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Grand Committee

Volume 774: debated on Tuesday 12 July 2016

Telecommunications Restriction Orders (Custodial Institutions) (England and Wales) Regulations 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Telecommunications Restriction Orders (Custodial Institutions) (England and Wales) Regulations 2016.

Relevant document: 4th Report from the Joint Committee on Statutory Instruments, 3rd Report from the Secondary Legislation Scrutiny Committee

My Lords, the draft telecommunications restriction order regulations provide that the National Offender Management Service—NOMS—and other specified law enforcement bodies may apply to the civil court for an order requiring mobile network operators to prevent or restrict the use of communications devices, including mobile phones, by persons detained in custodial institutions.

The use of mobile phones by prisoners is on the increase. In 2013, NOMS recovered an astonishing 7,451 mobile phone handsets and SIM cards from its estate. In 2014, it seized a record 9,745 devices. That is an average of over 26 handsets and SIM cards seized per day, every day. If these numbers alone are food for thought, then the range of serious crimes committed by prisoners, all enabled by their use of mobile phones, is truly sobering. Prisoners have been convicted of an array of serious organised crimes, all underpinned and enabled by their access to and use of mobile phones. These include: arranging murder; importing automatic firearms into the UK from Europe; smuggling huge shipments of class A drugs from South America; orchestrating the supply of recommissioned firearms across London; controlling the supply and distribution of class A drugs across the UK; two separate and truly audacious prison escape plots—the list goes on. The use of mobile phones by prisoners does not just help them continue their offending in prison but threatens prison security as well. Unauthorised mobile phones are strongly associated with drug supply, violence and bullying inside custodial institutions.

NOMS uses a range of effective passive and active security measures to stop mobile phones getting into prisons and to prevent their use when they do, but the fact remains that it is seizing more mobile phones than ever. The problem is growing and, I say, will continue to grow unless we add to and strengthen the powers that prevent unauthorised mobile phone use. It is a criminal offence for prisoners to possess or use a mobile phone, but because of the relatively small size of handsets and SIM cards and the way prisoners can hide and move these around the prison estate, it is not always possible to take possession of these devices. There is a clear need for new, cost-effective measures to prevent the use of mobile phones which do not rely on first taking possession of the device—powers which allow mobile phones and SIM cards to be put beyond normal use remotely and effectively. These draft regulations achieve those aims.

NOMS or other law enforcement bodies will apply to the county court for a telecommunications restriction order. If the court is satisfied that those devices specified in the application are in use inside a prison, it will order the mobile network operators—MNOs—to take whatever action the order specifies to prevent or restrict the use of those devices by prisoners. I note in passing that each mobile phone has a unique identifier and, therefore, irrespective of the SIM that has been employed, once an order is obtained in respect of the mobile device, it will not be useable inside the prison estate. In practice, the order will involve the MNOs blacklisting the handsets—which prevents the handset from connecting to the mobile network—and disconnecting the SIM cards from their mobile networks. A disconnected SIM card will not work in any handset. These actions will be completed within a maximum of five working days. This quickly puts the mobile phone beyond normal use, without the need to take possession of the handset or SIM.

It may be useful if I summarise the main provisions in the draft regulations. These draft regulations confer on the civil courts powers to compel mobile network operators to disconnect mobile phones and SIM cards that are found by a judge to be in use inside custodial institutions without authorisation. There is no requirement to take possession of the mobile phone first. They provide the National Offender Management Service and other law enforcement bodies with a flexible, cost-effective measure which will add to and strengthen measures deployed to tackle unauthorised mobile phone use in prisons. They will provide that only a judge can order the blacklisting of handsets and the disconnection of SIM cards found to be operating inside prisons. They will protect law enforcement’s capability to disrupt and prevent offending in prisons using covert techniques by providing for court hearings to be held in private, and for non-disclosure of evidence beyond parties to the proceedings. In some circumstances—and only if the court is satisfied that it is not in the public interest —some sensitive evidence may not be disclosed to parties to the proceedings.

The regulations will enable the applicant for a telecommunications restriction order to inform the mobile network operator to remove the terms of a court order if an error is made and a handset or SIM card is incorrectly blacklisted or disconnected, without the need to return to court to vary the order. This safeguard will make sure that any mistakes are quickly put right and that anyone affected by an error can be reconnected as soon as possible in a matter of days, minimising as far as possible the impact of an error on anyone wrongly affected by a TRO. As an additional safeguard, and to make sure that there is independent and transparent scrutiny of these provisions, the use of the draft telecommunications restriction order regulations will be overseen by the proposed Investigatory Powers Commissioner when the draft Investigatory Powers Bill receives Royal Assent. I commend this order to the Committee and beg to move.

My Lords, as we have heard from the noble and learned Lord, Lord Keen, the order before us today gives an additional power to disrupt the use of illegally held mobile phones in the prison estate by way of a telecommunications restriction order, which requires the telecommunication provider to prevent or restrict the use of communication devices by persons detained in custodial institutions.

I very much agree with the comments from the noble Lord, Lord Ramsbotham, contained in Appendix 1 of the report from the Secondary Legislation Scrutiny Committee. The option to block mobile phone signals seems to me a far simpler and more effective option available, and it seems odd that that was dismissed out of hand largely, it appears, on the grounds of cost. Clearly, there is a serious problem and action needs to be taken. What is proposed here is better than where we are at present, but it is cumbersome—new phones or SIM cards risk being smuggled in, and a constant battle may take place to identify a new device or number so that another application can be made for a telecommunications restriction order. It does not completely solve the problem. As I said, it is cumbersome. It will require multiple applications to court on a regular basis and the more effective option has been ruled out.

As we have heard and read in the papers, mobile phones held illegally in prisons have enabled serious crimes to be committed by prisoners, including the importation of automatic firearms, the distribution of drugs, the sale of firearms, planned escapes and the harassment and intimidation of witnesses. With a list like that, I think the case for a blanket ban, through the use of blocking devices, is compelling. Can the noble and learned Lord tell us what review processes are going to be in place to evaluate this scheme and whether the blocking devices are off the table for good, or is it something the Home Office will reconsider at some point in the future? Although I prefer the blocking option, I fully support the order before us today.

My Lords, I have had three privileges in my life. I have had the privilege of serving in every Parliament for the last 50 years. I have also had the additional privilege—the most recent one—of being a member of the Joint Committee on Statutory Instruments, and it is in that context that I rise to speak. I refer in particular to that part of the report in which our committee reported on the use of the statutory instrument.

Over the years that I have been in both Houses, these were all too familiar words:

“Regulations … may … make incidental, consequential, supplementary or transitional provision”.

Both Houses have warned Ministers and departments over the years not to use these generalised and imprecise words to promote regulations of importance and significance. Our own committee made that very point in the eighth report of 2008, yet here we are in 2016 with Regulation 8 being promoted through these imprecise and general words.

I remind the Committee what Regulation 8 seeks to establish. It will give the courts the power to order that some or all documents can be withheld and prevent a party to the proceedings from having access to such information. Who would deny that that type of restriction is both important and significant? Who would claim that this is just a consequential, incidental, supplementary or transitional matter? If the Government intend to promote Regulation 8 on that basis, which of those applies? Is it incidental? It cannot be, surely. An instrument which will restrict access to information for parties in a hearing is certainly not incidental. Is it consequential? No, how can it be consequential? Is it supplementary? Is the Minister going to rest his case on the basis that this is just a mere supplement? An instrument of this kind, leading to the possible restriction of parties’ access to evidence in the proceedings? That cannot be supplementary. On what possible basis can the Government promote Regulation 8 as regulation that is incidental, consequential, supplementary or transitional?

The Government’s case is even more feeble and flimsy when one goes back and looks at the parent Act. The Act stipulates, in considerable detail, in Sections 80(3) and (4), the matters that should be subject to regulations. Section 80(3) lists some seven matters that must be considered in regulations, while Section 80(4) lists six that may be. Some 13 matters are specified in the two subsections, but what is not in them is the issue of the power to give the courts the right to withhold evidence. Why is that not there? This is an important issue. The 2015 Act specifically listed the kinds of issues that should be dealt with and addressed in regulations, but the important one that is now being brought forward, of withholding evidence, was missing.

Why was it not included in the list in the parent Act? There must have been some debate in the department about it, or among Ministers about such a big issue. Why was it left out? Why was it excluded and why is it now being brought in? Was it an oversight? Did they forget that this was going to be a big issue? If so, they are now trying to remedy an omission or an oversight. I want to find out from the Minister why and how an important issue such as this was left out of the parent Act and is now being brought forward and promoted under this raw, general and imprecise regulation. We deserve answers on this mysterious issue.

I am not arguing the case against the issue of withholding evidence; it is about the process by which the Ministers, the Government and the department are trying to achieve it. If we are to use this regulation now, why should we not have done so in the first place? Why should a loose, imprecise regulation, which should always been used for minor, not major, issues, be promoted in the way it has? The Joint Committee sought to address that in its report, in which it said:

“The Committee draws the special attention of both Houses to these draft Regulations on the grounds that in one respect there is a doubt as to whether, if made, they would be intra vires”.

Does the Minister agree with the important conclusion of our committee? This is not a nit-picking issue but rather fundamental.

I am obliged to noble Lords.

I will first address the matters raised by the noble Lord, Lord Rowland. I am aware of the report from the Joint Committee. The points made by the committee in its report were not raised with the department before the report was published. However, the Home Office has given careful consideration to this question and its position remains that Regulation 8 is intra vires. Section 80 of the Serious Crime Act 2015 gives power to the courts to make a TRO, and matters such as disclosure, costs, appeals and so on are all supplementary to that process—they do not have to be specified. I acknowledge that the words “supplementary” and “incidental” are broad, but they are broad for that reason, so that they can embrace these issues. In these circumstances, it is the view of the Home Office that the provisions made in Regulation 8 are supplementary to the primary or principal business of Section 80 of the Serious Crime Act 2015, and that remains our position.

But surely, when one reads the list in Section 80, a regulation which allows a court to withhold evidence from a party to proceedings is more significant and important than even those in Section 80. Why was it not at least included in the original Act in those sections? I suggest to the Minister and the Committee that it is quite serious. If this precedent goes through, government departments will be able to use this loose, imprecise regulation to introduce the most wide-reaching changes by regulation, which were not included in the original Act. A quite fundamental point is at stake here.

I note what the noble Lord says, but it is the view of the Home Office that these provisions are simply supplementary to the principal purposes of Section 80. The 13 examples that are listed are not conclusive or exclusive in that regard. However, I will undertake to write to the noble Lord further to explain our position with regard to Section 80 if he wishes me to do so.

I turn to the points raised by the noble Lord, Lord Kennedy, with regard to the observations made by the noble Lord, Lord Ramsbotham, at an earlier stage, and in particular the stated preference for blocking technology to be fitted in prisons, as opposed to the use of the sort of technology that is contemplated under the present proposed regulations. NOMS makes use of blocking technology in its estate and is committed to investing more in this area. However, while the technology is effective, it is extremely expensive as an option; it is estimated that the cost of employing it over the entire prison estate would be in the region of £300 million, which is massively in excess of the costs anticipated with regard to the provision of TROs—therefore, there is a real cost issue there. It remains the position that blocking technology is used within the estate and NOMS has committed to invest more in this area, but it will take time. On the employment of blocking technology, it is not just the cost of installation, but the cost of maintaining it in each wing of every prison is also considerable and has to be taken into account. That is why NOMS has adopted the position that these regulations should be employed and believes that TROs are the way forward for the immediate future.

Once commenced, the new powers will add to and strengthen the ability to prevent and disrupt offending behind prison walls. That is a key pledge in our serious and organised crime strategy and part of the Government’s overall commitment to tackling serious crime. We are working towards a commencement date for the regulations in England and Wales of July 2016. I therefore hope that this Committee will see fit to approve the draft regulations.

Motion agreed.

Criminal Justice Act 1988 (Offensive Weapons) (Amendment) Order 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Criminal Justice Act 1988 (Offensive Weapons) (Amendment) Order 2016.

My Lords, the order before us today adds zombie knives, zombie killer knives and zombie slayer knives to the list of offensive weapons by amending the Criminal Justice Act 1988 (Offensive Weapons) Order 1988.

The purpose of the order is to maintain public safety. Restricting the supply of weapons which can be used in violent crime or to create a fear of violence is a matter of public concern, which is why the Government are taking this action. Before setting out further details about the order and what action the Government are taking, I will briefly explain why it is necessary to tackle zombie knives.

We are concerned about the availability of these weapons, which can be purchased for as little as £10, have an aesthetic appeal to young men and have no practical use. In 2015, Stefan Appleton, a young man of 17, was murdered with a zombie knife marketed as a “renegade zombie killer machete/head decapitator”.

The Government believe that although the number of sales is relatively low, these weapons have a disproportionate effect because their appearance both creates a fear of violence in law-abiding members of the public and glamorises violence for those to whom these types of knives appeal. The police advise that they are often used as status symbols by gangs in videos inciting violence, and have asked that they are banned.

Unlike other types of knife, zombie knives have no legitimate purpose. They are designed for the purpose of violence and creating a fear of violence, and the way they are marketed, using names such as “headsplitter”, “decapitator”, “skullsplitter”, “chopper” or “executioner”, clearly demonstrates the purposes for which they are intended. Many of the knives are also painted in a way that suggests blood on the handle or blade. These knives pose a danger to the young men themselves and to wider society.

With that background in mind, I turn to the details of the order. Under Section 141 of the Criminal Justice Act 1988, it is an offence to manufacture, sell, hire, offer for sale or hire, or expose or possess for the purposes of sale or hire, a weapon specified in an order made under that section. The importation of any such weapon is also prohibited. The offence carries a maximum penalty of six months’ imprisonment.

The order does not provide for the possession of these weapons to be a criminal offence, but the possession of an article with a blade or point in a public place or school premises without good reason or lawful excuse is a criminal offence under Sections 139 and 139A of the Criminal Justice Act 1988, as is the possession of an offensive weapon in a public place by virtue of Section 1 of the Prevention of Crime Act 1953.

The Government want to add zombie knives to those weapons that are prohibited by order. This will be achieved by using the order-making powers in Section 141(2) of the Criminal Justice Act 1988 to add these knives to the list of offensive weapons to which the section applies. These weapons are defined as:

“the weapon sometimes known as a ‘zombie knife’, ‘zombie killer knife’ or ‘zombie slayer knife’, being a blade with … a cutting edge … a serrated edge; and … images or words (whether on the blade or handle) that suggest that it is to be used for the purpose of violence”.

I hope noble Lords will agree that this order should proceed. It will prevent these weapons being used in violent crime or to instil a fear of violence. I therefore commend the order to the Committee and I beg to move.

My Lords, I had never heard of these weapons before I looked at this order a couple of days ago. The descriptions in the Explanatory Notes and impact assessment are truly dreadful, and I am grateful to the Minister for showing me a picture of one of these knives a few minutes ago. I am very happy to support a complete ban on the manufacture, import, sale, hire, and offer for sale or hire of these weapons. The names—zombie knives, zombie killer knives and zombie slayer knives—are just dreadful.

The impact assessment makes it very clear that the benefits outweigh the costs, even in simple monetary terms, but what we are talking about here is not just money but serious injury to human beings and the killing of human beings with these awful weapons. There is no monetary figure you can put on that. If one life is saved or one serious injury prevented by introducing this ban, it will be a step well worth taking, and I am very happy to support the order.

I am most obliged to the noble Lord. As he indicated, these weapons have no legitimate purpose and yet they have an appeal to vulnerable young people. Therefore, it is important that they should be added to the list of banned weapons.

Motion agreed.

Misuse of Drugs Act 1971 (Temporary Class Drug) Order 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Misuse of Drugs Act 1971 (Temporary Class Drug) Order 2016.

My Lords, I thank the Advisory Council on the Misuse of Drugs for its expert advice, which informed the order we are considering today, which was laid in Parliament on 15 June.

If the order is made, seven methylphenidate-based compounds, as well as their simple derivatives, will be subject to temporary control under Section 2A of the Misuse of Drugs Act 1971 for a further 12 months, thereby maintaining the offences concerning their production and distribution. These compounds were controlled for 12 months under a previous temporary class drug order, which expired on 26 June 2016. The new TCDO came into effect on 27 June and will remain in effect for 12 months, subject to Parliament’s approval.

We are seeking to extend the temporary control following a request from the ACMD for additional time to strengthen its evidence base. This will give it the opportunity to consider the most recent data, including data from festivals, drug-related deaths and information from the drugs early warning system. The additional 12 months will allow the ACMD to consider whether these drugs should be made subject to full control under the Misuse of Drugs Act 1971. The ACMD notes that the initial TCDO has had a positive effect. Police Scotland has reported that in Edinburgh, where there had been reported injecting practices and an outbreak of infections involving some of these substances, there has been a reduction in harms.

These seven compounds are thought to be highly potent stimulants, similar to methylphenidate, a class B drug. One of these substances, ethylphenidate, had previously been marketed online as an alternative to cocaine. Their harms are reported to include anxiety, paranoia, visual disturbance, chest pain and a strong urge to re-dose. Other reported harms include anti-social and violent behaviour, loss of fine motor control, a high risk of bacterial infection and local tissue damage from injecting.

The order enables UK law enforcement to continue action against traffickers and suppliers of temporary class drugs while the ACMD gathers evidence. The order also sends out a clear message to the public, especially to young people, that these drugs and the brand names associated with them carry serious health risks. We know that the change in the law cannot on its own deter all those inclined to use or experiment with these drugs. However, we expect the TCDO to continue to have a notable impact on their availability, and in turn on demand for them, as we have seen with other substances controlled under a TCDO.

We know that legislation alone is not enough and continue to take action across education, prevention, treatment and recovery in order to reduce harmful drug use. We will continue to update our public health messages to inform the public of the harms caused by these substances, using the latest evidence gathered from early warning systems. In these circumstances, I commend the order to your Lordships.

My Lords, as we have heard, the order seeks to renew a temporary control order on the substances listed in the paper for another year, while further work is undertaken and a decision is made on what should happen in the long term. I have no issue with the order whatever. All I would say is that I hope that in granting this temporary ban for another year, we are able within that time to gather the information that the council has asked for, so that it can come back to us to recommend a permanent ban. Clearly, these drugs are harmful to health, and it is important, as the noble and learned Lord said, that education, treatment and advice are made available to young people so that they understand the harm that they can do to themselves and to others by taking them. I am happy to support the order and hope that sooner rather than later we will be able to deal with this issue permanently.

I am obliged to the noble Lord. I should explain that generally speaking the council has to be helped to make a recommendation about six months before the expiry of a TCDO in order for there to be time to transpose the prohibition into the Act itself. It was therefore thought necessary in the present case that there should be an extension. I do not believe that it is anticipated that a further extension will be required, because further evidence of harm has become available and is now being analysed.

Motion agreed.

Petroleum (Transfer of Functions) Regulations 2016

Considered in Grand Committee

Moved by

My Lords, these regulations transfer certain functions relating to the licensing and taxation of oil and gas from the Secretary of State for Energy and Climate Change to the Oil and Gas Authority. With the recent debates on the Energy Bill—now the Energy Act 2016—no doubt still fresh in our minds, I am sure that most noble Lords will be familiar with the background to the establishment of the Oil and Gas Authority and Sir Ian Wood’s review of maximising the economic recovery of petroleum from the United Kingdom continental shelf. However, for the sake of clarity I will outline briefly where we have got to.

The benefit our oil and gas industry has brought to the United Kingdom is not in doubt, with around 43 billion barrels of oil extracted, over £330 billion of taxes paid and many thousands of jobs supported. However, as one of the most mature regions in this global industry, it is now facing new challenges, with remaining reserves increasingly dispersed and more difficult and expensive to exploit. Notwithstanding this and the additional pressures resulting from low prices, there is still great value to be extracted from the North Sea and the continental shelf. The Wood review recommended that delivering on this required a new approach, and the focused attention of a new independent regulator and asset steward.

In response to this, the Government legislated to establish the principle of maximising economic recovery —MER UK—and has set out a strategy to deliver this. Industry and the Oil and Gas Authority are now required to act in accordance with this strategy when going about their business. The authority has also been established as an executive agency of the Department of Energy and Climate Change, and has made great progress. The successful passage of the Energy Bill—now Act—enables it to be set up as a government company and empowered with a broader range of tools to meet the challenge of MER UK, as envisaged by the Wood review.

A central part of the establishment of the Oil and Gas Authority is the transfer to it of essential functions currently exercised by the Secretary of State. Noble Lords may recall that Schedule 1 to the Energy Act provides for the transfer of the majority of these functions, including some relating to offshore oil and gas infrastructure, as well as the licensing of carbon dioxide and gas storage. However, it was decided that certain core functions in relation to petroleum licensing and taxation would not be transferred in that Act, due to the interdependencies with the new devolution settlements for Scotland and Wales, as outlined in the Scotland Act and the Wales Bill currently passing through another place.

Specifically, both those settlements include provision to devolve these functions in the onshore area. This all requires amending the same part of the Petroleum Act 1998. Due to the complexities caused by the sequencing of these pieces of legislation, it was decided that we would transfer these specific functions via regulation under the Energy Act to allow greater flexibility. The regulations before the Committee seek to give effect to this. The rationale for transferring these functions to the Oil and Gas Authority remains the same as for those transferred in the Energy Act; namely, the effective establishment and operation of the Oil and Gas Authority as a regulator and asset steward of the United Kingdom continental shelf. The only difference in this case is the legislative vehicle by which these functions are formally transferred.

It is worth noting that, as with the functions transferred in the Energy Act, these functions are all currently being exercised by the Oil and Gas Authority in its capacity as an executive agency of the Department of Energy and Climate Change. However, once the authority is established as a government company, it will be legally distinct from the department and, in order to continue to carry out its functions, they will need to be formally transferred to it.

In conclusion, these regulations make relatively minor amendments to legislation governing petroleum licensing and taxation, to enable the Oil and Gas Authority to continue the important work it is doing to regulate the oil and gas sector, and to ensure a smooth transfer of functions to Scottish and Welsh Ministers in due course. I beg to move.

My Lords, I thank the Minister for his introduction of the order before the Committee today. As he reminded us, this follows the Wood review into maximising the recovery of oil and gas from the UK continental shelf. The Oil and Gas Authority is already established under the Companies Act 2006; its functions have now been extended under the Energy Act 2016, subject to the provision introduced under the Scotland Act 2016 to devolve onshore oil and gas licensing in Scotland. As the Minister reminded us, debate on extending the powers to the OGA was extensively undertaken during the passage of the Energy Bill. At that time, we fully supported the creation of the OGA, with powers to co-ordinate the industry and secure the best outcomes for the next phases of North Sea development. I am sure the noble Lord will also recall the debates on our amendments to the Bill to extend its environmental functions and to give the OGA powers on strategic decommissioning of infrastructure, particularly in relation to the development of carbon capture and storage.

We are happy to agree the order but we would have liked the powers to have gone further. Therefore, I have just one aspect to follow up with the Minister. At the time, all sides of the House appreciated the advantages that would result from the development of carbon capture and storage. However, this technology is largely untested. So does the Minister agree that the OGA’s planned licensing role could include research into CCS to develop the technology in the field so that we could benefit from it in the future? Is there a role for the OGA in that capacity?

My Lords, I thank the noble Baroness for her contribution. She correctly described the structure of the OGA and the fact that it is incorporated under the Companies Act 2006. She is right that the Official Opposition fully supported this aspect of the Bill. She is also right about the importance of carbon capture and storage. We did accept some amendments on CCS, some of which are now in the Energy Act.

The noble Baroness will recall that I suggested the establishment of an advisory committee chaired by the noble Lord, Lord Oxburgh. That is just about at the end of its work. I am seeing the noble Lord, Lord Oxburgh, next week to discuss its findings, of which I have had sight of some of the most important. We will be looking very closely at that advice. We accept the importance of CCS. Indeed, I have been discussing with colleagues in other countries the possibility of collaboration because many countries are further forward than we are on carbon capture and storage; for example, Canada has a very successful CCS plant run on a commercial basis at Boundary Dam, which I believe is in Alberta. Other states are happy to collaborate as well, at least on research and data. I assure the noble Baroness that we see the importance of CCS and are keen to take it forward.

I am very happy to update the House on developments as and when they happen but the important point to watch for is the publication of the advisory committee’s report, which I think will be forthcoming, certainly within the next two weeks. I am sure that that will be widely circulated. I thank the noble Baroness for her support.

Motion agreed.

Nuclear Industries Security (Amendment) Regulations 2016

Considered in Grand Committee

Moved by

My Lords, I will give some background and explain why we are seeking to make these amendments, which will be an important addition to the nuclear security framework, both while we remain a member of the EU and as our relationship with Europe changes and evolves.

The United Kingdom is highly regarded by the International Atomic Energy Agency and other key international partners in civil nuclear security, and we take our international role in this field very seriously, including with regard to regulation. The draft regulations before the Committee would update the Nuclear Industries Security Regulations 2003. Specifically, they would remove sub-paragraph (i) from the definition of transport in Regulation 2(1), and add references to air transport to Regulation 3(5)(b).

The effect of these amendments is to bring the transport of civil nuclear material by air within the same stringent regulatory framework for security that applies to the transport of such material by land or sea. This means that the independent Office for Nuclear Regulation will have the same oversight and approval function in relation to the security of civil nuclear material transported by air as it has in relation to the transport of such material by land or sea.

There are two main reasons to make this amendment to the regulations. The first is that the United Kingdom is a party to an international treaty, the Convention on the Physical Protection of Nuclear Material, which was signed in 1980, came into force in 1991 and was subsequently amended in 2005. The convention requires signatories to have in place a legislative and regulatory regime to ensure the security of civil nuclear materials stored or transported in that state. The Nuclear Industries Security Regulations 2003 are the primary means by which the United Kingdom has implemented this obligation under the convention.

When these regulations were first written, the transportation of nuclear material by air was not considered to be an option and so air transport was excluded from the scope of the regulations. As our work on decommissioning has gathered pace, we have revisited our legislative and regulatory regime for ensuring the security of civil nuclear materials and determined that the regime should apply to all potential forms of transport. Making these amendments to the regulations to extend the regulatory regime which exists in the 2003 regulations to cover the transport of nuclear materials by air will help to ensure that the United Kingdom gives full effect to the convention.

This brings me to the second reason for making these changes: our domestic considerations. Amending these regulations will allow us to consider all credible options when planning moves of nuclear material to ensure that we make the right operational decision with regard to both safety and security. Nuclear material can be safely and securely transported by air, and it is right that our regulatory framework facilitates this. Air transport of nuclear material is already an established method of transport internationally; these amendments simply mean that civil nuclear material transported by air from or within the United Kingdom will now be subject to the same regulatory regime with regard to security as transports of such material by land or sea within the United Kingdom.

These regulations will ensure that the independent Office for Nuclear Regulation will be involved with and would oversee the security arrangements for any air movements that take place. As such, they will make the transportation of civil nuclear materials more secure. In practice, this means that the Office for Nuclear Regulation will be responsible for approving transport security statements and transport security plans for all carriers of civil nuclear material by air, as they do for carriers involved in the movement of civil nuclear material by road, rail or sea, which currently take place. In drafting these regulations we have consulted the Office for Nuclear Regulation, which is content with these changes.

On a practical level, these regulations will allow us to better address the challenges we currently face. In late 2015, we began a programme of moves to remove nuclear material from the Dounreay nuclear site in northern Scotland. This programme is of great importance and will help to ensure the long-term safe and secure management and treatment of this nuclear material by storing it in the most appropriate place.

As part of this programme, the Prime Minister announced earlier this year that the United Kingdom Government had reached a landmark agreement with the United States and the European Union on a multilateral swap of nuclear material. Under the terms of this agreement, the United Kingdom will transfer almost 700 kilograms of excess highly enriched uranium from Dounreay to the United States, and in return the United States will send nuclear material to the European Atomic Energy Community, which will be used in the production of essential medical isotopes for use in Britain and European countries. This agreement is ground-breaking and will see nuclear material that we no longer need being exchanged for material that could potentially save many lives.

While we will have to work through the potential implications of Brexit in due course, the importance of nuclear security, as embodied by these amendments, will not be affected. In order to complete this operation in the safest and most secure way, we need to be able to consider all transport options seriously. Without an appropriate regulatory regime, air transport would not be a legitimate option. While we cannot disclose timings or methods of transport that will be used in any future moves of civil nuclear material, the amendments made by these regulations will allow us to consider all potential options.

I sincerely hope that these regulations will be approved, as they will help to ensure that any movement of nuclear material by air is regulated appropriately and carried out securely, and will facilitate the delivery to us of medical isotopes. I therefore commend the regulations to the Committee and beg to move.

I thank the Minister for his explanation of the order before the Committee. As he has said, the 2003 regulations are to be amended under the powers of the Energy Act 2013 in relation to the security of transporting nuclear material being subject to the oversight and approval of the Office for Nuclear Regulation. This amends the regulations to include transport by air.

Although I am content to approve the order, I have a few questions for the Minister. First, the security of civil nuclear material in transit is a UK obligation under the Convention on the Physical Protection of Nuclear Material. However, as I understand it, the amendments which now apply to nuclear material transportation came into effect on 8 May. If this is the case, it appears that we have been in breach of the regulations for the last two months. Will the Minister clarify whether this is the case?

Secondly, it appears from the Explanatory Memorandum that the transport of civil nuclear material by air is uncommon elsewhere, and the memorandum says that the department is unaware of any private sector or civilian transport providers interested in or capable of securely transporting civil nuclear material by air. It is right that the ONR have proper oversight. I was going to ask if I am right in thinking that such occurrences would continue to be rare, but from what the Minister is saying, that is far from the case. Because of the multilateral agreement which he has outlined, there is potentially going to be quite a considerable amount of air transportation of nuclear material. I understand that he cannot give all the details, but perhaps he could at least give a sense of the scale and proportionality of the potential involvement of air transport.

I ask this question because if there are any concerns, they come about from a risk management perspective. In the quadrant of probability and impact, risks from transport by air would be placed in the low probability, high impact quadrant. As noble Lords will know, any air incident is newsworthy; air disruption and atrocities are the favoured target for terrorist groups and nuclear accidents are a major concern for the public. So, addressing the level of the risk, can the Minister say whether the transport of civil nuclear material by air takes place elsewhere in the world? Can he give the Committee any details? If transport by air is being regulated elsewhere, what regulations are applied and how do they compare with the regime here?

If there was an incident, any nuclear fallout from the air would clearly cover a far wider area than would be the case with other forms of transport. Is the Minister satisfied that any contingencies which would have to be implemented have been practised by the relevant authorities and organisations in advance of these changes? While I am on the subject of risk, the noble Lord will know that the issue of normal pension age has been raised by the Civil Nuclear Police Federation, which has argued that the physical and training demands made of its staff should lead to a normal retirement age of 60. I understand that this matter is subject to discussion at the moment and I would be grateful if the Minister could give some information about progress.

Thirdly, can the Minister say whether the transportation of nuclear material by air will be limited to low-grade material only? Will the planes be specifically marked or identifiable such that attention could be drawn to them? Fourthly, what requirements will be placed on the Office for Nuclear Regulation to report to the department on the risks and mitigations that are being taken? Will these regulations be kept under review?

Finally, the Minister will know that the Secondary Legislation Scrutiny Committee, in its 2nd Report of Session 2016-17, asked the department a few questions on the regulations which the committee felt had not been adequately answered. When asked for what purpose air transport would take place, the department merely said that the regulations,

“will allow air transportation to be considered as a credible option”.

This perhaps amounts to the answer, “Because we can”. Can the Minister shed more light on why and for what purpose air transportation is now being considered?

I hope that the department will talk to the ONR about the very limited circumstances in which this form of transport should take place, given the risks involved. I hope also that the Minister shares my concern about the need for a proper risk assessment.

My Lords, I thank the noble Baroness for her contribution and for her support, qualified as it was by some quite legitimate questions.

Although the Civil Nuclear Constabulary pensions issue is perhaps a little off-piste in relation to these regulations, I am happy to say a bit about that situation. As the noble Baroness will know, we have sought to set the pensions arrangements for the Civil Nuclear Constabulary in the light of the Public Service Pensions Act 2013, which if I am not mistaken was based on the recommendations in the report of the noble Lord, Lord Hutton, who was formerly a distinguished Labour Cabinet Minister. I am unable to say much more than that because she is probably aware of the fact that the matter is currently sub judice while the unions are challenging the matter in the courts. As I understand it, that is the position.

On the regulations, first I can reassure the noble Baroness that the prime concern for the United Kingdom in these matters is, as always, security and safety. Our reputation for nuclear safety and security both in relation to nuclear plants and in relation to the transport of nuclear materials is, I think, unsurpassed. I can also reassure the noble Baroness—I hope that I did not give a contrary impression, but the trouble in bringing forward such regulations for a specific purpose is that the feeling develops that this must be happening an awful lot, whereas that is not the case at all—this will remain the rarest form of transfer of nuclear materials. Transportation by air will be rare and will certainly be rarer than other forms of transport. However, as she indicated, the regulations probably require us to do this. Therefore, it is anticipated that air transportation does occur. The noble Baroness asked whether other states fly nuclear material. The US certainly does and has appropriate regulations in place.

Whether we have been in breach of the convention is perhaps an open point. The convention is perhaps not totally clear on whether we have to cover air, but certainly as we are envisaging that we might want to transport material by air, obviously we would need to. That is the full consideration behind these regulations: it is to ensure that we have the same very strong security regime for the transportation of civil nuclear material by air as we currently have for transportation by land and by sea. Other states do this, as I have indicated. Are there risks? I suppose the honest answer is yes, but the security and safety regime seeks to minimise those. That is why these regulations are important. Obviously, we study very carefully what the Office for Nuclear Regulation advises us.

The noble Baroness asked for specific examples. I think that I have already given some rather specific examples. She will understand that I do not want to give too many, but I mentioned that we are exchanging nuclear material with the US, which will in return provide us with material for medical isotopes, which are, as the noble Baroness knows, quite vital for life and medical research. I am sure that she welcomed that. I would not want to give too many specific examples, but that is certainly one.

I am not sure whether the planes are readily identifiable. I can only imagine that they are not; I am being reassured that that is the case. She will understand, and indeed she indicated as much, that I cannot go into the operational details of precisely how this is all organised. However, just to reassure her, as under successive Governments, nuclear safety and security both at the plants and in the transfer of materials is very much foremost in our minds. I beg to move the regulations.

Motion agreed.

Pubs Code etc. Regulations 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Pubs Code etc. Regulations 2016.

Relevant document: 4th Report from the Joint Committee on Statutory Instruments

My Lords, I shall speak to the Pubs Code etc. Regulations 2016 and the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016. These orders form part of the implementation of the Small Business, Enterprise and Employment Act 2015. They will come into force on the day after they are made.

Pubs continue to play an important part in the life of this country. They are the hub of local communities in both rural and urban areas, and for many there are few pleasures in life that can compare to a pint, some other drink or, increasingly, a delicious meal with friends in a British pub.

It may be helpful for me to remind your Lordships why we are introducing a statutory pubs code. Tied tenants have for many years argued that their relationship with pub-owning businesses can be unfair. For example, the lack of transparency in reaching decisions on rent can put tenants at a significant disadvantage in challenging increases or negotiating a better rent. Examples are also cited of pub companies failing to meet deadlines or to comply with the contractual processes for the termination of tenancies. After more than 10 years of BIS Select Committee inquiries, Part 4 of the Small Business, Enterprise and Employment Act 2015, which I had the pleasure to take through the House, was brought in to address these concerns. During the passage of the Bill, as some will remember, it became clear in November 2014 that Parliament wished to add the market rent only option to the Bill. That is the option to occupy the pub premises free of tie at market rent. The Government accepted that intent in January 2015. At that stage there was no settled policy on the details of how the MRO process would work. These have ended up accounting for more than half the regulations now before your Lordships—a weighty bundle.

Unfortunately, the tight timetable set down by Parliament contributed to some technical drafting errors in the SIs as originally laid. These have now been corrected and the opportunity has also been taken to add some clarifications to the regulations and to improve the mechanism for assessing what constitutes a significant increase in price for the purposes of triggering the right to request a market rate only option. The Government are very keen to ensure that the code now comes into force as soon as possible. Clearly we regret that it was not possible to meet the May deadline for making the regulations and I am afraid that it will not be possible under the Act for them to have retrospective effect.

The SBEE Act requires us to ensure that the Pubs Code is consistent with the principle that tied tenants of the largest pub-owning businesses are no worse off than free-of-tie tenants and that there is fair and lawful dealing between the largest pub-owning businesses and their tied tenants. At the same time, we have sought to ensure that this takes place without placing undue burdens on businesses. I believe that after many discussions, these regulations now successfully achieve the right balance.

Perhaps I may look first at the processes for the market rent only option and the functions conferred on the Pubs Code Adjudicator to deal with disputes about it. Noble Lords will be aware that this has been an area where, as the Secondary Legislation Scrutiny Committee recognised, the Government have had to reach decisions in the light of often widely varying views expressed through the consultation process. We have sought to balance protections for tenants and obligations on pub-owning businesses. Let me give three examples of how I believe that we have achieved this.

First, the draft regulations provide that the right to an MRO option at rent assessment is not dependent on a proposed rent increase from the pub company to the tenant. This reflects constructive feedback both from your Lordships and from the industry itself that the earlier proposal would have had the unintended consequence of preventing significant numbers of tied tenants from receiving an MRO offer. Secondly, we have also listened carefully to both tenants and pub-owning businesses in finalising the drafting of the significant increase in price provisions. We have, for example, guarded against MRO being triggered simply by a tenant changing their product selection. This has been ensured by stipulating that products must be compared only where they are like-for-like products sold in the same units and based on the same amount sold. Thirdly, we have delivered our commitment in the final March package last year for an investment exception, which at that stage was called the investment waiver. This is important because it is vital for the future of pubs and their tenants that pub owners want to invest in them. In doing so we have taken account of the concerns that were raised during the passage of the SBEE Act that this could become an MRO loophole. Therefore the MRO exception is limited to a maximum of seven years and a minimum investment of twice the pub’s annual rent.

The code addresses many other important aspects of the relationship between tied tenants and pub-owning businesses which I would like to draw to the attention of noble Lords. These include the requirement for tenants to receive a parallel tied rent offer to consider alongside the MRO offer and protections for tied tenants whose pub is sold to a non-code pub-owning business. Transparency is essential for tenants and pub owners. Both parties must be fully aware of what is involved and what they are committing to. But transparency must be backed by the enforcement of fair dealing. A tenant who believes that the pub-owning business has breached the code therefore has the right to refer that alleged breach to the independent Pubs Code Adjudicator, who is appointed to enforce code obligations and empowered to award redress. Of course, we have already ensured in the primary legislation that the pub company receives sufficient notice—21 days—to put things right before a tenant may go ahead with the referral; and we are deterring frivolous or vexatious referrals by requiring a £200 fee for each case.

I turn now to the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016 which are modelled on those for the Groceries Code Adjudicator, which noble Lords will remember. The fees and costs provisions largely mirror the arbitration or mediation arrangements in the existing industry voluntary code. Financial penalties are not an aspect of that voluntary code and may be imposed by the adjudicator after an investigation. This is distinct from the arbitration arrangements where the only financial awards are for redress and costs. The regulations specify a maximum penalty of 1% of a pub-owning business’s annual UK turnover in respect of investigations.

The adjudicator has complete discretion as to whether he imposes a financial penalty and in what amount, up to the maximum stipulated. The nature and effect of the breaches will inform the exercise of that discretion. Accordingly, I expect the maximum to be applied only in extreme cases for very serious breaches of the code. The adjudicator must consult on the criteria that he intends to adopt in deciding the amount of any penalty he may choose to impose.

I make no bones about the fact that the code is 52 pages long and covers a lot of issues. As anyone who has followed its birth and early years must know, tied pub relationships are multifaceted and not always straightforward. The Pubs Code before you, despite its length, is proportionate and balanced in its approach and will lead to greater prosperity for those who work in our great British pubs industry. I commend these draft orders to the Committee.

My Lords, I want to draw attention to some concerns expressed about the Pubs Code etc. Regulations 2016 by the Joint Committee on Statutory Instruments, of which I am a member. The concerns are set out in full in the fourth report of the current Session and I shall touch on the most important of them.

As my noble friend said, the regulations would alter the obligations on pub-owning businesses towards the tenants of their tied pubs. Under Section 43 of the Small Business, Enterprise and Employment Act 2015, the regulations must include provision for a tenant to be offered a market rent-only option. Section 43(6)(c) requires the regulations to provide that option to be offered where there is a significant increase in the price at which a product or service subject to the tie is supplied to the tied pub tenant and where that increase was not reasonably foreseeable when the tenancy was granted.

Regulation 24 among those before us today requires that the market rent-only option be offered where there is a significant increase of that kind irrespective of whether the increase was reasonably foreseeable. Moreover, Regulations 3 to 6 provide that the test of whether an increase in price is significant is to be determined by reference not to the amount by which the particular product or service has increased in price but to the level of increase in price of a category of products or services.

The Joint Committee on Statutory Instruments concluded—the salient paragraphs in the report are 4.9 to 4.17—that the regulations do not comply with the requirements of Section 43 of the 2015 Act in two respects: they do not include the condition of reasonable foreseeability and the test of significant increase is inconsistent with what Section 43 requires. The department has not provided a satisfactory explanation of either of these two divergences from Section 43 and, therefore, the Joint Committee on Statutory Instruments considers that if the regulations are made there is a doubt whether Regulations 3 to 6 and 8 are intra vires. I would be grateful for my noble friend’s comments.

My Lords, getting up feels almost like it does at the bell before last orders—I confess that I am insufficiently capable of such a witticism and have to acknowledge my noble friend Lord Beecham for that observation. We welcome the introduction of the Pubs Code etc. Regulations and the Pubs Code (Fees, Costs and Financial Penalties) Regulations.

This has been a very long and drawn-out process, and in fact as I was listening to the Minister I realised that I could mouth half the words of the introduction to her speech because we have been at this for some time. However, I am grateful for all the work that has been done by officials in making sure that we get to this particular place. It has not happened within the timetable that everyone wanted, but it is more important to get the code right than to serve an arbitrary timetable. I will turn to the issues around the timetable in due course.

One of the most important features of this is that tied tenants have had a particularly difficult time with the pub-owning businesses and the relationship has been fractured for quite some time. This was made considerably worse by the adoption of some rather reckless business models by the pub-owning companies and that has led to the establishment of provisions covering the Pubs Code Adjudicator, so this was done within the context of a worsening situation. As the Minister has said, the construction of the code itself, which comes from the legislation, tries to strike a balance. I want to say at the beginning that while I have a few questions about the statutory instrument, fundamentally our concerns turn on where the balance is struck in relation to the code. The reason for that is the desire not to place undue burdens on businesses while not suggesting that the concerns of tenants are not legitimate.

There are ways in which many businesses are transformed in their method of operation, their businesses processes and even their innovations by regulatory changes. In fact it could even be argued that in many industries, regulatory change has been a much better indicator of productivity than other forms of business reinvention. In this, striking a balance suggests that a business is static, but as I will come on to later, it is not. As it is established at this moment in time, it is important that the balance is properly struck.

I understand where the Government got to in designing the code and that as far as tenants are concerned, fine-tuning the code is now considered to be more effective with the experience of its operation. So the Government have given a commitment that there will be a review two years after commencement, and I would be grateful if the Minister could give us some idea of what the initial consideration is of what this will cover and how and who conducts it, as well as what reports will be made to and how engagement will take place with Parliament. In addition, I hope that the Minister can confirm that the interpretation issues are now ready to be considered by the Pubs Code Adjudicator and his office. Perhaps she can give some indication of the scope and direction of where they can go and how much they can do in the matter of interpretation as well as whether she and her officials will continue to engage in these issues. If the code proves to be an impediment to how they are interpreted, is there a case for an early amendment to it? The Government have the option to bring forward amendments, so it would be useful to know in what circumstances they might be introduced—and certainly if doing so would address our more general considerations about the problems of companies gaming the system. Although I feel that this is less of a concern, it would still be useful to have some idea about it.

We would also be interested to hear the Minister’s observations about the concerns expressed by the Joint Committee, but as I say, they are less relevant. However, if they call into question the veracity of the code, they will be materially important. Indeed, we also have some concerns about the formula for a significant increase in price, but as that has gone through consultation, no one is feeling particularly happy. It seems rather ill-judged for us to suggest that that presents a problem.

On the issue of the size of the penalties, the Minister made a case saying that penalties for the most egregious examples would attract the highest amount likely to be imposed. Perhaps I may suggest that when she is suggesting that, it is important that we have some indication that because this is down to the discretion of the adjudicator, they could also impose the highest-possible penalty for something less important and egregious. It is only in those circumstances that the necessary message can be sent to companies to encourage them to change their ways and to make the potential impact of a material impairment of their financial results possible. You have to be willing to use a bit more stick rather than offer some sort of carrot. I have had a look at LTIP arrangements of the particular companies concerned and I do not think that unless the penalty is materially significant, it will even affect them. Many of these could continue to be conducted, so if the penalty was imposed only on its level of seriousness—there is a variety of ways in which that might be measured—that certainly would not have the impact that penalties probably should.

Could the Minister be very clear on the timings from now and from implementation? This instrument is certainly somewhat unusual in that it does not have the usual delay, but it is very important that we get this moving as quickly as possible. We have always been concerned about the interregnum and what might happen, and it is very important that we ensure that the statutory instrument is enforceable on approval and that we get the strongest indication when that will be.

I will just return to the original point about the construction of the code striking a balance. I have looked at the interim results of two of the largest pub-owning companies over the last period, and it is very clear that the companies have decided to transform their businesses and been quite successful at it. Not only have they done that in relation to their overhanging debt—all have been able to deleverage their positions—but they have looked at different ways of operating their business and servicing their tenants, and all can report significant EBITDA improvements. The total number is slightly lower as a result of disposals, but it is certainly much improved, and they both have growing commercial letting operations. They now have commercial properties and report on the average rental that they are able to accrue on their estates: for Enterprise Inns the figure is £59,000, and for Punch Taverns it is £72,000.

Both companies devote some paragraphs in their most recent interim results to looking at regulatory changes. Both are able to stress that the changes they have made to their models, service contracts, pricing and to other aspects of their business are now highly advanced. Enterprise Inns says:

“We are confident that our strategic plan provides us with sufficient flexibility to accommodate this legislation and represents the appropriate response to its likely impact”.

Punch says:

“While the take-up of the MRO option will only become clear over time … our current expectations are that the majority of the estate will continue to operate under, and enjoy the benefits of the tied-drinks model”.

Their strategic response has made them ready. The industry has not just changed its models and operations but spent its time preparing for these sorts of changes.

That makes the case for two things: first, for a very speedy implementation, because there is not much time; and secondly, for the Government to keep a keen eye on this. Although a balance has been struck at this stage with what were quite rigid models, over the last period, the pub companies have responded not just to the regulatory changes but to the increased competition that they face from a variety of different forms of leisure activity on the high street and to the continuing problem for them of alcohol pricing in supermarkets. They have made sensible and decent responses which could, in their own words, assist them with reducing the potential impact of the MRO by providing much better options for tenants. In those circumstances, will the Government keep a keen eye on the code and make sure that the balance is not just enshrined today but considered over the coming two years on the basis of an ever-strengthening model of pub ownership?

I thank noble Lords for their contributions to this surprisingly brief debate—the briefest ever, I think, on the subject of pubs. I thank the noble Lord, Lord Beecham, for the joke that he passed to his colleague about the bell for last orders. I just hope that this is not my last order in the business brief, given the momentous events of the last few days. I will be very glad to put pubs to bed in this stage of regulation.

I very much concur with the wish of the noble Lord, Lord Mendelsohn, to see speedy implementation, which is why we are planning to introduce the regulations the day after they are made if noble Lords are happy here; there are debates in the Commons tomorrow and on Monday. Subject to parliamentary approval, we will be making the regulations ahead of the Summer Recess and in a minute I will talk about our plans for the adjudicator.

In passing, I thank the noble Lord, Lord Mendelsohn, for always looking at this from an economic, industry point of view. I actually rather miss my noble friend Lord Hodgson, who usually engages in debate and ensures that we are thinking about the economic side. It is very important that pubs flourish. They are changing and obviously they will have to face a post-Brexit situation. The consumer climate is very important to them. So it is good news for pubs that we now have the certainty of a new Prime Minister, rather than uncertainty dragging on for several weeks.

The noble Lord asked about the review provisions. We will, as I have said already, keep a close eye on the operation of the code to make sure that it is delivering its objectives. There is, as he suggested, a statutory review of the code, which has to take place by March 2019 and every three years thereafter. That is rather more frequent than some of the regulations that we discuss in this House and we will be keeping an eye on the code to ensure it continues to deliver fairness and the other objectives that I set out in my opening remarks. Obviously, the department and, I am sure, the Minister of the day would be involved in any such review.

Turning to the Pubs Code Adjudicator and his role in interpretation, I saw him last week to make sure that plans were in place and that he was getting ahead. I was glad to see that he was because obviously he needs to be ready for day one. He is planning to consult and publish guidance in line with his statutory duties as outlined in Section 61(1) of the SBEE Act in relation to the conduct of investigations and any resulting financial penalties. He will do that by 2 November this year and over time he will consider whether other guidance or interpretive support may be required. Obviously, he intends to work with stakeholders to help determine this.

In relation to the penalties, as I said in my opening remarks, there is flexibility for the adjudicator. It is a high maximum penalty but it is entirely at his discretion. He will consult on his criteria so that stakeholders can inform his thinking.

It was an honour to hear from my noble friend Lord Lexden and I never cease to marvel at the skill and detail that the JCSI lends to this kind of thing—it keeps us honest. If you get one of the reports through the post, you know that it is really well worth a read, including this one. I will try to answer my noble friend’s concerns and if for any reason he is not happy I hope we can discuss the matter further. The reference in the SBEE Act as to whether the increase was reasonably foreseeable does not limit the power the Government have to define the MRO trigger. This was recognised in the JCSI report and parliamentary counsel confirmed this for us. Following consultation in 2015 and 2016, the Government have ensured that the regulations provide for increases that were not reasonably foreseeable, and other significant price increases.

My noble friend’s second point was about the significant increase in the price of a single product category. The regulation provides that the test for the SIIP trigger is an increase in at least one product or service. It is the Government’s view that the test of whether or not an increase is significant should be assessed through a comparison of price changes across a range of relevant products, not just the one.

I believe that the Pubs Code is bringing fairness and transparency to an industry that has been troubled by poor relationships between too many tied tenants and their pub-owning businesses for too many years. It brings statutory rights, protections and responsibilities where the voluntary approach has sadly failed to make sufficient headway. Above all, it brings hope and confidence to a sector very much in need of it.

I thank the noble Lord, Lord Mendelsohn, for his appreciation of the staff who have been involved in the arduous work on this important reform of pub law. Assuming that Parliament approves our orders, we will be drinking to the pub order next week. I commend these draft orders to the Committee.

Motion agreed.

Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016.

Motion agreed.

Sitting suspended.

Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority (Election of Mayor) Order 2016

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority (Election of Mayor) Order 2016.

My Lords, this draft order was laid before this House on 8 June 2016. If approved, it will create the position of mayor for the Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority—also known as the Liverpool City Region Combined Authority—with the first election to be held in May 2017, and set the first mayoral term for a duration of three years, with the next election in May 2020, with subsequent four-year terms.

The Conservative Party committed in its manifesto to,

“devolve far-reaching powers over economic development, transport and social care to large cities which choose to have elected mayors”.

To give effect to this commitment, the Government passed the Cities and Local Government Devolution Act earlier this year. As I set out to the House during the passage of that enabling legislation, the Government have introduced clauses to allow directly elected mayors for combined authorities because devolution of the ambition and scale set out in the manifesto requires strong and clear accountability and leadership. It is therefore considered necessary that where major powers and budgets are being devolved, local people know who is responsible for decisions. Mayoral governance offers a proven model for effective local leadership, which has worked around the world.

Turning to the Liverpool city region, this order is a milestone in the implementation of the two devolution deals agreed between the Government and local leaders. It follows the establishment of the combined authority on 1 April 2014, from which time it has been serving the Liverpool city region, bringing together across the area the closely interconnected issues of transport, economic development and regeneration.

On 17 November 2015 the Government and the combined authority announced a devolution agreement which provided an offer of powers and budgets from the Government on the basis that the area will deliver certain reforms and measures, including adopting a directly elected mayor covering the whole combined authority area. This agreement included that the mayor for the Liverpool city region would individually exercise some functions in relation to transport and strategic planning.

The combined authority has taken on responsibility for: devolved funding—£30 million a year over 30 years for the Liverpool city region; control of the devolved 19-plus adult skills funding by 2018-19; joint responsibility with the Government to co-design employment support for harder-to-help claimants; and a devolved approach to business support from 2017, to be developed in partnership with the Government. On 16 March this year, the combined authority and the Government additionally agreed: early adoption of the government pilot for 100% business rate retention in the combined authority’s area, starting in 2017-18; additional new powers over transport; and further commitments for the area and the Government to work together on children’s services, health, housing and justice.

In delivering the full range of commitments in the devolution deal, the Secretary of State intends, subject to statutory requirements and parliamentary approval, to make further orders to implement the deal. Subsequent orders will include the transfer of budgets and powers in planning, transport, education and skills.

On 24 June 2016, the Liverpool City Region Combined Authority published a governance review and scheme, which sets out the constitutional changes to the combined authority and the functions of the mayor as the area assumes control of additional budgets and powers from the Government. The combined authority is currently consulting local citizens and stakeholders on the contents of these documents and will issue a report on its findings to the Secretary of State later this year.

The draft order establishes a mayor for the Liverpool city region and sets the dates of elections and the first and subsequent term lengths. It is laid before Parliament following the statutory process specified in the 2009 Act, as amended by the Cities and Local Government Devolution Act. As required, all the constituent councils have consented to this order being made and the Government have laid the draft order, having had consideration of the statutory requirements. As required, we are now seeking Parliament’s approval before making the order.

The order is about delivering devolution and empowering local authorities to set their own policy agendas. The order provides enhanced local leadership in the form of a directly elected mayor with a strong democratic mandate and independence from the combined authority. The mayor will work closely with local leaders, who will sit on the combined authority board, and together they will drive forward the economic opportunities presented by devolution, with the mayor acting as chairman of the combined authority and providing a single voice for the area that can be both prominent nationally and help drive the devolution agenda.

As noble Lords may recall, during the passage of the enabling legislation there was debate on the necessity of mayors in devolving powers to local areas. The Government have made clear their stance on the necessity of mayors. However, they are not alone in this belief. Research commissioned by the Centre for Cities in May 2016 found that members of the public across five devolution deal areas supported the notion that directly elected mayors should have greater powers than council leaders.

With that said, it is important to note that no one area has been required to adopt the mayoral model. The Government’s position is that if an area is to have a mayor, it will be because that area, through its democratically elected representatives, has chosen to have one. However, the Government view devolution as two-way, and it is our clear intention that the accountability offered by a mayor is desirable and therefore forms part of the devolution deal that has been agreed between government and local leaders.

The Government have made excellent progress in implementing their devolution agenda. An order establishing the position of mayor in Greater Manchester was made on 28 March 2016. Orders have now been laid to establish the position of mayor for the Tees Valley, North East, Sheffield City Region and West Midlands combined authorities. All of these are scheduled to hold their first mayoral elections on 4 May 2017.

The Tees Valley mayoral order was laid before the House on 13 June. If approved, it will create the position of mayor for the Tees Valley Combined Authority, with the first election to be held in May 2017, and it sets the first mayoral term for three years, with the next election in May 2020 and with subsequent four-year terms.

As I have just set out, the Government are committed to devolving powers to places that have chosen to have directly elected mayors. I reaffirm the Government’s view over the necessity of mayors where powers and budgets are being devolved, as they provide this clear accountability and leadership.

As with the Liverpool city region, this order is a milestone in the implementation of the Tees Valley devolution deal that was agreed between the Government and local leaders on 23 October 2015. The first step in implementing the deal was made on 1 April 2016, when the combined authority was established, with functions over transport, economic development and regeneration. The deal provided an offer of powers and budgets from the Government on the basis that the Tees Valley would deliver certain measures and reforms, which included a directly elected mayor covering the whole of the combined authority area. The deal included that the mayor would hold responsibility for a consolidated transport budget and a multi-year settlement from government, as well as being able to exercise the function of creating mayoral development corporations.

The combined authority would take on responsibility for: creating a Tees Valley investment fund, bringing together funding for devolved powers and delivering a 30-year programme of transformational investment in the region; it would take control of a new £15 million-a-year funding allocation over 30 years, to be included in the Tees Valley investment fund and invested to boost growth; it would also take on the leadership of a comprehensive review and redesign of the education, skills and employment support system in Tees Valley; and it would take responsibility for a devolved approach to business support from 2017, to be developed in partnership with government.

The draft order uses the same enabling legislation as the previous draft order concerning the Liverpool city region. It establishes a mayor for the Tees Valley and sets the dates of elections and the first and subsequent term lengths. It has received the consents of all constituent councils; we are now seeking Parliament’s approval before making the order.

My previous introduction to the situation in Liverpool set out the role of the mayor and the opportunities that can be driven forward through a partnership of the mayor and local leaders. I repeat that the Government view devolution as a two-way process and that the Tees Valley leaders have chosen to adopt this model in order to agree a substantial devolution deal with government. As with Liverpool, the mayor will be the chairman of the Tees Valley Combined Authority, and as such will provide an important voice for the Tees Valley at a national level.

As I stated previously, further draft orders will follow to establish the position of mayor for other combined authorities and I look forward to bringing them before the House. It will be a major milestone for the Tees Valley and for the devolution process there. I commend both draft orders to the Committee.

It may benefit the Committee if I make the point that the Minister is asking the Committee to consider the Tees Valley order at the same time as the Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral order. If the Committee agrees, I will put the question on the second order formally after we have completed the first debate.

My Lords, I thank the Minister for introducing this order. As she rightly pointed out, this is one of the stages in the establishment of mayoral combined authorities.

First, will the Minister confirm that, once this order is agreed by Parliament, there will be a mayoral election on 4 May 2017? I ask because, as the Minister herself said, paragraph 7.8 of the Explanatory Memorandum states that:

“The Government will seek Parliament’s approval later in 2016 to further secondary legislation necessary to devolve the powers and budgets to the Combined Authority, as agreed in devolution deal”.

Can she confirm that there will be a mayoral election even if there is no agreement on the content of the devolution deal? It presupposes, first, that later this year the authorities making up the combined authority will finally agree with the Government and that there will be no changes by the establishment of a new Government, and, secondly, that Parliament itself will agree to the orders. I would like clarification on that.

The Minister will recall that, in our debates during the passage of the Cities and Local Government Devolution Bill, a great deal was said about the scrutiny and audit arrangements. Those grew in importance between Committee and Report and between Report and Third Reading. It was generally agreed that the arrangements initially proposed in the Bill were inadequate and some improvements were made. I draw the Minister’s attention to the report of the Public Accounts Committee of the House of Commons, Cities and Local Growth, published on 1 July, just a few days ago. In the summary, on page 3, it states that:

“There has been insufficient consideration by central government of local scrutiny arrangements of accountability to the taxpayer and of the capacity and capability needs of local and central government as a result of devolution”.

I also subscribe to that view. Is it possible for the Government to set out the reply they will make to the Public Accounts Committee alongside the next stage of parliamentary approval of the detailed arrangements of powers and resources for both mayoral combined authorities? Recommendation 8 of the Public Accounts Committee says, very specifically, that:

“Government should set out by November 2016 its plans for how it will ensure that local scrutiny of devolved functions and funding will be both robust and well supported”.

I would like to think that, when we get to the next stage of considering the arrangements for these combined authorities, we will have a response to this very specific point which the committee raised.

The Minister will recall that, during the passage of the Bill, I and my colleagues made a number of comments about the scale of responsibilities for an elected mayor within a mayoral combined authority. It is a big geographical area and it is a wide set of responsibilities. We queried the capacity of an individual person to do so much across all the areas that the Minister has described; in this case, it is transport, strategic planning, adult skills, employment support, business support, a business rate retention pilot, joint working with Her Majesty’s Government on children’s services, health, housing and justice. That is a very wide range of tasks for one person to be formally responsible for, even though the combined authority as a whole will have some shared responsibilities. Is the Minister confident about the structure being set up, not least because of the concerns of the Public Accounts Committee? It has identified a range of issues that in most cases we considered during the passage of the Bill some months ago, and the problems and the questions have not gone away.

I welcome the Tees Valley Combined Authority (Election of Mayor) Order and I congratulate Tees Valley on getting on with the process of devolving power to its mayoral combined authority, and in particular for overtaking the North East Combined Authority, which seems to have suspended discussions with the Government pending the election of the new Prime Minister. That is now going to be sooner than perhaps the authority had anticipated. I noted in the Minister’s introduction, unless I misheard her, that a number of further orders for areas such as South Yorkshire and the West Midlands are said to be forthcoming, but I do not recall any mention of the North East Combined Authority in that list. Assuming that I heard her correctly, can she clarify what the position is given that the order has been placed before Parliament for consideration? Is it delayed, over what timescale is it delayed, and is there still any potential, given the legal requirements, to hold a mayoral election in May if it is delayed much longer?

I have raised a number of issues for the Minister to respond to. Devolution is a positive thing, but she will understand that throughout this process we have expressed a whole range of doubts about the structures which are being established and the democratic accountability that lies within the process.

I would like to inform the noble Lord, and possibly the Minister, about the situation with regard to the North East Combined Authority. It was originally thought that we would be taking that either this week or next week, but now it will be taken in September. It is not quite ready, as it happens, so next week would be difficult. My understanding is that it will be taken in September during the two weeks that we are back.

I thank the noble Lord for that clarification. I hope that we will have a chance to consider the plans for the North East Combined Authority in the House of Lords.

My Lords, like the noble Lord, Lord Shipley, I think that devolution is a positive thing. I like the constituent boroughs that are designated in the order—Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral—and I support the Motion before the Grand Committee today.

For 18 years I served in another place as a Member of Parliament for a Liverpool constituency, but before that, from 1972 I served as a member of Liverpool City Council, and from 1973 as a member of the now defunct Merseyside County Council. I have always strongly supported subsidiarity and decentralisation along with the devolution of powers. I believe that robust decision-making done at the closest possible level serves democracy well. Moreover, it helps to address the disconnect that we see between our elected representatives and the communities they are supposed to serve. Noble Lords would expect someone who cut his teeth as a community politician to say that, but the municipalism of Joseph Chamberlain and Disraeli’s dictum that centralisation is the death of democracy illustrate that there is a distinguished and long tradition of men and women who have served and believe in local government, and some of them are present in the Committee today.

In 1997, having stood down from the House of Commons, I helped establish the Liverpool Democracy Commission, and served with a small cross-party group as the commission examined the state of local democracy on Merseyside and what might be done to revitalise it. Your Lordships will recall that in 1981 the city had experienced riots—during which 1,000 police officers were treated in hospital—followed by control by the Militant tendency, which led to the city being used as a battering ram against central government, and then the disqualification of city councillors and the real danger of a commissioner being appointed to run the city. Out of these ashes, I am glad to say that not only did the city recover but regeneration initiatives and stable local government breathed new life into the heart of the conurbation. Along with the noble Lord, Lord Storey, I was happy to have played my part in that.

It was against that backdrop that in the late 1990s our commission examined the structures of local government and its inability to guarantee quality in the delivery of services. We concluded that the traditional idea of the local authority as simply the monopoly provider of local services was no longer viable or adequate, and that councils must be willing to be more flexible in their approach to service delivery and the expectations of citizens. We argued that local government needed to become more outward-looking and willing to work with partners if it was to deal more effectively with complex, cross-cutting issues. We said that this would mean embracing profound cultural change, with the council defining its role and its relationship with the people of Liverpool.

We made a number of recommendations about how local government in Liverpool could get closer to the community that it serves, and redefine and add value to the role that councillors play in governance, improving local leadership and re-engaging citizens. Among other things, we called for the introduction of US-style open primaries to select council candidates and a directly elected mayor—both of which had impressed me during an assessment I made of how those things worked in the United States.

At the time, I suggested that just as the boroughs surrounding Manchester saw every benefit in describing themselves as Greater Manchester, we needed to convince the four neighbouring boroughs that constitute Merseyside that seeing themselves as “Greater Liverpool” would help them and the city sub-region. Perhaps because of the experiences of the preceding 20 years, the neighbouring boroughs wanted to keep as much distance between themselves and Liverpool as possible, but this was a tragic missed opportunity. No body can function without its heart, and all of a body’s organs need to function together.

For 40 years or more I have argued that only by breathing new life into Merseyside’s heart can there be long-term prosperity for all. If these orders are to achieve that objective—perhaps learning the lesson of Brexit about the disconnect between the political class and the people—it is vital that the boroughs and their leaders take real ownership of this initiative. They need to enthusiastically explain it to the people resident within their areas. Just down the road, Manchester has stolen a march on Merseyside, and if this challenge is not embraced with enthusiasm, our city region will fall behind competitor cities and its economy will suffer.

In this context, I particularly welcome last week’s launch, at the Finding True North conference in Salford, of ResPublica’s A Manifesto for the North, its vision for the region’s future, which envisages harnessing further devolved powers to enable the region to become culturally vibrant, with the benefits of economic growth accruing to all. At the launch, the right honourable Greg Clark MP, Secretary of State for Communities and Local Government, said:

“This is an important and thought-provoking Manifesto … The Government will work closely with partners across the North to devolve more power to people”.

Surely that is to be welcomed, and is the point of these orders today. ResPublica argues:

“There have been too many platitudes written about the North, and too many partial and piecemeal policies that have done little to reverse the decades of decline. For years, a combination of indifference and fatalism has left local leaders with a monopoly on power content to administer decline, and thus they must share some of the blame”.

It says, and I agree, that the city region devolution deals should be seen as an opening, not a final offer from central government—with the decentralisation of investment decisions greatly expanded in scope and scale.

When she replies, perhaps the noble Baroness, Lady Williams of Trafford, who has done so much to press the case for the north in Motions and orders such as these, will say whether she will support the following key recommendations in the ResPublica report, which are all matters in which city regions like the one proposed in this order will have a stake. How will the Government devolve Transport for London-style powers to elected city mayors? Will they allow regions to control housing development, giving northern cities and localities the right to control regeneration? How would they respond to, for instance, the introduction of a northern teaching premium to attract and retain the best teachers in the area, helping with their housing and student debts, or the creation of a northern wealth fund from any money generated, for instance, by shale gas exploration in the region? If the city regions call for the establishment of a northern digital service, how will the Government respond to that? The planned northern digital service would provide a shared platform for automating council services that all cities and councils could use—an entirely sensible and, I would have thought, eminently doable proposition.

Will the Government respond positively to proposals to devolve cultural assets and funds to the cities? Perhaps the Minister will say a little more about the £30 million that she mentioned in her opening remarks and how the Government believe that should be accessed and used in areas where council leaders complain all the time about the reduction of local funding and the implications for the running of existing local services. Much greater decision-making on public policy and the funding of cultural assets and infrastructure should be made within city regions such as the one proposed here. I have personally argued that instead of HS2 we should first connect the northern cities from Liverpool to Hull via a trans-north rail line. Is this something the Minister will be talking to the northern city regions about?

I support the order, with an open mind, so long as it has some real powers and real teeth. I will conclude by entering one simple caveat, which echoes something that the noble Lord, Lord Shipley, said a few minutes ago. The most obvious difference between arrangements for the new city region mayors and London is that nothing resembling the London Assembly is proposed. At the minimum surely there should be something like a mayoral senate. As things stand, the accountability and scrutiny arrangements are virtually non-existent. I would like to hear the Minister’s assessment of that significant deficiency.

My Lords, I was interested that at the beginning we were talking about Tees Valley, but for the Liverpool city region we talk about the Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority. I cast my mind back to the coalition Government, when the noble Lord, Lord Alton, and I argued for the Liverpool city region to have that title, as it wanted. The then Secretary of State was adamant that this was not going to be the case. The then Minister said, “What’s in a name? If you want to call yourself the Liverpool city region, feel free to do so, but the official title will be the Halton, Knowsley, Liverpool, St Helens, Sefton and Wirral Combined Authority”. Perhaps we could revisit that at some stage.

Names are important to localities. Names are places.

I want to pick up on the point made by my noble friend Lord Shipley. I am sure the Minister is familiar with the Public Accounts Committee’s Cities and Local Growth report. As the noble Lord, Lord Alton, rightly said, it is really important that we get accountability and scrutiny right. To reiterate the points that have been made, because I think they need underlining, the report says about the current arrangements with the combined authorities:

“We are not confident that existing arrangements for the scrutiny at local level of devolved functions are either robust enough or well supported. Robust and independent scrutiny of the value for money of devolved activities is essential”.

The report also says, on local scrutiny:

“Where powers, responsibilities and funding are devolved from the centre, it is vital that there is adequate local scrutiny of these devolved activities”.

I know that there will be independent scrutiny of the metro mayor, but I cast my mind back to when Liverpool decided to go for an elected mayor. Does the Minister know that the Mayor of Liverpool decided to abolish scrutiny and that, at a stroke, scrutiny was abolished? Before that, scrutiny was carried out by a councillor from a minority party who was on the payroll. Presumably, that member might have been looking over their shoulder and thinking, “Well, I’m on the payroll. If my scrutiny offends, will I still be on it?”.

It is vital that any scrutiny is completely separate and independent: it should not be the preserve or appointment of the metro mayor, and the person doing it should be independently appointed according to the Nolan principles so that they have the freedom to act and to scrutinise. I hope that the Minister will confirm that scrutiny arrangements will be robust. Indeed, this important report says the very same thing about the support needed for scrutiny.

The Minister referred to consultation with residents. Can she tell us how the city region is carrying out such consultation? I am a Liverpool resident and have not at any stage been consulted. I have not seen a website, a leaflet or an advertisement in the local newspapers. I would be interested to know how consultation is taking place.

My party and I have always been in favour of elected mayors, not for districts but for conurbations. The name is not important—what is in a name? It is not about whether it is a leader or a mayor. As the noble Lord, Lord Alton, rightly said, it is about the responsibilities that such a person has; it is about their functions; and it is about the finance and the funding that are made available. I hope that we might also look back at the situation we are now left with on Merseyside. In Liverpool, we could have a Lord Mayor of Liverpool, a Mayor of Liverpool and a metro mayor of the city region, which is a bit confusing. Would it not be a good idea to have leaders for all the districts and a metro mayor in their own right?

My Lords, it might surprise some people in the Room that I agree with what the noble Lord, Lord Alton, said. I was in local government for 25 years and a council leader before I arrived as an MP in the other place. I am in favour of decentralisation and devolution, but I have three main concerns.

The first is on democracy. It is quite strange that we are imposing a mayoral system on the people of Merseyside without even asking them whether they want one. I would have thought that with the Government’s commitment to localism the very least they should have done is give the people of Merseyside the opportunity to say whether they wanted a mayoral system. Quite frankly, we have gone past that, but I remind the Committee that the proposal does not have consent and people are suspicious about how it will work out. It would have been much better had we sought the agreement of the people of Merseyside before we entered into this arrangement.

The second concern is about accountability. The lessons from Liverpool are that great thought needs to be given to accountability within the new mayoral system. I find it strange that in Liverpool the mayor, who obviously has the powers of the mayor, is also leader of the council and the person who decides who goes on what committee, and I understand that to a great extent he is selecting councillors. That is appalling, quite frankly. To put that level of power in one individual is unacceptable, and I hope that the Government will look at the situation in Liverpool. When they are building a system for mayors in Merseyside and Manchester, they should make sure that proper scrutiny and accountability are built into the system.

I listened carefully to the Mayor of London when he made his last speech in that capacity and said that he believed that the system was open to corruption. He had obviously identified gaps in the system and wanted it to be strengthened. I hope that the Minister can say something about that today but that she will also go away and think about the sorts of powers that individuals will be given. If there is not adequate scrutiny, we will have a corruption problem in time. I hope we will address that.

My final concern is about funding. I think that people are expecting—and the Mayor of Liverpool has made great play of this—extra resources to come to the region if we have a mayoral system. We know that some of the biggest cuts that have taken place in public expenditure have been in Merseyside and Manchester. If the Government want to succeed in regenerating the north-west, and to use the mayoral system in Merseyside and Manchester to achieve that, they will have to provide some extra resources, because quite frankly they will be doomed to fail unless they have adequate resources to deal with the problems of the north/south divide and the infrastructure that needs to go in.

I share the view of the noble Lord, Lord Alton, about High Speed 2. I said in the other place when it was announced that I would be more likely to travel in the TARDIS from Manchester than on High Speed 2, because I do not believe it will ever get to Manchester. A lot of credibility needs to be built up by the Government. I hope that they will provide the extra resources that will be needed to make sure that the mayoral system is successful in Manchester and Merseyside. I wish it well and I hope we can address some of the issues I have raised.

My Lords, we are in the slightly unusual position of having no fewer than seven former council leaders gathered together here, including the noble Baroness the Minister. I do not know what the collective noun for such a group would be. Perhaps I may suggest a redundancy of council leaders, because—let us face it—most of us, or most of our successors, are finding their position extremely limited these days.

We are engaged in something of an experiment. It is an interesting experiment, as most of us have acknowledged, with considerable potential but with certain concerns which have already been voiced both in this debate and on previous occasions. The issues are very broad, but they cannot be addressed simply by the imposition of a mayoral system. Many of us feel that there should have been a local decision to adopt that system. The noble Lord, Lord Shipley, and I were on opposite sides of a referendum in Newcastle for having an elected mayor for the city. His successor was the Liberal Group Leader on Newcastle City Council who I formed an unlikely coalition with and which turned out to be successful in securing a no vote. But we now have a situation where Newcastle, if the North East Combined Authority goes ahead, will have an elected mayor imposed and in the Tees Valley area we already have an elected mayor in Middlesbrough. However, we have an authority which, having had an elected mayor, then decided to get rid of him and the position in Hartlepool, and yet they are going to be faced with that requirement. It is interesting that the Secondary Legislation Scrutiny Committee asked the Government what consultation had been carried out about these proposals and the Government replied that Ministers had indicated that the:

“Passage of legislation, is founded on the longstanding tradition of representative democracy in this country. The matters covered in these Orders have been consented to by the democratically elected representatives of the people of Liverpool City Region, and of the Tees Valley”.

Accordingly they said:

“Those giving consent will have done so in the knowledge that they are democratically accountable through the ballot box to the people of Liverpool City Region and of Tees Valley, and we can be confident that they will have engaged with their constituents in such ways as they consider appropriate”.

That is a very high-sounding affirmation of the belief in local democracy. Oddly enough, the principle does not seem to extend to the decisions which councils can take about the services they deliver. They are being constantly eroded. We are now seeing further moves to distance local authorities from the provision of education and we have seen similar moves elsewhere. More particularly, of course, we have the financial position of local authorities, which are rigorously and vigorously constrained in the exercise of their functions. For example, the vaunted democracy about which the Government boast did not extend to allowing councils to increase council tax by more than 2% without a referendum. That was not a decision they were deemed competent to make. We have of course seen similar erosions of responsibility in other areas.

On the financial side in particular there is significant loss of resources to authorities involved in the devolution process. The National Audit Office report sets this out very clearly. We hear much about the additional funding, which in the case of a number of areas will amount to £30 million a year over 30 years, or £900 million, which sounds like a great deal of money. That sum will be paid into the Liverpool City region. A smaller amount, because it is a smaller area, of £15 million a year and therefore £450 million will go into the Tees Valley area. It sounds impressive, but then we must look at what is currently being spent. Total capital spending—this is what the money will be for—in the Liverpool City region now is £312 million a year. In addition, £44 million under the annual local growth fund is payable to the LEP, which is obviously also concerned with that infrastructure. Therefore the total amount in the Liverpool area is something over £350 million, so £30 million distributed between all those authorities amounts to something like 8% of what is currently being spent on capital programmes. The position is similar in Tees Valley where the total capital spend of local authorities and the LEP is just under £190 million. It will get £15 million, which obviously is something like 7.5% of what is currently being spent. The financial investment that is being made and boasted about in connection with this project is minimal.

On business rates, I think the Government are still consulting on what needs to happen with them. It is all very well to say that local authorities will be able to keep business rates, but in both Merseyside and Tees Valley areas—I suspect particularly in those areas—the business rate income will be pretty minimal relative to the population and in comparison with other authorities. Presumably there has to be some kind of mechanism for redistribution. I do not know whether the Minister will be able to indicate how far the talks have progressed, and she may not wish to tell us or not be able to tell us what the outcome will be. However, where are we as regards the timetable for coming out with a clear position on how the business rates will be redistributed, if there is a need for, as surely there has to be, an element of redistribution? As it happens, it appears that in some areas we will go into this new system and committing to it without even knowing what the timetable is for when the business rate agenda will be addressed. Surely that is extremely unsatisfactory.

The issue raised by the noble Lord, Lord Shipley, about scrutiny is valid. There has to be local scrutiny and it ought to be built into local arrangements. We provided according to my suggestion for an audit committee under the legislation which would give some measure of independent scrutiny, and those who have been calling both today and hitherto for an effective scrutiny process are obviously right to do so.

But of course there is then the question, given that business rates will be the only locally raised revenue, of what happens to the services not merely of the combined authority but also of the constituent local authorities since revenue support grant will no longer be paid. Surely the two things have to be aligned if local services and the devolved functions are to be delivered adequately. I refer again without making any apologies for doing so to the regret that I and others have voiced about the abolition in the early days of the coalition Government of regional offices of government, never mind the regional development agencies. As the noble Baroness will recall, the abolition of regional government offices changed a system which had worked well in providing a close working relationship between Government departments and local authorities. In each region virtually all the Government departments were represented, engaging with local authorities and operating as a conduit between Whitehall and those areas. Now that we are creating these potentially powerful mayoral authorities, it seems to be even more important that there should be a local dialogue which can facilitate a closer working relationship between central and local government.

I have a final question to raise about the position of police and crime commissioners. The understanding is that it will be possible—indeed, Manchester has already opted for this—to have the police and crime commissioner position combined with that of the elected mayor. The next Prime Minister in her current position, which will last for another 24 hours or thereabouts, was keen to promote the notion that fire authorities should go down the same route as police and crime commissioners. Does the noble Baroness have any thoughts or information about how that process might develop and whether the Government are currently working on proposals which would add fire authorities to the police service? Perhaps we will have to wait to hear what the new Prime Minister says, but is it the Government’s expectation, and possibly their political direction, that the new mayors will have as a matter of course that combined power or even just the police and crime commissioner power? That raises in my mind and I suspect in those of others both here and elsewhere some really strong concerns about the concentration of power in such sensitive areas in what will be effectively a single pair of hands, something that many would consider to be undesirable.

Clearly we want to see the new system being given a chance to work and we want local decision-making to be effective at addressing the different situations that face each group of local authorities, but that cannot happen in my submission without adequate financial resources and without the Government preparing not simply to offload these responsibilities, but actually engaging with what will in effect be two levels of local government to secure the improvements that they talk about wanting to see and which are desperately needed in so many parts of the country.

My Lords, I thank all noble Lords who have made a variety of points on the order. Perhaps I may apologise to noble Lords for being late. I was happily having a cup of tea with the noble Baroness, Lady Hollis, and I did not hear my phone ringing to say that our business had started. I apologise to noble Lords for being a little late.

I shall start with the question from the noble Lord, Lord Shipley. He asked if I could confirm the election of a mayor in 2017. Once the order is made, a mayoral election will be held on 4 May 2017 and if further orders are not agreed, the mayor will be elected and he or she will chair the combined authority, but will have no powers to exercise individually. The combined authority will have only its existing functions; that will be the situation if further orders are not agreed from now on in.

The noble Lord also asked me whether the Government will respond to the PAC comments on a review of scrutiny when we debate the next combined authority orders. Yes, we will be happy to set out any response that we have made. He talked reasonably about the scale of responsibilities of an elected mayor in relation to the PAC comments. We are very confident about the capacity of a mayoral form of governance to undertake the functions being given to mayors. The success of the London mayor and the use of elected mayoral governance across the world’s cities lend support to this. Elected mayors provide a strong and accountable form of governance—a single point of accountability which is needed to support the wider range of powers that is now being devolved.

The noble Lord thought I might not have mentioned the north-east. I did mention it, but the noble Lord, Lord Beecham, provided some details on it. A draft of the order creating an elected mayor has been laid before Parliament. The noble Lord, Lord Beecham, gave the date as early in September and I understand that is absolutely correct.

The noble Lord, Lord Storey, talked about the name. I have a hazy memory of the Liverpool city region and the name. I do not know if this is right, but I seem to recollect that there could not be agreement on the naming of the region and there was a lot of toing and froing before the name was decided upon, which included the name of every single local authority in the city region, just to keep everyone happy. It is amazing how people can get hung up on a name and I agree that a simpler name might have been a better idea. However, the name cannot be formalised unless everybody agrees. Hence we have quite a lengthy name for this combined authority.

The noble Lord, Lord Alton, talked about the bad old days—I do not disagree that Liverpool was a particular example—and selling the benefits of the mayor. I recall that when the idea of a London mayor was first mooted, people were terribly sceptical about it and were not sure it would take off. In fact, successive London mayors have been very good leaders and there is great competition for the post. It is, therefore, important that it is both valued and sustained going forward. I agree with selling the benefits, which I hope we will be able to do across the country in due course. He talked about the fatalism of local areas and leaders. I hope that, with the election of mayors and mayoral combined authorities, people’s minds will suddenly grasp the job of being a local authority councillor or a mayor for a combined authority and see what can be achieved at local level. This is often far greater than what can sometimes be achieved in government.

The noble Lord asked about transport arrangements. I will go through a list of all of it, and I am sorry if I go on a bit. The combined authority will take on responsibility for some functions in relation to transport and strategic planning; the devolved funding of £30 million a year over 30 years; the control of 19-plus adult skills; the devolved approach to business support from 2017 and the early adoption of the subsequent agreement; the agreed early adoption of the government pilot for 100% business rates retention; additional new powers over transport and further commitments for the area and Government to work together on children’s services, health, housing and justice.

The noble Lord also made a point about HS3 versus HS2. I am such an advocate for both: the noble Lord will probably have got this from some of the things I say in the Chamber, but I do not think it is an either/or. We have to have both. The east/west links are just as important as the north/south ones.

Yes. We can argue about more so, but I do not think it is one or the other. We must have both. Practically all noble Lords made the point about overview and scrutiny arrangements. The noble Lord, Lord Storey, asked whether the mayor could possibly abolish them. All combined authorities, including mayoral combined authorities, must have one or more overview and scrutiny committees and an audit committee to hold both the mayor and the authority to account. We will be bringing forward an order for Parliament to consider regarding overview and scrutiny arrangements for combined authorities.

I will outline what the obligations are under the combined authorities. They must establish at least one overview and scrutiny committee. This will be chaired by an independent person or a member of a constituent council who is not of the political party of the constituent councils. Their role will be to review and scrutinise decisions made and action taken by the mayor and the combined authority. An overview and scrutiny committee may require the mayor, the members and officers of the authority to attend and answer questions before it. This requirement must be complied with. They can call in decisions and recommend that they are reconsidered or reviewed, during which time a decision cannot be implemented. Further provisions to strengthen the role of overview and scrutiny committees will be made through secondary legislation and the orders giving effect to devolution deals.

I turn to the audit committee: we have spent quite a lot of time discussing both types of committee during the passage of the Bill. The combined authorities must also establish an audit committee, which must include at least one independent member. It can make reports and recommendations to the combined authority on financial affairs, risk management, internal control, corporate governance arrangements, and the economy, efficiency and effectiveness of the use of resources. Further provisions to strengthen the roles of audit committees will be made by order.

It says that the chair could be an independent person or a member of a constituent council who is not of the political party of the mayor.

I am making the assumption that they will be appointed in the usual way that public appointments are made in local authorities, in accordance with Nolan principles.

It is a very important issue, because there is a danger that the majority party will, in reality, be responsible for the appointment of the independent chair. We are seeking reassurance that, if the Nolan procedures are to be followed, they require an open procedure, not simply a council or the leaders in a combined authority making a decision on which member of the minority parties is to be appointed as independent chair.

We did discuss this and agreed that that should be the case. It would make a mockery of the process if there was any appearance or evidence of bias of that kind. If it would be helpful, I will write to noble Lords from the Committee to outline the process and will place a copy in the Library.

The noble Lord, Lord Storey, asked me how Liverpool is conducting its consultation. It is on the regional combined authority website and is being promoted locally. It started on 24 June this year and the closing date is 5 August, so the noble Lord has time to respond.

The noble Lord, Lord Beecham, asked for examples of resources being made available, in this case to Tees Valley. I understand that Tees Valley Combined Authority’s single pot provides an assurance framework for £226 million of flexible Section 31 grant funding with a confirmed five-year profile. He made the point—as he often does—about local authorities having to make ever more efficiency savings and asked how they would have enough capacity to deliver some of the things being devolved down. It is envisaged that local growth will in many ways—particularly if you look at things like the devolution of health and social care—be a big saving to the public purse and ultimately help in local authorities’ budgets. However, these are all things that are being devolved down that local authorities would not have had previously. So I am very confident that local authorities will see themselves in a better, not a worse, position. He also asked about business rates and he is right: we are currently consulting on the future of business rates and we have made it clear that there will continue to be some form of top-up and tariff. However, I think that a date for decision is yet to be determined, but I shall let him know when it is. I am assuming that it will be by the end of this year.

The noble Lord, Lord Watts, asked what the Government are doing to ensure that the mayoral system is not open to corruption, which I think is a very good question in the context of some of the things that we have seen previously in local authorities. Not only will there be rigorous scrutiny arrangements—which never existed in the 1980s—as provided by the Cities and Local Government Devolution Act, but there will be requirements for transparency; that is, meetings in public, which again did not exist back in the 1980s and were not introduced in local authorities until relatively recently. Moreover, conduct requirements, which we did not have back in the day—things like declarations of interest—will apply to combined authorities. I hope that gives the noble Lord some comfort.

The noble Lord, Lord Beecham, asked about the PCC and fire functions. It is for local areas to propose where they think it would be efficient and effective for the mayor to take on PCC and fire functions. In terms of the new Prime Minister and her previous keenness for fire functions, I really do not know. I have been asked a lot about what the new Prime Minister thinks and I really do not know. I am sure all will be revealed in the next few days.

Motion agreed.

Tees Valley Combined Authority (Election of Mayor) Order 2016

Considered in Grand Committee

Moved by

Motion agreed.

Committee adjourned at 6.13 pm.