Monday 14 September 2020
The Grand Committee met in a hybrid proceeding.
Arrangement of Business
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the room to wear a face covering except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020
Considered in Grand Committee
That the Grand Committee do consider the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee
My Lords, I am pleased to introduce a statutory instrument laid before the House on 6 July. These regulations form part of the corporate insolvency and restructuring regime introduced in the Corporate Insolvency and Governance Act. I am satisfied that the regulations are compatible with the European Convention on Human Rights.
The Corporate Insolvency and Governance Act introduced corporate restructuring tools which include a moratorium and a restructuring plan which offer breathing space and flexibility to keep companies going. These regulations provide the board of the Pension Protection Fund, the statutory compensation scheme, with creditors’ rights in certain specified circumstances when a company, a limited liability partnership or a certain charitable incorporated organisation obtains a moratorium from creditor action or proposes to restructure their business, as applicable, under the new processes available in the Corporate Insolvency and Governance Act.
I had expected also to introduce another set of related regulations for debate. However, we are working with the relevant government department to resolve a technical legal issue. We intend to re-make and lay those regulations with a debate scheduled for a later date.
The regulations we are debating provide the board of the Pension Protection Fund, the statutory compensation scheme, with creditors’ rights in certain specified circumstances. They include when a company, a limited liability partnership or a certain charitable incorporated organisation obtains a moratorium from creditor action or proposes to restructure its business, as applicable. The pension scheme is eligible for the Pension Protection Fund and is directly affected. A moratorium gives companies an opportunity to explore rescue and restructuring options free from creditor action. A restructuring plan will enable struggling companies to negotiate restructuring arrangements to give them the best possible chance of continuing as a going concern.
Under existing pensions legislation, similar corporate rescue processes are treated as insolvency events. This triggers a number of safeguards. When such an event occurs in relation to an employer of an eligible occupational pension scheme, the Pension Protection Fund assesses the scheme and, among other things, takes over the scheme trustees’ or managers’ role as a creditor of the sponsoring employer. Neither moratoriums nor restructuring plans are listed as insolvency events in the relevant pensions legislation as this would undermine the overarching intention to maximise the company’s chance of survival. Therefore, the normal safeguards within the legislation are not engaged.
During the passage of the Bill, there was significant stakeholder and parliamentary pressure to provide specific protections in the new moratorium and restructuring plan procedures in respect of the impact on pension schemes. The concern is that these procedures could result in the pension scheme, as an unsecured creditor of the company, being disadvantaged. The Pension Protection Fund could face a greater loss if the company subsequently fails and the scheme falls into the fund with a larger deficit than it originally had, so there is a need to build in some specific protections by ensuring that the Pension Protection Fund has a seat at the table in any relevant restructuring proposal.
These regulations ensure that the new moratorium and restructuring plans do not leave pension schemes and the Pension Protection Fund without appropriate protections in legislation. We have expedited the making and laying of these regulations to minimise gaps in the legislation after the moratorium and restructuring plan measures came into force. This ensures that the Pension Protection Fund is in a position to act quickly in a fast-moving situation to protect its interests and those of its levy payers. The regulations enable the Pension Protection Fund board to step into the shoes of the scheme trustees or managers in their role as a creditor in the context of the new moratorium and restructuring processes, in relevant specified circumstances, to ensure that the board’s interests and those of the scheme are properly represented. In relation to the moratorium, they provide for the Pension Protection Fund to act in place of the scheme trustees or managers as a creditor in decision-making that may be ordered by the court following a challenge to the directors’ actions and where creditor consent is sought on whether the moratorium should be extended.
Where a restructuring plan is proposed in respect of a relevant entity, and where in the relevant specified circumstances the scheme trustees or managers would otherwise exercise creditors’ voting rights, the board of the Pension Protection Fund will have the exclusive right to vote on the plan. By enabling the Pension Protection Fund to exercise creditor rights, the fund will be protected against the risk of an agreement being struck without it being involved. This will avoid a scheme continuing without adequate protection knowing that the fund will pick up the pieces. The Pension Protection Fund is funded mainly by a levy collected from pension schemes, so it would be levy payers who suffer the loss.
The scheme trustees or managers are not completely excluded, however; they too play an important role protecting members’ interests. To provide the appropriate balance, before the Pension Protection Fund exercises any voting rights or participates in a decision-making process to the exclusion of the scheme trustees or managers, it will be required to consult them. Also, certain rights will be exercisable concurrently, such as the right to participate in meetings ordered by the court and the right to make representations to the court, as applicable.
The moratorium and restructuring plan are important measures that will give companies the best prospect of survival in this period of economic uncertainty. We must also ensure that they do not undermine the protections for pensions schemes, the Pension Protection Fund and its levy payers. I commend these regulations to the Committee and I beg to move.
My Lords, I welcome these urgently needed regulations so that the PPF can exercise creditor rights as the trustee of a defined benefit pension scheme in the event of a moratorium or restructuring proposal. The regulations allow the PPF involvement in discussions, processes and court access with significant implications not only for the members of a particular scheme but for all existing and potential members of the PPF lifeboat and employer levy payers.
The exercising of creditor rights by the PPF in consultation with trustees reflects what happens now in other relevant insolvency and restructuring events. They evolved from the Pensions Act 2004, and the Government have rightly recognised the moral hazard in leaving powers to exercise creditor rights wholly with the trustees. The trustees may not have the resources and power that the PPF can bring to bear. The PPF considers the interests of a scheme and the wider interests of all DB scheme members. There will be anxious pension scheme members at this very moment who are taking comfort from the PPF’s very existence. The trustees could, for example, sign up for a high-risk deal on the basis that it failed the PPF would ensure a minimum level of protection for scheme members and leave the lifeboat to inherit a greater deficit. Giving these powers to the PPF allows it to balance all interests—a good outcome for scheme members, mitigating subsequent large claims on the PPF or perverse attempts to dump pension liabilities.
I refer again to the Arcadia case. The original CVA proposed to cut deficit reduction contributions by half. The PPF, exercising creditor rights, influenced a better outcome, including security over group assets, £100 million in cash and increases in deficit contributions after three years. While welcoming these regulations, they do not close off all concerns proposed by the new moratorium arrangements, such as the incidence of gaming by current or future lenders wanting access to super-priority status; avoidance of pension liabilities and incentivising insolvency over rescue for certain creditors; the non-triggering of a scheme Section 75 debt impacting its creditors’ standing and voting rights; and the imposition of a payment holiday on a scheme’s deficit contributions but exempting finance debt payments from that holiday.
The Government made amendments to the Corporate Insolvency and Governance Bill which, they argued, sought to address these risks. The noble Lord, Lord Callanan, said,
“the Government believe that these amendments remove the risk of gaming the system … but we appreciate that the financial services industry … changes over time. For this reason, my amendments include a power to make regulations … to change the definitions of moratorium debt and priority pre-moratorium debt … As these are the debts that receive super-priority or additional protection, the Government will be able to react quickly and decisively to any changes in market behaviour.”—[Official Report, 23/6/20; col. 154.]
Although real concerns remain, these were welcome concessions in so far as they allow the Government, if they so choose, to respond quickly to gaming and perverse behaviours. The Government also committed to monitor closely how the implications of the new moratorium and restructuring provisions unfold in practice. I appreciate that the Act has only recently come into effect so there has been only a limited period to see how these provisions pan out in practice, but what arrangements have the Government put in place to monitor the implications of the moratorium and restructuring provisions, including the emergence of gaming and perverse behaviours for DB pension liabilities? How will they consult and report on the emergence of such behaviours? What plans do the Government have to lay regulations to allow them to act immediately when such instances occur?
My Lords, I thank my noble friend the Minister for laying these amendments and for the excellent way in which she introduced them. I also support the amendments and believe that many of the points made by the noble Baroness, Lady Drake, are particularly relevant. It is clearly important that the Pension Protection Fund has some recognition—or as much as possible, if you like—in the new environment that has created the moratorium and various super-priorities. It is important that the Pension Protection Fund retains creditor rights where it can to avoid gaming of the fund, which otherwise could be overwhelmed with extra liabilities that are picked up by other pension schemes.
I agree with my noble friend that it is important to ensure that these regulations are able to act in the interests of the Pension Protection Fund and to balance that against the need to preserve functioning and ongoing sponsors during the current emergency. Can my noble friend help the Committee understand what powers this grants to the Pension Protection Fund? I recognise, and we discussed through the passage of the Corporate Insolvency and Governance Act, that there is a limit on the power of the Pension Protection Fund. I appreciate the Government’s amendments, which have introduced some representation, but, for example, if trustees, as was suggested by the noble Baroness, Lady Drake, prefer to approve a high-risk restructuring strategy but the board of the Pension Protection Fund believes the risk is too high and would result in higher costs to it when the company fails—as the board believes would be most likely given the balance of risks that that restructuring would entail—would it have the power to override the trustees and to refuse to agree the proposed course of action and, ultimately, ensure that the company fails sooner rather than later, or would that not be within its powers under the new system?
Equally, if the management of the company wishes to try to sell assets that have already been pledged to the pension scheme and apply to a court to permit this—I understand the corporate insolvency Act permits the authorisation of the sale of such assets and the PPF must be informed or consulted—does the PPF have powers to protect itself against such a transaction on which the funding of that defined benefit scheme had previously been based? What representations might it be able to make in the court environment? Does it have the power to demand detailed information or to conduct its own investigations into the financial position of the company when it is aiming to restructure or undertake some asset sales? Does the Pension Protection Fund have the power to investigate the impact of any loans or other restructuring agreed in a moratorium that might be beneficial to favoured lenders or, ultimately, to the owners of the company, who might end up taking over a restructured operation, having jettisoned the pension fund to the detriment of the funding of the pension scheme when it goes into the PPF?
How do the Government plan to deal with schemes when banks or other lenders to a company during a moratorium attempt to leapfrog ahead of the pension scheme on insolvency, should that occur. At what stage does the Pension Protection Fund have any power to prevent this happening or to be able to intervene to represent its interests if it believes such loans are suspect or may be intended to game the PPF? I have given prior notice of these questions to my noble friend and was grateful to hear that Ministers have some ability to override some of the potential risks to pension scheme members and to other pension scheme members.
I know that it is important to make sure that the Pension Protection Fund—
My Lords, I thank the Minister for providing a detailed explanation of this statutory instrument, the details of which I welcome because they will act as a measure of protection for members who work for companies in financial difficulty which face restructuring.
It is important to remember that companies and those who work for them are not working in normal times. There is the Covid pandemic and the uncertainty around a possible no-deal Brexit, the news last week of a run on the pound and the potential impact of the United Kingdom Internal Market Bill on markets and businesses. References to the Chancellor’s potential raid on the coffers and reserves of businesses that pay for Covid financial measures can also precipitate further anxiety in the marketplace. Many companies have been the bulwark of our economy, as well as their employees, in both the public and the private sector.
As the Minister has explained, and was also explained by the noble Baroness, Lady Drake, these regulations will enable the Pension Protection Fund to participate in key decisions in the process by enabling it to exercise creditor rights that would otherwise be exercisable by the scheme trustees or managers. It provides compensation for eligible pension scheme members whose employer has become insolvent and cannot meet the scheme’s liabilities. I understand that it will be funded mainly by a levy collected from pension schemes.
In considering the impact and legislative effect of these regulations under the Corporate Insolvency and Governance Act, I have some questions for the Minister. Does she think that there will be sufficient money within those pension schemes to pay for a scheme’s liabilities? When the compensation is in payment, could it increase in such insolvency circumstances? If I am an employee, what happens if my scheme is potentially eligible for that but is facing all these difficulties as a result of insolvency? Will it be possible, in such circumstances, for the employee to contribute during the assessment period? Does the assessment period operate in such different circumstances? Is it possible to define the potential costs of such schemes? Will they reduce, bearing in mind that many people have left defined pension schemes? Will that categorisation apply in circumstances to do with restructuring and insolvency? What impact will that have on the Pension Protection Fund in its work with companies? Finally, what other benefits, including social security, are those pension scheme members eligible for if their employers have become insolvent and cannot meet the scheme’s liabilities other than those that may be provided for under the Pension Protection Fund?
The Pension Protection Fund provides compensation and reconstruction arrangements for businesses in financial difficulties. The PPF can also provide compensation to members whose employers are in difficulties. These regulations allow the PPF to intervene to protect its interests where businesses are in a moratorium introduced by the Corporate Insolvency and Governance Act 2020.
An urgent procedure is justified as there is an ongoing risk that a business could obtain a moratorium from its creditors or otherwise exclude the PPF. Under the Insolvency Act 1986 and the Companies Act 2006, the PPF has powers to exercise its right as a creditor during an assessment period following an insolvency event. These terms are defined by the Pensions Act 2004. The moratoriums and restructuring plan introduced by CIGA are, however, not qualifying insolvency events under the 2004 Act. As a result, the PPF lacks the necessary negotiating powers. The regulations are designed to remedy this so that the PPF can exercise creditor rights in a CIGA moratorium or restructuring plan.
The House of Lords Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments have both considered the new regulations and did not raise any concerns. The House of Commons debated the instrument on 7 September, when Guy Opperman said that the regulations were vital for the continuance of the new insolvency regime. I understand that the Labour Party supported the measures, and on 8 September the instrument was approved by the House of Commons without further debate.
The Government introduced the amendments to the PPF on 21 July; they are subject to the “made affirmative” procedure and came into force on 23 July. The amendments are concerned with bringing co-operatives, community benefit societies and credit unions into the scope of the regulations. The PPF regulations need amending so that the PPF can intervene in such organisations. The amending instrument has not yet been considered by the Joint Committee on Statutory Instruments or the House of Commons. The approval period ends on 1 October.
The widening of the scope for the PPF to be involved in sorting out insolvencies makes sense as it has the expertise so to do. I simply raise a modest flag about the cost of levies where there are already criticisms and it is not reasonable to impose charges of increasing size on pension funds that have no problems to solve.
My Lords, I call the next speaker, the noble Baroness, Lady Wheatcroft. Baroness Wheatcroft? We will come back if we have to. I call the noble Lord, Lord Bourne of Aberystwyth.
My Lords, it is a great pleasure to follow my noble friend Lord Flight. I thank the Minister for setting out the regulations so clearly. I support the regulations; there is clearly a necessity for them and I am pleased that they seem to command support from around the Committee.
The Corporate Insolvency and Governance Act 2020 introduced new and updated restructuring procedures—it was the first significant alteration of these since the 1980s. It included the new moratorium procedure and restructuring plan for companies, limited liability partnerships and charitable incorporated organisations. This procedure had been waiting in the wings for some time—it was nothing particularly to do with the Covid outbreak, although the Corporate Insolvency and Governance Act was concerned with measures that were needed because of the outbreak. In consequence of this new process, these regulations are needed to make provision for the new regimes for pension funds and, specifically, the Pension Protection Fund so that it is able to exercise creditor rights.
I have several questions for the Minister. Is there a particular issue in relation to the time lag? The Explanatory Memorandum refers to a danger of something effectively falling through the cracks. There is reference to the need for the regulations to come into force as soon as possible after Royal Assent to minimise the gap in the application of the regime. Indeed, the Minister referred to the need to do so. What is the significance of this gap? Could the Minister clarify that? Does it apply to the other regulations the Minister referred to which are being delayed? I do not know how long the delay is and whether there is a greater danger to do with the gap referred to. Perhaps the Minister can also advise us about that.
My second point relates to publicity for these measures to ensure that pension funds are aware of these provisions and their impact. What is being done about publicity for the regulations?
I appreciate the reserved nature of these regulations, but given the interlink with other matters such as economic development, where there is a devolved dimension, can the Minister indicate how the department and the Government have engaged with the devolved Administrations to ensure that they are aware of the impact of these regulations and possible interlink with economic development?
Lastly, like the noble Baroness, Lady Drake, I wonder whether the Minister could give us a general overview of—a sort of preliminary canter through—the impact of these new procedures. I appreciate that it is early days yet, but perhaps she can indicate the impact that the new procedures have had and whether there is any particular concern, over and above the concern that we have been addressing today, regarding the impact on pension funds. The noble Baroness may need to write to us on these points, and I will certainly understand if that is the case. With that, I conclude with my wholehearted support for these regulations.
My Lords, I thank the Minister for the way in which she introduced the regulations and for the time she made available to talk to those of us who were interested. She is always keen to be helpful and it is much appreciated.
Obviously, these regulations are needed, and as quickly as possible, but there are issues. I associate myself with the questions raised, particularly by the noble Baronesses, Lady Drake and Lady Altmann. All were interesting questions that deserve answer. I will then specifically query the possibility of companies going through a moratorium and restructuring being obliged to continue paying into deficit reduction funds. My understanding is that, during a moratorium or reconstruction, the obligation to pay staff remains and therefore the obligation to continue paying their pension contributions remains. However, there seems to be a question mark over payments into deficit reduction. I would be grateful if the Minister could give some clarity on that.
Secondly, can the Minister give clarity on the issue that was certainly highlighted during the Bernard Matthews fiasco a couple of years ago? During the course of a reconstruction, what must be termed quite risky—and extremely expensive—lending was taken on to preserve the company, and the result was certainly to disadvantage the pension fund. Will that still be possible under these regulations? In addition, when a company is going through a reconstruction, what is the significance of a floating charge to the pension fund? Does that floating charge continue to take priority?
More generally, since we are heading into a period where corporate collapses could, sadly, happen at far greater a rate than that to which we are used, as other noble Lords have pointed out, does the PPF have the manpower to monitor the situations in so many companies and to keep on top of the situation?
My final question is an overarching one about the ability and the independence of trustees. Much of the thinking behind these regulations seems to imply that, faced with choosing between the longest period of saving the company and looking after the interests of pensioners, the trustees, despite having a duty to pensioners, may well move towards safeguarding, as far as possible, the future of the company and its investors. That seems to highlight a potential failing in the system which has long been a matter of interest.
My Lords, I support this important measure, which gives powers to the Pension Protection Fund in the event of a company—specifically, a limited liability partnership or a charitable incorporated organisation—being in financial difficulty under the new moratorium provisions brought in by the Corporate Insolvency and Governance Act 2020. I also thank the noble Baroness for her introduction and for her offers of information and the opportunities to ask questions before this debate.
As other noble Lords have said, these regulations give the board of the Pension Protection Fund rights normally exercised by pension schemes, trustees or managers. Under the new moratorium provision rather than the insolvency law, the Pension Protection Fund can end up picking up liabilities. It is therefore right that it should have a seat at the table in the same way it does in the case of insolvencies. As these regulations give the board of the Pension Protection Fund rights normally exercised by the scheme’s trustees or managers, when the trustees or managers lose their rights, the board is required to consult them as a result. That seems an important point.
The regulations enable these new rights in the context of limited liability partnerships and charitably incorporated organisations in particular. As other noble Lords have said, they seem timely in the event of the likely economic events in the wake of the pandemic. Other Members have raised a number of issues about that.
The sustainability of the Pension Protection Fund must cause anxiety in the light of potential large company failures and DB schemes in deficit. I note that the noble Lord, Lord Flight, raised in his remarks the cost of levies. The noble Baroness, Lady Drake, raised questions on a number of further risks, which I am sure the Minister will reply to, but I also particularly support her suggestion that the new arrangements should be monitored and reported. The noble Baroness, Lady Altmann, raised the specific powers of the PPF and whether it would have powers to override high-risk solutions to financial difficulties, particularly as regards safe assets and loans, which again the noble Baroness, Lady Wheatcroft, mentioned.
I share the concerns expressed by the noble Baroness, Lady Ritchie, about the protection of a scheme’s members in the event of restructuring and the reactions of markets to economic events, which we seem to be seeing much more of at the moment.
The noble Baroness, Lady Wheatcroft, raised the obligations of companies going through a moratorium, payment into deficit reduction, lending to preserve the company at the expense of the pension funds, and the PPF’s powers to do something about that.
I agree with the noble Lord, Lord Bourne, that we need to know about the time lag and the impact of the delay to these regulations, and of course, pension funds and members of pension funds need to be made aware of these new regulations, so I definitely support having more information about publicity, as well as an overview of the impact of the new arrangements, which the noble Baroness, Lady Drake, and the noble Lord, Lord Bourne, talked about.
I hope that the Minister will be able to answer those questions and make things a little clearer for us in this regard. I support the regulations and thank the Minister for her time in offering to provide information.
My Lords, I am grateful to the Minister for her explanation of these regulations and for her time in advance of today. I am grateful, too, to all noble Lords who have spoken, and I will be interested to hear answers to the many excellent questions from the noble Baroness, Lady Ritchie, the noble Lord, Lord Bourne, and many other noble Lords.
These are tough times. The UK is in recession, the economy shrank by a fifth between April and June, employers are facing unprecedented challenges, unemployment is sky high and there are widespread predictions of large-scale job losses coming down the track as the furlough scheme is wound down. Given those conditions, Labour supported measures in the Corporate Insolvency and Governance Act to help struggling businesses stay open, but it is crucial that when companies face financial difficulty, interventions are made in a way which protects the pension schemes. I pay tribute to my noble friend Lady Drake and all who worked with her in pursuing amendments to the Act when it was a Bill to protect pension schemes and strengthen the position of the PPF. We are seeing the fruit of that work start to emerge here today.
I can confirm that we welcome the regulations. If a company ends up in a moratorium situation or facing a restructuring, it must be right for the PPF to be able to exercise the creditor rights of a trustee of a DB scheme. That is essential to protect the interests of the members of a scheme, but also the interests of all those who pay in to the PPF or may one day need to call on it. The most appropriate benchmark for assessing those measures is surely the powers that the PPF has now in relation to insolvency events.
My noble friend Lady Drake has previously given excellent examples such as the case of Arcadia of how the PPF can act to protect members and in doing so protect the lifeboat itself. Ministers were pressed to mirror what happens in an insolvency in the moratorium, with the triggering of an assessment and all that flows from that, but they chose not to do it, so the concerns articulated today by my noble friend Lady Drake, the noble Baroness, Lady Wheatcroft, the noble Lord, Lord Flight, and others deserve good answers.
I realise that the corporate governance Bill was handled by BEIS and the noble Baroness, Lady Stedman-Scott, is a DWP Minister, but leaving aside the fact that she speaks for the Government, her department has responsibility for the PPF, so I should like to know how the DWP has looked at the implications of these regulations and the PPF in the round. How will Ministers give effect to the concession won by my noble friend Lady Drake and others in relation to monitoring the new processes and taking powers to make regulations to change the definitions of moratorium debt, and what role does her department have in the judgments made on that?
Secondly, what assessment has the DWP made of the potential risk to the PPF of the difference between its position in a moratorium versus an insolvency when it comes to voting rights and creditor standing? Thirdly, what assessment has the DWP made of the potential risk to the PPF, highlighted by my noble friend Lady Drake, of the new moratorium arrangements being gamed by lenders wanting super-priority status at the expense of the pension scheme? Crucially, given the state of the economy and the risks to so many employers, what assessment has the DWP made of the strength and stability of the PPF and its ability to deal with what is coming down the track?
This is a period of unprecedented challenge. It is right for the Government to do what they can to keep companies afloat and jobs alive, but the DWP also has a responsibility to ensure that the framework put in place to protect workers’ pensions does not let them down. If that is not done properly, it could jeopardise not only individual retirement plans but put the PPF lifeboat at risk, add extra burdens to levy payers and potentially risk the whole DWP strategy to drive up long-term savings.
We support the regulations, but the way they are done matters and the stakes are high. I look forward to the Minister’s reply.
My Lords, I am grateful to all noble Lords for this helpful debate and their contributions. I hope that I have been able to establish why it was so important that we introduced these regulations.
The Pension Protection Fund creditors’ rights during a moratorium are intended to enable it to take part in certain decision-making processes as a creditor. For example, it enables the Pension Protection Fund to take part in a decision whether to grant consent to the extension of a moratorium in the relevant specified circumstances set out in the Act.
Where a restructuring plan is proposed, the rights given to the Pension Protection Fund are intended to enable it to influence the shape of any deal, and to seek additional security and guarantees to offset the risk that it takes on a scheme with an even larger deficit in the future.
The Covid-19 pandemic has meant that we have had to respond quickly to facilitate the survival of companies. That will offer employees the best chance of retaining their job. At the same time, we have strengthened the position of pension schemes to improve the chances of employees receiving their expected pension outcomes.
I turn to some of the questions asked by noble Lords. The noble Baronesses Lady Drake, Lady Altmann, Lady Ritchie, Lady Wheatcroft and Lady Sherlock all mentioned gaming. During the passage of the Corporate Insolvency and Governance Act through Parliament, the Government listened to concerns raised and amended the Bill to avoid lenders exercising their rights to accelerate their pre-moratorium debt, thereby potentially gaming the system through a moratorium. While the moratorium provisions do not prevent a financial services creditor exercising a termination or acceleration clause, nor do they remove the requirement that if the accelerated debt is not paid, the monitor must bring the moratorium to an end. But financial services’ pre-moratorium debts are excluded from super-priority where the debt has been accelerated during the moratorium period. The provisions are aimed at encouraging lending to companies in difficulty while also supporting the operation and stability of financial markets. The provisions disincentivise such creditors from seeking to accelerate their pre-moratorium debt solely to benefit from super-priority, should the company fail. There is also power to amend what does and does not receive super-priority, should market practice indicate that tightening the provision is necessary. It is too early to anticipate whether government action will be needed here. We think the provisions in place strike the right balance. The moratorium provisions will be reviewed within three years of enactment.
The noble Baroness, Lady Altmann, asked what powers the Pension Protection Fund will have in cases where a moratorium is in force. A company subject to a moratorium can sell charged property as if it were not subject to a charge only with the court’s permission. A court would not make such an order without the charge holder having had the opportunity to be heard on the application. It will be for the court to decide whether the Pension Protection Fund can intervene. A court will give permission for such a sale only if it will support the rescue of the company as a going concern, something that will be in all stakeholders’ interest, including the pension scheme. Additionally, the open market value of the property must be paid to the charge holder following the sale.
There are provisions to allow for the Pension Protection Fund and the Pensions Regulator to be provided with information concerning a moratorium or a restructuring proposal, in terms of powers to obtain information. In the case of a moratorium, the board of the Pension Protection Fund and the Pensions Regulator will be provided with certain notifications, including that a moratorium has come into force, in relevant specified circumstances. In the case of a restructuring, any notice or other document required to be sent to a creditor of the company must also be sent to the board of the Pension Protection Fund and the Pensions Regulator in relevant specified circumstances. The Pension Protection Fund is then able to review this information including, where necessary, engaging external experts to assess the impact and to reach a view as to how to vote in any transaction.
The noble Baroness, Lady Ritchie, asked if there was sufficient money in pension schemes. Unfortunately, not all pension schemes are well funded. Where a scheme is not well funded, it will go into the Pension Protection Fund. The Pension Protection Fund is confident that its long-term funding strategy and diverse investment approach positions it well to weather current market volatility and future challenges. The Pension Protection Fund’s latest modelling shows that it is well placed to achieve its self-sufficiency target, which is the ability to pay Pension Protection Fund compensation in full, with a 10% buffer. This means that Pension Protection Fund members and members of defined benefit schemes can be confident of the fund’s ability to continue to provide the compensation promised and to remain a robust safety net.
My noble friend Lord Bourne and the noble Baroness, Lady Janke, raised the point that the lag in the timing of bringing forward these regulations is problematic. We have expedited the making and laying of these regulations to minimise gaps in the legislation. After the moratorium restructuring plan, measures come into force. The “made affirmative” procedure enabled the regulations to come into force soon after they were laid. We are not currently aware of any moratorium in force or restructuring plan proposed in relation to an employer pension scheme eligible for the Pension Protection Fund.
My noble friend Lord Bourne and the noble Baroness, Lady Janke, raised the issue of the impact so far. As I said, we are not aware of any moratorium or restructuring plan in place, but we will monitor the situation closely.
My noble friend Lady Wheatcroft asked about reduction contributions: are deficit reduction contributions enforceable during a moratorium? As employees’ wages or salary must be paid, whether or not they fall due before or during the moratorium, the term “wages or salary” also includes a contribution to an occupational pension scheme. Payments made under deficit repair contributions are not enforceable. This is the debt for which the Pension Protection Fund is acting as a creditor.
My noble friend Lady Wheatcroft also raised the Bernard Matthews case. Pre-pack sales are a useful tool for rescuing businesses, saving jobs and maximising funds available to creditors. If I may, I shall write further to her on that issue.
My noble friend also raised the issue of the Pension Protection Fund’s resources to intervene in moratoriums. The Pension Protection Fund has an in-house restructuring and insolvency team but also the ability to call on third-party advisers to support its work. The Pension Protection Fund keeps its level of resourcing under review but at present it is confident that it can engage in moratoriums and restructuring plans as necessary.
A number of noble Lords raised questions about monitoring as things develop. We have regular governance meetings with the Pension Protection Fund and the Pensions Regulator as the sponsoring department. We will therefore be able to monitor developments in the light of operational experience.
Many noble Lords asked questions that I will not have time to respond to in summing up, but I confirm to all noble Lords that we will review Hansard and make a point of writing to noble Lords with the answers to their questions.
To conclude, we will keep these measures under review. My department and the Pension Protection Fund have regular meetings to review its performance. I commend the regulations to the Committee.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. I remind Members in the Room to wear a face covering except when seated at their desk, to speak sitting down, and to wipe down their desk, chair and any other touch points before and after use. If there is a Division in the House, the Committee will adjourn for five minutes.
The time limit for debate on the following order is one hour.
Square Kilometre Array Observatory (Immunities and Privileges) Order 2020
Considered in Grand Committee
My Lords, the draft order was laid before the House on 14 July 2020 under the affirmative procedure. It confers immunities, privileges, reliefs and exemptions on this new intergovernmental organisation, the Square Kilometre Array Observatory, or SKAO, under the International Organisations Act 1968. If Parliament agrees, it would complete the UK’s ratification of the convention which was signed in March 2019 and laid in Parliament in July of that year under the Constitutional Reform and Governance Act 2010.
Before I go into the detail of the order, I want to set the subject in context by saying a few words about the Square Kilometre Array project that the SKAO is being established to deliver and operate. The Square Kilometre Array, or SKA, is an international mega-science project to build the world’s largest and most sensitive radio telescope. It is a truly global effort involving 11 member countries and participation of around 100 organisations across a total of 20 countries. The SKA is one of the most ambitious international science projects of the 21st century.
Co-located in South Africa and Western Australia, the SKA will use hundreds of dishes and thousands of antennas connected by optical fibre to monitor the sky in unprecedented detail. Many times faster and significantly more sensitive than any current radio telescope, and of a scale never seen before, it will enable scientists to test some of the key questions in physics and about the nature of the universe. For example, was Einstein right about gravity? What is dark energy and why is it so important in our universe? And where did magnetism come from?
The SKA will deliver significant technological advances in data processing and opportunities for business innovation. It will help to inspire the next generation of scientists and engineers.
The SKAO will be the intergovernmental organisation building and managing the SKA. Based in the UK at the Jodrell Bank Observatory, it will manage the construction, operation and data processing of the telescopes. The SKA is a flagship project for the UK Government and underlines our commitment to worldwide partnerships as part of our modern industrial strategy ambition to make sure that the UK remains a global leader in science, research and innovation.
The UK Government have already committed £100 million to the construction of the SKA—we are one of the largest contributors—and a further £85 million for running costs over a 10-year period to 2026-27. This investment gives the UK a leading role in the project during the construction and operation phases. The investment and the UK’s hosting of this new intergovernmental organisation at its Jodrell Bank HQ are a demonstration of our world-leading position and influence in radio astronomy and wider scientific collaboration and exploration.
Let me now turn to the details of the order. As I have mentioned, the convention was formally laid in Parliament under the Constitutional Reform and Governance Act 2010 in July last year and was completed in October. The order is part of the UK’s ratification and provides the privileges and immunities to enable the SKAO to function as an intergovernmental organisation in the United Kingdom. It is standard practice for intergovernmental organisations and their staff to be accorded privileges and immunities by the member states.
I reassure noble Lords that the privileges and immunities afforded to officers of the SKAO in the UK are limited to those required for them to conduct their official activities and are not for their personal benefit. They are in line with those offered to officers of other intergovernmental organisations of which the UK is a member. These include limited immunity from jurisdiction and inviolability for its officers and employees, including immunity from legal process in respect of their official acts, and tax exemption. They do not include immunity from UK road traffic law. The SKAO convention also requires that the SKAO has legal capacity so that it can enter into contracts and take such other action as may be necessary or useful for its purposes and activities.
The order applies to the whole of the UK. However, some provisions of the instrument do not extend to, or apply in, Scotland. A separate Scottish Order in Council has been prepared to deal with these provisions within the legislative competence of the Scottish Parliament. This was laid before the Scottish Parliament on 10 August.
The order confers on the new SKAO and its staff only those privileges and immunities necessary for the organisation to function effectively and conduct its official activities. The order will enable the UK to complete its ratification of the SKAO convention and make the global SKA project a reality. Completing ratification of the SKAO convention will bring us closer to answering some of the most important questions in advancing our understanding of the universe.
The SKA will provide huge opportunities for technological advances and innovation, notably in the field of big data processing and in areas where UK industry and the research establishment are well poised to benefit. I beg to move.
My Lords, the Minister’s statement should surely be welcomed and uncontroversial. I have no specific involvement to declare, but as Astronomer Royal I am probably one of the few Members of this House familiar with the SKA. I will therefore supplement what the Minister said by outlining for a few minutes the project’s international significance, why the UK’s central role is especially welcome and why this decision has broader long-term benefits extending beyond the science itself.
Astronomy is the grandest environmental science. We are trying to discover the whole “zoo” of objects the cosmos contains—galaxies, stars, planets, black holes, et cetera. Just as Darwin showed how we and our biosphere evolved from the first life on the young earth about 4 billion years ago, we are trying to go back further and trace how the solar system and all the atoms in it emerged from some mysterious beginning nearly 14 billion years ago.
We can also learn new basic physics by observing phenomena where nature has, as it were, created conditions and done experiments we could never simulate in the lab. Within a decade, incidentally, we can observe planets around other stars to check whether they might harbour life. This subject has become a “big science” advanced by international consortia—indeed, in optical astronomy the European Southern Observatory, to which we in the UK belong, has a world lead. It has the biggest and best optical telescope currently and the one now being built will also be a world-beater.
Moreover, other kinds of radiation, not just optical but radio waves, reveal just as much as visible light. Indeed, much of the gas in the universe is hydrogen and radiates only in the radio band. Ever since the 1950s, the UK has been an international leader in radio astronomy, not least because radio waves are not stopped by clouds and rain.
However, there is a fundamental constraint. To get a sharp image of the radio sky would require a dish far bigger than those at Jodrell Bank and elsewhere—literally miles across—which is obviously out of the question. But there is another way to get sharp images. The radiation gathered from an array of separate dishes can be combined to create a map of the radio sky as sharp as a single radio dish the size of the earth.
The SKA exploits this amazing technique, which incidentally was first developed by Martin Ryle in Cambridge in the 1960s. It will comprise hundreds of dishes, with a total surface area of a square kilometre—hence its name—but these dishes will be spread over a large geographical region. Perhaps the biggest challenge, to which the Minister alluded, is the huge computer power needed to combine and process the data flow from all the dishes in the array.
Such an array cannot be built in Britain. It needs large, open and sparsely populated areas. After years of international discussion, two optimal sites were found in the southern hemisphere which have scientific and geopolitical advantages. Half the array will be concentrated in remote pastoral areas of Western Australia, though some outlying dishes in that array will spread right across the continent.
The other half will be in South Africa, centred in a region of the Northern Cape known as the Karoo. Nearly 200 dishes will be concentrated in a region 100 miles across, but some outliers will spread further away into eight other African countries: Ghana, Zambia, Madagascar, Botswana, Namibia, Kenya, Mauritius and Mozambique. South Africa is already a major player in astronomy, having prioritised it for decades. To quote the relevant South African Minister:
“We are determined to ensure the success of what will be the first ever large global research infrastructure hosted in Africa”.
Participation in the SKA project has significantly strengthened South Africa’s data science capabilities, enabling it to close the gap with developed economies.
So much for the background. The SKA hardware is concentrated in two southern countries, but 15 or more nations are contributing, so it needs a governance structure established through international treaties similar to those governing two other sciences that require costly international facilities and multinational partnerships: CERN, the particle accelerator in Geneva, and the European Space Agency. I should add that the SKA is about 10 times cheaper than CERN.
The global headquarters will be the legal entity responsible for constructing and operating the telescopes in the southern hemisphere. The convention was signed, as the Minister said, in 2019 by Australia, China, Italy, the Netherlands, Portugal, South Africa and the UK. Other member nations plan to join and contribute financially and via their expertise.
It is fitting that the world’s future largest radio telescope, the SKA, will have its headquarters at Jodrell Bank—a site recently granted UNESCO world heritage status to mark its pioneering contributions to radio astronomy and the iconic telescope, now called the Lovell Telescope, which was once the world’s largest single dish in radio astronomy. Lovell’s great telescope, incidentally, was commissioned in the 1950s. It has had several updates and is now more than 60 years old, but it is still probing cosmic objects whose very existence was unknown when it was built and, by looking at pairs of neutron stars, conducting some of the most precise tests of fundamental physics and Einstein’s theory of gravity.
Likewise, there is every hope that the SKA will, via periodic upgrades which will deploy computational power beyond today’s conceptual horizon, spearhead cosmic exploration throughout much of the 21st century. It is a benign project that will have a special role in stimulating IT and data-handling in Africa and in the other member countries. It will benefit all participating states, and their number is likely to grow. It is therefore especially welcome for the UK to have a pivotal role, which will be a technological boost to us in this country as well as a boost to our international collaboration. We should surely welcome this decision today.
My Lords, it is a great honour to follow the noble Lord, Lord Rees, the one person in the Room who is qualified to tell us about this project. We welcome this statutory instrument, and I have to say that it is a slightly easier one than the previous instrument brought forward by the Minister to redefine the metre. However, thanks to his good work, at least we now have an exact measurement for the area covered by the dishes.
I am a little worried about BEIS letting itself loose on dark energy, given that it has still not mastered a plan for nuclear power, but hopefully we shall be safe. I am excited by the possibility of this powerful telescope. It may not reveal the location of any significant new trade deals to replace our relationship with the European Union, but it will contribute massively to our understanding of the origins of the universe, as the noble Lord, Lord Rees, has set out so elegantly.
It is in that latter regard that this project is of huge importance. The fact that the HQ is in the UK should be a source of immense pride, as the Minister set out. It is symbolic of the research reputation which has been built up in this country, particularly in this field, and the quality of our science, both historically and currently. We should be proud that Jodrell Bank was chosen to be the HQ and we should congratulate everyone who helped to make that happen. I am sure that the noble Lord, Lord Rees, was being overly modest when he discounted himself in that regard.
This SI does not mention funding and that is not its purpose. However, I am glad that the Minister did bring that issue in. These are troubled times and this is an opportunity for the Minister to reassure the people who are connected with the project that the Government remain committed. In spite of the obvious economic problems created by Covid and in spite of the future economic problems that will emerge at the end of the transition period, the Minister mentioned £85 million, so I assume that he is confirming that that money will continue to go the SKA. Can he confirm that that is the contribution the Government are making to take us through the completion of phase 1? This is a 50-year project and even I would not expect the Minister to commit funds for the next 50 years. I assume that the money mentioned by the Minister will take us to the end of phase 1, which I think is due to complete in 2023; that is within the remit of this Parliament.
There is some more international red tape. As the Minister said, the Netherlands and South Africa have ratified, and as I understand it, the process we are going through here will mean that the United Kingdom will have ratified. That leaves Australia which has yet to ratify. When do the Government expect Australia to ratify its involvement?
The Explanatory Notes say that this instrument is unlikely to be controversial, and I agree, along with the noble Lord, Lord Rees. However, the notes also say that the treaty is unlikely to attract media attention. They say:
“Little public or media interest is envisaged”.
Why on earth not? I ask the Minister to spark some imagination into his Government and his department. This is science that will explore the universe. As the noble Lord, Lord Rees, mentioned, alongside the European Southern Observatory, it is one of only two intergovernmental organisations that I am aware of which are doing this sort of thing. This is the kind of science that lights the fire in people. It gets them enthusiastic about science, technology, engineering and even about mathematics. The SKA understands this. On its website are some lovely fun things for children and even for grown-ups to do.
This is science that will explore the universe, so ratifying the treaty is an opportunity. BEIS, the Department for Education and other government departments should plan a campaign around this project that will encourage the future technologists of this country. Can the Minister please promise to spark his department into some life? Far from dismissing this as a media non-event, he and his colleagues should be shouting about it from the rooftops. That we are leading it is a great success. It is a fantastic project that will shed light on to so many different things. It is typical of big science in that it inspires ideas and will deliver umpteen practical benefits. It is a truly international effort to boost science and it will affect the whole world’s understanding of itself.
Of course, it means that people from many different countries must come together. In this regard, can the Minister tell the House how many non-UK scientists are expected to be based in the UK HQ? Perhaps, without sounding too cheap, how will they and their families be affected by the new Immigration Rules being brought in by Her Majesty’s Government? Does this statutory instrument, which establishes immunities and privileges that the Minister started to set out, include the immigration of individuals and their families? If so, I would welcome that.
We on these Benches support this statutory instrument. It will help to deliver a great project and, more than that, in today’s febrile atmosphere of nationalism and border closures, it is a splendid internationalist project; it is a beacon. It is the opposite of what is being discussed today in the other place. Rather than planning on how the UK might break international law, this legislation enables the country to honour its obligations. In this respect, too, it has full Liberal Democrat support.
My Lords, I am delighted to take part in this historic discussion about big science, as the Astronomer Royal put it—indeed, very big science. I echo some of what has just been said by the noble Lord, Lord Fox. It is an honour to be present and a part of this, and it is humbling to hear about all the extraordinary things that are going on in this area of science. It is very good news indeed that the UK is playing its part and I congratulate the Government on that.
I have little to add to the debate because it is uncontroversial. Like the noble Lord, Lord Fox, I think it would be nice to put a little of the oxygen of publicity behind it, but I understand the difficulties that that may pose. It is nevertheless a good story and good stories deserve their space. I shall finish with a few detailed questions.
I want to push a little further on a point made by the noble Lord, Lord Fox. Paragraph 7.3 of the Explanatory Memorandum talks about this being a first phase project and that there will be a second phase which will mark
“a significant increase in capabilities.”
I presume that that is code for quite a lot of money. The Astronomer Royal made the point that we are talking about new generation computing and hardware that may still not yet have passed the provability test. The expectation is that a substantial sum of money will be required to do that. I want just to check that my reading of the notes is correct. I do not think that the Minister is in a position to give us details, but perhaps he will confirm, even with a nod, that this is where we are going. We should welcome that because if we are going to enter this, let us go in fully and with commitment, and make sure that we are there not only at the beginning but also at the end of the project to share in the benefits that will be brought forward.
That leads me on to the slightly wider question of whether there is a long-term plan for the SKA. Presumably since it is exploring what is by definition unknown, we are not able to plan right through, but it would be useful to have a reassurance from the Minister that we are talking about a long-term commitment and that this will not be resolved in a few days, a few years, or even a few Parliaments. We need to be sure that we will remain a part of this.
Finally, just to pick up the point also made by the noble Lord, Lord Fox, the Explanatory Memorandum mentions other projects of which the UK is now part. I was very glad to hear about them. They had escaped my attention, but it is good to know about them. There is talk about £374 million having already been promised and committed to the European Space Agency for projects undefined. I am not looking for detail, but when he responds perhaps the Minister can confirm that that is not money that is being imagined but is definitely in the budget and will be paid, and that we are talking about long-term engagement with the EU space agency.
There is also mention of a lunar gateway project and other projects in the pipeline. Although I think it is funded differently, the Copernicus Earth Observatory Programme gets a mention. Again, perhaps the Minister could mention anything that comes out that in terms of what funding streams are identified. This is not critical. It is just along the lines of what the noble Lord, Lord Fox, said: the more we know about this, the easier it is to celebrate it.
We support this. We think it is a great project and are delighted to see it well on its way.
First, I thank all noble Lords who have taken part in this brief debate. I was particularly grateful for the support of the noble Lord, Lord Rees of Ludlow, who is a renowned expert, as the noble Lord, Lord Fox, said, in this subject. I understand that this is the noble Lord’s 25th anniversary as the Astronomer Royal, and I am sure that the whole Committee will want to offer him our warmest congratulations.
This order and the separate Scottish order are the final legislative steps necessary for the UK to ratify the SKAO convention. Once approved by both Parliaments and the Privy Council, we can ratify the convention. This order confers privileges and immunities on the Square Kilometre Array Observatory only as far as is necessary for it to function as an intergovernmental organisation in the United Kingdom. As required by the SKAO convention, the order also confers legal capacity on the organisation so that it can enter into contracts and take such other action as may be necessary or useful for its purpose and activities. The privileges and immunities of the SKAO will be equivalent to those of other intergovernmental organisations, such as the CERN particle physics laboratory near Geneva and the European Southern Observatory. Indeed, the legal status and structure of CERN was used as a model for SKAO.
Turning now to the specific points raised in the debate, as I said earlier, I am very grateful to the noble Lord, Lord Rees, in particular, for his support and for giving us his insight into the SKA project, outlining the many scientific opportunities it will lead to. In particular the noble Lord mentioned the European Southern Observatory, which is an important international facility of which the UK has been the leading member since 2002 and which has substantially supported our astronomical leadership. I am also grateful to the noble Lord, Lord Fox, for his support for the SKA project. I reassure him that BEIS, despite the expertise of its excellent officials, is not being let loose on the subject of dark energy. We are very content to leave that to the astronomers and the experts of the SKA.
The noble Lord asked about ratification. We expect Australia to ratify this year. I can confirm that the expenditure we have committed is for phase 1 of the project. I agree that the SKA should be spoken of with high regard as a great opportunity for the UK and that we should take it as an opportunity to promote our scientific leadership. This order enables non-UK national members of staff, including scientists, to work in the UK, and we expect there to be more than 50 non-UK national members of staff initially, rising to more than 100 later.
The noble Lord, Lord Stevenson, asked about the second phase of the project. The project is scalable and we will build on phase 1. Clearly the funding agreement for that is some way off, but successful completion of phase 1 will form a solid basis for it. This is a very narrow piece of legislation focused on the privileges and immunities of the SKAO and is not related to our commitment to the European Space Agency.
I shall give noble Lords a bit more detail on the finances. In March 2014, the UK Government committed to investing £100 million in the construction of the SKA, which was around 16% of the total construction cost. This was agreed as part of the process of bringing the headquarters to the United Kingdom. A new £16.5 million building has been constructed at Jodrell Bank to house the SKA HQ, with funding from BEIS of £9.8 million, the Science and Technological Facilities Council, the University of Manchester, which committed £5.7 million, and Cheshire East Council, which contributed £1 million. As shown by the widespread support for this project, it is enormously exciting for the UK, and our astronomy community will be a key partner in this global project.
We remain committed to strengthening our position as a world leader in astronomy and space exploration. The order takes us one step closer to bringing the SKAO into operation. As one of the host countries, this Government remain committed to bringing it into being as soon as possible. It will become fully operational when the convention enters into force. As one of the host countries, it is important that the United Kingdom ratifies at the earliest opportunity so that the start of construction of the telescope in 2021 is not delayed. The convention will come into force 30 days after all three host countries—the United Kingdom, South Africa and Australia—plus two further members have ratified it. We expect this to occur by November 2020. This will retain international member confidence in the project and encourage other countries to join. UK scientists and engineers have been involved in the SKA from the project’s inception in the early 1990s.
By hosting this intergovernmental organisation in the UK, we will continue to play a leading role in bringing this project to fruition and guiding it through the construction and operation phases. The UK’s participation reinforces our position in international astronomy and maintains and strengthens relationships with researchers across the globe. I commend this order to the Committee.
Arrangement of Business
My Lords, the Hybrid Grand Committee will now resume. I remind Members in the Room to wear a face covering, except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If there is a Division in the House, the Committee will adjourn for five minutes.
Professional Qualifications and Services (Amendments and Miscellaneous Provisions) (EU Exit) Regulations 2020
Considered in Grand Committee
My Lords, I beg to move that the draft regulations, which were laid before the House on 6 July 2020, be approved. I will give a brief overview of the rationale behind these regulations, which relate to the recognition of professional qualifications and the provision of services. They form part of the Government’s preparations for the end of the transition period. Noble Lords will be aware that the Government have signed agreements with the EU, the three EEA EFTA states and Switzerland, which contain arrangements regarding the UK’s withdrawal from the EU. The agreements include provisions that protect the rights of EEA and Swiss nationals living and frontier-working in the UK, and vice versa. These regulations will give effect to certain provisions in the agreements relating to the recognition of the professional qualifications—or RPQ as I will now refer to it—of this group of EEA and Swiss nationals.
By doing so, the regulations will ensure that the decisions made by UK regulators to recognise the professional qualifications of EEA and Swiss nationals before the end of the transition period will be grandfathered after the period ends. These individuals will be able to continue to practise their profession in the UK. The regulations also make various changes to the domestic frameworks for RPQ and services, including in respect of regulations made in anticipation of exit, which will ensure that they function effectively after the transition period. Professionals from the EU make a significant contribution to the public and private sectors in the UK. Between 2007 and 2016, the UK gave 148,000 recognition decisions to EU professionals.
I remind noble Lords of the background to RPQ. The mutual recognition of professional qualifications system is derived from EU law. It allows UK professionals to get their qualifications recognised in the EEA and Switzerland—and vice versa—with minimal barriers. Across the whole of the EEA and Switzerland, there are approximately 570 different professions under this system. After the transition period, the EU system will cease to apply to the UK. Last year, in preparation for the UK leaving the EU, the Government made various RPQ EU exit regulations to amend the domestic law that implements the current EU system for RPQ in order to fix deficiencies caused by exit.
The existing EU exit regulations include provisions which protect recognition decisions already made; allow applications for recognition submitted before exit day to be concluded after it; allow providers of temporary and occasional services one year from exit in which to complete their service provision; and retain aspects of the recognition system to provide a route for certain EEA and Swiss qualification holders to apply for recognition of their qualifications after exit day.
I should say that this retention of part of the existing recognition system is not covered by the agreements with the EU, EEA or Switzerland, or these new regulations. However, it forms part of the Government’s plan to make sure that the UK is prepared to leave the single market. The Government have decided that this system should remain in place temporarily after the transition period in the event that there are no satisfactory arrangements from the EU free trade agreement negotiations.
I will briefly explain how these new regulations will implement the RPQ provisions of the agreements, to which I referred earlier. The agreements contain similar, but slightly different, provisions to those contained in the existing RPQ EU exit legislation. Therefore, these new regulations will make amendments to EU exit regulations laid by the Department for Business, Energy and Industrial Strategy, the Ministry of Housing, Communities and Local Government, and the Department for Environment, Food and Rural Affairs to give full effect to the RPQ terms of the agreements. The reason for this is that the agreements were finalised after the existing EU exit legislation was passed.
The provisions in these regulations relating to the agreements will protect recognition decisions made before the end of the transition period; allow applications for recognition submitted before the end of the transition period to be concluded; ensure that UK regulators co-operate with their EEA and Swiss counterparts to facilitate the completion of applications ongoing at the end of the transition period; and ensure that professionals whose professional qualifications are recognised are treated on the same basis as UK nationals.
In respect only of Switzerland, these regulations give effect to provisions in the Swiss agreement that provide for a longer transition period for certain individuals. In particular, they will allow a further four-year period for certain Swiss nationals to apply for recognition under current EU rules and allow certain Swiss service providers to continue to provide their services in accordance with their contract for up to five years after the end of the transition period.
The RPQ provisions of the agreements will be reciprocated by EU member states, the EEA EFTA states, and Switzerland respectively. I remind noble Lords that these regulations do not cover certain legal or healthcare professions, which are being covered in separate statutory instruments by the relevant departments.
To ensure that the frameworks for RPQ and services will function as intended after the transition period, these regulations will also make various other changes, which can be separated into four categories. First, retained treaty rights in respect of RPQ will be disapplied. These are overarching rights derived from the Treaty on the Functioning of the European Union and the EEA agreement in respect of free movement of workers, and retained treaty rights for RPQ derived from the Swiss free movement of persons agreements. After the transition period, the default position is that these rights will become retained EU law under the European Union (Withdrawal) Act 2018. These regulations disapply these treaty rights, in so far as they relate to RPQ, to ensure legal clarity about the post-transition period system for recognition of EEA and Swiss qualifications.
Secondly, a retained delegated regulation on ski instructor qualifications and two delegated decisions—which update annexes to the EU directive on RPQ—will have no practical effect after the transition period. These regulations will therefore revoke them to tidy up the statute book.
Thirdly, these regulations will make minor corrections to RPQ EU exit regulations and technical amendments which change references to “exit day” to “IP completion day” in the existing RPQ and services EU exit regulations. This will be done so that the regulations will function effectively after the end of the transition period.
Lastly, consequential amendments and a minor correction to a transposition error will be made to the 2015 EU RPQ regulations.
I should point out at this stage that UK regulators have been consulted on an informal basis throughout the process of developing RPQ EU exit legislation and these regulations.
To conclude, I reiterate that these regulations are vital to the Government’s preparations for the end of the transition period. It is imperative that they are made so that professionals and businesses are equipped to be ready for the end of the transition period. I commend these regulations to the Committee and look forward to hearing noble Lords’ views.
My Lords, I shall not detain the Grand Committee or the Minister very long. My contribution is more to probe and to query than to add anything new. I understand entirely the need for these regulations and the issue in respect of rights that were incorporated in EU legislation. I also understand the grandfathering process so that people retain their rights in respect of the qualifications they have obtained. Under the transitional provisions, in some cases that will be for one year, while in the case of Swiss nationals it will be for four or five years.
I am afraid that over the weekend I did not have the resources that I used to have or the technical ability online to be able to get to grips with what would happen after the varying transition periods were completed; in other words, whether the reciprocation agreed in implementing the grandfathered rights would continue, with mutual recognition of existing qualifications, including in respect of the provisions dealing which medical professional qualifications, two of which are to be disapplied because they are felt not to be relevant. I want to query with the Minister why they are not relevant any more. I shall not go into skiing, because I am sure other people will want to talk about reciprocal recognition there. As I am not foolish enough to go skiing at my age, it will not apply to me, but I am at a loss to see where we will be after a further, extended transition period following the end of this year and how it will operate for those who gain their qualifications after that period has finished. If that does not make sense, neither do the regulations read by an intelligent human being who does not have access, in terms of the regulations, to a range of European languages, and that includes me.
My Lords, I thank my noble friend for presenting the regulations to the Grand Committee. In so far as they go, I welcome them. It is good that we are holding out the hand of friendship and continuity to those with professional qualifications from the countries concerned to allow them to continue to live and work in the United Kingdom.
My question is a simple one and concerns what will happen in the event of no deal on 1 January to those with professional qualifications who currently enjoy mutual recognition in other member states and across the EEA and Switzerland. Might we have an extremely messy situation on 1 January in respect of current practitioners? They could be in some of the professions that my noble friend the Minister described; they could be lawyers, architects, dentists, doctors—the list goes on.
I declare a personal interest—I have followed this matter for some time, as my noble friend will be aware—in that I was able to avail myself of mutual recognition as a practising EU lawyer. I worked in two firms in Brussels for a period in the late 1970s and early 1980s. One has only to look at the difficulty experienced in the different professions and their branches and at how many years it took in some cases to reach the mutual recognition from which all of us have benefited in the EU, the EEA and Switzerland. In the case of architects, the directive took 21 years to agree, yet when we look at the stellar contribution made across these countries by those such as the Rogers design team, we realise that it was worth the difficulty and the time in reaching agreement.
In the event that we do not have a deal on 1 January and the position is unclear, what will the position be for those from the United Kingdom who wish to practise their profession in these countries? I would be grateful for a reply from my noble friend.
I now call the next speaker, the noble Lord, Lord Loomba. Lord Loomba? We will perhaps come back to the noble Lord; we are having some technical difficulties. I call the noble Lord, Lord Moynihan.
My Lords, the Explanatory Memorandum to these regulations states at paragraph 2.9:
“This instrument is also concerned with the Delegated Regulation which establishes a common training test for ski instructors”
and then references footnote 9. Before I go into the detail of that, taken overall, as my noble friend the Minister stated, this instrument seeks to introduce into domestic law the recognition of professional qualifications, or RPQs, in the EU agreement and seeks reciprocity where it is to the benefit of both parties. The Swiss citizens’ rights agreement is a clear example of this. This instrument specifically addresses key and important questions relating to the ongoing status of ski instructors living and working in Switzerland and in wider European countries such as Spain and Andorra in the Pyrenees, as well as Alpine countries. I am unclear why the Government are not seeking to protect employment opportunities for ski instructors, given that we are a major financial contributor to the success of this sector in the Alps and the Pyrenees.
A key issue post Brexit which is worrying the ski industry is how instructors will live and work in Europe. Additionally, the industry will need to re-evaluate resourcing requirements for chalet workers, support staff, ski instructors and mountaineer support teams. We hope that change after the transition period will be handled as an administrative step which holidaymakers or Alpine workers will need to take prior to travel. However, this remains unclear and the regulations being considered today provide an opportunity to ensure that we are completely in sync with the EU on ski instructors—an objective pursued by the British Association of Snowsport Instructors, or BASI.
As I understand the position, when the right to work in the EU is rescinded, instructors will need to apply for a work visa. While it should be recognised that this is already commonplace for British instructors wishing to work in Australia, New Zealand, Canada, et cetera—though age and time restrictions apply—it is unclear what arrangements the British Government have reached in negotiation given the CTT agreement, which I hope stays in place and can be reciprocally agreed as ongoing practice between the EU and the UK.
With Switzerland being outside the EU, we have some knowledge of working across EU zone borders. Non-Swiss instructors have to apply for work permits in Switzerland as they do not have an automatic right to work there. In 2000, a common set of criteria was agreed for training and performance standards for ski instructors. This was not an EU agreement, meaning that originally it should have stood for British nationals post the transition period, but since then it has been adopted by the EU delegated regulation 2019/607.
A few years ago, the British Association of Snowsport Instructors and the International Ski Instructors Association negotiated an agreement with European Alpine nations. The group, which found considerable common ground, consisted of France, Austria, Italy and the UK. The British top qualification—level 4 ISTD—was recognised as equal to that of Austria, France and Italy. BASI has representation on the board of Interski International, the snow sports umbrella organisation, which has three specialised associations: the ISIA, the IVSI and the IVSS. Can my noble friend confirm that the United Kingdom, represented by BASI, will continue to be included in the EU Commission delegated Act, translated into our legislation, for ski instructors and the associated common training test—CTT—agreement, which I have mentioned, or is the status to be grandfathered under our legislation or removed?
Could my noble friend confirm that the top British qualification will continue to be recognised in Europe post the transition period? BASI is hopeful that, as long as it continues to comply with the rules and processes as they currently stand, there will be no change to the recognition of qualifications. However, would I be right in interpreting the agreement reached with the EU on this subject as effectively removing us from a common CTT agreement and therefore French ski schools, for example, would be able to reject British ski instructors after the transition period on grounds wholly unconnected with whether they have passed the common training test?
BASI decided to align its qualifications with the Scottish credit qualification framework several years ago, which in turn aligns with the European qualification framework. Not only did this give our European counterparts an alternative tool which they can use to recognise the level of our qualifications but it enabled our members to gain recognition for the time and effort they have put into their snow sports career if they choose to apply for jobs in completely different sectors.
There is a clear need for government to prioritise doing what they can to promote and protect the rights of UK citizens working in the mountains of Europe. Over the years, many UK workers have come up against major resort-based difficulties, being in areas where locally elected mayors turn a blind eye towards fierce national protection of work opportunities for local ski instructors despite, as I have mentioned, the huge investment made by the UK-based ski tourist industry. Would my noble friend recommend that instructors who are accepted to work in the EU ski resorts register to work in the countries that they intend to work in, anticipating that new working rights arrangements post Brexit may take some time?
In summary, the proposal in this instrument is to revoke the retained delegation regulation on ski instructors on the grounds that my noble friend said in her opening remarks: that they will have “no practical effect” in the UK after the transition period and therefore should be revoked. Does this mean that the common training test will no longer be recognised in Europe for British instructors or, indeed, in Scotland for European instructors? If not, what support and protection will British ski instructors have after 31 December?
I am very sorry that my microphone was not on. This legislation is of great importance alongside measures such as the immigration Bill, which is vital to the smooth running of our country as we move to a new way of co-operating, on a new footing, with the EU and associated countries. Mutual recognition of qualifications goes to the heart of sustaining our ability to accept much-needed talent and skills into our country. It is crucial that we get it right as it will affect the functioning of the economy. More importantly, it affects peoples’ lives and livelihoods—their ability to use their skills and talents to put food on the table.
This legislation has some flaws, not least that as a statutory instrument it will become law without the proper scrutiny, evaluation and debate that our place is lauded for. That allows its passage unhindered and, in doing so, risks missing some of the detailed assessment necessary to ensure good law on working practices that is fit for purpose. For citizens to easily understand it and navigate it in their search for work, and for businesses to be able to employ staff without unnecessary hurdles or red tape hampering productivity, any legislation requires clarity accompanied by good guidance. Businesses need good, clear, effective measures in place to be able to operate effectively in what is a very competitive market at the best of times. Now, with the pandemic, businesses face even greater pressure and uncertainty. Here, I declare an interest as set out in the register as the owner of a business. I understand the difficulties many businesses face.
In understanding the complexity of this legislation, take for example, the original EU directive on which existing recognition of mutuality is based. This will cease to apply to the UK once the transition period ends. This means that some parts of the directive will be inoperable as a consequence of exit and other parts will not be appropriate to retain given they are based on reciprocal arrangements with the EU, the EEA, EFTA states and Switzerland which will no longer exist.
To go some way to resolving this issue, as we have heard, in 2018 and 2019 the Government already made several recognitions of professional qualifications in EU exit instruments. The Government have since made agreements with the EU, EEA, EFTA states and Switzerland. These include provisions on RPQ that are similar to, but slightly different from, existing provisions in RPQ EU exit legislation. These provisions require this statutory instrument to give effect to these areas. This demonstrates how much legislation will need to be navigated for businesses and individuals to understand and comply with.
Further, the statutory instrument does not require a review because its impact is deemed to be worth less than £5 million on business. It states that it does not affect small businesses and that guidance will be issued. I am not sure how something like this would not affect many small businesses, often without the wherewithal to navigate the myriad provisions, and at present, it would appear that the guidance is not available. It is vital that we get this right. Business, research and educational relationships that depend on it will be affected far into the future, and a clean sweep, with a completely new Act, would have been a better option.
My Lords, I believe that the noble Baroness, Lady McIntosh of Pickering, has hit the nail on the head with her questions. She asked them in a very unaggressive fashion and said that what is now being faced by many businesses is the fact that we will leave the EU without a deal. What I really want to know is what will happen to mutual recognition if we leave without a deal. Mutual recognition is vitally important in a world where people go all over the place to get their qualifications and expect to be able to use them across a wide area. If the UK exits from that world and does not mutually recognise qualifications, that will be an absolute disaster.
I was going to comment on the huge amount of legal work that has gone into drafting this statutory instrument. I have read it carefully all the way through, but it is very difficult to read. Yet the Government are spending time on this when whole sectors of industry, such as financial services, have practitioners who are not qualified swindling the population out of a lot of money. I wish that the Government had attended to this instead.
My Lords, I am grateful to the Minister for her introduction of the instrument. I understand a little more about it now than I did the first time I read through it, but I am rather like my noble friend Lord Blunkett, who explained in his rather self-deprecating way that he was confused until the end. The SI itself is clear, but the Explanatory Memorandum has left us all a bit flabbergasted and confused, as the noble Lord, Lord Bradshaw, just said. However, we must make progress on it because, as the Minister has said, it is an important document and vital to preparations for the post-transition period. However, I put it to her that it raises issues which are much more important for the longer term, which is what much of the debate has been about.
Before going on to that, I think we owe a vote of thanks to the noble Lord, Lord Moynihan, for his obviously hard research into the situation affecting ski instructors, which we all noted and all felt a little tentative about raising. I think he has made the argument extremely well so I am going to make a slightly separate point that here is a group for whom special arrangements had to be made and they appear to have been carved out randomly on the basis that it did not seem to matter when in fact it does. In particular, in Scotland, where I come from, there is a well-established tradition and good training is provided for people who work in difficult and often dangerous circumstances in the high mountains. How extraordinary that they are going to be cut out without much thought in terms of mutual recognition. Will the Minister explain how and on what basis this was discussed with the Scottish Government, who presumably have very strong views on this? I will be interested to know how their response was registered.
As other noble Lords have picked up, the key question was asked by the noble Baroness, Lady McIntosh, about what happens to mutual recognition immediately afterwards—it was also raised by my noble friend Lord Blunkett. It was certainly part of the earlier discussions and debates. Those of us who follow this closely will have read the exchange of correspondence between the Secondary Legislation Scrutiny Committee and the department on this in which the committee raised a question about how all this sits in the wider picture, which is what is behind a number of our comments. The response is rather confusing because it first tries to narrow it down to being a technical SI, which indeed it is at heart, tidying up a few things that need to be resolved, but it also says in response to a question about whether this issue is going to be a continuing discussion and debate that arrangements on the future recognition of professional qualifications after the transition period are being discussed as part of the EU-UK comprehensive free trade agreement and that the Government intend to include appropriate non-discrimination and equal treatment provisions in the FTA.
When one looks at it, the draft paragraphs contain a vague aspiration that in the free trade agreement there will be an appropriate way of expressing mutual concern and respect for other people’s qualifications much as we do at the moment, but they do not give any detail about where that is going or how effective it is going to be in practice. When the Minister responds, will she give us a bit more meat on the bone there? This is at the heart of many people’s concern about this SI. It is not the specific issues it raises, because when you drill down, and perhaps ignore the Explanatory Memorandum, you find that it is actually technical and relatively straightforward and affects a reasonably small area but, as was picked up, ski instructors are being given no future so far as we can see. More widely, as a pillar of the future prosperity of this country, we need that ability for our services, which are the majority of our economic activity these days, and our assets in intellectual property, which exceed our physical assets. How on earth are we going to make a go of that if we have no mutual recognition and have to start from scratch getting all the documentation required for everybody who wants to operate in order to earn for our country abroad? These matters really are important, yet they are not dealt with here. It is not the SI that does not do that, but nevertheless the questions are there and need answers. I look forward to hearing the Minster’s response.
My Lords, I thank noble Lords for their valuable contributions to this short debate and for their broadly supportive comments on this SI. I should like to conclude by emphasising that the changes contained in these regulations are essential. The UK is committed to protecting citizens who benefit from rights under the agreements, many of whom make valuable contributions to the UK workforce. Although these regulations focus mainly on protecting existing rights and not future arrangements, it is important that they make changes to ensure that the UK’s existing EU exit regulatory frameworks for RPQ and services will function effectively at the end of the transition period.
However, it is worth noting that the continuation of a recognition system after the end of the transition period is a temporary measure. In response to the noble Lord, Lord Blunkett, who asked what will happen when the transition period is over at the end of this year and how this will operate for people who gain their qualifications after that period, all those with recognition decisions achieved before the end of the transition period are protected for life.
Certain EEA and Swiss nationals who apply for recognition after the transition period will be able to seek recognition under the previous RPQ EU exit regulations laid in 2019. Those EU exit regulations amend the system for the mutual recognition of professional qualifications to retain aspects of the recognition system after the transition period so that individuals with EEA and Swiss qualifications that are equivalent to UK standards can have their qualifications recognised in the UK.
In response to my noble friend Lady McIntosh of Pickering and others who asked why we have been unable to secure mutual recognition with the EU, I remind her that the regulations are concerned with implementing reciprocal arrangements in the withdrawal agreement, not policy for a future recognition system. With regard to negotiations on the mutual recognition of professional qualifications, we concluded the eighth round of negotiations with the EU on 11 September. Although there was little progress made, we had useful discussions, and we are still working hard to ensure that qualification recognition does not become an unnecessary barrier to trade in regulated services across the modes of supply between the UK and the EU. As negotiations are still ongoing, I cannot comment in more detail on the status of those discussions at this stage.
My noble friend also asked what will happen in the event of no deal on 1 January 2021 to those with professional qualifications across the EEA and Switzerland and what will be the position for those in the UK who want to practise in the EU, EEA and Switzerland. In terms of these future arrangements for UK nationals, it is not clear which no deal arrangements the EU will put in place. However, some member states have previously suggested that they will continue to provide recognition routes for UK nationals if an agreement is not reached. There is also the temporary system that will continue to provide a route to recognition after the end of the transition period for EEA and Swiss qualifications. I also note generally that, as I said in my opening speech, doctors and dentists are covered by separate statutory instruments laid by the DHSC and are not covered by this SI.
In response to my noble friend Lord Moynihan and the noble Lord, Lord Stevenson, who asked why we are disapplying the delegated regulation for ski instructors, the regulation establishes a common training test for ski instructors, but ski instructors are not regulated in the UK. The delegated regulation will have no practical effect in the UK after the transition period, as the UK will not be a member state, and therefore it will not apply to the UK or UK ski instructors after the end of the transition period. Disapplying it will not have an impact on the ability of UK ski instructors to work in the EU in future. This is subject to ongoing negotiations with the EU. UK ski instructors within the scope of the agreement who have already been recognised will be protected accordingly. Unfortunately, we cannot guarantee what the EU member states will put in place for ski instructors who apply for recognition in a member state after the transition period. However, the UK is seeking to negotiate an ambitious deal with the EU. The UK’s negotiating position would enable UK ski instructors to continue to seek recognition in the UK after the transition period. Even without revoking the delegated regulation, it could not be relied upon by UK ski instructors in the EU once we are no longer part of it.
In response to the noble Lord, Lord Stevenson of Balmacara, this was discussed with the Scottish Government. The devolved Governments were involved regularly throughout the process of making the regulations. They have been supportive of our approach and did not have any significant comments. The regulations have not been controversial with the devolved Administrations. The Scottish Government have consented to this SI by way of ministerial letter.
The noble Lord also asked for some more meat on the bone as to how the regulations will operate. I remind him that the regulations are concerned with implementing reciprocal arrangements in the withdrawal agreement and not policy for a future recognition system. I have answered on the recognition arrangements in the existing EU exit regulations and on the status of the negotiations. Further RPQ policy will depend on the outcome of the negotiations with the EU and the recommendations of a call for evidence being conducted by the business department. This call for evidence is looking at what our approach should be to the future recognition of professional qualifications from other countries and considering the UK’s approach to the regulation of professions more broadly.
To close, I underline once more that these regulations are a vital part of the UK Government’s preparations for the end of the transition period. I recommend the draft regulations to the Committee.
The Grand Committee now stands adjourned until 6.15 pm. I remind all Members present to sanitise their desks and chairs before leaving the Room.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. I remind Members in the Room to wear a face covering except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If there is a Division in the House, the Committee will adjourn for five minutes.
Intellectual Property (Amendment etc.) (EU Exit) Regulations 2020
Considered in Grand Committee
My Lords, this instrument, which was laid before the House on 13 July 2020, seeks to ensure that the UK’s intellectual property system functions effectively at the end of the transition period. Intellectual property plays a vital role in the UK economy. IP supports creativity, ingenuity and innovation and provides incentives for research and development. It is no surprise that the UK is a global leader in innovation.
Earlier this month, the World Intellectual Property Organization placed us as the fourth most innovative country in the world. UK research and development is at the forefront of the efforts to combat coronavirus, as seen by the progress made by the Oxford Vaccine Group and AstraZeneca, but that does not mean we should rest on our laurels. The instrument before us today ensures that we have a firm footing to look forward and take advantage of the opportunities available to us as a sovereign, independent nation to bolster our strength as a science superpower.
Last year, as noble Lords may recall, a number of statutory instruments on intellectual property were brought before the House. I shall refer to these instruments as the “original legislation”. These instruments ensured that retained EU law on IP operated correctly and that IP protection in the UK would be safeguarded if the UK left the EU without an agreement. However, as we know, that situation did not occur. The UK left the EU on 31 January, and the transition period provided by the withdrawal agreement means that EU law continues to apply in the UK until 31 December this year. Hence EU-wide IP rights have continued to apply automatically in the UK during this period.
The agreement obliges the UK to ensure the preservation of intellectual property rights which have effect in this country by virtue of our membership of the EU. Of course, this is a task which the original legislation had already taken up. We were always going to ensure that valuable IP rights were not lost, but we must now ensure that we do so in the context of the withdrawal agreement and the transition period.
The instrument before the Committee today therefore has three objectives. First, it will update the original legislation so that it reflects the application of EU law until the end of the transition period, fixing some small errors identified during the process of updating it. Secondly, it will ensure that any new EU law which has come into force since that original legislation works as retained domestic law. Thirdly, it will implement any obligations on the UK in the withdrawal agreement, where these differ from our approach in the original legislation.
The instrument is designed to amend the original legislation before it would come into force at the end of the transition period, which I acknowledge may make the drafting somewhat complex. Nevertheless, the aim remains the same: to ensure that the intellectual property system continues to function and that the valuable rights it provides remain in place. I shall focus on two of the more detailed areas in the instrument: the granting of equivalent UK rights in respect of EU trademarks and designs and new EU law on supplementary protection certificates.
In relation to trademarks and designs, the original legislation ensured that an equivalent UK right would be created for any EU trademark or design in force on exit day. This instrument moves the creation date of the new rights to the end of the transition period because, as I mentioned earlier, EU IP rights continue to apply in the UK until that date. This means that as many as 200,000 additional rights granted between exit day and the end of the transition period will be safely protected in the UK.
In addition, where legal action is being taken to challenge an EU right and a decision is still pending at the end of the transition period, the withdrawal agreement requires us to apply the outcome to the equivalent UK right once the decision has been made. The instrument sets out the process for dealing with the outcome of any such decision. It means that third parties will not be put to the expense of having to launch a separate action to challenge the equivalent UK right.
Turning to supplementary protection certificates, or SPCs, these provide an additional period of protection for patented medicines and pesticides, which must be approved for use before they can be placed on the market. These are highly valuable rights for the life sciences sector, which has consistently been the largest investor in research and development in the UK, investing more than £4.5 billion in 2018. The SPC system works as a balance between supporting innovation in new drugs and ensuring that those drugs become available cheaply, through generic competition, in good time. This enables the NHS to benefit from both.
The SPC system derives from EU law. The original legislation ensured that the system would function in the same way before and after exit day, preserving the pre-existing balance and avoiding changes which might affect when drugs enter the UK market. Last year, some adjustments were made to EU SPC law. Regulation (EU) 2019/933 created what is known as the “manufacturing waiver”. This allows third parties to make SPC-protected medicines in certain specific circumstances while the SPC is in force, without requiring the permission of the SPC holder. This instrument therefore accounts for this new law and ensures that it functions properly in a UK context. It keeps the circumstances in which the waiver can be used the same. This was the clear view of the stakeholders we consulted in a public call for views last year. Again, this preserves the current careful balance of interests in the existing SPC system.
There are also a small number of provisions in this instrument relating to copyright, database rights and the principle of exhaustion of rights. Changes in these areas are technical updates to the original legislation to reflect the existence of the transition period.
In conclusion, these regulations finalise the work carried out last year, providing certainty for holders of IP rights and users of the IP system at the end of the transition period. I commend these regulations to the Committee, and I beg to move.
My Lords, I recognise that this is largely a technical instrument but it has considerable ramifications for the creative industries, so I hope the Minister will be indulgent about my ability to comprehend the finer details as I declare my interest as a composer rather than as a lawyer.
If I have understood it correctly, the central issue here is whether UK IP lawyers can represent rights holders before the IPO. I believe there is some contradiction between the EU and the British Government on this matter, with the EU saying that they cannot and our Government saying that they can. Perhaps the Minister will be kind enough to clarify that. Secondly, if there is no deal, that would see the UK’s IP legal community face greater competition than their counterparts, potentially weakening them. This clearly impacts on, or might impact on, the main issue for trademark holders, composers, writers, designers and others in the creative industries in relation to leaving the EU—their copyrights and ensuring that the high level of protection in directives is upheld.
Copyright, as the Minister said, is vital to maintaining the success of the creative industries in this country and, indeed, what they garner for the Exchequer. On a broader canvas, there is some good news. The Mechanical Copyright Protection Society—MCPS—is actively pursuing licensing in China. Last Friday’s Japanese trade deal with the UK has been heralded as going further in terms of copyright protection than the EU relationship, so I would be interested to know in exactly what way. Similarly, the Government have said that they no longer plan to implement the copyright directive agreed in the EU last year in the light of Brexit. How do they plan to ensure that services such as YouTube pay the fairer share to music creators which would otherwise have been afforded by the directive?
In 2015, the UK music industry won a landmark case against the UK Government, given their failure to award compensation for the use of music without permission on the grounds that it violated EU law. How can the UK music industry be certain that departure from the EU will not mean that copyright standards and protections will not be weakened if the standing of their legal representatives is undermined? Spotify and YouTube are welcome in many ways, but they discourage the sale of hard music. Why would you buy a £15 CD if you can access a pirated copy on the internet? If the Committee will forgive me giving a personal example, a couple of years ago I had a new piece at the Proms and to my astonishment it was available on YouTube within hours. It was certainly flattering, but very worrying because why would anyone want to record it commercially given its availability in the EU and around the world?
Our IP lawyers need strength to their elbows, not weakening of their grip. These are crucial issues for creators, so I look forward to some reassurance from the Minister.
My Lords, I thank the Minister for presenting a very complicated area very well. By way of background, I think it is only right to mention that I used be an adviser to two pharmaceutical companies, Upjohn, a US company, and Reckitt and Coleman Pharmaceuticals. I was also involved with Fisons. I was a director of a major advertising agency and most of my clients would have been covered by this area, which is, as the Minister said, vital to UK industry and commerce, so the document we have in front of us is very important.
I shall go through the Explanatory Memorandum paragraph by paragraph if I may. There are a number of questions. I do not expect the Minister to have the answers immediately to hand, but I would be grateful, if he feels it appropriate, if he will drop me a line afterwards. Paragraph 2.4 states
“which have been protected at an international level.”
Does that refer to the world intellectual property organisation? If not, who is it?
Later the paragraph refers to
“new database rights to UK nationals”.
I am always a little concerned about our overseas territories—I declare an interest here in that I have family working in the Cayman Islands, which are part of the overseas territories; they are UK nationals and have a very close relationship with the UK. Does this SI affect our overseas territories? Are they covered by it or is that for later?
Under the heading “What will it now do?”, paragraph 2.9 says
“certain decisions taken by EU bodies or courts on the validity of such rights are recognised in the UK.”
I am not entirely clear whether there is a time limit on that.
Paragraph 3.1 says
“This instrument corrects several drafting errors”.
Well done to the people who found them. Have any more been found since the SI was printed? It would not be unusual if there had been.
Paragraph 7.5 says:
“As far as possible, the approach remains to ensure that the law which currently applies in the UK will continue”.
Does the department have any particular worries about that statement? If it does, they should be brought forward and perhaps we should take action to try to remove them.
I confess, having read paragraphs 7.8 and 7.9 several times now, that I—as someone who is reasonably good at reading and understanding legislation—find them a little confusing. When it is transposed into directions for interested parties, could someone have a go at an Explanatory Memorandum that is slightly less confusing?
To paragraph 7.14, I say hooray and well done. It says:
“This also provides legal certainty”,
and that is vital.
Are paragraphs 7.18, 7.19 and 7.20 saying that these continue without having to apply through the World Intellectual Property Organization? If not, I need some explanation why.
On paragraph 7.21, I am so pleased about the work done on design courts and unregistered designs. It is very important to the creative industry.
Paragraph 7.22 says:
“There is an exception where the grounds for revocation/invalidity would not apply if considered under UK law.”
That needs clarification; I can see some of the major companies asking themselves what exactly is being talked about there.
Paragraph 7.25 says,
“for up to five years”.
Was any consideration given by the UK Government to whether that should be lengthened? The Minister said at the beginning that we are essentially an innovative country. We are on the frontiers of all these technologies, and here we are, going on our own beyond the EU. It seems to me that maybe we will miss a trick if we stick to five years. We want to encourage more and more UK research, as the Minister said in his opening statement.
Paragraph 7.30 talks about UK export wording. This paragraph is very important. Have the chambers of commerce all been informed? They are probably, alongside the specialist groups such as the ABPI and the chemical industries, et cetera, the people who will be getting questions from relevant companies. I just hope somebody has briefed them. Consultation is talked about under paragraph 10; the ABPI and agrochemical companies are important, and I am sure there are others.
I turn to paragraph 10.3. Do I understand that this is all ready to go in terms of the forms that will be required and so on or are we still waiting on that? One of the criticisms that has been made by a number of trade associations is that while they understand the principle of what is happening when we leave on 1 January, they have yet to see any of the forms associated with it, so how can they prepare for it? I note under paragraph 10.4 that in reality they had only 22 days in which to respond, and that was during a holiday period, so one wonders whether that was enough time. Paragraph 10.5 states:
“Responses generally approved of the drafting of the legislation.”
The question arises: what did they not approve of and is that important to British industry? Finally, under monitoring and review, basically in my judgment: when will this be done and how regularly will it happen?
My Lords, I, too, thank the Minister for his introduction and I am grateful to the noble Lord, Lord Naseby, for raising points on the Explanatory Memorandum because it means that I will not have to go through it in the rather useful way that he has done.
In preparation for this debate, it was rather dispiriting to look back on the long debates we had in January, February and March last year, sometimes in both Grand Committee and the Chamber, on the original five intellectual property EU exit statutory instruments that are subject to amendment by this single draft SI. Much of the debate then centred on the lack of adequate consultation and impact assessments, the latter of which we still do not have. In the meantime, we have the provisions of Articles 54 to 61 of the withdrawal agreement and the consequent note of 29 January from the IPO on intellectual property and the transition period. It is admirably clear about what provisions are being put into place and is very helpful in understanding the outcome of this amending SI, but sadly it is not as clear about what is not being put in place and we are giving up.
As regards the creation of an equivalent EU trademark at the end of the transition period, the note makes it clear that businesses, organisations or individuals that have applications for an EU trademark which are ongoing at the end of the transition period will have a period of nine months from the end of the transition period to apply in the UK for the same protection. The position is similar for registered Community designs and unregistered designs. So far, so straightforward, but on international registrations designating the EU, the IPO note states:
“During the transition period, international registrations for trademarks and designs protected via the Madrid and Hague systems which designate the EU will continue to extend to the UK … We are continuing to work with the World Intellectual Property Organization (WIPO) on the mechanism to ensure continued protection.”
Can the Minister give some further detail of the progress of this work? As regards rights of representation, the IPO goes on to say:
“During the transition period, UK legal representatives will continue to have the right to represent clients before the EU Intellectual Property Office (EUIPO).”
However, it goes on to say,
“The WA also states that the UK will not amend address for service rules for the comparable UK rights for a period of three years after the end of the transition period.”
This is what has given rise to huge concern among IP professionals. It is totally asymmetrical. What induced the Government to give this away? This is the loosest and most damaging of loose ends and, as I am sure the Minister is aware, trademark-intensive industries contribute £650 billion to the UK’s gross domestic product every year, providing an estimated one in five of all jobs. This will give EEA trademark attorneys a significant advantage over their UK colleagues and is likely seriously to damage the UK trademark protection industry, which is a world leader, and will be highly detrimental to UK firms and the jobs they support.
UK professional firms will be, by and large, restricted to UK-only matters with no mutual rights in Europe. While larger firms may choose to deploy satellite offices in the EEA to carry out EU work in the future, not all UK firms can afford such arrangements. UK trademark professionals will lose rights of representation before the EUIPO. There will, in consequence, be a loss of representation on IP portfolios and incoming IP work from a number of major countries and a major risk to professional livelihoods. EEA firms are being handed a completely unfair and anti-competitive advantage. The UK is not “taking back control” of its hugely valuable IP system—it is handing it over to European firms for nothing.
After significant pressure, the IPO woke up to the issue earlier this year. I was told by the noble Lord, Lord Callanan in June—in answer to a Written Questions tabled in May—that officials at the IPO were having ongoing conversations with representative bodies over how best to address this matter once the transition period ends. The Government finally got round to publishing the consultation on changing the address for service rule on 27 July. The outcome of the consultation is not yet public.
Can the Minister give an advance idea of what the conclusion will be? As the address for service provision is incorporated in the withdrawal agreement, what flexibility do the Government have? What action can be taken? Does the weakness in the UK Government’s approach to negotiations mean that there is no level playing field in prospect for three years? Is there a constructive way of resolving the matter that does not depend on breaching the agreement, as seems to be the Government’s favourite method of proceeding in other respects?
As regards patents, the IPO note goes on to talk about the European patent system, which is unaffected by Brexit. What impact will the withdrawal from the unified patent court agreement without consultation or debate in July have on the UK’s innovators and protection of intellectual property after the transition period? The Minister may have read the important warnings from the noble Earl, Lord Devon, on this subject in the Second Reading debate on the Medicines and Medical Devices Bill. What is the rationale for the withdrawal and how will it improve our intellectual property protection in the UK post Brexit? Of course, I welcome the extension of SPC system provided in the SI and described by the Minister.
Then we come to the area of the exhaustion of rights As the IPO note states in the withdrawal agreement, the EU and UK have agreed that IP rights exhausted in the EU and the UK before the end of the transition period will remain exhausted in both areas. However, what happens after the transition date as regards the legal exhaustion regime. The note provides a link only to brief guidance on parallel imports. Is the regime to be adopted still under consideration? I hope the Minister can give more detail.
On copyright, the note says:
“Continued reciprocal protection for copyright works between the UK and the EU is assured by the international treaties on copyright. This is independent of our relationship with the EU so is not addressed in the Withdrawal Agreement.”
It fails to mention the very valuable intellectual property rights—some of which were referred to by the noble Lord, Lord Berkeley—which are being foregone by the UK’s refusal to adopt the new copyright in the single market directive. There is no agreement on portability for consumers, no enhanced duties for digital platforms in use of copyright material, no improved rights for authors and performers and no enhanced rights for publishers. I entirely agree with the noble Lord, Lord Berkeley, as to the consequences. On top of that, the EU orphan works directive will no longer apply to libraries, archives and museums and the position of our collecting societies is weakened. Broadcasting from the UK will also be more difficult. What happened to the Minister’s boast to me on 2 March that the UK has
“one of the strongest copyright protection frameworks in the world,”?—[Official Report, 2/3/20; col. 389.]
Finally, there is a very large elephant in the room. There is currently no deal with the EU. Will we need to come back and amend these regulations yet again for the situation post transition? I hope the Minister is crystal clear in responding on that aspect in particular.
My Lords, it has been a good, if brief, debate and has raised lots of important issues that I am sure we will be addressing over the months to come as matters progress. Like the noble Lord, Lord Clement-Jones, I am grateful to the other speakers for raising issues that, perhaps, we do not need to go back into, given that we are looking forward to the Minister’s responses to the broader points made by the noble Lord, Lord Berkeley. How welcome it is to have a creative presence in our discussions—not that we are not creative, but I mean creative with a capital C. I am also grateful for the comments on the detailed Explanatory Memorandum notes because we do not need to go through them in detail. I think the answers will be relevant to the questions I would have asked as well.
Like the noble Lord, Lord Clement-Jones, I recall the earlier debates surrounding the initial SIs on these matters. I do not want to go into too much detail on this point but I am still left with the view, which I think he referred to, that we seem to be offering quite a lot to European colleagues and former partners, both as regards the rights that they would enjoy up to and including the transition period and potentially beyond, but also in subsequent legal actions and representation issues. The asymmetry was not accidental but deliberate, and my challenge then, which I do not think I got a full response to, was that this whole approach being taken by the department seemed in some senses based on a misunderstanding. That is, if an attractive offer was made to the EU member states on all the intellectual property issues that we have been discussing this evening, we would land a better agreement after the transition period; in other words, the withdrawal agreement would be transmitted into a chapter within the free trade agreement which would be broadly as generous to us as it was to our European colleagues. That does not look quite so easy now. Certainly—plenty of discussions are going on in another place this evening—we may well not be in the same position later this week as we are today. That said, I still wonder whether the Minister could take on this issue and explain why he thinks that this set of arrangements, which in a sense are not touched by this SI because they merely reinforce what was done earlier in the year, are not really out of scope with where I think he wants to be, which is making sure that the British intellectual property industry is standing on its own two feet, able to defend its rights and its practices anywhere in the world, and to obtain the benefits from that.
I have now ranted a little about the broad arrangements, but as regards the particularities of this that we would like answers to, the points made by the noble Lord, Lord Berkeley, are important. Is there an issue here about how representation in Europe will be managed in the future that will affect adversely our creatives? If there is any concern about that, the Minister should make that clear, and if not, he should be equally clear about that.
The noble Lord, Lord Clement-Jones, made a point about consultation and the lack of an impact assessment. Again, we see very limited consultation and no detailed work on the financial implications of the decisions. It may not matter on the narrow issue relating to this SI, but I hope that this is not a precedent for future work. These industries are important to us, they are extremely valuable to our economy, and they deserve to be consulted. If I may make a general point, one of the problems with the Intellectual Property Office is that it has come from a place where it was a passive recipient and documenter of activity in intellectual property, and it has yet to establish itself as the foremost champion of those who work in the creative industries, which is what they need. I would be grateful if the Minister could comment on that.
I would also like more detail on the broader issues touched on by the noble Lord, Lord Clement-Jones, at the end of his peroration. We have been through this in Oral Questions, but I do not think I have had a full and consistent response from the Minister. The copyright directive, which will come into force shortly in Europe and should fit within the withdrawal agreement area, is important for all the reasons that the noble Lord, Lord Clement-Jones, gave us. Consumers would actively benefit from portability, but that has gone. The question about whether the lack of activity in the copyright directive regarding what have previously been protected bodies, such as the major social media companies, which are able to argue that they are not publishers of other work, would have been attacked by the recommendations in the copyright directive on matters such as child protection. Are we not concerned about that, and if we are, how will that be resolved? We never seem to see legislation coming on online harms. Unless that deals with that effectively, we will be missing a huge trick.
The noble Lord, Lord Clement-Jones, also mentioned important issues to do with orphan works. I, too, think it would be a pity if we cannot get some of the value out of that that was in the copyright directive. It may be politically astute for the Government to say that it is nothing to do with this, but I hope the Minister will reassure us that the important issues raised by the copyright directive will not be ignored simply because of political expediency.
I thank all noble Lords for their valuable contributions to this debate on this important subject. This instrument is vital to ensuring that the IP system is effective and operable from 1 January 2021. Failing to address these issues would put valuable rights at risk and force businesses to go to the expense of litigation to clarify what can and cannot be done.
Innovation and creativity have never been more important or more valuable. This Government have pledged to increase UK investment in R&D, with the goal being to reach 2.4% of GDP by 2027. The fact that we have the world’s most intensive science and technology clusters in Oxford and Cambridge—as determined by the World Intellectual Property Organization—shows the strength of UK science and innovation. Our R&D road map puts science and technology at the forefront of our economic and social recovery. Intellectual property is a crucial part of that effort, so that great research and ideas can be turned into great businesses.
The UK IP system is consistently rated as one of the best in the world, and the UK IPO is widely regarded for its expertise and international influence. To continue to be world-leading, we must be at the forefront of understanding how advances in technology affect the IP framework. Last week at London Tech Week, the IP Minister, Amanda Solloway MP, launched a call for views on the implications of artificial intelligence for the IP system, exploring how the framework may need to evolve with IP being created or infringed by AI.
We must keep leading on international discussions on these issues and more so that the global IP system works effectively for British businesses and those businesses have confidence that they can enforce their rights when they need to do so. International harmonisation is key to ensuring an approach to IP that benefits all nations, and we must continue to deliver high- quality rights granting services here in the UK so that the same confidence and effectiveness apply to our home market.
The noble Lords, Lord Berkeley of Knighton, Lord Clement-Jones and Lord Stevenson, all asked about IP lawyer representation rights. I do not think there is any disagreement between the Government and users about what the law means, but there is an ongoing matter concerning representation rights in the EU for UK IP attorneys and reciprocal rights here. The Government have taken on board the concerns raised by UK attorneys about their loss of rights of representation at the EUIPO and the unfairness they say will result in the UK. The IPO recently finished an online call for views on this issue and unsurprisingly received more than 1,000 responses. We are considering whether to reciprocate by requiring a UK-only correspondence address before the IPO, which would address the concerns noble Lords have raised. The withdrawal agreement does not affect this, other than in relation to the EU rights given equivalence in the UK under that withdrawal agreement.
Turning to the noble Lord’s remarks on copyright, which the noble Lord, Lord Clement-Jones, also asked about, the UK and all EU member states are party to the international treaties on copyright. They give rights holders cross-border protections for all their creative works. This will not change at the end of the transition period. On the future of EU copyright legislation, also raised by the noble Lord, Lord Stevenson, the UK has now left the European Union. The transition period will end on 31 December 2020, as I have said. This means the UK is not required to implement the copyright directive, and the Government have no plans to do so. Any change to UK copyright legislation would come only after detailed consideration and assessment, including consultations with all of the relevant stakeholders.
On the Japanese-UK FTA, the noble Lord also asked about new protections for the UK creative industries. British businesses can now be confident that their brands and innovations will be protected. We have gone beyond the EU on provisions that tackle online infringement of IP rights such as film and music piracy. I cannot comment in more detail until the text is formally laid before the House, but I am grateful for the detailed comments made by my noble friend Lord Naseby on the Explanatory Memorandum.
My noble friend asked about international registrations. This does indeed refer to protections that are applied for through the World Intellectual Property Organization. He asked about decisions taken by EU bodies. Those relate only to decisions that are pending at the end of the transition period, although of course it can take several years for such cases to finally conclude. On the cancellation actions, in most cases the relevance of a decision under UK law will be clear. An example is an EU right that is invalidated because of an earlier national right in an EU member state. Guidance will be produced on what types of grounds may not apply.
I was asked about the duration of supplementary protection certificates. The key to the SPC system is the balance between encouraging innovation in new medicines and ensuring that drugs become available to patients cheaply through generic competition in good time. In that way, the NHS benefits from how long the SPC lasts, which forms part of that balance. How the landscape for medicines develops in the future will determine whether any further changes are needed.
My noble friend asked whether we are ready to go. The IPO is working hard and we are confident that it will be ready to administer the incoming IP rights effectively and correctly. There will be extensive further guidance for users on the updated official forms and other processes over the coming weeks and months. This will include written information, webinars and other materials. As I say, we will publish clear guidance. My noble friend will receive a copy and we will explain how the law is going to change in December and what preparations businesses may need to make. We will update the guidance to reflect the content of this instrument once it has been approved by Parliament. There will be many other outreach activities and we will make sure that any changes to IPO practices are notified in advance.
The noble Lord, Lord Clement-Jones, asked about discussions with the WIPO and protections for international registrations. The Government have worked with the WIPO to see whether we could retain international rights within its system. Through this work we have established that the safest approach for rights holders was to provide them with UK rights, and this is what we have done. He also asked about the Unified Patent Court. In view of the UK’s withdrawal from the European Union, the UK no longer wishes to be a party to the Unified Patent Court system. Participating in a court that applies EU law and is bound by the CJEU would, in our view, be inconsistent with the Government’s aim of becoming an independent, self-governing nation.
The noble Lord also raised the exhaustion of IP rights. This is a complex and indeed contentious area. Under the arrangements we have made, there will be no change to the existing exhaustion of intellectual property rules affecting the import of goods into the UK from EEA countries. However, there may be new restrictions on the parallel export of goods from the UK to the EEA. Businesses undertaking such activities may need to check with the appropriate rights holders to see whether permission is needed. The Government are considering options for a future exhaustion regime and we will consult again with the relevant stakeholders before any decision is made.
The noble Lord, Lord Stevenson of Balmacara, asked about the negotiations on the free trade agreement with the EU. We are seeking an IP chapter that will secure mutual assurances to provide high standards of protection for IP rights which both the UK and the EU already have. I do not recognise his characterisation of the role of the IPO. It is renowned for and will continue to provide high-quality rights, granting services to support businesses in understanding IP and to take an active role in shaping the global IP environment. It remains a world-leading and highly influential IPO that plays its part fully in the UK’s high ranking in the Global Innovation Index.
In conclusion, this instrument will ensure the smooth functioning of the IP system as we exit the transition period. It will provide certainty and security for businesses which can be confident that their valuable rights will continue to be protected here in the UK. I commend the order to the Committee.
Committee adjourned at 7 pm.