Wednesday 21 November 2018
My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.
Misuse of Drugs Act 1971 (Amendment) Order 2018
Considered in Grand Committee
My Lords, I am grateful to the Advisory Council on the Misuse of Drugs for its advice, which has helped to inform the draft order before us. The order was first laid before Parliament on 17 October and will control pregabalin and gabapentin as class C drugs under the Misuse of Drugs Act 1971. Should the order be made, pregabalin and gabapentin will be subject to permanent control under Schedule 2 to the Misuse of Drugs Act 1971 through an amendment to Part 3, which specifies the drugs that are subject to control under the 1971 Act as class C drugs.
The order follows the recommendation from the ACMD to control the two drugs under class C of the 1971 Act, as their harms are comparable with those of other substances controlled as class C drugs. To help those with a legitimate medical need access these drugs, and subject to Parliament’s approval of the order before the Committee now, we will schedule both drugs under Schedule 3 to the Misuse of Drugs Regulations 2001 through regulations.
Pregabalin and gabapentin are prescription medicines which are used to manage a number of disabling long-term conditions, including epilepsy. They are also licensed for the treatment of general anxiety disorders. In its advice, the ACMD identified a number of harms—in particular, it drew attention to the dangers that can arise when the drugs are used in combination with other central nervous system depressants. In these circumstances, they can cause drowsiness, sedation, respiratory failure and death.
The ACMD also highlighted the risk of addiction that pregabalin and gabapentin presented, as well as the potential for illegal diversion and medicinal misuse. Its advice also drew attention to the concerns of health staff in prisons who reported a high number of prisoners being prescribed the drugs without a thorough assessment of their needs.
Across the United Kingdom, there have been significant increases in the prescription of both drugs: pregabalin prescriptions have increased from 2.7 million in 2012 to 6.25 million in 2017, while gabapentin prescriptions have risen from 3.5 million in 2012 to over 7 million in 2017. In tandem, there has been an increase in the number of deaths related to pregabalin and gabapentin since 2009. In the last five years there have been 408 deaths where pregabalin was mentioned on the death certificate, and 203 in the case of gabapentin. This compares with four and one for pregabalin and gabapentin respectively in 2009.
By controlling the two drugs, we will restrict the potential for misuse by making diversion and their illicit supply more difficult but without compromising access for those who have a legitimate need to access the drugs for healthcare purposes. Parliament’s approval of this order will enable UK law enforcement to take action against those who illegally supply these drugs and against those who illegally possess them. Possession of a class C drug is an offence resulting in up to two years in prison or an unlimited fine, and the supply or production of a class C drug is an offence resulting in up to 14 years in prison or an unlimited fine.
If approved, the order will send a clear message to the public that the drugs should only be in the possession of those who have been legitimately prescribed them. We hope that the significant supply offences for class C drugs will make people think twice before they consider diverting pregabalin and gabapentin into the illegal market.
The measure to control these drugs is scheduled to come into force in April 2019. Given the widespread use of the two medicines, this will help to provide the healthcare sector with sufficient time to implement the new requirements. I can assure Members that all relevant information will be communicated to other stakeholders and the wider public. The Home Office will issue a circular with legislative guidance for the police and the courts. Guidance will also be published following engagement with interested parties about the effect of the legislation in preparation for it coming into force in April. In addition, the Government will continue to update its messaging on the harms of these substances.
I hope I have made the case to control these harmful drugs and I commend the order to the Committee.
My Lords, I am very grateful to the Minister for explaining the order to us. As she has said, this puts two substances into class C of the Misuse of Drugs Act 1971, on the recommendation of the Advisory Council on the Misuse of Drugs.
We support any evidence-based scientific approach to reducing the harm caused by drugs, legal or illegal. My question is very simple. The noble Baroness talked about a very clear message being sent to the public, but why do the Government not always act on the scientific, evidence-based assessment of the ACMD?
The problem with drugs classification under the Misuse of Drugs Act is threefold. First, based on independent scientific assessment, drugs are not classified according to the potential harm that they cause. For example, GHB—gamma-hydroxybutyrate—is believed to cause a significant number of deaths—perhaps as many as several a week in the UK alone. Yet it is classified as a class C drug. Cannabis which, to my knowledge has not been the direct cause of any drug-related death, is a class B drug. Because of this, and several other misclassifications of which I could give examples, the classification of drugs under the Misuse of Drugs Act has fallen into disrepute among those who might arguably be helped most if they knew that the classification of drugs was based on how dangerous they were.
At this stage, I should point out an interest to the Committee. A former partner, who then became my best friend and who was very experienced in the use of recreational drugs, died from an accidental overdose of GHB.
Secondly, because the classification system does not reflect potential harm, only potential sentence, it has become irrelevant to most drug users. They quite simply work on the basis that the penalty is irrelevant to them as they have no intention of getting caught.
Thirdly, any drug classified under the Misuse of Drugs Act carries a heavier penalty than a new psychoactive substance covered by the Psychoactive Substances Act 2016 in that possession of a new psychoactive substance is not an offence, whereas possession of any drug classified under the Misuse of Drugs Act is an offence. This is even though some of the new psychoactive substances are more harmful than drugs classified under the Misuse of Drugs Act.
Our drugs laws are a mess, the Government’s drugs strategy is ineffective and, if we are to stop our young people dying, we need a fundamental rethink. We called for a scientific, evidence-based review of our drugs laws when we debated the Psychoactive Substances Bill—a proposition both the Conservative and Labour Benches refused to support. Therefore, I note with interest the comments of the Parliamentary Under-Secretary of State at the Home Office, Victoria Atkins, in the other place, when this order was discussed by the Tenth Delegated Legislation Committee on 12 November this year, at 6.05 pm, where she said that the Government have announced,
“an independent review of the misuse of drugs in the 21st century”. —[Official Report, Commons, Tenth Delegated Legislation Committee, 12/11/18; col. 4.]
Can the Minister provide the Committee with further details of who will be conducting this review, what their terms of reference are, and any other details that may be of interest?
My Lords, I thank the Minister for explaining the purpose of the order and its provisions. We support it but I have some points that I would like to raise. As has been said, the order controls pregabalin and gabapentin as class C drugs under the Misuse of Drugs Act 1971. Currently these two substances are subject to the Psychoactive Substances Act 2016.
The two substances are used, as the Minister has said, to manage a number of disabling long-term conditions including epilepsy and general anxiety disorders. Although they have legitimate medicinal uses for which they can continue to be used, the two substances in question, when taken with other central nervous system depressants, can be the cause of serious harm including respiratory failure and, at worst, death. The Advisory Council on the Misuse of Drugs has said the two substances in question can be addictive, with the potential for illegal diversion and supply and medicinal misuse. Prescription rates have soared—the Minister gave the figures—while the number of deaths related to the two substances have also increased: just over 400 from pregabalin over the last five years and just over 200 from gabapentin.
Concerns were raised in 2014 by the Health and Social Care Board about the potential misuse of pregabalin. Apparently, in February 2015 Her Majesty’s Inspectorate of Prisons reported concerns of health staff in prisons that a high number of prisoners were being prescribed the drugs without a thorough assessment of their needs, and in a way that did not meet best-practice guidelines. Does that mean prisoners in prison being prescribed the drugs without a thorough assessment of their needs or prisoners prior to their coming into prisons being prescribed the drugs in the wrong way? Either way, the question must be how that has been allowed to happen. What will the planned guidance and communication say to address the issue of drugs of this kind being prescribed without a thorough assessment of the patient’s needs?
For how many years have these two substances been available? What is it that starts the procedure for the control of such substances as class C drugs as per this order? With concerns being raised in 2014, it does not seem to be a particularly quick process. Who or what organisation makes the initial move, and what is then the procedure for getting the matter before the Advisory Council on the Misuse of Drugs? Or is it the advisory council that has to take the initiative in the first instance?
Paragraph 12.2 of the Explanatory Memorandum states:
“Enforcement of offences in relation to drugs controlled by the Order will be subsumed into the overall enforcement response to controlled drugs”.
That statement is in marked contrast to the impact of the order on pharmacies, GPs and the NHS as a whole, for which precise figures have been given in the Explanatory Memorandum with regard to the additional cost. So what will the additional cost be of implementing this order to the police, the court system and the Prison and Probation Service of enforcing these new offences? What is the estimated number of new offences that will be committed each year as a result of controlling these two substances as class C drugs? Is the reality for our overstretched police that either they will not arrest many people for offences related to those two substances or, if they do, it will be at the expense of investigating, enforcing and arresting people for other offences? Is that what,
“subsumed into the overall enforcement response to controlled drugs”,
really means? If not, what does that phrase mean?
Paragraph 13.3 of the Explanatory Memorandum states:
“Exemption from the 1973 Regulation requirements will also ensure that small business should not incur additional cost, e.g., for providing new safes within their premises”.
What are the implications of not providing safes within premises? How many businesses will be exempt from the 1973 regulations? What businesses are they? Against what criteria is a judgment made on whether to make an exemption from the 1973 regulations? What would be the cost of providing new safes or cabinets? Paragraph 16 of the impact assessment refers to,
“the excessive cost to medical suppliers of the drugs that the 1973 Regulations require”.
It is therefore clear that an estimate of the cost has been done, since, without it, nobody could refer to “excessive cost”.
I am sure that the Minister will correct me if I am wrong, but, as I understand it, the exemption was not recommended by the Advisory Council on the Misuse of Drugs, which thought that the regulations should apply.
I thank both noble Lords for their points. The noble Lord, Lord Paddick, asked about the review of drugs. As he said, the Home Secretary announced on 2 October a major, independently led review of drug misuse. While the review will obviously not cover prescription drugs, it will look at a wide range of issues, including the system of support and enforcement around drug misuse, to inform our thinking about what more can be done to tackle drug harms. It will make sure that we know as much as possible about who drug users are, what they are taking and how often, so that law enforcement agencies and the police are able effectively to target and prevent the drug-related causes of violent crime. We will shortly set out the terms of reference and the name of the reviewer, which I cannot give at this point. The review will inform our thinking and help shape what more we can do to tackle drugs and drug harms.
The noble Lord, Lord Rosser, asked whether the drugs are prescribed before people come into prisons or while they are there. I do not have that answer now, but whether the drugs are used before prison or while in prison, it is a problem in the prison estate. I will provide him with a breakdown of where we think the prescribing occurs.
The noble Lord asked whether the Government had asked the ACMD or vice versa. The Government can ask the ACMD for its advice, but the ACMD can also ask the Government to instigate an assessment of drug scheduling. On the additional cost, the financial implications are set out in the impact assessment. The cost in year 1 to pharmacies is estimated to be about £97,000 and the cost to the CPS £172,000. There is an additional dispensing cost to the NHS which is estimated at present value to be £53.7 million over 10 years. That has obvious implications for GPs. Officials will meet the necessary bodies to outline the effect on GPs’ practices of the rescheduling of both drugs.
The issue was not that I was not aware of the costs on GPs, pharmacies and the NHS, because they are spelled out in great detail in the document, even telling us what is the average pay per hour, working out that it would require five minutes for people to find out how to operate the new system and working out the cost of five minutes at £20 or £30 per hour—whatever the figure is. My point is that there is no reference to the cost of the order on the police, the criminal justice service, the probation service or the Prison Service—people can be sent to prison for up to two years. It just says that the cost will be subsumed into the overall cost of dealing with controlled drugs. I find it odd that the Government can set out the calculations in enormous detail of what it will cost pharmacies, GPs and the NHS but remain utterly silent on what the cost will be to the criminal justice system.
I outlined the projected costs to the CPS in year one, but the noble Lord asks a reasonable question and I will try to get him an answer. As he says, the number of organisations affected is stated in the impact assessment.
The noble Lord, Lord Paddick, asked me about the exemption from the 1971 regulations. If I may, I shall write to him. Oh, it was the noble Lord, Lord Rosser.
My point was that small businesses appear to have been exempt from the 1973 regulations in relation to the provision of a safe or appropriate cabinet. I shall stand corrected if I have got it wrong, but I understand that that was not what the advisory committee recommended. Why has the advisory committee’s recommendation been ignored in this case and what are the implications of not applying the 1973 regulations in relation to storage in safes and cabinets?
But am I nevertheless correct in saying that the ACMD did not say that the 1973 regulations should not apply? I am well aware that there is consultation; the document says that small businesses were dead against the regulations being applied, which may not be a surprise. I am asking about the implications of not applying those 1973 regulations, bearing in mind that, as I understand it, the ACMD did not say that they should not apply?
I go back to the consultation. Following the provisions of this option will mean that, although the drugs will be subject to auditing requirements, there will be no requirement to store them in controlled drugs safes—as the noble Lord said. Apparently, a significant number of respondents did not think that organisations could accommodate the drugs in existing safes, and expressed concern that this would result in substantial additional costs associated with buying and installing such safes.
I thank the noble Baroness for her promise to write to me, but these regulations about storage were drawn up with a purpose, to prevent something happening. It is now being said that they will not apply, although, as I understand it, that is not what the ACMD recommended. What is the downside of not applying the regulations, which were presumably made with a purpose? Clearly, the people most against them being applied were the small businesses that would be affected. Can I be told what the downside of not applying them is? Why was the recommendation of the ACMD not followed? I understand that there was consultation, I understand that there were groups which were against that, but perhaps they had a vested interest.
Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018
Considered in Grand Committee
My Lords, these draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018, and will be needed if the UK leaves the European Union next March without a deal. Following the UK’s decision to leave the EU after the referendum in 2016, the Government have been working to develop a positive future relationship with the EU. This would include a comprehensive and ambitious air transport agreement.
The Department for Transport has undertaken a significant amount of work with respect to the withdrawal negotiations and to prepare for the range of their potential outcomes. The best outcome is for the UK to leave with a deal and, as noble Lords will be aware, a draft withdrawal agreement is being considered. We remain confident that this agreement will enter into force at the end of March next year but, as a responsible Government, we must make all reasonable plans to prepare for a no-deal scenario. To that extent, we have conducted particularly intensive work to ensure that there continues to be a well-functioning legislative and regulatory regime for aviation. We set out in the technical notices in September how this would work and this instrument provides the means to deliver some of those outcomes.
EU Regulation 1008/2008 provides the basis for the internal market in air services. It consolidated provisions within a number of prior regulations that had gradually liberalised the market for air services within the EU. The regulation sets out harmonised conditions for the licensing of air carriers in the EU and provides the right for any EU-licensed air carrier to operate on any route within the EU, without prior authorisation. The regulation prohibits market distortions which had historically existed in Europe, such as restrictions on pricing or the ability of air carriers to freely set air fares and lease each other’s aircraft. It also sets out common rules for the provision of public service obligations through scheduled flights to peripheral regions that would not otherwise be commercially viable.
A further element of the internal market provided for by this regulation is for wet leasing. A wet lease is when one air carrier leases an aircraft together with its crew, maintenance and insurance from another operator. EU air carriers can freely wet lease aircraft registered in the EU, provided that it would not endanger safety, but restrictions are imposed on the lease of aircraft from beyond the EU. The EU has also pursued an external aviation policy by agreeing comprehensive air transport agreements with third countries, and by seeking consistency in the provisions of the bilateral air service agreements between member states and third countries. Regulation 847/2004 establishes a procedure for member states to notify each other and the Commission, and to work together on the negotiation and conclusion of air service agreements.
The draft regulations we are considering today fix deficiencies in the retained EU regulations, alongside the preserved domestic legislation made to implement aspects of those regulations, so that the statute book continues to function correctly after exit day in the event of no deal. The effect of these fixes was described in the technical notice published in September, which set out how the UK would regulate air carriers. Many of the fixes make it clear that the retained legislation applies only to the UK. For instance, references to “Community air carrier” are replaced with “UK air carrier”. Another amendment requires air carriers to have their principal place of business in “the United Kingdom” rather than in “a member state”. Since, in the event of no deal, the UK would no longer participate in the EU’s external aviation policy and the Commission would have no authority in the UK, regulation 847/2004 would be revoked. The UK would be free to negotiate bilateral air services agreements with other countries without regard to the Commission or EU member states.
Turning to operating licences, the withdrawal Act ensures that operating licences previously issued to UK air carriers remain valid. An operating licence is required by air carriers before they can offer commercial air transport and ensures that UK air carriers are financially robust, appropriately insured and managed by fit and proper persons. A separate air operator certificate is also required and ensures that the air carrier meets essential safety requirements. While all commercial aircraft operators require an air operator certificate to show that they are safe, some will not provide air transport services—for instance, a hot air balloon offering leisure flights—and therefore would not require an operating licence.
Separate instruments on aviation safety, security and the rights of air passengers will be brought to the House in the coming weeks. UK-licensed air carriers will need to continue to meet all the substantive requirements for a valid operating licence, with one exception. The requirement in regulation 1008/2008 for air carriers to be majority owned and controlled by EU nationals would be revoked, since this is a definition that would no longer apply to UK nationals. It would also be redundant for two reasons. First, nationality requirements are routinely specified in the terms of our air services agreements. These determine the eligibility of air carriers to operate under the terms of those agreements, based on the nationality of their ownership. We expect any future aviation agreements with the EU to include that nationality requirement. Secondly, in the event of no deal, all UK air carriers would require a route licence to operate beyond the UK. There is a nationality requirement in that route licence too.
UK route licences pre-date the EU operating licence, and in many ways were superseded by it, since, through the UK’s membership of the EU, our air carriers were exempted from the requirement for a route licence for operations to the EU. Route licences serve a useful purpose. Unlike an operating licence, conditions can be attached to the licence preventing air carriers operating certain routes. For example, route licences prevent UK air carriers flying directly to Northern Cyprus, and it is the mechanism through which decisions on the allocation of scarce capacity are enforced.
Route licences are being provided for free by the CAA to any UK carrier that requires one. One of the conditions for a route licence is that the applicant should be either a UK national or an organisation controlled by UK nationals. The Secretary of State also has long-established powers to instruct the CAA to waive this requirement, which he has done historically, most recently for easyJet UK and Wizz Air UK.
As a result of this instrument, the rules for wet leasing foreign aircraft will not change. UK air carriers seeking to wet lease a foreign-registered aircraft would be required to demonstrate to the satisfaction of the CAA, as they do today, that to do so would not endanger safety. If that aircraft was registered in a country other than in the EU they would also have to demonstrate to the Secretary of State that safety standards equivalent to the UK’s would be met and that the lease is justified on the basis of exceptional needs, to satisfy seasonal capacity needs or to overcome operational difficulties. Permission might be refused if there is no reciprocity regarding wet leasing to the country in which the aircraft is registered. This instrument also makes a number of changes to reflect the fact that EU-licensed air carriers would no longer enjoy the automatic right to operate to, from or in the UK.
As I said, public service obligations, or PSOs, are subsidised air services that would not otherwise be commercially viable. Contracts for PSOs in the EU can be won by any EU-licensed carrier, but fixes made by this instrument would mean that only UK-licensed carriers, and carriers from countries with which the UK has exchanged the right to operate wholly within each other’s territory, would qualify for PSO contracts in the UK. As all the PSOs in force in the UK are currently operated by UK-licensed air carriers, there will be no impact on existing services.
In a similar fix relating to scarce capacity, domestic regulations currently provide for a process rarely used in cases where the frequency of operations between the UK and another country is constrained by provisions in the relevant air service agreement. If all the permitted frequencies are being operated, the UK will always seek to lift or remove the limit. In cases where the other country is unwilling to do so and another air carrier wishes to enter the market, a scarce capacity allocation hearing will be held. This instrument amends the regulations for this allocation process to ensure that only air carriers that would qualify to operate under the terms of the relevant air services agreement—rather than all EU air carriers—are eligible for the scarce capacity allocation.
All the previous points relate to domestic oversight of UK carriers. I turn now to foreign carriers. While air services are not included within the scope of the World Trade Organization, there is an international legal framework for the operation of air services— the Chicago Convention of 1944. One of its provisions is that scheduled international air services are prohibited, except with the special permission of the state concerned. The UK provides permission through the air services agreements it concludes with other countries and the issuing of foreign carrier permits by the CAA.
In the event of no deal, amendments made by this instrument would require that EU air carriers apply for a permit from the CAA before operating to the UK. This would ensure that all air carriers operating to the UK had full and proper safety oversight and that their aircraft were properly maintained and operated.
We envisage granting permits to EU carriers to continue operating to the UK. In its recent communication of 13 November, the Commission confirmed that it intends to reciprocate for UK air carriers. In addition to the announcements about visa-free travel, the Commission said that UK air carriers would still be able to fly over the EU, including Ireland, and to land in and fly back from the EU.
As I said in my opening remarks, we are working to achieve a positive deal with the EU, but this SI is an essential element of our contingency planning for a no-deal exit. It would only enter into force on exit day in the absence of a withdrawal agreement. The legislation would ensure that the UK’s licensing regime for air carriers continues to work effectively and that the aviation industry has clarity about the regulatory framework in which it would operate.
I commend these regulations to the Committee.
My Lords, this is really the most extraordinary debate in which I have ever taken part. I say this with no disrespect to the low key introduction by the Minister in which she explained exactly what is happening—at least the detail, but not the context of it. Sitting in this Committee Room are a number of Members of the House and officials who would be much better occupied doing something useful. We are looking at a proposal—a statutory instrument—for a no-deal situation which the Government do not want and which the vast majority of people in the House of Commons do not want. We are going to spend hours dealing with many more.
This is one of nearly 700 statutory instruments that are coming before us because of this crazy Brexit in which we are currently involved. Even allowing for all those qualifications and even if we have to, this is not a satisfactory way of doing it. This has such major implications that it would normally be in a Bill discussed on the Floor of the House at Second Reading and then in detailed consideration in Committee. We would go through all the implications, discuss them, consider amendments and work out what was wrong and what was right. Now we are expecting it to go through on the nod in this Grand Committee. I hope not to spoil these expectations—it might do. It is not a satisfactory way of dealing with the situation.
Then we get the report of Sub-Committee A of the Secondary Legislation Scrutiny Committee. This Committee has had to divide into two sub-committees. My noble friend Lord Cunningham has taken over the duty of chairing the second sub-committee to look at this in detail. They are doing a good job under very difficult circumstances. On this statutory instrument they have come up with a devastating report—one of the most devastating I have seen:
“We draw these Regulations to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House”.
It continues in paragraph 11:
“The House may wish nonetheless to press the Minister further on how, in the event of “no deal”, bilateral arrangements between the UK and individual states will be put in place before exit day to ensure there is no gap in the continuation of flights between the UK and the EU after 29 March 2019”.
The Minister dealt to some extent with that, but not fully, and I shall come to the detail of that later. Paragraphs 13 and 16 outline the additional responsibilities that the CAA will have and doubt whether it will be able to deal with them without substantial additional resources—which, again, would be better spent elsewhere instead of doing something completely unnecessary. Paragraph 22 states:
“The House may wish to press the Minister on the issues of reciprocity that arise in maintaining the current wet leasing arrangements”.
I have not previously seen a report that raises so many questions.
Look at what is happening outside the Chamber. In an excellent report by Chris Morris, the BBC’s Reality Check correspondent—thank goodness that we have people doing reality checks particularly on Brexit—he points out that if we leave with no withdrawal agreement,
“the UK would no longer be part of the EU’s single aviation market, which is the basis for flights in and out of the country at the moment, not just to the EU itself, but to other countries with which the EU has a deal—such as the United States and Canada. In all, the EU governs direct UK aviation access to 44 other countries”.
As the Minister said, and as the report states, of course, you can always negotiate new agreements,
“but access would start at a pretty low level and negotiations take time”.
We know that they will take a substantial time. He continued:
“That's why a sudden no-deal scenario is so alarming to the industry”.
That was even pointed out by the Chancellor of the Exchequer in October last year:
“The UK would no longer be governed by the regulations of the European Aviation Safety Agency, which deal with all sorts of things like maintenance and common standards”.
As the report states, we would have to undertake the responsibility of dealing with those ourselves—again, extra expenditure:
“The UK Civil Aviation Authority could … take on all the same rules, and hire lots of new staff to implement and oversee them, but it would”,
then have not only the extra expenditure, but,
“have to convince other international regulators to recognise it—another time-consuming process”.
So we would have to go round to convince all the other regulators that they should recognise our approach. As the Reality Check correspondent said,
“if you're following EU aviation rules in full, you basically have to accept a role for EU courts like the European Court of Justice as well”.
According to the Prime Minister, we will no longer be subject to the European Court of Justice, but it will be involved in this, according to the BBC report. All of this makes it difficult for airlines that are already selling tickets for flights after the planned Brexit, which many of us here hope will not go ahead. The report continues:
“‘Right now we will continue to sell in the hope and belief that when a conclusion comes to the Brexit scenario, common sense will prevail and people will realise the need for intra-Europe travel’, said Roy Kinnear, the chief commercial officer of FlyBe. ‘The biggest fear has to be if at the eleventh hour and fifty-ninth minute there is a complete cessation and breakdown, and a shutdown of air travel between the UK and Europe”.
It is being predicted that they could be a total shutdown of traffic between the United Kingdom and Europe.
The International Air Transport Authority is worried. IATA states:
“The UK government’s papers on the air transport implications of a “no deal” departure from the EU clearly exposes the extreme seriousness of what is at stake and underscores the huge amount of work that would be required to maintain vital air links”.
Its director-general said:
“While we still hope for a comprehensive EU-UK deal, an assumption that ‘it will be all right on the night’ is far too risky to accept”.
That is what the Government are accepting: it will be all right on the night. We have heard them say something equivalent to that so many occasions.
I could go on at great length; I have lots more to say.
Well, the Minister is encouraging me to do that. Lots more could be said.
The development of low-cost airlines, which we and—I was going to say “our” constituents—the constituents of Members of the other place have all taken advantage of, has been based on arrangements agreed within the European Union, which we have been part of.
I have a specific question for the Minister. Access to the EU’s internal market for air transport could be retained by the UK joining the European common aviation area. Membership is not restricted to EU member states. However, membership would require the UK to accept EU aviation laws and may be incompatible with the stated desire of the UK Government to be extricated from the jurisdiction of the Court of Justice of the European Union. Given the awful prospect of no deal, which almost all of us pray will not happen, will we consider joining the ECAA and therefore accept the jurisdiction of the Court of Justice?
The question of leasing was also raised by the committee. At present, aircraft owned by or leased to nationals of, or companies with their principal base of business or registered office in, the EEA and the Commonwealth, may be registered in the United Kingdom. Will this ability to register aircraft on the UK aircraft register be open to EEA entities post Brexit?
The airlines have made various comments. Michael O’Leary, the outspoken chief executive—I do not think that he has been got rid of yet—of Ryanair, said that a no-deal Brexit was now more likely and that, in such a scenario, flights would be grounded. IAG, which owns British Airways, Iberia and Aer Lingus, was more positive in its assessment. Willie Walsh—wee Willie Walsh—said in March that he firmly believed that the issue of flying rights would be resolved. Well, what I understand it to have done to resolve it is move its headquarters out of London to Madrid—that is a strange way of resolving it—like many others are moving out of London because of Brexit.
This is a total disaster. I hope that the Minister will answer the questions. I hope that she will try hard to give some reassurance, although I do not think she can. However, if there is no such reassurance, I shall not be prepared to accept this statutory instrument today.
My Lords, following on from my noble friend’s excellent summary of where we are, I recall a couple of weeks ago in debate on an Oral Question in the Chamber suggesting to a Minister that the safest way would be for the Government to advise people not to buy package holidays that started on or after 30 March, because there is no compensation at the moment and the planes might not fly. The Minister thoroughly rejected that idea, as of course he would.
I hope that the Minister will respond to my noble friend’s reference to the comments in the Secondary Legislation Scrutiny Committee’s report. I do not want to repeat them, but they are highly complex. For the CAA to have to give out route licences as well as operating licences looks to be a recipe for not having enough people and, as my noble friend said, for grounding. The same applies in respect of paragraph 16, so I shall not go on to that.
I am very disappointed with what is listed under “transport” in the political declaration that came out last week. As somebody else has said, it is a series of statements without verbs. It states that the parties intend to have a comprehensive air transport agreement. Well, they might do, but they have a lot of work to do. It refers to:
“Comparable market access for freight and passenger road transport”,
and acknowledges the intention of the UK and other member states,
“to make bilateral arrangements for cross-border rail”.
That is all on rail; there was nothing else on it at all. It also says that the maritime transport sector would be underpinned by,
“the applicable international legal framework, with appropriate arrangements for cooperation on … safety and security”.
When will we see the SIs covering these other sectors that we have not seen already? We will want to have a pretty detailed debate on them.
My noble friend mentioned safety and maintenance. They are extremely important. I will raise the question of standards across the various sectors. I wrote to the Minister a couple of weeks ago on railway standards. She kindly replied today so I have not been able to circulate her reply around, but I will do so. It exposes quite a significant difference of approach between different parts of the Department for Transport. The Minister’s response on railway standards is basically that, although the Government would like to be able to have their own standards for domestic traffic, they would do this only after substantial consultation with the industry. That sounds fine. The industry, which I will not quote now, is very much in favour of staying in the European railway agency because of the international need to have one common set of standards across the world for ease of manufacturing and exporting as much as anything.
The same applies to the road sector with automotive manufacturing. The CEO of the SMMT, Mike Hawes, gave some very interesting evidence to the House of Lords EU Internal Market Sub-Committee recently, saying:
“The major regulatory powerhouses tend to be the EU, especially around the environment but also safety, and the US”,
but they are very different and demonstrate very different approaches to policy, particularly on safety and the environment. He says that the EU is highly influential. The same comments could equally apply to air. I am interested to see what the sub-committee says when it reports.
However, last week the Secretary of State said when he gave evidence to the same sub-committee that breaking away from the EU will mean that the UK can rip up the rulebook and set its own standards for sectors such as rail. He sees no reason why the country should be made to abide by European regulations. He told the sub-committee that there was no need to remain part of the European rail regulatory body as the country’s rail systems vary in a vast number of ways from that of continental Europe, but the only example that he could give was station platform heights, which is just crazy. Station platforms for HS2 might need to be a little bit different, but there are many more stations that HS2 trains will go into that will not be affected. Presumably the Secretary of State has the same views on other sectors, such as road and air. Why does he have that view? The Minister’s statement now and her letter to me seem to have a much more balanced approach to standards, recognising that all the industry sectors in transport want to keep close alignment with the standards for very good safety, exporting and general manufacture reasons.
I also have one or two questions on the regulations themselves. The first is on the PSOs, which the Minister mentioned. It is good that they want to continue with the use of PSOs but will there be a similar need for regulations for other modes such as the bus, rail and maritime sectors in this country? If so, when will we see those and if not, why not?
Paragraph 2.5 of the draft Explanatory Memorandum, as the Minister said, says:
“The Regulation will now reflect … that”,
“applies only within the UK”.
How will air carriers from outside the UK be able to apply for licences to operate either into or within the UK? Who do they apply to and how long is it going to take to operate?
My noble friend talked about British Airways and IAG. I have a big problem with IAG because I tried to fly to Madrid on Friday and I was denied boarding at Heathrow—the wonderful new terminal 5. It was particularly galling when I had got up at 4 am to get to the airport. The point was that I could not check in on the web because I had bought the ticket through Iberia, which along with British Airways is part of AIG, and it said online, “Go to the British Airways check-in” because it was a British Airways flight. So I went there and it said, “Go back to Iberia”. I did that three or four times and swore, then I left it and went to the airport, where they said the flight was full. I said “Well, I’ve got a ticket”, so they sent me to the gate and it was still full. It is so nice in terminal 5 because you cannot come back from its satellites by train; you have to walk through a long tunnel.
I got the standard European compensation very quickly and was promised a refund of the fare, because the next flight would have been too late. I said, “Could you cancel my flight back in the evening?”. She said, “You’re on an Iberia flight—I can’t cancel it”. Now this is one company. I do not know whether the company will be based in London, Madrid or Timbuktu, but if it cannot get its act together when it is one of the biggest operators out of the UK, heaven help us. I certainly shall not fly with it in the run-up to Brexit, if I can avoid it. I hope that other people will not have the same problem and that it will be all right on the night.
Paragraph 7.7 of the draft memorandum refers to:
“The discretion given to EU Member States to regulate the distribution of traffic rights and impose measures”.
Who does that? It is yet more extra work, maybe for the CAA or the Government. Paragraph 7.9 refers to,
“a permit in order to perform aerial work”.
I find the definition of aerial work slightly confusing. Is it about running a drone, aerial photography or what? Again, that seems to be a bit more work for the CAA. Finally, the Committee may be glad to hear, paragraph 7.11 refers to when operating air services to the EU is revoked and says that,
“all air carriers operating international air services from the UK will require a route licence”.
That is what we said before; who is going to negotiate the route licences and operating licences?
As my noble friend said, this will end in chaos. We are pretty well there. There seems to be no agreement even between different parts of the Department for Transport and the Ministers, and I share my noble friend’s view that the only solution is to stay within the EU.
My Lords, when I put forward my Private Member’s Bill—excitingly entitled the Open Skies Agreement (Membership) Bill—immediately after the last election it never occurred to me that, nearly 18 months on, my concerns would still not have been answered. My concerns related to the international air agreements that make international air travel possible. We are members of those agreements by virtue of our membership of the EU. The sad, chaotic situation that the Government have got themselves into in their Brexit negotiations is threatening many people’s plans for the future and threatening companies’ ability to trade in the future, because they cannot rely on air services.
This SI in preparation for a no-deal scenario is far from reassuring. Rather, as the noble Lord, Lord Foulkes, said, it reminds us all of what is at stake and how far we are from a solution. The report of the Secondary Legislation Scrutiny Committee points to a number of unanswered questions. I am grateful to the committee, as I am sure we all are, for its work and I am glad that the Explanatory Memorandum has been updated. Being rather a keen student, I read the original—even the updated one has a lot of complexity and leaves a lot of questions unanswered, but the original one was not as good as it should have been. If there is no deal, UK and EU airlines will lose, as the Minister said, the automatic right to operate services between the UK and the EU without the need for permission from individual states.
The DfT has stated that it expects to grant permission for EU carriers to fly to and from UK airports and expects that to be reciprocated. That is a lot of expecting. What discussions have the Government already had? The Minister said that a lot of work has been done on it, but are we in a position where the whole thing could be more or less rubber-stamped if Brexit arrangements were sorted out? Would everything else slot into place quickly, or are we at an earlier stage in the process? If there is no deal, the Government have said that they intend to make bilateral agreements with individual states. These would obviously need to be in place by the end of March if there is to be no gap in services. It might not be technically possible to sign them until that day, but they have to be fully agreed and worked up. Specifically, what progress has been made so far in these draft agreements on developing the understanding with the other 27 EU countries? Are we negotiating with all the rest of the EU as individual states or just taking the most important ones in terms of the level of traffic?
These regulations are yet another example of the steady increase in the amount of bureaucracy that is being heaped on individuals and companies as a result of Brexit. Last week—or was it the week before?—we were here discussing hauliers permits, trailer registration and international driving permits. This week it is the requirement for UK licensed air carriers to have both a route licence and an operating licence to provide services outside the UK. Although the DfT has been proactive in contacting carriers about this and we can therefore, I assume, count on the fact that air carriers across the EU are aware of it, and although awareness is clearly higher than in the case of the hauliers, who are largely completely unaware of what is going to hit them very soon, nevertheless it puts an additional burden on the airlines, as well as putting further responsibility on the CAA. I have remarked here before on the burden on the CAA of a wide group of responsibilities. We expect it to deal with space travel and failing airlines and to modernise airspace, and now we are expecting it to provide additional licences for air carriers. Can the Minister give us details of the additional resources being allocated to the CAA to deal with the more complex air services market that we will now face?
If there is no deal, all foreign carriers, including those from the EEA, will have to apply for a foreign carrier permit. Already the CAA processes thousands a year, but clearly it will have to process very many more in the future. What happens if a carrier does not apply? The DfT says that it expects EU carriers to make applications in good time, so what is the timescale? Using a parallel with haulage permits again, we discussed this not much more than a week ago. The hauliers have to apply by the end of the month, or certainly the beginning of December, in order to have a hope of getting their permits by January. There is a huge rush in that case. Is the system similar for the CAA? Is it fully geared up and are the airlines all ready to apply?
Does the noble Baroness agree that the system for selecting who gets the permits for haulage that we discussed, as she says, a couple of weeks ago involves either drawing names out of a hat or seeing which haulier provides the best value for money for the country? Does she see that as an appropriate way of dealing with these air licences?
My disappointment with the SI that we had a week or so ago was definitely with the lack of certainty about which criteria the Government would use. The Government adroitly managed to give themselves the broadest possible set of criteria and we are no nearer knowing how exactly those permits will be applied. The industry is worried as a result.
There has already been a degree of reorganisation within the aviation industry as airlines previously registered in the UK have moved abroad for their registration, with the inevitable drift of at least some jobs abroad. It is important that we bear in mind that this additional bureaucracy—the additional requirements as a result of Brexit—will put our expertise in such an important aviation market at a disadvantage.
The Secondary Legislation Scrutiny Committee raised the issue of wet leasing, which, as the Minister explained, is when an airline releases an aircraft and its crew and so on. This is usually done at busy times or in exceptional circumstances. If the aircraft is not registered in the UK, the airline has to satisfy certain safety criteria. The airlines are concerned that this should be the subject of a reciprocal agreement with EU countries. Can the Minister explain what progress the Department for Transport has made in its discussions on this?
Public service obligations apply when a service would be uneconomical but is needed for economic and social reasons. They usually apply to far-flung places such as the Scottish islands. In future, such services could be operated by UK carriers and by others with cabotage rights—although, to be honest, that would be unlikely with no deal. These are sensitive and complex issues of state aid. As someone from Wales, I know that there has been a long debate on why rights are granted on some Scottish routes but similar rights were not granted in Wales. Could the Minister give us a little more detail on this?
State aid rules were previously adjudicated by the European Commission. This is a complex and controversial area, but the distance of the European Commission in power terms from the decisions that it made neutralised the issue to a large extent. Those powers will now be given to the CMA. What resources will it be given to deal with this? I also warn the Minister that those things are likely to become much more sharply controversial.
Paragraph 7.10 of the Explanatory Memorandum deals with the allocation of scarce capacity. The 2007 regulations dealt with air service agreements between EU members and third countries. Scarce capacity occurs when there are restrictions on the frequency of flights. The Explanatory Memorandum includes a political declaration that the UK Government will always seek to lift or remove such a cap but will hold a hearing to allocate frequencies if that is not possible. What is the legal force of that statement? It seems that it is simply a political declaration. It is a statement of intent by the current Government, but they cannot bind their successors. I would like some clarification on that.
Finally, it would be helpful, as we sit here week after week wading our way through dozens of these SIs, to be able to see the full context of where we are on air services. Maybe the Minister can tell us what other air services SIs we are waiting for.
I thank the Minister for explaining the purpose and content of these regulations, which set out the contingency measures for the licensing and oversight of flights to and from the UK in the event of no deal with the European Union. UK carriers will require a route licence, as well as the operating licence that is currently required under EU law, for operations beyond the UK. Air carriers from the European Economic Area will also have to obtain a foreign carrier permit to operate in the UK.
In the event of there being no deal with the European Union, UK and EU airlines will no longer have the automatic right to operate air services between the UK and the EU without the need for advance permission from individual states. In this scenario, the Government expect to grant permission to EU carriers to operate to UK airports and for this to be reciprocated by EU states granting permission to UK air carriers to operate to points in the EU. Failing such a multilateral agreement, the Government’s intention would be to seek bilateral arrangements with individual states. I know that this point has been raised before but I raise it again: why do the Government believe that such bilateral arrangements between the UK and individual states could actually be put in place in the short time left even between now and 29 March 2019, let alone between early or mid-December and the end of March 2019?
Since in a no-deal situation, UK airlines will need a route licence as well as an operating licence to operate air services to the EU, the regulations require UK-licensed air carriers to have both licences to operate air services outside the UK. Is there any restriction on the number of route licences that will be available? I know that this point has been asked before but I ask it again: what additional burden workload-wise will the issuing of route licences to airlines which need them prior to next day impose on the CAA? What increase in applications for route licences is expected and how long, on average, does it take to process and make a decision on such an application and then, if agreed, to issue that licence?
In the event of no deal, EEA airlines will need to apply for a foreign carrier permit to operate in the UK. What additional workload will this impose on the CAA between now and exit day? Once again, how long will it take to process and make a decision on whether to agree to a foreign carrier permit and, if agreed, to issue such a permit? How many such applications are expected between now and exit day, and against what criteria will decisions be made on whether to issue a foreign carrier permit?
EU law currently provides for an internal market, as the Minister and others have said, in the wet leasing of aircraft, and harmonises restrictions on the leasing of aircraft from third countries. The current regime of approvals for UK carriers wishing to lease aircraft is maintained under these regulations but, as has been said, the market access arrangements for the wet leasing of aircraft, as set out in paragraph 7.6 of the Explanatory Memorandum, will not be reciprocal with the EU. I know this has been asked already but I simply ask again: what are the implications for carriers of potentially not being able to benefit from the same arrangements in EU states after exit, in the light of our maintaining the current wet-leasing arrangements?
I am conscious of what the Minister said. I think she was referring to the part in paragraph 6 of the revised draft Explanatory Memorandum which states:
“The Secretary of State can withhold approval if there is not a reciprocal level of market access with the country from which the carrier proposes to lease an aircraft”.
However, in what circumstances would the Secretary of State withhold that approval, in the light of the fact that there does not automatically seem to be reciprocity in the regulations?
On page 11, the Explanatory Memorandum refers to the widening of the scope of certain criminal offences, which are in the Air Navigation Order 2016, through the regulations. The effect would be that all foreign carriers operating to the UK, whether from the EEA or beyond, would be subject to the same legal requirements. How many non-EEA foreign air carriers per year currently fall foul of the criminal offences in question, which are being widened in scope in these regulations to cover EEA air carriers in the event of no deal?
Finally, although I appreciate that I have been briefer than other noble Lords, which is not an adverse comment as they made most of the points that need to be made, I would be grateful for an answer to this. I think the Minister referred to the communication of 13 November that we have had from the Commission about preparing for the withdrawal of the United Kingdom from the European Union on 30 March. It has a section on transport, which says that if there is no agreement it,
“would lead to abrupt interruptions of air traffic between the United Kingdom and the European Union, due to the absence of traffic rights and/or the invalidity of the operating licence or of aviation safety certificates”.
As the Minister knows, the document then goes on to set out what the Commission would do in that situation on traffic rights, aviation safety and certain other issues.
Can she confirm that the document to which I have referred is the one that the EU would seek to apply in the event of no deal—that is, that what it says about traffic rights and other issues is what it seeks to negotiate with us on aviation in the event of no deal? If I am right in thinking that—I should be grateful for confirmation that I have understood it correctly—would what the Commission proposes in this document be acceptable to the UK in the event of no deal?
My Lords, I thank noble Lords for their consideration of these draft regulations. A wide array of issues has been raised but I will limit my responses to those directly related to the SI that we are discussing, given the time and the number of questions. I agree with the noble Lord, Lord Foulkes, that issues around aviation and Brexit are incredibly important and it is important that we get them right. However, this SI is not about our negotiating position, which is being discussed extensively elsewhere; it is purely correcting the regulations to ensure that we have a functioning statute book should we leave with no deal in March.
I am not quite sure that I agree that this is one of the most devastating reports from the SLSC that I have seen. The committee often quite rightly draws SIs to the special attention of the House, and I and the rest of the Government are very grateful for its work on that. I am also grateful to the noble Lord for reading out the BBC report, which is quite right in its facts. I hope I can provide some further assurances as we go through the questions.
I turn to the points raised by the SLSC, to which many noble Lords referred in their questions. I shall take each point in turn. First, on how, in the event of no deal, we will ensure that bilateral arrangements are in place to ensure that there is no gap—the noble Baroness, Lady Randerson, is quite right to point out that it is important that there is no gap—we remain confident that we will get an agreement on a broader deal. However, if that is not possible, our first option will be to consider a multilateral agreement between the UK and the EU. The Commission has also proposed this, with suggestions for a bare-bones agreement in the event of no deal. The noble Lord, Lord Rosser, is right to point out that the statement from the Commission on 13 November is its latest position on that in the negotiation, and it will form part of the conversation as we go through the detail. In the meantime, in the event of no broader deal and no multilateral deal, both of which we fully expect to reach, we have also reached out to counterparts in individual member states to reach a shared understanding on a bilateral basis of what arrangements would apply between our two countries.
The second issue specifically raised by the SLSC is the resources that the Government are providing to the CAA. The CAA is already the licensing authority for UK airlines. It provides regulatory oversight and has the resources in place to ensure that it can continue to do so. All the holders of type A operating licences—that is, operators of aircraft with more than 20 seats—already have a route licence. All the holders of type B operating licences have been individually contacted and invited to apply for a route licence free of charge, as I mentioned before, from the CAA. Some of those companies operate exclusively domestic services and do not need a route licence, but we are confident that those that need a route licence will be issued one.
I have just realised the implications of something the Minister said a couple of minutes ago. As well as a multilateral agreement with the EU, we are negotiating bilateral agreements with all 27 countries—is that right? Could the Minister explain if this is what we are doing?
As I said, our firm preference is for a wider deal, providing for a comprehensive air services agreement with the EU. Failing that, we have the option of a multilateral agreement and, failing that, bilateral agreements with member states. As the noble Lord would expect, we are speaking to member states about a wide range of issues.
Is a Minister—either the noble Baroness or one of her colleagues—or some of the officials flying out to these countries to discuss it, or are they coming here? An astonishing range of what I hope is unnecessary activity is taking place. Could the Minister confirm that that is exactly what is happening?
As I said, to make responsible preparations it is important to consider all the different options available to us. Of course we are having conversations with the Commission and the member states about a wide range of issues. I am not able to give further detailed information at this moment but our preference is very strongly for a broader deal which will provide a liberalised agreement with the EU, though there are other options available to us. I hope this provides reassurance that we will continue to see flights between the UK and the EU. We will continue to work towards this as we move towards exit day.
On bilateral discussions, the European Commission document that we have had—which I appreciate extends across the whole gamut and does not apply just to aviation—says:
“In the same spirit, Member States should refrain from bilateral discussions and agreements with the United Kingdom, which would undermine EU unity”.
It may be that this particular sentence does not apply to air transport. Is it then the case that we are having bilateral discussions in the apparent teeth of opposition from the European Union?
Our first point of contact is with the EU Commission to agree a wider deal. It has been widely reported that the Secretary of State has written to other member states to discuss the potential bilateral agreements. We are working very hard to get that wider deal. That is our focus but, should that not happen, then of course we are making sure that we are as prepared as possible to ensure that we do not have any disruption in services come 29 March.
I made the point that our worldwide agreements on air travel are made as a member of the EU. So we have to be convinced that we will have an agreement with the rest of the world beyond the EU by the end of March. How are these negotiations going, for example with the USA?
I will come on to that. As the UK, we have 111 bilateral agreements with the rest of the world in our own right. The noble Baroness is quite right to point out that we have bilateral agreements through our membership of the EU.
The next issue raised was on the basis of our expectations, how we are working with EU carriers to make sure that we have no gap in services and the assurances we can give that the CAA has the capacity and resources in place. Our expectation is that EEA carriers would require advance permission before operating to the UK. This is founded on international law. I already spoke about the 1944 Chicago Convention and that that treaty expressly prohibits scheduled international air services.
In anticipation of the increased volume of permit applications from EEA carriers, the CAA has already upgraded its systems for permit processing and recruited additional staff. All scheduled permits are issued on a seasonal basis. The next summer season starts on 31 March 2019, so there is a predictable increase in workload for this. We are expecting 100 to 150 seasonal permit applications. The CAA currently issues around 3,000 ad hoc permits a year. It is preparing to be able to process at least double that if necessary.
A number of noble Lords brought up wet leasing. Just to clarify, reciprocity will count for EEA members, by virtue of the EEA agreement, as well as EU members. Maintaining the current wet leasing arrangement is the right thing to do for the industry as a whole and for passengers. We are making every effort on this, as well as on other areas, to minimise disruption. Maintaining the current system for wet leasing foreign aircraft is part of that effort. As I said, we expect reciprocity on that.
The future partnership agreement that has been published contains a provision for a comprehensive and ambitious air transport agreement. The noble Lord, Lord Berkeley, rightly highlighted that there is more detail to come on that. It is the overarching aim and there is lots of detail to come below that. The noble Lord, Lord Foulkes, asked about the direct jurisdiction of the CJEU. We have been clear that we will no longer be subject to direct CJEU jurisdiction after the UK has left the EU, but there are models that already allow non-EU countries to participate in the EU aviation acquis. Any disputes could be resolved through a joint committee, for example. That is the model we will be looking at.
As I have said, the majority of our bilaterals are already done in our own right. Where market access beyond Europe is currently determined by EU-negotiated agreements, we are already working with the countries involved to make sure that we can continue those services. We are confident that these arrangements will be in place before the UK leaves. The Department for Transport has a very experienced and able team in aviation negotiation that has been doing this on separate bilaterals for many years.
Specifically on the US, it is again absolutely our aim to maintain liberal market access arrangements between the UK and the US. Discussions are ongoing about post-Brexit air services and really positive progress has been made. We continue to discuss this with the US Government and I hope to be able to update noble Lords in the future.
Turning to some of the questions raised by the noble Lord, Lord Berkeley, there are certainly more SIs to come. We have already discussed some aspects of roads, aviation and maritime and will do so again, as well as on rail, in the coming weeks and months. These will be discussed in time for exit day. On the specific question of how many SIs remain on aviation, of the 14 in total, six have been laid. Those still to come cover safety, air service competition, security, air traffic management, aviation statistics, passenger rights, noise and slots. Those are coming and we can all look forward to them.
On standards, we will absolutely discuss standards throughout the SI programme. The noble Lord pointed out that I wrote to him on that and he is quite right that our approach differs across modes. That will be discussed as the specific SIs come up. Where relevant, any EU regulations on PSOs and other modes of transport will be retained through the withdrawal Act. The changes that will be needed will be made through SIs so that, irrespective of the outcome of negotiations, the essential bus, rail and maritime services can continue to operate.
I am sorry to hear about the experience that the noble Lord, Lord Berkeley, had at Heathrow. I know that code sharing can cause some issues, but the changes that this SI makes will ensure that all holders of a valid UK operating licence will continue to be UK licensed carriers, and that includes BA. Airlines have been closely engaged throughout the development of this SI and all the other SIs.
As for route licences, these are issued by the CAA to air carriers wishing to operate internationally. Currently a route licence is required only for those air carriers that operate beyond the EU/EEA, but in a no-deal scenario all UK carriers operating internationally, including to EU member states, will need one. Most airlines already have a route licence—the CAA issues them for free, as I said—and the CAA already has people processing those licences. Everybody who needs one will have one by March.
On the powers to distribute traffic rights and impose measures that would be revoked by this instrument regarding aerial workers’ services such as aerial photography, flying, advertising banners and parachute drop shots, the CAA already issues those permits to non-EU aircraft.
On the question from the noble Baroness, Lady Randerson, on the PSO/state aid point, the CMA will take the function previously carried out by the Commission with an appropriate allocation of resources. On scarce capacity, hearings are provided for in the Civil Aviation (Allocation of Scarce Capacity) Regulations 2007, but the noble Baroness is quite right: it is a statement of government policy that we will try to lift any cap on bilateral frequencies in our air service agreements.
Aviation is crucial to the UK economy. We are of course committed to getting the best deal. We are positive that we will not see any disruption in flights. I think that is evidenced by our technical notices publication, these SIs and the comments from the President of the European Council back in March saying that he is determined to avoid any disruption of flights. The latest publication from the Commission last week says that it is absolutely in both our interests that flights between the UK and the EU continue; there were over 160 million of them in 2017. The noble Baroness, Lady Randerson, is right to point out that we need all this to be in place by 29 March. We are genuinely confident that it will be.
I will be brief on the question of the CAA and give a few more details about permits. Happily, there are no limits to these permits. We issue several types of permits—the seasonal ones that I mentioned and the ad hoc charters. I talked earlier about when they will be up for issuing, but we will continue to process them as quickly as possible and do not expect any delays. The CAA expects to process between 100 and 150 seasonal permits and, as I said, it currently issues 3,000 ad hoc permits a year. We do not know exactly how many more will come but it will be able to process at least double that number if necessary. The CAA has been working intensively to ensure that it has the right capacity in place.
On this specific SI, there are two provisions in the instrument that impact the CAA: air carrier licensing and foreign carrier permits. As I said before, only a small number of air carriers do not hold route licences. The system for consideration is being upgraded and it is not a new capability. The provisions in this instrument are estimated to cost the CAA around £100,000. As I alluded to before, last year the Secretary of State provided £2.7 million on an exceptional basis to fund the CAA’s costs to avoid imposing an additional burden on the aviation sector.
The Government remain confident that we will reach an agreement with the EU. Of course it is important that we prepare for the unlikely outcome that we leave the EU without a deal. I appreciate noble Lords’ interest that we get Brexit right for aviation and, believe me, I share that interest, as does the department, as I hope is evidenced through the detailed SIs and technical notices that we are putting forward. This SI is part of that. It is essential to ensure that a crucial part of the regulatory framework for civil aviation continues to work effectively in the UK from day one after exit. It is part of our preparations for the unlikely scenario of no deal and we hope it provides industry with clarity and stability in regulatory oversight.
Before the Minister sits down, if the document that we have had from the European Commission, specifically the section on air transport, represents the Commission’s stance in the event of no deal—as I understand it, the Minister said we were in discussions with it—what is the latest date by which something has to be agreed so that it is effective from 29 March? Presumably what has been listed here by the European Commission as its position cannot be agreed the day before, and presumably it has to be agreed before then to come into operation on 29 March. So what is the latest date, realistically, by which something has to be agreed?
The noble Lord will know that there are many positions on the negotiations. As I said, that is the Commission’s latest position. We are continuing to negotiate with it on the broader future partnership arrangements. Alongside that, we are of course talking to it about no deal too. There is no specific latest date. That is why we need to do this no-deal preparation, so that if it goes close to the date of exit the industry understands what the alternatives are. We are very keen to provide industry with certainty as early as possible.
We have the European Council on Sunday and I expect that there will be an outcome from that. We will then look at what next steps need to be taken. We are very hopeful that the deal is done and will be agreed by Parliament so that we reach our implementation period on 29 March and the industry has that certainty. Should that not be the case, we will of course continue the discussions with the Commission to provide certainty as early as we possibly can. I am very aware, in my many meetings with the aviation sector, of the importance of providing that certainty. That is what this no-deal planning and our continued negotiations with the Commission are about. I beg to move.
The Question is that this Motion be agreed to.
My Lords, I must remind the Grand Committee that the Motion before it is to consider—I emphasise the word “consider”—the regulations, not to approve them. Whatever happens here in the Grand Committee, the Government will need to table an approval Motion in the Chamber, where any Member concerned can properly register disagreement. I also remind the Grand Committee, as contained in paragraph 3.13 on page 29 of the Companion, that we cannot have a vote in Grand Committee. With that in mind, I put the Question again. The Question is that this Motion—I emphasise, the Motion being to consider the regulations—be agreed to.
Textile Products (Amendment) (EU Exit) Regulations 2018
Considered in Grand Committee
My Lords, as the talks progress, we have now agreed in principle the terms of the UK’s orderly exit from the EU, as set out in the withdrawal agreement. We have also agreed the broad terms of our future relationship, as set out in the outline political declaration. This puts us close to a Brexit deal that takes back control of our borders, our laws and our money while protecting jobs, security and the integrity of the UK. However, it is our duty as a responsible Government to prepare for all eventualities, including no deal. This instrument is part of that contingency planning.
It is essential to ensure that our consumer legislation continues to function effectively after exit day. Maintaining a comprehensive framework of consumer rights is crucial for prosperity. Household expenditure accounts for around 60% of the UK’s economy. In 2016, retail sales stood at £800 million for textiles stores and £40 billion for clothing stores. Confident consumers help to raise productivity and deliver an economy that works for everyone.
These regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018 and were laid in draft before the House on 10 October. They amend EU regulation 1007/2011 on textile fibre names and related labelling and marking. The EU regulation prescribes the labelling or marking that must be applied to textile products to inform consumers of the products’ textile fibre composition and the presence of non-textile parts of animal origin, such as fur. It also empowers the EU Commission to approve new textile fibre names and modify technical provisions, such as testing methods. The EU regulation also modifies the textile product regulations 2012, which set out enforcement provisions for the EU regulation in the UK.
The EU withdrawal Act will retain in UK law EU regulation 1007/2011 in its entirety on exit day. However, once the UK leaves the EU, the EU regulation will no longer apply to textile products placed or made available on the UK market. To maintain high consumer protections, these regulations make essential changes to ensure that the requirements to indicate the fibre content of textile products and,
“non-textile parts of animal origin”,
continue to apply in the UK after EU exit.
The regulations remove provisions that will no longer be relevant, such as requiring the label to be in an official language of the EU. After exit, the label must be in English. The regulations also transfer the powers currently exercised by the European Commission to take account of innovation and technical progress by approving new fibre names, tolerances—the difference between the fibre composition on the product label and the actual composition demonstrated through testing—and testing procedures to a UK Secretary of State. This is necessary because, after the UK leaves the EU, it will no longer be appropriate for the European Commission to approve new textile fibres for the UK market.
To maintain high consumer protections, the powers and penalties applicable to breaches of the EU regulation will be retained after EU exit. Only minor amendments are made to the UK textile products regulations, such as removing the need for the Secretary of State to have regard to the penalties for breaching the EU regulation in EU member states when carrying out a review of the regulation.
These regulations are needed to deliver certainty and stability for consumers and business. Consumers will experience no practical change as a result of them since textile products will continue to be labelled after EU exit as they are now. Businesses sourcing textile products from UK manufacturers or importing these products from outside the EU will experience very little change in the labelling regulations that they must comply with. This will also be the case for UK manufacturers. Businesses importing textile products from within the EU will become responsible for ensuring the accuracy of the labelling or marking of textile products. However, as the UK and EU textile labelling regimes will be very similar at the point of exit, EU suppliers will already understand the shared requirements of the regulations.
To support innovation, businesses wishing to have a new fibre name approved for the UK market will be able to apply to the UK Secretary of State. To enable consumers and business to plan and prepare for these changes, a consumer technical note has already been published. Further guidance to help business understand how to comply with the requirements of the regulations will be published in due course.
The regulations are a sensible and necessary use of the powers of the EU withdrawal Act that will ensure that our consumer law continues to function effectively on exit day. I commend the regulations to the Committee.
My Lords, I am grateful to the Minister for his introduction and for explaining the regulations so well. In light of the fact that the Secondary Legislation Scrutiny Committee has not drawn attention to any matter relating to these regulations for the House to give them special attention, I agree that it is appropriate to consider them in Grand Committee.
My Lords, I support my noble friend in his introduction of this important legislation. As someone whose family was in the textile business for many years, I know that the definition of what makes up the product is hugely important. Labelling is key for people when they want to buy, particularly those with allergies. With modern technology, such a cross-section of mixtures is used in clothing, and so I welcome the statutory instrument. In the old days, there was botany wool, lamb’s wool, Angora and cashmere and that was it. Today, a multiplicity of ingredients is used in textile production.
I thank the Minister for introducing the instrument. I understand that it does not create extra responsibilities or burdens for the industry, but will allow us to move forward. In future, labelling will be in English, which is an additional bonus to those of us who used to export 50% of what we produced. I have great pleasure in supporting this statutory instrument.
My Lords, the noble Lord, Lord Foulkes, is right to point out what he did. When giving us his blessing to consider this, he said that it seems relatively uncontroversial, and I have only one comment and one detailed question.
The comment is about labelling. The Minister rightly pointed out that there will be great similarities at the point of exit between regulation on this side and regulation in the EU 27. However, that will not remain the case for long. Divergence of regulation will start to change the labelling needs on this side versus that side. I point out that, whether we crash out or leave with a deal, that divergence will happen, suddenly or over time. It will mean that the label of a garment here and a similar garment in, say, France, will inevitably diverge. That is a cost, and one that over time will be borne by consumers in this country. It should be remembered clearly that, like many other measures we will see in SIs, in this Room and others, we are putting the cost on consumers.
My question relates to paragraph 7.10 and the approval of fibres. I should perhaps know the answer to this question, but clearly the Secretary of State is a busy person and will not personally deal with a new generic fibre name. Therefore, which agency in BEIS will deal with this? Is that agency being prepared for the arrival of this new process? What will happen to existing fibres that have been accepted within the European context? Will they be transferred to this agency overnight in the event of a crash, or will they be somehow left over the water and administered still by the European Union? What is the process by which these fibres are recognised and administered, and how are the tests validated? Who will do that and where will it happen? What is the scale of this operation? Is it three people in an office somewhere, 300 people or 3,000 people? I have no sense of the scale.
With those reservations, I should like to hear what the Minister says.
My Lords, it has been an informative little debate, blessed as we are by the noble Lord, Lord Foulkes, to proceed in a relatively calm and considered way. I hope we can move smoothly to a conclusion.
The other two speakers have been supportive of the statutory instrument and I am not going to object to it either. The trouble with these things is that, however simple they appear on the surface, they raise questions in your mind. We have already heard examples of a couple of things that need to be responded to. I do not think that was done in any way to negate what is proposed, but it raises wider questions that we perhaps might return to at some future date.
I want to ask three or four questions of the Minister, and I am happy to receive the answers in writing if they are not available today. Most relate to the Explanatory Memorandum, which I thought was clear and good, and I congratulate the department on the way it has been produced.
I should just say that this is the first time I have dealt with an EU exit regulation. I think it might be sensible to lay down a few ground rules so that we can do it better as we go forward. There are several hundred still to come, or more, and, as others have said, if the department is at any point ready to define the total, that would be helpful for overall planning. For instance, I do not think it is necessary to circulate the annexe statements under the European Union (Withdrawal) Act 2018 Part 1 table of statements—a reference to that could perfectly easily be put somewhere and we could look it up for ourselves. That would save paper, complications and reading time.
Secondly, the department started—I do not know whether it is continuing—to write to Front-Bench spokespersons with details of certain SIs that were due to come forward, perhaps if there was something a bit more tricky or interesting about them. The trouble is, the letters became scattergun. I have had four. My noble friend Lord Grantchester has had six. Others may have had other numbers—I have not had time to ask round. If they are going to come at all, it would be helpful if they came to me as the leader of the group and I could disperse them. If they are not going to come, fine; that was a nice little flurry and it was very nice to get them, but the moment has passed.
My detailed points mainly concern the memorandum. Paragraph 7.6 says:
“The Textile Products Regulations provide sanctions and enforcement powers for UK market surveillance authorities (local authorities’ Trading Standards departments) to ensure compliance with the EU regulation”.
Of course, the burden here falls on trading standards departments, which, as we all know, have been suffering because of reductions in funding from local authorities. While the department, which has allocated additional responsibilities to trading standards departments, has also notionally allocated money to them, I worry that trading standards as a group is being asked to carry the burden of a lot of things which nobody has really costed or understood whether it is able to carry out the work. Have any discussions taken place with local authorities on this? For example, has a lead local authority taken responsibility for this, as is the case in some areas? Has it been discussed with the Trading Standards Institute? What is the rough estimate of the additional cost that might be involved?
The noble Lord, Lord Foulkes, mentioned paragraph 7.10 and issues around that. I have a similar point in relation to the functions of the Secretary of State. There are agencies currently in play which do work on the testing of products and related issues. Will the Office for Product Safety and Standards, which has responsibility for some of these issues, be involved in this process? The idea that the department is just going to absorb all this work seems slightly odd. Could a bit more clarity be provided on that?
The question of cost flows into the question of whether an impact statement is to be prepared. There is a general statement that if the costs are less than £5 million annually it will not be done. Changing over the whole system for all clothing manufacture in this country from one which was taking a template organised by the EU to a new one that takes its template from the UK will involve transitional costs. I would be very surprised if those were not close to £5 million. There is no particular point that I want to make here. I just wondered, as the department would have had to make a rough calculation of what the costs would be to invoke the de minimis threshold, whether the Minister might share it with us just so that we can have confidence that it is being done properly.
My other points are more generic. First, this is being done as a UK instrument and applies from its implementation date to the United Kingdom, yet there are within the United Kingdom a number of very specialist manufacturers of various textiles—I think of Harris tweed and things that relate to the particular wool that comes from Welsh sheep; Northern Ireland has its own distinctive history in linen. Why is this a reserved issue? If it is to be a reserved issue, what arrangements have been put in place to ensure that the devolved Administrations are involved in the process? The question is probably easily answered but raises a bigger point about how we might think about this in future, particularly as the Government have conceded on geographical indicators—GIs—and that therefore there will be quite a number of these, not necessarily related to textiles.
Secondly, the Explanatory Memorandum says that although no formal consultation was undertaken prior to the instrument being laid,
“discussions were held with industry experts and business representative groups”.
A little note about who was consulted and roughly on what areas would be helpful. I look forward to that confirmation from the Minister in due course.
My Lords, like other speakers, I offer thanks to the noble Lord, Lord Foulkes, for his blessing of this statutory instrument. We are grateful for that. I will deal with most of the points, but it might be that on one or two I need to write to noble Lords with further detail.
Like my noble friend Lady Byford, I understand the extreme importance of labelling, particularly for those with allergies but also those who have other concerns. My noble friend will be aware that, only recently, my noble friend Lord Gardiner and I gave evidence to the EFRA Committee in another place on fake fur and real fur. Some older Members of the Committee may remember a time when people would try to sell fake fur as real fur, whereas it is now the other way round. Given how animals are farmed in other parts of the world, real fur can often be a lot cheaper than fake fur, and in trying to buy fake fur a lot of people do not want to buy real fur. The point I was coming to is that we are currently bound by EU rules on labelling. Both my noble friend Lord Gardiner and I felt that the existing labelling of fur and fake fur was not necessarily quite as clear for the consumer as it should be, which sometimes led to individuals buying real fur or objects with a tiny portion of real fur in the trimming when they did not wish so to do. I agree with my noble friend that labelling is important but I also emphasise that these regulations are there only for a no-deal scenario, so that should there be no deal—I am confident that there will be—we can be in a position to make sure that we have the right arrangements in place.
The noble Lord, Lord Fox, asked who would exercise the Secretary of State’s powers when it came to enforcement. It is an important matter for local authorities and trading standards, but I can give an assurance that we provide funding to National Trading Standards of around £13 million a year, with £1.2 million a year for Trading Standards Scotland, for the co-ordination of regional and national trading standards in England, Wales and Scotland. I will have to write to him on why this is not a devolved matter. I still find it, as no doubt will the noble Lord, Lord Foulkes, extraordinarily confusing as to which matters are devolved and which are not, as was the case when we recently debated the changing of clocks, which seems to be devolved in Northern Ireland but not in Scotland or Wales.
I am slightly confused. For example, if I have invented a fabulous new fibre and wish to start using it in one of the Minister’s sweaters, do I pop into Hereford Town Hall and look for the trading standards person there? How do I know where to go? Who is the agent or person that I go to?
I was trying to make it clear that local authorities deal with the enforcement. The noble Lord is asking about the labelling of his product. Perhaps I may write to him in great detail to make sure that I get exactly right who is exercising the powers of the Secretary of State and that he has the answer he seeks.
While the Minister is writing, will he also explain what happens to existing fibres that are currently on a European ticket, so to speak? If they come in on your labels and have been improved in the European context, is jurisdiction over those fibres passed en bloc to that agency? What is the process, since the transfer of existing fibres to a new UK agency for their management does not appear to be allowed for in this SI?
I will write in greater detail to the noble Lord, just to make sure that he is absolutely clear. In passing, on the question of correspondence, I give an assurance that from now on I will send all letters from my department on matters relating to SIs to the noble Lords, Lord Stevenson and Lord Fox: I will copy letters to one and the other. I am sorry if he has been confused: on some occasions I have written to the noble Lord and on others to the noble Lord, Lord Grantchester. I shall inform my office that in future it will be entirely himself. If the noble Lord, Lord Lennie, would like to receive those letters, I will send them to him too.
In no sense was any blame to attach to the Minister personally: in fact, several of the ones that went to my noble friend Lord Grantchester were from his colleague Kelly Tolhurst. I got a couple from the Minister himself and my poor noble friend Lord McNicol got none.
The poor noble Lord, Lord McNicol, got none, but I think I wrote to the noble Lord, Lord Lennie, on something. Anyway, between myself and my honourable friend Kelly Tolhurst we will look at our entire system and make sure that there is one recipient of all letters on the Official Opposition Front Bench and that similarly, the noble Lord, Lord Fox, will be a recipient of all other letters.
I move on to the question of the impact—the cost, as the noble Lord, Lord Stevenson, put it. After exit, the responsibilities for UK manufacturers or a business sourcing textile products from UK manufacturers, or importing them from outside, will remain the same; it will be the same for manufacturers. Anyone importing products from manufacturers in the UK would be putting a textile product on the market and so would become responsible for ensuring that it contains the appropriate label or marking and that it is accurate according to the retained EU regulation. The practical impact of this will be limited. I think any impact on business will fall far below £5 million annually and, as a result, we do not believe that a full impact assessment is necessary.
On exit day, UK and EU labelling laws will remain highly aligned. Textile products imported from the EU will therefore be compliant with the shared requirements and the saved EU regulation does not mandate any costly technical testing or the production of documentation as proof of compliance. Similarly, there would be no administrative costs at the border to demonstrate compliance. Many businesses already undertake compliance activities as part of their due diligence programmes. That includes asking for proof of fibre composition or procuring their own fibre composition test. As a result, it is unlikely that businesses would need to put in place additional checks to demonstrate compliance with the saved EU regulation. The Government will, in due course, provide further guidance to businesses to ensure that they have understood the requirements of the saved EU regulation.
The noble Lord, Lord Fox, asked about applications for new fibres. Businesses wishing to introduce a new textile fibre name or manufacturing tolerance will be able to make this application to the Secretary of State. The Government will, in due course, publish further guidance, including the process by which the Secretary of State will assess the various applications. Lastly, I was asked: will businesses have to apply to both the United Kingdom and the European Commission to have a new fibre name approved for both UK and EU markets? Yes, in a no-deal scenario, it will no longer be appropriate for the European Commission to approve new textile fibres which can be made available on the EU market and therefore they will have to apply to both. I hope that will not be an onerous burden.
As I said, I remain optimistic, as always, that we will reach an agreement with the European Union, but it is important and prudent to have a regulatory and legislative framework in place should we leave without a deal. That is entirely what this instrument ensures.
Timeshare, Holiday Products, Resale and Exchange Contracts (Amendment etc.) (EU Exit) Regulations 2018
Considered in Grand Committee
My Lords, I beg to move that the draft regulations, which were laid before the House on 22 October 2018, be considered.
These draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018. They form part of the work being done to adjust our existing legislative framework in readiness for leaving the European Union next year. Obviously, the best outcome for the UK is to leave the EU with a good deal. If a deal—and therefore a withdrawal agreement—is reached, the implementation date of this instrument could be changed by any subsequent Bill that the Government introduce to implement the withdrawal agreement into UK law. However, it is sensible to prepare for all scenarios, which is what we are doing in bringing this instrument before this Committee today
The Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 transposed the 2008 EU directive on timeshare and long-term holiday products into UK law. The 2010 regulations improved consumer protection for those investing in timeshares across EEA states, aiming to improve consumer confidence in the industry. That was done through a number of new consumer rights and obligations on traders. Under the new rules, a consumer considering the purchase of a timeshare had always to be made aware of the key information in a standardised form in the language of the EEA state of which they were a national or resident. That new regime also extended consumer protections to a much broader range of holiday-related services, including resale, exchange and long-term holiday contracts, as well as timeshare contracts. These services are all characterised by long-term commitments of significant financial risks for consumers.
If approved, the regulations will make minor and technical amendments to the existing timeshare regulations to correct deficiencies that would arise from the United Kingdom’s withdrawal from the European Union. The draft regulations now put before the Committee make amendments to references to EEA states and language requirements. These include amendments which ensure that contracts governed by UK law are still protected when the UK is no longer a member state of the EEA. They widen the scope of the regulations so that certain contracts governed by the law of an EEA state will now be subject to the same regime as contracts governed by the law of third countries. In addition, language requirements are amended so that key information must be provided in English.
In practice, most of the protections of the timeshare regulations 2010 will continue as currently, except that some contracts applying the law of an EEA state will now be subject to the same requirements as contracts applying the law of a third country.
Principally, this instrument saves the current regulations, so that they remain the same for UK consumers buying timeshares and other long-term holiday products in the UK and from UK companies where contracts are governed by the law of the United Kingdom.
Where UK consumers buy certain timeshares and other long-term holiday products governed by the law of EEA states, these contracts will now be treated in the same way as contracts applying the law of a third country, as EEA states will now be third countries.
The new regime will generally not cover contracts where UK consumers purchase timeshares and other long-term holiday products from EEA traders when they are in that EEA state. These contracts will be generally be subject to the laws of that EEA state. As UK consumers will no longer be citizens of an EEA state, then that EEA state’s law may not apply in the same way to UK consumers as it did previously.
Additional amendments have been made to correct legal deficiencies and substitute references to the EEA, including EEA states. This will ensure legal operability of the legislation on day one of exit.
Finally, the regulations will include provisions for the contract and mandatory pre-contractual information to be provided in English, as well as allowing for them to be in another language, whether or not it is an official language of an EEA state.
A comprehensive assessment of the impact of the instrument has been undertaken. The conclusions were that as this instrument does not represent a substantial policy change, it is expected to result in little or no wider impacts or transfers. The instrument is also expected to have minimal effect on UK businesses, UK consumers, the wider UK society, the environment and the rest of the UK economy. This is because, as I said, the effect of these regulations for timeshare and other long-term holiday products will generally remain constant.
In conclusion, the regulations are a sensible and necessary use of the powers of the withdrawal Act that will ensure that our consumer law continues to function effectively on exit day, and I commend them to the Committee.
My Lords, this appears to be so uncontroversial that the noble Lord, Lord Foulkes, has left the room. However, I have a couple of questions. The Minister has done a great job in describing the limitations as well as the extent of this move. It is of course the limitations that concern me. One of the main ways in which timeshares, particularly non-British timeshares, are sold is in situ. In other words, people are sold to by people who literally come up to them in the street. It will not be clear to those individuals, who have been used to the process of being sold to and, in some cases, buying such products that the legal basis on which they are buying property will change. No longer will the contract be unified across the state. They will have bought a property in a foreign legal environment.
I make the same point as I made on the previous SI. That foreign legal environment will gradually diverge. It will diverge slowly or quickly, but it will change. It is clear that if that is how it goes, the Government and the industry have to work very hard to explain the legal complications that can arise from buying a property from a EU 27-based seller in an EU 27 country. It is not clear to me what is the legal redress if you buy a property from a UK-based seller in an EU 27 country. My suspicion is that it probably depends. That is another point on which serious information will be required to avoid people being mis-sold on that basis.
The Minister did not to any great extent address resale. Where does this leave the UK owner of an EU timeshare bought from an EU seller who comes to resell? It does not appear to me that this SI addresses this issue at all, but it is of great concern. Say the Minister had, in a fit of excitement, bought a timeshare on a golf course in the Algarve several years ago. He is shaking his head, but perhaps he should have done that—he would be relaxed. If he had bought that timeshare from a Portuguese seller, where does this leave him when it comes to the contract and process of resale? Where is the court of redress? Where is the process?
The SI is good as far as it goes, but it does not address the key consumer issues. Once again, it is consumers who will suffer. Whether we crash out or have a deal, the divergence will potentially create a significant downside for consumers. I would like to hear the Minister’s view on that.
My Lords, this is one of the more straightforward regulations. We can see that by the fact that we have lost my noble friend Lord Foulkes from our discussion. As was touched on, the main aim is to change references to “the EEA” to “the UK”, and similar changes in language from “official language of an EEA state” to “English”. At this stage, I cannot find much of substance to disagree with. However, I am sure my shadow BEIS colleagues may have some points to raise when this is discussed in the other place. Like my noble friend Lord Foulkes before me, I have just a couple of questions for the Minister.
First, much of the instrument deals only with replacing European references with domestic alternatives. However, the regulations will also ensure that contracts governed by the law of an EEA state will be treated in the same way as contracts governed by the law of non-EEA third countries. Did the Government consider any other option for EEA contracts?
Secondly, prior to the publication of this instrument, the Government chose not to carry out a consultation. This seems fair, considering the volume of secondary legislation and the relatively minor impact that this will have. However, it could be expected that the Government will have held informal conversations with those affected by the regulations. Will the Minister explain whether any such discussions, with industry or others, have taken place?
Thirdly, the Explanatory Memorandum claims that there is no impact on UK businesses. However, as a result of this instrument, businesses dealing with timeshares will surely have to acquaint themselves with the new regulations. Does the Minister not agree that, however minor, there will be some necessary adjustments for business to make?
Finally, on a similar note, does the Minister agree, like me, with the comments of his colleague the Secretary of State for Work and Pensions? This morning, she said that the UK will not be leaving on a no-deal Brexit as there is no majority in the other place for that to pass.
My Lords, I remind the noble Lord that we had a referendum a couple of years ago and we agreed that we were leaving the EU. That was the manifesto that both the party I represent and the noble Lord’s party went to the country on in 2017. We are leaving the EU. It depends on what terms. These regulations are about dealing with the question: what will happen if there is no deal? We hope there will be a deal but if there is no deal, we want to make sure that the proper protections are there.
The noble Lord, Lord Fox, asked a number of questions which went slightly wider than the regulations in front of us. The important thing to say to anyone who is thinking of buying a timeshare, whether in this country or another, is that whatever they do, they must take all the proper legal advice. I have no plans, when I walk round a golf course on the Algarve—which I have never done and have no intention of doing—to buy a timeshare, but there are people who want to buy timeshares and they serve a purpose. Whatever they do, the important thing is to make sure that they are getting the right advice, either in this country, if they are buying it here, or in another country. I think we would all agree on that point. Where people have had problems, it is very often because they have bought in the manner that the noble Lord, Lord Fox, seemed to be suggesting—someone comes up to them while they are on holiday and makes this suggestion.
Now that we are leaving, what protection will UK consumers have when buying timeshares in Portugal? Obviously, it will depend on where the consumer bought the timeshare. UK consumers who buy timeshares under UK law will be covered by the protections in the existing timeshare regime. If they are buying timeshares in Portugal from Portuguese traders, they will generally be subject to Portuguese law and the protections that that member state extends to non-EEA nationals. Consumers will be encouraged to understand the specific conditions of the contract and to take all appropriate advice.
The noble Lord also asked: how do we prevent people being misled? Obviously, I share his concern for vulnerable consumers who are unfairly targeted by manipulative and misleading sales tactics in many industries, but particularly here. I believe that the current timeshare regime, reviewed and updated by the 2010 regulations, provides adequate protections for timeshare consumers. The regulations require that clear and comprehensive information is provided to the consumer before any contract is agreed; that information on termination must also form part of the contract; that timeshare buyers also have the option to change their mind within two weeks of signing a contract, during which no money can be taken; and so on.
The noble Lord, Lord McNicol, asked whether it was possible that there would be further changes. He will be aware that the European Union (Withdrawal) Act does not give us the powers to create any legislation or substantially change any retained EU legislation. The changes that this instrument would bring into effect are made in exercise of those powers, to remedy deficiencies in retained law and not to change the effect of retained law. But we know that many people have concerns about some of the protections. I can give an assurance to the noble Lord that my right honourable friend and others will always keep these matters under review if we feel that there are not the appropriate protections. This will always be a concern. The Government would act if necessary.
I agree that resale is a vital point, because when one buys a timeshare one usually feels that one has an asset which, if it is to have value, should be able to be sold.
I was asked where the court of redress would be. If it was a Portuguese contract, the court of redress would be in the Portuguese courts. Perhaps I may double-check what the precise position would be in respect of something sold here that is in another place. If the noble Lord comes to a deal while sauntering around a golf course in the Algarve—so that is just a deal that he has made in Portugal—it is quite clear that the Portuguese courts will deal with it, but I had better write to the noble Lord on what the position would if he bought it here and it was in that EEA state to make sure that I get it absolutely correct.
I hope that that explanation is sufficient. As the noble Lord, Lord Fox, pointed out, the noble Lord, Lord Foulkes, has now felt that he can depart, so I hope that we can move on.
Infrastructure Planning (Water Resources) (England) Order 2018
Considered in Grand Committee
My Lords, the purpose of the order is to amend the Planning Act 2008. The Act sets out a streamlined national planning process for infrastructure projects which are “nationally significant”. If a project meets certain thresholds set out in the Act, it will be considered under it, with the Secretary of State as the decision-maker.
This order will change the thresholds under which reservoirs, dams and water transfers will qualify as “nationally significant”.
My Lords, the Government are pushing for it on behalf of the nation in so far as we undertook consultation. With climate change and population growth, we need to prepare. We wish to place a greater emphasis on the environment and therefore to deal with overabstractions. We need to find ways of having sufficient water, given the projections of an increase in population. This is about planning. We do not expect the projects to which this measure will apply to take place in the next five years; this is about forward planning. We think that these changes will probably embrace about six projects in England. The noble Lord asked who is driving this. We need to take a public responsibility to ensure that there is sufficient water for the nation. Yes, we should cut consumption where we can, but, because of population growth and climate change, we are bringing forward this measure now as part of our forward planning. It will involve public engagement, but that is the background to it.
On conclusions and criteria, we needed to make sure that we consulted, so we consulted on our initial proposals last November and then held a more detailed consultation in April. There was broad support for our approach from a range of stakeholders who responded, including water companies, environmental groups and other interested groups.
In reaching a conclusion on the new thresholds, we considered a number of factors, including the physical size of the infrastructure in question, the size of population that could be served by its output and the major infrastructure the Government anticipate will be needed in future. This is likely to require developers to engage with a number of planning authorities and other regulatory regimes. We also wished to move to a level playing field so that different water resource schemes are all required to meet thresholds that are as consistent as possible to qualify for consideration under the Act. This should help avoid developers favouring one scheme over another just because they prefer one planning route over another.
In making these amendments, we are introducing a consistent metric to measure the output of each infrastructure type. This metric is known as deployable output and is commonly used by the water industry for water resource planning. Deployable output is an annual average measure of the number of litres of water a particular piece of infrastructure can be expected to produce in a day under drought conditions. We concluded that a project expected to have a deployable output of 80 million litres per day—a level that could serve a population of around half a million people—is a nationally significant infrastructure project.
As explained, the order will amend qualifying thresholds for two existing infrastructure types mentioned in the Act and introduce a third—desalination plants. In the case of water transfers, this order would reduce the size of the threshold that projects would need to meet to qualify as nationally significant in line with the number of people served—that is, 80 million litres per day.
There will now be two ways for reservoirs to qualify for the streamlined planning process under the Act. The order would introduce a deployable output measure, consistent with transfers. However, we have chosen to retain a measure based on physical volume, recognising that the size of reservoirs matters. This is not just because of the impact they can have on neighbouring communities, but because a large reservoir takes a long time to drain down. Thus, with a relatively low deployable output, it can be an important part of overall water resource resilience. We have increased the volume for reservoirs to qualify under the Act from 10 million cubic metres to 30 million cubic metres.
We have also introduced desalination plants as a new infrastructure type. Consistent with the other infrastructure types, if the deployable output of a given desalination plant is expected to exceed 80 million litres per day, the project can be considered under the Act.
While the national level is the right one for decisions on nationally significant infrastructure, it is vital that those communities directly affected have their say and are heard in the decision-making process. The Act and regulations made under it set out the consultation requirements for development consent order applications. I can assure your Lordships that extensive pre-application consultation and engagement with those affected by the proposals will need to be undertaken by applicants. Furthermore, members of the public can participate in the examination process by registering their interest, thus ensuring that local views can be heard.
The main benefit to the developer of projects meeting the criteria in the Act is that they will face a less complex, consenting process with quicker decision-making. A number of consent requirements, such as planning permission, listed buildings consent and scheduled ancient monument consent, are replaced by a single consent, issued by the Secretary of State, following advice provided by the Planning Inspectorate.
It is the Government’s intention to designate a national policy statement for water resources infrastructure under the Planning Act. This policy statement will summarise government policy—
My Lords, it has just been drawn to my attention that a Division has been called in the Chamber. Since we have a few seconds to go until 6.25 pm, the Grand Committee therefore stands adjourned until 6.35 pm.
Sitting suspended for a Division in the House.
My Lords, it is the Government’s intention to designate a national policy statement for water resources infrastructure under the Planning Act. This policy statement will summarise government policy on water resource infrastructure, including setting out the need for nationally significant infrastructure. It will make clear what the Government expect a planning inspector to take into account when examining an application. We plan to lay a draft of this in Parliament by the end of the year. I look forward to engaging with your Lordships on this in more detail next year.
The amendments in this order are part of how we make sure we have enough water now, and in the future. Population growth, climate change and making sure we leave enough water in the environment will become more challenging in the future. We expect proposals for nationally significant infrastructure to originate from statutory water resource management plans, as these are where options to reduce demand and increase supply have been assessed. We know that some new infrastructure will be needed to meet water demand in the future. Our assessment of the current draft water resource management plans is that around half a dozen proposed projects, needing to start in the next decade or so, are likely to qualify as nationally significant under the Act as amended by the proposed order. For all the reasons that I have outlined and because of the Government’s strong view that we need to plan for the future, I beg to move.
My Lords, we all want water but we also want safeguards. Much of my contribution is going to be about safeguards. When I saw this order—which was only this afternoon—I had to do some pretty speedy homework and make a few phone calls. I also looked up on the internet the definition of NSIPs, and they are described as,
“major infrastructure project developments in England and Wales that bypass normal local planning requirements”.
Whenever I see those sorts of words, I think immediately: what are the safeguards? There are no safeguards that I can see defined in the order before us.
I want to draw attention to a particular example of where things could go wrong when there are no safeguards. I will tell the story of what happened over the Thirlmere reservoir in the Lake District. I am presuming that United Utilities and other water companies are among those to which the Minister referred when he spoke about the consultation that took place. I am sure that they would have a primary interest in ensuring that this order goes through, because I would imagine that in certain circumstances they will certainly be the beneficiary of it and use it.
Thirlmere is in my former constituency in Cumbria, which I represented for some 21 years. For many of those years, it was a major problem because of the way the legislation had originally been framed in terms of protecting the interests of consumers and residents in the area. The primary use of Thirlmere, as it was described in a letter from one of the senior managers in the Environment Agency, is,
“as a water resource reservoir for United Utilities. In addition, United Utilities has voluntarily drawn down the reservoir to enable some flood storage during winter months. However, as the low reservoir levels during the 2018 dry weather period show, there needs to be a careful balance between Thirlmere’s primary use as a water supply and its use for flood storage”.
That is what I am on about—the balance. There is nothing in these regulations that even refers to the need for safeguards as part of the discussion around the balance between the availability of water and flood risk in local communities.
I want to now refer to some incidents that took place and the response of the local communities. In January 2005, November 2009 and December 2015, Keswick, a town where I have lived for most of my life, was flooded. On the last occasion, 515 properties were flooded during Storm Desmond. As the formidable Lynne Jones, secretary of the Keswick Flood Action Group, said in correspondence to United Utilities:
“I make no apology for continuing to contact you. I know that UU will never really manage the reservoir with a view to our safety without legislation to enforce them to do so”.
That is precisely why I am speaking on this order, because it is not in here. In the end, the solution is in your hands; you who are far away and who cannot understand the fear that so many in our community live with.
There are 2,630 residential properties in Keswick, and 515 properties flooded during Storm Desmond in 2015. Let me explain to the Committee what that means. Keswick is a town in two parts: there is the lower part and the higher part. In the main, the higher part does not flood, although certain parts of it do. But the lower part floods extensively. In the lower part of the town, there has been a dramatic drop in property prices. I do not live there, but the people who do worry constantly about the fact that they cannot sell their properties and have difficulty insuring them. Throughout the winter months, they are haunted by the prospect of being flooded. The river Greta, which runs through the town, has built-in flood defences, which broke down on one occasion. The truth is that the town is living in fear because of inadequate safeguards.
Today, legislation is going through that will make it easier for water companies to pursue the development of reservoirs without the safeguards that the people in Keswick demand for Thirlmere. It is a very clear idea. I imagine that they are the people driving this on because they know that they will be able to bypass much of the planning arrangements that currently exist.
I want to refer to what people think should happen in the future to resolve these problems. Within these regulations, there should be reference to measures to ensure that communities are safeguarded. Lynne Jones has been in contact with me today, and I will refer in this debate to what she said. She said it is obvious that the reservoir should be managed for flood alleviation alongside water supply. However, legislation is needed to make this a reality, and the present Floods Minister refuses to consider this possibility. So we are going to have more reservoirs, without safeguards, and the potential of future flooding. She went on to say—
I wonder whether I might help the noble Lord. I can see the line of approach he is developing and would be the first to say that all Governments need to address flooding concerns.
Important to the context of this work is that it is all predicated on the Reservoirs Act 1975, which sets out extensively the safety requirements of large reservoirs and contains a number of provisions, which I am happy to outline.
This piece of work is from the Planning Act 2008. There is already legislation on the matters that the noble Lord is raising. I apologise for intervening but I just wanted to say that this is not in isolation; there is other legislation which deals with safety. The noble Lord may well question the 1975 Act but there is legislation, passed by Parliament, which deals with the safety of reservoirs. I hope that is helpful to not only the noble Lord—I am sure he knows about this legislation anyway—but other noble Lords.
My case is very simple: the legislation does not work. That is why half of Keswick lives in fear every winter. If you go to Keswick today and take a poll on the street and ask people what their major concern is, it is that their houses are going to be flooded. In the last flood in that small town, 515 properties were flooded. Many of them had to be evacuated. So when we talk about legislation being there to protect these communities, I am sorry, it is just not working. We need legislation that works. This order offered us an opportunity to deal with these matters. It could have referred to other regulations which could be introduced to deal with those safeguards but there is no reference at all to them. So I will carry on.
The second point Lynne Jones makes is on scheme funding. She says:
“The way that the EA look at the financial viability of a scheme does not lend itself to a full catchment approach. Funding is limited to the cost of damage to the individual towns and each is considered in isolation. If funding looked at the damage to farms/infrastructure/footpaths etc. from the high fells to the coast then perhaps Cumbria/our catchment/Keswick would have a better chance of getting viable schemes. The EA has trumpeted a full catchment approach loud and long since the 2015 floods but the only actions are, frankly, an excuse to have various NGOs have their snouts in the trough and get money to plant trees/reconnect the river to the flood plain/re-wilding and other tinkering schemes which keep them in jobs and have no real impact on the kinds of flows which threaten homes”.
This is what people in Keswick believe, yet we are putting through an order which makes it easier for these water companies to build without safeguards.
Lynne Jones goes on to say:
“We need to tackle the series of intense and prolonged winter storms that we experience. Doing easy/cheap/relatively ineffective things and expecting us to cheer is not really helpful. I firmly believe that 6.4 of the Habitats Directive is not applied in the spirit for which it was created … Flood risk needs priority over environment. Brexit is an opportunity to improve legislation for community protection from flooding”.
She then says:
“The government’s funding formula is unfair. The Derwent catchment has no money for any major works which could reduce flood risk. The funding formula does not take into account much of the costs which a community like ours faces: damage to bridges, pathways, parks, sports facilities, tourism and business in the area; nor does it take into account depth of flooding, repeat flooding and the detrimental effects it can have on the health and well-being of the community”.
I return to my case: there is nothing about safeguards in this order. We drive such orders through, give these big companies the right to build more of these reservoirs and the regulations are not in place to safeguard communities.
Finally, the letter talks about resilience:
“Government has to stop praising our resilience. We have no choice. Resilience is used as an option instead of addressing the real risks. I doubt the Dutch would accept resilience as an option”—
I am sure they would not. She continues:
“Resilience leaves people open to cowboy builders, inflated prices, product companies that don’t last long enough to honour their guarantees. People are encouraged to buy flood gates when the water seeps in through the brickwork/up from the floor and the only dry section is the flood gate itself. Resilience is useless if flood water is over a metre deep as water then has to enter homes to prevent structural damage. Unscrupulous firms will sell products anyway”.
My point is very simple and I will repeat for a fourth time: this order gives big companies the right to build new water facilities—which the Minister has talked about and we all welcome—but the safeguards are not there. People are going to suffer. There will be more flooding in the future, probably as a result of these developments, because the legislative background that the Minister referred to does not work. People in the north of England, particularly in Keswick, desperately want legislation to deal with a problem that in many cases is ruining their lives, in some cases is ruining their livelihood and in many cases is ruining their health. I appeal to the Government to listen to these people and stop fobbing them off with silly little schemes.
I follow the noble Lord, Lord Campbell-Savours, and sympathise with the situation in which people find themselves in Keswick. The Minister has already referred the noble Lord to the previous Act and said that there are restrictions in it. If they are not being observed or things are not being done, that is a slightly different issue from what is before us today. However, I well understand the vehemence with which he has—“used” is the wrong expression—taken the opportunity to raise the whole issue of having a development in not the right area and not protected in the same way. I suspect that other Members of the Committee will come back on the issue of flooding.
I support and welcome the measure before us. The question asked earlier by the noble Lord, Lord Campbell-Savours, was: “Who is driving it and why are we having it?”. From my very amateur point of view, it is looking to the future. There are going to be more people and we are going to need more water, so the ability to have four or six newer, larger innovations that will enable us to use water in a better and more sustainable way has to be the right approach. Still, I say to the noble Lord that it is not that I do not sympathise; it has been a terrible experience for people who have been troubled by flooding.
I welcome this statutory instrument. We need to plan for the long term. We cannot suddenly find ourselves short of water with nothing to fall back on. As someone who comes from the farming community, I am only too aware of the many demands there are for growing more food. The one crucial thing that we need is water. For those who live on the west side of the country, water is not an issue—it is there all the while—but for those of us who farm on the eastern side it is a huge problem. So being able to enlarge a reservoir or have desalination as a backstop has to be a welcome new initiative.
The Minister mentioned climate change. I agree with him, whatever the way in which it is changing. I think this last year will have reinforced the fact of climate change for all of us: it was a very cold winter, then we had a lot of rain and then in East Anglia we had three months of no rain at all. So we need the ability to be able to drain off water in order to supply crops. Those in rural areas who were not able to do so lost crops and could not get them off the fields because there was no water to enable it to happen. So we face big challenges.
I gather we have more consultation coming in a draft towards the end of the year. Perhaps when that draft comes through, it could include some of the concerns that the noble Lord, Lord Campbell-Savours, has indicated today. We need to ensure that where new reservoirs or desalination plants are being built, they are in a suitable place and not likely to reproduce the experience that they have had up in Keswick. There have been various consultations, and as far as I understand it they have on the whole been supportive.
I have one query for the Minister about the Explanatory Memorandum. There was one part of that I picked up on and did not quite understand because it struck me as slightly odd. I refer the Committee to paragraph 6.4:
“The development also cannot relate to the transfer of drinking water”.
I thought: why not? I am sure the Minister will be able to tell me why, but it seemed odd that we are dealing with different things. However, I suspect from listening to the earlier debate with the noble Lord, Lord Campbell-Savours, that it will go back to a previous Act, where something will be written in to define what it is. Again, I think it should be slightly clearer in the memorandum because I do not understand why.
I am happy to support the statutory instrument, but I should like the Minister to bear in mind some of the comments that have already been made on the question of where such developments are positioned. This is a key issue. In some areas, I am sure that people will accept that they need to be there. They may be rural areas—I do not know quite how they would be defined, but in future years we will need to balance flood protection with water conservation and using water to the best of our ability.
My Lords, my experience of water retention on this scale is that I was involved in the transformation of Loch Lomond into a reservoir capable of supplying 450 million litres of water a day.
On the volume of water held back by a dam being increased from 10 million to 30 million cubic litres, perhaps the Minister can say whether the noble Lord, Lord Campbell-Savours, can take some comfort from the fact that the smaller reservoirs would still be subject to all the regulations in the 1975 Act. I have just come from a meeting where we were addressed by an executive from Anglian Water. He said that it was under severe pressure this summer and that, if it has to extract any more water from ground sources, it feels that it will be moving into an area where damage might be caused. This must be quite a worry.
My Lords, I too welcome the SI and agree with many of the comments of my noble friend Lady Byford. We have droughts in the eastern part of the UK, so I welcome looking at our reservoirs and desalination plants.
I have a query about the impact on costs to local authorities. In paragraph 12.3 of the Explanatory Memorandum, it says that,
“there will be a slight increase in costs to Local Authorities … as more resource will be required in order to advise on applications”.
Is that for central government or for local authorities? Budgets are tight and I should like some clarification, particularly on that explanatory note.
My Lords, I declare my interest as a district councillor. I thank the Minister for his opening remarks and for setting the scene so clearly.
Water is a natural resource which is not finite. Our lives and livelihoods depend on it, and the well-being of all living creatures, trees and plants relies on there being a ready and plentiful supply of fresh water.
As the Minister has said, the change to the Planning Act 2008 for nationally significant infrastructure projects was out to consultation for six weeks during November 2017 and then for a shorter, three-week period in April this year. The first consultation resulted in a significant number of responses but no definitive consensus. The second consultation received 20 responses from those bodies directly affected by the change to the law. There was broad agreement with the proposed amendments. I find this encouraging, as it is quite a significant alteration to the capacity currently covered by the 2008 Act.
The change from 10 million to 30 million cubic metres represents a trebling of dam or reservoir capacity. This is likely to have some impact on the surrounding area and, no doubt, the people affected will have views that they wish to express.
To avoid drought conditions in parts of the country—such as we have heard about—it is imperative for major projects which both conserve and move water to be streamlined to ensure they proceed on time.
In my role as a district councillor, I am aware that planning is an issue which can significantly divide people, not always to the greater good of an area. It is important that residents are not sidelined by developers in their wish to complete their schemes. I note that, although the legislation is focused on reducing delays and delivering schemes efficiently, I am reassured that there will be public consultation at the pre-application stage. This consultation with charities and voluntary bodies is important, not only to improve transparency but to ensure that all angles have been covered when the final scheme begins construction. Those designing major infrastructure projects have not always covered every aspect of delivery. Sometimes a very minor amendment can make all the difference and save both time and money. We are not talking about dozens of nationally significant infrastructure projects. As the Minister has said, there will be fewer than 10 planned over the next decade. However, it is important for those projects to have the backing of the public who will benefit from the increased water capacity.
Although I wholeheartedly welcome this change to allow for increasing the capacity of reservoirs and desalination plants, I note that—as has already been mentioned—there is only a reference to a slight increase in costs to local authorities. This will come through advising on those important infrastructure schemes. As we are all aware, local authorities have falling budgets—some of them are failing—and increasing demands on their services, not least in the care of the elderly, dignified services for the disabled and the protection of vulnerable children. I am concerned that yet another burden will be placed on local authorities at a time when they have absolutely no room for manoeuvre in their financial affairs. I ask the Minister to encourage his colleagues in the Treasury to fully fund any increased spending that is likely to be caused to local authorities.
I thank the Minister and his officers for their time and extremely useful briefing on this important statutory instrument.
My Lords, I welcome the Minister’s explanation and echo the thanks of the noble Baroness to him for the courtesy of arranging a briefing on this SI in advance of today’s consideration. We, too, broadly welcome the proposals, which we believe will lead to greater water resilience in the UK. As we know, despite its reputation for rain, England is at increasing risk of water shortages. Extreme weather from climate change, coupled with an increasing population, especially in the drier southern and eastern areas, has put the water system under increasing pressure. We know that that will only rise over the coming decades.
I agree with my noble friend Lord Campbell-Savours that extreme weather is not just about drought; it is also about flooding. We have debated time and again in the Chamber the terrible consequences for local communities—not just in Keswick, but in other areas—which are faced with the same infrastructure breakdown which allows flooding to take place over and over again. The Government need to address that key challenge. I agree that this may not be the right vehicle to do that, but we should not lose sight of the important challenge of addressing the sort of communities which he spoke so passionately about.
Thames Water warned, just last month, that in a little over 25 years a projected population growth of more than 2 million people will leave a shortfall of 250 million litres per day between the amount of water available and that used. We have to address the issue of water shortage nationally. This has not been helped by an ageing infrastructure and a lack of investment from water companies in the past. This means that change is necessary to create a modern infrastructure which can adapt to new demands, which we can already predict will add pressure to the system.
The Minister will be aware that several stakeholders argued during the consultation that demand management techniques should be exhausted before any new infrastructure is developed and that water transfers should be a last resort. We agree that that while reservoirs and dams can play a key role in stabilising water availability, it is imperative that we reduce demand and waste. One area where progress is urgently needed relates to the industry’s inability to get on top of leaks. The noble Lord will know that in June Thames Water was ordered to pay £120 million back to customers, having been found to have breached its licence conditions by allowing millions of litres of water to spew out of pipes through leaks. So we need urgent action to reduce water leaks, with meaningful targets for action by water companies year on year. Will the Minister update us on the agreements that have been reached with water companies to make this a reality? Will he also explain what action is being taken to change consumer behaviour around domestic water consumption? Breaking through this barrier is a real challenge, not least because consumers have a simplistic view of the water cycle and the ease by which turning on a tap can deliver water without any concern to the source of that water supply.
Any government proposals must make sure that the ways we build infrastructure and supply water in the future are sustainable for the environment and for local communities. According to a report published by WWF, nearly one-quarter of all rivers in England are at risk because of the vast amounts of water being removed for use by farms, businesses and homes. Some 14% of rivers were classed as overabstracted, meaning that water removed is causing river levels to drop below those required to sustain wildlife, while a further 9% were described as overlicensed, meaning that the river would fall to a similarly low level if permits to take water were utilised fully. This means that if permits to abstract water from rivers were fully utilised, levels of water would be unable to sustain wildlife and the necessary biodiversity that goes with it. What safeguards are in place to ensure that the increase in nationally significant projects does not lead to more overlicensed and overabstracted rivers? Will the Minister ensure that the national policy statement on water resources prioritises sustainability, not profits?
One of the key challenges of these proposals is the issue of local engagement. The noble Baroness, Lady Bakewell, touched on this and my noble friend Lord Campbell-Savours dwelt on it in some detail. In the proposals for large infrastructure projects there are indeed legitimate local concerns that need to be heard and addressed. I know that the Minister raised this in his introduction and set out the Government’s aspirations, but it would be helpful if he would clarify how he intends to use the powers the Government are taking to guarantee proper community consultation in the future, so that he can give more assurance to noble Lords in this regard.
The Minister will also know that the Chartered Institution of Water and Environmental Management has expressed concerns that the criterion for defining a nationally significant infrastructure project,
“does not consider any regional or supra-regional water resources issues”.
Will he ensure that the Environmental Agency and Ofwat recognise the importance of regional, multisector resource planning in delivering these changes, so that it is not just about local consultation involvement but also proper consultation at regional level?
Finally, while we welcome the introduction of desalination plants as a new category of NSIP, we share the view of many stakeholders that effluent reuse systems should also have been included. While these facilities are used only in times of projected or actual drought, it is likely that we will come to rely more on this type of water supply in the future, owing to the existential challenge of climate change and population increase. Can the Minister explain what more is being done to expand investment in this sector and encourage water recycling? Does he accept that not including effluent reuse as a new category of NSIP may deter investment in such plants?
In conclusion, we welcome the proposed amendments and support the Government’s stated twin-track approach to improving resilience by stabilising supply and reducing consumption. This will be achieved only as part of an ambitious, long-term plan for the environment, including new policies to manage our water resources, a plan to meet our climate change targets and a strategy to reduce domestic consumption—as well, of course, as dealing with the extreme water consequences we have been debating this evening. I look forward to the Minister’s response.
My Lords, I point out at the outset that although I am not as aware as the noble Lord, Lord Campbell-Savours, is about the flooding in his part of the world, as a Defra Minister, and beforehand, I absolutely understand and have seen the devastation and horror of flooding—indeed, the fatalities there have been—across the country. I am thinking particularly of the flooding experienced in one sense on the west side of the country, while on the eastern side there has so often been coastal flooding where the most terrible events have also happened.
I want to take away all that the noble Lord has said, and would be very happy to hear from any of the people who may have contacted him. I am not the Minister who has direct responsibility for flooding but in this House I take responsibility for all Defra matters, and I want to hear much more about the situation of residents there. I have friends in Cumbria who have suffered from the flooding, and I know that communities have been in a very difficult situation for many years. Perhaps I may spend some time outside of this discussion understanding more about the particular points that the noble Lord raised about Thirlmere and the issue of safeguards.
I know it was probably incorrect of me to intervene as I did, but I wanted to ensure that what we are trying to do here, through the Planning Act 2008, was on the record early on. I would of course want to hear in more detail whether there are issues with safety in reservoirs and the 1975 legislation, or issues arising therefrom, that we need to consider. This provision comes from the Planning Act 2008, and I suggest that it enables us to deal with the small number of what we believe to be nationally significant infrastructure projects for water. This is the route that that Act envisaged. We are seeking to add some detail to it and, as I say, include desalination plants.
I am sorry to intervene. I want to ask one question. A part of the town now lives in fear of flooding, as I said, and in a large part of the town there has been a major drop in the property values of people’s homes. I presume that there must be people now who are in difficulty over their mortgages. Because of the lack of legislation at the moment, with no way of controlling the operations of United Utilities, is it not possible for some national fund to be set up to help people who are in difficulty over the sale of their properties? I heard about a house last week that was on the market at nearly £600,000 and is being sold for £350,000. These are huge losses, which do not derive from the actions of the people that own them but directly from the absence of legislation that governs flooding. As I say, the danger in this order is that there will be more in the future.
I am grateful to the noble Lord. Clearly, I am not in a position to talk about resources, as he will understand very well. But obviously, in a different sense, this is why the Government brought forward Flood Re—there was a lot of consideration in the insurance world vis-à-vis it—to seek to address some of the difficulties that householders had. In fact, the noble Lord and I have had conversations about this and some of the distinct elements of where it has been successful. However, I understand generally that Flood Re has been a considerable success for householders with this problem.
I want to spend a few moments in saying to the noble Lord, Lord Campbell-Savours, that I am very happy to take away and discuss the concerns in Keswick and any parts of Cumbria with whoever he wants to bring to see me. Our objective—the reason we have the Environment Agency; the reason we have bodies paid for by the public purse—is not to have it that people are fearful but that we do the best we can, through the use of Flood Re, through hard engineering or through other means that are increasingly utilised. We need to use a mix of approaches. I extend that offer to the noble Lord. In saying that this is about the Planning Act 2008 and other legislation that deals with safety, I take the point that he makes. It is a serious one and I know he reflects what many communities must feel. We must try to do all we can.
To return to the essence of the order, I am most grateful to noble Lords for raising a range of points and setting the scene about why we need to plan forward, whether on the production of food, the wise use of water in that production and the agricultural sector, or on reducing demand. The noble Baroness, Lady Jones of Whitchurch, was on the dot when she referred to reducing demand. Clearly, we need resilient water supplies, now and in the future. That involves not only creating new infrastructure but dealing with leaks. Nothing is more annoying than seeing water wasted in this way.
The Government made it clear over the summer—the drought obviously made this a matter of total public concern—that we, including through Ofwat, are expecting the water companies to improve their record. The regulator’s challenge is already to reduce leaks by at least 15% by 2025. Over the long term, the industry is committed to work to an ambitious target set by the National Infrastructure Commission to reduce leaks by 50% by 2050. We need to hold it to account: the Government do and we all need to do so. I am expecting Ofwat to set appropriate milestones for each five-year planning cycle. I honestly think that the leakages we have are unacceptable. Yes, we have a fairly elderly infrastructure, but this is a hugely important point.
The other point, as raised by the noble Baroness and others, is about the way in which the public and we ourselves use water. It is very important that water companies help customers to use less water. The Government have a role to play and this is why in the 25-year environment plan we committed to working with industry to determine appropriate targets—I use the word targets for personal water consumption—and, indeed, the measures that we need to achieve them. I looked for some information on this and it is interesting that, on metering alone, evidence shows that metered companies use significantly less water. In 2016, metered companies in England and Wales used 33 litres per day per person less than customers who are not metered. The water companies must deal with the leaks and we, in turn, need to be more responsible.
A number of your Lordships raised another point. My noble friend the Duke of Montrose and the noble Baroness, Lady Jones of Whitchurch, talked about abstraction and, indeed, overabstraction of our rivers and bodies of water. The Environment Agency has already acted on that and made changes to over 270 abstraction licences, reducing the amount of water that might be taken from rivers and aquifers by over 27 billion litres per year. We published our abstraction plan this time last year, setting out how we will continue to make progress to reduce levels of abstraction where necessary. It is really important from the environment’s point of view that overabstraction is dealt with. That is why the water industry has a responsibility to reduce abstraction where it cannot be sustained. From their draft water resource management plans, we expect water companies to deliver a total reduction of 260 million litres per day by 2025, and 480 million litres per day by 2040. We need to look at ways of reducing unsustainable abstraction. It is very important—I want to place this on record—that both the existing water resources management planning guidance and the future national policy statement emphasise the importance of sustainability.
The Planning Act 2008 is quite clear. The noble Baroness, Lady Bakewell of Hardington Mandeville, raised this, and I think we all feel that it should not for one minute be interpreted as a way of making it difficult for the voices of local communities to be heard. I can assure your Lordships that this is not the intention of what is a small number of nationally significant infrastructure projects to do with water. It is enshrined in the 2008 Act how people and communities affected by these major projects should absolutely be heard and have their concerns discussed. It is absolutely clear to me that anyone with the possibility of a major infrastructure project near to them, having that impact on their community, will want to feel that that infrastructure is in the national interest and that it does not make them unsafe. To pick up the point made by the noble Lord, Lord Campbell-Savours, it is absolutely clear that we will need these projects, but there are mechanisms absolutely enshrined in the Act which we are not in any way touching.
On regional planning, the water industry has improved how it looks across the regions, seeking to better understand the problems faced and the best solutions to address them. This is why the national framework being developed by the Environment Agency is supporting that regional-level concept, as raised by the noble Baroness, Lady Jones of Whitchurch. Clearly, water does not just come down one river. There is a whole catchment area, and we will need to be responsible for our waters in a much wider way.
My noble friend Lady Redfern asked about local authorities—understandably, given her background in and leadership of local authorities. There may be some possible costs for local authorities in what is intended by this small number of projects, but we believe that the cost will be negligible. If I have any further detail or consideration on the work, I will make sure that she is kept in the picture on that.
My noble friend Lady Byford quite rightly asked about the Explanatory Memorandum. I am so glad that she is diligent in looking at it; I had to look at it myself. This is what was excluded in the 2008 Act. We did not propose to change the 2008 Act other than to use it for these three points for water infrastructure. Drinking water is also nearly always transferred in smaller amounts than the envisaged large transfer of untreated water, for instance. The transfer or movement of drinking water tends to be in smaller conduits; that is how I understand it. If there are any further particulars, they are not included because that was what was stated in the 2008 Act. We want it to be consistent with that.
I should also say—and I have just had a note, so this perhaps plays into the important point about flooding—that the Government are investing £2.6 billion in flood and coastal erosion risk management projects between 2015 and 2021. I would again be happy if the noble Lord, Lord Campbell-Savours, could consider this and work with Defra to see whether any of the points or localities he raised are engaged in that, but that £2.6 billion is obviously an indication of the concern that we all have.
A number of other points were made. On the matter of effluent reuse, we considered this and there was some support for it, but in the end our final view was that such schemes would likely include a water transfer, and so still could qualify as nationally significant if of sufficient size. There might also be an overlap with nationally significant wastewater infrastructure. We would also have set the threshold at an output of 80 million litres per day, in line with transfers and desalination plants. We do not think that industry has been deterred; in fact, draft water resource management plans contain a number of proposals relating to reuse. However, we are not aware of any such schemes that would meet a threshold of 80 million litres per day.
I will look at Hansard, but I have tried to respond to all the points that were covered. This is an important piece of long-term planning for our ability and for the Government’s responsibility to ensure that the nation has sufficient water supply for consumers, business and residential; and that industry, agriculture and, importantly, the environment have sufficient water supply. Yes, it rains quite a bit, but we are not very good at using or retaining that water. This is part of what we are going to need to do: to have a range of projects—not many, because few will embrace this size—and the ability to forward plan. We are not expecting any of these projects to come forward in the next five or even 10 years, but this is about enabling the ability to start that journey of getting our country to be water-resilient. I take the point raised by the noble Lord, Lord Campbell-Savours, and I am genuinely grateful for the opportunity he gave me to come back to him with some of the points I have raised about the investment that is taking place. I promise to find out more about what is happening in his area. In the meantime, this is an important order for our future infrastructure and I commend it to the Committee.
Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
Considered in Grand Committee
My Lords, claims management companies offer advice and other services to consumers making claims for compensation. They can provide vital support for consumers who may be unwilling or unable to bring a claim for compensation themselves. When the CMCs market functions well, these companies can act as a check and balance on business conduct.
CMCs are currently regulated by the Claims Management Regulator, under the Ministry of Justice. This regulatory regime was established in 2006 through the Compensation Act and was initially intended to be temporary. Reports of widespread misconduct suggested that the Government should act to strengthen regulation of CMCs. In 2015 the Brady review found evidence that the majority of stakeholders felt the Claims Management Regulator lacks the sufficient powers and resources to supervise the market properly. The Government took the first step to stronger regulation in 2016 through the Financial Guidance and Claims Act. This mandated the transfer of regulation to the FCA and the handling of complaints about CMCs to the Financial Ombudsman Service.
The aim of this legislation is to introduce a robust regulatory regime for CMCs that benefits consumers and is proportionate to the needs of the sector. We consulted on its provisions and we are confident that this legislation delivers on this aim. Through changes to the regulated activities order and the financial promotions order, this legislation makes claims management a regulated activity in England and Wales and in Scotland for the first time. This will require firms to seek authorisation from the FCA in order to promote and carry out claims management services.
The order defines the types of claims management activities that will be regulated by the FCA by creating seven different permissions across different sectors for different types of activity. This will mean that regulation will be comprehensive as each CMC will need separate permissions depending on the specific activities and sectors that it wishes to operate in, which will enable the FCA to take into account the different types of work across each sector and different activities. Regulation will also be kept proportionate as CMCs will need authorisation only for the activities they actually carry out.
This is a change from the previous regime, which set out one permission enabling claims management activity across six different sectors. These six sectors have been preserved from the previous regime and mean that CMCs must be regulated for their activities in personal injury, financial products and services, employment issues, industrial and criminal injuries, housing disrepair, and for seeking out, referring, and identifying claims. As the Economic Secretary noted in the other place, the Government are aware of increasing claims management activity in areas other than those I have just named. The Government will monitor the new regulatory regime and consider how best to meet this challenge.
The order also sets out which organisations are exempt from the FCA’s regulation. Concerns had been raised about the exemption of legal professionals, but I can assure the Committee that, first, solicitors are already strictly regulated by the Solicitors Regulation Authority for their work, which can closely resemble claims management work, and secondly, CMCs will not be exempt from regulation merely because they employ a solicitor. Rather the exemption is designed to ensure legal firms are not unduly burdened by dual regulation.
We have taken steps to make sure that this is a smooth transition. The FCA will be implementing a temporary permissions regime to ease the process for CMCs. The FCA is well placed to take on the regulation of CMCs, having already started to build the department which will oversee the transition of regulation. It is well resourced and has an expert pool of conduct supervisors and detailed knowledge of financial services. CMCs will be held to the same conduct standards as all FCA-authorised firms, and the FCA’s rules will provide a robust and proportionate framework for how CMCs should carry out business and treat their customers. The FCA will be able to use its regulatory powers to deal with CMCs that do not abide by its rules.
In summary, the Government believe that the proposed legislation is necessary to ensure that the regulation of claims management companies is fit for purpose so that consumers can benefit from a professional service that offers value for money. I hope members of the Committee will join me in supporting the order. I commend the order to the Committee.
My Lords, I welcome the order. The FCA’s greater range of powers allows for tougher regulation to address the conduct issues and other problems that we are familiar with in the CMC market. The reauthorising of existing claims management companies will ensure that they can comply with the new regime, and the senior managers regime can be used to hold managers accountable for the actions of their businesses. All this is to be welcomed.
Is there any estimate of how many existing claims management companies will not get authorisation under the new regulatory regime? What will happen to the cases that such companies are handling if they are not authorised? The previous regime required only one permission to enable claims management activity across all six sectors—personal injury, financial products and services, employment, industrial and criminal injuries, and housing disrepair. The order creates seven different permissions across those sectors, which again is a positive because it strengthens and focuses the regulation of the CMCs. However, it maintains the same exclusions and exemptions from FCA regulation that existed in the previous regime, even though there have been a number of responses to consultation suggesting that additional sectors should be brought into scope, particularly claims about cavity wall insulation, aviation and timeshares.
Ofgem’s response to the Treasury consultation, by way of example, was prompted by an increase in correspondence with claims management companies dealing with cavity wall insulation, which are not regulated under the current regime. In eight months it received over 2,250 such requests compared with only 80 in the same period for the previous year. The energy company obligation scheme, which Ofgem administers, places an obligation on larger energy suppliers to deliver energy efficiency measures, including cavity wall insulation, particularly to individuals in fuel poverty and therefore vulnerable households. Ofgem considers that the significant increase in the number of subject access requests reflects claims management companies looking to pursue claims for clients against failed or wrongly installed insulation.
Somewhat wryly, Ofgem observes that over 6.2 million homes have cavity wall insulation under government schemes. It is clearly an emerging area for claims management companies, and it is in the interest of consumers for this area to be regulated. The Government’s response was to the effect that further work was needed to understand whether this and other claims sectors should be regulated. Against that, though, we are hearing from an authoritative regulator telling the Government that there is an escalating problem that needs to be addressed. I ask the Minister to confirm the extent to which the order allows for additional claims sectors to be included in the new regime and to what extent a further statutory instrument is required to extend its scope. When can we expect a decision on the inclusion of cavity wall insulation claims? What other sectors are the Government currently considering whether to include?
It is proposed that the exemption afforded to claims management activity by independent unions, if they adhere to a code of practice, is maintained. Again, in my view that is a positive because thousands of trade union members get service through their union. The existing code applicable to trade unions will be replaced by a new code to be published by the Treasury in time, I understand, for the regulatory transfer on 1 April 2019. What is the process for consulting the trade unions? Could the Minister give a steer on what areas in the code the Treasury is looking to change?
The Minister referred to solicitors carrying on claims management activity also being exempt if that activity is carried on as part of their ordinary legal practice because regulation comes via the Solicitors Regulation Authority. If a solicitor is not acting in the ordinary course of their legal practice but is carrying on claims management activity separately, the exclusion does not apply. Again, I noted that several responses to the Treasury consultation questioned that exemption or expressed concern about the robustness of the Solicitors Regulation Authority, suggesting, as one sees if one reads the submissions, that a risk of regulatory arbitrage could arise where the presence of a legal professional in a company allows it to seek SRA authorisation rather than meeting the more robust FCA process. Although the SRA and the FCA can develop memorandums, which I am sure they will, what assurances can the Minister give that this risk of regulatory arbitrage will be closely monitored, and does this order allow the FCA to revoke that exemption—that is, if it wants to consider that exemption, can it do so under this regulation?
Finally, under the General Data Protection Regulation 2018 and the Data Protection Act 2018, where personal data is obtained through an unlawful cold call, further use of it is prohibited. This is something that many of my colleagues were concerned about during the debate on this matter in the House. I know from reading the documents that the FCA is consulting on requiring claims management companies that buy leads from third parties to carry out due diligence to determine whether the lead generator is authorised and complies with the relevant legislation and regulations. However, again, I ask the Minister: when will the FCA conclude what is required of claims management companies—that is, to undertake due diligence and ensure that the leads they are buying are authorised—and will that be available before April 2019?
My Lords, given the hour, I shall try to be very brief. I support this statutory instrument but want to reiterate some of the points made by the noble Baroness, Lady Drake, and others.
Obviously, I support the transfer of supervisory responsibility to the FCA and the Financial Ombudsman Service, but it will be effective only if the FCA decides that it will use its powers. The notes accompanying the statutory instrument refer to the senior managers and certification regime, which has been in place for two and a half years. The industry was initially very afraid of that regime and the discipline that might follow, but it is not so any longer. Can the Minister tell us or ask his officials to write to us setting out how many actions have been taken under that regime? Obviously, you do not expect anything in the first months but, by now, given the fairly constant level of misbehaviour within the financial services industry, we should be seeing something coming through. I fear that the number will be quite low—possibly even zero.
I also reflect the concerns that the noble Baroness, Lady Drake, expressed about exemptions. The Minister referred in particular to the concerns expressed in consultation about the exemption for the legal profession, and he talked of the Solicitors Regulation Authority. I am afraid that its reputation is not good, and it is certainly not one of a body that is rigorous in its enforcement. I understand that there will be a memorandum of understanding and some sort of joint regime between that body and the FCA, but it would have been handy to have sight of that before we saw the SI. Can the Minister expand on that to give us some level of confidence both that these two bodies will work together and that they will be determined to be rigorous—something that, frankly, sits in neither’s history?
I pick up the issue of cold calling, which the noble Baroness, Lady Drake, addressed. As the Minister knows, we have been very concerned that there is not a much more vigorous prohibition on using data obtained in an unauthorised way, and cold calling was a particular issue. The fact that no penalty will be paid by those who use the information is a really significant loophole. Can the Minister give us any update on whether there will be action in this arena? He will know that, although Parliament has provided many powers for regulators to tackle cold calling, anecdotally we are aware that its incidence has not slacked; it has just become much more targeted against vulnerable people. That is almost the worst outcome that any of us could have anticipated and something that needs to be dealt with very rapidly.
Lastly, I turn to the issue of new areas. This industry has a long history of producing one new wheeze after another. We could use some assurance that the FCA and others will be able to move rapidly as it begins to become evident that the industry has found yet another way to target individuals in some abusive form. I do not want to damn all claims companies. Some of them are very good; some are extremely responsible, but it is an industry that has managed to draw in quite a number of rogues. We all want them to be expelled as soon as possible.
My Lords, I, too, welcome this statutory instrument and thank the Minister for introducing it. I also endorse what the noble Baroness, Lady Drake, has said, particularly her questions. I will not repeat what she said, but just observe that the regime will involve the Senior Managers and Certification Regime. I am sorry to hear that it is not as yet being used effectively. Perhaps the Minister will reduce our concerns. Perhaps it would be more top-of-mind if the reversed burden of proof originally in the scheme had been retained. Certainly, it is meant to be a regime which makes managers very clear of their duties, if not fearful. I endorse the idea of six bundled areas of responsibility being expressly divided into seven. I think that the noble Baroness, Lady Drake, asked whether there should be more than seven. It is a bit unfair of me, but I feel that the ombudsman becoming the financial ombudsman gives me a feel that he will be steelier and more effective.
The solicitor exemption depends on the exclusion that the activity is being carried on as part of their ordinary legal practice. The trouble is that we are talking about solicitors. They are paid to get around regulations. Who will be policing that boundary? Who will have responsibility for understanding what a particular solicitor is doing and saying, “Sorry, that should now go into the financial control”? The solicitors doing this work in the ordinary course of their business nevertheless need proper regulation. Is the Solicitors Regulation Authority up to the job?
Lastly, I understand that the CMRU staff will be redundant at a point when the FCA will, we hope, looking for similar skills. I would like to know the Government’s plans at a practical level for those staff.
I thank noble Lords for their scrutiny of this SI and for their general welcome. I will try to address some of the key points and questions which have been raised.
First, the noble Baroness, Lady Drake, asked about estimates of numbers. According to the CMRU, there are current 1,238 authorised CMCs in operation. The overall number of authorised CMCs has been reducing on average by 10.9% per year for the past four years. The FCA’s modelling shows that it expects to take on 906 firms in 2019.
The noble Baroness, Lady Drake, and the noble Lord, Lord Tunnicliffe, mentioned the solicitors’ exemption and concern about potential regulatory arbitrage. The SRA and the FCA are in the process of updating their memoranda of understanding to ensure that the sector is closely monitored and properly regulated. The order contains a provision which disapplies the exemption from regulation by the FCA, should a CMC seek to avoid FCA regulation by employing a solicitor. That CMC will continue to be regulated by the FCA.
The noble Baroness, Lady Kramer, asked about solicitors, and not other regulated professionals, being exempt. Solicitors are already regulated by the Solicitors Regulation Authority. I understand the point that she made about that authority. The work of a solicitor advising on a claim is the same as, or very similar to, the work of a CMC seeking compensation for a consumer. As solicitors are regulated by the SRA for their usual activity, appropriate regulatory oversight is already present.
The Government have retained the other existing exemptions; we consider it correct that these bodies are not subject to regulation. That point was made by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Drake. The FCA will continue to monitor exemption from claims management regulation if it moves or migrates into other activities. Of course, it will also retain the right to come back with further suggestions.
The noble Baroness, Lady Drake, asked about the exemption for trade unions.
Sitting suspended for a Division in the House.
My Lords, I was just touching upon the code of practice for trade unions, in response to a point made by the noble Baroness, Lady Drake. The Treasury proposes to maintain the code for trade unions and will replace the MoJ on the monitoring board. The Treasury is working with the Trades Union Congress and Scottish Trades Union Congress at an official level and will publish the code in due course. The code is being amended, mainly to update it to reflect the transfer of regulation.
The noble Baroness asked about CMCs moving into other sectors. We will carefully monitor the effectiveness of CMC regulation and work with the FCA, the SRA and others to ensure that the sector is benefiting its customers. On the estimate of how many CMCs will not get authorisation from the FCA and what will happen to their cases, the number of CMCs has been declining, and I gave some statistics on that at the beginning.
The noble Lord, Lord Tunnicliffe, asked what will happen to the highly qualified CMRU staff. The CMRU and the FCA are currently agreeing the transfer of staff as part of their transfer scheme under the Financial Guidance and Claims Act. The details are still subject to discussion.
The noble Lord and the noble Baroness, Lady Kramer, asked whether the Solicitors Regulation Authority was up to the task. The SRA is subject to oversight by the Ministry of Justice and provides strict professional regulation. A memorandum of understanding between the SRA and the FCA is being reviewed.
That is something that I think the FCA would be liaising on. If it felt that its activities were aligned with a CMC then, as I mentioned earlier, that would mean it would have to continue to be regulated by the FCA. On the specific point, unless there is any inspiration on its way, I will write with clarification to the noble Lord.
The noble Baroness, Lady Kramer, asked if any action had been taken on CMCs doing their due diligence on data under GDPR. The FCA is in the process of updating and publishing its rules for the CMC regime. It will be working closely with the Information Commissioner’s Office, which is responsible for the oversight of data protection laws, to ensure that CMCs comply with the order, FCA rules and data protection legislation.
The noble Baroness asked whether the SRA was an effective regulator. The MoJ is responsible for the oversight of the SRA. The FCA and the SRA are currently reviewing their memorandum of understanding, and their conclusions will be published in due course. I think that covers most of the points.
Could the Minister clarify a point from one of my questions? Where an existing claims management company, authorised under the previous regime, transfers across to the FCA on the due date in April and is then subjected to the reauthorisation process but is not reauthorised, what happens in that instance to the caseload that it has been managing?
Committee adjourned at 8.04 pm.