House of Lords
Tuesday 4 December 2018
Prayers—read by the Lord Bishop of Carlisle.
Introduction: Baroness Osamor
Martha Otito Osamor, having been created Baroness Osamor, of Tottenham in the London Borough of Haringey and of Asaba in the Republic of Nigeria, was introduced and made the solemn affirmation, supported by Lord Harris of Haringey and Baroness Lawrence of Clarendon, and signed an undertaking to abide by the Code of Conduct.
Rail Franchise Agreements
My Lords, franchise arrangements contain obligations for operators to act in the best interests of passengers if there is disruption in service. This includes working with Network Rail and other train operators and using all reasonable endeavours to provide alternative means for passengers to get to their destination. In addition, during franchise bids we ask bidders to demonstrate how they will deliver high standards of information and customer service during such periods, and bidders are evaluated on the quality of their responses.
My Lords, I refer to trains to Brierfield, Nelson and Colne, which are at the end of the line on an eight-mile single-track siding. If trains are late, they often turn back at Burnley and turf out all the passengers without assistance, support or alternative transport to Brierfield, Nelson or Colne, where they have tickets to. It happens at all times of the day and night, leaving vulnerable people stranded at a dark unmanned station—children, young girls, old and disabled people, and visitors who do not know where they are. When will the Government get to grips with Arriva Northern rail and bring an end to scandals such as this?
My Lords, Northern is working hard to reduce the number of cancellations experienced on the line which the noble Lord mentions; they are currently running at about 4%, which is obviously not good enough. If the last train of the day is cancelled, Northern operates a last train of the day policy, which should ensure that passengers who are travelling to Brierfield, Nelson and Colne are not left stranded. If for any reason that service does not arrive, there is a 24-hour helpline, and service will then be provided. I have been assured that onward transport has been provided in all circumstances, but from what the noble Lord has said, that is not the case and, as I said, that is not good enough. I will be happy to arrange a meeting with the noble Lord and the Northern franchise where we can discuss further how better to make improvements.
My Lords, the problems outlined by the noble Lord, Lord Greaves, are symptomatic of the structure of the railway. It is the structure that is wrong, and it is the structure that caused the May timetable chaos. Fortunately for us, the Transport Select Committee in the other place reported on that today. At paragraph 63 it concludes:
“The Secretary of State for transport is responsible for the structure of the system that controls and runs our railways. He is at the apex of this system … It is therefore not reasonable for the Secretary of State to absolve himself of all responsibility”.
Does the Minister agree with the committee, and does she further agree that things will not get better until the Secretary of State accepts his responsibility or stands aside for a more proactive and responsible candidate?
My Lords, I should make clear that the Secretary of State and the department have accepted responsibility for the role we played in the implementation of the timetables in May. It is clear from the difficulties with the introduction of the timetable over the summer, from problems experienced with some major investment projects and from the collapse of the Virgin Trains East Coast franchise that we need to see significant change, but that, as the noble Lord said, is in the structure of our railways not in our Secretary of State.
Is my noble friend aware that, while there have been improvements on Govia Thameslink since the May farce, a new technique is nevertheless being deployed on the Peterborough line? You get half way to Peterborough and the train driver announces that he is not stopping at the next four stations. While I normally like going to Huntingdon, on the whole it is not terribly productive after a late sitting in your Lordships’ House. I therefore ask my noble friend to suggest the simple remedy of having a reserve train at Peterborough with a standby driver so that the timetable can be kept.
I am not sure that I will be able to deliver that, but I will certainly take my noble friend’s suggestion back to the franchise. Again, we have seen unacceptable levels of service from GTR over the summer. We have today announced firm and proportionate action against GTR, which will contribute £15 million towards tangible improvements for passengers and will make no profit from its franchise this financial year. Looking ahead, we have also capped the amount of profit the operator is able to make for the remainder of its franchise. I am well aware that the service is not as it should be, and we are working hard to address that.
My Lords, I am grateful for my noble friend’s Question. I will expand it slightly to look at the particular problem that disabled passengers face in these circumstances. One deaf passenger recently got on to a train and, following a platform change, an audio announcement was made of the need to move to another platform, but no conductor or other staff member walked down the train and the person sat there for some time before realising there had been a change. Secondly, a disabled passenger was left stuck on a train that was terminated before its expected station, unable to get off with the other passengers who were taken off the train. What are the Government doing to ensure that train operating companies look after disabled passengers of all types, whether their disabilities are visible or not?
My Lords, all train operators have a disabled people’s protection policy in place, and they must comply with that as a condition of their licence. The ORR is currently consulting on how we can strengthen that document to set out what train operators are required to do. It looks at key areas such as reliability of the assistance service, staff training, the notice period recommended before booking assistance and passenger information for seeking redress. The ORR has powers to take enforcement action where there are breaches of licence conditions. It has not yet used these powers, but we would absolutely encourage it to do so where there are breaches.
My Lords, is the Minister aware that some rail companies appear to have removed the word “cancellation” from their vocabulary? You arrive at the station for a train, look at the board and discover that the train is no more; it never existed; it is not there. Could she help these companies to recover the full use of their vocabulary?
My Lords, train cancellation has certainly not been removed from my vocabulary. We need to make sure that information is properly provided to customers. We are working closely with GTR and all the train operating companies on this. We need, of course, to ensure that passengers are aware which services they will be able to travel on, and that is something we are working to improve.
My Lords, I hope the Minister does not think that everything is fine on those train operating companies not mentioned here today. On Great Western Railway, for example, the service from Cheltenham Spa to Paddington is frequently cancelled on a Sunday night. All the trains are suddenly and summarily cancelled, so people who work in London all week and expect to travel back there on a Sunday night find they are unable to do so. GWR does this repeatedly. Will she intervene?
My Lords, obviously we should be looking not to cancel any train services, and those services referred to by the noble Baroness are particularly important for people who need to travel to London for work. I will take this issue back and follow it up with the franchise-holders to see if there is anything we can do.
My Lords, we continue to work hard to shape the regulatory framework so that it is underpinned by common sense, as outlined in the Government’s Tourism Action Plan. We are also working closely with the hospitality and tourism sector to identify areas where less, or indeed more, regulation would support additional growth.
I thank the Minister for his response, but there is concern in the tourism industry that regulation of the accommodation sector has not kept pace with technology and that some platforms are operating on the very margins of regulatory compliance. In the sharing economy, there is no distinct system in place to ensure that adequate fire and safety standards are enforced. There is also no legal requirement to ensure that hosts purchase public liability insurance. What will the Government do to rectify this and would the Minister be willing to meet me and representatives of the industry to discuss it?
My Lords, I take the noble Baroness’s point seriously. We are of course concerned not to overregulate but to support the industry. However, we understand that the most important thing is the safety of all travellers, whether domestic or from further afield, and we will consider any proposal that results in a safer or enhanced experience for tourists in the UK. The guidelines for smaller businesses are currently being reviewed by the National Fire Chiefs Council, using input from a wide variety of accommodation providers, including Airbnb and the Bed and Breakfast Association. We have not yet come to a conclusion about a registration scheme, but the Minister for Arts, Heritage and Tourism would be delighted to meet the noble Baroness.
Does the Minister accept that uncontrolled and unsuitable tourist development can threaten the natural beauty and environment of many areas, especially in national parks? Will he therefore write to the directors of the national parks, including the Lake District National Park, reminding them of such?
I agree with the noble Lord but it is a question of balance. We want to encourage the tourism industry but a UNESCO world heritage site, for example, attracts an increased number of visitors. We generally promote and accept that but I understand the concerns about overtourism. We are working hard to ensure that we maintain a sustainable balance in all tourist areas.
My Lords, the Minister will be aware that there is now great abuse in the holiday letting sector, using premises that would normally be available for people in London to live in, and the Mayor of London has drawn attention to this. If tourism operators were regulated so that people had to prove that leases permitted them to let on a really short-term basis, would that not be helpful in controlling the completely unauthorised and illegal short lets that are doing such damage?
I am aware of my noble friend’s interest in this matter—we know that she has referred to the issue of leases before. However, a lease is a contract and the remedies for breach of that contract are the same as for a breach of any other contract. There is a potential £20,000 fine for hosts who exceed the 90-day limit, and we think that is a strong disincentive.
My Lords, further to the question from the noble Baroness, Lady Gardner, I am grateful that the Government have belatedly identified the loophole whereby some second-home owners in tourist destinations avoid paying council tax by declaring that their property is available for letting but then avoid paying business rates by making no effort to let it. Can we be assured that, following the end of the consultation next month, the Government will act rapidly to close this loophole and bring benefit to legitimate holiday letting businesses, to local councils and to local communities, and that they will do so in time for next summer’s season?
My Lords, I declare an interest as a former president of Friends of the Lake District and currently as a vice-president of the Campaign for National Parks. I assure the Minister that many of us feel that the parks should play a crucial role in tourist development—but tourist development to ensure that people have access to national parks. The Minister says that the Government are trying to maintain a balance between different interests, but will he agree that until recently it was specifically spelled out in legislation that scenic beauty and character were to take precedence in all decisions affecting development in national parks? They are not there as theme parks.
I cannot completely agree with the noble Lord, although I sympathise with his general approach. For example, if a village or town in a national park needs mobile signal, a mast may be necessary. I am afraid that the natural environment and natural beauty do not always take precedence.
My Lords, the UK Council for Internet Safety is a voluntary non-statutory body; it does not receive any government financial support. Members of the council, who are drawn from the public sector, the tech industry and civil society, voluntarily commit their organisations’ resource to deliver collaborative projects in support of internet safety. UKCIS is supported by a small secretariat team in the Department for Digital, Culture, Media and Sport.
My Lords, internet safety is needed more than ever and we cannot just rely on part-time volunteers to do the job—this is what they tell me. To ensure that this new council deals with the enormous challenges of hate crime, sex abuse, fraud, and violence against women and children, will the Government properly support its work through substantial resources to initiate and pay for research and events linked to its primary objective of keeping the nation safe online, especially our children?
I completely agree that it is important that UKCIS helps to contribute to online safety. That is why we expanded its role from concentrating just on child internet safety to include, as the noble Baroness mentioned, hate crime, serious violence and extremism. As far as resources are concerned, the previous body—the United Kingdom Council for Child Internet Safety—has demonstrated that getting together a mix of tech companies, public bodies and government achieves good results. That is not the only thing we are doing. The online harms White Paper, which is coming by the end of the winter, will address some of the other issues, one of which will have to be funding.
My Lords, as the Minister said, the body we are speaking about has developed from being concerned specifically with children to having a more generic nature. It has a complex set of relationships with various departments of government, including health, the Home Office and education, especially the part dealing with young people’s mental health. It is a complicated structure. In the consultation, a lack of direction in the previous body was bemoaned. Can the Minister assure us that there is a sense of direction and purpose, appropriately monitored, in this voluntary body? Given that we have extended the remit from just children to a generic range of interests—and given that in the past month or so in this House, children and obesity, knife crime, bullying, gambling, image and performance-enhancing drugs and the internet have all been discussed—can the Minister assure me that the needs of children are not being diminished as a result of being wrapped up into a more generic body?
On the noble Lord’s first question, there has just been a board meeting and the council has reaffirmed the areas of focus: first, online harms experienced by children; secondly, radicalisation and extremism; thirdly, violence against women and girls; fourthly, serious violence; and fifthly, hate crime and hate speech. So there is a definite desire to address these very important matters. As I said in my previous Answer to the noble Baroness, we will look at other areas in the online harms White Paper.
There is absolutely no doubt that children are still a prime concern, as the composition of the board shows. The director of BBC Children’s, the CEO of Childnet, the Children’s Commissioner, the CEOs of Internet Matters and the Internet Watch Foundation, the lead for the National Police Chiefs’ Council, the head of child safety online for the NSPCC and the deputy director of child protection for the Scottish Government are all members of the board and they will certainly make sure that children’s issues are at the forefront of their work.
My Lords, the council is developing a programme of online guidance for schools. Does the Minister not think that there should be government funding for a digital literacy campaign supported by the council? That is particularly important when it comes to the ability to read the terms and conditions used on websites and tech company sites.
My Lords, may I extend this question a little further? This is such an important issue and our generation will be judged on it as the internet and digital age takes over. Noble Lords will know those clever algorithms that are so good at selling us things—if we buy one thing they will try to sell us something else. Those could be turned towards the interests of internet safety by advancing something called safety by design. What consideration are the Government giving to much more forward-thinking legislation not just to support bodies such as the Council for Internet Safety, but to introduce measures to make our inhabiting of the digital world safer and more creative?
Yes, the right reverend Prelate makes a good point. That is why the Internet Safety Strategy Green Paper set out the need for the industry to think safety first by designing products and platforms in a way that makes them less likely to cause harm. We need to make that as simple as possible for the industry and we need to be aware of the impact on SMEs and growing companies. The White Paper will address this issue further and will, for example, examine the case for a set of safety-by-design guidelines for the industry. It will also set out the Government’s approach to the use of safety technology.
My Lords, we want to build more accessible homes that meet the needs of older and disabled people. Government policy provides a clear and robust framework to support the delivery of accessible housing. Building regulations already require minimum standards of accessibility for all new dwellings. The Government intend to publish new planning guidance on housing for older and disabled people before Christmas and are scoping a review of the accessibility provisions in the building regulations.
My Lords, at a time of growing concern about the support required by an increasing number of elderly people as life expectancy grows, the Home Builders Federation is objecting to councils seeking to set new targets to increase the number of homes with room for wheelchair users and that can be adaptable. Given that this is a highly profitable industry where 400,000 permissions to build are as yet unimplemented, what action will the Government take to assist local authorities to ensure, through the planning system, that sufficient housing is provided for people with homes suited to their needs?
My Lords, first I pay tribute to the people who yesterday supported the International Day of Persons with Disabilities. Many buildings in both the public and the private sectors were lit up in purple for that purpose. I agree with the general thrust of the noble Lord’s question. As I say, the Government are very clear on this. For the first time in the planning guidance within the NPPF, we have made it a responsibility to take care of the interests of older and disabled people. As I say, planning guidance in support of that will be out before Christmas. We are reviewing Part M of the building regulations, which again is a crucial issue in relation to M4(2). That is also to be published in the new year, I think.
My Lords, I thank the Minister for his meeting last week about this issue, which I know he is trying to resolve. I wonder whether his department could point out to the Home Builders Federation that there is a world of difference between homes adapted for disability and the basic minimum access requirements in Part M4(2) of the building regulations. Apparently some builders say that not everyone wants to live in an adapted home. We simply want the basic minimum standards set out in Part M4(2) made mandatory.
My Lords, it was a pleasure to discuss the issue of M4(2) with the noble Baroness and the noble Baroness, Lady Brinton, last week. The Government strongly support the rights of disabled people. This is important and we are behind local authorities which are keen to take this forward. I agree that it is for building companies to respond to that; they have a responsibility. We have an ageing population as well as people with disabilities. It is the mark of a civilised society as well as a point of self-interest, quite honestly, that we should do these things. On both those bases, the Government are solidly behind what the noble Baroness is saying.
My Lords, in this country only 0.6% of older people live in a retirement community which provides not just housing but care and support. In many other countries such as New Zealand, Australia and the US, the figure is at least 5%. These facilities provide enhanced health and well-being and better outcomes while emergency visits to A&E, hospital admissions and bed blocking are greatly reduced. Does the Minister agree with the vision of the Associated Retirement Community Operators—I am a patron of that organisation, which will be exhibiting here next week—that by 2030 a quarter of a million people should have that option? It would be of huge benefit to the NHS and would ease the housing shortage in society in general, and particularly that faced by young people.
My Lords, I pay tribute to all the work done by the noble Baroness in this area. We worked together on the Neighbourhood Planning Bill, which was then enacted, and made some important provisions in it about disabled and elderly people which I referred to earlier. She is emphasising the point I made, which is that not only is this the right moral thing to do in a civilised society but it is also very much the right economic thing to do because it will save money for the health service and so on, as well as helping people to live longer in the sort of circumstances that they would want.
My Lords, I too thank the Minister for the meeting last week, which was extraordinarily helpful. In addition to stiffening the sinews of the Home Builders Federation, would the Minister write to local councils to point out the data that shows that it costs only just over £1,000 to make a new unit disabled-friendly when building it, whereas later adaptations cost a minimum of £20,000? Councils should therefore insist on access being put in right at the start. That is beneficial to them and to the wider community.
I thank the noble Baroness for that suggestion. I will certainly take it back to the Minister so that it can be picked up in the next letter we write to local authority leaders. She and the noble Baroness, Lady Thomas, will be aware that we are ensuring that the voice of Habinteg—an active housing association with a vision on this issue for disabled people—is heard. It is a strong voice on Document M for the advisory committee, which is looking at this issue. I think that the House will find that reassuring.
Financial Services (Implementation of Legislation) Bill [HL]
My Lords, I begin with some context to explain why the Government have brought the Bill forward at this time. The Government have been clear that we do not want or expect a no-deal scenario but it remains the role of a responsible Government to continue to prepare for all possible outcomes. This includes the unlikely event that we will reach 29 March next year without a withdrawal agreement or an implementation period.
I have updated noble Lords a number of times on how the Treasury will ensure that we have an effective financial services regulatory regime in the event of no deal. That stability and continuity is being delivered by the 60 or so statutory instruments that Her Majesty’s Treasury is introducing under the European Union (Withdrawal) Act 2018. These will ensure that all relevant existing legislation continues to operate effectively, minimises disruption for firms and protects financial stability.
We need to do more than just ensure that our regime continues to function. The UK’s position as a global financial centre is critical to our prosperity and benefits businesses and consumers across the UK. We need appropriate regulation in place, with the right balance between protecting stability and fostering competitiveness. We aim to be the safest and most transparent place to do business, leading the race to the top and always championing high regulatory standards in financial services markets.
In the unlikely event of no deal, thanks to the hard work of both Houses, we will have brought on to our statute book a vast and highly technical body of EU financial services legislation. We thank both Houses, but both Houses should thank our remarkable civil servants for their incredible work in preparing this great volume of legislation with such accuracy and detail.
However, the powers under the European Union (Withdrawal) Act relate only to EU legislation operative on exit day. Numerous pieces of legislation—or files, which I will refer to later—will not be covered by the withdrawal act powers. They include those that are either already agreed but not yet operative on exit day, or those still under negotiation but which will be operative soon after our departure. There are also provisions in the Bill that relate to non-operative provisions, which it would not make sense to bring into UK law alone.
In many cases, the UK strongly supported these laws when they were being negotiated and played a leading role in shaping them over a number of years. These laws provide up-to-date tools to deal with financial stability risks, ensure that our firms can operate on a level playing field with firms on the continent, allow the UK to meet its G20 commitments and maintain the highest international standards, and provide all-important business certainty and continuity.
As part of this ambition, the Treasury undertook extensive engagement with our financial services industry while negotiating these laws. The sector has been expecting many of these proposals for several years and has been preparing to implement and gain the benefits of them. For example, the prospectus regulation will reduce the financial and regulatory burden for companies wishing to fulfil their financing needs on public markets, while maintaining high standards of investor protection. The UK has been a strong supporter of the reform of the prospectus directive and engaged closely in the development of this regulation.
Implementation is critical to ensure that the UK retains its reputation as an attractive destination for capital. If we are to retain our position as the world’s leading financial centre in the unlikely event of a no deal, it will be vital that the Government can implement the key policies in these EU files in a timely way. Global markets adapt and evolve at pace. We cannot afford for our high regulatory standards to fall behind those of other major financial services jurisdictions. That is what the Bill seeks to address. It will do so in two main ways. First, it allows the Government to implement in the UK a specified list of the most necessary EU financial services legislative proposals in the pipeline through statutory instruments subject to the affirmative procedure. Noble Lords will find the full list and purpose of these files in the policy note published by the Treasury.
Secondly, and importantly, the Bill is only for a situation in which we leave the EU without a deal. It will allow for the Government to choose to implement only parts of these pieces of legislation and make adjustments and improvements as they are brought into UK law. I acknowledge that this is a broad power, but let me be clear on two fronts. In the event of leaving the EU without a withdrawal agreement and without a future economic partnership, the UK will not countenance accepting EU laws wholesale. It will therefore be vital to ensure that any legislation implemented in the UK can be adjusted to work best for the UK markets outside the EU in a no-deal scenario. The Bill is and can be only a stop-gap measure to minimise disruption in the event of no deal for a time-limited period. The Government fully recognise the need to establish a more sustainable process for updating financial services regulation following our exit from the EU and will come forward with proposals in due course.
In recognition of the breadth of powers sought in the Bill, it is subject to a number of strict safeguards. First, as I have stressed, this is strictly a temporary solution and will be limited by a non-extendable sunset clause at two years after a no-deal exit, ending on 29 March 2021. Secondly, the power will be subject to the affirmative procedure in every instance of its use, providing Parliament a guaranteed opportunity to debate, discuss and scrutinise the Government’s approach to implementing these files. Thirdly, the Treasury will be mandated to produce and publish annual reports on the exercise of the power. Finally, the power will be subject to limitations as in Section 8(5) and (7) of the European Union (Withdrawal) Act 2018. It cannot therefore be used to impose taxation, make retrospective provision, create some criminal offences, establish a public authority or amend the Human Rights Act or the devolution settlements.
It is crucial that we press ahead with preparations to ensure that, in the event of no deal, we can protect and enhance the UK’s position as a global financial centre. The Bill is an essential part of those preparations, providing us with the critical ability to implement legislation important to maintaining the functionality, reputation and international competitiveness of our financial sector.
I hope that noble Lords will recognise the Bill as the Government taking a responsible approach in their contingency planning. I look forward to this Second Reading debate on the Bill’s contents and to responding to noble Lords’ questions and scrutiny at its conclusion. I beg to move.
My Lords, this very brief Bill has a perfectly reasonable objective, which we support. It makes obvious sense to deal with the in-flight files relating to financial services against the possibility that we crash out of the EU on 29 March. I entirely accept that we need to ensure the functioning of our statute book against the possibility of a chaotic exit from the EU. I entirely accept that we need a certain flexibility in the way we do this. We need to have the ability to incorporate pending EU legislation to which we have contributed significantly and which will bring clear benefits to the UK, but will not be incorporated, as the Minister said, by the EU withdrawal Act.
This need is not confined to the financial sector. I expect that the Government will want to bring forward similar legislation to cover other sectors. In particular, I would welcome equivalent legislation to cover the clinical trials regulation, which has been adopted but not yet applied. I realise that this is outside the Minister’s brief, but might he have a quick word with his colleagues in the Department of Health and Social Care about the Bill’s in-flight mechanism?
The Bill before us may be short but it raises a number of substantive questions. The first concerns policy change. It seems clear that the proposed in-flight mechanism will allow the Government to make policy changes by delegated legislation, as section 2 of the de minimis impact assessment makes explicit. That is specifically prohibited in the EU withdrawal Act because it would significantly reduce parliamentary scrutiny. The same objection applies here. Making or changing policy via SIs will equally diminish parliamentary scrutiny. If doing this was wrong for the EU withdrawal Act, why is it okay for this Bill? Is it right to change policy, perhaps significantly, without substantive parliamentary debate? The affirmative procedure certainly does not count as substantive parliamentary debate. I would be grateful for the Minister’s thoughts on the matter.
The second question relates to the schedule. The provisions in it are not the only in-flight financial services proposed legislation. For example, the UK Sustainable Investment and Finance Association points out two other provisions. The first is the European Commission’s proposal of May 2018 for a regulation establishing a framework to facilitate sustainable investment. The second is a proposal for a regulation on disclosure relating to sustainable investments and sustainability risks. Why were those two in-flight proposals not included in the schedule list? More generally, on what basis were the items in the list chosen and on what basis were they excluded?
I can easily see that some items in the schedule are critical. The Capital Requirements Regulation II and the Capital Requirements Directive V will allow us to update the rules on minimum capital requirements derived from the international Basel standards. The Central Counterparty Recovery and Resolution Regulation will ensure that CCPs and the Bank have mechanisms for acting defensively in a crisis to ensure financial stability and the continued functioning of CCPs. I probably do not need to remind your Lordships that the Bank of England’s chief economist, Andy Haldane, has pointed out that if CCPs were to fail chaotically or be unable to continue to function, it would be 2008 on steroids.
My real difficulty with the Bill lies with Clause 1. “Similar” in subsection (1)(a) seems to give very wide discretion. Who is to decide what is similar, and on what basis? Subsection (1)(b) appears to give the Treasury extreme latitude. What is the force of the word “adjustments”? Does it imply any limitation on the changes that may be made? If it does, what are they and should they not be in the Bill? There is then even wider latitude: these adjustments can be made as the Treasury considers “appropriate”. Would it not be better to limit what currently seems an absolute and unfettered discretion for the Treasury to decide what is appropriate? Should not “appropriate” be qualified? Would it not be better to specify a purpose and to know “appropriate” for what purpose or objective? In any case, we need some indication of what tests will be applied in deciding when an adjustment is appropriate.
The wording of subsection (1) makes it clear, given the wide powers, that policy change can be brought about by SIs, limiting parliamentary scrutiny. This becomes evident when we consider the wording in parentheses, which makes it plain that the Treasury adjustments do not even have to have anything to do with our withdrawal from the EU.
A further question arises from Clause 1(9). It is not clear to me—I know that this may be entirely my fault—what this subsection actually does. In particular, I am unclear about the phrase, “in that following year”. I am not sure what that refers to or what it means and I would be very grateful if the Minister would explain.
The policy note issued by the ministry has been very helpful in working through the Bill, but it raises one additional question. On page 3, paragraph 1.8 talks about the safeguards contained in the Bill. The final bullet point states that the power,
“cannot be used to impose taxation; make retrospective provision; create some criminal offences; establish a public authority; implement a withdrawal agreement; or amend the Human Rights Act 1998 or the devolution settlements”.
It follows from this that the power can create some criminal offences. It would be very helpful if the Minister would spell out for us just what criminal offences may not be created and, by extension, under what circumstances the Treasury would want to create new offences and what these might encompass.
Overall, the Bill effectively allows the introduction of fundamental new law by SI. There is no natural, native parent for these SIs. There will have been no primary legislation to allow thorough parliamentary scrutiny. We will be relying, if that is the right word, for proper scrutiny on the EU institutions, which we will have left and whose interests may not be aligned with ours. Perhaps we need a sunset clause for the effects of these SIs, and not just for the powers within the SIs themselves, so that there will be an opportunity for proper scrutiny as they are incorporated in new primary legislation. I am sure that we will come back to this in Committee.
As I started by saying, we support the objectives of the Bill but have some serious concerns about the unfettered nature of the powers it contains and the implications for parliamentary scrutiny. I hope that the Minister will be able to put our minds at rest, at least somewhat.
My Lords, it would be hard to argue with the importance of having the necessary financial architecture in place to protect and sustain the UK’s position in the event of a no-deal scenario. The ability of the appropriate authorities to act decisively to maintain financial stability and public confidence is critical in any country, and nowhere more than in the United Kingdom, given the size and importance of our financial services sector. So the Bill certainly has my “in principle” support, and although it seems narrowly drawn, covering only regulations which are in process as the UK leaves the EU, there are a number of particular importance, as the noble Lord, Lord Sharkey, pointed out.
When the tide went out as a result of the 2008 financial crisis, it did, in Warren Buffett’s famous phrase, reveal a number of people who had been swimming naked. As a result of that, the UK Government faced a crisis and had to become a significant shareholder in a number of major UK financial institutions. That must surely be inappropriate unless and until the shareholders, bondholders and creditors have borne their share of the pain. So ensuring that the UK keeps up to date with Bank and central counterparty recovery legislation is very important. We cannot allow gaps to appear in the regulatory framework that may offer opportunities for what is known as regulatory arbitrage. At a more practical level, as my noble friend pointed out in his opening remarks, the move to a more focused regulatory approach to the prospectus requirements, particularly for SMEs and investment managers, must be a welcome development. The UK needs to adopt these regulations if it is to avoid being at a competitive disadvantage.
However, as has also been pointed out by the noble Lord, Lord Sharkey, the Bill, though narrowly focused, nevertheless gives the Government extraordinarily wide powers. I am sure that in Committee we shall need to prove the extent to which they are necessary and the ways in which the Government anticipate using them. At this stage I have a handful of points to raise with my noble friend. At paragraph 1.9 of the policy note that accompanies the Bill, there is an assurance that the Government will:
“undertake engagement and co-operation with key stakeholders throughout the process”.
That is potentially a very important restriction on inappropriate use of the powers in the Bill, but as it stands it is quite a bland statement. It would be helpful if my noble friend could give a little more detail about what the Government envisage in terms of their links with the sector during this very important two-year period.
Another constraint is the reporting requirement in Clause 1(8). The clause requires a report 12 months after a no-deal Brexit. After a no-deal Brexit, 12 months will be a very long time indeed. Have the Government given some thought to bringing forward a shorter regulatory period so that their use of these extraordinarily wide powers becomes more transparent more quickly? Moreover, the requirement, as I read it as presently drafted, requires only a statement of the actions that have been taken. It would surely be more helpful to the outside observer if the Treasury was also required to give a statement about why it had felt it necessary to take individual actions, not just that they had been taken.
My final point concerns the paragraph in the letter kindly sent to us by the Chancellor of the Exchequer. Here I am going to cover ground that my noble friend and the noble Lord, Lord Sharkey, have covered. The important paragraph reads:
“It is of course vital that any financial service legislation best serves the interests of UK businesses and customers once we have left the EU, rather than the UK simply accepting EU laws wholesale. The measures in the Bill will therefore allow for the government to choose to implement only those EU files, or parts of those files, which it deems beneficial for the UK, and to make adjustments and improvements to the legislation as it is brought into UK law to ensure that it works best for UK markets in a ‘no deal’ scenario”.
That is a broad power, as my noble friend said in his opening statement. That whole paragraph contains some pretty challenging implications. For example, who is going to deem what is necessary for the UK, and who is going to ride herd on them to make sure that their judgments are being exercised properly?
These early decisions, taken against the background, as they will be, of a no-deal Brexit scenario, may well have a fundamental impact on the shape and structure of future UK securities legislation and consequently on the competitive position of the City of London. Further enlightenment on the background to this paragraph would be helpful when my noble friend comes to wind up.
I have said that I support this Bill, and I do. When I wrote my notes for it, I said that at least it provides an essential stop-gap—again a phrase that came up in my noble friend’s opening remarks—but stop-gaps cannot be, and cannot substitute for, a carefully crafted strategic plan. In Committee we shall need to explore in more detail the extent of the powers the Bill gives to the Government and the way in which the Government anticipate using them.
My Lords, like other noble Lords, I welcome the introduction of the Bill. It is not the most exciting piece of legislation we will consider in this House, but it is pretty vital in the event of a no-deal exit. Taking up points that have been made by other noble Lords, it also points to the intensity of the negotiations that have been taking place outside the Brexit scenario on future financial services regulation. There is poignancy in it as well because for more than 20 years the British voice in the councils of Europe on financial services legislation has been dominant. We have helped to craft that legislation and regulation over those years, and this legislation points out how critical that is. It also reminds us that we are about to move from being rule makers to rule takers. This is one of the steps along the way. I know that that irritates the Brexiteers, but it is a statement of fact.
I am very conscious that a number of points have been made by other noble Lords. There is one specific question that I would like to ask because some confusion has been caused. I think all of us who are speaking on this Bill have been approached by members of the sustainable investment community. I have a difficulty: the number of pieces of in-flight legislation that they refer to does not match the number of pieces of in-flight legislation that the Minister has referred to in this Bill. Particularly in relation to sustainable investment, there is a reference at point 2.52 in the very helpful policy note that the,
“proposal aims to enhance the transparency and comparability of low carbon benchmarks”.
That comparability is an area where there could be widespread interpretation, and it would be helpful if the Minister could give us some idea of the parameters within which that comparability would take place.
Moving to the last part of the policy document, which refers to the European supervisory authority review and the action that the Government will have to take post exit, I would like to see some indication of the timescale that the UK would be considering in making regulatory changes to allow for the exchange of information and delegation to function smoothly. That is a pretty critical part of the functioning of markets. I would be grateful to have some guidance on this; it would be useful because this is not really covered by the sunset clause in the Bill.
There are a number of points that will no doubt be teased out as we go through Committee, and most of them have been referred to before. I too was a bit confused by the use of the word “similar” in the first clause, conscious as I am that I am sitting beside a former Lord Chancellor. It would be useful to have a much clearer definition of what “similar” actually means.
It is important to get this legislation on the statute book as quickly as possible. I hope it is not needed, but again it causes us to reflect on how significant financial services are. It is regrettable that in the political declaration and indeed in the withdrawal Act we do not have any proper explanation of the nature of the regulatory compromises that will be made, particularly in relation to going from passport into equivalence. A big gap is opening up there. I do not expect the Minister to answer that but it is something that we need to have at the back of our minds as we look at this legislation.
My Lords, the Bill establishes a short-cut alternative to starting over again with primary legislation for provisions that are in the EU pipeline and in which the UK has already been engaged. It looks like a convenient scheme. However, I share the concerns raised by other noble Lords, although I agree that the legislation need to be implemented because the large majority of it—at least, what is in the schedule—completes the post-financial-crisis review of legislation.
I am sorry that we have not been given more guidance to what might be objectionable than the example of location policy. Once the short-cut onshoring of bits of legislation has happened, Parliament will be left with very little scope ever to come to grips with major financial services policy. That means that what we are doing now as a temporary measure will have permanent effects. It will all be delegated and in the hands of SIs and regulators—back to the Treasury and the regulatory officials who make up the rules in international consortiums. That, as I have said, is “delegate and deference”, not parliamentary democracy. It is far worse than the scrutiny available in the EU. If we are taking back control, we ought to make sure that our scrutiny is as good as that of the EU.
The Bill is also difficult for me because there is the possibility of wide powers being used differently from non-legislative promises, and because precedents are being set that may then be used in other circumstances. Here, a precedent is set of bypassing primary legislation and piggybacking on somebody else’s scrutiny—for our largest industry. Of course, that may be the truth of Brexit.
There are some non-legislative assurances listed in paragraph 1.9 of the Treasury policy document, which has already been referenced, but I am not sure I find them reassuring. The first is that any method other than coming to Parliament will be used in preference. I do not see virtue in avoiding the scrutiny of Parliament. There is also a commitment to undertake extensive engagement and co-operation with key stakeholders. I do not decry that but—from experience—that does not seem to include Parliament. In the present circumstances, it is all the more important to consult Parliament when, by the Government’s own admission, this is a process that replaces the more detailed scrutiny of primary legislation.
I too have noted the provisions about preparing reports. I particularly noted, in subsection (8)(b), the report on the,
“proposals for exercise of the powers”,
in the second year. Maybe that gives us something to expand on, because it is very important to have an overarching idea of the policy being pursued and the concerns that I have identified. But, as other noble Lords have perhaps already hinted, it is needed in advance of year one as well.
I accept that a no-deal Brexit is not quite what is planned, but, even so, everything that the Government have ever said about our relationship with the EU post Brexit has aimed at getting equivalence or better. If that breaks down because policy changes a great deal, I will accept it, but we must not find that we abandon equivalence by accident because we have made various incremental changes that, in EU eyes, could collectively destroy equivalence prospects without there having been explicit consent to that being what we wished to do. Moreover, as emphasis has been put on consultation with stakeholders, how can we know, whatever the current intention, that the Bill does not turn out to be a dilutors’ charter, because the specified legislation is now out there as an Aunt Sally at which interested parties may chance their arm? I have seen the gleam in the eyes of some in the City already.
In the all-Peers meeting last week with the Minister, the noble Lord, Lord Bates, and the Economic Secretary to the Treasury, John Glen MP, it was said that the words “corresponding, or similar” from Clause 1(l)(a) would not permit changing or deleting aspects of wider legislation not detailed in the specified items of EU financial services legislation. We inevitably got on to bankers’ bonuses as the example everyone knows, so although the schedule includes CRD5 on prudential regulation of banks, it would not, according to the analysis, open up change to the details in CRD4, which is where most of the bankers’ bonus information resides. It would be good for the Minister to confirm that understanding, as an example.
Developing that point further, and because there are some proportionality measures on remuneration for smaller businesses within the specified legislation, does it mean that proportionality measures could not be stretched by the UK to apply to larger businesses than the EU legislation intended? Given that, in my experience, the UK has not used all proportionality provisions—some of which I worked very hard to get—what is the policy on implementation of proportionality?
I could go through the list of legislation and ask lots more questions, but I will spare noble Lords with just one more example. Are the Government now in favour of extending the suspension of the clearing obligation for pension funds—a measure that I forced into the original legislation without any particular support? We should be told, because it could be that the Government do not want to do that and it could be crossed out with our being able to make a specific objection.
Why cannot the Government make a more fulsome policy report now of their key points and concerns? I accept that some things will change, but that does not detract from being given a grounding in where decisions are coming from.
More generally, the words “corresponding, or similar” are too wide. It may be possible to have a corresponding piece of legislation that is not similar. At the moment, I am veering towards suggesting that the provision should be “corresponding, and similar”.
The next part that concerns me is that EU legislation could be cherry picked. That may not be the intention, but the words,
“or any of the provisions”,
allow that possibility. It is very permissive, covering from everything to nothing of a piece of specified EU legislation. I want to find ways to qualify that to ensure that the overall framework that could sustain the objective of equivalence is being retained, and is not disappeared by stealth or accident via statutory instrument. One way to deal with that might be for “corresponding, and similar” requirements to apply to the whole of a piece of legislation, rather than individual provisions, but I accept that we need some more tightly defined requirements for omissions that might be necessary.
Then I come to,
“any adjustments the Treasury consider appropriate”.
In the meeting, we were told that new things cannot be created, but it is not entirely clear that the “corresponding, or similar” provision governs subsection (1)(b). I come back to my point that in this context there needs to be some kind of track record on the policy against which you can measure what is being done. The word “appropriate”, which is the unfortunate and common construction used for delegated power, is usually employed when there is some policy context in the primary legislation. In the Bill, there is no policy context other than to pick, choose, change and avoid primary legislation.
I do not understand why it is necessary to have such broad powers for the completed specified legislation. It is known what was argued and it is in its final form. We will know what was lost and any changes that might need to be considered. Why can we not know them now?
Legislation that is not complete in the schedule is not new or surprising either: there have been years of consulting. I did some of it. By the time an EU proposal is published, before you go through any amendment provisions, it has been well consulted on. The Commission, other member states and many MEPs know the UK lines. I often used to get it from them before I ever got it from the Treasury. How about telling us what those lines are in respect of that legislation? They must exist. Again, that would give us a background against which we could measure what is intended. Without that, we are approving a procedure blind of policy, facts and principle. It is not sufficient to think that an affirmative procedure is enough to satisfy all those concerns.
My Lords, I am pleased to speak today on this short, technical, perhaps not that exciting Bill, and thank my noble friend for his briefing earlier. I recognise that some will say that this is a belt-and-braces Bill to cover the very unwelcome possibility that we leave the EU on 29 March with no deal. I say that it is unwelcome not because I think that the UK cannot or will not flourish as an independent nation state outside the EU but because I really do not think that we will be ready at that time. I note that the Government recognise that, in those circumstances, only appropriate legislation will be brought in and then, importantly, it can be adjusted to suit us.
My position in supporting the Government and speaking for their proposals for the deal later this week is set out in an article I have written for today’s City A.M., so I will not bore the House further with my views on it.
I draw your Lordships’ attention to my interests in the register and to an entry which, for good reason, is not in it yet but which I ought to declare. I am, today, the senior partner of Cavendish Corporate Finance LLP, which will merge with finnCap Group PLC tomorrow. All being well, our first day of dealing on the AIM market starts at 7.30 am. So, as deputy chairman of an AIM-listed company, I have a vested interest in the operation of the market and will address some issues which are covered as specified EU financial legislation, which this Bill seeks to bring in on or after exit day.
The stated purpose of the power is,
“ensuring the Government can implement legislation which reflects the interests of the UK market and its participants”.
The House of Lords Delegated Powers and Regulatory Reform Committee criticised the similar powers contained in the European Union (Withdrawal) Act for giving what it called,
“excessively wide law-making powers to ministers”.
However, given the Bill’s stated purpose of ensuring the Government can implement legislation which reflects the interests of the UK market and its participants, it is both necessary and proportionate to allow Ministers to make,
“any adjustments the Treasury consider appropriate”,
so that the Government can make positive improvements to the proposed legislation for the benefit of the UK market and its participants, rather than just correct deficiencies, as the EU withdrawal Act allows.
Regulators and regulation have tended to focus on the largest and most visible markets but should address the whole of the UK financial markets, not just the FTSE 100, many of whose companies are multinational. The major public markets are just the visible tip of the iceberg, part of a broad financial ecosystem which supports the financing of and investment in UK businesses. Government should consider the impact and potential unintended consequences on the broader system before implementing EU legislation.
An important aspect of this broader system is the financing of small and medium enterprises. I am, of course, delighted to see that the Government support the aims of the SME growth market regulation proposals, to support the ability of SMEs to fulfil their financing needs on UK public markets through the reduction of administrative and financial burdens.
In this context, we need to consider the potential negative impact of the central securities depositories regulation, CSDR, and the related delegated cash penalties regulation, DCPR, on the provision of liquidity, which is so important for markets for small and medium enterprises, such as the London Stock Exchange’s AIM market. AIM is by far the most successful SME growth market in Europe. The EU does not have the same sort of experience or success as we do. Part of this success is due to the quote-driven nature of the market, with market-makers committed to providing liquidity at all times during market hours.
However, the CSDR introduces a new settlement discipline regime, under which trades not settled at an agreed time will face daily fines until they are. These fines will pass along the chain of settlement so that only the initial failing part of the settlement chain will pay. This will always be the liquidity providers, which are the market-makers, as they are the only type of participant permitted to sell shares they do not own—known as naked short sell—under the short selling regulation. Liquidity providers are thus fined for providing liquidity in periods when demand outstrips supply: in other words, for performing the specific purpose for which they exist. Penalising formal liquidity providers for not settling trades on time will lead to those very liquidity providers reducing their activities in smaller company securities in order to avoid these additional costs. This will lead to a further reduction in companies’ liquidity, thereby reducing their access to funding on public markets.
In addition, introducing a regulation to impose a fee appears to contradict the stated limitation of the power. The Government have committed to undertake extensive engagement and co-operation with key stakeholders throughout the process. In order to include views relevant to the broader market, this should include bodies representing smaller companies seeking funding for growth, such as the Quoted Companies Alliance, which has been of assistance to me with my remarks, and the ScaleUp Institute.
I hope that we do not need any of these measures, but I am happy to support the Bill in case we do and hope it provides a focus for the Government in their regulation of the SME market.
My Lords, it seems rather strange to be the winder in a short debate like this. My noble friends Lord Sharkey and Lady Bowles laid out the position of these Benches with great clarity and raised a series of questions, so it is not my purpose today to repeat them but to say how much I stand behind them and the comments we heard from the noble Baroness, Lady Liddell, and the noble Lord, Lord Hodgson. I thank the noble Lord, Lord Leigh, because in a sense he made the point for us about the underlying concerns that we have with this legislation.
I think that everybody accepts that it is necessary to have some provision for how we deal with, as it were, in-flight directives or regulations from the EU since they were not covered in the EU withdrawal Act. If it was simply a matter of technically keeping abreast, none of us would have a lot of queries about this piece of legislation. However, as other noble Lords have demonstrated, there is plenty of scope within this for fundamental policy change, and policy change through statutory instrument—an issue which this House has tackled again and again, and which it tackled in the EU withdrawal Act. We are concerned about creating that kind of precedent once again here, as well as the actuality of what may happen under this Bill.
I raise it in the following sense. If we crash out and have a no-deal exit from the EU, the following months will be absolutely critical to the future of financial services within the UK. In those months, firms that have not already made the decision about what they relocate to the EU 27 will make further decisions, and the EU will be establishing its response to our departure and setting in place many of the key elements that it needs to be able to withdraw a significant part of that business to within the supervisory and monitoring powers of the European Union itself. An example that is given in the policy paper is that we may well end up with a location policy—in other words, a requirement from the EU that all financial transactions denominated in euros, or a significant portion of them, need to be repatriated to within the eurozone because of the exposure of the European Central Bank, which is acting as a backstop to liquidity crises with those instruments. Therefore, we may have those kinds of situations. Policy then will be absolutely critical.
I think many people take the view of the noble Lord, Lord Leigh, that the people who will be making change in that period will be the UK, and indeed he sought from the Government assurance that there would be policy action to dilute regulation in areas where he thought it was of interest. My noble friend Lady Bowles made the point that that alone begins to undermine the policy of third-country equivalence across financial services, which the Government, and the City, have seen as an underpinning to keeping our current level of dominance and vibrance. But there will also be changes within the EU, and I know that the City is very afraid of that. If those changes take place, again that undermines third-country equivalence if we are not following suit.
The point I am making is not about where you end up, on which side of this issue, but that absolutely critical policy decisions will have to be made, and those seem to be the kind of decisions that ought to be placed before this House. They will impact the functioning of the largest and most significant industry sector that we have within the UK, which feeds our tax base, which in turn supports our public services. To hand the decision-making around the issues to the Treasury, or to the Treasury working with the regulator, seems exceedingly high-risk. The breadth of power that is requested is not just to enable relevant and relatively minor adjustment; it covers a period of time in which fundamental decisions are made. We may make different decisions two or three years later, but it will be too late: the shape of our future financial services industry will basically be decided within that relatively short period. Amendments will need to be brought forward to try to tackle these issues.
I ask that the Government recognise how fundamental and significant the decision-making—and policy decision-making—will be during that period.
My Lords, Her Majesty’s Opposition support this Bill in principle. The Government have every right, indeed they have a duty, to prepare against the possibility of a no-deal Brexit. A few months ago, when work on the M20 lorry park was first considered, it occasioned some surprise in the nation which had not realised that the Government might need to take constructive action against a no-deal outcome. After all, the Prime Minister had reassured us that negotiations were making satisfactory progress and few Members of Parliament had canvassed the idea of no deal as a good policy for the Government.
However, things have changed over time. Now, of course, the weakness of the Government’s case for the development of our position as a result of the negotiations means that a considerable element in the governing Conservative Party looks upon no deal as better than some other possibilities. Such an outcome is totally rejected by the Prime Minister, so her Government are setting out to mitigate the calamity of no deal against a background where they continue to expect a better result.
For the nation, however, these preparations take on a different salience: there is no certainty about the future and no deal is a possibility, however disastrous that would be for the economy and the country’s welfare. So we have this modest Bill to ensure that “in-flight” legislation in Brussels can be safely implemented in the crucial sector of the financial services industry; no one is in any doubt of the importance of the industry’s contribution to the welfare of the economy. The Bill updates the regulatory regime and seeks to minimise the problem of the year, or possibly two years, after no deal. It reflects the fact that a considerable amount of UK financial services legislation has been part of European law for a long time. Its applicability to the United Kingdom is therefore entrenched in our laws. This has provided a significant place for UK leadership. My noble friend Lady Liddell identified just how much the UK has contributed to the development of policy in Europe—the result of what is widely recognised as the advanced and sophisticated level of financial services in London and several other major cities of the country. It has been a prime mover of improvement in the development of legislation and regulation.
There will of course be an unquestionable loss when the UK quits the European Union. No one is saying for one moment that the industry will not flourish and play a significant role in our economy but it will be increasingly difficult for us to play the enhanced leadership role in Europe that has been the case in recent years. As we all appreciate, there are competing parties from other countries who are also very interested in securing control and power that they can exert over the industry.
As the noble Lords, Lord Hodgson and Lord Sharkey, pointed out, the problem with this legislation is that the legislative initiatives put forward significantly increase the power of the Government. There is a crucial phrase, which noble Lords have referred to on more than one occasion in this debate: the power for the Treasury to make adjustments where it considers appropriate. Of course, the Treasury will decide where this will be of benefit for the United Kingdom and where it will work best in the context of this country. The Treasury will defend itself with that phrase in the legislation, but it does not alter the fact that what are posited through delegated legislation as relatively minor transfers of powers in fact give the Treasury very considerable latitude.
We recognise that the powers last for only a short period—namely, two years—with a sunset clause attached to the legislation, and of course we approve of the fact that some gesture is made towards parliamentary scrutiny by the indication that the SIs will be subject to the affirmative procedure. However, the scope for government policy to develop in this process is considerable, and that has already been illustrated by the anxieties expressed by the noble Baroness, Lady Bowles, and my noble friend Lady Liddell.
Also drawn to our attention has been the case put forward by the UK Sustainable Investment and Finance Association. It wants to know, as I am sure we all do, where two pieces of in-flight legislation in which it has a significant interest appear in the list. If to govern is to choose, this certainly suggests that the Treasury can already operate with a heavy hand, even at this very early stage. Can the Minister clarify this position today? If not, rest assured that this and the other issues that have cropped up in this very well-informed debate will be the subject of considerable discussion and debate, as well as intensive scrutiny, in Committee.
My Lords, I agree with the noble Lord, Lord Davies: this has been a well-informed debate, representative of the deep expertise in your Lordships’ House, which has been on full display. The areas of agreement were effectively two: recognition of the necessity of preparing for a no-deal scenario, and a united view that we hope never to be in the position of having to exercise the powers in this Bill.
The noble Lord, Lord Sharkey, began our debate by expressing concern about the range of powers, in particular those to include and exclude files. My noble friend Lord Hodgson questioned whether this was a stopgap measure and said that it could not be a substitute for longer-term legislation and a solution in this important area. The noble Baroness, Lady Liddell, having remarked that this is not the most exciting legislation to come before your Lordships’ House, recognised the importance of the financial services industry, to which it relates. She also recognised the role that the United Kingdom has played over many years in the European Union in shaping financial services regulations.
The noble Baroness, Lady Bowles, teed up what will be, if we are fortunate to secure a Second Reading, a Committee stage debate on words such as “implementation”, “proportionality”, “corresponding”, “similar”, “appropriate” and “adjustments”. It will be important to flesh out exactly what is meant by those terms.
My noble friend Lord Leigh talked about the impact of regulations in financial services on small and medium-sized enterprises. He also became perhaps the first Peer to announce in your Lordships’ House his forthcoming listing on AIM. I do not know whether it is appropriate to comment on that, but I wish him well—he is probably getting worried because I wished him well; it was a personal wish.
The noble Baroness, Lady Kramer, talked about the strong role of the financial services in underpinning the fiscal base of the economy, tax revenues and public services. She said it is vital that we retain that strength and continue to exert scrutiny. The noble Lord, Lord Davies, talked about the oft overlooked fact that, when we talk about the financial services, we are talking not just about the City of London but about a national industry, with hugely important centres in Bristol, Leeds and Edinburgh. He also reminded us of the international competitive nature of financial services, and that the UK’s leadership can never be taken for granted but must be earned and restated.
With that, let me move on to some of the points that were raised in the debate. The noble Lord, Lord Sharkey, asked why, if this is so important, other departments are not doing the same, specifically the Department of Health and Social Care. We have already put in place many of the legislative building blocks to deliver our exit from the EU. Since the European Union (Withdrawal) Act received Royal Assent, the Government have started laying statutory instruments to ensure a functioning statute book in all scenarios. Any requirements for further legislation in other areas will be announced in the usual way. I realise that that is not quite the answer that the noble Lord was looking for—or that I anticipated as I began reading out the note. His was a specific question, asking that I speak with colleagues in the Department of Health and Social Care, and I will certainly do that and find out how the particular legislation he referred to might be handled.
The noble Lord, Lord Sharkey, also mentioned the powers to adjust. As the final outcome on these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This could, for example, include areas where final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, global standards or the UK’s position as an open, global financial market. It is important that we have the power to correct inconsistencies when bringing these into UK law.
The noble Lord then asked why we had chosen some files rather than others. The Bill provides the UK with an interim means to domesticate key EU financial services files that are in the European legislative pipeline. Those are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario. Those in-flight files not listed on the face of the Bill include those that apply only to eurozone members, which we would never have implemented as a member state, those that the UK has opted out of, and those where there is not a critical need to implement the legislation in the narrow window of time covered in the Bill.
The noble Lord went on to ask what was meant by the word “appropriate”. Once we leave the European Union, we will lose our ability to influence the outcomes of files at a European level—something to which the noble Lord, Lord Davies, and the noble Baroness, Lady Liddell, also referred. As such, we will require the ability to ensure that the files or parts of the files implemented best suit the needs and the structures of the UK financial services market. The power to make appropriate adjustments to legislation is therefore designed to enable the UK Government to ensure that the implemented legislation is the best fit for the UK.
The noble Baroness, Lady Bowles, similarly asked about the power to adjust. The power will only allow the Government to make adjustments to files and not to make entirely new financial services policy not covered within the files. The power will also have to be exercised with the purpose of making similar or corresponding provision to specific lists of files set out in the Bill, so the subject matter of the regulations will naturally be limited. This is simply about ensuring that we implement legislation that is the best fit for the UK.
The noble Lord, Lord Sharkey, asked what was meant by “some criminal offences”. The limitation in the Bill mirrors that in the European Union (Withdrawal) Act. It prohibits the creation of criminal offences for which an adult can be sentenced to a period of more than two years in prison.
The noble Baroness, Lady Liddell, asked about the comparability of low-carbon benchmarks. This is an important issue and I realise that a number of noble Lords have received representations on it. I undertake to look at it specifically and write ahead of Committee.
My noble friend Lord Hodgson asked about the reporting duty of the Government and whether that would include a statement on why a power is used. The report will provide an overview of how the power has been used in the first year and how the Government propose to use the powers in the second year. In the meantime, the Government will undertake extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power, and Parliament will have the opportunity to debate every SI under the affirmative procedure. He also asked whether it would be advisable for the Treasury to consult transparently ahead of each use. We agree, which is why, within the policy note accompanying the Bill, we have committed to undertaking extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power. In that term “stakeholders”, we very much include Parliament and your Lordships’ House.
The noble Baroness, Lady Bowles, asked whether it would be helpful to change the wording to “corresponding and similar”. This is classic territory for Committee and a well-worked amendment around that will elicit a more in-depth and appropriate response from the Minister at that point. She asked a specific question, which was also referred to by the noble Baroness, Lady Kramer: namely, whether the power could be used to remove the bankers’ bonus cap. While remuneration policies were introduced as part of the EU’s Capital Requirements Directive IV, they are due to be updated through the Capital Requirements Directive V, which is included in the Bill. The Bill allows us to choose not to implement certain files or to implement parts of them. At this point we are not proposing specific policy changes or decisions. Before bringing forward any secondary legislation using the powers in the Bill, we will engage with a wide range of stakeholders, including the financial services sector.
The noble Baroness, Lady Bowles, asked about legislation regarding pension firms. Again, this is something that might best be covered in a letter ahead of Committee. She also asked why we do not just do this through primary legislation in order to get proper parliamentary scrutiny. Given the number of files in question and the potential requirement to implement them at pace to respond to market developments and meet international obligations, it would not be feasible to rely exclusively on primary legislation in every instance. The Bill requires the use of the affirmative resolution procedure for every statutory instrument made. She went on to ask why the Government will not make a full report about concerns and the approach to policy in this Bill. At this point it is very difficult to say which files or parts of files we would seek to implement and whether and what adjustments would be made. This is because we do not know the exact context in which these decisions will be made and what the final versions of many of the files will look like.
My noble friend Lord Leigh asked about the potential negative impacts on, for example, CSDR. We recognise that there are aspects of these files that are currently under development which different parts of the sector may not fully support. The Bill allows us to choose not to implement files, to implement parts of them and to correct deficiencies in them, as well as to make adjustments to ensure that the legislation works best for the UK, subject to appropriate safeguards.
The noble Baroness, Lady Kramer, asked about the so-called Henry VIII powers being used. Of course we understand the concerns around the breadth of powers, and that is why we have included a number of safeguards within the Bill to address them, including explicitly listing the relevant files on the face of the Bill and sunsetting the powers to two years, consistent with the European Union (Withdrawal) Act.
The noble Lord, Lord Davies, asked about adjustments to powers. It would be possible under the terms of the power only to make adjustments to any EU file we would be implementing and not to completely change its intent. This power would allow us to make provisions which are broadly equivalent to the original file and which therefore seek to achieve a similar outcome in a way that best fits the UK. However, it would not be possible for the Government to use this power to implement something completely different from the original file.
Again, I thank noble Lords for their contributions to the debate.
This may be extremely petty, so I ask for the compassion of the Minister. However, subsection (9) is completely incomprehensible. Three of us read it and we came up with entirely different conclusions as to what it meant in terms of both the preparation and publication of this report. Is he able to provide clarity now or else to do so by the time we get to the Committee stage? It may not be contentious at all—it is just that it is impossible to work out exactly what it means.
I can understand that. It is a fairly short Bill, but I will undertake to write a more substantial letter between this Second Reading and Committee if it is granted by your Lordships’ House. I will cover and expand further on that point.
We will carefully consider all the points which have been raised in this debate. I thank noble Lords for bringing their expertise and knowledge to bear on this important piece of legislation. I request that the Bill now be given a Second Reading.
Bill read a second time and committed to a Committee of the Whole House.
Social Security (Amendment) (EU Exit) Regulations 2018
Social Security (Amendment) (Northern Ireland) (EU Exit) Regulations 2018
Motions to Approve
My Lords, these regulations were laid before both Houses on 17 October 2018. They enable the Government to make minor and technical changes to domestic legislation to reflect the fact that the UK will no longer be an EU member state after exit day.
Let me provide some context and background to the regulations. British domestic legislation contains various references to EU law and to the UK as a member state of the European Union, which will no longer be the case once the UK withdraws from the EU. It also includes a provision that allows the Secretary of State to implement reciprocal agreements. The social security legislation applying in Northern Ireland broadly mirrors that in Great Britain; we are making regulations that make analogous amendments to the corresponding Northern Ireland legislation. The Department for Communities in Northern Ireland has agreed to the text of the regulations. This follows the recommended approach in the EU exit SIs policy handbook: to make separate NI statutory instruments that create a separate “transferable” body of NI legislation made at Westminster in the absence of a functioning Northern Ireland Assembly. This helps to keep a separate body of Northern Ireland law intact for when a functioning Executive and Assembly return.
These regulations are made using powers in the European Union (Withdrawal) Act 2018 to fix legal inoperability and other deficiencies that will arise on exit in retained EU law—so that the converted law continues to operate effectively post exit—and make consequential provision. The approach to these amendments is completely in line with both the policy and legal intent of the withdrawal Act. The use of secondary legislation to amend primary legislation—the so-called Henry VIII powers—was debated at length during the passage of the withdrawal Act.
The list of specific legislation that the regulations amend is lengthy. Broadly speaking, we are using the regulations to make two types of changes, the first being where the UK is referred to as a member state of the EU. In these instances, an amendment will be made to reflect the UK’s new status as a state independent of the EU. Secondly, we are extending the scope of Section 179 of the Social Security Administration Act 1992 to allow us to implement a social security agreement with a supranational organisation such as the EU. Of course, the ability to implement an international agreement with such organisations was not necessary as an EU member state. It is only logical that we make this consequential change to our legislation to reflect the UK’s position as independent of the EU and allow us to fully implement any agreement in domestic law.
The Northern Ireland regulations mirror the same amendments to Northern Ireland legislation. No formal consultation was carried out by the Department for Work and Pensions on the regulations as these changes make only minor and technical changes to existing DWP domestic legislation. Similarly, we expect the regulations to have no impact on business, charities, voluntary bodies or the public sector.
Noble Lords will know that the withdrawal Act is a crucial piece of legislation that will ensure, whatever the outcome of negotiations, that we have a functioning statute book on exit day, providing certainty to people and businesses across the UK. The Act enables this by providing a power for Ministers in the UK Government and devolved Administrations to deal with deficiencies in the law arising as a result of our exit from the EU. We are continuing to work closely with the devolved Administrations to ensure that all parties are involved in the process where their interests are concerned. I beg to move.
My Lords, I thank the Minister for that helpful introduction. I understand that these are minor and technical amendments. I have looked at them very carefully as a member of the statutory instruments scrutiny committee of your Lordships’ House. I am pretty familiar with their scope.
Could the Minister clear up two questions from my mind? First, is there any prejudice, potential or otherwise, to transfer payments and entitlements made from United Kingdom sources and systems to United Kingdom citizens and families living in the European Union? I think the answer is no, but an assurance would help, particularly relating to pension payments.
Secondly, I know that the Minister cannot do anything about this but I am getting more and more nervous about the Northern Ireland arrangements being handled indirectly by the department with no meaningful legislature in Northern Ireland to deal with some of their consequences, particularly since it has a free-standing social security system of its own. Colleagues know that it is a mirrored system, so changes are almost automatic. We have been living with that for some time. But in situations such as this, where changes are being made at one or two stages removed from the good people of Northern Ireland who are entitled to these benefits, there are particular concerns that those entitlements should be especially carefully considered in these amendment regulations. If the Minister can help me with these two items I would be very happy to see the regulations pass.
My Lords, I thank the Minister for introducing these regulations. It is fair to say that this is not the most exacting task she will have to undertake on matters Brexit. As we have heard, there are two sets of regulations, the territorial application of one set relating to Great Britain and of the other to Northern Ireland. The two sets cover parallel issues.
The Explanatory Memorandum reminds us that the Northern Ireland Executive are not in being, although the policy areas that are the subject of these regs are transferred matters and should be the responsibility of the Executive. That point was touched on by the noble Lord, Lord Kirkwood, with some expression of concern that we share. The memorandum states that the Government,
“will take through the necessary secondary legislation … in close consultation with the Northern Ireland departments”.
Perhaps the Minister will say what this involves. I think she might have answered that by saying that the Department for Communities was consulted.
The regs will operate with effect from exit day, but it goes without saying that many of us wish that that day will never arrive. Given that the powers of the European Union (Withdrawal) Act 2018 are engaged by these regulations, it is incumbent on Ministers to make certain statements. These encompass a requirement to state that the regs do no more than is appropriate to deal with deficiencies in retained EU law, but that there are good reasons for the provisions and that they leave intact equalities provisions. The Minister states that, given that the Equality Act does not extend to Northern Ireland, she has given due regard to the need to eliminate discrimination, harassment and victimisation. We do not seek to disagree with those conclusions.
As we have heard, these instruments fall into two groups. They amend various provisions in UK domestic legislation that contain references to the UK as a member state of the EU, or of the EEA. Further, they amend Section 179 of the Social Security Administration Act 1992 and its Northern Ireland equivalent to enable social security-related reciprocal agreements to be entered into with international organisations. The Explanatory Memorandum instances the EU, but can the Minister state what others might be in contemplation? What is the position with any existing agreements that the UK has entered into with the EU? Could the Minister please list these? Do they have to be reinstated on some basis or do they run on?
The insertions made to Section 179(4) list a range of EC or EEC regulations. Can the Minister differentiate between the two? Taking new subsection (4)(am) as an example, I presume that its inclusion is not intended to change the domestic law. Can the Minister outline for us the impact of Regulation (EEC) 1408/71 on the application of social security systems to employed persons, to self-employed persons and to members of their families moving within the Community?
The regulations extend to other amendments to existing secondary legislation to ensure accuracy of references when the UK is no longer part of the EU. These cover persons abroad, invalid care allowance regulations, SSP, SMP, overpayments and recoveries, AA, DLA, housing benefit, PIP and universal credit. Can the Minister confirm that in each case there is just a change of wording to reflect the changed situation of the UK and that it has no wider implications for the position of the continuing EU members?
We hope to see these regulations gather dust in some corner of Westminster and not be called into use. In so far as they are, we agree that they do the job.
I thank noble Lords who have taken part in this debate. Perhaps we have now gleaned rather more from the Benches opposite as to which way the noble Lord’s party may vote in the coming days; hitherto, we have been entirely unclear, as have all honourable friends in another place.
These are minor and technical amendments. I want to make it clear that there is no impact on policy. There is of course frustration—if I may put it that way—that the people of Northern Ireland are not fully represented. The noble Lord, Lord Kirkwood, is quite right that there is sadly nothing that I can do about that. The UK Government remain committed to restoring devolution in Northern Ireland—that also concerned the noble Lord, Lord McKenzie. This is particularly important in the context of EU exit, where we want devolved Ministers to take the necessary actions to prepare Northern Ireland for exit. That includes making the necessary legislative corrections to ensure that the Northern Ireland statute book is ready for exit day, consistent with the action taken at Westminster and in the other devolved legislatures. However, with exit day only a few months away and in the continued absence of a Northern Ireland Executive, the window to prepare the Northern Ireland statute book for exit is narrowing. UK Ministers therefore decided that it would be in the interest of legal certainty in Northern Ireland for the UK Government to take through the necessary secondary legislation at Westminster. That decision was made in close consultation with the Northern Ireland Civil Service. We are in constant touch with the Department for Communities in Northern Ireland. I can reassure noble Lords that we are doing all we can to make sure that we work well with it. We hope that the current situation will change for the better in the near future.
I make it absolutely clear that the regulations make consequential amendments to domestic legislation; they do not make any changes to entitlement to benefit or payment—it is crucial to say that in response to both noble Lords’ questions and concerns. A multitude of references to the EU are made as we are currently members of it, but for only a few months longer. I do not have a list today of all the legislation that this references, but I am very happy to write to noble Lords to make very clear exactly which pieces of legislation this impacts upon.
The Government are committed to ensuring that the social security system works for everyone post exit day and these regulations will help to do this by fixing minor and technical changes to existing DWP and corresponding Northern Ireland domestic legislation. They are part of a package of legislation. We have already dealt with some legislation in reference to the payment of pensions. On that basis and with the proviso that I will write to the noble Lord, Lord McKenzie, with specific reference to those aspects of the legislation, I hope that noble Lords will support these statutory instruments.
Competition (Amendment etc.) (EU Exit) Regulations 2019
Motion to Approve
My Lords, the UK has a world-renowned competition regime, but currently the domestic system is highly integrated with the EU competition system. The primary aim of this SI, therefore, is to remove provisions in domestic legislation associated with being part of the EU competition system. While the draft withdrawal agreement with the EU sets out separation arrangements on competition, the Government are preparing for all contingencies. Should we leave the EU without an agreement in place, this statutory instrument will minimise the litigation risk for the Competition and Markets Authority and provide legal clarity and certainty for businesses and consumers; that is why the statutory instrument is before the House today.
The Secondary Legislation Scrutiny Committee has drawn this SI to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of special interest. As the Scrutiny Committee correctly noted in its report, this statutory instrument makes amendments to the Competition Act 1998 and the Enterprise Act 2002, and makes provision for incorporating European block exemption regulations. I will set out the main changes made by the SI, including those raised by the Scrutiny Committee.
First, the Competition Act 1998 sets out prohibitions against anticompetitive conduct in the UK and empowers the CMA and sector regulators to investigate and take enforcement action against infringements of those prohibitions. The Competition Act, together with EU regulations, also empowers the CMA to investigate and take enforcement action against infringements of EU competition law and provides for investigation co-operation between the CMA, the European Commission and member states’ national competition authorities. This SI amends the Competition Act to remove the CMA’s power to investigate anticompetitive agreements under EU competition law, as it will investigate solely under UK law after exit.
The Scrutiny Committee noted that the SI makes provision for the continued application of pre-exit EU competition case law of the Court of Justice of the European Union after exit. The committee is referring to changes the Government have made to Section 60 of the Competition Act. Currently, Section 60 of the Competition Act provides that competition regulators and UK courts must interpret UK competition law in a manner consistent with EU competition law. The statutory instrument revokes Section 60, as it is inappropriate and contrary to the withdrawal Act to require UK courts to follow ECJ case law after exit. It introduces a new Section 60A, which provides that UK courts and regulators will continue to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but they may depart from that case law where appropriate in specified circumstances. This approach aims to provide consistency and clarity in the law for courts, regulators and businesses, which look to legal precedent when interpreting the law, while also allowing the competition regulators and UK courts to depart, where appropriate, from EU case law.
With respect to private damages claims, claimants can currently pursue follow-on claims in UK courts, based on enforcement decisions of the European Commission and the CMA. After exit, claimants will still be able to bring private damages claims in UK courts; however, UK courts will not be bound, as a matter of statute, by European Commission decisions. This approach aligns with the European Union (Withdrawal) Act, which provides that UK courts will not be bound by decisions of EU courts after exit.
Under the current system, the European Commission makes block exemption regulations, which exempt certain categories of agreements from EU competition law, where they are believed to have a neutral or beneficial effect on competition. Agreements which benefit from an EU block exemption are also exempt from UK competition law. At exit, all of the seven current block exemptions will be incorporated into UK law, as retained block exemptions. Agreements that meet the terms of the retained block exemptions will continue to be exempt from domestic competition law. This statutory instrument amends the retained block exemptions so that they operate effectively in domestic law. It also empowers the Secretary of State to vary or revoke the retained exemptions.
I turn to the Enterprise Act 2002, which contains the rules on mergers. Currently the CMA is responsible for investigating mergers to ensure that they do not have anti-competitive effects in the UK market. However, if a merger triggers the turnover thresholds set out in the EU Merger Regulation, it is reviewed by the European Commission, including the UK aspects of the merger. After exit, the EU Merger Regulation will no longer apply in the UK, and the UK dimensions of mergers will be reviewed solely by the CMA. The statutory instrument amends the Enterprise Act to remove references to the EU Merger Regulation and other provisions related to being part of the EU’s one-stop shop for merger clearance in the single market. This statutory instrument also makes transitional arrangements for CMA anti-trust and merger cases that are live at the point of exit, so that those cases can continue to be managed effectively.
Anti-trust law protects consumers from anti-competitive behaviour. Similarly, merger control is an important component of a healthy and growing economy. It is vital that we safeguard the legal framework that protects consumers and our competitive market. This statutory instrument achieves these goals by maintaining the strength of the UK’s current competition system, while making only those changes designed to separate the UK competition system from that of Europe in a no-deal scenario. I commend the regulations to the House.
My Lords, unlike my noble friend Lord Kirkwood, I have not sat on the scrutiny committee so some of my questions may appear a trifle naive to more learned Members, for which I apologise in advance. I ask the Minister to bear with me.
The regulations address deficiencies in competition legislation arising from our exit from the EU. As I understand it, we will no longer be part of the EU competition system. Can the Minister say how this is likely to affect our ability to tender for EU contracts? Currently we do very well in tendering for and obtaining EU contracts. Am I correct in supposing that we will lose our ability to tender for EU contracts? If so, what estimate have the Government made of the loss of value that this will have on the UK economy? Perhaps the Minister can help me; there is no impact assessment because, according to the text, the SI is supposed to have no effect on private businesses and charities.
The regulations come into force on exit day. But when, if ever, will exit day be? Unless the very worst happens, presumably it will not be 29 March 2019. We understand that we are not going to crash out—that is not going to be allowed—but, on the legal information to which we have not been privy and on which they are voting right now in the other place, presumably exit day could be years away, if ever. The only way that the British people can know is to have a say on the deal that Mrs May has negotiated and vote to end the madness and remain.
We have the advice of the chief legal adviser to the EU that we could pull out of Brexit with no penalty right now. I appreciate that if Brexit continues to prevail, we have to have a plan. Having retained much existing EU law, we have to pick through the bits of legislation which will not apply or which are unlikely to work once we have left. These regulations relate to inconsistencies in competition law in the event of the worst possible piece of self-harm that the British people have done for generations—a no-deal Brexit.
The regulations relate to infringements of and exemptions from competition and merger law. Part 2 of the regulations is “Amendment of the Competition Act 1998”. Part 3 is “Amendment of the Enterprise Act 2002”. Part 4 is “Amendment of other primary legislation”. Part 5 is “Amendment of subordinate legislation”. Part 6 relates to amending and revoking retained EU law, and part 7 is “Saving and transitional provision”.
I am no legal expert, as I am sure has already become apparent to noble Lords, but the fact that no impact assessment has been produced because no significant impact on the voluntary or private sector is foreseen suggests to me that it is hoped that this is merely a tidying-up exercise. It may be technical, but I still fail to see why there is no impact assessment on what impact this competition crisis will have on our ability to trade and compete with our biggest market, indeed, the biggest single market in the world.
My Lords, my understanding is that these draft regulations will apply only if we crash out or similar with no deal at the end of March next year. As the noble Baroness said, there are some interesting questions, to which we need answers.
I should like to get some answers from the Minister about what happens to some of the cases that are being considered at present by either the CMA or the European Commission competition authorities. Such cases run for years. They may have started now, but they certainly will not finish. Presumably anything that starts before 29 March next year will continue to some conclusion by the competition authority in the Commission. Is there a time limit on that? How will the relationships between the UK parties, if you like, and the Commission and the other parties be handled in that transition period, which may go on for a great deal longer than any transition that the Prime Minister may be negotiating? Some of these competition cases go on for years.
One case I have got slightly involved in watching is between two railway manufacturing companies, Siemens and Alstom. Siemens has its head office in Germany and Alstom has its head office in France, I think. They have been proposing a merger of all their businesses for several years now. The European Commission has got to the stage of issuing something that is not technically an opinion, but seems to me to be an opinion, which suggests that a merger would be a bad idea for competition across Europe in the whole railway sector. The companies appear to have been trying to promote the merger as a way of preventing Chinese industries taking over everything in Europe, including the UK. Both companies have subsidiaries in the UK; some make trains, some make signalling and some do other things. If that merger went ahead on the continent—in Europe—could the CMA stop a merger between their subsidiaries in this country, or vice versa? How would it work? If they wanted to merge in this country, would the CMA’s decision apply in Europe?
Presumably, if any of this is to work at all, there has to be some communication between the CMA and the European Commission’s competition department on issues such as this. I would welcome a comment from the Minister as to how that conversation—it may be only a conversation—would happen and the extent to which a decision by one party would be binding on the other. I look forward to his comments.
My Lords, I am very grateful to the Minister for letting me have a letter before this debate; it came in good time and was correctly addressed. I am sure he will be delighted to know that our discussion across the Dispatch Box in the Moses Room on our previous SI has borne perfect fruit, and I have enjoyed being able to get myself up to speed before dealing with the matter at hand.
I am looking forward to the Minister’s comments on the points raised by the noble Baroness, Lady Burt, and my noble friend Lord Berkeley. Between them, they have exposed some of the difficulties with this SI. Although there is very little that one would object to in what it tries to set out, it raises a number of doubts and concerns about the process that has been going on which are not entirely related to Brexit. Many of the SIs that we are seeing under the general heading of “EU exit regulations” are effectively cut-and-paste, substituting “UK and its institutions and authorities” for “EU”. But in a case such as this, which, as my noble friend says, could go on for years and may have to be transferred across and dealt with under joint arrangements, there is material that is subject to fine investigation and discussion. It affects thousands of consumers in many countries and many areas, and there are difficulties in trying to calibrate that effectively. It is not quite the same as the general ones. I just wanted to make that point.
There are general questions here as well as specific ones about the documentation, and I will cover both sets of questions as I go through it. My main concern relates to paragraphs 7.3 and 7.4 of the Explanatory Memorandum, which is otherwise very good and very clear. I thank the officials for their work on it. We miss impact statements, which are often a source of much more information about the issues before us, but in their absence the Explanatory Memorandum is very good. The first and main point here is the Government’s decision—there are other ways of dealing with this issue—to repeal Section 60 of the Competition Act, which provides that, as far as possible, the CMA and UK courts must interpret UK competition law in a manner consistent with EU competition law. There is a straightforward issue here about whether that would be appropriate in a no-deal Brexit situation. The Government could have had a number of options here, one of which would have been to be more generous in terms of the wish to see the best jurisprudence brought to bear on any cases that might be in front of the CMA. They could choose not to disallow the interpretive obligation but take it as appropriate, or some other wording. That would have been a way of ensuring that the best decisions were reached even though it might transgress a red line on the role of the courts in the EU post a no-deal Brexit.
If that is the issue, have the Government got it right by repealing Section 60 and bringing forward a modified section, Section 60A, to replace it, which provides in some detail that the competition regulators and the UK courts will continue to be bound by an obligation to ensure that there is no inconsistency with pre-exit EU competition case law but makes it impossible to bring in any jurisprudence that takes place afterwards except in limited circumstances? I am sure that Ministers have thought about this carefully and I would be grateful if the Minister would share with us a little of that thinking. It seems to me that, in an attempt to give expression to the red-line areas, they are causing what might turn out to be a legal—I am trying to think of the appropriate word—
Feast, for those who have interests in these matters. This is a bit of a dripping roast, if you do not mind me mixing my metaphors.
The point is that, in attempting to find a way of arguing that there should be no leakage of EU jurisprudence into decisions post-crash-out Brexit, the wording used—the solution mentioned in new Section 60A(7)—provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria, one of which is a post-Brexit development in EU law. However, it goes on to say that other criteria may include—these are terms used in the regulations but there is no apparent way of checking back to see what they mean in fact—differences between EU and UK markets, development in economic activity, generally accepted principles of competition analysis and the particular circumstances under consideration. Like the noble Baroness, Lady Burt, I am no lawyer, and I am not trying to pretend to be one, but that wording is very open and, presumably, will be subject to a lot of discussion and debate.
Those criteria are wide-ranging and broadly expressed and their interpretation is likely to be the subject of considerable debate in many quarters up and down the land. My point is narrow in the sense that the Explanatory Memorandum is perhaps, as I hope the Minister will agree, somewhat optimistic in stating that the provision,
“will provide UK courts and competition regulators with clarity as to how Chapters I and II are to be interpreted after exit”.
I do not think that it is clear at all. I think it is raising a huge amount of interpretative, probably good and proper, debate but it is not providing the sorts of certainty that businesses want as the transition goes ahead. I will leave that point there.
The other relevant point is that there will be transition from a system which is largely co-operative and run across national boundaries under an EU regulatory regime to one that is UK-only, based on UK legislation and UK activities, in this case by the CMA and by other regulatory bodies that have authority.
I do not want to overegg the case but the worry is whether the CMA will be properly resourced to undertake its anti-trust responsibilities as well as the responsibilities relating to the new state aid rules. The CMA itself has said that it will need to carry out a lot more work on more complex cases. It is apparently working on secondary legislation that will facilitate that, and is also increasing staff numbers. That is probably the right response to the problem—both previous speakers raised these issues—but, if that is the case, we are not seeing the last of the legislation that will relate to this. Presumably, we are being promised further secondary legislation to tie up some of the issues that the CMA may wish to raise on its own. Therefore, we are not doing the cut-and-paste job that I criticised the Government for doing. Will the Minister confirm that that is the case? If so, what is the likely timetable and change that we can expect? In particular, will there be more statutory instruments on this set of laws before we reach exit day? It would be nice to know if that is to happen.
My other points are relatively minor. They also relate to the Explanatory Memorandum, in particular, the question raised in paragraph 7.7. There is a slightly convoluted expression of how timetables work on transitions. It states:
“For the purposes of calculating the limitation period to bring these claims in respect of a case which the European Commission has not concluded before exit day, the period before exit during which the European Commission was investigating will not be counted when calculating whether the time period to bring a standalone claim has expired”.
That may make sense in the real world, but I could not understand it. Can the Minister explain it to me from the Dispatch Box or, if necessary, write to me, so we can be clear?
The point here is that there are implied restricted timetables for people who want to make claims in any case over which the UK authorities have control. How do they fit in to where we will have got to on exit day in relation to claims being held under the European Commission? Is there an issue there which we should be aware of? There may not be, but I should like that confirmed.
The Minister spent a lot of time on the block exemption regulations. I do not have much to say on that. It is a difficult area of law because of its subjective nature, but there is another issue about timescale in paragraph 7.18. I do not want to go into detail about it now, but again, if the Minister could write to me about it, I should be very satisfied.
Finally—this is a particularly narrow point—paragraph 7.21 states that the regulations amend secondary legislation related to the Enterprise Act, as the Minister said. It states:
“These changes include amending the definition of insurance undertaking and financial institution so that the statute book is functional after exit”.
I have no complaint about that. But it continues:
“These amended definitions correct deficiencies but do not contain any substantive changes to the definitions”.
I have read them. I do not see many changes. Perhaps the Minister could respond to that now or write to me about it. I want to be sure that the exact nature of the changes is clear and that they have been exposed in this House.
My Lords, I thank all three speakers for their comments and questions and shall endeavour to answer as many as possible. First, I emphasise that, as with other statutory instruments that will be coming before the House, these are no-deal regulations. If there is a deal—if everything goes through—they will not be necessary. I do not know where they will sit, but they will gradually perish, die or whatever.
There will be more regulations—I am not absolutely sure whether there will be more regulations on this specific subject—and the noble Lord, Lord Stevenson, and others will be debating them with me in due course, and I am sure we will have a busy time over the coming months. I hope that we will at least get a break for Christmas.
I can assure the noble Baroness, Lady Burt, that the regulations will not affect our ability to tender for contracts. They are merely about mergers and anti-competitive behaviour. Ability to tender for contracts is a matter for debate on another day. She also asked about the impact of the regulations. I can assure her that they will have minimal impact on the taxpayer and businesses, as the changes in the instrument only remove deficiencies and enable the statute book to continue to function after exit. This statutory instrument aims to create clarity in law, which would minimise litigation risks. Most of the costs associated with the changes to the competition regime flow directly from EU exit, not from this statutory instrument. There may be some cost to business associated with familiarisation with the regulations, but that is the case with any legislation.
The noble Lord, Lord Berkeley, asked what happens to live cases at exit. In a no-deal scenario—I re-emphasise that that is what we are talking about—there would be no agreement between the UK and the EU on jurisdiction over UK aspects of live cases. This instrument does all it can unilaterally to clarify jurisdiction and provide clarity and certainty in the event of that no-deal exit. After exit, the CMA may conduct investigations into breaches of UK competition law that occurred before or after exit day, including live European Commission cases. In practice, I believe that the CMA would undertake a review to ascertain, among other things, the litigation risk and impact on UK consumers of opening an investigation. But if the European Commission has reached a decision before exit, the CMA will not have the power to open a new case.
The noble Lord also asked what would happen to live merger cases. It does all it can to clarify the jurisdiction in the event of a no-deal exit. At the point of exit, the EU merger regulation no longer applies. Consequently, if the European Commission has not issued a decision before exit, that regulation will not prevent the CMA taking jurisdiction over the UK aspects of the merger. The Government recognise the importance of continued co-operation between the CMA, the European Commission and national enforcement agencies. In a no-deal scenario, the Government would seek to establish bilateral or multilateral co-operation agreements with key member states and the European Commission as soon as possible.
The noble Lord, Lord Stevenson, also asked about changes to Section 60. There is a deficiency in the wording of the current section, because it requires UK courts and regulators to act consistently with EU law. The Government have therefore removed the section and introduced the new Section 60A. This provides that UK courts will continue to be obliged to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but allows them to depart from such pre-exit law where it is considered appropriate. That would be a matter for the CMA in the light of specified circumstances. This approach will provide continuity and consistency in the law for businesses and consumers, as pre-exit EU competition law will form the bank of case law from which courts and regulators will draw, while also allowing them to diverge from old case law where appropriate.
The noble Lord, Lord Stevenson, also asked what regard the courts would have for decisions of the European courts after our exit. The withdrawal Act is clear that the UK courts will not be bound by any judgment of the European courts after the UK exits the EU. However, it will be possible for UK courts to have regard to such judgments, so far as they are relevant to the matter before the court. The noble Lord also asked about the clarity of the wording of the new section. We believe that the changes to Sections 60 and 60A are targeted, reasonable and proportionate. They will reduce litigation risk for the CMA and provide courts and businesses with legal clarity.
The noble Lord, Lord Stevenson, also asked about resourcing for the CMA. We are confident that it will be ready for exit day and it continues to plan for such an outcome. My department continues to work with the CMA to ensure that this is the case. It will obviously represent a significant challenge but it will also be an opportunity for it. The National Audit Office reviewed the CMA’s exit planning and readiness and concluded that it has robust plans in place to take on a larger competition case load. As part of the Spring Statement, the Chief Secretary to the Treasury announced that the CMA had been allocated an additional £20.3 million in 2018-19 for competition, in preparation for the EU exit. The Treasury has received the CMA’s bid for additional funding for EU exit preparations in 2019-20. We will be announcing further details in due course.
The noble Lord also asked about the time limits in paragraph 7.7 of the Explanatory Memorandum. If the noble Lord is content, I would prefer to write to him on that matter, and obviously I will write on any other matters that I have failed to address. But I think that I have picked up most of the points.
Before the Minister sits down, can he confirm that these regulations are simply to ensure a smooth transition if we finish up with no deal, meaning that we would have a smooth transition in that eventuality? Is it appropriate for us to keep on calling it “crashing out”?
I have never used the expression “crashing out”, but I am grateful to my noble friend for making that point. These regulations, and a whole series of other regulations which I and other colleagues will be bringing before the House, are entitled “EU exit regulations”, and they are for dealing with that eventuality. It is essential that we make the right preparations for a no-deal situation, and this statutory instrument is part of that. It provides clarity for businesses and the clarity that will reduce litigation risk, protect consumers and provide for a smooth transition from the current system in the EU to a stand-alone UK competition regime.
Postal and Parcel Services (Amendment etc.) (EU Exit) Regulations 2018
Motion to Approve
The Government are confident that an agreement on EU exit will be achieved, but, as I said earlier, we must be prepared for all outcomes. If the UK leaves the EU without an agreement in place, these regulations will provide legal clarity for the regulator and postal operators. These draft regulations are made under the powers conferred by the European Union (Withdrawal) Act 2018, and correct deficiencies in the statute book associated with exiting the EU.
The Secondary Legislation Scrutiny Committee agreed with the Government’s recommendation that these regulations should follow the negative resolution procedure, when the draft was originally presented in July. However, at the time, the European Statutory Instruments Committee in another place felt that further explanation was required regarding the changes that these draft regulations present because of exiting the EU, and recommended that the draft regulations should be upgraded to the affirmative procedure. The Government accepted that recommendation.
If approved, the regulations would not change the operation of postal and parcel services beyond the changes that are necessary to ensure the regime is fully functional on exit day. There are four necessary changes. First, they amend the Postal Services Acts 2000 and 2011, to remove or replace references to EU obligations which will no longer apply once the UK leaves the EU. They also remove provisions which impose duties to notify the European Commission. Secondly, they remove from statute the Postal Services Regulations 1999, which implemented Article 22 of the postal services directive and required member states to designate a national regulatory authority for the postal sector. Thirdly, they revoke the European Commission’s decision of 10 August 2010 that established the European Regulators Group for Postal Services—the ERGP. Finally, they revoke Regulation 2018/644 on cross-border parcel delivery services. I will explain each in turn.
The Postal Services Acts 2000 and 2011 set out the minimum requirements of the UK’s universal postal service. The amendments to primary legislation governing postal services in these regulations will not affect the UK’s universal postal service. These regulations ensure that any remaining obligations under retained EU law are maintained in the Postal Services Act 2011 and remove redundant provisions. The regulations also remove obligations of the EU postal services directive, such as sharing information with the European Commission, because the UK will no longer be subject to the directive’s provisions or to the authority of the European Commission after we leave the EU.
The Postal Services Regulations 1999 designate Ofcom and the Secretary of State as the UK’s national regulatory authorities for postal services, a requirement of the postal services directive. Duties and functions of Ofcom and the Secretary of State relating to postal services are set out in the Postal Services Acts 2000 and 2011, so there is no longer a requirement to “designate” them under separate regulations.
The 1999 regulations will become redundant when the UK leaves the EU and are revoked in full by these regulations. The European Commission decision of 2010 established the European Regulators Group for Postal Services. The group consists of national regulatory authorities of member states. It provides advice to the European Commission and aims to facilitate consultation and co-operation between national regulatory authorities of member states.
Ofcom is a member of the group as the UK’s national regulatory authority. After we leave the EU, the UK will no longer hold membership status, as it will cease to be an EU member state, and therefore Ofcom will not be entitled to participate formally as a member of the group. The regulations therefore revoke this EU decision which contains a list of members, one of them being the UK.
The withdrawal from the ERGP was an issue of interest for the House of Commons sifting committee. The House requested further information on the effect of the UK’s non-participation in the ERGP and any alternative future arrangement. Ofcom intends to seek permanent observer status after the UK has exited the EU, in the way that NRAs of the European Economic Area states, Switzerland and EU candidate countries participate at present. Although observer status would remove Ofcom’s right to vote, the impact would likely be minimal given the co-operative nature of the forum. The group generally makes decisions based on consensus. If required, issues that would be voted on are the final work programme, published reports or opinions and the elected officials of the ERGP; that is, the chair and two vice-chairs. If granted observer status, Ofcom will still be able to engage in strategic discussions, negotiations and the sharing of best practice after we exit the EU.
I turn now to Regulation (EU) 2018/644 on cross-border parcel delivery services. The aim of this EU regulation, which came into force in May this year, is to increase regulatory oversight and price transparency of cross-border parcel delivery services within the EU. These regulations revoke the EU regulation in full. The EU regulation requires regular submission of information on cross-border parcel delivery services to the European Commission with the aim of publishing tariff information on member states’ cross-border parcel operators. This duty should no longer apply after the UK leaves the EU, as the UK will cease to be a member state and will no longer be subject to the authority of the European Commission. In any event, the principal information-gathering powers of Ofcom, the UK’s postal regulator, are provided under the Postal Services Act 2011. Ofcom already draws on this as part of its regulatory monitoring of postal services.
These regulations are a sensible and necessary use of the powers of the withdrawal Act, which will ensure that postal and parcel services continue to operate effectively after the withdrawal of the United Kingdom from the European Union. I commend them to the House.
My Lords, I am grateful to the Minister for his explanation. My understanding of this piece of legislation is that it pulls us out of retained EU law that will no longer be applicable on our withdrawal from the EU if we get no deal and crash out; unfortunately the noble Lord, Lord Framlingham, who asked the “crashing out” question, is no longer in his place. Again, there is no impact assessment. I take the point that the Minister made earlier but I ask for his patience and for assurances on a couple of issues. I am sure he will be able to supply them.
My first question relates to the directives that we are rejecting which opened up the sector to competition and defined a universal postal service as a right. What will the situation be post Brexit for remote communities, for which the universal postal service is vital, even though it might not be economically viable to provide? As the Minister said, Regulation (EU) 2018/664 increases price transparency and regulatory oversight of cross-border parcel delivery services. Can the Minister explain for the ignorant what difference this is likely to make to price transparency and the prices of cross-border parcels to and from the UK?
Finally, what do the Government assess will be the effect of removing us from these EU regulations? Will our ability to send and receive parcels cross-border be affected in the future? I am not asking the Minister to look in his crystal ball here, although it would be helpful if he had one to hand, but does he think that it will be harder or easier? The Government have produced no impact assessment, but how can there be no effect of withdrawing from this legislation?
My Lords, again, I am very grateful to the Minister for the very full letter about this SI that I received last week. He covered all the points that he has made in his speech—and, in fact, a few more—and it was very useful in getting us ready for this debate.
However, there was one thing that I wanted to pick out relating to the Postal Services Regulations 1999, which were set to become redundant and will be revoked in full. I presume that the rationale for wishing to revoke them is that they are derived from an EU directive, I think, rather than a regulation, and they require member states to designate a national regulatory authority in the UK. In this case, Ofcom is the designated authority. The letter goes on to say that the functions of the Secretary of State and Ofcom in regulating the sector are set out in the Postal Services Acts 2000 and 2011, but I question whether the removal of the 1999 regulations, which designate Ofcom as a specific post of national regulatory authority in the UK, does not in some way discriminate against Ofcom as being the likely regulator for postal services in the UK. It is really a question of whether there will be any diminution in Ofcom’s authority as a result of this. I would be grateful for reassurance that there will be no change in substance, even though there will be a change in the legal basis on which it is appointed.
The noble Lord has spent a lot of time discussing the role of the ERGP and the future of that body with Ofcom as an attendee. It is an obvious point but attending is not the same as being a participant, and even though it is an informal body largely operating by consensus, there will still be a difference, so we will be a rule-taker and not a rule-maker in a very real sense. Again, I would like reassurance that there is no question that we will lose out in terms of how our postal services flow and our parcels are delivered in the future.
I have two further points. Like many noble Lords, I am sure, we have received a number of representations from those involved in cross-channel activities, particularly about getting access to goods and bringing them through the Channel Tunnel to make sure that markets in the UK are satisfied. Therefore, this is about inward goods but it is also about external goods. A lot of material flows out through the tunnel to other places, and a particular issue is time-sensitive goods. Is there anything that the noble Lord feels it appropriate to share with us, particularly in relation to recent comments by his colleagues in the Department for Transport about the difficulties in ensuring that goods move backwards and forwards? Would that impact on anything that these regulations should do? Time-sensitive goods are obviously the most important, such as fresh goods and other materials that need to arrive at a particular time. These will be affected by blockages and changes in the overall system. Where they are postal, additional regulatory authority and other issues may be engaged, and there may be costs involved that we are not yet aware of. I would be grateful for some comments on that.
Finally, paragraph 7.6 of the Explanatory Memorandum deals with Article 7 of the EU parcel delivery regulation. I recently saw documentation from the Institute for Government, which has been looking at the Government’s readiness for Brexit in the case of a no-deal crash out. One issue flagged as red, and therefore not ready, is parcels. Does the Minister have any information on that, given that it falls within his brief? Is there a problem here and, if so, is it something that he wishes to share with us? The Explanatory Memorandum makes the point that the EU parcel delivery regulation is largely covered by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. It goes on to say:
“Therefore, the EU Parcel Delivery Regulation will become substantially redundant following the UK’s exit from the EU”.
But “substantially redundant” is not the same as “completely redundant”. Will the Minister spell out the differences that are envisaged?
My Lords, I thank noble Lords for their contributions to the debate. I hope I can answer the questions that have been put to me. Again, let me assure noble Lords that these amendments to primary legislation governing the postal services will have no impact whatever on the UK’s universal postal service and will preserve, as far as possible, the rights, responsibilities and protections offered by the existing system. They make only those changes necessary to ensure that the regime continues to be fully functional on exit day. As I said on previous regulations, this will increase legal clarity and be of benefit to national regulatory authorities, businesses and consumers.
The noble Baroness asked about the cost to the taxpayer. This will have minimal impact. The regulations qualified for the de minimis threshold, which means that direct impact on business or civil society organisations is less than £5 million annually, and as such a full regulatory impact assessment was not considered necessary. As I have made clear, we will continue to offer the same postal and parcel services throughout the United Kingdom as we do now, and as we do to remote communities. There will be no change in liabilities or obligations. Royal Mail will continue to deliver that universal service in line with requirements set out in domestic law.
The noble Baroness also asked what will happen as a result of revoking the cross-border parcel services regulation. Revoking that regulation will mean that the UK will not be required to share pricing information for cross-border parcel deliveries with the European Commission. Ofcom can request pricing information under the UK’s domestic provisions, which will mitigate any data gap between the UK and member states. There are also price comparison websites that provide information about prices for parcel deliveries from the UK’s service providers. Therefore, comparing prices for cross-border parcel services between the UK and EU member states will continue to be available to consumers.
The noble Lord, Lord Stevenson, asked why the Postal Services Regulations 1999 are being revoked by these regulations. The 1999 regulations designated Ofcom and the Secretary of State as our national regulatory authorities for postal services, as was a requirement of the postal services directive, and that simply no longer applies after EU exit. In any event, the functions and duties of Ofcom and the Secretary of State relating to postal services are set out in the two Acts I referred to: the Postal Services Act 2000 and the Postal Services Act 2011. There is therefore no longer a requirement to designate them as the national regulatory authority under separate regulations.
I may not have made myself entirely clear. This may be a point that is not worth exploring further, but just to be precise, the existence of the 1999 regulations requires the Government to appoint a single national regulatory authority for post, which is Ofcom. Removing that, as is proposed in these regulations, means that in theory it is possible for the Government to appoint other regulators to take over Ofcom’s rules and functions. I wondered if that was the implication and therefore whether there was any danger to Ofcom’s position.
There will be no change in the position. There is no hidden agenda that a shadow Ofcom will be set up or some such other body. I can give that assurance to the noble Lord.
The noble Lord was also concerned about Ofcom’s new role on the European Regulators Group on Postal Services, and whether it was now, as he put it, a rule-taker rather than a full participant. I stress that the ERGP is just an advisory body. It does not make any binding rules or take any decisions. Leaving that and merely having an observer status will not have a detrimental impact on Ofcom’s ability to participate in it or its ability to regulate the postal sector and engage with other EU regulators. As I said, Ofcom wishes to have that observer status just to ensure that it can continue to participate to the full extent necessary.
The noble Lord also asked about customs arrangements and whether they might affect the post. We will obviously be engaging with businesses about new customs arrangements if the UK leaves the European Union without an agreement. The Government have published the customs White Paper and sent out technical notices. Royal Mail is working with HMRC to ensure that it is prepared for changes so that we can continue to operate in the same way after exit.
I hope that that deals with all the questions. As I said on the earlier regulations, the regulations do not represent a policy change to the operation of postal services and they preserve, as far as possible, the rights, responsibilities and protections offered by the existing system. I commend these regulations to the House.
Textile Products (Amendment) (EU Exit) Regulations 2018
Timeshare, Holiday Products, Resale and Exchange Contracts (Amendment etc.) (EU Exit) Regulations 2018
Motions to Approve
Tobacco Products and Nicotine Inhaling Products (Amendment etc.) (EU Exit) Regulations 2018
Motion to Approve
My Lords, in introducing the regulations before the House today, I want to stress how critical they are in maintaining the UK’s commitment to be a world leader in tobacco control as we leave the European Union. The Government strongly believe that tobacco control legislation is crucial for stopping people smoking and reducing the harms associated with smoking. Whatever the outcome of the Brexit negotiations, that belief is unwavering.
As noble Lords know, the Government are focused on the successful passage through Parliament of the deal which has now been reached with the EU. Nevertheless, we continue to plan for all scenarios. The regulations before us have been laid for a no-deal scenario. If the UK reaches a deal with the EU, the department will revoke or amend this instrument to reflect that deal.
This instrument will ensure that the UK domestic legislation that implements the two main pieces of EU tobacco legislation—the tobacco products directive 2014/40/EU and the tobacco advertising directive 2003/33/EC—functions effectively after exit day. The instrument, made under the EU (Withdrawal) Act 2018, makes appropriate amendments and revocations to correct deficiencies in UK legislation and retained EU legislation.
Regardless of one’s views on Brexit, I see no reason why the amendments we are proposing through these regulations should not be supported. The proposed amendments are critical to ensuring that there is minimum disruption to tobacco control in the event that we exit the EU without a deal in March 2019. I would like to draw the attention of noble Lords to three main changes that this instrument would introduce.
First, in the event of a no deal, the UK will need to develop its own domestic notification systems for companies that wish to sell tobacco products and e-cigarettes to the UK market. The notification process is essential for ensuring that companies are complying with legislation on product standards. Both Public Health England and the Medicines and Healthcare products Regulatory Agency have commenced work to ensure that domestic notification systems are in place and functional by exit day.
Secondly, in the event of no deal, the UK will not hold copyright to the EU library of picture warnings for tobacco products. Requiring the industry to continue to use these pictures would breach copyright law. Picture warnings are a key part of tobacco control, and it is therefore extremely important that we continue to require the inclusion of graphic picture warnings on tobacco products. The UK has therefore recently signed an agreement with the Australian Government to obtain picture warnings free of cost, and I want to take this opportunity to express this Government’s gratitude to the Australian Government for their assistance in this matter. I would also note that this approach has received endorsement from Action on Smoking and Health, which has said about our proposals on notification systems and picture warnings that they are, “pragmatic and practical, minimising the amount of additional work involved if there were to be a no deal Brexit. We support the Government proposals for dealing with this short-term issue”.
Thirdly, this instrument proposes a transfer of powers from the Commission to the Secretary of State, permitting the Government to respond to emerging threats, changing safety and quality standards and technological advances.
In introducing this instrument, I must be clear that it will have some impact on the tobacco and e-cigarette industry. The department ran a short technical consultation in October to seek feedback on the practical issues that will affect the industry in a no-deal situation. We received 32 responses. Tobacco control stakeholders showed support for the continued use of picture warnings and amendments to the notification system as an effective way of stopping people smoking and as a means of harm reduction. The tobacco industry did raise concerns about the timing of implementation and cost, primarily in relation to the changes to picture warnings. However, I would stress that we did not receive detailed evidence or a breakdown of costs.
As noble Lords know, we have no control over timing issues—or at least this government department does not—as the implementation timetable is dictated by the timing of EU exit. The Department of Health and Social Care has therefore consulted with external experts, who have confirmed that the change in timescale is likely to be difficult but manageable. To mitigate these issues raised in the consultation by the industry, we intend to publish detailed guidance on picture warnings and the notification process in January 2019.
Before closing, I would also like to stress that the devolved Administrations have provided consent for the elements of this instrument which are considered devolved.
I hope that noble Lords can see that this instrument constitutes a necessary and important measure to ensure that our tobacco control regulations continue to work effectively after exit day in the event of no deal. I must emphasise that, due to the instrument being made under the withdrawal Act, the scope of the amendments in it is limited to achieving this objective. At an appropriate point in the future, the department will review whether the UK’s exit from the EU offers us opportunities to reappraise current regulation to ensure that we continue to protect the nation’s health and so that the UK remains a global leader in smoking cessation and tobacco control for many years to come. I beg to move.
My Lords, I am grateful to the noble Lord for this opportunity to discuss e-cigarettes. It is also a great opportunity to press the Minister on the Government’s Brexit situation. I do not think that we have heard him on this matter before. It is interesting to reflect on the confidence set out in the Explanatory Memorandum that,
“as a responsible government, we will continue to proportionately prepare for all scenarios”.
That is just as well because I do not share the Minister’s confidence that the future is at all clear or, indeed, that all scenarios have been planned.
I am sure the regulations are sensible but the Explanatory Memorandum takes us back to our debate when they originally came through your Lordships’ House, during which a number of us expressed concerns that the directive on which they were based takes too draconian a view on e-cigarettes. I happen to think that e-cigarettes are one of the most successful public health measures to help reduce smoking that we have ever seen. It is a great pity that some elements of the public health community that I know well and love have such a downer on e-cigarettes that they have encouraged a disproportionate approach to their regulation. In Grand Committee, the argument was put that e-cigarettes should be regulated in a completely different way from tobacco-based products. I remain convinced of that.
Of course, we must be very careful about the potential impact on young people. I know there are those who think that attractive advertisements and the way e-cigarettes are marketed can sometimes lead young people to take up smoking. The evidence for that is very dubious. We know that e-cigarettes are attractive to people over whose heads most public health campaigns completely fly. Although I fervently hope that we do not exit the EU next March, if we do and if the Government bring forward at some point new regulations on tobacco products in general, I hope they will take note of our debates and look at e-cigarettes in a completely different way.
My Lords, there are those—I am certainly not among them—who welcomed the idea of Brexit because they did not like the restrictions on the promotion of tobacco that we agreed across the EU. Contrary to the biased and selfish claims made on behalf of the tobacco industry, these regulations have been successful in reducing significantly the prevalence of tobacco smoking and its related diseases. We should never forget that tobacco products shorten the lives of half the people who smoke.
The tobacco lobbyists will be disappointed with the regulations because they show that they have lost the argument and there is now cross-party consensus on tackling tobacco-related problems. As the Minister said, even if we have the disastrous no-deal Brexit that some of those people want, the regulations will allow for a set of pictures, as currently used in Australia, to continue to appear on cigarette packs in the UK to warn smokers of the terrible damage done to their health by smoking.
As the Minister said, the regulations have the support of the excellent Action on Smoking and Health, of which I am a former director. Of course, they have my support too, but I would like to remind the Minister that the Tobacco and Related Products Regulations 2016 require the Secretary of State to review those regulations and publish a report before 20 May 2021. Some of the important points made by the noble Lord, Lord Hunt of Kings Heath, should be examined when that report is made. Some of us also feel passionately that e-cigarettes can and must be promoted effectively as an alternative to smoking tobacco, but in such a way as not to encourage people who have never smoked tobacco to take up an addiction to nicotine. I would like the Minister to confirm as well as he can that there will be no going back on our successful tobacco regulation policies, which are doing so much to improve the health and life expectancy of so many people. We should do nothing that reverses the excellent progress being made on this issue.
My Lords, I apologise to the House for being a minute or so late. I am afraid that business moved too quickly and the lift too slowly.
As the Minister said, the current regulations for tobacco and related products are designed to promote and protect the public’s health. Speaking as a veteran of tobacco regulation from the previous Labour Government and the Minister responsible for the point of sale retail advertising regulations that put tobacco products out of sight in our shops and supermarkets, all those actions were rigorously and energetically opposed by the noble Lord’s party and the Minister’s predecessor but one. I welcome the Government having definitely seen the light on this; it is wonderful. I am pleased to learn that the Government’s priority is to maintain the same high standards after the UK leaves the European Union, if that is indeed what happens.
The noble Lord and I are discussing regulations that will be necessary if there is no deal. I suspect they are the first of many. We have a whole load of embryonic and blood things to discuss next week. I wonder whether that is really a productive use of his time or mine.
On what these regulations do, in the event of no deal we will be obliged to introduce legislation to ensure that the policies and systems in place to regulate tobacco products and e-cigarettes will continue to function effectively and maintain continuity with current arrangements. The website and the Explanatory Notes use the words “where possible”, so I suppose my first question to the Minister is to explain the words “where possible” and where the current arrangements might not be possible.
If the UK leaves the European Union in March 2019 with no agreement in place, that will mean, as the noble Lord said, that the tobacco products directive and the tobacco advertising directive will no longer directly apply to the UK—which is ironic, as we were the pioneers in these matters all those years ago. UK domestic law that implements these directives, such as the Tobacco and Related Products Regulations 2016, would remain in force.
My understanding is that these regulations’ purposes are threefold: to introduce a new domestic system to allow producers to notify e-cigarettes in accordance with existing rules; to introduce a new domestic system to allow producers to notify tobacco products in accordance with existing rules; and to introduce new picture warnings for tobacco products, already mentioned by noble Lords, based on the picture library owned by the Australian Government. The noble Lord and I have both learned that the pictures in use at the moment come from a library based in Brussels. We will no longer have access to it.
I thank ASH for its views and vigilance on these important matters, and for its participation in the consultation process. I agree with it that the system set out for notification of e-cigarettes and novel tobacco products in the consultation document is pragmatic and practical, and would minimise the additional work involved in the notification process if there were to be a no-deal Brexit. Products notified to the UK prior to the UK leaving the European Union would not require re-notification and data will be accepted in the same format as currently submitted. Those arrangements seem satisfactory.
For the purpose of providing an alternative to the current picture warnings in the event that the UK leaves the EU with no deal, since we would no longer have access to the rather revolting and graphic pictures in the SI—I have not seen any other legislation with pictures in it, but this instrument has them; I suggest that if noble Lords have not read the statutory instrument they should at least open it and look at the pictures it contains—the Minister has said we will switch to the ones used in Australia, which I gather are even more horrible. However, I remind the Government that, in the longer term, the Tobacco and Related Product Regulations 2016 require the Secretary of State to review the regulations and publish a report before 20 May 2021. This review needs to examine the objectives intended to be achieved by the regulatory provision made by these regulations, and to assess how far they have been met and whether they remain appropriate. That will allow a review of quite a fast-moving area in terms of product development to take place. Does the Minister agree that is the case?
For the purpose of providing an alternative to the current picture warnings in the event that the UK leaves the EU with no deal, switching to the pictures from Australia is a short-term quick fix for this emergency. However, current best practice in Australia and the UK is to rotate, regularly review and update those health warnings. Therefore, it is essential that in the longer term the Government review the warnings—they are currently being evaluated by the Australian Government—and find ways to increase the number to allow for rotation, as is currently the case. When can we expect that review to take place?
I do not need to add to my noble friend Lord Hunt’s remarks about the importance of vaping and its role in reducing smoking. These statutory instruments serve their purpose.
I am grateful to all noble Lords who have spoken on this statutory instrument. It is hard to believe that it has taken us this long to have our first Brexit outing on health issues. It could be the first outing of many and we may not always be in such agreement, but I am happy that we seem to be on this occasion.
On the point made initially by the noble Lord, Lord Hunt, and later reinforced by the noble Lord, Lord Rennard, and the noble Baroness, Lady Thornton, about e-cigarettes, we have been working in a framework decided at a European level and have made the most of it. It inevitably involves some restrictions, whose boundaries we have tried to push in order to have what I think is the most rational and effective approach in Europe. It has worked. As we all know, it has contributed to improved smoking cessation and low use by young people—take-up among young people being one of the fears, which we are unfortunately seeing in the States. Some research is still required to understand better both the behavioural and the health impacts of vaping products, but the Government have no doubt about their central role in dealing with what is still one of the biggest public health issues that we face. I can give an assurance that we keep an open mind about the right way to regulate these products, bearing in mind their almost entirely positive benefits.
It is worth emphasising, as noble Lords have done, that the purpose of the instrument is not to change policy; it is to provide continuity and make sure that there are fixes. However, as the noble Lord, Lord Rennard, and the noble Baroness, Lady Thornton, pointed out, the review of directives that the Secretary of State has a duty to fulfil gives us an opportunity to think about how they are operating in this and other domains. Certainly, we will fulfil that by 2021, but the Secretary of State may decide to do something sooner —of course, that is not something I can commit him to at this point. The policy is working and we want to make the most of it. For example, some of the restrictions on advertising may be stopping realisation of the full benefits of the use of e-cigarettes in smoking cessation; those are the kind of things we would want to think about.
The noble Lord, Lord Rennard, and the noble Baroness, Lady Thornton, talked about the Australian pictures. They are indeed more gruesome—it clearly shows that Australians have a higher threshold for what appals them. We are grateful to the Australian Government for helping us get through the transition by giving us those gruesome photos. It is also worth noting that Australia has a very successful smoking cessation regime—we are not taking these images from just anybody; we are taking them from a country that is doing really well, so there is good reason to think that they will be effective.
The noble Baroness, Lady Thornton, asked about rotation. Clearly, we are going to need to work with the Australian Government as well as design our own pictures. In a no-deal scenario we would need to do that so that we can have rotation and make sure that people do not grow desensitised to these pictures, which is of course one of the problems with them. Of course, in a no-deal scenario we may be able to work with a number of different jurisdictions. It may be possible to assemble a library that goes beyond one or two countries, but that is not something we have a timetable for yet.
In answer to the question from the noble Lord, Lord Rennard, I say again that there is absolutely no going back on the progress we have made on smoking cessation. The Government are a vigorous promoter of tobacco control. We know the health benefits: pretty much the best thing you can do for your health if you smoke is to stop, so I can reassure noble Lords that there is no going back.
On the final question regarding the language—“fixing where possible”—the point is that we are acting under the aegis of the European Union (Withdrawal) Act 2018, which gives us the power to deal with certain things. Let me give an example of what it does not allow us to do, because of the framework of primary legislation. In its 20th report of the 2016-17 Session, the Joint Committee on Statutory Instruments found some defective drafting, but we do not have the power under the withdrawal Act to fix that through this process; we would need some other process. So we have used all the powers we have under the withdrawal Act to make fixes and provide continuity in key areas, but it does not necessarily follow that we have fixed everything through this process; that will have to be done through other processes. That is just the limit of what we can do through primary legislation.
I hope I have been able to answer noble Lords’ questions and provide reassurance about our commitment to smoking cessation and, indeed, about our open-mindedness to future policy changes that may be required for us to go further and take advantage of some of the technologies available to us. On that basis, I beg to move.
House adjourned at 6.06 pm.