Skip to main content

General Committees

Debated on Tuesday 10 November 2020

Delegated Legislation Committee

Draft Definition of Qualifying Northern Ireland Goods (EU Exit) Regulations 2020

The Committee consisted of the following Members:

Chair: †Mrs Maria Miller

† Anderson, Lee (Ashfield) (Con)

† Bacon, Gareth (Orpington) (Con)

† Benton, Scott (Blackpool South) (Con)

† Blomfield, Paul (Sheffield Central) (Lab)

† Butler, Rob (Aylesbury) (Con)

† Crosbie, Virginia (Ynys Môn) (Con)

Davies, Geraint (Swansea West) (Lab/Co-op)

Elliott, Julie (Sunderland Central) (Lab)

Farry, Stephen (North Down) (Alliance)

† Fell, Simon (Barrow and Furness) (Con)

† Fletcher, Colleen (Coventry North East) (Lab)

Harman, Ms Harriet (Camberwell and Peckham) (Lab)

† Henry, Darren (Broxtowe) (Con)

† Hunt, Jane (Loughborough) (Con)

† Mordaunt, Penny (Paymaster General)

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

Thompson, Owen (Midlothian) (SNP)

Ben Rayner, Committee Clerk

† attended the Committee

Third Delegated Legislation Committee

Tuesday 10 November 2020

[Mrs Maria Miller in the Chair]

Draft Definition of Qualifying Northern Ireland Goods (EU Exit) Regulations 2020

Before we begin, may I remind colleagues about social distancing; we are not using the central rows but Members may sit in the Public Gallery and still contribute to the debate.

I beg to move,

That the Committee has considered the draft Definition of Qualifying Northern Ireland Goods (EU Exit) Regulations 2020.

It is a pleasure to serve under your chairmanship, Mrs Miller.

The statutory instrument relates to the establishment of a definition of “qualifying goods” for the purposes of delivering unfettered access for Northern Ireland goods moving to the rest of the United Kingdom market from the end of the transition period. The SI should be seen in the wider context of the Government’s clear commitment to deliver unfettered access, and to guarantee that in legislation by the end of this year. That commitment was made in the 2019 Conservative manifesto and in the ‘New Decade, New Approach’ deal, which restored power-sharing to Northern Ireland. The SI is fundamental to the delivery of that commitment.

Unfettered access is based on several fundamental tenets. First, that there will be no customs and regulatory checks and processes for qualifying Northern Ireland goods moving from Northern Ireland to Great Britain. Secondly, that no additional authorisations or approvals will be required for placing those goods on the market in the rest of the UK; and thirdly, that those goods can continue to be sold throughout the UK market.

The United Kingdom Internal Market Bill puts the building blocks in place for unfettered access for the long term. It will enshrine in primary legislation that qualifying Northern Ireland goods will benefit from mutual recognition—enabling goods to continue to be placed on the whole of the UK market, even where the protocol applies different rules in Northern Ireland—and prohibits new checks and controls as goods move from Northern Ireland to the rest of the UK.

Those are significant and robust protections, and they will be subject to only the most limited possible exceptions, such as to ensure that the UK can comply with its international obligations, for example regarding the movement of endangered species. For those protections to have effect, we must have a definition in law of what are the ‘qualifying Northern Ireland goods’ that benefit from them. That is the purpose of the SI.

It is important to be clear that the policy of unfettered access will be given effect in two phases. The first phase is focused on avoiding disruption and maintaining continuity from the beginning of next year, in line with our broader Great Britain-European Union approach. For that reason, the SI takes a necessarily broad-based approach, outlining that goods will qualify where they are in ‘free circulation’ in Northern Ireland, on the basis that they are not under any customs supervision, as will any good that has undergone processing operations in Northern Ireland under the inward processing procedure, and which only incorporates GB inputs, and inputs that were in free circulation in Northern Ireland.

Those are quite technical descriptions, but in practice they mean no more than no change to how Northern Ireland businesses move goods directly to the rest of the UK from 1 January 2021 compared with now. The SI is an important first step to make sure that Northern Ireland traders can continue to move their goods in an unfettered way from the end of the transition period, which meets the Government’s clear commitment under the ‘New Decade, New Approach’ deal. It is a necessary first step, but we want to guard against the possibility that it is used by other actors who may wish to avoid import formalities that should otherwise be met. That is why the SI is the first phase and will be accompanied in due course by anti-avoidance measures contained in legislation brought forward by my colleagues in the Treasury, which will enable us to take action in such cases.

The SI represents only the initial approach. During 2021 it will be replaced with a regime that targets its benefits on Northern Ireland businesses, to ensure that they have a competitive advantage over other traders on the island of Ireland, and that goods moving from Ireland or the EU are subject to full third-country checks and controls. That regime is in the process of being finalised through work with Northern Ireland businesses and the Northern Ireland Executive. We will provide further details on that in due course. We are also engaging with the devolved Administrations more broadly on the implications of that second phase, and we welcome that ongoing work.

In the meantime, we consider that it is right to proceed in a pragmatic way that maintains continuity for business, and our phased approach will achieve that. I hope that both Houses approve the SI because that will enable us to bring forward clear guidance for businesses that ensures that they are ready for the end of the transition period in that regard. I commend the regulations to the Committee.

It is a pleasure to rise to speak with you in the Chair, Mrs Miller.

As the Minister has said, the SI sets out the definition of ‘qualifying Northern Ireland goods’ in the context of the United Kingdom Internal Market Bill, about which the Opposition set out our concerns when it was debated in the Commons, and which was overwhelmingly amended last night in the other place by an extraordinarily broad coalition that included former leaders of the Minister’s party. They share our concern about the rule of law.

The Labour party clearly supports unfettered access of Northern Ireland businesses to the rest of the UK market, so will not oppose the SI today. As the Minister said, unfettered access was a commitment made in the ‘New Decade, New Approach’ agreement to restore devolved government to Northern Ireland, and Labour strongly welcomed that. However, the Opposition have concerns about the SI, which I believe the Minister anticipated in her opening remarks, and we would welcome some further assurances on them.

Our first concern relates to the breadth of the definition of ‘qualifying Northern Ireland goods’—something to which the Minister herself referred. The Government appear to acknowledge that it is problematic. It will need further clarification in further legislation because that definition is not sufficiently tightly drawn to provide protections. The SI is provided for by the Henry VIII powers under the European Union (Withdrawal) Act 2018, which gives the Government extraordinarily wide powers to

‘make any provision that could be made by an Act of Parliament (including modifying this Act)’.

We opposed that when that Act was debated two years, but in terms of the specifics of the SI, the wide drafting of the definition of qualifying goods is the problem, because it includes anything that is in circulation within Northern Ireland without being subject to customs control while there. However, it also includes goods processed in Northern Ireland from GB-derived goods, which are themselves subject to customs control in Northern Ireland. For example, that includes whisky imported from Scotland to Northern Ireland which might be in duty suspension in Northern Ireland, but then used to make mince pies in Belfast. That would leave those mince pies as ‘qualifying Northern Ireland goods’, despite the whisky used to make them being subject to customs control. Therefore, as I think the Minister acknowledged, the definition of ‘qualifying Northern Ireland goods’ is not sustainable in the longer term.

Separately, the National Crime Agency has warned that Northern Ireland could become a back door into the UK internal market, with the risk of counterfeit goods or, less likely, lower standard goods flowing into the UK. I am sure that the Minister is aware that UK farming unions have expressed concern that livestock and dairy could be disproportionately impacted by the measure. The potential problems were also raised by the Police Service of Northern Ireland in its evidence to the Northern Ireland Affairs Committee, when it said that the definition offered in the SI is simply not good enough.

The Opposition recognise that the Government see the SI as phase one and, as the Minister said, it is suggested that they will come up with a more refined definition in due course. Can the Minister tell us when that might be? When will we have the clarity that we all need? Can she also update us on the anti-avoidance regime, which is still to be designed and approved by the end of the year, according to the Government’s intention, to address the risk of Northern Ireland acting as a back door to Great Britain.

The Opposition are also concerned about how the SI will contribute to the weakening of the devolved Administrations’ powers. It must be read alongside the United Kingdom Internal Market Bill, clause 43 of which stops the devolved Governments imposing new kinds of checks or controls on qualifying Northern Ireland goods, and clause 11 applies the market principles of mutual recognition and non-discrimination to qualifying Northern Ireland goods. That means that the Welsh Government could not prevent something from being sold in Wales, or the UK Government could not stop something being sold in England, if it is a qualifying Northern Ireland good. If something is lawfully produced in, or imported into, Northern Ireland, it would have to be allowed to be sold in Wales, or indeed in Scotland or England. I appreciate that that was a principle within the EU internal market, and the Minister will probably cite that, but the issue here is the imbalance. In England, the Government have the power to amend the United Kingdom Internal Market Bill to prevent that consequence from arising, either by modifying the exceptions in the Bill through an SI, or by getting Parliament to legislate. Those options are not available to Wales or Scotland, and therefore an asymmetry undermines the devolved powers. Can the Minister acknowledge that is the case, and whether the Government are content with that, given that it significantly undermines local voices as expressed through the devolved Administrations?

We are also concerned about the impact on standards across the UK. Given that Northern Ireland is essentially within the EU single market for goods, any good allowed to be sold within the EU, as complying with the EU single market, must be allowed to be sold in Northern Ireland. If, for example, Wales decided to exceed the EU environmental standards applicable to vehicle emissions, the combination of the regulations in the SI and the terms of the United Kingdom Internal Market Bill would mean that Wales could not succeed, because a lower-standard vehicle would be on sale lawfully in Northern Ireland and would be a qualifying Northern Ireland good, and the mutual recognition principle in the United Kingdom Internal Market Bill would have effect. Improving standards is an ambition that the Chancellor of the Duchy of Lancaster often espouses—despite the fact that he is refusing to sign up to any kind of safety net in the current negotiations with the EU—and I appreciate that the right hon. Gentleman probably would not want such consequences to arise, but the combination of the protocol, the SI and the internal market Bill make it very hard to see how Great Britain’s standards could ever exceed EU standards in matters such as environmental protection. Is that also the Minister’s understanding? If so, can she explain how the Chancellor of the Duchy of Lancaster will achieve his ambition?

Given that processed goods coming from Northern Ireland may have components originating outside of the country, does the approach outlined in the SI for qualifying goods have wider implications for the UK’s approach to rules of origin with the rest of the world?

I appreciate that the Minister said that further work was ongoing, but the Government have had more than a year since agreeing the withdrawal agreement and the Northern Ireland protocol. Frankly, it is disappointing that the issues I have highlighted have not been resolved by now, so I would be grateful if the Minister could answer my questions.

I thank the hon. Member for Sheffield Central for his helpful remarks, and for the Opposition’s support for the SI. It is important that we regulate for the definition of qualifying Northern Ireland goods and that we can move on to provide the explanations and certainty that business would like.

We are discussing a narrow issue, and there are much more exciting things going on this week with the United Kingdom Internal Market Bill, so I will not rehearse all arguments about that now. Fundamentally, the controversial clauses to which the hon. Gentleman referred are about protecting the integrity of the United Kingdom. I believe that that is well understood, certainly by the vast majority of Members of this elected House. That is the purpose of those clauses, and their powers will only ever be drawn on should we be in a situation where they are required.

I assure the Committee that the SI is part of our clear commitment to unfettered access, and I am sure that the hon. Gentleman knows that that is its purpose, along with protecting Northern Ireland’s place in the internal market. Those will remain our overriding priorities in our work in the weeks ahead.

The hon. Gentleman asked whether the definition of ‘qualifying Northern Ireland goods’ is too broad. It is important to note that the SI is part of a phased approach to develop a bridge, and it is intended to be no more than a stopgap to a longer lasting regime that will focus its benefits on Northern Ireland businesses. As I outlined, that regime is being developed with Northern Ireland businesses and the Northern Ireland Executive, and will introduced during the course of 2021. In line with our broad policy, we will take a sensible, practical phased approach to that regime, which is what businesses in Northern Ireland and elsewhere have asked us to do. I note the hon. Gentleman’s concerns, but the SI is just a stopgap measure.

The hon. Gentleman also spoke of the risk of Northern Ireland being used as a back door to the GB market, and cited the seasonal example of mine pies. To prevent any traders from misusing the proposed system, the United Kingdom Internal Market Bill and the SI will be accompanied by anti-avoidance measures. I cannot give him any further information about the timetable other than what is already in the public domain. The anti-avoidance measures of which we spoken about many times, and to which we have a clear commitment, will be introduced in a timely manner to prevent businesses from moving goods via Northern Ireland in order to avoid required import formalities.

On farmers and biosecurity, appropriate authorities can use existing powers and those granted within the United Kingdom Internal Market Bill from the end of the transition period to manage and control the threat of disease, pest outbreaks and so forth in Northern Ireland and Great Britain. That will ensure that our high standards on food safety, plant and animal health, and animal welfare and environmental protections, are maintained while ensuring trade from Northern Ireland to Great Britain can continue as now. Those risks will be managed as and when they arise and they should not be the basis on which we limit access for Northern Ireland businesses to their most important market.

The hon. Gentleman referred to the devolved Administrations, and of course many of the issues that we have dealt with throughout the whole process have been very complex in terms of what powers sit where, how organisations will operate and the frameworks that govern them. I reassure him that we are working very closely with those Administrations. I spend a lot of my time doing that—I have a quad with them this week—when we talk about the issues we are debating today. Of course their views are taken into consideration and account when it comes to shaping the regimes we will set up. They are heavily involved in the operational aspects, and now attend XO meetings when appropriate and of interest to them.

I must say a word in defence of the Chancellor of the Duchy Lancaster, because I think that he is Mr Standards, as he was when at Education or when at the Department for Environment, Food and Rural Affairs, when he worked for animal welfare standards, environmental and air quality standards, and he has been a champion of our retaining those standards throughout this process. A great deal is happening in the world on trade, with moves towards international standards, but fundamentally it comes back to the integrity of the United Kingdom, our country, and the standards that we wish to apply across a raft of sectors. That is incredibly important.

The regulations are simply a stopgap, another stepping-stone on the way to building new systems and regimes, and I am sure that it will not be long before my colleagues at the Treasury and elsewhere bring forward the other measures that the hon. Gentleman inquired about that will ensure that we can give businesses sight of and certainty over their future. I thank all members of the Committee for their attendance and assistance in considering the SI, which is fundamental to achieving that.

Question put and agreed to.

Committee rose.

Draft Non-Domestic Rating (Rates Retention, Levy and Safety Net and Levy Account: Basis of Distribution) (Amendment) Regulations 2020

The Committee consisted of the following Members:

Chair: Rushanara Ali

Anderson, Stuart (Wolverhampton South West) (Con)

† Benton, Scott (Blackpool South) (Con)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

Brennan, Kevin (Cardiff West) (Lab)

Burgon, Richard (Leeds East) (Lab)

Butler, Dawn (Brent Central) (Lab)

Byrne, Liam (Birmingham, Hodge Hill) (Lab)

† Clark, Feryal (Enfield North) (Lab)

Cryer, John (Leyton and Wanstead) (Lab)

† Eastwood, Mark (Dewsbury) (Con)

† Fletcher, Mark (Bolsover) (Con)

† Grundy, James (Leigh) (Con)

† Hughes, Eddie (Walsall North) (Con)

† Mohindra, Mr Gagan (South West Hertfordshire) (Con)

† Pincher, Christopher (Minister for Housing)

† Shah, Naz (Bradford West) (Lab)

† Young, Jacob (Redcar) (Con)

Kate Anderson and Huw Yardley, Committee Clerks

† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 10 November 2020

[Rushanara Ali in the Chair]

Draft Non-Domestic Rating (Rates Retention, Levy and Safety Net and Levy Account: Basis of Distribution) (Amendment) Regulations 2020

Before we begin, I remind Members who decide to speak in these proceedings that Hansard colleagues would like any notes to be sent to hansardnotes@parliament.uk.

I beg to move,

That the Committee has considered the draft Non-Domestic Rating (Rates Retention, Levy and Safety Net and Levy Account: Basis of Distribution) (Amendment) Regulations 2020.

It is a great pleasure to serve under your chairmanship, Ms Ali. I should begin with an apology, in that my hon. Friend the Member for Thornbury and Yate (Luke Hall) is self-isolating this afternoon. I am standing in for him as a small, but I trust no less perfectly formed, substitute.

The business rate retention scheme, which was introduced some eight years ago, allows local government to retain 50% of the business rates its raises locally and also keep 50% of the growth in business rates over and above the amounts delivered through the local government financial settlement. Authorities have estimated that, in 2019-20, growth in business rates will give them £2.5 billion of additional funding to support the delivery of local services. The underlying principle of the business rate retention scheme is simple. If an authority is responsive to local business and helps to grow its local economy, it will retain the resulting increase in business rates, which can be reinvested in its local economy and used to support local services.

However, as has often been said, particularly on the Floor of the House, the operation of the business rate retention scheme is technically very complicated. It is governed by a number of pieces of secondary legislation, which provide the framework for the calculations and rules that govern how and when the business rates collected from ratepayers are distributed among central Government, billing authorities, often district councils, and major precepting authorities, often county councils. The regulations before the Committee make several important technical amendments to the underlying regulations to update the existing framework. This is vital to the administration of the business rate retention system and will ensure that all parties receive the funding they are due.

The regulations make three main changes. They ensure that the correct calculation of the income retained by authorities that have, or have had in the past, a higher level of retained business rates income; they make the necessary changes to the rates retention system, following the most recent local government restructuring; and they adjust the calculation of retained rates income against which we determine levy and safety net payments, to ensure that local authorities are not doubly compensated for giving business rate relief for telecommunications infrastructure. I will deal with each change in more detail and explain why they are needed.

The rates retention scheme is governed by a number of pieces of secondary legislation, the most important of which are the Non-Domestic Rating (Rates Retention) Regulations 2013 and the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. These regulations establish the key building blocks of the day-to-day administration of the rates retention system, including council shares of locally retained business rates income and their safety net thresholds and levy rates. Since 2017, we have allowed any number of local councils to keep more than 50% of their business rates income—the original top threshold, which was set in 2013. The devolution deal areas—Cornwall, the West of England, the West Midlands, Greater Manchester and the Liverpool city region—retain 100% of their business rates income. In the two subsequent years, following a competitive process, a number of other local authorities were chosen to be part of a business rate pilot programme, under which they retained 100% or 75% of their business rates income in 2018-19 and 2019-20 respectively. Regulations were made to give effect to those changes. Unfortunately, given the complexity of the 2019-20 regulations a few minor omissions or errors were made in the framework for that year’s pilots. Those include errors in some of the 75% pilot’s levy rates, the apportionment of the collection fund balance for one authority and the uprating of the top-up and tariff payments for London and those authorities that were 100% business rate retention pilots in 2019-20. The regulations simply put those errors right. In acknowledgment of that, they will be made free of charge to any party who purchased the 2019 regulations as local authorities often do. In addition to these changes, the regulations also provide for the uprating of the devolution deal authorities top-up and tariff payments in 2020 and 2021.

The regulations before the Committee also make minor changes consequent on Buckingham restructuring from 1 April 2020. The new Buckinghamshire unitary authority will replace its predecessor county council and its constituent district councils—Aylesbury Vale, Chiltern, South Bucks and Wycombe. For the most part, that requires no changes to the secondary legislation that governed the business rates retention scheme because all that happens is that the values that appeared in regulations in each of the predecessor authorities are simply aggregated to give the corresponding value for the new unitary. But we need to make a couple of changes when aggregated values would produce an incorrect result for the new unitary authority. Those are an adjustment to a figure that determines the cost of operating in Buckinghamshire and helps determine how much the new authority needs to cover the costs it will incur in collecting business rates and administering the tax and an updated value for the new Bucks unitary used to calculate its small business rate relief compensation.

Similarly, Bournemouth, Christchurch and Poole Council and Dorset Council have been in place from 1 April 2019 following the rearrangement of the Dorset authorities. Since that change, the two authorities have agreed on amended splits of their revenue support grants. Revenue support grant is included within the settlement funding assessment measure, which the business rates retention system uses as the basis for distribution of any surplus on the levy account. A surplus on the levy account occurs when levy payments exceed safety net payments in that year. The regulations therefore make a small amendment to the basis of distribution to reflect the revised split of revenue support grant. I should say at this stage that those changes are being made at the request of those authorities.

Finally, the regulations make an amendment to the calculation of retained rates income, against which levy and safety net payments for authorities are determined. To avoid doubly compensating local authorities for awarding telecoms relief, for which they are already given a section 31 grant of compensation, the levy and safety net calculations must add back the compensation for business rate reliefs received by the authority as a result of changes made by the Government—in this case, we add back the value of the telecoms relief awarded. By doing so, we ensure that local authority safety net payments are not artificially increased, or levy payments decreased, by the compensation that they receive.

In conclusion, the regulations are highly technical—I can well understand why my hon. Friend the Member for Thornbury and Yate did not want to be here to discuss it. They are required to make a series of minor amendment to update the framework on which rates retention is run for 2019-20 and 2020-21. In making those changes, no new policies are introduced. The regulations simply ensure the fulfilment of the original policy intention, as approved in previous years, via the settlement or by statutory instrument.

I commend the regulations to the Committee.

It is really an honour to serve under your chairmanship, Ms Ali.

In recent times, especially through the covid pandemic, local authorities have shown how they can provide the necessary localised support to communities. When the need came, they adapted their services. They housed those who were homeless, provided food parcels for those shielding and literally became a Government at the local level.

It is not just in times of pandemic, but more generally that local authorities have a better understanding of their local communities and businesses. They are therefore able to work with local people to ensure that businesses in the UK can genuinely thrive. After a decade of reductions in funding and rising demand, from which we seem to be beginning to emerge, councils, along with the rest of the nation, have faced the impact of the covid-19 pandemic on their citizens, staff, services and budgets.

Estimates by the Institute for Fiscal Studies suggest that another £2 billion might be needed this year to meet all the pressures and non-tax income losses that councils have experienced and will continue to experience as a result of covid-19, but that that could rise to £3.1 billion, depending on whether council assumptions about the end of the pandemic are correct. Changes in legislation that provide formulas to support local authorities and their budgets in such times are therefore hugely important and we certainly welcome that.

Although I understand that the changes in the statutory instrument are technical, and some relate to individual local authorities, I would be grateful if the Minister provided further reassurances on whether the Government will make adjustments to business rate retention calculations next year to take into account the impact of covid-19 rates relief.

As the Minister knows, following the measures announced in March, 40% of business rates in 2020-21 are being covered by retail reliefs of approximately £10 billion. However, business rates collection is likely to be down, despite the increased reliefs, with current predictions by councils suggesting a £1.6 billion shortfall to the public purse. The 2021 calculations, which will be made next year, will therefore be potentially less straightforward due to the impact of the covid-19 pandemic on collection. The calculation will need to be adjusted to deal with the retail reliefs. I would welcome the Minister’s outlining any further plans that the Government have to deal with that specific shortfall.

Additionally, will the Minister provide an update on how the Department plans to deal with the shortfall arising from irrecoverable uncollected local taxation in 2021? Will the Government cover all the shortfalls in planned non-tax income and local tax revenues, including business rates? The Minister will recall that the Government have a line that they will cover whatever is needed for local councils. After a decade of cuts and then taking on the burden of a pandemic, it is important that local authorities are supported so that local people, communities and businesses are also supported.

I am grateful to the hon. Lady for what I think is her support for the amendments to the regulations, although I have to say that she is being a little ungenerous to the Government, given the support we have provided to local government in the last financial year of a 4.4% increase in real terms in core spending power—the largest injection of cash into local government in more than a decade—and the support we have given to local authorities that are working exceptionally hard to help their communities through the pandemic.

The hon. Lady will know that we have already allowed the award of £2.6 billion in business rate payments that local authorities would normally make to central Government. We have paid £1.8 billion in grant aid to local authorities, and £11.2 billion, which would otherwise have been paid in business rates via hospitality, retail and leisure, will be returned to local government. According to a quick, rough estimate on my part, that is £15.6 billion to local authorities. We should also remember that the Government have spent approximately £30 billion for local authorities, local communities and businesses as a result of the pandemic. We will keep the services and support we provide to local government and beyond under review.

The hon. Lady asked about future changes to the business rate retention scheme and any reliefs. Until we know what the business landscape is like in local government once the pandemic has abated, we cannot make any commitments to specific changes, but my right hon. Friend the Chancellor of the Exchequer will keep the situation under review. We will address future funding through the spending review—or before if necessary—in the usual way.

Question put and agreed to.

Committee rose.

Draft Electronic Communications and Wireless Telegraphy (Amendment) (European Electronic Communications Code and Eu Exit) Regulations 2020

The Committee consisted of the following Members:

Chair: †Dr Rupa Huq

† Abrahams, Debbie (Oldham East and Saddleworth) (Lab)

† Baynes, Simon (Clwyd South) (Con)

Betts, Mr Clive (Sheffield South East) (Lab)

† Bristow, Paul (Peterborough) (Con)

† Caulfield, Maria (Lewes) (Con)

† Clarke-Smith, Brendan (Bassetlaw) (Con)

† Davison, Dehenna (Bishop Auckland) (Con)

† Foy, Mary Kelly (City of Durham) (Lab)

† Gibson, Peter (Darlington) (Con)

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

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Nici, Lia (Great Grimsby) (Con)

† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)

† Richards, Nicola (West Bromwich East) (Con)

Thompson, Owen (Midlothian) (SNP)

† Warman, Matt (Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport)

† Western, Matt (Warwick and Leamington) (Lab)

Kevin Maddison, Committee Clerk

† attended the Committee

Fifth Delegated Legislation Committee

Tuesday 10 November 2020

[Dr Rupa Huq in the Chair]

Draft Electronic Communications and Wireless Telegraphy (Amendment) (European Electronic Communications Code and EU Exit) Regulations 2020

Before we begin, I would like to remind Members of the social distancing requirements; available spaces are clearly marked. If any Member wishes to speak from the Public Gallery, please move to a microphone.

I beg to move,

That the Committee has considered the draft Electronic Communications and Wireless Telegraphy (Amendment) (European Electronic Communications Code and EU Exit) Regulations 2020.

It is a pleasure to serve under your chairmanship, Dr Huq.

I am pleased to introduce this statutory instrument, which was laid before the House on 12 October. The draft regulations are being introduced to transpose the European electronic communications code directive—I have a copy here—into domestic law, as we are committed to under the European Union withdrawal agreement.

The regulations are a crucial milestone towards the delivery of our digital ambitions and will play a significant role in aiding the delivery of our manifesto commitments and ensure a future-proofed telecommunications regime. The changes will facilitate competition and a pro-investment regulatory environment, supporting gigabit capable roll-out across the United Kingdom. UK consumers will benefit from better information to make informed decisions. They will have stronger contract rights and will be able to switch their services more easily than before, which will help to support competition.

The regulations also ensure that the universal services remain affordable for consumers with low incomes or other specific needs.

The measures sit alongside those being implemented by Ofcom under its existing powers. It is implementing new rules on information requirements for contracts, contract duration and termination rules, and broadband switching rules. They include rules banning providers from selling locked devices, such as mobile phones, ensuring a consumer’s new provider leads any switch, strong contract exit rights and short summaries of main contract terms to help customers make more informed decisions. Although we recognise that industry will need to make changes as it responds to covid-19, Ofcom will allow providers a further year for these measures to be in place during this exceptional period.

Hon. Members should note that a small number of measures in the directive are not being implemented via the draft regulations. Some measures are being implemented through other legislation and some have already been put in place, including those relating to car radios via the Road Vehicles (Approval) Regulations 2020.

We are further considering how to take forward a limited number of measures applicable to ‘over the top’ services, including instant messenger and email communications. We have given Ofcom powers to gather further information on those services in the draft regulations.

The draft regulations introduce measures to drive investment in future-proofed networks and communications services through sustainable competition; support of efficient and effective use of radio spectrum; and the provision of a higher level of consumer protection. Although we are required to implement the changes, they are legislative changes that we would want to make in any case. The UK played a crucial role in the negotiations and indeed shaped the wider regulatory framework for telecoms that the directive builds on.

There are a number of provisions that promote competition and are pro-investment. Ofcom will be able to impose conditions to ensure connectivity and choice for consumers where it is challenging for competition to emerge in an area that already has a network. The SI also provides Ofcom with the power to ensure that another provider can access a dominant provider’s physical infrastructure assets—the ducts and poles that house the network—to ensure choice and competition, irrespective of the market scope.

We will enable Ofcom to impose longer-term, pro-investment regulation, such as implementing longer market review periods, which are focused on promoting higher capacity networks. We will support the availability of build plan information to industry and the Government better to inform any roll-out plans. We will enable co-operation between network providers, which should support those primarily rural deployments.

The measures are essential if we are to create the right environment to encourage investment, and ensure that Ofcom has the necessary powers to promote competition and protect consumers. The draft regulations include measures that will enhance consumer protections. Alongside Ofcom, the Government are implementing measures to help ensure that UK consumers will benefit from better information, stronger contract rights and the ability to switch services much more easily than before.

The draft regulations will also support the efficient and effective use of radio spectrum—the airwaves over which communication signals are transmitted—which will promote competition and the timely roll-out of 5G services and the widespread availability of mobile connectivity.

The draft regulations also contain measures relating to the universal service obligation which ensure that a wide range of telecoms services remain affordable for consumers with low incomes or other specific needs. That gives consumers a safety net to ensure full participation in society and the economy.

The SI also provides powers for the Secretary of State to establish a mobile universal service obligation in the future, if that is deemed necessary, and ensures that people who use legacy USO services such as pay phones, telephone directories, fax machines and particular methods of billing will continue to be able to do so. Additionally, the SI introduces measures that update the regime for social tariffs for telephony and broadband, should they be required. They will ensure that consumers with low incomes or other specific social needs are able to access universal services at affordable prices, where the market does not provide those commercially, or on a voluntary basis.

The importance of electronic communications has been underlined during the covid-19 pandemic. Telecoms is now more critical than ever for the country, with a large proportion of the population working from home. Combined with future expectations about new technologies and services, including 5G, building future-proofed networks will be essential to our future economy.

The changes that we are introducing today represent a significant step forward in helping to achieve our digital ambitions for the country.

It is a real pleasure to serve under your chairship, Dr Huq.

I thank the Minister for his opening remarks on this very important SI relating to our critically important telecoms sector. The UK telecoms industry contributes £32 billion to the economy, directly provides nearly a quarter of million jobs and has an impact on all of our lives, as we have really experienced during the pandemic. It is so important that we get regulation right for a sector that contributes so much to our economy, as well as to our work and social lives. I have to declare an interest, Dr Huq; before becoming an MP, I worked as head of telecoms technology at Ofcom, the communications regulator, where I literally spent six years with the Communications Act 2003 on my desk, as I worked on competition and investment in broadband networks. I could spend a lot of time discussing the provisions of the SI, but I will not detain the Committee longer than is necessary.

The framework that I worked with was a function of four EU directives, namely the framework, access, authorisation and universal service directives, all of which have been in effect in EU nations since 2002. Today’s SI implements aspects of the European electronic communications code, which I shall refer to as the EECC. That combined and revised the former four directives in line with the UK’s obligations under the withdrawal agreement, negotiated and signed by the Government.

As the Minister said, the EECC aims to promote infrastructure deployment and take-up of very high capacity networks through emphasising the necessity

‘to give appropriate incentives for investment in new very high capacity networks that support innovation in content-rich internet services and strengthen the international competitiveness of the Union’.

The EECC’s general objective in article 3 states that the national regulatory authority, in our case Ofcom, should

‘promote connectivity and access to, and take-up of, very high capacity networks, including fixed, mobile and wireless networks, by all citizens and businesses of the Union.’

Ofcom’s principle duty, as I am sure the Minister is aware, is to

‘further the interests of citizens and consumers, where appropriate by promoting competition.’

As I said, I had the 2003 Act on my desk, and consulted it regularly to understand what Parliament was aiming for when it set out that Act. What assessment has the Minister made of how the new duty with regard to investment will work alongside Ofcom’s existing duties? For example, how does investment and the citizen interest interact? I know that when Ofcom is looking at potential conflicts of interest, shall we say, between investment in networks and citizens’ rights and duties, it will want to refer to this debate as well as to the SI to understand what Parliament was driving at. Has the Minister assessed how the new duty will interplay with existing duties?

The EECC also aims to promote competition and to develop further the digital single market. During my six years at Ofcom, it was established that it is infrastructure competition, in which I am a great believer, as opposed to services competition that really drives investment, innovation and choice.

I see that the Minister is nodding, so that implies that he agrees that infrastructure competition is the aim.

The powers introduced by the EECC are designed to shift the market from reliance on access to the incumbent providers’ infrastructure, in our case Openreach, to an environment that can better support investment from both incumbents and new entrants to the market. To achieve that, article 67 sets out a recommendation for Ofcom to carry out market analysis, including provision to increase the maximum review cycle from three years, as it was when I worked there, to five years. Am I right in thinking that the intention is that that will promote competition by providing more time for network operators to earn returns on their investment, thus boosting investment and therefore competition? Is that effectively the only strategy to promote competition? Is that based on the belief that investment alone will lead to a greater and more competitive market? I am not sure that is the case. What guidance will be offered on how the returns on that investment should be regulated?

I am concerned that the emphasis on promoting investment incentivised by high returns may damage consumer interest, because it is the consumers who will be paying those returns, and citizens in the case of services from Government and so on. Can the Minister assure me that that will not be the case? That comes back to how the duty to promote investment will play with the duty to promote the interests of the consumers and citizens. Can he effectively say that the interests of the consumers and citizens will always take priority and be paramount, and that we do not seek to promote investment simply by ensuring excessive returns, so that companies invest in networks as opposed to other investments that may have higher returns, for example in financial services? I hope that we can hear about what consumer groups have said on that point.

I am pleased to see that end-to-end provisions of the code seek to protect consumers with wide-ranging consumer rights. As the Minister said, articles 98 to 116 provide protections against cybercrime, enhance user rights when switching internet access services, ensure minimum standards across member states, establish a universal service, which ensures the availability of broadband and voice communications, and ensure that all users have free access to the universal European 112 emergency services number.

Given that we have left the EU, and indeed the transition period ends on 31 December, am I right in thinking that the price cap for intra-EU calls will no longer be enjoyed by UK consumers, and that as we are no longer in the EU, there will be no price cap on calls to the EU from UK phones?

The terms of the SI do a lot, but as the Minister implied, the measure does not fully implement the EECC requirements. In July, the Government stated that they would ‘deprioritise’ aspects of the EECC, including key consumer and market issues due to the pandemic. Those issues include all obligations relating to number-independent interpersonal communication services—NI-ICS—the requirement for communications service providers not to discriminate against end-users access to telecoms on the basis of their nationality and provisions regarding Ofcom’s independence and powers to issue penalties. The Government have stated that some of these measures are already covered by existing law, but can the Minister confirm to me today that the deprioritisation of such obligations is not in breach of the withdrawal agreement? Does this divergence from European Union law constitute a statement from the Government that they are ruling out future participation in a digital single market? Will these deprioritised services become a priority once the pandemic is over, or are the Government ruling out adopting these measures completely?

As a result of the adoption of the EECC measures, Ofcom will be granted many new powers, which the Minister referred to, such as network forecasting, promoting gigabit-capable networks, co-operation and competition in hard-to-reach areas, easier switching for consumers and improved regulation of bundled contracts, and oversight of the pro-investment aims that the Government and the EECC have publicised. These measures were confirmed by the Government in July, but they did not tell us what further resources Ofcom would be provided with as it takes on these responsibilities. Has the Minister spoken with Ofcom about additional resources? Will he confirm today that Ofcom will be provided with what it needs to meet those obligations? How will Ofcom be measured against its duty to promote connectivity in gigabit-capable networks? Will that fall under the Minister’s direct oversight or will he leave it to the board? Will we have a report of some kind to Parliament?

In the UK, this SI is only part of the implementation of the EECC. We must also acknowledge Ofcom’s general conditions, which will be amended to reflect the obligations. In its statement of 27 October, Ofcom set out the end-user consumer protections and confirmed the UK’s intention to

“ban mobile providers from selling locked mobile devices”

by December 2021, to extend rules on accessibility for disabled customers by December 2021, to introduce new rules for bundles that include other services or equipment sold with a communication service by December 2021, to ensure better contract information and stronger termination rights by June 2022, and to introduce improved switching processes for broadband by December 2022. Will the Minister reaffirm that these plans will remain in place following the end of the transition period and will not be rolled back on, as it were?

I finish on a point raised with me by telecoms experts, representatives of the industry and business. This SI and the transposition into UK law are obligatory under the European Union (Withdrawal Agreement) Act 2020, but after 1 January 2021, once the transition period has ended, they will no longer be obligatory and could be overwritten. Will the Minister give a clear commitment that that will not happen? Will the Government set out an updated long-term digital strategy, providing stability and security in the sector?

The importance of working closely with our friends and partners in the European Union cannot overstated, particularly in telecommunications, for communication providers and in the burgeoning social media and application sectors. Our economy, businesses and consumer protections are reliant on our close relationship with the European Union, and our telecoms services benefit from access to European Union markets. While we might not be able to holiday in many places at the moment, we all look forward to the time when we will be making phone calls from France, Denmark or wherever. As we leave the transition period, our future remains uncertain, as the Government’s botched negotiations have left us somewhat in limbo. The Government have presided over 10 wasted years for UK telecoms infra- structure, whereas the previous Government—I will not labour this point—understood the importance of supporting investment and infrastructure competition, which led to the greatest expansion in infrastructure competition, with unbundled local loop.

The intentions behind this SI, and behind the EECC, are good and we will not oppose it, but the Government must take charge and upgrade our telecoms infrastructure, and provide reassurances on our consumer protections. I thank the Minister in advance for his answers. I know that I have asked a lot of questions. If he cannot answer them all today, I hope he will agree to write to me, because I am very interested to know the answers and it is in the interests of scrutinising this legislation that they should be responded to.

I did not intend to contribute to this debate, but the Minister’s opening remarks have moved me to do so. First, I would like to declare my interests: previously I was a private practice lawyer and an in-house lawyer at BT, lobbying and working on the electronic communications code. I also chair the PICTFOR—Parliamentary Internet, Communications and Technology Forum—all-party parliamentary group, whose membership, as the Minister knows well, includes many companies interested in this legislation.

I would like to make one short contribution. I was interested to hear the Minister say that he has opened the door to a universal service obligation on mobile connectivity, with an intention, I think he said, to introduce further legislation in due course. We know from the pandemic, but also from before that, that many families on low incomes who cannot afford broadband connectivity rely on their mobile connectivity to access online education, shopping, social media and other types of services. I would be interested to hear from the Minister what intention the Government have to bring forward that legislation for a USO on mobile connectivity.

I am tempted to take up the offer made by the hon. Member for Newcastle upon Tyne Central and say that I will write to her on everything. I will not do that, but I shall try to rattle through a lot of what she asked.

In short, the regulations crystallise the existing factors, with which she is so familiar, that have to be taken into account when assessing whether a market has competition problems and would require Ofcom intervention. As she knows, that requires Ofcom to consider innovation, competition and future networks when imposing those conditions. Much of this is about crystallising in legislation the good practice that we already see in Ofcom.

The hon. Lady is right to say that longer review periods potentially promote greater certainty around the really significant investment in infrastructure that we are seeing and would like to see more of. There is an important balance as to making sure that we do not entrench monopolies, and that we get the right and fair degree of certainty for investors so that they can make a return, but she is right to ask: are consumers at the heart of everything that Government and Ofcom do? Of course they are, and they will continue to be so. It is in consumers’ interests to have sustainable companies making pragmatic investment decisions, but ultimately it is the consumer that has to be at the heart of all of this.

The hon. Lady asked briefly about mobile roaming. She is right that when we leave the European Union we will be under different rules. In theory that will leave companies able to make decisions on roaming that they are not currently able to make, but the Government will continue to engage intensively on that. We have no indication from companies—they themselves have said it publicly—that they have any intention of changing the landscape in the near future.

I thank the Minister for his approach in responding to my questions. Intra-EU phone calls are about making calls from one European country to another, and not necessarily about roaming. Will he also confirm that he has discussed that point, or will be discussing it, with providers in the UK so that we can retain that benefit if possible?

Yes. The hon. Lady is absolutely right that that is also the case, and we continue to take an interest in exactly that. On that front, there are no indications of immediate changes either.

The hon. Lady mentioned what we call ‘over the top’ services—number-independent services that translate to calls via WhatsApp, Facebook Messenger and the like. As I said, we are not dealing with the matter immediately, but we are looking at the best way forward for those with Ofcom. Similarly, where issues have been deprioritised during the pandemic, that is not to suggest that they are not important. As I said in my opening remarks, the UK was key to the original negotiations and we would not seek to deprioritise them other than in the exceptional circumstances in which we find ourselves.

The hon. Lady asked about the resources for Ofcom. In close collaboration with Ofcom, we have asked what, if any, further resources it feels it needs; at this stage, the answer is that it is content with what it has. Obviously, we want it to be resourced properly, and we will make sure that it continues to be so.

The hon. Lady also asked about gigabit roll-out and that is something on which the Government work closely with Ofcom. It is ultimately my responsibility and that of Department for Digital, Culture, Media and Sport, and indeed a priority for this Government, to see that roll-out go as far and as fast as it possibly can. To that end, no, we will not be rolling back on any of the provisions in the draft regulations as soon as we end the transition period. We welcome the measures and are proud to have played a significant part in negotiating them with the EU, because we believe that they will drive forward important ambitions for this country and for all our citizens who, as we have heard, increasingly rely on digital connectivity.

On Ofcom’s resources, and I have declared an interest, I am somewhat surprised that it will take on the additional powers and responsibilities under the SI without any additional resources. We know that at some point, when we get the online harms Bill—again at some point—Ofcom will be involved in the regulation of high risk vendors. A number of additional requirements are being placed upon it, so will the Minister discuss the need for additional resources in the round with other Ministers whose responsibilities come under Ofcom’s purview? I am quite convinced that Ofcom does not have the resources it needs to take up all those additional duties.

The hon. Lady makes an entirely reasonable point that Ofcom will be taking on a number of additional duties in the future, and considering its resourcing needs in the round is absolutely vital, but on this relatively narrow point, Ofcom is content with the resources it has.

In response to the hon. Member for Bristol North-West, the draft regulations give us the powers to consider what a mobile USO might look like. We do not immediately intend to take that forward, but it is a statement of the obvious that more and more households, especially with the growth of 5G, will be able to rely on a mobile service rather than anything else. Given that the USO is really important, the draft regulations give us the power to go further but we are not announcing anything as yet, but the hon. Gentleman’s Select Committee may wish to take an interest, I suspect.

I commend the regulations to the Committee. They are an important step forward, and I am pleased to hear that the Opposition do not oppose them, because I think there is real consensus across the House on the value of digital connectivity. The Government’s ambition is unashamedly extraordinary in going as far as we possibly can with gigabit connectivity. The regulations allow us to continue to drive that forward at the fastest pace we possibly can, and I commend them to the Committee.

Question put and agreed to.

Committee rose.