Friday, 16th March 2001.

The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers—Read by the Lord Bishop of Hereford.

The noble Lord said: My Lords, with the leave of the House, I should like to speak also to the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 and the Financial Services and Markets Act 2000 (Exemption) Order 2001.

Those of us who carry the campaign medals from the Financial Services and Markets Bill 2000 will recall that, complicated though the primary legislation was, the regulations which were to follow the primary legislation threatened to be even more complicated. We now come to Parliament with the secondary legislation under the Financial Services and Markets Act.

The Financial Services and Markets Act 2000 provides a far-reaching overhaul of financial services regulation. It establishes the Financial Services Authority as a single statutory regulator of UK financial services. In place of nine regulators, there will be one. In place of eight dispute procedures, there will be one ombudsman. In place of five compensation schemes, there will be one. That will benefit both practitioners and consumers. The Financial Services and Markets Act was subject to a great deal of consultation and scrutiny both within Parliament and outside. I do not need to detain your Lordships with the history of that.

We are making good progress on the implementation of the Act. We are seeking Parliament's approval, including through this debate, of seven statutory instruments—the orders before the House are the first three—which will set the boundaries of the new framework for financial regulation. The instruments will, between them, define the extent of FSA regulation, the framework for the marketing of financial services and the provision of financial services by professional firms. We also expect to seek shortly Parliament's approval of a number of other statutory instruments. Those will complete legislation under the Act on market abuse, recognition requirements for clearing houses and investment exchanges and appointed representatives of authorised persons.

The Economic Secretary to the Treasury was able to announce on Wednesday the latest date on which the main provisions of the Act will come into force, a date known in financial services jargon as N2. In doing so, she took into account the need for firms and consumers to enjoy the benefits of the regulatory framework as soon as practicable, balanced against the need to give financial services firms a reasonable time to prepare between announcing a firm date and N2. She announced our aim that N2 be no later 'than the end of November this year. As soon as she is in a position to announce the actual day of N2, she will do so. I should make clear that this is not an aspiration or a working assumption. Firms should prepare for N2 on that basis.

The legislation for which we are seeking parliamentary approval will enable the FSA to finalise many of its rules and give financial services firms greater certainty about how the Financial Services and Markets Act will affect them. On the basis of our continuing to make progress, I understand that the FSA expects to be in a position to make the key provisions of its rule book no later than the end of July. I should add that while the target for N2 means that the main provisions of the Act will come into force no later than the end of November, there will he some variations to that.

In respect of mortgages, given that this is an activity which has not hitherto been subject to regulation., it is appropriate to give the FSA and mortgage lenders more time to prepare for regulation. We intend regulation of mortgages to begin nine months after N2. In respect of funeral plan contracts, we intend the relevant provisions to come into force on 1st January 2002. Deposit taking by credit unions will also be regulated for the first time under the Financial Services and Markets Act. That will take place from 1st July 2002.

Finally, on implementation, a number of the provisions of the Act will need to be commenced prior to N2. For example, the FSA itself will have to be established in order to make its rules. The Financial Services and Markets Act 'Tribunal will also need to be established in order to begin its work of determining cases arising, for example, from certain applications before N2 for authorisation after N2. The provisions to be commenced early will be set out in commencement orders in the usual way. Some provisions—the powers to make statutory instruments and interpretative provisions—have already been brought into force by the first commencement order.

I now turn to the orders which are the subject of this debate. It is no exaggeration to say that the regulated activities order is the most important piece of secondary legislation under the Financial Services and Markets Act. It defines the scope of what is to be regulated by the FSA. The regulated activities order was issued twice for public consultation: once in February 1999 and then again in October last year. The order sets out the activities and investments which will be subject to regulation by the FSA, and which are, under existing legislation, contained in different financial services, banking and insurance legislation. Having all the regulated activities specified in a single order will be one of the key benefits of the new framework and will be appreciated, in particular, by the estimated 665 firms which are currently subject to authorisation by more than one regulator.

The boundaries of FSA regulation are to be set by Treasury Ministers accountable to this House. The Act provides various accountability mechanisms for the FSA itself. But we should be clear that the scope of what the FSA regulates is a matter firmly reserved for Ministers. Moreover, if Ministers wish to extend the scope of FSA regulation where it had not hitherto applied, that requires, as with this debate, an affirmative resolution process with a debate and vote in both Houses of Parliament.

I turn now to the scope of regulation set out in the regulated activities order. It is fair to say that in nearly all cases the order brings about only small changes to the existing scope of regulation. Thus, for example, Article 25(2) of the order states:

"Making arrangements with a view to a person who participates in the arrangement buying, selling, or underwriting investments … (whether as principal or agent) is also a specified kind of activity".

This provision is substantially derived from paragraph 13(b) of Schedule 1 to the Financial Services Act 1986. But we have introduced a new exclusion for arranging deals in investments, where the arrangements merely provide the means where one party to a transaction is able to communicate with other such parties. This change, although highly technical and specific, is designed to ensure that information transmitters, such as telecommunications companies and Internet service providers will not be regarded wholly as arranging deals in investments. This change is not untypical of the adjustments we have made to many of the provisions of the regulated activities order compared with existing legislation.

Perhaps I may draw the attention of the House to areas of significant change in the regulated activities order. The order brings into the scope of FSA regulations for the first time mortgages, pre-paid funeral plans, stakeholder pension schemes and aspects of Lloyd's insurance. The grounds for bringing these activities into regulation vary for each activity, but in all cases it will, if necessary, enable a different balance between the interests of firms and consumers to be struck compared with the absence of regulation. And, if redress is necessary, regulation will provide easier means of redress for consumers.

We have also introduced a new risk management exclusion which is designed to replace the permitted person regime in the Financial Services Act. These new areas of regulation were of course subject to consultation with those affected. The regulated activities order will reduce the scope of regulation in other cases. These are in relation to, first, the issue of debt securities, where we have excluded from the scope of deposit taking sums received in consideration for the issue of debt securities over one year; where the securities have a maturity of less than one year, we have excluded from the scope of deposit taking such sums only where the securities are offered to professional investors and have a minimum denomination of £100,000. Secondly, the order will reduce the scope of the activity of arranging deals in investments, for the reasons that I have given previously. Thirdly, we have also reduced the scope of regulation in relation to vehicle breakdown insurance, where we have removed the requirement that such insurance be normally available throughout the mainland of Great Britain, for the exclusion from the activity of effecting and carrying out contracts of insurance to apply. We are satisfied that in those areas where the scope of regulation is being reduced, consumer protection will not be prejudiced.

I shall turn more briefly to the exemption order and the business order. In my view, the provisions of the regulated activities order, and of the business order and the exemption order, are compatible with the convention rights within the meaning of the Human Rights Act 1998. The exemption order, as its name suggests, exempts from the requirement for FSA authorisation, named persons in respect of classes of regulated activity or, in some cases, particular regulated activities. There are bodies for which authorisation by the FSA would be either inappropriate or unnecessary. In almost all cases, these are bodies which are carrying out some kind of public policy function such as the Bank of England or a tourist board. Alternative mechanisms exist, therefore, of ensuring that they undertake regulated activities in a way which does not damage the interests of consumers. Moreover, as public policy bodies, potential competition concerns from their exemption from FSA authorisation do not arise.

Our intention under the exemption order has been broadly to ensure that those persons who were exempt under previous legislation do not need to seek FSA authorisation. In a number of cases, however, it has not been necessary to provide a specific exemption where one had been provided previously. That is, first, because the test for whether a person is carrying on regulated activities in the first place, and hence might conceivably need an exemption, is that they do the activities by way of business. We have concluded that in a number of cases, for example, Church bodies, this is not the case.

Secondly, it makes no sense under a single regulator of financial services for persons to be authorised in respect of some activities and exempt in others. Under the new regime, a person's Part IV permission can simply be extended to take account of activities for which they were previously exempt. Having said that, we do not wish the provisions of the Act to apply to the activities of persons who will be authorised under the new regime, but who had an exemption for certain activities under previous legislation. This has been achieved via an exclusion in the regulated activities order.

Thirdly, some exemptions have been removed because they are no longer necessary. An example is that for nationalised industries accepting deposits from other nationalised industries. Lastly, some exemptions have been updated to reflect wider developments; for example, developments in the gas and electricity markets.

Finally, I turn to the business order. As I have already said, a person is carrying on regulated activities only if he does so by way of business. That term is not further defined in the Act and will have its usual meaning. But there are circumstances where, although a person might otherwise be regarded as carrying on activities by way of business for the purposes of FSA regulation, we wish to deem him not to be doing so. The converse also applies: there are circumstances in which somebody would usually be regarded as not carrying out an activity by way of business, but we wish to regard him as in fact doing so.

Existing legislation on banking, insurance and investment services each has slightly different business tests. We have therefore used the business order to, in effect, retain the business tests for predecessor legislation. This will make easier the transition to the new framework for all financial services firms as the business tests with which they are familiar will continue to apply.

I have been informed that the City Liaison Group has asked the Treasury to clarify a few technical points on the regulated activities order, and I shall ask Treasury officials to clarify those points in due course.

Finally, I should draw the attention of the House to one section of the business order which implements one of the recommendations by Paul Myners in his report to the Chancellor on institutional investment. The change will enable the trustees of an occupational pension scheme to invest in an authorised fund which invests in private equity without the trustees themselves having to be authorised. This change is fully in line with the Government's objective of encouraging greater investment in private equity. I commend the change, the business order, the regulated activities order and the exemption order to the House. I beg to move.

Moved, That the order laid before the House on 27th February be approved [ 9th Report from the Joint Committee].—( Lord McIntosh of Haringey. )

11.15 a.m.

11.45 a.m.

On Question, Motion agreed to.

On Question, Motion agreed to.

On Question, Motion agreed to.

11.52 a.m.

The noble Lord said: My Lords, in moving that the draft order laid before the House on 27th February be approved, I shall speak also to the Financial Services and Markets Act 2000 (Designated Professional Bodies) Order 2001. It may be for the convenience of the House if I speak to the second order first because it sets the context.

Nearly 15,000 firms of solicitors, accountants and actuaries are currently authorised to carry on investment business by their professional bodies, which are known as recognised professional bodies, which are themselves recognised and supervised by the FSA under the Financial Services Act. Most of these firms do not carry on significant investment business but have sought precautionary authorisation to avoid committing a criminal offence under that Act. The Financial Services and Markets Act ends self-regulation as a route to authorisation and requires all firms carrying on mainstream regulated activities to be authorised and regulated by the FSA as the single statutory regulator.

However, we are keen to get the balance right between effective consumer protection and the level of regulation. We do not want professional firms to have to seek FSA authorisation on a precautionary basis,—the noble Lord, Lord Kingsland, referred to that in the previous debate—if they are likely to carry on only a limited range of regulated activities, such as arranging or giving business advice, which arise out of or are complementary to their professional services.

Part XX of the Act therefore provides an exemption for professional firms which are not already authorised, or exempt persons, for certain regulated activities. Those are that the carrying on of these activities must be governed by rules made by a professional body designated under Section 326 of the Act (a designated professional body); the regulated activities must be carried out in a manner which is incidental to the provision of professional services; the regulated activities must not give rise to the receipt from any person other than the client of a pecuniary reward or other advantage for which the professional does not account to his client; and, finally. the regulated activities must not be excluded by an order made by the Treasury under Section 327(6), the nonexempt activities order.

The designation order specifies the eight professional bodies whose members will be able to carry on exempt regulated activities under Part XX. I am pleased to say that all the professional bodies which are currently recognised under the Financial Services Act have confirmed to us that they will be willing to be designated for the purposes of Part XX.

There are two conditions for designation under Section 326. The first is that the professional body must have rules which would govern the conduct of exempt regulated activities by its members. This is already met by the recognised professional bodies. Secondly, each profession must have some statutorily recognised basis such as regulation under or regulation in statute. This requirement is similar to that which currently applies under the Financial Services and Markets Act and is, again, met by all the existing recognised professional bodies.

Designating these bodies for the purposes of Part XX of the Act will allow the vast majority of professional firms carrying on regulated activities which arise out of or are complementary to their professional services to continue to be supervised and regulated by their professional body. But where professional firms are engaged in mainstream financial services, such as arranging life insurance, personal pensions or managing investment portfolios, they will need to be authorised by the FSA in order to ensure the appropriate level of consumer protection.

In my view the provisions of this order and of the Financial Services and Markets Act 2000 (Professions) (Non-Exempt Activities) Order 2001 are compatible with convention rights within the meaning of the Human Rights Act.

I turn now to the Financial Services and Markets Act 2000 (Professions) (Non-Exempt Activities I Order 2001. Part XX of the Act provides an exemption in defined circumstances for certain incidental activities carried on by firms which are regulated by professional bodies. Those are that the activities must be governed by rules made by the firm's designated professional body; they must be provided in a manner which is incidental to the provision of professional services; and they must not give rise to the receipt from any person other than the client of a pecuniary reward or other advantage for which the professional does not account to his client.

However, we do not intend that professional firms should be able to use the Part)0(exemption to set themselves up as mainstream financial services providers such as banks, insurance companies, brokers or fund managers providing their own investment products to their clients, even in circumstances where they are able to show some connection between these products and their professional services. With these activities, there is a risk that the adoption of different tests for professional firms and other firms authorised by the FSA will prejudice the interests of consumers or affect the Government's ability to meet their international obligations. The non-exempt activities order, to be made under Section 327(6) of the Act, is intended to exclude these activities from the exemption under Part XX, and to require individual FSA authorisation for banking, insurance, broking or fund management activities.

The scope of the activities which any particular professional firm will be able to carry on under the Part XX exemption will be set primarily by the rules made by the relevant designated professional body and by the other constraints set out in Section 327 of the Act. The effect of this order is to identify activities which cannot be permitted by the rules of the professional body.

We consulted on the order in October 2000 along with the regulated activities order and received general support for this approach. However, we did receive a number of helpful suggestions, particularly from members of the professions, which we have accepted in this order. I shall deal with a few of them. There are currently arrangements for professional firms to be regulated and authorised to carry on investment business by a professional body recognised under the Financial Services Act. But there are no similar arrangements under the Banking Act or the Insurance Companies Act, and we do not believe that professional firms should be allowed to engage in these activities. In consultation, we received broad support for this policy.

Article 4 of the non-exempt activities order therefore specifies (a) accepting deposits, (b) effecting and carrying out contracts of insurance, and the related activities of (f) acting as a managing agent at Lloyd's, (g) entering a funeral plan contract as provider, and (h) mortgage lending. Many of the existing exemptions under the Banking Act will be replaced by exemptions specified in the exemption order or by exclusions in the regulated activities order. For example, Article 7 of the regulated activities order contains an express exclusion for accepting deposits in the course of a solicitor's profession.

The non-exempt activities order also specifies at Article 4(c) dealing in investments as principal, but not other related activities such as dealing as agent and arranging deals in investments. We are aware that many professional firms and others deal in investments in their capacity as trustees and in other fiduciary capacities. But the regulated activities order already contains appropriate exclusions in relation to persons acting as trustees or in other circumstances relevant to the legitimate commercial dealings of a non-financial services business or profession. We do not believe there is any need for a further exemption.

We recognise that professional firms are frequently asked to arrange deals or act as agent in connection with their professional services. We do not propose to specify those activities.

The main concern expressed in consultation was that insolvency practitioners might in some circumstances find themselves dealing as principals. However, we did not think it was appropriate to address that issue for professionals alone, as some insolvency practitioners will not be members of a designated professional body. We have therefore provided a separate exemption for insolvency practitioners in the exemption order.

Article 5 specifies managing investments, while paragraphs (d) and (e) of Article 4 specify the related activities of establishing a collective investment scheme and establishing a stakeholder pension scheme. The majority of professionals will merely be acting on instructions and so will not be managing their clients' investments. However, we recognise that some professional firms and others may be required to exercise discretion in their capacity as trustee or in another fiduciary capacity.

The regulated activities order already provides exclusions for investment management by attorneys, or when carried on by trustees or personal representatives, unless they hold themselves out as providing a service comprised in that activity or are remunerated separately in relation to that activity.

However, fund management is an area of significant risk for consumers. The exclusion in the regulated activities order does not extend to activities in relation to collective investment schemes or stakeholder pension funds, or to trustees of an occupational pension scheme who have not delegated routine decisions to an authorised person. We do not believe that it is necessary or appropriate to give professional firms an additional exemption to carry on those activities under the Part XX arrangements.

In consultation, some commentators expressed concern about the position of professionals who act as receivers appointed by the Court of Protection in accordance with the advice of an authorised person. The position here is similar to that of attorneys, who will be able to manage assets without authorisation as long as they delegate decisions relating to key investments to an authorised fund manager. That harks back to the last issue raised by the noble Lord, Lord Kingsland.

The activity that generated the largest number of comments in consultation was advice. Article 6 specifies advising on investments where the advice consists of a recommendation to buy or subscribe for a particular security or contractually based investment, or to dispose of a member's rights or interests under a personal pension scheme. Article 7 also specifies advising a person to become a member of a particular Lloyd's syndicate.

There is a risk to consumers whenever an adviser selects investments for his client, whether these are life assurance or pensions products, shares, including investment trusts, loan stock, including junk bonds, collective in vestment schemes or derivatives. We are conscious that professional firms provide an important safeguard for clients who might otherwise enter such transactions without proper advice. We believe that appropriate controls over such advice can be exercised by professional bodies, or, where necessary, by the FSA under Sections 328 or 329.

There are already a number of exclusions relevant to the activities of a professional person in the regulated activities order, which address many of those concerns, including advice that is a necessary part of his profession or is given in his capacity as a trustee or in connection with the sale of a body corporate. However, we did not want professional firms to be able to engage in selecting investments for their private clients under the Part XX exemption. We consulted on the basis that advice consisting of a recommendation to buy or subscribe for a security or contractually based investment such as a life assurance or pensions product should require authorisation. We did not propose to specify other advice, such as advice not to buy a particular investment or to dispose of an investment.

In consultation, there was general support for the proposition that professional firms should be able to advise on the merits of investment transactions under the Part XX exemption, but that they should not be able to give advice that amounted to selecting investments on behalf of their clients. Some additional concerns were raised, but I shall spare your Lordships those.

A professional firm will be carrying on the regulated activity of advising on investments only if he is advising his client in his capacity as an investor. That will often not be the case. Such advice would normally be regarded as a necessary part of the services provided by a solicitor or barrister. We do not want to create an exemption for solicitors that could not also be relied on by barristers giving advice in relation to the same matter. For the avoidance of doubt, we have also included a provision in Article 6 to make it clear that we are talking only about recommendations to buy investments from a person whose business is dealing in those investments, including a life insurance company, on a stock market, or in response to an invitation to subscribe for an investment that is, or is to be, traded on a stock market. Professional firms will not be prevented by the regulations from making recommendations in relation to private transactions between family members, between an employer and his employee or between the parties to a dispute.

The order strikes the right balance between allowing professional firms to carry on their professional activities without the need for authorisation by the FSA and ensuring that retail consumers receive a consistent standard of protection in relation to mainstream activities such as banking, insurance, fund management, and the selection of investments. I commend it to the House.

Moved, That the draft order laid before the House on 27th February be approved [ 10th Report from the Joint Committee].—( Lord McIntosh of Haringey.)

On Question, Motion agreed to.

On Question, Motion agreed to.

12.7 p.m.

The noble Lord said: My Lords, the regulations set out the legal framework for the establishment, carrying on and regulation of open-ended investment companies—or OEICs, as they are more commonly known. By way of background, I should explain that an OEIC is a type of company whose business is investment in securities such as shares of other companies. It issues shares to its investors and its capital may go up or down as shares are issued or cancelled. Its investments are managed by a fund manager, who must be authorised by the FSA.

The assets of an OEIC—the investments that it owns—must be held by a depository, who must also be authorised by the FSA. The depository plays a key role, similar to that of the unit trust trustee, and must be legally independent of the directors of the OEIC. That independence requirement is an important feature of the robust framework of protection for investors within which OEICs operate. The investment assets of the OEIC must be well distributed to spread investment risk and the OEIC itself and the key players must be authorised.

Those principles were established in the existing regulations governing OEICs—the Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996. The regulations before your Lordships today make no major changes. They rationalise and modernise the regulatory structure for OEICs. The provisions of the regulations also represent an important liberalisation. They will pave the way towards extending the range of authorised OEICs available for sale in the UK. It will be for the FSA to determine the categories of funds that may be established as OEICs. For the moment, only those that invest in transferable securities—that is, stocks and shares—can be marketed to the general public.

Providers of funds want to take advantage of the economic and marketing benefits of OEICs for a wider variety of funds—for example, money market funds, which can be used as a convenient and stable way of parking investment assets. The Government believe that fund providers should be able to offer as much variety of fund types as is prudent. Many in the investment funds industry are eagerly awaiting this extension in the range of OEICs available.

This is a win-win situation. By opening up the scope for fund providers to offer a wide variety of funds in OEIC form, the regulations will give fund providers an efficiency advantage and customers will have the advantage of more choice with no detriment to investor protection.

A further significant change introduced by the regulations is an extension in the role of the FSA to act as a single point of contact on OEICs. As well as regulating OEICs, it will also be responsible for registering OEICs and maintaining the register. Under existing regulations, the registration is undertaken at Companies House. That is a cumbersome and unnecessary split of responsibilities. The new provisions represent a significant rationalisation, which has been welcomed by the investment funds industry.

The regulations simplify matters by setting out that the provisions for OEICs are broadly the same as those for unit trusts, as set out in the Act. Therefore, there should be no significant divergence in the regulations which govern authorised unit trusts and OEICs. Such a divergence could have caused confusion and potential costs. In addition, a consistent approach by the FSA will benefit providers who choose to offer both unit trusts and OEICs.

To minimise disruption for providers, companies constituted under existing regulations will be treated as formed under these regulations. In recent years, extensive consultation has taken place on the regulation of OEICs, and we are grateful for the detailed work that the respondents have undertaken on these complex regulations.

The OEIC is a modern, flexible and transparent investment product. It has proved popular in the relatively brief period for which it has been available. These regulations will result in greater potential flexibility and choice for investors because of the range of OEICs available. They set a firm foundation from which OEICs can go from strength to strength. I commend them to the House. I beg to move.

Moved, That the draft regulations laid before the House on 27th February be approved [ 10th Report from the Joint Committee].—( Lord McIntosh of Haringey.)

On Question, Motion agreed to.

12.11 p.m.

The noble Lord said: My Lords, this is an important order and I am pleased that we have the opportunity to debate it today. It covers three key areas of amendments to the existing 1975 exceptions order. It also represents an important milestone in the progress towards implementation of the Criminal Records Bureau.

First, I should place the order in the context of the policy on rehabilitation of offenders as a whole. It has long been accepted that it is important that those who offend should be able to reform, pick up their lives again after paying the penalty, and have a fresh start. The order does not seek to undermine the principle of punishment. However, if we are not to have an underclass of people who can never work again, some means must be put in place for rehabilitation.

However, it has also been accepted that the need for rehabilitation must be balanced against the risk from the ex-offender to society and, in particular, to its most vulnerable members. That is why, so long as the Rehabilitation of Offenders Act has been in place, there has also been a list of positions in relation to which the offender, even if his conviction under the Act is "spent", cannot escape his past. If asked an excepted question in respect of all past convictions by a person entitled to ask such a question, the offender must answer in respect of all past convictions and not merely in respect of those which are unspent.

It is crucial that that list of positions is compiled correctly. We must protect the vulnerable, and safeguards must be put in place for certain offices and certain aspects of life, such as national security. However, we must not make the list such that an offender who has put his past behind him is disadvantaged where that is not necessary due to the demands of the job.

I turn to the three areas of amendment covered by the present order. They are all amendments to categories which are included in the 1975 exceptions order but which need to be updated. The new provisions would replace those in the existing order in these areas.

The most complicated is that relating to working with children. The main effect of the order is to carry through the policy agreed on the definition of "working with children" contained in the Criminal Justice and Court Services Act 2000. Such positions are regulated, as set out in Part II of the Act. We debated that definition in detail during the passage of the Bill last year.

The positions in question are those from which people who have been disqualified from working with children are banned. They include front-line carers, such as foster carers and teachers, those who supervise such workers, and, crucially, those with power to dismiss them. They also include all workers in certain areas of particular vulnerability, such as children's homes and schools. They include positions of influence, such as social services directors and the "great and the good" in organisations concerned with children, such as charitable trustees. All such positions need to be covered by the exceptions order so that full checks can be made.

This part of the Act came into force on 11th January. We need to bring the policy on the exceptions order into line with the new definition as soon as possible.

I now turn to the subject of healthcare workers—the second group covered by the order. The existing exception applies to all those who provide health services. That, of course, includes newly qualified general practitioners. Each health authority area maintains a list of GPs who are available for work. However, currently there is no provision for further criminal checks to take place when GPs move to a new health authority area and are put on a list for that area. The new order will allow such checks to take place.

The final group is justices' chief executives. Section 87 of the Access to Justice Act 1999 removed the requirement for justices' chief executives to be eligible as justices' clerks—a profession included in the order. Effectively, it removed the requirement for justices' chief executives to be legally qualified as barristers or solicitors—again, professions included in the exceptions order.

There is no reason why JCEs should not be subject to the same provisions as JCs—justices' clerks—and their assistants, who are required to disclose spent convictions. The amendment will ensure that all new appointees, some of whom will not be lawyers, are covered by the exceptions order.

Finally, I make a more general point relating to the order. Noble Lords will notice that for the amendment order we have adopted the wider definition of "work" used in the Criminal Justice and Court Services Act 2000. That includes all work, whether paid or unpaid, in all sectors, including voluntary or volunteering work. I am sure that that is right. Where the nature of the work justifies it, we can no longer properly limit exceptions to areas of formal employment. The risks presented by certain positions are not affected by employment status; nor, therefore, should the exceptions order be so affected.

In conclusion, this is an important order and it represents an important milestone in our work to protect the vulnerable. Therefore, I commend it to the House. I beg to move.

Moved, That the draft order laid before the House on 1st March. be approved [ 10th Report from the Joint Committee].—( Lord Bassam of Brighton.)

12.17 p.m.

On Question, Motion agreed to.

12.23 p.m.

The noble Lord said: My Lords, your Lordships will be pleased to know that I can be brief. These regulations are necessary to ensure that the United Kingdom continues to comply with its obligations under European Community Directive 93/109. That directive, with which I am certain your Lordships will be familiar, requires that each member state of the Union has in place provisions to allow resident European Union citizens to vote and stand as candidates in local and European parliamentary elections in their member state of residence.

The United Kingdom gives effect to that directive in relation to European elections by virtue of the European Parliamentary Elections (Changes to the Franchise and Qualifications of Representatives) Regulations 1994. Those regulations are based on an electoral registration system that uses an annual qualifying date. The effect of the Representation of the People Act 2000 is to remove that qualifying date and replace it with a registration system based on a rolling register.

As a result, the law as it stands means that citizens of other members states of the Union resident in the United Kingdom are effectively no longer eligible to register to vote at European parliamentary elections. The regulations before the House will rectify that position by replacing those parts of the 1994 regulations dealing with the franchise to bring them in line with the new registration provisions.

The regulations ensure that citizens of other European member states resident in this country are able to register to vote in European parliamentary elections in the same way as are other citizens. They ensure that we shall once again be fully compliant with our obligations under the relevant EC directive, and for those reasons I commend them to the House.

Moved, That the draft regulations laid before the House on 26th February be approved [ 9th Report from the Joint Committee].—( Lord Bassam of Brighton.)

On Question, Motion agreed to.

12.27 p.m.

The noble Lord said: My Lords, the order permits the establishment of so-called juxtaposed immigration controls at railway stations in France and the United Kingdom served by Eurostar. It is a result of several years of careful negotiation with our French counterparts.

The idea of juxtaposed controls is not new; provision for such controls was made in the 1986 Treaty of Canterbury, which outlined the conditions for the operation of the Channel Tunnel. The treaty allowed for a supplementary protocol to be agreed that would make provision for juxtaposed controls. That occurred in 1991 when the Sangatte protocol was signed. The protocol provided for the establishment of control bureaux by France and the UK on territory of the other state. That led to the establishment by France of frontier controls at Cheriton in Kent and by the UK at Coquelles in France. The protocol also regulated the exercise of frontier controls on through trains between the UK and France.

The idea of extending juxtaposed controls to include stations served by the Eurostar emerged about three years ago in response to the growth in illegal immigration through the tunnel. For several years, people trying to enter our country without adequate documentation have been misusing the Eurostar service. In the second half of last year, almost 4,000 passengers arrived at Waterloo without the required documents; many claimed asylum upon arrival. That abuse has been encouraged by the fact that there is no liability under French law for SNCF, the French railway company, to check documents for the Paris to London Eurostar route.

The idea of juxtaposed controls at Eurostar stations was also a direct response to the possibility that carriers' liability charges might otherwise be imposed on train operators. Carriers' liability charges, consisting of a £2,000 penalty on the inbound carrier for every passenger without adequate documentation who is brought to the UK, originally did not include trains. In 1998 these provisions were extended to cover through trains. However, SNCF was excluded from the arrangements as it was not lawful in France for train operators to carry out documentation checks. But under this Government's Immigration and Asylum Act 1999, provisions are made to resolve legal barriers to the imposition of charges on the SNCF. With the present level of undocumented arrivals, SNCF could be faced with potential charges of £1 million every month.

There is provision in the Act for carriers' liability charges not to be applied to train operators. An order can be made under the Act exempting a train operator from carriers' liability charges if there is an agreement in place between the UK and the country concerned that provides for the operation of UK immigration control in that country or for the checking of passports and visas there. When the UK and France have introduced juxtaposed controls, such an agreement will be in place and SNCF may be exempted from carriers' liability penalties.

The implementation of the additional protocol to the Sangatte protocol will enable UK immigration officers to conduct immigration control at the Gare du Nord in Paris, and at other stations in France served by the Eurostar. Our immigration officers will be able to identify passengers without the correct documentation and refuse them leave to enter the UK before they board the train. This agreement has the potential to prevent all inadequately documented passengers from travelling on the Eurostar and abusing that method of entering the United Kingdom.

It is important to implement juxtaposed controls as soon as possible in order to close the loophole that the Eurostar currently represents in our immigration control. I am grateful to the House for its early consideration of this order. I beg to move.

Moved, that the draft order laid before the House on 28th February be approved.—[ 10th Report from the Joint Committee.]—( Lord Bassam of Brighton.)

On Question, Motion agreed to.

12.35 p.m.

The noble Lord said: My Lords, I should start by explaining why we are considering only one set of regulations today when an earlier Order Paper showed that we would also be looking at the fees regulations. Unfortunately there was an error in the regulations and they had to be withdrawn. A new set of regulations was laid on 14th March and will be considered by the Joint Committee on Statutory Instruments next week. I apologise for the confusion.

The Chancellor announced in his Pre-Budget Report that the Limited Liability Partnerships Act 2000 will come into effect on 6th April. It will introduce for the first time in nearly a century a change to business entities in Great Britain. That is the result of over three years of consultation and debate with a wide variety of consultees. Detailed legislative proposals have been in the public domain since 1998, including a draft of what is now the LLP Act and these regulations. The Bill and the regulations were scrutinised shortly afterwards by the Trade and Industry Select Committee. The Bill also received close and thorough scrutiny in the other place and by Members of this House.

Firms that decide to become an LLP will enjoy the organisational flexibility and tax treatment of a partnership with the limited liability of a company. That means that the LLP will be a separate legal entity owned by its members. Therefore the LLP will be able to enter into contracts and hold property.

It is important to strike the right balance between the interests of those who want to carry on business as an LLP and those who will do business with them. I believe that the LLP Act, together with these regulations, achieves that objective. That is why it is important to apply very substantial parts of companies' legislation to LLPs with those modifications necessary to reflect the differences between a company and an LLP. The LLP does not provide a shield behind which the individual negligent professional can hide. Typically a client will have contracted with the LLP itself and will in the first instance therefore usually look to the LLP for redress under contract law. But this does not preclude action in tort against the negligent member who has assumed personal responsibility for his actions.

Let me comment on the legislative structure we have established for LLPs, including these regulations. The LLP Act provides a framework for setting up an LLP. It defines an LLP as a separate legal entity owned by its members; it sets out the mechanics and requirements for incorporation and establishes the relationship that exists between members, and between members and the LLP.

The Act also prescribes the scheme of taxation. The Parliamentary Under-Secretary of State for Competition and Consumer Affairs made a commitment during consideration of the LLP Bill in the other place to make clear the Government's approach to the taxation of LLPs and I will come back to that in a moment.

The aim of these regulations is to ensure that an LLP, as a body corporate, will be subject to similar requirements to those made of companies. But because the internal structure of an LLP is not prescribed like that of a company, it has been necessary to modify existing corporate legislation in its application to LLPs. The modifications we have made to companies legislation is only in relation to LLPs; it is not a fundamental change to company law. That must await the outcome of the independent Company Law Review, which will report to the Government in May.

I should comment on two issues relating to the structure of the legislation which were considered when the LLP Bill was before Parliament. The first is the extent to which it relies on the use of regulations. The worry, with which we disagreed, was that there was too great a reliance placed on secondary legislation. When we first decided on how we were going to regulate LLPs, we began from the principle that an LLP was a body corporate and that there should be an equivalent level of regulation applied to LLPs as there is to companies. That is part of the balance to which I referred earlier. What we have is a sensible structure. The essential characteristics, principles and rules for an LLP are set out in the LLP Act. The detail is left to regulation.

Most importantly, if we had done it any other way we would have had a structure which was unwieldy and difficult to adapt. The underlying requirements of company law, insolvency law and partnership law are all capable of change. I mentioned earlier the fundamental review of company law. At the appropriate time we shall need to adapt and apply many of the changes flowing from that process for LLPs. Also, the Law Commission has recently completed a consultation on a far-reaching reform of partnership law. We shall have to adapt that to LLPs in due course.

Insolvency law does not stand still. The new Insolvency Act 2000 modified the Insolvency Act 1986 and will be applied to LLPs as appropriate by statutory instrument once the secondary legislation has been made. In all three areas of the law, the changes will come before Parliament. Their subsequent application to LLPs then becomes largely a technical job, which is appropriate for secondary legislation.

The second point, which has been made on the structure of the regulations, is that legislation by reference is unhelpful to users. I sympathise with that argument. However, the alternative would have been to produce a set of regulations that run to hundreds of pages, much of which would reproduce existing law. That would have had the approach of completeness. However, the approach we followed highlights, for advisers who are familiar with company law, the differences in their application to LLPs. We understand that commercial publishers are likely to produce helpful consolidations of the law as it applies to LLPs.

I do not know how much of the detail your Lordships wish me to go into. Perhaps I may talk about three main strands in the regulations and then say a word about taxation. The first strand relates to accounts and audit. Part II of, and Schedule 1 to, the regulations apply Part VII of the Companies Act 1985 and set out the accounting and audit requirements for LLPs. These are broadly in line with the requirements placed on companies which ensure that LLPs have the same level of financial disclosure.

The second strand is contained in Part II of, and Schedule 2 to, the regulations, which apply the remaining sections of the Companies Act 1985 together with Part II of the Companies Act 1989 and the Company Directors Disqualification Act 1986 with appropriate modifications. That part of the regulations sets up a regime for the running of LLPs which is closely allied to that of a company.

The third strand is contained in Part IV of, and Schedule 3 to, the regulations and applies the first and third groups of parts of the Insolvency Act 1986 to LLPs. Those provide that LLPs are treated similarly to companies on insolvency issues, such as company voluntary arrangements, administration orders, receivership and winding up.

I shall pass over issues relating to financial services and LLPs and default provisions. I can comment on those if necessary. I stated that I would confirm the Government's approach to the taxation of LLPs; LLPs are a new business structure. Their tax treatment is an important factor for the businesses that are contemplating using them. There has been consultation over a long period to ensure that the tax treatment of LLPs balances the desires of business with the need to guard against tax loss. Most recently, in the Budget last week, the Inland Revenue published a Budget Note on the taxation of LLPs.

The LLP Act introduced new sections into tax legislation to the effect that an LLP carrying on a trade, profession or business with a view to profit will be taxed as a partnership. The LLP structure is available to all businesses, as we recognised that it could be attractive to others and not just professional firms. However, it has never been our intention to allow the formation of LLPs to be driven by their tax treatment, or to open up the likelihood of significant loss of tax revenue. The review of tax treatment that was announced during the passage of the LLP Bill identified that the use of LLPs as property investment vehicles opened up significant scope for tax loss. By "property investment", I refer to a business consisting wholly or mainly in the making of investments in land or buildings.

The tax loss would arise if tax-exempt bodies such as pension funds, the pension business of life insurance companies and tax-exempt business of friendly societies were to invest in property via LLPs, instead of through property investment companies. The proposals concerning property investment out lined in the Pre-Budget Report and confirmed in the Budget Note are to prevent that tax loss and to avoid creating distortions in the investment market. They do not restrict what businesses LLPs may choose to carry on and they will not be relevant to the vast majority of businesses contemplating using LLPs. They will not affect the current arrangements used by pension funds, so there is no question of tax proposals removing a tax break that is currently enjoyed. As primary tax legislation, they will be subject to parliamentary scrutiny.

The regulations undoubtedly add a fair number of pages to the legislation on LLPs, but they follow closely from the drafts we exposed for consultation both before and during the passage of the Bill. They strike a balance between the interests of those wishing to form LLPs and those wishing to have dealings with LLPs. I believe that it is the right balance. I beg to move.

Moved, That the draft regulations laid before the House on 15th January be approved [ 3rd Report from the Joint Committee].—( Lord McIntosh of Haringey.)

12.45 p.m.

1 p.m.

1.15 p.m.

On Question, Motion agreed to.

1.27 p.m.

The noble Lord said: My Lords, I am grateful to the business managers for allowing two sets of regulations to be considered together. As it appears that the regulations are not matters of burning interest to Members of the House, that is very helpful.

The proposed regulations make necessary changes to the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and the National Minimum Wage Regulations 1999 (Amendment) Regulations 2000. The first will make it easier for employers and workers involved in a dispute over the application of the part-time regulations to reach agreement without resorting to an employment tribunal. The second make a minor point of clarification on who is entitled to the national minimum wage.

If your Lordships are content, the regulations on part-time workers will apply to England, Scotland and Wales, with Northern Ireland introducing its own legislation along similar lines. The national minimum wage regulations apply to the whole of the UK. Both amendments will come into force on 1st May this year and be effective from that date.

Both sets of regulations will improve the operation of the original legislation. They will help to encourage a partnership approach from employers and workers in applying the part-time workers regulations and correct a potential anomaly in the national minimum wage regulations regarding the trainees' exemption.

I shall explain the need for the two sets of regulations. On the part-time workers amendment, the original regulations successfully implemented a European directive designed to end discrimination against part-time workers in their contractual terms and conditions. We implemented them using the Employment Relations Act 1999. The regulations have been broadly welcomed and are already having a positive impact. The amendment we are considering today will give parties involved in a dispute greater capacity to come together to settle their differences without having to go to a tribunal.

Provisions of this type are standard in employment law and apply to virtually all other employment rights, including the right to claim for unfair dismissal and the right to bring a claim for discrimination on the grounds of sex, race or disability. The regulations will increase the chances of settling a dispute in two ways.

First, they will amend Section 18(1) of the Employment Tribunals Act 1996 to increase the ability of ACAS to conciliate in claims brought under regulation 5(1) of the part-time workers regulations. Regulation 5(1) gives part-timers the right to equal treatment in their terms and conditions of employment when compared with similar full-timers. The amendment allows officers appointed by ACAS to conciliate between parties to reach a binding agreement before a claim reaches an employment tribunal. Any conciliation would be entered into on a voluntary basis and the proceedings are generally informal. There is no time limit attached to the conciliation process and no set format. Negotiations can he conducted over the phone or in face-to-face meetings with one or both of the parties. There is no need for either side to take formal legal advice and either party retains the right at all times to revert to a tribunal hearing.

The second element of the part-time amendment amends Section 203 of the Employment Rights Act 1996 to allow workers to contract out of their right to bring claims under the original regulations where an effective compromise agreement has been reached. For an agreement to be effective, the worker must have received advice from an independent adviser. This could be a qualified lawyer, a certified trades union official or an advice centre.

I shall turn now to the national minimum wage amendment. As noble Lords will recall, in July of last year, Parliament approved a number of regulatory changes to the minimum wage, including an increase to the main rate and an exemption for national trainees as recommended in the second report from the independent Low Pay Commission. However, during the debate, a minor technical difficulty with the part of those amending regulations dealing with national trainees came to our attention.

On 14th July 2000, I explained to the House the problem and announced our commitment to return with a slightly amended version of the relevant regulations as soon as possible to clarify the situation once and for all. This was accepted by noble Lords and this amendment to the principal regulations fulfils that commitment.

The detailed point at issue with the national minimum wage amendment is a particularly complex one which results from a potential mismatch between the wider definition of "worker", including "agency worker" used in the National Minimum Wage Act and a reference to a certain type of trainee known as a "national trainee" in the National Minimum Wage Regulations 1999 (Amendment) Regulations 2000, which took effect on 1st October 2000.

The way in which the regulation is drafted means that there could be a situation where a young trainee not employed with a company might count as an agency worker because he had been supplied by a training provider. The provisions in the regulations exempting trainees would not apply, so this particular trainee would be entitled to the national minimum wage, unlike his fellow trainees employed directly by the company. However, I should stress that such a reading of the law would rest on a rather obscure legal technicality and be counter to a common-sense understanding of what the law intends. Since this point did not impinge on the main intention of the new regulations, noble Lords approved them in July of last year.

In summary, the two sets of regulations before the House will contribute to the ability of employers and workers in Great Britain to operate more effectively when dealing with matters of employment law. The part-time amendment gives employers and workers greater scope to settle disputes in a spirit of partnership. The national minimum wage amendment puts right a particularly tricky piece of legal drafting. I hope that my explanation of the need for and the effect of these changes has been helpful to noble Lords. I commend the two regulations to the House.

Moved, That the draft regulations laid before the House on 26th February be approved [ 9th Report from the Joint Committed].—( Lord Sainsbury of' Turville.)

1.34 p.m.

1.37 p.m.

On Question, Motion agreed to.

1.43 p.m.

On Question, Motion agreed to.

1.43 p.m.

The noble Lord said: The regulations before the House today apply the provisions of EC Directive 96/61 on integrated pollution prevention and control—commonly referred to as the IPPC directive—to offshore oil and gas combustion installations. These regulations follow on from similar regulations last year implementing the IPPC directive for onshore emission sources. Both sets of regulations are made under the Pollution Prevention and Control Act 1999.

The purpose of the directive—and, consequently, of these regulations—is to enhance the protection of the environment as a whole by preventing or reducing emissions of pollutants to air, water and land. While the primary intention of the directive was to introduce controls on onshore sources, there are a number of large offshore oil and gas installations that require their own power generation plant in order to operate. These regulations therefore seek to introduce a similar level of environmental protection for offshore power production plant.

Unlike the onshore regulations, there is no existing system of permits on which to build. The regulations therefore set in place a new permitting system to meet the requirements of the directive. Under the regulations, operators of offshore combustion installations will require permits to be issued by the Secretary of State to cover the emissions from combustion installations; that is, gas turbines and diesels used for generating electricity or to power pumps and similar equipment.

The purpose of permits is to introduce controls that will prevent or reduce pollution to the air, water and land (which, in this case, is the seabed), but mainly to air. Operators will be required to apply the principle of best available techniques, which, of course, takes proper account of the need to make an appropriate assessment of the costs and environmental benefits of introducing such techniques.

In this respect, there are of course factors peculiar to the situation offshore that will have to be considered. not least the harsher operating conditions and the space restrictions on offshore platforms. There is also the fact that the quality of the fuel gas used can vary greatly as offshore platforms make use of the unprocessed gas produced as part of their operation. Such "raw" gas restricts the technology that can be applied to control emissions and the harsher environment and space limitations have an obvious effect on the cost implications for introducing such technology.

Initially, permits will be required only for new combustion installations exceeding a specified thermal threshold—which is 50 megawatts—or for existing combustion installations which undergo substantial change. Existing combustion installations which do not undergo substantial change will not need permits until late in 2007 in accordance with the provisions of the directive.

One of the main comments arising out of the consultations was what constitutes "substantial change". This is defined in the directive—and therefore in the regulations—as a change in operation which may have significant negative effects on human beings or the environment. In considering whether substantial change has taken place, it is necessary to review any changes to emission levels and their consequent impact on the environment. Where the impact is negligible or obviously minor, the substantial change provisions will not be invoked.

The cost of implementing the regulations has been extensively discussed with the United Kingdom Offshore Operators Association and the regulatory impact assessment reflects the best assessment that the Government and the industry could jointly make.

We believe that the regulations, which are a product of extensive consultation, strike a proper balance between protecting the environment and ensuring that the legitimate concerns of the offshore oil and gas industry have been addressed. I commend the regulations to the House. I beg to move.

Moved, That the draft regulations laid before the House on 26th February be approved [ 9th Report from the Joint Committee].—( Lord Sainsbury of Turville.)

On Question, Motion agreed to.

House adjourned at eight minutes before two o'clock.