Tuesday 20 March 2018
Arrangement of Business
My Lords, it is now 3.30 pm but, as noble Lords will see from the monitors, the Minister is on his feet in the Chamber—I beg your pardon; he is not on his feet, although he was 30 seconds ago. He will be here any minute, so I suggest we be patient until such time as he arrives.
The Minister has now fulfilled his duties in the Chamber and is with us. I must advise the Grand Committee that if there is a Division in the Chamber, which I presume there may well be, the Committee will adjourn for 10 minutes.
Industrial Training Levy (Construction Industry Training Board) Order 2018
Considered in Grand Committee
That the Grand Committee do consider the Industrial Training Levy (Construction Industry Training Board) Order 2018.
My Lords, this is familiar ground for me, having moved the draft of industrial training board levy orders in the House on three occasions previously. The order before us enables the CITB to raise and collect a levy on employers in the construction industry. The objective of the levy is to raise funds to meet the CITB’s expenditure on training the workforce across the construction industry to secure a sufficient supply of skilled labour.
There is a strong public interest in a high-performing, efficient construction industry. Construction is one of the largest sectors in the UK economy, with a turnover of £370 billion, contributing £138 billion in value added to the UK economy and employing 3.1 million people, which is 9% of the total UK workforce. We know the construction industry faces many inherent disincentives to train. As Mark Farmer’s report and the Government’s own review of industry training boards identified late last year, construction is a highly fragmented industry, with SMEs making up more than 99% of all businesses. It relies heavily on subcontracting and self-employment, and it is the central role of the CITB to help incentivise firms to overcome these disincentives.
The scope of the CITB covers most construction activity. Construction is an extremely large and diverse industry, covering a highly disparate range of industries and trades—everything from major civil engineering works to private housebuilding. The Government recently published the 2017 update to the National Infrastructure and Construction Pipeline, setting out details of over £460 billion of planned infrastructure investment across the public and private sectors. Looking to the next 10 years, we project total public and private investment in infrastructure to be around £600 billion. This will be challenging; government and industry need to work together to ensure that we have the right people with the right skills to deliver this ambitious pipeline of investment.
We need also need a construction industry that has the right skills to build more homes, including in new and innovative ways. In the Autumn Statement, the Chancellor announced more than £15 billion of new financial support for housebuilding over the next five years, taking total financial support to at least £44 billion up to 2022-23. This will create, fund and drive a market that will raise housing supply to 300,000 a year on average by the mid-2020s. Building more homes using modern methods of construction, including off-site and smart techniques, is a part of this.
The construction industry recognises the important role of the CITB in helping it to attract, retain and develop individuals with the appropriate skills to meet the range of challenges it faces. The CITB recently estimated that 158,000 construction jobs are set to be created over the next five years. The CITB develops the skills of the existing workforce and new entrants into the industry through providing training grants and putting in place strategic initiatives that will benefit industry over the long term and secure a sustainable pipeline of skills. In 2016, the CITB used its levy income to provide £148 million of grants to 16,101 employers, including assisting them with the additional costs of employing an apprentice. In particular, the grant scheme supports and incentivises investment in training for smaller businesses, which carry out the majority of training but generally have greater constraints in their capacity to invest. The CITB also delivers a range of other functions such as sector-wide work on research, developing standards and qualifications and promoting construction as a career.
The CITB was established as an industry training board in 1964. The construction industry has therefore had a levy and grant arrangement for some 50 years. Recognising the need to consider the implications of the apprenticeship levy, increase domestic construction skills and improve the productivity of the sector, the Government recently concluded a significant review of industry training boards, including the CITB, which was published in November 2017. The review concluded that the CITB’s resources and capabilities continue to be vital in supporting the construction industry and allowing it to deal with the challenges it faces. The industry training board review supported the CITB levy being retained alongside the apprenticeship levy. It determined that, because relatively few employers in the construction industry are likely to pay both the apprenticeship and the CITB levies, removal of the CITB levy would mean significantly less funding being available for training, at a time when levels of training need to increase. It concluded that the CITB levy and the apprenticeship levy are complementary and pay for different types of training and employer support.
I now turn to how the order has met the legal requirements set out in the Industrial Training Act. The Act allows the CITB to submit a proposal to the Secretary of State for the raising and collection of a levy. The order can be made only if the Secretary of State is satisfied that certain legislative tests have been met. These include consideration that the amount of levy is appropriate in the circumstances, that the proposals are necessary to encourage adequate training in the industry and that more than half of the employers—who together are likely to pay the majority of the levy—also consider the proposals necessary to encourage adequate training in the industry. The Secretary of State was satisfied that these conditions had been met.
The CITB has undertaken its most extensive consultation with industry to date on the levy proposals before us. The consultation process, also known as the consensus process, has included direct consultation with trade bodies that represent 7,150 employers and 4,000 employers that are not members of trade bodies. The CITB scoped out a range of possible options, entered into discussion with employers to share the developed options and received their feedback before agreeing on the final levy proposal. The levy proposals have therefore been shaped significantly by industry.
Having listened to industry views and recognising the impact that the apprenticeship levy will have on training in the sector, the CITB proposes to decrease the levy rate from 0.5% to 0.35% arising from emoluments relating to people directly employed by an employer. The liability for the levy arising from indirect employment will remain at a rate of 1.25%, and the CITB will continue to use information about net construction industry scheme payments to determine this liability. Of those companies in scope of paying the levy, who together are likely to pay 69% of its value, 76% are in favour of the CITB proposals before us today. In line with the requirements of the Industrial Training Act, the Secretary of State is satisfied that the CITB has taken reasonable steps to ascertain the views of employers who are likely to be liable to levy payments in consequence of the levy proposals.
The order can also be made only if the Secretary of State is satisfied that the exemption thresholds set out in the proposals exempt suitable small employers from the levy. The order therefore provides that small firms whose combined payroll and net expenditure on subcontracted labour is less than £80,000 will not have to pay at all, but will be able to claim CITB grants and access support. Of all the establishments considered leviable by the CITB, it is expected that around 40% will be exempted from paying the levy. In addition, employers just above the small-firm threshold will receive a 50% reduction in the levy payable if their expenditure on payroll and subcontracted labour is between £80,000 and £400,000.
Over three years, the CITB’s proposals are expected to raise about £600 million of levy income, which will be directly invested back into industry. The order will enable the CITB to continue to carry out its vital training responsibilities, and I commend it to the Committee.
My Lords, I thank the Minister for introducing the order. As we know, the CITB has to apply every three years for authority to raise the levy from employers to enable it to continue operating and, as he set out, the industry is fragmented and has high levels of self-employment and subcontracting, and those create disincentives for employers to train and develop the workforce. The CITB is there to support and encourage training, which it has been doing since 1964, so it is well established and recognised throughout the industry.
The reduction of the levy to 0.35% from 0.5% must have been welcomed, as the Minister mentioned, and had the support of the great majority of employers. Of course, relatively few employers are large enough to pay the apprenticeship levy, so even after that is properly up and running, there will still be a need for the CITB to support training.
The Minister said that the two levies are complementary, but I wonder how the CITB levy will work alongside the apprenticeship levy. Will employers be prepared to pay for both, and has any assessment been done of the additional cost and burden on employers? Did the CITB consultation come up with any proposals to widen the apprenticeship levy to include skills, which is a widely mooted discussion at the moment?
The Minister says that the construction industry needs to recruit 158,000 people across the UK in the next five years. How will the Government help the industry to attract recruits, particularly in view of Brexit and the high number of EU citizens who currently work in the industry? What attempts are being made to recruit more women into construction? I am involved with one organisation called Women on the Tools and another called Women in Construction, which work to attract women and girls into the industry. Those who take the plunge find excellent work as plumbers, electricians, roofers and so on, but the macho nature of the workforce can make life difficult for women whose skills and interests lie in construction but who have to face up to being the only woman in the workforce or in training. To meet the skills and needs, women will need to be included.
Currently, only about 2% of those in construction are women; the figure rises to around 9% if it includes administrators and office workers. What are the CITB and the Government doing to broaden the recruitment base? The CITB’s review identified a key priority as careers, so how about careers information in schools? Are enough attempts being made to introduce pupils to the many and varied job and career opportunities in construction?
As ever with statutory instruments, there is little to oppose in this one. If the CITB has the agreement of the industry on these proposals and the Government agree to them, there is little for us to do or say. But this is a very important industry: it is heavily regulated for health and safety and has many demands and expectations put on it. Think of HS2 or Crossrail and other major infrastructure projects, not least a desperate need for housing. We shall need its many skills and talents when we eventually move out of this Palace. As it is, we have many construction experts here just to keep the building standing and us and all our visitors as safe as possible. If this order will help the industry on its way, we can only commend it.
My Lords, I thank the Minister for his crystal-clear exposition of the order. I certainly do not wish to oppose it and I much appreciate the figures supplied concerning the planned expenditure on infrastructure and the references to much-needed investment in housing.
My memory goes back to when I served in another place alongside the late Lord Eric Varley, some 30 years ago. In our opposition role, it appeared that night after night and month after month, after 10 pm there would be orders to abolish existing training boards. Those orders were brought forward by the late Peter Morrison, a Minister in the Department of Employment and the Member of Parliament for Chester, whose constituency abutted my own and with whom I often collaborated. I sometimes wonder whether the nation’s extreme shortage of skilled labour has its roots in those successive abandonments of training boards in those debates after 10 pm in the 1980s. We certainly all agree that the nation needs a more skilled workforce. I know that the CITB is a great survivor and has a substantial training ground in north Norfolk, not a million miles away from the Sandringham estate.
I do not wish to detain the Committee but could the Minister, perhaps with the aid of his officials, exemplify a typical SME and indicate what sort of money that business may need to find each year for the levy? He rightly mentioned housing investment. The names of some of the great companies which build houses across Britain come to mind, such as Redrow, Persimmon, Barratt and Taylor Woodrow. Is he able in this Committee, or if not in writing at another time, to say what sort of money they pay? What is the levy on such exemplary great companies in housing and/or construction? That is my query following his exposition.
My Lords, I will draw attention to one of the other facets of the importance of the construction industry and of the CITB. I too agree that the order should quite properly go forward, but a number of factors need a little further exploration. In presenting the case, the Minister set out the demands there will be on the construction industry in the infrastructure pipeline and the need to increase the number of homes built to 300,000 by the mid-2020s—2025 is seven years ahead. The infrastructure pipeline of £600 billion that he mentioned is, I understand, additional to that.
There is a requirement for 158,000 extra jobs in the construction industry. I am sure the Minister will be familiar with the statistic that some 70,000 people leave the industry each year and currently only about 40,000 UK residents are recruited to it. The difference is made up by EU 27 migrant workers. It is that side of the equation that I want to draw to the Minister’s attention.
While we might need another 158,000 employees to meet these very necessary targets, some 200,000 workers in the construction industry are from the EU 27 and another key ambition of the Government is to reduce inward migration to the tens of thousands, presumably over approximately the same timescale to the mid-2020s. Add those two figures together and you get more than a third of a million extra workers who need to be recruited from within the UK to maintain or deliver that. I have the advantage of a press release from the Federation of Master Builders from January, which says:
“Two-thirds of those running small and medium-sized … construction firms are struggling to hire bricklayers and carpenters as construction skills shortages hit a ‘record high’”.
We do not have any surplus. We certainly have pressure on that. The building survey report that I saw last week from GK Strategy—nowadays, with practically all jobs being online, you can also monitor how many people apply for jobs online—notes that the number of searches of UK-based jobs by workers in Romania has fallen by 36%. In other words, far fewer Romanians are looking at jobs in the UK as a destination they want to go for. Overall, there is a drop of some 30% in Eastern European searches for jobs in the UK.
The indication is that even without government policy action, the whole process of Brexit and the declaration of intent is leading to a reduced flow of workers coming in through the construction industry. The Home Builders Federation says that at the moment 17.7% of its workforce is from the EU 27, of which more than 50% are from Romania, the country from which applications appear to be drying up.
Putting all that together, the task being set for the Construction Industry Training Board—and, indeed, for the Government—is extremely serious and intense. It will require real focus and determination if we are not to find that some, if not both, of the Government’s ambitions about reducing migration on the one hand and delivering the infrastructure pipeline on the other are not to be frustrated.
Having read the CITB briefing in preparation for this discussion, and having met the CITB just over a month ago, I am well aware that it is planning to both shrink and refocus its work and to direct it in a different direction. I do not criticise that. It is necessary in view of the feelings of concern that were widespread in the industry about the CITB and its role. Indeed, the CECA—Civil Engineering Contractors Association —members’ survey, completed last year, reported that,
“some members felt it was becoming more difficult to get hold of their CITB representative especially since the CITB has re-organised. CECA members generally reported less satisfaction with CITB since recent changes”.
The consensus was indeed on the figures that the Minister gave but some pretty rough ground was covered in reaching it. Expectations of the CITB are clearly high and need to be delivered.
Putting all that together, I would be very interested to hear from the Minister not just what he has said already but how this proposal fits in with the broader aims of the construction industry strategy, as set out by the Government in their overall industrial strategy earlier this year. Does he agree that the CITB will need to expand and intensify its work, not least by getting the long list of courses and apprenticeships currently waiting for approval approved and those courses operating as quickly as possible? To pick up what my noble friend Lady Garden said about the two levies, will the Government please work with the industry and the CITB to make sure that, as the Minister expressed it, these things are complementary? That is not how the industry sees it. By and large, I would say that it is—using the other spelling—uncomplimentary about the fact that there are these two levies. The larger employers which fail to pay both are, frankly, gaming the system in order to spend the money, not necessarily on the task which the Minister clearly thinks is important, which is training and recruiting additional people for the industry, not simply upskilling those who are already in it.
My Lords, I thank the Minister for the clear and concise manner in which he laid out what this statutory instrument seeks to achieve. It is not often that we read from the same page but this is such an occasion because the Opposition fully support the introduction of the latest version of the CITB levy. The Minister started by saying, I think, that this is the third of these he has done. It is my second and I remember a year ago there were only two of us involved in the debate, so it was good to have contributions from the Liberal Democrats and my Labour colleague. It is an important industry so the way its training develops is very important as well.
From memory, there used to be in excess of 20 industrial training boards until they were significantly reduced in number by the Industrial Training Act 1982. That is the legislation under which this order is issued. Today there are just three boards, each of which is a non-departmental public body, and thus accountable to Parliament. They raise most of their funds through training levies and various commercial activities. We learn from the Explanatory Memorandum that the CITB expects to raise around £200 million in levy in each of the three years to which the order relates. It is to be hoped that the board will return more than this figure each year to the sector—as, to its credit, was the case in 2016.
It is interesting that the CITB itself made the proposal to reduce the rate of the levy for workers employed directly by the employer, but not for those employed indirectly. The memorandum explains that this is the result of the prevailing economic conditions and the skills needs of the sector. That is understandable, but why is there a differential? The economic conditions hit those employing people both directly and indirectly, so the rationale for the difference is not immediately obvious.
As is made plain in the impact assessment:
“There remains a serious and distinct market failure in the development of skills in the construction industry: the trading conditions, incentives and culture do not lead to a sufficient level of investment in skills by employers”.
Unfortunately, this malaise is not restricted to the construction sector. UK employers in many sectors have long been unwilling to recognise the need for skilling and upskilling, and that is a major factor in the low productivity levels from which our economy suffers. The apprenticeship levy was introduced a year ago as a clear sign that the Government accepted that employers would not, of their own volition, invest in skills in sufficient numbers and that they require a firm hand on their shoulder to “encourage” them to do so. As the Minister said, the levy we are discussing today will complement the apprenticeship levy: both will play a key role in equipping the construction industry with the skilled and flexible workforce that it needs.
At a time when the UK is preparing to leave the European Union, and given the large number of European Union nationals who work in construction in this country, it is not just important but absolutely vital that the industry is in a position to train—and continually retrain—its workforce for the challenges of the future. We know that employers in the construction industry support the levy and value the payback they get from their contributions. As the CITB itself says, the levy enables it to provide grants to train new staff and develop the skills of an existing workforce. It does so through peaks and troughs in the health of the industry, so that investment in skills and training continues.
The Minister referred in detail to the exemptions that are offered to small and medium-sized employers. Noble Lords may not appreciate that the term SME requires qualification in this context. More than 99% of the construction industry comprises small and medium-sized enterprises, but that embraces micro-companies with one to nine employees, small companies employing from 10 to 49 people and medium-sized companies employing 50 to 249. It is hardly surprising that these organisations find it more difficult to deliver training than larger employers do. It is instructive that the CITB allocates its grants in a manner that is surprisingly balanced throughout those four sectors. Some £24.6 million goes to micro-companies, £26.2 million to small companies and £33.4 million to medium-sized ones. The large ones receive only—a relative term—£44.5 million, so the CITB does an admirable job of ensuring that each of the sectors is enabled to train its staff appropriately.
The Explanatory Memorandum outlines the consultation on the levy proposals undertaken by the CITB. I was slightly taken aback to note that only 10 of the 14 employer organisations consulted backed the proposal, while 72% of employers not in membership of one of those organisations signified support. We are told that just under 77% of all employers supported the proposal, which is certainly a clear majority. However, this does mean that almost one-quarter of employers were not in favour, for reasons unknown or, at least, not listed in the Explanatory Memorandum. It is to be hoped that an enduring antipathy among some employers in the industry to allowing the costs of training to outweigh the benefits was not a factor. Might the Minister care to say something about that? Is he aware of why the consensus was not greater and has he considered asking the CITB to examine the reasons, with a view to building greater support when the levy comes to be renewed in 2021?
My final point concerns the future of the construction sector and ways in which the use of the levy can contribute to making the industry’s workforce more diverse. The CITB’s chief executive is Sarah Beale and she is clearly aware of the need to make construction open and attractive to all. Writing recently in the House magazine, she highlighted the fact that the industry being still overwhelmingly male means it is missing out on a huge pool of talent by not being seen as a first, second or even third choice for many women. Ms Beale went on to describe the development of a construction ambassador programme, enabling young people to hear what the industry is really like at first hand. The CITB is also rolling out an industry-wide campaign aimed at young people called Go Construct, pointing out the exciting opportunities available. These are positive and welcome steps and I congratulate the CITB, not just on identifying the need for such an approach but on then putting it into operation.
I wish both the organisation and the industry it represents well and look forward to hearing of further progress in the development of the skills that they need when we come to consider the effectiveness of the levy between this year and 2021.
My Lords, I start by thanking all noble Lords who have taken part in this short debate. I also echo the thoughts of the noble Lord, Lord Watson, who pointed out that it is not just him and me debating this important issue; we have representation from other parties, the Liberal Democrats in particular.
I will go straight in and address a number of questions that were asked about the order, and will start by looking at the apprenticeship scheme, because the noble Baroness, Lady Garden, asked about the levy. Even though I made it quite clear in my opening statement, understandably, she wanted to know a little more about how the CITB levy would work alongside the apprenticeship levy. We see them as complementary. The levy supports the extra costs employers face when taking on an apprentice. I am saying that also because the consultation raised that point as well, so the consultees—the employers—were perfectly happy for the two to go side by side.
The noble Baroness, Lady Garden, and the noble Lord, Lord Stunell, asked about the details of the apprenticeship levy. The CITB estimates that around 900 out of the 28,000 CITB levy-paying employers will pay both the CITB levy and the apprenticeship levy. The two are complementary, as I said, and pay for different types of training and employer support. The CITB provides grants that incentivise employers to take on apprentices and support travel and accommodation costs, but no other sector without an industry training board receives this support. Government funding generally covers apprenticeship training costs, while the CITB’s grant scheme supports the employers with the costs of having an apprentice—for example, wages and tools.
The noble Baroness, Lady Garden, asked about the flexibility within the apprenticeship levy. I think she is probably alluding to a recent debate in the Chamber on this matter. I continue to reassure her that we continue to work with employers and the wider stakeholders on how the apprenticeship levy is spent so that the funding system works effectively and flexibly for industry and meets employers’ skills needs, supports productivity across the country and supports our commitment to delivering 3 million apprenticeship starts in England by 2020. From April 2018, as she knows, we will allow eligible levy-paying employers to transfer up to 10% of the annual value of funds entering their digital accounts to other employers, and we will carefully monitor the implementation of this change. That could include employers in the supply chain of the main employers, which could obviously help with business.
The noble Lord, Lord Stunell, asked about the standards within apprenticeships and why it has taken so long to establish standards, which is a fair question. The Institute for Apprenticeships is responsible for managing the approval of new standards. It is important that we have a rigorous process for approving new standards so that we can be sure that we approve only high-quality proposals; that is an absolute cornerstone of what we are doing on apprenticeships. However, the institute has also been listening and consulting, and planning improvements to make the approvals process faster and better, and it will soon launch a simple, effective, two-stage review process for standards, starting with a root review and then more detailed scrutiny of a pathway support for trailblazers review. Employers will be actively involved in this. I cannot promise immediate improvement, but we are on it and it is important that we step up on speed; employers are telling us that.
The noble Baroness, Lady Garden, raised an important point about diversity. I say at the outset that the Government are committed to supporting the construction sector to increase the gender and ethnic diversity of its workforce to ensure that there are opportunities for all those who wish to pursue construction careers, regardless of their background. It is true that in 2014, women made up 46.6% of the working population, and yet only 14.5% of the construction workforce are women. The noble Baroness mentioned 2%, but I do not recognise that figure. However, the point is that it is very low—too low.
The figure of 2% is for women doing construction jobs. The additional figure is because quite a lot of them work in office and admin jobs; they are working in the construction industry but not doing the plumbing and the roofing.
The noble Baroness makes a very good point: 2% is far too low for those at the front end. The Government are very much aware of that. The CITB has taken practical steps by developing a cross-industry fairness, inclusion and respect programme, which will invest in activities to make the sector a more attractive place to work in for people of all backgrounds, particularly women.
There is more. The CITB careers hub, Go Construct, provides online guidance and case studies for prospective employees and employers on a range of diversity topics, including gender and race. In addition, the wage gap between women and men is 17% and people with disabilities earn 9.9% less, so there are suggestions that women fail to be promoted once given additional responsibilities. This is another linked area that we are looking at and the CITB is also aware of it. Those points are important.
The noble Baroness, Lady Garden, mentioned the EU and Brexit, asking whether our leaving the EU will reduce skills and our capacity in the sector further. We see this in a different light from her—she will probably not be surprised by what I am about to say—because we see it as an opportunity for industry to invest in its workforce and tackle the long-standing issues around training and productivity. We expect industry, working with government, to offer rewarding careers to a new generation of British construction workers. In parallel, local areas have the opportunity to use housebuilding to create skilled jobs and drive growth. There is more because, as the noble Baroness will know, negotiations are continuing and we will have to wait for their outcome to know what the construction sector will consist of after Brexit.
The noble Lord, Lord Jones, asked about the amount of levy paid by an SME and what is paid by larger housebuilders; that is two questions, actually. As he alluded to, I cannot give a specific example. Perhaps I can reassure him to this extent: as I mentioned, very small employers with a wage bill of less than £80,000 are entirely exempt from the levy, slightly larger firms—those with a wage bill of £80,000 to £400,000—pay a 50% reduced rate, and SMEs receive 60% of all CITB grants in return. I hope there is some reassurance there —without giving specific examples—that housebuilding firms fall into that as well.
I am grateful. Would the Minister’s officials be able to give him such details, given the importance of the levy?
Yes. I will write to the noble Lord and give one, if not two, examples. We can perhaps look at Hansard and follow up on that.
I am grateful.
The noble Lord, Lord Stunell, asked about skill shortages, which is another item high on the Government’s list. The CITB is committed to helping construction employers to deliver the pipeline of work faster, better and more efficiently. The CITB aims to use its evidence base on skills requirements to ensure that employers can access the high-quality training its workforce needs. The key is to work with employers and design with them a skills system more responsive to the needs of industry.
Is the Minister satisfied that the CITB will have the muscle and means to deliver such an expanded programme in the timescale he is speaking about?
I was about to move on to a further point made by the noble Lord about the CITB and its efficiency. He may well be aware that reforms are under way as a result of the report published on the ITB back in November 2017 and linked to the 2016 skills plan. The report found that the CITB levy remained necessary, which is why we are here, but that it must reform and serve the skills needs of the construction industry better. That is a very clear message. Recommendations were made in two areas: improving governance and accountability; and ensuring that the CITB has a more positive impact on the industry. I hope I can reassure the noble Lord that, with the changes being made at the moment, the CITB will be fit for purpose to handle the issues that he raised.
The noble Lord, Lord Watson, asked why there was a higher levy rate on indirect subcontractor labour payments. In the main, employers using subcontracted labour have fewer incentives to provide training opportunities and therefore do not contribute to the overall supply of skilled labour. The higher levy rate is intended to compensate for that. That is the direct answer. The noble Lord also asked about the consultation and the level of support. I would argue that 76% support is good. The noble Lord looked at the negative side of that, which I respect. However, some of the employer organisations that did not support the levy proposal during the consultation process were supportive of the levy system but wanted to see improvements in the CITB’s governance and operation. That ties in with my final comment to the noble Lord, Lord Stunell. The industry training board review found that the CITB levy remained necessary but that it must reform, as I said.
I hope I have answered noble Lords’ questions. If I have not, I will certainly write to noble Lords. I conclude by saying that it continues to be the collective view of the majority of employers in the construction industry that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour, which is so important for our country. I commend the order to the Committee.
Armed Forces Act (Continuation) Order 2018
Considered in Grand Committee
That the Grand Committee do consider the Armed Forces Act (Continuation) Order 2018.
My Lords, as ever, our Armed Forces continue to serve us well, yet they cannot do so without the consent of Parliament. Today we return to our annual consideration of the legislation governing the Armed Forces: the Armed Forces Act 2006. The purpose and effect of the draft order we are considering today is to enable the 2006 Act to continue in force for a further year, until 11 May 2019. This reflects the constitutional requirement under the Bill of Rights that the Armed Forces may not be maintained without the consent of Parliament.
Noble Lords are familiar with the fact that the legislation which provides for the Armed Forces to exist as disciplined bodies is renewed by Parliament every year. But it is right that I explain, for the record, why we do this. Every five years, renewal is by Act of Parliament—an Armed Forces Act. The most recent was in 2016. Between the five-yearly Acts, renewal is by annual Order in Council. This is such an order. The Armed Forces Act 2016 provided for the continuation in force of the Armed Forces Act 2006 until 11 May 2017 and for further renewal thereafter by Order in Council for up to a year at a time, but not beyond 2021. If the Armed Forces Act 2006 is not renewed by Order in Council before 11 May 2018, it will automatically expire. If the 2006 Act expires, the provisions necessary for the maintenance of the Armed Forces as disciplined bodies would cease to exist.
The 2006 Act contains nearly all the provisions for the existence of a system for the Armed Forces of command, discipline and justice. It creates offences and provides for the investigation of alleged offences; the arrest, holding in custody and charging of individuals accused of committing an offence; and for them to be dealt with summarily by their commanding officer or tried in the court martial. Offences under the 2006 Act include any criminal offence under the law of England and Wales, and those peculiar to service, such as misconduct towards a superior officer and disobedience to lawful commands. I remind the Committee that the Act applies to members of the Armed Forces at all times, wherever in the world they are serving.
Perhaps the clearest example of the effect of expiry of the 2006 Act would be that the duty of members of the Armed Forces to obey lawful commands, and the powers and procedures under which this duty is enforced, would no longer have effect. Commanding officers and the court martial would have no powers of punishment for failure to obey a lawful command, or other disciplinary or criminal misconduct. Members of the Armed Forces would still owe allegiance to Her Majesty, but Parliament would have removed the power of enforcement. The obligation of members of the Armed Forces is essentially a duty to obey lawful commands. They have no contracts of employment and so no duties as employees. The 2006 Act also provides for other important matters for the Armed Forces, such as for their enlistment, pay and redress of complaints.
To conclude, the continuation of the Armed Forces Act 2006 is essential for the maintenance of discipline. Discipline, in every sense, is fundamental to the existence of our Armed Forces, and, indeed, to their success, whether, for example, at home supporting emergency services and local communities following the recent heavy snowfall, or supporting the police in their investigation into the poisoning of the former Russian spy Sergei Skripal in Salisbury; playing their part in putting an end to the sickening and illegal poaching industry in Malawi; or, as one might more immediately think of, defeating Daesh in Iraq and Syria.
We have the finest Armed Forces in the world and the dangers they face are ever changing. We owe the brave men and women of our Armed Forces a sound legal basis for them to continue to afford us their vital protection. For those reasons, I beg to move.
My Lords, I totally support the order, but I will raise one point mentioned in the Explanatory Memorandum. It says that the Minister of State for Defence has stated:
“In my view the provisions of the Armed Forces Act (Continuation) Order 2018 are compatible with the Convention rights”.
That is the European Convention on Human Rights. As has been evident in recent years, there are apparent disconnects between the Armed Forces legislation and some aspects of human rights law that I and other noble Lords have drawn attention to in various debates in your Lordships’ House. What are Her Majesty’s Government doing to address these difficulties, particularly where they arise in the course of live operations—difficulties that have, indeed, been acknowledged and spoken to by Ministers?
My Lords, I am also lost in admiration for the quality and character of the Armed Forces, who serve this country so well. Since the noble Earl introduced the debate with characteristic clarity there is no need for me to rehearse the statutory position. I also welcome the detail of the Explanatory Memorandum, but I draw the noble Earl’s attention to page 2, paragraph 7.3, the second line of which says that the Bill of Rights is of 1688. All my schooldays were based on the proposition that it was 1689. Along with the Act of Settlement of 1701, it forms a part, at least, of the constitution of the United Kingdom. It does not really matter whether it was 1688 or 1689—at least it shows that I have read the Explanatory Memorandum.
Although this is a regular event, we should not allow ourselves to ignore its constitutional and political significance. The commander-in-chief of our Armed Forces remains the sovereign by law, but now the Government exercise the royal prerogative. That has assumed a political dimension, because Governments of both parties have accepted the need for parliamentary approval, whereas if the prerogative were simply exercised in purity, as it were, that would not be so. I think of the approval sought by Prime Minister Blair for the military action against Saddam Hussein and that sought by Prime Minister Cameron in relation to Libya. In both instances, the Government were successful, but when it came to the question of Syria in 2013, the Government discovered that there was no majority for the action proposed, which the then Prime Minister accepted almost immediately.
The Bill of Rights of 1689 arose out of the civil war that had so disfigured England. It was a particularly torrid time in the history of England, with Oliver Cromwell and the execution of Charles I. Given that Cromwell went to Edinburgh, where he stabled his horses in the basement of the Court of Session, Scotland was to a certain extent involved as well. There has been no civil war on this island since then, with the possible exception of the last convulsions of Jacobitism in 1715 and 1745.
I want to make three points, if I may, although the noble Earl has anticipated me to an extent. We do not always keep in mind the fact that the service of our Armed Forces takes place around the world in a whole variety of roles. I wonder how many citizens know that members of our Armed Forces are embedded in the Pentagon as part of the defence relationship between the United Kingdom and the United States or understand the extent to which our training commitments in Afghanistan are important. Although these are not the forgotten army of the Second World War, it is important on such an occasion to acknowledge the contribution that they make. One further contribution has some resonance with the events of the last 10 days: what I would call NATO’s forward deployment in the Baltics but what is known by NATO as its enhanced forward presence. That is being done to make it clear to Russia and Mr Putin that NATO accepts and undertakes the obligations under Article 5 in relation to its members Estonia, Latvia and Lithuania.
My second point, which has also been foreshadowed, is assistance to the civil power. As the noble Earl pointed out, this takes a variety of roles. In Edinburgh, military transport took medical staff to hospitals to perform necessary and urgent operations. As we have heard most recently, a particular skill set has been brought to the Salisbury investigation. It was reported in some newspapers that there was formerly a battalion with those particular skills but that it had been disbanded. Perhaps the noble Earl could tell us a little about the history of that, because if there was any watering down of that capability, that is obviously a matter of some importance.
Finally, there is the question of uncertainty. I do not propose to burden the Committee, nor indeed the noble Earl, with all the arguments about uncertainty: he has heard them on many occasions. I just want to say this. Although it may not be measurable, there must be some impact on morale on all the Armed Forces because of the uncertainty about their future—uncertainty which we all hope will be relieved when the Secretary of State for Defence produces the results of the exercise on which he has embarked.
Let me conclude by repeating that this is an occasion of constitutional and political significance, but it is perhaps equally importantly an occasion on which to express our continued admiration for those who serve the Crown.
My Lords, I thank the noble Earl for his skilful introduction. It is always hard to follow him, and I totally support the draft order. I hope that the Ministry of Defence can get the extra funding that our splendid forces need and deserve.
It is always good to follow the noble Lord, Lord Campbell, particularly when he is in history mode. It requires to be said that in 1649, after the King was executed, by the March following that January, the monarchy was abolished and, days later, your Lordships’ House was abolished. The Lord Protector was in such a pickle that he had to restore your Lordships’ House. Of course, it was a nominated House and nowhere near the size of the current House of Lords—I believe it had no more than 70 Members and on the vesting day, only 34 arrived.
Historically, Britain—England—has looked askance at a standing army, and it bears reading into the record what is said in paragraph 7.1 of the helpful memorandum, which enables one to support the draft order:
“The Act provides nearly all the provisions for the existence of a system for the armed forces of command, discipline and justice. It covers matters such as offences, the powers of the Service police, and the jurisdiction and powers of commanding officers and of the Service courts, in particular the Court Martial. It also contains a large number of other important provisions as to the armed forces, such as provision for enlistment, pay and redress of complaints”.
But we are but a handful of your Lordships’ House—so few of us on such very important matters. It would perhaps have been better if we were on the Floor of your Lordships’ House—in the Chamber—but that is but a modest opinion.
Again for the record, the memorandum states at paragraph 7.4:
“The obligation of members of the armed forces is essentially a duty to obey lawful commands … They have no contracts of employment, and so no duties as employees”.
Rightly, the Minister said that without the 2006 Act, the powers and procedures under which the duty to obey lawful commands is enforced would no longer have effect.
These matters are of huge importance to tens of thousands working in our Armed Forces, giving wonderful, loyal service to sovereign and Parliament.
It just happens that, by serendipity, today’s newspapers —the Times and the Daily Mail, for example—report a specific case where a judge refers to our Royal Military Police and its current shortcomings. The headline in the Times is: “‘Flawed’ inquiry into army abuse collapses”. The report, which is more serious than its headline, is on page 14 of today’s Times. It relates, by serendipity, to what these paragraphs refer to. That is why I have read them out, in the knowledge that, although this Committee is very important, these matters may well have been considered by the Minister and the House in the Chamber.
We should be grateful to the noble Lord, Lord Campbell. When the nation sent for William of Orange and Queen Mary, William brought with him 12,000 soldiers who landed on our southern shores. It was a remarkable, unopposed invasion which included German mercenaries and other continental soldiers. Parliament would be foolish to allow the most important of measures to just come by. It is our national history. As the noble Lord, Lord Campbell, reminded us, it is remarkable that 12,000 foreign soldiers came to our southern shores with our Queen Mary and her husband.
My Lords, I thank the noble Earl for introducing this order. I note the excellence of the Explanatory Memorandum. In previous years, we have had esoteric conversations about what would happen if we did not pass the order. This time, we are told. We could not tell them to go and get Ted. I fully support the order and, in doing so, also pay tribute to the men and women of our Armed Forces. Like other noble Lords, I have looked at the original documentation. The national archive refers to the Bill of Rights 1688 as, “1688 CHAPTER 2 1 Will and Mar Sess 2”. If you dive into it, there are two references to a standing army. The second says that,
“the raising or keeping a standing Army within the Kingdome in time of Peace unlesse it be with Consent of Parlyament is against Law”.
Why was that clause put in? They were turbulent times: it was an armed invasion and there were some clashes, but it ended up with a deal between William and Mary and Parliament. Why would Parliament at that point be so concerned about not having a standing army? In those turbulent times, a standing army was the means by which the Crown was able to impose its will on the people. There was, therefore, a strong movement for standing armies to be under the control of Parliament and to be illegal without its approval.
I do not think we are that worried any longer about a standing army imposing the will of the Crown, or even Parliament, on the people. However, this annual event gives an opportunity for a short annual review of the Armed Forces and their administration. Sadly, the Armed Forces are in a sorry state at the moment. They are underfunded by—I think the consensus figure is—about £2 billion per annum. Because of the financial constraints, some of the Armed Forces are undertrained. Morale is bravely measured each year by the Ministry of Defence, and has fallen in recent years.
I will concentrate today on how the Armed Forces are being administered. Let us look at the present confusion. On 20 July 2017 the Cabinet Office—not the Ministry of Defence—announced a strategic defence and security review implementation. It said:
“The government has initiated work on a review of national security capabilities, in support of the ongoing implementation of the National Security Strategy and Strategic Defence and Security Review … The work will be led by Mark Sedwill, the National Security Adviser, with individual strands taken forward by cross-departmental teams, and will be carried out alongside continued implementation and monitoring of the 89 principal commitments set out in the NSS & SDSR … The government is committed to report annually on progress in implementing the NSS & SDSR, and published its First Annual Report on implementation in December 2016. Further progress on implementation of the NSS & SDSR, and related work, will be reported in the Second Annual Report after the end of the second year of implementation”.
I believe that any reasonable person would have taken that to mean that if the first annual report was produced by the end of 2016, the second annual report—which is now apparently being subsumed into the Cabinet Office review—would have been published by the end of 2017. In fact, I am reasonably sure that it was not. Indeed, the question remains of when the report will be published.
The Joint Committee on the National Security Strategy is launching an inquiry into the national security capability review, which I assume is the same review. That was announced on 18 January 2018. So it is apparent that that Joint Committee had not seen the conclusions of the review. Meanwhile, on 25 January the noble Viscount the Minister—I am sorry, the noble Earl—
I am also a Viscount.
If only I had the noble Earl’s upward mobility. We mere Barons should show respect, I am so sorry. He was kind enough to write to us on 25 January. The letter said:
“I am writing to describe the purpose of this Government’s Modernising Defence Programme and what it will involve. Following Ministerial discussion on the National Security Capability Review, which will be published later in the spring”—
when is the spring, I ask—
“the Secretary of State for Defence has agreed with the Prime Minister and the Chancellor that further work is required to modernise Defence. We must ensure that we deliver the best military capability that constantly evolves to counter the threats we face, and that this is done in a sustainable and affordable way”.
On 8 March the Minister was kind enough to write to us again. The letter was headed “Consultation on the Modernising Defence Programme”. The letter is pretty general, but it says in its last paragraph:
“The consultation can be found on the ‘Consultations’ page of www.gov.uk by searching for Modernising Defence Programme”.
Why are these documents always written by someone who has not tried to do it? No, it cannot. You have to go about three or four pages in to find it, as I did this morning. All that we have is a two-page document inviting comment on the review. It says:
“The National Security Capability Review concluded”—
so this review, which has not yet been published, has reached some conclusions—
“that we have entered a period of sharply increased complexity and risk”.
As I say, it is only two pages long. Further in, it says:
“The Defence Secretary has set out a framework for a modernised Armed Forces, supported by a modernised strategy base, constructed around three pillars”.
Those three pillars are, roughly speaking, NATO, missions led by close allies and an ability to act independently. It continues:
“Alongside this analysis, our Armed Forces must be able to … operate in a full range of combat environments … play a central role in cross-Government security apparatus”,
“provide leadership as a framework nation in NATO”.
That is all good stuff. At the top of the next page—as I say, it is only a two-page document—it says:
“In support of the Armed Forces, the Ministry of Defence must achieve strategic affordability”.
I have heard cuts described in many different ways in the past, but that is a new one.
I have four questions for the Minister. When will the National Security Capability Review be published, or has it been published with nobody telling Google? How do the NSCR and the modernising defence programme fit together? They seem to look at precisely the same subject. What does “strategic affordability” mean? When will the modernising defence programme be published? Will the Minister please convince me that the brave men and women of Her Majesty’s Armed Forces have the professional administration and civilian leadership that they deserve?
My Lords, let me begin by thanking in particular the noble Lord, Lord Jones, for having focused our minds on the historical origins of the order. I fully agree that we should not treat this as a mere routine measure. It behoves us to remind ourselves of where this all came from and where the legal framework on which our Armed Forces rely originates. I had to turn to my officials for a copy of the Bill of Rights in light of the comments of the noble Lord, Lord Campbell—
My Lords, a Division has been called in the Chamber. The Grand Committee stands adjourned for 10 minutes, to resume at, give or take, 5 pm.
Sitting suspended for a Division in the House.
My Lords, I rudely interrupted the noble Earl mid-flow. Perhaps he would like to continue.
My Lords, not for the first time, we can be grateful to the noble Lord, Lord Campbell of Pittenweem, for drawing our attention to what may seem an anomaly in the date I read out from the Bill of Rights. I hope that I can convince him that I was correct—and that he too was correct. The Bill of Rights, a copy of which I have in my hand, is indeed dated 1688. However, the noble Lord may be interested to know that in the preamble of the Bill, the following words appear:
“Whereas the late King James the Second by the Assistance of diverse evill Councellors Judges and Ministers imployed by him did endeavour to subvert and extirpate the Protestant Religion and the Lawes and Liberties of this Kingdome”,
and so on. It is apparent from the notes attached to the Bill that:
“The Bill of Rights is assigned to the year 1688 on legislation.gov.uk … although the Act received Royal Assent on 16th December 1689. This follows the practice adopted in The Statutes of the Realm, Vol. VI (1819), in the Chronological Table in that volume and all subsequent Chronological Tables of the Statutes, which attach all the Acts in”,
the first year of William and Mary’s reign,
“to the year 1688. The first Parliament of William and Mary (the Convention Parliament) convened on 13th February 1689 (1688 in the old style calendar—until 1st Jan 1752 the calendar year began on March 25th)”.
So I am afraid that we are at the mercy here of a historical quirk which has, quite rightly, prompted the noble Lord, Lord Campbell, to question the accuracy of what I said.
I am grateful to the noble Earl for his extensive investigations into these matters. I can say only that I would not have dared to correct the First World War veteran who taught me history to tell him that it was 1688 and not 1689.
I think that in modern parlance we can safely say that it was both, but as a working basis, 1689 will do very well.
The noble and gallant Lord, Lord Craig, returned us to the issue of human rights, as he has done in the past. I understand entirely the concerns that he outlined. Clearly, we need to address what many people see as a flaw in the way that the law has come down upon certain events and situations experienced by the Armed Forces in the course of combat and in conflict zones.
For the future, and I make it clear that we cannot do anything about the past, the Government have already announced that they would consider on a case-by-case basis a derogation from the European Convention on Human Rights, where that is appropriate in the context of a future operation overseas. That could help to ensure that our troops can confidently take difficult decisions on the battlefield, and enable us to focus on the defence budget rather than on lawyers. Some would say that lawyers have had too big a slice of the cake in recent years when it comes to the cross-questioning of our Armed Forces personnel in various contexts. I am the first to agree that it has been very burdensome and difficult for many individuals.
Does the noble Earl agree that the problems in general have not been with the Human Rights Act but with very crooked lawyers?
I agree with the noble Lord that dishonesty on the part of lawyers has played a part in the difficulties that I have referred to. Nobody wants to see service personnel facing extensive investigations and then re-investigations into the same incident. The situation is exacerbated when members of the legal profession are less than honest in the way that they handle the cases before them.
The noble Lord, Lord Campbell, asked about the report that he had read saying that a battalion specialising in chemical and biological weapons had been stood down or disbanded in recent years. He is quite right that the joint CBRN regiment was disbanded but I can reassure him fully that the capability which that regiment had is retained in the services, especially in the Army and the RAF. What matters, particularly in the context of the recent events in Salisbury, is that the capability we need was there when it was needed. Our Armed Forces stepped up to support the police in their investigation in Salisbury, building on the vital expertise and information already provided by our world-renowned scientists at the Defence Science and Technology Laboratory at Porton Down. We have the right people with the right skills to assist with the crucial inquiry that is in progress.
I would just add that our modernising defence programme, which is currently under way and to which the noble Lord, Lord Tunnicliffe, referred—I will come on to his question in a minute—will make sure that our country can respond to the changing nature of warfare and the new threats that we face, including those of a chemical and biological nature. The noble Lord, Lord Campbell, may have read that we have announced a £48 million investment in a new chemical weapons defence centre at Porton Down to maintain our cutting edge in chemical analysis and defence.
The noble Lord, Lord Jones, referred to the press reports from today relating to the Royal Military Police. Every year, the service police carry out a wide range of investigations into many different service offences. They play a key role in ensuring that allegations are investigated and offenders brought to justice, but it is clear that, in this specific case, something went very wrong. We will review that. The service police are a key part of the service justice system and as such are already included in the service justice system review, which we announced last year. It is due to report by the end of this year. The policing aspects of that review are being led by Sir Jon Murphy, the former chief constable of Merseyside Police, and we will of course consider carefully any recommendations that he makes.
I turn to the questions asked and points raised by the noble Lord, Lord Tunnicliffe, who asked me about the national security capability review and how it dovetails into the modernising defence programme, which we are leading from the Ministry of Defence. First, on the timelines, the Government will publish a report on the NSCR at Easter. The Ministry of Defence aims to be in a position to share headline conclusions from the MDP by the NATO summit in July. The NSCR essentially updates the Government’s analysis of the threats and risks to the United Kingdom and articulates what an integrated, cross-government approach to national security ought to look like. When published, the report will set out high-level findings across 11 of the 12 strands of work that make up the NSCR, but will refer to defence—the 12th strand—only at a strategic level. The defence element of the NSCR identified that further work was needed to modernise defence to deliver better military capability and value for money in a sustainable and affordable way. Therefore, the National Security Council commissioned a separate, further programme of work, namely the modernising defence programme, or MDP.
The noble Lord, Lord Tunnicliffe, questioned the meaning of “strategic affordability”. That phrase is a condensed way of describing what we are seeking everybody’s views on this consultation: how we marry strategy and affordability. By strategy, we are referring to not only the ways we should plan to counter the various threats identified in the 2015 SDSR, but the emphasis that we should attach to each strand of those capabilities. Different people will have different views on that, but we have to consider the affordability of all that we do. The MDP will build on the findings of the NSCR and the Ministry of Defence will continue to consult colleagues across government throughout the course of the programme.
The noble Lord asked about the apparent lack of synchronicity in launching the MDP before we published the NSCR. There is a very simple reason for that. Earlier this year, as the NSCR was reaching its final stages, it became clear to us that further work was needed to modernise defence. To conduct that work at the necessary pace, it was agreed by the National Security Council that the MoD should initiate the modernising defence programme without further delay. There would be no benefit from waiting for the publication of the NSCR report before starting work on the MDP. Work across government on the NSCR and the MDP continues to be, I assure the noble Lord, fully joined up.
I hope that I have sufficiently covered the points that noble Lords raised, apart perhaps from the point raised by the noble Lord, Lord Campbell of Pittenweem, about uncertainty and its effect on morale. As he said, we have spoken about that before in debates, and I agree with him that uncertainty is a damaging commodity in all circumstances. But in this context, the MDP should provide reassurance to the men and women of our Armed Forces that the capabilities they need to face the threats which we all know are out there will have been determined on the basis of mature and careful reflection, at the highest levels of government, over what I hope will be seen as a reasonable period of time. I hope and believe that our brave personnel will take heart from the fact that this is a serious exercise, designed with them at the centre.
Greater Manchester Combined Authority (Amendment) Order 2018
Considered in Grand Committee
That the Grand Committee do consider the Greater Manchester Combined Authority (Amendment) Order 2018
My Lords, the draft order that we are considering was laid before the House on Monday 5 February 2018. If approved and made today, it will support Greater Manchester’s programme of public sector reform, promoting growth and productivity and continuing the implementation of the devolution deals.
There have been five devolution deals with Greater Manchester, including most recently at the Autumn Budget 2017. Noble Lords will be aware that, since passing the Cities and Local Government Devolution Act 2016, there have been seven further orders in relation to the Greater Manchester Combined Authority. The orders provided for the introduction of a mayor, and give the mayor the role and functions of the police and crime commissioner. They have also given the combined authority powers on housing, planning, transport, public health, fire and rescue, and education and skills. Some of those powers are to be undertaken by the mayor individually and others by the members of the combined authority collectively.
I turn to today’s draft order. It makes provisions about the housing investment fund, allowances for committee and sub-committee members, and setting the police and crime commissioner component of the mayoral precept.
A housing investment fund was agreed as part of the initial devolution deal with Greater Manchester in 2014. It is a loan of £300 million from the Government that has enabled the combined authority to lend over £420 million to local developers to help fund quicker housing delivery in the Greater Manchester area. It has committed funding to build more than 5,800 homes at 23 sites across Greater Manchester. This order will amend the constitution so that, in addition to a simple majority of combined authority members, the mayor must also be on the winning side of any votes relating to the housing investment fund for the decision to be carried.
The order also refines certain aspects of the combined authority’s remuneration powers. This will allow it to pay travel and subsistence allowances to all members of its committees and sub-committees, such as the fire committee, as well as to members of the combined authority. It also enables the independent remuneration panel to make recommendations on the remuneration of all members of committees and sub-committees and provides for the combined authority to pay an allowance to committee members who are not elected members of a council in Greater Manchester. The draft order also changes a date within the process for setting the police and crime commissioner component of the mayoral precept for the Greater Manchester mayor. This has been requested by the combined authority to ensure that the scrutiny process is complete before the precept must be issued.
There have been two consultations undertaken by the combined authority in relation to proposals contained in schemes that are relevant to this order. The first consultation ran for eight weeks from 21 March to 18 May 2016. The scheme included the proposal that the mayor should control the Greater Manchester housing investment fund, in addition to the combined authority taking on a range of housing powers. The second consultation ran for six weeks from 4 July to 15 August 2016. This scheme made a number of proposals relating to committees that have now been legislated for, which is relevant to this order, as it is for members of these committees and sub-committees that the combined authority would be able to pay travel and subsistence and also refer to an independent remuneration panel for a recommendation on allowances.
There was general support for the powers consulted on, but few directly commented on these technical issues. The amendment to the process for setting the PCC component was requested by the combined authority to ensure that the statutory timetables for both components of the precept are properly integrated. As statute requires, the combined authority provided to the Secretary of State summaries of the responses to each of the consultations. Before laying this draft order before Parliament, the Secretary of State considered the statutory requirements in the 2009 Act.
The Secretary of State considers that making these constitutional changes on the Greater Manchester Combined Authority would be likely to lead to an improvement in the exercise of the statutory functions in the area of the combined authority. The Secretary of State has also had regard to the impact on local government and communities and the need to secure effective and convenient local government, as he is required to do. Also as required by statute, the constituent councils and the combined authority have consented to the making of this order.
In conclusion, implementation of the five devolution agreements made with Greater Manchester continues to progress at an impressive pace. We will continue to work and devolve more powers to Greater Manchester, contributing to greater prosperity and a more balanced economy, and economic success across Greater Manchester, the northern powerhouse and the country. I commend this draft order to the House.
My Lords, I remind the Committee of my registered interests as a councillor on Kirklees council—the proper side of the Pennines—and a vice-president of the Local Government Association. I apologise for my deepening voice and croakiness: I am sure I will last through the sitting.
The three amendments proposed in this statutory order all relate to governance. It is very important that any amendments retain public trust and confidence in the system and create an open and transparent process of decision-making so that residents feel that their voices are not only heard but listened to, acknowledged and—crucially—seen to significantly influence outcomes.
That is my starting point for assessing the changes proposed. The proposal regarding amending the process for agreeing the police precept is eminently sensible. I have no problem with what is written in the statutory instrument. The second change is the one proposing allowances for those involved in the combined authority. As far as I am concerned, that is a matter for local decision-making and the amendment enables a decision to be made. However, I always have an addendum to that: anybody who receives funding from the council tax payer will need to be answerable to them for any allowances they receive. I am not always sure that non-elected members appreciate the importance of that relationship.
I have a bit more to say about the third proposal, which contains what I regard—that is, read and interpreted—as a mayoral veto. The proposal enables any decision relating to the housing investment fund to be made by a simple majority vote of the combined authority—in other words, the leaders of the 10 councils in the Greater Manchester area—provided that the Mayor is on the winning side. So nine of the council leaders could decide that the proposal was not good and the Mayor could stop them. That seems to require further thought. The explanatory memorandum attached to the statutory instrument suggests that this implements a commitment made in the devolution agreement and links to that element of the agreement with the combined authority in Manchester. I wonder whether the Minister can provide us with the text and source of that commitment. I have read through every single word of that and nowhere does it say anything about enabling a mayoral veto. It says, under planning and housing, that the Mayor will receive strategic planning powers. This will give the Mayor the power to create a statutory spatial framework for the city region, which will need to be approved by a unanimous vote of the Mayor’s cabinet. This will be in line with the strategy currently being developed by the Greater Manchester Combined Authority, or GMCA. Of course, there is a catch-all phrase in that list about any further powers we can give; perhaps it comes under that.
However, I cannot think that the members of the combined authority had envisaged, when this was agreed and consulted on, that democracy would be undermined in this way. Our democracy is precious and has developed on the basis of collective decision-making. It has served us well. People respect it, understand it and will not be content with its degradation. I hope that the Government will rethink this element of the statutory instrument.
My Lords, I declare my interest as a member of the Greater Manchester Combined Authority and leader of Wigan Council. I must also declare that, in 2014, I was part of the team discussing the devolution deal with the then Chancellor of the Exchequer, George Osborne, which ended up being the deal we got.
I remember that, as part of the deal we signed up to, we were not exactly enamoured of having an elected Mayor at the time but we realised that we would get significantly increased powers if we agreed to it. One of the powers, in terms of the Housing Investment Fund, was a substantial amount of money. The Minister described how it has been used—largely, at the moment, to fund schemes that return into the Housing Investment Fund so that we can spread it out even further.
I do not think we discussed at the time whether a simple majority could depend on one person—actually, it could be 10:1, never mind 9:1. I assure noble Lords that within the unofficial governance of Greater Manchester we would ensure that things were decided in a proper manner. We would not allow any individual to hold up what would be a significant investment in Greater Manchester.
Ironically, before I came down, I was involved in a meeting of leaders of Greater Manchester this morning. We talked about provision for the payment of allowances for the various committees. When you start up a combined authority, you inherit some work done previously and there are some new committees, such as the fire committee, which is very different from the fire authority. We need to understand exactly what the committees are, what their responsibilities are and to what extent we should pay allowances. In principle, we would be reluctant to pay many allowances; we would pay expenses but not additional allowances for the work being done on behalf of Greater Manchester. The minor change to the precept rule for police is helpful for local authorities in setting their budgets; we now have to add on the precept from both the police commissioner, or the mayor wearing his police commissioner hat, and the mayor wearing his mayoral hat, because he is allowed a precept too. It is sensible that we can get in our council tax bills early and get the money coming in.
The Minister will probably say, “This is nothing to do with me”, but what is missing from the order is what got us to sign up to the 2014 agreement in the first place: the powers we were going to get through the Bus Services Act. I realise that it is a different departmental responsibility, but there seems to be no progress on that. Franchising buses is complex and we need to understand the bus market well, but we need to know the framework under which we are allowed to operate. I ask the noble Lord to press his ministerial colleagues to get their finger out and get on with it so that we can understand this important part of what we would like to do.
My Lords, I declare my interest as yet another vice-president of the Local Government Association and as a member of Newcastle City Council. Although it is good to hear from my noble friend Lord Smith that they are satisfied with the setup in Manchester and can rely on the current elected Mayor of Manchester not to exercise what is in effect a power of veto, which may not always be the case. Heaven forfend, but we might even get a Conservative or Liberal Democrat Mayor of Manchester elected separately from the constituent councils, in which case one can conceive of certain circumstances which might lead to conflict. So I share the reservations raised about that as a general principle. If Manchester is satisfied with it, so be it, but I should be wary of seeing that provision made in any other authority, and any members who are approached in that light should look carefully at that.
On remuneration, I wonder whether it is intended that this should simply come into force now with no retrospection. It would seem rather unfair if people had devoted considerable time up to now with no remuneration. If possible, it should be open to the authority to pay them, if it thought it reasonable. It would not be a duty to do so in any case, but it is invidious if those who have served already are not to be compensated to some extent as, presumably, they may well be in future.
My other question is whether any of these changes should be generalised and applied to all the combined authorities. If not, there will be a differential pattern up and down the country, particularly in relation to the remuneration of councillors. It would be helpful to know whether the Government will look at that, rather than bringing a succession of individual pieces of secondary legislation to give the power across the piece. I would be interested to know whether the Government have considered that or will consider it. If not, I suspect that we will spend time in this Room on a number of occasions simply repeating debates on the provision of a power that might be better conferred at the outset. It would not be a requirement, but I believe that the process of conferring the power should be simplified. Perhaps the Minister will think about that and get back to me and others in due course.
My Lords, I draw to the attention of the Committee my relevant registered interests as a councillor and a vice-president of the Local Government Association.
I have read the order and the Explanatory Memorandum. As the noble Baroness, Lady Pinnock, said, the proposal that the mayor has to be on the winning side for a vote to be carried means that the mayor has a veto. I hear what my noble friend Lord Smith of Leigh says. He is a member of the combined authority, so I accept his expertise on these matters. If Manchester is happy with it, then so be it, but it is an odd way of working—it seems a bit cumbersome. As I say, if that is how it wants to work, we are fine with it. It means that, in effect, the mayor has a veto. Another way of operating would be to let the mayor take the decision.
A couple of points have come out of the debate. My noble friend Lord Smith of Leigh mentioned the Bus Services Act. I remember that, during the debates on the Bill, the Government were insistent that you had to have a mayor in order to get the bus franchising powers automatically. That was a big issue. Many of us could not understand why you had to have a mayor, but the Government were insistent. It is regrettable that, although the Act has been on the statute book for about a year, we have not moved forward on this. This is not a good place to be. Perhaps the Minister can come back to us on that, because I believe that it is important for authorities outside London to have powers to control their bus services—the fares, the routes and the timetables. Those powers exist in London, where we have a good bus service, and are very attractive to combined authorities.
My noble friend Lord Beecham referred to the differential pattern in the combined authorities. Manchester seems to have the most powers. Others are different, but can evolve over time. I believe that local government in England has a problem. It is a bit of a mess. We have all sorts of tiers of local government. Buckinghamshire is going to become two unitaries and there will also be two unitaries in Northamptonshire. I recall in one debate the noble Lord, Lord Lansley, listing the five authorities that potentially regulate where he lives in Cambridgeshire. It looks to me to be a bit of a mess now. At some point, we will have to look at what we want for local government in England outside London. This patchwork is not necessarily the right way to go.
I am happy with both parts of the order. The proposal for the remuneration of independent members seems sensible and I agree with it.
I thank those noble Lords who have participated in the debate on the Manchester powers. I will respond to their contributions in the order that they were made, so I turn first to the noble Baroness, Lady Pinnock. She was very much in Wars of the Roses mode as she entered the fray and she may have carried that through into thinking that the mayor and the council will always be at daggers drawn. She will know that that is generally not the reality of how councils work, so this idea of the mayor being on the winning side, as it were, is very much that he—as it is in this case; it could also be “she”—has the democratic mandate, which is likely to develop into a consensus rather than a battle between two factions. I take the point that in general it provides a check—or a balance, as I prefer to see it—rather than a cause for concern. I note in particular what the noble Lord, Lord Smith of Leigh, said in that regard. I thank the noble Baroness for her general support for the police precept point and the allowances point.
Picking up on points made by the noble Lord, Lord Beecham, I will go away and look at whether it would be helpful to have a more generalised provision for allowances. I suspect the answer is possibly not, because as has just been said by the noble Lord, Lord Kennedy, all of these deals are somewhat different. They are bespoke deals. They may not be visually or aesthetically pleasing but the question is whether they are appropriate for and work for the given area. I am not sure that, in the end, the provision would be that helpful. I am pleased to see that that seems to be the correct answer. It was not a punt—I thought it was the correct answer, but I am gratified that it indeed appears to be the case.
Moving on, I thank the noble Lord, Lord Smith of Leigh, for his general support for funds that were given in relation to the housing deal. This is part of an ongoing process. If I could pick up on the point made by various noble Lords on the bus position, I will investigate it further but the Bus Services Act provides the powers for bus franchising. That is absolutely right. It is intended that we will have a further order consolidating Greater Manchester transport powers. Believe me, a string of these things is coming through. Of course, they are extremely important.
In relation to the points made by noble Lords on allowances, the legislation prevents their being retrospective. Obviously, we want the relevant combined authorities and their independent remuneration panels to be able to act on this as quickly as possible so that they can get this right. I should say that when the independent remuneration panel makes its recommendations, the council cannot go above those recommendations. It can go below but not above, so there is a very sensible check there.
With that, I will write further on the points that have been made, particularly on buses. I thank noble Lords for their general support for a very sensible move forward for the Greater Manchester area. I wish it and the noble Lord, Lord Smith of Leigh—as a member of that authority—all the best in moving things forward.
Insolvency of Registered Providers of Social Housing Regulations 2018
Considered in Grand Committee
That the Grand Committee do consider the Insolvency of Registered Providers of Social Housing Regulations 2018
My Lords, these regulations were laid before this House on 7 February 2018. In the Housing and Planning Act 2016, we introduced a special administration regime for the social housing sector. In introducing these changes, we were responding to concerns that the existing moratorium provisions are not suitable for modern, large, developing and complex housing associations that might get into financial difficulty.
The provisions in the Act applied only to housing associations that were companies. We were unable to include registered societies and charitable incorporated organisations in the Act, due to the timing and the complexity of drafting required. Therefore, the Act included provision to make regulations to extend the housing administration regime to these forms of housing associations, thus covering all the different forms of housing association. These are the draft regulations that we are considering today. I also draw your Lordships’ attention to the fact that there will need to be another piece of legislation enacted before the housing administration regime can be commenced. This will be a statutory instrument setting out the rules that apply to the administrator’s conduct of a housing association. They will follow the negative procedure and cannot be introduced until we have passed this legislation.
Turning to the purpose of this legislation, the regulations before your Lordships are quite technical, but, as I said, they extend the housing administration regime set out in the Act to housing associations that are registered societies or charitable incorporated organisations. Under the law at the moment, where a housing association gets into financial difficulty and steps are taken towards it entering a formal insolvency procedure, a 28-day moratorium begins, which restricts creditors’ ability to enforce their security during this timeframe. If the regulator cannot reach a solution with creditors within the 28-day period or any agreed extension, creditors are able to call in loans and seek to recover debts through a sale of assets including social housing stock. This could potentially lead to a fire sale of social housing, meaning that the stock would no longer be regulated and tenants would lose the protections of the social sector, including rent regulation.
This process was considered to be inadequate when dealing with modern, large, developing and complex housing associations with tens of thousands of properties in their ownership. There are almost 1,500 private registered providers of social housing in England, providing some 2.6 million homes to those in housing need. Although financial failure within any housing association is extremely rare, the housing association sector has changed significantly in recent years. The level of private finance has grown from £48 billion in 2012 to £70 billion in 2017, for example. Therefore, in the event of a private registered provider becoming at risk of entering insolvency proceedings, the Act gives the Secretary of State—or the Regulator of Social Housing, with the Secretary of State’s consent—power to apply to the court to appoint a housing administrator. The administrator would manage the affairs, business and property of the registered provider of social housing for the duration of the housing administration.
As with any administration regime, the main objective would be to rescue the organisation or return money to creditors—or, indeed, both. The crucial difference is that a housing administrator would also have a secondary objective: to retain as much of the social housing as possible within the regulated sector. In addition, a housing administrator would not be constrained by a 28-day timeframe and would have the time to investigate the business and find the best solution possible to meet these objectives.
These regulations extend the housing administration framework in the Act to registered societies and charitable incorporated organisations. As I have mentioned, there are some 1,500 housing associations. About 400 of those are companies; the remainder, some 1,100, are registered societies or charitable incorporated organisations. The regulations apply certain provisions of the Insolvency Act 1986, with necessary modifications, to registered societies and charitable incorporated organisations.
We carried out informal consultation with representatives from insolvency practitioners, valuers, UK finance, and private registered providers and main lenders prior to the introduction of the Housing and Planning Act 2016, and again before laying these regulations. This group represented the organisations that have the main interest in housing administration, and they are keen to have this regime in place. A fuller public consultation was not carried out due to the extremely technical nature of the regulations and because the process of housing administration will be required only in the event of a housing association facing insolvency, which experience has shown to be extremely rare.
These regulations apply to the whole of the United Kingdom. We want the regime to cover social housing stock in England, including any such stock held by housing associations registered with the social housing regulator for England but which are, as legal entities, registered in devolved Administrations. I commend these regulations to the Committee.
My Lords, I remind the Committee that I am a vice-president of the Local Government Association. It is important to support the regulations because it is in the interests of tenants that we should. It is also in the public interest that we should protect the Government’s investment in social housing within the regulated sector. As the Regulator of Social Housing has pointed out, its powers may not be strong enough if one of the bigger private registered providers gets into trouble financially. There has to be a robust mechanism for the handling of financial failure. I accept that the sale of houses that is not done to an agreed, coherent plan could impact negatively on the rights of social tenants, not least on the level of their rents. We need to protect them.
However, now that housing associations are in the private sector and there is, as the Minister reminded us, a higher level of debt finance than there used to be, I return to an issue arising from four Written Questions on the governance of housing associations, which the Minister answered on 20 February. They were about, first, whether the Government would be prepared to take steps to require Homes England to maintain a formal, publicly available register of directors of regulated housing associations; secondly, whether Homes England could be required to publish clear governance standards for housing associations to enforce strong independent director representation and responsibilities, in line with those applying to public companies; thirdly, whether the Government would take steps to require all housing associations to publish details of director attendance at meetings in their annual reports; and fourthly, whether the Government will require annual returns to be made available to the public free of charge, showing the levels of board remuneration of housing associations.
Various statements were made in the rewritten reply. I understand why they were, but two lines struck me as particularly important:
“The Secretary of State is not able to direct the Regulator on the governance arrangements of housing associations, and the Regulator has no plans to change the current approach”.
I ask the Minister a very specific question in the context of these regulations. If a housing association becomes insolvent and there are found to be problems in its governance that led to the insolvency, does that mean that the regulator may be found partly responsible for the insolvency of that housing association, because, as the Minister’s reply said, it has no plans to change the current approach? We need to be clear about the governance responsibilities of housing associations and of the regulator. Problems almost certainly will not arise but if they do, we need to be clear that a housing association—a regulated provider—has done everything it ought to have done about the openness of its governance structure.
My Lords, may I just ask the Minister a question? The housing association in my area took control of all the council housing that had belonged to and was controlled by local government some years ago.
Sitting suspended for a Division in the House.
My Lords, I am sorry for that interruption. I wish to ask a very simple question. Some weeks ago the chairman of my local housing association, which took control of all the council housing in the area many years ago, announced that it was no longer a public provider but a private one. There have been arguments about what she said but, if it is now a private provider, will it come under the terms of the regulations?
My Lords, I refer again to my relevant interests. Has there been any consultation with, for example, the Local Government Association about the possible role of local housing authorities in this situation? In other words, could they be another potential source—I am not sure what phrase I am looking for here—for taking over the responsibility, as opposed to it necessarily being another housing association? In certain areas it might be more feasible for the local housing authority to do that. If the Government have not considered that, could they now take a look at it?
My Lords, I draw the Grand Committee’s attention to my relevant interests, which I mentioned on the previous order. I am always slightly concerned when I hear mention of the dreaded Housing and Planning Act; it really is one of the worst and most ill-thought-out pieces of legislation that any Government have put on the statute book in recent times. Unfortunately, I regularly have to remind noble Lords of that. I think it is a terrible piece of legislation.
Having said that, I read the regulations and their Explanatory Memorandum before today’s Committee and I am happy to support them as far as they go. As we have heard, they seek to extend a new protection regime that already applies to registered social housing providers that are companies to registered societies and charitable incorporated organisations. I am happy to support that.
I am aware that this has come about following discussions between the department and the lending sector. I am also aware of the issue of the Cosmopolitan Housing Group in the north-west of England, which has had problems. Although in the end they were resolved, they have highlighted some weaknesses in the statutory provisions governing insolvency in a registered provider of social housing. Many providers now have to make other arrangements regarding how they do their business and have to cross-subsidise things, which exposes them to more risk, so I am happy to support the regulations before us.
Paragraph 10.3 in the Explanatory Memorandum states:
“An Impact Assessment has not been prepared for this instrument. However, an assessment of impact will be published alongside this instrument”.
I have it here. Can the Minister tell me the difference between an impact assessment and an assessment of impact? Certainly this one is easier to read than the others; perhaps that is the difference. Can he tell us the status of it compared to impact assessment? Are they the same and, if not, why has this arrived? I would be keen to understand that. Having said that, I understand the regulations and am happy to agree them.
My Lords, I thank noble Lords who have participated in discussion on these provisions relating to insolvency and housing associations. I thank them for the general support given to the regulations. I confirm that they are based on the provisions that applied to insolvency for companies introduced after the Cork committee in the mid-1980s, sensibly ensuring that there was a broader-based approach to companies in financial difficulties so that, if they were unable to pay debts, they were not automatically put into insolvent liquidation. It provided an administration procedure, which is something we have sought to replicate for housing associations. We did it first for companies and are now extending it by the regulations to friendly societies and charitable organisations. They provide an additional means of intensive care for these housing associations, rather than in the very rare event when insolvency was considered for a housing association—there has been only one circumstance in the past 22 years and even then it did not happen. If there should be an insolvency it provides an alternative rather than the 28-day moratorium, which is very short and specific. This would provide a period of, say, a year, which could be extended, for the debts to be paid off and the tenants to be protected. I appreciate noble Lords’ support for ensuring that we can protect tenants as well as creditors at the same time.
I turn to points made by the noble Lord, Lord Shipley, who sought reassurance on the position of governance, and so on, in relation to the social housing regulator. I can confirm that the social housing regulator proactively regulates providers of social housing where there is a minimum of 1,000 units, which is more than 90% of the sector, on governance, financial viability, value for money and rent standards. I hope that that provides some reassurance. For the 10% under that threshold of 1,000 units, if a matter is referred to the regulator it will look at it, but it would not do so proactively.
The noble Lord asked if it was conceivable that the social housing regulator would be directly liable. Obviously, there are statutory obligations that it could be in breach of. I think it would be unlikely that it would be caught by the fair dealing provisions in relation to liquidation, except in the most unlikely circumstances, but there is that issue of statutory responsibility in relation to the standards that apply to the social housing regulator.
Turning to the noble Baroness, Lady Golding, we were left on tenterhooks as we went round voting in the Division wondering where her story was going to go. I am very grateful to her. I can confirm that her housing association would be subject to the regulations. If she wants me to have a closer look at the situation I am very happy to do so, but I think what the chair of the housing association is referring to is the fact that housing associations are now off the public balance sheet, as they are in the private sector rather than the public sector. I do not think that what would happen on a daily basis would change for that housing association, but it would certainly be subject to the regulations as I understand it.
The noble Lord, Lord Beecham, asked—I think I understood this correctly, but I am sure that the noble Lord will correct me if I am wrong—about the possibility of housing authorities stepping into the breach where there was an insolvency position. Of course that would be open to the administrator to consider if there is a circumstance where it is trying to settle the debts and move the association forward so that it could be solvent once again. I am sure that such an approach would be considered by the administrator, appropriately in the circumstances, to see whether that would be feasible. That is a constructive point, and I think that is the position at the moment.
The noble Lord, Lord Kennedy, does not miss his opportunities: I was pleased to see that he did his party piece on the Act, for which we are very grateful. However, he quite rightly said that this is to be welcomed, and I very much join with him on that. He asked a fair question, which had also struck me. When I looked at it I thought it was an impact assessment rather than an assessment of impact. I have asked what the difference is and I am still not quite clear. It is rather compounded by the fact that I think an impact assessment now has been produced as well. I understood today that an impact assessment had been produced, but it was just an assessment of impact. It seemed a model of lucidity, so I certainly was not going to question it. The point is that one is not required to produce a full impact assessment, which is more extensive, if the likely economic impact is less than £5 million, and I think this was adjudged to be beneath that, so it was a somewhat abbreviated version.
I must say that this is much easier to read than those forms you get, so maybe at some point they should look at how impact assessments are presented to Members.
I agree with the noble Lord; that is a fair point. I certainly found it easier to follow than some. I thank the noble Lord for his help on that point and others, and I thank noble Lords for their general support.
Gambling Act 2005 (Operating Licence Conditions) (Amendment) Regulations 2018
Considered in Grand Committee
That the Grand Committee do consider the Gambling Act 2005 (Operating Licence Conditions) (Amendment) Regulations 2018
My Lords, the draft regulations would impose a new mandatory condition on the holders of any betting operating licence issued under the Gambling Act 2005. The purpose of this new condition is to prevent these operators accepting bets from British consumers on the outcome of the EuroMillions draw or a EuroMillions game in a participating country outside the UK. Section 95 of the Gambling Act 2005 already prohibits the holder of a betting licence from offering a bet on the outcome of any lottery which forms part of the National Lottery. This includes the lottery known in the UK as EuroMillions.
This additional licence condition extends the existing prohibition on betting on the National Lottery to all EuroMillions lottery games, and will apply to all general betting operating licences, pool betting licences, and betting intermediary licences issued by the Gambling Commission. This will reduce customer confusion that has arisen as a result of operators offering these bets and maintain the “clear blue water” between the National Lottery and other forms of gambling, as set out in Section 95 of the Gambling Act 2005.
I will set out the background to this SI. Because EuroMillions is structured as a separate game in each of the nine countries in which it is played, a small number of gambling operators are able to circumvent the prohibition in Section 95 and offer bets on the outcome of a non-UK EuroMillions lottery—for example, a bet on the outcome of the Spanish EuroMillions lottery. Our consultation showed that this has led to customer confusion, with research showing that a percentage of players are unable to distinguish between placing such a bet and buying a National Lottery EuroMillions ticket. Some operators even undercut the National Lottery and advertise products at a lower price than the National Lottery EuroMillions or offer multiple tickets for the price of one. They are able to do this because they do not return a proportion of their proceeds to good causes.
The Gambling Commission has already undertaken a number of measures to reduce customer confusion, and this has resulted in changes to how products are promoted, but even where such proactive steps have been taken we still see evidence of customers unable to distinguish between the two products. A further point of confusion is how players can potentially arrive at these betting websites. It cannot be right that if you want to buy a National Lottery EuroMillions ticket online, and you search for “EuroMillions”, you get a proliferation of sites offering a range of betting services to choose from. Between March and May 2017, the Government consulted on prohibiting betting on EuroMillions. Respondents included lottery operators, beneficiaries of lottery funding, betting operators and members of the public. There were 52 responses and 32 strongly agreed with the proposal that non-UK EuroMillions bets should be prohibited. Not surprisingly, the only respondents to strongly disagree were operators offering these bets.
Betting on the outcome of lotteries is nothing new—it has been offered legally for many years, but not on the National Lottery. For most operators offering bets on lotteries, the product is one element of a wider portfolio. British customers will still be able to participate in the other products offered by these operators, which remain unaffected by this action. Betting on EuroMillions is a growing market, and it is important that we maintain the clear distinction between the National Lottery and other forms of gambling, as set out in Section 95 of the Gambling Act 2005. The effect of these regulations will be to bring non-UK EuroMillions draws in line with the UK draws and prevent gambling operators from taking advantage of the technical way EuroMillions is structured, as individual country draws. More urgently, this action will eliminate customer confusion. For these reasons, I commend these regulations to the Committee.
I am happy to support the regulations. I declare an interest as the chairman of the Alderney Gambling Control Commission and as a veteran of the scrutiny committee on the draft Gambling Act 2005. I recall very well that there were a lot of debates then about whether betting on the National Lottery should be permitted. Our advice was that it should not, for the reasons that the Minister has explained. There has always been a conflict of interest for the National Lottery and the role of the Gambling Commission as its regulator, which remains unresolved. The Gambling Commission—and the National Lottery Commission before it—had the twin objectives of player protection, in ensuring that people did not spend excessive amounts on the lottery and get themselves into difficulty, and the requirement to maximise the return to good causes. As I say, that conflict remains unresolved and will, I suspect, continue to remain so.
The regulations deal with companies such as Lottoland, from which I received a certain amount of unsolicited promotional material. It is based in Gibraltar and offers bets not just on the EuroMillions Lottery but on competitions such as the US Powerball, the Irish Lottery and something called the Bitcoin Lottery. I am not surprised that it opposed the regulations; being able to cash in on the promotion of EuroMillions is a nice little earner for it. Like the Minister, I do not agree that it is right for such companies to do that, so I support the order.
My Lords, I thank the Minister for her introduction to the order. It is a pleasure to follow the noble Lord, Lord Faulkner, who took us down memory lane with the Gambling Act 2005. It reminds me that I have been doing this job almost as long, I think, as the noble Lord, Lord Stevenson, which is saying something.
I entirely accept the logic and reasons outlined by the Minister. First, there is the confusion that has clearly been caused. I, too, thought that Camelot’s briefing was pretty cogent on the subject of the damage to the EuroMillions and National Lottery brands in this country. Of course, that has a detrimental effect on participation. It is interesting that Camelot’s research found that only 14% of consumers could correctly identify that buying a EuroMillions ticket via Lottoland —already mentioned—is actually a bet on EuroMillions in a foreign country. Over 60% thought that they were playing EuroMillions the UK. Indeed, I understand that Lottoland’s research found that 28% of its customers did not understand the difference between the two products. That is pretty conclusive.
Secondly, none of the revenue from betting on these lotteries is returned to good causes. That must be a major reason for passing this order. Then there is the fact that Camelot is having to spend quite a lot of money defending its National Lottery brand as a result of all this. That is another reason, so we on these Benches support action by the Government very strongly. This kind of betting on lotteries runs contrary to the spirit and intention of the law, causes customer confusion and harms returns to good causes.
As is ever the case with these orders, it is a very good excuse to probe the Government on one or two other matters. I turn to the relationship between the National Lottery and society lotteries in this context. We know about the success of the National Lottery, which has partly been because of the clear distinction between the National Lottery and society lotteries. A single national lottery has been operated in order to maximise returns to good causes. The economic case for a single national lottery has been examined on many occasions; I think the most recent occasion was when the Gambling Commission advised the DCMS on regulatory policy for the lottery sector. That was in September 2014. It said that,
“the relatively low prizes and generally limited distribution footprint are key factors that have traditionally differentiated the”,
“sector from TNL”—
that is, the National Lottery sector. To make a clear distinction between the National Lottery and smaller, traditional society lotteries, prize and proceed limits exist for society lotteries—as the Minister will know—with the top prize capped at £400,000.
The emergence of national or “umbrella” society lotteries has blurred the distinction between the National Lottery and society lotteries. These larger lotteries are sold and advertised nationally and run by commercial operations. For these reasons, umbrella lotteries stray into the territory originally intended by Parliament to be the sole preserve of the National Lottery through its single national lottery model. Of the current operators in the market, the only umbrella society lottery to offer the top prize of £400,000 is the People’s Postcode Lottery. Increasing the top prize for society lotteries could create, in effect, many more national lotteries, contrary to all economic evidence that a single national lottery is the optimal way to maximise returns to good causes.
After that barrage, my question is: do the Government accept that case and that increasing the top prize for society lotteries risks unbalancing the single national lottery model, putting revenue for good causes at risk, and that therefore there should be no change to the top prize value for society lotteries? I would be more than happy if the Minister wrote to me.
My Lords, I am more than grateful for the remarks that have already been made. I am discovering all the time how much more I am being educated in abstruse parts of our national life that I had no idea about at all. I am a sweet innocent abroad most of the time. The noble Lord, Lord Clement-Jones, mentioned a statistic which I have also fallen upon in the paperwork before us: the 28% of people who do not know the difference between gaming—betting—and a lottery. I would be part of that 28%, without any doubt. What I have learned about the overlap between the EuroMillions and the National Lottery is completely new to me. But I can quite see why it should be confusing and why it needs to be evened out.
Others have expressed their own interests. Mine is simply that I have worked with 12-step self-help groups of people wanting to recover from habits incurred in these areas of life—gambling and various kinds of addiction, particularly alcohol—and consequently I look at measures such as this as if I were someone who had the problem and ask myself: what would help me with these matters?
Are we satisfied with the fact that 28% do not know the difference or does that goad us to feel that there ought to be some way of educating people so that it is less than 28%? Is there not some obligation on us to provide a programme of public education, or should there not be some way of drawing to people’s attention to, first, what the difference is and, secondly, some of the other confusions that arose from the analysis offered by the noble Lord, Lord Clement-Jones? I do not have a clue what society lotteries are. We have entertained people from the People’s Postcode Lottery, so I am beginning to be more alert to that. I am making progress on these things but if I am confused, it seems that we should ask ourselves: what do we do with people who are really confused and victims of their confusion?
Certainly, we ought to be driven by the fact that the National Lottery exists to raise money for good causes and anything that interferes with the clear profile that it has should be looked at askance. Is anyone else piggybacking on the National Lottery, taking advantage of the fact that the National Lottery is there, with all its structure and place in society and so on, and rather stealing its clothes in one way or another as it makes its appeal?
I wonder about the trademark authority refusing registration of the EuroMillions logo because of “near identical verbal elements”. In this area I can claim some expertise. Words are very much my tools. If one form of words confuses the ground between the EuroMillions and the National Lottery, I can think of a thousand ways in which we could change the words but still take advantage of the logo. Verbal similarity is not a difficult thing. I have marked undergraduate essays for long enough to know how to identify a little plagiarism now and again. Who monitors the logos? I guess it is the Gambling Commission, the advertising standards people or the trademark authority itself. We ought to keep an eye on these things and—this is the thrust of the statutory instrument—always ask ourselves: will this make for a clearer picture for the people who are the victims of, first, the confusion and, secondly, some of the exploitative methods that are employed by some people in that area of life? But I have no doubt at all that I approve of the order and I add my voice to others who have spoken in favour of it.
My Lords, I was not intending to speak on these regulations but I caught something my friend the noble Lord, Lord Clement-Jones, said and I thought I would respond to it. It was also mentioned by my noble friend Lord Griffiths in his response.
When we look at lottery matters, we should have regard to the fact that we are looking at a system under which the intention is to increase the amount of money paid out to good causes. We have adopted a model to do that which is not necessarily found in other parts of the world that have lotteries. I do not wish in any sense to emulate the length of time for which the noble Lord, Lord Clement-Jones, has presided over this brief in his party but when I came to debate it, a long time after he started, I wondered whether we should think harder about the percentages going out of the National Lottery system into the good causes. That was presumably not unrelated to the fact that money had to be found for the Olympics, so there was a lot of tension and a focus in that.
However, things have moved on and I felt that some of the figures being cited by the noble Lord, Lord Clement-Jones, were not exactly in line with the current state of knowledge on this. For instance, I understand that there is now a report from the National Audit Office indicating clearly that the money going to the Postcode Lottery does not deflect from people’s interest in the National Lottery and that the representations made on behalf of the Postcode Lottery—that it should be allowed to expand its prize money, which is the point he made—have been the subject of lengthy discussion and consideration in the department. I think there are still consultations going on.
The Minister may know that I have tabled a Question for Written Answer on this matter, to which I am sure she will want to speedily return to amplify what she says in response to this debate. If she wants to wait until then, I will be quite happy, but my point is that there is an ongoing debate to be had about the proportion of money that the public wish to see going to national causes, which means that our model needs to be robust and sustainable.
First, is it time to reflect on that? Secondly, is there room now for this in a society that has changed out of all recognition since the National Lottery was formed, and which has an interest in local events? Research exists now to show that the Postcode Lotteries which are done postcode by postcode in the full system, and which operate right across Europe successfully, may offer another approach to giving for good causes in that the committees set up under the Postcode Lottery seem to be locally focused. The giving is therefore not so much for the benefit of winning a big prize, because the prizes are more modest, but because there is more satisfaction in the direct channelling of money towards local causes. It may be appropriate for the Government to look at whether it is time to think again about these things so that we can get more sense, and, we hope, more money, into the system.
I thank all noble Lords who have taken part. As the noble Lord, Lord Griffiths, said, it might be a steep learning curve for him but it is an even steeper learning curve for me. It is marvellous to have so many experts here today. I am very much the old new girl on the block where this is concerned, so it is interesting to hear everything that the Committee has said.
The noble Lord, Lord Faulkner, talked about the deal with companies such as Lottoland. We feel that one problem is that this is a growing market, which is why it is so important to bring this SI in. As several noble Lords have mentioned, there is no doubt that it takes away from people taking part in the National Lottery, which then takes away from good causes and so on.
The noble Lord, Lord Clement-Jones, talked about society lotteries, as did the noble Lord, Lord Stevenson. Evidence shows that, to date, there has been no substitution between society lotteries and the National Lottery due to the very different prospects they offer the players who take part. We have been looking at the Digital, Culture, Media and Sport Select Committee’s recommendations on society lotteries and we will look closely at how we feel they are working, including on the top prize. We hope to provide a further update on that in due course.
The noble Lord, Lord Griffiths, talked about customer confusion. Again, we hope that this SI will sort this out. The ban certainly aims to reduce customer confusion by protecting those who wish to buy a EuroMillions lottery ticket online from ending up on a betting site.
It is always important to keep education in mind and find ways to improve it, making sure that people are betting on what they want to bet on and not on something else. It is not our intention to prevent operators offering bets on lotteries that do not form part of the National Lottery to consumers who genuinely wish to place legitimate bets on such a lottery. Betting on the National Lottery is already illegal and the point of this ban is to bring betting on all EuroMillions products in line with the rest of the National Lottery portfolio.
I think that has answered all the questions. I have a note that was handed to me; is it something I forgot? The National Lottery is a uniquely important part of British society. Each year, it raises around £1.6 billion for good causes and has raised a total of £37 billion—a pretty impressive sum—since it started in 1994, supporting important charity, heritage, arts and sports projects. From the charities I am involved in, I have found the National Lottery a great help on many occasions.
In bringing forward these regulations imposing a new licence condition, we are doing no more than extending the existing protection against betting on the National Lottery and taking action to remove consumer confusion in relation to bets on EuroMillions games. I commend the regulations to the House.
Electronic Commerce Directive (Miscellaneous Provisions) Regulations 2018
Considered in Grand Committee
That the Grand Committee do consider the Electronic Commerce Directive (Miscellaneous Provisions) Regulations 2018.
These regulations, which were laid in both Houses on 30 January, seek to implement two parts of the electronic commerce directive —or e-commerce directive—in relation to various offences. These are the country of origin principle and provisions relating to the liability of intermediary service providers.
To explain further, when new legislation is brought in on a particular policy area and an element of this relates to offences or requirements that could apply to an information society service—for example, intimate images on an online platform—the directive must be implemented to apply these rules. This must be done for the UK to be compliant with EU law. Importantly, the SI does not create new policy. These regulations are a technical measure to ensure that these offences are consistent with the e-commerce directive. The regulations implement the directive in relation to various offences including, for example, the children’s hearings publishing restrictions offence.
The Committee should be aware that my department worked closely with officials in the Scottish Government and the Northern Ireland Assembly in preparing this draft instrument. The Scottish Government are keen to see this SI made law.
I will now look at what the e-commerce directive is and what the SI claims to achieve. The directive seeks to contribute to the proper functioning of the internal market by ensuring the free movement of information society services within the EU. The directive is also relevant to the European Economic Area. This SI implements the e-commerce directive’s country of origin principle in relation to these offences, where relevant. Under the country of origin principle, an information society service should be only under the jurisdiction of the member state in which the service is established, not the European Economic Area country that the service is targeting. The country of origin rules are described in more detail in the Explanatory Memorandum at paragraph 4.2.
Finally, the SI also implements articles 12 to 14 of the directive, where relevant, which limit, in specified circumstances, the liability of intermediary service providers which carry out certain activities essential for the operation of the internet, namely those which act as “mere conduits” and those which “cache” or “host” information. I emphasise that the sole intention and outcome of this statutory instrument is to implement parts of the electronic commerce directive in relation to various offences, where this has not been done before. It will not create or set new policy; instead it is a technical measure to ensure compliance with EU law. I look forward to the Committee’s questions and hope that your Lordships will allow this SI to become UK law.
I thank the Minister for her very clear introduction. This is a very interesting regulation—for aficionados. As she spoke in detail about it, that introduces the country of origin principle for discussion. I understand completely what the draft SI is meant to do. I expect that somebody in DDCMS woke up in a cold sweat and suddenly realised that there was quite a backlog of criminal offences in Scotland and Northern Ireland that needed to be brought within the scope of the e-commerce legislation. Such cold sweats can occur, even in the best-run government departments. We should not impede the passing of this SI simply because some of the offences are rather ancient. We are not dealing just with 2015 offences.
Of much more interest for those who are currently debating the European Union (Withdrawal) Bill is the whole question of the future application of the country of origin principle. After all, starting with the e-commerce directive, the EU Commission aimed to create an effective single market, particularly in the field of online retail. It is extremely pertinent to what is going to happen next. The current law is set out in the EU electronic commerce directive 2000, implemented into UK law in 2002. The regime covers almost every commercial website and is not restricted to online buying and selling but covers any service provided for remuneration at a distance using electronic means. On top of that, we have EU-derived distance selling and cookie regulation.
Much e-commerce law is implemented largely through secondary legislation, which will be preserved after Brexit takes place. However, the EU is obliged to revisit the directive every two years, so a divergence between the EU and the UK is possible. Therefore, the question arises as to whether we are going to need some sort of adequacy ruling for country of origin, rather in the way that we will probably have such a ruling for data protection. Indeed, is country of origin going to be available to us in the first place? Does the e-commerce directive fall away post Brexit? As I am sure the Minister is aware, country of origin principles applied to broadcasting will fall away unless there is a special deal which breaks through the normal cultural exceptions put into free trade agreements. So I am a little pessimistic about that.
Then, of course, the wagon rolls on. The consumer protection co-operation regulation was adopted by the Commission in December 2017. A regulation on addressing unjustified geo-blocking was adopted this February. There are two legislative proposals on the supply of digital content, and on online and other distance sales of goods, which the Commission proposed in December 2015 and are currently under negotiation in EU institutions. What are the Government’s intentions in respect of the new EU digital single market developments? Does they intend to stay aligned with e-commerce law in the EU? If so, how? If not, what will the consequences be? I would be extremely interested to hear from the Minister.
My Lords, the noble Lord, Lord Clement-Jones, must first hear from me. Perhaps that will give the Minister a little time. I am very grateful for the way in which an aficionado made me aware of this welter of material relating to the way that information flows and the activities that benefit from that flow of information across Europe in so many fields.
This SI is relentlessly logical. I cannot understand why the law on such important and serious matters as human trafficking, prostitution, the care of children, threatening comments, intimate images—all those things that are listed here—came on to the statute book in Brussels in 2000 and here in 2002 but it has taken us until 2018 to deal with it. The country of origin thing may be part of the answer, I do not know. But, as the noble Lord, Lord Clement-Jones, said, just this morning we received a visit from commercial broadcasting people who are terribly worried about this country of origin principle and how it will affect their business in the future.
This SI is intended to ensure the smooth functioning of the internal market and to ensure consistency with EU law—all of that—while we are still members of the EU. I share the bemusement of the noble Lord, Lord Clement-Jones, about what might happen afterwards. He talked about adequacy, the future application of country of origin—will that continue?—and possible divergence that may occur as two different regimes pursue ways forward according to their own respective best lights, which may not be the same.
Of course, Brexit is raising a whole host of details of this kind, which make us aware of how silly we were to go down this road in the first place. Perhaps that remark ought not to go on the record—it does not belong to this debate—but I could not forbear from making it. But here we are with something that makes obvious sense but raises questions of concern that lie beyond its scope and its date. We wonder about both the scope and the date and what will happen to us all very soon. But I have no hesitation in supporting this statutory instrument.
I thank the noble Lords, Lord Clement-Jones and Lord Griffiths, for their contributions, particularly the noble Lord, Lord Clement-Jones, who went off on one, I think. He will probably not think that the answer is good enough but, as we know, the UK will be leaving the digital single market but we will continue to work closely with the EU on digital issues as we build on an existing strong relationship in the future economic partnership. We will seek an ambitious agreement with the EU that enables the best possible access to each other’s markets. There is mutual advantage in the continued close relationship between the UK and the EU on digital issues and the advancement of digital transformation across Europe.
The Minister is entirely correct.
With that, I think I have covered everything that was mentioned. As I said, this SI is important, and I have set out clearly why we need these regulations, which are technical. They will provide legal certainty to UK online services to enable them to trade across the EU with confidence. I therefore commend them to the Committee.
Data Protection (Charges and Information) Regulations 2018
Considered in Grand Committee
That the Grand Committee do consider the Data Protection (Charges and Information) Regulations 2018
My Lords, the work of the Information Commissioner and her office is of fundamental importance and relevance in today’s society. Data is a pivotal element of the digital revolution, enabling a multitude of technological innovations that support growth and benefit our society. However, for these innovations to be successful, we—both government and the general public—must be confident that our data is not being misused. For this reason, we are modernising our data protection laws through the Data Protection Bill, and providing new and stronger powers for the Information Commissioner.
An effective data protection regulatory framework is critical to retaining the right balance between innovation and privacy. This is particularly the case now, when data is at the forefront of the political agenda, both domestically, with the Data Protection Bill currently in Parliament, and internationally. This was highlighted in the Prime Minister’s recent Mansion House speech, which featured the UK’s exceptionally high standards of data protection as one of the foundations underpinning our post-Brexit trading relationship with the EU. This changing data protection landscape has increased the responsibilities of the Information Commissioner and the challenges she faces, and with these increased responsibilities comes an increased cost.
It is crucial that we ensure that the Information Commissioner and her office are adequately funded to fulfil their responsibilities and that government meets its responsibility under the GDPR to ensure that the ICO is funded for the effective performance of its tasks. As with other similar organisations, such as the Care Quality Commission, Ofcom and the BBC, it is only right and appropriate that this funding comes from charges levied on relevant stakeholders—in this case, data controllers.
Currently, data controllers pay two tiers of charge: tier 1, for organisations with less than 250 staff or turnover under £25.9 million, is £35 per annum; and tier 2, for the remaining larger data controllers, is £500 per annum. These charges have not increased at all since their introduction in 2001 and 2009 respectively. The regulations will implement a new charge structure in order to fund the Information Commissioner’s data protection activities, and will come into force on 25 May 2018, which is when the new Data Protection Act and the GDPR standards are due to take effect.
The new structure is made up of three categories of charge: “micro-organisations”—including individuals—which will pay a charge of £40; “small and medium organisations”, which will pay £60; and “large organisations”, which will pay £2,900. The structure is designed to be closely aligned with the standard government categorisation of businesses. Furthermore, a £5 discount applies to all organisations where they pay by direct debit. This in effect means that micro-organisations which pay by direct debit will pay the same charge that they have since 2001 and that all micro, small and medium data controllers are paying less than the annual cost of a Netflix subscription towards maintaining the ICO as a world-class data protection regulator.
Similar to the current approach under the Data Protection Act 1998, public authorities will be categorised on the basis of number of members of staff only. In addition, charities and small occupational pension schemes will continue automatically to pay the lowest charge. The new funding model for the Information Commissioner has three main policy objectives. It will ensure an adequate and stable level of funding for the ICO, build regulatory risk into the charge level and raise awareness of data protection obligations in organisations, thereby increasing their compliance. Let me expand on what that means in practice.
First, in designing the new charge structure, the Government, in conjunction with the ICO, have given detailed consideration to the income requirements of the ICO now and in future. The new charge levels recognise the increased funding required by the ICO under the new data protection regime and spread the funding provision appropriately across each of the three tier groups. The charge levels have been increased from the current level of fees primarily to reflect the increased responsibilities of the ICO under the GDPR. For example, the GDPR will expand the Information Commissioner’s responsibilities in relation to mandatory breach notification and data protection impact assessments, as well as increasing the scope and scale of her existing activities. In 2016, the Department for Culture, Media and Sport estimated that the ICO’s income requirements for its data protection functions will increase from approximately £19 million in 2016-17 to approximately £33 million in 2020-21. A financial forecast for the first year of operation under the GDPR—that is, 2018-19—sets the income requirement for the ICO at approximately £30 million. It is imperative for the ongoing success of the UK’s data protection regulatory framework that the ICO has the income it needs to continue fulfilling its vital functions to such a high standard.
Secondly, large organisations, including public authorities, often hold the most complex and sensitive datasets, as such represent a higher level of information risk and will generally draw more heavily on the ICO’s resources than small organisations that process small amounts of personal data. The charge structure has been designed to ensure that overall income from each group of data controllers—micro, small and medium, and large—adequately reflects the proportionate information risk accruing to each group, as well as to recognise that it would not be appropriate for large businesses and public authorities to be effectively subsidised by small and micro-businesses, which make up the majority of the register of data controllers.
Thirdly, and finally, in making these regulations we are highlighting the importance of compliance with the UK’s data protection regulatory framework to data controllers, thereby increasing their awareness of the ICO as the regulator and their own obligations. The new regulations substantially replicate the current exemptions from paying notification fees, with some exceptions. The regulations will remove the current exemption for some data controllers who are only undertaking processing for the purposes of safeguarding national security, and introduce clarification to the wording of the existing personal and household purposes exemption to make clear that homeowners using CCTV for these purposes are no longer required to pay a charge under the new scheme. I appreciate that there is appetite from stakeholders to review these exemptions in general; the Government have committed to undertake a public consultation on the exemptions later this year. Your Lordships may be interested to hear that we are especially minded to consider an exemption for elected representatives and the House of Lords.
In conclusion, the work of the Information Commissioner and her office is fundamental to the success of our digital economy. It is vital that we secure adequate funding, for now and the future. The new funding regime set out in these regulations maintains the spirit of notification fees in charging only those people and organisations that handle personal data without the need for direct government funding, while providing the ICO with the level of income it requires to continue to deliver as a world-class data protection regulator. I beg to move.
I thank the Minister for her comprehensive introduction. We all accept the need for a well-resourced Information Commissioner’s Office. On Report, we welcomed what the noble Lord, Lord Ashton, who was the Minister at the time, had to say in response to an amendment from the noble Lord, Lord Puttnam, about the commitment to ensuring that the commissioner has adequate resources to fulfil her role as a world-class regulator and to take on the extra regulatory responsibilities set out in the Bill. There is no argument between us about the principles of funding the Information Commissioner’s Office. The pledges made by the noble Lord, Lord Ashton, were very welcome. We wish the Information Commissioner well with her extended role and her extended £33 million budget.
That does not come without a cost to data controllers. It is not simply a question of deciding the budget and then deciding what people pay, without considering affordability. Local authorities have put to me that they are very concerned at the lack of consultation offered to all affected parties, including the LGA, ahead of the new charging model. Apparently, approximately 40,000 data controllers were written to, inviting them to respond to the consultation: I understand that about 2,000 did so. However, not all affected parties were offered the opportunity to contribute. The consultation, and responses to it, are not publicly available, which differs from most government consultation. Will the Minister commit to publishing the outcome of the consultations?
Local authorities are concerned by what appears to be a rather arbitrary increase in the charges that they will have to pay to the ICO as data controllers. I also understand that it is proposed that elected representatives will be subject to a small increase in their charge. Under the new charging model, councils with 250 or more employees are defined as large data controllers and are subject to the highest fees under the SI. In practice, most councils that would have been paying £500 to register with the ICO will now have to pay £2,900. This is an increase of 480%; an inflationary increase would have seen the fees rise from £500 to £623.61. This comes at a time when local government is under significant financial pressure and local councils are receiving no additional government funding to help implement the GDPR.
It seems from the Explanatory Memorandum that the Government are considering an exemption for elected representatives, subject to a full review of exemptions in general. In the current process, there are exemptions from the requirement to register with the ICO. These include exemptions for those maintaining a public register, for staff administration purposes, for advertising and for accounting. I refer the Minister to paragraph 7.10 of the Explanatory Memorandum, where the Government state their intentions about the review.
On these Benches, we would definitely support an exemption for elected representatives. Councillors should not have to pay a charge to the Information Commissioner to correspond with their residents and should not incur a cost associated with their duties in representing their constituents. I am interested to hear what the Minister has to say about the review which is heralded in the Explanatory Memorandum.
My Lords, I agree with just about everything that the noble Lord, Lord Clement-Jones, said, particularly on the comments—they have been passed to me as well—from the Local Government Association, which seems to have been badly hit by the changes. He will remember, although I think this predates the Minister, that we went through some of the thinking behind the charges in what is now the Digital Economy Act. He will recall the debate and discussion at that time; it is good to see it coming through now in a form that we can look at.
I will not repeat some of the issues that have been raised because I come at this with a slightly different argument, although we arrive at roughly the same place. First, noble Lords could not have gone through the Data Protection Bill without recognising, as the Minister did, the huge amount of extra work and responsibility that will lie with the ICO after it went through. It is an astonishing step change. Yes, it is true that that is reflected in the additional resources, which will be calculated to flow from these changes and increases in the fee structure, but two questions arise. We are relying for the arithmetic on work that was done, as I understand it, by working through the new charge structure; the department has modelled the anticipated income generated to try to come up with something. Two things occur to me from that.
First, what happens if the calculations are wrong? As we speak, we are living through a situation in which a huge additional workload has suddenly landed on the ICO’s desk. Cambridge Analytica was not a household name before this week’s revelations but if the matter goes to court to get submissions, the ICO will have to prosecute and defend itself. I cannot quite see where that was built into things. I am not looking for a specific response but I want to sharpen the question. It is all very well being on a cost-recovery basis when the funds exceeds the expenses, but what happens when they do not? Who will carry the cost? Can the Minister comment on that? Secondly, would it be possible to get a bit more detail about how this plays out in real terms, given the reserves that are allowed to be carried forward and the implication for what work would have to be cut if it is not possible to carry forward deficits from year to year? We are talking about government accounting so, presumably, the NAO will be watching very carefully. I worry a bit about what will happen in the short term. I do not want a detailed response now but I would be happy to get a letter on that.
My second point is about the assertion made that somehow the structure we have here is a way of responding to what was described in paragraph 7.2 of the Explanatory Memorandum as building,
“regulatory risk into the charge level”.
I do not understand what risk is being assessed here. Again, this may need a more considered response. Is it the numbers? It is clear that there will be a lot more tier 1 organisations and therefore a lot of detailed administration and housekeeping, but does that equate to risk? I think not. I therefore wonder why the charge, relatively speaking, is being kept at roughly what it was before—it is still £40—and has been extended.
I do not think that the noble Lord, Lord Clement-Jones, made this point today but I am sure that he raised it in discussion in Committee and on Report. We are talking about a situation where it did not matter whether you registered with the system under the Data Protection Act 1998, despite the fact that the noble Lord did not get his amendment through on having a statutory register for these things. I am sorry about that. There will effectively be a register for all those who use data, which will be policed to some extent. Therefore, the chances are that anyone who was not paying before will certainly be caught now. There is a huge additional element here that has not been previously caught or considered. I am intrigued by that. Therefore, the comment made about not wanting micro-organisations to pay for their activities further up the scale struck me as a little odd. Perhaps we might come back to that.
Tier 2 includes the mid-range of the organisations. A lot of companies are in this area; in fact, the bulk of activity in the industry. Yes, they should pay for services received but I would hazard that they are extremely low-risk. I cannot believe that major breaches of personal data are happening in a large number of small and medium-sized enterprises. That bears comparison with the new third tier that has been introduced to look at large organisations; we are talking about Facebook and other organisations which I do not need to name. We are asking them only to pay a modest proportion more than small and medium-sized organisations. I do not know how that equates to risk. It seems that the evidence of this week is that 50 million Facebook accounts could have been picked up and used in some alleged way of trying to influence elections. We are talking about damage on a substantial scale, which is not the same, in any sense, as that which might occur to citizens—the local joiner, plumber or building firm mislaying their accounting records for a short period. However, I am prepared to listen to the arguments on that.
Add to that the fact that public authorities, which have not previously been involved to this extent, as mentioned by the noble Lord, Lord Clement-Jones, and, presumably, government are also paying. Where was the risk relationship in that? It seems that the public sensitivity on comes from the Government, government agencies or public authorities more generally having a place in people’s thinking that is disproportionate to the possibility of the damage that might be caused by a breach. In other words, there will in some senses be more concern about the loss of privacy in terms of health or other issues than there perhaps would be about the loss, as we have seen in some cases, of phone records and credit card details from a telephone company. Again, what is the risk profile here? Perhaps we need a bit more on this.
The proof of what I am saying was made pretty evident by the examples the Minister gave; even she must have had a slight smile on her lips when she was doing that. To compare this with the contribution that you pay for a Netflix subscription verges on the ridiculous. We are talking about very serious, damaging issues: cybercrimes are on the increase, people put themselves in danger by releasing data uncontrolled on to the internet—and children are affected. These are all things that were talked about in the debates on the Data Protection Bill. These come to force in the way in which the Government set up their charging system, and we have not got this right. I do not want to hold up this statutory instrument, even though I object to the fact that it is not coming out on a common commencement date. However, I understand the reason for that, because these things come into force on 25 May irrespective of what we do. However, I hope that the reviews of the statutory instrument will have a chance to look at some of these things in more detail than perhaps we were able to during the passage of the Digital Economy Act and the Data Protection Bill. Now that we see them, they do not measure up to the aspirations we had for them, and more thought should be given to them.
Finally, I acknowledge that I have benefited from the comment made by the Minister when she introduced the clarification to the wording of the existing exemption relating to processing for personal and household purposes to make clear that homeowners such as me, who use CCTV, are no longer required to pay a charge. I have been paying a charge since 2005 and I am delighted to see that I will be relieved from that going forward; had I not been here today, I would not have known that. I will also benefit from the fact that elected representatives, including Members of the House of Lords, may not have to register in future.
I thank the noble Lords, Lord Clement-Jones and Lord Stevenson, for their comments.
The noble Lord, Lord Clement-Jones, asked whether we will publish the results of the consultation. In response to interest from Peers and in the interests of transparency, they will be published shortly. Both noble Lords talked about the top tier. Indeed, as the noble Lord, Lord Stevenson, said, these regulations and the GDPR come into force on 25 May, so we are a bit short of time. The top tier has been raised significantly, and the amount has been set out to ensure appropriate funding for the ICO without leading to excessive surplus. However, I hear what the noble Lord, Lord Stevenson, said about large companies. It is important to remember that DCMS will review the income generated annually to ensure that it remains appropriate, so it can be checked.
The noble Lord, Lord Stevenson, also talked about large public authorities. It is important to remember that they hold a huge amount of sensitive data about members of the public; therefore they are subject to high levels of information risk. So we consider it appropriate that the regulation of these organisations is effectively subsidised; that means that they are paying a large sum, but the small and medium-sized businesses are not. It is important that they should not be unfairly charged. The new funding model is aimed at ensuring that the new charges are fair and reflect the risk of the organisations. The small and medium-sized businesses will not be paying any more than they have been, in real terms. It is the larger organisations that will be paying the most.
I may not have made the case clearly enough. We have not seen the figures but the last time we asked about this we were told that the proportion of very small registrants—micro-companies and individuals—is really small. As we learned when the Bill was in Committee, an awful lot of people and loads of small companies and organisations—including parish councils, of which much was made—will have to appoint data controllers to make sure that their systems are up and adequate. That is right, but the shock of having to pay on a regular basis will be substantial. I want to make it clear that going from 10% to 100% of people involved in this will be a major change in people’s thinking.
They have been paying up until now, but a very small amount.
Those that registered did pay, but very small numbers do. That is the point. I bet that no parish council has ever registered: every one will have to register. That is a big change.
I take the noble Lord’s point. However, more often than not they will be able to use somebody who is already on the parish council to do the work. They will not have to pay somebody extra to do it. We feel that this is the fairest way of doing it. Those with the least money are paying the least and those with the most money are paying the most. I think I have answered all the questions.
I do not think the Minister has really answered the question about the lack of consultation with local authorities and why they are being particularly hit by this new set of charges.
As I said earlier, it is because we feel they have quite a lot of risk. They hold a huge amount of data, so it will be quite a lot of work for the commissioner. It is only fair that they should pay their way. Does that satisfy the noble Lord?
Yet their resources are shrinking on a daily basis.
It is not so much whether they should be paying—we probably accept that they should, though how much is in question—it is the fact that they were not consulted. The consultation exercise did not reach that far and the Minister was going to try to give some information about why that could have been.
In 2015, the ICO used the BDRC, an independent market research company, to conduct initial research about its funding structure. The contractors of the survey were provided with a sample of 10% of the register of the Information Commissioner’s Office, including all top fee-payers and a random sample of lower ones. In 2017, data controllers who responded to this initial research formed the basis of the targeted consultation on the new charges last year. This comprised a representative sample of data controllers, including public authorities, small businesses and other large organisations.
I thank noble Lords for their contributions on this important matter. I believe that the funding regime proposed today represents the best way of ensuring that the ICO is appropriately resourced for its increased role, while still keeping regulatory costs and burdens low for small businesses. I assure the Committee that, while the exemptions from paying charges have not significantly changed at present, they will be comprehensively reviewed with a view to updating them later this year. I beg to move.
Committee adjourned at 7.24 pm.