches of the regulations. This will ensure that we continue to meet our international obligations, and will give the UK a more effective mechanism for compliance and for enforcement of the freeze in order to prevent funds reaching al-Qaeda and the Taliban.

In closing, I emphasise again that in these times of severe threat to our national security, we must take the necessary steps to prevent terrorists raising funds and using them for terrorist purposes. A proper framework to implement EC regulation effectively, and to provide penalties for non-compliance, is essential both to help prevent terrorist financing and to meet our international obligations. I will write to the noble Baronesses, Lady Noakes and Lady Hamwee, with the answers to any detailed questions that I have not addressed in my closing speech. I commend the regulations to the Grand Committee.

Motion agreed.

Financial Services and Markets Act 2000 (Amendments to Part 18A etc.) Regulations 2010

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Amendments to Part 18A etc.) Regulations 2010.

Relevant document: 8th Report from the Joint Committee on Statutory Instruments.

My Lords, I shall speak also to the Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010.

I start by setting out the purpose of the first order. Section 313A of the Financial Services and Markets Act 2000 gives the FSA the power to suspend or remove financial instruments from trading where this is necessary to protect either investors or the orderly functioning of the financial markets. The Act requires the FSA to give written notice both to the issuer of the instrument concerned and to all those who trade in financial instruments—for example, in those particular shares. This is a bureaucratic, burdensome and inefficient procedure, requiring the FSA to write to the increasing number of exchanges, trading platforms and firms that trade with each other over the counter. However, it is important that firms receive timely information of such an announcement to ensure that immediate effect can be given to the suspension of trading.

We propose to simplify the procedure for notifying firms of a trading suspension or of the removal of a financial instrument from trading. These regulations give the FSA the power to announce such a suspension or removal via a regulatory information service, as it already does with other regulatory announcements, and with which firms are very familiar. In practice, such announcements are rapidly disseminated by secondary information providers such as Bloomberg, Thomson Reuters and others.

In the light of this, we are also clarifying the procedure that the FSA must follow to give effect to a suspension or removal from trading. For example, the regulations set out what decisions the FSA may make following a challenge to a suspension or removal from trading imposed on a class of institutions by either affected institutions or the issuer; when the FSA is required to give written notice of its decisions; and when the decisions must be published by means of an RIS.

I make it clear that the FSA is not being given additional powers. The purpose of the regulations is to enable the FSA to use its existing powers more effectively. I ask noble Lords to note also that the coming into force date of this statutory instrument has been corrected from 6 April to 9 April, to take account of the Easter Recess.

It is crucial that the FSA has effective tools to deliver its objectives of ensuring market confidence and consumer protection. This is what the changes to Part 18A of the FSMA provide. I hope that noble Lords will agree that this is an important change.

I now move on to the second order: the Financial Services and Markets Act 2000 (Liability Of Issuers) Regulations 2010. The purpose of the regulations is to extend the current statutory regime for the liability of issuers for misstatements as set out in Section 90A of FSMA. These regulations are the culmination of an extensive period of review and consultation carried out initially by Professor Paul Davies QC, Cassel Professor of Commercial Law at the London School of Economics, and most recently by HM Treasury.

Under the existing statutory regime, issuers of securities traded on regulated markets in the United Kingdom are liable for fraudulent misstatements made to the market in a limited class of publications. These regulations extend that regime to cover both issuers of any securities admitted to trading on a securities market in the UK and issuers for which the UK is the issuer’s home state. Claims for misstatement may be brought not only by buyers of securities but also by sellers and holders of securities where they have acted in reliance on a fraudulent misstatement and suffered loss as a result. The regulations extend the regime to include not just announcements that are required to be made under the transparency directive but all information published by means of a recognised information service and information which has been announced by the issuer as being available by such means. While this brings a much greater number of announcements within the scope of the regime, we feel that there is likely to be little impact on the day-to-day checking process by issuers. Issuers and directors already face significant financial and reputational penalties for misstatements, and issuers are required to have robust disclosure assurance processes.

The regulations also create liability for dishonest delay in publishing information in limited circumstances. The claimant must be able to demonstrate that they have suffered loss in respect of their securities as a result of delay by the issuer in publishing information and that a manager within the issuer acted dishonestly in delaying publication of that information. There will naturally be situations where disclosure of information is delayed for good reason—for example, to check facts before publication. This will not be dishonest behaviour by the issuer and will not give rise to a claim.

The regulations provide that an issuer will not be subject to any form of liability other than liability under the statutory regime or certain specific forms of liability which are listed in the regulations. These include contractual liability and civil liability arising from a person having assumed responsibility to a particular person for a particular purpose for the accuracy or completeness of the information concerned. The latter preserves the existing liability under the common law for negligent misstatement, as decided in Caparo v Dickman and subsequent cases. I should like to make clear that responsibility statements in reports and accounts which companies are required to produce would not, in and of themselves, be regarded as constituting a representation to a particular person for a particular purpose for the accuracy or completeness of the information concerned.

In conclusion, these regulations are the culmination of an extensive period of review and consultation, and the proposals have gathered widespread support from affected parties throughout the process. They provide clarity as to the liability that issuers may have to pay in compensation to claimants who have suffered loss as a result of relying on misstatements or dishonest omissions by the issuer. I therefore hope that noble Lords will agree to the important amendments to the statutory regime provided for by these regulations. I beg to move.

My Lords, I thank the Minister for introducing these two sets of regulations. They are rather different from each other with the only common point being that each is rooted in Financial Services and Markets Act. It might have been more logical if they had been debated separately. The Treasury's capacity for grouping disparate issues never fails to amaze me. But I missed the trick and so we must debate them together.

I shall take the Part 18A regulations first as these are the least controversial and I have no major concerns with them. The regulatory impact assessment says that there will be one Section 313A suspension each year. Will the Minister say how many have actually been made in each year since the FSA opened its doors for business? Linked to that, I note that the annual benefits amount to £10,000 savings for the FSA in each year; that is, each one of these will generate savings of £10,000. That would give a net present value, according to the RIA, of £93,000, which is stated to be over 10 years. I think that that means that the Treasury is using a discount rate of 1 per cent. Will the Minister confirm whether that is the case? If so, why is a 1 per cent discount rate appropriate?

More substantively, there clearly have been costs within the Treasury in consulting on, processing and drafting this instrument, not to mention the opportunity costs of the Minister, the noble Lord, Lord Oakeshott, and myself in preparing for and debating these regulations. Does the Minister really think that a net present value of £93,000 can justify the costs incurred in giving the FSA an easier life? The Minister said that this is an important change. It seems to me rather wasteful. With cost-benefit equations like that in the public sector, it is not surprising that whoever wins the election will find a lot of low-hanging fruit around to reduce the costs of bureaucracy.

I have little to say on the liability of issuers regulations. Perhaps I may be getting demob happy because I think that this is the last time that the Minister and I will be debating statutory instruments this side of the election. The Government have approached this issue carefully, starting with the review carried out by Professor Davies. There was some divergence of views during the consultation, but we agree with the line that the Government have taken. Clearly, one of the most difficult areas was the extraterritorial effect of extending the liability in respect of traded securities from the UK issue, wherever the markets on which they were traded are. We do not disagree with the Government’s approach but if there were to be an area where unintended consequences might occur, this would be my guess.

My question to the Government concerns the formal review of these new provisions. The Explanatory Note says that no formal review is scheduled and that the Government will monitor the impact of the regime. The regulatory impact statement is rather more forthcoming and says that the Government would expect to review the policy within three years. Can the Minister be clear with the Committee about the Government’s intentions here? Does the Minister agree that it would be important for the territorial basis of the regime, if not other areas, such as the safe-harbour wording, to be reviewed and will he commit the Government to doing so after a specified time?

I have one small point relating to the position of investor claims in the event of insolvency. The consultation response notes that there was a difference of view between those who thought that claims should rank alongside other creditors in an insolvency, which is the current position, and those who thought that such claims should be subordinated. The Government said that these regulations should not be held up while that matter was unresolved and I do not dissent from that, but will the Minster give an idea of when this might be resolved or considered further? I am not aware of any general review of insolvency law into which that sort of issue might be fitted. Is there any special purpose consideration being undertaken and, if so, when might that be brought to a conclusion?

My Lords, first, I declare my interest as a director of an investment management firm regulated by the FSA. I was very intrigued by the comments made by the noble Baroness, Lady Noakes, about the opportunity cost of preparing for a debate such as this. I feel my meter now running really fast. I am not sure whether my hourly rate is as high as that of a former leading partner of KPMG, but perhaps I can compare notes with the noble Baroness later.

We do not have serious worries about the first set of regulations, but I, too, would be interested to know how many times this procedure is likely to be invoked. I am having difficulty getting my head round exactly what pieces of paper we are talking about, although I know obviously that we are talking about OTC products. Perhaps I am rather old-fashioned but I would find it helpful to know what instruments the FSA is concerned about. Clearly, there was not a large number of responses to the Treasury consultation. Broadly speaking, we on these Benches do not have serious concerns but we would be interested in receiving a little more explanation.

We strongly support the principle behind the second set of regulations. The report of Professor Davies makes a very good case. Too many issuers have played fast and loose and they should be made to take their responsibilities more seriously in respect of damage or loss suffered as a consequence of giving inaccurate, false or misleading information. My only question is, if it is right to introduce this measure—we believe that it is—why has it taken so long to do it? The consultation closed in October 2008—almost 18 months ago—so why has it taken so long to introduce something which is widely supported and concerns the important issue of consumer and investor protection? But subject to that, we welcome the regulations.

My Lords, I am most grateful for the contributions that have been made to the debate. Both these sets of regulations have been made after comprehensive consultation and careful consideration.

The noble Baroness is correct—this is the last opportunity in this parliamentary Session that she and I will have to discuss statutory instruments. She feared that she may be feeling demob happy, but I feel upcoming withdrawal symptoms at no longer being challenged, as the noble Baroness always does so effectively. She always exhibits her absolute commitment to read every line and subsection of any statutory instrument or piece of legislation that I find myself proposing to the House or Grand Committee. She sets a standard for all to aspire to in the thoroughness with which she does her work on issues which are often very complex and probably quite tedious. However, they are important in the circumstances in which they are activated.

The noble Baroness and the noble Lord, Lord Oakeshott of Seagrove Bay, asked how often these powers have been exercised under FSMA. Section 313 was inserted into FSMA to reflect a requirement arising from the EU’s Markets in Financial Instruments Directive—otherwise known as MiFID. The powers under Section 313A have not yet been used by the FSA to suspend trading of a financial instrument. The powers under subsections (4) to (5) of Section 313C to suspend or remove a financial instrument from trading where that instrument has been suspended or removed from trading in another EEA state are used frequently by the FSA. Under subsections (4) to (5) of Section 313C the FSA is simply acting on notice from other EEA competent authorities.

The FSA has other ways in which it can suspend trading under FSMA. For example, it has the power to suspend the listing of a financial instrument under Section 77 of FSMA, as it did when it suspended Northern Rock and Bradford & Bingley shares in 2008. However, these other various powers are dependent on breaches of listing, prospectus transparency or disclosure rules and apply only to suspension from listing or trading on a regulated market. They do not enable the FSA to suspend trading across the whole market, and trading in the OTC, or over-the-counter, market can continue. Suspending trading across the whole market may be necessary to protect consumers—for example, if the issuer is in severe financial difficulty—or to maintain market integrity if trading has become disorderly. MiFID gives the FSA the power to suspend trading on OTC markets, and therefore it is essential to ensure that the FSA is able to carry out its duties effectively.

Let me be clear: there have been actual occasions during the crisis that have required a trading suspension when the FSA was able only to suspend listing. Suspending OTC trading would not have been practical, as the FSA would have had to serve written notices on the many individual firms trading on the OTC.

Why is that important if the FSA has never used the powers? The FSA is of the view that it is very important to address that defect in the current UK regime—in particular, in the post-MiFID context, where considerable trading now takes place outside the rules of exchanges and multilateral trading facilities. If the FSA can demand a suspension across that entire market quickly, that will give it a more effective tool to manage volatility and market stability concerns. It will also greatly enhance the FSA's ability to protect investors' interests, because investment firms and banks will not be able to trade in financial instruments where trading has been suspended for regulatory reasons.

The Takeover Panel has also expressed concerns about the FSA's inability to halt trading in the OTC markets. The Takeover Panel relies on the FSA to halt trading in the event of problems during merger and acquisition activity. In its view, halting OTC trading is essential to that.

The noble Baroness asked whether the cost/benefit justifies the Part 18 regulations. We are of course required under EU law to ensure that the FSA can exercise the power to suspend shares from trading, so we do not have a choice whether we want to take that power. The discount rate used is apparently in accordance with HM Treasury guidance. I will have to do the maths myself and find out whether the noble Baroness is correct. I look forward to getting a briefing from my officials and will of course share the outcome with both the noble Baroness and the noble Lord, Lord Oakeshott.

The noble Lord, Lord Oakeshott, asked why there was an 18-month delay in issuing the liability consultation. I am advised—and this makes great sense from my experience in the Treasury—that the Treasury has had to prioritise work during the banking crisis. The Treasury is a very lean machine in that respect; it does not carry excess capacity. Clearly, the banking crisis has had to take up a lot of capacity which the Treasury would otherwise have been able to use to focus on other issues.

The noble Baroness also asked whether we will consider the issue of ranking with the Insolvency Service. I can commit that we will do that in due course. I hope in writing to the noble Baroness and the noble Lord to give a little more information or colour to what “in due course” might mean. I can also confirm to the noble Baroness that we will review the proposals within three years and consider the extraterritoriality issue that was raised.

As I said, in order to ensure that the FSA has effective tools to deliver its objectives of market confidence and consumer protection, it is clear that we need to give it the option to give notice of its decisions by using the RIS services. The Part 18A regulations achieve that aim. The Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010 provide clarity as to the liability that issuers may have to pay in compensation to claimants who have suffered loss as a result of relying on misstatements or dishonest omissions by the issuer. I regard these as important steps forward, and for my own part I have been happy to devote a few hours to this matter, as I am sure have the noble Baroness and the noble Lord. My own hourly charge rate is rather lower than that of a KPMG partner and certainly a lot lower than that of a former Secretary of State or anyone who offers themselves rather as a taxi offers itself to the public for financial gain.

It is most kind of the noble Lord to say that. One takes any compliment from him with great pleasure because they are so rarely on offer. With that, I commend these regulations to the Committee and I thank noble Lords for their participation in the debate.

Motion agreed.

Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010.

Relevant document: 11th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Committee adjourned at 4.46 pm.