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Grand Committee

Volume 779: debated on Tuesday 28 February 2017

Grand Committee

Tuesday 28 February 2017

Arrangement of Business


Good afternoon and welcome to proceedings in the Grand Committee. If there is a Division in the House, the Committee will stand adjourned for 10 minutes.

Economic Growth (Regulatory Functions) Order 2017

Considered in Grand Committee

Moved by

My Lords, in moving the Economic Growth (Regulatory Functions) Order 2017, I shall speak to the Business Impact Target (Relevant Regulators) Regulations 2017 and the Growth Duty Statutory Guidance 2017. The purpose of these statutory instruments is to support regulatory bodies in the UK to create a healthier business environment by making regulation more proportionate, transparent and accountable. The Government are committed to making sure that regulation supports growth and are doing all that they can to unlock productivity in the UK.

Better regulation is central to the Government’s desire to make the UK the best place in the world to start and grow a business and is a key part of our commitment to drive economic growth and boost productivity. During the previous Parliament, the Government made significant progress through programmes such as one in, two out and the Red Tape Challenge, which were instrumental in delivering savings of £10 billion to businesses over the lifetime of the Parliament. These programmes encouraged a cultural shift in government departments towards more proportionate and smarter regulation.

This approach was formalised through the Small Business, Enterprise and Employment Act 2015, which provides a transparent framework for assessing, managing and reporting on new regulatory impacts to business, known as the business impact target. Through the Enterprise Act, we extended the ambition of the target by expanding it so that it can include the activities of a wider range of regulators beyond those acting on behalf of UK Ministers. This will support us achieving a further £10 billion of deregulatory benefit for UK businesses in this Parliament.

Alongside the business impact target, the Government also introduced a duty through the Deregulation Act for regulators to have regard to the desirability of promoting economic growth. This is known as the growth duty, which will help to ensure that regulatory bodies contribute towards creating a healthier business environment by making regulation more proportionate, transparent and accountable. Together, the business impact target and growth duty will support a positive shift in the way regulation is delivered.

It is sometimes easy to caricature all regulation as negative. The Government recognise that proportionate and well-targeted regulation is important and provides vital protections. It can help markets work better, enables new business models and start-ups to compete and protects consumers. The Government have been clear in the industrial strategy that regulatory frameworks need to support business investment rather than distort markets. This does not mean deregulation at any cost. We have to avoid, for example, the combination of light-touch regulation and emphasis on short-term financial gain that contributed to the financial and banking crisis.

Better regulation recognises that regulation can impose costs on business. It can divert attention from more productive uses, such as growing into new markets, innovation and training. It also recognises that regulation can favour more established incumbent operators in a market. For example, it is estimated to cost small business 10 times more per employee, on average, to comply with regulations than it costs a large business. The Government’s better regulation system therefore seeks to minimise these burdens by ensuring that the likely impacts of regulation are fully assessed and by providing an incentive to reduce costs on business where possible. Indeed, there are numerous examples of good, proportionate regulation that is good for business and society as a whole.

Under the previous Government, we conducted a series of sector reviews into regulator enforcement practice. Reforms delivered as a result are now saving business millions of pounds, encouraging companies to grow, speeding up multibillion-pound investments and reducing burdens, all without weakening protections. These reforms have been welcomed by businesses and trade bodies across the country. These savings are being made by removing assessment and reporting requirements from more than a quarter of a million businesses where there was no scope for them to deliver the energy savings that the requirements were in place to deliver. This allows the regulator to focus on working with those businesses where real energy savings can be made.

However, there is still more to do. The regulations before the Committee today will be an important step towards creating a healthier business environment by making regulation more proportionate, transparent and accountable. The result will be to take another significant step forward to ensuring that regulation supports growth and that Britain is the best place in the world to start and grow a business.

I turn to the detail of the regulations. The Business Impact Target (Relevant Regulators) Regulations 2017 specify the individual regulators that will be brought within scope of the business impact target. The regulators listed within the scope of these regulations will be required to assess the economic impact on business of changes to their regulatory policies and practices that come into force, or cease to have effect, during the course of the Parliament. The assessments must be verified by the Regulatory Policy Committee and the savings or burdens imposed on business incorporated into the Government’s annual report outlining their performance against the target.

The rationale for this is clear. Businesses consistently tell the Government that the actions of regulators are as important as the content of legislation in determining their experience of regulation. So the costs to business of their regulatory activities should be actively assessed and transparently reported. These regulations deliver that. Where impacts are imposed on business by changes in regulatory activity, these should be transparent. In addition, business should have confidence in the estimates that the Government have made of that impact.

The changes do not in any way undermine the core purpose of regulators, which provide vital protections and help ensure that markets function effectively. Regulation has important economic, social and environmental goals. Regulation for those reasons should be proportionate and at the minimum cost to business necessary to achieve the outcome required. Including further regulators in the business impact target will help regulators to make the move to smarter regulation that delivers outcomes with the minimum overhead. This will be good for British business and will contribute to a more consistent regulatory process.

The Government consulted on the proposed list of regulators to be brought within scope of the business impact target from 11 February to 17 March 2016. We received responses from a range of stakeholders, including business, regulators, trade associations and other organisations. The majority of respondents were supportive of the proposal to bring the regulators specified in the consultation within the scope of the business impact target, with one respondent stating that the BIT would result in regulators,

“having to design their services, policies and procedures in a way that suits the needs of business”.

No further regulators were suggested to be brought within scope, while a handful of regulators questioned their own inclusion. We have reviewed these queries and are satisfied that it is appropriate to bring the regulators listed in this instrument within scope of the target. We have also paid close attention to issues raised around proportionality. The Government have been working collaboratively with a wide range of regulators to design a process for implementation that minimises burdens on regulators.

I turn to the growth duty regulations and guidance. The Deregulation Act 2015 introduced a legislative requirement for persons exercising a regulatory function to have regard to the desirability of promoting economic growth. The Economic Growth (Regulatory Functions) Order 2017 sets out the specific regulatory functions to which this duty applies. Alongside this instrument, the Growth Duty Statutory Guidance 2017 has been produced to assist regulators in fulfilling their new responsibilities, at both a strategic and operational level.

Proportionate delivery of regulation plays an important role in supporting competitive markets and improving social and environmental outcomes. Regulatory enforcement that is not proportionate and risk-based imposes unnecessary costs on business, creates uncertainty and undermines investment. The way in which regulation is enforced can have significant effects on businesses’ ability and willingness to invest and grow.

Although there is already a great deal of good, proportionate and effective regulation, there is evidence to suggest that some regulators fail to take sufficient account of the economic consequences of their actions and place unnecessary burdens on business in the exercise of their regulatory functions. To address this, the then Chancellor announced in the 2012 Autumn Statement several measures designed to create a healthier business environment by making regulation more proportionate, transparent and accountable. Although many regulators consider the impact of their actions on economic growth, there are those that do not. Indeed, some regulators think that they are unable to take account of growth as they do not have a statutory requirement to do so or their statutory objectives do not refer to growth.

Requiring regulators to have regard to economic growth in this way will address the uncertainty of regulators that feel that they cannot have regard for economic growth and will put the obligation on a statutory footing, thereby complementing regulators’ other legal obligations. This duty will help regulators to carry out their functions in a way that is conducive to economic growth and will ensure that regulatory action is taken only when it is needed and that any action that is taken is proportionate. The growth duty will therefore encourage regulators to develop more mature and productive relationships with the sectors and businesses that they regulate, driving up the accountability of regulators to the business community. This will help to deliver our aspirations for greater productivity and growth in our economy.

Public consultations on the growth duty were held in 2014 and 2015. A further consultation was held alongside the consultation on the scope of the business impact target, and responses were received from a broad cross-section of stakeholders. The majority of responses to the consultation on the growth duty agreed that regulators should have regard to economic growth and should be accountable for whether they have properly considered business growth in their decision-making.

There were a small number of objections to the inclusion of particular regulators in scope, in the main based on arguments related to the amount of regulatory activity undertaken or the fact that the organisation did not have any regulatory functions. Having considered these responses, the Government are satisfied that it is appropriate to bring the regulators listed in the instrument within scope of the growth duty. We also received a number of responses on the draft guidance, with the vast majority commenting positively on its content.

The business impact target and growth duty play a central role in the Government’s agenda to improve UK regulation. They support a positive shift in the way that regulation is delivered through reducing the regulatory burdens that hold businesses back and prevent them from getting on with business. The measures are an important step towards creating a healthier business environment by making regulation more proportionate, transparent and accountable and I commend them to the Committee.

My Lords, as I arrived this morning, I thought that the House of Lords had taken to Oscar fever and that the red carpet had given way for the red of the House of Lords. I saw the Annunciator, and it read, “One Order, Six Regulations and one Statutory Guidance” as the business of the day. It reminded me of “Four Weddings and a Funeral”. I see that we have not had quite the same box-office draw.

I thank the Minister for his introductory comments. There is a lot that we all agree on as to the eventual targets that we want to reach and the sort of improvements that can be made. In many ways, we agree on motherhood and apple pie being good things. Our concern that the wrong measures were adopted in the primary legislation to achieve them are reinforced by some of the weaknesses in the statutory instruments, the consultation processes before them and the conclusions drawn, and it is on those things that I raise a few issues and questions.

Part of this relates to the overall policy context, which is the attempt to have a target of £10 billion of reductions. Central Government are unable to do it on their own, so they now look to regulators to take up some of the heft in this colossal task. Without some detailed sense of what can be achieved—to which I shall come later—it is misguided to believe that the solution can be what we have now, which is essentially a cultural response: if we have a new culture, a new way of working, things will improve. I am a huge sceptic about the creation of culture as a strong driver in making these things move. I believe strongly that we have to build able business cultures, but I find frequently that the Government’s response is to provide measures that will impact the culture.

I will turn specifically to the role of regulators shortly, but I am reminded of Debenhams, a company that has consistently enacted appalling late payment policies. Over two Christmases, delayed payments caused a huge amount of stress to its small business suppliers. It is also the business identified as having the worst record for paying people below the minimum wage. But absolutely nothing has happened to change that culture, notwithstanding all the changes that the Government have made or suggested—not one issue has been raised by shareholders or management and there has been no significant government intervention to change that. Show me where the changes introduced by the Government have impacted the culture. I would like the Ministers to think about that as I raise other questions about the cultural impact of some of these measures.

The measures before us specify the functions that are covered and define the growth duty in relation to individual businesses, sectors and overall general economic growth. That is rather a large task on rather a large scale, and all have different environments that I am not sure this adequately addresses. Let me get to the heart of some of my questions about whether or not this will have a meaningful impact. What is the current evidence base to show the negative impact that regulators have on growth? What is the overall estimate of that impact? How will that meaningfully be addressed by these measures? You then have to assess whether or not the regulators themselves are the right regulators to include to ensure that such deregulatory changes can provide that sort of benefit.

Looking at the list of regulators, very specific questions arise. How will such a duty operate in the context of the British Hallmarking Council? Is there an estimate at this stage of both the identifiable problem and the identifiable benefit of how any application of a growth target can be achieved in relation to the British Hallmarking Council, the Commissioners of Irish Lights, the Guardians of the Standard of Wrought Plate in Birmingham, the Guardians of the Standard of Wrought Plate within the town of Sheffield, the Northern Lighthouse Board, the Regulator of Community Interest Companies or the Sports Grounds Safety Authority? How can it be achieved for Trinity House, as defined in Section 223(1) of the Merchant Shipping Act 1995? How can it be achieved for the legislation listed in Part 3, such as the Conservation of Seals Act or the Bees Act? How has growth developed in the context of the Office for Nuclear Regulation, where the sector is defined by a deal created by the Government to introduce one nuclear power and in an industry with very few players? How can a regulator establish growth on a sectoral, company or general economic basis in that context?

I have tried to focus my comments on just a few of the Acts and regulations listed so that the Minister can come back with some specific examples of evidence, assessment, a means of measurement or a prognosis as to what the likely impact of establishing growth targets could be on their operation. However, what would be the achievable objective of a growth target in relation to the Avian Influenza Preventive Measures (England) Regulations 2006 or the Transmissible Spongiform Encephalopathies—I defy the Minister to pronounce that right first time—(England) Regulations 2010? What is the achievable objective in relation to the Outer Space Act 1986?

How did we get to the estimate of the eight measures identified under “plant health”? What proportion of regulations and statutes are they of those that deal with plant health? Why did we end up with a measure entitled The Potatoes Originating In Egypt (England) Regulations 2004? Why are we looking at the potential for economic growth of the Endangered Species (Import and Export) Act 1976? It seems to me that the Government have vested a huge amount of effort in this on the basis that there is a wide body of evidence that regulators have underperformed in their understanding of their economic role and rationale. I would be very interested to know what evaluation has been done of the work of any of the regulatory authorities vis-à-vis the Endangered Species (Import and Export) Act 1976. I would be more than prepared for the Minister to write to me on that point if he does not have the information at his fingertips.

I am always a great sceptic about many things. This debate gives me an opportunity to ask a question about the European Convention on Human Rights. Paragraph 6 of the guidance states:

“The Parliamentary Under Secretary of State for Small Business Margot James MP has made the following statement regarding Human Rights: ‘In my view the provisions of the Growth Duty Statutory Guidance are compatible with the Convention rights’”.

I would be interested to know whether that was the Government’s opinion, and what legal advice was taken, and at what level.

I reinforce the point about the regulators. I have made this point on a few occasions but I will give it a go again. The Government have said in the policy background document that although many regulators consider the impact of their actions on economic growth, some do not. Which evaluation has established those that do not? Is there a list of those that do not? Some regulators think that they are unable to take account of growth. Can the Minister tell us which ones they are, and which do not because they do not have a statutory requirement to do so? Economic impact is not the same as economic growth; these are two fundamentally different concepts. Are we confusing economic impact with economic growth? Requiring a regulator to have regard to economic growth would address this uncertainty and would put this obligation on a statutory footing, complementing regulators’ other legal obligations.

The guidance identifies productivity. It would be interesting to evaluate that. Many of the measures with a growth target refer specifically to making sure that you have an understanding of the impact of the measure on businesses. How does that relate to growth? Are the regulators competent to assess this? Has there been any evaluation of any of the regulators’ competency to do so? How are they expected to gain the expertise to do this? How will they be evaluated on whether or not they are achieving that? Specifically, I would be interested to understand how the Commissioners of Irish Lights, for example, or the staff of Natural England are becoming competent in some of the areas they are being asked to look at. What training or competencies will be required of the staff or their advisers in achieving an economic growth target, as opposed to an economic impact target?

One of the other areas I am most concerned about is the suggestion that the benefits of this measure to small businesses include reduced administration. There is a sense that proportionate decisions will inherently benefit small businesses. There is absolutely no evidence for this. I would be grateful if the Minister provided any evidence that proportionate decisions by regulators help small businesses. Any decision by a regulator disproportionately impacts the capacity of a small business. Therefore, I would be interested to hear how this duty will suddenly change the entire 50-year history of small business operations in this country. That would be a very useful piece of evidence to illustrate. There is a notion that this measure will result in a massive reduction in administrative duties, inspection costs, duplication of information and the use of external contractors. Again, I would like to know what the specific evidence was that this would be achieved.

Of course, we ended up with a very interesting consultation. There has always been a great deal of optimism that changing regulation and how it is made will have direct business impact. There is always a great deal of enthusiasm from businesses that this will be achieved. Businesses were hopeful but uncertain as to what the establishment of the growth duty would measure. In fact, in this consultation—which goes through the business impact target as well as the overall guidance—it is very clear that one massive area of regulation has a massive impact on businesses. I would like to note the first, second and third, but instead I will deal in a second with the one that is first by an overwhelming majority: tax collection, which is, I believe, outside these duties.

When the regulators were asked about the potential impact of the growth duty, a thumping 69% felt that it would have absolutely no impact whatever. I like the notion in the report—one tries to be generous—that:

“A sizeable minority … however were highly positive about the potential impact”.

I would like to have some understanding of the use of the word “highly”. It is in paragraph 70 of the “Business Benefits” section of the impact assessment. There is an estimate of how many businesses in this country will now benefit—495,215 out of more than 5 million. I would be very grateful if the Minister broke down that figure. Are they small businesses? Is it by size; by demographic? Is there any particular measure whereby we can get to 495,215?

I turn to the potential growth benefits, which are beautifully laid out in a document for which I am very grateful. Remarkably, it talks about the actual benefits that will accrue to business. The benefits based on the 31% are worth in total an extraordinary £37 million to the economy—once you net out the costs to businesses for the regulator, which are somewhere between £134,000 and £1.5 million, the figure is some £36 million.

The Government, in a vague attempt to try to boost the number of potential benefits, then create an assumption of an even larger overall benefit of this growth duty, this huge transformation of culture, this huge transformation of the ability of regulators to give an overall benefit, of—wait for it—£90.3 million. But the assumption, based on 31% of businesses—some 495,000—receiving benefits, moves from a 0.06% reduction in time used for administration to a 5% reduction. I am not bright enough to work out the maths of what the multiplier is to get from 0.06% to 5%, but that means that we are looking more than 100% of businesses, not the 31% estimated. Even if we change the dial, that number is the largest number that comes to the £90.3 million benefit. I would like the Minister to set a target as to how this massive legislative change will provide a benefit, and give us some idea of how it will be achieved.

I appreciate that the golden target for changing behaviour in respect of the impact is important, but this measure is not right. It confuses the notion of impact and growth, and ends up having little impact and causing little growth.

I want to cover several questions on the Business Impact Target (Relevant Regulators) Regulations 2017, including on the consultation and how the regulations join the dots between the business impact target and its goals. Warren Buffett expressed a notion that can be applied to this. He said:

“In the long run, managements stressing accounting appearance over economic substance usually achieve little of either”.

It seems that we may be going down that path with this provision. On the regulators’ contribution to the £10 billion cost reduction target, I would be grateful to know what the expectation is from the Minister on the specific list of regulators. I will say this slowly, so that he can write down a list and give me figures at the very end. How much of this target are we expecting these regulators to achieve?

There is the British Hallmarking Council. There is also the Civil Aviation Authority, which recently wasted a whole sum of money trying to undermine a business that was restructuring and refinancing itself, for which it has not been held to account at all. I would be interested to know if the contribution that was expected in the business target was anywhere near enough adequately to deal with the costs and expenditure wasted on pursuing Monarch Airlines during its restructuring. I would be grateful to know what the expected target is. There is also the Commissioners of Irish Lights and the Competition and Markets Authority—I thought that that might be a good example, so I want to throw in a full toss. To throw another, there is also the Financial Conduct Authority, but I would also be interested to know what the Incorporation of Goldsmiths of the City of Edinburgh and the Edinburgh Assay Office are meant to achieve.

I am concerned about the context of the consultation. As the Minister said in his comments, there were a number of responses about inclusion in the list. The government response said that seven respondents, six of which were regulators, questioned the inclusion of specific regulators on the grounds that they had either never exercised their regulatory functions or that they were small and therefore would be less able to fulfil their obligations. The Government’s argument is that the test for whether regulators should be brought in is not whether they are small or whether they use these regulatory functions, but on the hypothesis that, where regulators do not use their powers, they would still be included on the basis that, if they were ever to use such powers, it would have an effect on business; if they do not use them, the impact target places negligible burdens on them, but it places a whole series of duties and other burdens that otherwise would not exist. If a regulator has not exercised those functions at all, what is the context in which it is likely to do so? Would there not be a case to introduce this when those conditions are more likely? I would be grateful to know, particularly of those regulators that raised that question, whether any of them has ever exercised a regulatory function, what consideration was given to how they have operated, what the circumstances are in which they would exercise those regulations and whether there is a case to reconsider their inclusion in this list at this stage.

I would also be grateful if the Minister addressed the fundamental problems about the business impact target. In the end, the policy context, as the Government have said and which we understand, is the target reduction of £10 billion. The Government have estimated that in this Parliament, thus far, they have achieved an improvement of £0.9 billion, although there are an additional £8.3 billion of net costs to businesses based on regulatory decisions that fall outside the business impact target. The issue of whether the regulators can really perform any meaningful function in achieving this through their inclusion within the business impact target is an extraordinary red herring.

Some 90% of the total expected reductions in costs during the last Parliament were achieved through 10 regulatory decisions, and one was overwhelmingly more significant than all the others: changing the inflation index used to increase pension benefits. That simple regulatory decision—the great justification for the Government’s achievement in the last Parliament—has led directly to pension deficits and a whole range of other problems. Whether this was a great deregulatory measure that has not led to the perverse outcomes we are witnessing, such as the number of companies now having to address pension deficit problems and insolvency issues, is another matter. I will turn to the associated issues a bit later.

Ten decisions taken and 900 regulations introduced, of which, broadly, 40% are included in the target and 60% are not, does not constitute a particularly effective measure. Businesses believe that the level of regulation is an obstacle to success, but a majority identify tax and administration as the principal regulatory problem. This majority is particularly clear when it comes to small businesses, many of which identify tax and administration, which is not within the scope of the Government’s business impact targets, as the burdensome area of compliance. This is one of the key issues that the Government need to address.

Let me turn to one of the problems with the business impact target, which will impact on how the regulators will perform. The evidence base for what the regulators can achieve is not there, and all these issues have been uncovered in an excellent National Audit Office report. Do the Government know the costs that business incurs as a result of existing regulations? The National Audit Office was absolutely clear that they do not: they have not the first clue about the overall burden. Establishing a target without any understanding of the burdens is impossible, but the Government have achieved it—perhaps it is an achievement to include in the next manifesto. However, this does not help to achieve a decline in regulatory burdens.

Nor does this measure appear to be helping to improve the analysis. Five of the 14 departments with a regulatory responsibility within the scope of the target have told the National Audit Office that they have no plans to quantify any existing regulations. Not all of them even answered the question, but five were clear that they had no desire or plans to do so. The measure does not in fact reflect the administrative or regulatory costs to businesses in any meaningful way because it excludes all tax and administration, European Union regulation, fees, charges, self-regulation and co-regulation. There is no sense of how these costs really affect businesses.

The Better Regulation Executive and the Regulatory Policy Committee are doing an important job, which we support, and we are keen to make progress, but I am not sure that these measures entirely help them to do so. On evaluating their impact, it is clear that there is no ongoing, clear and identifiable system of effective measurement. A calculation is made of the intended deregulatory impact; it is then counted as a five-year target, no matter what is achieved, because there is no effective method of ensuring ongoing measurement.

In the National Audit Office’s utterly caustic, in my view, review of the business impact target, it identified not just weaknesses in the calculation of these impacts but a huge gulf in terms of departments’ desire to calculate the targets because ultimately they do not provide any real potential savings to business. I make the point again that, according to the calculation, on average businesses should be saving £400. I have a few businesses and I am still trying to find the money from the savings from all these deregulatory impacts. I have not found any. I have found a lot more costs associated with them but I have not found any savings.

This lack of evaluation means that the Government cannot know the real impact of their efforts on businesses and do not learn from any previous interventions. There is no systematic evaluation of any of the previous interventions. As a result, we are now putting a duty on a series of regulators to be involved in this business impact target, which again have made no evaluation of their impact on businesses and have no mechanism of targeting or tracking those impacts by any sampling or pooling of data from businesses. It is very clear that they will miss these targets as a result.

I will give an example. Regulatory impacts are not just direct. According to the Financial Conduct Authority, I am not a politically exposed person. According to Ministers at the Dispatch Box, I am not a politically exposed person. According to every bank in this country, I am a politically exposed person. Therefore, the banks’ duties of compliance, based on their estimate of what their duties are likely to be—be they international or domestic—mean that they will evaluate me beyond what the regulation says. In one case, it took so long to open a bank account that we even received compensation from a bank. How do you measure the impact of the unintended consequences of regulation and therefore the unintended consequences of deregulatory drag?

Health and safety is the third most complained about area. Yesterday I undertook a 40-minute interview for a work experience opportunity for a young adult to come here from school to shadow me, which was one of the most extraordinary and onerous tasks because of the interpretation of health and safety. Of course, that suggests that I will not do it again. Again, what are the impacts of regulation and how can one be assured that regulators are able to deal with those sorts of issues? Ultimately—and I will turn to this later in more detail, or I might not, given the time—the essential issue comes down to whether or not regulators communicate effectively what their regulations are, how best to make proportionate judgments and how best to fill in forms or do other things.

Actually, the benefits are more in regulators’ duty to communicate. The Small Business Commissioner in Australia has transformed the ability to deal with regulatory drag and problems, giving the regulators a duty to communicate and an obligation to ensure that businesses are able to fulfil their duties in regulation. That has been far more successful than giving them an arbitrary target that they cannot deal with, that they have no competency to deal with and that they have no experience of dealing with.

Turning to the guidance, I must say that I found it utterly fascinating to read and utterly depressing to consider as a duty on the regulators with any real confidence that they will be able to meaningfully achieve growth. Of course, a variety of issues come with this. The Explanatory Notes state that, as a result of placing the growth duty, the annual indirect benefit to businesses is a potential £28.1 million—another whopping sum. Rather than dissect that, I will give the Minister an opportunity to explain how that figure was reached, what was measured, the detail behind it and the economic model used. That would be helpful. If he does not have all the assumptions or the economic model to hand, I am more than happy to receive a letter.

The notes go on to explain that, as a result of regulators considering economic growth, businesses should experience more proportionate decisions and see a reduction in administrative burdens. Have the Government seen any evidence of this since the implementation of the Act? Has there been any indication that this is a cultural shift that takes place, with or without more specific regulation?

The document itself contains a significant number of words on how regulators need to understand the business environment and it deals with the business environment on a company, sectoral and overall economy basis. It looks at minimising burdens on business productivity at a company level. I was pleased to see at least some economic theory introduced in the pursuit of productivity, which I thought was meaningful. It also talks about proportionate decision-making and the need to demonstrate a regard for the growth duty, which I thought was not a coherent section and was particularly weak.

I have to ask one fundamental question: what is the theory behind how regulators will perform their duties in relation to growth? Is there some macroeconomic theory that we can look at? In looking at the duties, is there some sense in which business-based productivity exists? I understand the Government’s five-plank system of measurement, which is orthodox within economic theory, but how do regulatory duties on a sectoral business basis achieve those productivity gains? Are we asking the regulators to try to achieve something that will simply be impossible to achieve?

That leads me to the conclusion that there is a reasonable fear that this can be used to game the system. The Government made it clear in Committee that companies will be able to hold regulators to account by means of the growth duty. Does the duty not achieve the means for companies to try to seek redress through the courts? The Minister admitted this during its passage in the other House, where the assumption was—

Sitting suspended for a Division in the House.

My Lords, as I was saying before I was so rudely interrupted—I thank the noble Lord, Lord Foster, for that wonderful line—I will conclude with these points. I noted the sceptical faces from the other side on the point about whether businesses will do this. It was not addressed. In Committee in the other place, the Minister said:

“Businesses told us that they were unlikely to mount judicial reviews except in extreme circumstances. As we all know, judicial reviews are very costly”.—[Official Report, Commons, Deregulation Bill Committee, 20/3/14; col. 526.]

They are not that costly compared with regulatory impacts. The cost of lawyers may be quite significant, but compared with the benefits that can be gained from regulatory changes it is certainly a calculation worth making. If you give someone an instrument to do something, you have a duty to shareholders to do it if you have an operable option. Anyone involved in business will know that.

The impact assessment says:

“This duty will provide a framework for regulators explicitly to factor growth into their decision-making where they have not previously felt able to do so, enabling businesses to hold regulators accountable for their actions”.

The guidance provides far too many opportunities for the sorts of challenges and arguments that undermine the regulators’ principal role and functions. The way the guidance is written has no regard for any particular growth theory, target, goal or effective paradigm. It provides a lot of opportunity for options and arguments to be laid against it and against decisions on the basis of growth.

Again, the Government should not be surprised about this. Even its own report on the consultation said that,

“the business community sought clarity on how regulators can be held to account if they failed to comply with the Growth Duty, or to follow the guidance”.

I do not think the answer will be, “Look in the annual report and take a view”. This is a very important issue. Fundamentally, the core aspects, which this does not address or help, provide legal capacity on the one side and on the other do not give a real sense about the principal duties that regulators have in existing law without the growth duty and whether they will be able to fulfil them.

In conclusion, while we share the Government’s view on a variety of the objectives and goals and even on the journey they wish to take, we were sceptical when the main legislation passed. All these statutory instruments do is lay bare the lack of evidence, thinking and design of these policies, and how, through the unfortunate circumstance of unintended consequences, they are likely to cause more harm than good. I would be very grateful if the Minister responded to all, some, or even a few of my questions.

My Lords, I am delighted to follow the noble Lord, Lord Mendelsohn. Like him and no doubt everyone else in the Room, I too am in favour of motherhood and apple pie. I am in favour of the removal of unnecessary red tape, bureaucracy and the gold-plating we have seen on too many EU directives. Like the Minister, I accept entirely that some regulations serve a vital purpose. The much-maligned health and safety regulations provide a very good case in point. If we are to take steps such as the ones proposed here, it is vital that we are aware of precisely what the targets are, what they are expected to achieve and what evidence we will gather to see whether they have been achieved, and that we ensure there is proper policing of any new directives, regulations or whatever is put in place.

I spent a relatively brief time in government. For a short period I was a junior Minister in the Department for Communities and Local Government. As a Minister in a Government who had introduced in 2010 the various proposals to encourage, as it says in our documentation,

“a cultural shift in Government Departments towards more proportionate and smarter regulation”,

I nevertheless came up against the difficulties that could be created by the one-in, one-out and later one-in, two-out policies. As a result of that experience, and subsequently as the Government Deputy Chief Whip serving on Oliver Letwin’s committee that dealt with these issues, I learned a number of lessons.

There are six lessons, and I will briefly share them and use this as an opportunity to probe the Minister about the proposal before us today. The first lesson related to energy performance certificates. Regulations were brought in requiring commercial buildings in certain circumstances—depending on their size, whether there was public access, and so on—to display an energy performance certificate visibly in the premises. The idea was that putting the energy performance certificate up would lead the owner of the building to try to improve energy performance, thereby saving overall cost to both the occupiers of the building and the nation as a whole. I was very much in favour of the certificates.

However, the lesson I learned was that often, those certificates never appeared in commercial buildings. Indeed, I would go so far as to say that they did not appear in a number of government buildings. The question I therefore ask is: what policing mechanisms will apply to the measures and what procedures will be put in place to ensure that we can assess whether they are successful—a point raised earlier by the noble Lord, Lord Mendelsohn—so we can learn from them in future? We have learned nothing from energy performance certificates because they were not properly introduced, policed or evaluated.

The second lesson I learned was from the introduction of zero-carbon homes, something I felt strongly about as a Minister. That fell under all sorts of difficulties, particularly from Conservative colleagues within the coalition, because they said that we had to ensure that we abide by the “one regulation in, one regulation out” rule, commensurate financial implications, and so on. It got into real difficulty because of the way the target was assessed. It was argued that the regulation’s requiring improved energy efficiency of domestic premises would impose an increased cost on the builders of those premises, so it had to be counted as a “one in” for which we had to find a “one out”. In truth, the most sensible way to look at it would have been to say that the improvement of the building’s energy performance when built would lead to a long-term saving for the resident occupants of the property and the nation as a whole but, whereas with energy performance certificates for commercial building, it was okay for the occupants to benefit, when it came to domestic property, it was not.

If we have targets, we must be careful that we do not hit the target but miss the point. I worry that in some of the regulations before us, particularly given the list of regulatory bodies, we may be missing the point.

The third lesson, which I am prepared to acknowledge is not relevant to the documents before us but I want to get on the record, is that these things are not always straightforward common sense. They are often political. I share with noble Lords my experience on Oliver Letwin’s committee when I proposed a measure that would have reduced the cost of business—not requiring certain things to be advertised in local newspapers. This was prevented on the purely political grounds that we did not want to upset local newspapers in the run-up to the 2015 general election.

I also learned that we have to apply common sense. On the basis of common sense, I will not go through the long list of regulatory bodies to which the noble Lord, Lord Mendelsohn, referred. I will just pick one at random and ask the Minister, to whom I have given a little advance notice, about the Northern Lighthouse Board. I wonder what the Minister sees as its ability to perform an economic growth responsibility. The Northern Lighthouse Board is there to serve Scotland and the Isle of Man, and to deliver a reliable, efficient and cost-effective aids-to-navigation service for the benefit and safety of all mariners. I genuinely have difficulty seeing how it will be able to fulfil its requirement.

That leads to my fifth and penultimate point: these things should be based on sound consultation. We have before us a very long list of regulatory bodies that will be brought in under these regulations. Yet, as the noble Lord, Lord Mendelsohn, has pointed out, and as it says in paragraph 8.2, there were 49 respondents, and 38 responses were received on the question of scope from a broad cross-section of stakeholders, including regulators, businesses and representative bodies. It is clear that only a small number of regulators responded to the consultation, as paragraph 8.3 hints at. It says that there were five objections to the inclusion of particular regulators within scope; the noble Lord, Lord Mendelsohn, dealt with the rest of the list.

I find it difficult to know, with such a large number of bodies, whether real efforts were made—I would be grateful if the Minister could tell us—to go to those regulators that were going to be included specifically to ask them for their individual comments. I find it difficult to believe that more of them would not have responded if they had known that this would have an impact on their roles and responsibilities.

Finally, the other lesson that I learned from all this was to study carefully the impact assessment. I have gone through the impact assessment of a number of these documents in some detail. I do not intend to pull this to shreds, but I just to say the Minister that, like the noble Lord, Lord Mendelsohn, I have concerns about what impact assessments tell us. I will raise just one example—and there are many—which is from the impact assessment in paragraph 25. It says:

“The total cost to regulators in year 1 associated with QRP assessments, NQRP summaries and familiarisation is estimated to be £1.985 million”.

That is a precise figure. Paragraph 26 tells us how it was achieved. It was based on a survey carried out in 2013, followed up with another a bit later, of a small number of regulators about a totally different question. That question was whether they would be likely to have cost recovery from businesses for the introduction of small business appeals champions. I have to question whether that sort of analysis can lead to such a precise figure as a cost of £1.985 million. I am sure that the Minister has looked at these things in detail and he has convinced himself that he is satisfied with it, but it would be helpful to ask him to put on record that the Government are satisfied with the assessments within the impact assessment.

I have no intention to challenge any of the instruments before us, but, like the noble Lord, Lord Mendelsohn, I have some concerns about the number of bodies that have been included, about the impact assessment and about whether the absolutely admirable aims that the Government have in mind really will be achieved by these measures.

My Lords, I cut my speech down, but I rather wish that I had not—I could still be talking. The noble Lord, Lord Mendelsohn, has raised too many issues and I cannot answer them all. I got to 38 questions and I stopped counting—I had forgotten what the first one was. I will have to write to the noble Lord on a number of the points that he raised.

While it is still fresh in my mind, I will just deal with the Northern Lighthouse Board—the noble Lord, Lord Foster, gave me warning about it during the vote. The Northern Lighthouse Board and the Commissioners of Irish Lights provide advice to ports about navigational safety matters. Because that advice can affect the business of port operators and their customers, it is right that the bodies should have regard to growth in making regulatory decisions. In a sense, that illustrates another issue that he raised about whether we had gone through all these regulators carefully, talked to them and found out what impact they might have. I hope that that answers that question.

The noble Lord, Lord Mendelsohn, started off positively. He said that he agreed with our objectives and goals, but then he went on to qualify that by referring to them both as motherhood and apple pie. Nevertheless, I think that the noble Lord, Lord Foster, also agrees. Who can possibly argue with the objectives of reducing regulation and achieving economic growth? The noble Lord, Lord Mendelsohn, also quoted—I wish that I had written it down, but he spoke too quickly—Warren Buffett. I will give him back another quote from Warren Buffett, if I can. It is much shorter and more succinct: you get what you incent for. For me, in business, that is a pretty profound statement.

I would like to apply that, if I can, to regulation. The noble Lord was sceptical about culture. I am less sceptical about it. I think that the culture that exists within individual firms can be hugely powerful. I will give an illustration that quite neatly contrasts culture with regulation or law. RBS and HBOS had been in banking for 200 years in Edinburgh. They were absolutely conservative, traditional Scottish banks. In the space of 10 years, their culture completely changed. I do not know whether the noble Lord has read the reports, particularly into HBOS, by the Treasury Select Committee of the House of Commons. The culture in those two banks was deeply shocking. To some extent, it was set by the deregulation that his Government brought into the City after 2001, when Gordon Brown was Chancellor of the Exchequer, and subsequently. It may go back earlier to the deregulation of the City in the 1980s. Nevertheless, the culture within those two banks effectively destroyed them.

Culture is hugely important and very powerful. For example, there are laws about smoking now but there is also a culture around it: you feel bad about lighting up a cigarette in a car or in a building, irrespective of the law. When I was at the Care Quality Commission, we found that the leading indicator—

We agree on culture and the capacity to destroy culture. The point that the noble Lord made, which I thought was very interesting, was about incentives. I am not clear about how this creates incentives as opposed to duties, which then have a numeric capacity to meddle and to change. Can he give me some idea?

May I finish off on a regulator that is not covered by BEIS, but is important none the less—the Care Quality Commission? We found there that the leading indicators of performance, whether you measure it in terms of patient safety, hitting waiting time targets or patient satisfaction, were around staff engagement, such as whether doctors and nurses enjoyed working in the hospital. A junior doctors survey done by the GMC was probably the single most predictive of all the indicators. Culture is hugely important.

The noble Lord referred to a duty to communicate, which plays into the point about culture. Putting that obligation to communicate on to regulators is important. In a sense, what we are trying to do by having a duty to promote growth is to change the culture and outlook of regulators. As the noble Lord, Lord Foster, said, they are not there to hit the target but miss the point —how often does that lead to unintended consequences? For example, we hit the waiting time target in an A&E department but the patient died. That is the kind of absurdity we can get into when targets become—

I think that we are all singing from the same hymn sheet in our speeches, but the documents before us say something rather different. They talk of the sums of money that it is anticipated will be achieved by this. I entirely accept that the Northern Lighthouse Board is there to provide safety. Clearly, if it switched off the lights in all its lighthouses, ships would crash, the economy would be in difficulty and so on. Presumably, it could spend a lot of money and put up more lights and sirens and have more people sailing around rocky outcrops warning people to stay away, and there may be some more savings in that. That is all common sense. But the way in which it has been enumerated is about having a target but missing the cultural point that the Minister is rightly talking about. The papers do not talk about the culture.

One way to change the culture is to change the message. We are not setting specific targets for regulators. The purpose is to increase transparency, which I will talk about a little. I qualify it as “intelligent transparency”. If we can put people in the position of making intelligent decisions and provide them with useful information, in my book that is the best form of regulation.

We are all agreed on the objectives and outcomes that we want from this. I see the exercise as trying to get a cultural shift in the behaviour of regulators. Both noble Lords have given examples of the road to hell being paved with good intentions. The last thing that we want is to encourage bad behaviour by pursuing regulation to the letter and achieving the opposite of what we want to. On one level, we are in violent agreement and, on another, we are clearly not. However, some important points have been raised and I would like to reflect on them and write to noble Lords on those issues.

To conclude, I would like to read out a few notes, just to get them on the record and perhaps explain a little better what I have just said. The importance of extending the scope of the business impact target is clear. Businesses consistently tell the Government that the actions of regulators are as important as the content of legislation in determining their experience of regulation. That has to be true. It is the way we interpret laws and decide whether they are helpful or not. For example, in giving up broadband at home I want to get through to BT to cancel my existing contract. Can I get through to BT? Can I hell. No one will answer the phone. It is about customer service. Funnily enough, having spoken briefly to the Intellectual Property Office yesterday, I think that it has a client-friendly attitude, which is the kind of attitude that we want from regulators.

The rationale for applying the growth duty is also clear. While there is already a great deal of good, proportionate and effective regulation, evidence suggests that some regulators fail to take sufficient account of the economic consequence of their actions and place unnecessary burdens on businesses. I think that the noble Lord wanted some examples of regulators that fall into that trap. We will certainly write to him on that.

Some regulators consider the impact of their actions on economic growth. It cannot be wrong to do that. If we said that regulators should not take into account economic growth, we would be shot at, quite rightly, from all sides. Many regulators think that they are unable to take account of growth because they do not have a statutory requirement to do so. That tells you something about the psychology of some regulators, frankly. They have to be told that economic growth matters. You would not think that you would need to be told that. We need to write to the noble Lord on that point. The new duty will help to bring all regulators up to the same high standard.

The growth duty will help regulators to carry out their functions in a way that is conducive to economic growth and will ensure that regulatory action is taken only when needed and that any action that is taken is proportionate. Again, the key words are “accountable”, “transparent” and “proportionate”. It will encourage regulators to develop more mature and productive relationships with the sectors and businesses that they regulate, driving up the accountability of regulators to the business community.

I conclude by saying that it is very easy to knock the regulators. Few people will stand up for regulators. But in some of the Brexit debates that we have had, when you look at the performance of the British regulators—for example, the EMA, the MHRA, the CAA or in the nuclear world—they are universally respected throughout Europe. Our regulators are highly respected and in the main they do an outstanding job. All we are trying to do in this legislation is to tilt the culture a little further towards practicality, transparency, productivity and growth.

Motion agreed.

Business Impact Target (Relevant Regulators) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Business Impact Target (Relevant Regulators) Regulations 2017.

Motion agreed.

Growth Duty Statutory Guidance

Considered in Grand Committee

Moved by

Motion agreed.

Deregulation Act 2015, the Small Business, Enterprise and Employment Act 2015 and the Insolvency (Amendment) Act (Northern Ireland) 2016 (Consequential Amendments and Transitional Provisions) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Deregulation Act 2015, the Small Business, Enterprise and Employment Act 2015 and the Insolvency (Amendment) Act (Northern Ireland) 2016 (Consequential Amendments and Transitional Provisions) Regulations 2017.

My Lords, in 2015 the Government introduced a series of reforms to modernise and streamline the insolvency process. The regulations we are debating make consequential amendments to the relevant special insolvency procedures for financial sector firms to take account of the reforms.

I will begin with a brief outline of the reforms to general insolvency law. The Deregulation Act 2015 separated out the authorisation of insolvency practitioners for personal and corporate insolvency. This reduces the cost of training for applicants who wish to specialise. The Small Business, Enterprise and Employment Act 2015 introduced a series of changes to streamline the insolvency process. This included an amendment to allow liquidators to exercise powers without court permission and an extension to the maximum term for an administration. In addition, the Insolvency (Amendment) Act (Northern Ireland) 2016 made similar reforms to insolvency legislation in Northern Ireland.

The purpose of these reforms was to reduce unnecessary regulation and therefore costs, improve public confidence in insolvency legislation, and make it clearer, more consistent, and modern. The Government carried out extensive consultations before bringing forward these reforms to the insolvency regime, which had the broad support of industry. The regulations make consequential amendments to the existing modified insolvency regimes for the financial sector. Modified insolvency regimes for the financial sector exist because general insolvency procedure is not always suitable for failed financial institutions. These modified insolvency regimes apply general insolvency law with modifications designed to address the special nature of some financial institutions—for example, the bank insolvency procedure. Because these special insolvency procedures for the financial sector are built on general insolvency law, they now need to be amended to reflect the reforms. The regulations are therefore important to ensure that the benefits of the reforms to general insolvency law are extended to the financial sector. They will also ensure that the modified insolvency regimes for the financial sector are compatible with general insolvency law. The proposed consequential amendments follow discussions with the regulatory authorities and the banking liaison panel.

In conclusion, the amendments are important to modernise and streamline modified insolvency regimes for the financial sector following the Government’s reforms to general insolvency. I beg to move.

My Lords, I thank the Minister for that explanation. We accept this as it is an effective codification of what was agreed during the passage of the legislation. The only questions that we wish to address relating to the provisions regard the Government’s evolving policy on insolvency. Other issues have of course emerged in the light of experience about how this process can be done more efficiently. There are consultations on moratoriums and other sorts of things in future that we are now looking at, and of course there will be adjustments when the next wave takes place, when there will be issues around pensions and other things.

Particularly on moratoriums and other sorts of reforms where there are consultations to improve the process, we would be grateful to have some indication of the Government’s thinking on whether they would bring this forward with the financial services industry and the companies that are covered. Would the provision that the Government are bringing forward encompass those along with all the other companies, or do they wish to have a separate procedure for financial companies?

I thank the noble Lord, Lord Mendelsohn, for his comments and his general support. I wonder if I could write to him to answer the question that he asked. On that basis, I commend the regulations to the Committee.

Motion agreed.

National Minimum Wage (Amendment) Regulations 2017

Considered in Grand Committee

Moved by

My Lords, the purpose of these draft regulations is to increase the hourly rate of national minimum wage for all workers, including those who are entitled to the national living wage. The regulation also includes an increase in the accommodation offset rate, which is the only benefit in kind that counts towards minimum wage pay.

This Government are committed to delivering an economy that works for everyone by spreading wealth and prosperity across the country. Through the national minimum wage and the national living wage, the Government are ensuring that the lowest-paid are fairly rewarded for their contribution to the economy. The latest figures show that the employment rate is now at a record high of 74.6%. The unemployment rate is at 4.8%, and wages are up 2.6% on a year earlier.

I turn to aligning the national minimum wage and national living wage cycles. From this April, the Government will be uprating the rates for the national minimum wage and the national living wage simultaneously. The new rates will be effective from 1 April 2017 to coincide with the new tax year. Our aim is to simplify the implementation of the rates to make it easier for businesses to comply, as well as reducing the administrative burden on business.

The Government have sought independent and expert advice from the Low Pay Commission and have carefully considered and accepted all of its wage rate recommendations as set out in its autumn 2016 report. The Low Pay Commission is asked to recommend the highest possible increase in the national minimum wage rates without damaging the employment prospects of low-paid workers, and to recommend the rate of the national living wage such that it reaches 60% of median earnings by 2020, subject to economic growth. The Low Pay Commission considers a large and diverse body of evidence before making its recommendations to government.

From 1 April 2017 the national living wage rate will increase by 30p to £7.50. The Low Pay Commission has projected that up to 2 million workers may benefit from this increase. To be clear, a full-time worker in receipt of the national living wage will see their pay increase by more than £500 over the course of the year. All of the national minimum wage rates will also be uprated above the rate of inflation.

The specific details are as follows. Those aged 21 to 24 will be entitled to a minimum of £7.05, which is an annual increase of 3.2%. Those aged 18 to 20 will be entitled to a minimum of £5.60, which is an annual increase of 3.1%. Those aged 16 or 17 will be entitled to a minimum of £4.05, which is an annual increase of 2.8%. Apprentices aged 19 or those aged 19 and over in the first year of their apprenticeship will be entitled to £3.50, which is the largest annual increase of all the rates at 4.5%.

The accommodation offset was introduced in 1999 to provide protection to workers who live in employer-provided accommodation against an excessive reduction in their income, while giving some recognition of the value of the benefit. Following advice from the Low Pay Commission, the rate will increase from £6.00 to £6.40 per day.

The Government continue to use age-related rates to protect the employment prospects of younger workers. It is felt that prior to the age of 25, people in employment are gaining experience and that the most important thing for them is to be in work and looking at their prospects in the workplace. It should be noted that the Government are setting minimum thresholds only. We recognise and commend those employers who seek to pay younger workers the same as older workers where they can afford to do so.

On the important issues of non-compliance and enforcement, the Government also recognise that as the national minimum wage rates continue to increase, so too does the risk of non-compliance. We are actively taking steps to mitigate non-compliance. We are serious about increasing compliance with minimum wage law and are committed to cracking down on employers who break it. This is why the Government continue to invest heavily in minimum wage enforcement, increasing the budget to £25.3 million for 2017-18, up from £13 million in 2015-16. By using civil sanctions and criminal prosecutions we are keen to send a forceful deterrent message to any employer who wilfully flouts the minimum wage rules. Furthermore, to promote awareness of minimum wage rights and responsibilities among employers and workers, we are spending £1.7 million on a minimum wage publicity campaign, which launched in January this year and is due to ramp up as we approach 1 April. Finally, as I said, to simplify the system, the dates for operating the national minimum wage and national living wage will be aligned, effective from April this year.

This Government want an economy that works for everyone. This is why we are committed to ensuring that everyone shares in our economy’s success. The ongoing success of the UK labour market proves that a rising minimum wage can go hand in hand with rising employment. I beg to move.

My Lords, I thank the Minister for her helpful and cogent introduction. Low wages have been the bane of certain regions of the United Kingdom. I think most of all of Wales and the north-east. The minimum wage has been a very good measure for the people of Wales, and Prime Minister Blair has good grounds for being very proud of enacting it. My recollection is that it was opposed in another place, but it is now acknowledged universally as a just, helpful and necessary measure.

Who now chairs the Low Pay Commission and how many members does it have? Although this is a beneficial measure, does the Minister have any statistics to exemplify its beneficial effects, particularly in Wales? How many will benefit from the helpful measure that she has spoken to in the Committee? Will it be of particular help to the tourism industry, which is important and widespread throughout the Principality? How many people in Wales are benefiting from the national minimum wage, and how many will benefit from this measure?

I thank the Minister for her introduction and my noble friend Lord Jones for his contribution, which raises the important question of Wales, and agree that the Minister’s case was cogently put. It presents an important annual ritual of ensuring that the national minimum wage and the national living wage are uprated.

I commend the policy and want to say how important this has been as a measure to create a real basis for enhancing the opportunities and life chances of people, and for ensuring that employers are unable to use inequality and asymmetry of power to the detriment of people who are giving up their labour. The way this has been presented and the detail behind it is outstandingly thorough. It is a perfect measure. All the complaints that I have had about other measures are more than adequately addressed by what is an outstanding piece of analysis of not just why this policy decision was made, but previous policy decisions, what alternatives could be chosen and challenges to the assumptions on which it was based. All of this is contained in the accompanying documents to the statutory instrument, which are of outstanding quality. I commend the department for its work in putting it all together and, in particular, the Low Pay Commission, which has done an outstanding job. We are truly blessed to have a mechanism that seems to work well, that people understand and that tends to comes to sensible and just decisions.

I wish to raise two areas for the Minister to consider. First, as we look to expand the apprenticeship programme and increase the number of young people who can move into employment through the use of this mechanism, so that they can adopt skills and become much more focused on the needs of businesses or even public sector organisations now the duty is on them, I would be very interested to know whether any evaluation is being made on what the likely impact of that will be—especially as we may create a cascade effect—to make sure we do not affect the employment opportunities of those at younger ages. I would also like to evaluate whether this is now distorting the opportunities at younger ages, and whether it is worth reviewing in the next review of the national minimum wage and the national living wage.

Secondly, I again ask the Minister whether the enforcement mechanisms she has outlined are sufficient. It is to be welcomed that the Government are applying more resources and a little bit more focus on making sure that companies meet their national minimum wage obligations. It is very instructive to see the number of incidents that take place in large organisations and companies with very prodigious finance departments. It shows a sense not just of non-compliance, but of callous disregard—of the abdication of duty in the most extraordinary fashion. To use an example I mentioned earlier, which I am more than happy to mention again, it is utterly shocking that Debenhams was able to get away with what it did and that its chief executive was able to take his bonus. Look at the explanation of the long-term incentive plans in company reports. Look at the reports to shareholders about remuneration for the senior executives—in particular how it affected the chief financial officer and the chief executive officer—and at the number of consultants that they brought in to make sure they got the right remuneration. I know that they spent time with their remuneration executives to make sure that they can play their games with the board to do this. The sheer fact that they have allowed their employees to suffer in this abject way is absolutely appalling.

Unless we have mechanisms that address the problems of culture, of having effective measures to counterbalance it and incentives that affect people, then we will have this terrible story time and again. I applaud the Government for putting more towards the enforcement, but the measures have to be targeted in the right way. If you run a company, you run it properly. If your duty is to pay people, you pay them properly. If you do not, you bear the consequences.

I thank noble Lords for their very helpful contributions to this short debate. I begin by responding to the noble Lord, Lord Jones. The measure that was introduced back in I think 1998 was a huge step change in clarity, fairness and respect for people who are low paid.

It was historic—the noble Lord is absolutely right. I bear the scars of one who at that time, as vice-chairman of the Conservative Party, had to appear on “Question Time” when the minimum wage came in. The noble Lord is quite right: Her Majesty’s then Opposition initially opposed the measure. Being on a television programme such as “Question Time” and having to face an audience while trying to defend our opposition to the minimum wage was one of the most difficult moments in my life. As I said, it was historic and I am so pleased that my party has not only over the years changed its view about this, but taken these measures forward. We are very proud that we now have a national living wage. That is certainly something I feel strongly about.

The noble Lord asked who the chairman of the Low Pay Commission is. The new chairman is Mr Bryan Sanderson, who was appointed on 17 February for one year. He has eight commissioners working with him.

With respect to Wales, I am pleased to say that an estimated 100,000 workers in Wales will benefit from the national minimum wage and the national living wage. This figure is published on page 79 of the impact assessment. I hope the noble Lord is encouraged by that.

I was very appreciative of the opening remarks of the noble Lord, Lord Mendelsohn. I absolutely agree that the Low Pay Commission should be commended for the work it has done on the development of this policy. Obviously, we continue to work with the commission in this regard.

The noble Lord asked about young people and the likely impact of encouraging more apprenticeships. I have also been involved in the Technical and Further Education Bill, so I am very aware that the Government are encouraging more apprentices, which we hope will have a huge impact on the number of young people in work. I will give a bit more detail on the national minimum wage with regard to young people. The age-related rates protect younger workers, who are more vulnerable in the labour market; for example, in the fourth quarter of 2016 the unemployment rate for people aged 16 to 24 was 12.6%, compared with 3.6% for those aged 25 and over. So we are more cautious for this group and how their wages are set. But we are also conscious of the fact that we need to encourage more young people into work through apprenticeships.

We set minimum pay thresholds. Businesses are free to set higher rates of pay if they can afford and choose to do so. As I have just said, youth unemployment is persistently higher than for those aged 25 and over. For younger workers, the priority in those first years is to secure work and gain experience—something that has always been reflected in the national minimum wage rate structure.

The noble Lord also referred to enforcement. If the Committee will bear with me, I will give a bit more detail about enforcement, given that this is such an important area. I take on board his reference to the situation at Debenhams, which is not acceptable. The Government are committed to cracking down on employers who break national minimum wage law. We are absolutely clear that anyone entitled to be paid the minimum wage should receive it. BEIS is responsible for the policy on national minimum wage compliance and enforcement, and HMRC enforces the National Minimum Wage Act on behalf of BEIS. All businesses, irrespective of their size or business sector, are responsible for paying the correct minimum wage to their staff. The vast majority of responsible employers make sure that they get it right. As I said earlier, we have increased the enforcement budget because we recognise that accurately predicting the true level of non-compliance across the country is difficult. With the increase in wages comes the increased risk of non-compliance. HMRC follows up on every complaint it receives, even those that are anonymous. This includes those made to the ACAS helpline and those it receives from other sources.

I touched on sanctions earlier. There is a civil route, where HMRC conducts an investigation and identifies that there has been an underpayment. A notice of underpayment is then issued, instructing the employer to pay the workers the arrears they are owed and a penalty of up to 200% of those arrears. In addition, we have a system of naming and shaming. Employers risk facing reputational damage through being named and shamed in a government press notice, which is then picked up by local and national press. All employers who have underpaid their workers by more than £100 are eligible to be named. To date, we have named more than 1,000 employers.

I hope I have covered the questions raised regarding these regulations. The Government estimate that more than 2 million workers will directly benefit from the uprating of the national minimum wage and national living wage. The fundamentals of the UK economy are strong and our economy continues to grow. GDP growth was 0.6% in the fourth quarter of 2016—above market expectations—and the economy is currently 8.7% larger than its pre-crisis peak. The labour market has continued to perform well, with robust employment growth in low-paying sectors.

A number of specific points were raised in this debate that I hope I have responded to. The Government are committed to ensuring that work pays and that the lowest paid enjoy the benefits of a strong economy. I commend the regulations to the Committee.

Motion agreed.

Nuclear Industries Security (Amendment) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Nuclear Industries Security (Amendment) Regulations 2017.

My Lords, I will begin by giving some background information and explaining why we are making these amendments. The UK takes civil nuclear security issues very seriously, including with regard to regulation. Since 1980, the UK has been a signatory to the Convention on the Physical Protection of Nuclear Material—the CPPNM. The convention requires signatories to have in place a robust legislative and regulatory regime to ensure the security of civil nuclear materials stored or in transit. The UK also complies with international guidance and best practice in this field produced by international bodies, in particular the International Atomic Energy Agency.

The Nuclear Industries Security Regulations 2003—NISRs—represent the cornerstone of the United Kingdom’s regulatory regime for civil nuclear security. The NISRs place significant obligations on the operators of civil licensed nuclear sites with regard to physical security measures for facilities, nuclear material and the security of sensitive nuclear information. The NISRs also cover the movement of nuclear material by air, road and rail in the UK and globally in UK-flagged vessels. This legislation requires all civil nuclear operators to produce and implement robust nuclear site security plans, and for transporters of nuclear material to produce transport security statements.

These draft amendments would update the NISRs in four key areas. Their overarching aim is to further enhance civil nuclear security arrangements and ensure that the United Kingdom’s regulatory regime remains up to date, comprehensive and robust. This will help ensure that the United Kingdom continues to give effect to its obligations under the CPPNM. I will provide further detail on each of the amendments.

The first amendment is to Regulation 4(1) of the NISRs, which requires that a nuclear site security plan approved by the ONR is in place for each nuclear site. However, at present the NISRs do not specify on whom this obligation is placed. The amendment will make it the responsibility of the designated “responsible person” for the nuclear site, as defined in the NISRs, to ensure that there is an approved security plan in place at all times. In tandem with this, a related amendment to Regulation 25 makes it a criminal offence for the responsible person to fail to meet their obligations under Regulation 4(1) as amended. The creation of this offence underlines the security imperative that the Government place on nuclear operators maintaining up-to-date security plans that have the approval of the independent regulator. In combination, the amendments to Regulations 4(1) and 25 will add clarity to the regulatory regime by making the responsible person accountable for ensuring that their site has approved nuclear security measures in place at all times. The implications of creating a new criminal offence have been fully considered and the Ministry of Justice has approved the measure.

We are also amending Regulations 4(3)(d) and 16(3)(c). These amendments are aimed at further enhancing industry information security and preparedness for cyber-related incidents. It will be a requirement for nuclear site security plans and transport security statements to set out the steps to be taken in the event of the loss or theft of or unauthorised access to sensitive nuclear information. Requiring duty holders to outline these contingencies will help ensure that risks associated with information security and cyberattacks are identified from the outset and effectively managed using measures approved by the ONR.

We are also making amendments to Regulations 9, 17(3) and 22(7), which relate to personnel security. Ensuring robust measures are in place to combat the potential threat that insiders pose to the civil nuclear industry is, of course, a key priority for the Government and the regulator. These amendments are intended to provide the ONR with greater flexibility in determining whether nuclear premises’ relevant personnel are suitable in security terms. Instead of solely approving all relevant personnel itself, the ONR will be able to assess and approve the industry’s broader personnel security arrangements; for example, by examining the effectiveness of review and aftercare arrangements for personnel working in the sector. This will allow the ONR to approve processes to be used by duty holders to determine whether relevant personnel are suitable in security terms. This will involve consideration by the ONR of whether the measures used by duty holders are in accordance with Her Majesty’s Government’s personnel security policy. We are also making an amendment to Regulation 22(5)(a) to remove a reference to guidance published by the ONR on security classifications that has now become obsolete.

The Department for Business, Energy and Industrial Strategy conducted an industry consultation on these amendments between 24 June and 22 July 2016. In total, 19 responses were received from a range of industry stakeholders. On the basis of these responses, department economists have forecast one-off administrative costs to the civil nuclear industry of less than £100,000 arising from the changes. This assessment has been approved by the Regulatory Policy Committee. I consider the security benefits arising from these changes to far outweigh the costs.

In parallel to the amendments, the ONR intends to issue revised security guidelines to the civil nuclear industry. These guidelines, known as the security assessment principles, are closely aligned to emerging threats to nuclear security, especially in relation to cybersecurity and information assurance. The amendments that I have outlined will complement the revised guidelines. I therefore commend these draft regulations to the Committee and beg to move.

My Lords, I thank the Minister for her clear exposition on such a serious measure and offer support for the draft instrument. There are two nuclear power stations in Wales: Trawsfynydd in the wilds of Meirionnydd and Wylfa in Môn Mam Cymru—Anglesey. Trawsfynydd may have reached the end of its productive life, but the hope is that Wylfa reactor 2 will come into being at an appropriate time. These stations in the far north-west of the lovely land of Wales are hugely important for employment, well-paid jobs and skills, and generate supporting jobs distances away from the plants.

How many people at each of those stations are engaged in security—if the Minister is allowed to give me that answer? I think it is a reasonable question. How many nuclear security police are there at each of those plants? I have read the Explanatory Memorandum and the instrument. When the stations were built, it was inevitable that road improvements would have to be made, and the rail links became ever more important—for obvious reasons when we consider nuclear waste.

In paragraph 7, headed “Policy background”, of the Explanatory Memorandum, paragraph 7.2 refers to,

“an approved nuclear site security plan be in place for each nuclear premise. The current requirement does not specify upon whom the duty is placed. These regulations clarify the position by specifying that it is the responsible person in relation to each nuclear premise who has the duty to ensure that there is an approved nuclear site security plan in place, and make it a criminal offence for the responsible person to fail to do so”.

I have mentioned two nuclear sites in Wales. What would be the rank and description of such a person referred to in paragraph 7.2?

I spent nearly 10 years on the Intelligence and Security Committee, and think I am asking responsible questions, but I would understand if the Minister could not immediately offer an answer or felt that she had to give me a reason why she could not give an answer.

My Lords, I thank the Minister for her introduction to the measure before the Committee. It is not contentious, and there is generally no difficulty in approving measures that seek to improve safety and security. All the necessary information has been helpfully provided in the Explanatory Memorandum. I thank my noble friend Lord Jones for his comments on the measure in relation to Wales, and look forward to Wales continuing to contribute in the development of the nuclear industry, most notably, perhaps, through the development of modular reactors.

Although we recognise that the security aspect of all operations at civil nuclear sites is under constant review and that the measure to upgrade the regulations is not in response to any particular occurrence, nevertheless, anxiety has been expressed recently about some incidents across both civil and defence aspects in the nuclear industry, most notably the straying of a test missile in the Atlantic. While the measure refers to civil nuclear sites, the regulatory triage assessment states that defence sites are exempt. I am sure the Minister will say that we must not misread the exemption but will she confirm that there are indeed specific regimes and reviews in place for all defence sites, both fixed and mobile, where analogous conditions would be covered, such as Aldermaston and Harwell? Are these subject to separate SIs?

We certainly agree that the UK has one of the most robust security frameworks. What assurances regarding this high standard can the Minister give to those of a more doubting nature, when we do not discuss lessons learned from any mishap or even recognise that mishaps and deaths have occurred? We agree with and approve the measures being implemented in the regulations, especially the upgrades necessary to improve cybersecurity, against a backdrop of reports on the activities of Russia, which we trust are not being directed at or compromising the civil nuclear industry. The protocols in the measure to cover this scenario are vital and welcome.

The Minister and the Explanatory Notes have both highlighted that each nuclear premises must have its own approved site security plan in place. While I appreciate that every site will need a distinct plan in so far as geographical layouts may differ, I wonder how far different sites may have different practices, as the Minister in the other place stated regarding this measure. Can the Minister explain whether different plans carry any implications of differing standards, which could give rise to confusion or misunderstandings between sites and practices that could compromise security? I concur that the objective of the regulations is to raise the bar on security across all sites. Is there an appraisal of the differences between sites and why there are any, so that the differences are monitored and controlled?

My final point concerns the treaty background to the regulations. I understand that being a signatory to the Convention on the Physical Protection of Nuclear Material requires the UK to have in place the legislative and regulatory regime to ensure the safety and security of civil nuclear materials stored or in transport. Furthermore, the treaty sits outside Euratom, of which the UK is also a member, and Euratom has signed up to the treaty. Without wishing to encroach on tomorrow’s proceedings on the amendments to the European Union (Notification of Withdrawal) Bill, there is some debate over whether Euratom is a separate entity from the EU, and over the UK’s membership of it. The Explanatory Memorandum to that Bill states that the UK’s departure from the EU will trigger an automatic leaving of Euratom as it is part of the same treaties. Whether or not this is the case, I ask the Minister: how will the UK find a way back into Euratom? What will this look like?

I understand that the Government recognise the importance of Euratom and wish to have the closest possible relationship with it and its members. I thought that the Minister in the other place was rather splitting hairs—if I may use the word “splitting” in this context—when he stated that Euratom,

“does not have a role in setting security standards, regulation or inspection of UK civil nuclear security arrangements”.—[Official Report, Commons, Fourth Delegated Legislation Committee, 21/2/17; col. 7.]

While this measure is implemented discretely in the UK, it is vital that the UK continues to participate in Euratom; JET, which is based in the UK and employs many EU nationals; and the International Atomic Energy Agency—IAEA—an organisation set up under the auspices of the United Nations and based in Vienna. Having said all that, I am content to approve the regulations before the Committee.

I thank all noble Lords who have contributed to the debate on this Motion. First, I turn to the noble Lord, Lord Jones, although it is with some trepidation because I am a little afraid of trying to pronounce the names of the stations he referenced: Wylfa and Trawsfynydd—that is my attempt.

I thank the noble Lord for that. I welcome what he said about supporting jobs on those sites. He asked a number of questions, including about the number of people on those sites. I am not at liberty to say exactly how many people are employed. However, for example, the rank and description of the person described in paragraph 7.2 of the Explanatory Memorandum will be the holder of the nuclear site licence and this will vary by establishment.

The noble Lord also asked about personnel security. Nuclear sites must comply with personnel security vetting requirements and all workers in the sector must be cleared to a level commensurate to their required access to nuclear material and sensitive nuclear information. Given the noble Lord’s past experience in this area, he will appreciate that it is very difficult for me to give much detail on each site.

If, on further thought, the Minister may be able with the assistance of her officials to write to me, I would not object to that.

Of course I would be happy to write, if I fail to provide the noble Lord with sufficient reassurance.

All staff have responsibility for ensuring effective security at civil nuclear sites. Having an effective security culture is, of course, very important. There will be a number of security-specific roles at civil nuclear establishments, and these vary depending on the site. All sites are subject to the same requirements and standards. In line with the graded approach, the level of security at each site will be determined by the nature of materials and equipment and the information held.

I welcome the very positive response from the noble Lord, Lord Grantchester, to the measure and agree that it is non-contentious. He asked a number of questions, and I will deal first with Euratom. If he will allow me, I want to spend a few moments on this because it is important to be as clear as I can. Leaving Euratom is a result of the decision to leave the EU, as they are uniquely legally joined. However, the UK supports Euratom and will want to see continuity of co-operation and standards. We remain absolutely committed to the highest standards of nuclear safety, safeguards and support for the industry. Our aim is clear: we want to maintain our mutually successful civil nuclear co-operation with Euratom. The statutory regime for civil nuclear security is based solely on UK legislation. There are no Euratom or EU directives relating to nuclear security that the UK is required to comply with. In fact, the EU has no competence in relation to nuclear security. Euratom has no role in setting security standards, regulations or the inspection of security arrangements in the UK civil nuclear sector.

The Government do not comment on specific security or intelligence arrangements at individual sites. The most sensitive commissioned civil nuclear sites and transportations of nuclear materials in the UK are protected by the Civil Nuclear Constabulary. The CNC is a specialised, dedicated elite firearms force, with a Royal College of Policing firearms licence, charged with the protection of the most sensitive civil nuclear sites and nuclear materials in England, Scotland and Wales.

The noble Lord, Lord Grantchester, asked one other question about defence sites such as Aldermaston; indeed, it is a question I asked officials last week. The answer is categorically no, they are not subject to this SI and are not a part of these regulations. There is a separate regulatory regime that applies to defence sites. I hope I have been able to respond sufficiently fully.

I wonder if I can tempt the Minister with one further question I was concerned about: each site having a specific plan and whether differences between sites meant that there were different practices that could lead to a misalignment of security standards.

I apologise to the noble Lord. Apparently I have been given the answer to his question but it seems to have chosen to disappear. Ah, it is under the folder. Good. All sites are subject to the same requirements and standards. In line with the graded approach, the level of security at each site will be determined by the nature of materials, equipment and information held.

On that note, I hope I have sufficiently responded to the noble Lords. I thank them for their helpful remarks, and I hope they will agree that the responses I have given have provided the necessary assurances for them to approve this straightforward statutory instrument. As I said in my opening remarks, the overarching aim of these updates is to further enhance civil nuclear security by ensuring that the UK’s regulatory regime remains up to date, comprehensive and robust.

Motion agreed.

Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017.

My Lords, the regulations we are looking at today help to ensure that we have an effective system in place to handle the failure of investment banks. Our approach simplifies and speeds up the special administration process and reduces the cost of the administration for clients and for creditors.

It is of course worth recalling that the collapse of Lehman Brothers taught us that our insolvency regime was not capable of dealing effectively with a failure of a large and complex investment bank. Against that background, we introduced the investment bank special administration regime in 2011 with the aim of changing the insolvency rules so that they more adequately protected the interests of clients. The legislation, rightly, includes a provision for review. I pay tribute to Mr Peter Bloxham, an insolvency lawyer who was appointed to lead this and whose final report was laid before Parliament in 2014. The purpose of the regulations is to improve the functioning of the regime by implementing the Bloxham review recommendations and learning from investment bank insolvencies in recent years.

The reforms we are making seek to strengthen the administration process in three ways. First, the regulations make it easier for an administrator to transfer client assets to an alternative firm. This will benefit clients in the event a firm fails by ensuring they have continued access to investment services. The regulations provide an administrator with the power to transfer the whole investment firm to another institution in spite of certain restrictions which can delay or disrupt this, such as the need to obtain client consent from all affected clients before the transfer can take place. Importantly, the regulations include key safeguards to protect clients and their interests. Clients will be able to request the return of their assets following the transfer, while client risk-management arrangements that the firm has in place will be protected.

Secondly, the regulations make the administration process simpler and quicker by strengthening and extending the bar date mechanism. This is a procedure that gives the administrator the power to set deadlines for clients to submit claims for the return of their assets. In the past, some administrators have been unable to close the client estate following the bar date procedure, allowing the administration process to drag on. These regulations therefore introduce a “hard” bar date, a power which enables the administrator to return assets more quickly to clients. I am very grateful to the chair of the House of Lords Secondary Legislation Scrutiny Committee, my noble friend Lord Trefgarne, for the time his committee has dedicated to reviewing the regulations. The committee paid special attention to the bar date mechanism and I always welcome its expertise and engagement on these sorts of provisions.

Thirdly, the regulations provide greater legal certainty for clients and creditors. This addresses a key weakness in the existing regime. One key change is clarification of a client’s right to receive interest on their claims during the administration process. We are taking away the perverse incentive to engage in arbitrage between client and creditor estates that occurred in previous administrations. In addition, the regulations clarify when an administrator needs to go to court to seek a direction on certain matters. Taken together, these reforms improve the speed at which assets can be returned to clients and enable the administration process to operate both more efficiently and effectively.

The changes we are making were broadly supported in consultation with the different parts of the market that would be affected by the failure of an investment bank. We also took advice from the Banking Liaison Panel on specific aspects of the regime, particularly the safeguards in place. I regret that we did not publish a consultation response document. However, in the Explanatory Memorandum and impact assessment accompanying the regulations, we presented a summary of the eight responses we received. I also note that we did not carry forward a duty on firms to co-operate with the administrator. Following discussions with the Joint Committee on Statutory Instruments we assessed that existing statutory duties that require firms to provide information and documents to the administrator would be effective. These existing duties will enable clients to access their assets quickly and efficiently without imposing an additional and overlapping duty on firms.

These regulations are an important step forward. They are a reflection of the lessons we have learned from the past failures of investment banks but they are also a reflection of the strong future of our banking and financial system. With the reforms we are proposing today, we will be better able to ensure the financial security of the UK and continue London’s role as a leading financial centre. I beg to move.

My Lords, I thank the Minister for introducing this order. As she has already outlined, the purpose of this instrument is two-fold: to correct the definition of “investment bank” and to extend elements of the special administration regime, the SAR, which is the administration procedure for insolvent investment banks. These measures are part of an effort to improve the regulations and processes that govern the financial services sector. We oppose none of the measures the Government are proposing to introduce, but I have a number of points that I hope the Minister can clarify.

Part 2 of the instrument alters the definition of “investment bank” to include alternative investment funds and undertakings for collective investments in transferable securities. It was the intention of the original legislation that such firms be included in the SAR. However, they have fallen out of scope as an unintended consequence of the introduction of other legislation. As has been said, this is merely a correction. In practical terms, it increases the number of banks covered by the legislation from 700 to 1,000. May I be assured that this rise has been taken into account when considering the resources needed to communicate changes to the SAR?

I will focus the bulk of my time on Part 3 of the regulations. After much discussion, the Banking Act 2009 did not include any specific reform of investment bank insolvency. However, it provided an enabling power to pass new regulations that had to be reviewed within two years. Accordingly, the special administration regime was introduced in the Investment Bank Special Administration Regulations 2011. Peter Bloxham carried out a review and published recommendations in January 2014. This instrument implements some of those recommendations.

The most substantive change the regulations will introduce is changing the “soft” bar date to a “hard” bar date. Under the current legislation, claimants who fail to claim before the bar date can still receive client assets. The introduction of a “hard” bar date would remove this right. This seem perfectly reasonable. The client asset can be closed more swiftly and at a lower cost. However, the key question I have about this switch is how much longer the process of insolvency will last as a result. If I am not mistaken, the “hard” bar date will not be automatic. The administrator will have to apply to the court. For the court to accept a “hard” bar date, it must be,

“satisfied that the administrator has taken all reasonable measures to identify and contact persons who may be entitled to the return of client assets”.

How long do the Government expect the administrator will need before it can collate all this information?

Furthermore, new Regulation 12D(2)(b) sets out the criteria for when the court can grant an application for a “hard” bar date. The first of these criteria is that there can be,

“no reasonable prospect … that the administrator will receive claims for the return of client assets after that date”.

How can the administrator be sure that there is “no reasonable prospect”? Surely this will require extensive research. Again, will this not result in delay before the administrator is confident it has a strong case for the court? The longer a case of insolvency drags on, the greater the uncertainty, and with uncertainty the prospect of market instability.

The next issue is one my honourable friend in the other place the Member for Stalybridge and Hyde raised, relating to the mechanisms in place before assets are pooled, which could assist in a more efficient and reliable return on client assets. The Economic Secretary to the Treasury in the other place stated in response to my honourable friend’s questions that,

“the FCA has taken a number of steps to improve firms’ record keeping. These reforms have been extensively consulted on with practitioners who have experience in dealing with pooled accounts”.—[Official Report, Commons, Second Delegated Legislation Committee, 7/2/17; col. 8.]

I ask the Minister: what specific steps have been taken by the FCA and has it seen a reduction in the rate of regulatory non-compliance cases it deals with as a result?

I turn to the issues raised by the Secondary Legislation Scrutiny Committee. Why have the Government not published the full consultation response to the Bloxham review? I note the Minister’s apology but I hope she can go into a little more detail. I have read the explanation, as has the committee, and I have to say that neither it nor I are convinced by the answers so far. The Government state that:

“The areas raised in the consultation were largely technical in nature”.

Surely this is exactly the place where such technicalities should be debated and scrutinised. I look forward to hearing a more detailed response from the Minister as to why the Government feel it is appropriate to flout their own consultation principles.

My final query for the Minister relates to the procedures used in the event that the administrator’s conduct is challenged. The new sub-paragraph (e) in paragraph 14 states that the FSCS, the financial services compensation scheme:

“may make an application … on the grounds that the administrator is not performing the duties … as quickly or as efficiently as is reasonably practicable”.

I note that the new Section 10A(b) inserted by the order says the administrator must “keep the FSCS informed”, but what does the Minister anticipate that will mean in practice? Surely in order for the FSCS to be confident that the administrator is not fulfilling his statutory duty, he must have detailed knowledge of the workings of the operation. What criteria will be used to judge whether an administrator has failed, and by whom? If the administrator is found to be inappropriate, whose responsibility is it to complete the insolvency? I look forward to the Minister’s response.

My Lords, may I intrude a word into this debate? There is an aspect of 2008 that has never been corrected, and which did a great deal to disguise the extent of the insolvencies existing at that time. It might now perhaps be possible to squeeze a solution into something like this.

There is a practice that was prevalent in cases such as Bradford & Bingley and Northern Rock: if a bank or building society had a house on which it had an outstanding loan of, say, £10,000, and the house was worth £1 million, it entered the whole £1 million as an asset on its balance sheet, although it had no legal access or right to that surplus value. Banks did that solely to emphasise the extent of the solvency that they could demonstrate for their loans, but it made a complete distortion of what the balance sheet really was and misled people into letting them trade on for too long. Nowhere have we ever corrected this in any of the accounting rules. This may be the last chance saloon.

My Lords, I thank the noble Lord, Lord Tunnicliffe, and I will try to address his various questions. I am very grateful to my noble friend Lord James for his comments, and I will see if I can answer his question. If I am not able to do so today, I will certainly write.

We all share an interest in ensuring that we handle the failure of an investment bank effectively. That is not only for the benefit of any clients or creditors who will be involved but to the benefit of our whole financial system. Since the investment bank special administration regime was introduced in 2011, firms operating under the procedure have given us valuable insights into how we can improve it, and in particular how we can improve the ability of clients to receive their assets as quickly as possible in the event of a bank failure. The return or transfer of client money could take as little as 30 days, but closing a whole estate can be very complex and is obviously very unlikely to occur in less than a few months.

The noble Lord, Lord Tunnicliffe, asked whether the Treasury had considered the number of banks in scope of this legislation. He referred to the number going up from 700 to 1,000, and he was concerned about the communication resource in relation to that. In fact administrators believe that the additional costs of familiarising themselves with the regime will be negligible; indeed, the impact assessment shows that there are thought to be savings from these changes. In the majority of cases, the amendments provide helpful legal certainty.

On the point about consultation, as I said and the noble Lord acknowledged, I regret that we did not publish a response document. I note his concerns and those of the committee. During the consultation period, we had extensive engagement with key stakeholders. These discussions are summarised, as I said, in the Explanatory Memorandum and impact assessment which accompany the regulations. We also consulted the Banking Liaison Panel on specific aspects of the special administration regime, and I undertake to ensure that we publish the BLP’s formal advice and learn from this experience.

The noble Lord also asked about the introduction of a hard bar date. The Government do not propose to change the soft bar date to a hard bar date. The hard bar date is a new mechanism designed to cut down on the time needed for the distribution process. The existing regime already provides the administrator with the power to set a soft bar date for custody assets. The regulations extend the soft bar date to client money and introduce the new hard bar date for custody assets and client money.

The noble Lord asked what impact a hard bar date would have on the length of the insolvency process. As the law now stands, the court will already want to be satisfied that there is no reasonable prospect of new claims being received before approving a transfer of residual assets to the failed bank’s estate for distribution among unsecured creditors, including any clients who have not yet claimed. Under the hard bar date mechanism, the administrator will instead apply to the court for the approval of a final date for the submission of clients’ claims. As these insolvencies are dealt with on a case-by-case basis by administrators, the Government cannot estimate how long the process will last, but the hard bar date provides an additional tool which we believe will speed things up. I cannot get the noble Lord a clear answer, but I am confident that the change will be beneficial.

The noble Lord also asked what steps the FCA has taken to improve firms’ record-keeping and, furthermore, whether it has seen a reduction in the number of non-compliance cases as a result. Through updates to its rules on holding client assets, FCA-supervised firms now have to meet higher reporting and record-keeping requirements. The FCA has found an increased level of awareness of the rules and more co-operation with a view to compliance.

I come to the question of what it means for the administrator to keep the Financial Services Compensation Scheme informed and whether there are any criteria by which to judge the administrator’s conduct. In practice, in any given administration, it will be for the FSCS to determine, in co-operation with the administrator, the adequate level of information that it requires from the administrator to carry out its functions. If the FSCS feels that an administrator is not co-operating in the way envisaged, it may apply to the court for an order requiring the administrator to do what is necessary. Of course, the court has wide powers, including power to remove the administrator from office.

The criteria for making a challenge by the FCA or clients are that the administrator is acting or proposes to act unfairly in a way that harms the interests of the applicant or otherwise is not performing its functions as quickly and efficiently as is reasonably practicable. It is for the court to assess the evidence and the case made by the person who challenges the conduct of the administration. Under the SAR, the court has the same power as in an ordinary company administration to regulate the exercise of functions or require the administrator to take specified steps. The court may of course also replace an administrator removed from office to ensure that the administration is concluded properly.

To try to respond to my noble friend Lord James of Blackheath, it would be outside the scope of the special administration regime to make provision about the accounting practices of banks as deposit-takers and building societies. There is a limit to what I can do to help him today, but I am grateful to him for raising the point with me.

I can certainly agree to talk further to my noble friend, and if talking to the Accounting Standards Board seems to be a good way forward, I would be happy to do that. I am grateful to him for raising the point.

I conclude by saying that these regulations make important reforms to strengthen the investment bank special administration regime. I hope the Committee will join me in supporting our efforts and this Motion.

Motion agreed.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2017

My Lords, in moving this Motion I will speak also to the draft Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2017. I am required to confirm to the Committee that these provisions are compatible with the European Convention on Human Rights, and I am happy so to do.

The two statutory instruments will increase the value of lump sum amounts payable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and the diffuse mesothelioma scheme set up by the Child Maintenance and Other Payments Act 2008 by 1%. These new amounts will be paid to those who first satisfy all the conditions of entitlement on or after 1 April 2017.

The two schemes stand apart from the main social security benefits uprating procedure and there is no legislative requirement to review the level of payments each year. None the less, I am happy to announce the increase in the amounts payable for 2017 by the consumer price index. This is the same 1% rate that is being applied to industrial injuries disablement benefit and some other social security disability benefits under the main social security uprating provisions.

The Government recognise that people suffering from diseases as a result of exposure to asbestos, or one of a number of other listed agents, may be unable to bring a successful claim for civil damages in relation to their disease. This is due mainly to the long latency period, often stretching back decades, between exposure and onset of the disease. Therefore, by providing lump sum compensation payments through the two schemes, we fulfil an important role for sufferers of certain dust-related diseases. The schemes aim also to ensure that sufferers receive compensation in their lifetime while they themselves can still benefit from it, without first having to await the outcome of civil litigation.

Improved health and safety procedures have restricted the use of asbestos and provided a safer environment for its handling. However, the historic legacy of the common use of asbestos is still with us. That is why we are ensuring that financial compensation from both these schemes is available to those affected.

I will briefly summarise the specific purpose of these lump sum compensation schemes. The Pneumoconiosis etc. (Workers’ Compensation) Act 1979, which for simplicity I will refer to as the 1979 Act scheme, provides a lump sum compensation payment to those who suffer from one of five dust-related respiratory diseases covered by the scheme who are unable to claim damages from employers because they have gone out of business, and who have not brought any action against others for damages. The five diseases covered by the 1979 Act scheme are diffuse mesothelioma, bilateral diffuse pleural thickening, pneumoconiosis, byssinosis and—if accompanied by asbestosis or bilateral diffuse pleural thickening—primary carcinoma of the lung.

The 2008 mesothelioma lump sum payments scheme was introduced to provide compensation to people who contracted diffuse mesothelioma but who were unable to claim compensation for that disease under the 1979 Act because, for example, their exposure to asbestos was not due to their work. The 2008 scheme also allows payment to be made quickly to diffuse mesothelioma sufferers at their time of greatest need. Under both schemes a claim can be made by a dependant if the sufferer died before being able to make a claim. The rates payable under the 1979 Act are based on the level of disablement assessment and the age of the sufferer at the time the disease is diagnosed. The highest amounts are paid to those diagnosed at an early age and with the highest level of disablement. All payments for diffuse mesothelioma under the 1979 Act scheme are made at the 100% disablement rate—the highest rate of payment. Similarly, all payments under the 2008 scheme are made at the 100% disablement rate and are based on age, with the highest payments going to the youngest sufferers.

The Committee may like to know how many claims we received and the amounts paid out under these two schemes. In the last full year, from April 2015 to March 2016, 3,520 people received payments under the 1979 Act at a cost of £45.9 million, and 400 people received payments under the 2008 scheme at a cost of £8 million. The total amount of compensation paid out under both schemes during this period amounted to almost £54 million. The forecast for the current year, 2016-17, is that 3,592 people will be paid under the 1979 Act scheme and some 420 people will be paid under the 2008 Act scheme. The estimated total amount of compensation under both schemes is likely to be £54.2 million.

I am aware that in previous debates on increasing the value of lump sum payments paid under these two schemes, noble Lords have raised the subject of equalisation of payments between sufferer and dependant claims. However, we do not intend to equalise payments this year. Instead, we will continue to keep this matter under review and consider equalisation once resources allow.

Around half the payments made under the 1979 Act scheme are made for diffuse mesothelioma. I am aware that the occurrence of diffuse mesothelioma is a particular concern of many noble Lords, given that diffuse mesothelioma-related deaths in Great Britain are at historically high levels. Diffuse mesothelioma has a strong association with exposure to asbestos, and current evidence suggests that around 85% of all male mesotheliomas are attributable to asbestos exposures that occurred through work. Those diagnosed with diffuse mesothelioma usually have a short life expectancy —generally between nine and 12 months—with the sufferer becoming severely disabled soon after diagnosis.

The number of cases reflects the long latency period of the disease, which can take decades to become apparent. Latest available information suggests that there will continue to be around 2,500 diffuse mesothelioma deaths per year for the rest of this decade before annual cases begin to fall, reflecting a reduction in asbestos exposures following its widespread use between 1950 and 1980.

These regulations increase the levels of support through the statutory compensation schemes and I am sure the Committee will agree that, while no amount of money can ever compensate individuals and families for the suffering and loss caused by diffuse mesothelioma and the other dust-related diseases covered by the 1979 Act scheme, those who are suffering rightly deserve some form of monetary compensation. These statutory schemes deliver an essential part of it. I commend the increase in the payment scales and ask the approval of the Committee to implement them. I beg to move.

My Lords, I am sorry to interfere again but when I read this I got a nasty jangle in the back of my head which said that this does not necessarily fit with what we discussed before, in the days when my noble friend Lord Freud was bringing the Bill through. I remind your Lordships that at that time, I initiated direct discussions with the Royal British Legion on exactly this subject because it is the expert on what is happening, who is suffering and what their state is.

Sadly, the Royal Navy is the principal biggest culprit. Worst affected of all are those who served on the Royal Yacht “Britannia”, which is a terrible scandal. Nearly everybody who served or did anything in the engine room of the Royal Yacht “Britannia” is now either dead or dying from diffuse mesothelioma. The Royal British Legion set up a special department to deal with this, because the tragedy is that people’s wives and children have got it, too, because you have only to wash the coat of somebody who has this to be a condemned person from that moment on. The Royal British Legion has gone to great lengths to make sure that it is monitoring and looking after the wives, families and dependants of these dreadfully stricken people.

At the end of that debate, my noble friend Lord Freud gave an undertaking that he would not do anything that initiated payment structures which interfered with or were diminished by the presence of the Royal British Legion payments, so that people would get the maximum benefits for their hugely distressed situations; that he would look after things to ensure that nothing we did cut across the Royal British Legion’s process, and vice versa; and that it would be wholly co-ordinated. The jangle I got in my head was because I have never heard whether that has happened, and that is why I am asking for some assurance that my noble friend’s undertaking was fulfilled. What is its status today, please? It really matters.

My Lords, I thank the noble Lord, Lord Henley, for his introduction and explanation of the regulations. I am sorry that the noble Lord, Lord James, has had a nasty jangle in the back of his head. Clearly, he is concerned about undertakings made in respect of the Royal British Legion. I worked on this—not alongside the noble Lord, Lord Freud, but on the opposite side—and I do not think that anything has arisen in the course of lots of changes to these provisions over a number of years which would be in breach of the undertaking he gave the noble Lord, but it is not for me to defend a former Minister.

My Lords, I will put the noble Lord’s assertion to the test with one simple question: can we say with absolute certainty that not one penny from the Royal British Legion has been withheld or interfered with by us through the conflict between its initiatives and ours, and that everybody has gone ahead with the full funding under both arrangements?

No, I cannot possibly say that. It is not my role as a shadow Minister. If anybody is going to give those undertakings, it is the noble Lord, Lord Henley, and I wish him well.

As we have heard, the regulations cover various compensation schemes, including the ones for pneumoconiosis and other dust-related diseases covered by the Pneumoconiosis etc. (Workers’ Compensation) Act 1979, and, separately, mesothelioma. The payments are uprated by 1%, which is the September 2016 CPI rate of inflation. One might say that this is a meagre sum, just missing the surge in inflation generated by the decline in the rate of sterling post the referendum, although we acknowledge that there is no statutory obligation to uprate the compensation schedules and that the 1% aligns with the uprating of industrial injuries benefits, as we have heard. Obviously, we support the regulations but I have some questions.

We have no impact assessment for the instruments, although the Explanatory Notes indicate that in the year to March 2016 some 3,520 people made a claim under the 1979 Act, including 310 claims for dependants. I think my question may already have been answered. Can the Minister tell us how many of these claims were successful and can we have an analysis of the various categories of dust-related diseases? I think the noble Lord referred to 3,592 payments. The explanatory memorandum talks about claims. Maybe it is a question of nuances of terminology, but it would good to know the actual number of successful claims. Can we also be provided with an analysis of the amounts of the various claims, how these were funded and the extent to which there has been or will be clawback of social security benefits?

So that we can get the overall picture of the numbers suffering from these dust-related diseases—other than mesothelioma—can we have some detail on what has been covered by employer liability insurance? The ELTO 2015 annual report—when will we get an updated one?—shows an improvement in successful inquiries but apart from mesothelioma itemises only asbestosis and asbestosis-related illnesses. Further, the ELTO report does not cover successful claims which might be made directly to insurers outside of ELTO. Can we be provided with a complete picture of the number of workers entitled to lump-sum compensation arising from the 1979 Act for the latest period available? Can we also be provided with details of how many are missing out on compensation?

The position concerning mesothelioma is different, as we have heard. Diffuse mesothelioma is a fatal cancer of the lining of the lungs or abdomen caused almost exclusively as a result of exposure to asbestos. Symptoms and diagnosis may not emerge until 30 or 40 years following exposure—it is a long-tail disease—and this obviously exacerbates difficulties in identifying relevant employers and employer liability insurers. A number of steps have been taken in recent times to improve access to compensation for sufferers of this terrible condition. In 2008 the previous Labour Government introduced the scheme which is the subject of the regulations before us today. It is a no-fault scheme, so does not require a work-related nexus or proof of negligent exposure to asbestos. It has tended to be illustrated, as the noble Lord, Lord James, said, by exposure caused by washing somebody’s work clothes.

After an initial differential, the rates of compensation under the 2008 Act—for sufferers and dependants—have been separately aligned with the 1979 Act amounts for those with 100% disability, although, as the noble Lord said, there is still the differential between payments in respect of dependants and sufferers. Again, we have no impact assessment, although the Explanatory Note tells us that some 400 people made a claim in the period ended March 2016, including 10 dependants. How many of these claims were successful? How were they were funded? I seem to recall that the original concept was for funding to come from civil claim recoveries. What is the current position? If we are to see the overall picture here, albeit not strictly covered by these regulations, we should consider the further important developments led by the noble Lord, Lord Freud, with the co-operation of the insurance industry. These include the Employers’ Liability Tracing Office, which focuses on assisting claimants to identify an appropriate employer liability insurer. While the 2015 report shows the inquiry success rate improving, it is far from 100%. For mesothelioma, it is just below 77%.

So onward to the diffuse mesothelioma payment scheme—a scheme of last resort—which started making payments from July 2014. It seeks to compensate those negligently exposed to asbestos while at work but who cannot trace the responsible employer or insurer. The scheme is funded by a levy on the gross written premiums of those insurers writing employer liability insurance. It was acknowledged that the insurers could not commit to a levy level above 3% of gross written premiums. In its first year, net payments of £24 million were made, with an average amount of £122,000. The tariff payments, originally at 75% of average civil claims, have risen from 80% to 100%. There is an oversight committee, which my noble friend Lady Donaghy chairs.

In respect of mesothelioma entitlements with an employment nexus, can the Minister let us know for the most recent period available the total number of successful compensation claims and the amounts achieved via employers or insurers, either directly or using the tracing office, and the total number of tariff payments made under the payment scheme? Has the DWP made an assessment for the most recent period of the number of mesothelioma sufferers who have not been able to access either compensation or a tariff payment? What do we understand the reason to be for the shortfall between the expected claims to the payment scheme and outturn for the most recent period? The Minister did give us an updated forward projection of the incidence of mesothelioma: 2,500 cases for the rest of the decade. The Minister is probably aware of the extensive debates we have had on this issue and of the focus on funding for research for sufferers. That has been a positive development.

As a final point, ELTO has made good progress in tracing policies. It is suggested that better access to the employer reference number from HMRC would assist in this. There was an attempt to amend a recent Bill to try to secure that, but it was unsuccessful. Will the Minister tell us what is happening on this issue?

My Lords, I thank the noble Lord, Lord McKenzie, and my noble friend Lord James of Blackheath for their comments. The noble Lord, Lord McKenzie, asked a number of fairly detailed questions, a great many of which will, I suspect, be far better dealt with in correspondence, if the noble Lord will accept that. The answers will come down to rather detailed figures because he asked about the analysis of the levels of claims, which obviously depends on the age of the complainants. I have a sneaking suspicion that a table setting out such details might be of greater use to the noble Lord and other noble Lords who have taken a great interest in the matter.

I appreciate that we did not have a debate on this last year because the CPI was where it was and so there was no uprating. One could say that one of the benefits of this being normally uprated in line with inflation, because it is separate from the others and at the discretion of my right honourable friend the Secretary of State, is that we manage to have some debate on this important matter each year, with the exception of last year. That way, these matters can be exercised, rather than subsumed in the general uprating debates that happen—for example, last week. Having made that broad point, let me try to answer a number of the questions that noble Lords have raised.

The first is one on which, again, I will have to offer to write to my noble friend. He asked about the support that the Royal British Legion might be offering to former Navy servicemen, particularly from HM Yacht “Britannia”, who have suffered from this, and whether they were going to lose out as a result of payments being made by the Royal British Legion. I will take advice on that and will write to my noble friend.

One small point that I can make, and the noble Lord, Lord McKenzie, has already referred to, is that children and spouses who might have suffered as a result of contamination from, for example, washing clothes and therefore inhaling asbestos will be covered by the 2008 scheme. Since the noble Lord, Lord McKenzie, mentioned that, I will repeat—and of course we all remember our dates—that 2008 saw an improvement to the scheme by the previous Government, for which I think all those who suffer are very grateful. That is part of what we are debating today.

The first point that the noble Lord, Lord McKenzie, made was about inflation and the small rise of 1%. The noble Lord will just have to accept that, as with other benefits, that is the September-on-September figure. Any future inflation will obviously be covered when my right honourable friend considers this. There is of course a discretion in future years, and a catch-up can take place if it is thought appropriate. However, my right honourable friend considered it right that we should stick to that CPI figure to September 2016, though I am sure he will consider that again in later years.

The noble Lord asked, with regard to both pneumoconiosis and mesothelioma—I apologise to the Committee; I have great problems with those words —just how many claims were successful and what was the percentage of success. He sought in particular an analysis of the levels of claims. Again, this is a matter on which it would be helpful if I wrote to him, in this case setting out details of those missing out and so on. I give the assurance that not only will I write to him but I will make the analysis available in the Library in the usual way for the benefit of other noble Lords who have taken an interest in this issue. I see the noble Baroness, Lady Donaghy, nodding; I know she has taken an interest in these matters in the past, and if necessary I will write to her directly.

Broadly speaking, with regard to the number of claimants, my noble friend Lord Bourne, dealing with these regulations in 2015, talked about them possibly reaching a peak in 2018. I would not want to be quite so specific but we are seeing that the figures will probably level out towards the end of this decade and then, because of the era that we are dealing with— very largely, 1950 to 1980 saw a high use of asbestos, but I appreciate that some other forms of asbestos were not banned until somewhat later—we should begin to see a decline because of the nature and demographic of those concerned and the very long period for which these conditions can lie dormant. So, broadly speaking, we are talking about a levelling out and then a decline but, very sadly, I suspect we will have to continue with this annual debate for a number of years to come.

If the Minister will allow me to intervene, it is not just a question of looking at the total numbers of people who are new sufferers, particularly in relation to mesothelioma; it is the extent to which they are able to access compensation—as the Minister put it—speedily, whether it is through systems such as ELTO, the payments scheme, or indeed any other scheme. Given the nature of these conditions, we should not be looking at the growing trends, but at whether the mechanisms we have in place are delivering and enabling those people to get access to compensation with tariff payments.

I want to make sure I get it right and give the right figure. The noble Lord is asking whether we are reaching all those who we think are affected. I think I can give an assurance that 100% of those who are suffering from the five diseases that I set out comply in other respects; in other words, they have not made another claim, or whatever. Those are successful, but if there are some who are unsuccessful, I suspect that will be because they are not eligible. Once suffering from the diseases, there is no need to prove anything further. We are not talking about people being turned away in that respect, but I suspect I will have to write to the noble Lord with further detail.

The noble Lord also asked about the employers’ tracing scheme—ELTO—and again I can confirm that it is still doing what it was set out to do and it is, as he put it, having somewhat greater success. As a result, something in the order of half of that £54 million—I have the figures here—comes back. Again, I will write in further detail to the noble Lord on that matter. I apologise to the noble Lord for not really being able to give him greater detail at this stage, but I believe that I can set out the figures—as he put it, in further detail—and I have given assurances that I will do. I hope that that satisfies the noble Lord and others. I beg to move.

Motion agreed.

Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2017.

Motion agreed.

Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017.

My Lords, these regulations which are being introduced under powers in Section 153 of the Equality Act 2010 replace and amend the Equality Act 2010 (Specific Duties) Regulations 2011. Under this power, Ministers can impose specific duties on public authorities to secure the better performance of the public sector equality duty. These regulations replicate the measures from the previous specific duties regulations, namely that public bodies must publish information every year to demonstrate their compliance with the equality duty and set equality objectives every four years.

Tackling the gender pay gap is an absolute priority for this Government. That is why we have used these powers to include new duties for the relevant public authorities, if they have 250 or more employees, to report on their gender pay differences. We have already delivered on our manifesto commitment to introduce mandatory gender pay gap reporting for large employers in the private and voluntary sectors. The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 were approved by both Houses last month and signed by the Secretary of State on 6 February.

Of course, it is only right that public bodies, including government departments, are subject to the same reporting requirements. That is why we announced in October 2015 that we would be extending the manifesto commitment to the public sector. We want government to be a trail-blazer and lead by example. These regulations apply to specified public authorities in England, non-devolved organisations and certain cross-border authorities. Scottish and Welsh public bodies are subject to separate specific duties regulations. The devolved Administrations in Scotland and Wales have been consulted on the proposed changes. Both sets of regulations will require the same gender pay gap calculations and use the same methodology for calculating the data.

Public authorities that are subject to these regulations will need to publish the mean and median differences between the average hourly rate of pay for male and female employees. They will need to publish the mean and median differences between the average bonuses paid to male and female employees. They will also need to report on the proportions of men and women who receive bonuses, and the proportions in each quartile of their pay distribution.

All specified public bodies will need to publish their gender pay gap data on a website that is accessible to members of the public. Organisations will also need to upload data to a government-sponsored website, which will allow us to establish a database of compliant employers and closely monitor compliance. We have aligned the reporting timetables and obligations as closely as possible for employers in different sectors to achieve consistency and comparable sets of data. The two sets of regulations will provide unprecedented transparency on gender pay differences in all sectors and create the environment needed to drive change. I beg to move.

My Lords, first, I thank the Minister for bringing these regulations before us tonight. We waited seven years for the Government to come forward, but I am very pleased that they have finally introduced mandatory pay audits for large companies in the private and voluntary sectors. It is a shame that it has taken this Government so long to bring into force the measures created by the last Labour Government, but at least now we are taking some steps forward, which is very good. I commend the Government for extending the mandatory pay gap reporting duties to public sector employers, as they promised to do in October 2015. This again is another step forward towards progress.

The regulations discussed today, under Section 153 of the Equality Act, mirror almost exactly the regulations under Section 78, although I have concerns that some of the new duties could have gone further. As with the duties on private and voluntary sector organisations, they apply only to public authorities with 250 employees or more. The maintenance of such a high employee threshold for application of these duties in the public sector was raised as a concern by a significant number of organisations and individuals responding to the Government’s consultation, but the Government have chosen not to set a lower threshold for public bodies.

It is understandable that the Government would want to create comparable data between the public sector and private and voluntary sectors but, clearly, limiting the application to public sector bodies with more than 250 employees will severely limit the number of public authorities caught under this regulation. The Government claim that of course a public authority of any size could choose to adopt mandatory reporting, but to what extent will a voluntary expectation create practice in reality? What communication does the Minister intend to have with all public bodies, regardless of their number of employees, to encourage them to publish their gender pay gap information? Have any indicated to her that they will take this voluntary action? In the consultation response, the Government promised to keep under review setting a lower employee threshold, but failed to give an assurance on a timescale. When will this be reviewed? What evidence will she require to persuade her that the figure of 250 employees is too high a threshold?

The regulations impose a reporting duty on public authority employers that obliges them to publish information demonstrating compliance with the public sector equality duty and how they will work towards achieving any of the three core objectives of the duty. Despite the requirement to make these objectives specific and measurable, the regulations do not require an employer to publish an action plan or equality objectives aimed specifically at tackling the gender pay gap, as recommended by the Equality and Human Rights Commission. In the consultation response, the commission stated:

“public authorities should be required to publish one or more objectives showing how they will contribute to reducing the gender pay gap, supported by an action plan setting out the steps they will take to achieve their objective(s) and the timescales for taking those steps”.

Will the Minister confirm that the Government will ensure that employers will act to tackle the issues raised through mandatory gender pay gap reporting? I am concerned because the information on employer compliance with the public sector equality duty is to be published by 30 March 2018, and then only every four years. I look forward to March 2018, after the first gender pay gap reports under the regulations have been published, but it is not enough just to know that employers have a problem. The Government must do all they can to ensure that the problems are tackled.

The consultation says that the issue will be reviewed. When will that take place? The Government have said that they will publish tables by sector of employers reporting gender pay gaps, published under Section 78 of the Equalities Act. Will they do the same for public authorities, and will the Minister go further and publish an annual league table, ranking public bodies by pay gap? Will the Minister commit today to bring an annual report to Parliament with the raw data responses from the information from public authorities, demonstrating compliance with the public sector equality duty and, of fundamental importance, a government action plan to narrow the gap in the following 12 months?

Progress in tackling the gender pay gap must not be just incremental and piecemeal. Already, progress initiated by the previous Labour Government has been implemented—we think, far too slowly—by subsequent coalition and Tory Governments. We are aware of the deep, corrosive structural barriers at the core of the gender pay gap: occupational segregation, with women stuck in chronically low-paid and undervalued sectors of the economy; unequal caring responsibilities; the undervaluing of roles predominantly done by women; and such matters as maternity discrimination.

I hope that the Minister can say why the Government have rejected almost all of the 17 recommendations made by the cross-party Women and Equalities Committee on tackling the gender pay gap—recommendations which aim at improving working conditions for women of all ages, in all sectors and across the country. It is a shame that the Government are ignoring the evidence of experts as well as the voices and lived experiences of thousands of women in chronically low-paid, undervalued sectors of the economy, such as care, hospitality and retail.

Government research done with the Equality and Human Rights Commission estimated that 54,000 women per year are forced out of their jobs due to maternity discrimination, yet since the introduction of employment tribunal fees fewer than 1% of maternity discrimination cases now end up in a tribunal. On 31 January 2017, the Government published their own review of employment tribunal fees, admitting that:

“The fall in claims has been significantly greater than was estimated when fees were first introduced”.

The only way that women have to enforce their rights at work is through employment tribunals, so it is difficult to see how the Government can claim to show commitment to tackling the gender pay gap when they have effectively priced women out of their own employment rights.

I am very pleased that these regulations are before us today, and it is good that we are bringing them in for the public sector. However, I am sure the Minister will agree that far more needs to be done, and at a faster pace than we have seen so far, so that we can close the gender pay gap. I look forward to the Minister’s response.

My Lords, nothing that I am about to say should be interpreted as anything other than strong support for the regulations, but I think some history is important. In 1970 Barbara Castle introduced an Equal Pay Act that was virtually useless. In 1974 I left the Bar to work for a Labour Government, with Roy Jenkins, to pioneer sex and race discrimination legislation. We were forbidden to do anything about the Equal Pay Act, which in any case was to be brought in within five years of 1970. So in 1975 a virtually useless Equal Pay Act from a Labour Government was brought into force. What then happened was that it was challenged under EU law by the EU Commission, as a result of which it became necessary in Margaret Thatcher’s time to amend the useless Equal Pay Act in order to deal with different work of equal value. I do not think any noble Lords in the Committee are old enough to remember this, but there was a drunken Minister in that Government at the time who introduced the regulations while barely able to speak. When the regulations came in, they were tortuous and virtually unenforceable.

In 2010 we in the Liberal Democrats supported Labour in getting the Equality Act 2010 on to the statute book. Again, we tried to do something about the tortuous and unenforceable equal pay legislation, and the best that we could do—the best that Harriet Harman could do—was something along the lines of these regulations today. The idea was that, at the very least, transparency might be able to assist in tackling the gender pay gap. That was the idea, and of course we support it; it was the idea of the coalition Government, and it is the idea now.

I am sorry to say, as someone married to a vegetarian, that the problem is that there is no beef. The problem is that you can have all the transparency you like but, unless something is done to enforce the law and tackle discriminatory patterns in employment, promotion, recruitment and pay, women will continue to suffer from unequal pay for work of equal value. If Members do not agree with that, they have only to read the admirable gender pay gap information regulations impact assessment from 2017—I think there is no separate impact assessment for these regulations—which explains why mere voluntarism will not work. It explains how they tried to persuade employers of a voluntary approach but it failed and they tried to explain that they hope that these regulations or the other ones that we have already approved will compel action where required.

I promise noble Lords that they will not. How do I know that? I have had four or five decades of experience in trying to tackle patterns of discrimination. We gave the Equality and Human Rights Commission wide powers for strategic enforcement. Those powers were stronger than those given to the Equal Opportunities Commission, the Commission for Racial Equality and the Disability Rights Commission. However, those powers have not been used. It is all very well for the Equality and Human Rights Commission, as the noble Baroness, Lady Gale, has said, to call for an action plan, but what is actually needed is an action plan by the Equality and Human Rights Commission, which was set up with ample powers that it does not use. I am not saying this behind the back of the commission. David Isaac, its admirable chairman, knows my views and I think he agrees with them.

I remember, as part of the ancient history I am trying to summarise, that there was a wonderful businessman called Oscar Hahn. He was, I think, the head of the Midlands Employers Federation. In those days we were trying to persuade employers and trade unions that there should be legislation to tackle these problems. Oscar Hahn made a wonderful speech in which he said something like: “Archbishop William Temple said: ‘Whenever I travel on the Underground, I always intend to buy a ticket but the fact that there is a ticket collector at the end of the line just clinches it’. In the same way legislation and its enforcement just clinches the good intentions of employers and trade unions”. I think that is right.

We are dealing today, rightly, with gender equality and with the gender pay gap. The noble Baroness, Lady McGregor-Smith—a Conservative Member of this House—recently produced a devastating review that deals not with gender but ethnicity. She has called it, The Time For Talking Is Over. Now Is The Time To Act. Although today we are dealing with gender not ethnicity, I urge Members of this House, and especially the Government, to take very seriously what she says. She says:

“The time for talking is over”.

I agree. She says: “The reward is huge”. I agree. She says:

“Daylight is the best disinfectant”.

I agree, provided that there is some enforcement. She says:

“We need to stop hiding behind the mantle of ‘unconscious bias’”.

I agree, and that applies to gender and race. She says:

“The public sector must use its purchasing power to drive change”.

Again, I agree. She then explains why she has been trying to persuade people to take voluntary action but has found that it is not good enough. She concludes that legislative measures are necessary. The Government’s response to her report, as I understand it, has been to give voluntarism further time in dealing with ethnicity.

I am now 80 years old and I have been campaigning for race equality since 1964. I have to say to the Committee that voluntarism, as the gender pay gap illustrates, will not succeed. Therefore, even if the Government will not act, even if Parliament will not act, I very much hope that the Equality and Human Rights Commission will use its resources for strategic law enforcement so that the regulations we are about to approve will be given bite by the enforcement agency. I hope that what I have just said will not seem controversial.

I thank both noble Lords for their thoughtful contributions. I think there is broad support for what we are bringing forward but I shall answer some of the specific questions the noble Lords asked.

The first question from the noble Baroness, Lady Gale, was about why the number of employees was not lower than 250. We estimate that the obligations for authorities with 250 or more employees will affect more than 3.8 million employees in the public sector, and that means they will be covered by the new gender pay gap reporting requirements. Indeed, the combined coverage of these regulations and the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 will be over 15 million employees in 9,000 organisations, representing nearly half the total workforce. In addition, public bodies with more than 150 employees are already required to report on the diversity of their workforce and are encouraged to publish gender pay gap information.

We are keen in the first instance to place the same requirements of gender pay reporting across all employers to ensure consistency and comparability, so we have started in the public sector with that 250 threshold, which matches the threshold in Section 78 of the Equality Act. However, we will keep the threshold under review, and I think that review period will be reviewed by the Minister for Women and Equalities five years after commencement. Although this is the formal point for reviewing the new obligations, we will be closely monitoring compliance on a more regular basis to ensure that the measures are effective and working properly. With regard to what the response was to the public consultation about the proposed scope, the majority agreed that gender pay gap obligations should apply to authorities with 250 or more employees.

The noble Baroness asked whether the reporting requirements were too narrow. The regulations do not require mandatory equality objectives connected to gender pay gap data or, indeed, action plans. However, all employers will be strongly encouraged to publish information on how they intend to tackle the gender pay gap in their organisations. Many public bodies have actually indicated that they are keen to publish that narrative alongside their gender pay gap calculations, so that they can provide more context for any gender pay differences and highlight work to reduce any gaps.

Transparency may not be a silver bullet, as the noble Lord said, but it will incentivise employers to analyse the drivers behind their gender pay gap and explore the extent to which their own policies and practices may be contributing to it. The regulations that will apply to the public sector will not include an explicit requirement for a senior official to sign a statement or authenticate an organisation’s gender pay gap, but this is in line with the existing obligations under the specific duties regulations.

The noble Baroness asked what assessment has been made of the effect of tribunal fees for people with protected characteristics. The review of the employment tribunal fees, published on 31 January this year, confirms that the objectives have been broadly met and that the current scheme is generally working effectively and operating lawfully. However, that does not mean there is no room for improvement. In particular, the fall in claims and the evidence that some people have found fees off-putting have persuaded us that some action is necessary, so we launched a consultation on 31 January regarding the proposal to widen the support available to people under the help with fees scheme. This would help people with low incomes and is expected to particularly benefit women, disabled people and people from black and minority ethnic backgrounds, who figure disproportionately among those in low-income groups.

The noble Baroness also asked: will the Government be publishing league tables to name and shame employers? The public will be able to search the government website to check whether employers in scope have complied with the regulations and compare them with other employers in the same sector. We will consider the most effective way to present the published information in discussion with a wide range of stakeholders but, as I am sure the noble Baroness and the noble Lord know, the press soon get hold of such figures, so we can probably rely on them to highlight the success and failure stories.

I hope that we can also rely on the Equality and Human Rights Commission, which is funded for this purpose. I forgot to mention the issue of access to tribunals. It is my view as a lawyer that it is unlawful and an obstruction of justice to do what has been done to the employment tribunal fees, because they deter people with discrimination cases. I bet that if it goes to the European Court of Human Rights it will declare it to be incompatible, so I am glad that the Government are moving on that.

I thank the noble Lord for that and will come to the EHRC shortly to give a bit more detail.

The noble Baroness also asked why the Government have rejected the recommendation from the Women and Equalities Select Committee to reduce the gender pay gap. We appreciate and recognise the important work that the committee does on this issue, and we carefully considered its recommendations. The report makes a number of recommendations for the Government, several of which have already been actioned. For example, the right to request flexible working already allows those working fewer than full-time hours to request the opportunity to work more. Many of the recommendations made by the Select Committee would involve significant cost to businesses and we are keen not to place too heavy a burden on employers at this time.

We crossed into the equal pay realm. I thought I might make the point at this juncture that pay discrimination and the size of an employer’s gender pay gap are two quite different things, but I am sure that the noble Lord knows that, given his background.

The noble Baroness talked about pregnancy and maternity discrimination. That is unlawful as well as unacceptable and has no place in today’s society. The Government are working with a range of partners, including the EHRC and ACAS to promote opportunities for women, including pregnant women and new mothers. That will ensure that female talent is recognised and rewarded, and make more employers aware of their legal obligations.

I turn to the EHRC’s failure to ensure compliance. The EHRC takes a proportionate approach to enforcement, resolving many matters via pre-enforcement work and using its formal enforcement powers when absolutely necessary. It also takes a strategic approach to enforcement, focusing on those issues where it can have an impact on systemic, persistent and/or pervasive inequalities. Many less strategic cases are resolved through pre-enforcement work, involving discussions with organisations to encourage them to meet their obligations.

The noble Lord, Lord Lester, may draw some comfort from the fact that when the Women and Equalities Select Committee examined the EHRC’s chair and CEO in January, it asked searching questions about why its enforcement and compliance work, potentially involving legal interventions, seemed so limited. The EHRC’s chair, David Isaac, who the noble Lord mentioned, agreed that putting more resource into enforcement and compliance is a priority for him. Let us see what progress it makes in the coming year.

Finally, the noble Lord mentioned the Ruby McGregor-Smith review. It is an industry-led review, so we are going into a slightly different realm, but I shall not split hairs about that. The Government believe that non-legislative solutions are the right approach for now, but we will monitor progress and stand ready to act if sufficient progress is not delivered.

I am sure that noble Lords will remember this time last year, when the number of women on boards was a push for the Government and we tried to do it in a non-legislative way. That yielded very good results, so we always try the non-legislative way first before taking action, but we will always take action if we need to.

I hope that noble Lords are satisfied with those responses and thank them for taking part in this debate.

Motion agreed.

Committee adjourned at 7.25 pm.