Tuesday 19 January 2021
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. The time limit for the following debate is one hour.
Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020
Considered in Grand Committee
My Lords, since the emergence of Covid-19, the Government have been swift to act and provide businesses with help and support to give them every chance to survive and get through this difficult period of uncertainty. Since March last year, businesses have benefited from an unprecedented package of government support targeted at saving jobs and livelihoods, such as the furlough and job retention schemes, as well as billions of pounds in loans, rates relief, tax deferrals and grants.
Today, all areas of Great Britain are again subject to restrictions put in place to limit the spread of the virus and to help save lives. These restrictions are crucial to prevent our NHS from being overwhelmed and we wait for everyone to be vaccinated. But until life returns to normal, we have to recognise that the impact on business is severe and continuing. The adverse effects that these essential restrictions continue to have on many businesses, particularly those in the retail and hospitality sectors, have been well documented and well debated in our House. Once again, the Government have acted quickly following the introduction of the latest national restrictions, with a new £4.6 billion package of lockdown grants to support businesses and to help protect jobs.
These regulations, which were laid before the House on 9 December 2020, will continue to help companies by extending the temporary suspension on using statutory demands to wind up companies and other restrictions on company winding-up petitions to 31 March 2021. First introduced by the Corporate Insolvency and Governance Act 2020, these measures were extended from the end of September 2020 by order to 31 December and this instrument seeks to extend them further. The measures, like others in that Act, are aimed at supporting directors in guiding their companies through the period in which business is being affected by the current pandemic. Since their introduction in March last year, these temporary measures have helped to protect many viable companies from aggressive creditor enforcement during unprecedented trading conditions.
The temporary restrictions on company winding-up petitions that the regulations seek to extend mean that a petitioner must satisfy a court that any debts are not Covid-19 related. In this way, companies that would be viable but for the effects of the virus will not face action from creditors seeking to wind them up because they have been unable to pay their debts due to the trading restrictions that have been necessary to protect our citizens and the National Health Service. This extension will further help to support companies while national restrictions continue to affect the trading capability of many of our businesses.
While these measures are intended to help companies that may be subject to aggressive creditor enforcement, the Government have been clear that they are not to be seen as a payment holiday. Where companies can pay their debts, they should, of course, do so. It is important to note that these measures aim to encourage forbearance and do not extinguish any existing creditor rights or interests.
In addition to the protection that this measure gives, it is also intended to give those companies with unavoidable accrued arrears caused by the pandemic time to take advice from restructuring professionals and to negotiate and reach agreements with their creditors wherever that is possible. I know that many companies have done so successfully and I am grateful to them, but I urge others to do so and to plan for the post-Covid future with confidence.
I know that many businesses and their business representatives will welcome the continued support that these regulations will give them during this very uncertain time. But I also recognise that these measures will mean a further period of uncertainty for creditors where their rights to enforce recovery of their debts are temporarily suspended. The Government continue to ask for forbearance in allowing people and businesses to meet their debt obligations during these difficult and unprecedented times. As I said, these measures do not extinguish any existing rights or interests. Instead, they temporarily remove one mechanism for enforcing a debt and therefore provide additional protection to companies in distress as a result of the virus. A variety of other debt enforcement methods will remain. We think it is right, therefore, that any consideration of an extension and for how long should be done on an individual basis, rather than in the round, considering all the circumstances and potential impacts.
In conclusion, we do not take this action lightly and we will review carefully before taking any further decisions when this extension period expires at the end of March. Therefore, I commend these regulations to the House and I beg to move.
I inform the Committee that the clock is not working currently and remind them that speeches are limited to six minutes. I call the next speaker, the noble Lord, Lord Sikka.
My Lords, I thank the noble Lord, Lord Callanan, for his speech. I am certain that there is widespread support for extending the duration of temporary measures to protect businesses from insolvency proceedings during this Covid emergency. However, these measures cannot be extended indefinitely and businesses face the prospect of a cliff edge, leading to a flood of insolvencies, job losses and damage to the supply chain. When the temporary prohibition on issuing statutory demands and winding-up petitions ends, many businesses will face pressure to pay creditors. Failure to pay will lead inevitably to further insolvencies.
The Government need to bring forward plans for long-term financial support to help businesses to navigate the post-Covid era. Many small businesses are particularly affected; the Federation of Small Businesses estimates that 250,000 SMEs are at risk. They cannot easily get trade credit insurance and will also be hard hit by the bankruptcy of their major corporate customers.
As part of the support for businesses, the Government also need to reform insolvency laws. These enable secured creditors, usually financial institutions, to walk away with most of the proceeds from the sale of a bankrupt business’s assets and leave very little for unsecured creditors. Such arrangements ensure that the risks of insolvency are not equitably shared between secured and unsecured creditors. There is no economic or moral justification for this. Banks and financial institutions hold diversified portfolios and therefore have a greater capacity to manage risks. In contrast, SMEs rely on comparatively fewer customers and have a much lower capacity to absorb risks arising from the bankruptcy of their major customers. A risk management perspective would recommend changes in insolvency laws.
Before Covid, unsecured creditors were taking a hit of around £4 billion a year and that is now bound to increase. This can be mitigated by reforming the risk-sharing arrangements. I would suggest that 30% to 40% of the proceeds from the sale of a bankrupt business’s assets should be ring-fenced for distribution to unsecured creditors, thus ensuring that they make a substantial recovery which would enable them to survive.
We also need to look at the current regulatory arrangements for the world of insolvency. Too many insolvencies last far too long and enable insolvency practitioners to milk the liquidations. Higher fees for insolvency practitioners would reduce the amounts that are available to unsecured creditors.
On 27 October, in response to a Written Question, I was told that there are 14,328 liquidations of businesses that began 15 years ago but are still not completed. None of the insolvency regulators show any concern for such a state of affairs. Meanwhile, insolvency practitioners continue to collect mega fees. Here are some examples. For Comet’s liquidation, Deloitte was charging out its partners at a rate of £1,160 an hour, and the cheapest grade of labour was charged out at £370 an hour. PricewaterhouseCoopers is a special manager assisting the official receiver in the liquidation of Carillion. It expects to make £100 million from fees, and the partners are being charged out at a rate of £1,156 an hour. At the House of Fraser administration, Ernst & Young is charging out its partners at a rate of £1,650 an hour, and the trainees are being charged out at £250 an hour. KPMG has recently been appointed administrator to Intu Properties, and its partners are being charged out at £920 an hour. Such charges harm the interests of unsecured creditors. The Government must really take steps to end this abuse.
To sum up, can the Government provide long-term plans to support businesses in the period after the end of the current temporary measures? I hope the Minister agrees that the unsecured creditors deserve a better deal. This can be done by ring-fencing some of the proceeds from the sale of the bankrupt businesses and by ending the excessive fees charged by insolvency practitioners.
My Lords, it is a pleasure to follow the noble Lord, Lord Sikka, who raised some very interesting points about insolvency law in general which I think are worthy of examination. I thank my noble friend the Minister for introducing these regulations, which are of course relatively familiar to us by now. I also thank my noble friend for what the Government have been doing in many areas to help alleviate the economic pressures that have been caused by the pandemic—I think particularly of the business rates holiday for retail, and I urge the Minister to consider with colleagues its continuation after the end of this financial year.
These regulations form part of a series that we have looked at under the Corporate Insolvency and Governance Act 2020, which was, of course, passed in June of last year—so some time ago now. I note in passing that we are renewing various aspects of the Act but on different timescales. I ask my noble friend why that is. As it seems extremely likely that we will be asked to renew these again, could we not do so on the same timescale and not have to see these things separately, given that they hang together? The provisions here on wrongful trading, which are due to end in April, will, I presume, then be subject to renewal. Can we look at these things in the round together?
Like many others, I welcome these regulations. The Explanatory Memorandum talks of a “breathing space” for business—it actually talks, I think erroneously, of a “briefing” space for business; unless that refers to communications policy, I think it means breathing space. The regulations are widely welcomed for that reason, and they do indeed provide that breathing space.
However, I am concerned about how temporary these provisions are, a point made by the noble Lord, Lord Sikka. We are coming up now to nine months of these provisions. If, as I suspect, we are asked to renew them again, that will be a year. This is not just a concern about us being asked repeatedly to renew them, because I can see the sense of that, but there is a balance of convenience here. These regulations help some businesses by preventing aggressive creditor action, but there are creditors with quite legitimate debts who are feeling the pressures of the pandemic too, and they are not able to use the normal tools of enforcing those debts while these regulations are in place.
The Explanatory Memorandum says that the Government have assessed the impact of these regulations and whether it is appropriate, because of that balance of convenience, to continue with them. Can my noble friend explain how that impact assessment has been made, so that we can examine it? There is, as I say, a concern for some businesses, which will find life difficult because they are unable to use these tools because of the suspension of some of the rights to enforce those debts.
The regulations refer repeatedly to the point that these are indeed temporary measures, and therefore no full impact assessment needs to be made. I am beginning to question that. If these regulations are going to be repeatedly renewed, then they are not really temporary at all. At what stage does my noble friend think we should regard these as more permanent?
I have one other point to make, relating to the preferential status of HMRC. This was restored in December of last year, giving HMRC, as it were, the right to leap-frog as a creditor. I appreciate that HMRC will be in the same position as other creditors, but R3, the insolvency and restructuring trade body—which I thank for its briefing—notes that HMRC has a key role to play as a creditor in most insolvencies and that it could take proactive measures to help provide assistance. That would be a very sensible move in relation to what is obviously a challenging economic position that is likely to continue for some time. Subject to those considerations, I certainly lend these regulations my support.
My Lords, I am well aware that the Government have helped a lot of small and medium-sized businesses, which I care very much about, and this is a good idea; these regulations need extending. However, it seems obvious, as the noble Lord, Lord Sikka, said, that there is going to be a cliff edge at some point. I am curious about how the Government think they are going to deal with that when it happens. Are these regulations going to be tweaked again, or is there really a long-term plan? I realise that it is difficult and that many businesses will continue to struggle and fail.
I want to ask about a point that the noble Lord, Lord Bourne, made about HMRC and its new status as a preferential creditor. If it is going to play an active and supportive role in insolvency proceedings, does that mean that there are going to be more staff? Will it be able to support viable restructuring proposals so that businesses and jobs could be saved? It would be good to explore the opportunities that HMRC might have.
Unfortunately, I have more questions than I have answers or recommendations on this issue. I would appreciate answers, if at all possible—in a letter would be absolutely fine. On HMRC, how will bottlenecks be addressed? Of course, when insolvency measures are not having a break any more, there will be a bunch of businesses that will go out of business. How will the Government address those bottlenecks?
Are the Government aware that they should be adding climate and ecological considerations to their long- term insolvency planning? Environmentally sustainable businesses should be supported wherever possible: if the Government are to achieve their net-zero carbon target by 2050, they will need companies which understand how to achieve this and how to cut their carbon emissions. On the contrary, environmentally damaging businesses should not be helped in the same way but should be dissolved or restructured with advice to remove the damaging elements of the business. I wonder whether this is taken into consideration by the Government. Obviously, I really would like to help, and that is an area where I could probably make some positive suggestions.
My Lords, I am delighted to follow the noble Baroness, Lady Jones, and contribute to this short debate on the regulations. I thank my noble friend the Minister for bringing forward the extension, as set out in the regulations, and for presenting it in such a clear and concise way. There is much in the regulations to commend.
I pay tribute to the Government for their generous support, as set out by my noble friend. He referred in particular to the retail and hospitality sectors. I became more familiar with the contribution of the night-time economy to both the London economy and that of the wider UK, in other major cities across the four nations, through the ad hoc committee report in your Lordships’ House on the Licensing Act 2003. At its height in 2019, the night-time economy contributed billions to the UK economy. As my noble friend set out, together with retail and hospitality, the wider night-time economy includes those who advise, PR people and all sorts of managers and so on—it is a much wider industry than it might appear at first, and they are very much in sight when we come to consider the regulations.
Like others, I will focus my questions on the Government’s exit strategy. I entirely support the regulations and the extension to 31 March, which will protect companies and ensure their longer-term viability, and that the focus will be on the petitioner to establish in court that any debt incurred is not Covid related. I accept that this is a payment holiday and, as my noble friend said, that the debt must be repaid at once, in so far as it can be.
I want to highlight the new role played by HMRC, as other noble Lords have referred to. To what extent will BEIS and my noble friend work with the Treasury and HMRC to ensure that they adopt a more supportive approach to businesses? That will help to ease the restructuring of those businesses facing potential insolvency and also, as HMRC is a key creditor, it is in its interests to keep such companies solvent. An even more beneficial effect could come from reducing the fees currently earned, as set out by the noble Lord, Lord Sikka.
We are assuming, as my noble friend Lord Bourne set out, that we will extend this protection beyond 31 March, but that it will at some point come to end. To what extent is my noble friend mindful of that? What protections or balance do the Government intend to put in place at that time?
These regulations are extremely important at this time and could protect many businesses, many of which are major employers, enabling them to remain in business and allowing them to restructure within the three-month period.
My Lords, it is always a pleasure to follow the noble Baroness, Lady McIntosh of Pickering. I thank the Minister for his explanation of these regulations, which simply prolong the period in which the temporary provisions that restrict the issuing of winding-up petitions under the Corporate Insolvency and Governance Act are to have effect to 31 March 2021.
While the regulations are welcome, like the noble Baroness, Lady McIntosh of Pickering, I wonder about the Government’s exit strategy and the need to support companies that have had to endure—along with their management and employees—severe restrictions as a result of the Covid pandemic. This was raised during the passage of the Bill, and the debate on subsequent regulations, because of the nature of the pandemic, the need to bear down on infection rates, and the problems faced by many businesses in such a difficult trading environment. Therefore, why not extend for a longer period, as lockdown could last for a significant time, given the concerns around the level of transmission of the new variant of Covid.? I fully appreciate that there is a balance to be struck between having an exit strategy and protecting companies from insolvency.
Unfortunately, we are discussing this statutory instrument in retrospect, because of the nature of the pandemic—it came into force on the 31 December. However, is there not a better, more effective system, whereby we can debate and affirm such statutory instruments before they come into effect, to ensure greater accountability?
The noble Lord, Lord Bourne of Aberystwyth, referred to the briefing we received from R3. It suggests that a key way for the Government to help manage the process is the invocation of HMRC to take an engaged and supportive approach in its role as a creditor in most insolvencies. With its new preferential status, HMRC’s support as a creditor will be required to ensure that viable restructuring proposals can be agreed—proposals that could potentially save thousands of jobs and businesses as the UK adjusts to a post-Covid environment next year.
As the noble Baroness, Lady McIntosh of Pickering, said, there are other issues. There needs to be a multi-departmental approach across BEIS, the Treasury and HMRC to address the regeneration of our high streets, where many of these businesses are located. What discussions have taken place about a root and branch review of the business rates system, the continued freezing of commercial rates, an underpinning and pump-priming of our high streets, the extension of the Towns Fund beyond 101 locations and the expansion of business improvement districts? All these measures would help pump-prime and underpin not only retail but our wider business environment, which has had to endure the impact of Covid and the consequential financial restrictions, and a loss of income. In many instances, independent retailers and small businesses have had to compete with those much larger businesses that are currently operating, such as the large supermarkets—but they cannot compete because, in most instances, they are not allowed to.
So I hope the Minister can provide some answers today; if not, I hope he can provide some answers to me in writing.
My Lords, like other speakers, I support these regulations, but I will touch on three points, two of which have been touched on by earlier speakers.
I note that no impact or economic assessment has been made of the effect of the regulations since they were brought in in the summer. Do the Government have any idea of how many liquidations have been postponed under these regulations and their predecessors? Presumably someone could look at how many liquidations took place in an equivalent period before Covid and at how many have not occurred since. I have no idea of the magnitude of the issue we will face once these regulations come to an end—which actually brings me to my second point.
A number of noble Lords indicated their concern that we must not get to the position, when these regulations end, where companies simply fall off a cliff into liquidation. Clearly, the Government must have given some thought to what is likely to happen, and it will be very helpful if the Minister, although not wanting to be pinned down on that, can give us some indication of the Government’s thinking. As other noble Lords have said, the lobbying organisation has suggested that HMRC should be invoked to help a soft landing, but I should welcome the Minister’s comments on whether further thought has been given to how we have a soft landing.
My third point is technical. As the noble Lord, Lord Bourne, said, it is not just the threat of being wound up that keeps company directors awake at night; it is also the question of protection from charges of wrongful trading. This was recognised by the Government in providing protection against both liquidation and unlawful trading until 30 September, but, unfortunately, although the winding-up suspension was extended to 31 December—and now further by these regulations—the wrongful trading protection was not extended at the same time, and made effective only from 26 November last year. I cannot believe this was deliberate, but was presumably an oversight, but it means that, theoretically, directors could be liable for wrongful trading from 30 September to 26 November last year. Can the Minister please confirm that directors will have protection for their actions during that period?
My Lords, I start by thanking the Minister for introducing the SI this afternoon in his usual calm and unflustered way and for getting across the main points, for which we are always very grateful.
This has been a good debate and has raised much wider issues than perhaps might have been expected, because these are continuations of a continuation, and because of the concern expressed by a number of speakers that, as time moves on, we are moving into a situation where the temporary becomes permanent, and the implications of that.
We all recognise the points made by my noble friend Lord Sikka on the need to look more widely at insolvency issues as a result of some of our experiences in the Covid pandemic, but these issues were there beforehand. I should be grateful if, when he comes to respond, the Minister could give us more of a timetable for when and if we will look again at insolvency issues, because there are some substantial ones to be addressed—not least the question of the priority of secured creditors, but also of HMRC as a preferential creditor, which I shall come back to.
The noble Lord, Lord Bourne, made some interesting points about whether we should be expecting an impact statement at some point, but what we are looking for is a little broader. It is whether these proposals, which have been coming through in dribs and drabs, arising from the founding legislation, are having the effect we want: if they are, how much, and, if not, what are the implications? There is no criticism here of the Government’s approach to what we are dealing with; they have done all they can in the time available to do it, and we should always acknowledge that. However, as the noble Lord said, as time goes on, we begin to wonder whether we are heading in the right direction and, if so, how and in what form we could review that without in any sense jeopardising where we are.
Other speakers have drawn attention to a wider range of things, including the impact all these proposals are having on the high street and the future of retail. These are issues that probably would not have become as exposed as they are without this pandemic, but we will have to address them.
We should also be very careful about the point made by the noble Baroness, Lady Jones, who I think put her finger on it. If HMRC is to have an engaged and supportive approach to insolvency in its capacity as a preferential creditor, is it actually structured in a way which will allow that to happen for the benefit of UK plc? At a very crude level, HMRC is there to make sure that we, the taxpayer, pay our taxes and pay them promptly. We have had a change, in some senses, with the new breathing space proposals coming forward for personal creditors—those suffering unmanageable debt—and that is to be welcomed, but I wonder whether the Minister will speculate a little about any changes that might be necessary to HMRC’s founding principles if it is to take up this role as our green saviour, and our saviour of particular jobs and industries that we want preferred and supported as we come into the recovery phase. What exactly are the expectations here on HMRC? I do not quite recognise where we might be heading, given how HMRC is currently established and operates.
I have only one other point, to which I do not think there is an easy answer but which I should be grateful if the Minister would reflect on and perhaps write to me about, if necessary. The issue that comes forward out of all this is whether we can reasonably expect a petitioner to be able to satisfy a court—which is obviously a very high standard of requirement—that the company’s inability to pay is, as the Explanatory Memorandum says,
“not due to coronavirus”.
I am here grappling with the difficulty of proving a negative. How and in what form can a petitioner prove that, in a situation where a creditor could be the Inland Revenue but is more likely to be the banks, and they are putting forward a case for recovery of money outstanding to them? Exactly what will the nature of the evidence be, given the ongoing nature of the coronavirus, that will be crucial for the court to determine that such an inability to pay is indeed “due”—which is a very strict term—to the coronavirus? I do not think there is an easy answer to that, and I am not expecting one from the Minister, but perhaps, when he has had time to reflect on it, he could write to me about that.
This has been a good debate and I look forward to hearing the Minister’s response. We do not object to the extension of the SI.
Let me first thank all noble Lords who contributed to this debate. I thought it was an excellent discussion and the points raised have highlighted the importance of the measures being extended by these regulations and the necessity we feel for extending them so that businesses can continue to benefit from them.
Since the emergence of Covid-19, businesses have continued to face an exceptionally challenging time, with many unable to trade, or their ability to trade at full capacity restricted due to social distancing measures. As I said in my opening speech, since March last year, the Government have provided businesses and their employees with a comprehensive package of support targeted at saving jobs and livelihoods, including the furlough and job retention schemes and billions of pounds in loans, rates relief, tax deferrals and grants.
Let me attempt to address some of the issues raised in the debate. The noble Lord, Lord Sikka, made a number of important points and asked in particular what the Government are doing to make long-term plans when these temporary measures end. I can assure him that we continue to keep these matters under review, and will of course always keep in mind all the various provisions in what we think is our world-class insolvency regime, to ensure that it remains fit for purpose.
My noble friend Lord Bourne asked about the different timescales for all these measures. He makes a good point. Following the expiry of the wrongful trading measure at the end of September last year, the country entered a new phase of national restrictions, necessitating the urgent reintroduction of the wrongful trading temporary measures in the Corporate Insolvency and Governance Act, which of course could not be made retrospective, whereas this measure was already in force and was not due to expire until 31 December 2020.
My noble friend also asked how temporary these measures are and whether there was any impact assessment. We of course keep under consideration the ongoing impact of Covid-19 in the context of the new period of national lockdown, the ongoing effect of social distancing and the potential impact that these measures will have when we determine what measures should be extended and the period of that extension. Because of the temporary nature of the measures, as I am sure my noble friend will understand, a full impact assessment has not been carried out and, indeed, is not required by the better regulation framework. However, the Government have considered, and will continue to assess and monitor, the possible and likely impacts of the measures, their scope and their potential risks.
The noble Baroness, Lady Jones, and a number of other noble Lords, raised the issue of HMRC’s preferential status and the impact on HMRC. That of course does not concern these particular regulations. We work closely with the regulators, the courts and the insolvency profession to ensure that they will be able to scale up and cope with the expected increase in insolvencies. The noble Baroness did not let us down and managed to include references to climate change and environmental factors. As I am sure she will understand, they are not connected with these measures, but I acknowledge her long-term point, which I think is right, about the need for environmental sustainability in businesses. I refer her to the recent announcement by the Chancellor that the UK will implement the requirements of the task force on climate-related financial disclosures, which will require companies to make disclosures of their climate impacts, so there will be an ability to compare across companies and shareholders will be able to take this into account when making investment decisions. The UK is one of the world’s leading regimes in making companies go over to these measures. The noble Baroness will also be awaiting with interest the further measures that will address some of these factors, which will be forthcoming in the review of the audit procedures.
My noble friend Lady McIntosh, the noble Lord, Lord Razzall, and the noble Baroness, Lady Ritchie, asked what plans are being made for the end of these measures. As I said, businesses have already received billions in loans, tax relief, rate relief and grants to support them, and of course we always keep all these measures under consideration. The Government recognise the cliff-edge scenario, which would involve the cumulation of unpaid debts becoming due when restrictions and government fiscal support expire, and I can tell noble Lords that work is ongoing to develop measures to address what we are aware is a potential issue.
My noble friend Lord Bourne also asked about an impact assessment. As I said, we are not required to carry out an impact assessment under the better regulation framework, but of course we take careful note of the issues and what effect they are having.
The noble Baroness, Lady Ritchie, asked why the measures were not made for longer. The temporary measures under the original legislation can be extended only for six months at a time. Of course we realise that they are a serious curtailment, as a number of noble Lords pointed out, of the rights of creditors, so we keep them under constant review to ensure that we get the balance right and that they are not kept in place for longer than is absolutely necessary. When the measures expire, the insolvency regime will return to its normal working practices, including the right of creditors to act to wind up companies that have not paid their debts.
The noble Lord, Lord Razzall, also raised the issue of the impact assessment and asked how many liquidations have been postponed under these regulations and their predecessors since the summer. I do not have those figures for him, but if there is any further information that I can provide him with, of course I will do so in writing.
Finally, the noble Lord, Lord Stevenson, asked how it would be possible for a petitioner to satisfy a court on, as he put it, the negative that the debt was not due to coronavirus tests. That is a good point, but ultimately it is for the courts to consider how to apply that test and whether the failure to pay is not related to Covid-19 in individual cases. The test of whether Covid-19 has caused a company’s difficulties is intended to present a high bar, as I think the noble Lord recognised, temporarily to enforce the forbearance of creditors that the Government have called for.
Extending this measure now to 31 March will provide the necessary certainty that companies are looking for, to provide them with relief in the short term. However, the Government recognise the difficulties faced by many small businesses and sole traders and have introduced a range of support measures, including local restrictions support grants, bounce-back loans, deferred VAT and PAYE payments and, of course, the newly announced job support measure that is due to commence in May.
In conclusion, these regulations will provide much-needed continued support for businesses, allowing them to concentrate their best efforts on continuing to trade and build on the foundations for economic recovery in the UK. Careful consideration has been given to the extension of these temporary measures. As I said, we will continue to monitor this situation closely before making any decisions about further extensions and, of course, at the time we will consult fully with businesses and their representatives. With that, I commend these regulations to the Committee.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, and 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. The time limit for the following debate is one hour.
Official Controls (Animals, Feed and Food, Plant Health etc.) (Amendment) (EU Exit) (No. 2) Regulations 2020
Considered in Grand Committee
My Lords, I hope it will be helpful to your Lordships if I speak to both instruments, given that both deliver legislation addressing requirements for the movements of UK sanitary and phytosanitary goods.
The first instrument completes the suite of EU exit amendments set out in the Official Controls (Animals, Feed and Food, Plant Health etc) (Amendment) (EU Exit) Regulations 2020, which were debated on 2 December and came into force on 31 December. As with the earlier official controls instrument, this further instrument amends EU retained regulations governing official controls on imports to Great Britain of animals, animal products, plants and plant products, including food and other imports relevant to the agri-food chain.
The EU regulatory structure being retained and made operable by these amendments is complex and extensive. Due to the intricacy of the amendments required and a requirement set by the European Commission—that we should make and publish the first official controls instrument before mid-December, as a condition of it considering listing the United Kingdom as a third country for export to the EU—we took the decision to divide the necessary legislation into two instruments.
The earlier official controls instrument focused on operability amendments to the main body of EU official controls regulations. The instrument before your Lordships today makes similar operability amendments to more than 30 separate tertiary regulations, covering procedural aspects of the official controls regime. For example, Part 3 of the instrument amends the EU tertiary regulation governing the information management system for official controls, known as IMSOC. This amendment removes references to complying with EU-wide standards, which are mandated to enable member states to integrate their IT systems across the EU as a whole. The amendments do not change the policy requirement for the UK to maintain computerised information management systems to the standard necessary to deliver official controls information and processes.
This legislation ensures that we can continue to deliver robust, effective controls and checks on all food, animal and plant imports. As previously announced, we have now started to phase in border controls on imports from the European Economic Area. Our purpose is to ensure that, without compromising our biosecurity, we maintain the flow of import activity at the border and give business and industry longer to prepare for the full controls regime. Phasing is a temporary, pragmatic step to support international trade and mitigate border disruption, made necessary by the unprecedented impact of Covid-19.
From April, pre-notification and health documentation will be introduced for imports of EU products of animal origin and for all regulated plants and plant products. From July 2021, we will have controls in place for all imports of European Union SPS goods.
I turn to the second instrument, the Plant Health (Amendment) (EU Exit) Regulations 2020. Delivering unfettered market access for Northern Irish businesses moving goods into Great Britain is one of the key commitments in the Northern Ireland protocol and the United Kingdom Internal Market Act. The measures in this instrument reflect those commitments. They specify the mechanism to allow regulated plants and plant materials to move from Northern Ireland into Great Britain. This instrument does not introduce any policy changes.
The purpose of this instrument is to protect biosecurity and to support trade by ensuring that effective phytosanitary controls continue to operate between Northern Ireland and Great Britain, and within Great Britain, in relation to Northern Ireland qualifying goods. The instrument makes amendments to retained EU law to allow movements of qualifying goods into Great Britain under an EU plant passport. This means that for Northern Irish businesses trading with Great Britain nothing will change compared with the situation before 1 January.
Once in Great Britain, an EU plant passport can continue to accompany the qualifying goods, but an authorised operator will also have the option, as for other regulated plants being moved in Great Britain, to replace the plant passport with a UK plant passport where appropriate. An EU plant passport on qualifying goods may be replaced by an authorised operator if they choose to replace the plant passport for business reasons—for example, to include their own business details—or split a consignment where each trade unit, be it a pot, box, trolley or similar, is not already covered by an individual plant passport. In these circumstances, the provisions allow GB operators to replace the original EU plant passport with a UK plant passport if the characteristics of the qualifying goods have not changed, but they also ensure that the traceability requirements in relation to the goods are maintained. Provision is also made for the goods to be assessed against GB plant health standards where these are different from those of the EU, and for the authorised operator to have the option to issue a UK plant passport where the goods are assessed as meeting GB plant health requirements.
Under the terms of the Northern Ireland protocol, Northern Ireland will maintain alignment with the EU plant health regime rather than that of Great Britain. This instrument makes amendments to allow identification of qualifying goods on the GB market to ensure traceability in the event of any biosecurity issues arising which need to be addressed.
The format of UK plant passports is amended to include a country code of GB(NI) for all qualifying goods where replacement UK plant passports are issued once within GB. This will allow the goods concerned to continue to be identified as qualifying goods and will facilitate effective enforcement.
Devolved Administrations in Scotland and Wales have formally consented to both instruments and the Northern Ireland devolved Administration have also consented to the plant health instrument.
The basis of these instruments—and my concern—is to protect biosecurity, which is of supreme importance to the Government and to all, as well as to deliver on our commitment to provide unfettered market access for Northern Ireland. I beg to move.
My Lords, that was a commendable introduction from a commendable Minister. I have read Defra’s detailed answers to the memo submitted by Friends of the Earth which appears in the annexe to the recent 41st report from the Secondary Legislation Scrutiny Committee. I have no problem with the use of these powers. They may need to be used very quickly, and I see more than one reference to their being used on the strength of appropriate scientific and technical advice. As such, I ask the Minister to say a bit more about the use of reference laboratories and animal feed. Neither of these areas is politically sexy, yet they are vital for public health and animal health. Will the arrangements be dependent on new IT systems? How will we share information with the EU and the EEA? Finally on this one, can the Minister say something about the supply and training of veterinarians?
On the second statutory instrument, relating to plant health, can the Minister say a little more about the work of the UK plant health risk group? I would like confirmation that the new, so-called bonfire of regulations will not be used to keep the public from knowing about the work of the risk group. I know from my own experience at the Food Standards Agency about the balance of competences exercise conducted by the coalition Government. Most regulations are for public protection, which of course is why that exercise was buried after the 36 reports were published. That completes my list of questions for the Minister.
My Lords, I am grateful to my noble friend the Minister for his introduction of these statutory instruments. As he rightly said—I hope I quote him correctly—they are complex and intricate.
Given that quite a lot of diseases have come in from Europe over the past years, can my noble friend confirm that there will not be an increased risk of diseases coming in from Ireland as more trade is done directly between Ireland and the rest of the EU, cutting out Holyhead and the land journey across Europe? Is there not a greater chance of plant diseases coming from Ireland into Northern Ireland and thus into the UK that way? Can my noble friend confirm that he has got his eyes on this potential back-door entry for diseases?
Can my noble friend also confirm, in words of one syllable, that there will be no reduction in standards of biosecurity and no weakening of the regulations? Do the Government have plans indeed to tighten up the regulations? Now that we are a third-party state, surely there is an opportunity for us to make it even more difficult for diseases to come into this country.
Lastly, how will people be notified when the Government take action? Will it be a simple matter for firms to operate? Will my noble friend make certain that the information is transparent and on all government websites? I am afraid that some websites are not kept as up to date as they should be. Perhaps he could ensure that they are in future.
My Lords, outside the trade agreement, the EU granted the UK national listed status on 24 December, which allows the trade of live animals and products of animal origin and plants to continue after the transition period. Sanitary and phytosanitary—SPS—border checks will be required for trade in live animals and products of animal origin, meaning that agri-food traders will meet with extra costs and burden. Does the Minister agree with that?
SPS border controls will include extensive checks and specialised paperwork, and frequent physical inspections will be required. Does the Minister agree that it is incumbent on both sides to minimise disruption and keep goods moving, as businesses continue to get to grips with the changes since 1 January? Does he also agree that authorities could help by relying on pragmatism rather than penalties, and that honest mistakes should be coached and not penalised in the coming weeks and months?
The issues that arise must be resolved quickly. As president of the CBI, I can say that the CBI is on hand to help the Government by getting information and guidance to businesses as quickly as possible. As firms adjust to new processes and procedures, they will be keen to see quick progress on issues outside the deal to support businesses, and greater regulatory co-operation outside the area we are discussing. For example, financial services and the mutual recognition of professional qualifications are other areas that need to be dealt with. Over the coming weeks and months, it is vital that government and business work together closely to shape the new relationship with the EU and ensure that the UK remains a competitive, dynamic and innovative economy.
We have heard that some hauliers have been reluctant to carry multiple firms’ loads together in one shipment, particularly for food, given the added challenges posed by collating paperwork and clearing customs. A handful of major logistics firms have also stopped deliveries to and from the UK, given a high number of consignments reportedly not meeting new requirements. Of course, the pandemic has not helped the situation, but does the Minister agree that there is a shortage of customs agents? It is estimated that about 50,000 would be required, but that there are possibly only 11,000 to 12,000 now. When does he see this situation being resolved?
Finally, we have heard that, in Dublin, the volumes are down 50% on normal levels—this was reported yesterday. That might of course be due to stockpiling before Christmas and Covid. However, can the Minister comment on the veterinary health certificates required under the EU’s SPS rules, which are also causing considerable problems for UK food companies?
My Lords, I have always felt that one of the great contributions we made to the European Union was by insisting upon the environmental and animal welfare standards. Having read these memorandums—the documents on official controls—I found there was so much in them, so I think the Government are committed to us maintaining at least those standards that we had when leaving.
I want to follow a point raised by my noble friend Lord Rooker, who related human health to animal welfare and animal health. I want to ask about a specific aspect of that. We all know that, on the human side, antibiotics are a major contributor when we look at fighting illness and keeping fit. We also know—the noble Lord, Lord Gardiner, will know this in particular, in his profession as a farmer—about farmers making great use of antibiotics and that, as a society, we benefit enormously from that contribution to farming. But although most farmers go to great lengths to minimise the amount of antibiotics they use in farming, there is some passing-over to human health. Of course, the more antibiotics we have in our fight against illness, from whichever source, the greater the resistance we will have in getting the benefit from antibiotics.
I was interested to discover that there is a move to develop a particular type of antibiotics in agriculture, which would be unique to agriculture and would not transfer across to impact human health. Am I right in assuming, when I read these documents, that this sort of activity in Britain is using our science—just as we used it in developing the vaccine to fight Covid—to try to develop that in the fight to improve human health?
The noble Lord, Lord Lilley, has withdrawn so I call the next speaker, the noble Baroness, Lady Fookes.
My Lords, I have to confess that I find reading statutory instruments very hard going—certainly not bedside reading. I sometimes have difficulty with the Explanatory Notes, so I hope that what I am going to say accurately reflects the situation, and that where it does not, I can be put right.
My understanding is that, since 1 January, we have been operating our own passports for plant health, whereas Northern Ireland remains part of the EU for this purpose. People there will therefore continue to operate using the EU passports for health, in which I am greatly interested. When proper goods come over from Northern Ireland to the rest of the UK, if I may put it that way, I gather that we are going to accept the EU conditions. What worries me is this: supposing they differ over the course of time? I recall that, before we left the EU, there were sometimes mutterings that it was not being strict enough about plant health regulations. So supposing our regulations get stiffer and its remain the same or are different, what then would be the position for the import of these plant products?
I also understand that it is possible to convert EU passports into UK passports, if I understood the Minister correctly. Again, I am not sure whether I understand what the procedures or the conditions are. If my noble friend could tell me briefly, either at the end of the debate or subsequently, I should be very grateful.
On the other hand, when the plants go from the UK— or Great Britain, as I should call it, to be absolutely accurate—to Northern Ireland, I gather that it will not accept our UK passports. We shall therefore have to comply with whatever regulations the EU sets forth, as a third country, so to speak. What is the position right now? Am I to understand that there is a period of grace between now and 1 April, where it would be much easier to send them in, and what happens after 1 April? Will it be very tricky or expensive and administratively time-consuming to do all this? Again, I should be grateful for some answer on this from my noble friend.
My Lords, it is a great pleasure to follow the noble Baroness, Lady Fookes, who has reflected some of our shared interests as a fellow member of the APPG on horticulture. I thank the Minister for his detailed introduction to these statutory instruments. He made clear the complexity of what we are dealing with. It is clear that we are far from the frictionless trade that we were sometimes implausibly promised by the Government. The noble Lord, Lord Bilimoria, referred to some of the difficulties being encountered now on the border.
I would like to begin with this question to the Minister. The Official Controls (Animals, Feed and Food, Plant Health etc.) (Amendment) (EU Exit) (No. 2) Regulations were made on 21 December and laid on 22 December. Can he make it clear how well they have been communicated to small businesses and to academics—the people who have a real interest in this area? What steps are the Government taking to ensure that people understand what is actually going on, if they do not have time to spend their entire day focusing on the fine details of statutory instruments?
I pay tribute Friends of the Earth, which prepared two excellent briefings on these statutory instruments that I relied on quite heavily. I have a question about the use of the negative statutory instrument process. Regulation 2 of the official controls regulations allows regulations to be made on special import conditions on animal and related products, and Regulation 13 gives the Secretary of State and Welsh Ministers special powers to make regulations concerning meat and bivalve production by negative statutory instrument. It appears that similar procedures in the European Commission operate in a much more democratic way, so could the Minister comment on how this squares with the taking back control agenda if Parliament has less oversight than we see in Europe?
The noble Lord, Lord Rooker, referred to the European Union Reference Laboratory for Animal Proteins in Feedingstuffs. I would like some reassurance from the Minister that there will be continual ongoing skills and knowledge sharing, and that we have a real sense that we are still right up at and contributing to the cutting edge, co-operation obviously being much more useful than competition.
Finally, I come to the plant health amendment regulations 2020. Again, my question relates to transparency and openness. The noble Lord, Lord Rooker, and the noble Earl, Lord Caithness, both referred to the question of openness in the reporting of the UK plant health risk group’s proceedings—both minutes and agendas, one would hope. The comparable EU body, the Standing Committee on Plants, Animals, Food and Feed, does this with commendable regularity and openness. Given that all these meetings are, I am sure, now conducted by teleconferencing, as most of us in your Lordships’ House now operate, I see no reason why they should not be broadcast for anyone with an interest. There is, of course, a great deal of interest in issues around plant diseases, invasive species, diseases like Xylella, and, as the noble Lord, Lord Clark of Windermere, referred to, antibiotic resistance, and the risk of importing it and antibiotic-tainted meat. Has the Minister considered whether the plant health risk group’s meetings could be fully conducted in public by means of Zoom or similar so that they are available to everyone?
My Lords, I am delighted to follow the two noble Baronesses and I thank my noble friend for his typically clear explanation of what are very complicated regulations. My starting point is that importers and exporters are simply not used to form filling and customs declarations, which have not been a requirement since we joined the single market in 1992. So, while I welcome the phasing in of the first regulation on animal feeds, food and plant health, as he outlined, could my noble friend be clear what the requirements will be in the new model certificates, and the timescale within which they will be available? Could this be done as soon as possible? Could he also update us on the development of the
“appropriate computerised information management system”
referred to in the first instrument before us?
On plant health, could my noble friend confirm that we will still have access to the EU risk assessment, such as TRACES? In the case of ash dieback, we exported ash seeds and reimported them as saplings. We happened to import ash dieback, which of course was not intentional. When my noble friend refers to checks being proportionate, depending on the specific factor, commodity and continuity of exports, will he ensure that sufficient training will be given under both regulations to ensure that importers and exporters are familiarised at the earliest possible stage with the requirements they will be asked to meet?
On the concerns raised by Friends of the Earth to the Secondary Legislation Scrutiny Committee regarding imports into GB, I am sure my noble friend will confirm that this will be available at the earliest opportunity on the government website. Will he again ensure that sufficient time is available to exporters and importers to prepare? I understand that the forms were only prepared in November. I hope that their coming live dates of 1 April and 1 July will give sufficient time for this purpose.
Like my noble friend Lady Fookes, I find it very confusing that there will be two systems in operation, one for those exporting from Northern Ireland to GB and another for those exporting from GB to Northern Ireland—but I am sure my noble friend will confirm that under the protocol there is no alternative. I welcome the opportunity to put these questions and to give the regulations some scrutiny this afternoon.
My Lords, I am grateful to the Minister for his introduction. I will begin with the official controls regulations on animals, feed and food, and plant health. As has been said, we debated regulations with the same title on 2 December, and here we are again going over the same ground. The first SI had to be passed by December to comply with our third-country status. The noble Lord, Lord Bilimoria, referred to safety in our sanitary and phytosanitary systems—SPS—and possible costs to businesses. I know that everyone was working flat out before Christmas and that some legislation had to be left until after 1 January, but I hope we will not come back yet again to debate the same issues but with minor amendments throughout 2021.
On this occasion, we are concerned with border control posts. As we have seen on regular news reports, the number of forms required to be completed to comply with EU official controls is very burdensome. SPS checks will, apparently, vary proportionately, depending on risk factors. This includes the import of live animals, products of animal origin or plant materials, depending on whether they are exported from a country with any current known incidence of relevant animal or plant diseases. If animal and plant products are imported from a country that has a known disease, this is a considerable risk to our farming and horticulture sectors. Can the Minister reassure us that he is confident that such imports will be disease free? The noble Earl, Lord Caithness, also referred to this.
I am pleased that the devolved Administrations have been consulted, with the Scottish and Welsh DAs having given consent. I understand that the SI does not apply to Northern Ireland. Like many others, I am extremely concerned about what I am seeing happening in Northern Ireland, with food shortages and some empty supermarket shelves. I am being somewhat opportunistic in mentioning the crisis in Northern Ireland; although it is not part of this SI, a situation has developed that needs urgent attention. Public confidence in the Government’s legislation post Brexit will be severely dented by what people see happening in Northern Ireland due to border controls.
Annexe 2 lists 30 operable amendments made by this instrument to EU exit legislation. I can see many old friends in that list. Many relate to products for human consumption. In the past, lax regulation of animal feedstuffs has led to some catastrophic disease outbreaks—I refer, of course, to BSE. We have learned many lessons along the way, but it is easy to relax rules, thinking we are safe, only to find that some unknown variant has crept back in through the back door. I ask the Minister: are there similar restrictions on the import of foodstuffs destined for animal consumption to those that there are for food destined for human consumption?
I turn to the plant health amendment regulations, which also deal with import controls from third countries. New plant health passports needed for qualifying Northern Ireland goods sent to the UK will apply only one way. Can the Minister say why plant passports are not needed for goods going in the opposite direction? The noble Baronesses, Lady Fookes and Lady McIntosh, touched on this.
Now that we are in a different regulatory and legislative regime, there is much that concerns us about how rules we have been used to relying on are being somewhat arbitrarily changed. The lifting of the ban on neonicotinoids to assist the sugar beet growers is one such example.
I know the Minister has long been an advocate of bees, and he will have his own personal views. It must therefore be difficult for him to feel any great enthusiasm for the change that the Secretary of State has made, and I would be interested to hear how he has managed to reconcile this dichotomy.
Friends of the Earth, which was referred to earlier in the debate, is concerned about the lack of transparency and access to information. The UK Plant Health Information Portal does not offer transparent or up-to-date information on the activities of the UK plant health risk group, as mentioned by the noble Baroness, Lady Bennett, and the noble Lord, Lord Rooker. This is a serious issue for those who wish to have access to this information. Can the Minister say why this is and whether the Government have any plans to rectify this omission?
I look forward to the Minister’s response to all the queries raised this afternoon. These SIs, although apparently minor, are important. On that basis, I am happy to see them approved.
I start by thanking the Minister for introducing the SIs so clearly today and for his very helpful briefing beforehand. First, I will address the animals, feed and food and plant health regulations.
Paragraph 2.2 of the Explanatory Memorandum explains that sanitary and phytosanitary checks are to be carried out at “designated border control points”. The Government committed to building more infra- structure at ports and elsewhere to support the increased number of checks. However, we know that not all of these were ready on 1 January. Will the Minister take this opportunity to update colleagues on the status of these facilities, particularly given the fact that Her Majesty’s Government have acknowledged that there have been problems at the borders?
Part 2 refers to the special import conditions that may be imposed in respect of imports from third countries of products of animal origin intended for human consumption. Can the Minister clarify how special import conditions will be communicated, how long they will apply and the processes proposed to review their cumulative impact?
A number of noble Lords have mentioned the issues that were raised by Friends of the Earth. For example, Regulation 4 amends the previous animal feed regulations to omit Regulation 90. This had previously replaced references to the European Union Reference Laboratory for Animal Proteins in Feedingstuffs with the words “reference laboratory”. This was mentioned by both the noble Lord, Lord Rooker, and the noble Baroness, Lady Bennett, and we would be interested to know why these references have been reinstated. Does this represent a specific, time-limited transitional arrangement or an agreement on continued UK engagement, or is it that no reference laboratory yet exists within the UK to take on this work?
The noble Baroness, Lady McIntosh, referred to Regulation 17 and model official certificates, so can the Minister clarify the requirements for these certificates and the timescales within which they will be available? The noble Baroness also mentioned that there is an update required on the development of
“the appropriate computerised information management system”
that is referred to in paragraph (6)(b).
We were concerned as to why the regulations in this SI were not included in the previous SI, debated at the beginning of December; this was mentioned by the noble Baroness, Lady Bakewell. The Explanatory Memorandum appears to blame the European Commission, and I am aware that the Minister explained in his introduction why the regulations were not dealt with previously. But we agree with the comments of the noble Baroness, Lady Bakewell, and her frustrations in having to, once again, go over ground we have already covered.
I turn to the draft plant health amendment regulations. As we have heard from the Minister, this instrument aims to protect biosecurity and support trade between Great Britain and Northern Ireland by ensuring that plant health controls for qualifying goods moving from Northern Ireland to Great Britain can function after the end of the transition period.
The Secondary Legislation Scrutiny Committee raised the question of documentation for products heading in the opposite direction—Great Britain to Northern Ireland—and although I am aware that this is not technically within the scope of this SI, I hope that, given the problems currently being experienced by supermarkets, the Minister will not object to us asking for clarification on whether or how supermarkets have to notify Her Majesty’s Government that the procedures have actually been updated, and for an update on the situation regarding the flow of goods.
Regulation 3 allows the Government to move products that pose a pest risk. This has also been discussed by other Members, including the noble Earl, Lord Caithness, so I will not go into any further detail on that. But it would be helpful for the Minister to clarify who determines what constitutes an “acceptable level” of risk, and which body would determine whether the decision of measures to adopt was suitable to reduce risk to an acceptable level.
Paragraph 7.4 of the Explanatory Memorandum notes that, in some circumstances, British operators can replace an existing EU plant passport with a UK equivalent; the noble Baroness, Lady Fookes, referenced this. Can we find out exactly what this process entails in practice? Will there be any time delays? What kinds of costs could there be? How has this been communicated to industry in advance? The noble Lord, Lord Bilimoria, raised questions about support for business, and I do not feel that the Explanatory Memorandum is clear on these points, other than saying that it did not believe that consultation was necessary.
The Explanatory Memorandum also repeatedly states that the instrument
“facilitates the government’s policy of unfettered market access”.
While it may do that on paper, there have been initial teething problems which have amounted to anything but unfettered access. I ask the Minister to encourage the Government to apologise to businesses which have been affected by the lack of lead-in time for these new procedures. I await his response with interest.
My Lords, this has been a very interesting debate, and I thank all noble Lords. Inevitably, with the time factor, there is much that I would like to say. I am going to send a substantial letter, and I will include the Government’s response to the points made by Friends of the Earth, because then one can see some of that in context. But I will run through some of the points made by noble Lords.
The noble Lord, Lord Rooker, asked about reference laboratories. Defra’s global animal health team has worked closely with the UK CVO, the devolved Administrations, the Pirbright Institute, Cefas, the APHA and the Agri-Food and Biosciences Institute—AFBI—in Northern Ireland to ensure that the UK’s animal health national reference laboratories are prepared for withdrawal from the EURL. The noble Lord also asked about vet training. Defra is working with port health authorities, the APHA and the Food Standards Agency to ensure that recruitment and training of the additional staff required is completed for each stage of the new import regime.
My noble friend Lord Caithness asked about communications on the work of the plant health risk group. This group publishes all pest risk assessments on the UK Plant Health Information Portal. The noble Baroness, Lady Hayman, asked about, on plants, the definition of “acceptable level”, and I should say, because these are matters of great importance, that the UK intends to ensure that its SPS regime remains appropriate to address the risk it faces. Defra has a dedicated team of specialists, plant health risk analysts and managers working with the devolved Administrations.
I should also say to the noble Baronesses, Lady Bakewell and Lady Bennett, and to the noble Lord, Lord Rooker, that the UK plant health risk group identifies, assesses and manages plant health threats. As part of the process of withdrawing from the EU, we have bolstered this group. The plant health risk group includes key experts from Defra and the devolved Administrations, and its outputs are published for scrutiny and comment and to help information making. I shall take back some of the points that have been made about how best to communicate that.
I agree with the noble Lord, Lord Rooker—affirmative and negative—and we now and again have discussions about this in the House and with legislation. We believe that many of these issues are technical and many of the needs we have to face are where speed is of the essence, but that is why we said to Friends of the Earth, and I will say now, that we thought it was appropriate to have that measure. But I will send all the details of Friends of the Earth’s comments to noble Lords.
I should also say to my noble friend Lord Caithness that, on the issue of the Northern Ireland back door, everything from the rest of the world coming through either Northern Ireland or the Republic of Ireland must complete border checks in the first place they enter—either the EU or Northern Ireland. We therefore believe that there is no increased risk compared with the position before the end of the transition period.
On diseases, whether they are in Ireland or here—or, indeed, in separate parts of Great Britain, where we have pests and diseases—we have our own systems, which ensure that we bear down so that we do not allow the spread of pests and diseases. I place great importance on that.
Another point was made about communications. Again, there were issues here. I understand why, in a period of change, it is essential for all businesses that communication is speedy and any necessary updates are made speedily. We have maintained regular engagement with industry on post-transition planning, both with individual operators and through key stakeholder groups. We have undertaken a series of feasibility sessions with more than 300 participants, and equivalent export sessions. Communications, especially regarding Northern Ireland-GB trade, have been shared with the Plant Health Advisory Forum as well as with key stakeholders such as the Horticultural Trades Association, the National Farmers’ Union and the Fresh Produce Consortium.
That work must continue. I am absolutely aware that there will be issues that continue and need to be resolved for people. I agree with the noble Lord, Lord Bilimoria, that we need to resolve these matters pragmatically and quickly. Speed is of the essence at both ministerial and official level. I know from talking to the Secretary of State and the farming and fisheries Minister only yesterday that all these matters are being addressed daily. Whether it is discussions with the French, the Dutch or the Irish—as noble Lords may have heard about during the exchange on fish—we need dialogue to raise all these points.
On antibiotics, I am grateful to the noble Lord, Lord Clark of Windermere. Resistance to antibiotics is of huge imperative for human and animal health, which is why I am proud that we have seen in this country significant reductions in the use of antibiotics in the animal world. That particularly goes for farmed animals; we must continue that through improved husbandry, vaccines and research. On that point— I picked this up only in the paper, so I caveat it—I noticed that, only today, the University of Oxford has made a significant investment in antibiotics. This is where that science hub, of which we should be proud and where we need to invest, will be an important part of our global approach.
I understand what my noble friend Lady Fookes said about the technicalities of changes to passports. I will write to her so that, in some detail, my noble friend and I can work together on why these changes are happening and why we need, again, to work pragmatically on these matters.
I say to the noble Baroness, Lady Bakewell: yes, by definition, these regulations apply to both food for humans and feed for animals. Again, that is really important. There is specific reference to animal feed in these regulations.
I say to the noble Baroness, Lady Hayman, on the infrastructure of border control posts, that as of 13 January, Defra has approved expressions of interest for 29 new capacity BCP applications from providers in England and Wales. These have been passed to APHA to progress. We are currently aware of expressions of interest from 14 Scottish BCPs.
The noble Lord, Lord Rooker, mentioned recruitment, which is also very important. We are working with port health authorities, the APHA and the Food Standards Agency to ensure that the recruitment and training of the additional staff required is completed for each stage of the new import regime.
On computers, I should tell my noble friend Lady McIntosh that I am not very good with IT. As a general rule, we never use traces for parts. We will therefore continue to use the existing national IT systems of eDomero and PEACH. Indeed, new systems—IPAFFS and ECHO—will replace eDomero later in the year. Again, I agree that it will be imperative that the changes we bring forward are communicated early and that businesses are comfortable with them because—again, I agree with the noble Lord, Lord Bilimoria, here—we want to minimise burdens in the changes that will take place.
There were expressions of concern about Northern Ireland. I agree that we always want to take any concerns about that part of the United Kingdom very seriously. My understanding as of today is that the flow of goods between GB and Northern Ireland has been smooth—and remains so—and supermarkets are reporting healthy supplies into their Northern Ireland stores. Supermarkets and other authorised traders are exempt from certification requirements for three months. The Movement Assistance Scheme provides detailed online guidance for traders, a helpline for practical advice and reimbursements to cover the costs of certification. We will work with businesses because they need to be aware and need to do a lot themselves, and we want to be a helping hand rather than a heavy hand in all these matters.
The noble Baroness, Lady Hayman, made points about communication and the timescale of performance. I will send a note about all that because those things are very important.
On the derogation of neonicotinoids, it was an emerging authorisation with very considerable requirements for not using other crops thereafter, so it was a very distinct emergency derogation.
I much regret that my time is up, unfortunately, when there is so much more to say. I will therefore write fully to noble Lords.
Plant Health (Amendment) (EU Exit) Regulations 2020
Considered in Grand Committee
The Grand Committee stands adjourned until 5 pm. I remind Members who are here to sanitise their desks and chairs before leaving the Room.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, and 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. In the unlikely event of the capacity of the Committee Room being exceeded or other safety requirements breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Customs Miscellaneous Non-fiscal Provisions and Amendments etc. (EU Exit) Regulations 2020
Considered in Grand Committee
My Lords, we are here to discuss a further statutory instrument that is part of the Government’s package of SIs for the end of the transition period: the Customs Miscellaneous Provisions and Amendments etc. (EU Exit) Regulations 2020. This statutory instrument will be debated in the other place on Thursday. It came into force at the end of the transition period and is subject to the urgent “made affirmative” procedure. It has already taken effect, but still needs to be approved by both Houses.
Under the European Union withdrawal agreement and the Northern Ireland protocol, certain provisions of EU law continue to apply in Northern Ireland after the end of the transition period. In Great Britain, those same provisions are modified to reflect the fact that the UK has left the EU. Previous amendments to the relevant legislation applied across the whole of the UK. However, further changes were needed to address the specific arrangements for Northern Ireland. Noble Lords will be aware that the Secondary Legislation Scrutiny Committee reported the regulations as an instrument of interest in its 41st report, published on 14 January 2021.
The instrument amends and modifies three fields of legislation: legislation relating to customs safety and security procedures, including entry summary declarations and the registration of businesses for movements from Northern Ireland to Great Britain; application of the Customs and Excise Management Act 1979 and the Finance Act 1994 to movements between Northern Ireland and Great Britain for non-duty purposes; and it ensures that HMRC can continue to collect and process trade statistics data in the same way it did before the United Kingdom left the EU.
I will now turn to each topic in greater detail, starting with entry summary declarations. These declarations contain safety and security information about the movement of goods. Declarations must be submitted to HMRC, then risk-assessed before the goods arrive at the border. These assessments are used in conjunction with intelligence-led targeting by Border Force, to protect the security of the UK. This instrument removes the requirement for an entry summary declaration for the movement of “qualifying Northern Ireland goods” from Northern Ireland into Great Britain, in line with our wider commitments on unfettered access. It also retains the requirement of an entry summary declaration for the movement of “non-qualifying Northern Ireland goods” from Northern Ireland into Great Britain. Non-qualifying Northern Ireland goods include those that are not in free circulation in Northern Ireland—for example, those subject to customs procedures such as inward processing or that are in an authorised temporary storage facility—before they are moved to Great Britain. It also includes the trade of goods subject to specific obligations binding on the United Kingdom and the EU, such as endangered species or conflict diamonds.
These changes are necessary to allow safety and security declaration requirements to be maintained for non-qualifying Northern Ireland goods moving into Great Britain from Northern Ireland, while simultaneously allowing appropriate Northern Ireland traders to maintain unfettered access to the rest of the United Kingdom market. Anti-avoidance measures are also in place to deter businesses from rerouting goods via Northern Ireland if they do so in order to avoid United Kingdom duty or import formalities.
In addition, this legislation states that for goods arriving by sea from Ireland, the Channel Islands and other nearby ports, where an entry summary declaration is required, it must be submitted two hours before the vessel arrives at a port in Great Britain. Without this amendment, earlier submission would be required, which may be impractical given the duration of crossings. It also aligns the declaration time limits to those already in place for the same sea movements in the opposite direction.
This instrument also requires economic operators to obtain a UK economic operators registration and identification number—otherwise known as a UK EORI number—to move non-qualifying Northern Ireland goods from Northern Ireland to Great Britain. An economic operator is a person who, through the course of their business, is involved in customs activities covered by customs legislation. It is necessary for these operators to have a UK EORI number starting with GB to make declarations or get a customs decision in Great Britain. Registration is quick and simple and an EORI number will usually be issued straightaway. This instrument also ensures that penalties apply to failures to comply with the requirements to submit an entry summary declaration, including the need to be registered for a UK EORI number.
I turn to the second area of legislation covered by this statutory instrument: the regulations relating to the Customs and Excise Management Act 1979, otherwise known as CEMA, and the Finance Act 1994. First, CEMA provisions that relate to movements between the Republic of Ireland and Northern Ireland are revoked by this instrument. This is because EU rules concerning the movement of goods continue to apply to these movements under the Northern Ireland protocol. Secondly, this instrument allows CEMA enforcement powers—for example, the ability to seize and detain goods—to be used for enforcing prohibitions and restrictions on the movement of goods, people and vehicles between Great Britain and Northern Ireland, where there is no connection to customs duty.
This instrument also ensures that the enforcement provisions in Part I, Chapter 3 of the Finance Act 1994 can be used in relation to the export of restricted or prohibited goods, as appropriate. These include HMRC’s powers to require the production of documents, to remove documents and to enter premises. This applies in Northern Ireland for the movement of goods from Northern Ireland to Great Britain.
Finally, I turn to trade statistics. This instrument makes minor amendments to the law on statistical data collected on the trade of goods between the United Kingdom and members of the EU, to take account of the Northern Ireland protocol. This is important in order to meet international reporting requirements. This instrument ensures that the legislation works properly in Northern Ireland, where EU statistical rules will continue to apply as a result of the Northern Ireland protocol, and in Great Britain, where they will not. As a result, HMRC will be able to continue to collect and process trade statistics in the same way that it did before the United Kingdom left the EU.
These technical but important customs regulations are already in place. They will help ensure that goods continue to move smoothly and safely between Northern Ireland and Great Britain and that matters related to their movement can continue as anticipated. I hope noble Lords will join me in supporting these regulations. I beg to move.
My Lords, I am a member of the Secondary Legislation Scrutiny Committee which considered this instrument. It caught my attention not because I am in any way an expert on customs rules or the technicalities of these regulations but because it touches on the relationship between Northern Ireland and Great Britain post Brexit, which has been highly political and, I would argue, will be extremely sensitive in future.
It is only just over a year since the general election campaign, in which the Prime Minister declared before a group of Northern Ireland businesspeople that there would be no barriers to trade between Northern Ireland and Great Britain. This position was somewhat revised when Michael Gove presented the Government’s proposals for implementing the Northern Ireland protocol, when he said that there would be no checks between Northern Ireland and Great Britain, although there would inevitably be some checks the other way as a result of goods entering what would in effect be the EU single market.
It was then also stated that there was to be no customs border in the Irish Sea and no new infrastructure to enforce that border. As I understand it, £300 million or £400 million has been allocated to putting in place what can only be described as infrastructure, and therefore I really do not understand what the Government think their position is on this. Here we have a statutory instrument that specifically imposes some requirements and constraints on unfettered trade in goods between Northern Ireland and Great Britain—I am sure the Minister will confirm that. There are goods for which there will not be unfettered trade as a result of this instrument. When it is said that there would be no customs border, it sounds to me as though the second part of this instrument is actually putting in place regulations for a customs border. I should like to get some clarity about what is happening: is wool being pulled over someone’s eyes or is it not?
The entry summary declarations from Northern Ireland to Great Britain will be required only for non-qualifying goods. I have two questions here: how significant are these non-qualifying goods in terms of total trade, and, secondly, who makes the qualifying decision? Is it a question for the United Kingdom customs authorities or for the joint committee between the EU and the UK that is there to implement the protocol? Was this matter fully discussed at the committee before this regulation was laid?
I have a second point on the customs question. The great merit of the trade and co-operation agreement is that there are no tariffs or quotas on trade between the EU single market, including Northern Ireland, and Great Britain, except in two circumstances: first, where goods do not qualify under the rules of origin, and, secondly, were there judged to be offences against keeping the level playing field in place, as provided for in the agreement. In that situation, one side or the other can impose tariffs. The question then becomes: what happens to these customs regulations were tariffs to be imposed?
The Minister may say that this is an entirely theoretical question, but the truth is it is not, because, within days of the passage of the trade and co-operation agreement, the Government let it be known that they are launching lots of reviews of regulations and workers’ rights, and making lots of moves which could be interpreted by the EU as deregulation and could be thought to be offending against the principles of the level playing field. We may end up in a difficult situation quite quickly, unless the Government act with prudence.
My purpose in speaking is to ask the Minister—politely, I hope—what he thinks about my questions, but also for us to start thinking about what the consequences of all this will be for the Northern Ireland-British relationship and the future of the United Kingdom.
The noble Lord, Lord Bilimoria, has withdrawn from the speakers list. I call the next speaker, the noble Lord, Lord Dodds of Duncairn.
I thank the Minister for his speech explaining this piece of delegated legislation before the Committee this afternoon. If I may, I will follow up on some of the points made by the noble Lord in his speech just now.
I make the general point that this is another statutory instrument which, as a result of the protocol, will change regulations that have already been passed to apply to the whole of the United Kingdom to make special provision for Northern Ireland’s trade with the rest of the United Kingdom. I remind Noble Lords—and this is important—that no one in Northern Ireland ever gave their consent to this protocol, despite the promise in the EU-UK joint declaration of December 2017 that regulatory difference could happen only with the consent of the Assembly and the Executive. That was arbitrarily set aside. Since the protocol means that certain provisions of EU law will continue to apply to Northern Ireland, it is certainly not—and the Government would have to admit this—taking back control of our laws, borders and money, as far as Northern Ireland is concerned.
I will turn to some of the detail of this instrument. The Explanatory Memorandum states that
“this instrument comes into force at the end of the transition period. Royal Assent to the Taxation (Post-transition Period) Bill is, however, required before this instrument can be laid. This instrument will therefore be laid as soon as possible after Royal Assent to the Taxation (Post-transition Period) Bill.”
We are also told that
“The consequences of delaying this instrument by using non-urgent powers are that the amendments and modifications required to make changes to address the different regimes applying in NI and GB, and to deal properly with certain movements of goods between NI and GB would not be in place in time (that is at the end of the transition period).”
Given that the transition period ended on 31 December 2020, will the Minister clarify the precise legal position as of today, and indeed for the last almost three weeks? Have these regulations actually been in force from the end of the transition period? What has been the legal position, and what is the current legal position, prior to the approval of these regulations?
Will the Minister also set out the extent of the consultation there has been in relation to these new regulations? Have the Government had any discussions with the Northern Ireland Executive and relevant Ministers about its details and the implications of its provisions? The Explanatory Notes state:
“There is no, or no significant impact on business, charities or voluntary bodies.”
I find the assertion that there is no impact, or no significant impact, on business rather peculiar. I should be very grateful if the Minister would outline what consultation there has been with relevant businesses on the detail of this particular instrument, as opposed to general consultation with businesses on the general issues of the protocol. We know that there has been a lot of engagement with business on the general issue of the protocol, but on this particular statutory instrument and its implications, what has been the consultation process with businesses in Northern Ireland?
An entry summary declaration is required for the movement of goods from Northern Ireland to Great Britain where those goods are subject to customs duty under the Taxation (Cross-border Trade) Act 2018. If the goods are not subject to customs duty, no ENS is required. The Minister has confirmed that this means that customs duty is imposed only on non-qualifying NI goods. Those include things such as fluorinated gas and ozone depleting substances, hazardous chemicals, genetically modified organisms and so on. Can the Minister clarify for the Committee whether any other goods are subject to customs duty under Section 30C of that Act? To repeat a question asked by the noble Lord, Lord Liddle, what proportion of trade movements between Northern Ireland and Great Britain are likely to be caught by the provisions of this instrument?
I welcome the fact that the entry summary declaration can be lodged two hours before a ferry carrying goods from Northern Ireland arrives at the first port of entry in Great Britain. This shorter time limit for submission of the requisite information is of course welcome. Without it, there would be another wholly unnecessary burden for Northern Ireland businesses.
Regulation 4 provides that the registration and identification requirements, which the Minister referred to, that apply to movements into and out of Great Britain apply also to goods moving from Northern Ireland to Great Britain. Where these requirements apply and entry summary declarations are needed, can the Minister outline the form of these requirements and declarations? What will be the process for filling them out and the submission of declarations and other requirements? I presume that at the very least it will entail no extra paperwork and certainly no extra cost for business in Northern Ireland, as that would go against the unfettered trade between Northern Ireland and Great Britain that was guaranteed. It would also go against the declaration that the Prime Minister famously made to businesses in Northern Ireland when he said that, if such paperwork and so on was required, it should be thrown into the bin and the relevant businesses should ring him up. Therefore, I ask for a reassurance from the Minister that those guarantees will be in place for Northern Ireland.
These are technical regulations but they have significant implications, both economic and political, and they bear close examination. I am grateful for the opportunity to speak on them and to seek clarification today. If the Minister is unable to deal with all my questions this afternoon, I shall of course be happy to receive further explanation and elucidation by correspondence in due course.
My Lords, I add my thanks to my noble friend for presenting these regulations. My questions are not dissimilar from those that have gone before.
Are ENS declarations already happening? Is this a new form that has been devised, and will it be done digitally? Although I do not for a minute imagine that Hull will be the first port of call for goods coming from Northern Ireland, I was dismayed to learn—perhaps my noble friend will confirm that it is true—that HMRC has closed its offices in Hull. That begs the question: to what extent has HMRC closed its offices in other ports around the United Kingdom? It strikes me that having men and women on the ground at HMRC who can explain matters in good time to traders who will rely on the ENS is absolutely at the forefront of what HMRC should be doing. I do not know whether it is true that the HMRC offices in Hull have closed but it would be a matter of concern to me if they had.
I understand that the ENS will apply only to goods caught under Section 30C of the Taxation (Cross-border Trade) Act, and that goods that are not subject to a duty will not require an ENS. Looking at the list of non-qualifying Northern Ireland goods, which has been rehearsed by other noble Lords, I cannot imagine that many will fall into this category, but presumably my noble friend will be able to give us a forecast of the number of occasions on which the Government expect an ENS to be required. Like my noble friend Lord Dodds, I would be interested to know whether there will be an additional cost, or at least an additional time factor, in delivering these.
While it is welcome that a two-hour limit is imposed on the submission of an ENS applying to goods arriving in Great Britain by sea from the Republic of Ireland, how realistic is that? Given the time available between the statutory instrument being introduced and made effective by the end of the transition period, to what extent has training been given to those to whom this statutory instrument applies?
I may be wrong, but I cannot imagine that there will be rough diamonds, endangered species or persistent organic pollutants coming from Northern Ireland to the rest of the United Kingdom—or indeed GMOs, because I understand that we are not at this stage seeking to have a flood of GMO products coming in. I hope that does not change too soon. One reason why I think the Government are introducing this instrument is to ensure that Northern Ireland does not become the back door to Great Britain for some of these non-qualifying goods from the rest of the EU. It is probably difficult to say at this stage to what extent ENS will be used, but it would be very helpful to know what forecast and assessment my noble friend and his department, the Treasury, made prior to the statutory instrument taking effect.
Will the ENS be completed digitally? Since, for the most part, we have been in a customs union and a single market with the rest of the EU for the past 30 years—the single market since 1992 and the customs union for a good deal longer—I hope that my noble friend will confirm that some training and explanation have been given to exporters and importers to whom this will apply.
Can my noble friend explain for my greater understanding of the statutory instrument, which, as he said, is very technical, whether there will be two separate regimes: one for goods coming from Great Britain to Northern Ireland and another for goods going from Northern Ireland to Great Britain? That would be very helpful to know. With those few remarks, I would be very interested to hear my noble friend’s answers.
My Lords, I come to this subject with some degree of trepidation, because although I have focused for many years now on the overall shape of the UK-EU relationship, I am no expert on either trade processes or Northern Ireland. But I do know that there has been a great deception: the pretence that the EU ease-of-trade cake could be had as well as eaten, and the preposterous notion that leaving the single market and customs union meant a slashing of red tape. For here we are, facing reality—or rather, our benighted businesses face the reality of reams of form-filling, cost and delay. This reality is not “teething problems”; it is, as Michel Barnier reminded us, the new normal.
As my friend in the other place, Stephen Farry of the Alliance Party, said:
“Deeper challenges lie with Brexit itself and the nature of the UK-EU trade deal. They are being manifested across the UK. Northern Ireland is not alone in that respect.”
By that, of course, he means that Brexit entails friction across the UK; there is no escaping that fundamental truth. He went on to say:
“However, there are issues arising from the specific terms of and operational decisions around the Northern Ireland Protocol”,
because the protocol is a much blunter means to address the challenges of intra-UK trade post Brexit than the backstop.
The subject matter of this statutory instrument is paperwork for trade between Northern Ireland and Great Britain. People in Northern Ireland, both businesses and consumers, are suffering from what Ministers like to call “teething problems” but are in fact intrinsic to the arrangements that they have negotiated. Movement of goods across the Irish Sea is subject to red tape— customs safety and security procedures, including, in most circumstances, entry summary declarations, economic operator registration, enforcement powers and penalties for failure to comply—to address the different regimes applying in Northern Ireland and Great Britain. But the Government have behaved badly by not only stalling on a trade deal until 24 December for press management reasons, but denying for so long the reality of the fact that border controls had shifted to the Irish Sea. Because of those two factors, they failed to prepare properly.
Who can forget—the noble Lord, Lord Dodds, reminded us and I will do so again—that, in November 2019, the Prime Minister told businesses in Northern Ireland that they would “absolutely not” have to fill in extra forms, and that if any of them were asked to fill in such paperwork, they should telephone him
“and I will direct them to throw that form in the bin”.
I understand that, even today, Northern Ireland Secretary Brandon Lewis has claimed that empty shelves in Northern Ireland are due to coronavirus challenges, not Brexit. The continued tendency to bluster on this subject is deeply unhelpful. As my noble friend Lady Suttie said on 6 January in a debate on the Trade Bill:
“We are now beginning to see the realities of barriers to trade and of what the BBC has described as the ‘internal UK border’. We are also witnessing the consequences of doing a deal so much at the last minute that proper preparation for the business community in Northern Ireland was not really an option.”—[Official Report, 6/1/21; col. 173.]
The least the Government can do now is TO consult properly, actually listen, and be prepared to amend where they can if mistakes have been made—subject, of course, to the constraints of the withdrawal agreement and protocol and the trade and co-operation agreement.
I will say a brief word about timing. As the noble Lord, Lord Dodds, said, we are told in paragraph 3.1 of the Explanatory Memorandum:
“This instrument is being laid using the urgent procedure under the European Union (Withdrawal) Act 2018. The regulations introduced by this instrument will come into force at the end of the transition period.”
Obviously, they have been in force now for 19 days, so this debate is—how shall I put it?—not before time. The regulations arise solely out of the withdrawal agreement and its protocol on Northern Ireland, but those were agreed almost 11 months before this draft was tabled on 22 December, so why did it take so long?
I want principally to ask about consultation. Section 10 of the Explanatory Memorandum has quite a lot of blurb on the subject, including this:
“Consultation on the practical implications of the Protocol has taken place with businesses. Throughout the transition period, the NI Stakeholder Engagement Team (NISET) have consulted with a wide range of businesses and representative bodies who would be impacted.”
The following paragraphs elaborate. This general assertion may well raise the eyebrows of parliamentarians in both Houses on relevant committees, all of whom have complained vocally about the paucity of consultation over the past year. However, paragraph 10.1 of the Explanatory Memorandum makes the astonishing statement:
“No formal consultation regarding this instrument has taken place.”
In other words, despite the somewhat diversionary wording of the rest of Section 10, the nub is that, on these nuts and bolts, there appears to have been no consultation. Can the Minister tell us why that is so, and what he defines as “formal” in this context? Are the Government in fact saying that no consultation took place at all on the specifics covered by this statutory instrument?
I am afraid that the Government’s attitude is revealed by Section 12 of the Explanatory Memorandum, as also quoted by the noble Lord, Lord Dodds, where it is claimed:
“There is no, or no significant impact on business… The provisions do not introduce any requirement beyond what has already been agreed, or is a necessary consequence of what has been agreed in the Protocol.”
Surely, however, when it comes to trade, the devil is in the detail—otherwise why would there have been such uproar in the last 19 days leading, in the case of Scottish fishermen, to lorries in Westminster? If we are not to end up with the Northern Ireland Secretary blaming Northern Irish businesses for not filling in the right forms, as the Prime Minister has done with regard to exporters from Great Britain, careful consultation is essential.
These regulations are about goods moved from Northern Ireland to Great Britain, but I hope the Minister can tell us how the Government intend to consult properly not only with Northern Irish businesses but with those GB businesses with whom they are trading, and to learn from all their experiences ahead of the end of the three-month grace period, which extends only until the end of March. While the subset of challenges arising from the operation of the protocol, rather than from Brexit itself, relates in large part to very tight timescales for implementation and poor information, there is also a problem of lack of engagement from companies based in Great Britain about trade with Northern Ireland. What preparations are the Government taking now to ensure that current issues and problems do not reoccur after 31 March?
Lastly, can Minister explain how businesses will feed into the complicated and not very transparent governance arrangements for both the protocol and the trade and co-operation agreement, for example in the specialised committee for SPS measures?
In conclusion, Northern Ireland has been described by Professor Katy Hayward of Queen’s University Belfast as,
“this small but fragile region on the periphery of both”,
the UK and the EU. It is incumbent on the Government, for not only economic but political reasons, to take the greatest care not to put any more strain than the act of Brexit already regrettably does on this “small but fragile region”. Given the failure to consult specifically on this instrument, I am not persuaded that the Government are acting accordingly.
I hope that the Minister can give an assurance that, when there are structural problems that can be addressed only through flexible solutions being agreed by the UK Government and EU institutions, the Government will not be shy of arguing for those flexibilities. That does not mean invoking Article 16 of the protocol. Those pushing for such a remedy are offering a populist, ineffective and false solution. No major business organisation in Northern Ireland or beyond is calling for Article 16 on safeguards to be invoked. Outside the protocol, much unfinished business is still to be done to maximise potential to the Northern Ireland economy. The list includes access to EU free-trade agreements, which is particularly important to the agri-food sector; transit from Great Britain to Northern Ireland via the Republic of Ireland; data adequacy; the future of the all-Ireland service sector; and many others. We in my party, with our Alliance friends, will continue to raise these issues.
My Lords, I am grateful to the Minister for introducing this instrument, and to other noble Lords who have participated in this debate. As has been noted, the instrument was made in December under the urgent procedure. That is rarely desirable but, as the Explanatory Memorandum notes, it could not be laid until after the Taxation (Post-transition Period) Bill had received Royal Assent. We were all somewhat surprised when the Government announced that Bill at short notice, in a manner that suggested that they had only realised its necessity at the last minute. I hope that the Minister can assure us that, with a UK-EU trade deal now provisionally applied, we will return to the normal ways of conducting business.
While not directly relevant to this SI, conversations with colleagues have alerted me to the laying of other made-affirmative EU exit instruments over the Christmas period. In some cases, they appeared despite strong assurances that the relevant departments had concluded all their so-called day-one critical business well in advance of the House rising. Again, we understand the need of recent times. Going forward, however, we can all agree that fast-tracked primary legislation and the use of made-affirmative instruments should be far rarer than we have become accustomed to. I look forward to hearing the Minister’s thoughts on that.
Turning to the contents of the instrument, the Minister outlined the various changes introduced. They have, of course, now been in force for a little over two weeks. We would not have opposed this instrument had it been laid before Christmas and, given the legal chaos that would have resulted from this SI lapsing in February, we will certainly not do so today. I hope that the Minister can shed a little light on the operation of Regulation 5, which allows penalties to be applied if a business fails to comply with requirements in Regulations 3 and 4. Can he confirm the approach that the Government will take with such penalties? Given the lack of notice that many businesses have had, and the difficulties that some have experienced with the technological side of things, will there be a degree of leniency when determining whether to issue fines? If so, for how long? If not, will any special guidance be issued to those who consider appeals?
It may seem a minor point, but paragraph 3.2 of the Explanatory Memorandum notes that this instrument amends several small errors in the 2019 SI. On the one hand, we are glad that these errors were spotted and corrected before the end of the transition period. However, it is slightly concerning that such deficiencies still existed as late as 10 days before the end of the transition period. Is the Minister confident that the department’s chapter in the statute book is now as it should be, or can we expect further correcting SIs in the future?
While these provisions are not necessarily directly responsible, it is fair to say that certain aspects of trade between Great Britain and Northern Ireland have not operated as seamlessly as we had hoped. As my noble friend Lady Smith of Basildon noted during the repeat of an Urgent Question last week, the Government were warned well in advance of the potential for many of the difficulties that we have witnessed.
To put technical regulations in place is one thing—the sheer number of SI debates I have taken part in suggests that there is no shortage of technical regulations—but ensuring that IT systems work and that businesses are fully prepared for new ways of working amounts to a very different task. These are areas that we probed for many months, only to be told that we had no reason to worry. Regrettably, that complacency has resulted in difficulties for businesses on both sides of the Irish Sea. I end, therefore, by asking whether the Minister could use some of his speaking time to provide a general update on the situation regarding GB-NI trade.
I thank noble Lords for their well-considered and insightful comments during this debate. As I said earlier, these measures are necessary to address specific arrangements pertaining to Northern Ireland now that the transition period has ended. I will try to address the questions put forward by noble Lords.
The noble Lord, Lord Liddle, was modest in saying that he did not understand these trade regulations in detail. He displayed enormous knowledge, to my mind, so I will try to answer his questions. The joint committee agreement protects unfettered access, by ensuring that there is no requirement for export checks or declarations for Northern Ireland businesses moving goods in free circulation directly from Northern Ireland to GB. There are some limited exceptions when businesses need to submit an export declaration for the movement of goods from Northern Ireland to GB. The Government have published comprehensive guidance on these exceptions online to ensure that businesses have a thorough understanding of when to submit the export declaration.
As outlined in the Government’s Command Paper, there are no plans for any new bespoke customs infrastructure in Northern Ireland. Agri-food movements from GB to NI will be carried out at existing facilities and designations at NI ports. Expanded infrastructure will be needed at some of these sites for agri-food checks and assurance. The Government have collaborated with Northern Irish ports to agree on the utilisation of existing space and capacity, until infrastructure expansion has been completed. A full impact assessment has not been produced for this instrument, as an assessment was made of the impact of the then European Union (Withdrawal Agreement) Bill in 2019 and the Northern Ireland protocol.
The Government recognise that the priority remains to have a regime in place that strongly focuses on the benefits of unfettered access for Northern Irish businesses, and ensures that they have a competitive advantage over traders elsewhere in Ireland. That is what the second phase of unfettered access will provide, in the second half of 2021. Once delivered, it will ensure that benefits are conferred to genuine Northern Irish traders only. Goods coming from the EU or outside the EU to Great Britain via Northern Ireland will be regarded as imports and subject to controls.
The noble Lord, Lord Dodds, asked about timing and what has happened since leaving—post the transition period. On timings, Royal Assent to the Taxation (Post-transition Period) Act 2020 was required before this instrument could be laid. Section 2 of that Act inserted Section 30C into the Taxation (Cross-border Trade) Act 2018. This imposes a customs duty charge on the movement of goods from NI to GB if the goods are not qualifying Northern Ireland goods. It ensures that unfettered access is available only to appropriate NI traders and deters businesses from rerouting goods via Northern Ireland to avoid import formalities. The Taxation (Post-transition Period) Act received Royal Assent on 17 December last year; this instrument was then made on 21 December and laid on 22 December. The instrument came into force at the end of the transition period and has already taken effect, but still needs to be approved by both Houses.
No formal consultation on this specific instrument has taken place. However, the instrument, together with the Taxation (Post-transition Period) Act 2020, makes provisions in relation to the application of certain provisions in the protocol. Consultation on the practical implications of the protocol has taken place with businesses. Throughout the transition period, the NI stakeholder engagement team consulted a wide range of businesses and representative bodies who would be impacted. Consultation with businesses will continue.
Defining qualifying Northern Ireland goods is a matter for the UK, not for the joint committee. To this end, the Government laid a statutory instrument setting out the definition of qualifying Northern Ireland goods—statutory instrument 2020/1454. A qualifying Northern Ireland good is one that is eligible for unfettered access to Great Britain. Goods will be qualifying Northern Ireland goods from 1 January 2021 if they are in free circulation in Northern Ireland—that means not under a customs procedure or in an authorised temporary storage facility before they are moved from Northern Ireland to Great Britain. The Government will focus the benefits of unfettered access on Northern Irish businesses and ensure that we have a competitive advantage over traders elsewhere.
The Government have been unequivocal in our commitment to unfettered access for Northern Ireland goods moving to the rest of the UK market, and there will be only very limited exceptions to this. This instrument simply ensures that the requirement for entry summary declarations for non-qualifying goods moving from Northern Ireland to Great Britain is retained. This is in line with the requirement for goods imported into Great Britain from the EU and outside the EU.
I was asked about paperwork and costs. In practice, safety and security declarations are made into the same system used for other goods arriving into GB that attract a safety and security requirement. The data required for an entry summary declaration includes fields such as mode of transport, description of the goods and routing information. Traders may use an intermediary to complete safety and security declarations for them. To avoid disruption and facilitate continuity, the Government have introduced a waiver for ENS requirements where such requirements would not have existed before the end of the transition period. This means that there is no requirement for entry summary declarations to be submitted for the movement of non-qualifying EU goods from Northern Ireland to Great Britain until 1 July 2021. This SI does not affect that waiver.
My noble friend Lady McIntosh asked similar questions about ENS: can they be made electronically? These declarations can and are being submitted digitally. They will be made into the safety and security GB system, the same system used for other goods. This instrument retains the requirement of an entry summary declaration for the movement of non-qualifying goods. She asked about training. HMRC and other departments have undertaken a significant programme of ongoing communication and engagement to inform traders of new requirements and to support preparedness. The two-hour time limit requires traders to submit their entry summary declaration a minimum of two hours before arrival to GB, but this two-hour period includes time taken on the journey, so, in practice, will not come about much before traders arrive at ports.
My noble friend is worried that this might provide a backdoor entry into GB for non-qualifying goods. To prevent traders seeking to abuse unfettered access in the first place, it is accompanied by anti-avoidance provisions which deter businesses rerouting goods via Northern Ireland if they do so in order to avoid UK import formalities. HMRC will be able to undertake spot checks when there is evidence that the qualifying goods regime is being abused. HMRC also has the power to prosecute anyone who tries wrongly to claim unfettered access for their goods. This will ensure that only businesses with a legitimate reason to route goods via NI can benefit from unfettered access.
My noble friend Lady McIntosh asked whether there will be two regimes: NI to GB and GB to NI. The Government recognise that the priority remains to have a regime in place that strongly focuses the benefits of unfettered access on Northern Ireland business and ensures that it has a competitive advantage over traders elsewhere in Ireland.
The noble Baroness, Lady Ludford, had similar questions, but I will deal with her particular emphasis on the preparations for the end of the grace period. A dedicated team in government is already working with supermarkets, the food industry and the Northern Ireland Executive to develop ways to streamline the movement of goods in accordance with the protocol, backed by significant UK funding. The Government will provide a major injection of new funding to support preparations for the end of the grace period for supermarkets and suppliers. Further details will be announced in due course.
The noble Baroness asked about the trade and co-operation agreement. The TCA governance requirements were set out clearly in the agreement and will be set up in due course. The agreement builds on multiple avenues of business representation and input and clear independent systems of dispute resolution outside the jurisdiction of the European Court of Justice. The TCA provides a role for domestic advisory groups which will include business and employers organisations. They will be able to submit views and recommendations for consideration by the UK and the EU and may be consulted during consultations as part of the dispute resolution mechanism for the agreement. Businesses may also take part in the civil society forum provided in the TCA. It will meet at least once a year and provide a forum for independent civil society organisations from the UK and the EU to meet and discuss the implementation of the agreement. On the actual governance arrangements, the governance arrangements agreed under the withdrawal agreement will continue through the joint committee supported by the specialised committee on Ireland and Northern Ireland and, in due course, the joint consultative working group. Once established, the joint consultative working group will provide further opportunities for detailed engagement.
I would like to continue for a couple more minutes if the Deputy Chairman will allow it.
In addition to the questions asked by other noble Lords, the noble Lord, Lord Tunnicliffe, asked about penalties. They will be used where a person is found contravening a customs rule, such as failing to complete an entry summary declaration or not providing an EORI number. There is a maximum penalty of £1,000. HMRC may take mitigating factors into consideration, which could lead to a lower or nil penalty depending on the circumstances. While HMRC will penalise non-compliance, it will seek to support those who make genuine errors while trying to get it right. HMRC is planning a package of activities to support and educate traders on their obligations during this period. This includes promoting keeping good records, which will be crucial in minimising errors once supplementary declarations are made. Further tweaks of the regulations will be required, but the changes currently envisaged are improvements rather than corrections.
The noble Lord asked about a general update on the situation regarding trade between GB and NI. I think I can report on a good position over the last two and a half weeks. That has been largely supported by the Trader Support Service, which was set up just before the end of the transition. Some 29,500 businesses have now registered with the TSS and over 25,000 of those are marked as ready to trade. The TSS has handled over 75,000 declarations so far, and 99% of those have been processed within 15 minutes. The contact centre has over 700 staff to assist with trader queries. It handled some 7,000 inbound calls between 1 January and 17 January. Some 97% of those calls were answered within 30 seconds, and they have spare capacity which they have been using to do outbound dialling to other traders who have not yet reached ready-to-trade status. As of 18 January, HMRC had received 1,518 UK trader service applications.
The Government are committed to maintaining unfettered access to the rest of the UK market for Northern Ireland businesses, protecting Northern Ireland’s place in the UK customs territory and ensuring that Great Britain to Northern Ireland trade flows as smoothly as possible. I sum up by saying that these regulations, which are already in place, will help to ensure that goods can continue to move safely and effectively between Northern Ireland and Great Britain. I commend the regulations to the Committee.
My Lords, I remind Members to sanitise their desks and chairs before leaving the Room.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. 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 any safety requirements are breached, I will immediately adjourn the Committee.
Airports Slot Allocation (Amendment) (EU Exit) Regulations 2021
Considered in Grand Committee
My Lords, these draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018. They amend provisions of the EU airports slot regulation—No. 95/93, which I will call “the slots regulation”—to provide airlines with relief from the impacts of Covid-19 on passenger demand.
EU regulation 2020/459 was adopted to amend the slots regulation as a result of the Covid-19 outbreak to provide airlines with relief from the 80:20 rule—otherwise known as the “use it or lose it” rule—which requires airlines to use their airport slots 80% of the time. In normal circumstances, the 80:20 rule mandates that, provided an airline has used its airport slots at least 80% of the time in the preceding scheduling period—either winter or summer—it is entitled to those slots in the upcoming equivalent period. This helps to encourage efficient use of scarce airport capacity, while allowing airlines a degree of flexibility in their operations.
Due to the significant impact of Covid-19 on demand, in March last year amendments to the slots regulation instructed airport co-ordinators, when determining slot allocation for the upcoming season under the 80:20 rule, to consider slots as having been operated, whether or not they were actually used. By providing airlines with legal certainty that they would be able to retain their slots even if not operated, the aim of the amended regulation was to help mitigate the commercial impacts of the Covid-19 outbreak on the industry—because airlines might otherwise opt to incur the financial costs of operating flights at low load factors merely to retain slots—and support sustainability by reducing the likelihood of needless aviation emissions from near-empty aircraft. Those amendments to the slots regulation entered into force on 30 March 2020 and became applicable retrospectively from 1 March until 24 October 2020.
The amendments introduced by EU regulation 2020/459 and subsequent amending instruments also granted delegated powers to the Commission until 2 April 2021 to extend the period during which the slots allocated should be considered as having been operated by the requesting airline. Those delegated powers, which can no longer be exercised in the United Kingdom, could be exercised by the Commission where it found, based on Eurocontrol figures and best-available scientific data, that the reduction in air traffic levels is persisting as a result of the Covid-19 outbreak. This delegated power was used by the Commission before the end of the transition period to extend relief to airlines beyond 24 October 2020 to 27 March 2021.
The draft instrument being considered today applies to England, Scotland and Wales, and will transfer this delegated power to the Secretary of State, exercisable until 2 April 2021. Aerodromes are a devolved matter in Northern Ireland, and as there are currently no slot co-ordinated airports in Northern Ireland and the power is exercisable only until 2 April 2021, the Northern Ireland Executive have agreed that it is not necessary for this instrument to extend to, or apply in relation to, Northern Ireland.
To say a bit more on the contents of the SI, the withdrawal Act retained the slots regulation, as amended, in UK law after the end of the transition period. The draft instrument we are considering makes the changes necessary to ensure that the slots regulation continues to function correctly. This is essential to ensure the continuation of an effective regulatory regime for airport slot allocation.
This instrument is subject to the affirmative procedure because it creates or amends a power to legislate. The most significant amendment being made to the slots regulation provides the Secretary of State with the power to grant further relief to airlines if the reduction in air traffic caused by the Covid-19 pandemic were to continue. This power is intended to deal only with the impacts of the pandemic, and so was given to the Commission for a limited duration only. To transfer this power, the term
“Commission shall adopt delegated acts in accordance with Article 12a”
is replaced with
“Secretary of State may by regulations”.
This enables the Secretary of State to extend the period during which the UK airport slot co-ordinator, when determining slot allocations for the upcoming season, is to consider slots as having been operated, whether or not they were actually used. A decision to extend the period must be based on relevant data on passenger demand and scientific data on the impacts of Covid-19 on that demand.
Other changes being made to this regulation are mostly minor and technical in nature—for example, replacing the phrase
“which is the network manager for the air traffic network functions of the single European sky”
with the words “or other relevant data”. This enables the Secretary of State to take into account data from other sources, such as NATS, as well as from Eurocontrol.
The other amendments being made to the slots regulation are minor but equally important. They clarify that the Secretary of State’s power to make regulations to extend the relevant period may not be exercised after 2 April 2021, which is the same limit as on the Commission’s power. Therefore, as the exercise of the power must be based on data, any further relief provided under this power from the 80:20 rule would likely be for the summer 2021 season only.
Given the time-limited nature of this delegated power, the Government have tabled amendments to the Air Traffic Management and Unmanned Aircraft Bill, which is currently proceeding to Report stage in your Lordships’ House. These amendments would provide the Secretary of State with temporary powers to adopt relief, as appropriate, for seasons from winter 2021 onwards.
This instrument will ensure that airlines can be provided with further relief under the airport slots rules from the impacts of Covid-19 on passenger demand, if appropriate. I beg to move.
My Lords, I draw attention to my interest in the register.
It seems odd to be sitting here on a Tuesday evening debating what appears to be a very small and sensible update consequent on our departure from the European Union, and specifically in relation to the devastating impact that Covid-19 has had on the whole of the aviation industry. But it is an opportunity to raise the wider context of the need to maintain capacity in the aviation industry, and the fact that so little support has been available so far in keeping that capacity available to us for the future.
I do not mean capacity just in terms of passenger travel, as important as that will be for business and leisure. There are many who feel that people will not want to fly, and that somehow there will be a major drop in people taking business or holiday trips, but I do not believe that for a minute. I think the moment will come when we can be free again to travel and enjoy sunshine and each other’s company, and take a glass on a beach somewhere, and many people who can afford to take advantage of that will do so. But they cannot do so, certainly under anything that is related to British registration, unless the capacity exists.
The most important aspect of this is the fact that so much of our airline industry, including that mainly carrying passengers, is related to freight. At Heathrow—in which I have an interest in terms of skills and employment for recovery—about 90% of its high-value freight goes out in the bellies of passenger aircraft. Of course, it does not at the moment. Maintaining the capacity to do that and maintaining our trading capacity and relationships for the future will be vital to the recovery of our economy and to our place in a very different world.
I make an appeal to the Minister—I gave her notice that I was going to broaden the issue—that the 80:20 rule is a sensible step in terms of ensuring that airlines do not lose that capacity and those air corridors, but it is a tiny gesture to maintain capacity for the future. Substantial help now needs to be given to make sure that we do not fall even further behind our European competitors in terms of airport and airline capacity. To give one example, the relief for business rates that has been made available to very successful and profitable high street stores has resulted in an £8 million contribution to airports in the UK. That is very helpful to the smaller, provincial airports but for an airport such as Heathrow, which has an annual business rate levy of £120 million, £8 million goes a very small way to compensating.
I just make an appeal that we will need our aviation industry, taking into account climate change and pollution—in terms of both fuel and noise. The capacity to be able to travel, to compete and to engage in world trade will be vital and those who pooh-pooh the aviation and air transport industry in a way that they believe is somehow improving the prospect of meeting climate change targets for the future are delusional.
My Lords, I support the changes proposed by the noble Baroness, Lady Vere. The crisis in the airline industry has left us with really no alternative and it is always better to provide an orderly system rather than to leave matters to themselves, as it were.
However, unlike the noble Lord, Lord Blunkett, I do not count myself among those who want to see a return to normal, if normal means that we are going to have the same levels of noise, pollution and disruption which airlines give to many people. Airlines are polluting, and while they bring the mobility benefits to which the noble Lord, Lord Blunkett, referred, we must look forward to quieter and less polluting aircraft. In my view, this sort of thing is not an optional extra. If our concern with climate change is genuine, it is a must. I guess the third runway at Heathrow will itself be a long time coming, if it ever happens, but we have to make a useful contribution very urgently, probably by the time we go to Glasgow for COP 26, because as a nation we have to be able to show that there is a way forward to a genuinely better aircraft industry.
My Lords, I apologise for the House of Commons Division Bells. The noble Lord, Lord Bilimoria, has withdrawn so I now call the noble Baroness, Lady McIntosh of Pickering.
My Lords, I thank my noble friend for so conscientiously bringing forward and explaining the contents of the regulations before us. I note how hard she works for the airline industry and the aviation sector, which I know they greatly appreciate. Can she explain what the response and reaction has been to these regulations, and the extension from the EU Commission to the waiver? I note that IATA has also been active in this field and that among the low-cost carriers—in which we in the United Kingdom seem to excel in normal times, outside of Covid—unhappiness has been expressed about the potential lack of competition and impact in higher fares. I am thinking particularly of Ryanair and Wizz Air, which have expressed their reservations. I do not know whether she has had the opportunity to put their minds at rest, if that is the case.
Can my noble friend please also explain to us what the situation will be if slots have been freed up, particularly the international transatlantic slots which are obviously not operating at the moment? One hopes that by the summer they will be. If it is true that Norwegian airlines is releasing some of these slots, potentially at Heathrow or other international airports in the UK, that will be of interest to other carriers. What procedure will take place at that time?
If, as I understand it, this is the legal basis—which I welcome—for the Secretary of State to be empowered to extend the waiver from the 80:20 or “Use it or lose it” rule beyond the end of March into the busy summer season, I presume that there will be no further opportunities to discuss that decision. Does my noble friend have any indication when that decision might be made? I realise that this is a stab in the dark because we do not yet know what the position will be and how reluctant the travelling public might be. I include myself in that, as I hope to visit my family in Denmark this summer.
Finally, I ask my noble friend about another position, as the airlines would not forgive me if I did not. I thank the Government for the measures they have announced to help airports, particularly the major international airports in the UK, which will be very welcome. Will she look favourably on bringing forward a review of air passenger duty, particularly to remove the double taxation anomaly? That would be a most welcome boost when we are able to fly reasonably again.
My Lords, I thank the Minister and her officials for arranging a briefing yesterday, which was most helpful. I agree with a lot of the contribution made by the noble Lord, Lord Blunkett. I also support in broad terms the relief from the 80:20 rule, because the last thing we want, for a whole variety of reasons, is to have the sight of airlines undertaking ghost flights to hold on to routes even if they have no current passengers.
A couple of years ago—in fact, on two occasions—I introduced a Private Member’s Bill, which passed the House, to give the Government powers on slot allocation in the UK. Of course, it was governed by European competence at that stage. Slots are not only big business; they have huge implications for connectivity. While this measure does not apply to Northern Ireland airports, because they have capacity, at the end of the day a flight cannot take off unless it has somewhere to land. My anxiety has for years been about the risk from the absence of connectivity between the regions and the principal airports—what are called co-ordinated airports —such as Heathrow and Gatwick. I will return to that, although it is not necessary for this SI, but the principle is clear: if you do not ensure that regions have access to major airports with connectivity, that has economic, social and other implications. I ask my noble friend to bear that in mind.
I also doubt very much that airlines could manage even 20% of the flights on a lot of their slots at present. We had a briefing from one of our colleagues—the noble Lord, Lord Deighton, the chairman of Heathrow —where he pointed out that, in a number of months last year, its passenger flow had dropped by 95%. It is quite obvious that there needs to be as much flexibility as possible. As I understand it—I hope I am right in saying this—these measures will be available to apply in the summer season this year, but further secondary legislation or an approval Motion would have to come through to deal with subsequent seasons if the need arose, and there needs to be data on which to base that judgment. I think I have got that right; perhaps the Minister can correct me if I am wrong.
I broadly support the regulations. We need maximum flexibility at the moment. We need data but, looking forward, we need to bear in mind that it is essential for the key airports to have slot allocations. My anxiety is that when this crisis is over there could be a sudden surge in those airlines—international operators, perhaps —that have resources buying up a lot of the slots from weakened UK airlines and other slot holders. This could have a negative impact on the regions, so I ask my noble friend the Minister to also bear that in mind.
The noble Lord, Lord Berkeley, has withdrawn so I call the noble Lord, Lord Naseby. We do not seem to have the noble Lord.
Lord Naseby, are you unmuted? Are you going to speak to us? No? In which case, the noble Lord, Lord Mann, has also withdrawn so we will move on to those winding unless the noble Lord, Lord Naseby, is there.
Can you hear me? I will make a short speech.
In the past, I have advised Singapore Airlines and SriLankan Airlines. I am a former RAF pilot and I support the third runway at London Heathrow. I thank the Minister for her practical and workable solution, delivered on time and with clarity. It is very welcome. However, I wonder whether she can expand on the prediction that it will take until 2025 for normality to return, given the creativity of the travel industry in the UK. I am not entirely clear what happens if a new airline decides that it wants to get going and to have slots. What will the procedure be? I would be grateful for clarification on that point.
I have two other small points to make. First, the Minister talked in her briefing about categories of airport in the UK, such as level 3. I am surprised that Glasgow, with its international connections, is not a level 3 airport. I assume that it is not big enough. Secondly, I re-emphasise what other colleagues have said: these proposals are very welcome but our poor airports are stranded at the moment, almost like whales out of the sea. They are losing millions of pounds. The Government have done something but something more needs to happen. One possible area for this is on air passenger duty.
Since the noble Lord, Lord Mann, has withdrawn, I now call the noble Baroness, Lady Randerson.
My Lords, I thank the Minister for her explanation. Slot allocation at busier airports is an important method of ensuring free and fair competition in the industry. It is based, as the Minister told us, on the 80:20 rule, otherwise known as the “Use it or lose it” rule. Providing an airline has used 80% of its slots in the preceding season, it is entitled to those slots in the upcoming equivalent season. When the shock of the pandemic hit the industry, and travel restrictions were imposed, it was a very sensible response for the EU to suspend the 80:20 rule. If that had not been done there was a real likelihood that airlines would have flown empty flights, known as ghost flights, just to maintain their right to keep their slots. For environmental reasons, that would clearly have been undesirable.
As the pandemic has lasted much longer than initially expected, it has been necessary to extend the period for slot waiver. That was last done in October, lasting to the end of March. Now that the transition period has ended, this SI gives the Secretary of State the powers to extend the period again. This is a sensible approach, but I have some questions to raise with the Minister.
First, slot allocation is an international approach to competitiveness in the market. It is intended to ensure that new providers can enter the market, and that consumers get a good deal. The Government pride themselves on leaving the EU, because they want to exercise their independence from the rules followed by our neighbours. So what are the Government’s intentions on this in the long term? How far are the Government bound to the slot system by international agreements generally? Is there scope to take a different approach?
Secondly, there is increasing concern within the industry that the conditional agreements, voluntarily entered by the airlines, have not been effective—in particular, the agreement that an airline which suspends operations at the airport should immediately return its slots to allow reallocation. There has been publicity about the Gatwick situation. Virgin has said it will no longer fly from Gatwick. It no longer has a base there, but it keeps its slots. JetBlue, meanwhile, has confirmed that it wants some of these slots. Under the current non-statutory rules applying to this situation, it seems that Virgin can effectively prevent a competitor establishing itself. I am keen to hear from the Minister what the Government intend to do to prevent this situation continuing. It is not just bad for JetBlue; it is bad for Gatwick and for customers. Do the Government intend to introduce legally enforceable rules? Slots are very valuable commodities and the distortion of the market will artificially inflate their price, with the cost going directly on to ticket prices.
As airlines have grappled with the impact of the pandemic, they have been forced to reduce the size of their workforce and of their fleets. A major downsizing has occurred. There is now a serious mismatch between many airlines’ slot holdings and their capacity to operate those slots. It is therefore important that there is no incentive and no loophole that encourages slot hoarding.
I know that the Government have consulted the industry about the continuation of the slot waiver and I would appreciate it if the Minister could tell us what its views are. When does the Minister think that the Government will be in a position to make a decision on the next season? Finally, do the Government have any plans to change the list of airports for which the slot system applies?
My Lords, I thank the Minister for introducing this statutory instrument. She related it to an amendment to be tabled to the ATMUA Bill that we will consider on Thursday, which made it all make sense. It is a great shame that that relationship was not brought out in the Explanatory Memorandum, as it would have saved me quite a lot of time in trying to understand it. Just to make sure that I am clear, can the Minister confirm that this SI will effectively be used just once, to permit alleviation for summer 2021? Does it have precisely the same rules as the revised Regulation 95/93 had for winter 2021? Is it effectively a bridge to the powers that the Secretary of State will have when the amendment to the ATMUA Bill is agreed? Is another, negative order necessary to complete the bridge?
Looking to make a slightly longer speech, I alighted on paragraph 10.2 of the Explanatory Memorandum, which is about consultation. I noticed that whereas paragraph 10.1 said what the response was, paragraph 10.2 was silent. I was then lobbied. There is a rule of the Medes and Persians that lobbyists always lobby you the day before you have to make a speech. The institution lobbying me was Heathrow. While I thought that this was a perfectly sensible, uncontroversial measure, it emerges that it is not as uncontroversial as it seems.
Heathrow introduced me to the Worldwide Airport Slot Board, or WASB, comprising the Airports Council International, the International Air Transport Association and the Worldwide Airport Coordinators Group. It raised three questions. It seems that the WASB had put together for summer 2021 an agreement, which was not as simple as the terms of this SI, to better relate the management of slots in the summer 2021. Heathrow claims that this was supported by airlines, airport operators and a number of Governments. So the first question it asks is, if the majority of industry responses to the ongoing consultation do not support a blanket waiver, why are the Government pushing ahead with it? It goes on to point out the value of this general agreement and notes that it has already been accepted by Canada, Cambodia, Malaysia, New Zealand, Taiwan, Vietnam, Japan, Hong Kong, South Africa, Singapore and Mexico. It asks why the Government are looking to be out of step with other nations and not consulting on the industry proposals, as per the number of other countries around the world?
Commenting on the amendment we are to discuss on Thursday—in a sense I give notice of this now—will the Government outline and propose the type and scope of industry consultation, and the timeline to which it should take place, before a policy decision on future waivers is taken?
I hope the Minister can give me some reaction to these points. Some may be fairly straightforward, with respect to this statutory instrument, but I am sure it will be a useful input to our debate on Thursday about the amendment to the Bill.
I hope she will also forgive my making one or two general points about the situation we find ourselves in at the moment. The industry is in dire straits and, at the end of the day, glamorous as it is, it will not survive without increased support from the Government, one way or another. I welcome the Treasury’s business rates relief for airports and ground services; however, this barely makes a dent while the whole sector continues to bleed cash. The Government must do more and, as promised last year, announce robust financial support packages for the industry. The Government must now also set out a clear plan on how they expect restrictions to be lifted with the vaccine rollout.
I thank all noble Lords for their contributions this evening to what I think was an hors d’oeuvre for the much longer discussion around slots alleviation which will happen later on this week on Report on the Air Traffic Management and Unmanned Aircraft Bill. But I will be able to cover some of the points raised, particularly by the noble Lord, Lord Tunnicliffe, in my remarks. I hope to answer as many questions as possible and to go for a complete run so that I do not have to write any letters. Let us see how we do.
The consultation on this is incredibly important. My department launched a targeted consultation on 30 December with the aviation industry and, of course, with the airlines, the IATA, the slot co-ordinated airports in the United Kingdom and the independent slot co-ordinator, Airport Coordination Ltd, on the proposed amendments to the regulations. The consultation is due to close tomorrow and a decision will be made as soon as possible thereafter.
I would like to point out that I agree with the noble Lord, Lord Tunnicliffe: I find sometimes that lobbying is done by external organisations literally the day before, or the day of, the discussion, and I find it very unhelpful. He, too, will understand that the consultation is extremely important. Heathrow will have contributed to it, and the timeline from then is that we will consider all the evidence we receive, decide whether we can justify an extension on the basis of the evidence before us, and then use the powers in this regulation that have been given to the Secretary of State. The Secretary of State will then make a negative statutory instrument, which will grant this further alleviation and associated conditions. We expect this to happen fairly quickly because the summer season approaches quite rapidly. Indeed, it begins on 28 March, so we intend to lay the negative SI in February.
It is important to note that some slots will then be freed up, and my noble friend Lady McIntosh asked what would happen to them. In normal circumstances, they would be allocated in the normal way, whereby there is a tension, or an allocation to incumbent airlines and to new entrants. We are well aware that we need to maintain a robust competitive position in the UK market and that will be a consideration, but there are only certain things that we can do quickly.
I recognise the issue that the noble Baroness, Lady Randerson, mentioned about Virgin, for example, at Gatwick. One of the conditions we are considering and consulting on is whether an airline that ceases to operate at a particular airport might be excluded from a future waiver unless it gives up its slots. All these things are out for consultation.
My noble friend Lord Naseby asked why Glasgow, a very important international airport, was not on the list. It is not a question of how international or what size the airports are but whether the demand for slots exceeds the capacity. It does not at Glasgow, and therefore it does not need to be on the list, so I do not believe that there is any need to change the list of airports at this time. I note, for example, that Bristol has summer only in terms of its restrictions or need to be on the list. Obviously it is kept under review, but that is why Glasgow is not there.
Returning to the point made by the noble Lord, Lord Tunnicliffe, about the WASB—the Worldwide Airport Slot Board—and some of its proposals, part of the consultation is to understand what people are doing and what they want domestically but also internationally. It is also true that we currently do not have the powers to change the ratio. All we can do under the withdrawal Act is correct deficiencies in the commission’s current powers; the commission will obviously have the same restrictions that we have. However, we need primary legislation to change the waiver. I will come on to that very shortly— right now, in fact.
The noble Lord, Lord Tunnicliffe, asked about the relationship between what noble Lords are discussing today and what will be in the ATMUA Bill. He rightly pointed out that it was not in the Explanatory Memorandum; that is because we did not know. It became clear to us that, to extend changes beyond summer 2021, we would need to lay primary legislation; as noble Lords will know, this is not an easy thing. We became aware that the primary legislation could be added in to the ATMUA Bill. As it was going through your Lordships’ House, it was still in the first House, and we felt, although it is very unusual, that it could go in before Report. I think noble Lords will see, when it is debated on Thursday, that this is appropriate and the right thing to do.
What noble Lords are discussing today is the SI that solely takes the commission’s powers and gives them to the Secretary of State, and is for summer 2021. As I explained, the powers fall away on 2 April 2021, so we will need primary legislation for every period after that. This is because one is not able to make a decision about winter 2021-22—often October—based on the data that we have now. I take the point about consultation prior to taking decisions before each season happens—I will explain that further in due course—because we will end up in a cycle whereby, for every season, there will be the data received, a consultation and then an affirmative SI laid before your Lordships’ House. It will then be debated, which will cover the season ahead of us. In that, we will be able to explore questions around competition, the conditions attached and all the things that are happening to the aviation sector at that particular time. That is why it is so important that we have that cycle of consultation, laying the right proposals for the period ahead as, hopefully, we come out of the pandemic, people start to travel again and airlines come back stronger. That is why the ATMUA Bill contains these amendments.
The noble Lord asked why we are saying until 2024-25—that is, do we expect the pandemic to last that long? That is just future-proofing the legislation. Obviously, I expect that we will see a change over that period. It may be that we do not need to change anything in 2024-25, but it is better to be safe than sorry.
Slots and the reform of slots policy have been on the Government’s mind for quite a while. They will be considered in the round with any future review of aviation policy, so we may do something before 2024-25 anyway. We may well take a different approach but within established international slots guidance, because of course it is a very international sector. However, we support competition and believe that there may be some changes that we wish to make in slots allocation. That is definitely not for now; we will leave that for another day.
On aviation support, I note that we had two slightly differing views: the noble Lord, Lord Blunkett, was keen on capacity for passengers and freight—I am on his side on this one—while the noble Lord, Lord Bradshaw, seemed a bit more cautious. However, I note that the caution of the noble Lord, Lord Bradshaw, was around climate change and noise. The Government have made some significant interventions on both of those and we continue to do so. We will consult on aviation decarbonisation shortly, and of course we have the transport decarbonisation plan coming through. There is a lot of work to do on aviation decarbonisation. Again, on noise, we established ICCAN and various other interventions such as the airspace modernisation programme, which again will impact on noise. I suspect that in due course, with quieter, cleaner and greener planes, the impact of aviation will be less than the noble Lord fears. I am therefore with the noble Lord, Lord Blunkett, in that we should be able to build back our capacity for both passengers and freight. That is incredibly important, which is why the Government are focusing, first, on the immediate restart of the aviation sector. We have introduced the test to release programme and in due course, as more passengers are able to travel safely, we will look at making sure that we can protect transfers of passengers within travel corridors, for example, or whatever other ways we can think of to protect public health while supporting aviation.
However, in the medium and long term, an important piece of work is being done with regard to a recovery plan. That is looking at things such as connectivity between Northern Ireland and the rest of the UK, protecting consumers, supporting the sector by confirming that we will stand behind the Air Travel Trust Fund, supporting the industry through skills and making sure that they are maintained, and of course working with the CAA on regulatory easements.
I hope that I have answered all questions today. I am grateful for everybody’s input. We will return to this subject on Thursday, and I look forward to it. I commend the regulations to the Committee.
My Lords, that completes the business before the Grand Committee today. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 7.02 pm.