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House of Lords Hansard
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Grand Committee
12 December 2016
Volume 777

Grand Committee

Monday 12 December 2016

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If a Division is called in the House, the Committee will adjourn for 10 minutes.

Bank Recovery and Resolution Order 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Bank Recovery and Resolution Order 2016.

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My Lords, since the financial crisis, the Government have implemented a significant programme of reforms to address the problems of the past and make the financial sector safer and more stable. In addition, the Government have implemented significant reforms to address the problem of “too big to fail” and ensure that the failure of a bank can be managed in a way that protects the wider economy and financial sector without relying on taxpayer bailouts. These orders concern two key planks of the reforms: macroprudential regulation, and resolution, which is the regime for managing the failure of banks and other financial firms. I will begin with the Bank of England Act 1998 (Macro-prudential Measures) Order 2016.

The Government have reformed our financial regulation so that risks to the whole system are identified and addressed. This element of regulation was not present in the previous system of regulation. The Financial Policy Committee addresses macroprudential risks through its powers to issue recommendations and directions. As noble Lords are no doubt aware, the UK housing market has gone through many cycles of boom and bust, often leading to wider economic problems when the market experiences a downturn. Mortgages are the single largest asset class held by UK banks. This makes them sensitive to the performance of the housing market. It also exposes them to direct risks when borrowers struggle to pay back their loans. Work by the Bank of England suggests that buy-to-let mortgage lending can amplify the housing cycle. As house prices go up, buy-to-let investors are incentivised to enter the market by the prospect of capital gains, and this pushes up prices for all home buyers. The Bank of England has asserted that as prices fall, buy-to-let investors are incentivised to sell their properties, which can exacerbate the downturn in the market.

The lessons of the recent financial crisis are still fresh in our memory and we know that the costs of financial instability are huge. That is why, in his Mansion House speech on 12 June 2014, the then Chancellor committed to ensuring that the FPC has,

“all the weapons it needs to guard against risks in the housing market”.

Following that statement, the FPC recommended that its powers of direction be expanded so that it could tackle effectively the systemic risks in the UK housing market. The Government agree with those recommendations and have already legislated to grant the requested powers regarding owner-occupied mortgages. The instrument we are discussing today will provide the requested powers over buy-to-let mortgages similar to those already provided with respect to owner-occupied mortgages. It will also allow the FPC to direct the financial regulators, the Prudential Regulation Authority and the Financial Conduct Authority, to require regulated lenders to place limits on buy-to-let mortgage lending in relation to loan-to-value ratios and interest coverage ratios. Both are commonly used measures of affordability employed by lenders when considering whether to extend a buy-to-let mortgage. This instrument is another step taken by the Government to ensure that the FPC has the powers it needs to address systemic risks and that our financial system is resilient and supports the wider economy.

I turn now to the Bank Recovery and Resolution Order 2016. The financial crisis demonstrated the need for an effective resolution regime to manage the failure of financial sector firms without relying on taxpayer bailouts. The UK’s special resolution regime provides the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and the Treasury with the tools to protect financial stability by effectively resolving banks. The EU Bank Recovery and Resolution Directive established a common approach across the EU to the recovery and resolution of failing banks. It drew on key aspects of the UK’s existing resolution regime for managing bank failure.

Since the transposition of the BRRD in January 2015, industry and the regulators have had time to digest the new rules. They have identified a small number of areas where the UK’s special resolution regime could be improved. As such, this order makes changes to strengthen the UK’s special resolution regime to make it work more smoothly and effectively.

The Government have consulted extensively on the draft legislation, both through public consultation and through close engagement with the Banking Liaison Panel. These changes have the support of industry. The Government will also update the special resolution regime code of practice, a guidance document which sits alongside the legislative framework, to further clarify the measures introduced by the order.

The Bank Recovery and Resolution Order 2016 makes changes in three key areas. First, it makes amendments to allow the Bank of England or the Treasury to activate contractual default event provisions where it would assist a resolution. This will be necessary only for a narrow range of contracts, where the activation of default event provisions supports the Bank of England’s efforts to resolve a failing firm and maintain financial stability.

Secondly, the order introduces new stand-alone early intervention powers for the PRA and FCA. These powers could be used when an institution’s position was deteriorating to try to prevent it failing and requiring resolution. The stand-alone powers, which include the power to require the removal of senior management, clarify the scope of existing powers.

Thirdly, the order provides new backstop powers for the Bank of England to resolve branches of third-country institutions operating in the UK, independently of the third-country resolution authority. The circumstances in which these independent powers would be used are exceptional. The preference of the UK authorities is for co-operation between authorities.

The order also addresses a couple of other issues. First, it introduces powers to enable the bridge bank tool to be applied through a share transfer for building societies. The bridge bank tool allows the Bank of England to transfer the critical assets and liabilities of an institution in resolution to a bridge bank until they can be safely returned to the private sector. This amendment will ensure that the tool can be applied to building societies flexibly. Secondly, it introduces powers for the Treasury and the Bank of England to recover bail-in expenses.

As I said at the beginning, these changes will strengthen the UK’s resolution regime. I beg to move.

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My Lords, I shall speak to the two orders in the order which they appear on the Order Paper. I welcome the noble Lord, Lord Sharkey, to our deliberations. His presence swells by 50% the number normally involved and it is good to have him with us. That puts in context the question whether this exercise is worth while, because if Her Majesty’s Opposition were to contemplate voting down the order, there would be a constitutional crisis as if a bomb had dropped on the place. Frankly, not approving the order is not a serious option. I can assure the Minister that I have no intention of opposing it; indeed, I support it—with one area of exception.

So what do we usefully do on these occasions? The orders are peculiarly complex, because one has to understand resolution and bail-in, which are not popular subjects at GCSE. I put it to the Committee that we do four things: we put the orders in a political context; we probe the meaning to reveal any weaknesses; we try to secure assurances; and we try to influence future development and guidance. Other than the fact that I shall go on constantly about the clarity and accessibility of the orders, I wish to make no political points. My efforts will focus on the last three concepts.

I count in this order four significant areas. The first I will touch on is Article 29, which gives back to the Bank of England stock powers in the case of a UK branch of a third-country institution. I have no comments on that part of the order and am content. Similarly, Articles 21 and 22 provide for a tool to create a situation in which a building society can use the bridge bank tool. That is perfectly sensible.

I move now to the two most significant areas. Articles 31 and 32 give the PRA and the FCA powers to remove and replace directors and senior managers, and to appoint temporary managers. It is difficult to overstate how significant this power is. It has been implied, or even expressed in legislation, but the lawmakers are obviously not confident that it is clear enough, and I entirely support it being clarified. However, it does effectively mean that the board, chief executive or chairman of a privately owned bank that is trading could be removed by the PRA. That is a pretty dramatic thing to do. I do not think those powers exist anywhere else in what I will call “company law”, to use a very general term. Therefore, my first question on this area is: given the serious nature of Article 31 and 32 intervention powers, what procedures has the PRA set up to ensure that they are exercised in a fair and proportionate manner? It seems to me that the powers and how they are exercised need to be clearly understood. It would be useful on this occasion if the powers, how they are exercised, how they are accountable and how they can be challenged were placed on the record.

We come now to Article 15—the centre of the order. Article 15 speaks to the whole issue of bail-in, which is about “too big to fail” but also the crucial question of who pays. In 2008, the Labour Government decided that the big banks were too big to fail. That was a perfectly proper and courageous decision. I call it courageous because it was not at all clear that anybody had the authority to do anything at the time. If you read the accounts of the chaos at the time, particularly over that weekend, you will see, as is my recollection of events, that the UK led the world in stepping in to make sure that the banks did not collapse. The US had already set a precedent, having allowed Lehman’s to fail. The downside of this courageous decision was that the public purse paid. The essence of the bail-in is to ensure that shareholders and creditors pay first. It is an elegant but complicated concept. The key issue in a bail-in is how assets are swapped for equity during the resolution process. It is sufficiently important that it is not in fact handled by the PRA at this point but is handed over to the Resolution Directorate. Article 15 is about that concept.

On page 11 of this 56-page document, right at its end, Article 15 states:

“Provision may be made under subsection (6A) only if the Bank of England (in the case of a Part 1 instrument) or the Treasury (in the case of a share transfer order) consider that such provision would advance one or more of the special resolution objectives”.

To find the special resolution objectives, you have to go to another document. I went to the Banking Act 2009: Special Resolution Regime Code of Practice, published in March 2015. The objectives can be found there and are pretty general in nature. What does Article 15 do? As originally drafted, the Banking Acts expose the possibility that day-to-day contracts that were running as the Bank had resolved would be triggered into a default situation. Accordingly, it is my understanding that Section 48Z made a provision saying, “No, providing certain contracts meet certain parameters or needs, they are not sent into default”. This is perfectly sensible because it allows a bank to carry on trading, the ATMs to push out their money, counterparties to be met and so on. It then emerged that somebody working on this problem could foresee a situation where Section 48Z would prevent certain contracts being drawn into the bail-in. The solution was therefore to create the sweeping powers in Article 15, and I have some questions about those.

The noble Lord, Lord Young, said that the category of contracts to which the amendment would apply is narrow. My understanding is that they include possible bonds which would meet the minimum requirement—I have forgotten the formal term, but essentially it concerns easily accessible creditors where the value could be exchanged for equities. It is fine that it says that; one can see the logic. It is also clear that the Bank is contemplating a new set of trading relationships that banks should have, including proper timed default clauses. I would like the Minister to set out in a little more detail, if possible, what the categories would be and why Article 15 is not specific about them. Why do we have to move from having fairly detailed specification as to what Section 48Z looks after to a situation where, against these criteria, the Bank can say, “No, that is no longer protected by Section 48Z”?

If the open-ended nature of Article 15 is necessary for future developments, can the Minister give the Committee some sense of what future categories may be like? It seems unfortunate that as drafted, Article 15 would move us from a quite specific understanding of what is required to a situation where anything can be included, provided that it meets the test and would advance one or more of the special resolution objectives. Can the exemption be used on a contract-by-contract basis? In other words, if there are two contracts with the Bank that have similar characteristics but have different outcomes in different places in the market and against different creditors and so forth, can the Bank decide on a contract-by-contract basis which ones to choose, or does it have to use general classes of contracts so that the contracts in the class will all be treated equally?

Particularly important is who has the right to use this significant power. Who in the Bank of England will be responsible for using the Article 15 exemptions, and with what procedures? Equally important is how they will be accountable. One of the banks that failed the stress test—the only one that technically failed the stress test this year—was RBS. This would be a significant event if certain instruments were deemed bailable in. Who would do that? To whom would they be accountable? What would be the role of the Government, the chairman or the court? Is there a procedure and is it laid out? Are the governance details in the public domain? If not, are they planned to be? If so, in what document and when will it be published, if it has not been already?

I pause at this point to speak briefly about the help I have received in trying to understand the bail-in order and Article 15. I thank the Minister personally for sparing time to meet me and my colleagues, and for his letter and the two emails from his staff. I also thank Andrew Gracie, executive director of the Resolution Directorate in the Bank of England, who was kind enough to spare an hour of his time to talk me through how he saw this working.

That brings me to the objective of bail-in, and the wider issue of knowledge in and understanding of the marketplace. In a recent speech—except that I do not think it was a speech, so it is all rather confusing: the confusion is on the Bank of England website not in my mind—by Jon Cunliffe in an article on bank resolution in the European Economy online journal, dated 5 December, he says:

“Sufficient loss-absorbing capacity is clearly central to changing the answer to the “who pays?” question from taxpayers to shareholders and creditors. But two other things are also needed. First, everyone must be aware of the change and know where they stand in the creditor hierarchy if a bank fails. This will ensure that bank debt is accurately priced as creditors have incentives to monitor and control bank risk-taking”.

That central objective of the whole market understanding is crucial to the success of the bail-in procedures and the resolution procedure. For those of us who took even a superficial interest in the human dynamics of the world financial crisis in 2008—many of us will have watched the film, which I am told is remarkably accurate in getting to the underlying concept—the key problem with financial services and the banking world at that time was that people had no idea what they were buying. There was a complete lack of transparency in the instruments that were held. I am not sure whether Andrew Gracie said this in terms when I spoke to him but he concentrated not on bank resolution but on creating a world that was so clear to the participants—banking management and investors in banks—that there would never need to be a resolution. However, the whole thing revolves around everybody being clear: not just the banking community, referred to in the consultation, but those who lend to banks and buy bank debt instruments.

Given the primary objective as set out in Jon Cunliffe’s speech, which I quoted, and given this change in the bail-in regime, what steps are Her Majesty’s Government and the Bank of England taking to ensure that the market is fully informed? Given the importance of that and the wide variety of documents that are necessary to understand bail-in, are Her Majesty’s Government or the Bank of England, or both, planning to bring them together in a single document? You need an enormous number of documents simply to understand Article 15. The Bank of England brought them together in the Bank of England’s Approach to Resolution of October 2014. Given the number of recent changes, is the Bank planning to bring out a similar document and, if so, when? I cannot emphasise enough how important clarity is and that those participating in this management market know what all this documentation says.

Having interfaced with the Minister, officials and Bank of England officials—and I thank them all—I think that they are on the right track. My hon. Friend Alistair Darling had to pick up a dreadful mess in terms of legislation and available tools, and, a long way down the track, we have come to an optimal bail-in situation in which competent, committed people are engaged. They are developing and tuning contracts for everything in banks—from computer systems and buildings to loan instruments—so that, as far as I can tell from a distance, they are much clearer.

There is a question of whether the legislation, which we are technically approving today, is fit for purpose. Frankly, like most complicated legislation, it is now incredibly messy. You need to be affluent enough to buy a commercial copy of the legislation, which is almost impossible to read. Comprehensive and clear communication should be available, and I hope the Minister will be able to assure me that this is in place or there are plans for it to be place in future. Let us hope that the bail-in tool, as amended, achieves its underlying objective of never being needed and that the banking system is able to survive all the slings and arrows of outrageous fortune.

I now come to the macro-prudential measures order, on which, the Minister will be relieved to hear, I have fewer questions. The Opposition fully recognise the systemic risks related to the housing market and therefore support any efforts by this Government to mitigate any impacts from that on our financial stability. However, these good intentions could be undermined if processes are not put in place to facilitate that aim. Therefore, my questions to the Minister relate not to policy, which I think is adequately explained in the Explanatory Memorandum, but to process.

The specific issue I have in mind concerns the timing of the communication from the FPC to both the Prudential Regulation Authority and the Financial Conduct Authority. The Financial Policy Committee’s draft policy statement on powers over housing policy instruments states:

“The FPC’s policy decisions—and the text of any Directions given to the PRA and FCA—would be published at the latest in the quarterly FPC Record following its policy meetings. The FPC Record would include a summary of the Committee’s deliberations in reaching its policy decisions. The FPC would typically also publish an FPC Statement prior to this which summarised the policy decisions”.

It goes on to say:

“The PRA and FCA must implement Directions by the FPC as soon as reasonably practicable, provided it is in their legal power to do so. The FPC recognises that the implementation time would depend on a number of factors, including providing lenders with a reasonable time to comply, any procedural requirements that apply to the PRA and FCA, and the implementation approach chosen”.

If the decision has been taken to set limits, I would anticipate that the necessity to do so would have been significant. I am glad to see the draft policy note acknowledges that issues of timing would be sensitive, so I would expect the Minister to agree that the increases in selling or purchasing mortgages in the notification period would have a particularly significant impact on the country’s financial stability. I would be grateful if the Minister expanded on the draft policy note, setting out in more detail a proposed timeline and whether any thought has been given to what regulations a mortgage bought or sold in the notification period will be caught by. Timing is everything in this situation. What contingencies are in place if there are legal challenges or a delay in communication?

Given the enhanced powers this order seeks to give the FPC, increased accountability is needed in parallel to this increased responsibility. Indeed, page 6 of the Explanatory Notes states that this option is more beneficial because these changes allow for greater accountability and policy predictability as the FPC is required to maintain a statemented policy for each direction of powers. Do the Government believe that this really counts as increased accountability, given the significant discretion that is being handed over to the FPC?

Finally, I would like to ask the Minister about paragraph 10.1 of the Explanatory Memorandum. It states:

“The impact on businesses, charities and voluntary bodies is that buy-to-let lenders are estimated to face one-off transitional costs in aggregate of approximately £3.8 million to facilitate broader data collection”.

May I ask the Minister why this is necessary?

I would like to emphasise my thanks for the assistance I have had in looking at these orders. With respect to the buy-to-let order, I am content that the answers to my questions should come in a letter.

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My Lords, I will address myself to the order that is 56 pages long. I agree with the points made by the noble Lord, Lord Tunnicliffe—and I thank him for sharing with me the letter of 24 November from the Minister—but unlike him I am not convinced that the order should progress as it stands. It was discussed in the Commons a week ago and there was concern there about Article 15.4, which amends Section 48Z of the Banking Act 2009. In particular there was concern about the insertion of new subsection 6(b). This subsection, as Lord Tunnicliffe has pointed out, would give wide, apparently unlimited discretion to the Bank or HMT to decide which instruments were to be bailed-in.

The 24 November letter addresses the question but does not seem to provide certainty. It simply notes:

“The exceptions in the amendment of section 48(z) will only apply to a narrow range of contracts where doing so would add to the authorities’ efforts to meet the special resolution objectives”.

The Minister repeated that earlier this afternoon. The Minister went on to say the following in his letter:

“The government will provide further guidance in Chapter 7 of the Special Resolution Regime Code of Practice on which type of contracts could include clauses that are activated by the use of a crisis prevention or management measure”.

This inevitably raises the question of why we are being asked to approve this order, or at least consider it here, without seeing the guidelines. Would not it be much more sensible to wait until we have the guidelines in front of us? They are the substance of this issue, and Parliament should have the opportunity to discuss them. Perhaps in the absence of them, the Minister can help us by characterising the type of contracts that will be affected.

Then there is the question of timing. When will the guidelines be published? If it is to be soon, why not withdraw parts of this order and re-present them with the guidelines? If it is not to be soon, does this not unnecessarily prolong market uncertainty?

There is another area in which further guidance is promised. The order provides the power for the Bank to resolve branches of third-country institutions operating in the United Kingdom independently of the third-country resolution authority. The Explanatory Memorandum to the order notes that respondents to the consultation were “broadly supportive” of this power, but some were concerned about the broad definition of the “business of the branch”. It goes on to say that further guidelines—again, guidelines—will be provided in the code on how the bank will judge whether,

“conditions for the use of these powers are satisfied for branches”.

Without these guidelines, this part of the order can only generate considerable uncertainty. Again, surely it would have been more sensible to debate the order with the guidelines. As things stand, Parliament is being asked to give the bank powers without having a clear view of how they will be exercised. The same questions of timing arise. If the guidelines are to be published soon, would not it be better to postpone discussion on parts of this order until they are published? If they are not to be published soon, does this not create unsatisfactory uncertainty in the market?

On the whole, I feel that the uncertainties generated by the absence of these two sets of guidelines make this order significantly flawed. It would be much better to withdraw it now and re-present it when we have the guidelines before us, or to withdraw Article 15 and Part 3 and re-present when the guidelines are available. I suggest that course of action to the Minister.

I have one final point. The order is very long. It is also very technical, as the Government explicitly acknowledged in the Commons. Consolidation would help Parliament to debate it more efficiently and to understand future references and amendments. In his 24 November letter, the Minister said that the Government have no plans to consolidate the legislation and points out that consolidated versions can be bought from commercial providers. The Explanatory Memorandum repeats that consolidated versions are commercially available but adds that,

“given the limited amount of Parliamentary time available, there are currently no plans to consolidate the legislation amended by this Order”.

Is there, in fact, a limited amount of parliamentary time available, in any non-trivial sense? The current schedules suggest not, at least not up until the end of March. In the interest of the sanity of current and future parliamentarians, will the Minister reconsider consolidation?

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My Lords, I am grateful to both noble Lords who have spoken in this debate. It is a complex subject and I am grateful for what the noble Lord, Lord Tunnicliffe, said about the meetings that we arranged. I certainly found that the learning curve in understanding this had a fairly steep gradient. I am also grateful for what the noble Lord said about officials at the Treasury and the Bank of England. To put the measure in context, the heavy lifting was done back in 2015 when the BRRD was transposed into legislation. Today, we are looking at relatively minor improvements to that broad structure in the light of a review that has taken place over the last two years. As I think I said, there has been broad approval for the proposals that we have in mind. I will go through the particular issues that the noble Lord raised, starting with the powers to suspend the board of directors. The position at the moment, as set out in the Explanatory Memorandum, is as follows:

“The Order also gives stand-alone powers to the PRA and the FCA to require the removal and replacement of directors and senior managers in accordance with Article 28 of the BRRD, and to appoint temporary managers in accordance with Article 29”.

So the regulators already have the power to undertake these early intervention measures. The stand-alone powers we are discussing this afternoon provide greater clarity on the scope of those powers.

As the noble Lord said, these are serious powers of intervention. He raised a number of questions about whether they would be exercised in a fair and proportionate manner. The new stand-alone early intervention powers are proposed with procedural safeguards for the firms, banks and individuals affected, and the powers may be exercised only if the conditions set out in Section 71D are satisfied. The PRA is required to give notice of its intentions to the firm, the directors and the senior executives who would be affected by the proposed use of these powers, and to give them time to make representations to the PRA. If, having considered any representations made to it, the PRA still decides to exercise these powers, the firm and any directors or senior executives affected have a right to have the decision reviewed by the Upper Tribunal, which will be completely independent of the regulators. The PRA’s general governance procedures should also ensure that these powers are exercised in a fair and proportionate manner.

In non-urgent cases, which in practice means in the vast majority of circumstances, decisions will be taken by the appropriate PRA decision-making committee, made up of at least three people. In urgent cases, if it is necessary to take a decision before a recommendation can be made to the appropriate decision-making committee, the PRA will require decisions to be made by at least two persons. In that case, the decision will be taken only if the two decision-makers are unanimous. At least one of the two individuals will not have been directly involved in establishing the evidence on which that decision is based.

Both the noble Lords, Lord Tunnicliffe and Lord Sharkey, raised issues about Article 15 and asked to which categories of contracts the amendment in Article 15 would apply. As I said when I introduced this debate, the amendment in Article 15 would apply only to a narrow range of contracts. To date, the Bank of England has identified two categories of contracts for which the amendment would be likely to apply. One category, mentioned by the noble Lord, Lord Tunnicliffe, is contractual bail-in instruments: debt instruments that qualify for the minimum requirement for own funds and eligible liabilities where the contract specifies that the instrument may be written down or converted to the extent required on the occurrence of a specified event, for example, when the bail-in tool is applied. I think that the noble Lord, Lord Tunnicliffe, accepted that that was a reasonable provision. With foreign law-governed debt instruments, it is necessary, for example, to ensure that the bail-in will take effect on a contractual basis because the application of the statutory bail-in power may not be enforceable on a cross-border basis.

The other category is certain service contracts specifying the terms on which services will continue to be provided following a resolution. These contracts therefore support operational continuity in an institution following resolution. Service contracts would also include certain contracts with financial market infrastructure, such as payment and settlement systems, where it is important to ensure that they continue to offer access to a firm after it has entered resolution.

Both noble Lords asked why Article 15 was not more specific about the categories. The answer is that resolution planning is an iterative process and banks are complex. It is possible that additional types of contracts could be identified at the advanced planning stage, where the Bank of England is preparing for the failure of a particular bank, so a broad formulation of the new power that Article 15 inserts into Section 48Z is appropriate.

It is worth noting that Section 48Z is itself a broad rule, which overrides contractual rights that are triggered in resolution. The power in Article 15 permits the Bank to exempt certain contracts from this broad rule in Section 48Z. The result is that to facilitate the resolution process, the contract will take effect in accordance with the terms to which the relevant parties have freely agreed—that is almost back where they started. If Article 15 were narrowly defined, as has been suggested, the risk is that the contractual terms which parties have freely agreed to facilitate resolution would not be able to take effect. The Special Resolution Regime Code of Practice will be updated to give further guidance on the types of contracts to which the new power may be expected to be applied.

I was asked about the sweeping powers of—

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Does the Minister have a date for the update?

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No, but hopefully, I will be updated very shortly on the update.

Resolution planning is a technical and iterative process and, as I said a moment ago, this may uncover further categories of contracts where the activation of default event provisions could aid the Bank of England’s efforts to resolve a firm.

I was asked by the noble Lord, Lord Tunnicliffe, whether the Article 15 exemption could be used on a contract-by-contract or category-by-category basis. In order to have full flexibility in resolution, the Bank of England will have discretion to specify contracts or to describe categories of contracts in the resolution instrument.

I was also asked what procedures would be used and who would be responsible for the Article 15 exceptions. As the UK’s resolution authority, the Bank of England will be responsible for deciding to which contracts the exemption in Article 15 applies. Before exercising its resolution powers, the Bank is required to consult the PRA, the FCA and the Treasury. The deputy governor for financial stability and the executive director for resolution have day-to-day responsibility for resolution matters within the Bank, which has established a resolution committee and a resolution advisory committee for the purpose of decision-making in its role as the resolution authority. The most important resolution decisions are reserved for and may be escalated to the governor, who may be advised by the Bank’s deputy governors.

I was asked how those who take the decisions will be accountable. As I said, the Bank is obliged to consult the PRA, the FCA and HMT but noble Lords will know that the Bank demonstrates its accountability to Parliament through the House of Commons Treasury Committee. The Bank of England and Financial Services Act 2016 provides that the National Audit Office may carry out examinations of the economy, efficiency and effectiveness with which the Bank has used its resources in discharging its functions. Those are two important areas of accountability.

Issues were raised about whether the details of governance will be in the public domain. The Bank of England’s governance arrangements on resolution were published in the Bank of England’s memorandum of understanding with the National Audit Office. Details on its governance arrangements are likely to be covered in the Bank of England’s statement on the operational independence of its resolution function, which it is required to publish by the Bank of England and Financial Services Act 2016. I will endeavour to find out what dates there are for that.

Moving on to the issues raised by Jon Cunliffe’s speech—whether the market is fully informed of the products being bought and sold, and making sure that it is—the Government and the regulators have consulted extensively with stakeholders as they develop the UK’s resolution regime. For example, the Bank of England’s Approach to Resolution document sets out how it expects to carry out the resolution of a failing firm in practice, using the powers available to it as the UK resolution authority. The Treasury’s code of practice document, issued in accordance with Sections 5 and 6 of the Banking Act 2009, provides further guidance on the UK’s resolution regime. The Banking Act 2009 also establishes the Banking Liaison Panel. This panel of industry bodies, law firms and regulators advises the Government on the UK’s resolution regime.

Are we planning to bring all the relevant legislation into a single document? Here we move on to more disappointing news. There are no plans to bring the different documents together. Each document serves a clear purpose. The Bank of England’s Approach to Resolution document sets out how the Bank expects to carry out the resolution of a failing firm in practice, using the powers available to it as the UK resolution authority. The Treasury’s code of practice is a statutory requirement, which provides further guidance on the legislative framework.

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The Bank of England’s Approach to Resolution, from October 2014, is indeed the most readable of all the documents, but it is now clearly out of date. Is the Bank of England expected to produce an update?

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The noble Lord raises an important point, which I will of course pass on to the Bank of England. It is an independent body, but I am sure that it would like to respond to his point about updating the guidance, which, as he said, is now a little old.

Will the legislation be consolidated? Again, I am afraid, there is disappointing news. As a former Leader of the House, I can say that there was always enormous pressure on parliamentary counsel to draft legislation—it is a scarce commodity. Given the limited amount of parliamentary time available, there are currently no plans to consolidate the legislation. Stakeholders who are directly affected by the legislation and will therefore need a more granular understanding will be able to purchase consolidated versions of the legislation from commercial providers. In addition, HM Treasury’s special resolution regime code of practice will be updated to reflect the changes made by the order.

On the issue of third countries and the independent resolution powers, the powers that we are taking are in line with the Financial Stability Board’s “Key Attributes of Effective Resolution Regimes for Financial Institutions”. These key attributes recognise the need for resolution authorities to have, as a fallback option, the ability to take independent action with respect to local operations of foreign banks in certain circumstances, although, as I said at the beginning, every effort will be made for resolution by co-operation.

The noble Lord, Lord Sharkey, asked about the code of conduct. It will be published in the new year. I think that I covered the contracts under Article 15 in my introductory remarks.

The noble Lord, Lord Tunnicliffe, talked about the macroprudential issues and said that he would be happy to have a response to those in a letter, an offer that I gratefully accept. Now that the in-flight refuelling has arrived, I can say, on the macroprudential measures, that the FPC has included all previous recommendations and directions in the statements that follow its meetings. Implementation will depend on the specific direction and the regulators must consult on any rules that would implement these powers. The FPC may make recommendations regarding the timing of implementation. As I said when I introduced these instruments, we have already put on the statute book a similar regime for owner-occupiers, with whom I imagine the same sorts of issues have already arisen. Broadly, the same regime will apply for buy-to-let.

The noble Lord, Lord Tunnicliffe, asked about the cost. The cost reflects enhanced data collection, which is necessary for the regulators to monitor compliance with these powers and other prudential requirements.

I hope that I have covered most of the issues raised.

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When the Minister says that the guidelines on the definitions of the business of branches will be available in the new year, does he mean January or sometime in 2017? Also, I do not think that I heard him give a date for the guidelines for Article 15.

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At this stage I am not sure that I can take it any further than I did in my earlier remarks. However, I would like to make further inquiries and, if it is acceptable to the noble Lord, I will write to him when I have definitive information on those timelines.

Motion agreed.

Bank of England Act 1998 (Macro-prudential Measures) Order 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Bank of England Act 1998 (Macro-prudential Measures) Order 2016.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Immigration Act 2014 (Current Accounts) (Excluded Accounts and Notification Requirements) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Immigration Act 2014 (Current Accounts) (Excluded Accounts and Notification Requirements) Regulations 2016.

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My Lords, the Immigration Act 2016 contains provisions to require banks and building societies—henceforth referred to as firms—to carry out immigration checks on certain accounts and prevent continued access to banking for known illegal migrants. The 2016 Act also delegated to the Treasury the power to make regulations that determine the details of how the regime will work in practice.

We need to deter people from attempting to enter the UK unlawfully and to ensure that those who are here illegally are encouraged to leave or to regularise their stay. Effective immigration controls require responsibility to be shared between the public and private sectors. Recognising this shared responsibility, the Immigration Act 2014 took a series of actions to limit the services available to known illegal migrants. These included prohibiting firms opening accounts for a disqualified person—an illegal migrant liable for removal or deportation whom the Home Secretary considers should be denied access to a current account.

Disqualified persons are those who have exhausted all appeal rights. They will have had the opportunity to attempt to regularise their status in the UK, including by raising any reason why they are exceptionally vulnerable or unable to return to their home country, but they will have either failed or not attempted to do so.

Details will not be shared with banks regarding individuals who still have outstanding applications or appeals for residency, leave to remain or asylum. Before opening a new current account, firms are able to check the applicant’s immigration status with CIFAS, a specified anti-fraud organisation. Where the check identifies that the applicant is a disqualified person, the firm must refuse to open the account.

The Immigration Act 2016 builds on these measures and targets accounts that are already open. This may be because the account was opened before the 2014 Act came into force or because the account was opened legally by a person who later became disqualified because of a change in their immigration status. Firms are required to check details of their personal current account holders against the details of disqualified persons provided to them via CIFAS. They are then required to report the results of those checks to the Home Office and, if instructed by the Home Office, to take action to close accounts or prevent continued access to accounts.

The Government recognise that this is a significant undertaking for firms. Treasury officials have informally consulted the industry on both the 2016 Act and the regulations that we are discussing today. That has informed the policy decisions made in the regulations. We have acted to try to minimise the burdens where possible, while ensuring that the regulations achieve the policy intention of preventing continued access to banking services. The Government have prepared an impact assessment for these regulations, which received a positive green opinion from the Regulatory Policy Committee.

The regulations should be read alongside the Immigration Act 2014 (Current Accounts) (Compliance &c) Regulations 2016, which were made on 7 November. This negative statutory instrument provides that banks must carry out immigration checks on a quarterly basis; it sets out the information which the Home Office must provide to a bank in response to notifications; and it sets out a requirement on banks to inform the Home Office of steps they have taken to comply with the duty to close accounts.

This statutory instrument covers three main areas: the types of accounts that firms must make immigration checks on; the requirement for firms to notify the Home Office of accounts they hold for disqualified persons; and provisions to enable the FCA to monitor and enforce compliance in respect of breaches of the regime. I will take each in turn.

Not all bank accounts are within scope of the requirement to make an immigration check under the 2016 Act. This instrument specifies that current accounts operated by or for individuals who are acting for the purposes of a trade, business or profession are excluded from the requirement to make an immigration check. In practice this means that firms are required to conduct checks on existing personal current accounts. Firms are not required to extend checks to all existing current accounts such as corporate or business accounts. This ensures that the checks undertaken by banks are appropriately targeted and proportionate. This reflects the Government’s ongoing view that current accounts are the gateway product to other financial services and a settled life in the UK. Such an account would be expected to provide functionality to hold deposits and make withdrawals without having to give notice. It would also typically enable the customer to receive and make payments through a number of different methods, including by cheque, direct debit, standing order, continuous payment authority or other electronic payments. Withdrawals, money transfers and other payment transactions can typically be conducted through various channels including ATMs, branch, online, mobile or telephone banking. Many current accounts also have overdraft facilities.

For the purposes of the Immigration Act, “current accounts” should also continue to include “basic bank accounts”. The requirement to make an immigration check does not apply to savings accounts, which in the Government’s view are intended to be opened for the primary purpose of accruing savings and not for day-to-day transactional banking, but which may provide some of the functionality I have just referred to. This also takes into account existing prohibitions in the 2014 Act, which mean that a disqualified person cannot evade the legislation by closing their current account and opening a business account as a sole trader or a charity.

I turn now to notifications. If a firm makes an immigration check on a personal current account and finds a match, the bank is required to notify the Home Office using a secure Home Office portal. To allow the Home Office to confirm the match and instruct on next steps, this instrument requires firms to provide certain information. This includes details of any other accounts that the firm holds for the disqualified person and the balances held in those accounts. Information about regular payments into accounts above a threshold of £200 has been included to allow the Home Office to identify patterns of payments that may constitute evidence of illegal working. The requirement to provide information is limited to what firms hold and can retrieve. It does not require the further investigation of data not held. The Home Office will then confirm the match, based on its data, and instruct the firm on the next steps.

Depending on the information provided and the details of the disqualified person’s case, the Home Office may apply to a court for a freezing order or notify the firm that it is under a duty to close any accounts it holds for that person. Noble Lords may be interested to know that the Home Office is preparing a code of practice on freezing orders, which will be laid before Parliament in advance of the implementation scheduled for October next year. Where the firm is notified of its duty to close accounts, the 2016 Act provides that it will be able to delay closure for a reasonable period to recover debt or manage the effect on third parties. Firms will also be able to comply with the duty without closing an account if they are able to take steps to prevent that account being operated by the disqualified person. Firms are required to provide the Home Office with information about the steps that they have taken to comply with the duty.

Finally, this instrument also enables the FCA to monitor and enforce firms’ compliance in respect of breaches of the regime introduced by the 2016 Act, mirroring the existing role of the FCA for the purposes of the 2014 Act. I hope that noble Lords will agree that these regulations strike an appropriate balance. On the one hand they achieve our objective to prevent continued access to banking services for disqualified persons, but on the other the action they require of our firms is appropriately targeted and proportionate. I beg to move.

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I thank the Minister for introducing these regulations so thoroughly. We have no intention of opposing this instrument, but I would like to ask the Minister for some clarity around a number of points. In the interests of expedition, I will be content to receive a letter if that is helpful. I also have no intention of making this a broader debate about immigration policy. This is neither the time nor the place because that subject will be at the heart of our political discourse in the coming years and colleagues will have appropriate opportunities to air their views.

I recognise that business accounts can be easily identified and will therefore be easy to exclude from checks, but what procedures are in place when the situation is not as clear? Can the Minister also outline what is required of firms if there is a query over the bank account status; in other words, if there is some debate over the status of bank accounts, how much of the burden of responsibility will rest with the firms to investigate?

On consultation, why was an informal consultation thought to be sufficient, rather than a more substantive discussion between the relevant stakeholders? The information that firms are required to send the Home Office seems comprehensive but I would be interested to know what differences of opinion were expressed about which data were necessary between different firms and, indeed, between firms and the Government. Finally, to give us some feel of the mechanism, I ask the Minister to outline what will happen if regular payments of £200 are found to have taken place. How will this information be shared and how will the relevant authorities liaise?

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I am very grateful to the noble Lord for his welcoming of the measures before us. He generously said that he would accept a written reply to the issues he raised. It is an offer that I accept with open arms. A letter will be on its way as soon as practicable, and I am very happy to place a copy in the Library so that it is of broader interest. I beg to move.

Motion agreed.

Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016.

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My Lords, the main purpose of these regulations is to fulfil our obligations to transpose the non-financial reporting directive. While we remain a full member of the EU, we will continue to implement EU legislation in a positive and cost-effective fashion. That is why we are here today.

The non-financial reporting directive builds on provisions in the earlier EU accounting directive which require certain business entities to disclose a range of non-financial information alongside their accounts. The accounting directive applies only to certain types of business undertaking, which have limited liability. For simplicity’s sake, I will generally refer in my remarks to companies, but the Committee should bear in mind that these remarks apply also to qualifying partnerships and groups.

I stress that the scope and requirements of the non-financial reporting directive are intended to capture companies that are likely to have the most impact on society and the environment. The requirements therefore apply to large companies that are defined as public interest entities and which have more than 500 employees. The requirements also apply to a company if it is a public interest entity and is the parent of a large group that has more than 500 employees within the group. Public interest entities are entities whose activities are of major interest to the public; they include banks, insurers and quoted companies. We estimate that the total number of UK companies that will be impacted by the regulations beyond familiarisation costs will be around 260 public interest entities. A further 15,000 subsidiaries of public interest entities will also be impacted by the need for reporting across the corporate group. The directive was strongly influenced by the United Kingdom’s existing regime for non-financial reporting. Consequently, the new framework broadly mirrors the requirements that currently apply to all the UK’s quoted companies, regardless of their size. However, the regulations cover all large public interest companies, not just those quoted on the Stock Exchange. Companies do not have to be quoted for their activities to have far-reaching consequences.

At present all companies, except those that are eligible for the small companies regime, must publish strategic reports. Within the strategic report, companies should provide an analysis of the company’s position and performance, and for large companies this includes using non-financial information. Quoted companies must also publish information about environmental, social, community and human rights issues, including information about any policies of the company in relation to those matters. The report must also include specific disclosure on gender diversity for directors, senior managers and employees. The strategic report is the narrative element of a company’s annual report. It provides colour and context for the accounts and should be forward looking to provide reassurance on the company’s direction of travel for investors and suppliers. Issues, such as cybersecurity and employee matters, can be as significant as the financial issues covered in company balance sheets.

The regulations we are discussing today require eligible companies to disclose, to the extent necessary for an understanding of the company’s position, information on environmental, employee, social and human rights. This is already required by the United Kingdom’s existing regime for some of these companies. However, the regulations also require disclosures on anti-corruption and anti-bribery matters. Companies must also describe any policies pursued by the company in relation to any of these matters and identify any principal risks. These disclosures will provide companies with an opportunity to bring discussions on these issues to the boardroom and demonstrate to shareholders and other parties that they are considering issues in their proper context and addressing potential risks.

The regulations will strengthen the current regime by requiring companies that do not have policies in these areas to provide an explanation for not doing so. I want to stress that companies are not required to make policies to have something on which to report, but they will need to consider whether they should have policies about these matters. Furthermore if they decide they should not, they will have to explain the reason for this omission. The requirements are sufficiently flexible to enable disclosures to be specific to the company. This balance, between specifying categories and allowing companies flexibility to provide relevant information, should ensure reporting is meaningful and cost effective.

A Green Paper, as noble Lords will know, has recently been published on corporate governance in the UK. I believe that the regulations will complement and support work to reform corporate governance by providing greater accountability and transparency on the position and wider impact of companies. Disclosure is important to ensure that shareholders have the information they need to hold directors to account. It is also a way of increasing investor and consumer trust in the business, providing broader confidence that it is being run well. By way of reassurance, I add that the regulations do not require the disclosure of information about impending developments if the disclosure would be seriously prejudicial to the commercial interests of the company.

The Government have worked closely with the accounting sector throughout this process, from the earliest negotiations to the implementation stage. In the consultation earlier this year, stakeholders recognised the need to transpose the directive. During the consultation, stakeholders raised concerns about how the requirements would interact with the United Kingdom’s existing regime. The requirements provide that a company which reports under the EU’s framework qualifies as having complied with overlapping elements of the United Kingdom’s domestic regime. The regulations also permit voluntary compliance with the non-financial reporting directive disclosure requirements. This means that companies can avoid the complexities of moving between reporting obligations during their lifecycle as their size, in financial terms or number of staff, increases or decreases year to year.

I must briefly mention another aspect to these regulations. Regulation 3 contains a minor correction to the transposition of the accounting directive. This ensures that the parent company of a small group cannot benefit from an exemption from the requirement to produce group accounts just because a member which is a public interest entity is established under the law of an EEA state and not in the UK. If a member of the group is a public interest entity in any EEA state, the exemption should not be available.

I am aware that some businesses can struggle with regulatory change to financial reporting. Many companies in scope of the regulations will have to adapt their reporting only slightly. Although the changes are not substantial, they will add value to company reporting in the United Kingdom. I could not discuss an EU directive without mentioning the implications of the result of the EU referendum. The Government have considered this carefully in our work and implemented the minimum requirements of the directive. There is no gold-plating.

The United Kingdom’s company reporting regime is well regarded. It is very important to maintain the United Kingdom’s reputation as a hub of global transparency. However, as our future relationship with the EU becomes clearer, this may lead the Government to examine whether certain aspects of company law are cost effective. In the meantime, building on the reputation of UK governance and the reliability of annual reports can contribute to making the UK an attractive place to invest. I commend these regulations to the Committee.

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My Lords, I thank the Minister for introducing the order, which as he said catches public interest entities; that is, companies whose activities likely to have a significant impact on the economy and society, including companies such as banks and insurers and extending to partnerships and other groups. The issue at hand is how companies assess non-financial risks and opportunities and how they incorporate them into their business strategies and models. The areas of main concern are environmental policies, policies about employees, respect for human rights, anti-bribery and corruption policies and diversity policies.

The Explanatory Memorandum explains, and the Minister also mentioned, that the underlying problem is really one of information asymmetry between the users of non-financial information and the directors of the company—a matter that in some senses transcends any temporary concern one might have about EU legitimacy in this area. It highlights that while UK companies are pretty good at reporting on environmental, employer and diversity policies, they are pretty poor at dealing with human rights and bribery and corruption issues. If there are asymmetries, they can lead to sub-optimal investment and trading decisions as well as misalignment of managers’ incentives away from delivering best performance in the company.

While the primary policy is to increase the transparency of PIEs including increasing relevance, quantity, consistency and comparability of the non-financial information currently disclosed by strengthening and clarifying the existing requirements, there are two quite important secondary objectives. The first is to encourage companies to better assess the risks relating to such matters as bribery and corruption and the other matters listed, and to incorporate these into their business strategies and models. The second is to increase diversity in corporate boards and the staff of companies and to enhance transparency concerning their diversity policies in order to help facilitate more effective oversight of management and governance in the company. We support those aims.

I have a few questions for the Minister, but I hope he will understand that we are not objecting to the regulations as they stand. If it would be more convenient for him to write to me, I am happy for him to do so. However, first I will make one observation, which I tend to have to do when I am dealing with orders from the department from which the Minister has emerged. Regulations are supposed to come into force on the seventh day after the regulations are made. In other words, these do not comply with the long-standing convention, which I had thought informed much of the work done by the department, that regulations which affect business, and these clearly do, should be introduced on one of the common commencement dates, which are 1 October and 5 April. Why is that? Has the department sought special exemption which can exceptionally permit other commencement dates, and if so, will the Minister explain what arguments of necessity and urgency were used?

Secondly, the regulations implement aspects of directive 2014/95/EU on disclosure of non-financial and diversity information and also directive 2013/34/EU relating to an exceptional group account about which we have no comments. The main problem facing the Government is that the UK does not currently recognise the group of organisations known as public interest entities and a large proportion of the Explanatory Memorandum is taken up with trying to show how all public interest entities based and operating in the UK are in fact caught by the regulations. In particular, the directive sets out four limbs within which it characterises the PIEs it wants to be in scope. I enjoyed the tour d’horizon of our legislative framework in paragraphs 4.7 to 4.10 of the Explanatory Memorandum, which almost convinces the reader that all the right companies are due to be in scope of this SI—or are they? In practice, as paragraph 4.10 makes clear, without recourse to the European Communities Act 1972, there are no statutory mechanisms for designating a small but presumably important group of bodies. Can the Minister say whether any companies or organisations have slipped through the net, and if so, why no recourse to the ECA 1972 has been proposed?

Paragraph 8 of the Explanatory Memorandum discusses the outcome of the consultation. I noticed one rather interesting area of controversy, to the effect that some stakeholders were,

“in favour of applying the Directive to all listed companies as well as the small amount of private companies that are in scope”.

The argument is that this would remove the small differences between the EU and domestic regimes, which I think the Minister referred to. The Explanatory Memorandum says that the principal reason for not gold-plating on this occasion was that it,

“would go beyond the minimum requirements of the Directive”.

Given that there was support among the consultees for going further than the minimum and that only a very small number of extra companies would have been captured, can the Minister tell us why this opportunity was not taken? It would have made more sense for external users of the information. It is a matter of regret that the information is not there. I understand that there is a voluntary procedure, but that is not what the consultees were asking for.

Finally, in paragraph 12.2 the Explanatory Memorandum explains that it is not necessary to make arrangements for a formal review of these regulations on what I think are rather specious grounds—that the regulations are amending,

“provision that is contained in primary legislation”.

However, paragraph 12.3 goes on to say that,

“the Department will keep the effect of the non-financial reporting requirements under review”.

The reason we are making PIEs disclose anti-corruption and bribery measures, as well as the others, is partly because of the EU directive but also because the Government accept—and they are right to do so—that it is necessary to encourage transparency and that a requirement to make this information available is in the best interests of the country because it will encourage “responsible corporate behaviour” as well as assist,

“the interests of other stakeholders such as creditors, investors and regulators”.

The Minister made that point. Can he explain this apparent reluctance to build a formal review mechanism into these new regulations and confirm that, as the department will in fact be reviewing them as if the requirement was in place, the review will be published?

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My Lords, I am grateful to the noble Lord for his very kind offer to someone such as myself, who is new to these matters, to write to him. I will certainly take him up on that. He might want me to take him up on that even after I try to answer some of his questions.

The noble Lord’s first question was about whether it would be possible to have a common commencement date. He said that it might be easier for companies if we stuck to 1 October or 5 April. The directive means that we can implement as close to the date as possible so as to avoid gold-plating. I understand that that means that the common commencement date does not apply. However, I certainly take his question on board and will come back to him if there is a better answer.

The noble Lord also asked whether there was a mechanism for a formal review. I can assure him that we always keep all these matters under review. The review process will certainly look in due course at whether all EU and domestic non-financial reporting regimes have led to unnecessary complexity for business. Obviously, that is something which will have to be kept in mind by the department.

PIEs were not recognised in the United Kingdom designation, as I understand it from the noble Lord’s question. There is no designation under the European Communities Act. He asked whether any companies have slipped through the net through this implementation. I can say that there is a legal definition of a public interest entity. The accounting directive defines what it is and we have used PIEs in the Companies Act when transposing the audit directive and the audit regulation because there are certain duties which only PIEs have—mandatory rotation and retendering of auditors, for example. The regulations further provide a list of entities to which the requirements apply, which is drawn from the accounting directive’s definition of a PIE. We believe that no companies have slipped through the net because we do not have our own definition; we are requiring what the accounting directive sets out.

I thank the noble Lord for his valuable comments. I can probably give him an assurance that there will be a letter in due course. I hope that, with luck, it might even arrive before Christmas. If it does not, it will be something for him to look forward to in the new year. I believe that his comments have been valuable, and that it is important to remember that the annual report can be used to present a very fair and balanced impression of a company, which goes beyond items on the balance sheet. These regulations strike the right balance between offering flexibility for companies to report on these issues of risk as they relate to their activities and providing a structure that makes the disclosures meaningful. The regulations should help to increase the transparency of how our companies behave and better equip shareholders to be active stewards of the companies they own. I beg to move.

Motion agreed.

Coasting Schools (England) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Coasting Schools (England) Regulations 2016.

Relevant document: 12th Report from the Secondary Legislation Scrutiny Committee

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My Lords, earlier this year Parliament debated and approved what is now the Education and Adoption Act. This gave the Secretary of State the power to identify, support and take action in coasting schools for the first time. It also required the Secretary of State to set out in regulations what “coasting” means in relation to a school. These draft regulations, which were laid before both Houses on 20 October, fulfil this requirement.

The Government are dedicated to making Britain a country that works for everyone, not just the privileged few, and that means providing a good school place for every child—a place that offers them the opportunity to fulfil their potential and be taken as far as their talents will let them go. Over the past six years, thanks to our reforms and the hard work of school leaders and teachers, nearly 1.8 million more children are in schools rated good or outstanding than in 2010, but a good school place is still out of reach for too many children, so there is more to do.

Last month we announced a new £140 million strategic school improvement fund for academies and maintained schools, aimed at ensuring that resources are targeted at the schools most in need of support to drive up standards and deliver more good school places. Our coasting schools policy will help us to target some of this investment. It will identify those schools, whether maintained schools or academies, that are not doing enough to help pupils fulfil their potential. Where these schools need extra support, the strategic school improvement fund will ensure that this can be put in place, so that the school can improve and every child can have access to a good education.

We have developed a coasting definition set out in these draft regulations which is clear, transparent and data-based so that schools can be certain whether they have fallen within the definition. It puts focus on the progress that pupils make in a school, recognising differences in intake by looking at the starting point of pupils rather than just their attainment. It considers performance over three years, so that we can identify and support schools that have struggled to stretch their pupils sufficiently over a number of years. We believe that this definition will identify those schools that are not ensuring pupils reach their potential, and allow the right support to be put in place so that schools can improve and give pupils the excellent education they deserve.

These regulations mean a primary school will fall within the definition if, in 2014 and 2015, less than 85% of pupils achieved level 4 or above in reading, writing and maths, and less than the national median percentage of pupils achieved expected progress in reading, writing and maths, and, in 2016, less than 85% of pupils met the new expected standard in reading, writing and maths and the school’s progress scores were below minus 2.5 in reading, minus 3.5 in writing or minus 2.5 in maths. A secondary school will fall within the definition if, in 2014 and 2015, less than 60% of pupils achieved five A* to C grades at GCSE, including in English and mathematics, and less than the national median percentage of pupils achieved expected progress in English and maths, and, in 2016, the school’s Progress 8 score was below minus 0.25. A school must be below the coasting thresholds in all three years—2014, 2015 and 2016—to fall within the overall coasting definition.

Both the primary and the secondary definitions contain different measures for performance in 2014 and 2015, compared to 2016 onwards. This is because the accountability system against which school performance is measured changed in 2016. This interim definition makes the coasting definition more complicated in the early years, but we believe that this is fairer for schools. It means that the definition is based on the measures that schools were already working to in those years and understand, and does not seek to apply new measures retrospectively. The definition will of course be simpler from 2018, when performance in 2014 and 2015 is no longer part of the three-year definition. Subject to Parliament’s approval of the regulations, regional schools commissioners will identify and start to work with the first coasting schools in the new year, once the revised 2016 results are published.

We first published this definition, with the exception of the 2016 progress thresholds, in June last year. It informed much of the helpful debate and scrutiny in this House during the passage of the Education and Adoption Act. It also formed the basis of the public consultation we held in the autumn of last year. A range of views were expressed in response to this, including, as the Secondary Legislation Scrutiny Committee has recognised, some disagreement with the premise of identifying coasting schools. There was, however, wide support—including among those who were opposed to the 2014 and 2015 interim measures—for the use of a progress measure as the basis of the coasting definition. Many respondents felt that this was the fairest and most effective way of identifying those schools that are failing to ensure that pupils reach their potential. Our new 2016 measures provide this focus on progress and will therefore address many of the concerns raised by respondents to the consultation.

I am aware that the Secondary Legislation Scrutiny Committee was also concerned that the regulations would have a greater impact on schools than is suggested in the Explanatory Memorandum. I reassure the Committee that this is not the case. Since the committee reported, we have published an estimate of the number of schools that will meet this definition when the revised 2016 results are published. This shows that around 800, or just under 5% of schools with eligible results, are likely to fall within the definition based on their provisional data. We expect that a sizeable proportion of those schools will also be below the floor standard or judged inadequate by Ofsted. Many of them will already be working with regional schools commissioners to improve their performance, so falling within the definition will not necessarily lead to additional action. For other schools, falling within the definition will be the start of a conversation. Regional schools commissioners will work with the schools identified, whether they are academies or maintained schools, to understand the important wider context and consider whether additional support would help them to improve.

Where a school has fallen within the definition but is supporting pupils well or has a sufficient plan and the capacity to improve, the RSC may well decide that no additional support or action is required at that stage. Alternatively, if in discussion with a school the RSC agrees that additional support is needed—for example, from a national leader of education or from a high-performing local school—the RSC will work with the school to help put that support in place.

Following initial discussions, the RSC may consider that a more formal approach is needed. For maintained schools, the RSC may use the Secretary of State’s powers to change the membership of the governing body or to direct the school to accept additional support. For academies, they may issue a warning notice to the academy trust setting out the improvement action required. Only in a small minority of cases do we expect RSCs to use the Secretary of State’s powers to direct a coasting maintained school to become an academy or to move a coasting academy to a new trust.

For these reasons, we do not believe that the regulations will place a significant or unreasonable burden on the school system. We know that teachers, school leaders and governors are all already working hard to ensure their schools continue to improve and provide the best education for their pupils. The coasting regulations will help identify those schools where more support might be needed, so we can ensure that this is put in place and the school can improve. As I have said, we expect directed conversion to an academy or a change of academy trust to happen only in a small minority of cases, and only where this is necessary to achieve the required improvement. I am sure noble Lords will agree that this is not unreasonable or overly burdensome when it is the only way to ensure pupils receive the excellent education they deserve.

I know from the informed and wide-ranging debate we had on coasting schools during the passage of the Education and Adoption Act that there is widespread support in this House for identifying and supporting those schools that are not fulfilling the potential of their pupils. We all want every child, regardless of their background, to have the opportunity to go to a good school and receive a high quality education. I hope, having heard again the detail of our proposed coasting definition and the principles that underpin it, that noble Lords will also agree that the definition we have set out in these regulations is the right one. I therefore commend the regulations to the Grand Committee.

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My Lords I welcome these regulations; this is a very constructive approach to picking up on schools that are not doing as well as they should be. I am pretty happy with key stage 2. At the end of it, we have a criteria-referenced examination; we have set the bar at 85%, which is none too high and, as a result, I think we are going to pick up a number of schools that need help that we might otherwise have missed. I hope, though, that the Government will make some further progress on key stage 4.

First, we still have the problem that the GCSE has become a norm-referenced exam involving the use of comparable outcomes. It is assumed to be impossible for the secondary school system to produce improved outcomes year on year above the level of the increase, if any, in key stage 2 results. That really says that all we expect of secondary education is that it does just as well as it has ever done, and that there is no inherent improvement taking place. I know the Government are experimenting—or perhaps still thinking of experimenting—with national reference tests, but I would be very grateful if my noble friend told me where we are getting with those. Otherwise, we face a serious difficulty, because key stage 4 is still producing examinations that pupils need to carry on into life afterwards. If we are effectively limiting the percentage of pupils who can achieve a pass grade in these exams, we are doing our people a great disservice over the longer term; it may be all right for now, but it is certainly not all right for the future.

Secondly, I am disappointed that the Government have chosen to set the bar so low for selective schools. There are coasting selective schools, but at the level the bar is set, I really do not see that we are going to catch them. I very much hope that the Government will keep this matter under review, and that when enough time has passed and we have seen the first year of this system in operation, having looked at it and made judgments on it as a whole, the Government will find some way of reporting to us or to the public on how it has gone, enabling us to have a conversation about how it could go better.

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My Lords, I thank the Minister for introducing these regulations and talking us through some of the mechanics involved.

A year ago, during your Lordships’ consideration of what is now the Education and Adoption Act 2016, the Department for Education undertook public consultation on the proposed definition of coasting schools. It received more than 300 responses. The department claimed,

“wide support for the use of progress measures as the basis of the coasting definition”.

I noted what the Minister said about the consultation, and I understand why he said it, but it is a fact that only 25% agreed that the principles underlying the definition of coasting were correct. The Secondary Legislation Scrutiny Committee was fairly clear in its criticism of that spin, asserting that,

“the claim made in Explanatory Memorandum of ‘wide support’, does not accurately represent the views put to the Department”.

That, to some significant extent, highlights the rather flimsy foundations on which these regulations sit. I shall have more to say about the committee’s report in due course.

Identifying and supporting coasting schools was not an initiative of this Government, nor indeed of the previous one; it was of course a Labour government policy, introduced in 2007. At that time, it was based on a school’s performance in tests and examinations but it also involved a professional assessment by Ofsted and discussions with the identifying schools about improving performance. By contrast, the present Government’s “coasting school” concept is based solely on a calculating-machine approach to school improvement and does not use professional judgments.

Perhaps the major difficulty in identifying coasting schools using performance data alone is that not all pupils make the same rate of progress as judged against the former national curriculum levels. Those from lower starting points, who are often from disadvantaged backgrounds, tend to make slower progress than those from higher starting points, who are often from more advantaged backgrounds. Rates of progress in schools with a higher proportion of lower-achieving pupils tend to be lower for all pupils in that school, which can lead to a wrong designation of “coasting” for some schools, while those with highly advantaged intakes—including, as the noble Lord, Lord Lucas, has just mentioned, grammar schools—can escape the coasting designation.

Last month the department published Coasting Schools: Provisional Data, which includes a breakdown of where the schools are geographically and their type. Therefore, it is logical to assume that Ministers know precisely which schools have been identified from this exercise. The provisional estimate includes 479 schools at key stage 2 and 327 at key stage 4. Among primaries, a high proportion of academy schools meet the coasting criterion compared with local authority maintained schools, while at secondary level the proportion is the other way round. It appears that the schools most likely to fall within the scope of the coasting schools regulations are those already converted into academies as a result of government intervention.

No school will be formally identified as coasting until the 2016 key stage 2 results are finalised and published in three days’ time, although we will not receive the results for key stage 4 for a further month. For that reason, I ask the Minister why we are being asked to consider the draft regulations now. We believe that parliamentary scrutiny should have been delayed until both sets of results had been published with time allowed for them to be assessed. That would have permitted judgments to have been made, for example, as to whether this data-only approach to coasting schools, without professional Ofsted advice, was identifying good and outstanding schools in areas of significant deprivation.

On 15 December, nearly 400 local authority maintained primary schools will be labelled publicly as coasting. Can the Minister say whether regional schools commissioners have notified these schools, the relevant local authorities and Ofsted in advance? In how many of these schools is intervention already taking place? I say in passing to the Minister that I have quite a few questions to put to him and I shall be more than happy if he cares to write to me in due course, to use a familiar phrase.

Decisions about what happens to a school will be taken by regional schools commissioners assisted by their head teacher boards. There is some concern that those bodies are neither widely accepted nor operate with a great deal of transparency. This issue has been raised before and I do not intend to pursue it today, but it is an issue. That concern was stated unambiguously earlier this year by the Education Select Committee in another place in its report on regional schools commissioners, concluding that their role remained unclear. That point is now thrown into sharp focus by the fact that these regulations give extended powers to the commissioners to intervene when schools are designated as coasting. Yet one of the Government’s key performance indicators for the commissioners is not schools standards but how many schools they are able to convert into academies. There is a clear conflict of interest there and, as stated by the shadow Schools Minister, Mike Kane, when these regulations were considered last week in another place:

“That prompts the question whether the RSCs are independent arbiters in terms of judging whether our schools are failing, successful or coasting”.—[Official Report, Commons, 30/11/16; col. 7.]

It certainly does, and I hope that the Minister will seize this opportunity to answer that question.

That leads us to another question: what will happen to maintained schools once these regulations come into force? The ministerial Statement on primary education issued on 19 October stated that regional schools commissioners should work with local authorities to determine actions for coasting schools. However, additional information provided in the DfE memorandum of 26 October to the Secondary Legislation Scrutiny Committee states that even though the legislation allows local authorities to take action in a coasting school that they maintain, this is expected to have little impact on the public sector as the regional schools commissioners will predominantly take action when maintained schools are regarded as coasting. It goes on to say:

“We do not, therefore, expect the additional power to be burdensome for local authorities”.

I welcome the Minister’s saying a few moments ago that he did not think it likely that many schools designated as coasting would be forced to become academies and that the other two options open to the regional schools commissioner should be pursued, but can he explain definitively the role that local authorities are expected to undertake if one of their maintained schools is found to be coasting? If the regional schools commissioner decides that the local authority should be involved, how will this be funded as a general rule? More specifically, how will this be funded after the education services grant finishes in September 2017? The provisional date of publication would appear to confirm the proposal in the March 2016 schools national funding formula consultation that school improvement support of around £250 million a year in the education services grant will terminate next September. Why has the DfE not confirmed this position so late in the 2017-18 budget-making cycle?

Perhaps I may further ask the Minister to write to me with information on how many of the 479 primary schools identified as coasting by the provisional data are already undergoing some sort of regional schools commissioner-instigated action, and are the commissioners ready and adequately prepared to deal with the remainder?

I turn to the question of whether there is the capacity among regional schools commissioners for an additional 800 schools to be managed by next year. The ministerial Statement on primary education to which I have already referred stated that the commissioners should work with local authorities to determine actions for coasting schools, but the Coasting Schools in England: November 2016 (provisional data) omits this. Some regional schools commissioners have already been using their powers to identify schools eligible for intervention using performance data from the 2013 to 2015 school years, but there is a real imbalance between the regional schools commissioner regions. The East of England and North-East London Regional Schools Commissioner has issued 48 of the 79 warning notices; two regional schools commissioners issued no notices at all, and a further two issued one each. That begs the question as to why there should be such a wide disparity in different parts of the country.

This issue relates to another question raised by the Secondary Legislation Scrutiny Committee. It asked the Department for Education how it would ensure consistency of action by regional schools commissioners given the discretion that they will have. The department told the committee that it would certainly moderate a selection of cases from each region, and review the evidence considered and the decision reached in each case. The action taken in a coasting school will, where appropriate, be discussed collectively and individually with the National Schools Commissioner. I welcome that. What discussions has the Minister had, or does he intend to have, with Sir David Carter to establish the parameters of such an approach?

There is also the question of whether there are, or are likely to be in the foreseeable future, sufficient multi-academy trusts to take over and sponsor the smaller and usually rural schools that may well be designated as coasting; but perhaps I have already used up my quota of questions for the Minister for one day—although of course, we will be going on to consider the childcare funding regulations. Research suggests that the traditional school improvement strategies of creating a self-improving institution, creating school networks and alliances and benchmarking against best practice are the key to improvement. For a school joining an academy chain this may happen as a result, but I feel that it needs to be more willingly acknowledged by the Minister, his department and the regional schools commissioners that this can equally be achieved in successful local authorities. There is no guarantee that, on its own, a school becoming an academy brings about improvement. That must be borne in mind as the identification of and assistance offered to coasting schools develops.

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My Lords, first, I will take back the point made by my noble friend Lord Lucas about key stage 4 and discuss it with my colleague Nick Gibb MP, who is the Minister for this area. On the bar for selective schools, we will keep that under review. Of course, the coasting definition applies equally to all schools and we will certainly keep it under review.

I am afraid that I will not be able to answer all of the questions asked by the noble Lord, Lord Watson, but perhaps I may respond to some of them and write to him on the others. I take his point about different pupils making different levels of progress from the starting point, but I think we have come up with a definition that is generally acknowledged to be fair and easily understood. Obviously, trying to work out exactly which pupils make what progress is very complicated, but the general definition we have come up with, which is based on measures that are already understood by schools, is the fairest and simplest way to proceed.

As for the noble Lord’s point about regional schools commissioners taking into account the wider context, they will, as is clearly set out in our procedures. That wider context includes Ofsted and the particular circumstances of the school, such as whether it is in a location that has intergenerational unemployment. We all know that, sadly, that is an issue in certain areas with a heavily white working-class population, for example. All this will be taken into account. The regional schools commissioners will work closely with local authorities. It is acknowledged now—I think the noble Lord, Lord Watson, said it himself—that school-to-school support is the best way to improve schools. They will be working closely with local authorities to help identify the help available, whether from other schools nearby, which may be local authority maintained schools or academies, or NLEs that can help them. They will also be able to access the school improvement fund, which I mentioned earlier.

All schools will know exactly where they are in terms of the results of the past two years, and will now have an estimate of their figures for this year. These will be published shortly. Of course, the regional schools commissioners will be working with some of these schools anyway—they may have asked for help—but they will all know exactly where they stand.

As for the resources available to regional schools—

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Although the Minister was not talking specifically about this, will he address my question on whether the schools that are going to be named publicly on Thursday have already been told by the regional schools commissioner that that is about to happen, and whether the local authorities have been told?

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They are not going to be named publicly but the schools will be able to work out from their results whether they are coasting.

As for the resources available to the regional schools commissioners, they started with very small offices of around six or eight people, but they have all now been substantially strengthened to an average of more than 40 people. We are satisfied that they have the resources in place. One thing that they are working on closely, as the noble Lord mentioned, is ensuring that we have enough capacity in the system and enough MATs to sponsor any failing schools where required.

I will write to the noble Lord in some detail on the other matters to which he referred. I am sure that all noble Lords support our ambition to ensure that all pupils, whatever their background and wherever they live, have the opportunity to go to a good school. I therefore hope that noble Lords will support our proposals and these regulations.

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On the issue of the context of the schools, will the level of English spoken in families also be looked at? I imagine that that may have an impact on a child’s learning and it might be helpful when it comes to the read-across with Louise Casey’s work on integration.

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The noble Earl makes a very good point. That is something we are looking at, and certainly increasingly seeing in some schools. The definition of EAL is sometimes a little loose, because there are plenty of people who speak fluent English but would be defined as EAL because it is their second or third language. However, in parts of the country an increasing number of schools are having to cater for a sudden influx in different year groups of pupils who do not speak any English at all. Certainly, the regional schools commissioners will take this into account.

Motion agreed.

Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016.

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My Lords, the Childcare Act 2016 delegates power to Ministers to create these regulations. It gives the Secretary of State a duty to secure 30 hours of childcare to three and four year-olds of working parents. The regulations provide for the additional 15 hours of childcare for children of working parents. I thank noble Lords who are members of the Secondary Legislation Scrutiny Committee for their views on and support for the regulations. I hope that my department has provided reassurance around the questions raised.

This Government are committed to giving working parents of three and four year-olds 30 hours of childcare from September next year. This policy provides significant support with the cost of childcare, worth around £5,000 per year, to working parents who take up the full 30 hours. We debated the eligibility criteria and the detail of the policy extensively during the passage of the Childcare Bill last year. These draft regulations provide more detail on the design and delivery of the additional 15 hours.

The draft regulations set out the eligibility criteria for the 30 hours entitlement. The main income-related requirement is that all parents within a household will need to be earning the equivalent of working 16 hours a week at the national minimum wage or national living wage, and less than £100,000 per year. We are also enabling certain “non-working” households to be eligible for the 30 hours; for example, where parents are not working because they are on maternity or paternity leave or where one parent is working and the other is not because they are disabled or have caring responsibilities.

The Secondary Legislation Scrutiny Committee asked how the application process would work. Parents will apply online via GOV.UK, providing some basic information which HMRC will verify against a range of government data. The system is being trialled with a variety of parents across the country, and I want to offer reassurance that a phone line will be provided for digitally excluded parents.

Over the summer, the department consulted on how the 30 hours would be delivered and published its response in November. On flexibility, we have carefully balanced the needs of working parents with the need to maintain quality for the child. As a result, and in the interests of the child, the maximum session length of 10 hours per day will remain. However, we are extending the hours in which providers can deliver the entitlement to allow parents who work shifts to use the offer as early as 6 am or until 8 pm where they need to do so. To support the market in delivering the entitlement flexibly, we set out in our response to the funding consultation that local authorities are permitted to include in their local funding formulae a supplement for “flexibility”.

To ensure simplicity and clarity for parents and providers, and fair, consistent arrangements for children and families, we have committed to a national grace period for children whose parents lose their jobs. Further informal consultation will be carried out with stakeholders on the length of the grace period before we set out final decisions in statutory guidance in the new year. My department continues to undertake extensive informal consultation with key stakeholders, including childcare providers, local authorities and national childcare provider organisations, and I am grateful for their constructive engagement.

I want to restate that children accessing the additional hours will benefit from the same stringent quality standards that we apply to the existing childcare entitlements. Providers delivering any part of the 30-hour entitlement will need to follow the requirements of the early years foundation stage and must be registered on the Ofsted early years register. We have also committed to developing a workforce strategy to help employers attract, retain and develop staff to deliver high-quality provision. The strategy is a priority and we will publish it as soon as possible.

The department has now responded to its consultation on introducing a new, fairer funding system. We have introduced a minimum funding rate so that no local authority is paid less than £4.30 an hour for the delivery of the entitlements for three and four year-olds, bringing the average total hourly rate up to £4.94 per child. This, along with the requirement that local authorities pass through 95% of the funding they receive from my department, means that the great majority of providers will see an increase in the level of funding they receive. Alongside this, we have also extended the £55 million per year supplementary funding for maintained nursery schools until the end of the Parliament. This reaffirms our commitment to high quality early education in disadvantaged areas and to social mobility. We are committed to consulting on longer term plans for maintained nursery schools.

I am delighted to report that we went live with the 30 hours offer for early implementation in eight local authorities in September. The programme is going extremely well with more than 3,700 children already accessing a 30 hours place. We are capturing learning from these areas throughout the year and sharing it with every area to make sure that the roll-out has the benefit of learning from their success. The 30 hours offer is just one part of my department’s broader commitment to giving all children, whatever their family circumstances, the best start in life. All three and four year-olds and the most disadvantaged two-year-olds receive 15 hours a week of early learning. The early years pupil premium provides additional support for the more disadvantaged three and four year-olds. Targeted support through the new special educational needs inclusion and disability access funds will support children with special educational needs and disabilities. To further help parents with the cost of childcare, tax-free childcare will offer parents a 20% subsidy on childcare from early next year. The Government’s flagship welfare reform programme, universal credit, already allows low-income working parents to claim up to 85% of their childcare costs even if they work for only a few hours a week.

Together these offers will amount to funding worth £6 billion per year by 2019-20. This is a major package of support for working families and is higher than any Government have committed to this sector previously. That brings me to the conclusion of my introductory comments, and I hope that the Committee will support these regulations.

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My Lords, there is much to welcome in what the Minister has said. He may well recall the graph of disadvantage, where an intelligent boy or girl from a low income family will start high on the graph but over a period of time will decline and a less intelligent and less able middle-class child will rise past that child. As the Minister so eloquently put it, “High quality early years childcare and education can make a huge difference and promote the social mobility of such young people”. So I welcome the extension of the funding.

As the Minister is aware, I am concerned that future costs, such as the new cost of the minimum wage—a welcome addition, but challenging for childcare providers—is something that the Government need to take into account in future funding arrangements. I am grateful to the Minister for indicating that he and his colleagues will be monitoring this very closely and I recognise that this is the most that any Government have invested in high quality early years childcare.

I have two questions for the Minister. One relates to the penalties part of these regulations. I do not know how they will work in detail and there may not be grounds for concern, but I am thinking again of homeless families. I thank the Minister for ensuring that the piloting of these arrangements has ensured that homeless families are given attention and reached out to. I am concerned that with their movement, they can be hard to communicate with, that they might miss letters, and I would not wish to see them penalised because they missed some correspondence that they should have responded to—the Minister might like to write to me on that particular point.

The second point is in regard to foster children. I am sure that we discussed this at length during the course of the Bill, but I cannot recall why it is that foster children are excluded from this; perhaps the Minister could remind me of that. Since we discussed the Bill, we have had a report from the Family and Childcare Trust highlighting that 14% fewer looked-after children access high quality early years care than the general population. I think that emphasises how more needs to be done to ensure that they do access it. It may be that their access needs to be kept under review. I have nothing more to add and I look forward to the Minister’s response.

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My Lords, I thank the Minister for introducing these regulations. It goes without saying that we welcome the extension of free childcare to 30 weeks from next September and it is helpful to have these regulations as the route map to delivering that—or at least in theory. I suspect that the practice will be more challenging and that the Government will, I fear, face real difficulty in meeting the demand unless greater resources are committed to that end.

My fears on that score stem from the current difficulty in ensuring uniform delivery of 15 hours a week and from what we hear of the plans for the future. Indeed, the Government have been accused in some quarters of “raiding the budgets” set aside by local authorities to help disadvantaged children in order to fund the doubling of free childcare for working families, some of them relatively well-off families. Local authorities currently receive government funds for 15 hours of free childcare for three and four year-olds. Under the present system, local authorities have been able to pay extra cash to schools with nurseries from that budget because they employ qualified teachers and are used disproportionately by poorer families. They have also been able to set aside extra funds to ensure that children from the most disadvantaged families get more than 15 free hours. However, local authorities will now no longer be able to offer additional funding above a set hourly rate per child. Instead there will be a requirement to pass on 95% of centrally provided funds directly to childcare providers.

The new offer of 30 hours of free childcare is of course available only to working families, so any child from an unemployed family currently getting more than 15 hours will lose that extra support. About 80% of three year-olds from the most disadvantaged areas currently attend childcare with a qualified teacher or early years professional. By preventing local authorities from continuing to offer what are known as “quality supplements”, it is likely that schools will need either to reallocate funds from the main school budget, which is already stretched to breaking point in many council areas, or reduce the status of their school nursery. This policy threatens to take cash away from disadvantaged children to pay for the childcare costs of better-off families. I am confident that the Minister will use this opportunity to deny that that was the Government’s intention, and I am not suggesting it was, but if that is the outcome then will he commit to finding a way of ensuring that children from disadvantaged households do not become the victims of unintended consequences that could seriously hamper their development?

The significance of this issue cannot be overstated. We know that the Government are struggling to find the resources to finance 30 hours of free childcare, but targeting non-working families or those who are disadvantaged should be off the agenda. This is because investing in early years is not just about quality childcare for working parents. It is also critical to closing the education inequality gap, which can already be very wide before children arrive at school. I suspect that the Minister will respond by saying that local authorities are able to offer additional cash to childcare providers from their wider budget, but the reality is that few local authorities have the flexibility to do that, and even where they do, it may not be on a sustainable basis.

At the beginning of this month the Early Years Minister, Caroline Dinenage, announced that councils will receive a minimum rate of £4.30 an hour in the new early years funding formula. This came in response to the consultation which was carried out over the summer and the DfE has now found an extra £30 million in its budget to support the introduction of this rate. While any extension of the supplement is welcome, the Government’s funding plans still fall well short across the sector of what is needed to deliver on their promise of 30 hours of free childcare. It has to be said that their record is one of closed Sure Start centres, rising childcare costs and parents waiting for much-needed support. The Government have also announced an extra £50 million for councils to build nursery schools, which is of course an important part of the whole process, but last week the shadow Early Years Minister, Tulip Siddiq, released figures that show a huge black hole in the Government’s nursery building programme which is needed to provide for the new demand. With only one-third of councils having submitted their bids, the total asked for has already exceeded £55 million, which suggests that there could be a shortfall of around £100 million if all local authorities are to have their needs met.

It is all very well promising free childcare, but we need assurances on the infrastructure and resources to back it up. Even if the Government dispute the figure of the shortfall, there will be one, so where do they intend to make it up because surely they did not intend that local authorities which apply for this funding should be turned away empty handed? If they are unable to get the funding, that will underline the evidence that the Government’s funding plans fall short across the sector of what is needed to deliver on their promise of 30 hours free childcare a week from September next year. At the same time, the childcare profession faces a recruitment crisis, with the nursery sector struggling to pay staff even the national minimum wage.

Caroline Dinenage announced that the increased rate in the early years funding formula will be made up of a base rate, plus an uplift for additional needs, based on measures for free school meals, disability living allowance and, as the noble Earl, Lord Listowel, mentioned, English as an additional language. The Minister also said that the disability access fund would provide £615 a year for every eligible child. That, together with the recognition in paragraph 9.8 of the Explanatory Memorandum to these regulations, is welcome. Currently, children with special educational needs or a disability are not adequately supported, and it is hoped that this additional funding will, to some extent, address that.

The response from providers and sector organisations still suggests that the latest offer from the Government is unlikely to be sufficient to achieve the requirements set out in the regulations and to deliver the policy more broadly. When these regulations were considered in another place last week, my colleague Tulip Siddiq asked the Minister whether such concerns over the latest funding announcement were well founded. She did not receive a response, so perhaps the Minister will be able to oblige today. I heard his opening remarks but, given the concern in the sector, I think that that point needs to be reinforced.

The doubts about sufficient resources remain. Sir Michael Wilshaw’s annual report notes that the current increase in early years places has not kept pace with the increase in the early years population. So, again, I invite the Minister to assure us that he is confident that there is sufficient capacity to meet demand.

I thought that last week the Early Years Minister sounded somewhat complacent, saying that she did not expect the 30 hours of free childcare offer to double the demand for childcare places, because many parents already access more than the 15 hours a week and pay for the additional hours. That may well be the case but surely, human nature being what it is, these parents will now cease paying for it themselves as they will be entitled to have it covered by government—within earning limits, of course. Therefore, why the demand is unlikely to double is at best unclear.

I have one final point of clarification to put to the Minister. A new organisation called Childcare Works is to be established. It is intended to be a conduit between the DfE and local authorities to ensure that there will be sufficient 30-hours places from September next year. I wish it, and the local authorities involved, well, but the DfE website describes the new organisation as a consortium consisting of two companies of consultants and a charity. I am happy for this to be done in writing but can the Minister outline some details of the kind of assistance—I assume it will not be handing out cash—that Childcare Works will provide to local authorities to meet the demand for 30-hours places?

I hope that the Minister will accept that I have no interest in scoring points at his expense—at least, not on this issue. Naturally, I wholeheartedly welcome the introduction of 30 hours of free childcare, but I repeat that it will be meaningless for many parents if it is not fully funded.

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In relation to the noble Earl’s points about future costs, as he knows—we have discussed this—we have thought about this carefully through our review. In answer to that point and the question asked by the noble Lord, Lord Watson, about capacity, it is true that the system has responded remarkably well to the substantial increase in provision that we have brought in over the last six years, including the funding for disadvantaged two year-olds. I think it is fair to say that the childcare system is in very good shape, but we will monitor it closely.

I will look carefully at the issue of homeless families and the point that the noble Earl made about penalties. I am sure he will also be interested to hear that in Swindon 30 hours of free childcare is being piloted in a refuge for women who have suffered domestic violence. This includes providing childcare at the refuge and using the space to provide training for the women living there.

At the moment, foster children are excluded from these arrangements but we have been listening carefully to concerns raised on this point. As we all know, foster carers play a vital role in supporting some of our most vulnerable children, and we recognise the importance of effective support for their recruitment and retention. However, we also need to consider whether it is possible for children in foster care to take up the additional hours in a way that promotes their best interests. We will consider whether the blanket exclusion of all children in foster care from the 30-hours policy is the right way to balance this and will clarify our eligibility criteria in relation to this group in advance of September next year.

The noble Lord, Lord Watson, was quite rightly concerned about disadvantaged children, and the Government and the coalition Government have been heavily focused on the plight of disadvantaged children over the last six years. Of course, our new Prime Minister has stated quite clearly that social mobility is right at the top of her agenda. As I said, we have already introduced 15 hours of free childcare to the most disadvantaged two year-olds and I am sure that noble Lords will be pleased to hear that take-up has gone up from 58% last year to 68% this year.

We introduced the pupil premium and the early years pupil premium, and the gap between disadvantaged children and others achieving a good level of development continues to narrow, from 19% in 2013 to 17% this year. We recently announced six opportunity areas, which will focus particularly on the issues facing disadvantaged children. It is true that the best way out of poverty is work and that is what our reforms to welfare have been about. But local authorities can still use their funding to provide additional support for disadvantaged children if they so wish. However, we are clear that if passing on the 95% creates real issues, it is something that we will listen to.

The noble Lord, Lord Watson, talked about capacity. As I said, the sector has responded very well to increasing capacity so far. In recent rounds, we have enabled free school applicants for primary schools to apply for nurseries as well, and a high proportion of those have done so. That has added substantial capacity.

The noble Lord also asked about Childcare Works. The consortium includes a number of people including Mott MacDonald. It has built both capacity and demand successfully so that 68% of disadvantaged two year-olds are now taking it up. Together with Action for Children, it offers a wealth of experience supporting local authority childcare providers to respond to the expansion of free entitlements. I think that that covers most of the points raised by noble Lords, but I will check Hansard carefully and write to the noble Lord, Lord Watson, if there is anything I have not covered.

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I thank the Minister for what he said about examining the case of looked-after children in early years provision. I have a couple of supplementary questions, on which he might write to me. The report, Starting Out Right: Early Education and Looked After Children, has four recommendations, and I mention two. One was improving national data on the attendance in pre-school of looked-after children. It would be helpful to have those data kept in future. Another recommendation was for a pupil premium plus for looked-after children in pre-school care just as there is in primary and secondary education. Perhaps the Minister will write to me about those two things.

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I will certainly do that. Having made those comments, I hope that noble Lords will support these regulations.

Motion agreed.

Representation of the People (Electronic Communications and Amendment) (Northern Ireland) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Representation of the People (Electronic Communications and Amendment) (Northern Ireland) Regulations 2016.

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My Lords, I beg to move that the draft regulations laid before the House on 2 November 2016 now be considered. This statutory instrument amends the existing legislative framework for elections in Northern Ireland to allow for people there to register online. The regulations make a number of other amendments to existing electoral law, but I will focus here on the most substantive provisions.

Increasingly, we are all used to banking, shopping and accessing a range of public services online. In Great Britain, people have been able to use the online Register to Vote system since 2014. The online digital service offers a quick and easy alternative to the more traditional option of paper application forms. It is clearly right that people in Northern Ireland should be offered that same choice, and I make it clear at the outset that it is a choice. There is no suggestion that the move to introduce online registration will replace the existing paper registration system. Applying to register on a paper application form will remain an option for any individual who does not want to register online. But for those individuals in Northern Ireland who want to take advantage of this new service, the draft regulations allow the extension of the already successful digital service operating in Great Britain to cover Northern Ireland.

We know that the online Register to Vote service has been very successful in the rest of the UK. Figures suggest that around 90% of those registering in Great Britain this year outside the canvass period did so using the online service. Customer satisfaction with the service consistently measures more than 90%. I am sure that we all want to see increased political participation in politics among young people, including in Northern Ireland. I am pleased to report that since the introduction of online registration in Great Britain, a record 4.2 million applications to register have been made by people aged 16 to 24.

The application pages developed for Northern Ireland have been user-tested throughout their development to ensure that the system provides an excellent standard of service. Under these draft provisions, a Northern Ireland online application will work in essentially the same way as for the rest of the UK. It will require the same personal data as for the existing paper form. I have had a demonstration of the system and can confirm that the service is excellent. Northern Ireland Members from the other place have also been offered a demonstration of the system; I am happy to extend that offer to noble Lords.

The system is quick and easy, taking no more than five minutes to complete. It will not allow anyone inadvertently to miss out information, which might delay their application at a later stage. This will mean more complete applications, less follow-up correspondence from the Electoral Office for Northern Ireland and more people being placed faster on the register. In designing this system, our primary concern has been to ensure that we retain the confidence of users that the electoral system remains secure. In Northern Ireland, the usual requirement for those applying to register is to provide a handwritten signature. In an online application through the digital service, the act of submitting the application form along with the declaration at the end of the application will constitute an electronic signature.

Your Lordships will also be aware that there are strict rules on absent voting in Northern Ireland, which will continue to be enforced. Every successful digital registrant in Northern Ireland will be issued with a digital registration number, which will fulfil the same function as a signature for digital registrants if they wish to apply for a postal or proxy vote. It will ensure that postal vote applications can continue to be scrutinised appropriately. The number will be unique to the individual, last for their lifetime and remain unaltered no matter how many times the individual moves or changes their name. We have consulted the Electoral Commission. It agrees that the provision of an identifier to replace the signature check in the postal vote process is necessary. It raised the possibility of some individuals losing their numbers. To address this possibility, we have put in place a system allowing for numbers to be reissued quickly where they have been lost.

Officials will work closely with the chief electoral officer to monitor the successful operation of the digital registration number procedures. We have also changed the wording of the declaration at the end of the registration form for all applicants, both digital and paper. Applicants will be required to declare that they are the person named in the application and that the information they have provided is true.

There will also be special provision for people with a disability. The declaration makes it clear that the application and declaration can be submitted on behalf of someone unable due to disability to do so themselves, as long as it is done in their presence. The draft regulations also make comprehensive provisions for the exchange of data. This exchange is necessary to facilitate digital registration and allow applications to be verified against the DWP database. I assure your Lordships that these data-sharing provisions are necessary and include all the appropriate safeguards. The provisions have been modelled on the existing provisions in place for Great Britain and have been scrutinised and approved by the Information Commissioner for Northern Ireland.

These regulations do not yet cover the digital registration of overseas electors wishing to register in Northern Ireland. The Government are committed to implementing votes for life, so it makes sense to await the implementation of this wider electoral provision for overseas electors before designing the online system for overseas electors registering in Northern Ireland.

In addition to digital registration provisions, the draft regulations make a number of other more minor or technical amendments. These make improvements and ensure, where appropriate, consistency of administrative approach with the rest of the UK. For example, the regulations bring Northern Ireland into line with the data protections in place in Great Britain for individuals on the list of applicants to be placed on the register. Those wishing to inspect an entry on the list will still be able to see the name, address and nationality of the applicant, but not the other personal details contained in the application. The regulations also provide for removal of overseas attestation to bring Northern Ireland requirements into line with the rest of the UK. Further, they remove the outdated requirement for Crown servants and British Council employees to have their forms submitted by their employer.

The implementation of digital registration is fully supported and welcomed by the Electoral Commission and the Chief Electoral Officer for Northern Ireland, and the regulations have been approved by the Information Commissioner’s Office for Northern Ireland. If your Lordships approve these regulations, the precise timing of the introduction of digital registration will be determined by the successful testing of the electoral office computer system. I hope that all the necessary checks will be passed by the end of February. The regulations will be signed when the digital platform is ready to be launched and will come into force the following day.

I hope your Lordships will agree that the introduction of digital electoral registration is a major step towards modernising the delivery of elections in Northern Ireland. It is an excellent service that will offer people in Northern Ireland the level of choice and service that we all expect in these modern times. We hope that this change will lead to an increase in political participation among a range of groups, particularly young people. I commend the regulations to the Committee.

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My Lords, I thank the Minister for introducing the regulations and I for one hope to take up the offer of seeing a demonstration, which I understand will take place on Wednesday this week. First, I do not see this as a case of Northern Ireland catching up with the rest of the UK because our electoral registration participation rates are already very good. In fact, in respect of young people they are better than those in the rest of Great Britain. The last figures I saw showed that around 83% of young people were registered, but there is a reason for that.

There is a fundamental conflict in the Government’s position on this. If you were arguing that online registration is an attempt to encourage young people to register, which it might in some cases, another part of the Government’s policy with regard to electoral office matters is going in the opposite direction; namely, the closure of a number of electoral offices in Northern Ireland. That issue is in conflict with the Government’s stated policies. The local offices have a policy of direct engagement with schools, and that is why they have been able to raise the level of participation by young people. Simply making online registration available is no use unless people are motivated to participate. We already have a system that is working well and achieving very acceptable results.

I am not a Luddite in these matters—I use all sorts of online services—but we should not fool ourselves that all the necessary checks are done. The fact of the matter is that if you are connected to the internet, whatever the service, somebody can get at your information. Whether records are found on a roundabout on the M5 or something like that, people have a healthy scepticism about these matters. Nothing is absolutely foolproof. Indeed, if we are to believe our American cousins who are about to set up a Congressional inquiry to look into how President Putin was able to interfere in their recent elections, I should imagine that it is not beyond a possibility that somebody could figure out a way to interfere with our processes. That in itself is not of course a reason not to proceed. There is no question that being online can be very convenient for people. However, there are a number of downsides that we need to watch. As the Minister said, a lot of people do not have access to these facilities. In some parts of Northern Ireland in particular, broadband is so poor that it is highly likely that they will not be able to utilise fully the availability of the new system.

I want to make another couple of points. We have very tight regulations with regard to postal voting. I would not want to see circumstances in which people could cheat. It is already clearly obvious that participation in postal voting in Great Britain is very flawed. We saw in a recent mayoral election, not far from this place, that the courts had to overturn the result because of abuse of the system. Our system requires photographic ID. One form of photographic identification is the electoral identity card, which is unique to Northern Ireland. The availability of local electoral offices is one of the main sources of the increase in the number of people who have those cards. For lots of people, if they do not have a passport or a driving licence, an electoral identity card is proof that they are entitled to vote. It is in legislation as one of the forms of identification that an electoral office official at a polling station is allowed to accept.

We have to be careful that the system cannot be abused. For instance, if a third party is voting on behalf of someone who is unable to, we have already for postal voting a system of attestation where an individual on the electoral register has to attest that a particular individual has filled out an application in their presence. That does not apply simply to somebody who has a disability; it could apply to anybody. That is a safeguard to ensure that our system is less open to abuse. I would argue that our system is already effective and that an excellent service is being delivered.

There is of course another dimension to this, which is money. As I understand it, having recently met two Parliamentary Undersecretaries in the NIO to discuss this matter, they are under an obligation to try to cut their costs by 15%. If costs can be cut in a sensible and efficient way, I have no difficulty with that. What I would have difficulty with is the fact that, bearing in mind our history, the one thing we have at this point in time is universal acceptance of the impartiality and professionalism of the electoral office system in Northern Ireland. After a very difficult past, everyone accepts that we have an excellent system. What I do not want to see is us doing anything that would undermine that system in a drive to save £300,000 a year, which is roughly 15%. I believe that the contradiction in the Government’s policy is on the one hand wanting to bring out a new system which hopefully will encourage more people to register, but on the other hand start removing local electoral offices in the counties, making them less accessible to people, so there is a fundamental conflict. If the offices are not there, the engagement with schools is threatened, and that is the most successful thing that we have done to increase the number of young people who are registered.

I would say to the Minister, “Yes, there is a good case for it”, and I look forward to seeing the demonstration and I approach that with an open mind, but their policy as a whole towards electoral matters in Northern Ireland has a fundamental conflict in it—you cannot take one from the other in isolation. I urge the Minister to remember the history and remind him again that it was one of the areas that was always most contested. Twenty and 30 years or more years ago people felt that the system was being abused. We now have universal acceptance of the professionalism and impartiality of the service. I do not want to see anything happen to damage that. I urge the Minister and his colleagues to revisit the issue of closing these offices because part of the policy seems to be switching the matter and trying to encourage local councils to become involved. The history of bringing local councils into these matters has been that whenever a subject is devolved, the money does not seem to follow and the ratepayer ends up picking up the case. The bigger issue for us is that the electoral office officials are deemed to be impartial and professional, not under any political direction from anybody. That cannot be said if you have a local authority in a very difficult and contested constituency that is controlled by a particular party. That could give rise to pressure being brought to bear on officials. I would say to him that the impartiality of the service should be paramount, and while digital recognition and registration might be a perfectly acceptable part of that, provided that it is done properly, it is not the only part of the policy that has to be taken into account.

I am glad that the Minister said that he is looking at the issue of overseas electors, although not in the context of this particular regulation. I think that is right, because there is again the potential for abuse.

I say to the Minister that we have something that is very precious, is working and is universally accepted. I hope that we can improve on and modernise it, but at the same time we have to ensure that for a very small sum of money, if you are talking about a budget of £20 billion plus, £300,000 out of the Northern Ireland budget is not that much. I sincerely hope that while a drive for efficiency is always to be welcomed, no damage is done to the reputation or impartiality of the service.

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I thank the noble Lord for his speech and the clear explanation of the draft regulations. We are happy to support these changes. Voters in Great Britain have been able to access online registration since 2014 and the Electoral Commission recommended last year that this should be extended to Northern Ireland. Online registration is a quick, easy and, so far, popular alternative to the paper form. We welcome that this choice will now be open to voters across the whole of the UK. This is particularly welcome with regards to encouraging young people to vote, as we know that online registration in Great Britain has been widely taken up by younger voters.

The Minister is of course aware of the specific concerns relating to electoral fraud in Northern Ireland. We have been assured that the plans are brought forward with the support of the Electoral Commission and the Electoral Office for Northern Ireland. What kind of monitoring and evaluation will be done following these changes to ensure that the system works as intended? I ask that specifically with the provisions for the introduction of digital registration numbers in mind, to ensure that the absent voting system is not left vulnerable to electoral fraud. With assurance that the right safeguards are in place, we are content to support the regulations.

The Minister will be aware of concerns over the closure of electoral offices in Northern Ireland and the effect that this will have on jobs and on people’s ability to access local services where they do not have access to the internet. I know that the Government are consulting on the future of electoral services in Northern Ireland, and will not ask the Minister to pre-empt the consultation. But can he assure the Committee that for those voters who wish to use a traditional paper form to register to vote, that excellent service will still be available alongside the welcome access to online registration? I repeat that we are happy to lend our support to the regulations, and I look forward to the Minister’s reply.

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I am grateful to all noble Lords for their contributions and their support for the fundamental measure that we are proposing, which is extending digital registration to Northern Ireland. I will take the points raised by my noble friend Lord Empey in order. I note that these regulations are about digital registration, and many of his comments related to other aspects of policy.

First, on access to broadband, one can register online without having broadband. A standard internet connection will be enough and one can even register using a mobile phone or tablet if it is internet enabled. The reality is that there are rural areas across the UK that do not yet have the internet service that we would like and Northern Ireland is not unique in that regard, but that is not a reason to delay the introduction of this service.

My noble friend and the noble Lord, Lord Tunnicliffe, both asked about overall staffing of the Electoral Office for Northern Ireland. Staffing and the administrative implementation of digital registration are an operational matter for the Chief Electoral Officer for Northern Ireland. On wider matters, there is an ongoing consultation into the future structure of delivery of electoral services in Northern Ireland, and I hope that all interested parties will take the opportunity to contribute. In particular, the consultation seeks views on an enhanced role for district councils, which, as we indicate in the consultation paper, could pave the way for an increase in the provision of local services. However, we will consider very carefully consultation responses before reaching any final decision.

In terms of a digital system being more open to electoral fraud, clearly we believe that we have put in place a robust system. Details of an applicant’s name, date of birth and national insurance number will be checked against the national DWP database to ensure state-of-the-art identity verification. Once the identity check has been conducted, the electoral office will still run further data matching to verify addresses. That is not an automatic system. Once the computerised checks are completed, it will be for the Electoral Office for Northern Ireland’s staff to determine whether an individual is placed on the register. If there are concerns, they can contact the individual for more information. The other safeguard is that the certificate of registration will be sent by post to the registered address as a final identity check.

In answer to the noble Lord, Lord Tunnicliffe, the cost of extending the digital service to Northern Ireland is £250,000, which will be met by the Cabinet Office. Finally, I assure the noble Lord, as I did in my opening remarks, that this is to provide people in Northern Ireland with a choice, and the paper-based system will continue to be available for those who wish to use it.

To go back to another point that my noble friend Lord Empey made, engagement with schools is, again, an operational matter for the chief electoral officer, but no doubt this will continue to be of high importance in the future.

As I said, I am grateful for noble Lords’ contributions. I think that in this modern day it is right to give people the option of digital registration, and it brings Northern Ireland into line with Great Britain, while reflecting the differences in electoral law between Northern Ireland and Great Britain. We are designing the system in such a way as to retain voters’ confidence in its security. As I said at the outset, I hope that this will play an important part in increasing political participation in Northern Ireland.

Motion agreed.

Housing and Planning Act 2016 (Compulsory Purchase) (Corresponding Amendments) Regulations 2016

Motion to Consider

Moved by

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That the Grand Committee do consider the Housing and Planning Act 2016 (Compulsory Purchase) (Corresponding Amendments) Regulations 2016.

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My Lords, these regulations may look rather complex but I hope that the Committee will agree that the principle behind them is straightforward.

Before I launch into the detail, it may help noble Lords if I briefly describe the scenario that has led to these draft regulations being brought forward. Most compulsory purchase orders are made under the procedures in the Acquisition of Land Act 1981. Amendments were made to that Act in the Housing and Planning Act 2016. Corresponding amendments therefore need to be made to Acts which contain compulsory purchase powers that do not rely on the Acquisition of Land Act. That is the purpose of these regulations.

Now for the detail. Schedule 15 to the Housing and Planning Act 2016 amends the Acquisition of Land Act 1981 to require an acquiring authority to include additional information within the notice of confirmation of a compulsory purchase order. This notice is issued under that Act to those with an interest in the relevant land. The acquiring authority must provide information about the effects of the Compulsory Purchase (Vesting Declarations) Act 1981. They must also invite any person who would be entitled to claim compensation, if a general vesting declaration were executed, to give the authority information about the person’s name, address and interest in land.

These amendments were required because the preliminary notice to a general vesting declaration, which previously contained this information, will be abolished by the repeal of Section 3 of the vesting declarations Act by paragraph 5 of Schedule 15 to the 2016 Act. The reason for abolishing the preliminary notice is that it did not commit the acquiring authority to execute a general vesting declaration, so it was of little use as a warning. The notice period for entry has been increased to three months, as has the notice of entry, which follows a notice to treat—the other means of entry and taking possession.

The changes introduced by Schedule 15 will apply to the vast majority of compulsory purchase orders, as they are made using the procedure in the Acquisition of Land Act 1981. There are, however, a number of enabling Acts—the ones listed in the schedule to the draft regulations—where the procedure for obtaining compulsory purchase powers is not governed by the Acquisition of Land Act. This means that we must amend those Acts accordingly; otherwise owners and occupiers of land in orders made under those Acts will be denied the information about the Compulsory Purchase (Vesting Declarations) Act that others would receive. This is what these draft regulations do.

If any Member of the Committee is concerned that corresponding amendments regulations are a rather unusual way of proceeding, I hope that they will be reassured that this procedure is precedented. The Planning and Compulsory Purchase Act 2004 also amended the Acquisition of Land Act 1981, so corresponding amendments were then made in the Planning and Compulsory Purchase Act 2004 (Corresponding Amendments) Order 2007.

Members of the Committee may ask themselves why these amendments were not included in the Bill. These types of amendments take some time to research and prepare. They also could not be finalised until the lead changes in Schedule 15 had been definitely settled. Instead of rushing technical drafting late in the Bill’s stages, we decided that it would be better to draft the amendments separately with a view to bringing the regulations into force at the same time as the substantive provisions. I commend these regulations to the Committee.

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My Lords, I thank the noble Lord, Lord Bourne of Aberystwyth, for outlining the regulations before us. At the outset, I should say that we are supportive of the changes to the compulsory purchase brought in by the Housing and Planning Act 2016. We welcome the consolidation of notice periods for general vesting declarations. This is a complicated area of law and the simplification of regulations is very much welcomed. It would be helpful if the Minister explained carefully to the Grand Committee why these changes are being introduced through secondary legislation procedures rather than through primary legislation, when we considered the Housing and Planning Bill earlier this year. It appears to me that the department was very unprepared when we considered that legislation and that is the real reason for the changes being made in regulations rather than in primary legislation, where they should have been.

It would be helpful if the Minister could confirm whether I am correct that the regulations are concerned with the general vesting declaration procedure and, specifically, the preliminary notice period before making a general vesting declaration. They seek to ensure that Acts of Parliament that contain compulsory purchase powers are not subject to the Compulsory Purchase (Vesting Declarations) Act, but are still made subject to that Act. My understanding is that the regulations make provision for the amendments made by Schedule 15 to the 2016 Act as well, so that they also apply to the earlier Act.

Further, I welcome the standardising of the minimum notice period for entry to three months, rather than the confusing 14 or 28 days that existed before, and that the regulations state that clear information must be set out in the confirmation notice for a CPO issued under Section 15 of the Compulsory Purchase (Vesting Declarations) Act. These are fairly technical amendments and these changes will bring greater clarity, which is to be welcomed.

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My Lords, I thank the noble Lord, Lord Tunnicliffe, for his general support for the regulations. I can confirm that they indeed consolidate notice periods and standardise entry periods. As he correctly said, they also relate to the general vesting declaration procedure.

I repeat that we have brought these technical amendments forward in secondary legislation at this stage because, first, although it is a technical issue, it is non-controversial, as the noble Lord has just indicated, and, secondly, we did not have the certainty of knowing what the provision would be in general terms in relation to the Acquisition of Land Act until the Housing and Planning Act had passed. They relate to things such as the Pipe-lines Act 1962, the Harbours Act 1964 and the Forestry Act 1967. It is not that they are not important but they are, as it were, minority provisions in relation to the great bulk of compulsory purchase legislation. That is why it has been done in this way and, as I said, there was a precedent for this under the previous Government in 2007. With that, I commend the regulations to the Committee.

Motion agreed.

Committee adjourned at 6.26 pm.