Second Reading Committee
Wednesday, 25 April 2012.
Arrangement of Business
My Lords, before the Minister moves that the Bill be considered, I remind noble Lords that Motions before the Committee will be that the Committee do consider the Bill or the instrument in question. The Motions to give the Bill a Second Reading and to approve the instruments will subsequently be moved in the Chamber in the usual way. I also remind your Lordships that if there is a Division in the House, the Committee will adjourn for 10 minutes.
Trusts (Capital and Income) Bill [HL]
Considered in Committee
This is a short but technical Bill to amend the law of England and Wales relating to capital and income in trust. Capital, for these purposes, is trust property that constitutes a pool or fund of assets, and is to be distinguished from the income earned on those assets. For those who remember their Bar or solicitor exams, the distinction has traditionally been illustrated by the homely metaphor of a tree and its fruit. The tree is the capital—for example, an office block or shares in a listed company—and the fruit is the income—for example, the rent received from renting out the offices or the dividend paid on the shares.
Before turning to the substance of the Bill, I would like to say that I am very pleased to be presenting it today, although with considerable trepidation. I know that it should be my noble friend Lord McNally, who is otherwise engaged in the Chamber; he is the Minister in the Ministry of Justice who is responsible for the Law Commission and he has been a great supporter of the Bill. He is disappointed not to be able to be here, but I can assure the Committee that he will be available at later stages of the Bill.
I also know that several noble Lords present today have had the advantage of attending a briefing on the Bill by Professor Elizabeth Cooke, who is the Law Commissioner responsible for the Bill, and Stephen Roberts, who is head of litigation and legal policy at the Charity Commission. I regret that I was unable to attend that session but have had the advantage of a private tutorial from Professor Cooke and Mr Roberts to prepare me for our debate today. Otherwise I would have had to rely on my lecture notes, if they still existed, from Bar exams some 35 years ago.
The Government are very grateful to the Law Commission and the Charity Commission for all the help they have given in the preparation of the Bill for introduction and their continuing support for the Bill as it goes through Parliament.
The Bill will implement, with minor modifications, the legislative reforms recommended by the Law Commission in its 2009 report Capital and Income in Trusts: Classification and Apportionment. These reforms owe their genesis to concerns expressed by various noble Lords, including the noble Lord, Lord Phillips of Sudbury, during debates on the Bill that became the Trustee Act 2000. This led to the publication of a Law Commission consultation paper in 2004 and the Commission’s report in 2009. The Ministry of Justice then carried out a public consultation in 2010 on the draft Bill published by the Law Commission in its report and published a response in 2011 explaining how it intended to finalise the Bill. This extended process of detailed and responsive consultation has, I believe, created a measure with a large degree of consensus, which is suitable for this special Law Commission procedure in your Lordships’ House.
The overall aim of the Bill is to simplify three distinct but linked areas of trust law in England and Wales relating to capital and income. These areas are apportioning receipts between income and capital beneficiaries; classifying receipts by trustees as income or capital; and investing by charity trustees who, in deciding what investments to make, have to distinguish between investments that will produce income on the one hand and investments that will produce capital on the other.
I will start with the first point addressed in the Bill, the rules of apportionment in Clause 1. They deal with apportioning trust receipts between income and capital beneficiaries. For example, a trust—let us call it the AB trust—may be established by a person making a gift of investments on trust for person A for life, with remainder to person B. This means that the trustees will pay the income arising on the investments to A until A dies, and then transfer the investments to B. Because of the different entitlements to income and capital, the trustees must distinguish between investment receipts according to their legal classification as income receipts due to A, or capital receipts which must be held ultimately for B and can be invested to produce income for A during his or her life.
As noble Lords will remember, in the 19th century various cases came before the courts in which the judges had to decide how to split receipts in this way. Sensible though the decisions were in their time and circumstances, the application of some of them as general rules of trust practice is now problematic.
Clause 1 therefore disapplies for new trusts the first and second parts of the rule in Howe v Earl of Dartmouth, the rule in Re Earl of Chesterfield’s Trusts and the rule in Allhusen v Whittell. This means that in the absence of express provision in a new trust, these rules will not apply and the relevant receipt will belong in its entirety to the income or capital beneficiary, depending on its classification as one or the other. This will bring new trusts into line with modern trust drafting practice, which almost always excludes these rules in the document setting out the terms of the trust. This will simplify the administration of trusts without any loss in fairness. Clause 1 also disapplies for new trusts the statutory rule requiring the apportionment of income over time imposed by the Apportionment Act 1870.
The reforms effected by Clause 1 will mean that complex and time-consuming calculations, generally affecting relatively small sums of money, will be avoided.
The changes in Clause 1 are restricted to new trusts so that there is no interference with the intention of settlors, who may have wished the existing law to apply.
Clause 2 amends the law relating to the classification for trust law purposes of specified tax-exempt distributions by companies on demerger for all trusts. This is relevant because trustees holding shares in a company which demerges may receive a dividend in the form of a distribution of shares which represent an equivalent stake of ownership in the demerged company. The clause provides that, unless the trust specifies to the contrary, all the distributions falling within Clause 2 will be treated by the trustees for the purposes of the trust as capital. At present, rather confusingly, this is only the case on indirect demergers.
The distributions to which Clause 2 applies are those that are tax-exempt under Sections 1076, 1077 and 1078 of the Corporation Tax Act 2010 and, in the future, those that are tax-exempt and are specified by an order made by statutory instrument by the Lord Chancellor. No such order is envisaged at present.
In practical terms, Clause 2 will move the classification of dividends received by trustee shareholders on direct demergers from income to capital, and will secure that classification for dividends on indirect demergers, which currently rests on a decision of the High Court. As a result of the Bill, all distributions received by trustees on tax-exempt corporate demergers will be classified as capital for trust law purposes. This will remove not only the potential injustice to capital beneficiaries of seeing significant proportions of the capital holding of the trust assets converted to income by reasons beyond the control of the trustees, but also the pressure on trustees to sell investments in companies proposing demerger purely to avoid the outcome of the present inconsistent classification.
Demergers may be structured by companies in a variety of ways. In some cases of demerger, where Clause 2 applies to classify the distribution as capital, the company may have held off paying the usual dividends pending the demerger. The income beneficiary may then be unfairly disadvantaged because dividends that would have been income in the normal course of events have not been paid and the receipt on the demerger is classified as wholly capital. To prevent Clause 2 perpetuating this problem, Clause 3 gives the trustees power to compensate the income beneficiary from the trust capital. We do not expect that this power will be exercised often but we believe it is necessary in the interests of fairness.
That brings us to Clause 4, which relates to investment by charities with a permanent endowment on a total return basis. Before describing the working of the clause, I will briefly explain the meaning of these two concepts.
First, there is permanent endowment. A charity has a permanent endowment if its constitution places restrictions on the expenditure of property held for the purposes of the charity. Typically, a permanent endowment will be a capital sum donated for charitable purposes on terms that the income it generates may be used for those purposes, but the capital itself must remain untouched to create more income for the future.
Secondly, there is total return basis. Total return investment involves the charity trustees selecting investments on the basis of risk and return, and then spending an appropriate proportion of the total return, irrespective of the form individual returns take, as capital or income. As a result, the trustees are not constrained in their investment choices by the need to generate income returns and can select appropriate investments in the same way as the trustees of charities that do not have permanent endowment.
It may be helpful to illustrate this by way of an example. Let us assume that there is a charity set up to help homeless people, with a permanent endowment of £100,000. At present, the trustees must decide how much expenditure they think is appropriate and then set up an investment strategy to try to achieve it. For example, they might invest in a portfolio of fixed-income investments and shares that they anticipate will produce £2,000 a year. Whatever income that portfolio actually produces is expendable on the charity’s objects; the capital cannot be spent. That is the case even if the portfolio performs below expectations or some returns unexpectedly take the form of capital. In those circumstances, trustees today either face an income shortfall which could jeopardise their planned operations or have to undertake a process to enable them to spend some of their permanent endowment.
Under total return investment, the charity trustees do not have to anticipate expenditure when making investments. Instead, like trustees who do not hold permanent endowment, they can invest in a portfolio which balances risk and return, ignoring the form of returns. The trustees are then able to allocate a fair proportion of the eventual total return to expenditure, whether the investment receipts in question would be classified for trust law purposes as capital or income.
Total return investment is not a new concept. Charity trustees can already apply to the Charity Commission for authority to adopt it and a small number have done so. Clause 4 provides a new framework for obtaining that authorisation. Instead of making an application, charity trustees with a permanent endowment will be able to opt in to this type of investment on the terms prescribed by regulations to be made by the Charity Commission by resolution, if the trustees consider it is in the best interests of the charity to do so. This new administrative approach will reduce the costs of embarking on total return investment for both charities and the Charity Commission.
The change will enable charity trustees responsible for a permanent endowment to bring themselves broadly into the same position in relation to investment decisions as charity trustees without a permanent endowment. This will allow them to invest in the same way as other trustees in accordance with their duties under the Trustee Act 2000 and the trust instrument.
The detailed terms on which total return investment can be pursued will be determined by the regulations to be made by the Charity Commission. The regulations will be finalised only after the Charity Commission has carried out a consultation, which it intends to do after the Bill has been enacted.
The commission has, however, made available its current draft of the proposed regulations, which is based on the terms on which authorisation is currently granted. This draft requires trustees to allocate the total return from their investments between a trust for application, which is to be spent on the charity’s objects, and a trust for investment, which is held to generate future total return. The regulations do not prescribe an amount or proportion of the total return that the charity must allocate to the trust for application as doing so would bear the risk of setting the level too low or too high depending on the prevailing economic conditions.
Instead, charity trustees with a permanent endowment must exercise their duty to balance present and future interests—or, as the draft regulations put it, to exercise their powers in relation to a relevant fund,
“in such a way as not to prejudice the ability of the charity to meet the present and future needs which are designated by its trusts”.
Placing reliance on the trustees in this way is the same as the approach of the law to the trustees of private trusts for interests in succession, such as the AB trust that I mentioned in an example earlier, who are required to balance present and future interests.
It is, however, not for me to anticipate the final form of the Charity Commission’s regulations. It is the regulator of charities and it will decide what is most appropriate and no doubt revise the terms from time to time in the light of experience. For our present purposes the new Sections 104A and 104B of the Charities Act 2011 will provide an appropriate and efficient framework within which total return investment can be responsibly adopted by charity trustees with a permanent endowment.
That concludes my brief description of the substantive provisions of the Bill. We believe that it will simplify and modernise the law of trusts in modest but important respects. It is certainly not the easiest of Bills to understand but it will bring considerable benefits to private and charitable results which will help a good number of people, including the more disadvantaged in society.
The Bill illustrates the importance of having a body such as the Law Commission, which can prepare expert recommendations for the reform of law in areas which would otherwise remain rooted deep in the past, increasing the burden of the law on all who come into contact with it, and the advantages of the procedure that we have in your Lordships’ House that allows appropriate Law Commission Bills to be scrutinised, as far as possible, off the Floor of the House. This is the fourth Bill to have gone through that procedure and I therefore commend it to the Committee.
My Lords, I endorse the commendation of my noble friend Lord Henley for the work of the Law Commission. It is one of the unsung heroes of the forest of the law and, within it, it is a true forester.
It is particularly warming to know that the report upon which this Bill is based is but three years’ old, which, in terms of this kind of legal reformation, is but a twinkling of an eye. Indeed, the Minister said that the reform vis-à-vis the fruits of demergers was partly in the Bill to rectify the fact that as the law presently stands only indirect mergers are, so to speak, saved, and now direct mergers will be in the more flexible regime.
It is perhaps amusing to remind the Committee that the ruling to which the Minister referred which enabled indirect mergers to result in the apportionments that the court decided was given in the case of Bouch and Sproule, which was no less than 125 years ago. So spreading the benignity of Bouch and Sproule has taken rather than longer than some of us would have wished.
I also cannot resist a nostalgic view of this debate. The Minister talked of his time at the Bar. My earliest days in the law were spent studying trust accounts in 1958. The very cases to which he referred—Howe v Earl of Dartmouth, Allhusen v Whittell and Re the Earl of Chesterfield’s Trusts—are names that adorn the wall of my lavatory. Incidentally, I think Howe was a predecessor of our dear friend, the noble Earl, Lord Howe. They are some of the most complex, arcane, time-wasting and lawyer-infested rules that still apply in our world. Therefore, this is a happy day and I have little to say apart from expressing happiness, except for two points.
The first relates to the drafting of Clause 3. As the Minister clearly described, this provision gives trustees the power to compensate income beneficiaries when there is a direct demerger. I am well briefed on this point by the Law Society, which has a committee to look at such things that is comprised of horny-handed practitioners. They and I feel that subsections (1), (2) and (3) could be more clearly drafted. The particular point that exercises us is that exactly what the trustees are empowered to do is not as clear as it could be. That is, what is the nature and extent of their discretion? Is it an absolute or a qualified discretion? The language of the three subsections states, for example, “the trustees are satisfied”, “the trustees may” and “the trustees consider”.
It is perhaps unfair to ask the Minister to comment on these matters instantly, but after today I hope we will at least consider the potential improvement of three quite difficult subsections. We do not want to put trustees—who, let us not forget, are nearly all volunteer trustees—into a position whereby some aggressive beneficiary or potential beneficiary could try to sue them over the way in which they have exercised the power given to them by this clause.
My second point concerns the Charity Commission, which is extremely useful. At present, for many charities that have permanent endowment—which more have than some realise—it is a real palaver to apply to the commission for an order, and for that order to be considered, made and executed. A great deal of time, effort and expense is wasted because of that state of affairs. It is therefore extremely beneficial and has no down side at all that the Bill will allow the commission—if it so wishes, as I am sure it will—to make regulations that will enable all charities in the future to make provision vis-à-vis endowed property, without applying formally for an order from the commission.
With those few remarks, I thank the Government and all those involved for bringing forward an arcane but none the less very important and practical set of proposals that will make more of a difference than many realise.
My Lords, I am afraid that I am not a barrister or a solicitor and so the Earl of Chesterfield and Howe versus the Earl of Dartmouth do not adorn my lavatory walls—or, indeed, have not, until now, swung into my ken.
I welcome this small, technical but important legislation and I wish to address particularly the charitable aspects covered by Clause 4. I declare my interests, which are on the register in your Lordships’ House: I am president of the National Council for Voluntary Organisations; chairman of the Armed Forces Charity Advisory Committee; and I have been appointed by the Government to review the Charities Act 2006.
The existence of permanent endowment, as my noble friend clearly explained, has caused trustees of charities with permanent endowment a great deal of difficulty. If you force trustees to consider primarily the form in which they will get their return, you will get a series of artificial distinctions. By investing the capital gain—as opposed to dividend income or interest—you may end up with a seriously suboptimal result.
In recent years, a number of investment opportunities have arisen that are for capital gain only, particularly in the world of private equity. Where you are able to invest in smaller companies your return will almost certainly be in the growth of the value of the company. These companies cannot—and probably should not—pay dividends because they need to retain their profits to grow the business. It is therefore very important that this flexibility is built in to charitable investment.
As I understand it from my noble friend, this, of course, does not remove from trustees—I am sure that it does not—the need to balance future capital appreciation against the need to run the charity in the mean time, and, of course, the need to balance risk and return, which still applies as if these provisions had not been made. I welcome these proposals on the grounds that they are deregulatory and will free individual charities with permanent endowment and the Charity Commission from some administrative work.
As I understand it—and my noble friend Lord Phillips will correct me on this because he has forgotten more charity law than I will ever know—the right of the Charity Commission to make regulations on this matter has been in some dispute. Some lawyers have questioned whether it actually has these powers. The commission’s powers are, of course, open to challenge, as we saw with the public benefit test considerations last summer.
I have a further point of concern which the Committee may wish to explore. I have described the Bill as deregulatory, but in proposed new Section 104B (1), (2) and (3) there is a list of regulations. If, as I am sure my noble friend will tell me, the normal duties of trustees apply, do we really need to have this extensive list of regulations? Are we not able to trust the trustees? For example, proposed new Section 104B(2)(c) would require charity trustees to,
“notify the Commission of the passing, variation or revocation of such a resolution”.
That takes us back almost to where we started because, if resolutions are made in that way, they will have to be sent to the Charity Commission, the only difference being that the Charity Commission will not have to give its permission. I flag that up as a possibility we might wish to explore later.
I have given prior notice that I would like my noble friend to address the specific issue of the special position of English cathedrals under this legislation. The Church Commissioners and the Association of English Cathedrals are anxious to make a small amendment to Clause 4 which would enable cathedrals to resolve to invest their permanent endowment on a total return basis in accordance with the regulations which the Charity Commission is going to make. This comes about because ecclesiastical corporations are specifically excluded from the definition of a charity in Section 10 of the Charities Act 2011, which means that the powers of this Act do not apply to them, nor will the powers to be conferred by proposed new Sections 104A and 104B.
However, the relevant bodies corporate which are now established for each cathedral under the Cathedrals Measure 1999 exist for exclusively charitable purposes and are therefore charities for the purposes of the general law.
In recent years a number of cathedrals have expressed increasing interest in a total return investment, as the requirement to generate income from their permanent endowment is distorting their investment decisions. Cathedrals, of course, as ancient institutions, have more permanent endowment than most. Access to the total return investment allows for a more strategic portfolio of investments, which will provide a better balance between the needs of current and future beneficiaries. I hope that my noble friend, either now or at a later stage of the Bill, can address that point.
I described this earlier as a small, technical but important and welcome measure. However, it is only the first in a series of changes that need to be made if we are to realise the full value and potential for social impact investment. It does not, for example, address the issues or challenges arising from mixed-motive investment, a practice which is very close to total return investing. Mixed-motive investments are made by trustees on the basis partially that they are financial investments, and partially that they are programme-related investments. Programme-related investments are made to advance the charity’s purpose and are not considered to be financial investments at law.
I will give the Committee a brief example of how this might work. A charity which aims to improve educational opportunities and address homelessness invests in a property fund that will invest in properties for social enterprises. The fund focuses investments around three areas of social impact: homelessness, education and community development. Based on conversations with their fund manager, the trustees assess that 60 per cent of their investment can be justified as a programme-related investment that furthers their social mission. They decide that the remaining 40 per cent must be justified as a financial investment. Conversations with their investment advisers indicate that a commercial return on this sort of investment should be, say, 15 per cent per annum. To justify their investment, the trustees decide that there must therefore be a commercial return of 40 per cent and that they must get back the remaining 60 per cent in their PRI investment. When you blend the whole thing together, you have a return across the whole piece of 6 per cent. You can see how close this balanced rate of return is to the whole idea of total rate of return; it is very close indeed. It is a sadness to me that we have not been able to grasp this particular issue and extend this Bill by a series of small amendments to take in this additional way in which charities are now seeking to invest.
If I could glance over my noble friend’s speaking notes, I am sure that the answer to this will be, “Resist this”. It will be resisted because mixed-motive investment might be considered controversial—this is a Law Commission Bill—and because the Law Commission has not consulted on this precise point. Law Commission Bills are invariably consulted on in every aspect.
If that is my noble friend’s answer—and I am sure that it is going to be, but I may as well try—it would be helpful if he could give some indication during the later stages of the Bill whether his department has it in mind to bring forward ideas to tackle the mixed-motive investment as part of the overall approach to social investment.
Social impact investment is coming of age. It is a strategic issue for this country. However, there is a real danger of the necessary legislative changes required to facilitate it falling between departmental stools. My noble friend’s department, the Ministry of Justice, is producing this important but modest measure, yet not tackling other critical issues. The Law Commission will consult this autumn on further charity law reforms, but seems unlikely to tackle the necessary innovative leading edge issues.
The Financial Services Bill, at the Committee stage, is deeply depressing reading. I invite the Minister’s officials to look at the proceedings of the eighth sitting on Thursday 1 March, where attempts were made to raise the social impact investment idea. The amendments themselves were wrong; they were not acceptable. However, the Minister’s reply—it was Mark Hoban—indicated the dead hand of the Treasury across the whole of this area, still thinking in conventional investment terms of invested protection, whereas social impact investment melds financial and social return. It is not an investment for everybody, but the present situation, whereby one can easily give money to a project, but find it difficult to lend money to it, must be counterintuitive. People will be more encouraged to support these leading-edge charities and voluntary groups if there is a prospect of them getting their money back. That might encourage them, if they are successful, to put more money into the next project.
The Government have laid great stress on the need to create innovative ways of financing charities and voluntary groups that are seeking to tackle some of these most deeply entrenched social problems in our society. I hope that somebody, somewhere, in Whitehall is getting a grip of these various separate legislative proposals to ensure a proper degree of co-ordination and impact. The statutory stars are in alignment at the moment with all these pieces of legislation around, and it would be a great opportunity missed. Indeed, strategically, from the country’s point of view, it is a chance to make London the world centre of expertise for this rising and new activity.
My Lords, I rise briefly to support my noble friend on these proposals. First, I should declare an interest as a trustee of a substantial charity, which at the moment does not operate a total return investment policy but I am pretty sure would want to do so in the future. I could not help smiling at my noble friend Lord Phillips, because I too have enjoyed being here with the nostalgia of thinking of all the time I wasted as a young man learning about Howe v Earl of Dartmouth, Allhusen v Whittell and all of these cases, which are from many years ago so far as I am concerned.
My concern is a relatively simple one. I am perfectly content with what is being proposed, but recognise that all these things take quite a long time. As the Minister said, the Charity Commissioners have for a number of years now operated a scheme on a one-off basis to deal with cases that came forward, for suitable charities, where they allowed a total return investment policy to happen. I am concerned that there should not be a delay between that system and the new system, bearing in mind there has got to be consultation, regulations have to be drafted and implementation has to take place. I would like the Minister to be able to tell me that the existing system of the informal but important way the Charity Commissioners have worked in the past will continue to operate until the new system, with consultation and everything else, has been finalised. There should not be a gap when neither the old nor the new system is in operation for charities that wish to adopt this total return investment policy. When you stop and think about it, for the appropriate charities, it is very hard to consider a trustee is doing his job properly today if he does not think in terms of that. That is the only consideration I have and I hope that my noble friend can give me some encouragement on that point.
My Lords, I am in no sense an expert in this area, but over the past two or three years I have been involved in negotiations with the Charity Commission. I certainly join with those who have expressed appreciation to the Law Commission for its work on this. I think I have only on one previous occasion had a debate in this Chamber on one of its reports. Am I right in thinking that this does not go to the Commons at all and is dealt with exclusively in your Lordships’ House? I was not clear about that.
I also pay tribute to the way the Charity Commission has handled the particular negotiations in which I have been concerned. I understand it is being quite severely affected by the cutbacks but it managed to get through these particular negotiations before that had too serious an effect.
I will raise only some very simple points. The explanation given by the noble Lord, Lord McNally, points out that the four burdensome 19th century rules requiring apportionment between capital and income, which are described so adequately in the Explanatory Memorandum, will be renewed for new trusts. My very simple question is: will it apply only to new trusts, or can existing trusts make arrangements to take advantage of the changes as well?
The Explanatory Memorandum draws rather a charming analogy with trees and the fruit of trees. In the trust about which I am concerned, we had considerable problems over whether to regard a particular asset as income or capital. In addition to the original trust being set up, it was then given the royalties from a particular operation and was therefore continually topped up in this way. This gave us considerable problems in deciding whether that should be regarded as capital or income. However, it will be very helpful overall if time and costs can be saved by the Charity Commission making regulations, rather than people having to apply on a case-by-case basis, as is the present position.
The Minister’s letter has a final line which states that the Bill is expected to be beneficial to small firms and micro-businesses. I am rather puzzled as to how that will be the case but no doubt the Minister can explain.
My Lords, I join other noble Lords in congratulating the Minister on the clarity of his exposition of this intrinsically complex area, and in congratulating the Law Commission on producing the report. As the Minister reminded us, the process began eight years ago, so it has not quite reached the proportions of Jarndyce v Jarndyce. The commission has certainly done a thorough job.
My acquaintance with the rules of apportionment began with my law degree and effectively ended with the solicitor’s final examinations to which the noble Lord, Lord Phillips, referred, save that I learnt to take the precaution of ensuring that the rules were excluded from any will I subsequently drafted. Of course, that will now no longer be necessary. It will be a case of opting in rather than opting out, for which the commission and the Government should certainly take credit.
This afternoon I find myself visited by a slight sense of déjà vu. Many years ago I found myself acting in a divorce case and waiting for my case to be called on behalf of my petitioning client. I sat next to the counsel in the preceding case, a delightful if somewhat eccentric individual. For the avoidance of doubt, it was not the Minister on that occasion. At one point counsel turned to me and said, “Mr Beecham, where is the petition?”. I had to reply, “I am not instructing you”, to which he replied, “I know, I know, but where is the petition?”. Around three weeks ago, my noble friend Lord Bach said to me, “You are to be in charge of this Bill”. It was a visitation that was quite unlooked for. Nevertheless, I am here today to represent the Opposition on this matter and to welcome the simplification that the Bill embodies, in relation to both the rules of apportionment and, in particular, the position in respect of charities and the question of total return. I declare an interest as a trustee of the Trusthouse Charitable Foundation, which already operates a total return policy.
The noble Lord, Lord Phillips, referred to the Law Society briefing, for which I am very grateful. The Law Society is a body to which President Kennedy’s memorable injunction is often thought by solicitors to apply: “Ask not what the Law Society can do for you, but what you can do for the Law Society”. On this occasion, the Law Society has done us all a service in a briefing that contains the recommendations that the noble Lord, Lord Phillips, referred to in respect of Clause 3, where it suggests a new subsection and some clarification. I hope that can be shared with the Minister following this Second Reading, if he has not yet seen those proposals. They seem to make sense in exactly the way that the noble Lord, Lord Phillips described.
Other of your Lordships have made points particularly in relation to the position of charities and, in the case of the noble Lord, Lord Hodgson, in respect of cathedrals. Those matters seem to be worth pursuing. I had the same question in my mind as the noble Lord, Lord Higgins, about whether it is necessary to include a reference to existing trusts in the Bill. That is a matter that I am not qualified to make a judgment about, but it might usefully be considered, because if it is not currently possible for existing trusts to modify the rules then it would seem that they ought to be given that opportunity. They would not have to take it but it might be relevant. That is perhaps, again, a matter that we could return to in Committee.
In principle, and so far as the thrust of this short Bill is concerned, we are completely at one with the Government and look forward to concluding this matter rapidly for the benefit of trustees, beneficiaries and charities.
My Lords, I should have declared an interest earlier, which I need to do now. I am the founder of, and am still a consultant to, a firm of charity lawyers, Bates Wells & Braithwaite. I should have said that and apologise for not so doing. I will not enumerate the charities of which I am a trustee.
The Committee will be grateful to the noble Lord for that declaration of interest.
I start by congratulating the noble Lord, Lord Beecham, on being the first speaker in this debate to mention Dickens, in this bicentenary of his death. I was wondering how long it would be before Jarndyce v Jarndyce appeared, and assure him that I was about to mention it. Although the noble Lord says that this has been only eight years in gestation, as my noble friend Lord Phillips put it, if we go back to a case that I was not familiar with but which is no doubt up on the wall in the noble Lord’s lavatory, Bouch v Sproule, that was some 125 years—so it has been going on for a considerable amount of time.
I hope to deal with some of the points that have been raised, but give an assurance to the House that this is the beginning of proceedings. We have rather a good form of procedure before us for these Law Commission Bills, which will allow this Bill to be properly scrutinised later on in Committee. Another place will also scrutinise the Bill properly—as it always does—in due course. I am sure we do it slightly better, but another place will have its role to play. I can give that assurance to my noble friend Lord Higgins—this is not some odd procedure whereby the Bill comes only to this House. It will go to another place in due course.
The first point that came up was raised by my noble friend Lord Phillips about Clause 3 and the discretion that is available to the trustees. What qualification was there for that discretion and might there be some alarm among trustees about whether they could be liable for how they exercise it?
I say to my noble friend that the Bill has so far been very carefully constructed. It has been looked at by many people of much greater erudition than me and, possibly, of even greater erudition than my noble friend. They have taken these points into consideration but the great advantage of this procedure is that we can look again as the Bill goes through the House. It is certainly something to which my noble friend might want to come back in Committee when we get to that stage, at which point our mutual noble friend Lord McNally will be dealing with the Bill for the Government. It will be a matter for that Committee.
Obviously, we are always more than happy for there to be consultation before, during and whenever to deal with these matters. They ought to be looked at and that is how we get the right result in the end on all Bills. It is something that we would more than encourage. I am sure the noble Lord will be in touch with the officials, and that he has already spoken to them, the Charity Commission and the Law Commission at some stage.
I move on to my noble friend Lord Hodgson’s concerns about whether the regulations in Clause 4, particularly the total return investment regulations in new Section 104B, will be too restrictive. Again, this is a matter that we will need to look at in some detail. However, it is a matter that the Charity Commission should be able to get right following consultation. I am certainly confident that it will strive to ensure that the regulations achieve just the right level of trusting the trustees to get things right and protecting charity funds. It is a matter that I hope the House will look at in detail.
I understand my noble friend’s concerns about English cathedrals and that he raised the matter at the Peers’ briefing in March. As a result of ongoing discussions at official level between the Ministry of Justice, the Law Commission, the Charity Commission and the Church Commissioners, they are all looking at the issue. In essence, the Association of English Cathedrals, which represents all the corporate bodies of our 42 cathedrals, has asked that Clause 4 be extended to include the cathedrals in its scope. The association considers that this would benefit the 20 or so cathedrals that have permanent endowment. That would put those English cathedrals on the same footing as the Welsh cathedrals. However, unlike cathedrals in Wales, cathedrals in England are not subject to the general regulation of the Charity Commission. The Government will consider the request from the Association of English Cathedrals carefully, but at present no final decision has been taken.
I cannot remember whether it was on this issue or another that my noble friend speculated as to whether the word “Resist” appeared in my briefing. I can assure him that it does not, although it might appear later as we discuss these matters further. However, this is not really a matter for the Government to resist; it is a matter for all of us to make sure that we get right. Again, I stress that this is not a government Bill; it is a Law Commission Bill, which we are ensuring gets on to the statute book.
My noble friend also asked about social impact and mixed-motive investment. The Government acknowledge that social or mixed-purpose investment is a highly important issue and are grateful to the noble Lord for drawing attention to it, both today and as part of the work of his ongoing review of charity law. The Government’s ambition is that social investment should become a major source of finance for the social sector. To this end, the Cabinet Office’s social investment team is working with other government departments to make this vision a reality. Social or mixed-purpose investment did not, however, form any part of the Law Commission’s work on capital and income in trusts and therefore has not been included in the Bill, by the Law Commission in its report or by the Ministry of Justice in its consultation. Therefore, at this stage we would not want to see anything further added.
I have already dealt with the question from my noble friend Lord Higgins as to whether the Bill will go to the Commons. I can give that assurance. My noble friend also asked whether it will apply only to new trusts, which I think was a question also raised by the noble Lord, Lord Beecham. I can give an assurance that the reform is prospective only. We believe that retrospective interference with existing trusts could frustrate the intention of the person who created the trust, contrary to the general principles of trust law. However, as the noble Lord, Lord Beecham, reminded us, in any drafting of trusts that he has been doing over the last however many years, he has been excluding the rules in Howe v Earl of Dartmouth and others, just as, I imagine, most practitioners have been doing.
My noble friend Lord Higgins also asked about the letter and whether there was going to be any effect on small and medium-sized businesses. We believe that it is unlikely to have a major effect on small and medium-sized enterprises. However, the impact assessment published by the Ministry of Justice states:
“While a reduction in the complexity of the current legal rules may lead to a very marginal reduction in trust related business for small legal firms and trust service suppliers, this is expected to be more than offset by reduced costs for trusts. Small legal firms and trust service suppliers may also benefit from additional business if there is an increase in the number of charities operating total return investment … We do not consider that the Bill is likely to have a disproportionate impact on the operations and performance of small businesses compared to others”.
I am still slightly puzzled about this. It says that the Bill is expected to be beneficial to small firms and micro-businesses. Does it mean small legal firms? The idea of a small legal micro-business strikes me as a little unlikely, so I do not understand how it affects small businesses and micro-businesses.
My Lords, I had better look at the letter more carefully myself in due course and write to my noble friend to deal with that point.
My noble friend Lord Wakeham talked about the possibility of delays of the sort one finds in law, which no doubt provided the noble Lord, Lord Beecham, with his opportunity to bring in Jarndyce v Jarndyce. I hope that there will not be undue delay in dealing with this, but I can certainly give him an assurance that there will not be the gap that he was talking about. We will continue with the old system until we have the new system.
Lastly, I will correct a point that I made earlier, when I said that this was a Law Commission Bill. I must make it clear that it is actually a government Bill. However, the Government recognise that it is uncontroversial and that it has been put forward by the Law Commission; it can therefore continue through Parliament under this special procedure, which I think is appropriate for Bills of this sort.
I hope that I have dealt with most of the points. I will look carefully at what I have said in due course and if necessary write to noble Lords to deal with any points that I have missed. I commend the Bill to the Committee.
Public Bodies (Abolition of Courts Boards) Order 2012
Considered in Grand Committee
My Lords, the purpose of this order is to abolish 19 courts boards across England and Wales. The order provides for abolition with no transfer of functions. Before addressing the order I will give some background on courts boards and their proposed abolition.
In 2010, the Government announced a review of all public bodies which aimed to increase transparency and accountability, cut out duplicated activity and discontinue unnecessary activities. In conducting reviews, departments were asked, first, to address the question of whether a body needed to exist at all. In the case of courts boards, the Ministry of Justice considered that the answer was no. This view reflected that of the previous Administration, who announced in March 2010 their intention to close courts boards. The abolition of courts boards was therefore listed in the Public Bodies Bill which received Royal Assent in December 2011.
Courts boards were established in 2003 with a remit relating to the Crown Court, county courts and magistrates’ courts. They do not manage or administer the courts themselves but advise HM Courts and Tribunals Service to improve its service. Courts boards were established partly because there was a fear that magistrates’ voices would be lost within a unified courts system. However, their role has diminished in recent years as other structures are now in place to ensure magistrates’ views are heard. Locally, there are strong relationships with magistrates’ Bench chairs and, nationally, views are represented by the Magistrates’ Association and the National Bench Chairmen’s Forum.
Another function of courts boards is to ensure that the voices of local community court users are heard. However, amalgamations within HM Courts and Tribunals Service areas have reduced courts boards areas from 42 to 19 in recent years, diminishing their ability to represent the whole community. While the Ministry of Justice fully recognises the need to respond to local needs, the Committee should recognise that it is not trying to recreate a like-for-like structure in place of what it is abolishing. One reason for reforming public bodies is to make necessary savings, and this could not be achieved by simply filling the gap with something similar, especially where functions are duplicated. Abolishing courts boards will save the public purse approximately £450,000 per year. Given their reduced role over recent years, retention cannot be justified in the current financial climate.
The proposal to abolish courts boards was included in a public consultation published in October 2011. Of the 23 responses received, seven were in favour of abolition, three were neutral and 13 were against. Arguments against abolition focused on concerns around the loss of a body to oversee Her Majesty’s Courts and Tribunal Service’s performance from a local perspective. As I will discuss, there are other ways in which these local voices can be heard. Those in favour of abolition agreed with the Government’s view that HMCTS is capable of addressing the gaps left by abolition. The department found no compelling argument within this consultation to change its proposal.
The order was laid on 31 January. Orders under the Public Bodies Act have a minimum 40-day scrutiny period, with a committee of either House able to extend this to 60 days by resolution if it feels it necessary. This order been scrutinised by several Select Committees within Parliament: in this House, the Merits of Statutory Instruments Committee; in the other place, the Justice Select Committee; and, collectively, the Joint Committee on Statutory Instruments. None of these triggered the optional 60-day extended scrutiny period.
The Merits of Statutory Instruments Committee reported on this order on 16 February, having requested supplementary information. The committee specifically asked the Minister to address several questions during the debate. On his behalf, I will now take these point by point. First, the report asked that the other avenues that could perform the same functions as courts boards should be more fully articulated, in order to support the assertion that courts boards’ functions are being duplicated. Courts board representatives can have their views heard through structures such as justice issue groups, area judicial fora, local criminal justice boards, victims and witnesses subgroups, and court user groups.
There are also strong local relationships between HMCTS and local magistrates’ Bench chairmen. Additionally to these groups, Section 21 of the of the Courts Act 2003 requires the Lord Chancellor to ascertain the views of magistrates on matters of relevance to them. This will of course continue after courts boards have been abolished. As for engagement with members of the public, courts already use a variety of methods to engage with their local communities, such as open days, open justice week, representation at local community meetings, customer satisfaction surveys and mock trials. These methods provide more direct engagement with local communities than courts boards do. Members of the community may also air their views through direct communication with their courts, writing to the relevant Ministers via their MPs or by responding to consultations.
I turn to the second point that the report requests be addressed specifically, that of giving reassurances about what provision will remain to monitor and influence how court services are tailored to the needs of the local areas. The Ministry of Justice remains committed to preserving the links between courts and local communities. Under the new agency framework, HMCTS regions will be encouraged to explore local options suitable to them, such as making more effective use of court user meetings, to engage the wider community in improving service delivery. This idea is already being developed in one HMCTS area and initial best practice has been circulated to other areas.
Furthermore, delivery directors and jurisdictional leads are working with the judiciary, stakeholders and other agencies to deliver a joined-up justice system that is responsive to the communities it serves. Further plans are being developed that will promote more direct engagement with communities. Neighbourhood justice panels are just one example of this. These panels will, through community volunteers, involve communities in finding restorative and reparative solutions to anti-social behaviour and low-level crime.
The department is also committed to increasing the transparency of the justice system in order to encourage better engagement with the public and enable citizens to hold services to account. This will, among other measures, allow for the release of various data with contextual information to promote public understanding of the justice system. This has already begun. For instance, earlier this year, the department published timeliness data for courts on the open justice system website, allowing users to see how their local court is performing.
The Ministry of Justice has taken on board the views of the Merits Committee and would like to thank it for its thorough reporting. Courts boards are an advisory non-departmental public body whose role has greatly diminished in recent years. Their functions can now be carried out in other ways. The Ministry of Justice remains committed to improving courts’ and tribunals’ performance and to listening to the local community. The department will continue to do this in the future, through the other means I have laid out today.
However, in the current financial climate, it is right that duplicated functions across government should be removed. As I said earlier, abolishing these boards will save around £450,000 per year. I therefore commend this order to the Committee and beg to move.
My Lords, again I thank the Minister and congratulate him on his very clear exposition of this order. I indicate at the outset that, as in the House of Commons, the Opposition do not in any sense oppose the proposals.
However, although the Minister has rightly referred to issues raised by the Merits Committee, it should be noted that, as well as raising individual issues, the committee expressed some concerns about how the whole process had taken place. In particular, in relation to the explanatory document, paragraph 13 of the Merits Committee report points out that both the Magistrates’ Association and the Law Society thought that the current system was better than nothing. The Government have made a judgment on that and I do not necessarily quibble with it. The Merits Committee came to this conclusion:
“On balance the low number of consultation responses would seem to support the Government’s view, that Courts Boards are not operating particularly effectively”.
However, it also pointed out that while the,
“Explanatory Document suggests that other existing avenues may perform the same function better”,
that would need to be articulated “more fully in debate”. Up to a point that has happened in another place and here today, but it did not happen unprompted. Similarly, on the impact assessment, the committee pointed out that,
“in order to demonstrate compliance with the statutory tests”—
“should, as a minimum, include in the ED a clear statement of the factors that have been included in their calculation of net savings”.
They have subsequently done that and, again, there is no issue over that. However, as the Merits Committee indicated, it would be better to have had that in place in the first instance.
The committee made a point about the reassurances over provision to monitor and influence how court services are tailored. Its conclusion was a modest rebuke to the Government, which said:
“In our consideration of future draft Public Bodies Orders, we will expect the Government to present a properly argued case that the tests in the 2011 Act have been satisfied, supported by objective evidence”.
I am sure that the Minister will wish to ensure that that is carried through in the event of any further orders coming from his department. I hope that the Government as a whole will take that point.
One or two issues remain outstanding, which relate partly to the answers that were given by the Minister, Mr Djanogly, in Monday’s debate in the House of Commons and those given by the noble Lord today. These refer to the other structures that are in place, such as justices’ issues groups and the Magistrates’ Association. As the Minister said on Monday, there are other bodies, which mean that,
“court users … can have their views heard through structures such as justices’ issues groups, area judicial forums, local criminal justice boards, victims and witnesses sub-groups, and court user groups”.—[Official Report, Commons, Delegated Legislation Committee, 23/4/12; col. 4.]
That raises the question of the number of bodies that might be involved and suggests rather a more fragmented approach to looking at the issues that arise in an individual area. It is striking that there is no mention of local authorities among those groups. I invite the Minister to consider whether it would be appropriate to encourage HMCTS to promote the involvement of local authorities, which are important partners in community safety and can make a significant contribution to dealing with the problems of crime and disorder, which manifest themselves locally and end up in the courts.
Useful experiments are taking place in different parts of the country in relation to some of these matters. For example, I am currently chairing a scrutiny panel in my own authority dealing with the mental health of offenders. In the course of that we have discovered that there are experiments about providing professionals at court who can assist those who might have mental health problems at a very early stage in proceedings. It is also something that the young offender teams are involved in, closely linked to the local authority services.
The point is that it will not be sufficient simply to have different groups of people relating to the HMCTS.
Sitting suspended for a Division in the House.
My Lords, I shall resume my suspended sentence—which is not an inappropriate term in the circumstances. I invite the Minister to explore a couple of aspects, in particular in relation to the role of local government.
First, it would be interesting to know whether the experiment that the noble Lord has referred to includes the relevant local authority, or authorities, in that area; and secondly, whether he would encourage the system to co-operate with any local authority scrutiny committee, because it would of course be open to a local authority to scrutinise what is happening in this area. Also, in relation to monitoring and reporting on what is happening—which can be done locally, and the local authority scrutiny committee may be a suitable vehicle for that—there is the question about whether the department itself would collate information, so that what is happening and what improvements might be made to the system can be seen nationally, rather than simply leaving it at the local level. That was the thrust of the implicit suggestion of the Merits Committee when it inquired as to that.
Finally, I note that some £450,000 will be saved by this process. It is not an inconsiderable amount of money but has to be seen in the light of the £1 billion shortfall in the anticipated savings from the abolition of public bodies of one kind or another. It will be interesting to see how much more is to come in various other regulations or orders that we will no doubt be considering. Not just in the context of this department, but generally, there seems to be a long way to go to meet the Government’s target of £2 billion of savings. However, as I said at the outset, we will not oppose the order and trust that, in the developing system, there will be an adequate exchange of information. There might for example be peer review and, in particular, there should be an annual report by the department or the agency on the progress that is being made.
My Lords, I thank the noble Lord for those comments and will deal with some of the points he has raised. Starting at the very end, when he talked about the savings that are necessary, he is right—£450,000 is a relatively small amount in the great scheme of things and we will continue to have to look across all departments and the whole of government for further savings to try to get the deficit down and, ultimately, to start reducing the debt that we inherited. The noble Lord knows that full well, and all parts of the Government will continue to do that. However, at this stage, discussing this particular order, he would not expect me to go any further.
I am grateful that he made clear that the Opposition do not oppose these proposals. It would be very odd if they did since they intended to do exactly this and announced it in the Budget in 2010. He then went on to talk about the various concerns that the Merits Committee had had and alleged that it had issued us with a modest rebuke. I appreciate that it was a modest rebuke, which we will take on the chin, but it could have given us a much more severe rebuke—it was open to it to insist on a 60-day period rather than a 40-day period. It is open to the Merits Committee to do even more than that. It is a very effective committee and one that we all, quite rightly, live in fear of and whose considerations we take very carefully. That is why I can give an assurance on behalf of the department that future Explanatory Memorandums will be clearer, with the financial impact fully laid out and the assessment against the various tests fully spelt out. We will make sure that that is the case. There are four further orders due from the MoJ in due course and we will try to make sure that we comply with the wishes of the Merits Committee.
The noble Lord then raised questions about my opening remarks and those of my colleague, Mr Djanogly, in another place, suggesting a fragmented approach and asking about bringing local authorities into consultation on these matters. As an old local authority hand—one with more experience than many people in this area—he is right to talk about local authorities, and we shall certainly look at how we can work with them and involve them. He suggested making use of their scrutiny committees and there are various ways in which we can look at that. Courts and the wider criminal justice system certainly try to work hard and liaise with local authorities and local authority groups, and they will look at how they can improve that in due course.
The noble Lord asked whether we will publish data nationally. Under the transparency agenda we are publishing data on a national basis in relation to the courts programme so that the public can see local and national performance directly. If the noble Lord would like further details about that and how to access it, I am more than happy to write to him in due course.
I hope that has dealt with the noble Lord’s points. If it has, I beg to move.
Apprenticeships (Alternative English Completion Conditions) Regulations 2012
Considered in Grand Committee
My Lords, apprenticeships are synonymous with employment. It is the experience of genuine employment that sets an apprenticeship apart from most other forms of vocational training. It is the fact that apprentices have a unique opportunity to learn from one or more mentors and to develop, practise and hone real occupational skills which gives them a real head start in their careers. We all, I am sure, can envisage an apprentice working alongside the mentor or master, watching, copying and refining their skills. For his part, the master will demonstrate, guide and correct the apprentice’s work. Both apprentice and employer have a real stake in the apprentice’s development and success.
When this Administration came into office, approximately 21 per cent of 16 to 18 year-old apprentices were on a programme-led apprenticeship. This meant that one-fifth of our younger apprentices were not employed and did not get paid. Following the initiative of the previous Government to introduce statutory apprenticeships, we went ahead with that work and last year we stopped funding programme-led apprenticeships. The introduction of the apprenticeship agreement regulations in April of this year will end the few remaining programme-led apprenticeships. This means that we can be increasingly confident that apprentices following our statutory programme will be employed and remunerated.
However, this House agreed to make provision for limited exceptions to the requirement for apprentices to be employed. That is why we are here today—to agree those circumstances as specified in these regulations. This issue was thoroughly debated during the passage of the Apprenticeships, Skills, Children and Learning Act. The proposed exceptions fall into three categories, the first being where employed status is not the norm. This applies in a very small number of jobs or occupational areas. Apprentices in this category covered by the regulations will be engaged in specified occupations following a specified framework. A characteristic of such apprenticeships is that they will be supported by experienced colleagues involved in a collective venture— for example, share fishermen.
Secondly, there are those employed apprentices who are made redundant during the course of the apprenticeship. In such a difficult economic climate it would be unfair further to penalise people who have lost the opportunity to complete their apprenticeship through no fault of their own. Knowing that they can complete their apprenticeship, even if they are not able to find alternative paid employment, will, I am sure, offer some consolation. The regulations provide that they may complete their apprenticeship within six months of the date of their redundancy by working other than for reward—for example, by working in a voluntary or unpaid capacity. Having completed their apprenticeship, they should be better placed in the labour market.
Thirdly, we have considered the unique position of our elite athletes. Apprentices undertaking the Advanced Apprenticeship in Sporting Excellence with a view to competing in the Olympic, Paralympic or Commonwealth Games are covered by this final category. In the year of the London Olympics, we are reminded of how important it is to support young athletes to develop their skills. We have sought to ensure clarity over which sports and games are included in these regulations. They must be listed as an official sport from one of the Games mentioned and they must not be from a sport in which we would expect an apprentice to be employed. Such business sports include cricket and football. Apprentices in business sports will still be able to access apprenticeships using the standard conditions.
I hope that noble Lords will agree that these regulations balance the Government’s desire for apprentices to be employed with the need to allow for some flexibility in those circumstances where employment is not possible. That is what this House expects and it helps to enhance the quality of the learning experience by allowing apprentices to apply their blossoming skills as they work. This is also consistent with recent announcements introducing a minimum duration of 12 months for apprenticeships undertaken by 16 to 18 year-olds, and for adults unless they have prior relevant qualifications. I commend the regulations to the Committee.
My Lords, I am grateful to the Minister for explaining the reasoning behind the regulations. I reinforce again my commitment to apprenticeships, which are hugely important across whatever aspect of work people are able to secure. Apprenticeships are a wonderful way of learning. As the Minister rightly said, mentoring and the passing on of skills and knowledge are crucial in all this.
I apologise for not taking part in the Bill to which the Minister referred. Looking at Schedule 1, I was intrigued to see the fishing industry, which relates to the Minister’s background, listed. I rise to speak to ask for a little more clarification on that. One of the things that struck me was that the fishing industry, which the Minister knows so well, sometimes has restrictions on the days when it can sail. Therefore, I wondered whether there was enough flexibility for the apprentice to be able to complete their six months within six months or whether, under those circumstances—maybe because the ship cannot go out to sea—they could take a longer period. I am not being critical; it is because of my own ignorance that I am raising this particular issue.
Another question arises: if, for any reason, the person is made redundant for obviously commercial reasons, is that apprentice then able to transfer to another fisherman, for example, and reallocate the time that they have done already, or do they have to start afresh? I may have missed this when I was looking through the papers on this order, but I am not clear and I seek clarification.
I agree with the Minister that this is a unique opportunity. It is a shame that, over many years, apprenticeships have been perhaps underrated and undervalued. I am glad that the Government have taken up the role and are much more committed to encouraging and promoting apprenticeships. However, I seek clarification from the Minister.
My Lords, I too would like to thank the Minister for her explanation of the statutory instrument and I apologise for arriving late. The Committee moved on more quickly than I had anticipated.
I have two questions. First, am I right in thinking that these alternative regulations apply to relatively few young people? Given that this is an Olympic year, perhaps the numbers under Schedule 3 are rather greater than they might otherwise be, but the numbers under Schedule 1 are relatively small. On the issue of those made redundant, it will be impossible to tell because we do not know who might be made redundant. However, the total number of young people to whom these instruments might apply is relatively small.
The other thing to note, of course, is that these regulations are the result of an amendment that was carried when we discussed the Bill. At that point, we discussed at some length what would happen to those who were made redundant, and this has been put in specifically to make sure that there is a way forward for those who have more or less completed their apprenticeships. I am very pleased to see that. Perhaps the Minister could respond on the relative numbers in relation to the total number of apprenticeships.
My Lords, I too thank the Minister for her explanation. I make no apologies for repeating a number of questions and concerns expressed by my honourable friend in the other place, Mr Gordon Marsden, as we—the royal “we”—are still awaiting written responses from the Minister.
On the question of quality, I was looking at the report of the Eighth Delegated Legislation Committee and read through the Minister’s contribution. At one point, he said:
“There are those who feel that I have gone too far on quality”.—[Official Report, Commons, Eighth Delegated Legislation Committee, 17/4/12; col. 3.]
I do not think that we have gone too far on quality, even allowing for a certain amount of his ministerial flamboyance, as I would describe it, in a nice way. I do not question his integrity or commitment on this issue but I do think there is no room for complacency
I listened carefully to what the noble Baroness said in her opening statement, where she described a fairly traditional approach to an apprenticeship. I do not know if noble Lords had the opportunity to watch a recent “Panorama” programme on apprenticeships which showed, unfortunately, a significant amount of exploitation of young people, who were led to believe that they were going to get training from this particular subcontractor. There was little or no training whatever. It was in no way the kind of quality we should expect.
I know that the National Apprenticeship Service is probably still investigating this, but I refer to it to re-emphasise the point that the Minister talked about. It is not just a question of quantity. I have seen some of the figures and I welcome the increase in apprenticeships. I say to the noble Baroness, Lady Byford, that apprenticeships were certainly not underrated or undervalued by the previous Government. Our record speaks for itself. Indeed, we were frequently, and quite rightly, challenged on figures and on this question of programme-led apprenticeships, which is why in the end we excluded those and said, “Look, it is not an apprenticeship unless there is an employment connection and it leads to a job”. I do not know whether the Minister is in a position to comment on the “Panorama” programme—I do not necessarily expect her to—but I would welcome written confirmation that there is some investigation going on.
The categories described in the statutory instrument are well defined, as the noble Baroness, Lady Sharp, said, though there are not many of them. Given that we are talking about the category of self-employment, I do not challenge any of the occupations defined in Schedule 1. Like the noble Baroness, Lady Byford, I was interested in the share fisherman. At first I wondered whether it was a typo, but I decided that, as it was repeated more than once, it was not “shore fisherman”, it really was “share fisherman”, and that it related to the catch. However, I think that even though these are established practices, they ought to be carefully monitored to ensure that they are following a structured programme, so that quality is maintained and we avoid any exploitation. If we read the description in the Explanatory Memorandum, these are examples where people are not necessarily on a weekly wage. I am concerned; it is said that monitoring and review will take place, but I would welcome assurance on that.
In relation to the Sporting Excellence framework, again, that is something that we encouraged. I was reflecting on the career of Rebecca Adlington, who was one of our success stories. I do not quarrel with that or with the list of sports. I tried to look up what exactly boccia is—however that is pronounced—but I am not sure that I have got a grip on that one. However, we have defined it in terms of the Olympics, Paralympics and Commonwealth Games, and yet many young athletes are preparing and training for events such as the World or European Championships as well. These events are staging posts, if you like. The recent World Championships in swimming are a good example of that. Therefore, in terms of enabling young people to qualify for one of these sporting excellences—the words “with a view to competing in one or more of the following” have been used—would that include events like the World Championships if that was to be seen as a preparatory stage? I would welcome some clarification on that.
My last point is on the question of redundancies. Again, this is something that we had to deal with. We had significant numbers of young people who were only part way through their apprenticeships when they were made redundant—usually in the construction industry—and we managed to deal with significant numbers of them with the help of the Construction Industry Training Board. We usually managed to find them either alternative employment or, in some cases, they finished in further education training colleges. I would be interested to know—this was a question put by my honourable friend in the other place—whether there are any figures or statistics on the numbers that have currently been affected. If the Minister does not have the figures now, I would welcome a written response.
Although I have expressed some caveats, we are not opposed to the general thrust and direction of this statutory instrument and I am happy to support it. I look forward to the Minister’s response.
My Lords, I thank everyone for taking part and asking some interesting and important questions. It is not necessarily the number of people who are in the Room but the questions that they ask, as I have discovered before in the Moses Room. I am always very careful when I see that there not many people here. It is usually the ones who really know what they are talking about who are.
I thank my noble friend Lady Byford for her question and for noting that I come from the fishing industry and am therefore interested. In opposition she led on Defra, so she knows the subject very well. Only sea fishing is covered by the maritime occupations in these regulations, namely share fisherfolk, crew and deck hands. The numbers are small. There were 30 apprenticeships in 2010-11. There has been no demand to develop other types of fishing apprenticeship. Officials will explore the potential to develop this sector further with the National Apprenticeship Service and the sector skills councils.
When I was in the industry I first knew about share fishing when my grandmother left me my little fleet of fishing boats. The captains of the boats said to me, “We’ll be share fishing, then”. I said, “Oh, right”. That meant that I got half of whatever catch came up to pay for the boat, the oil and everything else that was needed, while the other half went to them. It did not work terribly well so I think that what share fishing means has changed nowadays, but that is how it was explained.
It is sad that there is very little demand for apprenticeships in fishing now. I am delighted to see that the National Apprenticeship Service will explore this, particularly since I am involved with the National Lobster Hatchery in Cornwall. There are other ways of being in the fishing industry, along the lines of research into what we used to call fish farming but is now carried out wild at sea. Certainly, in the lobster hatchery it is being done as a scientific project. That area has moved to what look like scientific apprenticeships but are about the fishing industry, which may explain why we do not have more figures than that. I will look into that for my own information and see if we can find a better answer in the future.
My noble friend Lady Byford then talked about the fishing transfer. As she suggested, a fishing apprenticeship would take place over a longer period, as required to complete the training. Six months applies only to redundancy. Those made redundant can transfer their apprenticeship to another employer. However, although a fishing apprenticeship is about going to sea and fishing, in my experience apprentices also spend time on the quay, learning how to look after their nets, selling their catch and learning how to grade their catch. It is not just about days at sea and seamanship but their workmanship with the fish that they catch and the things that they have to use. I hope that that is helpful; it certainly gave me the opportunity to get an answer as well.
The noble Baroness, Lady Sharp, asked about the numbers affected by redundancy. I am told that we do not collect data on this. Surveys tell us that less than 5 per cent of the total number of apprenticeship starts finish in that way. However, we are considering what measures to put in place to collect these data. I thank the noble Baroness for that question.
I come now to the noble Lord, Lord Young. I have a note here from an expert whom I know the noble Lord recalls from his days as a Minister, which says, “A written and, I expect, flamboyant response from John Hayes will follow. However, I will attempt to address some of your questions now”.
As to the “Panorama” programme, my honourable friend the Minister for Apprenticeships has commissioned a detailed investigation into the cases identified by “Panorama” and the National Apprenticeship Service will report in the coming weeks on its findings. We are committed to rooting out and eradicating poor quality wherever it is identified, continuing the work that the noble Lord, Lord Young, and his people did before.
As to the monitoring and review of these regulations, the National Apprenticeship Service works in partnership with sector skills councils and other sector bodies and keeps the need for exemptions under review. The regulations will be formally reviewed every 12 months.
We considered the World Championships with DCMS, but the thinking at the moment is that to include not formally recognised sports would be too open-ended. On balance, we have decided to restrict it to only Olympic, Paralympic and Commonwealth sports. I am sure that if the noble Lord, Lord Young, were to pursue this matter we would no doubt look at it again, if provoked.
All I was trying to point out is that this year is a good example because the World Championships were definitely a preparatory stage for the Olympics. Indeed, selection for the Olympics often depended on a person’s performance in the World Championships.
All I am making a plea for—I am not expecting this to be a negotiating session and for the Minister to say, “Yes, that is perfectly okay”, because I understand that there will be cost implications—is that it should be recognised that the Olympics come every four years, people prepare for them and that ought to be taken into account. For these sporting excellence apprenticeships, it depends how the phrase about working towards competing in the Olympics is interpreted. Perhaps the Minister will take that aspect away.
It is nice to see a wise adviser, who I remember from my days, still actively assisting the Minister.
I am sure that he has noted that.
I thank everyone for the time they have given and the contributions they have made. If I have missed anything, obviously they will have picked it up and we will take it back. There is clearly consensus on the underlying principle that apprentices must be employed. These regulations do not undermine that principle but, rather, they acknowledge that there are only a limited number of circumstances where we will accept that apprentices are not employed in order to complete their apprenticeships. Setting out those circumstances clearly in these regulations can serve only to ensure that the vast majority of apprentices will benefit from employed status and will help stamp out the ambiguity that has been a feature of the programme in the past. I commend the regulations to the Committee.
Committee adjourned at 5.44 pm.