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Legislative Reform (Hallmarking) Order 2013

Volume 742: debated on Tuesday 29 January 2013

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Legislative Reform (Hallmarking) Order 2013.

Relevant document: 10th Report from the Delegated Powers and Regulatory Reform Committee

My Lords, the primary purpose of the draft order is to enable the UK’s assay offices—that is, the bodies which test and hallmark articles of precious metal—to set up hallmarking operations in offshore locations. The Hallmarking Act 1973, which governs hallmarking in the UK, currently prohibits such operations, limiting the striking of UK hallmarks by the assay offices to within the territory of the UK.

The Hallmarking Act makes it an offence, during the course of trade, to describe a non-hallmarked article as being wholly or partly made of gold, silver, platinum or palladium, or to supply, or offer to supply, it with such a description attached. Section 2(4) of the Act defines a non-hallmarked article as one which does not bear the “approved hallmarks” and a sponsor’s mark. The definitions of approved hallmarks in Section 2(1) include one to the effect that approved hallmarks are,

“marks struck by an assay office in the United Kingdom, whether before or after the commencement of this Act, under the law for the time being in force”.

This imposes on the UK’s assay offices a geographical limitation, preventing them striking UK hallmarks in overseas locations. It places them at a serious competitive disadvantage to certain EEA competitors whose law does not prevent their assay offices from operating offshore.

The draft order is designed to remove this geographical limitation, thus redressing the competitive imbalance by enabling the UK assay offices to operate offshore, thereby helping to ensure their future viability and, in the longer term, protecting UK jobs. A feature of the scheme to permit offshore marking is that the British Hallmarking Council will authorise offshore-struck marks, which will be clearly distinguishable from the existing domestically struck marks. In order to make clear the distinction between the two sets of marks, the council will also issue guidance to the new offshore marks. This will help to introduce clarity for consumers, retailers and the enforcement community alike.

The market in articles of precious metal, and the hallmarking of such goods, has moved on. It is now a global business in which vast amounts of high-volume, low-cost jewellery are produced, mainly overseas. In order to capture this market, some of our EEA competitors have been busy setting up hallmarking operations within or in close proximity to manufacturers’ premises. They are able to do so because their national laws do not prohibit it. The advantages to both parties of such an arrangement are obvious and it is equally clear that failure to adapt to this changing market will pose an ever greater threat to the existence of the UK assay offices.

In addition to the main change to the Act, two other changes effected by the draft order are directly related to the broadening of the scope of the Act. The first concerns the widening of the choice of marks for sponsors and manufacturers, referred to in the Act as a “sponsor’s mark”. These are unique marks which identify the person or organisation submitting an item for hallmarking. Currently such marks must include the initial letters of the name of the sponsor. As there are only so many permutations of letters possible, these are beginning to run out. The order will therefore remove this requirement, making it easier for sponsors to register their marks. To ensure that some sort of rationale applies to the extended range of marks that will become available, the British Hallmarking Council will be issuing guidance on the limits that will apply to such marks.

The other change corrects an anomaly in the Hallmarking Act whereby articles of silver, gold and platinum cannot be coated with platinum without the written consent of an assay office. The change will permit articles of silver, gold and platinum to be coated with platinum without having to obtain such consent.

Why are these changes being made only now, given their obvious value to the UK hallmarking fraternity? The answer is severalfold. The changes being effected by this order represent the culmination of a lengthy journey. It has its origins, in fact, in the previous Administration, which began the process back in 2009 under the stewardship of the noble Lord, Lord Drayson. The Government of the day had to ensure that the legislative process they chose to pursue was the right one. As noble Lords will appreciate, such a process takes time. In addition, it was essential to secure the agreement of the British Hallmarking Council, which supervises the activities of the UK assay offices and includes assay office representatives, as to the detail of the approach to be taken. By 2010 this had been achieved and the order process was set in motion.

In the intervening period, the Government have necessarily focused on making sure that the order is fit for purpose, which has involved clearing a number of legislative and parliamentary processes designed to do just that. The important issue is that the order that has been forged from all these processes will achieve our original aim of opening up new opportunities for the UK assay offices.

In conclusion, a simple accident of drafting has led the assay offices to the situation in which they now find themselves. It is sobering to think that four words in the original drafting of the Hallmarking Act—“in the United Kingdom”—have led to this unfortunate situation. Were it not for that, the assay offices would be competing on level terms in overseas markets and we would not be having this debate today.

The UK hallmarking community has been the driving force in the case for legislative change. The consultation also revealed strong support from the trading standards community for the proposed changes. If the order becomes law, it will provide invaluable support to the continuation of hallmarking in the UK, which has centuries-old traditions. By so doing, it will have the potential to protect UK jobs while helping to ensure that the British public and retailers can continue to rely on a domestic market offering jewellery and other similar articles of precious metal bearing predominantly UK hallmarks. I commend the draft order to the Committee.

My Lords, I thank my noble friend for his careful and detailed explanation of the order, and I thank the officials in his department for the very extensive explanatory document they have provided. Before I go any further I have to declare an interest. I am a liveryman of the Goldsmiths’ Company, but I should make it clear that I am not speaking for the company; indeed it does not even know that I am going to make this speech and I am not sure that it will much like what I am going to say anyway.

I understand the reasons for the regulation. As my noble friend has made clear, this is about removing the restrictions on hallmarking within assay offices in the UK because they put those offices at a clear competitive disadvantage. The explanatory document talks about Thailand, India and Holland, so I quite understand that. I also understand, particularly when wearing my hat as a goldsmith, the extensive and high reputation of the UK assay offices; indeed, the word “hallmark” has a much wider use in the English language than merely being applied to the issue of jewellery made of silver, platinum and so on. It has become a word used to denote quality everywhere. So far, so good, but I want to probe a couple of issues.

We have two sets of people with different objectives as far as this regulation is concerned. The assay offices wish to increase the hallmarking model and they do not much care who does it, while UK jewellery manufacturers are anxious to build and develop their trade and who, by having an absolutely clear and unequivocal UK hallmarking standard, may have some competitive advantage. Because it is not tackled very clearly in the explanatory document, I would like the Minister’s reassurance that we are not in danger of hollowing out the UK industry in our efforts to protect the position of the assay offices.

Paragraph 9 on page 12 of the explanatory document reads:

“The Government agrees that it is likely that some jobs will be lost as a result of the setting up of hallmarking operations by the UK Assay Offices in overseas locations”.

That is surely true because elsewhere in the document it says that 35% of the jobs are going to be lost, or at least that is one of the estimates. Further on, paragraph 12 states:

“The Government therefore rejects the notion that no benefit will accrue to the UK as a result of the proposed changes to the Hallmarking Act. The unanimous expression of support for change by both the BHC and Assay Offices is a reflection of the fact that the demand for change emanated in the first place from within the hallmarking community”.

Of course it did, because it is looking for ways to boost its trade. It is not going to say anything other than just, “Right on, Government”. We need to be careful that we do not, by advancing the position of the assay offices, remove the competitive advantage from our manufacturing industry—an important industry.

My second point is the potential loss of quality and reputation. This is going to be an interplay between individual assay offices, the British Hallmarking Council and the international hallmarking convention. It would be helpful if my noble friend could say a little about this when he winds up the debate. The British Hallmarking Council is made up, I hope, of representatives from the assay offices; I think I heard the Minister say that. Is there a third party? Are representatives of manufacturers and others involved in this industry part of the hallmarking council? I ask because there must surely be a danger of some regulatory capture if only the assay officers are represented on the Hallmarking Council. In turn, how does it relate to the international hallmarking convention, which obviously only some countries belong to, because it is referred to in the explanatory document?

I recognise that it is planned that offshore hallmarking by UK assay officers will result in a different hallmark compared to that within the UK. I think that is a commitment, and take it as such, although I have to say that a hallmark is jolly small when you look at it, and it will not be easy to tell what has been hallmarked in the UK by a UK assay officer and what has been hallmarked overseas by that same office. However, I am concerned that this could be the first step in a race to the bottom. The offshore branches of UK assay offices set up under these regulations devalue the reputation of UK hallmarking. This undermines the reputation of UK hallmarking within the UK, which in turn undermines the operation of UK-based high-quality jewellery manufacturers. There is some evidence in the responses to the consultation that some people have concerns along these lines. We are increasingly being told that quality counts and that UK firms that focus on quality find a market—not a mass market but a world brand market—led by quality and not price. I would like to be reassured by my noble friend as to whether the Government have considered the dangers that are stated in the overall conclusions on page 30 of the document, where it says:

“However, there is an outcome where the UK Assay Offices act in such a way that they collectively destroy the link between UK Assay Office marks and marks applied in the UK. Under this scenario, marking moves off-shore notwithstanding the fact that consumers/retailers would prefer marks applied in the UK”.

Finally, for what purpose are we doing this? If you look at where the explanatory document talks about the benefits, it reads:

“The major benefits arise as a result of untapping the potential of markets which are not available to UK Assay Offices due to the current regulation, allowing them to make an additional £400k per year in profit”.

I am all for UK plc making £400,000 more profit but what are the costs to our manufacturing trade, to our jewellery industry and to the designers who are able to operate within the UK and who rely on the UK hallmark as part of the stamp of quality? I would like to hear my noble friend’s reassurance on those points.

My Lords, I thank the Minister for his very clear and interesting opening remarks and for setting out the background to this order. I am also grateful to the noble Lord, Lord Hodgson, for us being not just a duet. We have not only an extra speaker but somebody who actually seems to know a little more about this. I may be taking a step in the wrong direction to say this but neither I nor my opposite number have anything like the expertise that has just been displayed. I have a number of points to make and would be very interested to hear how the Minister responds to the points made by the noble Lord, Lord Hodgson, particularly on the worry he has about regulatory capture, which I certainly recognised as a worry from reading the notes.

The noble Lord also asked about who actually benefits from this. It is apparently being done for the benefit of the four assay offices, but possibly at the cost and expense of those who design, make and sell excellent quality jewellery and related articles within the UK. We need to have regard to that. One could imagine a scenario in which this legislative reform order was not required because a strong, export-led provision of services dominated the world markets and the quality of hallmarking and assay services offered in Great Britain was sufficient to make the rest of the world take us as the standard without inventing others. However, that clearly is not happening.

It is interesting to note that hallmarking is one of the oldest forms of consumer protection. As the notes make clear, it has been in existence in the UK for some 700 years. The main thrust of my argument is about protecting consumers. As I understand it, hallmarks serve three functions: they are distinguishing marks struck on articles, such as items of jewellery, that are made of platinum, gold, silver and now palladium, which guarantee to the world the purity of the precious metal content of the article; they are an indication that the articles have been independently assayed; and, currently, they confirm that, in the UK, the assaying and hallmarking of precious metals has been carried out by one of the four assay offices, which are located in London, Birmingham, Sheffield and Edinburgh.

The law that governs hallmarking in the UK is the Hallmarking Act, as we have heard, and a number of pieces of subordinate legislation. The draft order contains a number of proposals to amend the Hallmarking Act, but the main one is to enable offshore hallmarking by the UK assay offices and for items bearing those hallmarks to be treated in the same way as items bearing hallmarks struck in the UK. It is on this issue that I wish to respond.

When the Minister responds to the debate, I would be grateful if he could answer the following questions, as well as those asked by the noble Lord, Lord Hodgson. The explanatory document provided by the National Measurement Office, dated November 2012, points out in paragraph 16 that,

“the proposed change to existing law represents a radical broadening of the hallmarking operations currently legally permitted (UK-based only) to the striking of UK hallmarks on, potentially, a global basis”.

Notwithstanding that the consultation process revealed widespread support for this change—although “widespread” has to be interpreted carefully, given the volume of consultees who were approached—the document goes on to explain that it was “the Minister” who decided that the order would be taken under Section 17 of the Act, using an affirmative resolution process, and not under the super-affirmative resolution process that is provided for in Section 18 of the Act. However, the document is rather vague about what evidence was used by the Minister to justify the decision to utilise the Section 17 procedure? Can the noble Viscount enlighten us further on that point?

One of the main risks to this proposal is that control of the hallmarks in the offshore locations will be lost, which might lead to the possibility that all UK assay office marks will be become so tainted as to be devalued. Will that not require continuing and intensive supervision by the Hallmarking Council and indeed by HM Government? Has any assessment been made of that risk? If it is thought to be a real risk, why has no continuing cost been ascribed to it? All we have is the rather small sum of £25,000 allegedly for set-up costs.

Given that hallmarking is at heart a consumer protection measure, as I said, what steps will the Government take to make sure that consumers are aware of these changes? We are, after all, talking about a global trade, worth about £4 billion per annum within the UK at present, with articles increasingly being produced and hallmarked in low labour-cost countries such as Thailand and India. Hallmarks authorised by EEA counterparts will also be sold in the UK. To compound it all, our current style of marks is being changed. It seems to me that this will call for a major, proactive consumer information programme. Who will lead on that in the absence of Consumer Focus? Will it be Citizens Advice? What sort of budget are the Government thinking of? I would be grateful for more information on that, if possible.

The main responsibility for enforcing the Hallmarking Act lies with local authorities through their trading standards departments, although often assisted by the assay masters, as the document puts it. As one of the accompanying documents says, and it puts it rather well:

“Trading Standards Departments have a wide brief, but limited resources, as a result of which the level of surveillance and enforcement activity has reduced over recent years”.

No surprise there. Clearly it is vital now, and even more so if this LRO is passed, for all concerned to ensure that hallmarking law is enforced for the benefit of consumers and, indeed, the trade.

The Minister will be aware, though his work on the ERR Bill and elsewhere, of a number of additional responsibilities that are being transferred to trading standards departments, so I would be grateful if he could confirm that the additional workload on these departments has been adequately assessed. For example, they will need to keep up to date on the number of new offshore assay offices being established, the new marks that are being introduced and the impact of the other changes in this order. It is clearly important that adequate funding and training are provided. I could not see this item in the otherwise very comprehensive impact assessment, so will the Minister spell out the situation?

Finally, there are currently four UK assay offices permitted to apply the UK hallmark. According to the document they all work independently of one another, and, being based in London, Edinburgh, Birmingham and Sheffield, they are apparently very different organisations. What steps will the Government be taking, if any, to ensure that we do not get a glut of offshore hallmarking offices around the globe, perhaps competing against each other? The mind boggles at the prospect of seeing UK assay office London, UK assay office Sheffield, Birmingham, Edinburgh—noble Lords will get the point—in direct competition in gold and silver factories across the globe, when we are in essence talking about a UK standard.

As my noble friend Lord Hodgson asked, will job losses in the UK offices—a risk pointed out in the document—not adversely affect UK-based designers and manufacturers? The British Hallmarking Council is in the lead here and we have to take its advice, but the council’s role is only to advise government on hallmarking policy and any need for legislative change, so the buck stops, I respectfully point out, with the Government. I would be grateful for the Minister’s comments.

My Lords, it has been a somewhat lonely debate, but I am most grateful to the noble Lord, Lord Stevenson, and my noble friend Lord Hodgson for their considerable contributions. The paucity of contributors to the debate has been counteracted by the considerable number of questions, notably from the noble Lord, Lord Stevenson, and I will do my best to answer them all. If I cannot, I will of course follow up in writing.

I also thank the noble Lord, Lord Stevenson, and my noble friend Lord Hodgson for their acknowledgement of the risks facing the UK hallmarking regime. I am particularly pleased that the efforts of the hallmarking community in helping bring about this order have not been in vain. The Government’s task in opening up fresh opportunities for UK hallmarking is nearly complete. It is now for the UK assay offices to grasp such opportunities as they wish and as their commercial judgment deems desirable. As I see it, the most important outcome of this whole venture is that there will be a level playing field between the UK assay offices and their competitors in the European Economic Area, now that the metaphorical bonds tying the hands of the assay offices have been undone.

Also worth mentioning is the widening of choice of sponsors’ marks. This is in its own way a radical step. It is also an eminently sensible one, in that it will make life easier for sponsors, who range from craftsmen operating a small business to large manufacturers. Anything which simplifies the presentation of articles of precious metal for hallmarking is to be wholeheartedly welcomed.

My noble friend Lord Hodgson, supported I think by the noble Lord, Lord Stevenson, raised the issue of the cost benefits of this exercise and change. It is best to be frank and to make the point that it is expected that a limited number of new jobs will be created where assay offices choose to set up offshore hallmarking operations, which is good news. Having said that, the hallmarking community itself acknowledges that there are likely to be some job losses in the UK as a result of the setting up of overseas hallmarking operations.

However, my main point is that the alternative would be far worse. Failure to grasp the opportunity to tap into the demand for offshore marking of high-volume jewellery would further reduce the competitiveness of the UK assay offices, which are already losing business to those competitors who are able to hallmark offshore. For example, one assay office has already lost about a third of its core staff—15 people—with this figure likely to increase to some two-thirds of existing staff, simply because of the inability to compete. Ultimately, failure to change the UK hallmarking law could lead to the closure of one or more assay offices and even greater job losses.

My noble friend Lord Hodgson raised the important question of the potential loss of reputation, as he put it, or loss of quality, as a result of the changes. I can reassure him that different marks are required to distinguish between onshore and offshore hallmarking operations. No diminution of reputation or quality is foreseen, as the British Hallmarking Council is responsible for all hallmarking operations.

My noble friend also raised the issue of the removal of the competitive advantage of UK jewellery manufacturers. Again, I can reassure him that UK manufacturers are mainly bespoke manufacturers, whereas overseas manufacturers focus mainly on the mass produced market, so there is no removal, as I see it, of competitive advantage.

The noble Lord, Lord Stevenson, asked why the procedure was not super-affirmative. We do not consider that the changes being made by this order are of such significance as to require the use of the super-affirmative procedure. There was general agreement among consultees on the proposals. Moreover, a committee in the other place concluded that the affirmative resolution procedure was appropriate. The Delegated Powers and Regulatory Reform Committee of this House did not call for the order to be subject to the super-affirmative procedure.

The noble Lord also raised the issue of state aid and funding for change; in other words, with the changes, whether there would be some state aid. The assay offices are entirely self-financing and, as such, no government money will be used to effect this change.

I do not think that I can let that pass. Unfortunately, I have just given away my notes, but I am sure that a close reading of Hansard will show that I never said such a thing and I did not raise that point. It is an interesting one and I am grateful to have heard it, but I did not in fact make that point.

I do apologise; I was under the impression that the noble Lord had raised that issue.

The noble Lord, Lord Stevenson, raised the issue of how to inform consumers about these changes. The procedure is that a dealer’s notice is required to be displayed in all premises selling hallmarked items, and this will include both the onshore and the offshore marks.

Finally, the noble Lord asked about the representation of the British Hallmarking Council. The council consists of 19 members covering eight assay offices, 10 government appointees and one chairman. The 10 government officers include four from industry, while the others are from consumer protection and the independents. I hope that that answer helps the noble Lord.

In conclusion, although there may well be some other questions that need to be answered—

I thank my noble friend. I do not doubt that his officials will be able to answer my question very quickly. Am I right in reading from the explanatory document that the profit expected from this is £400,000 a year? Have I read the explanatory document right? It seems to be an incredibly small sum of money for us to go through all this, but perhaps I have misunderstood or misread the explanatory document.

Indeed, I have read the document and I can confirm that that is in the notes that I have read. I believe that it is an estimate, but I note what my noble friend has said in terms of the actual sum of money.

In conclusion, I hope sincerely that the introduction of this order will mark a turning point in the fortunes of UK assay offices, and I commend the order to the Committee.

Motion agreed.