Wednesday 16 October 2019
Specific Food Hygiene (Regulation (EC) No. 853/2004) (Amendment) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Specific Food Hygiene (Regulation (EC) No. 853/2004) (Amendment) (EU Exit) Regulations 2019.
My Lords, I thank noble Lords for their consideration of the regulations. I am confident that we have the shared intention to ensure that the high standards of food and feed safety and consumer protection we enjoy in this country are maintained when the UK leaves the European Union. This instrument, and the original instrument that it amends, seek only to protect and maintain these standards. Changes are limited to minor drafting amendments to ensure that the legislation is operable on exit day. No policy changes are made through these instruments and we have no intention of making any at this point. This amends a previous EU exit SI, the Specific Food Hygiene (Amendment etc.) (EU Exit) Regulations 2019. Further clarity was required in setting out the authorisation process for products that can be used to remove surface contamination from products of animal origin. The clarification will ensure that the process is robust and can be applied clearly in assessing the risk of new products.
This instrument was made on 9 September under the urgent, made-affirmative procedure, which was considered appropriate to meet the deadline for the European Commission’s third country listing vote on 11 October. It needed to be in place to support the UK’s application for third country listed status with the EU. Third country listed status guarantees that the UK can continue to export animals and animal products to the EU after exit. The application was voted on by the European Commission on 11 October, and I am pleased to report that the vote was indeed in favour of accepting the UK’s application for third country listed status for products of animal origin.
I shall now talk a little about the specific detail of the minor and technical changes made by the instrument. The new instrument makes clear that the responsibility to approve substances that may be used to remove surface contamination from products of animal origin rests with the Secretary of State for Health and Social Care and the appropriate Minister in each of the devolved Administrations. Lack of clarity may affect implementation and has the potential to undermine the responsibilities for authorisation; the instrument therefore rectifies this. The measure introduces no substantive policy changes to what was successfully passed and made in Parliament in March 2019.
Food business operators are not permitted to use any substance other than potable water or, where permitted, clean water, to remove surface contamination from products of animal origin unless this has been approved. This relates to business establishments that handle products such as meat, eggs, fish, cheese and milk and do not supply to final consumers. Currently, approval for such substances is given by the European Commission, but after EU exit this responsibility will be carried out by Ministers. The amendment to Regulation (EC) 853/2004, made by the specific food hygiene SI, is being further amended to make it absolutely clear that Ministers will be responsible for prescribing the use of any other substances and the process of consulting the Food Safety Authority is retained. That decision will be made based on rigorous, evidence-based and independent food safety advice from the FSA and the FSS.
If, after EU exit, any additional substances are proposed to be approved for this purpose, they will be subject to risk analysis by the FSA, which has established a rigorous and transparent risk analysis process for assessment and approval of any such new substances. Any requests for substance approval would be subject to thorough scientific risk assessment and risk management before being put to Ministers for the final decision. The advice provided to Ministers, and the analysis and evidence on which that advice is based, will be publicly available. All decisions to approve the use of substances to remove surface contamination from products of animal origin will be implemented by means of legislation, thus also providing opportunity for parliamentary scrutiny.
Let me be clear that neither this instrument nor the instrument it amends introduce any changes for food businesses in how they are regulated or run, and nor does it introduce an extra burden. The overall changes to the food hygiene regulations will ensure robust systems of control that will underpin UK businesses’ ability to trade both domestically and internationally.
It is also important to note that we have engaged positively with the devolved Administrations throughout the development of this instrument, and this ongoing engagement has been warmly welcomed. The Welsh Government have provided their consent and the Northern Ireland Civil Service has given its acknowledgement of this instrument. FSA officials have also been in close contact with the Scottish Government regarding these regulations. They have not yet had the opportunity to give their agreement, due to the necessity of having these regulations in place by 11 October, but we expect that to continue in a positive direction. I stress that we are still committed to the intergovernmental agreement accompanying this Act not to normally make EU exit regulations without the agreement of the devolved Administrations where the policy area is devolved in competence. However, as I explained, this is a very minor drafting change to a regulation the Scottish Government have previously agreed.
Finally, I draw noble Lords’ attention to the fact that, in line with informal communications that the FSA has had with the Joint Committee on Statutory Instruments, the agency will, in accordance with the terms of the free issue procedure, be making this instrument available free of charge to those who purchased the earlier exit SI. The Government accept that this instrument should have been made available under the free issue procedure when it was first made, but that did not happen due to an oversight. I apologise to noble Lords for that oversight and confirm that it will be corrected. The Food Standards Agency will be taking action, together with colleagues in the National Archives, to ensure that anyone entitled to a free copy of the instrument under that procedure will, where appropriate, be able to apply for a refund, or otherwise obtain a free copy of this instrument on request, in accordance with the usual terms of that procedure.
This instrument constitutes a necessary measure to ensure that our food legislation relating to food safety continues to work effectively after exit day. I urge noble Lords to support the amendment proposed to ensure that we continue to have effective food safety and public health controls. I beg to move.
I thank the Minister for introducing these regulations. I also thank my noble friends Lord Rooker, Lady Jones and Lady Wheeler for carrying the bulk of the food standards instruments that we dealt with before the summer, when we seemed to do a great many of them. As the Minister said, these are important regulations because they address the process for approval of substances that may be used to remove surface contamination from products of animal origin.
As the noble Baroness confirmed, this SI was discussed earlier this year, but a great deal has changed since then, as we all know. We have a completely new Government, though I am pleased to see that the noble Baroness has remained in her job. What has not changed is the uncertainty over whether the UK will leave the EU in the next 15 days or so, with or without a deal, and the impact that could have. For the record, once again, we find ourselves back debating necessary statutory instruments and having to spend time and money putting through legislation in case of a no-deal Brexit.
We all agree that the safety of our food is of the utmost importance to our health and well-being. We have been fortunate to lead the world in food safety, in some areas. We have also had to learn some very hard lessons from our own food scares. We know that food safety must be protected at all costs. Therefore, I share the Government’s commitment to ensuring that there is no change in the high-level principles underpinning the day-to-day functioning of the food safety legal framework. Ensuring continuity for business and public health bodies is of the utmost importance and in the interest of the public. This has been the protection that the EU regulatory framework has afforded us in the UK.
While the Minister assures us that there is no substantive policy change, I need further reassurance. Paragraph 2.7 of the Explanatory Memorandum states:
“Following further policy deliberations, a revised approach to describing the process for approval of substances which may be used to remove surface contamination from products of animal origin is felt to be desirable”.
What does that revised approach consist of if it is not a policy change?
Why was this SI not among those we took through in March? What would have happened if we had left in March and this SI had not been on the statute book? What would have happened to this regulatory framework?
I am not convinced that the SI does not give some leeway for Ministers to approve substances that can be added to our food. I shall be interested to hear how confident the Minister is that the high standard of food safety will be maintained. What additional substances could be approved by Ministers if needed? How will that impact food safety? The safety of our food is hugely important and we cannot get this wrong, so I have made these very brief comments. I do not want to delay the Committee, but I welcome interventions from other noble Lords. We will, of course, not oppose this statutory instrument and I look forward to the Minister’s response.
My Lords, I shall add a few comments to my noble friend’s remarks on subjects that concern me considerably. I lived through the BSE food crisis. It was the result of what was described at the time as a minor change in the regulations. That minor change cost UK farmers something like £3.75 billion and led to the slaughter of very many cattle. Minor changes to regulations can make an enormous difference. Therefore, we should give this statutory instrument very careful scrutiny. It seems a little rushed, so I should like more explanation of why we have to rush it. It ought to be considered very carefully.
I notice in Hansard the words that the Minister repeated today: “for the moment”. That worries me slightly. What does it mean? Is there some intention to change things in the near future and is this SI just a means of getting something through fast, as it is necessary for the moment?
My concerns about this minor change in regulation are not simply about the food safety implications, although they are enormous, but about changes to the substance used to remove contamination from animals for human consumption. That can mean many different things and can have a huge impact not only on consumers’ health and safety but on animal welfare. I think particularly of what has become a bit of a euphemism for health and safety in food: chlorinated chicken. I am also concerned about the substances used to prepare farmed salmon for human consumption. I should like specific clarification of the Government’s intentions about future regulation in this area, to the extent that the Minister is able to give it.
One of the things that has always concerned me about these regulations—I have dealt with quite a few—is that there seems to be no sunset clause in the event that we do not leave without a deal. Is there a proposal for a sunset clause for these regulations? Can the Minister give us an assurance about the extent to which animal welfare has been taken into account? We all know that chlorinated chicken means treating at the last minute and that it does not matter what contamination the animal received beforehand; once you have washed it in the swimming pool, if you like, it will be okay for human consumption, which is not necessarily the case. It is important that such issues should be taken into account and considered in these regulations.
My Lords, I do not intend to detain the Committee for very long. The Minister has outlined the instrument clearly and the noble Baroness, Lady Thornton, has raised some pertinent issues but I too would appreciate some clarification. The briefing that I received from the FSA says:
“The new instrument makes clear that the responsibility to approve any additional substances which may be used to remove surface contamination from products of animal origin rests with the Secretary of State for Health and Social Care, in England, and the appropriate Minister in each of the Devolved Administrations”.
This raises a few questions and I have some that I would be grateful if the Minister could answer, or at least get back to the Committee about.
I wonder whether we could have different outcomes in each country of the union. Would this impact on, for example, the sales of Welsh lamb into England? If we can operate slightly differently in Wales and make different decisions there from those in England, could there be an issue with that? I also wonder who the Secretary of State will take evidence from in making his or her decision in this matter. What public consultation will be carried out in advance of a decision? Finally, we have already heard chlorinated chicken being raised but could the Minister assure us that this is just an English measure? Can she assure us that there will be no English chlorinated chicken on English dinner plates?
My Lords, I should like to raise a few points and I suppose I ought to declare an interest, as between 2009 and 2013 I chaired the Food Standards Agency. I will not go into any detail about the regulations but they are really about Ministers’ powers. It is a Minister I want to talk about because it seems that we now have another Secretary of State who does not like the FSA. The Minister here may shake her head but wait until I have finished, please.
The noble Lord, Lord Lansley, did not like the FSA and sought to abolish it in 2010 but was prevented. Labour Ministers did not like the FSA either; that is the point. That is why it was set up, but now we have a Minister openly attacking the FSA in the public prints. He talked about action on “best-before zealotry” after the Prime Minister said that mouldy jam was okay: “Just scrape the top off, it’s okay”. Sod the toxins that have got into the rest of the jar and can cause major food poisoning. The Prime Minister and the Secretary of State were obviously better qualified than the medics who give the advice. The Secretary of State also weighed in when he said back in February, “I want a new chief executive at the FSA”, and he got one—did he not?—when the previous one left in June or July. I do not criticise that. I am sure it was perfectly ordered and all fine. However, he is starting to speak out on matters related to food safety. He has piled in about the “government body’s line”—referring to the FSA, a non-ministerial department—on beef burgers. He is very unhappy about the FSA’s interventions on food safety and wants it to go back to its “original purpose”.
These regulations are quite good, in a way, because they are essentially about surface contamination. But I invite the Minister and the Secretary of State to go and read Hugh Pennington’s report about the south Wales outbreak of E. coli 0157 in September 2005. A butcher provided meat then to schools in four local authorities; 157 people fell ill and, regrettably, Mason Jones, aged five, died. The butcher went to jail. It was all about the contamination and cross-contamination, and Hugh Pennington did a major report for the whole of the country. It did not relate just to Wales or that incident, as he had of course done others as well. That was about surface contamination, so surface contamination is not unimportant.
The Secretary of State said that if beef patties—beefburgers—were served rare, that was perfectly all right. I have some news for him: that is the whole point. I know that there is dispute between some scientists on this, but if you chop up meat, part of it will have been the outer part of the meat, the bit that can get contaminated. If you then mix it all together and do not cook it properly, it is highly likely that somewhere in the middle of the product will be meat that could be contaminated but has not been cooked. That is the great thing: cooking gets rid of most of the problems, whether E. coli or salmonella.
We have had cases in recent years where people have been seriously ill. It is not just a UK issue; there was the death of a young boy in France, who died 5 years after eating rare burgers from a Lidl supermarket. It is not unimportant.
My noble friend mentioned CJD. When I led a debate on the ban on beef on the bone—the most controversial debate I have ever led—it was at 10 pm in the House of Commons, everyone had had a good dinner and I came along as Grandpa Nanny Rooker saying that we need to ban beef on the bone. It was pretty acrimonious. What silenced the House was that during the day—this was in 1998 and I am not a doctor —I had asked: what happens to people who get CJD? What are the symptoms? During my conversation with three or four medics, it transpired that when those identified as having CJD—there is no final figure, but there are well over 100—were operated on to check the situation in the brain, the medical instruments had to be destroyed. They could not be sterilised. That really put the House of Commons to bed. It suddenly dawned on us that this was serious.
We may not have some of those issues now—heaven forbid that we do—but we must learn lessons from the past. It is so easy to say, “We haven’t had any problems; we will relax the rules because we have too much regulation”.
Just before I left the FSA—I am not sure of the date because I have not checked, but it was either 2012 or 2013—we were lobbied intensively by industry to allow animal protein to be fed to animals. We had a long board discussion about it, which is all on the record. One beauty of the FSA is that it is open and transparent. We came down 100% against allowing animal protein.
This Secretary of State is obviously amenable to industry, given how he has been bellyaching that the FSA is doing too much and should stick to its original purpose. There are attempts to restore that procedure, because it is a cheaper way to do it. I understand the pressure from industry. I and others were lobbied—submissions were made—to go back to it, saying, “We will follow the rules; we will not mix it up with anything else”, but everybody spoke on the record and the FSA board unanimously said that we were not going down that road, because we were still worried about what had happened.
We understand that this Secretary of State does not like what is happening at the FSA. I have not spoken to anybody on the board, by the way, but I assume that it is bold enough and has enough backbone to follow the rules and the law that set it up in the first place. I warn the Secretary of State that if he ever comes to this House trying to change Section 1 of the FSA Act, it will not go through. I am certain of that, because there is no excuse for watering down.
Ministers do not like it when things go wrong. They love to pull the levers when things are okay, because they are Ministers and they want to do this and announce the other. That is the thing they do not like about the FSA. My caveat—not a warning—to them is that they need to have officials and scientists front up the media when things go wrong. If Ministers start interfering when things are not going wrong, it might be that one day they will end up in the spotlight themselves. They will be the Minister who has taken health and food risk decisions. They will carry the can. There is no need for that. That is what the FSA has been set up for—not to carry the can, but to be the public guardian. That is its main function.
I have looked at various of the Secretary of State’s musings. It is probably unfair of me; I have probably not seen all the good things that he has said about the FSA. In fact, I have not found anything good that he has said about it, but I have found a few things that are negative. I thought that this would be an opportunity to put on record that we are watching him, because when things go wrong people will start opening the books and saying, “Who’s responsible for this?” It was the same when the horsemeat issue broke. I was in Northern Ireland at the time and so was the chief executive. It broke overnight.
When things go wrong, you start to say, “Hang on, who’s responsible for which bit here?” You can test these things out, but when things go wrong that is when people open the book. When things are going okay and we do not have major outbreaks, you can always say, “We can relax. We’re being too tough on industry. We want less regulation and to free up the market”. On food safety, however, the FSA’s staff have spent the best part of 20 years rebuilding British people’s confidence in their food supply. It is very important that we do not put that at risk. I fully accept that the regulations and the statutory instruments that the Government have provided for Brexit fully conform to all that. I have no problems with any of them. I have absolute confidence in what Ministers are planning.
However, the vulnerability is in the meat plants in particular. It is a closed industry. I think there is only one plc in the meat industry, which might be Morrisons, because it has a vertically integrated system—at least it used to; I am not up-to-date these days. Generally, it does not advertise on its factories, “By the way, we kill animals here so you can have your meat”. It is a very closed industry, but when you go to abattoirs for pigs, sheep and cattle you see the care and attention that has to take place for live cattle, some of which might be dirty cattle—the vets are there to stop that; a clean cattle policy is supposed to operate—from live animals at the beginning to the end product for the table. It is vital that that process is looked after. There are people in that industry who will seek to cut corners. I will not give examples; it would be unfair because they are out of date. But the fact is that it is a closed industry and it does not expose itself. I understand why. A few documentaries so that people understand where meat comes from might be helpful, but nobody has ever had the courage to do it.
It is in the industry’s interest that it resists any ministerial temptation to cut corners, because industry would be the loser. The beef ban lasted until 2006. It was the last thing that I did as a Northern Ireland Minister. I did not go to Brussels; I am one of those who has hardly ever been there. I went there to serve Northern Ireland beef on the day that the beef ban was lifted. Traders were over there doing deals to restore their past links. The last few years of the beef ban were purely political. There was nothing scientific or health-based about it whatever. We in this country know far more about CJD and BSE than anybody else simply because we have gone through it. We had reports galore. The fact is that industry suffers economically, and then the country suffers as well.
I wanted to put those few pointers on record so that someone could say to the Secretary of State, “By the way, it’s probably not a good idea to keep rubbishing the FSA, because people are watching what you are saying”.
I thank noble Lords for what has been, as ever on the issue of food safety and the FSA, an informed and very expert debate. While I would never dare to call the noble Lord “Grandpa Nanny Rooker”, I assure him that the value and expertise of the FSA are under no question from the Department of Health and Social Care and the Government. Experts are very much in vogue in our department, and the importance of the FSA on exit day is very much understood. That is why we have taken such care in bringing forward the statutory instruments that, as he recognised, have been crafted to ensure the highest standards of food safety on exit day, no matter what the nature of the deal. I entirely agree with him that we should ensure that we continue to value the FSA and to communicate that value publicly and privately. I should expect no less than to be held to account by him on this issue every time I come into the Chamber. His expertise shone out during his speech.
I thank the noble Baronesses, Lady Thornton, Lady Jolly and Lady Kingsmill, for their support for the statutory instrument. I shall answer some of their questions, and I welcome their commitment to join the Government’s commitment to the very highest standards for food and food safety, represented in the statutory instrument.
I reassure the noble Baroness, Lady Kingsmill, that this instrument will not have a sunset clause for the specific reason that it amends retained EU law, so any future changes, as with the other statutory instruments, will be subject to parliamentary scrutiny and control in the normal way. It is in the event of no deal, so, should the Government reach a deal with the EU, as we very much hope they will, we will repeal or amend it in accordance with that outcome. It is being put forward to reassure rather than to create any concerns, so that we can ensure that we have in our legislative framework very clear processes for the cleaning of products of animal origin.
In response to the question put forward by the noble Baroness, Lady Thornton, this issue was not missed in the original statutory instrument. It was dealt with, but it was felt that the drafting needed to be clearer. It was brought forward in a swift and made-affirmative way because we wanted to make sure that, when we went forward to the vote on the third country listing, this was part of our statutory instrument programme at that point. That is why it went through quicker than it would otherwise have done. There was no intent to be underhand or sneak it through; we just wanted to make sure that it was part of the package at that stage. That is why we are having this debate now, after the fact. With this statutory instrument, we wanted to ensure that we clarified further the process for making decisions on the approval of substances to remove surface contamination from products of animal origin, and to move beyond doubt that the decision on approvals was for Ministers and a statutory instrument, so that there would be a double question of scrutiny on the basis of clear scientific and risk advice from the FSA.
A very clear process has been set out. Currently an applicant makes a request to the European Commission following agreement from representations with member states, which will refer the application to EFSA. EFSA will carry out a scientific evaluation of both the safety of the substance and the efficacy of its use. Following the issue of EFSA’s opinion, the member states will then vote on whether the substance will be approved by the European Commission Standing Committee meeting. After EU exit, we will have a similar process, with just the Ministers, or the devolved Administration representatives, replacing the European Commission, but we will have just as strong an emphasis on scientific advice and transparency.
I have a helpful diagram, provided for me by the Food Standards Agency, which I hope it is acceptable for me to display and which I am happy to put in the Library. It demonstrates the process the FSA will go through in ensuring that there is a transparent process for gathering scientific evidence. There are several points of publication of the evidence, which would then be presented to the Minister and then be available as part of the scrutiny process for statutory instruments. I hope that this is reassuring and that there would be no question of undermining the expert advice provided to Ministers. I will place this in the Library of both Houses for assessment by your Lordships.
In answer to the question from the noble Baroness, Lady Kingsmill, regarding farmed salmon—I did not know this, so it is a helpful, educational moment for me—there will be no policy change in this area, as in any other. The treatment of farmed salmon will follow the rules as now: either clean water or seawater could be used to surface-wash salmon. I hope that is reassuring for the noble Baroness.
On chlorinated chicken, the current situation will remain. No substances other than potable water are approved to remove surface contamination from chicken carcasses, and there is no intention to change this when we leave the EU. Any change to this would have to go through the application process, which I have outlined, and would be clearly transparent to Members of this House and members of the public. It would be open to scrutiny, so I hope that is reassuring.
The noble Baroness, Lady Kingsmill, rightly raised the important issue of animal welfare in the context of chlorinated chicken. That would be considered with an application, as it is an important concern. Scrutiny would be available not only through scientific consideration and the FSA’s consideration, but also through public and parliamentary consideration. The retention of current law helps us promote the good welfare standards we already have, so I hope that is a reassuring answer.
Finally, I turn to the important question from the noble Baroness, Lady Jolly, regarding the potential for different food and feed safety standards to emerge across the UK after exit. The FSA has considered this and discussed it closely with the devolved Administrations as we have prepared very carefully with the Administrations in Scotland, Wales and Northern Ireland for the—albeit unlikely—potential no deal. There is a commitment from all the devolved Administrations to a common approach across the UK, albeit with the potential for evidence-based divergence. We are confident that, in practice, it will be possible to make arrangements to operate a framework for food and feed safety regulation across the UK. It is one of the policy areas set out in the UK Government’s published provisional policy analysis, which is subject to detailed discussions between the UK Government and the DAs to explore what common framework arrangements are needed after we have exited the EU. Officials across the different devolved Administrations have already been working over recent months and years to make sure that this is implemented effectively, so there is confidence in the FSA and FSS that this can continue effectively. I hope I have answered all the questions asked.
The Minister has not answered one question; it may be that she does not have the answer at the moment. I have not seen her diagram with blobs on, but can she indicate whether there would be any element of public consultation if the Secretary of State were to consider a change?
The noble Baroness asks an important question. There is the opportunity for formal consultation as necessary, depending on the nature of the change. This is point 10 in the diagram and, yes, I have just been told that it is there in the SI, depending on the nature of the change that comes forward. Given that any formal advice would be available for public scrutiny, it would be evident and open should there be any need for public consultation. Given that there are implications for industry, this would be carefully managed. It is notable, and important to take into account, how carefully the FSA has managed its statutory instrument programme. It carried out a six-week consultation to prepare for its 16 SIs and managed its engagement very carefully. The impact assessment was very carefully managed, and I think this is an indication of its intention going forward. I beg to move.
Agriculture (Miscellaneous Amendments) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Agriculture (Miscellaneous Amendments) (EU Exit) Regulations 2019.
My Lords, I declare my farming interests as set out in the register. I hope it will be helpful to your Lordships if I speak to the instruments together, given the close connection between them.
These statutory instruments primarily amend retained EU law relating to the common organisation of markets in agricultural products. They also make minor amendments to cross-cutting common agricultural policy legislation and legislation governing rural development programmes and maritime and fisheries funds. The CMO sits in Pillar 1 of the common agricultural policy and was set up as a means to meet the objectives of the CAP. Over time, it has broadened to provide a mechanism that enables the EU to incentivise collaboration between, and improve the competitiveness of, agricultural producers and to facilitate trade.
The framework legislation of the CMO, which contains the basic rules for the schemes therein, was debated in this House earlier this year. The legislation considered today is technical in nature and limited in scope, as it primarily amends legislation setting up the finer details of the CMO to ensure that its provisions can continue to work after we leave.
Bearing in mind previous discussion, I assure your Lordships that we are adamant in upholding standards and maintaining process and are keeping as close to the current system as possible. The legislation makes appropriate corrections to ensure that the current system and its processes are operable after exit.
The Agriculture (Miscellaneous Amendments) (EU Exit) Regulations 2019 primarily make operable functions contained in EU legislation relating to the CAP and the CMO currently carried out by the European Commission or member states in the reserved areas of import and export controls, international trade and regulation of anti-competitive practices and agreements. Under the amendments, those reserved functions will instead be carried out by the Secretary of State or, in one instance, in relation to contractual negotiations in the dairy sector, by the Competition and Markets Authority. Some of these functions are administrative; for instance, to recognise hop producer groups. Others are powers to make regulations to amend rules relating to particular schemes; for example, conditions for recognition. The powers conferred are limited to those of reserved competence. They include powers such as setting conditions for when an export licence may or may not be required, fixing amounts payable on exports where they are subject to an international agreement, updating standard terms for sugar sector contracts and making additional requirements with respect to customs procedures where it is necessary to do so for the purposes of CAP checks. The instrument also makes operable retained EU law concerning producer organisations, import of eggs and contractual negotiations in the dairy sector.
Examples of the amendments made are: omitting obligations to report information on producer organisations to the Commission; conferring on the Secretary of State the power to recognise producer organisations, which currently lies with member states; a requirement that the Secretary of State must make a determination of equivalence in relation to the marketing standards of eggs from a third country before eggs from that country may be imported; and providing for notifications on volumes of milk covered by contractual negotiations, which are currently provided to member states, to be provided to the Secretary of State.
The second of the instruments, the Common Organisation of the Markets in Agricultural Products and Common Agricultural Policy (Miscellaneous Amendments etc.) (EU Exit) (No.2) Regulations 2019, makes appropriate corrections to retained EU legislation relating to the CMO to ensure operability. This instrument mainly concerns areas falling within devolved competence. As such, powers and responsibilities have been conferred on the devolved Ministers and the Secretary of State in appropriate ways that respect the devolution settlements. The main CMO policy areas covered by this instrument can be broadly categorised as: aid schemes for fruit and vegetables, milk in schools and apiculture; marketing standards for olive oil, eggs, poultry, meat and wine; import and export licensing; and provision of information and notifications.
The changes made in this instrument will ensure continued operability, for example by conferring functions currently exercisable by the Commission or member states on the applicable authorities in the UK; for instance, administrative functions relating to aid schemes and powers to make regulations on wine labelling. The changes also include removing redundant provisions that will not apply to the UK after exit, for example on support schemes for the olive oil and table olives sectors. Another change is replacing EU-centric terms with the appropriate UK equivalents, such as replacing “Union” with “UK”. The approach when amending retained EU law has been to keep the effect of retained legislation close to the current system where possible.
The instrument omits two deficient references to “member states” and amends a reference to “Union legislation”. It also omits two powers that the Commission has to make secondary legislation, which are redundant after our exit, and confers on the appropriate authorities in the UK a power—currently conferred on the Commission—to make regulations altering the format of the financial instrument report to be submitted to the monitoring committee responsible for the programme in question. These are technical amendments to make operable the existing retained EU law.
The third, reserved, instrument, the Import and Export Licences (Amendment etc.) (EU Exit) Regulations 2019, makes changes to EU regulations governing the agricultural import and export licensing regime to ensure operability. Those EU regulations set out a licence system for the import and export of certain agricultural products such as rice, hemp seed and ethyl alcohol. They also set out specific provisions for the import of hemp. This instrument makes amendments to allow the Rural Payments Agency to continue to manage the import and export licences as it does currently once we have left. Other amendments include updating EU regulatory cross-references to equivalent provisions in domestic legislation, replacing references to “the Union” with “the United Kingdom”, and converting licence securities from euro values into sterling using the average annual exchange rate for 2018. The instrument also revokes some obsolete and redundant regulations in relation to the payment of export refunds in the dairy sector and on administration of EU third-country export quotas for cheese and skimmed milk powder. The instrument will ensure that the policies outlined above will continue to operate effectively, as now, after exit.
The aim of the fourth statutory instrument, the Common Organisation of the Markets in Agricultural Products (Transitional Arrangements etc) (Amendment) (EU Exit) Regulations 2019, is to make simple amendments to existing EU exit SIs to ensure that where provisions refer to a transitional period this can be realised as intended, notwithstanding the delay of exit to 31 October. The transitional periods in this SI concern the reserved area of import and export controls, specifically: import documentation for hops; certificates of conformity for fruit and vegetables issued by other countries; and imports of veal from the EU. These transitional periods were set out in an existing EU exit SI approved earlier this year. In that legislation, the end dates of these transitional periods are explicitly stated as 29 March 2021 for hops, and for fruit and vegetables, and 30 June 2019 for veal. However, the extension of Article 50 to 31 October makes these transitional periods significantly shorter. Of course, in the case of imports of veal, it has effectively removed it.
The instrument makes simple amendments to that existing EU exit SI so that, rather than using specific dates, the transitional periods are expressed as applying for a specific period from exit day. This ensures that transitional periods are drafted consistently in our EU exit SIs, helping us to convey a clear and consistent message to stakeholders on the duration of those transitional periods.
The instrument also makes some amendments to that existing EU exit SI in the reserved area of regulation of anti-competitive practices and agreements to correct inconsistencies in the drafting and minor inoperabilities. These include: clarifying and improving the text, for example changing “them” to “Secretary of State”; omitting obligations to recognise producer and inter-branch organisations in respect of products not produced in the UK on a significant commercial scale, such as olives and olive oil, silkworms and tobacco; and clarifying that the power to recognise inter-branch organisations in the milk and milk products sector will lie with the Secretary of State after exit, in line with other EU exit SIs.
I turn finally to the Common Agricultural Policy and Common Organisation of the Markets in Agricultural Products (Miscellaneous Amendments) (EU Exit) Regulations 2019. This instrument makes similar amendments to transitional periods, but in areas of devolved competence. These include: special provisions on imports of wine; labelling of wine; labelling of beef and beef products; labelling of packages of fruit and vegetables; and import documentation for hops.
As before, these transitional periods were set out in existing EU exit SIs approved earlier this year, with the end dates of the transitional periods explicitly stated as a specific date. The instrument makes simple amendments to express them instead as applying for a specific period from exit day. It also makes minor amendments to a series of domestic EU exit SIs concerning marketing standards, the horizontal CAP legislation and the rural development programmes to remove ambiguity and inconsistencies, correct typographical errors and ensure operability.
As I have referred to reserved and devolved competence, I should say that we have consulted extensively with the devolved Administrations on all the statutory instruments in this group, regardless of their reserved or devolved status. Similarly, Defra has informed and discussed with stakeholders the plans to make both retained EU CAP legislation and existing domestic CAP regulations fully operable at the point of exit.
The whole purpose of these instruments is to provide continuity. I beg to move.
I thank my noble friend for so eloquently and comprehensively speaking to this group of statutory instruments, which appear technical in nature, as he said. I have a couple of questions rather than comments.
My noble friend mentioned the exchange rate that was used. Is it set in stone or kept under review? Have his department or the Treasury taken a view about the impact on the farming community of the difference between the exchange rate used for these purposes and the general exchange rate, which we know has fluctuated wildly since the date of the EU referendum? Will it be kept under review going forward?
My second question was raised in the House of Commons in relation to one of this group of SIs. It is generally understood that the department will pursue the principle of recovering costs, which I presume will not be that great. Does my noble friend have any idea about at which stage they might be recovered?
My final question relates to the Import and Export Licences (Amendments etc.) (EU Exit) Regulations. I think there may be a role for export refunds. Have they been frowned upon by the EU Commission and the department, or are they something that may be considered? Or would my noble friend rule them out because he does not imagine that there would be any scope or role for export refunds in relation to this SI?
My Lords, these regulations are surely needed. I thank the Minister for his introduction. As ever, he was very cogent and persuasive and spoke from experience. However, to me and to others these regulations appear very complex. From the Explanatory Memoranda, it is clear that the officials of his department have helpfully gone to great trouble, but the regulations are still very complex. The Minister will not mind me asking a few questions and making a few observations.
I note that there has been considerable consultation, not least with tenant farmers, the Country Land and Business Association, the Farming Community Network and the ubiquitous and influential National Farmers’ Union. That is to the credit of the Minister and the department. These five sets of regulations cover agriculture, markets, import and export licences and the organisation of markets. They necessarily go on. The Minister mentioned the devolved Parliaments across Britain. When he replies, will he say which Ministers in each of the devolved Parliaments he or his colleagues have consulted? Notwithstanding that the devolved Parliaments have primacy, it appears that the Minister and his department have brought things together, particularly at a time such as this when Brexit is an overarching issue.
My particular concern is Brexit’s impact on upland communities. Many are in our national parks or in the borders, the Cheviots, Cumbria and most of Wales. Your Lordships’ Committee may well have its own insights about them; but these upland communities are far-flung, all across Great Britain. The industry in those uplands is essentially sheepmeat. The upland farmer, with her or his flocks, faces challenges of a very serious nature—an immediate challenge, if other things come forward. Their futures, in that sense, are questionable.
I am glad that the Minister mentioned dairying; he will not mind my mentioning this industry. Perhaps he can give assurances, and some hope, to those distinct communities and these most resilient and hard-pressed farmers.
If I might briefly instance Wales, at one time the Welsh flock exceeded 10 million, alongside considerable overgrazing, it must be said. It is still many millions strong, particularly in cefn gwlad—that is, the hinterland and heart of central Wales. I instance the beautiful county of Powys, wild Snowdonia, and the iconic Beacons. All run sizeable flocks and all, and others, have far-flung communities. At this moment, this very week—in fact, this very day—their future is being decided, one way or the other. I say to the Minister that, notwithstanding the running of the sheep flocks, there is also a considerable tourist industry, which is becoming more and more successful, despite the consequences of those places being of some elevation and in western parts of Great Britain.
These uplands have their distinctive culture. The language of heaven is rooted in these communities. Arguably, the language is a factor in Northern Ireland, perhaps in the southern and western part, and certainly in Scotland. I will not say any more about language, because it can be controversial, but it is important. I am not talking here about postcard Wales, but of the hard graft of the upland farmer, who keeps the land in fine shape and needs to be there in the decades ahead.
If I raise any matter to which the Minister and his officials cannot immediately respond, perhaps he might write to me. I thank him for his skilled exposition.
My Lords, may I add a couple of comments? I am grateful to the noble Lord, Lord Jones, for his comments. My understanding of these statutory instruments is that they make no basic change to what there already is. Again, this relates EU law to UK law, so a lot of the language—which, to be honest, is tedious to work through—is very simple in what it is trying to do. I follow the noble Lord’s passion; some of our upland farmers, and other farmers elsewhere, will be challenged, particularly when we look at tariffs and trade. However, that is not to do with the SI that we are dealing with today.
I would love to think that the noble Lord was going to speak in tomorrow’s debate, which gives us all the wonderful opportunity to talk about things that we think are hugely important. I agree with much of what he said.
I would like to support these statutory instruments, so in some ways it is a shame that we are doing some of them twice. We dealt with some of this earlier, but are having to deal with it again, as changes take place. The instruments will probably give greater flexibility, which will give much help to the Government and the Ministers. I have nothing else to add on that, but I have one query. In introducing the instruments, the Minister referred to the import of eggs, but the one topic that always gets dodged is that of dried eggs and powdered milk—probably because it is a difficult one to deal with. The buying and selling of fresh eggs is very clear and easy, but a lot of the eggs and egg content that go into manufacturing come through on the dried side. I do not know whether that applies to this SI but, in the meantime, I support the instruments.
My Lords, I am grateful to the Minister for so clearly setting out the issues in these five statutory instruments, which make minor adjustments and corrections to previous SIs that we debated earlier in the year, as most noble Lords have said. I am delighted that we are debating all five together and not separately. I thank the Minister for his time and that of his officials in providing a briefing for these SIs.
All the SIs cover small details and technical amendments, but they are quite complicated. The reserved matter in the first SI covers areas concerning trade import of hops and agricultural processed products, and a minor amendment on the import of eggs and the whole list that the Minister gave us. The SI covers anti-competitive practices and helps to protect sugar beet growers, and milk and milk products. Although there are no policy changes and it will remove redundant legislation post Brexit, it is important to get these matters right so that we are not debating the same things fairly regularly.
I was intrigued by the subject of the import of rice. I understand that the issue is how much rice might be contained in a processed product, such a tin of rice pudding or baby food. Nutritional content on these products is extremely important, especially if they are to be consumed by children.
The second SI concerns CMO operability amendments and, as has been said, transfers functions from the EU to the devolved Administrations. The majority of issues have been carried over from March. The SI again includes eggs, but also poultry meat. Given this, can the Minister can say where poultry breeders fit specifically in the list of six consulted stakeholders that the noble Lord, Lord Jones, listed for us, since it is not immediately apparent from the list?
It is interesting that not all matters in the SI apply to Wales, which is doing its own thing, yet marketing standards are the same across all the devolved Administrations. Are the regulations being applied in Wales better than those that will pertain in the rest of the UK, or worse?
The third SI is about import and export licences and is a reserved matter. I note that changes are very minor to ensure operability after EU exit, including changes from the euro to the pound, as mentioned by the noble Baroness, Lady McIntosh, and are being set and calculated on 2018 conversion rates. Will this have a negative effect should the exchange rate alter dramatically? The Rural Payments Agency will manage the process, which remains the same. Export repayments will be made only in circumstances of crisis. Can the Minister indicate examples of crisis that might qualify for payment?
The fourth and fifth SIs are similar, except that the first is reserved and the second devolved. They are all about transitional arrangements. Again, they amend existing EU SIs made in March this year but which, since we failed to leave, have to be amended because the transition dates were for a fixed two-year period relating to March. It is a very sensible alteration to move the date to relate to when an actual deal finally transpires, should one ever be negotiated. Hence the words concerning coming into force two years from Brexit date are an excellent catch-all solution.
In the fourth SI there are technical changes on products not produced here—at the moment, that is: olives, olive oil, tobacco and rice. In the last SI there are some alterations related to labelling, which I believe is for 21 months, but the import-export licences are for two years. Again, all this was debated last March and is being amended and tidied up today.
I have no substantive comments to make on any of these SIs, which I support, and I am sure there will be others shortly.
My Lords, I am grateful to the Minister for introducing these SIs and for the helpful briefing he organised for us beforehand. As he says, they are largely technical amendments necessary to enable retained EU law relating to the CMO, the CAP and rural affairs to operate effectively after exit day. I agree with the noble Lords who said that the wording of these five SIs is particularly complex, and we were grateful to have a prior opportunity to work through some of those complexities before debating them. Having said that, we do not find them particularly controversial, but I have a few general questions about the approach taken here, on themes that run through these five SIs but also some of those we will debate in the coming weeks.
First, a number of SIs in this group amend existing EU exit SIs that we have previously debated and approved. This includes amendments to transition periods, which are required because the original SIs set out specific dates when arrangements would cease, based on an assumption that we would leave on 29 March 2019, which, as the Minister said, clearly did not happen. These amendments update a series of those transitional arrangements so that they will commence on “exit day”, whenever that might be, and cease after a given period of time. I agree with the noble Baroness, Lady Bakewell, that this makes very good sense.
In the absence of an acceptable deal, and on the basis on the Benn Act, I am of course grateful for this change in approach so that we will not have to repeat this exercise when Article 50 is inevitably extended once more. But can the Minister explain why the original SIs, which contained specific dates when the transitional arrangements would end, spelled out that they were based on the UK leaving the EU on 29 March? Why did we not foresee that this might be a problem? Why has there not been consistency on this matter? Other EU exit SIs set out the length of the period that would commence on exit day. It is such a common-sense way to approach this that I am curious as to why we have been inconsistent in our approach.
Secondly, as the Minister described, these SIs provide for transitional arrangements to give businesses time to adjust before they must adapt to the new regulations and requirements stemming from Brexit. As he said, this includes a 21-month transition period for forms and certificates the UK will accept from third countries attesting that a fruit or vegetable product meets marketing standards requirements, during which both the new UK forms and certificates and their equivalent EU versions would be accepted. It also includes a three-month transition period for veal imports, which would have allowed the EU time to gather and submit the required notification information to the UK. That is all very well, and I understand that we have now changed those transitional arrangements, but can the Minister advise whether these new transitional arrangements have been reciprocated by the EU? If not, can he advise the Committee what impact this will have on UK businesses and how these changes have been communicated to those affected? If a mutual transition period is not agreed, what action is Defra taking to encourage a pragmatic approach to enforcement within the UK?
Thirdly, the SIs in this group amend retained EU law and domestic legislation relating to the CAP and CMO to ensure continuity and facilitate a smooth transition to a domestic regime. As we know, the powers to change and diverge from these retained measures will be set out in the agriculture Bill. The farming sector expressed frustration at the delay to the previous Bill’s progress earlier in 2019. The National Farmers’ Union said in response to the 2017-19 Agriculture Bill failing that the timetable for changing farm payments should be delayed by at least a year, to start from 2022.
The Treasury previously guaranteed to maintain the same level of support under both Pillar 1 and Pillar 2 of the current CAP until the end of this Parliament, whether the UK has a transitional period or not. This was of course understood to be in 2022, when the new provisions under the previous Agriculture Bill were expected to take effect. Can the Minister assure the Committee and the farming sector that if the Prime Minister and the leader of the Opposition get their wish for an early election, payments would be guaranteed until at least 2022 in the unlikely event that we have a Conservative Government re-elected? Can he advise whether any consideration would be given to further extending transitional arrangements relating to the CMO and CAP payments, owing to the delay in bringing forward another agriculture Bill? I am sure he will understand that this has caused further uncertainty in the farming community. What representation has he received from stakeholders on this issue?
On devolution, as the Minister described, many of the areas covered by the SIs are devolved, with the powers transferred to devolved Ministers but with provision for the Secretary of State to act on behalf of Scottish Ministers, Welsh Ministers or the Department of Agriculture, Environment and Rural Affairs in Northern Ireland. My noble friend Lord Jones understandably raised the concerns of the upland sheep farmers in Wales, the impact of all this and whether it was necessary to take a different line or strategy in Wales to protect upland farming from a policy that might be pursued elsewhere. The Explanatory Memorandum advises:
“The ability of the Secretary of State to be able to act for one or more of the Devolved Administrations will allow for powers to be exercised uniformly across the UK or across certain constituent nations, where it is convenient to do so”.
It goes on to state:
“The ability of the Secretary of State to act with the consent of Ministers does not apply to Wales in certain cases”.
This is because in some areas relating to enforcement Wales has chosen to introduce its own statutory instruments, including on the administration of apiculture or beekeeping schemes and some of the design elements of school milk schemes. Can the Minister shed some light on why the Welsh Government have taken this approach and what discussions have taken place to try to ensure a uniform approach? I am sure he would agree that that would be preferable for businesses in the sector, which would not necessarily have to make changes as they import and export across the borders.
The Explanatory Memorandum also notes that some of the European Commission functions that have been amended could be exercised in ways that are reserved, such as when they affect trade or are devolved in other ways. In such cases, the power is conferred on the Secretary of State as they need to be exercised uniformly across the whole of the UK. Can the Minister elaborate on this explanation by providing examples of when the Secretary of State might use such powers and insist on that uniformity, rather than allowing for the greater flexibility that devolution brings? In that case, when the Secretary of State exercises those powers what role will the devolved authorities have? To what extent will they be consulted to show that they are content with the proposals before they are implemented?
Finally, as the Minister knows, Scotland chose not to be part of the agriculture Bill, which will lay the foundations for agriculture policy outside the EU. Does that have any implications for powers that have been conferred on the Secretary of State that need to be exercised uniformly across the UK? I look forward to the Minister’s response.
My Lords, I have every sympathy with the noble Lord, Lord Jones, because I always go to the Explanatory Memorandum first. I congratulate colleagues and officials who have given us a comprehensive understanding of the background of these technical changes. In seeking to address these points, it is important to understand the context, which is that we are having to fine-tune systems that we are going to have across the UK in one way or another and it is very important that there is certainty. I understand this involves noble Lords, particularly the noble Baronesses on the Front Bench and some of my noble friends, in considerable scrutiny, but we must get this right. I was struck by the words of the noble Baroness, Lady Bakewell: “We must get this right”. That means that when we make typographical errors or whatever, they should be attended to as soon as possible.
I shall run through the commentary. My noble friend Lady McIntosh and the noble Baroness, Lady Bakewell, referred to the exchange rate matter. The 2018 exchange rate was used to convert euro amounts in the retained EU regulations into sterling amounts. This is a one-off amendment. In future, we will take licensed securities in sterling. There is therefore no reason to peg these figures to the euro exchange rate. As I say, this is a one-off amendment and the figures will now be dealt with in sterling.
My noble friend Lady McIntosh asked about cost recovery. We take securities in the area of import and export licences. The only payment required to obtain an import or export licence is a security which is taken and held by the RPA. The RPA releases the security when it receives proof that the obligations specified on the licence have been fulfilled. As a result, there is no cost to an operator who uses the licence as intended. I understood that anyway. My noble friend also spoke about export refunds. In line with our WTO obligations, we have committed to the phasing out of export refunds from 2020. The EU has not used export refunds for quite a number of years.
The noble Lord, Lord Jones, made a powerful speech. He is a champion of upland farmers across the kingdom, but particularly those in Wales. Having walked parts of Powys—the beacons—and Snowdonia in my time, I recognise the beauty of that landscape. Let us not forget why it is so glorious. It is because of that particular brand of pastoral farming, the custodianship of the upland farming community and the culture that goes with it. We should treasure that. That is why the noble Lord is right to refer to tourism. They are places people want to go to because of the culture that those great families have produced over the generations. I would be failing if I did not also mention the high-quality Welsh lamb and Welsh beef they have produced, as well as Anglesey sea salt. All these are products of which we should be proud.
It is not just the uplands of Wales. There are the lowlands as well, which my noble friend Lady Byford mentioned. Farming communities across this country are essential not only because of their glorious food but because of what they do and will do as we take ourselves through the environmental enhancement. It is essential that we work collaboratively with the farming community. With over 70% of the land in the UK farmed, and the figure is probably much higher in Wales, this is the route by which environmental enhancement—habitat recovery, nature recovery and wildlife recovery—will happen.
On the question of devolution, agriculture is devolved. Yes, there are elements relating to Wales in the Agriculture Bill. I am looking forward very much to opportunities for further discussions, perhaps tomorrow but also on agriculture legislation. In championing devolution, I should say—and I am going on to talk about common frameworks, which are hugely important—that the Welsh Government launched their new consultation, Sustainable Farming and our Land, on 9 July, which will be open to responses until 30 October. In England there is the environmental land management proposal, as a way of recognising what farmers do by way of public benefits.
I turn to the issue of divergence, and I thank the noble Baronesses, Lady Bakewell and Lady Jones of Whitchurch. In respecting the areas of devolved competence, my feeling is that at both official and ministerial level there is a strong recognition of what I would call common sense prevailing. UK government officials have been working closely with officials from all devolved Administrations to design future common frameworks where they are necessary and desirable. The Scottish and Welsh Governments continue to commit not to diverge in ways that would cut across future frameworks where it is agreed that they are necessary, or indeed where discussions continue. And not forgetting Northern Ireland: the Government remain committed to restoring devolution in Northern Ireland, but also acknowledge the engagement that has continued with the Northern Ireland Civil Service on common frameworks.
I have here a note on the discussions. The Secretary of State and the Minister of State, Mr Eustice, meet Lesley Griffiths from Wales, with whom I have a good connection; they meet Fergus Ewing from Scotland, with whom I have worked on a number of issues; and of course they meet DAERA officials, who have been most helpful to all of our Lordships on the SIs relating to Northern Ireland. All the Administrations are taking the issue of divergence forward in a very sensible and professional way. We respect the devolution arrangements, but common sense clearly suggests that there are ways in which we can work forward to the common good for businesses, consumers and indeed well-being.
The noble Baroness, Lady Jones of Whitchurch, specifically mentioned Wales and the issue with certain elements of the statutory instruments. There are some circumstances where the mechanism does not apply to Wales. That is because certain provisions are specific to the Welsh devolution settlement. That said, the Welsh Government have carefully considered whether the Secretary of State should be able to act on their behalf in respect of each of the functions concerned, and the drafting reflects that. Again, certain elements of the settlement relating specifically to Wales mean that it will be bringing forward its own statutory instruments, but that is within the mechanism of co-operation and understanding. To conclude on the divergence/common framework position, we are absolutely clear—if I might say this on behalf of all the devolved Administrations—that we are working together, I think successfully, at ministerial and official level because that absolutely makes common sense and is right for the United Kingdom.
The noble Baroness, Lady Bakewell, referred to poultry stakeholders. We have engaged with poultry breeders through the UK Livestock Brexit Group, which is made up of representatives from the livestock sector including the British Poultry Council, which itself represents all parts of the poultry sector—breeding, hatching, growing and processing. On amendments made to provisions concerning poultry and poultry meat, we have engaged with the British Poultry Council directly. The noble Baroness also referred to crisis payment examples. I must say that these have never been applied in the EU since the introduction of that provision in January 2014. There are no examples of such crises in EU law. I do not know whether that requires further consideration but my understanding is that there is no reference.
My noble friend Lady Byford raised the issue of eggs. With regard to marketing standards, the SIs cover only eggs in the shell, not egg products. The SIs also confer on the Secretary of State the powers that the Commission currently has to make rules on the import of ovalbumin: the protein in the white part of the egg. I did that look up: it was very educational.
I have asked the same question as the noble Baroness, Lady Jones of Whitchurch, did about transitional periods: would it not have been a good idea if we had done that in the first place? The fact that I asked the same question might be the best way to reply to her: the point is very much taken. I hope that message goes across Whitehall. On her question about transitional periods and communication, importantly, the duration of the transitional periods has been communicated to stakeholders during our discussions and via the GOV.UK website, which is regularly reviewed and updated for obvious reasons. The noble Baroness also raised the issue of reciprocity. As noble Lords may be aware, the European Commission has published a notice in relation to EU food law and rules on quality schemes, stating that, subject to the conditions of a withdrawal agreement, the UK will be classified as a third country once we have left. This means that UK producers wishing to export goods to the EU will need to comply with the relevant EU rules and requirements on third-country imports.
For our part, we have determined that providing appropriate transitional periods will be the best way to ensure that UK businesses and consumers can still access products from the EU so as to maintain free and frictionless trade and to limit disruption to our businesses. I should also say, being the Biosecurity Minister, that we have taken the view that on day one, given the high standards that exist in the EU which we are already adopting, we are confident that that is a proportionate and correct approach to take in the early times after exit.
The noble Baroness, Lady Jones of Whitchurch, also asked about farm support. As she said, the Government have pledged the same cash in total in funds for farm support for the whole of the UK until the end of this Parliament. I am afraid that I do not know when the end of this Parliament will be. Perhaps I should bat the ball back to her and ask, “When will the leader of Her Majesty’s loyal Opposition take a view on this matter?”, because the real point that she rightly makes is that it is important that we have as much certainty as possible for the farming community.
As I have outlined to your Lordships, the farming community does a lot of things for this country. We will want it to do even more on the custodianship of the land and enhancing the environment, as well as, vitally, producing food for the nation and abroad. That is why we will work to provide that certainty through the agriculture Bill. That is why we have specifically stated the importance of having a transitional arrangement over seven years, with the reduction in direct payments and the trialling of environmental land management schemes, along with an improved Countryside Stewardship Scheme. This is all intended to work with the farming community to make sure that farmers have the right support not only in that regard but to improve productivity and to undertake research, such as that at Rothamsted, with which the noble Baroness is associated. It is essential that we have research and development into the challenges that this sector faces and the opportunities that this country can provide in producing food.
This regular dialogue with farming unions and interests is important because it is essential that they know the position. On continued support for Pillar 1 and Pillar 2, as I have said, no Parliament can bind its successors. I am not writing the noble Baroness’s party’s manifesto—or, indeed, my own party’s—but if there is a general election, my suggestion would clearly be that agriculture, the production of food and environmental enhancement will be extremely important.
I am nearly finished. The noble Baroness, Lady Bakewell, referred to pragmatic enforcement. During the transition period set out, producers will not suffer adverse consequences for their products on the UK market. When exporting products to the EU, businesses will need to abide by the relevant EU rules.
I will look at Hansard because there some other points may have been raised. I think I have covered everything, unless the noble Lord wanted me to emphasise something.
The Minister is very persuasive. He persuades me to request that he writes, when he considers the debate, with as many assurances as he dares.
I think I have given the Committee assurances that these statutory instruments are technical and operable. We have gone into a wider debate about the Government’s support for agriculture and agricultural communities. We want agriculture to prosper in all parts of the kingdom. We obviously look to the farmer for many things, and we will continue to do so. This is an opportunity for me, in declaring my farming interests, to say that we must work very productively with farmers across the United Kingdom, for all the reasons I have outlined. I give that assurance to the noble Lord and to the Committee.
Common Organisation of the Markets in Agricultural Products and Common Agricultural Policy (Miscellaneous Amendments etc.) (EU Exit) (No. 2) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Common Organisation of the Markets in Agricultural Products and Common Agricultural Policy (Miscellaneous Amendments etc.) (EU Exit) (No. 2) Regulations 2019.
Import and Export Licences (Amendment etc.) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Import and Export Licences (Amendment etc.) (EU Exit) Regulations 2019.
Common Organisation of the Markets in Agricultural Products (Transitional Arrangements etc.) (Amendment) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Common Organisation of the Markets in Agricultural Products (Transitional Arrangements etc.) (Amendment) (EU Exit) Regulations 2019.
Common Agricultural Policy and Common Organisation of the Markets in Agricultural Products (Miscellaneous Amendments) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Common Agricultural Policy and Common Organisation of the Markets in Agricultural Products (Miscellaneous Amendments) (EU Exit) Regulations 2019.
Environment and Wildlife (Legislative Functions) (EU Exit) (Amendment) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Environment and Wildlife (Legislative Functions) (EU Exit) (Amendment) Regulations 2019.
My Lords, it is a pleasure to lead this debate today to discuss the Environment and Wildlife (Legislative Functions) (EU Exit) (Amendment) Regulations 2019.
The Convention on International Trade in Endangered Species, or CITES, provides protection to more than 35,000 different species of endangered animals and plants. By regulating international trade in live animals and plants and their parts, the convention aims to reduce the threat to these species in the wild. Many UK businesses currently trade in CITES specimens. The relevant sectors are diverse and include musical instrument makers and musicians, fashion, antiques, pharmaceutical, floristry and businesses that trade in live animals for aquariums, zoos and pets. The Government’s support for CITES is a key part of our wider commitment to combating the illegal trade in wildlife and tackling loss of biodiversity around the globe.
The draft instrument we are discussing today makes sure that after we leave the European Union the regulations implementing CITES will work in the UK. The regulations make technical, legal amendments to maintain the effectiveness and continuity of UK legislation that would otherwise be left partially inoperable, so that following our exit from the EU, the law will continue to function properly.
CITES is currently implemented in the EU through a number of regulations known as the EU wildlife trade regulations. The EU regulations will become retained EU law on exit day, and we have already made various EU exit regulations to make the legislation work in the UK. This statutory instrument corrects the drafting in one of the previous EU exit instruments. The EU regulations put in place a system of permits and certificates for cross-border movement of specimens of endangered species. The main EU regulation, 338/97, contains a number of derogations—exceptions—from the permitting regime. Further detailed provisions on derogations are then set out in a subsidiary, implementing regulation, 865/2006. The main regulation currently gives the European Commission powers to legislate and the rules are set out in the subsidiary legislation.
Today we are talking about three specific provisions. The main regulation contains derogations in Article 7(1) to 7(3). Those relate to specimens of species born and bred in captivity or artificially propagated, specimens in transit, and specimens which are personal and household effects. Article 7 currently gives the European Commission legislative powers to make further detailed provisions on those derogations, and that has been done in subsidiary legislation, EU Regulation 865/2006.
The derogations cover, for example, the process by which you may be able to import certain artificially propagated flower species without the CITES paperwork and checks that are normally required. They also govern how you might be able to move a personal item, such as a hardwood chest, as part of a family household move from one country to another.
This statutory instrument ensures that the Secretary of State has the necessary legislative powers to amend detailed provisions on key derogations in retained EU law. The SI corrects the drafting in a previous SI: the Environment and Wildlife (Legislative Functions) (EU Exit) Regulations 2019, henceforth referred to as SI 2019/473, which will in turn amend CITES-related retained EU law on exit day. SI 2019/473 provides for the Secretary of State to carry out functions currently performed by the European Commission and to set out the detailed provisions on the relevant Article 7 derogations in writing.
The draft instrument makes two amendments to SI 2019/473. The first corrects a drafting error, so that the Secretary of State can set out the regulatory detail of the derogations “in regulations”, rather than “in writing”. This will ensure that the Secretary of State has the legislative power to amend the retained EU law provisions after exit. This will ensure that we can, for example, amend the detailed derogation provisions to strengthen the controls we have, in line with our policy aims. The second amendment provides that regulations made by the Secretary of State in respect of these derogations will be subject to parliamentary scrutiny under the negative resolution procedure.
With this SI, we are not changing the rules implementing CITES but simply ensuring that the Secretary of State has powers to amend retained EU law on specific derogations after we have left the EU. The Government have made it clear that our intention is to increase environmental standards when we leave the European Union. This includes our efforts to protect endangered species and our commitment to CITES.
As I have outlined, these amendments are necessary to make clear that the Secretary of State has a power not simply to take administrative action but to legislate and amend retained EU law in respect of these key derogations. It does not introduce new CITES policy and simply makes sure that retained EU law will work. However, this SI paves the way to ensuring we have the future ability, outside the EU, to legislate to set the UK’s direction on the derogations in question—for example, if we want to tighten or strengthen the permitting regime.
This instrument deals with entirely reserved matters and so covers the whole of the UK. A draft of this SI was shared with the devolved Administrations for information.
In closing, I reiterate that this instrument will ensure that the Secretary of State can amend provisions on key derogations in the regime implementing CITES. It provides for regulations made by the Secretary of State in respect of these derogations to be subject to parliamentary scrutiny under the negative resolution procedure. For these reasons, I beg to move.
I thank the Minister for her introduction. I am sure all Members of your Lordships’ House share her enthusiasm for CITES to be implemented fully in this country and for our legislative route to be absolutely clear cut and without any ambiguity. Therefore, from that point of view, nobody could object to what is in front of us today.
However, it seems to be an example, not the only one, of something drafted in haste and repented at leisure—or perhaps revised in haste, bearing in mind that there is only another fortnight to go before it might need to be implemented. I was somewhat reminded of my own experience when I was instructed to write 50 lines before I could go out to play. On presenting the 50 lines, I was told they were not tidy enough and had to write another 50 lines. I very much hope that this is the last time we will change this and that the Government—or the next Government, as the case may be—will move forward with it.
I am encouraged by what the Minister says about giving Ministers the right to tighten bans and regulations. That is good, although it is of course also true that with the power to tighten them would come the power to loosen them. She may want to comment a little on that. Overall, I wonder whether she is not just a little embarrassed at wasting our time on this one.
My Lords, I welcome the noble Baroness to her new role. I look forward to working with her on many the hours of primary and secondary Defra legislation that we have before us. I am sure that they will be instructive to both of us. I echo the comments of the noble Lord, Lord Stunell, because we accept that this is just an exercise in correcting mistakes. We have always been concerned that errors and mistakes would creep in because of the speed with which some of this legislation is being pushed through, but we would not want to say or do anything that jeopardises the CITES agreement, which is very important to us.
The Minister will be pleased to know that I do not have any questions, but I echo the obvious point, which is that these mistakes should not happen and that there should be a better checking mechanism in the first place. I hope that this will be the last time that we will see this SI and that we can put it to bed.
I thank noble Lords for their comments. I could not agree more with the noble Lord, Lord Stunell, about the importance of CITES. It is doing some great work.
I can only apologise to the noble Baroness, Lady Jones, and the noble Lord, Lord Stunell. Perhaps I should be writing 50 lines that they can correct if they are wrong and I will have to write them over again. In its defence, the department has had to prepare an enormous number of SIs, most of which have been done absolutely excellently. I can only apologise for these mistakes.
The noble Lord, Lord Stunell, asked about the dangers in the way the powers can be used. As far as that is concerned, there will always be parliamentary scrutiny, whatever decision is made. We can feel safe in that respect.
I thank noble Lords very much for their queries.
Pesticides (Amendment) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Pesticides (Amendment) (EU Exit) Regulations 2019.
My Lords, these regulations correct deficiencies in the EU’s regulatory regime for plant protection products and maximum residue levels, including making some amendments to previous EU exit SIs, namely the Plant Protection Products (Miscellaneous Amendments) (EU Exit) Regulations 2019, which I will refer to throughout the debate as “the PPP EU exit SI”—I do not think that that makes it any easier, but still—and the Pesticides (Maximum Residue Levels) (Amendment etc.) (EU Exit) Regulations 2019, otherwise known as “the MRL EU exit SI”. These instruments were put in place ahead of the original exit day in March. We have worked closely with the devolved Administrations to develop the further instrument and they have consented to it being made on a UK-wide basis.
Plant protection products, or “pesticides” as they are commonly called, are currently regulated by means of two EU regulations: Regulation (EC) 1107/2009, concerning the authorisation of active substances and placing of plant protection products on the market, and Regulation (EC) 396/2005 on maximum residue levels of pesticides that are permitted in or on food and feed. As mentioned, we have already put in place the main EU exit SIs to convert these regulations into operable national law, ensuring continued levels of protection for human health and the environment. The instrument that we are considering makes a number of additional, minor amendments to retained direct EU legislation. This instrument will ensure that the PPP and MRL regimes can continue to operate effectively after leaving the EU. They have no, or no significant, impact on business.
Amendments are required to be made to the EU exit SIs for three reasons. First, certain dates in the retained law were based on the original exit day of 29 March. These dates require extending so that they can work as originally intended. Secondly, new EU legislation on active substance and MRL decisions has since come into force during the extension period. This needs to be converted into national law in the same way as in the earlier EU exit SIs. Finally, this instrument fixes a number of errors within those earlier EU exit SIs, most importantly in relation to provisions on endocrine disrupting chemicals—EDCs. I will explain each of these in more detail.
With regard to amendments required following the change in exit day, the PPP EU exit SI contains some transitional measures which apply until specified dates to allow business time to adjust. These dates were calculated based on exit day being 29 March. These transitional provisions now require updating so that they can allow the amount of time originally intended. This instrument also deals with new EU legislation that has come into force since the original EU exit SIs were produced. The EU exit SIs converted active substance and MRL regulations into a new national register, which gives effect to the provisions in a national context. The EU regulations themselves were therefore no longer required and were revoked.
This instrument takes exactly the same approach to new regulations that have come into force since by revoking the EU legislation listed in the schedule. Their provisions are given effect through the new national statutory register and so it is superfluous. Some older redundant EU regulations can also be revoked. This instrument also contains transitional provisions relating to grace periods for the withdrawal of active substances under such EU regulations, ensuring that they are carried across correctly and apply unchanged in national law.
I draw the Committee’s attention to, and apologise for, a number of technical errors in the earlier EU exit instruments. They were noticed after they were made. We have used this opportunity to fix those errors that we were unable to amend via a correction slip, the vast majority of which are typographical and very minor in stature. The most significant issue is that the earlier PPP EU exit SI erroneously removed links to provisions relating to endocrine disrupting chemicals, or EDCs for short. This omission was purely unintentional. As a responsible Government, we have therefore taken the earliest opportunity to correct that error through this instrument, so that the provisions are carried over correctly into national law and there are no implications.
The House of Commons sifting committee recommended that this instrument be upgraded to the affirmative procedure, which my department accepted. The recommendation was on the basis that it includes a provision relating to charging fees. Specifically, it revokes Article 13a of Commission Implementing Regulation (EU) 844/2012, which clarifies that EU member states can require the payment of fees and charges to cover costs in relation to renewals of active substances. In practice, this simply removes a redundant provision. This instrument does not change the existing fees and charges, nor does it have any effect whatever on the UK’s future ability to charge or make changes to current fees. After leaving the EU, the UK will no longer need permission to make provision for charging fees and charges. The necessary national fees and charges powers are provided by domestic legislation in the Plant Protection Products (Fees and Charges) Regulations 2011, which will continue to operate without any practical impact.
To conclude, without this instrument various highly technical provisions will not be transferred across into national law in a way that will work correctly. As I have previously said, this Government are committed to ensuring continued levels of protection for human health and the environment as well as to providing stability and continuity for business. I beg to move.
My Lords, I am pleased to note that this SI has far more substance than the previous one. I thank the Minister for the briefing she gave to my noble friend Lady Bakewell and others, which cleared many of the points that might otherwise have been made. Her introduction was very clear and thorough. The revised SI covers two circumstances: the errors and omissions—I shall quickly skate over the 50 lines effect—and the passage of time, which is more important and relevant to the point I want to raise. It means that the EU regulations have moved and the MRL regulations from the EU now need to be transposed into the SI. In future, what will be the process for retaining that alignment? There are no doubt multiple reasons why it has changed, but among them is that pesticides, their testing and their application to different crops change constantly and the regulations need to chase that. On the other hand, UK regulations need to be parallel and mirror those of the other 27 countries if there is to be easy trade of UK agricultural products across the channel or the Northern Ireland border without the risk of regulatory trouble.
The system of checks and balances is being taken out of the hands of the European Union regulatory system and moved to a UK supervisory system, but the reality is that that supervisory system will have to have a high level of regard to the EU regulatory environment if we are not over time to diverge and be disconnected in a way that would be a major disbenefit to UK agriculture and horticulture. Will the Minister comment on that? Can she offer us some idea about how the process of reconciliation with constantly moving standards on both sides of the channel will be accommodated in the new situation? It seems likely that that will mean that there will be a succession of additional SIs chasing the facts as quickly as can be achieved. Nevertheless, this is clearly a step that has to be taken, and I am content to see this SI move forward, although I hope we can have some reassurance about the long-term way in which we shall maintain the ability of UK agriculture and horticulture to participate fully in international trade with our European colleagues.
My Lords, I am grateful to the Minister for introducing this SI and for the helpful briefing she organised beforehand. I declare an interest as chair of Rothamsted Enterprises, which carries out crop and crop protection research.
The use of pesticides is of huge public interest and has significant environmental and public health challenges. It is therefore important that we take the issue seriously. This SI is a part of a package of SIs that we have dealt with in previous months. They have raised concerns about whether the Secretary of State’s powers are in any way equivalent to the EU’s thorough product evaluation processes. We remain concerned that the application of the best scientific advice and external audit powers are missing from these proposals. While this SI makes relatively minor changes, our overarching concerns remain. What assessment has been made of the national capacity, including specialist scientific expertise, to enable the UK to operate a stand-alone regime that would be truly equivalent to that which exists in the EU at the moment?
Can the Minister also explain why the SI has been drafted to read that the Secretary of State “may” rather than “shall” obtain expert advice? What discussions are taking place to create a shared register of approved pesticides and mutual recognition schemes across the EU and the UK? I absolutely agree with the point raised by the noble Lord, Lord Stunell, about future alignment once we leave the EU. He rightly says that this SI cannot be the end of the road, because, as we speak, other amendments are probably being made to EU pesticides legislation. Almost inevitably, we will be revisiting this. When does the Minister feel that we will be able to draw a line and move from one regime to another? Future close alignment is vital.
Can the Minister update the House on the progress of the replacement for the maximum residue levels system? When will that database go live and how will people be authorised to use it? Can she outline the process by which active substances will be authorised and their acceptable levels determined when we are operating under a UK-only regime? What additional funding has been allocated to the Health and Safety Executive, the Environment Agency and Natural England to ensure that they have the capacity to provide the best scientific and policy advice? Time and again we have debated the capacity and funding of those organisations and whether we have sufficient scientists available to provide the necessary expert advice.
Can the Minister advise what the future reporting requirements for the UK Government will be? It is understandable that the UK will no longer report to the European Commission, but what body will replace that reporting requirement? Is it envisaged that the office for environmental protection will have that statutory role? Finally, as we have debated before, we do not accept the proposition in the EM that exit date is to be 31 October. It makes sense to amend the wording in the SI to derive a more prosaic phrase, “the date two years after the date after exit day”. Is that wording now to be used more widely in SIs to avoid the technical nightmare of having constantly to revisit the date in legislation? I look forward to the Minister’s response.
My Lords, I thank the noble Lord, Lord Stunell, and the noble Baroness, Lady Jones, for their questions. They both asked what the process will be. Collectively, our EU exit SIs will put in place a stand-alone, independent regulatory regime under which we will make our own decisions. This gives effect to them in our own national register. We will make our own decisions and be able to take account of other regulatory assessments to inform our decision-making.
I understand this that there will be new processes here, but equally, the Minister will recognise that for our agricultural products to be exportable, they will need to comply, or at least be very closely aligned, with the regulations of the receiving country—or, in this case, the European Union. Will she comment on whether we will require ourselves to keep in a parallel regulatory system in some way and to some extent?
We will have our own regime, obviously. Basically, producers will have to meet the requirements of their market. We will have our national register and make up our own minds about what we want to do. It will go from there. Does that answer the question? Would you like more?
I would like more. I am sorry to push the Minister. First, what will be the process within the UK before we reach the final decision over approval? What stages will a new product, for example, have to go through? Secondly, something will be happening very much in parallel across the EU, where it will be doing its own assessments. At what point do we share information so that we are not doing our own unique research when that research already exists elsewhere? How much collaboration will there be? I am still not clear from what the Minister is saying what those stages, and the checks and balances, will be. Although the EU’s process sometimes appears long-winded, it gives confidence that thorough checks and balances are in operation. I am not sure that the Minister has expressed that in the new regime being proposed.
Part of that comes from the fact that the SI is basically talking about a no-deal Brexit. Those other questions and queries will presumably come with there being a deal of some kind, when those issues will be discussed further. This SI is basically dealing, as we know, with a no-deal Brexit. Inspiration has come over my right shoulder, but I do not know whether it will be any help. Industry already produces different standards—for example, the supermarkets and their regulations—but the main answer is that this SI is basically for a no-deal Brexit. Any future conversations will stem from what is decided with the deal, when presumably we will have the transition period and carry on talking about this.
I thank the Minister for being as helpful as she possibly can. Perhaps she might agree that this is another illustration of why it would be a really good idea if a deal were reached.
I could not agree more. Let us hope that when we leave this Room we will discover that there are bright lights and that something has occurred.
The noble Baroness, Lady Jones, talked about capacity and the funding of UK scientists to do necessary work post Brexit. As we know, we already have significant expertise and capacity in our expert national regulator, the HSE, which already does a large proportion of the scientific work with the EU regime, so we are well-placed to run our own regime. We are working closely with the HSE to ensure that the transition is as smooth as possible. Additional capacity will be required in the event of a no-deal exit. That is not required immediately on exit day but will be developed over the next few years.
Extra resources will be required and extra people will need to be hired. The additional cost will broadly be in the region of £5 million per year, and money will be there to help with that. On exit day there will not be an immediate necessity to hire people but there will be as time goes on, and that money will be available.
Increased resources will be put in place for the Expert Committee on Pesticides, reflecting the increase in its responsibilities and need for additional work. We will also explore how we can collaborate internationally on the science, including with the EU, to minimise any burdens.
On the question of whether there will be a shared register with the EU for pesticides, the earlier EU exit SIs, along with this one, will provide us with a fully independent UK regulatory regime in the event that we leave the EU without a deal. Leaving without a deal would be a definition not included in a shared register with the EU. We would have our own statutory register of approved active substances with the MRLs, although at the point of departure the content would be the same as in the EU. Alternatively, if there is a deal, obviously the future arrangement would depend on the nature of that deal.
The noble Baroness, Lady Jones, talked about “shall” or “may”. Scientific assessment will remain the fundamental basis for decision-making, as it is now. These assessments shall be undertaken by our expert national regulator, the HSE, including additional independent expert advice from the Expert Committee on Pesticides, where needed. The FSA’s statutory functions are being retained and repatriated to a national regime, where they remain relevant in a national context. Those will be delegated to the HSE and carried out by them: for example, undertaking public consultations on active substances and producing the conclusion report of the active substance assessment process. There will no longer be a need to separate these functions into a separate EU layer of activity to ensure consistency between the many EU member states’ regulatory bodies. That has been understood by some as weakening the requirement, but it will not. Where appropriate, it is felt that “shall” is the right word, because we will carry on doing everything that is necessary. This is a straightforward conversion of the current statutory requirement into our national law.
Have I covered everything? I thank noble Lords for their queries and hope that I have answered them satisfactorily.
Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019.
My Lords, as the Committee will be more than aware, Parliament has now approved well over 50 EU exit SIs for financial services. That includes three miscellaneous provisions SIs, which are sometimes necessary to make isolated deficiency fixes that do not fit easily into more thematic instruments. These miscellaneous SIs have sometimes been used to correct minor errors in or omissions from earlier exit legislation. This instrument makes some such changes and updates some earlier exit provisions to account for the Article 50 extension. As I have explained to the House previously, the errors in our exit legislation have been minimal. Of approximately 1,300 pages of financial services instruments, miscellaneous instruments have accounted for only 60, with these miscellaneous instruments used only partially to correct errors.
However, this instrument also makes substantive changes to earlier exit legislation in two key areas: first, to the contractual continuity and temporary permissions regimes for payment services; and, secondly, to transitional arrangements for financial benchmarks. These changes are not to correct errors but to strengthen our readiness for exit. We are continually reviewing our exit arrangements to ensure that they are as robust as they can be. In these two areas, we decided it is right to do more to protect UK consumers of payment services and to prevent disruption to firms and markets that rely on financial benchmarks.
An important aspect of our no-deal preparations is the temporary permissions regime, which will enable European Economic Area firms that operate in the UK via a financial services passport to carry on their UK business after exit day while they seek to become fully UK-authorised. We have also introduced run-off mechanisms via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, which were made on 28 February, for EEA firms that do not enter the temporary permissions regime or that leave it without full UK authorisation.
Part 3 of this instrument supplements provisions for the temporary permissions and contractual continuity regimes for EEA payments and e-money firms through changes to underlying payment services and e-money legislation and previous EU exit SIs. A review of this legislation has identified a limited number of provisions that require amending by this SI to ensure that these temporary regimes are as robust as possible. The amendments fall into two categories. The first is to ensure that EEA firms in contractual run-off can continue to carry out various payment-related activities as intended. This will include provision of payment and e-money services by EEA credit institutions such as banks. The second category applies to the temporary regimes for EEA payments and e-money firms. These amendments clarify and make more explicit the full range of permissions and obligations of firms that enter these regimes. For example, the amendments make explicit that an EEA firm in a run-off regime can legally redeem outstanding electronic money, making it clear that it can return any balance on an account to UK e-money holders. In a limited number of areas, the instrument makes FCA powers more consistent with the powers it has with respect to credit institutions in the run-off regimes, for example by making explicit that the FCA may publish a register of firms in contractual run off. These changes ensure that the FCA has proportionate powers to take action to protect UK consumers.
The second substantive set of provisions in this instrument covers changes being made to the onshored benchmarks regulations by the Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019, which the House debated in February. As they stand, these onshored regulations contain a transitional regime for third-party benchmarks, allowing UK entities to use non-registered third-party benchmarks until 31 December 2019. However, since these regulations were made, it has become clear that there will be a damaging cliff-edge impact when this transitional regime expires at the end of 2019, a point highlighted by the Secondary Legislation Scrutiny Committee in its report published on 3 October.
Very few third-party benchmark administrators have made applications to be registered, and only two equivalence determinations have been made by the European Commission, covering only seven third-country benchmarks. If we leave the EU without a deal on 31 October, benchmark administrators outside the UK will have insufficient time to make an application under the UK regime by 31 December 2019. This would mean that UK firms would no longer be able to use those benchmarks for new contracts and products, causing considerable market disruption. For example, loss of access to third-party foreign exchange rate benchmarks, such as the Indian spot FX rate, could prevent firms carrying out important risk-management functions, such as hedging their currency risk. Equally, the inability to use equity benchmarks, such as the Nikkei 225, may make it more difficult for UK investors to gain or hedge equity exposures. These instruments extend the period that the transitional regime applies by three years, from the end of 2019 to the end of 2022, ensuring that benchmark administrators outside the UK have an appropriate period to make an application under the UK’s onshored third-country regime.
Finally, I want to explain the amendments that the instrument makes to our onshored equivalence framework. These amendments are purely for legal clarity and do not change the policy approach to equivalence that Parliament has already approved. When making an equivalence determination after exit, the law needs to be clear about on which aspects of the UK regime a third country has equivalent provisions. For example, if Parliament were to approve a decision on a third country having equivalent insurance regulation to the Solvency 2 directive, UK law will be clear that this refers to the UK’s implementation of Solvency 2 as it stands when the equivalence decision is made.
Before I conclude, I should point out that this instrument was made and laid before Parliament on 5 September, under the made-affirmative procedure provided for in the EU withdrawal Act. This is an urgent procedure which brings an affirmative instrument into law immediately, before Parliament has considered the legislation, but this procedure also requires that Parliament must consider and approve such a made affirmative instrument if it is to remain in law. As I explained to the House last week, the Government have not used this procedure lightly and it must be remembered that, across departments, we have already laid over 600 exit instruments under the usual secondary legislation procedures. Indeed, of the 58 SIs that the Treasury has put before Parliament, only four have been made using this procedure. But as we draw near to exit day, it is vital that we have all critical exit legislation in place, including legislation necessary to ensure that our financial services regulatory regime continues to function effectively from exit. Industry and our financial regulators need legal certainty on the regime that will apply from exit if we leave the EU without an agreement.
I have spoken of my gratitude for the hard work that has gone into preparing our regulatory regime for exit in previous EU exit SI debates, and I repeat that thanks. I know that the Bank of England, the FCA and industry have greatly appreciated the Treasury’s constructive, collaborative approach to this task. The legislation we have put before Parliament has been very positively received by the industry and has done a huge amount to provide confidence and reassurance that the UK’s regulatory regime will continue to work effectively in all scenarios. Once again, I thank all those involved. I hope colleagues will join me in supporting these regulations. I beg to move.
My Lords, I thank the Minister for this introduction and also for sharing with us a draft of his speech. I appreciate that he us trying to be as helpful as possible, because this House is of course not involved in the various consultations. It is industry that gets the benefit of that. A point that I have made about when we get into non-Brexit legislation in future is that I think we need to have more consultation at the same time as industry.
As this is a financial services matter, I declare my interests as in the register. As the Minister said, this is a miscellaneous provisions SI, which have been thankfully rare from the Treasury. I repeat what we have said before: in general, the Treasury has done a very good job of converting the EU legislation into UK law and following a formula that we can generally see on all the documents as they come forward. I agree that it adds clarity and is a useful extension to previously defined transition periods.
I broadly welcome the provisions, in particular regarding the contractual run-off. It seems a very useful provision for the FCA to be able to list firms that are in contractual run-off, and it is very useful for consumers. I do not expect consumers to be wandering around the FCA website—I might do that and it is hard enough for me—but there are various consumer-oriented organisations, some of which make useful broadcasts to alert consumers to things.
They would find a use for that kind of information in circumstances where a consumer needs to be alerted: for example, if some provision is coming to an end or if the time is right for them to have to switch away from a provider that will not continue forever. It says that the FCA “may” do this; this is one of those occasions where I wish it said “shall”, because I regard this as essential and hope it is written with that spirit in mind.
I welcome the clarity on and extension to the transition period for third-country benchmarks. Benchmark regulation is still relatively newly within the regulatory perimeter—in fact, anywhere in the world. It is something on which the EU has largely been in advance of regulation elsewhere, so it is actually quite new for third countries to have to grasp the fact that they may need permissions and other approvals around their own benchmarks. For that reason I thought that the time provided previously was too short, so I welcome the longer extension. I do not consider this soft; it is highly necessary.
I notice that the conversion date in Regulation 20(2)(a) for those already in the system is 31 December 2019, the three months, I think, for an application for registration or authorisation of an existing EEA entity, benchmark or something of that nature. I query the wisdom of writing a date in. “Three months after exit day” might have been more sensible, in case there is a delay to get some kind of deal, particularly one to 31 December 2019—I suppose that if that fell through we would have to reamend, although I hope that that is a circumstance we do not have to entertain.
I kind of welcome the clarifications around equivalence. It is always difficult if you say, “Saying we are equivalent on Solvency II relates only to Solvency II and not other things”, because there is a great deal of entanglement. There will be bits to do with MiFID and bits to do with other things that have either amended, imported or applied Solvency II. Where there are explanations regarding this, to say, “Just Solvency II” could lead people astray. You have to make it clear whether, if you are finding them equivalent on Solvency II, that means that any related bit to do with some other obligation somewhere else that you have to do if you are an insurance company has also been taken account of. Again, that is where the web of legislation, made more complex by the way in which we have imported and amended it, and the absence of checklists and correlation tables about what is where, will make it very difficult for industry and any practitioner to follow. It will also be quite difficult for those seeking equivalence decisions. I have no objection to what is being done, but I fear that on equivalence and clarification it will need revisiting at some point in a more generic way.
My Lords, I will be brief thanks to my noble friend Lady Bowles, who takes all the pressure and burden off my shoulders. I thank her very much. I also thank the Minister for his clarity and advance notice of his speech. I want to bring up a couple of issues. As with my colleague, it seems to me good sense to follow the tactic of contractual run-off. That that was not in one of the earlier SIs was probably an oversight given the volume that the Treasury has had to deal with, and I do not think that anybody can raise too many eyebrows at that.
I want to focus a little more on the third-country benchmarks, because I wonder whether that really was an oversight. The UK may have assumed that third countries would stand in line so that, on the first possible day that they could have a discussion on recognition of benchmarks, they would be knocking at our door and begging to be able to go through the process. It has been a rather salutary experience to find that many countries have not been all that concerned about standing in line to make sure that they continue to be able to use London for a wide range of their activities—most of them are exploring alternative markets fairly vigorously and with quite a bit of enthusiasm. Making it easier and taking away some uncertainty for a period of three years therefore makes great sense, but I suspect that the initial thought was that London was so necessary to everybody that it could not be replaced by anyone in any way and consequently did not have to think carefully about providing the opportunity now covered by this SI.
That brings me to the issue of equivalence which the Minister mentioned, although I know it is not essentially embedded in this SI. He said that the UK almost from the moment we leave—if Brexit happens—would begin potentially to diverge. Different interpretations and different rules might come under the umbrella of Solvency II, but their UK life would be different from that for the 27 countries within the European Union. That is one of the things that worry me more than anything else. While all these measures focus on the UK discussing how it will allow EEA firms to continue to use London, the real issue is whether UK-based firms can continue to service clients across the EU, because that is obviously where the overwhelming majority of the client base is.
Let us look at insurance. Commercial insurance is the most significant part of that industry and the overwhelming majority of its clients are EU 27 companies. I have no idea whether any relaxation in terms has now been offered by the EU that is greater than the original temporary permissions. As I remember, most of the temporary permissions from the EU expire next March, so potentially we are looking at some fairly rough waters. If the Minister is making a statement that underscores the expectation that the UK will have a different interpretation or will step away from our common heritage quite rapidly after Brexit, he is doing a great deal to diminish any willingness on the part of the European Union to extend temporary permissions or to consider that the terms are being met for equivalence. I counsel him to think carefully before flagging up an intention to create divergence, when such divergence is largely at a cost to the UK financial services.
My Lords, I welcome the Minister to the Moses Room. I do not know whether he has done any propositions here before, but I hope he is not overwhelmed by the number of Peers in attendance.
The Liberal Democrats are blessed with people who understand this industry. I am afraid that the Labour Opposition is blessed with me; I do not know the industry and have had to slog through the Explanatory Memorandum to try to understand what it is all about. I note the Minister’s praise of the Treasury staff and others involved in its creation. As a constant critic of Explanatory Memorandums, I also extend praise, because slotting together these 58 SIs must have been a dreadful task. Nevertheless, I fall back on reading the Explanatory Memorandum and hope I add some rigour to the exercise by insisting on explanations where the plain language has failed to get the information across to me.
The first issue I raise is in Regulation 1(2) itself, which says:
“This regulation and regulations 2 to 7”,
“come into force the day after the day on which these Regulations are made”.
By my understanding of the “made affirmative” process, that means they are actually in force now—I stand to be corrected on this. One of the problems we have had all the way through is that this is a so-called no-deal SI, so what happens to the parts of the regulations which are now in force if in fact we get a deal? Will they be repealed, when and by what mechanism?
Plunging into the Explanatory Memorandum itself, the first place I paused was paragraph 2.5. Here, there is an amendment to FSMA,
“so that the Financial Conduct Authority … can, if necessary, be exempt from consultation requirements where an urgent change to BTS is needed to protect UK consumers. The ability of the FCA to make urgent rule changes, where necessary to protect consumers, is an important crisis management tool in the UK regulatory framework”.
I always worry about these urgent tools where consultation is abandoned. If it is important and about a crisis, and if there is no consultation because of the timescale, is there subsequent consultation? Should amendments made under these circumstances be subject to some sort of review process?
The next area I will look at is paragraph 2.6, which says:
“Updates are necessary to take account of EU amendments made to the CRR which became applicable in June 2019. The CRR cross-references to be updated are in domestic legislation concerning the recovery and resolution of banks, and the reorganisation and winding up of credit institutions”.
For my sins, I have been involved in this legislation over the past several years and know that this is really important stuff. Is it possible to give me some sort of feel as to what these changes effect? Clearly I could go back through the many documents, but it would be useful if the Minister could give a short explanation.
The next area I tripped up on was in paragraph 2.7, when I was happily reading through the document. Clearly there was a problem, and here was a solution. The end of paragraph 2.7 says:
“A review of this legislation has identified a limited number of provisions which should be amended in order to ensure these temporary regimes operate as intended from exit day”.
That seemed to me a pretty sensible idea, until I read the explanation over the page, at paragraph 2.9(i), which states that the regulations,
“ensure that relevant funds of payment service users and e-money holders continue to be prioritised above the claims of other creditors as they are currently, in the event that these firms enter a UK insolvency procedure”.
That seems to me, as a non-expert, to be a pretty significant impact on insolvency law. Am I right that it amends or influences the appropriate insolvency law, and is it accepted that this is quite a significant impact? It seems entirely sensible and I cannot quibble with it; I just worry that it is a little paragraph in an instrument that amends an instrument, and so on. Have all the implications been taken into account, or is it a more straightforward situation that there was some ambiguity and it is merely eliminating that to a minimum of ambiguity?
Later in the document, paragraph 2.16 introduces the MAR, which is about market integrity and investor protection. Clearly this is very important. I do not understand how the MAR works. It seems that it must relate to criminal law, because any insider trading and so on presumably has a criminal consequence. But the paragraph goes on to specifically explain that this removes any ambiguity as to whether overseas territories are involved. First, I do not understand who the overseas territories are; I knew the definition once, but I would like it repeated just to clarify things in my own mind. Secondly, do we have the appropriate law to intrude into overseas territories to make sure that the MAR has the right impact?
On the benchmark issue, Liberal Democrat colleagues have drawn out the issue in paragraph 2.25 of the poor rate at which other authorities have sought to administer. I too shuddered a little at this. Is it an indicator that London will have a diminished status after a no-deal Brexit? Is our feeling that Europe cannot manage without London justified? This is the first direct reaction to it, and it is almost as though the importance of London is being ignored.
Finally, I have a little quibble about paragraph 3.1. I try to be nice to civil servants, but that paragraph explains that the “made affirmative” procedure is being used because it is urgent—and if you then look at the schedule at the back, it explains again why it is urgent. However, the only reason it is urgent is because the process was started late. Are there good reasons why the process was late to begin with?
My Lords, I thank noble Lords for a lot of scrutiny of this set of incredibly technical SIs. I appreciate the time and consideration that has gone into examining them. I also thank noble Lords for their warm welcome to me in the Moses Room because it is indeed my first time. However, I like and welcome the more intimate and friendly nature of the debate here. Many specific and technical questions have been put, so I hope that I will be forgiven if I go through them systematically and share some answers in the best way possible.
On contractual run-off, I welcome the view of the noble Baroness, Lady Bowles, that the creation of this device is helpful. It has been warmly received by the industry. When it was explained to me, I wondered why we did not have it in the first place, so I am pleased to see it. I completely understand and can convey the noble Baroness’s point on changing “may” to “shall” to the Treasury; I will pass it on to officials. The noble Baroness also queried the date on benchmarking—that is, changing it from a fixed day to perhaps a more flexible one; the noble Lord, Lord Tunnicliffe, also referred to this. Again, I will convey that point to officials because it seems an extremely sensible suggestion.
Let me say a few words about equivalence. The noble Baroness is right: what the third parties are equivalent to must be extremely precise. We will review this in the longer term but, for the moment, we must prioritise getting something prepared for a potential no-Brexit date, so we are working on a shorter term. However, we will not lose sight of the need for that precision in the long term, so we will revisit it.
The noble Baroness, Lady Kramer, asked about third-party benchmarks and why we had not spotted the benchmarks issue earlier. I assure the noble Baroness that it was not a question of not spotting it because it was very much on the radar screen. However, there is an issue right across the EU around putting in the regulations for third-party benchmarks. In particular, they are newly more important and the problems that we have faced flow from new EU regulations, not from the UK’s approach. We have been playing catch-up during the drafting of these SIs and I think that we have reached a place where we now feel much more confident than before.
I turn to reciprocity. Again, I assure the noble Baroness, Lady Kramer, that onshoring has kept divergence to a minimum, as she will know and as we have discussed in the House a couple of times. The UK provisions that a third-party country will need to be equivalent will, in substance, be exactly the same as the EU provisions, so the question of whether firms based in the UK will be able to trade as normal in the EU will, we believe, be substantially secure in the case of no deal. I also take confidence from some of the progress that has already been made in our negotiations with EU member states. I cite two or three examples. The first is the granting of temporary equivalence in recognition of UK CCPs and CSDs. The second is the decision of ESMA to approve MOUs to include provisions to allow the cross-border delegation of portfolio management between the UK and the EEA. The third is the EIOPA recommendations, which call on relevant member state regulators to put in place measures that aim to minimise detriment to insurance policyholders. I believe that that was an error referred to by the noble Baroness. Certain member states, particularly France, Germany, the Netherlands, Sweden, Finland, Italy, Luxembourg and Ireland, among others, have also announced various contingency measures. We are reassured that there is a commitment on the part of our EU partners to ensure that trading continues and that there is not some kind of problem should a no-deal Brexit occur.
The noble Lord, Lord Tunnicliffe, asked a number of characteristically focused questions. I will tick some of those off, if I may. There was a correct question about commencement. Yes, some of the measures are in force because of the procedure used to lay and make them. They are in force right now and, if a deal is secured, we expect that any provisions in EU exit SIs due to commence on exit day will be deferred until the end of the implementation period. That would be achieved by legislation used in ratifying the deal. We are keeping an eye on all these loose ends and they will be rolled up in the ratification process. Some provisions in exit legislation have already commenced—for example, our temporary permissions regime, which enables firms to apply now to be covered by all of the regimes covered by these SIs in time for exit. Any provisions that have commenced already will need to be amended appropriately to cater for any agreement reached between the UK and the EU.
The noble Lord also asked about the urgent and crisis procedures, quite understandably. He asked whether there was any way that they could be reviewed after they have been implemented or consulted on. The particular amendment in these regulations does not introduce any urgent procedures itself. It enables the FCA to use a provision that it already has in the Financial Services and Markets Act 2000 to dispense with consultation requirements when an urgent rule change is needed to protect consumers. Since it is already on the statute book and the procedure already exists, there was not felt to be a strong need for further consultation in this case, but we have continued to engage with regulators in the industry on our exit legislation, including instruments made under the “made affirmative” procedure, and we are keeping all the exit legislation under review. The noble Lord makes a good argument for potentially revisiting all this in the case of a no-deal Brexit to ensure that the provisions made under the urgent and crisis procedures remain relevant and of the best quality.
On paragraph 2.6, and the question of what these regulations actually do, I will try to explain. Regulations 2(3), 3, 9 and 12 update cross-references in various pieces of domestic legislation to the UK’s onshore capital requirements regulation to ensure that these references continue to function after exit. These amendments are purely about updating cross-references in legislation and do not change the substance or policy of the regulations concerned. After exit, we cannot continue to refer to EU legislation. We must refer to equivalent provisions in UK law.
Paragraph 2.7 was another area that invited a question. The noble Lord, Lord Tunnicliffe, asked about “as intended”. That stray phrase refers to the intention in the originating legislation—the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019—which introduced temporary run-off regimes for EEA credit institutions, payment institutions and e-money institutions with pre-existing contracts. The intention was that they could continue to service pre-existing contracts for a limited period. This instrument ensures that they will be able legally to provide the full range of services that may be required under pre-existing contracts.
The noble Lord, Lord Tunnicliffe, asked about insolvency and whether these regulations would have a big impact on insolvency law. I confess that when he put it to me, it made me lift my head and wonder the same question—for instance, by changing the order of claimants on assets. I assure him that that is not the case. The amendment continues to prioritise the claims of customers, for instance against payment firms in a UK insolvency procedure. That totally protects UK consumers of EEA firms in a run-off as currently required by the European payments regulations, and will be transposed into UK law. Currently, if an EEA payment or e-money institution becomes insolvent, UK customers would enter a single insolvency procedure in the firm’s EEA home state. In the event of a no-deal Brexit, there is the potential for an additional UK insolvency procedure. From what I understand, that actually enhances the security of UK customers.
The noble Lord also mentioned the market abuse regulations in paragraph 2.16. He asked whether they cover criminal offences and asked about overseas territories. I cannot reel off the 16 overseas territories off the top of my head, but I would be happy to send him a link to that list. With reference to paragraph 2.16, I assure the noble Lord that this is about ensuring that existing criminal offences continue to apply as they do now once the UK is outside the EU’s jurisdiction; it is not about creating any new criminal offences. Overseas territories—for example, Bermuda—are currently within the scope of the EU’s market abuse regulations for activities carried out in the EU, so the regulations ensure that they continue to remain within the scope of the UK’s post-exit market abuse scheme.
Lastly, both the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, asked about diminished status, which is a difficult issue to address because we do not know what is happening in the negotiating room. This Government and, I think, everyone in this Room, very much hope that a deal will be done. It is very much the intention behind the SIs and the entire thrust of government policy to ensure that, even under a no-deal Brexit, the financial services industry will be protected and will not suffer diminished status. We very much hope that these measures will achieve that objective.
Prospectus (Amendment etc.) (EU Exit) Regulations 2019
Considered in Grand Committee
That the Grand Committee do consider the Prospectus (Amendment etc.) (EU Exit) Regulations 2019.
My Lords, the Government have previously made all necessary legislation under the EU withdrawal Act to ensure that, in the event of a no-deal exit on 29 March 2019, there was a functioning legal and regulatory regime for financial services from exit day. Following the extension to the Article 50 process, new EU legislation has become applicable. Under the EU withdrawal Act, this legislation will form part of UK law at exit. Additional deficiency fixes are therefore necessary to ensure that the UK’s regulatory regime remains prepared for exit.
This instrument amends the EU prospectus regulation and related legislation, including a previous EU exit instrument—the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019, or the official listing instrument. That instrument, which was debated back in February, fixed deficiencies in the EU prospectus regime prior to 29 March 2019. However, on 21 July 2019, the new EU prospectus regulation applied in full across the EU, replacing the existing regime.
The EU prospectus regulation contains the standardised rules that govern the format, content, approval and distribution of the prospectus that issuers may need to produce when securities are offered to the public or admitted to trading on a regulated market in an EEA state. Deficiency fixes to the new EU prospectus regulation are necessary to reflect that, after exit, the UK will be outside the EU single market and the EU’s regulatory and supervisory framework for financial services. Where appropriate, the amendments in the instrument follow the same approach as the prior amendments made in the official listing instrument to the UK prospectus regime. Overall, this instrument will ensure that the UK will continue to have an effective prospectus regime after exit.
First, after exit, EEA issuers wishing to access the UK market will be required to have their prospectus, or their registration document, approved directly by the Financial Conduct Authority, as any other third-country issuer would. Currently, an EEA issuer’s prospectus or registration document can be passported for use in the UK once it has been approved by an EEA regulator. To provide continuity, this instrument introduces transitional arrangements that will allow a prospectus approved by an EEA regulator and passported into the UK before exit to continue to be used and to be supplemented with additional information until the end of its normal period of validity.
Similarly, the instrument permits registration documents—the part of the prospectus that contains information on the issuer—that are passported into the UK before exit to continue to be used as a constituent part of a full prospectus in the UK. However, the full prospectus will still require FCA approval after exit. For both a full prospectus and a registration document, the period of validity is usually 12 months after it was originally approved. I should stress that the Government have worked very closely with the FCA in preparing this instrument. The FCA is confident that it has the appropriate level of resource to manage its responsibilities, including the approval of prospectuses as of exit day.
Secondly, the exemption for certain public bodies from the obligation to produce a prospectus under the EU prospectus regulation is maintained but is extended to the same set of public sector bodies of all third parties after exit. This exemption is limited to certain types of securities issued principally by Governments, central banks, local or regional authorities of a third country and public international bodies of which a third country is a member, such as the Nordic Investment Bank. This approach is in line with the approach previously taken in the official listing instrument. Noble Lords will remember that this issue was deliberated during the debate on that instrument in February and, as then, while this is a change from the current limitation to EEA states only, I believe it makes sense to extend this exemption more broadly. This will ensure UK capital markets continue to be attractive to public body issuers, which have historically raised substantial volumes of capital in the UK. We estimate that in 2016 and 2017 at least $84 billion was raised by public bodies making use of this exemption.
It is also important to remember that the EU prospectus regulation is not the only protection in place for those looking to invest in securities. Most significantly, the marketing and promotion of securities will remain subject to the financial promotion restrictions set out in the Financial Services and Markets Act and overseen by the FCA. The EU prospectus regulation allows issuers to incorporate information from certain documents that are available electronically elsewhere by making reference to them in a prospectus. This includes documents approved by the regulator of another EEA state. To provide continuity for market participants, this instrument sets out that information contained in the relevant documents approved by an EEA regulator before exit day can continue to be incorporated by reference in a UK prospectus going forward. However, the FCA will still need to approve any prospectus that incorporates information in this way before it can be used in the UK.
Lastly, this instrument ensures that matters in relation to the UK prospectus regime and transparency framework will continue to apply to Gibraltar, as they did prior to the UK’s departure from the EU. This is in line with the approach taken in other EU exit instruments.
As with all our EU exit legislation on financial services, the usual consultation process has not been used. It would have been unfeasible in the time available to prepare for exit. Nevertheless, the Treasury has engaged extensively with the financial services industry, particularly through TheCityUK, to develop our exit legislation, including this instrument. TheCityUK was supportive of the approach taken and helped to improve the clarity of the instrument.
Before I conclude, I want to address the procedure under which this instrument has been made. It, along with three other financial services exit instruments, were made and laid before Parliament on 5 September under the made-affirmative procedure provided for in the EU withdrawal Act. As described earlier, this is an urgent procedure which brings an affirmative instrument into law immediately, before Parliament has considered the legislation, but the procedure also requires that Parliament must consider and approve a made-affirmative instrument if it is to remain law. The Government have not used this procedure lightly but, as we draw near to exit day, it is vital that we have critical exit legislation in place. It would have been inappropriate to leave this until the last minute. Industry and our financial regulators want legal certainty on the regime that will apply from exit.
In summary, this Government believe that the proposed legislation is necessary to ensure that the UK’s prospectus regime can continue to function appropriately post-exit if the UK leaves the EU without a deal. I hope that noble Lords will join me in supporting these regulations, which I commend to the Committee.
My Lords, I thank the Minister for his introduction to the statutory instrument and also for his previous email contacts. As has been said, the delay to Brexit has brought another EU regulation into scope and, given that it is a regulation, it is already directly applicable. As usual I must declare my interests as in the register and especially as a director of the London Stock Exchange. I think that prospectuses are slightly relevant there.
All the usual concerns that have been voiced previously, often by the noble Lord, Lord Tunnicliffe, and my noble friend Lady Kramer, as well as me, about the complexity of following the state of play of our UK legislation apply. In statutory instruments such as this, which is a second round of amendments, they seem to bear more heavily than usual. It is rather unfortunate that the word “regulation” applies at so many different levels. It is easy, even for someone like me, to wonder which regulation it is: is it the EU regulation, is it one of the regulations that we have done for Brexit, or is it an individual regulation within a set of regulations? That is not helpful, but there is not a lot we can do about it, other than choose a new name.
On content I have little to complain about, given that the regulations seem to follow the usual logical pattern, but there are a few things to which it is worth drawing attention. Much as it is probably well known that, in many instances, I have reservations and consider IFRS to be unfit for purpose as applied to company level accounts, for reasons that I have elaborated in detail to the Kingman and Brydon inquiries—they relate to things such as solvency and conforming to company law, so they are quite fundamental—IFRS are nevertheless important at group level and in the context of listing companies from major overseas countries in the UK. So, I am pleased to see that existing equivalence provisions are to be maintained, although not in this instrument.
As I have said before in relation to IFRS, quite a lot of countries have tweaked it, often in ways that perhaps we should have done. Australia and Japan are examples. It is important not to be overly hung up about this UK-endorsed IFRS. That ties in to the debate about what we mean by equivalence. I sweated blood to get the equivalence provisions into most of our legislation, it being something that the UK wanted the EU to have on a global basis. The idea was that it would be a more broad brush thing—that it was outcomes-focused, and did the same thing—rather than the kind of detailed, line-by-line analysis that is how the EU has ended up applying it. Many speeches have been made about this in Europe, by me and others, saying that that was not how it was intended. I feel that we are falling into that trap a little bit ourselves. I can understand how industry wants to say, “If you can point to everything, therefore there must be equivalence”. Of course we know that equivalence is politicised when it comes to the EU. It may not give the UK equivalence on things where we have exactly the same law because it just does not feel like it or it fears that we are going to be Singapore-on-Thames or whatever. I just feel that we are being quite picky in our definitions. This came up, in relation to the Solvency II example in the previous debate, in the context of knowing exactly what we are equivalent to. We are losing the flavour of what equivalence has always meant in the UK context. That is in the box of “There is a debate to be had about equivalence”, which makes clearer to us what we are aiming at. In the context of wishing to maintain a centre for global capital markets, we should have the usual UK outcomes-focused version of equivalence and should not tie ourselves up too tightly.
I have a question of which I gave notice to the Minister. What happens if the FCA spots a flaw in a prospectus that has been passported in in the period where we have left the EU but it can be used? One answer might be that the FCA will not look at it because it has been passported in, so nothing will ever be spotted. These things happen, and while we were in the EU there was always a back route to get some kind of correction made inside the EU through contacting the regulator, through ESMA or however it was going to be done in some informal way. My common sense tells me that if there is some kind of material change that would provoke some kind of supplemental disclosure, but I wonder where in a legal text it says that the FCA could ask for that top-up in that period. When we were in the EU, it would have said, “You are not allowed to do it; it is passported”, but we are in this special hiatus moment, which could last for nigh on a year, in which there might be something.
Other specifics that I noted relate to the annual registration document, the incorporation of information by reference, the Gibraltar provisions and the transfer of functions to the UK. They all seem to be in proper order. They relate to the new regulation and to things that we need to put right. As far as I can tell, they follow the usual logical path.
On the extension of the public body exemptions, we have to face a choice: do we shrink to UK-only, do we extend globally or do we keep it exactly the same in policy terms and make something special for the EEA when it is not necessarily making something special for us? I think that it is the right approach for a global capital market to have the same exemption as is already in the official listing instruments, and that we look globally. I am sure that concerns could be raised that central banks are not all equal everywhere—the noble Lord, Lord Tunnicliffe, and I have had this debate with previous Ministers—but here one is looking at a sophisticated market. Still, it would be nice to know what caveats had been thought of for some of the lesser known public bodies that this might include.
My Lords, I begin by sharing an area of disagreement between myself and my colleague, despite the fact that she is far more expert in this area than I am. I pick up the issue that she raised at the end of her speech: the extension of the prospectus exemption for public bodies. I would like to hear from the Minister what risks he thinks we are taking on board as a consequence. There is a rationale to allowing the other members of the EU in effect to use our marketplaces without a prospectus: we know them all; we all participated in the same membership structure of the EU; every one of them is a democracy; and their financial services and most of their activities are governed by laws that are either common or very close to ours. So we have a very high level of confidence in the integrity of the bodies involved.
From reading this extension, I need to ask the Minister this. Presumably, as it reads as such, if President Assad of Syria were to decide to use the capital markets to raise some additional funds to prosecute his current war against those whom he considers rebel forces within Syria—he has joined with Kurdish forces—it will not be a problem. They can come to the UK; the law basically says yes. It is the same for a long list of countries including Saudi Arabia and Yemen. It seems a big step to have taken and not one that was extensively discussed in Parliament. I have raised this before, but never had much of an explanation or any analysis of the risks entailed. It is important that the reputation of our capital markets here continues to be protected. I know there are forces who want to see regulatory dilution—which noble Lords often talk about—who have a much more casino attitude towards financing and who love the idea of all the buccaneers being able to come in and use British markets while we make money from them. I raise those issues as they are genuine concerns that need to be addressed.
I want to address a related issue. Look at some of the fintechs. I am thinking particularly of crowdfunders, but this could apply to many others. The dominant crowdfunders across the European Union have typically been UK-based. The big four have been raising money for everything from charities to small businesses—but they are critical to start-ups and small businesses—from investors across the 28 countries of the EU. They are raising money not just from the UK market but from Estonia, France and Germany. That has been crucial to many of our small businesses and start-ups.
I now understand that, with the removal of passporting, the e-commerce directive and now the prospectus directive, they no longer have a mechanism that enables them to raise that funding. If we no longer have in common a single prospectus that operates across the 27, their ability to raise funding across the 27 is reduced to raising money from the one. There are consequences to that, which I wonder whether the Minister might address. I think all the four that I named have now set up an alternate location within the 27, so I suppose we can expect a shift of business out of the UK or a cost from running two operations, one in the UK and one outside. But it will make it difficult for new players in the crowdfunding arena to start up within the UK. It will be far more logical to set up somewhere within the 27 —Berlin being one of the most attractive locations. Those questions have to be addressed.
I want to pick the Minister up on equivalence. He made the point—which I think is right and fully accept—that the purpose of most of these SIs is to make sure that, at the nanosecond we leave, nothing has changed in the rules and regulations that people follow. I understand that but, initially, these conversations took place in the context of Mrs May’s intentions for a long-term relationship with the EU. It was one where we remained very close to the single market, with only rare circumstances in which there was an overweening reason to diverge. We are now, I understand—the Prime Minister has been very open about this—in the very different situation where divergence is the intent and leaving is in fact seen as an opportunity to break away from being close to the single market. Therefore, suddenly the issues of equivalence become much more difficult and complex. Although there has been fairly limited concern about long-term reciprocity—there are various temporary arrangements that run, typically, for only a matter of months—it is now becoming far more serious. That is why, on this side, we are constantly raising equivalence as an issue. It would be very wrong to assume that it is a given.
Perhaps I may pick up and address in a slightly different way the point that my colleague made. She basically explained how originally equivalence was meant to be much more focused on outcome rather than actual rules, but the EU is a rules-based organisation. It will not change the way that it works just for us. We might say that we are happy to give equivalence where we think there is equivalence in outcome. That is fine but, frankly, most people do not care very much about getting an equivalence decision from the UK. It is a pretty small market. However, we do care about getting equivalence decisions from the EU. The situation is not symmetrical. The EU has the customer base and the cash, and it uses the many instruments that London wishes to provide. Therefore, I point out that a lot of complexity is entangled in all this and, although this matter does not relate narrowly and directly to these SIs—except, for example, as in this one, where the removal of any mutuality in the prospectus directive is an issue—a lot of questions are embedded in all this.
My Lords, I thank my Liberal Democrat colleagues for ranging in an interesting way over many of the issues relating to SIs in general and to this one in particular. We seem to have converged on one or two of the same ideas. I have of course slavishly worked through the Explanatory Memorandum in an attempt to understand it, and I quite enjoyed this one—you have to have some peculiar tastes to be here—until I got to paragraph 2.14, where a problem was being explained. The paragraph says:
“This decision was made to provide continuity for market participants after the UK leaves the EU and comes into effect on exit day. To maintain this continuity, this Direction will be amended to refer to the EU Prospectus Regulation”.
There is then the astounding sentence:
“This amendment is not contained within this instrument”.
At that point, my ability to read the document failed, because it explained a problem and then said that we are apparently not going to do anything about it. I hope that the Minister can enlighten me on that. Apart from that, I have only a couple of points to make.
To show my naivety, it was not until I got to paragraph 2.18 that I was informed that the prospectuses have three constituent parts—a registration document, a securities note and a prospectus summary—so I am now better informed. However, having explained how things are passported and so on, paragraph 2.20 then says:
“However, a prospectus that contains one of these registration documents will still require FCA approval for the securities note and the prospectus summary”.
I accept that it is my lack of understanding, but I cannot for the life of me see why one of the three is treated in one way but the other two are treated differently, so I would value an explanation.
We have all alighted on the same issue set out in paragraph 2.26: the exemption for public bodies being extended, apparently, to public bodies of the whole world—not “apparently”; that is what it actually says. At first I thought that this exemption must be discretionary, because there must be some public bodies where you would want a pretty solid prospectus. This would seem to allow some small town in Zambia or Zimbabwe to benefit from this exemption, so I would be very grateful if the Minister could spell out what the safeguards are for this, because it could lead to quite serious risks if there are not appropriate ones.
I have a final word for this process. I hope that this is the last Treasury no-deal SI. I would be really happy to see some nods from officials—I see none of them moved. I assume it is, at least. It seems that while they are all terribly complex, they all boil down to two ideas. The first is what I would loosely call “competence transfer”. Over and again, we were told which body does it now and which body will do it in the future. There is loads of cross-referencing to make things work; if you slung hard enough, you could see how it worked.
The other thing that is consistent through many of the SIs is the creation of a transition arrangement, but these transition arrangements are all asymmetric. They allow EU firms to carry on trading in the UK under one set of rules or another, but they do not preserve any rights for UK firms trading in the EU. It is perfectly clear why—we can only influence what we influence—but it is a sorry state of affairs. It points to a future where the UK is a second-class participant in the European financial services industry. Leaving the EU without a deal will have a catastrophic effect on the City of London’s financial sector. It would be an irresponsible act of gross self-harm. We, the Labour Party and the Lib Dems, have slogged our way through 58 SIs and have co-operated in passing them because we accept the fact that, without them, the effect would be even worse, but it is with a heavy heart that we have done so. As we say goodbye to these SIs, I pray that they are never used.
I thank noble Lords again for an incredibly detailed analysis of a complex but very important SI. I share the small prayer made by the noble Lord, Lord Tunnicliffe, at the end there. I look forward to the end of this debate to find out whether his prayer has been answered in the ongoing negotiations. In the meantime, we will put prayer to one side and focus on trying to secure this SI. I will talk about some of the very detailed things that were raised but also some of the larger things.
On equivalence, I completely understand what the noble Baronesses, Lady Bowles and Lady Kramer, and the noble Lord, Lord Tunnicliffe, are talking about in terms of the ongoing regime. The strategy is very much that, under a no-deal scenario, which would be hugely regrettable and is not government policy, there is the largest amount of alignment possible with the current situation to provide market security and avoid any kind of cliff edge or calamity. That is very much the view supported by regulators, by industry, by government and by our partners in the EU. What kind of regime the City will have after that will be a matter for a debate that will occur here in Parliament, principally. There remains on the statute book a huge amount of protections for the City. They are not addressed in this or any of the other SIs, but I reassure noble Lords that the debate will be lively and will engage everyone involved in the financial services industry. This SI is simply trying to protect the industry in a no-deal scenario. That is its intention; it does not seek to creep further than that.
For those who wish to engage in the technical debate on equivalence, can I share a little advertisement from my Treasury colleagues for an important consultation that they are undertaking? They are issuing a call for evidence on a long-term review of the regulatory framework and the key issues which we will need to consider for a regime which operates outside of the EU. For those who wish to engage in a formal review, this is a wonderful platform and opportunity. We should be very happy and thankful to hear noble Lords’ views on the future of equivalence as part of that process.
I emphasise that it is very much the intention of the Government, in a deal or no-deal scenario, to work closely with EU member states. There is nothing in this SI, or in the strategy that it is part of, that precludes or in any way diminishes the determination of the Government to work with other EU states to have the best possible regulatory framework for the financial services industry.
Moving on to one of the detailed questions raised by the noble Baroness, Lady Bowles, she asked what would happen when there were flaws in a prospectus that has been passported into the UK prior to the UK’s departure, given that the recourse to the original approving regulator would be different or gone. The answer to a seemingly short and straightforward question is a little long; I have two or three of these, for which I apologise, but let me give noble Lords the full answer.
Under the EU prospectus regulation, if a significant new factor, material mistake or material inaccuracy which may impact on the investors’ assessment of the securities being offered arises, the issuer must produce a supplement to the prospectus or the registration document to address this. Currently this supplement must be approved by the relevant EEA regulator. The transitional provisions introduced in this instrument mean that prospectuses passported into the UK prior to exit day will be treated as if they were originally approved by the FCA. However, after exit, this means that the FCA will be required to approve any supplements for prospectuses or registration documents that are passported into the UK prior to the UK’s departure.
I hope that that addresses the question. I am happy to share that document with the noble Baroness if she wishes, as it is quite detailed.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, raised questions about the extension of public body exemptions to all third parties. I will provide a little reassurance on that point. This is absolutely in no way a dramatic loosening of the regulatory regime to allow some kind of Learjet sales bonanza for crackpot securities to bonkers regimes. There is an extremely strong financial promotions regime already on the statute to which all these securities will remain subject, set out in instruments such as the Financial Services and Markets Act, which, as noble Lords will be aware, imposes strong restrictions on the marketing and promotion of securities. This allows existing arrangements with EEA countries to roll over. It is not possible under global trade arrangements to provide favourable treatment for EEA countries over other third-party countries. This is a natural and necessary extension, and it will be held under very close review. We have worked closely with the FCA in drafting this instrument to ensure that investors remain suitably protected. We believe that this approach offers the most appropriate balance.
Can I just ask a favour of the Minister? It seems that the protection is the prospectus; that is exactly what is being tossed out. Might it be possible to provide us later with a note that directs us to the various protections? That would be helpful.
I am very happy to provide that, and we will make sure that the noble Baroness is sent that material.
The point I was really trying to make is that the FCA is fully aware of this change in the regime and has put in place the resources necessary to track and review this important development. On the specific case of Syria, which is an extreme example of the natural concern around this point, I assure the noble Lord that these public bodies will not be allowed to be used to break international sanctions or criminal law.
On crowdfunding, the noble Baroness, Lady Kramer, asked about the potential loss of prospectus passporting. I assure her that the loss of prospectus passporting will not prevent any organisations, such as crowdfunding organisations, raising funds in the UK as well as the EU. It is just that any prospectus will need to be approved in the UK by the FSA; that is the principal change.
The noble Lord, Lord Tunnicliffe, asked a couple of short but precise questions for which, I am afraid to say, there are long answers; I will just trot through those. He asked about paragraph 2.14 and the update to the existing equivalence direction. This instrument transfers the power from the European Commission to Her Majesty’s Treasury to make equivalence decisions in respect of the EU prospectus regulation as of exit day. Such determinations are to be made through statutory instruments and are therefore subject to the usual parliamentary scrutiny procedures. If equivalence decisions were laid before Parliament on exit day, there would be a lag between their application in UK legislation and exit day itself. I hope that answers that question.
Secondly, on paragraph 2.20, he asked about the difference between the transitional provisions for registration documents and others introduced by this instrument. I will share with noble Lords a slightly long answer. Under the EU prospectus regulations, there are separate passporting regimes for registration documents and prospectuses. Given this, the instrument introduces separate transitional provisions for registration documents and prospectuses passported into the UK prior to the UK’s departure from the EU. However, the effect of these transitional provisions is almost identical. That is, they provide that documents approved by an EEA regulator and passported into the UK prior to exit will remain valid for use in the UK until the end of their normal period of validity. However, registration documents are valid only as a constituent part of the prospectus. Any prospectus that utilises a passported regulation document in the UK will still require FCA approval. On that note, I think we have drawn to a close on the questions.
Committee adjourned at 7.28 pm.