Lords Chamber

 House of Lords

Monday, 9 February 2009.

14:30:00

Prayers—read by the Lord Bishop of Manchester.

Railways: East Coast Main Line

Question

14:36:00

Asked By

Lord Bradshaw
To ask Her Majesty’s Government whether National Express East Coast are fulfilling all the conditions of the East Coast Main Line franchise.

The Minister of State, Department for Transport (Lord Adonis)
My Lords, National Express East Coast is meeting the terms of its franchise agreement, with the exception of responding to all written customer correspondence within 10 weekdays. Currently, National Express East Coast is responding to approximately 94 per cent of correspondence within agreed timescales and is putting measures in place to remedy this situation.

Lord Bradshaw
My Lords, I thank the Minister for that reply, but are the facts that fares are rising very sharply, on-train service is declining and staff morale is shattered the result of a thoroughly flawed franchising process that is in desperate need of overhaul?

Lord Adonis
My Lord, those were some good sound bites, but they do not bear much relation to the real situation on the ground. In terms of the statistics on punctuality on National Express East Coast, the proportion of trains arriving within 10 minutes of their scheduled time has increased from 81.2 per cent to 85.7 per cent in the past 12 months and the independent national passenger survey of customers’ overall satisfaction with the franchise for the autumn stood at 88 per cent, up from 84 per cent in the spring of 2008. The more one looks at the facts, the less the noble Lord’s picture stands up to scrutiny.

Lord Berkeley
My Lords, can my noble friend assure the House that if National Express or anyone else comes to him and says, “I can’t carry on with my franchise any more. Here are the keys back”, he will not bail them out but will go out to tender again and in the mean time operate the franchise from the Department for Transport?

Lord Adonis
My Lords, I am glad to say that National Express East Coast is fulfilling the terms of its franchise agreement and we expect that to continue.

Lord Hanningfield
My Lords, I will follow the noble Lord, Lord Bradshaw, in his line of questioning. Has the Minister been meeting any of the franchisees to discuss the effects of the recession and the possible drop in passenger numbers?

Lord Adonis
My Lords, the train operating companies met my right honourable friend the Secretary of State a short while ago. They made no request for government assistance, nor did they indicate any intention of cutting train services.

Baroness Harris of Richmond
My Lords, I declare an interest as a weekly commuter on the east coast main line. I heard what the Minister said about the speed of the trains. Indeed, it is very good. However, the quality of service is also important. If the Minister did not specify in the contract that the quality of the service, on first class, certainly, was part of the franchise, that is a real defect. The service has been deeply degraded and does not now give value for money. It was an outstanding service when GNER had it, but is now third rate.

Lord Adonis
My Lords, there were a number of assertions in the noble Baroness’s question. If she wishes to make particular points to me about service quality, I will, of course, look at them. In terms of service punctuality, which is a key issue for passengers, punctuality on the east coast main line has improved and independent surveys of passenger satisfaction show that it is rising, not falling, on the east coast main line.

Viscount Tenby
My Lords, what are the Government’s views on the wholesale closure of many stations halfway through the day and on the many redundancies, some compulsory, in front-line staff, such as ticket clerks, porters and the like? Does he agree that actions of that sort bear most heavily on the infirm, the handicapped and the elderly? Is it not the case that it drives a coach and horses through the Government’s avowed intention of getting people out of their cars and making a carbon-friendly gesture? I declare an interest as someone who commutes on South West Trains three or four times a week.

Lord Adonis
My Lords, I am glad to say that there have not been wholesale closures. The noble Viscount rightly refers to the position in respect of South West Trains. As he may be aware, my right honourable friend the Secretary of State and I had to make a decision recently on a request by South West Trains for a significant cut-back in the staffing of ticket offices and their opening hours. We rejected a substantial proportion of the request for reduced opening hours in ticket offices in the South West Trains franchise area for the reasons that the noble Lord gave in terms of the duty that we have to see that there is widespread, easy access to tickets and that passengers are not unduly inconvenienced.

Lord Walton of Detchant
My Lords, I came down this morning from Berwick-upon-Tweed, where there was several inches of snow, on National Express. The train left on time, it arrived in London on time, and I had a very comfortable journey. But does the Minister accept that we are very concerned about the reduction in the catering facilities on National Express? It has closed the dining car, except on very limited occasions, and even the snacks are not up to standard. I am no longer able to get my usual: a tomato juice and a tuna sandwich.

Lord Adonis
My Lords, my powers may not extend to tomato and tuna sandwiches. Until the last part of the noble Lord’s question, I thought that he would be fronting our next advertising campaign for the railways. On the catering on the east coast main line, the noble Lord is correct to say that there has been a reduction in the number of restaurant cars. They have been replaced by an at-seat dining service, which makes the dining facilities more readily available to passengers than was the case when they were available only in the restaurant car.

I have perused the menu of the at-seat dining service, so solicitous am I for the noble Lord’s welfare. He can choose between crayfish and chorizo risotto, Italian brunch, and steak sandwich served with Italian mixed leaves, not to mention the east coast fish pie. The wine list is not bad either. There is a 2006 Merlot, a Shiraz 2005, a Cabernet Sauvignon 2006 and, if the noble Lord really wants to treat himself, there is also a Laurent-Perrier, although I have to say that that comes at £45. I do not think that that is too bad.

Lord Brookman
My Lords, my noble friend has given us a lot of statistics. If a Premier League-style table were drawn up, who would be top, who would be bottom and who would be somewhere in the middle?

Lord Adonis
My Lords, I think that they would all be somewhere in the middle.

Lord Faulkner of Worcester
My Lords, can my noble friend confirm that not all passengers on National Express are first-class ticket holders who are Members of your Lordships' House and that the figures that he revealed from the national passenger survey, which show an increase in satisfaction among ordinary people paying for standard class tickets, indicate that we are not actually doing that badly?

Lord Adonis
My Lords, I entirely agree with my noble friend.

Health: GP Surgeries

Question

14:44:00

Asked By

Baroness Jones of Whitchurch
To ask Her Majesty’s Government what progress they have made in extending the opening hours of general practices.

The Parliamentary Under-Secretary of State, Department of Health (Lord Darzi of Denham)
My Lords, thanks to the efforts of general practitioners, their staff and primary care trusts, the NHS exceeded our objective of at least half of all GP practices providing extended opening hours by December 2008. Seven out of every 10 practices currently offer extra appointments outside normal working hours. That proportion continues to increase.

Baroness Jones of Whitchurch
My Lords, I thank my noble friend the Minister for that reply. I endorse the fact that GP services are improving—my own service in Brighton is exemplary. However, does he acknowledge that there are some worrying regional variations in the extension of opening hours? Is he concerned that this might lead to greater inequalities in healthcare provision than already exist between deprived and affluent areas?

Lord Darzi of Denham
My Lords, I said that 50 per cent of GP practices are open for longer but in fact 70 per cent across the country are opening longer, and we anticipate that that figure will have improved by March. As for inequalities, the extra £100 million that the Government have invested includes provision for setting up 112 traditional primary care practices to tackle inequalities. That is in addition to our attempts to develop the quality of care provided in deprived areas through improvements in the QOF scores.

Baroness Tonge
My Lords, does the Minister agree that whatever the opening hours for GPs, GP practices should be allowed to be more flexible in the appointments they give, thus allowing patients not to have to make numerous phone calls in order to fit in with the 48-hour target?

Lord Darzi of Denham
My Lords, the recent survey we carried out showed that 87 per cent of the population are happy with their ability to obtain appointments within 48 hours. I could not agree more with the noble Baroness that flexibility is an important part of that. I am delighted to report that nearly 70 per cent of patients can also book the specific general practitioner whom they wish to visit.

Lord Naseby
My Lords, how are the Government monitoring the incidence of patients who book an appointment but fail to turn up, and fail to ring the practice to inform it that they are not going to turn up? Will the new constitution help in resolving this clear waste of resources?

Lord Darzi of Denham
My Lords, I have no doubt that that information is recorded and measured at a practice level and that many general practitioner colleagues and staff, such as practice managers, are actively recording that information and feeding it back to patients who may, as the noble Lord points out, be abusing the system.

Baroness Billingham
My Lords, are not Saturdays one of the prime times when working families would like to see their doctor? If so, what progress has been made in that direction?

Lord Darzi of Denham
My Lords, that is part of our policy: “extended opening hours” refers not only to evenings but also to Saturday mornings. As I said, a large number of practices—50 per cent to date—are opening on Saturday mornings to meet the needs of the local population.

Lord Colwyn
My Lords, does a doctor have to be present during opening hours, or can a practice nurse supervise the routine running of a practice?

Lord Darzi of Denham
My Lords, all of these health centres will have a general practitioner available from eight in the morning to eight in the evening, seven days a week. As the noble Lord will be fully aware, in addition to a general practitioner, other team members, including nurses, practice managers and others, will be available.

Baroness Gardner of Parkes
My Lords, what is the current situation regarding visits by general practitioners? When I was involved in running the health service in London there was a major problem in that certain areas were not safe for general practitioners to go to after certain hours. This applied particularly to women practitioners, who often had to take a large dog or a bodyguard with them. In view of all the knife crime in London, is this a continuing problem, or is there now no difficulty?

Lord Darzi of Denham
My Lords, I think that the noble Baroness is referring to out-of-hours home visits by general practitioners. I agree that it was an issue, and it is why 10 regions around the country have considered the acute pathway in designing services around the needs of patients out of hours, possibly including a dedicated telephone number by which a patient can be evaluated and the appropriate expertise sent in an out-of-hours visit to meet the needs of the patient.

Lord McColl of Dulwich
My Lords, does the Minister accept that there are general practices where there is no demand by the patients for these extra hours—some country districts, for instance? Will the Government allow them to carry on as they are, or will they all be forced to open?

Lord Darzi of Denham
My Lords, as a medical practitioner like the noble Lord, this is the first time I have heard that patients may not wish to see doctors being available out of hours. The answer is that we have negotiated contractually with the BMA to ensure that within each area there are certainly a number of practices that might offer extended opening hours. I have no doubt that collaboration at local level will allow a degree of flexibility.

Lord Grocott
My Lords, has my noble friend noticed that there have been very few supplementary questions on this Question? That is one of the reasons why I am standing up now. Does that not reflect the fact that in this area of operation of the health service there is actually widespread approval of what the Government have been doing? People will quickly raise queries and complaints when they are there. It is not just in this area of the health service; as a general proposition, it holds true that while people may make generalised complaints, their own experience of the health service is one of overwhelming support for the doctors and nurses and for what the Government have been doing.

Lord Darzi of Denham
My Lords, I am grateful to my noble friend. To reaffirm the points he made, I understand that we currently have the highest satisfaction levels with the NHS since patient satisfaction surveys began.

Gaza

Question

14:51:00

Asked By

Lord Dykes
To ask Her Majesty’s Government what progress is being made in the international investigation of possible war crimes in the recent Gaza conflict.

Lord Davies of Oldham
My Lords, we are gravely concerned at the allegations made by such credible organisations as the International Committee of the Red Cross and the United Nations. The UN Human Rights Council, in its resolution of 12 January, has decided to send an international fact-finding mission to investigate violations of human rights law and international humanitarian law by Israel in Gaza. We will consider the results of the fact-finding mission once they are available; and at that stage the parties and the international community will need to decide on any further action.

Lord Dykes
My Lords, I thank the Minister for that very positive Answer. In view of the Foreign Secretary’s unequivocal assertion in the other place on 12 January that all ICRC-routed complaints of possible war crimes should be investigated, will the Government therefore now work energetically and unceasingly with our EU partners to secure comprehensive and objective investigative machinery under universal international auspices as quickly as possible, while the evidence remains fresh?

Lord Davies of Oldham
My Lords, it is expected that we and the international community will co-operate with the investigation that is being carried out under the UN Human Rights Council. We will need to evaluate those results when we have the evidence but contributions will be made from a number of sources, and the British Government will play their part in any way that they can.

Lord Clinton-Davis
My Lords, is not the top priority now to examine the possibility of working out a permanent peace settlement, in view of the tremendously fragile character of the situation at present?

Lord Davies of Oldham
My Lords, I agree with my noble friend. The priority is certainly to look towards establishing a permanent ceasefire and the basis for a stable peace. That is the area in which the British Government can play a constructive role together with our partners in the EU.

Baroness Northover
My Lords, what will the Government do to ensure that this is indeed an independent and full investigation? To pick up my noble friend’s question, could this be referred to the EU sub-committee on human rights for it to investigate whether the trade agreement with Israel should now be suspended?

Lord Davies of Oldham
My Lords, on the independence of the investigation, as I have indicated, it will be conducted under the international auspices of the United Nations Human Rights Council, which will investigate the facts as fully as it is able to do. Additional action with regard to Israel and any action by the European Union are matters for the European Union to consider, but the main issue on human rights is properly located with the international body responsible for the investigation.

Lord Howell of Guildford
My Lords, following observations in this House last Friday and the assessment of the overall situation, would it be understood that, if any investigations were to be carried further, they would involve actions by both parties to this horror because direct attacks on civilians appear to have taken place on both sides? Is it accepted that the investigation would have to be even-handed and fair?

Lord Davies of Oldham
My Lords, I am at one with the noble Lord in recognising the value of Friday’s debate which covered these issues very intensively. It is quite clear that rockets from Gaza have killed and injured civilians in Israel. The United Nations Human Rights Council is to investigate violations of human rights law and the international humanitarian law by Israel as a state operating in relation to Gaza. That is the proper role of the United Nations body.

Lord Elystan-Morgan
My Lords, does the noble Lord accept the wise precept of the noble and learned Lord, Lord Woolf, tendered to this House a fortnight ago, that we should not rush to judgment in this matter until and unless the facts are fully and accurately established? Does he further agree that no nation should condemn out of hand the state of Israel, unless that nation too has walked through the valley of the shadow of death and lives within range of the malice of enemies who are determined to bring about its annihilation?

Lord Davies of Oldham
My Lords, I am grateful to the noble Lord for establishing the context in which these issues are to be resolved. As an earlier question reflected, we shall need good will on all sides to promote a long-term solution to the positions of Israel and Palestine. He will appreciate that the United Nations Human Rights Council has been charged with the task of this investigation. Of course, it is working on the premise that he is working on: namely, that no one has the right to lay any charges until the facts have been investigated.

Lord Anderson of Swansea
My Lords, clearly there were an appalling number of innocent civilian casualties, but will the inquiry also be empowered to look at the scale of those casualties because the memory of the exaggeration of Jenin is very fresh in the minds of many?

Lord Davies of Oldham
My Lords, of course, we expect the fact-finding mission to carry out a full investigation of the position. Inevitably, it is bound to reflect on the level of casualties that have occurred and the circumstances in which those casualties were caused. My noble friend should have no doubt at all about the thoroughness with which the fact-finding mission will go about its job on behalf of the council.

Baroness Tonge
My Lords, does the Minister agree that this Government should do all in their power to uphold international law throughout the world, applied equally to all countries of the world? What guarantee can our Government give that the United Nations Human Rights Council will be allowed access to the Gaza Strip to investigate?

Lord Davies of Oldham
My Lords, it is clear that the council starts off with an international mandate and it will expect and demand the necessary co-operation. But if the noble Baroness is referring to the broader picture, the role which the United Kingdom Government envisage for themselves is to be constructive towards establishing a permanent ceasefire leading to a permanent, two-nation peace agreement between Palestine and Israel.

Pensions: Public Sector

Question

15:00:00

Asked By

Baroness O'Cathain
To ask Her Majesty’s Government whether they plan to reform public sector pensions.

Baroness O'Cathain
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In so doing, I declare an interest as a recipient of a small public sector pension from the City of London Corporation.

The Financial Services Secretary to the Treasury (Lord Myners)
My Lords, the Government have introduced a wide range of reforms to modernise schemes and meet the rising costs associated with longevity. Recent reforms such as cost-sharing, cost-capping and changes to pensionable age are designed to help with financial sustainability and are currently being implemented. The Government will continue to monitor public service pensions and the benefits they provide to overall remuneration packages.

Baroness O'Cathain
My Lords, I thank the Minister for that reply but I suggest that it will be received with a slightly jaundiced view by those who have been in final salary schemes who are now threatened with having those schemes curtailed mid-service. Have the Labour Party and the trade unions come to any formal or informal agreement, such as Warwick 2, about the postponement of public sector pension reform?

Lord Myners
My Lords, there is no agreement of which I am aware about the postponement of public sector pension reform. Indeed, this continues to move ahead. The savings that have already been introduced have an estimated value of £1.25 billion to £1.5 billion per annum. That is arising as a result of negotiations relating to pensions paid to the National Health Service, teachers and the Civil Service. With others, which fall under the general heading of public sector pensions, negotiations continue. The introduction of capping, cost-sharing and revised rules around early retirement due to ill health are leading to significant savings. However, I share the concerns of the noble Baroness, Lady O’Cathain, about the termination of pension fund benefits and I am sure those working in the public sector would have been alarmed by the comments attributed to Mr David Cameron when he spoke to the Manchester Chamber of Commerce in November and said he proposed to phase out public sector defined benefit pension plans.

Lord Oakeshott of Seagrove Bay
My Lords, I declare an interest as a pension fund investment manager. Why is an independent review of public sector pension costs the only one of the recommendations of the noble Lord, Lord Turner, that the Government are not prepared to accept?

Lord Myners
My Lords, I am not familiar with all of the recommendations made by the noble Lord, Lord Turner, in his review, but the key ones are being implemented—in particular, those relating to personal accounts which will, importantly, bring pension fund benefits to those in the private sector on moderate and low incomes who have previously been denied access to final salary pension schemes. This is a very significant step forward in terms of pension provision for a wide sector of the population which has previously been neglected.

Lord Blackwell
My Lords, has the Minister seen the recent estimates published by the Institute of Economic Affairs that suggest that public sector pension liabilities are now close to £1,000 billion and increasing at a rate of over £100 billion a year? Does the Minister accept that if that were applied across the whole of the economy, it would mean that something like 30 per cent of our GDP was being spent on pension contributions? Is that affordable and are the measures he has suggested going to substantially reduce that?

Lord Myners
My Lords, as the noble Lord will fully appreciate from his service on the board of a major pension fund management and insurance company, estimates of pensions liabilities depend critically on assumptions, small changes in which can lead to very large numbers. The most important factor to recognise is that the total cost of public sector pension provision is currently of the order of 1.5 per cent of public expenditure per annum and is not projected to rise above 2 per cent in the next 50 years.

Baroness Hollis of Heigham
My Lords, I think that we all agree that we want to protect and maintain final salary pensions while seeking to contain some of their cost. When my noble friend talks about cost-sharing, could he tell the House whether he has in mind the option of career-average pension contributions, which would fully protect the pensions of the lower paid but ensure that those who have very sharp increases in pay at the end of their working life do not then receive a pension that is disproportionate to the contributions they have made and put in?

Lord Myners
My Lords, I thank my noble friend for her question. She again evidences her great understanding of issues relating to pensions. Career-averaging or averaging of final years of service are among the approaches which can be adopted to smooth or share the cost of pension fund contribution. This would be a matter for individual negotiation between the unions and representatives of employers. I am sure that it is on the menu of factors to be considered.

Baroness Noakes
My Lords, the public sector workforce is around 20 per cent of the total, yet there are more than 5 million public sector employees with defined benefit pension arrangements, but fewer than 1 million in private schemes that are still open to new entrants. Does the Minister seriously believe that taxpayers bearing this burden will be sustainable in the long run?

Lord Myners
My Lords, I have already explained that the so-called burden, when expressed as a percentage of total public expenditure, is much lower than most people believe. I believe that the core issue in the question of the noble Baroness, Lady Noakes, should be seen from other perspective: it is the deplorably small number of people in the private sector, particularly those on low and moderate incomes, who have any pension provision at all. That is the figure on which we should focus and why we hope that the Conservatives will continue to support our proposals in the Pensions Act 2008, including the proposals for personal pensions and personal accounts.

Postponement of Local Elections (Northern Ireland) Order 2009

Northern Ireland Assembly (Elections) (Amendment) Order 2009

Motions to Approve

15:07:00

Moved By

Baroness Royall of Blaisdon
That the draft Orders laid before the House on 3 and 10 December 2008 be approved.

Relevant documents: First and Second Reports from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 4 February.

Motions agreed.

Welsh Ministers (Transfer of Functions) (No. 2) Order 2009

Motion to Approve

Moved By

Lord Davies of Oldham
That the draft Order laid before the House on 16 December 2008 be approved.

Relevant documents: Third Report from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 4 February.

Motion agreed.

Health Bill [HL]

Order of Consideration Motion

Moved By

Lord Darzi of Denham
That it be an instruction to the Grand Committee to which the Health Bill [HL] has been committed that they consider the Bill in the following order:

Clauses 1 to 11, Schedule 1, Clauses 12 to 14, Schedule 2, Clauses 15 to 17, Schedule 3, Clauses 18 to 22, Schedule 4, Clauses 23 to 31, Schedule 5, Clauses 32 to 34, Schedule 6, Clauses 35 to 37.

Motion agreed.

Banking Bill

Third Reading

15:08:00

Clause 4: Special resolution objectives

Amendment 1

Moved by

1: Clause 4, page 3, line 22, at end insert “which includes ensuring that they have access to their deposits as rapidly as possible and that depositors and other customers have continuity of banking services”

Baroness Noakes
My Lords, on Report, the Government agreed to take a number of issues away for Third Reading. This was in part a consequence of the very limited time between the completion of Committee and Report, which did not allow the issues outstanding at the completion of Committee fully to be resolved. We were grateful for the Government agreeing to take issues away and to the usual channels for allowing these issues to be debated again today.

Report concluded on the evening of Tuesday last week, and we had to table our amendments for the outstanding issues ahead of final discussions with the Government and before sight of their own amendments. This means some inevitable duplication between our own amendments and the Government’s, but I hope that it does not inconvenience the House.

Amendment 1 is one such amendment. The Government have tabled Amendment 2 in this group. An issue that I have raised throughout our consideration of this Bill is that the need to achieve continuity of banking services is absent from the objectives of the special resolution regime. This concern has been expressed largely by the British Bankers’ Association, but it is supported by consumer groups. Modern life is dependent on continuity of banking services; it is as simple as that.

My Amendment 1 is to objective 3 of the special resolution regime, which is set out in Clause 4(6). Objective 3 is about the protection of depositors, which clearly overlaps with the issue of banking services. There is a link here to the separate proposals being pursued by the Financial Services Authority, which are aimed at speeding up payments to depositors via the Financial Services Compensation Scheme in the event of bank failure. However, the BBA believes that unnecessary costs may be imposed by the FSA if insufficient attention is paid to the alternative, and more satisfactory, outcome of continuity of banking services.

To this extent, therefore, I am pleased that the Government have, with their Amendment 2, accepted the principle of placing the continuity of banking services in the Bill. I will, of course, let the Minister speak to his own amendment in a moment. While we understand the link between the Government’s amendment and objective 1, namely the stability of financial systems, we remain concerned that the FSA will take insufficient account of the continuity of banking services when it pursues changes to the FSCS aimed at depositors alone. I hope that the Minister will be able to reassure the House that the FSA will be mindful of the banking continuity requirement, which, as a result of the Government’s amendment, will now be an explicit part of the special resolution regime. I look forward to hearing the Minister’s comments. In the mean time, I beg to move.

The Financial Services Secretary to the Treasury (Lord Myners)
My Lords, I thank the noble Baroness, Lady Noakes, for her amendment. Noble Lords will be aware that the Government have tabled an amendment of their own on this subject and that there is now little, if any, difference between us. I am grateful to the noble Baroness for the strength with which she has urged the case for continuity, and I am pleased that we have been able to accept the validity of her arguments and incorporate them into our amendment.

As the noble Baroness said, the issue here relates to continuity of banking services. I spoke at length on this matter both in Committee and on Report. Noble Lords will be relieved to hear that I do not wish to return to these arguments in full, but I will summarise the Government’s opinion on these points. The Bill already includes, at its heart, provisions aimed at ensuring continuity of services. The very purpose of the stabilisation tools of the special resolution regime is to ensure that banks do not fail completely, thereby maintaining full continuity of banking services. This is reflected both in the objectives set out in Clause 4 and the draft code of practice, which explains them.

That said, the Government are, as always, prepared to listen to the views of the House and to respond as constructively as possible. We have therefore tabled an amendment that meets the concerns expressed on Report. This amendment makes it expressly clear that the special resolution objective includes the concept of continuity of banking services. Noble Lords will note that this is included as part of objective 1, to protect and enhance the stability of the financial systems in the UK. As I have said, the continuity of banking systems is implied in different ways in each of the first three objectives. Therefore, in making explicit provision for the continuity of banking services, we have done so under the broadest of them. To be absolutely clear, this drafting is entirely consistent with the fact that this concept also relates to the objectives of protecting and enhancing confidence in the banking systems, and of protecting depositors.

I also make it clear that continuity of banking services is not the only element to be considered under objective 1. The amendment does not, therefore, limit the scope of that objective in any way. However, the amendment now makes it explicit in the Bill that this concept is at least one of the elements that needs to be considered. I hope this demonstrates, once again, the Government’s commitment to listening to the views of the House and responding constructively. I will therefore, most respectfully and—to take the names of two horses in the 5 o’clock at Kempton this afternoon—in a way that is both Faintly Hopeful and with a Straight Face, ask the noble Baroness to withdraw her amendment. If she will do so, I will move the government amendment which I have just described.

The noble Baroness asked me one question relating to the FSA. The authorities must have regard to all the objectives. This includes objective 1, which now references continuity of service, and objective 3 on protection of depositors. I believe that the introduction of the continuity of service is something that the FSA will need to take into careful consideration in framing all its policy responses to the Bill. Therefore, I hope that my answer provides the comfort that the noble Baroness sought in her question.

15:15:00

Lord Higgins
My Lords, as the Minister has been very sympathetic to the views expressed in the House throughout the passage of the Bill, could I just clarify one point? There is a clear difference between Amendment 1 and Amendment 2. Does the Minister regard the ability of depositors to get their deposits back as part of banking services? I should have thought that that was something rather different. It is not a service, as such. The Minister’s amendment does not seem to refer to the position of depositors getting their money back.

Lord Myners
My Lords, I am pleased to see the noble Lord, Lord Higgins, back with us again in debate on this Bill. We shared our pleasure at the acknowledgement of the noble Lord’s wife’s contribution to the International Court of Justice in a previous debate. As far as I am concerned, provision of banking services includes the return of balances, and I am happy for that to be read into Hansard as being part of the meaning of that term for the purpose of the clause.

Baroness Noakes
My Lords, what the Minister said is entirely satisfactory. I am grateful for his response on this. I am not quite so sure about his horserace tipping ability, but he is doing extremely well in bringing amendments back at Third Reading. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Moved by

2: Clause 4, page 3, line 25, at end insert—
 “(8A) In subsection (4), the reference to the stability of the financial systems of the United Kingdom includes, in particular, a reference to the continuity of banking services.”

Amendment 2 agreed.

Clause 10: Banking Liaison Panel

Amendment 3

Moved by

3: Clause 10, page 6, line 17, leave out “75(2)(c)” and insert “75(2)(b) and (c)”

Lord Davies of Oldham
My Lords, the amendment standing in the name of my noble friend relates to Clause 10, which provides for the Banking Liaison Panel and has proven to be one of the more appreciated clauses in this Bill. With this amendment, we return to matters relating to Clause 75, which it is fair to say has occasioned some degree of controversy and which has been rather less well received by the House thus far.

We have come a long way with this debate. I believe that the Government have made the case for the power to change the law and for the particular aspect of the retrospective dimension contained in the clause, which I know causes anxiety in the House. I appreciate that concerns remain, but I hope and believe that we are reaching a point of consensus on this important clause.

I do not intend at this point to delve into the substance of Clause 75. I think that arises from the important amendments in the name of the noble Lord, Lord Goodlad, and the other noble Lords who support him. The reason why I am speaking first in this important debate, which largely revolves around the amendments in the noble Lord’s name, is simply because we have a technical government amendment at the start of the group.

I shall reserve my arguments on the substantive issues until the noble Lord, Lord Goodlad, and those who support him have had the chance to deploy their case and their anxieties about the Government’s position, which I shall of course respond to and hope to allay, while moving a technical amendment which is likely to occasion very little controversy. I hope, in due course, that the House will see fit to support the amendment. Meanwhile, the major debate will take place on the amendment to which the noble Lord, Lord Goodlad, will speak.

Lord Goodlad
My Lords, I speak to Amendments 20 and 21 standing in my name and those of the noble and learned Lord, Lord Morris of Aberavon, my noble friend Lord Norton and the noble Lord, Lord Pannick. During our consideration of Clause 75 on Report, the Minister undertook to conduct discussions on issues arising from the clause. I am most grateful to him for his characteristic courtesy in arranging those discussions on a timely and inclusive basis.

Retrospectivity and the role of the Executive in exercising statutory powers go to the heart of constitutional government. The use of the word “desirable” in addition to “necessary”, while not unknown in law, is not easy, if indeed possible, to find in legislation with retrospective effect. I shall not reiterate at length the arguments that were rehearsed on Report. Your Lordships’ Select Committee on the Constitution reported to the House on the matter, and I wrote to the Minister and asked for the Government’s view on whether the broad wording of Clause 75(3) could be limited in terms of retrospective powers, and whether they could give illustrations of circumstances in which the powers might be exercised.

Noble Lords will await the Minister's substantive further explanation of why the Government should take powers to repeal, disapply or otherwise amend Acts of Parliament, delegated legislation or the common law, and how such action, if exercised, should be subject to parliamentary control, and the circumstances in which such potential actions are envisaged by the Government.

Lord Morris of Aberavon
My Lords, I, too, am most grateful to my noble friend for giving of his time last Thursday to discuss our concerns. We appreciate his patience, and—I repeat what the noble Lord, Lord Goodlad, said—his characteristic courtesy.

Retrospective legislation is undoubtedly needed in this context. To envisage the extent and nature of all the facts that it might be necessary to cater for in a fast-moving situation demands retrospective legislation, much as I object to it generally. We have to prepare ourselves for such cases and be able to deal with that fast-moving situation.

The Minister may think it is extraneous, but there is a great deal of public concern about what is happening in the banking field. It crosses my mind whether this particular retrospective power might be used for the situation that is causing that concern; namely, the payment of huge bonuses for which the Government seem to say that because there are existing contractual obligations, then nothing can be done about it. I hope that I have misinterpreted what they are saying, but it would appeal to the public if retrospective legislation may have to be used. The Minister may be able to help me on that.

I return briefly to the arguments put by the noble Lord, Lord Goodlad, which we adumbrated on Report. We all understand the word “necessary”. There is a compelling reason for such a matter. “Desirable” is a wholly different matter. It may be necessary for me to do something in the course of a working day when it is desirable. Whether I desire it or whether somebody else desires it is another matter. That is the difference between ourselves and the cross-party committee, which has considered this matter in great detail and is concerned about whether the Government have gone a step too far.

The Minister was asked, in col. 567 of Hansard of 3 February, to help the House by describing the type of situation that might not be covered by the word “necessary”. The example he gave—I emphasise that it was the only example that he could give on that day—was where there was a drafting error and, because of confusion or uncertainty, it would be difficult to rely on the word “necessary” alone. With respect to my noble friend, I found that explanation singularly unpersuasive. It is curious if that is the only example that the Government can give. They have had time now to think about the matter and I hope that they will do better. However, I would have thought that the example of a drafting error presented the strongest possible case for the use of the word “necessary”, because nothing else is required. In our experience of legislation, we have seen drafting errors made, and they have had to be corrected. In my experience, those are usually matters that Parliament is prepared to deal with on the nod, because it is obvious when a word like “not” or “where” has been left out, and easy to understand that there is no intention to legislate in that form. If that is the best example that can be given, it is the weakest that I have come across.

Secondly, I ask the Government to give one example—I know we pressed the Minister very hard and he was extremely patient—of where any Government have thought it necessary to use the belt-and-braces approach of using both words, “necessary” and “desirable”. The Minister had had no warning of this and could not give such an example. He has cohorts of advisers and brought a large number with him to our meeting. There was hardly space in the room to house what seemed like the whole British labour force—certainly there were British jobs for a large number of people on that Thursday afternoon. They have had the weekend to reflect—the great minds of the Treasury, their huge legal resources, parliamentary counsel—and I hope that they have come forward with not one but a whole host of examples of situations where they have had to use “necessary” and “desirable”. That would be a valuable precedent for us to consider in this instance.

I believe—unless I am advised to the contrary, and I am prepared to listen—that the Government are breaking new ground. I will emphasise one point. In this difficult, contentious field of relying on retrospective legislation, and introducing legislation to cover retrospection, the Government need very forceful arguments that the word “desirable” is necessary. We suggested that, in order to avoid the open-ended nature of “desirable”—which in my view is a blank cheque—that some other words might be suggested. The words put forward in Amendment 21 are,

“if there are compelling reasons to do so”.

They appear to limit the open-ended nature of “desirable”. They certainly put the onus on the Executive when they seek to rely on this. It is very close to, if not almost the same as, “necessary”.

The Government have listened. I hope that they will come forward with some proposals that meet our concerns about the fact that the word “desirable”, without some qualification, is not one that I am prepared to accept easily.

15:30:00

Lord Pannick
My Lords, I, too, thank the Minister for his courtesy to us last Thursday. Like the noble Lord, Lord Goodlad, and the noble and learned Lord, Lord Morris of Aberavon, I see the force of the Government’s argument that the Treasury needs to be able to introduce provisions with retrospective effect, because such is the speed with which complex action may be required that later retrospective orders may be necessary in order to address problems which then arise. None of that is in dispute.

However, your Lordships’ Constitution Committee was not persuaded that a retrospective power of the breadth contained in the Bill is appropriate—in particular, that Ministers should have the power to make orders with retrospective effect, not merely where this is thought by the Treasury to be necessary, but even if it is thought by the Treasury to be desirable. I emphasise that the power to act is where the Treasury considers it to be necessary; there is no question of the Treasury having to persuade a court.

The leading textbook, Craies on Legislation, states at page 433 that it is,

“a principle accepted by successive governments that retrospectivity should be avoided except where necessary”.

As the noble and learned Lord, Lord Morris of Aberavon, said, Ministers have hitherto been unable to identify any previous occasion when Ministers have been given power to make orders with retrospective effect when they did not think it necessary to do so.

I still have considerable difficulty envisaging in what circumstances it could be appropriate to exercise the exceptional powers of the sort conferred by Clause 75(3) if the Treasury did not think it “necessary” to do so—in other words, if there were to be a reasonable alternative. I note that Clause 75(8) is drafted in terms of necessity. I do not understand why Clause 75(3), by contrast, confers a broader power.

This is an important matter. I ask the Minister to consider again the constitutional implications of the quite unprecedented powers which he is asking the House to confer.

Lord Barnett
My Lords, I follow, reluctantly, the noble Lord, Lord Pannick, and my noble and learned friend Lord Morris of Aberavon, who is so expert on these issues. I spent five years in the Treasury, and I am sure that it will come up with a response that might just be suitable. I have a Question on the Order Paper tomorrow about banks, and I might be saved a lot of time on at least one aspect if I get a fuller reply now from my noble friend Lord Davies.

No one who has who had anything to do with retrospective legislation likes it at all. I certainly do not like it. The Treasury has tried to come up with a reply, and to some extent it has managed to tell us something and to give some concession in the area. However, my noble and learned friend Lord Morris thought that it might just be that the Treasury had in mind retrospection regarding bonuses. That might be popular with the general public if the powers were even retrospective, but is that the only issue that the Treasury had in mind? Perhaps if my noble friend Lord Davies can give us some idea of where the Treasury, or some Treasury officials who are ingenious on these matters, could come up with some alternative areas of retrospection that they might wish to use, it would be helpful in reducing the length of my supplementary question tomorrow on banks. That might please my noble friend Lord Myners.

So many questions arise on what banks are doing and what the Government are doing in relation to them; I could be asking such questions tomorrow although, if at all possible, I would like to limit my supplementary question. I hope that my noble friend could give us some idea of other areas that the Government had in mind and whether they might be thinking of using retrospective action. Amendment 22, the Government’s proposed amendment to deal with it, simply says,

“but in relying on this subsection, the Treasury shall have regard to the fact that it is in the public interest to avoid retrospective legislation”.

But that is the Treasury having it in mind. What the Treasury has or does not have in mind is not necessarily what the rest of us might have in mind. I would be very interested to hear from the Minister, as my noble and learned friend Lord Morris pointed out, the Treasury’s interpretation of “necessary” and “desirable”. That would be of great interest to your Lordships’ House. The Constitution Committee, which is now becoming much more active under the noble Lord, Lord Goodlad, on important public interest issues, is clearly concerned—rightly—about retrospective legislation as it is important. As I say, I am interested to hear from my noble friend what the Treasury might have in mind.

Lord Higgins
My Lords, there has obviously been extensive discussion on this clause and subsection (3) in particular. I am sorry not to have been able to join in on those discussions. I therefore hesitate to intervene for more than a moment or two.

Many years ago, as a Treasury Minister, I introduced something that I described as a technical amendment into a Finance Bill. It turned out that that amendment would have made a considerable number of people retrospectively criminal. I therefore stress that we should be absolutely clear that this clause should not be used to make any amendment to, for example, tax law, which would effectively make people criminals when they were not in the first instance, before retrospective action is taken?

Lord Davies of Oldham
My Lords, I am grateful to noble Lords for their contributions to the debate. I am particularly grateful to those who kindly met with my noble friend Lord Myners, officials and me on Thursday to look at these issues in some detail. That examination has been reflected in today’s contributions. I am a bit less grateful to my noble friend Lord Barnett. He may think that I am so short in the tooth that if he dangles before me the prospect of reducing the level of his Question tomorrow, I will give him a decent answer today—but there is not a hope of it having that effect. I will not be able to give him the response that he wanted, save in so far as to say that any variation of a director’s contractual entitlements would be affected under provisions such as Clause 20, in respect of banks subject to special resolution, and not under this clause. Clause 75 will not be needed here, nor could it be used. I am prepared to wager that that will shorten my noble friend Lord Barnett’s Question tomorrow, and make the task of my noble friend who replies to it that much the easier.

I looked very carefully at the point raised by the noble Lord, Lord Higgins, and can give him an assurance on it. I hope to spell out exactly what Clause 75(3) will do and to put it into context so that he can see why we should safeguard against the anxiety that he expressed—the proper anxiety that someone might become an unintended victim of powers which we never intended to use in those terms.

Throughout the debates in Committee and on Report, as well as in our meeting last Thursday, noble Lords rightly sought to ascertain exactly what the retrospective power under Clause 75 will be used for. On Report, this debate coalesced around subsection (3), which provides that the Treasury may use the power if it considers it either,

“necessary or desirable for giving effect to a particular exercise of power”,

under Part 1. The Constitution Committee under the chairmanship of the noble Lord, Lord Goodlad, had already made it clear—the noble Lord reinforced the point in the Chamber both today and on Report—that only by considering examples of how the Treasury intends to use the power could the House come to a reasoned view on whether the power was justified. I gave a number of examples on Report, although I am not sure that they impressed any members of the committee; my noble and learned friend Lord Morris indicated today that they certainly did not impress him.

I said on Report that the Government could not amend the power to the extent that it would become unusable. That remains the Government’s position, from which we cannot move. However, in response to the concerns that have been expressed on the several occasions when these issues have been considered, we have brought forward amendments today in order to delineate this power more carefully. In the process, it is necessary to correct some drafting problems with this clause. When I have finished dealing with the substantive arguments that have been deployed today, to which I am under an obligation to respond, I will talk about the amendments that my noble friend Lord Myners has tabled to help to solve these drafting problems. However, those are within the framework of the main case that I am about to deploy.

Let me remind the House of the existing public law limits on the use of Clause 75(3). I will then look in detail at the amendments that have been put forward and finally I will come to the government amendments. In our debates so far, I have focused on justifying the existence of Clause 75 per se and, in particular, the presence of subsection (3), which confers the retrospective power and which has been the focus of anxieties. We have had wide-ranging debates, but I do not believe that we have yet addressed in full the existing constraints on this retrospective power or how we can enhance the safeguards around the use of the power. That is what I hope to do today.

The constraint on the use of the power provided for in the Bill—the “necessary or desirable” test, on which this debate is focused—is not, of course, the only limit on the use of the retrospective power. There is a significant risk that the use of a retrospective power can give rise to unfairness and it must not be undertaken lightly. I want to reassure noble Lords that Ministers and the Treasury, in preparing this Bill, have been all too well aware of the anxieties of this House. I almost said, “of this House in particular”, but that would be grossly unfair to our colleagues in the other place. However, there was no doubt that this House would express anxieties about retrospective legislation, and so it has proven.

We should recognise that the retrospective power in the Bill does not exist in a vacuum; it exists within a highly developed constitutional framework. It is important to recognise the range of constraints on the use of the power. Not all these appear in the Bill, nor would noble Lords expect them to.

First, there are the convention rights. Article 7 is an absolute bar on the retrospective imposition of criminal offences or the increase in penalties. The use of this particular retrospective power may also engage Article 1 of the first protocol: the right to the peaceful enjoyment of property. Retrospective interference with property rights needs particularly careful justification, where the action must be proportionate to the public interest pursued. The range of cases where it will be compatible with the convention rights to interfere retrospectively with the property rights protected by Article 1 of the first protocol is very limited.

Secondly, the Government have a duty to act reasonably. What “reasonably” means in practice will, of course, depend on the context. The more unusual or potentially unfair the proposed course of action, the more it will be necessary to justify, by way of reason, any government action. I speak as a layman. Several noble Lords who spoke in the debate are distinguished lawyers, but I have no claim at all to expertise in the law. But in layman’s terms: if the Government are proposing to legislate with retrospective effect they need to be especially reasonable when they do so.

15:45:00

I should like to elaborate a little on how this second point relates to the amendments in front of us today. Since Report stage the Government have been involved in intensive discussions on how to put further limitations on Clause 75 in order to allay concerns expressed by noble Lords both on Report and in the work of the Constitution Committee. As part of that we have looked very seriously indeed at the form of words that the noble Lord, Lord Goodlad, proposes in Amendment 21, which seeks to introduce a “compelling reasons” test to the retrospective power. We have gone back to our parliamentary draftsman on this point.

In light of the intensive discussions that we have had, we consider that there are difficulties with this form of wording in the amendment. The requirement to have “compelling reasons” for legislating with retrospective effect in effect mirrors the effect of existing administrative law. Put differently, even as the text stands, the Treasury could enact retrospective legislation only if it had compelling reasons to do so. So adding these words to the text would not add anything of substance. In a sense, the Government’s reasons have got to be compelling. A reason that is not compelling is simply no reason at all for a power of this kind, constrained in the ways that I have sought to make explicit.

A further difficulty with the amendment is that spelling out the “compelling reasons” test in this legislation would in fact lead to doubt about many other cases where the rules of administrative law require—as we would anticipate—strong reasons for acting but where no express reference to compelling reason is found elsewhere. It would therefore be undesirable for us to introduce it into this clause.

The third constraint on the exercise of retrospective powers is the Government’s respect for the rule of law and legal certainty. Despite the rather critical—I would not go so far as to say cynical—comments that may sometimes be made in response to such statements, the Government always take very seriously their duty to act fairly and appropriately. We fully recognise the values of fairness and legal certainty, values which are the bedrock of the common law system of justice in this country.

Therefore, in considering whether retrospective legislation is appropriate, we will reflect not just on whether legislative proposals are compatible with convention rights or are intra vires of enabling powers but also on whether the proposed exercise of the power satisfies standards of fairness and propriety. I cannot emphasise strongly enough that we do not take retrospective legislation lightly.

As I said on Report, there are also measures in the Bill that should provide reassurance on how Clause 75 will be used. Subsection (1) of the clause requires the Treasury in exercising Clause 75 in any case, including cases where the power is exercised retrospectively, to have regard to the special resolution objectives. These are defined clearly and precisely under Clause 4, and they are another great limiting factor on the context within which this retrospective legislation might be deployed.

Of course, the Government recognise that these public law constraints may not be enough to provide sufficient certainty. We also accept that the House has not been reassured by the restrictions implicit in the special resolution objectives to which I have alluded. We recognise that we need to go further. The Government have looked seriously at the noble Lord’s Amendment 21 because we agree with the thrust of the argument that there must be “compelling reasons” for the use of the retrospective power. However, as I said, we cannot agree to the amendment because it simply reiterates existing public law requirements on necessity with the undesirable side-effect that it may call these requirements into question in other contexts where they have not been explicitly set out in powers enabling administrative action.

We want to add something material to the range of existing constraints, which I have just described, and to avoid the potential for casting doubt on the existing safeguards provided by public law. We believe that Amendment 22 does just that, by positively affirming the public interest in avoiding retrospection.

Before I come on to the detail of the government amendment, I should like to comment a little further on Amendment 20. I think that it would help if I gave an account of the original drafting of the text. I am reluctant to detain the House for as long as I was obliged to do on Report, when I sought to give examples of where the Treasury might consider it necessary to use the retrospective power. However, I should like to expand briefly on why we need to retain the word “desirable”, given that the Treasury considers those examples “necessary”.

One example that I gave on Report is the possibility that the resolution of a bank might raise issues that had never been dealt with before and that, in the process of making the order, we might miss something, running the risk that the directors of the bank or other third party could be subject to a regulatory penalty or even a criminal sanction. The prospect of a person being exposed to a penalty in such cases is obviously unpalatable. The penalty may have occurred as a direct result of the transfer, rather than any action by the person subject to the penalty. He may have had no knowledge of the sanction and may not have been in a position to avoid it. I argue that under this circumstance it would be common sense and reasonable to use the retrospective power, but would it really be necessary in the strictest sense of the word? The person may be perfectly able to satisfy the penalty or be easily able to pay the fine, for example. Either way, the trouble with the word “necessary” in that sense is that there could be legal uncertainty, and we are anxious about any dubiety regarding how the Bill will operate when it becomes an Act. In other examples—I give way to the noble Lord.

Lord Lester of Herne Hill
My Lords, I feel for the Minister having to reply since he is not legally qualified, as he said, but I have difficulty with what he is now saying because the European Court of Human Rights has made it clear that the test as he has outlined it under Strasbourg Convention law is a test of objective necessity, of whether there is a pressing social need or a fair balance struck in terms of proportionality. That is taken care of in the Bill as it stands by the reference to necessity. When one gets to “or desirable” not only does that breach legal certainty, but it flies in the face of the Strasbourg case law where the court has made it clear in cases such as the Sunday Times thalidomide case that the test is not one of reasonableness but of pressing social need and necessity. I wonder whether this could be thought of again because, quite apart from the other proposed amendments, it seems to me that the words “or desirable” are not compatible with what the convention requires. They create legal uncertainty and the example given by the Minister ought to be able to be taken care of by the test of necessity. For my part, I am very troubled by that part of the Minister’s answer. I do not, of course, expect him to be able to come back right away with an answer to that.

I should like the Minister to think about another point. The Joint Committee on Human Rights has repeatedly said that the safeguards need to be written in legislation and not left to be read in on the basis on what is in the Human Rights Act. Again, because of legal certainty, there must be adequate safeguards against abuse in the Bill and not elsewhere. It does not seem to me that what is now proposed by the Government would meet that test either. I hope I have not thrown too large a spoke in the wheel by that intervention.

Lord Davies of Oldham
My Lords, I am grateful to the noble Lord, who is particularly well qualified in this area, for recognising my potential deficiency. I hope he will hear me out with the general argument. I have taken on board the point he made, and we have looked at this with the greatest care. I indicated that this legislation has to be seen within the framework of the law that he quoted. We are trying to identify a specific area with regard to the law and how it will act. That is why the constraint identified by the noble Lord, which I recognise, accept in full and put into this context, is not sufficient and would not have been sufficient, had I expressed it in these terms, for the other anxieties that were voiced on Report and in our discussions. That is why I hope he will allow me to bring into play a rather broader argument. I hope that, at the end of it, I will have reassured him on the points that he has raised.

Lord Lawson of Blaby
My Lords, I apologise for not being able to be in my place when the Minister began his remarks. The more that I have heard, the more concerned I am about Amendment 22, which seems not to achieve the purpose that the Minister agrees should be achieved. If it is a matter of necessary or desirable, that is replacing “necessary” by “desirable” because if it were necessary it would be bound to be desirable. As this power would clearly not be used where it is undesirable, it means that the Minister is not merely achieving nothing but is watering down the purpose that he declares lies behind this amendment.

Lord Davies of Oldham
My Lords, with his usual accuracy, the noble Lord has raised an issue just as I was coming to confront it. He will also recognise that in the earlier part of my contribution I indicated that I would have to address this issue. I hope I will satisfy him on that point. I have not the slightest doubt that if I do not I will probably get an indication that I have not done so.

As I said on Report, the retrospective power might be used to correct a drafting error that had cast into doubt the legal position of parties to an agreement over a transfer. In that example, the retrospective power would be used simply to put all parties to the agreement in the position that they had thought they were in. That would obviously benefit third parties; it would restore legal certainty; it would meet every test of how the Government should act, but it would introduce an element of retrospection. It is arguable that such action taken in order to provide legal certainty to counterparties is desirable, but not absolutely necessary.

When making law, we try to establish the greatest legal certainty. In both the illustrations that I have just given, there is absolutely no doubt that “necessary or desirable” provides the parameters for the Government to act. The Government could act with certainty, and third parties could safely rely on the government action. If the word “desirable” were removed, some of that certainty would be removed with it.

Those risks have not gone away, even with the compromise form of wording that the Government propose in Amendment 22, but we have now a form of wording that satisfies the greatest concerns of noble Lords. We meet the concern that the retrospective power should not just be deployed on a whim. Rightly, noble Lords were concerned that not having spelled out the context in which the power would be exercised, the danger was that the Government would attribute to themselves greater power than they ought.

Lord Pannick
My Lords, I am very grateful to the Minister for giving way. Although his Amendment 22 is a considerable improvement, the difficulty with it is that it is drafted by reference to what Ministers must have regard to, but it allows Ministers also to have regard to many other matters. Does he agree that it would achieve the Government's objectives and meet many of the concerns that he has heard expressed today if Amendment 22 were drafted in terms that allowed the Treasury to act if it considered that it was in the public interest to introduce retrospective legislation, rather than simply requiring it to have regard to such a matter?

Lord Davies of Oldham
My Lords, I am grateful to the noble Lord and, of course, respect his expertise and contribution in this area. I was grateful for the points that he expressed in our meeting on these matters. I must report to the House that we took those issues into consideration. As I said, we think that we are meeting the main issues of anxiety about how the power will be exercised. Amendment 22 puts beyond doubt the nature of the Government's capacity to act. The noble Lord, Lord Pannick, will remember earlier discussions about the Bill when we discussed the significance of the legislation. Clause 75 relates to actions that are as close to emergency actions as we can envisage, when they are the subject of desperately urgent negotiations in which a deal needs to be struck, all parties need to be sure that the deal will be adhered to and the Government need legal certainty that they can give effect to the deal that is struck. That is the nature of our difficulties. I hope that the noble Lord, Lord Pannick, will give the Government credit for listening to the anxieties. Nevertheless, we are determined that we have put beyond doubt the issues that have been raised in the past and I hope that he will accept our position.

I emphasise that, while retaining the words “or desirable”, the flexibility inherent in the desirability test is not a licence to act lightly or irresponsibly but is a recognition that it is in the public interest to avoid retrospective legislation wherever possible. It will be deployed only when the problem that we have to overcome leaves us no option but to exercise the retrospective power in the public interest.

Lord Morris of Aberavon
My Lords, the Minister emphasised earlier the repercussions on other legislation if our amendments were accepted. I asked him whether he could give one example of past legislation which had in it the words “necessary or desirable”. I hope he will reply.

Lord Davies of Oldham
My Lords, I shall come onto that point in a moment. The argument that the noble Lord, Lord Pannick, has properly raised is central to Amendment 22. That is why, after long deliberations on the anxieties connected with retrospective powers, I shall press the House to accept the amendment.

Lord Lester of Herne Hill
My Lords, I really am puzzled now. When, under Section 19 of the Human Rights Act, the Minister writes on the face of a Bill that he considers it to be compatible with the convention rights, that is what Parliament requires him to do and that is what he has done in this case. In other words, to use the phrase of the noble Lord, Lord Pannick, the Minister has written on the face of the Bill, under Section 19, that he considers it to be compatible. I do not understand what possible objection there can be to using the rather conspicuously moderate approach of the noble Lord, Lord Pannick. He is not saying that the test of necessity is to be written in as the only test—which I think is the correct approach—but that it is enough, from his point of view, if the Bill states, “If the Minister considers that it is in the public interest”.

In those words, “considers” has the same meaning as the requirement under the Human Rights Act. So I do not understand why the Government should choose the rather watery and weak words, which are basically unenforceable, that,

“the Treasury shall have regard to the fact”,

among other things, because they seem to be contrary both to what Parliament stipulated in Section 19 and to the convention. The wording is far too vague and loose and does not meet the test of legal certainty. I am talking only from a common-sense point of view and not legalistically. I should be grateful if the Minister could address those points.

Lord Williams of Elvel
My Lords, before my noble friend responds to that point and before he sits down—I am sure he is going to sit down fairly soon—does he recognise that we are at Third Reading and therefore that long speeches in the course of ministerial statements are simply out of order? There is no point in arguing at Third Reading for different wording. The only way that different wording can be achieved on any of these amendments is by the noble Lord, Lord Goodlad, asking the House to approve his amendment, or any other amendment, and that going down to another place where the Government would have to produce an amendment in lieu.

Lord Davies of Oldham
My Lords, I do not have the slightest doubt that the noble Lord, Lord Goodlad, was aware of that point. So am I, of course; that is why I am battling as best I can to persuade him to withdraw his amendment.

On the points that the noble Lord, Lord Lester, raises about the Strasbourg position, I am hesitant to enter into a debate with him at the Dispatch Box on those issues, for all the reasons we discussed earlier, but the tests laid down by the Strasbourg court are relevant only to the use of powers that interfere with convention rights. The Government cannot make secondary legislation that is incompatible with such rights; such legislation would of course be unlawful. However, my example related to relieving a regulatory penalty triggered by a transfer. The question of ECHR compatibility would not arise in lifting a penalty, but we would need the capacity for a retrospective decision on that in circumstances where, as I indicated earlier, the third party might be subject to a penalty when he could not have anticipated the nature of the offence. Even more important, with regard to the noble Lord, Lord Pannick, we are seeking to envisage that which we cannot predict with great accuracy and give illustrations, and seeking to predict that the deal may hang on the legal certainty of what has been agreed. If there were failures with regard to that legal certainty because of a drafting error, a mistake, we would need to keep that deal in place by correcting the position.

That is why the Government are committed to Amendment 22, which is not conjured out of thin air but is a response to the real concerns that were put forward initially by the Constitution Committee, although they were voiced early on with regard to the Bill. They were certainly voiced at Second Reading, we had intensive discussions in Committee and we had even more intensive discussions on Report, when I made a speech that was so lengthy that I was ashamed of it. I am in great danger of being in that position today so I want to encourage noble Lords by saying that I am nearly at the end. However, my noble and learned friend Lord Morris pressed me to give an example so I am going to have a shot at that as well.

One example that we have exists in tax law. In particular, a retrospective power can be used when it is expedient to make changes in respect of national insurance contributions under sections of the 2006 Act. I mentioned that on Report. I recognise that this is a very different context. The House must decide whether this use of this power is justified, which is what I am seeking to do in the particular circumstances of the Bill. We all recognise that the Bill is trying to deal with highly particular circumstances in a very important part of our banking and financial system and indeed of the welfare of the nation. We are making it clear with our amendment that we are not establishing a precedent for retrospection—we are setting out that it is in the public interest to avoid it—but that there are clearly limited circumstances where we consider it to be necessary.

I emphasise that this formulation has been arrived at after very serious consideration of the concerns of noble Lords. All noble Lords in the Chamber will appreciate that, when we had provided enough chairs for our meeting on Thursday in the room to which the noble Lord, Lord Goodlad, referred, we had the benefit not only of his representation but also, with great accuracy, those of the noble Lord, Lord Pannick, and the noble and learned Lord, Lord Morris. So it is not as though we were not fully aware of their concerns and anxieties. This is the best that we can do in meeting those anxieties. I have no more to add.

16:15:00

I do not know whether it is possible that there could be another formulation. However, I hope that noble Lords will appreciate that the Government have done their very best to meet the carefully articulated and very real concerns of noble Lords. That is why I shall press the noble Lord, Lord Goodlad, to withdraw his amendment and, in due course, I shall move government Amendment 22.

The House may rest assured that government Amendments 23 and 24 are technical. In our debates, I have repeatedly referred to using Clause 75 to correct mistakes made in transfer orders. I said that the Government, at times, make errors and when that happens we need to fix them. These technical amendments relate to a drafting error in this clause. As currently drafted, it does not allow provision to be made in relation to transfer orders and that is remedied by new government Amendments 23 and 24. I hope that the House will accept that mistake by the Government and our attempts to remedy it.

I genuinely wish to put on record my thanks to the Constitution Committee, to its chair, to the noble Lord, Lord Goodlad, and to the noble Lords who supported that work. The Government have had to think about these issues with the greatest care, which I can assure the House they have done. I hope that the noble Lord, Lord Goodlad, will not move his amendments.

Amendment 3 agreed.

Clause 22: Termination rights, &c.

Amendment 4

Moved by

4: Clause 22, page 10, line 33, at end insert “to which the bank is a party”

Baroness Noakes
My Lords, this is something of an anti-climax. I shall speak also to the other five amendments in my name in this group. They amend the termination rights provisions in Clauses 22 and 38. They do that in a common way for both share transfers and property transfers. We have now reached one of the technical areas of the Bill about which practitioners in the City are concerned. I thank the Treasury for including me in a meeting with, first, parliamentary counsel and, secondly, various lawyers last week involved on all sides. That was indeed most useful.

The Government have three amendments in this group to which I hope the Minister will speak in due course. They deal with slightly different issues from my amendments. My amendments deal with two separate but related issues. Amendments 4, 5, 10 and 11 amend Clauses 22 and 38 so that a default event provision is not defined to include a contract or other agreement to which the bank is a party. The purposes of this set of amendments is to ensure that contracts, such as certain credit default swaps and other derivatives which are written with the failed bank as a reference entity or an underlying share but which do not directly involve the bank, are not caught. We completely understand that the Government want Clauses 22 and 38 in order to protect against contracts in a subcontracting chain being capable of being broken, if they relate to services which are essential to the bank. But the definition also takes in financial services and therefore takes us into the highly technical area of the contracts which I have just described.

The second set of amendments, Amendments 6 and 12, seek to make it clear that set-off, netting and similar arrangements will be outside the scope of an order under Clauses 22 and 38. That is part of the wider debate on set-off and netting, which we shall come to, but it has a very specific importance in the context of termination rights. If these clauses interfered in the operation of set-off and so on, legal certainty in those markets might well disappear.

As I understand the position, the Government’s intention is that secondary legislation under Clauses 47 and 48 will be used to ensure that set-off and netting arrangements are not affected by the termination rights clauses and that this will be predicated on an assumption that Clauses 22 and 38 will raise a problem only if a partial transfer is involved. I further understand them to believe that the issue of the bank not being a party to the contracts will, in practice, arise only in connection with set-off and netting arrangements. I hope that the Minister can explain all of this for the record. On the basis that he does so, I am sure that I will be able to withdraw my amendments in due course, but I thought it was important to table them again so that the explanation of how these issues are to be dealt with was clear for all concerned. I beg to move.

Lord Myners
My Lords, I am grateful to the noble Baroness, Lady Noakes, for the way in which she introduced her amendments, explaining that she is providing the Government with an opportunity to explain their thinking and that, if that explanation is satisfactory, she will not press the amendments she has tabled. As the noble Baroness said, this group of amendments relates to events of default, also known as termination rights, and refers to Clauses 22, 34 and 38. I will speak to government amendments to Clauses 22 and 38. For the benefit of the House in debating these matters, I will speak briefly to the purpose of these clauses as I believe it sets a useful context.

Clauses 22 and 38 set out certain provisions in relation to clauses in contracts which give a specified right to a counterparty if a specified event—an event of default—occurs. In particular, such a clause may specify that a counterparty has a right to terminate the contract should the event of default occur. Most modern contracts make heavy use of such provisions. The exercise of property or share transfer powers under the special resolution regime may, in future, be characterised as an event of default. This would give counterparties the right to terminate or modify contractual arrangements in the event that the authorities exercise the transfer powers.

As I explained in Committee, this could lead to a wide counterparty flight from the deposit-taker, with severe consequences for the success of the resolution. Therefore, Clauses 22 and 38 make provision to address events of default which could impede resolutions under the special resolution regime. I should make it clear that the financial collateral arrangements directive, under which the Government must allow financial collateral arrangements to take effect in accordance with their terms, including by respecting terms which permit the counterparty to close out, is a dominant feature here. In debating these provisions, we are talking about the minority of financial contracts that are not protected under that directive.

Government Amendments 7 and 13 seek to respond to concerns which have been raised by interested parties, including at a meeting arranged between Treasury officials, parliamentary counsel and the City of London Law Society, which was attended by the noble Baroness, Lady Noakes. A further meeting has since taken place between tripartite officials and the City of London Law Society. We have always been clear that the purpose of these clauses is not to prevent termination rights from being exercised where the transferee defaults in the obligations it has assumed. Let me illustrate this with an example which I hope will help. A services contract to supply IT is transferred from bank X to a bridge bank by the property transfer powers. The services contract contains two events of default. One says the contract terminates if the contract is transferred from bank X to any other company. Another provides that the contract may be terminated if there is default in payment on three consecutive occasions.

Clause 38 is intended to address the first event of default, which would be turned off by this provision. But it is not intended to allow the bridge bank to default in paying its obligations under the services contract on three or more occasions. If it did, the service provider would be able to exercise its right to terminate.

Interested parties have questioned the reference in subsection (8)(b) to things done,

“under or by virtue of”,

a transfer instrument. It has been suggested that the entire contractual relationship following a transfer flows from the fountain-head of the transfer instrument, so the clause would catch even a second event of default mentioned in my example. The Government do not believe this to be the correct construction of this provision. “By virtue of” is an expression used in statutory drafting to refer, for example, to things that are not done directly under the order.

However, the Government recognise the need clearly to indicate that the purpose of these clauses is not perpetually to immunise a transferee from ordinary commercial obligations. Accordingly, we have brought forward government Amendments 7 and 13 to dispel such concerns.

The noble Baroness has spoken to her Amendments 4 to 6 and 10 to 12, for which I thank her. I realise that these amendments flow from concerns that the default event provisions that I have described could have the effect of interfering with financial arrangements, such as set-off and netting, with negative consequences for risk management and regulatory capital. Noble Lords will recall that the Bill already provides protection for such arrangements in the context of partial transfers, and so, as I made clear in Committee, it is appropriate that similar protections be provided for in the context of default events.

The Government also recognise that such protection should be extended to third parties where they have entered into financial contracts with a counterparty of the bank, which are relevant for set-off and netting arrangements. But we do not think that protection for third parties should be extended to non-financial or service contracts, which, if terminated, could, for example, prevent the failing bank being able to offer continuous banking services to its customers. Nor do we think that the protections are needed in the context of “whole bank” transfers, as the market’s concerns have been expressed in the context of partial transfers.

However, the Government believe that protection for financial contracts, such as those relevant for set-off and netting, including third-party contracts, should and can be provided under the existing structures of the Bill. Therefore, providing appropriate protection does not need any changes to the provisions of Clauses 22 and 38.

To provide protection for the types of contracts I have described above, we intend to use the enabling power under Clause 47, which allows the Government to place certain restrictions on partial transfers. Therefore, under Clause 47, we will put in place a standing order which will protect, in the event of partial transfer, the termination rights of bank counterparties and third parties in relation, broadly speaking, to financial contracts with set-off and netting arrangements. To be clear, this will protect those who contract with the residual bank, with third parties not directly related to the failing bank, and those who would be transferred to the new company following a partial transfer. I believe that this will satisfy market concerns.

However, for reasons that I listed in my introduction, the authorities believe that it is critical to provide the new company, be it a bridge bank or a private-sector purchaser, with certainty over what contracts are, or are not, being transferred. Otherwise, it will be difficult to ensure an effective resolution. In order to achieve this, we intend to have the flexibility to make conditional transfers. I will consider the details of these proposals when I speak to government Amendment 8. However, using conditional transfers will enable us to obtain a greater degree of certainty for the transferee, while fully respecting the safeguard that I have just set out. In short, the transferee will know what property has been transferred to it, without resort to close-out, within a period set out in the transfer order. The Government believe that this targeted protection balances the need for certainty in the financial markets with the authorities’ ability to effect a successful resolution. The early indication from consultation with stakeholders is that this approach will be supported.

16:30:00

I turn now to government Amendment 8, which provides for the conditional transfers to which I have just alluded. Its aim is to prevent counterparties closing out against the transferee simply as a result of the transfer, while preserving their transfer rights against the residual bank. I emphasise that it does not prevent the counterparty closing out, should the transferee breach the obligations that it has assumed, as I made clear earlier. An unfettered right to close out against the transferee—or new company—carries potential risks for the resolution. The new company could immediately be required to pay crystallised liabilities, creating liquidity stress. Moreover, and importantly, should a counterparty close out on such a basis, it would have acquired a better right than it had in the first place, namely the right to close out not against a failing institution, but against the more credit-worthy bridge bank or private-sector purchaser. This is not the same as the termination right for which the counterparty had contracted. The Government believe that the amendment to Clause 34 provides a way to overcome this concern, and we are encouraged by a positive response from stakeholders.

This amendment enables the authorities to transfer property, rights or liabilities conditionally. It could be exercised in two broad ways. First, it could provide that the transfer only ever happens if a specified condition is satisfied. Secondly, it could provide that a transfer is automatically reversed if a specified condition is satisfied. In either case, the condition could be defined as an event occurring or an event not occurring. Where a counterparty has protected financial contracts, the authorities could adopt either of the following approaches. They could provide that the transfer of financial contracts will only take place if a counterparty agrees to waive any rights to close out that might otherwise arise; or they could provide that a counterparty will be transferred but will be automatically returned to the residual bank should it attempt to close out. It is because the transfer can be made conditional on the waiving of termination rights that the time limit that I mentioned earlier can be contemplated. A time limit does not purport to interfere with termination rights. It merely creates a defined window in which the counterparty can elect to affirm the transfer to the new company.

The protection that I have described, which will be put in place under Clause 47, remains fully effective. However, should the counterparty wish to close out, as a result of this amendment, the authorities can ensure that the counterparty will not be able to close out against the transferee. It will, instead, close out against the residual company with which it had originally contracted. This allows for a targeted approach. I hope noble Lords will see that it is entirely appropriate that the counterparty should not be able to acquire new and superior rights to those for which it contracted. I commend this amendment to your Lordships’ House as a way of achieving this result.

Financial markets legal experts have indicated that they are satisfied that this approach meets their concerns. Therefore, the Government are proposing a package of measures that delivers protection for financial contracts with set-off and netting arrangements following a partial transfer. In addition to the broad protection already provided to financial contracts by the financial collateral directive, we believe that this will provide the legal and therefore market certainty. I can confirm that the Government intend to insert these protections in the safeguards orders that we will be laying on partial transfers at Royal Assent.

Further, these provisions target only the precise concerns put to us by the market. Therefore, the Government can still exercise their rights to prevent default events for other contracts such as service contracts or financial contracts following a full transfer. The authorities believe that this will provide sufficient flexibility to effect a resolution and certainty for any new private sector purchaser over what property it will be receiving.

Key stakeholders discussed the package last week at a meeting attended by the noble Baroness, Lady Noakes. During the meeting, we provided parties with initial drafting, which set out the protections that I have just explained. While, of course, the detail of these orders has yet to be agreed, I can report that the stakeholders appeared to believe that this broad package met their concerns.

Balancing market certainty and confidence with appropriate powers for the authorities to effect a successful resolution has been at the core of a number of our debates. I believe that these proposals find that balance and are preferable to the alternative amendments. However, I would like to thank the noble Baroness for taking so much time to ensure that the House debates the matter and for attending sometimes lengthy and complex meetings dealing with stakeholder concerns on these important matters. I am sure all those who have concerns about this complex area will be indebted to the noble Baroness for her diligence in addressing these matters and helping us improve the legislation. I respectfully ask her to withdraw her amendment, so that I might press the government amendments to which I have just spoken.

Baroness Noakes
My Lords, I am extremely grateful to the Minister for setting out the position at length and for his kind words. He said that the initial view from the market participants was that this was a good way forward. I can confirm that people have said that to me and that they do support the approach, which is a constructive way forward. The Minister will also be aware that there are a number of concerns about the detail, the market participants having seen the draft of the statutory instrument only last week; and time is short. I hope that the constructive working continues to get the right solution so that these instruments are introduced at Royal Assent. My purpose in tabling the amendments was to get that statement placed on the record. I am more than grateful to the Minister for so doing. I beg leave to withdraw the amendment.

Amendment 4, withdrawn.

Amendments 5 and 6 not moved.

Amendment 7

Moved by

7: Clause 22, page 11, line 33, at end insert—
 “(10) A thing is not done by virtue of an instrument or order for the purposes of subsection (8)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been transferred by the instrument or order.”

Amendment 7 agreed.

Clause 34 : Effect

Amendment 8

Moved by

8: Clause 34, page 17, line 5, at end insert—
 “( ) A property transfer instrument may provide for a transfer to be conditional upon a specified event or situation—
 (a) occurring or arising, or(b) not occurring or arising.( ) A property transfer instrument may include provision dealing with the consequences of breach of a condition imposed under subsection (5); and the consequences may include—
 (a) automatic vesting in the original transferor;(b) an obligation to effect a transfer back to the original transferor, with specified consequences for failure to comply (which may include provision conferring a discretion on a court or tribunal);(c) provision making a transfer or anything done in connection with a transfer void or voidable.”

Amendment 8 agreed.

Amendment 9

Moved by

9: Clause 34, page 17, line 5, at end insert—
 “( ) Where a property transfer instrument makes provision in respect of property held on trust (however arising) it may also make provision about—
 (a) the terms on which the property is to be held after the instrument takes effect (which provision may remove or alter the terms of the trust), and(b) how any powers, provisions and liabilities in respect of the property are to be exercisable or have effect after the instrument takes effect.”

Lord Davies of Oldham
My Lords, this group of amendments responds to concerns raised by interested parties around the definitions used in Clause 48. I want to put on record the fact that the noble Baroness made a substantial contribution in Committee on these issues and has participated in subsequent meetings with parliamentary counsel, Treasury officials and the City of London Law Society, which have all helped to resolve the matter in a way that meets the interests of all sides.

It is important to use broad and flexible provisions in this power, as we noted in Committee. It is an enabling power, designed to ensure that adequate safeguards can be put in place. Breadth to put in place protective provisions is, indeed, a virtue. Flexibility is necessary so that orders made under the power can keep pace with developments in the law governing security interests and set-off and netting arrangements, which has proved to be innovative. We understand that the need for this flexibility in primary legislation is now appreciated by the City of London Law Society and other legal experts. I can confirm that we are considering changes to the secondary legislation to reflect some of the concerns regarding commercial definitions. A redrafted order, including revised definitions, has been sent to the expert liaison group, on which the relevant legal bodies are all represented.

However, there are a number of issues on which the Government accept that clarification in the Bill is desirable. Amendment 14 amends the definition of “title transfer collateral arrangements”. These involve one party transferring to another full ownership of assets. In broad terms, such arrangements are entered into to secure the performance of obligations owed by one party to the other. Such agreements may typically provide for the return of equivalent collateral when such obligations are performed. The reference is to “equivalent collateral” because the assets originally transferred may no longer exist and may have been replaced with new assets. Although we thought that the original definition, in referring to new assets, reflected this, we are aware of the anxiety over this description. As a result, the amendment in the name of my noble friend Lord Myners removes this troublesome phrase, but leaves the scope of the enabling power sufficiently broad to achieve its purpose.

Amendment 15 makes a change to the definition of set-off arrangements. It describes the breadth of different set-off arrangements that might exist. We consider that the broader formulation is more appropriate. Amendment 16 makes it clear that close-out netting arrangements can involve actual as well as theoretical debts. Although this provision was an inclusive further elaboration of the broader concept of netting arrangements, we are pleased to offer this additional clarification if it provides reassurance.

Amendment 18 adds further provisions to the definition of arrangements, which is used as a building block for the definitions of security interests, title transfer collateral arrangements and set-off and netting arrangements. It provides broad language that makes it clear, for example, that such arrangements may operate on a bilateral or multilateral level, or involve the interposition of third parties such as clearing houses. We do not believe that the clause would have been construed to exclude these arrangements from the ambit of the power as originally drafted, but we offer reassurance through this amendment.

We have one further reassurance that we need to give, which arises out of issues brought to our attention by legal experts, including the Law Society of Scotland. Amendment 9 signals that arrangements to be protected under Clause 48 can include trusts. Stakeholders have asked us to make it clear that interests protected under Clause 48 may be created through, or comprise in part, trusts. The Government are not convinced that the change is necessary, as the terms would be construed in their commercial context. If commercial practice does make use of trusts in this context, then trusts would fall within the definitions as they stand. However, we are told that Amendment 9 offers reassurance, and we are glad to offer this where we can.

Amendment 17 relates to the treatment of trusts under the property transfer powers. Stakeholders have questioned whether property that a bank holds on trust for beneficiaries would fall within the definition of property, rights and liabilities under Clause 33. We believe that property held in trust would be included under the broad definition, but we are told that in Scotland there is some doubt as to whether a reference to “property” will be interpreted to include property that a person holds in trust. The amendment will allow us to stipulate how property held by the bank in trust is to be held after the transfer. This allows the effects of the resolution, as it relates to trust property, to be made clear in the property transfer instrument, enhancing legal certainty and allowing a more refined and proportionate approach.

These amendments are a direct response to the concerns of stakeholders on how trusts are treated and, I believe, allow the authorities to act proportionately on a case-by-case basis by being specific on how each resolution can affect trusts. In seeking to meet the concerns of financial markets participants, I should also say a few words about the noble Baroness’s amendment, but it is appropriate that she should have a chance to speak to it, and I shall respond briefly after she has spoken. I beg to move.

16:45:00

Baroness Noakes
My Lords, as the Minister has said, I have Amendment 19 in this group, but I should like first to speak on the government amendments, which are the product of the Treasury’s willingness to listen to the concerns of those who will be operating in financial markets and dealing with the implications of the Bill. Again, I record my thanks for being allowed to participate in the meetings, including with parliamentary counsel.

The Minister explained the way in which these modifications work and how the statutory instruments will be developed. I do not need to remind him that a lot is riding on the final version of the statutory instrument and it being made immediately after Royal Assent in order not to destroy legal certainty at that point.

Some substantive issues raised by the market participants remain. I am sure that the Minister will be aware of a joint letter from the British Bankers’ Association and the London Investment Banking Association last week setting out their concerns. I hope that when speaking again to the amendment, the Minister will update the House on plans for laying the statutory instruments and, more importantly, between now and when they are laid, say what the Government plan to do to work with stakeholders to allay the remaining concerns, which are not small. Some important issues that people want dealt with remain. It would be a shame if the excellent co-operation that has characterised the way in which the Bill has been developed and the draft statutory instruments discussed were spoiled at a late stage by rushing the measure through. I say that to encourage the Government to engage in constructive dialogue.

My Amendment 19 asks for an annual report on partial transfers. I tabled it in response to very big concerns about whether this Bill would completely disrupt market practice and the attractiveness of London for the financial services industry. To some extent those concerns have been allayed by the constructive way in which the Government have sought to ensure that the statutory instruments will do what is necessary to ensure that there are no unintended market or regulatory capital impacts from the types of transaction that have been referred to. To that extent, I shall not move my amendment. In reaching that judgment, I have been particularly encouraged by the way that the Government widened the terms of reference of the Banking Liaison Panel in Clause 10, which allows the panel a wider say in the workings of the Bill beyond the narrow definition in the earlier draft of the Bill. Wedded as I am to transparency, I can see that in this instance the Banking Liaison Panel is probably the right place to keep this matter under review, and I hope that it will.

Lord Eatwell
My Lords, I moved a number of amendments in Committee dealing with the issues addressed by the Government’s amendments to Clause 48. They have responded to the difficulties regarding the impact of partial transfers on netting arrangements. Like the noble Baroness, Lady Noakes, I look forward to learning how the statutory instruments ensuring that those netting arrangements, which are enormously important in improving transparency in markets in the future and reducing complexity, are to be brought forward. I support the government amendments, which have addressed important concerns.

Lord Davies of Oldham
My Lords, I am grateful to the noble Baroness for her response to the government amendments and also to my noble friend. Both made interesting contributions in Committee which enabled us to get this additional work under way. As I have indicated, we were not totally convinced in the early stages that these additional clarifications were necessary but we recognise the force with which they have been put—not least by my noble friend—and I am glad that he thinks that the amendments meet the points that he made. I am also grateful to the noble Baroness for the full part that she has played in these matters. As for her points about the necessity for additional co-operation, we will certainly publish the draft statutory instruments on Royal Assent.

One of the great advantages of the substantial consultation that was carried out throughout the drafting of this legislation and its development over the past year is that we are in a position to make commitments of promptitude on secondary legislation. We will continue to work with the Expert Liaison Group on the detail of these draft orders before they are finished and made on commencement of Part 1 on 20 February. I give the noble Baroness our assurance on that and agree with her that for the Expert Liaison Group to become the Banking Liaison Group is a proper forum for that.

My honourable friend the Economic Secretary indicated that the process should be as open as possible. He said that he was committed to seeking the Expert Liaison Group’s views on whether its minutes should be published. He did not meet with a totally positive response. The group did agree that high level summaries of the discussion and the conclusions could be usefully made public, so there will be openness in that respect. I hope that that is sufficient to assure the noble Baroness that we intend to proceed on the basis of openness. We intend to check with the group whether it thinks that any specific advice that it gives to the Government should be made public. If it does, we will commit the Treasury to publishing it and providing a copy to Parliament.

Amendment 9 agreed.

Clause 38: Termination rights, &c.

Amendments 10 to 12 not moved.

Amendment 13

Moved by

13: Clause 38, page 19, line 21, at end insert—
 “(10) A thing is not done by virtue of an instrument for the purposes of subsection (8)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been transferred by the instrument.”

Amendment 13 agreed.

Clause 48: Power to protect certain interests

Amendments 14 to 18

Moved by

14: Clause 48, page 24, line 31, leave out “those or other”

15: Clause 48, page 24, line 32, leave out from “which” to end of line 33 and insert “two or more debts, claims or obligations can be set off against each other,”

16: Clause 48, page 24, line 36, at end insert “actual or”

17: Clause 48, page 25, line 21, at end insert “or trusts;”

18: Clause 48, page 25, line 24, at end insert—
 “(d) involve any number of parties;(e) operate partly by reference to other arrangements between other parties.”

Amendments 14 to 18 agreed.

Amendment 19 not moved.

Clause 75: Power to change law

Amendment 20

Tabled by

20: Clause 75, page 39, line 42, leave out “or desirable”

Lord Goodlad
My Lords, I am advised that, procedurally, it is expected that I should say very few words about this extremely significant debate. The Minister made a detailed and eloquent speech explaining the Government’s decision. He received no support from anyone in the Chamber and opposition from the Back Benches of the Labour Party, the Cross Benches and the Liberal Democrat Party. The Front Benches of the Conservative Party and the Liberal Democrat Party were silent on the matter, which is, according to taste, welcome, disgraceful or sinister.

I am content not to press the amendments tabled in my name and those of other noble Lords in the hope that the Government will, at Commons consideration of Lords amendments, consider adjusting Amendment 22, so that the Treasury can make orders with retrospective effect only if it considers that doing so is exceptionally in the public interest. In deference to the noble Lord, Lord Williams of Elvel, whose expertise on Third Reading procedure is not exceeded by anybody and who has a batting average in first-class cricket of more than 25, I shall not move the amendment.

Amendment 20 not moved.

Amendment 21 not moved.

Amendments 22 to 24

Moved by

22: Clause 75, page 39, line 44, at end insert “(but in relying on this subsection the Treasury shall have regard to the fact that it is in the public interest to avoid retrospective legislation).”

23: Clause 75, page 40, line 3, leave out second “or”

24: Clause 75, page 40, line 4, at end insert—
 “, or(c) amend any provision of an instrument or order made in the exercise of a stabilisation power.”

Amendments 22 to 24 agreed.

Clause 103: General powers, duties and effect

Amendment 25

Moved by

25: Clause 103, page 60, line 38, in column 3 insert—
 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
||“Anything done by the bank in connection with the exercise of a stabilisation power under Part 1 of this Act is not a gratuitous alienation for the purpose of section 242 or any other rule of law.”|
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Lord Davies of Oldham
My Lords, government Amendments 25 and 26 are technical provisions that make modifications to the way in which Sections 242 and 243 of the Insolvency Act 1986 are applied to the bank insolvency procedure. These provisions, which deal with gratuitous alienations and unfair preferences, apply only to Scottish insolvencies and are similar in effect to Sections 238 and 239 of the Insolvency Act 1986, which deal with transactions at an undervalue and preferences with respect to insolvencies in England and Wales.

Under the amendments, Sections 238 and 239 of the 1986 Act are applied to the bank insolvency procedure, with modifications, so that anything that has been done by a bank in connection with the exercise of a stabilisation power under Part 1 of the Bill cannot be challenged as a transaction at an undervalue or a preference. Sections 242 and 243 are currently applied to the bank insolvency procedure without modification and the amendments are therefore needed to ensure that these provisions are applied in a similar way to their counterparts in England and Wales.

The words,

“or any other rule of law”,

are included in the modifications because, in Scotland, common law can also be used to challenge a transfer or transaction considered to be a gratuitous alienation or unfair preference. The need for these modifications to ensure a consistent approach has recently been brought to our attention by the Law Society of Scotland, to which the Government are grateful. I beg to move.

Amendment 25 agreed.

Amendment 26 agreed.

Clause 230: Transparency: financial assistance

Amendment 27

Moved by

27: Clause 230, page 116, line 33, leave out “227” and insert “229”

Baroness Noakes
My Lords, I can be brief on this amendment. Just before I moved my amendment on Report to insert Clause 230 into the Bill, my noble friend Lord Eccles pointed out a typing error in relation to the clause reference in subsection (1)(b) of the new clause. The Minister will recall that the House voted in favour of my amendment. I had hoped that behind-the-scenes processes would correct this before the Bill was reprinted, but that did not happen. The advice of the Public Bill Office was that it would be safer if I tabled this amendment to make it absolutely clear that the House, in approving my amendment, intended to refer to Clause 229, not Clause 227, in paragraph (b). I am sure that the House will not want to confuse the other place when the Bill is sent there later today. I beg to move.

Lord Davies of Oldham
My Lords, I certainly do not want to confuse the other place and I agree with the noble Baroness.

Amendment 27 agreed.

17:00:00

Clause 232: Definition

Amendment 28

Moved by

28: Clause 232, page 117, line 25, leave out paragraph (a) and insert—
 “(a) provide that a specified class of institution, which has a permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity, is to be treated as an investment bank for the purpose of this group of sections;(aa) provide that a specified class of institution is not to be treated as an investment bank for the purpose of this group of sections;”

Lord Davies of Oldham
My Lords, I will also speak to Amendments 29 and 31 and comment on the opposition amendment. All the amendments in the group relate to the powers in the Bill to make investment banks insolvency regulations.

The Delegated Powers Committee expressed extreme concern about the scope of these powers. I am pleased to see the noble Lord, Lord Goodhart, in his place, not that I ever doubted that he would be there. His committee expressed concern about the scope of the powers proposed in the clauses relating to investment banks. The committee recommended that the power, and any regulations made under it, should be sunsetted after two years. The amendment of the noble Baroness is along these lines.

We discussed these concerns with the noble Baroness, Lady Noakes, and indicated to her that it has not been possible to devise a suitable response to the Delegated Powers Committee’s sunset recommendations that would not have what we regard as undesirable effects in market impact and policy. The Government, as indicated in earlier debates, are firm on this matter. The noble Baroness indicated that she understood some of the Government’s great reluctance, because normally the Government are concerned to respond positively to the committee’s proposals. She even hinted that she would consider withdrawing her amendment, subject to the Government making a strong case and committing to holding a fully independent review within two years of any regulations being made under the power. She also suggested that the Government’s case would be considerably more robust if they were able to place stakeholders’ concerns with the sunset provisions on the record.

The London Investment Banking Association wrote to our officials in appropriate terms on 6 February. Accordingly, we are eager to emphasise the remarks made in Committee, with regard to the difficulties surrounding the administration of Lehman Brothers Europe. In particular, the Government are concerned that the clients of Lehman Brothers have had difficulties in securing an expeditious return on their assets, following the failure of that firm. That is no small matter. Where clients are unable to access assets that they believe they rightfully own, this has the gravest implications for market confidence and the effectiveness of the legal arrangements, including those relating to insolvency, which support the UK system.

The House will be aware that a major source of the UK’s competitive advantage in this area is the certainty that we provide by the relevant legal regimes that we have. Ineffective operation of insolvency arrangements in relation to investment banks and client assets could have obvious financial stability implications. If it impacts on the ability of clients to meet their own obligations to third parties, this may have particular relevance in the case of the hypothecated assets where recovery may be very difficult and challenging.

It is no exaggeration to say that a single failure could then lead to further failures unless issues surrounding asset recovery can be addressed with expedition. The Government need to take action over these concerns. I was grateful that the amendments which gave rise to these provisions were accepted in Committee. The sheer complexity of the challenges that have emerged since the failure of Lehman Brothers and its UK subsidiary defy simple solutions to this issue. The House will understand that the application of insolvency procedures to an investment bank, or any other large complex financial institution, is complicated and challenging. To consider ways of revising such procedures is even more so. For this reason, the Government have sought the advice of an expert panel with regard to the concrete steps that need to be taken to address these challenges. The panel, the establishment of which was announced in the Pre-Budget Report, is to consider how regulations may best be made which enable the unencumbered return of client assets without creating substantive externalities or negative consequences. The provisions of Clauses 232 to 235 provide the Treasury with the powers necessary to make any changes that may be required as a result of this review. They are necessarily broad for the simple reason that it would be impossible for the Government to prejudge the conclusions of the expert panel, particularly in a complex case.

It may reassure the House if I clarify a few points regarding the powers that the Government are taking in these clauses. The powers are precautionary in so far as they will not be used without a clearly identified need  to do so, and, notwithstanding the concern which noble Lords articulated in previous discussions on the Bill about their scope, they will be targeted if deployed.

However, the breadth of the powers that the Government are taking has of course attracted the attention of the Delegated Powers Committee, chaired by the noble Lord, Lord Goodhart. It would have been far preferable if I had been able to come to the House with more detailed proposals, as I am sure the noble Lord, Lord Goodhart, will soon emphasise in debate on the matter, and I agree with many of the committee’s concerns about the wide scope of this provision.

I should have preferred to have been in a position to present for scrutiny to this House a detailed set of legislative provisions, rather than simply the powers outlined in the clauses. However, I have not been able to do so, and the noble Baroness, Lady Noakes, has tabled an amendment which seeks to implement the recommendation of the Delegated Powers Committee. She has proposed a sunset clause which provides that any regulations will cease to have effect after two years. I welcome the amendment because it gives me the chance to explain the Government’s purpose.

As I indicated, we respect the work of the Delegated Powers Committee and we have great difficulty when we are not in accord with it. However, a sunset clause would simply not work; worse, it might do even greater damage than if the Government took no action at all. The inclusion of a sunset clause of the sort proposed would have major policy implications, all of them totally undesirable. It would create legal uncertainty as to the type of insolvency procedure which would be applied to any client asset. If Firm A were to commit assets to Firm B under the new regulations, it would know that the regulations would expire in the very near future. It would therefore have no knowledge of the insolvency procedure that would be applied in future should the firm holding its assets fall into insolvency.

Firms would find it unacceptable to face that kind of major uncertainty over what would happen to their assets in the event of a default. They would have no way of accurately gauging their counterparty risk, and their potential exposure would most likely be a multiple of their equity capital. The House will recognise that this could result in a substantial increase in the cost of funding as firms’ creditworthiness declined as a result of the ambiguity that would arise. These cost and risk implications would almost certainly prove unacceptable to the great majority of financial firms for as long as other jurisdictions offered any form of legal certainty with regard to the recovery of assets.

Those are not just the views of the Government. We recently received a letter from the London Investment Banking Association, which indicated that there are grave concerns in the City with regard to this amendment. I start by pointing out that it was in response to concerns expressed by LIBA that the Government inserted the sunset provision in Clause 235(4), which provides for the lapse of the enabling powers if they have not been used after two years.

Perhaps I may quote from the letter that we received from the London Investment Banking Association:

“One of the points that we stressed at the outset was that a sunset clause should be included in the order-making power so as to make clear that the power would lapse if, in the event, it was determined that investment bank insolvency regulations were not needed. Our reason for this was that our Members considered it to be essential not to give the impression to counterparties that the UK framework is now in a permanent state of transition”.
 

We have addressed this concern with the provisions in Clause 235(4). However, LIBA goes on to note in respect of the noble Baroness’s amendment:

“Our concern about proposed paragraph (4A)—which would appear to require that any insolvency regulations made would automatically lapse (except in the case where they applied to an ongoing insolvency)—is that it would have the same result that we were trying to avoid. And since, under Clause 235(4), a sunset clause has been included requiring the 233 powers to lapse if they have not been exercised, we can see no advantage in including the paragraph that the amendment would introduce”.
 

Even if all these problems could somehow be avoided, the proposed sunset amendment could still cause harm. I have grave concerns about the effect on international perceptions of the predictability and dependability of UK law, which is one of the City of London’s key advantages, and the reputation of the UK as a financial services centre. That could lead to substantial damage to the City in a period when it is already facing serious challenges. I do not need to spell out the dangers for the UK economy more widely.

Even if these broad economic costs were acceptable, we should have regard to the potential implications for firms, including those that these provisions are intended to benefit. If we adopted a sunset clause as proposed, firms would be required to adapt to a new regime when the regulations laid under this Bill came into force and again when they are sunsetted, when firms would be required to adapt to whatever replaced them. This would increase the adaptation costs for investment firms. The Government’s objections to a sunset clause would, unfortunately, apply regardless of the time period attached to it, since the issue of legal uncertainty would continue to apply irrespective of the time horizon. Any proposals for a five-year, or even a 10-year, sunset clause would therefore also be subject to the grave difficulties I have described.

I say with regret that the Government feel strongly that the proposed sunset provision cannot be accepted. However, the Government are nevertheless committed to addressing the concerns of the Delegated Powers Committee and of the House. First, we are making changes to the scope of the provisions, as laid out in Amendments 28 and 29. The amendments are designed to reduce the extent of the order-making power provided for in Clauses 232 to 235. They limit the power in such a way that the Treasury may bring only institutions that already hold Financial Services and Markets Act Part IV permissions into the scope of any new insolvency regime. Noble Lords will be aware that firms to which the Financial Services Authority has granted FSMA Part IV permission are all authorised financial firms. In Committee, the noble Baroness, Lady Noakes, expressed particular concern about the breadth of the definition of investment banks included in the Government’s original provision on this point. This amendment seeks to address her concerns directly. As a result of the amendment, there is no possibility of the Government applying the regulations more widely than is necessary with regard to non-financial business, for example.

Secondly, in lieu of a sunset provision, we have also tabled amendments to ensure that this House and the other place shall have the opportunity to consider expert views on any regulations the Treasury may lay under these powers. I think it only right and proper that the Government take all possible steps to ensure appropriate scrutiny of these provisions. Therefore, Amendment 31 requires that within two years of the Treasury making any investment bank insolvency regulations, the Government must establish an independent review of any regulations that have been made. This review shall be independent, expert, and impartial. The review will consider whether the regulations have been effective in identifying, protecting and facilitating the return of client assets. It will look at whether, in drafting the regulations, the Treasury has paid due attention to protecting creditors’ rights and ensuring legal certainty for all relevant stakeholders: creditors, clients, administrators and the investment banks themselves. That is critically important, and we will ensure that the impact on the firms and persons who may be affected by the regulations is subject to full consideration.

17:15:00

The review will also consider how effective the regulation has been in minimising any disruption of business and the markets and maintaining the UK as a global centre for financial services. The review will produce a report which must be laid before this House and the other place, and noble Lords and Members of the other place can then determine whether they want to deliberate on its findings. The review may also consider whether it is appropriate for the regulations to stand or whether the Government should return to Parliament with necessary primary legislation. The reviewer, in his or her consideration of those matters, may feel it helpful to engage with noble Lords or Members of the other place, as well as insolvency experts and other market practitioners.

I hope that the establishment of that review will go some way to addressing the concerns identified by the Delegated Powers and Regulatory Reform Committee and of this House in earlier discussion of the Bill. In the current circumstances, I hope that the House can appreciate why the Government are unable on this occasion to proceed along the lines suggested by the committee and in the amendment tabled by the noble Baroness. I hope that the new provisions that the Government have proposed will alleviate the concerns raised; that I have justified the reasons for the Government's action; that the noble Baroness will feel able in due course to withdraw her amendment; and that the House will feel able to support the government amendments.

Baroness Noakes
My Lords, as the Minister explained, I tabled Amendment 30 in this group, which would implement the clear recommendation of the Delegated Powers and Regulatory Reform Committee. It stated that it would not normally have accepted such a power being put in legislation but that, exceptionally, if the House were convinced that such a power was necessary, it should be accompanied by full sunsetting: that is, of both the regulation-making power and the regulations themselves. That is what my Amendment 30 would do.

We must remember that this is highly complex law dealing with important issues of rights in insolvency. I am sure that the general feeling of the House is that the right way to scrutinise that is through primary legislation, because it is only through primary legislation that we have the opportunity to scrutinise on a line-by-line basis. As the Minister is aware, secondary legislation is fundamentally non-amendable.

Nevertheless, we have listened carefully to the arguments that the Government have made, and to the arguments that the London Investment Banking Association relayed to me in its letter of 6 February. I have taken the liberty of sharing that letter with the noble Lord, Lord Goodhart, because I was aware of his concern about the issue. I must say that I think that the difficulties about the uncertainty that would have been introduced have been overstated, and that it would have been possible within a two-year period to have had both a statutory instrument for the short-term and at the same time to have tracked legislation, subject to proper scrutiny, for the long-term.

However, in accepting the government amendments and welcoming the review—I genuinely welcome that review—I just remark that it places a great onus on the Government to carry out the most detailed consultation and to exercise their rights to propose such legislation very wisely. I think that it is unprecedented to produce such significant legislation by statutory instrument. The onus will clearly be on the Government to be careful in how they use the powers which the House has granted them without any complications of sunsetting. Once they have exercised their powers the review will be especially welcome, especially given the way that it is phrased.

On balance, and with a somewhat heavy heart, we are prepared to accept the government amendments and I will not be moving Amendment 30.

Lord Goodhart
My Lords, perhaps I may start with a very small point. The name of the company to which the Minister referred is not Layman Brothers but Lehman Brothers. I am in a position to know that because I am a member of the Lehman family. I have not declared an interest because my family ceased to have any involvement in Lehman Brothers some 25 or 30 years ago.

I can move on now to the serious business. It is a matter for the Delegated Powers Committee to advise your Lordships’ House on matters such as the question whether certain material should be on the face of the Bill rather than in the form of regulations. The Government are proposing here a potentially fundamental change in the law of insolvency as it relates to investment banks, and investment banks are a very important feature of our financial system. We could end up with investment banks being subject solely to regulations made by the Government—with parliamentary involvement, in the form of affirmative resolutions, but with no chance to amend them or seriously to debate them—while the whole of the rest of the economy will be subject to the very detailed provisions of the Insolvency Act.

The changes that the Government could make are, therefore, potentially fundamental; and not only are they fundamental, they are of a totally uncertain kind. I repeat the quote from “King Lear” which I gave at Report stage. The Government’s position is much the same as his when he said:

“I shall do such things … what they are yet I know not, but they shall be the terrors of the earth”.
 

It would certainly be normal practice to put legislation of this kind, in relation to investment banks, on to the face of the Bill. We accepted in Committee that there was a possibility that when a Government were in a position to decide what they wanted to do, they should be able to do it very quickly. We therefore accepted that there could well be a necessity for regulations to take effect quickly. But we saw no reason why this should be anything other than a temporary arrangement, and we considered that the regulations should be replaced as soon as possible by primary legislation which could, of course, be in exactly the same form as the regulations.

There would be no question of any additional uncertainty arising from this. Indeed, the uncertainty would be weakened rather than strengthened because the potential existence of a sunset clause would not affect any bank that became insolvent before the sunset clause came into effect. That is our view; we did not quite understand why such provision should be necessary. As it is, there will be a great deal of uncertainty anyway over the two-year stretch. The Government will be at liberty at any time to change the regulations with the benefit of an affirmative resolution. That would be substantially easier than changing primary legislation and the Government could—probably would and should—urgently introduce the necessary regulations and then follow them with primary legislation which would put the regulations on to the face of a statute. We believe that that would strengthen the certainty of the matter rather than weaken it, and that it would have been a much more effective way of dealing with this than what the Government now propose.

Therefore, in the circumstances, the committee had total agreement on the point. I still believe that it would have been more appropriate to accept what the noble Baroness, Lady Noakes, proposed: a totally unconditional sunset clause which came into effect in two years, but not requiring it to be left until the end of that two-year period; and either in the mean time or at the end of that period for the Government then to bring forward primary legislation that could have had a proper debate and would have ended up with the rules governing investment being in primary legislation in the same way as all other insolvencies are in legislation. That would have been better.

I am not in a position to move any amendments but I want to say, as I still believe, that it would have been better had the Government accepted the recommendations of the Delegated Powers Committee.

Lord Davies of Oldham
My Lords, I am grateful to both noble Lords for their responses, which reflect the seriousness of this issue. As I have indicated to the noble Lord, Lord Goodhart, the Government do not lightly pursue a course that they know is not in accord with the committee’s recommendations. He will, however, appreciate from the amendments that we have tabled that we have taken on board the thrust of the argument that underlay the recommendations his committee made. We have not followed them in quite the terms that he would have wished, but we clearly expect the review to produce an analysis of how these regulations are working. If the review says that the issue is significant enough for primary legislation, the Government will have to respond accordingly.

As I indicated in my opening remarks, we all appreciate the complexity of these issues—they are so complex for me that I cannot even pronounce “Lehman” accurately. I never suffer from the mispronunciation of my surname but I spend my life correcting its misspelling, so we all live with these difficulties. I apologise to the noble Lord if I got the name wrong. Far greater difficulties awaited me when I examined these issues at all stages of the Bill and at this point. I hope he will accept that in the Government’s approach to these matters we are all too aware of the anxieties that he has expressed and those of his committee, but we are also well aware of the significance of this for the banking community—for investment banks in particular, but for the City of London as a whole and its financial role.

Amendment 28 agreed to.

Amendment 29

Moved by

29: Clause 232, page 117, line 31, leave out “or (b)” and insert “, (aa) or (b)”

Amendment 29 agreed.

Clause 235: Regulations: procedure

Amendment 30 not moved.

Amendment 31

Moved by

31: After Clause 235, insert the following new Clause—
 “Review
 (1) The Treasury shall arrange for a review of the effect of any investment bank insolvency regulations.
 (2) The review must be completed during the period of 2 years beginning with the date on which the regulations come into force.
 (3) The Treasury shall appoint one or more persons to conduct the review; and a person appointed must have expertise in connection with the law of insolvency or financial services.
 (4) The review must consider, in particular—
 (a) how far the regulations are achieving the objectives specified in section 233(3), and(b) whether the regulations should continue to have effect.(5) The review must result in a report to the Treasury.
 (6) The Treasury shall lay a copy of the report before Parliament.
  (7) If a review recommends further reviews—
 (a) the Treasury may arrange for the further reviews, and(b) subsections (3) to (6) (and this subsection) shall apply to them.”

Amendment 31 agreed.

Bill passed and returned to the Commons with amendments.

EU Regional Policy (EUC Report)

Motion to Take Note

17:29:00

Moved By

Baroness Cohen of Pimlico
That this House takes note of the Report of the European Union Committee on the Future of EU Regional Policy (33rd Report, Session 2007-08, HL Paper 141).

Baroness Cohen of Pimlico
My Lords, I am pleased to have this opportunity to debate the report on the future of EU regional policy, produced in July by Sub-Committee A of the European Union Committee. Thanks are due to my committee, to my special adviser, Dr John McCombie, of Downing College, Cambridge, to my clerk, Simon Blackburn, who has now moved on to greater things than me, and the committee specialist, Petros Fassoulas.

I welcome my noble friend the Minister who may possibly not have thought that his maiden speech would be made on EU regional funding. I am sure that we will all welcome it cordially, even if he makes it in Welsh.

We produced this report in July and the Government responded in October, which is about the average speed. It was the product of our consideration of the EU budget for 2009. In fact, the delay in getting to this debate has worked to advantage. In the current financial and economic crisis, there is huge pressure on EU regional policy and sometimes it seems to me that not a week passes without us being required to scrutinise and pronounce on an EU proposal to extend, increase, widen and generally tweak some part of regional policy.

European regional policy is important to us all. In 2008, 36 per cent of the EU budget was spent on regional policy. The policy has its basis in Article 158 of the European treaty which states that the Community will aim to reduce,

“disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas”.

So economic cohesion—that is what it is—the idea that no part of the Community should drag very far behind the other, has been a policy consideration for the European Community for half a century. It has become increasingly important; it has risen from 17 per cent of the European Union budget in 1988 to 36 per cent today. If the Lisbon treaty is ratified, Article 3 will state that the Union,

“shall work for the sustainable development of Europe based on balanced economic growth and … shall promote economic, social and territorial cohesion, and solidarity among Member States”.

The aims are quite clear, but the administrative structures are extremely complex. There are three funds: the European regional development fund, which provides direct finance for companies, infrastructure and financial instruments; the European social fund, which finances projects to improve skills and access to employment; and the cohesion fund, which finances transport, energy and environment infrastructure projects.

Three objectives underlie those policies, which do not match perfectly the way the funds are divided. The first and most important policy is convergence, which takes 81.5 per cent of our spending on regional policy. It aims to speed convergence between regions and is aimed at the poorest regions. The second is regional competitiveness and employment, which takes 16 per cent of the spending, and strengthens competitiveness and the attractiveness of regions not eligible for convergence funds. The third is European territorial co-operation, which strengthens cross-border co-operation through joint projects, such as railways.

The question of who is eligible for these funds is not wholly straightforward. It is based on a measurement of gross domestic product per head, which has the advantage of being easily understood and widely used in international comparisons of standards of living. There is a very wide range between member states, a range which has widened with the most recent introductions, the poorest regions being found in Romania and Bulgaria, as I think we would expect. For example, the Nord Est region in Romania has an index of 24, as against Hamburg which is 202 or inner London which, when the report was written, was 303, although it may not be quite as high at the moment.

To be eligible for assistance from any of the regional funds, a region has to be below 75 per cent of the average index figure, or below 90 per cent for some. Other considerations also apply, such as relative prosperity, the number of employed and the number of jobs. When you add to these complications the fact that any money distributed is sensibly limited by a formula that takes into account the particular country’s or region’s ability to absorb the funds, you get the unsurprising result that there is no particularly clear relationship between the value of funds received per head and GDP per head. The result is that regions in some of the wealthier member states receive more funding per inhabitant than eligible regions in the poorer member states. To give an idea of how the indicative financial allocations for 2007 to 2013 work, Poland, as a very large, very poor country, will get around €60 billion, 19.4 per cent of the total funds for those years, and the UK will get 3.1 per cent of the funds, being much richer.

When thinking about all of this, we found ourselves able to agree not only with the previous report of the committee but also with the Government’s thinking. We were strongly in agreement with the aims of regional policy; we agreed that it was important to reduce disparities between regions by encouraging economic and knowledge transfer from richer to poorer regions. As economic development is not even, we supported intervention in the market to counter underemployment and the use of resources in the poorer regions. We were also glad to be able to agree that, along with these ideas, the funds had helped to reduce regional disparities across Europe. We were given the examples that of the four countries originally eligible for cohesion funds, Spain, Greece and Ireland had all seen above-average increases in GDP as a result, and with 15 out of 50 regions in the EU having a GDP below 75 per cent of the EU average, by 2004 12 of these regions had moved above 75 per cent. So it actually works. The committee also agreed, perhaps more controversially, that there was no need for an increase in the total size of the EU budget and any extra money for regional policy should be reallocated from other budget headings. We had our eyes very clearly on the budget heading covering the common agricultural policy.

Perhaps one of the most important conclusions is that we should change the way these funds are targeted. At present, about 20 per cent of the total regional policy budget is available to all regions, wherever they are. We concluded that funding should be concentrated in the poorest regions and reflect the principle of subsidiarity. This would result in a substantial loss of funding to richer member states, specifically to the United Kingdom. But the principle of subsidiarity—that action should be taken at European Union level only where it adds value to the reaction—can be used to justify richer member states taking responsibility for their own regional funding. Arguments against this conclusion, mostly deployed by the Commission, focused around the idea that regional policy should enhance member states’ co-operation and knowledge-sharing and that it was not acceptable to divide member states into donor and recipient countries. We saw the force of this argument but in the end we discarded it and we were very glad that the Government were able to endorse our conclusion, despite the fact that, on present distribution, an annual loss of £1.6 billion to the UK could be involved. However, in their response the Government said that this view depended rather on a rebalancing of the European budget generally, specifically rebalancing the funds allocated to the common agricultural policy. We were none the less glad that the Government were able to support our conclusion.

There are various other aspects of the report. I am sure everybody is familiar with the fact that, in many cases, member states cannot use their full funding. For this reason, all member states have an absorption cap based on their gross national income which limits the funds available to them by on average around 50 per cent. For example, the region of Lubelskie in Poland, from where we took evidence, was able to use only 80 per cent of its funds between 2004 and 2006. This led many witnesses to argue that increasing regional funding made available to member states, as we recommend, will not necessarily raise their economic performance. We found that much of this problem was caused by inexperienced fund management structures in new member states and that, to help remedy this, the older member states were advising newer member states on fund management, which the committee supports in its report. For instance, the Office for National Statistics has advised eastern European countries on the collection of statistics. This has particular relevance in the current economic downturn, as many are citing regional funding as a way to inject cash into the economy. However, as many member states are currently unable to spend their current allocation, it may be seen as counterproductive. Pumping money into a system that is unable to spend its current allocation will not achieve a proportional benefit in the economy. We hoped that member states would be able to catch up and train their people fairly quickly.

We also welcomed the integration of the funds with the Lisbon strategy for growth and jobs. Under the financial perspective 2007-2013, regional policy spending is linked with the Lisbon agenda, which means that money needs to be spent on competitiveness and employment objective spending. This enables member states to develop a more forward-thinking spending plan, linking spending on infrastructure with the development of employment, rather than just building roads.

The committee welcomes the approach of the Commission that one policy does not fit all. As such, it agrees that regions should continue to draw up their own regional spending plans, rather than policies being decided on a centralised basis.

We also agreed with the Government that spending should not be used other than to reduce regional disparities; for instance, it would be unwise to divert any spending to major issues such as climate change, which should be addressed on its own. This will help prevent projects funded by the funds conflicting with other European Union policies.

Since we wrote the report, there have been several other developments. In September 2007, the European Commission published the Fourth Report on Economic and Social Cohesion, which presented the basic data and key assumptions with a view to debating the future after 2013. As listed in the report, the EU will face new threats and important challenges such as population ageing, rising energy prices and immigration pressure. A concrete presentation of cohesion policy after 2014 is not expected until the fifth report on economic and social cohesion is published around 2010, but the committee will probably take a look at it at that stage.

The debate on the future reform of cohesion policy appears to revolve on two different views: on the one hand, that cohesion policy needs to keep its traditional role of reducing disparities and ensuring convergence for regions; on the other hand, that the priorities of cohesion policy should closely be linked to the Lisbon agenda and that improving competitiveness and innovation must be the main objective for future cohesion policy. The most important debate is coming up in the budget review 2009, which provides the opportunity to recommend an overhaul of the budget and the possibility of reforming the CAP and reducing the funds that richer members receive. We look forward to that debate.

17:43:00

Lord Trimble
My Lords, the noble Baroness, Lady Cohen, said that the most significant recommendation in our committee’s report is that regional policy should concentrate on the poorer areas. The implication of that is that the convergence objective alone should be pursued, with the so-called competitiveness objective no longer existing, because, while an objective of competitiveness might seem attractive, it is simply a means of spending some money under regional policy in all the areas of the Union where the GDP is above 75 per cent. I would suggest that “competitiveness” is put there as an attractive label; the real purpose is to have some money going to the areas that are not poor. This is irrational; it would be much better to focus purely on the poorer areas.

I have a little anecdote which I shared with the committee and which I propose to share with the House, relating to my time as First Minister in Northern Ireland. When I was talking about regional policy with a senior official from our finance department, he observed that regional policy was sometimes more trouble than it was worth. That might seem to be a strange comment, but it is not. The money that, notionally, is spent by various agencies and regions in the United Kingdom under regional policy does not go directly to them from the European Union. European Union money goes to the United Kingdom. My interlocutor told me that the Northern Ireland Department of Finance then found that it was under pressure from the Treasury to arrange its capital expenditure in such a way that would draw down the largest amount of regional policy money. This meant that its capital expenditure programmes did not prioritise, and were not based solely on, what the department thought were the key priorities for Northern Ireland. Those priorities were distorted to increase the amount of money that was drawn down. He found that a disadvantage. To this disadvantage is added the fact that money has to be provided to match the money that comes from the regional fund. There is always an element of matching, which varies from around 50 per cent to 85 per cent, depending on the circumstances. Matching money has to come in, which can also be a problem in running regional policy.

This is reinforced by a story in today’s Financial Times. It reports that the Treasury has decided not to draw down some £671 million of EU money under regional funding. This applies only to regional funding that would have been for England. The Treasury has decided to take up the option for the devolved regions, so sums of money will go to them, ranging from £60 million for Wales to £25 million for Northern Ireland. However, the £671 million for England is not being drawn down. This may seem as though it is a loss for the Treasury and for England, but the unspent money will instead be recouped by the Treasury, which can deduct it from future contributions to the European Union budget.

It seems that the Treasury has repatriated to itself this aspect of regional funding and regional fund policy. Instead of being spent on projects that come within the definition of the regional fund and are approved by Brussels, that £671 million will now be available to the Treasury to spend as it chooses. It may mean that it is not spent on the sort of developments that the regional fund is promoting, but is spent elsewhere. No doubt people will pursue that matter. It reinforces my earlier point that regional fund money is not always as desirable as one might think.

If the policy change that we have suggested is followed, the cut-off figure of 75 per cent of GDP will become crucial in the operation of the regional fund. Incidentally, we accept the figure of 75 per cent of GDP. It could be argued that some other criteria could be used, but a criterion, whatever it is, has to be adopted and that one has been used throughout on this. If it becomes the sole criterion, there will be greater pressure—or, at least, greater focus—on the consequences of coming above or below that 75 per cent figure. We think that there should be greater concern about, or focus on, transitional arrangements.

There are two elements for the regional policy as it operates in the current phase, from 2007 to 2013. One is phasing out and the other is phasing in. Phasing in relates to those regions to which the noble Baroness, Lady Cohen, referred, which are now above 75 per cent of GDP and are no longer entitled to European fund money under the convergence criteria. There is an expenditure on those areas of 3.4 per cent of the total budget. These areas have over 75 per cent of the GDP figure for the 15 member states that were in the Union at the beginning of the period.

If the threshold had remained at 75 per cent of the EU 15 GDP, a further group of regions, the so-called phasing out ones, would have qualified by being below that figure, but, because of the enlargement of the European Union to 25 countries, and those countries being generally poor, the 75 per cent figure has gone down. Therefore, these countries find themselves over the new 75 per cent figure, but they would have been below the old 75 per cent figure. Consequently, they are getting transitional support under the heading of phasing out, and 4.1 per cent of the budget is spent on them.

The point that occurs to us is that there would need to be some arrangement for transitional relief or support, if one prefers that term, for the next financial period, which is 2014 to 2020. I observe, parenthetically, that in the previous period, that between 2000 and 2006, my recollection is that there was transitional relief. My recollection is that Northern Ireland had been below 75 per cent before that period but had gone over 75 per cent and so was no longer entitled to what was then called Objective 1 status, and did receive quite generous transitional relief during the period 2000 to 2006. Currently there is no provision with regard to the financial perspective from 2014 to 2020.

The Government’s response to our report did not really clarify their position with regard to this matter. Consequently, the noble Lord, Lord Grenfell, the chairman of the Select Committee, wrote to the Government. They replied in November 2008 by letter from Mr Pat McFadden. As regards the changes that one would like to see in regional policy, he said:

“We also acknowledged that the consequences of significant changes to funding patterns would need to be considered. This would include what the shape of appropriate transitional arrangements would be. However, those arrangements would have to be considered within the context of the available EU Budget resources and priorities that had been agreed”.
 

One welcomes the fact that the Government see that there is a need for transitional arrangements. That would have to be negotiated within the new budgetary arrangements.

Regional policy involves particular areas within member states. The classification of those areas comes from something that rejoices in the name of NUTS—the NUTS regional classification. It stands for the nomenclature of territorial units for statistics. Within this classification, there are various levels, NUTS1, NUTS2 and NUTS3. Regional policy is classified as NUTS2. By way of illustration, the United Kingdom has 12 NUTS1 regions, 37 NUTS2 regions and 133 NUTS3 regions.

There are some problems with regard to the operation of these regions. One is that there can be pockets of deprivation within an otherwise wealthy region. For example, Hastings and Thanet were cited as examples of urban deprivation in an otherwise wealthy NUTS2 region. The NUTS2 region is the south-east of England. Both are also relatively poorer than their NUTS3 regions, which are East Sussex County Council and Kent County Council respectively. Consequently, moving from a NUTS2 to a NUTS3 region would not help in that situation.

Another problem drawn to our attention is that the classification can be misleading where people have their homes in one area but work outside that area. This effect becomes quite significant in the environs of wealthy cities. People live in the countryside but work in the city, so the wealth that they produce is attributed to the city and not to the surrounding territory in which they live. Apparently that is particularly marked for the area south of Hamburg, which is in a “phasing-out area”, if I have caught that right. It would be very good if better methods could be developed for measuring the prosperity of a region, so that regions could be defined in such a way that we could have greater targeting of regional development expenditure.

Clearly, regional policy is a major policy in the European Union. Expenditure on it has been growing and is likely to continue to grow as a proportion of the overall budget, particularly in so far as reform takes place elsewhere—I refer, of course, to reform of the CAP. The work of this policy will become more important in the future.

17:55:00

Lord Teverson
My Lords, I first came into contact with European regional policy in 1994. One of the big challenges is understanding anything about it, what with the nomenclature, the acronyms and the things that you expect to mean one thing that actually mean something completely different.

In 1994, when the 1994-99 programme started, there were Objective 1, Objective 2 and Objective 3, which was in two parts, one national and one regional. There was Objective 4, which I do not think anybody understood and which did not apply to the United Kingdom. There was Objective 5A, which was national, and Objective 5B, which was regional. That was divided into the European Social Fund, the regional development fund ERDF, and EAGGF, which was the regional part of the agricultural programme, but not all the agricultural programme. Once we had got used to that, there were the community initiatives, of which there were about 20 at the time, and for which they invented great names. Pesca covered fishing, but had nothing to do with FIFG, which was the common fisheries policy part of regional development. There were also Leader 1, Leader 2, Urban—which was urban—and 18 others.

I am pleased to say that, through two more seven-year periods, we have managed to rationalise these down to just the cohesion programme for whole member states, the structural funding that is known as convergence instead of Objective 1, and competition, which was similar to Objective 2. However, it is now difficult to understand where the agricultural part fits. In the statistics, we read that regional funding is something like 36 per cent of the EU budget and agriculture is 47 per cent, but this does not explain where the agricultural part of regional policy lies. I would be interested to have this clarified by the Minister, who I am sure is completely up to speed on these matters.

I congratulate the Committee because, as well as understanding these issues, it called as a witness Mr Graham Meadows. He was a great friend of the United Kingdom in the Commission when he headed up the DG Regio, a particular friend to Cornwall in the south-west and also to various initiatives in Ireland, to which he was very committed.

“Should all of this exist?” is the question in my mind. I strongly favour these funds, but should they be a part of the European programme, or should they be pushed down as part of subsidiarity? That is an important question that the report looked at. The logic is good: there was the Single European Act and the single market, which was expected, through market forces, to make regional differences even more pronounced. The two fit well together; they showed that cohesion funds were important for all member states and for European monetary union.

What sprung out at me from the report were the variations in the GDP levels of different regions. Seeing the figure for Nord-Est in Romania of 24 per cent of EU GDP was staggering. However much you might be committed to total subsidiarity and repatriation as a member state, there is no way that the European Union should not be involved in trying to help that degree of disparity between different regions.

The other particularly important area for me is that regional policy should work. It can be very important; it does not always work, but it gives regions a chance to get it to work. We have seen that regarding cohesion policy in the Republic of Ireland; one of the league tables in the report shows that it has a GDP per head second only to Luxembourg, yet it was originally one of the poorest member states, certainly under EU12. Regarding Cornwall, where I live, the witness, Graham Meadows, states in the report that there was a point at which the region was able to use an important part of funding, although not a huge part of the county’s GDP, as a hook to start development, new thinking and getting together.

A good thing about regional policy in the European Union is that it produces a reasonably independent view of which regions need assistance and which do not. In the past in the UK there has been a far more political agenda—the noble Lord, Lord Woolmer, will probably disagree—whereby the north has been looked after and some of the poor bits of the south have been forgotten. Not until Cornwall became an Objective 1 region was it recognised within the United Kingdom as requiring help.

Is the NUTS system completely objective? It is to a degree; there are a lot of question marks regarding the GDP measure, but it is stated in the legislation that regions are in if they are under 75 per cent, but if they are over 75 per cent they are out. That is very objective. Of course, that does not recognise—perhaps it is not mentioned in the report—all the lobbying that goes into changing the boundaries and how a lot of regions in the UK lobbied really hard, not for Objectives 1 or 2 or convergence funding, but to change the NUTS2 boundaries, whereby NUTS3 regions could be reclassified as NUTS2.

The system also provides seven years of certainty; very few national programmes are able to do that in this country or elsewhere. That is a big plus for regional planning, although obviously in non eurozone states, such as the UK, you do not know what the exchange rate will do; therefore your funding increases and decreases. One thing that is particularly impressive in the UK, although it is true of other member states, is that the system forces partnerships, not just between national and regional government, but between private- sector organisations and many third-sector organisations, which come together to decide how the programmes will work. That factor was not there previously. The partnerships work around real money and real programmes, and they can be very effective. That is true of co-funding as well.

The system also gives a much broader perspective to European regions which often, perhaps, do not think more broadly. Hence, there is an ability to innovate; certain schemes which have worked in some member states are able to work in others. There is a sharing of experience. One of those schemes, which is mentioned in the report, is the provision of revolving funds, rather than grants, in terms of financial assistance to the private sector. That idea was innovated in Merseyside and has been used as a model right across Europe; it has been imitated particularly by the European Investment Fund. That is important, and I wish to come back to that issue in my questions to the Minister.

Concentration is also good, as is the fact that 82 per cent of these funds go into particular convergence areas. That gives many of those regions a basis for hope that their problems are understood, that a much broader Europe recognises that they have issues that need to be solved and that there are real resources there to help. It will not be the full solution, but at least if the regions want to make the most of it, there is a set period of seven years in which that will happen.

What are the bad things? I cannot see that the competitive area, at 16 per cent, covering more or less the rest of the European Union, can work. There is still some question about whether additionality happens. That is one of the words that I had to learn when I first got involved in this area—the idea that national governments should not start taking away money when European money comes in. Then there is the area of underspend. Although I understand that the EU put on these very clever capacity caps, I presume that that is a political argument for making sure that new member states did not get a much larger area, so the EU budget overall could take the capacity.

In the evidence, a Commission witness said that a senior bureaucrat from one region said that he hoped that his campaign for Objective 1 did not succeed because they did not have the capacity for it. He might have thought that but he was wrong. That region took on the challenge and was successful, so even some people who are involved do not always realise that.

Time-consuming bureaucracy, also mentioned in the report, is a real problem. Lots of bureaucracy does not mean that the control is any better. In this area it often means that the control is worse. The biggest problem within the UK programmes is not the bureaucracy of filling in forms but the inability of bureaucrats to make decisions. They would rather not make a decision; they justify that by asking more questions, when really the answer is, or should be, no, but they do not want to say so. The real challenge is to ensure transparent decision-making, honesty, and that decisions are made in reasonable time.

The biggest condemnation, from a practical point of view, is of the funding gaps between these programmes. Because they last for seven years, we know when they are going to end. We know that the 2007-13 programme will end on 31 December 2013. For those regions that are carrying on—we have figures reasonably far ahead for the ones that do not—we expect some continuity and reasonable planning. However, there are large gaps. Much of the convergence programme money and projects are starting to be approved only now, when the money—or certainly the project approval—ended at the end of 2006. Therefore, will there be greater planning by the Commission and the Government for these gaps so that good programmes do not die between one ending and the next one being approved, with the loss of all skilled staff and the things that result in a lack of continuity?

I notice that the Government did not respond to the important question of revolving funds. Are they in favour of continuing revolving funds within the structural funding? They have set up a number of organisations in Objective 1 regions. Yet, interestingly, the money being made available through the EIB or EIF into helping SMEs is not being channelled by the Government through their own organisations. They are putting it through the banks. Will they reconsider that? Will they, as they did the last time, try to renationalise the funds the next time these programmes are considered?

Decision-making bodies have moved from government offices to regional development agencies. In the previous programme, finally, the government offices were pretty good at implementing the programmes, although they were not previously. Then we change bureaucracies and, again, there is a slow-up. I should be interested in the Minister’s view as to whether the RDAs are starting to perform rather better than they did at the beginning of the programme to get these funds moving and into the places that can use them.

My final question is one raised by the noble Lord, Lord Trimble. Will the Government resist the temptation of repatriating the tranches of money and putting them back into the Treasury?

This is an excellent report. It raises a lot of questions but I hope that this round of regional policy, will move from strength to strength.

18:09:00

Lord Woolmer of Leeds
My Lords, I congratulate my noble friend Lady Cohen on securing the debate and on chairing the committee so admirably through the inquiry and the production of the report. I also congratulate the noble Lord, Lord Teverson, on the enthusiasm that he brought to acronyms and linking past programmes to present ones. If people view this debate, they will be full of admiration not only for the enthusiasm with which he embraced all that but for the deep experience that he brought to the subject. I, for one, learnt a number of things from his contribution.

Like many Members of the House, I am pleased that, at the start of its report, the committee sets out with clarity what the various funds and objectives are and what they mean for the different countries of Europe, including our own. In the United Kingdom, only Cornwall and the Isles of Scilly, the Welsh valleys and west Wales are full members of the convergence funding programme. The highlands, Merseyside and South Yorkshire are at various stages of phasing in and phasing out. Therefore, we are talking about only a limited number of areas of the United Kingdom where this remains a live issue. However, I agree with the noble Lord, Lord Teverson, that these programmes have been enormously important, not only in Yorkshire, where I live, but in Cornwall and other parts of the country.

In his evidence, the current director-general of regional policy, Mr Ahner, reminded us that convergence policy and regional policy are not just about levelling up and getting rid of great inequalities. In parts of Europe, more than in the UK, people have a deep sense of wishing to avoid the domination of the European Union by a small number of powerful conurbations and centres of influence. That desire to do more than just level up and get rid of the great inequalities and to have policies that strengthen the whole of Europe and not just two or three heartland areas is never captured in any discussion in the UK about how European regional policy is seen elsewhere in Europe.

These objectives are ambitious, but we should keep in mind the fact that the total amount of European funding devoted to all this is around a third of 1 per cent of the gross national product of the European Union. To keep things in proportion when we talk with enthusiasm about these things, we must remember that what can be achieved through these programmes is modest, although not insignificant, compared to what Governments in member states can and should be doing to address the same issues. It is easy to get carried away with what these policies will achieve across the whole of Europe, given that the funds amount to only a third of 1 per cent of gross national product.

I was struck many times by the enormous number—276, I think—of regions and subregions, of which 70 receive assistance through these programmes. There is an enormous amount of detail and almost micromanagement at the European level. There is a question mark over this, on which I shall comment when I speak about Yorkshire. We should also remember that the European Union funds provide match funding. There has to be match funding as well as European funding. It is not just a question of money coming out of Europe; the various agencies have to work to get match funding. In general, I would not overestimate what can be achieved across the whole of Europe on these funds, important though they are for some parts of our own country. I do not say that these are insignificant. For example, in South Yorkshire, in the past six-year or seven-year programme, around €1 billion was received from European regional funding programmes. That did have a real effect. In the past seven or eight years, the centre of Sheffield has been transformed, recast and regenerated. Overwhelmingly, that has been sparked off by European funding. Although I express a word of caution about the effect that one third of 1 per cent of national income can achieve across the whole of Europe, where it is concentrated on significant projects, as opposed to spread over too many projects—the point I think the noble Lord, Lord Teverson, was getting at, saying no much more firmly and earlier—then it can make a difference.

In the next seven-year programme, the regional development agency is concentrating on a major project to bring high-speed broadband to the whole of South Yorkshire. That would be truly important and helpful. So I accept that there is a limit to what can be achieved in these programmes but where it is concentrated it can make a substantial difference.

In considering whether these funds should continue throughout the whole of Europe, the committee came to the view that where funds are in support of not levelling up but general competitiveness, as opposed to convergence, richer countries such as the United Kingdom should not receive those funds. The Government, in response, confirmed their position. Not only did they agree with that, but they felt that, in principle, they would be willing not to have any regional funding coming to the United Kingdom and that should apply to all the richer countries. The committee, in a previous inquiry and report, had come to a similar conclusion.

I agree with that but there are one or two provisos. First, what that is really saying is that it should be for those richer countries that can afford it, such as the United Kingdom, Germany and so on, to decide whether they want to have a regional policy. It is for the Government, political parties and the electorate to decide whether a strong regional policy is a priority. If the Government were to withdraw from regional funding from Europe but did not replace those funds by having strong regional policies, there would be a pretty adverse reaction in Yorkshire, Merseyside, Cornwall, the Highlands and so on. I want to hear from the Minister that the policy of being willing to negotiate over the future of regional funding coming into the United Kingdom would not mean a weakening of resolve of regional policy in the United Kingdom.

Secondly, as the noble Lord, Lord Teverson, said, there is a great deal of value in the European approach of seven-year programmes. It provides a certainty and continuity that is lacking in UK government funded programmes. I should be most grateful if the Minister would reflect on that and say whether, in looking ahead, the Government see some merits in longer-term certainty in regional funding programmes and acknowledge that this is a merit of the seven-year approach in Europe. Does he see that being replaced in the UK?

I should like to comment on the article in the Financial Times to which the noble Lord, Lord Trimble, referred. It states that some £670 million will have been underspent in the English regions in the 2000-06 programmes, which actually ended at the end of last year for the spillover period. The Government have decided not to ask for an extension period for English regions, although they have supported an extension period for Wales, Northern Ireland and Scotland. It would be extremely interesting to know what the difference is—that is, why the Government have decided not to press for an extension in the English regions but have supported an extension elsewhere in the United Kingdom. What is the Government’s view of the apparent underspend of some £600 million or £700 million in English regions over that period, which I work out to be about 12 per cent of available European Union funding programmes? Secondly, it seems that something is awry when there is no apparent capacity problem, although there is an absorption problem, in England. Why has there been such an underspend in English regions?

I turn to two other matters. One is the greater use of loans. I endorse all that the noble Lord, Lord Teverson, said on this; it is an important issue. When Graham Meadows, the former director-general referred to by the noble Lord, Lord Teverson, met the committee, he remarked that in 1989, when he was overseeing German regional development programmes in the European Union, he found that Marshall aid programmes were still going in revolving loan schemes. He was struck by the fact that targeted loan schemes can provide an ongoing contribution to economic development and so on long after the initial grants have emerged on the scene. That was a powerful reminder of the value of loan schemes. In their response to our report, the Government told us that they are actively promoting the use of loans as an alternative to grants. I hope that the Minister will be able to tell us more. They said that several UK European regional development fund programmes in the next period, 2007-13, will set aside some of the allocation to loan funds. It would be helpful to have additional detail on that.

I turn to the question of the cost of administration. Some critics of European regional policies have alleged that they involve huge administrative costs. One witness to the committee, Open Europe, suggested in written evidence that the cost of administering European regional funds in the UK totals some £670 million a year, which is more than 4 per cent of the funds available. As noble Lords would expect, the committee looked at that with care, because it would obviously be a substantial apparent waste of taxpayers’ money. The Government’s estimate of the cost to central government of administering these programmes is £28 million a year out of the total UK allocation of European funds of £1.5 billion. The regional development agencies told us in written evidence that the annual cost to English RDAs is around £11 million. Therefore, including the figures for the Welsh and Scottish RDAs and so on, the official data indicate that the total administrative costs to the public sector are no more than £40 million to £50 million, as opposed to the very much larger figure of £670 million suggested to us by Open Europe. The official data indicate a cost of about one-third of 1 per cent.

The committee accepted that administration in the UK is not a significant cost or burden when compared with total funds. However, that is not to say that there are no issues. Administration, bureaucracy and delays impact on private sector applicants for funds. In my experience, there are bureaucracies and unnecessary delays. Again, I endorse what the noble Lord, Lord Teverson, said about the need for a much clearer decision-making process and the need to be much firmer and to say no earlier. I would also suggest that too many small schemes are encouraged, whereas it would be better to concentrate on significant schemes that make a real difference.

Finally, there is tension between the need for audit control and the burdensome administration that it can produce. A number of our witnesses, including the director-general, commented that the audit requirements on UK regional programmes involving European funds are much more onerous than our internal public expenditure audits. There is something awry here, and the Commission issued a general invitation to applicants from the private sector as well as the public sector to give evidence on where there is unnecessary bureaucracy and administrative costs. I hope that that challenge will be taken up as a result of this debate and the report. There are unnecessary costs and bureaucracy. They are not significant in proportional terms, but if you are caught up in them, they are terribly frustrating and put people off applying. It would be a great shame if good projects were put off for that reason.

18:26:00

Lord Steinberg
My Lords, in this important debate, it is very difficult to try and encompass all aspects of EU regional policy. The noble Baroness, Lady Cohen, gave a very fine speech covering the main points, and it is appropriate to compliment her on the running of European Sub-Committee A, of which she is the chairman and I am a lowly committee member. I also compliment the noble Lord, Lord Woolmer, who is also on the committee, and my noble friend Lord Trimble. I was also enthused by what the noble Lord, Lord Teverson, said from an earlier date. I look forward to the maiden speech by the noble Lord, Lord Davies, and hope that he will answer the wide-ranging questions asked by earlier speakers. He will be relieved that I will not ask him any questions.

The European economic recovery plan takes account of the recent financial market turmoil and tries to take in the structural and cohesion funds with a view to supporting the real economy. They are anchored in the stability and growth pact and the Lisbon strategy for growth and jobs. Sub-Committee A scrutinised that document at its meeting on 13 January 2009. In its communication entitled Cohesion Policy Investing in the Real Economy, the Commission proposed a set of legislative and non-legislative measures to strengthen the cohesion policy's contribution to the economy. This is in the light of the current situation with the ultimate objective of accelerating payments to member states and facilitating access to the structural funds and other cohesion policy instruments.

The EU cohesion policy is the largest source of investment in the real economy and provides a stable and targeted source of financing that can be used to stimulate recovery in the present climate. One thing about speaking fifth in a debate is that previous speakers have already mentioned that the cohesion policy represents about a third of the EU budget. It amounts to—I do not think I heard this figure correctly and will be corrected if I am wrong—€347 billion for the period 2007 to 2013.

More than 65 per cent—or €230 billion, if my arithmetic is correct—of those funds are earmarked for investment in the four priority areas in the EU's renewed Lisbon strategy. Number one is people; number two is business; number three is infrastructure and energy; and number four is research and innovation. Under those headings, the communication structures specific recommendations on how to make a preferred use of cohesion policy instruments under the current economic circumstances.

Some of the ways in which those funds can be disbursed and allocated have been considered, and the acceleration of payments of fund allocations have already been earmarked for specific regions. That will not lead to any overall increase in the budget, but it is intended to lead to an injection of cash into the economy. It also provides for broader use of flat rates and lump-sum costs to enable most authorities to implement projects at a faster rate. It will also extend certain funds to allow greater eligibility for rich member states to use them to fund energy efficiency and housing. The richer countries include France and Germany, and the poorer countries include Romania, Bulgaria and Greece. The United Kingdom fits in somewhere between, but opinions vary as to our position in the league table.

The overwhelming objective is to accelerate payments to member states and to facilitate action through the structural funds and other cohesion policy instruments. Amendments to the European regional development funds to support investments in energy efficiency and renewable energy in housing in favour of low-income households in all member states is within the framework of all state aid schemes.

The noble Lord, Lord Teverson, will be pleased to hear another acronym. He mentioned several, but I have a couple more. It is a common complaint about the European Union that its regulatory provisions are overly complicated. Part of the plans are to simplify the financial engineering instruments, such as—wait for it—the Joint European Support for Sustainable Investment in City Areas, known by the lovely women's name of JESSICA. From 2009, an increase of 25 per cent is proposed for the technical assistance capacity of—here is another—the Joint Assistance in Supporting Projects in European Regions, JASPERs, which sounds more like the name of a nightclub. That initiative will help new member states to develop infrastructure projects. There is a case to be made that only poor countries should benefit, but there is always an argument that money should be distributed fairly and reasonably, helping as many countries as possible.

The British Government are anxious to retain the focus on the Lisbon strategy for jobs and growth, although one must say that this objective, worthy though it is, will not produce much in the current climate while the future is so uncertain. I hope that those few comments, complicated as they may seem, show a desire by the EU to improve the economic plight of weak countries, now and in future. Only time will tell whether those objectives will be achieved. Thank you for listening to me and I just hope that you do not meet JESSICA very soon and do not take her to JASPERs nightclub.

18:35:00

Lord Watson of Richmond
My Lords, we will do neither.

I associate myself with the compliment of the noble Lord, Lord Steinberg, to the noble Baroness, Lady Cohen, on her chairmanship of Sub-Committee A. She has brought firmness and clarity to the chairing of that sub-committee and Tuesday mornings are a rare pleasure as a consequence.

When the Economic and Financial Affairs, and International Trade Sub-Committee, to give it its full title, took evidence for this report in the early months of 2008, of course the economy of the European Union—its finances and trade—was very different from now. I agree with the noble Baroness, who pointed out at the start of her speech how the context for regional policy has dramatically altered during the period of this report and the Government’s response. As we all know, the truth today is that the European Union is in the grip of recession and, indeed, some people would say, I am afraid, that it is teetering on the brink of depression. Industrial production in the biggest economy of the European Union, Germany, has fallen quite significantly in the last quarter; central and eastern European countries are all under growing pressure, and they are, of course, the principal recipients of much of the regional aid; the euro currency has fallen from its all time high against the dollar; and, of course, as you might expect, in Paris and in London , President Sarkozy and the Prime Minister are both claiming that their solutions are better than the other’s, while a somewhat sceptical public on both sides of the Channel brace themselves for something worse. It is a rather unedifying picture. The future looks bleaker than 12 months ago when our sub-committee put together this report.

I have two questions. First, how relevant a future does the European Union regional policy have in the context of this recession, which we must expect will last at least for the remainder of this year and possibly for all of next year as well? Secondly, how do our recommendations and the Government’s response hold up in the light of these developments?

Some very important statistics have been given in the debate and I want to return to a few of them. In absolute terms, structural funds—which is the name that links the Social Fund, the European Regional Development Fund and the European Cohesion Fund, the so called triumvirate—equal 36 per cent of the European budget. That is an interesting figure because it has risen while the percentage on the common agricultural policy has fallen. The Government clearly see a balance—to which I shall come later—between the future of the agricultural policy and the future of the regional policy and, in response to our sub-committee’s recommendation, they have made that concept explicit. That is quite important.

Article 1.58 is the original article behind European Union regional funding and it is worth reminding ourselves of the objective specified in that article. It is:

“to reduce disparities between the levels of development of the various regions”.

The Lisbon treaty speaks of a slightly more elaborate objective of,

“promoting economic, social and territorial cohesion and solidarity among member states”.

I want to share with the House a recollection of the meaning of the word “solidarity” in European Union parlance; it is rather specific. Some years ago, at the behest of the late Lord Jenkins, I participated in a committee chaired by Jacques Delors to identify a motto for Europe and possibly even a motto for the currency. One proposal much favoured by Jacques Delors was quite snappy: “Europe, the future: science, development, progress and solidarity”—the kind of thing that trips off the tongue easily and would look very good on the coinage. It was thrown out mainly as a result of an intervention by a German MEP who said, “Solidarity? We Germans know what solidarity means; it means what you want and what we pay for”. “Solidarity” fell, I am afraid, and we ended up with “Unity and diversity”, which has at least the benefit of ambiguity, I suppose.

The truth is that, faced with recession, too much diversity in the European Union is not going to be very helpful. On the test of solidarity, against the stated aims of EU regional policy that I have quoted, there is indeed some evidence of progress but not very much. In recent years, I remind the House, EU enlargement has involved Latvia, Poland, Lithuania, Slovakia, Estonia, Hungary, the Czech Republic, Malta, Slovenia and Cyprus. That enlargement took place in 2004, Bulgaria and Romania in 2007. The point has already been made in this debate that the poorest regions of all are indeed in the east of Romania. They make for a rather shocking figure: below one-third of the average GDP per head in the European Union.

The point is this: during the period 2004-07, the dates of enlargement, the policy that has as its main objective the reduction of disparity has risen by only two percentage points within the EU budget. By 2013, the end of the phasing of the present policies, the figure will be 38.1 per cent, compared with 43 per cent on the common agricultural policy, which, incidentally, will have come down from 47 per cent. But, as has already been pointed out, the total EU budget is, and will be in 2013, less than one per cent—so we are talking about one-third of 1 per cent. The figure is not insignificant. In certain areas—we have heard of some of them tonight—it can be relatively dramatic and  indeed visually evident. The truth, though, is that in overall budgetary terms these are relatively small figures and we cannot expect too much from them.

The European Union, the Council of Ministers and indeed Her Majesty’s Government have placed their trust for the achievement of the diminution of disparity between rich and poor in the future of Lisbon. In their Government’s response to the committee’s report they say they believe that the economic and social disparities across the European Union can best be tackled by focusing on the drivers of growth set out in the Lisbon integrated guidelines. Let us remind ourselves what they are. As relaunched in 2005, the guidelines are to increase European Union public and private investment in research and development to 3 per cent of GDP, and to secure 70 per cent employment rates by 2010. Given this recessionary context, the likelihood of either of those objectives being achieved in Lisbon is marginal and to rest our hope on that is, frankly, a cop-out—that is really what it boils down to. We have to be realistic about this.

I come back to my first question: how relevant a future has European Union regional policy got, given this recession? As that policy is constituted at present, and given its dependence for its achievement on Lisbon, the answer is: not very much. That does not mean it is not important, but it is not very much.

What about our proposals and the Government’s response? Again, the answers are rather uncertain. I have already referred to the uncertainty about Lisbon, but there are some positive things. I thought the clarity of the Government’s response on the move from grants and loans is absolutely right; it is clearly on the record and it is where we should all be going. Most controversially, the Government picked up our proposal, or suggestion, that the distribution of EU funds within net contributing states, which includes the United Kingdom, should give way in favour of focusing on the European Union’s poorest regions—in other words, solidarity. That is clearly right and fair and, dare I say, even somewhat noble.

I remember in our committee the noble Lord, Lord Kerr, pointing out that one would have to be very careful about how this is expressed if one does not wish to invite a headline in the Mail on Sunday accusing Her Majesty’s Government of allowing this country to be robbed. Earlier, the Minister was asked why we are forgoing the £700 million for England—I think that was the question. I look forward to the answer as I look forward, very warmly indeed, to his maiden speech. The noble Lord, Lord Davies of Abersoch, has demonstrated alacrity in his career in the House of Lords, which must be the envy of everyone.

If we and the other net contributors are to forgo, in effect, the moneys which might otherwise be distributed as a result of these policies, the way in which that is expressed and explained will have to be very clear; otherwise it will invite a knee-jerk response: why are we not getting more out of it? One will have to deal with that. The answer is not simple; the answer is in the future tense about a concession made in the present tense; namely, we hope that the funding of the CAP will be further reduced and we hope that the balance of spending within the European Union will be refocused. I totally agree with that, but how it is expressed will be important.

As we took evidence in the first half of last year, members of the committee had the strong feeling that this was an extremely important area and that the objective which the European Union had set itself, which is not overtly a redistributionist objective but, nevertheless, is one which has a commitment to fairness as regards the attack on disparities of wealth, growth and economic development, was very important. However, the actual scale of the budgets concerned was such that the real balance of impact was always going to be, first, with national policies for regional development and, secondly, that the enlargement of the European Union—the most dramatic development of the European Union of recent decades—is not really reflected in the commitments of regional policy. So the time will come, particularly if the recession severely damages or distorts growth prospects in the new member states, when that will have to be revisited.

18:49:00

Lord De Mauley
My Lords, I join other noble Lords in thanking the noble Baroness, Lady Cohen of Pimlico, for initiating this debate. I congratulate her on her sub-committee’s report, which is well researched and full of interesting and very important information. Before I talk further about this and EU regional policy, I hope that your Lordships and the noble Baroness, Lady Cohen, in particular, will forgive me if I devote a few words to welcoming the Minister. Fortunately, I have a sound basis for doing so, as I worked for him for several years in the 1990s when I ran Standard Chartered’s merchant bank in south-east Asia and got to know him very well.

The Minister’s reputation is widely known. Suffice it to say that when he joined Standard Chartered in 1993, it was emerging from one of several damaging crises—this time, I think, in India. Long before he left it, he had taken it, by dint of his rare combination of energy, enthusiasm, leadership, inspiration, intellectual horsepower, decisiveness and sheer hard work, to the position of one of the leading emerging-markets banking organisations in the world. A champion of charitable work, especially in sight restoration and breast cancer, he is a fundamentally good person. He is indeed a very big man in a small package.

With considerable foresight, the Minister seems to have kept Standard Chartered away from the businesses and products that have so deeply damaged so many other banks. In my view few people are as well qualified to give a Government of this country, of whatever political hue, the benefit of their advice. That he has chosen to join the Benches of a Labour Government is a matter of passing regret for me personally, but I will get over it, because I know that he has taken this step in the sincere hope that he will be able to help our country.

There was a rumour, around the end of last year, that the Government were trying to persuade him to take the chair at the Royal Bank of Scotland. He will not have accepted a ministerial post in your Lordships’ House in the expectation that it will be an easier ride, and we will not disappoint him. He is a keen supporter of Spurs, a club which is consistent with the Prime Minister in its plans to spend its way out of the recession, reportedly spending £45 million in the transfer window, including on buying back Robbie Keane. We look forward to the Minister’s speech and indeed to many future speeches.

I turn now to the future of EU regional policy. Matters relating to the EU are well known for their complexity—several noble Lords have already referred to that. It is therefore to the sub-committee’s credit that it has produced a report of such clarity on the subject. I thank all noble Lords who served on the sub-committee for their hard work. There is a great deal in the report with which we would agree, and I hope that the Minister will be able to reassure your Lordships that the Government will study and study again the sub-committee’s recommendations. The support for the report this evening will perhaps go some way towards encouraging the Government to press unrelentingly in Europe for its important recommendations to be implemented.

Both the sub-committee and the Government appear to recognise that, in the words of my noble friend Lord Trimble, it is irrational for the more developed EU countries to receive funds intended to redress economic inequalities across the EU. The circular system of sending money to Brussels only to see a portion of the sum returned is neither sensible nor effective. It involves wasting resources on administrative bureaucracy, as several noble Lords—my noble friend Lord Steinberg and the noble Lords, Lord Woolmer and Lord Teverson, among others—said. Although the report says that such spending might not be hugely significant for a richer country such as ours, I am sure that noble Lords will agree that any waste of taxpayers’ money on bureaucracy is particularly unacceptable in the current economic climate.

The sub-committee noted that a reduction in contributions from these funds would be unpopular in some circles. However, the sub-committee was also quite right to note, as the noble Baroness, Lady Cohen, said, that a reform of the CAP—I must declare an interest as a beneficiary of various of its schemes—would more than offset any displeasure felt. I hope the Minister will ensure that the Government do everything in their power to secure a sensible result from the imminent review of the EU budget.

The committee’s recommendation in paragraph 64, that the 2008-09 budget review should result in reduced spending on agricultural price support, is welcome, and I hope that it is fully shared by the Minister. The committee’s recommendation that richer member states should remain responsible for the majority, if not all, of their own regional funding is also one that the Government should pay heed to. Indeed, the Prime Minister himself called a few years ago for the repatriation of regional funding. It is regrettable that he did not pursue it more vigorously. We agree with the conclusion that regional policy will never be the primary vehicle for encouraging economic competitiveness. Many of the poorer EU countries’ inefficiencies, especially of those which have recently joined, are the consequence of national problems. Although these EU funds can of course be very useful, they must complement national policies if any real improvement is to be seen.

There needs to be better control of funds at national level. It would be very helpful if the Minister could tell your Lordships, first, what level of auditing and ex post assessment has taken place and does take place; and, secondly, whether any UK local authorities have been censured by the EU Court of Auditors over the handling of EU money, and if so, which ones. I will understand if he cannot answer me today, but if he could able to write to me afterwards it would be appreciated.

Many of the other recommendations in the report are sensible, too. Using loans instead of grants—to which the noble Lord, Lord Watson, referred—as a vehicle for encouraging development would not only ensure that the projects concerned were viable without permanent public funding but would also, over time, allow limited funds to go much further.

Similarly, we would echo the sub-committee’s support for co-financing. If a national Government retain a financial interest in the success of a project which they are considering funding with EU money, there is less likely to be any lowering of standards at the end of the year as a result of having to spend the money to avoid returning it.

The committee has made a considerable number of recommendations, of which I have mentioned only a few. I look forward to hearing the Minister’s response. I again thank the noble Baroness, Lady Cohen, and her sub-committee for this report, and your Lordships for an interesting debate.

18:57:00

The Minister of State, Department for Business, Enterprise and Regulatory Reform & Foreign and Commonwealth Office (Lord Davies of Abersoch )
My Lords, this has been an excellent debate. I thank my noble friend Lady Cohen and her committee for their detailed and very informative report. The Government welcome and support the committee’s call for reform of EU regional policy.

Regional policy is of importance to everyone in this country, not least for a newly ennobled Welsh Peer. With your Lordships’ permission, I should like to put the EU debate on the future of EU regional policy post 2013 into its wider context to set out the Government’s thinking on where we want regional policy in Europe to be, and to inform the House of how the current cohesion policy is reacting to the global financial crisis that we are facing.

However, I should like first to say a few words about myself and my role. I begin by extending my thanks to noble Lords for the warm welcome that I have received from all sides of the House over the past few weeks. I genuinely appreciate the convention and sincerity in the welcoming remarks made this evening—with the exception of the comments on Tottenham Hotspur. I thank particularly my noble friend Lady Cohen for her kind words and welcome. I also thank the noble Lord, Lord Teverson, for his comments about the glossary of terms, which genuinely drove me nuts this weekend, most of which I indeed spent with JESSICA and JASPERS.

As I took my oath, or y llw in Welsh, I reflected on the fact that I did not really speak a foreign language—namely, English—until I was six or seven, so I apologise in advance for my future performances in English in the House. When under pressure, as I struggle to master the latest trade statistics, may I reserve the right to mutter the odd word in Welsh? Indeed, paragraph 4.47 of the Companion to the Standing Orders specifically mentions that languages other than English should not be used in debate, except where necessary. I might also utter one or two words in Cantonese, as I lived in Hong Kong and Singapore for many years. I am also a Minister and, as civil servants now refer to me in that way, I just cannot get the image of the chapel, Sunday school and my mother’s Sunday hat out of my mind. That is what a “Minister” meant to me.

Only one or two years ago, being a bank chairman would have seemed an ideal background for somebody joining this House. How times have changed. Bankers now keep a very low profile. The past 12 or 18 months have been extraordinary for the industry that I have worked in for over 30 years. The industry has lost credibility, trust and respect, but we must be balanced in our reaction and our criticism. Not all banks were caught. However, it is critical that lessons are learnt and that banking regains credibility and stability, since it is an industry that is critical to the future of a thriving global economy. It is a complex and international industry, which has allowed me and my wonderful family to live in different places. It has made me realise, simplistically, that the citizens of the world, irrespective of colour, religion and background, get on well together. In my one Kate Winslet Oscar/BAFTA moment, I should also like to thank my wife of 29 years for her support.

Living in Asia changed my view of the world and made me realise the huge potential of China and India. It also made me realise the huge potential that those two large markets and countries offer the UK. Until recently I was the chairman of Standard Chartered, a bank which is proud to be British and yet operates in 70 countries with over 70,000 staff. I was on the board of that bank for 12 years. I notice that several noble Lords were, as has already been mentioned, either board members or worked with me in the bank. I should like to put on record my hope that I did not upset them during my time there. This afternoon, as I had a cup of tea, I spoke to my noble friend Lord Faulkner, and I discovered that his father was the Chartered Bank company secretary in the 1960s. So I am phasing in to the House of Lords and phasing out of another life. That is what “phasing in” and “phasing out” mean to me.

My entry to government clearly has come at an interesting time, to say the least. When the opportunity came to do public service, I felt compelled to do it. The privilege of being a Member of this House, with its huge variety of talent, is indeed just that: a privilege. Recent accusations have undoubtedly affected the standing and image of the House. I will do my very best to uphold the high standards of integrity and tradition in this House, which are evident for all to see. Although I have had to give up my outside interests, with the exception of the Royal Academy and being chair of the council of Bangor University, my passion for sport and the arts will remain undiminished. I hope that I will feel the same about politics in due course. My role as Minister for Trade and Investment is an exciting and challenging one. Britain’s industrial position needs talking up, not talking down. I do not agree that we have no manufacturing, no industrial capability and no innovation in the UK. My role is to prove the cynics wrong and assist British business.

I turn now to the EU debate. I am obviously a newcomer to this whole question. However, having studied the committee’s report and the evidence, I was struck by how the report has rightly looked at distribution management and the impact of the funds. It is very pleasing that the committee found that the funds are effective and, in general, fit for purpose. It has to be right that, through Article 158 of the treaty, the EU aims to reduce the disparities between levels of prosperity in some of the countries. We have to make sure that we help the least favoured regions. After all, elements of regional policy are designed to counter any negative repercussions of a single market. Clearly, supporting the use of economic and knowledge transfer from rich to poor regions, and interventions to counter both unemployment and underutilisation of resources, is the right way forward. The aim of structural and cohesion funds has to be not just the reduction of income inequality but also sustaining growth rates in the poorer member states.

On reading the report, I was struck by the evidence of Professor Bachtler from the University of Strathclyde that it is difficult to determine effectiveness. We must always strive for efficiency. Finding the balance between strong financial management and avoiding bureaucracy is one of the most difficult and challenging aspects of EU funding.

It is clear that regions need flexibility and strong social institutions to take advantage of these opportunities. It is also clear that the debate will be a long one. We are considering a policy that will not be in place until 2014. All interested parties need to participate actively. As the noble Lord, Lord Trimble, pointed out, transitional arrangements will be key.

The noble Lord, Lord Teverson, spoke about gaps between funding periods. I listened with interest to this issue. The situation is not as stark as presented. The “n+2” rule—another piece of structural fund language that I am getting used to—means that spending is continuing on the 2000 to 2006 programmes. The rule helps ensure that the change from one programme period to another is relatively smooth.

As this is a long-running debate, we do not expect to have an outline of Commission proposals for the future before 2010. It also needs to be seen, as pointed out by my noble friend Lady Cohen, in the wider context of the EU budget and its ongoing review. Some have asked for the debate to be considered free of financial constraints.

However, the European Union’s financial instruments for addressing its cohesion policy are the structural and cohesion funds. Any expansion of the cohesion policy is likely to lead to additional demands on the European Union budget. As was pointed out, the debate is also linked to the Lisbon treaty and its introduction of the European Union aim of territorial cohesion. Some see this introduction as a rationale for expanding the scope of cohesion policy.

Recent Commission consultation has been launched on territorial cohesion to try to get a better idea of what that means. The Government will be responding in the next few weeks on that aspect. I will respond to the noble Lord, Lord De Mauley, on the auditing point. I do not have the answer.

The Government have set out their position on the future of regional policy several times over the past year in responses to community consultations as well as at meetings and conferences at both official and ministerial level. I would like to take this opportunity to set out briefly the main points of our position. The primary aim of cohesion policy should be addressing disparities in economic development and, in particular, should be focused on supporting the Lisbon jobs and growth agenda in conjunction with the Gothenburg sustainable development agenda. The UK also wants to see a significant increase in the proportion of the funds allocated to poorer member states as this is seen to bring the highest level of what we consider to be EU added value. I spent my career banning the words “added value” because I never knew quite what they meant in the corporate world, and here I am in my maiden speech talking about EU added value.

Where member states have the institutional structures and financial strength to develop and pursue their own regional policies, they should be enabled to do so within a common EU strategic framework. I was struck by the points made by my noble friend Lady Cohen on the need to help poorer countries that do not have that infrastructure. Consequently, structural funds in the richer member states should be phased out. Given that aim, the priority should be that standard competitiveness and employment funding should no longer be available to richer member states.

The noble Lord, Lord Teverson, raised a number of issues, including that of continuity. I agree that continuity is crucial. However, as I get into the role, I also believe that the role of RDAs has developed in the UK. This morning, I joined the meeting of the executive board of UKTI, and it is clear that the RDAs play a pivotal role. I am very keen to get involved in understanding them and making sure that they play the right role.

I turn to the impact of the current global financial crisis on EU regional policy. The focus of EU debate has moved to how current policy can be adapted to these extraordinary times. As the noble Lord, Lord Watson, mentioned, it is a critical issue. It is important that we do not lose sight of the fact that we are trying to create employment across Europe, particularly in the poorer states. The Government welcome changes to the funds that increase liquidity, and changes that simplify and improve the effective management of the funds. At a time of economic crisis across many countries, it is important that money moves quickly and efficiently. There is now increased activity on simplification of the current funds. The Commission has formed a simplification working group. I always believe that simplification working groups can, on occasion, make life more complicated, so we will have to make sure that, through our active participation, we have high-impact, low-cost and efficiently delivered money. That is the Government’s aim and we need to make sure that that happens.

Noble Lords have had the opportunity to see the Government’s response to the report. It has been mentioned a few times and I will not use the time to reiterate it. I will mention that the Czech presidency aims to hold an international conference in March on the future of cohesion policy, and an informal ministerial meeting in April. We need to make sure that a number of points raised today are fed in to these meetings, and also through other channels.

At the informal ministerial meeting we are expecting a political debate on the main principles of the future of cohesion policy post-2013. We also expect a presentation from the European Commission on the preliminary findings of the Green Paper on territorial cohesion, and an orientation paper that we believe to be a summary of the debate to date.

There have been a number of questions and, as this is my maiden speech, I am going to take them at the end, rather than insert them into the speech—I hope to become more expert at that in due course. The noble Lord, Lord Trimble, and other noble Lords, mentioned a very important point about NUTS and allocation methodology. The Government will consider these issues; they are important and we need to carry on the debate about whether we have the right methodology and allocation. The only other question I will answer concerns the overall relevance of cohesion policy in the general debate. I believe that EU regional policy and EU aid is more rather than less important at a time of economic crisis.

Noble Lords have raised a number of issues. We will take those points away, feed them into the debate and carry on the discussion.

19:14:00

Baroness Cohen of Pimlico
My Lords, this has indeed been an excellent and timely debate, and I thank everyone who has contributed. In particular, I thank the Minister for his summing up, and I welcome the Government’s commitment to the poorer regions of the EU. He made a really excellent speech although I suspect that he might not have chosen to take on in his maiden speech the intricacies of EU financing. However, the speech went very well, I congratulate him and we look forward to many more good speeches. I welcome him again to the House and say how very glad we are to have a man of great distinction, not only in banking and finance, but in the arts, in the ranks of our Ministers.

Motion agreed.

House adjourned at 7.15 pm.