House of Lords
Wednesday, 5 December 2012.
Prayers—read by the Lord Bishop of Guildford.
My Lords, we are currently considering how to deliver the 2013 review of the adult autism strategy and, in particular, a range of options about how best to secure the views of service users and carers. The review, which will take place from April to October next year, is an opportunity for the Government to take stock and consider where future action is required to realise the vision of fulfilled and rewarding lives for people with autism.
My Lords, the National Audit Office report on the adult autism strategy said that the health service needed to improve the training of key professionals who make decisions about a person’s eligibility for benefits and services. Can the Minister confirm that the review will ensure that all government departments will implement the strategy in full, so that autistic adults around the country can access the support services that they need?
My Lords, this matter runs across government departments. While central government can set the framework, and while it can work to remove barriers and increase awareness, which is very important, the real work—the delivery of lasting change—is for professionals, providers, voluntary organisations and, indeed, service users working together in collaboration. That effort needs to take place at a local level, which is why there is statutory guidance to prompt that action.
My Lords, I declare an interest as patron of Autism Wales. Will the Minister confirm that he is aware of the national strategy on autism that was introduced in Wales in 2008, which is being looked at in Scotland as a model to be followed? Of course, Northern Ireland has its Autism Act 2011. Will the Minister undertake to look at the experiences of the Celtic countries in developing the policy for England?
My Lords, I am grateful to the noble Lord and I am quite sure that we in England can learn from what is going on in both Wales and Scotland in this area. However, we can take some encouragement from the National Audit Office memorandum earlier this year, which stated that considerable progress had been made in the two years since the strategy in England was published. Twenty-four of the 56 commitments had been implemented, and action was under way in response to the remainder.
My Lords, does my noble friend agree that if we are really going to achieve equality for the autistic community, we need to start looking now at the sort of services that they require when they become much older and frailer? It would be a tragedy if we improved services for children and adults but, when they become old and frail and are no longer able to maintain independent living, even with support, they are then segregated from the rest of society.
My noble friend is right, which is why the existing statutory guidance extends not only to local authorities but to the NHS; it is unique in that regard. The strategy is about integrating care across the NHS, social care and all other local authority services, and its focus must be on putting people with autism at the centre of any plans to improve their own lives.
My Lords, I declare an interest as I chaired the independent review of autism services in Northern Ireland. Would it be inappropriate if I asked the Minister if he was aware that it does not matter how good one’s intentions are or whether you have an Act of Parliament; if you do not have the geographical structure that enables you to implement the measures that are required for early assessment and diagnosis, there is nothing that will naturally follow? Will he consider consulting the Northern Ireland authorities and those in Wales and Scotland, where possibly we have made more progress?
My Lords, I shall gladly take that idea away with me. The noble Lord is right about the structures for delivery. Local authorities in England are responsible for the delivery of services and support for people with autism, and the NHS is the body that we are relying upon to identify those with autism and diagnose their needs. The two must work together.
My Lords, will the Minister tell us a little more about the problems of being the lead department and trying to relate to other sections of government? How good, for instance, are the links with various stages of education in order to allow not only for people with the most acute forms of autism but for those at the higher-functioning end of the spectrum, such as those with Asperger’s? How is that developing and have we done any work in that field?
Yes, my Lords, the autism strategy is a cross-government strategy and is already having an impact in areas such as employment and education. It includes activity to help adults with autism into work. The mandate to the NHS Commissioning Board particularly mentions those with learning disabilities and autism and their need to receive safe, appropriate and high-quality care. From 2014, when necessary, young people up to the age of 25 with special educational needs, which would include autism, will have an education, health and care plan. I assure my noble friend that work is going on across government in this area.
My Lords, last week on Carers Rights Day I spoke to a great many parents who raised the same matter as the noble Baroness, Lady Browning—the transition period for young people with autism. Does the Minister consider that it is a problem that parent carers are not yet referred to in the draft Care and Support Bill, which we are about to start scrutinising? What role does he think local Healthwatch and local well-being boards can have in this regard?
My Lords, local health and well-being boards and local Healthwatch will be instrumental in ensuring the improvement of the quality of services for people with autism. As regards the transition from childhood to adulthood, the Department for Education is working with my own department to make the transition recommendations in the strategy the success that we all want them to be. A project funded by both departments and led by the University of York will report before the end of the year and will inform good practice in service at the point of transition.
Employment: Rural Employment
My Lords, employment will be boosted in all areas by national initiatives to promote economic growth. Support for apprenticeships will provide the skills that employers need, while welfare reforms will help people into work. In England, a £165 million package to stimulate rural growth includes five pilot rural growth networks and funding to transform rural business performers. Investment and action to improve rural broadband and network services will support rural economic growth and employment opportunities. I declare an interest as the owner of a farm, and therefore involved in rural businesses.
My Lords, I am grateful to the Minister for that response, as far as it goes. There was no mention of rural employment in today’s Autumn Statement. The Chancellor referred to the interesting report of the noble Lord, Lord Heseltine, on growth, yet the only mention of rural issues was a passing reference to European funds and to the paltry £15 million being spent on the five rural growth network pilots that the Minister mentioned. However, my question to the Minister is on those five networks. The first job created by Labour’s Future Jobs Fund was for a young farm worker in Wiltshire. Will the Minister tell me how many rural jobs the rural growth network has generated to date?
My Lords, I cannot give the noble Lord a specific answer on that, but I will try to give him an answer that is of interest to the south-west of England. The South-West Skills Programme offers vocational and technical training opportunities for farmers, foresters and agrifeed businesses. The programme has provided training for a total of 9,497 trainees.
My Lords, for many years I was lucky enough to be chairman of the Rural Development Commission. One key policy that we recognised was the cost of getting to work. Today the Chancellor, by reducing, or rather holding, fuel duty, has enabled many more rural people to be able to afford to run a car. That is a key component of rural employment, and I congratulate him.
Yes, my Lords. I will give more examples of how the Autumn Statement will benefit rural growth. We will extend small business rates relief for a further 12 months from 1 April 2013, benefiting more than 500,000 small businesses. We will devolve a greater proportion of growth-related spending to local areas from April 2015. We will provide further support to businesses and motorists, which my noble friend referred to, by cancelling the fuel duty increase that was planned for 1 January 2013, and we will defer the 2013-14 increase to 1 September 2013. We will ensure that businesses—particularly small businesses—can access finance and support.
Given that 98% of rural employment is not related to farming, will the Minister outline the strategy for encouraging small businesses in our towns, villages and hamlets by increasing broadband coverage and better transport links? In addition, has he thought of the idea of business advocates for the countryside to encourage the formation of small businesses?
The noble Lord raises a very good point about broadband. I absolutely agree with him on that. The rollout of superfast broadband infrastructure is vital to boosting sustainable economic growth and creating jobs in rural areas. Online business, whether rural or urban, grow four to eight times faster than their offline counterparts. Broadband is a key government priority. We are working to deliver the best superfast broadband in Europe by 2015, backed by a £530 million government investment to support rural areas.
My Lords, tourism turnover in the rural economy is nearly three times that of agriculture. Yesterday at Westminster, the Cut Tourism VAT campaign was launched, supported by the whole of the industry. Compared with our 20% rate, accommodation VAT is 10% in Italy, 8% in Spain and 7% in France and Germany. As a former Treasury Minister, does my noble friend appreciate that independent reports indicate that a cut in VAT on accommodation would boost Exchequer revenues, boost tourism and thus boost employment in the rural economy?
My noble friend has rather overpromoted me. However, in answer to his question, the Government recognise the importance of tourism to rural employment. I do not think that we can go as far as he asked, but the Rural Economy Growth Review showed that tourism is a significant contributor to the rural economy, with potential for significant further growth. Before the Autumn Statement, the Government announced a £25 million initiative to promote rural tourism and to support rural tourism businesses.
My Lords, further to that response, which is very important for the tourism industry, does the Minister agree that in view of that importance of tourism to the rural economy, his department should join with other departments in putting pressure on the Home Office to address the issue of visas to Chinese visitors, who are a vital component of inbound trade? Does he agree that that action needs to be taken urgently?
My Lords, is it not the case that in rural areas village shops provide a valuable social good for many people, especially those without motor cars? Perhaps we may hope for recognition that the supermarkets, more distant but very powerful as they are, simply cannot hope to provide that sort of service. May we hope that the Government’s policies for rural areas will reflect the special value of village shops?
Yes, I agree wholeheartedly with my noble and learned friend. We recognise the importance of rural service outlets such as village shops, post offices and pubs in sustaining strong and thriving rural communities. New community rights are being introduced that will allow local assets such as village shops to be put on the local asset register, giving communities first option to bid for them if they are under threat. In rural settlements with a population of less than 3,000 where there is only one retail outlet, it will receive rural rate relief. Consumer Focus is identifying rural issues as part of its help with the Post Office Local model. In 2012, Defra supported a number of community shops through the RDPE programme.
Banking: National Savings & Investments
My Lords, National Savings & Investments reviews its product range on a regular basis in light of its role to provide cost-effective retail debt finance to government. In doing so, it follows a policy of balancing the interests of its savers, the taxpayer and the wider stability of the financial services market.
I thank the Minister for that—albeit disappointing—reply. National Savings is probably one of the most trusted financial services brands left in the United Kingdom. The Minister knows well that all its recent issues have been massively and very quickly oversubscribed. Are the Government not missing a huge opportunity to extend the reach of National Savings to help savers and pensioners whose incomes have been absolutely hammered in the past five years due to the combination of record low interest rates and the disastrous effects of quantitative easing on annuity levels?
My Lords, the Government are very well aware of the needs of savers. Those who have done the right thing in the good times should not be penalised in these difficult times and the Government understand that. Specifically on National Savings & Investments, as I said, it keeps its product range under regular review so, of course, it looks to see when it is appropriate to bring products back in. However, it has to balance the need to deliver finance to the Government at rates that represent value for money for the taxpayer and the need not to compete unfairly in the savings market by offering products that compete with other providers in the market. The noble Baroness may look askance at that but I assure her that I get constant complaints from the retail savings market if it thinks that NS&I is using its power unfairly in the market.
My Lords, will my noble friend accept my warmest congratulations on the announcement by the Chancellor today that he will consult on allowing AIM shares to be included in ISAs, following the persistent representations of my noble friend Lord Lee of Trafford?
I am very happy to accept what my noble friend has said. I have probably answered more questions on AIM shares and ISAs than on practically any other topic. It is also worth saying that it has been announced in today’s Statement that the ISA limit will go up in line with inflation in April 2013—so, by another £240, to £11,520—enabling 24 million people to continue to benefit.
My Lords, why is NS&I no longer issuing tax-free, index-linked savings certificates? They are an extraordinarily effective instrument for some who wish just to preserve the real value of their savings, free of greed. Thus, it seems to me a particularly meritorious and efficacious instrument. Why is it no longer issuing new issues?
My Lords, NS&I takes index-linked and fixed-interest savings certificates on and off sale. When they were last on offer, during 2011, demand reached completely unprecedented levels. It meant that the sales volumes far exceeded what was anticipated and what represented value for money in terms of the target that the Treasury set for NS&I.
My Lords, I nearly forgot my question. The Minister referred to looking askance at his answer. I must say that I associate myself with my noble friend. Is he not aware that a more positive response would have been to say, “Yes, it is an extremely good idea to improve the range of savings products out of fairness to small savers. It will raise the propensity to save and increase the flow of funds to the Treasury”. In the light of the most ludicrous Autumn Statement in living memory, I would have thought that the Treasury would like to have all the help that it can possibly get.
My Lords, I would like to challenge the Minister’s comments on NS&I. Funding for Lending is a taxpayer-driven programme which has created the collateral damage of allowing banks to cut the interest rate that they offer on savings products, and NS&I has had to follow by cutting its interest rates on savings products. At this time, when savers are under such pressure, could the Minister consider lifting the best-buy restriction so that NS&I could start leading the industry back into paying decent savings returns rather than following the industry on a downward spiral?
My Lords, this raises many complex issues. I would simply say that a critical part of NS&I’s remit is to raise money for the Government on value-for-money terms. Secondly, I can assure the House that the Government are certainly not going to get into, in any way, unfairly competing in the savings market, which needs to be a vibrant, fair and free competitive market.
My Lords, the Minister has now indicated the conflict through two answers. He has just said that the role of NS&I is to raise money for the Government, and we all know its excellent reputation—but he also said earlier that it is there to look after the interests of savers, who are consistently getting a rate of return below the rate of inflation. How can that be fair?
My Lords, what is fair is that the Government have very considerable concern about savers. I have mentioned the ISA annual limit going up by inflation in April; consulting on whether AIM shares should be eligible to be in ISAs; introducing simple financial products; setting up the Money Advice Service; having a generous new single-tier pension; and raising the cap today on pension draw-downs from 100% to 120%. The Government take the interests of savers very seriously.
National Planning Policy Statement
My Lords, the Government’s policy, as set out in the National Planning Policy Framework, is that councils should have plans in place that meet their housing and development needs. These will vary across the country, depending on local circumstances and demands.
My Lords, I congratulate the Minister on not answering my Question at all. The first half of my Question is to ask the Government whether the statement by the Planning Minister, Mr Boles, in recent days that the amount of countryside that will need to be built on is such as to increase the amount of built-up area in England by one-third. Was he giving his own opinion or was he speaking as a Minister and giving government policy?
My Lords, my honourable friend the Minister for Planning was drawing attention to the fact that this country is going to require an enormous amount of new building of houses if it is to meet anything like the demand that exists. I think that he would be the first to say that he does not know whether that will require 2% or 3% more land, but he was saying that more land will be needed to build the houses that we require.
My Lords, a couple of weeks ago the Telegraph newspaper claimed that it had established that more than 9,000 acres of land—an area the size of the city of Gloucester—is to be removed from the green belt by local authorities following the coalition’s planning reforms, and that at least 40% of councils with green belt land in their areas have already redrawn or planned to alter the boundaries of the protected areas in an attempt to meet demand for housing and development. Is that correct, and does it have the Government’s support?
My Lords, we have made it clear all along and all through the discussions on the National Planning Policy Framework that we support the retention of the green belt, which lies between and separates out major conurbations so that there is not one continuous string of developments. It will be up to local authorities to decide whether they need and have support to develop into any of their green belt, but by and large the Government’s policy is to retain the green belt, as it is a very important aspect.
My Lords, a few weeks ago Mr John Hayes earned great praise by saying that although he could not build Jerusalem he wanted to defend England’s green and pleasant land. Would it not be a good idea if Mr Boles studied that remark and its implications and realised that that is the policy that we support, which ties in with the Government’s policy announced last year, and which would not result in east and west bank settlements all over our land?
My Lords, that is a little bit unfair, if I may say so. We all recognise that we need more housing and that there are different parts of the country where housing will be needed. We all recognise that there are different sorts of land that will be required to meet the housing needs in any particular area. But we still maintain that the green belt should be retained; it is a very important part of ensuring that our countryside remains open. My honourable friend was drawing our attention not only to the amount of land that is needed but to the need to ensure that we have decently designed houses with a little bit more space than at the moment.
My Lords, the first priority in the National Planning Policy Framework is for brownfield land to be developed. Not all brownfield land is appropriate for housing; not all brownfield land is cheap for development and housing. Nevertheless, it remains a priority for local authorities to look at what brownfield land they have and develop it. However, brownfield land is primarily in city centres and, as noble Lords have often pointed out in this House, there are requirements for housing in rural areas as well.
My Lords, does the Minister agree that, even when land is available and planning consent has been given, the houses still need to be built? Does she agree that lifting the cap on local authorities’ ability to borrow against their housing stock would go a very significant way towards enabling such houses to be built? Is she aware that London Councils has calculated that if that cap was lifted, 54,000 new homes could be provided in London alone? Are the Government going to act on this?
My Lords, it is a matter for the Chancellor whether the cap is lifted on local authority borrowing. It is not something that I can enter into at the moment. Local authorities know their limitations as far as prudential borrowing is concerned at present.
My Lords, does the Minister agree that a very good way of minimising the take of land, while maximising the number of people who are housed, is by building retirement apartments? The people who move into those retirement apartments—which are much better for them—often vacate three-bedroom or four-bedroom houses. Did she note the statistic in the report by the All-Party Parliamentary Group on Housing and Care for Older People last week that 85,000 homes for older people would actually lead to 400,000 people being housed because of the homes that they vacate?
My Lords, first, I congratulate the noble Lord, Lord Best, on the HAPPI 2 report, which introduced these figures. Yes, of course, it would be ideal for older people to have housing that is absolutely suitable to their needs and built especially for them. It would remove the possibility that they are living in family housing that is too big for them and hard to cope with. It is right that those statistics mean that there would be more housing for families under those circumstances.
Public Service Pensions Bill
The Bill was brought from the Commons, read a first time and ordered to be printed.
Financial Restrictions (Iran) Order 2012
Motion to Refer to Grand Committee
Financial Services Bill
Clause 3 : Oversight Committee
1: Clause 3, page 2, line 40, after first “The” insert “court of directors of the”
My Lords, in most cases the legislation places duties, powers and obligations on the Bank as an institution. The Court of Directors is responsible for managing the Bank’s affairs. In practice, the Court of Directors, in a similar way to other governing bodies, delegates the vast majority of the Bank’s day-to-day decisions to the executive, with the court itself taking only the most important strategic decisions. There are, however, some instances in the legislation where the duties, powers and obligations are placed directly on the court. For example, the court is responsible for determining the Bank’s strategy, including its financial stability strategy, and it also has the power to delegate additional functions to the FPC.
On Report, the noble Lord, Lord Eatwell, and I discussed whether the court would take the decision whether or not to withhold from publication a report of the oversight committee. I stated clearly that I would expect a decision of this importance to be taken by the court rather than to be delegated to the executive. However, in the light of that debate, I asked my officials to look right through the Bill again to see whether there were other key decisions for which responsibility should lie unequivocally with the court. This group of amendments is the result.
Amendments 4, 5, 6 and 7 confirm that the court will decide whether oversight committee reviews should be withheld from publication in order to protect the public interest.
Amendments 1, 12 and 26 to 31 make the same change to confer a number of other responsibilities directly on the court. These are the power to delegate additional functions to the oversight committee, responsibility for being consulted on the PRA’s strategy, and the power to appoint non-executive members to the PRA board.
Amendment 25 puts beyond all doubt that the court may not delegate any functions that are explicitly given to it in legislation. I should make it clear that this does not mean that all functions that the legislation confers on the Bank will automatically be undertaken by the executive. The court will of course retain discretion either to delegate these roles to the executive or to reserve those decisions for itself. However, I believe that these amendments provide important clarity by identifying those roles within the legislation that will be the responsibility of the court in all cases. I beg to move.
My Lords, I am very grateful to the noble Lord for having clarified some obscurities in the Bill that arose from the use of the generic term “the Bank” to refer sometimes to the court and sometimes to the executive. However, the noble Lord has just said something which has disturbed me. He said that, for clarification, when the term “Bank” is used, this does not necessarily mean the executive; it may mean the court. It seemed to me that he was acknowledging that an uncertainty remained. Perhaps I misheard. I should be very happy if I did, because the sort of clarification that he has set out is very welcome.
My Lords, there is one area in this territory on which I would appreciate some clarity. The principle of returning the oversight of banks to the central Bank, which I think has been widely supported, has, to my mind, always been about the concept that the central Bank ought to be in regular contact with banks, that it ought to know what is going on and that it ought to be able to head off practices that are clearly potentially damaging to the banking system. However, I am not clear how the staff of the Bank and the staff of the PRA will interact. One would have thought that quite often it would be the staff of the Bank who were having regular dialogue with banks and learning what was going on and what might be going wrong, but it is the PRA—to some extent a sort of cuckoo plopped into the middle of the Bank of England—that essentially has the legal tasks. Therefore, we have clarification of the definitions of “Bank” and “court” but below what I call the executive level I am still not entirely clear where the staff of the Bank or the staff of the PRA will be carrying out supervisory activities.
My Lords, in response to the question raised by the noble Lord, Lord Eatwell, as I said at the beginning of my remarks, the Court of Directors is the governing body of the Bank, so ultimately it is for the court to decide who takes what decisions and which decisions should be for the Bank. In the legislation, “the Bank” certainly does not mean the Bank executive; it means the Bank of England. Therefore, it is always for the Court of Directors, just as it is for the governing body of any corporate institution, to decide who takes what decisions and, if the governing body does not delegate them, it takes them itself. We are making clear through these amendments that there is a certain small category of decisions—one of which was identified by the noble Lord, Lord Eatwell—that is of such importance that it is appropriate to put down for the avoidance of doubt in the legislation that it is the court not the executive that takes those decisions. That is what those amendments do.
Indeed. I should say that it is subject to what is laid down in statute about the Monetary Policy Committee and the Financial Policy Committee and so on. If they are decisions of the Monetary Policy Committee, then they are the decisions of the Monetary Policy Committee. If they are the decisions of the Bank, the court will decide how they are taken. As for the question from my noble friend Lord Flight, of course it will be the PRA staff who will supervise and lead on the direct relationships with the banks or insurance companies, for example, that are being supervised. Technically, the PRA staff will be seconded from the Bank. There will be a close working relationship, which is part of the benefit of bringing it all together under the one umbrella.
I hope I did not misunderstand, but the Minister seemed to say that all decisions of the Bank are made by the court. Does that mean that when the Governor of the Bank of England makes a policy decision, it is not his decision, but a decision of the court?
No, my Lords, that is not what I said. I said that the court is the governing body of the Bank. So unless specified in some other way, it is ultimately the decision of the court as to whether it takes a decision or delegates it. When it comes to policy decisions of the sort that the noble Lord is describing, they are of course delegated ones. All we are trying to do in this amendment is make it clear what decisions should be taken by the court and only by the court.
Amendment 1 agreed.
2: Clause 3, page 3, line 11, leave out “9B(1)(e)” and insert “9B(1)(d) or (e)”
My Lords, this is a group of minor technical amendments which simply remedy some drafting glitches in a number of cross-references in the Bill and address minor drafting inconsistencies. I do not propose to go through each amendment, but will answer any questions that noble Lords might have on them.
Amendment 2 agreed.
Amendments 3 to 7
3: Clause 3, page 3, line 16, leave out “13(2)(c)” and insert “13(2)(b) or (c)”
4: Clause 3, page 4, line 23, after first “the” insert “court of directors of the”
5: Clause 3, page 4, line 24, leave out “Bank” and insert “court of directors”
6: Clause 3, page 4, line 29, leave out “Bank” and insert “court of directors”
7: Clause 3, page 4, line 30, leave out “it” and insert “the Bank”
Amendments 3 to 7 agreed.
8: Clause 4, page 6, line 26, leave out “2 members” and insert “one member”
My Lords, in response to an amendment at Report put forward by my noble friends Lady Noakes, Lady Wheatcroft and Lady Kramer, we committed to come back with amendments to rebalance the FPC’s membership. These amendments are intended to do just that. They will remove the executive director responsible for market analysis from the FPC. This will shift the FPC’s balance so that it includes five Bank executives and five non-Bank executives, including four independent members. Crucially, this will retain the Bank’s majority on the FPC, as the committee’s chair will have a casting vote. As we have said previously, we believe that it is vital that the Bank remains in the majority on the FPC if we are to hold the Bank accountable for its performance. Amendments 23 and 24 reduce the FPC’s quorum from seven to six, to compensate for the smaller membership. Noble Lords will note, however, that we have retained the requirement that at least one of the external members be present in order for the committee to be quorate. These amendments again demonstrate that the Government have listened to the House and responded accordingly. When this change was discussed at Report, it was widely welcomed and in that spirit, I hope the House will support these amendments. I beg to move.
Amendment 8 agreed.
9: Clause 4, page 6, leave out lines 30 to 34 and insert—
“(2) The member appointed under subsection (1)(d) is to be a person who has executive responsibility within the Bank for the analysis of threats to financial stability.”
Amendment 9 agreed.
10: Clause 4, page 7, line 7, leave out “subject to that” and insert “with equal weight”
My Lords, the amendment relates to something originally in the Bank of England Act 1998 which should not have been there in the first place. My noble friend Lord Peston and I tried very hard for it not to be put in but failed at the time. I hope that we will be more successful today.
The words “subject to that” should never have been there in the first place. All they mean is that the Governor of the Bank of England—and we will have a new one next July—will have his hands tied fast. He must first get stability—that is, control inflation—and only then can he look at the Government’s economic policy. Frankly, I would prefer that he looked at someone else’s economic policy than that of the present Government because I am not very happy with it. However, that is how it should be: the governor should look at the Government’s economic policy—and given what we heard in the Autumn Statement, someone else certainly needs to look at the situation and at this Government’s economic policy.
The new governor may be as good as everyone says—I hope he is—but I think what he can do with the economy has been massively overstated because that is primarily the responsibility of the Chancellor of the Exchequer. Sadly, the present Chancellor—whose first line in the Autumn Statement should have been an apology—has said everything is marvellous. It is hard to believe that anyone could do that, but the Chancellor did it.
It would help if the new governor had at least a responsibility to look at the economy to see whether he can help the Chancellor. It would be helpful to the Government to have the words deleted and that is all I am seeking to do. I shall not take up any more of the House’s time. I beg to move.
My Lords, I wish to add two or three remarks to what my noble friend Lord Barnett has said.
On any logical grounds, “equal weight” is precisely what the Government would want to see in this part of the Bill. One feels that somehow the computer got jammed and “subject to that” got stuck in all over the place for no good reason. I would be surprised if the Minister is not sympathetic to the amendment.
I wish to make two remarks in regard to the prospective governor. First, I know that he felt it was right for him to appear before the Treasury Select Committee in the other place in order that its members should know who he was. Bearing in mind the vast amount of work that noble Lords have put in to this Bill, which is devoted overwhelmingly to the Bank of England, and given that, with much regret, we will be dealing some day with a Bill about the Bank of England without the Minister being the lead figure, I would like to go on record as saying that it would be a good idea if the prospective Governor of the Bank of England appeared before your Lordships’ Economic Affairs Committee so that he could become known to us as well as to the other place.
My second remark is in favour of the prospective governor. Eyebrows have been raised that he is being paid approximately £600,000 for this job, which is a lot of money—certainly to an impoverished ex-professor. None the less, given that the prospective governor could earn between £10 million and £15 million per annum—most of which, I would guess, would end up being tax-free—someone ought to reassure him that, if anything, we are getting a bargain and he is doing us a favour rather than us doing him a favour by appointing him.
My Lords, I support some of the sentiments, but not the amendment, of the noble Lords, Lord Barnett and Lord Peston. Like them, I believe it would be a good thing if Mr Carney were to appear before the Lords Economic Affairs Committee as well as the Commons Treasury Committee. Mr Carney is entirely used to dealing with bicameral legislatures with separate committees. On 30 October this year, he appeared before the Canadian House of Commons Standing Committee on Finance to discuss the October monetary policy report. The following day, he appeared before the Canadian Senate Standing Committee on Banking, Trade, and Commerce to discuss the same report.
However, since this is a suggestion from the noble Lords, Lord Barnett and Lord Peston, I know they would prefer me to use the word “must” rather than “may”, but it may be better to suggest to the Minister not that Mr Carney must appear before our Economic Affairs Committee but that he may want to appear. The Minister may want to suggest this to him.
My Lords, I will make sure that the suggestion to Mr Carney is passed on, but of course it is breaking radical new ground that a prospective governor should appear before the Treasury Select Committee, and I do not know whether we want to be too radical at this juncture, but the point is taken.
Turning to the matter in hand, first, I have to admire the persistence, consistency and eternal optimism of the noble Lords, Lord Barnett and Lord Peston, on this matter. I am sorry to disappoint the noble Lord, Lord Peston, but on this occasion the Treasury’s word processor did not slip a few words. There is a very important issue here, which is why the two noble Lords raise this matter on a regular basis. We debated very similar amendments to this one in Committee and on Report, although I recall that on Report the amendment was moved by the noble Lord, Lord Eatwell, on behalf of the noble Lords, with, let us say, a degree of enthusiasm.
The House will be unsurprised to learn that my position on this point is unchanged on the back of what I have heard this afternoon. The FPC’s primary objective must be financial stability. Financial stability is the FPC’s reason for being, its primary purpose. The aim of the committee will be to secure a safe and stable financial system, which will help create the conditions necessary for stable and sustainable economic growth. I should not rise to every bit of bait but I have to say that my right honourable friend the Chancellor of the Exchequer has done an outstanding job in extremely difficult economic circumstances, as we will discuss later this afternoon. While he is always grateful for any additional advice, we should have the FPC stick to its main task as its primary objective.
The legislation makes clear that, subject to achieving its primary objective for financial stability, the FPC should act to support the Government’s economic objectives. This structure strikes the right balance, by giving the FPC a clear and positive mandate to support economic growth, but without prejudicing its primary responsibility to protect and enhance financial stability. It is clear already, from the way that the shadow FPC is operating, that it has this mandate well on board.
The primary flaw with the structure proposed in Amendment 10—namely, to give the FPC dual, equally weighted objectives—is that this would allow the FPC to take action that would damage financial stability with the aim of encouraging growth. This would take the FPC outside its remit and expertise, and directly frustrate its primary purpose, which is financial stability. I simply do not believe that the model proposed by the noble Lords is appropriate or workable and I ask the noble Lord to withdraw his amendment.
I am never surprised by the noble Lord and I am certainly not surprised today. I think I heard him say that the model produced by my noble friend Lord Peston and me—we do not normally produce models, but I am very happy to do so on this occasion—would prejudice the Government’s policy. I do not know what policy of the Government needs prejudicing. At the moment, everything is going well, according to the Chancellor, and instead of apologising, as he should have done, in the first line of his Statement he said that everything is healing. Now we are told that we should give the brilliant new governor an opportunity to comment to the Chancellor on the economy—he certainly needs someone to tell him something about his policy.
How can the Minister say that the FPC would prejudice financial stability because it might go for economic growth? I have heard some arguments against what my noble friend and I have suggested for a long time, but to suggest that that is the answer that the Treasury is using is quite incredible. I wish I had heard him differently. I am very sorry indeed that that was his reply, and I simply do not accept it.
Amendment 10 withdrawn.
11: Clause 4, page 15, line 3, at end insert—
“( ) The purpose of a review is—
(a) in the case of a direction, to consider whether the direction ought to be revoked, and(b) in the case of a recommendation, to consider whether the recommendation ought to be withdrawn.”
My Lords, Amendment 11 responds directly to a request made by the noble Lord, Lord Eatwell, on Report. On hearing my noble friend Lord Sassoon’s explanation of the underlying purpose of the FPC’s reviews of its live actions—namely, to consider whether they are still necessary and whether they should be removed or revoked—the noble Lord, Lord Eatwell, responded,
“if that is what the new section meant, why did it not say so?”.—[Official Report, 6/11/12; col. 978.]
I believe that the purpose of the reviews could have been derived implicitly from the clause as it was originally drafted. However, I accept that this could be made more explicit in the clause, and Amendment 11 seeks to do exactly that. This is a straightforward amendment, which responds directly to concerns raised in this House about the clarity of the drafting. I hope that noble Lords can support it. I beg to move.
Amendment 11 agreed.
Clause 6 : The new Regulators
Amendments 12 and 13
12: Clause 6, page 30, line 42, at end insert “court of directors of the”
13: Clause 6, page 44, line 5, leave out “22(1A)” and insert “22(1A)(a)”
Amendments 12 and 13 agreed.
Clause 11 : Permission to carry on regulated activities
Amendments 14 to 16
14: Clause 11, page 54, line 15, leave out “considers” and insert “appears to it”
15: Clause 11, page 58, line 5, at end insert—
“(5A) The FCA may refuse an application under subsection (5) if it appears to it that it is desirable to do so in order to advance any of its operational objectives.”
16: Clause 11, page 58, line 45, at end insert—
“(5A) The PRA may refuse an application under subsection (5) if it appears to it that it is desirable to do so in order to advance any of its objectives.”
Amendments 14 to 16 agreed.
Clause 24 : Rules and guidance
17: Clause 24, page 88, line 38, at end insert—
“137BA FCA general rules: cost of credit and duration of credit agreements
(1) The power of the FCA to make general rules includes power to make rules prohibiting authorised persons from—
(a) entering into a regulated credit agreement that provides for—(i) the payment by the borrower of charges of a specified description, or(ii) the payment by the borrower over the duration of the agreement of charges that, taken with the charges paid under one or more other agreements which are treated by the rules as being connected with it, exceed, or are capable of exceeding, a specified amount;(b) imposing charges of a specified description or exceeding a specified amount on a person who is the borrower under a regulated credit agreement;(c) entering into a regulated credit agreement that—(i) is capable of remaining in force after the end of a specified period, (ii) when taken with one or more other regulated credit agreements which are treated by the rules as being connected with it, would be capable of remaining in force after the end of a specified period, or(iii) is treated by the rules as being connected with a number of previous regulated credit agreements that exceeds a specified maximum;(d) exercising the rights of the lender under a regulated credit agreement (as a person for the time being entitled to exercise them) in a way that enables the agreement to remain in force after the end of a specified period or enables the imposition on the borrower of charges within paragraph (a)(i) or (ii).(2) “Charges” means charges payable, by way of interest or otherwise, in connection with the provision of credit under the regulated credit agreement, whether or not the agreement itself makes provision for them and whether or not the person to whom they are payable is a party to the regulated credit agreement or an authorised person.
(3) “The borrower” includes—
(a) any person providing a guarantee or indemnity under the regulated credit agreement, and(b) a person to whom the rights and duties of the borrower under the regulated credit agreement or a person falling within paragraph (a) have passed by assignment or operation of law.(4) In relation to an agreement entered into or obligation imposed in contravention of the rules, the rules may—
(a) provide for the agreement or obligation to be unenforceable against any person or specified person;(b) provide for the recovery of any money or other property paid or transferred under the agreement or other obligation by any person or specified person;(c) provide for the payment of compensation for any loss sustained by any person or specified person as a result of paying or transferring any money or other property under the agreement or obligation.(5) The provision that may be made as a result of subsection (4) includes provision corresponding to that made by section 30 (enforceability of agreements resulting from unlawful communications).
(6) A credit agreement is a contract of the kind mentioned in paragraph 23 of Schedule 2, other than one under which the obligation of the borrower to repay is secured on land: and a credit agreement is a “regulated credit agreement” if any of the following is a regulated activity—
(a) entering into or administering the agreement;(b) exercising or being able to exercise the rights of the lender under the agreement.(7) In this section—
(a) “specified amount” means an amount specified in or determined in accordance with the rules;(b) “specified period” means a period of a duration specified in or determined in accordance with the rules;(c) “specified person” means a person of a description specified in the rules;(d) subject to that, “specified” means specified in the rules.”
My Lords, on Report I committed to bring forward a government amendment to give the FCA an effective power to make rules capping the cost and the duration of a regulated credit agreement. I am grateful to the noble Lord, Lord Mitchell, for raising this on Report and to noble Lords on all sides of the House who spoke in support of the need for action against sharp practices in the payday lending industry. The Government warmly welcome the cross-party consensus that emerged on this important issue.
As I said on Report last week, the Government were fully in agreement with the intent behind the noble Lord’s amendment but felt that there were weaknesses in the way it was framed. We have made use of the time between Report and tabling this amendment at Third Reading to get this power right and ensure that it is watertight. Moreover, I also committed to going further than the noble Lord, Lord Mitchell, proposed, by making additional consumer protections integral to the power.
The Government’s amendment spells out in detail the kind of rules that the FCA may make to prevent lenders from imposing excessive interest rates or associated charges on borrowers, and clarifies that the FCA would be able to specify the level of the cap in rules and also to define which charges, in addition to interest, should be captured. The amendment also allows the FCA to impose limits on the duration of the agreement, and to specify the detail of the cap and other restrictions in its rules.
Those who have compared the Government’s amendment tabled yesterday with the amendment of the noble Lord, Lord Mitchell, will have noted that the Government’s version is significantly longer and more comprehensive in its detail. I said last week that we would take care to frame the power to prevent unscrupulous firms exploiting loopholes and to ensure that consumers were properly protected. The Government specifically ensured that this power covers associated charges to avoid unscrupulous firms “gaming” the restrictions by, for example, reducing the interest rate but introducing exorbitant fees for related services such as setting up the loan. It also specifically captures the practice of rollovers, which we have seen abused by some players in the payday loans industry. Under the amendment the FCA will have a specific power to impose a limit on the overall duration of the rolled-over agreement and a limit on the number of rollovers that are permitted.
The government amendment has also built in robust protections for consumers who fall victim to lenders’ excessive charges. First, the FCA can provide that the lender cannot enforce the agreement and the borrower is not obliged to repay the loan. Secondly, it can provide that any money or property transferred under the agreement—an item that has been pawned, say—must be returned. Thirdly, it can provide that compensation must be paid to the consumer.
Before moving on I will address briefly one provision in the amendment of the noble Lord, Lord Mitchell, that we omitted in tabling the Government’s version: namely, a specific reference to consumer detriment or consumer protection. That is because the FCA will already be prompted to respond when it detects consumer detriment. Under Section 137A of FiSMA the FCA may make general rules only for the purposes of advancing one or more of its operational objectives. These are: securing protection for consumers, protecting and enhancing the integrity of the financial system, and promoting effective competition. As such the consumer protection objective will provide the strong underpinning mandate for the FCA to make rules under the new power that we are discussing. It is not therefore necessary to spell it out further in the Bill.
While I am confident that our amendment clarifies the FCA’s role in this important area, we must be careful not to regard this power as a silver bullet that will fix all the problems in the payday lending sector. As the OFT’s recent report into the high-cost credit market showed, it is clear that regulation of the payday lending market as a whole needs to improve. Compared to the current regulatory regime under the OFT, the FCA will have a broader and more effective toolkit to monitor and tackle developments in the market and supervise practice among firms.
Capping the cost of credit and the number of times that the loan can be rolled over is a major market intervention, and I expect the FCA to contemplate the use of this power in a responsible and measured way. I discussed the mixed picture from international evidence on Report. We must avoid at all costs any such cap resulting in catastrophically unintended consequences, such as driving vulnerable consumers to illegal loan sharks. However, as I said on Report, we need to ensure that the FCA grasps the nettle when it comes to payday lending. This amendment grants the FCA the powers to deliver effectively on its consumer-protection objective and tackle consumer detriment. It is a power that I hope all sides of the House will wish to support. I beg to move.
My Lords, never in my wildest dreams did I ever expect that I would be standing here at the opposition Dispatch Box with my name on an amendment alongside a government Treasury Minister. It is some achievement and could occur only in your Lordships' House and not in the other place. I thank the noble Lords, Lord Sassoon and Lord Newby, for the very constructive way in which they responded to the amendment we put forward. They listened to what we had to say, took our comments away and came back with an amendment that is entirely acceptable to us. However, I would not like them to think that this is a complete love fest—normal service will resume at some other time.
It is worth recounting that the Government told us in Committee that the points which we wanted were already in the Bill. We tried hard to find the location of those points—and no doubt they are buried somewhere. However, with an issue like this one, which is so important, it is dangerous to have implied rules which have to be inferred. Many of these payday loan companies have very successful lawyers and access to some of the best brains in the country in this area. The provision would have been a complete dog's breakfast, to be honest.
We tried again at Report, and I admit that I came in here today ready for battle. However, I was astonished and delighted at the complete turnaround that the noble Lord, Lord Sassoon, has offered. He promised us a better amendment and that is what we have been given. The new amendment is stronger, tighter and more effective, and most of all, it offers complete clarity. I would not be human if I did not savour the moment just a jot. It probably will not happen again, but it is good that it has happened today.
I have been asked why the Government conceded and no doubt at some stage, over a gin and tonic, I will find out. However, I feel that it was due to two reasons —the political argument, and the moral argument. As for the political basis, the Government knew that they would be defeated last Wednesday on Report. It had been a bad couple of weeks for the Government and another defeat was something that they could do without. The moral argument, however, was more important. I was fortunate because the noble Baronesses, Lady Howe of Idlicote and Lady Grey-Thompson, and the right reverend Prelate the Bishop of Durham added a non-political independent gravitas to what we were trying to do. I thank them from the bottom of my heart. I also thank all noble Lords who contributed to the debate.
The media also took up this cause with a vengeance. Every article and television programme that I read or saw seemed to back our position. They were against the payday lending companies. Indeed, I am sure that the man in the street in this country was also in favour of regulation. Everybody seemed to be in favour of it except for the payday loan companies themselves—and I was nobbled in the most unlikely of locations by them or their representatives telling me how wrong we were. However, the Government conceded because the political and moral arguments were absolutely against them. They did concede and I am grateful to them for the positive way in which they have dealt with this issue.
I had two questions to ask about consumer detriment and time and duration but the Minister has addressed them in his speech. He said that there was no silver bullet for this and I absolutely agree. As we go forward perhaps we should look at what is happening in other countries. I spoke at Report about the experience in Florida, which has had an amazing result. I repeat that anyone who takes out a payday loan in that state has to register it as a charge. They have to pay for it and it goes on to a database. It is known that they have a payday loan. That absolutely prevents any individual having more than one payday loan on any one occasion. That is something that we should look at for the future.
This provision will go forward and become a new law but I believe that it will also become a statement of intent. This amendment is simple, symbolic and now stands alone. This industry is going to be controlled. For many people out there, the world is now a slightly better place.
My Lords, those of you who were present for prayers earlier this afternoon will have perhaps noted the irony with which this Prelate quoted from Psalm 15, which speaks about taking money upon usury. In rabbinic and Jewish interpretation that is interpreted as “not unreasonable” usury.
I have to express my gratitude to the Government and the Minister for this excellent amendment. I do so on behalf of the Bench that I sit upon and especially on behalf of the right reverend Prelate the Bishop of Durham, who has had unfortunately to go home for urgent diocesan business, otherwise he would have been making some of the comments that I have been making. I will not go into the detail but I will make one final comment—on the way that your Lordships’ House conducts its business when we are at our best. This seems to me to be a very good example of that. We had an amendment and then rational discussion in debate at various levels—Cross-Bench, opposition, government—and then we had an excellent amendment. For that I thank the Government and all who have taken part in this important debate.
My Lords, I start by congratulating my noble friend Lord Mitchell and the noble Lord, Lord Sassoon, on a very great achievement. However, as everybody seems to understand the amendment in every way except for me, I have three questions in case I have misunderstood what the noble Lord said.
I read the amendment as saying that it gives the FCA the power to do all the things that we want it to do. However, I was not very clear whether he was then saying that, under its consumer protection mandate, it follows immediately that it must exercise that power. This is our favourite “may” and “must” question. You can give someone power but they may not use it. However, am I right in understanding that this amendment, coupled with the whole of the rest of the remit for the FCA, essentially means that it will now have to go into this field and deal with it in the way suggested, or is it still up to it whether it bothers with it? I would like the answer to that question.
The second question we had—if we recall our little debate on this last week—was on the concept of transparency. The great reason why this is a racket is of course that the average consumer/borrower who is not an expert in this field does not know until he has signed up what he is signing up for. Am I right in assuming that this amendment will make sure that the one thing that would happen as a result of this—do not let us worry for the moment about bankruptcy and all that for these firms—is that consumers will definitely know what they are letting themselves in for? Certainly my attempt to look up at least one site on this showed that you do not get to what you are letting yourself in for until you are virtually locked in. Am I right that this amendment is both transparent in general and also transparent with regard to what you have let yourself in for?
I do not say this in a negative way in terms of saying we do not want this; this is a tremendous achievement. I am looking for a bit of enlightenment to make sure that I understand what it means.
My Lords, perhaps I may add to what my noble friend Lord Peston has said. I will not repeat the may/must argument; it has been well enough made, and I hope that we will get a reply from the noble Lord, Lord Sassoon. Incidentally, in congratulating my noble friend Lord Mitchell, perhaps it is right that I should also congratulate the noble Lord, Lord Sassoon. This may be our last exchange before he retires.
The noble Lord, Lord Sassoon, mentioned the assumption that the FCA will now have the powers to deal with these unscrupulous people regarding payday loan schemes. As my noble friend Lord Mitchell said, they will have lots of good lawyers because when people have many profits to defend, as they do, they tend to use lots of lawyers. While I am not a lawyer, I hope that the noble Lord’s lawyers have indeed drafted this correctly. I know that these things can never be done tightly enough and that once lawyers get involved it finishes up in the courts for somebody else to decide. That is bound to happen and I am not blaming the noble Lord, Lord Sassoon, or his legal advisers for it. In my experience, when court actions involve lawyers on two sides in major cases, both advise their clients that they are right and that they should go to court about it. That becomes very expensive and they eventually resolve it only in the court.
As the noble Lord, Lord Sassoon, said, although he is confident about this provision, it is nevertheless not a silver bullet. Does he think that the advice he has been given will result over the next few months or weeks in the lawyers worrying about it? At the end of the day, will we require secondary legislation to deal with this? I hope not—I hope that the lawyers have it absolutely right this time. However, as the noble Lord said, one of the worries is the law of unintended consequences.
This is such a complex area but I like the point that my noble friend Lord Mitchell made about what happens in, I think, Canada.
In Florida, they have to register this. If it was in Canada, the new Governor of the Bank of England would have a still better idea. It may be that he still does because he seems a very bright fellow and he will know what happens in Florida. Perhaps, some time in the not too distant future, we will have something like what my noble friend Lord Mitchell quoted because that seems to me, as a non-lawyer, to be a sensible way forward. I hope that we can move that way in future. For now, it only remains for me, too, to congratulate all concerned in this matter and wish the new amendment well in the future.
My Lords, I congratulate the noble Lord, Lord Mitchell, the Government and others in the House on passing this Act because in terms of consumer protection in Acts, the wheels turn very slowly. The Consumer Credit Act 1974 was only superseded because of a lot of effort by quite a number of us in the other place in getting another Consumer Credit Act in 2006, 32 years later. At a time when we have the internet and technology has increased enormously, that means that the imbalance between the consumer and the industry gets even steeper, so I welcome this amendment today and the efforts that have been put into it.
In particular, I congratulate the Minister, the noble Lord, Lord Sassoon, as he departs the Front Bench. He deserves our hearty congratulations because for years we have listened to the plea, “Let the market work”. What happens when we let the market work, to be euphemistic, is that innovation takes over and innovation, as the Minister says, equates to sharp practices. Once we pass this in the House today, it will be going out into the cold light of day and I can tell everyone in the House that innovation will take place and we therefore have to be on our guard.
This is but a first step but it is a huge first step. In line with the comments made by other Peers, I ask the Minister for clarification on these points. First, will the new clause cover all costs and charges levied by payday lenders or borrowers? Secondly, when will it come into force? A number of us are worried that we could be waiting for a long time before it is brought in and that, in the interim, the sharp practices will continue. Lastly, how do the Government envisage the cap being set and does the Minister have in mind at what level he expects that cap to be set? It is important to give some direction to the FCA in today’s debate. My last word to the Minister is to offer my congratulations as a new life beckons in front of him, which I hope is just as prosperous.
My Lords, I had not intended to say anything today, because I was pleased with the amendment. The more I listened to the explanation, however, the more enthusiastic I became about it. So I wanted to add my thanks to the noble Lord, Lord Mitchell, for all that he has done here, as well as to the noble Lord, Lord Sassoon, and everybody else who has been involved in the redrafting. I am sure it will not solve all the problems. I would also like to ask when it will come into force; I imagine that it will not be all that far ahead. Nevertheless, as has been said, it is an extremely important and valuable step in the right direction.
My Lords, I am grateful for all those contributions. I will briefly respond to some of the specific questions. First, the noble Lord, Lord Peston, asked whether this means that the FCA has to go into this field. Absolutely it does; it would have to anyway. Putting all this in the Bill will concentrate the FCA’s mind wonderfully. However, as the noble Lord knows, it is an enabling power; the FCA may make these rules, but this does not say that it must make them.
On the noble Lord’s other questions about whether consumers know what they are letting themselves in for, this is one of the other areas that clearly needs attention, as I indicated in my opening remarks. Whether this is addressed under the consumer credit directive or the consumer protection regulations, it is another parallel area. I stress again that we are getting to the heart of the issue in this amendment, but this is not the sum total of it.
There were also questions about when the rules might come in. The rules will come in when the FCA gets round to making them. There is nothing to stop the OFT moving ahead. The next thing we are expecting is the academic report, which refers in some detail to the international evidence about the pros and cons of caps. That will be part of the evidence base that will be used, building up to any rules that may or may not be put in place. However, I can assure the noble Lord, Lord Barnett, that there is no question of secondary legislation here. We are giving the FCA a clear rule-making power; its rule-making procedures will then go for consultation, but this does not need to come back through the channel of secondary legislation.
Lastly, I turn to the questions from the noble Lord, Lord McFall of Alcluith. In parenthesis, I would argue that there have certainly been financial innovations that have been beneficial, but perhaps we will leave that debate for another day. The noble Lord asked whether all costs and charges would be covered. Yes, they will—all of them. He asked when this comes into force. This specific power comes into force in April 2014, when credit becomes a regulated activity under the FCA. Of course, that will not stop the Government and the OFT looking at what may need to be done before then, but we are talking about a Bill that relates in this instance to the powers of the FCA when they are transferred over. As far as what the cap should be, that will be a matter for the FCA. It is a very difficult question that will need careful thought. As I have already indicated, the Bristol study, which is coming out very soon, will be an important contribution to that thinking. We are putting an important building block in place today, but it is not the only building block in this area.
My Lords, I do not want to push my luck too much with the Minister, but he says that the rules will come in as and when the FCA decides, and that is 2014. We have a bit of time before then. Given that there is urgency regarding the adoption of this clause and all-party agreement about it, it would be good if he could elaborate on those comments so that he sends a message from here today to the industry and the regulators that this is a matter of urgency and that Parliament wishes to see early action on this matter. We do not want to wait until mid-2014. Just to add icing to the cake, will he please elaborate?
Amendment 17 agreed.
18: Clause 24, page 102, line 6, after “to” insert—
“(a) rules made by the FCA under section 137BA, or”
Amendment 18 agreed.
Clause 31 : Additional power to direct UK clearing houses
19: Clause 31, page 125, line 26, leave out “desirable” and insert “necessary”
My Lords, last week on Report my noble friend Lord Sassoon signalled that the Government were minded to bring forward amendments at Third Reading to address some of the concerns that have been raised by the industry regarding the proposal to confer on the Bank of England an additional power of direction over clearing houses. This group of amendments reflects those concerns.
First, the amendments will require the Bank to be satisfied that any direction made under the power is necessary, having regard to the specified public interest criteria, rather than simply desirable. Secondly, they will put it beyond doubt that this additional power of direction will not be available in instances where the desired direction could be given under the Bank’s existing power of direction under Section 296 of FiSMA. Thirdly, the Bank, in instances where it gives a direction under this power without giving the recipient prior notice, will be required to explain to the recipient after the direction has been given why the direction was given, and why no prior notice of it was given. I should also make it clear that any justification given pursuant to this requirement will be given to the clearing house directly, will not be published and will not divulge sensitive information that might harm the public interest. Fourthly, these amendments will give effect to the assurance that we have already given the House that the additional power of direction could not be used to compel a clearing house to accept the business of a competitor. The amendments will provide greater certainty to clearing houses regarding the circumstances in which the additional power of direction could be used.
To alleviate any remaining doubts from industry, I repeat the assurance that my noble friend has previously given the House: the power of direction relates only to the recognised clearing house itself. The Bank of England cannot use the power of direction to require shareholders, members or clients to recapitalise or otherwise fund a failing recognised clearing house, with one exception: where the UK clearing house already has recapitalisation arrangements and agreements in place with its shareholders. In this instance the Bank of England could use the power to direct the clearing house to enforce those arrangements, provided that the necessary conditions and safeguards were met. Furthermore, this power cannot be used retrospectively.
The Bank of England also expects to publish a supervisory approach document in the coming weeks. This will give further information on how powers of direction will fit within its wider supervisory powers over recognised clearing houses. I beg to move.
I, too, am supporting a government amendment, though one that is not nearly as dramatic as that secured by my noble friend Lord Mitchell, whom I congratulate very much not only on doing it but on the thoroughness of his research. He actually took out a loan with one of these companies, an act of true heroism that I hope will not result in his being deluged with peculiar financial products for the rest of his life.
In welcoming this amendment, I remind the House once again that I am a non-executive director of the London Stock Exchange. I very much welcome the Government’s amendments to the powers of direction and the spirit of engagement that HM Treasury and the Bank have offered in dialogue on these matters, and which I know the industry will look to continue. The amendments provide useful further context for the use of the power. They put it mostly outside the scope of a day-to-day power, and reassure us that it will be used only when it is reasonably necessary to do so.
That said, it would be very helpful if the Minister were able to offer any further thinking on the circumstances in which it is envisaged that this power would be used, and took this opportunity to give us his vision for co-operation between HM Treasury, the FCA and the PRA in advising on the powers. All relevant authorities, particularly the Financial Conduct Authority as the market regulator, will need to consider the wider market impact of any proposed direction by the Bank.
Finally, the announcement that the Bank will be consulting on its supervisory approach before the end of the year is very good news. That will be an excellent opportunity for it to explain the intended circumstances under which the Section 296A power would be used, and more generally, I hope, to give an account of the Bank’s approach to capital requirements for clearing houses.
My Lords, I rise with a question for clarification for the Minister. Is the net effect of this amendment to make it clear that the owners of the platform that is clearing derivatives—one of the central clearing platforms—are exposed only to the extent of the loss allocation that is defined in their membership agreement; and that, beyond that, the Government will not, in case of a failing platform, force other platforms to take on open, out-of-the-money contracts? If that is so, is the Minister in effect saying that the backstop for the collapse of an exchange is effectively the taxpayer? I ask that not in criticism, but for the sake of absolute clarity.
My Lords, I declare an interest as a director of ICE Clear Europe, and I warmly welcome this extremely valuable amendment. It seems to go wider; noble Lords may think that it is a narrow amendment, but they have no idea what a sense of confidence it has given to the City at this time. I regard that as very important.
During the 1970s, we generally regarded the Foreign and Commonwealth Office as having the function of managing orderly retreat. Now we have absolute confidence that within the Treasury there is a very clear understanding that it will look after the best interests of the City of London and the pre-eminence of the City. It is a difficult task and I do not underestimate how important that is. The amendment is to be warmly welcomed. Noble Lords may think that it is minor, but it does a great deal more than simply to change the position of the clearing house and the direction.
I have one simple question, and I will not be worried in the least if the Minister slaps me down. Amendment 20 says,
“to accept a transfer of property, rights or liabilities of another clearing house”.
Does that refer only to a clearing house that still operates as a going concern? Frankly, I would regard that as unlikely. It is much more likely that the Bank of England would want to intervene at a point when it was in administration or in the process of liquidation. If I am told that that line encompasses all those particular circumstances, I will be more than happy to be told to shut up.
My Lords, perhaps I may simply elaborate a little on the question posed by the noble Baroness, Lady Kramer. Given that there is not to be a transfer of obligations between platforms, and given that the collapse of a platform could impose significant systemic risk on the economy with a large number of unclear positions, are we to understand that the lender of last resort will be required to stand behind a collapsed platform?
Perhaps I may also ask a question following that of the noble Baroness, Lady Kramer. The concept of interoperability is very important in the clearing of derivatives, so that corporates in particular can offset a position with one platform where they have a credit with another platform where they have a deficit. Will the Minister clarify that that involves a degree of mutualisation in the event of a failure of a platform because the failure of that platform will transfer to other platforms?
My Lords, I am extremely grateful for the warm welcome that these amendments have received from across the House. I will deal with some of the specific questions that have been raised. The noble Baroness, Lady Cohen, asked about my vision for the way in which this provision would be used and how I saw the co-operation between the Bank, HM Treasury, the FCA and the PRA.
It may be marginally less than a vision but the situation would be that there is no requirement for the Bank to consult HMT or the other regulators before using the additional power of direction. This is because the additional power of direction is a supervisory tool and, as such, should not require the express permission of HMT before it is used. As I am sure noble Lords would agree, it is not necessary for regulators to consult with HMT before acting on day-to-day supervisory measures. It is also consistent with the similarly broad powers that the FSA currently has to vary permissions in the banking sector.
As for how the Bank intends to use its powers, as I said in my speech, it expects to publish a supervisory approach document in the coming week. Its purpose will be to give further information on how the powers of direction will fit within its wider supervisory powers over recognised clearing houses.
My noble friend Lady Kramer asked a number of questions about where the liabilities would lie and she set out her understanding of where they were. I can confirm that her view of where the powers lie is correct. As a final question, she asked about a backstop power and whether public funds were the backstop. That, of course, is the de facto position today. With this provision, we are seeking to put in place arrangements and resolution arrangements that would greatly reduce the likelihood of public funds being called upon by demonstrating in advance how these issues would be dealt with. I realise that that is a contentious statement because a number of noble Lords will no doubt think that it is extremely difficult to achieve that. Whether it is easy or difficult, that is what we are seeking to achieve by these powers and what the Bank will be trying to achieve.
The noble and learned Lord, Lord Fraser of Carmyllie, asked about going concerns or not-going concerns. The clause refers to a clearing house. It does not matter if the clearing house is no longer a regulated going concern, as I suspect he expected me to say.
The noble Lord, Lord Eatwell, followed up on what the noble Baroness, Lady Kramer, said. Perhaps the only additional comment I should make is that these powers now go beyond any resolution powers of which we are aware elsewhere in the EU, and they are part of our drive to ensure that London is the safest place—in the EU, at least, if not globally—to do financial services business.
The noble Lord, Lord Myners, asked me an extremely interesting question, which was also extremely technical. I hope he will not mind if I write to him about it. I beg to move.
Amendment 19 agreed.
20: Clause 31, page 125, line 40, at end insert—
“(2A) The direction may not require the clearing house—
(a) to take any steps for the purpose of securing its compliance with—(i) the recognition requirements, or(ii) any obligation of a kind mentioned in section 296(1)(b) or (1A), or(b) to accept a transfer of property, rights or liabilities of another clearing house.(2B) If the direction is given in reliance on section 298(7) the Bank must, within a reasonable time of giving the direction, give the clearing house a statement of its reasons—
(a) for giving the direction, and(b) for relying on section 298(7).”
Amendment 20 agreed.
Clause 107 : Power to make further provision about regulation of consumer credit
21: Clause 107, page 196, line 24, leave out “22(1A)” and insert “22(1A)(a)”
Amendment 21 agreed.
Schedule 1 : Bank of England Financial Policy Committee
Amendments 22 to 24
22: Schedule 1, page 210, line 27, leave out from “stability” to end of line 28
23: Schedule 1, page 211, line 10, leave out “7” and insert “6”
24: Schedule 1, page 211, line 11, leave out “7” and insert “6”
Amendments 22 to 24 agreed.
Schedule 2 : Further amendments relating to Bank of England
25: Schedule 2, page 214, line 11, leave out sub-paragraph (10) and insert—
“( ) In paragraph 11—
(a) the existing provision becomes sub-paragraph (1),(b) in sub-paragraph (1)(b), for “servant” substitute “employee”,(c) in sub-paragraph (1)(c)(ii), for “servants” substitute “employees”, and(d) after sub-paragraph (1) insert—“(2) The duties and powers that may be delegated under this paragraph do not include duties and powers that are by any enactment expressly imposed or conferred on the court of directors.””
Amendment 25 agreed.
Schedule 3 : Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
Amendments 26 to 31
26: Schedule 3, page 228, line 2, after “by” insert “the court of directors of”
27: Schedule 3, page 228, line 4, after “by” insert “the court of directors of”
28: Schedule 3, page 228, line 6, leave out “Bank” and insert “court of directors”
29: Schedule 3, page 228, line 13, leave out “Bank” and insert “court of directors”
30: Schedule 3, page 228, line 15, leave out “Bank” and insert “court of directors”
31: Schedule 3, page 228, line 37, after first “The” insert “court of directors of the”
Amendments 26 to 31 agreed.
Schedule 5 : Performance of regulated activities
32: Schedule 5, page 248, line 31, at end insert—
“(b) after subsection (5) insert—“(5A) “The appropriate regulator”—(a) in relation to a controlled function which is of a description specified in rules made by the FCA, means the FCA, and (b) in relation to a controlled function which is of a description specified in rules made by the PRA, means the PRA.”, and(c) in subsection (6), after “Any” insert “other”.”
Amendment 32 agreed.
Schedule 9 : Discipline and enforcement
33: Schedule 9, page 287, line 6, at end insert “, and
(d) a decision under section 391(1)(c) to publish information about the matter to which a warning notice relates.”
My Lords, Amendments 33 and 34 concern the new power provided for by this Bill for the regulators to disclose the fact that a disciplinary warning notice has been issued. We have of course already discussed this new power and the safeguards to which it should be subject in quite some detail. I am speaking to these two amendments again only because, as a result of being erroneously assigned on the day’s Order Paper, they were not moved on Report on 26 November. I am grateful to the noble Baroness, Lady Hayter of Kentish Town, for being the first to spot this. So to be absolutely clear, these are simply Amendments 97ZA and 97ZB—as they were—retabled from the Report stage.
To remind your Lordships briefly, Amendment 33 brings the decision to disclose the fact that a disciplinary warning notice has been issued into the list of matters subject to the procedures set out in Section 395 of FiSMA. Amendment 34 sets out the criteria with which the process for deciding to disclose a warning notice must comply, noting that the decision must be taken either by a person other than the person by whom the decision was first proposed, or by two or more persons not including the person by whom the decision was first proposed.
The amendments secure the involvement of the Regulatory Decisions Committee, or an equivalent body for decisions, to disclose the fact that warning notices have been issued. It is a proposal that the House supported and endorsed when we debated it last week.
This group of amendments may be the penultimate time that I will speak on the Bill during its passage through this House. With this in mind, perhaps noble Lords will permit me to conclude this debate by reflecting a little on the past months since our lively Second Reading debate on 11 June. It was so long ago that the England football team was still in the European Championship and preparing to play France as we were kicking off our consideration of the Bill. Of one thing we can be certain: the performance of this House on this Bill was rather better, I regret to say, than the performance of the England football team.
I believe that the Bill that we are sending back to another place is greatly improved from the Bill that we debated at Second Reading in June. That is due to the very constructive contributions and engagement from noble Lords right across the House, not least from the Bishops’ Benches, and I pay tribute to all who have contributed to those debates. No other legislative house in the world could have brought to bear such expertise in financial services and their regulation as this House has on this Financial Services Bill.
As I need to keep my closing remarks brief, I can only apologise for not naming individually the many noble Lords who have made important contributions to our debates. However, I would like to thank the opposition Front Bench—too many of them to name—led so ably by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter of Kentish Town. They have shown real tenacity and skill in their contributions. We have not always agreed with the points that they have made, but I have always valued those points and would like to thank them for their constructive and thoughtful approach throughout.
I thank, too, my noble friends Lord Newby and Lord De Mauley for the support they have given me, not least in calming down the House when it seems to have got rather excited by some of my contributions. This has been a long Bill, and it would not have been possible to provide the level of response that the House has rightly demanded without the able assistance of my noble friends.
I should also mention and thank the Bill team, which has worked continuously to provide support to the House throughout the stages of this Bill. It has done an outstanding job, which has been widely and rightly acknowledged. The excellent work of the parliamentary counsel in drafting the Bill and the subsequent many amendments to it deserves special praise.
I believe that we have significantly improved this important Bill in key areas. We have enhanced the governance of the Bank of England; given economic growth a higher priority in the new regime, for the FPC, FCA and PRA; significantly improved the robustness of the UK financial system by bringing investment firms, recognised clearing houses and holding companies within the special resolution regime; responded to industry concerns, in particular over the new warning notice power; offered consumers better protection, particularly in relation to payday loans; and, in the LIBOR clauses, moved swiftly to tackle the shameful behaviour of some in the industry.
The Government have listened carefully to the views of noble Lords and the amended Bill reflects many of the concerns of this House. The Bill will be an important addition to the statute book, and one that has been greatly improved thanks to your Lordships’ expertise. I beg to move.
My Lords, I rise not with respect to the amendment but to reflect on the latter comments of the noble Lord, Lord Sassoon. As he said, the Bill began its somewhat laborious journey with its First Reading back in May. The process has been extraordinarily laborious considering that it was a politically non-contentious Bill. We should perhaps learn some lessons from this. The main lesson is that, if there is pre-legislative scrutiny, a valuable process that we introduced, more notice should be taken of the conclusions of that scrutiny than is evident in the Bill before us. I refer particularly to the advice from the Treasury Select Committee that a new Bill be drafted rather than that we rely on the complex structure of amendments to prior legislation that we have had to wade through over the past several months.
Given the weighty nature of the work that we have had to deal with, it is appropriate to thank those who have been involved with the Bill. I add my thanks to those of the noble Lord, Lord Sassoon, to my noble friends Lady Hayter, Lord Davies, Lord Stevenson and Lord Tunnicliffe. I also thank Mr Whiting and the Bill team, who have been helpful and courteous throughout, and the noble Lord, Lord Sassoon, for dealing with often complex matters and, occasionally, defending the indefensible with his usual good humour. Finally, in thanking individuals, I must thank Miss Jessica Levy, our talented and all-knowing researcher.
Effective regulation at the macro and micro level of systemic risks and the risks associated with individual firms is in the interests of households and industry and is essential for the success of the UK financial services industry. Therefore, we on this side wish this Bill well. I hope that the measures over which we have laboured will prove a success.
My Lords, I cannot let the Bill pass without saying a few words. I described the Bill as “shambolic” and was told by an old friend—a normally good friend who happens to be a former Conservative Cabinet Minister—that he was surprised that I was so political in using that unusual expression. I apologise to the noble Lord, Lord Sassoon, and the House. I could not think of a better word to describe what was in the Bill and what had happened.
My main concern with the Bill is the very principle of giving such huge powers to the Bank of England—and they remain. It is the principle that worries me. We have given huge powers to the Bank of England. We have added to the Bank of England Act, as I mentioned earlier today. We have given the Bank powers over the OFT, FCA, FSA and PRA, and over changes in FiSMA—so many different initials that one forgets precisely what we did do. We amended a lot because there was a lot to amend, because unfortunately these days, under both Governments, the House of Commons guillotines so much that very little gets done properly. Legislation comes to this House for amendment and we amend it well, I am happy to say, as we did on this occasion.
My worry is that we started off with an unusually large Bill: two volumes of clauses and schedules. It was so big and it has become even bigger because we put in provisions dealing with the LIBOR scandal. This should have been a Bill on its own. We on this side of the House rightly agreed with the changes resulting from the Government’s acceptance of the Wheatley report. These provisions dealt with it properly and the Opposition accepted them, but they did not just come forward in a Bill; they came forward scattered in amendments throughout the Bill. I hope that it deals with the LIBOR scandal but it is difficult to tell if it really did, because on top of all this we are now told that there will be secondary legislation as well. I regret to say that we do not understand what we have passed here, because we still do not know what is going to happen.
I hope that we have done the right thing and that everything is going to work out, but the plain fact is that, with the LIBOR scandal, there were some in the Bank of England, the FSA and many other bodies whose main concern was primarily with interest rates. They knew nothing whatever about what the noble Lord, Lord Sassoon—I nearly said “my noble friend Lord Sassoon”; I feel he is that—was talking about. He described this LIBOR scandal as a global one, affecting some $300 trillion. It affected all that, but nobody in the Bank of England or the FSA or anybody else knew the slightest thing that was going on in the LIBOR scandal. Therefore, I would like to finish by asking the noble Lord, Lord Sassoon, a question.
He has sat down.
I understand that I must not do that, so I will mention the question that I would have asked him. There are going to be investigations into the LIBOR scandal. Will they include looking in detail at whether there is anybody else liable or culpable in this regard? It clearly is a scandal of its own to say that nobody knew anything about it. I will leave it at that. I hope that the Government will produce sensible secondary legislation in the way we hope when we pass this Bill.
My Lords, I will make a brief personal remark to the noble Lord, Lord Sassoon, who I believe is about to retire as a Minister after the passage of the Bill. My words are those that David Ricardo wrote to Thomas Malthus in the very last letter he wrote to him:
“And now, my dear Malthus, I have done. Like other disputants, after much discussion we each retain our own opinions. These discussions, however, never influence our friendship; I should not like you more than I do if you agreed in opinion with me”.
I hope that he will accept that message.
Amendment 33 agreed.
34: Schedule 9, page 287, line 8, leave out from “from” to end of line 10 and insert ““, that the decision” to the end and insert “that—
(a) a decision falling within any of paragraphs (a) to (c) of subsection (1) is taken—(i) by a person not directly involved in establishing the evidence on which the decision is based, or(ii) by 2 or more persons who include a person not directly involved in establishing that evidence,(b) a decision falling within paragraph (d) of subsection (1) is taken— (i) by a person other than the person by whom the decision was first proposed, or(ii) by 2 or more persons not including the person by whom the decision was first proposed, and(c) a decision falling within paragraph (d) of subsection (1) is taken in accordance with a procedure which is, as far as possible, the same as that applicable to a decision which gives rise to an obligation to give a warning notice and which falls within paragraph (b) or (c) of subsection (1).””
Amendment 34 agreed.
Schedule 12 : Amendments of Parts 11 and 23 of FSMA 2000
35: Schedule 12, page 302, line 21, leave out from “for” to end of line 22 and insert ““the Authority” substitute “a regulator”,”
Amendment 35 agreed.
Schedule 13 : Auditors and actuaries
36: Schedule 13, page 309, line 41, leave out “other than PRA-authorised persons”
Amendment 36 agreed.
Schedule 18 : Further minor and consequential amendments
37: Schedule 18, page 345, line 10, leave out from “for” to end of line 11 and insert “the words from “competent authority” to the end substitute ““Financial Conduct Authority to exercise its functions under Part 6 of the Financial Services and Markets Act 2000.””
Amendment 37 agreed.
Bill passed and returned to the Commons with amendments.
My Lords, your Lordships still have me here for a little longer; I am not retiring yet. I refer the House to the Autumn Statement made earlier in another place by my right honourable friend the Chancellor of the Exchequer, copies of which have been made available in the Printed Paper Office and the text of which will be printed in full in the Official Report. I commend my right honourable friend’s Statement to this House.
The following Statement was made earlier in the House of Commons.
“It is taking time, but the British economy is healing. After the biggest financial crash of our lifetimes, people know that we face deep-seated problems at home and abroad. At home, we live with the decade of debt and the failure to equip Britain to compete in the modern world, and we face a multitude of problems from abroad—the US fiscal cliff, the slowing growth in China, and above all the eurozone, now in recession.
People know that there are no quick fixes to these problems but they want to know that we are making progress, and the message from today’s Autumn Statement is that we are making progress. It is a hard road, but we are getting there. Britain is on the right track and turning back now would be a disaster. We have much more to do. The deficit has fallen by a quarter in just two years, and today’s figures show that it is forecast to continue to fall. Exports of goods to the major emerging economies, which were pitifully low, have doubled since 2009. Since this coalition Government came to office, 1.2 million new jobs have been created in the private sector. In a world economy where bond investors are fleeing countries that they regard as risky, investment is flowing into UK gilts, instead of flying from them. We have to keep it that way.
Two years ago, Britain was in the danger zone. Now we are seen as one of the safe havens, able to borrow money at lower interest rates than at any time in our history.
Today’s forecast shows a £33 billion saving on the debt interest payments that it was predicted we would have to pay two years ago. That is as much as the entire defence budget. That is why in this Autumn Statement, we show that this coalition Government are confronting the country’s problems, instead of ducking them.
Today we reaffirm our commitment to reducing the deficit, setting out the details of our spending plans for 2015-16 and rolling forward an outline framework into 2017-18. We show our determination to do this fairly, with further savings from bureaucracy, the benefit bills and the better-off. We go on equipping Britain to succeed in the global race by switching from current spending to capital investment in science, roads and education. We offer new support for business and enterprise, so they can create the jobs we need. In everything we do, we will show today that we are on the side of those who want to work hard and get on.
The Office for Budget Responsibility has today produced its latest economic forecast and it is a measure of the constitutional achievement that it is taken for granted that our country’s forecast is now produced independently of the Treasury, free from the political interference of the past. I want to thank Robert Chote, his fellow members of the Budget Responsibility Committee, Steve Nickell and Graham Parker, and all their staff at the OBR for their rigorous approach.
One of the advantages of the creation of the OBR is that we get not only independent forecasts, but an independent explanation for why the forecasts are as they are. For example, if lower growth was the result of the Government’s fiscal policy, it would say so. But it does not. It says that the economy has “performed less strongly” than expected and forecasts growth this year of minus 0.1%, but in its view,
“the weaker than expected growth can be more than accounted for by over-optimism regarding net trade”.
The OBR had previously assumed that the eurozone would begin to recover in the second half of this year. Instead, of course, it has continued to contract, which has hit our exports to those markets and the net trade numbers. The eurozone crisis has also, it says, spilled over into “tighter credit conditions” and,
“elevated UK bank funding costs”.
In its words, those problems will,
“constrain growth for several years to come”.
There are also domestic problems that the OBR refers to. In the report today the contraction in 2008-09 is now assessed to be deeper than previously thought, with GDP shrinking by a staggering 6.3%, the largest shock to our economy since the Second World War. In the OBR’s view, the aftermath of that shock continues to weigh on the productivity of the UK economy, with credit rationing and impaired financial markets potentially impeding the expansion of successful firms. It says:
“GDP growth is now expected to be lower in every year of the forecast period, as credit conditions take longer to normalise and global growth remains weaker than previously expected”.
As a result, the OBR forecasts that the economy will grow by 1.2% next year, 2% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017.
So the economy is recovering, and it is recovering more quickly than many of our neighbours. The International Monetary Fund estimates that next year the UK will grow more strongly than either France or Germany. Our credible fiscal policy allows for supportive monetary policy and, with the Bank of England, we are directly addressing the problems of tight credit through the £70 billion funding for lending scheme. In the OBR’s view, that has reduced UK bank funding costs, lowered interest rates in the real economy and will add to the level of real GDP.
One area where the British economy has done much better than forecast is in creating jobs. Since early 2010, the private sector has created 1.2 million new jobs—600,000 more than predicted—and youth unemployment has been falling. The OBR now expects unemployment to peak at 8.3%, instead of 8.7%. That is at a time when the unemployment rate in Spain is 26%, in France it is 11% and across the whole eurozone it is almost 12%. Employment, which is already at a record high, is set to go on rising each year of the forecast. For every one job less in the public sector, two new jobs are expected to be created in the private sector. Britain now has a greater proportion of its people in work than either the eurozone or the United States of America. More jobs means that the impact of the weaker than forecast GDP on the public finances has been less than some might have expected.
There have been three developments that have each had a significant one-off impact on the public finances, and the report we are publishing today shows clearly and transparently the impact of all three. First, there is the transfer of the Royal Mail pension fund to the public sector as part of its privatisation. That produces a one-off reduction in the deficit of £28 billion this year, but it will add to the deficit in the years after.
Secondly, the previous Government had classified Bradford & Bingley and Northern Rock Asset Management as off balance sheet. Today, they are brought on balance sheet, in line with the judgment of the Office for National Statistics. That adds around £70 billion to our national debt and reminds us of the price the country is still paying for the failures of the past.
Thirdly, the Government have decided, with the agreement of the Bank of England, to transfer excess cash held in the asset purchase facility to the Exchequer. This is sensible cash management, and it is in line with the approach of the Bank of Japan and the US Federal Reserve. I welcome the OBR’s verdict that this is, in its words, “more transparent” than the previous approach. I want to make sure that its impact on the figures is also completely transparent, so we have today published the forecasts for the public finances with and without the impact of the APF decision.
When we came to office, the deficit stood at 11.2%—the highest in our peacetime history. It was forecast to be the largest of any major economy in the world. In the past two years, the deficit has fallen by a quarter. Today’s figures show that with or without the APF coupons, the deficit is forecast to fall this year as well, and cash borrowing is forecast to fall too. Last year, the deficit was 7.9%. This year, with the APF coupons, it is forecast to be 6.9%, but that excludes the impact of the Royal Mail pension assets. It is falling and it will continue to fall each and every year, to 6.1% next year, 5.2% the year after, 4.2% in 2015-16, then 2.6%, before reaching 1.6% in 2017-18.
In 2009-10, the country was borrowing £159 billion. This year, we are borrowing £108 billion. That is forecast to fall to £99 billion next year, £88 billion the year after, then £73 billion in 2015-16, and £49 billion and £31 billion in the two years after that. These are the central forecasts published by the OBR, with the asset purchase facility cash transfer included. When the transfer is excluded, as we show in the document, the deficit also falls, from 7.9% last year to 7.7% this year, then 6.9% next year, and it falls in every single year after that—and cash borrowing falls in every year as well.
There are those who have been saying that the deficit was going up this year—indeed, I think I heard it in Prime Minister’s questions—but any way you present these figures, this is not what the OBR forecasts show today. It says that the deficit is coming down—coming down this year and every year of this Parliament. Yes, the deficit is still far too high for comfort—we cannot relax our efforts to make our economy safe—but Britain is heading in the right direction. The road is hard but we are making progress.
Unlike the previous Government’s golden rule, the regime we have set up means that the Chancellor is no longer judge and jury of their own fiscal rules, and today the OBR has assessed us against those rules. First, the fiscal mandate: this is the commitment that we will balance the cyclically adjusted current budget over the coming five years. I can tell the House that the OBR has assessed that we are, in its words, “on course” to meet our fiscal mandate. In other words, we have a better than 50% chance of eliminating the structural current deficit in five years’ time—that part of our borrowing that does not recover automatically as the economy grows. This is true, again, with or without the transfer of the coupons, so we will meet our fiscal mandate. But the OBR assesses in its central forecast that we do not meet the supplementary objective that aims to have debt falling by 2015-16. The point at which debt starts to fall has been delayed by one year, to 2016-17, and the OBR’s central forecast is that net debt will be 74.7% this year, then 76.8% next year, 79% in 2014-15, and 79.9% in 2015-16, before falling to 79.2% in 2016-17 and 77.3% in 2017-18.
In short, the tougher economic conditions mean that while our deficit is forecast to go on falling, instead of taking three years to get our debt falling, it is going to take four. Confronted with this news, some say we should abandon our deficit plan and try to borrow more. They think that by borrowing more, we can borrow less. That would risk higher interest rates, more debt interest payments, and a complete loss of Britain’s fiscal credibility. We are not taking that road to ruin.
Then there are those who say that despite all that has happened in the world this year, we should cut even more now to hit the debt target. That would require £17 billion of extra cuts a year. Let me explain why I have decided not to take this course.
We have always argued that we should let the automatic stabilisers work. We have not argued that we should chase down a cyclical or temporary deterioration in the economy, particularly one that our own independent body says is largely driven by problems abroad. That is also the judgment of the International Monetary Fund, the OECD and the Governor of the Bank of England.
Our aim is to reduce the structural deficit—the permanent hole in our public finances that will not be repaired as the economy recovers. And we are—we have cut the structural deficit by 3 percentage points in the past two years, more than any other G7 country, and it is set to go on being cut at a similar rate in the years ahead. This lower deficit is delivered by our public spending plans and we are going to stick with those plans. Overall, we are not going faster or slower with those plans; the measures I will announce in this Autumn Statement are fiscally neutral across this Parliament. There is no net rise in taxes today—any taxes increased are offset by taxes cut.
In last year’s Autumn Statement, we committed the Government to maintain the same pace of consolidation for two further years beyond the end of the current spending review, into 2015 and 2016-17. In this year’s Autumn Statement, we extend the consolidation for one further year, into 2017-18. The OBR projects that, as a result, the share of national income spent by the state will fall from almost 48% of GDP in 2009-10 to 39.5% by 2017-18. The document shows that total managed expenditure will continue to fall, and will now be £4.6 billion lower in 2017-18 than if it had been held flat in real terms. No decision to cut spending is ever easy, but those who object must explain whether instead they would have higher taxes, higher borrowing or both.
I also provide further detail of the consolidation plans for 2015-16, the last year of this Parliament. I said two years ago that the correct balance for our fiscal consolidation between spending and tax should be 80:20. I can confirm that by the end of 2015-16, the decisions we announce today mean that we will almost exactly deliver on that 80:20 mix. Total spending will fall in the final year of this Parliament at the same rate as through the current spending review.
I can confirm today that the overall envelope for total managed expenditure will be set at £745 billion. We start with the working assumption that departmental resource totals will continue on the same trajectory as over the current spending review. The detail of departmental spending plans for 2015-16 will be set at a spending review, which will be announced during the first half of next year. What we are doing today is taking steps now to help deliver those spending plans and to go on reducing the deficit in a way that is fair.
This Government have shown that it is possible to restore sanity to the public finances while improving the quality of our public services—crime has fallen, hospital waiting lists are down, school standards are up—and this is with a Civil Service that is today smaller than at any time since the Second World War.
We are today publishing the reports we commissioned from the pay review bodies on market-facing pay. We commit to implementing these reports. This means continuing with national pay arrangements in the NHS and Prison Service, and we will not make changes to the Civil Service arrangements, either; but the School Teachers Review Body recommends much greater freedom to individual schools to set pay in line with performance, and my right honourable friend the Education Secretary will set out how that will be implemented.
Through the efforts of individual government departments and the support of the Chief Secretary and my right honourable friend the Minister for the Cabinet Office, we have already generated £12 billion of efficiency savings in Whitehall, but we believe there is room to do even more. If all departments reduced their spending on administration in line with the best-performing departments, such as Education and Communities and Local Government, another £1 billion could be saved. If all departments made greater provision of digital services, rationalised their property estates, as some have done, a further £1 billion could be saved. Today, therefore, we are reducing departmental resource budgets by 1% next year and 2% in the year after.
We will continue to seek efficiency savings in the NHS and in our schools, but that money will be recycled to protect spending in these priority areas. Local government budgets are already being held down next year to deliver the freeze in council tax, so we will not seek the additional 1% savings next year, but we will look for the 2% saving the year after. Although the Ministry of Defence is included in these measures, it will be given flexibility on its multi-year budget to ensure that this will not lead to reductions in military manpower or the core defence equipment programme over the Parliament.
A mark of our values as a society is our commitment to the world’s poorest. We made a promise as a country that we would spend 0.7% of our gross national income on international development and I am proud to be part of the first British Government in history who will honour that commitment and honour it as promised next year. We will not, however, spend more than 0.7% so, as we did last year, we will adjust the Department for International Development’s budget to reflect the latest economic forecasts.
In the medium term these savings across Whitehall will help departments maintain the right trajectory for the years that follow the spending review and help us to pay off the deficit in future. In the short term, I am switching these current savings into capital—all the money saved in the first two years will be reinvested as part of a £5 billion capital investment in the infrastructure of our country. Despite the fiscal challenges we face, public investment as a share of GDP will be higher on average in this Parliament than it was under the last Labour Government. It is exactly what a Government equipping Britain to compete in the modern global economy should be doing.
We are committing an extra £1 billion to roads, which includes four major new schemes: to upgrade key sections of the Al, bringing the route from London to Newcastle up to motorway standard; to link the A5 with the Ml; to dual the A30 in Cornwall; and to upgrade the M25, which will support the biggest port developments in Europe. I pay tribute to my honourable friend the Member for Thurrock for campaigning to achieve this.
We have already set out plans this autumn for a huge investment in rail, and my right honourable friend the Transport Secretary will set out in the new year plans to take High Speed 2 to the north-west and west Yorkshire. I can today confirm a £1 billion loan and a guarantee to extend the Northern line to Battersea power station and support a new development on a similar scale to the Olympic park.
We are confirming funding and reforms to assist construction of up to 120,000 new homes and delivering on flood defence schemes in more cities. On top of broadband expansion for our countryside and our larger cities, we are funding ultrafast broadband in 12 smaller cities: Brighton and Hove, Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, York, Newport, Aberdeen, Perth and Derry/Londonderry. In addition to the third of a billion announced this autumn for British science, we are today announcing £600 million more for the UK’s scientific research infrastructure.
Since improving our education system is the best investment in a competitive economy, I am today committing £270 million to fund improvements in further education colleges and £1 billion to expand good schools and build 100 new free schools and academies. Scotland, Wales and Northern Ireland will get their Barnett share of additional capital spending put at the disposal of their devolved Administrations.
On top of the £5 billion of new capital spending in infrastructure and support for business, we are ready to provide guarantees for up to £40 billion more. Today I can announce that projects worth £10 billion have already pre-qualified. We are offering £10 billion-worth of guarantees for housing, too. Our country’s pension funds will launch their new independent infrastructure investment platform next year as well, and we have today published full details of the replacement for the discredited private finance initiative. Since we can all see now that the public sector was sharing the risk, we will now ensure that we also share in the reward, and I commend my honourable friend the Member for Hereford and South Herefordshire for his work in this area.
Taken together, this is a revolution in the sources of finance for upgrading Britain’s infrastructure and equipping Britain to win in the global race. Annual average infrastructure investment, which was £29 billion under the last Labour Government, is now £33 billion.
Savings from Whitehall are not enough by themselves to tackle our debts. We need to find other savings, and we need to do so in a way that is fair. Those with the most should contribute the most, and they will, but fairness is also about being fair to the person who leaves home every morning to go out to work and sees that their neighbour is still asleep, living a life on benefits. As well as a tax system where the richest pay their fair share, we have to have a welfare system that is fair to the working people who pay for it.
Let me start with tax. The vast majority of people, rich or otherwise, pay their taxes and make their contribution. However, there are still too many who illegally evade their taxes or use aggressive tax avoidance in order not to pay their fair share. This Government have taken more action against those people than any before us. Prosecutions for tax evasion are up 80%. We will collect £7 billion more a year in tax that is due than the last Government. We are increasing by about 2,500 the number of tax inspectors going after evaders and avoiders. Next year, we will introduce the first ever general anti-abuse rule—something that never happened in the 13 years before we came into office.
Next year, for the first time in our history, money will be flowing from bank accounts in Switzerland to Britain, instead of the other way around. Because of the treaty that we have signed, we expect to receive £5 billion over the next six years from the undisclosed Swiss bank accounts of UK residents. That is the largest tax evasion settlement in British history.
We are taking further steps today. Hundreds of millions of pounds of tax loopholes are being closed with immediate effect, and we are investigating the abusive use of partnerships. HMRC will not have its budget cut over the next two years, unlike other departments. Instead, we will spend £77 million more on fighting tax avoidance, and not just for wealthy individuals.
We want to have the most competitive corporate tax system of any major economy in the world, but we expect those corporate taxes to be paid. We are therefore confirming today that we will put more resources into ensuring that multinational companies pay their proper share of taxes. We are leading the international effort to prevent artificial transfers of profits to tax havens. With Germany and now France, we have asked the OECD to take that work forward and we will make it an important priority of our G8 presidency next year. In total, we expect the action that we are announcing today to increase the amount of money collected from tax evasion and avoidance by a further £2 billion a year.
Fair and necessary as that is, it is not enough by itself to close the deficit. We need to ask more from the better-off. Punitive tax rates do nothing to raise money, and simply discourage enterprise and investment into Britain. Other countries on our doorstep are trying that approach and paying the price. We are not making that mistake. HMRC data reveal that in the first year of the 50% tax rate, tax revenues from the rich fell by £7 billion and the number of people declaring incomes of over £1 million fell by a half. A tax raid on the rich that raises almost no money is a tax con. We are going to have a top rate of tax that supports enterprise and we are going to raise more money from the rich. Here is a simple fact: the richest will pay a greater share of income tax revenues in every single year of the coalition Government than in any one of the 13 years of the last Labour Government.
However, to make sure that the deficit reduction remains fair, we need to raise more. We have already raised stamp duty on multi-million pound homes and next week we will publish the legislation to stop the richest avoiding stamp duty. But we will not introduce a new tax on property. That would require the revaluation of hundreds of thousands of homes. In my view, it would be intrusive, it would be expensive to levy, it would raise little and the temptation for future Chancellors to bring ever more homes into its net would be irresistible, so we are not having a new homes tax.
In this Parliament, we have already reduced the amount of tax relief that we give to the very largest pension pots. From 2014-15, I will further reduce the lifetime allowance from £1.5 million to £1.25 million, and reduce the annual allowance from £50,000 to £40,000. That will reduce the cost of tax relief to the public purse by an extra £1 billion a year by 2016-17. Ninety-eight per cent of the people currently approaching retirement have a pension pot worth less than £1.25 million. Indeed, the median pot for such people is just £55,000. Ninety-nine per cent of pension savers make annual contributions to their pensions of less than £40,000. The average contribution to a pension is just £6,000 a year.
I know that these tax measures will not be welcomed by all—ways to reduce the deficit never are—but we must demonstrate that we are all in this together. When looking for savings, I think that it is fair to look at the tax relief that we give to the top 1%.
I want to help the great majority of savers. That is why we are introducing a generous new single-tier pension, so that people know it always pays to save. That is why I will uprate next April the overall individual savings account limit to £11,520. We will also consult on allowing investments in equity markets for small and medium-sized enterprises, such as the alternative investment market, to be held directly in stocks and shares ISAs to encourage investment in growing businesses.
I have also listened to the concerns from pensioners about draw-down limits. I am today announcing that the Government will raise the capped draw-down limit from 100% to 120%, giving pensioners with such arrangements the option of increasing their incomes.
It is also fair to look at the way in which we uprate benefits and some tax thresholds. The basic state pension has this year gone up by the largest cash amount in its history. Next year, thanks to our triple lock, I confirm that it will rise by 2.5%, which is higher than either earnings or inflation. That takes the level of the basic state pension to £110.15 a week.
When it comes to working-age welfare, we have already made substantial reforms. We have cut £18 billion a year from the welfare bill. Benefits are being capped for the first time, so families out of work will not get more than the average family gets for being in work. We have increased efforts to fight welfare fraud. Today, we announce further measures and checks to save more than £1 billion in the next four years by reducing fraud, error and debt in the tax credit system. Next year, my right honourable friend the Secretary of State for Work and Pensions will introduce the new universal credit so that it always pays to work. Today, we are setting the key parameters, such as the levels of earning disregards.
We have to acknowledge that over the last five years, those on out-of-work benefits have seen their incomes rise twice as fast as those in work. With pay restraint in businesses and Government, average earnings have risen by about 10% since 2007. Out-of-work benefits have gone up by about 20%. That is not fair to working people who pay the taxes that fund them. Those working in the public services, who have seen their basic pay frozen, will now see it rise by an average of 1%. A similar approach of a 1% rise should apply to those in receipt of benefits. That is fair and it will ensure that we have a welfare system that Britain can afford. We will support the vulnerable, so carers’ benefits and disability benefits, including disability elements of tax credits, will be increased in line with inflation, and we are extending the support for mortgage interest for two more years.
However, most working-age benefits, including jobseeker’s allowance, employment and support allowance and income support, will be uprated by 1% for the next three years. We will also uprate elements of child tax credit and working tax credit by 1% for the next three years, although previously planned freezes will go ahead. Local housing allowance rates, which are a central component of housing benefit, will be uprated in line with the existing policy next April and we will then cap increases at 1% in the two years after that. For that measure, 30% of the savings will be used to exempt from the new cap those areas with the highest rent increases. The earning disregards for universal credit will also be uprated by 1% for two years from April 2014. Child benefit is currently frozen. It, too, will now rise by 1% for two years from April 2014.
Let me be clear: uprating benefits at 1% means that people get more cash, but less than the rate of inflation. Taken together, we will save £3.7 billion in 2015-16 and deliver permanent savings each and every year from our country’s welfare bill. To bring all those decisions on many benefits over many years together, we will introduce primary legislation in Parliament in the welfare uprating Bill. I hope that it will command support from both sides of the House.
We will apply a similar approach to uprating some of our tax thresholds to that that we are applying to welfare. The higher rate threshold will be increased by 1% in the tax years 2014-15 and 2015-16. So the income at which people start paying the 40% rate will go up from £41,450 to £41,865 and then to £42,285. I want to be completely clear with people: this is an increase; in fact, it is the first cash increase in the higher rate threshold in this Parliament, but it is not an increase in line with inflation, so it will raise £1 billion of revenue by 2015-16. Again, there are no easy ways to reduce the deficit, but from year to year, no one will pay a penny more in income tax.
In the same way, the capital gains tax annual exempt amount will be increased by 1% over the same period, reaching £11,100. The inheritance tax nil-band rate, which has been frozen since 2009 at £325,000, will be increased by 1% in 2015-16 to £329,000. Taken with the welfare uprating decisions, that is a fair approach to paying off Britain’s debts.
However, dealing with those debts is only one part of making Britain fit to compete in the global race. Countries like ours risk being out-smarted, outworked and out-competed by the new emerging economies. We asked Michael Heseltine to report on how to make the Government work better for business and enterprise. I think that it is fair to say that his answer has captured the imagination of all political parties.
We will respond formally in the spring, but here is what we will do now. First, government spending should be aligned with the priorities of the local business community. We will provide new money to support the local enterprise partnerships, and from April 2015, the Government will place more of the funding that currently goes to local transport, housing, skills and getting people back to work into a single pot that LEPs can bid for. Details will be set out in the spending review. Before then, we are putting more money into the regional growth fund, which is helping businesses create half a million new jobs.
Secondly, as Lord Heseltine also recommends, we will support industries and technologies where Britain has a clear advantage. With the support of my right honourable friend the Business Secretary, we will extend our global lead in aerospace and support the supply chains of advanced manufacturing. We are also taking big steps today to support British companies that export to new emerging markets in Asia, Africa and the Americas. I am increasing the funding for UK Trade & Investment by more than 25% a year, so that it can help more firms build the capacity of overseas British chambers and maintain our country’s position as the No. 1 destination in Europe for foreign investment. We are also launching a new £1.5 billion export finance facility to support the purchase of British exports.
Thirdly, we are addressing credit problems for companies. We are creating a new business bank, and today we have confirmed that we are providing it with £1 billion of extra capital, which will lever in private lending to help small and medium-sized firms and bring together existing schemes.
Fourthly, we are going to cut business taxes still further. Let me explain how. The temporary doubling of the small business rate relief scheme helps more than half a million small firms, with 350,000 paying no rates at all. The previous Government were going to end it in September 2011; we have already extended it to next April, and, today, I extend it by a further year, to April 2014. We also confirm today the tax relief for our employee shareholder scheme.
The Energy Bill provides certainty and support for billions of pounds of investment in renewable energy. Today, we publish our gas strategy to ensure that we make the best use of lower-cost gas power, including new sources of gas under the land. We are consulting on new tax incentives for shale gas and announcing the creation of a single office so that regulation is safe but simple. We do not want British families and businesses to be left behind as gas prices tumble on the other side of the Atlantic.
We are going to help our construction industry, too. The previous Government abolished empty property relief, and, as excellent work done by my honourable friends the Members for York Outer and for Wolverhampton South West and others shows, that has blighted development in our towns and cities. The proposal from my colleagues that we create a long grace period before newly completed buildings have to pay empty property rates is sensible, and we will introduce it next October.
The previous Government also planned to increase the small companies tax rate to 22%. We have cut it to 20%. However, I would like to help small and medium-sized firms more, and I thank my honourable friends the Members for Burnley and for Pendle for their thoughts on that matter. Starting on 1 January, and for the next two years, I will increase tenfold the annual investment allowance in plant and machinery. Instead of £25,000-worth of investment being eligible for 100% relief, £250,000-worth of investment will now qualify. That capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain. It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.
I want Britain to have the most competitive business tax regime of any major economy in the world. I have already cut the main core rate of corporation tax from 28% to 24%, and it is set to fall further to 22%. That has helped British companies and frankly left other countries scrambling to keep up. They will have to try harder, for I am today cutting the main corporation tax rate again by a further 1%. In America, the rate is 40%; in France, it is 33%; in Germany, it is 29%. From April 2014, the corporation tax rate in Britain will stand at 21%. That is the lowest rate of any major western economy. It is an advert for our country that says, “Come here; invest here; create jobs here; Britain is open for business.”
We will not pass the benefit of that reduced rate on to banks, and to ensure that we meet our revenue commitments, the bank levy rate will be increased to 0.130% next year. Making banks contribute more is part of our major reforms to the banking system.
We also have to be on the side of those who want to work hard and get on. I know how difficult many families have found the cost of living. In dealing with the deficit, we have had to save money. However, whenever we have been able to help, we have. We have helped councils freeze council tax for two years running, and we are helping them freeze it again next year. We have put a cap on rail fare rises for the next two years, so commuters are not punished for travelling to work. We are forcing energy companies to move families on to the lowest tariffs for their gas and electricity bills.
We have also helped motorists with the cost of petrol. We have cancelled the last Government’s escalator, and I am moving inflation-only rises to September. Fuel is 10p per litre cheaper than it would have been if we had stuck to Labour’s tax plans, and I want to keep it that way, as I know do my colleagues, like my honourable friend the Member for Harlow. There is a 3p per litre rise planned for this January. Now, some have suggested that we delay it until April. I disagree. I suggest we cancel it altogether. There will be no 3p fuel tax rise this January. That is real help with the cost of living for families as they fill up their cars across the country, and it will help businesses, too. It means that, under this Government, we will have had no increase in petrol taxes for nearly two and a half years. In fact, they have been cut.
We have also helped working people by increasing the amount that they can earn before paying any income tax. When the coalition Government came to office, the personal tax allowance stood at just £6,475; next April, it is set to rise to £9,205. Twenty-four million taxpayers have seen their income tax cut; 2 million of the lowest-paid have been taken out of tax altogether.
Because of the difficult decisions we have taken today, we can go even further. From next April, the personal allowance will rise by a further £235. That means a total increase next year of £1,335—the highest cash increase ever. People will be able to earn £9,440 before paying any income tax at all. This is a direct boost to the incomes of people working hard to provide for their families. It is £47 extra in cash next year. In total, it is a £267 cash increase next year. People working full time on the minimum wage will have seen their income tax bill cut in half, and we are within touching distance of the £10,000 personal allowance. And at this time, I propose to extend the benefits of this further increase to higher rate taxpayers. That decision will stand alongside the decision I have had to take on uprating, meaning that, in real terms, a typical higher rate taxpayer will be better off next year and no worse off in total by the year after.
Today we have helped working people, but I do not want to distract from the tough economic situation we face in the world. The public know there are no miracle cures; just the hard work of dealing with our deficit and ensuring Britain wins the global race. That work is under way. The deficit is down. Borrowing is down. Jobs are being created. It is a hard road, but we are making progress, and in everything we do, we are helping those who want to work hard and get on”.
My Lords, I thank the noble Lord, Lord Sassoon, for formally introducing the Statement. In a way, it is a pity that our new convention does not involve repetition of the Statement for there is no doubt that the Chancellor is to be congratulated on the positive morsels that he managed to identify in a very frugal, even miserly, meal.
Three central facts are revealed in this Autumn Statement and the accompanying OBR report. First, the OBR assesses growth this year to be at minus 0.1%. It had expected plus 0.8%, so it is a reduction of about one percentage point. For next year, 2013, it has downgraded its growth forecast from 2% to 1.2%. I fear that next March the ever overly optimistic OBR will be downgrading its forecast once again. Therefore, the growth outlook is rather bleak.
I wish to refer for a moment to paragraph 1.14 of the Autumn Statement, dealing with the sectoral composition of growth in the UK economy. It argues that, if we leave out the financial sector and the North Sea oil and gas sector, the rest of the economy has done comparatively rather well. That is rather like saying that, if we leave out the bowlers, the batting average of the team tends to go up. This is a disreputable piece of analysis and I hope that we will never see its like again.
The second fact revealed in the Autumn Statement is that, compared with the forecast made just last March, the deficit is up in every year of the forecast. Noble Lords may be rather surprised by that assertion because, if they listened to the Chancellor’s Statement, they will know that he seemed to claim the opposite. How can I claim that the deficit is up? I can quote the OBR, which says that,
“policy decisions by the Government and reclassifications have reduced [public sector net borrowing] this year by £16 billion, more than offsetting forecast changes which overall have pushed borrowing up £4 billion”.
I repeat: policy decisions and reclassifications—in other words, fiddling the figures.
What does this fiddle consist of? The main component in padding the numbers is the asset purchase facility transfer of £11.5 billion from the Bank of England to the Treasury. In principle, this seems okay—after all, we are told that the Japanese and the Americans do it too—but what is striking is that no allowance has been made for the requirement expressed in the letter from the governor agreeing to this transfer that, if and when interest differentials change, the Treasury must pay the money back. Will the noble Lord tell us what contingency has been made by the Treasury for transfers back to the Bank in the next five years and what impact this contingency might have on the deficit?
The third fact that is clear in this Autumn Statement is that the end of austerity has been postponed for another year. The noble Lord, Lord Sassoon, has referred us before to his belief that the deficit programme is a five-year rolling programme. So every year the end of austerity is always five years ahead. Like middle age, it retreats before you. Now it has been extended from 2017 to 2018. Under this rolling programme which always extends, austerity will always be with us and it is clear why. We are travelling in the wrong direction, away from growth and away from debt reduction. Surely now is the time to ask why. Why are the British people being subjected to this unending economic misery that is not only cutting living standards now, but as the OBR points out, will cut living standards in the future as productive potential is undermined by low investment and the corrosive impact of unemployment?
In the realms of economic policy there are two entirely different approaches to cutting public indebtedness. The Government’s approach is based on the belief that eliminating the deficit is necessary to produce growth: austerity is the necessary precursor to recovery. Noble Lords will remember that there was even a new expression coined for this approach, “expansionary fiscal consolidation”—a term that seems to have been dropped from government usage in the past year or so. The idea was that cutting the deficit, aligned with a supportive monetary policy—that is, low interest rates—would restore business and consumer confidence, stimulate spending and set the economy on the road to recovery. For the past two and a half years, the UK economy has been the guinea pig on which this theory has been tested. The result: interest rates in a no-growth economy are predictably roughly zero in real terms, but ever looser monetary policy is producing ever less discernible results. Indeed, there is now no discernible result.
Has business confidence returned? The OBR says:
“Lack of confidence regarding the outlook for global and domestic demand is leading firms to postpone investment decisions”.
Has household confidence returned? The OBR states:
“Our forecast for real household disposable income growth is weaker than in March”
It adds that this,
“is expected to constrain household spending”.
So if households are not spending and businesses have no confidence and are not spending, where is the recovery to come from? Net trade has a negative impact on the economy as markets overseas stagnate and the Government are cutting net spending, so making things yet worse. The experiment has failed and the British people are paying the price of the failure. The plans to spend something on infrastructure are welcome after the savage cuts of the past two years, but notice that government investment was down 20% last year and another 9% cut is forecast for this year. The infrastructure plans are a drop in the ocean. Even their impact on demand is offset by the fact that they are to be funded by cuts elsewhere.
On top of all this, the Funding for Lending scheme is not working and the Work Programme is not working. No wonder that in summing up the whole impact on growth of the policy measures in this Autumn Statement, the OBR says they have,
“a limited impact on our economic forecast”.
All the Chancellor’s rhetoric about growth signifies nothing. The Chancellor indicated in the Statement that he intends to make significant cuts in benefits for those out of work, on top of cuts to welfare expenditure announced earlier this year in the Budget. Unfortunately the data supplied in the Autumn Statement do not include the analysis of the distributional impact of policy measures as do Budget documents. Could the noble Lord tell us what is the net impact of the measures announced today on the lowest decile of income recipients?
The most extraordinary aspect of this Autumn Statement is that the Chancellor has implicitly recognised that his policy has failed but is continuing with it none the less. If the policy was working, if expansionary fiscal consolidation had a shred of credibility left, instead of extending austerity to 2018 he would be doing more of it now—let us get on with it, get it done and put us on the road to recovery—but he has lost the courage of his convictions and not found the courage to admit the failure of his policy. There is another way, another approach to cutting the deficit, and that is by stimulating growth that cuts the deficit, not cutting the deficit and hoping that growth appears.
However, growth depends on confidence in growing demand. It requires a substantial infrastructure programme; investment in education and research; substantial reform of the banking industry to deal with the difficulties identified the other day by the governor; and a British investment bank to lead the way in funding the investment that demand would stimulate.
The dreadful growth figures and the slowness of the recovery comprise the worst economic performance of our economy in attempting to come out of recession for more than 100 years. We cannot go on like this. The Government must recognise that their core policy has failed and have the courage to face that fact.
My Lords, as my right honourable friend the Chancellor of the Exchequer said earlier in another place, the British economy is healing. We are on the right track and turning back now would be a disaster. The deficit has already been cut by a quarter and is forecast to continue falling every year of the Parliament. I find it extraordinary that the noble Lord, Lord Eatwell, questions the OBR’s explanation of this by saying that policy decisions are in some way fiddling the books. It is precisely because of the policy decisions that we took in the Budget and are taking again today that that deficit reduction continues to be on track at the same pace.
Since this Government took office, more than 1 million private sector jobs have been created and exports to emerging markets have doubled. In a tough global economic climate we are making progress. The noble Lord, Lord Eatwell, referred to the growth forecast. The OBR’s growth forecast for the UK next year is that the economy will grow faster than, for example, that of France or Germany.
Let me remind your Lordships of a few examples of how the Government are protecting the economy, supporting growth and ensuring fairness, and of the measures that have been welcomed today. The Government have confirmed an extra £5.5 billion of additional infrastructure investment and support for businesses. That is in addition to the similar £5 billion switch from current to capital expenditure last year. The noble Lord may talk about drops in the ocean but the position now is that public and private infrastructure investment in this country is running at £33 billion a year. Under the previous Government, total average annual infrastructure spending was £29 billion. It is very important that we invest in the future of our infrastructure.
There will be a further 1% cut in the main rate of corporation tax from April 2014 to 21%, bringing it down to its lowest level—far lower than that of our most direct competitors and one of the lowest in the G20—and from this coming April the personal allowance will rise by a further £235 on top of the rise previously announced, making it the highest cash increase ever.
I shall now answer one or two of the other points made by the noble Lord, Lord Eatwell, on quantitative easing. First, the numbers are set out scrupulously transparently to show the effects before and after the transfer of cash on the income side from the APF to the Treasury. The numbers are completely clear. On his question about the contingency, the contingent liability on QE has been set out, and will continue to be set out in the notes to the whole of the Government’s accounts, as it should be. The OBR, in its document, points out, the effect of QE on its central case when it unwinds as being a significant reduction in debt.
Finally, the noble Lord, Lord Eatwell, asks about the distributional effects of all of this. This is an important question, because he asks about transparency and the way we disclose the numbers. The previous Government never set out the distributional effects of their Budgets or Autumn Statements in their pre-Budget reports. We have published today on the Treasury website an 18-page document that goes further than even this Government have gone before in their distributional analysis, with several new tables that I warmly commend to the noble Lord, Lord Eatwell. These confirm, as at every stage in this Government’s deficit reduction plan, that those with the broadest shoulders bear the largest brunt. That is there in the document “Impact on households”.
So, as my right honourable friend the Chancellor of the Exchequer said, the deficit is down, borrowing is down and jobs are being created. It is a hard road, but we are making progress and, in everything we do, we are helping those who want to work hard and get on.
My Lords, this may be my only opportunity to pay tribute to My noble Friend Lord Sassoon before he steps down from the Front Bench, so let me do so. As any Minister, he will have expected fire from across the Chamber, but he has also had fire from over his right shoulder on occasion, and he has dealt with it extremely graciously. For many of us, the test of a Minister is how he and his team deal with Back-Benchers. Based on that test, he has been a superb Minister and we will miss him.
The Statement that the Chancellor presented to us today meets the test of being both tough and fair. It is remarkable that, despite the economic conditions that we face, the deficit is still reducing, which will have surprised many of the pundits but I am sure will have pleased this entire House.
As a Liberal Democrat I am most pleased about the decision by the Government to lift the threshold of the starting rate of tax one more time to £9,440. It was utterly unexpected. When this Government came in, that threshold was £6,475. To its credit, the coalition committed to raising it to £10,000. We are only half way through a Parliament, but it is at this point only £560 below its target. The impact is something like £600 more in the pocket of ordinary working people and more than 2 million people taken out of income tax altogether. In this time of economic stress, that is a phenomenal achievement. The Government should be congratulated.
I was pleased that the welfare cuts were well below those that were anticipated; I can see I am being asked to move to a question very quickly, so I will ask one in this way. Growth, as we all know, is now the holy grail that we attempt to achieve for this economy. Does the Minister agree that it now utterly depends on access to credit for the businesses that make up our economy? Will he commit to making sure, when he talks to his Treasury team, that the restructuring of the banks allows a new competitive environment with new entrants and new players that can deliver the kind of credit we need to the small businesses that are the backbone of our economy?
My Lords, I am very grateful to my noble friend for her generous remarks and for her support since she has been her party’s spokesperson on the economy. The two parties are joined at the hip when it comes to the key economic work and all the other work of the Government. Importantly, she reminds us of a critical part of the Autumn Statement: raising the tax threshold to the benefit of 25 million people. That is very important.
On credit and access to credit, I draw the attention of the House and my noble friend to the comments of the OBR today. Its judgment is that the funding for lending scheme will lower rates for credit but increase availability. I very much share my noble friend’s concern to see a more competitive banking landscape emerge. In that context, it is interesting to note that the funding for lending facility is being taken up and having a disproportionate effect on some of the new challenger banks. I hope that that continues and that they continue to be able to increase their lending responsibly off the back of that scheme.
My Lords, perhaps I may add my personal congratulations to the Minister. He has always brought great skill, tact, humour and optimism to his role on the Front Bench. It is a shame that that optimism has not seen the prize delivered because today’s economic Statement is a lamentable one. Against the two principal, navigating stars that the Chancellor of the Exchequer set—the fiscal mandate and a supplementary objective—he has missed, and missed by a country mile. On the first, he has been required to push austerity even further into the next Parliament and, on the second one, he makes only a modest reduction in debt as a percentage of GDP in the year 2017-18, but it is still 3% higher than in the current year. The policy of austerity-led expansion is clearly not working. An extra 1% of GDP growth during the lifetime of this Parliament would have reduced by five percentage points the proportion of debt to GDP. Growth is the key to reducing the deficit.
There are things in the Chancellor’s Statement that I find very commendable, particularly the extension of the dual carriageway of the A30 in my beloved Cornwall. Whether the right honourable Michael Gove will appreciate the use of the word “dualling” as a verb in the Chancellor’s Statement is questionable and I wonder whether Mr Gove would appreciate the arithmetic error in the Chancellor’s Statement on the increase in the inheritance tax nil band.
The Chancellor makes some very good points about attacking tax havens. So my question relates to suggesting to the Minister that, when we chair the G8, we should seriously consider saying that no G8 bank can operate in an offshore centre with a subsidiary or a branch. If, in the future, the banks of the Channel Islands—Guernsey and Jersey—were domestic banks rather than branches of subsidiaries of the world’s leading banks, most of the attraction of using despicable offshore tax havens would fall away.
My Lords, that seemed to be a speech rather than a question. However, I am grateful for some of what the noble Lord, Lord Myners, had to say and I shall miss sparring with him. I remain an optimist. In less than three years since the previous election, the private sector in this country has created 1.8 million new jobs, which is twice what the OBR projected, and the OBR’s projection today for the period up to 2018 is that 2.4 million further new private sector jobs will be created at a time when it estimates that public sector employment will be reduced by 1.1 million. Times are difficult, but I remain optimistic about the underlying strength and vibrancy of the private sector in this economy.
As to the observations of the noble Lord, Lord Myners, about offshore centres, some of the issues that he raises are certainly on the agenda, but it is inappropriate to talk about offshore centres and others. The key thing is to make sure that the so-called offshore centres are brought up to the standards of the best. Some of them have made huge strides; others need to. I take his points.
My Lords, does my noble friend not think it remarkable that the Official Opposition have no proposals for reducing the deficit by cutting public expenditure, and that there does not appear to be a scintilla of humility for the fact that they were running a deficit of some £70 billion at the height of the boom times? It was their irresponsible conduct over the economy that has got us into this mess. Should the Chancellor not be congratulated on not being more outraged at the response that he has had from the Opposition, in which former spokesmen are reduced to criticising the grammar of the Statement rather than its content? The truth is that they have nothing to offer the country to get us out of the mess that they created.
My Lords, I thank the Minister for his personal courtesies to me since I have been a Member of your Lordships’ House.
I welcome the increased allowances for small businesses and the reductions in corporation tax. Will the further reductions in corporation tax dissuade the Minister’s right honourable friend the Prime Minister from considering devolving corporation tax-setting powers to the Northern Ireland Assembly? Secondly, will he consider once more a reduction of VAT to encourage the retrofitting of buildings so that they can not only be improved from an energy-efficiency point of view but benefit from a tax holiday on VAT for a small period of time, which would have limited dead-weight potential but would stimulate the construction sector? Will he give further consideration to those two points?
My Lords, the question of corporation tax in Northern Ireland continues to be considered. The key thing is that we are making the United Kingdom as a whole a more competitive place and in corporate tax terms the most competitive place to do business among our major competitors. Of course, the position in Northern Ireland will continue to be debated.
As far as the reduction in VAT is concerned, this is a case that is made regularly. We believe that what we have announced today—the two-year increase in the investment allowance—is a better way of targeting the limited resources that we have, in addition to what we have done on the basic rate of corporation tax.
My Lords, I add my congratulations to my noble friend on what he has achieved in his time in the House. I wish him well in whatever he chooses to do next. I agree that it is depressing that he has to leave us on the back of a Statement that shows the growth forecast having to be lowered.
It is worth noting that in the Blue Book the GDP fall in 2008-09 has been revisited and has come down by a massive 6.3%. Given that background, it is hardly surprising that the efforts to rebuild the economy are proving difficult. Nevertheless, in this Statement there are several things that will make a major contribution to improving the economy, and I congratulate my right honourable friend the Chancellor on the things he is doing to encourage investment and infrastructure investment.
Does my noble friend share my concerns and those that were voiced recently by Sir Mervyn King, the current Governor of the Bank of England, that one thing that is going to hold back growth in the economy is if the banks do not acknowledge the real state of their balance sheets and take the hits that they should?
Again, I am grateful to my noble friend for her kind words. It is also important that the House recognises that the damage done by the fall in GDP as a consequence of the structural position and the mess left behind by the previous Government, combined with the financial crisis, continues to be assessed as worse and worse. As my noble friend said, it is now estimated to be a fall in GDP of an extraordinary 6.3%.
I also agree with my noble friend that it is important that the banks are realistic about the state of their balance sheets. Linking back to the debate on the Financial Services Bill that we had earlier this afternoon, it is important that the new Financial Policy Committee—up and running now for a period in shadow form—is beginning to get to grips with these issues. These sorts of things were never debated and put on the table by the authorities in the past, when the punchbowl should have been taken away. So my noble friend is completely right.
My Lords, I also wish the Minister well for the future and add my concern to that expressed already about whether this mini-Budget will trigger the necessary growth. Specifically, with regard to the commitment in the Autumn Statement of £5.5 billion in additional infrastructure investment and the consequential £227 million additional capital funding available to the Welsh Government, will he confirm that that spending can be allocated as desired by the Welsh Government and does not need to follow the pattern of the £5.5 billion that has generated it? Will he also confirm that in the discussions that have taken place between the Treasury and the Welsh Government over recent weeks with regard to the enhanced capital allowance in enterprise zones, that is not assumed to be coming out of that money?
My Lords, I add my own appreciation of the Minister’s work and success. He has always shown patience, attention to detail, wit and great courtesy and I, too, wish him success and fulfilment in whatever he does next.
The national plan has identified £200 billion of infrastructure investment in transport and communications and about another £200 billion for the energy sector. The financing of that is fairly readily available. For the sovereign wealth funds of the world, it is an attractive investment. I was amazed to find that even the Agricultural Bank of China is setting up in London and is dead keen to put up loan finance. Indeed, it is putting up the loan finance for the improvements to the main road between Edinburgh and Glasgow.
There are also pension funds—who wants to buy gilts at present yields when you might get 4%, 5% or 6% on an infrastructure project? The funding is there, but when I asked the Financial Secretary to the Treasury how much was likely to happen over the next three years, he could not give an answer. There are still delays caused by the way that the planning system works and because of environmental requirements. Now is just the time when this country needs to make those infrastructure investments and get a move on with them. Will the Government look at further measures that they can take to delay these bureaucratic constraints on the infrastructure investment getting going?
I could spend the rest of the three minutes and a lot longer on this but I will be brief. Again, I am grateful to my noble friend for his remarks.
On how the infrastructure is funded, there is still a need for a large debt component in many of the projects, and the debt markets continue to be very difficult. My noble friend is completely right about the appetite of the sovereign wealth funds and I will be going to the Gulf again to visit a number of them next week. But the debt component remains difficult.
As to whether the investment is flowing through, total private and public investment in infrastructure is now running at £33 billion per year compared to an average of £29 billion per year under the previous Government—even with all the investment in social infrastructure that went on. While there is more to be done, that is an important number.
There are other areas, yes, where we need to make more progress. I draw my noble friend’s attention to the policy decisions on energy over the last week, which should now enable the energy markets and investors to invest in a broad sweep of nuclear, renewable and gas assets.
My Lords, I add my congratulations to the Minister. Optimistic he may be, but what remarkable chutzpah he and the Chancellor have shown on a day when they have missed all their key targets.
I wonder if he could help me with just a couple of points in the blizzard of information that we have had today. Is there any increasing demand as a result of the measures announced? As the Minister knows, demand is absolutely essential if we are to have growth and it would appear that the OBR has taken into account all the measures but has still downgraded significantly the growth over the next five years.
Secondly, in Annex B.1 of the Treasury document, the suggestion is that the bottom three deciles of the population will bear about three-quarters of the burden of the fiscal consolidation. In 2015-16, 96% of the reduction will be borne by cuts in welfare and public spending; only 4% will come from tax increases. That is rather different from the 80:20 the Chancellor talked about.
Finally, on the question of interesting accounting, the Autumn Statement includes receipt in the current financial year of £3.5 billion from the auction of the 4G spectrum, which is yet to take place. This receipt is apparently used in the current year to reduce the debt, but appears then to be used in the following financial year to finance spending plans. How can that be?
My Lords, first, the test of increase in demand will ultimately be the growth numbers. The OBR has set out its forecast of growth numbers and—I can only repeat—it is forecasting higher growth next year for the UK compared to countries such as France and Germany.
On the question of the distribution, I draw the attention of the noble Lord, Lord Hollick, to the new chart on the overall level of benefit and public spending receipts in the supplementary document, which shows that, contrary to what the noble Lord is saying, the overall result is significantly progressive across the quintiles.
The deficit reduction plan will continue to be on a 80:20 basis; in other words, with 80% of the deficit consolidation coming from spending reductions and only 20% from tax—just as it was before today. That has not changed. As far as the spectrum auction is concerned, the £3.5 billion has been certified by the OBR as its central estimate of the money that will be coming in this tax year.
Police and Criminal Evidence Act 1984 (Armed Forces) (Amendment) Order 2012
Motion of Regret
That this House regrets that the Police and Criminal Evidence Act 1984 (Armed Forces) (Amendment) Order 2012 (SI 2012/2505) fails to comply with the judgment given on 4 December 2008 in S and Marper v United Kingdom and further regrets that the failure of the Secretary of State to exercise the power under Section 120(1) of the Protection of Freedoms Act 2012 to bring into force Chapter 1 of Part 1 of that Act perpetuates the likelihood of breaches of human rights under Article 8 of the European Convention on Human Rights.
My Lords, the Motion of Regret that stands against my name on the Order Paper is prompted by the hope that it will induce the Government to bring into effect Sections 1 to 25—that is, Chapter 1 of Part 1—of the Protection of Freedoms Act 2012. That Act received Royal Assent in May this year but there is no indication of a firm date for bringing Sections 1 to 25—the relevant sections—into effect.
The background to the importance of those sections is that they correct the present statutory powers of the police to retain on their database, potentially indefinitely, fingerprints and DNA material taken from individuals suspected of a relatively serious crime, notwithstanding that those individuals may never have been convicted, may have been acquitted, may not have been prosecuted or tried, for whatever reason, or in some cases may not even have been charged. However, if they were suspected of a crime, the police had the power to take this highly personal material from them—fingerprints and DNA samples, leading to a DNA profile—and to retain it on the database that they maintain to assist them in prosecuting and investigating crime.
Nobody doubts the huge value to the police of an extensive database of the sort that I have mentioned being compiled and kept. Yet the individuals who have never been convicted, and can therefore hold themselves out as being innocent of the crimes of which they were at one time suspected, naturally object to the retention of their details on the police file. The right of the police to do this is at the moment to be found in Section 64(1A) of the Police and Criminal Evidence Act 1984, which says in terms that the police may take and retain the fingerprints and DNA material of persons suspected of relatively serious offences. Individuals have objected to that and two cases have gone to the highest courts in the land.
The first of these two cases, S and Marper, went to the Appellate Committee of the House of Lords, as it then was. I do not have to declare an interest because I was not a member of the Appellate Committee that sat on that case. The Law Lords who did decided unanimously that the retention of the material of the two individuals, one of whom had been acquitted and the other never prosecuted at trial, was justified by the 1984 Act, as amended, because they had been suspected. The individuals took their complaint about this retention of those highly personal data about themselves to Strasbourg, saying that it was a breach of their right to respect for their private lives under Article 8 of the convention. The Strasbourg court agreed with them, disagreeing with the Law Lords.
The Strasbourg court held that the retention of this material, in circumstances where the individuals had never been convicted, was an interference with their right to respect for their private lives, and that something should be done about it. The court did not give them any remedy other than to find in their favour on that issue, and to indicate that within a reasonable time the United Kingdom should amend its law so as to avoid the possible repetition of similar breaches. That Strasbourg judgment was given in December 2008, which was of course in the time when the Labour Party formed the Government of the country. The Labour Party set about formulating revised guidelines for the exercise of the discretion in the 1984 Act’s provision. Those formulated guidelines were embodied in the Crime and Security Act 2010. However, the relevant provisions in that Act were never brought into effect because they were overtaken by the general election and the emergence of the coalition Government.
In the Queen’s Speech of 2010—I think it was in May—the coalition Government announced that they would look again at the guidelines in question and would formulate their own revised guidelines, which would be incorporated into their proposed Protection of Freedoms Bill. That was done and the guidelines, which are in Sections 1 to 25 of what became the Protection of Freedoms Act, were subject to being brought into effect by a statutory instrument to be made by the Secretary of State. Notwithstanding that Sections 1 to 25 contained elaborate and complex details governing the permitted use of material relating to people who had never been convicted, the guidelines were not brought into effect and no firm date for the making of the statutory instrument has, until very recently, been announced.
The second case also involved two applicants. One was acquitted and the other was never tried. I cannot remember what the case that was never tried was about. In the second case—the case that was tried—there was an allegation of rape, but at the trial the police offered no evidence on the rape charge; presumably the complainant had withdrawn his or her evidence, and so the accused was acquitted. In that case, the Supreme Court, which heard the final appeal in 2010, regarded as common ground that the House of Lords decision in the first case on the Human Rights Act point could not stand against the decision of the Strasbourg court. Whether that was the correct common ground I leave unanswered for the moment. That was the common ground, and I have heard nobody say that it was wrong. In the second case, the Supreme Court said that the Strasbourg court judgment, which declared the practice as contrary to the individual’s rights under Article 8, had to be respected.
Following that, new guidelines were formulated that were included in the Protection of Freedoms Act. However, those guidelines have never been brought into effect. The purpose of the Motion that stands in my name is to try to induce the Government to bring into effect those provisions and correct the present state of the law in the relevant respects. The present position, however, is that the Minister, the noble Lord, Lord Taylor of Holbeach, had discussions with me yesterday and today, and indicated that an announcement which he will be making as soon as I have sat down will deal with the problems and satisfy me. I am extremely grateful to him for the time he has spent on this and I am satisfied with his proposals. When he has said what I anticipate he will say, I shall invite your Lordships to give me leave to withdraw the Motion, which will have served its purpose.
My Lords, very briefly, I share the concerns of the noble and learned Lord, Lord Scott, about the order, which was commented on by the Select Committee on secondary legislation. This area of the law was thoroughly looked into some years ago by your Lordships’ Constitution Committee. The recommendations of the committee, contained in the second report of the 2008-09 Session entitled Surveillance: Citizens and the State, were broadly welcomed. Since that report Parliament has passed the Crime and Security Act 2010 and the Protection of Freedoms Act 2012. The provisions of the latter, dealing with the retention of DNA, have not yet been brought into effect, as the noble and learned Lord pointed out. However, the intentions of the Government and of Parliament have been made clear beyond peradventure.
It seems strange, therefore, that the Government have brought forward an order which has the effect of lengthening the period during which DNA may be retained by the police service, in circumstances which will no longer be lawful when orders under Part 1 of the Protection of Freedoms Act have been passed by Parliament. I hope, therefore, that the Minister will be able to give the House the assurances so precisely defined and advocated by the noble and learned Lord, Lord Scott.
My Lords, I welcome the thrust of the Motion of Regret from the noble and learned Lord, Lord Scott. It comes from someone who contributed five times during what became the Protection of Freedoms Act, so it is not a flash in the pan. I also look forward to the Minister’s detailed reply for the Government. I should like to make a point that to some extent has already been made: the point of substance in the noble and learned Lord’s Motion is to respect the rights of the citizen when considering DNA or fingerprint records, and I emphasise that.
Prior to the Minister’s comment, which the noble and learned Lord apparently welcomes, I would like to say that the Government have taken a big step forward in enacting the Protection of Freedoms Act 2012, which sets in place a system of deletion and destruction consistent with the Marper judgment, which has been referred to, and human rights obligations. It is clear to anyone who looks at how DNA records are apparently kept, though, that absolute care must be taken when dealing with the material. It is both highly personal to the individual from whom it is taken and an important tool in the detection of crime.
Time is needed, of course, to put in place the policies and procedures to give accurate effect to the legislation passed by Parliament. The DNA evidence from those who have been responsible for crimes and those who have not needs to be sorted, and I gather that that evidence is voluminous and there is a time element. I am happy, and I hope that the noble and learned Lord will be too, that the Government will, we hope, indicate that they will have the long-term position resolved by mid-2013, as I understand it—perhaps even sooner; that the updated Armed Forces policing regulations will follow; and that both will be delivered according to the timetable. I welcome the clarification that this Motion will, I hope, produce.
My Lords, unlike the noble and learned Lord, Lord Scott of Foscote, I do not have the advantage of knowing what the Minister is going to say in reply. Indeed, I did not even expect that the noble Lord, Lord Taylor of Holbeach, would be the Minister replying; I was under the impression that this was a defence issue.
The order that we are covering came into force on 30 October this year, just one month ago. It amends the Police and Criminal Evidence Act 1984 (Armed Forces) Order 2009 by providing that biometric data taken from someone being investigated for a service offence by service police can be retained for up to four years but no longer, unless within that period the person is convicted of the service offence. The Protection of Freedoms Act 2012 amended the Police and Criminal Evidence Act 1984 and introduced different rules and requirements for the retention of biometric data taken from arrested people. However, the Armed Forces are not covered by the Protection of Freedoms Act.
PACE also only applied to criminal investigations being conducted by the civilian police. However, under Section 113 of the 1984 Act the Secretary of State can by order apply certain provisions of the 1984 Act to investigations conducted by the service police. This was done in relation to the taking and retention of biometric data by way of the Police and Criminal Evidence Act 1984 (Armed Forces) Order 2009, which has since been amended by the Police and Criminal Evidence Act 1984 (Armed Forces) (Amendment) Order 2011, and again by the 2012 order, which we are discussing now.
The 2011 order amended the 2009 order by increasing from two years to three the time limits that apply under that order to the retention of fingerprints, samples and impressions of footwear, and the 2012 order amends the 2009 order to allow material taken on or after 31 October 2009 to be retained for up to four years from the date on which it was taken, unless during that period the person is convicted. For material taken before 31 October 2009, the four-year period runs from that date.
It seems that the Government regard this 2012 order as a holding measure, as the intention apparently is to introduce a new order once the relevant provisions of the Protection of Freedoms Act 2012 have been brought into effect, and that that new order will broadly replicate for service personnel the 2012 Act’s provisions on retention of biometric data for civilians.
As the report from the Secondary Legislation Scrutiny Committee sets out, the changes that have been made and are still to be made to the Police and Criminal Evidence Act 1984 arose from a ruling in 2008 by the European Court of Human Rights that the relevant provisions in Part 5 of PACE were in breach of Article 8 of the European Convention on Human Rights. Those provisions in Part 5 allowed for the indefinite retention of fingerprints and DNA samples when there had been no conviction. As a result, Part 5 of the 1984 Act was amended by the provisions in Chapter 1 of Part 1 of the Protection of Freedoms Act 2012. However, those provisions in the 2012 Act are not expected to be commenced before mid-2013.
The purpose of the 2009 order, and subsequent amending orders in 2011 and now 2012, was, we are told by the Ministry of Defence, to make interim provision that would be compliant with the European Court of Human Rights ruling and allow the service police to retain material until Part 5 of PACE was amended. The Secondary Legislation Scrutiny Committee has commented that the practical effect of continuing to bring forward these orders, extending the period for which data can be held, is potentially to enable the material to be retained indefinitely. The order that we are now discussing means that the interim provisions will be in place for at least five years after the European court gave its judgment, and even longer if there is further delay in commencing the relevant provisions of the 2012 Act. The committee has also questioned whether successive statutory instruments with the practical effect of potentially allowing the indefinite retention of material taken by service police can be considered compliant with the European court’s judgment.
These are all points which deserve a considered response from the Minister. When he replies, perhaps he could also say why the relevant provisions of the Protection of Freedoms Act 2012 are not coming into force until at least the middle of next year. In Committee on the Protection of Freedoms Bill, the then Home Office Minister rejected our amendments providing for the retention of DNA and fingerprint profiles for six years, a longer period than that proposed by the Government and now incorporated in the terms of the Protection of Freedoms Act. We were told that there was a need for balance between public protection and individual freedoms, and that the Government considered that they had got the balance right and we had got it wrong. One would have thought that after that the Government would have made every effort to bring into effect the relevant provisions of the Protection of Freedoms Act as soon as possible, not to find themselves in a position where they are putting forward an order that specifically provides for the retention of biometric data for a longer time than the Government said struck the appropriate balance and rather nearer the time in years that we were arguing was appropriate.
Why was it not felt right to make provision within the Protection of Freedoms Act 2012 for matters relating to the investigation of service offences, at least in relation to the taking and retention of biometric data if not to other areas, to be brought within the terms of Part 5 of the Police and Criminal Evidence Act 1984? Presumably, the situation at the moment is that if a member of the Armed Forces is being investigated by the civilian police, the provisions of the 1984 Act apply to the investigation directly, but that if that same member of the Armed Forces is being investigated by the service police then the 2009 order—as amended by the 2011 and 2012 orders—applies. Is there any reason why it is essential that this distinction continues to apply in all instances?
We understand the reasons why the noble and learned Lord, Lord Scott of Foscote, has drawn this order to the attention of the House. Whether or not one believes that the Government’s decision on what specific action to take to meet the ruling of the European Court of Human Rights was appropriately balanced, it is still relevant to ask why it will be at least just over three years after taking office, and five years after the ruling, before the Government implement their decision on how to comply with a judgment with which they are not in disagreement.
My Lords, I thank all noble Lords who have spoken. It is not often that a Minister thanks a Member of this House for drawing the House’s attention to a statutory instrument by means of a Motion of Regret, but I do indeed thank the noble and learned Lord, Lord Scott of Foscote, for bringing this matter to the attention of the House. It gives me an opportunity to update the House on this important issue.
I am sure that the noble Lord, Lord Rosser, will know that I would not intend any discourtesy. I understood that the usual channels were informing the Opposition that I would take this Motion, as I am the Home Office Minister responsible for DNA.
I thank the noble Lord.
Perhaps I may begin by saying that the Government are deeply committed to protecting the privacy and human rights of its citizens. At the same time, they are committed to maintaining an effective and powerful database that protects the public and reduces crime. To this end, as noble Lords have pointed out, they introduced the Protection of Freedoms Act to ensure that innocent people’s DNA and fingerprints are no longer held on databases.
As my noble friend Lord Palmer of Childs Hill pointed out, this is a complex matter, and so to get it right involves quite a lot of technical application and detail. I have been much engaged, in my short time in the Home Office, in trying to make sure that this is all in place. I am pleased to be able to say that the preparatory work required before implementing the Act is substantially complete. I have now received advice on the timelines of the implementation of the Act, and will announce the full details of this to the House within the next few days by way of a Written Ministerial Statement. However, it may help the House if I give some indication of the detail involved.
We anticipate that the elimination of the estimated 6 million DNA samples covered by the provisions of the Protection of Freedoms Act will begin this month, and will be completed by the end of May 2013. All other material covered by these provisions will be destroyed by the end of September 2013. As I say, I will be able to give fuller details of schedules to noble Lords in a Written Ministerial Statement which I expect will be made in the next few days.
There has been some confusion because this interim statutory instrument, laid by my noble friend and tabled through the Ministry of Defence, appears to contradict the thrust of government policy by extending the period of DNA retention. However, this is an interim measure, and I hope to be able to reassure my noble friend Lord Goodlad, whose work in scrutinising this legislation has perhaps prompted the noble and learned Lord, Lord Scott, to bring this Motion to the House. I hope to be able to assure him that a further statutory instrument in consequence of the commencement of these provisions will be tabled by the Ministry of Defence to bring its police powers in line with civil police powers.
I hope that noble Lords can see that this particular debate occurs at a critical point in the process. Over the next few months we will see the Government’s commitment translated into action by the destruction of this material, which is held on innocent people and should not be in the hands of government. With that, I hope that the noble and learned Lord will be able to withdraw his Motion.
My Lords, I am grateful to the Minister, to the noble Lord, Lord Rosser, and to noble Lords who have spoken on this Motion.
One matter that I should have mentioned, and forgot to mention when I addressed the House a few moments ago, was that following the decision of the Strasbourg court in 2008, the then Labour Administration reacted, as a preliminary, by ordering the destruction of all data held relating to children under 10. That reaction was immediate, and the White Paper was produced shortly after that, indicating the reformulation of the guidelines to the use of the power contained in the 1984 Act, as amended.
In view of the statement made by the Minister, the purpose of my Motion has—as far as I am concerned—been achieved, and so I ask the leave of the House to withdraw it.
EUC Report: EU Freshwater Policy
Motion to Take Note
My Lords, some have suggested that our report into water policy had the powers of a rain dance, for no sooner had we concluded the inquiry in April, which highlighted water shortage, than the heavens opened and we had one of the wettest summers on record. Even as we come to debate our report, much of the country seems to be under water. Yet, although ground-water levels in the UK have been topped up, we must not be complacent, as long-term trends that we face are very clear, and we face some difficult choices going forward.
The European Environment Agency observed that the number of countries affected by drought per decade rose from 13 in the period 1971 to 1980 to 24 in the period 2001 to 2011. The analysis showed that the drought occurrence not only increased in the central and southern areas of the EU but, significantly, also in the northern and eastern parts of the EU, in countries such as the UK and Sweden. The reasons for this are clear: intensification of agriculture; urbanisation; climate change; and, of course, a rising population.
Looking forward to 2050, we can expect a world population of some 9 billion, and so we will need to provide 70% more food and 80% more primary energy, and, of course, a significantly greater amount of water. Given that the supply of water is finite, this is a critical, if not urgent, matter, and we need to understand what our water policy should be in order to mitigate future crises. That is not easy. There is a great deal of uncertainty, particularly relating to climate change. However, one of our witnesses, Professor Alan Jenkins, put it very well. He said:
“Uncertainty is no reason for not doing anything”.
In 2010 we published a report on adapting EU agriculture and forestry to climate change. It is fair to say that the increasing water scarcity was a particular theme that came out of our inquiry. Subsequently we undertook an inquiry into innovation in EU agriculture, in which a key concept was sustainable intensification; that is, producing more from less, including, of course, less water.
It therefore seemed appropriate to us, given the increasing focus on water policy in the EU, to build on that previous work and to offer thoughts, some of which we hoped would be of assistance to the Government in developing their policy and to the Commission in preparing its blueprint for the future of EU water policy. Fortunately, that blueprint was published two weeks ago, and so, if I may, I will set out our conclusions and what the blueprint had to say about them.
We have to accept that the cost of water will have to rise. But before we can even think about that, we have to have a more fundamental consideration of how we value water. It is interesting to note that water is a scarce resource; yet, it has taken 20 years for the price of water to rise by 40%. When you look at the other scarce resource, energy, the price of gas has taken only five years to reach the same level.
The water framework agreement places an obligation on member states to do two things. One is to ensure that by 2010 water pricing policies provide adequate incentives for consumers to use water more efficiently. The second is to ensure an adequate contribution of the different users disaggregated into industry, agriculture and households. The object of that is to ensure that each pays an appropriate share of the cost of water services. That needs to take into account environmental and resource costs.
What surprised us was that during this inquiry, the UK’s regulator, Ofwat, told us that there is no real price placed on water in the UK. The Commission was critical in the blueprint of cost recovery in the UK. It appeared to us and to the Commission that water services were too narrowly defined and did not reflect environmental and resource costs, including self-abstraction by agriculture. Cost recovery is not transparently presented for all relevant user groups. Therefore, I ask the Minister to respond to that criticism and to answer how the UK will ensure as a matter of urgency that it is in a position to value water effectively.
Abstraction becomes important because it was regarded as not being effectively cost recovered. The Commission observed that the second most common pressure on ecological status right across the European Union stems from abstraction. In our report we urge the Government to accelerate their timetable for reform of the UK’s abstraction regime, a position that I know is shared by the EFRA Committee in the other place.
While we accept the Government’s position that the reform of the abstraction regime is a major piece of work, which should be evidence-based and carefully considered—that is, go slowly—is it not the case that changes made by this Government in other areas, including health and education, have been significant? We would welcome an application of a similar urgency and political impetus to tackle overabstraction, given the clear direction in the blueprint.
As regards water efficiency, scarcity can, in part, be addressed by efficiency. I have already mentioned abstraction but more must be done to tackle the scandalous levels of leakage and to encourage personal water efficiency. During our inquiry we were shocked to learn of the levels of leakage from water infrastructure. Why is it that in Germany the so called “sustainable economic leakage level” is 7% while in the UK it is 25%? In certain other countries in the European Union, it is as high as 50%. One way to encourage personal efficiency in water use is through metering. In our view, a greater use of metering needs to be considered. The Commission, quite rightly, describes metering as,
“a pre-condition for any incentive pricing policy”.
Does the Minister share that view?
Another example of innovation in water efficiency is water foot-printing. It has been calculated that, as a global average, it takes 70 litres of water to produce one apple and 15,000 litres to produce one kilo of beef. I do not know whether this is the experience of others but sometimes I have sat at a long lunch with rather dull company and hoped that some of that water could reform itself into a tidal wave and sweep away some of the clutter that we were facing. None the less, looking at the assessment of the amounts of water embodied in products and how the value of that water can be taken into account can make a real change to the way in which consumers make their choices. I am pleased to note that the Commission is very supportive of that concept.
A further area of efficiency is that of water reuse. One of the new legislative initiatives suggested by the Commission in its blueprint relates to water efficiency around this area. Many noble Lords may be aware of grey water use in Europe. This is lower-grade water which is used for irrigation. The Commission has identified that the use of this water faces certain obstacles because there are no standards. Because there are no standards, this leads to restrictions in the export and movement of agricultural products around the European Union. Therefore, it is suggesting that standards could help to alleviate this situation. Do the Minister and the Government have a view on the Commission’s analysis and are the Government planning to introduce such standards unilaterally?
Agriculture is a very large user of water. In our report, we urge member states to make use of rural development funds to support water management and water efficiency in agriculture. We were interested to note the Commission’s view that there is a lack of clear strategy in the UK defining the basic measures that all farmers should adhere to and what additional supplementary measures can be financed. Clearly, we do not want to pay for what we should expect as the norm.
The Government have indicated that a strategic framework for agriculture and water is being worked on across Defra. I should be grateful if the Minister could say more about that framework, including timing, and whether the Government consider that they will tackle the issues highlighted by the European Commission.
I now turn to urban diffuse pollution. This is a major issue as, within the European Union, most of us live in urban areas. During our inquiry, we were concerned that a recognition of the impact of agriculture on the water environment had in many ways diverted attention from the impact on urban diffuse pollution. We recognise that Defra is doing work on this and has published a consultation on its strategy for combating it. While we are supportive, I think that the proposal, rightly, is for a lot of this responsibility to be pushed to local communities. We are very supportive of local engagement. But is the Minister confident that communities will have the necessary tools at their disposal coherently to tackle key issues, such road run-off? Perhaps the Government might usefully draw on the experience of Danish colleagues, following the example of Copenhagen, as set out in Box 4 of our report.
We concluded that further research is required into urban diffuse pollution, particularly on run-off, sediment and waste water treatment. The pressure on costly urban systems could be reduced if the discharge or discard of chemicals into the sewerage system were to be reduced. In that context, we welcome the Commission’s commitment, in the blueprint, to present a report on pharmaceuticals and the environment.
It is particularly interesting that one chemical, EE2, which is present in oral contraceptives, makes its way into the sewerage systems across Europe. To give noble Lords some idea of the extent of this, it is estimated that over the next 20 years, we will have to spend £27 billion to clean this up. That gives a sense of the scale of the challenge that we are facing.
Some solutions may be found in the European Innovation Partnership on Water, to which we drew attention in our report. The essence of this is networking between researchers, companies, public authorities and consumers. How this trickles down involves those at the local level and taking it forward is one of the key challenges that we face. Again, it would be useful to have confirmation that the Government are actively engaging with practitioners and stakeholders to bring this fledgling initiative to their attention so that, locally, people know that they can become engaged from the beginning.
Perhaps I may say a few words on governance. Engagement with stakeholders takes me to a core conclusion of our report and a significant shortcoming that we see in the blueprint. We were extremely impressed by the evidence we received about the work that is taking place organically at catchment level—that is, the sub river basin level—to manage fresh water in the UK and Australia. We heard some extremely good evidence from the south-west of England and some extremely good evidence about what is going on in Australia. The essence is to engage local communities in the appreciation of their rivers so that they get to understand all the consequences of actions and the benefits arising from them. However, none of these local initiatives will work without leadership, technical support and financial resources. Where one of these is missing, success is impossible. Can the Minister reaffirm the Government’s commitment to sharing their experience of catchment management with others as an example of best practice? Spreading this is very important.
So far I have said very little about our views on implementation of the water framework directive, which is, after all, the core of the EU’s freshwater policy. On first experience of implementation, our conclusion was that it has been a great force for good. Yes, implementation is proving challenging, yet the very aspiration of seeking to achieve good status is clearly helpful. Based on the very strong view that we received from witnesses, we emphasised the need for a more nuanced approach to reporting progress in improving the quality of water courses, going beyond the changes in status. As the Government wrote in their response:
“Achieving good status is a long term goal and it needs to be recognised that preventing deterioration and making progress towards achieving good status are … achievements”.
We firmly agree with that. However, I would welcome comments from the Government as to how they consider that such recognition can be introduced into UK reporting procedures.
I have been listening with great care to my noble friend’s very instructive and lucid remarks. I declare an interest as a director of an American company that is engaged in purification of water involving the fracking process. I did not hear my noble friend say anything about fracking. The amounts of water that are going to be involved in the United States are stupendous. Perhaps he could enlighten us as to whether his report took account of the possibility of fracking spreading to this country at anything like the scale it is proposed to extend to in the United States.
I will deal with that now. We did not look at fracking, but we are looking at it in the context of our inquiry into energy, which will be very critical. We hope to report on that in the spring of next year.
One issue that concerned us greatly in this inquiry—as in a number of others that we have conducted—was the consistency of monitoring and enforcement across the EU. Time and again we conduct inquiries and find that we in this country have monitored and enforced effectively, only to look across at other countries in the Union and find a somewhat less than enthusiastic attitude to monitoring and enforcement. Therefore it is very comforting that, in the case of water, both the Government and the Commission accept the need to strengthen monitoring and enforcement. The Government make a series of commitments in this regard in their response, including working on harmonising monitoring programmes, reporting procedures, and sampling and analytical methods. These commitments are very welcome. However, given our concerns, can the Minister please tell us how the Government plan to take these ambitions forward? We see this as a critical area.
I have spoken today on behalf of my committee, many of whose members are present here, and I pay particular tribute to those members whose engagement and insight really brought energy to the inquiry. I also thank the committee’s specialist advisers—in this case, Professor Robert Harris of the University of Sheffield and Dr Jonathan Wentworth of the Parliamentary Office of Science and Technology; their support was of great value. In the months since the report was published, we have seen the commission's blueprint, and we have seen progress with the pilot catchment management and the draft UK consultation on urban diffuse pollution. Those are all very important steps forward, but we are looking to see more action.
To conclude, I return to where I started. Notwithstanding the recent weather, there is a need for urgency. We believe that the water framework directive is a force for good, but we believe that more must be done quickly to operationalise the policy and the aspirations. We need action on pricing, on abstraction and on diffuse pollution, and we need it quickly. Some 250 years ago, Benjamin Franklin noted that when the well is dry, we know the value of water. Looking across the EU, from Cyprus to Estonia to Essex, the wells are beginning to run dry and we need to do something about this rather quickly. Securing fresh water for future generations in the UK and Europe is a fundamental responsibility. We need to recognise that we will have to pay for it and we need to take the long-term view, as I suggest our forebears did when they made the great 19th century investments in water and sewerage, for which we have been grateful for more than 100 years. I beg to move.
My Lords, I was a member of Sub-Committee D for two terms and very much enjoyed my time on it. During the first term we looked at the water framework directive and its introduction; during the second term we did a quick follow-up inquiry. So I am particularly grateful to have the opportunity today to listen to the introduction by the noble Lord, Lord Carter of Coles. I am also grateful to other members of the committee who will contribute today, and for the opportunity to make a few brief points myself.
This debate on water issues should be the first of many that we will have. As the noble Lord, Lord Carter, said, the recent floods and the drought that we had earlier in the year are an indication of how severe things are likely to get with the more extreme weather that climate change is predicted to bring. Even before that, water policy has been seen as more and more crucial over the past 20 years. I believe that it was President Gorbachev who founded Water for Life and Peace because he saw it as one of the areas that would give rise to conflict in the 21st century. There is no doubt that we cannot afford to be complacent in any way about water from any point of view of security, whether actual security or food security, and so on.
Today I will limit myself to talking about priority substances, governance in terms of the water framework directive, and measurement of successful quality improvement of water bodies. First, I will talk about the priority substances explained on pages 13 and 14 of the report. A great many were listed by the water framework directive the first time around. There was an indicative list of main pollutants, of which some of the most worrying were those that possessed carcinogenic or mutagenic properties, or properties that can affect the reproductive and hormonal functions of creatures, including ourselves, of course. Then there are the persistent hydrocarbons and bio-accumulable organic toxic substances, which are all worrying, and that list is now to be added to.
The fact is that since we talked about this the first time, I do not think that we have got anywhere near tackling the substances on the current list. They have been placed in the “too difficult” box, or are too expensive to tackle. As the noble Lord, Lord Carter of Coles, has said, the estimate at the moment is that they will cost £27 billion to clean up. However, we have known for more than a decade, for example, that the endocrine disruptors are affecting the ability of dog whelks to breed. Before anyone thinks, “Well, who cares about dog whelks?”, the same effect is likely to spread to fish. Then there is the news today, which is very topical given this debate, of the much lower sperm counts in France. Maybe we are busy wiping ourselves out as a species, through our water. In any case, it is a form of pollution that must be tackled as a priority.
Paragraph 48 of the report suggests that we need “more knowledge” before tackling existing and new pharmaceuticals. However, given the science that we are already beginning to see and examples such as those I have just mentioned, we cannot afford to wait for another decade before we take action. Effluent-containing substances, such as endocrine disruptors and other things that could affect the ability of the whole gamut of animals to breed, will require waste water treatment when such things are flushed. As long as we persist in flushing such drugs out of our body, down the lavatory and into the rivers, we are going to have a very dangerous problem.
The report does not mention—at least I did not spot it—nano-substances. This is another very worrying development. The development of nanosilver is under way as an effective way of cleaning clothes in a virtually water-free way, but will those substances end up in our waste water, too? I think that the report is right to mention the worries, but it does not put over urgently enough the need to deal with them.
As the report says, governance is a key issue; linking communities back into their rivers and catchment is the way to affect behaviour change in our use of water and valuing of ecosystems. Some very good work has been done by the Wildlife Trust, for example, giving examples of how our water use can lower river levels until they cease to be viable ecosystems.
In paragraph 200, however, the report is plainly wrong, when it says that,
“novel governance approaches are despite, rather than because of, EU policy”.
Actually, it was quite the opposite. The original water framework directive really encouraged public involvement under Article 14, which was quite a long article—I shall not read it all out now. It was basically about public information and consultation and it said:
“Member States shall encourage the active involvement of all interested parties in the implementation of this Directive”.
It went on to specify a number of ways in which that would happen. Here in the UK, the attempt the first time round was, with a few notable exceptions, pretty poor.
I should declare an interest at this moment, because my husband was chairman of the Wessex Regional Flood Defence Committee and chaired one of the pilot catchment areas. We had debates on record in this Chamber; the noble Baroness, Lady Young of Old Scone, took part in them when she was at the Environment Agency. The agency was at that time unwilling to involve the public as much as the spirit of the water framework directive encouraged. Water companies were caught up in issues such as pricing and what comes out of the tap rather than whole-cycle costings. So at the time we wasted the opportunity for the public to be involved, and it is not because Europe got it wrong but because we did not interpret the water framework directive correctly.
There is also a problem of size. The designated size of the river basins means that the public will never relate to those, and I accept that the Government do not expect them to. Catchment areas or even subsets of those are what communities relate to. The smaller the geographical unit, the more likely you are to get real public involvement.
The recommendation in paragraph 201 is right in saying that one key is local authority energy and engagement with the water framework directive, and it goes on to suggest that some sort of duty could be put on water companies and local authorities to co-operate with each other. That is a constructive and helpful suggestion, because we need to kick-start that co-operation to get a far more engaged basis for this sort of work. The best results to date of catchment management plans have been exactly as a result of this approach, where local authorities have really got stuck in with their water companies and changed the way in which many things happen.
Finally, on measurement of water body status, I am very pleased that the report concentrates on the fact that status categories are too blunt. Paragraph 180 talks about “mapping of ecosystem services” informing choices of,
“technological solutions to be applied”,
moving away from the,
“‘one size fits all’ approach”.
The evidence from the Westcountry Rivers Trust is that,
“water quality objectives at present are only quasi-ecological”,
and are based on,
“point source pollution but not diffuse acute pollution”.
The trust mentions,
“biotic indices for macro-invertebrates”.
The point is that the initial water framework directive was a first attempt, and most member states had, and still have, big problems, as the noble Lord pointed out, with measuring water body quality in an outcome-related fashion. Nevertheless, refining measurements should be an absolutely key priority for us in the UK for this next phase, which ties in with governance.
I expect that your Lordships remember how the public imagination was caught by fish returning to the Thames as a sign that it was getting much cleaner. Fishermen and birdwatchers, who observe the top of the river food chain, have a good idea of the health of the river. Of course, the absence of creatures at the top of the chain might be due to other causes, as was the case with otters. However, the presence of creatures at the top of the food chain in numbers that you might expect, whether they are kingfishers, cormorants, otters, water voles, salmon or trout, means that things are likely to be healthy at the bottom of the chain, too. The Environment Agency’s website has a map you can interrogate on local river quality—and that is a very good start. It shows chemical quality and nutrient quality, but biological quality usually seems to be left blank. Is that because the mapping has not been done, which is what the report hints at?
I congratulate the committee again on a very helpful report, which will push us in the right direction.
My Lords, there is no doubt that water is a valuable commodity. Sadly, we cannot yet control the amount that falls from the sky. Speaking as a farmer in the south-west of England in 2012, I can only say, “I wish!”. But, even after so much rain, we still do not value our water enough in this country.
I believe that we have now reached the stage where the UK needs to introduce compulsory metering. I realise that in some old blocks of flats it is difficult to achieve, but it is not impossible, even if special support funding might be required to disentangle the pipes in all the nooks and crannies, in some instances. But until everyone is on a meter, not everyone will value the water they use. In the UK, we currently use 160 litres per head per day, whereas in Germany, where they have universal metering, they use only 110 litres per head per day.
To go to the other extreme, in India, where until recently the belief was that water should always be provided free by the state, the result was that in some villages you could only get water from a tap for eight minutes per day. However, now they are charging for water, and the service has begun to improve. The Indian Government have at last understood that it is the poor who suffer most from cheap water. The rich can afford private bore-holes or other independent schemes. But the Government have now realised that it is best to put the right price on water and introduce other social measures where help is needed. The lesson learnt was that using water, one of the heaviest commodities around, to transfer wealth, did not make sense.
Back in the UK, although the circumstances are obviously very different, there are parallels with India. If, as at present in the UK, you have voluntary metering, only those who reckon to pay less will apply for a meter. Thus the rest end up sharing a greater overall cost to be averaged out between them. Often this means, as in India, that the poor end up paying more for the water they use than they should do. If we were to introduce metering we could perhaps even go one step further and apply the increasing block tariff method. This is a scheme that is counter to normal economic practice, whereby the more you buy, the more you pay per unit. China, Singapore and several countries in the Middle East and even in the EU now use this method. It is particularly effective for industry, especially for the electricity-generating industry, which can be a huge user of water unless the right capital investment is made. This scheme encourages the right capital investment. The trick is to get the charges and the percentage increase at the right level to encourage good practice without being overly punitive.
Going back to India for a moment, one of the major ongoing problems there is the established right of farmers to take water from the aquifers largely for free, without much control over the quantity. As a result, India removes nearly 100 cubic kilometres of water more from its aquifers than the recharge rate every year. I realise that in the UK, agricultural abstractions amount to only about 2% of all usage, but nevertheless, if we could develop a more flexible system of abstraction licences that looks to future needs, it could be beneficial to industrialists, generators, farmers, environmentalists and domestic consumers alike.
That brings us to Australia, where they are solving the considerable problems in the Murray-Darling river basin by changing or transferring from riparian or historical abstraction rights to tradable rights. It is a sort of water quota system that gives both long- and short-term flexibility to all parties: you can sell or buy, as well as lease, the right you have or need. This, incidentally, includes the Government, who buy entitlements to give to the environment. It means, for example, that in a drought, when water suddenly becomes expensive, rice growers reduce their irrigation or even their total production that year, but survive by selling or leasing their entitlements which, of course, are very expensive that year. Often it is agriculture that sells to mining or electricity-generating interests. Some farmers have actually sold their total allocation but survive on annual licences as and when needed. Municipalities buy excess entitlements and when they have enough for safety, they can rent some back to farmers on a flexible basis. Of course, it is important that the market is properly controlled and regulated, and above all, what is needed is a water trading system for the future, not the past. That means it must allow for the possibility of reducing rains and therefore the ability to reduce the total licensed abstractions.
Of course, the key to success of any system of sharing out this precious commodity called water is overall catchment management, as several noble Lords have already mentioned. Catchment management is about ecosystem services: not only the supply of clean water and the treatment of sewage but landscapes, habitats, irrigation, food, sport, central heating, cooling systems and protection from flooding, among many others. People probably value these services—being the results of water management—more than the water itself. That applies particularly when our population has to face its three biggest worries: drought, flooding and pollution.
Wherever problems exist, the most important thing is to manage our rivers as whole catchments. We are beginning to understand that if problems are caused by the many different activities of too many humans, then the solutions can only be found in the way these activities occur: the way we farm, the way we live, the way we manufacture and consume and the way we plan our urban and rural communities. They can all provide solutions to our water-based problems. We need to understand better how a catchment-based approach can be adopted and how to build the respective capabilities to operate it. Integrated catchment management is in contrast to a piecemeal approach that artificially separates land management from water management. They are inseparable; we rely on the health of both for many of the things we value. Experience shows that considering this locally will help engage communities to take ownership and act.
Catchment management requires leadership to ensure that we get the essential co-ordination covering the many different aspects of land and water management: agriculture, water supply, wastewater, waste management, highway and urban storm runoff, stream corridor restoration and development and, particularly, planning. Working practices are needed that work top-down with standards and guidelines and yet facilitate local partnership arrangements and appropriate delegation, creating local ownership within local catchments. That is the basis of Elinor Ostrom’s famous polycentric system of water governance. It is to be hoped that the revised EU water framework directive will greatly encourage such governance both here and on the continent. When I say “continent” in the context of this debate, of course I mean Europe, but my aspiration is that we might eventually stimulate similar practices and improve water management where it really matters: on the continent of Africa.
My Lords, I declare my interest as a member of Sub-Committee B and thank the noble Lord, Lord Carter, for introducing our report so well. Like him, I thank those who helped us with the report and all those who gave evidence to us.
Water has been cast as the bloodstream of the biosphere; it is therefore absolutely critical that we get it right. However, the Minister should understand that water is a much bigger and more complex problem than the Government’s White Paper, Water for Life, suggested. An increasing number of individuals, companies, organisations and agencies are involved, some of which are area specific. They all need to work together within the same framework and the same integrated policy, looking at the big picture.
In paragraph 201, we welcomed the requirement of the National Planning Policy Framework to take into account water management issues. That is only a start. As the noble Lord, Lord Carter of Coles, said, there ought to be much more integration among the water companies. Moreover, something that has not been mentioned yet is the vast amount of water involved in the production of energy. That, again, is a different government department. I hope my noble friend will consider the idea of having an overarching group to look at all these problems with a view to getting a sustainable water policy and water security by 2025. The Institute of Civil Engineers suggested the establishment of a water security task force. That proposal attracts me greatly because this is such a complicated area, covering so many government departments, that it needs a more holistic approach than is being taken at the moment.
One conclusion we reached was that the cost of water was going to rise. Even with the present cost of water, a lot of people are not paying the full amount. Can my noble friend tell me what percentage of households are not paying their full water bills at the moment? I think that it is quite a large percentage, but if water prices have to rise, it is going to be an even greater percentage unless we can link water bills to greater water efficiency.
On the cost of water, the Government replied to us in their summary that they were currently revising their social and environmental guidance to Ofwat ahead of the next price review in 2014. Having looked at that guidance, I think that it is horribly overprescriptive. That takes me to our recommendation in paragraph 215, which relates to water catchment areas. These will vary hugely across the country, depending on where the water is and the type of water that is within the particular catchment. The guidance to Ofwat is going to have to be a lot more flexible than that proposed by the Government in order for it to have the effect that we want of allowing the catchment areas to become the starting process for a better infrastructure for water.
The water framework directive is slightly odd, as we discovered as we continued our discussions and debates. It has a pretty good objective but in most circumstances its goals are unobtainable. It is slightly odd to welcome a directive where the goals are unobtainable and the Commission can take infraction proceedings against member states, but I agree with our report that it has driven member states forward in trying to improve the quality of water. Can my noble friend tell me what the Commission’s policy is with regard to taking action against member states?
Page 4 of the Government’s reply on this matter, concerning paragraph 188 of the report, states:
“Achieving good status”—
that is, under the water framework directive—
“is a long term goal”.
That is a misleading statement and I am sorry that the Government made it. Actually, the water framework directive requires that all inland, estuarial and coastal waters within RBPs must reach at least good status by 2015. That is not a long-term goal; it is only just over two years away. It is true that the water framework directive goes on to 2027, but it will start clicking in at a very early stage and there is no way that countries in Europe are ever going to meet the requisite criteria.
With regard to river basin management plans, which have been key to the water framework directive, can my noble friend tell me where we are with the four renegade countries—Belgium, Greece, Portugal and Spain—that did not submit plans in time? I find it slightly odd that the Commission produced a report based on river management plans when a sixth of the EU did not even submit them.
I turn, as did my noble friend Lady Miller of Chilthorne Domer, to the subject of priority substances. I take a different view from the one that she takes. From the evidence that we got, I am not certain that the Commission has been given the right advice about the seriousness of these pollutants. It is very easy for it to say that it needs to prescribe more substances, and indeed on 31 January this year it put forward a directive to add another 15 substances to the priority substances list. However, as the noble Lord, Lord Carter of Coles, identified, adding only one substance will cost £27 billion. These are huge amounts of money, and it will cost considerably more than £27 billion to deal with these problems. It is absolutely right that they should be dealt with if there is proper scientific evidence to back that up, but our evidence indicated that the Commission’s evidence for making decisions is not as good or as detailed as it should be.
I turn to our recommendation in paragraph 200 about governance. This relates to catchment management, which I have already touched on, but the government response also mentions the Environment Agency. We did not get written evidence from the Environment Agency, and I consider that to be one of the real downsides of our report. It is appalling that the agency did not write to us, although it gave us oral evidence. When it comes to catchment management, is not the Environment Agency now just too big an organisation to look at water on such a local level? It is the biggest agency in Europe, if not the world, and it is unwieldy and inflexible. Like Defra, handling anything that is not centralised is anathema to it. As long as a body such as the Environment Agency works in a centralised way, I do not see catchment areas working as we would hope. For them to work, substantial institutional, social and political changes will be required, but the present policy does not allow for that.
Paragraph 205 concerns payments to landowners. In their reply, the Government mention the work of the Forestry Commission. Can my noble friend update me on the current state of play there?
Paragraph 213 deals with the “polluter pays” principle. It is interesting that Blueprint for Water recently heavily criticised the Government in its assessment of where government work on water had got to over the past four or five years. The “polluter pays” principle is highlighted as one of the areas where not enough has been done. Of course, some polluters are easy targets—particularly farmers and landowners. They are easy to identify and it is on their land that a lot of the rain falls. However, to my mind it is not so much a question of tackling landowners and farmers; I consider urban waste water to be a far more serious problem, with chemicals being washed into the sewerage system. Individuals in urban areas have no understanding of the complications that they cause in relation to downstream clear-up. Not only should the polluter pay but the provider of services should be paid. The Government say in their response that they are going to publish an action plan with regard to expanding schemes. Can my noble friend tell me when that will be available? The government response indicated that it would be available later this year. This year is now almost over and we are approaching the next year, so can my noble friend update me on that?
Virtual water is a hugely interesting area and it will undoubtedly become much more topical in the not too distant future. What is interesting here is the amount of water that it takes to produce goods. If one looks at water on that basis rather than on a purely domestic basis, one finds that more than three-quarters of the water that we use in this country is imported, with less than a quarter coming from our own resources. It is also interesting to note that in the 20 years up to 2007 western Europe was the world’s largest importer of water, calculated on a virtual-water basis. The Commission is telling us how to conserve our water supply while we are taking water from the rest of the world, which in many cases has many more problems than we have, as the noble Lord, Lord Cameron, said.
I go back to where I started; we should have an overarching body to look into the whole subject of water and guide the Government in getting a sustainable policy for water security in the years to come. The noble Lord, Lord Carter of Coles, referred to the report we are currently undertaking on energy. Germany’s dash for coal and the increase in coal-fired power stations have come in the recent past, subsequent to the Commission publishing its papers. What the Germans propose totally distorts anything that has been agreed, and it will be the same in this country. However we tackle the energy crisis, it will require a huge amount of water. That needs to be taken account of when planning how to use water throughout the country. I do not believe that the Government have got their head around this. They have two different departments dealing with the same substance. I hope that my noble friend will have something positive for me on that.
My Lords, I congratulate my colleagues on Sub-Committee D for producing this report, especially those in the background who actually wrote most of it. I also thank my noble friend Lord Carter of Coles for—if I can put it this way—his robust chairmanship. The title of the report is An Indispensable Resource, but like so many other environmental goods, water is often treated as though there is an indefinite amount to go round. As climate change advances, it is likely to become a very scarce resource indeed, especially on a global level, although at some times and in some areas there will be too much of it as well. In other words, a mixture of droughts and floods—as other noble Lords have said—is a vision of our future.
In the UK over the past several years, we have seen just such a mixture. The same is also true at a somewhat more violent level on the continent, for example prolonged droughts interspersed with violent storms and flooding in the Mediterranean area. There was also an unprecedented flash flood in Copenhagen in July 2011, which completely paralysed the city. A recent daunting report on these issues was produced by the European Environment Agency only about a week ago. This showed that the past 10 years were the warmest on record in Europe—again the shape of things to come. I have four questions for the Minister. I shall make some comments and ask for his responses on the report, the Government’s response and the Commission’s blueprint.
First, as elsewhere, climate change will have a differential impact in the UK affecting different areas in opposing ways. Some areas will not have enough water and, as I said before, others will have too much. Water will have to be shipped around the country and new flood defences built. My question for the Minister is how can a national programme be developed, given the level of the industry’s privatisation in England and Wales? As the report makes clear, the English system is more or less unique in the EU in terms of the level of privatisation. Can that be reconciled with adequate overall planning for the future? Secondly, the Government’s response on water savings seems rather thin and inadequate. The report quotes figures of 20% of water wasted across the EU due to inefficiencies. New infrastructure will be needed, but we have to consider other strategic initiatives too. One is inducing culture change in the use of water by business and consumers. As someone who has worked on the many aspects of the field of reducing carbon emissions, it has proved difficult to change people’s everyday habits. Does the Minister think this can be achieved in the area of water efficiency, whether by metering or other means? I have to say that in other areas we have been notably unsuccessful in producing such behaviour change.
Thirdly, we will need some radical advances in technology. The report mentions rainwater harvesting as one area, but there are many others too. Do the Government see the European Innovation Partnership on water as likely to be of any value? What in substance does the Minister see it potentially delivering? Finally, picking out the point touched on by the noble Earl, virtual water is an important notion in this, especially for the future. It is an issue which is important internally in the EU because a lot of water is used invisibly, as it were, in manufacturing and service industries. As the noble Earl mentioned, it is also important in the UK and EU more generally in terms of the embodied water in imports. In this sense, it is similar to CO2 levels, where the EU has, on the face of things, been reducing emissions since 1990. However if you include CO2 emissions produced by transferring manufacture to China and other developing countries the picture looks very different. Does the Minister think that virtual water can effectively be measured and can we base practical policy on it? It is an intrinsically important aspect of the total mix when we try to produce a rational policy on water management. In conclusion, though, the Government’s response was pleasingly detailed, interesting and certainly took the work we did with due seriousness.
My Lords, I am grateful for the opportunity to comment briefly on this report. I congratulate my noble friend Lord Carter of Coles on chairing the committee. It emphasises the serious issue of water resource shortage in certain parts of Europe. I propose to concentrate my remarks on London, where there is a growing shortage of water, as we all know. First, as my noble friend said, there are large volumes of leaks, which do not help the situation. However, if the current plans for the Thames tunnel are implemented, the Government are losing a great opportunity to deal with water shortage and the water quality of the Thames as one policy, rather than disjointed plans for dealing with the Thames, the tideway tunnel and dabbling in water conservation. I was grateful for the meeting with the Minister last week to discuss this issue and no doubt it will continue.
The tunnel from Hammersmith to somewhere near Becton will cost £4.2 billion, which will apparently put £80 on each Thames Water customer’s bill. Originally I heard this would be for 30 years, but recently I have heard it will be for much longer. Thames Water originally said this was needed to deal with 39 million tonnes of water a year, but last week, apparently, it revised its estimates down to 18 million tonnes a year. This is quite a surprising reduction. I hope the capital costs and annual bills will not be subject to 100% variation. It is a worry. My concern is that the problem with most of the demand for this tunnel is the high peaks of rain run-off during heavy rainfall. Even with a tunnel, overflows will still occur, so to me the obvious solution is to collect the rainfall and store it individually or collectively, rather than allow it to go into the sewers in the first place. I am told this is done very effectively in Philadelphia in the United States. I know that some people are coming across from there next week to demonstrate what they have done—there are many similarities between here and Philadelphia.
The system is called SUDS and the idea is to store the heavy rainfall in pervious surfaces, such as asphalt, water butts or lots of small things, which they say works even in an urban environment such as London. The water will then either drain more slowly into the sewers or, even better, be collected and treated for reuse as fresh water—so one is almost killing two birds with one stone. It works, and I believe that it would work in London. It would certainly obviate the need for the Thames tunnel and the horrible idea of £80 a year on our bills.
The report provides a challenge and an opportunity for the Government to follow the recommendations, as the noble Lord, Lord Cameron, said, to create integrated catchment management as the key.
I know that all Ministers of all parties love big projects because they think that in future years they will cut the ribbons when those projects open. The “future year” for the Thames tunnel is 2023, I am told, which is probably beyond the lifespan of any Minister in their present job. However, in this case, before committing to £4.2 billion of expenditure, the Government ought to follow the committee’s recommendation and investigate the alternatives to bring together water conservation, treatment and waste water as a coherent whole before it is too late.
My Lords, I am grateful to noble Lords for allowing me to speak in the gap. I apologise to the noble Lord, Lord Carter of Coles, for missing his opening two minutes. I could not get down quick enough and I apologise. I am afraid that my speech will be very staccato.
We held an important review of resource which, whether it concerns drought, flooding or pollution, is crucial to us all. One issue that came across in one or two of the contributions that we received was the lack of urgency, particularly among the water companies. That certainly worried me enormously, and so I might name them. The way we monitor, enforce and bring together differing standards was another common denominator, as other noble Lords have said.
One issue that has not been touched on in the debate—unless it was mentioned before I came into the Chamber—was the question of how we take water samples. The noble Lord, Lord Lewis, when he was with us, was very critical of this. He questioned what water samples were taken, at what time of day and, therefore, what the results were.
Noble Lords have already covered local catchment areas and some of the good practices that are taking place in that area. Public engagement in that is also hugely important and the sharing of best practice cannot be underestimated.
The committee looked at the “one out, all out” approach and felt that it was a very blunt instrument. However, within that, we recognised that progress had been achieved. If we had not had that approach, perhaps we would not have progressed as much. Perhaps the Minister will comment on whether there has been any different thinking in that area.
Jumping ahead to rural development and, particularly, the agricultural programme, £21.5 million has been allocated this year to consider diffuse pollution from agriculture. I wonder how much of that money has been used, in how many projects and whether any that has not been used can be carried forward for another year.
Other noble Lords have referred to leaks. In our report, we considered the question of allowing water prices to increase. However, before we do that, I hope that we will hold the water companies and others providing water to account. It seems to be the wrong way round. We should encourage the water companies to rectify the situation rather than allow them to put up their prices. I look forward to hearing the responses of other people but I, too, would like to pick up on a comment that was made and say that the Government’s response has been encouraging, but there is a lot of work to be done.
I ask the Minister to respond on the issue of virtual water. It is our responsibility in this country to use our water as best we can. As my noble friend Lord Cameron of Dillington inferred, many countries in the world do not have that option. It would be irresponsible of us not to make use of what we have to the best of our ability. In doing that, and in food production particularly—I remind the House of my family’s farming interest—we have a great responsibility which we cannot afford to dodge.
I thank the noble Lord, Lord Carter, and the team who looked after us so well. I again apologise to the House for being two minutes late and, therefore, for a worthwhile speech being useless.
My Lords, I am sure that the noble Baroness’s speeches are never useless or worthless. We have enjoyed her contribution.
Clean water is a fundamental element of life. Traditionally, we have enjoyed it without thought at the turn of a tap, and have used and discarded it without thought. With climate change bringing huge volatility between droughts and floods, we are all now fully aware that water must be managed effectively. I declare my interest as a farmer in Cheshire.
The report by Sub-Committee D is very timely. I thank my noble friend Lord Carter of Coles, the committee chairman, for his excellent introduction and his committee for its coherent analysis and recommendations. It has produced its views at a time when the Commission, member states and interested agencies and groups have been in discussion on fresh-water policy before publication of the blueprint. The water framework directive has generally been accepted as a force for good. It has put the element of water into all environmental analyses from many diverse organisations and has had the added value of fostering co-operation between member states, most of which have now undertaken river basin management plans.
As each element in the transition to better management of water resources develops, it is imperative to take stock, assess and share best practice. The report informs a fitness check necessary to underpin the blueprint. There is general agreement that the implementation of river basin management plans has been challenging, but very instructive and informative. It has highlighted the challenge of costs, the challenge of the realities of gathering information and conducting assessments, and the need for innovation and an inclusive approach, not least because of the unforeseen problems that have been discovered.
The report has been welcomed by the Government and the EU Commission. Both will share in the assessment and challenges as policy develops. In general, the Government responses reveal that they largely understand many elements of the just short of 40 recommendations, are aware of the issues and are planning to provide answers to the challenges. The recently published blueprint will build in and on the common implementation strategy to continue to provide a positive role to bring about the framework’s directional objective—namely, to make water use in the EU more sustainable.
The blueprint outlines a three-tier approach: first, improving implementation of current water policy via the water framework directive; secondly, increasing the integration and recognition of water policy objectives into all relevant policy areas; and, thirdly, responding to lessons learnt and gaps in the current framework. It will undertake these elements by issuing guidance and developing existing measures, largely avoiding new legislative proposals.
That brings me to tonight’s debate and the issues highlighted by noble Lords. I draw attention to the cost of water—nearly all noble Lords highlighted this, including the noble Lords, Lord Carter and Lord Cameron, the noble Earl, Lord Caithness, and the noble Baroness, Lady Byford—and how we have to steer a course towards the right price and the right pricing policies. I agree with the noble Lord, Lord Cameron, that these need to be correct for the resource and that measures such as the social tariff—which we look forward to seeing from the Government—can be introduced where needed to reduce pressures.
The noble Lords, Lord Carter and Lord Cameron, raised the issue of reform of the abstraction regime and highlighted the urgency with which this must now be brought forward, even though there are significant challenges ahead. The third issue to find commonality in the debate is that of agriculture and its share of the problems vis-à-vis the urban perspective.
I go along with other noble Lords, especially the noble Baroness, Lady Miller, in their understanding of how we must pay attention to priority substances that will arise in future, such that we have our eyes on how we can effect changes and improvements in that regard before they become a growing problem.
Other noble Lords were also eloquent in highlighting the core of the report, especially the importance of capture management, strategic planning, and decisions being made within an effective system that takes account of more than one level of governance. The co-operation between companies will be vital. The noble Lord, Lord Giddens, highlighted the problem of how to effect this on a national basis.
Lastly, I will share with the noble Lord, Lord Carter, the highlighting of water footprints for the future, and ask the Minister how much attention is being given by the Government to water reuse? Also, in what areas does HMG consider that they can be most effective? Following on from that, I will also ask the Minister about future plans for carbon disclosure reports and water disclosure reports, which I understand Defra is co-funding. Which government department is taking the lead on this and how is Defra co-ordinating its policies with that department?
In conclusion, the debate has highlighted the vital issue of water management. In future its importance can only increase.
My Lords, I start by thanking the noble Lord, Lord Carter of Coles, for initiating this debate, and his committee for its report, An Indispensable Resource: EU Freshwater Policy. We are also debating the recent publication of the European Commission’s communication, A Blueprint to Safeguard Europe’s Water Resources.
Like the noble Lord, Lord Granchester, I declare an interest as the owner of a farm, through which a tributary of the Thames flows. I am also the proud possessor of a bore-hole.
As our recent weather has shown, in many parts of the United Kingdom we currently have too much water, but noble Lords will recall—and several have referred to—the position we were in last winter, heading into spring with parts of the country facing severe drought. As the noble Lord, Lord Carter, said, how quickly the rain came, and that position changed. While we cannot, as the noble Lord, Lord Cameron, said, change the weather, we can ensure that we are in the best position to deal with its implications and plan appropriately for those times when there is too much or too little of this essential resource available for both humanity and the environment.
The Government welcome the European Union committee inquiry into the blueprint and its recommendations as a helpful contribution to the debate. The Government are committed to improving the quality of our waters and we welcome the committee’s conclusion that the water framework directive has been a force for good. We are committed to implementing the directive, not merely from a legal point of view but because we believe we have a clear moral imperative, and an economic one. Many of the committee’s recommendations have also found their way, in some form, into the recently published blueprint communication.
A Blueprint to Safeguard Europe’s Water Resources outlines a three-tier strategic approach: first, improving implementation of current EU water policy by making full use of the opportunities provided by the current laws; secondly, increasing the integration of water policy objectives into other relevant policy areas; and thirdly, filling the gaps of the current framework, particularly in relation to the tools needed to increase water efficiency.
The UK Government have welcomed the communication and are pleased that, by and large, new regulatory tools are not proposed as the method for filling in the gaps. We strongly believe that the right framework is in place and efforts must be made to make that work, rather than automatically turning to the regulatory toolbox to provide the magic wand to solve a particular problem.
The majority of the blueprint actions are voluntary measures, such as new guidance documents to be developed with other member states. Other actions involve calling for the integration of EU water policy into other EU policies and improving the enforcement of EU legislation. There is only one possible legislative proposal on developing standards for water reuse. While we would prefer not to assume that regulation is the most appropriate vehicle for achieving this, we can understand the potential benefits for doing so, particularly with regard to meeting commercial and food production requirements on ensuring food safety.
In responding to the committee’s recommendations, I would like to highlight the following developments. We have committed to delivering improvements to our aquatic environment through a catchment-based approach, to which the noble Lord, Lord Carter of Coles, referred. We have established 66 pilots with a range of hosts, including charities, private water companies, established partnerships, and of course the Environment Agency and Natural England. These hosts are engaging with interested parties, and planning water improvement actions at the local level. The evaluation of these pilots will inform the approach for wider national adoption from April next year.
Water catchment plans will help target and share delivery of the measures we need to tackle both urban and agricultural diffuse sources of pollution. This will make a very real difference and up our game in improving the environmental status of our waters. We have recently published a consultation on how to address urban sources of diffuse pollution.
In the rural sector we now have various options available under agri-environment schemes to protect water quality. We will also have invested over £70 million within this spending review period, giving practical advice and grants for water quality improvements to farmers, through the catchment-sensitive farming project.
Last year we published the water White Paper setting out our vision for a resilient water industry that can meet future demands, and we are well on our way to achieving our goals through measures to tackle water efficiency, leakage, pollution, unsustainable abstraction and more. The draft water Bill published in July is another of the tools we are using to help us deliver the water White Paper’s vision for an efficient, resilient water sector that can attract long-term investment. The Bill will reform the water market and remove barriers to competition.
Our reform package will drive forward both innovation and efficiency by bringing in new players and new ways of thinking and by using market forces to keep down customer costs. This will not only benefit customers and stimulate growth, but will also contribute to our future resilience, and the environment.
As regards abstraction, which the noble Lord, Lord Carter, and others spoke about, we know that damaging over-abstraction is happening. We are reforming the abstraction regime to ensure that it is fit to meet the challenges of climate change and increasing demand. These are complex long-term issues. We need to make sure that we get this right. We will be consulting on proposals next year. It is worth saying that the Environment Agency’s “Restoring Sustainable Abstraction” programme is returning around 55 billion litres of water per year to the environment in England and Wales, which represents the domestic water use of a city the size of Leeds. We are also working with Ofwat and the Environment Agency to develop better tools and incentives to help water companies manage their abstractions sustainably.
Noble Lords have raised a large number of questions. I will do my best to address them. The noble Lords, Lord Carter and Lord Grantchester, raised the question of reuse. At this stage the Commission is considering developing a regulatory instrument setting EU standards for reuse of water for irrigation and industrial purposes. This could help remove obstacles to the free movement of agricultural produce irrigated with reused water, encourage reuse, and reduce pressure on water resources. No proposal is likely before 2015. There is not enough information available on the Commission’s thinking to form a view, but any initiative to reduce pressure on increasingly scarce water resources is worth consideration.
The noble Lords, Lord Carter, Lord Cameron and Lord Giddens, all asked about our attitude to metering. Metering can have advantages for some customers, cutting their bills and encouraging efficiency. Although many customers would see reduced bills if they were on a meter, others, especially large families in properties with low rateable values, would see their bills rise. For some, water might seem cheap and for them metering could have a perverse impact; they may say, “I am paying for it, so I shall use as much as I like”. Metering is not a solution in itself; it needs to be supported by good information and help to drive down water use. In view of those complexities, the Government do not propose to put in place a blanket approach to universal metering across the country. Water companies are best placed to find the appropriate local solution in discussion with their customers. They need to consider it as an option in water-stressed areas. As the climate changes and the population grows, the case for universal metering may change, but our view is that it will do so at different times in different areas.
The noble Lord, Lord Carter, asked how we would take forward our plans to deal with enforcement. The Environment Agency and the Rural Payments Agency, where appropriate, enforce the existing suite of regulations that are in place to protect our aquatic environment. In regard to abstraction, we are using a power in the Water Act 2003 to enable licences causing serious damage to our rivers to be removed or altered without compensation.
The noble Lord, Lord Carter, asked about the pricing of water. The independent regulator, Ofwat, sets price limits for water and sewerage companies every five years through a price review. The Government are not involved in price setting, although the Secretary of State uses a strategic policy statement and social environmental guidance to Ofwat to inform the price review process. That sets out policy objectives that Ofwat must have regard to in the performance of its functions. Currently, the Government are consulting on their guidance to Ofwat ahead of the next price review in 2014. That will reflect the Government’s policy objectives set out in the natural environment White Paper and the water White Paper. He also asked how we are making water pricing more transparent. As part of Ofwat’s price review, stakeholders, including the Consumer Council for Water, are working with water companies as part of customer challenge panels with the aim of improving the transparency of water bills.
The noble Lord, Lord Carter, asked about reporting. Domestically, the Environment Agency will improve reporting procedures by publicising the number of chemical and ecological components that show an improvement in status each year. That information will better reveal the level of progress that is often hidden by the aggregated description of overall status. Work is already under way to develop a statistically robust system for reporting the number of improved individual components. At EU level, the water framework directive sets out what has to be reported to the Commission and current reporting information systems are structured accordingly, reflecting the method for assessing the state of the water environment. Updates of the river basin management plans will contain an assessment of progress towards the achievement of environmental objectives and the European Environment Agency is publishing data that show the individual components of good status. Changes to the formal reporting system would require amendments to the directive and restructuring of the information systems, so that may not be achievable in the short term.
The noble Lord, Lord Carter, and my noble friend Lord Caithness asked about urban diffused pollution. We have just published a consultation on how to address pollution from urban areas. A strategy will be developed in 2013 in light of feedback from the consultation and of the views of and report by the committee. There is a wide range of issues in the urban environment and it would be key to work with local authorities to develop solutions to them.
The noble Lord, Lord Carter, asked about sharing experience between catchments. My department and the Environment Agency have put in place processes to foster the sharing of best practice and the things that have not gone so well between catchments. We also promote the work of the catchment-based approach at the European level through the various fora that exist.
My noble friend Lady Miller of Chilthorne Domer asked about public participation in implementing the water framework directive. The UK was complimented by the Commission on the steps that it took to engage people in the first river basin management plans. However, we recognise that we could do more and the development of the catchment-based approach is one step towards engaging more interested people at a more local level.
My noble friends Lady Miller and Lord Caithness asked about control at source of pharmaceuticals. The control of sources is generally more cost effective and better for the environment than trying to clean up after the event. However, current EU pharmaceuticals legislation does not allow for authorisation of a human medicine to be withheld on environmental grounds. DG SANCO is drafting a report into the effect of pharmaceuticals on the environment, which is expected to be published mid-2013. We expect that report to contain recommendations for possible amendments to the current regulatory framework for medicines.
The noble Lords, Lord Cameron and Lord Berkeley, spoke about integrated river basin management. The water framework directive, and its delivery through river basin management plans, essentially forms the basis of adopting an integrated river basin management approach. However, the Government recognised, after the publication of the first set of river basin management plans in December 2009, that we needed to adopt a more local-level approach to water management that brings together quantity and quality issues as well as flooding. That is why we are currently piloting the catchment-based approach to see whether that could form a stronger basis on which to bring together the various parts of the water cycle and to consider issues in a more integrated way.
My noble friend Lord Caithness asked about the Commission’s