To ask Her Majesty’s Government what actions they are taking to ensure effective treatment of diabetes in minority-ethnic communities.

My Lords, the Government are aware of the growing issue of diabetes in minority-ethnic groups. The NHS is taking a range of actions to ensure effective treatment. The recent publication of clinical guidance on type 2 diabetes by the National Institute for Health and Clinical Excellence identifies those at high risk and how best to manage the risk. It specifically mentions ethnic minorities and identifies pathways to ensure effective management.

My Lords, given that the worrying rise of type 2 diabetes among our ethnic communities is absorbing an ever increasing share of 10% of the NHS budget, which itself is shrinking for diabetes care, will the noble Earl institute an increase in the number of diabetes nurses, who are at the heart of communities, support the Diabetes UK campaign for ethnic-community champions and, finally, heed the advice coming from the dedicated research team at the University of Warwick that matching health professionals tutored in the cultural knowledge and understanding of our ethnic communities can give enormous benefits?

My Lords, I agree wholeheartedly with the thrust of the noble Lord’s question. As he will know, Diabetes UK has pioneered a programme of diabetes community champions from ethnic-minority communities to raise awareness of the condition in their communities. The Department of Health has awarded Diabetes UK a grant through the volunteering fund national awards for the programme to be rolled out across 12 English cities over the next two years. I gather that 111 community champions have already been recruited in London. This is exactly the sort of initiative that we need if we are to reach those who are most at risk of developing or, indeed, being diagnosed with diabetes.

My Lords, for many years, the Network of Sikh Organisations has been active in working in clinics in gurdwaras, or Sikh temples, to promote an understanding of health issues and to do checks for blood sugar and raised cholesterol. These tests and other health advice have been very effective. Will the Minister consider ways of giving impetus to such initiatives and perhaps extending them to other faith groups and centres in order to combat the evil of bad genes and the subcontinental taste for sweetness and sugars?

My Lords, I am aware of several local initiatives that are doing great work in accessing those in both black and minority-ethnic communities along the lines mentioned by the noble Lord. We have made important progress in strengthening our approach to promoting equality in health and social care and in tackling these inequalities that exist. That is especially important in relation to the Asian community. I am thinking in particular—the noble Lord mentioned the need to roll out initiatives—of the NHS Heath Check programme supported by the guidance on prevention issued by NICE and the Change4Life Programme, which now has a bespoke element to it targeted specifically at ethnic-minority communities.

My Lords, are separate statistics kept about ethnic groups? If not, would it not be an advantage to do so in terms of research, particularly as type 2 diabetes is very much dependent on diet and might be quite different in different sections of the community? What is the prevalence of diabetes in the ethnic community as opposed to other communities and what is the prevalence of type 1 diabetes as opposed to type 2 diabetes?

My advice is that type 1 diabetes is not a particular issue in ethnic-minority communities. We are talking about type 2 diabetes, which is five times more common in black and ethnic-minority groups, six times more common in south Asian ethnic groups, and three times more common in areas of social deprivation than in the rest of the population. There are particular clinical risks associated with those from ethnic minority communities who have diabetes. Complications include particularly heart disease—south Asian people are 50% more likely than the general population to die prematurely from coronary heart disease—and the prevalence of stroke is also much higher in African, Caribbean and south Asian men.

My Lords, can genetic problems be a cause? Are not exercise and getting fit an important part of stopping diabetes?

Exercise is recommended under the Change4Life programme and under the advice given by NICE. However, the noble Baroness is absolutely right to mention a possible genetic cause. The cause of diabetes is not fully understood and is multi-factorial. Healthy eating, weight control and exercise can help reduce the risks, but that is not the full picture. It is suspected that there is a genetic component in the case of black and ethnic-minority communities.

My Lords, I have some of the statistics that have already been mentioned. We now know that manifestations of diabetes are three times higher among the Afro-Caribbean people who came to Britain to assist after the war than among the majority population. We also know that deaths are three times higher and 40% are at a higher risk of morbidity, kidney failure and blindness. As a result, they really do put a higher cost on the NHS. Some who have returned home have to come back here for treatment because this is where they paid their way. I would like to know whether Her Majesty’s Government have really taken on board the NICE recommendations that health programmes should be culturally appropriate and that cooking guidance should be given and tailored to the needs of people and to what they eat at home. We believe that educators are necessary to inform sufferers of their needs, so that they can make a choice, not only about what they eat but also about how they prepare it. I ran classes for a group of people and I can assure your Lordships that there has been a change in the way they respond. If the Government have not taken up that particular part of the NICE recommendations, why not?

My Lords, the advice given by NICE makes 20 specific recommendations, many of which are highly relevant to the population group mentioned by the noble Baroness. She is absolutely right that there is a need to educate those in black communities about a healthy diet. There is a lot of work going on in that area, which is too detailed and complicated for me to mention at the moment, and in the area of self-education to enable patients to understand their own condition and to manage it better.

To ask Her Majesty’s Government what is the present number of inmates in the Military Corrective Training Centre; and what is the average percentage of inmates who are successfully returned to their units on completion of sentence.

My Lords, as at 24 July there were 101 detainees at the Military Corrective Training Centre, Colchester. On average, over the past five years 56 per cent have returned to their unit to continue serving on completion of their sentence. This demonstrates that the centre is very effective and enables the Armed Forces to capitalise on the training, investment and operational experience of those individuals being retained, which otherwise might be lost.

My Lords, I am most grateful to my noble friend for that very reassuring reply. Are there not some lessons to be learnt in this regard, maybe in the civil sector, but particularly by the young offender centres whose performance in this area is sometimes deplorable?

My Lords, I am grateful for the positive response from my noble friend. The programme of educational courses and military training that detainees undertake reinvigorates them with the military ethos. On return to their units, the vast majority go on to achieve promotion and to have a successful military career. Direct comparison with the civil sector is difficult because those in Her Majesty’s Prison Service have committed criminal offences, while the majority of those at MCTC have committed non-criminal conduct offences. However, last year 13% of detainees at MCTC had previously served periods of detention whereas some 90% of those sentenced in England and Wales in Her Majesty’s Prison Service had offended before.

My Lords, does the Minister not agree that the statistics are even better than that because quite a lot of people sent to Colchester serve time there and are then sent for discharge, so of those who are able to go back the percentage is even higher?

My Lords, the noble Lord makes a very good point. Indeed, the latest report from Her Majesty’s Inspectorate of Prisons is exceptionally positive and has graded the centre as good for its four tests of a healthy custodial environment: safety, respect, purposeful activity and resettlement—something that it very rarely does.

My Lords, I declare two interests: one as adjutant-general, when I was responsible for the MCTC, and one as Chief Inspector of Prisons. I visited the centre when the noble Lord, Lord Howard of Lympne, sent young offenders there under the mistaken impression that it was a boot camp. In fact the experience of being in a disciplined environment, particularly in the way that they were treated by staff, was wholly positive for those young offenders sent there. Is consideration being given to sending young offenders to the MCTC as part of their sentence, particularly if they want to join the Armed Forces and their level of criminality is not great? Armed with the experience there, they are more likely to have a proper career when they join the regular services after that. If they misbehave, they can of course always be sent straight back to custody.

My Lords, I am very sorry to disappoint the noble Lord but the answer is no. It has been the policy of successive Governments since 1963 that our Armed Forces are manned by volunteers. We have no shortage of applicants who have not committed any crime. In 1996, the Glasshouse was set up as a trial at MCTC for approximately 30 civilian young offenders aged 18 to 21. They underwent a military-style regime, including drill, physical training and room and kit inspections. In 1997 the Government ordered that young offenders tough enough to cope with this would be sent to MCTC, but the scheme was stopped in 1998. I understand that it was too expensive.

My Lords, there is so much sense in what the noble Lord, Lord Ramsbotham, said. Could not consideration be given to sending people from the Armed Forces to places such as the young offender institution at Brinsford in my former constituency? I am sure that many of those young people have given up hope. What they need is some discipline and some hope, and they could have those instilled in them at Colchester and elsewhere.

My Lords, my noble friend makes a very good point. However, our primary objective is to have a professional, volunteer Armed Forces.

My Lords, how many inmates of the Military Corrective Training Centre have been deported after sentence or at the completion of their sentence in the past two years? Of that number, how many have been charged and sentenced through the military judicial system rather than the civilian judicial system? What rights of appeal against deportation do they have, and to which individual or body?

My Lords, the Ministry of Defence does not track the numbers of deportations or rights of appeal. It is a matter for the Home Office. I will undertake to get these figures for the noble Lord and write to him.

My Lords, does my noble friend agree that comparing anybody in a civil prison with anybody in a military prison is very difficult because the overriding characteristic of people in a civil prison is probably that they are educational failures, usually having left education at the age of 14? That should be remembered every time we look at this.

My Lords, my noble friend makes a very good point. Our objective in the military is to get these guys and girls back as quickly as possible to carry on serving in the Armed Forces.

To ask Her Majesty’s Government on how many occasions since 2010 officials of HM Treasury received reports and recommended action on the operation of the K2 offshore loan tax avoidance scheme, and on tax avoidance generally.

My Lords, HM Revenue and Customs was investigating the K2 scheme prior to recent press articles. HMRC does not report operational details on the specific schemes to HM Treasury but advises if a change in the law is needed. Since 2010, action has been taken on 26 occasions to close down avoidance schemes by legislation. The Government are consulting on a general anti-abuse rule and on extending the disclosure of tax avoidance schemes rules.

I thank the noble Lord for that Answer, and I am sure that we will be returning to this issue later in the Session. On the second part of my Question, is it not true that tax evasion through the failure of United Kingdom citizens and foreign nationals to pay tax on rental income from private residential property held within the United Kingdom is costing the country millions if not billions of pounds annually? Is there not an argument for local authorities to be required to register all private rented property in their area, with declarations of ownership accessible by HMRC?

My Lords, the important broad picture here is that on the latest annual figures, those for 2010-11, HMRC collects approximately £469 billion a year. The estimated tax gap is 7.9%, a percentage that compares favourably with, for example, the USA at 14% and Sweden at 10%. Nevertheless, there is a gap of £35 billion and it is very important that HMRC does all that it can to close it, which is why it is prioritising this area in many respects. I hear what the noble Lord says about a specific issue and I will take his suggestion away, but I can assure the House that HMRC is prioritising it right across the board.

My Lords, does my noble friend agree that if Treasury Ministers wish to minimise avoidance and maximise revenue they should leave delivering moral guidance to the church and concentrate on delivering simpler, lower, flatter taxes as our manifesto promised?

My Lords, the lowering of the top rate of tax, for example, makes my noble friend’s point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing—or very little at best—in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.

Could the Minister just remind the House, further to the question from the noble Lord, Lord Forsyth, that tax avoidance is not illegal—that it is legal to avoid taxes—and that when individuals see the Government wasting a lot of their hard-earned money, they have a duty to avoid those taxes?

I can certainly confirm that tax avoidance is not illegal. I can also say, building on the figures that I gave before, that of the £35 billion tax gap, £30 billion is estimated to be evasion and a relatively small part, £5 billion, to be avoidance.

My Lords—

My Lords—

This side!

My Lords, could my noble friend tell the House what the annual cost is to the Exchequer of the tax breaks that this country gives to non-doms? Which other countries are so generous to their rich foreign residents?

I suspect that it would be very difficult to estimate the benefits of the non-dom tax regime. The principal benefit is that we derive an enormous amount of business and employment from the fact that this country is relatively open to non-doms, and those benefits we must retain while at the same time making the non-doms pay their fair share. That is why the annual charge of £50,000 has been introduced by this Government and why we are clamping down on areas such as avoidance of stamp duty. We need to strike the right balance.

My Lords, the House will have noted that the noble Lord who supports UKIP is in favour of rich people not paying taxes against a background of the nation expecting the Government to pursue a vigorous drive to ensure that those liable for tax pay tax. The Minister indicated somewhat complacently that at 7.9% the deficit is lower than in some other advanced countries. But would he indicate whether that figure has been going down since this Government came into office and whether he anticipates a better figure two years from now?

My Lords, the estimate of the tax gap in 2004-05 was 8.5% and it is now 7.9%. It still means that there is a tax gap of £35 billion, which HMRC will vigorously pursue. That is why only this week we made further announcements and consultations to make sure that aggressive tax schemes and the people who market them are targeted more effectively and why HMRC has reinvested £900 million of its spending in this spending round to target this area.

My Lords, is it not seriously damaging to social cohesion—and demoralising in the literal sense of that word—when some of the highly paid and some would say highly overpaid public company directors are paying a much lower rate of tax on their grotesque earnings than the lowest paid employees in their companies?

My Lords, what is important is that we have a tax system that is fair and which means that those with the broadest shoulders pay the most, which is exactly what the most recent Budget did, and that we have a tax system whereby in all parts of the earning scale people are incentivised to work. That is why raising the tax threshold on the way to our target of £10,000 is one component of making a real, radical change to the tax system in this country.

Can the Minister tell us how much revenue is forgone in consequence of higher-rate pension tax relief? Does he consider that either fair or useful?

My Lords, this is another area where we need to strike a fair balance. We need to encourage savings in this country; we need to get the savings rate up; and we need to make sure that people are incentivised to save for all eventualities, including their pensions. The noble Lord would be right to say that we and the previous Government have taken measures to ensure that there is a fair balance.

To ask Her Majesty’s Government what is the agenda for the Food Security Summit that the Prime Minister has called during the 2012 Olympic Games and who will attend.

My Lords, my right honourable friend the Prime Minister will host a major event on hunger during the London Olympics. He will bring together leaders of Governments, business and civil society organisations to galvanise global efforts to tackle undernutrition.

My Lords, I thank my noble friend for her Answer. I am sure that she shares my concern that recent extreme weather events in the United States, the Ukraine and lots of other parts of the world have meant that food prices are already spiralling in anticipation of food shortages. In the light of that, will she make her best endeavour to ensure that the summit addresses the issue that at the moment lots of perfectly good food stuffs are being converted into ethanol? We really need to move to second-generation ethanol production because the need of the poor to eat must be more important than the need of the rich to drive.

The noble Baroness is right that prices for maize and soya beans have now exceeded 2007-08 highs. It is too early to say how rising world prices will affect the poor in developing countries, because production for 2012 is still expected to exceed consumption. Regarding her point on ethanol, the Government are committed to ensuring that biofuel production does not jeopardise food security in the way that she indicates. Biofuels can, of course, play a positive role in promoting development, provided their production benefits smallholder farmers. The focus of the event in August is on child malnutrition.

My Lords, in the context where a malnourished child is eight times more likely to die than a child of normal weight, and where 3 million children are estimated to die of malnutrition every year, will the Minister undertake to look at the reports of our previous ambassador in North Korea, Peter Hughes, and our present ambassador, Karen Wolstenholme, who have reported on stunted growth, especially among children, in a country where 2 million died during the famine in the 1990s? Will she accept that, however much we may despise a particular ideology, it should be no part of our policy, or indeed that of the United States or other nations, to try to drive a country into submission by using food as a weapon of war?

The noble Lord is right to say that there is a very high level of malnutrition across the world, which has a terrible impact upon the health of children. That is why the Government have focused very much on trying to ensure that this issue is addressed. I take on board what he says about this report. I will make sure that DfID sees it, if it has not already done so; I should think it is highly likely that it has already. It is extremely important that we ensure that food—and support for the ability of people to feed themselves—is available worldwide, whatever the regime.

My Lords, in dealing with the challenge before us, does the Minister recognise how crucial the need is to support through both aid and trade agreements those smaller-scale ecological food production systems practised by millions of small-scale farmers and producers, many of them women, which currently deliver food for 70% of the world’s peoples? They could provide more, if properly supported and protected. They could not only increase availability of food and eliminate hunger but increase equity, create employment, build community and reverse environmental degradation. What assurance can she give that this important dimension of the problem of food security will be given proper consideration by those gathered for this summit?

The right reverend Prelate is absolutely right to emphasise the need to support those working in agriculture in their various countries. It is striking that 75% of the world’s population live in rural settings dependent on agriculture, and we are acutely aware that they are very vulnerable. People in developing countries spend 60% of their income on food, unlike in the UK, where the figure is about 10%, so one can see how vulnerable people are in these situations. We are targeting our support to try to help smallholding-farmer households and women in particular in those circumstances.

My Lords, will the summit look at the consequences of conflict on food security and, in particular, the fact that the consequences of conflict can sometimes have an unintended impact in neighbouring countries, as we see today in the Sahel region of west Africa? Is it possible for the summit to look at how we address these issues of conflict in the context of dealing with food security?

All these factors interlink. The fragility of some of these countries feeds into their problems in terms of food, and that is clearly the case in the Sahel, where the United Kingdom is supporting the feeding of 400,000 people. We are well aware of how these things interlink and I am sure that that will be part of the discussions at this event.

I welcome this initiative as an important part of the legacy of the Games, but is my noble friend aware that the number of obese people globally is approximately the same as the number of those who are malnourished, hungry or stunted? While the latter group is, thankfully, reducing in number, partly because of well-targeted aid, the number of obese people is growing exponentially, with enormous additional costs in relation to health and health services internationally.

That is why it is extremely important that we support education. That is what we do, as can be seen in, for example, Bangladesh. Although here we are addressing the need to reduce undernutrition, obviously the rise in the incidence of obesity that my noble friend has just flagged up is also a concern, although not among the same populations. It is extremely important that education is supported so that people can address both those areas.

That Lord Rodgers of Quarry Bank be appointed a member of the Select Committee in place of Baroness Thomas of Walliswood, resigned.

That the draft order be referred to a Grand Committee.

That the draft order laid before the House on 11 June be approved.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 18 July.

That the draft regulations laid before the House on 11 June be approved.

Relevant documents: 3rd Report from the Joint Committee on Statutory Instruments, 5th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 23 July.

My Lords, there are six quite complex statutory instruments here and my noble friends Lady Worthington and Lord Grantchester spoke to them in Grand Committee. Questions have been raised on a number of complex issues and I know that the Minister is always unfailingly courteous in responding to questions. I would be grateful if he could undertake to write to noble Lords to address substantive questions that were not answered. I also thank him for his courtesy in arranging for his office to send me an e-mail at around 10 o’clock last night announcing that a Written Statement would be made today on the renewables obligations banding review, which is generally welcome but there are a number of questions. The noble Lord will know that he is very popular in this House—on our side as well—which makes it all the more surprising that he chose to make a Written Statement and not, given that he is at the Dispatch Box today anyway, an Oral Statement, which we would have welcomed. I hope this is not going to be part of a trail of sneaky Statements being released. We would welcome the opportunity to ask him questions on this at the Dispatch Box.

My Lords, I noticed that the last three of these statutory instruments start with the words “Green Deal”. I wonder if I am being overoptimistic in anticipating that the Minister of State for Trade and Investment will come along and speak to one of them.

Well, I wish the noble Lord a very good Summer Recess as well. We had an extensive debate in Committee; the noble Baroness sadly was not available to be part of it. It was very satisfactory and as always I have responded in writing to the questions which sometimes, and almost often, I cannot answer. The noble Baroness knows I am committed to that and the process is in train. As to the Statement today, good news, which I am glad noble Lords welcome, should always be given at every opportunity so that everybody can go away for a wonderful Summer Recess and enjoy themselves with that good news.

My Lords, in that convivial spirit, can my noble friend tell me when this House will have an opportunity to debate the absurdity of too many onshore wind farms?

I guess my noble friend should just table a Motion for that debate. There have been plenty of opportunities in the last Session to discuss this subject. I am always delighted to debate it, as are all of us who have been involved in the energy side of things, and I look forward to him tabling a Motion.

My Lords, I welcome the Minister’s Written Statement today about the ROCs. We need to get on with that. It is an excellent declaration. I congratulate him particularly on making sure that we have efficient onshore wind power but that it is still financially viable for investment.

I was hoping to catch a plane; I think people knew it. I am very grateful to my noble friend and for all the support he has given during the last Session on energy matters; it is a civil partnership and the word “civil” is underlined.

That the draft orders and regulations laid before the House on 11 and 13 June and on 5 July be approved.

Relevant documents: 3rd and 6th Reports from the Joint Committee on Statutory Instruments, 5th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 23 July.

That the draft regulations laid before the House on 11 June and 4 July be approved.

Relevant documents: 3rd and 6th Reports from the Joint Committee on Statutory Instruments, 7th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 23 July.

That the draft order laid before the House on 11 June be approved.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 23 July.

That the draft order laid before the House on 16 May be approved.

Relevant documents: 3rd Report from the Joint Committee on Statutory Instruments, 3rd Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 23 July.

My Lords, the FCA’s objective to promote “effective competition” will deliver fully on the Government’s commitment to putting the consumer at the heart of the financial system only if there is no ambiguity about the FCA’s authority to tackle hidden and rip-off charges. The FCA can judge the effectiveness of competition only if it is explicitly required to take into account the ease with which consumers can identify and obtain services that are appropriate to their needs and represent good value for money. The amendment provides for that.

During the Commons Committee stage, the Financial Secretary argued that the FCA had,

“the powers and the mandate to intervene on matters of price and value for money, if the case to do so is made. It does not need bespoke powers”.—[Official Report, Commons, Financial Services Bill Committee, 1/3/12; col. 261.]

Unfortunately, experience does not reinforce such confidence. We are all too familiar with the industry’s willingness to mobilise its resources to mount a legal challenge to the regulator if ambiguity exists. When the OFT decided to investigate unauthorised overdraft charges, the banks challenged its ability to do so. Two years of uncertainty, nearly £1 million in legal fees and many other resources later for the OFT, the legal case eventually concluded with a ruling that the OFT could not assess the fairness of those charges. In respect of payment protection insurance, the banks put up a sustained legal fight before accepting that they had mis-sold a product to millions of people. The FCA ran up around £900,000 in legal fees when the industry asked for a judicial review into its judgment on PPI complaints. In the face of a powerful industry, the absence of bespoke powers may make the FCA reluctant to take action and could lead to successful challenges against the authority in the courts.

The FCA is not a price regulator but that must not be interpreted as a reluctance to act on charging structures. The FCA’s competition objective as drafted requires it to have regard to innovation, ease of entry to market, ease with which consumers can change providers and the consumers’ need for information to make an informed choice. As is so well documented, so many consumers struggle to process the information provided and there is a danger of too much reliance on disclosure and informed choice to protect the consumer, given the systemic imbalance in knowledge and understanding between consumer and provider—a view shared in Professor Kay’s recent report. Similarly, the financial needs of most people are probably pretty simple but the industry often sells the more complex products because they attract higher charges. This is not an argument against innovation but a recognition that more complex products give rise to the need to ensure that they represent good value for money.

The FCA’s authority will be strengthened by such an explicit reference in its competition objective. The public’s loss of trust following the litany of product mis-selling has to be addressed. Just look at some of those products. “Behind-the-scenes” prices reduce direct price competition as apparently low “headline” prices mask the true costs once ancillary charges, such as for unauthorised overdrafts or rejected transitions and default charges, are accounted for. Consumers need to be confident that once they have entered into a contract they will not be subject to any unexpected or nasty surprises. Which? recently published research which showed that banks’ fee structures are so complicated that even a maths PhD student found it virtually impossible to compare charges between banks and to calculate how much a bank charges for using an unauthorised overdraft. Some particularly toxic forms of payment protection insurance paid commission rates of 87% of the premium to the bank that sold the policy. That means that if a consumer pays out £10,000 on a PPI policy, £8,700 goes back to the bank in commission.

Some consumers who took out an equity release plan at the turn of the century now face substantial early repayment charges amounting to 25% of the outstanding loan. On an equity release loan of £200,000, the consumer could now face early repayment charges of over £50,000. More recently, in the sale of products to protect small firms taking out loans against rising interest rates, the FSA found a lack of clarity about the cost of stopping a product, failure to check whether a consumer understood the risk, and selling based on personal rewards rather than on the needs of those businesses. Time and time again we see products sold to consumers that are not value for money, do not meet their needs and take advantage of their lack of understanding.

Furthermore, consumer credit regulation is to transfer to the FCA, affecting a market for consumer and small business credit of about £270 billion, where vulnerability to high charges is a significant issue. The FCA’s competition objective will, I understand, apply to consumer credit products, which is another compelling reason for placing a requirement on the FCA to have regard to value for money.

Opacity and complexity in the pensions and savings market results in excessive charges, fuelled by the increasing subcontracting of investment activity to a lengthy chain of agents. Each has access to more information than the consumer, which helps them to maintain charges which deliver generous revenues for them and less real value to the customer. The recent plethora of reports on charges reiterates the evidence of a problem which we know has persisted for a long time and which the regulator has got to tackle.

The mathematics of an annual management charge is too complex for most savers. That charge is not a true statement of the total expenses ratio, and even that ratio excludes other hidden costs. As the noble Lord, Lord Turner, said in his City speech yesterday, there is far greater potential in retail services than in other sectors for producers to rip off customers. I beg to move.

My Lords, this is a very important amendment. It is important in its own right, but it also exposes what is fundamentally wrong with this Bill, which is that it is based on an economics model of the rationally informed consumer.

No one doubts that there are large numbers of rationally informed consumers out there, able to take optimal decisions, but a vast amount of research has been undertaken in recent years that shows that there are considerable numbers of consumers who are not best described as part of the rationally well informed model. Indeed, one can go further. I have seen research papers that show that even for what one might call brilliant consumers, the complexity of the instruments they are dealing with is so great that it would take them several years to do all the calculations required to make an informed decision. Therefore, what is wrong with this part of the Bill is its fundamental philosophy of the rationally informed consumer.

The other point to bear in mind is that the objective of the financial intermediaries that this applies to is not, in any sense, to be helpful to anybody. Their objective is to make money. What they are looking for are instruments, some of which are so complex—like CDOs, and so on—that you have to be a genius to understand what they amount to in the first place. There are several other examples of that that have got my head spinning.

What this leads us to is a matter that arose the last time that the Committee met and the subject of duty of care was raised. You will not find anything like that in this Bill or any of the philosophy behind it. What is required in the Bill is that everybody acting as a financial intermediary should be instructed that they have a duty of care. That duty of care should involve presenting information in a way that quite ordinary people can understand and pointing out the perils of all the mistakes that can be made.

I myself am not that rational a consumer in this regard. As for the idea that I would look at every bank and work out the optimal one that I should deal with, I take the view that there is more to life. If I end up paying rather more for any financial intermediation that I am involved with, I have to bear that cost because there are other things I want to do with my time. Then again, I am not badly off and I can afford to do that. But very poor consumers need something much more. I repeat that what needs to be in the Bill is the equivalent of a duty of care on the part of all financial intermediaries dealing with ordinary consumers and an acceptance of responsibility for what they are offering them.

My Lords, I support the purport of the amendment moved very effectively by the noble Baroness, Lady Drake, and supported entirely fairly by the noble Lord, Lord Peston. I confess that for 26 years I tried to deal with the British public’s legal problems as the legal eagle on the “Jimmy Young Show”. I suppose that I take a particular interest in the effect of legislation such as this on the ordinary consumer. There are a number of practices at large these days in what I call big business that leave the individual consumer way behind in terms of any fairness of dealing. The big battalions will call in aid lawyers, often paid on a conditional fee basis, and it is frankly terrifying if you are a small bloke and have a dispute with a large company. You will quickly be given the clear indication by the large company that if you do not buckle and pay up you will be crushed. I put that a little dramatically, but not much.

As it happens, I have been dealing with one of the large energy companies lately over a disputed electricity Bill. I have been astonished at the general tenor of the dealings and the way in which it so organises its affairs that if I were not an old fart of a lawyer I would easily have been overborne by its tactics and approach.

No!

I am glad to see that my noble friend doubts that I am an old fart of a lawyer, but I am—55 years in the saddle and still riding.

I appreciate that the Minister has, at all stages along the way, tried to protect the Treasury, the FCA and so forth against all these vague and difficult notions of fairness. Indeed, he might like to clarify in summing up whether he thinks that the ill to which the amendment addresses itself could be healed by the integrity objective. The amendment is to the competition objective, but the integrity objective could enable the FCA to take account of the matters raised by the noble Baroness, Lady Drake, in order to improve things. But I seem to recollect from one of the amendments in my name and that of my colleagues that the Government think that the integrity objective is not about fairness: it is about the mechanics of the system, if I can put it that way. I have the same general misgiving as the noble Lord, Lord Peston, and many others in the House, that the Bill does not address issues of fundamental fairness that affect ordinary citizens. I shall be very interested if there is any consolation that my noble friend can give.

I support the amendment in the name of my noble friend Lady Drake. JK Galbraith said a number of years ago in one of his books that there is nothing about money that the ordinary person of reasonable intelligence and diligence cannot understand. That proposition has been turned on its head by the financial services industry over the past 20 years or so, and now not many of us can understand it. Somebody mentioned CDOs. The noble Lord, Lord Smith of Kelvin, as an accountant, asked me, “Do you know how many pages are in an ordinary CDO, John? There are 350 pages”. Who can understand it? The ordinary person cannot understand it. Worse still, the people making it up cannot understand it. That is why we are in a financial crisis today. The core of this amendment is to rebalance the asymmetric relationship between the industry and the consumer. The Government have paid insufficient attention to that issue and it will come back and haunt the Government and haunt the political classes in the future if we do not pay attention to it and get it right.

I will give an example of my own. In 2005—the year of the general election, which I won in my constituency—I crashed my car, so I decided that I needed another one. I went into my then bank, Barclays, and asked for a loan. Although the counter staff were very courteous and offered me the loan, they also said, “Sir, we advise you to take out PPI—payment protection insurance”. I asked what the payment protection insurance was for. “Well”, they said, “if you become unemployed this could be paid out”. It was the Victoria branch. I pointed over to the Houses of Parliament and said, “Look, I’m in there for the next five years, whether I turn up or not, so my money is secure until the next general election. I do not need PPI. Thank you, sir”. I then received eight letters pointing out the folly of my mistake in not taking PPI. The lesson I learnt from that is that the industry knew that there was a problem. It knew that this was unsuitable for certain consumers, but there were good returns, so it kept on going.

Subsequently, the chairman of one of the major banks spoke to me confidentially, shook his head in amazement and anger and said, “With any product line which is getting a profit of more than 80%, surely someone should have asked the question: ‘Is this a product which is operating in a fair market? Is it doing justice to the people who are buying the product?’”. The answer, he said, was no, but the industry kept going. I was chairman of the Treasury Committee at the time. We referred it to the Competition Commission and then the OFT in 2005 and yet, three years later, the industry was still trying to sell it. I know from talking to some non-executives that executives were even bullying or trying to bully non-executives to maintain the product line—the combined rage of the consumers, the politicians and the regulators meant nothing to them.

This is all about imbalance, asymmetry of knowledge and value for money. The Government need to see this amendment as iconic in terms of that relationship and ensure that, before we get this on to the statute book, the consumer can at least start to get a fair deal.

My Lords, I very much support the spirit of this amendment; I will let my noble friend on the Front Bench answer for the technicalities. We have got ourselves into a position in which people do not trust the financial system and it is immensely damaging for us. It means that people cannot save in a sensible way; they do not want to expose their savings to what they believe to be a bad and unsafe part of the financial system, and with good reason. When one looks at what the banks have been up to, one just thinks that they have lost their sense of judgment as to what is right and proper and how things work in the long term. The things that have been going on at HSBC and Barclays pensions mis-selling, the problems with PPI and these extraordinary financial products which were sold to small businesses, all speak of a complete lack of interest in being trusted.

We must get back to a state where the financial system enjoys a proper level of trust. Otherwise, when people come to choose where to save their money, they will divert it into the likes of houses and push house prices ever further up. They will be tempted into deeply unsuitable investments because they cannot trust what is going on in the mainstream. That is all deeply undesirable. Getting back to us trusting them by the banks’ own actions will be difficult; they have blotted their copybook to such an extent. We are relying on the FCA to be an effective regulator and ensure that, if there are problems in the works of the likes of PPI, they do not go on for years, so that when they burst they are enormous headline issues affecting millions of people, but are picked up early and the banks are politely requested to mend their ways, perhaps without most of us knowing what is going on.

We need a regulator that is quicker and more effective at picking such things up early if we are to restore confidence in the system. We know that there are problems out there which have not been dealt with. There are pension funds charging 4% a year to people investing in them for managing the funds. That is a continuing iniquity which needs to be dealt with. The amendment is aimed squarely at such practice: at ensuring that what is offered to consumers, when one takes all the hidden charges into account, is fair and good value for money and that people are being invited to take proper decisions.

This is a valuable amendment in its spirit. If my noble friend can convince me that such provision is already in the Bill, I shall be delighted.

I strongly support the amendment moved by my noble friend Lady Drake. As usual, my noble friend Lord Peston spoke about the average consumer and the complexity of the Bill. I doubt that an average consumer will ever read the Bill. This is not an ordinary Bill. I do not pretend that the FSA was perfect, but we are now to have an FCA. I think it is in Clause 5—although that itself is not easy to find—but then it is in proposed new Section 1E. You and I may find that easy—I do not, because this is the most complex Bill I have read. I apologise, because over five years I introduced many complex Finance Bills—two a year on average—so I know about complex Bills and have dealt with them both in government and in opposition, but I find this one incredible.

The Bill is about the competition objective and helping the consumer. The amendment is modest. If the noble Lord, Lord Sassoon, is in a good mood—I see that he is not; he is shaking his head—he should look at the amendment to see whether it would do any harm to the consumer. I should have thought that it might help them. The consumer will not read it, but the new FCA would have to read it and be responsible for it. First, the noble Lord must be in favour of good value for money—he is nodding. The last phrase of the amendment is that it should be “good value for money”. It deals with,

“the ease with which consumers can identify”.

That cannot do any harm to the Bill and the idea of helping consumers. Even if the noble Lord is in a bad mood today, as he indicated, I hope that he will see the amendment not in principle but in fact. It is a very modest amendment asking for very little.

The noble Lord, Lord Sassoon, does not always answer my questions positively, but this one is simple. This is not my question but that of my noble friend Lady Drake in her excellent introduction to the amendment. Is the amendment going to do any harm to the Bill? Is it going to help the FCA to help the consumer? If the answer is yes, can the Minister say that he will at least examine the Bill, take the amendment away and look at it with a view to including it at Report? That is all I ask, and I am sure that that is what my noble friend Lady Drake asks. I hope that he feels in a better mood when he comes to reply.

My Lords, I also recognise the good intention of the noble Baroness, Lady Drake, in moving this amendment. However, I think that the FCA is best helped to help the consumer by having clear objectives and principles, or matters to which they must have regard in pursuing the objectives. I worry that this is becoming overcomplicated.

I also suggest that new Section 1E(2)(a), which states that the FCA must have regard to,

“the needs of different consumers who use or may use those services, including their need for information that enables them to make informed choices”,

overlaps substantially with the effect of the amendment. Furthermore, I am not sure whether it is a good idea to put in the Bill,

“services which are appropriate to their needs”,

and,

“represent good value for money”.

Those two concepts are not defined and may be interpreted in very different ways by different consumers. Who is to say what represents good value for money? The important thing, which has been much too lacking in recent years, is that we should have complete transparency. However, I would like to hear the Minister’s view on this.

I would also like to ask him whether the words,

“The matters to which the FCA may have regard in considering the effectiveness of competition”,

mean that the FCA is prohibited from having regard to other matters, or is this intended to restrict—or to broaden—the matters to which the FCA can have regard? If the provision is intended to broaden the matters, surely the best way is to leave it as simple as possible so that the FCA can use its own judgment in deciding to which matters it should have regard.

My Lords, the noble Baroness, Lady Drake, has made a powerful case for her amendment. I think that it is widely acknowledged that the needs of consumers require greater emphasis in the financial services industry as it moves forward, and I believe that that is why the consumer is being placed at the heart of the FCA. However, I am puzzled that the noble Baroness, Lady Drake, has chosen to put her amendment within the competition objective for the FCA. It seems to me that what she was talking about is quintessentially part of the consumer protection objective, which is in new Section 1C. A number of things are already listed within that consumer protection objective, including,

“the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved … and the capabilities of the consumers in question”.

It seems to me that if proper regard was paid to that in the development of the FCA’s policies, that would meet almost all of what the noble Baroness, Lady Drake, seeks to address in her amendment.

My Lords, I support my noble friend’s amendment and much of what has been said about it. I would also like to counter what the noble Lord, Lord Flight, said because the amendment goes much further than providing information to consumers.

Rather than the noble Lord remain in rather dangerous flight, I believe he means the noble Viscount, Lord Trenchard, does he not?

My Lords, I do. I was looking at the Marshalled List and saw the name of the noble Lord, Lord Flight, to the next amendment. I beg the pardon of the noble Viscount, Lord Trenchard.

When faced with issues of consumer care and consumer protection, the FSA, in its early days and for much of its time, tended to resort to stipulating the information that the consumer needed to be given. By the time that had gone through the corporate lawyers of the various banks and insurance companies, it amounted to five, six or sometimes 25 pages of close 10-point type, which was even more difficult for the average consumer to understand than it is for the average Member of the House of Lords to understand this Bill.

That is a very passive form of consumer protection and it is a very passive definition of customer care. The amendment attempts to put an obligation on the FCA to ensure that companies operating in this sector operate positive customer care, not simply passive provision of information which a large number of consumers cannot understand. To answer the noble Baroness, Lady Noakes, one reason why I believe that it is appropriate for it to be in the competition area is that when the FCA looks at where competition is succeeding, one of the measures of the proper outcome of competition that it considers is the way in which companies compete, as regards customer care, for their consumers.

Competition is not an end in itself. Competition policy and the enforcement of competition should protect and enhance benefits to consumers. One of those benefits is that the truly competitive company looks after its customers in a positive way and competes with its competitors in that regard. The passive provision of information is not customer care. This clause goes a significant way towards ensuring that customer care is seen as an objective both of consumer protection and of competition policy.

My Lords, along with most other speakers, I support the amendment moved by my noble friend Lady Drake. As I have argued in Committee before, it is no good having a competitive market for banking and insurance—not that we have one—if consumers effectively cannot enter the market, if they cannot identify what they need and if they cannot get value for money. As we have heard, all sorts of people find it challenging to know what services are suitable for them. How else could HSBC have sold bonds designed to be held for five and more years to 2,500 with an average age of 83? It is a little like people trying to sell PPI to my noble friend Lord McFall, or Barclay, HSBC, Lloyds and RBS mis-selling interest rate swaps to 28,000 businesses.

My hope is that Amendment 117 will give the FCA an explicit mandate to put a stop to unfair overdraft charges, excessive fees and complicated price structures, all of which hinder competition, which is probably why I think the amendment belongs within this area. The FCA has to be able to tackle hidden charges if it is to promote effective competition, given that, as we have heard, individual consumers simply cannot do this for themselves. If we, as consumers, buy a theatre or an airline ticket, there is a pernicious little booking fee—at least we can see it. I have just had to pay £2 on a £10 ticket to go to the Noel Coward Theatre, which seems a bit high. At least we can see such a charge and we can choose whether to pay it or not to go to the theatre, but that is not the case with bank charges.

A recent Which? survey found that 60% of those polled said that they paid what they felt to be an unfair bank charge and half paid a charge which they thought was disproportionate to whatever benefit they received. It is not clear, from the current language in the Bill, that the FCA will have the necessary mandate to tackle hidden charges. I know—and my noble friend Lady Drake quoted it earlier—that the Financial Secretary in the other place said that the FCA had,

“the powers and the mandate to intervene on matters of price and value for money”.—[Official Report, Commons Financial Services Bill Committee, 1/3/12; col. 261.]

The Financial Secretary argued that the FCA does not need these bespoke powers, given that it can take action under the competition and consumer protection objective. However, a Queen’s Counsel advised Which? that the current wording of the objective could allow the industry to challenge the FCA’s mandate to tackle hidden charges, which could lead to a repeat of those failed and expensive test cases to which my noble friend referred. Any such uncertainty would make the FCA very risk-averse; it would be reluctant to take action for fear of being challenged. Unless the FCA has a really clear, unambiguous mandate to tackle hidden charges, I can share its reluctance to be at risk of legal challenge from the industry. Therefore the Bill must give this power to the FCA; it is absolutely key to promoting competition. At present there is insufficient responsibility on firms to ensure that products are appropriate for the consumer in terms of meeting their needs, accessibility and reasonable value for money, as Consumer Focus argued to the Joint Committee. The Council of Mortgage Lenders said that the regulator,

“should have an appropriate degree of protection for consumers and should reflect a differential approach not only between market and retail consumers, but within the retail market itself”.

The amendment is simple; and can only promote confidence in the industry. Who, after all, could argue with appropriate services and value for money? Not even, I think, the Minister. We need to get back to trusting the banks and the pension providers, as the noble Lord, Lord Lucas, said. Therefore we trust that the Minister will accept Amendment 117. In the words of my noble friend Lord Barnett, it can do no harm; it can do good.

My Lords, this has been an interesting and wide-ranging debate to kick off today’s Committee session. I will deal first with the amendment on its own terms and then pick up some of the wider important points, although perhaps they may not be directly relevant to the key reason why I cannot accept it.

As we have heard, this amendment seeks to add a new have-regard to the FCA’s competition objective. I know that it has been promoted by the consumer group Which?. As we have heard, it drives at the same issues as a number of amendments discussed in another place—namely, that the FCA should have, in the words of Which?—which were quoted by the noble Baroness, Lady Hayter of Kentish Town—an explicit mandate to,

“put a stop to unfair overdraft charges, excessive fees and complicated pricing structures where they hinder competition”.

I agree, of course, with what lies behind this amendment. Consumers should have access to the right financial services and products; they should be able to buy in the confidence that they know what they are getting and what they are paying for. That must be clear and transparent; there ought to be no place in financial services for a culture where consumers are kept in the dark.

However, let me put on the record what the Government have said a number of times before—both in publications and during discussions in another place—which is that if the FCA finds problems in pricing, charging or in the ability of the consumer to obtain value for money that cause it concern, it will have the mandate and the powers to act. It has the mandate both under the effective competition and the consumer protection objectives, a point that has been made by a number of my noble friends and other noble Lords in this debate. It can apply its extensive regulatory toolkit in pursuit of price intervention, should it think it appropriate to do so. The FCA does not need new powers nor do its objectives need expanding. We simply do not agree with Which?’s legal analysis. Fundamentally, it is a narrow legal point.

Having said that, a range of important issues have been raised which I will spend a minute or two addressing. The noble Baroness, Lady Drake, in introducing this amendment, talked among other things about the OFT bank charges case. It is important that the Committee understands that the powers available to the FCA are far broader than those available to the OFT at the time of the bank charges case. The OFT was in fact relying on the Unfair Terms in Consumer Contract Regulations. I suggest it is incorrect to draw a line somehow between what the OFT was or was not able to do and what the FCA will be able to do, because the FCA has much wider powers.

In terms of what the FSA can do now and what the FCA might do in future, first, as we discussed in Committee on previous occasions, the FCA will have additional product intervention powers. The noble Baroness I think gave an example of a low headline price to attract new customers that is then offset by high ancillary charges. That is a very good example—and one that I might have given if challenged—of precisely the sort of situation where the FCA might well intervene and where the FSA has already begun to take a similar approach, as set out for example in its consultation paper on the mortgage market review. I do not think there should be anything between us there.

Looking more widely, I think the noble Baroness said at one point that the FCA “must” be required to have regard to ease of access to value for money. However, the amendment does not achieve this—it simply adds to the list of matters to which the FCA may have regard. Linked to that, I can assure my noble friend Lord Trenchard that the have-regards listed in this new Section 1E are of course not exhaustive. The FCA is not precluded from taking other matters into account in assessing the effectiveness of competition. That takes me to the point made by the noble Lord, Lord Barnett, where we would get into difficulties. The easiest thing would be to say, “I agree with the sentiment behind this, let’s put it in”. One of the arguments in favour of putting it in is that the FCA would be vulnerable to legal challenge if it is left out. However, as I have clearly stated, our legal analysis is simply different—I have not seen what lies behind Which?’s legal analysis but we disagree on that. If we were to go down the line of putting in a longer list of have-regards, we get more and more into the difficulty of suggesting somehow that the list is exhaustive and that the FCA cannot do things that are left off the list. Potentially, the more we add to the list, we risk getting into legal difficulties that we are not in at the moment, because the FCA will have all the legal powers it needs. The noble Lord, Lord Barnett, put it as a reasonable challenge, as he always does to me, but I think there is a danger in going down the route of this amendment.

I seek to help my noble friend. Regarding the language of new Section 1E(2), where it states:

“The matters to which the FCA may have regard”—

there is no danger of the kind he suggested in the amendment of the noble Lord, Lord Barnett. This is because there is the crucial word “include” at the end of the preamble to the new section, which states:

“The matters to which the FCA may have regard … include”,

paragraphs (a), (b), (c) and (d). That is a clear indication that this is non-exhaustive. One could therefore add a number of further provisions without endangering the ability to think more widely.

My Lords, my clear legal advice is that the FCA does not require this additional “have regard” and that there is, notwithstanding the wording to which my noble friend draws attention, a danger that if the list becomes longer and suggestive that it is intended to be exhaustive, that may give rise to legal challenge. That is the advice that I have received from the best legal advisers that the Government have to hand and it is all that I can say on the matter.

I want to wrap up this discussion by going back to some of the things that noble Lords have drawn attention to in new Section 1C on the consumer protection objective. The noble Lord, Lord Peston, for example, is of course quite right to say that some or the majority of consumers of financial services are not “rationally well informed,” to use his term. This is precisely why, among other things, new Section 1C(2)(b) refers to,

“the differing degrees of experience and expertise that different consumers may have”.

This is also why, among other things, we have discussed the important work of the Money Advice Service in improving the ability of consumers to make informed choices, which we will come back to. I therefore agree with the noble Lord’s starting position, but I suggest that the way to deal with it is not through this amendment. I could point to a number of the other provisions in the consumer protection objective which go to the heart of many of the concerns raised in this debate. Coming back to my fundamental analysis that the legal analysis on which this is based is, in the view of the Government, flawed, I ask the noble Baroness to withdraw her amendment.

I am full of despair because the noble Lord seems to have missed the whole point of what we are discussing. He keeps going back to technicalities, which is exactly the wrong way to view this matter. I think it was the noble Lord, Lord Lucas, who focused on why this Bill is a wasted opportunity, particularly in the way that it is being handled by Ministers. The real disaster that has hit this country is the destruction of the reputation of the financial intermediary sector. We in your Lordships’ House have a chance to do something about that. The way to do this is not to talk about technicalities and to say, “My lawyers say this, and your lawyers say that”. The way to do it is to place in the Bill a particular amendment—I do not really care where it is put. I will not object if the Minister does not like the wording as long as he makes the wording better. We have a chance to save the reputation of an industry which matters enormously to this country.

I find it very upsetting that in the last opinion poll I saw, the financial intermediaries had fallen nearly as low as politicians in terms of their public reputation—we can live with that because in some sense we do not matter. This is enormously important and I implore the Minister to listen to what his noble friend Lord Lucas said. We have a chance here to make a contribution to improve and, indeed, eventually save the reputation of a vitally important industry. This Bill simply does not do that, but it could. That is why I call it a wasted opportunity.

My Lords, we are in Committee and discussing a very specific amendment. I therefore make absolutely no apology to the noble Lord, Lord Peston, who raises extremely important Second Reading-type debating points.

My Lords—

I will not give away again to the noble Lord for a minute, if he will forgive me. We are discussing a very specific amendment. I have explained why I believe it is defective. The sentiment underlying that is completely shared by the Government: we do not believe it is necessary. The noble Lord raised matters which, although somewhat different, are also related to the capabilities of consumers. I have attempted to address a very serious point by pointing out that his concern will be at the heart, right at the centre, of the new regulatory body’s objective and thinking.

When it comes to his new point, which is not the one I was addressing before, about the standing of the industry, again, I completely agree with him. However, we are now talking about a regulatory structure. The Joint Committee of both Houses has been set up and will look very quickly at some of the wider questions of integrity and standards in the industry. This morning, I am trying to focus on the specific matter of this amendment.

My Lords, I find it almost impossible to cope with the way in which the Committee stage of this Bill has been handled. It is completely different to any other Bill which I have taken part in. My point was not a Second Reading point. It was germane to this specific amendment, to what lies behind it, and to the philosophy of it. The Minister’s absolute refusal to even say, “Some good points have been made and I would like to go away and think about them some more”, is what annoys me about this Committee. My experience with the Ministers that I have usually dealt is that when a good point has been made, they always say, “I will go away and think about it some more”, without making any promises. However, the noble Lord, Lord Sassoon, never says anything like that. I have not heard him once in five days suggest that there is anything wrong with this Bill, or that he would like to think again. There comes a point when one has to say that, in order that people know that their Lordships have rather high standards.

Does the noble Lord, Lord Peston, agree that the Government came forward with a package of very substantial amendments that have already been discussed in Committee? I refer the noble Lord to the number of government amendments that have already been laid and debated, and to the number of times in Committee when I have indeed said that I will look at things or have made concessions. I do not accept for one minute his statement about the attitude with which I have come to the Committee.

Can I suggest that the noble Lord does not get so het up? There are issues and principles here, and we want to tie them down. Looking at Amendment 117, if I am correct, it is for the FCA to include,

“the ease with which consumers can identify and obtain services which are appropriate to their needs and represent good value for money”.

This goes to the heart of consumer interest. Given the Minister’s position—and let us get rid of the legalese jargon—does he think that this Bill, in this area or elsewhere, ensures that the type of scandals which we have seen going on for years and years without being addressed will be nipped in the bud by the new powers? Will we see the FCA step in straightaway, without prolonged pain for both the industry and consumers? That is what is behind the amendment and the points put by Members.

My Lords, all I can usefully say is that while I believe that this amendment is well meant, it is based on a legal construction that the Government do not accept. The FCA has all the powers that it needs and there are some dangers in putting this amendment in. That is what we are discussing.

My Lords, perhaps I might respond to some of the issues that have arisen in the debate and in the reply from the noble Lord, Lord Sassoon. The Minister is arguing that the FCA has a sufficient mandate through the competition and consumer objectives, as drafted, to tackle these matters. My problem is that I do not share that confidence in the absence of the amendment to the competition objective that I seek. I accept his point that the FCA’s powers are much broader than those of the OFT, but with the bank charges case I was trying to illustrate the disposition of the industry to mobilise quite effectively if there is ambiguity in the statutory or regulated provisions. Rather than arguing whose legal advice is better, I was seeking simply to nail this issue by saying clearly that effective competition means that consumers have to be able to identify whether services are appropriate to their needs and represent good value for money. The lawyers could then argue as much as they like, but that provision of what effective competition embraces would be laid out in the Bill.

The Minister made too much of my use of “must” in my speech, rather than “may” as it is in the Bill. I am seeking not to challenge the word “may” but to establish with clarity that competition cannot be effective without it being value for money for the consumer. My amendment does not seek to establish a long list but it seeks to give clarity on a very important issue, which goes to the heart of what effective competition is. I think that 20 million people out there are with me, based on their personal experiences of the financial services sector in recent times.

In response to the noble Baroness, Lady Noakes, in my own defence I have tabled amendments to both the consumer and competition objectives. My noble friend Lord Whitty very ably answered the question in part. However, I am seeking an amendment to the competition objective because on this occasion, at the risk of repetition, I am trying to give clarity to the definition of effective competition in terms of the matters that the FCA has to have regard to which, I reiterate, is the ability of consumers to identify what is appropriate to their needs and represents good value. At the heart of my argument is that the FCA cannot judge effective competition unless it has regard to those matters. I feel they are so fundamental to a judgment of effective competition that they are worthy of being spelt out in the Bill as a matter to which the FCA may have regard.

On the market integrity point, there is consistency in my amendment in terms of what I am arguing in respect of both market integrity and the competition objective. My argument would be that a key characteristic of well functioning markets is that they can provide consumers with products and services having value for money. The wording of the market integrity clause does not address or mitigate my concern, hence the amendment I have tabled.

Before the noble Baroness withdraws her amendment, I wonder if I might take the opportunity to make a couple of points to my noble friend on the Front Bench. He has been saying that his lawyers are better than theirs, which I of course accept, but it really is not a matter for either set of lawyers. It is for the lawyers that the FCA will have when it comes into existence to interpret this Bill. One problem with the FSA is that the limitations it imposed on itself as to the speed and determination with which it has pursued some of these other problems have resulted in them ending up much worse than they might have been.

It would help if my noble friend was prepared either to say now or to consider allowing me to give him an opportunity to say on Report that the sentiments expressed by this amendment—indeed, the particular courses of action envisaged by it—are ones that he would expect the FCA to undertake on the basis of the powers that it already has in the Bill and that he would expect it to act quickly, as the noble Lord, Lord Peston said, to nip things in the bud rather than waiting until it is absolutely sure that it has identified the exact nature of the problem. In other words, it should be able to take swift and pre-emptive action. If nothing else, under Pepper v Hart this would give the FCA’s lawyers some comfort when they come to interpret the Bill in future.

My Lords, I briefly draw my noble friend’s attention to a couple of things that I have already highlighted this morning. First, there are the additional product intervention powers that the FCA will have, as opposed to those which the FSA has had. Those go to the heart of his concerns, because we are certainly not giving those powers to the FCA, and it is not receiving them, without an intention to use them. Secondly, I drew attention to the consultation on the mortgage review, which indicates a developing line of thinking that goes precisely to his points. The evidence points in the direction that my noble friend is looking for.

My Lords, I had come to the point where I was reserving this for Report and begging leave to withdraw the amendment.

My Lords, this amendment takes us back to social impact investments. In moving Amendment 118AZA, I also very much support Amendment 121A in the name of my noble friend Lord Hodgson; it is also in mine. However, I know that he will speak eloquently to that amendment so I ask noble Lords to assume my support in the interests of the time pressures that we have today, and I will confine myself to speaking to the first amendment in this group.

Again in the interests of time, I will not go through the issues that define why social impact investment is so important and so beneficial, yet it currently feels very constrained. That has been done already, very eloquently, by my noble friends Lord Phillips and Lord Hodgson, both of whom are in their places here today, so I will talk within the narrower terms.

I want to make two points about social impact bonds, which are the primary form of social impact investment under general discussion. These bonds are, by definition, small. If the sector develops as it hopes, the range typically will be £1 million to £5 million. The bonds are small because they deal with very specific, local social problems, which might include building new social housing within a particular community or the resettlement of prisoners from a particular prison. That small size is key to understanding the regulatory environment in which these bonds need to live and thrive.

Secondly, qualified investors are not likely to provide a very large market for social investment bonds. Certainly the one that has been offered in Peterborough for prisoner resettlement is indeed funded by qualified investors, but that will be a less frequent occurrence. The real market for these bonds is people who live in the community and whose primary objective in purchasing the bonds is social good, with a financial return being secondary. That is the market that has to be reached if we are to develop this sector effectively.

That brings me to the problem that is addressed by this amendment, which is Clause 21 of FiSMA on the financial promotions order that sits underneath it. Under these rules a financial instrument cannot, in effect, be marketed except by an authorised person. Under the order there are a few exceptions but they do not apply at present to social impact investments. To become an authorised person requires going through a process that costs some £150,000. We have talked directly with the FSA and the FCA, with independent financial advisers and with others who do structuring, and there is a general consensus around that number. In a traditional investment, which might include a fund for £20 million, £30 million or £40 million, £150,000 is nothing. However, for a bond issue of £1 million, £2 million or £5 million, £150,000 is a very large amount of money and effectively makes it impossible to develop the instrument and market it to the general public. Therefore the rules as they stand make it impossible, in practical terms, for social impact bonds to actually be marketed to their primary would-be buyers, who are the general public.

That strikes all of us, I think, as a real flaw in this legislation and it has to be tackled. We have the irony that a charity could come to any Member of this House and say, “We have a very good cause. Please give us some money to fund this cause”—no problem with that at all. However, if that charity were to go to any of your Lordships and say, “We have a very good cause. Please give us some money and, no promises, but I will try to get you back your original investment and maybe even a small return on it”, that is handcuffs at dawn; it is actually breaking the law. That is an insane situation in which to be placed, but it is where we currently sit.

I say to the Government, to the Minister and even to the Bill team that, since the Government themselves are considering whether they should enter the field of promoting social impact bonds, I would hate to see members of the Civil Service finding themselves serving at Her Majesty’s pleasure as the consequence of having promoted these kinds of investments. It is an anomaly, and we seek to address it by this amendment. I will not pretend that the amendment is brilliantly crafted, but our goal is to get the Government to sort this problem out before the law of unintended consequences has a severe impact. This rule is already inhibiting the development of this market for no good purpose. It needs to be dealt with promptly, and I ask the Government to consider this issue seriously.

My Lords, I proposed Amendment 121A in this group. I am grateful to my noble friend Lady Kramer for her support. She has covered some of the ground that I wish to cover, and I will endeavour not to repeat the very powerful arguments that she has made. My amendment proposes inserting into the Bill a new clause with a further consumer protection objective, as stated in its subsection (a), in situations where consumers are,

“engaging in investment activity … to benefit society or the environment”,

so it comes at the problem in a slightly different way.

As some noble Lords will know, I have just completed a review of the Charities Act 2006. My terms of reference, given to me by the Government, were widely drawn. One of them stated:

“Measures to facilitate social investment or ‘mixed purpose’ investment by, and into, charities”.

My report, published a week ago, ran to 159 pages and contained 130 recommendations, a large number of which—15 or 20 or so—were concerned with social investment. I think that there is a great opportunity here, as my noble friend mentioned, and we are in danger of missing it.

So far my noble friend Lord Sassoon’s comments on this, no doubt written for him by the Treasury, are disappointing. As my noble friend Lady Kramer pointed out, we have this counterintuitive situation where you can give money but you cannot invest it. As long as you give it away and cannot possibly get it back, you are fine. However, you cannot say, “I will give you this money. I might lose it but I might get it back, and I might get it back with a small incremental return”, perhaps linked to gilts. You cannot do that, which must be counterintuitive. As the Government seek to develop social impact bonds—covering school exclusion, prisoner reoffending, getting people back into work—where charities and voluntary groups can do better than the state, which is therefore prepared to share some of the savings with these very effective voluntary groups, it must be sensible for us to try to find ways to facilitate the flow of money from the private sector into these sorts of schemes.

As we said in earlier debates, this idea is at an early stage, and there are many challenges. The first, not least, is to find some corporate form that can encompass all the different strands of funding: the charity itself, other funding charities, the Government and the private sector, which subdivides into corporate investors and individual investors. All these have different timescales, different legal requirements, different tax structures and different objectives. It is on the last of these—in particular, the objectives of private individuals—that I think we should focus and that my amendment seeks to focus.

Research suggests that if people could invest relatively modest sums—say, £500 or £1,000—in a social investment proposal with which they sympathised, with the possibility of getting their money back but no certainty, and perhaps with a modest incremental return, it would attract substantial support from across our society. One would hope that successful operators in this field might create a record of success that would enable them to raise larger sums of money and provide increasing services in the future.

My Lords, I support totally the tenor of the amendments in this group, which have been so well spoken to. I add some practical examples of where I believe that these amendments or amendments like them would be of immense social utility. It is generally accepted that community life in our dear land is breaking down everywhere. At the same time, there is a general perception and I think agreement that anything that can be done by a community or a group within a community to shore up its social assets is doubly valuable against the background. For example, a local scouts organisation might want to build a new hut; a local sports club may want to build a pavilion or buy some boats or a bus to take teams away; or a local amenities society may want to improve a local building or acquire one. A local church might want to do something. One can go on and on. Local organisations every day of every week in every part of the land want funds to do something that they all agree would be of great benefit to that community. At present, the regime that my noble friend Lady Kramer so vividly described is a complete road block against having a general appeal to the community to chip in perhaps £10, £20 or £100—it need not be £500 or £1,000.

What is needed is for my Government to be imaginative enough, although I realise that the Treasury is not the homeland of social imagination, to see that if we could amend the arrangements provided for by this Bill, realising that one size does not fit all, we could unleash an unpredictable but extraordinary outpouring of funds. Many will be reluctant to give but much readier to lend, even though they appreciate that the basis on which they lend is somewhat uncertain. As my noble friend Lady Kramer said, the upfront costs of having to comply with the present regime are simply prohibitive. She mentioned social impact bonds of £1 million to £5 million, but I am talking about appeals of £50,000.

The value of those small local appeals, which can be met by people lending in small amounts but large numbers, is double. They provide badly needed social facilities and, in the process, bring the community together and give them the sense of achievement. They shore up community and are of inestimable public benefit. My noble friend the Minister has had a horrendous job steering this Bill through its stages and has dealt with it in an exemplary fashion. I hope that the Government will think again over the two next months and come back in the autumn realising that they have to make major concessions on this part of the Bill for the good of us all.

My Lords, I hope to set a precedent whereby the commitment of our Benches is not necessarily proportionate to the length of the speech. I support the amendment in the names of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer. Social enterprises are businesses that trade to tackle social problems and improve communities, people’s life chances or the environment. They make their money from selling goods and services on the open market and reinvest their profits back into the business of the local community. When they profit, society profits. We believe that Amendment 118AZA would contribute to their formation and therefore we support it.

On our Amendment 128AA, in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter, we believe that given the consensus in at least part of this Chamber that social investment is a good thing, it would be appropriate for the FCA to have a social investment panel that would sit alongside the small business and market practitioners and consumer panels. The FCA would have a duty to consult. The panel would represent the interests of organisations that specialise wholly or mainly in social finance or investment. Today’s debate has shown that if we can persuade government to go into this area it will be complex and will need an appropriate panel to help to develop the regulations around it.

My Lords, I support the common sense of these amendments. However, charities are regulated by the Charity Commission. Although one hopes that all these social endeavours are extremely honest and properly run, it is important to be clear about what charges are involved, and that the people organising them are fit and proper people. There is a very real issue to address here. It would be fine to say, “Here is a green light. Be an investor like a sophisticated investor”, but behind this territory lie quite big issues concerning good conduct.

My Lords, we have already, quite reasonably, spent considerable amounts of time discussing issues of social finance and social investment. I want to reiterate, at the start of my response, that I do share the aims of those who wish to nurture the social investment sector and see it grow. I am pleased that there are plans for some of the noble Lords who are interested in these matters to have a discussion with the Bill team over the recess. I am happy to encourage that to happen. There are a couple of other ways to address this issue, which I will refer to as I proceed. So I hope that the Committee will bear with me for a moment or two. I will explain why I think that Amendment 118AZA and Amendment 121A are not appropriate; but there is another channel as well as further discussions between me and the Bill team where it might be possible to make some progress during the summer on practical steps. So I ask noble Lords to bear with me for a couple of minutes.

I am, of course, aware that my noble friend Lady Kramer had a meeting with the FSA on this matter two weeks ago, which she was good enough to tell me about. Those discussions informed Amendment 118AZA. I completely agree that if we are to help social investment grow we must make it possible for social investment vehicles, and in particular smaller schemes, to market themselves. I take her point about costs. In parenthesis, when my noble friend Lord Hodgson of Astley Abbotts talks about the costs being high, they are high. I do not challenge the numbers of my noble friend Lady Kramer but when my noble friend Lord Hodgson of Astley Abbotts talks about the prospectus directive and half a million pounds, we are in the territory of listed investments, which are rather beyond the sorts of investment fund we want to target. I am sure he wants to target them initially, but I accept the costs are high.

The effect of this amendment and why I cannot support it is that it would have the effect of making all financial promotions that relate to social investment exempt from all the requirements placed on firms and investment schemes, about how they can market their products and investments. I agree with my noble friend Lord Flight that we need to be careful. An essential component of a successful financial services sector, as came up in the discussion of the previous group, is that of trust. We already know what a huge job there is for the sector to rebuild trust. We do not want to undermine trust in the social investment space, because an advertisement or a financial promotion might well be the first point at which matters go wrong if a consumer buys a product or service on false or misleading information. So we do have to make sure that the marketing of financial services is regulated; that financial promotions are clear, fair, and not misleading, whether they are related to social investment or to any other product. In particular, we want to make sure that unscrupulous providers do not see some wide exemption in this area as a loophole—my noble friend is nodding in agreement. We must ensure that there is not a loophole to exploit consumers by offering products around claims of social purpose and getting around the rules. We need to be careful about that, because that will undermine the sector.

I am extremely grateful to the Minister for suggesting that we might be able to make some progress over the summer. His example of an industrial and provident society underlines exactly the point we are making. That is one of the areas that falls between the stools. At the moment it is neither a charity nor a proper regulated body, and this is exactly what we are trying to get at. We are trying to get our arms around this space in a way for which the present regulations do not provide coverage as regards the IPSs.

I entirely accept that. However, the effect of these particular amendments would be to take away all regulation and protection. We certainly do not want to go from the current situation, which it appears people are already seeking to exploit, to one where merely because the apparent purposes of the investment were perfectly worthy and the overwhelming majority of promoters would obviously be people of the highest standing, others would be allowed to fly under their banner.

My Lords—

Perhaps I may make one other point and then I will let my noble friend in. My noble friend Lord Hodgson mentioned the exceptions to the financial promotions order for sophisticated persons. Although I should not discuss the advice I gave Ministers in my previous life as an official, all I would say is that I am extremely familiar with the construction of that order in that particular respect. In my view, Ministers at the time made a very wise decision about that particular provision. I do have form, as it were, in this space. I encourage practical ideas for amending, which will be seriously considered, and although it is not easy to amend the financial promotions orders as regards the Red Tape Challenge, Ministers will look at them. Specifically, Amendment 121A is not needed in order to make that happen.

In his final remarks, my noble friend pre-empted what I was going to ask him, which was to confirm that it is not beyond the wit of this House to take account of the very proper points he raises and, at the same time, to take account of this big, potentially vital sector of social investment. However, I think that he has already impliedly agreed with that.

I have drawn the Committee’s attention to the opportunity that exists at the moment, and of course the Red Tape Challenge is a cross-government initiative. No. 10 and others take it very seriously; it is not simply a Treasury matter; and it goes with the wider drive in this area. I shall leave it at that.

I should say just a little about Amendment 128AA. I do not believe that the FCA needs to have a dedicated panel for representatives of social investors. As the FSA’s panels already do, the FCA’s panels will advise on a wide range of policies and regulations from a broad range of perspectives, and I do not believe that it is necessary or proportionate to establish another panel, at additional cost, purely to represent the interests of social investors and social sector firms. Social sector organisations will be able to feed in their views through public consultations. The interests of socially oriented financial services firms can be adequately represented by the Practitioner Panel and Smaller Businesses Practitioner Panel, and many of the FSA’s Practitioner Panel members belong to firms which are involved in social investment.

However, again in the spirit of wanting to be helpful in response to the amendment, and accepting that the interests of smaller specialist firms also need to be appropriately represented, I have sought and gained assurance from the FSA that from now on it will approach trade associations which represent social investors, such as the UK Sustainable Investment and Finance Association, asking them to put forward nominations to the Smaller Businesses Practitioner Panel. I hope that that will give additional reassurance to the noble Lord, Lord Tunnicliffe, about the approach in this area. Given all that, I ask my noble friend to withdraw her amendment.

My Lords, all of us in this House wish for that sort of reply from my noble friend, although some of us are not so lucky. I am sorry that the noble Lord, Lord Peston, was not present to hear that so that his scepticism on this matter might have been calmed. It was indeed an excellent reply from my noble friend and I very much hope that my colleagues will be able to take advantage of it.

Perhaps I may draw my noble friend’s attention to an organisation called lendwithcare.org, which is an excellent example of how to do things right in this area. It is concentrating on micro-lending in the third world but the pattern it follows would fit very well the sort of projects that my noble friend Lady Kramer and others have outlined. It takes proper steps to make it absolutely clear to those who lend that there is a serious chance that they will never get back any money. That is crucial. There is far too much opportunity here to induce in those who sell something as a loan the idea that they have a reasonable chance of getting their money back, and that can be very dangerous in unregulated investment.

I join in thanking the Minister for a very positive reply. It sounds as though we have real hope of making progress in this area. I very much appreciate the process that the Government have gone through to get to this point.

I also appreciate the comments of my noble friend Lord Phillips. I read into them that, with his legal-eagle mind, he and some of his colleagues may now be turning to this clause and to this area of the legislation to work out an amendment which, if properly drafted, could both address the issues which I, together with my noble friends Lord Hodgson and Lord Phillips and others, have raised and cover the absolutely fair and relevant point made by the Minister, which is that we have no wish to expose people to scams or to create an opportunity for this to be used as a back door to taking unfair advantage. That is extremely important.

Feeling very positive about all these issues, I beg leave to withdraw the amendment and I look forward to the summer discussions.

My Lords, I beg to move Amendment 118F tabled by my noble friends Lord Eatwell and Lady Hayter. I assure the Committee that, as time is pressing, this contribution will be brief. We are rather more interested in the Government’s response at this stage, which we hope will be as positive as their responses have been to the last few amendments, and I hope that I can ride that happy tide until lunchtime.

The Bill defines financial crime as including an offence involving,

“fraud or dishonesty … misconduct in, or misuse of information relating to, a financial market, or … handling the proceeds of crime”.

We wish to add to that list money-laundering and the financing of terrorism. It will be evident to all noble Lords why we should put the emphasis on these two issues at present.

There was cross-party agreement on terrorist asset-freezing during the passage of the Bill passed at the beginning of this Parliament. It had a considerable genesis in the work which Labour Ministers had done in the previous Government but the Bill was taken through by the Conservative Government and of course we fully supported it so that it became an Act. The Act’s purpose was to continue the asset-freezing regime that we had previously sought to put in place. Of course, this amendment is moved two days after the allegations of money-laundering activity at HSBC made in a Senate committee hearing led to a matter that has exercised this House over the past couple of days—that is, the position of the Trade Minister. I do not want to dwell on that—it is something to be dealt with on other occasions—but the issue is clearly pertinent, and terrorism is bound to be at the forefront of all our minds against the backdrop of the enormous security arrangements which we are obliged to make for the Olympic Games.

The Bill seeks to define financial crime and lists three categories of crime, which I am sure the noble Lord will say are not meant to be totally exhaustive. However, the list surely ought to contain the two issues to which I have given expression and which are contained in the amendment. Why refer to fraud and dishonesty but not to money-laundering or the financing of terrorism? I am sure that the Minister has thought about these issues deeply and will have a convincing reply. However, it may just be that on this occasion he will say that he will consider the matter further and that we can come back to it on Report. I beg to move.

My Lords, I can be brief on this. As the noble Lord, Lord Davies of Oldham, has explained, the amendment seeks to add money-laundering and the financing of terrorism to the list of matters that are considered to constitute financial crime. First, I should make it clear that the FSA is already able to take action in both these areas because the definition here is broad and the list of matters is indicative and not exhaustive.

On the issue of money laundering specifically, financial crime is defined as including the offence of,

“handling the proceeds of crime”.

Money laundering is plainly part of that—it is one way in which a person can handle the proceeds of crime—so there is no need to list it separately in the Bill.

Turning to the next part of the amendment, it struck me as somewhat odd that the definition of financial crime did not list as major an element as terrorist financing. It seemed a strange omission. I did a bit of research and actually the definition, which is picked up in the draft Bill, stems from FiSMA, the previous Government’s Bill drafted in the late 1990s. I do not intend to be critical of the drafting of the previous Bill but it was drafted when terrorist financing was not as significant a concern as it has since become. I think it would be a good thing to include terrorist financing in the non-exhaustive list in this Bill. The world has moved on. I can confirm that we will consider whether and how to amend the Bill on Report to include terrorist finance in Section 1H.

I am sorry that the noble Lord, Lord Davies of Oldham, seemed to think that I would not pick up his excellent suggestion that we have a look at this again. I am very receptive to all good ideas from the Committee, big and small. I am very sorry that the noble Lord, Lord Peston, is not in his seat because this is one of many concessions and willingnesses to listen to arguments. I should make it clear that I cannot promise that I will continue in this end-of-term spirit for the rest of the day. Even though this will make no substantive changes to the duties and objectives of the FCA, I am grateful to the noble Lord for drawing it to the attention of the Committee and I would ask him to withdraw his amendment on the basis of the assurance I have given him.

My Lords, there is a character in “Cabaret” who expresses herself with “I am overwhelmed,” and that is the only phrase I can think of that is apposite at this moment. I am very glad that I am able to catch the Minister in his wonderfully benign mood. If he can just sustain it to the end of the day we can probably deliver this part of the Committee stage by 7 pm. He has given warning that not all amendments will commend themselves to this extent but I am glad that this one has. I am grateful for his response and I beg leave to withdraw the amendment.

That the draft scheme laid before the House on 2 July be approved.

Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 8th Report from the Secondary Legislation Scrutiny Committee.

I shall speak also to the draft Victims of Overseas Terrorism Compensation Scheme 2012.

Our vision for the criminal justice system is that it is able to respond in a flexible way to the needs of victims and the communities it serves. This must include proper protection and support for victims to help them recover and to overcome the effects of crime. In some instances, financial assistance will play a part in this recovery process. Successive Administrations have grappled with these schemes. Our system of criminal injuries compensation goes as far back as 1964 when awards were made on the basis of common law damages. When the then Home Secretary, Michael Howard, broke the link with common law damages some 30 years later by introducing the first statutory scheme, based on a tariff of injuries, it cost the Government £179 million a year, or more than £250 million at today’s prices. The previous Administration sought to reform the tariff scheme in 2005 by refocusing payments on the most seriously injured and removing less serious injuries. In the end these proposals were never implemented.

We are still resolving claims from before 1996 that were made under the pre-tariff system. When this Government came into office there were estimated liabilities of nearly £400 million. This Administration are now tackling this and are allocating funding to cases so that awards are paid as these remaining cases come to an end. Last year about £237 million was paid in such cases. A total of £449 million was paid in compensation last year—the largest ever in a single year—after the Criminal Injuries Compensation Authority was provided with additional funding. This includes payments to cases under the current scheme and also to pre-tariff cases.

However, despite this cash injection, total liabilities currently stand at around £532 million. This includes an estimate of the cases that are likely to fall due in the future but have not yet been lodged with the Criminal Injuries Compensation Authority. It also includes the remaining rump of pre-tariff cases. Nevertheless, with new liabilities arising at around £200 million each year under the 2008 scheme, this simply is not sustainable in the current economic climate. The revised domestic scheme will focus, as the Government were considering focusing in 2005, scarce resources on those victims most seriously affected by the injuries they suffer as a result of deliberate, violent crime committed in England, Wales and Scotland. This is part of a long-term aim to put this scheme on a more sustainable footing.

We envisage that the cumulative effect of these changes should help deliver savings of an estimated £50 million a year to the taxpayer. This does not mean we are reducing the overall spend on victims. The Government are committed to substantially increasing the amount offenders contribute to victims’ services. In England and Wales, we intend to raise up to an additional £50 million a year through the victim surcharge and other financial impositions, investing this money in support services for victims.

The noble Baroness, Lady Royall of Blaisdon, will speak to her amendment shortly but I would like to make it clear that our proposals will protect injury payments to victims with the most serious injuries. In addition we are protecting payments to the bereaved, to all rape victims, to victims of any other sexual assault and to those, including victims of domestic violence and children, who are subjected to a repeated pattern of abuse. We are removing payments from those with less serious injuries.

The additional money that we will raise from offenders will be used to pay for new services for victims. We believe that it is much better to use this money quickly to support victims who are trying to cope with the impact of crime than to give people small amounts of money for minor injuries some time after the event.

Noble Lords will have seen a number of briefings about the reforms to the scheme including on behalf of postal workers and shop workers. I want to acknowledge the valuable job that these people do, often in very difficult circumstances. However, as with any other applicant to the scheme, if their injuries are sufficiently serious they will still be eligible and I hope that the additional services funded by offenders will better support those with minor injuries.

We have listened to those who responded to our consultation and have made changes to some of our proposals as a result, as set out in the Government’s response. Notably we have changed our original proposals relating to payment for those with criminal convictions and to establishing a connection to the UK.

Let me make the House aware of the changes that we are making—first, on eligibility. Eligibility is tightly defined in the draft scheme so that only those direct and blameless victims of crime who fully co-operate with the criminal justice process may obtain compensation under the scheme. We will continue to pay secondary victims under the scheme in certain circumstances. Applicants will need to be able to demonstrate a connection to the UK through one of a number of factors, though as a result of consultation responses, we have removed the original requirement that an applicant be resident in the UK for six months prior to the incident that led to their injury. Bereaved relatives of victims who die as a result of their injuries will also continue to be able to apply as long as they meet the revised eligibility criteria. Those with unspent convictions will not be able to claim if they have been sentenced to a community order or have been imprisoned. Those with other unspent convictions will be able to receive an award only in exceptional circumstances. This is a change from the options put forward at consultation, following comments made by respondents. These changes to eligibility are in line with the core purpose of the scheme of compensating blameless victims of violent crime.

Secondly, on the tariff, we want to strike the right balance between protecting the most seriously injured and making reductions to the overall cost of the scheme. So tariff payments will be available only to those most seriously affected by their injuries and for those who have been the victim of the most distressing crimes. What this means in practice is that bands 1 to 5 of the current scheme have been removed; bands 6 to 12 have been reduced; and bands 13 and upwards—to band 25—are protected in their entirety at their current levels. Tariff awards for fatal cases, sexual offences, patterns of physical abuse and loss of a foetus are also being protected at their current levels—no matter where they currently appear in the tariff. As a result of a consultation response from the First-tier Tribunal we have also broken down some of the payments made for degrees of paralysis with the aim of ensuring that we avoid both over and undercompensation in these very difficult cases.

Thirdly, let me turn to loss of earnings. These payments do not currently reflect actual loss for all applicants, being capped at a salary of one and a half times the median gross weekly earnings but already making up a significant proportion of the costs of the scheme. The new calculation will be a flat rate based on statutory sick pay which should be simpler to administer. Payments will no longer be subject to deductions for benefits. These payments will be available only to those who can no longer work or who have very limited capacity to do so, in line with the focus on those most seriously affected by their injuries.

Fourthly, there are no major changes to these special expenses payments. They will continue to be available for the same categories as under the current scheme, with the exception of private healthcare. We chose to retain these payments because they are generally awarded to those who suffer the most serious injury. However, we have made it clear that the scheme should be one of last resort in relation to special expenses, and that payments will be made only if the claim is reasonable. Fifthly, with regard to payments in fatal cases, we are protecting the awards for bereavement and parental services payments. In the interests of consistency and fairness, dependency payments in fatal cases will be made in line with the revised plans for loss of earnings. The scheme can never compensate someone fully for the death of a loved one but we believe that some financial compensation is appropriate in these cases. Reasonable funeral payments will be made up to a maximum of £5,000.

Finally, I turn to the process. One of the aims of this reform is to make the scheme easier for applicants to understand. For the first time the evidence required to make a claim is being put on the face of the scheme. We are tightening the circumstances in which the authority will meet the costs of obtaining medical evidence and reducing the timescales for submission of review and appeal applications.

As an amendment to the above Motion, at end to insert, “but that this House regrets that, despite the Government’s claims to be on the side of victims, this scheme would actually cut financial compensation for an estimated 92 per cent of victims of crime, many of whom will be considerably worse off through no fault of their own and will find redress much more difficult in the future because of cuts to legal aid; and also expresses concern over the ability of the Government to levy a substantial surcharge on offenders”.

My Lords, I will also speak briefly to the draft Victims of Overseas Terrorism Compensation Scheme 2012. I am grateful to the Minister for his presentation of the two draft instruments before us. I am also grateful to the Association of Personal Injury Lawyers, the trade unions—USDAW and the CWU—and the Association of Convenience Stores for their excellent briefings, all of which expressed deep concerns.

The Minister said that we needed a system able to respond to the needs of victims, and then he made it sound like a very reasonable step to cut £50 million from the criminal injuries compensation scheme. He did not say so, but I suggest that the catalyst for the proposed changes is the cuts faced by the justice department and the notion that we are all in it together. As is evident from the amendment, we on these Benches fundamentally disagree. Victims do not choose to be victims; they have suffered through no fault of their own, and in proposing the draft Criminal Injuries Compensation Scheme 2012 the Government are putting deficit reduction before humanity. I do not underestimate the need to reduce the deficit, although the Government have cut too far and too fast. Nor do I dismiss the need to introduce changes to the scheme from time to time. As the noble Lord rightly said, my own Government considered changes but we chose not to make them. I am sure that when the noble Lord was himself in opposition, he applauded that fact.

Why are the Government seeking to exclude 42% of innocent victims of crime from the scheme and making life more difficult for those who might still be eligible? Like the Association of Personal Injury Lawyers, I believe that the withdrawal of compensation from innocent victims of crime goes against the very purpose of criminal injuries compensation and ignores a view held by successive Governments for decades that victims of crime deserve more than words. What is happening to similar schemes in other European countries that are also coping with a financial crisis? Are they cutting entitlements for victims or do they regard compensation for victims as a matter of national honour? I suspect that they would not agree that innocent victims of violent crime should bear the brunt of austerity.

In the foreword to the Government’s consultation on the criminal injuries compensation scheme—CICS—the Lord Chancellor and Secretary of State for Justice says that the current scheme for providing compensation to victims of violent crime,

“has never been properly funded”,

and must be put on a “sustainable footing”. As the Minister said today, the document painted a picture of schemes that were not sustainable and had historic liabilities of nearly £400 million. However, as he will know, these figures are disputed.

The 2011-12 accounts, together with an analysis of the previous three years’ figures, show that the scheme is both stable and sustainable, with an average annual cost to the MoJ of existing tariffs of £192 million, and that historic liabilities have been reduced to 73 cases, estimated at less than £153 million. So why is the budget being cut by £50 million? In relation to the consultation, I also take issue with the very partial and extraordinarily subjective references to the results of the consultation in the Explanatory Memorandum, which do not reflect many of the real concerns expressed during the consultation.

The noble Lord gave a clear explanation of the CICS and the band system, but frankly it is not acceptable that the first five bands, which represent almost 50% of all payments, are going to be cut. They will be not cut just a little, but abolished. In human terms this means that more than 18,000 people a year who have quite serious and permanent injuries will receive nothing.

These include injuries such as partial deafness, post-traumatic epileptic fits, and burns and scarring causing minor facial disfigurement. To date these people, if their claims are successful—which is not easy—might receive between £1,000 and £2,500 compensation. The Minister said this is a small amount. Indeed, for some of us it is, but for others this money is not just compensation and recognition of an injury. It means being able to cope, not having to cross the line into a personal financial crisis, and retaining the dignity and self-esteem that enables them to continue to work or to seek work.

Among the people we are talking about are shop workers, far too many of whom are subject to physical assault, and the thousands of post men and women who are attacked by dogs every year. Of course, the other bands are not unscathed. Indeed, compensation for claims between £2,500 and £11,000 would be slashed by up to 60%. These claims are for injuries such as permanent brain injury resulting in impaired balance and headaches, fractured joints resulting in continually significant disability, and punctured lungs.

In addition, victims of violent crime who are still eligible for compensation under the new scheme and who are unable to work due to their injuries will also suffer as a result of changes to the scheme. The Minister suggested that changes along these lines were necessary for simplification. However, people will be worse off due to the changes in the arrangements for future loss of earnings, which will now only pay statutory sick pay—currently £85.85 a week. If someone were to work a 37-hour week on the minimum wage before they were injured, they would be worse off by £139.15 per week, which could result in serious financial hardship.

Then, there is the failure to take into account the current employment market. To be eligible for a loss of earnings payment, the victim will have to have been in regular paid work for at least three years immediately before the date of the incident giving rise to the injury. What would happen to a person who sustained the injury while moving between temporary jobs, or who had a period of unemployment in those three years?

I recognise that, as the noble Lord, Lord McNally, said, the Government have proposed to retain awards at their current level in respect of domestic violence, sexual offences and physical abuse, and I welcome that. But what compensation would a woman be entitled to if, for example, she were the victim of rape and other physical abuse such as a broken arm and the loss of an eye? Would she be entitled to compensation for rape and each of the other two injuries sustained?

There are many questions to be answered about the proposed new scheme, but most importantly I believe that thousands of innocent victims of crime will be considerably worse off through no fault of their own, and because of the pernicious cuts in legal aid that have been debated long and hard in this House they will find redress much more difficult in future. For these reasons, I hope that noble Lords will support my amendment.

I turn briefly to the draft Victims of Overseas Terrorism Compensation Scheme, which is welcome, and I endorse the views expressed by the Minister. I am glad that the Government intend to show solidarity with British and European Union victims who are part of our community and have been caught up in acts of terrorism overseas, by making payments to those who have been seriously injured and who could not have reasonably anticipated the significant threat to their safety or security when travelling abroad.

I pay tribute to my noble friend Lord Brennan, who cannot be in his place today, who introduced a Private Member’s Bill in 2007 which led to a section on victims of overseas terrorism in the Crime and Security Act 2010, and as a consequence, as the Minister said, to the statutory instrument before us today.

One important question for the Minister is: why is the scheme not retrospective, so that payment can be made to the victims of acts of terrorism in Bali, Sharm el-Sheikh and Mumbai? I understand that the cost of such payments would be between £3 million and £5 million, and to exempt the victims would seem to me rather mean-spirited. However, the Minister said that there would be an ex-gratia scheme backdated to 2002. I would be grateful if he could give me some further information on that point. I look forward to the answers from the Minister, and I beg to move.

My Lords, we have all heard about the big society. We have all heard that we are all in this together.

I am driven to the belief that the proposed cuts in the draft Criminal Injuries Compensation Scheme 2012 are another example of the most vulnerable people in our society being expected to make the greatest sacrifices.

Before coming to your Lordships’ House 15 years ago, I was an officer of USDAW, the Union of Shop, Distributive and Allied Workers, for 28 years, the last 12 of which were as general secretary. Then as now the retail sector was dominated by women workers, a large number of whom were part-time workers struggling to combine employment and home responsibilities and duties. All these workers are in the front line when criminal activity is perpetrated by the most vicious of criminals. Yet this coalition Government are now going to deny criminal injuries compensation to many of these workers.

The Union of Shop, Distributive and Allied Workers, which has never merged and has represented shop workers for over 150 years, demonstrates that this Government have ignored in their consultation all opposition to these proposed cuts. Some 50% of victims currently eligible for compensation will receive nothing if these cuts go through. Over 40% of the remainder would see their compensation reduced by £1,500 to £2,000. This is not a great sum for a millionaire, but by any standard a great sum to a shop worker already on low wages and injured by vicious criminals. If this proposal goes through, what next, I ask? Child labour, then slavery?

If there is to be a vote on this draft Criminal Injuries Compensation Scheme 2012, I for one will be voting against the government cuts.

My Lords, I rise to make perhaps a selfish contribution and not to invite the House one way or the other on the issue that has just been raised with some vigour. I speak because of an egocentric pleasure in the existence of the scheme and in the fact that it exists at all. It takes my mind back almost exactly half a century to the annual conference of the Conservative Party at Brighton in 1961. At that conference at that time, on behalf of the Aberavon Conservative Association, modest though that organisation was, I tabled an amendment for consideration challenging hanging and flogging and urging instead a liberal motion calling for a prison-building programme, strengthened probation services, longer sentences and, crucially, the establishment of a scheme to compensate the victims of violent crime.

To my surprise, some weeks later when we were on our Norman holiday near Coutances, a telegram came inviting me to ring up the then deputy chairman of the party, Sir Toby Low, or Lord Aldington, as he is better known to us. I wondered what on earth he wanted. He asked me whether I would be willing to move my motion as an amendment to the usual hanging and flogging motion. I was flattered to be involved with such a question. But he added, “The people here would be much happier if you dropped the last bit about compensation for violence”. The Treasury was worried about the cost, the Home Office about the principle and so forth.

It was a tough choice to throw at a thus far unsuccessful candidate, but I responded by saying, “Certainly not. If I am going to have to take this on, you must not take the sugar off my pill”. Sir Toby Low agreed to consider my point. A few days later came a reply that disappointed me. “Reluctantly”, he said, the authorities had nevertheless agreed to give me a chance. When the debate came it was one of the high points of the conference. Tempers ran high. Our reforming amendment was carried by a large majority and a few months later I was invited by Henry Brooke, the then Home Secretary, to join a committee that he set up to consider detailed proposals for compensation. Within two years, a suitable scheme was established without having any resort to legislation. It was one of the first in the world and has served us well, as the House recognises, for many years.

For me, it was an early lesson in the importance of sticking to one's guns and may be one reason why I have remained such a tiresome creature ever since then. But I commend the subject of the debate. I am tempted to say a little word of sympathy about some of the criticisms, but not so as to offend my noble friend Lord McNally. I am sure that he will deal with them in his reply in a suitably positive way.

My Lords, I am sure that the whole House will have listened with great respect and interest to the intervention of the noble and learned Lord, Lord Howe. The incident that he has retailed from 50 years ago shows what a very humanitarian politician he has been during 50 years of extremely distinguished public life.

My noble friend the Leader of the Opposition and my namesake, my noble friend Lord Davies of Coity, spoke powerfully on this subject and I agree with them. There would be no point in repeating what they just said. But I rise to ask the Minister a question. Can he tell the House what is the average time taken to process applications under the criminal injuries compensation scheme? My noble friend gave us some rather different figures, but if the noble Lord’s figures are correct and annual disbursements are of the order of roughly £200 million and the total liabilities of the scheme are about £500 million, it implies that rather a long time is taken to process each individual claim.

If my noble friend’s figures represent reality, the situation may be slightly better, but it is important for the House to know exactly the effectiveness of the bureaucracy handling this important scheme and therefore what sort of time is taken.

Will the noble Lord also tell us the cost at the present time of administering claims? Perhaps he could break down the average cost of the claim so that we can see how much of taxpayers’ money that goes into the scheme is used for the benefit of victims and how much goes to the administration of the bureaucracy involved.

My Lords, I, too, support the amendment moved by the noble Baroness, Lady Royall, and I support the remarks made by both noble Lords, Lord Davies. It will be interesting to see the answer to the question that the noble Lord, Lord Davies of Stamford, posed.

I support the amendment because I believe that the people who are being disadvantaged are the very people whom the Government say they want to look after. They are also the people who make this country work, such as postmen, people in shops and people on the shop floor. They are the people who are likely to be worst affected by these cuts.

It puzzles me why we make cuts of this sort for essential compensation while at the same time we spend huge sums on matters that appear not to matter. We also ladle money out to foreign countries, which perhaps should start looking after themselves.

I had a Question answered about the £10 billion that many countries have agreed to make available to Afghanistan. I asked how much that would cost Britain. The Answer came back that it would cost £170 million a year between 2013 and 2025, so it seems that we can find money to support people abroad. I have no objection to that, but I want decent treatment of the people of this country.

The amount of money that is involved is relatively small. If the Government really believe in this big society in which we will all be treated properly, perhaps they should reconsider what they are doing in the matter of this compensation order.

I do not believe everything that I read in the newspapers about the Government being completely out of touch. But, frankly, almost every day we have an indication that the Government are completely out of touch. For example, the Exchequer Secretary to the Treasury, Mr Gauke, suggested that people who pay cash to some of those who might be injured are immoral for doing so. The Government do not appear to realise that millions of people in this country do not have a bank account. There is only one way in which they can pay and that is in coin of the realm.

I put that forward as an illustration of how the Government appear to be completely out of touch with what is happening in the country and the needs of people, particularly those who are unfortunately victims of accidents or other incidents.

My Lords, I support the amendment moved by my noble friend Lady Royall. First, there is the issue of people being attacked by dangerous dogs. This particularly concerns the UCW, the trade union representing postmen and women, but has also been raised by a wide range of other organisations, including the Police Federation, the Royal College of Nursing and the Local Government Association. The MoJ consultative document proposed to tighten the current policy under which claims have, in some cases, been considered from applicants attacked by dangerous dogs not kept under proper control. The Government’s response to the consultation claims that:

“A small number of respondents expressed concern”.

That is a travesty, as widespread concern was expressed. We should not forget that not so long ago this was the subject of cross-party support and I regret that that is no longer the case.

The Government acknowledge the complexity of defining a crime of violence. They believe that these cases involve injuries sustained in incidents outside the core purpose of the scheme and that proper redress in these circumstances would be found elsewhere, through an insurance claim, a compensation order as a result of criminal proceedings or a civil claim. This is the height of cynicism. The Criminal Injuries Compensation Scheme is the very last resort when all else has failed. The options suggested by the Government would offer no recompense, as the Minister well knows. A further suggestion by the MoJ is that postmen and women injured in dog attacks could sue their employer, the Royal Mail. However, the Royal Mail has a good record in discharging its duty of care to reduce risks and it is virtually impossible to secure personal injury compensation from an employer in a civil court in respect of criminal injury, with employers liability insurers resisting such claims vigorously and the courts, when tested, holding that the employer is not liable, on the whole.

The determination of deliberate attack, as the Government themselves acknowledge, is extremely complex. I live in an area of London where dogs are often kept as aggression accessories. To close off the opportunity for compensation to people who have suffered mental and/or physical injury as a result of dog attacks is inhumane. These cuts will also affect thousands of people who work in shops and public offices. Compensation is very important to the innocent victims. At present, only injuries that disable the victim for at least six weeks are compensated. It gives public recognition for pain and suffering, helps to pay off debts and can help recovery from trauma. Those who work part-time, as my noble friend Lord Davies has already said, which is 35% of retail staff, earn too little to qualify for SSP. The Government’s own impact assessment admits that the scheme has very stable running costs—around £210 million per year—and,

“we assume that in the absence of reform this will continue”.

There has been too much emphasis on the CICS as a demand-led scheme when it is, in fact, reasonably stable. As the general secretary of USDAW, the shopworkers’ union, John Hannett, has said:

“We do not believe that the innocent victims of violent crime should bear the brunt of austerity, or that these cuts are justified by the £50 million projected savings”.

Victims are to be asked to pay up to £50 upfront to obtain their initial medical evidence. If they are off work or still shaken from their experience, this could prevent genuinely injured victims from bringing a claim. The proposals for future loss of earnings could be worse off by £139.15 per week, which could result in serious financial hardship. The changes, as my noble friend Lady Royall said, fail to take account of the current job market, by demanding that people be regularly paid for a period of at least three years when temporary periods of unemployment are reasonably common nowadays.

The Government’s stated intention was to cut the lower awards to provide better protection and support for the most seriously injured victims. There is no evidence that this has happened. Even those with the most serious injuries will suffer as a result of these changes. In conclusion—and we have already heard from the noble and learned Lord, Lord Howe, about what happened 50 years ago—it will be 50 years ago in December that the then Lord Chancellor, Lord Dilhorne, said in this House:

“For the innocent victims of such crimes we all feel sympathy, but we feel that sympathy alone is not enough”.—[Official Report, 5/12/62; col. 305.]

If the Government’s proposals go through, this will be a very sad anniversary indeed.

My Lords, I am anxious not to repeat what has been said, but there is little doubt that we have, day by day in recent months—indeed for a year or two—heard nothing but sad news for those who are represented by the people that this order will affect. There is a callousness about so much legislation at the moment that is very hard to believe. Perhaps there has been a little hope raised by the noble and learned Lord, Lord Howe, that the heart of the party is not wholly stone. Having heartily enjoyed a number of years negotiating with him across a table, usually, I think, to mutual benefit, my feelings are, come back, Geoffrey, all is forgiven.

What is the benefit that has been received by the country for all these cuts? The news at one o’clock was that we are now in the third quarter of recession. There is no sign at all that what is being done by the Chancellor is having any material helpful effect. It is extremely sad that we are now dealing with what, in money terms, is a minority issue to the Treasury, but is a very significant issue to those affected by these cuts. We have a useful audience in the Gallery, but I think it is important for the record that we have some indication of what we are talking about, because there is no precision, as things stand.

There have been two broad groups affected by attacks. I was surprised that the number is as high as it is in the USDAW field. We certainly had them in the days when I was responsible for the staff in the Revenue. They could be serious and every attempt was made by the department to ensure that these were kept to a minimum. What sort of injuries are we talking about for those who are receiving the higher award? We are talking about significant facial scarring; permanent brain injury resulting in impaired balance and headaches; penetrating injury to both eyes; fractured joints including elbows, both knees and vertebra, resulting in continual significant disability; and a punctured or collapsed lung. This is the nature of the injuries for which there is now to be significantly reduced compensation.

I conclude with one of three examples provided by USDAW of the kinds of practical changes which will take place. I shall read about Simon, aged 33, the manager of a convenience store in Stoke on Trent who risked his own safety when he disarmed an axe-wielding man during an attempted robbery. He says:

“I saw a man at the till waving an axe and shouting at the checkout assistant. As I went to grab the handle of the axe there was a bit of a tussle and it fell to the floor. I managed to kick it out of the way. Two customers came to my aid and we held him down until the police arrived. He became more aggressive and started lashing out, then he bit my leg”.

Simon received £1,250 compensation for his injuries and the mental trauma he suffered, which, I suspect, was considerable. He received a public bravery award from the local police. Under the new proposals, he would receive nothing. I regard this as utterly outrageous, as I am sure does the Gallery, and it is high time that there was a rethink and that these sorts of changes were removed from your Lordships’ agenda.

My Lords, first, I say to the noble Lord, Lord Christopher, that the reality, which apparently still takes time to sink in across the House, is that we are all a lot poorer than we thought we were four years ago. Whichever Government had come in would have carried out drastic cuts in public expenditure. That has been acknowledged by the Opposition in their moments of candour. Therefore, every time that the Government come before the House with some saving in public expenditure, the Opposition say, “These are not the kind of cuts that we would have made”. The Liberal Democrats have neither the resources nor the inclination to do this, but I know of parties who keep a running total of cuts in expenditure which the Opposition would not have undertaken, and it adds up to something that questions their economic competence.

As for my noble and learned friend, Lord Howe, I hear his story. I have been in a few small parties myself, but the Aberavon Conservatives, which he led, must have been almost of Liberal Party size in its gatherings. The scheme that he pioneered in the 1960s cost £6 million. We are debating a scheme that costs more than £200 million. Also included in his long and distinguished career was a period as Chancellor when, like me, he must have stood at Dispatch Boxes listening to the impact of cuts that were necessary at the time. That is one of the responsibilities of government.

I have a simple question. What would £6 million be in today's money?

That is in current prices. The actual scheme cost less than half a million pounds when first introduced, so I was not trying to belittle it. We have all known schemes which have been introduced with the best of intentions but have had long-term consequences. As the noble Baroness acknowledged, the previous Government took a hard look at this in 2005 and then backed off from making similar decisions.

Oh!

I suggest that some of the roots of the economic problems that we later faced was that they backed off too many difficult decisions—something that we are not doing.

The noble Baroness asked me how the ex gratia schemes compare. People who are victims of terrorist attacks which took place between 1 January 2002 and 16 October 2012 will, in general, have until 16 October 2012 to claim. The scheme is based on equivalence to those in tariffs under the existing domestic scheme. Eligibility is restricted to those with an ongoing disability as a direct result of an injury sustained in a designated act. Only injury payments are available, in accordance with the tariff of injuries; bereaved relatives are not eligible for an award. Tariff payments are in line with those in Criminal Injuries Compensation Scheme 2008. The maximum payment for a single injury on the tariff of injuries which forms part of the scheme is £250,000.

The noble Lord, Lord Davies, raised the issue of the impact on shop workers, as did other noble Lords. Shop workers, and all trade unionists who have been named, are still covered by the scheme, but not for small payments for minor injuries. I heard the example given by the noble Lord, Lord Christopher. Perhaps those in the Gallery also ask whether £1,250 for a very noble, brave act is not enough. Should we build into a scheme which is supposed to address real victims of crime pay-outs of significant sums—not life-changing but, for low-paid workers, significant sums—for injuries that also are not life-changing? We are removing the lower end.

The examples, which the noble Lord says that he has read, are life-changing.

My Lords, those are examined by CICA under the scheme and some of them, frankly, I cannot believe would be outside the scheme, but that is something that the authorities take account of.

The reforms that we have discussed today not only put the criminal injuries compensation scheme on a more sustainable financial footing but will achieve our aim of focusing compensation on those most seriously injured as a direct result of deliberate violent crime.

I touch on a couple of other points made. The noble Baroness, Lady Royall, asked what happens with multiple injuries. The situation will remain as now: 100% for the most serious injury; 30% for a second-rated injury; 15% for the third most serious injury. The noble Lord, Lord Davies, and others mentioned shop workers. They are treated as other victims are, but where they suffer long-term mental injury lasting for more than six weeks, they will still be able to claim. The noble Lord, Lord Davies, heard the cost of running CICA. The time to process claims is seven to eight months for a first decision and about five months to review a decision.

I heard what the noble Baroness, Lady Royall, said: that somehow the backlog is not real. What is real is that we paid £480 million—the largest sum ever—in compensation this year in part to deal with claims that go back beyond 1996.

I say to the noble Lord, Lord McNally, that it is quite evident to me and, I am sure, to the whole Chamber and the Gallery, that you have not had one voice from the coalition government Benches in support of what you are saying. It is obvious that in this Chamber there is strong resentment about the changes proposed, even from your Benches.

You may make that assumption. We will see what happens when we come to a vote. I am fully aware, as has been readily acknowledged, that the trade unions, which have been readily represented on the opposition Benches—and rightly so—today have argued against the changes. I understand that. I understand less the willingness of those on the government Benches—sorry, the opposition Front Bench—to leap on this passing bandwagon.

It is no use pretending. We are dealing with relatively small payments from the scheme for temporary injuries. In return for that change—I notice that the noble Baroness did not mention this—we are substantially reforming the amount of money that will go into victim support. I think that I will have support in this House for this concept that rather than paying small amounts here and there—small penny-packet amounts to various minor injury claims; some maybe justified, some very much less so—it is better to devote that money to real victim support and to dealing with the trauma of crime at the sharp end, when it happens, in a way that is effective. That is the basis of these reforms.

I understand where the trade union members are coming from, but I do not know where the noble Lord, Lord Stoddart, is coming from when he throws in overseas aid. One of the things I am very proud of is the way that this Government have sustained overseas aid.

I gave that example because I had just received an Answer that we are going to spend a further £178 million in Afghanistan—that is, after billions and billions of pounds for our military presence there. I raised this amount because we have people who need to be looked after in this country. We are talking about some of them now. If we can afford to spend £178 million to help people in Afghanistan, which is fine, surely we can find an extra few million to help unfortunate people in our own country.

We are finding it for unfortunate people in our country, but Afghanistan remains one of the poorest countries in the world. I am proud of our aid programme there. If the noble Lord rereads what he said he will probably find echoes of that great conservative sentiment of “hang ’em and flog ’em” and “don’t give it to foreigners”.

Oh!

Noble Lords know exactly what I am talking about. In the past, in some of the battles over civil liberties, human rights and the way that we treat people in overseas aid I would have relied on the Labour Party. The Labour Party has gone a long way from the one that I remember in many of these areas.

Oh!

That is why—

My Lords—

No. Well, if you want.

I will intervene just briefly. We would have relied on the Liberal Democrats as far as legal aid was concerned. What went wrong there?

We have had the whole gamut today of the Labour Party never supporting a cut and never facing up to a responsibility. I listened to what the party opposite has said, and we have taken the tough decisions. Not only have we done that; in this case we have also made the sensible decision to move victim support to where it is needed, at the sharp end. We are finding the resources by these reforms and I commend them to the House.

My Lords, I answer this debate as the Leader of Her Majesty’s Opposition, a very responsible Opposition. I am also a proud trade unionist. I am not leaping on a bandwagon that was put together with a bunch of trade unionists. I am doing what I believe to be right and I am proud that the trade unions have sought to support the workers whom they represent. However, I have to say that many of the representations that I received prior to today’s debate were from lawyers who are also concerned about victims.

Today we are talking about victims. Yes, we are living through a financial crisis; we are living through a double-dip recession which one might say was made in Downing Street. However, as noble Lords will know, my party is rightly being extremely careful in relation to financial commitments, precisely because we are entirely realistic about the financial situation that this country faces.

The Minister says that we are against all cuts. That is not true. We simply believe that some of them are too far and too fast. When making financial decisions one is also always faced by a choice. We believe that the choice that the Government have made in relation to victims is the wrong one. Victims do not choose to be victims. They have suffered through no fault of their own. In proposing the Draft Criminal Injuries Compensation Scheme 2012, the Government seem to be putting deficit reduction before victims. I wish to test the opinion of the House.

That the draft scheme laid before the House on 10 July be approved.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

My Lords, I can assure the Minister that this amendment will not increase his blood pressure. We have a common aim here. Quite simply, it is for the FCA to appoint individuals to the smaller business practitioner panel. Given that the membership of the FPC adequately reflects the four constituent parts of the United Kingdom, we wish this to mirror what happens with the FPC. Given that more people work in financial services outwith London than in London, it is important to reinforce that the financial services industry is not London-centric but is a UK financial services industry. It says that in the Bill on page 20 at new Section 1I:

“In this Act ‘the UK financial system’ means the financial system operating in the United Kingdom”.

I feel that it is important to reflect the four constituent parts of the United Kingdom. I beg to move.

My Lords, I support the amendment with, predictably, an interest in ensuring that Wales is well represented on panels. Too often these westerly people are forgotten, especially as they have rather less of a financial sector. The needs of Welsh citizens are perhaps greater, given how poorly served they are in rural areas. The financially excluded, many of whom are found in Wales, are also poorly served by financial services. I thank my Scottish friend, my noble friend Lord McFall, for his concern for my country and, I am sure, for Northern Ireland.

I turn to Amendment 128 in this group, which provides that the panel should represent households using products. That seems to be key, if only to emphasise the importance of the financial services sector to the whole community. In effect, it is a public utility with some of the same obligations on the industry to provide a universal service even in non-profitable areas. It is equally important to ensure that users of the less profitable services are part of the system of regulation or its scrutiny. It is individuals and families who often rely most heavily on the financial services, even if they do not feature on a CEO’s radar.

Perhaps I should fess up at this point that I was vice-chair of the Financial Services Consumer Panel, so I am acutely aware of the absolute necessity of a broad range of experienced views and backgrounds on the panel. The new panel would deal with a range of issues that impact on a wide variety of consumers. That is part of the reason we so need a panel, because consumers are not a homogeneous group. Their needs, capabilities, life experience and expectation, as well as their interaction with the sector, cannot easily be slotted into a “consumers” box and ticked off by the regulator. The panel would need to draw on the policy, research, intelligence and expertise of those people long embedded in the consumer world, who bring with them in-depth knowledge and understanding of consumer behaviour, consumer detriment and—equally important—consumer law, debt management, credit, insolvency, complaint handling, redress, retail sales, the financial world and possibly even Europe. I am particularly pleased that the noble Baroness, Lady Wilcox, who is very experienced in consumer matters, particularly when speaking on redress, is in the Chamber at the moment. However, aside from that expertise, the panel will also need some streetwise input, perhaps from people less exposed to the intricacies of regulatory regimes, Europe, consumer law and research, but who know what the world feels like from less exalted heights than the portals of Canary Wharf.

I now turn to the major issue, which is Amendment 136ZA standing in the names of my noble friend Lord Eatwell and myself. It is about the need to balance the caveat emptor principle—buyer beware—with an equal responsibility on those advising or providing services to consumers to act in the “best interests of clients”. We have heard of the challenge facing consumers in judging whether a company is prudentially secure, or whether the product they are buying is fit for purpose, presents value for money or even covers the risk they assume it will. Added to that, as mentioned earlier today, the very pricing of products, their complexity and people’s lack of understanding of their own risks, let alone the risks inherent in products, makes it very hard for consumers to have the knowledge to take responsibility for the choices they make. The level of risk left with consumers is often unclear. The meaning of “guaranteed” or “tracker” may differ quite substantially from their common-use meaning. Consumers often bear a level of risk unknown to them and seldom explained; they are effectively making choices blindfold.

In an ideal world, of course, we support the responsibility principle. Markets are made to work by consumers shopping around and driving up standards. However, in this market, with those long-term “credence” goods, opaque structures and the asymmetry of information, we need to reintroduce some trust and transparency by balancing consumer duties with provider duties. It is an industry beset with low levels of compliance and high levels of complaints; there are no agreed standards for complex long-term products, so it is hard to expect consumers to adopt a higher degree of responsibility than is already legally acknowledged.

I have concerns, therefore, that by writing consumer responsibility into the Bill, new section 3B(1)(c) appears to “up” the existing situation. In law there are no obligations placed on consumers other than to act honestly. It is not clear what a greater emphasis on consumer responsibility might achieve. Why impose this possibly new principle of consumer responsibility without any countervailing responsibility on the service provider? Amendment 136ZA expresses the need for that balance, at the point where the industry might otherwise grab hold of this wording and say, “See—it was their responsibility and their choice”. The noble Lord, Lord Turner, whose chances of becoming Governor of the Bank of England I might now damage by quoting him approvingly, said yesterday that people,

“doubt banks’ values; and they doubt whether banks have their interests at heart”.

He went on to say that the boards of directors and managers must introduce,

“effective controls against dishonest behaviour”,

in order to change the perception of bankers. This amendment seeks to ensure that providers act in the best interests of clients, which would be just one way of guaranteeing the good behaviour for which the FSA chair awaits. Why should only consumers accept responsibility for their own decisions? Why not regulated firms, and authorised firms? It is as if the Bill’s draftsmen are at pains to ensure that consumers should have only themselves to blame. If this phrase “consumer responsibility” is to mean more than the current legal position, then the Minister needs to explain that to us. If it is only common law, then why include it?

My Lords, I will take Amendments 122 to 127 and 128 first of all. As the noble Lord, Lord McFall of Alcluith, has explained, these would require the FCA to appoint persons representing the constituent parts of the United Kingdom to each of its consultative panels. The role of the panels is to provide a forum for focused consultation. I believe that the current provisions, which require the persons appointed to be representative of consumers and practitioners in particular sectors, provide the right focus here. To do this requires the FSA now, and the FCA in the future, to seek a diverse range of panel members. I am satisfied that the FSA already takes account of these matters in making appointments. For example, as a matter of practice in making appointments to the consumer panel, which is done through a fair and open process, the FSA aims to make sure that the panel as a whole not only encompasses a broad range of relevant expertise and experience but also represents the constituent parts of the UK. That is as it already is.

The FSA also looks for some geographical spread in the smaller business practitioner panel membership, where that is possible. The large retail firms that sit on the other practitioner panel, by definition, tend to have a large geographical spread that they bring to the table as national firms. Diversity in terms of geographical spread of representation can, therefore, be achieved in the existing model where members are appointed to represent the interests of consumers and practitioners rather than to represent parts of the UK.

For these reasons, although it is important to have on the record how this operates now and how I would expect the FCA to operate in the future, I would be concerned that these amendments could reduce the effectiveness of the panels as forums for focused consultation on the issues which matter most to those most affected by the FCA regulations. I would not want in any way to either dilute or change the focus of the panels on what they are ultimately there to represent.

My Lords, I beg leave to withdraw the amendment.

My Lords, with the leave of the Committee and at the request of my noble friend Lord Northbrook, I rise to move Amendment 127ZA and also speak to Amendment 128AAA in his name. My noble friend is unable to be with us to speak to these amendments due to other commitments.

The new regulators will have many new powers to add to the formidable armoury of powers already held by the FSA. Consultation with practitioners in the industry about the practical aspects of policy, rules and practice is crucial. Amendment 127ZA concerns consultations carried out by the Bank of England in relation to the clearing and settlement systems that it will regulate in future, together with the role of the FCA in that. In general, the consultation arrangements in the Bill for the market areas covered by the FCA are welcomed by practitioners. In particular, the Bill, which mandates several panels to be used for consultation, includes a specific markets panel. However, there is concern in relation to the clearing and settlements systems, which are to be regulated by the Bank of England rather than the FCA. I understand the reasons that led to that decision, but it results in some fragmentation of regulation. Clearing and settlements systems will now be separate from the rest of markets regulation and practitioners are concerned that, in the absence of provisions in this Bill for consulting practitioners about clearing and settlement aspects, there could be problems.

Amendment 127ZA sets up a consultation requirement in this respect by requiring the Bank of England to consult the markets practitioner panel, which is set up under new Section 1P as part of the FCA’s consultation mechanisms. This amendment also allows the panel to request information from the Bank via the FCA in order that the panel can then advise the FCA on any related issues—for example, regulatory changes made by the Bank in relation to clearing and settlement systems, which may well have an impact on trading infrastructure, which the FCA itself will be regulating.

I thank the Minister’s officials for explaining to me how the Bank’s new powers will work legislatively and how the consultation provisions fit in. As I understand it, there will be a statutory requirement for the Bank to consult generally on the exercise of its new regulatory powers in relation to recognised clearing houses, but the consultation with practitioner panels or the FCA is not mandated. The Bill is silent in relation to settlement systems, and we have to wait to see what the eventual regulations will say.

Will the Minister explain how the Government intend consultation to work for settlement systems? Can he also say how the Government see proper co-ordination between the FCA and the Bank of England in this area? Is there, for example, any intention to involve the markets panel—and if not, why not? In respect of clearing houses, can the Minister explain why the requirements in respect of consultation by the Bank for clearing houses in Schedule 7, which applies the general PRA requirements for consultation on rules, specifically remove the requirement for the PRA to consult the FCA and has no requirement to consult panels?

Amendment 128AAA in this group tackles a rather broader issue. Under new Section 1R, the FCA must consider representations made to it by the panels and must publish responses to representations. The corresponding FiSMA requirements were for the FSA to respond in writing with reasons for disagreeing with a panel’s recommendations but this has been omitted from the Bill. The amendment of my noble friend Lord Northbrook reinstates that requirement.

Everybody understands that the FCA will not accept every single recommendation or view put to it, but it is not acceptable that the FCA can merely ignore any recommendations put to it by the panels and merely publish a response “from time to time”, which is all that new Section 1R requires. The FCA ought to be open to the possibility of dialogue with the panels. It is entirely possible, for example, that the FCA could misinterpret a comment or recommendation made to it. The Bill might make the FCA near-omnipotent, but it should not be predicated on the FCA being near-omniscient.

Both these amendments have been suggested by the existing financial services practitioner panel, which has done good work since the FSA was set up. It knows what it is talking about and if it is concerned, I believe that the Committee should be too. I do not claim that the drafting of my noble friend’s amendments is perfect but they are probing amendments. I beg to move.

My Lords, I support the amendment in the name of my noble friend Lord Northbrook and moved by my noble friend Lady Noakes. While I understand very well the reasoning behind splitting regulators into a multitude of new regulators, it nevertheless remains very necessary to make sure that regulation is well co-ordinated, not duplicated, and made as understandable as possible to practitioners and consumers alike. It is very sensible indeed that the regulation of trading infrastructure also be brought within the sphere of influence of the FCA. The requirement that,

“The bank must consult with the Markets Practitioner Panel on the regulation of clearing and settlement infrastructure”—

deals with that. I agree with my noble friend that the drafting is not yet perfect. In particular, I find somewhat confusing the second paragraph, which states:

“The Markets Practitioner Panel will be able to request information from the Bank via the FCA to enable them to provide appropriate advice to the FCA”.

However, in principle, this is a move in the right direction and I strongly support it.

One of the problems with regulation is that regulators, even if they have practical experience of banking, insurance or other financial services, very rapidly become out of date because markets change so rapidly. There are many very competent former bankers working for the FSA who are out of date with the way markets actually operate today. Therefore, I think it very necessary to have a practitioner panel for the PRA as well as for the FCA. However, that is the subject of a subsequent amendment.

Amendment 128AAA also deserves support for putting the requirement back on the FCA to give a statement in writing of its reasons if it disagrees with a view expressed by the practitioner panel. That is very sensible.

My Lords, I shall speak in support of Amendment 128AB in the name of myself and my noble friend Lord Eatwell. I shall also speak to Amendments 128AAA and 130ZB. Accountability means not just listening, but a dialogue: a conversation which hears and responds, and gives written reasons for disagreements. As the noble Baroness, Lady Noakes, said, they will not always agree, but that is quite healthy: we just want to know why. It has really worked very well with the FSA panels under the old Section 11. The proposal would just take that forward and continue it in the new Bill. This encourages transparency and forces the panels to think very hard about what they say and to do their homework well. It also makes the regulator consider submissions carefully and set out where and why they have problems, either with the analysis or with the conclusions. This adds to the openness of the regulator’s thinking, but also to that of the panels, so that consumers and practitioners can also track the record and impact of those who purport to represent their interests, and know how well they are impacting on the regulator’s work. I hope this is one of the areas where the Minister is able to “say yes”.

My Lords, to manage expectations before the break I attempted to say that I was not going to be as accommodating all through the day. In qualitative terms I will be as accommodating, but I can only work with the material that is in front of us. In this case, it is possibly a matter of explanation and reassurance. I hope that some, if not all, of the matters here are going to be covered satisfactorily.

Amendment 127ZA to which my noble friend Lady Noakes spoke would mandate some quite complicated arrangements for the Bank of England to consult the markets practitioner panel of the FCA, in certain cases. I do not make a comment about the drafting, but the general arrangements here would be quite complicated. In addition, the markets practitioner panel would also have the ability to request information from the Bank, but only via the FCA and only for the purpose of assisting the FCA. I had not been quite sure what the amendment was trying to achieve, but I now understand from my noble friend that it is a matter of strengthening the co-ordination between the Bank and the FCA in relation to market infrastructure, as well as strengthening the consultation arrangements in relation to infrastructure matters. I understand why this is important, but will attempt to explain why I believe it to be unnecessary.

There is of course nothing to stop the Bank of England consulting the markets practitioner panel or any other panel, or their members or anyone else. It is worth remembering that. It is also important to bear in mind—it may be more important in this case—that the Bank of England will be regulating only a very small number of institutions in this highly specialist area. That really is the key point. I suggest that there is not a lot to be gained by trying to institutionalise consultation arrangements in this way because of the small number of specialist players.

The Bank will indeed be able to consult each of the entities that it regulates individually, should it wish to do so. That is of course an inconceivable position for most of the other subsectors of financial services, where a panel arrangement is therefore necessary to corral views efficiently. I am not sure what a requirement to consult the markets practitioner panel would necessarily add here. More generally, the Bill already introduces a requirement for the Bank and the FCA to have a memorandum of understanding relating to infrastructure regulation, while there is of course nothing to stop the Bank and the FCA working together in any way that they want, subject to the framework of the Bill.

I think that panels are not required in this area. I hesitate a bit because my noble friend Lady Noakes may come back at me on the settlement question. I accept that on that aspect I should possibly take a bit more time to reflect on my noble friend’s views, just to make sure that all angles have been covered in what I have said and in what has been indicated by the Bank and the FCA, so far as it is relevant to them. However, specifically on settlements, I appreciate that I might reflect a little further.

I turn to Amendments 128AAA, 128AB and 130ZB, the first two of which require the FCA to provide a statement in writing to any panels it establishes where it disagrees with any of the representations. Amendment 130ZB would make a similar provision for the PRA. I note that these amendments replicate the existing provisions in FiSMA. It may help if I explain the thinking behind why the Government consider it right to depart from the existing approach in FiSMA. It is because the Bill imposes a general duty on the regulators to publish responses to the representations they have received, which is wider than the current requirement in FiSMA. The regulators must respond to all representations, rather than simply those with which they may disagree. That was a conscious change because it did not seem right that the only responses the regulators should have to give to the panels are where they disagree with them.

We do not want to promote an antagonistic relationship between the regulators and any of the panels that they may establish. We have also required the regulators to publish their responses to help inform public understanding and enhance accountability. I reassure the Committee that this duty will, in practice, require the regulators to give their reasons for rejecting or departing in any significant way from a recommendation of one of their panels. With those explanations, I hope that my noble friend will feel able to withdraw her amendment.

My Lords, I thank my noble friend Lord Trenchard and the noble Baroness, Lady Hayter, for their contributions to the short debate and I thank my noble friend the Minister for his response. I note that he will look again at the settlement system, which raises slightly different issues because of the different way that it is dealt with legislatively. I doubtless await a letter from him during the summer, which I shall look forward to.

The Minister said that there was nothing to stop the Bank of England from consulting anybody—it may be that he was playing that for laughs. The real purpose of tabling this amendment was because there is no specific mention of panels, and there is a concern that the Bank of England will not use its general obligation to consult the right people. The right people are not necessarily just the people they are regulating but also those who are impacted by regulation, such as the people you would find on something like the markets panel. That is also why I tried to press my noble friend the Minister on why the Bank did not have to consult the FCA when dealing with regulatory matters in this area. I put it to my noble friend that he has not quite addressed those issues. I hope that he will think further on this before we get to Report, and I will certainly reflect on what he has said.

In respect of the second amendment in this group relating to explanations in writing, the Bill states:

“The FCA must from time to time publish in such manner as it thinks fit responses to the representations”.

This does not convey the sense of what the noble Baroness, Lady Hayter, referred to, which is dialogue. At the moment the panels operate in a much more collaborative mode, feeding through ideas as well as making formal representations, and they are being seen here, I think, as just another consultee to be dealt with along with responses from any other consultee. The sense that the practitioners have is that the quality of relationships will deteriorate going forward, and that is a matter of concern.

These amendments were tabled by my noble friend, as I said, following the comments made by the financial services. I know that my noble friend will want to talk to them before we return to this Bill at Report. I thank my noble friend the Minister for his reply today but I do not think that I can regard the issues as settled. However, I am prepared to withdraw the amendment today.

My Lords, I shall speak also to Amendment 130A in this group. These amendments deal with value-for-money studies for the FCA and the PRA respectively. I am delighted to see that the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter, share my enthusiasm for value-for-money studies for the FCA and I hope to persuade them that they should be enthusiastic about value-for-money studies for the PRA as well.

Amendment 128B amends new Section 1S of FiSMA, inserted by Clause 5 of the Bill. The new section states:

“The Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the FCA has used its resources in discharging its functions”.

My amendment would change that “may” to “must”. Amendment 130A does exactly the same thing to the equivalent new Section 2M for the PRA. These are probing amendments. As a veteran of may/must debates, I am well aware that the Government will argue for flexibility to respond to circumstances and not be tied to any particular course of action, so my noble friend need not spend a long time reading out all of those comments from his notes.

My purpose in tabling these amendments is to ask the Government to state how they intend to use the powers. There is a similar power in FiSMA in respect of value-for-money reviews of the FSA, but the only time that I can recall it being used was when the C and AG was asked to carry out a review around 2007. I believe that my honourable friend Mr Mark Hoban last year described Section 12 of FiSMA as being “underused”. Because the existing power was used so sparingly, the simply rollover of the FiSMA formulation into this Bill is surprising.

My amendments say that the Government “must” set up independent reviews, but I accept the criticism of the Minister’s officials that I have not rounded that off by saying how often such reviews should be conducted. My own view is that they do not need to be conducted absolutely every year but they do need to happen reasonably often—for example, every three years. I hope that the Minister will set out how the Government intend to use the powers to subject the FSA and the PRA to VFM reviews.

My noble friend will be aware that the FSA was much criticised by large swathes of the regulated community for lack of economy, efficiency and effectiveness. The FSA raises its moneys through fees, and the only thing that appeared certain was that fees would go up, often by significant amounts. Consultation on its key proposals did little to silence its critics. Subjecting the FSA to an independent VFM review was seen as important as there are no natural downward pressures on the FSA’s costs. It obviously has no marketing wish to compete and it is not accountable to the Treasury for its use of resources. This is a recipe for inefficiency, and it is important that the successor bodies to the FSA are genuinely put under pressures to deliver regulation at a cost that is proportionate to the benefits.

The FSA’s current budget is going up very considerably and people understand in part why that is, although not all sections of the regulated community understand why their particular share of the costs is going up. Generally people accept that the costs of regulation will rise, but I hope that the Government will agree that lack of efficiency or effectiveness must not be allowed to shelter behind the banner of tougher regulation and that the successor bodies to the FSA must routinely be exposed to an examination of how well they spend their money.

I would also like to use this amendment to ask how the Minister explains the relationship between the reviews that can be set up under the new Sections 1S and 2M and the annual audits of the new bodies. Under Schedule 3, the Comptroller and Auditor-General will carry out the annual audits of the bodies, which is fine, but will the C and AG be entitled and expected to carry out regular value for money reviews of the FCA and the PRA? Will value for money reviews therefore happen when the C and AG wants it to happen or only if the Treasury uses its powers under this Bill? I hope that my noble friend will be able to respond positively to the thrust behind these amendments.

My Lords, I support the noble Baroness, Lady Noakes, in the amendment that she proposes. I have added my name, as has my noble friend Lady Hayter. It is clear that there must be a satisfactory set of amendments for reviewing the effectiveness of this new regulatory structure and whether it provides value for money as conceived, particularly given the added complexity of what the noble Viscount, Lord Trenchard, referred to as the multiplicity of regulators now created out of this single structure.

I speak, too, to Amendments 128BB and 130AA in the name of myself and my noble friend Lady Hayter. Amendment 128BB adds to a definition of an independent person that a person appointed to review the FCA must be independent of the FCA but also of the Bank of England. We should have somebody standing outside this regulatory complexity who should be deemed to be independent. I suggest that if the person appointed is a staff member of the Bank of England, the notion of independence will be compromised, even though the FCA stands outwith the Bank of England. I hope that none the less there will be continuous regulatory dialogue between all the elements in the regulatory apparatus that we are designing here and that it will therefore be necessary, if somebody is independent, that they should stand outside that regulatory community, of which the Bank of England will be a leading part.

The point with Amendment 130AA is that the Treasury in appointing an independent person to conduct a review should inform the Treasury Select Committee of the nature and arrangements of the review, the idea being that that committee itself conducts reviews of the operations of regulatory institutions and will greatly economise on and facilitate the overall operation of a review procedure if there is no duplication and if there is clear communication and understanding between what the Treasury Select Committee and the independent person are doing. These two scrutiny agents should be co-ordinated and we should not have further segmentation; we have too much in this Bill already, and we should not have further segmentation in the procedures that we are designing.

My Lords, first, I will make some comments on Amendments 128B and 130A, and explain who can initiate reviews. One of the main points made by my noble friend was essentially about how things are different from the way they have been up until now, and who can initiate reviews. I am sure we all agree that the Treasury’s power to appoint a person to carry out a value-for-money review is important to support accountability to the Government, to Parliament and to the public, not least because those reports of reviews must be published and laid before Parliament.

However, regarding my noble friend’s particular point, in future the NAO will also be able to initiate its own VFM reviews. As she identifies, that flows as a result of the Bill making the regulators subject to the NAO audit. I hope that provides reassurance to her on that important point. Clearly our expectations should be in the right place. The NAO can only conduct a certain number of VFM reviews each year across the whole of the public accounts which they audit, but I think my noble friend explicitly said—and I agree with her—that it would not be a question of an annual review. At the same time, the Government need to be able to order a review of the FCA at any time, with the option to focus on areas of the FCA’s activities they see as a priority, and be accountable for the way they exercise this power. In practice, the Treasury is likely to choose to appoint the NAO to carry out such a review. As such I do not see what would be added by placing an obligation on the Treasury to order reviews under new Section 1S, particularly as the amendment does not specify the time period or any of the other circumstances in which a review should be held; I think my noble friend recognises that. Particularly in the light of the fact that the NAO itself will be able to initiate VFM reviews, it would be too early to say how frequently the Treasury will use its power, because it will clearly dovetail to some extent with what flows from the audit. However, in response to my noble friend’s key point—she quoted my honourable friend the Financial Secretary—I am confident that the arrangements we have proposed will deliver a step change in the FCA’s accountability to Parliament, as compared to the way it has been with the FSA, for the way in which the FCA uses its resources to achieve value for money.

Amendment 128BB seeks to amend the requirement that a person appointed by the Treasury to conduct a review must be “independent of the FCA”, by adding the requirement that they must also be independent of the Bank of England. I absolutely agree that it is important that VFM studies of the FCA are carried out by someone independent of the FCA itself. That is what is proposed in the draft of the Bill itself, not least to provide assurance that they are objective and impartial. As I have said, in practice the Treasury is likely to choose the National Audit Office to carry out such a review. However, the Treasury will have the discretion to appoint an independent expert or a commercial firm with relevant specialist expertise to conduct a review. In that context the amendment is too wide, in that it could prevent any firm or expert which had done any significant amount of work for the Bank of England from carrying out such a role. From what the noble Lord said I appreciate that that was not the intention, but ruling out that population of firms or experts would be the effect of requiring the FCA reviewer to be independent of the Bank.

If I may say so, that is absolute nonsense. Are we actually suggesting that any independent firm or individual who has done work for a government department is thereby compromised and no longer an independent person? Are we saying that an independent person who has happened to write a few papers for the research department of the Bank of England is now no longer an independent person and is thereby compromised because he is not independent of the Bank of England? That is a misuse of language.

First, I am not sure why the noble Lord, Lord Eatwell, talks about advisers to government departments. Here, we are talking about finding firms to carry out value-for-money reviews of the FCA, and independence from the FCA would seem to be the overriding concern. We are not talking about the Bank of England itself or some part of the Bank of England’s wider group doing the review. As I am sure the noble Lord knows, with all the increasingly tough professional codes that exist, the definition of independence is becoming ever tougher. Therefore, although the noble Lord and all of us might like to go back to a sort of common-sense, gentlemanly world that once existed, I absolutely stand by what I said. The amendment—whose effect incidentally goes wider than the noble Lord indicated in speaking to it—would capture a range of firms just because of the way that professional independence has come to be defined these days. Therefore, I stand by my analysis of the amendment.

Amendment 130AA would require that when the Treasury orders a review of the economy and efficiency of the PRA, it informs the Treasury Select Committee of the nature of, and arrangements for, the review. I understand that the amendment is driving at the importance of accountability to Parliament. The Government agree that that is important, which is why there is already a large amount on this subject in the Bill, including the provision for NAO audit, which we have discussed.

Requiring the Treasury to inform the Treasury Select Committee of the nature of, and arrangements for, the review at such an early stage might have some benefits of the sort that the noble Lord identified but I fear that it is more likely to be seen as an invitation for the Treasury Select Committee to comment on or even attempt to change the remit of these important reviews. I suggest to this Committee—I would not suggest anything to the Treasury Select Committee—that adding another political hurdle could slow up the process of producing these reviews. It may even make it less likely that they will be commissioned in the first place if there has to be a negotiation of the sort that I fear.

I hope that those explanations are sufficient for my noble friend to be able to withdraw her amendment.

My Lords, I am grateful for the contribution of the noble Lord, Lord Eatwell, to this debate and for my noble friend’s reply. Perhaps I may comment on Amendment 128BB in the name of the noble Lord, Lord Eatwell, concerning independence. I think that my noble friend has stretched even the most stringent modern interpretation of independence way too far. On his interpretation, the NAO might not be independent of the FCA and therefore might not be able to carry out any further reviews of the FCA. I hope that my noble friend will reflect on the need for independence. We have to remember that when the Bank of England, rather belatedly, appointed people to carry out reviews of itself recently, independence was not exactly plain in the appointments that were made.

I thank my noble friend for his responses on value for money. It is slightly odd that the Government intend to use the NAO to carry out value-for-money studies, but they have set up the NAO to be appointed the auditors, so it might carry out value-for-money studies. I am still left with the feeling that the carryover of the ability to appoint somebody to do a review is just repeated legislation which might lay fallow, as the FiSMA legislation largely lay fallow. However, I thank my noble friend for his response and beg leave to withdraw the amendment.

My Lords, in moving Amendment 128BC I shall speak also to Amendment 143B in this group. These amendments are in the name of the noble Lord, Lord McFall, and myself and are part of the suite of amendments we have tabled to ensure that the views of the Treasury Select Committee in another place are given a proper hearing and receive a proper government response.

Amendment 128BC introduces a new Section 1SA which requires the FCA to review its own policy and performance, if requested by the Treasury Select Committee, and to send a written report of the review to the TSC. We have just debated the Government’s powers to initiate value-for-money reviews of the FCA. This amendment goes further and allows Parliament, through the TSC, to require reviews.

The cause célèbre which underpins this amendment is the FCA’s review of the failure at RBS and its own role in that. I should remind the Committee that I am a director of RBS, but, thankfully, I was not involved at all during the period covered by the report. It took huge pressure from the Treasury Select Committee to get that report into the public domain.

The Government’s response has been that such reviews and their publication are a matter for the Executive, rather than Parliament. However, the problem that the Government have is that it did not work in the case of the RBS report, which leaves Parliament without any direct means of dealing with any similar cases in future. It is not always self-evident that the Government of the day have the same interest in transparency and accountability as Parliament, especially when the Government have themselves been so closely involved in a particular event or series of events.

Amendment 143B features another aspect of the role of the Treasury Select Committee—this time in relation to the appointment of the chief executive of the FCA. Under the new Schedule 1ZA of FiSMA the chief executive is to be appointed by the Treasury and the amendment would add the words,

“following consideration by the Treasury Select Committee of the House of Commons”.

On our first Committee day, which I was unable to attend, there was much discussion of the role of the Treasury Select Committee in relation to the appointment of the Governor of the Bank of England. The Government’s position appears to be that the Treasury Select Committee is to have no role whatever in the appointment but that it may hold pre-commencement hearings. My noble friend Lord McFall—sorry, he is not my noble friend; it feels like he is my noble friend but he is actually the noble Lord, Lord McFall—asked the Government to think again about that.

The reasons usually trotted out by the Government are unproven assertions. In particular, the role of the governor is said to be so market sensitive that it has to take place without any parliamentary involvement. I am not sure that there has been any empirical evidence to back that up, but it is much more extraordinary that the Government are citing market sensitivity for the appointment of the chief executive of the FCA. The Treasury Select Committee does not accept this assertion, and it calls into question exactly how the Government think that markets work in practice.

The age of parliamentary examination of candidates for major public offices is already upon us. In general, they go well; but there have already been reports of cases from committees in another place which have not gone well. In at least one pre-appointment hearing the candidate withdrew because the hearing did not go well. Provided that this can be handled with dignity, it seems to me that this is a sensible part of a parliamentary democracy. However, post-appointment and pre-commencement hearings raise quite different issues. I recall a distinctly lukewarm if not completely damning report by the Treasury Select Committee in respect of one of the MPC appointees. It did not invalidate the appointment but it got off to a difficult start and certainly undermined the credibility of the individual involved.

If the Government stick with post-appointment hearings only for posts such as chief executive of the FSA, it is only a matter of time before the Treasury Select Committee, or a similar committee, reaches a different conclusion from the Government and makes its views plain, as indeed it should do. Where does that leave the position of an appointed but disapproved of chief executive of the FCA?

The Government need to think this through again. If, as I suspect, the evidence which stacks up shows that the case for market sensitivity is not convincing, it would be wise to ensure that Parliament’s view is taken fully into account before executive decision-making. I beg to move.

My Lords, I rise to give particular support to the second amendment to which the noble Baroness has spoken. I shall not repeat the very strong arguments that she made about the need for this to be pre rather than post-appointment. I would just add a few comments about the importance of the role of the chief executive of the FCA to consumers—as may be a bit expected of me now. After all, consumers are the people on whose savings, or need to borrow, this industry depends.

The Financial Conduct Authority has been called the consumer champion, albeit the word “consumer” no longer appears in the title. That is how, I am delighted to say, the newly appointed chair described it to me. I know that that is what consumers will want it to be. We need this new architecture to have the confidence of the public—some of whom undoubtedly hold financial products at the moment, while some may have done so in the past, and some might do so in the future. Without the confidence that this sector will behave and conduct itself in their interests—with integrity, professionalism and high standards of behaviour—what chance is there that those individuals will save for their homes or pensions, or that small businesses will borrow to produce growth and jobs?

The people who can hold the FCA to account and to scrutiny on behalf of all those millions of small savers, borrowers and those with simply a bank account are, of course, our Members of Parliament. They should, therefore, through their Treasury Select Committee, hold a pre-appointment hearing of the chief executive. This will establish in successful candidates’ minds that they are responsible to the people for the performance of their organisations. Chief executives will know that they will return to the Treasury Select Committee from time to time to account for their record and explain their decisions. That will be a healthy relationship. It does not give the Treasury Select Committee a veto, but it makes clear that the candidate needs to establish the confidence of that committee before taking up the post, and that before appointment she or he has the capability and the vision to stand in the shoes of clients and safeguard their interests. That is not too much to ask.

My Lords, my noble friend’s Amendment 128BC would require the FCA to conduct reviews of its policy and performance if requested to do so by the Treasury Select Committee, and to report to it on that review. It is clear that, under the current system, the regulator is not sufficiently accountable when things have gone wrong, so the regulator itself needs to take primary responsibility for initiating reviews. The Bill provides a much clearer framework for when the FCA should initiate a review into regulatory failure. It includes a number of measures intended to rectify this.

In future the FCA will be required to conduct an investigation and report on possible regulatory failure with the triggers set out in statute. This is supplemented by the power of the Treasury to order an investigation when it considers that an investigation would be in the public interest. The Treasury must, subject to limited exceptions, then lay such a report before Parliament. There are also the value-for-money and NAO audit powers to which my noble friend referred in the previous group. This is an extensive framework that should significantly enhance the ability of Parliament to hold the regulators to account in future.

I understand that the Treasury Select Committee has recommended that the Bill should go further, and clearly Parliament has an important role in calling for reviews. However, it does not need additional powers to do so. If the Treasury Select Committee believed that a review under Clauses 69 to 76 was required but was not being conducted, it could request such a review. The FCA will in any but the most unusual circumstances comply, as is the convention. Of course, the FCA would be available to report back to the Treasury Select Committee. This is, in fact, what happened in the case of the FCA’s report on the failure of RBS. Additional wording in the Bill is not necessary.

Amendment 143B seeks to create a statutory requirement for pre-appointment scrutiny of the FCA chief executive. This is something that the TSC recommended in its report on the FCA. The Government believe that it is more appropriate that the appointment should be subject to a pre-commencement hearing. Let me explain why. This is the same approach that has been taken for the appointment of the chair of the FSA, and appointments to the MPC. Pre-appointment Select Committee hearings are not convened for all public appointments and, indeed, have seldom been held for chief executive posts. They are not held for the appointment of chief executives at other sectoral regulators such as Ofcom and the Office of Rail Regulation. They are generally used for appointments where the post plays a key role in regulating government itself, or in protecting public rights, or where independence from Ministers is particularly vital to the credibility of the post.

Although this process is appropriate for some offices and non-executive appointments, it introduces scope for delay and public disagreement over whether a candidate is fit for an appointment, which risks damaging confidence and undermining the effective operation of the ultimate appointee. It would not be appropriate for appointments to a regulator of financial markets and services, which is, additionally, a market-sensitive appointment. Pre-commencement hearings will provide the right balance between allowing for TSC scrutiny and protecting markets from undue uncertainty.

I therefore hope that noble Lords can accept that the Government’s proposal will significantly enhance the Parliament’s ability to hold the regulators to account, and that I have explained why I do not believe that it is necessary or appropriate to go further in the way that the amendments suggest. I therefore hope that my noble friend will feel able to withdraw her amendment.

My Lords, I thank the noble Baroness, Lady Hayter, for her response to Amendment 143B, and I thank the Minister for his reply.

In connection with the reviews, my noble friend relied heavily on the provisions which are in the Bill—which we will come to later—in respect of regulatory failure leading to reviews, as if that was the beginning and end of it. My amendment and the amendment suggested to us by the Treasury Select Committee itself—or by the clerks to the committee—provide that the FCA must conduct reviews of its own policy and performance. That is to say, it is much broader. It does not wait until things have gone very badly wrong before asking the FSA to carry out a review. I am not sure that the Minister’s response has dealt with that point. It seems that he is still keeping all the power to the Executive, except when there is clear and manifest regulatory failure, when all the pressures would build up and the Treasury Select Committee might be required again to argue its corner, as it had to do in the case of the RBS report.

On the pre-commencement as opposed to the pre-appointment hearings in respect of the chief executive, I hear what my noble friend says in respect of chief executive appointments, and I would like to reflect on that. However, I think that he was making up policy on the hoof in relation to other public appointments. It is a relatively recent phenomenon that public appointments have been subject to pre-appointment hearings, and it is my impression that they have been expanding, not declining, in scope in recent years. It may be that my noble friend is indicating that the Government are now trying to significantly row back on what was regarded as an important expansion of the ability of Parliament to be involved in these important decisions and to hold the Executive to account.

I would like to think more carefully about what my noble friend has said in response to that, and possibly discuss it further before coming back at Report. However, I beg leave to withdraw the amendment.

My Lords, I feel a bit like a number 11 bus—it does not come along for a long time and all of a sudden four come along at once. In moving Amendment 128BF, I shall also speak to Amendment 128BG in this group. Both amendments stand in my name and that of the noble Lord, Lord McFall, and deal with a further issue that the Treasury Select Committee in another place believes was not dealt with properly before the Bill left the other place.

Amendment 128BF amends the PRA’s general objectives in subsection (2) of new Section 2B. The objective currently says that it is for promoting the safety and soundness of PRA-authorised persons. The amendment would mean that it would promote competition among PRA-authorised persons.

Amendment 128BG is similar, but adds a subsection to new Section 2B requiring the PRA to discharge its functions in a way that promotes effective competition in the interests of consumers. But that has to be compatible with its general and insurance objectives.

The Treasury Select Committee was concerned that the PRA’s low tolerance of failure, as expressed in particular by its former chief executive, would entrench the market position of larger market players. The committee noted that competitive markets needed what it called the freedom to exit as well as freedom to enter, although I doubt that a failing bank would regard its impending implosion as a freedom. The theory is that a market that artificially restricts exit will almost inevitably inhibit entry as well.

The Government have said that no firm is too important to fail and they point quite rightly to the fact that the legislation is predicated on allowing failure. I fully accept that. I also accept that the FSA has been clear that it does not regard the job of the prudential regulator to prevent failure at all costs. But—and this is a big but—it is also clear that the new regime will be failure averse. New rules on regulatory capital, liquidity and leverage are designed to make banks safer and the implementation of the Vickers proposals in the way recently announced by the Government will do the same. Bail-in capital will also tend to work in that direction. The resolution plans that banks are working on are themselves in effect partly about preserving the status quo. Ownership may change, but large chunks of banks will remain in the market.

We all want financial stability, but a consequence of that is that the default assumption will be that bank failure is a last resort. Even then, resolution will preserve much of what has failed. All that the amendments do is to correct that balance. Without upsetting the core prudential objectives, the PRA has to have regard to the desirability of effective competition.

While supporting the thrust of the amendments, I do not wholly support their wording and I believe that “promoting competition” may go a little too far. I do not really like Amendment 128BG to the extent that it refers to competition in the interests only of consumers, because competition benefits not only the consumers but the wider economy by creating efficient businesses that can compete internationally to the benefit of everyone, not just the people who use their particular services. For that reason, I also support my noble friend Lord Hodgson’s Amendment 129ZA in this group, which is rather more rounded and balanced approach to ensuring that the PRA does not forget the wider environment of the business that it will be regulating. I beg to move.

My Lords, my Amendment 129ZA in this group follows the line of argument ably put forward by my noble friend Lady Noakes. It is about how we set the regulatory bar at a level that does not discourage and squeeze out innovation if it is too high but not so low that there is a free for all and loss of reputation. As someone who briefed me on this said, “This is the Goldilocks’ porridge issue: not too hot and not too cold”.

As my noble friend said, there is a danger of regulators becoming risk averse and, as she put it, having a low tolerance for failure. Innovation stifled because the bar is too high will not cause problems for the regulator because the innovation will disappear, but the failure of a firm trying innovation obviously does. We have a particular interest in the UK because our financial services industry is vulnerable; it is not backed, as is that of the US, say, by a very large domestic market and therefore we have to be smarter, quicker and more innovative. That is what my amendment intends to facilitate.

To give a real-life example of what I mean, some noble Lords may have seen the briefing from the Equity Release Council, which is the industry body for equity release, which allows individuals aged 55 and over to respot money from the property they live in without having to make any monthly repayments. They have a no-negative-equity insurance policy so that people cannot go overdrawn. This equity release is a thriving, growing industry with 150,000 customers and about 25,000 new customers each year.

We have discussed in this House the problems of funding old age. Of course, equity release enables people to stay in their home, either by withdrawing some equity to pay for care, or to make physical alterations to their home to make it easier for them to stay there, but it is not a concept that has taken root anywhere else in the EU, so if the PRA does not have a competition objective, there will be no formal requirement for the regulator to strive for this effective balance between financial stability and an appropriate level of market competition and growth. This could lead to the PRA taking the default position of, first, increasing capital buffers in response to any market issue; and, secondly, disproportionately gold-plating future EU legislation when transposing it into UK law, which could be to the disadvantage of UK firms.

As I say, this will be a particularly difficult issue where EU regulations are being promoted which effectively do not cover any country but the UK because the practice is not carried out elsewhere in Europe. Other noble Lords will have had other briefings; there was one from the Council of Mortgage Lenders that mentions:

“The uncertainty that the FCA’s product intervention powers can have the potential for stifling innovation within the market. There are few details of how these powers might be used and under what circumstances. It is crucial, therefore, that a clear set of governing principles are developed”.

Therefore the four sub-paragraphs (a), (b), (c) and (d) of my Amendment 129ZA, which inserts a completely separate clause on Page 26, deal with the point made very ably by my noble friend, but do so in a slightly wider way.

My Lords, Amendment 128BG stands in my name and that of my noble friend Lord Sharkey, and I am delighted to hear that the noble Baroness, Lady Noakes, and the noble Lord, Lord McFall, are adding their names. Their names have not made it onto the Marshalled List, but it is very good to know that they actively support the amendment. I think that all of us would look at the wording in more detail, but it is, as are others, a probing amendment. The language was supplied by Which?, an organisation that I help, and it seems to me to be reasonably well drafted.

The PRA, as your Lordships will know, is the body which will authorise new banks. The track record of the regulator in authorising new banks in the United Kingdom is pitiful: one new banking licence in 100 years, for Metro Bank. Other banks which people may think of as new are organisations which have purchased an existing banking licence. It is a sharp contrast to virtually every other developed and, frankly, not-yet-developed country. We have seen consolidation in our high street banking services, not expansion and added competition.

The regulator, if spoken to, would argue that the reason so few licences have been issued, or only one, is that new investors are not coming forward with proposals for new banks.

I think that it would acknowledge that some have come forward, gone part of the way down the process and then reached such hurdles that they have essentially been required to withdraw. It is also true that most potential investors are discouraged before they begin. The Metro Bank case is publicly known; we know that it cost it between £25 million and £35 million to get through the approval process. That is not the regulatory capital; that is simply getting through the regulatory hurdles. That took about two and a half years. Anyone to whom I have spoken who would pick up the role of working with a potential investor has said that their advice today would be, “Do not even think about it. Find yourself an existing banking licence or give up the idea altogether”.

We have some new players in the industry. There is Virgin Money. The Co-op has picked up some Lloyds branches. All that is very good news and will add to competition on the high street. There is a new small bank in Cambridge, which has picked up the banking licence of the old pension bank in that area. I am not saying that there are no new players in the market. I just point out that they are appearing off the collapse of RBS and Lloyds, so this is a one-time only event; it is not a step change or a door opening to bringing new and effective players to provide competition.

I understand that, even without any assistance from the Bill, the PRA will reduce at least one barrier. In the past, the regulator has asked for a higher capital requirement from a new player than from existing players. I understand that that is likely to change, so that at least that playing field will be level.

We in this country are missing an entire layer of banking. We have spoken about this before in several debates. The small, local, community bank, frequently with social impact obligations as part of its core philosophy and mandate, often sponsored by a charity or supporting a social enterprise, plays a significant role in the economies of competitor countries. Germany has its savings bank structure; the Swiss their cantonal bank structure; the United States its community development banks. We all know that those small banks behave in a very different way from high street banks.

First, they are willing to work with vulnerable individuals in the community in a way that our major high street banks have no interest in doing—they provide basic bank accounts, but under duress and have no interest in such consumers. Because those small institutions are committed to a particular community and rise or fall with the success of that community, they are also committed to small businesses—both new start-ups and existing small businesses—within those communities and stick with them through thick and thin.

Looking at the German and US experience, savings banks, in the one case, and community banks in the other, increased their lending to small business during the recent financial crisis and period of austerity, because they knew their borrowers, they knew when management was capable, they understood the microclimate for a particular company. They could do the level of credit work that our major high street banks ceased to be able to do some time ago; they are largely sellers of commodity product, they are not real credit managers in the way that banks used to be.

We are missing that whole layer of banking. I argue that, for the sake of our communities and community growth, we need to rebuild that whole sector, but we cannot if we have a regulator so utterly resistant to any new entrants. For a small bank to serve a narrow community, perhaps within a single borough in London or a portion of, say, Liverpool or Sheffield, to set the hurdle that it must raise between £25 million and £35 million to get through the approval process means that it cannot even think about getting off the ground. We need an entirely different regime. Those are banks which are never going to put us at systemic risk.

I recognise that, to allow those new banks to come in, perhaps with a more modest banking licence, which would be a good way to do it, and certainly with lower capital levels, the regulator must accept that a number of banks will fail. We have a good example in the United States where these banks fail. Within seven days they are under new ownership and masterminded by the FDIC. This acts as the regulator to make sure that the depositor and the business book are protected. The shareholders may be wiped out, which is fair and appropriate, but the banks then revive in a new environment. From the depositor’s perspective there is no hiccup. That is an appropriate kind of failure regime.

My Lords, I support all three of these amendments. I declare an interest as a director and founder-member of Metro Bank.

Part of the total objective for the PRA of a safer banking system and banking stability is a need for more competition in the UK. One of the main sources of our problems has been a cartel. Whenever there are cartels bad habits tend to creep in. There is a history behind the cartel coming in, going back to Walter Bagehot in wanting to consolidate banks for safety, but there needs to be a balance. The PRA cannot achieve its major objectives without staunchly advocating greater competition and helping it to come about.

From my experience, it was agony going through a year and a half with the FSA getting the licence for Metro Bank. The sums of money that we had to spend were not quite as great as the noble Baroness reported but they were very substantial. The FSA kept changing its mind. The proposals for capital were out of all proportion to the risk of the bank. At the time, I wrote to the Minister reporting on the experience. Strangely, I do not think that there was ill intent by the FSA. It was very much about individuals wishing to protect their own position and not wanting to be attacked in some way in the media for having been too lenient on licensing a new operation. Memories go back to the early 1970s, when banking licences were given out too easily, and that was a major cause of the secondary banking crisis in 1974. However, it is absolutely right that a more competitive environment in banking should be a key factor which the PRA supports.

On international competitiveness, I have understood recently that the Government’s main objective is that they feel that this is somehow related to light-touch regulation that has got into trouble. I do not see that at all. It seems to me just silly for the UK to shoot itself in the foot with regard to an important industry that employs a lot of people, earns a lot of invisible earnings and so on. I would have thought that, in terms of regulating, it would be normal to consider the effect on international competitiveness. What was wrong with light-touch regulation—I remember it well—was the doctrine: “You don't need to regulate large institutions too much because they can look after themselves”. The weakness of that doctrine was that, if they got it wrong, as subsequently transpired, the problems for the whole system were that much greater. I think that was what was wrong and it has little or nothing to do with the competitiveness of the UK’s international banking services.

I do not accept at all the argument that a brief to keep watch on international competitiveness relates to inadequate or inappropriate regulation. Taking the point to absurdity, to ignore a debate about particular measures, which were clearly going to be highly damaging to the UK industry, would just be silly.