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House of Commons Hansard
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General Committees
10 January 2019

Delegated Legislation Committee

Draft Immigration (Leave to Enter and Remain) (Amendment) Order 2018

The Committee consisted of the following Members:

Chair: Mr Laurence Robertson

† Courts, Robert (Witney) (Con)

† Coyle, Neil (Bermondsey and Old Southwark) (Lab)

† Dakin, Nic (Scunthorpe) (Lab)

† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)

† Hayes, Helen (Dulwich and West Norwood) (Lab)

† Hayes, Sir John (South Holland and The Deepings) (Con)

† Jones, Mr Marcus (Nuneaton) (Con)

† Khan, Afzal (Manchester, Gorton) (Lab)

† Maclean, Rachel (Redditch) (Con)

† Maynard, Paul (Lord Commissioner of Her Majesty's Treasury)

† Newlands, Gavin (Paisley and Renfrewshire North) (SNP)

† Nokes, Caroline (Minister for Immigration)

† Percy, Andrew (Brigg and Goole) (Con)

Phillipson, Bridget (Houghton and Sunderland South) (Lab)

† Robinson, Mary (Cheadle) (Con)

Smith, Eleanor (Wolverhampton South West) (Lab)

† Syms, Sir Robert (Poole) (Con)

Yohanna Sallberg, Medha Bhasin, Committee Clerks

† attended the Committee

Tenth Delegated Legislation Committee

Thursday 10 January 2019

[Mr Laurence Robertson in the Chair]

Draft Immigration (Leave to Enter and Remain) (Amendment) Order 2018

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I beg to move,

That the Committee has considered the draft Immigration (Leave to Enter and Remain) (Amendment) Order 2018.

It is a pleasure to serve under your chairmanship, Mr Robertson. The draft order, which was laid before Parliament in December, is necessary to enable nationals of Australia, Canada, Japan, New Zealand, Singapore, South Korea and the United States of America of age 12 or above who seek to enter the United Kingdom as a visitor under the immigration rules to be granted such leave by passing through an automated gate without having to be interviewed by an immigration officer. This change is needed to give effect to the announcements made by the Chancellor and the Home Secretary that these additional nationalities should be permitted to use our e-passport gates. The House’s agreement to the draft order will ensure that the change can be implemented in time for the summer.

The UK already leads the world in the use of e-passport gates for passenger clearance. We have more e-passport gates than any other country and allow more nationalities to use them. We intend to continue to build on their use because they provide a safe, secure means of processing low-risk passengers, allowing our highly trained Border Force officers to focus their efforts on those who seek to abuse or exploit the system and on wider border threats.

The change will have a transformational impact on the border experience for these additional nationalities, providing them with significantly faster entry to the UK, but by removing an expected 6.5 million passengers from the staffed non-EEA queue, it will also have a knock-on benefit for the clearance of other non-EEA passengers arriving at ports with e-gates. Expanding e-gate eligibility to these additional low-risk nationalities will also help us to meet the challenge of growing passenger numbers, ensuring that arriving passengers are dealt with swiftly and securely.

In 2017, there were 137 million arrivals at the UK border, an increase of 5.4% from 2016. Within those figures, the increase in non-EEA passenger arrivals was even more noticeable: more than 17%. The numbers are projected to continue to increase, with the Department for Transport predicting year-on-year growth of 2.8% to 2020 on aviation routes. That is good news for the UK, demonstrating that we continue to be a destination of choice for a wide cohort of nationalities.

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The Minister and I have discussed e-passport gates in the Select Committee on Home Affairs, and we have discussed it with the Home Secretary. How much spare capacity does she believe e-passport gates currently have at the major ports of entry? Frankly, I have seen very long queues at e-passport gates, and often many of them are out of service or unusable.

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The hon. Gentleman will be aware that for every bank of five e-passport gates, there needs to be one Border Force officer monitoring them to authorise admission. In addition, we closely monitor the use of e-passport gates and the impact of putting additional numbers through the queues. Our modelling shows that we expect the impact on queues at the gates to be very marginal, but I am very conscious that we will have to keep the issue under review. The hon. Gentleman will know that we are increasing the number of e-passport gates; indeed, the Welsh Government have funded the reintroduction of e-passport gates at Cardiff airport, which I am sure he will welcome.

The draft order will allow us to put a potential 6.5 million additional passengers through e-passport gates, but we are conscious that 85% of passengers arriving at UK ports today are already eligible to use them. Our modelling shows that although the e-passport gates fall outside service-level agreement monitoring, it is very unusual for individual passengers to wait more than 10 minutes to get to one.

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I appreciate the Minister’s clarification, and I welcome the helpful introduction of e-passport gates at Cardiff airport. However, new e-passport gates at less used airports or ports of entry around the UK are one thing, but Heathrow, Gatwick, the Eurostar terminal at St Pancras and so on are another. Will she make clear how many additional e-passport gates will be opened at those key ports of entry?

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We continue to keep that under review with our key partners, including Heathrow Airports Ltd, Gatwick and Eurotunnel. Critically, for some of those locations, I am very alive to the challenge around physical space—I was about to say infrastructure, but it is space—and making sure that arrivals halls can accommodate more gates. We continue to keep that under review, because as far as I am concerned it is absolutely imperative that we make sure that entry into the UK is secure, swift and efficient, and that our passengers have the best experience that they can.

However, the hon. Gentleman is right to make that point, and I reassure him that I continue to meet regularly with our partners to make sure that we can have as many e-passport gates as possible open at any one time, and that they are open at the right times. A key factor is making sure that we work with partners so that we are conscious of the scheduling of flight arrivals and any delays that might build up in the airline system, so that, when people arrive in the arrivals hall, the right number of Border Force officers are present, to enable as many gates as possible to be open.

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If the Government are intent on keeping the policy under review, will they also consider extending access to e-gates to other countries, particularly Commonwealth members, who feel somewhat aggrieved at not being given low-risk status?

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The Government consider many factors when looking at which nationalities to open up the use of e-passport gates to. We have consulted very closely with our security partners on this cohort and they are also countries with which we have a long track record of good border co-operation. We will continue to look at the nationalities that can use the gates, and it is absolutely imperative that we look at the impact of the 6.5 million additional passengers. However, it is also important to reflect that we also looked at volumes, and these countries have some of the highest volumes of passengers coming into the UK.

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May I say what a lovely jacket the Minister is wearing?

I welcome what the Government are doing; it is a great step forward. However, when one comes into Gatwick, for example, with children under 12, that is where the queues tend to be. Will these provisions mean that more people will be redeployed in the summer months to ensure that people who arrive with young children after flights from various holiday destinations are swept through quicker, because enough officers will be available to swipe their passports?

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I reassure my right hon. Friend—

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Not yet.

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Not yet. He should be, and given his proclivity for complimenting me on my jacket, the sooner the better.

It is absolutely imperative that we use this ability to make sure that eligible passengers are put through e-passport gates. My hon. Friend quite rightly raises the point that children under 12 still cannot use e-passport gates. Part of that is about changing biometrics and facial recognition. I am conscious that biometrics work by correctly identifying somebody from not only the photograph in their passport but the chip into which the photo is embedded. Those particular facial characteristics change in children, so we have no plans to put children through e-passport gates.

The provisions will free up capacity by putting more passengers through e-passport gates. In doing so in time for the summer, which is the peak travel time for families, we are optimistic that we will see an impact on the queues that people experience. Part of our motivation for making this change today is to make sure that things change in time for the summer.

Keeping our border secure remains a top priority. I assure hon. Members that this decision has been taken only after careful consideration and in consultation with security partners across Government. Nationals from Australia, Canada, Japan, New Zealand, Singapore, South Korea and the USA have been identified as suitable to use the gates based on several factors, including levels of co-operation of those countries with the UK on border matters.

Part of our long-term vision has always been to make better use of digital technology and greater automation to improve the passenger experience while maintaining security. As hon. Members will be aware, we recently published a White Paper setting out detailed plans for the UK’s future skills-based immigration system, which includes measures to strengthen border security and improve journey crossings for legitimate passengers. This expansion of e-gates needs to be seen in the context of a longer-term programme of work, in which we intend to use the UK’s exit from the EU as an opportunity to develop a new global border and immigration system that makes better use of data, biometrics, analytics and automation to improve both security and fluidity across the border.

I reassure the House that this is not a cost-cutting measure—far from it. The Government are increasing Border Force officer numbers, and their powers and responsibilities will remain unchanged. We are committed to ensuring that Border Force has the resources and workforce needed to keep the border secure.

To be clear, the order will allow nationals of Australia, Canada, Japan, New Zealand, Singapore, South Korea and the United States to be granted leave to enter as visitors for up to six months when they pass through an e-gate at a UK port, including our juxtaposed controls for Eurostar services. Nationals of those countries coming to the UK for other purposes, such as work or study, will also be able to enter using the e-gates, but no change in the law is needed for those circumstances, as they will already hold the necessary leave in the form of a visa or residence permit.

We estimate that up to 6.5 million passengers from those countries will benefit from the change. That expansion in eligibility is therefore a clear signal to the rest of the world that the UK is open for business, and will allow us to control our borders in the UK’s best interests. Once approved, we expect the change to be fully implemented in time for this summer. I commend the order to the Committee.

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It is a pleasure to serve under your chairmanship, Mr Robertson. I thank the Minister for the meeting that we had yesterday to give us a bit more understanding of the instrument, to which the Labour party does not object. The Government have consistently failed to meet their targets for airport queue times, particularly at peak times. We support changes that will hopefully make passing through the border more efficient.

We are, however, concerned about the idea of low-risk individuals. Can the Minister account for why these countries have been chosen, and can she tell us what exactly the risk being evaluated is? The risk associated with travel and tourist stays is very different from that associated with short or long-term work visas. Does the Minister propose that we use the same metric for evaluating risk across all those different considerations?

As we know from the immigration White Paper published last year, the category “low risk” not only will affect who is allowed to use e-passport gates, but will be the basis for who is able to apply for a short-term low-skill work visa. We find that risk-based approach objectionable. First, in its own right it is discriminatory and against basic fairness to judge a person’s character on where they come from. The Government’s own data shows that, at least for students, 97% of migrants comply with the terms of their visas. Why should the actions of a very small number of people affect the opportunities for a whole nationality? Across all our institutions, the UK makes judgments about people at an individual level. We do not make collective judgments based on nationality.

Secondly, the approach is hypocritical. The Government proclaimed in their White Paper that the new system will not be

“based on where an individual comes from”,

but this risk-based approach does just that.

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I am listening to the hon. Gentleman’s contribution with care, but surely any Government would look at patterns in different parts of the world. If a pattern could be discerned for applicants from a particular place—be it a country or a particular part of a country—that intelligence would inform subsequent policy. Surely any Government would do that.

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I thank the right hon. Gentleman for his question. I am asking the Minister precisely what criteria she is using. We want to have that clarity, which is why I am asking these questions.

Thirdly, there is the potential that effectively 10 or 15 different visa systems could come in to replace the two systems that we have at the moment. The more we segment migrants based on where they come from, the more complex we make the system.

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It is a pleasure to see you in the Chair, Mr Robertson. We echo many of the sentiments expressed, and will not vote against the motion.

It is essentially a common-sense motion, given the delays experienced at the border. Those delays will certainly not be improved by Brexit, but to take up some of the comments made by the hon. Members for Manchester, Gorton, for Cardiff South and Penarth, and for Bermondsey and Old Southwark, it is important that we work to ensure the correct balance of e-gates and manned gates, ensuring that there is enough overall capacity at the border.

I know there have been lots of stories about Heathrow and delays there, but in particular I am thinking about the small airports, such as Glasgow airport in my own constituency, where there is clearly a much smaller border area, so these changes will have a much bigger relative impact for someone stuck behind the daily United States and Canada flights all coming at the same time. Has any impact assessment been made of those relative impacts versus the impacts at larger airports, such as Heathrow and Gatwick?

We share some of the misgivings about how the countries have been selected. I hope that is kept under review, and similarly for the points made about Commonwealth countries. Mr Robertson, I could go on about the Government’s overall approach, which we would call shameful, to immigration policy—the hostile environment, family reunion rules, and ending freedom of movement—but that would be slightly out of scope for today and given that we have the Second Reading of the Immigration Bill and a Bill Committee to follow, I suspect that I will have to keep my powder somewhat dry. However, you will be relieved to hear that we are not seeking to divide the Committee today and we look forward to the Immigration Bill next week.

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It is a pleasure to serve under your chairmanship, Mr Robertson. Some colleagues might think that when they call a Westminster Hall debate, it has zero effect; I am pleased to say that the Westminster Hall debate that I secured on 12 October 2011 at 4.30 pm, which called for just this change, has finally led to it. I assumed that I had been simply ignored, but it turns out that the report of that debate has gone into the depths of Government and resulted in this very sensible policy.

I specifically welcome this measure in my role as the Prime Minister’s trade envoy to Canada, because one of the principal issues raised with me on my visits by Canadians who come to the UK, not just for business but as visitors, is the delays they experience at the border. In fact, for many visitors, particularly from a country such as Canada, which shares so much with us—intelligence and security, our “Five Eyes” partnership and even a Head of State—it is a very unwelcome feeling to arrive in the United Kingdom and be told that they have to go through this much more strenuous system.

I was surprised to hear the shadow Minister say that we do not make exceptions on the basis of nationality at our border when that is exactly what we do. What we have at the moment is a border system that says, “If you are white, you will be treated differently than if you are non-white”, because we prioritise European Union citizens over everybody else, and that is a—[Interruption.] I will give way on that point, of course.

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It is absolutely outrageous to suggest that there are only white citizens living in EU member states. That is a massive insult to the 40% black and minority ethnic community in my constituency, let alone the BME communities across all the other member states of the European Union.

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If the hon. Gentleman, instead of shouting, had allowed me to continue to develop my argument, he would have heard me go on to say that, absolutely, the European Union has a diversity of population, but overall it is overwhelmingly a white club and it provides—

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rose—

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No, no—I will not give way—[Interruption.] I am not going to be shouted down and I am not giving way to the hon. Gentleman, particularly after the slur on Members yesterday who dared to raise legitimate questions in the main Chamber—[Interruption.]

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On a point of order, Mr Robertson. I think that is an entirely inappropriate remark for the hon. Gentleman to make, which I urge him to withdraw, and in addition I do not believe that it has anything whatsoever to do with the order that we are discussing this morning.

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I thank the hon. Gentleman for the point of order. We need to keep this debate relevant to the point we are discussing and we also need to treat each other with respect, because no amount of shouting or inappropriate language will change what the Government are about to do.

I call Mr Percy.

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Indeed, and I wish we had been treated with that respect yesterday instead of being accused of some sort of co-ordination for—[Interruption.]

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Order. I have just made the point that we have to be relevant and what happened in the Chamber yesterday is not relevant to today’s proceedings.

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The point I was making, Mr Robertson, is that we do have a system that prefers people who come from a continent that is overwhelmingly in one direction and I am not going to apologise for that; it is just a statement of fact. I am grateful that we will now have a system in place that will allow people from different countries to have easier access on the same basis, rather than maintaining that privilege of Europeans over people coming from countries that are clearly not a risk to this country, be that South Korea, Japan, Australia, New Zealand or the United States. That is perfectly sensible, and I make no apology for criticising the current system, which maintains a European privilege over other people. It is ridiculous that we have had a situation in which people from “Five Eyes” nations, where there is clearly no security threat to this country, are made to go through a system that is not commensurate with the security risk that they pose to this country.

I have two specific questions for the Minister on matters that have been raised with me. A number of people who will benefit from the change have applied and paid for trusted traveller status to enter the United Kingdom from the United States, Canada and possibly Australia, too. Presumably, they will now be able to use the e-passport gates, as they can under the trusted traveller programme, so will they be recompensed for the fee?

Secondly, this is a two-way process, so will there be discussions to facilitate easier access for UK nationals on a reciprocal basis into the countries that will benefit from the order? Countries such as Australia and Canada have already introduced terminals that have eased the process, but many business travellers and visitors to the United States find substantial delays at the border because US citizens go down one channel—not even green card holders can use that channel now—and everybody else goes down another. If we are to offer this change, as we should to end this European privilege, can we make sure that discussions are ongoing to ensure there is a reciprocal benefit for UK citizens entering the border in the countries that will benefit from this change?

I hope this is the start of a process to ease access into the United Kingdom for low-risk travellers from a range of countries from different continents that do not enjoy the same demographic and social and economic privileges that the European Union perhaps considers itself to have.

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Thank you very much for your chairing today, Mr Robertson. I want to make specific remarks about the technicalities of the order and ask the Minister some questions. Before I do so, I have to say I am deeply disappointed by the highly divisive and inaccurate comments made by the hon. Member for Brigg and Goole. Such an attitude is deeply disappointing, especially when talking about whites and non-whites, not least when many European countries have incredibly diverse populations. France has a very diverse population as a result of its history in Africa and its relationship with Algeria. Let us look at the Dutch Somalis and Somalilanders, the Italian relationship with the horn of Africa, and the many different countries across Europe that have a hugely diverse population, just as we do in this country. We should not have comments about whites and non-whites when we talk about mass immigration.

It is also deeply disappointing to hear such comments from somebody who is supposed to be the Prime Minister’s trade envoy to Canada. I lived in Canada for some years with a Canadian-British family member and I know the Canadian Government’s attitude is very different from the one that the hon. Member for Brigg and Goole seems to represent.

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I have been to Canada and I share the hon. Gentleman’s thoughts on the Canadian approach to immigration, which is wholly different from the British one. The hon. Member for Brigg and Goole talks about Europe being a white club, but I believe Canada’s population is 86% white European, so what does that say about his earlier point about Europe being a white club when he talks about Canada?

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Order. I do want to get back on to the specific elements of this order. I ruled earlier that inappropriate language should not be used and we should treat each other with respect. We also have to stay relevant to this order.

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I too want to get back to it, Chair. I appreciate the intervention and I am sure the Minister will want to disassociate herself from the other comments made.

The Minister talked about reviewing capacity and also about potentially transferring up to 6.5 million people—I appreciate it will not be that many—into the e-passport gate system. However, I am not clear about how many additional e-passport gates will be installed at the key points of entry. It is all very well to have something under review as we look at capacity, but I have seen significant delays at e-passport gates. She talked about the arrangements on the other side of the channel in the Eurostar terminal in Gare du Nord and in Brussels. In Gare du Nord there are two sets of e-passport gates that someone has to go through and a series of other checks interspersed between. I have travelled through them on a number of occasions in recent months, and there have been breakdowns and delays. It was actually quicker to walk through the manual checking service than go through the e-passport gate. Unless there is additional capacity and extra e-passport gates, not only to cope with the additional people coming through but to deal with redundancy in the case of any breakdowns or technical malfunctions, I genuinely fear that there is potentially a serious problem. People will understandably opt for e-passport gates. I think they are a fantastic innovation, and I totally agree with what the Minister said about the technology and the digitalisation of these services. We all want to see that, because it makes them more secure.

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That is a good point about capacity, and it needs to be considered in the context of this fundamental point: do we want to reduce immigration in overall terms or not? Immigration in this country has been at unsustainable levels for decades. That is not about where people come from, who they are or any or any of the things that were debated earlier. That will have an impact on capacity at airports in exactly the way that the hon. Gentleman describes. I thought that was a commonly held view across Parliament.

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Order. We are discussing passport gates, not levels of immigration. Again, I ask that we stick to the terms of this order. With that in mind, I call Mr Doughty.

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You make exactly the point that I was going to make in response to the right hon. Gentleman, Mr Robertson. This is not a debate about the net migration target. Visitors will come here, regardless of their immigration intentions. We want to encourage people to come to this country for tourism, business and other things, and we need to ensure that that is done in the safest, securest and most efficient way possible. My concerns are simply about the practicalities.

The Minister mentioned the space constraints in the terminals, and so on. That is a real concern, and I have yet to see any evidence to the contrary, despite having had a number of discussions about it in the Home Affairs Committee. We have received significant evidence from airport operators and others, and there are concerns about the capacity at places such as the St Pancras terminal. Any of us who has travelled through there will know that it is a relatively small space. The minute that there starts to be a back-up of queues or a fault in the technology, there is a problem.

We only have to look at what happened in the drone incidents at Gatwick or Heathrow the other day. The potential for technology to go wrong is significant. We therefore need back-up systems, redundancy and additional capacity to cope if we are going to put new people through the system. This is a very reasonable point, and I hope the Minister will explain whether any additional e-passport gates will be introduced. If so, which terminals will they be at? What is the back-up plan for when those systems go down in order to avoid huge queues and problems?

The last point I want to make is about the sharing of data that is inputted into these systems about whether somebody is or is not allowed in. Obviously, we have close data-sharing arrangements with some of the countries that the Minister mentioned through the “Five Eyes” arrangements and other things. It is absolutely crucial that we keep ourselves safe from terrorists, criminals and others coming to our borders. One hopes that that information is properly put into the relevant databases and used.

On our ability to use the systems for European citizens in the future, there is no guarantee that we will have access to the Schengen information system or the European criminal records information system, which we have discussed multiple times. I know that the intention is there, and I have listened carefully to what the Minister and the Prime Minister have said, but we do not have a guarantee. Surely the Minister must agree that we must have the most accurate information to prevent paedophiles, terrorists, criminals, and individuals involved in organised crime from crossing our borders. Frankly, it does not matter what nationality people are or what the general risk profile is. There will always be individuals, including from the countries we have just mentioned and European countries, who will seek to evade our border and security protections and do harm in this country. Therefore, we must have the strongest relationship possible on security and information sharing.

I hope that the Minister will be able to respond to those points. In principle, I have no objection to the order’s being used. We all agree that e-passports are a good idea, but we need that capacity and security.

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I got a bit excited earlier and thought that we were going to finish faster than we have. A range of issues have been raised, and I will try very hard to stay within the scope of the order. However, it would be remiss of me not to reflect, as a number of hon. Members have tempted me to, on the fact that we have many opportunities next week to discuss the Immigration Bill.

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A brief commercial.

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Yes—and then it will go into Committee, and I expect that a lot of people will want to serve there. I shall therefore keep well away from the wider immigration issues, save for one thing. The hon. Member for Manchester, Gorton mentioned how we assess people at the border and whether they are assessed on the basis of their own risk or nationality and so on. The assessment is of course based on a range of factors. However, he will know and will no doubt be as disappointed as I am that there is no mention of electronic travel authorities in the Immigration Bill that is shortly to be considered by the House. That is something that we must bring forward in due course. I do not wish to give any trailer to suggest that there may be an immigration Bill part 2 in the fullness of time—perhaps long after I have finished in this role—but we do intend to introduce the electronic travel authority.

Our European neighbours already have plans in train for the European travel information and authorisation system, or ETIAS, which is the European equivalent. Those of us who have travelled to the United States—we have had some wonderful adverts for the warm welcome given by immigration in the United States—will be very familiar with the electronic system for travel authorisation, the ESTA. Our ETAs will enable both immigration control and our security services to have a very close grasp on who is coming here.

There were some interesting questions about risk. I gently point out that we already determine nationalities that do not need a visa to come here as visitors. We have visa nationals and non-visa nationals and, obviously, currently we also have free movement with the European Union member states. We already assess nationalities against that risk, to determine whether they need a visa to come here as a visitor, or not. That is of course done in close co-operation with our security partners—my hon. Friend the Member for Brigg and Goole mentioned “Five Eyes”. That fantastic relationship has been established over many years, enabling us to share information about risk with our close friends and allies.

We also have to consider volume, and that has been part of this equation. People have reflected on the length of queues that are sometimes experienced at some of our major airports. We have carefully balanced those nationalities with whom we have good border co-operation and good security relations and who will play a significant role in getting volumes out of our non-EEA queues.

In terms of capacity, there has been an enormous jump in the number of people using e-gates in the last year. Some of that is about the increasing numbers of passengers and some is about familiarity. I have spent many a happy hour at various airports in the UK that use e-passport gates, and it has been really obvious to me that experienced travellers who come in and out regularly go through the gates with barely a hiccup. Others who are less used to using them sometimes forget to take their glasses off, or put their passport in the slot and look away from the screen, but I am conscious that as people get used to using them, they use them more. That can be seen in the statistics. In the 12 months to June 2018, there was a massive 40% increase in passengers using e-passport gates against the previous 12 months. When e-passport gates became widely used in 2009, only 1 million passengers used them. In the last 12 months, nearly 52 million passengers used them. That increase is in a relatively short space of time.

Undoubtedly, we have seen increases in flows and need to keep pace with capacity, but at the moment we are confident that our e-gate capacity is sufficient for this change. As I have said, we will monitor it very closely. Over the last year, I have had meetings with all of the major airport operators to discuss capacity with them—I am sure that hon. Members can imagine the path to my door that Heathrow and Gatwick use at the peak of summer pressures. I am conscious of the challenges at regional airports, which the hon. Member for Cardiff South and Penarth mentioned, when people find themselves behind the USA flight that has just come in. We are keeping regional airports under close surveillance, but it is worth emphasising that 64.5% of non-EEA passengers come into Heathrow, and so that is clearly where the bulk of the pressure is.

My hon. Friend the Member for Brigg and Goole mentioned the registered traveller service. We recognise that the change means that those who have paid for registered traveller status will now have free access to our e-passport gates. We are considering the arrangements, including potential refunds, for those who may have paid for their annual membership very recently. It is an annual charge, and we have a lead-in of a few months before the necessary changes can be made to the gates to configure them to accept those passports. Hopefully, not too many refunds will be required. I hope he and those registered travellers will regard this draft order as a good thing.

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The Minister has been very generous in taking interventions. I really want some clarity on this point: will any new e-passport gates be introduced as a result of this or any other change in Government policy? I understand she says she will keep it under review and she believes there is extra capacity, but will there be any new e-passport gates?

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I gently point to the five new ones at Cardiff, which are very generously funded by the Welsh Government—I am sure the hon. Gentleman will appreciate that I gave them that plug. At the moment, we are keeping them under review; we are confident we can meet demand, but should that not be the case, I will continue my close work with the airport operators and Eurotunnel to make sure there is adequate capacity. As I said, there has been a 40% jump in the last year, and terminals have managed. He makes the point well, and he also made the point about reliability. The technology of the second generation e-passport gates has been much better than the first—he will recall that the first generation ones were removed from Cardiff because they were not as good. I am very conscious that the technology is always evolving. We talk of e-passport gates this year, but who knows what is coming down the track in a few years’ time. It is imperative for passengers arriving at our ports to have a 21st century service, and the swiftest and most secure technology. With that in mind, I commend this draft order to the House.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Immigration (Leave to Enter and Remain) (Amendment) Order 2018.

Committee rose.

Draft Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) regulations 2018

The Committee consisted of the following Members:

Chair: Philip Davies

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

Daby, Janet (Lewisham East) (Lab)

† Day, Martyn (Linlithgow and East Falkirk) (SNP)

† Esterson, Bill (Sefton Central) (Lab)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

† Mills, Nigel (Amber Valley) (Con)

† Morris, Anne Marie (Newton Abbot) (Con)

† Morris, Grahame (Easington) (Lab)

† O'Brien, Neil (Harborough) (Con)

Perkins, Toby (Chesterfield) (Lab)

† Ross, Douglas (Moray) (Con)

† Rowley, Lee (North East Derbyshire) (Con)

† Shapps, Grant (Welwyn Hatfield) (Con)

† Smith, Nick (Blaenau Gwent) (Lab)

† Swire, Sir Hugo (East Devon) (Con)

† Tolhurst, Kelly (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Zeichner, Daniel (Cambridge) (Lab)

Bradley Albrow, Matthew Congreave, Committee Clerks

† attended the Committee

Eighth Delegated Legislation Committee

Thursday 10 January 2019

[Philip Davies in the Chair]

Draft Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018

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I beg to move,

That the Committee has considered the draft Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018.

It is a pleasure to serve under your chairmanship, Mr Davies. Since the UK’s 2016 referendum decision to leave the EU, the Department for Business, Energy and Industrial Strategy has undertaken a significant amount of work on the withdrawal negotiations in preparation for a range of potential negotiation outcomes. The best outcome is for the UK to leave with a good deal and we have put forward a serious and credible proposal for the future relationship. Although we remain confident of an agreement, in the meantime, we must and will continue to work on preparing for a no deal.

The regulations aim to address the failure of retained EU law to operate effectively, as well as other deficiencies in the field of audit arising from the withdrawal of the United Kingdom from the European Union. They do not implement any new policy.

Although the fundamental elements of the current statutory audit legislation will remain the same after exit, the legislation still needs to be amended to ensure that it will work effectively once the UK has left the EU. That is because UK law on the regulatory oversight of the audit profession is compliant with the EU audit directive and the EU audit regulation.

The audit directive sets out the requirements on the statutory audit of most incorporated businesses, as well as a framework of standards for audit work and independence. It also sets out the responsibilities of the competent authorities for statutory audit in member states.

Meanwhile, the audit regulation sets additional requirements on the statutory audit of businesses defined as public-interest entities, which are banks, building societies, insurers and businesses with securities traded on regulated markets. The regulation forms part of retained EU law under the European Union (Withdrawal) Act 2018 and will therefore continue to apply in the UK after the UK exits from the EU. Our aim is to ensure that the framework for regulatory oversight of the audit profession in the UK works effectively following our withdrawal from the EU. The statutory instrument will help to facilitate that.

Under the audit directive, powers are provided to the European Commission to grant equivalence to third countries for their audit regulatory framework and adequacy to third countries’ competent authorities for their framework on audit regulatory co-operation. The instrument transfers those powers to the Secretary of State and provides powers to set out the criteria and procedure for assessment.

In future, equivalence or adequacy status decisions will be granted by regulations. Regulations could also be used in the months immediately following the UK’s departure to set out a framework for future assessment of equivalence and adequacy by the Financial Reporting Council. Following the UK’s exit from the EU, European economic area states would be treated like other third countries and, therefore, would be granted equivalence and adequacy status by the FRC.

The instrument extends the powers granted to the UK competent authority, the Financial Reporting Council. Certain powers that have been granted to the FRC by the Secretary of State will need to apply more broadly to reflect the UK’s exit.

The instrument extends the FRC’s ability to enter into mutual recognition agreements to recognise audit qualifications to allow such agreements to be made with EEA states and Gibraltar. It also extends the FRC’s ability to register third country auditors to include the registration of EEA auditors and Gibraltarian auditors.

The instrument transfers the European Commission’s power for the adoption of international auditing standards to the FRC. As the FRC already sets UK standards in line with international standards, we anticipate no immediate change.

The instrument provides certain transitional arrangements for auditors affected and their client businesses. To ensure companies and investors remain confident in UK markets, these will apply until the end of 2020. During that period we will continue to recognise EEA audit qualifications, EEA firm registrations and approvals, EEA audit regulatory frameworks as equivalent and EEA competent authorities as adequate. These transitional arrangements will mean that there will be no cliff edge for EEA companies that list securities on the UK market. It will also allow the FRC the time to put in place the procedures necessary to determine the full equivalence of EEA states, as well as the adequacy of their competent authorities.

The Government have carried out a de minimis impact assessment of the regulations, as the overall costs to business were expected to be small. This confirmed that the impact on business would be minimal, with only a limited sector being affected by most of the substantial changes. This is because the amount of cross-border business affected by this instrument is small. The most significant effects are for EEA businesses that are listed on UK markets, whose auditors will have to register with the FRC, and for UK businesses that only trade securities in the EEA, as these auditors will be subject to less regulation than before.

Recent statements by the Republic of Ireland Government have suggested that some individual UK auditor practices across the border may be affected by the UK’s exit. However, the numbers are small and officials are already in discussion with officials in the Republic of Ireland about them. These regulations maintain access to the UK for the Republic of Ireland auditors for the transitional period. During this period, we hope to agree a mutual recognition agreement with the Republic of Ireland, which will enable continued long-term access for both sides. The Government have worked closely with business and regulatory bodies, to ensure that the instrument before you now achieves continuity wherever possible, while addressing the deficiencies arising from the UK’s withdrawal from the EU.

In conclusion, these regulations aim to provide continuity for businesses operating in the audit sector wherever possible, while addressing deficiencies arising from the UK’s withdrawal from the EU. In the unlikely event that the UK leaves the EU without an agreement, the measures contained in the regulations will be crucial in ensuring that the audit regulatory framework in the UK works effectively. I therefore commend the draft regulations to the Committee.

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It is always a pleasure to serve under your chairmanship, Mr Davies. I take the opportunity to wish you and all hon. Members a happy new year.

I noted from the Minister’s opening remarks that we are still very much in the pantomime season. She only had to look behind her to see the truth of that statement as in her opening comments, when she confidently articulated the likelihood of Tuesday’s vote succeeding in the House. I do not want to disabuse her, but I sincerely doubt that that will happen. Nevertheless, here we are. We will play the game and address the regulations before us in the spirit intended, with the assumption that the deal will go through on Tuesday, even though we all know that is not going to happen.

The Minister rightly said how important it is that we have a successful, sustainable and workable audit regulatory framework in the UK after leaving the European Union. I wholeheartedly agree with that sentiment, but her speech and the information before us raises a number of questions, which we can usefully address, regardless of how we leave the European Union and whether the vote goes through on Tuesday.

The Minister mentioned the fact that a transition period in the withdrawal agreement lasts until the end of 2020, and that this avoids a cliff edge in the changes that she described. Can I ask her about the FRC’s confidence in its ability to negotiate new mutual recognition agreements to avoid simply delaying a cliff edge until the end of 2020? What have other countries said on the same subject? My understanding, from talking to the FRC, is that negotiating mutual recognition agreements on those subjects is by no means straightforward—they are extremely complex. I must ask where her confidence comes from, because I could not find in the paperwork before us any kind of clarification or assurance that would lead her to be so confident.

The Minister mentioned the commentary of the Government of the Republic of Ireland. She also mentioned that the number of businesses affected cross-border on the island of Ireland is small. Can she tell us how small, how many businesses are affected and what their turnover is? Similarly, can she say exactly how many businesses overall will be affected by the anticipated changes, and what their turnover is? I note that again—as for similar statutory instruments that we have discussed in the last few months—we have no impact assessment. The last impact assessment we had, which was on accounting standards, suggested that 20,000 businesses were affected. That is a sizeable number, and I would be interested to know whether it is a similar sort of number in this case. Perhaps she can get that figure for us.

As with the accounting standards regulations, the responsibility for oversight moves from the European Commission to the Secretary of State, and is delivered by the Financial Reporting Council. I ask the Minister, as I did last time, what the arrangements are. There are arrangements for scrutiny of the European Commission’s activities, but what arrangements will we have to scrutinise the Secretary of State’s activities and, more importantly, how will resourcing of the FRC be changed to address the additional workload resulting from what she set out in her remarks?

We are discussing regulations for significant additional third-country operation of auditors in the UK, and the regulation of that activity. Those are very important areas. Public confidence in our auditing profession is low, with some very high-profile cases— Carillion springs readily to mind—so anything that undermines or further devalues public confidence in how audits are carried out would be extremely damaging. What assurances can she give that the FRC will be in a position to ensure that no further damage done to the reputation and quality of audit? That is extremely important. Twenty-one months is not a long time. The changes are significant and additional reassurance would be extremely welcome.

I mentioned the Irish Republic. The chartered accountants body in Ireland is calling for negotiation on the mutual recognition of professional qualifications. My understanding is that a significant number of EU citizens are working in our large audit firms, which audit the FTSE 350, for example. What arrangements are being put in place to ensure that their qualifications are recognised and that they will be able to continue auditing businesses of all sizes in this country? The Irish Government want to deliver a bilateral mutual recognition agreement. As some of these issues will not just apply in the Irish Republic, is something similar being suggested by other EU countries, and have those discussions taken place with the Minister’s Department?

The regulations are in the event of the withdrawal agreement going through. However, if the agreement does not go through, what planning has been done on these subjects in the event of no deal? I was heartened to hear the Secretary of State’s comments that he is doing everything in his power to avoid no deal, which he reiterated this morning in response to the very bad news about the job losses at Jaguar Land Rover. Knowing him, I am sure that is true, but in the event of no deal, what would be the impact on the regulations before us? More importantly, what would be the impact on the auditing that is relevant to these regulations? As with so many other parts of our economy and country, no deal would have serious consequences for the audit sector. Arrangements need to be put in place—a point that has also been made in the information that is in front of us, and in the Minister’s opening remarks. To be fair, she set that out very well.

With the exception of a small number of people in this House, we can perhaps all agree that avoiding no deal is extremely important. With these regulations, we have yet another example of why it is so important that we avoid no deal, and that the proper arrangements are put in place to make sure—whether for the audit sector or for many other areas of the economy—we have an agreement that we can all get behind. As I said before, that is not going to be the agreement that the Prime Minister puts forward on Tuesday, but we are certainly going to need to agree something in the coming weeks and months. The prospect of no deal, whether for these regulations or for other areas, is utterly disastrous for us all.

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Following on from the comments made by the hon. Member for Sefton Central, I wanted to clarify a simple point with my hon. Friend the Minister. From reading through the detail, it is my understanding that this instrument deals with what happens when we leave on 29 March, regardless of whether a withdrawal agreement has been approved by this House. I cannot see anything in here that alters the nature of the instrument one way or another, but perhaps the Minister can let me know if I have read that incorrectly.

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I have just a few comments and questions about what we are doing here. To start with a slightly trivial one, the exemptions from having a statutory audit are set by EU regulation, and are based on thresholds for turnover and balance sheet size that are set in euros and then, every so often, are converted into sterling. I think the current ones we use set a turnover size of £10.2 million and a balance sheet size of £5.1 million. As we implement these regulations, would it not make sense to pick a nice round turnover and balance sheet number that can stay the same until we choose to change it, rather than having a slightly odd un-round number because of a conversion from euros?

I have two more substantive questions. First, while we obviously have some important ongoing discussions about how we reform our audit regulations and industry to make sure they are meeting the needs of the various stakeholders, our audit industry and professional services are well regarded around the world for the high quality of their work, their training, their standards and their regulation. They form quite an important export market. Can the Minister assure us that with all the stuff that we are carrying out on mutual recognition, we are aware that this is quite an important export for us? Ensuring that our UK businesses and our UK trading staff will continue to work in Europe and around the world is equally as important as ensuring that EU or EEA firms and others can work in the UK.

My second point is on what happens in the unlikely event of a no-deal exit at the end of March. There are many companies listed on our stock exchanges that are not based here and are therefore audited by non-UK audit firms. It is okay to have the powers to authorise non-UK firms to carry out these audits, but are we sure that in the event that an audit needs signing off and documents need filing in April, or pretty quickly after we leave, audit firms that are not UK-based will have been authorised so that those audited accounts are valid for listing purposes? Will we effectively just grandfather those approvals until the end of 2020, regardless of there being a deal or not, or will the FRC have to authorise a whole load of audit firms very quickly to ensure that we can continue to have firms meeting their listing requirements?

There have been various concerns about the ability of the FRC and its resourcing to meet all the very demanding roles that it already has. Is the Minister sure that it can at some speed meet these new demanding requirements that we have? Just for safety, I should declare that I am still a member of the Institute of Chartered Accountants in England and Wales. I used to work for audit firms, and I think I have a very small pension from one somewhere.

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I will try to answer as many of the questions that have been put by hon. Members as I can. The hon. Member for Sefton Central referred to the people behind me as thinking that I was not speaking the truth. I want to clarify my point: as a member of this Government, I am committed to getting to a position where the UK has a deal with the European Union. However, any responsible Government, as we are, would be preparing for a no-deal scenario. The regulations before us will put us in a position where UK business confidence remains. We have confidence in the UK markets and are acting responsibly to ensure that in the event of no deal, we are in a situation where the law works correctly.

I would like to go back to the point made by my right hon. Friend the Member for Welwyn Hatfield. Should a deal be agreed, we might not see many changes. We are in this particular agreement, which is retained EU law, so EU laws are being introduced in the UK. It sets out how we will deal with certain audit provisions. Whether there is a deal or not, further changes will come through, because we will take decisions on how to work things and lay out further guidance on how we will assess qualifications and how we will assess the competency of authorities in the future. Fundamentally, this applies whether there is a deal or not, but obviously it focuses on a no-deal scenario.

As the hon. Member for Sefton Central will know, the transitional agreement is under this SI. For example, up to 2020, under the SI, there is confidence that we will be accepting the relevant professional qualifications and competent authorities within EEA states for the transitional period, so as not to be at a cliff edge.

The hon. Gentleman asked whether the FRC is confident that it will be able to establish mutual agreements, and whether it is in a position to do so. Currently it carries out—fundamentally speaking—oversight with respect to the regulation as it stands. I am therefore confident that it will be in a position to deal with further work that is necessary in the event of no deal—and in a situation where there is a deal, although we are talking about a no-deal scenario at the moment.

I want to touch on a question from my hon. Friend the Member for Amber Valley about recognition of qualifications, and authorisations. Under the SI—and the FRC is agreed—in the case of businesses whose financial years fall after 29 March there will be a requirement for auditors to register prior to the audit being signed. Effectively, there could be up to an extra year for auditors to do that, after 29 March. That is exactly so that it can be managed. There may be benefits for some auditors, because there is potential for them to say, as a selling point, they have done it ahead of time. Obviously that will not be before 29 March, and they will have until the time when they need to sign the audit to register. I hope that that gives my hon. Friend some confidence.

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I think I understand what the Minister is trying to say, but just to confirm it, let us say a firm had the year end of 28 February 2019 and had to submit audited financial statements to a listing authority by some such time as the end of April or early May, and we had a no-deal Brexit. The auditors could not register for that before 29 March; but would they have to register before they could submit those accounts—so that they would have to do it very quickly in early April—or would they be grandfathered, in the event of no deal?

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My hon. Friend has outlined a situation where the company’s end of year would fall before the withdrawal date. As things stand the new registry would be only for instances where the financial year started after 29 March. It depends on where the years fall. In the case he gave, effectively, the auditors would not have to do it.

As to the number of companies affected, there are currently 291 EEA companies registered on the UK markets, and approximately 240 UK companies that have registered securities on EEA markets. The regulations affect a small number of organisations and in some cases a few other European countries. We are talking about a small number of companies. To give the Committee an idea of the scale, there are 1,000 listed companies in the UK. We have 3.8 million companies registered in the UK, 98.5% of which are small businesses, 20,000 large businesses and 35,000 medium-sized businesses, so the direct impact will affect a small number of companies and audit firms that are registered within the EEA.

On the point about the Secretary of State taking those powers regarding approval of adequacy and competence that have lain with the European Commission under the EU regulation, there would be full parliamentary scrutiny, as there is, with the Secretary of State having that power. As the hon. Member for Sefton Central knows, all Secretaries of State face full parliamentary scrutiny, and I would argue that our Secretary of State having those powers represents far more scrutiny than the European Commission under the current position. It is a positive move for the Secretary of State to have those powers, and it is right that they are held at parliamentary level rather than being delegated, at this particular time, to an arm’s length body such as the FRC.

Regarding what the hon. Gentleman says about my confidence in the FRC and its ability, this particular regulation deals with a no-deal scenario, but as he and the Committee know, Sir John Kingman’s report into the FRC was published at the end of last year. We also have the work that has been done in the audit market regarding competitions. Whether we have a no-deal or a deal scenario, those pieces of work on what we do in this area to ensure that our markets are working effectively and that our public bodies are acting effectively will be ongoing. If there were to be any changes in the future, this SI would be taken into account. That is what Governments do. In a no-deal situation we would be in a position to change whatever we might want to in this area. I do have confidence in the FRC and in how we would manage that, and that the FRC would be in a position to deliver what is required in both a no-deal and a deal situation.

Regarding bilateral agreements, the hon. Gentleman mentioned the position with Ireland and asked whether we had had those discussions with other European states. Currently, 200 of the around 240 companies affected operate in the Irish market, so Ireland is the main EU member state that we will need to work more closely with in the future. Our officials are in discussions with our European neighbours all the time across a number of topics in this area, and more of that will go on as we head toward European Union exit date and after 29 March, whether or not we are in a deal situation and working toward a future relationship. We are committed to ensuring that we are able to deliver those agreements with our neighbours in the future.

It is paramount that, as the UK exits the EU, we maintain the integrity of the UK system for audit regulatory oversight. These regulations will help to facilitate that by ensuring that oversight of the audit profession continues to work effectively following our withdrawal from the EU. The regulations do not introduce a change in policy. As I explained, the fundamental elements of the current statutory audit legislation will remain the same after exit. The regulations before the Committee make only the amendments that are necessary to ensure that audit legislation remains operable in the UK following our withdrawal from the EU. The measures in these regulations will ensure that, and mean that the UK system for regulatory oversight will remain coherent and understandable for the businesses that rely on it. I therefore commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018.

Committee rose.