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Grand Committee

Volume 779: debated on Thursday 9 March 2017

Grand Committee

Thursday 9 March 2017

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017.

My Lords, this order was laid before the House on 2 February 2017. I give the Committee the usual assurance that the draft statutory instrument is compatible with the European Convention on Human Rights.

The order reflects the conclusions of this year’s annual review of the automatic enrolment thresholds required by the Pensions Act 2008. The review considered both the automatic enrolment trigger, which determines the point at which someone becomes eligible to be automatically enrolled into a qualifying workplace pension, and the qualifying earnings band, which determines those earnings of which the enrolled employee and their employer must pay a proportion into a workplace pension.

The order sets a new lower and upper limit for the qualifying earnings band and is effective from 6 April 2017. The earnings trigger is not changed and so no further provision is required in this order. The earnings trigger remains at the level set in the automatic enrolment threshold review order of 2014-15. Automatic enrolment continues to be a programme that works; nearly 7.3 million people have been enrolled, more than 400,000 employers have met their duties and the opt-out rate remains low at around 9%. We are now in the final year of rollout and the most challenging phase of automatic enrolment, with small and micro employers staging in peak volumes throughout 2017. Against this backdrop, it is more important than ever to maintain simplicity and consistency for employers. This year’s order will provide this through to the end of rollout in February 2018.

I am sure the Committee will share my enthusiasm about the very exciting juncture of automatic enrolment at which we find ourselves, with the review of the policy and its operation being undertaken by my department this year. With that review, it is time to reflect on the successes we have achieved so far, take stock of the current position and consider how to build on this so that automatic enrolment continues its success in helping to rebuild a culture of saving. As such, it is important that this year’s thresholds decision avoids pre-empting the outcome of the 2017 review but still delivers on the established principles of increasing the opportunity for people to make meaningful savings into a workplace pension while balancing costs for employers.

To describe the impact of the order, I turn first to the qualifying earnings band. As signalled by my honourable friend the Minister for Pensions on 12 December 2016, the order will, as previously, align both the lower and the upper limits of the qualifying earnings band with the national insurance lower and upper earnings limits of £5,876 and £45,000 respectively. By maintaining the alignment with the national insurance thresholds, both at the point where contributions start for low earners and are capped for higher earners, the overall changes to existing payroll systems are kept to a minimum. This decision therefore both ensures simplicity and minimises the administrative burden of compliance for employers in 2017-18, while maintaining consistency for hundreds of thousands of small and micro employers implementing automatic enrolment over the coming year. As I said, the order does not change the earnings trigger, which remains at £10,000, as set in the 2014-15 order.

Automatic enrolment continues to bring into its eligible target group those least likely to save for retirement. Low-paid workers and women, who are often likely to be low earners, have traditionally been underrepresented in workplace pension savings. Between 2012 and 2015 the private sector saw a 30 percentage point increase in eligible female participation in workplace pensions, and in 2014 there was no gender gap at all in participation. In fact, 2015 has seen more eligible women in the private sector participating in a workplace pension, exceeding the participation of men with 70% to 69% respectively.

Due to anticipated wage growth and with the maintenance of the existing trigger, we expect that an additional 70,000 individuals will meet the earnings criteria and be brought into the automatic enrolment population, of whom around 75% are women. Individuals earning below the £10,000 earnings trigger but above the lower earnings threshold will still be able to opt into a workplace pension and benefit from their employer contributions, should they so wish.

In conclusion, the decision to maintain the earnings trigger at £10,000 will increase the number of low earners who meet the earnings criteria and are therefore automatically enrolled in a workplace pension. The decision will increase the total number of people saving into a pension and the total savings. In addition, the decision to maintain the alignment of the lower and upper earnings qualifying bands with those for national insurance contributions maintains simplicity and consistency and minimises the burdens on employers at a crucial stage of the programme’s wider rollout. Taken together, that means that the total pensions saving is expected to increase by some £71 million. The order therefore ensures that automatic enrolment will continue to provide greater access and opportunity for individuals to save into a workplace pension and build up meaningful pension savings. I commend the order to the Committee.

My Lords, I thank the noble Lord the Minister for his instructive introduction to the order and for the fact that the number of women who are now enrolling has increased considerably. That is very good news.

I welcome the fact that the earnings trigger above which people will be automatically enrolled will remain at £10,000, which seems very reasonable. A lower threshold would bring more people into pensions, but, as the Minister indicated, with a state pension currently providing over £8,000 in retirement, there is obviously a limit to how far the Government want to be enrolling people who earn approximately £9,000, taking into account the cost to employers of setting up schemes, making payroll changes and so on. As has been indicated, the earnings trigger will undergo a fundamental review as part of the automatic enrolment review later this year. It would perhaps be better to wait for that and to look then at altering the trigger threshold.

The lower and upper limits for the band of qualifying earnings, on which contributions are due, are currently linked to the lower and upper limits for national insurance contributions. The order maintains that connection. However, I note that the Chancellor of the Exchequer raised the upper limit for national insurance contributions from £43,000 to £45,000. The order does the same and means that higher earners will be putting pension contributions in over a slightly wider band. That is welcome, but they can of course opt out if they wish to.

Although I welcome the regulations, I flag up my concern about people who have multiple jobs whose individual incomes will be below the threshold but cumulatively above it. They might earn £6,000 in one job and £5,000 in another. Such people are excluded from automatic enrolment; perhaps that can be considered on another occasion.

The Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2017/18: Supporting Analysis report, which was published in December 2016, refers to an important point about the 280,000 people who earn between £10,000, the automatic enrolment trigger, and £11,500, the current tax threshold, who get tax relief. However, they get their tax relief only if it is administered according to the relief-at-source tax system, but not if their tax relief is administered according to another system, the net pay arrangement. That arrangement is somewhat obscure and the Government have failed to address the issue in the order. Those are minor points, however, and I generally welcome the order.

My Lords, I remain concerned that the earnings trigger of £10,000 for auto-enrolment still excludes too many people, particularly women, from the benefit of a pot of savings supported by an employer contribution. I am also a little disappointed that the Secretary of State has not taken the opportunity of the annual review to reduce the trigger. Although it has been held at £10,000 for three years, it is still too high, although this approach is preferable to aligning it with the personal income tax threshold, as happened between 2011 and 2015, which excluded ever more women every year.

Of the 11 million workers in the eligible target population for automatic enrolment, only 36% are female, and 3.5 million workers are ineligible because they earn less than £10,000 in any one job. The impact assessment confirms the disproportionate impact on women, because it shows that simply freezing the trigger at £10,000 will bring an additional 70,000 workers into auto-enrolment, over 52,000 of whom will be women.

The impact assessment reasons that auto-enrolment is in a challenging phase with the rollout to small and micro employers, so the earnings trigger should be held at £10,000. That is an understandable argument but not one that can fairly hold over time as a reason for not lowering the trigger. DWP figures reveal that of those working for smaller employers with 10 or fewer employees, 61% meet the eligibility criteria for auto-enrolment, compared to 90% of workers for large employers with 500 or more employees, and 55% of people employed in the service sector—where there is a concentration of women workers—meet the criteria, compared to between 70% and 90% of workers in other sectors.

The DWP analysis suggests that these discrepancies between small and large employers are largely driven by workers not meeting the earnings threshold. That is a pretty predictable observation. There are nearly 15 million women in work, 42% of whom work part-time. The ONS figures show that the smaller the company, the lower the level of earnings for part-time workers. Sweepingly, anyone working 25 hours or less on the national minimum wage of £7.50 is ineligible for auto-enrolment. The DWP’s analysis also shows that reducing the trigger to the national insurance primary threshold of £8,164 would bring more than 500,000 women—and nearly 750,000 workers overall—into auto-enrolment.

An argument deployed by the Secretary of State in 2011 for excluding lower earners was that the state system itself delivered an adequate replacement rate of income. Indeed, that argument is deployed again in the current impact assessment, which states that the earnings trigger,

“should be set at a level that ensures as many people as possible are eligible for AE without disproportionately capturing those lowest earners for whom it makes little sense to save for retirement”.

Lowering the £10,000 trigger, however, would not disproportionately capture lower earners. Very often, low earners are not low-paid throughout their working lifetime. Earnings are dynamic, but persistency of savings throughout working life is very important. Many women who earn less than £10,000 will, during their lives, have periods of full-time employment on higher earnings and periods of part-time employment on lower earnings, when they are caring. Persistency of saving throughout both periods and retaining the employer contribution improves their financial outcomes in retirement. Many, or most, very low earners are women who live in households with others with higher earnings and/or receiving working tax credits. They may well be workers who should be automatically enrolled.

As to excluding lower earners because the state system delivers an adequate replacement rate of income, “freedom and choice” means that individuals are no longer required to secure even a minimum income stream, and are free to spend all their money as they wish from the age of 55. Securing a replacement income is no longer a requirement of private pensions policy. Excluding so many lower earners from a pot of long-term savings supported by an employer contribution and the tax credits system is not fair because it simply denies them the opportunity to accrue a savings pot and build financial resilience in later life.

As to the equality implications, there is no impact assessment of whether a design feature of the second-tier pension system—the £10,000 earnings trigger—is working well for the life pattern of many women, contributes to the lifetime gender pay gap or unfairly fails to assist lower earners to accrue assets. The arguments for extending the coverage of auto-enrolment by lowering the trigger are strong. The number excluded is significant and risks an unfair distribution of long-term savings.

The review of auto-enrolment this year provides an opportunity for the Government to indicate the future direction of policy. They have confirmed that the scope of the review will look at existing coverage and consider the needs of those not benefiting from auto-enrolment, and examine the thresholds for the earnings trigger and the qualifying earnings bands. I ask the Minister: as part of that review will the Government explicitly consider the benefit to a large number of workers of reducing the earnings trigger below £10,000?

My Lords, automatic enrolment has been a hugely successful example of public policy and once again I pay tribute to the role of my noble friend Lady Drake in helping to formulate its development and implementation.

The success of auto-enrolment has been built on rigorous research and assessment of the data, engagement with the industry and the building of a political consensus—legislated for by a Labour Government, implemented by the coalition Government and now sustained by the Conservative Government. Of course, that does not mean that we share an identity of view on every aspect of its implementation, as this discussion has already indicated. I will say more on this later. But it has undoubtedly been successful because it addresses a fundamental issue of chronic undersaving for pensions.

To date we are told—we have new figures today, I think—that some 7.3 million workers have been automatically enrolled by nearly 400,000 employers. The DWP review suggests, and we agree, that with all large and medium-sized firms having reached their staging times, the rollout for small and micro-sized employers is the most challenging phase. Of course, we are still in the 1%/1% contribution phase. DWP analysis suggests that by 2019-20 there will be an extra £17 billion of workplace saving per year as a result of automatic enrolment—a considerable achievement.

Of course, the success of auto-enrolment has run ahead of the necessary regulatory framework as it spawned the growth of master trusts. But this is being addressed in part by the Pensions Schemes Act, as I think it now is. Perhaps the Minister can give us an update on implementation plans for this legislation and its multitude of regulation-making powers.

The Minister will be aware that there are obligations on employers not only to automatically enrol workers but periodically—every three years—to re-enrol those who have not taken up the opportunity thus far. It is understood that there is a six-month window in which to do this. Given an October 2012 start date for automatic enrolment, employers will increasingly face this obligation. Can the Minister give us some data on how this is all going? How many workers have been re-enrolled and how many have opted out?

The order addresses the earnings trigger, which determines who is eligible to be automatically enrolled, and the qualifying earnings band, which determines the minimum level of contributions. The particular bone of contention with this order, as the Committee heard from my noble friend Lady Drake, is the earnings trigger, which is retained at this year’s level of £10,000. While it represents a modest lowering of the threshold in real terms, it does not go far enough, as my noble friend asserted. Bringing within scope a further 70,000 individuals, 75% of whom are women, is to be welcomed. But if the trigger rate were just set at the national insurance primary threshold, as the papers before us show, a further 750,000 would be in scope and 70% or more of those would be women.

My noble friend has highlighted research, some of which came from Scottish Widows. Although it shows improvement in the number of women saving for retirement, there is still a gender gap. That reflects the fact that women are more likely to be in part-time work and lower-paid jobs—it is they who bear the brunt of having an earnings trigger that is too high.

In making the judgment as to the appropriate level of the earnings trigger for 2017-18, the Government assert that the overriding factor should be ensuring that people have sufficient retirement income savings. We agree with this. However, they then use the broader upcoming 2017 review to settle for the status quo on the basis of stability and affordability, without, I suggest, any detailed analysis, at least on the latter. Perhaps the Minister will take the opportunity to expand on this justification for the record.

So far as the qualifying earnings band is concerned, we note the continued alignment of the starting point with the LEL and the retention of an overall cap on employer contributions. The Government acknowledge that using a trigger below income tax personal allowance level does not preclude the benefit of effective tax relief if net pay schemes are used. Reliance on those below the income threshold opting in ignores the key principle of inertia on which auto-enrolment is built. Can the Minister give us any data on the numbers who opt in to schemes voluntarily and obtain the benefit of the employer contribution? Nevertheless, as my noble friend said, we look forward to the upcoming review and trust that it will include a focus on such matters as mini-jobs—mentioned by the noble Baroness, Lady Bakewell—and the self-employed.

The self-employed have of course caught the attention of the Chancellor this week. So, too, have those who operate through their own companies. When the legislation was introduced, excluded from its scope were sole-director companies, generally on the basis that such individuals were officeholders rather than workers. Given the growth of such arrangements, are there any plans to review this situation?

The order represents a modest advance in expanding the reach of auto-enrolment and we will obviously not oppose it. The 2017 review is an opportunity to take stock of matters more widely to ensure that the full benefits of this policy are obtained and that there are better outcomes, in particular for women and the low-paid.

I am very grateful to the noble Lord for his offer not to oppose the order. I am even more grateful for the generally constructive approach that all noble Lords have taken to it. As we know, it is very simple and deals merely with automatic enrolment and raising the lower qualifying limit and higher qualifying limit in line with the lower earnings limit and the upper earnings limit of NICs, at the same time leaving the £10,000 figure where it was.

As I made clear in my opening remarks, we are conducting the 2017 review, so I have to be fairly circumspect in what I say in response to noble Lords because I do not want to prejudge that. However, many of the speeches, in particular that of the noble Baroness, Lady Drake, will be taken into account in that review, and we will consider in due course any further comments that she wishes to put forward. I will answer one or two of the more detailed questions put to me in the course of this short debate.

Perhaps I may deal first with the question of multiple jobholders, which was raised by the noble Baroness, Lady Bakewell, by making it clear that for some multiple jobholders, one of their jobs will earn in excess of £10,000. They will therefore be automatically enrolled on that job. But it is the case that they can choose to opt into schemes if they earn under £10,000 but more than the lower earnings limit so if they have a number of jobs, one of which is paying at least £5,876 a year, they can obviously do that. We think that around 500,000 multiple jobholders meet the age criteria for automatic enrolment and that of these, some 330,000 earn more than £10,000 in at least one job, so they would be automatically enrolled in it.

This may deal with the point raised by the noble Lord, Lord McKenzie, when he asked about the numbers of those seeking to voluntarily opt in who are below the £10,000 trigger and above the upper earnings limit. I understand that the survey we conducted in 2015 suggested that some 5% of those ineligible workers had chosen to opt in, which probably shows the benefit of the whole idea behind automatic enrolment—that you are automatically opted in and have to opt out. If we compare a 9% dropout rate there with a 5% enrolment rate for those who can, we see that leaving these things to a voluntary process would have led to a very different take-up from what we have seen so far with the automatic enrolment introduced by the 2008 Act. As I think I made clear in my opening remarks, we have seen a dropout rate among those who were automatically enrolled of only 9%. That rate might go up as the contributions go up but, at the moment, it is way below what was originally estimated by the then Government who introduced this measure and in other measures by us.

The noble Baroness, Lady Drake, expressed some concern about the £10,000 limit. She would like to reduce it still further. She certainly agreed that it was preferable to keep it at £10,000, though, rather than linking it to the personal income tax threshold. I think she would also agree that the arguments are finely balanced on both sides as to whether to increase or decrease the limit. I can see the case for a degree of simplicity by aligning it with the personal income tax threshold, but that would obviously exclude many more people. There is also the argument on the other side: if one lowers it—below £10,000—yet more people who are not paying income tax will be eligible for automatic enrolment. Having listened to the noble Baroness and said that the arguments are finely balanced, these matters can be looked at in the 2017 review, which I stress will look at the overall operation of the policy in the round, including the balance between catching the lower earners and other factors that determine the overall numbers who will be subject to automatic enrolment. Again, the concerns that she has put forward will be taken into account.

The noble Lord, Lord McKenzie, also asked about the Pension Schemes Bill, which is close to my heart. It was just disappearing from this House with all its detail as I arrived back in DWP and is awaiting its Report and Third Reading in another place.

I can tell the noble Lord that the department expects to consult later this year on regulations that will set out all the detail of the new authorisation regime. Obviously, that will be introduced once the Bill is on the statute book. He also asked for a number of other detailed figures, which I would prefer to deal with in writing, to the extent that we have them or estimates of them.

I repeat my gratitude for the generally positive contributions to today’s discussion and stress that all comments will be taken into account in the review.

Before the Minister sits down, may I comment on his comment on the opt-in rate, which is 5%? That means that 95% of people who could take advantage of an employer contribution, for example, are missing out. A 5% opt-in rate is not great, and reflects the fundamental architecture of the scheme. Causing people to do something generally does not work with pay and pensions: you need to do something. Inertia keeps them in. On the issue of mini-jobs and whether any of them reaches a £10,000 threshold, even if one of them did, it would not give relief or benefit on the full aggregate of a number of mini-jobs that people may have, so it is not equivalent. It is difficult: we have debated and agonised over the issue of how effectively to aggregate these disparate jobs and get the same result as if it were one job. If that came out of the review, it would be a real success.

What it reflects—to use a fashionable modern word—is the power of nudge. By means of automatic enrolment, we are achieving those high rates, whereas if one asks individuals whether they wish to join, one gets the relatively low rate of 5%. That 5% compares very interestingly with what I think is a rather low rate of opt-outs: 9%, which is far lower than we originally expected.

Having said which, I would still say that one has to get the right balance between administrative simplicity and ensuring that people will ultimately benefit. It is important to remember administrative simplicity for the employer, particularly the very small and micro-employer. That said, all those factors can be taken into account in the annual review. We all have the same desire: to increase enrolment in pensions as far as possible, but in the best way. This has been working very well since the 2008 Act. There are just questions such as whether to bring the trigger lower. They are best looked at in the review, where they will be taken into account.

I think I have dealt with most matters, other than those on which I promised to write to the noble Lord, Lord McKenzie. I commend the Motion.

Motion agreed.

Reporting on Payment Practices and Performance Regulations 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Reporting on Payment Practices and Performance Regulations 2017.

My Lords, the purpose of these regulations is to implement a requirement on large businesses to report on their practices and performance in paying suppliers. The first instrument on payment practices applies the requirement to large companies, while the second applies the requirement to large limited liability partnerships.

Late payment can be a significant issue for businesses, especially smaller suppliers. It is estimated that small and medium-sized businesses are owed £26 billion in late payments. This Government have several measures in place to tackle late payment. As well as the reporting requirement, which I will talk about in more detail, the Government are also currently recruiting the small business commissioner, which noble Lords discussed in this House in the last Session.

Alongside other measures, there is also the Government’s support for the Prompt Payment Code, which is an industry-led code of conduct. The code sets standards for payment practice, and the Government are committed to signing up strategic suppliers to the code. Small and medium-sized businesses often lack information about the larger businesses they supply. They have no choice but to take it on faith that they will be paid in line with the agreed terms and conditions. There are sometimes calls in the House for more prescriptive measures to support suppliers. However, in response to the 2013 discussion paper on options for tackling late payment, businesses said that they did not want to see government constraining their freedom of contract. Instead, the reporting requirement focuses on transparency.

We are not therefore banning business practices, or unduly interfering in customer- supplier relationships, but we want suppliers to have the information they need to make good business decisions, and to encourage a culture change in payment practices. When we consider new obligations such as these, we have to be careful to balance the burden on large business with the benefit to small business. That is why we have taken longer to implement this requirement than we estimated at the time of the debates on the Small Business, Enterprise and Employment Act 2015. This is the legislation enabling us to make the regulations before us today. We have taken time to ensure the requirement works in practice for large businesses, so that we can be confident that the resulting data will be robust and helpful for small businesses.

In our recently published impact assessment, we estimated the annual net cost to business at £17.7 million. That sounds like a large number—indeed, it is—but it has to be considered against the potential benefits to businesses that a reduction in late payment could bring. Even a small reduction in late payment could have a significant impact, especially for small suppliers, and especially for those for whom cash flow is of the essence. We have continued to engage with stakeholders following the public consultation on the policy. My officials have had an ongoing dialogue with stakeholders across different sectors on a wide variety of topics related to the reporting requirement. They have been listening to businesses, representative bodies and other stakeholders to make sure we get the balance right between the burden on large business and the benefits to small businesses. This has also included independent research commissioned to provide additional evidence for the impact assessment and user research to inform the development of the web service.

I now turn to the detail of the regulations. They implement an obligation on large businesses to publish information about a number of metrics relating to their payment practices. Businesses will need to report on these metrics for their first financial year, starting once the regulations come into force on 6 April 2017. Each reporting business will need to publish information twice each financial year. To ensure the information is up to date and relevant, it must be published within 30 days of the end of the reporting period. The metrics include three types of information. They require businesses to publish statistics about their payment performance, including the average time taken to pay and the percentage of invoices paid in 30 days or fewer, between 31 and 60 days, and later than 60 days. They require businesses to give narrative statements about the business’s standard payment terms and dispute resolution processes. They also require businesses to state whether the business’s payment practices and policies provide for supply-chain finance, e-invoicing and deductions for being on a supplier’s list.

These metrics were the subject of the 2014-15 consultation. We received diverse feedback about certain points and have sought to find a balance between the needs of small and large business. Specifically, we cannot require businesses to report on all pay-to-stay practices. The House was notified of this in a Written Ministerial Statement in December 2016. The metrics of interest owed and paid are not included in these regulations, but we will learn from the public sector’s introduction of a similar metric of interest owed from later this month.

The regulations require businesses to report on any deductions from payments to suppliers as a charge to remain on a supplier’s list. A broader metric to cover more types of pay-to-stay practices will be kept under review. Businesses will be required to publish their reports on a government web service and, as soon as the business publishes it, the information will be available to suppliers. The web service is being developed with input from users of the service and will be available from April 2017. To ensure that it is accurate, the information published must be approved by a named director. This will help late payment become a reputational issue. The public nature of the reporting will motivate businesses to comply. However, it is a criminal offence if a business fails to publish a report, or publishes false or misleading information.

On conviction, the business, directors or, in the case of false statement, the individual will be liable for a fine. The reporting requirement will increase transparency, making it easier for suppliers to find information about large businesses’ payment practices and performance. The improved transparency will help suppliers make better-informed business decisions and encourage large purchasers to make prompt payment. The public nature of the data will highlight good payment practice, while also shining a light on poor practice that is potentially damaging and unfair to suppliers. This measure is an important step towards a change in business culture to one where late payment is considered a reputational issue and prompt payment is valued by all sizes of business. I commend these regulations to the Committee.

My Lords, I begin by saying how welcome these proposals are, as developed from the Small Business, Enterprise and Employment Act 2015. The duty to report, as the Minister said, is one in a package of measures that begins to address a problem that has existed for far too long around late payment to small businesses. As the Minister said, we have 5.5 million small businesses in this country and it is estimated that, between them, they are owed over £26 billion. The impact this has on them is incalculable. It has been estimated by a number of people that implementation of these measures—and further measures, which I will touch on in a second—could prevent the death of about 50,000 businesses per year.

The other measures that I welcome include the Prompt Payment Code, to which we have already heard reference, and there are further measures that I hope will be adopted, which are referred to within the corporate governance Green Paper. Reference is made, for example, to one board member having responsibility for representing the views of small businesses within the supply chain. I welcome, too, the increased transparency about payment in other regards, as also referred to in that Green Paper, but that is probably not directly relevant to today’s debate.

Having said that I support these proposals, I will confine my remarks to asking a few short questions. First, in reference to the duty to report, it remains unclear who is responsible for verifying the statistics contained in the report. The Minister has said—and it is clearly explained in the Explanatory Memorandum—that the figures must be approved by a named director of the company. However, as I suspect the Minister might accept, that looks rather like the company is marking its own homework. Will the Minister explain what opportunities there would be for people concerned about the statistics to draw attention to that, and to whom would they do so? Given that failure to report is a criminal offence, it is not at all clear whether failure to report accurately would be deemed a criminal offence and what the penalties would be. Again, I would be grateful for clarification on that matter.

A particular point about what companies are in scope has been drawn to my attention. The Explanatory Memorandum and, indeed, the regulations are fairly clear about that, but I want to tease out some more information from the Minister on the specific reference to a parent company. What happens if a relatively small UK company that does not fall within scope, but is nevertheless a subsidiary of a very large US company—the parent company—has unacceptable payment practices? For instance, US companies often have a 120-day payment period, so would that fall in the scope of the regulations?

My final question relates to another aspect of the support being given to small businesses. The appointment of the commissioner, or the late payment tsar, as it has been dubbed, will take place shortly. Will the Minister explain the interrelationship between the late payment tsar and the regulations, in terms of late payment and the duty to report? Would people who have concerns about the reports go to the commissioner?

While I am on the issue of the commissioner, given that there have been developments since that was last debated, will the Minister take a second or two to update us on the progress on appointing that person? Has further consideration been given to the number of concerns that were expressed about whether the commission’s role is rather too limited and that it could be a toothless tiger without further powers being given? Has attention been given to concerns that in the very early stages of the commissioner’s work, one suspects that he or she and their team will be inundated? Will sufficient extra resources be available in the short term?

Those are a few brief questions, but I am very supportive of the regulations as part of a package of measures, which, broadly speaking, we also support.

My Lords, I will follow closely the words of the noble Lord, Lord Foster. Like him, we accept that these are good regulations. They stem from a Bill that we spent a lot of time on in 2015, talking about small businesses and their problems. It is good to see the output in terms of large companies and large limited liability partnerships, and to see the detail. I support that.

Like the noble Lord, Lord Foster, I have a number of questions, which I am sure the Minister will be able to respond to. Where the noble Lord finished is where I would like to start. There is no mention in either set of regulations about the role of the Small Business Commissioner, and I find that very surprising. From the reports that are circulating about the appointment of the Small Business Commissioner, it is clear that the department sees that as being one of a package of measures that will implement the small business Bill. However, there seems to be no mention of it and no role for the commissioner in the regulations. Perhaps the Minister has an explanation for that.

Having said that, the second question that comes to mind is: what is the role of the Small Business Commissioner? The Minister was not in post when we discussed this in 2015, but I think he will have been briefed about the general feeling there was in Committee and on Report that the move to introduce the Small Business Commissioner—it was a major change by the Government, who had previously set their mind against it—was a good thing, but that the powers were lamentable given the case that had been made by the Federation of Small Businesses in particular, which, after all, might be expected to know a bit about the problems that small businesses face.

It is brave of the department to bring the chair of the FSB on to the appointments panel—that is a good sign. However, as far as I can understand from the press comments he has made, he is still worried that even though he is on the panel, the post is not going to be sufficiently empowered or resourced to do the job it has to. He does not think that it begins to tackle the problem referred to by the noble Lord, Lord Foster, of 50,000 small businesses going broke each year because they cannot get the money they are owed out of the larger companies. There is also the question of whether or not the will is there in the department to try to help shape the culture, rather than simply shine a light on current practices.

The Explanatory Memorandum to both instruments before us gives a little context about where all this has come from. The noble Lord, Lord Foster, mentioned one of those issues, the Prompt Payment Code, which has been heavily trailed by the Government and used as their only fig-leaf when we talked about this in Committee and on Report. However, it has proved to be a completely hopeless way of trying to achieve culture change. At the time that the Prompt Payment Code was being lauded, we had examples within this very House of major companies that were not even signed up to it, and many of those that had signed up had operating practices that would have made it impossible to stay in the code, and yet there was no apparent sanction as it is a voluntary organisation. The pay-to-stay scandal and the unilateral changing of payment arrangements from 30 days to 60 days to 90 days and all sorts of other things were going on in companies that should have been adhering to much higher standards. That is a clear example that the process does not work in practice. At least we now have a transparency arrangement, and I like a lot of the things that are included.

Delays always happen but I suspect that there is a bit of a story behind the way in which this has come out and around the engagement with both the major and the smaller companies in trying to find a way to make this work. Extraordinarily, but rightly in my view, the department has decided that the only way to get this to work in practice is to run its own website. It cannot rely on companies coming forward with material because it feels that that would be too difficult to interpret. Again, that is brave. I cannot say any more than that—I think it is terrific and I am sure that it is the right thing to do. Perhaps it opens up a new, aggressive policy chapter in BEIS, and it is actually going to do things that help businesses instead of just standing back and watching as they go under. However, I may be making the point a little too strongly.

The third thing I have to say is a compliment, which I rarely pay to BEIS and its officials because they are always in default on this. However, they have at last hit a common commencement date for these arrangements, and I am so pleased by that. However, it is extraordinary, is it not, and perhaps shines a different light on this area, when you discover that, uniquely, these are time-limited regulations, which is something I have never seen before. It is not so much a sunset clause but a total eclipse. We have the situation where these will come into force on 6 April 2017, which is great, and will then close on 6 April 2024 unless they are extended. There are substantial consultation arrangements around that, but it does not exactly send the message to small businesses that the Government are here to help and are on their side. The regulations are, at the very best, a pale imitation of where they want to get to, and are time-limited and will be withdrawn unless some future act of consultation comes through.

We welcome these instruments in so far as they go—it is exactly what the Government said they would do. They are late, but at least they are here. They will start very quickly and will be accompanied by an as yet unknown, but potentially powerful, person to take up some of the issues that are left undealt with here. With that, we support the instruments as they appear before us.

I thank both noble Lords for their broad support for the general thrust of this statutory instrument.

Potentially misleading or inaccurate information is a criminal offence punishable with a fine. Who is responsible for verifying the data? Our view is that the public nature of the data will ensure their accuracy. Businesses can raise their concerns directly with BEIS or the Small Business Commissioner. The whole thrust of this instrument is culture change. It is the reputational damage that firms will suffer, rather than the prospect of a criminal conviction, that will have the biggest impact on changing behaviour.

In terms of the scope and the companies caught by this, the definition of a large business for the purpose of having to make the disclosures is two of the following three: an annual turnover of £36 million; a balance sheet total of £18 million—I assume that that means net assets; and 250 employees. The noble Lord asked about a subsidiary of an overseas company—it could be a subsidiary of a domestic company, for that matter. As I understand it, this applies to companies or LLPs that are incorporated in this country. So I do not think that a small company over here that is a subsidiary in the US is captured by the instrument, but I will double-check that.

The noble Lord said that payment terms in the US were more typically 120 days rather than net monthly or 30 days but I am not sure that that is necessarily right. Also, we should be clear that in some big contracting industries, where there is delayed payment and that is negotiated upfront by suppliers, that is entirely legitimate. In their disclosures, big companies are perfectly entitled to say in their narrative that in their industry, a different payment schedule is typical. Where you have a long-term contract, which requires a different kind of financing, again, that can be disclosed and explained, and it will be perfectly legitimate. We are not saying that a longer period is necessarily worse than a short one; it very much depends on the industry. What is important is the transparency and a narrative around it.

Both noble Lords spoke about the appointment of the Small Business Commissioner. I understand that we will be appointing that individual during 2017. We launched the recruitment campaign on 12 February, with the intention of appointing later on in the year.

Since it has been made public that the commissioner will start work in October this year, I hope that it will be some time in the course of this year, or there will be a difficulty.

I just wanted to reassure the noble Lord that the process has started. As it started in February, that appointment will follow in due course.

I thank noble Lords for their contribution to the debate. The importance of transparency is clear. One economic reason that makes this statutory instrument so important is that for many small, particularly growing, companies, cash flow, rather than profit, is critical. Delayed payment terms can seriously undermine the ability of small companies to grow. I think that all parties in the Committee are apprised of that.

It is true that the terms are important, but both the noble Lord, Lord Foster, and I were at pains to make the point that it is the reliance on the contract with a large company that causes the difficulty. It is difficult for individual small companies to challenge the payment terms they are first offered—particularly if, once they are in contract with the large company, it decides unilaterally to change them—because they need the business. The Minister said that he has worked in business before, and I have run small businesses. When you are waiting for that cheque to come and it does not and you cannot pay yourself, you cannot rip up the contract because you are so dependent on it. It is that defect—for which no powers are being given explicitly to the Small Business Commissioner—that lies at the heart of where we disagree with the Government’s approach. I am sure that this issue will be addressed, because the figures are now so open and clear that it has to be sorted: £26 billion is a stonkingly large figure. If we could sort that out and speed it up—although the Explanatory Memorandum does not go into this—a 0.25% reduction of the costs of organising small businesses raises something like £22 million. A small calculation of what that cash flow change would be changes the dynamics of the whole arrangement.

The noble Lord makes a very good point. There is a big distinction between overdue payments where you are supplying on, say, net monthly terms and not receiving the money—and sometimes having to wait for months for it—and the situation where you knowingly enter into a contract where the terms are 60 days or 90 days. I do not know what the breakdown of the £26 billion is—how much of that is overdue against the agreed terms and how much is just longer than 30 days. When I go back to the department I might just get an analysis of that £26 billion and share it with noble Lords. On that basis, I hope that we can all agree to go forward with this statutory instrument.

Motion agreed.

Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017.

Motion agreed.

Air Weapons and Licensing (Scotland) Act 2015 (Consequential Provisions) Order 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Air Weapons and Licensing (Scotland) Act 2015 (Consequential Provisions) Order 2017.

My Lords, it may be helpful at the outset to remind the Committee of the context of this order. Its origins can be found in the tragic death in 2005 of two year-old Andrew Morton after he was shot in the head with an air rifle. His parents campaigned for “Andrew’s law” to ban air weapons in Scotland.

Such deaths are mercifully rare but attacks continue to happen. Air weapons accounted for almost half—158—of all offences allegedly involving a firearm in Scotland in 2015-16. The all-party Calman commission examined the regulation of bearing weapons as part of its wide-ranging review of the Scotland Act 1998. When the commission reported in 2009, one of its recommendations was that the regulation of certain air weapons be devolved to the Scottish Parliament. This recommendation was included in the Scotland Act 2012, which made amendments to the Scotland Act 1998. Provision to devolve the regulation of certain air weapons was set out in Section 10 of the 2012 Act.

In addition to the scrutiny that the 2012 Act had in the House, the Committee may recall that a number of noble Lords were members of the Calman commission: my noble friends Lord Selkirk and Lord Lindsay, the noble and learned Lords, Lord Boyd of Duncansby and Lord Wallace of Tankerness, and the noble Lord, Lord Elder.

The Scottish Parliament used its new powers in this area to enact the Air Weapons and Licensing (Scotland) Act 2015, which I shall refer to as the 2015 Act. It received Royal Assent on 4 August 2015, having been passed by the Scottish Parliament on 25 June 2015. Andrew Morton’s parents welcomed this new legislation. The 2015 Act introduces a new licensing regime for air weapons to maintain controls over the use, possession, purchase and acquisition of such weapons in Scotland. It broadly follows the principles and practices of existing firearms legislation that apply across Great Britain by setting out the air weapons which need to be licensed; allowing a fit person to obtain and use an air weapon in a regulated way, without compromising public safety; and setting out appropriate and proportionate enforcement powers and penalties to deal with any person who contravenes the new regime.

It is notable that, in advance of the new regime coming into force on 31 December 2016, almost 19,000 unwanted air weapons were surrendered to Police Scotland for secure destruction.

The order I present to your Lordships today is made under Section 104 of the Scotland Act 1998, which allows for necessary or expedient legislative provision in consequence of an Act of the Scottish Parliament. The order will enable Part 1 of the 2015 Act to be implemented in full by making the following consequential amendments to reserved legislation which extends across Great Britain, namely the Firearms Act 1968. It will make it an offence for a pawnbroker in Scotland to take an air weapon in pawn and it will impose penalties for this offence. It will allow a court in England and Wales to cancel, in certain circumstances, any air weapon certificate granted to a person under the 2015 Act. This extends the court’s existing powers to cancel a firearm certificate or shotgun certificate held by a person appearing before it. It will also allow a court in Scotland to order the forfeiture or disposal of any firearm—other than an air weapon—or ammunition found in the possession of a person convicted of an air weapon offence.

The UK and Scottish Governments, Ministers and officials have worked together to ensure that this order makes the necessary amendments to the Firearms Act 1968 in consequence of Part 1 of the 2015 Act. It represents the final step in the implementation of the new Scottish licensing regime for air weapons that will tighten controls over the use, possession, purchase and acquisition of such weapons in Scotland. I commend the order to the Committee.

My Lords, I thank the Minister for his customary logic and clarity in telling us about the proposed statutory instrument. I declare an interest: I have a firearm certificate from Police Scotland and I own an air gun. It is relevant to later in my short remarks that I bought it second-hand for £25. Living as I do in rural Scotland, I can tell the Committee that probably most homes in my area either own an air gun or have done so at some point.

I should make clear that everything I shall say in no way challenges the fact of the devolution of powers, or the fact that the licensing regime has been introduced. However, some people have expressed to me the opinion that the licensing regime is disproportionate, badly cast and impractical, and, having looked into, it I have some concerns.

The British Association for Shooting and Conservation has 144,000 members; I am not one of them. Around 12,000 members are Scottish. The BASC has given a briefing paper to all its members, from which I will read the concluding paragraph. I preface that by saying that at the start of this process there were an estimated 500,000 air guns in Scotland: that puts the figure of 19,000 into context. The report, Air Gun Licensing in Scotland a Costly and Bureaucratic Mistake, states:

“Currently, 60,000 people in Scotland already hold firearms licences. Increasing the licensing requirement to cover hundreds of thousands of people in Scotland plus visitors will place existing Police Scotland licensing staff under a massive administrative burden when offences have fallen significantly and the police are subject to pressure on both budgets and staffing”.

As the Minister pointed out, version 1.0 of the Guide to Air Weapon Licensing in Scotland of June 2016 states that the whole thing will broadly follow the principles and practices of existing firearms legislation. That is pretty onerous. There are seven different forms that you can fill out but the main form is number one; it is 12 pages long and includes lots of questions about health and about security in the home.

There is a warning that if you answer a health question with a problem, your GP will be contacted. The security questions at home are, of course, very similar to those in the firearms questionnaires that I fill out, which result quite rightly in visits to homes. With hundreds of thousands of people needing to apply for these licences, with warnings that GPs may be contacted and security may need to be checked in homes, and with a 12-page form that needs to be processed, my concerns reach not just to the BASC’s worries about the pressure on Police Scotland but to needless pressures on the National Health Service. GPs will not know everything and will have look in their files, as they will—I presume—have to write a report to say that a person is suitable for a licence. The cost of the licence is also quite a lot; it is £72 for someone aged over 18. Admittedly it is only £50 for a 14 year-old, but I put that against my original purchase of a £25 air gun.

The function of this House is scrutiny and the weapon we have is to ask the Government to think again. Of course, in recent days we have seen ourselves do that in a very public way. My question is: where we see something like this in the underlying legislation—something that I feel to be impractical and, in the round, bad news for the people of Scotland and disproportionate—should we just wave through a statutory instrument or should we ask the devolved Administration to think again? I have carefully reviewed the underlying Act—I have it here on my iPad—and I think it would be possible with the Act to have a much simpler system, which would be cheaper and would not use up the resources of Police Scotland or of the National Health Service in Scotland, and yet would give some element of comfort to make sure that the horrible crimes that can occur with these things are lessons. I would be very grateful for the Minister’s comments on this underlying constitutional issue.

My Lords, I have never owned an air weapon, although when I was younger I did fire one once or twice, but it was a very long time ago. I have come along to welcome this measure—not in any way to take away from the points that the noble Earl has raised—but I do so against a background for which I should declare an interest as a member of the Scottish Ornithologists’ Club.

I have been concerned for many years about the misuse of air weapons by young people, particularly in the countryside, who are tempted when they see, for example, a swan on a pond or a loch to shoot at it. I dare say it is a very tempting target for a young boy with an air gun. Of course, the injury that can be caused to these wild animals can be very disabling—not fatal, but it can considerably disable the individual bird and, if it is nesting, affect the lives of the cygnets or young birds that are being looked after.

Anything that can be done to restrict the availability of air weapons—excepting those such as the noble Earl and his family, who can no doubt be trusted to use them properly—should be done. I must confess that it never occurred to me as a little boy, or even today, to go to a pawnshop to buy one. I am quite interested as to why pawnshops have been singled out, but it may be that an example has been found of a pawnshop that had air weapons available which were of course not subject to the usual scrutiny that one would get from the reputable dealers. Closing off a loophole of that kind is welcome and I therefore applaud the instrument in that respect.

However, one question puzzles me—purely because the Explanatory Memorandum does not explain enough —which is the exclusion from new subsection (1ZB) of an air weapon. This is in the forfeiture clause, which provides for the forfeiture or disposal of any firearm, other than an air weapon, in Section 1 of the Act. I am not quite sure why that should be. If an air weapon is found, for example, in a pawnshop and the owner of the pawnshop is convicted of the offence, I would have thought that the sensible thing would be to take the air weapon into possession because the only person who has a claim to its ownership is the pawnshop owner; it has not yet been disposed of. It may be that I am missing bits of legislation elsewhere which would cover that but it would be helpful if the Minister was able to explain why air weapons are being excluded. I would be comforted if there was some other provision which enabled that forfeiture to be resorted to. But subject to that, and with very grateful thanks to the Minister for his helpful explanation of the tragic background to all these measures, I support the order.

My Lords, I, too, thank the Minister for his usual clear and, as has been said, logical exposition of what is entailed in this SI. It allows the Scottish Government to more effectively regulate the possession, purchase and acquisition of air weapons in Scotland, as set out in Part 1 of the Air Weapons and Licensing (Scotland) Act 2015. The tragic background to this initiative—how it all started—is well known in Scotland. Government as a whole must take credit for responding to public concern and campaigns, because when we stop reflecting public opinion, we end up in trouble.

I do not have an interest to declare now but my first job when I left school was in a pawnshop. Pawnshops were a necessary part of the economic life and survival of the working class in the west of Scotland. I enjoyed my time there but unfortunately it entailed working all day Saturday. As the pawnshop was within three-quarters of a mile of Celtic Park, I could hear every goal getting cheered while I was working away in the shop, unable to witness them. After a year and a half I left the pawnshop and went to work in a place where I could get Saturday afternoons off to go and see my favourite football team.

The order makes it an offence,

“for a pawnbroker to take in pawn an air weapon”,

and will ensure that pawnbrokers are held accountable to the law by imposing penalties of up to three months’ imprisonment, or a level 3 fine, on those who break it. When I worked in the pawnshop, we had regular visits from the police checking up on jewellery and other items that might not have been honestly acquired before being pawned. There was pressure on the manager of the pawnshop to comply with this. The noble Earl, Lord Kinnoull, mentioned administrative burdens, but my question is: has any work been done with the National Pawnbrokers Association to ensure that the new offence is widely communicated to those who will be affected? There are still pawnbrokers around and it will mean administration for them.

The provisions also allow for courts in Scotland,

“to order the forfeiture or disposal of any firearm or ammunition found in the possession”,

of a person convicted of an air weapon offence. Again, this is very welcome as it will ensure that persons convicted of air weapon offences will be covered by further measures protecting public safety. I know that the noble Earl has specific concerns about rural areas. My experience and my concerns relate to some of the abuses that were mentioned by the noble and learned Lord, Lord Hope of Craighead. I witnessed many of these when I was a boy and I always wondered why air weapons were allowed to be so easily acquired.

We commend the consequential provisions that will allow for the smooth further operation of the Scottish air weapon-licensing regime and contribute to a safer, more consistent firearms policy in Scotland. We welcome this measure.

I thank all noble Lords who have taken part in this short debate for their general support for the order. Perhaps I could take some time to address specifically the substantive points that the noble Earl, Lord Kinnoull, has raised. He essentially raised two main points: the first relates to whether the regime is proportionate and the second to whether the Section 104 process could be used to ask the Scottish Parliament to think again about this or any other measure.

On the first point, we need to accept that responsibility for the regulation of certain air weapons in Scotland is now a matter for the Scottish Parliament and Scottish Ministers. The Scottish Government carried out detailed consultation on the main air weapon licensing proposals before the Air Weapons and Licensing (Scotland) Bill was introduced. The issue of air weapons licensing has been fully debated in the Scottish Parliament, and it is absolutely right that Scottish Ministers are held to account for the decisions they take by the elected representatives in that Parliament. Of course, UK government departments with responsibility for the relevant reserved legislation, notably the Home Office, which this order affects, were consulted during its drafting and it was approved by them.

The appropriateness of the new regime is an important issue. I understand that the Scottish Government worked closely with the Police Service of Scotland and, notwithstanding what the noble Earl said, with representatives of the main shooting organisations to ensure that the new licensing processes are as familiar as possible and appropriate to the lethality of the weapons affected. For example, there are currently more than 51,000 firearm or shotgun certificate holders in Scotland and it is expected that the majority of them, like the noble Earl, will also hold air weapons. So checks on existing firearm or shotgun certificate holders are not duplicated if they also apply for an air weapons certificate. Existing certificate holders can apply for a coterminous air weapons certificate to align with their existing licence.

The noble Earl mentioned the £72 fee for the full five-year air weapons certificate. There is also a reduced fee of £5 for firearm or shotgun holders who want to align their certificates to expire at the same time. Home visits to applicants will be required in only a small number of cases. Similarly, there will not be an automatic requirement for background medical reports on air weapons applicants; these will be required only in a small number of cases. As a result, the impact on NHS resources should be minimal. While the licensing regime is founded on the pre-existing firearms legislation, I hope that the examples I have given demonstrate the efforts that have been made to ensure the provisions are appropriate.

Turning to the noble Earl’s second point, it would not be an appropriate use of the Section 104 process to force the Scottish Parliament to think again about legislation it has passed in an area of its own competence, and which is now in force. We are today merely looking at consequential amendments to reserved legislation and were we to decline to pass this order, it would lead to gaps in the law. It would also set a very unhelpful precedent for managing intergovernmental relations—a subject in which I know the noble Earl takes a close interest—where mutual co-operation is so important, not least when it comes to reserved legislation that impacts on the devolved settlements or the devolved competence of Scottish Ministers.

The issue of pawnshops was raised. The licensing regime regulates trade in air weapons and to trade in those weapons, you must be a registered firearms dealer. Pawnshops are not registered firearms dealers, so this matches the existing Firearms Act 1968 position.

I was interested to hear the history of the noble Lord, Lord McAvoy, in relation to pawnshops. Consultation and making pawnshops aware of this legislation and their duties under it are obviously a matter for the Scottish Government. I do not have at my fingertips what work has been done to make them aware of it, but I am happy to follow up on that.

The noble and learned Lord, Lord Hope of Craighead, mentioned an exclusion. I am not sure I have the detail on this, but if I do not have it to hand I will be happy to write to him. I think it mirrors the position of other firearms in the 1968 Act, but I am happy to clarify that further.

If I may return to the point I raised earlier, if the offence is committed by the owner of the pawnshop, it seems odd that the authorities have no means of taking possession of the weapon. I would have thought it would be very sensible if they could. However, I quite understand that I am asking a question that may not be capable of being answered immediately. If the Minister could write to me later, I would be very happy with that.

I think that issue came up when this order was debated in the House of Commons. If I have got this wrong, I will clarify it, but if the courts find that the weapon is wrongly in someone’s possession then clearly it is a matter for them to confiscate that weapon. It would be normal practice for the court to order the forfeiture or confiscation of a weapon, which would be securely destroyed by the authorities in a way that would put the weapon out of use. However, I am not sure that that is the circumstance the noble and learned Lord is referring to, so I will be happy to write to him to clarify the point.

Motion agreed.

Water Supply Licence and Sewerage Licence (Modification of Standard Conditions) Order 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Water Supply Licence and Sewerage Licence (Modification of Standard Conditions) Order 2017.

My Lords, these regulations will enable the implementation of important reforms arising from the Water Act 2014 to extend competition in the retail market for water services. The three statutory instruments form part of a larger package of measures that will deliver the regulatory framework required to deliver choice in water services for non-household customers. Last year we considered affirmative regulations required to allow incumbent water companies to exit the non-household market. Last week the Government laid three negative procedure statutory instruments that include a number of protections for customers.

This new market in water and wastewater services, which opens on 1 April this year, will be the largest of its kind in the world and will allow all businesses, charities and public sector customers in England to choose a new water supply and wastewater supplier. We know that non-household customers are keen to have this choice, and the Government’s decision to expand retail competition was made in response to clear demand from business customers. Our reforms will mean that they are free to negotiate for the package that best suits their needs. They will continue to receive the same water through the same pipes but will be able to benefit from more efficient customer service, water efficiency advice and, I hope, a better deal on price.

The water codes appeals regulations will allow water companies that are materially affected by an Ofwat decision to take forward proposals to amend statutory codes designated under the regulations to apply to the Competition and Markets Authority for that decision to be reconsidered. These companies may also launch an appeal if Ofwat decides not to take forward such amendments following a consultation.

Codes form an important part of the regulatory framework because they contain the terms and conditions that must be included in agreements between incumbent water companies and new entrant companies operating within the retail market. They also include the processes that must be followed for customer switching and settlement between incumbents and new entrants. The code appeal regulations incentivise Ofwat to propose amendments that benefit the retail market and provide a transparent and predictable fast-track appeal mechanism for water companies to challenge Ofwat’s decisions.

The water supply and sewerage licence modification order sets the percentage of water supply or sewerage licensees by market share that must agree proposals made by Ofwat to change standard conditions in their licences before such changes may be imposed on all licensees. These regulations provide a means for Ofwat to modify standard licence conditions when at least 80% of licensees by market share agree to those changes. This prevents a minority of licensees blocking or delaying the implementation of important changes to licences. Where more than 20% do not agree to an Ofwat proposal, the matter may be referred to the Competition and Markets Authority for a determination. The regulations will contribute to the smooth running of the retail market by ensuring that Ofwat can make important changes to licences without negotiating individually with each licensee.

The consequential amendments order includes amendments to primary and secondary legislation that are required because of changes introduced by the Water Act 2014. The amendments are mainly related to the opening of the retail market in April this year and are minor and technical in nature. Among other things, the order makes changes to legislation relating to the existing water supply licensing regime and provides for the introduction of sewerage licences for the first time.

These three statutory instruments form a small but important part of the overall regulatory framework, which also includes primary and secondary legislation, licences and statutory codes. I beg to move.

My Lords, I rise merely to pursue a continuing degree of pressure on the Government not for what is in these statutory instruments but for what ought to be in them. We in Britain have a system that enables us to regulate the charges for connection—I notice that in effect it is referred to here under “Connection charges”—but connection itself is statutory. That means that even though a water company is not a statutory consultee, it can be required to provide connections when such a connection significantly overloads the provision of sewerage or allows the building of homes in places where such building should never take place.

It is some time—two years, I think—since the Committee on Climate Change sub-committee that is dealing with preparing ourselves for the immediate effects of climate change pointed out that it is an unacceptable situation that, first, the water company is not a statutory consultee and, secondly, it has to do something that is clearly contrary to our interests when it comes to flood prevention and dealing with adaptation to climate change. I know that my noble friend the Minister will say this is neither the place nor the time to do this, but if I do not go on reminding the Government that there has to be such a place and a time then it will not be done—and it needs to be done. It is a pity to take up parliamentary time for what is, frankly, a pretty unnecessary series of crossing “t”s and dotting “i”s when there is so much more to be done if we are to make the changes that the whole world, irrespective of party, religion or any other device, believes to be necessary. I am very sorry that the department has still not come forward with proposals in this area.

I shall come to the aid of the noble Lord and say that it is an absolutely appropriate time for this to be raised. He will be aware that Defra is undertaking a review of sustainable urban drainage, so if we cannot raise this issue now in advance of the review, when can we raise it?

We have raised this issue frequently: in the Housing and Planning Act last year, when discussing automatic connection rights; and noble Lords will know that we have been addressing this issue rather more recently in the Neighbourhood Planning Bill. It is an absolutely fundamental issue that underpins not only the building of houses that are sustainable in the future but addressing the water shortages that we will face, given the challenges of climate change and population growth in the foreseeable future.

Will the Minister say a few more words about the likely timing of the department’s review to ensure that it is in advance of the Adaptation Sub-Committee’s forthcoming review in May? If it is not, that will be a seriously detrimental step. While, as the Minister said, these are small measures pertaining to delivering better solutions for our water industry, we must look at the bigger issues around automatic connection and sustainable urban drainage and, in the future—I hope this will be in the White Paper—a Bill on abstraction. If those things are not addressed, the Government are seriously failing in looking at the water challenges of the future.

My Lords, first, I am very pleased to associate myself with the comments of both the noble Lord, Lord Deben, and the noble Baroness, Lady Parminter. They have raised a very important issue, which I know we have debated on other occasions. I would be very happy to continue to add to any pressure we can bring to get the Government to take this issue seriously. The noble Lord set out the case extremely well as to why it was such a huge urban and rural challenge in terms of planning, flood prevention, and so on. Both noble Lords made the case extremely well.

I guess it now falls to me to make some comments about the actual regulations before us, which I fear will not be as interesting. I am grateful to the Minister for setting out the purpose of the three regulations. As he made clear, they are all consequent on the Water Act 2014, which received very detailed scrutiny in your Lordships’ House. The opening up of the new non-household retail market in April 2017, and the ongoing challenges of delivering greater competition in retail water and sewerage systems, will inevitably need modification and refinement. In this context, we accept that these new regulations are both technical and necessary.

However, I have a couple of questions for the Minister. First, the water supply licence and sewerage licence orders are mainly concerned with the percentage of licensees that must agree Ofwat’s decision to amend licence conditions, as the Minister spelled out. We agree that a 20% level of objection is a reasonable requirement to trigger a referral to the CMA. However, the consultation on that regulation also flagged up some concerns about the way in which sewerage licences were to be calculated, given that there is very little metering of wastewater output from premises. I do not disagree with the rather pragmatic conclusion that in the absence of metering of sewerage, it is best to base the calculation on the clean water supply to the premises. Given that there is an overarching environmental need to encourage businesses to manage and limit wastewater, the department could do more to encourage people to manage water supply—I am talking about both clean and dirty water—and put in place more effective processes for charging for wastewater disposal in the future. There are good initiatives out there but many businesses are happy to pour very highly polluted water down the drain in large quantities.

Secondly, the water industry designated codes regulations set out the arrangements for appeals to the Competition and Markets Authority. Again, I do not disagree with the rather pragmatic approach taken in these regulations, which suggests that we need to establish a fast-track appeals process, similar to the energy code appeals. However, these are short-term pragmatic solutions that are necessary to get the new system up and running in time for the April start.

However, we need to see how the codes and appeals bed down and whether—as is often the case—their application has unforeseen consequences. I would be grateful, therefore, if the Minister indicated how the operation of these regulations, and the others to which he has referred, will be kept under review as the retail market matures. In response to the consultation on the codes, the Government said:

“It is to be expected that the regulatory structure around a healthy, well-functioning market may need to evolve when competition has become long-established”.

We agree with that, but it would be helpful if the Minister set out the process by which this evolution will be monitored and how Parliament can best be enabled to play a full role in that review. I look forward to the Minister’s response.

My Lords, this has turned out to be a rather more interesting debate than the one I thought I was embarking upon. As I said, however, the Government are committed to opening up the retail water market on 1 April, giving business, charity and public sector customers choice over their water company. The regulations debated today are an essential part of the framework, including primary and secondary legislation codes and licences, which will allow the market to function, evolve effectively and provide safeguards for customers.

I am most grateful to the noble Baroness, Lady Jones of Whitchurch, for her endorsement of what are pragmatic measures. She asked what steps are in hand to charge more effectively for wastewater disposal. More than 90% of non-household premises are metered for the purpose of calculating water use, but a much smaller number are metered for measuring the discharges of wastewater to which she referred. While there are currently no plans to push for more wastewater metering, we believe that the introduction of the sewerage licensing regime could lead to the development of the market for wastewater meters, with the purpose of reducing charges.

We also expect that sewerage licensees will work with their customers to provide advice on the recycling of wastewater, the collection and re-use of rainwater and surface water, and other water efficiency measures. This is primarily to reduce the demand for water and provide savings on water charges, but it would also automatically lead to lower wastewater charges for unmetered sewerage customers. I was very taken, therefore, by what the noble Baroness said, and by the essential belief that we all share in the importance of using water wisely.

The noble Baroness also asked about how the water code appeal regulations and the retail market will be kept under review. Ofwat will be implementing a market monitoring framework that will closely scrutinise the performance of the market on a range of measures. No new market will be perfect on day one—that is the human condition—but benefits will consolidate over time. Customer switching levels will be an important measure but clearly not the only one. It will be important to see that customers are able to negotiate the right deal for them and that competitive markets are fair, transparent and efficient. My department will look in particular at how these regulations contribute to supporting an effective and transparent market. We will also review the effectiveness of the CMA code appeal regulations, as new codes are added to the appeals regime.

I must applaud my noble friend Lord Deben for his customary tenacity in raising an issue that I know is close to his and many other hearts. The noble Baroness, Lady Jones of Whitchurch, assisted me slightly by saying that the measures before your Lordships relate entirely to the non-household sector, but my noble friend and the noble Baroness, Lady Parminter, have given me a sharp reminder, which I take on board. The Water Industry Act 1991 sets out the circumstances in which a water company is required to make a connection. It is a qualified duty. I could set out the circumstances in which a water company is required to make a connection, but the most important thing for today’s purposes is that I shall write to those of your Lordships who have attended and contributed to this debate.

I am confident that these regulations represent another marker in the Government’s journey to reform the water market and provide more choice to non-household customers. For those reasons, I commend the regulations to your Lordships.

Motion agreed.

Water Act 2014 (Consequential Amendments etc.) Order 2017

Motion to Consider

Moved by

Motion agreed.

Water Industry Designated Codes (Appeals to the Competition and Markets Authority) Regulations 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Water Industry Designated Codes (Appeals to the Competition and Markets Authority) Regulations 2017.

Motion agreed.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017.

My Lords, these two Motions relate, first, to the disability elements of tax credits, as well as the guardian’s allowance; and, secondly, to the rates, limits and thresholds that govern national insurance contributions. Many of these changes are made simply to bring rates into line with inflation, as measured by the consumer prices index, which put inflation at 1% in the year to September 2016.

I speak first to the draft regulations for the uprating of disability-related tax credits and the guardian’s allowance. In short, the regulations provide for an increase in line with inflation to the disability elements of tax credits. This means that we are maintaining the value of support for both the disabled children whose parents or carers are in receipt of child tax credits and the disabled workers in receipt of working tax credits. The rise in rates also covers the new element for disabled children who were born on or after 6 April this year, regardless of the two-child limit for claims of child tax credit. The regulations also increase the guardian’s allowance in line with inflation, to sustain the level of support for children whose parents are absent or deceased. The two things I just outlined—the disability elements of tax credits and the guardian’s allowance—are exempt from the benefits freeze. This is so that we can provide support to those who face the additional cost of disability and care.

Let me turn to the other set of draft regulations we are debating: those that make changes to the rates, limits and thresholds for national insurance contributions, and make provision for a Treasury grant to be paid into the national insurance funds if required. These changes will take effect from 6 April this year. Starting with Class 1 national insurance contributions, the level of earnings at which employees start to gain access to contributory benefits, known as the lower earnings limit, will rise in line with inflation. The primary threshold, which is the level at which employees begin to pay Class 1 national insurance at 12%, will also rise with inflation. The upper earnings limit, which is the level at which employees start to pay Class 1 contributions at 2%, is being raised from £827 to £866 a week. This reflects the Government’s commitment to align this limit with the higher rate income tax threshold, which is being raised from £43,000 to £45,000 for the 2017-18 tax year.

As the Chancellor announced at the Autumn Statement, the levels at which employers and employees start to pay Class 1 national insurance are being aligned. To do this, the secondary threshold, where employers start to pay, is being increased from £156 to £157 per week. This will be the same as the primary threshold for employees from 6 April this year, and will make it easier for employers, as they will no longer have to operate two similar thresholds at slightly different rates.

Finally, for the employed, the level at which employers of people under 21 and of apprentices under 25 start to pay employer contributions will keep pace with the upper earnings limit and rise from £827 to £866 per week. This maintains our commitment to reduce the costs of employing young apprentices and young people. This is an above-inflation increase and maintains alignment with the upper earnings limit, meaning that employers pay national insurance only for the highest earning young apprentices and those under 21.

Moving on to the self-employed, the level at which they have to pay class 2 contributions will rise with inflation to £6,025 a year, and the weekly rate of class 2 contributions will also rise in line with inflation to £2.85. Self-employed people who earn above the lower profits limit, currently £8,060, also pay class 4 national insurance contributions at 9%. This threshold will rise with inflation. Above the upper profits limit, the self-employed instead pay 2%. Like the upper earnings limit for the employed, this limit for the self-employed will rise from £43,000 to £45,000 per year.

Finally, for those making voluntary class 3 contributions, the rate will increase in line with inflation from £14.10 to £14.25 a week.

I note that these regulations make provision for a Treasury grant of up to 5% of forecast annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2017-18. This is a routine measure which does not impact the Government’s overall fiscal position. A similar provision will also be made in respect of the Northern Ireland National Insurance Fund.

I hope that has been a helpful overview of the changes the Government are making to increase rates of support and contributions to the Exchequer in line with inflation. Noble Lords will of course be aware that the Chancellor announced yesterday that the main rate of class 4 national insurance will be increased to 10% in 2018-19 and 11% in 2019-20. This, alongside the abolition of class 2 NICs, is a progressive change to the self-employed NICs system. Over 60% of self-employed people who have to pay national insurance will be better off as a result of these changes. However, the rate of class 4 is not affected by these regulations and there will be an opportunity for noble Lords to discuss this measure in the Budget debate next week. I commend to the Committee the draft regulations on tax credits and the guardian’s allowance, as well as on social security contributions. I beg to move.

My Lords, I thank the Minister for introducing these two instruments. The first on the agenda, the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations, would enact the annual re-rating of national insurance contribution rates, limits and thresholds and allow for the payment of Treasury grant not exceeding 5% of the estimated benefit expenditure for the coming tax year to be paid into the National Insurance Fund. These come into effect in April this year. Given that we are dealing with national insurance contribution rates, I am sure the noble Lord will not be surprised by my first question, to which he has already referred. In view of the surprise announcement in yesterday’s Budget, which is attracting some controversy, is he able to clarify or provide further information on the proposed changes?

The second SI is on tax credits and guardian’s allowance upratings for the increase in working tax credits and child tax credits for individuals who are disabled or severely disabled. It would also increase the weekly rate of the guardian allowance, again with both changes taking effect in April 2017. Since 2011, the inflation measure used to determine the uprating of social security benefits is the CPI. The uprating is based on the change in level of the CPI from September 2015 to September, recorded at 1%.

A rise in support for working families, however small, is welcome, and we have no intention of opposing either of the orders this afternoon. However, although I do not want to rehearse the arguments that will be had during the Budget debate next week, it is important to consider on the record this 1% uprating in context. Inflation is rising, and indeed is expected to increase further still over the course of this Parliament. As the Resolution Foundation has recently reported, the result of that could mean that average earnings in 2020 will be only just higher in real terms than they were 15 years ago and, crucially, we could see a fall in real pay at the end of this calendar year as price increases outstrip pay rises.

The same report from the Resolution Foundation found that the Government’s benefit freeze will raise an extra £1 billion a year by 2020, or £3.6 billion over the Parliament, compared with what was expected in the 2016 Budget. My noble friend Lady Sherlock asked a question about this figure last week in Committee but was unable to get an answer, so I hope the Minister will be able to respond today. Is the figure accurate? If not, will the Minister tell the Committee the value of savings that the Chancellor expects to make?

The Resolution Foundation analysis has been supported by the Institute for Fiscal Studies, which has underlined that the Government’s approach represents,

“a shifting of risk from the Government to benefit recipients”.

The institute has also stressed that this risk is borne by low-income households and that, unless this policy changes, higher inflation will reduce their real incomes.

I have one final question regarding the Treasury grant. In what circumstances do the Government anticipate such a grant would be made; when was a grant of this nature last paid into the National Insurance Fund; and what does 5% represent in real terms? The economic outlook for working people is one of less disposable income. Although we do not oppose these instruments, it is clear from the Government’s overall approach that their priorities are not compatible with a society that truly wants to support the most vulnerable. I look forward to the Minister’s response.

My Lords, I am grateful to the noble Baroness for her support for these measures. I will try to answer the three or four questions that she put to me, starting with the easiest on the provision of a Treasury grant. The provision in the estimates does not mean that it will be drawn down. Indeed, this year the provision is being made only as a precaution. The 5% provision is equivalent to £5 billion in the case of the GB National Insurance Fund, and £134 million in the case of the Northern Ireland fund. A Treasury grant was last paid into the National Insurance Fund in 2015-16. We do not anticipate a payment being made in the current year because the reserves in the fund seem at the moment to be adequate.

I turn to the question posed by the noble Baroness, Lady Sherlock, about the savings from the uprating freeze. I hope I can provide some helpful information. When we legislated for the four-year uprating freeze in the Welfare Reform and Work Act, we published an impact assessment of those rates included in the four-year uprating freeze. Both Houses debated the clauses and passed the Bill, which received Royal Assent in March last year. At Budget 2016, which was the last fiscal event before the change came into effect, the freeze was expected to save £3.5 billion in 2020-21 to help to deal with the underlying deficit. However, neither the Government nor the OBR has re-costed the freeze. The uprating freeze has already been implemented and is subsumed within the welfare spending forecast. I hope that gives the noble Baroness the information that she asked for.

On the report by the Resolution Foundation and the impact on household incomes and distribution, we considered the impact of the four-year uprating freeze when we announced the policy in the July 2015 Budget. The background was that we found that the majority of working-age benefits and tax credits had grown faster than earnings since 2008. As part of our commitment to make work pay, we introduced the four-year uprating freeze to reverse that trend of benefits rising faster than earnings. We introduced the uprating freeze alongside other measures to support work incentives such as the national living wage, and we exempted elements of benefits and tax credits that related to the additional cost of disability and care, in recognition of the additional costs that these claimants face. Indeed, the regulations today increase those elements of tax credits in line with prices.

With regard to the legitimate question the noble Baroness posed about inequality, income inequality is now lower than it was in 2010 and the share of total income tax paid by the top 1% is 27%. According to the latest data from the Office for National Statistics, income inequality in the UK is at its lowest level since 1986.

Finally, as I have said, there will of course be an opportunity to discuss yesterday’s Budget announcement in the Budget debate and when the necessary legislation comes before the House. I am not sure that I can add to what the Chancellor has said, not just in his Budget but in his many interviews during the day. The background is basically that, at the moment, self-employed people pay less in national insurance contributions than people in employment and, historically, this was because the self-employed received much less in state pension and contributory benefits. Since last year, because of the changes that we have made, self-employed workers now build up the same entitlement to the state pension as employees, which is an £1,800 a year pension boost for the self-employed. At the moment, someone who is employed and earning £32,000 will incur, with their employer, over £6,000 in national insurance contributions, while a self-employed person earning a similar amount will pay £2,300. That is why we needed to address the point of fairness in the national insurance contributions, which fund the NHS and pensions. That is the background which has given the noble Baroness, Lady Wheeler, the ammunition she needs to come back next week with her colleagues in the debate on the Budget. I welcome what she has said about these regulations and I beg to move.

Motion agreed.

Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017.

Motion agreed.

Legislative Reform (Private Fund Limited Partnerships) Order 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Legislative Reform (Private Fund Limited Partnerships) Order 2017.

Relevant document: 17th Report from the Regulatory Reform Committee

My Lords, the venture capital and private equity industries are important parts of the UK financial services cluster, and the limited partnership structure provided by the Limited Partnerships Act 1907 is a popular vehicle for establishing investment funds in these industries. Currently, approximately 250 fund managers operate some 780 venture capital and private equity schemes in the UK under this structure. This equates to around £142 billion in assets under management, and 20 to 30 new schemes are launched each year. These businesses are important contributors to the UK economy, providing high-wage direct employment and indirect employment through the use of professional services firms, as well as contributing tax take to the Exchequer. The venture capital and private equity industries play an important role in providing funding to start-ups and small businesses and in improving the UK’s productivity.

In 2013, the Government launched their investment management strategy—their comprehensive strategy to make the UK one of the best places globally for asset managers to do business. As part of the investment management strategy, the Government committed to consulting on amendments to the Limited Partnerships Act. While limited partnerships are a popular vehicle for private equity and venture capital schemes, the legislation was not originally drafted with its use primarily as an investment vehicle in mind. Rather, it was originally drawn up to apply to trading entities. The result is that some provisions in the Act are not suitable for the needs of investment funds.

The investment management strategy came at a time when the competing jurisdiction of Luxembourg was updating its own limited partnership regime. Further to this, since 2013, France and Cyprus have also introduced structures to compete with the UK regime. With the UK’s imminent withdrawal from the EU, there is even more pressure to maintain our status as a leading global financial services hub. Therefore, it is timely and urgent that the UK looks to update its structures for the private funds sector.

The Government propose by way of this order to create a new category of limited partnership, the private fund limited partnership, which will differ from the existing structure in areas that currently create unnecessary administrative burden and legal uncertainty for partners. The existing 1890 and 1907 partnership Acts were originally designed to apply to trading businesses rather than investment funds. When an investment fund is established as a partnership, extensive legal work is necessary, using powers of variation under the legislation, to clarify the respective roles of: the general partners, who are in practice the fund management entities who have wide powers to manage the affairs of a partnership but face unlimited liability in respect of its activities; and limited partners, in practice the investors who have no general powers of management over the affairs of the partnership but have limited liability in respect of its activities, up to an amount specified in the partnership agreement.

The proposed order will introduce a list of activities that limited partners are permitted to carry out without taking part in management, to increase legal clarity for partners on the current state of the law. It will also make some other minor changes to the Act to remove unnecessary administrative burdens for private funds structured as partnerships.

Limited partners in a private fund limited partnership vehicle will not be required to contribute paid-in capital to the partnership. This will make the administration of investments simpler. All capital requirements set out in Financial Conduct Authority regulations will continue to apply. Statutory duties which are inappropriate to the role of a passive investor will be disapplied in a private fund limited partnership. These statutory duties are already generally disapplied through the partnership agreement. The partnership will not be required to advertise changes in the London Gazette, Edinburgh Gazette or Belfast Gazette, with the exception of the requirement to advertise when a general partner becomes a limited partner. Limited partners will be able to make a decision about whether to wind up the partnership where there are no general partners, and to nominate a third party to wind up the partnership on their behalf.

These reforms will reduce administrative and legal costs associated with the establishment of a fund. The updated structure will increase investor confidence in the UK as a jurisdiction for fund domicile. This order will reduce the burden for businesses and make the UK a more attractive jurisdiction for funds. I beg to move.

My Lords, I thank the Minister for introducing this order. As he has outlined, this instrument would enable a limited partnership which is an investment firm to be designated as a private fund limited partnership. It also amends some of the provisions of the Limited Partnerships Act 1907 as they apply to PFLPs and to partners in PFLPs. This change has been in the pipeline for over a decade, since the Law Commission and the Scottish Law Commission published proposals in 2003. In 2008, the then Labour Government published a consultation on limited partnerships. However, in response to the stakeholder responses, the decision was taken that it was not possible to continue with those reforms.

We will not be opposing this order. However, I wish to put a number of questions to the Minister, and perhaps the most sensible place to start is with the Labour Government’s objections. The consultation response in 2009 stated that concerns were raised about particular issues in Scotland, as well as how the order was drafted. I appreciate that the order has undergone revision since then, but have stakeholders raised objections on the instrument in front of us today? Furthermore, has the draft been altered to reflect the concerns raised by funds with client interests in Scotland?

One of the changes made following the latest consultation was the removal of the strike-off procedure. The original proposal would have removed dissolved PFLPs from the partnership register. However, concerns were raised that limited partners would lose their limited liability status. We therefore now have a two-tier system for limited partnerships and PFLPs. What consideration was given to delaying introduction of this instrument until all the cracks surrounding the strike-off procedure are ironed out? The explanatory document promises that the Government will look into further steps that could be taken in relation to this issue “in due course”. Can the Minister say what further steps are being taken and when we can expect to be informed about them? There have been strong concerns raised about the burden that this two-tier system will create.

The Government’s stated aim is to,

“reduce the administrative and financial burdens that impact these funds under the current limited partnership structure”.

However, as the BLP law firm identifies, there is a chance that the reduction in the compliance and administrative burden under the new PFLP regime may be short-lived and may well be replaced by other initiatives to increase accountability for limited partnerships more generally. What measures are included in the instrument to ensure that the Government’s stated aim is achieved?

The introduction of a white list brings with it much- needed clarity on the activities of a limited partner, but there is real concern around whether the Government have achieved the right balance in the role of limited partners in the new PFLPs. The proposed changes allow a limited partner to take part in the committee and to vote on proposals by the general partner, while at the same time maintaining limited liability status. Do not the Government consider that this is an inappropriate power for a limited partner? I would certainly be interested to hear what criteria the Government have used to determine the content of the white list. Getting the balance right is vital, so do they intend to conduct a review of the white list and, if so, to what timescale?

Page 8 of the explanatory document—which I found very helpful as someone coming new to this issue—makes a forceful defence for the reforms, stating that:

“Without such changes to current legislation, the UK risks becoming a less attractive domicile for funds when compared to other jurisdictions”.

That is a strong claim, but I could not see any evidence in the document to support that contention, so I would be grateful if the Minister would address that issue. I would certainly be keen to hear his explanation of the role that PFLPs will be playing in making this a more “attractive domicile”.

Finally, I have two minor technical points. First, the impact assessment states on page 2 that 600 private equity and venture capital fund managers will be affected by this change. However, it states on page 8 that as many as 1,030 could be affected. Which of these figures is correct and what percentage of the current limited partnership landscape does that represent? Secondly, what discussions have the Government had with Companies House, which will be responsible for processing applications by firms wishing to become PFLPs, about the changes being made? Has it requested additional resources to deal with the increased administration costs of these charges? I look forward to the Minister’s response.

My Lords, I am grateful to the noble Baroness for the welcome. To deal first with the typing error on page 2, it should read 250 fund managers, not 600. As I said in my opening remarks, we estimate that there are 250 fund managers managing 780 funds. I shall address some of the other issues that she raised. If I do not cover them all—some of them were quite technical—perhaps I may write to her to fill in the gaps.

She mentioned the concerns of stakeholders and Scottish funds. She is quite right: a range of stakeholders raised concerns which the Government listened to, and we amended the order in several areas in response to their feedback. We took into account the views of Scottish stakeholders, including the Law Society of Scotland, while developing the order. On the broader concern expressed about Scottish limited partnerships being used for fraud, the Government have listened to stakeholders’ concerns and the Department for Business, Energy and Industrial Strategy recently launched a call for evidence on the issue, covering all forms of limited partnerships, including these. The Government are committed to implementing any consequent reforms in respect of private fund limited partnerships, as well as other partnerships.

The noble Baroness asks why we did not postpone the order until we had the results of that survey. Strike-off procedure is an issue for wider limited partnership policy, and any process for removing partnerships from the register would need to apply to both private fund limited partnerships and other forms of partnerships. BEIS recently launched a call for evidence looking at the possibility of limited partnerships being used for criminal activity—a subject I mentioned a moment ago. The call for evidence closes on Friday 17 March, and BEIS will consider what further action is necessary. In answer to her direct question—why did we not wait?—the Government’s view was that it was important to press ahead with this package of amendments now because competing jurisdictions are acting quickly. Luxembourg updated legislation in 2013; France and Cyprus are introducing measures now; and UK withdrawal from the EU makes this reform timely. That is why we decided to go ahead now.

The noble Baroness asked about the white list. It clarifies the existing position for limited partners. It does not extend the activities that partners can undertake. In answer to the noble Baroness’s question, we do not expect to undertake a further review of the white list at this stage, as it is both clarificatory and illustrative. We used the proposals from the Law Commission report of 2003 as a basis for the policy. We consulted the stakeholders on that list and some adjustments have been made—for example, clarification that limited partners cannot wind up the partnerships themselves in any circumstances.

The noble Baroness asked some other questions, and I hope it is acceptable to her and noble Lords if I write to her about them. In the meantime, I commend the order to the Committee.

Motion agreed.

Transport Levying Bodies (Amendment) Regulations 2017

Motion to Consider

Moved by

My Lords, the draft regulations that we are considering today, if approved, would enable the combined authorities for Tees Valley and the West Midlands to collect appropriate levies from their constituent councils to meet the costs of carrying out their transport functions.

The five constituent councils of the Tees Valley Combined Authority—Darlington, Hartlepool, Middlesbrough, Redcar and Cleveland, and Stockton-on-Tees—and the seven constituent councils of the West Midlands Combined Authority—Birmingham, Coventry, Dudley, Sandwell, Solihull, Walsall and Wolverhampton—have led a local process to improve their governance arrangements, which culminated in this House and the other place agreeing orders that saw the establishment of the Tees Valley Combined Authority on 1 April 2016 and the West Midlands Combined Authority on 17 June 2016.

These orders gave effect to the desire of the local authorities in these areas to improve their joint working, including on transport matters. Orders have since been made to provide for mayors to be elected on 4 May for both the Tees Valley Combined Authority and the West Midlands Combined Authority, and once elected the mayor will be the chair of the combined authority. Combined authorities are designated as levying bodies under the Local Government Finance Act 1988. Under that Act, the Secretary of State is able to make regulations in relation to the expenses of combined authorities that are reasonably attributable to the exercise of its functions, including those relating to transport.

The draft regulations before the Committee today would amend the Transport Levying Bodies Regulations 1992 to take account of the creation of the two combined authorities in the Tees Valley and the West Midlands. They have been drafted to reflect the proposed approach of the local areas and have been agreed by the two combined authorities. The levy could fund any of the transport functions that sit with the combined authority in question. The functions of each combined authority are set out in its establishment order, and any subsequent order that confers functions and transport functions are clearly identified. Transport functions of the two combined authorities include developing a local transport plan, as well as a range of passenger transport related functions. It will be for the combined authority to decide how to fund these transport functions in accordance with the establishment order and any subsequent orders.

The constituent councils will need to consider how they fund any levy issued by the combined authority as part of their budget process, whether by council tax, government grants or other sources of revenue. They will need to take into account the impact of council tax levels in their area, including when determining whether any council tax increase is excessive.

In the case of the West Midlands, the regulations effectively constitute a name change. On the creation of the West Midlands Combined Authority, the West Midlands Integrated Transport Authority was dissolved and its functions were transferred to the combined authority. Like the ITA before it, the West Midlands Combined Authority will continue to levy its constituent authorities for transport purposes. It will also continue to apportion this levy by agreement, or on the basis of the population of the constituent councils.

The Tees Valley Combined Authority is different because there was no integrated transport authority in place in that area. Therefore, these draft regulations have to establish how any transport levy would be apportioned between the constituent councils if the combined authority could not reach agreement. In the event that they cannot agree, the combined authority will apportion the levy by taking into account previous levels of transport expenditure by the constituent councils.

These draft regulations help to facilitate the provision of transport arrangements as part of the wider governance changes across the two areas. I commend them to the Committee.

My Lords, I strongly congratulate the Government on their move towards combined authorities and the development of the mayoral model, which will lead to the election of mayors in two months’ time. That will bring to fruition the extension of the very successful mayoral model in London to the other major conurbations. Just as it has led to a positive revolution in transport for London, I hope that it will bring about the same for the other conurbations. I know that the Minister has played a significant part in encouraging these developments.

There is, however, one issue on which I would like to hear more from the Minister: the relationship of this order, and the ability of the combined authority and mayors to raise money themselves, with the designated grant that the Government are giving to enhance spending on transport connections in some of the areas he mentioned. Yesterday, the Chancellor announced almost £400 million of funding for the Midlands engine. When I read the release, I was struck by how detailed and prescriptive the list of specific projects was that the Chancellor was seeking to fund—right down to specific sums of money for the Pershore relief road, smart ticketing technology and so on. Given that when he is elected in two months’ time the new mayor will come in with a big mandate and, one hopes, a significant plan for improving transport in the West Midlands, I wonder how far it will be open to him to decide his priorities and what he intends to do, or whether he is in fact bound by yesterday’s announcement by the Chancellor and the department to be simply the clerk who processes the list of projects. If he is not in a position to give me a specific answer, I would be very happy for the Minister to write to me on that.

My Lords, I declare my usual interests as listed in the register: I am an elected councillor, although not in these areas, and a vice-president of the Local Government Association. We are happy to support the regulations before us today. I do not have a huge amount to say and so do not intend to detain the Grand Committee. I am very happy to talk when I have something to say, but there is no point in doing so when I have only one or two points to make.

By way of background, I am conscious of where these regulations originated. Back in 2012, the Greater Manchester Combined Authority was able to issue levies to meet the cost of carrying out its transport functions. In 2015, a number of other integrated transport authorities were established and, again, they were able to issue levies through the measures in regulations. Therefore, we support these regulations for the new combined authorities of Tees Valley and the West Midlands. As we have heard, they will be electing their mayors in a matter of weeks. It is certainly correct that the authorities can levy their constituent councils to raise funds so that they can go ahead with their proposals. I understand that all the councils have been consulted and are very happy with what is before us today.

I am interested in the question my noble friend raised in respect of yesterday’s Budget announcement of what are very prescriptive projects in the West Midlands. What powers will the elected mayor have to vary those or do something different? Again, if the Minister cannot answer that today, I am happy to receive a letter in due course. With that, I am content to support the order before us.

I thank the noble Lords, Lord Adonis and Lord Kennedy, for their support. In the general move towards devolution, I know that the model on transport, in particular, is close to the heart of the noble Lord, Lord Adonis.

We broadly agree that it is important for local areas to decide on priorities. To answer the noble Lord’s question generally, mayors come forward with their transport plans, and combined authority mayors will also be required to submit a draft budget to the combined authority for consideration. It is then for the combined authority to recommend any amendments to that budget. As he may be aware, specific criteria are set for each of the two authorities that I mentioned. In the West Midlands, for example, a majority of two-thirds is required, whereas three-fifths is required in Tees Valley. Combined authority mayors in both areas will also be able to set a precept to fund particular functions. The level of the precept is subject to the same combined authority challenge and amendment process as the mayor’s draft budget.

Turning to allocations, the noble Lord, Lord Adonis, mentioned the Midlands engine and the Chancellor’s announcement today. Those are identified, existing priorities on specific transport functions. I will review the detail of the announcement and write to the noble Lord, Lord Adonis, as he suggested, and advise other noble Lords, including the noble Lord, Lord Kennedy. I thank noble Lords again for their broad support.

Motion agreed.

Committee adjourned at 4.27 pm.