House of Lords
Tuesday 18 December 2018
Prayers—read by the Lord Bishop of Chichester.
Oaths and Affirmations
Lord Carrington took the oath, following the by-election under Standing Order 10, and signed an undertaking to abide by the Code of Conduct.
Nigeria: Intercommunal Violence
To ask Her Majesty’s Government what support they are providing to the government of Nigeria in its efforts to end the violence between herders and farmers in that country; and what assessment they have made of the impact on that country of the continuance of such intercommunal violence.
My Lords, we remain deeply concerned by the escalation in intercommunal violence across Nigeria, which has a devastating impact on lives and communities and is a barrier to that country’s development. Insecurity and the politicisation of the violence risk localised disruption of the 2019 elections. We urge the Nigerian Government to develop a clear strategy to address the underlying causes and we continue to develop options for how the United Kingdom could further support dialogue and peacebuilding efforts.
I thank my noble friend for his learned response. Will he agree to work with the international community, including the Commonwealth, to encourage and support the Nigerian Government to mobilise their security forces in response to violence and to develop a comprehensive plan which addresses the different factors affecting the conflict, such as population pressure, climate change and religious tensions?
I assure my noble friend that we will continue to work with European partners and, as he rightly articulated, with other members of the Commonwealth. He will know that my right honourable friend the Prime Minister recently visited Nigeria, as did His Royal Highness the Prince of Wales. These visits were also intended to strengthen the support we are giving to the Nigerian authorities and Government in addressing the violence which has gripped the country for far too long. In terms of military support, we have been engaging directly in assisting with the training of up to 30,000 members of the Nigerian security forces.
My Lords, the Minister mentioned the underlying causes, as well as helping on the security side. Does he agree that one underlying cause of friction is the alarming increase in Nigeria’s population? What help are we giving the Nigerian Government with family spacing and women’s reproductive health?
The noble Lord is right to raise that issue. There are many underlying reasons for the conflict in Nigeria but its population growth and the challenges that that poses to the country’s public services, wealth and economy are well known. I assure him that we are working through a series of initiatives with the Department for International Development to provide support in health and education to address some of the challenges caused by the country’s population growth.
My Lords, following Amnesty International’s report yesterday which confirmed that more than half of the 3,600-plus deaths over the past three years of the conflict in Nigeria have occurred this year, what discussions are the Government planning with their Nigerian counterparts about the failure of their security forces? I note the Minister’s comments about the 30,000 who are being trained. Will he also comment on the negative impact that the corruption among senior officers is having on the welfare and security of their troops? Does he agree that it contributed to the recent massacre at Metele, which was not helped by the ineffectiveness in these matters of the ex-general, President Muhammadu Buhari?
The noble Lord is right that there has been an escalation in violence and the number of deaths in Nigeria in a variety of different conflicts, and it is extremely concerning. I assure him that we have raised the issue at the highest level with President Buhari, who has not only condemned the violence but is investing government time, effort and resource to ensure that he is speaking to the regions impacted and has convened a meeting of the different states. Equally, as I said, we are working with European partners to see what policies and plans can be developed in that respect. That is work in progress. Most recently, we have been encouraged that the Nigerian Government are planning to introduce a government Bill to address some of the events that have occurred, particularly between the Fulani and the farmers in Nigeria. It will look at reforms relating to farmland and private-property protection and at ensuring that agriculture is protected. It will seek to build a positive relationship and co-operation between communities not only in different states but across the country as a whole.
My Lords, perhaps I may press the Minister further on the point raised by the noble Lord, Lord Chidgey, about the report published yesterday entitled Harvest of Death. It says that,
“these attacks were well planned and co-ordinated with the use of weapons like machine guns and AK47 rifles”.
Will the Minister tell us what ideology is underpinning this and who is providing these weapons? Will he also update the House on the position of the women who have been abducted, primarily by Boko Haram, and on the case of Leah Sharibu, who is being held captive by Islamic State in West Africa?
The noble Lord is right to raise those matters. On the case of Leah Sharibu, we are continuing to press the authorities for her release. There is some positive news in that we understand that more than 70 of the 110 Dapchi schoolgirls who were kidnapped have been released. We continue to implore for and work towards the release of the others, and back-channels are open. The noble Lord is also quite right to raise the issue of arms. As he will know, there is a major challenge regarding the trafficking of weapons, particularly from nearby states, including the flow-through from places such as Libya. As to the ideology, there are, as was said earlier, various factors underlying the different conflicts within Nigeria. However, it is an indisputable fact that both the Islamic State in West Africa and Boko Haram operate in certain states, and their philosophy and ideology are perverse. They are hijacking the noble faith, and it is important not just in Nigeria that we collectively work to eradicate such a philosophy.
My Lords, on Friday the most reverend Primate initiated a debate on reconciliation; and, of course, the two key elements of the very complex situation in Nigeria are security and development. Can the Minister tell us a bit more about how DfID and the Foreign Office are working together to ensure that we actually have the strategies to deliver on reconciliation and development?
I agree with the noble Lord but would add a third element in terms of delivery strategies, regarding security. On all three fronts—whether it is our work through the Ministry of Defence or through diplomacy and direct contact with the Government, and he is right to raise the important work of DfID—our work in Nigeria includes a strong focus on, for example, tackling inequality and exclusion, increasing employment and livelihood opportunities, and improving governance at the local level. We are working across all the different areas to ensure that, as we invest in Nigeria, we work with it and look to build not only its key economic sectors but the key elements of its justice system and governance.
Scotland: Transport Policing
To ask Her Majesty’s Government what discussions they have had with the Scottish Government about the future of transport policing in Scotland.
My Lords, the Scotland Act 2016, following the Smith agreement, devolves responsibility for railway policing in Scotland. Noble Lords will be aware that the Scottish Government have announced that, although full integration of British Transport Police into Police Scotland remains a long-term ambition, other options are now being explored. We continue to work with the Scottish Government as they develop their plans, and we remain committed to ensuring the continuing effectiveness of railway policing across the network.
My Lords, I suspect that the Minister agrees with me that merging Police Scotland with British Transport Police was not the greatest proposal in the Smith commission report, and it is a pity that we did not stop it when we had a chance in 2014. Since then, an enormous amount of time, effort and money has been spent, particularly on things like consultancy fees—Police Scotland paid £700,000 to Ernst & Young—to pursue something which not only makes no sense in policing terms but which would have reduced the safety of the travelling public on trains between Scotland and England. Can the Minister confirm that the joint programme board is now focusing on retaining the role of the BTP in Scotland and enhancing statutory accountability to the Scottish Government through the British Transport Police Authority, and does he also agree that that is exactly what many of us in the House have been asking for over the last four years?
In response to the noble Lord’s first question, he may very well say that; unfortunately, the Government could not possibly comment. On the second point he raised, we have taken a long journey and have passed through many deep and dark tunnels—
I am sorry—it has been a long day. We are now moving toward a solution which I believe will work for all concerned. It will work within the established legal framework and will ensure that the network itself remains fully integrated, that security remains the primary focus, and that there will now be an accountability, through various structures, to ensure that there is a Scottish dimension to that without undermining the vital focus of the force itself.
My Lords, for obvious reasons, such as terrorism and all the other factors, security on public transport is of the utmost importance in the present state of the country. It is therefore extremely important that police officers are able to act when necessary, and clearly it would be wrong for people to get on the train at King’s Cross and for security to cease once they got beyond Newcastle. I think that is very obvious to everybody. I can remember the days when police officers were allowed to travel on the train free simply to encourage them to travel on public transport. Does this practice still exist? It is a great help to the guard, who knows that when he checks tickets he has officers on the train he can call for assistance.
On the wider change, it is a cliché but now is not the time for such change—there are too many security considerations. The points the noble Lord raises are valid today and will continue to be valid tomorrow.
My Lords, does my noble friend agree that British Transport Police does a magnificent job in maintaining security on our trains, in particular between Scotland and England, and that for the Scottish Government the root of this problem has been the name? Had it not been called British Transport Police, we would not have seen so much objection and such a waste of resources as the result of nothing less than political prejudice on the part of the Scottish Government.
My noble friend makes a very valid contribution. The success rate of British Transport Police is considerably higher than that of the other police forces. On the reasoning behind the Scottish Government’s move, it is not for me to seek to define the indescribable workings of the Scottish Government. None the less, I suspect there might be something in what he says.
My Lords, the Scottish Government have been struggling for years with the consequences of the flawed creation of Police Scotland. It is abundantly clear that integrating British Transport Police into Police Scotland is beyond the capacity of the Scottish Government to manage. Do the Government take the view in these circumstances that they should either postpone this until it can be done without disruption or recognise, if that is not possible, that they should abandon the plan altogether?
The Scottish Government will not progress with their initial plans; that is the first thing to emphasise. The important thing, which I stressed the last time I commented on this matter, is: if it ain’t broke, don’t fix it.
I thank the Minister for his positive action on this issue since I first raised it in the Grand Committee on the statutory instrument. I am most grateful to him. Does he not agree, however, that out of this debacle something positive could come if it is seen as a model for devolution? British Transport Police and other UK organisations could remain intact operationally but report for all their operations in Scotland to the Scottish Government and the Scottish Parliament. That would be a model for many UK institutions and organisations.
The noble Lord has been dogged in his pursuit of this matter and I am obliged to him for continuing to be so. He is absolutely correct in emphasising again that this is could well be a model that could work across a whole range of devolved areas.
My Lords, even under devolution there has been increasing centralisation in Scotland, including of Police Scotland, which has resulted in failures to respond to incidents in which there has been loss of life. The idea of that body incorporating British Transport Police as well is very worrying. Does the Minister agree that significant expertise exists within British Transport Police that needs to be kept separate?
The noble Baroness is absolutely right. The expertise within British Transport Police is specific to transport issues and related concerns. It cannot easily be accommodated into general policing.
My Lords, I congratulate the Minister and other speakers on the progress that has been made, but will the noble Lord tell the House whether the pensions rights and obligations of the existing BTP staff will be protected in whatever shape or form the end result occurs?
That is a vital question and the answer is yes, they will be fully protected.
Operation Conifer: Sir Edward Heath
To ask Her Majesty’s Government, further to the reply by Baroness Barran on 11 December (HL Deb, cols 1329–32), whether they will reassess the case for an independent inquiry into the seven unsubstantiated allegations against Sir Edward Heath left unresolved at the end of Operation Conifer.
The Government have given careful consideration to a review of Operation Conifer but have concluded that there are no grounds to justify review or intervention by the Government.
Will the Government heed the view expressed unanimously across this House in a debate last week that justice for Ted Heath demands the establishment of an inquiry, which they fully accept they have the power to set up? Will they stop evading their responsibilities?
I thank my noble friend for his question and respect the strength of feeling that he has on this matter. However, he is aware that my right honourable friend the Home Secretary has already set out his reasoning for not instituting an inquiry, in his letter to the noble Lord, Lord Armstrong, of 10 October. To recap on that: he has considered carefully the proper role of the Government in what is clearly a very sensitive matter; he notes the extensive scrutiny to which Operation Conifer has already been subject; he points out the national guidance that is being reviewed by the College of Policing; and, most importantly I think, he reflects that the inconclusive nature of Operation Conifer cannot be resolved in the absence of Sir Edward’s account of these events—that cannot be resolved.
My Lords, from my reading of the Minister’s speech on 11 December, it appears that the reputation of a deceased person cannot be cleared because, sadly, he obviously cannot be interviewed. In view of the dangers of historic complaints and the concern expressed in your Lordships’ House, will the Government seek further specific advice from the College of Policing on appropriate guidance in the exceptional circumstances of naming a deceased person before charge?
The noble and learned Lord makes an important point. Clearly, the question around deceased persons is a subject of topical debate among a number of chief constables. The Government’s position is that it is right to investigate properly what are very serious allegations, but the decision on whether or not to investigate must be based on the merits of the individual case. Given the important independence of the police, it is for the chief constable or chief officer to decide.
My Lords, in producing the Operation Conifer closure report in October 2017, the Wiltshire chief constable said that in his view a judge-led review of investigation would not provide value for money, as opposed to the £1.48 million spent on his investigation. Did any of the seven outstanding complainants make an application for criminal injuries compensation? If so, did the Wiltshire police advise them to do so or support those applications, as they would be consulted after a complaint was made? If the Minister cannot answer, is it not possible that an inquiry might establish these very salient facts?
I thank the noble Lord for his question. I am afraid that I am unable to say whether any of the seven complainants making allegations applied for compensation, but I will check that and write to the noble Lord, placing a copy of the letter in the Library.
My Lords, I note the Government’s refusal, for which they must take responsibility, but surely the Home Office has a duty to ensure that police forces have the capability to run just and professional investigations into historical sex crimes that take account of the rights of the accused, the victims and the public good. What progress has the Home Office made in developing such a holistic approach?
The noble Lord is quite right that the balancing of the rights of different parties in these cases is extremely important. He will be aware that the Home Office has raised child sexual abuse and sexual exploitation as the sixth national threat and has applied significant funding, including from the police transformation fund, to address it. The Government remain committed to ensuring that victims receive quality support for both those who access the criminal justice system and those who do not.
My Lords, I realise that this is a difficult Question for my noble friend to face at, I think, her first time at the Dispatch Box, and she can get the feeling of the House very clearly. However, does she not accept, and would she not advise the Home Secretary, that what we have here is an example of an official state agency destroying the reputation of a deceased statesman, which is not a very healthy thing in a democracy? Will she pass back to the Home Secretary the fact that, aside from all the details of passing the buck on who is responsible and so on, good government has a responsibility to ensure that what is clearly a yawning injustice is corrected by an independent review?
My right honourable friend the Home Secretary has acknowledged very clearly that the situation as it stands today is unsatisfactory for all concerned. However, I reiterate what he wrote in his letter to the noble Lord, Lord Armstrong: that in the absence of hearing Sir Edward’s account of events, it will be impossible to resolve this matter but that no inference of guilt should be taken from the findings of the closure report. In response to the request from my noble friend Lord Sherbourne during the debate the other day, I have sent a copy of Hansard to the Home Secretary, highlighting the strength of feeling in your Lordships’ House.
My Lords, I welcome the noble Baroness to her second innings on this crease, and I can assure her that she can look forward to many more. It is unsatisfactory that the former Home Secretary declined to mount an independent review of this matter, saying it was a local matter for the local police and crime commissioner, who in turn said it was a national matter; he would like to see a review, but feels it is for the Government to do. We need to resolve this. I suggest to the noble Baroness that she get in touch with that police and crime commissioner and suggest that, if he commissions a review, the Home Office will pay for it. That is consistent with what happened in the original Operation Conifer, more than half of which was funded by the Home Office.
I respect the noble Lord’s thoughts on this, but as my noble friend Lord Young said the other day, this is well above my pay grade. It is not for me to overrule the Secretary of State, whose view is that this was a large operation involving several forces, but it was an investigation into one individual—albeit a very high profile one—and there remains no justification for the Government intervening in the case.
NHS: Waiting Times
To ask Her Majesty’s Government what assessment they have made of the effect of NHS Foundation Trusts offering private healthcare services on waiting times for NHS patients.
My Lords, since the founding of the NHS in 1948, NHS hospitals have been able to generate small amounts of additional income by treating both international and British private patients. Since 2010, this has remained well below 1% of hospitals’ total income. Any surplus created is used to improve the services that NHS patients receive.
I am grateful to the noble Lord for his Answer. I declare an interest: I am an ordinary user of the NHS. I do not have any private medical care, nor do I make any private payments. Is it not true that there are now over 4 million people on queues waiting for treatment in the NHS? Did he see the article in the Times last Thursday headed “Patients pay £1bn to jump NHS queues”? Chelsea and Westminster Hospital recently offered me insurance, terming it the best of both worlds. How many trusts offer opportunities for people to go private, and what is the effect on ordinary users of the NHS? Surely with the shortage of resources, it can mean only that they will wait longer than at present.
I am not familiar with the type of insurance the noble Lord is talking about, but would be delighted to see what he has been offered. The 2012 Act obliges income from non-NHS activities to be tied to a foundation trust’s principal purpose, which is,
“the provision of goods and services for the purposes of the health service of England”,
and that is the standard by which it should be held. He is right that waiting lists have been growing. The NHS is doing more than ever—2 million more operations in 2017-18 than in 2010—but we realise that we need to do more, which is why the Prime Minister made the historic commitment to increase funding in the NHS by £20 billion in real terms in five years’ time.
My Lords, is it not the case that people who can afford to see a consultant can jump the queue? In a civilised society, is that not wrong?
The noble Lord well knows that we live in a society which has a mixture of public and private provision. That is true of every public service in most countries of the developed world. The critical point is that we need to invest in our National Health Service, and that is something the Prime Minister is determined to do.
Has the time not come for a further review of the previous policy when the right honourable Member for Rushcliffe, as Secretary of State, allowed for a tax reduction or costs to be set against tax for those who take themselves off the NHS list for a particular ailment, thereby freeing up the NHS to carry on the work it should be doing and does so well?
I am grateful to my noble friend for the suggestion. I do not think that now is the time for such a use of public resources, but it is notable that over three-quarters of subscriptions for private medical insurance are paid for by companies as a benefit that they provide to their staff. That is an enlightened approach to looking after the welfare of staff that we want to encourage.
My Lords, the Minister has not answered the Question put by my noble friend, which was about the effect of this on waiting lists. Using the private sector to relieve waiting lists, particularly during the winter crisis, which hospital trusts were told they could do, suggests that the understaffing and underresourcing of the NHS is the problem. Who pays for that private sector use? Is it trusts or NHS England? Is the cost of the use of private hospitals set against the cost of providing enough funding to ensure that hospitals and primary care are fully staffed and resourced?
With respect to the noble Baroness, I think I did answer the noble Lord’s Question because there are two different issues. One is the offering of private healthcare services and the second is the use of private providers to carry out NHS-funded provision—something that has been going on in the NHS for a long time and was accelerated under the last Labour Government. Of course, if private or independent providers are used to reduce waiting lists under the NHS, the NHS pays and the patient does not pay anything.
My Lords, there is also a problem with the pipeline. Hospital beds are not clearing as patients recovering from surgery wait to get home or to less intensive settings. Had the Government’s Green Paper been published when it was due two years ago, NHS treatment might be available for those requiring surgery, so how long after its publication does the Minister expect the ideas in it to be fully implemented, so helping this situation to go away?
Is the noble Baroness talking about delayed transfers of care? Of course, it is a major issue. We know that there needs to be better integration between health and social care. The better care fund provides that. We have seen some improvement in delayed transfers of care and the Government made an investment for further beds to come on stream this winter, to ensure that there are more beds for people and that we discharge people faster from them.
Voyeurism (Offences) (No. 2) Bill
That the Report be now received.
My Lords, I want to make one or two observations. This is a simple but important piece of legislation with a clear purpose; namely, to close a gap in the law around the taking of upskirt images.
I am grateful for the positive way in which noble Lords have engaged in debate over the Bill. There is clearly a strong consensus that this behaviour be addressed, and I am pleased that noble Lords and Members of the other place have agreed that the Bill works as drafted, and that it will pass through this House unamended.
I would like to thank a number of noble Lords for their engagement with the Bill: the noble Baroness, Lady Chakrabarti, for her support throughout the process and for her commitment to ensuring that the Bill passes through this House rapidly; and the noble Lord, Lord Marks, and the noble Baroness, Lady Burt, for engaging in the debates, for challenging us to think about whether the purposes of the Bill are, indeed, fit for purpose and for raising the important issue of the onward sharing of non-consensual intimate images. I remain confident that we have taken the right decision on that matter by agreeing to review this first with the Law Commission. I also thank the noble Lord, Lord Pannick, and the noble and learned Baroness, Lady Butler-Sloss, for their contributions to the debate and discussion.
I consider that the review in two years’ time that we committed to in the other place will be a good opportunity to assess how these offences are working in practice. With that, I beg to move.
Student Tuition Fees and Maintenance Loans
My Lords, with the leave of the House, I will repeat in the form of a Statement the Answer given to an Urgent Question earlier today in another place by my right honourable friend the Chief Secretary to the Treasury:
“After its review of the treatment of student loans in government finances, the Office for National Statistics has decided that some of the spending on student loans will be included in the deficit when the money is first lent to students. This is a technical accounting decision by the ONS, whose independence we support and whose diligence we commend. It is for the independent OBR to decide how to reflect this decision in future forecasts, but the ONS has made it clear there is a lot to decide before the numbers are finalised.
I point out that this decision does not affect students’ ability to receive or repay loans. They can still get access to money to help with fees and the cost of living, and they will only start repayments when they are earning over £25,000. Moreover, this decision does not have any implications for public debt as the data and forecast already include the impacts of student loans, including repayments. The Government make decisions on taxes and spending at Budgets, and the OBR judges whether the Government have met their targets.
At the recent Budget, the OBR forecast for headroom was higher than its estimate of the impact of the student loans accounting change. The recent Budget also showed that the Government are meeting their fiscal rules with room to spare and that debt is beginning its first sustained fall for a generation”.
My Lords, this may be a technical issue but the decision helps to make the Government clean and honest in a crucial respect. The Minister will appreciate that what it does is to end the fiscal illusion of keeping student debt off government books.
The amount is not trivial: the ONS identifies £12 billion, which is just about equal to the sum the Chancellor treated as a windfall from the OBR when he was constructing his Budget. Of course, it gave him the chance to go on a small spending binge, mainly to the advantage of the better-off in our community, rather than those in greater need. Will the Minister explain how the Government will respond to this rupture in their fiscal targets? As I say, it is not a minor figure. What damage do the Government anticipate will be done to future student prospects and the service our higher education community provides? He will know that the decision has occasioned considerable anxiety in those circles. Does he welcome the end to the Government’s rather despicable practice of selling off part of the student loan book for a song, thereby ensuring that government coffers are filled but that the taxpayer foots the bill in the long run?
It is not correct to say that student loans are not on the Government’s books. Of course, the national debt does take into account the full cost of student loans—they are listed there. The question at issue, which was addressed by the ONS, was whether the repayment rates should be reflected in the deficit—the total is in the debt but not in the deficit—and it came down on the side of believing that that ought to be recognised in the year in which the loan takes place, rather than waiting until the end of 30 years to figure that out.
We do not mark our own homework on this. We follow the existing rules, as all Governments have done. The ONS has offered a view and made a recommendation, and we will follow that through.
My Lords, what most worries me is the distortion in decision-making that results in this silly game-playing with accounting standards. We saw it with PFI and with Network Rail and now, there is a great fear around the House that the student loan programme might be curtailed to improve the cosmetics of the deficit. Will the Government finally simply overhaul the way they handle the public accounts so that they are genuinely clear and transparent? The financial markets that are supposed to be most fooled by this managing of the deficit number simply deconstruct it so that they can see the underlying reality, so there is nothing to be gained except PR—and the danger of distorted decision-making.
We accept the ONS’s rules. The rules that she criticises are the same as those that were in place during the coalition years. People have pointed this out, and there is a debate about whether it is correct to book a loss that might or might not occur in 30 years in the year in which the loan is made. That is a reasonable debate to have. We do not make the decision; the ONS does. It has decided and we will follow it.
My Lords, is my noble friend aware that this was a recommendation of the Economic Affairs Committee of this House? One of the issues it focused on was the effect of counting the interest on student loans as income, which flattered the deficit and therefore provided some explanation as to why students were being charged as much as 6.3% on their loans. Given that we now have honest accounting on this matter, can we look forward to the Government implementing the committee’s recommendation that there be an immediate cut in the interest rate for student loans to 1.5%—the cost the Government bear in borrowing this money?
We of course looked at the report, as I am sure the ONS did, and its recommendations were influential. I take the point my noble friend makes about the interest rate at one level, but at another, it is graduated so only those earning more than £45,000 a year will pay the full 3% above RPI. Those earning over £25,000 would pay only RPI. All of these things can be looked at in the post-18 education review, which is under way and due to report next year.
My Lords, when is the review is expected to report? Could the Minister also give us the Government’s precise percentage figure for the proportion of loans expected to be repaid? My understanding is that the assumptions regarding that percentage are declining, which is part of the reason why the ONS has made this judgment.
As I said, the Augar review is due to report during 2019. It was set up in February 2018 by the Prime Minister and it will report to the Chancellor, the Prime Minister and, of course, the Secretary of State for Education. Regarding the assumptions, the ONS still has some work to do, as it said in its announcement; it will not come out with the correct figure until September next year. The working assumption on the amount of loans that will not be repaid, as used in the current calculations, is 45%. It is a matter for the OBR and the ONS to review that when they make their recommendations, which we will follow.
My Lords, I declare my interest as chair of Sheffield Hallam University. This is a welcome change to clarify the proper accounting treatment of what is a loan but not a loan in reality. This is the right way forward. Could the Minister clarify whether government policy on the Augar review will change in any way? It would be inappropriate for what is an accounting change to influence the policy decisions that come from that review.
The review will continue. Its terms of reference were set out by the Prime Minister in February, and they remain that inquiry’s terms of reference. To that extent, this is a separate issue. These factors might be taken into consideration in the wider debate on the shape of post-18 education. It is perfectly possible to do that.
My Lords, where loans are bundled and sold off, does that exclude the possibility of any of them being written off?
It does not make any change to the programme of student loan sales, which will continue as has been set out in the Budget.
My Lords, I do not understand that. The loans are sold off and the buyer expects to make a profit. He is not going to make a profit if he then finds that some of the assets are now withdrawn.
Perhaps I misunderstood the question—I do apologise. I thought the noble Lord had asked what the effect was on the programme of sales of student loans—to which the answer is that there is no change. He is asking a different question: what about loans that have already been sold and will there be an effect? Of course, for those loans the value of the assets will be a matter for the institutions and organisations that have purchased the loans to account for in the correct way on their balance sheets. If that is still not the correct answer, I will be very happy to meet the noble Lord and write to him to clarify.
My Lords, can my noble friend confirm that, had this change not been made, in 2050 the write-off in cash terms on the student finance book would be £1.2 trillion?
I cannot confirm that number: I will have to look at it. The reality with these things is that we set them out, we follow the rules set down by the ONS and the OBR and we report accordingly in the Budget Statements.
My Lords, will the Minister responsible actually confirm that should the Augar report recommend a reduction in the amount of student loan to £6,500, the amount that the ONS reclassification would result in would thereby be much smaller, but the majority of students would actually pay exactly the same amount, thereby disadvantaging universities without advantaging students?
I am sure that, for all those reasons, those arguments will be taken into account by the Augar review.
Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018
Motion to Approve
That the draft Regulations laid before the House on 17 October be approved.
Relevant document: 4th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A). Debated in Grand Committee on 21 November.
My Lords, these regulations will be made using powers in the European Union (Withdrawal) Act 2018, and will be needed only if the UK leaves the European Union next March without a deal. It is the duty of a responsible Government to prepare for a wide range of potential outcomes. A key element of this preparation is to ensure that the statute book continues to function, irrespective of the outcome of negotiations, and that there continues to be a well-functioning regulatory oversight regime for aviation. We set out in technical notices in September how this would work, and these regulations deliver some of those outcomes.
Specifically, the draft regulations before us ensure that the UK will be able to provide EU air carriers with the permits they would require to operate to the UK in the absence of a deal. Rules on ownership and control mean that UK-licensed airlines can continue to be licensed by the UK after exit day, and that the CAA continues to be able to deliver effective oversight of UK-licensed air carriers. The draft regulations also ensure that UK carriers can continue to wet-lease aircraft freely from the EU, meaning that they will have as much stability and continuity as possible regarding their ability to lease foreign-registered aircraft, and can continue to use their fleets as flexibly and effectively as possible. Finally, they ensure that rules governing public service obligations in aviation, which provide essential connectivity to outlying areas, can continue to operate as they currently do.
This SI is not about our negotiating position; it is purely correcting the regulations to ensure that we have a functioning statute book in the event of no deal. We are providing UK air carriers with certainty regarding the validity of their operating licences, stability regarding their ability to lease foreign aircraft, and continuity with regards to their regulatory oversight from the CAA. These regulations, along with others, aim to ensure that there is no disruption to air travel in the event that the UK leaves the EU without a deal. I beg to move.
Amendment to the Motion
At end insert “but regrets that the effect of a no deal exit from the European Union risks grounding all civil aircraft after 29 March 2019; and calls on Her Majesty’s Government to seek United Kingdom membership of the European Common Aviation Area in its own right to prevent such an outcome.”
My Lords, the awful spectre of a no-deal Brexit grows relentlessly day by day. Like lemmings, the Government are heading blindly towards a cliff edge. There is paralysis in the House of Commons. The Prime Minister seems to be manoeuvring to get what she wants, irrespective of what is best for the country. I am pleased that we have this debate on the Floor of the House. That is why I negatived it in Grand Committee, when the Government were trying to slip it in quietly behind the scenes in the Room next door.
However, most of the talk about a no-deal Brexit is fairly abstract to most people. The implications have not been sufficiently discussed or understood. They are potentially quite disastrous and this is only one of them—we are not talking about the lorry parks, the medicines or all the other problems. This relates just to aviation. Whenever anyone tries to raise practical issues in this realistic way, they are shouted down with the usual cry from the Brexiteers of Project Fear. We saw that in Scotland in 2014. In fact, there is a great deal to be feared from no deal—and this, as I say, is just one example.
The basic question is whether planes will keep flying between the United Kingdom and European Union destinations, and elsewhere, after 29 March 2019—and, if so, on what terms and at what cost. We have already discussed this on two previous occasions. It is no reflection on the Minister personally that satisfactory answers have not yet been provided, because she cannot provide what does not exist. I will try again to see whether she can do her best—I know she will.
As I have pointed out previously, there is a straightforward way of resolving Brexit-related aviation issues, at least in the short to medium term, if we go ahead with no deal. Access to the EU’s internal market for air transport could be retained by the United Kingdom simply joining the European Common Aviation Area, which is not restricted to European Union member states. However—and it is a big “however”—membership would require the United Kingdom to accept EU aviation laws, which ultimately would come under the jurisdiction of the European Court of Justice. So what was seen by the Prime Minister as a red line has in fact become a straitjacket in which the Government have put themselves so that they are unable to take this sensible action.
Surely this is an example of where realism should triumph over dogma. Is there anyone in this House—or indeed the whole country—who would deny the common sense of accepting that one condition in return for the guarantee that, after 29 March, whatever else happens it would be business as usual for aviation—a very simple way forward?
Whatever you think of Michael O’Leary in other contexts, he certainly knows his industry and needs to be listened to, and his company provides cheap flights for millions of people in this country and others. He says that if there a no-deal Brexit, flights will be grounded. So can the Minister give an absolute guarantee now that this will not happen? I say this now and I will say it again: whatever she says will be recorded in Hansard and when it comes to 30 March, we will be able to see—if we go ahead with no deal, which I hope we do not.
Is my noble friend aware of anyone in the aviation industry who thinks that Brexit is anything other than an extremely negative and potentially disastrous step forward for this country?
I do not. It is not just Michael O’Leary who has said that. I am trying to be briefer than usual, but if I was going to go on for longer I could mention many other examples. But if Michael O’Leary is wrong, we need to be told unambiguously that this is not one of the real threats from a no-deal Brexit.
Among the 700 statutory instruments required for the crazy prospect of a no-deal Brexit, the Secondary Legislation Scrutiny Committee drew special attention to these regulations because they,
“give rise to issues of public policy likely to be of interest to the House”.
That is why I negatived them in Grand Committee, so that we could have a debate in the House. That statement is certainly true, and the more we know about the potential implications, the greater the interest will be in this—and, I think, the greater the anger is likely to become. For example, how many people realise that it is not only flights within the European Union that are threatened by a no-deal Brexit? The whole basis of our aviation relations with the rest of the world is via the European Union. In all, the EU governs direct UK aviation access to 44 other countries, including the US and Canada. My second request for a guarantee is: what guarantees can the Minister give today on a smooth transition, which means no groundings or delays, for these routes beyond? Remember—we are going to keep careful note of this.
Also, what steps have been taken to guarantee that our safety and maintenance regimes, which again are framed within the EU regime, will be acceptable to every country in Europe and the wider world after 29 March? According to the European Aviation Safety Agency, certificates previously issued by the CAA before exit day would no longer be automatically accepted in the EASA system after 29 March. Has there been any progress on a definitive answer to the massive implication of that statement? How is it to be resolved?
When we last discussed these matters, the Minister was unable to say how many extra staff the CAA has taken on, or will take on, for its hugely increased workload. This is one of the many costs of preparing for Brexit; it is already taking on more staff. Can she give us an indication today of how many staff will be needed to deal with route licensing in that hugely increased workload, as well as its other responsibilities? These are huge questions. We are only three months away from our potential exit from the European Union, unless some hand of fate intervenes. We do not want vague assurances that discussions are continuing. They will guarantee nothing, and both business and private travellers now need specific, hard and clear assurances from the Government who have led us into this cul-de-sac.
I am not going to press this to a vote today. I would have liked to have done so, but some of my colleagues have said, “Let’s give the Government an opportunity to answer these points”. It is not because I am in any way satisfied, but I will give the Government the opportunity to make their explanation and give us the guarantees today. I am sure that the Minister will recognise that this in no ways absolves the Government from finding a solution that avoids a no-deal Brexit, thereby eliminating the extremely serious threats to civil aviation that we are discussing. Let us hope that sense prevails and we are not faced with a no-deal disaster—otherwise I believe that the kind of things I have predicted today will cause tremendous problems after 29 March. I beg to move.
My Lords, I am delighted that this little debate has been called. I declare my interests at the outset, as a former transport spokesman in the European Parliament and a one-time rapporteur on a civil aviation report. Subsequently, I was a spokesman in the House of Commons for the Conservatives when in opposition.
I would like to put a number of small questions to my noble friend the Minister today. The House has been particularly well served by the Secondary Legislation Scrutiny Committee’s report on these regulations, which raised a number of policy issues that need to be addressed. I must say that I find the amendment to the Motion that the noble Lord, Lord Foulkes, has put before the House quite attractive.
My question relates to the implications for air service agreements with the EU and the EEA. There is also a broader question which does not seem to have been addressed in these regulations which I know is causing great concern. I omitted to say that at the time I married my husband he was an airline executive and is now in receipt of a pension from Delta Air Lines. I have not consulted him on my notes today, but perhaps it would have been better to have done so.
American carriers are concerned about cabotage and their right to fly internally within the EU. We are currently part of the common travel area. Will my noble friend address what happens when the United Kingdom leaves the European Union on 29 March regarding the fourth and fifth freedoms and US and other international carriers? That does not seem to be addressed in this regulation, but I know it will be exercising many of the airlines at this time.
Page 4 of the Secondary Legislation Scrutiny Committee’s report raises a number of issues and I think the House will take a great interest in the Minister’s reply. Paragraph 16 states:
“In the event of no agreement, EEA airlines will now also need to apply for a foreign carrier permit to operate in the UK”.
As suggested, I would like to press the Minister about the basis on which these expectations are founded and what co-operation and negotiations she is having with EU carriers to ensure that the necessary permits will be in place before 29 March so that there is no gap in aviation post Brexit. How long does the Minister think it will take to apply for these permits? What cost will there be to the airlines in this regard? Will she take this opportunity to correct what I hope are incorrect newspaper reports over the weekend that passengers are being told not to fly after 29 March next year because it is all too difficult to know what rights will be in place and what permits will be required for passengers to apply for visas or permits to travel?
I would also be grateful for a response from the Minister on this question. When she referred to the current wet leasing arrangements, she said that this will be in relation to reciprocity. How will this carry on after 29 March, particularly as it is understood that carriers may not benefit from the current arrangements once we have left the European Union?
The amendment to the Motion tabled by the noble Lord, Lord Foulkes, asks for UK membership of the European common aviation area. Does my noble friend have a date for the application that we intend to make to that area?
I shall conclude with a general point. I understand that these regulations might have been put forward as a draft negative, in which case I am not sure that we would have had the chance to consider them. If that is the case, the House was given a very clear understanding during the passage of the EU withdrawal Bill that no policy should be decided by secondary legislation and that all policy should be decided by primary legislation. My fear is that the statutory instrument before the House today is getting perilously close to determining policy. I hope that the Government will put down a marker that when it comes to other Bills, such as the Agriculture Bill and the environment Bill, no policy will be applied through regulation but will be in the Bill. When we were in opposition that was always our very clear understanding.
My Lords, I can well understand the sense of frustration that led the noble Lord to table his amendment. Indeed, “sense of frustration” is a massive understatement. The chaos which has prevailed in the Government for more than two years has turned lately to a deliberate intention to frustrate the will of the people and a determination to stifle debate in the other place and run down the clock to a point where MPs will be denied any meaningful vote. The chaos is not helped by the antics of the leader of the Official Opposition, to whom we would normally look for some guidance. A completely blank space is there, so it is good to see the spirit being shown here by the noble Lord, Lord Foulkes.
I was in Brussels at the weekend—I go there frequently for family reasons. I talk to people who live there, both British and many other nationalities. Over the months, I have noticed their sense of sadness turn to irritation and then to frustration; now, they are almost laughing at us, because of the chaos we are in. They are doing it with great sadness, because they have always looked to the British as the people who would get on with it and make the sensible decisions.
Last week, the EU Sub-Committee on the Internal Market, of which I am a member, reviewed the evidence that we had a year ago from representatives of the aviation industry. Then, they had brushed aside the possibility of a no-deal Brexit when we put that question to them as simply not a likely scenario or not credible. They also stressed the need for their industry to have the deal done by the end of August or September this year at the latest. We are now 70 working days away from 29 March. We are asking our businesses and our industries, and not just the aviation industry, to do an impossible job. Unless we just carry on as we are, it is too late for them to prepare for any change in situation.
This SI is part of the Government’s rather pathetic preparations for a no-deal scenario. When we discussed it in Grand Committee a couple of weeks ago, the Minister still managed to sound pretty confident, but a lot of plans have come unstuck since that time.
In Britain, we have the third largest aviation industry in the world. We are a nation that loves to travel and we have a highly competitive aviation market based largely on cheap air fares. If there is no deal, UK and EU airlines will lose the automatic right to operate services between the UK and the EU without the need for advance permission from individual states. The Minister told us that the Department for Transport expects to grant permission for EU carriers to fly to and from UK airports and for that to be reciprocated by other countries in the EU. However, a more recent report of the Secondary Legislation Scrutiny Committee on another, related SI—the draft aviation safety regulations—indicates that the European Commission has confirmed that licences, certificates and approvals issued by the CAA before 29 March will no longer be automatically accepted in the EASA system by other EU countries after exit day. The DfT’s hope of mutual recognition after a no-deal Brexit may be overoptimistic.
One thing is for certain: the CAA will have to shoulder many more responsibilities, some of which are set out in this SI, in the other SI to which I referred and beyond. We will have to consider those other SIs in future. Can the Minister explain to us in detail what additional resources have been given to the CAA already and what more resources the Government plan to give it in future?
These additional resources come with a hefty price tag—for taxpayers, who will have to fund them directly but also for passengers to fund in future. In future, UK licensed air carriers will need both a route licence and an operating licence to provide services outside the UK. There are also implications for pilots and cabin crew, with the question of whether their qualifications and licences are recognised in the rest of the EU. They are likely to need to have their qualifications and licences agreed in the EU as well as the UK.
There is a whole picture of increasing complexity for companies trying to operate in a highly competitive market and for the individuals working in the industry. Complexity means additional costs—to be paid, ultimately, by customers, in a market that cuts costs to the bone to be competitive.
As the noble Baroness said, at the weekend, we heard that government departments were gearing up to warn potential customers not to book holidays for the period after 29 March. This has until now been the great unspoken fear of our travel industry. Anyone here who has not heard a friend or contact refer to the fact that they are deferring holidays in the spring may be unusual. There is a definite sense among the public that it will not be a good time to go abroad.
Whatever the situation and whatever the truth behind what was in the media this weekend, it is now out there in the open. It is bound to do considerable damage to the companies concerned. Can the Minister tell us exactly what government advice is on this, for the sake of the passengers, the customers and the aviation industry?
Finally, the Minister suggested that there may be up to 70 SIs related to transport which flow from Brexit. So far, we have seen only half a dozen or so—the tip of the iceberg. How do the Government plan to manage the rest in the timescale? As the noble Lord, Lord Foulkes, has shown today, along with the noble Baroness, Lady McIntosh, here in this House we will not be willing just to nod them through. We expect to look at them in considerable detail.
My Lords, I extend my commiserations to the Minister for having to defend an impossible policy today. Nobody engaged in this business thinks that what we are discussing today is anything other than ridiculous: dismantling our entire existing system of civil aviation regulation, mutual recognition and European supervision and the rights of carriers to operate in different countries, all for the pursuit of an ideologically crazed venture which never at any point focused on issues of aviation and travel within the European Union.
None the less, having extended my commiserations, I point out that the Minister does have great responsibilities to the House and to Parliament. As the noble Baroness, Lady Randerson, so rightly said, people are making real travel decisions based on their fear of what may or may not happen from the end of March next year. It is almost unbelievable that people should be cancelling their travel plans and not arranging holidays for next Easter and summer, due to their fears of what will happen because of inadequate government preparations for our relations with our European partners. In the House of Commons yesterday, the Prime Minister herself ramped up the real possibility of a no-deal Brexit in a big way and posited it as the main alternative to the passage of her deal. It is hard to exaggerate how irresponsible that was on her part, because almost nobody in Parliament believes that this deal is going to go through in a month’s time. The Prime Minister is saying to Parliament, and to the country, that the most likely scenario now facing the country is that there will be no deal at the end of next March.
All of the concerns raised in the reports we have been debating today, leading to profound discontinuities and companies and individuals in this country experiencing massive economic and social damage, will come to pass. At the moment, we are just talking about one small fraction of aviation, but we face an extremely serious situation. As the noble Baroness said, this is just one set of regulations. There is a string of regulations relating to the complex and difficult area of aviation safety which I hope will come to the Floor of the House because they involve extremely important issues. There are dozens of other transport regulations.
I am told—because I know one or two things about what goes on in the Noble Baroness’s department—that a significant proportion of the staff in the Department for Transport are now working solely on Brexit-related issues. This is part of the reason for the massive cost overrun on Crossrail, which is not being delivered on time. We have inadequate supervision of HS2—we could continue down the list. There is only a certain amount of expertise, energy and capacity in Whitehall and at the moment, it is all being sucked in by Brexit, including the extremely valuable time of the noble Baroness and other Ministers in her department, which is having to be spent dealing with proposals for what happens if we crash out of the EU in three months’ time, rather than staying in. I suspect that the noble Baroness agrees with almost everything I have said, although she cannot say it quite like that. All this is worth saying because we are going to have this time after time, day after day, between now and the end of next March if we carry on with this present process.
My noble friend Lord Foulkes has done a great service to the House by bringing up this matter and moving his amendment. I was surprised when he said he was not going to push it to a vote. Indeed, I was little short of astonished, as my noble friend never knowingly undersells when it comes to fulfilling the duties of opposition. I cannot believe that, at this late hour, he is going to wimp out of pushing this to a vote. I hope he has not come under pressure from these people called Whips, who apparently exercise some influence in this House. I cannot think of any good reason for not pushing it, since the matters raised in his amendment are of profound public policy concern. I cannot think of an issue that this House has more of a duty to raise than this: it goes to the heart of the continuity of our transport arrangements. It may be that the noble Baroness gives such an impressive and detailed reply that my noble friend will not feel he needs to press this further. However, to give him some slight encouragement, if the reply is not of the calibre he would expect, giving give him absolute assurance of continuity in our transport arrangements at the end of next March, he might think of pressing the amendment. He might find that one or two other noble Lords will be with him in the Lobby. I might even be prepared to be a Teller with him.
It is not just about a vote at the end of this debate. We have got to send a message to the Government that we are on their case, regulation after regulation, when issues of this variety come before the House between now and the end of next March.
As my noble friend said, there are going to be dozens, scores—maybe hundreds—more of these SIs. We need to keep a very close watch on them in Grand Committee and make sure that the important ones are negatived and come here. We may have many other opportunities for considering them, moving amendments and even voting. Even if he does not have the excitement today, I think there are going to be many other opportunities.
I entirely agree with my noble friend and with the noble Baroness, Lady McIntosh, who rightly said that issues of first-order public policy were being raised in regulations. At the moment, whether they come before the House is almost entirely random. I also say in passing that there is a growing sense of frustration about this. The House is about to go into Recess in what is—let us be frank—a national crisis. It is going into Recess on Thursday and not coming back until the second week in January. By then, we will have literally a matter of days before we leave the European Union. We should be doing our duty and assembling here in Westminster and debating these issues regulation by regulation from the beginning of the new year. I might have something further to say about that when the Motion for the Adjournment comes forward on Thursday.
Turning to the specific issues at stake here, the situation is very serious. The report of Sub-Committee A of the Secondary Legislation Scrutiny Committee, which examined the regulations and—I echo the Baroness—did an excellent job on these and others, says of air carriers that,
“in the event of ‘no deal’ the UK expects to grant permission to EU carriers to operate at UK airports”.
The noble Baroness, Lady Randerson, said that part of the reason why we have such a big aviation sector is cheap airlines. They are part of the reason, but it is also that in Heathrow, we have Europe’s preeminent hub airport. It is one of the biggest earners for this country in terms of international income and the promotion of inward investment, because it is so successful. Anything that promotes discontinuity in operations at Heathrow will be lethal to its success, to our ability to attract inward investment and to be an aviation world leader in future. If our European partners and other European airlines think that we are not going to put in place all the regulations necessary to ensure that Heathrow operates completely smoothly and with no discontinuity whatever, they will very rapidly—the noble Baroness is nodding because she understands this completely—move their operations to Frankfurt, Charles de Gaulle, Dubai or other international hub airports that are at least as accessible as Heathrow in terms of facilities. The stakes are extremely high: one of our major national industries could be at stake if we get this wrong.
The Select Committee said that,
“in the event of ‘no deal’ the UK expects to grant permission to EU carriers to operate at UK airports. We expect this to be reciprocated by EU states granting permission to UK air carriers to operate to points in the EU. If a multilateral agreement with the EU can’t be reached, we would seek bilateral agreements with individual states”.
Buried in those words are matters of huge complexity and difficulty. Not only would we need a bilateral arrangement for each of the 27 other member states of the EU in the event of no deal; as my noble friend Lord Foulkes said, there are also the other 144 arrangements that we have in place which govern our international aviation. When the Minister replied to the heated debates in Grand Committee on these issues and was invited to give an update on the state of the negotiations with our 27 EU partners on the reciprocal arrangements and the other countries that are covered by them, she was unable to give a great deal of information. She said that,
“we are having conversations with the Commission and the member states about a wide range of issues. I am not able to give further detailed information at this moment”.—[Official Report, 21/11/18; col. GC 21.]
Is the noble Lord able to say when the discussions can be kicked in with the member states, or does the Commission have total ownership of the situation until such time as Brexit actually comes about?
That is actually a question for the Minister, but my understanding of the situation—the Minister might correct me—is that we are, at this moment, having bilateral discussions. Indeed, they are, in effect, negotiations, because we have to make preparations for what will happen in the event of no deal with our 27 other member colleagues in the EU and the other countries with which the EU currently has bilateral arrangements. They must be taking place, because if they are not, we risk, in the event of no deal, having no legal basis for the operation of a substantial part of our aviation industry from 29 March.
Because this is a matter of the utmost gravity, I invite the Minister to update the House on what is happening with these conversations. Can she give us an absolute assurance—I echo my noble friend Lord Foulkes—that the bilateral arrangements will be in place with all the other 27 member states of the EU and with all those nations with which the EU has bilateral arrangements, which cover all the matters in these regulations, so that there will be no discontinuity whatever in air services from the end of next March?
Nothing the noble Baroness said in Grand Committee on 21 November would give anyone any reassurance that that is the case at all. On the contrary—I will not quote at length from Hansard—she made reference to a forthcoming meeting of the Council of Ministers, of EU Heads of Government, and said that she hoped that further progress would be made, all of which left me feeling profoundly concerned at the inadequate state of our preparations at the moment and convinced of the need for something substantial to be sure that we will not face a crisis in a few months’ time.
I will not continue at greater length, because I want to hear what the Minister says, and we might intervene on her when we hear further detail from her, as this is important. The issue that underlies this, which is of extreme importance, is that almost nobody who deals with any of the great industries of our country thinks that it is viable for this country to leave the European Union on 29 March next year with literally no deal.
Indeed, on the Government’s own policy in respect of no deal, we are using surreal language here: words which purport to mean one thing but mean another. The language of “no deal” is not in fact of no deal. The reciprocal arrangements we are talking about, and which the Minister referred to, are a deal; each of them involves a deal between this country and another country. It may not be a comprehensive deal which involves a treaty extending to 580 pages, like the EU withdrawal agreement, but each of them is a deal. The consequence of having literally no deal is no planes flying from Heathrow and the closure of one of our major transport hubs, so there will have to be a deal. The only question is what kind of a deal: a comprehensive deal of the kind the Prime Minister has negotiated, or individual and bilateral deals of the kind covered by these regulations, which will need to be extremely comprehensive, covering all the issues currently under the surveillance of the European Union authorities to ensure that there is not a discontinuity.
It is of course hard to escape the conclusion that the right thing to do is to stay in the European Union and not go down this track at all. I think we will get to that through a referendum; the Prime Minister has simply kicked the whole thing down the line for another month. But since it is our duty to make preparations for what happens if a disaster takes place in public policy next month, we look forward to the Minister updating us on the state of these bilateral negotiations. In particular, we will listen carefully to her giving this House an undertaking that there will be no discontinuity whatever in air services from this country to other European countries and international destinations on 29 March next year.
My Lords, all noble Lords who have spoken so far have raised serious concerns about the future of the air services after 29 March. People will take very seriously the statement at the weekend advising people not to travel by air after 29 March—which I am sure was denied by everyone in whose interests it was to deny it. Apart from not knowing whether flights will operate, if you are going on holiday or on business there is an equally serious question as to whether, if you have booked a flight after 29 March, you will get any compensation if it does not fly, and from whom one will get compensation. It could be the complete end of the cheap holidays and cheap flights as we know them, which have been so successful here.
I will not repeat what other noble Lords have said, but a statement came to me last week from people in the ports sector, which I think is probably the same in that it covers all sectors. It said that all industries involved had to sign non-disclosure agreements before government would talk to them. This might be why we do not hear too much from the sector: it is frightened of saying things that, frankly, the Government might not like and of thereby being excluded from further negotiations. Perhaps the noble Baroness, when she responds, could explain why the Government think it is necessary for industries, which will be severely affected by this, to sign non-disclosure agreements. Their businesses are at stake and it is perfectly reasonable that they should know from the Government, with maximum transparency, what is going to happen, why and when. They can then judge what the effect will be on their businesses. My gut feeling is that it would be very unwise to book a holiday or a business trip after 29 March, until we receive the kind of assurances from the Minister that many noble Lords have requested.
My Lords, the Minister might care to respond to another point. I recognise that the issue of air services is before us, but does she agree with—or can she comment on—the words of the Minister for European Affairs in France, who has said that the same issues apply to the Eurostar which will not be able to travel post-Brexit? Perhaps she would be kind enough to give some consideration to that point.
My Lords, the whole House should be grateful to my noble friend for having alerted us again to this crucial issue. There has been a lot of talk about holidays, but we must remember that a lot of families cross boundaries with sick or increasingly frail relatives; certainty about travel is actually crucial to their way of life. I cannot help feeling a little cynical; I believe many members of the public who have been blindly supporting the idea that “we must get out” will have a rude awakening when they are hit by the realities of what will happen on the travel front.
This is not just about air traffic, which we are talking about today. What disruption will happen to other means of communication, such as Eurostar or the ports? No definite information is available. Over and over again, those of us who are active in the community hear, for example, from business people, “Please just get some certainty into the situation; it is impossible to operate in the current atmosphere of uncertainty”. That also applies to universities and higher education.
There is one thing we must be very careful about: if one set out to design a nation that was utterly dependent on international relations in all aspects of its economic, private and social life, it would be difficult to come up with a better example than the United Kingdom. Central to a Government’s approach to what is happening should be how we get this right and preserve what we have. We must be careful not to join, inadvertently, a sort of emergency operation that asks, “What are we going to do about the catastrophe about to overtake us?” The real challenge is to say, “We must not let this catastrophe overtake us”. It is immensely urgent that we ensure an opportunity is given to all sane people in Britain, and in Parliament, to say, “No, we cannot go on with this nonsense; we really have to think again about leaving the European Union”.
My Lords, I start by declaring my interest. I am in receipt of what is, for me, a substantial British Airways pension and, if this disruption were such as to cause British Airways to go broke, I would not get all of it. I have consulted the Registrar of Members’ Interests and am assured that the interest is sufficiently tenuous to allow me to speak. I have a rather more acute interest in the fact that my wife has planned a holiday in the Canaries on 18 April.
I will speak from a presumption of no deal. There is an acceptance that the execution of the intent of this SI will depend on agreements. As I have to take part on probably 70-plus SIs between now and the end of March, I usually avoid general debates on Brexit, but when agreeing these SIs, it is necessary to look at two issues. First, are they technically valid? I have looked through them and there has been a good debate on them in Grand Committee, and I think that they are technically valid. Secondly, what is their chance of being successfully executed? I will speak to only the second question.
The whole of this SI depends on there being agreements to carry on flying. Indeed, in Grand Committee the Minister said that the Government would be seeking multilateral agreements with the EU in order to allow aviation to continue. However, she said that, failing that, we would have to fall back on bilateral agreements. There will be a requirement for 27 bilateral deals with the EU and, if I have read the briefings properly, 17 bilateral deals with non-EU countries presently enabled by EU agreements, including the US—a US under a President who strongly believes in America first. This would mean that if a multilateral agreement were not concluded, 44 sets of negotiations would have to be completed by 30 March next year.
The logic of why that will work is set out in a number of places, including at one point in the Explanatory Memorandum before it was revised, but I thank the Government for publishing a document called Flights to and from the UK if there’s no Brexit deal, which was published on 24 September 2018. It explains the logic of why we will succeed in achieving, first, traffic rights and, secondly, appropriate safety recognition. The paragraph on traffic rights states:
“If there is ‘no deal’ with the EU, airlines wishing to operate flights between the UK and the EU would have to seek individual permissions to operate from the respective states (be that the UK or an EU country). In this scenario the UK would envisage granting permission to EU airlines to continue to operate. We would expect EU countries to reciprocate in turn. It would not be in the interest of any EU country or the UK to restrict the choice of destinations that could be served, though, if such permissions are not granted, there could be disruption to some flights”.
So, if there is not a multilateral deal, the whole concept falls back on an expectation that the EU will reciprocate. A similar section on the same page relating to safety says:
“The UK would expect this recognition of equivalent safety standards to be reciprocated by the EU in its ‘Part-TCO’ authorisations”.
That is the logic behind the presumption that this SI will work. However, it did not seem to be a very strong assurance, so I read the document with a little more care. Another paragraph states:
“The European Commission has previously acknowledged”—
here, there is a link to a website—
“that a ‘bare bones’ agreement on air services would be desirable in the event of the UK leaving with ‘no deal’”.
I thought, “That’s a bit better. It sounds like good solid stuff”. I took the trouble to seek out the publication on that website. It turned out to be a series of slides used for an internal EU meeting. It discusses airline preparations, but it does not get round to a no-deal situation until slides 11 and 12. There, it says:
“If no-deal, EU-wide contingency measures to ensure basic connectivity”,
and just adds a bullet point:
“Bare-bones EU-UK agreement”.
Over the page it goes through a whole series of jumps, and almost en passant repeats,
“if no-deal, EU-wide contingency measures to ensure basic connectivity”.
As an assurance, I do not find that very warming. Putting these slides on the fire would create more warmth than their words.
If we are to return to individual bilateral agreements, 44 nations will seek improvements in their deals, as they always did before. Admittedly, my experience in this area is some 30 years old. But aviation is a highly prized national issue, and bilateral agreements—even the simplest ones—are negotiations. Those negotiations will take place in a tense and acrimonious atmosphere. I have done a lot of negotiations in my life, and my view is that they consist of emotion, power and logic. Sadly, I have always found that logic comes a rather poor third.
In terms of the emotion, we have got to remember that this is where we have failed to conclude a deal with the EU. It is difficult to imagine a more toxic atmosphere. In terms of power, it would be a stand-off as to who would be hurt more. The logic might come in eventually.
So, what progress can the Minister report with multilateral and bilateral negotiations? There is considerable activity needed from the airlines; what procedures are the Government putting in place to ensure they are doing their bit? It is no good saying it is their responsibility. As the Minister will have learned from the debacle over the railway timetables, the Government turning round and saying that it is their responsibility is pretty ineffective. If it goes wrong, the Government will be blamed, and I will ensure that happens.
I hope and pray that the Minister can convince me that my scepticism is ill founded. But surely the lesson is that a no-deal outcome is wholly unacceptable and we should all work together to stop that happening.
My Lords, I thank the noble Lord, Lord Foulkes, for initiating this debate, and other noble Lords for their contributions. Following the speculation in the media over the weekend, I am also grateful for the opportunity to provide clear reassurance on the Floor of the House that planes will continue to fly after 29 March 2019, and that people can continue to book their holidays with confidence.
As I said, these regulations are an important element of this Government’s sensible contingency preparations. Obviously the debate has not focused quite on the detail; as the noble Lord, Lord Tunnicliffe, said, we focused on that in Grand Committee, so I will address my comments to the contributions from noble Lords.
In the amendment to the Motion, the noble Lord, Lord Foulkes, calls on the Government to seek membership of the European common aviation area. That is a multilateral agreement and, as he will know, signatories to it are the EU and its member states, Norway, Iceland and the western Balkan states. We are already putting in place replacement arrangements with the eight non-EU signatories for that agreement. We have got three—very nearly four—of those agreements signed, and others are progressing well.
It would not be straightforward for the UK simply to sign up to the ECAA agreement. That would require the active consent of all the EU 27 and the eight non-EU parties to that agreement. As I said, we have arrangements in place with many of the non-EU parties. As for the EU 27, the Commission has been clear it that it will negotiate separately on that. As the noble Lord points out, the ECAA agreement also necessitates full and continued application of EU legislation and, with regard to the interpretation of the agreement and the associated legislation, it is the European Court of Justice that will decide. As the noble Lord will be aware, the Prime Minister has set out red lines for the UK’s future relationship with the EU, one of which is to end the jurisdiction of the ECJ in the UK.
Civil aircraft are not at risk of being grounded after 29 March. That would be in nobody’s interests and is entirely avoidable. As Donald Tusk said earlier this year, he is,
“determined to avoid that that particularly absurd consequence of Brexit that is disruption of flights between the UK and the EU”.
That confidence is shared by industry as well as the UK Government. Ryanair, to whom the noble Lord referred, last month reported that its forward bookings for flights to and from the EU remain strong, as we have seen across the sector. Its chief marketing officer was quoted as saying that even if we were in a no-deal Brexit, flying would be fine.
The noble Lord, Lord Adonis, mentioned Heathrow. He is quite right that we need to ensure that we have these regulations in place to avoid disruption. John Holland-Kaye of Heathrow said yesterday that he was confident that planes would still fly and people could book with confidence. But I understand noble Lords’ concerns and it might be helpful if I set out in a little more detail our position and the Commission’s published position on this.
We set out in September in our technical notices, to which the noble Lord, Lord Tunnicliffe, referred, that we envisage granting permission to EU air carriers to operate to the UK. In its own contingency action plan published on 13 November, the Commission set out that it would also bring forward measures to ensure that UK air carriers could operate to the EU. Explicitly, in its contingency planning note of 13 November regarding traffic rights, to which this statutory instrument refers, the Commission said that it will propose measures to ensure that air carriers from the UK are allowed to fly over the territory of the EU and make technical stops, as well as land in the EU and fly back to the UK. The Commission said that these measures would be subject to the condition that the UK applies equivalent measures, and we have provided that reassurance as set out in our technical notices and as this SI actually delivers.
On aviation safety, which is of course important both to ensure that planes keep flying and that we keep our passengers safe, the Commission has said that EASA will be able to issue certificates only once the UK has become a third country, which will not be until after we have left the European Union. But it said in its notice on 13 November that it would propose measures to ensure continued validity of such certificates for a limited period. Those measures will be subject to the condition that the UK applies similar measures. Again, we have set out that we will recognise the EASA certificates for up to two years in our technical notices. That position was detailed in the aviation SI that was laid earlier this month and will be debated in your Lordships’ House in the new year.
I can give an update since Grand Committee to show further progress. On 29 November, following a meeting between the EU 27, we received a further update from the Commission on its position. On market access, the Commission has confirmed that it will propose a regulation to ensure basic connectivity for EU-UK flights on the basis of reciprocity. On aviation safety, the Commission will propose a regulation for continued validity of type certificates and organisation approvals, and for UK certified parts and appliances placed on the EU market before the withdrawal date. On aviation security, the Commission has confirmed that it will adopt an implementing Act to list the UK for the one-stop security system, which will include cargo security. We do not yet have a timeline on that, but we are working closely with the Commission to deliver it. Noble Lords are quite right to point out the importance of the reciprocity in this, but we are delivering our commitments through this programme of secondary legislation. The EU has confirmed that it is doing the same.
Not all our aviation relationships are governed through the EU. We already have in place 112 separate bilateral agreements with other countries. They will continue as they are today as we leave the European Union. I can provide noble Lords with some updates on further negotiations around bilaterals. We have recently concluded a new bilateral air services agreement with the UK and the US. That is confirmed and signed. That will come into effect once the EU-US air transport agreement ceases to apply to the UK. That is a good deal that guarantees the continuation of our really important transatlantic routes. It means that airlines can continue to operate as they do now and it will allow them to develop new services.
We have also concluded agreements with many countries where the current arrangements are governed by EU-level agreements. We have concluded agreements with Albania, Canada, Georgia, Iceland, Israel, Kosovo, Montenegro, Morocco and Switzerland. We are working very closely with other international partners to agree replacement bilateral arrangements designed to come into effect with the other countries currently governed under an EU agreement. Those countries are Bosnia and Herzegovina, Jordan, Liechtenstein, Macedonia, Moldova, Norway and Serbia. Talks on those are progressing well. We expect these arrangements to be in place well ahead of exit day.
Some noble Lords asked about resources for the CAA. The CAA is of course making appropriate contingency preparations to deliver the continuity of service we want. That includes ensuring it has the appropriate staffing levels to deal with any increase in workload. It is recruiting 59 additional staff in preparation, 39 of whom are already in position. It is important to remember that the additional functions the CAA would take on in a no-deal scenario are limited. They are mostly for aviation safety, particularly in design certification. The EASA system works for the most part on the basis of automatic recognition of certificates issued by national authorities, so the CAA is already our competent authority for most approvals. As I said, both our and the EU’s positions have said that we will recognise those certificates for a limited period after we leave the European Union.
I turn to some questions from my noble friend Lady McIntosh. I again add my thanks to the Secondary Legislation Scrutiny Committee for its continued work on our lengthy SI programme. It brings many SIs to the House’s attention, and I thank it for doing so. My noble friend asked about the CAA burden. I have already mentioned its resourcing. Specifically on route licences, as I said, the CAA already provides regulatory oversight on all UK-licensed air carriers and has the resource in place to ensure it can continue to provide that oversight. All holders of a type A operating licence, which is the majority of aircraft over 20 seats, already hold a route licence. All holders of type B operating licences have already been individually contacted and invited to apply for a free route licence from the CAA. The CAA is absolutely confident that those route licences will be issued in advance of exit day.
My noble friend also asked about reciprocity of wet leasing. Maintaining the current wet-leasing arrangement is the right thing to do for the industry as a whole, as well as for passengers. We are making every effort to minimise disruption to aviation on a no deal. Maintaining the current system for wet leasing of foreign aircraft is part of that effort.
Noble Lords raised some questions about the transport SI programme. We are expected to lay approximately 65 EU exit SIs. That number is approximate because ongoing EU business means that further legislation might come into force. Of those 65 SIs we have laid 36 to date. That is over half. Of those laid so far, 18 have been affirmative and have been debated on the Floor of the House or in Grand Committee, and 18 have been negative. There are 14 aviation SIs, 10 of which have been laid so far. Noble Lords have referred to the important issues of safety and security, and passenger rights and compensation. Those SIs have been laid and will be debated early in the new year. The remaining SIs will be spread between now and exit day to make sure we have a fully functioning—
I am very grateful for my noble friend’s response. I asked a rather techy question about fourth and fifth-freedom rights, but currently there are routes that fly, for example, from London through Shannon to the US. Has that been resolved in the context of the new UK-US agreement to which my noble friend referred?
The current direct operations from the UK to the US will continue to stand. Obviously if there are flights through the EU that will be subject to the negotiations.
To be very clear, I am asking about routes that I think still operate from London via Shannon in Ireland to the States: has it been resolved that they will continue?
I am sorry if I was not clear. No, the current UK-US deal deals only with direct flights between the UK and the US. Obviously, a flight that stops off at Shannon will be part of our discussions with the EU.
I hope I have been able to provide reassurance on this. I think that the EU Commission has been very clear in setting out its position and we have been very clear in setting out our position. They are broadly the same position: they both rely on reciprocity. We are delivering our position through this series of statutory instruments and, as I said, the EU is working on a timeline of when it will deliver its position. While we are working hard to get parliamentary agreement to the deal with the EU, we of course have to continue to make responsible preparations to ensure that, in the absence of that agreement, we will be able to avoid disruption. This SI and the others we have debated and will debate over the coming months are a key part of those preparations. Both we and the EU have published contingency plans, of which these regulations are just one small element. Taken together, those plans will ensure that planes can continue to fly to and from the EU in the event of a no-deal exit. They will ensure that our legal and regulatory framework for aviation is ready so that flights can continue whatever the outcome of the negotiations.
My Lords, the Minister has been more helpful than she was in Grand Committee, and my noble friend on the Front Bench made a splendid speech referring to this guidance of 24 September. It says right at the end:
“This notice is meant for guidance only”.
If I were booking a flight to the Canaries in April I would take account of the next sentence:
“You should consider whether you need separate professional advice before making specific preparations”.
I am sure that that will be helpful for my noble friend. However, we have noted what the Minister said. All this work is being done, all these great people in the Department for Transport are working very hard indeed and it really is quite outrageous, as my noble friend Lord Adonis said, that they are being deployed on this work which we hope will be totally unnecessary when they could be doing something really useful. However, in light of the Minister’s helpful reply, I do not intend to press my amendment to a Division.
Amendment to the Motion withdrawn.
Non-Contentious Probate (Fees) Order 2018
Motion to Approve
That the draft Order laid before the House on 5 November be approved.
Relevant documents: Special attention drawn to the instrument by the Joint Committee on Statutory Instruments, 40th Report, 6th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)
My Lords, the title is instructive: “Non-contentious”. The purpose of the draft order before us today is to implement a new, more progressive banded structure of fees for a grant of representation, commonly known as a grant of probate. The banded fees relate to the value of the estate. These new fees come under the category of “enhanced fees” and noble Lords may be aware that in Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014, Parliament has given the Lord Chancellor the power to set certain court and tribunal fees above the cost of providing the service. The income generated by these enhanced fees must be used to fund an efficient and effective system of courts and tribunals.
Noble Lords will recognise the importance of a fair and functional justice system not only to court users but to society as a whole. The decisions made in the courts and tribunals convict the guilty, protect the innocent and help ordinary people take back control of their lives. This Government are committed to providing a world-class courts and tribunals system that supports victims and vulnerable people, is easy for ordinary people to use and maintains access to justice for all.
However, such a system requires proper funding. It has long been the case that users of our courts system contribute towards its costs, and we believe that this remains both relevant and reasonable as it reduces the burden on other taxpayers. Crucially, by asking those who use the courts to pay more where they can afford to do so, we are able to fund areas where we charge no fees to vulnerable victims and users: for example, for domestic violence and non-molestation orders, and for cases before the First-tier Tribunal concerning mental health.
The Government are investing £1 billion to modernise and upgrade the courts system so that it works even better for everyone, including victims, witnesses, litigants, judges and legal professionals. This includes introducing changes to our probate service, which offers an important, valuable and supportive service to those who are bereaved. The change to the probate service will aim to reduce the burden on those who are applying for a grant of probate. Some examples of how we are doing this include providing the public or their representatives with the option to initiate cases online; enabling applicants to pay more conveniently; and replacing the swearing of an oath with an online statement of truth.
In 2017-18 the running costs of Her Majesty’s Courts & Tribunals Service were £1.8 billion. We recovered only £710 million of that in fee income. That position is unsustainable, and it is right that we look to the users of that service to contribute more. Parliament understood the importance and value of our world-leading justice system and the financial pressure that the courts and tribunals service faces, which is why it passed the power in the 2014 Act to which I referred a moment ago. It is under this power that the Government have laid this draft order.
The order introduces a new fairer banded structure for probate fees. The fee payable is no longer a flat fee but instead relates to the value of the estate—a more progressive proposal. The new fees are fair and proportionate. Under the new structure, we are raising the threshold below which no fee is payable from £5,000 to £50,000, so that more modest estates are protected. That will lift around an additional 25,000 estates per year out of having to pay fees altogether. Overall, more than half of all estates will pay nothing, either because they are exempt or because they do not require a grant of probate. For those which pay, around 80% of estates will pay £750 or less. Moreover, the new model will mean that the revised fees will never be more than 0.5% of the value of the estate.
As noble Lords will know, the previous Government initially announced their plans to introduce enhanced probate fees on 24 February 2017, following a public consultation. The relevant draft affirmative SI was laid in Parliament soon after. The order was debated and passed by the Commons Delegated Legislation Committee on 19 April 2017, but the announcement of the general election meant that there was no time for it to be debated and considered for approval in both Houses.
Various criticisms were made of the previous order, and the Government looked very closely at these in deciding to reintroduce changes to probate fees. These concerns were centred largely on the level of fees rather than on the principle of a banded structure. The criticisms were that the fees were excessive. The Government accept this point and the revised fee scheme we are introducing has reduced fees payable at all bands. The highest fee payable has reduced from £20,000 under the previous proposal to £6,000 under this proposal. The new banded fee structure does not amend the underlying policy rationale and will retain the same progressive banded structure as the earlier proposal, in which the fee payable relates to the value of the estate. This represents a fair and proportionate fee payable for obtaining a grant of probate.
I acknowledge that the JCSI has drawn the attention of the House to this order, and the SLSC also reported concerns. I have also noted the concerns raised by the noble Lord, Lord Beecham, in his amendment, which are related to the SLSC report. Furthermore, I acknowledge the amendment tabled by the noble Lord, Lord Marks, which echoes points raised by the JCSI. I will therefore address these points in turn, which I hope will outline clearly the Government’s position in relation to these arguments.
The JCSI reported the draft SI for doubtful vires and unexpected use of powers, as it felt that the new fees amounted to a tax and questioned whether the imposition of this level of fees was anticipated when the primary power was approved. It went on to argue that the basic premise of a fee is directly related to the cost of the service. The SLSC also made these points but went further, arguing that, as a result of the savings envisaged as part of delivering a reformed probate service, the fees were disproportionate. I must respectfully disagree with both committees.
Section 180 gives the Lord Chancellor the explicit authority to impose enhanced fees to,
“prescribe a fee of an amount which is intended to exceed the cost of anything in respect of which the fee is charged”,
and that is what this order seeks to do. In doing so, the Lord Chancellor must have regard to, among other factors,
“the financial position of the courts and tribunals for which the Lord Chancellor is responsible, including in particular any costs incurred by those courts and tribunals that are not being met by current fee income”.
The Act is also clear that any income from these fees,
“must be used to finance an efficient and effective system of courts and tribunals”.
These provisions clearly demonstrate Parliament’s intention that the Lord Chancellor should be able to set fees above cost in one part of the system to subsidise other parts of that system, and to maintain the effective operation of the system as a whole.
The JCSI has suggested that the concept of a fee is subject to inherent limitations in relation to the service for which it is charged. Again, we do not accept this. The specific legislative provision in Section 180 of the 2014 Act breaks the link between the cost of the service and the fee that may be charged. This was clearly the intention of Parliament in making such a provision. The proposals in the order are consistent with the primary power and the assurances given to Parliament at the time the Bill was considered. This is not the first time that the Government have sought to introduce enhanced fees or fees which relate to the value of the issues at stake—for example, fees for certain civil money claims. For these reasons, we do not consider that the draft probate fees order is an unexpected use of the Section 180 power. We are using it in exactly the way that Parliament intended.
Finally, I have made it clear that, as the fee is not tied to the cost of the service under the enhanced fee powers, I disagree with the idea that the fee changes are disproportionate, in light of reform to the probate service which aims to make the service more efficient. As we have already made clear, users will experience a better system which has benefited from significant investment from the taxpayer. It is still right that the additional income is used to cross-subsidise in other areas where vulnerable users and victims are charged either no fee or a nominal fee.
More specifically, we have significantly reduced the fees at all levels compared to our previous proposal, which I believe responds to concerns about what fee is proportionate. We are clear that this is an application fee for a specific service: to obtain a grant of representation to deal with a person’s estate. This is distinct from general taxation, which is paid into a consolidated fund held by HM Treasury. Charging fees is justified as a way of funding our courts system to provide access to justice, which the Government are committed to maintaining.
I have already reminded your Lordships’ House that the Lord Chancellor, when setting these fees, is required to have regard to the financial position of the courts and tribunals. Another factor that must be considered is the principle that access to the courts should not be denied. In considering this fundamental principle of access to the courts, we have been careful to ensure that nobody will find themselves unable to apply for a grant of probate on account of the fee. These fees will never be unaffordable. The probate fee and any reasonable expenses are recoverable from the estate and determined by the value of that estate, so the executor will not be permanently out of pocket. Any difficulty in paying the fee will, by definition, be one of cash flow rather than affordability. I would nevertheless like to take this opportunity to set out the safeguards in place to support executors.
In most cases, we believe that the executor will be able to access funds in the estate to pay the fee—including, for example, bank accounts and savings belonging to the estate. HMRC data indicates that the average estate is around 25% cash, and the fee will never be more than 0.5% of the value of the estate.
We have been working with UK Finance, the Building Societies Association and the Money Advice Service. The industry has set out bereavement principles to encourage its members to support the bereaved and allow necessary payments to be made where it is possible to do so within the law. Furthermore, where an executor is not successful initially in accessing funds from a bank or building society account, the probate service is willing to write to the relevant institution to provide reassurance that the assets are needed to pay the fee. Other avenues of funding will also be available, including a personal or executor’s loan. In those cases where executors are unable to take advantage of any of these options, they can apply for a limited grant of probate to provide them with partial access to specific assets of the estate for the sole purpose of paying the fee. This application would not attract an additional fee.
We are confident that these fees will never be unaffordable, and it would be wrong to exempt certain estates from the fees based purely on the executor’s cash flow situation, leaving the taxpayer to pick up the tab. That is why the order also removes probate fees from the statutory help with fees remission scheme—because in normal circumstances fee remissions will not be necessary or justified. There is, however, a safety net for those rare cases that do not fall into the above categories. We have retained the Lord Chancellor’s power to offer a fee remission in exceptional circumstances, where the executor has exhausted all other options to pay the fee and would suffer undue financial hardship as a result. We intend to publish guidance on ways to pay for probate fees in which we intend to outline all the options for financial support. We are currently working with external stakeholders to ensure that this guidance is effective, and will publish it before any fees are changed.
I maintain that the legislation and Parliament’s intent is clear. Enhanced fees are appropriate to ensure the funding of an efficient and effective courts and tribunals system by allowing cross-subsidisation. Access to justice allows for people to defend and enforce their rights, and this can be maintained only if the overall system is sustained with appropriate resourcing. These new fees are progressive and proportionate and will help to provide a stable financial footing for the courts and tribunals service. I am clear that these fees will never be unaffordable and are paid for a service received from the courts service. I beg to move.
Amendment to the Motion
Leave out from “that” to the end and insert “this House declines to approve the draft Order, because it would be an abuse of the fee-levying power, since the proposed increased fees substantially exceed the cost involved in making grants of probate and would amount to a tax, which should only be introduced, if at all, by primary legislation.”
My Lords, my amendment is fatal, and I do not move it lightly. The Government propose to increase fees for probate applications from the current flat rate of £215 for individuals or £155 for solicitors’ applications on all estates worth £5,000 by introducing a sliding scale of fees rising from £250 to £6,000 on all estates worth £50,000 or more. The fee is to be banded with a maximum £6,000 fee kicking in at £2 million. These are dramatic increases. According to the impact assessment, the existing fees reflect average administrations costs. That is why a solicitor’s application costs less than an individual’s application, simply because it costs less to administer. For estates above £2 million, the increase is twenty-eightfold. Just that increase would be 27 times the actual cost of administration. The Government expect these so-called enhanced fees to generate a profit of £145 million a year, rising as estate values increase.
The noble and learned Lord relied in his all-Peers letter and relies today on Section 180 of the 2014 Act as, “clear authority to set fees above cost to cross-subsidise other parts of the courts and tribunals system”. He says, “The level of fee does not have to be related to the cost of the service and all additional income raised from enhanced fees can only be used to fund an effective and efficient courts and tribunals system”. He is quite right to point out that Section 180 permits,
“a fee of an amount which is intended to exceed the cost of anything in respect of which the fee is charged”,
but it permits only a fee, not a tax. These are probate fees and not court fees. The element of cross-subsidisation on which he relies is wrong in principle, because he is using a totally different part of the system to subsidise court fees.
The Minister has pointed out that a similar proposal was made in 2017, but with an upper fee of a massive £20,000, and he understated the outcry that it provoked. The proposal was not pursued to conclusion—anyway, the 2017 election intervened. Then as now, the draft SI was considered by both the Joint Committee on Statutory Instruments and by your Lordships’ Secondary Legislation Scrutiny Committee. Your Lordships’ committee’s current report, published on 21 November, states:
“The Government estimate that the revised fee structure will generate over £145 million in additional fee income in 2019–20, which they plan to use to pay the running costs of other parts of Her Majesty’s Courts and Tribunal Services. We wonder whether the House envisaged the power being used for this degree of cross-subsidy when the Act was passed. This Committee’s concern about the revised fee structure remains the same as it was for the draft instrument laid in 2017: ‘while section 180 … permits the levying of enhanced fees, we are surprised to see it used to this extent. To charge a fee so far above the actual cost of the service arguably amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power.’”
As for the difference between the £20,000 fee proposed in 2017 and the £6,000 fee proposed now, the committee expressed the view, with which I agree, that,
“the underlying principle behind the charge has not changed”.
The Government explain:
“Even the highest fee in our scheme would represent no more than 0.5% of the value of the estate”.
The Minister repeated that today. The committee thought that this sentence, relating the fee to the value of the estate,
“gives the fee the appearance of a tax rather than a fee linked to the actual cost of providing the service”.
The Joint Committee reported on 5 December even more strongly, stating:
“The Committee draws the special attention of both Houses to this draft Order on the grounds that, if it is approved and made, there will be a doubt whether it is intra vires, and that it would in any event make an unexpected use of the power conferred by the enabling Act”.
It reminded Parliament that it had called last year’s draft order to the special attention of both Houses, on the grounds that,
“(a) the charges prescribed by it would in substance constitute a tax on estates, rather than probate fees, and may therefore be ultra vires; and (b) the Committee doubted whether Parliament contemplated that the enabling powers would be used in the way proposed by the Lord Chancellor”.
It distinguished enhanced court fees intended to pay for the Courts Service from enhanced fees for probate applications intended to subsidise the running of the Courts & Tribunals Service generally. The committee stated that,
“applying for probate is not to be compared with the commencement of proceedings. A person can choose whether to litigate, and therefore whether to incur the fees payable on issuing a claim—which may be recoverable from the defendant if the case succeeds. In contrast, executors have to obtain probate to allow them to administer an estate, and the fee for doing so is not refundable. This is an administrative process, akin to the registration of a life event. Nobody applying for an uncontested probate would think for a moment that they were engaging in litigation. That makes it difficult for the Committee to accept that a power to charge enhanced court fees can be extended naturally to require probate fees to reflect the general costs of the court and tribunal system”.
The point that executors have no choice but to apply for probate was powerfully made by the Law Society in its briefing for today’s debate. The committee thought these probate fees were like stamp duty and used the phrase “dressed up as ‘fees’”. It reminded Parliament:
“It is an important constitutional principle that there should be no taxation without the consent of Parliament, which must be embodied in statute and expressed in clear terms. In the Committee’s view, the 2018 Order is a measure of taxation for which there is no clear statutory authority”.
The committee referred to the 1921 case of the Attorney-General v Wilts United Dairies. However, there is older and more fundamental authority on the point of that case. In relation to tax-varying measures proposed in Clause 8 of the European Union (Withdrawal) Act, the Delegated Powers and Regulatory Reform Committee complained that the powers would enable the creation of what it called tax-like charges. It said:
“Fees and charges for services or functions should operate on a cost-recovery basis, leaving taxation for a Finance Bill”,
which it rightly described as,
“a principle enshrined in Article 4 of the Bill of Rights 1688”.
The question for this House is whether it is appropriate to treat the enhanced fees proposed in the draft order as fees or a tax. I invite the House to accept the view that what the Government are intending to do here is, impermissibly, to introduce a tax by secondary legislation by a misuse of their power under the 2014 Act.
I accept that a fatal amendment is unusual. However, the Cunningham committee, in its report Conventions of the UK Parliament in 2006, concluded that there are situations in which it is right for the Lords to threaten to defeat a statutory instrument, citing as an example,
“where special attention is drawn to the instrument by the Joint Committee on Statutory Instruments or the Lords Select Committee on the Merits of SIs”.
That is so in the case here for both those committees. Both committees took that course. I would add to the specific examples in the list produced by the Cunningham committee that where a proposed SI offends against the fundamental principle that taxation requires primary legislation that is fully amendable, that is a matter of constitutional importance which entitles this House, in our role as guardians of the constitution, to reject an SI on that basis.
I have two further short points. First, these charges are to be paid up front. There is no provision, as there could have been, for the Government to defer payment where necessary until the assets of the estate, often real rather than liquid assets, are realised. Executors are not always beneficiaries; they are often friends or relatives of the deceased acting out of kindness. I see no reason why they should be subjected to these substantial charges payable before—often years before—the assets of the estate can be realised. This is a point well made by the briefing prepared for today by the Institute for Family Business, which cites asset-rich but cash-poor farming businesses as an example.
The Minister’s response to this point is that they can borrow the money, and he made that point again today. Perhaps they can in certain circumstances, perhaps even in most circumstances, but at a cost that is often considerable, both financial and administrative. The burden of obtaining a loan is often very significant. The alternative response that the noble and learned Lord gave at the all-Peers meeting that he kindly arranged to discuss this SI was that solicitors would no doubt offer credit. I have to say that that does not match my experience of solicitors paying disbursements for their clients.
My other point is that there are specific remissions of fees proposed in respect of deaths in the 2004 tsunami and deaths as a result of the July 2005 terrorist attacks. I suggest that if there were to be prescribed remissions, there ought to be a power to remit far more widely in other cases. The power to remit fees in exceptional circumstances, the safety net mentioned by the Minister, does not seem to me to answer that criticism.
However, this last was a minor point in respect of this SI, which is of course unamendable—and the fact that it is unamendable is something that noble Lords may well wish to take into account when deciding how to vote on this Motion. My principal point is one of constitutional importance, however, and I suggest that on that basis this House should decline to approve the order. I beg to move.
My Lords, I should inform the House that if this amendment is agreed to, I cannot call the amendment in the name of the noble Lord, Lord Beecham, by reason of pre-emption.
My Lords, I begin by declaring an interest in the subject of this debate, albeit a posthumous one. Ultimately, I will not be affected by the proposed changes, although my daughter and son will be. I ought perhaps also to refer to my interest as an unpaid consultant to the firm of solicitors of which I was a senior partner in the light of the closing comments of the noble Lord, Lord Marks, about the professional aspect.
If ever there was a competition for the chronic misnaming of a piece of secondary legislation, the Non-Contentious Probate (Fees) Order 2018 would be a runaway winner. There is nothing non-contentious about it. As we have heard, the order, while exempting estates of £50,000 or less from the payment of fees, increases the cost for larger estates in a range from £250 for estates up to £300,000—or £150, as we heard, when an application is made by a solicitor—to £6,000 for estates above £2 million, generating a profit of £145 million a year over and above the £49 million fee income collected in fees for the service in 2016-17. That is effectively a fourfold increase.
Admittedly, this is somewhat less than the estimated £250 million which would have been garnered by the original proposals in 2017, as outlined in the government consultation document of 2016, and less again than the £300 million extra in additional fee income set out in their response to that consultation in February 2017. If there were a Nobel Prize for elasticity, the Ministry of Justice would, uncharacteristically, be a strong candidate.
The original proposals ignited a blaze of opposition among the general public, the media and both the Secondary Legislation Scrutiny Committee of your Lordships’ House and the Joint Committee on Statutory Instruments. The former declared:
“To charge a fee so far above the actual cost of the service arguably amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power”.
The latter averred that it had,
“a real doubt as to whether the Lord Chancellor may use a power to prescribe noncontentious probate fees for the purpose of funding services which executors do not seek to use—namely those provided by courts and tribunals dealing with litigation”,
a view strongly supported by the Law Society and the Bar Council, the latter pointing out that,
“the grant of probate … is not in reality a judicial or court act at all. It is a simple but authoritative piece of paper, bearing a stamp, produced by a civil servant on a relatively low pay grade in a relatively short period of time, the average cost of which is £166”.
That reads as a mild rebuke compared with the critique proffered by the Secondary Legislation Scrutiny Committee in its report of March 2017, shortly before the Prime Minister called the election which cost the Government their majority, and reiterated in its report of 21 November. The committee deals with the Government’s assertion that,
“it is necessary to fund the wider courts and tribunals system to ensure an efficient and effective service”,
and responds by citing the Government’s guidance to departments in Managing Public Money, a government document stating that,
“different groups of customers should not be charged different amounts for a service costing the same”.
It also cites Managing Public Money’s statement that:
“Cross-subsidies always involve a mixture of overcharging and undercharging … So cross-subsidised charges are normally classified as taxes”,
“To charge a fee so far above the actual cost of the service arguably amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power”,
under Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014 and that the order represents,
“a significant move away from the principle that fees for a public service should recover the cost of providing it and no more”—
a damning judgment which I have included in the amendment in my name. This view is endorsed by the Institute for Family Business, referred to by the noble Lord, Lord Marks, an organisation which is not, to my knowledge, affiliated to the Labour Party—at least not yet.
There is certainly an important principle here. The Ministry of Justice is struggling with an overcrowded and underfunded Prison Service, an overstretched probation service, court closures and diminishing access to justice. Of course the justice system desperately needs better funding, but this should be provided not by a stealth tax but out of general taxation including, possibly, inheritance tax. If the Government go ahead with the provisions of this order, how can we rely on them not to adopt similar stealth taxes to fund other key services, for example by increasing prescription charges to a level exceeding the cost of the treatment supplied by the health service?
The Minister’s letter of 12 December asserted that the fees are being introduced under Section 92 of the Courts Act 2003 and Section 180 of the Anti-social Behaviour, Crime and Policing Act, both of which he has referred to this afternoon. He said that they,
“provide clear authority to set fees above cost to cross-subsidise other parts of the courts and tribunal system”.
Section 92 refers explicitly to anything dealt with in the family court, county court or magistrates’ court. No mention is made of probate. Section 180 of the other Act refers to senior courts, county courts, magistrates’ courts, the Court of Protection and tribunals. Again, no mention is made of probate. The noble and learned Lord has argued the case for a deeply flawed order today.
However, while I can well understand the temptation to seek to annul this order, there is a real problem for this House in so doing. I understand that there have been only four occasions in the last 60 years on which the affirmative procedure has led to an order being struck down in your Lordships’ House. One such occasion, which some noble Lords will recall, was in relation to an order under the Legal Aid, Sentencing and Punishment of Offenders Act—then a Bill—in 2012. My noble friend Lord Bach successfully moved such an amendment and was roundly denounced by the relevant Minister, the noble Lord, Lord McNally, who was then a Justice Minister and leader of the Liberal Democrats. That amendment was not a simple repudiation of the order. It was tabled because the Government had reneged on a promise to amend the proposed provision they were bringing forward and was to give them the opportunity to revert to their earlier position.
Regretfully, we cannot support the amendment in the name of the noble Lord, Lord Marks, but if he presses it to a vote we will abstain. In that event, and assuming that the amendment is then lost, I will seek to test the opinion of the House on the amendment in my name.
My Lords, I speak in support of the amendment in the name of the noble Lord, Lord Marks, to the statutory instrument on so-called non-contentious probate fees. As a member of the Joint Committee on Statutory Instruments, I am very concerned that—as other noble Lords have said—the SI appears to be introducing a hypothecated tax on estates for use in subsidising parts of the HM Courts & Tribunals Service that will not at all be used by the fee payer. The SI introduces a huge increase in the cost of probate, which is just a document to enable the executors to administer the estate. It is nothing to do with courts and tribunals, which obviously involve vast costs.
The current fee of £155 if the application is made by a solicitor, and £215 if it is made by the executors in person, completely covers the cost of the probate service. Until now the fee has rightly not included any tax element at all, so this is a major departure from the way probate fees have been exercised in the past. Will the Minister explain why we suddenly need an entirely new approach to probate fees? Has it something to do with the massive cuts in the Treasury’s support for the courts service? I presume it is, but I do not think that makes the action of the justice department acceptable.
As other noble Lords have said, the proposed new fees are going to be on a sliding scale, up to £6,000 for estates of £2 million. This is a hike of 3,770% on larger estates. All but about £200 of the fee will in fact be a tax.
The committee accepts that Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014 allows a fee to be prescribed that exceeds the cost of the provision of the service. I imagine that this probably allows for, for example, exempting very small estates from the fee at all, so then you need to have a slightly higher fee on bigger estates. That is perfectly reasonable. But the term “fee” has a clear connotation of recovery of costs incurred in the provision of the service. Although Section 180 permits enhanced fees, it remains a power to prescribe a fee, which clearly limits it to a relationship with the costs incurred.
The word “fee” does not equate to the term “tax”. A fee surely cannot comprise £200 to cover costs and £5,800 to the individual as a tax on the estate. If Parliament had intended the Lord Chancellor to be able to raise taxes in this way, it would have included such provisions very clearly in Section 180 to acknowledge that charging such a tax might be ultra vires. In the committee’s view, the 2018 order is a measure of taxation for which there is no clear statutory basis. Indeed, the committee could find no evidence that the Government suggested to Parliament during the debates on the Bill for the 2014 Act that the Section 180 powers would be used to prescribe probate fees in order to fund the operation of the courts generally or to provide for such huge and immediate increases in fees—let us call them “taxes”—in the way now proposed.
Furthermore, our committee’s view was reinforced by the report of the House of Lords Secondary Legislation Scrutiny Committee, as the noble Lord, Lord Beecham, mentioned. This points out that the proposed fees do not appear to conform to paragraph 3.6 in chapter 6 of Managing Public Money, the standard guidance to government departments from HM Treasury. Of course, that guidance makes it very clear that a fee should be equal for everyone involved and should represent the cost of the service. There should not be a sliding scale of a fee: that is made very clear in the Government’s own guidance.
As others have mentioned, the original proposal was to have a sliding scale up to £20,000. That was dropped as a result of the objections of the Joint Committee on Statutory Instruments. Can the Government can explain why, when they now accept that £20,000 is unreasonable, they think that £6,000 is somehow reasonable in this context? I suggest that the importance of this issue is that it could represent a precedent for other government departments. Just imagine the implications for citizens if government departments increased fees by some 3,000% for a wide range of services in order to incorporate a tax element to fund public services more generally. This would of course be ultra vires, as they are meant to be fees, as they are in this case. I hope that the Minister will give an assurance to the House today that the department will revisit the proposed probate fees and reduce them to bring them within the permitted limit.
I declare my interests as set out in the register, particularly my having been a practising solicitor for more than 50 years. During that time I have dealt with many estates and made many applications to the probate registry. Looking around the Chamber, I see several of your Lordships who have very kindly given me the honour of naming me as one of their executors. I am not seeking any further orders this evening, but this year, for example, I have been in constant touch with the probate registry in dealing with the estate of one of our colleagues who, sadly, died a little while ago.
I want to say at the outset how much I compliment the staff of the principal registry and the district registries, who give a service second to none. I want the House to be aware that they give considered, careful advice and guidance to anyone who contacts the registry. They are to be commended on that first-class service.
I have of course listened carefully to the comments of the noble Lords, Lord Marks of Henley-on-Thames and Lord Beecham, but their worries will not prove correct. For instance, the noble Lord, Lord Beecham, was worried about prescription charges being greatly enhanced, but of course Section 180(1) of the Anti-social Behaviour, Crime and Policing Act 2014 will not extend to prescription charges. The Minister has put a carefully considered case in a balanced way because it is already clear that this is an enhanced fee. All the income raised is ring-fenced and is used only to fund an efficient and effective court and tribunal system and to ensure that tribunals and access to justice are maintained. Yes; enhanced fees will enable the Government to cross-subsidise other parts of the courts and tribunal system, and that is a good thing. For some time I have been a strong supporter of free access to the mental health review tribunals. Other parts of the system, particularly in parts of family justice, including in domestic violence and non-molestation orders, have no or very low fees, which is a good thing. What the Minister is doing today will enable that to continue.
The changes to the probate fee scheme are fair and proportionate. I am particularly pleased that the estate threshold under which no fee is paid will be raised from £5,000 to £50,000—a tenfold increase which I warmly welcome. That will lift an additional 25,000 estates per year out of having to pay any fee at all, and the highest charge is £6,000. From my experience, I do not believe that that will present a problem.
Does the noble Lord accept that under the Government’s own guidance this will in fact be a tax, and that taxes should be raised in primary legislation and debated properly in both Houses of Parliament?
No doubt the Minister will give a more considered reply, but I certainly do not regard it as a tax, particularly as it is described as, and actually is, an enhanced fee. I have to admit that I was troubled by the original proposal, but the Government have listened to those concerns and have significantly reduced the enhanced fees from that proposal.
I genuinely ask out of misunderstanding: surely the point about probate fees is that you have to pay them, whereas other cases in the courts are of a wholly different kind. This is a payment you have to make if there is to be probate. Would my noble friend agree that it would be odd if we had a fee for the registration of birth—which is also compulsory—that was connected with the amount of money that the person registering would be able to pay? It seems odd to call a fee something which is connected with the value of something you have to do. It is the having to do it which makes it different from any other court situation that I can think of.
I can think of many other court situations; I anticipate that my noble friend the Minister will have a great list for my noble friend Lord Deben. There are many occasions on which you pay a fee; at the end of the day, it is intended to cover the costs of the system. This goes slightly further, I agree, but within a ring-fenced system—if I could have my noble friend’s attention—the money cannot go just anywhere. It has to go toward enhancing the Courts & Tribunals Service. I think this is the right way forward to ensure we have the access that I described earlier. I warmly commend my noble friend the Minister and I support his order.
My Lords, this order relies above all on Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014. As that name perhaps suggests, it was a great Christmas tree of an Act. One recalls its passage all too well; it occupies no fewer than 231 pages of the Queen’s Printers’ copy, with 186 sections and 11 schedules.
This House discharges its scrutiny function very carefully, with great conscientiousness, but perhaps, just occasionally, Homer nods; did we perhaps nod here as we reached towards the end of this mammoth Bill? Of course, we must now construe and apply Section 180 as enacted. That said, while Section 180 contains apparently no limits whatever to the extent of its permissible use, provided always that the excess funds raised are devoted to the efficacy of the Courts & Tribunals Service, ought we not to construe it somewhat fastidiously so as to guard against its use for what is essentially a tax-raising exercise?
Of course, cross-subsidisation is permissible, but is it no less obviously the case that a point will come at which what is purportedly an enhanced fee with a view to cross-subsidisation becomes truly a tax, improperly raised without primary legislation? Suppose that the proposed maximum here of £6,000 were, not the £20,000 suggested last year but, say, £60,000 for estates over £20 million. What would we say? We know that £145 million is to be raised by this order for cross-subsidisation, but why only £145 million? The deficit in the service is something like £1 billion, so why should £500 million not be raised for cross-subsidisation?
Is the proposed schedule truly a schedule of fees or does it at some point, disguised as such, descend in reality into a schedule of taxes? That, I would suggest, is the question for your Lordships. I shall listen carefully to the Government’s arguments—indeed, to all the arguments. Only at the end of the debate shall I decide how to vote. I recognise that that may be regarded as a somewhat unusual approach in this House, but I have a certain nostalgia for my earlier occupation.
My Lords, I too declare an interest, as a solicitor. I have not practised for some time, so I will not hand out cards suggesting that colleagues consult my old firm. It was the suggestion about advances made by solicitors from their office accounts that consolidated my interest in this topic. However, I want to make a wider point and to ask one very specific question.
I believe that tax is a good thing. It is the price of a civilised society and so on but it must be transparent. It is a question of trust and honesty on the part of government. It is all part of the very topical but for ever issue of citizens’ trust in the Government and how that Government raise money. It is also part of joining up across departments and subject areas, and asking departments to look for their own income generation in the way that this proposal does. Income generation is important but it is not helpful if it is completely siloed.
The Minister refers to Section 180 of the Christmas tree Act, but I rather think that the public—I do not include the subset who understand the origin of the probate service and the family courts—would find it not immediately obvious that fees for the grant of probate should finance the court service generally. They might not say that they are doubtful about whether it is intra vires, but questions will be raised in their minds.
As I understand it, currently there is full recovery of the costs of the probate service. The Minister has referred to improvements to the service, and those must be welcome, but I believe that I have read somewhere that they will lead to savings, not costs, although I dare say that an initial investment is involved. As has been said, there is no option but to use the probate service, which adds to the question of whether one is paying for a service or paying a levy, and that perception is compounded by the administration being the same, regardless of the value of the estate.
My specific question is about Section 180. Subsection (3)(a) requires the Lord Chancellor to have regard to,
“the financial position of the courts and tribunals for which the Lord Chancellor is responsible, including … costs incurred by those courts and tribunals that are not being met by current fee income”.
The subsection goes on, joined by the word “and”, to paragraph (b), which states that the Lord Chancellor must also have regard to,
“the competitiveness of the legal services market”.
I do not believe that there is a market in grants of probate administration. I will be grateful if the Minister can explain to the House how that provision has been considered, what regard the Lord Chancellor has had to the competitiveness of the legal services market and what conclusion the Lord Chancellor has reached.
My Lords, I agree with much of what has been said this afternoon. In my mind, this enhanced fee is a death tax, and I should like to take this opportunity to shine a light on what, in practical terms, this will mean for a particular group of people—the people in the middle. It is always the people in the middle whom one has to pay attention to. Clearly, it is a very good thing if people at one end of the scale are taken out of the tax or fee altogether, and I suspect that there will not be a lot of sympathy for those with multimillion pound estates having to pay an additional 0.5% charge. However, we should look at how the scale has changed for an estate of about £500,000. At £500,001 the fee goes up from £215 to £2,500, which is quite a considerable hike. Who are these people with estates of, say, £500,000, who will be subject to this fee? What do they look like? What sorts of lives do they lead? That is a lot of money.
We know from the Lord Chancellor’s briefing to us that about 25% of an average estate is in cash or liquid assets. We can assume that on a £500,000 estate, £125,000 would be in cash or investments—money saved over a lifetime, perhaps some capital taken from a pension after a hard-working life— and a family home of some £375,000. Across the country, that would be regarded as a fairly modest estate. In fact, only a few years ago people were throwing up their hands in horror that those who had bought their council houses were now subject to inheritance tax.
I say this directly to my noble and learned friend on the Front Bench. All my political life I have supported the Conservative policy of encouraging people to work hard and buy their property, and for many people to buy their council house. We are now saying to this part of middle England— if I may refer to them in that way—that they now have to subsidise the Ministry of Justice by having another £2,500 knocked off their estate. These people are not saying “I would like to leave this to somebody in my will”. Yet they are going to be cross-subsidising another group of people against their will, however laudable that cross-subsidy may be. That is where their money is going.
Unbeknown to many of these people, this is not the only cross-subsidy they are making. For example, people with those sorts of assets—a house worth £375,000, and £125,000 in assets—but who are older, perhaps nearing death, find that if they need nursing and residential care, they will not be eligible for much help in terms of residential and nursing fees. Yet, very often by sleight of hand, when they are paying their own fees they are cross-subsidising the fees of people who are paid for out of the public purse. This group of people—those who are growing old and have worked hard, perhaps buying their home for the first time in their family’s history—is going to be hit hardest.
As a Conservative, I find this appalling, because these are not Conservative policies. This is not what Conservative Governments across decades have encouraged people to do: to save hard, to work hard, to buy their own homes, to put money aside for their retirement only to find that by sleight of hand, an enhanced fee is going to knock another £2,500 off their estate. For that reason, I will not be in the Government Lobby tonight.
My Lords, there are two aspects to this debate. There is the suggestion that these regulations are unconstitutional, which the noble Lord, Lord Marks, has argued, and there is the argument as to whether this is fair, the point made by the noble Baroness, Lady Browning, and the noble Lord, Lord Beecham.
When the noble Lord, Lord Marks, tells the House that something is of constitutional importance, I normally get excited and follow him eagerly into the Division Lobby—but I cannot do so today. These regulations are not ultra vires but plainly valid and within the scope of what the House approved in Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014. The point of that provision was to confer power on the Lord Chancellor to charge fees which are higher than the cost of the services being provided.
Section 180(1) states the Lord Chancellor may,
“prescribe a fee of an amount which is intended to exceed the cost of anything in respect of which the fee is charged”.
It could not be clearer. The noble Lord, Lord Marks, then says that one part of the courts system cannot be used, even under that provision, to act as a cross-subsidy for another part of the courts system. My answer is look at Section 180(3), which says that the Lord Chancellor, when he sets these charges, must have regard to,
“the financial position of the courts and tribunals for which the Lord Chancellor is responsible”—
in the plural. It is general, not specific. And if there is any doubt about that, look at Section 180(6), which adds what the purpose of the fees must be. The fees,
“must be used to finance an efficient and effective system of courts and tribunals”.
The whole purpose of these provisions as I understand them is to confer a power on the Lord Chancellor to charge a fee higher than the cost of a service, in order precisely to provide funds that will enable the courts and tribunals system in general to be financed. There is no question of a lack of validity in these regulations.
It is then said that this is unfair; the noble Baroness made a powerful speech. But let us be realistic. Lawyers—and non-lawyers as well—have been complaining with increasing power and force in recent years that the legal system is in desperate need of additional resources. We need more money for legal aid, for improvements to the courts estate—which is in a disgraceful condition—and for improved judicial salaries to ensure that the high quality of our judiciary is retained. That money has to come from somewhere—and the choice is very simple.
Of course you could raise general taxation, but the same people about whom the noble Baroness, Lady Browning, is rightly concerned would equally complain if their taxes were raised. The money is needed; the legal system—the courts and tribunals which the Lord Chancellor has to protect—are in a desperate position. The money is desperately needed. I am no more enthusiastic about these regulations than other noble Lords, but it seems to me that, given the problems we face, these regulations do impose a charge which is reasonable in its content and is a reasonable means of raising some of the revenue required to fund the courts and tribunals system of this country.
The noble Lord has construed parts of Section 180; I think he has got it in front of him because he has been reading from it. My question about Section 180(3)(b) was addressed to the Minister, but the House respects the noble Lord and I wonder whether he has views about the Lord Chancellor having to have regard to the competitiveness of the legal services market in this situation.
I am grateful to the noble Baroness for her observation. My answer to the noble Baroness is that, yes, the Lord Chancellor is obliged to have regard to,
“the competitiveness of the legal services market”,
but I understand that to apply only in a context where there is a competitive market. Of course, in many contexts there is. But, like the noble Baroness, I do not understand there to be a competitive market for probate, and in my judgment that provision does not require the Lord Chancellor to have regard to a factor which is simply not relevant to the topic we are discussing.
My Lords, I am not a lawyer. I have never applied for probate, I know nothing about the operation of the probate service and I come at this as a babe in the legal wood. But having read the paperwork that was put down and heard this afternoon’s discussion, I see four things. I see us helping the poorest in our society by eliminating any charge for estates between £5,000 and £50,000. I see us ensuring that the maximum charge is never more than 0.5%, and sometimes less than that. I see a maximum of £6,000 on even the largest estate, and I see this providing a degree of cross-subsidy to ensure that we have an efficient courts and tribunals system—a point that the noble Lord, Lord Pannick, has just made. So I say to my noble friend Lady Browning, with the very greatest respect, that those seem to be perfectly good Conservative principles, and I therefore support what the Government are trying to achieve here.
If we chase down the vires point which the noble Lord, Lord Marks of Henley-on-Thames, focused on, surely any amount of return above cost is not allowable in his argument. We are about to have a reduction in the cost, as I read the papers, of £9.30—the estimated reduction in the average unit cost of applying for probate—as a result of the new system. I am not clear—perhaps the noble Lord can enlighten me when he concludes—about whether his proposal is now to reduce the fees, because of course they will be above the cost of providing the service.
I have been involved in the charity and voluntary sectors. I have worked on their behalf, written reports to the Government, supported them and fought their corner in third-party campaigning and other areas. The reports have been well received by the sector, and sufficiently well received that the Government immediately banned any idea of bringing them in—but never mind about that. The point is that they have made a great case about the impact on charities and charitable donations of the imposition of these particular charges. I must say that, however I work the maths and however I try to work through the ideas, I do not see the logic of the more extreme and indeed scaremongering issues that have been raised by many parts of the sector.
It must surely be perverse that under the present system we are charging the same fee to someone who has a £5,001 estate as to someone who has a £20 million estate. That must be perverse and the present system must not be right. This must be a way of improving it.
My Lords, I will not join in the discussion about what is or is not a Conservative principle, but it is clear that this measure is in fact highly contentious, drafted as it is by the irony division of the Ministry of Justice.
Its 2016 predecessor was also highly contentious, as it attempted to impose probate fees of up to £20,000. The consultation response, which has not so far been mentioned, to the 2016 proposal was overwhelmingly negative. It was opposed by both the Law Society and the Bar Council, among others, and both Houses were, to say the least, worried and unenthusiastic about the proposal.
The grounds for opposition were clear. The proposal was a tax poorly disguised as a fee. It may well have been ultra vires. The use of Section 180(3) of the Anti-Social Behaviour, Crime and Policing Act 2014 as a legal base for the absolutely enormous increase in costs may well not have been within what Parliament envisaged. As the noble Baroness, Lady Meacher, noted, there was no indication at all as that Bill proceeded through Parliament that the power in Section 180(3) would be used to prescribe probate fees to fund the Courts & Tribunal Service generally.
The 2018 version of the SI that we debate today is different from its 2016 predecessor in only one main respect: its charges are lower. In the abandoned 2016 version, the probate fee for estates of £2 million was set at £20,000. In this version, the fee is £6,000. That is a reduction in the quantum only. It does not address the objections raised to the principle of such a charge, so very far above the cost of providing the probate service.
As noble Lords have said, the current probate fee is flat across all sizes of estate. It stands at £155 for an application made by a solicitor and £215 for an individual application. Those fees are based on cost recovery. The principle of cost recovery as the basis for charging for the service is abandoned by this new SI. An estate worth £2 million will pay nearly 40 times the actual cost of the service.
Responding to the Government’s response to its review of the 2016 proposal, the JCSI said:
“The Committee understands that, where a statute authorises the charging of a fee in respect of a service, the word ‘fee’ has connotations of recovery of costs, direct or indirect, incurred in the provision of the service concerned or in the administration of the process, and that there must be express authority to charge a fee which exceeds the cost of the service”.
The committee also acknowledged that Section 180(3) provided that authority. But it went on to say that:
“Nonetheless it remains a power to prescribe a ‘fee’, a concept which is subject to inherent limitations about the relationship to the service for which it is charged – including (arguably) one of proportionality”.
The committee was not convinced that the generally worded provision to charge enhanced fees gave the Lord Chancellor a licence to compel executors to pay whatever amount she regarded as appropriate for the purpose of providing funds for the courts and tribunals as opposed to the probate registry in particular. The Joint Committee noted that:
“It is an important constitutional principle that there is no taxation without the consent of Parliament, which must be embodied in statute and expressed in clear terms”.
Those views were about the 2016 order. They apply, word for word, principle for principle, to the 2018 version now before us.
Our own Secondary Legislation Scrutiny Committee, of which I am privileged to be a co-opted member, reached essentially the same conclusion in its report of 21 November. The report noted that the proposed scale of fees did not obtemper the normal requirements set out in Managing Public Money. It concluded that, despite the reduction in fees between 2016 and 2018,
“to charge a fee so far above the actual cost of the service … amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power”.
The fact is that the Government have already admitted that this is a tax and not a fee. The 2017 Spring Budget papers acknowledged that it would be classified as a tax in the national accounts, as the Charity Tax Group has pointed out. It is clearly a tax on estates. The people affected would largely be the relatives of the deceased and charities. The impact assessment confirms that. It says on page 8:
“Beneficiaries of the estate may incur a cost if, because of the increased probate fees, they receive a smaller proportion of the deceased’s estate. This will mainly affect relatives of the deceased, but may also impact charities”.
The impact assessment makes no attempt to quantify the impacts of this additional tax, but the Institute of Legacy Management has. It said that the charities would lose up to £10 million a year.
I hope that, when he comes to reply, the Minister will not attempt to paint that sum as trivial. I am sure he knows how stretched charities are at the moment, especially small charities, and how much we depend on their activities. I notice, too, that the impact assessment twice asserts that the new arrangements will reduce the taxpayer subsidy. They will not. They will simply add a further tax to be paid on the inheritance from relatives.
This SI proposes a further charge on inheritance. The charge is not a fee. It can be 40 times higher than the cost of providing the service. It is most definitely a tax. It will hit relatives and charities. It has no sound basis in law. It is an abuse of the powers in Section 180 of the 2014 Act. It is also an abuse of parliamentary procedures. It attempts to raise a tax via secondary legislation, avoiding full parliamentary scrutiny and the possibility of amendment. It would be a tax levied without the proper consent of Parliament embodied in statute. With this SI, the Government are trying to impose a tax by stealth and by improper means. As the Joint Committee on Statutory Instruments noted,
“The Lord Chancellor is not permitted to impose a tax”.
He is not, and we should not let him. I urge the House to reject this instrument.
My Lords, I want to say just a little since the noble Lord, Lord Pannick, has dealt with the law and I happen to agree with him. As your Lordships all know, I frequently disagreed with him in a previous existence. Whenever I did, he appealed to a higher court and was always right. This time I agree with him because I happen to agree with him. I will not repeat the reasons.
I will take a slightly different stance. The debate we have had, assuming that the noble Lord, Lord Pannick, is right—as I say, I agree with him—is whether section whatever it was of some 235 sections produced the power the Lord Chancellor now seeks to exercise. If it did, the problem is not with this statutory instrument, which we are all attacking and which the noble Lord, Lord Marks, has indicted ferociously and accurately, but with the primary legislation, which, I am sorry to say, we probably did not analyse with sufficient care. I was not here at the time, so I do not bear any personal responsibility.
I am sorry to say this, but we were vesting in statute after statute vast powers in the Executive. We do it and we let it happen. We cannot complain if the Executive, having been vested with these powers, choose to exercise them. We vest powers in not just this Executive, but the next one, the one after and the one after that. That seems an aspect arising from the present order that we really should not overlook. We should be more alert when powers are being vested in the Executive to do almost anything by secondary legislation.
That has got that off my chest. Now I declare an interest. Because of the office I once held, I am perfectly well aware of the fact that our civil courts system is in a shambles. It needs funding. It needs much more funding than this funding would provide. If the Lord Chancellor has the powers—as I said, I agree with the noble Lord, Lord Pannick, that he has—this seems a sensible use of them to achieve a very important societal purpose.
My Lords, the 2014 Act was passed by Parliament when there was a coalition Government in power. I had the privilege of bringing in enhanced fees that, it has been suggested, should be viewed in rather a favourable light compared with the probate fees that are the subject of this statutory instrument. I certainly do not remember that being the response at the time, although the arguments—namely cross-subsidy—were the same. Indeed, I specifically remember making the point that it was always an option whether you chose to litigate. That has been raised as a favourable point in support of this statutory instrument, where obviously there is no question of choice.
The reality is that both these provisions were there to subsidise the much-needed court system. The noble Lord, Lord Marks, will remember that the coalition Government came to power facing an economic crisis and that a number of cuts had to be made, particularly to the Ministry of Justice budget, which the Liberal Democrats went along with happily, as did the Conservative Party, as a result of which the courts have been feeling the strain and are continuing to in a way that a number of noble Lords have pointed out. This is an attempt to at least alleviate some of that strain.
My noble friend Lord Hunt mentioned the case for cross-subsidisation. I respectfully suggest that he is right. He mentioned a number of areas. I could mention more: non-molestation orders, occupation orders, forced marriage protection orders and female genital mutilation protection orders. There are all sorts of tribunals involving family immigration and asylum that do not pay for themselves but need cross-subsidisation.
Crude though it may be, this order will be a valuable addition to our beleaguered legal system, about which I am sure the noble Lord, Lord Marks, and all in your Lordships’ House share concern. The Government have responded to the initial outcry, if I might describe it as such, about the amounts involved. They have been lowered. I respectfully suggest that the Minister has made out the case.
My Lords, clearly, after an hour and 20 minutes, this non-contentious probate order is misnamed. It is interesting that opposition to it unites the noble Lords, Lord Marks of Henley-on-Thames and Lord Beecham, and the Daily Mail. I am also in strong agreement with my noble friend Lady Browning that it is a distinctly un-Conservative policy that will alienate our natural supporters once a lot of them have woken up to what is going on.
I will not talk about the order in detail because everyone else has discussed it, but the fee of £6,000 for an estate of £2 million is high if, for instance, a main residence is taken into consideration. It is not just I and other noble Lords in this House who disapprove of the order. A helpful Law Society brief which I do not think has been touched on so far states:
“The service involved in a grant of probate is the same whether an estate is worth £50,000 or £2 million. However, under the new proposals, some estates would face a charge of £6,000. This is excessive … It is unfair to expect the bereaved to fund/subsidise other parts of the court and tribunals service, particularly in circumstances where they have no other options but to use the probate service”.
Echoing the Law Society’s concerns, and as many other noble Lords have stated, our Secondary Legislation Scrutiny Committee has stated that it has very serious concerns that the order,
“arguably amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power”.
Similarly, the Joint Committee on Statutory Instruments, as other noble Lords have stated, raised concerns as to whether the order is intra vires, noting that it makes an unexpected use of the power conferred by the enabling Act.
The Law Society wholly agrees with the two committees that the current proposed fee is a misuse of the fee-levying power under Section 180 of the Anti-social Behaviour, Crime and Policing Act. I will not join in the debate about this section and the different views expressed by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and the noble Lord, Lord Pannick, except to say that once you start levying this sort of thing, what is to stop any amount being levied by way of an extra fee, or even applying to other aspects of the legal system?
Surely the point therefore is to take on board the point made by the noble and learned Lord, Lord Judge: attack the primary legislation, not the secondary legislation. We have rather missed the boat on the primary legislation.
I thank my noble and learned friend. Obviously tackling the primary legislation would be quite a major manoeuvre, and I feel that the only easy way of tackling it is by restraint.
The Law Society says that although the powers under the Act allowed the levying of a fee, it does not confer a power on the Lord Chancellor to impose a tax. This steep increase amounts to a tax, not a fee. Failure to pay a fee means a person is precluded from benefiting from the service offered. However, a tax is a levy by the Government for the benefit of the whole population. It is compulsory and cannot be avoided.
Like other noble Lords, I have also received a briefing from the Institute for Family Business, which emphasises all the Law Society’s issues. It also stresses the difficulties in raising the cash to pay the fees as they have to be paid up front before probate is granted. Could the Minister respond to the Law Society’s and the IFB’s concerns?
In short, this is a most un-Conservative measure that will alienate our natural support, and is a stealth tax by any other name. The individual tax burden is now the highest since the 1980s. I quote from an article by the noble Lord, Lord Bassam, in the House magazine of 3 December:
“It is not a fee but a radical graduated tax, which in these times of crazy property values will hit families of modest incomes hard when a family member dies. There should be a far fuller debate than will be afforded through a statutory instrument taken late in the evening away from the gaze”,
of public scrutiny.
I shall certainly support the amendment of the noble Lord, Lord Beecham, and consider supporting that of the noble Lord, Lord Marks of Henley-on-Thames. His argument that, as it is a tax by any other name, it should have been included in the Budget, has strong validity. However, can the Minister confirm that the other place has not opposed it? I am conscious of the constitutional consequences of voting down an order, so reluctantly I will not be supporting the noble Lord’s amendment.
My Lords, noble Lords will not be surprised to hear that I have been in this area before. Indeed, in my time there was a very serious question as to whether the courts service should be dealt with at all by fees. It was thought that it was a public service for which the taxpayer should pay. However, that contention has gradually passed away. The only occasion on which I was overturned in judicial review was in relation to a fee that was being charged under regulations which were signed as approved by the heads of division as well as myself. Notwithstanding all that, we did not succeed: the Divisional Court held that our fee structure was slightly defective and we immediately tried to put it right. An interesting result of that, which I must say is dear to me, about the administration of justice at the time when I had responsibility for it, was that the advocate, the barrister who defeated me and the others in the court, was nominated for silk shortly after and wrote to me to say how fair the system seemed to be.
The point as I see it is that the ordinary rule is that an amount charged as a fee which is substantially more than the cost of the service would be a tax, unless authorised by statute. That is where Section 180 comes in, as has been very clearly explained. Exactly what is done about it is a matter of discretion given to the Lord Chancellor. Here, there is a distinction between the bigger estates and the small estates justifying that kind of approach, which my noble friend Lady Browning referred to. She is a bit anxious about the middle and might prefer to see the bigger bit at the top and a smaller bit at the middle. However, I am not going to enter into that; I am just saying that it is quite impossible, in my view, to say that this is unconstitutional. The matter is one for the discretion of the Lord Chancellor and I entirely agree with the view that the courts service urgently needs as much money as it can lawfully get.
My Lords, I understand the concerns expressed by noble Lords, but I also believe that these measures deserve support. I declare an interest as an executor of the estate of a relative who would need to pay these higher fees. Nobody likes the idea of paying fees but someone has to pay for the courts system and, as the noble Lord, Lord Pannick, and my noble and learned friend Lord Mackay have both explained, as have other noble and learned Lords, this is a valid use of ministerial powers.
I was critical of the previous proposals in 2017, which seemed to me excessive, but I am delighted that the Government have listened. Some 60% of estates will pay just £250—not that different from now—and 25,000 more of the poorest estates will be lifted out of probate fees altogether. More than half of all estates will pay nothing. If we pass the amendment of the noble Lord, Lord Marks, the entire proposed reforms would fall, so more of the poorest estates would pay higher fees while the largest estates would escape the higher fees. The other place did not oppose this. How will it look if this House prevents a measure that would ask higher-value estates to pay more to help lower-value estates? This money will be ring-fenced and it will help secure access to justice, which is a fundamental British value that has to be paid for.
I understand that there is concern about the level of fees. I think there are times when we have to recognise that there are issues for which cross-subsidies are relevant. In terms of fees, if we look at other areas of the economy, estate agent fees and solicitors’ fees are very often charged as a proportion of the value being transacted, if you like. An estate agent probably does not have to do a lot more work to sell a house worth £500,000 than one valued at £5 million, yet they will be paid much more in so-called fees. So I do think that there is an element of proportionality here. A £500,000 estate will pay £750. The consumer group Which? estimates that an estate worth £500,000 would face enormous legal fees. For example, the bank will charge £20,000 on average; solicitors will charge £10,000 on average; the funeral, which has to be paid for, will cost £5,000 or £10,000, perhaps more. So the idea that the maximum amount of £6,000 is being charged in order to help access to justice for domestic violence victims, mental health review tribunals or social security and child support does not seem to me to be disproportionate. I hope noble Lords will accept the idea that this is a necessary change that fulfils an important social purpose about which the Government are entirely entitled to take such decisions.
My Lords, I am obliged to all parts of the House for contributions to the debate on this order. The noble Lord, Lord Pannick, correctly identified that there are two issues. One is whether the proposal is constitutional or unconstitutional. The second concerns fairness. Of course, at times the two arguments have merged. I will endeavour, however, to address each in turn.
On the question of whether the instrument is intra vires or not, I have to say that it is quite clear that statutory justification for it is given by Section 180 of the 2014 Act. The noble and learned Lord, Lord Judge, may, for reasons he has expressed in the past, deprecate the extent to which Parliament has given powers to the Executive in this regard: I think that in this instance it is entirely proper. Nevertheless, the power is there. On the point raised by the noble Baroness, Lady Hamwee, with reference to Section 180(3)(a) and (b), subsection (b) was referred to in the impact assessment, where it was determined that there was no identifiable or significant impact upon competitiveness in this context—which is hardly surprising in the circumstances.
The noble Baroness, Lady Meacher, suggested in the context of the vires of the instrument that it was necessary that the fee should be equal for all involved, otherwise it would be a tax. With great respect, at present there is no fee for estates worth less than £5,000: the current system is not equal in that respect. It is certainly my recollection that the probate fee was progressive until about 1999. The fixed fee came in only in the recent past, less than 20 years ago. Again, one has to see this in context. Let me be clear: the idea of progressive fees is not exceptional or unusual. A civil money claim for £1,000 may often be far more complex and demanding than a civil money claim for £100,000, but the fee in respect of civil money claims is progressive by reference to the sum to be recovered. These elements already exist in our system.
With this instrument, we are intending to remove more than half of all estates from any probate fee whatever, yet the logic of the noble Baroness, Lady Meacher, would be that we cannot do that because if we did the fee would not be equal for all involved. It is entirely appropriate that there should be a progressive fee system, just as there has been in the past and just as there is with other elements of judicial and related claims. In that context, an application for probate is an application for, in essence, a determination of status in order that somebody can ingather an estate and distribute it, so it is in a sense a judicial process, albeit, as it has developed over the years, it is seen as an administrative application.
There is clear statutory authority for the making of this order and the introduction of these sensible and proportionate fees in this context. The provision is there; I will not seek to repeat it. On the issue of fairness, I emphasise that more than half of all estates will be taken out of any fee whatever, the maximum fee will be £2,500, and the fee can never exceed 0.5% of the value of the estate.
The noble Lord, Lord Sharkey, raised some of the observations that have been made with respect to charities. Let us be clear: if a legacy is left to a charity and it is of a fixed sum, it will not be impacted at all by the provision. It would arise only in those—perhaps exceptional—circumstances where the entire estate is left to the charity. One has to appreciate that it is only in those exceptional circumstances that there could be any indirect—I emphasise that—effect on the value of the legacy itself.
At the end of the day, we are taking a proportionate and sensible approach to the need to ensure that we can maintain access to justice throughout our entire courts and tribunals system. We have been fair with regard to the level of the fees which have now been fixed for this purpose. I emphasise that we are dealing with a question of fees, not with the issue of a tax. In that regard, therefore, I invite noble Lords to concur with my Motion.
How does the Minister reconcile the position the Government have taken with the guidance to departments in Managing Public Money, to which I referred?
There is clear statutory authority for the fixing of these fees in order that there can be an element of cross-subsidy between the various elements of the courts and tribunals system. It is justified by that statutory permission.
My Lords, the Minister put his case, supported by other noble Lords, on the basis that these probate fees will be used to, in effect, cross-subsidise the courts and tribunals system, and for increased spending on access to justice. Your Lordships will know that I am a staunch advocate of access to justice, that I believe in spending on legal aid and in renewing the court estate, and that I am concerned about the quality of judges. But the spending for those laudable aims ought to be met out of general taxation, raised in the ordinary way envisaged by the Bill of Rights and other statutes since: by amendable primary legislation subject to the full scrutiny of Parliament, not out of the hypothecation of excessive fees—which are, to use the committee’s phrase, taxes “dressed up as ‘fees’”—to subsidise that sort of spending. I agree with the noble Lord, Lord Beecham, that the Government’s guidance on managing public money, which compares fees with the costs of producing a service and says that that should be borne in mind by government, is apposite.
I usually agree with the approach of the noble Lord, Lord Pannick—which has persuaded the noble and learned Lord, Lord Judge, and, to a certain extent, the noble and learned Lord, Lord Mackay—on statutory construction. However, it escapes me how he managed to construe Section 180 of the 2014 Act without looking at the meaning of “fee”. Section 180(1) provides:
“In prescribing a fee under an enactment specified in subsection (2), the Lord Chancellor may with the consent of the Treasury prescribe a fee of an amount which is intended to exceed the cost of anything in respect of which the fee is charged”.
The noble Lord says that he can infer from that—and the Minister jumps on that statement—that it does not matter by how much the fee exceeds the cost of providing the service. I respectfully commend the approach of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, who asked that very question. There has to be a stage at which the amount charged so far exceeds the cost of the service that the Government are not charging for a service but are seeking to raise money. That is what is involved in the cross-subsidisation and at this level I suggest it has to be a tax. That is the way that it was treated by Managing Public Money, the Government’s guidance, and that is the way that both the Joint Committee and your Lordships’ committee saw it. I do not accept the construction contended for by the noble Lord.
It is disappointing that the noble Lord, Lord Beecham, suggested that the Labour Benches will abstain. I hope that noble Lords on the Labour Benches will in fact support my fatal amendment. Of course, it is a serious matter, but I suggest that this statutory instrument ought to be struck down precisely because it is seeking to dress up taxes as fees in a way that is impermissible. That is a wrong use of the statute. In answer to the noble and learned Lord, Lord Judge, the statute may be slightly carelessly drawn—it could have been more specific—but that should not be used by Ministers to drive a coach and horses through the statute when seeking to rely on the enabling powers to pass statutory instruments. That is what they do when they use the permission to exceed the cost to drive through a wild, excessive charge such as this one.
Striking this statutory instrument down is the correct course to take. A regret amendment will not achieve the end that ought to be achieved. The Government will be at liberty to reconsider their position and bring back revised fees, certainly, but not fees on this scale, which many noble Lords have deplored. I have heard nothing that dissuades me from seeking to test the opinion of the House.
18 December 2018
Division on Lord Marks of Henley-on-Thames’s amendment to the Motion
Amendment to the Motion disagreed.View Details
Amendment to the Motion
At the end insert “but this House regrets that the draft Order will introduce a revised non-contentious probate fee structure considered by the Secondary Legislation Scrutiny Committee to be “so far above the actual cost of the service [it] arguably amounts to a stealth tax and, therefore, a misuse of the fee-levying power” under section 180 of the Anti-social Behaviour, Crime and Policing Act 2014; and that this Order represents a significant move away from the principle that fees for a public service should recover the cost of providing it and no more.”
My Lords, I beg leave to test the opinion of the House on the amendment in my name.
18 December 2018
Division on Lord Beecham’s amendment to the Motion
Amendment to the Motion agreed.View Details
Motion, as amended, agreed.
Gaming Machine (Miscellaneous Amendments and Revocation) Regulations 2018
Motion to Approve
That the draft Regulations laid before the House on 15 November be approved.
Relevant document: 7th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)
My Lords, the Government’s response to their wide-ranging consultation on proposals for changes to gaming machines and social responsibility measures, published in May this year, set out a comprehensive package of measures that will strengthen protections around gaming machines, online gambling, gambling advertising and treatment for problem gamblers. The Government made it clear that their intention in the review was to strike a balance between socially responsible growth and the vital endeavour of ensuring that the most vulnerable, including children, remain protected from gambling-related harm.
As noble Lords will know, the headline measure in May was the Government’s decision, following consideration of all relevant evidence, to reduce the maximum stake on sub-category B2 gaming machines from £100 to £2. The decision was met with enthusiasm in many quarters. Local authorities, charities, faith groups, interest groups and academics all submitted opinions in favour of a £2 limit. This House was no exception in expressing its emphatic support for the Government’s intentions. We are here today to discuss and debate the regulations that will give effect to that decision.
Let me turn first to the evidence which led the Government to their conclusions on B2 stakes. Under the Gambling Act 2005, B2 gaming machines have a maximum stake of £100—by far the highest for any gaming machine in Great Britain—and the maximum prize that can be won as a result of a single use is £500. The next-highest limits on the high street are B3 machines, with a maximum stake of £2 and a maximum prize of £500.
Almost 14% of players of B2 machines are problem gamblers, currently the highest rate by gambling activity in England. In addition, the highest proportion of those who contact GamCare, the main treatment provider, identify these machines in betting shops as their main form of gambling. Gaming machines in betting shops also account for one of the highest proportions of all those in treatment for gambling addiction.
In October 2017, the Government published the consultation on proposals for changes to gaming machines and social responsibility measures, which invited views on proposals to reduce the maximum stake for B2 machines. The consultation received more than 7,000 responses and closed in January 2018. The Government published their response on 17 May 2018 and, after giving due consideration to all information and evidence received, they decided that it would be appropriate to reduce the maximum stake for sub-category B2 gaming machines to £2.
In comparison to other gaming machines on the high street, B2 machines are an outlier because of the speed at which it is possible to lose large amounts of money. These machines generate a greater proportion and volume of large-scale losses—for example, more than £500 in a session—and the losses are larger and sessions longer for those who bet at the maximum stake of £100 than for those who play at a lower level.
Even cutting to £10 would have left problem gamblers and those most vulnerable exposed to losses that would cause them and their families significant harm. In particular, the Government noted that more than 170,000 sessions on B2 roulette ended with losses of between £1,000 and £5,000. These sessions persist at average stakes of £5 and £10, but by contrast, none involved average stakes of £2 or below. In addition, the Government considered that the reduction to £2 was more likely to target the greatest proportion of problem gamblers and protect the most vulnerable players, including those in areas of high deprivation.
Having considered these and other factors, the Government concluded that it would reduce the maximum B2 stake to £2. This was supported by the Gambling Commission’s advice that action on B2s should involve a stake limit of between £2 and £30 if it was to have a significant effect on the potential for players to lose large amounts of money in a short time, with any further decrease a matter of judgment for government.
It is fair to say that the date on which these regulations would come into force generated not a little opinion and debate. It was right that those who had strong views and evidence on the issue, including many noble Lords, should have the opportunity to share them. We have said all along that protecting vulnerable consumers is our prime concern, although it has been necessary to take account of the effect that the reduction will have on the gambling industry and those employed by it.
Having conducted the process of engagement with the industry, the Government announced in November that they would implement the stake reduction on 1 April 2019, a date specified in these regulations and which they consider provides sufficient time to allow for relevant changes to be made by industry. Industry has now known about the Government’s intention to reduce stakes to £2 since May this year, and the date announced last month provides further clarity to allow it to continue its preparations.
Noble Lords will also know that the draft Finance Bill was amended so that the increase in remote gaming duty, paid for by online operators, comes into effect in April 2019 alongside the reduction in the stake to cover the negative impact on the public finances and protect vital public services.
I will explain the effect of the draft regulations and the legislative context in which they operate. The Gambling Act 2005 established a new system for the regulation of gambling in Great Britain, with the exception of the National Lottery and spread betting. Section 235(1) of the 2005 Act defines a gaming machine as a,
“machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes)”.
The Categories of Gaming Machine Regulations 2007 define four categories of gaming machines, known as categories A, B, C, and D. For the purposes of the 2005 Act, category B machines are divided into sub-categories. These regulations amend the Categories of Gaming Machine Regulations 2007 to reduce the maximum stake permitted for B2 gaming machines from £100 to £2 from, as I said earlier, 1 April 2019. In consequence of this amendment, these regulations also amend the definition of a sub-category B3 gaming machine so that B2 and B3 gaming machines can continue to be distinguished from one another by reference to the different places in which B2 and B3 machines are allowed to be made available.
The regulations also make consequential changes to other secondary legislation, amending the Gaming Machine (Circumstances of Use) Regulations 2007 and revoking the Gaming Machine (Circumstances of Use) (Amendment) Regulations 2015 to remove requirements that no longer apply as a result of the stake reduction.
Millions of people enjoy gambling responsibly, and the Government are committed to supporting a healthy industry, but we need the right balance between freedom and protections. As I have said, the Government’s intention in our wide-ranging gambling review was to strike a balance between socially responsible growth and protecting the most vulnerable, including children, from gambling-related harm.
I want to be very clear that the review and this legislation do not mark the end of government action. We recognise that harm is not about just one product. We will act where there is evidence of harm and we will always keep issues under review, as is our responsibility. We will also continue to work together with colleagues from other departments, such as the Department for Education, to ensure that we are co-ordinated in our approach to young people, and the Department for Health and Social Care, to improve links between gambling treatment and other services. I am proud that the Government are taking forward this decisive measure, and I commend these regulations to the House.
My Lords, having campaigned against fixed-odds betting terminals for many years, I am truly delighted that this statutory instrument is now before us, reducing the maximum stake from £100 to £2. The Minister has laid out some of the reasons why this is so important. I do not intend to repeat them, other than to remind the House that there are 35,000 of these machines in our often poorly supervised betting shops around the country, with more than twice the number in the poorest boroughs of this nation than there are in the more affluent boroughs. It is also worth reflecting that research shows that 80% of fixed-odds betting terminal gamblers exhibit problem gambling behaviour at stakes in excess of a £13 spend.
The Minister has pointed out that the Government now accept that these machines have wrecked lives, torn families apart and caused enormous damage in our communities, but I have to say that the tone of the Minister’s introduction rather implied that the Government had been keen supporters of change in this area for a very long time. The truth is that that has not been the situation. It was back in 2010 in the other place that I first advocated a £2 stake, and my noble friend Lord Clement-Jones introduced legislation in your Lordships’ House in 2015 that sought to have the stake reduced to £2. Since then many people have been campaigning for change, including local government, the Church of England—I pay particular tribute to the right reverend Prelate the Bishop of St Albans—mental health charities, academics and many others. The All-Party Parliamentary Group on Fixed Odds Betting Terminals, very effectively led by Carolyn Harris MP, has played an influential role in persuading the Government—eventually—to act as they did on 17 May this year when they announced the cuts.
All of us having welcomed the Government’s announcement that the stake was to be cut, we were collectively appalled to hear that they were proposing a delay in its implementation until October 2019. Despite accepting that FOBTs were a social blight that harmed individuals and communities, they were proposing to wait 18 months, with further suicides being predicted and more lives to be wrecked. We found it hard to believe that the Government seemed to take so much notice of the bookmakers with all their arguments about how difficult it was to change the machines, how much money the Exchequer was going to lose and how many jobs were going to be lost. The Government seemed to fall for it hook, line and sinker, yet every one of the arguments that were made has now been discredited. To take one example, we know that changing the stake will actually be of huge economic benefit to this country. We know that gambling and problem gambling cost this country a fortune: £1.5 billion to deal with the problems that problem gambling is causing us. We also know that because people will spend less money on fixed-odds betting terminals, that money will be spent in other parts of the economy, which is infinitely more productive in helping the economy to the benefit of a significant amount added to the gross value added.
So the Government have at last changed their mind and of course that is welcome, but let us not forget that that was after months of campaigning after amendments being tabled to the Finance Bill signed by over 100 Members of Parliament, the threatened resignation of 12 Parliamentary Private Secretaries and then, very sadly, the actual resignation of the excellent former Minister for Sport and Civil Society, Tracey Crouch, who deserves great credit for the stance that she took. Only after all that happened did the Government agree to do the right thing and bring the implementation date forward to April 2019.
Despite the absurd process that we have had to go through to see the stake cut delivered, I am genuinely pleased to be welcoming the change that is to take place in April next year, earlier than the Government originally planned. However, since the Government began consulting on fixed-odds betting terminals three years ago, a staggering £3.6 billion has been lost by people in this country, often the poorest in our society. For me and for many others, ending the harm caused by these toxic machines simply cannot come soon enough.
My Lords, I hope that I can bring a certain expertise on this matter to the debate this evening, not because I was professor of gambling studies at Salford University—although I was—but because I go into betting shops, which is probably not true of many noble Lords here. However, I must say that I have never been even faintly tempted to put £2, let alone £100, into one of these infernal machines.
I want to use this occasion to draw attention to three lessons that I think should be learned by different people. First, we should understand that Parliament is partly to blame for this. We should never have introduced the £100 limit. It was under a Government I supported at a time when gambling liberalisation ran away with itself. We would not be here tonight, and many people would not have got into great difficulty, had the Government of the time set a more sensible limit.
The second group of people who ought to learn lessons from this are the bookmakers. I am afraid that I could not disagree more strongly with the noble Lord, Lord Foster, about their lobbying powers. When I came into Parliament 20 years ago, the bookmakers were formidable lobbyists. There were many Members in both Houses whom they were careful to brief very thoroughly with sane arguments. I remember the days of the great Tom Kelly, when he was running the Association of British Bookmakers. He did not use emotional arguments, he used evidence. He put his case strongly and well—and, rightly, we took that into account.
This has been a complete shambles by the bookmakers. I spent some time trying to persuade them that they had to take a more flexible approach and find something acceptable to everyone by way of a stake—and I wasted many hours of my time talking to them because of their sheer greed. I understand the greed because, actually, if you go into the figures—I went deep into the accounts of one leading bookmaker—it was true that they were taking a lot of money from the big bets and that a large share of revenue was coming from the big bets, not the small bets. Still, it was unsustainable, as were its effects.
They should have woken up much earlier—instead of which they went on trying to make as much money as possible for as long as possible and have now found that instead of the half a loaf that they might have had, they have merely a shrivelled, dried-out crust in the shops. We will lose a lot of shops as a result, and some of those who find that an attractive proposition may find, when they look at the high street in a few years’ time, with all the other things that are going on, that those shops which now seem dens of iniquity will stand out as reminders of a more prosperous time on the high streets—but that is just speculation.
The third thing I must say—here I strongly agree with the noble Lord, Lord Foster—is that the mess the Government got into over what date to apply this from was absolutely tragic. They should have sorted this between themselves: the Chancellor, the Culture Secretary and the Sports Minister. Instead, they went to and fro, looking about as wobbly as any Government could and, in the course of it, we lost one of the greatest Sports Ministers we have ever had. Tracey Crouch was a superb Minister. She was irreplaceable, but we have lost her simply as a result of poor government communications, poor policy-making and poor decision-taking.
I hope that, while passing these regulations, we will take those lessons to heart.
My Lords, I join the noble Lords, Lord Lipsey and Lord Foster, in paying tribute to Tracey Crouch. In a previous incarnation, when she first came into the House of Commons, we worked together on a bipartisan, bicameral amendment to the mesothelioma legislation. She showed great courage at the time in defying the Whips and being willing to stand up to say what she believed. I have watched her progress over the distance and have continued to admire her contribution to parliamentary affairs. Like the noble Lords, I regret that she had to resign as a Minister—but it showed a great sense of honour on her part, which is something that all of us would wish to see recaptured in the way that we conduct our politics.
The noble Lord, Lord Foster, talked about the disproportionate effect that these gambling arrangements can have in impoverished and deprived neighbourhoods. A few years ago, the Merseyside directors of public health funded research into problem gambling, and fixed-odds betting terminals in particular. The outcome of that research was published in 2014 and makes sober reading. It reported that problem gambling not only deprives individuals of their money but has an impact on their families. They stated:
“Gambling issues affected relationships—they led to mistrust, and caused arguments within the family, or with friends … One respondent said that his wife had described FOBTs as being like ‘the other woman’. Gambling caused problems with respondents’ families when they spent all night on the fruit machine, ignoring family etc … Gambling can lead to problems with sleep, due to anxiety, or to people being distracted whilst trying to carry out other tasks ... Gambling has a ‘ripple’ effect, and one person’s gambling problems can impact upon a lot of people”.
This research was published more than four years ago, so the change we are debating today is welcome—if too late for many who have struggled with their use of FOBTs.
Only a week ago, the same collaborative group reported that in Cheshire and Merseyside alone there are more than 5,000 problem gamblers. Respondents across the Liverpool city region reported a wide range of negative impacts from problem gambling, including, again, impact on family life, relationships and employment, and on personal and family finances. The report said:
“Problem gambling can lead to mental health problems … Staff who worked with people who had problems with gambling reported that their families were at risk of anxiety and depression”.
This is not a localised problem. As a one-time Northern Ireland spokesman in the House of Commons, I am particularly concerned that, when the maximum stake is reduced from £100 to £2 next April in England, Wales and Scotland, no such imperative will apply in Northern Ireland. This is particularly worrying given that the problem gambling prevalence figures in Northern Ireland are higher than those in the rest of the United Kingdom. I know that the £2 stake was on the agenda of the Northern Ireland Assembly—indeed, I understand that the noble Lord, Lord Morrow, who is unable to be here this evening, tabled the Long Title of a Bill to address that matter in Stormont.
In the absence of a functioning Assembly, I commend Ladbrokes—perhaps chastened after paying out £975,000 to victims of a gambling addict in a case that was not reported to the Gambling Commission. It has announced that it will voluntarily reduce the maximum stake in Northern Ireland to £2 from April. In this instance, Ladbrokes has done the right thing, and I wonder whether the Minister will join me in calling on all other gambling providers in Northern Ireland to do the same and to reduce their maximum stake from £100 to £2 in Northern Ireland from April. In putting this matter to the noble Viscount, Lord Younger of Leckie, I completely appreciate that, as this is a devolved matter, it is not his direct responsibility. I know that he cannot legislate; I am simply asking him to affirm what Ladbrokes has done and join me in calling on other gambling providers in Northern Ireland to follow that example.
When these regulations were debated in the other place yesterday, the Minister said:
“Let me be clear: the review and legislation do not mark the end of Government action”.—[Official Report, Commons, Delegated Legislation Committee; cols. 5-6.]
I am reassured by that and hope that the noble Viscount will set out today what other actions the Government are taking to support problem gamblers in betting shops. I know that local authorities have wanted powers to restrict the number of betting shops on the high street, especially in deprived areas that have been referred to, as there is evidence that that is exactly where they are placed by companies. I am disappointed that the Government do not support additional powers for local authorities in their planning decisions.
Earlier in the year, in the Government’s proposals on FOBTs and wider social responsibility measures, they stated that,
“the bookmaking sector, and indeed the wider industry, has provided little evidence that self-regulatory measures introduced since 2013 have made any significant impact on the rates of problem gambling or on the degree of harm experienced by individuals”.
In December 2016, a review of the self-exclusion scheme for betting shops was published. It found that the position of the machines in the betting shops made it difficult for staff to realise that a person who had self-excluded was using the machines. The evaluation recommended reforming the system so that self-exclusion would rely on membership cards or electronic IDs, which could be used on the FOBTs.
A further report, published by GambleAware last year, was also critical of the industry-led responsible gambling initiatives. Commenting on its publication, GambleAware said that it showed that the gambling industry as a whole is,
“poor at giving staff suitable training in how to promote safe gambling amongst customers. The report also revealed customers felt existing responsible gambling messages are often confusing and unclear”.
I know that these comments were made before the Government’s report was published in May. Will the Minister give an update on how the industry is dealing with this poor track record and on the implementation of self-exclusion measures in betting shops?
When the Secondary Legislation Scrutiny Committee, Sub-Committee B, published its report into the regulations on 29 November, it said that:
“Given the costs, both financial and societal, with problem gambling, the House may wish to ask the Minister what steps the Government are taking to reduce harmful gambling across the UK, and what work is being undertaken to improve the availability of data so that any policy initiatives can be accurately evaluated”.
Noble Lords will recall that this House debated gambling addiction only a few weeks ago and a number of us took part. Just last week, the Gambling Commission launched a consultation on a new national strategy to reduce gambling harms. That is very welcome and I will review the document carefully, along with others. I know that there will be a focus on children and young people, and that is much needed. The latest data showed that the problem gambling rate among 11 to 16 year-olds in Great Britain is 1.7%, with 2.2% at risk of problem gambling, whereas the national rate is around 0.7%.
Part of the Gambling Commission consultation will be on a change to the licensing requirement so that money given by licensees for research and support must go to commission-approved organisations. Clearly there is a need for these funds to be used effectively, but this change does not address the fact that they are voluntary. I raised this point in your Lordships’ House on 30 October and I raise it again today. This change to the licensing conditions, although welcome, is tinkering around the edges and is not addressing the fundamental issue. The Minister who dealt with that debate said, in an Oral Question on gambling advertising on 12 September, that if the Government thought there were not enough funds being raised through the voluntary arrangement, they would legislate for a statutory levy. How much money do the Government consider “enough”? On what basis do they calculate that and how much is being raised in practice? I look forward to the noble Viscount’s reply.
My Lords, I am very glad to be here today and wholeheartedly support the Government’s proposal to reduce the stake for B2 machines—fixed-odds betting terminals, or FOBTs—from £100 to £2. This is an overdue acknowledgement that these gaming machines have caused significant harm to some. I too pay tribute to the noble Lord, Lord Clement-Jones, whose Gambling (Categorisation and Use of B2 Gaming Machines) Bill provided the House with a legitimate mechanism for reducing the maximum stake from £100 to £2. I was delighted to support it when it was debated on 11 March 2016.
I recognise that many people enjoy gambling, but it is the Government’s responsibility to meet the three objectives of the Gambling Act 2005, one of which is to protect children and other vulnerable persons from being harmed or exploited by gambling. There is no statutory objective to encourage industry growth. That is for the businesses involved to achieve.
In September 2017, the Lancet published a key editorial with the title, “Problem gambling is a public health concern”. It said that:
“Those harms are not confined to individual or family tragedies, but touch communities and society with direct consequences for mental health, crime, and the very composition of Britain’s bookmaker-dense high streets”.
In May of this year, the Government recognised the harms of problem gambling as a “health issue”. There has been considerable concern about the problem-gambling rate associated with FOBTs and rightly so. In the most recent figures on gambling behaviour across England, Wales and Scotland in 2016, released in September 2018, 3% of the population—5% of men—gambled on machines in bookmakers. However, problem-gambling prevalence rates were the highest among FOBT users who had gambled during the past year, at 13.7%. The rate of overall problem gambling was estimated to be 0.7%.
The Government are certainly to be congratulated on taking this step to protect individuals who have been using FOBTs, but this is no time for complacency. The Lancet editorial also said that:
“Less publicised is the growth of online gambling, with a potentially greater danger to health than other forms of gambling, particularly for those younger than 16 years of age”.
Online gambling remains a big concern and, according to the latest Gambling Commission figures, the remote sector makes up 37.1% of the gambling market. With the prevalence of mobile technology, this should not be a surprise. Gambling Commission figures from June 2018 show that 53% of online gamblers gambled using a mobile phone or tablet in the previous four weeks.
With the increase in online gambling, it is unsurprising that there has been a gradual increase in the number of callers to the national gambling helpline who disclose issues with online gambling, rising from 47% of callers in 2014-15 to 55% in 2017-18. The problem gambling data that I have already referred to shows a rate of 9.2% for online gambling on slots, casino or bingo games. I know that the Government are not unaware of the situation. When they set out their plans for FOBTs in May this year, they included a whole section on online gambling. The Gambling Commission has published its own review of online gambling and has just completed a consultation on whether to increase age verification before anyone is able to gamble online. I hope that the next version of the licensing code will bring those changes into effect.
Today, we are voting to support restrictions on stakes for gambling in betting shops on the high street. The review of online gambling noted that:
“There are no restrictions in online gambling on stakes and prizes or speed of play, and by definition online gambling is not restricted to premises”.
While we are enacting restrictions offline there are none online. A person cannot use a credit card in a betting shop but can gamble online with borrowed money. Betting shops have fixed opening hours. A person wanting to gamble on their phone in the middle of the night can do so, even though this is the time when problem gamblers are especially vulnerable.
There is no doubt that the commission is taking action to increase the social responsibility measures that apply to licensed gambling websites and that is very welcome. Noble Lords may recall that I raised significant concerns during the debates on the then Gambling Bill in 2013-14 about how enforcement would work for any unlicensed gambling websites that are operating in the UK. I proposed statutory powers for blocking the financial transactions of websites that do operate without a licence. The Government said that this was unnecessary as voluntary arrangements would suffice. During last year’s debate on gambling on 23 November 2017, led by the noble Lord, Lord Browne, I asked for updated figures on financial transfer blocking for unlicensed websites. In subsequent correspondence, the Minister said that:
“The Gambling Commission has committed to provide a regular update on the figures”,
and would publish the information on its website. I would be grateful for an update on when this information will be available.
In 2014, I joined the noble Lord, Lord Browne, in urging the Government to introduce a one-stop shop for online gambling self-exclusions. I welcome that GameStop has started its rollout, but I am extremely disappointed that it has taken four years to implement a multi-exclusion scheme for online gambling. I hope that the Minister will give the House an update on progress. As of June 2018, the Gambling Commission reported that only 51% of gamblers are aware of self-exclusion. I hope that the Minister will be able to assure us that the Government’s White Paper on online harm will include measures to address these matters in order to reduce the harm from gambling online.
My Lords, it is important that someone from this side of the House says very clearly to the Minister—and I am sorry that it is this Minister to whom I have to say it—that one is really ashamed of the Government over the time they have taken to do what was clearly necessary. One only has to think what would have happened if the Government had agreed to double the stake. The gambling companies would have changed those machines as rapidly as you could think—they would have done it just like that. Yet the Government were taken in by people who told them that they could not do it in time. The second thing that the Government did was to make it perfectly clear that they were happy to go on raising money from the poorest and most deprived sections of our community in order to safeguard the public finances; and that until they had got their new system into operation, they were prepared to go on taking that money, when they could have put it right so much more quickly.
Like so many others, I am very sad at the loss of Tracey Crouch as a Minister. I am even sadder that the Government, having understood the seriousness of this particular form of gambling, managed to pretend that they had to spend months putting it into operation. Even today, we are supposed to be supporting something that does not come into operation until April. So it has taken them a year to do something that could have been done in two months, and something that would have been done by the industry in two months if it had been to their advantage. Somebody from this side has got to say that this is not the Government’s finest hour. Indeed, it is, for me, one of the saddest moments to see a Government who recognise the problem but then spend this sort of time trying to put it right.
I support the noble Baroness, Lady Howe, who has rightly said that this is only the beginning of what we dealing with. We saw a couple of months ago the outrageous picture of the woman who runs one of our biggest online gambling organisations paying herself more than a quarter of a billion pounds as a year’s salary. That is a disgraceful situation. Here is somebody who has paid herself a quarter of a billion pounds, much of which has been earned on the backs of the most vulnerable people in our society. That leads me to be very concerned about the noble Viscount’s comments about getting a balance. I find this “balance” a pretty peculiar concept. I do not want to stop people gambling if that is what they want to do. What I want to do is to return to a situation in which you have positively to decide and go through a series of hoops to get yourself into a position to gamble and then to be restricted in the ability to gamble with money that you do not have.
This is a social evil which we should, as a Government, not be prepared to continue to condone. To use it as a means of shoring up the public finances, and to use that as an excuse, seems to me to be just as ridiculous as the people who answered my tweet when I dared to suggest that this good lady had behaved very badly. They said, “Ah, but she is the biggest employer in Stoke-on-Trent, and therefore that excuses the fact that she has paid herself this money and made that kind of profit”. I am sorry, but I have to say to my noble friend the Minister that it does not excuse it. It is about time that we really did say the following about the gambling industry. First, it cannot be trusted to look after and control itself. That is a point that the noble Lord, Lord Alton, rightly made. Secondly, it is very difficult to see that its contribution to the society in which we live is anything but evanescent. It is a pretty difficult contribution to capture. As the noble Lord, Lord Foster, suggested, money spent on gambling is not going to disappear if it is not spent on gambling: it is there and can be spent on other and much more useful things in society.
I am not a puritan at all, and the noble Lord who is going to answer for the Opposition knows perfectly well that I find the puritanism that still exists in this society not terribly attractive. I am, however, a practical person who looks at what gambling does to people, sees what the damage and the cost to society are and therefore laments the pathetic pace at which the Government have proceeded to deal with the things that need to be dealt with. I just hope that my noble friend will take back to his department the fact that people on his own side, as well as others, really feel that action is urgent. We have known about online gambling for years and we are still talking about it. We still have people taking money away from the poorest in the most despicable circumstances and we do nothing. I am glad that the Government have brought this forward, but it is about 10 months too late and it has been forced on the Government. It is not a happy moment for the Minister or for those of us who believe that we have to take stronger measures more rapidly. We will continue with this until the Government step up to the mark and recognise that improved public health and public good will result from proper, timely, urgent and widespread action on what has become one of the social evils of our time.
My Lords, like others who have already spoken in this debate, I very much welcome these regulations, which will bring new and welcome protections to people living in Great Britain. It is regrettable indeed that the Government have taken so long to introduce effective legislation to protect the poor and most vulnerable in our society. I simply note that when, in April 2019, the maximum stake on fixed-odds betting terminals falls to £2 in Great Britain, the new legislation will not impact Northern Ireland. Like every other region of the United Kingdom, families in Northern Ireland have been shattered and individual lives have been ruined by the blight of gambling.
I very much regret that the Northern Ireland Assembly is suspended at present. I know that Members of your Lordships’ House will rightly say, “Well then, why doesn’t the Assembly get up tomorrow?” I say on behalf of my colleagues in the Democratic Unionist Party that we would be delighted if the Assembly were to be up and functional tomorrow. However, we need to lay clearly before your Lordships’ House that the intransigence of one party alone in Northern Ireland—Sinn Féin—is the reason why the Assembly is not functioning. To members of that party, it seems that an Irish language Act is more important than providing a health service capable of looking after the health of people, education for our children or adequate services or protection for the most weak and vulnerable members of our society, which these regulations would provide. I know that if the Assembly were operating, it would be addressing the matter before your Lordships’ House. It is time that Sinn Féin moved away from its childish activity and allowed the Assembly to function again. Indeed, my noble friend Lord Morrow tabled the Long Title of a Bill in Stormont to address this very matter.
In truth, although these machines currently operate in Northern Ireland, there is a strong legal argument that they are not legal at all under current Northern Ireland legislation—which, incidentally, is the position in the Irish Republic. Like the noble Lord, Lord Alton of Liverpool, I think that in this context Ladbrokes has been wise to announce that it will reduce the maximum stake in Northern Ireland from £100 to £2. I join with him and, I trust, many others in calling on all other gambling providers in Northern Ireland to follow their example. I hope that the Minister, having listened to this debate, will join Members in asking and imploring other gambling providers in Northern Ireland to follow Ladbrokes’ example. That would certainly be in the interest of the people of Northern Ireland, and especially of the most vulnerable people living in our society.
My Lords, it is time to move towards putting this statutory instrument to bed. We have heard a lot of passion, as we might expect on a subject so charged with emotion. My fellow catholic the noble Lord, Lord Deben—we are both catholics, not puritans—expressed views that I have heard certainly on our side of the fence, and others have also spoken with deeply felt emotion.
I found the framework offered by the report from the Secondary Legislation Scrutiny Committee to be a helpful way of approaching this matter. It reminds us of course that the House might just be of interest in this subject—in fact, it was the House, largely, that put the poor Minister in the predicament he finds himself in in the first place. He will of course bat with a straight bat, as we expect him to as a professional, but we know also that he is a man not without deep passion on this matter as well. We are therefore delighted that, at long last, this matter has now reached the point of getting on to the statute book.
We note the matter of money: the gross gambling yield is £1.8 billion, and the impact on the business will be £540 million. But we must remember that the industry has had a long time to consider and to understand that this was going to happen—I would have laid great odds on it recognising it sooner, if I may use my metaphor very carefully. That £540 million is under 30% of the gambling yield, but it could have been phased over several years by an industry that is certainly able to make those calculations. The transition costs are put down as £3.8 million, which is of course nothing at all. There is therefore nothing to stop this thing going forward.
I was in the Gallery in the other place when I heard the Chancellor mention October 2019, and I simply could not believe it, because I believed that in this House we had come to a conclusion that would see government action from April of next year. Let alone asking ourselves whether it could have been sooner—of course it could have—but suddenly to go from April to October like that took me by surprise. I add my voice in expressing regret for the fact that the high price of the loss of a Minister of the integrity of Tracey Crouch had to be endured as a result of that action.
We now look at this matter and ask ourselves where we go next. The committee’s report says:
“The House may wish to ask the Minister how the Government will cooperate with the gambling industry”.
It seems that the Government have co-operated extremely well with the gambling industry and have certainly put its point of view before us again and again. The report also says:
“The House may wish to ask the Minister what steps the Government will take to ensure industry has sufficient advance notice of the increase”.
Once again, the industry has had plenty of notice of the matter before us.
Indeed, when I look at the report before me and I see:
“These benefits accrue via reduced gambling-related harm. It is impossible to accurately quantify these benefits given the data available”—
incidentally, I pass over the split infinitive quite deliberately, not wanting to show myself to be pedantic, but I cannot bear it and so must show myself to be very pedantic. With “given the data available”, regret is expressed that there is not enough data for us to see our way forward. Yet, when I look at the Explanatory Memorandum, I see that in a 2013 consultation the Government felt that they wanted to do certain things then but could not because of what are called “knowledge gaps”, and they asked the industry to be responsible for filling those knowledge gaps way back in 2013. We had a consultative process in October of last year, but that was 2017, was it not?
Therefore, over a long period of time, we have been labouring with an absence of the kind of empirical information that will lead us to an evidence-based set of conclusions, and I feel it necessary to point out that if we have reached where we are now, it is not before time. We can only be glad of the progress that has been made, and I echo the voices that have been raised around the House.
The final question is about the costs, both financial and societal, with problem gambling. I discovered another thing in the impact assessment, right at the top, which we have argued about over the years:
“Gambling-related harm produces several negative externalities including but not limited to: increased healthcare costs, welfare costs, and other costs to individuals associated with problem gamblers (e.g. family, friends and employers)”.
For years, I have been asking that that be seen as a material reason for us taking radical action to get the balance right in the whole way the gambling industry does its work. There are oncosts and society disadvantages that occur. It is a known fact that these harms are produced, and I am glad to see that the impact assessment begins with that fact.
What can we do now that we envisage the future? The right reverend Prelate the Bishop of St Albans has been mentioned; I know that he, with others, is seeking to get a special inquiry into gambling set up. So much is happening piecemeal across the whole range of gambling initiatives; we are tinkering with this here and that there, and perhaps now it is time for us to take a generic look. Perhaps this statutory instrument can be seen as a first blast in a bigger action that could lead to a better understanding and a far better set of regulations for our society at large.
My Lords, I thank all noble Lords for their contributions to this short but important debate, and for the general support for the narrow basis for this order from many noble Lords. As the noble Lord, Lord Foster, said, it has been—to put it nicely—rather a long-drawn-out debate on the important area of B2 machines. There has been such consensus about the harm they can do to individuals and communities, which may sometimes obscure the fact that millions of people in this country enjoy gambling safely and responsibly. I will be saying something more about the balance that my noble friend Lord Deben has raised.
I start by paying tribute to Tracey Crouch. I agree with much of the sentiment from across the House today; it is a great disappointment that she decided to resign. She was an effective and hard-working Minister and I have no doubt there will be an opportunity for her to return at some point, although that of course is above my pay grade. I also pay tribute to the right reverend Prelate the Bishop of St Albans, who is not in his place. He has worked tirelessly to raise important issues in this area and I have no doubt that he would have wanted to be here today.
I will answer the questions that have been raised. I reassure the noble Lord, Lord Griffiths, and others that I will also be making a few comments about the future; this is not about just today but about the future as there is still much work to be done.
The noble Lord, Lord Foster of Bath, asked a direct question: why has it taken so long to bring about this change? This question has echoed around the Chamber. I also note what my noble friend Lord Deben said in some sharp comments against this side of the House, which are noted. I have also taken note of the comments of the noble Lord, Lord Lipsey, who put a little of the other side of the argument to imply that the length of time taken to get to this point is not wholly due to—but might have something to do with—the original decision of setting the maximum stake at £100. I do not want to make too much of that point.
I reassure the House that the Government are committed to policy-making that considers all available and relevant evidence. We have consulted widely; we have received thousands of responses and, having considered the evidence, we took decisive action to cut the stake to £2. As I said earlier, I am very proud of the progressive legislation that we are bringing forward today.
The noble Lords, Lord Foster of Bath and Lord Lipsey, asked about the change of date for implementation. We have said all along—as I said earlier as well—that protecting vulnerable consumers is our prime concern, although it was necessary to take account of the effect that this reduction will have on industry and those employed by it or in it. I do not see much sense in going over the ashes. A decision was made; we listened, and we consider that April 2019 allows sufficient time for relevant changes to be made by industry. The draft Finance Bill was also amended so that the increase in the remote gaming duty comes into effect in April 2019 alongside the reduction in the stake.
I will say a little more on this subject because, since the announcement in May, officials have met with the Association of British Bookmakers, and with individual operators. They have also met with the two largest machine manufacturers along with the regulator, the Gambling Commission. Discussions have covered the likely impact on shop closures, job losses, mitigations and the technological changes that will be required. Operators have also had meetings with HM Treasury, Ministers and officials regarding the remote gaming duty. This is where I want to talk about balance because we have to bear in mind that there are a number of jobs involved. We do not agree entirely with these figures; I have said in this Chamber before that more research needs to be done to nail down the precise figures. However, the ABB says that the changes could lead to 4,500 shop closures and 21,000 job losses; there is another side to the argument and it is important to say so.
Other points have been made, notably from the noble Lord, Lord Griffiths, that the industry has known about the Government’s intentions to reduce the stake to £2 since May this year, leaving lots of time to April of next year. The date announced last month provides further clarity to allow it to continue its preparations. We expect the industry to mitigate employment impacts and provide the right support to those affected should it have anticipated any job losses. I reassure the House that officials will continue to work with the industry to ensure that it is prepared for the impacts of a B2 stake limit. This will include mitigating any employment impacts and providing relevant support to individuals affected where there are job losses.
I turn to some comments made by the noble Baroness, Lady Howe, about online gambling; this is an important matter for the Government. Online customer data gives opportunities for operators to identify vulnerable customers and target interventions; they are required to do so under the licence conditions and codes of practice set out by the Gambling Commission. We expect operators to make full use of customer data to prevent harm before it occurs. The Gambling Commission and the Remote Gambling Association have separately published guidance for online operators on best practice for identifying consumers who might be experiencing gambling-related harm and interacting with them.
We will be paying close attention to industry progress in this area and will act if we need to. Where there is evidence that a particular product is causing harm we must and will take action. Gamble Aware is commissioning research into game and product characteristics. The commission consulted on proposed changes to the licence conditions and codes of practice will strengthen age-identity verification. I was in the Chamber when my noble friend Lord Ashton spelled out more detail on the age-verification process; I do not propose to go over that again today. It will also gather evidence on the use of credit cards for online gambling. This is very much work in progress and an important area, as I said.
The noble Lords, Lord Alton of Liverpool, Lord Foster of Bath and Lord Griffiths of Burry Port, alluded to the fair point that B2 machines are often found in areas of high deprivation. That is one of the reasons that the decision was made to bring the £100 limit down to £2. As I said in my opening remarks, the Government considered that this reduction was more likely to target the greatest proportion of problem gamblers and protect the most vulnerable players. Important points have been made and we will continue to look at that.
The noble Lord, Lord Alton, asked about funding available for research, education and treatment. From the voluntary perspective, industry donations are well on track to meet the Gamble Aware targets. We still need more evidence of what is needed and what is effective to inform future funding levels. The review announced initiatives to build evidence, including a Public Health England evidence review. This is very much a cross-government—
On this point, referring to the question asked by the noble Lord, Lord Alton, the Minister is correct to say that the Gamble Aware target is being met, but he will be aware that it is only one of the providers of help and support to people with gambling problems; there are many others which need funding. The reality is that there are 435,000 people in this country with gambling problems. Currently only 2% of them are getting support; clearly more is needed. I hope the Minister will agree.
I agree but I fall back to the point that we still have a considerable amount of research to do. At the moment we are quite content to take the regulatory approach on the voluntary angle. My noble friend Lord Ashton and I continue to keep this under review. If there is a need to legislate, we will have no hesitation in doing so because this is an important area.
The noble Lords, Lord Alton and Lord McCrea, asked whether I agreed with the example of Ladbrokes voluntarily reducing stakes in Northern Ireland. As the House might predict, and as the noble Lord acknowledged, gambling is devolved in Northern Ireland. I cannot comment further except to say that action taken by industry to improve protections and social responsibility measures is very much to be encouraged—
I am sorry to interrupt the noble Lord but might I press him further on commending the decision of Ladbrokes to voluntarily reduce the level of the wagered sum from £100 to £2? Surely it is not unreasonable to say that others in Northern Ireland should do the same; it does not require legislation on the part of the Government to commend that. I do not think it is an unreasonable request to the Minister to think about putting that on the record as a matter of encouragement.
The noble Lord is pushing me. It would be nice to be able to say that but I am not going to be drawn on it. It remains a matter for Northern Ireland to make that decision, and I have gone as far as I wish to go on that point.
However, I promised to talk about the future and I hope to offer some reassurance to the House about the point leading on from this important but rather narrow statutory instrument. We will always need a regulatory system that protects the most vulnerable in our society. The publication of the gambling review did not mark the end of government action. We have an industry regulator with the core responsibility of licensing and regulating gambling to keep it fair, safe and free of crime. We will also work with colleagues from other departments—such as the Department for Education, to ensure that we are co-ordinated in our approach to young people, and the Department of Health and Social Care—to improve links between gambling treatment and other services. We will act where there is evidence of harm, and we will always keep issues under review, as is our responsibility.
Achieving a balance between industry growth and social responsibility needs to be a joint effort between central government, regulators, local councils and gambling companies. As we have discussed, B2 gaming machines are an outlier in the world of high-street gambling because of the speed with which it is possible to lose large sums of money. As I said earlier, there was extensive support for a significant reduction in B2 stakes, and many noble Lords have expressed strong support for the Government’s decision in May.
I mentioned earlier my admiration for the right reverend Prelate the Bishop of St Albans. To reassure the House, I know that he is due to meet my noble friend Lord Ashton and the Minister for Sport and Civil Society, Mims Davies, in the new year to discuss gambling-related issues. I also extend my thanks to my noble friend Lord Chadlington for his continued work in this area. I gather that he has recently held a fruitful meeting with the Secretary of State at the Department for Digital, Culture, Media and Sport, alongside my noble friend Lord Ashton—the ever hard-working Minister—and the Minister for Sport and Civil Society.
I will finish there but will just say that this is an important change. I have listened to the views in the House, going beyond the narrow point of these regulations. We have a chance to make a real difference to the lives of vulnerable people.
Arrangement of Business
My Lords, before we consider the Statements, perhaps I may suggest an alteration to the way we handle business this evening. We are running a lot later than we expected. Three statutory instruments concerning health matters would have been moved en bloc at the end of today’s business but, if the House is happy, I am happy to postpone them to a date in January, when we come back, because they can then be considered properly as opposed to at a very late hour this evening. That means that we will do the two Statements, plus the BEIS statutory instruments, and I hope that we will then finish our business here at a reasonable hour. I hope that everybody can cope with that change.
Modernising Defence Programme
My Lords, with the leave of the House, I shall now repeat a Statement made earlier today in another place by my right honourable friend the Secretary of State for Defence on the modernising defence programme. The Statement is as follows:
“Mr Speaker, in July I made a Statement setting out headline conclusions from six months of intensive work on the modernising defence programme—the MDP. Since then, work has continued apace. First, I would like to welcome the extra £1.8 billion funding for defence, including the additional £1 billion that was in last month’s Budget. Today, I want to provide an update on the MDP and set out the work that will be ongoing. I have placed a full report on the MDP in the Library of the House.
First, I should put the MDP into context. The 2015 strategic defence and security review was the right plan for defence at that time. The Government put the defence budget on a firmer footing, increasing throughout the life of the Parliament. Defence is much stronger as a result. NATO is growing in strength and the UK is a leader. More allies are meeting the 2% spending guideline, or have developed plans to do so. We are the second-largest defence spender in NATO, one of only a small number of allies to spend 2% of our GDP on defence and to invest 20% of that in upgrading equipment. We can be proud of what we have achieved since 2015, but we must also be vigilant.
National security challenges have become more complex, intertwined and dangerous since 2015, faster than we anticipated. Persistent, aggressive state competition now characterises the international security context. In response to the growing threats, the MDP was launched in January, and in the last year our Armed Forces have demonstrated their growing capability, engaged globally and supported the prosperity of the UK. The Royal Navy has increased its mass and points of presence around the world. We have taken steps to forward base the Army, enhancing our global posture. The Royal Air Force has continued to innovate and has celebrated a proud past in the year of RAF100.
Progress has also been made in cyber and space, as the changing character of warfare makes both domains increasingly important. We have reinforced the UK’s position as a leading voice in NATO and European security, and our Armed Forces have led the line for global Britain, tackling our adversaries abroad to protect our security at home and nurturing enduring relationships with our allies and partners.
Through the work over the past year, the MDP has identified three broad priorities, supported by the additional £1.8 billion investment in defence. First, we will mobilise, making more of what we already have to make our current force more lethal and better able to protect our security. The UK already has a world-leading array of capabilities and we will make the most effective use of them. We will improve the readiness and availability of a range of key defence platforms: major warships, attack submarines, helicopters and a range of ISTAR platforms. We are adjusting overseas training and deployments to increase our global points of presence, better to support allies and influence adversaries. To improve the combat effectiveness of our force, we will reprioritise the current defence programme to increase weapon stockpiles, and we are accelerating work to assure the resilience of our defence systems and capabilities.
We can mobilise a full spectrum of security, economic and influence capabilities, and, where necessary and appropriate, we will make sure we are able to act independently. We will also enhance efforts with our allies and partners, aligning our strategic plans more closely with them, acting as part of combined formations, developing combined capabilities and burden-sharing. We continue to invest in, and grow, our global network of defence personnel and the education and training we offer in the UK and overseas.
Secondly, we will modernise, embracing new technologies to assure our competitive edge. Our adversaries and competitors are accelerating the development of new capabilities and strategies. We must keep pace and conceive of our joint force as consisting of five domains—air, land, sea, cyber and space—rather than the traditional three. We must modernise, targeting priority areas. A major new step will involve an improved Joint Forces Command that will better position defence for future conflict, improving the integration of offensive cyber across our Armed Forces and the rest of government, and providing advantage in the new information-rich environment.
This year the defence innovation fund put £20 million towards projects in areas including unmanned air systems, virtual reality training, and enhanced digital communications for the future commando force. The fund will grow to £50 million in the next financial year, increasing the scope, ambition and value of the projects it can support. We will launch new ‘Spearhead’ innovation programmes that will apply cutting-edge technologies to areas including sub-surface threats to our submarines, our intelligence, surveillance and reconnaissance capability, and command and control in the land environment. To drive innovation and change through the department, I am launching a transformation fund. Next year, I will ring-fence £160 million of the MoD budget to create this fund, which will be available for innovative new military capability. I will look to make a further £340 million available as part of the spending review. This fund will be available for new innovative military capabilities which will allow us to stay one step ahead of our adversaries.
Together, these and other steps will enable the acceleration of our modernisation plans. Thirdly, we will transform, radically changing the way we do business. We need to improve markedly the way we run defence. To sustain strategic advantage in a fast-changing world, we must be capable of continuous and timely adaptation. We will embrace modern business practices and establish a culture that nurtures transformation and innovation. We also need to create financial headroom for modernisation. Based on our work to date, we expect, over the next decade, to achieve the very demanding efficiency targets we were set in 2015, including through investment in a programme of digital transformation.
We will develop a comprehensive strategy to improve recruitment and retention of talent, better reflecting the expectations of the modern workforce. We will access more effectively the talents of our ‘whole force’: all three services, regulars, reserves, Civil Service and industry partners. Looking ahead, dealing effectively with persistent conflict and competition will increasingly hinge on smarter, better-informed long-range strategy. To help achieve these goals we will establish a permanent net assessment unit, as well as a defence policy board of external experts, to bring challenge to defence policy and strategy. Our achievements under the MDP have made defence stronger. The capability investments and policy approaches I have set out—with the £1.8 billion of extra funding—will help to keep us on track to deliver the right UK defence for the challenging decade ahead. Without a shadow of a doubt, there is more work to be done as we move towards next year’s spending review. We must sustain this momentum if we are to realise our long-term goals of increasing the lethality, reach and mass of our Armed Forces. I will do everything in my power to make sure that the UK remains a tier 1 military power in the decade ahead, and that we continue to deliver the strong defence and security that has been the hallmark of the Government. I commend this Statement and my report to the House”.
My Lords, that concludes the Statement.
My Lords, I thank the Minister for repeating the Statement. When I first read it, I thought it was the sort of statement Pepys might have made—and probably with better reason. It is essentially a classic “We will try harder” statement. Let me illustrate. I was reading through it and trying to find something substantial, and I tripped over the phrase,
“the MDP has identified three broad priorities”.
I thought, “Well, that is different”. I went on to see what they were:
“We will mobilise, making more of what we already have ... We will make the most effective use of them … We will improve the readiness and availability of a range of key defence platforms”.
The noble Earl’s party has been in power for eight years. What has he done in the previous seven years, if not these sorts of motherhood-type things? It does say something tangible: namely, that,
“we will reprioritise the current defence programme to increase weapon stockpiles”.
I feel that “reprioritise” must have a specific meaning: to take from somewhere and give to somewhere else. One can hardly criticise increasing weapons stockpiles to more sensible levels—but can the Minister tell us where the money is being taken from to be reprioritised in weapons stockpiles?
Later in the Statement is the sentence:
“And, where necessary and appropriate we will make sure we are able to act independently”.
We are in the gunboat business again. What sort of independent missions does the noble Earl have in mind? To make that statement, defence must have developed a series of scenarios. Where does the noble Earl feel that acting independently would be a sensible thing for the United Kingdom to do?
Turning the page, the Statement says that,
“we will modernise, embracing new technologies to assure our competitive edge … targetting priority areas”.
This is 2010. Surely a good Administration who have been in power for eight years should have been doing that all along.
It is really only on the second page that there is anything new. We are going to have a “defence innovation fund” and a “transformation fund”. Can the Minister set out in detail what these funds are intended to do and what the difference between them is? The Statement reads:
“I will ring-fence £160 million of MOD’s budget to create this fund”,
and then talks of further funding. Previously, it speaks about “£50 million” in the “next financial year”. That is £210 million—a little over 0.5% of the defence budget. This is nothing like the amounts of money required to make a significant impact. Later, it says:
“We will embrace modern business practices”.
What are they? Why have they not been embraced before? I like this phrase:
“We will develop a comprehensive strategy to improve recruitment and retention of talent”.
Is that code for, “We are going to fire Capita?” It comes from such a low base that surely getting rid of it and having the MoD doing its own recruitment would be the way to go. Is it not true that, with Capita’s help, we are losing net numbers of trained personnel?
The Statement goes on to say something that might actually be meaningful—that a permanent net assessment unit will be established. That could mean a radical change in how the MoD makes its decisions. It could mean a movement towards the centre or it could mean that it is just some unit that passes comments. Can the Minister spell out what structural changes will be made to make this net assessment unit meaningful?
Earlier, the Statement reviews how the threat has become more significant in a whole series of areas and talks about £1.8 billion of extra money. I think that all this money has been announced before—I will be happy to be corrected on that. But can the Minister set out in some detail where and when the money will be spent? I have an uneasy feeling that it is just about enough to keep up with the increased threat.
The only glimmer of hope in the Statement is in the last paragraph:
“There is more work to be done as we move towards next year’s Spending Review”.
I hope that that is code for defence setting out to try again to get some more resources. The programme hinted at in the Statement—let us it call it “SDR 2015-plus-plus”—is unaffordable without cuts or more money, or are we going to muddle on yet again overpromising and underdelivering?
My Lords, I thank the noble Earl for repeating the Statement. I share many of the observations that the noble Lord, Lord Tunnicliffe, made in the last moment or two. This is the second time that I have heard the Statement, because I took the opportunity to go and hear it when it was first delivered in the other place. I have to confess that hearing it twice has not improved it, in spite of what I anticipated being the mellifluous tones of the noble Earl, for whom I have the greatest respect. Looked at in the round, the Statement could easily have been made at any time in the course of its nine months of gestation. It contains a whole list of promises but is largely silent about how the promises are to be delivered.
When we examine some of those promises, we see that they reflect things which the Ministry of Defence should be doing now as a matter of course. Surely we are currently enhancing,
“efforts with our allies and partners”.
Indeed, one would think that the very possibility of Brexit would surely make that an even more urgent requirement. Are we going to “act independently”? For example, if independent action in defence of an overseas territory were required, surely we would be capable of doing that at the moment. Why are those two issues focused on in that way that they are in the Statement?
Nor is there any mention of the immediate challenges that face the Ministry of Defence, such as the gap of billions of pounds in the equipment budget—an issue that the noble Earl will recall I have raised with him on two recent previous occasions. How will that gap be filled? I will return to the question of financial support in a moment or two, because the Statement contains a couple of sentences that justify careful reading and interpretation.
There has already been reference to the fiasco of Army recruitment. How will that be remedied? Is the company that has responsibility simply to be sacked? Why not go back to the previous system, which, as far as I recall, was effective? Was the idea of letting it out designed to save money? If it was, it has certainly not been successful in the sense of producing the promises that were made in respect of it.
Finally, there is the question of the continuing fall in and erratic nature of the value of the pound. How is that affecting the ability of the Ministry of Defence to continue with its programmes of acquisition? What steps, if any, has the Treasury offered in order to assist if necessary because of these fluctuations?
Perhaps the most important passage is the one to which I referred a moment ago and said that I would come to. Two consecutive sentences say:
“We also need to create financial headroom for modernisation. Based on our work to date, we expect to achieve over the next decade the very demanding efficiency targets we were set in 2015, including”—
here there is a typographical error—
“through investment in a programme of digitally enabled transformation”.
I know of no government programme of “digitally enabled transformation” in the recent past that has proved anything other than more expensive than intended and with delivery several years after it was originally projected. It is a pretty optimistic tool to use in the issue of finding headroom in defence spending. I suspect that that tells us that the Ministry of Defence is not expecting any more increase in expenditure.
In advance of today’s Statement and the publication of the report, there was an apparently well-sourced leak that the Secretary of State for Defence was going to announce that one of the ambitions would be to raise defence expenditure from 2% of GDP to 3% annually. That did not appear in the Statement. When the question was put to him specifically in the other place by the Chairman of the Defence Select Committee, he very neatly sidestepped it. I suspect that that might well be an ambition of the department—but I equally suspect that the Treasury has made it pretty clear that that ambition is not capable of being resolved.
It is also a pity that we have had the Statement and that the publication of the report did not take place in sufficient time for it to be considered as a whole. I very much hope that the noble Earl will, through the usual channels, be willing to commit to endeavour to have a full-scale debate on the terms of the report. That is a much fuller indication of what the Government’s intentions are—albeit, so far as the noble Lord, Lord Tunnicliffe, and myself are concerned, that the report and the Statement leave a great deal to be desired.
My Lords, I am grateful to both noble Lords for their questions and comments, which, in some respects, have covered similar ground. I will endeavour to reply to as many of the points as I can.
It is a little unfair to level at the Government the accusation that we have been doing very little since we came into office. Chapter 1 of the report spells out the wide range of investment and procurement that the Government have taken forward since 2015 in particular. That programme continues on a rising budget, as is often overlooked.
The noble Lords, Lord Tunnicliffe and Lord Campbell, asked about the additional money we were granted in the Budget. The first thing to say is that the additional money granted to us this year and next will enable us to proceed with programmes that we are clear are priorities. One of these is our defensive cyber programme; another is stockpiling and spares. A further priority is the work we are doing at pace on offensive cyber. The money will also enable us to proceed with a more cost-efficient profiling of payments relating to the dreadnought programme. More generally, the money is excellent news for our modernisation programme in a number of areas. The report spells those out. Some would say that the significant thing about the Budget settlement is that we are not anywhere near making or talking about the kinds of cuts to military capability that some commentators were predicting earlier in the year. That sends an important message.
Both noble Lords asked about the circumstances in which we might act independently. I would not want to place too much emphasis on that part of the Statement. In the vast majority of situations we plan on the basis of working alongside our allies in NATO—the cornerstone of our defence—or as part of some other multilateral force, hence the emphasis in the report on the theme of international by design, which was a key strand of policy articulated in the SDSR. We are the lead nation in the JEF, for example. We lead the framework NATO battalion in Estonia. However, the nation would expect that we should, in exceptional circumstances, be able to act independently, not least in defence of the realm and our overseas territories, and to respond effectively in disaster relief and humanitarian operations that our allies might not necessarily wish to take part in.
As far as the modernisation of defence practices goes, we in the ministry are aware that there is ample scope for more automation and digitisation in back-office functions more broadly. This is covered quite well on page 17 of the report. It is about instilling a culture in defence built on leaner structures and less cumbersome reporting lines, not least when it comes to our relationship with industry.
The noble Lord, Lord Tunnicliffe, asked what the practical difference was between the innovation fund and the transformation fund. Both are about improving our capability. The transformation fund will add to our ability to pursue promising new projects, technologies or equipment at the pace required to counter the threats. It will focus in particular on opportunities to increase our lethality and mass. The innovation fund, which of course emerged from the SDSR, is a 10-year programme. That is much more about seeing how new ideas can transform defence and testing the utility of those ideas at an earlier stage of their development. It is also about pump-priming good new ideas.
Both noble Lords asked me about the people programme and, in particular, about Capita and our recruitment and retention. We accepted the conclusions and recommendations of the recent NAO report. We await the PAC report before replying formally, but I will just say that the tone of the final report is disappointing and provides only limited acknowledgement of the work that the MoD has undertaken or has planned. The NAO recommendations largely address areas in which work is already under way or planned. As regards Capita, we accept, of course, that the recruit partnering project has not performed to the satisfaction of the Army or, indeed, Capita itself. Significant time and resource has been invested to improve that situation. Part of the problem is that the defence recruiting system let us down. Significant additional Capita resource has been deployed to improve the DRS performance and, while there continue to be issues, I can tell both noble Lords that performance has improved significantly.
The noble Lord, Lord Tunnicliffe, asked about the strategic net assessment. Strategic net assessment is an intellectual discipline. It looks across all dimensions of military competition and assesses how the choices of both friends and foes may play out over the short, medium and long term. Its conclusions can be used to develop more nuanced and better-informed defence strategy so that we can better anticipate our adversaries’ actions and counter them more effectively. That will be closely co-ordinated across government to ensure coherence.
My time has almost expired, but I want to answer the question of the noble Lord, Lord Campbell, about the funding gap in the equipment plan identified by the NAO. The NAO report reflects the unlikely situation where all the equipment plan financial risks materialise at the same time. We are confident that we will deliver the equipment plan within budget this year, as we did last year. We recognise the financial challenges that our programmes pose: they are ambitious and complex but we are addressing these after securing the financial boost arising from the Budget and reducing forecast costs through efficiency savings. We have taken steps to enable longer-term affordability by improving financial management of the plan. A new executive agency has been established to lead on procurement and in-service support and decommissioning of all nuclear submarines, as the noble Lord is aware. It is important to understand that the MoD manages a £5.1 billion equipment plan contingency and a £1.1 billion nuclear contingency within the £186 billion allocated to the plan precisely to manage those cost pressures.
As for the value of the pound, I believe that I have said on previous occasions that we benefit from being able to engage in hedging operations to shelter the fluctuations in sterling against the dollar, in particular. I will write to the noble Lords on those questions that I have not had time to answer.
My Lords, I thank the noble Earl for repeating the Statement. There are some bits of the Statement that are, of course, welcome, such as further thought and action on cyber and on space. The noble Earl mentioned improved resilience, but I see very little indication of that. Will he spell out a little more what he means by improving resilience? One word that was not mentioned, either by the noble Earl or in the “Dear colleague” letter, which I have read, is the word “Brexit”. I wonder how the Ministry of Defence is dealing with this subject. Can the Minister give any indication of the possibilities that could impact on what we have heard today about the way the money is to be spent, for example if Brexit takes a turn in the direction of no deal?
My Lords, I can deal very quickly with the second part of the noble and gallant Lord’s question. The Ministry of Defence stands ready to support other government departments if called upon, and if we find that the resources of those departments are insufficient in themselves. Having said that, we have received no formal bids as yet from other departments, despite the fact that we have asked them what they envisage requiring. There will be approximately 3,500 personnel standing ready in case of need to meet such situations.
Resilience has been a major theme of our deliberations. There are quite a number of strands to that. One is to look carefully at how we can enhance our chemical, biological, radiological and nuclear defence capabilities, investing further in Porton Down. We are also, as the report makes clear, enhancing our ability to share submarine threat data with our closest NATO allies. We are improving our secure communications, protecting our networks from cyberattacks and improving our ability to exchange information with NATO partners, as I have said.
We are also clear that we need to invest in improving power-generation capabilities for both Type 23 and Type 45 Royal Navy ships, enhancing their overall capability and productivity. There has been criticism, as I am sure the noble and gallant Lord is aware, of the extent to which some Royal Navy ships have been kept in port rather than being deployed. We are clear that we need to enable the Royal Navy to do better in that area.
The other obvious example of improving resilience is increasing the provision of spares and support to enhance global deployability and presence, particularly as regards the helicopter fleet.
My Lords, I woke this morning to the news of the transformation fund of £160 million. Clearly, that was what the MoD briefed last night from this Statement because that was what the Secretary of State wanted the media to focus on—and they have done, for most of today. So I too will focus on this in your Lordships’ House.
Since the Statement was first made, the MoD has briefed further that the fund will be used in part to look at artificial intelligence and its uses in a series of new programmes, as well as—this is the phrase that I understand was used—tackling threats to submarines. These must be new threats. The Statement itself expresses another ambition for it, saying:
“This fund will be available for new innovative military capability which allows us to stay one step ahead of our adversaries”.
This seems a heroic ambition for £160 million. I say that because, in 2014, Google paid £400 million for a University College London spin-out called DeepMind. The 2017 accounts of that business show that Google DeepMind staff costs are in excess of £200 million a year. So it does not seem that £160 million will go very far in that challenging environment.
In order that your Lordships’ House and others who will have to do so can assess what this money will be used for and whether that is a justifiable use with any significant result, can the Minister explain—either today or in writing—what series of new programmes this money will be deployed to develop? What are these new threats to our submarines that need to be tackled and are not already accounted for in the MoD budget?
My Lords, the defence transformation fund means that £160 million will be available next year from within the MoD’s existing budget, and we are looking to make a further £340 million available as part of the spending review. That will be part of our bid. The transformation fund has been established, in general terms, so that we can respond rapidly to new opportunities to invest in technologies that are game changing, and projects that move us forward at pace in areas that represent priorities. It will complement the innovation fund, as I have explained, although that fund will in itself more than double next year. It is too soon for me to itemise the projects and technologies that this money will be spent on. This is work in progress, but we are clear that the fund will perform a very useful function in enabling all the commands to focus their minds on priorities and potentially game-changing areas of activity. As further information becomes available, no doubt noble Lords can ask me about that and I shall be happy to provide further details in due course.
In the noble Earl’s judgment, what above all in this defence review distinguishes it from its 13 predecessors since 1945? As a footnote, I am greatly interested in the new tauter approach to strategic policy-making, with the new net assessment unit. To enable your Lordships to test the quality of this new approach, I wonder whether the Minister could place in the Library a copy of the new strategic assessment of the high north, undertaken as a pilot project, which is mentioned in today’s document?
My Lords, if it is possible for the Ministry of Defence to share that document, I will certainly do as the noble Lord asks. In answer to his first question, there are two things to say about the MDP. First, this has been a major and very thorough piece of work. Secondly, the document is essentially strategic in its nature; it focuses on key defence capabilities and has affirmed the central elements of our strategy as articulated in SDSR 15, from which, as the noble Lord is aware, it emerged. It has also guided our investment decisions on capabilities, announced at the Budget, and updated our key policies. It is designed to keep us on track to deliver the right defence for the UK, and does so in what we see as a challenging decade ahead. As noble Lords read and reread the report, I am sure that it will make clear a lot of detail underlying the general proposition that I have just articulated.
My Lords, as the noble Earl has just said, the present document is very detailed, yet in many ways it appears to be a glossy brochure with a lot of aspirations. These remind me rather of the vagueness that we get on what Brexit might look like. There do not appear to be clear strategies for where the Government want to go. Can the noble Earl explain what £160 million might actually be able to deliver? I think it is about the equivalent of two F35s, and I am not quite sure how will keep this one step ahead of our adversaries. I also come back to the question raised by my noble friend Lord Campbell about the exchange rate because hedging is one thing, but we are moving towards a one-for-one rate in the pound to the dollar. Is it really credible to say that the Government have hedged all of our defence budget in that way?
We have not hedged all our defence budget, but we have hedged a substantial proportion of it, particularly that which is payable in dollars. I was speaking to our finance director last week about this. Although she could never be sanguine about the way the pound is moving, she is much clearer now that we have an affordable equipment budget over the next couple of years, which is the period over which she aims to hedge. I have already made clear to the noble Lord, Lord Browne, that it is unfortunately impossible for me to enumerate at this point those projects which will come under the umbrella of the transformation fund. It was said that £160 million is not a great deal of money—it sounds like a great deal of money to me, I must say—but one should not think of transformation simply in terms of platforms and assets. One has to think of it in terms of different ways of working and of modernising practices within defence. That is where this fund will score most heavily.
In the Statement we are told that the Government wish,
“to improve markedly the way we run Defence”,
“Based on our work to date, we expect to achieve over the next decade the very demanding efficiency targets we were set in 2015”.
Can the Minister remind the House of how much money the 2015 defence review said would be saved by efficiency savings and over what period? How much has been saved to date? Have any service personnel been deployed to work in the MoD to fill vacancies caused by civil servants leaving because of efficiency savings achieved to date?
I am afraid I do not have the information in my brief to answer the last part of the noble Lord’s question, but the target we set ourselves in 2015 was £7.4 billion of efficiency savings. We have achieved 70% of our target; we have achieved £5 billion. That was the target over a five-year period. We are now looking further ahead to see what further efficiencies we can generate over a 10-year period. That work is ongoing.
My Lords, I do not normally wear a uniform for a Statement on defence, but I have just been at a commemoration of the Battle of North Cape, where the very modern German battle cruiser “Scharnhorst” was sunk on Boxing Day 1943 by a British battleship, two cruisers and 10 destroyers, who hit her with numerous 14-inch shells and 6-inch shells and 19 torpedoes before she sank.
There is lots of rain coming in. If the roof comes down, I will stop talking. It is a bit like being on “Ardent” under gunfire; I rather like it.
The reality is that numbers count, but that is not my point. I feel this is rather a damp squib, to be quite honest, and so was the Statement in July. It is full of platitudes—motherhood and apple pie-type statements. There are lots of things that I would expect to be going on anyway. If they were not, somebody ought to be taken out and shot. It is really very disappointing. The good thing is that the Secretary of State for Defence managed to get £1.8 billion extra for defence, which was fantastic, and he has managed to kick into touch, or into next year, when the really interesting things will happen in the spending review decisions about defence. Not long ago, it looked as if decisions would be made to cut things that would have been quite disastrous for the nation, so he has managed to slip that sideways. To be quite honest, this Statement is not exciting. It is like a glossy brochure, as the noble Baroness said, and I find that very disappointing. The £1.8 billion figure has been talked about before. The £800 million was for Dreadnought and has been pulled forward. We were told that the £1 billion was for Dreadnought, anti-submarine warfare and cyber. It seems that some of this has been purloined for other things. I will be interested in how much of it is for anti-submarine warfare, which is what was mentioned by the Secretary of State when he said we have an extra £1 billion.
The Statement refers to an increase in the “mass” of the Navy and the military. We have certainly got heavier because we have a bloody great aircraft carrier. In terms of numbers, the only difference is that, because we kept three OPVs, we have two extra ships—that is all over the next 10 years or so, because the 31e is replacing other ships. I find that a little misleading.
The Statement says that we are a “leading voice” in European security. Europe’s disgraceful decision on Galileo does not make me think that we are a leading voice in European security—we are in NATO, but not in European security. That is worrying.
My noble friend Lord Tunnicliffe mentioned the increase in weapon stockpiles. The MoD has always been bad about that but, as soon you increase weapon stockpiles, you take money from somewhere else. We do not know where this money is coming from. Similarly with some other references to amounts of money, it is not clear where they are coming from, but what is quite clear that we cannot meet the demanding efficiency targets. One knows that from talking with everyone in the MoD. To pretend that we can is wrong; it is no good fooling and deluding ourselves. Does the Minister really believe that we will meet all the efficiency targets and save the amount of money that we said we would? Yes, we can manage to balance the books over the next two years and manage to get equipment by slipping and sliding things around—the MoD has done that for years—but we have a real problem. Let us face it: there is insufficient money in defence at the moment to run the programme that we would like. Somehow that has to be resolved. It will be fought out in next year’s spending round—the Secretary of State has been clever in sliding it to then and not taking terrible decisions now, but, my goodness, we need to look carefully. To be quite honest, this Statement is really a damp squib.
I am sorry that the noble Lord feels that way. I gently put it to him that the size of the document belies the depth and significance of its content. This was never going to be about a catalogue of future assets or platforms or number of ships in the Navy. As I said earlier, the programme is largely strategic, focusing on those key defence capabilities on which we think we should concentrate in the light of the threats facing us. In effect, it is a sense check of the SDSR of 2015.
The noble Lord rightly says that the spending review will be an important ingredient in our budget over the longer term, but the outcomes of the MDP will inform next year’s spending review in a helpful way. It provides a solid foundation on which to base the case that we will present for defence spending over the coming few years.
Noble Lords should not underestimate the importance of the Budget settlement. That settlement will undoubtedly enable our Armed Forces to modernise and meet the intensifying threats and risks that we now face, including prioritising investment in key capabilities. The spending review will come next year, but we have in the meantime the ability to move forward on a number of vital fronts, which is extremely valuable.
My Lords, the Minister was not able to answer my third point. Will he discover that information and write to me?
Yes, gladly, my Lords.
Good Work Plan
My Lords, with the leave of the House, I shall repeat a Statement made yesterday in another place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. The Statement is as follows:
“I would like to make a Statement on the Good Work Plan, published today, which sets out the Government’s vision for the future of the UK labour market and how we will implement the recommendations arising from the Matthew Taylor review of modern working practices.
The Taylor review was commissioned by the Prime Minister to examine the current labour market and employment law framework to help us understand the opportunities of future working practices as well as to identify areas where it has not been working for everyone.
The Government responded to the review in February, accepting the vast majority of the recommendations. Alongside this response, we also launched four consultations to seek views on how best to implement the recommendations. I am grateful to everyone who took the time to respond; their insights have been invaluable in informing our policy development.
The Good Work Plan that I am publishing today sets out a programme for ensuring that the UK labour market continues to thrive in future. The UK labour market has a very positive record in recent years. Since 2010 we have higher employment and lower unemployment in every region and every nation of the United Kingdom. Wages are now growing at their fastest pace in almost a decade. This success has been underpinned by an employment law and policy framework that combines flexibility with protections for workers. New ways of working and the rise of new employment models offer great opportunities, including innovative products and services for consumers as well as new ways in which individuals can find work, earn a living and develop their talents.
Our industrial strategy set out a long-term plan to embrace the opportunities presented by these changes and to boost the productivity and earning power of people throughout the UK. Good work and developing better jobs is at the centre of the vision of the industrial strategy, so I am proud to be the first Secretary of State to take responsibility for promoting the quality of work as well as the creation of new jobs. I have written to the independent Industrial Strategy Council to ask for its participation in considering the best ways to measure the quality of work in the United Kingdom, and I am very pleased that Matthew Taylor serves as a member of the new Industrial Strategy Council.
Another core element of the quality of work agenda is ensuring that we address the challenges for employment law and policy that the Taylor review identified. Most UK employers do the right thing and ensure that their workers benefit from the rights and protections to which they are entitled. We will not allow these high standards to be breached by a minority who try to deny workers their just entitlements.
Among these reforms are steps to improve clarity for both employers and workers. Matthew Taylor recommended that the Government should do more to help individuals and businesses to understand their rights and obligations. He highlighted that the existing employment status tests have contributed to a lack of clarity for both individuals and employers. We agree with this conclusion and will legislate to make improvements to reflect the reality of modern working relationships.
Matthew Taylor also recommended that a renewed effort should be made to align the employment status frameworks for the purposes of employment rights and tax to ensure that the differences between the two systems are reduced to an absolute minimum. Again we agree, and we will bring forward detailed proposals to align the two frameworks. We are also committed to addressing what Matthew Taylor termed “one-sided flexibility” where too much risk has been transferred to the individual, sometimes to the detriment of their financial security and personal well-being. We will legislate to give all workers a right to request a more predictable contract and address the obstacles that employees can face in building up continuous service. We will also legislate to end the injustice faced by waiters and waitresses and other staff in hospitality whose tips left for them by customers are diverted to their employer.
Another fundamental reform that Matthew Taylor proposed was the repeal of the so-called Swedish derogation, which exempts agency workers from equal pay requirements. The Government are therefore today bringing forward legislation to prevent this type of contract being used to avoid meeting the legitimate rights of agency workers. We are also today laying legislation to extend workers’ rights, including extending the right to a written statement to workers and making this available to all workers from day one. We are also bringing forward legislation to provide workers with a longer reference period for the calculation of holiday pay, and reforming regulations to make it easier for employees to have their voice heard in the workplace. This demonstrates how we are putting the Good Work Plan into action immediately.
We also recognise the vital role that effective enforcement plays in ensuring confidence to challenge when the law and regulations are broken, and in creating a level playing field between businesses. Matthew Taylor called on the Government to improve access to justice in the workplace. We have already committed to extending state enforcement on behalf of vulnerable workers to the underpayment of holiday pay, and the Good Work Plan sets out how this approach will mirror the tough financial penalties and enforcement approach that already apply to the underpayment of the national minimum wage. We are also taking steps to improve the effectiveness of employment tribunals, quadrupling the penalties that they can impose for persistent breaches of employment law.
We want to continue to improve the enforcement landscape further. In the light of forthcoming policy changes, we will also consider the case for creating a new, single labour market enforcement agency to better ensure that vulnerable workers are more aware of, and can exercise, their rights, and that businesses will be able to deal with a single body on matters relating to their workplace.
The Good Work Plan sets out a vision for the future of the UK labour market: a labour market that rewards people for hard work, celebrates good employers and is ambitious about boosting productivity and the potential for everyone in the UK to improve their earnings. I am grateful to Matthew Taylor and his panel, as well to the many other individuals and organisations who have contributed to the review of modern working practices and our subsequent consultations. Their input has been invaluable in helping the Government to ensure that the UK labour market is ready to embrace future opportunities without detriment to workers’ rights. I also thank the Business, Energy and Industrial Strategy Committee, the Work and Pensions Committee and the Scottish Affairs Select Committee for their continued contributions to the scrutiny of the recommendations and for their recommendations.
Alongside the Good Work Plan, the Government are today publishing their response to the first full strategy from the director of labour market enforcement. Sir David Metcalf’s strategy was published on 9 May 2018 and made 37 recommendations on labour market enforcement and raising awareness of employment rights. The Government’s response accepts the vast majority of the recommendations and sets out the steps that we will take on raising awareness of employment rights, improving intelligence gathering on abuses of those rights and on strengthening enforcement efforts. I will be placing a copy of this document in the Library of the House. The Home Secretary and I look forward to working with Sir David as the Government implement the recommendations that we have accepted as he prepares to set clear strategic priorities in the 2019-20 labour market enforcement strategy.
As Matthew Taylor concluded, the British model works. We have high employment, low unemployment and a long-standing and proud record of high standards for workers. We will consistently be in the vanguard of reform to maintain this reputation as new technologies and new opportunities for workers become available. This response to Taylor is in keeping with these high standards, and I commend the Statement to the House”.
My Lords, that concludes the Statement.
My Lords, I am grateful to the Minister for repeating the Statement made yesterday by his right honourable friend the Secretary of State.
Taken together, the Good Work Plan and the response to the first full strategy from the Director of Labour Market Enforcement make a very good start to putting flesh on the bones of the aspiration in the industrial strategy to put good work and developing better jobs at the centre of the vision for a full employment Britain. There is a lot to welcome in these documents. However, I venture to suggest that the most important decision announced yesterday was to accept the Taylor recommendation that the Secretary of State should take responsibility for promoting the quality of work. That should transform policy in the department, and we will be keeping a close eye as things go forward.
Indeed, Matthew Taylor should be very pleased that the Government have accepted the vast majority of his recommendations, and Sir David Metcalf ought to be similarly delighted that most of his 37 recommendations have also been accepted. Something must be happening in the water that they are drinking at 1 Victoria Street—or maybe that is the result of all this good news.
It is worth remembering, however, that nearly 4 million people are in insecure work in this country and 1.1 million work in the gig economy. At a time of low wages, stagnating productivity and growing insecurity because of Brexit, families across the country need reassurance and action so that our workforce feels valued and secure.
Some of the decisions announced yesterday—the introduction of labour market enforcement, abolishing Swedish derogation and ensuring that workers keep their tips—were originally Labour Party policies, but we welcome them without quibbling. We still have concerns about a number of points, which I hope that the Minister will be able to deal with when he responds.
First, although there has been some movement, can the Minister confirm that the question of abolishing the absurd difference between workers and employees in their employment status has been kicked into the long grass? If so, why? On zero-hours contracts, the Government will apparently legislate to allow workers to request a more predictable and stable contract, but the ability to request more stable hours exists already. Will the Government commit to placing an obligation on the employer to meet this request and, again, if not, why not? The agreement to the labour market enforcement recommendations is very welcome, but there is very little detail. Can the Minister confirm that the enforcement agency has the necessary powers and resources?
Finally, we welcome the increased penalties for successful employment tribunal claims, but these will make no difference if the current system for enforcing awards is not also strengthened. Some 35% of successful claimants currently do not receive their compensation. What additional action are the Government going to take to address the efficacy of tribunal award enforcement?
The Statement contains a very large number of instances of proposals for primary legislation to bring these announcements into being. I would be grateful if the noble Lord will confirm that, welcome though that is, realistic time will be made available for this in the near future. If so, can he give a recognised timetable?
My Lords, I join the noble Lord, Lord Stevenson, in thanking the Minister for repeating the Secretary of State’s Statement. There is perhaps an inverse law here. We are at the end of a long day in a long Session and very few noble Lords are left in the Chamber. Despite that fact, this stands to affect more people than anything else the House has debated this week. It is important and it will genuinely help to improve the lives of millions of UK citizens. For that reason, we welcome the Government’s response to the Taylor review. We welcomed the review when it came out and the Statement sets in motion a number of important steps in the right direction. This has been a long time coming and it is unfortunate that the Minister’s department, along with every other part of government, has a lot of things to do around Brexit, meaning that important work such as this takes too long and is slow to come out.
The Government are right to reject open hostility to flexibility in the job market. Many people want and need the right sort of flexible job environment. Hopefully, these steps will move that forward. Flexibility should not be open to abuse. Workers need real control and choice over the work they take, which means giving them new rights and enforcing existing ones more stringently. The Government’s response has been a bit underwhelming in some cases. If the Minister will excuse me, I will go over a few areas where we think more work should be done.
The Government have said that they will bring forward legislation clarifying employment status and aligning tax and rights, but there is scant detail. Will the Minister fill out the detail or, if not, the process by which it will be forthcoming? The Government have also failed to genuinely address the need for a “dependent contractor”, set out as an employment status for people within the gig economy. The existing status of “worker” needs to be updated and redefined for the sort of 21st-century work that the noble Lord, Lord Stevenson, referred to. We need that status to guarantee gig economy workers minimum earnings, sick pay and holidays. The Government have ruled out a higher minimum wage for hours not guaranteed as part of a contract, and are now going through lengthy consultation. We welcome consultation and, in other environments, the Minister has been criticised for not consulting sufficiently—but it needs to be quick and direct and it needs to get to the point. Action to stamp out abuse of zero-hours contracts must be swift rather than convoluted and kicked into the long grass.
Ministers have refused to rule out reintroducing fees for employment tribunals after the Supreme Court ruled them illegal. They should take that step immediately and rule out reinstating those charges. The Government must show how they will help gig economy workers access occupational pensions. That does not seem to have been addressed and I will come back to it in a moment in relation to sexual equality.
To close, I have three other questions. The Taylor review said that those working in self-employment should receive the same state benefits as those in employment. Why, then, are self-employed workers with fluctuating incomes punished by universal credit? In a good month, their benefit is cut, but in a bad month, their benefit does not rise as much because the minimum-income floor kicks in. Therefore, will the Business Minister undertake to work with the Work and Pensions Secretary to ensure that universal credit is responsive to this kind of fluctuating income, perhaps by measuring incomes over a rolling 12-month period rather than on a month-by-month basis? This unfairness needs to be addressed.
Secondly, around 55% of workers on zero-hours contracts are female. The trade unions warn that the gender pensions gap now stands at about 40%. That means that disadvantages to pensions for zero-hours employees disproportionately affect female workers. Therefore, to avoid further disadvantaging women, the Government must act on Taylor’s recommendation to improve pension provision among the self-employed. What will the Government do to ensure that women in less stable forms of employment will be able to enjoy a secure retirement?
Finally, the University of Greenwich study from 2016 found that disabled workers on zero-hours contracts were often unable to get their bosses to make reasonable adjustments required by the law. They were often afraid to raise the issue because they felt that it might endanger their employment prospects and put them back on to benefits. What are the Government doing to protect disabled people in insecure forms of employment? How will they ensure that the 21st-century economy works for disabled people and not against them? I look forward to the Minister’s response to those questions.
My Lords, I thank the noble Lords, Lord Stevenson and Lord Fox, for their general welcome of this Statement. The noble Lord, Lord Stevenson, said it was a good start and that he was particularly grateful for the stress on quality; my right honourable friend takes pride in being the first Secretary of State to address that issue of quality. I also thank the noble Lord, Lord Fox, for his comments, particularly his opening remark about being rather sad about inverse laws meaning that, although a great many people were being affected by these policies, not many people—sadly, because of the timing and other business—are present for this debate. It reminds me of the remark that people used to make about discussions about money in certain local councils: namely, that the smaller the amount of money that was being discussed, the longer the item took. I will attempt to answer a number of the points, some of which obviously overlap.
First, both noble Lords were concerned about employment status and how we deal with the distinction between workers and employees. I can assure them that we are committed to legislation to improve the clarity of employment status to reflect the reality of modern working relationships. Obviously, more work needs to be done; we will bring forward detailed proposals on how the frameworks for employment and tax statuses could be aligned. It is, as has been made clear by many, very difficult, and I am not sure that we can ever get them completely aligned—but we will do our best. We are one of the first countries in the world to address the challenges in this area. As Matthew Taylor said, there are three levels of status. He believed that that was right and appropriate, but we want to bring a degree of greater clarity in this area.
Secondly, there were concerns from the noble Lord, Lord Stevenson, about the powers and resources available for enforcement in this area. We are increasing the resources available for enforcement: the budget for enforcing the national minimum wage was increased from £20 million in 2016-17 to some £25.3 million in 2017-18. The Employment Agency Standards Inspectorate has also received a 50% increase to hire more inspectors. But again, as my right honourable friend has made clear on a number of occasions, we want to make sure that it can do that job and bring to book those who are not performing adequately. We believe it is right that successful claimants get what they are due fully, which is why yesterday we launched a new naming scheme for employers who do not pay the employment tribunal awards. Again, I believe that a naming and shaming policy is exactly the right approach.
On the question of employment tribunal fees, raised by the noble Lord, Lord Fox, obviously I am aware of the case in the Supreme Court to which he referred. We are reviewing the fees strategy and looking at the balance between charging direct users and using taxpayer subsidy. The fee remission scheme—help with fees—is a crucial element of this strategy, and, again, we are considering whether the scheme needs to be adapted to facilitate better access to the courts and tribunals in the light of that judgment.
Lastly, on the question of zero-hours contracts, the noble Lord, Lord Fox, in particular referred to the position of some women with regard to zero-hours contracts. However, zero-hours contracts can affect all people, of whatever age and gender. I point out to him that, as he will be aware, Taylor noted that banning zero-hours contracts altogether would negatively impact far more people than it would help.
My Lords, I think there is a slight misunderstanding. I mentioned at the very beginning that people welcome flexible working contracts, so I ask the Minister please not to put those words in my mouth. My point was that because more women work on flexible contracts, under which pensions are harder to sort out, naturally more women than men will suffer from a pension point of view because more women are on flexible contracts.
I accept the noble Lord’s point. He will be aware that we made a number of changes to pension arrangements, which one of the noble Lord’s right honourable friends was responsible for as a Minister in the coalition Government, and that will have benefited a great many women and helped them to meet their pension contribution record. I just wanted to make the point that Taylor noted that banning zero-hours contracts would negatively impact more people than it would help. I apologise if I put words in the noble Lord’s mouth, but he accepted that that flexibility in employment is important to a great many people, and I do not think that many of us would like to deny that.
I also note what the noble Lord had to say about disabled workers and the 2016 Greenwich study. I would certainly like to look at that more carefully and if possible write to him. If we go back as far as 1996 and the disability legislation of that year, and amendments and improvements such as the Equality Act 2010, we see that we have made great leaps forward. I hope that what we have set out here, which will be of benefit to all workers, will also be of benefit to disabled workers and to others in due course.
My Lords, I too welcome the Government’s Statement on how it will implement the recommendations from the Taylor review as it opens up the agenda on much-needed reforms to the labour market, particularly on the issue of one-sided flexibility where too much risk has been shifted on to the individual worker from the employer. The Government’s own Good Work Plan says:
“We will take firm action to tackle … where some businesses have transferred too much business risk to the individual, sometimes at the detriment of their financial security and personal wellbeing”.
I hope the Government will hold to that promise; people will watch closely how they honour it. There is strong evidence from both public and private sources on the levels of financial resilience that many workers lack, particularly in the face of income shocks. This lack of resilience is driven in part by a decline in the quality of the employment contract, whether that is revealed through variability in earnings, poor sick-pay provisions or ambiguous employment status. To begin to address financial resilience, one has to look at precisely what the Government have identified: the shift of risk on to the individual and the decline in the quality of the employment contract.
There are many questions I would like to ask but time does not allow. I refer to the part of the Statement that references Matthew Taylor’s call on the Government to improve access to justice, and I refer back again to the issue of tribunals. In their stated steps to improve the effectiveness of employment tribunals, have the Government decided to reintroduce fees for access to employment tribunals and employment appeal tribunals, so that the only matter being considered is how to reintroduce these fees, or are they still undecided on the reintroduction of fees? One has to bear in mind that, if workers cannot enforce their rights, these are rendered meaningless. We saw a staggering fall of 70% in claims brought to employment tribunals and a disproportionate impact of that fell on women, particularly low-paid and pregnant women.
The Statement also refers to the Government’s considering,
“the case for creating a new, single labour market enforcement agency”.
How would the remit of such an agency impact on the remit of ACAS and, in particular, on the ACAS role in conciliating on employment tribunal claims? When one reads what is intended for a new body, one can see an overlap with ACAS, so it would be useful to have some clarification. I reiterate what the noble Lord, Lord Fox, says that, notwithstanding the lateness of the hour, the reforms that could come out of this Statement from the Government, and the reach of those reforms, could be considerable, affecting many millions of people. When we get into the detail of the legislation, one can be sure that the numbers attending will be far higher than at this late hour.
My Lords, I will respond to the noble Baroness and I look forward then to responding to the noble Lord. That is the order in which we normally do these things. I welcome the positive approach that the noble Baroness took in her comments on the Statement by my right honourable friend, about where it is going and how it might develop. I am not sure that I can answer her questions in much more detail than I have already set out to the two speakers for the Opposition Front Benches. A lot of this is ongoing work. There is much to be done and there will be further consultation. I appreciate that at times noble Lords feel that there is almost too much consultation but this is the right way forward on this process, having had the Taylor review and consulted on it, and having taken certain things forward.
The noble Baroness started off by talking about the one-sided nature of some contracts. She and I probably come from a very different position in terms of how we think a Government should act. I am sure that she believes that the Government should act a great deal more than is the case with my rather hands-off approach. However, I agree with her that, particularly with employment contracts—although one has also seen it in the past with landlord and tenant contracts—there can be occasions for Governments to intervene to bring in a degree of equality between the two parties. This is the approach that my right honourable friend sets out in his Statement and in the general approach that he has taken to contracts.
The noble Baroness then asked about fees. I do not think that I can go much further than I did in what I said earlier to her noble friend. We are reviewing the fee strategy following the UNISON judgment and are looking at the balance between charging direct users and using taxpayer subsidy. There will be further thoughts in due course on how that will develop and I am sure that we will bring them to her attention.
Lastly, the noble Baroness commented on the new enforcement agency proposals and on the impact that they were likely to have on ACAS. If I could say anything more at the moment, I would, or I will write to the noble Baroness, but, again, I think that that will be ongoing work. I hope that she will be patient and look forward to the completion of that work. I will now sit down and wait for the noble Lord, Lord Lea, to make his intervention.
My Lords, I thank the Minister for his overview. I would like to pick up the point made by my noble friend Lady Drake about the quality of employment contracts. My last few years at the TUC were dominated by an attempt to put flesh and bones on to the quality of the employment contract. This is an important study but there is a very shallow focus, and perhaps I may explain what I mean by that.
If you talk to anybody about the economy—indeed, if you talk to anybody in the Treasury—and you compare our economy with other leading economies across the channel, you will find that our productivity performance is a major source of deep concern. Of course, this is also a matter of statistics. A higher level of employment with a rate of economic growth of, say, 2%, will probably mean lower growth in productivity. The problem of low productivity is a statistical inversion.
The big question facing the country on this front is: what are we going to do about the rate of growth of productivity? Productivity is the basis of living standards. To say that there is a lack of productivity is another way of saying that there is a growth of inequality of outcomes in the British labour force and a growing disenchantment among young people. This might go back to a growing inequality of opportunity in education. It is no criticism of this report and the Government’s response to it to ask the Minister to reflect on the fact that there are some huge problems that are not within the scope of this report, and it is the productivity puzzle.
One of the recommendations—number 14, I think—is about an adjustment to the information and consultation regulations. This interests me, as many continental countries have much more statutory regulation in this field than we do. When the trade unions in this country had double or treble the membership they have now—which is partly to do with the new types of employment relationship—it was very difficult. Does the Minister recognise that although this report ticks a lot of the boxes set up by Taylor, and is a step forward—whether on recognition, zero-hours contract issues, recognition of the IC regulations and so on—it is not as if this country looks as if it has a happy future economically?
There is nothing here about works councils or anything remotely like that; that is a key example. A friend of mine went to Gothenburg in Sweden to visit the company he was going to take over, and was invited to a buffet lunch with the works council, whose leader said, “We have one question, Mr Struthers. If you take over our company, how will that improve our world market share?” He got home to Peterborough or wherever it was and reported this and people were astonished that, at a works council, a workers’ representative had asked that. It is almost inconceivable because the world market share is not brought within the purview of our workers or their representatives—that is true to this day. It is a million light years away. We are looking through the other end of the telescope when it comes to these sorts of questions—the fundamental questions facing Britain, its social inequalities, its morale and so on. That should be the wider template upon which this discussion goes forward.
I thank the noble Lord for his intervention about the quality of employment contracts, the work he did 20 years ago when he was last at the TUC and his concerns about productivity, which he feels the Statement does not address. He connected those concerns about productivity with high employment, and I am grateful to him for stressing that we have high employment. I think there are now 32.48 million people in work, and that is something one can be very proud of. He is right to address productivity, but this Statement is not about productivity. I refer him back to the industrial strategy, which we published a year ago. He will remember our debate on it just under a year ago, on 6 or 7 January; I think that it was the first one we had when we came back from our Christmas Recess—let this year’s roll on. One of the things that my right honourable friend wanted to point to was the general problem that we have with productivity—to the extent that we can measure it, because it is a very difficult thing to measure. We accept that our productivity is not what it should be. In that industrial strategy we laid out a whole array of policies to address that point.
The noble Lord asked whether I would reflect on the problems of productivity. I give him an assurance and a guarantee that both myself and my right honourable friend—in fact the whole department and the whole Government, because that industrial strategy goes beyond the department and belongs to the Government —have concerns about productivity, and those concerns are addressed in that industrial strategy.
Accounts and Reports (Amendment) (EU Exit) Regulations 2018
Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018
Motions to Approve
That the draft Regulations laid before the House on 31 October and 6 November be approved.
Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)
My Lords, the regulations aim to address failures of retained EU law to operate effectively, as well as deficiencies arising from the withdrawal of the United Kingdom from the European Union, in the field of accounts, reports and audits of UK corporate bodies.
I turn first to the EU accounting directive. The law in the UK on preparation and filing of accounts and reports by corporate bodies is compliant with the EU’s accounting directive. There is also a directly applicable EU regulation which relates to preparation of accounts in accordance with international accounting standards—the so-called IAS regulation. Both the accounting directive and the IAS regulation apply throughout the EEA. The department will bring separate legislation to the House that will address how we intend to deal with the deficiencies presented by the IAS regulation after the UK’s withdrawal from the EU.
Although the fundamental elements of the current company accounts and reports legislation will remain the same after our exit from the EU, it still needs amendment to ensure that it remains effective and makes provision which is appropriate to reflect the UK’s new status outside the EU.
The accounting directive provides for reciprocal arrangements for company group structures. For example, exemptions from producing consolidated accounts are permitted to businesses if the parent is registered in the EEA and itself produces consolidated accounts which are compliant with EU law. In the absence of a negotiated agreement about the economic relationship between the UK and the EU containing reciprocal arrangements, it is inappropriate to continue with preferential treatment for EEA entities or UK entities with EEA parents.
This instrument will mean that businesses registered in EEA states will be treated in the same way as those registered in other third countries. UK businesses with EEA parents will no longer benefit from the exemption from having to produce consolidated accounts. However, UK businesses with parent entities registered in the UK will not be affected by these changes.
The regulations do not create new criminal offences. However, the amendments will extend the scope of the pre-existing criminal offences. For example, dormant companies with parent entities listed in the EEA will no longer be exempt from preparing and filing accounts with Companies House. Failure to file accounts on time would mean that they would commit an offence and be liable to incur fines if prosecuted, as well as civil penalties. That is consistent with the approach for similar companies with parents outside the EEA.
The accounting directive sets out certain requirements for businesses to report payments to Governments worldwide relating to the extraction of natural resources, by way of logging and mining. Alongside this, it provides a power for the Commission to grant equivalence to third countries for their system of reporting payments to Governments regarding these activities. This instrument transfers this power to the Secretary of State.
Turning to the second of the two SIs, the law in the UK on regulatory oversight of the audit profession is compliant with the EU audit directive and the EU audit regulation. The audit directive sets out the requirements on the statutory audit of most businesses, as well a framework of standards for auditors’ work and independence. It also sets out the responsibilities of the competent authorities for statutory audit in member states. Meanwhile, the audit regulation sets additional requirements on the statutory audit of those businesses defined as public interest entities. It forms part of retained EU law under the European Union (Withdrawal) Act and will therefore continue to apply to the UK after the UK’s exit from the EU. Our aim is to ensure that the framework for the regulatory oversight of the audit profession in the UK works effectively following our withdrawal from the EU. The statutory instrument under discussion will help to facilitate this.
Under the audit directive, powers are provided to the European Commission to grant equivalence to third countries for their audit regulatory framework and adequacy to third countries’ competent authorities for their framework on audit regulatory co-operation. This instrument transfers these powers to the Secretary of State. Regulations will be made in the months immediately following the UK’s departure to set out a framework for future assessment of equivalence and adequacy by the Financial Reporting Council. In future, equivalence or adequacy decisions will also be granted by regulations. Following the UK’s exit from the EU, EEA states would be treated like other third countries.
This instrument also extends powers granted to the UK’s competent authority, the FRC. Certain powers have previously been granted to the FRC by the Secretary of State but now need to apply more broadly to reflect the UK’s exit. The instrument enables the FRC to enter into mutual recognition agreements to recognise audit qualifications with the EEA states. It also enables the FRC to register EEA auditors as third-country auditors where they audit businesses outside the UK that are listed on UK markets. This instrument transfers the European Commission’s power for the adoption of international auditing standards to the FRC. As the FRC already sets UK standards in line with the international standards, we anticipate no immediate changes.
This instrument provides certain transitional arrangements for the auditors affected and their client businesses. To ensure companies and investors remain confident in UK markets, these will apply until the end of 2020. During this period, we will continue to recognise EEA audit qualifications, firm registrations and approvals, EEA audit regulatory frameworks as equivalent and EEA competent authorities as adequate. These transitional arrangements will mean that there will be no cliff edge for EEA companies that list securities on UK markets. They will also allow the FRC the time to put in place the procedures necessary to assess the equivalence of EEA states, as well as the adequacy of their competent authorities.
The Government have carried out a de minimis impact assessment of these regulations, as the overall costs to business were expected to be small. The assessment confirmed that the impacts on business would be minimal. Only a limited sector will be affected by most of the substantial changes made in the Statutory Auditors and Third Country Auditors Regulations. This is because the amount of cross-border business affected by this instrument is small. The most significant effects are for UK businesses listed on EEA markets, whose auditors will have to register with the FRC, and for UK businesses that only trade securities in the EEA, as their auditors will be subject to less regulation than before.
The Government have worked closely with businesses and regulatory bodies to ensure the regulations achieve continuity wherever possible while addressing the deficiencies arising from the UK’s withdrawal from the EU. The instruments before us incorporate stakeholder views and insights.
In the unlikely event that the UK leaves the EU without an agreement, the measures contained within these regulations will be critical in ensuring that UK accounting, reporting and audit frameworks continue to provide transparency and certainty to investors. They will also ensure that companies operating in the UK have clear guidelines for preparing and filing their accounts. I commend these regulations to the House.
My Lords, I thank the noble Lord, Lord Henley, and his department for innovating and delivering two SIs in one package. I am not sure that this has been done before, but it is perhaps appropriate that the department that spearheads innovation should be leading on this.
I did a quick count back and I think that over the course of my career I have been responsible for 18 reports and accounts, all of which, I should say, were for UK-domiciled and listed companies, so many of the issues here do not apply. The Minister will be pleased to know that I will not be regaling your Lordships’ House with the benefit of that experience, because it is clear that there are many things that can be improved around financial reporting. There are an awful lot of deficiencies around reporting, but these are not the vehicles by which that improvement should be delivered, so the Minister can be pleased that I will not be using that for a long discourse.
I have two or three points on the annual reporting side and one very important problem that I think we have around the audit area. On the reporting side, the Minister mentioned the reporting protocols around payments to Governments for logging and mining activities. Will the Minister write to me and say what those are and underpin that there is no change planned between the two regimes as we move from one to the other? This is an area where a little more clarity would help.
Paragraph 7.12 of the Explanatory Memorandum covers where this instrument applies and when the change comes. I note that if a business is called on to restate its chart of accounts—which has happened in my knowledge, and happens from time to time—it has to go back through time and restate its accounts. I have to say that this change will make it an extraordinarily difficult activity in the event that any business needs to do that.
The Minister said that the Government have been working closely with business, but when we look at the consultation outcome we see that they have not been able to consult in order to minimise sensitivities in advance. It is not clear to me why they were not able to consult—perhaps the Minister will explain why it was felt not to be appropriate.
I turn to the audit side. This could hardly come on a more auspicious day, when we have the CMA making its comments about audit companies and we have the Kingman report with reflections on the fitness for purpose of the FRC. The Minister mentioned the FRC at least a dozen or 15 times. The role of the FRC in managing this rollover between the two regimes is crucial, yet we have, in the words of a very experienced practitioner in Sir John Kingman, the finding that the FRC is essentially unfit for purpose in how it is operating today, never mind with the extra responsibility that this SI puts on it. I would like to understand how the Minister thinks that this is going to be enacted by an FRC which is short of a leader and clearly short of the resources to manage its day-to-day job, without giving it extra responsibilities. I look forward to his response.
My Lords I am very grateful, as was the noble Lord, Lord Fox, to the Minister for giving a very concise and important overview of these two SIs. We are trying out a slightly different method here—trying to cut down on the amount of speaking that the noble Lord has to do at the Dispatch Box. I think that it has worked, so I hope it will be a model for others to come.
The three points I wanted to make have been covered by the noble Lord, Lord Fox, so I will not repeat them, but I want to say one thing in relation to scrutiny. The Secondary Legislation Scrutiny Committee has asked us to look at both these SIs with regard to a couple of points. I am happy that the Minister covered the points, so I do not need to delay the House on those matters. For the completeness of the record I also wanted to ask about extractive industries and whether there would be any impact in the way that those accounts will be treated consequent on the introduction of these SIs, if they are required. Again, a letter will be sufficient on that.
The noble Lord, Lord Fox, is right. It is a bit intriguing to find that the principal body which would have been responsible for this is going to be abolished before it has the chance to implement the changes made in the statutory instrument. I would be grateful if the Minister could confirm that, as I understand it, the independent review of the FRC, which I read with interest—it is a very good read indeed, full of spicy and rather spiky comments—is suggesting that the FRC needs to be replaced by a new, independent statutory regulator with stronger powers. Is that right and, if so, will it be completed in the timescale that is envisaged for this statutory instrument?
There is a letter—which is not the same as the report—which was sent to the right honourable Greg Clark MP by Sir John in parallel with his report, which looks at whether there is a case for a fundamental change in relation to who appoints company auditors. There are a number of extremely interesting ideas, particularly for PIEs—again, accompanied by well-phrased and rather pointed comments about the current state of play. They suggest quite strongly—although it is not clear whether the Secretary of State is going to accept this—that there would be a case for moving away from companies having responsibility themselves for appointing their auditors to a situation in which an independent, strong regulator, presumably the new body replacing the FRC, will have a probably quite significant role.. I assume that this decision will be undertaken by the new review, building on the work on the FRC, and of course the CMA review, which is rather surprising because that was only an interim report. I am a bit surprised that that is being taken forward already. If it is, fair enough—but will that review being undertaken by Donald Brydon, the chairman of the London Stock Exchange and Sage, take on the letter element of the Kingman report we have received today?
I have also looked at the CMA report. There is a considerable interest in how that might work. Obviously, it will considerably affect the viability, profitability and operating activity of the large companies that have been very successful in building up accountancy and audit-related functions in this country. It may not be a fatal change—it may be a necessary change—but, again, I would be grateful to get a steer from the Minister as to what exactly is going on here and what the pace of that would be, if it was decided to move forward.
My Lords, I am grateful to both noble Lords for their comments. I suspect that I will keep mine pretty brief and will write to them in further detail, which I think they will be grateful for, bearing in mind the hour. Again, I emphasise that the SIs are there for continuity through exit should there be no deal. We need to provide a degree of certainty for businesses at a time of significant change.
I will deal with some of the points that were made. On logging and mining, which both noble Lords raised, I will write to the noble Lord, Lord Fox, and copy that to the noble Lord, Lord Stevenson.
On the question of working closely with business, the noble Lord, Lord Fox, asked why we did not consult more widely. Officials did consult with stakeholder groups, including preparers, users and auditors, but they were not able to consult more widely due to negotiation sensitivities at the time.
I am afraid that both noble Lords are ahead of me in that I have not yet read the independent review of the FRC, but that will be something to look forward to on my Christmas list. The noble Lord, Lord Stevenson, commented on the barbed nature of some of the comments. It certainly adds to the joys of reading these things when they are written in such terms. We will carefully consider and consult on the recommendations and, if there are any, ensure that a smooth transition affects these functions. But obviously the FRC exists at the moment and therefore we have to make these changes.
Lastly, the noble Lord asked whether the SI would be impacted in future by the range of ongoing reviews in the audit market. I recognise that there is quite a range of work going on to ensure that the audit market is as effective as possible, which may lead to later changes, but as I have said on many occasions—and will continue to say—we will consult on those issues in due course.
I think I have answered the questions that both noble Lords have put to me and, there being no further interventions likely, I commend these two Motions en bloc to the House.
House adjourned at 9.46 pm.