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House of Lords Hansard
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Lords Chamber
06 April 2017
Volume 782

House of Lords

Thursday 6 April 2017

Prayers—read by the Lord Bishop of Peterborough.

Tax Havens

Question

Asked by

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To ask Her Majesty’s Government what steps they are taking to curb the use of tax havens.

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My Lords, the Government are committed to a regime where tax is fair, competitive and paid. The UK is at the forefront of global action to tackle harmful tax practices through implementing the agreed base erosion and profit shifting project outcomes, the OECD’s new common reporting standard and the development of new beneficial ownership information standards.

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I thank the noble Lord for that Answer. Last week, Oxfam’s report revealed that last year five UK banks made £9 billion in profit in tax havens, which was 67% of their global profits. Half a billion pounds of this profit was made in UK-linked tax havens, where the banks paid just 7% in tax. What estimate have the Government made of the loss to the Exchequer of profit shifting by UK-based companies?

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My Lords, I do not have the estimate of the amount lost but the noble Lord will know that we are taking steps to avoid the diversion of profits through country-by-country reporting. This means that we tend to tax the activity in the country where it takes place—so, if the activity takes place in the UK, companies will be taxed in the UK. We have also introduced a diverted profit tax, so if people seek to divert their profits to another country, a higher rate of tax can then be paid. Therefore, we are taking measures to plug the loopholes that the noble Lord has identified.

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My Lords, why have the Government not used the leverage they undoubtedly have to require the British Overseas Territories and Crown dependencies to maintain publicly available registers of beneficial ownership? Will the noble Lord accept that the Government’s failure to do so has not only had bad reputational consequences for our country but impeded law enforcement here and in other countries, and it has allowed the huge inflation of house prices in London, which has had very damaging effects on the lives of Londoners who are not rich?

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My Lords, we had an extensive debate on this subject on Monday on the Criminal Finances Bill, and I suspect that we will be returning to exactly the same subject on Report on, I believe, 25 April. In that debate, the Minister at the Home Office explained why we had encouraged the Commonwealth dependencies and overseas territories to produce central registers, and they will be doing that by June this year. We are not prepared to use the powers that the noble Lord has referred to, which we believe should be used in exceptional circumstances such as the abolition of capital punishment and rules relating to homosexuality. We do not believe it is appropriate to use those powers in this case.

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My Lords, many of us were willing to give the previous Prime Minister and Chancellor the benefit of the doubt on this issue because they were legislating in the UK and were engaged in international negotiations. However, given that we are now leaving the top table of the European Union, where much of this action could have taken place, would it not be appropriate in the brave new world of new trade agreements and Britain becoming more global for this country to lead the way on this issue by legislating to ensure that all British companies operating around the world report on a country-by-country basis to ensure that countries across the world can tax those companies where they make their profits?

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We already have country-by-country reporting in this country, and multinationals based in this country have to report to HMRC how much profit they make and how much tax they pay in each country. We are encouraging other countries to do this, so we have a multilateral approach, and the Chancellor raises this issue at the G20. In response to the first part of the noble Lord’s question, we have taken the lead on this as a result of our presidency of the G8, and more than 90 countries have agreed automatically to exchange taxpayer information under the common reporting standard. We are also taking initiatives on beneficial ownership and some of the other issues that we have already discussed.

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My Lords, given the widespread use of Luxembourg by large companies and multinationals to reduce their tax, will our exit from the European Union provide an opportunity to broaden our tax base?

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The initiatives we are taking on tax evasion are independent of our membership of the EU, although we are pursuing some EU directives. As I said, this country is in the lead. I do not know whether my noble friend has seen page 9 of today’s Times, which says that:

“Oligarchs must disclose identity as home owners”,

with a register. That is a world first: the people behind anonymous companies that own billions of pounds-worth of property must reveal their identities under new anti-corruption rules. This shows that the country takes the matter very seriously.

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My Lords, in arguing that they will not use the powers they have to require the overseas territories to make registers of beneficial ownership public, the Government say that they expect the overseas territories to do so when that becomes the international standard. Will the Minister tell me the timeframe within which he expects public registers to become the international standard—and will it be within my lifetime?

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The noble Baroness looks younger every day, and so I will not go there.

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More seriously, we are going to return to this matter on 25 April. At the moment I do not know the timescale by which we hope all the other countries in the world will have signed up to these central registers. However, I will make sure that if there is another amendment along those lines on 25 April, we have the most up-to-date information.

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My Lords, is it a breach of our privileges for any Member of this House to avoid paying United Kingdom tax by the use of tax havens?

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My understanding is that in order to be a Member of your Lordships’ House you have to be registered as a UK taxpayer. My own view is that everybody should pay the tax which is due to them, and I agree with what the former Prime Minister said about the morality of tax avoidance.

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My Lords, the noble Lord has given his usual charming and reasonable answers, if somewhat unconvincingly in some cases. However, I wonder whether the truth of the matter is displayed by his boss, Philip Hammond, who in an interview with a German newspaper in January said:

“I personally hope we will be able to remain in the mainstream of European economic and social thinking. But … We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do”.

Is his boss threatening to turn Britain into a Cayman Islands-like tax haven?

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My Lords, we want to remain competitive in a world economy and to attract inward investment. Although we have reduced corporation tax since 2010, onshore corporation tax receipts have gone up by 50% since that date, despite the reduction in the rate. Reducing corporation tax encourages business investment and growth, and one estimate has shown that the cuts announced since 2010 amount to an estimated increase in GDP of 1.3%.

Commonwealth Heads of Government Meeting

Question

Asked by

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To ask Her Majesty’s Government what plans they have to engage United Kingdom parliamentarians in the process and programme for the forthcoming Commonwealth Heads of Government Meeting in the United Kingdom, in particular with respect to the expansion and strengthening of international cultural, trade and investment initiatives.

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My Lords, this Government recognise the strong contribution of UK parliamentarians to Commonwealth activities, including on enhancing opportunities for trade and investment. We will engage closely with parliamentarians and other Commonwealth stakeholders, including the CPA UK, in designing and delivering an ambitious, creative and innovative Commonwealth summit. We want to make the most of all the Commonwealth has to offer and demonstrate a Commonwealth that is truly relevant for the 21st century.

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My Lords, I thank the Minister for that reply. The CHOGM summit provides a golden opportunity for all Commonwealth parliamentarians to demonstrate their commitment to democracy, transparency, the rule of law and human rights as laid down in the Commonwealth charter. Will the Minister, therefore, press the Government to support the CPA UK’s plan to hold a linked Commonwealth conference prior to CHOGM? Will she press for a parliamentary forum at CHOGM itself, following the example set by many international high-level meetings?

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The noble Lord raises important points, all of which we are very much taking into account, I assure him. Indeed, most recently I met Andrew Tuggey of the CPA UK to discuss what shape its plans might take—not only, of course, what deliverables there could be for the event itself, but the participation by CPA UK members more generally in the civil society events.

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My Lords, I declare an interest as chairman of the Commonwealth Enterprise and Investment Council. Is not one of the best ways of engaging parliamentarians up to CHOGM to boost the current Prime Minister’s trade envoys network, which is cross-parliamentary and has been very successful? Would not my noble friend the Minister agree that a dedicated Commonwealth trade envoy should be appointed, as suggested by the Maltese chair-in-office of the Commonwealth?

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Again, those are important points. On the trade envoys, eight envoys currently cover 10 Commonwealth countries. The programme has been recently reviewed and recommendations on the future direction of the programme, including suggested new markets, are with No 10 for consideration. We will certainly take the proposal for a trade envoy or ambassador into consideration.

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My Lords, does the Minister agree that parliamentarians across the Commonwealth should also be involved in campaigns for more openness, which should include science and law? This week there was a conference about the openness of legal aspects of the Commonwealth at the University of London.

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I am delighted that the noble Lord has raised this issue. We discussed it briefly outside the Chamber and I assure him that his views will be taken firmly into account.

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My Lords, would it not be plausible to make full use of the internet and to devise a website to allow for two-way exchanges of opinion among all parliamentarians around the whole of the Commonwealth?

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I assure the noble Viscount that, as part of the programmes that we are putting forward and consulting widely on, it is our intention to make the best use we can of the internet and all it can deliver. In some areas around the world, of course, it is more difficult to get the broadband speed. However he is absolutely right that modern communication is important. After all, we have to think of the young age of most people across the Commonwealth.

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My Lords, the first principle of the Commonwealth charter is democracy. Therefore my noble friend is undoubtedly right. The second concerns human rights. Will the Minister guarantee that the Government will put as a major theme the promotion not only of women’s rights but of those within the LGBT community?

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Again, that is a very important issue; “yes” is the answer to it. However, more particularly, we are working out our plans to ensure that important messages are delivered on LGBTI issues at the summit. I have already had discussions about this and I know that Kaleidoscope and the Commonwealth Equality Network are putting forward an agenda, and we want to see how that can feed into the work that we are doing.

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My Lords, I reinforce the remarks of the noble Lord, Lord Chidgey, and my noble friend Lord Marland. Does my noble friend agree that the pathway from here to the Commonwealth summit next April is an immensely important one and that we must do everything we can to strengthen it? Will she accept my very strong welcome for the decision of the Prime Minister to appoint a powerful Cabinet Office unit to carry this work forward? Does she agree with the comments of my noble friend Lord Marland that a network of 2.5 billion people using English as their working language is a fabulous potential opportunity for this country? Will she urge all concerned, especially some of the doubters about the potential of the Commonwealth, that they should look to the future of our service-based economy rather than harp on about the past?

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As always on Commonwealth matters, my noble friend makes the most important points and I can do no more than thoroughly agree with him.

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My Lords, will the Government ensure that educational exchanges at all levels are given a high priority?

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Indeed, my Lords. That is the reason the Commonwealth team is cross-departmental, which ensures that we can take all the issues into account.

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My Lords, my noble friend the Minister has outlined the design and creation of an appropriate programme. I declare an interest as the leader of a Commonwealth initiative on freedom of religion or belief. Will she consider meeting, as she has done in the past, parliamentarians and representatives from CPA UK, the Youth Parliament and the Commonwealth Youth Parliament so that everyone can play a part in designing the programme?

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My Lords, recently I met a representative of the Youth Parliament and discussed issues around the summit. I assure my noble friend that the important point she has made will indeed be taken into consideration. I am already holding a series of meetings, as are members of the Commonwealth team now based in the Cabinet Office.

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My Lords, one important consideration about trade which is often ignored is the need to ensure that we advocate strong minimum standards and support the International Labour Organization. I hope that the noble Baroness will be able to reassure the House that when we engage civil society in CHOGM, we will also include trade unions and the international trade union movement so that we can advocate strong labour standards.

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Yes, my Lords. Yesterday I had the privilege of being able to meet Owen Tudor, who heads the TUC’s international relations office, to discuss how his agenda and the decisions that might be made in June by TUC organisations can feed into the summit process.

Sport: Women on Governing Bodies

Question

Asked by

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To ask Her Majesty’s Government what steps they are taking to encourage all sports governing bodies to increase the number of women on their boards and in senior posts.

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My Lords, in December 2015 the Government published their Sporting Future strategy, which stated that UK Sport and Sport England would agree to a UK sports governance code to strengthen existing commitments. The code for sports governance was published in October last year and requires each funded organisation to adopt the target of a minimum of 30% of each gender on its board. That will be in place by October this year. The new governance code will be mandatory for all sports bodies seeking public funding from April this year.

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I thank the noble Lord for that Answer. Can we have some enlightenment about what the Government are doing to make sure that there is not only an attempt to recruit but also a steady stream of candidates? Are we doing enough to identify women with the correct talents and letting them know that there is a pathway to go forward? If not, are these sports required to undertake the correct training?

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My Lords, Sport England is developing its future leadership programme, which will be launched later this year. Women are a priority group identified by Sport England for the scheme. It will identify suitable female candidates who will be given the chance to develop their leadership potential in sports organisations and succeed in senior leadership roles.

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My Lords, I declare an interest as an officer of the All-Party Parliamentary Group for Women’s Sport and Fitness. I congratulate the Government on the progress which has been made on this issue, but does my noble friend the Minister agree that we should give equal priority to those from BME and disability backgrounds to become members of British governing bodies of sport? At present they are severely and unacceptably underrepresented.

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My Lords, I agree with my noble friend. The figure of 30% for women is one thing, but the Sporting Future strategy also outlines the requirement for diversity in all areas and expects the sports national governing bodies to produce diversity programmes which should be published annually in order to report on progress.

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My Lords, I declare a number of interests in this area that are listed in the register. A number of governing bodies could do much better on this. The pipeline is incredibly important, but what are the Government doing to ensure ex-athletes—I declare an interest—have an opportunity to move on to boards? A number of athletes are on programmes. There could be training opportunities. It is not just sitting on boards and being chief execs and chairmen of governing bodies, but senior coaching roles, where we have a huge lack of women numbers.

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My Lords, I completely agree with the noble Baroness, who obviously knows about these things first hand. UK Sport is working to address this, but there are issues that have to be addressed. The main thing is there has been a sea change in attitudes towards diversity in general and women in sport in particular. The present Sports Minister deserves great credit for taking a very firm approach to this and making significant progress.

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My Lords, will the Minister reflect on the progress achieved in the run-up to the London 2012 Olympics in increasing participation, particularly among girls in school? I therefore invite him to take the opportunity of the Athletics World Championships, which will be held in London this summer, to declare once again the Government’s support and commitment to increasing participation in sport among schoolchildren, with a very particular focus on boosting participation among young girls.

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Again, I agree entirely with that. Key to our strategy is getting people involved in sport, but also activity in general, not just sport. We definitely want to include children at a younger age. As I said the other day, we have included children down to the age of five. We want to get all children and young people involved in activity.

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My Lords, the poor state of women’s representation on boards is not confined solely to sports boards. Last year, the number of women being promoted to boards of the UK’s largest companies slowed for the first time. Women’s representation on boards of all kinds is vital if we want a prosperous economy that works for everyone. What do the Government intend to do about this situation?

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My Lords, that really is not in the remit of the Department for Culture, Media and Sport, but I will refer the noble Baroness’s question to the relevant department.

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My Lords, will my noble friend say whether the Government intend to publish quotas for all categories, not just men and women but all those in between and people who do not feel comfortable with one or the other of those categories? It would be so unfair if we did not—would it not?

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I can be very clear to my noble friend: we do not intend to publish quotas.

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My Lords, will the Minister confirm that the Government are still very keen on more women in Parliament in both Houses, because they are half the human race? If we had that, we would have less hysterical politics.

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Again, I do not think that is within our remit, but the Government are keen to have more women in Parliament.

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My Lords, this Question is really about ensuring access to sport, particularly for women. While we have been discussing this Question on governance, we are seeing UK Sport reducing its funding for premier sports in areas where women have been involved. Has the Minister any further comment on the turning down of the recent appeals by synchronised swimming, badminton and handball, which has sent a very wrong signal to women?

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My Lords, I think the noble Lord is referring to Tokyo funding for elite sports. We had a debate on that. The Tokyo funding settlement for the next four years has been decided and is still on the same basis, which is to achieve the maximum number of medals. The decision has been made in line with that strategy. However, I said at the time that there is a debate to be had on whether that will be the correct approach in future and whether we should encourage people to take more active participation in sport below the elite level. That debate is to be had, but the strategy has been set for the next four years.

Bereavement Benefits

Question

Asked by

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To ask Her Majesty’s Government whether they will reconsider changes to bereavement benefits for parents with dependent children.

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My Lords, bereavement support payment is a new benefit intended to help people with the immediate additional costs of bereavement. It will not be taxed and is disregarded for income-related benefits, thus helping those on the lowest incomes the most. Those who need further support will be able to access better-placed areas of the welfare system for long-term, means-tested financial assistance.

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I thank my noble friend for his response and agree that the old system needed modernising and the new system has some advantages, but these reforms are designed to cut £100 million from welfare spending for bereavement. Within that reduced budget, bereaved partners without children will get more at the expense of those with young children, who will receive significantly reduced support which will stop completely after just 18 months. What is our national insurance welfare state for if not to support families properly in such tragic circumstances? Will my noble friend acknowledge the problems that this is likely to cause and relay concerns from across this House expressed in a cross-party letter to my right honourable friend the Secretary of State asking his department to reconsider these reforms by extending support for bereaved children beyond the inadequate 18 months?

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My Lords, I am aware of the letter that my noble friend refers to. My right honourable friend will answer it in due course. I can give an assurance that we have consulted on these matters—my noble friend will be aware of this because she was a part of it—legislated on them and consulted on them again. We made changes to the regulations before we introduced them and we have made a commitment in the impact assessment that there will be a further review. Nevertheless, I will convey my noble friend’s concerns to my right honourable friend, and I am sure that, his door always being open, he will be more than happy to see her.

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My Lords, I also signed the letter and was pleased to do so. There is genuine feeling around the House that the Government have made a mistake on this. What will happen in practice is that a six year-old who lost her father last year will be supported until she leaves school; if her father dies next year, that support will stop after 18 months. That cannot be right. I know that I gave the Minister a hard time a few weeks ago when the regulations were in Grand Committee, but I do not blame him; I know that he did not make the decision. I think that we are now at the point where the whole House recognises that the Government have made a mistake. These cuts were simply part of an attempt to cut £12 billion off social security. The House does not believe that the Government should be taking money away from bereaved children. Will he please tell his Secretary of State that?

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My right honourable friend will obviously listen to what the noble Baroness has had to say, but I reject her allegation that these are cuts. There will be no savings to the taxpayer in the first two years; thereafter, as was made clear in the impact assessment, there will be some savings. The important point to get over is that we have increased the initial payment, which was frozen by the previous Government in 2001 and remained frozen for many years, from £2,000 to £2,500. We then make payments for 18 months to those with children. Obviously, no element of money will resolve the problems that individuals who have lost one or other parent will have. This is designed to help with the immediate costs of that bereavement. That is why we think that, by increasing the initial payment, we have made a very real change and provided some support for those with children.

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My Lords, the DWP impact assessment taken from the consultation on the website suggests that bereavement benefits make up a tiny part of the welfare budget, accounting for 0.32% in 2016-17 and anticipated to fall to 0.27% by 2019-20. I totally support the Government in the need to reduce the welfare bill, but it should not be done here. If children are bereaved, there is no fraud; you cannot fake it, or even abuse the system. Are we not, as I fear, targeting the wrong area?

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My Lords, again I do not accept what my noble friend said. We have made changes to this because the old system of three benefits—bereavement payment, bereavement allowance, widowed parent’s allowance—was overcomplicated, had been in place, with minor changes, since around 1920 and needed change. We have made a change that provides extra support at the immediate moment that that support is needed and appropriate support for those with children. There are, as I said, no immediate savings to the taxpayer; there might be savings later but it is always important, in all matters relating to benefits, to keep an eye on the overall costs.

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My Lords, I too signed the letter to the Secretary of State. I fully accept that the system needed reform, but those of us who spend a lot of time looking after people in bereavement know that a widowed parent may sometimes have to spend several years giving considerable extra time, attention and care to the children. In practice, that may necessitate working only part-time for a number of years while children are still at home. Previously in this House there was an assurance that income-related benefits would be there to support such parents, but under universal credit that is not so simple. Can the Minister reassure us that bereaved parents will not be subject to the in-work conditionality requirements that apply under universal credit?

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My Lords, those requirements were explained, I think, by my honourable friend Caroline Nokes when the regulations were dealt with in the Commons. They are complicated but the simple fact is that universal credit and other income-related benefits are there to fill the gap after that 18-month period. We believe that, with a contributory benefit such as bereavement support benefit, it is quite right to make that very generous initial payment, to then provide some support for those with children for 18 months and thereafter to let people seek help from income-related benefits.

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My Lords, we understand the Government’s need to reduce the benefits bill; however, we believe that this is not the right place to do it. Given the spotlight that has recently been shone on the devastating impact of children suffering bereavement by the programme on Rio Ferdinand, I ask the Minister to talk to his colleague, the Secretary of State, and ask him to reconsider this policy and the devastating impact it will have.

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My Lords, I have been trying to explain that I believe that this benefit is an improvement in offering support at the initial stage, which is where it is important. I do not believe, and I do not think that the noble Baroness would believe, that any sum of money is going to deal with the problems of bereavement suffered by the surviving spouse or the children, but I believe that appropriate support ought to be offered for a period. That is what we have done, that is what we consulted on, that is why we made changes after that consultation, having listened to what people said, and that is what this new benefit will do. I think that that is the right way forward.

Brexit: European Parliament Resolution

Private Notice Question

Asked by

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To ask Her Majesty’s Government what assessment it has made of the potential impact of the adoption by the European Parliament of a resolution on the UK’s withdrawal from the EU on its ability to achieve the negotiating objectives set out in its White Paper.

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My Lords, I beg leave to ask a Question of which I have given private notice.

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My Lords, we note the European Parliament’s views on our upcoming negotiations and we shall carefully consider the content of the resolution. We recognise and respect the vital role that the European Parliament will play in our exit process and we shall stay engaged with it throughout that process.

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I thank the Minister for that. The significance of the resolution is that the European Parliament will base its decision on whether to grant—or, indeed, withhold—its consent to our withdrawal deal on whether its objectives have been met. In the light of that, I ask the Minister, first, whether she will give some thought to a Parliament-to-Parliament dialogue so that both bodies with a potential veto can discuss and debate the issues together? Secondly, what is the Government’s response to the resolution’s suggestion that an association might be appropriate for our future relationship with the European Union?

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I thank the noble Baroness for raising two important points. On the question of inter-Parliament relationships—between the Parliament of the United Kingdom and the European Parliament—the negotiating conduit is clearly from the UK Government to the European Commission. But it seems a perfectly healthy suggestion that the Parliaments should engage; and indeed that is for the Parliaments themselves to determine, as government does not control Parliament and nor should it do so. On the second important issue, it was helpful that the European Parliament recognised the importance of the citizenship issue. The Prime Minister has made it clear that in so far as citizenships are concerned, from the UK perspective we want to have that at the forefront of our negotiations. In relation to the European Parliament resolution, we certainly look forward to an early resolution of the issue of citizenships and citizenship rights.

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My Lords, speaking as one who sat through the entire three hours of the debate in Strasbourg yesterday, will the noble Baroness accept from me that the pervading feeling there was one of sadness? Is she aware that Michel Barnier suggested that the three conditions for successful negotiations were: first, unity, by which he meant success for both sides; secondly, to dispel uncertainty; and thirdly, the establishing of appropriate sequencing of the negotiations? Will the Government endorse that approach?

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I thank the noble Lord for his question. What was reflected in the European Parliament yesterday echoes much of what the United Kingdom Government have been saying. Quite simply, there is a mutual interest for the UK and the EU in conducting these negotiations in a harmonious, constructive and, yes, robust fashion. That means that there will be issues where firm positions have to be taken, but I very much hope that a mood of constructive concord will prevail. In so far as the particular points made by Mr Barnier are concerned, I am sure that all these matters are already in the mind of the UK Government and that they will pay close attention to those issues.

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My Lords, will the Minister agree that one part of the position endorsed by the European Parliament—which is to talk about sequential rather than concurrent negotiations on the new partnership—is thoroughly unhelpful? Will she recognise that there is broad support, I believe, in this House and in the other place for the Government’s view that the negotiation on all these matters should go ahead without further delay? If she does agree, will she tell us what the Government are doing to persuade the members of the European Council and the European Parliament to soften their unfortunate attachment to a sequential approach?

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I thank the noble Lord for his question. We are all aware that the backdrop to this is now a timeframe of two years. I think that that will focus minds, and I have noted with interest what he has said. There is a recognition that there is a complex and challenging negotiation ahead. There is a great deal of material to be debated, discussed, digested and, we hope, then agreed upon. That will require minds to focus within the timescale available. I am very grateful for the noble Lord’s observation and am sure that when he asks me what the Government will do, they will pay close attention to his wise words.

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My Lords, rather than the Government talking up their dangerous no-deal option, will they now accept that a timeframe of two years is completely unrealistic and that a transitional deal will obviously and inevitably be required? If they accept that, as they should, will they also acknowledge that the European Court of Justice will have authority over that transitional deal, as confirmed in the draft Council guidelines as well as in the Parliament’s resolution, so that the Government will be unable to fulfil their pledge to remove the UK from ECJ jurisdiction by March 2019 if they are to fulfil their aim of agreeing a trade deal? Will they now openly acknowledge that point so that there is no more disingenuous avoiding of it?

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I thank the noble Baroness for her question. The fundamental difference between the position of her party and the position of my party is that my party respects democracy and will abide by that referendum result.

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That is something which I believe is an alien concept to the Liberal Democrats.

Everyone is realistic about the timeframe pressure of two years. I do not agree that it is impossible to negotiate a sensible deal within that timeframe any more than I think the EU thinks it is impossible to do it. I think the EU is being constructive. The European Parliament debate and resolution show that the EU is being constructive. That is a great encouragement for the United Kingdom, and we will now proceed with these negotiations in a constructive and optimistic spirit.

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My Lords, does my noble friend accept that it is not just with the European Parliament that we need a constructive concord? We need constructive and intensified relations with the Parliaments of the other 27 members and, indeed, some of the local Parliaments as well. This is a major task, but in this digital age it is very much easier than it would have been in the past. Will she encourage all kinds of contact between our Parliament and the Parliaments of the other member states of the European Union?

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I thank my noble friend for his observation. It is a positive contribution. It should be made crystal clear that the conduit for the negotiations has to be between the United Kingdom Government and the EU Commission. That is the silo, if you like, for the negotiations. That does not prejudice the normal diplomatic discourse and the desirable conversations that will take place between the United Kingdom and other member states. That is an ongoing and healthy process, but we should be clear that the formal channel for the negotiations is between the UK Government and the EU Commission.

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My Lords, the Minister—

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My Lords, has the Minister had time to consider paragraph 29 of the European Parliament resolution, which calls for the relocation of the European Banking Authority and the European Medicines Agency from the United Kingdom to another country in Europe as quickly as practicable? Have the Government made any assessment of the impact of that?

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If I can recover from the stereophonic effect of the contributions from the Labour Benches, I thank the noble Lord for raising that issue. It is specific to the negotiations. I am certain that it will be discussed within the negotiations. It would be quite wrong for me to pre-empt an answer to that, and I am not going to do so.

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My Lords, in order to calm the rhetoric in the European Parliament, will my noble friend think of sending a certain United Kingdom Member of that Parliament a definition of the word “mafia” and a copy of How to Win Friends and Influence People?

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As ever, my noble friend seeks to pour oil on troubled waters. I am sure his comments will be noted.

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The Minister is right to say that it is for the two Parliaments to decide this matter, but in view of her special knowledge, will she accept a proposal that I have already made to the noble Lord, Lord Bridges, that the Government consider giving support to the idea of a model similar to the British-Irish Parliamentary Assembly, which could be very good for both Parliaments in building a positive relationship between the UK and the EU?

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That is among a number of very positive suggestions that have been made. I am sure that the Government are interested in and will listen to such suggestions and will give due consideration to such matters in future.

Preventing and Combating Violence Against Women and Domestic Violence (Ratification of Convention) Bill

Third Reading

Bill passed.

Brexit and the EU Budget (EUC Report)

Motion to Take Note

Moved by

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That this House takes note of the Report from the European Union Committee Brexit and the EU budget (15th Report, HL Paper 125).

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My Lords, I am delighted to introduce the EU Committee report, Brexit and the EU Budget. I thank all members of the committee, which, along with the other sub-committees, has worked at an extraordinary pace since the referendum to examine all the significant areas of policy that will be impacted by Brexit. I benefit in my chairmanship from an extraordinary level of expertise and talent in the membership of the committee—even by the standards of this House.

We will be losing one member in the next rotation, my noble friend—I was disconcerted because I thought he was behind me—Lord Shutt. It has been a real pleasure to work with him, and I know that he will bring the same level of wisdom and expertise to the next committee that he serves on. On behalf of the committee I express our sadness at losing him.

We are also very ably served by our clerk, John Turner, and our new policy analyst, Dr Holly Snaith, who both produced as good an example of work as any in this House. I know how important our reports are to the policy community in Brussels, and this one is no exception. I understand that it has been carefully examined across capitals.

I am also very grateful that we were able to secure a debate on this topic so soon. As noble Lords will be aware, the issue is highly contentious and, as the Tusk draft guidelines that were issued last Friday indicate, is going to feature as a significant factor in the early negotiations now that Article 50 has been triggered. The guidelines say:

“A single financial settlement should ensure that the Union and the United Kingdom both respect the obligations undertaken before the date of withdrawal. The settlement should cover all legal and budgetary commitments as well as liabilities, including contingent liabilities”.

So this debate is timely.

Our inquiry was undertaken in December and January, and we heard evidence from academics and legal experts. We also visited Brussels to hear from a range of MEPs and prominent think-tankers. We are enormously grateful to all those who contributed to the inquiry. The UK’s possible exit bill from the EU has received a significant amount of attention in the press and elsewhere. In the autumn of 2016, reports started to emerge in the Financial Times, for example, that the UK would face a bill of €20 billion. Shortly after, the FT reported the figure as €60 billion—an unprecedented level of inflation—and further speculation in Brussels suggested that this was the figure the EU actually had in mind. We wanted to investigate the factors behind these numbers and, if possible, determine what the United Kingdom might need to pay.

Noble Lords will be aware that the most newsworthy finding of our report was that, legally, the UK would not be obliged to pay anything at all. This has been seized upon by those who do not believe in honouring their obligations, but it is clear that they have not read our report in full. We considered this matter very carefully before coming to that conclusion, having received differing opinions from our legal witnesses. However, having looked closely at the matter with the assistance of the EU Committee’s then legal adviser, Mr Paul Hardy—to whom I personally extend our thanks, as he has since moved on from the House of Lords—we decided to put that advice into the report itself so that all could see the analysis behind our judgment. We concluded that the effect of Article 50 was that all EU law ceased to apply to the UK at the moment of departure unless the withdrawal agreement provided otherwise. This means that all legal obligations resulting from budgetary commitments made while the UK was still a member state would also cease to apply.

We heard evidence that Article 70 of the Vienna Convention on the Law of Treaties might provide a legal basis for an enforceable claim against the UK—and enforceability goes to the heart of the argument. The convention states:

“Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty … Releases the parties from any obligation further to perform the treaty”,

but that it:

“Does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination”.

On that reading, this appears to mean that the United Kingdom would have a legal obligation to pay its dues—but the key words are:

“Unless the treaty otherwise provides”.

Article 50 of the Treaty on European Union provides a mechanism for a member state to leave the EU without an agreement and with the effect that all EU law ceases to apply to the member state. Article 50 is unqualified by any condition about ongoing liabilities, and from this we concluded that the UK’s budgetary liabilities would cease in the absence of any withdrawal agreement, as there is no institution to enforce obligations when EU treaties fall.

I am aware that other legal opinions are circulating in Europe—a fact alluded to by the Chancellor in his interview on the “Today” programme on 29 March. On 21 March, there were press reports of a leaked EU document suggesting that the matter would be taken to the International Court of Justice if the UK refused to pay. The EU may go down this route, although we concluded that international law is slow to litigate and hard to enforce. We also noted that Article 344 of the Treaty on the Functioning of the European Union prohibits EU member states from submitting the legal interpretation of the EU treaties to a court other than the Court of Justice of the European Union. I note that the European Council’s draft negotiating guidelines propose establishing an arbitration body to rule on the interpretation of the withdrawal agreement, taking into account the particular status of the CJEU. This would, of course, come into being only if a deal was struck.

We explored the legal position because we wanted to determine the lowest amount the UK might be required to pay as a means of sketching out the parameters of the forthcoming negotiations. I was rather surprised to find that the answer was zero, in terms of the legal position, but I want to be clear that the committee did not recommend that the UK should refuse to pay anything. This legal situation would apply only if it proved impossible to reach a deal, in the sense that the EU’s claim would be unenforceable. The committee hoped that a deal would be reached and acknowledged that this would be impossible without settlement of the budget issue.

Politically, if not legally, the UK has signed up to certain areas of EU expenditure which may persist for some years after Brexit. It will be a matter for negotiation how much any payment proves to be, but the political and moral obligations on the United Kingdom will have to be taken account as part of the process, not least because good will will be essential to achieving a workable withdrawal agreement and a co-operative future relationship.

The Prime Minister, in her letter triggering Article 50 and her Statement to the House of Commons, said that she would pursue a “deep and special partnership” between the United Kingdom and the EU, taking in both economic and security co-operation, and that:

“We will need to discuss how we determine a fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of the United Kingdom’s continuing partnership with the EU”.

So far, we do not know what the Government consider to be a fair settlement, and no doubt that will emerge in the negotiations. Rumours that they have calculated a bill of £20 billion have recently been reported, but at this stage that is mere speculation.

The point is that this is a negotiation and the final bill could be calculated in any number of ways. We tried to explore some of the ways a bill could be constructed. It was possible to arrive at wildly differing figures depending on how one calculated the UK’s share of the EU budget, whether one included settlement of the so-called reste à liquider, or RAL, amounts, and whether one included payments in respect of accrued pension rights—which itself would differ depending on whether it was calculated according to the number of UK nationals working for the EU at the moment or in receipt of a pension, or by using a standard percentage. There is also the issue of EU assets and whether the UK is liable to receive a portion of their value.

One further factor in determining any bill would be whether the UK agrees to make contributions to the EU budget under the current multiannual financial framework until it comes to its natural close at the end of 2020. Doing this would reduce uncertainty in the rest of the EU over how it is to fund its spending plans for the 21 months following Brexit. Taking this position may help to secure a transitional arrangement—the implementation agreement, as the Government call it—and the cost, although running to billions, it is likely to be offset by commitments the Government have already made to guarantee EU-derived funding domestically following Brexit. So it would be substantially lower than the headline figure might suggest if that were the case. It is an option that requires serious thought.

Let me conclude with a final thought. This process on which we have embarked—disentangling ourselves from a relationship of nearly 45 years —will be watched around the world, not just in the EU. The measure of the UK’s reputation as a future partner in deals around the world will be dependent on how it behaves in ending this relationship. This country’s culture is synonymous with the concepts of fairness and honour. Having grown up in in a former colony, I was raised in the knowledge that an Englishman’s word is his bond. No amount of legal posturing could convince future partners who do deals with us that we would be reliable partners if we left the EU table without paying our due bill. I believe that the Government understand this and intend to fulfil their obligations through the difficult negotiations ahead. I wish them well. I beg to move.

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My Lords, this is a report, of course to Parliament, and in particular to the House of Lords. If a Member of the Committee which prepared it is permitted to say this, it has been produced with considerable skill and care. If I may be forgiven for saying so, it appears to be a singularly significant cross-party House of Lords Select Committee report among many important cross-party House of Lords Select Committee reports. Indeed that fact was recognised by the press, which gave it more coverage than perhaps might ordinarily have been the case.

It is a report on a complex subject and does its best—quite a good best, I would argue, and I pay credit to our chairman, other Members and the clerks—to simplify that subject. However, it is in one sense unusual in that it has the potential to be really quite useful to those responsible for negotiating our departure from the European Union.

It contains legal advice that, in the event that no agreement has been reached between the United Kingdom and the European Union by the expiry of the two-year period specified under Article 50, the UK will be subject to no enforceable obligation to make any financial contribution at all to the European Union, and that while EU member states may seek to bring a case against us for payment of outstanding debts under principles of public international law, as the noble Baroness, Lady Falkner, said, international law is slow to litigate and hard to enforce, and it is doubtful that any international court or tribunal would have jurisdiction.

It does not say—again, as the noble Baroness said—that in any situation nothing should be paid, and indeed in my view, the Government may be well advised to pay something, if they can get an agreement to secure for the UK their key negotiating objectives. The good relationship the noble Baroness mentioned is important. The real significance of this is that it gives the EU considerable encouragement to reach an agreement, and to extend negotiations—although we must all hope that it will be possible to reach an agreement within the two years—if in due course it becomes apparent that no agreement is likely to be reached within that period, and if indeed it suits us.

I would argue that if this situation did not apply—that if no agreement has been reached by the expiry of the two-year period, the UK need pay nothing to the EU—there would be much less incentive on the EU to agree to anything. This is unlikely to be welcome news to Monsieur Barnier, who has suggested we might have to some €60 billion or even €70 billion.

The key question is how the Government should use this information. I am sure that they recognise the value of it as a negotiating chip—and, indeed, have taken their own legal advice. For me, a key question is going to be how much can be negotiated within the two-year period. It will be a tall order to complete negotiations within that period on a comprehensive free trade agreement, encompassing not only tariffs but, of vital importance, non-tariff barriers, including matters such as mutual recognition agreements and conformity assessment. Services, so important to our economy, also need to be addressed. To suggest that the exit terms must be settled before a trade agreement can be considered—this picks up on a point made by the noble Lord, Lord Hannay, in the PNQ earlier this morning, which of course I agree with—misses the point that what we are prepared to accept in exit terms may be affected by how good the trade deal is. So the information in our report may be helpful. I hope that Ministers, in carrying out this very difficult task, will make use of this in the most skilful way, and I wish them every success.

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My Lords, I am not a lawyer, any more than the Lord Chancellor is a lawyer, although I hope that I am not less of a lawyer than she is either—that would be rather a bad position to be in. But all citizens are deemed to know the law, and anybody who sits in a legislature has to have a clear sense of the foundations of the law. Until a few months ago, I was a member of the committee. I enjoyed the role very much; it was a great privilege to serve under the extremely able chairmanship of the noble Baroness. I regard all those who served with me on that committee as personal friends, and I hope they will not be unduly upset if I feel today that I must take issue with their conclusion. We all feel, as a matter of principle, that, if we have pressing views on an important subject that have not otherwise been expressed, it falls on us to stand up and make sure they are not ignored.

We are here in the very imprecise and uncertain realm of international law. So imprecise and uncertain is it that there has been a respectable view for a long time, which I might describe as an extreme positivist view, that there is no such thing as international law, for the simple reason that there is not in existence the essential prerequisite of a system of law: a sovereign body that legislates and is able to enforce its decisions in the area of its claimed jurisdiction. I think there would be general agreement that a form of positive law exists in the world which cannot be contested, in the form of individual contracts or treaties between states—conventional law. That applies only to the parties to those conventions, of course; in other words, only to those who have ratified the conventions. The concept of convention is well established, and I can see that the committee takes it very seriously. It concludes that the Vienna convention applies in this particular case, and I believe it when it says that 26 out of 28 members of the EU have ratified that convention. I suppose you could argue that the matter is anyway now one of customary international law, so it is a reasonable basis on which to proceed, and my argument will be on that basis.

Customary international law is of course a very vague area. The concept has been with us for a very long time, since at least Grotius in the 17th century. It is often quite unclear what customary international law is or, indeed, how it relates to conventional law. I take as an example the law of the sea convention, which fundamentally departed from traditional customary law when it was negotiated in the 1970s. Does it now represent customary law as well as conventional law, or are there two regimes in the world—one for the great majority states that have ratified the law of the sea convention and one for those that still have not done so? I do not know the answer to that question.

Finally, moving away from the positivists as far as you can to the idealist view of international law, there is natural law, which, as the House knows, has been in existence for even longer as a concept. I think that it goes back at least to the view of St Thomas Aquinas that there is an element of divine rationality in all of us by which we are guided, and through which we know the difference between right and wrong. One can substitute for God, if one wants to secularise the process, by introducing some kind of formulaic mechanism such as the utilitarian calculus or perhaps the Kantian categorical imperative. However, we should not neglect in that natural law, because it was the basis of the indictments at Nuremberg after the war, which would not have been pursued on any basis of positive law because there was no basis to claim that those appalling crimes had been infractions of any positive law that existed at the relevant time and place. Therefore, we are in a very difficult area here.

As I said, the committee decided that the Vienna convention is the appropriate basis for looking at the international legal aspects of this matter. I agree with that. The committee report quotes the relevant article of the convention—Article 70:

“Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention:

(a) Releases the parties from any obligation further to perform the treaty;

(b) Does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination”.

The important phrase here is:

“Unless the treaty otherwise provides”.

This is where I part company, I am afraid, with the committee, because it argues—as did the noble Baroness a moment ago—that because of Article 50 of the Treaty on European Union, which does indeed deal with the issue of member states leaving, under the Vienna convention paragraph (a) should apply, not paragraph (b):

“Releases the parties from any obligation further to perform the treaty”,

should apply, rather than,

“Does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination”.

I do not need to quote Article 50: we all know it practically by heart after the events of the last few weeks. However, it is clear to me, on my reading of the treaty, that Article 50 provides no guidance at all on whether or not outstanding obligations and liabilities should be dealt with in any kind of agreement. It provides no rules whatever—there may be substantive rules—for the withdrawal of a member. All it deals with is the timing. It says that the negotiation must take place within two years. Still less does the article provide an actual formula for calculating and distributing assets and liabilities or anything of that kind. Therefore, given that Article 50 in my view does not provide any substantive guidance on this matter at all, it seems to me, contrary to the committee’s conclusion, that paragraph (b) and not paragraph (a) applies here. Therefore, it is necessary for us to behave in what we imagine would be a common-sense way anyway once one leaves any kind of venture—namely, that obligations, liabilities and assets on both sides are looked at, evaluated and distributed on a fair basis, which, presumably, means on the basis of the proportionate contribution beforehand of resources to the organisation. That could easily be worked out.

I am afraid that I disagree also with another aspect of the committee’s report. Paragraph 133 states:

“The jurisdiction of the CJEU over the UK would also come to an end when the EU Treaties ceased to have effect. Outstanding payments could not, therefore, be enforced against the UK in the CJEU”.

There seems to be confusion here. It is quite obvious that it is correct that once we have left the Union, the CJEU no longer has any jurisdiction over us, and the CJEU can say nothing about any subsequent arguments we might have with other former fellow members of the EU. But until the day we leave, clearly the CJEU has such jurisdiction. I have never heard of a court anywhere in the world which, once it had accepted jurisdiction over a case because the acts and the decisions involved were taken at a time when the individuals concerned were under its jurisdiction, subsequently allowed one of those parties to the case retrospectively to remove themselves from its jurisdiction by simply subsequently leaving the organisation. It seems to me that the CJEU, once it has accepted jurisdiction for determining the liabilities attaching to us or any other member state up till the time of our departure, would continue to be able to declare that judgment. Only liabilities accumulated after our departure could not be subject to the jurisdiction of the CJEU, but no one is suggesting that we could accumulate any liabilities after our departure, so that question does not really arise.

The final confusion—or at least the point on which, frankly, I disagree with the committee—relates to the whole issue of enforcement. The committee says at paragraph 136 that,

“international law is slow to litigate and hard to enforce”.

I do not know what it means by “hard to enforce”. As I have already argued, it seems to me that international law is impossible to enforce—that is one of the salient points about international law. Somebody might say, “Well, you can enforce it through a Chapter 7 resolution of the Security Council”, but, apart from the difficulty of getting that, you obviously cannot use that mechanism against a permanent member state with a veto or a group of countries of which one is a permanent member state. Therefore, that does not really arise. Perhaps if the noble Lord, Lord Howard, were in his place, he would suggest that you could always enforce it by sending a gunboat to Brussels or something of that sort.

However, in all seriousness, international law cannot be enforced. I do not know whether the committee accepts that, perhaps taking the positivist view that that means there is no such thing as international law. I do not think so, because the whole argument in the report is based on the assumption that there is such a thing as international law. Whatever the committee might feel about that, I hope that the other explanation does not apply and that what it has in mind—I do not think it does—is that we could always say, “All right, we’ve lost the case, but come and get us. You’ll never get a penny out of us and we won’t acknowledge the judgment of the court”. I agree very much with the noble Baroness: it would be horrific if this country took that line, and I am sure that we would not. Therefore, I am very confused about what the committee means by saying that it is hard to enforce, and about the relevance of that comment in this case.

I very much agree with the committee’s pragmatic recommendation—if not its legal analysis—that we as a country should not say that we owe absolutely nothing as a result of our membership of the European Union. That would be completely non-credible. We are clearly liable for that portion of the Union’s liabilities accumulated with our taking part, by consent, in the relevant judgments until the day we leave. We are also, certainly morally, obliged in relation to the costs that will be incurred purely and solely because of our unilateral decision to leave—such as the need to pay redundancy payments to British subjects employed by the Union’s institutions.

However, whatever happens, we certainly should not do what has been suggested in certain quarters, although very much not by the noble Baroness today, which is simply to walk away from our obligations. I thought that one of her analogies was particularly poignant when she talked about walking away from the table. We can all imagine someone going out to dinner with a group of friends—perhaps 27 friends in this case—then getting up from the table and leaving without paying the bill. No honourable person would like to think of himself or herself behaving in that fashion, and I do not think that anyone in this country would like to think that we would do so. I am very glad that there is unanimity in this Chamber—certainly based on the speeches I have heard so far—that that should not be the way forward.

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My Lords, it is such a pleasure to follow the noble Lord, Lord Davies of Stamford, because I agree with every word that he has spoken.

I commend the European Union Committee for its hard work in producing the report. However, it is unfortunate that it has been seized upon by the Brexiteers, who have affirmed that the United Kingdom could flounce out of the negotiations without a deal and avoid any obligations or commitments which had been incurred. “We don’t have to pay a penny”, trumpeted the Daily Mail.

I have read the evidence given to the committee by the three legal experts, who were not agreed. Because they were not agreed, the opinion of the legal adviser, Mr Harvey, was sought. No one is an expert in this field, because Article 50 has never before been tested. I find his opinion tortuous and I cannot agree with his view on the effect on our liabilities to the EU should no deal be forthcoming. His view is reflected in paragraph 133 of the report in these terms:

“The rule in Article 70(1)(b) of the Vienna Convention only applies to withdrawal from a treaty which does not have its own withdrawal procedures”.

Then it says in brackets,

“(‘unless the treaty otherwise provides’).”

The report continues:

“Manifestly, the TEU does, in the form of Article 50. Article 50 therefore takes precedence over Article 70(1)(b) of the Vienna Convention”.

I quite fail to understand what that paragraph means.

Paragraph 2 of Article 70 states,

“a State … withdraws from a multilateral treaty, paragraph 1 applies in the relations between that State and each of the other parties to the treaty”.

Paragraph 1 deals with the rights, obligations and legal situation of the parties prior to the termination. That is what it is about. It says that,

“Unless the treaty otherwise provides”,

those rights and liabilities are not affected. It is very simple and plain language. As the noble Lord has pointed out, Article 50 does not otherwise provide—it is quite silent on the existing rights and obligations at the date of withdrawal from the treaty. It follows that any other state that is a party to the treaty can enforce those rights and obligations in law. That is the legal side.

On the practical side, we are about to have placed before us the great repeal Bill, which is to take the whole of the acquis communautaire into domestic law—to make EU law domestic law. If the United Kingdom were sued for a money sum, would we actually raise a defence that these obligations arose only under EU law, which we have just taken and made part of our own domestic law? Would we deny the jurisdiction of our own High Court of Justice? If we did that, would we then refuse arbitration where, by agreement, any questions of international law could be determined? Would we force another state to raise an issue in the International Court of Justice and spend years locked in conflict with Europe, simply ignoring the rights of other states in Europe that would obviously be affected by our position?

The view that our rights and obligations would come to an end the moment we fall out of the EU would have strange results. For example, money has already been allocated to Wales from the European structural funds to improve the port facilities at Holyhead. Let us assume that the money is paid upfront. The First Minister of Wales might consider, “Should we spend this money on Holyhead, or wouldn’t it be rather nicer to spend it on a marina in Cardiff Bay? We might attract Sir Philip Green and yachts of that sort and improve the character of the place where we work. We have no obligations to the EU: they have given us the money; we do not have to pay it back, and can use it as we like. They cannot sue us”. That would be nonsense, would it not?

Assets are another important issue. I happen to have been a member of the Reform Club for some 45 years, which is about one-quarter of the time that that distinguished club has been in existence—I stayed there last night, as it happens. If I were to cease to be a member tomorrow, I would not go to the secretary or the trustees and say, “Look, I have paid my subscription for 45 years and think I am entitled to a share of the value of this club. I demand my part of it”. That would be nonsense. But at the same time, I would not expect to have to contribute to the liabilities for the pensions of the staff. We did not form the European Union; we became a party to it. We came late to the feast, although many of us were campaigning to become members long before 1972. We were members of a club, and we cannot say that we are entitled to a portion of its facilities wherever they may happen to be.

This country has entered into commitments. The multiannual financial framework for 2014-20 was negotiated and agreed in 2013. There was a problem at that time because the European Parliament was concerned that countries were not paying their dues. There were shortfalls which jeopardised projects such as the Erasmus programme and the Social Fund, which ran out of funds in 2013, and it was said that those countries had to pay up during that year. Since we negotiated and became a party to that multiannual financial framework, the annual budgets of the EU have been calculated on the basis that the agreed funding in the MFF was available to carry out those programmes commenced before 2020 within the budget.

We are currently in the period of the 2017 budget, which committed members of the EU to contribute €157 billion, out of which payments of €134 billion would be made. I take it—I ask the question directly of the Minister—that, notwithstanding Brexit, the United Kingdom is engaged in the discussions and negotiations for the 2018 budget within the MFF. I assume further that we will still be a party to the discussions on what the MFF 2019 and 2020 budgets will be. We must continue to participate.

I am concerned from a Welsh point of view, obviously, because Wales is a net recipient of EU funding. It receives funds from the European Agricultural Guarantee Fund, the European Regional Development Fund and the European Social Fund. Indeed, some 60 projects have already been approved, with liabilities that organisations have taken on and put into their programmes which will extend way beyond 2020. Surely those liabilities will have to be met from funds from this country. It is true that the Treasury has issued a guarantee that these matters will be paid up until 2020, but what happens after then when the programmes run on?

The problems that the report highlights and makes it necessary to discuss are complex and difficult. However, we must properly address them and not get involved in the suggestion that we can just walk away from Europe, hold our noses and not have anything more to do with it.

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My Lords, the members of the sub-committee which produced this report have perhaps been blowing their own trumpets. However, in this case we are justified in doing so because, under the skilful chairmanship of the noble Baroness, Lady Falkner, this report is a good example of the service which your Lordships’ House can perform for Parliament and the country as a whole.

As the exposition of the noble Baroness, Lady Falkner, made clear, the report covers two principal aspects. First, it describes and seeks to quantify the elements of the EU’s budgeting arrangements which may contribute to a claim on the UK for a payment or payments from the UK after we leave the EU. Secondly, it seeks to establish the legal position of the UK’s liability for such payments. Those legal aspects were discussed in the contributions of the noble Lords, Lord Davies of Stamford and Lord Thomas of Gresford, and I am not going to dwell on them.

It is fair to say that it surprised Members of the Committee —it certainly surprised me—to hear the legal advice that, in the absence of an agreement, the EU will have no means of enforcing any financial liability against the United Kingdom. I note that if the advice is correct, however, the phrase “a divorce settlement” is misleading. In a divorce a court determines the liabilities of the parties and has the means to enforce that determination. In this case the legal advice is that in the absence of an agreement to the contrary, the jurisdiction of the ECJ ends on our departure. Again, I do not want to dwell on the legal aspects. I have used the phrase, as have others, “in the absence of an agreement”, and I emphasise it. Of course we want an agreement. We have much to gain by getting one and a great deal to lose by not doing so. It is important to note, as the noble Lord, Lord De Mauley, said, that in the aspect of finance it is the EU which will lose in the absence of an agreement. Since the UK’s gross contribution is currently one-eighth of the EU’s annual budget, there is much at stake here, so no wonder it wants to make progress on this issue before discussing the other aspects of our future relationship.

Both sides should want a reasonable agreement on this issue. What should a reasonable agreement look like from the UK’s point of view? The Government have said, I believe rightly, that the UK would,

“continue to honour our international commitments and follow international law”.

The Chancellor of the Exchequer has said something similar about meeting our obligations. Monsieur Barnier is quoted today as emphasising the importance of an agreement to the EU, although he has quoted an exit payment approaching a figure of £60 billion. The report seeks to identify and discuss the main elements, and like the noble Lord, Lord Thomas of Gresford, I should like to take them in turn.

First, as the noble Lord, Lord Thomas, pointed out, the UK will be leaving the EU some 19 months before the end of the current multiannual financial framework. That framework sets a ceiling on the EU’s expenditure. It is not a commitment to expenditure. The UK was a party to it but it does not commit us to spending up to the ceiling which we agreed in that negotiation. If the UK’s gross budget contribution of 12.5% ends in March 2019 it will leave a big hole in the EU’s spending plans, and if instead of ending its contribution on departure the United Kingdom were to continue its budget contribution until the end of the current period of the framework, the committee calculates that that might cost the UK some £15 billion. But as I have pointed out, the MFF sets a ceiling; it is not a commitment to spend, and here I differ from the noble Lord, Lord Thomas.

The commitment to spend is set by the annual budget—

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My Lords, with respect, I suggested not that we were committed to pay under the multiannual financial framework, but that we are committed to spend on the budgets which rely on the MFF in order to come to a conclusion of what can be spent.

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I accept that but the point is, as the noble Lord has said, that the budgets for the periods after we leave have not yet been set so we are not committed to them. The annual budget for 2019 and 2020 has not been set, so I regard any claim on the UK in respect of those years as weak. As paragraph 46 of the report points out, this view seems to be shared by the German Finance Minister, Wolfgang Schäuble, who has said that it will be necessary to negotiate a new MFF on the assumption that the UK contribution ceases in 2019—when we depart from the EU. Continuation of the UK’s payment under a multilateral financial framework that continues after we have left is not in fairness a strong claim on the UK.

The second element of a possible EU claim is the commitments made in budgets to which the UK has been a party, which will remain to be paid after March 2019—the so-called reste à liquider, or remainder to be liquidated. Like others, I regard this claim as stronger. There is probably no legal obligation to make these payments after the UK has left the EU, but it may be argued that there is a moral obligation since the commitments were entered upon and budgeted for while the UK was a member.

The EU estimate of the commitments that will be outstanding at the end of 2020 is £254 billion. We do not have an estimate for the outstanding commitments at the end of March 2019, but since commitments contracted for but not paid tend to diminish as the MFF wears on, the figure at the end of March 2019 for outstanding commitments may be higher. However, as has been pointed out, some of these may never materialise. Moreover, some commitments are to the UK itself. These should be netted off, after which the UK share of commitments to other partners is unlikely to amount to more than £10 billion. If the UK were to agree to meet these it would be sensible to do so not in a lump sum but over the next few years as the commitments materialise.

It is right to add that the respected Brussels think tank the Bruegel Institute produces a much larger figure for commitment outstanding, including a large element under the heading, “significant legal commitments”. These are commitments pledged in legal terms but not yet budgeted for. Since they are expected to be budgeted only over a long period, they are not included in the EU’s balance sheet nor in the reste à liquider. In this case it seems difficult to argue that the UK has any liability for these unbudgeted items after leaving the EU.

Thirdly, there is the possibility of a claim based on pension liabilities for past or present employees of the EU or its institutions. Here I agree with the noble Lord, Lord Thomas of Gresford, that this is a weak basis for a claim. UK nationals constitute some 4% of EU staff at present and have never been more than 8%. The Commission currently estimates its actuarial liability for future pensions at €63.8 billion. However, pensions are paid out of each year’s budget. Employees make a one-third contribution to them. Like the noble Lord’s, my view is that, on leaving the EU, the UK has no greater liability to contribute to the annual pension bill that someone leaving a club would have to contribute to the pensions of past and present employees. The nationality of these employees is immaterial. Even if the UK were to make an exit contribution based on the proportion of UK nationals employed, and if the EU’s calculation of a total actuarial ability of €63.8 billion is right—the Bruegel Institute puts it much lower than that—it would not amount to more than a handful of billion euros.

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Does the noble Lord agree that there are two quite separate issues here? One is potential liability for pensions to be paid—there, I rather agree with the noble Lord’s assessment. The second issue, which is quite specific to this instance of a country leaving the European Union, is the effect on British national employees of the European institutions, who will lose their jobs because it is a condition of their employment that they are a citizen of an EU member state. They will cease to be on the day on which we leave the European Union. They will therefore be fired and have to be given redundancy payments. Do we not have the moral responsibility of making sure that those payments are made? We cannot expect our partners to pay those sums of money, and we certainly cannot expect those employees who are fired for no better reason than their nationality not to receive proper compensation.

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With respect, I do not take that view. These are employees of the EU and its institutions. If they are fired for whatever reason, their redundancy payment and severance terms will be determined by their contract and negotiation with the EU and the EU institutions. That does not seem to me a matter for which the UK has a liability.

I again agree with the noble Lord, Lord Thomas, about the other side of the balance sheet—namely, the EU’s assets. I shall not discuss those in any detail, because I doubt whether the EU would agree to distribution of these to a country departing from the EU any more than it would require a contribution as an entry fee from a country acceding. One exception to that is the UK’s stake in the European Investment Bank which, if it has to be surrendered, could be worth anything from €3.5 billion to €10 billion to the UK.

Unless there are other elements of a claim for an exit payment which neither the EU Committee nor others have thought of, it seems clear to me that any reasonable claim that can be made will not amount to anything like the €60 billion figure attributed to M. Barnier and his team. It follows that, leaving aside the legal aspects, UK negotiators do not have a great deal to fear from a negotiation on this subject. In a reasonable world, it should be possible to make sufficient progress to open the way to negotiations on a future trade relationship.

There is one final piece of advice that I would give—again, this point was made by the noble Lord, Lord Thomas. By all means, let us seek to reach agreement on the principles of an exit payment and a future financial relationship, but it would be unwise to agree the details, the actual figure, until the principles of a trade relationship are also agreed. This is an area where, whatever the sequence of the negotiations, nothing should be agreed until everything is agreed.

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My Lords, I am delighted to follow my noble friend Lord Butler. I am even more delighted that, unlike him, I will address the vexed legal issue, because that avoids a situation in which we might disagree, which we seldom do.

I should begin by declaring an interest: over many years of my professional career, I struggled with the intricacies of the EU budget: during our own accession negotiations in 1970-72, when this issue was at their heart, and then during the late Lady Thatcher’s five-year- long battle to secure and entrench a two-thirds rebate on our net contribution—that was from 1979 to 1984, when I was her principal Foreign and Commonwealth Office adviser. In the negotiations of what was subsequently called the Delors package, in 1987-88, when for the first time an overall framework for EU spending priorities and policies began to take shape, I was the permanent representative to the European Union. So I bear the scars of these endeavours and I did acquire, I think, some familiarity with the subject of the report we are debating today.

The report before the House is a valuable one, in my view, and I congratulate the noble Baroness, Lady Falkner, on having chaired the committee during its production. It has much useful material and detail about the issues that will confront our negotiators during the negotiations that are about to take place. For the most part, with one exception which I will return to in a minute, I have no hesitation in endorsing it as a genuinely useful background brief on a subject that will inevitably come up before this House again and again as these negotiations progress.

What lessons do I draw from my experience negotiating on budgetary matters in the European Union? First, I suggest that you should never think that you know enough about this subject to allow you to make sweeping assertions about it in advance. Just do not do that. If you do, all too often a black hole will open under your feet as soon as you have done it and you will have to revise everything you have said. When I heard a former Minister of the Crown—a Minister who was actually responsible for the largest spending department in the UK, Mr Iain Duncan Smith—musing that perhaps the European Union would end up owing us money, I could barely avoid grimacing at his woeful ignorance.

Secondly, do not establish in advance, and do not let anyone know, what overall figure you might settle for. Lady Thatcher never did that and she was right not to. You must retain a degree of flexibility. Then, never say that no deal is better than a bad deal. Lady Thatcher also never said that. I had hoped that the Government had stopped saying it when it went missing from the letter to Donald Tusk, but, alas, it then popped up within a week in the White Paper on the repeal Bill. If you want the other side to move their figures, they have to believe that if they do so, you might strike a deal with them. If you start saying that you are not going to strike a deal with them, they will not move.

It follows from what I have just said that I believe that the Commission has already made one fundamental and egregious error by allowing an unsubstantiated figure of €60 billion to slip into the public domain. I believe that it will come to regret it, because that will not be the outcome, but also because the only way to reach any agreed settlement is for both parties to the negotiations to work their way, painfully and painstakingly, through the detailed components of any overall figure. That is the work of the coming months; it cannot be done in advance, unilaterally, by one of the parties to the negotiations.

Now for my beef, which is paragraph 135 of the report. I do not believe that the committee should have accepted so uncritically and endorsed the legal opinion that in the absence of any deal the United Kingdom would have no financial obligations to the European Union. To put it mildly, that is only one legal opinion among many. It could only be settled in a court of law and it would be exceptionally unwise, in my view, if the Government went down that road, because the collateral damage to the United Kingdom from doing so—economic damage, trade damage and political damage—would be massive. That is, no doubt, why the Government are so coy about telling us what the consequences of leaving without a deal might possibly be. Unfortunately, this conclusion—the one in the report about the legal liability—is all too likely to encourage those of the Government’s supporters who are, in any case, showing many signs of wishing to leave without a deal to believe that they have a “get out of jail free” card. They do not; this would be a “get out of jail very expensively” card. I am glad that the Government show no signs of being tempted to go down that road. The Tusk letter certainly implied that they do not wish to do so.

We in this House surely need to ensure that that distinctly contentious and dubious legal opinion is not available to be hung around the neck of the Government, like the dead albatross around the neck of the Ancient Mariner, when the Government return one day, as we must hope they will, with an agreement for us to consider and approve. How it can best be done that the House does not continue to support that legal opinion I leave to the noble Baroness, Lady Falkner, who may perhaps take a shot at it—she tiptoed up to it in her introduction—when she replies at the end of this debate. I do not believe that we should either credit it or allow it to stand.

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My Lords, I, too, thank the noble Baroness, Lady Falkner, for introducing the report. In so doing, I should record my appreciation for the engaged and effective style with which she chairs the committee and chaired all our witnesses. I will also take this opportunity to thank the clerks, the policy adviser and our support team.

We have heard that the report looks at the financial issues that will have to be addressed in the negotiations when seeking a Brexit settlement. In particular, as has been explained, the report seeks to explore the certainties and uncertainties that attach to those issues, and how they might be addressed and calculated.

Before I look at one area of uncertainty, I should remind noble Lords that there is a fundamental question which it would sensible for the UK and EU negotiating teams to consider before detailed discussions begin. After the contribution from the noble Lord, Lord Thomas of Gresford, it could perhaps be called the Reform Club question. The question is well articulated in the title of the recent publication by the Bruegel think tank, to which the noble Lord, Lord Butler, referred: Divorce Settlement or Leaving the Club? A Breakdown of the Brexit Bill. At the beginning of its text, the report expands on that question as follows:

“The key question is whether one considers Brexit to be a cancellation of a club membership or a divorce. In the former case, the UK would have no claims on any EU assets but would still need to pay its outstanding membership fees. In the latter case, both assets and liabilities would have to be split”.

Every pronouncement from leading EC and EU figures since last June’s referendum suggests that they have been determined from the outset to see the Brexit negotiation as a divorce settlement. Their focus appears, from their public utterances, to have been on what share the UK owes in terms of EU liabilities. For whatever reason, they appear to have given no consideration to the possibility that treating the Brexit negotiation more as the cancellation of a club membership than a divorce settlement might avoid many months—possibly years—of detailed wrangling over the complications that come with striking an agreement on the UK’s share of the EU’s assets and liabilities.

It might be a better direction of travel for both the UK and the EU to see this as a cancellation of a club membership—or it might not, but at the very least the option should be considered, in case it has merits and serves both parties’ interests. I would be interested to hear from my noble friend whether Ministers accept that the Brexit settlement will be treated as a divorce settlement or whether alternative approaches could be on the table.

One of the complications that our report considers, which has already been referred to in this debate, is in respect of pensions and how the UK’s share of pension liabilities might be calculated and allocated. As we heard from the noble Lord, Lord Butler, in the EU’s 2015 annual accounts, accrued pension liabilities were shown at a capitalised figure of €63.8 billion. This raises two key questions: first, is the UK under a legal obligation to make a contribution towards those long-term pension liabilities; and, secondly, if it is, how should the UK’s share of this €63.8 billion be calculated?

A number of our witnesses appeared to be very confident that it is an unavoidable and enforceable obligation on the UK that we will have to meet. Their focus was on the different ways in which the UK’s contribution should be calculated. A range of propositions was suggested to us: for instance, that it should be based on the UK’s contribution to the EU budget, either with or without the UK rebate being taken into account; or that it should be based on the past and present numbers of UK nationals employed in EU institutions; or that it should be based on the proportion of those in receipt of an EU pension who are UK nationals; or that it should be based on the UK’s share of the EU population. In other words, among all those witnesses who agreed that there was a binding obligation on the UK to make a contribution to accrued pension liabilities, there was no agreement on the right methodology to calculate that contribution.

Beyond that, there were also differing views on how EU enlargement over the years of the UK’s membership could be overlain on some of those methodologies, and there were queries about the actuarial and accrual accounting methods that had been used to calculate the €63.8 billion capitalisation of the long-term pension commitments.

Other witnesses challenged the assumption that the UK is legally liable for a share of accrued pension liabilities, especially those liabilities not falling due until after the date when the UK ceases to be a member of the EU. They also offered us a range of propositions to support that view. For instance, it was pointed out that pension liabilities, unlike other member state budgetary liabilities, relate to rights that are accrued by individuals through their service in European institutions; that the nationality of employees or pensioners is irrelevant; and that the legal responsibility for meeting those pension entitlements clearly rests, in the first instance, with the employing European institutions and thereafter with the EU, with member states acting as guarantors—but a member state cannot be retrospectively liable as a guarantor after it has ceased to be a member state. We also heard that the UK might claim that it had overcontributed to EU pensions over the years of its membership.

From the conflicting views and evidence that the committee received, it is difficult to conclude that the UK is subject to a clear-cut and unarguable legal obligation to make a contribution either towards accrued long-term pension liabilities as part of a Brexit divorce settlement or to any continuing enforceable post-Brexit liability for accrued pension entitlements thereafter.

It was put to us that, regardless of any uncertainties around the legal position, the UK is none the less under a moral obligation on both counts. Once again, the evidence we heard was conflicting and suggests that this may be one of those moral obligations that is in the eye of the beholder, compelling to some but unseen by others. In other words, if the UK is subject to a moral obligation, like the legal position it is not clear-cut.

However, regardless of the differences of opinion on whether or not a solid legal or moral obligation exists, there was perhaps a greater consensus around the view that the UK will very likely be under a strong political obligation to address expectations around EU pensions. If, as we have heard, the UK wants a Brexit deal that achieves a new strategic partnership, beneficial trade arrangements, future UK participation in EU programmes and, as my right honourable friend the Prime Minister said and the noble Baroness, Lady Falkner, quoted,

“a new deep and special partnership”,

it is difficult to contemplate those objectives being achieved without the UK being prepared to come to some agreement with the EU on pension liabilities.

At the same time, if the obligation to reach a deal on pensions is largely political and the Brexit negotiations descend into territory that either could be called a bad deal or that raises the prospect of no deal, the UK may indeed be able to disregard the need to reach that agreement on pensions and to avoid any gesture or contribution towards long-term liabilities.

The EU negotiators may disagree with that scenario and claim that they have both the law on their side and access to the jurisdiction and enforcement processes post Brexit that will enable them to compel the UK to honour its share of accrued pension liabilities. They may be right—but, on the balance of the evidence taken by the committee, there have to be doubts about whether such confidence would be well founded.

This leads me to offer the following conclusions, which are very much in line with what the noble Baroness, Lady Falkner, said in introducing this debate and the comments of the noble Lord, Lord Butler, about the sense of a reasonable agreement being reached and the benefits that will accrue to both sides of the negotiation. If the UK wants a good Brexit deal, it must be ready to contribute to the EU’s pension liabilities, regardless of the fact that the UK may not be under a legal or moral obligation to do so. Equally, if the EU wants the UK to contribute to the EU’s accrued pension liabilities, the EU must be ready to address what the UK is seeking from the rest of the Brexit negotiations. If both parties approach the negotiations with that mindset, I do not see pensions necessarily holding up the Brexit discussions.

There is one other way to avoid pensions becoming a time-consuming blockage in the negotiations—and this goes back to the Reform Club question. It is to treat pensions within the negotiations as being a resignation of membership issue rather than a divorce settlement issue.

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My Lords, I too pay tribute to my noble friend Lady Falkner of Margravine for her leadership and the way in which she has conducted the committee while she has served as our chairman. As she has indicated in her generous comments to me, this is my last contribution as a member of the European Union Financial Affairs Sub-Committee prior to my being rotated off for further service elsewhere. It has been thoroughly brain-taxing work but I have come to the conclusion that perhaps I will miss the weekly thick brown envelope arriving each Saturday morning. Twenty-seven days after the referendum, the sub-committee met and decided to have two inquiries, one into Brexit and financial services and the other on this subject, Brexit and the EU budget. The first one was debated on the last day before the Christmas Recess, and here we are debating this topic on the last day before the Easter Recess. I have a feeling that the business managers take the view that if there are difficult areas with lots of numbers, they should table them on the last day.

I tend to the view that these occasions are not for the members of the sub-committees to speak but for others to speak, and it is not for us to puff up the work. However, on this particular report perhaps it is right for us to speak on this occasion. Four members of the sub-committee have spoken so far and the noble Lord, Lord Haskins, is yet to come. I will try not to repeat too much of what has been said.

The first point is that the EU budget is very complicated. We have looked at the income side and tried to understand it. Three-quarters of the income is based on the gross national income of member states, along with money from customs duties, VAT rebates and corrections. The expenditure side is based on a seven-yearly financial spending plan, the multiannual financial framework, enhanced by an annual budget as amended several times during the course of the year.

One area that we have been trying to get to grips with is where on Brexit the UK’s financial responsibilities would stop, on the basis of a departure in two years’ time. How does that fit with a seven-year budget? Here we are in the seven-year period 2014-20. Certainly before our departure there will be talk of the budget for 2021-27. We have heard about the RAL, which is yet to be paid—in other words, promises. It is committed in 2014-20 but to be paid later, with some of it perhaps coming to the UK. We have even been told that it may be several years beyond 2020 before some of it is actually spent.

The noble Earl, Lord Lindsay, has spoken about pensions. We have discussed that, including the question of whether we are talking about proportions of pensions or entire pensions, and the issue of UK pensioners. We have looked at the share of assets, cash and property loans and what the percentage is that one would put to the UK. I am interested in the Reform Club analogy. I also wonder about the analogy of the building societies, where the clock stopped and the people who were members ran at that point. And what about the inherited wealth of those who started this work in the middle of the century before last? We also looked at the European Investment Bank.

It was trying to tease out what the UK’s liabilities are and seeking legal opinions that led us to what seems to be a very surprising position—or was it in fact surprising that there was this “walk away” option because a deal could not be enforced? We took legal opinion. Three lawyers came before us and then we sought our own legal advice from the legal adviser to our committee here in the House of Lords, which is printed in full. All that evidence was taken on the public record, and other distinguished lawyers who saw that could have come rushing to our committee and said, “We want to give some evidence to you because we think differently”. I do not think that happened. That is what we found, and we would have been criticised if we had said, “We will ignore all that because it doesn’t seem right”. So it is there, it is in the evidence; it had to be.

The one thing I conclude is that Brexit or any other exit was not meant to happen. That is why we are in the pickle that we are. Is it any surprise that no deal is a possibility? No, because unless Article 50 had a substantial annexe detailing how an agreement could be formulated and would be enforceable, how could it be otherwise? With due deference to my noble friend Lord Thomas, Article 50 contains no reference to lawyers or courts. That is amazing, but that is what the document says. As I said, I do not believe it was meant to happen.

Hence, perhaps, Mrs May’s position. On the one hand, she says that she wants a smooth, orderly exit from the EU, but on the other that no deal is better than a bad deal. What is a bad deal in those circumstances? I suspect that she means an expensive one. I do not know, but what other definition would there be? I conclude that no deal and walk away is the bad deal, because to walk away means that the UK could not hold its head high in the international community, nor would it be trusted to honour international agreements ever again. That seems to me a perilous journey.

So the committee is clear: we need to agree. The numbers are not clear: they need to be negotiated. We can see the circumstances in which the numbers may arise in any deal. On page 29, we indicate how we see that, by agreement, the figure could be as low as £15 billion or as high as £60 billion.

In the last brown envelope to come to my house last Saturday morning was a report by a European think tank, Bruegel. Its numbers are more precise. It has done a similar job to our committee. I do not know its methodology in reaching its numbers—perhaps it has just beavered away—but it comes up with figures between £31.7 billion and £35.1 billion, a much narrower position. It took no account of the European Investment Bank, and I believe that UK involvement in that amounts to £10 billion, so in those circumstances it would narrow down to £21.7 billion to £25.1 billion. Of course, all these numbers can change because of financial behaviour in the next two years—particularly, for the UK, whether the expenditure budget moves away from us or there are more benefits to the UK.

In conclusion, I cannot believe that there is any solution other than orderly agreement. However the sequencing should be, unless the financial settlement is sorted, I cannot see there being good will for a future beyond it. Therefore, it is very important.

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My Lords, the series of House of Lords inquiries about the impact of Brexit in recent months have been illuminating and made a powerful contribution to the national debate on the subject. They have provided balanced analysis and information, which has been seriously lacking elsewhere. This report is no exception, although one of its conclusions is proving rather contentious and raising a head of steam. My comments on the report are those of a business person, rather than a parliamentarian or, indeed, a lawyer.

Four major factors have determined the Brexit vote. All of them are now being subtly reassessed by the Government. The first was to reduce drastically migration from the EU. It is now clear that tackling this in the short term would have serious economic consequences, which Ministers seem to be beginning to recognise, and only the most rabid Brexiteers would ignore. The second was to take back control. It seems that the great repeal Bill will say, “Yes, we will, but not quite yet”, because a substantial quantity of EU regulation which business wants to maintain would have to continue to be subject to some sort of EU supervision. In the short term, the vast majority of EU regulation will be transposed into UK law without amendment. The third was to withdraw from the jurisdiction of the European Court of Justice. Again, it seems that the Government are saying “Yes, but not yet”, because on the first two issues the European Court of Justice has to remain in place.

The fourth, which relates to our report, was to make significant cost savings by not having to contribute to the EU budget. This, too, is becoming a mirage. Brexit will not throw up vast sums which can be put into the NHS, as was suggested during the campaign. On the contrary, if the Government are to honour their promises to the main UK recipients of EU funds—farmers, universities and local authorities—and if, as both the Prime Minister and the Chancellor have already recognised, we are to honour our budgetary obligations triggered by Brexit, in the short and medium term there will be a not insignificant cost.

Our report spells out the range of the UK’s potential financial obligations on withdrawal, if we are at the same time to establish a constructive economic and political arrangement with the EU going forward. The range is enormous, as we know. However, our report says, based on the legal evidence we received from two assertive but also two more ambivalent lawyers, that the UK would not be legally liable for any obligations if we withdrew unconditionally. However, we say in the report that the political and economic consequences of such action would be profound.

These consequences need to be spelled out quite clearly. If the UK refuses point blank to honour any of these obligations based on a legal technicality, two developments are inevitable. First, negotiations would break down almost before they had started and a cliff-edge hard Brexit would be triggered, with a so far incalculable—according to Mr Davis—impact on the economy. The second is that the honour and integrity of the UK would be at risk because, despite what the lawyers told us, you can bet your bottom dollar that the EU would find mountains of lawyers to take Britain to court and argue that there was a legal obligation—good for the lawyers, but not for the rest of us. Our global creditworthiness might be affected. Fortunately, the Government—although not some of the more fervent Brexiteers—show no inclination to go down that route, and our observation will, we hope, remain of only academic interest to lawyers, not to business people such as me.

The real value of the report lies in its spelling out of the huge range of financial obligations which the UK’s exit might trigger following withdrawal. At the highest level, we have heard about £60 billion, which in my view is far-fetched, as is the zero level. A deal will be done between those two levels. Based on the information that the committee received, my opinion is that the UK’s share of the MFF commitment between March 2019 and December 2020, which happens to be the end of the present MFF 2014-20 commitment, should be honoured. We have different figures, but mine is €12.5 billion. In addition, the Government have promised to match the funds for UK farmers and beneficiaries of EU structural funds for the year to March 2020, which is another €3.5 billion. I am not convinced that there is a pension liability.

UK liabilities under the present MFF which extend beyond 2020 are much more questionable, and very substantial, as we have heard. Much of this commitment is fanciful. Poland, for example, is yet to spend any of its 2014-20 award, and there is some money hanging around that was agreed as far back as 2007 and has not been committed.

Finally, I very much hope that the Government’s approach to these historic negotiations is strategic and not, as in the past, game-playing between the 28 participants. While an all-night, last-minute horse trade might be okay when handing out fish quotas and subsidies to farmers, such an approach would be highly irresponsible in these historic discussions, where so much is at stake for both sides.

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My Lords, I add my thanks to the noble Baroness, Lady Falkner, for moving this important debate. My thanks go also to the European Union Committee for producing such a comprehensive report.

For more than 40 years Britain has been a part of the European family. The famous soul music hit “We Are Family” summed up the relationship. But, sadly, wedlock increasingly became seen as padlock. On 23 June last year the British people decided to adopt another tune. This could best be described by the rock supergroup Queen’s anthem “I Want to Break Free”.

Britain is leaving and we have two years in which to exit, and we have triggered Article 50. The big issue now is the terms on which we exit. I would not normally associate the TV personality Noel Edmonds with Britain’s exit from the European Union but for 11 years he presented 3,000 episodes of the popular high-tension TV game show “Deal or No Deal”. That is the situation we are now in—deal or no deal—but we do not have the luxury of 11 years and this is more important than a game show. It is about Britain’s future.

Surely the most important point is that it is in everyone’s interests that harmony be maintained. About 45% of UK exports go to the EU, while 53% of our imports are from the EU. The British-EU trade relationship will still be important post Brexit. As the Prime Minister said in January:

“We are leaving the European Union, but we are not leaving Europe”.

It is not in the EU’s interests to punish us by forcing us to resort to the World Trade Organization’s rules. I had the privilege of being a speaker at the WTO in Geneva. I formed the impression of an organisation which, although well-meaning, is actually hindering, not helping, free trade through its punitive rules.

Article 50 is very clear. There are three elements. First:

“Any Member State may decide to withdraw from the Union”.

Secondly, such a member state has to notify the Council—we have done that. Thirdly:

“The Treaty shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement”.

I submit that in its very brevity Article 50 points to the departure being a clean break. It also means that trading negotiations should not be put on hold. If we talked about exit terms for the next two years and put off all thoughts of trade deals, imagine the effect on the markets and the jobs that would be lost. Surely these terms need to be negotiated in parallel.

About a decade ago I was a guest speaker at a Nevada business forum in Las Vegas. Just before the start of the dinner the host came over and asked me to give a welcome speech on behalf of the United Kingdom. It took me by surprise since I thought I was only due to speak later. But I took the opportunity as it presented itself then, which is what we should do with these discussions. Let us not forget that 85% of the global economy lies outside Europe. There is a big world waiting for us outside Europe: the Commonwealth, China, India and America.

The European Commission’s chief negotiator, Michel Barnier, has suggested that the UK’s exit bill could be as high as €60 billion. This has not been justified or itemised in any way. What we do know is there will be a €10 billion per year hole in the EU budget as a result of the UK exit. So one can see why Mr Barnier is keen to find ways of making good that loss. But he needs to understand that when a house is on fire, it is too late to take out an insurance policy. There was no mention of a possible exit bill when Britain first joined the EU. Furthermore, there is no mention of an exit bill in Article 50.

It is right to take into account paragraph 135 of the report. The committee did not rely on just one legal opinion; it took a variety. In its submission, we do not owe any money at all. Of course, that needs to be debated and discussed but to ignore paragraph 135 would not be right. When one considers that part of the exit bill would cover the pension costs of retired EU officials, one can see why this could be contentious.

Having said that, it is not just about the legal obligation. There are other factors to take into account. During our 40-year membership of the EU, we have been a net payer to the EU budget, subsidising the poorer EU member countries. This is why we receive a European rebate. In 2015 the UK made the second-largest net contribution to the EU budget in absolute terms: €14 billion. When the UK makes its final contribution as a member state, we should expect the usual rebate payment. That could come to over €7 billion. So the rebate could be used to reduce any final exit bill. In our negotiations we could also call on the EU to hand back €10 billion of UK assets held by the European Investment Bank.

The Chancellor Philip Hammond has said that he does not recognise our liability for the Brexit divorce bill. I think that is wise at this stage. But we have also said that we may wish to pay to continue to take part in some EU programmes, such as Horizon 2020, the EU’s research and innovation programme. I think that is sensible.

It is illuminating that throughout the Bible there is a theme of one empire after another eventually overreaching itself and gradually collapsing. In the Old Testament there were the Egyptians, followed by the Assyrians, the Babylonians and finally the Persian Empire. In the New Testament there were the powerful Roman rulers. But all these empires eventually fell, because national sovereignty proved more sustainable than the politics of imposed empire.

Over the next couple of years and beyond, there will be no shortage of critics scaremongering and predicting disaster for Brexit. But fear is that dark room where only negatives are developed. We must not be like the paranoid patient who visits his doctor, to be told, “Please listen. You’ve got hypochondria”, and the patient replies, “Oh no, not that as well!”.

Will our negotiations with the EU be a good-natured “Strictly Come Dancing” duet or a bad tempered “High Noon” duel? Earlier this week the Prime Minister urged “jaw-jaw” not war-war. I was also encouraged by the comment yesterday by the President of the European Commission, Jean-Claude Juncker, who told MEPs:

“We will of course negotiate in friendship and openness and not in a hostile mood, with a country that has brought so much to our union and will remain close to hearts long after they have left”.

I was further heartened by the EU’s Michel Barnier adding yesterday:

“The ‘no deal’ scenario is not the scenario we are looking for. We are looking for success, not against the United Kingdom but with the United Kingdom”.

I note also that this very lunchtime Donald Tusk is meeting our Prime Minister, and that augurs well.

I am not suggesting that the next two years will be easy. But the British people and both Houses of Parliament have spoken, Article 50 has been triggered, and we must approach these Brexit and trade negotiations with a confident, robust spirit. As Sir Winston Churchill once said:

“Difficulties mastered are opportunities won”.

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My Lords, it is a pleasure to follow the noble Lord, Lord Taylor. I speak as a member of your Lordships’ European Committee, though not as a member of the sub-committee which produced this report. I congratulate the members of the sub-committee and its chairman, the noble Baroness, Lady Falkner, on the report. The noble Baroness and I were in Berlin yesterday on behalf of the EU Committee talking to the Bundesrat about Brexit and indeed about this report. I very much agree with what was said earlier today about the importance of contacts between this House and your Lordships’ European Union Committee and the Parliaments of other EU states.

This report is timely, since it is clear that negotiations on the withdrawal agreement to which the negotiations on the UK’s financial contribution will be a large and key part will take place towards the beginning of the two-year process now under way with the implementation of Article 50. It is not entirely clear to me when the real negotiations will start. But, if as expected, formal European Council guidelines are to be agreed towards the end of this month, with the negotiating mandate given to Michel Barnier shortly thereafter, we may be engaged in at least preliminary skirmishes among officials by around the middle of May.

Like others who have spoken today, I see no great advantage in trying to guess exactly how much the bill will be. I note that the draft European Council guidelines talk of a single financial settlement of the budget question. That does not seem to me to be the same as a single figure and my guess is that the single financial settlement will consist of a combination of liabilities, contingent liabilities and payments, or potential payments, over a number of years. I do not think that we can sum those up into one single figure. Furthermore, on the UK side, there will be a case for continuing contributions in return for some continuing advantages. European research and co-operation is one area sensibly mentioned in the report we are discussing today. Another possibility would be continued payments for both sides of the border between the Republic of Ireland and Northern Ireland which would otherwise fall away when we leave the European Union. It is encouraging that the need for sensitive and sensible handling of the implications of Brexit for Ireland are recognised both in the Prime Minister’s letter and in the draft Council guidelines.

It should also be said that on the EU side, one effect of the withdrawal of the UK’s net contribution will be the need to cut back on expenditure or shift the pattern of distribution of expenditure with really very difficult decisions, particularly in eastern and central Europe for recipients, and also difficult decisions for contributors, notably Germany. There will, therefore, be a tough and fraught negotiation carried out at least on this side of the channel in the full glare the press. It will not be a pretty sight.

It would, I suppose, be foolish to rule out completely a breakdown in talks leading to the two-year period specified in Article 50 ending without agreement. But, like the noble Lord, Lord Shutt of Greetland, I cannot see that that would be in anybody’s interests. Talk of WTO terms for our trade that in my view would be deeply unsatisfactory ignores the crucial issues that fall outside the trade and economic relations, which would fall away too if there were no agreement at the end of two years. I think of justice and home affairs, foreign and security policy, and the fate of EU citizens in Britain and of British citizens in the EU. To reach the stage of complete collapse would be a colossal failure of negotiators on both sides, and it would be directly contrary to the statement by the Prime Minister in her letter at the end of March to Mr Tusk and the draft European Council negotiating guidelines on the importance of a longer term co-operative relationship between the UK and the EU, which as others have said in this debate, will be so important for our future.

Against that background, I cannot see that the conclusion that the UK will be under no legal obligation to meet the outstanding financial obligations after leaving the EU will, in practice, be particularly relevant to the way in which these crucial negotiations will evolve over the next two years.

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My Lords, I too thank the sub-committee under the chairmanship of my noble friend Lady Falkner for a very interesting report. Before I go any further, I should draw attention to my interests declared in the register. I particularly agree with the contributions of the noble Lord, Lord Davies of Stamford, my noble friend Lord Thomas of Gresford, and the noble Lord, Lord Hannay, and with much of what my noble friend Lord Shutt said. I am sure that the sub-committee will be much the poorer for his contributions sadly having to come to an end.

We mainly all agree that an orderly withdrawal arrangement is needed, free of what the noble Lord, Lord Haskins, called irresponsible game playing. I was glad that the noble Lord, Lord Taylor of Warwick, stressed that these negotiations were more important than a game show. I was getting a bit nervous with all his references to people such as Noel Edmonds.

I am among those who are not really persuaded by the report’s conclusions—indeed I find them quite puzzling in the light of the weight of the evidence from legal witnesses, and the clear reading of Article 50 of the treaty and Article 70 of the Vienna convention. I find it quite awkward to disagree with the very distinguished former legal adviser to the EU Select Committee whose period of employment ended on the very day that the report was published, so there was no opportunity, even in private, to discuss it with him. I feel rather uncomfortable commenting on that legal advice. I do not know whether there is any precedent for the legal advice of an official being published in a report. I am not sure that it is one I would recommend to be followed.

I found myself much more persuaded by the evidence on the legal situation from Professor Tridimas and Rhodri Thompson QC than by that of Dr Sánchez-Barrueco, and it is surprising that the advice of our former legal adviser does not reflect what I regard as the balance of that evidence.

Of course, the practical situation is that it is not about what the UK might agree to pay for future post-Brexit access. The issue is about the liability for obligations assumed while we were still a member. I find the sort of everyday examples that I can relate to include those invoked by Rhodri Thompson QC that if you have a 10-year lease and give notice to leave the premises after six months you may well still be liable for the full term of the lease. Indeed, in view of my current domestic travails with my telecoms supplier, which I will not bore noble Lords with, it is common for telecoms contracts to commit one to paying money if you want to leave a contract in less than the 12 or 24 months that you signed up to. So that is the kind of situation that we are in. The obligations under the EU treaty that the UK assumed as a member state do not disappear when we decide to denounce that treaty. That is a fairly common-sense conclusion.

The advice from the former legal adviser drew attention to the incontestable fact that Article 50 sets out the provisions on withdrawal from the EU. The rules on withdrawing from a treaty in Article 70 apply only if the treaty in question does not have any provisions on withdrawal. But withdrawal is not the issue: Article 50 clearly governs the process of withdrawal from the EU. What it is silent on is the assumption of rights and obligations, and their discharge, assumed when one was a member of that treaty. So the conclusion of the former legal adviser, that Article 50 does not need to be interpreted in the light of the Vienna convention but on its terms alone, is the one I find the most difficult to accept. It is precisely because Article 50 is silent on the question on the ongoing liabilities that I believe that, if we were to withdraw without an agreement, Article 70 of the Vienna convention would kick in to take up the slack. If we have, as I very much hope we will, an orderly withdrawal agreement, we are all expecting that that would cover the question of negotiated liabilities. I am certainly not desiring that this country should pay a penny more than is reasonable as a result of negotiations undertaken with good will on all sides. There is no reason for us to be overgenerous, but to undertake that in the spirit of all lively negotiations. Of course, there are plenty of other calls on money in this country.

The very fact that there is no express provision in Article 50 on picking up the existing rights and obligations means that Article 70 of the Vienna convention comes into play, because there are no rules in Article 50 to prevail over Article 70 of the Vienna convention. So Article 50 has to be interpreted consistently with Article 70 of the Vienna convention, because Article 50 does not dictate any specific solution.

The question of jurisdiction and enforcement is another matter. As we know, under EU law, the interpretation of EU law is ultimately a matter for the Court of Justice, and the 27 member states will be bound by Article 36 of the TFEU, which states:

“Member States undertake not to submit a dispute concerning the interpretation or application of this Treaty to any method of settlement other than those provided for therein”—

the Court of Justice of the European Union. The EU institutions, in the draft Council guidelines and the European Parliament resolution of yesterday, are making it very clear that EU enforcement mechanisms apply. It is going to be a very interesting discussion on how you work all that out once the UK is no longer a member state, but we can all see that there will be a very good argument why the Court of Justice may well come into play in the negotiation of a transitional agreement and a future relations treaty.

I am reminded of the fact that the Brexit White Paper not only recognised the established position of the CJEU as the EU’s,

“ultimate arbiter on matters of EU law”,

but also committed to the fact that the UK,

“will of course continue to honour our international commitments and follow international law”.

Whether it ends as a matter of enforcement under EU law by the CJEU or through some international means and tribunal is above my pay grade, but I should have thought that, one way or another, the question of jurisdiction and enforcement will be rather closer to the CJEU than any other solution. The Government will want that jurisdiction enforcement to be worked out and not left hanging in the air, not least because, as all the legal witnesses to the committee stressed, there would be a significant price to pay politically were the UK to refuse to honour obligations under EU law that the CJEU were to find that we owed. It would not leave us in a very comfortable place, if we refused to honour those obligations. There would also be significant international implications if we were not prepared to comply with our obligations on exit from the EU. It would not augur well for all these other international treaties that are being mooted.

I am not sure that it is terribly helpful to the Government to be told that they do not need to pay anything at this part of our process of exit from the EU. I would love to have been a fly on the wall when the Government read this report. Although we have heard various statements in the public domain about how, “Of course, we do not owe a penny—that is absolutely the case”, I am sure that in private they know that that is a long way from the real world and that negotiations will have to converge on some kind of honourable solution all round. The noble Lord, Lord Jay of Ewelme, reminded us that the press is not going to be a pretty sight when told the sum that the UK does agree, and the Government would do well to prepare the press for that day, not for any kind of overpayment but for whatever is agreed in the negotiations to achieve other negotiating objectives over the next few years. In that context, I look forward to hearing how the Government interpret the report as a guide to their future conduct.

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My Lords, I thank the noble Baroness, Lady Falkner, for opening this debate and for the work that she and other members of the committee have done to produce this report. The House has benefited enormously from the broad range of EU Committee reports produced over recent months, each highlighting the complex challenges that we face in dealing with Brexit. Last weekend, I was in the pub relaxing with my neighbour, who said, “How’s life?”. I said that my aspiration to die before understanding the structure of the EU budget had been somewhat frustrated by my nomination to this role today. So I thank the noble Baroness, Lady Falkner, and the committee for producing what is an excellent primer to anybody coming to the question for the first time. I have found the report very useful in setting out the structure of the budget and the different dilemmas.

I know that noble Lords on all sides of the House have taken great pleasure in and placed great importance on contributing to these debates. However, today I have been somewhat surprised by the balance of the discussion. The noble Baroness, Lady Falkner, set out the legal issues in a reasonably straightforward way. The best interpretation of that part of the report is that if one fails to agree, one does not need to pay. As most noble Lords who talked about the realities of the situation recognised that no agreement is pretty well unacceptable, I shall focus rather more on what might be reasonable, as I believe that an agreement is essential to the future of our nation and how it lives with Europe.

Of course, this is the first EU Committee report to be debated after invoking Article 50. This only serves to focus our minds on the importance of this issue, and on the need for the negotiations to be conducted in a positive spirit. As we have heard during this debate, the report focuses on the UK’s current role as a net contributor to the EU and outlines some of the potential financial implications of our upcoming withdrawal. As I say, it concludes that there is a technical possibility of our walking away without agreeing a financial settlement. However, as the report acknowledges, there are clearly other forces at play. I will return to this later.

We do not know what the EU 27 will ask of us. We have heard speculation of between €50 billion and €60 billion, but talks have not yet formally begun and there are, as the report outlines, many factors to be considered. What we know is this: both the draft guidelines published by the European Council and the resolution adopted by the European Parliament refer to some form of exit payment. The committee’s report notes three headings under which the EU may carry out its calculations. The multiannual financial framework runs to the end of 2020. As a nation, we signed up to contribute for the entire period. It is not yet clear whether we will be asked to pay until the end of this period and, if so, whether we will receive the same benefits. Clarifying these points must be a priority for our negotiation.

The second heading—the UK’s liability for RAL—is just as difficult to predict. We do not know at which rate the EU would have us contribute, nor for how long. As with the MFF, these are commitments that the UK has already made and we must show maturity in our discussions.

Member states guarantee the pension entitlements of EU staff. The EU has benefited from the expertise of thousands of officials from the UK. We are grateful to them, and to those of other nationalities, for their work during the period of our membership. While we should not pay more than is necessary, we have a duty to pay our way.

Clearly, demands under these headings will need to be subject to detailed scrutiny and appropriate challenge. Nevertheless, the Government and the EU seem to be in agreement on the need to establish the general principles on which the final sum will be calculated early on. In the light of this, could the Minister confirm that the Government expect a claim from the EU for an exit payment? If they do, could he confirm whether the Government accept the three headings identified in the report as the likely basis on which the EU will calculate the amount? Lastly, could the Minister shed any light on what consideration his department has given to how it will assess the accuracy of the final claim, and how it will develop arguments to contest and scrutinise it? Labour is clear that the UK is a responsible partner. We have made commitments to our European colleagues and, while we will need to look at the figures in detail, it is only right that this country recognises and meets its obligations.

I return to my earlier remarks on the other forces at play. Following the handing over of the Prime Minister’s letter, the country will now engage in the most serious political negotiations it has undertaken since the Second World War. Decisions taken in the next two years will have a profound impact on our country’s future. After some hesitation, the Prime Minister and Secretary of State have now acknowledged the point I made earlier—that the UK is a law-abiding nation that meets its obligations.

The Government have also accepted that we may continue to contribute to the EU budget on a case-by-case basis. There is a clear national interest in maintaining co-operation with the EU in some areas. As we all know, nothing in life is for free. However, we remain disappointed that the Government and some noble Lords who have spoken today would be prepared to walk away with no deal. I was very seized by the comments of noble Lords who, like me, feel that this would be very unwise, particularly the noble Lords, Lord Hannay, Lord Haskins and Lord Jay, who I think all came to the same conclusion from different directions. The description of the negotiations mentioned by the noble Lord, Lord Hannay, has particular resonance for me. I spent part of my career negotiating in fractions of billions rather than multiple billions, but I think the experience is very much the same. He brought out the importance of painfully going through the detail. To that I add the next step of painfully going through the detail to find areas of common interest, and building on that common interest for the future of the United Kingdom and of Europe. Failure to agree a relationship with the EU that supports our economy and protects vital social and environmental rights could be “very destructive”. That is not just my view but the view of the Commons Foreign Affairs Committee.

Labour has laid out six tests for the Government, and my noble friend Lady Smith of Basildon has added a seventh: honesty. This test is just as vital for this issue as for any other. While the report stresses the legal point, we will struggle to strike deals with new partners if the UK is viewed as unreliable and untrustworthy. In this sense, the legal reality is secondary to the political and economic reality.

I once again thank the committee for this report. I hope that the Minister has listened carefully to this debate and that the Government will continue to engage as negotiations progress.

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My Lords, when the noble Lord, Lord Tunnicliffe, returns to the pub and resumes the dialogue with his drinking friend, I hope that he will share with him his deep insight into the mechanics of the EU budget. I am sure that he will be fascinated to learn even more about it.

I thank all those who have taken part in this debate, particularly the noble Baroness, Lady Falkner of Margravine, who not only chaired the committee but also introduced this debate. I particularly welcomed her peroration with its plea for fair play and an amicable settlement—an emotion that was shared by nearly everybody who spoke in the debate. I particularly recall the interventions of the noble Lord, Lord Butler, and my noble friend Lord Lindsay in that respect. Having listened to the noble Lord, Lord Thomas of Gresford, I came to the conclusion that if only those on this side of the negotiating table and those on the European side of it were all members of the Reform Club, our withdrawal could be settled quite quickly after a decanter or two of very good port.

This committee, together with the others under the umbrella of the EU Committee, continues to inform and influence the Government’s approach to the EU negotiations and I welcome the significant contribution this report has made in that respect. I reread earlier this week one of the first reports on this subject, The Process of Withdrawing from the European Union, which came out nearly a year ago, when withdrawal seemed unlikely. Like today’s report, for those of us for whom the EU is not our special subject, it was clear, concise, eminently readable and cogently argued. I was struck by how perceptive that original report was, particularly on the key role of the European Parliament in consenting to any agreement, and on the process of disentangling the UK from EU law, where the report quoted the chilling comment of Sir David Edward, a former judge of the Court of Justice of the EU who said:

“The long-term ghastliness of the legal complications is almost unimaginable”.

On the report, I certainly take on board the advice from the noble Lord, Lord Hannay, who said that sweeping assertions should be avoided. Throughout this report on the EU budget, the committee has successfully identified the legal and technical issues, as set out by the negotiation guidelines recently published by the European Council and the European Parliament. I can confirm, in response to the question posed by the noble Lord, Lord Tunnicliffe, that the headings identified in the report as liabilities are the liabilities identified in the EU’s annual accounts. The Government will publish their formal response to this report in the usual timeframe. But I say from the outset that this is a significant contribution to the EU budget discussion in which, so far, much heat but little light has been generated. We have had a very high-quality debate inspired by this report.

As the Prime Minister made very clear in her Statement to the Commons last week, we will begin our negotiations with the European Union with the ambition to be not just a truly global Britain but the best friend and neighbour to our European partners. We have set ourselves a clear and ambitious plan for the negotiations ahead. During these, we will seek to achieve the best outcome, not just for the UK but for our European partners as well.

The Article 50 letter that was delivered last week by our UK representative in Brussels to Donald Tusk, President of the European Council, formally set out what we are proposing to our European partners on the forthcoming negotiations. The Council has responded with draft guidelines which say, on the subject we debate today:

“A single financial settlement should ensure that the Union and the United Kingdom both respect the obligations undertaken before the date of withdrawal. The settlement should cover all legal and budgetary commitments as well as liabilities, including contingent liabilities”.

Therefore, the response to another question from the noble Lord, Lord Tunnicliffe, is yes: both the European Union and the European Parliament are looking for a single financial settlement.

The UK Government will now seek a deep and special partnership that covers both security and economic co-operation with a bold and ambitious free trade agreement, greater in scope than any such agreement before. We should begin these negotiations constructively, in a spirit of sincere co-operation, as indeed has been advocated in today’s debate, and we are confident that, at the end of the day, Britain can secure a deal that works both for us and for the EU. I agree with what a number of noble Lords have said—the noble Lord, Lord Butler, for one—that we want an agreement, but so does the EU.

Before I get into the legal arguments about whether we owe the EU a so-called exit bill, I will briefly set out the Government’s ambition in this area. As the Prime Minister made clear in her Lancaster House speech on 17 January, having been a net contributor to the European budget since we joined the Common Market in 1973,

“the days of Britain making vast contributions to the European Union every year will end”.

While we remain a member of the EU, the UK will continue to play a full part in EU business, including EU budget negotiations—a matter the noble Lord, Lord Thomas, referred to—and meeting our contributions. We will remain committed to budgetary restraint and ensuring that we live within the current deal on the multiannual financial framework. However, what is important is that, once we have left the EU, control over how our money is spent will reside with the UK Government and Parliament.

Throughout the negotiations on withdrawal, we have to look at the rights and obligations we have as a departing member state, in accordance with the law but also in the spirit of continued partnership with the EU. As the report makes clear, a whole range of issues for the UK and the EU will need to be addressed as we leave the Union. The House will not be surprised, against a background of earlier debates on this subject, if I say little about the Government’s negotiating strategy, not least because the formal negotiations have not started yet. In any case, that was the advice I was given by the noble Lord, Lord Hannay, when he spoke a few moments ago. The guidelines are still being agreed and the debate over UK payments according to the rights and obligations of our membership is just speculation at this stage—speculation that has prompted a range of figures from the other side of the channel, which some noble Lords have referred to in this debate.

As the Prime Minister has said, the UK is a country that meets its international obligations. It is in the interests of both the UK and the European Union to agree a new partnership in a fair and orderly manner, with as little disruption as possible. There is indeed no reason why a new deep and special partnership between the UK and the EU should not be achievable.

On the specific issues raised in the report and in the debate, throughout the report there are a range of different opinions about the legal interpretation of potential obligations which the UK may or may not be legally required to pay. Witnesses to the committee are a testament to the complexity of it, and disagreement and uncertainty over the liabilities of a member state under Article 50 are to be expected in an area that has of course little precedent. The legal nuance is interesting. The report concluded that the wording provided under Article 50—in particular,

“The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification”—

was sufficient to clear the UK of any ongoing obligations. My noble friend Lord De Mauley said that this was a useful incentive for the EU to seek agreement, and my noble friend Lord Taylor of Warwick made the case for that side of the argument more forcefully.

Other legal experts argued that Article 50 does not expressly deal with the question of financial consequences as a member state withdraws from the Union. The noble Lord, Lord Davies of Stamford, developed that case, as did the noble Lord, Lord Thomas of Gresford. The noble Lord, Lord Haskins, made the point that, whatever lawyers on one side for the argument might say, lawyers to support the other side of the argument can fairly easily be recruited. They argued the other side of the argument, that rights and obligations upon the termination of a treaty are governed by Article 70 of the Vienna Convention on the Law of Treaties. This states that obligations undertaken when the UK was still bound by the EU treaties would not disappear at the moment of Brexit.

We are far from exhausting the range of opinions that can, and will, be given on this matter over the next few years. Superimposed on the legal uncertainty over what is or is not a survivable obligation on the UK, there is the additional ambiguity over the size of each obligation and how to calculate the UK’s share—a point the noble Lord, Lord Jay, made in his contribution. As the report makes clear,

“if it were to be accepted that the UK had any financial liability on leaving the EU, no single figure can incontrovertibly represent an amount that the UK might be requested to pay”.

Again, for each potential obligation, witnesses before the committee highlighted various ways in which you could calculate its size and various ways in which you could calculate the UK share. At least four different percentages were given with respect to pensions alone. Reading all this as a lay man—indeed, it has been confirmed by this debate—my conclusion was that a solution will be arrived at not by lawyers but by politicians.

A number of noble Lords mentioned the question of the MFF and what would happen when, without UK funding, the EU 27 would face an immediate decision on how to manage the shortfall in the remaining years of the MFF once we have left. Again, the noble Lords, Lord Jay and Lord Butler, raised this issue. Member states will face a difficult choice between increasing contributions or cutting payments. Increasing contributions will be unpopular with member states that are net contributors, but of course cutting payments will be equally painful for those who rely on receipts. The noble Lord, Lord Butler, referred to a comment from the German Deputy Finance Minister, Jens Spahn, who has already said:

“We shouldn’t be talking about more money for the EU budget, but how to make better use of our resources”.

The noble Lord, Lord Thomas of Gresford, asked whether beneficiaries of the UK would continue to receive EU funds. I am sure he is aware of the commitment, given by the Chancellor, that the Government will guarantee funding for projects signed before exit, even if they continue after we leave.

My noble friend Lord De Mauley asked whether it was realistic to try to expect an agreement in two years. We start from the advantage of close regulatory alignment with the institutions of the EU, with an understanding and indeed a trust in each other’s institutions, and with a spirit of co-operation which stretches back some decades. We hope that those attributes will be useful in trying to reach an agreement within that time span.

The noble Lord, Lord Davies of Stamford, asked whether the CJEU jurisdiction would still apply post exit. The UK is leaving the EU, and we have been clear that that means bringing to an end the direct jurisdiction of the CJEU in the UK.

On the question of the European Investment Bank, raised by the noble Lords, Lord Shutt and Lord Butler, we remain a full member of the EIB. The EIB has signed and approved new projects in the UK since the referendum, including £60 million for the purchase of new trains, which will improve passenger services in East Anglia, and £800 million for the upgrade of the national grid’s gas network. However, as with other items on the table, as part of the UK’s withdrawal from the EU the UK’s long-term relationship with the EIB will need to be resolved, and we are currently evaluating a full spectrum of options for the nature of that long-term relationship.

During our debate, there was a discussion on the size of the RAL and the liability relating to pensions. The noble Lord, Lord Butler, with agreement from other noble Lords, said that the liability rested with the EU. My noble friend Lord Lindsay said that that may be the case but that we have a moral obligation to make sure that it is happily resolved. Again, I say to your Lordships that we are approaching discussions on all these issues constructively and respectfully, and we are confident that we can achieve an outcome that works in the interests of both sides.

The noble Lord, Lord Butler, asked, I think, whether nothing is agreed until everything is agreed. I have in front of me the communication from the Council of the European Union. Paragraph 2 says:

“Negotiations under Article 50 TEU will be conducted as a single package. In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately”.

That was in the communiqué from Brussels that came out on 31 March, and I hope that that answers his question.

My noble friend Lord Lindsay asked a rather binary question: are we talking about a divorce or cancelling club membership? The honest answer is that we see this process as the UK leaving the European Union. We want to negotiate this withdrawal in good faith and with the ambition of being the best friend and neighbour to our European partners.

To sum up, this is a complicated topic whose complexity the committee has done very well to bring out. Equally important is its reflection—less well reported—on the importance of the spirit of the negotiations as much as the legal issues. That has been one of the themes running through this whole debate: we have to get the tone and the spirit of those discussions right. Therefore, I very much agree with the report’s conclusion, which is worth repeating here in full:

“It is also a negotiation about establishing a stable, cooperative and amicable relationship between the UK and the EU, so as to promote the security, safety and well-being of all the peoples of Europe”.

We want to play our part in making sure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats. We want a deep and special partnership, taking in both economic and security co-operation.

This report is a welcome and comprehensive contribution to this debate, as indeed our discussion has been today. It has highlighted critical uncertainties over the legal position with respect to survivable obligations and the approach to exactly what this means for UK finances. Our approach to the budget negotiations is ambitious but grounded in the principle of achieving the best outcome, not just for the UK but for our European partners as a whole.

I hope that the tone of this debate, in which different views have been expressed by Members of different parties and none, is matched by the tone of the negotiations, which are to start shortly.

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My Lords, I start by thanking all noble Lords who have spoken in this debate. It has been extremely valuable and we will of course reflect on all the comments that have been made. I particularly thank the members of the committee who have spoken. As my noble friend Lord Shutt pointed out, a debate on the last day of term seems to be the fate of European Union Sub-Committee A, but as a committee we felt that we should take this date as offered, because this is one of the topics that will be addressed at an early stage and it is important to hear all sides of opinion in this House. What a debate it has been and what opinions we have heard. I will go through some of the substantive points and believe that I should address them as this is a debate.

I start with the noble Lord, Lord Davies of Stamford, whose presence on our committee we still miss, and I was delighted that he was able to find the time to speak. I need to address early on an issue which he raised and which it is of fundamental importance to get on the record. I refer to the rights of EU citizens who are working for EU institutions today. The noble Lord inferred that they would be fired at the end of the United Kingdom’s departure from the EU, and I thought it would be useful for the House to reassure them—in case they pick up Hansard—by reading Mr Juncker’s email to staff of 24 June, which particularly addresses this issue. He said:

“I know many of you are concerned about your future after this vote … you are Union officials. You left your national hats at the door when you joined this institution and that door is not closing on you now … our staff regulations will be read and applied in a European spirit”.

So not only do the United Kingdom Government stand by EU citizens, as I understand it, but the European Commission does, too, and that is an important clarification.

The noble Lord, Lord Davies, also led us through an exposé of the origins of jurisprudence which was worthy, if I may say so, of a university seminar. I tend to prefer the science of economics to the discipline of law, and I suggest that the established finding of behavioural economics, which borrows heavily from psychology, might apply here in terms of “confirmation bias”. Confirmation bias, as is defined,

“occurs when people filter out potentially useful facts and opinions that don’t coincide with their preconceived notions”.

The noble Lord, Lord Davies, also said that no one is suggesting that we will have liabilities after departure. We caveat our report by referring, as the noble Lord, Lord Tunnicliffe, said, not just to what will happen when we leave. After we leave there will be ongoing commitments, which is why the legal advice is significant. We know—and the report spells out—that there is a rule called n+3, whereby the expenditure continues for three further years after the end of the MFF period. I think it was the noble Lord, Lord Butler, who reminded the House of the comments of the German Finance Minister, Wolfgang Schäuble, who thinks that the liabilities could continue till 2030.Therefore, in that sense, this legal advice is absolutely pivotal.

My noble friend Lord Thomas of Gresford joined the noble Lord, Lord Davies of Stamford, on the overarching obligations of the Vienna Convention on the Law of Treaties. I refer noble Lords to page 60 of our report, which takes us back to the intentions of the drafters of the Vienna convention in 1966—the UN’s International Law Commission—which explained the thinking behind what it said in Article 70(1) of the convention. That article contains the words “unless the treaty” in question “otherwise provides”. The commission says:

“Clearly, any such conditions provided for in the treaty or agreed upon by the parties must prevail, and the opening words of paragraph 1 of the article”—

which are, “unless the treaty” in question “otherwise provides”—

“(which are also made applicable to paragraph 2) so provide”.

Therefore, the Vienna convention rules itself out where there are other provisions in treaties.

The committee cannot be faulted for the fact that the treaty in question might not have provisions in it about how to go about an orderly withdrawal, the obligations and liabilities and so on. I suggest that the House, which has debated Article 50, might perhaps think about how it was so carelessly drafted as to leave out these important caveats. I understand from my conversations in Brussels that there is much gnashing of teeth among Commission lawyers about the manner in which Article 50 was drafted.

Let me turn to another point made by my noble friend Lord Thomas of Gresford. He gave the example of an EU project in Wales where the money might, on the whim of someone, be used for a purpose other than that for which it was provided. I agree that that would palpably be illegal. However, I also agree that the receipt of this funding would take place while the EU treaties are extant. Once we have left the European Union, the treaties do not apply. Therefore, neither does the justiciability of the CJEU, unless a withdrawal agreement decided to accept that as a condition.

I turn now to the noble Lord, Lord Hannay of Chiswick. I agree completely with his advice on the manner of negotiations and how one’s perceptions can be confounded as one goes deeper into the negotiation. However, he disagreed specifically with paragraph 135, and said that the committee should not have accepted the legal opinion. Perhaps he thought that we had taken only a single legal opinion into account. We did not. All the lawyers we spoke to knew the EU institutions well. We tested each opinion given by a lawyer and, as time went on and we had a subsequent opinion, we wrote back to the original lawyers asking them to give their opinion again in the light of what we had heard.

I am being encouraged to move on, and I will—I am coming to my final comment.

We exercised our collective judgment and came to our views based on how we saw the evidence. However, the noble Lord, Lord Hannay, suggested that I was somehow tiptoeing around some of these issues. Let me give him some advice: when confronted with counterintuitive situations, I find it better to tiptoe around new evidence rather than dismiss it through confirmation bias.

In conclusion, there is only one way to test whether our judgments in this report have been right or wrong, and that is through a court of law. We have heard from the Minister and from all sides of the House that we will not be going there; that we want an orderly exit and a deep and lasting relationship with our nearest partners, and that is what we should all be seeking to achieve, not least the Government, who speak in our name. I hope the report will be seen as perhaps an important milestone in making us all much more competent in dealing with the pitfalls that lie before us. I hope it will be taken in the best spirit of EU Select Committee reports, which perform such a valuable service to the House and beyond.

Motion agreed.

Local Audit (Public Access to Documents) Bill

Second Reading

Moved by

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That the Bill be now read a second time.

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My Lords, I am pleased to be supporting this Bill through the House and believe it adds a valuable dimension to existing inspection rights and local accountability for relevant authorities. The complete list of bodies to which the Bill will apply is set out in Schedule 2 to the Local Audit and Accountability Act 2014, which this Bill amends.

The Bill will extend the definition of interested persons to include journalists, which includes citizen journalists, so that they may access a wider range of local audit documents to assist with their investigations and publicise their findings, so that local electors are made aware and thus better able to hold their council to account for its actions through questioning the auditor or making an objection. It is important to emphasise that it will not allow journalists themselves to question the auditor or make an objection. Given that the cost of the auditor investigating a question or objection is met by the local body concerned, and given the cost of such action to the local public purse, this right should be exercised only by an elector in that area, who could be impacted by those costs. As an ex-chairman of the Local Government Association, I firmly believe that openness and transparency should be the default position in local government. In my view, this short and simple Bill will assist in achieving that aim.

In the other place, there was some debate over the merits of extending these rights to all UK registered electors. While the amendment that would have implemented that change was ultimately withdrawn, my strongly held view is that extending this right to all would be wrong for several reasons. While Ministers clearly flagged their intention back in 2014 to extend the inspection rights for accounting information to journalists in order to assist them in their investigations, they did not suggest extending such rights to all and sundry. Extending these rights to everyone without any consultation as to the impact would vastly expand the potential for mischief-making without any wider public benefit, as well as potentially placing a cost burden on local public bodies.

Other provisions in the Local Audit and Accountability Act 2014 already require local government to publish a wide range of information, including financial data, through adherence to transparency codes. However, the ability to inspect the financial records of the year just ended for 30 days and before they are signed off by the auditor is a separate right that can be exercised only by interested persons and local government electors for the area concerned. This is because such persons have the right to inspect a wider range of information than just the final accounts, which are required to be published. Electors in the area may also question the auditor or make a formal objection to the accounts, which may require the auditor to investigate and could prevent closure of the accounts until the investigation is complete.

To allow anyone to inspect this wider range of accounting information could result in a greater cost burden on local authorities, as there would be a far greater volume of requests to fulfil, with associated administrative costs in locating the documents requested. Such costs could be regarded as a new burden on the authority, because we would be asking them to do something they have previously not been required to do, and which would therefore need to be funded by the department. Extending an existing right to a defined group of people would not be considered in the same light.

To those who think that by extending this right to citizen journalists, we are in effect opening the floodgates, I say that the wording in the Bill helps to define who might reasonably be expected to fall within that category. By referring to “journalistic material” the focus is on what the person does and would suggest that such a person would be able to provide details of blogs or tweets they had authored and the forums in which they had been published. Furthermore, use of the term “publication” implies a public element. Therefore, while it might include journalistic material tweeted on Twitter, it may not include material circulated to a small invite-only Facebook group. It is also unlikely to include material sent as a direct message on Twitter, Facebook or by email. The onus would be on the citizen journalist to provide proof. Such a person should be able to provide details of articles, blogs or tweets they have authored and where they have been published in order to gain the ability to inspect the accounting documents requested from the local authority.

The other key issue debated in another place last week related to health bodies and why they are excluded from this Bill and, indeed, from the inspection provisions in the 2014 Act. I am going to leave it to my noble friend Lord Bourne of Aberystwyth to set out the Government’s view on how that issue relates to government policy.

Given my attempts to further address the key points raised last week in the other place, I am hopeful that noble Lords present here today will feel able to support this small but important measure. I beg to move.

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My Lords, I refer the House to my entry in the register of Members’ interests. I am an elected councillor of the London Borough of Lewisham and a vice-president of the Local Government Association.

I congratulate the noble Baroness on bringing forward the Bill for debate today, which has the full support of the Opposition. We will not table any amendments to it and urge all noble Lords to do likewise. We wish it a speedy passage through this House and hope it will receive Royal Assent soon afterwards.

The Bill is short and, in effect, makes only one important change. It will allow journalists to inspect accounting records of the public bodies listed in Schedule 2 to the Local Audit and Accountability Act 2014 for one month without being required to have an interest in the authority, as the noble Baroness, Lady Eaton, explained to the House. Those who spend public money should be accountable to the public for how they spend it and what they spend it on. The Bill goes a considerable way towards improving the present position, and that is to be welcomed.

The Bill is necessary because the “interested person” test goes only so far. It goes beyond a registered elector but not as far as to include a journalist. The definition of “journalist” has been written in such a way as to include bloggers and others who may not be seen as conventional members of the media, but perform a valuable function in covering the activities of local public bodies and questioning them. This is to be welcomed as their efforts are of benefit to the local community and local taxpayers.

I do not expect to see a stampede of journalists or bloggers heading down to their local town hall to inspect the invoices and receipts for the coffee machine in the members’ room or anywhere else, because there are provisions in the Act to deal with vexatious requests. This is important because some people go beyond what is reasonable and see conspiracies and corruption where people have acted perfectly properly. Simply not liking a decision does not mean that it was not a perfectly lawful decision to take. It is important that there is a protection for members of local authorities.

Anyone who has been on a council or is a Member of this House or the other House will have had to cope with losing a vote every now and again. That is part of our democracy. I always believe that anything I put forward from this Dispatch Box is worthy of support from the whole House, but that is not always the case. The actions of journalists can alert the local community to some of the decisions taken in its name, raise questions about how the money has been spent and lead others to question whether the actions taken are the most appropriate use of public money—of their money.

The period for allowing inspections is limited to one month. While looking at the documents is free, the local body can make a reasonable charge to cover its costs where copies of documents are taken. That is sensible as all public bodies have to think carefully and account for their money, which is tight at the moment.

I welcome the Bill and wish it a speedy passage through the House in the next few weeks.

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My Lords, I am pleased to speak today on behalf of the Government in support of the Local Audit (Public Access to Documents) Bill, introduced by my noble friend Lady Eaton. I thank her for her sterling efforts on this legislation. She comes to the task with vast experience of local government. I also thank the noble Lord, Lord Kennedy, for his typically responsible position on scrutinising legislation and for his kind and appropriate words in relation to the efforts of my noble friend Lady Eaton on the Bill.

It is absolutely right that both the Government and the Opposition should seek to provide appropriate accountability, and we both believe that this is a necessary extension of what exists at the moment. Transparency is important. The disinfectant of light on what happens in public proceedings in Parliament, council chambers and other elected bodies is absolutely right.

I also thank my honourable friend Wendy Morton MP, who has taken this legislation through the other place, for her efforts in relation to it.

On the noble Baroness’s earlier comments, this Bill is small in size but important in relation to the Government’s transparency agenda. This is why the Government are happy to support it. We believe that its potential impact in assisting local transparency and accountability will help local electors better to understand their local authority’s spending decisions. If they are unhappy with those decisions and something deserves scrutiny, those electors will then be able to ask a question of the auditor or raise an objection to a particular matter. That action would then empower the auditor to investigate further before the accounts are closed. The 30-day timing before the sign-off will enable the auditor to seek corrective action, where appropriate, from the authority—perhaps by making recommendations for change in the audit report—to comment on value-for-money judgments made by the council, or, in the most serious cases, to issue a public interest report, which the council is required to consider publicly and respond to.

Some have suggested—although not today—that a freedom of information request would have a similar effect. However, that would require the requester to know to some extent what they want before seeking information. Furthermore, unlike these rights, it cannot directly result in preventive action or change in relation to the most recent years’ accounts. That is why we believe that this Bill, though small in size and provisions, will potentially make a considerable difference.

My noble friend Lady Eaton kindly suggested that I pick up the point in relation to health bodies, which are excluded from, among other things, the inspection rights in the Local Audit and Accountability Act 2014 and are, consequently, also excluded from this Bill, which amends that Act. This is because local health bodies are not directly accountable to the local electorate in the same ways as local authorities. The National Health Service Act 2006, as amended by the Health and Social Care Act 2012, enables residents and patients to see the accounts of clinical commissioning groups and NHS trusts. However, the local auditors of health service bodies are required to report unlawful expenditure to NHS England or the NHS Trust Development Authority—which now, since 1 April, forms part of NHS Improvement—of clinical commissioning groups or NHS trusts respectively, and to the Secretary of State.

The accounts of all of the health service bodies covered by the 2014 Act are consolidated into the resource account of the Department of Health, which is presented to Parliament and subject to audit by the National Audit Office. The expenditure of those bodies is also within the scope of the Comptroller and Auditor General’s value-for-money remit under the provisions of the National Audit Act 1983. In general, foundation trusts are not covered by the 2014 Act. They are responsible for appointing their own auditors under paragraph 23 of Schedule 7 and Schedule 10 to the NHS Act 2006. The rules governing audit for these bodies are set out in that Act. In short, that is why the health bodies are not encompassed by the 2014 Act and hence not in the Bill. I hope that that demonstrates why they are excluded.

Unlike health bodies, local authorities are directly accountable to their electorate, and it is therefore only right that local people should be able to inspect their accounts in order to ask questions of the auditor and potentially object to items of expenditure. This Bill, by enabling journalists to inspect accounting records and publicise what they find, has the potential to bring this information to the wider attention of local electors, who will then be empowered to act by asking the auditor questions or by making an objection, thus triggering an investigation.

Points have been made in relation to this legislation that it might potentially result in auditors receiving a large number of questions or objections. I agree with the noble Lord, Lord Kennedy, that it is not foreseen that there will be a stampede of journalists taking up this right. It does not seem that that is going to happen. Currently the number of objections and questions received from local electors is very small—last year only around 65 from more than 11,000 audited bodies. While the publication of articles detailing high or unorthodox expenditure in an area could result in a number of local electors asking questions of the auditor, the number who will take the next step is likely to remain small, especially given the 30-day timeframe.

In closing, I once again thank my noble friend Lady Eaton. I hope that I have been able to reassure noble Lords on the two specific issues of health bodies and the likely number of people who will take up this right. I echo the words of my noble friend and of the noble Lord, Lord Kennedy, by encouraging all noble Lords to support the Bill.

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My Lords, I thank the noble Lord, Lord Kennedy, for his encouragement and support for the Bill and I thank my noble friend Lord Bourne for his clarifications and for stressing its importance.

Bill read a second time and committed to a Committee of the Whole House.

Merchant Shipping (Homosexual Conduct) Bill

Second Reading

Moved by

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That the Bill be now read a second time.

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My Lords, I am very pleased to bring this Bill to the House. It will bring clarity and certainty to our statute book on the law on discrimination in employment. The Bill was piloted through the House of Commons by John Glen, the Member for Salisbury. It received a very full debate on Second Reading, with 11 Back-Bench speakers.

The Bill is extremely straightforward and consists of a single operative clause. It repeals Sections 146(4) and 147(3) of the Criminal Justice and Public Order Act 1994, now defunct provisions that preserved the right to dismiss a seafarer on a UK merchant ship on the grounds of homosexual conduct. The Bill had a minor amendment made to it at the Commons Committee stage to bring forward commencement to the day on which the Act is passed rather than the standard two months. It went through its Report stage unamended, although not without a rigorous debate. I am proud to bring forward a Bill which signals clearly our opposition to discrimination. We should be absolutely clear: when it comes to employment either in the Merchant Navy or anywhere else, what matters is your ability to do the job, not your gender, age, ethnicity, religion or sexuality.

I will take a moment to outline the background to the Bill. Sections 146 and 147 of the Criminal Justice and Public Order Act 1994 repealed the clauses in the Sexual Offences Act 1967 which made homosexual activity within the Armed Forces and on Merchant Navy vessels a criminal offence. Sections 146(4) and 147(3) of the 1994 Act, the subsections repealed by this Bill, state that nothing in them would prevent a homosexual act from constituting a ground for dismissing a member of the crew of a UK merchant ship from his ship. These sections were added to that Bill following non-government amendments during the Lords Committee stage following concerns about the effect of that Act on the dismissals policy of the Armed Forces and the Merchant Navy. During the passage of the 1994 Act, members of both Houses noted the anomaly that there were no equivalent provisions for heterosexual activity taking place on board a ship, highlighting a concern about employment discrimination even then.

It is important to be clear that the provisions in the 1994 Act are no longer of any legal effect, not least due to the provisions of the Equality Act 2010 and the regulations made under it as well as relevant Northern Ireland regulations. The equivalent provisions for the Armed Forces in the Criminal Justice and Public Order Act were struck down by the ECHR in Smith and Grady v United Kingdom in 2000.

While the provisions of the 1994 Act have now been legally superseded, there are still four good reasons to pass this Bill. First, it is symbolic. These provisions are believed to be among the last remnants of legislation on our statute book which penalise homosexual conduct and include a provision that applies to homosexual individuals but not to heterosexual individuals. In passing this Bill, we have the opportunity to state clearly and unequivocally that what matters in employment is someone’s ability to do the job and nothing else, and that there is no room today for employment discrimination. Secondly, it delivers on the commitment made by the Government during the passage of the Armed Forces Act 2016 to deal with the Merchant Navy provisions in just the same way as the Armed Forces provisions when that legislation was passed. Thirdly, it gives reassurance. An individual could easily look up the Criminal Justice and Public Order Act 1994 online and be concerned or misled by its apparent provisions. By removing these provisions from the statute book, we can provide clarity and prevent any misunderstanding as to the current state of the law. Fourthly, this Bill would tidy up the legislation. Members of the House of Commons described the Bill as a “useful tidying-up exercise”. It would make the status of our current employment law absolutely clear and give reassurance to anyone who was in doubt about it.

The Bill is supported by the UK Chamber of Shipping, the industry body for the Merchant Navy; the RMT, the industry union; and by long-standing gay rights campaigner Peter Tatchell. It enjoyed cross-party support in the House of Commons and is supported by the Government. I hope that we will be able quickly and easily to pass this short but important Bill into law. I beg to move.

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My Lords, like the noble Baroness, Lady Scott of Bybrook, I congratulate John Glen MP on his success in the other place in navigating this Bill through all its stages with government and cross-party support. The Liberal Democrats warmly welcome the Bill and hope that it will rapidly become law. By repealing Sections 146(4) and 147(3) of the Criminal Justice and Public Order Act 1994, it completes the removal of archaic and unjust provisions that penalised homosexual activity.

This year is the 50th anniversary of Leo Abse’s Private Member’s Bill which became the Sexual Offences Act 1967. It came 10 years after the Wolfenden report recommended reform. The Act abolished the crime of sexual love between two men over the age of 21 in private. It had crucial support from the then Home Secretary, Roy Jenkins, but the path of reform has been long and tortuous and has required intervention from the European Court of Human Rights and the European Union.

The 1967 Act did not apply to Northern Ireland. It required a judgment by the Strasbourg Court in Jeffrey Dudgeon’s case to persuade Parliament to abolish the offence in Northern Ireland. The 1994 Act repealed the clauses in the 1967 Act that made homosexual activity in the Armed Forces and on Merchant Navy vessels a criminal offence, but clauses were introduced in this House that provided that nothing in the 1994 Act would prevent homosexual activity constituting grounds for dismissal. The clauses were approved in Committee by a Division on 20 June 1994.

The Strasbourg court ruled in 2000 in the Smith and Grady case that the provisions of the 1994 Act violated the right to respect for private life under a policy that involved investigating whether personnel were homosexual or had engaged in homosexual activity. If so, they were discharged. EU employment equality directives and the Equality Act 2010 dealt with the problem, but the offending provisions remain, disfiguring the statute book. As the Minister in the other place, Andrew Jones MP, said, the Bill,

“addresses a historical wrong and the inadequacy of legislation to keep pace with our culture”.—[Official Report, Commons, 20/1/17; col. 1240.]

When I became a Member of the House in November 1993, it was deeply homophobic. Section 28 of the Local Government Act 1988 was in force. Among other things, it forbade local authorities from,

“teaching in any maintained school of the acceptability of homosexuality as a pretended family relationship”.

Tony Blair’s Labour Government tried to repeal it, with strong Liberal Democrat support, but the Government were defeated on 7 February 2000 by a campaign led by Baroness Young. I spoke in favour of repeal. The House also rejected lowering the age of consent to that of heterosexual couples. Baroness Young was supported not only by Conservatives and some Labour Peers, but by religious groups, including the Salvation Army, the Christian Institute, the African and Caribbean Evangelical Alliance, the Muslim Council of Britain, the Chief Rabbi Dr Jonathan Sacks—now the noble Lord, Lord Sacks—and Orthodox Jews, groups within the Catholic Church and the Church of England, and several retired Law Lords. She was also supported by the Daily Mail, the Sun, and the Daily Telegraph. They claimed that Section 28 protected children from predatory homosexuals and from advocates seeking to indoctrinate young people into homosexuality.

After the death of Baroness Young and with the appointment of a new liberal generation of life Peers, mainly by Tony Blair, organised opposition in the Lords was weakened. The House finally voted in favour of repeal in 2003, a year after I introduced my Civil Partnerships Bill, which led to the Blair Government’s Civil Partnership Act 2004.

David Cameron’s politically acrobatic record illustrates how times have changed for the better. In 2000, he opposed the repeal of Section 28 and accused Tony Blair of being against family values and of,

“moving heaven and earth to allow the promotion of homosexuality in our schools”.

In 2003, he voted against the repeal of Section 28. A year later, he supported civil partnerships for same-sex couples. In 2009 he apologised for having supported Section 28. In 2013 he supported same-sex marriage, but it is still not allowed in Northern Ireland.

In her important and timely book, The Enemy Within, the noble Baroness, Lady Warsi, recalled how her party had rabble-roused the party faithful at conferences and meetings against gay people and enacted legislation that stigmatised them from birth. She wrote that she was deeply ashamed of having been homophobic at a time when homophobia was a so-called “British value”. The noble Baroness and her colleagues were not alone. Homophobia was not and is not confined to the Conservative Party and it is driven, here and abroad, by the ideology of orthodox clerics and their adherents in the three Abrahamic religions—Judaism, Christianity and Islam. When this Bill becomes law it will rid the statute book of an ugly relic from a bigoted past, but it will not, of course, end the culture of intolerance of gay love.

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My Lords, this is the second time in recent weeks that we have had the opportunity to consider an extremely short Bill, the significance of which is out of all proportion to its length. Unlike the other one, this is a Bill I can wholeheartedly support.

I congratulate my noble friend Lady Scott on shepherding the Bill through this House and thank my good friend John Glen for introducing this important measure in the first place. My noble friend Lord Lexden, who is a stalwart champion in this House of LGBT+ rights, had hoped to be here to support it, but is detained elsewhere. He has asked me to say how strongly he backs this measure.

Although we are dealing here with the Criminal Justice and Public Order Act 1994, this legislation, as the learned noble Lord, Lord Lester, said, is intimately connected with the Sexual Offences Act 1967. Many LGBT+ people are this year commemorating the passage of that landmark legislation exactly 50 years ago. There can be no better way to mark it than to remove from the statute book what undoubtedly is the very last statutory provision penalising homosexuality. Although the statute book will now be clear, as the noble Lord said, its application across the United Kingdom is not yet complete. We have to remember that gay men and women cannot marry in Northern Ireland. It has been a long journey from Wolfenden, at a time when gay men were criminalised, second-class, often outcast citizens, to the complete removal in law of any form of discrimination. That makes this Bill something of a red-letter day for all those who have campaigned tirelessly for justice and equality for LBGT people and against intolerance.

There is a lot to commend this short Bill. As my noble friend said, it tidies up legislation, which is always a good thing. We should spend more time in this way getting rid of outdated laws that have not kept pace with social change, rather than putting new ones on to the statute book. The Bill will remove any remaining ambiguity in the law. Even though, as we have heard, the provisions of the 1994 Act have no legal force, their policy implications are ambiguous and it is right to get rid of them. It might not affect a great number of individuals, but this measure removes any perception of a threat of legalised persecution, particularly for LGBT seafarers. But above all it is of totemic importance. By repealing an odious law that should never have defaced the statute book, it sends out a powerful signal to all individuals, regardless of their sexual orientation, that this House is committed to justice and equality, to tackling prejudice and intolerance, and to bringing an end to any form of discrimination.

Even more importantly, and this is the central point I want to make, I believe it will carry forward a vital message beyond our shores and act as a continuing beacon of hope for LGBT+ people around the world who live in countries that continue to criminalise them and to discriminate against them, often in the most barbaric and degrading ways—a human tragedy that this House has often effectively addressed. Those people, many of whom are fighting for justice in their own countries, rightly see this Parliament as a staunch defender of their rights—indeed, there is no more stalwart champion of that cause than the noble Lord, Lord Lester. They look to us for continuing inspiration in their struggles. After all, it was the UK that bequeathed the horror of criminalisation to much of the Commonwealth, along with a number of other odious laws such as criminal defamation. The significance of this Parliament continuing to root out discriminatory legislation and get rid of it cannot be overstated. That is why the impact of this tiny piece of legislation goes well beyond the issue of sexual relations between sailors.

In one of the debates we had about Turing and the whole issue of posthumous pardons, I mentioned that I had recently reread EM Forster’s great novel Maurice, which centres largely on the issues of historical importance raised by the Bill. Forster’s characters, one of whom was imprisoned for an act of so-called gross indecency, lived in the shadow of that terrible injustice. All those, including merchant seamen, who were sentenced to imprisonment with hard labour around the time that novel was written died with the shame of a criminal record, which is why Forster said on the front page of that masterpiece, “This book is dedicated to happier times”. For people such as him and those ordinary people he wrote about, on land and on the high seas, happier times never arrived. However, they are here now and the Bill allows us to complete a long, tough and most noble journey.

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My Lords, this Bill has a certain Wiltshire flavour, since it was taken through the Commons by the Member of Parliament for Salisbury and is being taken through this House by the noble Baroness, Lady Scott of Bybrook, whom I congratulate on doing so. My connections with Wiltshire are not exactly remote either.

The Bill is brief and to the point. Indeed, it is one of those Bills where the Explanatory Notes contain significantly more words than the Bill, but in this case it is not because the way that the Bill is worded makes it difficult to follow or understand. The Bill repeals Sections 146(4) and 147(3) of the Criminal Justice and Public Order Act 1994, which states that, while not a criminal offence, homosexual acts would be sufficient grounds for dismissal in the Merchant Navy.

The references in the 1994 Act to homosexual acts in the Armed Forces were removed under the Armed Forces Act 2016, but as that Act relates to the Armed Forces it could not also be used as a vehicle for repealing the references in the 1994 Act to the Merchant Navy. Consequently, the provisions in the 1994 Act in relation to the Merchant Navy remain on the statute book and still need to be repealed despite no longer having legal effect, hence this Bill. The provisions in the 1994 Act no longer have legal effect, because while the sections concerned allow for the dismissal of a member of the crew of a merchant ship on the grounds of homosexual acts, more recent legislation, including the Equality Act 2010, means that such a dismissal would now be illegal.

The two sections of the Criminal Justice and Public Order Act 1994 which this Bill repeals are the last such provisions penalising homosexual activity to be found on our statute book. I understand, as I think has been confirmed already today, that they were added to the 1994 Act, initially against the wishes of the then Government, following a Division during the Committee stage in this House.

The noble Baroness, Lady Scott of Bybrook, has set out the reasons why the provisions in the 1994 Act should be repealed even though they no longer have legal effect. I do not intend to repeat the reasons, but I agree with them.

As has been said, the Bill could be regarded as symbolic because the provisions it repeals have no legal effect. It is much more than that, though. We simply should not retain on the statute book provisions that are the exact opposite of the values, standards and priorities of our society today; and in this specific instance, it is that there can be no place for discrimination on the basis of sexual orientation. I do not intend to detain the House any longer. This House played a big part in putting these provisions into the 1994 Act. Let us get on with taking the right and just action now by repealing them through giving our wholehearted support to this Bill.

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My Lords, I thank my noble friend Lady Scott for bringing forth this Bill on this important issue—the contributions during this short debate have illustrated that poignantly. My noble friend set out in detail why it is right that we should progress. I am grateful also to my noble friend Lord Black and the noble Lords, Lord Lester and Lord Rosser, for their contributions.

Although the Bill has limited practical effects, as all noble Lords have acknowledged, and does not change the rights and responsibilities of any person today, it has deeply symbolic importance. As was said by my ministerial colleague on Second Reading in the other place,

“the laws that we pass in this place and that form our statute book represent”—

in a very real sense—

“the established morals and values of our country. It is right therefore that when the statute book contains wording that is inconsistent with those values we should change that wording. For that reason, the Government are happy to state now, formally, that we support this measure”.—[Official Report, Commons, 20/1/17; col. 1236.]

Noble Lords will also understand that when the Government decide to support a Private Member’s Bill, they undertake an analysis of whether it is compatible with the rights enshrined in the Human Rights Act. I am happy to confirm for the record that, in my view, the provisions of this Bill are totally compatible with those rights.

My noble friend Lady Scott has spelled out the proceedings that took the Bill out of the other place and bring it before us today. I do not intend to detain the House further in that respect. However, it is interesting to note in respect of the Wiltshire connection that the Bill was taken through the other place by my honourable friend John Glen, who is the MP for Salisbury, and that it was Viscount Cranborne—now the noble Marquess, Lord Salisbury—who took the Criminal Justice and Public Order Act through this House in 1994. I am glad to see the continuing interest of the good people of Salisbury in this issue.

I want to take a few minutes to explain briefly the history behind the provisions that the Bill seeks to remove. The Criminal Justice and Public Order Act 1994 was a significant milestone in the development of LGBT rights in the United Kingdom. The Act is the last UK Act to have a whole part entitled simply, “Homosexuality”. As the noble Lord recounted earlier, it was responsible for reducing the age of homosexual consent from 21 to 18. It also removed some of the last remaining criminal liability for acts of homosexual sex. Sex between adults of the same sex was generally decriminalised by Section 1 of the Sexual Offences Act 1967, but that Act maintained criminal liability for homosexual sex that was contrary to military discipline or occurred on board a merchant ship. That liability was removed in the 1994 Act by Section 146(1), (2) and (3), for England, Wales and Scotland, and by Section 147(1) and (2) for Northern Ireland. However, the sections that we are dealing with today, Sections 146(4) and 147(3), were added during the passage of the Bill following amendments made by a Member of your Lordships’ House—a point already acknowledged by noble Lords.

Of course, time has moved on. We heard a poignant history of how this House, the other House and society have moved on. The noble Lord, Lord Lester, recounted the history of how the rights of individuals have increasingly been protected. It is right that we move forward in line with history and in line with society today.

As I mentioned earlier, the sections in question are of no current effect. Moreover, any attempt to discharge a member of the UK Merchant Navy from their employment on the basis of their sexuality would now be unlawful by reason of equality legislation. My noble friend Lord Black mentioned Alan Turing. I remember from this very Dispatch Box responding to the Private Member’s Bill in the name of the noble Lord, Lord Sharkey, who is not in his place. I recognise his efforts in that respect as we move forward in the right vein. Today, we shall do so again.

Sections have become shorter as time has gone on. Sections 146(4) and 147(3) of the Act have been progressively repealed, most recently by the Armed Forces Act 2016, which removed all references to Armed Forces. The Government could not do anything about provisions relating to the Merchant Navy in 2016 because, despite the name, the Merchant Navy is not part of the Armed Forces. Such an amendment could not be made out of scope. Nevertheless, the Government committed that they would address this point as soon as possible. At this juncture, I can only congratulate my noble friend on beating the Government to it.

We have reached a stage where the provisions in the 1994 Act refer only to the Merchant Navy and they are in any event defunct. Despite that, the policy behind the current statutory wording is unambiguous. It amounts to a statement that homosexual conduct per se is incompatible with employment on merchant vessels. Getting rid of that statement is a wholly laudable aim and I applaud my noble friend and all noble Lords here for supporting it today. It may be true that this measure is symbolic, but as my noble friend Lady Scott has made clear, there are very good reasons to support symbolic measures, including because they give clarity and tidy up the statute book, but also because, as I said at the start of my speech, the laws that are in force in the United Kingdom in 2017 should reflect the values of our great country in 2017. The Bill will do exactly that, and for that reason I hope that it can make rapid progress today and receive the support that it truly deserves.

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I quite understand that the Bill will apply to British ships in British waters and elsewhere in the world, but what is the position with foreign-flagged ships that happen to be in British waters when the homosexual act takes place? Their foreign laws may not apply in the same way that ours do.

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I acknowledge my noble friend’s point. Of course, ships are reflective of the flag under which they are registered. In terms of specifics and in terms of territories, when they are in Britain they should reflect the laws of our land, especially laws relating to British territorial waters and British land. I will write to my noble friend on the issue and share that with all noble Lords.

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My Lords, I thank all noble Lords across the House who have spoken today and who have shown such great interest in this little Bill and welcomed it so warmly. It is a small Bill but, as has been said a number of times, it is symbolically a very big Bill. Thank you for your support. I ask the House to give the Bill a Second Reading.

Bill read a second time and committed to a Committee of the Whole House.

Missing Persons Guardianship Bill [HL]

Motion to Withdraw

Moved by

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That the bill be withdrawn.

Motion agreed.

Guardianship (Missing Persons) Bill

Second Reading

Moved by

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That the Bill be now read a second time.

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My Lords, I have made space for this Bill by withdrawing the previous one. The penny dropped for me about the difficulties of a missing person’s property effectively being left ownerless when I heard the father of a woman who was missing explain the problems. He has heard me say this before, but he is a solicitor and must know how to handle bureaucracy, so this is a real problem. Peter Lawrence—that solicitor and father—is listening to today’s debates and he represents not only himself and his daughter Claudia, because the focus of the Bill is the missing person, but also the families of the many adults reported missing. There are more than 80,000 of them a year in Britain, of whom about 1,500 are missing for more than one year.

It is normal at the end of the passage of a Bill to thank those involved. I hope I am not tempting fate, but in the hope that we may find ourselves without further substantive debate I want to thank now all the families and others who have recounted their experiences, which cannot have been easy. I thank the charity Missing People, current and previous staff of which have campaigned on this issue since, I think, 2008. I declare an interest as a member of the charity’s policy and research advisory group. I thank the Minister and his predecessor, the noble Lord, Lord Faulks, and the MoJ officials who have understood the need for legislation, even if they could not do more than keep it warm for a couple of years—I particularly thank Paul Hughes there. I thank Clifford Chance, the pro bono solicitors to the charity Missing People, particularly Patricia Barratt, who drafted the Bill that I have just withdrawn, the effect of which would have been essentially the same as that of this Bill. I also thank Kevin Hollinrake, who took the Bill through the Commons.

I know that there are noble Lords who had hoped to speak today to support the Bill, but the timing has been a little awkward. In particular, I refer to the noble Lord, Lord Kirkhope of Harrogate, and my noble friend Lady Kramer, whose Presumption of Death Act 2013 dealt with another not unrelated provision.

The words of people affected by the problems that the Bill seeks to address are more effective than mine:

“When your loved one is missing you fall into a hole. There isn’t an official category for ‘missing’. Organisations don’t know what to do or how to deal with your situation”.

The creation of the new status of guardian of the property and affairs of a missing person is to fill a gap in the law of England and Wales. The guardian will be in a position not unlike a donee of a power of attorney, and the Bill draws on some of the provisions of the Mental Capacity Act. A person is missing for the purposes of the Bill if his or her whereabouts are unknown for more than 90 days—fewer in the case of urgency—or, much more unusually, if he cannot make or communicate decisions, for instance if he is held hostage or kidnapped.

The court will determine whether the applicant for an order of appointment has a sufficient interest to make the application, though certain people, including close family, have an automatic right to apply and interested persons must be notified so they can join in the application. The guardian may be the person applying; it could be an individual, a corporation or a professional person; and the guardian may be remunerated and be repaid expenses. Whoever the guardian is, there must be no conflict of interest. The appointment may be for up to four years, which is expendable, but terminates when the person returns or is declared dead. As one would expect, there are provisions for the guardian to be held to account and supervised, in this case by the Office of the Public Guardian and ultimately by the court.

What can a guardian do? Everything that the missing person has the right and power to do in relation to his property or financial affairs, subject to any limitations in the court order. He cannot make a will for the missing person or act as trustee. Again, as you would expect, it is a fiduciary position. Crucially, the appointment of the guardian must be, as I have said, in the best interests of the missing person. Clause 18 sets out how that is to be determined.

These interests will often coincide with the interests of families and, naturally, it is the experiences of that situation which are related by families. Very often, their experiences are ones which one might not have begun to imagine before beginning to think seriously about the situation. For example, a missing person’s salary is not coming in, but mortgage payments and other standing orders and direct debits go out of that person’s bank account. The bank will not make transfers between accounts to keep up the mortgage when the usual account, the usual source of the payments, is depleted. You are not entitled to sell the family home, but you may be threatened with foreclosure. Rent, if the property is rented, goes into a black hole.

And how do you deal with benefits? A mother maintains her son’s house out of her money to prevent it becoming derelict and says:

“I used to put the heating on in the winter, but I can’t afford to do that anymore”.

A sister says:

“We were stuck. We couldn’t use any of”,

my brother’s,

“money to pay his bills and at the same time we could not cancel his bills”.

All the people whose experiences have been related to me by the organisation Missing People have said that guardianship would be an enormous help and would mean that the person’s affairs could be dealt with.

Financial institutions can take instructions only from the signatory to a bank account, and so on. Many will not give families information, because of “data protection”—I put that in quotes, because that is how it is put. Some simply do not know what to do; some will not even take phone calls; some will not take phone calls but are rather quick on the draw when the money in the account runs out. One person said:

“one day I received a telephone call from the bank to say his account was overdrawn and what did I plan to do about it. I was so angry. I had contacted them so many times to try and sort the situation out but they wouldn’t engage with me”.

The Council of Mortgage Lenders and—from memory, so I hope I am not wrong in this—the British Bankers’ Association support the legislation, as it will provide clarity and protection for businesses and institutions which hold the assets of a missing person. The Association of British Insurers has also said that its members would welcome guidance because of data protection issues.

The Government consulted in 2014 on proposals for creating this new legal status. According to the MoJ, the response was “overwhelmingly positive” to the principle and to the proposals for implementation. Because the Government had not found an opportunity to introduce legislation, I introduced a Private Member’s Bill at the start of this Session. We now have this Bill, which has come through the Commons, piloted by Kevin Hollinrake, and I am delighted that a slot has been found as we come towards the end of the Session. The Bill reflects the proposals in the consultation to which I have referred.

Once you see the practical impact of the current legal position, you begin to understand the emotional effect. “I went overnight”, a wife explains,

“from being a couple and having two wages to … becoming a single mum who could only work part time, with a mortgage and bills to pay. … my husband was missing, and that in itself was traumatic enough, but there was still the everyday living to do as well”.

We legislators can at least help with the everyday living. I beg to move.

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My Lords, what a privilege to follow the hard work and moving speech of the noble Baroness, Lady Hamwee. We on these Benches are more than happy to support the Bill at its Second Reading. It provides a much-needed remedy to the sometimes devastating financial and legal problems faced by the families of missing persons as a result of a gap in the law, which has remained unfilled for far too long.

As we have heard, each year more than 80,000 adults are reported missing to British police forces. Mercifully, most are found safe and well within the first week but around 4,000 remain missing for more than seven days and up to 1,500 adults are missing for longer than a year.

For the families left in limbo, the pain of not knowing where their loved one is or what has happened to them is compounded by a range of serious practical, financial and legal difficulties as the result of a disappearance. The vanishing of the individual has no legal impact on the person’s obligations and commitments. As a result, their affairs may be unmanaged and unprotected for the duration of their absence. Without a court mandate, institutions such as banks or insurance agencies are limited in how they can deal with those left behind. This can have disastrous repercussions, particularly for those who have shared assets or liabilities with the missing person, or for those financially dependent on them.

The creation of a new legal status of guardian of the property and affairs of the missing person would mean that families had an alternative and more immediate recourse when seeking to protect the financial and legal interests of their loved one. Under current law, in the Presumption of Death Act 2013, family members must wait a minimum of seven years before application can be made for a declaration that a missing person is presumed dead and their property can pass to others. Under the Bill, applications can be made after 90 days following a disappearance, and the court would be able to tailor the terms of the appointment of a guardian to the circumstances of the missing individual.

The charity Missing People has been campaigning to fill the gap for nearly six years, launching its Missing Rights campaign in 2011. Your Lordships will remember that, following calls for reform, the coalition Government launched a consultation in 2014, and in 2015 confirmed that they would legislate to create a new legal status of “guardian of the property and affairs of a missing person”. Despite a Written Statement from the then Justice Minister, the noble Lord, Lord Faulks, in which he expressed his hope that legislation would be brought forward without delay in the new Parliament, it failed to materialise. Today, however, by means of this Private Member’s Bill and through the admirable hard work of Kevin Hollinrake MP in the House of Commons and the noble Baroness, Lady Hamwee, resolution for families left behind is finally in sight. We owe a substantial debt of gratitude to both parliamentarians.

This much-needed legislation would plug a legal lacuna that has been acknowledged by the previous Government, the present Ministry of Justice and, as of late March, honourable Members in the other place. Support for the Bill in its current form has also been expressed by a variety of stakeholders including the charities Missing People, Prisoners Abroad, Hostage UK and the Council of Mortgage Lenders.

As my colleague in the other place, Richard Burgon, said at the first sitting of Committee on the Bill:

“We must not drag our heels”,—[Official Report, Commons, Guardianship (Missing Persons) Bill Committee, 21/2/17; col. 5.]

when there is political consensus on the need for and appropriateness of this legislation. So I urge your Lordships to lend support to this fine Bill and to help ease at least the practical burdens—if not, unfortunately, the ongoing emotional suffering—of those families who continue to wait for news of a loved one or their return.

Finally, if I may, I thank all of your Lordships for your company and courtesy, and for the enormous contribution that you have made to the life of this country in recent weeks and months. I wish you all a very happy Easter with your own families.

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My Lords, I add my congratulations to the noble Baroness, Lady Hamwee, on introducing this Bill. The Bill is similar in content and purpose to the Missing Persons Guardianship Bill, which she introduced in June 2016. I am grateful to her for withdrawing her Bill and taking on the present Bill, which is supported by the Government. It will create a new legal status of guardian of the property and financial affairs of a missing person.

The proposals now in the Bill have taken some time to evolve and have been developed in the light of views expressed from several sources over time. First, the All-Party Parliamentary Group for Runaway and Missing Children and Adults called for legislation in 2011, and the Justice Select Committee recommended guardianship legislation in its Presumption of Death report in 2012. These calls were supported during the passage of the Bill that became the Presumption of Death Act 2013. This parliamentary activity was supplemented by a public consultation on proposals for a scheme of guardianship by the Ministry of Justice in 2014. The response to that consultation, as already indicated by the noble Baroness, was overwhelmingly supportive.

Before commenting on the content of the Bill that has emerged from this extended period of development, I too acknowledge the work of the campaigners within and outside Parliament for the introduction of this guardianship Bill. I will not detain your Lordships with a lengthy list but in addition to the noble Baroness, Lady Hamwee, I would mention the noble Baroness, Lady Kramer, who introduced a Bill in similar terms to that of her noble friend Lady Hamwee, and my noble friend Lord Boswell, who promoted a Presumption of Death Bill in 2009 that started the train of legislation that we carry forward today. I also acknowledge the work of the Justice Committee in the other place and, outside Parliament, the campaigning of the charity Missing People, along with the help that it and we have received from Clifford Chance LLP in acting as pro bono lawyers to that charity.

Missing People and the charities Hostage UK and Prisoners Abroad, which have also supported the preparation of the Bill, bring together and give voice to the experiences of the individuals and families caught up in disappearances, as referred to by the noble Baroness, Lady Hamwee. I am grateful to all those who have contributed to their work and in particular to Claudia Lawrence’s father, Peter Lawrence, who I understand is here. He has campaigned to create a practical legal remedy for the benefit of all people caught up in the property and financial effects of disappearances.

I now turn briefly to the substance of the Bill. The Bill is necessary because, although the law assumes that a missing person is alive until the contrary is proved, the missing person’s property is effectively left ownerless while he or she is missing. No one has legal authority to protect it or to use it on their behalf. This can lead to practical and financial problems for the missing person, his or her family and others.

At present, people simply have to find ways to get by. Unlike situations where it is thought the missing person has died, there is no legal framework to assist the individuals caught up in the difficult consequences of a disappearance. The experiences of those left behind demonstrate that there is a gap in the law and that suitable advice is difficult to find. Families may be hit hardest, but banks and other institutions have to deal with cases of disappearance on an ad hoc basis, increasing uncertainty and risk.

Other approaches to reform would have been possible, but the creation of a new status of guardian of the property and affairs of a missing person is intended to fill the gap in the law in a way that will provide an accessible and readily understandable legal solution, while still protecting the interests of the missing person.

The first and foremost protection is that guardians will be appointed only by the court. The court must be satisfied that the person to be appointed is suitable to act as guardian and will act in the best interests of the missing person. The court will be either the High Court or the Court of Protection, and the Lord Chancellor will make this choice after consulting the Lord Chief Justice. The court will be able to impose conditions and restrictions in the terms of the appointment, including restricting the length of the appointment to less than the maximum four years permitted by the Bill. The court also has power to vary and revoke appointments.

The Bill also provides that interested parties will be able to hold guardians to account by court action and that guardians will be supervised by the Office of the Public Guardian, which will maintain a register of appointments and deal with complaints about the way a guardian is exercising his or her authority.

In this last respect and in a number of other places, the proposals in the Bill broadly follow the model of the provisions governing the appointment of deputies in the Mental Capacity Act 2005. The guardian will, for example, be the agent of the missing person, in much the same way as the deputy is the agent of the patient under the Mental Capacity Act 2005. Third parties, such as banks and other financial institutions, will be protected in their dealings with guardians in much the same way as they are when they deal with people acting under powers of attorney. Most importantly, they will be able to see the extent of the guardian’s authority to act on the face of the guardianship order made by the court and will be able to rely on it.

Some of the detail of the scheme of guardianship will be set out in rules of court, regulations and statutory guidance. To allow these to be drawn up and for potential users to familiarise themselves with them, the Bill is unlikely to come into force earlier than one year after Royal Assent, but the Government will endeavour to keep any delay to an absolute minimum.

The Government are committed to helping those left behind by the traumatic and disruptive event that is the disappearance of a family member. The number of cases in which the remedy will be used may not be huge, but the effect of each of those disappearances on those caught up in them can be severe and traumatic. The creation of the new legal status of guardian of the property and financial affairs of a missing person will not solve every problem created by a disappearance, but it should provide an effective, practical and relatively straightforward remedy to some at least of the practical problems that are created in these circumstances. There is, of course, concern about the risk of abuse of authority that can never be completely eliminated, but the Government believe that the provisions in the Bill strike an appropriate balance between giving the guardian the freedom to act to do good on the one hand and protecting the interests of the missing person on the other.

I commend the Bill to the House.

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My Lords, I am grateful to the noble and learned Lord and the noble Baroness. The hard work is done outside this place by officials and campaigners. In this situation, campaigners are not just people who stand up and shout; they provide material on which we can work.

The noble and learned Lord answered a question which I thought it might seem a little grudging to ask, which was how soon the Bill might come into effect. I am glad to hear what he said.

I thank everyone for being so positive about what is a very negative experience for those whom we are trying to assist. I hope that the House will give the Bill a Second Reading.

Bill read a second time and committed to a Committee of the Whole House.

Farriers (Registration) Bill

Second Reading

Moved by

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That the Bill be now read a second time.

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My Lords, as we all know, it is extremely difficult to get a Private Member’s Bill through another place, so I am very happy to congratulate my honourable friend for Gower, Byron Davies, on the excellent work he did in getting the Bill through all its stages in the Commons and to congratulate the Government on helping it get this far.

The purpose of the Bill is to:

“Make provision about the constitution of the Farriers Registration Council”—

which I will call the FRC—“and its committees”. The FRC is the regulatory body for the farrier profession in Great Britain. Its statutory responsibilities are provided for by the Farriers (Registration) Act 1975 and include maintaining a register of farriers, determining who is eligible for registration and regulating farriery training. Further, the FRC investigates and, where necessary, determines disciplinary cases through its statutory investigating committee and disciplinary committee—and there is the rub and the mischief that leads to the Bill.

For those who are following the Bill, I am grateful to the Government for the help they gave me in producing the Explanatory Notes, which go into some detail. I will take the House very briefly through the Bill. At the beginning, I underline that the FRC is not a trade union but a regulating body. As such, it has to have an up-to-date constitution. As we all know, our noble friend Lord Bew reported in September last year. He set out the danger of regulatory capture, where a profession exercises undue influence over a regulator. The whole point of the Bill is to ensure the good name of farriery for the future.

There are three organisations involved. There is the FRC, but there is also the Worshipful Company of Farriers, which sets professional standards and qualifications on a worldwide basis. People from all over the world use its standards. The British Farriers and Blacksmiths Association is the trade association. They all work in harmony for the benefit of the profession, by and large. Inevitably, there are some tensions—but that is good for a regulatory body as it keeps it up to the mark.

The Bill has three clauses. The first introduces the schedule and the second gives power to the Secretary of State for Environment, Food and Rural Affairs to make further changes to the constitution of the council and its committees through regulations. That is a significant change. At the moment, everything has to be done by primary legislation, which is why we have the Bill before us today. The third clause gives the extent, commencement and short title of the Bill. The Bill extends to England, Wales and Scotland.

The schedule is also in three parts. The first part relates to the constitution of the FRC, and the number remains at 16. What is new is that in future the appointment of a member of the council will be for a term of four years, and somebody can serve for only two terms. That is a step forward, bringing the legislation into line with other regulatory bodies. Parts 2 and 3 of the schedule deal with the constitution of the investigating committee and the disciplinary committee. This is where we get the separation of powers from where the regulatory body, the FRC, to date has been judge and jury in its own case to where you now have the regulatory body and then separate investigatory and disciplinary bodies. That is normal procedure. It is for the benefit of not only the profession but of everybody who owns a horse, and for public confidence in the profession.

To return to the constitution, it is worth pointing out that the council will consist of three persons appointed by the Worshipful Company of Farriers, one of whom must now be a farrier—and there are lots of farriers within the worshipful company; four practising farriers, an appointment made in accordance with the scheme made by the council; two registered persons appointed by the National Association of Farriers, Blacksmiths and Agricultural Engineers; two veterinary surgeons appointed by the Royal College of Veterinary Surgeons; and one lay person from each of five outside bodies. I put it to your Lordships that this is hugely important because it includes bodies such as the British Horseracing Authority and the British Equestrian Federation, which are looking at the health of horses as a whole.

I ask noble Lords to give the Bill a Second Reading. This is an important, almost unique opportunity, given what is before us in the next two Sessions of Parliament, for us to get the Bill on to the statute book. I commend the Bill and I beg to move.

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My Lords, I thank the noble Earl for bringing the Bill forward. I am afraid I must take a bit of the responsibility for it being in front of noble Lords in the first place. A while ago, one of the elected farriers on the existing board came to me and said that there were problems. I will not go into details because I do not think it would add anything to the process, but my advice was, “Go and talk to your MP”. He and the other elected farriers on the board—then there were four, as there will be now, but slightly different criteria were used from those in the Bill—went and spoke to their MPs. After a great deal of churn, we have ended up with a new Bill, and I must thank Byron Davies for getting it through the House of Commons. When we initially spoke about this I did not think that would happen, so congratulations to all those involved in piloting the Bill through.

The problems were basically explained to me as being cultural—there had been a breakdown. The solutions that the elected farriers wanted were not exactly those in the Bill, but I appreciate that this is better. Even they would say that half a loaf is a hell of a lot better than no bread, so I hope we get the Bill through. As the noble Earl has pointed out, this will probably be the last opportunity to do so.

I have a few questions for the Minister, and indeed the noble Earl if he cares to chip in. Could we get a working definition in the Bill of what a working farrier actually is? Some of the problems stemmed from the fact that it was felt that some of the committees did not understand the realities of being a farrier—that is, a person who travels around the country, usually in a small vehicle, having to deal with half a tonne of horseflesh that may not be that co-operative. Indeed, it has been said that farriers usually have a girlfriend or boyfriend who is a nurse because frequently that is how they meet. It is a hard, dirty, physical job, and having people who understand that would help. I make it at least five farriers on the council specified in the Bill. If the noble Earl or the Minister could give a definition of what exactly the word means, that would help.

The process of appointing the chair has changed, and a description of how that has changed would help to clarify what has gone on here. The noble Earl has remarked on the capacity to change this much more easily, if something goes wrong, as we are using statutory instruments. I think that would be a last resort, as he has said, but it would mean that things could actually be changed that much more quickly in future.

If we get these clarifications in place, we should do everything we can to ensure that the Bill gets through because it will make the situation better. With that, I wish the Bill godspeed, and hope that we do not actually have to take up too much time getting it through.

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My Lords, I am very grateful to the noble Earl, Lord Caithness, for tabling the Bill, and for so ably taking the baton from his colleague, Byron Davies, who sponsored the Bill in the Commons. I now realise I should also be thankful to the noble Lord, Lord Addington, for his initiative, which led to the Bill in the first place. I think we will discover during the debate that that initiative was well worthwhile.

I make it clear at the outset that we intend to support the Bill without amendment and we very much hope that it can clear the remaining hurdles to become law, although I had some sympathy with the points that the noble Lord was raising, particularly about the definition of a farrier. I certainly had to look up that term before I came into this debate in order to understand completely what it meant. However, I do not want to encourage anything that might mean the Bill does not become law, so I do not know what the logistics of that would be. I am sure the Minister will explain all.

As the noble Earl rightly recognised, regulation in many professional services and welfare sectors has moved on since the introduction of the original Act in 1975. I have personal knowledge of the standards now expected in the regulated sectors, because I sat for many years as a doctors’ fitness to practise panellist, as well as chairing part of the regulatory oversight for the Royal Institution of Chartered Surveyors. Those regulated areas have moved on and are constantly reconsidering and improving their standards of oversight, and it is right that we should do so in this area.

I recognise the importance of modernising the regulation of farriers to ensure that the public can have continued confidence in the quality of the service being provided and have recourse to an independent judgment when things go wrong. That is why we support the proposal to separate the powers of the farriers’ registration committee from those of the investigating committee and the disciplinary committee. It is now common practice in regulatory bodies that those who set the standards are different from those who adjudicate on them, so the changes come into line with good practice elsewhere.

We also support the changed membership of the Farriers Registration Council to increase the number of practising farriers, along with two veterinary surgeons, as well as broadening the involvement of the organisations which have already been mentioned. This should indeed help to strengthen the council’s knowledge of up-to-date, professional, technical and training issues, so that it is better able to set achievable standards and deliver them. We also support the time limits on office and the arrangements for the election of the chair. Again, all these seem to coincide with good practice elsewhere.

These proposals are a sensible balance between the majority of working farriers and those involved in the Worshipful Company of Farriers. Both have a role to play, but our ultimate aim has to be to provide a modern and professional regulator that commands public confidence and operates transparently. The Bill achieves that aim and we are very happy to support it.

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My Lords, I am most grateful to my noble friend Lord Caithness for introducing the Bill, speaking so powerfully as to its merits and giving us some of the background to this matter. I also acknowledge my honourable friend Byron Davies for his piloting of the Bill through the other place.

As noble Lords will know, farriery has been and is central to the well-being of the horse. Indeed, I was brought up with the expression, “No foot, no horse”, which succinctly captures for me how important the skill of the farrier is. Farriery deserves sensible and proportionate regulation, and the Bill proposes precisely that.

The proposals have been worked on since 2013. A project team was set up with officials from Defra, the Scottish and Welsh Governments and a working party of members of the Farriers Registration Council and staff. A consultation was jointly held by Defra with the Scottish and Welsh Governments in late 2013, which addressed all the major elements of the proposals. The legislation would extend to England, Wales and Scotland.

The purpose of the Bill is to protect and maintain the public interest and to protect the welfare of equines, by modernising the governance, structure and operation of the Farriers Registration Council and its statutory committees. This will enable the FRC to overcome practical difficulties caused by out-of-date legislation, reduce the risk of legal challenge and modernise the FRC’s structure and operations in line with the Government’s principles of better regulation and the practices of other regulators. Its most crucial aspect is the need to introduce full separation of powers between the council and its investigating and disciplinary committees. I was most grateful for what the noble Baroness, Lady Jones of Whitchurch, said about the importance of such arrangements.

The investigating committee is set up to carry out the preliminary investigation of cases or complaints against farriers that could amount to professional misconduct. If the investigating committee deems this to be the case, it is sent to the disciplinary committee. The disciplinary committee determines whether the charges made are proven, and can where appropriate apply sanctions—in the most serious cases, up to and including the removal of a person from the register of farriers, meaning that the person would no longer legally be able to practise farriery. The function of these committees is vital to the regulation of the farriery profession, and the Bill makes changes to modernise the law and ensure that it is fit and proper for regulation in the 21st century. In particular, as my noble friend Lord Caithness said, it imposes a full separation of powers.

As the law currently stands, the investigating committee and the disciplinary committee are made up of members of the council. This does not fulfil the principle of separation of powers and the removal of possible bias. Currently, the same body which sets the standards for the profession is responsible for investigation of and adjudication on possible breaches of those standards. That is very important, as the decisions of the investigating committee or the disciplinary committee may be subject to legal challenge by those whose cases are being determined on the basis that they did not have the right to a fair trial. Equally, members of the public may view the lack of impartiality as farriers looking after their own.

Consequently, it is vital that changes are made to bring the law up to date, as the noble Baroness, Lady Jones, rightly inferred. The Bill proposes that members of the investigating committee and disciplinary committee must be persons who are not members of the council; nor may they be an “officer or servant” of the council—that is, paid staff of the FRC. The provision is retained that a person on the disciplinary committee cannot sit on a case if they served time on the investigation committee in respect of the same case. This ensures that full separation of powers is met and that the investigation and disciplinary committees meet the requirements of a modern regulator.

I will address some of the issues that have been raised, including the number of farriers who sit on the council. The council is made up of 16 members. Currently six of those members are practising farriers, and the Worshipful Company of Farriers appoints three more members, who may or may not be practising farriers. The remainder of the council is made up of two veterinary surgeons and five lay representatives appointed by various interested bodies, as set out in the schedule to the Bill.

Following consultation with the farriery profession regarding representation of practising farriers on the council, the Government have responded to the concerns of the farriers, and the Bill proposes that at least one of the members of the FRC who is appointed by the worshipful company must be a currently practising farrier. This brings the constitution of the council to a minimum of seven currently practising farriers out of 16 members. In response to the noble Lord, Lord Addington, and the noble Baroness, Lady Jones of Whitchurch, I emphasise that, as set out in Part 1 of the schedule,

“‘practising farrier’ means a registered person who carries out farriery”;

that is, is actively and currently engaged in the profession. The Government have also decided, following a consultation process, that the chair of the council is to be elected from among the members of the FRC, rather than appointed directly by the Worshipful Company of Farriers, as is the case currently. The noble Lord, Lord Addington, also raised this.

I stress that it is vital that as a regulatory body the FRC should reflect a balance of interests rather than bloc voting, and must also avoid the risk of regulatory capture by the profession it is regulating. It is also government policy that the split between farriers and non-farriers should be approximate rather than specified exactly in statute, and managed by the FRC itself according to the needs and skills requirements of the council at any particular time. I believe that the proposals allow for this flexibility, and for fair representation of the farriery profession on the FRC without risking regulatory capture. I also believe that it would not be in the interests of farriers if there were not a fair representation of third parties on the council to assist them in the regulatory environment of their profession.

Also in response to the noble Lord, Lord Addington, I say that the Government consider that should the FRC require future administrative amendments to its structure or that of its committees in order to continue to function properly and effectively as a modern regulator, such changes should be able to be made more swiftly than currently; that is, without the need for primary legislation. The use of secondary legislation to secure any further changes would clearly need to be on the basis of maintaining the public interest. This would be in keeping with other regulatory environments. For instance, a similar power exists in paragraph 24(1) of Schedule 1 to the Architects Act 1997, under which the Secretary of State may make an order to amend the provisions of that Act. The proposed power in the Bill includes provision for the Secretary of State to consult fully and, additionally, obtain the consent of Scottish and Welsh Ministers, given that farriery is a devolved matter.

The Government have consulted fully on the proposals, and the nature of the responses suggests widespread support for the Bill. Indeed, it is very much the prevailing view that there is an urgent need for the modernisation and reform that the Bill proposes, and it is vital for the profession that the Bill is passed.

I endorse the importance of the profession of farriery in terms of equine welfare and the need to ensure that the highest professional standards are maintained. The Bill provides a modern regulatory environment for a profession on which all horse owners rely. Again, I thank my noble friend Lord Caithness for introducing it and I, too, wish it a safe passage.

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My Lords, I am grateful to all noble Lords who have taken part in the debate. It is with sadness that I have to say that my noble friend Lord Shrewsbury, who had his name down to speak, and would have been a great asset to our debate given his knowledge of the horse industry, clearly spread a plate before coming under starter’s orders. But I know that he fully supports the Bill as it stands.

I am grateful to the noble Lord, Lord Addington, but I think he painted a gloomy picture of the real situation. I thought it was a little negative. If we go back to the consultation exercise and look at the question on the mix of registered farriers to lay persons, 67% of the respondents thought that the current mix was right. On another question, 67% of respondents thought that the chairman should continue to be appointed by the WCF. The Government agreed that initially and said that the status quo must remain, but they have moved significantly. I think that they are probably right to have done so; they have shown a willingness to listen.

I thank the noble Baroness, Lady Jones of Whitchurch, for supporting the Bill. It is quite right that such a Bill should go out of this House with unanimous support, as a message to all. To my noble friend the Minister, I thank him for his support and time. He was absolutely right to say no foot, no horse—and don’t I know how difficult it is to get shod when one has poor feet. I can at least say that my feet hurt, but the poor horse cannot. Therefore, we rely very much on the skills of the farriers, to which the noble Lord, Lord Addington, drew our attention.

This Bill does not need any more rasping. I believe that we can clinch it and get it well shod. I wish all noble Lords a very happy Easter and thank the Government for making time for this Bill. I beg to move.

Bill read a second time and committed to a Committee of the Whole House.

House adjourned at 4.01 pm.