Tuesday 12 March 2019
Arrangement of Business
My Lords, I remind your Lordships that, if there is a Division in the Chamber, the Committee will adjourn for 10 minutes.
Aviation Safety (Amendment etc.) (EU Exit) Regulations 2019
Considered in Grand Committee
My Lords, this draft instrument will be made using powers in the European Union (Withdrawal) Act 2018 and will be needed if the UK leaves the European Union in March without a deal.
The draft instrument corrects five principal EU regulations related to aviation safety, together with a number of Commission implementing regulations made under them. The draft instrument also makes some corrections to domestic legislation which establishes offences and penalties relating to the EU legislation. The most important of these is EU Regulation 2018/1139 —more commonly known as the EASA basic regulation —which establishes a comprehensive regulatory framework for aviation safety in the EU. In particular, it provides for the continued establishment of the European Aviation Safety Agency and the adoption by the European Commission of implementing regulations on aviation safety. These implementing regulations also ensure the EU member states can meet their obligations under the Convention on International Civil Aviation—the Chicago convention.
The implementing regulations each deal with a specific aspect of aviation safety regulation, including: the design, construction, maintenance and operation of aircraft; the licensing of flight crew, maintenance engineers and air traffic controllers; the provision of air traffic management and air navigation services; the design and operation of aerodromes. The other principal regulations are: Regulation 3922/91, on technical harmonisation, which has largely been replaced by the EASA basic regulation—but provisions on flight and duty time limitations still apply to the crews of aeroplanes undertaking air taxi, emergency medical service and single pilot commercial air transport operations; Regulation 2111/2005, which establishes the list of air operators banned from operating to the EU on safety grounds; Regulation 996/2010, which sets requirements for the investigation of air accidents and incidents; and, finally, Regulation 376/2014, which establishes requirements for civil aviation occurrence reporting.
Many of the corrections we are considering today are to clarify that the retained legislation only applies to the UK. For example, references to “the territory to which the treaties apply” are replaced with “the UK”, and references to “the competent authority” are replaced with references to “the CAA”. Other amendments relate to the relationship between member states. For example, requirements on the mutual recognition of licences are deleted, as are requirements on co-operation and the sharing of information.
The draft instrument also reassigns functions that currently fall to EU bodies. The majority of regulatory functions required under the EU regulations are currently undertaken by the competent authorities of member states. These include: licensing pilots, air traffic controllers and maintenance engineers; and certifying the airworthiness of individual aircraft. However, EASA is responsible for a number of functions, including: preparing proposals for new technical requirements and for amendments to existing technical requirements; approving organisations that design aircraft and aircraft engines as well as certifying the design of aircraft and engines types. The CAA will take on these functions, with the exception of those related to management of the EU safety regulatory system, which will be corrected so as to no longer apply. While design certification has formally sat with EASA since 2008, it is not a capability that the CAA has totally relinquished, and we are confident that the CAA will be able both to meet the needs of industry and to fulfil the UK’s international obligation as the “state of design”. The CAA is implementing contingency plans to ensure that it will be able to undertake the new functions effectively from exit day in the event of no deal.
The European Commission also has a number of functions under the EU regulations. Most notably, it has the power to adopt regulations, to adopt or amend technical requirements, to impose operating bans on airlines which do not meet international safety standards and make limited specified amendments to the principal EU regulations. All of these legislative functions will be assigned to the Secretary of State.
The powers to amend the retained principal EU regulations are very limited and are designed to ensure that the regulatory system can adapt to technical developments and changes to the international standards adopted by the International Civil Aviation Organisation—ICAO. Most notably, the Secretary of State may amend the annexes to the retained principal EU regulations, particularly the ones to the EASA basic regulation. The annexes contain the high-level safety objectives which are implemented through the technical requirements. This power is exercised through regulations subject to the negative resolution procedure.
In addition, the draft instrument also revokes four implementing regulations that set out internal procedures for EASA and which will become redundant after exit day. None of the amendments in this instrument changes any of the technical requirements established by the retained EU regulations. All valid certificates, licences and approvals issued by EASA or by EU/EEA states prior to exit day will remain valid in the UK by virtue of the withdrawal Act. The draft instrument provides that such certificates shall be treated as if they were issued by the CAA. The instrument limits the validity of most such certificates to two years after exit day, after which time CAA-issued certificates will be required. However, certificates related to aircraft design will remain valid indefinitely. The CAA needs to issue the safety certificates to have full oversight of aviation safety in the UK in accordance with the UK’s obligations under the Chicago convention.
The best outcome is for the UK to leave the EU with a deal, and delivering a deal negotiated with the EU remains the Government’s top priority. However, we must make all reasonable plans to prepare for a no-deal scenario. This draft instrument ensures that, in the event of a no-deal exit, legislation on aviation safety continues to work effectively and that the aviation industry has clarity about the regulatory framework in which it would operate in a no-deal scenario. I beg to move.
My Lords, I am grateful to the noble Baroness for introducing these regulations. It would be good if she could say something further as a result of the Boeing accident a couple of days ago, which brings aviation safety into focus.
I have a couple of questions, and I will use the Explanatory Memorandum as a reference because it is easier. My first question is on paragraph 7.2, “Corrections to domestic subordinate legislation”. She said that most aircraft types are subject to EU technical requirements and that will be changed from “EASA aircraft” and “non-EASA” aircraft to “Part-21” and “non-Part-21”. What is the point of this, and has anybody seriously tried to get associate membership of EASA? I know “European” is in the name, which probably means that it is anathema to some members of the Government, but it would be a lot easier. I will probably bring this up when we debate railways as well. EU technical requirements are well known and well respected. We will have CAA technical requirements if this SI goes through. What happens when they diverge? Is there any mechanism for our side to talk to the European side? It is pretty stupid to have technical requirements for aircraft in this country that will be different—even to a small degree—from those in the European Union. Of course, the same applies vice versa. We tend to think only about the problems in this country, but for our planes to be able to fly on the continent, presumably somebody has to confirm with EASA or the Commission that the technical requirements of our planes fit in with their specifications.
My second question relates to paragraph 7.5 of the Explanatory Memorandum concerning banned operators. Quite a few rather unpleasant cases over the years come to mind. The paragraph refers to the,
“list of aircraft subject to an operating ban in the Community”.
That means that there is a list, which is great, but what process will there be for the UK and the European Union to share that list? It would be pretty stupid to have two lists, and I hope that the Minister can give us some comfort that there will be a mechanism for sharing, as this is a very important issue.
My last question relates to paragraph 7.8, which refers to,
“powers provided for in Single European Sky”.
That is an ambition that has not quite been achieved, although it is some of the way there. Do I understand that it will now be dumped, that there will be a single European sky that does not include the UK and that we will have our own little sky? I look forward to the Minister’s responses.
My Lords, I thank the Minister for her opening statement. The Ethiopian Airlines crash has been a salutary reminder of the fundamental importance of aviation safety. Sometimes we take it for granted, but it relies on a complex interlocking of the highest standards for design, manufacture and maintenance, stringent standards for the training of flight crew and air traffic controllers, and exacting standards for the design and operation of airports. As aircraft have become more complex—the crash two days ago illustrates this point extremely well—and the skies become more crowded, the importance of international co-operation on the specification and maintenance of these standards has never been greater.
Yet this SI is intended to withdraw us from EASA and hence from access, as of right, to much of that international co-operation. I was very pleased that the Minister confirmed yesterday that the Government want to remain a member of EASA. I have no doubt that the Minister wishes to do so, but it was good to have the reassurance that that was the Government’s position. However, in the present political chaos, we cannot rely on this SI being simply a paper exercise.
Last November, the Second Legislation Scrutiny Committee drew our attention to this SI. It drew attention to the impact on CAA resources and to whether the EU will reciprocate in the recognition of licences, certificates and approvals. The UK will continue to have the same technical requirements and standards on exit day but, as the noble Lord, Lord Berkeley, has just said, there are real questions over future changes and over whether and how we will keep in step with the EU. Next week, we will be looking at maritime SIs, and we are way behind in keeping up with the flow of maritime legislation. I have real concerns that in the aviation sector, where technology moves on really fast, we will not be on the ball in changing our standards as fast as the EU.
EASA has set the highest standards, and we have been a very important member of it. Given the importance of our contribution, it is sad that we are considering this situation today. The CAA has a well-deserved reputation for efficiency and expertise. However, in future it will have to operate within the framework set by the Secretary of State, and not that set by the European Commission. The difference is this: as I pointed out last week, when we were discussing railways, there is an issue about the transparency of the process and the availability of the information for public scrutiny. I was concerned to read in Paragraph 7.4 of the Explanatory Memorandum that:
“Delegated powers in the Basic Regulation are transferred … to the Secretary of State, who will be able to make regulations to adopt new technical requirements or to amend the technical requirements”.
There is no procedure laid down here for consultation and no formal role for the CAA as advisers; and, worse, it is by negative procedure. I have very serious concerns about this, because there may be no public discussion and no public rationale provided by the Secretary of State as to why standards are changing.
I am concerned, too, about the implications of paragraph 7.3(b) in the Explanatory Memorandum, on the recognition of certificates. In future, individuals will need UK certificates if they are to fly or maintain UK-registered aircraft. This again has important resource implications, and I would be pleased if the Minister could give us details of the resource impact on the CAA in providing those certificates.
Paragraph 12.2 of the Explanatory Memorandum refers to additional staff for the CAA. It would be good to know how many additional staff will be needed and what their cost will be. If the Minister has not got that information today, could she write to us?
Paragraph 7.5 says that the UK safety list of banned operators will no longer be laid down in legislation but merely published on the CAA website. There have been serious incidents involving operators and banning, but I am concerned about this change of approach. Why will it not be laid down in legislation in future? Why is it just a notification on a website? Would there be a legal implication if there were to be infringements of a ban, for instance? Again, simply having this on a website lacks transparency and public accountability.
Moving on to the thorny issue of consultation, we have the same formula of words that we have had before—that there has been “regular engagement” with the industry and “long-established stakeholder forums”, and so on. This is absolutely not the same as consultation. It is much less transparent, and we are all aware that there have been issues with the ability of those who have been consulted in these forums—specifically, the limits that have been put on them in terms of what they could say publicly about their views on that consultation, the Government having limited their rights to do this. That is the opposite of a public consultation. If a public consultation had taken place, we would have a report on how many people were opposed to something, how many people supported it and so on, and if that report was not made public, we would have the right to ask for that information. There is no public trail of accountability here.
Moving on to the impact, individuals will need new CAA licences after two years. The committee’s report specified that the CAA will need 59 additional staff, 38 of whom were in post in November. Are they all in post now? What will the annual cost of this system be? Pilot licences issued by the EU must be validated by the CAA before being used outside the UK on a UK-registered aircraft. I note that there will be no charge for this, but last November the Department for Transport was unable to tell the committee how many people would be affected by the requirement for these new licences. Does the Minister now have that information?
As CAA licences will not be recognised in the EU, pilots will need to transfer their licence to another EU state if they wish to operate aircraft registered under the IATA system. Any cost to them will depend on which member state is involved.
I understand the reason for this statutory instrument, and I greatly regret the reason for it, but the system that is being put in place is less transparent, the standards will be less guaranteed and there are significant impacts on individuals working in the aviation industry. I am concerned that there has not been sufficient publicity about this aspect.
My Lords, I make my usual statement that I deeply regret being here. I think the idea of leaving the European Union without an agreement is absurd. In many ways, this SI and the many SIs I have worked through illustrate just how bad a situation it will be, but assuming that we are leaving, or have to be ready to leave, the EU without an agreement, I have looked at this SI. Its thickness deterred me from reading it, so my comments are based on the Explanatory Memorandum. Having been in the industry, I look forward to the seminar that the Minister is no doubt about to give us on ICAO. She will no doubt explain how this statutory instrument answers many of the questions that have been asked. I am sympathetic to many of them.
I shall restrict myself to two issues. The first is the powers of the Secretary of State. I have dealt with an awful lot of these SIs, and they have the same general characteristic: the stuff that is handled by EU regulators gets handed to UK regulators, and the stuff that is handled by the Commission is transferred to the Treasury. As I understand it, the Treasury is a body in its own right that can make decisions as a body in its own right. In a sense, one would expect the Treasury to be equipped to make those sorts of decisions. Here, paragraph 7.4 of the Explanatory Memorandum states:
“Delegated powers in the Basic Regulation are transferred from the Commission”;
and it ends by introducing a role for Parliament:
“Regulations made by the Secretary of State would be subject to negative resolution procedure”.
Unfortunately, as you read the document, it implies that decisions will be made by the Secretary of State himself, as the natural person. Given recent history, I am not sure that Parliament should be that comfortable with the idea of giving decisions to this Secretary of State, as the natural person. I assume it will not work like that. I assume the department and the Secretary of State will set up systems to advise the Secretary of State to analyse the issue and make sure that when we come to examine the regulations—if we choose to, under the negative procedure—the decisions would be backed up by a proper decision-making system, which the Minister will be happy to present to us. I hope we have reassurance on that point. To some extent, that covers one of the points made earlier in this debate.
Reading through the Explanatory Memorandum, I also stumbled across paragraph 7.6, which says:
“Corrections made include … removing provisions dealing with the relationship with and cooperation between EU Member States”.
I know we have had two tragic events recently, but the tremendous improvements made over recent decades in civil aviation safety absolutely depend on worldwide, international co-operation. Therefore, I hope that that paragraph is a technicality and that it will not change the attitude of the British Government to continuing to pursue this strong co-operation through the international bodies. I ask the Minister: what procedures will be put in place and what agreements will be sought to continue to optimise safety through international co-operation?
My Lords, I thank noble Lords for their consideration of this draft instrument. Before I move on to the SI, I am very happy to give noble Lords an update following the tragic accident in Ethiopia. The UK CAA has been closely monitoring the situation, as has the department. It made an announcement just after lunchtime today that it does not currently have sufficient information from the flight data recorder, so as a precautionary measure, it has issued instructions to stop any commercial passenger flights with that aircraft for any operator arriving, departing or overflying UK airspace. The safety directive will be in place until further notice, and of course the CAA remains in close contact with EASA and industry regulators globally.
It might be helpful to start by reiterating our position on EASA. We seek continued UK participation in EASA. This will help to ensure high levels of safety, as well as facilitating trade between the UK and the EU. We have the second largest aerospace sector in the world and the largest aviation sector in Europe, so it is not in any of our interests not to participate. It is a critical industry and, of course, safety is critical. This SI is not intended to remove us from EASA; that is a consequence of a no-deal Brexit. We want to see continued participation, but it is not just up to us to decide that. We very much hope that the EU will want us to continue participating in EASA. As the noble Baroness said, we have been deeply involved throughout its history. We very much hope that the EU will agree to our continued participation. However, we need this SI to be in place to ensure that we have a contingency plan; that is what this SI gives us. We very much hope that we will agree a deal and see continued participation in EASA. If we are in a no-deal situation, we expect to move into conversations about our future air transport agreement very quickly, which will also cover safety issues.
In response to the noble Baroness, Lady Randerson, who highlighted our response to the SLSC back in December, the mirror image of these regulations is the EU safety regulation. The EU is in the process of adopting the regulation on aviation safety. It will be voted on in the European Parliament tomorrow and at the Council next week. It has already been agreed at the Committee of Permanent Representatives and we expect no issues with its adoption. That EU regulation is ultimately designed to prevent disruption to the EU industry, but it will be beneficial to us as well. It has three strands. First, it will extend the validity of certificates issued by EASA to UK-based design organisations. That extension is initially set at nine months, but the Commission is empowered to extend it if it proves necessary. Secondly, it provides for the continued validity of authorised release certificates for products, parts and appliances, certificates of release to a service issued on completion of maintenance, and airworthiness review certificates issued prior to exit day by organisations approved by the CAA. Finally, it provides that examinations taken at CAA-approved training organisations prior to the entry into force of the regulation will remain valid. We think that the EU’s regulation, as ours, is a sensible contingency measure to have in place for a no-deal exit. It is not a permanent solution, and we very much hope that we agree a deal, and, if we do not, that we are able to negotiate further on safety regulations.
The noble Lord, Lord Berkeley, raised the issue of the banned airlines list. I agree that this is a very important list to have. On exit day, the UK list will be established and it will mirror the current EU banned list. The list will be published on the CAA’s website, and it will be updated to reflect the imposition of operating bans. Operating bans are imposed by the refusal or revocation on safety grounds of permission for an airline to operate to the UK or by the refusal or revocation of a third-country operator authorisation. As the noble Baroness, Lady Randerson, pointed out, unlike the EU list, the UK list is not contained in legislation because it does not itself impose the bans, but reflects bans that have been imposed by the exercise of statutory powers. We will, of course, aim to keep the UK list consistent with the EU list as far as possible, and the decision on any operating bans will always be based on advice from the CAA.
Sitting suspended for a Division in the House.
My Lords, before the vote we were discussing the banned airlines list. As I said, we will aim to keep the UK list consistent with the EU list, as far as possible. Those decisions on operating bans will be based on advice from the CAA. The method of enforcing that ban will be the same as it is today: the withdrawal of a permit or operating licence. There may be instances where the UK lists will need to deviate: if we have evidence that an airline does not meet international standards, we may want to prohibit it flying to the UK and add it to the UK list, even if the airline is still permitted to fly to the EU. We are working closely on implementing that list. There may be some resource implications, but we expect to be able to use existing resources within the CAA. As with all these things, we very much hope that we will be able to maintain close co-operation with the EU and maintain the same list.
The noble Lord, Lord Berkeley, raised the issue of the single European sky. We have already discussed the statutory instrument on air traffic management, and we absolutely recognise the need for our air traffic arrangements to remain in line with the rest of Europe. Safe and efficient air traffic management is a priority for us, and we will continue to work with European partners on it.
The new delegated powers were raised by all noble Lords. As I said, the draft instrument gives us delegated powers to make regulations, subject to negative resolution parliamentary procedures. The powers relate to the amendment or adoption of detailed technical requirements, which need to be updated regularly to reflect technical developments, changes to international standards, recommendations arising from accident investigations and so on. As the noble Baroness, Lady Randerson, pointed out, these changes come thick and fast. This reflects existing UK practice, where the technical requirements for aviation safety are contained in secondary legislation made using the negative resolution procedure and the fact that the EU requirements were adopted under Commission implementing regulations.
The draft instrument contains a power for the Secretary of State to amend the essential requirements contained in the annexes to the EASA basic regulation by making regulations subject to the negative power. These very limited powers are designed to ensure that the regulatory system can adapt to technical developments and changes to international standards adopted by the International Civil Aviation Organization to ensure a continued high level of safety. I understand the noble Baroness’s concern about consultation involving the CAA. We will of course always base these decisions on advice from the CAA, but the powers are very limited and relate only to adopting international standards, which we will continue to follow.
On CAA resourcing, the CAA is already responsible for many of the responsibilities, including licensing and oversight of a significant proportion of the UK aviation sector. However, the CAA will be taking on some work from EASA, which requires additional resources. It currently estimates that it will need 53 additional people, which has come down from 59, and 50 of those people are in place. The CAA is content that it is ready, should we leave without a deal. In line with the “user pays” principle, these costs will be funded through charges on industry. New charges arising from the transferred functions will mainly affect UK manufacturers and organisations based in third countries, including EU member states. The CAA will endeavour to keep those charges as low as possible. The CAA estimates that the cost of taking on new functions and responsibilities will be around £3 million for 2019-20 and £3.6 million in 2020-21. As I said, these costs will be recovered by charges to the organisations concerned, whether they are based overseas or in the UK.
On pilot licences, all pilot licences issued by EASA or EU or EEA states prior to exit day will remain valid if they were valid immediately before exit day. The instrument provides that such licences are to be treated as if they were issued by the CAA. However, in order to meet our obligations under the Chicago convention, pilots holding such licences who want to fly UK-registered aircraft will need to obtain the licence validation mentioned by the noble Baroness, Lady Randerson. This will be available free of charge, and the draft instrument limits the validity of licences to a maximum of two years after exit day, after which a CAA-issued licence will be required. A general validation will be issued by the CAA immediately after the SI enters into force. It will be downloadable from the website. I am afraid we still do not know how many people will be affected, as non-UK EASA licence holders are not currently required to notify the CAA when flying UK-registered aircraft. We have set this out in technical notices and we are working very closely with industry to make sure that this information is being given to pilots. We are trying to make the system for getting this licence validation as free and quick as possible.
The other part about licences regards holders of UK licences who need to transfer their licences to EASA in order to operate EU-registered aircraft. The CAA is working on that. We opened applications in January. As of 11 March, we have received over 4,500 applications. All applications which were put in at the right time will be completed before exit day.
On consultation and industry engagement, as the noble Baroness pointed out, the Explanatory Memorandum says that we have regular engagement with industry stakeholders. We also work with union representatives; those from BALPA were included in this engagement. The CAA was closely involved in identifying the corrections to EU legislation contained in this instrument. Stakeholders are very supportive of this draft instrument. It would provide continuity through maintaining the current technical standards and requirements. We published a technical notice in September to inform the industry and the public of the actions we are taking, and the CAA website has a microsite dedicated to EU exit, which provides information and advice. The EU and EASA have also published regular updates on the implications of a no-deal Brexit and guidance for those affected.
On consultation, can the Minister assure me that there will no more use of non-disclosure agreements for this ongoing consultation? That is happening at the moment for whatever reason, but it does not need to be a precedent that carries on after Brexit.
I agree with the noble Lord. We have used NDAs when commercial issues are at hand, for example on our US agreement. The aviation industry is not silent about Brexit. It has been very clear about its position. It is supportive of this draft instrument, but it is not supportive of no deal or leaving EASA; it is making that very clear and has done for quite some time. I genuinely do not feel that the industry has in any way been restricted by talking about its views on Brexit; it has been very vociferous on that point, and we are very aware of its views, which have influenced our position on EASA membership.
The noble Lord, Lord Tunnicliffe, asked about the removal of provisions dealing with the relationship with and co-operation between member states. As I said previously, our future relationship with EASA is going to be a matter for negotiation. We have been clear on our position. We very much hope that the EU will welcome that. It has been quite frustrating because the CAA has not yet been able to have conversations with EASA because of the position we are in with the negotiations. We stand ready, but we have not been able to do that because a deal has not yet been agreed. We will continue to participate in ECAC and ICAO, as participation in both organisations does not depend on being an EU state. Even in a no-deal scenario, we recognise the importance of co-operation and collaboration with our European and international partners and will continue to do that.
I think I have answered all the questions—
Can I take us back to the CAA’s 59 new employees? I am delighted to hear that progress has been made. However, it occurs to me—going back to what the noble Baroness said at the beginning of her response—that this SI is for a no-deal scenario, but the CAA has had to recruit for a no-deal scenario that might not happen. I am sure most of us very much hope that it will not happen. What will happen to these staff if there is a deal and good transition arrangements that allow us to continue as members of EASA and dovetailing in? I am not trying to have it both ways; I am not trying to say that they should not have been employed because they might not be needed. It just occurred to me that this is nugatory expenditure, but it might also have an impact on the permanence of people’s employment.
The noble Baroness makes a very good point. These are difficult decisions. We need to make sure that we have contingency plans and the right people in the right place. On the cost of those people, the DfT gave the CAA £2.7 million from the Treasury to build up contingency. These costs have yet to be transferred to industry, at least. She is quite right that people are being affected. I cannot speak for the CAA and its human resources plan, but it is an excellent employer and I am sure that it will have a good plan. Regardless of whether we get a negotiated agreement, many other aspects will need to be discussed, such as our future relationship following the end of an implementation period. I very much hope that those people will be used and used well. However, I will take up that point with the CAA next time I speak to it.
As I said, we are working towards a negotiated agreement that is supported by Parliament, and we very much hope that that will happen. However, we need to ensure that we are prepared in the event of no deal, and this draft instrument is a key part of the preparations. Aviation safety is a priority for us and, as the noble Baroness said, that has been highlighted by the tragic events over the weekend.
Both the UK and the EU have set out their intentions on safety regulations to ensure that we have the plans we need in place and to ensure that we continue to have a high-level—a world-leading level—of aviation safety, irrespective of the outcome of the negotiations. I beg to move.
Aviation Noise (Amendment) (EU Exit) Regulations 2019
Considered in Grand Committee
My Lords, the draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018 and will be needed if the UK leaves the European Union in March without a deal.
The regulations make amendments to domestic legislation and a directly applicable EU regulation that relate to aviation noise certification and the process for when operating restrictions are considered at airports. The first of those is the Aeroplane Noise Regulations 1999, which were made to implement in UK law EU obligations relating to noise certification requirements in relation to propeller-driven and civil subsonic jet aeroplanes. The noise regulations prohibit certain aircraft taking off or landing in the United Kingdom without an in-force noise certificate issued by the UK, or a competent authority of the state of registry recognised by the UK.
The Air Navigation (Environmental Standards for Non-EASA Aircraft) Order 2008, also known as the environmental standards order, would also be amended by this SI. It sets out the environmental standards relating to noise and emissions of specific UK-registered aircraft that are not subject to the basic EASA regulation—Regulation EU 2018/1139—and regulation by the European Aviation Safety Agency. These regulations apply largely to light and microlight aircraft.
Thirdly, the regulations would amend Regulation 598/2014, commonly known as Regulation 598, which establishes the rules and procedures with regard to the introduction of operating restrictions at certain airports based on a balanced approach to noise management—an agreed International Civil Aviation Organisation principle since 2001.
Finally, the regulations would also amend the Airports (Noise-related Operating Restrictions) (England and Wales) Regulations 2018, otherwise known as the operating restrictions regulations, which appointed competent authorities for England and Wales for the purposes of Regulation 598. The withdrawal Act will retain Regulation 598 in its entirety in the event of no deal.
The draft instrument also makes the necessary changes to the noise regulations, the environmental standards order and the operating restrictions regulations to ensure that the legislative framework continues to function correctly after exit day. The noise regulations are being amended so that in the UK, the same noise certification requirements apply to aeroplanes registered in an EEA state as apply to other foreign-registered aeroplanes. In effect, this will end the automatic recognition of noise certificates granted in the EU and the EEA, ensuring that the same rules apply in relation to the recognition of noise certificates for all aircraft registered outside the UK. The requirements relating to certification of UK-registered aeroplanes are also being amended so that they apply only to use in the UK rather than in the EU and the EEA. The regulations apply to propeller-driven and civil subsonic jet aeroplanes, including light aircraft and commercial passenger aircraft.
The changes to the environmental standards order amend the terminology in that order so that it is aligned with changes made to aviation safety legislation on EU exit. For example, the instrument removes references to EASA. The amendments to Regulation 598 provide for functions conferred on member states under the regulation to be conferred instead directly on the Secretary of State and, where appropriate, on the Northern Ireland Department for Infrastructure or Scottish Ministers. This includes an obligation on competent authorities to inform the Commission and other member states when operating restrictions are planned to be imposed, and instead provide for a UK-based “relevant authority” to be notified in place of the Commission. It also places an obligation on the relevant authority, instead of the member state, to ensure a right of appeal.
The Commission’s power to adopt delegated acts providing for technical updates to the regulations to take account of changes to international rules is conferred instead as a power for the Secretary of State to make regulations subject to the negative resolution procedure.
The amendments to the operating restrictions regulations reflect an amendment to the title to Regulation 598 made by this instrument.
The best outcome is for the UK to leave the EU with a deal, but this instrument ensures that, in the event of no deal, there will be continuity of aircraft noise standards and certification. It ensures that the regulatory regime in place after exit continues to regulate properly noise certification standards for aircraft and that the framework for consideration of operating restrictions at UK airports operates effectively. I beg to move.
My Lords, I am grateful to the Minister for that introduction. I have two questions. The first relates to the noise regulations and the assessment of the aircraft. It is difficult to see how we can have two different bodies coming up with different solutions, so I suspect that it will not be easy to reach agreement on how much noise an aircraft makes in certain circumstances.
My biggest worry is over the appointment of what is called a “competent authority” in paragraph 7.6 of the Explanatory Memorandum. It seems to me that the word “independent” could be added to “competent”. If we look at issues on operating restrictions, in the debates over Heathrow Airport and its third or fourth runway—or whatever it is called today—for whatever reason the Government have come out very strongly in favour of it and there are now, I think, several judicial reviews to challenge them. I cannot see how the Government acting as a competent authority, however competent they might be, can be seen to be independent of their policy, particularly in relation to Heathrow, saying they want this and are going to bulldoze it through under whatever circumstances. There are serious issues here about independence. When it was the European authorities, there was clearly independence. Now there is not, and given the particular status of Heathrow—in my view, it should be changed, but that is a completely different issue—I cannot see how this can satisfy members of the public, especially those who live under the flight path, that the Government can set operating restrictions and at the same time demonstrate that they are completely independent of their views on developing an extended airport for London. I will be pleased to hear how the Minister thinks the Government can wriggle out of those two conflicting requirements.
My Lords, this SI concerns one of the most controversial and divisive aspects of aviation. I assure noble Lords that I have not been copying the homework of the noble Lord, Lord Berkeley, but I shall make much the same point. Heathrow protestors will be looking at this SI very carefully and with great concern. It relates to the mutual recognition of noise certificates across the EU and the end of that system as it applies to the UK. From exit day, aviation safety legislation in the UK will be independent of EASA. EU Regulation 598 requires member states to appoint a “competent authority” to ensure rules are followed. That includes a balanced approach to noise management, and noise problems are supposedly to be addressed in a cost-effective way.
The balanced approach to noise management includes reduction of noise at source, the use of land use planning and management, noise abatement and operational procedures and operating restrictions. In future, who applies these rather vague and subjective principles, which are counterbalanced by cost effectiveness? It will be the Secretary of State. I had imagined the same scenario as the noble Lord. Promises have been made on noise abatement in relation to Heathrow that many experts believe will be very difficult—indeed, impossible—to achieve. The Secretary of State is the champion of the scheme and in any decision is bound to come under pressure to agree that the rules have been applied effectively, because it is a subjective judgment. There will be no back-up from international standards applied across the EU. There will be no international case law on an EU basis. There will be no EU comparisons to be made. I predict that the Secretary of State would be likely to buckle under pressure to agree the scheme for Heathrow no matter what the objections on noise grounds might be, but whatever happens it will be a highly controversial and highly political decision as opposed to one that would, under EU rules and processes, be taken slightly more objectively.
This SI once again preserves existing standards, but there are no guarantees in it that more stringent standards will be applied as aviation technology and quieter planes develop. I am very concerned that there are no guarantees that we will keep up with EU improvements, because this Government’s record on the environment is, quite frankly, abysmal. This SI opens the door for heavily political decision-making and for stalling environmental standards.
On consultation, we once again have the magic words that “specific meetings and workshops” have been held and that “long-established stakeholder forums” have been consulted. There has been no public consultation on this, so there has been no opportunity for the community groups established around most airports—most airports try to work with their local communities—to be aware that this SI was being put forward and to look at the its disadvantages. It is not just community groups; I wonder how many local authorities that have an aviation noise issue in their midst are aware that this SI is coming forward. I doubt that they are.
I very much hope we will have some agreement with the EU that makes it possible to have a more transparent and more far-sighted approach to aviation noise in future, but as it stands I find this a really retrograde step.
My Lords, I will not repeat at length the points made by my noble friend Lord Berkeley and the noble Baroness, Lady Randerson. I broadly agree with them and will certainly be listening with care to the Minister’s response. I do, though, come back to the issue of the Secretary of State exercising his powers. We got a clear answer on the previous SI that, in exercising his powers under that statutory instrument, he would consult the CAA. We need something a good deal more complex for this issue because noise is quite different in character from safety. Realistically, a member of the public does not have a useful or valid opinion about airline safety issues, but on noise a member of the public is exactly who it is all about. The issue is about communities around airports.
There are two areas that I would like the Minister to expand on. First, from what parts of government will the Secretary of State receive advice in exercising his powers? Secondly, I would like an assurance on matter of consultation. As far as I can tell, the statutory instrument seeks as far as possible in this nightmare scenario to maintain the status quo, but any changes to these regulations that the Secretary of State makes—using, once again, the negative procedure—will affect the general public in all the communities around airports, and of course there are also the additional issues of practicality, cost and so on. This is a difficult and complex political subject, so we need assurances that at any time in the future when the Secretary of State uses his powers under this instrument, he will conduct a full consultation to get all proper inputs to the decision-making.
I thank noble Lords for their consideration of this statutory instrument. The regulations do not set noise policy; noise standards for aircraft are set by ICAO and we will continue to follow them.
On the point about the competent authority, last year we laid regulations that appointed competent authorities in England and Wales. The implementation provides for the local planning authority to be the competent authority when an application for any change is brought under the Town and Country Planning Act, but it also allows the Secretary of State for English airports or Welsh Ministers for Welsh airports to be the competent authority for called-in applications. Therefore, that matter is slightly separate from this SI.
The noble Baroness mentioned the balanced approach. Regulation 598 requires the competent authorities to take account of the balanced approach, and that requirement is kept by this SI. It will ensure that the balanced approach consists of identifying noise problems at specific airports and giving consideration to various measures that might be available to reduce noise. That is being carried over in its entirety.
Expansion at Heathrow is conditional on a package of mitigations. The NPS makes clear that noise mitigation measures should be put in place to ensure that the impact is limited. Again, that is going through the planning process following the judicial review process. We of course recognise that aviation noise is a key concern for communities living near airports. I regularly meet community groups and MPs to discuss this. We have played a leading role at an international level in relation to noise standards, and we will continue to promote further improvements in this area.
This SI does not change noise policy; it is concerned only with corrections as a result of EU exit. It does not impose restrictions; it is just a framework. We are consulting more widely on our noise policy, which we set at a national level through the aviation Green Paper consultation which we published in December. In that, we set out a number of policies designed to reduce noise and its impact, and that is how we will set our noise policy in future.
On consultation, in 2017 we consulted on proposals for appointing competent authorities, and the Scottish Government conducted a consultation on their proposals earlier this year. However, we have not consulted communities on this. The changes in Regulation 598 will not have a direct impact on overflown communities. They will ensure that the correct procedure is followed when operating restrictions are considered or it is proposed that they be imposed, but they will not change things for communities per se. As I said, that is being dealt with through the aviation strategy consultation.
There is a delegated power which provides for the Secretary of State to make secondary legislation under the negative procedure. It is about providing technical updates to the regulations, but again that power is limited to such updates to the noise certification standards and methodology indicators relating to the assessment of noise impact at an airport. Again, those updates are limited within the regulations to account for changes to relevant international rules.
As with the previous SI that we discussed, we will continue to follow the international rules. We have been leading the way with our noise policy and are suggesting further measures to improve it through the consultation. We will publish our final aviation strategy later this year, which we hope will address the understandable concerns of communities around the airport. However, that noise policy is not directly relevant to the SI we are discussing, which simply ensures that in the event of a no-deal exit from the EU there will be continuity of aircraft noise standards and certification and of the process when operating restrictions are considered at airports.
Perhaps I may press the Minister a little further on the competent authority. I think she said that the competent authority for Heathrow would be the Secretary of State, but I recall that over the past 30, 40 or 50 years, Ministers of different persuasions have had a major influence on what happens at Heathrow. It does not matter which party has been in power; a Minister either likes it or does not like it. There is a perception that these Ministers have encouraged studies, shall we say, or other independent work to support their particular opinion. I suppose that is part of the political process for Heathrow, but nobody will have any confidence if a Secretary of State is promoting very hard an expansion of Heathrow while being the competent authority in deciding whether the noise is too great or too little, or whatever. I appreciate that this SI—
Sitting suspended for a Division in the House.
I was just concluding. I wanted to note that, as we all know, this SI will come into force only if there is a hard Brexit. However, it would be good to have the Minister’s assurance that, depending on the type of Brexit we have—if there is no Brexit, it will not matter, but it will matter if there is some type of Brexit—if and when she brings these regulations back again she will take into account the question raised by several noble Lords about the competent authority and independence when it comes to Heathrow and perhaps other airports as well.
I understand the noble Lord’s point, but competent authorities will not be appointed by this SI. That was done last year following extensive consultation. As I said, that role was to follow the balanced approach of ICAO. Article 3 of Regulation 598/2014 requires competent authorities to be independent.
Of course, the Government and the Secretary of State are allowed a position on airport expansion. They are very clear on the benefits that expansion at Heathrow will bring. That will have an impact, which is why we set out lots of requirements in the national policy statement. The Secretary of State is not deciding on the planning process; that is being done through the independent planning process, as is right.
Under Regulation 598, the appeal route is broadly aligned with the planning process, so there may be scope to challenge any local planning authority’s decision related to operating restrictions. That is the appeal process under the Town and Country Planning Act 1990. For all other cases, including where the Secretary of State was the decision-maker, judicial review would be the appropriate route for challenging that decision. There is independence there on the granting of planning permission and the appeal route.
As I said, I very much understand the impact aviation noise can have on communities. As Aviation Minister, I am alive to it, which is why we suggested many new noise policies in our consultation on the aviation strategy. This SI is purely about the regulatory framework and will ensure the continuity of aircraft noise standards and certification and the process for considering operating restrictions at airports in the event of no deal. Noise policy is covered extensively elsewhere.
Will the Minister address the issue of the nature of the consultation? Did any of the meetings, workshops and long-established stakeholder forums include local authority representatives or representatives of community groups established across the country by airports?
For this SI, they did not because the communities are not going to be affected by it. We consulted when we were appointing competent authorities because that will affect them. That was properly consulted on in 2017 ahead of those regulations coming into force. We did not consult on this SI because we do not believe that it is going to affect communities. It is purely about transferring the regulatory framework and not about the noise or competent authority policies. We are having a full consultation now on our aviation strategy after setting out some policy positions. We will certainly meet community groups; we are meeting community groups and will continue to meet them as the consultation evolves and the strategy develops.
My Lords, the Minister is right that there is no change in policy but, as I understand it, there is a change of the organisation or person who is the competent authority. It is now the Secretary of State and before it was somebody from one of the European organisations. There is a change and that introduces a conflict of interest.
There is a change, but to the relevant authority not the competent authority. The competent authority is staying the same. Competent authorities were consulted on and set in the previous regulations. Under current EU law, they have an obligation to report operating restrictions to the Commission. Instead, under this SI they will have an obligation to report operating restrictions to the relevant authority. In some cases, that will be the Secretary of State, in others, it will be the Scottish Government. I do not believe there is a conflict of interests because the competent authority remains the same; it is purely who it reports to that will change. There are the same reporting obligations but just to a different person.
Aviation Statistics (Amendment etc.) (EU Exit) Regulations 2019
Considered in Grand Committee
My Lords, these draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018 and the European Communities Act 1972. Unlike our two previous SIs, some provisions in this instrument will be needed if we leave without a deal, but specific provisions relating to an enforcement power are needed regardless of the outcome of EU exit negotiations.
The regulations amend EU Regulations 437/2003 and 1358/2003 and seek to maintain the status quo with regard to the provision of data by operators of airports served by commercial flights. This is achieved by making technical changes to ensure that retained legislation continues to function, including amending redundant references to the UK being a member state. A further part of this instrument, made under the European Communities Act 1972, also creates a mechanism to enforce the obligation on airports to provide data, because there is currently no penalty if an airport does not comply.
This SI was proposed as a negative instrument, but we have accepted the Secondary Legislation Scrutiny Committee’s recommendations to re-lay it using the affirmative procedure, acknowledging its concerns around the potential impact of these changes on commercial airport operators. I thank that committee for its consideration of this SI.
This draft instrument amends two pieces of EU legislation. The first of those is EU Regulation 437/2003, referred to as the statistical returns regulation, which requires operators of airports served by commercial flights to provide their member state with specified statistical data. In its existing form, the regulation specifies information that must be compiled by the member state—a function completed by the Civil Aviation Authority. It also requires that the same information must be provided to the European Commission’s statistical office, Eurostat. It further sets in place standards that must be met during the compilation and submission process. Secondly, it amends EU Regulation 1358/2003, referred to as the implementing regulation, which requires that the process set out in the statistical returns regulation is applied to a set list of airports and updates the list of statistical information that said airports must supply. The list of airports is effectively comprised of all airports that see commercial air traffic. This list included 46 airports across the UK at the point of its last update by the EU.
The withdrawal Act will retain both these regulations in their entirety. The draft instrument we are considering makes the changes necessary so that they continue to function correctly. That is essential to ensure that the regulatory regime in place continues to allow statistics on the total volumes of passengers and freight using UK airports to be compiled. The gathering of such data and the publication of derived figures are activities that are important for the Government, the public and the sector itself to be able to monitor performance.
This draft instrument amends the statistical returns regulation to remove the duty on the UK to continue to transmit this data to Eurostat. The power to collect statistical data and the obligation on respondents to provide that data are to be retained, with responsibilities for these functions given to the CAA.
This instrument amends the implementing regulation to remove the specific list of airports covered. This list is in fact superfluous, as the existing implementing regulation also contains a mechanism that sets the burden of data collection at different levels dependent on the volume of traffic seen by an individual airport. The mechanism will remain in the retained EU regulations, so that what is expected of airports will stay the same as it is now. The data collection power provided is an important tool for accessing data due to the competitive and commercially sensitive nature of the sector. As such, it is important that this legislation continues to operate after the UK has left the EU.
During the preparation of this instrument, a review of the statistical returns regulation highlighted the requirement for an enforcement mechanism in this instrument to meet the UK’s responsibility as a member state. This is why the SLSC recommended this instrument be upgraded. This instrument therefore provides a mechanism whereby the CAA can enforce the obligation on airports to provide the data specified. In determining the penalty, enforcement mechanisms in similar pieces of legislation were considered so as to not go beyond prior precedent. Consequently, the department decided to match the enforcement powers that exist within the Airport Charges Regulations 2011, with a civil penalty of up to £5,000. This part of these regulations is required regardless of final decisions on the UK’s future relationship with the EU. As I say, it is there to meet our responsibility as a member state.
The best outcome for the UK is to leave the EU with a negotiated agreement, but this instrument ensures that, in the event of a no-deal exit from the EU, statistics on the total volumes of passengers and freight using UK airports can continue to be compiled and published. I beg to move.
My Lords, I shall be quick. I note that in paragraph 7.2 of the Explanatory Memorandum, the Government think that,
“The gathering of such data … of derived figures are activities that are crucial for Government, the public and the sector itself to be able to monitor performance”.
However, paragraph 7.7 suggests it is no longer appropriate for any of these statistics to be given—they can be given to the Secretary of State, if he so directs—to anybody else in Europe. Why is that? Would we not want data from there? Would it not be helpful for our ongoing air services between the whole of the European Union and the UK if we exchanged this statistical data? Or will we put a ring around ourselves and pretend that Europe does not exist? Surely it would be useful—and the Government say it is useful. Why is no mention made of the CAA being able to share this information with the relevant European body?
My Lords, airport operators currently provide their statistics to the CAA, which passes them on to Eurostat. This is to be replaced, according to this SI, with a system whereby airport operators give the information to the CAA, which then provides that data to the Secretary of State if directed—not by legal obligation but if directed.
There are four problems with the SI. First, statistics collected on a national basis are much less useful and meaningful than international statistics. As the noble Lord said, there is no guarantee that this information will be shared internationally.
Secondly, there is no obligation on the Secretary of State to even want to see the statistics. What will he do with them? There is no obligation on the Secretary of State to publish them. Therefore, one has obvious concerns about transparency. Statistics should be important for the Government; they are certainly important for the public and the industry itself to monitor performance. The CAA already collects this data, but it will be of much less use for comparative purposes as matters stand in the SI.
The third problem is the impact of changing rules on exactly how the data is expressed and collected. This is the kind of internal thing that happens in any organisation. If you change the order of the questions or one or two words in the questions, you impact the results. It does not matter that much if you are looking across the piece and everyone is obeying the same rules, but we will be collecting our data on a different basis. I more or less guarantee that, within a year or two, we will be told that our data is no longer comparable because of differences in collection procedure.
Finally, there is the new power of the CAA referred to in the SI to impose a £5,000 fine if an airport does not provide data. I am not entirely clear about this, and I would be grateful if the Minister could clarify. I believe that this is a new power; I am not sure that the CAA has it at the moment. If it does, what is the fine, because £5,000 seems derisory as a fine on a large organisation for failing to provide data? It would cost Heathrow Airport or Gatwick Airport a great deal more than £5,000 to collect the data, so there would be an incentive not to bother. Where does £5,000 come from? Has it been thought through as a penalty that should be paid by a large commercial organisation? It does not seem worth it.
My Lords, the points made by my noble friend Lord Berkeley and the noble Baroness, Lady Randerson, are exactly right. I look to the Minister to answer them. I can see why we would want to avoid an obligation, but I cannot for the life of me see why we would not want voluntarily to co-operate with Eurostat. This obviously is a wider question for government as a whole, but in an open society we have to believe that sharing information is a good thing, not a bad thing.
I formally object to the £5,000. It clearly is not within the spirit of the withdrawal Act and therefore the Minister has not prayed that Act in aid but has prayed in aid the draconian European Communities Act 1972. I was not here in 1972 and I have not recently brushed up on the detail, but that Act was created to implement European law. This is not creating European law; it is smuggling in a little correction. I am not going to cause a constitutional crisis by objecting to it, but the Government should not have done it.
I thank noble Lords for their consideration of these draft regulations.
On the gathering of statistics, Eurostat oversees the European statistical system, which is comprised of EU member states and selected other countries which are not member states. Work is ongoing to determine our future relationship with the European statistical system; that is being led by the UK Statistics Authority and is subject to ongoing negotiations. Of course, sharing information brings many benefits. We will continue to participate in other statistical work in aviation through ICAO and, specifically, its aviation data programme. Although Eurostat publishes statistics based on the aviation data currently collected, this was always in duplication of the figures published by the CAA. We will continue to publish the statistics arising from the data collected and they will continue to be in the public domain. We expect to have a future relationship with Europe on data collection.
Air transport data collection is only one part of the transport data currently compiled. As I said, the Office for National Statistics has been carrying out a cross-government review on all of this. While other statistical collections were assessed as being able to continue on an existing basis, in the event of no deal we needed to bring forward the SI on this matter.
I understand the noble Baroness’s point about changing the categories and the way we collect this data. Of course, in order to make it as useful as possible, having as much consistency as possible with Europe and countries across the world is important. We do not plan to change any of the categories. We are carrying over into law what is there at the moment. Should things change in the future, whether at an international or a European level, it would of course make sense to ensure that we have continuity.
On the enforcement mechanism, the noble Lord, Lord Tunnicliffe, was not here in 1972—and I was not born in 1972—but the European Communities Act 1972 gives us the power to implement EU obligations. This is the kind of thing that the ECA provision is intended for. It is a civil penalty rather than a fine, and the Airport Charges Regulations 2011, on which the enforcement scheme and the £5,000 amount were based, are made under Section 2 of the ECA to implement a directive. It was an oversight that we did not already have a mechanism to ensure that airports reported this data; other member states do. It is an obligation on us under these regulations and there are precedents around it. There is a penalty of up to £5,000 for airport users who do not notify airport operators of their forecasts in a timely manner, for example.
I take the noble Baroness’s point that this is not an excessive amount for airports. Historically, airports have provided this data in a timely manner. It is in their own interests as well as everybody else’s. There has never been a serious case of non-response, and we do not expect there to be if we leave the European Union without a deal. It is an important tool for accessing data from across airports, so we are confident that airports will continue to comply. However, we now have the enforcement mechanism that we need on the obligations from EU law. That is why, in the event of an agreed deal, this part of the regulation will remain. Following the UK’s departure from the EU, we will need to maintain that enforcement mechanism.
In the event of no deal, this SI will also ensure that the UK’s legal framework for the collection of statistical data will continue to be fully functional and enforceable. The regulations ensure that the collection of this important data has a sound legal basis to continue, while removing the requirement on the UK to provide this data to the European Union, as we will no longer be a member state. However, as I said, we fully expect to work very closely with our European partners in the future, regardless of the outcome of the negotiations. I beg to move.
Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019
Considered in Grand Committee
My Lords, the Committee will be aware that the Government are preparing for all scenarios relating to the UK’s withdrawal from the EU, including the scenario in which the UK leaves the EU without a deal at the end of this month. As part of these preparations, the Government are bringing forward a programme of secondary legislation intended to ensure that there is an effectively functioning statute book on exit day. The instrument forms part of that programme of secondary legislation. It addresses deficiencies in our domestic statute book that would arise if we leave the EU without a deal, focusing in particular on deficiencies in security, law enforcement, criminal justice and some security-related regulatory systems.
By way of context, the UK currently participates in a number of EU tools and measures that support security, law enforcement and judicial co-operation in criminal matters—some of which, like the European arrest warrant or Europol, will be familiar. We also participate in a number of security-related EU regulatory regimes relating to firearms, drug precursors and explosive precursors. Should the UK leave the EU without an agreement at the end of the month—the no-deal scenario—the UK’s access to those tools and measures would cease.
At the same time, the UK would cease to be bound by those security-related EU regulatory systems. This decoupling would occur as a result of the UK having withdrawn from the European Union after the Article 50 notification not as a result of the provisions found in this instrument. It is important to be clear that the regulations play no part in bringing about the UK’s withdrawal from the EU; rather, the purpose of the instrument is to make amendments to the UK’s domestic statute book, including retained EU legislation, to reflect a new situation. The changes we are making in the instrument are the ones we cannot, or should not, avoid in the event of no deal. The regulations do not contain significant policy choices.
Against this backdrop, the regulations will do three main things. First, they will revoke or amend retained, directly applicable EU legislation and domestic legislation in the areas of security, law enforcement, criminal justice and some security-related regulatory systems. This will ensure that the statute book continues to function effectively in a no-deal scenario. It is important to emphasise that where the regulations revoke retained EU law or connected domestic law, this is not expected to have a practical real-world effect because the underlying EU instruments would cease to be available to the UK upon withdrawal from the EU in any event. For example, in a no-deal scenario, our membership of Europol will end on 29 March by virtue of the UK ceasing to be an EU member state rather than as a result of the retained Europol regulation being revoked by this instrument.
Secondly, where necessary, the instrument includes transitional or saving provisions to address live or in-flight cases—that is, provisions confirming how cases live on exit day should be dealt with or how data received before exit day should be treated. This will provide certainty for operational partners, such as the police and prosecutors, who currently operate the EU tools and measures and need to be clear on what activity can continue and on what terms at the point of exit. Thirdly, in the case of extradition, the instrument will ensure that the UK has the correct legal underpinning to operate the no-deal contingency arrangement for extradition—the Council of Europe Convention on Extradition 1957—with EU member states.
For the most part, the regulations make the same sort of changes over and over again in a series of related areas: revoking in whole or in part legislation on our domestic statute book that would be redundant in the event of a no-deal exit; fixing deficiencies, such as making sure that definitions in our domestic law reflect our new status outside the EU; and making sure that there is clarity over what happens to cases and requests that were live or in train at the point of exit.
Overall, the making of this instrument will provide legal and operational certainty for the public sector, including our law enforcement and criminal justice partners across the UK, such as the National Crime Agency, our police and our prosecution services. While it remains the Government’s position that exiting with a deal is in the UK’s best interests, this instrument makes important changes to ensure readiness on exit day in a no-deal scenario.
Having provided an overview of what the instrument does, I should also be clear on what it does not set out to do. For the most part, this instrument is not a vehicle for implementing the Government’s policy response to a no-deal exit. Our contingency arrangements for co-operation with EU partners on security, law enforcement and criminal justice involve making more use of Interpol, Council of Europe conventions and bilateral channels. These existing, alternative channels outside the EU are already in use between the UK and many other non-EU countries. Accordingly, they do not require domestic legislation to set them up, which is why those contingency arrangements are largely outside the scope of what these regulations set out to do. Even the Council of Europe convention on extradition, which this instrument links into our contingency arrangements, is already in place and in day-to-day use by the UK with non-EU countries. The instrument re-categorises EU member states for the purposes of our own domestic law, in the form of the Extradition Act 2003, so that we can administer requests from EU member states under Part 2 of that Act rather than under Part 1, as at present.
Finally, I should make it clear to the Committee that the instrument comes into force on exit day, as defined in the European Union (Withdrawal) Act 2018. Should we enter an implementation period the entry into force of these regulations, along with most other EU exit instruments, will be deferred to the end of that implementation period. I commend the regulations to the Committee and I beg to move.
My Lords, I have to give the Committee apologies from my noble friend Lord Paddick, who is unwell. I am afraid that your Lordships have me whinging over this instead.
I was a member of the Secondary Legislation Scrutiny Committee for some time and its staff always amazed and impressed me with their ability to grasp detail while not losing a grip of the bigger picture. Reading the committee’s report on this instrument, it seemed to be the verbal equivalent of throwing one’s hands up in despair. It drew it to the special attention of the House,
“on the ground that the explanatory material … provides insufficient information to gain a clear understanding about the instrument’s policy objective and intended implementation”.
When I got the draft instrument out on Sunday, to look at it in a rather casual way, I thought it was just me but apparently it is not.
The committee also has within its terms of reference reporting to the House when an instrument fails to fulfil its policy objective. It has made it quite clear that it has some difficulty in assessing that. Its report says that it found the impact assessment,
“to be of little practical use”,
“for the most part the impact is categorised as … ‘there could be some practical impacts arising if legislative deficiencies are not addressed through these Regulations’. No information is given about the frequency with which the provision is currently used, whether an alternative route to the information is available at a different cost, or what effect the loss of this intelligence or information will be. Neither the financial nor the societal cost is quantified”.
The committee went on:
“We … expect an EM to include some contextual explanation, preferably with estimated numbers or an indication of the degree of usage, illustrating how the system will operate differently after the legislative change has happened”.
The Minister may say that she has told us that there really will not be a change, but I think that the committee is commenting on getting from A to B. It continued:
“Without such information we cannot assess the significance of a policy change and, therefore, advise the House accordingly”.
If I caught it correctly, the Minister said that for the most part there is no policy change. She is nodding at that, and I suggest to the Committee that that rather makes my point for me.
Scrutiny is not a rubber-stamping exercise. Analysis is at its heart. We have already heard the term “real-world effects”, and on that point the committee said that statements made by the Government,
“raise concerns that cannot be assessed properly without appropriate information on the current scale of usage and how that might change as a result”.
The draft instrument covers, inter alia, law enforcement and judicial co-operation in criminal matters and investigatory powers. A comment on the situation seems to have come more from outside the House and the Government. The Metropolitan Police Commissioner commented just before the new year on a no-deal Brexit potentially meaning loss of access to intelligence databases and throwing up barriers to arresting and extraditing suspects. She said:
“We will have to replace them as effectively as we can. That will be more costly undoubtedly, slower undoubtedly and potentially put the public at risk. No doubt about that”.
That is the practitioner’s assessment of the impact. I know that my noble friend Lady Ludford will be able to give a much more precise critique of this instrument than I can.
The Minister responding to the Secondary Legislation Scrutiny Committee—not our Minister—wrote that the Government considered that the portmanteau approach would assist scrutiny and assist eventual users of the legislation. The committee was, of course, not persuaded by that.
We now have a 16-page Explanatory Memorandum replacing the 78-page memorandum. Certainly this guide is more easily handled, provided you can find it. The hard copy, which I collected at the end of last week, has the old memorandum attached to it. I am not persuaded that it enables scrutiny at the level and of the standard for which our House is known. I do not think that most of us will feel that we have really done the job as well as we should have done. There is a complexity and a scale to this, and bringing this draft instrument to the Committee so close to the wire—as may be the case—does not make the best use of the dedication and application that Members of our House show in scrutinising such instruments. There simply has not been the capacity to do so. It gives me no pleasure to say that, nor any pleasure to say that when the instrument goes to the Floor of the House, Liberal Democrats will oppose the instrument unless the Minister can satisfy noble Lords, although it is not her fault that we are in this situation.
My Lords, just what we will lose by not being part of all these EU measures emerges less from the fairly dry Explanatory Memorandum to the measure and more from the Government’s document of last November, Assessment of the Security Partnership. The introduction in paragraph 2 of the Explanatory Memorandum cites a lot of the issues, but the document of last November talked about how,
“the UK would rely on the 1957 Council of Europe Convention on Extradition. Without a surrender agreement as proposed in the Political Declaration”—
which itself begs the question of what such a surrender agreement would consist of—
“requests would be subject to a longer and more complex process, and extraditions would be more difficult”.
Although I have not seen any examples recently, we saw that difficulty in the extradition of a convicted person from Georgia. I do not know whether the Minister has any updates on how long that process will take, but it clearly takes a lot longer to extradite under the 1957 convention. To make the case for the UK’s need to stay in the European arrest warrant, or something very similar, the document of last November also cited how,
“ten years elapsed between the request to extradite Rachid Ramda, an individual accused of terrorism in France, and his eventual surrender in 2005”.
We could be talking about such extraditions taking anywhere between several months and a decade.
Indeed, one commentary raised the issue that,
“Extraditions under the Convention are not automatic and the state of bilateral relations can influence decisions. It takes 18 months on average to extradite a suspect under the Convention”—
in contrast to a few weeks under the European arrest warrant. Clearly, even just looking at extradition, the consequences of not having something similar to the European arrest warrant are severe.
It struck an odd note with me that the commentary in paragraph 2.7 of the Explanatory Memorandum says that is necessary,
“to revoke the relevant retained EU law to ensure that the domestic statute book operates effectively following the UK’s withdrawal”.
As my noble friend Lady Hamwee said, we know from senior police officers, including the Metropolitan Police Commissioner, that if we are not in the European Union, it is impossible for our systems to operate as effectively in terms of security and law enforcement co-operation across Europe. That includes all scenarios, not just no deal, although it applies particularly to a no-deal exit. It is odd to say that we need to do this so that our statute book operates effectively. I understand what that means, technically, but it is not the same as saying that our law enforcement system would operate effectively. We need to measure the impact of this decision. We need to know its effect on our effectiveness in fighting crime and bringing people to justice, and on our court systems and police—indeed, on our civil servants. Unlike the European arrest warrant, if you fall back on the 1957 convention civil servants and Ministers are involved.
On extradition, the aim is that the UK will have the correct legal underpinning to operate the 1957 convention. I think that is referred to somewhere as the housekeeping between Part 1 and Part 2 of the Extradition Act. I think that was in paragraph 12.5. At the briefing meeting that the Minister kindly put on a week or so ago, I tried to ask whether we have any knowledge of what our partners would need to do in terms of similar housekeeping and whether they are prepared to do it. Even if they still have the 1957 convention on their statute books—which they may well have for non-EU Council of Europe countries—they might have to make some domestic legislative changes, similar to ours under the Extradition Act, to make that work.
Then there is the fact that it is much more difficult to extradite under the 1957 convention, which is precisely why the EAW was brought in. Some countries, such as Germany, have constitutional bars on the extradition of their own nationals, which the EAW solved. Does the Minister have any information on whether Germany is prepared to extradite its nationals to the UK in the scope of the 1957 convention? Some countries operate political exemptions, which were abolished by the European arrest warrant for a common list of crimes. That makes extradition more difficult.
Then you have the legal uncertainty under human rights law. I do not want to get totally into the subject of human rights and our worries about the Government’s intentions in that respect, but they have said that they continue to keep in their sights what they call reform of human rights law. A state of legal uncertainty surrounds the continuity of human rights protection in this country—if the Human Rights Act were to be abolished, for instance, let alone if we withdrew from the European Convention on Human Rights. What impact will that have on the confidence of partners to extradite to us?
If one looks at the Norway and Iceland treaty with the EU—the aim of which is to have procedures similar to the European arrest warrant but with some differences—that took 13 years to negotiate and there have been problems amending the national laws of some EU countries and Iceland. As of last June, Ireland and Italy had still not ratified that treaty. It gives you an idea of the problems if you drop out of the European arrest warrant and rely on the 1957 convention. The Government are failing to give us any information about what they understand to be the willingness of partner countries to extradite to us.
I have a couple of other points. The Government say that we will retain some data protection rules under which data was originally received, such as SIS data. Are they sure that there is no contradiction between those rules and the Data Protection Act? The aim is to have no gap, but have the Government done a filter to check that there is not a contradiction in any case between the rules under which the data was received from EU partner countries and the Data Protection Act?
I agree with and will supplement slightly what was said by my noble friend Lady Hamwee about the impact assessment and the Secondary Legislation Scrutiny Committee deploring the information on loss of capacity. We have an odd situation in the impact assessment; it expects the cost per extradition to rise compared to the EAW, but then says:
“Costs have not been monetised”.
Why are those costs not monetised? How can you assert that the costs are going to increase when you do not monetise those costs?
It has also been reported in the press that the National Crime Agency and the National Police Chiefs’ Council have between them received about £6 million for no-deal preparations. Why is that not in the impact assessment? How can that be reported in the press but not be in an impact assessment? What is that money for? Is there similar money for the courts and for other bits of the justice system, including the MoJ, to cope with the administration of extradition requests—both outgoing and incoming—under the convention? All this is presumably available somewhere, but strangely not in the impact assessment.
Finally, the great joy of the European arrest warrant is that government Ministers can say, “Nothing to do with us, guv. It is all down to the courts”. Once you have to fall back on the Council of Europe convention, just as with extradition to the United States, there is a potential for the politicisation of extradition. You can certainly put a political, if not a financial, cost on it, which Ministers might have to think about.
My Lords, I agree with the comments of the noble Baroness, Lady Hamwee, about the report of Sub-Committee A of the Secondary Legislation Scrutiny Committee. If I were the Minister, sitting here reading this report and having to address Members, I would be pretty unhappy that the Government put forward these regulations in such a way that the sub-committee’s report was so damning. Normally in these reports, one or two little lines are highlighted in black with a few concerns, but in this case they are all over the place.
The sub-committee’s comments highlight its concern about how this issue is presented to Members. The first says:
“These draft Regulations are drawn to the special attention of the House on the ground that the explanatory material laid in support provides insufficient information to gain a clear understanding about the instrument’s policy objective and intended implementation”.
It goes on:
“We were not persuaded that so wideranging an instrument, covering policy areas that are individually of significant concern to the House, can be justified. Effective scrutiny is inhibited by the wide range of issues included”.
Looking at the document, these issues are huge. I do not think that this is the way to present them to either House. I accept that the Government are up against it in terms of time—perhaps that is of their own making. However, we in this place and the other House have not exactly been busy; on many days, we have gone home quite early. On Thursdays now, we seem to be going home at 2 pm; we often used to sit until 7 pm. There has been plenty of time to discuss these things in more detail.
The list of concerns is unacceptable. The sub-committee, quite rightly, criticised the Government when they brought forward the regulations. I endorse its actions in pointing that out. It is not acceptable to bring them forward in this way. However, I accept that if we end up with no deal and crash out—I do not want to get into that situation—we must have functioning procedures in place. So, if the regulations are voted for on the Floor of the House, we will not oppose them.
We participate in several EU measures to enhance our security, law enforcement and judicial co-operation. They are vital in keeping us safe from people who do harm and commit criminal offences. We all support that. The Minister reminded us that the regulations seek to revoke or amend EU retained law that is directly applicable to our current domestic legislation. She said that the regulations would deal with live cases—as I think she referred to them—at the point of exit, and extradition.
Other noble Lords referred to the 1957 Council of Europe Convention on Extradition, which, according to the Explanatory Memorandum, would be used in lieu of the European arrest warrant. That is regrettable. The measures in the convention are far more limited than the European arrest warrant. Yes, the UK and the EU would allow extradition requests from other member states in lieu of the European arrest warrant, but Article 2(3) of the convention states:
“Any Contracting Party whose law does not allow extradition for certain of the offences referred to in paragraph 1 of this article may, in so far as it is concerned, exclude such offences from the application of this Convention”.
It is clear that the situation will be worse. The only people who will benefit are criminals; nobody else will. This is the criminal’s friend. It is a ridiculous situation and it is not the right thing to do, so we need further comments from the Minister on it.
The Government have made the case for the importance of the European arrest warrant. They have explained that more than 1,400 individuals have been arrested on European arrest warrants issued by the other 27 member states and that, in the same period, EU member states have arrested 183 individuals and brought them to the UK. The warrant is an important tool and it is regrettable that we will end up less safe as a consequence of these actions.
The Minister spoke about the loss of access to databases. We will lose access to a number of databases as a consequence of this measure, so it would be useful to have some comments on that. We are told that the impact of a no-deal exit on security, law enforcement and criminal justice co-operation with member states is not in the scope of the regulations, but the Government need to set out their plans. People are concerned about where we are and the consequences; if they are concerned about anything to do with leaving the European Union, it is matters of security. We need to understand fully what is at risk. We will be outside the Schengen information system and Prüm. Again, that is very regrettable, so it would be useful if the Minister could comment on it. We must have effective systems in place to deal with these matters.
I would also welcome the Minister’s comments on Europol and Eurojust. I hope that she will not say, “We’re still working on that”. If I get that response, I will remind her that it has been nearly three years since the referendum and we need to know where we will be on these important matters.
We do not oppose the regulations. I accept that they are narrow, but they have not been presented to this House and the other House well. The Government need to do much more to reassure us that, whatever happens, we will keep people safe. I believe that some of the measures here will make them less safe going forward.
My Lords, I shall start with the final point from the noble Lord, Lord Kennedy, which concerns one of our first considerations as we leave the European Union: keeping our people here safe. He hits the nail on the head. For that reason, I hope that down the other end they are voting for the Prime Minister’s deal.
We need to be clear about these instruments. Should the UK leave the EU without an agreement at the end of the month—the no-deal scenario—the UK’s access to these tools and measures would cease. We are absolutely clear about that. At the same time, the UK would cease to be bound by the security-related EU regulatory systems. This would occur as a result of the UK’s withdrawal from the EU through the Article 50 notification, but not as a result of the provisions found in these instruments—I stress this yet again. It is important to be absolutely clear that the regulations play no part in bringing about the UK’s withdrawal from the EU. Rather the purpose of the instrument is to make amendments to the UK’s domestic statute book, including retained EU legislation, to reflect the new situation.
Surely the difference that should be measured is between crashing out with no deal and the Government’s hopes for a security partnership, which are rather ambitious or, some might say, overambitious? The Government want something as similar as possible to what we have at the moment. That contrasts a great deal with simply cutting all our existing measures and systems.
The noble Baroness makes a good argument, but it is not the basis of this statutory instrument. That is why I thought I would outline it. I do not disagree with her. I agree that we need to make sure that this country is kept as safe and secure as possible, as the noble Lord, Lord Kennedy, says. However, that is not the argument we are having today; I need to make that clear upfront. We are at one on this. There is no way that we want to undermine safety.
The noble Baroness, Lady Hamwee, and the noble Lord, Lord Kennedy, talked about the Secondary Legislation Scrutiny Committee. As they said, it highlighted the sheer range of subjects included in these regulations. The Government responded, setting out the reasoning behind our approach. The changes made by the regulations are in linked policy areas and cover three subject areas—this should start to make it clear why we have linked them all. The three areas are: security, law enforcement and judicial co-operation in criminal matters currently underpinned by EU legislation; security-related EU regulatory systems for which the Home Office is responsible; and domestic legislation affecting the police and the investigatory powers made deficient by EU exit.
In regard to security, law enforcement and judicial co-operation in criminal matters, the regulations address deficiencies in connection with EU measures with a justice and home affairs, or JHA, legal base. Reflecting their shared underlying legal base, these measures all relate in some way to law enforcement and security in their subject matter, and in many cases interact at an operational level. For example, as the noble Lord, Lord Kennedy, mentioned, SIS II circulates European arrest warrant alerts. The regulatory regimes, while not having a JHA legal base, have a similar underlying purpose to prevent, detect and prosecute criminal activity and to maintain security. Given that these are linked policy areas and that the changes made are very similar across most parts of the instrument—we are making the same sorts of amendments over and over again—we considered that combining them in a single instrument would assist scrutiny by providing as complete a picture as possible in one place. We expect it to assist the eventual users of the legislation, which will include law enforcement partners and prosecutors around the UK and who will often be using combinations of the EU tools covered by these regulations.
The Minister made the point that these measures have been put together to assist scrutiny. No doubt she believes that but the scrutiny people do not; they think the opposite. This is not the first time that we have had reports like this—although this may be one of the worst ones. When will the Government realise that Parliament does not like the way they are laying instruments in front of us, and that they should do it a different way? Some of the instruments I have seen coming forward are like encyclopaedias. There should be a policy decision because they are not being received very well. If the Government want to have proper scrutiny. we need to do it a different way.
I do not dispute what the noble Lord says. I am purely trying to explain the logic behind the way that it has been laid out.
The Government then published a second Explanatory Memorandum because of the Secondary Legislation Scrutiny Committee writing to the Home Office, commenting on the sheer length of the original Explanatory Memorandum. As the Policing Minister outlined in his response to that committee, the detailed information in the original Explanatory Memorandum was supplied in good faith—the committee recognised this in its report—to provide the committee and other users of the Explanatory Memorandum with a thorough explanation of each provision in the instrument. One can conclude that we could not do right for doing wrong. Some people thought that there was too much information, others not enough. In the event, we provided a more concise Explanatory Memorandum on 11 February.
I thank the Minister—that is very helpful. I do not know what goes on in departments. Do I take it that Ministers sit round the table and say: “We got that one wrong. Both Houses are clearly very cross. When we have the next set of stuff, maybe we should try and do it a different way”? Does that ever take place? Can the Minister enlighten us?
I think the noble Lord would probably accept that in this instance the Secondary Legislation Scrutiny Committee coming to us saying it was far too long and complex, then us trying to do a more concise version was a learning point for us. We accepted the committee’s point. In that sense, we try to learn as we go along. I certainly do not want to come to Committee too many times and having to take the rap for Explanatory Memorandums that are too long, too short or incomplete.
My Lords, it seems to me that there a number of stages to this. There is scrutiny and then, as the Minister says, making the final regulations accessible to practitioners. Those are not necessarily the same things and what one may also take away from this experience is the need—following the scrutiny to whatever extent it is successful—to produce final versions in each of the subject areas that can easily be used, without having to go through the awful trail that we are all familiar with.
That is a very good point, because if Parliament does not understand what the regulations mean then practitioners will be at a distinct disadvantage. I totally take the noble Baroness’s point.
As the noble Lord, Lord Kennedy, said, the Home Affairs Select Committee and the House of Lords’ EU Home Affairs Sub-Committee have been particularly active in publishing reports in March, July and December last year. There was the EU Home Affairs Sub-Committee’s report on a UK-EU security treaty on 16 January, as well as its oral evidence session on security arrangements in the event of no deal on 27 February. I am pleased that both Houses of Parliament are looking at an issue that has been under-debated in both Houses. For me it is one of the most important aspects, as the noble Baroness, Lady Ludford, said, as we leave the European Union.
The noble Baroness, Lady Hamwee, talked about the impact assessment being insufficient because it does not outline the impact of no deal. The impact assessment assesses the impact of legislating, as proposed in the regulations, compared with not doing so in a no-deal scenario. For the purposes of the impact assessment, the no-deal scenario is treated as a given since that is the scenario the regulations prepare for. We are not getting mixed up, but I think we are conflating no deal generally with the regulations.
That is pretty much so, but I will get on to that later. The impacts of no deal as a whole are completely outside the scope of the regulations.
The noble Baroness, Lady Hamwee, said that the regulations are indigestible. That is pretty much what the noble Lord, Lord Kennedy, said too, but we cannot avoid them in the event of no deal, given the importance of this area. As I said in my opening speech, most of the changes being made by the regulations are very similar—indeed, one might say repetitive—in most parts of the instrument.
The noble Baroness, Lady Hamwee, made a very serious point about the Liberal Democrats intending to vote against the regulations. Obviously, it would be deeply regrettable, particularly in this area, to take that course of action. The noble Lord, Lord Kennedy, pointed that out. These regulations will provide legal and operational certainty for operational partners. Clearly, it is vital that they uphold the rule of law and protect the public. We should be doing everything we can to support their work and to manage the transition to a no-deal scenario. I hope that does not happen, but if it does that is exactly what the instrument will do. I must say to the noble Baroness that if the changes in these regulations in the extradition space are not made, it is not clear that new incoming extradition requests from EU member states could be lawfully processed, with potentially serious consequences for our extradition arrangements with EU partners.
The noble Baroness asked how many EU member states need to make legislative changes to operate the Council of Europe’s European Convention on Extradition with the UK. All EU member states operate the European Convention on Extradition with Council of Europe countries that are not EU member states. I will not speak on behalf of other member states as to their particular systems, but we anticipate operating the European Convention on Extradition with all EU member states. I think that answers the question asked by the noble Baroness, Lady Ludford.
The noble Baronesses, Lady Hamwee and Lady Ludford, and the noble Lord, Lord Kennedy, talked about extradition. The noble Baroness, Lady Hamwee, asked me about “almost” no policy changes; here there is a tiny tweak which I will now explain. In the case of extradition, the regulations help to support the implementation of the no-deal contingency arrangement. The regulations will ensure that we have the correct legal underpinning, as I have already said, to operate the no-deal contingency arrangement with EU member states. However, the legal underpinning for our contingency arrangements for March 2019—the end of this month—largely exists outside these regulations. To be clear, the convention is already in place, and it is in use by the UK with other countries. These regulations will recategorise EU member states for the purposes of the Extradition Act 2003 so that we can administer requests from them under Part 2 of the Act rather than under Part 1 as at present. That is the tweak. I hope the noble Baroness will agree that it is a small tweak.
The noble Baroness, Lady Ludford, asked how much longer a Council of Europe case will take compared to a European arrest warrant case. We have absolutely accepted that, in the event of no deal and having to revert to Council of Europe conventions, it will take longer and cost more. The noble Baroness also made the point that it will not be as effective in the case of a no deal—she does not want Brexit at all, but that is by the by. The purpose of the regulations is to ensure that the statute book functions correctly and reflects the new situation should a no-deal scenario materialise. She very rightly asked about human rights. As the White Paper and the political declaration make clear, the UK is committed to membership of the ECHR, and we will remain party to it after we have left the EU. I also add that this country has some of the strongest human rights legislation in the whole world, and I remain confident that we will be world leaders in that.
The noble Baroness, Lady Ludford, and the noble Lord, Lord Kennedy, very sensibly asked about data protection. The default position on data protection is that in a no-deal scenario we can continue to process data received from other member states before exit day, subject to compliance with the Data Protection Act 2018. One of the principles in that Act is that there should be compliance with the conditions under which personal data was first accessed, which in this case would imply the conditions—including those found in the measures themselves—under which the UK accessed the data while still a member state. However, to put the legal position beyond doubt and to reduce the risk of legal challenge, the approach taken in relevant areas of the regulations is to save the specific data protection measures. Saving those provisions helps to create legal certainty, including for operational partners.
The noble Baroness, Lady Ludford, also talked about the cost per extradition going up, and asked why that is not in these regulations. We have gone over that ground—this is not about no deal generally, but about putting things on the statue book. We are absolutely not denying that the cost will go up and that the time will be longer. I hope that answers all noble Lords’ points.
Local Government (Structural and Boundary Changes) (Supplementary Provision and Miscellaneous Amendments) Order 2019
Considered in Grand Committee
My Lords, last year Parliament approved legislation to establish Bournemouth, Christchurch and Poole—known as BCP—Council, Dorset Council, East Suffolk Council, and Somerset West and Taunton Council in place of the existing 13 councils in those areas. Today, we are considering the fourth statutory instrument consequential to that legislation to effect the practical success of those new councils. A draft of this order was laid before this House on 16 January. If approved and made, it will ensure that all the necessary technical arrangements are in place so that effective local government continues in those areas. We have worked closely on this instrument with all the councils concerned. Their officials have commented on drafts of it and have confirmed to us by email that it fully meets all the local requirements.
The order provides for the following. First, it would establish charter trustees for the unparished parts of the existing boroughs of Bournemouth, Poole and Taunton as the bodies in which the historic rights and privileges associated with those areas are to be vested. For each area, the charter trustees comprise the elected members for the wards of that area. For example, Bournemouth and Poole have the historical right to have mayors, and Poole has the right to a mayor and a sheriff. Likewise, Taunton has the right to a mayor for Taunton. All these rights will vest in the charter trustees for the area concerned. Historic regalia, such as maces, will also vest in the charter trustees.
Secondly, the order vests the market rights in Bournemouth and Poole to Bournemouth, Christchurch and Poole Council, allowing the new council to continue to hold the rights to run charter markets. It also amends the statutory definition of the area of the ceremonial county of Dorset to be amended in the Lieutenancies Act 1997 and the Sheriffs Act 1887. The amendments simply reflect the names of the new authorities and their areas; they do not amend the boundaries.
The order makes provision to ensure that the local government pension fund maintained by Dorset County Council, along with all property rights and liabilities in respect of the fund, will vest in the new Dorset Council. This fund will be the pension fund for employees of that council and of the new Bournemouth, Christchurch and Poole Council, as well as for employees of all other employers in the fund.
This instrument makes provisions to amend the Weymouth Port Health Authority Order 2017, so that references to the joint board made up of the abolished authorities of Weymouth and Portland Borough Council, Purbeck District Council and West Dorset District Council relate instead to Dorset Council, which will be the sole authority for the area after reorganisation. It also makes provisions for the existing social housing finance arrangements to continue for the new councils of Bournemouth, Christchurch and Poole, East Suffolk, and Somerset West and Taunton.
Finally, I should mention that a further new council is being established on 1 April 2019—namely, the newly merged West Suffolk Council. This order makes no provision that council because no matters affecting it would require such provisions. We have nevertheless worked with officers in the predecessor councils of Forest Heath District Council and St Edmundsbury Borough Council, who have confirmed that no provisions for the new West Suffolk Council are required in this order.
These provisions are sensible and necessary consequential changes in the light of the establishment of the new councils Parliament has approved. They ensure a smooth transition to the new arrangements and continued effective local government in the areas. I commend the order to the Committee.
I am delighted to participate in what I am sure will be a short debate on this item. My delight is enhanced by the fact that it is the one piece of business we are considering this afternoon that has nothing whatever to do with Brexit. In fact, as a consequence of the evolution of local government in England, the larger part of it is directed from local areas and the changes in it are at their request—certainly with their active co-operation.
I am delighted that the Minister outlined some of the issues relating to mayors, sheriffs and lords-lieutenant and the role of charter trustees. At one time, I used to think of myself as something of an expert of those things; it is good to see that they have filtered through into this statutory instrument. There is always a huge amount of civic pride about and importance given to these ceremonial roles and tasks. I know that it is important to make sure that they are retained properly.
My only point of any consequence relates to the transfer of the housing debt. Clearly, there has been consultation with the relevant local authorities—and, no doubt, with the Treasury and everybody else who might want a finger in this particular pie. Housing debt for local authorities is a complex topic on which feelings can run high over whether one has got a good or a bad deal out of changes being made. I hope that the Minister can confirm that the agreement on the changes tabled today is fully consensual and that any difficulties that may have arisen during the course of these discussions have been satisfactorily resolved.
Without any detailed knowledge, I wonder whether that would be true in the case of the Somerset West district authority, which is a very small authority of limited means. On the same thread, the other side of this coin is no change being required on housing debt relating to the West Suffolk district councils coming together, presumably either because they do not have such debt or because there is some other factor that the Minister may be able to advise us on. If the Minister can satisfy the Committee on the question of housing debt figures, that would give us some extra comfort.
My Lords, I also think this will be a relatively short debate. I have a couple of questions for the Minister. As we have heard, these changes are to local government areas in three parts of the country. The Minister made a point about charter trustees and talked about areas retaining their right to appoint a mayor. The councillors in that ward would then have to appoint a mayor. What happens at the next level? They also get a mayor. We are getting more mayors, who become chairs of councils. We are creating a lot of mayors here. I just want to point that out.
The point about housing debt was well made by the noble Lord, Lord Stunell. I look forward to the Minister’s response on that. On chartered markets, it is just a case of carrying forward people’s rights.
Generally speaking, I am not against the order as it stands. The only point I would make is a more general observation that I have made it before on other issues, such as local government income. We have a strange kind of patchwork developing all over England. I am not convinced that is necessarily the right way to go. Local government in Scotland and Wales is certainly much more straightforward. When we have all sorts of tiers of local government throughout England, I am not convinced that in the longer term it will make for good government. However, I am not against the order as it stands.
My Lords, I thank the noble Lords, Lord Stunell and Lord Kennedy, for their helpful contributions. I very much agree about the importance of these statutory instruments on two grounds. As the noble Lord, Lord Stunell, said, it is rather marvellous to debate something that has no Brexit implications at all, which is good news in these very Brexity days in both Houses. It is also refreshing to have something which is all about the traditions of our local government in England, and the capture and retention of those historic traditions.
I was interested to find that Poole is one of only seven towns in the country to have sheriffs. These are quite separate from high sheriffs. One of the other seven is of course Nottingham—we all remember the sheriff of Nottingham—and another is Lichfield; the honourable Member for Lichfield talked about that in the House of Commons. It is great to see those historic roles retained. In the case of Poole, I understand that it retains the keys to a prison where there are no prisoners. I am not sure whether schools or possibly tourists are able to visit it but that is a great thing.
I have met many sheriffs of Nottingham in my time, as I used to work in the east Midlands. What is interesting is that the sheriff is a member of its council in Nottingham. The position is very famous, so everybody wants to meet the sheriff, but in civic terms it also has a deputy lord mayor and a lord mayor. When people move up others do not want to meet them so much; they want to meet the sheriff, who is a very important figure in the city.
I thank the noble Lord very much for that intervention. I hope people do not hiss when the sheriff walks into the room, because I am sure they are very different from the sheriff of Nottingham we all remember from legend.
That filtering through of civic pride to which the noble Lord, Lord Stunell, referred is extremely important. Let me try to pick up the two questions that were raised. First, on the transfer of housing debt, the order simply ensures that new councils are properly referenced for calculating their debt caps. I should say that all the provisions here are consensual, so all the councils concerned are happy with that provision. Secondly, the noble Lord sought specific information on West Suffolk. It has no housing revenue accounts, so there are no consequences there.
The noble Lord, Lord Kennedy, asked about the number of mayors. I think precisely the same number is retained, so there are no new mayors but no fewer mayors than there used to be. That is extremely valuable, too.
It is good to see cross-party consensus on this issue. It is typical of the way we operate on these issues, so with that I commend the order to the Committee.
International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019.
Relevant document: 17th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)
My Lords, these regulations, which were laid before the House on 31 January, aim to address failures of retained EU law to operate effectively in the field of accounts and reports of UK corporate bodies. They also address certain other deficiencies arising from the UK’s exit from the EU.
The international financial reporting standards, abbreviated to IFRS, are a set of international accounting standards used by multinational companies to produce their annual accounts. They are required or permitted in over 125 countries, including all EEA countries and 15 of the G20 countries.
EU Regulation 1606/2002, known as the IAS regulation, requires that all publicly traded companies in the EU use IFRS, as endorsed and adopted by the EU, when preparing their consolidated accounts. In the UK, the Companies Act 2006 also permits other UK companies to produce their accounts in accordance with these standards. In total, approximately 15,000 companies in the UK use IFRS.
Once the UK leaves the European Union, the EU framework for adopting IFRS will no longer apply. These regulations provide for the continued use of IFRS by implementing a national framework that provides continuity and clarity to UK business, and they aim to provide such continuity and clarity by bringing the European framework for adopting IFRS into UK law. This will ensure that UK-registered companies will not have to change their processes for preparing annual accounts.
The powers to endorse and adopt these international standards for use in the UK will be transferred to the Secretary of State. These transferred responsibilities will be bound by process and scrutiny. Furthermore, assessment criteria consistent with those in the European regulation will apply to all new endorsement decisions in the UK. They are that the standards provide a “true and fair” view of an undertaking’s financial position and that their adoption is conducive to the,
“long-term public good in the United Kingdom”.
The regulations also specify that, for all new endorsement decisions, the Secretary of State must consult stakeholders with an interest in the quality and availability of accounts, and that the final decisions will be published. The Secretary of State will be required to lay a report each year before Parliament detailing the carrying out of his responsibilities.
Further, the regulations provide for subdelegation of the endorsement and adoption powers to a designated UK body. A subsequent affirmative SI will transfer these powers to a new UK endorsement board. We currently expect this board to be hosted by a subsidiary of the Financial Reporting Council. As such, it will benefit from the FRC’s existing operational processes, such as HR and premises. The FRC’s role will be limited to monitoring governance and due process of the endorsement board. It will have no role in the process for adopting standards.
As the Committee will be aware, a comprehensive and detailed report of the independent review of the FRC, making 83 recommendations, was published in December. The Government welcome and share the review’s vision for a new regulator with a new mandate, new leadership and stronger statutory powers, and will take swift action to deliver that. The FRC’s role in relation to the endorsement board will be transferred to the new regulator once it is operational.
Throughout the development of these regulations, the Government worked closely with businesses and regulatory bodies. Informal consultations were carried out with companies, their advisors and investors. In addition, a dedicated stakeholder group also helped inform decisions about these regulations. Stakeholders were strongly in favour of both establishing a UK framework for the continued use of IFRS and the requirement for consultation before an international standard is adopted for use in the UK.
The regulations also make amendments relating to societas Europaea companies, or SEs: a Europe-specific type of public limited liability company that will not be able to register in the UK after EU exit. Regulation is already in place to convert automatically existing UK entities on exit day into a new corporate form—a UK societas—to ensure that they have a clear legal status. The amendments in the regulations relating to these entities do three things. First, they preserve a particular employee involvement provision to maintain employment rights wherever practicable. Secondly, they apply the Overseas Company Regulations 2009 to SEs registered in other member states. This will ensure that UK branches of entities registered in other member states are treated in the same way as UK branches of any other overseas company. Finally, they make a number of minor consequential amendments to other legislation, such as replacing references from SEs to UK societas to ensure that the UK has a functioning statute book on and after exit day.
A de minimis impact assessment of the regulations estimated low overall costs to business. The IFRS-related changes were estimated to have an equivalent annual net direct cost to business of £2.4 million per year. The estimated impact for the SE-related changes was £10,400 per year. Both figures are under the £5 million threshold necessary for a full impact assessment.
I commend these regulations to the Committee and ask the Committee to support and accept them. I beg to move.
My Lords, I begin by congratulating the Minister’s team—it is always said that the British Civil Service is the best in the world. They must have realised that their Minister might take a bit of incoming over the FRC tonight, as they produced this headline for the front page of the Financial Times: “FRC to make way for stronger accounts watchdog after a string of audit failures”. To get that on the front page of the FT just as we are to discuss the FRC as a possible delegated body is above and beyond the call of duty.
I need to declare some interests. I have served in the City for most of my life and remain a director of a number of limited companies, which are listed in the register of your Lordships’ House. I am also a member of Sub-Committee B of the Secondary Legislation Scrutiny Committee, which considered these regulations. I am coming back to have a second bite at the cherry, having had a go under the noble Lord, Lord Cunningham.
I will make a couple of points. It is easy—my noble friend, in his emollient style, flows so easily over the issues—to think that accounting standards are humdrum and commonplace. In fact, their exceptionally wide-ranging implications are felt in every part of our corporate system. They have an impact on directors and their boards and companies; if you serve as a company director, the two great things your lawyers and accountants always tell you about is trading while insolvent and maintaining capital. Failing to do that exposes you to some nasty and unpleasant risks and penalties—quite rightly. On the other side, they are for investors who need a clear basis on which to decide whether to invest their money in a particular venture.
Years ago, I was sitting where the noble Lord, Lord Stevenson of Balmacara, is now sitting, leading the Opposition on what became the Companies Act 2006, to which my noble friend referred in his opening remarks. We spent quite a bit of time on the Section 393 “true and fair” view, which is a statutory requirement. If there is to be a clash between international standards and UK law, UK law must prevail because it is the law of this country. In those circumstances, how will we determine the final arbiter of what is true and fair?
I will give the Committee a brief example because although it may seem quite simple to decide what is true and fair, it is exceptionally difficult. Revenue and recognition have been a problem behind a number of companies recently—notably Carillion—where you have a long-term contract with an assured client, perhaps the Government. Let us say it is a 10-year contract. You will have to put in some additional work in year one to provide the systems that are going to last the 10 years. Boards and auditors will argue fiercely about how this should be done. Some people would say that to show that you would make a loss in the first year of a 10-year contract, when you will make additional profits in the next nine, is not a true and fair view from the investor’s point of view. A true and fair view can be conservative and restrictive, or neutral, or positive and expansive. Of course, in the case of Carillion, it was positive and expansive and they recognised too much revenue early on.
These concepts go to the heart of our corporate governance and systems—and the public trust in and have confidence in those systems—so these are not just economic decisions; they have big political implications. I would argue that while the Secretary of State may appropriately delegate some of the detailed powers, he or she needs to retain an overarching power to ensure that the system works properly. Noble Lords on the Committee will have seen the ABI briefing, which says:
“We disagree that the Secretary of State should delegate all his functions to the Endorsement Board. Firstly, we think it would be counterproductive and secondly, we think it inconsistent with the aims of the Withdrawal Act … We strongly urge that, in the House of Lords debate on this SI, assurances are sought from the responsible minister that the new SI will provide for active political oversight of the Endorsement Board by the Secretary of State”.
If these matters are to be delegated in their entirety, this country will lose part of its political influence in international negotiations surrounding changes in these worldwide standards. That will impede the UK Government in ensuring that future IFRS continue to reflect the interests of UK companies. That would be a strange decision for us to take in the light of us looking to hew a more independent line, post Brexit. I hope that my noble friend can reassure me and the Committee that there is a real understanding of the political implications that overarch the accounting technical implications of this statutory instrument. That is my first point.
My second point concerns the body to which any delegation may be made. I do not want to dance on the grave of the FRC, but some of the reports to which my noble friend referred in his opening remarks are absolutely devastating. The points include that the FRC,
“is not fit for purpose”,
and that it,
“has serious problems in how it recruits top staff”.
Another point states:
“A new body should have statutory funding and a clearer remit”.
“The watchdog needs some new powers”.
One wants an assurance from the Minister that this unfortunate body, which has undergone regulatory capture in the views of many, will not have anything other than a passing interest in the establishment of the body that will enforce the regulations in the future.
It would be helpful if my noble friend could give the Committee more detail on how we will move forward. When his department wrote to the Select Committee of the noble Lord, Lord Cunningham, on which I sit, it said:
“The Department is currently working with the FRC to build capacity to set up the new Endorsement Board (EB) in time for EU Exit”.
We must be quite well on in that process, since we are only 10 or so days away from it. The Committee was also told:
“In addition, stakeholder input helped us define the extent of the FRC’s role in relation to the new Endorsement Board”.
It is important that we get some clarity on where we are in that process. We really do not want stuff to be set in concrete at this point. We need to know how the FRC will slide away and how the new endorsement board will be set up in the next two or three weeks.
Inevitably, particularly tonight, our focus is on Brexit and associated issues. However, this statutory instrument and its successor, which will bring the endorsement board into being, will have serious long-term implications for our corporate governance, the way our companies operate and the confidence of investors in our corporate system—all of which have come into question in recent years over a series of failures and scandals. We need to learn from that and plot a better course for the future. I look forward to hearing from my noble friend how the Government anticipate that being done.
My Lords, I have followed IFRS for some significant time, and it was part of my remit as chair of the Economic and Monetary Affairs Committee of the European Parliament. I also declare an interest as a director of the London Stock Exchange plc. Not only does that entity use IFRS, it is also a benefit for international companies to be able to list and report in IFRS or other standards deemed equivalent to UK standards. Having said that, my experience with IFRS has taught me to be wary of its limitations.
This is a very important statutory instrument because it is about the accounting standards under which companies prepare their financial reports, and of course those financial reports are audited using those standards and form a key part of annual reports. IFRS therefore plays a key role in audit and the standard of audit, and it will not have escaped your Lordships’ attention that audit, audit regulators and auditors have been or are coming under scrutiny in inquiries by Kingman, the CMA, Brydon and the BEIS Select Committee.
One of the lesser realised things about IFRS is that it is meant only for group level consolidated accounts, its purpose being international comparability. It is only for group level consolidated accounts that there is an EU requirement. A recent article published on 8 February this year by Nick Anderson, a member of the International Accounting Standards Board, states:
“it is important to remember that IFRS Standards, if only because of their international nature, cannot reflect in detail specific requirements of the multitude of different capital maintenance regimes among the more than 140 jurisdictions that now require the use of our Standards”.
However the UK, under the FRC, has gone further and converted UK GAAP into IFRS-like rules. An interesting impact assessment from the FRC, published in March 2013, explains:
“The FRC is issuing FRSs 100 to 102 (the Standards) following extensive consultation to move current Financial Reporting Standards (current FRS) towards an IFRS-based framework”.
The rest of the impact assessment looks rather more like a business plan for the big four, and, of course, we know from the Kingman review that the FRC is a captured regulator that was designed to take account of the companies and professions that it regulated.
IFRS tends to flatter accounts—the accounts of stakeholders—because it allows the inclusion of unrealised profits. It is this expansion of the conceptual framework of IFRS into company-level accounts—which continue to be updated as IFRS is updated—that has distorted UK financial reporting and made it depart from company law, which requires a prudent approach not a neutral one, and is central to the ongoing inquiries concerning audit.
Why do the public think they have been let down by auditors and had no warning? Auditors have followed a righteous-by-process approach of “true and fair according to accounting standards”, which has always been the FRC’s touted recommendation. The FRC has always wanted to get rid of parts of company law that it does not like. It wrote to the DTI in 2005 saying, “In short”, the Accounting Standards Board,
“is firmly of the view that outmoded and costly company law rules must swiftly be brought up to date”.
Against that background, it has taken a fair bit of campaigning and interrogation to get fulsome recognition that the company law true and fair test is an overarching requirement. From watching the evidence heard in the BEIS Select Committee from auditors, the fact of separately complying with company law seemed lost on most of them, yet it is in the Companies Act.
So I am grateful for the clear statement made by the noble Lord, Lord Henley, in reply to my Written Question HL13690. I am sorry it is one of 96 such Questions in and around these kinds of issues, but it has done a lot of good so far. Anyway, the Answer states:
“The true and fair test in section 393 of the Companies Act is the overarching test that is applied to a company’s annual accounts. If a company produces accounts, in accordance with the legal requirements, which are inconsistent with the Companies Act requirement to give a true and fair view, then the directors must depart from the accounting standards to the extent necessary to give a true and fair view. Particulars of any such departure, the reasons for it and its effect must be given in a note to the accounts.
The IAS Regulation (EU Regulation No. 1606/2002) includes requirements to consider the accounting standards system as a whole. Article 3(2) of that Regulation provides that a new form of international accounting standard can only be adopted if it is not contrary to the principle that an undertaking’s accounts must give a true and fair view of the undertaking’s assets, liabilities, financial position and profit or loss. This requirement ensures that no new form of international accounting standard is adopted for use in the UK if the application of that standard would lead to companies in general contravening the true and fair test”.
As I said, I thank the noble Lord for the comprehensive reply.
This statutory instrument will replace the EU regulation, but two things are clear from the noble Lord’s reply: company law has an overarching true and fair test; and the true and fair principle applied in the endorsement process does not replace the company law test. Would the Minister confirm that I have stated that correctly and that the true and fair principle requirement in the UK endorsement process does not replace the Section 393 company law true and fair test? That is an essential statement in the context of how financial reporting and audit must be conducted for me to approve these regulations. It is a little pedantic, but some may say that this is a new law compared with the EU one that previously applied.
The second major part of this SI is about who we can trust to be in charge of IFRS standards, both in the UK and representing the UK in international discussions, because the instrument provides the Secretary of State the ability to delegate that decision-making and representation to a new body, named in the Explanatory Memorandum as an endorsement board to be hosted within the FRC.
I do not know when the SI was drafted, but perhaps it is unfortunate that it does not take account of the Kingman report into the FRC, which yesterday the Secretary of State confirmed would be followed. The search for the new chair and deputy has started as part of a process that has to lead to a change of culture, new terms of reference including the public interest, and the ending of self-regulation and cosy relationships with stakeholders consisting of the very companies, entities and professions to which regulation from the FRC applies.
The Explanatory Memorandum states that the endorsement board is being set up as a subsidiary body. The noble Lord, Lord Hodgson, has already drawn attention to the fact that it appears that that process is well under way. In any event, it seems that the setting up of a new and independent regulator requiring legislation would also take a certain amount of time. However, Kingman also said that there should be various immediate changes. As well as a change to the FRC leadership, he specified improvements to the FRC’s internal systems and controls, including a centrally managed complaints procedure. I am not sure how that is going because I am still seeing reports of aggressive and threatening letters from solicitors being sent to complainants. That is not the culture or central procedure that I want to see.
Kingman also recommends applying the provisions of Managing Public Money and applying the Regulator’s Code, the Freedom of Information Act and the Public Contracts Regulations. There is little evidence that that has yet been done, and there is nothing much in this statutory instrument, other than FoI, to ensure that the body receiving delegated powers is compliant with the list of things that Kingman has recommended.
I will not repeat what Secondary Legislation Scrutiny Committee’s Sub-Committee B has said, other than to recognise that it has made the point that the Secretary of State will need to be confident that the FRC is in an appropriate condition to be able to host the new body properly. In paragraph 11 of Sub-Committee B’s report, there is an explanation of the work that BEIS is doing with the yet-to-be-reformed FRC to build capacity to set up the new endorsement board. The usual stakeholders have been consulted. It looks as though they are the same ones that it is recommended the FRC gets less attached to—businesses which are the bodies to be regulated and their advisers. At a guess, might that happen to include the big four? I am not quite sure what the robust transparency provisions that the stakeholders have helped with are. The paragraph states that the SI includes the “long term public good”, but that comes from the EU regulation, not stakeholders, and anyway it refers to the standards, not the endorsement body.
The unreformed FRC will be in an oversight position, but the policy intention—it is just an intention; it is not written in the legislation—is that the chair and board members will be operationally independent. What does that mean if there is oversight from somewhere else? What does it mean if there are HR processes, which I would take to mean recruitment of the people on the board? Where is the public input? Where does it charge the body rather than the standards with the public interest? When is the FRC applying the public interest recommendations from Kingman? Will delegation be deferred until then, and, in any event, has not the setting up of the endorsement board already been influenced in the old and suspect way? The whole project seems to have been rushed, premature and, I fear, unreformed.
Finally, why hand over important negotiations on UK requirements in IFRS to a regulator that has been so publicly criticised and, despite ongoing efforts, will have a long way to go to free itself from the cognitive capture that is so embedded throughout its organisation?
I understand the sensitivity that tweaking standards can tweak profits, and the UK way is not to have politicians doing standards, but there is the relatively unique circumstance in accounting standards that the profession dominates the standard-setting process. Bankers do not set banking standards and market participants do not set market operation conduct rules, so why should accountants set their own standards? At the very least, the Secretary of State needs to retain the ability to intervene.
In the EU, endorsement and representation power lies with the Commission, and the Parliament also has a veto. I do not see why in this instance, because there is this unusual circumstance of accountants setting their own standards, there should not be the intervention of some kind of Secretary of State and parliamentary procedure. Yet again, I find that Australia appears to be doing things better, because that is just what it has done. I would say that, if it is good enough for Australia, it is good enough for the UK.
My Lords, I declare my interest as a retired fellow of the ACCA. Although I have not practised as an accountant very much during my membership—very little, in fact—I retain an interest in the processes of accounting and the impact it has on business and the economy as a whole, which have been so well described by the noble Lord, Lord Hodgson, and the noble Baroness, Lady Bowles. Both have contributed a great deal to the debate, which leaves a number of very uncomfortable questions for the Minister to try to respond to. I am afraid we will probably not get to the bottom of them today. They have set out an agenda, particularly the noble Baroness, for work that needs to happen over the next few months if we are to get the best out of the current changes.
I will put another review on the table as well, which we have not yet had an opportunity to discuss in our House. I hope there will be an opportunity to do so in the not too distant future. Very significant changes are being made through what appears to be a process of correspondence and speech-making between the new chair of the CMA and the department, under which what looks like a substantial shift of public policy on competition issues will be introduced to put consumer interests at the heart of much competition policy—a change which I would welcome.
This would be a significant change in the powers and abilities of the CMA to investigate and to seek out remedies where malfeasance has been found, and a completely different sense and sensibility relating to the work that has previously been done under the CMA on investigations more generally. I say that because it seems a rather important leg of the various bodies involved in a broader conception around how public trust is to be generated in economic operators. One could also add that a similar responsibility towards consumer interests and consumer focus is needed for the regulatory powers in financial services, for which the Minister will be aware we have been arguing for some time, if we are to get the best out of that system. That has been much discussed in the context of whether there should be a duty of care on financial organisations dealing with consumers, a matter to which we will no doubt return.
By way of introduction, I align myself with the two speeches that have already been made, and will ask three questions on the Explanatory Memorandum. I will preface those with the point made very strongly by the noble Baroness, Lady Bowles, but raised also by the noble Lord, Lord Hodgson, that it is the cruellest of misfortunes for those who have been responsible for designing this new structure that they are trying to find analogues for the existing system in Europe, which has run and operated our overall structure for reporting on public accounts and public bodies, when the whole of that structure is being completely refigured through the FRC review and the consultation now going through. The question that concerns me most is about the structure being proposed. The Secretary of State takes on, broadly speaking, the responsibilities of the Commission, but the political control is reduced to a situation which we find more commonly in Britain than in other countries—about which the noble Baroness, Lady Bowles, has been fairly critical—where the devolved responsibilities are to a body that is being created out of nothing and allocated to a body that is in transition and will not have proper supervisory powers. There is a real problem in this, particularly since, as we read in the recent consultation about the independent review of the FRC, about a third of the recommendations are in category three. As the Minister will know, this relates to reforms that will require primary legislation and have wider ramifications, and therefore require deeper consideration and wider consultation.
I do not understand how the Government think they can get away with a process changing the nature and function of an important construct that relates to a whole economic activity and the accounting process underpinning it in terms of public trust—and do so when they are signalling that they will not be in a position to do it until they get primary legislation ready, let alone through, at a time when it seems impossible to legislate on anything except Brexit. I will leave the Minister to respond to that if he can.
My questions in response to the points raised so far are relatively straightforward. First, in paragraph 7.5 of the Explanatory Memorandum, the policy intention is for the Secretary of State to delegate the function to an independent endorsement board when it is constituted satisfactorily in 2019. Am I right in assuming that this is what is referred to in the Chapter 1 recommendations on the need for a statutory authority, which will require primary legislation? If so, can we have more information about the timing? It does not seem likely that it will be finished this year, let alone in time to enforce the work. I would be grateful for a comment on that.
Secondly, paragraph 7.6 makes the point that the instrument enables the Secretary of State to revoke the delegation to the endorsement board if he or she wishes. Is that right? I do not regard that as good law. It is certainly not parliamentary language. Can we have some examples of the sort of issues that might be raised? The only example we have here is the endorsement board being deemed unsuccessful—but by whom and under what criteria? Do we have any principles under which that judgment can be made? If so, what are the processes under which it will happen?
Thirdly—I have already touched on this point—the principles of financial reporting are taken without question as providing a “true and fair” view of undertakings and a position “conducive” to the long-term public good. These are familiar words. They are contained in the IFRS and apply in the UK GAAP but they are not without some difficulty in terms of their overall understanding. They require judgment at the local level in terms of the individual accounts and in the round about whether the processes were correct. The instrument places an obligation on the Secretary of State to consult those with an interest in the quality and availability of accounts. In pursuit of my concern that the consumer and the broader public interest require a much broader cut through this, can the Minister confirm that the consultation process will include not just the Big Four and the accounting professions, and look genuinely at the wider stakeholder interests?
My Lords, I thank all three noble Lords for their interventions, which were based on considerably more expertise than I have. I hope they will be tolerant of my response. If I fail to answer any questions I might have to write to them.
It might be helpful if I remind them of the purpose of these regulations. As usual they have the words “EU exit” in them. They are designed for a no-deal exit and ensure that the IFRS can continue to be endorsed and adopted for use by UK-registered companies after exit from the EU. They are laid using powers under the EU withdrawal Act 2018. It is again worth reminding noble Lords of the constraints within that Act and that the powers within it would not allow the Secretary of State to go wider into some of the other matters that are of concern to all three noble Lords. That is why, as I made clear earlier, that there will be a further SI later on.
We have been talking about Kingman who, as we know, published his report on 18 December. We also know that my right honourable friend the Secretary of State issued his initial consultation on the recommendations on that only yesterday and that the closing date for responses is 11 June. No doubt all three noble Lords have copies of that. I think I saw a tweet from the noble Baroness, Lady Bowles, on it today, so I presume she has seen a copy. I regret that we are not in a position to debate it today, but there will be many other opportunities to debate it and to feed in responses in due course.
To some extent, that deals with the initial concern from the noble Baroness about whether the FRC is a suitable body to host the new endorsement board, in light of Sir John Kingman’s report and the response that will have to be made to that. As I said, there are the constraints of the EU withdrawal Act. My right honourable friend is trying to deal with the deficiencies so that we can get on with the eventualities, should there be a no-deal Brexit.
I shall say something about the consultation on the Kingman review. It is important and we are grateful for the very comprehensive review he gave. We think the recommendations are well-considered, far-reaching and transformational. As noble Lords know, the Government published our initial consultation on those recommendations, highlighting our approach in taking forward the review’s recommendations. The Government welcome and share the review’s vision for a new regulator with a new mandate, new leadership and stronger statutory powers and intend to move as fast as possible on this. I would say move swiftly, but the noble Lord will have to be tolerant because the process to implement reforms and overhaul the sector must be gone through. In the interim, until the new regulation is in place, the Government will work with the FRC to take forward 48 of the review’s recommendations, including addressing issues such as lack of transparency and shortcomings in the enforcement activities. Further detailed consultation on those measures will follow.
One of the words that worries me is “hosting”; this relates to the question raised by the noble Baroness, Lady Bowles. Are we just getting a defective organisation—Sir John Kingman’s review makes it clear that it is defective—to be the handmaiden or midwife of this new organisation? What does hosting mean? Does it mean that all the staff are the same? Will there be an independent unit within the FRC? This may be too detailed for this discussion and I would be perfectly happy if my noble friend wrote to us. However, for the reasons we have explained, and in order to have the public’s trust, it is important that it must be seen to be independent and not infected with the problems of the FRC.
I take my noble friend’s point. In my opening remarks, I tried to make clear that the FRC would host it purely in terms of human resources and other such matters. It will be an independent body to which my right honourable friend can delegate powers. Some noble Lords—I think it was my noble friend and the noble Lord, Lord Stevenson—asked about this. My right honourable friend will retain overarching power to ensure that that endorsement function operates well. If he retains that overarching power, he can revoke designation and retain overall control.
The endorsement board will be required to report annually to the Secretary of State on carrying out its functions. Sitting with the FRC is a matter of convenience in terms of HR and such matters, but it does not mean that its staff has to come from there. If there is anything more I can say, it might be best if I wrote to my noble friend and copied the letter to other noble Lords. I want to make it clear that the board will be made up of independent members. Its chair will be independent and it will not be part of the FRC. Having used the word “hosting”, I am trying to think of some appropriate metaphor but I cannot offhand. I hope that my noble friend will understand what I am getting at.
The noble Lord, Lord Stevenson, asked about revocation and the appropriate process. We hope that it would be very much a last resort, but it is important that the Secretary of State will be involved in the design of the board and how it carries out its functions. It will have to report to him and he will then be responsible for reporting that to Parliament, which will allow the noble Lord and others to have their involvement. Engagement between the Secretary of State and the board will continue as it carries out its work. I am not sure whether I need to go into the Kingman review much more. As I made clear earlier, it is now a matter for consultation.
The noble Baroness, Lady Bowles, put a large number of questions to me. That also means that I am providing her with a large number of answers, for which I thank, as always, those who advise me. She asked whether I could confirm that the true and fair requirement in the endorsement process does not overrule the Companies Act requirement—I see that she nods. Yes, that is correct.
We are obviously going to debate these matters in considerably greater detail when we get to the other SI that I have promised. As I made clear, this SI deals purely with a no-deal exit. It is important for business to provide it with the certainty that it needs. Other matters can be dealt with in due course as we develop the endorsement board and consider how it should work. I look forward to debating those matters in greater detail with all noble Lords when we come to that SI, just as in due course we will have to deal with the primary legislation required to deal with some other points that will result from the consultation and the report by Sir John Kingman, although that will be some time in the future.
I have a couple of comments. The Minister referred to this being done under the withdrawal Act, and that is quite correct. There is no problem with the way in which Regulation 7 and things around it operate. That is a copy-and-paste job and exactly what the withdrawal Act provides for. I do not think that that Act requires there to be any delegation or sub-delegation. It enables such things to happen but does not require them. But it is in there and at this stage we are unlikely to resist the statutory instrument going through.
However, given everything that has been said, the next statutory instrument, which is also affirmative, will have to contain constraints and requirements ensuring proper, not-captured behaviour for there to be the confidence to allow it to go through. There is no problem with the Secretary of State doing an endorsement. There are people who can assist and advise, and the Secretary of State can perfectly well organise consultations and those kinds of things, so I would not consider delay of the next stage sacrosanct. Given the whole situation, the nature of this debate and the concerns from all who have spoken, I hope that that message about the next stage can be taken to the Secretary of State. I would be very unhappy about trying to pass something in the next month or so without there being many more safeguards.
At this stage, all I can say is that I note what the noble Baroness has said. Regarding when the next SI will appear—whether it will be in the next month or so—I cannot say, but I will certainly keep her informed and let her know exactly what our thinking is.
Committee adjourned at 7.21 pm.