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House of Commons Hansard
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General Committees
29 November 2017

Delegated Legislation Committee

Unified Patent Court (Immunities and Privileges) Order 2017

The Committee consisted of the following Members:

Chair: Mr Adrian Bailey

† Benyon, Richard (Newbury) (Con)

† Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)

† Brereton, Jack (Stoke-on-Trent South) (Con)

Campbell, Mr Ronnie (Blyth Valley) (Lab)

† Carden, Dan (Liverpool, Walton) (Lab)

† Chalk, Alex (Cheltenham) (Con)

† Debbonaire, Thangam (Bristol West) (Lab)

† Dromey, Jack (Birmingham, Erdington) (Lab)

† Eagle, Ms Angela (Wallasey) (Lab)

† Goldsmith, Zac (Richmond Park) (Con)

† Harris, Rebecca (Castle Point) (Con)

† Johnson, Joseph (Minister for Universities, Science, Research and Innovation)

† Law, Chris (Dundee West) (SNP)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Robinson, Mary (Cheadle) (Con)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Tracey, Craig (North Warwickshire) (Con)

Kenneth Fox, Committee Clerk

† attended the Committee

Sixth Delegated Legislation Committee

Wednesday 29 November 2017

[Mr Adrian Bailey in the Chair]

Draft Unified Patent Court (Immunities and Privileges) Order 2017

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I beg to move,

That the Committee has considered the draft Unified Patent Court (Immunities and Privileges) Order 2017.

It is a pleasure to serve under your chairmanship, Mr Bailey. The draft order, which was laid before the House on 26 June, will confer legal status on the unified patent court, as well as providing a limited set of privileges and immunities to the court, its judges and staff. These are necessary to ensure the effective and proper functioning of the court, and were agreed in the international agreement that established the court and its protocol on privileges and immunities.

Why does the unified patent court matter? The current patent system across Europe is fragmented and expensive: businesses must maintain a bundle of patent rights, each covering a single country, and must enforce each patent separately in the national courts of each country, which is costly and burdensome. The unified patent court will offer a way for innovative businesses to enforce or challenge patents in up to 26 European countries with a single court action. The ability to obtain a single judgment is significant and valuable for patent-intensive industries. Independent research shows that approximately a quarter of all patent cases heard in UK courts were litigated between the same parties in other European jurisdictions, so a single unified patent court is welcome. An important division of the court, dealing with disputes in the field of pharmaceuticals and life sciences, will be based here in the UK, cementing our global reputation as a place to resolve commercial legal disputes. British businesses will still be able to choose national patents and litigation in national courts, but will have the option to use the new court structure with all the benefits that I have described.

The draft order is part of the UK’s ratification process. It confers legal capacity on the unified patent court and gives effect to the protocol on privileges and immunities. It also provides immunity from legal process for the court, with some exceptions; for its judges, registrar and deputy registrar; and for its representatives and staff, although only in the exercise of their official functions. That immunity can be waived by the UPC.

The judges and staff of the court will be exempt from national taxation on their salaries and from national insurance once the court applies its own equivalent tax and puts in place its own social security and health system, but neither exemption will apply to court staff who are British nationals or permanent UK residents. The draft order also provides that the court is exempt from direct taxation in relation to its official activities, as is the case for other international organisations based here, such as the International Maritime Organisation.

The draft order will confer on the new court and its judges and staff only the privileges and immunities that are necessary for the organisation to conduct its official activities effectively. Those privileges and immunities are in line with those offered to officers of other international organisations of which the UK is already a member. I commend the draft order to the Committee.

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It is a pleasure to serve under your chairmanship, Mr Bailey.

We are a creative nation of entrepreneurs and innovators. In the 19th century, Birmingham and the Black country were known as the workshop of the world, and in modern times we have silicon roundabout about 2 miles away, the golden triangle of London, Oxford and Cambridge, and remarkable innovation from Jaguar Land Rover in the midlands and the north of England. I will never forget travelling with Jaguar Land Rover’s chief executive Ralf Speth in his Land Rover and seeing how the company was using its close proximity to a cluster of companies engaged in the games industry to produce the next generation of in-car entertainment systems. Crucial to that was the protection of patents.

I have seen at first hand, and I am sure that many Members have likewise seen, just why it is important that we remain a nation of innovation. In future, we will want to attract the brightest and the best as we leave the European Union, and crucially in that process we need sensible arrangements that protect the interests of Britain. I will come back to that point later.

At the heart of turning ideas into commercial practice is protection from poaching, as well as the patent system that has grown up over many years. Such protection is of the highest order including, as the Minister said, both domestic and international mechanisms on the one hand, and immunity, as is proposed by the order, on the other hand.

The European Patent Office was founded in 1977. We signed up to the unified patent court in 2013, together with 25 other member states in the European Union, and the necessary arrangements were finalised shortly after the decision by our country on Brexit. The order seeks to confer necessary legal status as we approach the next stages, for the avoidance of any doubt, and we believe that to be an eminently sensible move, which the Opposition wholeheartedly support.

Finally, it is all the more important that we have such domestic and Europe-wide arrangements at a time of immense uncertainty in our country, to help to reassure creative people and innovators that we are serious about remaining a creative nation of innovators. Dare I say to the Minister that in reaffirming that existing European arrangements should continue to obtain in the future, hopefully that will form a precedent when it comes to next-stage discussions on the single market and the customs union? On those fronts, we will also need sensible arrangements, whereby we will have full access to and will enjoy the benefits of those arrangements that have served this nation well for many years.

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It is a pleasure to serve with you in the Chair, Mr Bailey; I do not think I have done so for a while.

Will the Minister say a little bit more about how he the arrangements will work in future? Clearly, it is a very important and good thing if we can deal with the fragmentation of patents, particularly across the European single market, but his Government are now determined to leave that market. Although this new institution is not an institution of the European Union, we agreed to come on board and become involved in it while we were in the EU, well before the vote to leave had even been thought of, except on the far fringes of the Conservative party, much less the subsequent referendum.

I am interested in the Minister’s observations on that, because the court will have to put into place the new unified directive on patents, which the European Union is in the process of putting into law and with which we are associated at the moment. However, we probably will not be if we leave the customs union and the single market at some time in future.

We are in quite an unfortunate situation: just as we are attempting to stop the fragmentation of patent law and requirements, particularly their jurisdiction in the European Union, we are fragmenting ourselves from the institution that is meant to co-ordinate that. If the last few weeks are anything to go by, we are not exactly leaving in good odour—or order—judging by the way things are going at the moment. I suspect that that may have some implications for the way in which such a pragmatic and important issue will be dealt with in future. Will the Minister give us the benefit of his observations on that and its implications?

I also note that there are experts who feel that the UK will need to take several steps to remain within the ambit of this institution after Brexit, including entering into new international agreements with the other signatories of the agreement on the unified patent court. Those signatories will all, of course, remain in the single market and the EU.

We are in the middle of trying to set up this institution, which is what the order is about, just as we are leaving the EU. Does the Minister think that we need to come back to this, and change the law and international agreements so that we can proceed smoothly with what we all agree is a desirable outcome? Would that hold up the implementation of what is a wholly good thing?

I also note that there are some issues in Germany that are holding up the final ratification of the court. Does the Minister feel that events in Germany will assist us in getting the timing right regarding our desire to enter into new international agreements, or does he think that they will slow down this wholly welcome development? If we do need new international agreements to move forward in the event of our coming out of the European Union by 2019, is his Department geared up to negotiate them? Has it done any planning on ensuring that our legal arrangements enable us to go on with, and not disrupt, the setting up of this extremely important institution as we leave the European Union?

Finally, can the Minister give us a definite guarantee? His Government do not believe in the jurisdiction of the European Court, but areas of patent law, particularly in the directives, are currently subject to that jurisdiction. Can the Minister explain to us how on earth we are going to be part of this institution, but not subject to the oversight of the European Court? For the life of me, I cannot work out how that would work.

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I thank the hon. Member for Birmingham, Erdington for supporting the order, and for recognising the role that the court will play in ensuring that we have a system that encourages innovation and protects companies that invest in research and development. Those companies are able to go on and commercialise the discoveries that they make without fear of their hard work and efforts leading to nothing, or being taken advantage of by competitors that have not made those investments in discovery.

I thank the hon. Member for Wallasey for asking some important questions; I will now try to respond to as many as I can. She asked principally about the impact that leaving the EU will have on the operation of the UPC, and what our relationship to the UPC will be after March 2019, when we will be in the process of leaving the EU. To be clear, the UPC itself, as she knows, is not an EU institution, but currently all participating member states are EU member states. Our position is that while the UK remains a member of the EU, we will and should complete all necessary legislation, so that we are in a position to ratify the agreement.

Whatever the UK’s future relationship with the unified patent court, we expect that, as the hon. Lady said, we will need to negotiate with our European partners, to reflect the change to the UK’s status in relation to the UPC that will take place when we leave the EU. As a Government, we believe that it would be wrong to set out any unilateral positions in advance of the negotiations that we know we are going to have to have, because our efforts will need to be focused on securing the best possible deal for the UK in our negotiations with our European partners.

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This is an important point for the avoidance of doubt on the part of the innovators and entrepreneurs of our country. Our support for the order is given on the basis that it will be an enduring mechanism now and after we leave the European Union. Is the Minister suggesting that having given legal effect to the order, the situation might change post-Brexit? That will be a source of immense concern to innovators and entrepreneurs in our country.

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Through the passage of the order and completing all the necessary legislative steps in Parliament, we want to ensure that we are in a position to ratify the UPC and our membership of it, thus enabling it to come into existence. As the hon. Gentleman and Members know, under the terms of the international treaty, UK ratification is required for the UPC to come into existence, and we want the court to come into existence. We have been supporters of it from the outset, and we think it will play an important role in enabling businesses to enforce their intellectual property rights at the lowest possible cost, or certainly at a much lower cost than many companies find to be the case at the moment. We are supportive of it, and we want to continue to play a facilitating role in setting it up.

After we leave the European Union in March 2019, we understand that we will have to negotiate a new relationship with the UPC. We want to do that as seamlessly as possible so that businesses can continue to take advantage of the provisions that the UPC makes possible. Our expectation is that the long-term relationship we will have to establish after March 2019 will be subject to some negotiation. I and the Government as a whole do not want to go into the detail of exactly what that relationship will be at this point.

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We all agree that the court should be set up. Because of the delay in Germany it is unlikely to be up and running much before the middle of next year, if things go well with the constitutional court there. That leaves us less than a year to get the institution up and running before we have to have a major renegotiation of our relationship with it.

In response to one of my initial questions, the Minister said that he is not in a position to give us any particular view on that because he, his Department and the whole Government will be much too busy concentrating on the bigger Brexit things. Is he of the view that the court and, much more importantly, our participation in it can continue without the legal changes we will clearly have to negotiate to remain a member once we are outside the European Union?

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Order. I remind Members that the order is essentially about the privileges of the key figures of the court. While I have allowed the debate to range to other issues around it, it would be helpful if we could focus on the order and if the Minister could relate his reply to the specific issues relevant to the order and the hon. Lady’s comments.

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Thank you, Mr Bailey, I will try to do that. Returning to the hon. Lady’s question, the order is made under the International Organisations Act 1968. It does not relate to EU legislation, nor does it rely on the European Communities Act 1972. The order will therefore not need to be preserved by the EU (Withdrawal) Bill at exit to remain UK law, so it will continue. As the hon. Lady knows, the UPC agreement is an international treaty, not an EU treaty. It will not need to be converted into UK law by the EU (Withdrawal) Bill for it to continue to apply.

To summarise all the points on Brexit, whatever the UK’s future relationship with the UPC, we will need to negotiate with our European partners to reflect the change to the UK’s status when we leave the EU. We want the court to come into existence. That is why we are facilitating it by putting ourselves in a position where we can ratify it. We understand that there are issues in other countries whose ratification is necessary; we hope that they can be overcome so that this court can come into existence and do the job we all want it to do.

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The privileges issue is clearly important. We cannot have the court without this order, which is why we all support it, but I hope the Minister will reassure me that we can continue to use this court with all its privileges if we are out of the European Union. The House of Commons Library note on this issue includes some worrying or at least alarming views from European law experts who say that we will not be able to remain in the court appropriately after Brexit before we have changed the law—we will not be able to just carry on having the court run. That might mean that people in our country cannot have access to its benefits until the Government ensure that they have entered into new legal agreements with the other signatories. Would he confirm that that is the case and say something about whether the order ensures that we will continue to have access to the court’s benefits, which we all want, without Parliament having to come back—

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Order. That is an incredibly long intervention.

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Well, it is a question.

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The points have been packaged up as questions. We have the drift of it, so will the Minister now respond?

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The hon. Lady has raised the issue of a smooth transition so that there is minimum uncertainty for business about the enforcement of intellectual property rights as we leave the EU. She is right, and the Government are in total agreement. We do not want any cliff edges. We want minimum disruption for businesses, and we want to minimise threats to stability as we develop the deep and special relationship with the rest of the EU that we have set out as our objective for the negotiation. Of course we will take into account the need to protect intellectual property rights as part of the process of considering the options for the UK’s intellectual property regime after our exit, but as I have said on a number of occasions, our future relationship with the UPC will be a matter for negotiation. It would not be appropriate for me to set out unilaterally what the UK’s position will be in advance of those negotiations.

I will try to conclude again by saying that the Government will continue to work with signatory states to bring the UPC into operation as soon as possible, making it easier for businesses all over the country—in the midlands, in Birmingham, Erdington and elsewhere—to enforce their patents across Europe. I hope the Committee will support the draft order accordingly.

Question put and agreed to.

Committee rose.

Draft Risk Transformation Regulations 2017 Draft Risk Transformation (Tax) Regulations 2017

The Committee consisted of the following Members:

Chair: Philip Davies

† Barclay, Stephen (Economic Secretary to the Treasury)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Drax, Richard (South Dorset) (Con)

† Frith, James (Bury North) (Lab)

Hodge, Dame Margaret (Barking) (Lab)

Kendall, Liz (Leicester West) (Lab)

Lammy, Mr David (Tottenham) (Lab)

† Lee, Ms Karen (Lincoln) (Lab)

† Lopez, Julia (Hornchurch and Upminster) (Con)

† Mercer, Johnny (Plymouth, Moor View) (Con)

† Mills, Nigel (Amber Valley) (Con)

† Murray, Mrs Sheryll (South East Cornwall) (Con)

† Philp, Chris (Croydon South) (Con)

† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)

† Smith, Henry (Crawley) (Con)

† Smith, Jeff (Manchester, Withington) (Lab)

† Stuart, Graham (Beverley and Holderness) (Con)

Gail Bartlett, Claire Cozens, Committee Clerks

† attended the Committee

Fifth Delegated Legislation Committee

Wednesday 29 November 2017

[Philip Davies in the Chair]

Draft Risk Transformation Regulations 2017

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I beg to move,

That the Committee has considered the draft Risk Transformation Regulations 2017.

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With this it will be convenient to consider the draft Risk Transformation (Tax) Regulations 2017.

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It is a pleasure, Mr Davies, to serve under your chairmanship. The regulations introduce a bespoke regulatory and tax framework for insurance-linked securities business in the UK, completing a process that was announced at Budget 2015.

Insurance-linked securities enable insurers and reinsurers to transfer risk to the capital markets. That is an important and growing part of the global specialist reinsurance market. As of 2017, more than $90 billion-worth of insurance-linked securities have been issued. However, despite the importance of London as a global insurance hub, the rapid growth of the insurance-linked securities market has taken place elsewhere. That is why at Budget 2015 the then Chancellor announced that the Treasury, the Financial Conduct Authority and the Prudential Regulation Authority would work closely with the London insurance market to develop a fit-for-purpose framework for insurance-linked security business in the UK.

The regulations comprise four main elements. First, the regulations provide for UK regulators to apply a new authorisation and supervisory regime for the vehicles that issue insurance-linked securities in the UK. Secondly, the regulations introduce a new type of company called a protected cell company to enable multiple deals to be managed in a single company. Thirdly, the regulations set out the rules for the issuance of securities by protected cell companies, so that the interests of protection buyers and investors are protected. Finally, the tax regulations set out an appropriate and straightforward tax treatment for the transformer vehicles that issue these securities.

The Government are also introducing a new form of corporate body called a protected cell company in these regulations. A protected cell company allows for the efficient management of multiple insurance-linked security deals within a single company, rather than establishing a new vehicle for each individual deal.

The structure of a protected cell company requires each to be held in a cell, with each cell’s assets and liabilities ring-fenced from one another. That type of structure is already common in the insurance-linked securities market but has not been available in the UK until now. The PRA and the FCA will carefully supervise protected cell companies, with the PRA ensuring that each cell is fully capitalised.

The regulations ensure that only sophisticated or institutional investors can be offered insurance-linked securities in the UK and take on this risk. These are complicated financial instruments and it would be wrong for retail investors to be able to purchase them. Finally, the risk transformation tax regulations set out an appropriate and straightforward tax treatment for transformer vehicles that issue these securities in the UK.

To ensure that UK transformer vehicles are competitive and straightforward to use, under the regulations tax is charged at the level of the investor rather on the transformer vehicle itself. For UK investors, tax will be charged as normal, according to their circumstances. Non-UK investors will be taxed according to the rules of their home jurisdiction.

That tax treatment follows the policy aim of the UK’s existing tax regulations for insuring special purpose vehicles, which is set out in the Taxation of Insurance Securitisation Companies Regulations 2007, a document I know you are very familiar with, Mr Davies. The tax regulations we debate today provide for broadly similar outcomes but in a much more straightforward way.

In conclusion, Members have heard that insurance-linked securities are a growing market. Indeed, 2017 has seen record issuance of insurance-linked securities with more than $11 billion-worth in this year alone. It is, therefore, the right time for the UK to improve its offer in this market. The regulations have been welcomed by the industry and by the London Market Group, which represents London’s insurers and reinsurers. I commend the regulations to the Committee.

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It is a pleasure as ever to serve under your chairmanship, Mr Davies, and it is always nice to find time to talk about insurance.

One of the first visits I made to the City after I became shadow City Minister was to the iconic Lloyd’s of London building at the heart of the square mile. It is extraordinary modern architecture with a fascinating history, from simple beginnings as Edward Lloyd’s coffee shop to the insurance behemoth we know today, underwriting £30 billion every year. As a country, we should be very proud of the history of the insurance industry and its potential for the future.

The question of opening the insurance market up internationally is therefore of significant importance to the UK. The London Market Group, which, as the Minister said, has contributed in considerable depth to the initiative, has said that greater tax revenues on the insurance-linked securities market may come from an expansion and updating of the legal regime that the regulations cover.

We should always bear in mind the potential risks around securities markets, with the insurance-linked securities market being particularly affected during the global financial crisis and the collapse of the collateralised debt obligations market a decade ago. We also cannot ignore the context. I could not help but notice that the Minister said that this package of measures was announced in the 2015 Budget—that is a long time ago in political terms. Now we face an entirely different landscape, due to our exit from the European Union. I find it odd that the Government are taking this approach to ensuring the London market is well-equipped to compete globally, while ignoring the elephant in the room, which is that a “no deal” Brexit would cut off the industry at its knees.

We have already seen reports that Lloyd’s has picked Brussels as the location for its new EU subsidiary, given its concerns about retaining access to the single market. The success of the UK insurance market is inextricably linked to cross-border market access and so the sector is perhaps more dependent than any other on the need for sound transitional arrangements. The ongoing validity of insurance contracts across borders is vital to the economy, but we have no insight as yet on the Government’s proposals for mutual recognition.

I have spoken with industry representatives who have made it abundantly clear that Solvency II provisions on equivalence will fall short of what is needed. They have also said that a transition must be agreed by the end of this year to have real value and prevent them from needing to enact their contingency plans.

Without considering the wider context of how the industry will thrive outside the EU, this initiative seems to me to be hamstrung from the beginning. Therefore, I wish to ask the Minister some key questions. First, will he assure the Committee that safeguards will still be in place to secure the stability of the insurance-linked securities market following the adoption of the regulations? Is he comfortable that the processes are sufficient to ensure that there will be no contagion between different parts of the securities market and beyond? Most of all, will he say how the market will continue to operate in the absence of any deal with the European Union, and a hard Brexit taking place? Finally, will he commit the Government to reviewing the legislation after a short period and placing a report in front of the House on the operation of the insurance-linked securities market as a whole and the effect the regulations have had upon it?

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I have a few words on the regulations before us, rather than generally on the insurance market. I warmly welcome the fact that we are trying to reform our regulatory rules and tax rules to make sure that this kind of work can be done onshore in the UK, rather than offshore in a collection of our overseas territories and Crown dependencies. The right answer for our economy has to be to try to have this work carried out in the UK, rather than risk it all being done offshore. I would hope it would be the right answer for all the investors who would like to get into the market: to realise they can now do the work in a well-regarded, well-reputed, transparent and clean financial market, rather than risk being tainted by the various scandals that sadly seem to exist in some of our overseas territories, where we cannot quite yet convince them to have the levels of transparency that we would like. Perhaps I will not drag the Minister down this line; we will leave it for another day.

I always get a little nervous when we create new tax exemptions. The important thing is to make sure that it applies only to those entities that are carrying out this work and which we intend this perfectly sensible tax treatment for. This market does not work if we tax the investment vehicle rather than the investors.

The definition in the regulations is that it is a company that

“carries out the activity of insurance risk transformation”.

Will the Minister confirm that he is happy that that definition is sufficiently tightly defined so that other people cannot pretend that another activity can be done by one of these companies and be done tax-free, and groups cannot reinsure their own costs and somehow disappear that money from UK tax? I am sure it all links to how the regulations works. The definitions are there, but I cannot see, from what is written in the order, that they are as strong as I would like them to be.

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It is an absolute delight to be on a Delegated Legislation Committee. It has been far too long since I had the pleasure of coming to one of these rooms to discuss something incredibly technical. I have several questions for the Minister, following what the hon. Member for Amber Valley said about attracting this kind of work and these kinds of opportunities to the UK.

I am not exactly clear why this stuff does not take place in the UK already, or about the Government’s moves relating to the tax treatment and the enabling legislation that the Minister talked about. This measure was mooted in the Budget in 2015, and this is the follow-through. My concerns are about the assessment of its impact. The legislation has been presented to us, but I am not clear how much tax will come to the UK Treasury as a result of it and what the economic benefits will be. How many jobs will it create, if any?

I am also not clear about the issues that the insurance industry is set to face with Brexit, which the shadow Minister alluded to. It is incredibly concerned about dropping off the cliff edge because of the legislation that means that it can no longer communicate with customers who do not live in the UK if we do not have a deal that covers that with the EU. I am not clear whether this will do any good in countering those issues and concerns—particularly those relating to Brexit.

I am not clear about why this should be exempt from corporation tax. Like the hon. Member for Amber Valley, I have concerns about creating something new that is exempt from corporation tax. I would welcome the Minister’s views on how the Government will ensure that this statutory instrument is used only by the companies and organisations that should be using it.

The shadow Minister called for an assessment, to be published fairly quickly, of the impact of the regulations—an assessment not just of how many times the legislation is used, but of the tax-take that has been lost and the economic benefit that has arisen. Given the Government’s focus on job numbers, it is really important that that comes out more when we discuss new regulations and vehicles.

I think the Minister pretty much answered the question about the requirement to deduct income tax. I understood from what he said that the income tax will be paid by the people who receive it, whichever country they happen to be in. That is why the protected cell company does not need to deduct income tax.

My last question is about the consultation responses. The papers we have state that the 19 consultation responses were largely positive and in favour of the proposal. It would be useful if the Minister could tell us how many consultation responses were sought and/or received from organisations that are not set to benefit directly from the regulations. It would be useful to know how many people who do not have a beneficial interest in them responded to the consultation. If the respondents were all people who will benefit, of course they are going to write back and say, “It’s a wonderful thing.” It would be useful to have a bit more clarity about that. I am sorry I have given the Minister an absolute string of questions, but that is the technical nature of DL Committees.

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I thank Committee members for their probing but very interesting questions about the rationale for this policy. The shadow Minister is right to say that we are proud of the insurance industry in the United Kingdom for its global reach and its potential. He mentioned the context of Brexit. These measures were initiated in the 2015 Budget, but Brexit reinforces the benefit of increasing the UK’s influence over this part of the market, which is already well established but is currently conducted offshore. Bringing it within the UK will give UK regulators—the Financial Conduct Authority and the Prudential Regulation Authority—more influence over it than they have under current arrangements. With Brexit, this is the kind of global business that the UK should be competing in. EU insurers already use these vehicles and deals outside the EU. We are discussing a business that is conducted outside the UK from which the UK has the potential to benefit, as opposed to a business that is currently conducted in Europe.

The shadow Minister raised safeguards. It is important to flag that, unlike conventional reinsurers, these vehicles do not pool risk; every deal must be fully collateralised. A transformer vehicle must raise and hold collateral that is at least sufficient to meet its insurance obligations, so an inherent safeguard is built into the design of these products. A further safeguard—it is important to reiterate this—is that the products can be accessed only by sophisticated or institutional investors, so there is no risk of retail investors failing to understand the products on the market.

Several Members raised the issue of tax. It is important to reiterate that the principle behind this tax treatment is similar to the way Lloyd’s members are currently taxed on their syndicate participation, albeit the mechanics of how it is achieved are different because of the different legal characteristics of the entities involved. Investors in Lloyd’s are treated as if they had participated in profit-generating insurance activities directly, rather than through an intermediary—a syndicate. Also, a vehicle cannot qualify for this tax treatment without authorisation from the UK regulatory framework—the Prudential Regulation Authority and the Financial Conduct Authority. That is a further safeguard.

The hon. Member for Aberdeen North, who speaks for the Scottish National party, asked, legitimately, whether any tax would be lost as a result of these measures. I reassure the Committee that the UK will not lose any revenue from this tax treatment, as none of the deals concerned are currently domiciled in the UK. There is already a similar treatment for transformer vehicles in UK legislation—the Taxation of Insurance Securitisation Companies Regulations 2007—but that legislation has been too complicated for the industry to use, so the draft regulations simplify the treatment of those vehicles.

It is also worth pointing out that international competitors already offer a similar tax treatment. Without a competitive and appropriate approach to this tax, the UK would lose out on business that is important to the future of our global reinsurance industry and to our position as a world leader in specialist reinsurance business. That was the shadow Minister’s opening point. As I said, UK investors will be taxed in the same way as they would be if they received interest or dividends from any other company. There is not an issue of lost taxation, because this tax will be applied to entities that are not currently domiciled in the UK.

I hope that I have addressed Members’ questions. I commend the draft regulations to the Committee.

Question put and agreed to.

DRAFT RISK TRANSFORMATION (TAX) REGULATIONS 2017

Resolved,

That the Committee has considered the draft Risk Transformation (Tax) Regulations 2017.—(Stephen Barclay.)

Committee rose.

Draft Unified Patent Court (Immunities and Privileges) Order 2017

The Committee consisted of the following Members:

Chair: Mr Adrian Bailey

† Benyon, Richard (Newbury) (Con)

† Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)

† Brereton, Jack (Stoke-on-Trent South) (Con)

Campbell, Mr Ronnie (Blyth Valley) (Lab)

† Carden, Dan (Liverpool, Walton) (Lab)

† Chalk, Alex (Cheltenham) (Con)

† Debbonaire, Thangam (Bristol West) (Lab)

† Dromey, Jack (Birmingham, Erdington) (Lab)

† Eagle, Ms Angela (Wallasey) (Lab)

† Goldsmith, Zac (Richmond Park) (Con)

† Harris, Rebecca (Castle Point) (Con)

† Johnson, Joseph (Minister for Universities, Science, Research and Innovation)

† Law, Chris (Dundee West) (SNP)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Robinson, Mary (Cheadle) (Con)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Tracey, Craig (North Warwickshire) (Con)

Kenneth Fox, Committee Clerk

† attended the Committee

Sixth Delegated Legislation Committee

Wednesday 29 November 2017

[Mr Adrian Bailey in the Chair]

Draft Unified Patent Court (Immunities and Privileges) Order 2017

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I beg to move,

That the Committee has considered the draft Unified Patent Court (Immunities and Privileges) Order 2017.

It is a pleasure to serve under your chairmanship, Mr Bailey. The draft order, which was laid before the House on 26 June, will confer legal status on the unified patent court, as well as providing a limited set of privileges and immunities to the court, its judges and staff. These are necessary to ensure the effective and proper functioning of the court, and were agreed in the international agreement that established the court and its protocol on privileges and immunities.

Why does the unified patent court matter? The current patent system across Europe is fragmented and expensive: businesses must maintain a bundle of patent rights, each covering a single country, and must enforce each patent separately in the national courts of each country, which is costly and burdensome. The unified patent court will offer a way for innovative businesses to enforce or challenge patents in up to 26 European countries with a single court action. The ability to obtain a single judgment is significant and valuable for patent-intensive industries. Independent research shows that approximately a quarter of all patent cases heard in UK courts were litigated between the same parties in other European jurisdictions, so a single unified patent court is welcome. An important division of the court, dealing with disputes in the field of pharmaceuticals and life sciences, will be based here in the UK, cementing our global reputation as a place to resolve commercial legal disputes. British businesses will still be able to choose national patents and litigation in national courts, but will have the option to use the new court structure with all the benefits that I have described.

The draft order is part of the UK’s ratification process. It confers legal capacity on the unified patent court and gives effect to the protocol on privileges and immunities. It also provides immunity from legal process for the court, with some exceptions; for its judges, registrar and deputy registrar; and for its representatives and staff, although only in the exercise of their official functions. That immunity can be waived by the UPC.

The judges and staff of the court will be exempt from national taxation on their salaries and from national insurance once the court applies its own equivalent tax and puts in place its own social security and health system, but neither exemption will apply to court staff who are British nationals or permanent UK residents. The draft order also provides that the court is exempt from direct taxation in relation to its official activities, as is the case for other international organisations based here, such as the International Maritime Organisation.

The draft order will confer on the new court and its judges and staff only the privileges and immunities that are necessary for the organisation to conduct its official activities effectively. Those privileges and immunities are in line with those offered to officers of other international organisations of which the UK is already a member. I commend the draft order to the Committee.

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It is a pleasure to serve under your chairmanship, Mr Bailey.

We are a creative nation of entrepreneurs and innovators. In the 19th century, Birmingham and the Black country were known as the workshop of the world, and in modern times we have silicon roundabout about 2 miles away, the golden triangle of London, Oxford and Cambridge, and remarkable innovation from Jaguar Land Rover in the midlands and the north of England. I will never forget travelling with Jaguar Land Rover’s chief executive Ralf Speth in his Land Rover and seeing how the company was using its close proximity to a cluster of companies engaged in the games industry to produce the next generation of in-car entertainment systems. Crucial to that was the protection of patents.

I have seen at first hand, and I am sure that many Members have likewise seen, just why it is important that we remain a nation of innovation. In future, we will want to attract the brightest and the best as we leave the European Union, and crucially in that process we need sensible arrangements that protect the interests of Britain. I will come back to that point later.

At the heart of turning ideas into commercial practice is protection from poaching, as well as the patent system that has grown up over many years. Such protection is of the highest order including, as the Minister said, both domestic and international mechanisms on the one hand, and immunity, as is proposed by the order, on the other hand.

The European Patent Office was founded in 1977. We signed up to the unified patent court in 2013, together with 25 other member states in the European Union, and the necessary arrangements were finalised shortly after the decision by our country on Brexit. The order seeks to confer necessary legal status as we approach the next stages, for the avoidance of any doubt, and we believe that to be an eminently sensible move, which the Opposition wholeheartedly support.

Finally, it is all the more important that we have such domestic and Europe-wide arrangements at a time of immense uncertainty in our country, to help to reassure creative people and innovators that we are serious about remaining a creative nation of innovators. Dare I say to the Minister that in reaffirming that existing European arrangements should continue to obtain in the future, hopefully that will form a precedent when it comes to next-stage discussions on the single market and the customs union? On those fronts, we will also need sensible arrangements, whereby we will have full access to and will enjoy the benefits of those arrangements that have served this nation well for many years.

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It is a pleasure to serve with you in the Chair, Mr Bailey; I do not think I have done so for a while.

Will the Minister say a little bit more about how the arrangements will work in future? Clearly, it is a very important and good thing if we can deal with the fragmentation of patents, particularly across the European single market, but his Government are now determined to leave that market. Although this new institution is not an institution of the European Union, we agreed to come on board and become involved in it while we were in the EU, well before the vote to leave had even been thought of, except on the far fringes of the Conservative party, much less the subsequent referendum.

I am interested in the Minister’s observations on that, because the court will have to put into place the new unified directive on patents, which the European Union is in the process of putting into law and with which we are associated at the moment. However, we probably will not be if we leave the customs union and the single market at some time in future.

We are in quite an unfortunate situation: just as we are attempting to stop the fragmentation of patent law and requirements, particularly their jurisdiction in the European Union, we are fragmenting ourselves from the institution that is meant to co-ordinate that. If the last few weeks are anything to go by, we are not exactly leaving in good odour—or order—judging by the way things are going at the moment. I suspect that that may have some implications for the way in which such a pragmatic and important issue will be dealt with in future. Will the Minister give us the benefit of his observations on that and its implications?

I also note that there are experts who feel that the UK will need to take several steps to remain within the ambit of this institution after Brexit, including entering into new international agreements with the other signatories of the agreement on the unified patent court. Those signatories will all, of course, remain in the single market and the EU.

We are in the middle of trying to set up this institution, which is what the order is about, just as we are leaving the EU. Does the Minister think that we need to come back to this, and change the law and international agreements so that we can proceed smoothly with what we all agree is a desirable outcome? Would that hold up the implementation of what is a wholly good thing?

I also note that there are some issues in Germany that are holding up the final ratification of the court. Does the Minister feel that events in Germany will assist us in getting the timing right regarding our desire to enter into new international agreements, or does he think that they will slow down this wholly welcome development? If we do need new international agreements to move forward in the event of our coming out of the European Union by 2019, is his Department geared up to negotiate them? Has it done any planning on ensuring that our legal arrangements enable us to go on with, and not disrupt, the setting up of this extremely important institution as we leave the European Union?

Finally, can the Minister give us a definite guarantee? His Government do not believe in the jurisdiction of the European Court, but areas of patent law, particularly in the directives, are currently subject to that jurisdiction. Can the Minister explain to us how on earth we are going to be part of this institution, but not subject to the oversight of the European Court? For the life of me, I cannot work out how that would work.

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I thank the hon. Member for Birmingham, Erdington for supporting the order, and for recognising the role that the court will play in ensuring that we have a system that encourages innovation and protects companies that invest in research and development. Those companies are able to go on and commercialise the discoveries that they make without fear of their hard work and efforts leading to nothing, or being taken advantage of by competitors that have not made those investments in discovery.

I thank the hon. Member for Wallasey for asking some important questions; I will now try to respond to as many as I can. She asked principally about the impact that leaving the EU will have on the operation of the UPC, and what our relationship to the UPC will be after March 2019, when we will be in the process of leaving the EU. To be clear, the UPC itself, as she knows, is not an EU institution, but currently all participating member states are EU member states. Our position is that while the UK remains a member of the EU, we will and should complete all necessary legislation, so that we are in a position to ratify the agreement.

Whatever the UK’s future relationship with the unified patent court, we expect that, as the hon. Lady said, we will need to negotiate with our European partners, to reflect the change to the UK’s status in relation to the UPC that will take place when we leave the EU. As a Government, we believe that it would be wrong to set out any unilateral positions in advance of the negotiations that we know we are going to have to have, because our efforts will need to be focused on securing the best possible deal for the UK in our negotiations with our European partners.

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This is an important point for the avoidance of doubt on the part of the innovators and entrepreneurs of our country. Our support for the order is given on the basis that it will be an enduring mechanism now and after we leave the European Union. Is the Minister suggesting that having given legal effect to the order, the situation might change post-Brexit? That will be a source of immense concern to innovators and entrepreneurs in our country.

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Through the passage of the order and completing all the necessary legislative steps in Parliament, we want to ensure that we are in a position to ratify the UPC and our membership of it, thus enabling it to come into existence. As the hon. Gentleman and Members know, under the terms of the international treaty, UK ratification is required for the UPC to come into existence, and we want the court to come into existence. We have been supporters of it from the outset, and we think it will play an important role in enabling businesses to enforce their intellectual property rights at the lowest possible cost, or certainly at a much lower cost than many companies find to be the case at the moment. We are supportive of it, and we want to continue to play a facilitating role in setting it up.

After we leave the European Union in March 2019, we understand that we will have to negotiate a new relationship with the UPC. We want to do that as seamlessly as possible so that businesses can continue to take advantage of the provisions that the UPC makes possible. Our expectation is that the long-term relationship we will have to establish after March 2019 will be subject to some negotiation. I and the Government as a whole do not want to go into the detail of exactly what that relationship will be at this point.

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We all agree that the court should be set up. Because of the delay in Germany it is unlikely to be up and running much before the middle of next year, if things go well with the constitutional court there. That leaves us less than a year to get the institution up and running before we have to have a major renegotiation of our relationship with it.

In response to one of my initial questions, the Minister said that he is not in a position to give us any particular view on that because he, his Department and the whole Government will be much too busy concentrating on the bigger Brexit things. Is he of the view that the court and, much more importantly, our participation in it can continue without the legal changes we will clearly have to negotiate to remain a member once we are outside the European Union?

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Order. I remind Members that the order is essentially about the privileges of the key figures of the court. While I have allowed the debate to range to other issues around it, it would be helpful if we could focus on the order and if the Minister could relate his reply to the specific issues relevant to the order and the hon. Lady’s comments.

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Thank you, Mr Bailey, I will try to do that. Returning to the hon. Lady’s question, the order is made under the International Organisations Act 1968. It does not relate to EU legislation, nor does it rely on the European Communities Act 1972. The order will therefore not need to be preserved by the EU (Withdrawal) Bill at exit to remain UK law, so it will continue. As the hon. Lady knows, the UPC agreement is an international treaty, not an EU treaty. It will not need to be converted into UK law by the EU (Withdrawal) Bill for it to continue to apply.

To summarise all the points on Brexit, whatever the UK’s future relationship with the UPC, we will need to negotiate with our European partners to reflect the change to the UK’s status when we leave the EU. We want the court to come into existence. That is why we are facilitating it by putting ourselves in a position where we can ratify it. We understand that there are issues in other countries whose ratification is necessary; we hope that they can be overcome so that this court can come into existence and do the job we all want it to do.

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The privileges issue is clearly important. We cannot have the court without this order, which is why we all support it, but I hope the Minister will reassure me that we can continue to use this court with all its privileges if we are out of the European Union. The House of Commons Library note on this issue includes some worrying or at least alarming views from European law experts who say that we will not be able to remain in the court appropriately after Brexit before we have changed the law—we will not be able to just carry on having the court run. That might mean that people in our country cannot have access to its benefits until the Government ensure that they have entered into new legal agreements with the other signatories. Would he confirm that that is the case and say something about whether the order ensures that we will continue to have access to the court’s benefits, which we all want, without Parliament having to come back—

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Order. That is an incredibly long intervention.

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Well, it is a question.

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The points have been packaged up as questions. We have the drift of it, so will the Minister now respond?

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The hon. Lady has raised the issue of a smooth transition so that there is minimum uncertainty for business about the enforcement of intellectual property rights as we leave the EU. She is right, and the Government are in total agreement. We do not want any cliff edges. We want minimum disruption for businesses, and we want to minimise threats to stability as we develop the deep and special relationship with the rest of the EU that we have set out as our objective for the negotiation. Of course we will take into account the need to protect intellectual property rights as part of the process of considering the options for the UK’s intellectual property regime after our exit, but as I have said on a number of occasions, our future relationship with the UPC will be a matter for negotiation. It would not be appropriate for me to set out unilaterally what the UK’s position will be in advance of those negotiations.

I will try to conclude again by saying that the Government will continue to work with signatory states to bring the UPC into operation as soon as possible, making it easier for businesses all over the country—in the midlands, in Birmingham, Erdington and elsewhere—to enforce their patents across Europe. I hope the Committee will support the draft order accordingly.

Question put and agreed to.

Committee rose.

Draft Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017

The Committee consisted of the following Members:

Chair: Graham Stringer

† Aldous, Peter (Waveney) (Con)

† Bridgen, Andrew (North West Leicestershire) (Con)

Champion, Sarah (Rotherham) (Lab)

† Cunningham, Alex (Stockton North) (Lab)

† Duddridge, James (Rochford and Southend East) (Con)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

† Graham, Richard (Gloucester) (Con)

† Jayawardena, Mr Ranil (North East Hampshire) (Con)

† Jones, Darren (Bristol North West) (Lab)

† Knight, Julian (Solihull) (Con)

† Kyle, Peter (Hove) (Lab)

† Leslie, Mr Chris (Nottingham East) (Lab/Co-op)

† McGinn, Conor (St Helens North) (Lab)

† Merriman, Huw (Bexhill and Battle) (Con)

† Opperman, Guy (Parliamentary Under-Secretary of State for Work and Pensions)

† Rutley, David (Lord Commissioner of Her Majesty's Treasury)

† Stephens, Chris (Glasgow South West) (SNP)

Sean Kinsey, Yohanna Sallberg, Committee Clerks

† attended the Committee

Fourth Delegated Legislation Committee

Wednesday 29 November 2017

[Graham Stringer in the Chair]

Draft Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No.2) Regulations 2017

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I beg to move,

That the Committee has considered the draft Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No.2) Regulations 2017.

It is a pleasure, Mr Stringer, to serve under your chairmanship. The regulations, which were laid before the House on 10 July 2017, will reduce confusion for pension scheme members and burdens for industry. They enact the conclusions of a call for evidence in 2015, on the issue of how a scheme determines whether a member is required to take financial advice before transferring their pension savings.

Plainly put, the regulations simplify how trustees and scheme managers value members’ pensions, in order to determine whether the requirement to take advice under section 48 of the Pension Schemes Act 2015 applies. The provisions form part of a wider package of changes that, as a whole, expand and simplify the protections for members with potentially valuable guarantees attached to their pensions.

The pension freedoms, introduced in April 2015, have given individuals aged 55 and over greater choice in how and when they access their defined contribution pension savings. Members who save into pension arrangements that provide potentially valuable guarantees can generally exercise these new freedoms, where necessary, by first transferring to a defined contribution scheme or converting to defined contribution savings.

These pension arrangements—safeguarded benefits—include typical defined benefit schemes as well as defined contribution arrangements, which offer safeguarded flexible benefits. Safeguarded flexible benefits are flexible, in that there is a pot, which is cash-based, meaning that the pension freedoms apply; but also safeguarded because they include a promise in relation to the secure income they may provide in retirement.

Normally, but not exclusively, safeguarded flexible benefits are personal pension contracts that include the option to take an annuity at a guaranteed rate. These are commonly referred to as a guaranteed annuity rate, or GAR. Because of the valuable guarantees offered by safeguarded benefits, section 48 of the Pension Schemes Act 2015 introduced an advice requirement alongside the pension freedoms. That requires trustees and scheme managers to check that members with safeguarded benefits have taken financial advice before transferring or otherwise flexibly accessing those benefits.

Section 48(3) provides a power to create exceptions to the requirement, and this was exercised in regulation 5 of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015, to provide an exception for members whose safeguarded benefits under their scheme are valued at £30,000 or less. It is that legislative requirement—how pensions are valued for the purpose of determining whether it applies—that I am proposing to amend.

The Government have become aware that the methodology prescribed in regulation 5 of the 2015 regulations for valuing members’ benefits against the £30,000 threshold has resulted in firms that offered GARs having to provide two values for the member’s pension: first, the transfer value, which an individual will actually receive, and, secondly, the actuarially calculated, but ultimately notional, value against which the £30,000 advice threshold is tested.

Providers and consumer groups reported members with safeguarded flexible benefits experiencing confusion as to why they were receiving two valuations. This means that there is always a risk that members may choose to pay for advice, wrongly believing that they would be entitled to the higher actuarially calculated value, when they would receive only the lower transfer value.

Regulation 4 of the regulations that we are debating will, if approved, amend regulation 5 of the 2015 regulations so that, under paragraph (1) of that provision, trustees and scheme managers will be required to treat the value of safeguarded benefits as equal to the transfer value of those benefits when determining whether the £30,000 threshold is met. Meanwhile, those offering safeguarded flexible benefits, such as GAR, will produce only one valuation: the transfer value of the member’s benefits, determined in accordance with the legislative provisions referred to in paragraph (2) of amended regulation 5.

For most schemes, that will be the cash value of the member’s pot. That single figure is easily explained and avoids confusion for members. It is also widely used within other communications and already produced by firms. The instrument also contains transitional provisions in regulation 6 to accommodate the change from one valuation methodology to another so that members are not disadvantaged. Finally, regulation 4 makes a further amendment to the valuation methodology in regulation 5 of the 2015 regulations, removing an inconsistency in the treatment of defined benefit pension scheme savers.

In conclusion, we remain committed to the principle that pension savers choose when to access their pension savings. It is equally important that they are supported in doing so. The Government have listened carefully both to stakeholders and to those representing consumers, and these regulations show that we are meeting our commitment, made as part of a consultation exercise, not only to monitor the pension freedoms themselves, but to reform existing measures where needed. I commend the regulations to the Committee.

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Good morning, Mr Stringer; it is a pleasure to serve under your chairmanship.

We agree that the regulations are designed to help people, and we will not oppose them. I have a number of comments and questions, but I do not expect or intend to detain the Committee very long. As the Minister said, the regulations have been introduced to provide protections for people at a time of real financial difficulty for millions of people in our country. Wages are down in real terms, millions are using food banks and thousands of families with children will be homeless this Christmas. The average household budget had unsecured debts amounting to £13,200 at the end of 2016, just below the £13,300 level at the end of 2008, on the eve of the financial crisis.

Analysts at the Trades Union Congress expect that figure to rise to £13,900 by the end of this year and as high as £15,400 by the end of 2021. Nobody should be surprised at people choosing to take lump sums of tax-free money from their pensions because they simply do not have the luxury of being able to plan ahead and look to the future. Their worries are very much in the present. While I recognise that it is important that people with even small benefits with guaranteed annuity rates should receive advice, I cannot say that I do not understand why some people are choosing the option to have their money now.

Pension freedoms are a success to some extent, but people are seduced by the temptation of easy cash for a number of reasons related to their personal circumstances. Here lies the contradiction and unintended consequence of pension freedoms: it is incentivising jam today and may end up leaving little for retirement. One of my biggest questions and concerns is why that was not considered when the 2015 Act was passed. Why is it only now, after two years, when numerous people have taken out lump sums, that the Government have decided it needs to be addressed?

Nevertheless, the decision is still welcome. Advice should be given, and it should be good-quality advice at the lowest possible cost. We must have financial advisers who consider the future of their clients, and provide a real picture of what they can expect. There seems to be an attitude that small safeguarded benefits do not matter as much, when I would argue that they are in fact just as important as any others, if not more so. Any guarantee of a future steady income outweighs the high risk involved in managing one’s own pension pot.

People with less than £30,000 may be poorer, facing increased financial difficulty and looking for a way to resolve their problems quickly. They may insist on having their tax-free 25% quickly, but I wonder about the quality of advice that they are getting. They need to know that their guaranteed annuity rates are worth more than cashing in. That is why I welcome any initiative that would require them to receive advice before making any transfers. I look forward to making many similar points when the Financial Guidance and Claims Bill comes to the Commons; I assume that that will be in 2018. I would also argue that the people who have benefits under £30,000 are the people who most need the advice.

That said, while I appreciate that there are concerns about the cost of the advice from Financial Conduct Authority-regulated providers, I do not believe that should be a barrier, nor just an entitlement for the wealthier. As I have said, the change is welcome, but would the Minister agree that for many people the horse has already bolted? They have had their cash, they have spent it and many of them face financial hardship simply because nobody warned them of the risk they were taking. The freedom agenda has been littered with bad advice. Not everyone is being reasonably and accurately informed about their options, and they are missing the key point that taking the cash would not be as valuable as keeping their pension benefits.

I note that the Government have received representations from schemes and consumer bodies that the current approach is confusing for members, which does not surprise me at all. The Minister has addressed that. I have spoken on the issue of transparency a number of times, and will continue to do so until I am satisfied that there is a real and meaningful clarity provided to those who have occupational and private pensions. Any confusion faced by consumers simply proves my point. We cannot just provide information that is difficult to understand: it needs to be in language that is easily comprehended.

I note that a voluntary approach has been considered but discounted on the grounds that providers would not always comply with a requirement to notify individuals about their guaranteed annuity rates, as it would be a cost to the provider. It is right that there is a requirement for providers to give personalised risk warnings to all members with guaranteed annuity rates, and that they seek advice. I hope that this is another a step forward to cleaning up and making this area more transparent and worth while for consumers.

We all know that when it comes to the financial services industry, at times there are those who do not always act in the client’s best interest. The Financial Conduct Authority is looking into claims that rogue pension advisers are aggressively targeting steelworkers at Tata’s UK plant in Port Talbot. It is a real concern for everybody that advisers have swooped on the steelworkers, in many cases seeking to persuade them to transfer their money to alternative arrangements. While these transfers may enable the steelworkers to access their savings more easily, they invariably carry high costs and almost always involve schemes that carry much greater levels of risk. Despite Government assurances, rogue advisers are reportedly presenting a transfer as the best option for almost all those affected, despite regulators repeatedly warning that most people with defined benefit pension benefits would be better off keeping them.

What will the Government do through the regulator to ensure that we do not see the same thing happen to people who have guaranteed annuity rates savings? I have mentioned the cost of advice. How will the regulator ensure that advisers do not charge excessive fees for advice, which is something that could dig deep into small pots? Likewise, how will they make sure that the rogues in the system do not make a financial killing as a result of these regulations and the new body of people seeking advice?

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In relation to the points made by the hon. Member for Stockton North, he is right that the Financial Guidance and Claims Bill will not be debated this year. It will be coming to the House of Commons, following extensive consideration, in 2018. Secondly, after the Pension Schemes Act 2015 was passed there was a deliberate call for evidence to assess its impact. The methodology prescribed in regulation 5 of the 2015 regulations for valuing members’ benefits against the £30,000 threshold by which firms offered GARs was assessed and then addressed, so we introduced these specific regulations to address those points.

Thirdly, the cost of financial advice and the importance of people having access to affordable financial advice in these circumstances is something that both the Select Committee on Work and Pensions and the FCA have considered. The financial advice market review that launched in August 2015 explored how the financial advice market could be improved for consumers, including the market for pensions advice. I can assist the hon. Gentleman by making the point that the FCA has published guidance on streamlined advice to help firms provide advice to customers with specific needs in a proportionate way. To tackle issues of the affordability of that advice, the Government have increased the income tax exemption for employer-arranged financial advice on pensions from £150 to £500, and introduced the pensions advice allowance, which allows consumers to access £500 of their defined contribution or hybrid pension pots tax-free up to three times at any age to redeem against the cost of pensions and retirement advice. I would, with respect, make the point that the regulator and the Government have acted on that matter.

In relation to the points on the British Steel pension scheme and Tata pension scheme members, the hon. Gentleman will be aware that we have a further meeting today to discuss that with members who are affected, and I welcome the expansion that we will give on that particular point. What I can briefly tell the Committee today is that the FCA is aware of this issue and is making sure that its expectations are set out to advisers. That includes arranging to meet adviser firms in Swansea. The Government are also working with industry to prevent scams and investment fraud. He will be aware of Project Bloom and the various other things brought forward to address scams. The British Steel pension scheme has worked with the regulator to ensure that any communications to members both highlight the importance of taking professional advice and signpost where that advice can be obtained. The communications tell members how to check that advisers are approved to give the advice, and give warnings on how to look out for scams. The FCA is monitoring any scam behaviour and will, I assure the hon. Gentleman, take stringent action when something suspicious is reported.

The regulations simplify how trustees and scheme managers value members’ pensions when they are determining whether the requirement to take advice applies. They form part of a package of measures and, if approved, will come into force alongside a new requirement to send members tailored communications, ensuring that all members are told about their valuable benefits in a more timely and accessible manner. There will no longer be a cohort of individuals who are required to seek financial advice, but are often unable to locate an adviser willing to advise on their pension savings.

I hope that I have set out for the Committee the need for the regulations and have responded to the matters that have been raised. If not, I will write to the hon. Gentleman with more details. I commend the draft regulations to the Committee.

Question put and agreed to.

Committee rose.