Thursday 8 July 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, others are participating remotely, but all Members will be treated equally. I ask Members in the Room to respect social distancing. 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 first item of business is one hour.
Market Surveillance (Northern Ireland) Regulations 2021
Considered in Grand Committee
My Lords, I beg to move that these regulations, which were laid before the House on 10 June 2021, be approved.
The Regulation on Accreditation and Market Surveillance, 765/2008, known as RAMS, is the current market surveillance legislation for the UK and is included under the Northern Ireland protocol. It is worth noting that RAMS continues to apply in Great Britain, as it now forms part of our domestic law. The EU Market Surveillance and Compliance of Products Regulation, EU 2019/1020, which I will refer to as MSC, will replace RAMS and therefore, under the protocol obligation, MSC will apply in Northern Ireland. However, the enforcement system for both regulations will be similar, with both based on risk and proportionality.
The SI we are here to debate sets out to implement a uniform set of regulatory powers to avoid gaps and inconsistencies when the RAMS provisions are repealed in Northern Ireland on 16 July. These powers will be available to market surveillance authorities that operate within Northern Ireland. It results in some minor operational changes and a number of new traceability requirements for businesses placing products on the Northern Ireland market. The SI will ensure that consumers in Northern Ireland continue to be protected from potentially unsafe and non-compliant products, whether that is gas appliances, radio equipment, lifts or PPE, via the UK’s robust product safety framework.
Within the UK, market surveillance authorities have the vital role of ensuring that products are safe and compliant. They can also take action as needed when unsafe and non-compliant products are discovered. This reduces the risk to consumers. Noble Lords will agree that the protection of UK consumers is a vital role for government. This SI applies to Northern Ireland. It will provide market surveillance authorities with the necessary regulatory powers to carry out this invaluable work. It will also provide effective, appropriate and proportionate sanctions for breaches of the regulations. Market surveillance authorities will continue to monitor and, where appropriate, enforce in Northern Ireland all the requirements of product safety law outlined in this SI. I will now consider areas covered by the SI in more detail.
A key objective of the SI is to provide a consistent set of regulatory powers to market surveillance authorities with respect to Northern Ireland. Although most of these powers already exist across the current suite of product legislation, they are not consistent. This is not in the interests of the consumer, so we need to take action. Therefore, we will introduce a uniform set of regulatory powers. These will consolidate the powers already available to market surveillance authorities. The SI will make these powers expressly available in respect of a range of products to the extent they are needed. We have set out powers in this SI which are drawn from existing goods legislation such as the Health and Safety at Work (Northern Ireland) Order, the Consumer Rights Act and the Consumer Protection Act. Market surveillance authorities will therefore have consistent access to the regulatory tools they are familiar with in other goods legislation. These tools include compliance, recall and withdrawal notices.
Turning now to offences, the inclusion of criminal offences within this legislation is again consistent with the existing UK-wide sanctions regime for products, and therefore illustrates that market surveillance sanctions are not new. I confirm that the penalties for such offences within this SI are at the lower end of the range of penalties within the existing regime, and that this SI ensures that offences remain available to market surveillance authorities. It contains offences in respect of withdrawal and recall notices, offences relating to obstructing an investigation and offences for breaches of MSC. The offences under this statutory instrument will give rise to a maximum fine of up to level 5, which is currently £5,000, or up to level 3, which is currently £1,000, on the standard scale, depending on the offence. These will not have provision for imprisonment and will be heard in a magistrates’ court. The offences are expected to be prosecuted only in rare circumstances and when necessary, primarily to protect consumers from unsafe products and to address deliberate or persistent non-compliance.
There is a new requirement in MSC: Article 4, which requires a business supplying certain goods to have a responsible person based in the EU or Northern Ireland. This can be a manufacturer, importer, authorised representative or a fulfilment service, and they must undertake certain compliance responsibilities to be able to place certain goods on the EU or Northern Ireland market. The requirement in Article 4 is directly applicable, and this SI provides for enforcement mechanisms for a breach of that requirement. Many businesses supplying customers in Northern Ireland or the EU already have the necessary arrangements in place.
On 11 June, my department published Article 4 guidance for businesses and market surveillance authorities, answering many of the questions that businesses may have. We have actively engaged with a wide range of organisations to ensure that businesses engage with the guidance. We have a comprehensive plan to work further with trade associations and businesses to ensure that they understand the requirements and support available. My officials will continue assisting business organisations to ensure that MSC does not place a disproportionate burden on trade into Northern Ireland for businesses that do not already have a person responsible for compliance, while ensuring that the product safety framework itself remains robust and effective. Additionally, my department is offering MSC-specific training to all market surveillance authorities to support consistent understanding of its application across the regulatory landscape.
This SI is required under the withdrawal agreement, which is given effect in domestic law by the European Union (Withdrawal) Act 2018 and the subsequent protocol. MSC itself is directly applicable, as an EU regulation, meaning that no action is needed on the part of EU member states, and as such, it applies in Northern Ireland under the protocol. It is important to emphasise that while MSC requires businesses in some product sectors to have a person responsible for compliance, established in the EU or Northern Ireland, it does not create new burdens on the movement of goods from Great Britain to Northern Ireland.
As set out following the last withdrawal agreement Joint Committee in June 2021, the UK has taken extensive steps already to operate the protocol, both by the UK Government and the Northern Ireland Executive, and by businesses across the United Kingdom. This reflects that we will continue to operate the protocol in a pragmatic and proportionate way, focused at all times on minimising its impact on day-to-day lives in Northern Ireland. I must emphasise that the MSC regulation and our implementation of it will not create checks on goods from Great Britain.
In summary, this SI ensures that Northern Ireland consumers remain protected from potentially unsafe and non-compliant products and will implement the legislative requirement of the protocol, which will bring a new aspect to market surveillance and ensure that there are no regulatory gaps within the area of product safety. This will result in the maintenance across the UK of a cohesive and effective regulatory regime for manufactured products which will protect all UK consumers, including those in Northern Ireland. The Government will of course ensure that they monitor the implementation of the new regulation and that they continue to work with businesses and market surveillance authorities to help them adapt, providing the necessary guidance and support where needed.
I therefore commend this statutory instrument to the House.
My Lords, I am grateful to the Minister for his usual comprehensive introduction. I know that when the Government speak to any business in your Lordships’ House, they always speak with one voice, and I am sure that we heard only the voice we were meant to hear. However, it was striking that quite a lot of the paragraphs he read out perhaps did not come originally from his pen or that of his department. He does not need to comment on that if he does not want to, but I felt there were messages in what he said that were intended for a wider audience than the rather small one that, perhaps unfortunately, has gathered here today.
I have a couple of questions about the Explanatory Memorandum and a couple of points to make relating to what the Minister said. Paragraph 7.10 states:
“The Government is currently undertaking a wider review of the UK product safety system, including approaches to securing compliance and the role of criminal sanctions in product safety regulation, and the scope for greater use of civil sanctions.”
There is not much detail on that—perhaps the Minister could give a sense of the timescale for that work. Given that, in a sense, it will probably overtake this SI, will it have an immediate or a medium-term effect?
Despite having looked at many SIs in my time as a Front-Bencher, including ones which stem from the original legislation, I was caught out towards the end of paragraph 7.11 by the reference to the fact that
“the SI works on a lex specialis principle”,
in other words,
“where there is a more specific provision in the sectorial legislation, this will take priority.”
That rather shades some of what the Minister was saying about trying to achieve a commonality of approach between GB and Northern Ireland. Without more detail, it is difficult to judge exactly how that will operate. Perhaps when he responds he can give us some examples of how the lex specialis principle might affect the SI. I should also be grateful to know where I might find the original legislation on that. If he does not have the information to hand, I should of course be happy to have a letter from him.
I turn to some more general points that the Minister may like to pick up on, and which I am sure my noble friend Lord Bassam will also refer to. The Minister said that this is effectively a levelling-up SI, in the sense of trying to ensure continuity and minimal change, but there is obviously an issue here about the need to establish an economic operator in Northern Ireland for compliance activities or, as he said, in the EU, if companies want to sell goods into Northern Ireland. We should not gloss over the fact that companies will be affected by that. That is a change that I do not think was anticipated—I have never seen reference to it before—but we have it before us now. It is certainly something to reflect on.
I see no references in the SI or the Explanatory Memorandum to reviewing the impact of this measure. Indeed, because it is a process that flows from the EU withdrawal Act, no review is specifically required. The Minister said that this will not have an impact on British businesses and will not affect businesses that bring products from GB to the EU through Northern Ireland, or just to Northern Ireland itself. Given the current heated situation and the concern about sausages, for example, it would be helpful to have a review. Will the Minister commit to indicating how this is playing out in practice further down the line, even if not to a formal review?
Secondly, what will the situation on the ground be like when the regulations are enforced? The Minister said that the approach is proportionate, risk-based and intelligence-led, which suggests that a fairly extensive set of procedures are in place. Assessing proportionality is not always easy; knowing what the risks are is not always possible; and “intelligence-led” suggests that this will be a joint activity involving the security services and others.
What does that mean in practice? I travel regularly between the UK and Ireland, and I have observed substantial changes in procedures and practices at the Irish ports I travel through. Of course, this is ad hominem and I am not trying to make a general point, but it is clear to me that the amount of paperwork and interrogation that takes place now compared to a few months’ ago is significant. Again, this is not going to be subject to any review, but perhaps the Minister will commit to giving us further information on how this is actually playing out in practice. I think that, following the recent Act, there will be more activity and disruption than he suggested.
On a related point, the language used in the SI and in the discussion led by the Minister has largely been about physical goods, but presumably, this also applies to electronic trade—trade through the internet—and other services delivered online. Has any particular aspect of that been brought into this? My recollection of the previous legislation is that, although it was very much about goods and not very much about services, it also impacted on electronic trade. This might be worthy of further consideration, and I would like to hear the Minister’s thoughts when he responds.
Finally, the application of the market surveillance regulation in Northern Ireland was, as the Minister said, a critical commitment and the Government support it. But of course, we are not unaware of the fact that the protocol itself is a matter of contention, and indeed, further discussions are continuing even as we speak. Is the Minister able to opine on whether he thinks this a relatively settled operation that does not require further debate or opening up in relation to the Northern Ireland protocol? If so, can he explain the thinking behind that? Clearly, it deals with the sort of goods and services that the Government said would not be interrupted because of the special status of Northern Ireland in both the UK and the EU customs area. It would be useful to know whether that is a serious issue of concern to the Government that is likely be raised again, or whether it is now settled.
My Lords, I too am grateful to the Minister for carefully explaining the regulations and offer particular thanks to my noble friend Lord Stevenson of Balmacara for his forensic examination of the detail.
There is an irony to this discussion, is there not? As my noble friend said, the Northern Ireland protocol is the subject of hot and contentious discussion, and yet, listening to the Minister one would sense that this is all agreed and straightforward and a regular instance of legislative implementation without any back story, but of course, that is far from the case. My friends in Northern Ireland tell me that they would quite like there to be a bit more market surveillance, in the sense that they would like to see some more goods on the shelves in the shops they use. But sadly, things that we take for granted they can no longer do.
However, as the memorandum says, these regulations do provide for an effective and proportionate penalty regime for breaches of the regulations, and the EU’s new market surveillance regulation, which comes into effect on 16 July, is designed to provide greater protection for consumers in the face of the challenges posed by e-commerce, to which my noble friend referred. As I understand it, the intention is that, through the extension of compliance checks for products sold online, consumers can be assured that products they order online meet EU harmonised standards for both health and safety. However, how and where will these checks be carried out, and by whom?
By virtue of the Northern Ireland protocol and the EU-UK trade and co-operation agreement, the market surveillance regulation is directly applicable to Northern Ireland, although further provisions of the regulations require implementation in our domestic legislation, which is what the regulations are designed to do. It is clear that the regulations are designed to protect consumers and are required to meet our legal commitments under the trade and co-operation agreement and the protocol, so for that reason, we obviously would not want to oppose them.
However, I do have a few more questions for the Minister. First, the implementation of the market surveillance regulation in Northern Ireland will of course have an impact on British businesses, particularly those that sell their products online from Great Britain directly to consumers in Northern Ireland—hence my earlier question. As the Minister said, GB businesses will need an economic operator to be established in Northern Ireland for compliance activities if they want to sell goods there. Given the additional obligations on British businesses that want to continue to sell their goods across the United Kingdom, will the Minister assure us that the Government will continue to provide the advice and guidance necessary to ensure that British businesses are prepared and geared up for this?
Secondly, the Government suggest in guidance that the enforcement of the market surveillance regulation in Northern Ireland will be proportionate, risk-based and intelligence led, minimising disruption to businesses. How will that be guaranteed? Have there not been lots of complaints that it is none of those things and that it is an overweening burden that speaks to the whole issue of division down the Irish Sea? The regulations before us suggest that regulatory checks on goods entering Northern Ireland will continue to take place by exception and only where there is a high level of risk. How is that judgment made and by whom? BEIS has said that goods going into Northern Ireland from Great Britain have a low-risk profile and therefore will not be routinely subject to inspection. Given the current tensions over the Northern Ireland protocol and uncertainty about its implementation, will the Minister clarify the extent to which that approach has been agreed with the EU and at what level that agreement has been reached? Is there an agreement that goods arriving into Great Britain will not be routinely subject to regulatory checks?
The Explanatory Memorandum states:
“Authorities will now carry out market surveillance activity and enforce product safety and compliance through the powers conferred under this SI.”
What training will authorities receive to use these powers effectively, and how will we know or be assured that such training means that the powers are used in a proportionate way?
The Explanatory Memorandum further states:
“The Government is currently undertaking a wider review of the UK product safety system, including approaches to securing compliance and the role of criminal sanctions in product safety regulation, and the scope for greater use of civil sanctions.”
I echo the questions asked by my noble friend Lord Stevenson. What is the consultation process for that review? When will it be published? When will the outcome of the review be made known to us? Those issues are important and play into the wider debate about the protocol, the need for it, how it operates and works, and its impact on businesses both in Northern Ireland and more widely across the UK.
I am sorry to appear to be nitpicking, but these are important issues and they come at a difficult time in relations in Northern Ireland. We look forward to some clarity from the Minister, because both businesses and consumers certainly require it, and across the UK at large.
I thank both noble Lords for their valuable contributions to this short debate. For reasons that I will summarise, it is vital for the product safety regime that this SI comes into force in Northern Ireland on 16 July 2021.
First, the SI will provide continued robust protection for consumers. It will ensure that safe and compliant products can be placed on the market in Northern Ireland as part of a cohesive and modern product safety framework across the whole United Kingdom. The SI builds on the powers set out in the existing product safety regime in a way that regulators and businesses will be familiar with.
To achieve this, the SI provides a uniform set of powers for regulators, designed to fit with the existing products legislation across the United Kingdom. This includes powers in respect of criminal offences that can be used by market surveillance authorities on the occasions where they are required, which we expect to be rare. The Regulators’ Code will continue to apply across the United Kingdom. It provides powers that can be relied on if needed by all market surveillance authorities, irrespective of product. It also protects consumers from potentially unsafe products sold online by setting out a mechanism that market surveillance authorities can use to request co-operation from an online service provider. Without this SI, there would be gaps in the enforcement of product safety within Northern Ireland when the existing market surveillance chapter of the prior regulation is repealed. The powers in RAMS would otherwise fall away, risking disruption and confusion for businesses and enforcement authorities.
The Government have been engaging closely with businesses and regulators on the introduction of these new market surveillance regulations; we have published guidance for both and will continue to provide support to them in the coming months.
In response to the questions raised by the noble Lord, Lord Stevenson, there are a range of administrative and civil sanctions—for example, compliance, recall and withdrawal notices—available in MSC which can be used by market surveillance authorities. These enforcement tools are backed by criminal offences, which are in line with other legislation in the goods sphere. While civil penalties such as fines are not included, the Government are reviewing the product safety framework for the whole United Kingdom to ensure that it is fit for purpose, protects consumers and supports businesses to innovate and grow.
The call for evidence has concluded, closing on 17 June, and a government response on its findings will be published in due course. In terms of any changes that might be seen in activities on the ground, neither MSC nor our implementation of it will increase checks on goods. In Northern Ireland, as in Great Britain, market surveillance checks will follow an intelligence-led and risk-based approach.
The noble Lord also asked why there is no enforcement provision or penalty for online services. While services are not included in the protocol, the primary aim of these provisions is not to create an enforcement power to regulate online service providers; instead, it creates a power for the MSA to request co-operation from an online service provider to assist it in mitigating the risks presented by unsafe products, in order to protect consumers in Northern Ireland.
The noble Lord, Lord Bassam, raised concerns about how the implementation of the regulation will impact on British businesses, particularly those that sell online. As I pointed out to the noble Lord, Lord Stevenson, GB businesses will need economic operators, for compliance, to sell within Northern Ireland and the EU single market. My department will continue with a targeted, sector-specific engagement approach up to and beyond the date the regulation comes into force, 16 July, so that they are aware that the legal obligations remain unchanged in terms of the controls and targeted, risk-based approach to goods entering the market.
Consumers in Northern Ireland who are concerned that a product is unsafe or believe it may not comply with UK regulations can contact their district council environmental health service trading standards, which is responsible for enforcement of product safety legislation in Northern Ireland, or they can contact Consumerline. The relevant enforcement body will then decide whether an investigation should take place and what action should be taken regarding instances of compliance. Unsafe products, by presenting a serious risk, are notified to the product safety database. Unsafe product reports are publicly available to consumers.
In response to the noble Lord’s concerns about whether our approach is proportionate, risk-based and intelligence-led, enforcement of this regulation has been agreed with the EU. Market surveillance activity under the MSC regulation is risk-based and targeted. This is set out in legislation. We explained our approach to the EU last year; we have always been open with the EU that we have never envisaged many checks taking place at points of entry.
As I noted in my opening speech, my officials will of course continue to assist business organisations to ensure that MSC does not place a disproportionate burden on trade in Northern Ireland. We will continue to update the guidance. I hope I have dealt with the queries raised by both noble Lords. I therefore commend these draft regulations to the Committee.
The Grand Committee stands adjourned until 3.05 pm. 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 and others are participating remotely, but all Members will be treated equally. I ask Members in the Room to respect social distancing. 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 is one hour.
Business and Planning Act 2020 (Pavement Licences) (Coronavirus) (Amendment) Regulations 2021
Considered in Grand Committee
My Lords, the regulations we are considering today were laid in draft before this House on 8 June. If approved and made, they will extend the temporary pavement licence provisions for 12 months to 30 September 2022 and will come into effect the day after they are made.
The temporary pavement licence provisions create a faster, cheaper and more streamlined consenting regime for the placement of removeable furniture, including tables and chairs, on pavements outside premises such as cafes, bars, restaurants and pubs. These measures have been popular and very successful in supporting businesses, making it easier for pubs, restaurants and cafes to facilitate al fresco dining with outside seating. It is vital that we continue to support the hospitality sector by extending these provisions for 12 months, as it has been one of the hardest hit as a result of the coronavirus.
The sole purpose of the regulations is to change the four references to the expiry date in the legislation from 30 September 2021 to 30 September 2022. The regulations do not change any other part of the pavement licence provisions, so the process for applying for a licence during the extended period will not change. Subject to the regulations being approved and made, businesses will be able to apply for a licence under the process set out in the pavement licence provisions in the Business and Planning Act for the extended period until 30 September 2022.
The regulations do not automatically extend licences that have been granted under the current provisions, so businesses will need to apply for a new licence if they wish to have one in place during the extended period. Local authorities are encouraged by guidance to take a pragmatic approach in applying the extended provisions, so that it is as convenient as possible for businesses to apply for a licence during the extended period. As the process for applying for a licence under the extended period will remain unchanged, I will briefly remind noble Lords of that process.
All licences are subject to a 10-working-day determination period, including a five-working day public consultation period, excluding public holidays, starting the day after the application is sent electronically to the authority. If the local authority does not determine the application before the end of the determination period, the licence will be deemed to have been granted for a year—or, if sooner, until 30 September 2022—and the business can place the proposed furniture, such as tables and chairs, within the area set out in the application for the purpose or purposes proposed.
Licence application fees will be set locally but are capped at a maximum of £100. Again, these fees are unchanged from what they are for licence applications under the current temporary provisions in the Business and Planning Act 2020. All licences will be subject to a national no-obstruction condition and smoke-free seating condition as well as any local conditions set by local authorities.
The grant of a pavement licence only covers the placing of furniture on the highway. A pavement licence does not negate the need to obtain approvals under other regulatory frameworks such as alcohol licensing. The Government have also laid a separate statutory instrument to extend the temporary alcohol licensing amendments.
Once a licence is granted, or deemed to be granted, the applicant will also benefit from deemed planning permission to use the highway land for anything done pursuant to the licence while the licence is valid—for example, using furniture to sell or serve food or drink supplied from, or in connection with relevant use of, premises.
The pavement licence regime in the Business and Planning Act did not replace the regime in Part VIIA of the Highways Act 1980; rather, it sat alongside it. This remains the case during the period of validity of the 2020 Act provisions as extended by this statutory instrument. Applicants may apply for a licence under Part VIIA as an alternative if they wish to do so for any reason.
These regulations will enable food and drink hospitality businesses to continue to obtain a licence to place furniture on the highway outside their premises quickly and cheaply. As I previously stated, this extension is considered necessary and vital, as it will provide businesses with much needed certainty to help them to recover economically and will support them in planning for the extended period. To explain just how hard the sector has been hit, evidence from trade organisations and other sources has indicated significant financial losses and wider economic pressures faced by the hospitality industry. The Office for National Statistics reported in July that more than half of businesses in the accommodation and food services industry had experienced a fall in turnover, compared with normal expectations for this time of year—more than any other industry.
I firmly believe these regulations will bring essential economic support out of the pandemic for many food and drink businesses, by enabling extended outdoor capacity for serving food and drink. To support local authorities and businesses with the implementation of the regulations, we will publish an updated version of the pavement licence guidance when the regulations are made. If these regulations are not introduced, there is a real risk that we will undermine the steps that food and drink hospitality businesses have taken to recover from the economic impacts they have suffered as a result of coronavirus.
All of us in government have enjoyed pubs, cafes and restaurants being open again, following coronavirus lockdown restrictions. The temporary pavement licence measures are just some of several measures that the Government have introduced to support hospitality businesses to reopen safely, enabling businesses across the country to serve their local communities. Since introducing a simplified route for pubs, restaurants and cafes to obtain a temporary pavement licence, we have heard of many examples of local businesses being able to increase their outdoor capacity quickly and at low costs. The draft regulations that we are debating today will allow al fresco dining and drinking to remain a reality for these businesses and provide much needed certainty for another year. I commend this instrument to the Committee, and I beg to move.
My Lords, my intervention this afternoon will be brief. I was most grateful to the Minister for finding the time yesterday to have a conversation with me about these regulations, and I was able to tell him that I have tabled a regret Motion relating to them, which will be debated in the Chamber presumably some time next week—I gather that it may be Wednesday. The rules relating to hybrid procedures in Grand Committee do not allow for regret Motions to be debated here.
I shall not take up the Committee’s time today by going through the arguments for my regret Motion. The wording of it is self-explanatory; it regrets that “these regulations were not revised to take account of the evidence of the benefits of 100% smoke-free pavement licences, which have been implemented over the last year in a diverse range of local authorities and which have received strong public support”. Your Lordships may recall that the House debated these regulations during the passage of the Business and Planning Bill almost a year ago. A cross-party amendment tabled by the noble Baroness, Lady Northover, and signed by the noble Lord, Lord Young of Cookham, the noble Baroness, Lady Finlay of Llandaff, and me received strong support across the Chamber. Our amendment was supported by the Local Government Association and a number of major local authorities. The LGA said that it
“sets a level playing field for hospitality venues across the country and has a public health benefit of protecting people from unwanted second-hand smoke … If smoking is not prohibited, pavement areas will not become family-friendly spaces”.
Despite the Government’s stated intention to make smoking obsolete in England and for us to be smoke free by 2030, Ministers did not accept our amendment a year ago. Instead, they inserted a requirement in legislation that
“the licence-holder must make reasonable provision for seating where smoking is not permitted”.
A number of councils went further and issued pavement licences that require completely smoke-free areas. I shall say more about these local councils and the views of the public as measured in a huge opinion survey carried out by YouGov when we have the debate in the Chamber.
I shall also be able to share with your Lordships some information from Canada, where smoke-free patio areas have been required by a number of provinces. There is good evidence that they are popular and easy to enforce and that they improve the health of hospitality workers—and there are no signs of an adverse impact on business. I hope that the House will take the view that it is a matter of regret that we did not go down that same route when we passed the 2020 Act, and that these regulations were not revised in that light.
My Lords, I strongly support the remarks just now by the noble Lord, Lord Faulkner. We have, as he said, been here before when, last summer, the Government launched the “Eat out to help out” campaign. At that time, as the noble Lord, Lord Faulkner, said, my noble friend Lady Northover moved, with all-party support, to tie the extension of eating on the pavement to non-smoking areas. This was rejected by the Government because they did not wish to hinder the development of the initiative at short notice. This year, the same excuse will not be an acceptable reason for inaction, because a year has elapsed, but the Government prefer to listen not to local authorities or the Local Government Association, which has to make the permits work, in very many areas, including my own, in Oxfordshire, but instead to the voices of big business, brewers and the tobacco industry. They do not listen, necessarily, to the small shopkeepers and restauranteurs owners but to the very big interests behind them.
Does the Minister recognise that, during the pandemic, many smokers have quit, but it is very easy for such people to resume smoking? Then there is the effect of passive smoking on those around, on the staff and on children. Can we afford to inflict a rise in the number of smokers on our population already cursed by Covid? The proposed regulations, with their ambivalent attitude to smoking, will make the difficulties that local authorities have with enforcement worse, and will be mightily unpopular with the majority of actual users.
My Lords, it will come as no surprise to my noble friend the Minister, who may remember our debate on pavement licences a year ago, that I have every sympathy with the speech of the noble Lord, Lord Faulkner. As he said, I supported the amendment then moved by the noble Baroness, Lady Northover, saying that pavement licences should be given only if smoking were prohibited, and I will not repeat the arguments I made then. That amendment was withdrawn, but on Report the Government tabled their own concessionary amendment requiring proper provision for non-smokers and, although it was not what the movers wanted—nor, indeed, what the majority of the speakers in the debate had asked for—the concession was accepted. My noble friend then said that joint guidance would be issued by his department and DHSC.
That joint guidance was non-contentious. I want to focus this afternoon on paragraph 11.2 of the Explanatory Memorandum, which refers to updated guidance from the department to help local authorities implement the provisions of this order. I do this because, on 8 August last year, after the guidance I referred to was published, the Secretary of State emailed Manchester City Council, stating that its proposal to set a local smoke- free condition on the issue of pavement licences was
“against the spirit of the emergency legislation passed by Parliament”.
It was not: the legislation expressly said that local authorities could set a local condition such as Manchester proposed. Indeed, in Committee on the Bill my noble friend said:
“Therefore, local authorities can exercise their condition-making powers to impose no-smoking conditions”.—[Official Report, 13/7/20; col. 1482.]
Worse, the letter went on to assert that if smoking were banned outside pubs and cafes:
“It could lead to significant closures across the country.”
In spite of repeated challenges, not one shred of evidence was ever produced by the department to substantiate that assertion, frequently made by the smoking pressure group FOREST. Such evidence as we have from the introduction of the smoking ban in 2007 showed that more people said that they went to the pub more often than said that they went less often. The simple assurance which I seek from the Minister, whom I acquit from being in any way complicit in this misinformation, is that if further guidance is given to accompany this order, it does not contain any more inaccurate or misleading statements such as those that I have referred to.
My Lords, last year in the debate on this in this House, I said that I was very much in favour of this measure, and I am in favour again of a year’s extension, not only for the businesses themselves but because extending bars and restaurants on to the street, even if temporarily, generally represents an enhancement of our public space by increasing the sharing of public space. In a sense, it is good for the vitality of our high streets.
However, although the measure clearly is good for the businesses concerned, particularly during the pandemic, as is the intention of the regulations, the question must be: how have communities reacted as a whole, including non-smokers and the disabled? Have the Government made a formal overall assessment of the effect of this measure? Will they do so? The local authorities are making these decisions, but these are two separate things.
I am in favour of the shared space principle which hovers in the background of this. It is not directly a debate on shared space but I miss the wisdom of Hans Monderman, who died too young at the age of 62, 13 years ago. Others have carried his work forward, but it would be interesting to know how he would have dealt with today’s concerns of the blind and partially sighted in this and other instances. His guiding principle was negotiation between users in the space itself, which of course makes the solution to the organisation of space particularly challenging when some users cannot rely on visual clues. A shared space is not properly a shared space unless it can be shared by all. The space that a blind person has been used to will get altered at certain times if part of a pavement is used by, for example, a bar or restaurant. It will then be important for that space used to be geographically predictable on a day-to-day basis, the territory precisely marked out, to a few inches at the most. It is not just about there being enough space for all pedestrians, including the disabled, to negotiate or navigate without having to walk into the road.
I made a suggestion to the Minister last year, to which he was receptive, that areas could be marked in their corners by fairly sturdy objects such as square plant boxes, and I am glad to see that this has been included in the guidance. The predictability of these spaces on a day-to-day basis will be respectful to use of the whole space for all pedestrians. Councils have gone further, pedestrianising some streets, at least on a temporary basis, to allow greater pavement space for businesses, but here, too, there must be clearly understood and reproducible routes for pedestrians. This might mean a route between one obstacle of one business and an obstacle of another when there is no obvious edge of a footway. Do the Government intend to update the guidance? I am not sure that some of these points are emphasised enough in the current guidance.
I welcome the regulations and this opportunity to debate them. I declare my interests as set out in the register, as chair of the Proof of Age Standards Scheme board, and having chaired the House’s ad hoc committee reviewing the Licensing Act 2003. I echo some of the concerns expressed by the noble Earl, Lord Clancarty, and am very grateful to the Guide Dogs for the Blind Association briefing that he shared with me today. I absolutely share the concern expressed by my noble friend the Minister about the hit that the hospitality industry has taken, which is very well set out in paragraph 7.7 of the Explanatory Memorandum, with £8.2 billion of trade having been wiped out, the decrease in turnover which he referred to, and the reported 2,000 pubs estimated to have closed down forever.
However, I hope that my noble friend the Minister will give me—and, more importantly, the vulnerable users of pavements—an assurance this afternoon as we extend the licensing provisions in the regulations before us today. Specifically, if we are allowing only 10 days before a licence application, which I accept is a new application this time, will be agreed, what consultation will there be for particularly vulnerable pavement users in this regard? Will he put my mind at rest that it is not an issue of licence by default? There is a concern, which I hope he will address this afternoon, that there is no time for consultation in a 10-day period. Will he confirm that the original timeframe of 28 days will be reverted to when the regulations cease to have effect?
Can the Minister give me an assurance that local authorities will have regard to the Equality Act provisions and similar provisions in the issuing of licences under the regulations? I am concerned that there is no right of appeal, and I would like to understand whether, in the rush to grant the licence—and I do not know whether he has any evidence of this under the present licence system—if it was felt that street furniture was put in an inappropriate or hazardous place, that could be reviewed and the local authorities have the power to go and inspect that. I am asking for balance in the way in which the licences are issued between the rights of the pub or business to ply its trade, which we are all in support of, and the rights of more vulnerable users—visually impaired and others—to go about enjoying the pavements in the normal way.
My Lords, the café society that Covid has generated is to be welcomed. It brings colour and life to our streets, and will continue to do so, providing useful spaces for those who are not ready to ditch all Covid precautions come 19 July and would prefer to do their wining and dining outside and away from terribly crowded areas in future. Therefore, I welcome the idea of extending the speeded-up process for securing a licence that is incumbent in these regulations. However, I agree with the noble Lord, Lord Faulkner, on his regrets at the failure to insist that such eating and drinking areas be made smoke free. Why that should be the case is completely beyond me, since we all know that passive smoking causes great dangers. If we want these areas to be family friendly—or, indeed, friendly at all—having them filled with smoke is simply not sensible, and the Government have the power to stop it.
We know the difficulties that hospitality businesses have faced during the pandemic, and anything that can be done to enable them to do more business and build back their finances is to be welcomed, but that should not entail bringing in unnecessary smoking. However, there are specifics related to the licences which I wonder whether the Minister would look at. Several aspects of pavement licences concern me. First, while we are allowing smoking, there continues to be a ban on fire pits and gas heaters, which seems illogical to say the least. One can wander along the streets in skiing resorts, for instance, where fire pits are perfectly common, and they do not seem to cause any great trouble. I also wonder whether it is right that the Metropolitan Police should continue to insist that management teams in restaurants and pubs with outside seating undergo counterterrorism training. Is that really necessary? The risks seem very slender.
Finally, can the Minister reassure me that local authorities are not using pavement licences, which are reasonably priced at £100, as a means of generating other income by unreasonably charging for excess refuse, street cleaning and other things that they judge to be a nuisance? There have been suggestions of restaurants and pubs being charged excessively for that sort of thing.
My Lords, I want to flag three areas where the Government should look further at these regulations than merely extending them to 2022.
The first is the timeframe placed on local authorities to process, publicise and determine licences: a mere 10 working days. This has been incredibly onerous on council resources and should be extended to between 15 and 25 working days. With businesses shortly to reopen without restrictions, it is only fair to offer more time to councils and residents.
The second aspect is the cost of a licence, which has been set at a maximum of £100. I gather that most councils have charged this in full. For uncontested licences, it may cover their administrative costs, but it does not if an application is contested and senior officers and licensing teams need to be involved. Kensington and Chelsea Council told me that it would usually charge £512 for a table and chairs licence under the previous regime, which was calculated based on cost recovery. While the process has been streamlined under these regulations, it has not cut councils’ costs by 80%. Effectively, councils are struggling with this loss of income. In some cases, there is a double loss of income where a licence is granted for tables and chairs in parking bays, as there is an additional loss of parking revenue. If this regime is to be extended until September 2022, councils would welcome the discretion to set higher application fees where appropriate. In addition, local authorities would often recover their monitoring costs to ensure compliance with licences, often around £300 a year per premises. The regulations make no provision for this, yet monitoring is still needed.
My third comment may be too radical for some, but it has been suggested to me that the Government might be bolder and look at a British Summer Time pavement licensing scheme to operate annually but not in the winter, or trial these regulations on a more permanent basis in the central activities zone boroughs of, say, Westminster, Camden and Kensington and Chelsea.
The new regulations are much less cumbersome than the three regimes they replace, but the work being done by Westminster City Council to make pavement licensing cost-neutral needs to be taken on board, and a longer timeframe for processing, consulting and determining pavement licences is key to helping residents feel involved.
My Lords, this is a good SI which will begin to improve the hospitality sector, which has suffered so much due to Covid. It is now announced that a large proportion of the UK population has received both vaccines. Therefore, local authorities must quickly respond to the applications they receive. These businesses have suffered greatly due to the lockdowns and many have been permanently closed. The Government’s success in vaccinating over 60% of the population must be acknowledged. Therefore, pavement applications must be approved speedily to open up the hospitality industry and enable it to flourish.
Can the Minister give an estimate of how many bars and pubs have been closed down permanently, and how many jobs have been lost?
My Lords, I remind the Committee that I am a vice-president of the Local Government Association. I want to thank the Minister for his introduction to this statutory instrument. It is right to extend the pavement licensing system for a further year. We have learned a lot from it in the past year, which can help to inform future policy. The public have become used to the system and in the main appreciate it.
In our debate on this topic a year ago, of which mention has been made, I recall speaking about access issues and related matters, some of which seem to have been resolved and others not so effectively.
I recall also saying that sometimes I preferred conditions to be imposed by Governments rather than guidance when change is needed. One such matter may prove to be that raised by the noble Lord, Lord Faulkner of Worcester, and a number of other speakers, whose concerns I want to support. Smoke-free pavements are in the public interest, and I believe that the vast majority of the public do not want to sit on a seat in an extended restaurant or pub while suffering the disbenefits of second-hand smoke. I found the arguments of the noble Lord, Lord Faulkner, compelling and I hope we will hear more about them next week.
We have had a year’s experience of the regulation. We know that businesses have been helped and that people have had the benefit of more outdoor seating. It has added to a sense of community and neighbourliness in our towns and cities. There has been one other benefit that I have become aware of: it has reduced pollution, because extending pavement seating has encouraged some councils to move traffic further away through traffic calming measures. I welcome that.
A year ago, I recall the Minister, the noble Earl, Lord Howe, reminding us of the existing powers of councils on access, smoking and a range of other issues. Indeed, it is always better for councils to take responsibility locally rather than to expect the Government to decide everything for them. Sometimes, however, the Government have to take action and responsibility, and preventing second-hand smoke seems to be one of those occasions.
I want to make a suggestion to the Minister. His department has a year’s experience now. I hope that it is not planning to roll over these regulations for a third time in September 2022. Rather, we should build on current knowledge with a reformed but permanent pavement licensing system that builds on the achievements of the past year and addresses the problems that have arisen. There are permanent solutions that can be found but to achieve them means bringing together all the relevant parties to devise an agreed way forward on the pavement licensing system. That includes a solution to all the problems that have been identified by speakers today.
I have listened carefully to the debate so far, and very interesting points have been raised. Personally, I am very supportive of the principle of pavement licences. One of the first jobs I had as a local councillor was to introduce cafe culture into Leeds way back in the 1990s, which was not a concept that was greeted with great enthusiasm at the time. We have moved on now to dedicating whole streets and removing traffic from them so that cafés can spill out, which has proved to be incredibly successful. Obviously, the changes due to Covid have proved an enormous bonus to businesses that have been struggling.
However, I want to stress from a local authority’s perspective just how complex this can be. It involves consultation with the planning department, licensing, highways, community safety, and we heard from the noble Earl, Lord Clancarty, who spoke eloquently about the shared space issues and the need to consult carefully with disability groups. This can lead to incredibly complex processes. I will come back to this, but we have to wonder whether we have given local authorities the required resource to deal with processing applications and, most importantly, assessing and monitoring their impact.
We have learned that, when introduced last year, this was going to be a temporary streamlining of the pavement licence application process and that it would be in place for only as long as social distancing was necessary. However, the Government are today legislating for the extension of the provisions until September 2022, despite legal requirements on social distancing coming to an end this month. I begin by asking the Minister to clarify whether this represents a change in policy by the Government, and is he certain that there will be no further extension beyond September 2022?
On a similar point, the Minister will be aware that under the Business and Planning Act, an extension is legally permissible only if it is for the purpose of mitigating an effect of the coronavirus. Can he detail how this extension meets that requirement? I understand that the temporary nature of the measure was due to concerns raised by local authorities, as well as by community and campaign groups. There was concern about the process leading to more anti-social behaviour and creating noise and nuisance for local residents, as well as the issues we raised about impaired mobility. Can the Minister confirm that the Government have assessed whether the increase in pavement licences has led to those issues, and will he outline exactly what consultation has taken place with those groups on extending the provision?
The reduced funding stream is significant. I must inform your Lordships that the fee cap of £100 is leading several local authorities into some difficulties. Before this cap, some licensees were paying up to £1,000 without complaint, because they recognised the significance of what they were being allowed to do and the resource required to make it successful for them. Given that it is now close to a year since pavement licence streamlining came into effect, it would also be helpful if the Minister could clarify whether there have been any issues with the practical application of the new streamlined process. Can he confirm how many pavement licences have been granted under the new process and how that compares to the previous year? Most importantly, under the provision, how many businesses will need to reapply, as well as those applying for the first time? Have local authorities reported any issues with the statutory framework for the pavement licence process? Do the Government collect information on the conditions which local authorities are imposing? For example, the short turnaround time presents issues for the proper due diligence that needs to be undertaken in assessing applications.
I was pleased to hear from my noble friend Lord Faulkner that he intends to table a regret Motion in relation to the fact that this instrument will not guarantee 100% smoke-free pavement licences. We on these Benches have a proud tradition of acting to reduce smoking and the harms it causes both smokers and those around them. Last year, my noble friend secured an amendment to the Business and Planning Bill which guaranteed protection to non-smokers by requiring all licensed premises to set aside a non-smoking area. Clearly, there is more discussion to be had on this area, and I look forward to the debate that will be generated in the week ahead.
When the Government introduced the new pavement licence process last year, they had the support of these Benches, but with concerns raised over how it would be implemented. Given that the process is being extended by another year, I hope the Minister can allay those concerns and confirm that the Government will work hand in hand with local authorities and all the relevant groups to monitor its further application.
I thank all noble Lords for their contributions, which have given us a very interesting debate on these draft regulations. I was particularly impressed by the distinguished former leader of the city of Leeds trying to introduce café culture in the 1990s, well ahead of its time. The way we consume alcohol in this country, standing at a bar or outside, is very different to the café culture we see on the continent of Europe. It is good that we have seen an increase in the latter approach to our leisure activities as a result of the pandemic, as the noble Baroness, Lady Wheatcroft, referred to.
We have been discussing an essential extension of the temporary pavement licence provisions in the Business and Planning Act 2020 for 12 months to 30 September 2022. As previously outlined, the regulations continue our support for the hospitality sector’s economic recovery and are vital to provide certainty for businesses in planning for al fresco dining for the next year. I am grateful to noble Lords for raising a number of important points on how this will operate and will try to respond to as many as I can.
First, I want to make it clear to the noble Baroness, Lady Blake, that there has been no change in policy. We have not made a decision on the future of the temporary provisions; it would be premature to make any commitments on potential changes to the policy in future. However, I reassure noble Lords that we will continue to engage with stakeholders. We are committed to ensuring that the needs of all highway users are taken into account.
I turn to the issues raised by the noble Lords, Lord Faulkner of Worcester and Lord Bradshaw, and the noble Baroness, Lady Wheatcroft, about smoking and the fact that there is not effectively a ban on it. The temporary pavement licence legislation includes a “smoke-free” seating condition—that concession was mentioned by my noble friend Lord Young—and there must be reasonable provision for seating where smoking is not permitted. This condition seeks to ensure customers have greater choice, so that smokers and non-smokers are able to sit outside.
I appreciate the suggestion of the noble Lord, Lord Shipley. I recognise that things would be different were there to be a change on a permanent basis as opposed to this simple extension of the current provisions.
In response to my noble friend Lord Young, on his comment about the letter from the Secretary of State to Manchester City Council, it is of course right—as mentioned in the debate—that local authorities have condition-setting powers. I know as a councillor of 16 years that they have and always have had such local discretion. They can set those conditions where appropriate, and some local authorities have used this power, including in this instance Manchester City Council. I reassure my noble friend that all correspondence from the department on this matter will remain in line with what has been agreed in the legislation.
The noble Earl, Lord Clancarty, and my noble friend Lady McIntosh of Pickering rightly raised accessibility and ensuring that pavements remain accessible to everyone. It is important that, while supporting the hospitality industry, we achieve that objective. The pavement licence guidance makes it clear that in most circumstances 1.5 metres of clear space should be regarded as the minimum acceptable distance between the obstacle and the edge of the footway. In response to the noble Earl, I point out that we have worked with the RNIB and Guide Dogs UK to update the pavement licence guidance, which will be published alongside the extension regulations. This update will include a section to emphasise to local authorities that, as Covid restrictions are eased, extra care should be taken to ensure that national and local requirements around accessibility are still being met.
In answer to the noble Earl, Lord Clancarty, and the noble Baroness, Lady Blake of Leeds, we have undertaken work with stakeholders to understand the impact of an extension across a range of authorities and different groups, such as the RNIB and Guide Dogs UK, taking into account the impact the provisions have had over the past year.
My noble friend Lady Gardner of Parkes and the noble Baronesses, Lady Wheatcroft and Lady Blake, all mentioned local authority resourcing. In response to the noble Baroness, Lady Wheatcroft, I was interested to hear about the granting of a licence and then using it as a way essentially to charge for other council services unnecessarily. In my experience, that would not normally be done by local authorities. Effectively, most of their moneys are raised either through tax or direct grant, and they would not normally seek to generate income. However, I would be very happy to understand the specific instances that she referred to. It would be concerning if it happens, but it seems very much out of character.
On local authority resources, we are aware that these provisions have a significant impact: not equally, but on some local authorities. If we compare parts of suburban London to the City of Westminster, we are talking about a completely different quantity of licences that will be granted. It is therefore absolutely right that we undertake a full new burdens assessment, and we will fund any new burdens as a consequence of the temporary pavement licence measures in line with the new burdens doctrine.
In response to my noble friend Lady McIntosh on what happens to the consultation timeframe when the regulations cease, I can reassure her that we will revert to a minimum of 28 days’ consultation as set out in Part VIIA of the Highways Act from the 10 days in the temporary regulations.
I was interested to hear about the ban on firepits and gas heaters raised by my noble friend Lady Wheatcroft—I call her my noble friend because that is what I consider her to be. I understand those concerns, but this is not a matter for these regulations. I think it is something that we see on the continent of Europe, and with our climate, would be particularly helpful.
In conclusion, we are extending the temporary pavement licence regulations because we believe it is necessary to support food and drink hospitality businesses by expanding their outdoor capacity, so continuing to support their economic recovery out of the pandemic. This is particularly important when we consider just how badly affected by the pandemic this sector has been—there is no doubt about that.
These temporary pavement licence measures have already been very successful in supporting the hospitality sector so far, as a number of noble Lords have commented. Extending the provisions will enable this success to continue and will provide much-needed certainty in the sector’s planning for the coming year. I commend these regulations to the Committee.
Arrangement of Business
My Lords, the Hybrid Sitting of the Grand Committee will now resume. Some Members are here in person, others are participating remotely, but all Members will be treated equally. I ask Members in the room to respect social distancing. Should the capacity of the Committee Room be exceeded or other safety requirements be breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021
Considered in Grand Committee
My Lords, since the financial crisis, the Government have implemented significant reforms to address the problems of the past and make the financial sector safer and more stable. A key element of these reforms was establishing the Financial Policy Committee, which is responsible for identifying, monitoring and addressing risks to the financial system as a whole. The FPC addresses macro-prudential risks through its powers to issue recommendations and, importantly, directions to the Prudential Regulation Authority and the Financial Conduct Authority.
Successive Governments have legislated to provide the FPC with the powers of direction that it needs to address risks to financial stability. Through these existing powers, the FPC can ensure that firms are not allowed to take on excessive levels of leverage, effectively tackle systemic risks in the UK housing market, and vary firms’ capital requirements against exposures to specific sectors over time. This instrument amends the existing powers of direction granted to the FPC by Parliament to ensure that they continue to operate effectively given changes that have been made to the wider prudential regime since they were first introduced.
The Financial Services Act 2021 represents a major milestone in shaping a regulatory framework for UK financial services outside the EU. It enhances the competitiveness of the sector and ensures that it continues to deliver for UK consumers and businesses. The Act extended the powers for the PRA to make rules which apply to holding companies for the purposes of prudential regulation. Accordingly, the Act granted the FPC the ability to make directions or recommendations that relate to holding companies, ensuring a coherent regime under which holding companies become responsible for meeting prudential requirements. Consistent with these changes, this instrument amends the FPC’s existing powers of direction, where necessary, so that they can also be applied in relation to holding companies.
In addition, the Government have stated their intention to move the detail of the leverage ratio framework exclusively into rules made by the PRA using powers introduced by the Financial Services Act 2021. The leverage ratio is intended to be a broadly risk-insensitive measure of a bank or investment firm’s level of leverage. This instrument therefore amends the FPC’s powers of direction over the leverage ratio so that the method for measuring a bank’s exposures when calculating the leverage ratio is defined by reference to rules made by the PRA. This method will be subject to any specifications made by the FPC when it issues a direction in relation to leverage. For example, the FPC currently recommends that the PRA excludes central bank reserves from banks’ exposures for leverage purposes to ensure that macroprudential policy does not impede the smooth transition of monetary policy. Under this instrument, the FPC would instead be able to direct the PRA to make such an exclusion.
This House may wish to be aware that the FPC and the PRA recently published a consultation on proposed changes to the UK leverage framework. This followed the FPC’s comprehensive review of the framework in light of revised international standards, and its ongoing commitment to review its policy approach. The UK remains committed to the implementation of the Basel 3 standards, of which the leverage ratio is a key part, alongside other major jurisdictions.
It is important to emphasise that the FPC’s proposed leverage ratio framework delivers a level of resilience at least as great as that required by international standards, providing a vital backstop to secure the resilience of the banking system. The framework will continue to require that the vast majority of the UK leverage ratio be met with the highest quality of capital. However, I should make it clear that the changes introduced by this instrument are to ensure that the FPC can continue to make effective use of the existing powers of direction over the leverage ratio that have already been granted to it by Parliament. It is for the FPC, which is independent of government, to decide which of its levers, including its powers of recommendation and direction, would be most effective and appropriate to implement measures such as the proposed changes to the leverage ratio framework.
The Treasury has worked closely with the Bank of England to prepare this instrument. In accordance with our statutory obligations, officials have consulted the FPC, which agreed with the approach being taken. We have engaged with the financial services industry on the contents of the instrument.
This instrument is necessary to ensure that the FPC’s existing macroprudential tools continue to operate effectively given changes that have been made to the wider prudential regime since they were first introduced. I beg to move.
My Lords, I thank the Minister for introducing this regulation, which is consequential on the changes to powers laid out in the recent Financial Services Act—which we debated for many days earlier this year. As the Minister said, the matters covered today include the leverage ratio and the application of measures to holding companies.
I have no problem with the regulation but I want to say a few things about the policies which it will be used to put in place. As the Minister said, there are several significant FPC and PRA consultations concerning application of international Basel standards and the leverage ratio, which are made in consultation with HMT. I would like to spend my time on those underlying issues that will be given life through the powers in this instrument.
The leverage ratio presently is utilised essentially as a backstop in case the models used by banks to calculate their risk-weighted capital requirements become too light in their risk assessments. Currently, it is set at 3.5%, and it is the capital buffers that will tend to restrict the banks’ activities, essentially through cost, with the leverage ratio therefore seen as a sort of lower ultimate solvency test. Nevertheless, it effectively functions in a similar way to capital buffers rather than as a different economic tool.
I make that point because I thought that, with the Financial Policy Committee having a bigger role in relation to leverage, there might be an attempt to look at the outcome of the Macmillan committee report produced after the 1929 financial crisis, where it was suggested that, instead of controlling markets simply by interest rates and price, there should be a second leverage control that addressed total volume. So my question to the Minister is on what thought is being given to whether there needs to be a control on volume and money creation other than through price.
Returning to what is actually happening in conjunction with this instrument, and in line with new Basel standards, the leverage ratio framework is being applied to a wider scope of firms, at times to the consolidated or sub-consolidated level, and will extend to internationally active holding companies and firms with non-UK assets over £10 billion, which will cover larger, non-ring-fenced banks and broker dealers such as Goldman Sachs, JP Morgan and Morgan Stanley. I agree that these are all good moves for stability of the banking system in the UK.
Alongside that there is to be tweaking of, and some disapplication of, Basel standards. Schedule 3 of the Financial Services Act 2021, repeated again in this instrument, states that the PRA must have regard to, among other things:
“relevant standards recommended by the Basel Committee on Banking Supervision from time to time … the likely effect of the rules on the relative standing of the United Kingdom as a place for internationally active credit institutions and investment firms to be based or to carry on activities … the likely effect of the rules on the ability of CRR firms to continue to provide finance to businesses and consumers in the United Kingdom on a sustainable basis in the medium and long term … the target in section 1 of the Climate Change Act 2008”,
which is net zero,
“and … any other matter specified by the Treasury”.
As ever, it is “have regard”, so it promises nothing. In the proposed changes around leverage, there are areas where the second point, about the standing of the UK—effectively competitiveness—has prevailed over the first, and the Basel rules are not taken in full. The UK will not be Basel-compliant over its leverage buffer for globally systemically important banks, setting a lower-than-Basel level, and will also not be implementing the disciplinary measures, such as restriction of dividends on breach of a leverage ratio requirement. It is not hard to see the attractiveness of those measures to banks, but is not there a risk that it is saying, “We don’t care that you are getting close to dodgy solvency levels, just go ahead and pay dividends”? Which other jurisdictions are doing this, or is the UK leading the charge?
There are other departures, too, but the Economic Secretary to the Treasury said in the Commons on Monday that the FPC will argue that overall, on an outcomes basis, the UK is equivalent because a stronger measure of what qualifies as capital will be applied. That is a substantial attitudinal departure from international standards. I understand where it is coming from, but it is the UK back to its old tricks of saying it complies when in fact it picks and chooses and jiggles around? It can be the same on an outcomes basis to get to a destination going the wrong way along a one-way street, but it is not advisable and involves breaches of standards. Is not that what the UK is doing—saying that we were well under the speed limit on this road, so now we can take an illegal short-cut down the one-way street?
There is no great glory from being above Basel on capital standards. Basel rules are meant to be a minimum and already have aspects of lowest common agreement, which is in fact how some lower-grade capital gets in there. In my book, the lower standards look like breaches rather than outcomes compliance, and I worry that the UK has possibly started the undermining of Basel and a race to the bottom.
Can the Minister provide, if not now then by letter, calculations that show how the higher quality of capital compensates for lower buffers—for example through loss absorbency in the event of resolution? What was the basis, other than saying, “Come and headquarter here”, for removing the restrictions on dividends for a breach of the leverage ratio? I understand the importance of keeping investors, but what action will the regulator take for fast restoration of capital if dividends are still flowing out? Furthermore, are the differences from Basel in fact things that the UK argued for and lost—perhaps, if you like, giving a warning—or are they new approaches? Will it undermine the future effectiveness of the UK in negotiations if we have the reputation for just doing things our own way anyhow? Will not that remove the incentive for others to see things the same way as the UK?
The regulation will pass, as it is part of the new structure but, despite references in the documents to the “new accountability structure”, it is regrettable that these first, important decisions that I have commented on are happening without more prior reference to Parliament. As we said during the debates on the Financial Services Bill, everything is being front-run and front-loaded. The Government fixed their influence and have, unhappily, left Parliament behind.
My Lords, this is one of the first statutory instruments arising from the passage of the Financial Services Act 2021. As well as looking at the changes introduced by this instrument, this debate provides an opportunity to briefly discuss some of the wider issues arising from the new legislation.
This order provides an update to the powers of the Financial Policy Committee, so that it can direct the Prudential Regulation Authority on matters relating to certain holding companies. We welcome this extension of existing macroprudential measures and the various consequential changes in the instrument, which ensure consistency in terminology, application and so on. We also understand the Treasury’s desire, as stated in the Explanatory Memorandum, to bring this instrument into force as quickly as possible and minimise any gaps that may exist in the FPC’s current powers.
As the Minister outlined in his introduction, this instrument also makes changes to the total exposure measure, or the overall leverage ratio, the framework of which is being transferred from the retained Capital Requirements Regulation to PRA rules. This was discussed when the SI was debated in the Commons earlier this week.
The comments of the Economic Secretary, John Glen, were extremely helpful in outlining the process to date, as well as ongoing and next steps. It was particularly useful to have confirmation that excluding Bank of England balances will make no material difference to the leverage ratio—that is, the amount of capital that a bank is expected to hold in relation to its overall loan book. One area where the Economic Secretary’s answer was slightly less clear was on whether he foresees the UK changing capital requirements now that we are outside the EU. The answer provided, that the Government’s objective is to
“align to the highest global standards”,—[Official Report, Commons, Delegated Legislation Committee, 6/7/21; col. 7.]
did not directly address the question from Pat McFadden, the shadow Economic Secretary. Can the Minister shed some light on this today?
At the beginning of my speech, I forewarned the Minister that I would make some general points. I will turn to these now. The changes in this instrument are clearly the first of many. Implementation of Basel 3.1, coupled with the Government’s desire to transfer other measures from retained EU law to domestic prudential rules, will mean a steady stream of regulatory changes in the coming months.
The Treasury will no doubt have a document containing the target dates and absolute deadlines for enacting each of these changes, as well as an indication of which parliamentary procedure—if any—they will be subject to. Can the Minister commit to sharing this work plan, to ensure that colleagues who wish to do so can engage at an early stage?
Following on from that question, now also seems an appropriate time to return to one of the big debates from the passage of the Financial Services Bill. The regulators are, separately or jointly, consulting in a range of areas ahead of exercising their expanded rule-making powers. For example, the Financial Conduct Authority launched its consultation on a new consumer duty in May, fulfilling the first requirement of Section 29 of the 2021 Act. Although the Minister was not intimately involved in that Bill’s passage through your Lordships’ House, he will be aware of undertakings from the FCA and the PRA that they would engage with Parliament as part of their day-to-day work. Although the FCA approached me, is the Minister satisfied that consultation exercises and draft rules that have emerged since the passing of the Act have indeed been brought to the attention of relevant parliamentary committees?
Finally, although it may not be something he can provide in this debate, can the Minister give an update on the future regulatory framework review, which is considering issues such as accountability and scrutiny?
My Lords, I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, for their thoughtful contributions. It is the Government’s view that this instrument is necessary to ensure that the FPC’s existing macroprudential tools continue to operate effectively, given changes that have been made to the wider prudential regime since they were first introduced. On the question from the noble Lord and the noble Baroness about the leverage ratio, it is for the FPC, which is independent of government, to decide which of its levers, including the powers of recommendation and direction, would be most effective and appropriate to implement measures such as the leverage ratio. It is important to point out that the ratio itself increased from 3% to 3.25% in 2016 and banks are today reporting core capital ratios almost three times higher than before the 2008 global financial crisis.
To expand on the comments of the Economic Secretary, since 2016 the Financial Policy Committee has used its powers of recommendation to implement a leverage ratio, which excludes central bank reserves, and the FPC’s current consultation proposes to maintain that policy. The changes in this SI will instead allow it to direct the PRA to implement such changes to the framework, appropriately reflecting that the PRA will become responsible for defining the total exposure measure on an ongoing basis. On the noble Lord’s question about how the Government foresee capital requirements changing now that we are outside the EU, the UK remains committed to maintaining the highest international standards, including the Basel standards. This has not changed now that we have left the EU. However, I should note that the capital requirements in relation to the implementation of Basel 3 and 3.1 standards and the prudential regime for investment firms are set by the regulators and therefore independent of government.
The Government believe that delegating responsibilities to expert and independent regulators remains appropriate. The regulators have the expertise to set rules in the complex and technical area of financial regulation. They do so in an agile way which corresponds to the changing context. The PRA will decide exactly how these Basel 3 standards will be implemented, subject to any recommendations or directions made by the FPC based on the specificities of the UK market, in line with statutory objectives and accountability frame- works set out in the recently passed Financial Services Act. The PRA’s recent consultation on Basel 3 implementation set out several areas where it proposed to tailor the implementation of the outstanding Basel 3 standards to better reflect the UK context.
The noble Lord requested a timeline for ongoing prudential regulation. Last year, the Treasury and regulators published their intention to implement the outstanding Basel 3 reforms and the investment firms prudential regime for 1 January 2022. To enable this, Her Majesty’s Treasury intends, in the near term, to lay an affirmative SI which revokes the relevant aspects of the onshore to capital requirements regulation, therefore allowing the PRA to make rules that fill the space of those revocations and, in so doing, implement the outstanding Basel 3 standards. The Treasury will also, later in the year, lay an affirmative SI which makes consequential amendments needed as a result of the aforementioned revocations.
I want to highlight the Regulatory Initiatives Grid, the third edition of which was published in May of this year and includes the proposed timeline for other prudential reforms, such as the implementation of Basel 3.1. The grid adds to the extensive co-ordination mechanisms already in place between HMT and regulators, giving firms a clear picture of upcoming regulatory initiatives, including consultations, so they are better placed to plan for them. In relation to consultation exercises and draft rules to emerge since the passing of the Financial Services Act 2021, I can confirm that the PRA sent its consultation and its draft rules on Basel 3 implementation, shortly after their publication, to the Treasury Select Committee, the Lords Economic Affairs Committee and the Lords EU Services Sub-Committee. The PRA intends to follow a similar process when it publishes its subsequent policy statement and near-final rules.
The FCA has also engaged with parliamentary colleagues on its two consultations and policy statement on the investment firms prudential regime. Indeed, the first IFPR consultation was discussed by Parliament during the passage of the Financial Services Act and the FCA has notified the Treasury Select Committee of all the IFPR publications to date. I am confident the FCA will follow a similar process for future consultations, policy statements and final rules. As set out in their letters to parliamentarians during the passage of the Financial Services Act, both regulators are happy to hear views and discuss ongoing work in more detail with MPs, Peers and parliamentary committees wherever this is helpful.
Finally, the noble Lord also asked for an update on the ongoing future regulatory framework review. The FRF review aims to build on the strengths of the UK’s existing framework as set out in FSMA to ensure that it is fit for the future. The review considers whether changes are required to the regulator’s statutory objectives and principles, how we ensure that accountability and scrutiny arrangements with the Treasury, Parliament and stakeholders are appropriate, given the regulator’s new responsibilities, and how we return responsibility for designing and implementing the specific requirements that apply to firms in certain areas of retained EU law to the regulators within a framework set by government and Parliament. An initial consultation exploring these key issues and a proposed approach was published in October 2020 and closed in February 2021. The Government are considering the 120 responses received ahead of a second consultation in the autumn.
On the question asked by the noble Baroness, Lady Bowles, about the plans for the UK framework to take a different approach to Basel, the design of the leverage ratio framework is a matter for the FPC and the PRA, which are independent of government. The UK’s proposed leverage ratio delivers a level of resilience at least as great as that required by international standards. Interested parties are able to respond to the ongoing consultation that I referred to, which is being carried out by the FPC.
I hope that the Committee has found today sitting informative and that it will join me in supporting this order, which I commend to the Committee.
Arrangement of Business
My Lords, the Hybrid Sitting of the Grand Committee will now resume. Some Members are here in person, others are participating remotely, but all Members will be treated equally. I ask Members in the Room to respect social distancing. 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.
Road Vehicle Carbon Dioxide Emission Performance Standards (Cars and Vans) (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. The regulations amend Regulation 2019/631 and Regulation 114/2013, both as amended by prior EU-exit SIs. Regulation 2019/631 sets carbon dioxide emission standards for new cars and vans in Great Britain, while Regulation 114/2013 establishes the rules for applying for a derogated target.
An EU-exit SI amended the EU regulations and established car and van carbon dioxide emission standards in Great Britain only, as the regulations were originally listed in Annexe 2 of the Northern Ireland protocol, meaning that Northern Ireland would continue to be captured by the EU regime. The current fleet average carbon dioxide emission target for cars is 95 grams of carbon dioxide per kilometre, and for vans it is set at 147 grams of carbon dioxide per kilometre.
Manufacturers are set individual targets based on the mass of their fleet compared to the average mass of the entire Great British fleet. The heavier a manufacturer’s vehicle, the higher their target, and vice versa. All targets average out to either of the headline targets as aforementioned. The target for both cars and vans will tighten further in 2025 by 15%, and in 2030 by 31% for vans and 37.5% for cars, when compared with the 2021 baseline. Fines are levied for non-compliance with these targets.
The regulations allow for flexibilities to be granted to help manufacturers in certain circumstances to reach their target. One of these flexibilities is derogations. Smaller manufacturers can apply for a derogated target which is more in line with their technical and economic capability. Pooling is another flexibility. This is where manufacturers can join together for the purposes of the regulation and will be given one target. Manufacturers can also receive credits for using carbon-dioxide-reducing technologies in their vehicles that are not taken into account during the carbon dioxide test procedure, such as LED bulbs. More credits can be earned, up to a certain limit, when a manufacturer puts more zero and low-emission vehicles on the market. These are called super-credits and are available across 2021 and 2022.
Regulation 114/2013, as amended by two previous EU exit SIs, is a tertiary piece of legislation which further sets out the rules and procedures for manufacturers when applying for a derogation. The withdrawal Act retained EU Regulations 2019/631 and 114/2013 in their entirety on exit day in UK law. These were amended by a prior EU exit SI, 2020/1418, and set obligations in GB only, due to the Northern Ireland protocol. The draft instrument under consideration today reflects changes made to the Northern Ireland protocol by the Joint Committee. On 18 December, the EU regulations were removed from Annexe 2 of the protocol, leaving Northern Ireland without any car and van carbon dioxide regulation. This instrument will therefore extend the domestic regulations to Northern Ireland from 1 September, in effect creating a UK-wide regime.
The amendments throughout the regulations primarily replace “GB” with “UK”. However, a provision was added stating that new car and van registrations in Northern Ireland prior to 1 September were out of scope of the regulations, including all target calculations. This SI is essential to ensuring that new cars and vans in Northern Ireland are subject to the same carbon dioxide emission standards as elsewhere in the UK.
The regulations are necessary to ensure that the UK achieves its net-zero ambitions and legally binding carbon budgets. I beg to move.
I am very grateful to the Minister, who has outlined the changes to the regulations which amended the amended regulations and covered the specific issue regarding Northern Ireland, for reasons that she explained very clearly to the Committee.
This short debate also gives us the opportunity to consider some of the substantive issues behind the regulations. Alongside the decision to phase out the sale of new petrol and diesel cars and vans from 2030 and introduce new plug-in hybrid electric vehicles from 2035, the regulations are part of a very welcome set of regulations.
However, the key question remains: how do the Government intend to strengthen and reform vehicle CO2 performance and emissions standards to ensure that emissions from non-ZEV—zero-emission vehicle—sales continue to drop ahead of their full phase-out? Does my noble friend accept the views of Energy UK that the key objectives of the policy framework should be: making ZEVs more affordable—a key consumer concern, and an important part of a just transition; increasing the supply of ZEVs, a key challenge at present; continuing to drive improvement in all new cars and vans, to avoid emissions from non-ZEVs increasing ahead of their phase-out; providing certainty to consumers and industry to unlock private investment and provide a strong signal to the public about the direction of travel; coming in at an acceptable cost to the taxpayer; and providing good value for money? In summary, Energy UK says that the Government should
“Introduce a zero emission vehicles … mandate to provide a clear and binding trajectory for the increase in ZEV sales leading up to 2035.”
On CO2 emission standards, do the Government intend to provide a way to incrementally reduce emissions from new non-ZEVs by publicising them clearly and well in advance, and will they consider strengthening standards now?
Does the Minister agree that consistency in policy, transparency and adequate timing are all essential? To date, the scandals reported around monitoring emissions are important considerations. I believe that we have already learned the lessons from them. Baseline measurements and transparency are required. To ensure transparency in the emissions measurement process and to eliminate any doubt about the specific data reported by manufacturers, the emission reporting process and tools must be completely transparent to the Government, the trade and the general public for verification processes. This includes both the yearly emissions measurements as well as the specific reported CO2 emissions within the respective subgroups as defined by the original regulations. Does the Minister further agree that it will be key to the future decarbonisation of the heavy-duty transport sector to set ambitious and forward-looking CO2 targets—as I believe she intends—with strong zero and low-emission vehicle targets? Ambitious regulation and binding targets are key to reducing the risk of investing in zero-emission technology.
I support my noble friend’s work in this sector, I am very grateful to her, and I support the amending regulations before the Committee.
My Lords, I, too, thank the Minister for her explanation, although I must admit—it is no fault of hers—that I found it about as opaque as the Explanatory Memorandum to the SI. I shall ask just three straightforward questions. First, are the EU and UK regulations still identical at the moment? Secondly, what is the Government’s view on divergence of those regulations, and therefore the export potential of UK car manufacturers into the European Union? Thirdly, if there is divergence, where does Northern Ireland fit in? I get the impression that, having been dropped from the protocol, UK standards would reign in Northern Ireland, although most manufacturing is within the single market. I should be interested to understand that.
To follow on from a question in the contribution of the noble Lord, Lord Moynihan, the 2030 target is incredibly important, ending the sale of vehicles with only internal combustion engines. When will the Government bring forward legislation to implement that policy? Until that is implemented, no one can have any certainty at all that that date will not be postponed. When will the Government bring forward legislation to move it from a wish list to a statutory requirement?
My Lords, I, too, am grateful to the noble Baroness for introducing this draft SI. She tried valiantly to make it intelligible, and she did better than the text of the SI itself, which is, probably of necessity, pretty opaque.
I have been looking at some of the issues in the Explanatory Memorandum and, in particular, paragraphs 6.1 and 6.2. I find it surprising that the amendments, being necessary, were thought of only on 18 December 2020, which was two weeks, including Christmas, before Brexit day. This may not be as important as the measures on importing fresh meat, and everything else, which are still being discussed between the UK and the EU in respect of Northern Ireland, but it does seem to have been completely forgotten. The Minister tried very hard in her explanation to rescue what is probably just about impossible to rescue.
I have one or two questions on the Explanatory Memorandum itself. First, on paragraph 7.5, we noted that no EU or UK regulations apply to Northern Ireland between now and 1 August, I think the Minister said. Does that mean that manufacturers who had been on the ball could have introduced the dirtiest possible emissions in cars, vans and other vehicles during the six to seven months when there have been no regulations, and nobody could do anything about it? Presumably, for that reason, nobody has been fined or even caught.
The Minister mentioned “pooling”, which is mentioned in paragraph 7.10 of the Explanatory Memorandum. It is easy to say that that is a good thing, because overall it will balance out the more polluting with the less polluting vehicles. However, I recall the failure of Volkswagen. The subsequent court cases are still ongoing, because it was alleged to have fiddled the figures on emissions—and one or two other manufacturers are, I suspect, saying, “There but for the grace of God go we”. This seems to be a way out for manufacturers to get away with anything they want. I hope that I am wrong and that the Minister will tell me if I am wrong, because it seems very odd.
That also applies to paragraph 7.16 and the phrase “carve out provision”. To me, a carve-up is something that should not be done but often is done to get away with what you should not get away with. Whether carving out is any different, I do not know, but I am sure that the Minister can explain why that phrase is used and what it means. It seems to me to allow manufacturers and distributers of vehicles—cars and vans in Northern Ireland—to register whatever they like from the present period up to 1 August, which reflects pretty badly on the Government’s arrangements there. On whether it will make any difference to emissions or pollution, I look forward to hearing what the Minister says because, as the noble Lord, Lord Teverson, said, we are looking for much more definitive information than we have at the moment on how we get to zero carbon.
Finally, with this extraordinarily complex but no doubt necessary regulation, what is actually wrong with keeping the EU regulations, even if we change the name so that Europe does not appear in the title? It might be a lot easier.
My Lords, I too thank the Minister for her explanation, but I am relieved that the noble Lords, Lord Teverson and Lord Berkeley, used the word “opaque”, because I felt blinded by science but assumed I was the only one. This is an almost sneaky little piece of legislation, because it is presented as a regulation to continue the status quo but it is actually backfilling a regulatory loophole that was created by the Government; it did not have to be created. I am concerned that this little loophole has allowed some highly polluting vehicles to be sold in Northern Ireland. It is only in September of this year that the loophole will close, so highly polluting vehicles can still be sold until then. Clearly, it was negligent of the Government to allow this to happen. For some strange reason, they dropped Northern Ireland out of the EU emissions regime two weeks before the end of the transition period and then allowed a nine-month window of lawlessness when it came to selling polluting vehicles. Perhaps we could have some explanation of that, if it was not in the opening remarks.
Since Northern Ireland enjoys the dual status of being in the EU customs union as well as the UK internal market, I am worried that there is an opportunity for car manufacturers from across Europe and the UK to dump any remaining stock of highly polluting vehicles into Northern Ireland and for them to be sold perfectly legally. Is it possible that the Government created this nine-month free-for-all as a useful opportunity to prop up some car manufacturers and let them clear out their polluting inventory? I sort of felt that that was what the Minister was saying in her introduction.
I have a few questions. Can the Minister give details of how many vehicles have been sold in Northern Ireland through this loophole? How many more are left to be sold and are likely to be sold—I realise that is a harder question—before the September deadline? What is being done to prevent car manufacturers exploiting the loophole and dumping dirty vehicles in Northern Ireland, or do the Government just think this is fair game?
My Lords, I thank the Minister for her exposition in positive and committed terms. Surely all welcome the instrument, given genuine concerns about climate change, whether in Northern Ireland or in my homeland, the lovely land of Wales. In the context of the instrument and current public debate, will the Minister state how dangerous the diesel-engine car and light van are to the health of the citizen?
Climate change has been the motive for decisive action, but what of public health and the diesel engine? We might ask for how long successive Governments have known or not known of diesel’s threat to health. There were 18 respondees to the consultation. Just for the record, will the Minister name several of them? Paragraph 10 of the Explanatory Memorandum, on consultation outcomes, states that respondees were “generally” supportive. Where were the differences? Was that but one manufacturer or association, or was there a general theme indicative of some opposition? Further, were the consultations Minister to Minister or official to official? Were they by email perhaps—one hopes not? Was the voice of local government taken? How are consultations organised by Her Majesty’s Government in an era of devolved government? Will the Minister explain this matter to the Committee? Against such inevitable, unforeseen questions in debates such as this, will she please write with answers?
Finally, in the knowledge that the Minister knows the brief and does care, I say that there is an elephant in the room. I put it like this. How does the woman in the street afford the requirement to change her car or her van? After her car or van, how does she afford the replacement for the gas boiler? Will she be assured that climate change policies under any Government will not presage considerable tax rises? I am sure the Minister shall answer these questions in written form, and one looks forward to the answers. I thank her.
My Lords, I thank the Minister for her explanation and thank her officials for their helpful advice. This is the latest episode in the sad saga of the Northern Ireland protocol, and it is an example of the contortions the Government have had to undertake to enable the economy of Northern Ireland to function according to EU rules, as it must do in order to avoid a hard border, and at the same time to remain part of the UK economy. The solution, of course, was the only one available: that is that, effectively, EU standards will continue to apply.
In this instance, Northern Ireland was omitted from the previous SI, which covered just Great Britain, because of concerns about how Northern Ireland coverage would be achieved. Other noble Lords have referred to their worries in that respect. The result is, as the noble Lord, Lord Berkeley, commented, that Northern Ireland has operated without any rules on new vehicle emissions since January, and will continue to do so until September. This gap has occurred despite the Department for Transport being fully aware.
Can the Minister explain why this SI will not be implemented immediately? The Government have a long record of introducing legislation with instant application; sometimes it is even introduced in retrospect. Since these same rules apply in the rest of the UK now, and since these are effectively EU rules, and therefore nothing new, I cannot think of a single reason why they should not immediately come into force, and why the people of Northern Ireland should not have the same protections on air quality as the rest of us.
The noble Lord, Lord Berkeley, explained his concerns, and mine are very similar. My fear is that some unscrupulous dealers, or even manufacturers, may be using this legal lacuna to offload old stock or substandard products. After all, the Volkswagen scandal is less than six years old. Those vehicles were manufactured to deceive, fitted with defeat devices to disguise the real levels of emissions. Given the lengths they went to in order to cover up the scandal, it would be reasonable to expect some in the motor vehicle industry to try to take advantage of the gap in regulation now in Northern Ireland. Volkswagen was not alone. Since that time, there have been several other scandals of a similar nature, hence the EU’s attempts to tighten up on the way the emissions-testing system is undertaken.
Can the Minister say whether the Government have done any surveys or alerted trading standards in Northern Ireland to a potential problem as a result of this lacuna? What protection will consumers in Northern Ireland have if they buy a vehicle at this time and then subsequently find it is not up to modern emission standards? The Government would do well to keep a close eye on the Northern Ireland vehicle market.
On a fresh point, I want to ask about the interrelationship between this SI, and the previous one for Great Britain, and the recall clauses in the Environment Bill. We dealt with those last Monday evening; they will allow the Government to recall any vehicle which fails to meet the environmental and emissions standards applicable at the time of sale. My questions to the Minister that evening led her to confirm that recall could apply to a vehicle or its components that either did not meet the standards that applied when new or subsequently failed to meet them. Manufacturers will be liable for the full costs of recall, potentially including compensation to consumers. The Minister then confirmed that it was intended to apply to deliberate or accidental failure to meet the standards.
Can she explain where consumers in Northern Ireland will stand? They are happily buying vehicles now, probably unaware that no proper rules are in place. What will be their rights in a couple of years’ time if they discover their vehicle does not comply with the rules that should be in place, had it not been the case that the Government decided to leave Northern Ireland without legal cover for six months or so? Are the Government sure that the previous SI, for Britain only, will also fit neatly with the recall clauses?
It is a pity that the Government are still running to catch up on an issue as vital as vehicle emissions. If targets are to be met, they really need to be getting ahead by setting interim targets and incentivising consumers. I look forward anxiously to SIs for those, rather than SIs such as this, for which there are so many questions.
My Lords, CO2 emission performance standards set a maximum average level of CO2 emissions for new cars and vans, broken down into specific targets for each individual manufacturer. This issue of new car and van CO2 emissions was originally included in the Northern Ireland protocol, which meant that Northern Ireland would continue to align with EU regulations on this aspect in accordance with annex 2.
However, on 17 December last year, the UK-EU joint committee made a decision to remove two regulations covering emissions from the protocol, which meant that Northern Ireland was no longer expected to align with the EU on those regulations and could instead align with the Great Britain regime, making it a UK regime. The reason given by the joint committee was that the regulations relating to emissions of new cars and vans
“do not relate to the placing on the market of such vehicles in the Union. They should therefore be removed from Annex 2 to the Protocol”.
Removing these two regulations from the protocol, as the European Scrutiny Committee report says, also ensures that
“vehicles in Northern Ireland will not count toward EU manufacturer CO2 targets, and may count toward UK manufacturer CO2 targets instead. This clarifies Northern Ireland’s place in the UK internal market.”
These regulations—I too thank the Minister for her introductory comments—extend the existing GB regime to cover Northern Ireland as well, now that Northern Ireland is no longer covered by the EU regulations on this issue. This will enable the UK Government to regulate CO2 emissions from newly registered cars and vans in Northern Ireland in the same way as currently regulated in Great Britain, effective from 1 September this year.
We are supportive of the UK-EU joint committee as a forum for finding practical solutions and agreement over issues with the protocol, and that the Government must work through the joint committee, which they do not always do. I have one or two questions to ask and clarifications to seek. The Explanatory Memorandum states that, because the two regulations covering emissions were removed so late from the Northern Ireland protocol, in mid-December last year,
“Northern Ireland currently has no CO2 regulations for new cars and vans, meaning”,
as others have pointed out,
“manufacturers are free to sell highly polluting vehicles in Northern Ireland without restriction.”
Can the Minister say whether the selling of highly polluting vehicles in Northern Ireland actually happened, as the regulations we are debating, which cover Northern Ireland, do not come into effect until 1 September this year? Can the Government also say why these regulations, which will cover Northern Ireland, could not have been brought into effect much earlier than 1 September 2021, or, alternatively, why the regulations applicable in Northern Ireland could not have remained in the protocol until 1 September 2021, when the regulations we are discussing come into effect, thus presumably avoiding any period during which there would have been no CO2 regulations for new cars and vans covering Northern Ireland?
The Explanatory Memorandum refers to the need to provide a short period of time to allow industry to adapt to the regulations coming into force. What does this adaptation actually involve doing? Is there a difference between the CO2 regulations that applied in Northern Ireland prior to December 2020 and the regulations that will apply to Northern Ireland from 1 September 2021? As I said, removing these regulations from the protocol means that vehicles in Northern Ireland will not count towards EU manufacturer CO2 targets and may count towards UK manufacturer CO2 targets instead. However, since by 1 September 2021 there will have been no CO2 regulations for new cars and vans covering Northern Ireland for some eight months, does that mean that relevant vehicles in Northern Ireland will have counted towards neither EU nor UK manufacturer targets? If so, what exactly has been achieved by creating that situation, and will adjustments to the figures for this eight-month period subsequently be made to EU and UK manufacturer CO2 targets? The Explanatory Memorandum suggests that this will not be done. If that is the case, why not?
Following our departure from the EU, the Government’s policy for this year, as I understand it, has been to have a continuation of the existing EU-wide standards to minimise disruption for vehicle manufacturers. What, however, are the Government’s, intentions or plans for future vehicle emission standards in the UK, now that we are outside the EU? Or were the Government’s future intentions or plans covered by the comments the Minister made in her opening remarks? I look forward to the Government’s response to the points and questions that I and other noble Lords have raised in the debate.
I thank all noble Lords for their consideration of these draft regulations. I will add a bit more colour to the issues relating to the regulations and I will come on to other matters if I can; otherwise, I will write.
First, I point out in relation to the devolved nations and consultation that, because this is a Northern Ireland regulation, we obviously engaged with Northern Ireland officials on our plans to regulate carbon dioxide emissions and my colleague, Minister Maclean, sent a letter to the Secretary of State for the Northern Ireland Department for Infrastructure, Nichola Mallon, informing her of this SI being laid on 8 June.
Let us go back to how we got into this situation. It was because the regulations were removed from the Northern Ireland protocol at the last minute. This was a decision taken by the UK-EU Joint Committee; therefore, when we did the previous EU exit SI, it was drafted on the basis of agreed international law at that point, and the regulations therefore covered only GB. It was anticipated that Northern Ireland would be in the protocol and then obviously that turned out not to be the case. Both the UK Government and the European Commission formally agreed that these regulations were not needed, so it was not a decision of the UK Government alone. Because this decision came relatively late, as noble Lords will know—it was on 18 December —we were unable to lay an SI to extend the regulations to Northern Ireland prior to the end the transition period in 2020. I accept that that created a gap in the law, which is what noble Lords are being asked to rectify today.
The noble Lord, Lord Berkeley, asked why it took so long—he said it more nicely than that. The extent of the gap in the law—the setting of the date of 1 September, which is the date when these regulations would come into force—was dependent on two factors. The first is that the process of laying an SI takes many months and cannot be done very quickly, especially when it needs consultation with stakeholders. The second is the impact on manufacturers and their views following a consultation. The date of 1 September is actually a fairly short delay to what would otherwise have been achieved, and it provides manufacturers with a certain date from which the changes will take place and time for them to adapt. The need for this was voiced by stakeholders at a VCA and DfT workshop, where concerns about the regulations coming into force immediately were expressed.
Manufacturers were essentially given very short notice of the Government’s intention to change the regulation for Northern Ireland, which would have meant that new cars and vans sold in Northern Ireland would start counting towards their domestic targets immediately, but fleet compositions are typically set out well in advance. They would not have known about or been able to plan for the new regulatory regime. Northern Irish registrations, and the resulting carbon dioxide emissions, as a share of UK totals are far more significant than the same registrations in the EU. Therefore, extending the regulations to Northern Ireland could have impacted on manufacturers’ emissions.
In addition, a key concern for manufacturers is their ability to forecast their sales for the year. Manufacturers may know the vehicles they plan to sell in the UK, but they are not in control of where or when during the year they will be sold. For example, if in a particular year more electric vehicles were sold in the first half than the second, and if you suddenly included Northern Irish vehicles from, say, July onwards, that might artificially distort the manufacturers’ average emissions and you would therefore get a distorted image. Essentially, if we use the registration data from 1 September instead, the likelihood of that distortion falls away and the industry has time to plan and adapt.
Although it is the case that carbon dioxide emissions from newly registered cars and vans in Northern Ireland from 1 January to 31 August will not count towards any carbon dioxide emission targets, it should be noted that manufacturers generally do not create vehicle models or specifications for individual countries; they create products for larger geographic markets and have strategies for them. As a result, the vehicles sold in Northern Ireland so far this year will have been heavily influenced by both the domestic and the EU carbon dioxide regimes, which currently remain aligned.
I believe that the fears of both the noble Lord, Lord Berkeley, and the noble Baroness, Lady Jones, are unfounded. It is useful to note that the sales of new cars and vans in Northern Ireland represent roughly 2.2% and 1.9%, respectively, of the UK’s total market. So even if higher-emitting vehicles have been sold in Northern Ireland, we expect that there would be an incredibly minimal change to greenhouse gas emissions. The data on the number of vehicles is not currently available. I cannot remember who referred to this—I believe it was in a conversation about air quality—but it is worth noting that the regulations cover only carbon. All cars sold must comply with particulate limits, which are obviously the contributor to poor air quality.
Thinking about the administration and enforcement of the regulations, their administration will be very much as the EU procedures are currently, with the exception, of course, that manufacturers will work with the Vehicle Certification Agency, the VCA, as the enforcement body, rather than the EU equivalent. At the moment, data is passed to the DVLA, as it will be in future, then it will get to the VCA, which is the enforcement body for the regulations. Every year, it will process the registration data and calculate the carbon dioxide performance and targets for the previous year for each manufacturer.
Any manufacturer exceeding that target when the dataset is published in October has to pay an excess emissions premium and has 28 days to pay or appeal it. That is what happens for new cars—that is, cars at first registration—but the noble Baroness, Lady Randerson, mentioned the Volkswagen emissions issue. The regulations also allow for random verification of carbon dioxide emissions from vehicles in service. In this case, it is the DVSA that conducts random testing on new and, sometimes, used cars to ensure compliance. Also, all new vehicles are now required to store that data on board.
Many noble Lords asked me to go far beyond the regulations, and I would not want to steal the thunder of two bits of government activity which are coming very soon. We recognise that the retained carbon dioxide targets are not currently aligned with our commitments to phase out new petrol and diesel vehicles by 2030, nor, obviously, with the 2035 zero emissions at the tailpipe ambitions. We will be publishing the Green Paper on the UK’s future carbon dioxide regulatory framework very shortly. It will set out the frameworks that we could introduce to transition away from the most polluting vehicles and to support consumers and businesses to make the switch to zero emissions. The second piece of activity is the much more wide-ranging transport decarbonisation plan which will talk about how we decarbonise all modes of transport. I have listened very carefully to the questions in this area but I would not want to steal its thunder, as noble Lords will be seeing that very soon.
The noble Baroness, Lady Randerson, noted the Environment Bill. The Government intend to create a regime that will enable manufacturers to recall vehicles and non-road mobile machinery and vehicle components that do not comply with the environmental standards which they are legally required to meet. The Government will be able to set vehicle manufacturers a minimum recall level that they will have to achieve. In the event of the manufacturer refusing to comply with a recall notice or failing to meet the minimum recall level, they can be subject to civil penalties. Under these carbon dioxide regulations, manufacturers can already be issued with substantial financial penalties if they fail to meet their carbon dioxide targets. However, it should be noted that there is no upper limit on carbon dioxide for any particular vehicle. They are being set on a fleet-average basis, meaning that manufacturers can sell some vehicles which produce more emissions than average because there will be others that produce fewer.
I accept that I have not been able to go into detail on some of the questions that I have been asked today. I will be writing, particularly to provide further information around consumers and how we feel the market in Northern Ireland is behaving at the moment, but for the time being, I beg to move.
That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 5.22 pm.